DH_GB_2008_Innenteil_E.qxd:Hypo ... - Deutsche Hypo

ANNUAL REPORT 2008
DEUTSCHE HYPO
ANNUAL REPORT
2008

KEY FIGURES ➞

DEUTSCHE HYPO AT A GLANCE
Business progress figures
2008 2007 Change
€ millions € millions %
Mortgage loans 1,779 2,693 – 33.9
Capital market transactions 2,279 4,735 – 51.9
of which public-sector loans 880 2,124 – 58.6
Loan drawdowns 4,395 6,816 – 35.5
Initial bond sales 3,561 5,965 – 40.3
Balance Sheet figures
Mortgage loans (including interest) 9,094 8,544 6.4
Public-sector loans (including interest) 10,616 12,071 – 12.1
Securities 12,122 12,067 0.5
Borrowed funds 34,757 34,203 1.6
Equity (excluding distributable profits) 1,023 834 22.7
of which: Core capital 686 496 38.3
Total assets 36,047 35,430 1.7
Profit and Loss Account figures
Net interest and commission income 118.3 111.9 5.7
Administrative expenses including depreciation allowance 39.4 35.7 10.4
Result from ordinary business activity – 3.0 49.3 – 106.1
Net income for the year 0.6 36.7 – 98.4
Other information
Dividend per unit share (in €) *) - 1.10 -
Return on equity before tax **) – 0.5 % 11.2 % -
Cost/income ratio 33.3 % 31.9 % -
Core capital ratio 8.6 % 5.5 % -
*) After share split on 1:10 basis.
**) Basis: average equity
2008 2007
Rating S & P Moody’s S & P Moody’s
Public Pfandbriefe AAA Aaa AAA Aaa
Mortgage Pfandbriefe - Aaa - Aaa
Long-term liabilities - A2 - A2
since 27/02/08 Aa3

2006 2005 2004 2003 2002 2001 2000 1999
€ millions € millions € millions € millions € millions € millions € millions € millions
2,188 1,231 1,014 1,259 1,965 1,808 1,416 1,474
4,267 4,554 6,629 7,019 2,344 2,801 1,930 3,732
1,744 1,900 2,321 4,401 1,673 1,706 1,425 2,459
6,363 5,755 7,694 8,061 4,348 4,592 3,368 5,242
7,720 10,015 13,000 10,378 5,160 5,608 3,270 4,802
8,274 7,890 8,459 8,766 8,600 7,642 6,615 5,882
13,103 13,941 14,796 14,673 12,559 12,565 12,194 12,296
11,290 9,415 9,045 5,702 4,051 4,006 3,434 3,196
33,567 32,141 32,956 30,328 25,181 24,273 22,245 21,378
831 797 783 712 656 561 472 421
479 457 440 422 389 309 271 221
34,717 33,164 33,896 31,222 26,043 25,046 22,951 21,990
109.1 104.5 100.7 99.2 92.7 92.2 92.4 93.0
36.0 32.7 30.5 32.5 30.8 28.8 26.5 27.4
51.5 48.6 47.8 47.3 43.3 46.1 51.5 47.4
39.1 32.7 30.5 33.1 28.4 30.12 32.13 21.20
11.00 11.00 11.00 11.00 10.00 10.00 9.00 9.00
3.00 - - - - - 26.70 -
325.00 302.00 337.52 285.00 259.00 282.50 214.00 277.00
12.3 % 12.1 % 12.4 % 12.9 % 15.6 % 19.3 % 22.9 % 22.4 %
33.0 % 31.3 % 30.3 % 32.8 % 33.2 % 31.2 % 28.7 % 29.5 %
5.5 % 6.0 % 5.9 % 5.6 % 5.3 % 5.0 % 5.1 % 4.9 %
S&P Moody’s S&P Moody’s S&P Moody’s S&P S&P S&P S&P S&P
AAA Aaa AAA Aaa AAA Aaa AAA AAA AAA AAA AAA
- Aaa - Aaa - Aaa - - - - -
- A2 - Aa3 - Aa3 *) - - - - -
*) Outlook “negative”

Benedikt von Abendroth, Carolin Albers, Ingo Albert, Alois Algermissen, Pascale Angelopoulos, Melanie Anstett, Anne-
Kathrin Apel, Kristina Aselmeyer, Wolfgang Aust, Hans-Hermann Baltz, Angela Bank, Sabine Barthauer, Volker Basler,
Susie Bassett, Christopher Batke, Isabel Bauke, Andre Baule, Jürgen Becksvoort, Ulrike Behnsen, Andreas Bergmeier,
Marco Bertram, Wouter de Bever, Heike Bien, Kathrin Biering, Gunter Bierwisch, Carsten Bläck, Dieter Bläck, Joachim
Bloß, Martina Blum, Cornelia Bock, Jürgen Bode, Klaus-Werner Börner, Marianne Böx, Andrea Booth, Stefanie Bormann,
Lisa Maria Bosetzky, Kirsten Brandt, Wolfgang Breitung, Brigitte Brenning, Kai Bröker, Marc Brune, Jochen Bucek, Jens
Bütehorn, Edith Burmeister, Wolf-Günther Burucker, José Luis Calderón Martínez, Juan Manuel Casas Guillen, Petra
Casjens, Lionel Cavin, Melanie Cholewa, Bettina Cramer, Ursula Czech, Dennis Dasselaar, Katrin-Genevieve Deitermann,
Ulrich Deppe, Anke Dieckmann, Hergen Dieckmann, Frank Dittmann, Wolfgang Donie, Reinhard Drexler, Beate Droste,
Jürgen Eckert, Carina Engelbrecht, Klaus Engelbrecht, Iris Kerstin Ewert, Tobias Faust, Frederik Felden, Christian Fischer,
Eric Mark Fowell, Jörg Franz, Oliver Frerking, Andreas Froebus, Björn Fuhr, Christian Gail, Julio Garcia Garcia, Michael
Gehrig, Melanie Geldmacher, Christoph Gennrich, Susanne Gödecke, Elke Görg, Rüdiger Göricke, Silvia Golbeck, Olga
Gómez Rodríguez, Jutta Graf-Frieling, Katja Gramatte, Daniela Grams, Jürgen Grieger, Elke Großer, Detlev Grote, Petra
Grübl, Cristina Guilherme, Petra-Ingeborg Haake, Dieter Haasemann, Ralf Hagendorff, Burghard Hanke, Dr. Bernd
Hansen, Thomas Hansen, Tina Hartmann, Iris Hauser, Brigitte Heep, Albrecht Heinecke, Joachim Heinrich, Markus Heinzel,
Janos Hielscher, Ralf Hinrichs, Achim von Hoegen, Christoph Hötzel, Heinrich Hoffmeyer, Helmut Hornung, Thomas
Hundertmark, Dirk Hunger, Tanja Hußmann, Malte Ilginnis, Axel Intemann, Peter Jabs, Anna-Dorothea Jäger, Marion
The staff of Deutsche Hypo ... Jaeger-Kufel, Thorsteinn Jonsson, Ute Jürges, Claudia Kailuweit, Georg
Kaisler, Dirk Kallikat, ... the basis of our success
Christina Kanning, Gudrun Karges, Gabriele Karp,
Kerstin Kelm, Axel Kielmann, Dorothea Kind, Ruth Kirchstein, Claudia Kirsch, Andreas Kirschner, Jürgen Klebe, Tobias
Knoche, Dieter Koch, Gerald Kölle, Irina Köllner, Helmut Kördel, Heiko Kollmann, Jörg Kopp, Jutta Carola Kopp, Wolfgang
Koppert, Renate Koppitz, Gabriele Kornweih, Stefanie Kortmann, Stefan Kriegs, Ulrich Krogmeier, Regina Kubina, Elke
Kücken, Roger Kücken, Frank Kühne, Silke Kues, Marcel Kujawski, Eike Oliver Laase, Bernd Lademann, Thomas Lang,
Cornelia Lange, Sascha Langeheine, Annemarie Leeuwen, Dr. Pia Leipertz, Claudia Leu, Ulrike Looft, Veit Look, Walter
Love, Alexander Ludwig, Karin Ludwig, Nadine Lüder, Hans-Joachim Luther, Dörte Mamber-Pierstorff, Ingo Martin,
Manfred Matthies, Albrecht Mayer, Andreas Meiser, Uwe Menninger, Kevin-York Merchel, Karen Mergelsberg, José
Ignacio Merinero Muñoz, Anke Methner, Dirk Metzner, Eleonore Meyer, Jens Meyer, Yvonne Michael, Andreas Michel,
Stefan Mikus, Elly Möller, Irina Monsler, Jürgen Morr, Marlis Mügge, Frank Müller, Michael Müller, Brigitte Müller-Bühren,
Jürgen Munke, Sven Muschkewitz, Andreas Nagel, Dirk Neugebauer, Evelin Neuhäuser, Josef Niehoff, Uwe Niemann,
Michael Niemeyer, Markus Nitsche, Ralf Obst, Lorenz Ostermeyer, Wolfgang Overkamp, Jan Christoph Paape, Nelson
Ruben Parmigiani, Rainer Passiel, Kornelia Penker, Andreas Peter, Meike Peter, Liane Pilz, Gudrun Pösger, Andreas Pohl,
Arne Preuß, Martin Priesnitz, Torben Pschunder, Petra Putzka, Jörg Quentin, Claudia Radack-Doelle, Uwe Radloff, Iris
Reese, Andreas Rehfus, Andrea Reinecke, Gisela Reinecke, Anja Reinhold, Helmut Reinholz, Frank Rekowski, Heinz-Josef
Rensmann, Tanja Riesenbeck, Christian Röske, Stefan Roggelin, Anja Rosenhagen, Katrin Rosenthal, Vera Ruck-Bekedorf,
Christin Rudolph, Sebastian Rudolph, Regina Rüter, Jens-Oliver Ruff, Petra Ruff, Annemarie Rumke, Monika Rust, Stefan Ryll,
Renate Sasse, Elke Schäper, Erich Schasse, Katharina Schauer, Veronika Schindler, Matthias Schleef, Uwe Schliephacke,
Andreas Schlüter, Elena Schnar, Dirk Schönfeld, Erik Schramm, Wiebke Schramm, Stefan Schröter, Matthias Schroff, Anke
Schuchhardt, Heike Schünemann, Ulf Schuhmacher, Manuela Schult, Ralph Schumann, Sabine Schwarz-Möbius, Dr. Olav
Selke, Fredrik Serck, Kristof Sidorowicz, Britta Siedentopf, Petra Söfker, Mirko Sommer, Sascha Sonntag, Andre Spellsiek,
Thomas Staats, Karl H. Stein, Thomas Stoklas, Mathias Stolte, Gabriele Strienke, Andrea Strobl-Strasser, Bianca Ströhla,
Marc Techtmann, Maren Tegtmeier, Christiane Terlunen, Ella Teschmit, Martina Teutloff, Bettina Thiedtke, Stefan Ullmann,
Manja Vogel, Ralf Vogel, Dr. Günter Vornholz, Dr. Wulfgar Wagener, Mathias Wanner, Hans-Ernst Warczok, Sabine
Watermann, Paul Weber, Angelika Wellmann, Renate Wels, Aenne Wendeling, Ansgar Werner, Torsten Wickert, Inge
Wieggrebe, Simone Wilhelms, Dirk Wilke, Ulrich Wilkens, Holger Wille, Bärbel Willert, Immo Willner, Thomas Winkler,
Bernd Wissmach, Ulrike Witte, Renate Wittkowski, Dirk Wömpner, Frank Wolff, Christopher J. Woodard, Michael Woodgate,
Anita Wrosch, Martina Wulschläger, Heike Wuttke, Olivier Zapf, Frank Zimmermann, Jörg Zimmermann.
··· 1 ···

··· 2 ···

CONTENT
THE SUPERVISORY BOARD AND ITS COMMITTEES 4
MANAGEMENT 7
PUBLIC TRUSTEES 7
REPORT OF THE BOARD OF MANAGING DIRECTORS 8
Strategic orientation of Deutsche Hypo 8
The general economic environment 9
MANAGEMENT REPORT 18
The crisis on the financial markets – Background and impact 18
Business performance 19
Mortgage loan business 20
Capital market business 24
Refinancing 25
Rating 27
Net present value cover 28
Profit situation 29
Proposed appropriation of profit 31
Development of equity capital 31
Group affiliation 32
Risk report 33
Current developments 33
Impact of the financial crisis 34
Basic principles of risk control and risk management 44
Types of risk 49
Forecast 67
PERSONNEL REPORT 72
CORPORATE GOVERNANCE REPORT 73
DEUTSCHE HYPO SUPPORTS MEDICAL RESEARCH 78
ANNUAL ACCOUNTS 81
Balance Sheet 82
Profit and Loss Account 84
Notes 85
RESPONSIBILITY STATEMENT 114
AUDITOR’S REPORT 115
REPORT OF THE SUPERVISORY BOARD 116
ORGANISATIONAL STRUCTURE OF DEUTSCHE HYPO AS AT 31 DECEMBER 2008 118
ADDRESSES IN GERMANY AND ABROAD 119
GLOSSARY 120
··· 3 ···

··· 4 ···
THE SUPERVISORY BOARD
AND ITS COMMITTEES
Alexander Stuhlmann
Düsseldorf
Chairman of the Board
of Management of
WestLB AG
– Chairman –
to 15 February 2008
Eckhard Forst
Hanover
Member of the Board of
Management of
Norddeutsche
Landesbank Girozentrale
– Chairman –
from 16 February 2008
to 31 December 2008
– Vice-Chairman –
since 1 January 2009
Dr. Gunter Dunkel
Hanover
Vice-Chairman of the
Board of Management
of Norddeutsche
Landesbank Girozentrale
to 31 December 2008
from 1 January 2009
Chairman of the Board
of Management of
Noddeutsche
Landesbank Girozentrale
– Vice-Chairman –
from 16 February 2008
to 31 December 2008
– Chairman –
since 1 January 2009
Dietmar Schmid
Frankfurt am Main
Member of the Board of
Managing Directors of
BHF-BANK AG
– Vice-Chairman –
to 15 February 2008
Dr. Jürgen Allerkamp
Hanover
Member of the Board of
Management of
Norddeutsche
Landesbank Girozentrale
since 21 May 2008
Jochen Döhle
Hamburg
Personally liable partner
of PETER DÖHLE
Schiffahrts-KG
to 15 February 2008
Reinhard Drexler
Hanover
Bank employee
Michael Gehrig
Hanover
Bank employee
Friedrich Carl Janssen
Cologne
Personally liable partner
of Sal. Oppenheim jr. &
Cie. KGaA
to 31 December 2008
Jürgen Kösters
Hanover
Member of the Board of
Management of
Norddeutsche
Landesbank Girozentrale
to 31 March 2008
from 16 February 2008
to 20 May 2008
Joachim Olearius
Hamburg
Executive Manager of
M. M. Warburg & CO
Kommanditgesellschaft
auf Aktien
to 15 February 2008
Dr. Hannes Rehm
Hanover
Chairman of the Board of
Management of
Norddeutsche Landesbank
Girozentrale to 31 December 2008
to 31 December 2008
from 16 February 2008
to 20 February 2009
Dr. Johannes-Jörg Riegler
Hanover
Member of the Board of
Management of
Norddeutsche Landesbank
Girozentrale
since 16 February 2008
Max Warburg
Hamburg
Personally liable partner of
M. M. Warburg & CO
Kommanditgesellschaft
auf Aktien
to 15 February 2008
Frank Wolff
Hanover
Bank employee

Lending Committee
to 15 February 2008 since 18 February 2008 since 1 January 2009
Alexander Stuhlmann Dr. Johannes-Jörg Riegler Dr. Johannes-Jörg Riegler
– Chairman – – Chairman – – Chairman –
Friedrich Carl Janssen Eckhard Forst Dr. Gunter Dunkel
Max Warburg Friedrich Carl Janssen Eckhard Forst
to 31 December 2008
Jochen Döhle Dr. Gunter Dunkel Dr. Jürgen Allerkamp
– Substitute member – – Substitute member – – Substitute member –
to 31 December 2008
Personnel Committee
to 15 February 2008 since 18 February 2008 since 1 January 2009
Alexander Stuhlmann Eckhard Forst Dr. Gunter Dunkel
– Chairman – – Chairman – – Chairman –
to 31 December 2008
Dietmar Schmid Dr. Gunter Dunkel Eckhard Forst
– Vice-Chairman –
Max Warburg Dr. Hannes Rehm Dr. Hannes Rehm
to 20 February 2009
Joachim Olearius Jürgen Kösters Dr. Jürgen Allerkamp
– Substitute member – – Substitute member – – Substitute member –
to 20 May 2008
Dr. Jürgen Allerkamp
– Substitute member –
since 21 May 2008
··· 5 ···

··· 6 ···
Audit Committee
to 15 February 2008 since 18 February 2008 since 1 January 2009
Friedrich Carl Janssen Jürgen Kösters Dr. Jürgen Allerkamp
– Chairman – – Chairman – – Chairman –
to 20 May 2008
Joachim Olearius Dr. Jürgen Allerkamp Eckhard Forst
– Chairman –
since 21 May 2008
Frank Wolff Friedrich Carl Janssen Frank Wolff
to 31 December 2008
Jochen Döhle Frank Wolff Dr. Johannes-Jörg Riegler
– Substitute member – – Substitute member –
Dr. Gunter Dunkel
– Substitute member –
to 31 December 2008
Appointments Committee
to 15 February 2008 since 18 February 2008 since 1 January 2009
Dietmar Schmid Dr. Hannes Rehm Dr. Hannes Rehm
– Chairman – – Chairman – – Chairman –
to 20 February 2009
Jochen Döhle Dr. Jürgen Allerkamp Dr. Jürgen Allerkamp
since 21 May 2008
Max Warburg Eckhard Forst Dr. Gunter Dunkel
Joachim Olearius Jürgen Kösters Eckhard Forst
– Substitute member – to 20 May 2008 – Substitute member –
Dr. Gunter Dunkel
– Substitute member –
to 31 December 2008

MANAGEMENT
·· BOARD OF MANAGING DIRECTORS
Jürgen Grieger
Hanover
Andreas Rehfus
Hanover
·· EXECUTIVE MANAGER
Michael Müller
·· DEPARTMENTAL MANAGERS
Volker Basler
Sabine Barthauer
Gunter Bierwisch
Joachim Bloß
Markus Heinzel
PUBLIC TRUSTEES
Dr. Gunther Krajewski
Hanover
Retired Assistant Director
– Trustee –
Jürgen Morr
Hanover
Dirk Hunger
Wolfgang Koppert
Albrecht Mayer
Uwe Menninger
Markus Nitsche
Wolfdietrich Kühne
Hanover
Degree in business
– Deputy Trustee –
Andreas Pohl
Hanover
since 1 March 2008
Wolfgang Overkamp
Jörg Quentin
Dirk Schönfeld
Thomas Staats
Ralf Vogel
Dr. Wulfgar Wagener
Paul Weber
··· 7 ···

··· 8 ···
REPORT OF THE BOARD
OF MANAGING DIRECTORS
·· STRATEGIC ORIENTATION OF
DEUTSCHE HYPO
Commercial real estate finance is a core business
of the NORD/LB Group. In order to obtain levels of
performance in this important business segment
more quickly and to a greater extent than would
have been possible through purely organic
growth, NORD/LB acquired Deutsche Hypo during
2008 so that it could pool business activities in
this area in a centre of competence. The real
estate banking division of NORD/LB has been successfully
combined with Deutsche Hypo to form
this centre of competence, operating under the
umbrella brand “Deutsche Hypo – Member of
NORD/LB”. The first joint appearance took place
according to plan at the EXPO REAL trade fair in
Munich at the beginning of October 2008. This
from left: Andreas Rehfus, Jürgen Morr, Andreas Pohl, Jürgen Grieger
exposition, an important event in the commercial
real estate sector’s calendar, served as an excellent
platform on which to present this new
Deutsche Hypo.
The merger of two successful specialists, both
established in the market, will lead to a product
that is greater than the sum of its parts. The wider
presence both in terms of products and market
positioning will lead to a further increase in professionalism,
internationalisation and expertise, all to
the benefit of the customer.
The existing sites belonging to Deutsche Hypo
and NORD/LB real estate banking division will be
retained and combined. This will provide the new
Deutsche Hypo with a broad network of sites in
the world’s major real estate markets, namely

New York, Singapore, London, Paris, Amsterdam
and Madrid, not to mention Hanover, Hamburg,
Düsseldorf, Frankfurt and Munich in Germany.
Fundamentally, Deutsche Hypo is striving to
establish a clear position in the major national and
international real estate markets, concentrating on
regions with high transaction volumes, pronounced
market maturity, a high stock of real
estate and positive long-term market performance.
The importance of existing markets within
the overall portfolio of Deutsche Hypo will be subject
to constant revision in respect of their future
relevance, while the new target markets will be
selected with the required degree of caution and
prudence, not only during the current periods of
global economic crisis.
In its target markets, Deutsche Hypo supports
mainly professional, experienced and capitalstrong
real estate investors with sound, successful
transactions. To nurture the required close and
reliable customer relations and to acquire a constant
stream of new customers, Deutsche Hypo
has an experienced team that will continue to be
expanded as the markets develop and the company’s
own strategic expansion is advanced.
As a centre of competence, the new Deutsche
Hypo offers the optimal framework and a sound
foundation for this more concerted market penetration
and the associated planned growth. The
existing product range comprising
·· classic fixed-rate loans;
·· rollover loans;
·· interim financing;
·· lease financing;
·· structured financing;
·· real estate investment banking;
·· capital market products
can therefore be developed even more intensively
on the new platform. As a successful, specialist
and lean bank, Deutsche Hypo will also be able to
access additional resources through the Group’s
strong parent company, in the interests of its customers.
·· THE GENERAL ECONOMIC
ENVIRONMENT
·· GLOBAL ECONOMIC SITUATION
The crisis on the financial markets set the global
economy plunging downwards in 2008. Global
economic activity worsened significantly, especially
from the middle of the year onwards. In the
three major industrial blocs, the USA, the EU and
Japan, real GDP is expected to have fallen by over
2 % in 2008. This is partially due to consumers and
companies restricting their spending in view of
the stormy outlook, but also due to the fact that
financing options have been limited. Even China,
previously the engine driving the world economy,
is now faced with the prospect of economic
growth that has halved to around 5 %.
Acting with exceptional resolve, governments and
central banks around the world have taken drastic
measures to stabilise the financial system against
the impending collapse of the global economy. The
key measures included the expansion of credit
lines available from central banks, the recapitalisation
of banks to the point of partial nationalisation,
··· 9 ···

··· 10 ···
the issuing of guarantees for bank liabilities and
the strengthening of deposit guarantee systems.
Furthermore, programmes have been developed
to increase state aid and to grant tax easements
as well as to reduce interest rates with the aim of
stabilising economy activity. In some areas, individual
sectors, especially the automotive industry,
have received direct support. In total, the amounts
tied up in the aid and recovery packages in the
major industrialised countries have soared to unprecedented
levels. In Germany alone, the Federal
Government has come up with a package of support
for the banking system worth € 480 billion.
This is in addition to two other packages to aid the
economy that were agreed in November 2008 and
January 2009 worth over € 80 billion.
·· ECONOMIC ENVIRONMENT
IN OUR TARGET PROPERTY
MARKETS
·· GERMANY
The German economy is heading into recession.
While growth of around 1.5 % was achieved over
the course of 2008, that year’s downturn is
becoming a recession in 2009. This has been
caused by the global economic crisis that was triggered
by the financial crisis. For this reason,
Deutsche Hypo anticipates that the economy will
shrink by around 2 % in 2009.
Thanks to positive demand, net absorption in the
five office metropolises (Hamburg, Berlin, Düsseldorf,
Frankfurt and Munich) amounted to a good
1 million m² in 2008. Demand in Munich was particularly
high, accounting for around half of total
demand. While it was obvious over the course of
the year that demand momentum was clearly
waning, a positive excess consumption of office
space was still recorded. In contrast, in view of
the difficult economic prognosis, hitting in particular
the world of finance, a traditionally strong
source of demand for office space, negative net
absorption is anticipated for 2009. The number of
completed new builds, at just under 1 million m²,
was still comparatively low in 2008. A rise in supply
can be expected this year and next year due to
the many new projects that have been started,
even if many plans are put on hold again over the
coming months.
Office rents continued to benefit from the level of
economic growth in 2008, with top rents rising
overall in the top five office locations, albeit with
the beginning of a decline in the last quarter in
some cases. Vacancy levels fell considerably in the
sought-after office locations compared with the
beginning of the year due to the rise in the number
of premises being let. Falling demand due to
the expected economic development in conjunction
with new-build projects due to be finished in
the near future will push vacancy rates up considerably
again during 2009.
Retail business crucially depends on private consumption,
which, despite a positive development
in employment levels and rising nominal wage levels,
was unable to fulfil its expected role as a driver
of growth in 2008. This can be attributed to the
clear rise in the price of food and energy, which
counteracted the positive development in nominal
income levels. The weak trend also impacted on
retail sales, which fell in real terms in 2008 and
only increased in nominal terms.

In terms of private consumption in 2009, the elimination
of the stifling impact of inflation will have a
positive effect, whilst wages can be expected to
rise on the basis of collective wage agreements
that have already been signed. One negative factor,
however, will be the reduction in employment
levels, a trend that will intensify as the year goes
on. Overall, this will mean that any rise in private
consumption in 2009 will be weak. The impact on
retail business will be correspondingly negative,
with the result that a further fall in real sales (constant
nominal level) can be expected.
The supply of retail premises, in contrast, is continuing
to rise. By the end of 2009 in Germany
alone, some 930,000 m² of additional shopping
centre space is likely to have been created, representing
around 7.5 % of the existing amount. This
will have a negative effect on surface area productivity,
with regard to which Deutsche Hypo
expects a fall of a good 2 % in the coming year.
Sales profitability is also set to fall further.
The financial crisis has already had a clear impact
on transaction volume this year. Over the course
of the year, investments collapsed by more than
60 %, with portfolio investments being affected to
a disproportionately large extent. As rent levels
remain primarily unchanged and in response to
falling prices, yields in Germany have increased
considerably. Compared with the same period of
2007, an average rise in yields of a good 50 basis
points was recorded in the case of office properties.
In view of the financial and economic crisis, a
recovery cannot be expected for 2009.
··· REPORT OF THE BOARD OF MANAGING DIRECTORS ···
·· UNITED KINGDOM
The financial crisis had already impacted on the
real economy in the UK in 2008. The UK is in
recession. Compared with the previous year,
gross domestic product rose only slightly. The
weakness of the property markets, the financial
crisis and the major macroeconomic imbalances
will continue to be a burden on growth over the
coming months. Deutsche Hypo expects the economic
trend in the UK to remain negative until well
into 2009.
By the second quarter the financial crisis had
reached the London office market, with year-onyear
falls in office rents in the City and West End
of almost 20 %, a drop that manifested itself during
the final quarter in particular. As demand fell,
there was, at the same time, a tangible increase in
the volume of new-builds in London in 2008, and
a significantly higher level of supply is to be
expected over the next two years as well. A further
difficulty lies in the fact that there are many
speculative property deals in evidence. This will
have a negative impact on how rents develop overall.
Vacancy levels will rise at a higher rate due to
the clear fall in demand. Meanwhile, in the regional
office markets of the UK, the development is very
similar to that experienced in London, with rising
supply and reserved demand, although these
regional markets are still proving more robust than
the London market. This has meant a slight
increase in vacancy levels over the past few
months. Overall, a clear weakening is to expected
on the UK office market (in terms of both rents
and prices), and this development is likely to last
for some time.
··· 11 ···

··· 12 ···
Falling consumer spending and waning consumer
confidence are leaving their mark on the British
retail sector. Retail sales during the third quarter
were still up on the same quarter of 2007 but stagnated
compared with the previous three months
of 2008. The weak confidence levels and higher
refinancing costs mean that year-on-year falls cannot
be excluded over the coming months. At the
same time, the supply of premises is already outstripping
demand in many city centres. Household
names in the retail sector are streamlining their
branch network, with other chains already facing
insolvency. The result is that many shop premises
are now standing empty. As well as leading to
lower rents, this is leading to longer marketing
periods and an increase in the incentives being
offered by landlords. The highest rent rises were
still being recorded by retail outlets in London in
2008. However, in light of the recession, a slight
fall in rent levels is expected in the coming year.
More strongly affected will be the rents charged
for prime locations in other UK cities and for shopping
centres.
Investments have collapsed by 60 % in the UK so
far this year, which is primarily attributable to the
banks’ reticence to provide finance. Foreign
investors continue to dominate the market. The
weakness has led to a clear rise in yields. On the
London office market, for example, yields were up
by more than 150 basis points. Correspondingly,
prices fell by around 50 % compared with summer
2007. A similar development was in evidence
among other property types. The yield on top
shopping centres, for example, rose by 125 basis
points to 5.75 %. The negative rent and price
development will continue in 2009 and will be
reflected in slight rises in yields.
·· FRANCE
Whilst France was still recording economic growth
levels of 2.1 % in 2007, the rate for 2008 will not
even reach 1 %, with the research institutes not
predicting any major improvement for 2009. All of
the components that contribute to economic
growth have lost momentum. Corporate investment,
in particular, has fallen strongly, and despite
the slight weakening in the euro of late, the French
export economy is struggling to benefit from this
effect compared with other eurozone countries.
Added to this are worrying labour market statistics.
It goes without saying that the impact of the financial
market crisis cannot be expected to pass the
French office real estate markets by. Refinancing
difficulties and higher borrowing costs are causing
investment volumes to fall, just as in other office
markets. The total number of newly leased or sold
office premises fell by 7 % year on year. The number
of current developments remained considerable in
the face of falling demand, yet the situation on the
office real estate market as a whole was balanced.
In the key Paris office locations of La Défense,
Rive Gauche and the city’s CBD, rents came under
pressure, yet, depending on location, remained
within a band of between € 545 and € 765 per
square metre per year, and thus at a high level by
European standards.
In terms of the retail sector, the rise in unemployment
and rapid deterioration in the figures on consumer
confidence were a major burden, which
even the fall in the rate of inflation towards the
end of the year could do nothing to alter. The
development of the retail property market segment
was influenced accordingly, as reflected in

the clear fall in transaction volume. With a total
completed deal volume of € 700 million, this segment
only reached 14 % of its previous year’s
level. To breathe new life into the sector, France
has adopted measures to reduce the bureaucracy
associated with the granting of planning permission,
particularly in the case of new shops, the aim
being that the major retail chains will be the first
to benefit from this move.
The entire French investment market suffered
greatly in 2008. With investments totalling a mere
€ 9.4 billion, only 57 % of the previous year's level
was achieved during the first three quarters of
2008. The difficulties and higher costs associated
with the procurement of liquidity also had a
marked effect in France on those investors reliant
on a positive leverage effect when structuring
their finance. Investment funds withdrew from
the market very abruptly after a first quarter in
which demand for investments had been as great
as ever, whilst listed real estate companies had a
particularly hard struggle due to the difficulties in
procuring capital via the stock markets.
·· NETHERLANDS
After three years in which the economy grew
strongly, economic growth also cooled markedly
in the Netherlands in 2008. Nevertheless, the
Dutch economy was less strongly affected by the
fall-out from the financial market crisis than many
other eurozone countries. In terms of the third
quarter, growth, at just over 2 %, was below the
2007 average of almost 4 % but still higher than
the eurozone average of 0.6 %. The source of
··· REPORT OF THE BOARD OF MANAGING DIRECTORS ···
greatest concern is the major collapse in consumer
confidence and the anticipated impact on
private consumption in practice.
The Dutch office real estate market weakened in
the third quarter of 2008. Whilst the Amsterdam
office market continued to enjoy a stable level of
demand, there were the first negative signs in
some regional markets with regard to the marketing
of office premises, with relatively long rentfree
periods. Investment activity fell off markedly,
and the yields generated on the top properties
rose by between 25 and 50 basis points on average
across the country. By the end of the third
quarter of 2008, the total investment volume was
only 65 % as high as during the same period of
2007.
With regard to the retail property market, new
investment visibly waned as the year progressed,
after three large-scale transactions at the beginning
of the year. The side effects of the problems
on the financial market also resulted in rising
yields in this market segment. In the third quarter
of 2008 the yields on prime retail properties rose
by up to 150 basis points to 6.5 %, and to 6.8 %
in the case of major shopping centres.
·· SPAIN
The Spanish office real estate markets peaked
during the first half of 2008. The Spanish economy
is currently in recession, marked by a cooling of
the domestic market and weaker foreign demand.
Spain’s construction industry in particular is currently
in a deep crisis, triggered by collapsing
··· 13 ···

