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GROUP ANNUAL REPORT 2010

VIEWS: 72 PAGES: 194

									GROUP ANNUAL REPORT 2010
overview – eurohypo group
                                             2010        2009      Change
                                          € million   € million       ( %)
Figures from the income statement            2010        2009
Net interest income                          1,338       1,288         3.9
Loan loss provisions                       – 1,407     – 1,174        19.8
Net commission income                          185         149        24.2
Net trading income                           – 120        – 53    > – 100.0
Operating expenses                             405         434        – 6.7
Pre-tax profit / loss                        – 785       – 515       – 52.4
Consolidated result                          – 857       – 902         5.0

Balance sheet figures                        2010        2009
Real estate finance Germany                49,535      55,152        – 10.2
Real estate finance International          40,296      40,716         – 1.0
Public Finance                            110,590     129,062        – 14.3
Funding volume                            197,225     223,099        – 11.6
Subordinated capital                         3,334       3,379        – 1.3
Equity of Eurohypo Group                     3,515       3,952       – 11.1
Total assets                              229,010     256,061        – 10.6

Key ratios (in %)                            2010        2009     % points
Return on equity before tax                  – 14.9       – 9.0       – 5.9
Return on equity after tax                   – 16.3      – 15.7       – 0.6
Cost-income ratio                             39.4        35.1         4.3

Capital ratios (in %)                        2010        2009     % points
Tier 1 capital ratio according to SolvV       10.4         8.6         1.8
Total capital ratio according to SolvV        14.1        12.6         1.5

Employees                                    1,278       1,407        – 9.2
                                                                                               3




                                                                                                   Letter to our Stakeholders
                                                                                    Contents




                                                                                                   Board of the Managing Directors
  5 letter to our stakeholders




                                                                                                   Report of the Supervisory Board
  9 board of managing directors
 11 report of the supervisory board
 16 capital market communication
 19 management report
   19 Overall economic performance
   22 Business strategy
   26 Business development in the segments
      26 CRE Banking Germany Core




                                                                                                   Capital Market Communication
      27 CRE Banking Germany Non-Core
      28 CRE Banking International Strategic Markets
      31 CRE Banking International Global Restructuring
      33 Public Finance / Treasury
      35 Retail Banking
   37 Development of income and financial position
      37 Income
      38 Financial position and net assets




                                                                                                   Management Report
   42 Information pursuant to Article 315 (2) no. 5 of the German Commercial Code
   47 Our employees
   50 Group structure and corporate investments
   53 Supplementary report and forecast
   57 Risk report




                                                                                                   Financial Statements
 73 financial statements of the eurohypo group
169 auditor’s report
171 information under section 28 of the pfandbrief act
187 at a glance
                                                                                                   Auditor’s Report
                                                                                                   § 28 PfandbriefGS
                                                                                                   At a glance
b r a n d e n b u r g g at e , b e r l i n b i g b e n , l o n d o n p a l a c i o d e c o m u n i c a c i o n e s , m a d r i d e i f f e l t o w e r , p a r i s
h a g i a s o p h i a , i s t a n b u l p a l a c e o f c u lt u r e a n d s c i e n c e , w a r s a w s a i n t b a s i l’s c a t h e d r a l , m o s c o w
b e l é m t o w e r , l i s b o n m i l a n c a t h e d r a l , m i l a n s t a t u e o f l i b e r t y, n e w y o r k
                                                                                                                          5




                                                                                                                              Letter to our Stakeholders
                                                                                             Letter to our Stakeholders




                                                                                                                              Board of the Managing Directors
based on the annual results of Eurohypo in 2010, it is clear that the Bank will need
one year more than originally expected to address the majority of the adverse factors




                                                                                                                              Report of the Supervisory Board
from the last few years. The pre-tax loss of € – 785 million was larger than the loss
recorded in the previous year (€ – 515 million). Besides the loan loss provisions in the
real estate business, this was also largely attributable to de-risking activities in the
Public Finance / Treasury segment with a pre-tax loss of € – 204 million (€ 107 million).
The loss in the Public Finance business division – which the Bank no longer actively
pursues – can be linked to portfolio sales carried out by Eurohypo during the govern-
ment debt crisis and the subsequent heightened volatility and uncertainty on the




                                                                                                                              Capital Market Communication
money and capital markets.
    At € 1,407 million (€ 1,174 million) loan loss provisions came in rather high
again: In the course of last year it became clear that despite the improved macroeco-
nomic conditions, loan loss provisions for loan portfolios built up by 2007 had to be
higher than the Bank had originally estimated. The ongoing difficulties on the Spanish
real estate market, the high loan loss provisions in the USA and problems with certain
larger commitments all contributed to the higher figure, too.




                                                                                                                              Management Report
    Even if this is not instantly recognisable after taking a first glance at the figures,
the results for 2010 do nevertheless show that in essence the new business model is
working. In the past year the Bank has conducted business that facilitates sustained
profitability.
    Despite the decrease of € 3 billion in the commercial real estate finance port-
folio to € 72 billion, net interest income was 4 % higher than in the previous year
and totalled € 1,338 million. Net commission income was up 24 % to € 185 million.
    Finally, the other pleasing developments which point towards the light at the
end of the tunnel are that CRE Banking Germany (Core) managed to stay in profit
(9.4 % RoE), despite all the adverse factors in 2010 and Eurohypo’s UK business man-
aged to turn things around and moved again into the black in 2010.


new real estate business profitable
Eurohypo was one of the most active participants on the market in the reporting
year with regard to financing commercial real estate projects: it committed to lend-
ing new loans of over € 5 billion (€ 3 billion), split evenly between Germany and the
core international markets. Almost half of the new commitments abroad were in the
United Kingdom. Additionally, Eurohypo also extended existing commercial real
estate loans amounting to around € 6 billion in total, providing the market with
6   Letter to our Stakeholders




        » eurohypo has successfully managed to transform
          itself in a relatively short period of time and in
          an extremely difficult market environment from
          a volume-oriented bank to a strictly focused pro-
          vider, without compromising its position either with
          regard to customers or the market.«




                                 financing of approximately € 12 billion. The Bank secured lucrative margins both with
                                 new business and when prolonging existing loans.


                                 scheduled portfolio reduction
                                 In downsizing its portfolio in 2010, Eurohypo followed a set plan: the portfolio of
                                 commercial real estate loans decreased by € 3 billion to € 72 billion by year-end.
                                 By the end of 2012 the plan is to bring the real estate portfolio down to less than
                                 € 60 billion. The Bank is confident of meeting this ambitious reduction target. At the
                                 end of this process we want to have the “right” loans in our portfolio. Besides fulfill-
                                 ing requirements of the European Union for Commerzbank, this reduction process
                                 is always a case of optimising our portfolio to implement our strategy set forth with
                                 the “Fokus” project, and meeting future requirements in connection with Basel III.
                                     Good progress was also made in downsizing the portfolio in the Public Finance /
                                 Treasury segment in 2010. For Public Finance the Eurohypo Group has set the goal
                                 of reducing the portfolio by the end of 2011 to less than € 100 billion. At the end of
                                 the reporting year the Public Finance portfolio totalled roughly € 111 billion compared
                                 to around € 129 billion in the previous year. In addition to the high volume of maturi-
                                 ties, this sharp reduction was also achieved through sales amounting to € 3.4 billion.
                                 This primarily involved targeted measures to manage risk positions during the gov-
                                 ernment debt crisis which led to significant burdens.
                                     The successful downsizing of the portfolio also resulted in a fall in Eurohypo’s
                                 risk-weighted assets (RWA) to € 62.3 billion. Therefore we observed an improvement
                                 in capital ratios last year; the tier 1 capital ratio is at 10.4 % and the total capital
                                 ratio is at 14.1 %.
                                     These ratios will remain stable in the coming years, too, due to the expected
                                 decline in risk-weighted assets.
                                                                                                                       7




                                                                                                                           Letter to our Stakeholders
                                                                                          Letter to our Stakeholders




                                                                                                                           Board of the Managing Directors
public finance: no active new business
The debt crises of some European countries, the persistently volatile financial markets




                                                                                                                           Report of the Supervisory Board
and the anticipated tightening of regulatory requirements with regard to equity capital
and liquidity have all contributed to hampering the activities of Public Finance /
Treasury. Sharp increases in capital and refinancing costs and above all the limited
liquidity available on the market for unsecured bank bonds have fundamentally
changed the perception of this business. This is why Eurohypo decided in the reporting
year to not actively pursue the Public Finance business. New business will only be
taken on and prolongations granted to manage the collateral pool.




                                                                                                                           Capital Market Communication
objective in 2011: downsizing and stabilising the portfolio
2011 will yet again be a challenging year for Eurohypo. The focal point in this respect
will be continuing to stabilise commercial real estate finance as the core business
activity of the Bank. The medium-term goal of earning the cost of capital remains
unchanged.
    Given the stronger economic trends on the one hand and lower interest rates for




                                                                                                                           Management Report
now on the other, the real estate markets will continue to recover in 2011, albeit at
different paces in the various real estate segments and regions. As such Eurohypo is
banking on a tangible decline in loan loss provisions, though they will still remain
high in 2011.
    In Commercial Real Estate the Bank will remain active on the market concerning
new real estate business, where the focus will remain consistently on an appropriate
risk / return. New business in 2011 (without prolongations) will probably resemble
the volumes of the previous year.
    One priority task for Eurohypo in the current year again will be downsizing the
portfolio; this will involve reducing its size and enable the Bank to focus more on its
core business. This is being accompanied by a steady optimisation of the commer-
cial real estate portfolio.
    Another major challenge for Eurohypo is regaining its independent capital market
capability. It is the leading player in the sector for Pfandbriefe (covered bonds) and
enjoys competitive advantages thanks to its strong market position. This is why the
Bank is seeking to optimise the structure of its portfolio with a higher share of loans
eligible for covered bonds, and disproportionately reduce the portions of assets that
are not Pfandbrief-eligible.
8   Letter to our Stakeholders




        » eurohypo has clearly asserted its market
          position as a leading real estate lender.«




                                 Refinancing conditions in the unsecured segment on the other hand remain diffi-
                                 cult, especially since the markets have been clearly impacted by the government
                                 debt crisis. In this respect, the Eurohypo Management Board has resolved to shift
                                 the refinancing concept on to a stand-alone funding framework in the Group in the
                                 longer term. This will result in additional burdens but nevertheless will represent an
                                 important step in the right direction to regain the ability to refinance independently
                                 in the market.


                                 thanks to our employees
                                 The successful realignment of Eurohypo would not have been possible without the
                                 work of our committed employees. With hard work and dedication they mastered
                                 the challenges of the reporting year. For this reason I would like to take this oppor-
                                 tunity also on behalf of my colleagues to thank all employees of the Eurohypo Group
                                 for their contribution. I would also like to thank our partners and business associates
                                 who have put their trust in Eurohypo in this difficult environment.




                                 Sincerely




                                 Dr Frank Pörschke
                                 Chairman of the Board of Managing Directors
                                                                                                     9




                                                                                                         Letter to our Stakeholders
                                                                       Board of Managing Directors




board of
managing directors




                                                                                                         Board of the Managing Directors
dr frank pörschke       responsible for




                                                                                                         Report of the Supervisory Board
chairman of the board    CRE Banking International Strategic Markets
of managing directors
                         Corporate Communication
                         Legal
                         Debt Capital Markets
                         Business Management
                         Strategic Projects




dr thomas bley          responsible for




                                                                                                         Capital Market Communication
                         Risk Management
                         Restructuring Portfolios
                         Finance / Controlling / Tax
                         Audit




                                                                                                         Management Report
thomas köntgen          responsible for

                         CRE Banking Germany Core
                         Resource Management
                         Interest Rate and Currency Management




ralf woitschig          responsible for

                         Public Finance
                         Treasury
                         IT
b r a n d e n b u r g g at e , b e r l i n b i g b e n , l o n d o n p a l a c i o d e c o m u n i c a c i o n e s , m a d r i d e i f f e l t o w e r , p a r i s
h a g i a s o p h i a , i s t a n b u l p a l a c e o f c u lt u r e a n d s c i e n c e , w a r s a w s a i n t b a s i l’s c a t h e d r a l , m o s c o w
b e l é m t o w e r , l i s b o n m i l a n c a t h e d r a l , m i l a n s t a t u e o f l i b e r t y, n e w y o r k
                                                                                                                              11




                                                                                                                                   Letter to our Stakeholders
                                                                                            Report of the Supervisory Board




report of the
supervisory board




                                                                                                                                   Board of the Managing Directors
jochen klösges




                                                                                                                                   Report of the Supervisory Board
chairman of the supervisory board




                                                                                                                                   Capital Market Communication
Following the economic situation, real estate markets are now showing initial signs of
a recovery. However, the capital markets continue to be under strain from the after-
math of the financial crisis and the high levels of debt in some outlying eurozone
countries. Eurohypo will not be the only bank in dealing with the aftermath during the
current year and beyond.




                                                                                                                                   Management Report
    In this difficult environment Eurohypo consistently pursued the strategic guide-
lines defined in the previous year and continued to optimise its portfolio in both its
core and non-core markets. It was able to maintain its position as the leading pro-
vider of commercial real estate finance as well as its strong Pfandbrief market position.
However, burdens, which are primarily the result of the reduction in the Public
Finance portfolio and the high loan loss provisions in Commercial Real Estate, were
unavoidable.
    The Supervisory Board will continue to support Eurohypo in 2011 in further
reducing the portfolio under difficult market conditions with a minimal effect on
earnings and maintain flexibility as a focused provider in commercial real estate
finance under continued strict profitability requirements. At the same time, Eurohypo
will strengthen its capital market position on its course towards independence.
    In order to achieve the defined goals, perseverance, teamwork and entrepre-
neurial thinking will continue to be essential. The Supervisory Board would like to
thank the Board of Managing Directors, employees and the works council of Euro-
hypo for their constructive and active involvement in the restructuring of the com-
pany.


duties and meetings of the supervisory board
In the 2010 financial year, the Supervisory Board performed the duties incumbent
upon it by law and under the Articles of Association. It advised and monitored the
Board of Managing Directors in its management of the bank. The Board of Manag-
12   Report of the Supervisory Board




                                  ing Directors provided the Supervisory Board with regular, comprehensive and up-
                                  to-date information regarding economic conditions, the bank’s position and perfor-
                                  mance, key financial indicators, special business transactions and risk management
                                  at the bank. This information was provided both during meetings and in writing.
                                       Four ordinary meetings of the Supervisory Board were held, at which the Board
                                  discussed business developments, the approval of important transactions, the review
                                  of reports from the Board of Managing Directors, reports from the various commit-
                                  tees and the business plan. Special attention was also given to monitoring the portfolio
                                  optimisation and reviewing the Public Finance business model in view of the high
                                  levels of public debt in some European countries and changing regulatory condi-
                                  tions.
                                       The Board of Managing Directors discussed topical issues, strategic transactions
                                  and major events in the course of regular meetings with the Chairman of the Super-
                                  visory Board. The Supervisory Board was informed of any developments at all times.
                                  The Board of Managing Directors answered all questions raised by the Supervisory
                                  Board in full and promptly provided any reports requested on the strategy issues
                                  covered.


                                  work of the committees of the supervisory board
                                  The members of the Supervisory Board have formed three committees from within
                                  their ranks: the Standing Committee, the Risk Committee and the Audit Committee.
                                  The Standing Committee convened three times in the year under review.
                                       Discussions focused in particular on matters relating to the Board of Managing
                                  Directors, for example the review of the remuneration for the Board of Managing
                                  Directors under section 87 of the German Stock Corporation Act (Aktiengesetz).
                                       The Risk Committee – which also functions as the Credit Committee – convened
                                  for four ordinary meetings. At these meetings, participants discussed the current risk
                                  situation in the lending business, existing interest, currency, market price, liquidity
                                  and operational risks, methods for optimising existing methods and instruments for
                                  risk assessment, and the company’s risk strategy. The high levels of debt in certain
                                  eurozone countries were once again subject of discussion. Discussions were also
                                  dominated by the subject of various individual exposures. The committee members
                                  took decisions relating to loans and business transactions requiring approval by law,
                                  under the Articles of Association or the rules of procedure at the meetings or by way
                                  of a written resolution.
                                       The Audit Committee convened five times in the year under review. It issued the
                                  audit mandate to the auditor and defined the focal points of the audit. The main topics
                                  covered in the meetings included the activities of the auditor and current business
                                                                                                                          13




                                                                                                                               Letter to our Stakeholders
                                                                                        Report of the Supervisory Board




                                                                                                                               Board of the Managing Directors
performance. Also on the agenda were the duties of the Internal Audit department
in 2010, current trends in regulatory oversight and the review of the interim report.




