Deutsche Postbank Group Annual Report. Team spirit. Fair play. Success.

Transcription

1 Deutsche Postbank 2005 Group Annual Report Team spirit. Fair play. Success.

2 Postbank Group in figures 2005 Jan. 1 Dec Consolidated income statement Balance sheet-related revenues m 2,132 2,062 Total income m 2,831 2,674 Administrative expenses m 1,886 1,869 Profit before tax m Consolidated net profit m Cost/income ratio % Cost/income ratio in traditional banking business % Return on equity before tax % after tax % Earnings per share Dec. 31, 2005 Dec. 31, Consolidated balance sheet Total assets m 140, ,254 Customer deposits m 68,418 71,651 Customer loans m 44,134 34,265 Allowance for losses on loans and advances m Equity m 5,186 4,766 BIS regulatory indicators Tier 1 ratio % Capital ratio % Headcount thousand Long-term ratings Moody's A 1 A 1 Outlook stable stable Standard & Poor's A A Outlook negative stable Fitch A A Outlook stable stable Information on Postbank shares Share price as of December, Share price (1/1 to 12/31/05; 6/23 to 12/31/04) high low Market capitalization on December, 31 m 8,036 5,330 Number of shares million Prior-period figures restated (see notes 5 and 6)

3 Milestones 2005 January 1, 2005 In London, Postbank London branch opens for business. March 21, 2005 Postbank acquires 9.2 % of the shares in BHW Holding AG from ERGO Group, a Munich Re subsidiary. October 6, 2005 Postbank goes public with the news of its negotiations with Deutsche Post for purchase of 850 retail outlets. October 25, 2005 An agreement to acquire a 76.4% interest in BHW Holding AG is concluded with BGAG and BWB. At performance of the contract on January 2, 2006, Postbank holds a % interest in the company. December 20, 2005 Postbank and Deutsche Post sign the agreement for acquisition of 850 retail outlets at a purchase price of 986 million. It comes into force as of January 1, 2006.

4 Postbank record of success 2005 Together on the way to Number 1 as the financial partner for retail customers and the service provider for companies 14.5 million customers more than any other bank in Germany Postbank record of success ,000 corporate customers, including 90 % of DAX companies 25,000 employees and almost 5,000 mobile advisers Sales strength through ideal multi-channel strategy Densest retail outlet network on the German banking market Leader in telephone banking as well as in online banking with the most frequently visited online offer Market leader for core retail products Largest full-service transaction banking provider Milestones 2005

5 Deutsche Postbank 2005 Group Annual Report Postbank Group Letter to our Shareholders 2 Shareholders and Stock 6 Executive Bodies 12 Strategy 18 Business Divisions Retail Banking 26 Corporate Banking 34 Transaction Banking 38 Financial Markets 42 IT/Operations 46 Employees 50 Sustainability 54 Corporate Governance 60 Report of the Supervisory Board 66 Fiscal Year 2005 Group Management Report Business and Environment 70 Net Assets, Financial Position and Results of Operations 72 Report on Post-Balance Sheet Date Events 77 Risk Report 78 Report on Expected Developments 103 Consolidated Financial Statements Consolidated Income Statement 107 Consolidated Balance Sheet 108 Statement of Changes in Equity 109 Consolidated Cash Flow Statement 110 Notes 112 Segment Reporting (Note 41) 166 Auditors Report 198 Consolidated Income Statement Quarterly Overview 200 Consolidated Income Statement Multi-Year Overview 201 Annex 202 Glossary 204 Contact Details 208

6 2005 was an extremely successful year for Postbank. Not only did we again achieve record pre-tax profits, with an 11% growth rate bringing us to 719 million. We also set a very important strategic course. For one, the BHW acquisition and the purchase of 850 Deutsche Post retail outlets constitute a quantum leap in our selling power together we now have 14.5 million customers in Germany, far more than any other bank. We have also significantly reinforced our product offering, particularly in private mortgage lending. These are ideal drivers of long-term, above-average growth. Above and beyond these special circumstances, all Postbank s operating divisions again recorded very sound growth in The attractiveness of our high-quality, yet affordable, product offering for private customers is reflected, among others, in the uninterrupted stream of new business: At just under 700,000, we were again well ahead of all other German branch banks, also clearly outstripping our own target of 600,000 new customers. At the same time, we succeeded in significantly increasing product use by existing customers. There was a conspicuous gain in new business in the private real estate financing and consumer credit segments, as well as in business involving substantial advisory services relating to investment funds and retirement provision products to name but a few examples. Corporate Banking also excelled last year, with further strong earnings enhancement. Our selective, risk-conscious approach to commercial finance and innovative solutions for payment transactions form a stable foundation for further unbroken growth. In the promising Transaction Banking business division, we have done our homework and smoothly concluded the integration of Dresdner Bank s and Deutsche Bank s payment transaction units. This puts us in a good position to expand the breadth and depth of our business, also true for the preparations for the introduction of uniform European payment transaction standards in For the bank as a whole, it is particularly noteworthy that the significant expansion of business was achieved at practically no cost increase. This was made possible thanks to our business model of offering largely standardized products on the basis of a top-of-the-line settlement platform. A positive impact is also seen on our cost/income ratio: last year's 63.7 % in the traditional banking business means that we have already undercut our 2006 target of 65 %. We have been very pleased to see these positive developments reflected in Postbank s share price, which rose by more than 50 % last year. We see in this an impressive confirmation of our strategy, as well as an obligation and incentive to continue delivering above-average results. 2

