A4 für Copyshop GB.indd - Bayerische Landesbank

Annual Report and Accounts 2004

Organisation Chart of the Bank * 

Corporate Center 

Support Operations 

Werner Schmidt 

Chairman of the Board 

of Management 

Legal Services, 

Compliance Center and 

Prevention of Money 

Laundering 

• Walther 

Schmidt-Lademann 

Corporate Development/BoM 

Support 

• Dr. Benedikt Haas 

Press & Media Relations 

• Peter Kulmburg 

Financial Accounting, 

Tax & Controlling 

• Günther Kopf 

Personnel 

• Dr. Wolfram Peitzsch 

Audit 

• Peter Vökt 

Economics and 

Research Division 

• Dr. Jürgen Pfister 

* global responsibility, as per 01.03.2005 

Financial Institutions & 

Sovereigns 

Business Area 

Dr. Rudolf Hanisch 

Deputy of the Chairman 

Financial Institutions & 

Sovereigns 

• Michael Graf 

von Hallwyl 

(BA Spokesman) 

• Dr. Theodor Klotz 

Real Estate 

Business Area 



Bayerische Landesbank 

Real Estate 

• Ernst Holland 

• Georg Jewgrafow 

Bayerische Landesbodenkreditanstalt 



Bayerische 

Landesbodenkreditanstalt 

• Gerhard Flaig 


• Dr. Ulrich Kühn 

• Heinrich Rinderle 

Savings Banks and 

Bavarian Market 

Business Area 

Theo Harnischmacher 


Savings Banks, 

Bavarian Municipals/ 

Corporates 

• Karlheinz Müller 

• Thomas Neher 

Private Banking 

• Otto Schwendner

LBS Bayern Corporates 

Business Area 




Landesbausparkasse 

• Dr. Franz Wirnhier 


• Wolfgang Kube 

• Helmut Straubinger 

Stefan W. Ropers 

Member of the Board 

of Management 

Global 

Corporate Banking 

• Dr. Detlev Gröne 

Global 

Structured Finance 

• Frank Hahn 

Global Markets 

Business Area 

Dieter Burgmer 


of Management 

Investor Relations 

• Hans Christoph 

Groscurth 

Global 

Treasury & Funding 

• Ernst-Albrecht 

Brockhaus 

Equities 

• Karl Filbert 

Global Trading & Sales II 

• Jürgen Adamitza 

Global Trading & Sales I 

• Florian Drexler 

Risk Office 


Dr. Gerhard 

Gribkowsky 


of Management 

Credit Consulting 

• Andreas Dörhöfer 

Risk Office Corporates/ 

Financial Institutions 

• Thomas Hierholzer 

Credit & Collateral 

Services (CCS) 

• Michaela Aumann 

Risk Controlling & 

Procedures 

• Ullrich Ströhlein 

Risk Office Real Estate/ 


• Peter Weidemann 

Corporate Services 


Dr. Ralph Schmidt 

Senior Executive 

Vice President, 

entrusted with Board 

of Management tasks 

Financial Market 

Services 

• Peter Greppmair 

• Dr. Dietrich Keymer 

International Corporate 

Services (CS) 

• Dieter Seipt 

Corporate 

Organisation & IT 

• Robert Berhof 

• Michael Ludwig 

Shared Services 

• Christian Seidel

BayernLB Group at a glance 

Performance 

EUR million 01. 01.– 31. 12. 2004 01. 01.– 31. 12. 2003 Change in % 

Net interest income 

Net commission income 

Administrative expenses 

Net result from financial transactions 

Operating result 

Cost-income ratio* 

Return on equity 

Balance sheet figures 

2,030 

340 

– 1,208 

126 

950 

44.4 % 

9.5 % 

2,169 

343 

– 1,185 

105 

547 

43.3 % 

4.9 % 

– 6.4 

– 0.7 

1.9 

19.7 

73.7 

2.5 (1.1 Pp**) 

93.9 (4.6 Pp**) 

EUR million 31. 12. 2004 31. 12. 2003 Change in % 

Total assets 

Credit volume 

Total deposits 

Securitised liabilities 

Equity disclosed 

Derivatives transactions 

333,102 

241,952 

197,410 

103,833 

16,671 

313,431 

223,960 

185,233 

95,597 

17,177 


Nominal volume 

Credit risk equivalent (after netting) 

1,017,131 

3,841 

Key banking regulatory data under the German Banking Act (balance sheet figures) 

934,243 

4,528 

6.3 

8.0 

6.6 

8.6 

– 2.9 

8.9 

– 15.2 


Own funds 15,957 15,468 3.2 

Core capital ratio 

Own funds ratio (Group level) 

Number of employees 

BayernLB 

Group 

8.3 % 

12.5 % 

7.8 % 

11.3 % 

6.4 (0.5 Pp**) 

10.6 (1.2 Pp**) 

31. 12. 2004 31. 12. 2003 Change in % 

5,047 

8,940 

* Administrative expenses/income from operational banking business (previous year‘s figure adjusted) 

** Percentage points 

5,543 

9,061 

– 8.9 

– 1.3

Clear figures. Clear objectives. 

The Annual Report and Accounts 2004 reflect 

BayernLB’s reorientation. And in more ways than 

one. Because just as the figures prove the success 

of our new business model, so our new marketing 

image illustrates how we want to continue to build 

on this success: with confidence, in proximity to 

our customers and markets and with Bavarian 

élan. 

Tailor-made financial services are the focal point 

of our activities – unique solutions matching the 

individual needs of our customers. This means 

having a keen eye and designing our products 

with great care – just like a tailor who practises 

his art with precision. With all of those whose 

personal commitment leads to new perspectives 

and results, we are united in a common goal: 

creating unique solutions.

Contents 

1 Board of Management and 

executive bodies 

2 Economic situation 

3 BayernLB – our company 

4 Report on the Bank and the Group 

5 Report by the Board 

of Administration, accounts of 

BayernLB and the BayernLB Group 

and notes to the accounts 

6 Advisory Boards and addresses

Foreword by the Board of Management 8 

Profile 12 

Sparkassen-Finanzgruppe Bayern 13 

Board of Administration 14 

Financial Statements Audit Committee 15 

General Meeting 16 

Economy: no stable uptrend yet 22 

Strategy 30 

Business area activities 34 

LBS Bayern and Landesbodenkreditanstalt 54 

Group retail activities 58 

Support operations activities 62 

Our staff 78 

Public sector mandate 82 

Overview 90 

Management report 93 

Outlook 103 

Risk report 106 

Report by the Board of Administration 124 

Balance sheet and profit and loss account 128 

Consolidated balance sheet and profit and loss account 134 

Consolidated statement of changes in shareholders’ equity 140 

Cash flow statement for the Group 141 

Segment report for the Group 144 

Notes to the accounts and consolidated accounts 148 

Trustees 184 

Economic Advisory Council 185 

Savings Bank Advisory Council 187 

BayernLB’s network 188

Design requires absolute accuracy. Wherever things are produced, 

values are created and a new course is chartered, a millimetre here or 

there can make a huge difference. An important concept to keep in mind, 

because there really is only one goal worth pursuing: a superior result. 

Producing something unique means 

recognising a fundamental principle: 

precision.

1 Board of Management and 

executive bodies 

Foreword by the Board of Management 8 

Profile 12 

Sparkassen-Finanzgruppe Bayern 13 

Board of Administration 14 

Financial Statements Audit Committee 15 

General Meeting 16

8 Board of Management and executive bodies 


born in 1943, 

Chairman of the Board of Management 

since 2001, Support Operations 

Corporate Center (worldwide), 

Corporate Services (worldwide) 

Foreword by the Board of Management 

Ladies and Gentlemen, 

Dear Friends, 

The year 2004 was a period of change and preparation for BayernLB. On 18 July 2005, 

the guarantee mechanisms are set to change for all of the landesbanks. Over the last 

year, BayernLB has consistently pushed on with the implementation of its new business 

model, and is thus prepared for the coming challenges. We, the Board of Manage- 

ment, would like to thank the staff of BayernLB for their exceptional motivation and 

willingness to face change. The successful realignment of the Bank is essentially thanks 

to them. To our customers, we would like to express our gratitude for their many years 

of trust in BayernLB. We are also grateful to our owners for their sustained support. 

Together, we can face the future with confidence. 

Our new marketing image is a visual expression of change. The new trademark repre- 

sents our values, and the link between tradition and the present day. The diamond 

motif is a clear reference to our Bavarian roots. The arrow communicates the dynamic 

and modern nature of Bavarian thinking. It points to our brand name, which follows 

the arrow, and acts as the ambassador of this message. 

The satisfying annual result posted in 2004 is a reflection of change. Group operating 

profit before risk provisions was EUR 1.532 billion, thus matching the previous year’s 

level. Particularly pleasing is the improvement of operating profit by 73.7 percent from


born in 1946, 

Deputy of the Chairman, 

Member of the Board of Management 

since 2000, Business Areas 

Financial Institutions & Sovereigns (worldwide), 

Real Estate (worldwide), 

Bayerische Landesbodenkreditanstalt 

EUR 547 million to EUR 950 million. The consistent streamlining of the credit and par- 

ticipations portfolios in recent years has clearly borne fruit. During 2004 as well, the 

credit portfolio continued to be purged of risk clusters and concentration risks, within 

reasonable legal and economic bounds. Our strategic realignment, increasing volumes 

of new business with our customers and cooperative market development with the 

savings banks are already reflected to a degree in our 2004 annual accounts. 

In the future, the EU state aid proceedings regarding housing construction funds will 

no longer affect our annual results. On 20 October 2004, the European Commission 

reached a decision in respect of the interest accrued on the housing construction 

funds transferred by the Free State of Bavaria to BayernLB. Pursuant to this decision, 

BayernLB was to pay an absolute restitution claim of EUR 320 million. This amount was 

charged as an extraordinary expense in the 2004 annual accounts and provisioned for. 

We have continued in our strategic development of BayernLB as a wholesale bank that 

focuses on certain core regions and collaborates closely with the Bavarian savings 

banks and partners of the Sparkassen-Finanzgruppe. Market development activities 

are supplemented by subsidiaries with strategic significance for the BayernLB Group, 

namely DKB, SaarLB, MKB, LBLux and LBSwiss. These companies are entrusted with a 

considerable share of the Group’s retail activities. Building on our core competences, 

we aim to grow in our target markets: primarily Bavaria and its bordering regions. 

The credit portfolio is consistently oriented toward profit and risk aspects. We intend 

to make greater efforts to convey our brand values, namely Bavarian élan, confidence 

and proximity, to our customers. 

Board of Management and executive bodies 


born in 1946, 

Deputy of the Chairman, 


since 2002, Business Areas 

Savings Banks and Bavarian Market, 

LBS Bayern 

9



born in 1955, 


since 2002, Business Area 

Corporates (worldwide) 

In 2004, we continued to expand our cooperative market development with the Bavarian 

savings banks. Ninety-four percent of the savings banks have signed individual agree- 

ments as a framework for closer collaboration with BayernLB. 

In the context of the newly drawn-up strategy for Eastern Europe, we as a Group are 

exploiting the opportunities offered by the growth markets of Central and Eastern 

Europe. We support the savings banks by offering superior processing competences, 

and can boast a network of local cooperative partners in the core markets. We are 

continuing to develop this network. 

We have consistently pursued our aim of realigning the participations portfolio, by dis- 

posing of our 46.4 percent participation in the Bank für Arbeit und Wirtschaft (BAWAG) 

and 10 percent participation in the Südtiroler Sparkasse. We also sold the Austrian 

travel agency chain Ruefa. 

In order to fund our planned growth, as well as securing our A + target rating, we 

intend to carry out a nominal capital increase in two tranches (2005 and 2006). The 

total volume of the transaction will be EUR 640 million. The Free State of Bavaria and 

the Association of Bavarian Savings Banks (SVB) will contribute 50 percent each. The 

planned capital increase is a clear demonstration of the owners’ loyalty to the Bank. 

As another major factor supporting the Bank’s competitiveness, dated capital 

contributions held by the Bank’s owners are to be converted to undated ones without 

accompanying calling rights. 

Moreover, the Bavarian savings banks and BayernLB are planning to set up a regional 

guarantee fund. This fund will be an integral element of the close cooperation 

between the two partners. 


born in 1962, 

Senior Executive Vice President, 




Corporates Services (worldwide) 

since 2004 


born in 1960, 


since 2001, Business Area 

Global Markets (worldwide)

In transforming its business model, BayernLB is right on track for being awarded the 

A + target rating by all major rating agencies once the guarantee mechanisms have 

ceased to apply. We will continue to focus on the market – together with the Bavarian 

savings banks – and to implement our new strategy in a consistent manner. We are 

confident that, together with our staff and owners, we can achieve our goals. 

Sincerely, 

Bayerische Landesbank (BayernLB) 

Board of Management 


Chairman of the Board 

of Management 


Dr. Gerhard Gribkowsky 





Senior Executive Vice President, 

entrusted with Board of Management tasks 



born in 1958, 



Risk Office (worldwide) 



11


Profile 

BayernLB was founded in 1972 with the merger of Landesbodenkreditanstalt and 

Bayerische Gemeindebank. It is one of the largest banks in Germany and has the 

legal status “corporation established under public law”. BayernLB is (indirectly) owned 

by the Free State of Bavaria and the Association of Bavarian Savings Banks, each with 

a 50 percent stake. This follows the transfer in 2002 of their shares in BayernLB to 

BayernLB Holding AG, in exchange for which the Free State of Bavaria and the Associa- 

tion of Bavarian Savings Banks each took a 50 percent holding in BayernLB Holding AG. 

BayernLB Holding AG is entrusted with the duties of the sole shareholder of BayernLB 

and is not a bank itself (see diagram of the holding structure). BayernLB is subject to 

legal supervision by the Bavarian State Ministries of Finance and the Interior as well as 

financial supervision by the German Financial Supervisory Authority (BaFin) and the 

Deutsche Bundesbank. 

BayernLB is the central bank to the Bavarian savings banks and an important member 

of the Sparkassen-Finanzgruppe Bayern. It is a service provider for the partner insti- 

tutes of the Sparkassen-Finanzgruppe, acting as their network bank and enabling 

them, with its support and product policies, to exploit existing market potential in 

the Bavarian market together with the savings banks. In addition, BayernLB functions 

as a principal bank to the Free State of Bavaria and actively supports national and 

local governments, financial institutions, medium and large companies and real estate 

customers. BayernLB is one of the leading issuers of bonds in Germany. Bayerische 

Landesbodenkreditanstalt (Labo) and Bayerische Landesbausparkasse (LBS), both 

legally dependent institutions, are integral parts of the Bank. BayernLB is a financial 

service provider with a presence in selected global financial centres. It focuses on the 

core market of Bavaria and the neighbouring regions. 

Expansion of the Savings Bank Central Bank function, and with it the further intensifi- 

cation of joint marketing activities with the Bavarian savings banks, is an important 

pillar of BayernLB’s business model. For this purpose a number of agreements were 

signed by the individual savings banks and BayernLB which will increase their eco- 

nomic efficiency by providing for jointly-developed solutions while strengthening 

the market position of the Sparkassen-Finanzgruppe Bayern.

Sparkassen-Finanzgruppe Bayern 

BayernLB 

Consolidated total assets: 

EUR 333 billion 

Staff: Bank: 5,047 Group: 8,940 


Landesbausparkasse 

Portfolio of 2 million building-saving 

contracts with a volume of 




Loan volume: EUR 15 billion 

Subsidised contracts: 15,438 homes 

Part of the BayernLB Group 

• Deutsche Kreditbank 

Aktiengesellschaft 

• Landesbank Saar 

• Banque LBLux S. A. 

• MKB, Hungary 

• LB(Swiss) 

Sparkassen-Finanzgruppe 

Market leader in Bavaria 

• Aggregated total assets in banking business: EUR 486 billion 

• Aggregated premium volume of insurance business: EUR 5.2 billion 

• Staff: 65,741 

82 savings banks 

Total assets: EUR 153 billion 

Staff: 50,451 

• Branches: 2,799 

• Self-service branches: 242 

• Advisory centres: 287 

Operating profit: EUR 1.6 billion 

Tax burden: EUR 0.4 billion 

Customer advances: EUR 95 billion 

Customer deposits: EUR 115 billion 

Financing potential 

• Approx. 40% of SMEs 

• Two thirds of trade businesses 

• Every second start-up 

Sparkassen-Immobilien 

Vermittlungs GmbH & Co. KG 

Volume of business brokered: 

EUR 1 billion 

DekaBank 

Share of Bavarian savings bank 

organisation: 9.6% including share 

of BayernLB. 

Consolidated total assets: 


Deutsche Sparkassen Leasing 

Share of Bavarian savings banks: 13 % 

Sparkassenverband Bayern 


Versicherungskammer Bayern 

Premium volume: EUR 5.2 billion 

Staff: 6,350 

Investment portfolio: EUR 26.6 billion 

Germany’s largest public-sector 

insurance provider 

Market leader in Bavaria and the 

Palatinate 

Part of the VKB Group 

• Bayerische Landesbrandversicherung 

• Bayerischer Versicherungsverband 

• Bayern-Versicherung 

• Bayerische Beamtenkrankenkasse 

• Union Krankenversicherung 

• Saarland Feuerversicherung 

• Saarland Lebensversicherung 

• Feuersozietät Berlin Brandenburg 

• Öffentliche Lebensversicherung 

Berlin Brandenburg 

• Association members: 82 Bavarian savings banks and their guarantors 

• Joint owners and guarantors of BayernLB together with the Free State of Bavaria 

• Owners and guarantors of Versicherungskammer Bayern 

13


Board of Administration * 

Prof. Dr. Kurt Faltlhauser 

Chairman 

State Minister 

Bavarian State Ministry of Finance 

Munich 

Dr. Siegfried Naser 

First Vice Chairman 

Executive President of the Association 

of Bavarian Savings Banks 

Munich 

Dr. Günther Beckstein 

Second Vice Chairman 


Bavarian State Ministry of the Interior 

Munich 

Hansjörg Christmann 

Third Vice Chairman 

Chief District Administrator 

First President of the Association 


Dachau 

Josef Deimer 

Lord Mayor 

President of the Bayerische Städtetag 

Landshut 

Alois Hagl 

Savings Bank Director 

Chairman of the Board of Directors 

of Sparkasse im Landkreis Schwandorf 

Chief Representative of the Bavarian 

savings banks 

Schwandorf 

Georg Schmid 

Permanent Secretary 


Munich 

Klaus Weigert 

Deputy Secretary 


Munich 

Professor Hubert Weiler 



of Sparkasse Nürnberg 

Nuremberg 

Dr. Otto Wiesheu 


Bavarian State Ministry 

of Economic Affairs, 

Infrastructure, Transport 

and Technology 

Munich 

* For the period from 1 January to 31 December 2004

Financial Statements Audit Committee * 


Chairman 



Munich 


Deputy Chairman 



Munich 

Alois Hagl 





savings banks 

Schwandorf 

Georg Schmid 



Munich 

Professor Hubert Weiler 




Nuremberg 



Bavarian State Ministry of Economic 

Affairs, Infrastructure, Transport and 

Technology 

Munich 


* For the period from 1 January to 31 December 2004 

15


General Meeting * 


Chairman 



Munich 





Munich 

Wolfgang Bayerl 

(with effect from 1 November 2004) 

First Lord Mayor of the City 

of Neunburg v. Wald 




of the Interior 

Munich 

Ludwig Bronold 



of Kreissparkasse Mühldorf 

Mühldorf 



First President of the Association 


Dachau 

Wolfgang Dandorfer 

Lord Mayor 

of the City of Amberg 

Heinrich Frey 


of the District of Starnberg 

Martin Haf 



of Sparkasse Allgäu 

Kempten 

Alois Hagl 





savings banks 

Schwandorf 

Rudolf Heiler 

First Lord Mayor 

of the City of Grafing 

Dr. Erhard Hübener 



of Sparkasse Miltenberg-Obernburg 

Miltenberg 

Dr. Jörg Jung 

Under-secretary 



Munich 

Gebhard Kaiser 


of the District of Sonthofen

Norbert Kastner 

Lord Mayor 

of the City of Coburg 

Wolfgang Kelsch 

First Lord Mayor 

of the City of Wendelstein 

Andreas Knie 

(until 31 October 2004) 

Lord Mayor 

of the City of Kaufbeuren 

Dr. Joachim Kormann 



of Economic Affairs, Infrastructure, 

Transport and Technology 

Munich 

Harald Leitherer 


of the District of Schweinfurt 

Franz Meyer 



of Finance 

Munich 

Josef Miller 



of Agriculture and Forestry 

Munich 

Matthias Nester 



of Sparkasse Mittelfranken-Süd 

Roth 

Helmut Reich 


of the District of Lauf a.d. Pegnitz 

Dr. Klaus-Jürgen Scherr 



of Sparkasse Kronach-Ludwigsstadt 

Kronach 

Dr. Werner Schnappauf 



for Environment, Health and 

Consumer Protection 

Munich 

Dr. Walter Schön 


Bavarian State Chancellery 

Munich 

Christa Stewens 


Bavarian State Ministry of Employment 

and Social Order, the Family and Women 

Munich 

Dr. Reinhard Wieczorek 

Councillor 

of the City of Munich 

Munich 

Friedrich Wimberger 



of Sparkasse Landshut 

Landshut 



17

Responsibility is the foundation of every action. Assuming 

responsibility means meeting challenges, making the right 

decisions and paying attention to detail. Whoever does this 

with élan and joy knows how to appreciate the great feeling 

of knowing what he is doing. 

You truly have to seek it in order 

to find it: responsibility.

2 Economic situation


} Strong demand 

from abroad boosts 

economic growth 

} Hike in oil prices 

curbs private 

consumption 

Economy: 

No stable uptrend yet 

In 2004, the German economy finally transcended an unremitting three-year slump. 

Real gross domestic product increased by 1.6 percent. The economy was characterised 

by two opposing trends: exports experienced a brisk upswing (+ 8.2 percent), while 

domestic demand was sluggish (+ 0.5 percent). Household consumption stagnated, 

the rise in corporate investment fell far short of estimates, while the construction 

industry experienced a recession for the ninth successive year. The still lacklustre 

economic trend was reflected in the high number of corporate failures. In 2004, there 

were almost 40,000 corporate insolvencies, with losses totalling more than EUR 30 bil- 

lion. Experience shows that a surge of corporate failures only tends to recede during 

the early stages of an upturn. This means that brighter prospects can only be antici- 

pated from 2005. 

In 2004, for the first time in several years, Germany was able to close ranks with its 

neighbours in the euro area in terms of economic growth. This was only achievable, 

however, thanks to strong demand from abroad. It was also partly due to the higher 

number of working days. All in all, the pace of recovery in 2004 remained slack in 

comparison to previous rebound phases. In particular, it was insufficient to mitigate 

the serious problems evident in the labour market and the public sector. 

The revival of the global economy was not least attributable to strong growth in the 

United States. With a growth rate of 4.4. percent, the US economy once again began 

to gather momentum. Besides the USA, the South East Asian economies were another 

driving force of global trade, with China in the lead. The Western European economy 

also experienced a rebound during 2004. However, at 2.0 percent, the pace was signifi- 

cantly slower than that of the global economy. The global economic upswing was par- 

ticularly remarkable given the fact that economic activity was curbed by the increase in 

the price of crude oil. High prices can also be expected in the medium-term due to the 

strong upswing in demand for crude oil, as well as bottlenecks in its production and 

processing. 

In Germany, the fall in purchasing power caused by increased oil prices acted as a 

brake on private consumption. Household consumption, the most significant constitu- 

ent of the domestic product, was therefore disappointing once again. An extremely 

unfavourable labour market was a further strain on the economy. Although the labour 

force actually increased by 271,000 members over the course of the year, this was 

countered by a fall of 337,000 in the number of positions subject to social security 

contributions. The average unemployment level for 2004 remained very high, totalling 

4.38 million. 

Low growth rates in consumer income are principally reflected in the subdued private 

consumption of recent years. In addition, concerns relating to job and pension security 

have increased. The spirited debate surrounding the reform of the labour market

(Hartz IV) contributed to an overall feeling of despondency. For this reason, it was no 

great surprise that 2004 again saw the private households tightening their belts. Stag- 

nating consumer demand generated by private households remains a considerable 

barrier to sustained economic recovery in Germany. In order for the economy to perk 

up, the labour market situation will have to improve significantly, with a concomitant 

increase in the level of employment. 

The precarious situation of Germany’s public finances saw no improvement in 2004. 

The public deficit stood at 3.7 percent in relation to gross domestic product, thereby 

clearly breaching the upper limit as stipulated by the Maastricht Agreement for the 

third time in a row. The fact that the government deficit remained unchanged despite 

an improved economic situation in 2004 was primarily due to two factors. Firstly, if 

there had been a stronger upswing driven by domestic demand, the export-driven 

rebound in the economy would probably have had a more perceptible effect on the 

public coffers. Secondly, the continuing difficulties of the public budget reflect the 

extremely high unemployment level. On top of this, income tax was reduced at the 

beginning of 2004. 

On the capital markets, the year was marked by continued – albeit somewhat leisurely 

– recovery of the equity markets, a surprising decline in interest rates in the second 

half, and not least by a weak dollar. 

The sharp rise in share prices perceptible from spring 2003 stalled at the beginning 

of 2004, despite the fact that corporate earnings were on the up, exceeding the origi- 

nal expectations of market participants. A series of factors contributing to uncertainty 

took centre stage, among them the terrorist attacks in Madrid and heightened fears 

for the economy due to the hike in oil prices. This resulted in an increased risk pre- 

mium. Towards year-end, the sentiment among investors began to brighten once 

more: DAX, the German index of blue chip companies, closed 2004 with a good 

7 percent growth. 

From summer 2004, the bond markets too were affected by fears for the economy 

arising from the massive increase in the price of crude oil. Investors did not interpret 

the surge in oil prices as a risk factor for monetary stability, as they had in the past, 

but rather as a threat to economic growth. 

While the US Federal Reserve had already instigated a turnaround in interest rates 

on the money market in summer 2004, and raised the Fed Funds Rate by 1 percent to 

2.25 percent at year-end, the European Central Bank maintained a key lending rate of 

2 percent over the whole of 2004. It has indicated, however, that its next move is likely 

to be an interest rate increase. Moderate interest rate increases are expected from 

mid-2005. 

Economic situation 

23 

} Maastricht criteria 

breached again 

} Moods lift on the 

equity market


} Growth to remain 

restrained in 2005 

Outlook for 2005 

The global and domestic economic situations do not betoken a more sprightly rate of 

recovery for Germany in 2005. Nor, however, is a slowdown anticipated, as forecasts 

might at first seem to indicate. Adjusted by the lower number of working days in 2005, 

the growth rate will remain more or less stable, at an expected 1.2 percent. This is still 

too low to effect lasting improvement in the labour market or in the public sector. 

In 2005, the global economy will no longer experience such a heady growth pace. 

This applies equally to North America and Asia. Furthermore, appreciation of the euro 

damages the price competitiveness of German suppliers. The outlook for domestic 

demand remains mediocre, unless employment levels take off and companies restore 

confidence in Germany’s industrial competitiveness. Thus, a self-sustaining upward 

trend is not yet in store for Germany.

An open mind. Clarity. Inspiration. Individual solutions begin 

with a good idea. Followed by many more – because thinking 

through everything means thinking ahead. What will happen 

tomorrow? And the day after that? The blueprints of today create 

the foundation of tomorrow. 

The source of incomparable 

solutions: a wealth of ideas


Strategy 30 

Business area activities 34 

LBS Bayern and Landesbodenkreditanstalt 54 

Group retail activities 58 

Support operations activities 62 

Our staff 78 

Public sector mandate 82


} BayernLB reinforces 

product-related 

and advisory competence 

in cooperation 

with Bavarian 

savings banks 

Strategy 

In 2004, BayernLB consolidated its potential for successful market operation, while 

laying the groundwork for the development of new strengths. The Bank is thus well 

equipped to deal with the withdrawal of Gewährträgerhaftung (guarantee obligation) 

and Anstaltslast (maintenance obligation) for new liabilities, effective as of 19 July 2005. 

BayernLB’s business model 

BayernLB is a wholesale bank that focuses on core regions and collaborates closely 

with the Bavarian savings banks and other partners of the Sparkassen-Finanzgruppe. 

Preliminary indications of the Bank’s future rating published in 2004 have confirmed 

the wisdom of BayernLB’s strategic decisions. Fitch indicated an A+ rating; Standard & 

Poor’s an A–. Moreover, Moody’s published an estimated A1 floor rating for the Ger- 

man Savings Bank Organisation. 

Banking sector still faces daunting challenges 

Withdrawal of the guarantee mechanisms entails changes in the competitive environ- 

ment for landesbanks. However, this does not constitute the sole basis for BayernLB’s 

decision to transform its business model. Rather, the market and competitive condi- 

tions for all banks in Germany have undergone a sea change. Germany’s sluggish 

economy inspires only a limited degree of confidence. In addition, regulatory require- 

ments (such as Basel II) and new accounting standards (IAS) must be implemented. 

The increasing efficiency of information processing systems represents one of the 

driving factors behind competitive dynamics throughout the entire banking sector. 

Market transparency is increasing, as is our customers’ demand for product-related 

and advisory competence. This, in turn, has serious repercussions for the management 

and controlling of the institutions. Small organisations with a large variety of customer 

groups and products run the risk of excessive costs. Larger organisations with several 

customer groups and products, on the other hand, may be jeopardised by excessive 

complexity. Against this backdrop, BayernLB, together with the Bavarian savings banks, 

can gain competitive advantages by focusing on customer relationships and products, 

while optimising the routine processes of the savings banks and generating economies 

of scale.

Key elements of the Bank’s strategy 

BayernLB’s strategy is based on the following pillars, which, in turn, form the founda- 

tion for the specific strategies of the individual business areas: 

• Clear commitment of the owners to their Bank 

• Focus and efficiency 

• Network of the Sparkassen-Finanzgruppe Bayern 

• Performance of the participations portfolio 

The overall strategy of the Bank is constantly revised and adapted to evolving market 

and competitive conditions, so that BayernLB is ready to meet new challenges in good 

time. In this way, the Bank safeguards its competitiveness and market position in the 

long term. 

Clear commitment of the owners to their Bank 

On 31 December 2004, the Bank reported a core capital ratio of 8.3 percent and a total 

equity ratio of 12.5 percent, in accordance with the German Banking Act (KWG). At 

Group level, BayernLB thus has excellent capital resources. When valuing the (equity) 

capital resources of a bank, rating agencies do not tend to concentrate on those 

elements central to the regulatory definition. The quality of a bank’s equity capital is 

crucial to the rating agencies’ assessment. In view of the Bank’s target rating of A+, 

the Free State of Bavaria and the Association of Bavarian Savings Banks intend to carry 

out a capital increase of EUR 640 million in two tranches (2005 and 2006). This clearly 

demonstrates the commitment of the owners of BayernLB. 

In addition to the Sparkassen-Finanzgruppe’s national cross-guarantee system, there 

are plans to set up a regional guarantee fund to reinforce cooperation within the Spar- 

kassen-Finanzgruppe in Bavaria. Amounting to EUR 1 billion, this fund will be endowed 

by the Bavarian savings banks and by BayernLB in accordance with the respective risk- 

weighted assets. 

The national cross-guarantee system represents the unequivocal commitment of both 

landesbanks and savings banks to the Sparkassen-Finanzgruppe. In 2004, the joint lia- 

bility mechanisms were fully revised. In the future, call commitments will be more 

strongly oriented toward the risk profile of each individual institute. Furthermore, 

agreements have been reached regarding the introduction of early detection and risk 

monitoring systems. The Bank will implement these measures in 2005 as planned. 

Focus and efficiency 

In its business model, BayernLB has focused on particular customer groups. The Bank’s 

activities are primarily centred on its core markets of Bavaria and bordering regions. 

In 2004, the planned optimisation of the network of foreign entities was concluded. 

BayernLB will continue to serve its customers in selected economic and financial 

centres around the world (London, Paris, Milan, New York, Hong Kong and Shanghai). 

In autumn 2004, BayernLB resolved a new strategy for Eastern Europe. Opportunities 

BayernLB – our company 

31 

} Capital increase 

planned for 2005 

and 2006


} Restructuring 

measures largely 

implemented ahead 

of plan during 2004 

offered by the growth region of Eastern Europe are to be selectively exploited. Market 

development is to be carried out primarily from Munich. Moreover, the Bank plans to 

expand its subsidiary MKB into attractive neighbouring markets. 

Essential measures aimed at focusing and boosting efficiency were implemented in 

2004. Far-reaching changes to the Bank’s structural and procedural organisation last 

year led to staff restructuring measures, resulting in the termination of around 1,000 

jobs in 2003 and 2004. However, target figures were reached early, meaning that 

restructuring could be brought to a close in 2004. Other personnel-specific measures 

aimed at training and recruiting junior staff and rewarding top performers were 

pursued. 

Landesbausparkasse (LBS) and Landesbodenkreditanstalt (Labo), the Bank’s legally 

dependent institutions, continue to conform their resources and costs to the market 

and to the earnings situation. This also applies for subsidiaries of strategic significance 

to the Group, namely DKB, MKB, SaarLB, Banque LBLux and LB (Swiss) Privatbank. 

Network of the Sparkassen-Finanzgruppe Bayern 

In December 2003 a master contract between the Association of Bavarian Savings 

Banks and BayernLB was signed. This agreement regulates the framework conditions 

for market development in cooperation with the savings banks as well as the establish- 

ment and use of joint centres of competence. On 1 February 2005, 76 of the 80 Bavarian 

savings banks signed individual agreements governing cooperative market develop- 

ment and collaboration with the centres of competence. This shows that the deve- 

lopment and expansion of the Sparkassen-Finanzgruppe Bayern network is on the 

right track. 

The 2004 joint “IT Bayern” project represents another important step in the coopera- 

tion of Bavarian savings banks and BayernLB with its dependent institutions Bayerische 

Landesbausparkasse (LBS) and Bayerische Landesbodenkreditanstalt. The aim is to 

bundle the information technology of the companies involved into IZB SOFT in order 

to create a shared system house. The necessary legal and organisational requirements 

for IT bundling will have been met by mid-2005. The next stage involves the step-by- 

step transfer of systems and applications. This process takes into consideration the 

needs of day-to-day business and projects to be implemented. 

Performance of the participations portfolio 

The Bank’s participations are oriented towards and measured against clearly defined 

strategic objectives. While the strategic participations serve primarily to support and 

round off the Bank’s core activities, financial participations are acquired with the aim 

of achieving a specific return on investment.

New marketing image 

In the future, BayernLB’s strategic realignment will be reflected by its overall appear- 

ance, both within the Bank and on the market. The objective of the new marketing 

image is to convey both BayernLB’s new values and its long-established strengths. 

Three core values describe the Bank’s clear position: 

• Bavarian élan: The powerful combination of innovation and tradition has not only 

helped create Bavaria’s strong business climate, but is also the driving force behind 

BayernLB. 

• Confidence: This value expresses certainty, experience and reliability in dealings 

with customers and business partners. 

• Proximity: Together with the Bavarian savings banks, BayernLB’s proximity to the 

market at a regional level is clear. Proximity also characterises the trust placed by 

customers worldwide in BayernLB which has been created and maintained by long- 

standing relationships. 

The Bank will communicate its position using the core message “Customised financial 

solutions – made in Bayern”. 

Debate on banking structures 

BayernLB takes a definite standpoint on the ongoing debate over banking structures: 

dismantling the “three-pillar model” would restrain competition. Economically and 

sociopolitically harmful oligopolistic structures would materialise in the long term. 

These would ultimately have a negative impact on Germany’s industrial competitive- 

ness. An integral element of BayernLB’s business model involves ensuring that corpo- 

rate and private customers in the Free State of Bavaria are provided with a full range 

of national and international financial services. This is achieved in tandem with the 

Bavarian savings banks. This procedure not only safeguards the clear commitment of 

the Bank’s owners, but also constitutes a sociopolitical task. Cross-pillar mergers are 

simply not an option for BayernLB. However, cross-pillar cooperation is conceivable, 

as long as this involves non-competitive back office activities. 

The debate over mergers between landesbanks, often picked up by the media, is not 

expedient from the Bank’s point of view. This is due to implicit problems such as vary- 

ing ownership structures, coupled with insufficient synergy potential as well as newly 

incurred concentration risks. The parent-subsidiary model undertaken with SaarLB is 

an exception to this rule. Synergy potential from large-scale bundling can be gleaned 

equally from similar cooperative agreements. 

In this environment, BayernLB will continue to revise its business model on an ongoing 

basis. In this way, it will be able to continue on its successful trajectory in cooperation 

with the savings banks, even against a backdrop of changing market and competitive 

conditions. 


33 

} Definite “no” to 

mergers between 

landesbanks


} Cross-business 

area cooperation 

carried out 

Business area activities 

Corporates 

The Corporates Business Area manages business on a global scale, with large SME 

customers in Germany as well as multinationals in the Bank’s core regions of Europe, 

North America and Asia. The minimum sales volume of these customers is EUR 500 mil- 

lion in Germany, while our customers abroad generate EUR 2 billion and more in reve- 

nues. This business is based on long-standing customer relationships characterised by 

trust, and is propelled by our wide range of products. In collaboration with customers 

and product specialists at the Bank, our relationship managers design solutions for 

traditional credit financing, special financing (export, project and trade financing, 

leasing), payment transactions and all capital market and Treasury products. 

New structure 

Strategic and organisational restructuring measures within the business area began to 

bear fruit at the start of the second half of 2004. Sales activities were bolstered by the 

implementation of the newly created Global Head positions, entrusted with interna- 

tional responsibility for the Corporate Banking and Structured Finance Divisions. 