··· 14 ···
prices on the housing market. This has also
already hit the office market in Spain hard. Sales
have fallen considerably, as demand is affected by
the uncertain economic prospects. Madrid is particularly
lacking in large-scale deals, whilst
Barcelona was still able to record growth in peripheral
areas during the first half of the year.
In the capital, the number of new-builds being
completed over the coming months is down on
previous months, but only a small proportion of
these projects has already been let. This is placing
greater pressure on the market and, as a result,
vacancy levels will rise more strongly than before
over the coming quarters whilst rents will drop further.
The situation is somewhat more intense in
Barcelona, as there is a much higher level of supply.
This is therefore placing pressure on vacancy
rates and rent levels.
Over the past few years, the Spanish retail sector
has recorded strong sales growth. Due to the
recession, however, a decline in sales can be
expected over the coming months. At the same
time, a further 2 million m² of retail space is due to
come onto the market over the next few months.
This will cause surface productivity to fall more
strongly and lead to falls in sales-related rents. In
the specific case of shopping centres, there is a
much lower level of supply, due to the fact that the
amount of premises is already relatively high by
EU comparisons. Additionally, activities have
moved to smaller towns, with around two thirds of
new openings being in towns with populations of
less than 100,000.
The Spanish investment market was dominated
during the first nine months of last year by one sin-
gle transaction (headquarters of Banco Santander
in Madrid). Leaving aside this deal, the volume of
investment was clearly down on previous years (a
fall of more than 50 %), as was the case elsewhere
in Europe too. At the same time, the type
of investor has changed. Investments with a high
degree of leverage have been replaced by equitybacked
investors. Yields have already increased
over the past few months (currently approx. 5.5 %
on the Madrid and Barcelona office markets), with
a further increase to be expected. Both prices and
rent levels are expected to fall further in 2009.
Overall, the total volume will be stuck at its current
low level, with individual transactions being considerably
smaller.
·· USA
The USA is in the midst of a clear economic crisis
that is affecting all aspects of economic life. Gross
domestic product was already falling by the third
quarter of 2008, and this downward trend will
intensify further during subsequent quarters. Considerable
action has however already been taken
to counter this trend. In addition to huge interest
rate cuts by the Fed and comprehensive measures
to bolster the financial markets, the economic
stimulus package planned by President
Obama should help to stabilise the economy over
the course of 2009. There will not be any upturn,
however, until the housing market recession
comes to an end and until lending levels begin to
increase again.
The US office real estate market is following in
the path of the economic downturn, although the
full extent of the financial crisis is not yet in evidence
in this particular sector. There were more

office premises on the market in 2008 than in the
previous year. At the same time, there was a negative
level of net absorption, which was particularly
marked during the fourth quarter. As a result, the
vacancy rate rose by a good 10 % over the course
of the year. This trend was also reflected in rents.
In the CBDs, rents were able to continue to rise
slightly, whilst a fall was already in evidence in less
central districts. After the weak final quarter of
2008 there were no longer any exceptions to this
negative trend in evidence.
This negative trend will intensify and continue
over the coming quarters as further building projects
are completed and become available on the
market, and as there is a clear drop in net absorption
due to the recession and falling demand. Even
if not all of the projects currently being planned
are in fact realised due to the financial crisis, a
stronger rise in vacancy levels and falling rents can
be expected. A probable scenario for 2009 is a further
fall of around 20 % in prices and rents.
The marked weakness of consumption was one of
the main burdens on the US economy in 2008. The
US retail sector suffered from this trend, with
falling growth in sales. After growth rates of
around 5 % in earlier years, sales during the first
half of the year expanded by only 2 %. Sales over
the next few months are even expected to be
down on the equivalent periods of the previous
year. Developers were already cutting back on
their expansion plans during the first half of 2008
although not in the case of large-scale shoppingcentres,
which experienced a similar increase in
2008 to that recorded in 2007. Even against this
background, a slight increase in vacancy rates
(5 %) had been expected, and only a slight rise in
··· REPORT OF THE BOARD OF MANAGING DIRECTORS ···
rent levels. In view of the worsening house price
and financial crisis, it is to be expected that the
impact on retail will be all the more negative in
2009. Retail chains will put a halt to their expansion
plans, and less successful outlets will be
closed.
On the US investment market, commercial real
estate transactions have fallen by more than 60 %
over the year so far (and by as much as 70 % on
the office market). One reason for this has been
the lack of major portfolio sales. Yields have risen
strongly as a result. Even once the financial crisis
has come to an end, to be followed by economic
recovery, yields are unlikely in 2009 to fall back to
their earlier lows. Slightly weaker growth in potential,
rising finance costs, higher equity requirements
and lower loan-to-value ratios will ensure
that cap rates remain at a higher level for some
time.
·· CAPITAL MARKET DEVELOPMENT
The crisis of confidence in the banking system
made even short-term refinancing considerably
more difficult for all financial institutions in 2008.
As a result, money market rates in interbank trading,
for example, rose strongly. One indicator of
the crisis of confidence is the spread between
unsecured (EURIBOR) and secured (EUREPO)
money market claims. Whilst this difference was
under 10 basis points for 3-month money prior to
the outbreak of the crisis, it had risen to in excess
of 80 basis points in March on the back of the Bear
Stearns crisis.
When US investment bank Lehman Brothers
became insolvent in September, the crisis took a
··· 15 ···

··· 16 ···
dramatic turn for the worse with the mood of mistrust
on the financial markets increasing to such
an extent that the already difficult interbank lending
market practically collapsed altogether, with
the spread between the 3-month EURIBOR and 3month
EUREPO widening to over 180 basis points
at times. It was only the courageous and worldwide
coordinated intervention of the central banks
and national governments that stopped the financial
system from going into complete meltdown
with unimaginable consequences for the real
economy.
The European Central Bank (ECB), for example, in
response to the events, had cut its key rates by
175 basis points by the end of the year, after raising
its tender rate to 4.25 % back in July still on
the basis of the rise in inflation sparked by energy
prices.
Capital market yields fluctuated greatly. Having
risen to just under 4.7 % by the middle of 2008,
the yield on 10-year federal bonds had dropped to
around the 3.0 % mark by the year-end. The extent
of the fluctuations in the USA was even greater,
with 10-year Treasuries approaching a yield level of
2.0 % towards the end of the year. In December
the yield spread between German government
bonds and US government bonds had grown to as
much as 90 basis points.
The euro continued its upwards trend against the
US dollar through until the middle of 2008. The
exchange rate rose from USD 1.46 at the beginning
of the year to USD 1.60 per euro at times.
This meant that the euro appreciated by almost
10 % against the dollar over the first half of the
year, following a rise of almost 11 % in the external
value of the European currency in 2007. The key
factors in this regard were the different monetary
policy focuses of the central banks through until
the middle of the year. The abrupt change of tack
on the part of the ECB in early October then
placed the euro under a correspondingly large
amount of pressure, resulting in the euro falling in
value to USD 1.25, before recovering again to a
price in the region of UDS 1.40 by the year-end.
The euro also increased strongly in value against
sterling, with parity becoming a tangible possibility
by the end of the year.
On the international equity markets, there were
painful price falls as early as mid-January, when it
became clear that US banks in particular had suffered
major losses as a result of the subprime crisis.
The failure of Bear Stearns placed prices under
renewed pressure in March, although they were
able to stabilise to some extent again over the
ensuing months. It was not until the run-up to the
insolvency of Lehman Brothers in October that
the German DAX fell below the 6,000 point mark,
where it stayed for some time. The unending
stream of bad headlines from the banking sector,
the impact on the real economy in the form of an
ever more evident recession and the fate of Iceland,
which almost became bankrupt, caused dividend-earning
stocks to suffer massive losses. At
4,129 points, the DAX reached its lowest level for
around four years on 21 November. The German
blue chip index recorded a loss of approximately
40 % for the year as a whole.

··· REPORT OF THE BOARD OF MANAGING DIRECTORS ···
··· 17 ···

··· 18 ···
MANAGEMENT REPORT
·· THE CRISIS ON THE FINANCIAL
MARKETS – BACKGROUND AND
IMPACT
Towards the end of 2006 it slowly began to
become clear that the boom in the US market for
private real estate finance was coming to an end.
An increasing number of home-owners who had
financed their house purchases with low-interest
loans began to find themselves in economic difficulty.
Europe’s largest bank, HSBC, published the
first profit warning in its history on 8 February
2007 due to a surprisingly high level of risk provisioning
to cover its US mortgage business. Further
banks followed with further profit warnings,
and it became evident that the problem was not
restricted to US banks. By summer 2007 the US
real estate crisis had reached Germany, and the
news emerged that numerous German banks
were also being forced to write off huge amounts.
The reason lay in the huge jump in credit derivative
business during earlier years. Credit derivatives
include securitised loan receivables. Banks carve
their receivables out of their balance sheets and
transfer them to a special-purpose vehicle. This
vehicle then issues bonds, the interest on and
repayment of which is based on the performance
of the underlying claims. These securitised bonds
are referred to jointly as asset backed securities
(ABS). The ABS market had grown dramatically in
previous years. In just the first six months of 2007,
the total value of issued ABS was USD 1.4 trillion,
and most of these papers were bought up by
banks and funds across the world.
As a consequence of the US real estate crisis,
many hedge funds had to be closed and liquidated.
The market for ABS papers, based on real estate
loans, practically collapsed. The prices for these
papers fell, resulting in the need for the banks that
had included such papers in their portfolio to
implement large write-downs. The first bank to be
hit was the New York investment bank Bear
Stearns. In Germany, meanwhile, it was a medium
-sized bank and three regional banks (Landesbank)
that were particularly hard hit. The Federation,
banking sector and the state-operated Kreditanstalt
für Wiederaufbau (KfW) sprang into action
with a financial rescue package.
More and more banks were subsequently to find
themselves in difficulties.
In the UK, the mortgage lender Northern Rock
was rescued by the Bank of England, which provided
an emergency loan, whilst the British government
stepped in to guarantee all deposits held
with the bank.
The US investment house Bear Stearns was sold,
on the brink of collapse, to J.P. Morgan Chase on
14 March 2008, with the Fed assuming balancesheet
risks of USD 29 billion.
Then, in July 2008, the Californian mortgage bank
IndyMac collapsed. Meanwhile, the US mortgage
giants Fannie Mae and Freddie Mac were experiencing
increasing difficulties.

In September 2008, the investment bank Merrill
Lynch was bought up by the Bank of America,
whilst the insurance giant AIG found itself in acute
financial difficulties brought on by its huge losses
of billions of dollars. The US central bank came to
the aid of AIG with a loan for USD 85 billion.
The real estate crisis is thus turning into a crisis
that is affecting the entire financial sector. The lowest
points in the crisis so far have been the insolvency
of the US investment bank Lehman Brothers
on 15 September 2008 and the threat of state
bankruptcy facing Iceland, to the extent that the
Icelandic government has assumed full control of
its banking industry.
The direct consequences of the global financial
market crisis experienced to date are:
·· Clear restrictions in the flow of funds on the
money and capital markets. As a result of the
lack of confidence in each other, credit institutions
are barely lending to one another anymore.
·· Growing credit spreads for nearly all issuers of
securities. This is in some cases generating dramatic
price losses in the securities markets.
ABS/MBS are the most affected type of security.
Additionally, the negative effects in relation to
bank bonds are spreading into government
papers too.
·· As a result of the widening of credit spreads,
banks are being forced to accept major losses
when valuing their security portfolios. The farreaching
lack of liquidity on the money and capital
markets is leading to a clear deterioration in
··· MANAGEMENT REPORT ···
the refinancing conditions available to banks,
which only have limited opportunities to plug liquidity
shortfalls or to refinance new business
with matching maturities.
The bank regulators and governments in the countries
concerned have reacted by cutting interest
rates, by injecting additional liquidity into the markets
and by agreeing on various different rescue
packages for banks and other sectors and introducing
economic stimulus programmes.
Deutsche Hypo has also been unable to escape
the fall-out from the financial market crisis. It
remains to be seen how strong the negative
effects of the financial market crisis remain in the
future and how long it will take for the crisis to be
overcome.
Further details on the impact of the financial crisis
on Deutsche Hypo are provided in the Risk Report.
·· BUSINESS PERFORMANCE
·· OVERVIEW
·· Net interest and commission income was just
under € 118.3 million, and thus up on the previous
year’s level by € 6.4 million (+ 5.7 %).
·· Administrative expenses rose by € 3.8 million in
total (+ 10.5 %). The rise, particularly the rise of
11.6 % in personnel costs, was due to the integration
of the commercial real estate finance
business of NORD/LB during the fourth quarter
··· 19 ···

··· 20 ···
of the previous year and the related rise in the
number of employees. The cost/income ratio
rose to 33.3 % (previous year: 31.9 %).
·· Risk provisioning totalled € 4.8 million on balance
and was thus € 20.6 million down on the
previous year (- 81 %). The costs of provisioning
for loan losses rose to € 22.7 million (previous
year: € 12.4 million) and was within expectations.
Provisioning for risks with regard to the
liquidity reserve was a positive result on balance.
One-off effects from the sale of financial
assets offset the expenses associated with
write-downs and price losses.
It should be borne in mind that the risk provisioning
figure for the previous year was exceptionally
low in terms of a long-term comparison.
·· As a result of major price losses in relation to
claims against Icelandic banks and structured
mortgage loan claims, the Bank reported
expenses for write-downs on securities held as
fixed assets of € 95.0 million (previous year:
€ 5.4 million).
·· The result from ordinary business activity was
significantly down, with a negative balance of
€ 3.0 million. The result after taxes was a positive
result of € 0.6 million. This is primarily due to the
correction of tax provisions and tax claims,
resulting in a net income of € 3.6 million.
·· New mortgage loan commitments totalled
€ 1,779 million. This is substantially down on the
previous year (-34 %), due to the impact of the
financial market crisis and a significantly more
reticent approach to new foreign business.
·· New capital market business commitments also
fell significantly, down to € 2,279 million (- 52 %),
again reflecting the impact of the financial crisis.
·· MORTGAGE LOAN BUSINESS
·· NEW MORTGAGE BUSINESS
New commitments in mortgage business totalled
€ 1,779 million, and were thus € 914 million down
on the previous year (- 34 %). This fall was evenly
split between commercial and residential business,
which accounted for around 80 % and 15 %
respectively of new business, as in the previous
year. Deutsche Hypo only made limited use of the
newly created scope for mortgage banks to issue
loans without security in the form of a charge on
property, this option being created with the introduction
of the Pfandbrief Act. Such financings
accounted for a mere € 77.5 million (4 %) of the
total volume of new commitments.
New mortgage lending business (in € millions)
3,000
2,000
1,000
0
1,231
354
877
2,188
474
1,714
2,693
425
2,118
2005 2006 2007 2008
Commercial loans Residential loans
Loans without charge on property
150
1,779
242
77
1,460
The fall in the volume of new business was solely
attributable to the fall in foreign business. This was
reduced by € 1,249 million (- 54 %), with the fall primarily
attributable to the UK and the USA (- € 1,201
million).

Meanwhile, the volume of new commitments was
increased in terms of domestic business, which
grew by € 335 million to total € 736 million (+ 84 %).
The dramatic fall in the volume of new business
can be explained in part by the impact of the financial
market crisis and also in part by the increasingly
cautious business policy adopted in response to
the crisis.
One of the major effects of the crisis was a deterioration
in the available refinancing options. Particularly
after the investment bank Lehman
Brothers became insolvent, demonstrating that
even major banking houses could be affected so
dramatically by the crisis, practically all the options
for acquiring long-term refinancing on the capital
market dried up.
The exorbitant level of risk that emerged out of the
Lehman collapse for the banking sector as a
whole and thus for the worldwide economic system
caused the German government to adopt a
comprehensive raft of measures in the form of
state-backed guarantees and capital investments.
This avoided any further damage to the economic
system, faced with the threat of other major
banks becoming insolvent.
Despite these efforts, the refinancing possibilities
on the capital market were still restricted during
the final quarter of 2008, not least because the
banks were initially hesitant in taking advantage of
the government's assistance and indeed continue
to be so. This in turn severely impeded the recommencement
of regular business activity on the
capital market as a lack of comparable rates meant
··· MANAGEMENT REPORT ···
that it was not possible to carry out proper pricing
for transactions.
The only very limited refinancing options meant
that lending business was only engaged in to a
limited extent during the final quarter of 2008,
despite the fact that there were opportunities for
new business to be had.
We have been assessing the real estate markets
in our target countries of the USA, the UK and
Spain as critical for some time now, and pointed to
the weaknesses in these markets back in our
2007 Annual Report. Overheating was particularly
in evidence in the USA, where the market for residential
real estate had been hit by an ongoing
price collapse and where a direct impact on the
commercial property could no longer be ruled out.
Against this background there were and there
remain potentially higher risks for our financing
portfolio in these countries, and the Bank’s more
cautious approach, resulting in a lower volume of
new business in the USA and the UK, was a
necessary reaction to this development.
··· 21 ···

··· 22 ···
New business by region (in € millions)
1,500
1,250
1,000
750
500
250
0
61
517
21
242
50
340
2005 2006 2007
The regional distribution of new commitments in
Germany, which rose by € 335 million overall,
demonstrated that the main increase was to be
found in western Germany (+ € 204.2 million). In
contrast, the rise in eastern Germany was lower
(+ € 53.7 million). In addition, for the first time in
our domestic business, we entered into financing
commitments without charge on property. These
totalled € 77.5 million. In this respect we restricted
our lending exclusively to those customers whose
business is professional real estate investment
and who have the appropriate experience and a
proven track record in this field.
The volume of new commitments in terms of foreign
business was marked by a significant fall in
the USA and the United Kingdom. In the USA, the
volume of new commitments fell by € 761 million
to € 506 million (- 60 %). New commitments in the
UK totalled € 260 million, and were thus € 504 million
down on the level of the previous year (- 66 %).
119
Benelux UK/ Ireland France USA Spain Germany Austria
478
304
558
82
647
66
764
79
1,267
116
401
2008
At € 95 million, the volume of new business in
Spain remained largely unchanged compared with
the previous year (€ 116 million).
The Benelux countries witnessed a doubling of
new business volumes to € 132 million as our
decision to strengthen our sales capacity in the
region yielded tangible results.
New commitments in France totalled € 35 million.
The future performance of Deutsche Hypo’s foreign
business is heavily dependent on the performance
of the real estate markets in the key
countries, the United Kingdom and the USA. In
view of the current negative state of these markets,
we will approach all further business activities
here with particular caution. A similar assessment
also appears prudent for the Spanish real
estate market.
132
260
35
506
95
736
15

Of the entire volume of new commitments
entered into, € 242 million (14 %) involved financing
for residential properties. The share of commercial
loans was € 1,460 million (82 %), thus
down on the previous year’s level by € 658 million
(- 31 %). Loans without charge on property totalled
approximately € 78 million (4 %).
The majority of new commercial commitments
related to office and retail premises, which
accounted for around 86 % of the total commercial
new commitment volume. In contrast, new commitments
in the specialised lending field
decreased to € 206 million, a year-on-year fall of
€ 624 million, and thus contributed just 12 % of
the total new lending volume (previous year: 31 %).
During the previous year, business in this segment
mainly involved lending for hotel projects and
logistics buildings. As the crisis on the real estate
markets has developed, Deutsche Hypo has
become more reticent in its operations in this segment.
The percentage-terms distribution of new commitments
in 2008 over different types of property
has, as in the past, proven its worth in terms of
the balancing of potential income and risk.
3,000
2,500
2,000
1,500
1,000
500
0
··· MANAGEMENT REPORT ···
New business by property type (in € millions)
224.2
342.1
226.2
465.3
1,022.7
829.9
719.4
568.4
311.1
353.8
0.0
474.2
0.0
424.8
150.1
242.3
2005 2006 2007
2008
Loans without charge on property
Residential Properties Office properties
Retail properties Other properties
·· MORTGAGE LOAN PORTFOLIO
205.7
480.2
773.6
The mortgage loan portfolio increased by € 550
million (+ 6.4 %) from € 8,544 million to € 9,094
million. This increase was the result of new business
in the office and retail property segments,
which grew by € 414 million and € 272 million
respectively. Despite good new business volumes,
residential property recorded a fall of € 52
million. The portfolio in the segment of other properties
decreased by around € 82 million.
The development of the portfolio in Germany and
abroad can be broken down as follows:
In Germany, the domestic portfolio grew by € 111
million to € 5,121 million, so that despite the good
volume of new domestic commitments (€ 736
million), only 15 % of the total impacted on the
portfolio in practice.
77.5
··· 23 ···

··· 24 ···
In relation to foreign business, in contrast, total
mortgage lending fell by € 449 million to € 3,973
million. In other words, of the total new commitments
abroad (€ 1,043 million), around 43 % actually
affected the portfolio.
Mortgage lending abroad amounted to around
43.7 % of the total mortgage portfolio (previous
year 41.3 %).
The stronger increase in the foreign loans portfolio
compared with previous years is attributable to
the longer loan terms, which are an effect of the
crisis on the financial markets. This resulted in a
tangible reticence on the part of all banks with
regard to foreign business, thus enforcing a period
of calm on investors in terms of their propensity
and opportunity to switch lending bank.
In terms of foreign exchange rates, it was the
development of sterling that had the most impact
on the portfolio. The pound weakened severely
against the euro in comparison with its value as at
31 December 2007. Meanwhile, the value of the
US dollar in relation to the euro remained largely
unchanged (as at the balance sheet date).
Development of mortgage loan portfolio
(in € millions)
Residential Retail Office
Other real estate
·· MBS STRUCTURES
Deutsche Hypo did not conduct any new MBS
business during the year under review. The portfolio
volume of MBS structures amounts to € 208
million (previous year: € 302 million). This value
refers to the (nominal) outstanding capital volume,
not taking into account current prices or writedowns.
Further details on the development of the
MBS portfolio, including the effects of the financial
market crisis, can be found in the Risk Report.
·· CAPITAL MARKET BUSINESS
In view of Deutsche Hypo’s risk-aware business
strategy, 2008 was a year that offered few opportunities.
High volatility and the continuing widening
of credit spreads for bonds caused a tangible
reticence in relation to new capital market business.
Volumes fell accordingly by around 52 % to
€ 2.3 billion.
During the first half of 2008, it was still possible,
albeit to a reduced extent, to do decent business
given the risk/reward opportunities. This business
had all but dried up by the second half of the year,
causing Deutsche Hypo to practically refrain from
new capital market business altogether. Restricted
refinancing opportunities also exacerbated the
situation.
The way this business developed coincided with
our expectations, however. With its experience of
2007 and the outlook for 2008, the Bank recognised
from an early stage that capital market business
would be significantly down on the previous
year. There were many indicators that the markets
would not be returning to normal, and the poten-

New capital market business (in € millions)
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1,930
2000
2,801
2001
2,344
2002
7,019
2003
6,629
2004
4,554 4,267
2005
2006
tial risks associated with additional new business
were something that the Bank wished to avoid.
Of the remaining new capital market business
recorded during the year, 60 % can be attributed to
domestic business and 40 % to foreign deals. In
this way, Deutsche Hypo has retained its strategy
of being an international provider of state finance.
Unsecured bank bonds per se ceased to be a
focus of Deutsche Hypo’s activities back in 2007.
New capital market business by rating
01.01.-31.12.08 (€ 2.3 billion)
4,735
2,279
2007 2008
··· MANAGEMENT REPORT ···
The exceptionally difficult circumstances on the
capital markets did not have any negative impact
on our cover pool. The proportions of good and
very good ratings once again remained consistently
high this year. Maintaining the AAA rating for the
cover pool lies at the heart of all of the Bank’s
capital market activities. The good rating quality of
our portfolio was confirmed to us by the rating
agencies during the 2008 financial year.
Capital market business portfolio by rating class
As at 31.12.08 (€ 23.5 billion)
·· REFINANCING
The qualifying assets for Deutsche Hypo’s publicsector
cover pool – with the exception of federal
bonds – were affected by and continue to be
affected by widening spreads, practically without
exception. The Bank’s Pfandbrief products were
also unable to escape this general trend. National
and international investors alike increasingly reacted
by adopting a reticent approach to buying, or at
least by adopting a highly circumspect approach to
new commitments. Some investors, meanwhile,
··· 25 ···

··· 26 ···
rid themselves of their entire Pfandbrief exposure.
As expected, this development meant that
Deutsche Hypo was not able to match the issuing
volume recorded during 2007. However, it was at
all times in a position to guarantee the Bank’s liquidity.
The issue volume, at € 4.2 billion, was
below the previous year’s figure of € 6.5 billion,
with € 2.3 billion relating to Pfandbrief products.
The clear focus in this regard was on standard or
“plain vanilla” issues, i.e. those without any structured
aspects. There was little interest from buyers
in structured issues and the jumbo segment.
Against the background of the inactive market
making for jumbo issues, investors’ reluctance
towards this benchmark category is easy to understand.
Deutsche Hypo was also inactive in this
market segment in 2008.
Demand for Deutsche Hypo issues primarily
emanated from German customers. The placement
of registered securities remained an important
component of the refinancing mix.
Nevertheless, the Bank’s marketing activities continued
to be geared towards both national and
international investors. The debt issuance programme
– initially launched in the name of an
increasingly international placement – has now
become the main documentation platform for all
bearer issues. On 31 December 2008, the longterm
issuer privilege defined in the Prospectus
Directive ceased to apply. Since that date, all bearer
papers must be issued in the form of a generally
applicable basis prospectus, pursuant to the
terms of the Prospectus Directive. Deutsche Hypo
had prepared for this transition in good time, having
issued using this documentation form for
some time already.
The Bank’s strategy remains to meet investors’
needs with regard to all forms of securitisation
(mortgage and public Pfandbriefe, uncovered
bonds), product forms (bearer and registered
bonds) and product variations (structured and nonstructured,
optional benchmark bonds including
jumbo issues).
·· SECONDARY MARKET ACTIVITIES
This year, we used active measures to regulate
the price of our own securities with regard to
bonds with a nominal volume of € 685 billion (previous
year: € 678 million) and, despite the difficult
market environment, were able to ensure secondary
market liquidity.
In terms of our portfolio of own securities, early
redemptions during the year under review realised
losses of € 0.9 million (previous year: € 0.6 million).
This expense will reduce future interest
expenses.
The nominal value of our own portfolio as at the
year-end was € 181 million (previous year: € 182.2
million).