7 Letter to our Shareholders Vorwort Postbank Group That is why I would like to express a special thank-you to our staff for their great dedication, over and above their daily workload, in a year that demanded the utmost flexibility due to large strategic projects also calls for our full commitment. Apart from the targeted growth in core business, integrating BHW and the retail outlets will take front and center. We are confident that this process will have largely been completed by the end of the year. This will consolidate Postbank s position as the financial services provider for private customers and the service provider for companies in Germany. Last but not least, on the occasion of our national sponsorship of the 2006 World Cup, we will take the opportunity of this major sporting event to further boost Postbank s name recognition and brand image. Team spirit and fairness are the key to success in soccer, just as at Postbank. That s what we re all about. I would like to thank you, our shareholders, for your confidence. And I would be delighted if you would continue to accompany us on our promising course. Wulf von Schimmelmann Chairman of the Management Board 3

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9 Exceed expectations The person who cleverly plans out his game gets nods of approval, just as does a great combination game and amazing individual moves. But it's the person who always sets the bar just that much higher and effortlessly leaps that generates the real buzz.

10 Shareholders and Stock: Postbank stock continues its success route Outstanding share price performance Attractive investment alternative on European domestic market Sharp increase in proportion of foreign investors Postbank stock performs excellently The Postbank stock continued its upward trend in 2005, with appreciation of 50.8 %, or 16.50, to 49. Although the DAX also experienced an above-average year with a 27.1% rise, it was far outperformed by our stock. Our shareholders achieved double the appreciation, including the dividend of 1.25 per share. Performance of Postbank stock versus the DAX and peer group (December 31, 2004 to December 30, 2005) Values linked to index, price of Postbank stock on December 31, 2004 of = 100 Postbank Peer group* DAX *Banco Popular, Banco Popolare di Verona e Novara, Förenings Sparbanken, Svenska Handelsbanken, Alliance & Leicester, Banco Espirito Santo, Erste Bank, Unicredito, RBOS 6 12/31 1/14 1/28 2/11 2/25 3/11 3/25 4/08 4/22 5/06 5/20 6/03 6/17 7/01 7/15 7/29 8/12 8/26 9/09 9/23 10/07 10/21 11/04 11/18 12/02 12/16 12/30

11 Shareholders and Vorwort Stock Postbank Group Direct comparison with leading European banks with focus, like Postbank, on the retail customer sector, provides an even clearer indicator of our business success: the Postbank share price outperformed its peer group average by 35.9 percentage points. Two milestones in Postbank s business development and the respective stock market reactions are particularly noteworthy in this respect: Postbank s share price rose substantially both after the signature of the agreement to acquire a majority interest in BHW as well as after announcement of the acquisition of 850 Deutsche Post retail outlets. We see this as market affirmation of having made the right strategic decisions. Even more attractive as an investment alternative Postbank is now represented in more than 30 stock and sector indices. In the MDAX, Postbank is now ranked third in terms of stock exchange turnover, and seventh in weighted market capitalization, although only the current free float of % is taken into account, in accordance with Deutsche Börse statutes. Within the DAX family, the Postbank stock was in 32nd place in terms of stock exchange turnover at the end of December, and in 35th place in market capitalization. Measured on the basis of the total market capitalization of 8 billion at the end of the year, Postbank ranks as the largest German MDAX value and Number 18 as compared to the DAX securities. If the exchangeable bond, which has a maximum term of June 2007, is exercised in full, the free float will rise to %. The weighted market capitalization, which is significant for the index weighting, will increase accordingly. This will further raise the profile of Postbank stock as a successful investment alternative. Keen international interest in Postbank stock... The shareholder structure is becoming increasingly international, featuring an increasing number of institutional investors this trend came to light through the corresponding shareholder structure analyses performed by us for the first time in The proportion of foreign investors in the free float has risen since the IPO by more than 12 percentage points, to 60 %. Our stock was in particular demand in the United Kingdom the most important market in the world for institutional investors in European stocks. The proportion of British investors in the free float shares climbed from 20 % to over 31%, with the balanced distribution across other European countries and North America remaining unchanged. In contrast, the proportion of domestic investors decreased: the ranks of institutional and private investors in Germany have declined, from 28.3 % to 21.6 % and from 24.0 % to 18.4 %, respectively. 7