Collaboration with the Global Markets Business Area was further intensified. We offer 

our customers financing solutions tailored to their specific needs, comprising every- 

thing from interest rate and currency instruments to hand-picked products from the 

debt and equity markets. 

During 2004, in the context of cooperation with the Financial Institutions & Sovereigns 

Business Area, the Munich and London syndications desks were merged under joint 

management. Thus, all of BayernLB’s expertise in this segment is brought together 

and used to the benefit of the customer. Bundling European syndication activities has 

allowed the Bank to gain more lead arranger mandates. 

Development of the portfolio represented a key focus throughout 2004. This was due 

to the strategic objective of streamlining the portfolio to the greatest degree possible 

by year-end, as well as realigning BayernLB’s target portfolio. In addition to consider- 

able enhancement of risk and profit profiles, expansion of the portfolio by acquiring 

new business represented a focal point. As part of the consistent implementation of 

the business area’s strategic objectives, enhancing the profitability of existing business 

continued to be of major importance. The exit portfolio, created at the end of 2003, 

was scaled down considerably, thereby exceeding target figures.

Key ratios of the business area 

Gross income was generated in equal measures domestically and abroad. This illus- 

trates the strong international orientation of the business area and the great impor- 

tance attached to activities in the foreign markets. Great Britain, America and France 

are among the strongest. In these markets, the Corporate Banking and Structured 

Finance Divisions generated roughly 50 percent each of total income. 

At around EUR 33 billion, risk positions were down by 14 percent in comparison to 

2003. Net interest income also fell against 2003 as a consequence of this reduction in 

risk assets. Net commission income remained more or less unchanged in comparison 

to the previous year’s level. 

Qualitative / structural enhancement of earnings, evident from the transactions carried 

out in 2004, was a decisive factor in the success of the business area. 

Specific examples 

The following transactions exemplify the success in the corporate financing business 

in 2004: 

DaimlerChrysler 

North America Corporation 

1,000,000,000 Euro 

Benchmark Bond 

Joint Bookrunner 


January 2004 

Corporate Banking 

Slovenské Elektrárne 

350,000,000 Euro 

Revolving Credit and Term 

Loan Facility 

Mandated Lead Arranger 


April 2004 

Edeka Zentrale AG & Co. KG 

600,000,000 Euro 

Term Loan and Revolving 

Credit Facility 



June 2004 

Hafslund 

400,000,000 Euro 

Dual Currency Revolving 

Credit Facility 



June 2004 

In 2004, margins in credit business experienced increased pressure. In cases where a 

margin commensurate with risk would have been impossible to achieve, the transac- 

tion was simply not pursued. Complex structured loans offered as part of all-in-one 

financing solutions represented a core focus, while using the credit product as a strate- 

gic facility (or anchor) was also important. All in all, cross-selling potential arising from 

customer relationships was crucial in the activities of the business area, particularly 

with regard to capital market products or the range of structured special financing 

instruments. 

In 2004, the business area successfully transformed itself from being a simple lender 

to a prominent provider of structured and arranged syndicated loans. Thus, on the 

domestic market, BayernLB was mandated lead arranger for Wacker Chemie GmbH’s 

EUR 200 million syndicated credit facility, while it acted as arranger / syndicated agent 

for a revolving credit facility with a volume of USD 200 million completed by the 

US-based Calpine Generating Co., LLC. 


35 

} Cross-selling 

activities reinforced


} Lead arranger 

position expanded 


BayernLB offers structured finance solutions from almost all product lines at a national 

and international level. 

In 2004, project financing operations were particularly successful. Income increased 

by approximately 28 percent in comparison to 2003, clearly illustrating our market 

penetration and acceptance. The success of the project credit facilities totalling 

USD 950 million arranged with Egyptian LNG El Behera Natural Gas Liquefaction 

Company, S.A.E., is further evidence of our strong market position. The Bank was 

international mandated lead arranger for this transaction. Project financing opera- 

tions in Munich also demonstrated the Bank’s competence in expanding its position 

as mandated lead arranger. 

Of particularly benefit for export financing was 2004’s positive development of the 

important supply markets of Western European machinery and equipment manufac- 

turers. Demand increased in countries such as Russia, Iran, Bulgaria and Romania. 

The steel and energy industries experienced what could almost be described as 

a boom. These positive trends meant that record volumes of new business were 

achieved. Three advisory agreements reached in Russia and Azerbaijan raised the 

Bank’s profile. 

Leasing and factoring business picked up in 2004, despite challenging conditions 

caused by sharp declines in real estate leasing and the discontinuation of US cross- 

border leasing. This revival was due to the renewed vigour applied to the acquisition 

of leasing customers, as well as the Bank’s strong position in municipal leasing and 

factoring. New business was increased by 51 percent year on year. Total disbursements 

increased by 45 percent over the same period, while follow-up financing rose by 

26 percent. 

In 2004, asset-backed aircraft financing operations were marked by subdued demand 

due to adverse market conditions. In addition to a new transaction aimed towards 

market positioning, restructuring of difficult exposures was also a key focus. The out- 

placement of 29 aircraft financing transactions in Asia, totalling around USD 190 mil- 

lion, was one of the success stories of the year. 

Outlook 

Reaching our ambitious earnings targets while maintaining an acceptable risk profile 

represents our top priority. With the launch of a consistent sales initiative, both at 

home and abroad, our objective is to gain new customers, while offering a product 

range that is specifically geared to their needs. Solution-oriented all-in-one approaches 

remain a core focus. The opening of the German Centre and concomitant raising of the 

Shanghai branch’s profile will lead to a significant reinforcement of our involvement in 

China in 2005. In this market, we offer both German SMEs and multinationals solutions 

that are tailored to their needs, by virtue of a customised product range.

Financial Institutions & Sovereigns 

BayernLB’s Financial Institutions and Sovereigns Business Area manages business rela- 

tions worldwide with banks, insurance companies and other institutional customers, 

as well as government and non-Bavarian municipal customers. This low-risk customer 

group accounts for approximately half of BayernLB’s total portfolio. The lending busi- 

ness handled by this business area achieves a comparatively good return on capital 

employed because low risk assets are required. These customers are also key partners 

in our syndication, securities, refinancing and transaction businesses. 

Earnings from new business were again increased in spite of unfavourable develop- 

ment of the market. Given the considerable pressure on interest margins, this was only 

possible thanks to improved net commission income, strengthened cross-selling of 

services and strong growth in the volume of new credit business. 

Interbank business / loan syndication 

Internationally syndicated loans reached new record volumes in the year under review. 

High liquidity in the credit markets stimulated investment. This market environment 

meant that margins and credit commissions came under considerable pressure. For 

competitive reasons, the banks were also more prepared than previously to meet their 

customers’ requests with regard to extended durations due to the low interest rate 

level. 

Against this backdrop, the Bank succeeded in maintaining the position held in previous 

years in the syndication markets. Net commission income improved slightly due to 

increased total volume. The number of lead management positions rose by more than 

a third to 44 mandates. 

Central and Eastern European borrowers were a key regional focus. Following EU 

accession in May, some government and bank customers in this region were able to 

exploit the relaxed regulatory equity requirements in order to procure new loans with 

improved terms. Once again, financial service providers constituted the main sector 

focus in both number and volume for the Bank’s syndication business. The well-known 

trade magazine “EUROWeek” awarded BayernLB one of the two first places in the cate- 

gory “Best arranger for loans for financial institutions” for the third time. 

Moreover, more lead management positions for corporate financing were gained 

thanks to the joint market development (centre of competence) of BayernLB’s syndica- 

tion units in Munich and London. 

In 2004, the Bank further extended its network of correspondent banks. The main 

focus was on public-sector banking groups and foreign savings bank organisations. 

In particular, the cooperation agreement that the Bank has held with the Swiss can- 

tonal banks for over a decade continues to be revitalised in several product sectors. 

Following termination of its equity participation, the Bank nonetheless continued its 

collaboration with the Austrian Bank für Arbeit und Wirtschaft (BAWAG) with a cooper- 

ation agreement. A further cooperation agreement was made with the Spanish savings 


37 

} Syndication 

business focuses 

on financial 

institutions


} Cooperation 

agreement with 

the Spanish savings 

banks 

banks in order to reinforce collaboration. As with other agreements, the aim of the 

agreement with the Spanish savings bank association CECA (Confederación Española 

de Cajas de Ahorro) is to expand the market for the Bank’s own financing products by 

exploiting its partners’ placement and sales facilities. Commercial products that had 

previously been little used internationally, even within the EU, (e.g. direct debiting 

systems) are to be made accessible to the institutions’ customers by means of system 

networking. Furthermore, the agreement aims to assist customers of the savings 

banks and of BayernLB in their business activities in the relevant partner country by 

creating contacts there with trading partners, authorities, development institutions 

and advisors. 

Links with correspondent banks were further exploited to support primarily the savings 

banks’ SME customers in setting up business relationships with international partners. 

In addition, the EuropaService of the Sparkassen-Finanzgruppe Bayern (EIC), coordi- 

nated by the Bank, ensures that customer wishes are entered into the electronic net- 

work of the European Commission, the Business Cooperation Database. 

Sovereigns business / support programmes 

In 2004, the German public sector deficit again exceeded the previous year’s figure, 

reaching approx. EUR 80 billion. This was primarily due to the still sluggish economy. 

Financing instruments, also at länder level, were increasingly shifted from schuld- 

schein notes to securities in order to expand the international investor base. 

BayernLB used its expertise as a lead player in the placement of securities issues for 

various different länder bonds. In government credit business, the Bank acted in a 

conservative manner due to the difficult market environment, particularly noticeable 

in the second half of 2004. For this reason, the volume of new business was halved in 

comparison with the previous year. 

Demand for loans from municipal institutions outside Bavaria remained at a high level 

in spite of the investor restraint displayed by the central, regional and local authorities. 

This particularly affected the need for cash advances. Customers continued to take 

advantage of interest rates staying low to lock into interest rates long-term and to take 

early interest rate hedging measures. The Bank maintained the previous year’s high 

volume of new business and renewals. 

Abroad, and particularly in New York, the Bank reinforced its strong market position 

in the area of business with central, regional and local authorities. Due to enhanced 

funding opportunities through public-sector covered bonds (pfandbriefe), there were 

staff increases in this sector at branch level .

Subsidised loan programmes were again issued with the aim of developing the Bavar- 

ian economy, using the Free State of Bavaria’s share of the Bank’s profits and the State’s 

budget. The majority of the subsidised development funds was used for municipal 

water and sewage measures; just under a third was used for the purchase of existing 

housing stock and student residences. The Bank also distributed subsidies for public- 

sector development measures under the agricultural investment development pro- 

gramme, and allocated interest subsidies in the context of the agricultural credit pro- 

gramme. 

Institutional customers 

BayernLB is one of the core banks for leading institutional investors. Insurers and foun- 

dations are among the Bank’s major investors. In addition to traditional fixed interest 

products, structured products enjoyed increased favour due to the fact that interest 

rates remained low on the capital markets. However, credit business with this customer 

group was also extended considerably in the period under review, particularly through 

the further expansion of letter-of-credit business. 

Outlook 

This business area is well equipped to deal with the challenges arising from the with- 

drawal of the Gewährträgerhaftung (guarantee obligation). In credit business with 

financial institutions, the Bank remains in a strong competitive position thanks to its 

wide variety of funding options. The leading global position gained in recent years 

in syndicated underwriting business with these customers is to be further reinforced. 

New competitors will enter the market for business with central, regional and local 

authorities due to the planned legislation to extend the scope of covered bond (pfand- 

brief) funding. It will therefore require particular effort to expand this segment further. 


39


Real Estate 

The Real Estate Business Area serves private and institutional investors, project devel- 

opers, residential property developers, retail customers and housing companies. The 

product range spans everything from traditional, long-term loans to the various types 

of structured financing instruments. Germany, Western and Eastern Europe and North 

America are the target regions. Together with its specialised subsidiaries, the business 

area offers comprehensive expertise in practically all areas of real estate business. Real 

Estate’s prime objective is to make its customers’ ideas reality using innovative solu- 

tions. In doing this, the business area makes a solid contribution to the Bank’s overall 

performance. 

Commercial real estate financing 

With a view to ensuring a sound level of earnings, the business area has focused on 

expanding low-risk, high-yield long-term commercial real estate financing both at 

home and abroad, in line with the target portfolio. Overall, real estate financing con- 

tinued to be marked by a difficult, fiercely competitive market environment. As in the 

previous year, the unfavourable market environment meant that relatively few large 

construction projects were launched by investors in Germany, while some existent 

large-scale plans were actually shelved. Pleasingly, though, new business volumes in 

domestic commercial real estate financing matched those of the previous year. Financ- 

ing activities were mainly focused on office, retail and special real estate, with consist- 

ently risk-oriented margins. In the context of cooperation with the savings banks, in 

commercial business there was increased demand for expertise with regard to special 

real estate, as well as qualified advisory services such as property valuation and real 

estate rating. 

New business: domestic and foreign 

48 % 

Portfolio structure: domestic and foreign 

70 % 

Domestic 

Foreign 

52 % 

30 %

In the year under review, the business area further reinforced its real estate activities 

abroad, in line with the target portfolio. Here, the key focus was providing both Ger- 

man and internationally operating real estate companies with support in foreign mar- 

kets. The foreign entities also made a major contribution to the success of the business 

area, thanks to targeted regional market development. 

All in all, there was a perceptible market trend towards high-volume transactions 

involving international real estate funds. The Real Estate Business Area, for instance, 

concluded a transaction with a volume of EUR 230 million, involving a fund structured 

according to the capital investment act. This fund invests in the European and Ameri- 

can real estate markets on behalf of an institutional investor. This type of investment 

and financing structure is also enjoying increased demand. 

In addition to its core countries for international business (USA, Great Britain, France, 

Switzerland and Spain), financing activities were pursued for the first time in Sweden 

and Canada in the year under review. Scandinavia is also set to become a target market 

for sales activities. Moreover, as part of the Bank’s Eastern European strategy, the Real 

Estate Business Area will extend the scope of its business activities to include the EU 

accession countries, including the Hungarian subsidiary bank MKB. 

In order to meet our customers’ diverse needs, the business area, in tandem with the 

Global Markets Division, is turning increasingly toward innovative financing products. 

These include hedging instruments to secure exchange and interest rates, structures 

incorporating mezzanine elements, or B-notes serving as participations in real estate 

financing tranches secured by lower-ranking collateral. In 2004, the business area was 

involved in B-note transactions both at the New York foreign entity and in Munich. 

Thus, as a member of an international banking syndicate, BayernLB was involved in 

funding the acquisition of a large well-known property in New York with a total trans- 

action volume of more than USD 1 billion. This was achieved by interlinking senior and 

junior tranches with varying structures. 

Residential real estate financing 

In residential real estate, sentiment in 2004 was clouded by the weak overall economic 

trend. In financing to completion, pricing became the main factor in cut-throat competi- 

tion, while the overall financing volume was lower. The unpredictability of legislation 

governing tax and rent continues to represent an obstacle to capital investment. 

Debate surrounding the abolition of the home ownership subsidy, on the other hand, 

did not have any perceptible impact on demand. All in all, the Real Estate Business Area 

achieved its goals in residential real estate financing. 


41 

} International real 

estate activities 

reinforced 

} Tax and rent 

legislation thwarts 

investment


Activities of the Bank’s subsidiaries 

LBImmowert, a real estate valuation subsidiary owned jointly with Helaba, enjoyed pos- 

itive development in its second year of existence, and continued on its course of mod- 

erate growth. For the first time, the subsidiary reported considerable demand for its 

services from companies outside the BayernLB and Helaba groups. 

REAL I.S. AG is an investment company which is wholly owned by BayernLB. In collabo- 

ration with partner companies, it offers a comprehensive range of products including 

well-established funds, as well as managing international institutional real estate port- 

folios. In 2004, equity trading was almost doubled in comparison to the previous year, 

reaching a volume of EUR 307 million. In 2004, REAL I.S. was once again able to offer 

attractive products to savings banks and security-oriented institutional investors for 

their own investment activities, namely with its BGV Bayerische Grundvermögen II 

product, as well as LB ImmoInvest’s special funds (REAL I.S.-Beteiligungsgesellschaft). 

Property development and real estate value creation (real estate management consult- 

ing) for savings banks and municipalities complete the range of services offered by the 

company. Amongst other initiatives, REAL I.S.’s real estate benchmarking projects for 

savings banks (involving 70 savings banks) and municipalities (69 participants) created 

a unique data basis covering the whole of Germany. 

In 2005, REAL I.S. will continue to expand its separate product range targeting the Spar- 

kassen-Finanzgruppe, and expects its placement volume to increase significantly. 

Outlook 

In 2005, the Real Estate Business Area anticipates a slight rebound of the domestic real 

estate market, while steady development is expected for the foreign real estate mar- 

kets. Key focuses for 2005 include the use of innovative financing products, securing 

arranger positions for large financing transactions, as well as further reinforcement of 

cross-selling activities. The Real Estate Business Area thus considers real estate portfolio 

financing an attractive market segment in which it can display to advantage its advisory 

and financing expertise. Financing products enjoy increasing demand, for example, 

from large national housing construction companies, while large international inves- 

tors are showing ever more interest in residential property portfolios within Germany. 

In 2005, the business area also intends to reinforce cooperation with the savings banks 

in the domain of real estate. The cultivation of specific target customers will represent 

a joint focus, while the continuing expansion of advisory services throughout the 

entire range of the Bank’s services will represent another key priority.


The Global Markets Business Area bundles all primary and secondary money and capi- 

tal market products: bonds, equities, money market instruments, foreign exchange 

and energy and commodity derivatives. Global business activity is focused on Europe, 

North America and Asia. In these markets, Global Markets advises and supports its tar- 

get customers, which include savings banks, insurers, capital investment companies, 

multinationals and corporate customers, as well as real estate customers. 

Business development 

Global Markets posted a satisfying result for 2004. The business area achieved this 

largely by accurately predicting the trajectory of interest rates, exploiting the credit 

margin trend, successfully managing the Bank’s position and marketing high-margin 

products. 

By developing new structured products, BayernLB was once again able to offer its 

investors and customers high-yield solutions tailored to each particular risk profile. 

The Bank reported high demand in the areas of financial engineering, structured share 

issues for retail business and customer solutions for bond issues denominated in euro. 

BayernLB’s strong reputation as a competent partner proved a key factor in the success 

of client-driven business, with its twin offer of market-oriented prices combined with 

high quality advice. BayernLB’s partners, the savings banks, were also able to use this 

competence to their benefit for their own marketing activities. 

Cross-selling potential was exploited to the full with multinational and SME customers. 

This was also a result of the corporate franchise project carried out in tandem with the 

Corporates Business Area. 

In terms of organisation, the year continued to be marked by the restructuring of the 

business area and the imminent withdrawal of the Gewährträgerhaftung (guarantee 

obligation). London and Paris were fully integrated into Head Office structures, while 

harmonisation of the technical platforms is right on target. The Toronto, Singapore 

and Tokyo locations and the subsidiary Asia Pacific Ltd. were closed as planned. In 

2004, BayernLB carried out a series of funding measures and steps aimed at preserving 

liquidity. Thanks to these, the Bank will be in a strong position once the guarantee 

obligation has ceased to apply for new liabilities. 

Treasury 

In order to guard against future liquidity risks and increased funding costs after the 

withdrawal of the guarantee obligation and Anstaltslast (maintenance obligation), a 

portfolio strategy was implemented for long-term funds on the liabilities side. In this 

way, the Bank is ensuring that once the guarantee mechanisms no longer apply from 

July 2005, it will still have access to sufficient liquidity for planned business activities at 

all times. 


43 

} Sparkassen-Finanzgruppe 

places 

tailored structured 

products successfully


} BayernLB prepared 

for introduction 

of new pfandbrief 

legislation 

Demand for long-term investment products remained buoyant among domestic and 

international investors. This gave the Bank access to funding on favourable terms. As in 

the previous year, BayernLB continued to offer attractive structured interest rate and 

equity products alongside tap issues. 

In order to guarantee a funding source independent of issuer rating, the Bank set up 

the technical parameters necessary to issue a greater number of AAA covered bonds 

(pfandbriefe) following the introduction of the new pfandbrief legislation, expected to 

come into force in mid-2005. This means that the requirements of the new legislation, 

which are expected to be more stringent, are already being met today through the suc- 

cessful implementation of new software for managing and controlling the register of 

cover. 

New issues 

Against the backdrop of a generally favourable market environment, BayernLB was 

one of the leading tap issuers on the German and international capital markets in 

2004, as in earlier years. New issues totalling over EUR 16 billion were placed under 

the international issue programme. The 184 individual transactions were spread over 

ten currencies. Besides the euro (11 billion in 2004), BayernLB once again conducted 

transactions in other major currencies including the US dollar, Japanese yen, Swiss 

franc and British pound. Bonds denominated in Canadian and Australian dollars, 

Swedish krona, Norwegian krone and Hong Kong dollars represented another attrac- 

tive alternative for investors. 

2004 new issues volume by currency (in percent) 

Other 1.5 % 

CAD 2.0 % 

JPY 2.2 % 

CHF 2.4 % 

GBP 10.3 % 

USD 25.1 % 

EUR 56.6 %

In January, the Bank started out in the jumbo benchmark bonds segment, issuing a 

ten-year EUR 1.5 billion bond. This was followed by a seven-year issue with a total vol- 

ume of EUR 1 billion in May. Both transactions were underwritten by an international 

banking syndicate and placed in domestic and foreign markets. BayernLB increased 

one of its outstanding jumbo pfandbriefe by EUR 250 million. The Bank was also active 

in the foreign currency markets, issuing a number of jumbo bonds. These included a 

seven-year CHF 500 million fixed-rate bond and a three-year “kangaroo bond” with a 

total volume of AUD 325 million in the Australian domestic market. The Bank was once 

again active in the Japanese domestic market, issuing a Uridashi bond totalling AUD 

414 million. Two extendible notes were issued for the first time in the US market, rep- 

resenting a total volume of USD 3 billion. 

Short-term interest rate products, foreign exchange, interest rate, 

energy and commodity derivatives 

In the face of volatile markets with dramatic interest rate fluctuations in the long-term 

segment, coupled with erratic oil prices and the increased price of gold, our target cus- 

tomers were increasingly in need of comprehensive solutions. This demand was met by 

concepts designed to fulfil our customers’ need for high yields, while attending to 

financial, balance sheet structure and energy price management. 

The increased volatility of exchange rates boosted business activity considerably. In cli- 

ent-driven business, especially with corporate customers, there was increased demand 

for currency risk hedging. This was particularly the case for shorter durations. Eastern 

European currencies are becoming increasingly important. In interbank foreign 

exchange trading, BayernLB maintained a strong position in spite of changed market 

conditions. 

The shift from unsecured to secured short-term interest rate products was continued 

successfully in 2004. The use of collateral for short-term interest rate products was 

optimised by means of targeted collateral trading, special repo instruments (e.g. tri- 

party repos) and bank-wide participation in the general collateral pooling project. 

Corporate customers have a strong liquidity base. For this reason, they are increasingly 

turning to CP investment, and show particular interest in ABS CP-programmes. 

Equity markets 

Consolidation in the international equity markets was the hot topic of 2004. Following 

an encouraging start, growth expectations were brought to a sudden halt by turmoil in 

the commodity markets. Growth was curbed especially by the increase in oil prices. In 

the second half of the year, major fluctuations on the foreign exchange markets led 

investors to flee to the bond markets. It was only in mid-November that the markets 

began to rebound. 


} BayernLB also 

reports success in 

foreign currency 

markets 

} Collateral use 

optimised 

45


New issue business fell far short of estimates in 2004. Instead, the focus was on other 

types of capital market transaction. These included complex squeeze-outs (such as the 

squeeze-out of EON Bayern AG) and capital increases (such as those carried out by 

Lufthansa AG and SGL Carbon AG). Here, the Bank succeeded in positioning itself well. 

In order to strengthen our competitive position and to benefit European issuers and 

German private customers, a cooperative agreement was reached with five leading 

landesbanks. In addition to an additive underwriting commitment, the agreement 

facilitates the offer of European share issues to German private customers in line with 

European prospectus guidelines. 

Following their record performance in 2003, the success of structured retail products 

continued in 2004. BayernLB’s status as product developer for the Bavarian savings 

banks was further enhanced by 12 jumbo retail issues and various individual issues. 

The Bank showed real innovation in expanding the product range, from pure equities 

right up to interest rate and hybrid products. This trend is set to continue with the 

issue of a family of certificates in 2005. Customer demand for plain vanilla options 

showed healthy growth in 2004, with a concomitant increase in traded premium 

volumes. 

Retail issues 

Period from June 2002 

Name Date Volume (in EUR) Current coupon 

Golden-Goal-Bond June 2002 92,092,000 5.00 % 

Magic 10-Bond November 2002 150,000,000 10.00 % 1 

Catch-up-Bond March 2003 250,000,000 10.00 % 

Power Bond May 2003 53,541,000 9.00 % 

Catch-up-Bond w. Kick July 2003 200,000,000 15.00 % 2 

Oktoberfest-Bond November 2003 427,692,000 1.00 % 3 

smart-Bond March 2004 200,000,000 0.66 % 

Espresso-Bond May 2004 200,000,000 1.00 % 

smartXL June 2004 62,000,000 4.80 % 

Feuer & Flamme-Bond August 2004 50,000,000 8.00 % 

Genuss-Bond October 2004 50,000,000 3.00 % 4 

Sparfein-Bond November 2004 100,000,000 4.50 % 

Swiss Value-Bond December 2004 25,000,000 5 

Polar-Bond March 2005 150,000,000 6.00 % 

1 First determination date in third year of duration on 8 December 2004 

2 “Catch-up-function”: interest income lost in the first year (7 %) can be caught up in the second year 

(7 % + 8 % = 15 %) 

3 First determination date in second year of duration on 7 February 2005 

4 Minimum interest rate of 3 % upon matrity 

5 No current return

Bond market 

Issuers on the Euro capital market enjoyed a good year, ending with a boom in the 

fourth quarter, triggered by the weakness of the US dollar. The low interest rate 

policy favoured by the central banks had promoted a general surge of liquidity. 

Against the backdrop of a sometimes considerable scarcity of offers, this meant that 

spreads narrowed to historical lows. While burgeoning budget deficits resulted in 

unabated issuing activity from public-sector issuers, there was a 40 percent decrease in 

new corporate issues in comparison with 2003. The offer of corporate bonds shrank 

further due to diminished activity in the M&A sector, the existence of alternative 

sources of funding and measures aimed at consolidating or improving corporate rat- 

ing. Given the low nominal interest rate level, investors either looked to the BBB sector 

for yield opportunities, held, or turned increasingly toward durations of up to 30 years 

(corporates: 20 years). Corporate investors, on the other hand, exploited the capital 

market situation in order to buy back outstanding high-coupon bonds. 

BayernLB was lead manager for 40 customer issues in 2004. This allowed the Bank to 

both preserve and gain market share in public-sector issues as well as in the area of 

arranging and drawing under MTN and CP programmes. Considerable headway was 

made in expanding the pfandbrief / covered bond product at a national and interna- 

tional level. This included the issue and successful placement of the first covered bond 

from a Hungarian issuer – placed in HUF and EUR – as well as the first Bavarian savings 

bank pfandbrief (Stadtsparkasse München, with a volume of EUR 150 million), 

for which BayernLB was lead manager. 

Particularly worthy of note was EUROweek’s decision to award both first and second 

place in the category “Best sub-sovereign municipal bond – 2003” to BayernLB-man- 

aged issues: namely of a EUR 750 million 3 3 /4 percent treasury note by the Free State 

of Bavaria and a EUR 1 billion 4 1 /4 percent bond by the Province of Quebec under 

BayernLB’s lead management. 

BayernLB’s lead management of a EUR 1 billion 4 1 /8 percent bond with a duration 

from 2004 to 2009 for DaimlerChrysler represented another important milestone in 

2004 in terms of corporate bond issues. This placement was also completed success- 

fully. 

Business with asset backed securities (ABS) continued to be highly satisfactory for 

BayernLB in 2004. The Bank is currently sponsoring five asset backed commercial 

paper programmes (ABCPs) in Europe and the USA, whose activities include the pur- 

chase of receivables from customers. The programmes are funded on the capital mar- 

ket. At year-end, the Special Purpose Entities had a total of around of EUR 11.6 billion 

outstanding ABCPs. 

As one of the instigators of the true sale initiative (TSI) and one of the founding mem- 

bers of True Sale International GmbH, founded in May 2004, BayernLB, along with 12 

other banks, contributes significantly to the expansion of the securitisation market in 

Germany. The objective of the TSI is to create favourable conditions for true sale securi- 

tisation transactions. These conditions are already in place in other European countries 


47 

} BayernLB places 

first Hungarian- 

issued covered 

bond and first 

Bavarian savings 

bank pfandbrief 

} As founding 

member of TSI, 

BayernLB develops 

German securitisation 

market


and the USA. The first asset backed securities transaction in November 2004, certified 

by TSI GmbH, represented a major step for the German securitisation market. 

In client-driven securities and money market business, BayernLB was once again able 

to support the Bavarian savings banks in the area of own securities. Structured securi- 

ties products in particular enjoyed a pleasing pick-up in turnover. These products are 

becoming increasingly important for the derivatives business of the savings banks. 

In business with national investors, the focus shifted towards prime borrowers and 

yield curves. Underwriting competence in this segment was considerably enhanced, 

particularly in the areas of MTN drawings, euro investments and corporate bonds. 

Bayern-Invest KAG 

In 2004, there was a perceptible wait-and-see attitude in new special funds business, 

due not least to lack of regulatory clarity. With assets totalling around EUR 15 billion 

under its management, Bayern-Invest was more than capable of maintaining its posi- 

tion in a challenging market environment. This was the case for both special funds 

business and institutional asset management. 

The increased demands of institutional investors were met thanks to enhanced strate- 

gic focus in the areas of products and services. New mandates were gained in particu- 

lar through the asset allocation advisory service for savings banks and other institu- 

tional investors. 

The product range was expanded thanks to cooperation with external partners and 

enhancement of the Bank’s own core competencies in the field of asset management. 

In institutional asset management, Bayern-Invest expects the “Master-KAG” concept to 

capture two thirds of the overall special funds market in the medium term. With its 

“Service-KAG” solutions, Bayern-Invest has identified and reacted to changes in the 

market. The investment modernisation legislation which came into force on 1 January 

2004 incorporates a certain degree of facilitation and improvement for capital invest- 

ment companies when it comes to securing meaningful solutions for investors. 

Bayern LB International Fund Management S.A. 

Bayern LB International Fund Management S.A. is a Luxembourg-based capital invest- 

ment company that issues and manages publicly offered funds in line with UCITS 

guidelines. As at 31 December 2004, Bayern LB International Fund Management S.A. 

managed a total of 23 publicly offered funds under three structures, with assets total- 

ling EUR 828 million. During the calendar year, the volume of funds managed by the 

company rose by EUR 79 million (an increase of 11 %).

Outlook 

The objectives for 2005 are, firstly, a significant expansion of client-driven business, 

to be achieved by exploiting existing customer potential, and, secondly, the acquisition 

of new customers and mandates. The focus will be on structured products, interest 

rate, energy and commodity derivatives and credit derivatives, as well as the imple- 

mentation of capital measures in primary market business. 

BayernLB will tackle strong competition in the area of client-driven business by launch- 

ing new products onto the market (e.g. structured equity products), adopting the 

advisory approaches developed during 2004 (e.g. value research products) and imple- 

menting new funding concepts (e.g. ABS). The Bank will continue to exploit cross-sell- 

ing potential in a consistent manner, namely by transferring its successful franchise 

approach to other customer groups such as savings banks, institutional investors and 

real estate customers. 

The market development strategies resolved for Asia and North America due to the 

transformation of the Global Markets Business Area will continue to be pursued con- 

sistently in 2005, as will the harmonisation of technical platforms. 

Global Markets Asia will focus more strongly on customers in this region, while accom- 

panying its customers in their expansion on the Chinese market. In order to offset 

earnings shortfalls following the withdrawal of the guarantee obligation for new liabil- 

ities, Global Markets will expand client-driven business (e.g. ABS) in North America. 


49


Savings Banks and Bavarian Market 

One of the integral strategy principles of BayernLB’s new business model is an even 

stronger positioning as a network bank within the Sparkassen-Finanzgruppe Bayern. 

The Savings Banks and Bavarian Market Business Area drives and coordinates collabo- 

ration within this cooperative framework throughout the Group. The business area 

serves and supports the Bavarian savings banks in their various roles as customers, 

sales partners and service partners. It also works in harmony with the Bavarian savings 

banks to serve and support their customers in turn. Further tasks include jointly advis- 

ing and supporting the Bavarian local governments customer group. The business area 

assumes a sales function for all business with Bavarian SME customers. From 2005, 

retail business and card business are to be added to this scope of responsibility. In 

2004, cooperation with the Bavarian savings banks was optimised as planned, with a 

view to safeguarding and further developing the market and brand positions of the 

Sparkassen-Finanzgruppe Bayern. Strengthening promising product segments and 

customer groups has been a prime objective of the business area in the past, and 

continues to be a top priority today, as does the provision of a comprehensive range 

of national and international financial services to the benefit of the Bavarian economy, 

municipalities and private customers. In addition to the framework agreement between 

the Association of Bavarian Savings Banks (SVB) and BayernLB, a series of individual 

bilateral agreements with the Bavarian savings banks form the basis of close and 

binding cooperation. 

Optimisation of cooperation within the Sparkassen-Finanzgruppe 

The development of strategies, services and processes conjointly with specialists from 

the Bavarian savings banks and the Association of Bavarian Savings Banks (SVB) consti- 

tutes an important means of optimising cooperation within the Sparkassen-Finanz- 

gruppe Bayern. This development is carried out in the Bank’s various centres of compe- 

tence dedicated to municipal business, international business, corporate finance, real 

estate, investment business and credit risk management. In line with the Bank’s expec- 

tations, solutions developed jointly in this way have indeed considerably enhanced 

quality, swiftness and customer acceptance. The asset allocation coordination centre 

has also proved to be of great value. Here, knowledge and practical experience from 

the Sparkassen-Finanzgruppe Bayern is pooled, while existing concepts and technolo- 

gies are bundled together and refined. 

Cooperative market development is the principal focus of the business area. In this 

process, market potential in investment, municipal, real estate and corporate customer 

business (including international business) is identified and exploited jointly with the 

Bavarian savings banks. This systematic cooperative market development is already 

beginning to bear fruit. Active exploitation of potential is to be further stepped up by 

involvement with the “Verkaufsoffensive Bayern” sales initiative launched by the Asso- 

ciation of Bavarian Savings Banks. This move is planned for 2005.

Overview of overall project 

Centres of competence 

Asset allocation 

coordination centre 

Pool knowledge 

Avoid duplication 

of work 

Promote joint 

solutions 

International business 

Investment business 

Real estate business 

Corporate finance 

Numicipal business 

Credit risk management 

Credit risk trading 

“Optimisation of cooperation“ 

Cooperative market 

development 

Enhance earnings 

Increase customer 

loyalty 

Gain new 

customers 

Corporate customers 

Real estate customers 

Local government 

Investment 

management 

Credit risk 

management / 

Credit risk trading 

Improve risk 

identification 

Reduce risks 

Avoid burdens on 

earnings 


New issues 

Secure funding on 

favourable terms 

Boost competitiveness 

Expand market 

position 

51


} BayernLB helps 

savings banks 

to control credit 

risks with 

“S-Bayern-Basket-I” 

transaction 

} Cooperation in 


intensified 

In 2004, BayernLB positioned itself as risk clearing house for the Bavarian savings 

banks for the first time. Thus, in the context of a transaction called “S-Bayern-Basket I”, 

the individual credit risks of the Bavarian savings banks involved were transferred to 

a Special Purpose Vehicle by means of a credit default swap (CDS). There, they were 

pooled and then sold back to these savings banks via the issue of a credit linked note 

(CLN). BayernLB acted as arranger and administrator for this deal. An “S-Basket” trans- 

action to be carried out at national level is currently in the pipeline. Savings banks can 

use products of this kind to control risks and discharge economic capital, in the con- 

text of sound portfolio management. This creates enhanced opportunities for SME 

financing that is not suitable for trading on the capital markets. 

The withdrawal of the state guarantees in July 2005 will increase the price of uncov- 

ered funding for public-sector credit institutions. For this reason, BayernLB, in collabo- 

ration with the Association of Bavarian Savings Banks and the Bavarian savings banks 

themselves, is currently developing models dedicated to new issue business. These 

models involve using covering assets from the balance sheets of the savings banks in 

order to exploit favourable funding options. This is expected to generate considerable 

value added for the Sparkassen-Finanzgruppe Bayern. Some of these models envisage 

the transfer of covering assets from Bavarian savings banks to BayernLB’s registers of 

cover. BayernLB then issues covered bonds (pfandbriefe) based on this cover, and can 

thus transfer the liquidity generated to the Bavarian savings banks as required. 

Business development 

Performance in 2004 was characterised by even closer cooperation within the Spar- 

kassen-Finanzgruppe Bayern. Bavarian savings banks and their customers take advan- 

tage of virtually all of BayernLB’s broad range of products and services. A pleasing 

increase in cooperation is evident in all of the Bank’s core businesses. 

Portfolios in the savings banks’ proprietary securities trading were up slightly, despite 

an unfavourable investment environment. Significant portfolio increases were achieved 

in structured products and equity investments, thanks to the exploitation of diversifica- 

tion opportunities and alternative investments. 

