interim report 2004June 30, 2004

interim report 2004June 30, 2004

Macroeconomic trends In the first quarter of 2004, the euro-area economy grew 0.6% sequentially. This represented a faster pace of growth than in the previous quarters. The additional demand came mainly from abroad. Demand from within the euro area made only a weak contribution. The conditions are still in place for a continued recovery. The latest surveys support the view that growth, while modest, will remain intact over the next few quarters. Economic activity in countries outside the euro area is still very lively. This should buoy up demand for exports out of the euro area and so underpin growth in the region. The benign economic environment and attractive financing conditions are expected to boost investment spending. However, this year again, private consumption expenditure is unlikely to provide sufficient stimulus for a sustained economic recovery in the euro area. Money and capital markets The US labour market revival that began in spring, accompanied by an increased risk of inflation, prompted the Federal Reserve to embark on a cycle of interest rate hikes. This happened sooner than many commentators had predicted. With two 25 basis-point increases that brought its fund rate up to 1.5% by July 2004, the Fed took a measured approach so as not to jeopardise the recovery. Expectations are that the Fed will raise interest rates in small steps to an appropriate level, provided inflationary risks do not build further. By contrast, at the start of 2004 the ECB was still expected to cut its key rate. However, as the year has progressed there have been growing signs of a modest recovery in the euro area, while higher crude oil and commodity prices have accelerated the pace of inflation. Even so, price trends are expected to return to more favourable levels in the medium term, so the ECB will probably continue its hands-off policy this year and keep the cost of borrowing on hold. Meanwhile, euro-area yields are expected to climb again at the long end, tracking the US markets. Further price falls can be expected at the beginning of 2005 if the ECB starts to send out signals that it is preparing to raise its key rate. But until the end of the year, the interest rate spread between Europe and the USA is likely to widen. Real estate markets in Germany At the start of 2004, German construction companies were hopeful that the sector would stabilise this year. Figures released to date do not support that view. While the decline in construction revenues has slowed, due mainly to the particular conditions in the residential segment, the momentum there has not been enough to trigger a general trend reversal. Commercial and public sector construction are still suffering from reluctance to invest. Assuming that the general economic revival in Germany continues, the construction industry could begin to stabilise next year. In the present conditions, the German office markets remain sluggish due to the lack of demand. This is all the more remarkable given that the current market situation (state-of-theart office space in prime locations standing vacant despite attractive rents and additional incentives) could hardly be better for tenants. Of the real estate strongholds, only Hamburg began to show signs during the reporting

period that there was light at the end of the tunnel. Munich is still suffering from completion volumes that exceed the national average. In Frankfurt, meanwhile, there have been none of the major lettings that usually typify the local market and with new office space continuing to come on-stream, this has led to growing vacancy rates and falling rents. Real estate markets outside Germany There is no sign of a trend reversal in the other European office property markets either. While demand has picked up slightly, the recovery has been restricted to just a few parts of the markets. Madrid and Dublin saw rents decline in the first quarter of 2004, while slight increases were recorded in London s West End and in Luxembourg. With few exceptions, vacancy rates in European office locations have risen again. However, falling completion volumes indicate that some markets are likely to stabilise from 2005. In certain parts of the markets where office space is in particular demand, this could in turn mean a recovery in rents. Performance of AHBR In the first half of 2004, AHBR brought its extensive restructuring programme close to completion. As part of the Bank s restructuring and the change in its business model, the former Rheinboden head office in Cologne was closed down as of 30 June 2004; in future, the Bank will maintain a presence in the North Rhine-Westphalia market through a sales office. The Bank generated the essential cost savings by reducing the original headcount of 590 by 220 jobs, and by outsourcing parts of IT and credit processing. Effective 1 March 2004, servicing of AHBR retail lending was transferred to the group-wide KreditServiceCenter. Real estate financing Despite the difficult market situation, AHBR recorded an increase in new real estate financing commitments. These stood at EUR 1.6bn, 27% up on the first half of 2003. The Bank s strongest area of growth was the commercial financing segment. Here, the total volume of new business was EUR 1.2bn (first half of 2003: EUR 0.8bn). In residential financing, new loans totalling EUR 0.4bn were approved (first half of 2003: also EUR 0.4bn). There was a sharp rise in new commitments outside Germany: total approvals in international lending business were EUR 0.8bn, EUR 0.3bn more than in the year-earlier period. The mortgage loan portfolio grew to EUR 24.7bn as at the end of the first half, with commercial loans representing EUR 9.1bn of the total and residential loans making up the remaining EUR 15.6bn. Domestic financing accounts for 83% of the portfolio, foreign lending 17%.