12 Shareholder structure and free-float allocation as of December 31, 2005 Shareholder structure (in %) Free-float allocation by country (in %) share Current free float Deutsche Post Deutsche Post exchangeable bond (maturity: July 2007) Germany Private investors Germany Institutional investors UK France USA and Canada Switzerland Norway Italy Other supported by extensive investor relations activities We reinforced our close contact with analysts and investors in the past year. Contributing factors included the events attended by analysts on the annual figures and the analyst telephone conferences: the recurring ones on the quarterly figures, as well as the one for signature of the BHW purchase agreement and that for the announcement of the acquisition of the retail outlets. We also fostered the understanding of our business model with numerous roadshows, both in Germany and abroad, as well as through presentations and one-on-one meetings. We were also on hand at the most important international investor conferences of the largest investment banks, and have taken part in several events sponsored by German shareholder protection associations, in the interests of enhancing the dialogue with our private shareholders. We have also activated a shareholder hotline, where our investor relations managers provide shareholders with information on all matters relating to the Postbank stock. Since our IPO, stock analysts from 29 banks and securities houses have been tracking Postbank s business activities and the developments of its prospects. We actively dialogue with these institutions, which last year published more than 90 studies on Postbank. Even after the significant price hike, positive recommendations still predominate, with the analysts also significantly boosting their share price forecasts. 8

13 Shareholders and Stock Postbank Group First Annual General Meeting of Postbank a success Postbank s first Annual General Meeting on May 19, 2005 was taken as an opportunity by many private shareholders to communicate with their company. A total of 78 % of the voting capital was represented. We were particularly encouraged by the clear approval of our business strategy: all agenda items were adopted by more than 99 % of the votes. We look forward to welcoming you to the next Annual General Meeting on May 11, 2006 at the Kölnarena. For 2005, the Management Board is proposing the same dividend as in the previous year of 1.25 per share, despite the acquisitions. All important dates can be found in the Financial Calendar at the end of this Annual Report. For further information, you can also visit our Investor Relations website at or telephone the shareholder hotline on +49 (0)

14 Wulf von Schimmelmann Stefan Jütte Loukas Rizos Wolfgang Klein born in 1947, Chairman of the Management Board since 1999, responsible for Strategic Planning, Corporate Communications, Accounting/Controlling and Internal Audit born in 1946, Board Member since 2000, responsible for Lending born in 1956, Board Member since 1999, responsible for Financial Markets born in 1964, Board Member since 2002, responsible for products, marketing, investment advice, e-banking and mortgage lending in Retail Banking

15 Executive Bodies Postbank Group Dirk Berensmann Lothar Rogg Ralf Stemmer Hans-Peter Schmid Mario Daberkow born in 1963, Board Member since 2002, responsible for IT/Operations and Services born in 1950, Board Member until December 31, 2005, responsible for over-the-counter sales in Retail Banking born in 1961, Board Member since 2004, responsible for Human Resources, Legal Affairs, Real Estate and Administered Funds born in 1958, Board Member since December 1, 2005, responsible for Retail Outlet Sales born in 1969, Board Member from November 1, 2006 (plan)

16 Executive Bodies Management Board Wulf von Schimmelmann, Bonn, Chairman Dirk Berensmann, Unkel Stefan Jütte, Bonn Wolfgang Klein, Bonn Loukas Rizos, Bonn Lothar Rogg, Bonn, until December 31, 2005 Hans-Peter Schmid, Altdorf, since December 1, 2005 Ralf Stemmer, Königswinter 12

17 Executive Bodies Postbank Group Supervisory Board Klaus Zumwinkel, Bonn, Chairman, Chairman of the Board of Management of Deutsche Post World Net Michael Sommer*, Berlin, Deputy Chairman, Chairman of the German Trade Union Federation Jörg Asmussen, Berlin, Head of Department, Federal Ministry of Finance, since May 19, 2005 Marietta Auer*, Bonn, Head of Department, Deutsche Postbank AG, Head Office Rosemarie Bolte*, Stuttgart, Regional Head of Department, Financial Services, at ver.di Trade Union Wilfried Boysen, Hamburg Edgar Ernst, Bonn, Member of the Board of Management of Deutsche Post World Net Annette Harms*, Hamburg, Deputy Chair of Deutsche Postbank AG s Works Council, Hamburg Branch Peter Hoch, Munich Ralf Höhmann*, Stuttgart, Chairman of Deutsche Postbank AG s Works Council, Stuttgart Branch Elmar Kallfelz*, Bonn, Member of Deutsche Post AG s Group Works Council Ralf Krüger, Kronberg, management consultant, Professor at the Fachhochschule Wiesbaden Harald Kuhlow*, Bonn, appointed expert to the General Works Council of Deutsche Postbank AG Hans-Dieter Petram, Bonn, Member of the Board of Management of Deutsche Post World Net Bernd Pfaffenbach, Berlin, State Secretary, Federal Ministry of Economics and Technology, since February 16, 2005 Klaus Schlede, Cologne, previously Deputy Chairman of the Management Board of Deutsche Lufthansa AG Elmo von Schorlemer, Aachen, lawyer Manfred Schüler, Wachtberg, State Secretary (retd.), until May 19, 2005 Sabine Schwarz*, Berlin, Chair of Deutsche Postbank AG s Works Council, Berlin Branch Gerd Tausendfreund*, Nidderau, trade union secretary of the ver.di Trade Union, since August 15, 2005 Christine Weiler*, Munich, Chair of Deutsche Postbank AG s Works Council, Munich Branch Christel Zobeley*, Berlin, trade union official of the ver.di Trade Union, until August 15, 2005 * Employee representatives 13