In securities business with customers of the Bavarian savings banks, BayernLB’s private 

asset management activities developed particularly well. Furthermore, in collaboration 

with the centre of competence for asset management, two new price information sys- 

tems were selected to bolster Sales Support, while increased usage of a portfolio man- 

agement system was promoted. 

In corporate customer and real estate business, a strategy coordinated with the Bavar- 

ian savings banks helped to increase transparency and successfully implement coop- 

erative market development. In the corporate customer segment, demand from the 

Bavarian savings banks for BayernLB’s services as a syndicating partner picked up 

significantly from mid-2004. This segment was marked by both the general cyclical 

trend and the individual risk profiles of the Bank’s SME corporate customers. Requests 

for syndicated loan business from the Real Estate Business Area once again increased

significantly. This meant that interesting transactions could be concluded in residential 

real estate development and commercial property financing. 

The product range offered to Bavarian SME customers in the corporate finance seg- 

ment was further expanded. Innovative financing solutions and advisory services were 

designed to suit the needs of the Bank’s SME customers, and offered as product pack- 

ages matching the life cycle of the particular company, for example combined with tra- 

ditional financial products. The range of existing equity and quasi-equity products was 

enhanced by the addition of the “Bayern Fonds Mezzaninekapital”, a fund placed by 

the Sparkassen-Finanzgruppe Bayern with a total volume of EUR 100 million. As anchor 

investor, BayernLB holds 40 percent of the fund. This represents a further financing 

alternative for Bavarian SMEs in particular. 

In state-subsidised business, BayernLB acts as an advisor and transmits loans to Bavarian 

savings banks. The Sparkassen-Finanzgruppe Bayern has the biggest share of the mar- 

ket for programmes set up by LfA Förderbank Bayern, the Bavarian Development Insti- 

tute. Alongside traditional programme loans, BayernLB has offered the Bavarian sav- 

ings banks global loans from the LfA Förderbank Bayern since 2004. In this way, funding 

advantages gleaned are passed on to SME customers. 

With a view to enhancing the market position of the Sparkassen-Finanzgruppe Bayern 

in the growth market of international business, the Sparkassen-Finanzgruppe has devel- 

oped a strategy for international business with corporate customers. SME customers 

can thus choose from a comprehensive range of products in international business. 

Bavarian local governments are supported with innovative, individually tailored financ- 

ing alternatives. The Sparkassen-Finanzgruppe Bayern’s share of the market for munici- 

pal lendings could be further expanded, also taking the company Bayerngrund Grund- 

stücksbeschaffungs- und -erschließungs-GmbH into consideration. A municipal real 

estate benchmarking project for the Sparkassen-Finanzgruppe Bayern was carried out 

successfully in collaboration with the Bank’s subsidiary Real I.S. AG in 2004. Coopera- 

tion with Real I.S. AG also provides an opportunity to offer customised models for 

municipal building construction in the context of Public Private Partnerships. 

Outlook 

The first experiences and results of the centres of competence, as well as the coopera- 

tive market development carried out in 2004, form an excellent starting point for fur- 

ther enhancement of cooperation within the Sparkassen-Finanzgruppe Bayern. The 

way is thus paved for even more successful outcomes for all those involved. Based on 

the measures taken in connection with cooperative market development, the business 

volume will develop positively in our joint activities with the savings banks. 


53 

} Bavarian local 

governments 

offered individual 

support with 

innovative products


} LBS Bayern 

celebrates its 75 th 

anniversary 

} Investor confidence 

dented by 

deterioration of 

housing policy 

LBS Bayern and Landesbodenkreditanstalt 

LBS Bayern 

In the year of its 75 th anniversary, LBS Bayerische Landesbausparkasse, the Bank’s Home 

Loan Division, achieved the third best volume of new business in its history. With 

223,406 contracts totalling EUR 5.65 billion, the sales result was actually significantly 

below that of the peak year 2003 (by 27.2 percent in terms of contract amounts). This 

result was considerably influenced by the long-running debate over the abolition of 

building-saving premiums and the home ownership subsidy. However, it significantly 

exceeded the long-term average, amounting to EUR 4.5 billion achieved between 1993 

and 2002, by more than EUR 1 billion. 

Broad swathes of the population see building saving primarily as a secure and flexible 

investment and financing instrument. The building saving trend thus tends to be sta- 

ble. Building saving products offer clear advantages, including the fact that building 

saving loans are unaffected by fluctuations in the capital market, the benefit of a 

guaranteed interest rate over the entire duration, the freedom the saver enjoys during 

the savings phase, and the possibility of unscheduled repayment during the term of 

the loan. Such products are particularly attractive in the context of the current market 

environment. Building saving has a more positive image than other forms of financial 

investment. Today, security is the most crucial investment criterion. In the 2004 invest- 

ment barometer conducted by Emnid for the German Savings Bank Association (DSGV), 

97 percent of German citizens assert that security is either “very important” or “impor- 

tant” for their investment decisions. Moreover, building saving is a tried and trusted 

way of preparing for and backing up retirement provisions with property. Building 

saving fees earmarked for financing accounted for 75 percent of LBS’s new business. 

Since 1948, LBS Bayern has taken on around 4.5 million building saving contracts with 

a total volume of more than EUR 60 billion. These contracts have helped to finance 

some 1.5 million homes predominantly detached and semidetached. From monetary 

reform in 1948 to the present day, 7.4 million building saving contracts have been 

arranged, representing a total volume of EUR 120 billion. Some 1.5 million savers 

currently hold more than two million building saving contracts with LBS: Given this 

customer base, in addition to new business, LBS is market leader in Bavaria as “the 

savings banks’ building and loan association”. 

Slump in housing construction 

In line with the overall market trend, LBS’s financing business is at a relatively low level. 

There was no respite from the slump in housing construction, as continuing economic 

stagnation and high unemployment levels curbed the propensity to invest. The gradual 

deterioration of housing policy in general, as well as the never-ending debate over the 

curtailing or abolition of the home ownership subsidy meant that the tax situation for 

house construction became more and more unpredictable. This leads to a climate of

uncertainty and thus faltering investor confidence. For this reason, demand remains 

meagre – in spite of favourable investment conditions due to historically low interest 

rates and reasonable construction and purchase prices. 

Stable earnings situation 

LBS reports a consistent upside profit trend in its 2004 profit and loss statement. Net 

interest income was up EUR 3.2 million compared with the previous year. This was 

primarily due to the fact that the decline in building savings loans due to low interest 

rates was more than offset by the expansion of financial investments and non-collec- 

tive credit business. Administrative costs were further reduced. Bottom-line operating 

profit before risk provisions was EUR 72.3 million (EUR +4.9 million). This clearly illus- 

trates LBS’s earning power, given the pressure on earnings caused by low capital mar- 

ket rates. 

Outlook 

Since motives for building saving tend to be long lasting, LBS expects that in the 

current capital market environment and with an unchanged state housing subsidy, 

building saving business in 2005 will level off above the long-term average. LBS also 

expects a stable operating profit thanks to its market-oriented products and strict cost 

management. 

Details on LBS’s business performance can be found in its annual report or online 

(www.lbs-bayern.de). 

Stabilisation at high level 

EUR thousand 

9,000,000 

8,000,000 

7,000,000 

6,000,000 

5,000,000 

4,000,000 

3,000,000 

2,000,000 

1,000,000 

0 

4,145,952 

4,175,691 

4,465,920 

6,056,279 

4,290,991 

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 

Average gross new business 1993–2002: EUR 4,555,634,000 

Source: Press briefing on annual results – 8 December 2004 

4,472,938 

4,848,501 

4,023,892 

4,350,980 

4,725,197 

7,761,938 

5,650,000 


55


} Modernisation of 

rented apartments 

increasingly 

important 


Bayerische Landesbodenkreditanstalt (Labo) operates in the area of housing as part of 

its public-sector mandate as development bank of the Free State of Bavaria. This sphere 

of activity includes the construction, modernisation and purchase of homes and rooms 

in homes for the elderly, as well as infrastructural measures such as promoting urban 

planning. Labo helped the Free State of Thuringia in the area of construction in the 

nineties, and manages the subsidies then granted in this State. 

State-subsidised activities in 2004 

Labo’s fiduciary operations are supported by federal funds and funds from the Free 

State of Bavaria. These activities comprise the financing of rented apartments, rooms 

in homes for the elderly and also owner-occupied homes. Labo’s proprietary business 

consists of programmes based on development guidelines issued by the Free State of 

Bavaria. As part of these programmes, low-interest funds from the Kreditanstalt für 

Wiederaufbau (KfW) receive a further interest subsidy from Labo’s own funds and 

funds from the Free State of Bavaria. Focal points of Labo’s proprietary business include 

the modernisation of rented apartments as part of the Bavarian modernisation pro- 

gramme, owner-occupied homes and the promotion of sport facilities. 

During 2004, Labo’s new business was marked by the challenging economic environ- 

ment. In contrast to previous years, it thus proved impossible to use proprietary busi- 

ness in order to compensate for the reduction of government subsidies in the fiduciary 

operations sector, a move perceptible in all segments. In the KfW-funded programmes 

for the construction and purchase of owner-occupied homes, the loan volume in Labo’s 

proprietary business fell by a third in comparison to the previous year. This was prima- 

rily due to the general economic situation and the restraint of potential investors. 

Contrary to the general trend, encouraging growth was achieved compared to 2003 in 

fiduciary operations funding the construction of rented apartments, as well as in the 

modernisation of these apartments in the context of the 2004 Bavarian modernisation 

programme. This area, namely the modernisation of rented apartments, represents 

an important future business area for Labo. If they are to remain viable in the future, 

older apartments have to be adapted to meet today’s requirements with regard to 

ecology and comfort. This poses a great challenge for housing companies. For the 

construction industry, on the other hand, it represents a chance to compensate for 

the decline in new business. 

Labo’s fiduciary operations helped finance a total of 4,116 owner-occupied homes and 

rented apartments as well as 1,541 rooms in homes for the elderly via loans worth 

EUR 205.15 million. In Labo’s proprietary state-subsidised business, loans in the amount 

of EUR 301.53 million were allocated for the construction and purchase of 4,592 homes 

while EUR 114.17 million in loans went to the modernisation of another 5,189 homes. 

A credit total of EUR 23.28 million was approved under the special sports facility 

funding programme. Compared with the previous year, this represents a decrease of 

around 19 percent in lending in fiduciary business and around 30 percent in proprie- 

tary business.

Labo’s loan programmes in 2004 

Creation and acquisition 

of residential space: 

Modernisation and 

reconstruction of 

residential space: 

EUR 193.8 million 

EUR 427 million Sports facilities funding 


Outlook 

In 2005, Labo will continue its furtherance of residential space, as in 2004, through 

trust loans and through its own interest-subsidised funds. It is encouraging that the 

trust loan quotas were increased in the Free State of Bavaria’s 2005 budget. The suc- 

cessful Bavarian modernisation programme for rented apartments is also certain to 

continue at the previous year’s level. 

The construction of rented apartments in conurbations with the aim of creating afford- 

able residential space remains a key focus for 2005, as does the modernisation of rented 

apartments in the context of the Bavarian modernisation programme. 

In 2005, the new Bavarian interest subsidy programme will be used to fund owner- 

occupied residential property in proprietary business. This programme comprises two 

previous programmes for the construction and purchase of existing residential space. 

It should also help to increase the German residential property ratio, which is lower 

than that of its European neighbours. If the overall economic situation improves, as 

hoped, the result for state-subsidised business in owner-occupied homes will also 

recover once more. 

Details on Labo’s business performance can be found in Landesbodenkreditanstalt’s 

report on its state-subsidised business or online (www.labo-bayern.de). 


57


Group retail activities 

In the BayernLB Group, retail activities play an important role in diversifying risks and 

generating solid earnings. Of key importance here are the dependent institutions LBS 

Bayern and Landesbodenkreditanstalt, as well as the subsidiaries of strategic signif- 

icance to the Group. The Group’s objective is to continue its targeted expansion of 

retail activities both at home and abroad, working in harmony with and supplement- 

ing the activities of the members of the Sparkassen-Finanzgruppe Bayern. 

The following segment report by customer group, drawn up as per 31.12.2004, supple- 

ments the segment report published in the Report on the Bank and the Group: 

EUR million Retail customers 

Corporate customers 

Financial institutions 

and sovereigns 

Financial markets 

Other / 

consolidation 

Net interest income 736 727 185 429 – 46 2,030 

Net commission 

income 126 162 59 17 – 25 340 

Administrative 

expenses – 357 – 268 – 108 – 317 – 158 – 1,208 

Result from financial 

transaction 13 2 6 109 – 4 126 

Other operating 

result 9 1 0 – 1 213 223 

Result before risk 

provisioning/ 

revaluation result 528 624 142 237 – 20 1,511 

Risk provisions/ 

revaluation result – 174 – 18 10 – 34 – 344 – 561 

Operating result 354 606 152 203 – 364 950 

Cost-income ratio (%) 40.4 30.0 43.1 57.1 – 44.4 

BayernLB Group

The retail customer segment comprises all of BayernLB’s activities with private cus- 

tomers, credit card business, as well as LBS Bayern and Landesbodenkreditanstalt. 

This segment also includes SME corporate customers of the subsidiaries of strategic 

significance to the Group, with a maximum annual sales volume of EUR 50 million. 

BayernLB’s retail customer business contributes EUR 354 million to the operating 

result, representing a share of 37 percent. Alongside the corporate customer sector, 

this segment is thus one of the cornerstones of the Group. 

The corporate customer segment encompasses savings bank syndicate business 

as well as business with large corporate customers of the consolidated subsidiaries, 

sharing these areas with BayernLB’s corporate and commercial real estate customer 

business. With a contribution of EUR 606 million to the operating result, the corporate 

customer segment dominates the segment report by customer group. 

The financial institutions and sovereigns segment comprises the Group’s dealings 

with savings banks and financial institutions, as well as government and municipal 

business. 

The financial markets segment encompasses BayernLB’s operations in the Global 

Markets Business Area, the trading business of the consolidated subsidiaries and the 

contribution from maturity transformation. 

The other / consolidation segment bundles all activities not directly allocable to a cus- 

tomer segment, as well as their contributions to the operating result. It also includes 

consolidation effects. The distinctly negative operating result is largely due to value 

adjustments and assumptions of losses in participations that cannot be allocated to 

a particular segment. 

Contributions to the retail segment’s operating result 

Other 4 % 

LB(Swiss) 2 % 

LBLux 2 % 

Credit cards 

3 % 

Real Estate BA 

10 % 

LBS 20 % 

Labo 11 % 

DKB 28 % 

MKB 20 % 


} Retail customer 

segment 

} Corporate customer 

segment 

} Financial 

institutions 


segment 

59 

} Financial markets 

segment


In 2004, LBS Bayern succeeded in maintaining market leadership, in close cooperation 

with the Bavarian saving banks. During the year under review, Landesbodenkreditan- 

stalt, in line with the tasks under its remit, continued to promote residential construc- 

tion and urban development in Bavaria through trust loans and subsidies as well inter- 

est-subsidised programmes funded by state monies and LBS’s own funds. Proprietary 

business accounted for 70 percent of the overall result for state-subsidised business, 

thus remaining virtually unchanged year on year. 

Deutsche Kreditbank Aktiengesellschaft (DKB), an internet-based retail bank, focuses 

on selected target customer groups as part of its business model. In the year under 

review, the core focus was on expansion of the bank’s private customer business. The 

number of customers was significantly increased in 2004. In addition to gaining new 

customers, also targeting private customers in granular credit business, customer 

retention represented another key priority of the bank’s activities. Streamlined, rapid 

workflows incorporating quality assurance consolidated DKB’s position as an internet- 

based retail bank. For the coming years, the bank intends to further increase contribu- 

tion margins by exploiting savings potential and expanding the customer base by 

means of innovative customer acquisition initiatives. 

Magyar Külkereskedelmi Bank RT. (Hungarian Foreign Trade Bank / MKB) succeeded 

in significantly increasing its market share of private customer business through the 

acquisition of Konzumbank at the end of 2003, and incorporation of the acquired com- 

pany in July 2004. This allowed MKB to boost its retail base. The network of branches 

in Hungary was expanded by 22 further foreign entities, reaching a new total of 

52 branches. Over 35,000 new customers were gained. MKB’s strategic objective for 

2005 is to exploit the earnings potential of existing customer relationships, as well as 

acquiring new customers. It aims to considerably expand its market position vis-à-vis 

SMEs. MKB focuses on customers and sectors that require tailored solutions and a 

broad product range due to their economic orientation, thus opening up potential 

for cross-selling activities in particular – also at Group level. 

In residential real estate financing (excluding property developers) under the Real 

Estate Business Area, the bank succeeded in meeting its targets for 2004 in spite of a 

generally difficult environment. For 2005, the business area anticipates slight recovery 

of the real estate markets, and a concomitant upward trend in the financing-to-com- 

pletion market. 

BayernLB’s credit card business has been making solid contributions to the Bank’s net 

commission income for many years. In 2004, the Bank continued to build on its strong 

position. Thus, the average number of credit cards issued at the end of 2004 stood 

at 830,000 units (representing an increase of 3.5 percent against 2003), while 2004’s 

transaction volume amounted to EUR 4.17 billion. BayernLB’s share of the German 

credit card market, measured in terms of transaction volume, is thus 12.1 percent.

The target retail customers of LB(Swiss) and LBLux are HNW private customers. These 

banks focus on asset management, investment consulting and fund business. LB(Swiss) 

and LBLux complement the business model of the Bavarian savings banks perfectly. 

Landesbank Saar (SaarLB) generates around 10 percent of its revenues with retail cus- 

tomers. This is largely attributable to its private residential construction financing busi- 

ness over internet platforms, which has been proving successful for many years, as 

well as to SaarLB’s subsidiary, Landesbausparkasse Saarbrücken. SaarLB’s retail activities 

are supplemented by services in investment consulting, including the active marketing 

of BayernLB’s products (such as structured bonds and credit cards), also in tandem with 

the Saarland savings banks. 


61


Support operations activities 

Corporate Center 

The Corporate Center bundles together all of the central support units of BayernLB. In 

this way, it nurtures a central, consistent strategy for the Bank, and manages the areas 

under its remit at a global level. 

The divisions of the Corporate Center serve internal customers such as the Board of 

Management, the business areas, support operations, and subsidiaries of BayernLB, 

as well as the Bank’s owners and outside parties such as auditors, authorities, rating 

agencies and members of the press / public. 

Participations 

In the participations business, as in all of BayernLB’s other business activities, the 

objective is to generate adequate long-term profitability after risk. BayernLB’s partici- 

pations portfolio is subdivided into strategic, financial and other participations (for 

more information on significant changes to the participations portfolio during 2004, 

see Section 4: Report on the Bank and the Group). 

Participations in German and foreign banks comprise a major component of BayernLB’s 

strategic participations portfolio. These help the Bank to both broaden customer poten- 

tial and expand market share. The Bank also has participations in the real estate and 

housing construction sector. Here, BayernLB has a tradition of high-level expertise in 

financing, and can offer a broad range of products. Rounding off our range of strategic 

participations are various service companies specialising in securities settlement and 

computer services. The Bank’s financial holdings consist of investments in other com- 

panies. These are acquired with the expectation that the companies will significantly 

increase in value over the coming years. 

The following are the main participations that are of strategic significance to the 

Group. For many years, BayernLB has been active in its enlarged core European market 

through these companies. They are managed in part by the Bank (for the retail activi- 

ties of these companies, see “Group retail activities”, Section 3). 

Deutsche Kreditbank Aktiengesellschaft, Berlin (DKB) 

DKB has been wholly owned by BayernLB since 1 February 1995. 

As a retail bank operating within the BayernLB Group, DKB focuses on target customer 

groups hand-picked from the private, public-sector and corporate customer segments. 

Its business activities are centred on the new federal states, where the bank has an 

extremely high market share of public-sector customers.

One particularly salient feature of the 2004 financial year was the ever greater expan- 

sion of private customer business over the Internet. Remarkable growth rates were 

achieved in this sector. The number of customers was increased from 90,000 to approx- 

imately 150,000 over the course of the year. Process optimisation over the Internet 

played a significant role in the successful expansion of direct banking activities. 

Extension of the core public-sector customer segment was another key element in 

2004. Particularly within the scope of Public Private Partnerships, a number of different 

projects were carried out in tandem with the government (including sewage plants, 

health resorts, multipurpose halls, police stations, school facilities, sports and leisure 

pools and theatres). At the same time, the bank succeeded in acquiring substantial 

deposits from customers. Within this target customer segment, DKB also pressed 

ahead with gaining customers from the old federal states. 

As part of the consistent implementation of its corporate strategy, DKB reined in busi- 

ness activities in the corporate customer segment, concentrating instead on specific 

segments where it has a high level of expertise, such as agriculture. Targeted risk 

management was also rigorously applied during the year, using focused portfolio 

structuring. 

Deutsche Kreditbank Aktiengesellschaft, Berlin (DKB) 

Core business activities Retail bank with a geographical focus on the new federal 

states. Three market areas: Corporate Customers, Public- 

Sector Customers and Private Customers 

Size of participation BayernLB 100 percent 

Total assets EUR 28.3372 billion 

Equity EUR 1.2403 billion (after proposed distribution) 

Number of employees 1,258 (2004 average) 

Operating profit before and after 

risk provisions 

Net income for the year and profit 

available for distribution 

Number of customers 

31. 12. 2004 





160,435 

Key ratios • Cost-income ratio 27.7 percent 

• Return on equity 18.0 percent 

Strategic objectives for the 

participation in 2005 – 2006 

Further expansion of direct banking business with 

private customers over the Internet 


63


Landesbank Saar, Saarbrücken (SaarLB) 

Since 1 January 2002, BayernLB has held a stake of 75.1 percent in the partner’s capital 

of Landesbank Saar, Saarbrücken (SaarLB), with which it has been in ever-closer part- 

nership since 1993. 

With total assets of around EUR 17.5 billion and working in close conjunction with 

BayernLB, SaarLB conducts universal banking operations in its region with an emphasis 

on lending to the commercial sector. Together with the Saarland savings banks, it holds 

over 60 percent of all loans by regional institutions to non-banks and was able to 

consolidate its market position further during 2004. SaarLB’s regional remit comprises 

not only the core Saarland market, but also its neighbouring regions, and in particular 

those beyond national borders. In business with France, double-digit growth rates 

were again achieved during the past year. In addition to SaarLB’s cooperation with 

French partners, the representative office opened in Metz on 1 January 2004 was a 

major factor in this growth. 

SaarLB’s activities are supplemented by a medium-sized real estate business operating 

at both national and international level (underwriting business and direct business) 

and by a real estate retail business exploiting the sales opportunities offered by the 

Internet. 

SaarLB cultivates a close cooperative relationship with the Saarland savings banks. This 

cooperation was further affirmed by an agreement signed by the members of the Saar- 

land Savings Bank Organisation in the first half of 2004. Ongoing cooperation in the 

back office units is now complemented by reinforced joint development of market 

potential, particularly in the fields of corporate finance and international commercial 

business. Here, the entire Saarland savings bank sector benefits from BayernLB’s prod- 

uct range and international connections. 

In the context of a still unfavourable economic environment, SaarLB succeeded in 

increasing its credit volume further in both corporate and private segments. This is 

also reflected in the bank’s increased net interest and commission income. Costs rose 

only moderately, and in spite of a significantly lower trading income, it was possible to 

hold the cost-income ratio at the lower end of the target range, namely at 50 percent, 

while operating profit was again increased. This gave SaarLB the necessary scope to 

carry out appropriate risk provisioning and to build up reserves. The bank was thus 

able to increase its net income for the year by EUR 1 million to EUR 14 million. 

Another key focus, outside of business activities in the strict sense, was the continued 

orientation of asset / liability management towards the phasing out of the guarantee 

mechanisms in July 2005. One measure with this objective was the expansion of the 

investor base – achieved not least by issuing a commercial paper programme. Compre- 

hensive provisioning initiatives helped to offset the negative effects of the anticipated 

rise in funding costs. Another measure involved significantly improving the core capital 

base through retention of earnings and allocation of permanent silent capital contri- 

butions. This meant that, at year-end, SaarLB’s core capital ratio exceeded its long-term 

target of 7.5 percent.

Landesbank Saar, Saarbrücken (SaarLB) 

Core business activities SaarLB is a credit bank with a regional focus, and with 

an independent corporate identity within the BayernLB 

Group. Its main business focuses are corporate customer 

business in the region (including cross-border areas in 

France) based on many years of experience with most 

of its customers (market leader in Saarland) as well as 

a nationally oriented real estate financing business. It 

pursues a niche policy in its other business in the rest 

of Germany and abroad, via participation in syndicated 

financing. 

Size of participation BayernLB 75.1 percent; Sparkassen- und Giroverband Saar 

14.9 percent; Saarland 10.0 percent 


Equity EUR 504.3 million 

Number of employees 637 

Operating profit before and after risk 

provisions 




31. 12. 2004 



EUR 14 million each 

67,813 





The following are to be expanded: the bank’s market 

position in neighbouring areas of France, not least via 

the new Metz representative office set up in 2004, SME 

corporate customer business (principal bank function) 

in the local Saarland / western Palatinate / Eifel / Mosel / 

Rhine-Neckar market, and national and international real 

estate financing (retail business, serving high-calibre 

private investors). 

Focus on international business and trading / treasury, 

both as a supplement to the core areas and as a centre 

of competence for the Saarland savings banks. 


65


Magyar Külkereskedelmi Bank Rt. (MKB) – 

Hungarian Foreign Trade Bank, Budapest 

The Budapest-based Magyar Külkereskedelmi Bank Rt. (MKB) represents BayernLB’s 

bridgehead in Eastern Europe, and forms an integral part of the strategy for Eastern 

Europe approved by the BayernLB Board of Management at the end of 2004. Hungary’s 

accession to EU on 1 May 2004 constitutes an important milestone which will enhance 

the already close trade relations between Hungary and Germany. 

Business with corporate customers is one of the traditional strengths of MKB, which 

operates as a universal bank. Its customers include leading large Hungarian corporates 

as well as SMEs. MKB represents a reliable and competent partner for these firms. 

MKB is market leader in project financing in Hungary. The bank’s retail business has 

achieved considerable importance. The incorporation of Konzumbank, acquired at 

the end of 2003 and legally merged with MKB as per 1 July 2004, has allowed MKB to 

expand its market position further. As at year-end 2004, the bank reported a market 

share of 5.7 percent in deposits and 3.5 percent in loans in the private customer seg- 

ment. The current network of branches, comprising 52 retail outlets, is to be expanded 

to around 80 locations by 2007. With a view to reinforcing sales activities, MKB is con- 

tinuing to focus on close cooperation with strategic partners such as Allianz Hungária 

and T-Mobile. MKB offers private customers an exceptionally broad range of services. 

Unique, innovative products on the Hungarian market, such as home and consumer 

loans as well as bank cards denominated in euro, put the finishing touches to the 

range on offer. 

MKB and BayernLB operate in close cooperation on the market. Thus, for example, a 

Public Private Partnership funding transaction with great significance in Hungary was 

concluded, as was a debt issuance programme with a volume of EUR 1 billion for MKB. 

BayernLB acted as lead manager for the latter transaction. 

MKB is the partner of choice for German saving banks in Hungary. A cooperative agree- 

ment with the largest German savings banks (known as the “G25” group) supports this 

market strategy. Competent contact partners now staff a “Bayern Desk” dedicated to 

serving the Bavarian savings banks and their customers. 

In 2004, MKB’s total assets – including those stemming from the acquisition of Konzum- 

bank – increased by 27.7 percent to reach EUR 5.9353 billion. At EUR 74.0 million, pre- 

tax profit was 10.0 percent up on the previous year’s figure. 

For 2005, MKB anticipates increased demand in a number of areas, namely corporate 

credit in the areas of import and export, state Public Private Partnership projects and 

EU infrastructural funding. The principal objective for 2005, besides the acquisition of 

new retail customers, is increasing the profitability of existing customer relationships.

Magyar Külkereskedelmi Bank Rt. (MKB) – Hungarian Foreign Trade Bank, Budapest 

Core business activities MKB is a universal bank, operating in all areas of corporate 

and private customer business. It is the third-largest 

bank in Hungary. MKB further expanded its retail base by 

acquiring Konzumbank in 2003, a merger which was officially 

concluded in 2004. For the Group and the savings 

banks, MKB is a foothold and bridgehead in eastern 

Europe (German Desk). 

Size of participation BayernLB 89.61 percent; 

BAWAG, Vienna, 10.38 percent; 

independently held 0.01 percent 



Number of employees 1,482 


provisions 




31. 12. 2004 





Private customers: 149,094 

Corporate customers: 33,037 





Maintaining the strong market position in corporate 

customer business. Further improving market position 

in SME and private customer segments. 


67


Banque LB Lux S.A., Luxembourg 

Banque LBLux S.A. is a European bank with an international focus. It is held jointly by 

BayernLB (75 percent minus one share) and Helaba (25 percent plus one share). The 

bank concentrates on corporate banking in the Benelux region and international 

private banking. These areas are supported by the Trading / Treasury Division, which 

actively conducts proprietary trading. The bank is also an IT service provider serving, 

amongst other customers, a number of entities of the BayernLB Group. 

In corporate banking, the target customers are listed companies, large local companies 

with a minimum sales volume of EUR 250 million, as well as real estate customers, 

institutions and financial service providers in the Benelux region. Banque LBLux S.A. 

offers its customers tailored financing and trading products, supplementing this range 

with various products from its parent companies. In the 2004 financial year, the credit 

volume in Benelux business increased slightly. The key focal points of the period under 

review were reinforced acquisition activities in the Benelux region and the implemen- 

tation of the Minimum Requirements for the Credit Business of Credit Institutions 

(MaK). At the moment, the spotlight is on selective expansion of bilateral credit busi- 

ness, as well as cross-selling activities. 

In private banking, Banque LBLux S.A. actively advises and serves high net worth cus- 

tomers. It focuses on international customers in the medium to high net worth seg- 

ment. The bank places a key emphasis on the individuality and quality of its services, 

which are tailored to each particular customer profile. It offers products in the areas 

of investment consulting, portfolio management and financing / provisioning solu- 

tions. In 2004, the main priorities were expansion of the range of products and serv- 

ices, increasing the quality of service provided, and acquisition of new partners. To this 

end, extensive training measures were taken in the area of financial planning. Further- 

more, acquisition activities were increased, initiatives aimed at informing customers 

were intensified, the range of languages offered was enhanced and Internet content 

was completely reworked. In 2005, key focuses will include expansion of sales channels 

and activities with a view to enhancing service quality even further. This, in turn, is 

aimed at promoting customer loyalty as well as cultivating the acquisition of new 

customers. 

At Banque LBLux, risk control and monitoring is incorporated into the system em- 

ployed by both of its parent companies. Locally, it is carried out on the basis of fully 

coordinated, uniform procedures and methods.

Banque LB Lux S.A., Luxembourg 

Core business activities International financing / corporate customer business 

(with Group responsibility for the Benelux countries), 

trading / treasury, private banking and IT hub function 

for foreign entities of the BayernLB Group. 

Size of participation BayernLB 75 percent minus one share 

Helaba 25 percent plus one share 



Number of employees 191 


provisions 




(private banking) 

31. 12. 2004 

Assets under management 

(private banking) 

31. 12. 2004 



EUR 30.0 million, EUR 0 

(due to advance dividend on 29. 12. 2004) 

9,752 

EUR 4.7 billion 

Key ratios* • Cost-income ratio 35.5 percent 




* Applies to the operating profit as adjusted for special factors 

LBLux is pursuing a strategy of individual support, 

tailored to each customer profile: 

• in private banking, active and systematic targetcustomer 

oriented support 

• in corporate banking, focus on listed companies and 

large local companies in the Benelux region; relationship 

management 

• in trading, short-term markets / products requiring 

high levels of trading expertise; credit trading 


69


LB(Swiss) Privatbank AG, Zurich 

LB(Swiss) Privatbank AG concentrates primarily on international private banking. It is 

held jointly by BayernLB and Landesbank Hessen-Thüringen (Helaba), who own 50 per- 

cent of its capital each. Its core business activities are asset management, investment 

consulting and funds. Furthermore, it offers credit business services. 

The bank’s prime objective is to offer HNW private customers of the Sparkassen-Finanz- 

verbund an attractive range of private banking services, operating from a Swiss base. 

This is intended to reinforce the market position of the savings banks in the highly com- 

petitive segment of HNW private customers. 

Cooperation with BayernLB in the area of securities was further enhanced, particularly 

in the sale of structured products. 

Over the last year, further reduction of proprietary trading activities led to a slight drop 

in total assets. LB(Swiss) Privatbank AG’s key earnings ratios are roughly the same as 

the previous year’s figures. 

LB(Swiss) Privatbank AG pursues a conservative risk policy. Credit, currency and market 

price risks are measured in good time, and controlled within fixed parameters. 

Due to the general economic situation, LB(Swiss) Privatbank AG expects the 2005 result 

to be similar to that of the previous year, if there are no extraordinary influences there- 

upon.


Core business activities Private bank; takes advantage of operating environment 

in Swiss financial centre; asset management, investment 

consulting and fund business for HNW private clients and 

all associated banking business; credit and treasury business 

to a lesser extent. These core business activities are 

to be further pursued over the coming years in a consistent 

manner. 

Size of participation BayernLB 50 percent 

Helaba 50 percent 



Number of employees 80.1 (adjusted by part-time positions) 


provisions 




31. 12. 2004 

Assets under management 

31. 12. 2004 

Total customer volume 

31. 12. 2004 





6,014 


EUR 2.1996 billion 





Increased cooperation with savings banks, particularly 

in Bavaria, Hesse and Thuringia, reflecting the strategic 

focus on the German market. Credit business will continue 

to be operated either as an add-on to private banking 

or in highly profitable niches. 


71


Corporate governance 

While BayernLB is an unlisted, public-sector company, it nonetheless places great 

importance on effective and responsible corporate management and control. In 

November 2003, the bodies of BayernLB approved its own Corporate Governance Prin- 

ciples, which came into effect on 1 January 2004. The Corporate Governance Principles 

are largely based on the provisions of the German Corporate Governance Code drawn 

up by the federal government’s dedicated commission. They comprise those regula- 

tions governing corporate management and control which apply to BayernLB pursuant 

to binding or self-imposed stipulations. 

The bodies of BayernLB adhere to these principles in fulfilling their mandates, thus 

ensuring that the Bank is managed and controlled in a responsible manner that is 

geared towards value creation. The Board of Management, Board of Administration 

and General Meeting have established that there is nothing to indicate that the Bank 

did not comply with the Corporate Governance Principles during the 2004 financial 

year. 

BayernLB interprets Corporate Governance as a continuous process. For this reason, 

the Corporate Governance Principles are constantly checked and, if necessary, adjusted 

in line with fresh experiences and new legal requirements, and in harmony with the 

evolution of national and international standards. In this way, the further development 

of Corporate Governance is safeguarded.

Corporate Services 

The Corporate Services Support Operations are BayernLB’s central unit responsible for 

all internal services worldwide. It comprises the Financial Market Services, Interna- 

tional Corporate Services, and Corporate Organisation & IT Divisions, as well as the 

Shared Services Division. Corporate Services uses its expertise and resources to offer 

a wide range of service and support functions to BayernLB’s business areas and other 

support operations. 

Financial Market Services 

The Financial Market Services Division performs traditional transaction banking serv- 

ices for the sales business areas and support operations. These tasks are allocated to 

the trading, account, securities and payment transactions product segments. Securities 

services are carried out in close cooperation with the subsidiary TxB Transaktionsbank 

GmbH, which has carved out a position for itself in the transaction banking market 

since mid-2002. Collaboration with the Bavarian savings banks was further reinforced 

in 2004 with the consolidation of the previously separate clearing operations of Infor- 

matik-Zentrum Bayern — Software Gesellschaft der bayerischen Sparkassen GmbH & 

Co. KG (IZB SOFT) and BayernLB. BayernLB is now the clearing bank for the Bavarian 

Sparkassen-Finanzgruppe. 

In 2004, trading and securities transaction volumes remained stable in comparison to 

2003. In payment transactions, volumes continued to rise due to the additional clear- 

ing volumes taken over from IZB SOFT. More than 1.3 billion transactions were thus 

processed in 2004 in tandem with the Bavarian savings banks. 

In e-banking, the Internet-based solutions BayernLB e:Web and BayernLB Online:Bank- 

ing were developed further. BayernLB e:Web offers flexible electronic banking with 

multiple bank compatibility for rapid data transfer over the Internet. BayernLB Online: 

Banking, on the other hand, allows customers to carry out global cash and securities 

transactions online 24 hours a day, with direct access to their accounts. 

Credit card business, an integral part of the Corporate Services Division since the end 

of 2004, and BayernLB’s private customer business, were transferred to the business 

area “Savings Banks and Bavarian Market” at the beginning of 2005. This move empha- 

sises the importance of close cooperation with the savings banks for BayernLB. 

Credit card business 

In 2004, the Bank further reinforced its strong position in the credit card business. As 

part of its co-branding business, BayernLB issues jointly-designed card products under 

its partners’ brands. The BayernCard-Services GmbH subsidiary is the product manager. 