Public sector financing The figures in public sector financing also increased year-on-year. Total new business in the first six months of this year was EUR 3.9bn, a rise of 32%. As part of the portfolio restructuring in favour of higher-margin assets, the Bank disposed of public sector loans worth a total of EUR 0.6bn. This brought the total volume of the public sector lending portfolio to EUR 44.7bn as at the reporting date. Domestic borrowers account for EUR 33.4bn of this figure, with EUR 11.3bn consisting of lending to foreign issuers. Funding In the second quarter of 2004, AHBR made its debut on the mortgage-backed securities (MBS) market. The Bank conducted two synthetic transactions, securitising loans with a total volume of around EUR 2bn. The first transaction, carried out in May 2004, was an RMBS offering via the KfW Provide platform. The securitisation volume was around EUR 1bn. The second securitisation was conducted in June 2004. This was a CMBS transaction based on a portfolio of 115 commercial loans with a total volume of EUR 957.2m, making it the biggest European CMBS transaction of the first half of 2004. Other major new issues in the first half were two Jumbo Mortgage Pfandbriefe with a combined volume of EUR 2.8bn. These generated considerable demand, both in Germany and in other countries. Overall in the first six months, the Bank raised funds of EUR 9.5bn to refinance its lending business. Earnings The Bank s earnings situation has stabilised. It reported net interest income of EUR 106.0m in the first six months of 2004, compared with EUR 85.4m in the year-earlier period. Net commission income, which was negative at EUR 9.5m in the first half of 2003, improved to EUR 6.5m in the first six months of this year. Consequently, net interest and commission income as a whole advanced 31% year-onyear to EUR 99.5m (first half of 2003: EUR 75.9m). Cost savings generated by the restructuring measures had a positive impact on personnel expenditure, which fell from EUR 22.8m in the year-earlier period to EUR 18.8m in the first six months of 2004. By contrast, other administrative expenditure climbed from EUR 18.0m to EUR 24.1m due to increased project and IT costs (Basle II, IAS, migration to new SAP release) and start-up costs for the MBS transactions. Administrative costs overall were EUR 42.9m, only marginally above their year-earlier level of EUR 40.8m. Net risk provisions were EUR 52.3m (first half of 2003: EUR 29.8m). The sharp year-on-year decline in the securities result made an impact here. The Bank s profit after tax was EUR 8.6m, marginally above the year-earlier figure (EUR 8.5m). Outlook AHBR expects the earnings situation to stabilise further in the remaining months of 2004. Overall, new business is expected to remain at a satisfactory level. However, as conditions in the markets remain tough, the exceptionally strong volume of new business in the second half of 2003 is unlikely to be matched. The Management Board

Business performance 01. 01. 30. 06. 2004 01. 01. 30. 06. 2003 Loan commitments Mortgage loans 1,625.2 1,283.9 including: residential loans 427.4 441.5 commercial and other loans 1,197.8 842.4 Public sector loans 3,939.0 2,990.1 Loan payments Mortgage loans 1,264.7 1,748.8 Public sector loans 3,939.0 2,992.7 Changes in loan terms and extensions 364.0 607.5 Refinancing funds raised Mortgage Pfandbriefe 3,758.2 4,887.5 Public sector Pfandbriefe Other bonds 5,719.8 5,521.1 CP programme 7,653.0 4,712.9 Average number of employees 424 530