18 Executive Manager Mario Daberkow, Bonn, since November 1, 2005 Directors Executive Office Manfred Harnischfeger, Bonn Marc Heß, Bonn Dieter Richter, Troisdorf Heike Weden, Bonn Finance Werner Hille, Weinstadt-Endersbach Financial Markets Horst Küpker, Königswinter IT/Operations Ludger Dörr, Oststeinbeck Heiko Fischer, Gütersloh Thea Kutzscher, Berlin Andreas Nix, Kandel Klaus Werner, Munich Lending Werner Grünewald, Essen Ingo Husemeyer, Remagen-Oberwinter Rainald Schomburg, Cologne 14

19 Executive Bodies Postbank Group Product Marketing Gerhard Borchers, Kirchberg Andreas Buck, Wachtberg Jürgen Gausepohl, Bonn Joachim O. Kühnemund, Bonn Michael Meyer, Bonn Dieter Pfeiffenberger, Barsbüttel Werner Wessinghage, Schwerte Retail Outlets Hans-Jürgen Niehof, Berlin, until December 31, 2005 Helmuth Pawletta, Delmenhorst Norbert Roth, Berlin Friedhelm Schwarze, Oberhausen, until December 31, 2005 Rainer Thews, Hamburg Andrea Wiegand, Bochum Jörg Wittenberg, Bonn Resources Holger Giese, Alfter Claus Kleine, Bonn Andreas Martin, Rheinbreitbach Hans-Joachim Neumann, Neu-Isenburg Services (Transaction Banking) Mario Daberkow, Bonn Albert Lechner, Mering Willi Kiebler, Rodenbach Achim Pöhler, Frankfurt, until June 30, 2005 Heinz Wachter, Marl 15

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21 Recognize opportunities Deciding on success or failure happens in the mind, long before stepping onto the field. Being good at recognizing opportunities and making them work for you comes from long-term strategic deliberations: The right moves land you the best goals.

22 Strategy: Foundation laid for further growth Postbank significantly fortified through acquisitions Product portfolio expanded Selling power leveraged Postbank has set itself a clear strategic target. We want to be Number 1 in Germany, the financial services provider for retail customers and the service provider for companies. We already deliver on the most important prerequisites: We offer our private customers a standardized range of products, tailored to their own needs, which we constantly update, expand and optimize. We do this with the help of highly efficient core banking software, software that, in light of the large processing volumes, delivers considerable economies of scale and thus dynamic growth at low cost. When it comes to sales, we have opened up comprehensive multi-channel access for our customers: our coverage is safeguarded by our 850 retail outlets purchased as of January 1, 2006, supplementing the thousands of Deutsche Post offices with Postbank services. Added to the mix are the telephone and online banking direct sales channels. Our highly specialized mobile financial services advisers and third party sales round out our offer with an individualized advisory approach. In parallel, we have honed Postbank s brand image and considerably raised our marketplace profile. We have a complete service offer for our corporate customers in innovative payment transaction solutions, as well as a selective lending business centered around commercial real estate finance. We have also set up another pillar through our acquisition of the payment transaction services for third parties in Transaction Banking. Retail outlet purchase increases sales efficiency On January 1, 2006, we took on the 850 most attractive Deutsche Post retail outlets. This primarily entails what are known as Postbank Centers, already conceived under the former Deutsche Post ownership as competence centers for financial services. In contrast to the smaller Deutsche Post retail outlets offering our general core line for checking and savings, also on tap here are the products requiring more substantial advisory services. These products, sold by 1,900 specially-trained financial service advisers, include investment funds, consumer credit and retirement provision products. Our experience with this concept has been resoundingly successful to date. In 2005 alone, the 850 acquired retail outlets generated some 87 % 18

23 Strategy Postbank Group of Postbank s new retail outlet business, which underscores the importance for us of these locations. The acquisition enables us to even better integrate the retail outlets into our multichannel architecture in the future, and again raise the bar in sales efficiency, particularly in business lines requiring substantial advisory services. We are looking forward to high growth rates accompanying the acquired infrastructure, and the absence of the related cost increases which have run in parallel to date, due to Deutsche Post s variable compensation model. This will further boost our profitability. These retail outlets will simultaneously continue to sell the full range of Deutsche Post products and services. On the one hand, this assures us the high, continuous inflow of customers, and on the other it earns us additional fee income. In this connection, the previously valid cooperation agreement with Deutsche Post was replaced by two new agreements: 1. Postbank remunerates Deutsche Post for financial services rendered by the remaining Deutsche Post retail outlets. These services particularly include those dealing with checking and savings. The amount is composed of fixed basic remuneration plus two variable components for service and sales. 2. Postbank, for its part, is remunerated by Deutsche Post beginning in 2006 for its sales of the company s products and services. The remuneration includes a sales margin. In addition to the remuneration for providing postal services, Postbank also receives remuneration for exclusivity, marketing and advertising expenditure. For the coming years, we expect an annual pre-tax profit contribution from the acquired retail outlets, before funding costs, of approximately 150 million. This was taken into account in the purchase price of 986 million. BHW: The perfect fit The purchase of BHW, Germany's second-largest home loan and savings association (Bausparkasse), is a further milestone in Postbank s history. We signed an agreement in October to purchase 76.4 % of the shares of BGAG and Deutscher Beamtenwirtschaftsbund, an agreement that came into force on January 2, Following submission of a mandatory offer to the remaining minority shareholders, we now control some % of the voting rights and are looking toward a 100 % acquisition on the basis of a squeeze-out procedure. The total purchase price should not exceed 1.79 billion. BHW s attractive domestic base of approximately 2.7 million customers consolidates our position as the largest German retail bank in customer numbers: adjusted for overlap, Postbank will support some 14.5 million people in Germany in the future. We were also again able to significantly enhance our product portfolio. Together with BHW, we clearly occupy the Number 1 slot for private mortgage lending in Germany. In this capacity, we cover the full service spectrum: from home savings to pre- and interim financing through to conventional mortgage financing. In this context, plans are underway to expand the Hameln location into 19