In 2004, successful product changes were made to the most important card pro- 

grammes. For the Corporate Card, for example, online settlement facilities, improved 

insurance packages, and frequent flyer miles and transferral of travel expenses were 

introduced. Such newly designed product features enhance the attractiveness and prof- 

itability of these credit cards. In 2004, the average number of credit cards issued rose 


73 

} BayernLB reinforces 

clearing function 

for Bavarian 

Sparkassen-Finanzgruppe


} Shared system 

house for Bavarian 


to be 

implemented step 

by step 

by 3.5 percent to almost 830,000 cards. The 2004 transaction volume was EUR 4.17 bil- 

lion. BayernLB has a 4.2 percent market share of the German credit card business in 

terms of number of cards, while its share is 12.1 percent when measured in terms of 

transaction volume. 

Information technology 

The 2004 joint “IT Bayern” project represents another important step in the coopera- 

tion of Bavarian savings banks and BayernLB with its dependent institutions Bayerische 

Landesbausparkasse (LBS) and Bayerische Landesbodenkreditanstalt. The aim is to 

bundle the information technology of the companies involved into IZB SOFT in order to 

create a shared system house. The necessary legal and organisational requirements for 

IT bundling will have been met by mid-2005. The next stage involves the step-by-step 

transfer of systems and applications. This process takes into consideration the needs of 

day-to-day business and projects to be implemented. 

As computer services provider, Informatik-Zentrum München-Frankfurt am Main GmbH 

& Co. KG is responsible for the provision and operation of large computer systems, 

client / server systems and telecommunications technology. The company was founded 

in 1993 by the Bavarian savings banks and BayernLB with the aim of sharing computer 

resources. Since 2001 Landesbank Hessen-Thüringen (Helaba) also holds a stake. 

Foreign entities 

The optimisation of BayernLB’s foreign entities, initiated in 2003, is being further 

pursued. 

At the beginning of 2004, as part of the restructuring of the Corporate Services Divi- 

sion, the back office and IT units of the foreign entities were subsumed into the Inter- 

national Corporate Services Division under joint management. 

This allowed efficient control and coordination of day-to-day operations. Furthermore, 

it created the necessary processes for implementing change. 

The structures and sizes of the Corporate Services units abroad are rapidly being har- 

monised with the new business model. Here, the focus is on the standardisation and 

extensive centralisation of processes and IT systems in line with BayernLB’s strategic 

orientation. 

General services 

The Shared Services Division provides general administrative and operational services. 

This division initiates, carries out and manages outsourcing plans within its sphere of 

responsibility. This, together with the identification of potential outsourcing targets, 

aims to create lasting positive economic effects for BayernLB. So far, the companies BLB 

Bankett Gastronomie GmbH, LB Corporate Services GmbH and Bayern Facility Manage- 

ment GmbH (BayernFM) have been launched onto the market.

BLB Bankett Gastronomie GmbH performs a broad range of catering services for 

BayernLB and other customers. These services include corporate catering, vending 

machines, and catering for conferences, parties and events, as well as leisure facilities. 

Bayern LB’s operative marketing was outsourced to LB Corporate Services GmbH in 

2004. This move allowed LB Corporate Services GmbH to enhance its function as a mul- 

tiple service provider. In addition to the product areas of payroll, postal services, office 

management and security services, the company now also offers BayernLB and others 

services in the areas of event marketing, public relations and services, as well as con- 

comitant consulting services. 

The company BayernFM was founded in mid-2004 as part of the restructuring of 

Facility Management. BayernFM is held jointly by Flughafen München GmbH and 

BayernLB. Technical and infrastructural building management duties were transferred 

to this company. BayernFM has taken over management of all of BayernLB’s domestic 

office buildings, and performs facility management services at Munich Airport. There 

are plans to expand business with third parties in Southern Germany. 

Outlook 

Future core tasks of the Corporate Services Division will include offering services tai- 

lored to demand and the market situation, as well as the expansion of all essential 

services for BayernLB’s business areas and support operations. 

A key focus for 2005 will be the continuation of intensive cooperation in the Sparkassen- 

Finanzgruppe within the scope of the “IT Bayern” project. To this end, IZB SOFT has 

been established as the central IT service provider for the Sparkassen-Finanzgruppe 

Bayern. The aim is twofold: to enhance the performance of Bavarian savings banks and 

BayernLB and to achieve long-term cost advantages. The project is to be implemented 

in a series of practicable steps, and is currently expected to be rolled out in 2008. 


75 

} BayernLB and 

Flughafen 

München GmbH 

create joint facility 

management 

company


} Target portfolio 

defined as part of 

credit risk strategy 

Risk Office 

The Risk Office bundles together activities for the analysis of single borrowers, credit 

administration, management of loans in need of restructuring, risk management and 

risk controlling. 

It is divided up as follows. The Corporates / Financial Institutions Division and the Real 

Estate / Structured Financing Division are responsible for analysis. The systematic sec- 

tor-oriented approach employed in these divisions has proved successful. The main 

tasks of the Credit & Collateral Services Division comprise the drafting of agreements, 

uniform monitoring of risk-relevant credit business as well as transaction- and service- 

oriented portfolio management. In Credit Consulting, the chief feature is a greater 

focus on workouts. The Risk Controlling & Procedures Division is entrusted with the 

design, implementation and monitoring of management systems, in addition to the 

implementation of more accurate methods for risk measurement and reporting. 

The Credit Committee, delegated the highest level of responsibility below the Board of 

Management, is the Bank’s central credit competence unit. It also provides the Board 

with support on all issues of credit risk management. The comprehensive credit policy, 

on which all credit-related decisions are based, provides a solid framework for this. 

Risk management 

Refining and elaborating risk management processes and methods represented a key 

focus of the Risk Office’s activities in the 2004 financial year. As part of reorganisation, 

credit administration activities were brought together under the Credit and Collateral 

Services unit of the Risk Office. Meanwhile, Risk Offices abroad – in New York, London 

and Hong Kong – were annexed to the Corporates / Financial Institutions Division. 

Thus, their organisation is now in harmony with the structures and task allocation of 

the Munich Risk Office. 

For capital controlling purposes, the target portfolio was defined as part of the ongo- 

ing development of the bank-wide credit risk strategy. Consistent implementation of 

cluster management led to a further improved diversification. 

The rating system developed jointly with nine other landesbanks has already proved 

to be of value. Using the DSGV (German Savings Bank Association) corporate customer 

rating and establishing a shared credit process with the savings banks reinforces coop- 

eration with the Bavarian savings banks in the area of underwriting business. More- 

over, it supports the ongoing development of a uniform approach to risk, as well as 

boosting the efficiency of collaborative work. 

In covering the portfolio to the greatest degree possible by powerful, cutting-edge rat- 

ing procedures, the Bank has achieved a further milestone on the way to meeting the 

requirements of Basel II.

Outlook 

For 2005, the focus is on developing the groundwork necessary for implementing the 

requirements of Basel II. This involves weighting credit collateral in a way that eases 

the burden on equity, defining specific criteria for transaction ratings and recording 

the portfolio in line with IRB criteria. Further objectives include ongoing software 

development for the early detection system to be used throughout the Bank, as well 

as the refinement of risk-optimised procedures for the valuation, analysis and control- 

ling of individual credit exposures. 


77


Our staff 

Downsizing measures brought to an early close 

“Implementing the new business model in 2004 demanded a great deal of flexibility 

and willingness to make sacrifices from BayernLB’s staff.” The above is a core message 

from the Board of Management, taken from the latest of the “Shaping our future 

together” series of talks. In this internal forum, members of the Board of Management 

periodically tackle questions from the Bank’s staff. 

Personnel communication measures are of particular importance at this time of strate- 

gic realignment. Management forums and staff events of this type afford the Board of 

Management the opportunity of explaining the background behind current decisions. 

They are also a good way of gathering direct feedback on staff morale. Immediate 

internal communication has helped to ensure that all staff members understand the 

necessity of the measures taken, as well as their importance for assuring job security. 

It has helped to bring the staff fully on board for the Bank’s strategic realignment. 

The strong performance in 2004 is essentially thanks to the staff of BayernLB, who have 

shown exceptional commitment in implementing the new business model in their day- 

to-day work. 

Far-reaching changes to the Bank’s structural and procedural organisation last year led 

to staff restructuring measures, resulting in the termination of around 1000 jobs in 

2003 and 2004. However, target figures were reached early, meaning that restructuring 

could be brought to a close in 2004. 

Optimisation of personnel management systems 

BayernLB’s staff policy aims to create an environment in which employees can perform 

well. To this end, personnel management systems also had to be revised and adjusted. 

The remuneration systems were optimised and tied more closely to BayernLB’s business 

performance. Employees under the Bank’s own pay scale have long had a performance- 

oriented and earnings-related bonus system. Now, a similar bonus system has also been 

designed for employees with salaries based on the standard pay scale. This will help to 

achieve BayernLB’s goal of rewarding individual performance and fostering the commit- 

ment and motivation of each employee in an individual and targeted manner. 

Optimisation of “management by objectives” was initiated, with the aim of achieving 

a target-oriented global management of BayernLB to safeguard business performance. 

Both management and staff are to be given even fuller support in achieving not only 

overall Bank objectives, but also the concomitant individual objectives of each employee. 

A performance appraisal system is currently being developed to support this aim. It 

will be used to identify employees with potential and will be accompanied by continu- 

ous successorship planning.

Change in staff capacity 

For the period 1 January 2004 to 31 December 2004 

Number of employees at year-end 

in the Group 1 

of which 

• top management 2 

• apprentices 

• temporary trainees 

in the Bank in Germany and 

abroad 3 

of which 

• abroad 

• apprentices 

• graduate trainees 

• temporary trainees 

• part-time staff 

In the core Bank 4 

The Bank’s social commitment stretches beyond the active working life of its employ- 

ees. For this reason, the pension scheme introduced in 2002 was revised and reori- 

ented. It was replaced by a new pension scheme at the beginning of 2005. The main 

features of the new scheme have changed little, but processing is now carried out by 

a reinsured group support fund called ÖBAV Unterstützungskasse e.V. – S-Verbund 

Versicherungskammer Bayern. This pension scheme is accessible to all employees 

taken on since 1 January 2002. Employees who started with the Bank before 31 Decem- 

ber 2001 are still covered by the old system, which is similar to the civil servant pen- 

sion scheme. 

2004 2003 

8,940 

36 

146 

24 

5,047 

563 

120 

32 

16 

778 

4,104 

9,061 

34 

164 

22 

5,543 

699 

138 

24 

19 

768 

4,581 

Change 

absolute in % 

– 121 

+ 2 

– 18 

+ 2 

– 496 

– 136 

– 18 

+ 8 

– 3 

+ 10 

– 477 

– 1.3 

+ 5.9 

– 11.0 

+ 9.1 

– 8.9 

– 19.5 

– 13.0 

+ 33.3 

– 15.8 

+ 1.3 

– 10.4 

Average length of service 

in the Bank (in years) 13.45 12.61 + 0.84 + 6.7 

Average age in the Bank (in years) 40.13 39.60 + 0.53 + 1.3 

Personnel expenses in the Group 

(EUR thousand) 

of which 

• wages and salaries 

• social security contributions 

and employee benefits 

• pension scheme 

688,720 

499,803 

76,439 

112,478 

656,481 

493,485 

81,192 

81,804 

+ 32,239 

+ 6,318 

– 4,753 

+ 30,674 

+ 4.9 

+ 1.3 

– 5.9 

+ 37.5 

Average number of staff 

in the Group 8,742 9,029 – 287 – 3.2 

1 The Group includes BayernLB. 

2 Board of management, managing directors, board of directors and supervisory board 

3 BayernLB in Germany and abroad, including Landesbodenkreditanstalt and Landesbausparkasse 

4 BayernLB in Germany and abroad, excluding Landesbodenkreditanstalt and Landesbausparkasse 


79


Fostering talent and increasing qualification levels 

Young, highly-qualified new employees represent an important investment in the 

future of any company. BayernLB is therefore committed to training young, talented 

and motivated people. The bank hired 50 trainees during the 2004 financial year. A 

total of 31 graduates were taken on as part of the trainee programme. The increasing 

demand for temporary traineeships clearly shows that BayernLB, as a training company, 

is seen as a trusted and attractive option. Investment in cultivating fresh talent is 

worthwhile. This is illustrated by the fact that in 2004, the majority of apprentices and 

trainees who completed their training successfully were hired on a permanent basis. 

In addition to proximity to the customers, further staff training and qualification remains 

crucial for the Bank’s market success and optimum implementation of its business 

strategy. For this reason, development of the professional and product-related com- 

petence of our staff was a key focus in 2004. A special series of seminars entitled 

“Customer and Credit Analysis”, aimed at risk analysts and relationship managers, 

was developed and successfully carried out jointly with the business areas. This special 

series will be continued both at home and abroad during 2005. 

Internal communication 

A shared corporate identity that is truly felt by the employees is essential in order to 

weather challenging economic conditions. The Board of Management and employees 

of BayernLB can rely on a broad range of customer-tailored internal communication 

instruments. Ensuring that all employees are equally well-informed means meeting 

information needs as they arise. This is achieved thanks to fine-tuned interaction 

between staff communication measures and print and online media. 

Backing up staff communication with online and print media enhances the quality, 

scope and transparency of internal messages. The Intranet has a key role in online 

communication, providing staff with a communications and work platform. All employ- 

ees worldwide have instant access to up-to-date information in English and German. 

In addition, a bimonthly staff magazine offers employees their own forum, devoted 

mainly to background reports, interviews and in-depth information. 

Outlook for 2005 

“We are one Bank, one team, and only together can we achieve our overall goals – 

each in his or her own function.” This clarion call to the staff came from the Board of 

Management at the end of 2004, expressing the importance of renewed future efforts 

to breathe life into the Bank’s new structure. The day-to-day implementation of this 

shared corporate culture, largely crafted by the Board of Management and executives, 

will be one of the core tasks for 2005.

The introduction of a performance-oriented and earnings-related bonus system for 

standard pay scale employees and the revised objectives agreement and evaluation 

system represent a challenge for both employees and management, and one that they 

are fully prepared to meet. 

The most important objectives of any staff qualification initiative consist of reinforcing 

the Bank’s market position, enhancing competitiveness and improving BayernLB’s earn- 

ings situation. 

Our thanks to our staff and the Staff Council 

Without the commitment of each and every employee to our Bank, it would not have 

been possible to put an end to job cuts earlier than scheduled. Nor would we have 

been able to consolidate the business areas and support operations by the second half 

of 2004. 

The Staff Council has once again helped create a climate of trust, cooperation and 

mutual respect. We would like to express our special thanks to these staff representa- 

tives for their loyal and responsible cooperation on all operational and social matters 

during these difficult times. Especially in times of upheaval, the Board of Management 

and all other managers are highly aware of the importance of staff representation that 

is committed to the interests of the Bank as a whole, and of the necessity of cooperat- 

ing in an atmosphere of trust. 


81


Public sector mandate 

BayernLB acknowledges its corporate responsibility in a variety of ways, whether by 

promoting culture, the arts, education and science, or by furthering social causes and 

protecting the environment. 

Culture and the arts 

“Arts and culture reflect an important basis of the social life of man. Our Gallery at 

BayernLB is a means of bringing people together and supporting artists. Our numerous 

loans of works of art open up the way for the public to participate in cultural life.” 

BayernLB’s promotion of culture and the arts adds to Munich’s renown as a city of 

culture. BayernLB’s Gallery at 20, Briennerstrasse in Munich gives contemporary artists 

the opportunity to exhibit their work in a well-known forum that has gained wide- 

spread recognition in artistic and cultural milieus. Our exhibition marking the 100 th 

anniversary of Salvador Dali’s birth was one of the highlights of 2004. This project was 

carried out jointly with Literaturhaus München. The Gallery’s participation in Munich’s 

“Evening of Museums and Galleries” has become a tradition for BayernLB. This event 

offers members of the public access to a wide range of museums and exhibitions at a 

greatly reduced overall fee. 

BayernLB also supports Munich’s famed Pinakothek art galleries and various other 

Bavarian cultural establishments by donating valuable items on permanent loan. 

In a press conference held on November 2004, the Palais Dürckheim, a building 

belonging to BayernLB, was presented to the State Art Collections for cultural use from 

2005. The mid-19 th century building is to become a venue for lectures, workshops and 

seminars organised by the Pinakothek der Moderne in the interest of disseminating 

arts and culture. This cooperative initiative, set up as a Public Private Partnership, 

enriches not only the three Pinakothek galleries, but also Munich as a cultural venue. 

A particular highlight of BayernLB’s promotion of culture during 2004 was the presen- 

tation of a violin made by Antonio Stradivari to the first violinist of the Munich State 

Orchestra. The violin was made by Stradivari in 1722, at the apogee of his career as a 

creator of instruments. Its has been owned by BayernLB since 1976, but is always lent 

to professional musicians. In this way, the instrument is made accessible to the public. 

Deutsche Kreditbank AG (DKB), of which BayernLB holds 100 percent, has created its 

own foundation under the name “DKB Stiftung für gesellschaftliches Engagement”. 

The main objective of the foundation is to promote sports and the arts, as well as the 

protection of historic buildings and monuments. The Hungarian company Magyar

Külkereskedelmi Bank Rt. (MKB), also held by the Bank, has been a major sponsor 

of the Franz Liszt Chamber Orchestra, Budapest, for more than 15 years. Over the last 

years it has also built up a collection of Hungarian art which has enjoyed a great deal 

of attention. 

Education and science 

“The competitive potential of a nation is the education, knowledge and innovative power 

of its people. By promoting education and science, we are taking full cognisance of this 

fact.” 

Since 1992, BayernLB’s commitment to education and science has been crystallised in 

its yearly Academic Prize. In this area too, BayernLB is particularly involved in the pro- 

motion of regional education facilities. All eleven of Bavaria’s universities are invited 

to submit pieces of research. The winners are selected by a specialist jury based on 

dissertations and post-doctoral theses dealing with banking topics. In 2004, the main 

prizes were awarded to Dr. Jutta Schmidt of Otto-Friedrich University in Bamberg for 

her piece on “Investment decisions in the equity market – an experimental analysis 

of the information and decision-making processes of individual investors”, and to 

Dr. Klaus Wolf of the University of Bayreuth, whose dissertation was entitled “Risk 

management in the context of value-based company management”. Ten sponsoring 

prizes were also awarded. 

A further academic prize is conferred by the Landesbank Saar Girozentrale Saarbrücken 

(SaarLB), of which BayernLB holds 75.1 percent. At EUR 25,000, this prize is one of the 

most generous in the Saarland. In 2004, it was awarded to the bioanalyst Dr. Joachim 

Jose for his post-doctoral thesis entitled “Made-to-measure molecules”. 

For seven years, BayernLB has been recognising and promoting innovative solutions in 

the health care sector with its Clinic Sponsoring Prize. This award is not just limited to 

Bavaria, but rather welcomes candidates from all over Germany. Particularly in these 

increasingly difficult times for the health care sector, we feel it is important to support 

structural change in the clinics. BayernLB thus sees its Clinic Sponsoring Prize as pro- 

viding a stimulus for the development of future-oriented concepts. In 2004, the tinni- 

tus centre of the Berlin-based Campus Charité Mitte received first prize in the competi- 

tion. Using innovative new treatment solutions, and by virtue of an integrated concept 

with a dedicated day clinic, this project greatly enhances the quality of life of tinnitus 

sufferers. Moreover, it suggest treatment options to patients for everyday use and self- 

help. 

Together with Schörghuber Stiftung & Co. Holding AG, BayernLB sponsors an endow- 

ment professorship for housing construction and development at the Architecture 

Department of the University of Technology in Munich. 


83


DKB and SaarLB are also actively involved in the area of university sponsorship, the 

former with a student education fund, and the latter with an endowment fund for a 

professorship in biotechnology, funded by the Saarland’s Sparkassen-Finanzgruppe. 

Seven years ago, the Hungarian company MKB set up a scholarship to open the hori- 

zons of gifted children and young people from extremely poor backgrounds. To date, 

MKB has funded more than 100 winners of this scholarship right up to degree level. 

BayernLB has been building up a historical archive since mid-2003. This project involves 

collecting and preserving all documents and materials relevant to BayernLB’s history. 

All sources are verified and analysed. By charting its corporate history, BayernLB, 

founded in 1972 with the merger of its predecessor Bayerische Gemeindebank (founded 

in 1914) and Königliche Landeskulturrentenanstalt (founded in 1884), is thus taking 

responsibility for recording its development as a company. BayernLB’s 25-year-old 

collection of historical Bavarian securities continues to be expanded and documented, 

as an integral part of Bavarian corporate history. 

Social commitment 

“People experiencing social hardship deserve our support. After all, any one of us could 

find ourselves in a similar situation. We, BayernLB and staff, see ourselves as an integral 

part of civil society. By making our mark at a regional level, through selected, particularly 

beneficial projects, we are acknowledging our social responsibility.” 

BayernLB has shown its commitment to furthering social causes in its environment for 

several years. In this way, the Bank is helping to support people experiencing hardship. 

Helping children is of particular importance to BayernLB. For over 10 years, the Bank, 

together with the entire Sparkassen-Finanzgruppe Bayern, has been a partner of the 

“Sternstunden – We help children” initiative. This programme offers medical, educa- 

tional and social support to a great number of children. As partner, BayernLB bears 

Sternstunden’s administrative costs and settles its payment transactions. It also pro- 

vides office and communications facilities, thus ensuring that all contributions to 

the programme go directly to the children without any deductions being made. Over 

11 years, 950 projects in Bavaria, Germany and all over the world have been funded 

by contributions totalling EUR 52 million. 

The biennial exhibition of pictures by students at the Bavarian State School for Disa- 

bled People, which the BayernLB Gallery has hosted since 1999, is becoming a regular 

event for the Bank. At the end of each exhibition, the pictures are auctioned off, and 

the proceeds divided equally between the school and the Sternstunden project. 

BayernLB also collects money and takes on the sponsorship of certain projects as part 

of the Christmas initiative “Giving instead of Gift-giving”. Last but by no means least, 

the personal commitment of numerous BayernLB employees is vital for the success of 

the Sternstunden initiative.

Banque LBLux S.A., a majority holding of BayernLB and Helaba, has long been involved 

in furthering social causes, in addition to promoting art, culture and sport. Amongst 

other projects, it sponsors the foundation “Helping Children with Cancer”. 

As part of the “Socially Responsible Purchasing” pilot project, suppliers of Bayerische 

Landesbausparkasse (LBS) are obliged to disclose details of any child labour in sweat- 

shops used throughout their manufacturing and trade chains. LBS then uses this 

information as a selection criterion in its purchasing decisions. 

BayernLB donated EUR 250,000 to a Sternstunden project in Sri Lanka as a first 

response to the tsunami that devastated South East Asia at the end of 2004. This 

money is being used to rebuild two destroyed outstations belonging to a children’s 

home in this region. BayernLB is also involved in setting up and financing a Spar- 

kassen-Finanzgruppe reconstruction fund for the countries affected by the disaster. 

Environmental management 

“Without an ecologically sound environment, neither business nor individuals could flour- 

ish. We strive to be the leaders in product ecology and corporate environmental protection.” 

BayernLB’s environmental management system, certified by EMAS II, continued to be 

further developed and revalidated during 2004. 

Here, the key focus was indirect impact on the environment. BayernLB has explicitly 

anchored ethical responsibility into its Group-wide credit risk strategy. The Bank 

observes the World Bank’s ecological and social standards. 

BayernLB is also reinforcing its commitment to climate protection. Together with its 

subsidiary Energy & Commodity Services GmbH, BayernLB offers advisory services for 

handling climate protection projects in line with the Kyoto protocol. Furthermore, the 

Bank has pressed on with its product launch for trading with emission allowances in 

Europe. 

Scoris GmbH’s rating testifies to the fact that BayernLB is on the right track with 

regard to its understanding of ecological and sustainable commitment. Forty-four 

financial service providers were ranked as part of the company’s sustainability rating 

of European bond issuers. BayernLB was the best German institution ranking second. 

Outlook 

In the future, corporate responsibility will remain an important factor for BayernLB. 

We will thus continue along our established course of corporate responsibility, while 

keeping an eye on new developments and adjusting our measures and objectives 

accordingly. BayernLB will publish full details of this progress in a dedicated report on 

sustainability. By incorporating topics of corporate responsibility, this new document 

will go far beyond the previous environmental report, giving a full account of Bayern- 

LB’s performance in the area of sustainability. 


85

A product is only as good as the tool that shapes it. Experience 

is the key to it all – from customised planning to successful 

implementation to the unique result. And the process is all 

but a routine one: every new project signifi es a new beginning.

You can’t buy the most valuable 

tool in the world: experience. 

Laoreet dolore magna aliquam erat volutpat. Ut wisi enim ad 

minim veniam, quis nostrud exerci tation. Ut wisi enim ad minim 

veniam, quis nostrud exerci tation. Lorem ipsum dolor sit amet.

4 Report on the Bank 

and the Group 

Overview 90 

Management report 93 

Outlook 103 

Risk report 106


} BayernLB Group 

seizes opportunities 

in Eastern 

Europe 

Overview 

Economy 

After three years of stagnation, 2004 brought moderate economic recovery, with 

Germany’s gross domestic product growing by 1.6 percent in real terms. Companies 

with a large share of export business in particular were able to benefit from the ebul- 

lient rebound of the global economy. Nonetheless, private household consumption 

was sluggish due to meagre income growth. This limited the potential of the economic 

upswing. The fact that Germany was able to tap into Europe’s economic growth was 

purely thanks to strong demand from abroad. Both global and domestic situations do 

not point towards an economic revival for Germany in 2005. On the financial markets, 

the year was marked by continued – albeit somewhat leisurely – recovery of the equity 

markets, a surprising decline in interest rates in the second half, and not least by a 

weak dollar. 

New business model 

The transformation of BayernLB’s business model, begun in 2002 and pursued with vig- 

our throughout 2003 and 2004, is already proving successful. The turnaround has been 

achieved. 

In the year under review, BayernLB’s business model was consistently on – if not ahead 

of – schedule. This allowed around 1,000 job cuts in the core Bank (BayernLB excluding 

Bayerische Landesbausparkasse (LBS) and Bayerische Landesbodenkreditanstalt (Labo)) 

to be achieved before schedule. This personnel reduction measure had been approved 

in 2003 and was originally planned for wrap-up by 2005 / 2006. BayernLB’s Board of 

Management was reduced from nine members in 2003 to seven in 2005. 

Optimisation of BayernLB’s foreign entities, begun in 2003, is right on schedule. The 

Singapore-based BLB Asia Pacific Ltd., as well as the Singapore, Tokyo and Toronto 

branches have been closed. Winding-up of the Labuan branch is also running accord- 

ing to plan. The London, Paris, Milan, New York, Hong Kong and Shanghai locations 

together form an optimum network of foreign entities, which BayernLB can exploit to 

support both its own customers and those of the Bavarian savings banks in their inter- 

national business. It can also take advantage of selected business opportunities arising 

on these particular financial markets. 

As part of its business model, the BayernLB Group is pressing on with its strategy for 

Eastern Europe, as well as continuing to expand its retail capability. A major aspect of 

this is the support the Bank provides for the savings banks and their customers in the 

Central and Eastern European (CEE) markets through high-quality consultation services 

and a local network of cooperating partners. This network is currently being expanded. 

The Budapest-based Hungarian Foreign Trade Bank (MKB), which enjoys an excellent

position and serves as a bridgehead in Hungary, is playing a decisive role in this proc- 

ess. Moreover, operating from its Munich head office outwards, BayernLB is seizing 

its opportunities in the growing CEE and Russian markets. In addition to joint market 

development with the savings banks in Bavaria, retail capability is also being further 

expanded through LBS, Labo and the subsidiaries Deutsche Kreditbank AG, Berlin, 

(DKB), Landesbank Saar, Saarbrücken, (SaarLB), MKB, Banque LBLux S.A., Luxembourg, 

and LB(Swiss) Privatbank AG, Zurich, as well as through our extensive credit card 

business. 

BayernLB is now directing its full attention to the task of stabilising and raising profits. 

Concomitant measures have been taken in the individual business areas. The Bank is 

continuing to focus consistently on the market – together with the Bavarian savings 

banks – and to pursue the implementation of strategic realignment in a target-oriented 

manner. 

Participations portfolio 

In 2004, BayernLB continued with the streamlining of its participations portfolio. 

Further realignment in Austria and Italy 

At the beginning of July 2004, BayernLB sold its 46.4 percent participation in the 

Vienna-based Bank für Arbeit und Wirtschaft AG (BAWAG) to the Austrian trade union 

federation (ÖGB). In November 2004, the Bank sold its 100 percent participation in the 

Austrian company Ruefa Reisen AG to Österreichische Verkehrsbüro AG. In July, it con- 

cluded the sale of its 10 percent participation in Südtiroler Sparkasse to Stiftung Süd- 

tiroler Sparkassen, Bolzano. 

TxB Transaktionsbank GmbH 

LB Transaktionsbank GmbH Frankfurt (Main) – München, a subsidiary founded jointly 

with Helaba in 2002, has successfully established itself on the market. During 2004, 

it managed to further consolidate its market position by merging with the Hamburg- 

based PLUS Bank AG, a wholly-owned subsidiary of HSH Nordbank. 

Since 1 October 2004, the newly formed company has traded under the name TxB 

Transaktionsbank GmbH (TxB). TxB, of which BayernLB holds 37.5 percent, boasted 

around 210 mandates from the savings bank and private bank sector at year-end 2004. 

It is the third-largest transaction bank in Germany for securities services. TxB’s share- 

holders are constantly exploring new practical strategic options in order to achieve 

greater economies of scale in securities settlement. 

Report on the Bank and the Group 

91 

} Merger between LB 

Transaktionsbank 

and PLUS Bank 

completed 

successfully


} BayernLB takes 

active responsibility 

for environmental 

protection 

Our staff 

Personnel reduction measures resolved in 2003 as part of the implementation of 

BayernLB’s new business model, and originally planned for wrap-up by 2006, were 

completed ahead of schedule in 2004. 

BayernLB’s workforce at home and abroad was reduced by 496 positions year on year, 

standing at 5,047 employees as at 31 December 2004. At Group level, the headcount 

was down by only 121 staff to 8,940. This is largely due to the incorporation of 

Konzumbank (+ 260 employees) into the Hungarian MKB. 

In order to stabilise personnel expenses, the personnel management systems were 

revised. Thus, agreements governing the remuneration system for employees working 

under the Bank’s own pay scale were revised, and the new versions brought into effect 

at year-end. A new performance-oriented and earnings-related bonus system was 

designed for standard pay scale employees. 

The number of new junior staff remained stable in comparison to the previous year: 

80 new apprentices and trainees were taken on. The majority were welcomed to 

BayernLB on a permanent basis following successful completion of their training. 

Environmental protection 

As a financial institution, BayernLB is affected by climate change: both directly, through 

its use of resources, and indirectly, through its customers. For this reason, BayernLB’s 

environmental management system, certified by EMAS II (Eco-Management and Audit 

Scheme), continued to be further developed and revalidated during the year under 

review. With regard to indirect impact on the environment, BayernLB has explicitly 

anchored ethical responsibility into its Group-wide credit risk strategy. 

The EU Emissions Trading Scheme has been in force since 1 January 2005. In view of 

the new scheme, BayernLB stepped up its consulting services in this domain in the year 

under review. Together with its subsidiary Energy & Commodity Services GmbH, the 

Bank also launched its product introduction process for trading with emission allow- 

ances. The European directive governing emissions trading entails a twofold risk for 

companies affected. Firstly, there is a quantitative risk in connection with gaining 

sufficient emissions trading allowances; secondly, these allowances entail a price risk. 

BayernLB will assess these risks within the framework of credit standing assessment.

Management report 

Assets, liabilities and earnings position 

The annual accounts for 2004 were considerably influenced by BayernLB’s business 

model. While the retail-oriented subsidiaries tended to be acquisition-oriented in their 

market activities, the Bank itself continued to phase out large, higher-risk segments of 

its customer credit business. At the same time, the Bank took comprehensive measures 

aimed at safeguarding and stockpiling liquidity for the time following the withdrawal 

of the state guarantee mechanisms on 18 July 2005. 

The balance sheet total for BayernLB (including LBS and Labo) increased by 4.7 percent 

to EUR 285.6 billion. Once again, a weak US dollar tempered this amount in the equiv- 

alent of EUR 3.1 billion (1.1 percent). In Germany, the Bank’s business volume grew by 

12.3 percent (to reach EUR 245.3 billion). International business, in contrast, reported 

continuing decline (down 25.7 percent to EUR 40.3 billion). 

The increase in the consolidated balance sheet total was more marked: up 6.3 percent 

to EUR 333.1 billion. The largest subsidiaries were again DKB, posting a balance sheet 

total of EUR 28.3 billion, followed by SaarLB (EUR 17.5 billion), Banque LBLux (EUR 12.6 

billion) and MKB (equivalent to EUR 5.9 billion). LB(Swiss) reported a customer volume 

of CHF 3.4 billion at year-end. 

EUR billion 

31.12.2004 31.12.2003 

BayernLB Group 

Change 

in % 31.12.2004 31.12.2003 

Change 

in % 

Total assets 285.6 272.8 4.7 333.1 313.4 6.3 

Business volume 300.6 289.9 3.7 349.8 331.9 5.4 

The business volume, largely consisting of the balance sheet total plus liabilities from 

guarantees and indemnity agreements, was EUR 349.8 billion at Group level (up EUR 

17.9 billion) and EUR 300.6 billion for BayernLB (up EUR 10.7 billion). 


93 

} Annual accounts 

marked by 

BayernLB’s 

business model 

} Balance sheet total


} Strong increase 

in amounts due 

from banks; 

customer 

receivables 

unchanged 

Credit operations 

EUR billion 

Due from 

banks 

– of which 

savings banks 

31.12.2004 31.12.2003 

128.5 

17.8 


110.8 

19.3 

Change 

in % 31.12.2004 31.12.2003 

15.9 

– 7.7 

124.7 

18.5 

105.7 

20.0 

Change 

in % 

Due from 

customers 87.4 91.9 – 4.8 127.8 128.8 – 0.8 

Securities 52.8 51.4 2.8 64.7 60.9 6.2 

Credit volume* 205.8 192.2 7.1 242.0 224.0 8.0 

* Due from customers and banks (without amounts due upon demand) excluding accrued interest plus discount credits 

Amounts due from banks increased sharply (by 18 percent to EUR 124.7 billion in the 

Group; by 15.9 percent to EUR 128.5 billion at BayernLB) due to the temporary invest- 

ment of borrowed funds. Amounts due from savings banks, however, were down 

EUR 1.5 billion at both Group and Bank level, totalling EUR 18.5 billion in the Group 

and EUR 17.8 billion at BayernLB. 

Customer receivables remained virtually unchanged at Group level (down EUR 1.0 bil- 

lion to EUR 127.8 billion). Although BayernLB’s customer receivables declined once 

again (down EUR 4.5 billion to EUR 87.4 billion), this was compensated by an increase 

in the latter amongst the subsidiaries. 

Due to the surge in amounts due from banks, the credit volume increased by EUR 18.0 

billion to EUR 242.0 billion in the Group and by EUR 13.6 billion to EUR 205.8 billion at 

BayernLB. 

The overall securities portfolio was slightly up on the previous year. The Group’s securi- 

ties portfolio increased by 6.2 percent (to EUR 64.7 billion), while BayernLB’s security 

holdings were up by 2.8 percent (to EUR 52.8 billion). As in previous years, the entire 

securities portfolio is valued in accordance with the strict principle of the lower of cost 

or market. 

The nominal volume of derivative transactions increased by EUR 82.9 billion to EUR 

1,017.1 billion during the year under review. This growth was wholly due to the EUR 

110.7 billion increase in interest rate-related transactions, which reached a total vol- 

ume of EUR 804.4 billion. Currency-related transactions stood at EUR 168.2 billion at 

year-end, down EUR 37.7 billion against the previous year. The credit risk equivalent 

of the derivative transactions dropped 15.2 percent to EUR 3.8 billion. 

18.0 

– 7.6

Funding 

EUR billion 

Due to banks 

– of which 

savings banks 

31.12.2004 31.12.2003 

105.7 

8.3 


100.1 

7.5 

Change 

in % 31.12.2004 31.12.2003 

5.6 

10.6 

127.0 

8.8 

119.9 

7.8 

Change 

in % 

Due to customers 54.1 52.2 3.7 70.4 65.3 7.8 

Securitised 

liabilities 95.8 90.4 6.0 103.8 95.6 8.6 

The liabilities side, particularly longer-term items, was affected by liquidity-safeguard- 

ing measures undertaken by BayernLB. 

Amounts due to banks increased by 5.9 percent to EUR 127.0 billion in the Group and 

by 5.6 percent year on year to EUR 105.7 billion at BayernLB. There was a particularly 

marked climb in amounts due to savings banks, which were up 11.7 percent to EUR 8.8 

billion at Group level and up 10.6 percent to EUR 8.3 billion at BayernLB. 

The Bank posted pleasing increases in amounts due to customers and securitised liabil- 

ities. Amounts due to customers rose by 7.8 percent to EUR 70.4 billion in the Group, 

and by 3.7 percent to EUR 54.1 billion at BayernLB. Securitised liabilities, meanwhile, 

were up 8.6 percent to EUR 103.8 billion at Group level, while BayernLB’s position 

increased by 6.0 percent (to EUR 95.8 billion). BayernLB thus continues to be among 

the leading tap issuers on both the national and international capital markets. New 

issues totalling over EUR 16 billion were placed under the international issue pro- 

gramme. In January 2004, BayernLB started out in the jumbo benchmark bonds seg- 

ment, issuing a ten-year EUR 1.5 billion bond. This was followed by a seven-year issue 

with a total volume of EUR 1 billion in May. BayernLB continued to offer attractive 

investment products in the form of structured bonds. 