                                                                                                                               Report of the Supervisory Board
Every meeting was attended by representatives of the audit firm. The Audit Committee
was declared independent by the auditor.
    In the year under review, the Supervisory Board monitored the financial account-
ing process through the Audit Committee as part of the internal controlling and risk
management system (IKRMS) . Further information on IKRMS pursuant to section
315 (2) no. 5 of the German Commercial Code can be found on page 42 ff.
    No other committees were formed. The composition of the committees is shown




                                                                                                                               Capital Market Communication
on page 160 of the annual report.


corporate governance
The German Corporate Governance Code is primarily aimed at companies which issue
listed shares. In view of Eurohypo AG ’s integration into the Commerzbank Group,
the Supervisory Board and Board of Managing Directors no longer require separate
recognition under the Code, but the principles thereof are part of corporate gover-




                                                                                                                               Management Report
nance at Eurohypo AG .


review and approval of the 2010 annual financial statements
The auditors PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft, Frank-
furt am Main, were selected by the Annual General Meeting and appointed by the
Supervisory Board. The accounts, annual financial statements as at 31 December
2010, the management report of the company in accordance with the German Com-
mercial Code (Handelsgesetzbuch – HGB), the Group accounts, consolidated financial
statements in accordance with International Financial Reporting Standards (IFRS)
and Group management report have been audited and awarded an unqualified opinion
by the auditor. The Supervisory Board approved the audit findings. The annual
financial statements, the management report of the company in accordance with the
German Commercial Code, the consolidated financial statements in accordance with
IFRS , the Group management report and auditor’s report were received by all Super-
visory Board members in good time prior to their discussion and approval.
    The Audit Committee also discussed these documents at its preparatory meet-
ing, during which the auditors gave a detailed report on the audit findings and audit
result for financial year 2010. At the Supervisory Board’s financial results meeting,
the Chairman of the Audit Committee informed the Supervisory Board of all the salient
points covered in the meeting. The auditors also attended this meeting and pre-
sented a report on the main audit findings. The auditors were also willing to answer
additional queries. The annual financial statements, the company management report
14   Report of the Supervisory Board




                                  in accordance with the German Commercial Code, the consolidated financial state-
                                  ments in accordance with IFRS , the Group management report and the audit report
                                  were discussed and examined in detail by the Supervisory Board.
                                       No objections were raised regarding the results of the audit. The Supervisory
                                  Board approved the company’s financial statements and the company management
                                  report in accordance with the German Commercial Code, the consolidated financial
                                  statements in accordance with IFRS and the Group management report. The annual
                                  financial statements of the company produced in accordance with the German Com-
                                  mercial Code are thus confirmed.


                                  changes on the board of managing directors
                                  and the supervisory board
                                  There were no changes in the composition of the Supervisory Board and the Board
                                  of Managing Directors of Eurohypo AG in the 2010 financial year.




                                  Eschborn, 31 March 2011
                                  The Supervisory Board




                                  Jochen Klösges
                                  Chairman
b r a n d e n b u r g g at e , b e r l i n b i g b e n , l o n d o n p a l a c i o d e c o m u n i c a c i o n e s , m a d r i d e i f f e l t o w e r , p a r i s
h a g i a s o p h i a , i s t a n b u l p a l a c e o f c u lt u r e a n d s c i e n c e , w a r s a w s a i n t b a s i l’s c a t h e d r a l , m o s c o w
b e l é m t o w e r , l i s b o n m i l a n c a t h e d r a l , m i l a n s t a t u e o f l i b e r t y, n e w y o r k
16   Capital Market Communication




         capital market
         communication

         capital market position sustained                      eurohypo’s ratings
         Even after its successful realignment, a key com-      Eurohypo is rated by all three leading rating
         ponent of the Eurohypo Group’s business model          agencies – Fitch Ratings, Moody’s Investors Ser-
         is funding via the capital market. With € 40.2 bil-    vice (Moody’s) and Standard & Poor’s Financial
         lion in outstanding Jumbo Pfandbriefe at 31 Decem-     Services LLC (S & P). We have close contact with
         ber 2010, Eurohypo is the leading issuer of these      the rating analysts for banks and covered bonds.
         large-volume issues and is the world’s third-larg-     The annual rating review meetings, in which we
         est issuer of Jumbo covered bonds. In this way,        present the bank’s strategy, key financial figures
         the bank has good access to the Pfandbrief mar-        and asset quality to the analysts, took place in
         ket despite unimproved issuing conditions.             late summer 2010.
              In a challenging capital market environment,          The rating of the parent company is a key
         the Pfandbrief has once again proven to be a           factor that can substantially affect an issuer credit
         reliable funding instrument. Eurohypo raised           rating. Commerzbank, sole shareholder in Euro-
         total funding of € 8.0 billion on the capital market   hypo, supported Eurohypo’s ratings by providing
         in 2010, of which € 4.0 billion was in Mortgage        a Letter of Comfort as well as a control and profit
         Pfandbriefe and around € 3.0 billion in Public-        transfer agreement for the bank. The rating
         sector Pfandbriefe. In addition, Eurohypo Lux-         agencies assume that Eurohypo has a systemic
         embourg placed around € 750 million in Lettres         significance and imply additionally systemic
         de Gage Publiques (covered bonds under Lux-            support.
         embourg law). Around € 0.2 billion of the total
         volume were allocated to unsecured issues.             fitch ratings
         Details on Eurohypo’s funding activities can be        Eurohypo’s long-term issuer default rating was
         found on page 35 f.                                    downgraded to “A –” in March 2011. At the same
              The bank places particular emphasis on            time Fitch Ratings confirmed the “F–1” short-
         maintaining a dialogue of trust with capital market    term issuer default rating and the “1” support
         participants and rating agencies, especially in        rating.
         this challenging economic environment. For this            Eurohypo’s Mortgage Pfandbriefe are rated
         reason, one of the main tasks of Capital Market        “AAA rating watch negative”. This is also attri-
         Communication is to expand the bank’s access           buted to the changes in their rating methodology.
         to and strenghten its presence on the funding mar-     Fitch Ratings currently has a narrow focus on
         kets. Our service-oriented approach is based on        asset quality and is reviewing the data require-
         continuity, reliability and commitment. Detailed       ments.
         information on our issues as well as presenta-             Eurohypo AG ’s Public-sector Pfandbriefe and
         tions and financial reports can be found under         Eurohypo S.A. ’s Lettres de Gage Publiques were
         “Investor Relations” on Eurohypo’s homepage at         not affected by the changes in methodology and
         www.eurohypo.com.                                      still receive the top “AAA” rating.
                                                                                                                                   17




                                                                                                                                        Letter to our Stakeholders
                                                                                            Capital Market Communication




                                                                                                                                        Board of the Managing Directors
moody’s
                                                       ratings of eurohypo group
In February 2011 Moody’s lowered Eurohypo’s




                                                                                                                                        Report of the Supervisory Board
                                                                                           S & P’s    Moody’s              Fitch
bank financial strength rating to “D–” with a neg-
                                                       Eurohypo AG
ative outlook. Eurohypo was given an “A3” long-        Public-sector Pfandbriefe           AAA*            Aaa             AAA
term debt rating and its “Prime –1” short-term         Mortgage Pfandbriefe                 AAA            Aaa             AAA*
debt rating was confirmed.                             Long-term liabilities /
                                                       bank rating (senior unsecured)        A –*           A3               A–
    Likewise in February 2011, Moody’s lowered
                                                       Short-term liabilities /
its subordinated debt rating for several German        bank rating
banks. The rating analysts believe that the Bank       (commercial paper)                  A – 2*         P–1                F1




                                                                                                                                        Capital Market Communication
Restructuring Act that took effect on 1 January        Subordinated debt                    BB +          Ba1*             BB +
                                                       Financial strength                       –         D –*                –
2011 means that the systemic support that has
                                                       Support rating                           –            –                1
had a positive effect on ratings for subordinated      Rating outlook                   *negative    *negative      *negative
securities will no longer apply. Eurohypo’s subor-     Eurohypo Luxemburg S.A.
dinated debt rating was lowered from “A2” to           Lettres de Gage                     AAA*              –             AAA
                                                       Long-term liabilities /
“Ba1” with a negative outlook.
                                                       bank rating (senior unsecured)        A –*            –               A–
    Moody’s continue to rate Eurohypo AG ’s




                                                                                                                                        Management Report
                                                       Short-term liabilities /
Public-sector Pfandbriefe and Mortgage Pfand-          bank rating
briefe with their highest “Aaa” rating.                (commercial paper)                  A – 2*            –               F1
                                                       Support rating                           –            –                1
                                                       Rating outlook                   *negative            –         stable
standard & poor’s
                                                       As at 10 March 2011
S & P had already lowered Eurohypo’s counter-
party credit rating to “A– / negative / A–2” and the
rating for subordinated paper to “BBB +” in 2009.      methodology, which has negative implications
Due to Germany’s Bank Restructuring Act S & P ’s       for German banks, might trigger rating changes
lowered their ratings for German “lower Tier 2         across the banking landscape.
subordinated debt”. This implied a downgrade                 Eurohypo AG ’s Public-sector Pfandbriefe
for Eurohypo’s senior subordinated debt to BB + .      and the Lettres de Gage Publiques from Euro-
S & P is currently reviewing its bank rating crite-    hypo S.A. are rated “AAA watch negative” by S & P.
ria and intends to modify its bank rating method-      Eurohypo’s Mortgage Pfandbriefe received a
ology. It is possible that the introduction of this    stable “AAA” rating from S & P .
b r a n d e n b u r g g at e , b e r l i n b i g b e n , l o n d o n p a l a c i o d e c o m u n i c a c i o n e s , m a d r i d e i f f e l t o w e r , p a r i s
h a g i a s o p h i a , i s t a n b u l p a l a c e o f c u lt u r e a n d s c i e n c e , w a r s a w s a i n t b a s i l’s c a t h e d r a l , m o s c o w
b e l é m t o w e r , l i s b o n m i l a n c a t h e d r a l , m i l a n s t a t u e o f l i b e r t y, n e w y o r k
                                                                                                                          19




                                                                                                                               Letter to our Stakeholders
                                                                     Management Report >>> Overall economic performance




management report
overall economic




                                                                                                                               Board of the Managing Directors
performance
overall economic developments                          In addition to the general concerns about growth,
Over the course of 2010, the global economy            the financial markets were also worried by the




                                                                                                                               Report of the Supervisory Board
recovered from a recession that was in some            euro debt crisis, which set off several waves of
cases severe. The momentum of the upturn dif-          great uncertainty and prompted government inter-
fered widely from one country to another, and          vention. In this environment, the central banks
involved great uncertainty.                            continued to pursue an expansionary and support-
    Germany took over the role of Europe’s             ive policy. Inflation was very low, comparatively
growth driver in 2010. The markets were taken          speaking, and key interest rates remained stable
by surprise by Germany’s highly dynamic recov-         at an extremely low level, ensuring benign inter-




                                                                                                                               Capital Market Communication
ery powered by investment activity and exports,        est conditions that supported the real estate
particularly to the Far East. As economic growth       markets.
strengthened, it generated a comparatively
favourable trend on the labour market: indeed,         commercial real estate
employment now exceeds its pre-crisis levels.          As the overall economy brightened, most real
    The trend was considerably softer in the rest      estate markets bottomed out in 2010. Among our
of Europe, particularly in the peripheral coun-        target markets, the US and Spain are lagging the




                                                                                                                               Management Report
tries that were hardest hit by the debt crisis. The    cycle somewhat; both countries continue to suf-
correction in residential markets, uncertainty         fer severely from the economic exaggerations
among private households and the effects of            of the last upswing and are faced with declining
cost-cutting schemes – which succeeded the             real estate prices.
support measures introduced during the reces-              Investment market activity picked up during
sion – is weighing on consumption and general          the year but remained at a low level. The increase
economic growth in these countries. They thus          in sales can be attributed to high demand for
have yet to see a clear recovery in their employ-      core assets, in the liquid Commercial Real Estate
ment markets.                                          (CRE) markets. This property class saw an increase
    After a robust start in 2010, concerns about       in prices and thus a decline in returns. Aside
growth mounted through the year in the US ,            from the prime segment, however, the market
accompanied by fears that the economy would            appears to be stabilising, especially since debt
slide back into recession. Growth remained             capital is still a scarce commodity.
intact, albeit at a low level, and should accelerate       Demand for office space has revived some-
this year supported by government incentive            what. Since this primarily involves replacement
programmes. This should contribute towards             rentals, consolidation of floor space and remov-
reversing the trend on the labour market; how-         als into higher-quality buildings, absorption has
ever, we believe the recovery process will be          so far been too weak to materially reduce vacancy.
lengthy.                                               New construction activity tapered off consider-
20        Management Report




 cre market value changes
 weighted across all segments
 q4 2010

 12-months review                                                              12-months outlook

                                                                      ≥ 25 %
                                                                      20 %
                                                                      15 %
     FR         FR       RUS     UK       FR      RUS      UK         10 %       RUS
                                                            PL         5%        PL
                                                           DE          0%        DE      ESP      FR      IT       TR        UK        US
                                          IT        PT     US         –5%        PT
                                                    ESP     TR        – 10 %
                                                                      – 15 %
                                                                      – 20 %
                                                                   ≤ – 25 %                                     Source: Eurohypo RAC Research




              ably during the financial crisis, and this limited            Central Bank (ECB) and the European Financial
              the supply of additional prime space; in some                 Stability Facility (EFSF) provided an occasional
              locations, such as London and Moscow, this                    respite on the markets. At the same time, it is
              helped to boost prime rents.                                  obvious that bailout measures alone are not the
                   Retail benefited from the overall economic               answer to the underlying problems. In the US ,
              upturn. Most of Eurohypo’s core markets report                too, the picture is mixed and remains depressed.
              rising or at least stable retail sales. However,              Hence we expect ongoing high volatility on the
              these figures still reflect the benign consequences           money and capital markets.
              of stimulus measures taken during the recession.
              As the subsequent savings measures begin to                   funding
              take effect, their influence will be felt in consump-         The ECB ’s purchase programme, which had a
              tion and retail sales. Countries with strict savings          target volume of around € 60 billion and a one-
              measures are likely to find that they impede a                year term that ended in June 2010, invigorated
              recovery on the real estate market.                           the Pfandbrief market during a difficult phase
                                                                            and lent significant support. In the year under
              public finance                                                review, the volume of new Jumbo Pfandbrief
              Public Finance had another challenging year in                issues rose by 9 % to around € 26 billion. With
              2010. Although the economic environment in                    an outstanding volume of € 639.8 billion, Pfand-
              Germany – and thus the government budget –                    briefe continued to play a significant role in the
              trended more favourably than expected, this was               covered bond market. However, the high govern-
              clearly the exception in Europe. In the major EU              ment debt of some peripheral eurozone coun-
              nations, the financial crisis’ impact on budgetary            tries exacerbated the market challenges and
              policy has not yet run its course. The credit                 raised uncertainties on the capital market. The
              standing of many countries is still under review.             volume of German Pfandbrief issues in the year
              Against this background, the government bond                  under review was € 87.0 billion (€ 110.4 billion),
              purchase programme initiated by the European                  i. e. 21 % below the previous year.
                                                                                                                         21




                                                                                                                              Letter to our Stakeholders
                                                                    Management Report >>> Overall economic performance




                                                                                                                              Board of the Managing Directors
exit management                                      ing structures, so there was a lack of consistency
After a mild recovery in the first quarter of 2010   in the syndication market.