24 our competence center for mortgage lending. We are targeting new business of over 10 billion annually. This will facilitate increasing efficiency in the use of our deposit surplus and give a further boost to our profitability. The deposit business, in which we were already market leader in checking and savings products prior to the acquisition, was also further strengthened. Both companies are posting growth as well in the product categories of investment funds and insurance, to which they are relative newcomers. The high cross-selling potential is revealed upon examination of the intensity of product use by BHW customers, on the one hand, and Postbank customers on the other: whereas BHW generates some 90 % of its per-customer earnings from mortgage lending products, the figure tops 90 % for Postbank and its checking and savings products. Our goal is to make use of the different strong points of the two institutions to convince our customers to buy a broader range of products from Postbank. This would also enable us to realize extensive earnings synergies. The additional clout afforded by BHW s 4,200 mobile financial advisers is a prime engine for tapping this sales potential. The BHW financial advisers were already offering our checking account products to their customers at the beginning of January 2006, to be followed by the other products in Postbank s standardized product portfolio. We will be launching supporting sales campaigns around mortgage lending and installment credits as the year draws on, for which we will leverage leading-edge data mining software to efficiently identify the needs of the respective customers. In the coming months, BHW advisers will be given access to Postbank s regular clientele and start to apply their expertise in private mortgage lending and the home savings business to tap this strong source of customer potential. In contrast to other mobile sales forces which, for the most part, depend on new customer acquisition, our financial advisers can focus their efforts more on support and consulting than on new customer acquisition. We also want to see to the advancement of our most promising financial advisers. The goal here is to be able to professionally present the overall Postbank Vermögensberatung product range, thereby ensuring full-service support for our most discriminating and profitable customers. We also plan to consolidate the mobile advisers of Postbank Vermögensberatung with those of BHW together into a joint sales company. This is in order to integrate the advisers together with Postbank s other sales channels into the bank s multi-channel sales architecture. This affords us central management of all sales channels, and ensures efficient mutual coordination and cooperation. 20

25 Strategy Postbank Group Specialist brand BHW demonstrates competence in mortgage lending The Group s lead brand is Postbank. As umbrella brand, it covers the retail banking, business customer and corporate banking business. In the future, specialist brand BHW will be the face of our expertise in mortgage lending, home savings and real estate. We have a strong cooperation partner in DSL Bank, the Partner bank for financial service providers with its focus on private mortgage loans and consumer credits. Integration of Postbank, BHW and retail outlets is our focus for 2006 Our top priority for 2006, other than continued growth in customer business, is the integration of Postbank, BHW and the retail outlets. An integration team is working out the needed steps and coordinating their implementation so as to consolidate the three units as quickly and efficiently as possible. The organization of the newly-integrated Postbank Group was already concluded in February 2006, along with the designation of the top management levels. In the future, the Postbank Group will run its business with nine board departments, encompassing all business units and subsidiaries. At center stage is strong sales-orientation. Driving sales forward is central to the private customer business. Its cornerstones in addition to the existing functions will be thus comprised of BHW Bausparkasse; BHW and Postbank mobile sales forces in their combined form as a standardized sales company; as well as retail outlet sales, which controls all business of the acquired retail outlets. 21

26 The IT infrastructures and central functions of Postbank, BHW and the retail outlets will rapidly be standardized, and common horizontal functions consolidated. During the integration process, we will also decide which of the non-core activities we want to retain. Our intention is to have the integration process largely completed by the end of The similarity between the business models and cultures of Postbank and BHW, with a clear focus on German private customer business, along with our long-standing proximity to the acquired retail outlets, makes us confident that we will meet this deadline. Leader in payment transaction processing and loan settlement The strengths of Postbank and BHW are an ideal complement to one another, above and beyond the private customer business as well. The two companies are service providers for the systems-driven business of processing large business volumes. Postbank is a leading provider of payment transaction settlement, with 6.2 billion transactions a year and a market share of 16 %. BHW occupies the Number 2 position in the processing and management of mortgage loans, with some 1.5 million loans annually. BHW also serves third party customers and provides standardized coverage for the entire settlement process, from receipt of application through to ongoing customer service. This includes checking the creditworthiness and collateral, documentation, monitoring, reminders and foreclosures. The Hameln location is to be expanded to serve as the center for the entire Postbank Group in this area, referred to as the loan factory. There is further potential here for providing support services to other third-party customers. In Transaction Banking, Postbank is already handling payment transactions for Deutsche Bank and Dresdner Bank. Among the customers of the BHW loan factory are DEVK (insurance), Swiss Life and the KfW Banking Group. 22