Due to the continuing decline in risk positions in accordance with Principle I (down 

6.9 percent to EUR 127.7 billion), key banking regulatory figures continued on their 

upward trend within the BayernLB Group. The core capital ratio was enhanced by 

0.5 percentage points to reach 8.3 percent, while the own funds ratio was up 1.2 per- 

centage points to 12.5 percent. 


5.9 

11.7 

95 

} Liquidity-safeguarding 

measures 

affect funding 

} Equity ratios 

improve further


} Return to satisfactory 

operating 

result after difficult 

years 

} Improved return 

on equity 

Key banking regulatory figures in accordance with the German Banking Act (KWG)* 

EUR billion 


31.12.2004 31.12.2003 

Risk positions as per Principle I 127.7 137.2 

Own funds 

– of which core capital 

Own funds ratio (at Group level) 12.5 % 11.3 % 

Core capital ratio 8.3 % 7.8 % 

* Based on the approved accounts 

Earnings position 

Following three difficult years – measured in terms of operating profit – marked by the 

realignment of the credit and participations portfolios, the BayernLB Group once again 

succeeded in achieving a satisfactory performance in 2004. This was due not least to 

the Bank’s fundamental transformation of its business model. 

Factors contributing to this encouraging performance included dramatically decreased 

risk expenditure in credit business and, given the reduction of risk assets, consistently 

high revenues and low administrative expenses. As part of the Group’s strategic reori- 

entation, the participations portfolio was realigned and essential value adjustments 

16.0 

9.4 

carried out. Net income for the year was affected by an extraordinary expense of 

EUR 320 million. This amount represented a payment to the Free State of Bavaria upon 

conclusion of the EU state aid proceedings regarding housing construction funds. 

In 2004, return on equity was further enhanced both in the Group and at BayernLB. 

The Group’s return on equity was 9.5 percent (up from 4.9 percent in the previous 

year), while BayernLB’s was 8.0 percent (compared to 4.5 percent). 

15.5 

9.6

EUR million 

1.1. – 

31.12.2004 


1.1. – 

31.12.2003 

Change 

in % 

1.1. – 

31.12.2004 

1.1. – 

31.12.2003 

Change 

in % 

Net interest 

income 1,398 1,608 – 13.1 2,030 2,169 – 6.4 


income 240 253 – 5.0 340 343 – 0.7 

Net result 

from financial 

transactions 92 105 – 12.9 126 105 19.7 

Personnel 

expenditure – 475 – 472 0.6 – 689 – 656 4.9 

Operating 

expenditure – 355 – 389 – 8.9 – 519 – 529 – 1.9 

Balance of other 

operating income 

and expenditure 142 123 15.4 223 120 84.3 

Operating profit 

before risk 

provisions 1,042 1,228 – 15.1 1,511 1,552 – 2.6 

Risk provisions 76 – 697 – – 157 – 953 – 83.5 

Revaluation result – 303 – 42 > 100 – 404 – 52 > 100 

Operating profit 815 489 66.7 950 547 73.7 


Extraordinary 

expenses – 357 – 127 > 100 – 358 – 127 > 100 

Corporate 

income tax – 175 – 80 > 100 – 252 – 104 > 100 

Partial profit 

transfer – 220 – 219 0.6 – 242 – 237 1.9 

Net income for 

the year 63 63 0 98 79 23.3 

Allocations to 

revenue reserves / 

profit share of 

minority shareholders 

0 0 0 35 16 > 100 

Profit available 

for distribution 63 63 0 63 63 0 

97


} Net interest income 

} Net commission 

income 

} Financial result 

} Administrative 

expenses 

Net interest income was affected by both general economic conditions and company- 

specific factors. Income from the investment of own funds shrank as a result of the sus- 

tained, historically low interest rate level. Currency-based interest income also suffered 

under the still weak US dollar. Net interest income was also negatively affected by the 

continuing reduction of risk assets, as well as by the fact that additional loans were 

put on a non-accrual basis. The average margin dropped, due in part to the expansion 

of low-margin interbank business with a view to stockpiling liquidity for the following 

the abolition of the state guarantee mechanisms on 18 July 2005. On the other hand, 

the Bank reported an enhanced margin in new customer credit business in 2004. Cer- 

tain expenditure was incurred for closing liquidity gaps and stockpiling liquidity. These 

future-oriented measures are designed to enhance performance in the coming years. 

Net interest income at Group level totalled EUR 2.03 billion, down 6.4 percent on the 

previous year’s figure of EUR 2.169 billion. At BayernLB, this position fell by 13.1 per- 

cent from EUR 1.608 billion to EUR 1.398 billion. 

At EUR 340 million, the Group’s net commission income was virtually unchanged 

(against the previous year’s EUR 343 million). BayernLB, on the other hand, reported 

a 5 percent reduction to EUR 240 million. This was due to the further downsizing of 

customer credit business as well as lower commissions from securities transactions. 

In 2004, the financial markets were characterised by volatile interest markets that ral- 

lied strongly in the second half, buoyant and volatile equity markets and dynamic for- 

eign exchange markets. Against this backdrop, BayernLB succeeded in generating 

EUR 92 million in net income from financial transactions, compared to EUR 105 million 

in the previous year. The Group’s financial result rose by 19.7 percent (up EUR 21 mil- 

lion) to EUR 126 million. 

The varying performances of BayernLB and the Group are also reflected by administra- 

tive expenses. Group figures are affected, amongst other factors, by the merger of the 

Hungarian Konzumbank into MKB, concluded on 1 July 2004. The slight increase in 

administrative expenditure at Group level, by 1.9 percent to EUR 1.208 billion, con- 

trasts with BayernLB’s further reduction of this position, namely by 3.7 percent to 

EUR 830 million. 

Group personnel expenses increased by 4.9 percent to EUR 689 million. In addition to 

the acquisition-oriented activities of the subsidiaries, this can also be attributed to the 

aforementioned merger of the newly acquired Konzumbank with MKB, which added 

260 employees to the BayernLB Group headcount. At year-end 2004, the Group sub- 

sidiaries together had 375 employees more than at the end of the previous year. Per- 

sonnel expenses at BayernLB were maintained at the previous year’s modest level 

(EUR 475 million compared to EUR 472 million in the previous year). Remuneration 

levels for both standard pay scale employees and those under the Bank’s own pay 

scale were increased commensurately with the significantly improved earnings posi- 

tion. As per reference day, the headcount was down by 496 employees.

Group operating expenses were down slightly (by 1.9 percent), falling by EUR 10 mil- 

lion to EUR 519 million. Savings, achieved by measures such as the downsizing of 

BayernLB’s network of foreign and domestic entities, helped to offset the upward 

trend in operating expenses amongst the Group’s subsidiaries. In BayernLB, operating 

expenses were down 8.9 percent to EUR 355 million. Compared to 2002, this repre- 

sents a 25 percent reduction. 

In 2004, the target cost-income ratio (CIR) of 45 percent was once again achieved. The 

Group’s ratio was 44.4 percent (up 1.1 percentage points), while BayernLB achieved a 

ratio of 44.3 percent (up 3.1 percentage points). As per the calculation formula cur- 

rently used, the balance of other operating expenses and income was incorporated 

into calculation of the CIR. The previous year’s figures were adjusted accordingly. 

The balance of other operating expenses and income was up 84.3 percent to EUR 223 

million in the Group, and 15.4 percent to EUR 142 million at BayernLB. This was largely 

due to tax refunds in BayernLB’s favour, as well as one-off income posted by DKB. This 

income was attributable to the revaluation of risks due to the early termination of pay- 

ment obligations pursuant to the D-Mark-Bilanzgesetz (legislation created in connec- 

tion with German reunification). 

The low risk provisioning requirements in 2004 are attributable to the realignment of 

the credit portfolio, essentially carried out in the preceding years, the new risk policy 

and the thence lower risk costs arising from risk clusters. Risk provisioning expenditure 

amounted to EUR 157 million in the Group, compared to EUR 953 million in the previ- 

ous year. BayernLB, meanwhile, posted an income of EUR 76 million, compared to the 

previous year’s expenditure of EUR 697 million. Claims in respect of EUR 846 million 

at Group level and EUR 720 million at BayernLB were charged off from provisions for 

counterparty and country risks. As per 31 December 2004, provisions thus amounted 

to EUR 4.382 billion at Group level, compared to EUR 5.038 billion in the previous year, 

and EUR 3.384 billion at BayernLB, compared to EUR 4.249 billion in the previous year. 

For the first time in three years, both BayernLB and the Group were in a position to 

bolster reserves. 

Following comprehensive realignment of credit risks over recent years, in 2004, the 

participations portfolio was subjected to stringent assessment of its profitability. 

Value adjustments and assumptions of losses led to a negative revaluation result of 

EUR –404 million at Group level (compared to EUR –52 million in the previous year), 

and EUR –303 million at BayernLB (EUR –42 million in the previous year). 

After reinforcement of hidden reserves, the operating profit (after risk provisioning / 

revaluation) was one of the highest ever posted in BayernLB’s history. Compared with 

the previous year, there was an increase of around two thirds both at Group level and 

in BayernLB. At EUR 950 million, the Group figure is 73.7 percent up on the previous 

year, while BayernLB, with EUR 815 million, can report a 66.7 percent increase. 


99 

} Cost-income ratio 

} Risk provisioning 

and revaluation 

result 

} Operating profit 

considerably 

improved


} Payment settles 

EU state aid 

proceedings 

} Net income 

for the year 

} Corporates 

segment result 

The operating result does not include extraordinary expenses amounting to EUR 358 

million in the Group, and EUR 357 million at BayernLB. Of these figures, EUR 320 mil- 

lion relates to the payment to the Free State of Bavaria as part of the conclusion of the 

EU state aid proceedings. 

Due to the improvement of the result, tax expenses more than doubled both in the 

Group and at BayernLB. The former incurred tax expenses of EUR 252 million compared 

with EUR 104 million in the previous year; the latter EUR 175 million compared with 

EUR 80 million in the previous year. 

After partial profit transfer, which includes interest expenses for capital contributions 

of silent partners, and, standing at EUR 242 million in the Group and EUR 220 mil- 

lion at BayernLB, is comparable to the previous year’s levels of EUR 237 million and 

EUR 219 million respectively, net income for the year is EUR 98 million for the Group 

(compared with EUR 79 million in the previous year) and an unchanged EUR 63 million 

for BayernLB. This enables a distribution of 4 percent on the nominal capital for 2004. 

Segment results 

In 2004, the individual segments contributed to the EUR 950 million consolidated oper- 

ating profit as follows: 

EUR million 31.12.2004 31.12.2003* 

Corporates 485 133 

Real Estate 62 – 250 

Global Markets 76 279 

Financial Institutions & Sovereigns 99 116 

Savings Banks, Bavarian Municipals / 

Corporates 86 – 11 

Labo / LBS 109 173 

Group’s strategic subsidiaries 421 127 

Other – 388 – 20 

* Previous year figures adjusted based on the controlling system used in the year under review. 

The Corporates segment reported a year-on-year increase of EUR 352 million in its 

2004 operating profit. This increase is largely attributable to the net write-back of risk 

provisions. The segment reported a very pleasing return on equity of 33 percent, com- 

pared to the previous year’s 10.9 percent, thus exceeding our targets. The cost-income 

ratio increased year on year from 23.4 percent to 27.2 percent. The marked reduction 

in average staff capacities from 377 to 228 positions is largely due to the outsourcing 

of employees to the Risk Office Support Operations in conformity with the Minimum 

Requirements for the Credit Business of Credit Institutions, as well as the closure of 

both foreign and domestic entities.

In the 2004 financial year, the operating profit of the Real Estate segment totalled 

EUR 62 million, compared to an operating loss in the previous year of EUR 250 million 

because of high risk provisioning requirements due to conservative assessments. In 

addition to the reduction of risk provisions, this encouraging development was the 

result of increased income thanks to a slight fall in administrative expenses. Return on 

the average equity in 2004 stands at 13.8 percent and thus within the target range, 

compared to the previous year’s –55.1 percent. The cost-income ratio improved year 

on year from 29.9 percent to 26.7 percent. The considerable fall in average staff capac- 

ity from 234 positions in 2003 to 140 positions in 2004 is largely attributable to the 

outsourcing of employees to the Risk Office Support Operations, in accordance with 

the Minimum Requirements for the Credit Business of Credit Institutions. 

With a 2004 operating profit of EUR 76 million, the Global Markets segment generated 

a more modest contribution to the Group operating result than in the previous year 

(EUR 279 million). This downward trend was primarily due to the segment’s lower net 

interest income. The result was also affected by expenditure on measures aimed at 

preserving liquidity. The segment’s cost-income ratio stands at 70.3 percent, represent- 

ing a significant increase on the previous year’s ratio of 44.7 percent. The return on 

equity posted in 2004 was 12.5 percent, compared to 28 percent in 2003. The year-on- 

year decline in staff capacity, falling from 546 to 474 positions, was due to the closure 

of foreign entities as well as to personnel fluctuations at home. 

The Financial Institutions & Sovereigns segment reported a 2004 operating profit of 

EUR 99 million, compared with the previous year’s EUR 116 million. This decline is 

attributable to increased administrative expenses and a slight reduction in the net 

interest income. Due to these factors, the cost-income ratio rose from 18.8 percent 

to 31 percent. At 29 percent, the rate of return on the equity capital disclosed was 

below that of the previous year (42.8 percent). Nonetheless, it still clearly exceeded 

the Group target. 

The segment Savings Banks, Bavarian Municipals / Corporates posted a much improved 

operating profit of EUR 86 million, compared with the previous year’s result of EUR – 11 

million. This was predominantly the result of the write-back of loan loss provisions 

built up in previous years in credit business. Comparison with the previous year is only 

possible to a limited degree due to portfolio realignment. The segment’s return on 

equity of 24.1 percent, compared with the previous year’s – 4.1 percent, is a clear illus- 

tration of its successful business performance. Likewise, the cost-income ratio 

improved significantly year on year from 77.3 percent to 65.3 percent. 

The exclusively retail-oriented Labo / LBS segment generated a contribution of EUR 109 

million to the consolidated operating profit in 2004, compared to EUR 173 million in 

2003. While Labo posted a decline in its result due to increased expenditure on fund- 

ing, LBS, on the other hand, reported yet another increase. The return on equity of the 

segment as a whole was thus maintained at the level of the previous year, standing at 

8.6 percent compared to 8.7 percent in 2003. At 49 percent, the cost-income ratio 

posted represents an increase against 2003’s ratio of 44.5 percent. 


101 

} Real Estate 


} Global Markets 


} Financial 

Institutions & 

Sovereigns 


} Savings Banks, 

Bavarian Municipals 

/ Corporates 


} Labo / LBS 

segment result


} The Group’s 

strategic subsidiaries 

are strongly 

retail-oriented 

The segment consisting of the Group’s strategic subsidiaries encompasses the activities 

of the BayernLB Group in the national and international banking sectors. These opera- 

tions are divided up among the following majority holdings of the Bank: 

• Deutsche Kreditbank AG, Berlin 

• Landesbank Saar, Saarbrücken 

• Banque LBLux S.A., Luxembourg 

• Magyar Külkereskedelmi Bank Rt. (MKB), Budapest 

• LB(Swiss) Privatbank AG, Zurich 

• Bayern-Invest Kapitalanlagegesellschaft mbH, Munich 

• BLB Asia Pacific Ltd., Singapore 

In the 2004 financial year, the segment contributed roughly 44 percent of the Group’s 

operating profit, compared with 23 percent in the previous year. The resulting return 

on equity, standing at 14.1 percent, represents a significant increase compared to the 

2003 figure of 4.3 percent. The enhanced ROE, coupled with a cost-income ratio for 

2004 of 38.6 percent (47.1 percent in 2003), are a clear indication that the Group’s stra- 

tegic subsidiaries enjoyed a successful financial year, especially in view of the strongly 

retail-oriented nature of the segment. The year-on-year increase in average staff capac- 

ity from 3,411 to 3,610 employees is primarily due to the merger of MKB and the Hun- 

garian Konzumbank. 

The clearly negative operating result of EUR – 388 million posted by the Other / Consol- 

idation segment, compared to EUR – 20 million in the previous year, is largely due to 

value adjustments and assumptions of losses in participations that are not assigned to 

any operational business area.

Outlook 

The forecasts relating to the future performance of the BayernLB Group are estimates 

that BayernLB arrived at using all the information available at the time when the report 

on the Bank and the Group was drawn up. If the assumptions underlying our forecasts 

prove incorrect, the actual results may differ from those currently anticipated. 

Global economic forecast 

The economic outlook for 2005 inspires only a limited degree of confidence. A self-sus- 

taining upward trend is not yet in sight for Germany. During 2005, oil prices must gra- 

dually come back down if expansionary global trade is to continue: acceptable econo- 

mic growth in Germany depends not least on the latter. Only if this happens will the 

depressing factors afflicting the global economy be held in check. This applies equally 

to the development of the euro exchange rate. Another strong revaluation of the euro 

would take a serious toll, especially on the German economy, which is heavily depen- 

dent on foreign trade. Furthermore, volatile currency markets necessarily affect the 

development of the capital markets. If oil prices remain high, there would be negative 

repercussions for both bond and equity markets. 

The following factors are also likely to affect BayernLB’s performance in the 2005 finan- 

cial year: 

Legal outlook 

US veterans of the first Gulf War (in 1991) filed a lawsuit in September 2003 in the Uni- 

ted States against a dozen industrial corporations (mostly from the chemicals sector) 

as well as about 30 European and Asian banks, among them BayernLB. The plaintiffs 

claim they have suffered bodily damage from chemicals illegally supplied to the former 

Iraqi regime by these industrial corporations and that the delivery was financed – also 

illegally – by the banks in question. Together with various other banks, BayernLB has 

commissioned a renowned American law firm to protect its interests. In concurrence 

with this firm, BayernLB continues to consider this charge unfounded. The Bank, toge- 

ther with all of the other banks in question has thus filed a motion to dismiss, with 

a view to obtaining a summary judgement in favour of the banks. This would avoid a 

long-drawn-out case. At the moment we are not in a position to make a statement 

regarding the decision on this motion. 


103 

} Gulf War veterans’ 

class action


} Access to adequate 

liquidity secured 

at all times 

} Owners firmly 

behind BayernLB 

Liquidity 

The liquidity of both BayernLB and the Group were secured in 2004 at all times. 

During the period under review, a new IT system was introduced to manage liquidity 

in BayernLB. A follow-up project was rolled out with the objective of achieving more 

timely liquidity management, as well as refining methods to this end. 

In order to guard against future liquidity risks and increased funding costs after the 

withdrawal of Gewährträgerhaftung (guarantee obligation) and Anstaltslast (mainte- 

nance obligation), a portfolio strategy was implemented for long-term funding. Reali- 

sation of this strategy will continue in 2005. 

In this way, BayernLB is ensuring that once the guarantee mechanisms no longer apply 

from July 2005, it will still have access to sufficient liquidity for planned business activi- 

ties at all times. 

Planned capital increase 

Further reinforcement of the capital base represents one of BayernLB’s key objectives. 

The Free State of Bavaria and the Association of Bavarian Savings Banks will make a 

50 percent contribution each to a cash capital increase carried out through BayernLB 

Holding AG. The transaction, totalling EUR 640 million, will be completed in two 

tranches (2005 and 2006). This move will not affect BayernLB’s ownership structure. 

The planned capital increase is a clear demonstration of the owners’ loyalty to 

BayernLB. This, together with the planned conversion of the dated silent capital con- 

tributions into undated ones, is another major factor in ensuring BayernLB’s long-term 

earnings after the abolition of the guarantee mechanisms in July 2005. 

Regional guarantee fund 

In addition to the cross-guarantee system of the Sparkassen-Finanzgruppe, which 

spans the whole of Germany, a regional guarantee fund is to be created in order to fur- 

ther underpin the cooperation of the Sparkassen-Finanzgruppe within Bavaria. The 

Bavarian guarantee fund, with a total volume of EUR 1 billion, will be endowed by the 

Bavarian savings banks and BayernLB, according to a ratio based on the respective risk- 

weighted assets.

Strategy / rating 

Upon withdrawal of the state guarantee instruments for new liabilities on 18 July 2005, 

BayernLB will receive valuations from the rating agencies for unguaranteed and uncov- 

ered liabilities for the first time. Both the results of the 2004 financial year and assess- 

ment of BayernLB’s business outlook are crucial to the rating agencies’ valuation. 

Various indications of the future unguaranteed ratings were published in 2004 by 

agencies such as Fitch Ratings (A +), Moody’s (A1 floor rating of the German Savings 

Bank Organisation) and Standard & Poor’s (A –). In view of these indications, BayernLB 

is confident that it can achieve its target rating of at least A flat or A + from all major 

rating agencies, all the more so given its performance in 2004. 

As part of the new business model, the consistent implementation of measures aimed 

at enhancing sustainable earnings, while taking into account the Bank’s risk and par- 

ticipations strategy, remains the single most important element of BayernLB’s target 

framework. These measures include: 

• targeted exploitation of market opportunities, particularly those aimed at generat- 

ing higher commission income, by strengthening customer relationships while con- 

tinually adapting the product range 

• expansion of retail capability, together with the Bavarian savings banks and through 

the Group’s subsidiaries at home and abroad 

• stepping up collaboration with the savings banks based on the cooperation agree- 

ments signed with the latter; intensifying cooperative market development in the 

core market of Bavaria is a key priority here 

• enhancing global support for the savings banks in serving and assisting their cus- 

tomers in the Eastern European and Asian markets, particularly through the German 

Centre in Shanghai 

• seizing the opportunities offered by EU enlargement in CEE 

• targeted exploitation of market opportunities in selected economic locations around 

the world, while taking into account risk, return and costs 

In addition, BayernLB will step up core internal projects aimed at optimising manage- 

ment and timely implementation of the Basel II and IAS / IFRS requirements. 

The progress BayernLB has made in its strategic reorientation is flanked by its new 

marketing image, through which the Bank informs both customers and the general 

public about its competencies and range of services. 

BayernLB anticipates a stabilisation of the operating result in 2005. Factors contribut- 

ing to this will include an expected significant improvement of the revaluation result, 

as well as normalised risk costs in the Bank’s credit business. Extraordinary charges 

such as those experienced in the 2004 financial year are not anticipated, leading 

BayernLB to expect a stabilisation of the overall performance. 


105 

} BayernLB well 

prepared for 

rating agencies’ 

valuations of 

unguaranteed 

and uncovered 

liabilities 

} BayernLB’s 

reorientation 

visually reflected 

in new marketing 

image 

} Stabilisation of 

operating result 

expected


} Bank-wide 

controlling concept 

} Organisational 

basis of risk 

management and 

controlling 

Risk report 

Risk monitoring and control 

BayernLB employs uniform procedures to control and monitor its risks throughout all 

of its business areas. The global objective is to optimise the Bank’s risk / return profile 

for all of the various types of risk. Responsibility for risk identification, analysis and 

assessment lies with the Risk Office Support Operations, which is also charged with 

attending to, processing, monitoring and controlling risks on an ongoing basis. 

The organisational framework underlying the Bank’s risk controlling system takes into 

account the Minimum Requirements for the Credit Business of Credit Institutions (MaK) 

and the Minimum Requirements for the Trading Activities of Banks (MaH). During the 

period under review, this framework was developed further. Thus, in 2004, responsibil- 

ity for credit and collateral administration was delegated to the Risk Office Support 

Operations. 

Risk management principles are defined by the enhanced credit policy. This is supple- 

mented by the credit risk strategy and specific policies governing items such as risk 

provisioning. 

The credit risk strategy defines standards for credit business as well as regulations 

governing the Bank’s handling of credit and counterparty risks, on the basis of general 

legal and supervisory terms and conditions. In particular, it sets key parameters for the 

credit portfolio, and defines the Bank’s principles for risk capital controlling (focusing 

on risk / return aspects). The Board of Management reviews the credit risk strategy on 

a yearly basis. 

Economic capital, which is measured using economic benchmarks, is becoming increa- 

singly important for controlling and limitation purposes, as is the Value at Risk (VaR) 

model. VaR is a method used for quantifying the risk potential that is offset by the 

capital allocated for risk hedging in the risk capacity calculation. 

The risk potential arising from country, market and operational risks is calculated, 

limited and controlled using the VaR method. Up to now, counterparty risks were cont- 

rolled by limiting the risk assets provided and using the expected losses as a basis. At 

the same time, important experience was gathered within the context of pilot VaR cal- 

culation projects. In the future, the Bank will also employ the CreditRisk+ method to 

control counterparty risks. For this method, in line with its target rating, BayernLB 

assumes a confidence level of 99.96 percent (with a one-year holding period). 

From the beginning of 2005, the economically assessed risk capital requirement has 

been offset by the cover funds available as part of an ongoing monitoring process. This 

is initially being carried out as a test phase. A buffer determined by the Board of Man- 

agement helps to cover unusual market fluctuations (stress tests) and further risks that 

fall outside the scope of the concept.

BayernLB’s subsidiaries (Hungarian Foreign Trade Bank, Budapest; Banque LBLux S.A., 

Luxembourg; Landesbank Saar, Saarbrücken; Deutsche Kreditbank AG, Berlin) imple- 

ment risk controlling processes, strategies and procedures as well as risk management 

in accordance with their own individual purposes. 

The Group Audit Division supports the Board of Management in its capacity as a proc- 

ess-independent unit within the internal monitoring system. Its activities are defined 

by the Minimum Requirements for the Structure of Internal Audits at Banking Institu- 

tions (MaIR) issued by the BaFin. 

Monitoring and controlling the various risk types 

Counterparty risk 

BayernLB defines counterparty risk as the potential loss resulting from a counterparty’s 

default or from a decreased value owing to an unforeseeable deterioration in a coun- 

terparty’s credit standing. Counterparty risks may be broken down into risks arising 

from traditional credit business, issuer risks resulting from securities transactions and 

counterparty risks from trading transactions. 

BayernLB bases every credit extension on an individual analysis and assessment of the 

borrower’s credit standing, using certain rating methods. In 2004, introduction of a 

new 24-tier rating method was continued according to plan. This procedure is 

designed to comply with the requirements of Basel II. The rated gross exposure of the 

Group may be broken down as follows: 

Gross exposure of the Group 

by rating category 

[%] 

80 

60 

40 

20 

0 

2003 

2004 

63 68 

27 22 

6 7 

2 1 2 2 

0 to 7 8 to 11 12 to 17 18 to 21 Default 

categories 


} Group Audit 

Division 

} Definition 

} Credit rating 

107


} Bank-wide balance 

sheet analysis and 

early detection 

systems 

} Customer and 

portfolio limits 

} Limiting risk 

clusters 

} Collateral 

} Credit risk model 

} RORAC 

With a view to improving credit rating assessment, a uniform balance sheet analysis 

system was introduced throughout the Bank, comprising all of the major accounting 

standards (HGB, IAS, US-GAAP etc.). This system is being enhanced by the addition of 

budgeted balance sheets and forecasts of future balance sheet changes. Furthermore, 

the early detection procedure was revised and harmonised. The “intensive care” and 

“handling of problem loans” sub-processes were also redesigned and adjusted to meet 

these requirements. 

BayernLB limits potential losses depending on the risk profile of each product group 

using approaches guided by book value or market value. As well as setting limits at 

business partner level, the Bank carries out risk controlling at portfolio level with the 

help of a target portfolio. Portfolio structure limits are thus defined, e.g. for sector, 

country or rating category. Concentration risks in particular are taken into considera- 

tion. A cluster limit is determined for each borrower or liability relationship. The target 

portfolio is projected over several years, subjected to continual revision and, if neces- 

sary, changed in line with evolving business environments. 

Losses resulting from a counterparty’s default are fundamentally limited by the 

assumption and risk-oriented structuring of collateral customary in banking business. 

In derivatives trading, master agreements are usually concluded for the purpose of 

close-out netting. Some collateral agreements restrict the default risk associated with 

individual trading partners to an agreed maximum and authorise the call for (addi- 

tional) collateral should this maximum be exceeded. 

In 2004, the framework for calculating expected loss was significantly enhanced by the 

introduction of new scorecard and simulation rating methods. Furthermore, “loss 

given default” values (statistical loss amount in a given case of default), calculated as 

part of the project undertaken jointly by several German landesbanks, significantly 

enhance the calculation of expected losses arising from specific transactions. In order 

to cover unexpected loss, risks are backed by an appropriate amount of capital. 

In 2004, with a view to safeguarding the Bank’s return / performance, the RORAC 

(return on risk adjusted capital) ratio was introduced. In the current year, it was 

adopted for overall portfolio management. Thus, the income from a transaction, cus- 

tomer relationship or business area is now determined relative to the risk capital uti- 

lised. 

In the year under review, credit exposure in the Group was decreased by around EUR 

0.9 billion (by EUR 7.2 billion at Bank level). In addition to the lacklustre economic 

trend and concomitantly lower demand for credit, this was attributable to initiatives 

aimed at decreasing clusters and concentrations in the credit portfolio.

Gross exposure 

by Group entity 

[%] 

80 

60 

40 

20 

0 

2003 

2004 

BayernLB Deutsche SaarLB Banque LBLux MKB 

Kreditbank 

Efficient and targeted portfolio management is based on reporting that is guided by 

the Bank’s strategy and observes uniform standards while taking into account risk and 

return aspects. In BayernLB, reports are prepared on credit and country risk, sector 

portfolios, and problem exposures. 

In the interest of economic controlling and strategic alignment of sector exposure, 

BayernLB uses a grouping code based on risk and added value, which breaks down 

exposure into 30 sector groups. Based on this system, exposure for the main sector 

groups is classified as follows: 

Gross exposure of the Group 

by sector 

[%] 

60 

40 

20 

0 

2003 

2004 

85 83 

48 53 

8 8 

14 13 

4 4 2 3 1 2 

10 10 

4 3 2 2 

16 13 

Banks Non-profit Real estate Utilities Automotive, Other Private 

organisations inc. suppliers customers 



6 6 

} Reporting 

109 

} Sector portfolio


} Derivatives 

business in 2004 

} Risk provisioning 

in 2004 

BayernLB uses derivative instruments in order to reduce price and / or interest rate risks 

associated with the conclusion of customer transactions, as well as those arising from 

asset / liability management and the issuance of structured bonds. After these instru- 

ments have been used, any residual risks are subject to the risk limit and risk capital 

controlling. Derivatives are principally used to diversify credit risks or as hedging 

instruments. In addition to the use of derivatives, risk hedging is also carried out by 

the active syndication of loans, or with the help of structured products such as asset 

backed securities (ABS). 

At Group level, the credit equivalent amount from derivative transactions, taking 

account of netting agreements, totalled EUR 3.8 billion at year-end, which corresponds 

to 0.38 percent of the nominal contract volumes (for detailed information on the entire 

scope of derivatives business, see “Notes to the Accounts” in Section V). 

All counterparty risks identified in this period were covered appropriately through risk 

provisions. In 2004 on balance, EUR 222 million was allocated to provisions for coun- 

terparty and country risks at Group level (write-backs totalling EUR 92 million at Bank 

level). Allocations were thus reduced by 83.5 percent year on year. In relation to the 

average credit volume, the default rate in the credit business at Group level was 0.36 

percent (0.38 percent at BayernLB alone). Direct write-offs on claims came to EUR 87 

million at Group level and EUR 58 million at Bank level. 

Provisions for counterparty and country risks* 

EUR million 

Group 

2004 2003 2002 2001 

As at 1 January 5,038 4,625 2,784 2,178 

Write-backs – 525 – 420 – 398 – 220 

Utilisation – 846 – 692 – 346 – 377 

Allocations 748 1,766 2,659 1,166 

Other changes** – 33 – 241 – 74 37 

As at 31 December 4,382 5,038 4,625 2,784 

* excluding general loan loss provisions, other loan loss provisions, change in reserve pursuant to Sections 340f and 340g 

German Commercial Code and credit standing-related write-downs on securities 

** Change in group of consolidated companies, exchange rate changes and account transfers

Investment risk 

Similarly to counterparty risk, investment risks (shareholder risks) represent potential 

losses arising from the provision of equity capital and related collateral to third parties. 

BayernLB exerts an influence on the business and risk policies of its subsidiaries in par- 

ticular through its representation on their shareholder committees and supervisory 

bodies. Especially for its strategic participations, BayernLB aims to gain corporate con- 

trol of these companies with a participation of more than 50 percent, or, alternatively, 

by means of voting commitment agreements. 

With regard to investment risk, the Bank has implemented clear functional segregation 

between responsibility for profit contribution at Group level, or “making”, and respon- 

sibility for “monitoring” the profits. In terms of this functional segregation, major sub- 

sidiaries with strategic significance for the Group are defined as participations that are 

responsible for their contribution to the consolidated results. All other participations 

come under the responsibility of individual business areas / support operations. This 

functional segregation is accompanied by individual monitoring of portfolio perform- 

ance in each unit. Strategic and return-oriented realignment of the overall participa- 

tions portfolio, a measure introduced in previous years, continues to be pursued. 

Country risk 

A country risk is the risk that, due to 

• a possible worsening of macro-economic conditions 

• political or social upheaval 

• the nationalisation or expropriation of assets 

• the non-recognition by a government of cross-border liabilities 

• foreign exchange control measures or 

• currency depreciations or devaluations 

in the country concerned, a borrower or the country itself is unable to fulfil its obliga- 

tions at all or in due time. 

In 2004, the country portfolio was influenced by the situation in Central and South 

America as well as events in the Near and Middle East. 

For the purpose of assessing the country risk, the economic situation of the respective 

country and, more importantly, the ability to effect debt service payments are analysed 

on an ongoing basis with the help of both quantitative and qualitative information. 


} Definition 

} Controlling 

} Outlook 

} Definition 

111 

} Influential factors


} Controlling 

} Monitoring and 

reporting 

} Risk structure 

} Situation and 

outlook for the 

regions 

Country risks are controlled with the help of country limits derived from a model port- 

folio on the basis of the country risk capital provided. The limit structure is determined 

by various factors, including country ratings, resulting default probabilities and LGDs 

(loss given default values), as well as international trade flows. Concentrations in indi- 

vidual countries lead to increased drawings on risk capital. In the year under review, a 

Value at Risk of EUR 670 million was calculated for BayernLB in terms of country risk, 

based on a risk capital of EUR 881 million. 

Central risk controlling monitors compliance with country limits on an ongoing basis. 

Exceeded limits are reported directly to the Board of Management. 

Ninety-two percent of BayernLB’s foreign exposures are in countries that do not have 

limits (usually countries in the top two rating categories). Countries with limits account 

for 8 percent of the Bank’s exposures abroad. Thus, exposures in countries without 

limits increased relatively to those with limits against the previous year. 

Exposures in countries with limits at Group level increased by 5 percent to EUR 15 bil- 

lion, while falling by 7 percent to EUR 12 billion in the Bank. Of foreign exposures, 

85 percent at Group level and 84 percent in the Bank are classed in the good rating 

categories 0 – 11, of which 42 percent (53 percent in the Bank) are rated in the very 

good categories 0 – 7. Only 15 percent (16 percent in the Bank) are classified in the 

rating categories 12 – 24. 

In Central and South American emerging markets, the economic rebound continued 

in 2004. This has triggered a risk of inflation in some countries. Exposure in countries 

with limits in this region remained roughly unchanged year on year (down 5 percent at 

Group level, down 6 percent in the Bank). 

In the Near and Middle East, the economic outlooks of the oil-producing countries 

have brightened. Nonetheless, political risks linger in some parts. 

Exposure in Asia was down 12 percent in 2004 (down 23 percent at Bank level). This 

was due primarily to the closure of Asian branches. 

The eight new EU members from Central and Eastern Europe continued to catch up in 

terms of economic development during the year. The upward trend in these countries 

is carried by both export activities and domestic economic activity. Central and Eastern 

Europe and the CIS countries gained in importance in the country portfolio, increasing 

by 39 percent in absolute terms at Group level, and 37 percent in the Bank alone.

Net exposure of the Group 

by countries with limits 

[%] 

40 

30 

20 

10 

0 

2003 

2004 

All discernible country risks were accounted for by risk provisioning in the balance 

sheet. Due to the broad stabilisation of the global economy, BayernLB was able to 

reduce country risk provisions to EUR 51 million in 2004. Neither at Group nor at Bank 

level were there direct write-offs on claims. 

Provisions for country risks:* 

EUR million 

31 41 

CEE / CIS Asia Latin America Near and Other 

Middle East 

Group 

2004 2003 2002 2001 

Net exposure* 67 167 182 292 

Country risk provisions 51 97 112 198 

Provision ratio 76.2 % 58.3 % 61.6 % 67.9 % 

* Total of individual country-related exposures for which provisions were made 

Liquidity risk 

35 29 

8 7 7 8 

BayernLB defines liquidity risk as the risk of being unable to meet current or future 

payment obligations either fully or on time. Liquidity risk also encompasses the risk 

that, in the event of a liquidity crisis, funding is only available at higher market rates 

than anticipated; or that assets can only be sold below market rates. 

Due to the impending withdrawal of the AAA rating as per 18 July 2005, availability of 

liquidity at acceptable market rates was a prime focus for BayernLB in 2004. In order to 

hedge against the possibility of higher funding costs in the future, BayernLB drew up a 

portfolio strategy for long-term funds on the liabilities side. 


19 15 

} Country risk 

provisioning 

} Definition 

} Risk situation 

113


} Controlling 

} Reporting 

Management of the liquidity position and strategic liquidity management are the 

responsibility of the Global Markets Business Area. The former task ranges from man- 

agement of intraday cash flows to measures aimed at compliance with the supervisory 

Principle II ratio. Strategic liquidity management, on the other hand, ensures medium- 

to long-term solvency, projected over a forecast period of up to 20 years. 