                                                                                                                              Report of the Supervisory Board
that was enhanced by the execution of transac-           Despite initial signs of a revival in the Euro-
tions from the previous year, investors were less    pean ABS securitisation market and a few initial
eager to make large transactions as the year pro-    CMBS transactions in the US , so far there have
gressed. As in the previous year, most of these      been no initial placements for CMBS transactions
few transactions involved club deals and arrange-    in Europe – aside from a few credit-tenant-lease
ments. Given the ongoing shortage of liquidity in    transactions. Various measures to support securi-
the syndication market, placements were made         tisation in general, but CMBS in particular – such




                                                                                                                              Capital Market Communication
on an opportunistic basis. Many banks were still     as issuer retention or specification of quality fea-
preoccupied with defining strategy and design-       tures – will need more time to take their full effect.




                                                                                                                              Management Report
22   Management Report




         business strategy


         Eurohypo is a leading real estate finance provider    maintaining a presence exclusively in markets
         in Germany and in strategic markets abroad.           where we can generate risk adequate returns
         Moreover, it manages an extensive Public Finance      over the long term. Our ten strategic markets are
         portfolio where one part of its strategy is a risk-   France, Germany, Italy, Poland, Portugal, Russia,
         oriented reduction of the portfolio while mini-       Spain, Turkey, the UK and the US. These are either
         mising the effect on earnings.                        large, well-established markets where Eurohypo
              The realignment of our business model            has been active for years, or upcoming markets
         became concrete last year: In just a short time,      offering the bank attractive long-term business
         Eurohypo has developed into a strictly focussed       opportunities.
         provider of individual financing solutions for ten        In the challenging environment for real
         core markets in commercial real estate finance.       estate and financial markets, Eurohypo has
         Concentration on these countries has further          been an active market participant. New busi-
         strengthened our market position. This is under-      ness volumes increased by over € 5 billion year-
         lined by the fact that we have once again received    on-year and achieved good margins. Transac-
         the Euromoney award as the Best Global Com-           tions were divided equally between domestic
         mercial Bank in Real Estate, a distinction awarded    and foreign business. New business in the UK
         by the customers themselves. Our reputation in        was gratifying; nearly half of commitments
         the real estate market is likewise affirmed by        abroad came from UK. The bank also extended
         our designation as “Europe Debt Provider of the       existing credits totalling € 6.3 billion. In total,
         Year”, a title which Eurohypo received at the         the bank made nearly € 12 billion available to
         “Global PERE Awards”.                                 the real estate industry. The goal for 2011 is to
              As we continue to reduce our portfolio and       further use its good market position in the stra-
         streamline our business processes, we also            tegic core markets in order to generate new
         decrease the risk level and the complexity of         business at comparable levels as in the previous
         our business model. Our overreaching goal is          year. In addition, the core portfolio presents
         to bring the bank back to profitability and sus-      opportunities to generate attractive returns with
         tainably strengthen its capital market capabili-      prolongations.
         ties. The EU Commission’s instruction that Com-           On the other hand, Eurohypo has withdrawn
         merzbank sell Eurohypo by the end of 2014             from 15 foreign restructuring markets over the
         gives Eurohypo a time frame for implementing          last two years – in some cases more rapidly than
         its strategic goals.                                  planned. This moves the bank a good deal closer
                                                               to its goal of withdrawing from around 20 markets
         new paths in commercial                               worldwide by the end of 2014. The bank also
         real estate finance                                   continued to reduce its portfolio as planned: the
         In commercial real estate financing (CRE) we are      portfolio volume fell by another € 3.2 billion to
                                                                                                                        23




                                                                                                                             Letter to our Stakeholders
                                                                              Management Report >>> Business strategy




                                                                                                                             Board of the Managing Directors
€ 72.1 billion in 2010. The target is to lower the    million in the market. Since the bank intends to
CRE portfolio to less than € 60 billion by the end    continue stabilising its liquidity and funding




                                                                                                                             Report of the Supervisory Board
of 2012.                                              situation, syndication instruments are playing
    The streamlining of its range of services and     an important role. In the securitisation market,
its organisation and the restructuring of its pro-    Eurohypo’s focal point was on managing existing
cesses has shifted Eurohypo’s business model          transactions.
towards sustained profitability. In new business,
we focus on loans eligible to serve as cover, while   realignment in public finance
in scaling back the portfolio we focus on a dis-      Eurohypo has made good progress in meeting




                                                                                                                             Capital Market Communication
proportionate reduction in uncovered portfolio        the European Commission’s requirement to
elements. The lower threshold for financing in        reduce Commerzbank Group’s Public Finance
new business with first-time clients is € 10 mil-     portfolio to less than € 100 billion by the end
lion in Germany and € 20 million abroad. The          of 2012. At 31 December 2010, its portfolio
bank has established conservative limits for its      amounted to € 110.6 billion after registering
real estate financing business in order to limit      € 129.1 billion the previous year.
risk. After comprehensive credit checks and               However, significantly higher equity and




                                                                                                                             Management Report
provided the appropriate collateral is available,     funding costs and, in particular, the limited avail-
Eurohypo can also offer larger underwritings in       ability of liquidity in the market for unsecured
the upper double-digit millions and triple-digit      bank bonds have fundamentally changed the per-
millions of euros.                                    ception of this business. The debt crisis in some
    We further amended our organisational and         European countries, volatile financial markets and
management structure in 2010 in line with our         the anticipated tightening of regulatory require-
changed business model. In this respect, we           ments with regard to equity (e. g. Basel III) have
continued with our scheduled staff reductions in      also hampered activities in this area. Consequently,
Germany and abroad. Further details can be found      we are not actively seeking new Public Finance
on page 47 ff.                                        business except as necessary to manage the cover
                                                      portfolio or to meet contractual obligations.
exit management                                           It is not only due to these new conditions
In the persistently challenging environment, Euro-    that a continuation of the active Public Finance
hypo was able to affirm its strong position in the    business has become almost impossible. We are
syndication market with selective placements.         also unable to generate the required return on
The bank concentrated on the arrangement of           equity for a sustainable business model due to
new business and the management of existing           the high proportion of on-balance-sheet busi-
syndicated financing. In 2010, the bank success-      ness. Moreover, in the current market environ-
fully placed syndications to the amount of € 891      ment, Eurohypo’s high portfolio volume makes it
24   Management Report




         more difficult to meet the EU Commission’s stip-        The performance of the individual segments in
         ulation for Commerzbank to divest Eurohypo. For         terms of the internal management system used is
         these reasons Eurohypo decided over the course          given in the Notes to the consolidated financial
         of the year to not actively pursue its Public           statements on pages 112 f.
         Finance business.                                           Risk management is embedded as a manage-
              The new Public Finance business model is           ment instrument for the entire bank at all organi-
         centred on a strategy of risk-oriented, passive run-    sational and procedural levels. All non-strategic
         off of our Public Finance portfolio across the entire   portfolios in Commercial Real Estate are subject
         term. This includes the activities of our Luxem-        to uniform monitoring and management and are
         bourg subsidiary EUROHYPO Europäische Hypo-             bundled together in a sector headed up by a
         thekenbank S.A.. Repo financing will therefore at       member of the Board of Managing Directors.
         times play a bigger role in refinancing the Public      Here professional teams are working to consis-
         Finance portfolio, a fact that will negatively influ-   tently reduce the assets in these portfolios. The
         ence new issues of Public-sector Pfandbriefe. In        key features of the accounting-related internal
         general, we will hold and manage all positions          control and risk management system are out-
         until maturity. We will stick by our strategy of        lined on page 42 ff.
         strictly risk-oriented portfolio reduction, includ-
         ing selective disposals, while minimising the           satisfactory capital base
         effect on earnings. In particular, this means           With a regulatory core capital ratio of 10.4 % and
         undertaking a further reduction of the portfolio        a total capital ratio of 14.1 %, Eurohypo has a
         beyond the established target volume of € 100           satisfactory capitalisation. The ongoing reduction
         billion.                                                in risk-weighted assets as dictated by the portfolio
                                                                 reduction will further strengthen the bank’s capi-
         eurohypo’s management system                            tal ratios.
         The bank’s internal management system aims to               Eurohypo is the largest issuer of Pfandbriefe
         generate long-term stable returns at a low risk         and a leading issuer of jumbo covered bonds.
         while optimising the capital required for that pur-     Since the Pfandbrief remains a key element of
         pose. The profitability of each individual expo-        Eurohypo’s refinancing strategy, the bank has
         sure is closely monitored using customised ana-         recourse to a traditional refinancing instrument
         lysis tools. Capital allocation is thus determined      that is less vulnerable to the effects of the financial
         by an assessment of the risk profile. In particular,    crisis and sovereign debt problems. In 2010, we
         interest rate, currency and liquidity risks are lim-    successfully placed covered bonds totalling € 7.8
         ited through the use of derivatives. The risks          billion (€ 13.0 billion). Furthermore, as a wholly
         applicable to the bank and their effective manage-      owned subsidiary of Commerzbank, Eurohypo is
         ment are outlined in the risk report, on page 57 ff.    integrated in the Commerzbank funding plan.
                                                                                                                    25




                                                                                                                         Letter to our Stakeholders
                                                                          Management Report >>> Business strategy




                                                                                                                         Board of the Managing Directors
funding concept within the group                   term stand-alone funding within the Group.
Refinancing conditions have tightened in the       Although this entails further charges against




                                                                                                                         Report of the Supervisory Board
unsecured segment, partly due to the sovereign     earnings, it is an important step towards stable,
debt crisis. Therefore, at the end of 2010 Euro-   independent funding and supports Eurohypo in
hypo’s Board of Managing Directors opted to        establishing its capital market capabilities in
move to a refinancing concept based on longer-     the medium term.




                                                                                                                         Capital Market Communication
                                                                                                                         Management Report
26   Management Report




         business development
         in the segments

         cre banking germany core                               modest growth, rising by 6 % to € 322 million.
         The strong economic recovery in Germany is             Thus the Central Region contributed 37 % to
         now beginning to work through to the real estate       new business in Germany, followed by the North-
         markets. Although demand for office space is still     Eastern Region (27 %), the Western Region
         weak and dominated by replacement rentals, the         (25 %) and the Southern Region (11 %). In the
         phase of rising vacancy rates and falling rents        prolongation business, the segment extended
         is nearing an end. Indeed, activity on the invest-     around € 3.4 billion in credit in 2010 after € 3.6
         ment market is picking up noticeably. Investor         billion in 2009. Measures to improve portfolio
         interest in Germany and abroad seems to be             quality and the risk-adjusted margin trimmed
         comparatively selective. Top properties with           the prolongation ratio from around 64 % in 2009
         secure income streams, or core assets, attract         to just 62 % in 2010.
         the greatest interest. Yields fell moderately, i. e.       The segment’s loan portfolio was reduced by
         prices rose, in this sub-segment in 2010. Since        € 1.8 billion to € 28.4 billion as planned by exploit-
         particularly high-quality retail properties fulfil     ing maturities and scheduled redemptions. Risk-
         these criteria, their share of total transaction       weighted assets (RWA) declined to € 16.1 billion
         volume rose in comparison to the long-term             after € 17.0 billion the previous year.
         average. The retail trade benefited from compara-          The segment’s net interest income amounted
         tively robust consumer consumption, even during        to € 332 million, 5 % less than the € 350 million
         the crisis. Low unemployment and expectations          reported in 2009. This is largely due to the lower
         of wage increases in the medium term are creat-        volume lending. Commission income for the CRE
         ing an encouraging outlook for the rental market,      Banking Germany Core segment benefited from
         and thus also for investments in high-quality retail   the increase in new business and climbed 13 %
         properties.                                            to € 45 million in 2010. Loan loss provisions were
              New business in the CRE Banking Germany           raised by € 61 million year-on-year to € 154 mil-
         Core segment displayed increasing momentum             lion, primarily due to specific loan loss provision.
         over the course of the year. On balance, the bank      Net trading income was affected by valuations of
         posted € 2.8 billion in new business in 2010, which    interest rate hedging derivatives with customers
         is around € 1.5 billion more than in 2009. In geo-     amounting to € – 14 million (€ 1 million). Operating
         graphical terms, the Central Region reported the       expenses rose from € 97 million in 2009 to € 107
         highest growth rates; here new business nearly         million in 2010, particularly due to higher internal
         quadrupled year-on-year from € 256 million to          charges for services within the Group as well as
         € 1,007 million. The Western Region more than          an increase in other operating expenses as a
         doubled new business with a 119 % increase             result of the greater volume of new business.
         to € 708 million, followed by the North-Eastern        Thus the pre-tax result for the CRE Banking Ger-
         Region with a 79 % increase to € 776 million.          many Core segment declined from € 185 million
         The Southern Region, in contrast, reported only        in 2009 to € 107 million in 2010. RoE before
                                                                                                                                            27




                                                                                                                                                 Letter to our Stakeholders
                                                                               Management Report >>> Business development in the segments




investment volume
cre germany




                                                                                                                                                 Board of the Managing Directors
Index: Q2 2007 = 100

120

100

 80

 60

 40

 20




                                                                                                                                                 Report of the Supervisory Board
  0
          Q2 07



                  Q3 07



                          Q4 07



                                  Q1 08



                                          Q2 08



                                                  Q3 08



                                                          Q4 08



                                                                  Q1 09



                                                                            Q2 09



                                                                                     Q3 09



                                                                                              Q4 09



                                                                                                      Q1 10




                                                                                                                               Q4 10
                                                                                                              Q2 10



                                                                                                                       Q3 10
                                                                             Source: Eurohypo RAC Research, BNP Paribas Real Estate




                                                                                                                                                 Capital Market Communication
taxes fell from 15.4 % in the previous year                       in terms of their risk-return profile. Non-per-
to 9.4 %, while the cost-income ratio rose to                     forming loans are also included in this segment.
29.2 % (24.5 %).                                                  This segment’s portfolio was compiled on
                                                                  31 December 2006 and it has not been increased
outlook                                                           since, with the exception of a small portfolio




                                                                                                                                                 Management Report
We expect new business volumes to be slightly                     from the acquisition of Hypothekenbank in Essen
lower in 2011 than in 2010. The regional devel-                   AG . The assets originate almost exclusively from
opment will vary because the German market is                     Eurohypo’s predecessor institutions (“legacy
decentralised and characterised by the individual                 portfolio”). The bank aims to steadily reduce this
development in the metropolitan areas each of                     portfolio with a minimal effect on earnings.
which depend on the different industries. Active                          In 2010, the loan portfolio was reduced by
measures to improve portfolio quality and to forego               € 1.0 billion to € 3.3 billion. Although the port-
low-margin prolongations will further scale back                  folio decreased by 23 %, net interest income
the loan portfolio. As a result of the anticipated                declined by just 19 % to € 58 million (€ 71 million)
slight decrease in new business, net commission                   due to better margins and lower volumes of
income should also decline year-on-year. Assum-                   new non-accrual loans. The special risk profile
ing that the real estate markets remain stable –                  of this segment’s assets is evident in the € 54
supported by positive economic forecasts – loan                   million increase in loan loss provisions to € 220
loss provisions will decrease noticeably in the                   million. The net income on investment properties
upcoming year.                                                    fell significantly to € – 48 million (€ – 8 million)
                                                                  due to higher charges from property realisation
cre banking germany non-core                                      companies. Operating expenses decreased from
The CRE Banking Germany Non-Core segment                          € 22 million to € 16 million thanks to lower inter-
includes loans that are classified as non-strategic               nal charges for services within the Group. The
or that do not meet Eurohypo’s business policy                    other net income otherwise improved consider-
28   Management Report




         trend in prime office rents
         germany
         Index: Q4 2007 = 100

         110


         105


         100


          95


          90


          85
                   Q4 07




                             Q1 08




                                         Q2 08




                                                  Q3 08




                                                          Q4 08




                                                                  Q1 09




                                                                          Q2 09




                                                                                     Q3 09




                                                                                                  Q4 09




                                                                                                            Q1 10




                                                                                                                                         Q4 10
                                                                                                                     Q2 10