·· RATING
Deutsche Hypo rating
Once again in 2008 there were no changes to the
good ratings awarded to our Pfandbriefe, which
are still rated with the top grades of Aaa and AAA.
On 27 February 2008, Moody’s Investors Service
confirming as Prime-1 the rating for the Bank’s
short-term (unsecured) liabilities. The fact that the
Bank now belongs to the NORD/LB Group meant
that the Moody’s rating with regard to long-term
(unsecured) liabilities was raised two levels from
A2 to Aa3. This is in recognition of the assumption
that NORD/LB would step in to assist its subsidiary
should Deutsche Hypo find itself in economic
difficulties.
··· MANAGEMENT REPORT ···
Public Mortgage Short-term Long-term Financial
Pfandbriefe Pfandbriefe liabilities liabilities strength
Standard & Poor’s AAA - - - -
Moody’s Aaa Aaa Prime-1 A2 C
- - - since 27/02/2008: since 27/02/2008:
Aa3 C-
Deutsche Hypo’s financial strength rating was
downgraded one level from C to C-. Moody’s also
justified this deterioration on the grounds of the
Bank’s new status as a member company of the
NORD/LB Group, which, it was claimed, brought
greater expectations with regard to the Bank’s
profitability. This in turn could, it was reasoned,
involve Deutsche Hypo assuming higher risks in
the interests of greater profitability.
··· 27 ···

··· 28 ···
·· NET PRESENT VALUE COVER
Pursuant to the Pfandbrief Net Present Value Ordinance
(PfandBarwertV) of 14 July 2005, Pfandbrief
banks are obliged to ensure that outstanding
Pfandbriefe are covered on a net present value
basis at all times with an over-collateralisation of 2 %
per category (mortgage and public). The Pfandbrief
bank must also ensure that its net present value
cover pursuant to Section 4, paragraph 2, sentence
1 of the Pfandbrief Act is maintained in the
event of changes to interest and exchange rates
(“securing over-collateralisation”). For the purposes
of calculating this surplus cover, Deutsche Hypo
carries out the stress tests as prescribed by the
Ordinance, with the minimum over-collateralisation
of 2 % being maintained.
Deutsche Hypo met this requirement at all times
throughout the year under review. As an average
for the year, the over-collateralisation on a net
present value basis was 10.58 % in the case of
mortgage Pfandbriefe and 8.91 % in the case of
public Pfandbriefe, and thus well above the minimum
required.
Net present value over-collateralisation of mortgage Pfandbriefe (in € billions)
Outstanding public Pfandbriefe at net present values Net present value of mortgage loan pool Net present value over-collateralisation in %
Net present value over-collateralisation of public Pfandbriefe (in € billions)
Outstanding public Pfandbriefe at net present values Net present value of mortgage loan pool Net present value over-collateralisation in %

·· PROFIT SITUATION
·· INCOME POSITION DOMINATED BY
FINANCIAL MARKET CRISIS
The development of the Bank’s income position
was crucially influenced during the past financial
year by the crisis on the financial markets.
On the basis of a stable to slightly increased contribution
from mortgage lending business, the
Bank was able to increase its net interest and
commission income compared with the previous
years. Up until the third quarter of 2008, the development
of new business as planned generated a
tangible growth in the portfolio with stable margins.
However, the difficult market situation meant
that the Bank was pursuing a restrictive lending
policy by the fourth quarter. Interest income rose
by € 3.0 million to just under € 109 million (+ 3 %).
This positive development was continued with
commission income of € 9.4 million (previous
year: € 6.0 million). Foreign mortgage lending,
totalling € 3.6 million (previous year: € 5.7 million)
accounted for more than one third of total commission
income. Once again, particularly in the
Anglo-Saxon markets, it was possible to generate
sufficient commission income. Additionally, the
Bank received commission payments of € 2.9 million
from its servicing of the portfolio of loan
claims carried in the books of NORD/LB but
processed by Deutsche Hypo employees since
1 October 2008.
High redemptions and the low level of new business
mean that the portfolio was reduced in capital
market business. Nevertheless, even this area
··· MANAGEMENT REPORT ···
of business made a positive contribution of
€ 1,087.3 million (previous year: € 1,139.8 million)
to interest income.
Structure of income and expenses (in € millions)
150
120
90
60
30
0
3.0
111.9
2007
income
20.0
118.3
2008
income
35.7
26.9
3.6 12.6
3.0
2007
expenses
39.4
3.5
2008
expenses
Net interest and commission income
Other expenses
Risk result including result from financial assets
Taxes Other income
General admin. expenses including depreciation on fixed assets
·· GENERAL ADMINISTRATIVE EXPENSES
98.4
General administrative expenses rose as expected
compared with the previous year, up by 10.4 % to
a total of € 39.4 million including write-downs. Personnel
expenses rose by 11.6 %, with an increase
of 10 % recorded in other material expenses.
The rise in personnel expenses can be explained
by the acquisition of an additional 83 members of
staff from NORD/LB who, until the end of the third
quarter, were employed in the real estate banking
division of NORD/LB.
One reason for the increase in other material
expenses lies in the rising costs for rented office
premises to accommodate the additional employees
and the costs of façade work to the Deutsche
Hypo banking premises.
The cost/income ratio rose to 33.3 %, which continues
to be a good ratio in light of the turbulence
in evidence on the financial markets.
··· 29 ···

··· 30 ···
·· OTHER OPERATING INCOME AND
EXPENSES
Other operating income amounted to € 16.5 million
(other operating income and expenses balanced
each other out in 2007). The high level of
income is primarily due to the difference between
the book values and sales proceeds for real estate
that was not required for banking operations.
·· RISK PROVISIONING
The risk result was much lower than during the
previous year, with expenses of € 4.8 million.
Risk provisioning for loan losses totalled € 22.7
million (previous year: € 12.4 million). This increase
can be attributed to the at times difficult situation
in some real estate markets. The level of expenses
was as expected. It should also be borne in mind
that the previous year’s figure was an exceptionally
low figure by historical comparisons.
The risk result in relation to the liquidity reserve
was strongly influenced by the ongoing and in
some cases escalating situation on the international
financial markets. One-off effects meant
that income could be generated, which led to a
clearly positive result in relation to the liquidity
reserve. This largely offset the negative effects of
the expenses incurred in relation to lending risk.
As a result of sustained price losses in relation to,
for example, claims against Icelandic banks and
structured mortgage loan claims, the Bank reported
a high level of expenses for write-downs on securities
held as fixed assets. These amounted to
€ 95.0 million (previous year: € 5.4 million).
·· FINANCIAL INSTRUMENT
VALUATION METHODS
The ongoing financial crisis saw the market price
of various different financial instruments fall significantly.
To a large extent, this price collapse can be
attributed to a loss of confidence among market
participants and, consequently, to the disruption of
market mechanisms used for pricing. Deutsche
Hypo responded to this special situation by reallocating
securities from the liquidity reserve to fixed
assets.
The reallocated securities should in any case, in
line with the Bank’s strategy, serve business operations
over the long term and are not required for
the liquidity reserve.
The securities that have been reallocated are almost
exclusively papers with a rating of A or higher.
The book value of the securities transferred to
fixed assets in 2008 was € 1,600.4 million. The
reallocation was carried out in accordance with
IDW RH HFA 1.014 (of 9 January 2009) at the book
value of the most recent annual financial statements
or, in the case of newly acquired securities
in 2008, at historical costs.
Securities held as fixed assets are carried in the
balance sheet according to the alleviated principle
of the lower of cost or market, i.e. at their depreciated
historical costs or at their reallocation
prices.
In the event of what are likely to be long-term
reductions in value, write-downs are made with an
effect on the results. Given that it is assumed in

the case of a temporary loss in value that the
value will be recovered by maturity, temporary
value adjustments in the case of securities held as
fixed assets are not carried in the balance sheet in
accordance with the provisions of commercial law.
·· RESULT FROM ORDINARY BUSINESS
ACTIVITY
The result from ordinary business activity is a negative
balance of € 3.0 million (representing a yearon-year
fall of € 52.3 million). The return on equity
before tax during the reporting year was - 0.5 %
(previous year: 11.2 %).
The result after taxes was a positive result of € 0.6
million. This is primarily due to the correction of tax
provisions and tax claims, resulting in a net
income of € 3.6 million.
·· REPORT ON SUBSEQUENT EVENTS
There have been no events of particular significance
following the end of the 2008 financial year likely to
have a major impact on our business result for
2008.
·· PROPOSED APPROPRIATION OF
PROFIT
The Board of Managing Directors and the Supervisory
Board will propose to the shareholders at the
General Meeting that the distributable profits be
carried forward.
··· MANAGEMENT REPORT ···
·· DEVELOPMENT OF EQUITY
CAPITAL
Balance-sheet capital as at 31 December 2007
totalled € 496.4 million (excluding the distributable
profits from 2007). As resolved by the General
Meeting on 21 May 2008, the sum of € 9.916 million
from the distributable profits for 2007 was
allocated to other revenue reserves. In October
2008 NORD/LB made an equity capital contribution
of € 180.0 million, which was allocated to the
capital reserve. As at 31 December 2008, the balance-sheet
capital (excluding distributable profits)
was therefore € 686.3 million.
Subordinated liabilities fell over the course of the
financial year, down by € 1 million to € 228.3 million.
Of this total, € 215.6 million was incorporated
into the liable equity capital pursuant to Section 10
of the German Banking Act.
Participatory capital remained unchanged during
the financial year. As at 31 December 2008 it
amounted to € 108.2 million, of which € 97.9 million
was incorporated into the liable equity capital
pursuant to Section 10 of the German Banking Act.
Equity capital as reported on the balance sheet
(including participatory capital and subordinated
liabilities) thus totalled € 1,022.8 million excluding
distributable profits.
The Bank’s total equity ratio in accordance with the
Solvency Ordinance was 11.41 % (previous year:
9.3 %). The core capital ratio was 8.56 % (previous
year: 5.5 %). This means that both the total equity
ratio and the core capital ratio far exceeded the
statutory requirements of 8 % and 4 % respectively.
··· 31 ···

··· 32 ···
The issuing of a hybrid bond as resolved at the
General Meeting in November 2006 has not gone
ahead. As a result of the financial crisis and the
associated widening of credit spreads, the agreed
interest rate corridor for this bond can still not be
realised on the market. Furthermore, Deutsche
Hypo is now a member company of the NORD/LB
Group and will be provided with equity capital
within the framework of the basic parameters
stipulated for the Group, as already happened in
October 2008.
·· GROUP AFFILIATION
As formally stated, the following companies held a
stake in our company up until 8 January 2008:
·· BHF-BANK Aktiengesellschaft, Frankfurt am
Main
·· M.M. Warburg & CO Gruppe KGaA, Hamburg
·· Döhle ICL Beteiligungsgesellschaft mbH, Hamburg
·· Josef H. Boquoi-Stiftung, Lübeck
·· COREALCREDIT BANK AG, Frankfurt am Main
·· Union Investment Institutional GmbH,
Frankfurt am Main
Since 8 January 2008, Norddeutsche Landesbank
Girozentrale, Hanover, has held the majority share
(97.612 %) of our company’s share capital. Furthermore,
since 9 December 2008, on the basis of a
ruling of Frankfurt am Main Upper Regional Court,
according to which the application lodged by Norddeutsche
Landesbank (NORD/LB) for the squeezeout
of minority shareholders of Deutsche
Hypothekenbank (Actien-Gesellschaft) in conjunction
with the takeover by NORD/LB in exchange
for a settlement was upheld, NORD/LB has been
the sole shareholder of Deutsche Hypothekenbank
(Actien-Gesellschaft).
Pricing of the Deutsche Hypothekenbank (Actien-
Gesellschaft) share (security code no. 804200,
ISIN DE0008042003) was ceased at the close of
business on Tuesday, 23 December 2008. The
admission of the shares to trading was officially
revoked pursuant to Section 39, paragraph 1 of
the Stock Market Act as at 30 December 2008.
In accordance with Section 271, paragraph 2 of
the German Commercial Code, Deutsche
Hypothekenbank (Actien-Gesellschaft) is an affiliated
company of NORD/LB and is included in the
consolidated accounts of NORD/LB. These consolidated
financial statements will be published in
the electronic Federal Gazette on 29 April 2009.
As formally stated, NORD/LB holds the majority of
the share capital of Deutsche Hypothekenbank
(Actien-Gesellschaft), Hanover/Berlin. The Bank's
Board of Managing Directors has produced a
report on relations with affiliated companies for
the period from 8 January 2008 to 31 December
2008, and declared as follows, in accordance with
Section 312, paragraph 3 of the Joint Stock Companies
Act (AktG):
“With regard to the legal transactions listed in the
report on relations with affiliated companies,
Deutsche Hypothekenbank (Actien-Gesellschaft)
has – on the basis of the circumstances which
were known to it at the time of the respective
legal transaction – consistently been in receipt of
an appropriate counter-performance.
It has not been disadvantaged by any measures
taken or omitted at NORD/LB’s request.”

·· LETTER OF COMFORT OF NORD/LB
As noted by NORD/LB in the Annex to the 2008
Annual Report, NORD/LB shall ensure that
Deutsche Hypothekenbank (Actien-Gesellschaft)
is in a position to meet its obligations.
·· RISK REPORT
·· CURRENT DEVELOPMENTS
·· Integration of Deutsche Hypo into the NORD/LB
Group risk management system. As part of the
integration with the NORD/LB Group, the risk
management system has been adjusted in order
to ensure uniformity of risk measurement and
management across the Group.
·· Adjustment of the Deutsche Hypo risk strategy.
Adjustments to the risk strategy largely comprised
the introduction of the concept of riskbearing
capacity that is used throughout the
NORD/LB Group.
·· Expansion and optimisation of the management
of liquidity risk. The methods employed to measure
the liquidity risk have been harmonised with
those used by the NORD/LB Group. Moreover,
the liquidity risk is now also taken into account as
part of the assessment of risk-bearing capacity.
·· Credit spread risk: As a consequence of the crisis
on the financial markets, the methods used
to measure and manage the credit spread risk
have been thoroughly revised. In addition, the
analytical methodology of the NORD/LB Group
has also been implemented.
··· MANAGEMENT REPORT ···
·· On 30 September 2008 the Bank obtained the
approval of the Federal Financial Supervisory
Authority (BaFin), to use an internal ratings
based approach (IRBA) to determine the minimum
capital requirements according to the
rules of the German Solvency Ordinance
(SolvV). Introduction of new ratings procedures:
as part of the process of integration into the
NORD/LB Group, the Bank has introduced new
ratings procedures as of October 2008 that are
already in use throughout the rest of the
NORD/LB Group. These ratings procedures concern
the real estate finance business. The procedures
have already been recognised by the
banking supervisory authority for use by
NORD/LB and therefore do not affect the Bank’s
existing IRBA approval.
·· Expansion of reporting in the field of risk management.
Deutsche Hypo has been fully integrated
into the NORD/LB Group’s risk reporting
system.
·· Incorporation of Deutsche Hypo into the
Sicherungsreserve der Landesbanken und
Girozentralen (a deposit guarantee scheme operated
by the Landesbanks and the central associations
of the savings banks) with effect from
1 January 2009. This scheme is the public-sector
banking equivalent of the Joint Fund for Securing
Customer Deposits operated by the private
banks.
··· 33 ···

··· 34 ···
·· IMPACT OF THE FINANCIAL CRISIS
·· EFFECTS ON THE RISK RESULT AND RISK
POSITION OF DEUTSCHE HYPO
The business result of the Bank for 2008 has been
significantly affected by risk provisioning in the
form of what is likely to be a permanent value
adjustment of Icelandic bank bonds held in the
securities portfolio, the Bank’s exposure to the
Lehman Brothers investment bank, and other
write-downs in the MBS portfolio.
At € 22.7 million, the level of risk provisioning in
the real estate finance sector is only slightly over
the planned value and corresponds to the average
level of previous years, with the exception of the
exceedingly good risk result in 2007, which was
extremely low following sales of non-performing
loans in 2006.
In relation to the total portfolio of real estate
financings, the risk ratio for 2008 was 0.25 %,
which corresponds to expectations and historical
risk costs and which was taken into account in the
margin calculation for new business. Actual use of
value adjustments, at € 12.5 million and 0.14 % of
the portfolio, was significantly down on the previous
year’s levels.
Compared with previous years, it was necessary
for the first time to engage in significant risk provisioning
for foreign financing. Of the total new
allocations to individual value adjustments, 58.1 %
can be attributed to just two financings in the USA
and the UK.
·· REAL ESTATE FINANCE
Of the Bank’s real estate finance portfolio (including
guarantees and loans without charge on property)
of approximately € 9.4 billion, 79 % consists
of finance granted to customers whose credit rating
is at least satisfactory on the basis of the rating
scale of the IFD initiative (an initiative designed to
support Germany as a financial base).
Rating structure
based on IFD
(in € millions)
Very good to good
Good/satisfactory
Still good/satisfactory
Elevated risk
High risk
Very high risk
Default
Total
2008
Volume Share
1,389 14.8 %
2,884 30.8 %
3,143 33.6 %
1,085 11.6 %
407 4.4 %
162 1.7 %
289
9,359
3.1 %
2007
Volume Share
1,102 12.6 %
2,370 27.2 %
3,982 45.7 %
883 10.1 %
190 2.2 %
4 0.1 %
184
8,715
2.1 %
Overall, over the last two months, 60 % of the
portfolio was revalued using the new Group-wide
rating procedures.
Half of new business was generated within the
first two rating categories, with the other half
being generated in the third category. The broader
allocation of the portfolio across the rating classes
compared with the previous year can be attributed
to the new rating procedures, which lead to more
broadly diversified results. At the same time, the
increase in volume in the riskier categories is a
reflection of the poorer economic situation on the
real estate markets, particularly in the regions of
the UK and the USA.

54 % of the portfolio is composed of domestic
finance. 46 % of the portfolio is composed of foreign
finance with the focus on the USA (19 %) and
the UK (14 %), as well as France (4 %), Spain (3 %)
and the Benelux countries and Austria.
The rating reflects the credit standing of the
respective borrower. The actual risk associated
with the finance is also crucially determined by the
quality of the real estate serving as security.
·· USA
Exposure in the USA including disbursement obligations
totals € 1.9 billion, distributed among 80
individual financings with an almost balanced
spread across the core segments of office properties
(€ 0.7 billion), residential property (€ 0.4 billion),
retail trade (€ 0.3 billion) and hotels (€ 0.4 billion),
and other segments accounting for € 0.1 billion.
In all, 28 financings worth € 0.6 billion relate to
project developments. These include 12 commitments
to “condominium constructions” with a
volume of € 0.2 billion. Since the beginning of the
year we have been observing a weakening of marketing
success and some cases of delayed construction
work. As a result of this weakening in the
market, three out of the 12 condominium projects
are classed as ailing loans, with three further projects
being the subject of intensive measures.
Of the 268 individual properties financed in the
USA, most are located in New York, the District of
Columbia, California, Florida and Nevada. 94 % of
the financings in the portfolio have an A rating. The
average LTV based on market values from previous
years is 55 %.
As part of ongoing market observation, a higher
level of market fluctuations was in evidence
towards the end of 2008 in the case of half of the
US portfolio. Yields from 2006 to September 2008,
changes in rent levels and vacancy rates have all
been evaluated.
Given the broad spread of properties across the
whole of the USA, no further investigation of individual
regional markets was carried out. Instead,
each commitment was examined to determine
whether the valuation needed to be reviewed in
response to the changed market conditions. Problematic
properties were identified and viewed by
the Bank's own experts. In the case of project
developments and further properties, the indicative
values are already showing average market
price falls of 15 %. This trend could change further
following the revaluation of individual properties
and on the basis of more up-to-date rental and
marketing rates. It was not necessary to adjust
the loan values determined by the Bank in 2008.
·· UNITED KINGDOM
··· MANAGEMENT REPORT ···
The Bank is involved in 38 financings worth € 1.2
billion in the UK. Half of this volume is invested in
the office properties market (€ 0.5 billion) and the
hotel sector (€ 0.2 billion). Only 8.5 % of the portfolio
is related to residential construction.
As in the case of the USA, it was not necessary to
identify individual markets in the UK given that all
property types across the country are clearly
being affected by the general fluctuations on the
market. For this reason, the review of market values
generally carried out every three years was
··· 35 ···

··· 36 ···
brought forward for all properties forming the
object of loans. By the end of the year, the market
values of all properties in the highest priority category
had been recalculated on an indicative basis
without a viewing.
A review of properties' value will be required for
half of all the real estate, with the first results
already indicating a more significant reduction in
market price than that seen in the USA and thus a
deterioration in the original average LTV of 57 %.
Two financings have already failed in 2008 and
needed to be partly value adjusted.
MBS portfolio
The portfolio of securitisations as at 31 December
2008 encompassed a total of 53 individual stocks
with a book value of € 166 million, which, in accordance
with the Bank’s business strategy, were
acquired with a minimum rating of A and are under-
pinned by a diversified range of real estate portfolios
in the residential and commercial sectors.
MBS portfolio by asset class
Volume: € 166 million
MBS portfolio by rating
Volume: € 166 million
CMBS-UK, accounting for 58 % of the portfolio, is
the most significant asset class. Despite the evident
cooling on the European real estate markets
and increasingly visible covenant breaches, rating
downgrades and negative outlooks in the case of
various different European MBS, the European
CMBS and RMBS of Deutsche Hypo have been
considered to be stable to date. Monitoring on an
individual basis on the basis of fundamental performance
to date – leaving aside price falls – has
not yet led to any early warning criteria being fulfilled.
All of the European papers are investment
grade and have met their payment obligations to
date.
With the exception of one issue with a rating of
BBB-, all of the European papers have at least an
A rating.
The current situation with regard to US exposure
is considerably more difficult. Whilst the CMBS-
US is still recording a satisfactory performance
and still has ratings of AAA, the fundamental data
of both the RMBS-US and the CDO-US have

markedly deteriorated, as is also evident from a
large number of downgrades in relation to these
papers.
With regard to the assessment of US CDO and
RMBS papers, which are classed as critical,
Deutsche Hypo has set up internal scenario models.
Overall, value adjustments of € 41 million have
been made, of which € 26 million in 2008. The
value adjustment ratio for papers class as critical is
therefore 90 %, and 53 % with regard to the
entire US portfolio. With the remaining low residual
book values of € 8 million in the case of CDOs
and € 29 million in the case of the US RMBS segment,
concerning almost exclusively investment
grade papers, default risks scarcely exist at the
current time.
As an early reaction to the financial crisis, the Bank
halted its MBS business back in May 2007 and
has not acquired any further papers since this
time.
Securities portfolio by borrower
Total volume € 12.0 billion (31.12.08)
Securities portfolio
··· MANAGEMENT REPORT ···
The securities portfolio is composed on an almost
equal basis of securitised claims against central
governments, local authorities and public companies,
accounting for a share of 44 %, and of claims
against [credit] institutions, accounting for 56 %.
The main focus continues to be on domestic exposure,
accounting for 59 %.
Securities portfolio by rating
Total volume € 12 billion (31.12.08)
··· 37 ···

··· 38 ···
The current economic situation is, however, also
reflected in the securities portfolio. The average
rating of AA- corresponds to the previous year’s
average. It is still the case that 59 % of the securities
portfolio is rated AA- or higher. However, this
figure was as high as 67 % during the previous year.
For the first time in 2008, value adjustments were
required (without taking into account the MBS
portfolio) due to value impairments that were
judged to be long-term. Affected by these adjustments
were five issues with a volume of € 90 million;
Lehman Brothers, which still had an external
rating of A at the beginning of the year, and the
Icelandic credit institutions Kaupthing Bank, Glitnir
Bank (both with an A rating) and Landsbanki (AA).
All of the other papers in the securities portfolio
continue to be of investment grade quality.
Lehman Brothers
As a direct consequence of the subprime crisis,
Lehman Brothers Holding Inc., New York, following
substantial losses, applied for creditor protection
pursuant to Chapter 11 of the Bankruptcy
Code in September 2008. BaFin responded on the
same day by ordering a moratorium on Lehman
Brothers Bankhaus AG. Deutsche Hypo terminated
its framework derivatives agreement with Lehman
Brothers Bankhaus AG with immediate effect and
entered into replacement transactions.
The Bank’s total claim against Lehman Brothers
Holding Inc. is € 10 million from a floating rate
note, with € 5 million owed from the German company
Lehman Brothers Bankhaus AG from the balanced
additional expenses due to the termination
of the derivatives.
Iceland
The Icelandic credit institutions Kaupthing Bank,
Landsbanki and Glitnir Bank in particular were hit
incredibly hard by the worldwide financial and
banking crisis. Operating in accordance with contingency
laws, the FME (Iceland's financial supervisory
authority) assumed control of the institutions,
splitting each up into a “new-bank” and a
“bad-bank”. Foreign activities remained in the old
bank (“bad-bank”).
A moratorium on the “bad-bank” was declared on
24 November 2008. This measure is said to be
necessary to ensure that all creditors are treated
equally. Additionally, talks are to be held with the
creditors with the aim of maximising the proceeds
received by all of those concerned.
Given the lack of transparency surrounding the
transactions, there is no reliable information available
on the potential amounts likely to be
recouped. The nominal amount of exposure to the
Icelandic institutions is € 80 million.
Liquidity risk
The effects in terms of liquidity risk primarily relate
to the short-term liquidity risk. The shortage of liquidity
associated with the financial crisis poses
the risk of insolvency. Deutsche Hypo monitors
this risk by permanently reviewing future payment
flows and by asking the question of how long the
Bank's liquidity will last before cover will need to
be sought on the money or capital market. As
soon as cover is required from the market,
Deutsche Hypo has the option, in its capacity as a
Pfandbrief bank, of procuring additional liquidity by

issuing covered mortgage Pfandbriefe. Only in a
final escalation stage would liquidity be procured
by issuing non-covered bonds. This possibility
would only have been available to a limited extent
during the past financial year in light of the crisis
on the financial market. However, Deutsche
Hypo’s short-term liquidity situation proved to be
risk-free to a large extent in 2008.
Throughout the entire year, Deutsche Hypo was in
a position to cover its liquidity needs for the following
eleven months without the need for unsecured
bonds to be issued. Potential deteriorations
also emerged in the area of refinancing risk as a
result of widening credit spreads. With regard to
measurement of liquidity risk (30 June 2008), the
relevant risk key figure was € 53.7 million. As at 30
September 2008, this risk had increased to € 65.0
million. This prompted Deutsche Hypo to take
counter-measures to manage the situation. In particular,
the covering of forward deposits was used
to create scope for balancing existing incongruent
refinancing with covered refinancing options. This
situation improves the refinancing potential and,
correspondingly, reduces the refinancing risk. As
at 31 December 2008, the risk key figure for liquidity
risk had fallen to € 39.9 million.
This demonstrates the advantageous nature of the
newly introduced processes to measure and manage
liquidity risk, the quality and effectiveness of
which was directly proven.
··· MANAGEMENT REPORT ···
·· IMPACT OF THE FINANCIAL CRISIS ON
OFF-BALANCE SHEET VALUE IMPAIRMENTS
OF SECURITIES HELD AS FIXED ASSETS AND
CREDIT DERIVATIVES
Securities held as fixed assets
Value impairment of securities held as fixed
assets are carried out by Deutsche Hypo using the
alleviated lower of cost or market principle and
posted to profit and loss, provided that the value
impairments are judged to be long-term.
If the value impairments are not judged to be longterm
impairments, the assets are carried in the
balance sheet at their depreciated historical costs
as it can be assumed that the value will be written
back or that repayment will be made in full upon
maturity. Temporary market fluctuations are not
taken into account for balance sheet purposes due
to the intention of holding these assets over the
long term.
As a result of the financial crisis, the credit
spreads for a large proportion of the securities
portfolio have widened, so that the market values/
fair values of the securities have been markedly
reduced on a temporary basis despite the very
good quality of the portfolio.
Taking into account valuation units, there were
hidden obligations in the amount of - € 60.9 million
(previous year: € 71.5 million) for the book values
in the amount of € 7,436.0 million (previous year:
€ 3,377.6 million) as at the balance sheet date,
alongside hidden reserves in the amount of € 23.6
million (previous year: € 41.8 million) for book values
in the amount of € 3,397.7 million (previous
··· 39 ···

··· 40 ···
year: 6,249.8 million). On balance, this gives hidden
obligations of € 37.3 million (previous year:
€ 29.7 million). For the purposes of this calculation,
model values were used for those securities for
which no market values were available.
Credit derivatives
Deutsche Hypo’s credit derivative portfolio
includes total return swaps on US municipals in a
nominal amount of € 698.25 million and credit
default swaps on states in a nominal amount of
€ 594.59 million. As at the balance sheet date, the
positive fair value of the total return swaps was
€ 122.59 million, whilst the credit default swaps
had a negative fair value of - € 4.73 million. Given
the predominantly very good rating quality of the
underlyings, we are assuming that the value
impairment will only be temporary.
A further effect of the financial crisis was that only
limited market prices from liquid markets have
been available for the valuation of securities held
as fixed assets and credit derivatives. Where there
is an absence of active markets, model prices are
used to calculate hidden obligations/reserves in
the place of market prices. Further information on
and reasons for the model prices used are given
below.
In the case of securities held as fixed assets,
31.2 % of the portfolio was valued using models.
Due to the lack of liquidity of the relevant markets,
credit derivatives were valued entirely using
model prices. Had a valuation been carried out
using what we regard as the highly distorted
prices of inactive markets, the balance of hidden
obligations and hidden reserves with regard to
securities held as fixed assets would have been
less favourable to the tune of € 152.3 million,
whilst the market values of credit derivatives
would have been € 149.65 million lower.
·· FINANCIAL INSTRUMENT VALUATION
METHODS
The ongoing financial crisis saw the market price
of various different financial instruments drop significantly.
To a large extent, this price collapse can
be attributed to a loss of confidence among market
participants and, consequently, to the disruption
of market mechanisms using for pricing.
Deutsche Hypo responded to this special situation
with two measures:
·· 1. Reallocation of securities from the liquidity
reserve to fixed assets
During the 2008 financial year, the Bank reallocated
securities from the liquidity reserve to
fixed assets. The reallocated securities should in
any case, in line with the Bank’s strategy, serve
business operations over the long term and are
not required for the liquidity reserve.
The securities that have been reallocated are
almost exclusively papers with a rating of A or
higher.
The book value of the securities transferred to
fixed assets in 2008 was € 1,600.4 million. The
reallocation was carried out in accordance with
IDW RH HFA 1.014 (of 9 January 2009) at the
book value of the most recent annual financial
statements or, in the case of newly acquired
securities, at historical cost.