In terms of safeguarding the liquidity position, according to supervisory requirements, 

a bank’s liquidity is deemed sufficient if the weighted liquid funds available within 

30 days cover the weighted payment obligations that are callable during this period. 

In the year under review, the ratio was always between 1.18 and 1.36. The minimum 

supervisory requirement of 1.0 was thus guaranteed at all times. 

The Global Markets Business Area comprises management tasks relating to Principle Il, 

all funding activities, as well as collateral management. The Bank ensures access to 

the main international money and capital markets by placing certificates of deposit, 

medium-term notes, bearer bonds, covered bonds (pfandbriefe) and local government 

bonds or other funding instruments. Of particular importance here is collateral man- 

agement, which both covers the necessary lines for trading partners and ensures the 

superlative quality of BayernLB’s registers of cover. 

Each subsidiary of the BayernLB Group balances its liquidity independently. Although it 

is not stipulated under national law, each subsidiary reports its Principle II ratio to the 

parent company. To disclose their structural liquidity positions, the subsidiaries submit 

cash-flow redemption reports to the Bank’s Global Treasury and Funding Division. 

To safeguard solvency even in times of crisis (worst case scenarios), the Bank has an 

appropriate portfolio of highly liquid securities that can be disposed of. This means 

that, even when markets are tight, BayernLB can procure sufficient liquidity by way of 

repo and central bank tender deals. As a rule, intraday and overnight net liabilities 

must be covered by access to central bank funds. The Bank has developed a special 

scenario simulating a liquidity crisis, which reproduces the implications of such a crisis 

for future cash flows. 

During the regular Board meetings, the Global Treasury and Funding Division keeps 

BayernLB’s Board of Management continuously informed of the current liquidity posi- 

tion.

Market price risk 

Market risk comprises interest rate, currency, share price and commodity risks. The 

source of these market risks may be securities (or similar products), money market or 

foreign exchange products, commodities, derivatives, currency or performance hedg- 

ing, equity or quasi-equity or the Group Treasury. 

Market risks at BayernLB are monitored by Market Risk Controlling, which is independ- 

ent of Trading. The maximum loss permitted for the assumption of market risks is lim- 

ited by a fixed amount of risk capital covering this risk type. Market risks are actively 

managed and monitored using a limit system. 

For market risks, BayernLB employs a Value-at-Risk method, which calculates all market 

risks on the basis of historic market fluctuations (volatilities) and market correlations. 

They are determined anew on every day of trading. Moreover, the impact of extraordi- 

nary market price changes and extreme market situations or disturbances to normal 

market situations are also analysed. Therefore, stress tests in the form of crisis scenar- 

ios and worst-case analyses are also carried out in addition to the traditional risk sce- 

narios. 

By means of backtesting, the soundness and quality of the individual risk methods are 

verified. This entails a comparison of the risk forecast with the actual results (profit or 

loss). 

The forecasting quality of the risk model has been pronounced good under the Basel I 

traffic light approach and Principle I: on no trading day was the prognosis for the over- 

all risk exceeded as the result of a negative daily performance. 

The responsible Board Member is informed daily on the Bank’s market risk and result- 

ing performance situation. The whole Board of Management receives a monthly report 

in which any peculiar developments are explained. 

In the 2004 financial year, BayernLB’s market risk capital was set at EUR 709 million at 

Bank level. EUR 554 million of this amount was allotted to the individual portfolios. 

The remaining reserves amounted to EUR 155 million. 

During 2004, the Bank’s market risk averaged EUR 42.2 million in the trading and 

investment books (VaR with a holding period of one day). Over the course of the year, 

it fluctuated between EUR 30.9 million and EUR 55.6 million. 


} Definition 

} Controlling 

} Measuring market 

price risk 

} Backtesting 

115


VaR in EUR million 

60 

50 

40 

30 

2. 1. 2004 2. 2. 2004 2. 3. 2004 2. 4. 2004 2. 5. 2004 2. 6. 2004 2. 7. 2004 2. 8. 2004 2. 9. 2004 

(Figures for the Bank; VaR with a holding period of one day) 

The following table shows the Bank’s VaR for the various different risk factors: 

VaR bank-wide for different risk factors 

EUR million 

VaR 

Average 

VaR 

Minimum 

2004 2003 

VaR 

Maximum 

VaR 

End of 

period 

VaR 

End of 

period 

Interest rate risk 36.15 23.67 50.38 29.60 40.94 

Share price risk 4.45 0.10 8.47 3.83 7.76 

Currency risk 5.58 2.15 15.15 12.47 4.91 

Commodity risk 0.31 0.09 0.77 0.68 0.24 

Volatility risk 0.35 0.19 0.97 0.89 0.27 

(Figures for the Bank; VaR with a holding period of one day) 

The “market liquidity shortfall” scenario (simulation of a liquidity shortfall in the mar- 

ket) captures the risk at a 20-day holding period. At year-end, the Bank’s VaR for this 

scenario stood at EUR 144.5 million. BayernLB’s risk capital of EUR 709 million was suf- 

ficient to cover potential losses at all times. 

Test scenarios were created for MaH-relevant portfolios, based on situations such as a 

rise in interest rates of up to 110 basis points, a 15 percent appreciation / depreciation 

of the euro, or a 30 percent fall in share prices. These scenarios are based on the IMF’s 

FSAP study conducted in 2003. For all of these scenarios, the Bank’s liable capital was 

sufficient to cover all possible losses.

Operational risk 

BayernLB defines operational risk (OpRisk) as the risk of an unexpected loss occurring 

as a result of human error, a process or control deficiency, a technical failure, a disaster 

or any negative external factor. OpRisk also encompasses legal risks. 

BayernLB has a central, independent OpRisk controlling unit which is entrusted with 

the task of guiding the Group on all methods, processes and systems relating to 

OpRisk controlling and management. Management of operational risks is the responsi- 

bility of the individual local OpRisk management units of the business areas and sup- 

port operations. 

The OpRisk controlling unit compiles operational loss data on a continuous basis as 

part of an institutionalised reporting system. It also conducts qualitative assessments 

in the business areas and support operations, calculates the operational Value at Risk 

(OpVaR) using a special simulation technique known as Monte Carlo simulation, based 

on historical internal and external loss data, and reports to the Board of Management 

and the business areas and support operations. The report encompasses data on the 

loss situations of major subsidiaries / participations. 

During 2004, in the interest of early detection, risk indicators for operational risk were 

introduced. These are known as key risk indicators, and are allocated to the core areas 

of personnel (e.g. overtime factors, fluctuations), risk management (e.g. exceeded lim- 

its), IT (e.g. number of virus alerts) and transactions (e.g. cancellations / queries). 

In 2004, the expected operational loss amounted to EUR 5.8 million at Bank level, com- 

pared to EUR 7.6 million in the previous year. The OpVar peaked at EUR 262 million, 

compared to the previous year’s value of EUR 440 million, but had fallen to EUR 182 

million by year-end. This decline can be attributed to the significant downward trend 

in losses. Thus, in 2004, losses were down 49 percent to EUR 1.29 million. Losses of 

EUR 2.09 million were reported at Group level. 

In the area of legal risk, the EU state aid proceedings in relation to the transfer of capi- 

tal through the Free State of Bavaria in the form of special housing construction funds 

has been resolved. 

Major developments in 2005 will include a data consortium aimed at improving the 

data basis for calculating OpVaR, and offering the opportunity of loss benchmarking 

together with members of the Association of German Public Sector Banks, as well as 

ongoing development of business continuity planning and reduction of the required 

OpRisk capital by targeted use of insurances. 


} Definition 

} Controlling 

} Reporting 

} Development 

of risks 

} Legal risk 

} Outlook 

117


Summary and outlook 

Efforts undertaken during 2004 and previous years in the area of risk controlling and 

management also contributed to the Bank’s overall positive performance in the year 

under review. Thanks to these efforts, risks threatening the portfolio, or jeopardising 

performance at BayernLB, were identified in good time, assessed and controlled. 

Other milestones were: 

• optimisation of structural and procedural organisation for credit transactions, partic- 

ularly the processes for handling problem loans 

• enhancement of the risk policy and strategy (e.g. by the introduction of a loan loss 

provisioning policy) 

• improvement of the methods and tools used for risk analysis and assessment, partic- 

ularly balance sheet analysis software and rating methods 

• enhancement of the supervisory risk capacity calculation (in accordance with Princi- 

ple I) by the introduction of economic controlling (using Value at Risk) 

• reduction of risk clusters and concentration risks 

BayernLB considers risk controlling and management, both internally at the Bank and 

in cooperation with the savings banks associations, to be a crucial competitive factor 

in the long term. Both the economic demands of competition and supervisory provi- 

sions will necessitate the further strengthening and refinement of risk controlling and 

management procedures over the next years. 

The fine-tuned assessment and adequate pricing of counterparty risks will remain the 

main tasks. In addition, economic capital controlling will be pursued for all measurable 

risks and at all controlling levels. Early detection of risks, coupled with targeted risk 

reduction measures, will be developed further. The regulations and instruments neces- 

sary for these objectives are being developed on an ongoing basis.

119

Without a dynamic force there would be no evolution. When there is 

dynamic activity, something new and better can evolve. Which factors 

will play a more important role in the future? Putting our thoughts into 

gear is essential – asking the right questions to fi nd the right answers. 

The driving force behind every 

change: dynamic energy.

5 Report by the Board of 

Administration, accounts of 

BayernLB and the BayernLB Group 

and notes to the accounts 

Report by the Board of Administration 124 

Balance sheet and profit and loss account 128 

Consolidated balance sheet and profit 

and loss account 134 

Consolidated statement of changes 

in shareholders’ equity 140 

Cash flow statement for the Group 141 

Segment report for the Group 144 

Notes to the acccounts and consolidated accounts 148

124 Report by the Board of Administration, accounts of BayernLB and the BayernLB Group and notes to the accounts 

Report by the Board of Administration 

In addition to a difficult banking environment and still weak economic situation, the 

2004 financial year was marked by high levels of insolvency as well as intense debate 

on banking structures. The Board of Administration’s task of advising and supporting 

the Board of Management on various issues, including the consistent implementation 

of the Bank’s strategic realignment, was also marked by this challenging backdrop. 

All of the Board’s efforts were particularly aimed towards strengthening the Bank’s 

capital resources and increasing its profitability in view of the withdrawal of Anstalts- 

last (maintenance obligation) and Gewährträgerhaftung (guarantee obligation) in 

July 2005. 

We advised and supervised the Bank’s management on an ongoing basis in accordance 

with our mandate as governed by law and the Bank’s statutes. 

Engaging in open dialogue with the Board of Management, we discussed the planned 

business policy, debated the Bank’s strategy and addressed fundamental questions of 

corporate planning. 

The Board of Management provided us with regular, comprehensive and up-to-date 

information on the Bank’s performance, in both written and oral format. Particularly 

important aspects included the Bank’s position with regard to earnings and expendi- 

ture, portfolio performance, the risk situation and risk management, significant find- 

ings of the internal auditors’ reports and important events and transactions. During 

the Board of Administration’s eleven meetings, formal resolutions were passed where 

prescribed by law or the Bank’s statutes. Procedures requiring the approval of the 

Board of Administration were submitted and decided upon. Representatives of the 

German Financial Supervisory Authority (BaFin) and of the Deutsche Bundesbank 

also attended these meetings on a regular basis, thereby ensuring direct contact and 

cooperation. 

Furthermore, the Chairman and Deputy Chairman of the Board of Administration regu- 

larly discussed current developments and decisions of the Board of Management, 

working particularly closely with the Chairman of the Board.

Report by the Board of Administration, accounts of BayernLB and the BayernLB Group and notes to the accounts 

New strategy for BayernLB 

As mentioned above, a key focus of our work was the consistent implementation of 

the Bank’s new strategy and concomitant consolidation or improvement of July 2004’s 

nominal shadow rating in the A category. 

Measures initiated by the Bank were extensively conferred upon with the Board of 

Administration. Furthermore, the Board of Management provided information on the 

status of implementation of the new strategy on an ongoing basis. 

Numerous aspects of the new business model were elaborated and refined. Key exam- 

ples of this were the streamlining of the foreign entities network, further intensifica- 

tion and optimisation of the market development being carried out by the Bank in con- 

junction with the Bavarian savings banks, and BayernLB’s concomitant development as 

network bank of the association. The Eastern European strategy was also re-examined 

and revised. 

The Board of Administration devoted considerable effort to continuing the enhance- 

ment of the earnings and cost situation. Thus, for example, the Bank was able to termi- 

nate personnel reduction plans before schedule. 

We also worked intensively on optimising both the credit and participations portfolios. 

Presentations explaining the most important of the Bank’s strategic participations gave 

the Board of Administration a more in-depth insight into the participations portfolio. 

Further reduction of concentration risks was the principal objective in terms of rea- 

ligning the credit portfolio. 

Different measures aimed at reinforcing the Bank’s capital base represented another 

key focus. This could be achieved by converting dated capital contributions of silent 

partners subject to call into undated ones without accompanying calling rights. 

Another option would be preparing the way for a capital increase. 

Statutory and supervisory requirements 

We continued to address the statutory and supervisory requirements incumbent on 

the Bank on a regular basis. Thus, regarding the implementation of the Minimum 

Requirements for the Credit Business of Credit Institutions (MAK), the Board of 

Management provided us with comprehensive information in good time on the credit 

risk strategy adopted, its implementation and further development, as well as on the 

introduction, realisation and updating of the standardised, bank-wide credit policy. 

EU proceedings regarding state aid 

In addition, the Board of Administration was involved with the EU proceedings insti- 

gated against BayernLB on charges of illegal state aid, in conjunction with the recovery 

of special-purpose assets belonging to the Free State of Bavaria. In October 2004, an 

agreement was reached in respect of the level of interest to be levied on the special- 

125


purpose assets. The restitution claim arising from the case was charged to expense 

and deferred in 2004, and the repayment to the Free State of Bavaria effected in 

January 2005. 

This concluded the proceedings. In the first half of 2005, the Bank aims to come to an 

amicable solution with the European Commission relating to the planned EUR 640 mil- 

lion capital increase. The capital increase, to which the Bank’s two owners are to con- 

tribute 50 percent each, is to be carried out in two tranches in 2005 and 2006. It will 

help considerably to reinforce the Bank’s capital base. 

Corporate Governance 

BayernLB’s Corporate Governance Principles, which entered into force on 1 January 

2004, serve as guidelines for collaboration between the Board of Management, Board 

of Administration and General Meeting. They ensure responsible and transparent 

administration and controlling, oriented towards sustained enhancement of the Bank’s 

enterprise value. 

In their meetings of 7 December 2004, the Board of Administration and the General 

Meeting discussed compliance with BayernLB’s Corporate Governance Principles. Both 

bodies, in harmony with the Board of Management, established that there is nothing 

to suggest that the Bank does not comply with these principles. 

Changes to the Board of Management 

Certain changes were made to the Board of Management in the 2004 financial year. 

With effect from 1 July 2004, we consented to Mr. Werner Strohmayr’s request to be 

discharged from his duties as Member of the Board of Management. Dr. Ralph Schmidt 

took on Mr. Strohmayr’s position from 1 July 2004. For the time being, his role is that 

of Senior Executive Vice President entrusted with Board of Management tasks. 

Having served nineteen years on the Bank’s Board of Management, Dr. Peter Kahn also 

left the Board for personal reasons. He retired at year-end 2004. The Board has one 

less member following Dr. Kahn’s retirement. His responsibilities have been taken over 

by Dr. Rudolf Hanisch and Mr. Theo Harnischmacher. 

We would like to thank both Mr. Strohmayr and Dr. Kahn for their excellent contri- 

bution to the Bank, and wish Dr. Ralph Schmidt all the best and every success in his 

new role. 

Auditing and approval of the 2004 annual accounts 

The Bank’s annual accounts and consolidated accounts, as well as its summarised 

report on the Bank and the Group, have been audited by KPMG Deutsche Treuhand- 

Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft. The audit of the 

annual accounts and reports of Bayerische Landesbodenkreditanstalt and Bayerische 

Landesbausparkasse, both of which are institutions of the Bank, has been conducted


by PwC Deutsche Revision Aktiengesellschaft Wirtschaftsprüfungsgesellschaft. The 

independence of the auditors was duly verified before we requested their approval by 

the General Meeting. Unqualified audit certificates were granted upon completion of 

the auditing process. The auditors’ reports were discussed thoroughly in today’s meet- 

ing of the Board of Administration, and by the derivative Financial Statements Audit 

Committee in its meeting of 25 April 2005. Both meetings were attended in person by 

the auditors, who explained the important findings of the audit and answered ques- 

tions thereupon. 

We approve the outcome of the external audits following the final outcome of our 

internal audits, and upon the recommendation of the Financial Statements Audit 

Committee. In today’s meeting, we adopted the annual accounts of the Bank as sub- 

mitted by the Board of Management. We further approved the Board of Management’s 

report on the Bank and the Group as well as the consolidated accounts. We then rec- 

ommended to the General Meeting that the disclosed profit available for distribution 

in the amount of EUR 63,400,193.28 be transferred to BayernLB Holding AG, which 

holds 100 percent of the nominal capital of the Bank. This represents a return of 4 per- 

cent on the paid-in capital of the Bank. 

This result reinforces our opinion that the Bank has successfully completed its turna- 

round, and that the transformation of its business model is right on track. We are con- 

fident that once the guarantee mechanisms have been abolished, the Bank will achieve 

its targeted rating of at least A+ in the medium term. 

We also proposed to the General Meeting that the Board of Management be dis- 

charged. The General Meeting today gave its approval to these proposals. 

Our thanks to the Board of Management and staff 

We would like to express our appreciation of the immense commitment of the Board 

of Management and the employees of BayernLB, particularly in these challenging 

times. This applies both to the day-to-day business of the Bank and to the implemen- 

tation of strategic realignment, which has demanded a great deal of all those involved. 

In the future, the Board of Administration will continue to be heavily involved in the 

sustained enhancement of the earnings profile, and will do its utmost to support the 

Bank in this aim. We wish the Board of Management and all of the Bank’s employees 

continued success in the future. 

Munich, 2 May 2005 

The Board of Administration 


Chairman 

127

128 Report by the Board of Administration, accounts and notes to the accounts 

Balance sheet and profit and loss account 

Balance sheet – Bayerische Landesbank 

as at 31 December 2004 

Assets 

1. Cash reserves 

a) Cash 

b) Balance with central banks 

of which: 

with Bundesbank 

c) Balances in postal giro accounts 

2. Debt certificates issued by public entities 

and bills of exchange eligible for refinancing 

with central banks 

a) Treasury bills and Treasury discount- 

paper and similar debt certificates issued 

by public entities 

of which: 

eligible for refinancing at Bundesbank 

b) Bills of exchange 

of which: 


3. Due from banks 

a) Payable on demand 

b) Other receivables 

of which building loans of Home Loan division: 

• building-saving loans 

• preliminary and interim financing loans 

• other building loans 

4. Due from customers 

of which: 

• secured by mortgage 

• public-debt loans 

• building loans of Home Loan division: 

– building-saving loans 

– preliminary and interim financing 

– other building loans 

of which: 

secured by mortgages 

2004 2003 

EUR ’000 EUR ’000 EUR ’000 EUR ’000 EUR ’000 

318,398 

149,548 

476 

12,409 

— 

— 

19,158,401 

28,411,905 

2,347,507 

2,380,576 

6,995 

3,823,052 

10,695 

326,855 

— 

258,500 

476 

8,613,607 

119,858,243 

337,550 

258,976 

128,471,850 

87,427,039 

12,172 

744,521 

285,672 

— 

756,693 

472,592 

472,592 

20,695 

20,695 

493,287 

9,196,850 

101,639,690 

14,767 

— 

— 

110,836,540 

91,862,521 

19,166,290 

29,458,024 

2,573,780 

2,218,900 

8,611 

3,879,950 

carried forward 216,495,415 203,949,041 

carried forward 216,495,415 203,949,041

Liabilities 

1. Due to banks 


b) With agreed maturities or periods of notice 

c) Building-savers’ deposits with Home Loan division 

of which: 

• on terminated contracts 

• on advanced contracts 

2. Due to customers 

a) Savings deposits 

aa) with periods of notice 

of three months 

ab) with periods of notice 

of more than three months 

ac) Building-savers’ deposits with Home Loan 

division 

of which: 



b) Other liabilities 

ba) payable on demand 

bb) with agreed maturities or 

periods of notice 

3. Securitised liabilities 

a) Bonds issued 

b) Other securitised liabilities 

of which: 

• money market instruments 

• own acceptances and promissory 

notes outstanding 

4. Liabilities administered on behalf of third parties 

Report by the Board of Administration, accounts and notes to the accounts 

129 

2004 2003 


— 

6,475 

59,454 

210,691 

6,877,845 

of which: 

loans for third-party account 8,029,607 

— 

— 

— 

6,853,881 

6,882,050 

40,397,006 

9,355,183 

96,296,028 

22,063 

6,853,881 

47,279,056 

88,729,478 

7,075,016 

105,673,274 

54,132,937 

95,804,494 

8,079,498 

7,990,370 

92,069,381 

23,756 

— 

5,166 

100,083,507 

— 

— 

6,463,369 

72,273 

208,515 

6,463,369 

8,514,934 

37,228,226 

45,743,160 

52,206,529 

81,391,518 

8,966,897 

6,748,524 

73,044 

90,358,415 

8,428,769 

8,372,013 

5. Other liabilities 3,086,080 2,490,638 

6. Deferred income 1,057,440 984,920 

carried forward 267,833,723 254,552,778


Balance sheet – Bayerische Landesbank 

as at 31 December 2004 (continued) 

Assets 

5. Bonds and other fixed-interest securities 

a) Money market instruments 

aa) issued by public-sector borrowers 

of which: 

eligible as collateral at Bundesbank 

ab) issued by other borrowers 

of which: 


b) Bonds and other debt securities 

ba) issued by public-sector borrowers 

of which: 


bb) issued by other borrowers 

of which: 


c) Own debt securities 

nominal value 

2004 2003 


398,585 

36,099 

3,466,260 

19,578,373 

3,438,507 

398,585 

324,859 

10,019,296 

35,877,401 

723,444 

45,896,697 

3,479,454 

50,099,595 

24,642 

— 

475,514 

— 

500,156 

13,918,343 

3,674,387 

33,171,086 

13,425,677 

47,089,429 

1,338,665 

1,306,975 

48,928,250 

6. Shares and other non fixed-interest securities 2,687,939 2,422,602 

7. Investments 

of which: 

• in financial institutions 

• in financial service providers 

8. Shares in affiliated companies 

of which: 



9. Assets administered on behalf of third parties 

225,553 

— 

2,261,068 

— 

of which: 


998,744 2,069,959 

739,288 

— 

3,416,864 3,210,910 

2,409,162 

— 

8,079,498 8,428,769 

8,372,013 

10. Equalisation claims on public authorities 

including bonds originating from the conversion 

of such claims 17,945 35,889 

11. Intangible assets 26,404 — 

12. Tangible assets 150,822 203,265 

13. Other assets 2,382,724 2,050,146 

14. Deferred taxes 262,605 418,993 

15. Deferred charges 964,901 1,053,881 

Total assets 285,583,456 272,771,705

Liabilities 


131 

2004 2003 



7. Provisions for liabilities and charges 

a) For pensions and similar obligations 

b) For taxes 

c) Other provisions 

805,548 

168,917 

1,062,929 

2,037,394 

748,625 

214,288 

1,087,134 

2,050,047 

7a. Reserve fund for Home Loan division 17,780 17,780 

8. Special reserve — — 

9. Subordinated liabilities 4,245,667 4,459,909 

10. Profit-participation certificates 

of which: 

due in less than two years 380,912 

2,598,587 

2,675,281 

434,598 

11. Fund for general banking risks 220,154 385,759 

12. Capital and reserves 

a) Subscribed capital 

aa) nominal capital 

uncalled nominal capital 

ab) capital contributions of silent partners 

b) Capital reserve 

of which: 

specific-purpose reserve 

c) Revenue reserves 

ca) statutory reserves 

cb) other reserves 

d) Profit available for distribution 

1,738,500 

– 153,495 

612,016 

1,585,005 

2,894,172 

1,268,000 

2,156,428 

4,479,177 

663,146 

3,424,428 

63,400 

8,630,151 

1,738,500 

– 153,495 

1,585,005 

2,894,172 

4,479,177 

663,146 

612,016 

1,268,000 

2,156,428 

3,424,428 

63,400 

8,630,151 

Total liabilities 285,583,456 272,771,705 

1. Contingent liabilities 

a) Contingent liabilities from the endorsement 

of bills rediscounted 

b) Contingent liabilities from guarantees and 

indemnity agreements 

(for further reference, please see the Notes) 

c) Contingent liabilities from collateral furnished 

for third-party obligations 

2. Other obligations 

a) Contingent obligations from non-genuine sale 

and repurchase agreements 

b) Underwriting and issuance facilities 

c) Irrevocable loan commitments 

— 

14,967,541 

— 

— 

— 

49,734,117 

14,967,541 

49,734,117 

4,522 

17,145,150 

— 

17,149,672 

— 

— 

50,475,618 

50,475,618


Profit and Loss Account – Bayerische Landesbank 

for the period from 1 January to 31 December 2004 

1. Interest income from 

a) Credit and money market transactions 

of which interest income of Home Loan division: 

• from building-saving loans 

• from preliminary and interim financing loans 

• from other building loans 

b) Fixed-interest securities and 

debt-register claims 

2. Interest expenses 

of which: 

for building-savers’ deposits 

3. Current income from 

a) Shares and other non-fixed 

interest securities 

b) Investments 

c) Shares in affiliated companies 

2004 2003 


116,540 

121,355 

424 

173,090 

7,860,556 

1,649,791 

9,510,347 

8,504,977 

128,947 

78,567 

179,441 

1,005,370 

386,955 

8,499,440 

129,070 

114,976 

557 

1,961,175 

10,460,615 

9,088,219 

169,335 

1,372,396 

101,922 

69,812 

58,806 

230,540 

4. Income from profit-pooling agreements, 

profit transfer agreements and partial profit 

transfer agreements 5,867 5,311 

5. Commission income 

of which commission income of the Home 

Loan Division: 

• from concluding and procuring contracts 

• from advanced contracts 

• from providing and processing preliminary 

and interim financing loans 

6. Commission expenses 

of which: 

for concluding and procuring contracts by the Home 

Loan division 

45,106 

13,736 

— 

68,699 

556,121 

315,967 

240,154 

592,605 

62,828 

16,491 

— 

339,890 

90,957 

252,715 

7. Net income or net expenses from financial 

operations 91,716 105,346 

8. Other operating income 193,926 210,192 

9. Income from write-back of special reserve — 3,151 

10. General administrative expenses 

a) Personnel expenses 

aa) salaries and wages 

ab) social security contributions, pensions and 

other employee benefits 

of which: 

pensions 

b) Other administrative expenses 

94,928 

331,953 

143,316 

475,269 

313,549 

788,818 

346,419 

125,950 

472,369 

72,822 

338,878 

811,247 

carried forward 1,135,170 1,368,404


133 

2004 2003 



11. Depreciation and valuation adjustments 

on intangible assets and tangible assets 41,058 50,485 

12. Other operating expenses 47,901 77,290 

13. Write-downs of and valuation adjustments 

on receivables and certain securities and 

additions to provisions in credit business 

of which: 

allocation to the fund for general banking risks 

14. Income from reversals of write-downs of 

receivables and certain securities and from 

write-backs of provisions in credit business 

of which: 

withdrawals from the fund for general banking risks 


on investments, shares in affiliated companies 

and securities treated as fixed assets 


investments, shares in affiliated companies 


— 

165,605 

— 

75,951 

205,272 

— 

75,951 

205,272 

696,879 

— 

— 

— 

696,879 

40,245 

— 

40,245 

17. Expenses from loss transfers 97,906 4,724 

18. Allocation to special reserve — — 

19. Result from ordinary activities 818,984 498,781 

20. Extraordinary income 

21. Extraordinary expenses 

22. Extraordinary result 

23. Taxes on income 

24. Other taxes, unless disclosed under 

position 12 

— 

356,529 

175,233 

3,645 

356,529 

178,878 

— 

127,129 

127,129 

79,804 

9,545 

89,349 

25. Profits transferred under partial profit 

transfer agreement 220,177 218,903 

26. Net income for the year 63,400 63,400 

27. Allocation from net income for the year 

to revenue reserves 

a) To the statutory reserve 

b) To other reserves 

28. Profit available for distribution 63,400 63,400 

— 

— 

— 

— 

— 

—


Consolidated balance sheet and profit and loss account 

Consolidated balance sheet – Bayerische Landesbank Group 

as at 31 December 2004 

Assets 

1. Cash reserves 

a) Cash 

b) Balance with central banks 

of which: 

with Bundesbank 

c) Balances in postal giro accounts 

2. Debt certificates issued by public entities 

and bills of exchange eligible for refinancing 

with central banks 

a) Treasury bills and Treasury discount- 

paper and similar debt certificates issued 

by public entities 

of which: 


b) Bills of exchange 

of which: 


3. Due from banks 


b) Other receivables 

of which building loans of Home Loan division: 

• building-saving loans 

• preliminary and interim financing loans 

• other building loans 

4. Due from customers 

of which: 

• secured by mortgage 

• public-debt loans 

• building loans of Home Loan division: 

– building-saving loans 

– preliminary and interim financing 

– other building loans 

of which: 

secured by mortgages 

2004 2003 


572,118 

149,548 

13,135 

12,409 

— 

— 

29,375,153 

38,502,048 

2,483,381 

2,591,204 

241,135 

4,332,585 

45,745 

772,361 

— 

330,018 

13,174 

9,060,855 

115,620,482 

818,106 

343,192 

124,681,337 

127,830,734 

48,803 

1,025,328 

459,719 

2,729 

1,076,860 

481,419 

472,592 

26,201 

24,769 

507,620 

9,228,685 

96,466,497 

14,790 

— 

— 

105,695,182 

128,836,563 

27,672,073 

39,108,466 

2,718,091 

2,426,082 

225,383 

4,372,959 

carried forward 253,673,369 236,116,225

Liabilities 

1. Due to banks 


b) With agreed maturities or periods of notice 

c) Building-savers’ deposits with Home Loan division 

of which: 



2. Due to customers 

a) Savings deposits 

aa) with periods of notice 

of three months 

ab) with periods of notice 

of more than three months 

ac) building-savers’ deposits with Home Loan 

division 

of which: 



b) Other liabilities 

ba) payable on demand 

bb) with agreed maturities or 

periods of notice 

3. Securitised liabilities 

a) Bonds issued 

b) Other securitised liabilities 

of which: 

• money market instruments 

• own acceptances and promissory 

notes outstanding 

4. Liabilities administered on behalf of third parties 


135 

2004 2003 


— 

6,475 

59,959 

224,304 

7,384,151 

of which: 


— 

8,266 

2,120 

7,249,782 

13,554,297 

49,583,646 

10,472,318 

116,517,739 

22,063 

7,260,168 

63,137,943 

96,252,100 

7,581,321 

127,012,120 

70,398,111 

103,833,421 

8,267,329 

8,543,810 

111,338,353 

23,756 

— 

5,166 

119,905,919 

7,781 

1,441 

6,839,304 

72,946 

222,158 

6,848,526 

13,236,403 

45,242,449 

58,478,852 

65,327,378 

86,630,258 

8,966,897 

6,748,524 

73,044 

95,597,155 

8,632,267 

8,472,501 

5. Other liabilities 3,240,775 2,696,954 

6. Deferred income 1,149,851 1,071,412 

carried forward 313,901,607 293,231,085


Consolidated balance sheet – Bayerische Landesbank Group 

as at 31 December 2004 (continued) 

Assets 

2004 2003 



5. Bonds and other fixed-interest securities 

a) Money market instruments 

aa) issued by public-sector borrowers 

of which: 


ab) issued by other borrowers 

of which: 


b) Bonds and other debt securities 

ba) issued by public-sector borrowers 

of which: 


bb) issued by other borrowers 

of which: 


c) Own debt securities 

nominal value 

398,586 

36,099 

4,050,117 

24,720,272 

8,069,634 

398,586 

424,672 

10,990,272 

41,039,568 

823,258 

52,029,840 

8,153,186 

61,006,284 

24,643 

— 

479,216 

— 

503,859 

14,543,801 

3,872,188 

38,408,669 

17,255,988 

52,952,470 

4,105,304 

4,022,259 

57,561,633 

6. Shares and other non fixed-interest securities 3,680,583 3,350,965 

7. Investments 

of which: 



7a. Shares in associated companies 

of which: 



8. Shares in affiliated companies 

of which: 



9. Assets administered on behalf of third parties 

207,102 

15,334 

25,383 

— 

44,574 

17,678 

of which: 


1,328,786 1,671,566 

253,513 

14,108 

25,383 586,867 

586,867 

— 

1,084,824 1,326,336 

79,105 

16,204 

8,267,329 8,632,267 

8,472,501 

10. Equalisation claims on public authorities 

including bonds originating from the conversion 

of such claims 17,945 118,803 

11. Intangible assets 29,721 — 

12. Tangible assets 223,268 280,796 

13. Other assets 2,432,677 2,251,318 

14. Deferred taxes 324,165 431,408 

15. Deferred charges 1,007,277 1,102,816 

Total assets 333,101,611 313,431,000

Liabilities 


137 

2004 2003 



7. Provisions for liabilities and charges 

a) For pensions and similar obligations 

b) For taxes 

c) Other provisions 

829,210 

250,382 

1,368,326 

2,447,918 

769,186 

245,875 

1,926,782 

2,941,843 

7a. Reserve fund for Home Loan division 17,780 17,780 

8. Special reserve — — 

9. Subordinated liabilities 4,462,220 4,676,232 

10. Profit-participation certificates 

of which: 

due in less than two years 380,912 

2,746,211 

2,838,588 

451,749 

11. Fund for general banking risks 385,367 550,962 

12. Capital and reserves 

a) Subscribed capital 

aa) nominal capital 

uncalled nominal capital 

ab) capital contributions of silent partners 

b) Capital reserve 

of which: 

specific-purpose reserve 

c) Revenue reserves 

ca) statutory reserves 

cb) other reserves 

d) Minority shareholders 

e) Profit available for distribution 

1,738,500 

– 153,495 

612,016 

1,585,005 

3,229,078 

1,268,000 

2,101,340 

4,814,083 

663,146 

3,369,340 

230,539 

63,400 

9,140,508 

1,738,500 

– 153,495 

1,585,005 

3,129,059 

4,714,064 

663,146 

612,016 

1,268,000 

2,253,910 

3,521,910 

211,990 

63,400 

9,174,510 

Total liabilities 333,101,611 313,431,000 

1. Contingent liabilities 

a) Contingent liabilities from the endorsement 

of bills rediscounted 

b) Contingent liabilities from guarantees and 

indemnity agreements 

(for further reference, please see the Notes) 

c) Contingent liabilities from collateral furnished 

for third-party obligations 

2. Other obligations 

a) Contingent obligations from non-genuine sale 

and repurchase agreements 

b) Underwriting and issuance facilities 

c) Irrevocable loan commitments 

— 

16,655,432 

— 

— 

— 

53,441,533 

16,655,432 

53,441,533 

4,522 

18,510,496 

— 

18,515,018 

— 

— 

53,963,280 

53,963,280 

3. 152 special assets managed on behalf of 

shareholders (2003: 165) 11,985,439 13,338,978


Consolidated profit and loss account – Bayerische Landesbank Group 

for the period from 1 January to 31 December 2004 

1. Interest income from 

a) Credit and money market transactions 

of which interest income of Home Loan division: 

• from building-saving loans 

• from preliminary and interim financing loans 

• from other building loans 

b) Fixed-interest securities and 

debt-register claims 

2. Interest expenses 

of which: 

for building-savers’ deposits 

3. Current income from 

a) Shares and other non-fixed 

interest securities 

b) Investments 

c) Shares in affiliated companies 

d) Shares in associated companies 

2004 2003 


123,513 

132,959 

13,195 

183,929 

9,709,182 

2,023,793 

11,732,975 

10,012,817 

159,667 

57,308 

12,870 

69,196 

1,720,158 

299,041 

10,096,266 

136,521 

126,631 

11,607 

2,294,754 

12,391,020 

10,511,809 

179,739 

1,879,211 

144,441 

65,651 

9,683 

24,883 

244,658 

4. Income from profit-pooling agreements, 

profit transfer agreements and partial profit 

transfer agreements 10,916 45,400 

5. Commission income 

of which commission income of the Home 

Loan division: 

• from concluding and procuring contracts 

• from advanced contracts 

• from providing and processing preliminary 

and interim financing loans 

6. Commission expenses 

of which: 

for concluding and procuring contracts by the Home 

Loan division 

47,643 

14,776 

— 

71,583 

706,200 

366,364 

339,836 

723,666 

66,643 

17,585 

32 

381,402 

95,594 

342,264 

7. Net income or net expenses from financial 

operations 125,695 104,990 

8. Other operating income 339,193 229,316 

9. Write-back of special reserve — — 

10. General administrative expenses 

a) Personnel expenses 

aa) salaries and wages 

ab) social security contributions, pensions and 

other employee benefits 

of which: 

pensions 

b) Other administrative expenses 

112,478 

499,803 

188,917 

688,720 

464,137 

1,152,857 

493,485 

162,996 

656,481 

81,804 

466,080 

1,122,561 

carried forward 1,681,982 1,723,278


139 

2004 2003 



11. Depreciation and valuation adjustments 

on intangible assets and tangible assets 54,694 62,817 

12. Other operating expenses 111,651 98,005 


on receivables and certain securities and 

additions to provisions in credit business 

of which: 

• withdrawals from the fund for general banking risks 

• allocation to the fund for general banking risks 


receivables and certain securities and from 

write-backs of provisions in credit business 


on investments, shares in affiliated companies 



investments, shares in affiliated companies 


165,605 

— 

156,954 

— 

305,014 

— 

156,954 

305,014 

952,642 

— 

13,003 

— 

952,642 

47,113 

— 

47,113 

17. Expenses from loss transfers 99,024 5,499 

18. Allocation to special reserve — — 

19. Result from ordinary activities 954,645 557,202 

20. Extraordinary income 

21. Extraordinary expenses 

22. Extraordinary result 

23. Taxes on income 

24. Other taxes, unless disclosed under 

position 12 

— 

358,364 

252,386 

4,390 

358,364 

256,776 

— 

127,129 

127,129 

103,219 

10,237 

113,456 

25. Profits transferred under partial profit 

transfer agreement 241,823 237,389 

26. Net income for the year 97,682 79,228 

27. Withdrawls from revenue reserves 

a) From the statutory reserve 

b) From other reserves 

28. Allocation from net income for the year 

to revenue reserves 

a) To the statutory reserve 

b) To other reserves 

— 

— 

— 

18,039 

— 

18,039 

29. Profit share of minority shareholders 16,243 11,306 

— 

— 

— 

— 

4,522 

4,522 

30. Profit available for distribution 63,400 63,400


Consolidated statement of changes 

in shareholders’ equity 

Changes in shareholders’ equity 

EUR million 

Subscribed capital 

Uncalled outstanding 

capital 

Capital reserve 

Parent company Minority shareholders 

Generated consolidated 

capital 

Aggregated other 

consolidated result 

Offsetting item 

from foreign 

currency 

conversion 

Equity 

Minority capital 

Offsetting item from 

foreign currency 

conversion 

As at 31. 12. 2002 4,866 – 307 663 3,708 26 – 128 8,828 224 0 224 9,052 

Dividends paid 

Change in the group 

of consolidated 

companies 

Other changes 

(currency conversion, 

consolidation effects 

and other capital 

changes) 2 154 0 

Consolidated net 

profit / loss 

Other consolidated 

result 

– 57 

2 

72 

68 

– 3 

– 37 

Other neutral 

transactions 

9 

– 7 

– 40 2 

Total consolidated result 30 9 39 

As at 31. 12. 2003 4,868 – 153 663 3,725 – 14 – 126 8,963 214 – 2 212 9,175 

Dividends paid 

Change in the group 

of consolidated 

companies 

Other changes 

(currency conversion, 

consolidation effects 

and other capital 

changes) 100 0 0 

Consolidated net 

profit / loss 

Other consolidated 

result 

– 63 

– 307 

131 

82 

0 

– 29 

113 

2 

– 29 115 

Total consolidated result 168 13 181 

As at 31. 12. 2004 4,968 – 153 663 3,486 – 43 – 11 8,910 236 – 5 231 9,141 

– 57 

8 

184 

68 

– 38 

– 63 

– 194 

As at 31 December 2004, EUR 63 million is available for distribution to the owners. 