                                                                                                                               Q3 10
          Berlin     Frankfurt       Hamburg     Munich                                      Source: Eurohypo RAC Research, Jones Lang Lasalle




         ably to € – 1 million (€ – 52 million). The 2009                 Business trends in the international strategic
         result includes burdens for internal charges that                markets varied widely in 2010. In the footsteps
         did not recur in 2010. Despite this positive effect,             of the overall economic recovery, most real
         the pre-tax result for this segment declined from                estate markets bottomed out or, in some cases,
         € – 177 million in 2009 to € – 227 million in 2010.              started rebounding. Nonetheless, momentum
         Due to the special structure of this reduction port-             in the CRE investment markets was moderate.
         folio, RoE fell from – 62.5 % in 2009 to – 117.9 %               Demand continued to focus on core assets.
         in 2010. The cost-income ratio amounted to                       The ongoing low risk appetite in the financial
         177.5 % (previous year: 202.2 %).                                markets and the subsequently limited availability
                                                                          of debt capital weighed on the CRE investment
         outlook                                                          markets.
         In the years ahead we will continue to scale back                        Prices for commercial real estate began to
         the non-core portfolio. We plan to reduce the                    find a floor in all Eurohypo’s key markets during
         portfolio by at least the same volume in 2011 as                 2010. Core properties with secure cash flows
         in 2010. Restructuring measures will be another                  saw prices begin to rise again while yields
         option to optimise credit commitments that are                   decreased. France and the UK are among Europe’s
         expected to remain in the portfolio for a longer                 most liquid real estate markets. Both markets
         period.                                                          are favoured by international investors, who con-
                                                                          sider top properties in Paris or London to be
         cre banking international                                        relatively low-risk. Accordingly, these markets
         strategic markets                                                have had the strongest recovery from the invest-
         The CRE Banking International Strategic Markets                  ment market collapses.
         segment comprises Eurohypo’s activities in France,                       However, there is no broad support emanat-
         Italy, Poland, Portugal, Russia, Spain, Turkey, the              ing from the rental markets. Rent increases in
         UK and the US .                                                  the office sector have only been observed in a
                                                                                                                            29




                                                                                                                                 Letter to our Stakeholders
                                                               Management Report >>> Business development in the segments




                                                                                                                                 Board of the Managing Directors
few markets and have been limited to selected          successfully restructuring its portfolio and signed
high-end properties. Largely weak economic             € 518 million in new business, some of which has




                                                                                                                                 Report of the Supervisory Board
growth and a still pending trend reversal on the       been placed in the market. Furthermore, Euro-
labour markets have so far prevented a broad-          hypo featured as arranger for numerous transac-
based recovery.                                        tions in 2010.
                                                           The macro-economic environment continued
environment and business                               to weigh on Spain’s real estate market in 2010.
development in core markets                            Against the backdrop of difficult overall economic
In France, transaction volumes on the investment       trends, investors had fewer financing options.




                                                                                                                                 Capital Market Communication
market amounted to € 12.0 billion in 2010. While       The focus for market activities was on equity-
this corresponds to an increase of around 40 %         financed investments. In this environment, Euro-
year-on-year, it is still well below the volumes       hypo concluded new business worth € 135 million
registered from 2006 to 2008. Most of the trans-       at attractive conditions. In Portugal, rental mar-
actions had a volume of less than € 40 million.        kets as well as investment markets were extremely
On balance, Eurohypo generated around € 500            weak. Only scattered transactions are being
million in new business with its Paris branch in       made in the investment markets and the prices




                                                                                                                                 Management Report
2010.                                                  for commercial real estate declined again in
    The real estate market in the UK continued         2010. The situation in Italy is somewhat more
to revive, especially in the second half of 2010.      solid at the moment, but here too growth pros-
Demand was driven predominantly by the favour-         pects are restrained.
able exchange rate trend for pound sterling. In            Turkey and Russia have seen a notable
addition, institutional investors seized the oppor-    recovery from a severe economic slump, which
tunity presented by historically low price levels      should have an increasingly positive effect on the
to make acquisitions. Properties with stable cash      real estate markets. Besides the fundamentally
flows stemming from secure, long-term leases           substantial growth potential in these markets,
were particularly sought after. In this fiercely       the considerably higher market volatility is also
competitive environment, Eurohypo was able to          an advantage. The same is true for Poland, which
generate € 1.5 billion in new business in the UK ,     weathered the international crisis without entering
an increase of some 50 % year-on-year. Further-        recession thanks to the dominance of its domes-
more, it secured prolongations worth more than         tic economic activities. Eurohypo did not sign
€ 0.7 billion in its existing business.                any new business in Turkey or Russia in 2010,
    The economic recovery in the US is still on        but granted € 81 million in new loans in Poland.
course, albeit at a lower level of growth than in
earlier cycles. Thus, this national real estate mar-   trends in key figures
ket, the world’s largest in terms of market volume,    In the CRE Banking International Strategic Mar-
also appears to be building a floor. Eurohypo is       kets segment, Eurohypo raised its new business
30   Management Report




         investment volume
         cre europe and america
         Index: Q2 2007 = 100

         120

         100

          80

          60

          40

          20

           0
                    Q2 07



                                Q3 07



                                         Q4 07



                                                 Q1 08



                                                         Q2 08



                                                                 Q3 08



                                                                         Q4 08



                                                                                 Q1 09



                                                                                         Q2 09



                                                                                                      Q3 09



                                                                                                              Q4 09



                                                                                                                       Q1 10




                                                                                                                                                 Q4 10
                                                                                                                                Q2 10



                                                                                                                                        Q3 10
          America           Europe (incl. Germany)                                               Source: Eurohypo RAC Research, Real Capital Analytics




         by around € 1.4 billion to around € 2.9 billion.                        lion), reflecting negative market valuation changes
         Moreover, the bank prolonged loans in this seg-                         on CMBS loans in the US as well as charges from
         ment worth around € 1.5 billion, achieving a pro-                       the valuation of interest rate hedging derivatives
         longation ratio of 63 %. The loan portfolio had                         with customers. The net investment income was
         a total volume of € 32.4 billion, not far from the                      € –102 million, about half the size of the previous
         previous year’s level (€ 32.5 billion); good new                        year’s loss (€ –200 million). The 2009 figure included
         business and currency fluctuations in the US dol-                       losses from the US investment portfolio, which was
         lar and pound sterling offset the portfolio reduc-                      backed by subprime mortgages to retail custom-
         tions. Risk-weighted assets declined by € 4.7                           ers and was completely disposed of that year. The
         billion, or 15 %, to € 27.5 billion. Net interest                       loss from investment income stemmed primarily
         income for the CRE Banking International Strate-                        from the necessity of a write-down on an invest-
         gic Markets segment improved by 12 % to € 537                           ment that Eurohypo acquired during restructur-
         million in 2010, largely due to broader margins.                        ing as part of a debt-to-equity swap. On the other
         The previous year’s figure was € 478 million.                           hand, the current income on companies accounted
         Higher specific loan loss allowances in the sec-                        for using the equity method deteriorated by € 17
         ond half of 2010 – particularly in the US and                           million to € –21 million. Operating expenses of
         Spain – made loan loss provisions increase by                           € 120 million were 7 % lower year-on-year. On
         nearly 2 % to € 775 million (€ 760 million). Net                        balance, the pre-tax result for the CRE Banking
         commission income received a boost from higher                          International Strategic Markets was € – 383 million
         volumes of new business and successful restruc-                         (€ – 643 million). The 2009 figure included € 70
         turing, but also from higher income from interest                       million in non-recurring expenses from goodwill
         and currency management. Net commission                                 impairments and € 17 million in restructuring
         income rose 42 % to € 136 million (€ 96 million)                        expenses. RoE amounted to – 19.9 % in 2010 after
         in 2010. The net trading income of € – 46 million                       – 28.0 % in 2009. The cost-income ratio improved
         was similar to the previous year’s figure (€ – 48 mil-                  from 38.5 % in 2009 to 23.4 % in 2010.
                                                                                                                            31




                                                                                                                                 Letter to our Stakeholders
                                                               Management Report >>> Business development in the segments




                                                                                                                                 Board of the Managing Directors
outlook                                                finances. In the existing competitive environment,
The overall economic trends will again be varied       Eurohypo will continue to be able to offer financ-




                                                                                                                                 Report of the Supervisory Board
in our foreign strategic markets in 2011 and the       ing for high-value transactions at attractive
stimuli for the individual real estate markets will    conditions. For Spain, too, the 2011 outlook is
thus differ. The US and our Eastern European           extremely restrained. A trend reversal is unlikely,
strategic markets will likely benefit from stabilis-   in particular in retail property, due to government
ing growth trends. Against this backdrop, we           savings programmes, rising unemployment and
believe that these rental markets have reached         falling real income. Given that many banks in the
their cyclical lows or have already left them          Spanish market are very reluctant to extend new




                                                                                                                                 Capital Market Communication
behind. Nonetheless, the supply overhangs built        financing, there will be selective opportunities
up during the downturn will continue to dampen         for Eurohypo to sign new business at attractive
market momentum for a while. In Poland, the            conditions.
positive market trend will be supported by healthy         Eurohypo will continue to optimise its Inter-
development of the investment market coupled           national Strategic Markets portfolio in 2011 with
with limited availability of investment objects and    the aim of further improving the portfolio’s qual-
increasing project development activity in the         ity. Thus, there will be a planned reduction in the




                                                                                                                                 Management Report
retail property segment. In France, we expect the      segment’s assets. If income from interest remains
moderate uptrend from 2010 to continue in 2011.        stable, net interest income will decline due to
The risk that the British economy will slip back       lower business volumes and simultaneously higher
into recession has receded, but the pace of eco-       funding expenses. We expect loan loss provisions
nomic recovery will be sharply curbed by gov-          for the segment to be lower than in the previous
ernment spending cuts and tax increases as it          year due to portfolio management measures
becomes necessary to consolidate the public            already implemented and to the easing in some
finances. We anticipate stable or slightly rising      strategic markets. Net commission income from
demand for top properties on the real estate mar-      new business will probably hold steady. However,
ket, while the market for less desirable objects       income from commissions on restructuring pro-
will remain vulnerable to rent reductions and losses   jects is likely to be lower than it was in 2010, sug-
in value. The growth prospects for the Italian         gesting that net commission income will be lower
market are very modest; we expect last year’s          year-on-year. On balance, we expect CRE Bank-
trend to persist into 2011. In the southern Euro-      ing International Strategic Markets to improve its
pean core markets of Portugal and Spain, which         results in 2011.
were especially hard hit by the debt crisis, a
general trend reversal in the real estate markets      cre banking international
is not to be expected. In Portugal, the market is      global restructuring
likely to be subdued in 2011 by government sav-        The CRE Banking International Global Restruc-
ings programmes aimed at consolidating public          turing segment comprises activities in the inter-
32   Management Report




         trend in prime office rents
         international
         Index: Q4 2007 = 100

         110


         100


          90


          80


          70


          60
                   Q4 07




                                    Q1 08




                                                 Q2 08




                                                           Q3 08




                                                                   Q4 08




                                                                           Q1 09




                                                                                   Q2 09




                                                                                              Q3 09




                                                                                                      Q4 09




                                                                                                                Q1 10




                                                                                                                                             Q4 10
                                                                                                                          Q2 10




                                                                                                                                   Q3 10
          London           Madrid           New York     Paris                                           Source: Eurohypo RAC Research, CBRE, Reis




         national markets from which the bank is with-                             The markets in Japan, Mexico and Romania pre-
         drawing in line with its decision to concen-                              sented particularly large challenges for us. The
         trate on selected core markets in Europe and                              ongoing erosion in prices and market values has
         North America. The main aim of the segment                                necessitated extensive restructuring in numer-
         is a systematic reduction in the loan portfolio,                          ous cases. In most of these, our teams have been
         which was lowered by € 0.4 billion to € 7.9                               able to stabilise the situation so that we can run
         billion in 2010 (€ 8.3 billion). The reductions                           down the business in the foreseeable future.
         achieved through scheduled and early repay-                                       In 2010, net interest income amounted to
         ments as well as disposals were partly offset by                          € 103 million, almost corresponding to the previ-
         increases originating from changes in exchange                            ous year’s figure (€ 107 million). Loan loss provi-
         rates – particularly with the Japanese yen – and                          sions were raised to € 173 million (€ 39 million),
         loan increases associated with restructuring                              mainly due to several large-scale commitments
         projects.                                                                 in Hungary and the Netherlands. Net commission
               In 2010 we closed down several locations,                           income fell further to € 9 million (€ 17 million),
         in some cases faster than planned. We gave up                             since the segment is not pursuing new business.
         branches or representative offices in Amsterdam,                          The net trading income, burdened with charges
         Brussels, Copenhagen, Dubai, Helsinki and Stock-                          from the valuation of interest rate hedging deriva-
         holm. In addition, we consolidated customer ser-                          tives with customers, was down to € –17 million
         vice and loan processing at the Eschborn location.                        (€ 0 million). Reflecting the lower charges for per-
         By bringing together our staff at the Eschborn                            sonnel and other expenses as a result of office
         location and introducing a new processing model,                          closures, operating expenses fell roughly 20 %
         it has become possible to manage the complex                              to € 28 million (€ 35 million). Overall, the seg-
         loan portfolio with considerably fewer staff. These                       ment’s pre-tax result sank from € 39 million to
         measures resulted in a significant reduction in                           € – 104 million. This makes for a pre-tax R oE of
         costs.                                                                    – 21.9 % after 7.6 % in the previous year. The
                                                                                                                            33




                                                                                                                                 Letter to our Stakeholders
                                                               Management Report >>> Business development in the segments




                                                                                                                                 Board of the Managing Directors
cost-income ratio of 28.7 % was close to the pre-      widened in some other countries too, but to a
vious year’s figure of 28.1 %, but based on con-       lesser extent.