From the Balance Sheet 30. 06. 2004 31. 12. 2003 Claims on banks 15,960.3 16,040.6 Mortgage loans 43.6 39.2 Public sector loans 6,168.8 6,653.7 Other claims 9,747.9 9,347.7 Claims on customers 45,444.6 46,963.5 Mortgage loans 24,639.8 23,963.2 Public sector loans 20,751.4 22,988.1 Other claims 53.4 12.2 Liabilities to banks 11,871.3 10,525.7 including: registered Mortgage Pfandbriefe 317.2 380.3 registered Public sector Pfandbriefe 323.8 472.0 Liabilities to customers 9,662.6 10,078.1 including: registered Mortgage Pfandbriefe 1,644.9 1,814.9 registered Public sector Pfandbriefe 2,738.6 3,030.7 Securitised liabilities 57,687.5 55,862.5 including: Mortgage Pfandbriefe 14,441.3 11,459.2 Public sector Pfandbriefe 37,098.1 40,440.5 other bonds 6,148.1 3,962.8 Subordinated liabilities 573.9 556.4 Profit participation certificates 572.1 572.1 Equity capital 928.0 928.0 including: subscribed capital 100.3 100.3 reserves 455.5 455.5 capital contribution from silent partnerships 372.2 372.2 Total assets 81,925.4 79,139.8

From the Profit and Loss Account 01. 01. 30. 06. 2004 01. 01. 30. 06. 2003 Net interest income 106.0 85.4 Gross interest income 1,680.3 1,784.8 Current income 0.8 0.8 Interest expenses 1,575.1 1,700.2 Net commission income 6.5 9.5 Gross commission income 7.3 6.1 Commission expenses 13.8 15.6 Net interest and commission income 99.5 75.9 Administration costs 42.9 40.8 Wages and salaries 14.2 17.4 Social security contributions 4.6 5.4 Other administration costs 24.1 18.0 Balance of other operating income/expenses 0.6 0.7 Operating profit before risk provisions 57.2 35.8 Net risk provisions 52.3 29.8 Operating profit 4.9 6.0 Profit after tax 8.6 8.5

Our addresses Allgemeine HypothekenBank Rheinboden AG Frankfurt head office Registered office Bockenheimer Landstrasse 25 60325 Frankfurt/Main Telephone (+49) 69 71 79-0 Fax (+49) 69 71 79-100 Website: www.ahbr.com E-mail: info@ahbr.de Berlin office Pariser Platz 6 A 10117 Berlin Telephone (+49) 302262 94-0 Fax (+49) 302262 94-50 Frankfurt office Bockenheimer Landstrasse 23 60325 Frankfurt/Main Telephone (+49) 69 71 79-0 Fax (+49) 69 71 79-351 Hamburg office Ballindamm 11 20095 Hamburg Telephone (+49) 4030 9740-0 Fax (+49) 4030 9740-50 Cologne office Oppenheimstrasse 11 50668 Cologne Telephone (+49) 2 21 77 47-0 Fax (+49) 2 21 77 47-177 Munich office Ottostrasse 1 80333 Munich Telephone (+49) 89 54 90 10-0 Fax (+49) 89 54 90 10-50 Stuttgart office Büchsenstrasse 15 70173 Stuttgart Telephone (+49) 7 11 22 29 08-0 Fax (+49) 7 11 22 29 08-50 Oficina de Representación en España C/Alcalá 21 11 izq 28014 Madrid Telephone (+34) 91 360 40 65 Fax (+34) 91 360 40 38 Bureau de Représentation en France 17, avenue George V 75008 Paris Telephone (+33) 1 47 20 94 94 Fax (+33) 1 47 20 94 96 Representative office for the Benelux Apollolaan 133 135 1077 AR Amsterdam Telephone (+31) 20 570 73 90 Fax (+31) 20 570 73 99 UK representative office 55 Bishopsgate London EC2N 3AS Telephone (+44) 20 7628 44 22 Fax (+44) 20 7628 55 22 US representative office 375 Park Avenue, Suite 2706 2707 New York, NY 10152 Telephone (+1) 2 12 4 85-00 00 Fax (+1) 2 12 4 85-00 10 GEE GmbH für Immobilien- und Finanzberatung Vilbeler Landstrasse 144 60388 Frankfurt/Main Telephone (+49) 69 47 61 55 Fax (+49) 69 47 79 48