204 

82 

86 

– 4 

– 6 

11 

0 

22 

16 

0 

– 2 

– 2 

0 

– 3 

– 3 

Equity 

– 4 

– 8 

11 

– 2 

0 

19 

16 

– 3 

Consolidated equity 

– 57 

4 

176 

79 

– 40 

– 63 

– 194 

223 

98 

83


Cash flow statement for the Group 

Cash flow statement 

EUR million 2004 2003 

Annual net income 98 79 

Items under annual net income not affecting the cash flow 

and transition to the cash flow from operating activities 

write-downs, LLPs and write-ups on receivables, 

fixed and financial assets 

changes to provisions 

changes to other items not affecting the cash flow 

gains on the disposal of fixed and financial assets 

other adjustments (balance)* 

602 

– 494 

389 

– 45 

– 1,176 

1,438 

25 

– 33 

– 7 

– 1,859 

Sub-total* – 626 – 357 

Changes to assets and liabilities from operating activities 

after revision for components not affecting the cash flow 

due from 

banks 

customers 

securities (unless financial assets) 

other assets from operating activities 

due to 

banks 

customers 

securitised liabilities 

other liabilities from operating activities 

– 18,991 

1,080 

– 7,518 

– 251 

7,106 

5,098 

8,236 

58 

2,297 

8,795 

8,065 

1,137 

– 15,495 

1,210 

– 12,577 

Interest and dividends received* 12,043 12,681 

Interest paid* – 9,593 – 10,060 

Extraordinary cash inflow 0 0 

Extraordinary cash outflow – 38 0 

Income tax payment – 252 – 103 

Cash flow from operating activities – 3,648 – 4,019 

388 

141


Cash flow statement (continued) 

EUR million 2004 2003 

Cash inflow from the sale of 

financial assets 

fixed assets 

Cash outflow for the acquisition of 

financial assets 

fixed assets 

Effects resulting from the change in the group of 

consolidated companies 

cash inflow from the sale of consolidated companies and 

other business units 

cash outflow resulting from the acquisition of 

consolidated companies and other business units 

6,886 

6 

– 2,675 

– 15 

0 

0 

12,596 

31 

– 6,700 

Change in financial resources resulting from other 

investment activities (balance) – 19 0 

Cash flow from investment activities 4,183 5,943 

Cash inflow from allocations to equity 0 77 

Disbursements to company owners and minority shareholders 

dividend payments 

other disbursements 

– 63 

– 689 

– 20 

38 

– 1 

– 57 

– 770 

Changes in financial resources resulting from 

subordinated capital and other hybrid capital (balance) – 206 – 923 

Cash flow from financing activities – 958 – 1,673 

Change in the financial resources affecting the cash flow 

Exchange-rate, consolidation-group and revaluation-related 

change in the financial resources fund 

– 423 

– 168 

Financial resources balance at end of previous period 1,572 1,339 

Financial resources balance at end of period 981 1,572 

* Previous year’s figures have been adjusted 

252 

– 19


Comment on the cash flow statement 

The DRS 2 – 10 standards (German Accounting Standards) issued by the DRCS (German 

Accounting Standards Committee) were duly observed when the cash flow statement 

was drawn up. 

The cash flow statement shows the cash flows of the financial year classified into 

“operating activities”, “investment activities” and “financing activities”. 

The financial resources balance disclosed comprises the cash balance and deposits 

with central banks, along with debt instruments issued by public-sector entities and 

bills of exchange eligible for funding at the Deutsche Bundesbank. Financial resources 

are not subject to any drawing restrictions. EUR 1 million of the financial resources are 

apportionable to consolidated companies on a pro rata basis. 

The change in other items not affecting the cash flow includes also the net write-back 

of deferred taxes and the revaluation result of the trading and liquidity portfolio. 

During the financial year, EUR 3 million was paid for the acquisition of participations 

and affiliated companies, with the whole amount being taken from financial resources. 

Sales proceeds of EUR 654 million were posted, of which EUR 282 million was allocated 

to financial resources. 

143


Segment report as per 31 December 2003 1 / 2 

EUR million Corporates 

Segment report for the Group 

Principles of segmentation 

Primary segmentation is based on BayernLB’s business model and represents the busi- 

ness areas, the dependent entities Labo and LBS, and the consolidated subsidiaries. 

Profit contributions are allocated to the segments according to the causation principle. 

The “Other / Consolidation” segment shows consolidation effects and profit contribu- 

tions which are not attributable to the business areas. This includes in particular the 

profit contributions made by the support operations, unless these can be allocated to 

the operational units according to the causation principle. 

Real Estate 



& Sovereigns 


Bavarian Municipals / 

Corporates 

Labo / LBS 

Subsidiaries 

strategic to the 

Group 

Net interest income 496 194 591 104 102 286 601 – 205 2,169 


income 107 27 11 38 0 30 90 39 343 


expenses – 139 – 65 – 304 – 27 – 83 – 144 – 325 – 99 – 1,185 


transactions 0 0 76 0 5 0 0 24 105 


result – 10 – 2 0 0 0 7 0 124 120 

Risk provisioning / 

revaluation result – 323 – 404 – 96 0 – 35 – 6 – 238 97 – 1,005 

Operating result 133 – 250 279 116 – 11 173 127 – 20 547 

Segment assets 38,130 18,379 116,709 38,804 31,654 23,055 61,527 – 14,829 313,431 

Risk positions 38,115 14,238 31,209 8,472 8,459 4,307 28,214 4,227 137,242 

Av. equity capital 

disclosed 1,217 455 997 271 270 1,979 2,912 – 1,771 6,328 


(RoE in %) 10.9 – 55.1 28.0 42.8 – 4.1 8.7 4.3 — 4.9 

Cost-income ratio (%) 23.4 29.9 44.7 18.8 77.3 44.5 47.1 — 43.3 

Av. staff capacity 377 234 546 111 222 877 3,411 3,020 8,797 

1 In the previous year, the capital contributions of silent partners were also allocated to business areas / support operations. In 2004, in contrast, only the 

sum total of nominal capital, capital reserves (excluding appropriated reserves), revenue reserves and the amount governed by Section 340g of the German 

Commercial Code (defined as equity capital disclosed) was allocated. For ease of comparison, in the segment report of 31 December 2003, the return on 

equity is adjusted to the allocation method employed in the year under review. 

2 In the year under review, in accordance with BayernLB’s control systems, Bayern-Invest Kapitalanlagegesellschaft mbH and BLB Asia Pacific Ltd. were included in 

the segment Subsidiaries strategic to the Group. In the previous year, these had been included under the Global Markets segment. For ease of comparison, the 

segment report of 31 December 2003 as presented here has been adjusted accordingly. 

Other / 

Consolidation 

Group


Segment report as per 31 December 2004 

EUR million Corporates 

Real Estate 



& Sovereigns 


Bavarian Municipals / 

Corporates 

Labo / LBS 

Subsidiaries 

strategic to the 

Group 

Net interest income 413 215 330 95 109 262 763 – 156 2,030 


income 112 26 8 38 21 29 100 5 340 


expenses – 144 – 64 – 297 – 41 – 89 – 146 – 378 – 49 – 1,208 


transactions 0 0 86 0 6 0 34 0 126 


result 3 – 3 – 2 0 0 8 83 133 223 

Risk provisioning / 

revaluation result 101 – 113 – 49 7 39 – 43 – 180 – 323 –561 

Operating result 485 62 76 99 86 109 421 – 388 950 

Segment assets 31,910 16,858 125,047 38,878 32,444 22,583 65,488 – 106 333,102 

Segment liabilities 30,340 16,296 124,575 38,514 32,049 21,100 62,626 2,211 327,711 

Risk positions 32,751 13,616 28,356 7,789 8,726 3,841 36,284 – 3,673 127,689 

Av. equity capital 

disclosed 1,471 527 830 341 370 1,389 2,711 – 2,089 5,550 


(RoE in %) 33.0 13.8 12.5 29.0 24.1 8.6 14.1 — 9.5 

Cost-income ratio (%) 27.2 26.7 70.3 31.0 65.3 49.0 38.6 — 44.4 

Av. staff capacity 228 140 474 100 231 857 3,610 2,852 8,493 

For the purposes of internal controlling, an average equity capital disclosed is allo- 

cated to the business areas and support operations of each segment, in accordance 

with their risk positions, i.e. the risk assets and market risks to be covered according 

to the banking supervisory Principle I relating to Section 10 KWG. 

The RoE and CIR ratios are used in the segment report to assess the business areas’ 

performance. The RoE reported is the quotient of the operating result and the allo- 

cated average equity capital disclosed. The CIR is the quotient of administrative 

expenses and the sum total of the net interest income, net commission income, result 

from financial transactions and other operating result. In the 2004 financial year, the 

other operating result was included in the CIR for the first time. For ease of compari- 

son, given this change, the figures for the previous year have been adjusted accord- 

ingly in the segment report of 31 December 2003 as presented here. 

Other / 

Consolidation 

145 

Group


Note on delimitation of segments in accordance with DRS 3.25 

(German Accounting Standards) 

The Corporates segment serves large SME corporate customers in Germany as well as 

multinationals in Germany and in the Bank’s core markets of Europe, North America 

and Asia. 

The Real Estate segment comprises BayernLB’s commercial and residential real estate 

customers at both national and international levels. 

The Global Markets segment bundles all trading and issuing activities as well as the 

BayernLB Treasury. 

The Financial Institutions & Sovereigns segment encompasses worldwide business rela- 

tions with banks, insurance companies and other institutional customers, as well as 

government and non-Bavarian municipal customers. 

The Savings Banks, Bavarian Municipals / Corporates segment, acting as an interface, 

comprises all of BayernLB’s activities in supporting the Bavarian savings banks as well 

as Bavarian municipal and corporate customers. 

The Labo / LBS segment is made up of BayernLB’s legally dependent institutions, 

Bayerische Landesbodenkreditanstalt (Labo) and Bayerische Landesbausparkasse (LBS). 

The segment Subsidiaries strategic to the Group encompasses all consolidated subsidi- 

aries of the BayernLB Group, including the capital investment company Bayern-Invest. 

The business activities of the Bank’s subsidiaries are focused on universal banking busi- 

ness, including retail / private banking and investment consulting. 

The Other / Consolidation segment comprises, in addition to consolidation effects, the 

profit contributions of our Corporate Center, Risk Office and Corporate Services Sup- 

port Operations, which are not allocated to the business areas according to the causa- 

tion principle. Primarily concerned here are the results of participations allocated to 

the support operations, as well as expenditure on the management of these participa- 

tions. This segment also includes cross-divisional transactions whose contribution to 

the overall profit is allocable to neither business areas nor support operations.


In order to provide a breakdown of BayernLB’s regional business activities, primary 

segmentation has been extended to include secondary segmentation by region. In 

regional segmentation, activities are broken down by the systematically formulated 

focal points of our business worldwide. The regional segments generated the follow- 

ing individual profit contributions: 

Segment report by region as per 31 December 2003 

EUR million Germany 

Result before risk provisioning / revaluation result 795 368 322 107 – 40 1,552 

Risk provisioning / revaluation result – 803 13 – 147 – 40 – 28 – 1,005 

Operating result – 8 381 175 68 – 68 547 

Risk positions 106,832 26,887 10,658 5,650 – 12,784 137,242 

Cost-income ratio (%) 53.3 33.2 14.6 19.0 — 43.3 

Av. staff capacity 6,491 1,869 217 220 — 8,797 

Segment report by region as per 31 December 2004 

EUR million Germany 

Result before risk provisioning / revaluation result 915 427 244 61 – 136 1,511 

Risk provisioning / revaluation result – 599 – 1 62 96 – 120 – 561 

Operating result 317 426 306 157 – 256 950 

Risk positions 97,191 27,091 8,938 2,879 – 8,410 127,689 

Cost-income ratio (%) 50.4 34.0 15.0 17.7 — 44.4 

Av. staff capacity 6,170 1,978 185 160 — 8,493 

Europe 

(excl. Germany) 

Europe 

(excl. Germany) 

Within the framework of BayernLB’s control systems, equity is not allocated to regions, 

but rather exclusively to business areas and support operations. 

America 

America 

Asia / Pacific 

Asia / Pacific 

Consolidation 

Consolidation 

147 

Group 

Group


Notes to the accounts and consolidated accounts 

The notes below relate to both the annual accounts at Bank level and the consolidated 

annual accounts of Bayerische Landesbank (BayernLB) pursuant to Section 298, Sub- 

section 3 of the German Commercial Code (HGB). Unless otherwise stated the notes 

apply to both accounts. All figures are shown in millions of euros. 

The annual accounts at Bank level and the consolidated annual accounts have been 

prepared in accordance with the provisions of HGB and the Ordinance Regulating the 

Accounting Requirements for Financial Institutions and Financial Service Providers 

(RechKredV). The layout of our balance sheets and our profit and loss accounts corre- 

sponds to the forms pursuant to the RechKredV Ordinance and also includes the items 

stipulated for building societies (Bausparkassen). 

Accounting policies 

The valuation of assets and liabilities adheres to the general valuation provisions of 

Section 252 ff. HGB, taking account of the special provisions applicable to banks (Sec- 

tion 340e ff. HGB). 

Claims are reported at the nominal amount or at cost. Low-interest or non-interest 

bearing claims are discounted, if necessary. All recognisable risks have been taken into 

account through the setting up of specific loan loss provisions. Moreover, hidden credit 

risks are covered by general loan loss provisions. To provide for general banking risks, 

reserves have been built up pursuant to Section 340f HGB. All loan loss provisions and 

reserves have been netted against the corresponding items on the assets side. In addi- 

tion, a fund for general banking risks exists pursuant to Section 340g HGB. 

Liabilities are generally reported at their repayment amount. Bonds issued at a dis- 

count and similar liabilities are reported at their present values. 

Premiums and discounts on claims and liabilities are included in deferred charges and 

income and amortised on a pro rata basis. 

The securities portfolios have been valued according to the stringent principle of lower 

of cost or market by observing the requirement of reinstating original values. In some 

cases, securities have been combined with their hedging instruments to form sepa- 

rately documented valuation units. 

Investments and shares in affiliated companies have been valued in accordance with 

the rules applying to fixed assets at historical cost or, in the case of an anticipated per- 

manent decrease in value, at the lower of cost or market as per the balance sheet date.


Intangible assets and fixed assets have been valued at historical cost or cost of produc- 

tion or, if subject to depreciation, reduced by scheduled depreciation reflecting their 

useful lives. Depreciation has been generally based on the permissible tax rates. Assets 

of low value are fully depreciated in the year of acquisition. From 2004, system and 

application software, previously included under tangible assets, is accounted for under 

intangible fixed assets. 

Tax deferrals will be based on the temporary differences between the results under 

German commercial law and tax law in as much as these differences will probably con- 

verge in subsequent years. The volume of deferred taxes is geared to the probable tax 

liability / tax relief effective in the immediately subsequent business years. Deferred tax 

assets and liabilities are netted. 

Provisions for pensions have been set up in line with actuarial principles, taking 

account of Section 6a EStG (German income tax law) and the 1998 guidelines 

(Richttafeln, i.e benchmark tables) and of comparable foreign regulations. 

Derivative financial transactions (forward transactions, swaps, options, credit deriva- 

tives) are allocated to a hedging or trading portfolio depending on their intended use. 

As forward transactions, they are never disclosed in the balance sheet. Option premi- 

ums paid or received are shown under “Other assets” or “Other liabilities”. 

Hedging transactions and hedged transactions are combined to form revaluation units 

and treated pursuant to the principles of the hedged transaction. The revaluation of 

trading transactions is performed individually by applying the imparity and realisation 

principle. 

Unrealised profits and losses are netted within trading portfolios which have been 

combined to adequately reflect risks. Remaining profit balances are not taken into 

account, whereas provisions are established for loss balances. 

As a rule, profits from trading transactions are disclosed under net income from finan- 

cial transactions. Interest paid on securities of the trading portfolio is recorded in inter- 

est income. 

Currency translation 

Currency translation has been based on the principles of Section 340h HGB and the 

expert opinion of the BFA (banking committee) 3 / 95. Assets denominated in foreign 

currencies and treated as fixed assets, without hedging in the same currency, are trans- 

lated at historical exchange rates. Other assets and liabilities denominated in foreign 

currencies and outstanding spot deals are translated at year-end spot rates, while 

outstanding forwards are translated at the year-end forward rates. When forward 

exchange transactions serve to hedge balance sheet items generating interest, the 

swap amounts are accrued pro rata temporis. The spot price differences resulting from 

149


the translation of these balance sheet items are disclosed as a balance under “Other 

assets” or “Other liabilities”. Gains from the translation of other transactions hedged in 

the same currency are only taken into account in so far as they compensate for tempo- 

rary losses from the translation of hedging transactions (Section 340h, sub-section 2, 

sentence 3 HGB), whereas translation losses are always taken into account as revenue 

expenditure. 

The translation of currencies in the annual accounts of the subsidiaries and joint ven- 

tures included in the consolidated accounts is based on the same principles. In the 

consolidated accounts, the balance sheet items and the expenses and income of our 

foreign subsidiaries and joint ventures, unless their annual accounts have been pre- 

pared in euros, are translated at the spot exchange rates as per the balance sheet date. 

Translation gains and losses resulting from the consolidation of equity capital are set 

off within the revenue reserves. 

Group of consolidated companies 

The consolidated accounts include BayernLB and the nine companies shown under I in 

the inventory of shareholdings. In 2004, on the basis of new findings, the number of 

companies included in the group of consolidated companies was adjusted by three 

entities. The resulting adjustments of EUR 196 million were set off against the revenue 

reserves of the Group. LB(Swiss) Privatbank AG, Zurich, is included in proportion to its 

shares. 

Pursuant to Section 296, Sub-section 1, No. 2 HGB, one affiliated company has not 

been included in the consolidated accounts due to substantial and persistent restric- 

tions affecting long-term the exercising of rights with relation to assets and manage- 

ment. The remaining subsidiaries have neither been consolidated nor valued according 

to the equity method because they are of subordinate importance with respect to the 

financial position of the Group and the results of its operations. The non-consolidated 

combined balance sheet total of these subsidiaries comes to around 1.6 percent of the 

consolidated balance sheet total. 

Consolidation principles 

The consolidated accounts have been drawn up in accordance with the accounting and 

valuation methods applicable to the annual accounts of BayernLB. The balance sheet 

profit disclosed in the consolidated accounts is identical with that shown in the parent 

company’s individual accounts. 

Capital consolidation has been effected according to the book value method, using the 

values at the time of acquisition or first consolidation of the subsidiary. Assets-side and 

liabilities-side balancing items remaining after the allocation procedure laid down in 

Section 301, Sub-section 1, Sentence 3 HGB are netted, the balance being transferred 

to revenue reserves. The asset-side balancing item resulting from first-time consolida-


tions amounts to EUR 1 million for the year under review. Claims and liabilities as well 

as expenses and income among the integrated group companies have been consoli- 

dated. Intra-group results from transactions within the Group have been eliminated in 

so far as they are not of minor significance. Joint ventures, included on a pro-rata basis 

in the consolidated accounts, are treated according to the same principles. 

Pursuant to Section 312, Sub-section 1 HGB, TxB Transaktionsbank GmbH, Aschheim- 

Dornach was valued in accordance with the book value method, on the basis of values 

stated at the time of first integration. The valuation method applied by the company 

has not been adjusted to the standard valuation provisions applicable to the Group. 

Bank für Arbeit und Wirtschaft AG, Vienna, previously included in the consolidated 

accounts according to the equity method, was sold on 30 June 2004. An assets-side 

balancing item of EUR 113 million, charged during first-time consolidation with no 

impact on the operating result, was set off against revenue reserves at the time of final 

consolidation, also with no impact on the operating result. 

Disclosures relating to the balance sheet and the consolidated balance sheet 

(excluding accrued interest, unless otherwise stated) 

Assets 

Due from banks 

EUR million 

This item includes: 

• Other receivables with a residual 

maturity of 

– up to three months 

(including accrued interest) 

– over three months up to one year 

– over one year up to five years 

– over five years 

• Due from affiliated companies 

• Due from companies in which 

investments are held 

• Due from affiliated savings banks 

• Subordinated receivables 


2004 2003 2004 2003 

46,671 

27,280 

26,865 

19,042 

11,935 

188 

17,837 

1,162 

34,254 

22,224 

25,792 

19,370 

14,074 

290 

19,316 

1,226 

48,266 

25,926 

25,471 

15,957 

164 

202 

18,462 

1,094 

35,781 

19,612 

24,921 

16,152 

169 

263 

19,977 

1,169 

Committed but not yet disbursed 

building saving loans of Home 

Loan division 

• from allotment 110 104 113 109 

151


Due from customers 

EUR million 


• Receivables with a residual 

maturity of 






• Receivables without a fixed date of 

maturity 

• Due from affiliated companies 

• Due from companies in which 


• Subordinated receivables 

• Overdue interest and redemption 

payments from building saving loans 

of home loan division 

Committed but not yet disbursed 

building saving loans of home 

loan division 

• from allotment 

• for preliminary and interim financing 

purposes 

• other 

Bonds and other fixed interest securities 

EUR million 


• Amounts falling due in the following 

year (including accrued interest) 

• Securitised receivables from 

associated Corporates 

• Securitised receivables from 

companies in which investments 

are held 

• Subordinated securities 

• Marketable securities, of which 

– listed 

– unlisted 


2004 2003 2004 2003 

15,141 

7,801 

26,147 

36,472 

1,866 

399 

586 

46 

6 

396 

71 

— 

15,051 

10,061 

27,243 

37,708 

1,800 

404 

628 

29 

6 

395 

121 

— 

19,416 

10,527 

35,198 

59,194 

3,496 

1,351 

674 

112 

6 

424 

76 

8 


18,778 

12,712 

35,194 

58,812 

3,341 

1,203 

691 

86 

7 

425 

127 

10 

2004 2003 2004 2003 

6,559 

3,299 

— 

9 

34,780 

14,669 

9,676 

2,252 

— 

10 

28,515 

19,403 

9,243 

— 

194 

54 

44,688 

15,530 

11,213 

— 

23 

10 

35,394 

21,024


Shares and other non-fixed interest securities 

EUR million 


• Subordinated securities 


– listed 

– unlisted 

Investments 

EUR million 



– listed 

– unlisted 

Shares in affiliated Corporates 

EUR million 



– listed 

– unlisted 


2004 2003 2004 2003 

7 

226 

8 

10 

262 

22 

14 

247 

646 


16 

304 

634 

2004 2003 2004 2003 

— 

55 

— 

606 

29 

39 


1 

644 

2004 2003 2004 2003 

5 

1,824 

Assets administered on behalf of third parties 

EUR million 

This item mainly includes housing 

loans granted by Bayerische Landesbodenkreditanstalt 

and breaks down 

as follows: 

• Due from banks 

• Due from customers 

• Bonds and other fixed interest 

securities 

• Other assets 

17 

1,824 

5 

292 


17 

250 

2004 2003 2004 2003 

248 

7,781 

45 

5 

272 

8,101 

51 

5 

341 

7,876 

45 

5 

375 

8,201 

51 

5 

153


Tangible assets 

EUR million 


• Land and buildings used for own 

operations 

• Office furniture and equipment 

Other assets 

EUR million 


• Premium claims from credit 

derivatives 

• Premium from credit derivatives not 

yet received 

• Claims on the German Tax 

Authorities 

Deferred taxes 

EUR million 


2004 2003 2004 2003 

104 

47 

107 

94 

153 

64 


158 

115 

2004 2003 2004 2003 

737 

693 

176 

574 

573 

433 

738 

694 

160 


574 

573 

450 

2004 2003 2004 2003 

Deferred taxes 263 419 324 431 

At BayernLB, deferred taxes have been disclosed pursuant to Section 274 HGB. At 

Group level, deferred taxes have been combined pursuant to Sections 274 and 306 

HGB. The figures have been computed on the basis of the income tax rates which apply 

in the case of the respective consolidated companies. 

The deferred taxes are largely due to the fact that the impact of the German Tax Relief 

Act 1999 / 2000 / 2002 and the non-recognition for tax purposes of provisions for antici- 

pated unrealised losses have been taken into account. 

Deferred income 

EUR million 


• Premium on receivables 

• Discount on liabilities 


2004 2003 2004 2003 

306 

280 

356 

395 

324 

301 

378 

419


Changes in fixed assets and investments 

EUR million Purchase / 

BayernLB 

Investments 

manufacturing costs 

Additions 

Disposals 

Changes +/ – * 

Transfers 

Appreciation 

Depreciation / 

write-downs 

(accumulated) 

Net book value 

31. 12. 2004 

Net book value 

31. 12. 2003 

– 1,071 999 2,070 

Shares in affiliated 

companies + 206 3,417 3,211 

Investment 

securities – 3,807 10,157 13,964 

155 

Depreciation / 

write-downs for 

financial year 

Intangible assets — 17 5 102 — 88 26 — 14 

Tangible assets 571 6 42 – 102 — 282 151 203 28 

Other fixed assets 22 — — — — 5 17 17 — 

Group 

Investments 

Changes +/ – * 

– 343 1,329 1,672 

Investments 

in associated 

companies – 562 25 587 

Shares in affiliated 

companies – 241 1,085 1,326 

Investment 

securities – 4,114 11,911 16,025 

Intangible assets — 20 8 118 — 100 30 — 17 

Tangible assets 746 17 48 – 118 — 374 223 281 40 

Other fixed assets 24 — — — — 5 19 19 — 

* The aggregation option pursuant to Section 34, Sub-section 3 RechKredV was utilised.


Genuine sale and repurchase agreements 

EUR million 


2004 2003 2004 2003 

Book values of assets transferred under 

sale and repurchase agreements 12,118 6,121 12,180 6,841 

Assets in foreign currency 

EUR million 


2004 2003 2004 2003 

Total amount of assets denominated 

in foreign currency 67,401 74,233 74,946 81,017 

Assets held as cover 

EUR million 

For bonds to be covered pursuant 

to the law on covered bonds 

(pfandbriefe) and related bonds issued 

by public-law banks 

• Covered bonds and Landesbodenbriefe 

Cover contained in: 

– Due from banks 

– Due from customers 

Excess cover 

• Public-debt bonds 

Cover contained in: 

– Due from banks 

– Due from customers 

– Bonds and other fixed interest 

securities 

Excess cover 


2004 2003 2004 2003 

7,192 

302 

9,673 

2,783 

47,038 

32,895 

22,080 

100 

8,037 

8,139 

5 

10,836 

2,702 

50,152 

29,035 

21,725 

— 

608 

7,192 

302 

9,673 

2,783 

47,038 

32,895 

22,080 

100 

8,037 

8,139 

5 

10,836 

2,702 

50,152 

29,035 

21,725 

— 

608


Shareholdings (extract) 

The complete inventory of shareholdings pursuant to Section 285, No. 11, Section 

313, Sub-section 2 and Section 340a, Sub-section 4, No. 2 HGB has been lodged with 

the Munich Register of Companies. 

Name and legal domicile 

of the affiliated company 

I. Subsidiaries included in the 

consolidated accounts 

• Banque LBLux S.A., Luxembourg 

• Bayern-Invest Kapitalanlagegesellschaft 

mbH, Munich 

• BLB Asia Pacific Ltd., Singapore 

• BLB-Beteiligungsgesellschaft 

Jota mbH & Co. KG Nr. 1, Munich 





• Deutsche Kreditbank 

Aktiengesellschaft, Berlin 

• Landesbank Saar, Saarbrücken 

• MKB – Magyar Külkereskedelmi Bank 

Rt., Budapest 

II. Joint Ventures 

Letter of 

comfort 1 

Õ 

Õ 

Õ 

Õ 4 

Percentage 

held 

75.0 

100.0 

100.0 

49.0 3 

49.0 3 

49.0 3 

100.0 

75.1 

89.6 

Equity 2 in 

EUR ’000 

470,627 

15,641 

118,746 

257,069 

37,056 

237,928 

1,240,342 

504,254 

593,319 

Result in 

EUR ’000 

30,000 

842 

7,630 

– 33,145 

737 

2,098 

139,432 

14,000 

64,849 

• LB(Swiss) Privatbank AG, Zurich Õ 50.0 83,475 13,106 

III. Associated companies 

• TxB Transaktionsbank GmbH, 

Aschheim-Dornach 37.5 67,779 – 9,260 

Comments: 

Amounts in foreign currency were converted to euro at the respective spot exchange rate on 31 December 2004. 

1 For the wording of the Letter of Comfort, please see “Contingent liabilities and other liabilities”. 

2 Equity as defined in Sections 266 and 272 HGB. 

3 Percentage held based on mandatory capital contribution 

4 Valid for the period following withdrawal of Gewährträgerhaftung (guarantee obligation) as per 18 July 2005. 

157


Liabilities 

Due to banks 

EUR million 


• Term liabilities with a residual 

maturity of 






• Due to affiliated companies 

• Liabilities to companies in which 


• Due to affiliated savings banks 

Due to customers 

EUR million 


• Other term liabilities with a residual 

maturity of 










2004 2003 2004 2003 

46,539 

16,227 

19,286 

14,244 

957 

71 

8,308 

46,081 

15,249 

17,083 

13,656 

1,703 

51 

7,514 

58,146 

18,529 

22,336 

17,507 

52 

155 

8,757 


56,659 

18,024 

19,737 

16,918 

47 

213 

7,841 

2004 2003 2004 2003 

13,562 

3,654 

7,143 

16,038 

151 

299 

12,409 

2,642 

7,148 

15,029 

135 

190 

19,969 

4,152 

7,930 

17,533 

279 

325 

18,006 

3,113 

7,800 

16,323 

290 

200


Securitised liabilities 

EUR million 


• Bonds issued 

– amounts falling due in the 

following year 

• Other securitised liabilities with 

a residual maturity of 










2004 2003 2004 2003 

15,094 

3,075 

3,968 

32 

— 

469 

Liabilities administered on behalf of third parties 

EUR million 

This item breaks down as follows: 

• Due to banks 

• Due to customers 

• Other liabilities 

Other liabilities 

EUR million 


• Premium liabilities from credit 

derivatives 

• Covering obligation resulting from 

the sale of securities borrowed 

• Premiums from credit derivatives 

not yet paid 

• Payment to the Free State of Bavaria 

upon conclusion of the EU state aid 

proceedings 

6 

19,219 

5,645 

3,262 

60 

— 

446 

17 

17,586 

3,531 

4,018 

32 

— 

— 


1 

19,724 

5,645 

3,262 

60 

— 

3 

2004 2003 2004 2003 

73 

8,001 

5 

92 

8,332 

5 

81 

8,181 

5 


10 

101 

8,526 

5 

2004 2003 2004 2003 

797 

788 

645 

320 

645 

791 

515 

— 

803 

788 

646 

320 

650 

791 

515 

— 

159


Deferred income 

EUR million 

This position includes: 


2004 2003 2004 2003 

• Discount on receivables 139 150 167 182 

Subordinated liabilities 

EUR million 




2004 2003 2004 2003 

In the year under review interest 

expenses amounted to: 220 244 232 256 

On the balance sheet date, funds exceeding 10 percent of the total amount of subordi- 

nated liabilities had not been raised. 

All subordinated liabilities are issued under the following terms: In the case of the Bank’s 

insolvency or liquidation, repayment shall not take place until all non-subordinated cred- 

itors have been satisfied. An obligation to make premature repayment at the creditor’s 

request cannot arise. The prerequisites under which these subordinated liabilities can be 

counted as liable capital pursuant to Section 10, Sub-section 5a German Banking Act 

(KWG) are fulfilled. 

Equity 

Of the capital contributions of silent partners included in the consolidated capital, 

EUR 83 million are from minority shareholders. 

Liable capital 

EUR million 

3 

— 

— 


2004 2003 2004 2003 

The following unrealised reserves count 

as part of the liable capital pursuant to 

Section 10, Sub-section 2b, Sentence 1, 

No. 7 KWG: 59 46 64 59 

—


Liabilities in foreign currency 

EUR million 


2004 2003 2004 2003 

Total amount of assets denominated 

in foreign currency 67,811 70,163 75,409 77,403 

Contingent liabilities and other liabilities 

Neither of these items, disclosed below the bottom line of the balance sheet, contains 

any elements which have a significant bearing on the Bank’s overall activities. 

Letter of comfort 

For all financial institutions and other companies which are stated to be covered by the 

letter of comfort in the inventory of Group shareholdings, we shall ensure, proportion- 

ate to the size of our respective equity interest, that – with the exception of cases of 

political risk – they will be in a position to fulfil their contractual obligations. 

Assignment of collateral for the Bank’s own liabilities 

EUR million 

Assets have been assigned as collateral 

in the case of the following liabilities: 

• Due to banks 

• Due to customers 

• Contingent liabilities 


2004 2003 2004 2003 

10,898 

— 

26 

7,907 

— 

30 

16,738 

451 

30 

12,694 

401 

33 

The provision of collateral for the Bank’s own liabilities predominantly concerns open 

market transactions with the European System of Central Banks. 

Additionally, securities with a nominal value of EUR 2.668 billion at BayernLB and 

EUR 2.731 billion at Group level have been deposited as collateral in connection with 

transactions on EUREX, EEX, Clearstream Banking Frankfurt / Main, Clearstream Bank- 

ing Luxembourg, Euroclear and other stock exchange and clearing systems. 

161


Other financial obligations 

Other financial obligations notably arise from rental, use, service and maintenance 

contracts, and from consulting and marketing agreements. 

On the balance sheet date, there were call commitments for capital not fully paid up 

of EUR 45 million at BayernLB and EUR 47 million at Group level. There were uncalled 

liabilities from limited partnership relationships of EUR 51 million, and joint liabilities 

pursuant to Section 24 German Law on Limited Liability Companies (GmbHG) in respect 

of EUR 18 million. Moreover, there were additional funding obligations amounting to 

EUR 39 million at BayernLB and EUR 50 million at Group level, as well as a directly 

enforceable guarantee for the funding obligation of shareholders of the Frankfurt / 

Main-based Liquiditäts-Konsortialbank GmbH, who are members of Deutsche Spar- 

kassen- und Giroverband e. V. Amounts due to affiliated companies amounted to 

EUR 84 million at BayernLB and EUR 86 million for the Group. 

Pursuant to Section 157 Conversion law, there is a secondary liability for the Berlin- 

based Deutsche Kreditbank Aktiengesellschaft in respect of liabilities. 

On the balance sheet date, BayernLB’s liability as a member of the guarantee fund of 

the landesbanks came to EUR 88 million and that of the Group to EUR 93 million. 