                                                                                                                                 Report of the Supervisory Board
siderably reduced business volumes.                        Business activities in Public Finance / Trea-
                                                       sury remained centred on the reduction of Public
outlook                                                Finance assets while keeping the effect on earn-
We will continue to purposefully reduce the seg-       ings to a minimum. The prime objective was to
ment’s portfolio. Net interest income will be sub-     scale back the portfolio by exploiting selling
ject to positive effects from risk adjustments to      opportunities despite the market challenges caused
interest conditions, but the ongoing portfolio         by the financial crisis. New business and prolon-




                                                                                                                                 Capital Market Communication
reductions will result in lower net interest income.   gations were limited to cover pool management
Once most of the targeted offices have been            or contractual obligations.
closed, operating expenses for 2011 should be              The value of the portfolio assets in Public
around the same level as in 2010. We expect the        Finance / Treasury decreased by around € 19.4
amount of required loan loss provisions to gradu-      billion year-on-year to € 124.9 billion at 31 Decem-
ally decline in the medium term in line with the       ber 2010. In addition to high volumes of matur-
recovery in some of the bank’s key markets. In         ing financing, targeted disposals worth € 3.4 bil-




                                                                                                                                 Management Report
2011 we expect loan loss provisions to still be at     lion also contributed to portfolio reductions. The
a high level.                                          value of the Public Finance portfolio was € 110.6
                                                       billion at the end of 2010. In line with these
public finance / treasury                              reductions, Eurohypo has also scaled back its
In the Eurohypo Group, Public Finance and Trea-        exposure in southern Europe. At 31 December
sury are combined in the Public Finance / Treasury     2010, nominal holdings of securities and pro-
segment. The segment includes Eurohypo AG ’s           missory notes in Greece, Ireland, Italy, Portugal
activities as well as those of its subsidiary EURO-    and Spain amounted to € 22.9 billion. This corres-
HYPO Europäische Hypothekenbank S.A. in Lux-           ponds to a € 3.2 billion reduction compared to
embourg.                                               the end of 2009. Of the total € 3.4 billion in port-
    Market trends in the Public Finance busi-          folio reductions in 2010, around € 1.2 billion
ness, which is no longer actively pursued by           were concentrated largely on Portugal and Spain.
Eurohypo, were largely shaped by the conse-            Moreover, there were hedges for credit default
quences of the financial and debt crises in several    swaps on a nominal total of € 0.7 billion at the
European countries in 2010. The market’s risk          end of 2010.
assessment for countries and public issuers                Despite the portfolio reductions and higher
changed considerably last year, resulting in high      liquidity costs, net interest income rose 27 % to
volatility. The spotlight was on the southern          € 121 million (€ 95 million) in the Public Finance /
European countries and Ireland, where risk pre-        Treasury segment. The disposals affected the
miums have widened considerably. The spread            result by € –228 million (€ –23 million), largely
34   Management Report




         via the net investment income for the Public          outlook
         Finance / Treasury segment, which totalled € – 230    We anticipate ongoing volatility in the market in
         million. There were no defaults in our govern-        2011, not least due to the continued debt crisis in
         ment bond portfolio in 2010. Net trading income       some European countries and the associated urgent
         for the segment fell to € – 43 million, down from     refinancing requirements in the public sector.
         € – 6 million a year earlier. This figure includes    Although there will be a lengthy implementation
         a positive balance of € 7 million in net trading      period, the planned revisions to banking regula-
         income from Public Finance, which stems mainly        tions will have significant effects on business
         from redemptions of liabilities totalling around      options in public sector financing. Thus they are
         € 150 million nominal. Net trading income from        already being included in medium-term planning,
         the Treasury unit was € – 50 million, resulting       to the extent that they are sufficiently defined.
         from interest hedging derivatives associated with     We intend to continue our process of targeted
         management of the interest book, which are not        portfolio reductions. The focus here is to exploit
         charged to hedge accounting. The more difficult       market opportunities and optimise the portfolio.
         refinancing conditions on the money market –          This will continue to have a negative effect on
         especially in foreign currencies – also weighed       the result, which is already taken into consider-
         on the result. The segment’s net income on hedge      ation in our planning. Moreover, Eurohypo’s Board
         accounting, which includes the results of valua-      of Managing Directors opted to change to a fund-
         tions arising from the application of IAS 39 , came   ing concept based on longer-term stand-alone
         to € 14 million (€ 98 million). Of this, around       funding within the Group.
         € 2 million is attributable to Public Finance and
         € 12 million to Treasury. The pre-tax result for      funding
         the Public Finance / Treasury segment amounted        Eurohypo is the Commerzbank Group’s Pfand-
         to € – 204 million in 2010 (€ 107 million). R oE      brief issuer. It not only funds its own real estate
         decreased to – 24.1 % (14.0 %) while the cost-        activities by the issuance of Pfandbriefe but also
         income ratio was – 41.6 % (38.3 %).                   helps Commerzbank to refinance its private, first-
              Public Finance activities are refinanced on      rate construction financing business. A centralised
         a secured basis through the issuance of Public-       Treasury unit plans and executes funding across
         sector Pfandbriefe and Lettres de Gage Publiques.     the entire Group. Eurohypo is able to draw on
         Repo transactions also play a significant role.       the resources of Commerzbank for unsecured
         Unsecured refinancing is offered by Commerz-          funding.
         bank Treasury. Most of the issues planned for             Despite the stabilisation measures taken by
         2010 had already taken place in the first half of     eurozone countries and the ECB ’s government
         the year.                                             bond purchase programme, 2010 was still marked
                                                               by the crisis in European peripheral nations. The
                                                               German Pfandbrief has again shown itself to be a
                                                                                                                           35




                                                                                                                                Letter to our Stakeholders
                                                              Management Report >>> Business development in the segments




                                                                                                                                Board of the Managing Directors
reliable refinancing instrument. In 2010, Euro-       In the unsecured funding segment, Eurohypo
hypo once again performed well on the capital         took up € 1.4 billion in inter-group funding via




                                                                                                                                Report of the Supervisory Board
market. The total funding volume taken up in the      Commerzbank. The funding spreads on the
capital market amounted to € 8.0 billion.             capital market through the year proved to be
    Due to portfolio reductions in the individual     largely stable.
segments, volumes were well below the 2009
figures. For this reason, the originally planned      outlook
funding volume was scaled back at mid-year. At        Pfandbriefe will continue to make up a major
€ 4.0 billion, Mortgage Pfandbriefe accounted for     portion of Eurohypo’s planned funding mea-




                                                                                                                                Capital Market Communication
most of the secured issuances. The volume of          sures. Eurohypo’s capital market funding plan
Public-sector Pfandbriefe issued was around € 3.0     for 2011 includes Pfandbrief issues totalling
billion. EUROHYPO S.A. Luxembourg issued a            around € 6 billion. Both private placements and
Lettre de Gage Publique – a covered bond under        benchmark Pfandbriefe are included. Unsecured
Luxembourg law – with a volume of € 750 mil-          capital market funding will continue to be sought
lion. Furthermore, Eurohypo took up unsecured         mainly via Commerzbank. We expect market
refinancing on the capital market to the total of     conditions to remain difficult.




                                                                                                                                Management Report
€ 0.2 billion.
    We successfully placed two new Jumbo Pfand-       retail banking
briefe in 2010. In February, we issued a three-       The services and marketing of Eurohypo’s Retail
year Public-sector Jumbo Pfandbrief with a total      Banking segment (RB) were transferred to Com-
volume of € 1.5 billion; the order book was closed    merzbank AG in 2007. Since then, Eurohypo has
within a matter of hours and was oversubscribed       only managed the existing loan portfolio with the
by more than 100 %. We issued a five-year Mort-       aim of steadily reducing the inventory by means
gage Pfandbrief with a volume of more than € 1.0      of scheduled redemptions and other repayments.
billion in June. Over the course of the year we       In 2010, the loan portfolio was trimmed by € 2.8
increased four Jumbo Pfandbriefe by a total of        billion or 14 % from € 20.6 billion to € 17.8 billion.
€ 975 million. These issues were very well received   Prolongation volumes reached € 979 million, which
by the market, as evidenced by the rapid place-       corresponds to 48 % of the loans eligible for
ment, high demand and attractive conditions.          prolongation. Net interest income fell 8 % to
In addition, a large Mortgage Pfandbrief private      € 144 million (€ 158 million) and thus dispropor-
placement was syndicated with a volume of             tionately to the portfolio reduction, since a higher
€ 500 million and special focus on the German         margin was achieved on prolongations due to
market. Eurohypo was also active in the private       improved management. Loan loss provisions fell
placement market across all the product classes.      € 18 million to € 88 million (€ 106 million). We
Smaller private placements were regularly placed      also made further savings in operating expenses,
with investors throughout the year.                   especially in non-personnel expenses. Adminis-
36   Management Report




         trative expenses declined 12 % to € 58 million in       carry out this process with a minimal effect on
         2010 (€ 66 million). The pre-tax loss for the           earnings. Following improvements in the prolon-
         segment was € – 23 million (€ – 35 million). R oE       gation management, we can continue to optimise
         improved slightly, but was still negative at – 10.4 %   the margins and risk-return structure in the pro-
         (– 13.0 %), and the cost-income ratio stood at          longation business. By maintaining strict cost
         46.9 % (48.3 %).                                        management and exploiting synergies within
                                                                 the Group, we should be able to minimise the
         outlook                                                 negative effects of scale stemming from the port-
         The scheduled portfolio reduction will necessarily      folio reduction. Prospects of a benign economic
         entail a further decline in absolute revenues           trend suggest to us that loan loss provisions will
         in the Retail Banking segment. The aim is to            stabilise.
                                                                                                                                          37




                                                                                                                                               Letter to our Stakeholders
                              Management Report >>> Business development in the segments / Development of income and financial position




development of income
and financial position




                                                                                                                                               Board of the Managing Directors
income                                                         from € 39 million to € 173 million in CRE Bank-
In 2010, Eurohypo’s income was again positively                ing International Global Restructuring.




                                                                                                                                               Report of the Supervisory Board
affected by the bank’s realignment and its focus                      Overall, Eurohypo increased its loan loss
on clearly defined strategic markets. Net interest             provisions by around € 233 million to € 1.4 billion
income for the Group rose € 50 million, or around              in 2010.
4 %, to € 1.3 billion, despite the fact that the bank                 The after-effects from the financial crisis
reduced its assets as planned by € 25 billion to               continued in 2010 whilst uncertainty caused by
€ 215.4 billion. The major part of the portfolio               high levels of debt in certain eurozone countries
reductions were attributed to the Public Finance               made for extremely volatile markets. As a result,




                                                                                                                                               Capital Market Communication
portfolio, which was cut by € 18.5 billion, while              securities disposals undertaken as part of the
€ 3.2 billion arised from the CRE portfolio and                optimisation of the Public Finance portfolio actu-
€ 2.8 billion from Retail Banking.                             ally generated losses totalling € – 228 million,
    Promoted by the upturn in new business,                    which appear under the net investment income.
income from restructuring measures abroad and                  Results were also impacted by an impairment
from interest and currency management, net                     charge on the book value of a European at-equity
commission income performed well, advancing                    investment. Overall, the net investment income




                                                                                                                                               Management Report
24 % (€ 36 million) to € 185 million. Eurohypo                 fell € 87 million to € – 335 million. In 2009, this
increased new commitments in Commercial Real                   item was hit by losses from the US investment
Estate by over € 5 billion – a rise of roughly two             portfolio which contained securities backed by
thirds. The bank also extended existing loans                  subprime mortgages to retail customers and
totalling € 6.3 billion. Eurohypo again achieved               which had been entirely disposed of.
an appropriate risk-return ratio for both new                         The 2010 net income on hedge accounting
business and prolongations.                                    fell to € 14 million from € 98 million in 2009.
    However, high charges from the asset pool                  The fall was linked to market valuation changes
built up in previous years continued to depress                which impacted the volume of hedge account-
the 2010 income statement, largely impacting                   ing.
loan loss provisions and the net investment                           Net trading income declined from € – 53
income. With the real estate sector cycle lagging              million to € – 120 million, largely due to valua-
behind the general economy, the bank made                      tion effects from derivatives that were not des-
sizeable specific loan loss allowances, notably                ignated into hedge accounting. Negative market
in Spain and Germany. However, loan loss provi-                valuation changes also had an impact on CMBS
sions also impacted non-strategic German and                   loans in the US. However, we should stress that
international portfolios: loan loss provisions                 the 2009 net trading income included exceptional
climbed from € 166 million to € 220 million in                 income generated by closing out total return
CRE Banking Germany Non-Core and increased                     swap positions.
38   Management Report




         Negative current income on companies accounted       The return on equity before tax remained nega-
         for using the equity method resulted in an € 18      tive, at – 14.9 % (– 9 %). The cost-income ratio
         million drop in the current income on companies      for 2010 was 39.4 % (2009: 35.1 %).
         accounted for using the equity method to € – 21
         million (€ – 3 million).                             financial position and net assets
              The net income on investment properties         The financial position and net assets were influ-
         amounted to € – 46 million, down € 39 million        enced by the strategic realignment of commer-
         against the previous year. The investment prop-      cial real estate finance and the scheduled reduc-
         erties in question was acquired as part of collat-   tion in business volumes. For more information
         eral realisation. The decline was mainly linked to   about the € 463 million of investment, please
         valuation adjustments on the properties, which       refer to the statement of changes in fixed assets
         are stated at fair value.                            in the Notes. No significant investments are
              Eurohypo made further advances on the           planned for the current financial year. Liquidity
         cost management front: operating expenses were       was maintained at all times in 2010. Details of
         cut by a further 7 % (€ 29 million) to € 405 mil-    our liquidity management tools and liquidity
         lion in 2010. The figure included full-year cost     risks can be found on pages 57 ff. of the risk
         savings generated by office closures completed       report. The cash flow statement and associated
         in 2009 and pro rata savings for other foreign       notes can be found on page 82 ff. Eurohypo
         locations closed during 2010. Staff expenses         adhered to the minimum reserve commitments
         fell, largely as a consequence of reduced staff      stipulated by the Bundesbank during the year
         numbers abroad. The fact that variable remunera-     under review and complied with the capital
         tion has been trimmed back also helped to            adequacy and liquidity requirements laid down
         improve operating expenses.                          under banking supervision regulations.
              The Eurohypo Group achieved a pre-tax
         loss of € – 785 million for the 2010 financial       total assets decreased
         year. Tax expenses stood at € 72 million (€ 387      Eurohypo’s total assets fell by € 27.1 billion year-
         million), a figure which included income taxes       on-year (10.6 %) to € 229 billion.
         that incurred in some foreign units. The Euro-           The Commercial Real Estate portfolio was
         hypo Group’s consolidated result for 2010 there-     cut back by € 3.2 billion to € 72.1 billion (€ 75.3
         fore came in at € – 857 million (€ – 902 million).   billion) by means of active portfolio reductions
         High tax expenses in 2009 were mainly linked         and consequently a selective approach to new
         to the impairment of deferred tax assets.            business. The proportion of foreign business
                                                                                                                               39




                                                                                                                                    Letter to our Stakeholders
                                                          Management Report >>> Development of income and financial position




                                                                                                                                    Board of the Managing Directors
increased slightly from 54 % (€ 40.8 billion) to       On the liabilities side, refinancing volumes also
56 % (€ 40.4 billion). Our financing activities out-   decreased. Securitised liabilities slipped € 22.8




                                                                                                                                    Report of the Supervisory Board
side Germany were concentrated on the strategic        billion to € 80.0 billion, with Mortgage Pfand-
markets defined in the new Commercial Real             briefe down € 5.1 billion to € 28.9 billion, Public-
Estate business model, which accounted for             sector Pfandbriefe down € 15.3 billion to € 46.3
80 % (€ 32.4 billion) of these activities. Mean-       billion and other bonds down € 2.3 billion to
while Germany accounted for € 31.7 billion, or         € 4.8 billion. Liabilities to banks and customers
44 % of business in this segment (€ 34.5 billion,      declined € 3.1 billion to € 117.2 billion as at 31
or 46 %).                                              December 2010. Liabilities from repo transac-




                                                                                                                                    Capital Market Communication
    We ceased active marketing of the retail           tions shown under liabilities to banks declined
banking portfolio in 2007, which was scaled back       slightly year-on-year to € 35.1 billion (€ 37.0 bil-
by a further € 2.8 billion to € 17.8 billion in the    lion). Subordinated capital decreased by € 45
year under review through scheduled redemptions        million due to a combination of maturities and
and other repayments. The proportion of total          € 6 million in write-downs for profit participation
real estate finance volumes made up by this Ger-       certificates.
many-only portfolio declined to 20 % (21 %).