Securities held as fixed assets are carried in the
balance sheet according to the alleviated principle
of the lower of cost or market, i.e. at their
depreciated historical costs or at their reallocation
prices.
In the event of what are likely to be long-term
reductions in value, write-downs are made with
an effect on the results. Given that it is assumed
in the case of a temporary loss in value that the
value will be recovered by maturity, temporary
value adjustments in the case of securities held
as fixed assets are not carried in the balance
sheet in accordance with the provisions of commercial
law.
·· 2. Application of model prices in disrupted/
inactive markets
The greatly limited ability of the financial markets
to function properly has led to a significant
amount of uncertainty within the financial sector
regarding the valuation of securities, i.e. in the
calculation of their fair value.
The various segments of the capital market have
been affected to differing extents by the financial
crisis. While bonds of public-sector issuers
were at times extremely sought after as a safe
haven, most other markets almost entire collapsed
in some cases, due to the substantial
loss of confidence.
The massive disruption to market mechanisms
has led to major price falls, with very high
bid/offer spreads and levels of trading that range
from low to non-existent. The securities and
··· MANAGEMENT REPORT ···
credit derivative portfolios of Deutsche Hypo
were also affected by this fall in listed market
prices.
In order to provide a proper view of its assets,
liabilities, financial position and profit or loss,
Deutsche Hypo has reviewed on an individual
basis the extent to which the listed prices can
be used as the basis for calculating the fair values
of securities and derivatives. The German
Commercial Code (HGB) does not contain
express provisions on how fair value should be
calculated. In the case of active markets,
Deutsche Hypo applied the mark to market or
mark to matrix method for its valuations in line
with its standard practice. With regard to inactive
markets, discounted cash flow (DCF) models
were used to calculate the fair value.
In respect of the securities in the liquidity
reserve, the Bank was able to consistently
establish sufficient market activity so that the
valuation was based exclusively on the mark to
market approach.
In relation to the securities held as fixed assets,
for a portion of the securities it was not possible
to establish a sufficient level of market activity;
in these cases model values were used to calculated
the fair value. Since securities held as fixed
assets are accounted for using the optional
lower of cost or market approach, the use of
DCF models in reporting the Bank’s result is not,
however, important. No write-ups based on
model values were posted to the balance sheet.
··· 41 ···

··· 42 ···
To this extent, no DCF model valuation methods
were used to calculate the result reported for
2008.
The largest effect (in monetary terms) of the use
of DCF models was in the hidden reserves/hidden
charges relating to securities held as fixed
assets as reported in the Notes, and in the fair
values for credit derivatives reported in the
Notes.
·· CALCULATION OF THE FAIR VALUE OF
SECURITIES
For all securities, Deutsche Hypo verified the liquidity
of the market in order to assure itself of the
applicability of the listed prices for use in a proper
valuation. The initial premise of the verification in
each case was a visible, significant difference
between the “published” price and the theoretical
fair price of a security that would be agreed
(approximately) between market experts in a liquid
market.
Where in these cases we also established there
was insufficient representative sales volume and
bid/offer spreads that were judged not to be typical
of the market, we used DCF model prices
instead of “market prices”.
In the context of the DCF model, the cash flows
for the securities are risk-adjusted and discounted
on the basis of the swap curve. The risk adjustment
process takes account of the issuer-related
probability of default and a worst case scenario in
terms of a 100 % loss in the event of default. With
regard to the discounting, account is also taken of
the spread premiums for the required return on
equity, which increase as the risk level rises. Wherever
securities include cancellation rights, these
were incorporated into the value using common
actuarial methods/standard option pricing models.
On balance, the value of the security is calculated
from the Bank’s perspective using the selected
model if the Bank intends holding the security
until its final maturity and wishes to obtain an
appropriate level of return on the risk involved.
·· SPECIAL CHARACTERISTICS OF DCF
VALUATION OF MBS
MBS papers are as a general rule also valued
using the above valuation model for securities.
Due to the irregular structure of the interest and
redemption cash flows, the expected cash flows
are calculated on the basis of the weighted average
life (WAL) and average expected interest. The
probabilities of default applied are based on the
current assessments of the rating agency
Moody’s. In calculating the risk-dependent return
for the purposes of ensuring capital adequacy, the
quality of the MBS tranche was taken into account
in addition to the probability of the issuer defaulting.
To calculate what are expected to be long-term
value reductions in CDOs and US RMBS, internal
models were used on the basis of which the
expected long-term defaults on tranches held by
Deutsche Hypo could be estimated.
The models take account of the crucial risk key figures
for the calculation of default risk structure
and were already used during the previous financial
year.

Where these models demonstrated reductions in
value that were likely to be permanent, the Bank
posted write-downs of the corresponding magnitude.
The DCF model was not applied in these
cases.
·· SPECIAL CHARACTERISTICS OF THE
VALUATION OF TOTAL RETURN SWAPS ON US
MUNICIPALS
A key influencing factor with regard to the valuation
of Deutsche Hypo’s TRS are the prices of the
underlying US municipals. These underlying stocks
are bonds subject to preferential tax treatment
and issued by US local authorities or federal states
with first-class ratings.
The low level of trading activity in terms of relevant
volumes meant that the municipals markets
were classed as not active. The assumption that
these markets are no longer functioning properly
is also backed up by the major price jumps that
have been recorded and the strong deviation of
listed prices from theoretically fair price levels.
Correspondingly, the DCF model described above
was used to value the securities, extended to
include a further parameter to take account of the
favourable tax status enjoyed by municipals. In
accordance with the result from time series analysis
prior to the financial market crisis, a de facto
yield below the swap curve was assumed for the
tax-favoured municipals. The cancellation rights
included in some of these securities were duly
incorporated into the model price on the basis of
standard option price models. For reasons of caution,
the model values were further reduced by a
model reserve of around 7 % on average. The
model value for the US municipals was then
applied in the place of a stock market or market
price in the TRS valuation model.
The changes in value of the TRS are not recordable
in profit and loss according to commercial law,
since we were unable to establish signs of any
likely long-term impairment. The results of the
model valuation are therefore only mentioned in
the Notes in relation to the fair values of the TRS.
·· VALUATION OF CDS
··· MANAGEMENT REPORT ···
Deutsche Hypo is the provider of security in CDS
contracts on European states and a US federal
state. The states involved have ratings of AA or
higher.
It was not possible to calculate relevant trading at
the listed CDS spreads of these countries. At the
same time, major deviations were recorded
between the theoretically fair price levels and the
listed spreads.
For this reason, Deutsche Hypo calculated these
valuations using a DCF model.
The process used is based on a Nomura Securities
International method and is also referred to as the
“hazard rate model”.
The model takes account of the expected cash
flow from the CDS using default rates/probabilities
of survival and loss rates in the event of a default
(loss given default, LGD). The default rates are
based on the underlying’s current rating. Additionally,
an iterative process was used to reduce the
difference for non-EU underlyings between the
··· 43 ···

··· 44 ···
publicly listed CDS spreads (from illiquid markets)
and the model CDS spread based on the rating of
the underlying, with the result that the model
value and listed value tend to converge.
The changes in value of the CDS are not recordable
in profit and loss according to commercial
law, since we were unable to establish signs of a
likely long-term impairment. The results of the
model valuation are therefore only mentioned in
the Notes in relation to the fair values of the CDS.
·· BASIC PRINCIPLES OF RISK CONTROL AND
RISK MANAGEMENT
The business operations of Deutsche Hypo necessarily
involve the assumption of risks. The term
“risk” involves the possibility of financial loss that
may occur due to (unexpected) differences
between how business is expected to develop
and what actually happens in practice.
The legal framework is based on Section 25a of
the German Banking Act (KWG) and has been put
into practical effect by BaFin through its Minimum
Requirements in relation to Risk Management
(MaRisk).
According to these requirements, the main elements
of a proper system of risk management are
the establishment of a business strategy and risk
strategy, as well as implementation of a system to
determine and safeguard the Bank’s capacity to
assume risk, comprising both the risks and the
capital required to cover these.
·· RISK STRATEGY
The risk strategy is based on the business strategy,
and incorporates statements on the principles
of the Bank's policy on risk, organisation of the
risk control process and sub-strategies on the significant
types of risk that are specific to the Bank.
It therefore forms the basis for the Bank’s risk
management system. Deutsche Hypo’s risk policy
remains aligned towards low-risk business activity.
In particular, this reflects the status of Deutsche
Hypo as a Pfandbrief bank as defined in Section 1
of the Pfandbrief Act.
The risk strategy, which must be revised each
year, was adjusted during the financial year under
review. The emphasis in this respect was on
adjusting the procedures for assessing and measuring
the Bank’s risk-bearing capacity. According
to the provisions of the Minimum Requirements in
relation to Risk Management (MaRisk), the Bank
must ensure that the material risks facing the
credit institution are covered by the risk cover
potential and that the Bank is therefore capable of
bearing risk (cf. MaRisk item AT 4.1.1). The riskbearing
capacity concept of Deutsche Hypo differed
in certain aspects from the model applied by
NORD/LB. In the interests of ensuring risk-bearing
capacity is measured consistently across the
NORD/LB Group, Deutsche Hypo has therefore
adopted the concept used by NORD/LB. The
Board of Managing Directors of Deutsche Hypo
agreed the corresponding adjustment to the risk
strategy in September 2008. The Supervisory
Board was informed of the new risk strategy at its
meeting in September 2008, during which it also

discussed the changes. While retaining the basic
principle of risk-bearing capacity, i.e. that the risks
must be covered by the existing risk capital, which
basically corresponds to the Bank’s equity capital,
various different methods have been adjusted
according to the needs of the Group. These included
the procedures and parameters used in measuring
risk, as well as assertions applied in the measurement
of the risk capital.
Moreover, alongside the purely risk-bearing capac-
ity model required for banking supervisory purposes
according to MaRisk, three additional risk scenarios
have been established with various degrees of
probability of occurring, in accordance with the
Internal Capital Adequacy Assessment Process
(ICAAP).
·· RISK-BEARING CAPACITY MODEL
The risk-bearing capacity model (RBC model) is
the tool used to monitor the risk strategy of
Deutsche Hypo.
The objective of the RBC model is to produce a
summary of the risk-bearing capacity at institutional
level. Alongside the regular monitoring and
reporting process that provides the Bank’s corporate
bodies with information, the model serves to
further improve the company’s risk control.
The RBC model compares the risks (“risk potential”)
with the risk capital of the Bank. To calculate
the risk potential, the model differentiates
between the different types of risk-credit risk,
equity-investment risk, market price risk, liquidity
risk and operational risk. Credit risk assumes by
··· MANAGEMENT REPORT ···
far the greatest importance. The risk capital and
risk potential quotients, and the degree of risk coverage
serve as the measure of risk-bearing capacity.
The risk capital and risk potential are calculated
using a model for three different risk scenarios. In
addition, the capital allocation is shown in total for
the named risk types. The model incorporates four
levels: case ‘A’, case ‘B’, case ‘C’ and the ICAAP
case.
The first three levels are based on the assumption
that risk capital and risk potential grow from one
level to the next. The volatility of the risk potential
decreases with each level. In the fourth level, the
model implements the regulatory requirements
according to the Internal Capital Adequacy
Process (ICAAP).
MaRisk requires financial institutions to hold documentary
evidence of their capital adequacy. In
the ICAAP case, the RBC model relates directly to
the regulatory capital.
For Deutsche Hypo, as with the rest of the entire
NORD/LB Group, the principle “risk capital >=
125 % of the risk potential” applies. The 125 %
ensures that the regulatory requirements are met
while not leaving too much capital unused.
The risk-bearing capacity is calculated at the end
of each quarter and presented to the Board of
Managing Directors and the Supervisory Board
through the risk report, in accordance with
MaRisk.
··· 45 ···

··· 46 ···
·· RISK CAPITAL
The risk capital is determined differently for the
various levels of the RBC model. This reflects the
different perspectives and statements incorporated
in each level.
In the ICAAP case, which is largely based on the
regulatory view of risk-bearing capacity, the equity
that can be allocated according to the notification
made in accordance with the German Solvency
Ordinance (SolvV) is considered as risk capital.
This reflects the idea that the ICAAP case must
satisfy at least the statutory and therefore also the
regulatory conditions.
·· RISK CAPITAL ALLOCATION
The distribution or allocation of the Bank’s risk capital
to the individual risks is decided by the Board
of Managing Directors of Deutsche Hypo on the
basis of the principles identified in the risk strategy.
In this process, the degree of coverage defined in
the RBC model is upheld as a basic condition.
Currently, Deutsche Hypo allocates a maximum
percentage value of the risk capital to each of the
five major risk types. Accordingly, a maximum of
74 % of the risk capital may be used to cover credit
risk, while a maximum of 10 % can be allocated to
both market price risk and liquidity risk. A maximum
of 5 % is available for operational risk, and
finally a maximum of 1 % is attributable to equityinvestment
risk.
Risk-bearing capacity
in € millions 31.12.2008
Risk capital
Credit risks
Equity investment risks
Market price risks
Liquidity risks
Operational risks
Total risk potential
Surplus cover
Degree of risk coverage
918.1 100 %
532.4 58 %
0.1 0 %
47.1 5 %
39.9 4 %
17.4 2 %
636.9 69 %
281.2 31 %
144 %
·· RISK-BEARING CAPACITY UNDER SPECIFIC
STRESS SCENARIOS
Deutsche Hypo also analyses its risk-bearing
capacity in different stress scenarios.
Variant 1
In the first variant, stressed risk potential values
are compared against a constant level of risk capital.
As at 31 December 2008, the stress risk-bearing
capacity produced a good result of 123 %,
which means that Deutsche Hypo’s risk-bearing
capacity is also ensured assuming stress conditions.
Stress - Risk-bearing capacity Version 1
in € millions 31.12.2008
Risk capital
918.1 100 %
Credit risks
635.0 69 %
Equity investment risks
0.1 0 %
Market price risks
47.1 5 %
Liquidity risks
39.9 4 %
Operational risks
23.2 3 %
Total risk potential
745.3 81 %
Surplus cover
172.8 19 %
Degree of risk coverage
123 %

Below is a brief overview of the stress scenarios
for Variant 1 described above.
Credit risk: Credit risk includes counterparty risk.
This is stress-tested under the assumption that
the entire portfolio is subject to a downgrade of
one or two rating classes (according to the portfolio
segments). This leads to the increased probability
of loan defaults, which thus increase the counterparty
default risk.
Equity-investment risk: Due to its minor importance,
equity-investment risk is not stress-tested.
Market price risk: Various stress variants are considered
for market price risk, and the variant that
returns the worst result is then used for the purposes
of risk-bearing capacity. The variants mainly
comprise an increase in the market interest rate of
0.6 percentage points across all maturity bands. In
the actual analysis as at 31 December 2008, the
result of the stress tests demonstrated that the
stress scenario produced a lower level of market
price risk than that which was already accounted
for in the regular assessment. The reason for this
is that the market price risk is already considered
at stressed levels in the regular analysis of riskbearing
capacity. This has been applied since the
back-testing on 3 December 2008 indicated that
the loss occurring due to interest rate fluctuations
had exceeded the forecast (“outliers”) for the fifth
time within a period of 250 days. The minimum
number of statistically permitted outliers is four.
Since this test, an additional premium factor has
been incorporated into the calculated VaR for reasons
of security (the “amber phase”). This security
premium has led to an increase of around 50 % in
··· MANAGEMENT REPORT ···
the market price risk, which is a higher increase
than that which would have occurred on the basis
of the regular stress scenario.
Liquidity risk: The liquidity risk already represents
a stress value in the context of the regular riskbearing
capacity analysis, and is therefore applied
unchanged.
Operational risk: According to the Solvency Ordinance
(SolvV), operational risk is represented by
the basic indicator approach. This shows the operational
risk to be around 15 % of the assessment
basis. The assessment basis is essentially the
Bank’s net interest and commission income. This
percentage rate is increased to 20 % for the purposes
of stress testing.
A further variant in the analysis of risk-bearing
capacity is the crucial case (case ‘C’). In the crucial
case, a modified assessment of the risk-bearing
capacity is assumed. This assessment answers
the question, which risks can be covered by the
so-called free equity. Free equity is the amount of
capital by which equity exceeds the risk potential.
The availability of this amount means that the
Bank can cover even those risks that occur at
short notice without jeopardising its risk-bearing
capacity as required by MaRisk. The risk potentials
for the crucial case are taken into account at a confidence
level of 98 % for credit risk and operational
risk. In terms of market risk, the stress scenario
described in Variant 1 above is applied, and under
liquidity risk an increase in refinancing costs of
0.35 percentage points is assumed. In the Crucial
case, too, the Bank has the requisite risk-bearing
capacity; RBC as at 31 December 2008 was 133 %.
··· 47 ···

··· 48 ···
·· ORGANISATION OF RISK CONTROL AND
RISK MANAGEMENT
The Board of Managing Directors bears overall
responsibility for setting up and monitoring the
risk management system, and is also responsible
for stipulating risk strategy as part of the Bank’s
overall strategy. The risk profile, conditions for the
risk-bearing capacity in association with the capital
allocation and also the risk limits that the Board of
Managing Directors agrees with the Supervisory
Board are all derived from this strategy. These limits
restrict the business opportunities and thus the
risk that the Bank is willing to enter into. The
Bank's overall risk position is the subject of regular
monitoring. The maximum permitted extent of risk
is determined by the risk-bearing capacity.
The processes involved in risk control and risk
management are constantly subject to revision
and continued development. Any necessary
adjustments include organisational measures,
modifications to risk-quantification procedures
and the ongoing process of updating the relevant
parameters.
The Supervisory Board is regularly briefed on the
Bank’s overall risk situation.
The individual risk types are measured and monitored
in the Controlling and Credit Risk Controlling
departments, which are independent of the operational
departments.
The Bank has a highly structured and detailed risk
reporting system, which is subject to reporting
cycles of between one day and three months,
according to the risk type and report recipient. This
reporting system ensures that the Board of Managing
Directors retains a comprehensive overview
of the current risk situation faced by the Bank, and
enables it to react quickly, at all times and at short
notice, to any negative developments.
As a consequence of its inclusion in the NORD/LB
Group, Deutsche Hypo is tightly integrated into
Group frameworks and processes in relation to
the concept, organisation and methodology of risk
management. This uniformity of approach ensures
that the Group is able to reliably assess and control
its risk situation.
·· PRINCIPLES OF BUSINESS POLICY
Despite the basically low-risk direction of the business
policy pursued by the Bank, there obviously
remain risks that could potentially affect Deutsche
Hypo. Particularly in the past financial year, the
financial crisis has generated tangible, extraordinary
effects which, ultimately, have wiped out the
year’s commercial success.
A further significant objective of the strategic position
adopted by Deutsche Hypo, therefore, is also
to maintain a risk-oriented business policy. The
aim of this policy is to only enter into risks that are
transparent and calculable, with the intention of
producing sustainable levels of income. A key
aspect in this regard is risk-based pricing. By permanently
monitoring and adapting risk measurement
tools, prices can be set on an individual
basis taking into account the risk potential inherent
in the transaction. This avoids poor management
decisions that could have a negative impact
on the portfolio.

·· TYPES OF RISK
The following risk types are relevant to the Bank's
commercial operations:
·· Counterparty and loan default risk
·· Market price risk
·· Liquidity risk
·· Operational risk
·· COUNTERPARTY RISK
Generally, counterparty risk is the risk of a loss of
value or of receivables not being paid due to our
customers facing payment problems or failing to
comply in full or in part with other contractual obligations.
The risk of a customer’s credit standing
deteriorating is also a form of counterparty risk.
Counterparty risk can be broken down into credit
risk in the narrow sense, performance risk and
country risk.
Credit risk in the narrow sense is a component of
counterparty default risk, and identifies the risk of
debtors defaulting or suffering a deterioration in
their credit standing.
The performance risk is a component of the counterparty
risk. It identifies the risk that the default
of the counterparty in an over-the-counter transaction
could mean that that counterparty is no longer
able to effect counter-performance.
The country risk incorporates the risk that despite
the capacity and willingness of an individual borrower
to repay a debt, a loss is incurred due to
overriding barriers introduced by the state.
··· MANAGEMENT REPORT ···
Credit risk in the narrow sense
In view of the business activity of Deutsche Hypo,
credit risk in the narrow sense, which largely
embodies all disadvantages that occur as a consequence
of a partial or complete inability of the customer
to pay, represents the main risk to the
Bank.
Credit risk – Control and management
The methods used to control and manage credit
risk differ according to the business sector concerned.
Below is an explanation of the various procedures
in the two main fields of activity of
Deutsche Hypo, i.e. real estate finance and capital
market business.
Real estate finance business
Control and monitoring processes in the field of
real estate finance are in place at the level of the
individual finance and at the level of the overall
loan portfolio.
··· 49 ···

··· 50 ···
Management at the level
of the individual loan
Preliminary assessment
Even before a loan is actually approved, an important
process takes place to control credit risk. During
this initial assessment phase, a decision is
made – independent of the parameters relating to
the actual loan application – on whether the
desired finance is basically representable against
the background of the existing portfolio situation,
any limits regarding specific sectors or countries,
considerations relating to granularity and additional
risk parameters. Deutsche Hypo has established
standards that are taken into account as
part of this preliminary assessment. These include
ancillary conditions relating to specific types of
property and countries, and in addition specific
limits apply in respect of the maximum loan to
value.
During the past financial year, these standards
have been tightened up in the form of Group-wide
financing principles. Independent, more restrictive
principles apply to finance in the USA.
Credit approval procedure
As part of the subsequent credit approval process,
a risk assessment of the customer and a detailed
valuation of the security are conducted for each
loan. Deutsche Hypo assesses the creditworthiness
of the customer on the basis of rating systems
that determine the probability of the cus-
tomer defaulting. The default probabilities are calculated
on the basis of statistical analysis and historical
defaults with regard to our portfolio.
In-house surveyors value the real estate security
and are involved in an advisory capacity in the
decision-making process before submitting an
expert report used as the basis for the final valuation.
Responsibility for the loan decision varies according
to the total commitment, the value of the individual
loan and the rating applied to the borrower.
Additionally, the rating and security valuation also
have a key impact on the terms and conditions of
the credit, which are set on an individual basis taking
into account the risk inherent in the transaction.
Handling problem loans
A separate team of experts is in place to deal with
problem loans; this team is not located within the
operational business unit. If specific criteria are
met and a loan is classed as a problem loan, there
is a change in the level at which responsibility is
held for that case. These criteria are defined in
such a way that problems are detected long
before payment problems arise, such that special
preventive measures can be taken with the aim of
introducing appropriate rescue measures in good
time. The timely introduction of preventive measures
by adoption of the commitment and the
active handling of potential risks form a core element
of this activity.

A distinction is therefore drawn between customers
who are subject to intensive measures
(out-of-court restructuring of the debt with the
objective of combating risk and improving the
security position) and counterparties who have
defaulted (disposal of the security with the aim of
achieving a speedy and profit-oriented resolution
to avoid losses).
The proportion of loans subject to intensive mea-
sures – usually not yet involving a case of disrupted
performance – is currently around 30 %.
Management at portfolio level
Management of the entire loan portfolio includes
both analysis of the portfolio and targeted control
measures in order to bring about structural
improvements.
A key component of portfolio analysis is the measurement
of credit default risk. Important components
in measuring credit default risk are the probability
of default (PD) and the loss given default
(LGD). The calculated values for counterparty
default risk are expected loss and unexpected
loss. Expected loss is calculated on the basis of
the probability of default and the loss given
default. The requisite risk costs can be determined
and are collected through the margin earned on
the business.
The unexpected loss is calculated using a credit
risk model. The calculation is based on the Gordy
model, which is used to calculate capital adequacy
··· MANAGEMENT REPORT ···
in accordance with the Solvency Ordinance
(SolvV). This Ordinance implements the provisions
on capital adequacy imposed by the Basle-based
Banking Committee (Basel II). The unexpected
loss (unlike expected loss) cannot be economically
secured by means of corresponding margin premiums
in lending business. If realised, it would need
to be covered by the Bank’s equity. Consequently,
the unexpected loss is incorporated directly into
the calculation and assessment of the Bank's riskbearing
capacity. The calculation of credit default
risk is, of course, also conceivable for individual
portfolios. This type of analysis is also carried out,
with the results being used as the basis for control
measures where these are needed.
In addition, the portfolio structure is reviewed on
an ongoing basis against the background of further
questions so that undesirable developments can
be detected at an early stage and controlled. This
includes, for example, the undesirable accumulation
of risks. Stress-scenarios are also analysed.
Further basic parameters that impact both on decision-making
in individual cases and on the management
of the entire portfolio are set by the limit
system and traffic light model.
··· 51 ···

··· 52 ···
Limit system
The aim of the limit system is to avoid any undesired
accumulation of risks and the resulting disadvantages
that this would bring. For this purpose, a
highly tiered system has been developed that can
be used to avoid the accumulation of risks in the
main.
Limits apply both to the individual granting of
loans and also to groups of borrowers and riskbearers
(e.g. tenants). Limits are also in place for
individual types of finance. The share of these is
not allowed to exceed specific proportions of the
overall portfolio. Limits are also derived from the
capital allocation carried out as part of the analysis
of risk-bearing capacity, designed to restrict the
risk content of the lending portfolio as a whole.
Traffic light model
The traffic light model is used to manage new
business, implementing the Bank’s business and
risk strategy with regard to new lending business.
The traffic light model is regularly reviewed and
adjusted by the management.
The model classifies all types of financing into
three categories based on sector and region. This
classification is based on the respective risk level
of the financing. Categorisation on the basis of
the traffic light model means that, within the context
of the credit decision-making process, the
quality requirements may be raised for a particular
financing.
Portfolio monitoring
For the timely and preventive analysis of credit
and market rises, which arise from the rapidly
changing conditions on various different markets
and from the changing quality of customers and
security, an early warning process was developed
as an important element of portfolio monitoring
with regard to the identification of negative portfolio
developments on the basis of early warning
criteria.
Specific reasons for a clear increase in the credit
risk include a deterioration in the customer’s rating,
adjustment of the loan value or market value
resulting in a higher loan term, a worsening market
environment, breaches of contract and payment
arrears as well as individual alarm signals
that lead the Bank to expect a negative development
in future (e.g. sharp fall in sales, risk of overindebtedness,
sustained loss situation, high
vacancy rates in a property, drastic overshooting
of costs in the case of a project, financing gaps,
construction project that has ground to a halt or
been delayed, lack of sale progress).
The volume of commitments that did not develop
according to the original plan in place when the
loan was awarded and that therefore required particular
monitoring rose to € 410 million in 2008,
which represents approximately 4.5 % of the real
estate finance portfolio.

Capital market business
Business with the public sector and with banks is
basically subject to the same processes and methods
as those portrayed above with regard to real
estate finance. The terms and conditions of securities
and notes tend to be standardised to a large
extent, with the result that the focus of risk management
naturally lies less on individual transactions
and more on management at the level of the
portfolio.
Risks in the segment of public-sector lending and
transactions with derivative partners are generally
controlled using a limit system. This encompasses
both counterparty-related limits and sub-limits for
individual countries. It is still the case that a minimum
rating of A (or comparable internal rating) is
required for all new business. The average rating
for claims included in the cover pool is also
unchanged, at AA.
Deutsche Hypo only engages in derivative transactions
with banking partners that have good ratings.
Collateral agreements provide an additional
form of security in this area. Such agreements are
in place with 26 of our current 43 derivative partners.
Of the total derivative volume, just under
87 % is covered by collateral agreements. A collateral
agreement obliges Deutsche Hypo/the derivative
partner to provide each other with security
taking into account the current value of the existing
derivative transactions. To the extent that
derivative portfolios with a partner have a positive
net present value from Deutsche Hypo’s perspective,
there is a potential counterparty default risk in
relation to the derivative partner. However, this
risk is eliminated by the provision of security. As at
the 2008 year-end, security deposits from collateral
partners totalled around € 326.5 million. Risks
for bank partners with whom there are no collateral
agreements are practically inexistent, as in such
cases either it is Deutsche Hypo that must provide
security or the business volume is not significant.
It is Deutsche Hypo’s aim to enter into collateral
agreements with all of its derivative partners as far
as possible, so that potential residual risks can
also be eliminated. No collateral agreement will be
concluded with NORD/LB, in the latter’s capacity
as the Group parent company.
The counterparty default risk emanating from capital
market business is of course taken into
account with regard to risk-bearing capacity. Given
the comparatively good ratings of the counterparties
(despite the financial crisis), this business
involves a lower level of risk than real estate
finance business and only places a minor burden
on risk-bearing capacity. Nevertheless, this portfolio
is also subject to ongoing monitoring and
actively managed in the case of changes to risk
structure by, for example, selling positions that
present an elevated risk.
This system serves in the first instance to guarantee
the consistently high quality of the cover pool
for the Pfandbriefe in circulation.
Cover portfolio
··· MANAGEMENT REPORT ···
As a Pfandbrief bank, Deutsche Hypo must adhere
to a risk management system that has been
specifically tailored to Pfandbrief business. This
system involves the control of counterparty, mar-
··· 53 ···

··· 54 ···
ket price and liquidity risks at the level of the cover
pools. The background to this is the guarantee that
the only credit institutions permitted to issue
Pfandbriefe are those that have appropriate rules
and instruments in place to control, monitor and
manage the risks posed to the cover assets and
the Pfandbriefe issued on this basis.
In addition to permanent adherence to the cover
principle, and guaranteeing sufficient excess cover
measured at net present value (Section 4, paragraph
2 of the Pfandbrief Act), the Bank regularly
analyses the quality of the credit claims serving as
cover assets. This involves analysing ratings and
cash flow structure, and ongoing monitoring of
the value of the real estate security serving as
collateral.
The aim is to achieve high quality standards with
regard to the cover assets of the public Pfandbriefe
and the high security quality of the properties
serving as security in mortgage business. The
fact that the rating agencies award our Pfandbriefe
the highest ratings and the related positive impact
of these ratings, coupled with the good refinancing
basis, secure the Bank's long-term value and
earning power.
In addition to internal measures, our Pfandbriefe
and the related cover assets are permanently
monitored by the rating agencies on the basis of
the detailed information submitted to them on a
regular basis.
Reference should also be made to the extended
information obligations under the transparency
rules of Section 28 of the Pfandbrief Act, with
regard to which we disclose information on our
website on a regular basis and have also disclosed
information in the Notes for the 2008 financial year.
Equity-investment risk
A further component of credit risk in the narrow
sense (counterparty default risk) is equity-investment
risk. This type of risk covers the damages/
losses that would arise were the value of investments
that the Bank holds in other companies to
develop in a negative way.
In terms of the implementation of its business
activities, Deutsche Hypo is largely independent
of its investments/affiliated companies. The book
value of the investment portfolio reported on the
balance sheet is substantially less than € 1 million.
With this in mind, equity-investment risk is only of
minor significance to Deutsche Hypo.
Equity-investment risk –
Strategy, management and monitoring
In terms of its business strategy, Deutsche Hypo
is not generally interested in originating income
from the taking up of equity investments. Where
such investments are entered into, they are used
merely to support the bank’s actual commercial
objectives in mortgage and capital market business.
Equity-investment risks are taken into account as
part of the analysis of risk-bearing capacity. There
is a limit in place with regard to the size of equityinvestment
risk, which must not exceed 1 % of
the risk capital.