Under the terms of the statutes of the deposit insurance fund run by the Association 

of German Public-Law Banks (VÖB), the Bank has undertaken to exempt the VÖB from 

any losses which may be suffered due to measures taken in favour of two credit insti- 

tutions which are majority-owned by the Bank. As members of deposit protection 

schemes, individual consolidated institutions are also liable under the provisions 

governing those schemes.


Changes in the portfolio of building-saving contracts and contract amounts of our 

Home Loan Division (Landesbausparkasse) 

Not allotted Allotted Total 

No. of 

contracts 

Contract 

amounts 

EUR million 

No. of 

contracts 

Contract 

amounts 

EUR million 

No. of 

contracts 

163 

Contract 

amounts 

EUR million 

A. Portfolio at end of 

previous year 1,583,043 32,845 447,556 9,860 2,030,599 42,705 

B. Additions in financial year 

through 

• New contracts (effective) 

• Transfers 

• Waivers and revocations 

of allotment 

• Splits 

• Allotments 

• Other 

Total 

C. Reductions in financial year 

through 


• Reductions 

• Write-backs 

• Transfers 

• Consolidations 

• Contract expiries 


of allotment 

• Other 

Total 

252,381 

14,865 

10,976 

1,684 

— 

11,645 

291,551 

95,993 

— 

117,527 

14,865 

— 

3,668 

— 

12,056 

244,109 

5,994 

303 

180 

— 

— 

257 

6,734 

1,769 

213 

1,928 

303 

— 

33 

— 

374 

4,620 

— 

2,789 

— 

56 

95,993 

583 

99,421 

— 

— 

38,232 

2,789 

6,577 

79,940 

10,976 

510 

139,024 

— 

59 

— 

— 

1,769 

14 

1,842 

— 

6 

661 

59 

— 

1,718 

180 

9 

2,633 

252,381 

17,654 

10,976 

1,740 

95,993 

12,228 

390,972 

95,993 

— 

155,759 

17,654 

6,577 

83,608 

10,976 

12,566 

383,133 

D. Net additions / reductions 47,442 2,114 – 39,603 – 791 7,839 1,323 

5,994 

362 

180 

— 

1,769 

271 

8,576 

1,769 

219 

2,589 

362 

— 

1,751 

E. Portfolio at end of 

financial year 1,630,485 34,959 407,953 9,069 2,038,438 44,028 

Of which: building-savers outside 

the Federal Republic of Germany 4,514 96 722 18 5,236 114 

Portfolio of contracts not yet effective 

• Concluded prior to 01. 01. 2004 

• Concluded in 2004 financial year 

No. of contracts 

7,351 

47,475 

As far as changes in the individual tariffs are concerned, please refer to the annual report of our 

Home Loan division. 

180 

383 

7,253 

Contract amounts 

EUR million 

237 

1,197


Changes in the volume of the allotment fund of our Home Loan division 

EUR million 

A. Additions 

Brought forward from previous year (surplus): 

Amounts not yet disbursed 

Additions in financial year 

• Building-savers’ deposits (incl. building-saving premiums) 

• Redemption amounts 1 (incl. building-saving premiums) 

• Interest on building-savers’ deposits 

Total additions 

B. Reductions 

Reductions in financial year 

• Allotted amounts, if disbursed 

a) Building-savers’ deposits 

b) Building loans 

• Repayment of building-savers’ deposits on building-saving contracts not 

yet allotted 

Comments: 

Additions surplus (amounts not yet disbursed) at end of financial year 2 

Total reductions 

1 Redemption amounts are the proportions of the redemption amounts which are purely used for redemptions. 

2 The additions surplus includes, among other items: 

a) Building-savers’ deposits not yet disbursed relating to allotted building-saving contracts: EUR 217 million 

b) Building loans not yet disbursed relating to allotments: EUR 506 million 

3,874 

1,539 

754 

174 

6,341 

830 

521 

500 

4,490 

6,341


Changes in the portfolio of building-saving contracts and contract amounts of our 

Home Loan division and of the Landesbausparkasse Saar 

Not allotted Allotted Total 

No. of 

contracts 

Contract 

amounts 

EUR million 

No. of 

contracts 

Contract 

amounts 

EUR million 

No. of 

contracts 

165 

Contract 

amounts 

EUR million 

A. Portfolio at end of 

previous year 1,682,387 34,733 480,658 10,465 2,163,045 45,198 

B. Additions in financial year 

through 

• New contracts (effective) 

• Transfers 


of allotment 

• Splits 


• Other 

Total 

C. Reductions in financial year 

through 


• Reductions 

• Write-backs 

• Transfers 

• Consolidations 

• Contract expiries 


of allotment 

• Other 

Total 

269,318 

15,247 

14,420 

1,742 

— 

12,412 

313,139 

105,968 

— 

125,504 

15,247 

— 

3,668 

— 

13,213 

263,600 

6,322 

314 

229 

— 

— 

272 

7,137 

1,927 

218 

2,061 

314 

— 

33 

— 

399 

4,952 

— 

2,861 

— 

56 

105,968 

1,200 

110,085 

— 

— 

39,945 

2,861 

7,749 

85,632 

14,420 

1,082 

151,689 

— 

61 

— 

— 

1,927 

15 

2,003 

— 

6 

685 

61 

— 

1,816 

229 

28 

2,825 

269,318 

18,108 

14,420 

1,798 

105,968 

13,612 

423,224 

105,968 

— 

165,449 

18,108 

7,749 

89,300 

14,420 

14,295 

415,289 

D. Net additions / reductions 49,539 2,185 – 41,604 – 822 7,935 1,363 

6,322 

375 

229 

— 

1,927 

287 

9,140 

1,927 

224 

2,746 

375 

— 

1,849 

E. Portfolio at end of 

financial year 1,731,926 36,918 439,054 9,643 2,170,980 46,561 

Of which: building-savers outside 

the Federal Republic of Germany 7,496 161 1,252 31 8,748 192 

Portfolio of contracts not yet effective 

• Concluded prior to 01. 01. 2004 

• Concluded in 2004 financial year 

No. of contracts 

8,351 

50,203 

229 

427 

7,777 

Contract amounts 

EUR million 

As far as changes in the individual tariffs are concerned, please refer to our Home Loan division’s annual 

report and the annual report of Landesbausparkasse Saar. 

260 

1,258


Changes in the volume of the allotment fund of our Home Loan division and 

that of the Landesbausparkasse Saar 

EUR million 

A. Additions 

Brought forward from previous year (surplus): 

Amounts not yet disbursed 

Additions in financial year 

• Building-savers’ deposits (incl. building-saving premiums) 

• Redemption amounts 1 (incl. building-saving premiums) 

• Interest on building-savers’ deposits 

Total additions 

B. Reductions 

Reductions in financial year 

• Allotted amounts, if disbursed 

a) Building-savers’ deposits 

b) Building loans 

• Repayment of building-savers’ deposits on building-saving contracts not 

yet allotted 

Comments: 

Additions surplus (amounts not yet disbursed) at end of financial year 2 

Total reductions 

1 Redemption amounts are the proportions of the redemption amounts which are purely used for redemptions. 

2 The additions surplus includes, among other items: 

a) Building-savers’ deposits not yet disbursed relating to allotted building-saving contracts: EUR 239 million 

b) Building loans not yet disbursed relating to allotments: EUR 539 million 

Derivative transactions 

4,107 

1,636 

798 

184 

6,725 

885 

556 

533 

4,751 

6,725 

The table below shows interest rate-related and foreign currency-related forward trans- 

actions as well as other forward transactions and credit derivatives not yet settled as 

per the balance sheet date. The majority of the deals was concluded to hedge fluctua- 

tions in interest rates, exchange rates or market prices and trading on behalf of cus- 

tomers.


Derivatives transactions within BayernLB – presentation of volumes 

EUR million 

Interest rate risks 

• Interest rate swaps 

• FRAs 

• Interest rate options 

– purchases 

– sales 

• Caps, floors 

• Exchange-traded contracts 

• Other forward transactions 

Interest rate risks – total – 

Currency risks 

• Forward exchange transactions 

• Currency swaps / 

cross currency swaps 

• Foreign exchange options 

– purchases 

– sales 



Currency risks – total – 

Share and other price risks 

• Forward share transactions 

• Index options 

– purchases 

– sales 

• Share options 

– purchases 

– sales 



Share and other price risks – total – 

Risks from credit derivatives 

• Credit default swaps 

– protection buyer 

– protection seller 

• Credit linked notes 



• Total return swaps 



• Credit spread options 



Risks from credit derivatives – total – 

Nominal values 

Positive 

market 1 

values 

Negative 

market 1 

values 

2004 2003 2004 2004 

582,540 

9,959 

21,804 

8,951 

12,853 

19,062 

155,567 

991 

789,923 

124,753 

38,760 

2,626 

1,300 

1,326 

— 

251 

166,390 

24 

710 

372 

338 

1,840 

939 

901 

297 

388 

3,259 

38,579 

20,415 

18,164 

899 

899 

— 

1,294 

647 

647 

365 

— 

365 

41,137 

532,923 

28,061 

12,456 

4,219 

8,237 

20,886 

86,160 

721 

681,207 

158,341 

40,474 

5,204 

2,691 

2,513 

— 

215 

204,234 

— 

464 

125 

339 

1,358 

743 

615 

421 

217 

2,460 

30,642 

16,737 

13,905 

586 

586 

— 

474 

237 

237 

392 

— 

392 

32,094 

15,602 

629 

180 

180 

— 

104 

60 

— 

16,575 

2,646 

3,125 

73 

73 

— 

— 

21 

5,865 

— 

12 

12 

— 

88 

88 

— 

4 

6 

110 

142 

34 

108 

— 

— 

— 

2 

1 

1 

— 

— 

— 

144 

14,582 

104 

704 

— 

704 

103 

58 

91 

15,642 

2,813 

3,300 

46 

— 

46 

— 

— 

6,159 

— 

13 

— 

13 

86 

— 

86 

1 

5 

105 

138 

124 

14 

— 

— 

— 

— 

— 

— 

— 

— 

— 

138 

167


Derivatives transactions within the BayernLB Group – presentation of volumes 

EUR million 

Interest rate risks 

• Interest rate swaps 

• FRAs 

• Interest rate options 

– purchases 

– sales 

• Caps, floors 



Interest rate risks – total – 

Currency risks 

• Forward exchange transactions 

• Currency swaps / 

cross currency swaps 

• Foreign exchange options 

– purchases 

– sales 



Currency risks – total – 

Share and other price risks 

• Forward share transactions 

• Index options 

– purchases 

– sales 

• Share options 

– purchases 

– sales 



Share and other price risks – total – 

Risks from credit derivatives 

• Credit default swaps 



• Credit linked notes 



• Total return swaps 



• Credit spread options 



Risks from credit derivatives – total – 


Positive 

market 1 

values 

Negative 

market 1 

values 

2004 2003 2004 2004 

595,735 

10,026 

21,809 

8,951 

12,858 

19,692 

156,122 

991 

804,375 

126,241 

39,000 

2,674 

1,312 

1,362 

— 

251 

168,166 

71 

829 

428 

401 

1,842 

941 

901 

297 

388 

3,427 

38,605 

20,421 

18,184 

899 

899 

— 

1,294 

647 

647 

365 

— 

365 

41,163 

544,716 

28,119 

12,461 

4,224 

8,237 

21,486 

86,160 

747 

693,689 

159,728 

40,704 

5,226 

2,698 

2,528 

— 

215 

205,873 

94 

470 

128 

342 

1,384 

768 

616 

421 

218 

2,587 

30,642 

16,737 

13,905 

586 

586 

— 

474 

237 

237 

392 

— 

392 

32,094 

15,761 

629 

180 

180 

— 

112 

60 

— 

16,742 

2,666 

3,125 

73 

73 

— 

— 

21 

5,885 

— 

12 

12 

— 

88 

88 

— 

4 

6 

110 

142 

34 

108 

— 

— 

— 

2 

1 

1 

— 

— 

— 

144 

14,961 

104 

704 

— 

704 

104 

58 

91 

16,022 

2,855 

3,348 

46 

— 

46 

— 

— 

6,249 

— 

13 

— 

13 

86 

— 

86 

1 

5 

105 

138 

124 

14 

— 

— 

— 

— 

— 

— 

— 

— 

— 

138


Derivatives transactions within BayernLB – maturities structure 

EUR million 

Residual terms 

• up to three months 

• up to 1 year 

• up to 5 years 

• more than 5 years 

Total 

Interest rate risks Currency risks 


Share and other 

price risks 

Risks from credit 

derivatives 

2004 2003 2004 2003 2004 2003 2004 2003 

74,769 

234,501 

287,937 

192,716 

789,923 

78,344 

175,721 

248,753 

178,389 

681,207 

66,650 

57,253 

24,049 

18,438 

166,390 

79,087 

68,716 

32,672 

23,759 

204,234 

1,317 

844 

843 

255 

3,259 

Derivatives transactions within the BayernLB Group – maturities structure 

EUR million 

Residual terms 

• up to three months 

• up to 1 year 

• up to 5 years 

• more than 5 years 

Total 

Interest rate risks Currency risks 


1,169 

506 

407 

378 

2,460 

Share and other 

price risks 

112 

833 

21,381 

18,811 

41,137 

169 

5,304 

403 

14,749 

11,638 

32,094 

Risks from credit 

derivatives 

2004 2003 2004 2003 2004 2003 2004 2003 

76,262 

237,241 

293,177 

197,695 

804,375 

80,275 

178,026 

253,033 

182,355 

693,689 

67,751 

57,723 

24,116 

18,576 

168,166 

79,899 

69,279 

32,811 

23,884 

205,873 

1,459 

870 

843 

255 

3,427 

1,207 

595 

407 

378 

2,587 

112 

833 

21,407 

18,811 

41,163 

5,304 

403 

14,749 

11,638 

32,094


Derivatives transactions within BayernLB – counterparty structure 

EUR million 

OECD banks 

Non-OECD banks 

Public-sector entities within the OECD 

Other counterparties* 

Total 


Positive 

market 1 

values 

Negative 

market 1 

values 

2004 2003 2004 2004 

739,684 

4,779 

4,809 

251,437 

1,000,709 

735,880 

4,895 

4,642 

174,578 

919,995 

18,436 

25 

213 

4,020 

22,694 

Derivatives transactions within the BayernLB Group – counterparty structure 

EUR million 

OECD banks 

Non-OECD banks 

Public-sector entities within the OECD 

Other counterparties* 

Total 

* including exchange-traded contracts 


Positive 

market 1 

values 

17,488 

18 

43 

4,495 

22,044 

Negative 

market 1 

values 

2004 2003 2004 2004 

755,027 

4,779 

4,909 

252,416 

1,017,131 

749,622 

4,895 

4,642 

175,084 

934,243 

18,623 

25 

213 

4,020 

22,881 

17,958 

18 

43 

4,495 

22,514


Derivatives transactions within BayernLB – trading transactions 2 

EUR million 

Interest rate-based contracts 

Currency-based contracts 

Share-based contracts 

Credit derivatives contracts 

Trading transactions – total 


Positive 

market 1 

values 

Negative 

market 1 

values 

2004 2003 2004 2004 

649,565 

123,915 

2,166 

27,805 

803,451 

537,145 

152,901 

1,311 

20,132 

711,489 

11,899 

3,798 

94 

125 

15,916 

Derivatives transactions within the BayernLB Group – trading transactions 2 

EUR million 

Interest rate-based contracts 

Currency-based contracts 

Share-based contracts 

Credit derivatives contracts 

Trading transactions – total 

Comments: 


Positive 

market 1 

values 

11,697 

4,145 

90 

115 

16,047 

Negative 

market 1 

values 

2004 2003 2004 2004 

650,342 

124,133 

2,214 

27,805 

804,494 

538,003 

153,924 

1,344 

20,132 

713,403 

11,903 

3,811 

94 

125 

15,933 

11,705 

4,160 

90 

115 

16,070 

1 Market value is the amount at which derivatives may be bought or sold on the balance sheet date. Market value is calculated 

either on the basis of quoted market prices or using generally recognised valuation models (e. g. present value and option 

pricing models) based on current market parameters. 

2 Trading transactions in derivative instruments include transactions carried out within the framework of the Bank’s business 

strategies and limits by the competent trading units with the aim of achieving own-trading gains. 

171


Disclosures relating to the profit and loss statement of the BayernLB 

and the consolidated profit and loss statement 

Other operating income and expenses 

The main items included under Other operating income are earnings from tax refunds 

of EUR 140 million for BayernLB and EUR 145 million for the Group (EUR 142 million 

for the BayernLB and EUR 145 million for the Group in the previous year) as well as 

earnings from the write-back of other provisions worth EUR 23 million at BayernLB and 

EUR 26 million at Group level (EUR 27 million and EUR 30 million respectively in the 

previous year). 

Other operating income also includes one-off earnings of EUR 123 million posted by 

Deutsche Kreditbank Aktiengesellschaft, Berlin. This amount resulted from the early 

termination of payment obligations under the D-Markbilanzgesetz (DMBilG – legisla- 

tion created in connection with German reunification) and, consequently, the neces- 

sary review of reserves and valuation of residual risks at the Bank. 

The main items included under Other operating expenses constitute expenditure on 

provisioning measures affecting holdings of the Deutsche Kreditbank Aktiengesell- 

schaft, Berlin. 

Extraordinary expenses 

This position includes in particular the payment of EUR 320 million to the Free State of 

Bavaria upon termination of the EU state aid proceedings. 

Taxes on income and earnings 

Taxes disclosed on income and earnings relate to the result from ordinary business. 

The tax position is also influenced by the writing back of tax deferrals. 

Geographical markets 

EUR million 

The total amount of income disclosed 

in items 1, 3, 5, 7 and 8 breaks down 

into the following geographical 

markets: 

• Germany 

• Europe (excluding Germany) 

• Americas 

• Asia 


2004 2003 2004 2003 

8,766 

919 

818 

236 

9,058 

1,119 

1,095 

327 

10,233 

1,913 

818 

239 

10,351 

1,917 

1,094 

332


Supplementary information 

The administrative bodies of BayernLB* 

Board of Administration 


Chairman 

State Minister, Bavarian State Ministry 

of Finance 


First Vice Chairman 

Executive President of the 

Association of Bavarian Savings Banks 


Second Vice Chairman 




Third Vice Chairman 


of the District of Dachau 

Josef Deimer 

Lord Mayor of the City of Landshut 

Alois Hagl 



Georg Schmid 

Permanent Secretary, 



Klaus Weigert 

Deputy Secretary, Bavarian 

State Ministry of Finance 

Prof. Hubert Weiler 





of Economic Affairs, Infrastructure, 

Transport and Technology 



Chairman 

Dr. Peter Kahn 

(until 31. 12. 2004) 


Werner Strohmayr 

(until 30. 06. 2004) 






* Relevant for the period from 1 January 

to 31 December 2004. 

173


Remunerations of the governing bodies of BayernLB 

EUR thousand 

Total remunerations of the financial 

year: 

• Members of the Board of Management 

of BayernLB 

• Members of the Board of Administration 

of BayernLB* 

• Former members of the Board 

of Management of BayernLB and 

their surviving dependants 

• Former members of the Board 

of Administration of BayernLB 

and their surviving dependants 

• Pension provisions set up for former 

members of the Board of Management 

of BayernLB and their surviving 

dependants 

* Previous year’s figures have been adjusted. 

Loans to the governing bodies of BayernLB 

EUR thousand 

Total amount of advances, loans and 

guarantees granted to members of the 

Board of Management and the Board 

of Administration: 

• Members of the Board of 

Management of BayernLB 

• Members of the Board of 

Administration of BayernLB 


2004 2003 2004 2003 

4,542 

320 

4,046 

5 

36,177 

4,857 

317 

3,910 

— 

34,115 

4,778 

350 

4,082 

14 

36,177 


5,113 

360 

3,938 

— 

34,115 

2004 2003 2004 2003 

2,189 

488 

1,600 

419 

2,234 

488 

1,645 

419


Mandates held by legal representatives or by other employees 

of the BayernLB Group* 

Name 

At BayernLB: 



Mandates held in supervisory bodies to be constituted under 

German law for major incorporated companies 

(including all credit institutions) 

DekaBank Deutsche Girozentrale, Frankfurt / Main 

Deutsche Kreditbank Aktiengesellschaft, Berlin 

Deutsche Lufthansa AG, Cologne 

Drees & Sommer AG, Stuttgart 

Herrenknecht AG, Schwanau 

Jenoptik AG, Jena 

Landesbank Saar, Saarbrücken 


Liquiditäts-Konsortialbank GmbH, Frankfurt / Main 

Wieland-Werke AG, Ulm 

Dr. Peter Kahn Banque LBLux S.A., Luxembourg 

Bayern-Invest Kapitalanlagegesellschaft mbH, Munich 

Deutsche Kreditbank Aktiengesellschaft, Berlin 

Ed. Züblin AG, Stuttgart 

GBWAG Bayerische Wohnungs-AG, Munich 

GEWOFAG Gemeinnützige Wohnungsfürsorge AG, Munich 

Knaus AG, Jandelsbrunn 



Warema Renkhoff Holding AG, Marktheidenfeld 

Dr. Rudolf Hanisch Banque LBLux S.A., Luxembourg 


CDC IXIS S.A., Paris 

E.ON Energie AG, Munich 


Dieter Burgmer Banque LBLux S.A., Luxembourg 


BayernLB International Fund Management S.A., Luxembourg 

BLB Asia Pacific Ltd., Singapore 


Theo Harnischmacher Bayern-Invest Kapitalanlagegesellschaft mbH, Munich 


Resba GmbH (until 31.08.2004 SchmidtBank AG), Hof 

Stefan W. Ropers Bayern-Invest Kapitalanlagegesellschaft mbH, Munich 

Deutsche Factoring Bank Deutsche Factoring GmbH & Co., Bremen 

MKB – Magyar Külkereskedelmi Bank Rt., Budapest 

Dr. Gerhard Gribkowsky debis Air Finance B.V., Amsterdam 

Formula One Administration Ltd., London 

Formula One Management Ltd., London 

* This information is valid as per 31 December 2004. 

175


Name 




Employee 




TxB Transaktionsbank GmbH, Aschheim-Dornach 

Oliver Becker RUEFA Reisen AG, Vienna 

Harald Glöckl Formula One Administration Ltd., London 

Formula One Management Ltd., London 

Ernst Holland mfi Management für Immobilien AG, Essen 

Georg Jewgrafow Bürgerliches Brauhaus Ingolstadt AG, Ingolstadt 

Thomas Neher Bayern-Invest Kapitalanlagegesellschaft mbH, Munich 

Andreas Nerantzakidis Bürgerliches Brauhaus Ingolstadt AG, Ingolstadt 

Haupt Pharma AG, Berlin 

Dr. Bernhard Oswald Bürgerliches Brauhaus Ingolstadt AG, Ingolstadt 

TxB Transaktionsbank GmbH, Aschheim-Dornach 

Michael Schmittlein trans-o-flex Schnell-Lieferdienst GmbH, Weinheim 

Dr. Franz Wirnhier DKB Immobilien AG, Berlin-Charlottenburg 

In the Group: 

Board of Directors of 

Deutsche Kreditbank 


Günther Troppmann 

DKB Immobilien AG, Berlin-Charlottenburg 


Hertha BSC KG mbH aA, Berlin 

MITEC Automotive AG, Eisenach 

Rolf Mähliß DKB Immobilien AG, Berlin-Charlottenburg 


Landesbank Saar 

Dr. Max Häring 


DekaBank Deutsche Girozentrale, Frankfurt / Main 

Deka Immobilien Investment GmbH, Frankfurt / Main 

Deutsche Factoring Bank Deutsche Factoring GmbH & Co., Bremen 

Höll AG, Saarbrücken 

Saarländische Investitionskreditbank AG, Saarbrücken 

Saarstahl AG, Völklingen 

SKG BANK GmbH, Saarbrücken 

Werner Severin Eifelhöhen-Klinik AG, Bonn 

SKG BANK GmbH, Saarbrücken 

Jürgen Müsch Deka Investment GmbH, Frankfurt / Main 

FinanzIT GmbH, Hannover 

Frank Peter Eloy Société Alsacienne de Développement et d’Expansion S.A., Strasbourg


Name 

Management of 

LB(Swiss) Privatbank AG 

Walter Nötzli 


MKB – Magyar Külkereskedelmi 

Bank Rt. 

Dr. Imre Balogh 




Deka Swiss Privatbank AG, Zurich 

Giro Elszámolásforgalmi Rt., Budapest 

Csilla Bolla Giro Elszámolásforgalmi Rt., Budapest 

József Janik Dunaferr Lörinci Hengermü Kft., Budapest 

Extermetal Ltd., London 

Dr. Sándor Patyi Hitelgarancia Rt., Budapest 

Number of employees 

(annual average) 

Women Men Total 

BayernLB 2,460 2,607 5,067 

Consolidated companies 2,241 1,434 3,675 

Group 4,701 4,041 8,742 

of which: consolidated companies on a pro rata basis 

(in proportion to participation) 16 24 40 

The total includes 1,083 part-time employees, whose working hours correspond to those 

of 670 full-time employees. Our 141 trainees are not included. 

Munich, 15 March 2005 


The Board of Management 

Schmidt Dr. Hanisch Harnischmacher 

Burgmer Ropers Dr. Gribkowsky 

177


Independent Auditor’s Report 

We have audited the annual financial statements, together with the bookkeeping sys- 

tem, of Bayerische Landesbank (hereinafter called “Bank”), a corporation established 

under public law, Munich, as well as the consolidated financial statements consisting 

of the Balance Sheet, P / L statement, Statement of Changes in Shareholders’ Equity, Cash 

Flow Statement, Segment Reporting and Notes to the Accounts and its report on the 

position of the Bank and the Group prepared by the Bank for the financial year from 

1 January to 31 December 2004. The preparation of these documents in accordance with 

German commercial law and supplementary provisions in the Law on Bayerische Landes- 

bank in the version officially published on 1 February 2003 and its Statutes is the respon- 

sibility of the Bank’s management. Our responsibility is to express an opinion on the 

annual financial statements, together with the bookkeeping system, as well as on the 

consolidated financial statements and the report on the position of the Bank and the 

Group based on our audit. 

We conducted our audit of the annual and consolidated financial statements in accord- 

ance with Section 317 HGB (German Commercial Code) and the 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 and the consolidated financial state- 

ments as well as the cash flows within the Group in accordance with the principles of 

proper accounting and in the report on the position of the Bank and the Group are 

detected with reasonable assurance. Knowledge of the business activities and the eco- 

nomic and legal environment of the Bank and the Group and evaluations of possible 

misstatements are taken into account in the determination of audit procedures. The 

effectiveness of the internal control system relating to the accounting system and the 

evidence supporting the disclosures in the books and records, the annual and consoli- 

dated financial statements and the report on the position of the Bank and the Group 

are examined primarily on a test basis in line with the framework of the audit. The audit 

includes assessing the accounting and consolidation principles used and significant 

estimates made by management, as well as evaluating the overall presentation of the 

annual and the consolidated financial statements and the report on the position of the 

Bank and the Group. We believe that our audit provides a reasonable basis for our 

opinion. 

Our audit has not led to any reservations.


In our opinion, the annual and the consolidated financial statements give a true and fair 

view of the net assets, financial position and results of operations of the Bank and the 

Group respectively as well as the cash flows within the Group during the Group’s finan- 

cial year, in accordance with the principles of proper accounting. On the whole the report 

on the position of the Bank and the Group provides a suitable understanding of the 

Bank’s and the Group’s position and suitably presents the risks of future development. 

Munich, 29 March 2005 

KPMG Deutsche Treuhand-Gesellschaft 


Wirtschaftsprüfungsgesellschaft 

Wohlmannstetter Ufer 

Auditor Auditor 

179

Great things are made up of many small details. And the sum of 

the parts is greater than the whole. Security plays an essential 

role here: precise performance controls and modern technology 

are indispensable to the big picture. And to individual success.

Complex enterprises demand 

reliability.

6 Advisory Boards and addresses 

Trustees 184 

Economic Advisory Council 185 

Savings Bank Advisory Council 187 

BayernLB’s network 188


Trustees * 

Dr. Werner Böhme 

Senior Assistant Secretary (retired) 

Taxetstraße 41 

85737 Ismaning 

First Deputy 

Norbert Schulz 

Senior Assistant Secretary 


Odeonsplatz 3 

80539 München 

Second Deputy 

Dr. Manfred Seume 

Senior Assistant Secretary (retired) 

Mozartstraße 8 

87740 Buxheim 

* For the period from 1 January to 31 December 2004

Economic Advisory Council * 

Dr. Ferdinand Graf von Ballestrem 

Member of the Board of Directors 

MAN Aktiengesellschaft 

Munich 

Willi Berchtold 


ZF Friedrichshafen AG 

Friedrichshafen 

Karl J. Dersch 

Munich 

Dipl.-Kfm. Heinz-Werner Götz 

Auditor 

Director of the Verband Bayerischer 

Wohnungsunternehmen e.V. 

Munich 

Dipl.-Kfm. Fritz Haberl 

Munich 

Dr. Max Häring 

Chairman of the Board of Management 

Landesbank Saar Girozentrale 

Saarbrücken 

Dipl.-Ing., Dipl.-Wirtsch.-Ing. 

Peter Hamberger 

Manager 

Hamberger Industriewerke GmbH 

Rosenheim 

Willi Hermsen 

Ottobrunn 

Erwin Horak 

President 

Staatliche Lotterieverwaltung 

Munich 

Dr. Gerhard Jooss 

Essen 

Dr. Eng. h.c. Volker Jung 

Chairman of the Supervisory Board 

MAN Aktiengesellschaft 

Munich 

Daniel Just 


Bayerische Versorgungskammer 

Munich 

Alfred H. Lehner 

Utting am Ammersee 

Dr. rer. pol. Dieter Nagel 

Member of the Supervisory Board 

Thüga Aktiengesellschaft 

Munich 

Dr. Georg Graf von Schall-Riaucour 

Chief Executive Officer 

Wittelsbacher Ausgleichsfonds 

Munich 

Rudolf W. Schmitt 


LfA Förderbank Bayern 

Munich 


Advisory Boards and addresses 

185


Dipl.-Kfm. Dieter Schön 

Managing Director 

Schön-Klinik Verwaltung GmbH 

Prien 

Stefan Schörghuber 

Proprietor of 

Unternehmensgruppe Schörghuber 

Munich 

Dr.-Ing. Dieter Soltmann 

Honorary President of the 

Chamber of Industry and Commerce 

for Munich and Upper Bavaria 

Munich 

Dr. Péter Stotz 

Deputy Chief Executive 


Hungarian Foreign Trade Bank Ltd. 

Budapest 

Dieter Teichmann 


of the Board of Directors 

Bayerische Versorgungskammer 

Munich 

Karl-Heinz Trautmann 

President of the Association 

of Saar Savings Banks 

Saarbrücken 

Prof. Dr. h.c. Ignaz Walter 

Walter Unternehmensgruppe 

Augsburg 

Dr. Wolfgang Weiler 

Board Member 

HUK-Coburg 

Coburg 

Dr. rer. pol. Walter Wübben 

Managing Partner 

ABG Allgemeine Baubetreuungs- 

gesellschaft 

Cologne

Savings Bank Advisory Council * 

Dieter Bartke 



Kreis- und Stadtsparkasse Erding 

Erding 

Rudolf Faltermeier 

Vice President 


Munich 

Günter Götz 



Stadtsparkasse Weiden 

Weiden i.d.Opf. 

Rainer Heller 



Sparkasse Fürth 

Fürth 

Alfons Maierthaler 



Kreissparkasse Augsburg 

Augsburg 

Werner Netzel 

Vice President 


Munich 

Johann Reiter 



Sparkasse Landsberg-Dießen 

Landsberg 

Siegmund Schiminski 



Sparkasse Bayreuth 

Bayreuth 

Hans Schmittner 



Sparkasse Miltenberg-Obernburg 

Miltenberg 

Josef Waschinger 



Sparkasse Freyung-Grafenau 

Freyung 



187


BayernLB’s network 

Domestic 

Munich 

BayernLB (Head Office) 

Brienner Straße 18 


Tel +49 89 2171-01 

Fax +49 89 2171-23579 

SWIFT BIC: BYLA DE MM 

info@bayernlb.de 

www.bayernlb.de 

Nuremberg 

BayernLB 

Lorenzer Platz 27 

90402 Nürnberg 

Tel +49 911 2359-0 

Fax +49 911 2359-383 

SWIFT BIC: BYLA DE 77 

nuernberg@bayernlb.de 


15 Sales Offices of LBS-Bayern 

with locations in: 

Ansbach, Bad Tölz, Bamberg, 

Bayreuth, Erding, Erlangen, 

Fürstenfeldbruck, Ingolstadt, 

Landshut, Munich, Neumarkt, 

Neu-Ulm, Nuremberg, 

Oberviechtach, Würzburg 

and 

111 additional advisory centres in Ba- 

varia 

Subsidiaries 

Berlin 

Deutsche Kreditbank Aktiengesellschaft 

Kronenstraße 8 / 10 

10117 Berlin 

Tel +49 30 20155-0 

Fax +49 30 20155-465 

SWIFT BIC: BYLADEM 1001 

zentrale@dkb-bank.de 

www.dkb.de 

Saarbrücken 

SaarLB 

Ursulinenstraße 2 

66111 Saarbrücken 

Tel +49 681 383-01 

Fax +49 681 383-1200 

SWIFT BIC: SALADE 55 

service@saarlb.de 

www.saarlb.de

International 

Branches 

(as per 1 January 2005) 

Hong Kong 

BayernLB 

19 / F., Standard Chartered 

Bank Building 

4A Des Voeux Road Central 

Hong Kong / Hong Kong 

Tel +852 2978-8333 

Fax +852 2877-3817 

SWIFT BIC: BYLA HK HH 

hongkongbranch@bayernlb.de 

London 

BayernLB 

Bavaria House · 13 / 14 Appold Street 

GB-London EC2A 2NB 

Tel +44 20 7247-0056 

Fax +44 20 7955-5173 

SWIFT BIC: BYLA GB 22 

info.london@bayernlb.co.uk 

Luxembourg 

BayernLB 

3, rue Jean Monnet 

L-2180 Luxembourg 

Tel +352 43 3122-1 

Fax +352 43 3122-4599 

SWIFT BIC: BYLA LU LB 

direction.nlblb@lblux.lu 

Milan 

BayernLB 

Via Cordusio, 2 

I-20123 Milano 

Tel +39 02 86390-1 

Fax +39 02 864216 

SWIFT BIC: BYLA IT MM 

info@bayernlb.it 

New York 

BayernLB 

560 Lexington Avenue 

New York, N. Y. 10022 / USA 

Tel +1 212 310-9800 

Fax +1 212 310-9841 

SWIFT BIC: BYLA US 33 

Paris 

BayernLB 

203, rue du Faubourg Saint-Honoré 

F-75380 Paris Cedex 08 

Tel +33 1 442114-00 

Fax +33 1 442114-44 

SWIFT BIC: BYLA FR PP 

Shanghai 

BayernLB 

17 / F., Hua Du Manison 

828-838 Zhang Yang Road 

Pudong 

Shanghai 200122 / PR China 

Tel +86 21 6876-6600 

Fax +86 21 6876-7700 

shanghaibranch@bayernlb.de 

Labuan* 

BayernLB 

Licensed Offshore Bank (940028C) 

Unit 14-C, Level 14 

Block 4, Office Tower 

Financial Park Labuan, Jalan Merdeka 

87000 Federal Territory of 

Labuan / Malaysia 

Tel +60 87 591-000 

Fax +60 87 422-175 

SWIFT BIC: BYLA MY KA 

blblab@tm.net.my 

* due to be closed in 2005 


189


Subsidiaries 

Luxembourg 

Banque LBLux S. A. 

3, rue Jean Monnet 

L-2180 Luxembourg 

Tel +352 42 434-1 

Fax +352 42 434-5099 

SWIFT BIC: BYLA LU LL 

bank@lblux.lu 

www.lblux.lu 

Zurich 

LB(Swiss) Privatbank AG 

Börsenstrasse 16 

Postfach 

CH-8022 Zürich 

Tel +41 1 26544-44 

Fax +41 1 26544-11 

SWIFT BIC: BYLA CH ZZ 

privatebanking@lbswiss.ch 

www.lbswiss.ch 

Budapest 

Hungarian Foreign Trade Bank 

MKB – Magyar Külkereskedelmi Bank Rt. 

Váci u. 38. 

1056 Budapest 

Tel +36 1 327-8600 

Fax +36 1 269-0959 

Telex 22-6941 extr h 

SWIFT BIC: MKKB HU HB 

mkb@mkb.hu 

www.mkb.hu

Editorial details 

Publisher 


Brienner Straße 18 


Tel +49 89 2171-27176 

Fax +49 89 2171-23579 

Telegramm Bayernbank München 

Teletex +89 8827 GZMtex 

Reuters Monitor BLAX, BAYA-B 

SWIFT BIC: BYLA DE MM 

info@bayernlb.de 


Text / editorial staff / production 

BayernLB 

Corporate Center Support Operations 

Corporate Development / BoM Support division 

Concept and Layout 

MetaDesign 

Printed by 

Lipp GmbH, Graphische Betriebe 

Photography 

Norbert Hüttermann 

Page 27: Jens Weber, Munich 

Architect: Stephan Braunfels 

The annual report is printed on environmentally 

compatible non-chlorine bleached 

cellulose. The annual report is also available 

in German and can be downloaded as a pdf 

file from www.bayernlb.com under 

Press / Facts and Figures. 

Editorial deadline: 22.03.2005


Brienner Strasse 18 


www.bayernlb.de

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