                                                                                                                                    Management Report
    Public Finance volumes also fell consider-         capital base
ably due to the planned portfolio reductions.          Regulatory capital in accordance with the
Scheduled repayments together with the fact            Solvency Ordinance (Basel II) stood at € 8.8
that new business was limited to cover pool            billion (€ 9.2 billion) as at 31 December 2010,
management brought down volumes by € 18.5              which comprised tier 1 capital of € 6.5 billion
billion, or 14 %, to € 110.6 billion.                  (€ 6.3 billion) and tier 2 additional capital of
    Eurohypo’s Public Finance operations also          € 2.3 billion (€ 2.9 billion). Core capital included
provide broad geographic diversification: domestic     hybrid capital, which remained unchanged at
activities accounted for 42 % of the segment’s         € 0.9 billion.
business (47 %). Securities held in the Public             Risk-weighted assets declined € 10.4 billion
Finance portfolio totalled € 71.1 billion (€ 80.4      year-on-year to € 62.3 billion.
billion), of which € 66.3 billion (€ 74.3 billion)         As at 31 December 2010, the tier 1 capital
were classified as “loans and receivables” (L aR)      ratio was up 1.8 % to 10.4 % (8.6 %) while the
under IAS 39 . The remaining € 4.8 billion (€ 6.1      total capital ratio rose 1.5 % to 14.1 % (12.6 %).
billion) of securities holdings were classified in     We therefore have a satisfactory capital base given
the IAS 39 category “available for sale” (A fS) .      the current capital adequacy requirements.
40   Management Report




         Balance sheet equity totalled € 3.5 billion (€ 4.0    to valuation changes linked to our Public Finance
         billion). Retained earnings slipped € 0.2 billion     holdings in the available-for-sale portfolio. Of
         to € 0.3 billion whilst the revaluation reserve,      this, € 1.0 billion applies to securities which have
         which has no impact on income, fell € 0.3 billion     been reclassified in the category loans and receiv-
         to € – 1.6 billion. The revaluation reserve relates   ables due to the absence of an active market.
b r a n d e n b u r g g at e , b e r l i n b i g b e n , l o n d o n p a l a c i o d e c o m u n i c a c i o n e s , m a d r i d e i f f e l t o w e r , p a r i s
h a g i a s o p h i a , i s t a n b u l p a l a c e o f c u lt u r e a n d s c i e n c e , w a r s a w s a i n t b a s i l’s c a t h e d r a l , m o s c o w
b e l é m t o w e r , l i s b o n m i l a n c a t h e d r a l , m i l a n s t a t u e o f l i b e r t y, n e w y o r k
42   Management Report




         information pursuant to
         article 315 (2) no. 5 of the
         german commercial code
         general information                                      requirements have been met, that business activi-
         Eurohypo is incorporated into Commerzbank’s              ties are both suitable and profitable, and that
         internal controlling and risk management system.         the financial reports are complete and accurate.
         Key accounting areas are outsourced to Commerz-          Consequently the information set out here refers
         bank. The internal controlling and risk manage-          to the internal controlling and risk management
         ment system (IKRMS) is designed to ensure that           system as applied to financial reporting. It should
         the financial accounting process complies with           be noted that, despite the bank’s best efforts, the
         the reporting principles set out in the German           methods and processes used in the internal con-
         Commercial Code and IFRS , namely that the con-          trolling and risk management system can never
         solidated financial statements must provide a            be completely ensured, but they do offer reason-
         true and fair view of the Group’s assets, financial      able assurance.
         position and income. This aim can be jeopardised             No major changes were made to the internal
         by certain financial reporting risks. Within Com-        controlling and risk management system IKRMS
         merzbank, the internal controlling and risk man-         for financial reporting after the reporting date.
         agement systems are not separate, but instead
         use the same methods and implementation with             legal principles and rules
         reference to the financial accounting process.           Article 289 (5) of the German Commercial Code
         More information about the risk management               (in the case of Eurohypo AG ) and Article 315 (2)
         system can be found on page 57 f. in the risk            no. 5 of the German Commercial Code (Eurohypo
         report.                                                  Group) stipulate that companies must describe
              Accounting risks that can affect the financial      the essential features of the internal controlling
         accounting process are understood as the poten-          and risk management system in the management
         tial for failing to meet the objective with the result   report.
         that material information is omitted or reported             The minimum risk management requirements
         incorrectly. The bank considers information to be        (MaRisk) have been incorporated into Eurohypo’s
         material if its absence or any inaccuracies could        internal controlling system.
         influence financial decisions taken by the reader.           The structure of the bank’s internal control-
         In such cases, the information may refer to a sin-       ling system is based on the internationally-recog-
         gle transaction or equally to a combination of           nised framework developed by the Committee of
         transactions.                                            Sponsoring Organizations of the Treadway Com-
              The Commerzbank internal controlling and            mission (COSO) . The COSO framework has been
         risk management system IKRMS is designed to              implemented in order to achieve the following
         provide reasonable assurance that the statutory          objectives:
                                                                                                                                        43




                                                                                                                                             Letter to our Stakeholders
                                    Management Report >>> Information pursuant to Article 315 (2) no. 5 of the German Commercial Code




                                                                                                                                             Board of the Managing Directors
    Effective and efficient business processes               allocation of responsibilities, based on the organi-
    Compliance with the applicable legislation               sational chart and extending from the Board of




                                                                                                                                             Report of the Supervisory Board
    and regulations                                          Managing Directors to individual employees. This
    Accurate financial reporting                             also includes Service Level Agreements (SLA)
                                                             between Eurohypo and Commerzbank. Eurohypo
Under the COSO framework, a risk assessment is               monitors compliance with these agreements. The
required to establish whether the financial account-         scope and structure of the governance framework
ing process is reliable (for example, ensuring               are determined by legal and regulatory require-
that all transactions are duly recorded and that             ments but also by Commerzbank’s corporate




                                                                                                                                             Capital Market Communication
the balance sheet is correct). The bank performs             governance approach, as approved by the Com-
this risk assessment in accordance with the                  merzbank Board of Managing Directors, which
recommendations of the International Standards               applies to the whole Group. The governance
of Auditing and Quality Control, no. 315, 2009               framework therefore translates key features of
edition (hereinafter ISA 315 ).                              corporate governance into practical rules and
                                                             contains the following elements:
accounting risks




                                                                                                                                             Management Report
Errors in process flows can constitute an accoun-                 Organisational chart for the full
ting risk. Fraudulent activity may also result in                 Board of Managing Directors
an inaccurate presentation of certain informa-                    Rules of procedure
tion. The bank therefore needs to minimise the                    Organisational charts
risk of inaccurate presentations, valuations or                   Business objectives
statements within the internal financial reporting                Job descriptions
system.                                                           Competence rules


structure of the internal control-                           Any tasks that are mutually incompatible are
ling and risk management system                              allocated to separate business areas in accordance
The bank’s internal controlling and risk manage-             with the principle of separation of functions. In
ment system is based on a detailed governance                order to minimise financial reporting risks, key
framework for sound enterprise management.                   controlling tasks are subject to dual control.
The framework sets out uniform and compulsory                     The Eurohypo Board of Managing Directors
minimum requirements that all units must use                 bears ultimate responsibility for the implemen-
for document management and updates. The                     tation of the bank’s internal controlling and risk
system is predicated on the principle of clear               management system, whereby the bank’s Chief
44   Management Report




         Financial Officer (CFO) is responsible for the        individual Group companies to produce the con-
         accounting process. Whilst the full Board of          solidated financial statements. GM-F also pro-
         Managing Directors is responsible for defining        vides a schedule for the preparation and publica-
         the bank’s internal controlling and risk manage-      tion of the financial statements.
         ment system and providing evidence of its suit-           Within GM-F , the Commerzbank Accounting
         ability, the CFO is responsible for defining the      Policies & Guidelines department is responsible
         operational checks – in the form of suitable con-     for preparing and publishing Group-wide account-
         trols which have to be integrated into the rele-      ing guidelines. The presence of formally-recog-
         vant processes – and for ensuring that the inter-     nised accounting guidelines ensures consistent
         nal controlling and risk management system is         and accurate reporting across the Group. The
         effective for the accounting process. The CFO is      published guidelines are constantly reviewed and
         responsible for ensuring that the individual and      amended as necessary. Staff are also able to take
         Group financial statements comply with the reg-       advantage of regular training courses on relevant
         ulatory requirements.                                 issues whilst the Eurohypo Intranet contains
              The Supervisory Board monitors the finan-        more detailed operating procedures.
         cial accounting process, primarily through an Audit       GM-F’s accounting activities are supported
         Committee created specifically for this purpose.      by other business areas. In particular, Group Infor-
         The Audit Committee is specifically responsible       mation Technology is responsible for providing
         for monitoring the accounts, for guaranteeing         and developing the IT systems used for accounting
         the independence of the statutory auditor, for        purposes.
         commissioning the statutory auditor, defining the
         main audit points and agreeing the auditor’s fee.     internal controlling and
         Group Audit reports throughout the year to the        risk management system checks
         Supervisory Board or its appointed committees         to minimise risk
         on the audit activities and all significant audit     At the bank, technical or manual (organisational)
         findings.                                             checks are an integral part of operating processes.
              The preparation of the annual financial state-   The IT systems carry out technical checks, such
         ments in accordance with the relevant legislation     as sum checks and error checks. The technical
         and internal and external rules is outsourced to      checks are often supplemented by manual controls,
         Group Management Finance (GM-F) at Commerz-           such as limiting the number of staff who are able
         bank, which reports to the CFO . To this end,         to edit certain screens. A range of measures ensure
         GM-F produces the Eurohypo AG financial state-        data quality: dual control principle, competence
         ments and collates the financial statements of the    rules, separation of functions and technical mea-
                                                                                                                                         45




                                                                                                                                              Letter to our Stakeholders
                                     Management Report >>> Information pursuant to Article 315 (2) no. 5 of the German Commercial Code




                                                                                                                                              Board of the Managing Directors
sures (IT access rights). Additional checks serve             ments (consolidation of debt, expenses, income,
to verify that the data used for processing is                investment income, capital, etc.), together with




                                                                                                                                              Report of the Supervisory Board
complete and accurate.                                        currency translation and the elimination of intra-
                                                              Group gains.
financial reporting system                                         Company-specific segment reporting is based
The IT systems are a key component in prepar-                 on the SAP data, which is cross-checked against
ing the annual financial statements and must                  the information held in the external accounting
therefore fulfil the requirements of the internal             system.
controlling and risk management system with




                                                                                                                                              Capital Market Communication
regard to the accounting process. The bulk of the             monitoring by group audit
Eurohypo financial statements are prepared using              Commerzbank’s Group Audit is mandated by the
a closed system (SAP) . All programmes contain                Eurohypo Board of Managing Directors to pro-
numerous plausibility checks which are an inte-               vide independent, objective and risk-oriented
gral part of the system architecture used for all             audit services so as to ensure that Eurohypo’s
accounting. Within the financial reporting process,           business processes and areas outsourced to
all information which is relevant for the prepara-            Commerzbank are adequate, secure and profit-




                                                                                                                                              Management Report
tion of the Eurohypo Group and Eurohypo AG                    able. Group Audit supports the Board of Manag-
financial statements in accordance with IFRS and              ing Directors by assessing the suitability and
the German Commercial Code respectively is                    effectiveness of the internal controlling and risk
transmitted by the reporting offices (Eurohypo,               management system, auditing key projects and
subsidiaries and foreign branches) to the Group’s             making recommendations. All of this helps to
headquarters. The data is entered in the IDL con-             safeguard business processes and assets. As the
solidation application. Subsidiaries essentially              internal auditor, Group Audit implements the
report IFRS information. Information from all key             Group’s risk management policy.
units is also verified by the relevant local auditor.              Group Audit reports directly to the Commerz-
GM-F then carries out additional plausibility checks          bank Board of Managing Directors and to the
based on this information. Once all of the checks             Eurohypo Board of Managing Directors on mat-
have been completed successfully, GM-F proceeds               ters relating to Eurohypo. Group Audit operates
with all the consolidation processes involved in              autonomously and independently. In particular,
producing consolidated financial statements in                the unit is not bound by any instructions with
accordance with IFRS . A whole range of individ-              regard to the reporting process and how to eval-
ual consolidation processes are involved in the               uate the audit results. Building on the MaRisk,
preparation of the consolidated financial state-              the audit examines all Group processes and
46   Management Report




         activities in terms of risk, irrespective of whether   Group Audit prepares a written report upon com-
         those activities and processes are performed           pletion of each audit, a copy of which is sent to
         within the Group or outsourced. Group Audit            the relevant members of the Board of Managing
         takes into account the risk management and risk        Directors. Group Audit uses the audit reports to
         controlling systems, reporting, information sys-       monitor and document the timely resolution of
         tems and the financial accounting process when         any deficiencies identified. Failure to comply with
         assessing the effectiveness and suitability of the     the deadlines stipulated triggers an escalation
         internal controlling and risk management system.       procedure. Group Audit also prepares an annual
         The unit is entitled to request any information        report on the audits it has performed over the
         that it requires in order to carry out its duties.     course of the financial year, the main shortfalls
                                                                identified and the remedial measures taken, which
                                                                it presents to the Board of Managing Directors.
                                                                                                                                           47




                                                                                                                                                Letter to our Stakeholders
                       Management Report >>> Information pursuant to Article 315 (2) no. 5 of the German Commercial Code / Our employees




our employees




                                                                                                                                                Board of the Managing Directors
focus of human resources activities                            and communication activities, both general and
In 2010, Eurohypo again concluded that change                  geared to the individual divisions and depart-




                                                                                                                                                Report of the Supervisory Board
is the only constant. However, change is not                   ments. The structured employee survey proved
an end in itself, but rather a consequence of                  another valuable tool for the Board of Managing
conditions in the global economy and financial                 Directors. Many managers made use of the spe-
markets and of the strategic realignment at Euro-              cial one-to-one change of leadership sessions.
hypo.                                                                The excellent technical and personal skills
    One key element of human resources activities              of our employees constitute a vital element in the
in 2010 was the human resources dimension of                   Eurohypo business model. Constantly maintain-




                                                                                                                                                Capital Market Communication
the restructuring programme, in particular the                 ing and developing these skills is therefore cen-
challenge of realigning the Commercial Real                    tral to securing the bank’s future. The training
Estate business model to fit market requirements.              initiative 2011 project launched in 2010 was
Over 1,000 employees were directly affected by                 designed to support Eurohypo employees and
the restructuring and were therefore part of the               managers alike in applying for and promoting
overhaul of the organisational chart, with the                 further training. The project’s overarching aim is
major part of the changes taking effect on 1 Sep-              to tailor standard training courses to better reflect




                                                                                                                                                Management Report
tember 2010. The executive management struc-                   the new Eurohypo focus and to build a cross-divi-
ture was also completely reorganised. Sixteen                  sional knowledge transfer that is open to all staff.
divisions were affected by the realignment                           Eurohypo has also set itself a target of increas-
and therefore involved in the human resources                  ing the number of female managers: to this end
changes.                                                       the Board of Managing Directors are supporting
                                                               a Group-wide project launched by Commerzbank
supporting change                                              in 2010.
In the context of realigning the Eurohypo busi-
ness model, change management, training and                    revised remuneration model
development are top priorities. In order for an                for employees outside collective
organisation to be successful, employees and                   pay agreements
managers must be equipped to work productively                 Another key feature of human resources activities
in the new structural and organisational frame-                at Eurohypo during the reporting year was the
work. The bank therefore launched a change                     creation of a new remuneration system. Our main
management process to accompany the far-reach-                 aims were to promote corporate thinking and
ing changes made in 2010. This process encom-                  action whilst also rewarding individual achieve-
passed coaching together with extensive training               ments and contributions to earnings. The bank
48   Management Report




         and general works council successfully concluded      takes on voluntary responsibilities and commit-
         the negotiations begun in September 2010, pro-        ments within the community enjoy improved
         ducing new agreements in December. The agree-         quality of life, satisfaction and personal contact.
         ments cover remuneration for employees not            The € 3,000 Eurohypo “Commitment to the Com-
         covered by collective pay agreements, variable        munity” Employee Award 2010, which was once
         remuneration and the introduction of a stan-          again presented by the Eurohypo Foundation, is
         dardised career and function model (ComMap).          designed to honour such commitments. All employ-
         The negotiations again demonstrated how well          ees were invited to propose projects with social,
         the Eurohypo Board of Managing Directors, works       charitable, cultural or sporting aims of which
         council and human resources managers are able         they had first-hand experience and which they
         to work together. In 2011, the agreements will be     were able to assess. The projects nominated had
         supplemented by an individual performance man-        to have a lasting effect (as opposed to short-term
         agement system which will replace the existing        actions). Another criterion was a shortage of
         evaluation and target-based system.                   funding, irrespective of whether the projects had
                                                               public or private funding sources. The winners of
         education and training                                the 2010 Employee Award were Big Brothers Big
         The first intake of students completed their course   Sisters Deutschland gemeinnützige Gesellschaft
         at the Hessische Berufsakademie (Hessen Voca-         mbH, a mentoring service for children, and Wild-
         tional Academy) at the end of July 2010. Four         wasser Kreis Groß-Gerau e. V. which works to
         graduates will now be working for Eurohypo, whilst    combat sexual abuse.
         two have opted to continue in full-time study. In
         addition, eleven young people successfully com-       change in staff headcount
         pleted their banking training: all eleven trainees    and personnel structure
         will continue to work for the bank as part of the     As at the end of 2010, the Eurohypo Group had
         combined degree and vocational training course.       1,278 employees, 45 % of whom were women.
         As in 2009, initial professional training at Euro-    The total headcount was down 9.2 % against the
         hypo was provided in cooperation with Commerz-        previous year. The fall reflected job cuts and the
         bank.                                                 fact that some staff was transferred within the
                                                               Commerzbank Group. The average period of
         eurohypo “commitment to the                           service at Eurohypo in Germany was 15.3 years
         community” employee award                             in 2010 (14.2 years) and the average age of our
         Social engagement is an essential part of living      employees was 43.9 (42.9). Staff turnover, as
         together in society. Anyone and everyone who          measured by the number of departures during
                                                                                                               49




                                                                                                                    Letter to our Stakeholders
                                                                         Management Report >>> Our employees




                                                                                                                    Board of the Managing Directors
the year, was 17.8 % in 2010 (12.2 %). The      thanks to our employees
absentee rate stood at 3.24 % (3.48 %). Part-   We would like to thank everyone who has been




                                                                                                                    Report of the Supervisory Board
time employees accounted for 12.5 % (12.9 %)    involved in the close and constructive cooperation
of the workforce, whilst severely disabled      on human resources matters: our staff, managers
employees made up 3.23 % of the workforce       and all management bodies. Our thanks go to our
(thereof 0.6 % equals).                         staff who have demonstrated tireless commitment
                                                throughout this far-reaching process of change.