27 Strategy Postbank Group Selective expansion of Corporate Banking services In its Corporate Banking activities, Postbank will continue to concentrate on selected banking and financial services. In Payment Solutions, we are consolidating our leading market position, primarily by introducing new products for electronic and Internet-based payment transactions and hands-on customer service. In Selective Commercial Finance, we are pursuing our involvement in domestic and international commercial finance, and will retain our conservative risk strategy. Consistently good credit risk profile Postbank has no intention of diluting its above-average good credit risk profile in the years ahead. In addition to the consumer credit business, private mortgage lending will play a key role in Retail Banking. Here, BHW's portfolio shows a similarly good risk structure to that of Postbank. Our concentration in Corporate Banking is on selective commercial finance activities. Aspiring to European level in efficiency and profitability Postbank has again significantly deepened and broadened its expertise through the two major acquisitions. We will consistently use these strengths to further grow our core businesses. In the process, our retail banking activities will continue to primarily focus on domestic business. We rely on a largely standardized product portfolio, tailored to customer needs. Our efficient processing platform facilitates dynamic growth, with limited increase in cost. We will systematically expand the corporate banking business as well. We want to attract new business to Transaction Banking and consistently expand our offer. All in all, this is how we will further boost Postbank s profitability and efficiency, and align ourselves to the other European banks with similar business structure, despite the structural disadvantages of the German banking market and its corresponding indicators. 23

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29 Display team spirit Much invoked: the sense of team performance. That s not to say it doesn t depend on the individual. On the contrary, each position has to be manned right. Fighters with the technique, physical condition and the will to win. But: The individual only clinches the duel; it s the team that wins the game.

30 Retail Banking: Growth fueled by product and service innovations Sales significantly strengthened Product portfolio expanded Customer loyalty enhanced by World Cup sponsorship New customer acquisition again exceeds expectations In 2005, we acquired 698,000 new customers, making us growth leader among Germany s branch banks. With this heavy inflow of customers, our own expectations last but not least our target had been 600,000 new customers were far exceeded. With a virtually steady number of banking customers in Germany, we were able to further expand our market share in the private customer business: apart from the predominantly young customers, who came to open their first bank accounts ever, almost two thirds of our new customers migrated from the savings banks, with the remainder emanating in equal proportions from Volks- und Raiffeisenbanken and other large banks. We see this as a reaffirmation of our offer s broad appeal. The total number of active customers rose from 12.1 million to 12.3 million. We also made adjustments for savings customers that had become inactive. New customers via BHW as of 2006 are not yet considered in this number. Adjusted for overlaps, we will together serve some 14.5 million customers in Germany, more than any other bank. The introduction of a new software from 2006 allows us to derive an even more exact appraisal, especially of joint accounts. Taken on this basis, BHW and Postbank together have around 15.5 million domestic customers. Unique sales channel mix ensures extensive access Postbank ensures extensive customer access through a unique mix of sales channels. With the retail outlets, mobile sales, telephone and online banking services, as well as third-party sales, we are in a position to meet our customers various needs in a cost-efficient manner. In the year under review, all sales channels developed successfully. Retail outlets self-managed from 2006 The retail outlets of Deutsche Post AG, some 9,000 in number, once again proved to be the key access channel for Postbank customers in In cities with high customer demand, we operated 787 Postbank Centers, in which teams of advisers were on hand to answer all questions relating to asset accumulation, financing and retirement provision products. Starting January 1, 2006, we brought a total of 850 of the most promising Deutsche Post locations (predominantly Postbank Centers) under our own management (for further information, see 26

