COMMERZBANK AKTIENGESELLSCHAFT

further decline in market values and therefore a loss in the net present value of outstanding bonds and
corresponding additional pressure on the revaluation reserve. Additional net present value losses in
the financial investment portfolio could have a material adverse impact on the Group’s business,
results of operations and financial condition.
The Group’s subsidiaries resident outside of the eurozone prepare their individual financial statements
in foreign currency. Currency fluctuations between the euro and the respective local currencies can
mean that during conversion of positions in the non-consolidated financial statements that are not
denominated in euro for inclusion in the consolidated financial statements, different exchange rates
are applied from those used in previous reporting periods and that these conversion differences weigh
on the Group’s equity capital. In addition, the Bank and other Group companies resident in the
eurozone engage in transactions that are not denominated in euros. The relative appreciation or
depreciation of the respective foreign currency versus the euro can lead to correspondingly higher
costs or lower income from these foreign currency transactions. To the extent this risk is not hedged,
the Group’s business, results of operations and financial condition could be materially adversely
affected.
In its operating business, the Group is exposed to market price risks arising from trading in
commodity-related derivatives, certificates and spot transactions. The underlying commodities are
principally precious metals, industrial metals, energy, agricultural products and live cattle. The prices of
these financial instruments can rise or fall due to a wide range of factors, including general economic
conditions, market trends, exchange rate movements and changes in the legal and political
framework. If positions are not fully hedged against these risks, losses may arise which could have a
material adverse impact on the Group’s business, results of operations and financial condition.
The Group is engaged in the structuring and trading of financial derivatives. Derivatives are subject to
price fluctuations due to volatility changes (i.e., changes in the fluctuation range) of the instruments
underlying the prices (such as shares, currencies, interest rates and commodities). To the extent
derivatives are linked to two underlying instruments or to a portfolio of underlying instruments (e.g.,
two currencies or a portfolio of shares), the prices of these derivatives are also subject to what are
known as correlation fluctuations. Correlation is a statistical measure of the linear interaction between
two underlying instruments – the higher the correlation coefficient, the greater the extent to which the
two underlying instruments will move in step. For example, correlation generally increases in sharply
rising or falling stock markets. If derivative positions are not hedged against volatility changes or
correlation fluctuations, losses may arise which could have a material adverse impact on the Group’s
business, results of operations and financial condition.
The Group makes use of a range of instruments and strategies to hedge against market risks. If these
instruments and strategies prove ineffective or only partially effective, the Group may suffer losses.
Many of the risk-hedging strategies that the Group deploys are based on historical data. For example,
if the Group holds a particular asset, a possible strategy for hedging the risks arising from this asset is
to short-sell another asset, which, on the basis of historical observations, is likely to exhibit a trend
inversely correlated with that of the asset being hedged. However, it is possible that this and other
risk-hedging strategies are only partially successful or are not effective in every conceivable market
environment or in respect of every conceivable risk. Unforeseen market developments such as the
dramatic deterioration in the U.S. residential mortgage market that occurred in July 2007 may
significantly reduce the effectiveness of the measures taken by the Group to hedge risks. Gains and
losses from ineffective risk-hedging measures may heighten the volatility of the financial results
achieved by the Group and could therefore have a material adverse effect on the Group’s business,
results of operations and financial condition.
Risks from Equity Investment Stakes
The Group holds various equity investments in listed and unlisted companies. The efficient
management of a portfolio of listed and unlisted companies entails high funding costs, which may not
be (fully) offset by the dividends obtainable from these associates. Many of the equity investments that
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