                                                                                                                    Capital Market Communication
                                                                                                                    Management Report
50   Management Report




         group structure and
         corporate investments

         group structure                                      ing compliance with regulatory requirements and
         Eurohypo is a leading bank for Commercial Real       optimising the corporate investment portfolio.
         Estate and Public Finance both in Germany and            Further details of the corporate investments
         abroad. Our portfolio and development financing      and an overview of Eurohypo’s shareholdings as
         solutions offer professional real estate investors   at 31 December 2010 can be found in the Notes
         and developers who require consistently high         on pages 155 ff.
         levels of finance a comprehensive range of ser-
         vices. Our business activities encompass six seg-    eurohypo europäische
         ments: CRE Banking Germany Core, CRE Banking         hypothekenbank s.a.
         Germany Non-Core, CRE Banking International          Within the Commerzbank Group, EUROHYPO
         Strategic Markets, CRE Banking International         Europäische Hypothekenbank S.A. , Luxembourg,
         Global Restructuring, Public Finance / Treasury      operates in the field of international public sector
         and Retail Banking, which are discussed in detail    finance and focuses on the opportunities and
         in the segment report on page 112 f. An integrated   advantages offered by Luxembourg’s legislation.
         controlling system supports targeted manage-         The realignment of the Public Finance business
         ment of the business units.                          model, which entails the cessation of new busi-
                                                              ness activities and the risk-oriented, passive
         corporate investments                                reduction of our Public Finance portfolio, also
         As at 31 December 2010, the list of strategic        extends to the activities of our Luxembourg sub-
         corporate investments comprised EUROHYPO             sidiary.
         Europäische Hypothekenbank S.A. , Luxembourg;            The effects of the Commerzbank Group’s
         EH Estate Management GmbH, Eschborn (includ-         portfolio reduction and stabilisation strategy intro-
         ing its subsidiaries); KENSTONE GmbH, Esch-          duced at the end of 2008 were very much in evi-
         born; Servicing Advisors Deutschland GmbH,           dence in 2010. Following active disposals, Euro-
         Frankfurt am Main, and Eurohypo (Japan) Corp.,       hypo in Luxembourg has consolidated its risk
         Tokyo. In accordance with their significance to      position, and in the interest of reducing risk has
         the Group, strategic corporate investments are       intentionally accepted losses. As a result, the
         directly assigned to the appropriate business        Luxembourg-based subsidiary has posted a loss
         areas for organisational and reporting purposes.     for the first time since its creation. The result
         All of the bank’s other corporate investments are    after tax came in at € – 23 million, compared with
         managed by Group Development & Strategy at           € 46 million in 2009. EUROHYPO Europäische
         Commerzbank, which is responsible for monitor-       Hypothekenbank S.A.’s results are reported in
                                                                                                                                51




                                                                                                                                     Letter to our Stakeholders
                                                              Management Report >>> Group structure and corporate investments




                                                                                                                                     Board of the Managing Directors
accordance with IFRS in the segment report for          tions on the Japanese market, the company posted
Public Finance / Treasury.                              a modest pre-tax loss of around € 6 million. Suc-




                                                                                                                                     Report of the Supervisory Board
    The loss was also due to disposals of securi-       cessful restructuring measures and the associated
ties at low market prices, which in turn reflected      cost savings helped to keep losses in check. Net
the marked differences between bonds issued             interest income and net commission income totalled
by different European states. In 2010, Eurohypo         € 22 million (€ 16 million) whilst loan loss pro-
Europäische Hypothekenbank S.A. posted total            visions stood at € 23 million (€ 11 million). The
assets of € 25.8 billion (€ 24.9 billion) with equity   33 % hike in total assets to € 1.6 billion (€ 1.2 billion)
at € 93 million (€ 159 million). Net interest income    was mostly tied to currency fluctuations. Euro-




                                                                                                                                     Capital Market Communication
slipped to around € 40 million (€ 70 million) as        hypo Japan Corp. currently employs 11 staff.
a result of the portfolio reductions and higher
funding costs.                                          kenstone gmbh
                                                        KENSTONE GmbH is a leading real estate appraisal
eh estate management gmbh                               and consulting specialist. The company’s main
EH Estate Management GmbH is a subsidiary of            activities are calculating market and mortgage
Eurohypo and is linked to it through a controlling      lending values for real estate and issuing apprais-




                                                                                                                                     Management Report
and profit transfer agreement. The company pro-         als accordingly.
vides various real-estate-related services to the           Other service offerings include portfolio val-
Group. In particular, it manages the development        uations, due diligence, construction cost moni-
and marketing of properties that the bank has           toring, market and property rating, and consulting.
acquired through relevant special purpose com-          From six offices across Germany, 25 employees
panies for restructuring purposes. EH Estate            provide services to a client base that includes
Management GmbH has an unchanged nominal                Eurohypo and Commerzbank, other national and
capital of € 25,600. As at 31 December 2010,            international banks, insurance companies, insti-
total assets stood at € 16 million (€ 3 million); the   tutional investors, domestic and international
€ 10 million loss (€ 2 million profit) was trans-       SME s, and tax consultants and audit firms. The
ferred to Eurohypo in accordance with the exist-        company has a nominal capital of € 26,000. As at
ing profit transfer agreement.                          31 December 2010, Kenstone GmbH held total
                                                        assets of € 2 million (€ 4 million) and net profit
eurohypo (japan) corp.                                  amounted to € 2 million (€ 2 million), which was
Founded in June 2006, Eurohypo (Japan) Corp. is         transferred to Eurohypo in accordance with the
based in Tokyo. Despite continued tough condi-          profit transfer agreements.
52   Management Report




         servicing advisors deutschland gmbh                (NPL s) . Given the uncertainty generated by the
         Servicing Advisors Deutschland GmbH – a joint      subprime crisis in the financial industry – partic-
         venture with Citigroup and Capmark Financial       ularly in the lending sector – the market for ser-
         Group Inc. – is a specialist in non-performing     vices relating to NPL s remains difficult. As at
         consumer real estate loans. The company has five   31 December 2010, the company’s share capital
         offices in Germany from which it offers market-    totalled € 3 million, with total assets at € 14 million
         oriented management of non-performing loans        (€ 10 million) and profit at € 2 million (€ 2 million).
                                                                                                                                        53




                                                                                                                                             Letter to our Stakeholders
                                  Management Report >>> Group structure and corporate investments / Supplementary report and forecast




supplementary report
and forecast




                                                                                                                                             Board of the Managing Directors
supplementary report                                         result of changes in the competitive situation
events after 31 december 2010                                and the general economy or developments on




                                                                                                                                             Report of the Supervisory Board
On 15 February 2011, the Regional Court of Frank-            the international real estate and capital markets.
furt allowed a complaint against Eurohypo AG for             In addition, potential defaults by borrowers or
payment of interest on certain profit participation          counterparties in trading transactions, changes
certificates of the former Hypothekenbank in Essen           in national and international legislation, particu-
AG for the year 2009 and a plea that the amount              larly taxation rules, together with other risks,
reclaimed from these participation certificates              some of which are presented in more detail in
may not be reduced through losses. Eurohypo AG               the risk report, may have an impact on the bank’s




                                                                                                                                             Capital Market Communication
intends to appeal the decision and assesses the              results.
chances of getting the decision overturned as good.
    Otherwise, no events that would have had a               overall economic developments
significant impact on our annual results for 2010            The economy will continue its recovery in 2011,
occurred in the period from 1 January to 3 March             albeit with regional variations in terms of speed
2011.                                                        and volatility. Macroeconomic risks remain high.
                                                             Current problems, such as public debt issues,




                                                                                                                                             Management Report
forecast                                                     corrections on the residential market and consol-
notes regarding forward-looking                              idation in the banking sector, will continue in
statements                                                   the coming years, which in turn will have reper-
The forecast and other parts of this annual report           cussions for the anticipated real estate market
contain expectations and predictions. These for-             recovery. Although the overall trend is positive,
ward-looking statements are based on planning                growth will remain very modest and varied. Ger-
assumptions and estimates made on the basis of               many is currently in a fairly solid position, since
the information available to us at the time of pub-          no measures have to be taken to counteract
lication of this annual report. We are not under             excesses in public spending or in the private sec-
any obligation to update these statements in the             tor. The possibility of harmful knock-on effects
light of new information or future events. State-            from the euro debt crisis cannot yet be entirely
ments concerning the future are always subject               ruled out.
to risks and uncertainties (see also Notes on                     Most real estate markets have now bottomed
page 84).                                                    out. However, the pace of the anticipated recovery
    Actual results and developments may there-               will largely be determined by the economic envi-
fore deviate substantially from the current fore-            ronment and will therefore vary from one market
casts. Any such deviations are likely to be the              to the next. Some markets, such as Spain and
54   Management Report




         Portugal, are likely to see further corrections in    will be realised in Commercial Real Estate as
         specific market segments during 2011. The Euro-       planned. The target portfolio volume is under
         pean debt crisis and associated saving packages,      € 60 billion at the end of 2012. Eurohypo’s capi-
         together with the ongoing financial market crisis     tal ratios, which improved considerably as a result
         and consolidation of heavily indebted households,     of severe cuts in risk-weighted assets in 2010,
         still represent a significant threat to future per-   and our excellent market position will serve as a
         formance.                                             foundation for winning new business in strategic
                                                               markets that meet our criteria for risk-adjusted
         outlook for the eurohypo group                        returns. The target for new CRE business volume
         eurohypo and its business areas                       in 2011 is to be on par with the level for 2010. We
         In 2010, results were largely impacted by loss-       are also seeking to improve margins in our pro-
         making disposals of portions of the Public Finance    longations business. With its reputation as a reli-
         portfolio and higher-than-expected loan loss pro-     able partner with extensive expertise, Eurohypo
         visions in many CRE markets. The economic cli-        continues to enjoy a competitive edge over its
         mate, combined with huge discrepancies between        rivals in the field of commercial real estate finance.
         real estate markets, high levels of public debt in        Higher equity and funding costs have severely
         some outlying eurozone countries and the after-       restricted our Public Finance operations. We also
         math of the financial crisis were all contributing    anticipate more stringent regulatory capital ade-
         factors. Consequently our consolidated result has     quacy requirements under Basel III, which will
         not matched our forecasts.                            prevent us from achieving adequate returns on
              As the potential market risks have not yet       equity in the medium to long term. For all these
         been eliminated, our planning scenarios will need     reasons, and given the Commerzbank Group’s
         to allow for appropriate precautionary measures.      plans to sell Eurohypo, we will not be actively
         We have therefore adjusted our short-term plan-       seeking new Public Finance business going for-
         ning for Eurohypo Group performance in 2011           ward, other than to manage our cover pool. Fol-
         to reflect the current conditions. We now predict     lowing the risk-oriented, largely passive reduc-
         that the Eurohypo Group will still post a negative,   tion of the Public Finance portfolio, its nominal
         albeit noticeably better result in 2011 before        volume of € 100 million will be exceeded by the
         returning to profit in 2012.                          end of 2011.
              In the Commercial Real Estate segment we             Measures to stabilise CRE financing as a
         anticipate considerably declining charges on          central business activity and the largely passive
         earnings in the 2011 results as a result of the       reduction of our Public Finance portfolio consti-
         realignment. Further credit portfolio reductions      tute major contributions to preparations for the
                                                                                                                            55




                                                                                                                                 Letter to our Stakeholders
                                                                  Management Report >>> Supplementary report and forecast




                                                                                                                                 Board of the Managing Directors
planned sale of Eurohypo. Under an agreement           As reducing our portfolio remains our main pri-
with the EU , Commerzbank is required to com-          ority and given the current volatility on the capi-




                                                                                                                                 Report of the Supervisory Board
plete the sale of Eurohypo by the end of 2014.         tal markets, we cannot rule out the possibility of
Switching to a new funding concept based on            losses from investments linked to disposals of
longer-term stand-alone funding within the Group       Public Finance holdings. As we proceed with our
is another vital step towards autonomy.                portfolio reductions, including the planned pas-
                                                       sive run-off of our Public Finance portfolio, we
changes in key figures                                 anticipate that losses will decline in the current
The new funding concept will offset Group bene-        year and beyond – subject to European public




                                                                                                                                 Capital Market Communication
fits and depress net interest income in 2011 and       finances becoming more stable.
beyond. Income will also fall due to the ongoing           In the last two years, our operating
portfolio reductions. We therefore predict that        expenses were reduced by realigning our busi-
net interest income will continue to decline           ness model and by the associated closures of 15
slightly in the short to medium term, despite          foreign branches. Effective cost management and
improved interest margins.                             the planned closure of a further five foreign
    Net commission income, which up to now             branches will ensure that operating expenses




                                                                                                                                 Management Report
has benefited substantially from restructuring         remain on comparatively lower levels in the long
activities and income generated by interest and        term.
currency management, also shows a diminuish-               We substantially improved our capital ratio
ing trend. This is the result of the shrinking asset   in the year under review. The ratio should remain
pool on the one hand and lower restructuring           stable in coming years given the anticipated reduc-
volumes linked to the successful portfolio optimi-     tions in risk-weighted assets. We are thus well
sation programme on the other hand. We there-          positioned with regard to the anticipated regula-
fore expect net commission income to decrease          tory requirements, e. g. “Basel III”.
significantly in the current year and to continue          The fundamental change in economic condi-
decreasing at a low level in 2012.                     tions and the charges linked to the ongoing port-
    Having revised our loan loss provision plan-       folio optimisation programme will negatively affect
ning in 2010, including making additional adjust-      Eurohypo’s results in 2011. However, losses should
ments in the second half, we anticipate a sizeable     be much lower year-on-year. The realigned busi-
reduction in these charges for 2011, a trend           ness model will serve as a platform for the bank
which is likely to continue into 2012. However,        to generate sustainable profits in the Commercial
the improvement will be dependent on further           Real Estate segment. The bank’s results will return
consolidation on the global real estate markets.       to be positive from 2012.
b r a n d e n b u r g g at e , b e r l i n b i g b e n , l o n d o n p a l a c i o d e c o m u n i c a c i o n e s , m a d r i d e i f f e l t o w e r , p a r i s
h a g i a s o p h i a , i s t a n b u l p a l a c e o f c u lt u r e a n d s c i e n c e , w a r s a w s a i n t b a s i l’s c a t h e d r a l , m o s c o w
b e l é m t o w e r , l i s b o n m i l a n c a t h e d r a l , m i l a n s t a t u e o f l i b e r t y, n e w y o r k
                                                                                                                          57




                                                                                                                               Letter to our Stakeholders
                                                                                      Management Report >>> Risk Report




risk report




                                                                                                                               Board of the Managing Directors
risk-oriented overall                                    the Commerzbank Group. Members of the Board
bank management                                          of Managing Directors and managers at Euro-