The Bank’s wholly-owned subsidiaries are subject
to ongoing monitoring on the basis of the interim
and annual accounts. Additionally, representatives
of Deutsche Hypo assume managerial functions in
these companies.
The less important equity investments are also
monitored on the basis of their accounting figures.
Appropriate measures are taken where necessary
if problems emerge, in cooperation with the other
shareholders.
Material events are reported directly to the Board
of Managing Directors.
Equity-investment risk – Outlook
It is Deutsche Hypo's basic intention not to enter
into further equity investments. The Bank’s stake
in RMS Risk Management Solutions GmbH,
Cologne, is to be given up in the medium term
with due adherence to the contractually agreed
periods. The company in question developed the
rating system used by the Bank for real estate
customers. Now that the equivalent rating system
of NORD/LB has been introduced at Deutsche
Hypo, this investment is no longer significant.
Performance risk
Performance risks arise in conjunction with the
settlement of over-the-counter transactions, with
regard to which performance and counter-performance
take place at different times. To the extent
that Deutsche Hypo has effected its performance,
there is the risk that the counterparty does not
effect its counter-performance.
This risk is practically inexistent with regard to
Deutsche Hypo's business operations. There has
been no single case of a loss that can be assigned
to this risk category at any time over the past ten
years.
Limits are in place with regard to capital market
and refinancing business. With regard to real
estate finance, notaries are used where necessary
to secure the Bank’s position. Insurance
cover is also in place in relation to cases that could
cause damage to the Bank’s reputation.
Sovereign risk
··· MANAGEMENT REPORT ···
The risk of losses for Deutsche Hypo arising from
an unstable political, economic or social situation
in another state is a possible risk both in real
estate finance and in capital market business.
The risk associated with foreign real estate
finance business is countered in that, prior to
entering a new market, Deutsche Hypo is very
careful to review sovereign risk within the context
of the regulatory process in place for new products.
Consideration is given to all economic, political,
social and in particular legal aspects. In addition
to taking stock of the current situation, the
stability of the system and any potential threats
are also considered. Only if this analysis provides
a positive result (alongside other checks), can business
be commenced in the new country.
The risk in capital market business is restricted in
the form of company limits, set on the basis of a
country's rating. The minimum permitted rating is A.
··· 55 ···

··· 56 ···
·· MARKET PRICE RISK
Market price risks are the potential losses that
could result from changes in market parameters.
These comprise fluctuations in market prices and
rates, leading to changes in the valuation of financial
instruments, and therefore basically leading to
a profit or loss. As a lending institution, Deutsche
Hypo is exposed to this risk since a large proportion
of its business is dependent on market prices
and rates.
In terms of market risks, Deutsche Hypo makes a
distinction between interest rate risk and currency
risk.
Interest rate risks exist when the value of a position
is dependent on changes in one or more interest
rates, or on changes along entire yield curves.
This dependency may lead to a reduction in the
value of the position, since the value calculation
will be directly affected by the underlying interest
rates or yield curves. For example, interest rate
hikes generally produce price losses and therefore
reduce the value of fixed-income securities.
Credit spread risk is a component of interest rate
risk. It comprises those risks that arise from
changes in credit spreads. Credit spreads are
mark-ups on the risk-free rate of interest. Their
amount depends mainly on the creditworthiness
and rating of the issuer. Credit spreads for securities
from well-rated issuers are lower than those
from issuers with a lower rating. As a result, the
prices of papers from good quality issuers are
higher than the prices for papers from lower-quality
issuers. Changes in the creditworthiness of an
issuer therefore have a direct influence on the
valuation of that issuer's securities.
Currency risks (or foreign exchange risks) occur
when the value of a position or a portfolio reacts
to changes in one or more foreign currency exchange
rates. The change in the exchange rates
may cause the value of the position to fall.
Currency risk
Deutsche Hypo largely offsets currency risks by
means of appropriate hedging transactions. These
transactions practically eliminate currency risk in
the capital business as well as currency risk relating
to ongoing interest payments. The transactions are
mostly conducted on a case-by-case basis (a
method known as micro hedging). As a consequence
of the significant increase in foreignexchange
business over the past years, Deutsche
Hypo will shortly commence a project to improve
risk measurement and control in relation to currency
risk, in order to further improve the effectiveness of
these hedging measures.

Market price risk
Market price risk – Control
Strategy
Interest rate risks occur when the maturities of
the items on the assets side of the balance sheet
are not refinanced congruently (i.e. they do not all
have the same maturity structure). This provides
potential for additional income opportunities,
although this is also associated with the assumption
of interest rate risks.
It is the basic objective of Deutsche Hypo to consciously
assume interest rate risks through maturity
transformation and to participate in the general
developments of the market within the framework
of the risk limits. However, Deutsche Hypo is a
non-trading-book institution operating within the
context of a buy and hold strategy. Consequently,
activities in the capital market business are medium
to long-term in nature and are not aimed at
exploiting short-term fluctuations in market price.
Deutsche Hypo views the interest rate risk as a
core element of the market price risk. Therefore,
management of the interest rate risk is a central
function of the Bank with regard to control and
profit. Due to this major importance, Deutsche
Hypo has put in place a comprehensive infrastructure
to assure active interest rate risk management.
Organisational units
··· MANAGEMENT REPORT ···
The task of controlling market risk lies with the
Treasury and Controlling departments.
The task of operational management lies with the
Treasury department, which makes decisions and
plans on the basis of the parameters stipulated by
the full Board and with due adherence to the risk
limits on business activities in the area of capital
market business and refinancing.
The Controlling department calculates the existing
market risk position on a daily basis and provides
the Treasury department with the relevant data. It
also assumes a control function with regard to the
monitoring of market risks and reporting. Additionally,
the Controlling department is involved in the
ongoing adjustment and fine-tuning of the
processes and tools used for market risk controlling.
As a back-office department, the Controlling
department is functionally and organisationally
independent of the Treasury department in accordance
with the rules of MaRisk.
In addition to the departments directly involved in
managing market risk, the Planning Committee,
which operates on a Group-wide basis, sets the
strategic planning targets on the basis of the current
risk position.
··· 57 ···

··· 58 ···
Market price – Management and
monitoring
The following processes continue to be used:
·· Basis-point-value method (100 bp)
·· Value-at-Risk method
·· Scenario analysis
The basis-point-value method simulates an interest
rate rise of 100 bp by means of a parallel shift
in the yield curve. The resulting changes in the net
present values of all balance sheet and also offbalance
sheet positions indicate the level of interest
rate risk. In terms of probability of occurrence,
this scenario (which is typically applied in the sector)
can be classed as very unlikely.
Based on this scenario, limits are in place with
regard to market risk. These must not be exceeded.
They are set taking into account the risk-bearing
capacity of the Bank as a whole. In such a way,
even if the limits were to be used to the full, the
risk-bearing capacity of Deutsche Hypo would still
be in place.
If these limits are exceeded, counter-measures
are immediately introduced to ensure that the risk
falls below the limit again (e.g. selling positions or
entering into counter-trades). The counter-measures
must be concluded within 24 hours so as to
ensure that the market risk is within the limits
again by the time of the next (daily) reporting
deadline.
The Value-at-Risk method is the second method
used to manage market risk. The VaR is calculated
using historical simulations, which enable the
actual interest rate risk to be estimated. A confidence
level of 99 % and a holding period of 10
days are applied. The VaR calculated in this way is
the maximum potential loss that would not be
exceeded with a confidence level of 99 % and a
holding period of 10 days.
The analysis is based on historical changes to risk
factors over the previous twelve months. Correlation
effects between different parameters are also
considered.
Market price risk – Reporting
Market price risk is monitored on an ongoing basis
with the responsible member of the Board of Managing
Directors receiving a daily report. Moreover,
weekly meetings of the full Board of Managing
Directors consider a detailed breakdown of the
Bank’s market risk position. If required, these meetings
may adopt changes to the Bank’s positioning.
Irrespective of the cyclical reporting, there is also
naturally a system of ad hoc information, which is
applied in the case of significant events.
Market price risk –
Developments in 2008
As at 31 December 2008 the Value-at-Risk was
€ 8.48 million (previous year: € 5.1 million). The
maximum value was € 9.5 million (previous year:
€ 6.4 million), with the minimum value being € 2.2
million (previous year: € 1.4 million). For the year as
a whole, the average was € 4.8 million (previous
year: € 3.4 million).

VaR 2008 Holding period 10 days, confidence interval 99 %
Maximum Average Minimum
The forecasts from the VaR models are subsequently
subjected to backtesting.
This involves a comparison of the actual changes
in the value of the portfolio with the results forecast
by the VaR model. The comparison has confirmed
that the forecast values are actually
observed in reality, as shown by the following
chart:
The forecast Value-at-Risk values are shown in the
green area below the X axis; the daily fluctuations
in value that actually occurred in practice – with
the exception of the outliers – do not fall below
the forecast values. A back-testing outlier occurs
when the observed negative change in value
exceeds the VaR. The frequency with which outliers
occur can also be derived using statistical
··· MANAGEMENT REPORT ···
methods. The maximum number of statistically
permitted outliers is four. On 3 December 2008,
the loss that occurred due to interest rate fluctuations
exceeded the forecast value (i.e. was designated
as an outlier) for the fifth time within a
period of 250 days. Moreover, the interest rate
fluctuations in the market demonstrated a higher
level of volatility than had been assumed in the
forecast models. Since this test, an additional premium
factor has been incorporated into the calculated
VaR for reasons of security (the “amber
phase”). Consequently, the VaR jumped significantly
in December 2008, as clearly demonstrated
by the chart above. We will continue to add the
premium factor to the VaR calculation until the relative
frequency of outliers over a historical period
of 250 days drops back below five.
··· 59 ···

··· 60 ···
VaR (green phase) VaR (amber phase) Daily fluctuation Outliers
The development of the corresponding values
according to the basis-point-value method was as
follows during 2008:
Average linear interest rate risk: € 6.7 million (previous
year: € 10.2 million). Maximum value: € 17.6
million (previous year: € 25.0 million) and minimum
value: € 1.3 million (previous year: € 2.8 million).
These analyses, too, clearly indicate the reticence
of Deutsche Hypo in relation to market risks.
Alongside the fundamentally risk-averse strategic
orientation of the company, the market situation
as a result of the relatively flattened yield curve
offered very few business opportunities for maturity
transformation. Over the second half of the
year, the financial crisis and the interest rate policy
of the European Central Bank and the Bundesbank
provoked broader fluctuations and increased
volatility. Exploitation of this volatility would have
required a fundamentally short-term oriented posi-
tioning, however, which is not suited to Deutsche
Hypo in its capacity as a non-trading-book institution.
Credit spread risk
The credit spread risk is that portion of the market
price risk that results from changes in the interest
rate mark-up applicable to the corresponding
issuers (in the case of securities) or reference borrower
(in the case of credit derivatives) and that is
added to the risk-free interest rate in the market
valuation of the position. The credit spread is the
difference between the yield curve of a security
and the currency-specific risk-free swap curve.
Factors that influence credit spreads include the
credit standing of the issuer and also (to a greater
extent) the general state of the market, particularly
the supply and demand situation.

Credit spread risk – Control
Strategy
Credit spreads widened significantly as a consequence
of the financial crisis. This has prompted
Deutsche Hypo to place its credit spread risk
under more intense scrutiny. The methods used to
measure and control the credit spread risk have
been revised and refined, and the previous
method of scenario analyses has been replaced by
a Value-at-Risk procedure. This evaluates historical
credit spread fluctuations and calculates the maximum
loss given a holding period of one month at
a confidence level of 99 %. The effects on various
portfolios are analysed and the results assessed
according to the principles of different accounting
standards (HGB and IFRS).
In terms of Group reporting, the analysis methodology
used throughout the Group is applied. This is
a refined scenario analysis model. The findings of
these evaluations are incorporated into the weekly
analysis that is aggregated at Group level.
Organisational units
The Treasury and Controlling departments are
involved in the process of controlling credit spread risk.
Controlling draws up the credit spread risk reports
and also assumes a controlling function with
regard to the monitoring of and reporting on credit
spread risks. The Controlling department is also
responsible for further developing internal
processes and, where applicable, introducing new
processes to measure, limit and monitor credit
spread risks.
··· MANAGEMENT REPORT ···
Operational management of credit spread risks is
the responsibility of the Treasury department.
Moreover, the department also supports the further
development of internal procedures relating
to the measurement of credit spread risks.
Credit spread risk – Management,
measurement and reporting
As part of the internal VaR procedure, the value at
risk of all third-party securities and credit derivatives
is assessed weekly at a confidence level of
99 %, assuming a holding period of one month.
Fluctuations in the credit spread are evaluated on
the basis of historical simulation. The volatilities
calculated in this way are then used as assumptions
for future credit spread changes.
The calculated VaR figures are analysed within the
reporting system in respect of their effects under
both the HGB and the IFRS accounting standards.
In respect of the Group reporting system, credit
spread risks are calculated and analysed using the
following scenarios: the normal scenario includes
a percentage-terms increase on the current
spreads for all positions, in order to calculated a
basis value. The stress scenario, however, incorporates
a 35 % shift on the initial spreads for individual
transactions.
The risk values calculated from these scenarios
are reported internally to NORD/LB in a weekly
cycle.
Limits restrict the potential risks from the negative
development of credit spreads.
··· 61 ···

··· 62 ···
·· LIQUIDITY RISK
Liquidity risks are generally those risks that can
arise from disruption to the liquidity of individual
market segments, unexpected results in lending
business or a deterioration in Deutsche Hypo’s
own refinancing conditions. The Bank makes a distinction
between classic liquidity risk and refinancing
risk.
Classic liquidity risk
Classic liquidity risk is the risk that Deutsche Hypo
might not be able to meet its payment obligations
on time or to a sufficient degree. This risk rises in
particular if the money markets in general or in
individual segments are disrupted with the result
that insufficient liquidity is made available. Additionally,
unexpected credit events (e.g. a downgrading
of Deutsche Hypo’s rating or of the rating
of the parent company) could result in liquidity
shortages. The focus in this area of risk is always
on the next few months, up to the next year.
Refinancing risk
Refinancing risk is understood as the potential
loss of income that could occur in future from a
deterioration in the refinancing conditions available
to Deutsche Hypo on the money and capital
market. A rise in refinancing costs can be triggered
by such factors as a general banking crisis,
a change in how the Bank’s credit standing is perceived
by other market participants or a credit
event. The focus with regard to this type of risks
lies on the entire spectrum of maturities. Refinancing
risks are limited in accordance with riskbearing
capacity.
Liquidity risk – Control
Strategy
Guaranteeing liquidity at all times is a strictly
adhered-to condition as Deutsche Hypo works to
attain its corporate objectives. Sufficient liquid
assets (particularly security eligible for refinancing
with central banks) are held to avoid classic liquidity
risk, but the possibility of issuing covered
issues also plays a subordinate role. Classic liquidity
risk is restricted by means of risk limits. One of
the main factors used to set these limits is ensuring
sufficient liquidity. The risk limits provide the
market sectors with the framework within which
they can work to achieve their targets. In terms of
refinancing risk, the Bank engages in structural liquidity
transformation, i.e. the refinancing of assets
without matched maturities. The refinancing risk is
managed using implicit cash limits, derived from
the risk-bearing capacity model.
The Bank has also installed a multi-level liquidity
escalation procedure, which regulates the Bank’s
response in crisis situations.

Organisational units
The Treasury, Controlling and Reporting departments
are involved in the process of liquidity risk
management.
The task of operational management lies with the
Treasury department, which is responsible for
compliance with risk limits and for fulfilment of
the requirements of the Liquidity Ordinance. It is
also involved in the further development of internal
processes to measure liquidity risks.
Controlling draws up the liquidity balance sheets
and also assumes a controlling function with
regard to the monitoring of liquidity risks and
reporting. The department is also responsible for
introducing and further developing internal
processes to measure, limit and monitor liquidity
risks. The Bank’s Controlling department also represents
the Bank at Group level when dealing with
issues relating to liquidity risks.
The Reporting department calculates utilisation in
accordance with the Liquidity Ordinance and submits
its results to the Treasury department.
Liquidity risk – Management
Classic liquidity risk is examined and managed
using two types of evaluation. In the first case,
checks are carried out to determine how long the
Bank’s liquidity would last before the need would
arise to seek additional cover on the money or
capital market. Additionally, the potential from
issuing mortgage Pfandbriefe is examined as a
··· MANAGEMENT REPORT ···
preferred tool to procure liquidity. This approach is
not limited. Classic liquidity risk is limited, however,
using a dynamic stress testing scenario, which
was introduced during 2008 to coincide with
Deutsche Hypo becoming part of the NORD/LB
Group. The scenario describes the most likely crisis
situation given the current market environment.
The evaluation is then based on the funding
matrix and comprises a time horizon of one year
on a daily basis. The risk limit ensures that, in the
event of stress, there would be a liquidity surplus
for at least three months. The refinancing risk is
managed by implicit cash limits derived from the
risk-bearing capacity calculation, where a share of
the risk capital is allocated to liquidity risks. The
approach used to control risk is currently based on
the ICAAP-case described above.
Liquidity risk – Measurement
The calculation of refinancing risks is based on the
funding matrix of the overall position and its breakdown
into different maturities, which generally
reflect the normal case, i.e. without taking into
account particular stress cases. The quantification
of liquidity risk as part of the Bank’s risk-bearing
capacity concept is based on measures that would
be needed to plug liquidity gaps. In this way, due
account is taken of the Bank’s ability to meet a
large portion of its future refinancing requirement
from covered issues and thus at lower costs.
The calculation of the dynamic stress scenario to
model classic liquidity risk is based on liquidity
outflows as would occur in a crisis. The assumptions
include, for example, an increased drawing
of credit commitments or utilisation of guaran-
··· 63 ···

··· 64 ···
tees, but instances of default due to borrowers
becoming insolvent or expectations surrounding
future funding on the money and capital markets
also play a role. Additionally, freely available security
eligible for refinancing with central banks also
plays a key role in the modelling of classic liquidity
risk. The stress scenario can be used to portray
the effects of unexpected events on the Bank’s liquidity
situation. This means that the Bank can look
ahead when planning and be prepared for emergency
situations.
The coefficients pursuant to the Liquidity Ordinance
are calculated on a daily basis and submitted
to the Treasury department for the purposes of
managing liquidity risk.
Liquidity risk – Reporting
As part of Group reporting, a daily report on classic
liquidity risk is drawn up daily and also forwarded
to the responsible managers of the Treasury and
Controlling departments. As a further measure,
detailed weekly reports on classic liquidity risk are
provided within the context of Board meetings.
The liquidity gaps used as the basis for the calculation
of refinancing risk are reported on a weekly
basis at the Board meetings. Within the Group,
monthly reporting is also carried out in the form of
the meetings of the Planning Committee. A quarterly
report on refinancing risk is provided in the
form of the report on risk-bearing capacity for the
attention of the full Board of Managing Directors
and the Supervisory Board. The Treasury is provided
with a daily report in accordance with the Liquidity
Ordinance. The Bank’s funding matrix is also presented
and discussed in the Group on a monthly
basis at the NORD/LB Planning Committee
meetings.
Liquidity risk –
Developments in 2008
The effects of the financial crisis were tangible
throughout 2008 and intensified further with the
collapse of the US bank Lehman Brothers. As a
result, options for refinancing on the money and
capital market were restricted and only available at
comparatively high cost.
Nevertheless, Deutsche Hypo succeeded in 2008
in achieving sufficient access to the money and
capital market, which guaranteed the Bank’s refinancing.
This aside, various forward-looking measures
designed to secure the Bank’s future liquidity
were taken as part of liquidity risk management. A
process was introduced, for example, using which
the impact of credit decisions on the liquidity situation/risk
limits can be represented.
Following the collapse of Lehman Brothers, the
Bank switched its internal liquidity escalation procedure
to “amber” in September 2008, with its
traffic light model being set to “red” by October
2008. Daily reporting to the Board of Managing
Directors on classic liquidity risk followed. New
business on the capital market was reduced and
decisions on lending commitments were closely
coupled to refinancing in particular and the liquidity
situation in general. The risk limit for the dynamic
stress test scenario was increased in October

2008 from one month to three months as stipulated
Group-wide. The calculation of total expected
disbursements relating to irrevocable loan commitments
from the market units was set up as a
separate process and incorporated into the measurement
of classic liquidity risk.
The Group-wide dynamic stress test scenario
showed a comfortable liquidity surplus for
Deutsche Hypo as at 31 December 2008 of up to
15 November 2009 inclusive (317 days) and thus a
surplus that was well within the risk limit of 90
days.
31.12.2008 31.12.2007 Limit
Dynamic stress test
scenario 317 days *) 90 days
*) No comparable figures exist as at 31.12.07
The bank’s internal process for managing classic
liquidity risk revealed that the liquidity of Deutsche
Hypo, without any additional procurement of
funds on the money and capital markets, was
secured for a future period of around half a year.
The additional ability of Deutsche Hypo to issue
covered mortgage Pfandbriefe means that the
Bank would actually manage for a future period of
around 11 months without additional unsecured
funding.
Despite consistently good ratings for covered
issues (AAA for public Pfandbriefe from Standard
& Poor’s/Aaa for public and mortgage Pfandbriefe
from Moody’s Investor Service Ltd.) and improved
long-term ratings for unsecured issues, up from
A2 to Aa3 (Moody’s Investor Service Ltd.) as a
result of the Bank’s integration into the NORD/LB
Group, Deutsche Hypo’s refinancing costs have
increased compared with the previous year as a
result of the financial crisis. This applies to both
unsecured and secured issues.
The risk limits used to manage liquidity risks were
complied with at all times over the past financial
year, as were the terms of the risk strategy in the
RBC model.
The liquidity key figure pursuant to the Liquidity
Ordinance over the course of the year was consistently
above the minimum of 1.00 required by
supervisory law. As at 31 December 2008, the
equivalent figure was 1.76 (31 December 2007:
1.25).
Liquidity risk – Outlook
··· MANAGEMENT REPORT ···
Managing liquidity risk is one of Deutsche Hypo’s
central tasks. Using the available management
tools, the Bank ensures that it is permanently in a
position to meet its payment obligations on time
and in full. The high quality of the Pfandbriefe and
good ratings for unsecured issues help to ensure
that the Bank can obtain refinancing at appropriate
conditions on the market. Deutsche Hypo holds a
large portfolio of freely available liquid securities
that meet the criteria for securities eligible for refinancing
with central banks and that are therefore
suitable for repo and open-market transactions
with the ECB.
··· 65 ···

··· 66 ···
In terms of the 2009 financial year, we expect the
situation on the financial markets to remain tense,
which will continue to make refinancing difficult.
Thanks to the close coupling of credit commitments
and refinancing, however, we do not
expect any increase in liquidity risks.
·· OPERATIONAL RISK
Operational risk refers to the risk of losses being
incurred due to the unsuitability or failure of internal
process or systems, due to human error or
inadequacy, or as a result of external events.
The following types of risk are classed as operational
risks:
·· Product and customer-related risks
·· Organisational and business process-related
risks
·· Legal risks
Deutsche Hypo’s strategic aim in dealing with
operational risk is basically to avoid this type of
risk as far as possible. A sensible approach is
applied in practice, however, in that the costs of
protecting against operational risk should not
exceed the level of expected damage.
Management of operational risk
Management of operational risks encompasses in
the first instance an annual inventory of all risks
(self-assessment). The individual departments use
a prescribed list to analyse all relevant/potential
risks and to assess these in terms of their significance
to the department. Information such as the
potential amount of the damage, probability of
occurrence and measures to be taken in the event
of damage occurring can be used to classify the
resulting risk potential. Ongoing analysis of this
list of risks as part of the quarterly meetings of the
operational risk committee leads in turn to ongoing
monitoring and improvement of the measures
in place to protect against operational risks.
The list of measures includes contingency planning,
which is being permanently adjusted and
improved in line with changes to business
processes. In the event that Head Office can no
longer be used, for example, operations can be
continued on a contingency basis with the necessary
infrastructure and IT back-up from an alternative
location.
Risks with regard to personnel are countered by
means of regular analysis of requirements and
available capacity. Moreover, Deutsche Hypo pays
particular attention to the skills and training of its
employees. Employees have the opportunity to
engage in continuing professional development in
a wide range of areas. Very intensive efforts are
made, for example, with regard to foreign language
courses.
Permanent monitoring and adjustment of all of the
organisational processes and workflows help to
reduce organisational risk. Once a year all of the
Bank’s organisational and work instructions are
reviewed and adjusted where necessary by the
individual departments concerned.
As part of the implementation of the statutory
framework conditions, a central compliance office
has been in place for several years now to prevent
insider dealing.

Measurement of operational risk
Operational risk was measured during the financial
year using the basic indicator approach as
defined in Section 270 of the Solvency Ordinance,
according to which the basic indicator of operational
risk is 15 % of the three-year average of the
relevant indicator. Basically, the relevant indicator
is the Bank’s net interest and commission income.
With effect from 2009, the Bank will be measuring
operational risk using the standard method as
described in Section 272 et seq. of the Ordinance.
This method allows for a more detailed measurement
of risk, as various different percentages are
stipulated for the indicators depending on the different
areas of business.
With regard to ongoing monitoring and reporting
of operational risk, the operational risk committee
(ORC) meets on a quarterly basis. This committee
comprises the Board of Managing Directors of
Deutsche Hypo and the heads of department
responsible for risk management and internal
audit. The meetings deal with a standardised
report containing the following information:
·· Reporting of any new cases of damage recorded
in the database
·· Status of current new product processes
·· Status report on any significant Bank projects
In addition to regular reporting, the management
is also briefed without delay on any acute change
in the Bank's risk situation.
·· FORECAST
··· MANAGEMENT REPORT ···
·· ECONOMY AND REAL ESTATE MARKETS
In the current environment any predictions of
future developments are associated with a large
amount of uncertainty. This is particularly true of
any assessment of the blow to economic growth
dealt by the global financial crisis. The global economy
faces an acute economic downturn in 2009
from which no region of the world will be able to
escape. Many industrialised nations are experiencing
a painful recession, the severity and duration
of which will depend on the success of measures
introduced to overcome the financial crisis.
Germany, in its capacity as a strongly exportdependent
country, will be particularly hard hit by
the fall in global demand. Given the very weak
level of development in the economy as a whole
towards the end of 2008, a trend that can be
expected to continue during the first half of 2009,
many are expecting Germany to experience the
worst recession in the history of the Federal
Republic. Growth in exports and investments will
be particularly badly affected, whilst private consumer
spending should prove relatively robust in
the current economic crisis, as supported by the
clear fall in inflation, the measures designed to
bolster consumption as part of economic stimulus
programmes and what has been only a relatively
moderate rise in unemployment given the extent
of the crisis. Nevertheless, real gross domestic
product in Germany risks falling by more than 2 %
in 2009.
··· 67 ···

··· 68 ···
With regard to new real estate finance business,
we expect to see something between stagnation
and decline in our target markets in light of the
respective macroeconomic environment, particularly
in the markets of the US, the UK and Spain.
These developments will have a negative impact
on our levels of new business, despite the fact
that the acquisition potential has basically been
increased due to the merger of the real estate
finance divisions of NORD/LB and Deutsche
Hypo.
Based on our current information on new business
suitable for refinancing that meets the requirements
of Deutsche Hypo, particularly in terms of
risk profile, we expect the volume of new business
in 2009 to at least match the previous year’s
level.
As was the case in the previous year we expect to
see a further increase in our loan portfolio. This
will be based on new business and, at the same
time, on a drop in loan redemptions, given that the
term of loans, particularly in our foreign portfolio,
has increased. This is a trend that is also proven by
the strong fall in transactions volumes worldwide
as a result of the crisis. A further influencing factor
on portfolio growth is the successive transfer of
loan portfolios from NORD/LB to Deutsche Hypo.
In this regard we are expecting a far-reaching
transfer of the portfolio to Deutsche Hypo over the
next few years.
Despite the difficult basic parameters, we are resolute
in our aim of continuing to expand our mortgage
loan portfolio, as this is the means by which
we can secure our future income.
Our assessment of risk provisioning for the
lending portfolio is negative with real estate markets
expected to develop more weakly next year.
Whilst we are confident about the development
and structure of our real estate portfolio, it should
nevertheless be borne in mind that the continued
negative development on the market will also
affect Deutsche Hypo and result in the need for a
higher level of provisioning for potential loan losses.
We see particular risk potential in US condominium
financing with the focus on Florida. The
markets in the USA and the UK are the subject of
greater attention on our part and will require due
consideration as part of our portfolio management.
In deviation from our planning, we are
therefore expecting a level of risk provisioning for
loan losses that will be significantly above the
level of the previous year.
The result from the real estate finance segment
(taking into account risk provisioning) in particular
is likely to be lower than in the previous year due
to higher risk provisioning.
·· CAPITAL MARKET DEVELOPMENT
In terms of capital market business the issue
dominating the agenda in 2009 is, once again, the
recession. How interest rates develop will play a
major role. We expect the central banks to keep
rates low in response to the economic environment.
The states concerned will be required to put their
full weight behind their economic stimulus programmes
and support mechanisms for banks and
key industries. Given that it generally takes around

six months for the effects of monetary policy
measures to filter through, we are assuming that,
in the best case scenario, a slight turnaround can
only be expected in Europe with effect from the
second half of the year. Yet all market participants
must assume, as things currently stand, that the
impact of the financial crisis will not yet have been
overcome by the end of 2009. We expect the
development of credit spreads to tend towards
the reserved. Even taking into account a positive
scenario, these can be expected to stagnate more
than anything else.
We are basically positive in our assessment of the
potential business opportunities for Deutsche
Hypo, a bank with a tried-and-tested business
model. Our standing in the market will continue to
support the good rating enjoyed by our public
Pfandbriefe. Borrowing by state bodies will rise
considerably in light of the huge economic stimulus
programmes in evidence. The lender basis in
this sector has, however, grown smaller. This
means that margins should rise. Deutsche Hypo’s
aim is to use its sustained presence on the Pfandbrief
markets to exploit the income opportunities
as they present themselves. Furthermore, we
remain in a position to meet the individual interests
of our investors through customised structured
products.
We expect there to be ongoing burdens on new
business and on the result generated by capital
market business in 2009. Above all, the rise in refinancing
costs and low volume of new business in
2008 will make it difficult for this area of business
to match the contribution to net interest and commission
income made in the 2008 reporting year.
·· RESULT FORECAST
··· MANAGEMENT REPORT ···
A planning model is used to predict the Bank’s
income position. This incorporates, among other
items, the development of our interest-earning
portfolios and the margins earned on these, to the
extent that these are determined. Other variables
such as the development of new business must,
in contrast, be estimated. These estimates are
made on the basis of the information available at
the time. The assumptions and parameters incorporated
into our planning model are also based on
the latest information known to the Bank.
If the assumptions on which our plans are based
prove to be incorrect or if different risks arise, this
will obviously have a corresponding impact on the
predicted results.
The financial crisis and the fall-out from it, and the
fact that the financial markets still, as things currently
stand, remain very fragile and vulnerable to
further burdens, make it practically impossible to
predict income for 2009. In the absence of any further
setbacks on the market, we are however
assuming that we can achieve a pre-tax result in
2009 that is higher than that achieved in 2008.
The described imponderables with regard to making
a forecast do of course apply most considerably
to the years after 2009. Looking towards 2010
and based on the current situation, Deutsche
Hypo does not anticipate an out-and-out improvement
in the state of the market but does expect
the situation to have at least calmed down.
··· 69 ···

··· 70 ···
Overall, Deutsche Hypo believes that its business
model continues to be healthy and viable, with
regard to both real estate finance and the Bank’s
capital market and refinancing business. The
effects of the financial crisis are currently skewing
results, as is in evidence across the entire sector,
to such an extent that it is not possible at the current
time to make reliable predictions. Despite
these uncertainties about the Bank’s short-term
future, Deutsche Hypo believes that it continues
to be in a position from which it can successfully
manage the existing risks.
·· OPPORTUNITIES AND RISKS
The main opportunities and risks with regard to
Deutsche Hypo’s income position can be defined
as follows.
Risks with regard to operational income could
arise in that it might not be possible, depending on
the state of the markets, to generate the expected
volume of new business with the anticipated margins.
There is also the risk that the portfolio might
not develop on the scale expected when making
plans and looking to the future. General influencing
factors come into play here, being crucially
shaped by the behaviour of customers with regard
to ordinary and extraordinary loan repayments. At
the same time, there are also risks associated
with the transfer of the NORD/LB loan portfolios
to Deutsche Hypo, which might not be possible on
the anticipated scale.
The omnipresent financial crisis will also have a
long-term impact on the development of risk provisioning,
which, in turn, depends on the economic
development of the real estate markets over the
coming years. Potential dramatic distortions on
the real estate markets would result in a need for
higher risk provisioning.
In such a case we would also have to expect
another burden on the result recorded by our
securities portfolio due to a deterioration in recovery
rates.
Generally speaking, however, we are not expecting
the global measures in place to stabilise the
financial and real economies to fail. Rather, looking
at our securities portfolio, we expect that neither
states nor banks will have to endure further dramatic
losses of value in their bonds and that the
support measures will take effect.