31 Business Divisions Postbank Group Strategy section). In 2005, these generated around 87 % of our new retail outlet business, which underscores their key importance to Postbank. The other retail outlets primarily provide day-to-day customer service revolving around our basic savings and checking account products. Mobile sales continuing to gain ground Mobile investment advisory services, which offer individual consulting for high-potential private customers, can now rely on a pool of 482 advisers. At the end of 2005, these advisers supported around 31,000 customers, up 61% year-on-year. Despite the strong growth, the 550,000 high net-worth customers we have identified still represent an enormous opportunity to us. To be able to tap this potential more rapidly, we want to quickly identify the 4,200 mobile financial advisers of BHW with the highest potential and train them in Postbank Vermögensberatung s more comprehensive advisory approach (for further information, see Strategy section). We also plan to attract additional highly-qualified financial experts from the market; our goal is 550 advisers in Postbank Vermögensberatung by the end of We meet the more sophisticated investment and financing needs of these customers by offering them a wide range of more complex solutions, in cooperation with selected product partners, in addition to the largely standardized Postbank products. On the one hand, these include such investment products as closed-end funds, structured special products and direct investments in securities. On the other hand, they cover more sophisticated mortgage lending and a range of retirement provision products. The high product penetration on average, customers of Postbank Vermögensberatung purchased 5.3 products in 2005, further to 4.7 the previous year confirms the high acceptance of our extensive advisory strategy. Online and telephone banking quality leadership asserted Postbank s online services again received numerous awards in 2005; for example, the computer magazine Chip declared Postbank the winner of its test of online banks. Not only is Postbank defining benchmarks with such innovative services as the mobile transaction number (TAN) and its extensive and convenient mobile banking program, it is also setting standards in security. In August, we were the first bank to introduce the new itan procedure, developed to contain the increasing incidence of attempted fraud since The number of accounts managed online increased by 11% to 2.1 million, including 450,000 online brokerage accounts. Increasing numbers of customers are also taking advantage of our convenient and wellpriced round-the-clock telephone banking service. In the year under review, the number of checking accounts managed by telephone rose from 3.0 million to 3.2 million. This service can also be availed of by 2.2 million SparCard customers. One of our strongholds here is a self-service strategy, integrated into an end-to-end customer relationship management concept and Postbank s multi-channel communications offering. Our new voice portal, offering natural and interactive voice navigation, can be used to handle automated processes such as telephonic account status inquiries, transfer orders, and form ordering. In 2005, the voice portal received the international SpeechTech Award and the Voice Award. Retail Banking Segment result m m Balance sheet-related revenues 1,682 1,623 Net fee and commission income Administrative expenses 1,335 1,347 Profit before tax Cost/income ratio 64.5 % 69.2% Return on equity before taxes 27.3 % 23.6 % 27

32 Third-party sales sharp surge in new mortgage lending We managed to extend our position using the DSL Bank brand, one of the leading mortgage lenders in the brokerage and cooperation business. This was due not least to our efficient service and customer relationship management concept as well as our local presence. Private mortgage lending, 93 % of which is generated via DSL third-party sales, again turned out to be one of the Bank s key growth areas in New business was up by 45 % to 5.1 billion, while additional portfolio acquisitions amounted to 3.3 billion (previous year: 2.9 billion). Since 84 % of our new business is attributed to owner-occupied residential properties, we benefited from the spike in demand triggered by the announcement of the discontinuation of tax breaks on residential property. Moreover, the German trend of turning to independent financial services providers for more complex financing deals requiring intensified advisory services is continuing. The ongoing discussion on concepts for retirement provision also boosted business. As a result of these positive trends, our market share of private mortgage lending in Germany rose from 2.93 % in 2004 to 3.73 %. Successful mix of product classics and innovations Checking account remains customer magnet Number 1 The bank s strongest pillar of success and, simultaneously, the key entry product for new customers, continues to be its checking account service, which is largely free of charge. In the year under review, 482,000 new accounts were opened at Postbank (previous year: 554,000). Following the record level of 2004, attributable to the IPO, this is an extremely encouraging result. At the end of 2005, we had 4.6 million private checking accounts, following 4.4 million a year earlier. Steady growth in savings business The savings business remains Postbank s second pillar, with current volume of 42.0 billion (2004: 40.8 billion). As a result, our market share in this segment rose from 5.1% to 5.3 %. Among our innovative products, the DAX Sparbuch remained in the lead for deposit volumes, reaching 5.6 billion (previous year: 5.0 billion). In terms of volume growth, however, the Postbank Gewinnsparen product emerged the clear winner, almost doubling from 850 million to 1.6 billion. The Sparcard direkt product is only available online, allowing us to pass on attractive conditions directly to our customers thanks to low management costs. Here a significant increase was also recorded, with deposit volumes rising from 2.7 billion to 4.4 billion. Dynamic development in private loans We continued to extend our private loans business, which was up 32.0 % to 1.6 billion. In the DSL Privatkredit area, we were able to extend our existing sales cooperations and to acquire additional distribution partners of interest such as FinanceScout24 AG and Dr. Klein & Co. AG. 28