Opportunities will arise from our integration into
the NORB/LB Group. In particular, our improved
market presence and the greater perception of
Deutsche Hypo as a company within the
NORD/LB Group will open the door to new business
opportunities. The related cross-selling
potential will also provide additional income opportunities
in general.
Hanover, 3 March 2009
The Board of Managing Directors
Grieger Morr
Pohl Rehfus
··· MANAGEMENT REPORT ···
··· 71 ···

··· 72 ···
PERSONNEL REPORT
Integration was a key element of 2008, with the
switch on 1 October 2008 of 83 employees to
Deutsche Hypo on the basis of a transfer agreement.
Nearly all of Deutsche Hypo’s employees
were involved in this process, especially the loans
department, the Organisation and IT department and
the HR department including the administration area.
Deutsche Hypothekenbank experienced a tumultuous
yet interesting year in 2008. It is only due to
the dedication of all of our employees that the challenging
issues of the year could be resolved. The
integration process is far from over, but the foundations
have been established for a successful future.
In a desire to ensure equal treatment of all
employees, an agreement was reached at the end
of the year with the Works Council of Deutsche
Hypo on both a social package and on the avoidance
of unequal treatment.
In the areas of training and education, the expertise
contributed by NORD/LB will ensure that the
best framework is in place in the future to offer
optimised professional development for the workforce.
In 2009, both parties wish to promote and
realise the comprehensive package of training
offered by NORD/LB and an exchange of up-andcoming
banking professionals and trainees.
The trainees completing their education in the
class of 2008 and the one employee graduating
from the Leibniz-Akademie all completed their
programmes of study with above-average examination
results, and all were taken on by the Bank.
Numerous training measures were conducted at
Deutsche Hypo during 2008. In March 2008, the
third Financial Management Seminar was completed
successfully with a closing presentation.
The fourth such course will commence in 2009.
In recent years, improving foreign language skills
has been an increasingly important challenge. The
activities of NORD/LB in this domain have been
bundled with those of Deutsche Hypo, and
employees are receiving targeted language training.
New, mixed learning groups are being formed
on the basis of existing language skills.
The number of employees has risen to an average
of 234 (previous year: 215). As at 31 December
2008, the number of employees including those
joining from NORD/LB was 296 (excluding Board
of Managing Directors and trainees).
The average age of the workforce as at 31 December
2008 was 42.4 years (previous year 44.1
years); the percentage of days lost through illness
was 2.9 % (previous year: 2.15 %).
In total, six employees celebrated 25 years in service
and four employees celebrated their tenth
anniversary with the Bank. In addition, Mr Kördel,
Chairman of the Works Council, celebrated his
40th anniversary with Deutsche Hypo.
We would also like to thank the Works Council for
the good working relationship, which has been
constructive and professional at all times.

CORPORATE GOVERNANCE REPORT
·· CORPORATE GOVERNANCE
CODE
The Government Commission on the German Corporate
Governance Code, at its plenary meeting of
6 June 2008, agreed on changes to the Code.
These were published in the electronic Federal
Gazette on 8 August 2008 and thus entered into
force.
Three major new recommendations were added
to the Code.
·· Resolution of the full Supervisory Board on the
structure and remuneration system for the Board
of Managing Directors
·· Conversion into recommendations of existing suggestions
on severance-payment caps
·· Handling by the Supervisory Board or by its Audit
Committee in relation to interim financial reports
The current version of the Corporate Governance
Code is available for consultation on the Deutsche
Hypo website.
Deutsche Hypo will comply with recommendations
b) and c) above and has implemented these
organisationally to the extent required. Deutsche
Hypo does not intend to comply with recommendation
a) above.
·· DECLARATION
The Board of Managing Directors and the Supervisory
Board issued their declaration, which must
be submitted annually, on 18 December 2008. The
declaration is available for consultation on the
Deutsche Hypo website. It is worded as follows:
2008 Declaration
of Deutsche Hypothekenbank
(Actien-Gesellschaft) Hanover/Berlin
on the recommendations of the
“Government Commission on the German
Corporate Governance Code”
The Board of Managing Directors and the Supervisory
Board of Deutsche Hypothekenbank (Actien-
Gesellschaft), Hanover/Berlin, hereby declare in
accordance with Section 161 of the Joint Stock
Corporation Act:
1. Deutsche Hypothekenbank (Actien-Gesellschaft)
Hanover/Berlin, since its last declaration of 19
December 2007, has complied with the recommendations
of the Government Commission on
the German Corporate Governance Code of 14
June 2007 and as last amended on 6 June 2008
with the following exceptions:
a) A D&O policy existed for the Board of Managing
Directors and Supervisory Board without
a suitable deductible (No. 3.8).
b) The Board of Managing Directors did not have
a chairperson or spokesperson (No. 4.2.1).
··· 73 ···

··· 74 ···
c) The remuneration system of the Board of
Managing Directors, including material contractual
elements, is not decided by the full
Supervisory Board, but instead by the Personnel
Committee of the Supervisory Board (No.
4.2.2).
d) At the General Meeting of 21 May 2008, at
which five new members of the Supervisory
Board were elected, no candidates were proposed
to the shareholders for the new Chairman
of the Supervisory Board (No. 5.4.3).
e) The six-month interim financial report was
published on 29 August 2008 and thus
somewhat later than 45 days after the end of
the reporting period (No. 7.1.2). The report
was published according to the requirements
of Section 37w of the Securities Trading Act.
These provisions require publication no later
than two months after the end of the reporting
period.
2.Deutsche Hypothekenbank (Actien-Gesellschaft),
Hanover/Berlin, shall adhere to the
recommendations of the Government Commission
on the German Corporate Governance
Code as last amended on 6 June 2008 subject
to the exceptions listed under 1.a) to 1.e).
Hanover, 18 December 2008
The Supervisory Board The Board of
Managing Directors
EXPLANATORY INFORMATION
·· Re. No. 3.8:
This recommendation has not been adhered to in
the past and will not be adhered to in future by
Deutsche Hypo. The grounds for this are unchanged:
For reasons of equal treatment, any deductible
would have to be identical for all insured persons,
whereas the principle of appropriateness would
result in the deductible being set on the basis of
the highest income and asset situations of the
group of insured persons. As a result, this deductible
would have a varying effect on the members
of the Board of Managing Directors and Supervisory
Board depending on their personal economic
circumstances. In the most extreme case, for
example, those members of the Supervisory
Board with lower net worth may find themselves
in financial difficulties. Taking into account equal
responsibilities, this would not appear to be a fair
approach.
·· Re. No. 4.2.1:
Again, this recommendation has not been adhered
to in the past and will not be adhered to in
future by Deutsche Hypo. At Deutsche Hypo, it is
long-established practice for the management
board to be composed of equal-ranking members.
This system has proven its worth in the past, and
in the light of the size of Deutsche Hypo and in
view of the Bank’s business activities, we regard
this practice as appropriate. The duties and
responsibilities of the Members of the Board of
Managing Directors are clearly laid out in the
Rules of Procedure of the Board of Managing

Directors. The Rules of Procedure and the rules
derived from these on the responsibility and authority
held by subordinate groups stipulate that all
major decisions are to be made by the entire
Board of Managing Directors. The weekly meetings
of the entire Board of Managing Directors
serve as the decision-making body. This ensures,
commensurate with the desire for consistent
business management, that all Members of the
Board of Managing Directors are fully informed of
all material facts and also that all Members of the
Board of Managing Directors stand together
behind all major decisions affecting the company.
·· Re. Nos. 4.2.2, 4.2.5 and 5.4.7:
According to the Rules of Procedure of the Supervisory
Board, the Personnel Committee has been
assigned independence of decision-making and
implementation in relation to emoluments paid to
the Board of Managing Directors. The Personnel
Committee consults on the structure of emoluments
and subjects this to regular inspection. The
entire Supervisory Board is informed of the Committee’s
activities and its findings through the
Committee’s reporting procedures. This system
has proven its worth in the past and Deutsche
Hypo sees no urgent reason to deviate from this
practice.
The emoluments of the members of the Board of
Managing Directors and Supervisory Board have
not been listed for each individual member in the
past. Similarly, Deutsche Hypothekenbank will not
be complying with this recommendation in future.
The Extraordinary General Meeting of Deutsche
Hypothekenbank held on 13 November 2006 passed
a decision with the required majority in accor-
··· CORPORATE GOVERNANCE REPORT ···
dance with Section 286, paragraph 5 of the
German Commercial Code not to break down the
emoluments paid to members of the Board of
Managing Directors.
The emoluments paid to the members of the
Supervisory Board are regulated in the Articles of
Association of Deutsche Hypothekenbank, which
may be consulted on the Bank’s website. The payment
made to each member of the Supervisory
Board can basically be derived from this. There is
no obvious benefit to be gained from breaking
down the amounts by individual member.
·· Re. No. 5.4.3:
Deutsche Hypo has not complied with this recommendation
of the Code and will not comply with it
in the future. According to the provisions of the
Joint Stock Companies Act and Deutsche Hypo’s
Articles of Association, the Supervisory Board
elects a Chairman from its members. There is no
provision for the involvement of the shareholders
in this process. Deutsche Hypo therefore also considers
it unnecessary to advise shareholders of
the nominations for position of Chairman of the
Supervisory Board in advance.
·· Re. No. 7.1.2:
As a consequence of its inclusion in the NORD/LB
Group, Deutsche Hypo is integrated into Group
reporting procedures in relation to publication of
interim reports, financial reports and its annual
financial statements. Due to this fact, circumstances
may occur in which it is necessary to deviate
from the deadlines imposed by the Corporate
Governance Code.
··· 75 ···

··· 76 ···
·· EMOLUMENTS OF THE MEMBERS OF THE
BOARD OF MANAGING DIRECTORS
Emoluments paid to the Board of Managing
Directors for the 2008 financial year amounted to
€ 987.0 k (previous year: € 1,310.0 k). Fixed payments
amounted to € 987.0 k (previous year:
€ 723.2 k). The variable component amounted to
€ 0.0 k (previous year: € 586.8 k).
The variable salary component is calculated on the
basis of the annual accounts prepared in accordance
with the German Commercial Code (HGB)
using the following formula:
Operating result before tax (in € millions) + return
on equity (in %) + dividend x 10 (in euros).
This total is then multiplied by the individual multipliers
for each member of the Board of Managing
Directors.
The total multiplier for the incumbent Board of
Managing Directors is 7,800.
As an exception to this rule, the variable portion of
the salary paid to one member of the Board of
Managing Directors is set individually by the
Supervisory Board.
Former Members of the Board of Managing
Directors and their surviving dependents received
€ 657.0 k (previous year: € 610.8 k). The pension
provisions made for this group of persons totalled
€ 6,095.0 k (previous year: € 6,461.3 k).
·· EMOLUMENTS OF THE MEMBERS OF THE
SUPERVISORY BOARD
The emoluments paid to the Supervisory Board
totalled € 129 k (previous year: € 354 k), of which
€ 129 k (previous year: € 149 k) was a fixed component
(excluding turnover tax).
·· CORPORATE GOVERNANCE – OUTLOOK
As already mentioned above, the official quotation
of the Deutsche Hypo shares on the stock
exchange was withdrawn with effect from 30
December 2008. This means that there is no statutory
obligation to submit a declaration on the
Corporate Governance Code. According to Section
161 of the Joint Stock Companies Act, only listed
companies are obliged to issue such a declaration.
Nevertheless, Deutsche Hypo maintains an interest
in operating sound corporate governance in
keeping with the recommendations of the Code.
Therefore, it will continue, on a voluntary basis, to
issue a declaration on the Corporate Governance
Code and to explain any deviations from the
recommendations of the Code.

··· CORPORATE GOVERNANCE REPORT ···
··· 77 ···

··· 78 ···
DEUTSCHE HYPO SUPPORTS
MEDICAL RESEARCH
As early as 1972, the Bank instituted a fund to support
research into cancer; from this was established,
in 1999, an association bearing the name of
Johann Georg Zimmermann, a renowned 18th
century scholar who was also personal physician
to George III when the British monarch was in
residence in the Electorate of Hanover. As a physician,
Zimmermann sought intensively and with
great perseverance for new, practical methods of
treating and curing his patients.
In modern cancer research, where today’s
knowledge may quickly be overtaken by new findings
in just a few years, perseverance is a major
prerequisite in establishing a successful project.
Therefore, the Johann Georg Zimmermann prizes
from left: Prof. Dr. Dieter Bitter-Suermann, Prof. Dr. Nisar Peter Malek, Prof. Dr. Rüdiger Hehlmann,
Prof. Dr. B. Michael Ghadimi, Jürgen Morr
are awarded in recognition of innovative, successfully
concluded research projects that expand the
corpus of knowledge of cancer and lead to improved
methods of treatment.
Over the years, the Board of Trustees of the
Johann Georg Zimmermann Association has
always selected renowned and important recipients
to be awarded with the research prize and
medal. This year, however, was a particularly
memorable one. In December 2008, the recipient
of the Zimmermann Medal in 2007, Heidelberg
cancer research specialist Professor Dr. Dr. Harald
zur Hausen was awarded this year’s Nobel Prize in
Medicine in Stockholm. This is confirmation of the
excellent work done by the Trustees, who had

already recognised Professor zur Hausen and his
pioneering work in the development of a vaccination
against cervical cancer. This research is of fundamental
importance to the development of strategies
to fight cancer in the future. Now, with the
award of the Nobel Prize in Medicine, they have
earned the greatest possible academic honour.
This year, the Trustees were once again able to
reward major cancer researchers with the Zimmermann
prizes. The Medal was awarded to Professor
Dr. Rüdiger Hehlmann of the Faculty of Clinical
Medicine at University Hospital, Mannheim. Professor
Hehlmann is coordinator of the German
CML Study Group, which has been conducting randomized
studies into the treatment of chronic myelogenous
leukaemia (CML) since 1982. He is also
Secretary General of the International Association
for Comparative Research on Leukaemia and Related
Diseases (IACRLRD) and Coordinator of the
Competence Network “Acute and Chronic Leukaemia”
and of the European LeukemiaNet. In particular,
the Trustees praised Professor Hehlmann’s
achievement in creating the European Leukemia-
Net, a unique and permanent network for the coordination
of leukaemia treatment in Europe.
This year, two research prize winners were recognized.
The Trustees were convinced that both winners
were equally strong and could demonstrate
sustained incisive research results. Thus the decision
was made to recognise Professor Dr. B.
Michael Ghadimi from the Surgical Centre in the
Clinic and Polyclinic for General Surgery of the University
Hospital and Medical Faculty of the Georg-
August University, Göttingen. Professor Ghadimi’s
clinical research group is promoting individualised
treatment of patients with bowel cancer, the
second most frequent form of cancer in Germany.
The objective of the group’s research is to identify
in advance which cancer treatments will work
best, which will not work at all and what sideeffects
can be expected among patients with cancer
of the rectum. This not only enables doctors to
improve the quality of life of those affected and to
increase their lifespan, but also alleviates pressure
on the health system as expensive treatments that
would probably not be effective for the individual
patient can be avoided.
The research prize also went to Professor Dr. Nisar
Peter Malek of the Institute for Molecular Biology
and Department for Gastroenterology, Hepatology
and Endocrinology at Hanover Medical School.
With a natural substance – argyrin – Professor
Malek has demonstrated that an active substance
developed in an academic setting can have a targeted
oncological use.
The Board of Trustees was unanimous in its decision,
recognising the work of two researchers and paying
tribute to their pioneering interdisciplinary work in
the area of cancer research.
··· 79 ···

··· 80 ···

ANNUAL ACCOUNTS
·· BALANCE SHEET AS AT 31 DECEMBER 2008
·· PROFIT AND LOSS ACCOUNT
FOR THE 2008 FINANCIAL YEAR
·· NOTES
··· 81 ···

·· BALANCE SHEET
·· ASSETS
··· 82 ···
Cf. Notes 31.12.2008 31.12.2007
No. € thousands € thousands € thousands € thousands € thousands
1. Cash reserve
a) Cash and cash equivalents 3
b) Balances with central banks 85,851 85,854 99,340
of which:
with Deutsche Bundesbank 85,851 (99,309)
3. Due from banks 1.
a) Mortgage loans 0
b) Loans to the public sector 3,988,942
c) Other claims 3,129,072 7,118,014 5,955,915
of which:
payable on demand 760,170 (609,662)
collateralised against securities 0 (0)
4. Due from non-bank customers 1.
a) Mortgage loans 9,093,791
b) Loans to the public sector 6,627,169
c) Other claims 104,492 15,825,452 16,108,623
of which:
collateralised against securities 0 (0)
5. Bonds and other
fixed-income securities 3./6.
b) Bonds and debentures
ba) from public issuers 4,966,095
of which:
eligible as collateral for advances from the
Deutsche Bundesbank 3,364,692 (3,432,024)
bb) from other issuers 7,155,490 12,121,585 12,067,003
of which:
eligible as collateral for advances from the
Deutsche Bundesbank 6,391,189 (6,223,406)
c) Own bonds 183,561 183,433
Nominal amount 180,979 (182,231)
12,305,146 12,250,436
6. Shares and other 3.
variable-yield securities 101,056 167,217
7. Investments 40. 227 495,227
of which:
in banks 0 (0)
in financial services institutions 0 (0)
8. Shares in affiliated companies 40. 173 199
of which:
in banks 0 (0)
in financial services institutions 0 (0)
9. Trust assets 4. 5,342 6,117
of which:
loans on a trust basis 5,342 (6,117)
11. Intangible assets 8. 369 524
12. Tangible fixed assets 9. 4,133 24,199
15. Other assets 11. 508,145 238,021
16. Deferred items 12.
a) from issuing and lending business 62,277
b) other 30,950 93,227 84,047
Total assets 36,047,138 35,429,865

·· LIABILITIES
··· ANNUAL ACCOUNTS ···
Cf. Notes 31.12.2008 31.12.2007
No. € thousands € thousands € thousands € thousands € thousands
1. Due to banks 1.
a) Registered mortgage Pfandbriefe issued 175,864
b) Registered public Pfandbriefe issued 420,763
c) Other liabilities
of which:
6,395,020 6,991,647 4,665,827
payable on demand
collateralised against securities
delivered to lenders
827,407 (14,427)
registered mortgage Pfandbriefe and 0 (0)
registered public Pfandbriefe 0 (0)
2. Due to non-bank customers 1.
a) Registered mortgage Pfandbriefe issued 1,155,748
b) Registered public Pfandbriefe issued 7,485,163
d) Other liabilities
of which:
1,350,173 9,991,084 10,048,077
payable on demand
collateralised against securities
delivered to lenders
10,269 (10,156)
registered mortgage Pfandbriefe and 0 (0)
registered public Pfandbriefe 0 (0)
3. Bonded liabilities 1.
a) Bonds issued
aa) mortgage Pfandbriefe 4,550,196
ab) public Pfandbriefe 9,850,940
ac) other bonds 3,373,509 17,774,645 19,488,848
4. Trust liabilities 4. 5,342 6,117
of which loans on a trust basis 5,342 (6,117)
5. Other liabilities 13. 140,631 220,608
6. Deferred items 12.
a) from issuing and lending business 59,665
b) other 26,143 85,808 100,080
7. Provisions
a) Provisions for pensions and
similar obligations 20,578
b) Tax provisions 4,454
c) Other provisions 9,549 34,581 41,728
9. Subordinated liabilities 14. 228,252 229,274
of which maturing in less than two years 20,452 (11,248)
10. Participatory capital 15. 108,226 108,226
of which maturing in less than two years
12. Equity
10,226 (10,226)
a) Subscribed capital 17. 80,640 80,640
capital held by silent partners 19. 44,000 44,000
b) capital reserve 20. 311,314 131,314
c) revenue reserves 20.
ca) legal reserve 18,918
cd) other revenue reserves 231,424 250,342 240,426
d) Distributable profits 626 24,700
686,922 521,080
Total liabilities 36,047,138 35,429,865
1. Contingent liabilities 21.
b) Liabilities from guarantees
and indemnity contracts 686,185 661,423
2. Other obligations 22.
c) Irrevocable loan commitments 607,947 857,088
··· 83 ···

··· 84 ···
·· PROFIT AND LOSS ACCOUNT
Cf. Notes 2008 2007
No. € thousands € thousands € thousands € thousands
1. Interest income from
a) lending and money market transactions 1,096,486
b) fixed-income securities
and government-inscribed debts 562,216 1,658,702 1,679,508
2. Interest expenses 1,567,040 1,594,872
91,662 84,636
3. Current income from
a) shares and other
variable-yield securities 10,011
b) investments 7,085
c) shares in affiliated companies 183 17,279 21,273
4. Income from profit pooling, profit transfer or
part-profit transfer agreements 21 0
5. Commission income 12,046 8,071
6. Commission expenditure 2,624 2,095
9,422 5,976
8. Other operating income 33. 20,018 3,028
10. General administrative expenses
a) Personnel costs
aa) wages and salaries 17,011
ab) compulsory social security contributions
for pensions and other employee benefits 4,776 21,787
of which:
for pensions € 2,271 k (2,245)
b) Other administrative expenses 16,628
38,415 34,604
11. Depreciation and write-downs on intangible and
tangible fixed assets 1,048 1,102
12. Other operating expenses 34. 3,529 3,035
13. Write-down of and adjustments to claims
and certain securities, and allocations to
provisions for possible loan losses 4,846 25,414
15. Write-down of and adjustments to 36.
investments, shares in affiliated companies
and securities treated as fixed assets 93,591 1,306
16. Income of and adjustments to investments,
shares in affiliated companies and securities
treated as fixed assets 0 0
17. Absorbed losses 0 168
19. Result from ordinary business activity – 3,027 49,284
23. Taxes on income and earnings 35. – 3,708 12,525
24. Other taxes not
posted under item 12 55 59
– 3,653 12,584
27. Net income for the year 626 36,700
32. Allocation to revenue reserves
d) to other revenue reserves 0 12,000
34. Distributable profits 626 24,700

·· NOTES
·· GENERAL INFORMATION
·· ACCOUNTING REGULATIONS
The annual accounts for the 2008 financial year
have been prepared in accordance with the provisions
of the German Commercial Code (HGB) in
conjunction with the Ordinance on the Presentation
of Accounts of German Banks (RechKredV)
and with due adherence to the provisions of the
German Joint Stock Companies Act (AktG).
·· ACCOUNTING AND VALUATION PRINCIPLES
Cash reserves are reported at nominal value.
The Bank's receivables are reported at their nominal
value according to Section 340e, paragraph 2
of the Commercial Code (HGB). Any differences
between the nominal value and the payout value
are reported under accrued and deferred items,
which are written back on a straight-line basis.
Appropriate value adjustments and provisions are
set aside in relation to detectable individual risks.
Account is taken of contingent risks in the form of
a lump-sum valuation adjustment. Additionally,
reserves have also been formed in accordance
with Section 340f, paragraph 1 of HGB. The setoff
opportunities provided under Section 340f, paragraph
3 of HGB have been utilised.
Securities are reported in the balance sheet under
“Bonds and other fixed-income securities” and
under “Shares and other variable-yield securities”.
··· ANNUAL ACCOUNTS ···
Zero bonds are carried as assets at historical cost.
Depending on the issuing conditions, interest calculated
on the basis of the capital-based effective
interest calculation is also posted under assets.
Securities held as fixed assets are carried in the
balance sheet at their depreciated historical costs.
Non-scheduled write-downs are made in accordance
with Section 253, paragraph 2, sentence 3
of HGB in the impairments that are judged to be
long term. Values are written back in cases where
the reasons for a write-down cease to apply. Securities
held as fixed assets are written up/down on
a straight-line basis until maturity based on their
nominal value. Securities held as fixed assets that
are written down due to a long-term value reduction
are no longer written up or down on a straightline
basis as of the write-down. Securities subject
to non-scheduled write-downs are only written
up/down again once the impairment loss has been
written back.
Securities held in the liquidity reserve are valued
according to the strict principle of the lower of
cost or market according to Section 253, paragraph
3 of HGB, insofar as they are not included in
separate valuation units. Securities in the liquidity
reserve included in a valuation unit with a derivative
are valued taking into account the market
value of the derivative.
Reallocations from the liquidity reserve to fixed
assets are carried out in accordance with IDW RH
HFA 1.014 (9 January 2009) on the basis of the
book value of the most recent annual accounts or,
in the case of securities acquired in 2008, at historical
cost. In previous years, reallocations were
··· 85 ···

··· 86 ···
effected at the book value of the most recent halfyearly
financial statements. The reallocated securities
should, in line with strategy, serve business
operations over the long term and are not required
for the liquidity reserve.
The greatly limited ability of the financial markets
to function properly has led to a significant
amount of uncertainty within the financial sector
regarding the valuation of securities, particularly
the calculation of their fair values. The massive disruption
to market mechanisms has led to major
price falls, with very high bid/offer spreads and levels
of trading that range from low to non-existent.
In order to provide a proper view of its assets, liabilities,
financial position and profit or loss,
Deutsche Hypo has reviewed on an individual
basis the extent to which the listed prices can be
used as the basis for calculating the fair values of
securities. In the case of active markets, Deutsche
Hypo based its valuations on the mark to market
or mark to matrix approaches, as was also the
case during the previous year. With regard to inactive
markets, a discounted cash flow (DCF) model
was used to calculate the values posted, in particular
in cases where the bid/offer spread was not
judged to be typical of the market and where
there was a lack of representative trading volumes.
In the context of the DCF model, the cash
flows for the securities were risk-adjusted and discounted
on the basis of the swap curve. The risk
adjustment process takes account of the issuerrelated
probability of default and a worst case scenario
in relation to a loss of 100 % in the case of
default. With regard to the discounting, account
was also taken of the spread premiums for
required return on equity, which increase as the
risk level rises. Wherever securities include cancellation
rights, these were incorporated into the
value using common actuarial methods/standard
option pricing models.
The DCF model values used for the first time in
2008 have no impact on the Bank’s result, as securities
held as fixed assets are posted according to
the alleviated principle of the lower of cost or market.
No write-ups based on model values were
posted to the balance sheet. With regard to securities
held as fixed assets, the DCF models have
an effect on the hidden reserves/hidden obligations
reported below under 6.
MBS-papers are as a general rule also valued
using the above valuation model for securities.
Due to the irregular structure of the interest and
redemption cash flows, the expected cash flows
are calculated on the basis of the weighted average
life (WAL) and average expected interest. The
probabilities of default applied are based on the
current assessments of the rating agency
Moody’s. In calculating the risk-dependent return
for the purposes of ensuring capital adequacy, the
quality of the MBS tranche was taken into account
in addition to the probability of the issuer defaulting.
To take additional account of the uncertainty
surrounding estimates of the WAL in inactive markets,
the WAL was also extended by one year in
these cases. This results in a lower value and thus
a more cautious entry in the accounts.
To calculate what are expected to be long-term
value reductions in US CDO papers and RMBS
papers, internal models were used on the basis of
which the expected long-term defaults on tranches

held by Deutsche Hypo could be estimated. The
models take account of the crucial risk key figures
for the calculation of default risk structure and
were already used during the previous financial
year. During the 2008 financial year one parameter
in the model was modified in the case of US
RMBS papers. The model takes account of the
loss severity of the past twelve months (ratio of
defaulted loans) and is no longer based on the loss
severity recorded since the paper was issued. The
modification of this parameter resulted in an additional
€ 3 million of write-downs.
Securities held in the liquidity reserve were, as in
the previous year, valued on a mark to market or
mark to matrix basis on the basis of sufficient market
activity.
Investments and shares in affiliated companies
are valued at historical cost or at the lower of cost
or market based on the rules applicable to fixed
assets. Values are written back in cases where the
reasons for a write-down cease to apply. In application
of Section 340c, paragraph 2 of HGB, the
income and expenses are reported as income
from financial assets.
Tangible assets and intangible fixed assets are carried
at historical cost and, where depreciable, taking
account of write-downs.
Thus tangible assets and intangible fixed assets
are carried at their historical cost minus straightline
scheduled depreciation over their estimated
useful life. Minor-value assets are depreciated in
accordance with Section 6, paragraph 2 of the German
Income Tax Act (EStG).
··· ANNUAL ACCOUNTS ···
The tax claim resulting from the amendment of
Section 37 of the German Corporate Income Tax
Act (KStG) as a result of the Act on fiscal measures
to accompany the introduction of the European
Company and the modification of other fiscal
provisions (SEStEG) was reported at its present
value applying a rate of interest of 3.9 %. The payout
shall commence with effect from 2008 in ten
equal annual instalments.
Debts are as a general rule carried as liabilities in
their repayment amount. Any difference between
the nominal value and payout amount is reported
under accruals and deferrals, which are written
back on a scheduled basis. Zerobonds are reported
at the price of the issue plus a pro-rata amount of
interest based on the issue yield.
Pension provisions are formed on the basis of an
actuarial expert opinion according to the going
concern method in accordance with Section 6a of
the Income Tax Act, using the guide tables prepared
by Prof. Dr. Klaus Heubeck. The discount
rate is 6 %. Sufficient other provisions and tax provisions
have been formed in line with the principle
of cautious commercial assessment.
Contingent liabilities are carried at their nominal
amount.
Close-out payments resulting from the early termination
of swap transactions are shown under
macro-hedges under interest income. In the case
of micro-hedges, the close-out payments are posted
as a corrective to the disposal results of the
balance-sheet transactions.
··· 87 ···

··· 88 ···
·· CURRENCY CONVERSION
The assets, debts and off-balance-sheet transactions
denominated in foreign currencies are converted
in line with the principles stipulated in Section
340h of the Commercial Code.
Fixed assets that are separately covered in the
same currency are valued at their current cash
price.
Current assets, forward deposits, borrowers’
notes, swap transactions and all other balance
sheet items and spot transactions are valued at
their current swap price.
Current assets, insofar as they are separately covered
by swap transactions, are valued at their
cost/swap price. Forward transactions are valued
using the split forward price method (swap price
and forward margin), as they have been concluded
to hedge interest-bearing items.
The adjustment items created from valuing swap
transactions at current rates were reported separately
under other assets or other liabilities as
appropriate.
The adjustment items for forward exchange transactions
are balanced under other assets/other liabilities.
Expenses arising from currency conversion are
included in the profit and loss account. Income
resulting from currency conversion is only taken
into account insofar as it is based on separately
covered transactions. If no separate cover exists,
but there is cover in the same currency, then
income that balances out a temporary expense
arising from the transactions serving as cover will
be taken into account. In all other cases, income is
not included in the profit and loss account.
All foreign exchange rates are calculated by and
taken from the European System of Central
Banks.
·· DERIVATIVES
Derivatives from the non-trading portfolio are offbalance-sheet
items, i.e. cannot be recognised as
assets or liabilities on the balance sheet.
Accrued/deferred interest from derivatives is
reported under “Due from banks”/“Due to banks”.
Upfronts from derivatives are reported under
accrued and deferred items.
·· SPECIAL CHARACTERISTICS OF THE
VALUATION OF TOTAL RETURN SWAPS
ON US MUNICIPALS
A key influencing factor with regard to the valuation
of Deutsche Hypo’s TRS are the prices of the
underlying US municipals. These underlying stocks
are bonds subject to preferential tax treatment
and issued by US local authorities or federal states
with first-class ratings.
The low level of trading activity meant that the
municipals markets were classed as not active.
The assumption that these markets are no longer
functioning properly is also backed up by the major
price jumps that have been recorded and the
strong deviation of listed prices from theoretically
fair price levels.

Correspondingly, the DCF model described above
was used to value the securities, extended to
include a further parameter to take account of the
favourable tax status enjoyed by municipals. In
accordance with the result from time series analysis
prior to the financial market crisis, a de facto
yield below the swap curve was assumed for the
tax-favoured municipals. The cancellation rights
included in some of these securities were duly
incorporated into the model price on the basis of
standard option price models. The model value for
the US municipals was then applied in the place of
a stock market or market price in the TRS valuation
model.
·· SPECIAL CHARACTERISTICS OF THE
VALUATION OF CREDIT DEFAULT SWAPS
In terms of the credit default swaps (CDS) held in
the portfolio, Deutsche Hypo is the provider of
security in CDS contracts on European states and
a US federal state.
It was not possible to calculate relevant trading
data at the listed CDS spreads of these countries.
At the same time, major deviations were recorded
between the theoretically fair price levels and the
listed spreads.
For this reason, Deutsche Hypo also valued these
securities using a DCF model.
The process used is based on a Nomura Securities
International method and is also referred to as the
“hazard rate model”.
··· ANNUAL ACCOUNTS ···
The model takes account of the expected cash
flow from the CDS using default rates/probabilities
of survival (PD) and loss rates in the event of a
default (loss given default, LGD). The default rates
are based on the underlying’s current rating. Additionally,
an iterative process was used to reduce
the difference between the publicly listed CDS
spreads (from illiquid markets) and the model CDS
spread based on the rating of the underlying, with
the result that the model value and listed value
tend to converge.
·· CONCLUSION OF PROCEEDINGS PURSUANT
TO SECTIONS 39A AND 39B SECURITY
ACQUISITION AND ASSUMPTION LAW (WPÜG)
Since 8 January 2008, Norddeutsche Landesbank
Girozentrale (NORD/LB), Hanover, has held the
majority share (97.612 %) of our company’s share
capital. Furthermore, since 9 December 2008, on
the basis of a ruling of Frankfurt am Main Upper
Regional Court, according to which the application
lodged by NORD/LB for the squeeze-out of minority
shareholders of Deutsche Hypothekenbank
(Actien-Gesellschaft) in conjunction with the
takeover by NORD/LB in exchange for a settlement
was upheld, NORD/LB has been the sole
shareholder of Deutsche Hypothekenbank (Actien-
Gesellschaft). Given that the Bank has no longer
been listed on the stock exchange since 30
December 2008, the corresponding items in the
notes have not been included here.
··· 89 ···

··· 90 ···
·· NOTES TO THE BALANCE SHEET
·· 1. BREAKDOWN OF RESIDUAL MATURITIES (IN T THOUSANDS)
2008 2007
Due from banks
- up to three months 2,007,726 867,996
- between three months and one year 1,625,177 880,308
- between one and five years 1,557,089 2,432,202
- more than five years 1,062,532 935,133
- total pro-rata interest 865,490 840,276
Balance sheet value 7,118,014 5,955,915
Due from non-bank customers
- up to three months 351,988 899,751
- between three months and one year 968,464 753,822
- between one and five years 5,078,500 4,847,914
- more than five years 9,212,199 9,375,197
- total pro-rata interest 214,301 231,889
15,825,452 16,108,573
Claims without an agreed term 0 50
Balance sheet value 15,825,452 16,108,623
Bonds and other fixed-income
securities
- due in the following year 1,639,701 898,494
Due to banks
- up to three months 2,889,643 2,522,819
- between three months and one year 2,468,106 444,967
- between one and five years 434,874 441,039
- more than five years 407,515 520,433
- total pro-rata interest 791,509 736,569
Balance sheet value 6,991,647 4,665,827
Due to non-bank customers
- up to three months 80,016 239,145
- between three months and one year 336,763 376,905
- between one and five years 1,372,364 1,313,261
- more than five years 7,967,923 7,885,485
- total pro-rata interest 234,018 233,281
Balance sheet value 9,991,084 10,048,077
Bonded liabilities
- due in the following year 4,840,585 4,492,516

··· ANNUAL ACCOUNTS ···
·· 2. AMOUNT DUE FROM AND TO AFFILIATED AND ASSOCIATED COMPANIES (IN T THOUSANDS)
Balance sheet amount of which:
Affiliated Associated
companies companies
2008 2007 2008 2007 2008 2007
Due from
banks 7,118,014 5,955,915 1,494,452 - - 122
non-bank customers 15,825,452 16,108,623 8,335 8,505 6,267 10,966
of which: subordinated 8,335 421 8,335 421 - -
Bonds and other
fixed-income securities 12,305,145 12,250,436 490,176 - - -
Due to
banks 6,991,647 4,665,827 1,932,244 - - 170,004
non-bank customers 9,991,084 10,048,077 369 383 - -
Bonded liabilities 17,774,645 19,488,848 251,241 - - -
Subordinated liabilities 228,252 229,274 - - - -
·· 3. MARKETABLE SECURITIES AND HOLDINGS (IN T THOUSANDS)
1) excluding pro-rata interest
Balance sheet amount of which: of which:
marketable 1) listed 1) non-listed 1)
2008 2007 2008 2007 2008 2007 2008 2007
Bonds and
other fixed-income
securities 12,305,145 12,250,436 12,123,844 12,071,698 10,655,770 10,623,751 1,468,074 1,447,947
Shares and other variableincome
securities 101,056 167,217 49,927 49,927 49,927 49,927 - -
Investments 227 495,227 - - - - - -
Shares in affiliated
companies 173 199 - - - - - -
··· 91 ···

··· 92 ···
·· 4. TRUST ACTIVITIES (IN T THOUSANDS)
* of which minor-value assets of € 28 k (previous year: € 30 k)
Trust assets Trust liabilities
2008 2007 2008 2007
Due from banks - - - -
Due from non-bank customers 5,342 6,117 - -
Total assets 5,342 6,117 - -
Due to
banks - - 3 4
non-bank customers - - 5,339 6,113
Total liabilities - - 5,342 6,117
·· 5. ASSETS (IN T THOUSANDS )
Acquisition Additions Disposals Write-ups (wu) or Write-downs (wd) or Residual
and production financial financial additions (a) depreciations (d) book value
costs year year Previous years Fiscal year Previous years Fiscal year 31.12.2008
Additions (A)
Disposals (Di)
Securities held 95.021(d)
as fixed assets 9,712,341 2,298,562 1,002,186 14,503(wu) 5,676(wu) 99,455(wd) 2,288(wd) 10,832,132
Shares and other
variable-yield
securities 49,927 - - - - - - 49,927
Investments 495,282 - 495,000 20(a) - 75(d) - 227
Shares in
affiliated
companies 345 - 25 100(a) - 246(d) - 174
Intangible
fixed assets 6,831 119 - 692(a) - 6,999(d) 274(A) 369
Tangible fixed 45,705 1,573* 20,946 2,580(a) - 24,087(d) 774*(A) 4,133
assets 82 (Di)
Assets
Total 10,310,431 2,300,254 1,518,157 17,895 5,676 130,862 98,275 10,886,962

·· 6. SECURITIES HELD AS FIXED ASSETS
Under point 5 of Assets “Bonds and other fixedincome
securities”, securities with a volume of
€ 10,833.7 million (previous year: € 9,627.4 million)
are, as resolved, treated as fixed assets and
carried at historical cost. The result of writeups/write-downs
in the amount of + € 3,388 k
(previous year: - € 1,013 k) is recorded in the P&L
item “Interest income from fixed-income securities
and government-inscribed debts”. During the
financial year, non-scheduled write-downs in
accordance with Section 253, paragraph 2, sentence
3 of HGB due to an expected long-term
impairment of value were reported in the amount
of - € 95,021 k (previous year: - € 5,412 k) under
the P&L item “Write-down of and adjustments to
investments, shares in affiliated companies and
securities treated as fixed assets”. In the case of
the other securities, the good credit rating indicates
no fundamental risks. These commercial
papers, which should remain permanently in the
Bank’s possession, may for the greater part be
used as cover for the issuance of public Pfandbriefe.
Taking into account valuation units, there are hidden
obligations in the amount of € 60.9 million
(previous year: € 71.5 million) for the book values
in the amount of € 7,436.0 million (previous year:
€ 3,377.6 million), alongside hidden reserves in the
amount of € 23.6 million (previous year: € 41.8 million)
for book values in the amount of € 3,397.7 million
(previous year: 6,249.8 million). On balance,
this gives hidden obligations of € 37.3 million (previous
year: € 29.7 million). For the purposes of this
calculation, model values were used for those securities
for which no market values were available.
··· ANNUAL ACCOUNTS ···
Using the same calculation method as in the previous
year (mark to matrix) the figures, taking into
account valuation units, would have been as follows:
hidden obligations in the amount of € 212.5
million compared with hidden reserves of € 22.9
million.
·· 7. FINANCIAL INVESTMENTS (SHARES, INVEST-
MENTS, SHARES IN AFFILIATED COMPANIES)
The holding in RMX Risk Management Exchange
AG, Hanover, included in the item “Shares and
other variable-yield securities” was completely
written off.
The complete disposal of the FT-DTH fund generated
a profit of € 7,707 k during the reporting year.
The HSBC Trinkaus Euro Value Bonds INKA fund
also included here, with a book value of € 49.9 million
(previous year: € 49.9 million) contains hidden
obligations of € 15,802 k (previous year: € 2,192 k).
No write-downs were implemented, as the fund is
not allocated to fixed assets. The reduction in
value is attributable to the general change in the
market in the securities sector. To this extent, we
do not expect the impairment of value to be long
term.
With regard to investments, the 49.5 % share in
Corporate I SICAV, a Luxembourg investment company,
was sold at a loss of € 880 k during the year
under review.
There were no write-downs relating to holdings
during the year under review.
··· 93 ···

··· 94 ···
The affiliated company Terra Grundbesitzgesell-
schaft am Aegi mbH & Co. Grundbesitzerwerbs KG,
Hanover, was dissolved during the reporting year.
·· 8. INTANGIBLE FIXED ASSETS
Intangible fixed assets include other software
licences acquired for a consideration. Additions in
the amount of € 119 k (previous year: € 176 k) related
to other software licences.
·· 9. TANGIBLE FIXED ASSETS
Tangible fixed assets include land and buildings
used by the Bank worth € 1,750 k (previous year:
€ 11,280 k) and plant and equipment totalling
€ 1,664 k (previous year: € 776 k).
During the year under review the two Berlin properties
Friedrichstraße 171 and Uhlandstraße 165
were sold. This generated a profit of € 15,143 k,
which was reported under other operating
income.
·· 10. OWN SHARES
No Deutsche Hypo shares were offered to our
employees during the year under review.
As at the balance sheet date, the Bank held none
of its own shares in its portfolio.
·· 11. OTHER ASSETS
The adjusting items relating to foreign currency
in the amount of € 472,102 k (previous year:
€ 206,259 k) and claims against the tax authorities
in the amount of € 30,671 k (previous year: € 17,897 k)
are the two largest entries under this item.
Also included under this item is the surrender
value of reinsurance policies in the amount of
€ 3,176 k (previous year: € 3,098 k).
·· 12. DEFERRED ITEMS (IN T MILLIONS)
·· 13. OTHER LIABILITIES
Adjusting items relating to foreign currency are
included here in the amount of € 126,550 k (previous
year: € 154,437 k).
This item also primarily includes pro-rata interest
on participatory capital amounting to € 6.3 million
(previous year. € 7.6 million) and pro-rata interest
on subordinated liabilities amounting to € 5.6 million
(previous year: € 5.7 million).
·· 14. SUBORDINATED LIABILITIES
2008 2007
Assets
Issuing discount
from bonds 28.7 41.3
Premium on claims 33.6 38.0
Liabilities
Discount from claims 35.9 41.1
Premium on bonds 22.6 30.0
Subordinated liabilities are subject to nominal
rates of interest of between 4.00 % and 7.05 %
and fall due from 2009 to 2027. Premature repayments
and conversions are excluded.

Individual subordinated liabilities exceeding 10 %
of the total amount posted amount to € 25 million
in nominal terms at an interest rate of 6.25 %, due
in 2011.
The liabilities reported correspond with the
requirements of Section 10, paragraph 5a of the
German Banking Act (KWG).
The sum of € 20.5 million will fall due within the
next two years.
Expenses in the year under review amounted to
€ 12.6 million (previous year: € 13.4 million).
·· 15. PARTICIPATORY CAPITAL
The nominal value of the participatory capital is
€ 108.2 million. The participatory rights meet the
requirements of Section 10, paragraph 5 of the
German Banking Act (KWG). They are divided into
20,000 participation certificates with a nominal
value of € 511.29 each, 68 participation certificates
with a nominal value of € 1.0 million each and 2
participation certificates with a nominal value of
€ 15.0 million each. The term ends on 31 December
2009 (nominal amount of € 10.2 million), on 31
December 2016 (nominal amount of € 63.0 million),
on 29 June 2018 (nominal amount of € 30.0
million) and on 31 December 2018 (nominal
amount of € 5.0 million). The sum of € 10.2 million
will fall due within the next two years.
·· 16. AUTHORISED PARTICIPATORY CAPITAL
As resolved by the General Meeting of 12 May
2005, the Board of Managing Directors may issue
participatory rights as part of one or more issues
··· ANNUAL ACCOUNTS ···
with a total nominal value of € 100 million up until
12 May 2010. To date, € 58 million of this amount
has been issued.
·· 17. SUBSCRIBED CAPITAL
The Bank’s share capital amounts to € 80.64 million,
divided among 13,440,000 unit shares.
·· 18. AUTHORISED CAPITAL
Pursuant to a resolution adopted at the Annual
General Meeting of 12 May 2004, the Board of
Managing Directors is authorised, until 16 May
2009 and with the approval of the Supervisory
Board, to increase the Bank’s share capital once or
on several occasions but by no more than a total
of € 30.0 million by issuing up to 5,000,000 new
bearer shares (after 1:10 share split) in exchange
for cash deposits in accordance with Section 202
et seq. of the Joint Stock Companies Act. This
right was not exercised in the year under review.
·· 19. CAPITAL HELD BY SILENT PARTNERS
At the Bank’s Extraordinary General Meeting held
on 20 January 2000, it was decided to conclude
agreements for setting up undisclosed partnerships.
By 31 January 2000, cash contributions
totalling € 44 million had been made. These contributions
are subject to interest at the following
rates: 8.10 % / 8.16 % or the 12-month EURIBOR
+ 2.6 percentage points. The term ends on 31
December 2011.
The contributions from silent partners are allocated
to the Bank's liable equity capital in accordance
with Section 10, paragraph 4 of the German Banking
Act (KWG).
··· 95 ···

··· 96 ···
·· 20. RESERVES
Reserves in the financial year rose by € 189.9 million to € 561.7 million.
Capital reserves (in € thousands) Other revenue reserves (in € thousands)
2008 2007 2008 2007
As at 1.1. 131,314 131,314 240,426 223,136
Allocation based on resolution of the Annual
General Meeting of May 2008 (2007) - - 9,916 5,290
Allocation from net income for the
year 2008 (2007) - - - 12,000
Allocation by Nord/LB 180,000 - - -
As at 31.12. 311,314 131,314 250,342 240,426
·· 21. CONTINGENT LIABILITIES
The items posted are guarantee commitments
and contingent liabilities relating to credit default
swaps.
·· 22. OTHER OBLIGATIONS
Irrevocable credit commitments totalling € 607.9
million relate solely to mortgage loans (previous
year: € 857.1 million).
·· 23. FOREIGN-CURRENCY POSITIONS
The amounts posted in the balance sheet and
denominated in foreign currencies can be broken
down as follows (in € millions):
2008 2007
Assets*) 5,447.2 4,988.8
Liabilities*) 2,337.0 1,947.1
Other obligations 347.6 494.4
Contingent liabilities 159.6 153.1
*) including the foreign currency adjusting items under
“Other assets” and “Other liabilities”.
·· 24. REPURCHASE TRANSACTIONS
As at the balance sheet date, nine foreign securities
with a book value of € 546.3 million (previous
year: € 584.6 million) had been subject to repurchase
agreements.
·· 25. OPEN MARKET TRANSACTIONS
As at 31 December 2008, securities with a nominal
value of € 3,752 million (previous year: € 2,369
million) were blocked with the German Bundesbank
for overdraft facilities and open market transactions.
As at the balance sheet date, open-market
credits in the total amount of € 2,172 million
(previous year: € 1,400 million) had been utilised.
As in the previous year, no own bonds were
pledged as collateral for transactions on EUREX.

·· 26. INFORMATION ON COVER ASSETS
Disclosure in accordance with Section 28, paragraph
2, no. 1a of the German Pfandbrief Act
Claims used to cover mortgage Pfandbriefe by size
Mortgage loans serving as cover
2008 2008 2007 2007
€ millions units € millions units
up to and
including € 300,000 720 9,744 783 10,634
over € 300,000 up to
and including € 5 million 1,288 999 1,358 1,081
more than € 5 million 3,592 293 3,370 277
5,600 11,036 5,511 11,992
··· ANNUAL ACCOUNTS ···
Disclosure in accordance with Section 28, paragraphs
2 and 3 of the German Pfandbrief Act
Overdue payments relating to mortgage claims
Mortgage loans serving as cover
Germany
2008 2008 2007 2007
€ millions units € millions units
Total amount
of payments
overdue by
at least 90 days 4 31 2 35
4 31 2 35
There were no overdue payments on mortgage claims relating
to other states, as was also the case during the previous year.
··· 97 ···

··· 98 ···
Disclosure in accordance with Section 28, paragraph 2, no. 1b and c of the German Pfandbrief Act
Claims used to cover mortgage Pfandbriefe according to region in which the mortgaged property is located and
according to type of use
Mortgage loans serving as cover
Germany United Kingdom Netherlands France
2008 2007 2008 2007 2008 2007 2008 2007
€ millions € millions € millions € millions € millions € millions € millions € millions
Apartments 485 530 0 0 4 24 0 0
Detached family homes 169 185 29 0 7 8 0 0
Multifamily homes 902 921 11 0 2 7 18 18
Office buildings 644 537 256 364 194 160 154 170
Commercial buildings 1,177 1,098 169 187 79 87 13 0
Industrial buildings 18 21 29 18 1 16 0 0
Other
commercial use 284 318 187 149 110 95 23 23
Building sites 3 0 0 0 0 0 0 0
Mortgage loans serving as cover
3,682 3,610 681 718 397 397 208 211
Spain Belgium USA
2008 2007 2008 2007 2008 2007
€ millions € millions € millions € millions € millions € millions
Apartments 0 0 0 0 0 1
Detached family homes 0 0 0 0 0 0
Multifamily homes 0 0 0 0 121 124
Office buildings 25 20 3 3 168 137
Commercial buildings 50 52 0 0 41 40
Industrial buildings 0 0 0 0 0 0
Other
commercial use 43 26 0 0 152 145
Building sites 0 0 0 0 29 27
118 98 3 3 511 474

Cover assets
··· ANNUAL ACCOUNTS ···
Disclosure in accordance with Section 28, paragraph 3, nos. 1 and 2 of the German Pfandbrief Act
Claims used to cover public Pfandbriefe
Cover assets
Germany Belgium European Union France
2008 2007 2008 2007 2008 2007 2008 2007
€ millions € millions € millions € millions € millions € millions € millions € millions
Central state
Regional
256 353 10 93 160 167 0 0
authority
Local
4,103 4,995 213 55 0 0 6 14
authority 41 59 0 0 0 0 0 0
Other 6,635 7,850 140 140 117 86 101 12
11,035 13,257 363 288 277 253 107 26
Greece United Kingdom Ireland Iceland
2008 2007 2008 2007 2008 2007 2008 2007
€ millions € millions € millions € millions € millions € millions € millions € millions
Central state
Regional
113 83 0 0 0 0 0 0
authority
Local
0 0 0 0 0 0 0 0
authority 0 0 0 0 0 0 0 0
Other 10 0 68 212 26 20 20 19
Cover assets
123 83 68 212 26 20 20 19
Italy Japan Canada Latvia
2008 2007 2008 2007 2008 2007 2008 2007
€ millions € millions € millions € millions € millions € millions € millions € millions
Central state
Regional
615 689 185 175 0 0 8 0
authority
Local
724 734 159 129 132 111 17 16
authority 0 0 0 0 0 0 0 0
Other 12 0 199 213 65 61 0 0
1,351 1,423 543 517 197 172 25 16
··· 99 ···

··· 100 ···
Cover assets
Cover assets
Luxembourg Netherlands Norway Austria
2008 2007 2008 2007 2008 2007 2008 2007
€ millions € millions € millions € millions € millions € millions € millions € millions
Central state
Regional
0 0 0 0 0 0 625 659
authority
Local
0 0 5 5 0 0 0 0
authority 0 0 0 0 0 0 0 0
Other 420 85 131 63 25 0 728 780
Cover assets
420 85 136 68 25 0 1,353 1,439
Poland Portugal Sweden Switzerland
2008 2007 2008 2007 2008 2007 2008 2007
€ millions € millions € millions € millions € millions € millions € millions € millions
Central state
Regional
98 63 112 101 56 56 0 0
authority
Local
0 0 0 0 29 33 111 100
authority 0 0 0 0 0 0 0 0
Other 0 0 0 0 0 0 134 141
98 63 112 101 85 89 245 241
Spain Hungary USA Other
supranational
institutions
2008 2007 2008 2007 2008 2007 2008 2007
€ millions € millions € millions € millions € millions € millions € millions € millions
Central state
Regional
0 0 115 48 0 0 0 0
authority
Local
466 624 0 0 328 218 0 0
authority 0 0 0 0 0 0 0 0
Other 134 398 0 0 20 0 169 83
600 1,022 115 48 348 218 169 83

Disclosure in accordance with Section 28, paragraph 3, no. 2 of the German Pfandbrief Act
Total amount of payments overdue by at least 90 days relating to public claims
Cover assets
··· ANNUAL ACCOUNTS ···
2008 2008 2007 2007
€ millions units € millions units
Total amount of payments overdue by at least 90 days 0 0 0 0
0 0 0 0
Disclosure in accordance with Section 28, paragraph 1, nos. 1 to 3 of the German Pfandbrief Act
Pfandbriefe in circulation and the related cover assets:
a) Total amount Nominal Net present value Risk net present value *)
of outstanding 2008 2007 2008 2007 2008 2007
€ millions € millions € millions € millions € millions € millions
Mortgage Pfandbriefe 5,733 5,222 6,064 5,275 6,484 5,602
of which derivatives 0 0 – 16 0 – 4 0
Cover pool 6,512 5,929 6,973 6,090 7,098 6,190
of which derivatives 0 0 36 6 104 38
Surplus cover 779 707 909 815 614 588
*) Calculation of risk present value using dynamic simulation method in accordance with PfandBG
re a) maturity structure (residual maturity)
2008
over 1 year more than 5
up to and and up to years and up
including and including to and including more than
1 year 5 years 10 years 10 years
€ millions € millions € millions € millions
Mortgage
Pfandbriefe 1,225 2,424 1,651 433
Cover pool 2,516 2,339 1,261 396
2007
over 1 year more than 5
up to and and up to years and up
including and including to and including more than
1 year 5 years 10 years 10 years
€ millions € millions € millions € millions
858 781 3,046 537
2,200 2,180 1,409 140
··· 101 ···

··· 102 ···
b) Total amount Nominal Net present value Risk net present value *)
of outstanding 2008 2007 2008 2007 2008 2007
€ millions € millions € millions € millions € millions € millions
Public Pfandbriefe 17,366 18,642 18,314 18,640 16,817 19,636
of which derivatives 0 0 0 0 3 0
Cover pool 17,841 19,743 19,540 20,603 17,961 21,459
of which derivatives 0 0 11 4 23 15
Surplus cover 475 1,101 1,226 1,963 1,144 1,823
*) Calculation of risk present value using dynamic simulation method in accordance with PfandBG
re b) maturity structure (residual maturity)
2008
over 1 year more than 5
up to and and up to years and up
including and including to and including more than
1 year 5 years 10 years 10 years
€ millions € millions € millions € millions
Public
Pfandbriefe 3,244 6,866 4,057 3,199
Cover pool 3,644 6,000 5,666 2,531
Portfolio changes and new loans (in € millions)
(excluding interest and cost claims)
Mortgage loans Public-sector loans
Portfolio as at 31/12/2007 8,579.3 11,764.6
Additions
New loans + 1,836.8 + 940.0
Regroupings and valuation adjustments – 274.1 – 53.4
Disposals
Scheduled redemptions – 289.3 – 2,129.8
of which: residential – 70.9 – 0.1
commercial − 218.4 − 2,129.7
Non-scheduled redemptions − 716.4 − 185.6
of which: residential − 256.2 − 0.0
commercial − 460.2 − 185.6
Portfolio as at 31/12/2008 9,136.3 10,335.8
2007
over 1 year more than 5
up to and and up to years and up
including and including to and including more than
1 year 5 years 10 years 10 years
€ millions € millions € millions € millions
2,097 8,902 4,130 3,513
3,375 6,930 6,666 2,772

Cover for bonds in circulation (in € millions)
··· ANNUAL ACCOUNTS ···
2008 2007
Bonds issued 26,399 28,315
plus: registered Pfandbriefe
delivered to the lenders
as security for loans - -
registered public Pfandbriefe - -
Bonds in circulation 26,399 28,315
plus: certificates issued but not yet sold (treasury paper) - -
minus: bonds not requiring cover
(previously Section 5, paragraph 1, no. 4c of the
German Mortgage Bank Act) – 3,300 – 4,451
Total amount in circulation requiring cover 23,099 23,864
This compares with the following cover assets: (in € millions)
for mortgage Pfandbriefe for public Pfandbriefe
2008 2007 2008 2007
Ordinary cover
Placements with, and loans and advances to, other banks
Mortgage loans - - - -
Public-sector loans - - 3,963 4,582
Due from non-bank customers
Mortgage loans 5,600 5,511 - -
Public-sector loans - - 6,443 7,235
Bonds of public-sector issuers - - 6,485 7,926
5,600 5,511 16,891 19,743
Substitute cover
Other monies due from banks 100 - 950 -
Bonds and other
yield securities 812 418 - -
912 418 950 -
Total value of cover 6,512 5,929 17,841 19,743
Total amount in circulation requiring cover 5,733 5,222 17,366 18,642
Surplus cover 779 707 475 1,101
··· 103 ···

··· 104 ···
Foreclosures/sequestrations
·· PROPERTIES TAKEN OVER
No property was taken over in 2008 (as in the previous
year) to protect our mortgage charges.
·· VALUE-ADJUSTED INTEREST ARREARS
The interest arrears totalling € 1.4 million accumulated
from 01/10/2007 – 30/09/2008 were fully
value-adjusted.
€ millions € millions
2008 2007
of which:
land used for residential purposes 0.5 0.3
land used for commercial purposes 0.9 0.5
As at 31 December
Foreclosures Sequestrations Foreclosures
pending pending executed
2008 2007 2008 2007 2008 2007
Land used for
residential purposes 40 35 19 16 8 9
Land used for
commercial purposes 14 20 11 19 2 5
Total 54 55 30 35 10 14
·· OTHER INFORMATION
·· 27. FORWARD TRANSACTIONS IN
ACCORDANCE WITH SECTION 36 OF
THE ORDINANCE ON THE PRESENTATION
OF ACCOUNTS OF GERMAN BANKS
(RECHKREDV) (IN T MILLIONS)
Forward translations include forward exchange
transactions used to hedge against positions in
GBP, USD and CHF and due to expire on 1 July
2009 at the latest.
The remaining positions shown are all OTC products
used as components of micro-hedges and
macro-hedges to hedge against interest rate and
currency risks and to improve and/or safeguard
margins in loan business and investments in foreign
securities.
Market values represent the current value of the
derivatives at market conditions (yield curves,
forex rates etc.) including accrued interest. Model
values have been used for credit derivatives (TRS
and CDS) since 2008.