33 Business Divisions Postbank Group The newly established ServiceCenter DSL Privatkredit is available to our distribution partners as a competent contact point for everything concerning sales of DSL Privatkredit. In addition to classic consumer lending, we offer our partners such customized products specially developed for third-party sales as DSL Bausparvorfinanzierung (prefinancing for mortgage lending), DSL Beamtendarlehen (loans to civil servants) and DSL Policendarlehen (insurance-based lending). Strong new business and innovative products spur on credit card business Our credit card holding rose by 9.4 % in 2005 to over 817,000 units, with sales effected by credit card rising 12.9 %, to over 1.14 billion. With the introduction of the Postbank VISA motif card, the face of which can be individually tailored by the customer, Postbank positioned itself as an innovative card provider, thus accelerating sales growth. World Cup sponsorship enhances brand recognition and customer loyalty As national sponsor of the forthcoming soccer World Cup (for further information, see Sustainability section), Postbank launched numerous games and competitions revolving around soccer in 2005, thus further boosting its brand recognition. This also had a positive impact on our product sales and on customer loyalty. 500 World Cup tickets were donated for a draw among all Postbank customers and interested parties. In addition, we organized score prediction games in connection with international matches held in the year under review, with tickets to the 2005 Confederations Cup and the FIFA World Cup 2006 TM as prizes. The participation rate was exceptionally high. We plan to kick off additional exciting prize draws for our customers and interested parties in the course of With its Bonus Volltreffer ( bull s eye bonus ) product, Postbank also had a genuine soccer product in its portfolio, with the level of interest payable pegged to the success of the German national soccer team in the Confederations Cup. Other products that were already established were staged as part of a World Cup edition in Starting in the summer of 2005, for instance, we marketed funds and the Postbank checking account in a soccer design, followed in the fall by mortgage savings products, installment credits and savings schemes. In addition to the chance of winning World Cup tickets, each customer received a gift of a Postbank soccer ball when signing up for a product. This soccer-driven product marketing met with a highly positive reception across the board accordingly, attractive soccer bank products and World Cup editions of existing products will also be playing a central role in Postbank's portfolio in Insurance business sees renaissance of Riester pension While 2004 was dominated by the abolition of tax relief on life insurance policies, a key event in 2005 was an amendment to the law governing the taxation of pensions and pension expenses (Alterseinkünftegesetz AltEinkG). In this context, the Riester pension saw a renaissance, with new business up by 270 %, to a total of 235 million. 29

34 PB Lebensversicherung s life insurance business developed very positively, thanks to the January 1, 2006 abolition of the difference in premium structure between men and women. In the run up to this date, Postbank had embarked upon active media canvassing of the still-advantaged men. Business was also boosted by the target group product for senior citizens known as Leben aktiv, which we offer as part of a joint venture with Talanx AG. Overall earnings generated by the life insurance business came to a volume of around 577 million, exceeding expectations for 2005, after considerable benefit was reaped in the previous year from the boom leading up to abolition of the tax-favored status of life insurance policies, with a new contribution amount of 1,357 million. Retirement provision will also be a key issue in 2006, with state-subsidized products continuing to play a central role. In this context, there are signs of a continuing trend toward specially-developed products for particular target groups, tied to product packages. Such groups could include students, housewives, senior citizens and various other segments of the population to be approached with individual offers. Securities business continues strong growth We achieved an outstanding start to the year with Postbank Top Invest, a product that combines guaranteed interest with the yield potential of first-class investment funds. By offering 6.0 % interest p.a. on the portion of the product invested in fixed-term deposits and the incremental move into an investment fund over a period of six months, we clearly hit on an appealing solution for our customers: a total of over 480 million was invested in this product. We increased our new business in funds by 38 % to 1.69 billion year-on-year across all of the bank s distribution channels, with the trend toward higher-margin products continuing. The proportion of equity funds grew from 13 % to 19 %, while money market funds hovered around 8 %. The share of real-estate funds in this category, Postbank exclusively sells outside products with investment focus on Europe declined, from 39 % in the previous year to 32 %. Guarantee funds remained stable at approximately 22 %. All in all, more than 50 % of the fund products sold by Postbank come from third-party companies selected according to the best-select principle. We rely here on cooperations with such well-known fund companies as Fidelity, Credit Suisse, DWS and Nordea as well as with dit. Three new funds were included in the product range offered by retail outlets in In the year under review, Postbank Protekt Plus, a capital protection fund that invests in European stocks and bonds, again positioned itself well, with over 296 million in units moved. Postbank Best Invest Wachstum also recorded encouraging growth. This fund of funds focusing on Europe received the coveted Fund Award from Standard & Poor rating agency in the year under review making it the winner over 100 comparable funds in the defensive fixed-income funds category. Overall, the total of brokerage accounts in 2005 rose by 3 % year-on-year to 760,000, with the booked volume surging by a 18 % to 7.63 billion. 30

35 Business Divisions Postbank Group Successfully established in the growth market of retirement provision Postbank established itself as a competent partner in the growth market of retirement provision at an early stage with the innovative Postbank Altersvorsorgekonto (retirement provision account), which we developed in cooperation with investment bankers Goldman Sachs. The retirement provision account is characterized by its simplicity, transparency, flexibility and security. Customers can call up the current status of their retirement provision accounts at any time, and make daily payments and withdrawals. The product provides a capital guarantee along with the opportunity for attractive returns. Since its market launch in July 2005, 13,397 accounts have been opened thereby far exceeding our expectations. Outlook Front and center for 2006 are the integration and organic growth of the new group. We will pull out all stops to consolidate the three units of Postbank, BHW and the retail outlets into a financial group to be reckoned with. This process will be eased by the similar corporate cultures and, to some extent, common historic roots. The goal is to have the integration in place by the end of 2006, both organizationally and operationally. Eleven project teams from the three corporate units are working on this, focusing on developing the business model, setting out the organization and process landscape, and filling the important positions as quickly as possible. Part of this is the reorientation of mobile and over-the-counter sales, with the goal of joint market processing and marketing campaigns for use of the increased cross-selling potential. The IT and processing structures will also be standardized, so as to realize the desired process optimizations. 31