The values calculated in this way are summarised
by product groups in the following tables. This is in
line with the requirements of Section 285, no. 18 of
HGB. The market values calculated in this way are
required to calculate the credit equivalent amount
in accordance with Principle I, taking account of
netting as recognised under supervisory law.
2007 Nominal amount
Remaining term
··· ANNUAL ACCOUNTS ···
With regard to the credit derivatives, use of the
mark-to-market method, as applied in the previous
year, would have given a market value of - € 63.17
million for CDS and € 31.38 million for TRS.
< = 1 year 1– 5 years > 5 years Total Market values
Currency-related transactions
Forward exchange 3,308.87 0 0 3,308.87 83.13
Cross-currency swaps 163.00 976.64 952.86 2,092.50 − 23.36
Interest rate-related transactions
Interest rate swaps 5,242.20 14,111.87 20,517.95 39,872.02 − 649.43
Interest rate options (sales) 0 0 91.96 91.96 − 17.82
Transactions involving other price risks
Equity-linked swaps 40.00 0 0 40.00 − 0.95
Credit derivatives
Total return swaps 0 0 670.00 670.00 62.05
Credit default swaps 0 0 588.14 588.14 − 8.26
2008 Nominal amount
Term to maturity
< = 1 year 1– 5 years > 5 years Total Market values
Currency-related transactions
Forward exchange 2,681.28 0.00 0.00 2,681.28 282.64
Cross-currency swaps 247.01 1,261.27 1,125.63 2,633.91 − 36.72
Interest rate-related transactions
Interest rate swaps 7,148.71 13,136.43 19,697.79 39,982.92 − 734.64
Interest rate options (sales) 0.00 0.00 30.70 30.70 − 14.92
Transactions involving other price risks
Equity-linked swaps 0.00 0.00 0.00 0.00 0.00
Credit derivatives
Total return swaps 0.00 0.00 698.25 698.25 122.59
Credit default swaps 0.00 0.00 594.59 594.59 − 4.73
··· 105 ···

··· 106 ···
The balanced present values of - € 385.78 million can
be broken down by counterparty into positive present
values of € 555.42 million and negative net values
of € 941.20 million.
To hedge the derivative risks after netting, Deutsche
Hypothekenbank enters into security agreements
with some of its business partners. As at 31 December
2008, Deutsche Hypothekenbank had provided
security of € 742.78 million and received security of
€ 326.54 million.
·· 29. SUPERVISORY BOARD
·· 28.NUMBER OF EMPLOYEES
(YEARLY AVERAGE)
Alexander Stuhlmann to 15 February 2008
Düsseldorf
Chairman of the Board of
Management of WestLB AG
– Chairman –
Eckhard Forst from 16 February 2008
Hanover
Member of the Board of Management of
Norddeutsche Landesbank Girozentrale
– Chairman – to 31 December 2008
– Vice-Chairman – from 1 January 2009
Dr. Gunter Dunkel from 16 February 2008
Hanover
Vice-Chairman of the Board of Management
of Norddeutsche Landesbank Girozentrale
to 31 December 2008
Since 1 January 2009
Chairman of the Board of Management of
Norddeutsche Landesbank Girozentrale
– Vice-Chairman – to 31 December 2008
– Chairman – from 1 January 2009
(in accordance with Section 285, paragraph
7/Section 267, paragraph 5 of the German
Commercial Code)
2008 2007
Female employees 93 82
Male employees 134 123
Total 227 205

Dietmar Schmid to 15 February 2008
Frankfurt am Main
Member of the Board of Managing Directors
of BHF-BANK AG
– Vice-Chairman –
Dr. Jürgen Allerkamp from 21 May 2008
Hanover
Member of the Board of Management of
Norddeutsche Landesbank Girozentrale
Jochen Döhle to 15 February 2008
Hamburg
Personally liable partner of
PETER DÖHLE Schiffahrts-KG
Reinhard Drexler* 1)
Hanover
Bank employee
Michael Gehrig* 1)
Hanover
Bank employee
Friedrich Carl Janssen to 31 December 2008
Cologne
Personally liable partner of Sal.
Oppenheim jr. & Cie. KGaA
Jürgen Kösters from 16 February 2008
Hanover to 20 May 2008
Member of the Board of Management of
Norddeutsche Landesbank Girozentrale
to 31 March 2008
* 1) elected by the employees
··· ANNUAL ACCOUNTS ···
··· 107 ···

··· 108 ···
Joachim Olearius to 15 February 2008
Hamburg
Executive Manager of
M. M. Warburg & CO Kommanditgesellschaft
auf Aktien
Dr. Hannes Rehm from 16 February 2008
Hanover to 20 February 2009
Chairman of the Board of Management of
Norddeutsche Landesbank Girozentrale
to 31 December 2008
Dr. Johannes-Jörg Riegler from 16 February 2008
Hanover
Member of the Board of Management of
Norddeutsche Landesbank Girozentrale
Max Warburg to 15 February 2008
Hamburg
Personally liable partner of
M. M. Warburg & CO
Kommanditgesellschaft auf Aktien
Frank Wolff * 1)
Hanover
Bank employee
* 1) elected by the employees

·· 30. BOARD OF MANAGING DIRECTORS
(including information on positions on supervisory
boards and other corporate bodies in
accordance with Section 285, no. 10 of the
German Commercial Code)
Jürgen Grieger, Hanover
RMX Risk Management Exchange AG,
Hanover
NORD/LB COVERED FINANCE BANK S.A.,
Luxembourg
Jürgen Morr, Hanover
Hypo Real Estate Systems GmbH, Stuttgart
(formerly GfA-Gesellschaft für Anwendungssoftware
mbH)
Andreas Pohl, Hanover
from 1 March 2008
Andreas Rehfus, Hanover
RMS GmbH RISK MANAGEMENT SOLUTIONS,
Cologne
··· ANNUAL ACCOUNTS ···
Member of the
Supervisory Board to 26 June 2008
Member of the
Board of Directors from 1 May 2008
to 31 December 2008
Member of the
Supervisory Board from 1 January 2009
Member of the
Supervisory Board to 31 January 2008
Member of the
Supervisory Board from 13 February 2008
··· 109 ···

··· 110 ···
·· 31. EMOLUMENTS OF THE BOARD
OF MANAGING DIRECTORS AND
SUPERVISORY BOARD
Emoluments paid to the Board of Managing
Directors for the 2008 financial year amounted to
€ 987.0 k (previous year: € 1,310.0 k). Fixed payments
amounted to € 987.0 k (previous year:
€ 723.2 k). The variable component amounted to
€ 0.0 k (previous year: € 586.8 k).
Former Members of the Board of Managing
Directors and their surviving dependents received
€ 657.0 k (previous year: € 610.8 k). The pension
provisions made for this group of persons totalled
€ 6,095.0 k (previous year: € 6,461.3 k).
The emoluments paid to the Supervisory Board
totalled € 129 k (previous year: € 354 k), of which
€ 129 k (previous year: € 149 k) was a fixed component
(excluding turnover tax).
·· 32. LOANS GRANTED TO THE BOARD
OF MANAGING DIRECTORS AND
SUPERVISORY BOARD (IN T THOUSANDS)
As at the balance sheet date, the following loans
had been granted to the members of the corporate
bodies:
2008 2007
Members of the Supervisory Board 150.0 -
Members of the Board
of Managing Directors - 15.4
The interest rate of 3.96 % was a standard market
rate on the date of the loan commitment. The redemption
rate is 2 %.
·· 33. OTHER OPERATING INCOME
In addition to income of € 15.1 million from the sale
of two properties in Berlin, this item predominantly
includes income from land and property of € 1.7 million,
income from the writing back of provisions in
the amount of € 1.3 million and income from the
reimbursement of interest on taxes in the amount
of € 1.4 million.
·· 34. OTHER OPERATING EXPENSES
This item primarily includes payments price losses
from currency transactions, totalling € 3.0 million,
and expenses relating to buildings managed by third
parties in the amount of € 0.4 million.
·· 35. BREAKDOWN OF TAXES ON INCOME
The positive income taxes of € 3.6 million reported
(previous year: - € 12.5 million) can essentially be attributed
to income of € 6.1 million and expenses of
€ 2.7 million from the correction of tax provisions
and claims following a successful appeal against the
external tax audit for the years 1999 to 2002.
Income of € 0.4 million relates to the adjustment of
the cash value of the corporation tax credit.

·· 36. WRITE-DOWNS OF AND ADJUSTMENTS
TO INVESTMENTS, SHARES IN AFFILIATED
COMPANIES AND SECURITIES TREATED AS
FIXED ASSETS
Write-downs in relation to foreign securities held as
fixed assets accounted for € 95.0 million.
A net profit of € 2.2 million was generated from the
closing of micro-hedges for securities held as fixed
assets.
The sale of an investment resulted in a loss of € 0.9
million being realised.
·· 37. FEE FOR AUDITING AND CONSUL-
TANCY SERVICES OF AUDITOR
a) € 650 k (previous year: € 500 k) for the audit of
the annual accounts
b) € 300 k (previous year: € 122 k) for other attestation
services
c) € 0 (previous year: € 533 k) for other services
·· INVESTMENTS AND
GROUP AFFILIATION
··· ANNUAL ACCOUNTS ···
·· 38. HOLDINGS SUBJECT TO DISCLOSURE
REQUIREMENTS
(pursuant to Section 160 (1) no. 8 AktG in
conjunction with Section 21 (1) WpHG and
Section 25 (1) WpHG)
As formally stated, the following companies have
a holding in our company (up to 8 January 2008):
·· BHF-BANK Aktiengesellschaft, Frankfurt am Main
·· M.M. Warburg & CO Gruppe KGaA, Hamburg
·· Döhle ICL Beteiligungsgesellschaft mbH,
Hamburg
·· Josef H. Boquoi-Stiftung, Lübeck
·· COREALCREDIT BANK AG, Frankfurt am Main
·· Union Investment Institutional GmbH,
Frankfurt am Main
Since 8 January 2008:
Norddeutsche Landesbank Girozentrale, Hanover
·· 39. GROUP AFFILIATION
Norddeutsche Landesbank Girozentrale, Hanover,
has held the majority share (97.612 %) of our company's
share capital since 8 January 2008 and has
been the sole shareholder since 9 December 2008.
In accordance with Section 271 para 2 of HGB,
Deutsche Hypothekenbank (Actien-Gesellschaft) is
an affiliated company of NORD/LB and is included
in the consolidated accounts of NORD/LB. These
consolidated financial statements will be published
in the electronic Federal Gazette on 29 April 2009.
··· 111 ···

··· 112 ···
·· 40. EQUITY HOLDINGS IN OTHER COMPANIES (IN T THOUSANDS )
The following list details holdings in other companies in accordance with Section 285,
no. 11 of the Commercial Code:
Shareholding Result Result
% Capital 2008 2007
Deutsche Hypo B.V., Amsterdam 100.0 64 – 7 213
Deutsche Hypo Consulting GmbH i.L., Hanover 100.0 9 – 1 0
Deutsche Hypo Immobilien GmbH i.L., Hanover 100.0 89 – 1 0
Terra Grundbesitzgesellschaft am Aegi mbH, Hanover 1) 100.0 57 0 0
1) Profit and loss transfer agreement
Hanover, 3 March 2009
The Board of Managing Directors
Grieger Morr Pohl Rehfus

··· ANNUAL ACCOUNTS ···
··· 113 ···

··· 114 ···
RESPONSIBILITY STATEMENT
“We guarantee that, to the best of our knowledge,
and in accordance with the applicable reporting principles
for annual financial reporting, the annual financial
statements give a true and fair view of the
assets, liabilities, financial position and profit or loss
of the Bank, and the management report includes a
fair review of the development and performance of
the business and position of the Bank, together with
a description of the principal opportunities and risks
associated with the expected development of the
Bank.”
Hanover, 3 March 2009
The Board of Managing Directors
Grieger Morr Pohl Rehfus

AUDITOR’S REPORT
We have audited the annual financial statements,
comprising the balance sheet, the income statement
and the notes to the financial statements, together
with the bookkeeping system, and the management
report of the Deutsche Hypothekenbank (Actien-
Gesellschaft), Hannover/Berlin, for the business year
from January 1 to December 31, 2008. The maintenance
of the books and records and the preparation of
the annual financial statements and management
report in accordance with German commercial law
are the responsibility of the Company's management.
Our responsibility is to express an opinion on
the annual financial statements, together with the
bookkeeping system, and the management report
based on our audit.
We conducted our audit of the annual financial statements
in accordance with § 317 HGB “German Commercial
Code” and German generally accepted standards
for the audit of financial statements
promulgated by the Institut der Wirtschaftsprüfer
(IDW). Those standards require that we plan and perform
the audit such that misstatements materially
affecting the presentation of the net assets, financial
position and results of operations in the annual financial
statements in accordance with German principles
of proper accounting and in the management
report are detected with reasonable assurance.
Knowledge of the business activities and the economic
and legal environment of the Company and
expectations as to possible misstatements are taken
into account in the determination of audit procedures.
The effectiveness of the accounting-related internal
control system and the evidence supporting the
disclosures in the books and records, the annual
financial statements and the management report are
examined primarily on a test basis within the framework
of the audit. The audit includes assessing the
accounting principles used and significant estimates
made by management, as well as evaluating the overall
presentation of the annual financial statements
and management report. We believe that our audit
provides a reasonable basis for our opinion.
Our audit has not led to any reservations.
In our opinion, based on the findings of our audit, the
annual financial statements comply with the legal
requirements and give a true and fair view of the net
assets, financial position and results of operations of
the Deutsche Hypothekenbank (Actien-Gesellschaft)
in accordance with German principles of proper
accounting. The management report is consistent
with the annual financial statements and as a whole
provides a suitable view of the Company's position
and suitably presents the opportunities and risks of
future development.
Hamburg, 3 March 2009
KPMG AG Wirtschaftsprüfungsgesellschaft
(formerly KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft Wirtschaftsprüfungsgesellschaft)
Madsen Leitz
Auditor Auditor
··· 115 ···

··· 116 ···
REPORT OF THE SUPERVISORY BOARD
The Supervisory Board performed the tasks required
of it by law, under the Bank's Articles of Association
and in accordance with the German Corporate Governance
Code during 2008. It monitored the management
of the Board of Managing Directors and was on
hand to provide advice. The Supervisory Board was
kept up to date on Deutsche Hypo's economic situation
through the provision of verbal and written
reports from the Board of Managing Directors.
There were five ordinary meetings of the Supervisory
Board during the 2008 financial year.
As at 8 January 2008, NORD/LB had acquired more
than 95 % of Deutsche Hypo shares in the context of
its takeover offer. Due to this change in ownership,
Jochen Döhle, Joachim Olearius, Dietmar Schmid,
Alexander Stuhlmann and Max Warburg duly
resigned from the Supervisory Board with effect
from 15 February 2008. With effect from 16 February
2008, Hanover Local Court, upon application,
appointed Dr. Gunter Dunkel, Eckhard Forst, Jürgen
Kösters, Dr. Hannes Rehm und Dr. Johannes-Jörg
Riegler as new members of the Supervisory Board.
The duration of their appointment was limited until
the close of the ordinary General Meeting of
Deutsche Hypo on 21 May 2008.
At the Supervisory Board meeting on 18 February
2008, Mr Forst was elected Chairman of the Supervisory
Board, with Dr. Dunkel being elected as Vice-
Chairman. The members of the Supervisory Board’s
committees were also elected at this meeting.
On 21 Mai 2008 the General Meeting appointed Dr.
Jürgen Allerkamp, Dr. Gunter Dunkel, Eckhard Forst,
Dr. Hannes Rehm and Dr. Johannes-Jörg Riegler to
the Supervisory Board. At the Supervisory Board
meeting directly following the General Meeting, Mr
Forst was once again elected Chairman of the Supervisory
Board, with Dr. Dunkel again being elected as
Vice-Chairman. The members of the Supervisory
Board’s committees were also elected at this meeting.
At its meeting on 18 December 2008, the Supervisory
Board elected Dr. Dunkel as Chairman of the
Supervisory Board with effect from 1 January 2009,
with Mr Forst being elected as Vice-Chairman with
effect from 1 January 2009. Additionally, minor
changes were made to the composition of the Supervisory
Board’s committees, also with effect from
1 January 2009.
Friedrich Carl Janssen resigned from his position on
the Supervisory Board with effect from 31 December
2008.
The Supervisory Board wishes to thank these members
for their dedication and constructive cooperation.
Outside its meetings, the Supervisory Board
received comprehensive information on the Bank’s
situation and development in the form of reports. The
reporting system in place encompasses quarterly
risk reports in accordance with the provisions of the
Minimum Requirements for Risk Management
(MaRisk), as well as monthly reports on the Bank's
business development and income situation. Furthermore,
the Chairman of the Supervisory Board and
the Board of Managing Directors of Deutsche Hypo
were in touch with each other on an ongoing basis for
the purposes of exchanging information on basic

strategic policy issues, the loan portfolio, the overall
risk situation and the income situation of the Bank, as
well as other material activities.
Some of the tasks of the Supervisory Board were
also dealt with by the committees.
The Lending Committee assessed all credits involving
large scale risks or an elevated degree of risk. It
also looked at credit rating and country risks, as well
as issues relating to risk management, risk controlling
and the structure of the entire loan portfolio. The
Lending Committee usually makes its decisions by
means of circulating the relevant documents. In
response to the financial crisis, a comprehensive
analysis of Deutsche Hypo’s risk situation was also
carried out during a meeting in November 2008 attended
by the members in person. In future, meetings of
the Lending Committee will take place regularly.
The Audit Committee met on three occasions during
the year under review. The meeting in March 2008
focused on the annual accounts for 2007 and the
auditor's report, a session that was also attended by
representatives of the auditor. At a meeting in
August 2008, the Audit Committee concerned itself
with Deutsche Hypo’s half-yearly financial report. The
meeting in October 2008 also focused on the Bank's
income situation based on the interim statement as
at 30 September 2008.
The Personnel Committee met twice during the
financial year under review, dealing with matters
relating to the Board of Managing Directors.
KPMG AG Wirtschaftsprüfungsgesellschaft (formerly
KPMG Deutsche Treuhand-Gesellschaft Aktiengesell-
schaft Wirtschaftsprüfungsgesellschaft), the auditor
··· REPORT OF THE SUPERVISORY BOARD ···
elected by the General Meeting and commissioned
by the Supervisory Board, has audited the bookkeeping
method, Management Report and Annual Accounts
for the period from 1 January to 31 December 2008
and awarded an unqualified audit certificate. This confirms
that the bookkeeping and annual accounts
comply with the statutory requirements and that the
audit did not lead to any reservations.
The Supervisory Board endorses the result of the
audit.
The auditor was available to the Chairman of the
Supervisory Board and to the whole of the Supervisory
Board at its balance sheet meeting to answer
questions and provide additional information. On
completion of its examination, the Supervisory Board
raised no objections to the Annual Accounts drawn
up by the Board of Managing Directors, with the
result that these have been duly approved and adopted.
The Board of Managing Directors has drawn up a
report in accordance with Section 312 of the Joint
Stock Companies Act on the Bank’s relations with
affiliated companies. This has been audited by the
auditor and also awarded an unreserved audit certificate.
The Supervisory Board endorses the dependence
report and the related audit report. There were
no objections to the declaration of the Board of Managing
Directors at the end of this report.
Hanover, 16 March 2009
The Supervisory Board
Chairman
··· 117 ···

··· 118 ···
ORGANISATIONAL STRUCTURE OF
DEUTSCHE HYPO AS AT 31 DECEMBER 2008
Jürgen Grieger Jürgen Morr
Real Estate Valuation
and Consulting
Jörg Quentin
Head of Department
Personnel/Administration/
Service
Paul Weber
Senior Manager
Law
Albrecht Mayer
Senior Manager
Internal Audit
Markus Heinzel
Senior Manager
Treasury
Dirk Schönfeld
Head of Department
International Property
Finance
Thomas Staats
Senior Manager
Domestic Property
Finance
Volker Basler
Senior Manager
Domestic Property
Finance
Wolfgang Koppert
Senior Manager
Organisation and IT
Dr. Wulfgar Wagener
Senior Manager
Marketing and Corporate
Communications
Markus Nitsche
Head of Department
Andreas Pohl Andreas Rehfus
International Property
Finance
Sabine Barthauer
Senior Manager
Domestic Property
Finance
Ralf Vogel
Senior Manager
Real Estate Investment
Banking
Dieter Koch
Senior Manager
Relationship Management
International Financial
Institutions
Hergen Dieckmann
Syndication
Jürgen Munke
Senior Manager
Sales Coordination and
Corporate Development
and Integration
Dirk Hunger
Senior Manager
Real Estate Research
Dr. Günter Vornholz
Head of Department
Credit Risk Management
Michael Müller
Executive Manager
Credit Risk Controlling
Uwe Menninger
Senior Manager
Accounts
Joachim Bloß
Senior Manager
Controlling
Wolfgang Overkamp
Senior Manager
Treasury Operations
Gunter Bierwisch
Senior Manager

ADDRESSES IN GERMANY AND ABROAD
·· MANAGEMENT
30159 Hanover
·· REGISTERED BRANCH
10719 Berlin
·· BRANCHES
40213 Düsseldorf
60313 Frankfurt am Main
20457 Hamburg
30159 Hanover
80538 Munich
85774 Munich-Unterföhring
·· REPRESENTATIVE OFFICES
1077 XX Amsterdam
London EC2V 5DE
28006 Madrid
75002 Paris
·· STATE SUPERVISORY BODY
Georgsplatz 8
Tel.: +49 511 3045-0
Fax: +49 511 3045-459
www.deutsche-hypo.de
Uhlandstraße 165/166
Tel.: +49 30 8827331
Fax: +49 30 8832648
Rathausufer 12
Tel.: +49 211 86792-0
Fax: +49 211 86792-29
Goethestraße 18
Tel.: +49 69 2193518-11
Fax: +49 69 2193518-15
Brodschrangen 4
Tel.: +49 40 37655-310
Fax: +49 40 37655-305
Georgsplatz 8
Tel.: +49 511 3045-591
Fax: +49 511 3045-599
Widenmayerstraße 15
Tel.: +49 89 512667-0
Fax: +49 89 512667-25
Münchner Straße 16
Tel.: +49 89 992908-0
Fax: +49 89 9576201
Strawinskylaan 625
Tower B, Level 6
Tel.: +31 20 6914551
Fax: +31 20 6919811
40 Basinghall Street
City Tower - Level 19
Tel.: +44 207 9200100
Fax: +44 207 9200110
María de Molina 40
1° Centro
Tel.: +34 91 7452642
Fax: +34 91 4116183
23, rue de la Paix
Tel.: +33 1 550484-85
Fax: +33 1 550484-89
Bundesanstalt für Finanzdienstleistungsaufsicht
Graurheindorfer Straße 108
53117 Bonn
··· 119 ···

··· 120 ···
GLOSSARY
·· Asset Backed Securities (ABS)
Securities backed by a pool of financial assets. This pool of assets is sold to a legally independent special
purpose vehicle established for the purposes of securitisation and financing, which finances the purchase
price by issuing securities whose rating varies according to level of risk. ABS is also the general term
applied to other forms of securitisation (e.g. ➞ CDO, ➞ MBS, etc.) and is used to describe any form of
asset-backed claim securitisation.
·· Backtesting
Process used to verify the forecasting accuracy of ➞ VaR. This involves comparing the daily changes in
net present value with the forecast values.
·· Basis-point-value method (100 bp)
In addition to ➞ VaR, another process used to measure interest rate risk by simulating an interest rate
rise of 100 bp by means of a parallel shift in the yield curve. The resulting changes in the present values
of all balance sheet and off-balance sheet positions indicate the level of interest rate risk.
·· Collateralized Debt Obligation (CDO)
A form of ➞ ABS, with regard to which ABS or other parcelled-up bonds serve as security.
·· Cost/income ratio
Ratio of administrative expenses to net interest and commission income. The cost/income ratio provides
a quantitative indicator of the efficiency level achieved in banking operations. Essentially, the lower the
cost/income ratio, the more efficient the bank.
·· Credit Default Swap (CDS)
Within the credit derivatives market, CDS are the most widely spread type of instrument and the most
significant in terms of quantity. A CDS can be used to separate the credit risk from the underlying lending
relationship. The separate tradability of these default risks extends the range of options for systematic risk
and income management.
·· Debt Issuance Programme (DIP)
A DIP provides the contractual framework and the template documentation for the international placement
of security issues. Deutsche Hypo uses this programme as a flexible refinancing tool on the euro
market, thereby supplementing traditional refinancing through Pfandbriefe. Within the framework of the
DIP, Deutsche Hypo can issue bonds and Pfandbriefe in the common currencies and with a variety of dif-

ferent structures. Given that only brief standardised documentation is required for the individual issues,
the Bank can react quickly and flexibly to investor wishes, which, in particular, is also of significance to foreign
investors.
·· Hedging
Transactions used to offset the risk of unfavourable price developments (e.g. interest rate hedges). An individual
risk position is secured by taking another risk position in the opposite direction.
·· ICAAP
Internal Capital Adequacy Assessment Process: Requirement of MaRisk with regard to capital adequacy.
·· Macro-hedge
A macro-hedge is the term used when as part of a ➞ hedging strategy, a bank secures/immunises a portfolio
or several individual transactions against future price losses.
·· Mark-to-market
Valuation method describing the revaluation of financial instruments on the basis of the market prices
applicable on the revaluation date, rather than on the basis of historical costs.
·· Micro-hedge
A micro-hedge is the term used when as part of a ➞ hedging strategy, a single position is secured/immunised
against future price losses by means of a futures transaction.
·· Mortgage Backed Securities (MBS)
Mortgage Backed Securities securitise a section of a pool of mortgage loans, issued for example by
Pfandbrief banks for the purposes of property financing, in the form of bonds. Mortgage Backed Securities
are a special type of “Asset Backed Security”, i.e. tradable bonds covered by claims.
·· PfandBarwertV
Pfandbrief Net Present Value Ordinance: ordinance relating to securing the availability of cover at all times
for mortgage Pfandbriefe, public Pfandbriefe and ship Pfandbriefe based on net present value, and to the
calculation of this value by the Pfandbrief banks.
·· Probability of Default (PD)
Key figure used to determine the likelihood of a loan not being repaid.
··· 121 ···

··· 122 ···
·· Scoring model
Internal rating procedure used by Deutsche Hypo to evaluate the debtor’s creditworthiness in capital market
business.
·· Spread
The difference between the yields on different forms of investment, e.g. the yield differential between
Pfandbriefe and federal loans.
·· Subprime market
Segment of the US real estate finance market in which mortgages are granted to retail customers with
poor credit ratings.
·· Swap
Generally a swap involves the exchange of payment flows. In particular, it refers to a financing technique
whereby two partners swap interest payments and/or currency positions. If these operations affect the
assets side of a balance sheet, they are referred to as asset swaps, whilst liability swaps relate to the liabilities
side of the balance sheet.
·· Total return swap (TRS)
In the case of a total return swap, the party to whom security has been provided periodically swaps the
income from a reference asset (e.g. a bond) and any increases in that asset's value with the provider of
security in exchange for payment of a variable or fixed rate of interest and settlement of any falls in value
of the reference asset. This means that the provider of security, for the duration of the transaction, as well
as assuming the credit risk, also assumes the entire price risk associated with the reference asset from
the party to whom security has been provided.
·· Value-at-Risk (VaR)
Concept used to quantify market price risks (interest rate risks) and a key component of modern risk
management. It involves determining the potential (net present value) loss that will not be exceeded subject
to a given level of probability and within a stipulated period.

··· 123 ···

··· 124 ···

30159 Hanover
Georgsplatz 8
Tel.: +49 511 3045-0
Fax: +49 511 3045-459
Mail@Deutsche-Hypo.de
www.deutsche-hypo.de
10719 Berlin
Uhlandstraße 165/166
Tel.: +49 30 8 82 73 31
Fax: +49 30 8 832648