                                                                                                                               Report of the Supervisory Board
risk management organisation                             hypo are included in the risk-specific committees
Eurohypo defines risk as the danger of possible          at Group level.
losses or profits foregone due to internal or                Our integration into the Commerzbank Group
external factors. Risk management distinguishes          resulted in the transfer of responsibility for metho-
between quantifiable risks – those for which a           dology and procedures as well as validation and
value can normally be attached in the annual             back-testing to the parent company. The regula-
financial statements or in regulatory capital require-   tory requirements of risk management at Group




                                                                                                                               Capital Market Communication
ments – and non-quantifiable risks such as repu-         level and the development of a uniform approach
tational and compliance risks.                           are handled by the Group parent company within
    Risk management activities are grouped in            the framework of the Global Functional Lead
the back-office unit Corporate Center Risk Man-          Concept.
agement and are the direct responsibility of                 To improve the integration of subsidiaries
the relevant member of the Board of Managing             into Group-wide risk management and to ensure
Directors, the Chief Risk Officer (CRO) . The CRO        consistent risk management as required by super-




                                                                                                                               Management Report
is responsible for implementing the risk policy          visory authorities, specialised roles, responsi-
guidelines laid down by the Board of Managing            bilities and processes have been defined for all
Directors for quantifiable risks throughout the          areas of Group Risk Management. This amounts
Group. The CRO regularly reports to the Board            to de facto recommendation and approval rights
of Managing Directors and the Risk Committee             for the subsidiaries taking due account of risk
of the Supervisory Board on the bank’s overall           relevance, efficiency and circumstances specific
risk situation. Specific committees have been            to the subsidiary. Group subsidiaries act as com-
established throughout the Group to carry out            petence centres for their specific focus within
the operational risk management tasks (e. g.             the Group.
Credit Committees, Risk Management Committee,
Asset Liability Committee). Authorities are dele-        risk-bearing capability and
gated to these committees and they assist the            risk strategy
Board of Managing Directors in making decisions          Risk-bearing capability is monitored by compar-
on risk-related issues.                                  ing the Eurohypo aggregate capital requirement
                                                         with the core capital available to cover risk.
integration into the group                               In addition to calculating regulatory capital
In terms of methodology and organisation, risk           requirements in the form of risk-weighted assets
management at Eurohypo is integrated within              (RWA s) , economic RWA s are determined using
58   Management Report




         risk bearing capacity as at 31.12.2010
         rwa in € billion


         Total regulatory RWA                              62                        61                               10.4 %
         Total economic RWA incl. diversification          75                                                           8.6 %
         Total economic RWA excl. diversification          82                       58          22                      7.9 %
         Total stress scenario RWA                       106                               71                 33        6.1 %



          Credit Risk     Market Risk     OpRisk    Business Risk                                     Core capital ratios in %
          Economic RWA




         internal risk models with a confidence level of            During the period under review, Eurohypo con-
         99.95 % and based on a holding period of one               sistently fulfilled the minimum requirements.
         year. These are used to model stress scenarios.                The risk strategy defines the risk policy
         In a first step, a scenario is assumed where all           guidelines as part of the business strategy; it is
         losses occur simultaneously, meaning that full             complemented by sub-strategies in which require-
         correlation between risk types is assumed. The             ments with respect to the main risk types (here:
         impact is then quantified by increasing the under-         liquidity risk, market risk, operational risk, repu-
         lying parameters, such as the expected probabil-           tational and legal risks) are formulated.
         ity of default (PD) , asset correlations, yield curves         As part of the Internal Capital Adequacy
         and loss ratios and levels.                                Assessment Process (ICAAP) , the calculation of
              Risk-bearing capability is then measured by           Eurohypo’s risk-bearing capability was fully cen-
         comparing regulatory core capital and the eco-             tralised within the Commerzbank Group in 2010.
         nomic capital requirement, represented as “RWA             As a substantial Group company, Eurohypo has
         equivalents”. Converting the economic capital              its own bank-specific ICAAP . The process of har-
         requirement into RWA equivalents makes the regu-           monisation with Commerzbank’s risk-bearing
         latory and economic approaches directly compa-             capability model, begun in 2010, will continue in
         rable.                                                     2011. We expect that this will put further pres-
              Risk-bearing capability is ensured by fixing a        sure on the capital ratios, especially in the stress
         specific minimum requirement based on available            scenarios.
         core capital. As part of our risk strategy, these              In line with the risk strategy, guidelines and
         values are set at 8 % for the economic core capi-          limits are defined for entering into risk positions.
         tal ratio and 6 % for the economic core capital            Unquantifiable risks are subjected to strict quali-
         ratio in the stress scenario.                              tative monitoring within the Group in compliance
              The provision for higher volatility and the           with the minimum requirements for risk manage-
         methodological adjustments in the market risk              ment (MaRisk). The risk strategy is reviewed
         stress reflects the economic core capital ratio in         annually, adopted by the Board of Managing Direc-
         the stress scenario that is reduced year-on-year.          tors and approved by the Supervisory Board.
                                                                                                                                        59




                                                                                                                                             Letter to our Stakeholders
                                                                                                    Management Report >>> Risk Report




exposure at default (ead) breakdown                                  risk density in base points
as at 31.12.2010 (2009) in € billion                                 as at 31.12.2010 (2009)




                                                                                                                                             Board of the Managing Directors
Retail Banking                                                        Public Finance                6 (6)
17 (19)                                                               Commercial Real Estate                                  50 (42)
                                                                      Retail Banking                        17 (19)


                             193 (222)              Public Finance   Overall risk density 23 (19)
Commercial Real Estate
                                                    108 (128)
68 (74)




                                                                                                                                             Report of the Supervisory Board
           The risk policies supplement the risk strategy to         In the Public Finance business, Commerzbank’s
           ensure ongoing compliance with statutory and              internal rating system is used for countries and




                                                                                                                                             Capital Market Communication
           internal requirements.                                    banks. The rating system for central governments
                                                                     is used for government borrowers allocated to
           default risk                                              the IRBA asset class.
           Default risk refers to the risk of potential losses
           or profits foregone due to defaults by counter-           credit risk management
           parties as well as to changes in these risks.             Eurohypo and Commerzbank have a uniform over-
           Country risk, issuer risk and counterparty and            all bank management concept. The definition of




                                                                                                                                             Management Report
           settlement risk in trading transactions are also          the capital base and compliance with regulatory
           subsumed under default risk.                              and economic target quotas are performed at
                                                                     Group level. The capital base for internal busi-
           rating systems                                            ness area management at portfolio level is “eco-
           To assess default risk, the bank determines a rat-        nomic capital”; this is used for calculation of
           ing for every borrower as part of a credit quality        capital limits and minimum yields at the business
           assessment. A loss given default (LGD) is also            area level Group-wide. Their measurement is
           calculated using the lending and market values,           based on the credit risk parameters of probabil-
           recovery rate, recovery time, etc.                        ity of default (PD) , loss given default (LGD) and
                 Due to integration into the Group-wide limit        exposure at default (E aD) , assuming a confidence
           and management system, the rating methodol-               level of 99.95 %. The time horizon is one year.
           ogy and its further development, validation and           Economic capital and modelling of stress scen-
           monitoring, are carried out by Commerzbank. In            arios are calculated at least quarterly using the
           Retail Banking, emphasis is placed on a scoring           credit portfolio model (CV aR) .
           procedure (CORES) . CRE Banking uses rating                    We use the risk figures E aD , expected loss
           procedures to evaluate commercial real estate             (EL) , unexpected loss (UL) , economic capital con-
           finance. This essentially covers the categories of        sumption and risk density (EL / E aD) to manage
           customer, property and exposure risk.                     and limit default risk.
60        Management Report




 commercial real estate                                                              commercial real estate
 ead breakdown                                                                       risk density in bp
 as at 31.12.2010 (2009) in € billion                                                as at 31.12.2010 (2009)
 Other                                                                                Office                                   39 (36)
 9 (11)                                                                               Retail                                             57 (28)
                                                                                      Residential                              39 (36)
 Hotel
 3 (4)                                                                     Office     Hotel                                                    71 (63)
                                        68 (74)                            27 (27)
 Residential                                                                          Other                                                  67 (78)
 9 (10)
 Retail                                                                              Overall risk density 50 (42)
 20 (22)




               While the analyses of risk-bearing capability                         estate markets transitioned to a stabilising phase
               based on UL determine the strategic direction of                      in 2010. However, the increasingly benign mar-
               the portfolio and also serve to limit cluster risks,                  ket trend is moving ahead of our portfolio’s
               risk management is implemented operationally                          credit rating structure. The strict, conservative
               by means of EL limits. Cluster risks in countries,                    risk assumptions underlying our ratings thus gave
               target groups and products are limited by means                       rise to a rating distribution that is generally
               of the economic capital concept. Borrower groups                      worse than in the previous year, while the risk
               with economic capital consumption of at least                         density of the total portfolio rose moderately
               € 5 million are defined as a cluster risk. Borrower                   from 19 bp to 23 bp. The principal way in which
               groups with more than € 40 million in economic                        Eurohypo reduces credit risk is by holding collat-
               capital consumption are being gradually reduced.                      eral in the form of real estate, guarantees, sure-
               In line with economic capital consumption, addi-                      ties and life insurance policies.
               tional approvals are required that may extend all
               the way to the Board of Managing Directors of                         commercial real estate
               Eurohypo or Commerzbank Group.                                        In line with the strategic reduction in the white
                     The E aD for the whole of Eurohypo’s book is                    book portfolio, the bank further decreased its total
               € 193 billion, compared with € 222 billion in 2009.                   exposure (E aD) in the CRE area to just € 68 billion
               In the wake of the economic recovery, most real                       (€ 74 billion). The office (€ 27 billion), retail (€ 20
                                                                                     billion) and residential (€ 9 billion) real estate sub-
                                                                                     portfolios make up the majority of the exposure.
               commercial real estate                                                     The further tangible reduction of € 6 billion
               rating breakdown                                                      during the year – € 5 billion of which applies to
               as at 31.12.2010 (2009)
                                                                                     the non-strategic portfolio – was chiefly the result
               1.0 – 1.8                          28 % (30 %)
                                                                                     of repayments, exchange rate fluctuations and
               2.0 – 2.8                                              54 % (58 %)
               3.0 – 3.8               15 % (9 %)                                    market-related transfers to the default portfolio.
               4.0 – 4.8   1 % (2 %)                                                      The above-mentioned activities to reduce the
               5.0 – 5.8   2 % (1 %)                                                 portfolio are also related to the EU Commission
                                                                                     decision of May 2009, which made the grant of
                1.0 – 1.2: AAA    1.4 – 1.6: AA      1.8 – 2.0: A   2.2 – 2.8: BBB   state aid to Commerzbank conditional upon vari-
                                                                                                                                                                                          61




                                                                                                                                                                                               Letter to our Stakeholders
                                                                                                                                      Management Report >>> Risk Report




ead strategic portfolio                                                                             ead non-strategic portfolio
in € billion (risk density in bp)                                                                   in € billion (risk density in bp)




                                                                                                                                                                                               Board of the Managing Directors
                                                  47.3 (33)                                                                                    26.9 (56)
                                                                             45.7 (45)

Other                                       8.5 (34)                  8.0 (72)                      Non-strategic client                  6.7 (30)                       22.3 (59)
USA                                        2.3 (129)                  2.2 (60)
France                                      3.8 (17)
                                                                      4.0 (19)                                                                                      6.1 (31)
Spain                                       4.7 (30)                  4.3 (72)                      Non-strategic asset types             5.6 (80)

UK                                          6.4 (65)                  6.9 (41)                                                                                      4.3 (80)
                                                                                                    Non-strategic product types           4.1 (81)
                                                                                                                                                                    2.7 (65)




                                                                                                                                                                                               Report of the Supervisory Board
Germany                                    21.5 (17)              20.2 (34)
                                                                                                    Non-strategic market              10.5 (50)                    9.2 (66)



                                                 31.12.2009                  31.12.2010                                                        31.12.2009                31.12.2010




commercial real estate
loan to value (stratified breakdown)*




                                                                                                                                                                                               Capital Market Communication
as at 31.12.2010 (2009)
LTV band          UK                                          Spain                                        USA                                       Total CRE


     > 100 %           3 % (5 %)                               1 % (1 %)                                       3 % (9 %)                               2 % (3 %)
80 % – 100 %           4 % (8 %)                                  4 % (4 %)                                        7 % (7 %)                            3 % (4 %)
 60 % – 80 %                 10 % (14 %)                                         14 % (13 %)                  17 % (14 %)                                           13 % (14 %)
 40 % – 60 %               23 % (22 %)                                   24 % (24 %)                                 24 % (18 %)                                 24 % (23 %)
 20 % – 40 %                       29 % (25 %)                                 28 % (29 %)                            25 % (25 %)                                   28 % (27 %)




                                                                                                                                                                                               Management Report
         < 20 %                     31 % (26 %)                                  29 % (29 %)                         24 % (27 %)                                      30 % (29 %)
              0




                           10




                                      20




                                                 30




                                                          0




                                                                        10




                                                                                    20




                                                                                               30




                                                                                                          0




                                                                                                                    10




                                                                                                                                20




                                                                                                                                     30




                                                                                                                                                 0




                                                                                                                                                            10




                                                                                                                                                                         20




                                                                                                                                                                                     30
                                                                                                                                                                 Portfolio volumes in %
* – Performing book, based on market values
  – Excluding margin lines and corporate loans
  – Additional security not taken into account




             ous measures, one of which required Commerz-                                           Against the backdrop of current economic con-
             bank to divest Eurohypo by the end of 2014. Based                                      ditions, participants in the international real
             on this decision, the bank initiated a strategy                                        estate markets continue to exercise caution. Trans-
             project with a particular focus on significantly                                       action volumes are still low compared to previ-
             reducing assets. The project foresees a reduction                                      ous years, but are rising slightly on the back of
             in the CRE portfolio to less than € 60 billion by                                      the economic recovery – especially in established
             the end of 2012.                                                                       markets.
62      Management Report




 public finance ead breakdown                                           public finance
 region                                                                 rating breakdown
 as at 31.12.2010 (2009)                                                as at 31.12.2010 (2009)
 Asia / Pacific                                           Other         1.0 – 1.8                                                    68 % (88 %)
 1 % (1 %)                                                1 % (1 %)     2.0 – 2.8                        27 % (11 %)
 Central and Eastern
                                                                        3.0 – 3.8       5 % (1 %)
 Europe
                                                          Germany       4.0 – 4.8 0 %
 3 % (3 %)                     108 € billion              45 % (50 %)
 USA                          (128 € billion)                              > 4.8 0 %
 11 % (10 %)
 Remaining Europe                                                          1.0 – 1.2: AAA       1.4 – 1.6: AA      1.8 – 2.0: A   2.2 – 2.8: BBB
 39 % (35 %)




              Eurohypo made new commitments (not includ-                optimistic, particularly as relates to high-quality
              ing prolongations) of over € 5 billion in selected        properties.
              market transactions in 2010. Investor interest                  The LTV s in these markets and in Spain are
              remains focused on high-quality properties                mainly in a range of 60 % to 80 %. The volume
              in prime locations (core assets) with long-term           of corporate loans in the CRE area – a business
              secured cash flow.                                        that Eurohypo no longer pursues – was € 2 bil-
                  As market value corrections gradually dimin-          lion at the reference date (€ 3 billion).
              ish, the loans in our portfolio that are secured by
              a land charge continue to display loan-to-value           public finance / treasury
              ratios (LTV s) that largely meet our requirements.        In 2010, the total E aD for Public Finance / Trea-
              As a result, our LTV s stabilised in the fourth           sury fell by € 20 billion to € 108 billion, with risk
              quarter, albeit at an elevated level.                     density virtually unchanged (6 bp).
                  Despite the overall improvement in economic                 Eurohypo’s Public Finance portfolio com-
              conditions, some individual markets remain                prises receivables and securities, most of which
              strained. The real estate markets in the US , for         have long terms and are allocated to loans and
              example, have yet to make a sustained rebound.            receivables (L aR) .
              Nonetheless, compared to the previous year, risk                Borrowers in the Public Finance business
              density for the US sub-market was lower: the              (€ 67 million) include national governments, fed-
              first indicator of a more optimistic risk assess-         eral states, regions, cities, local authorities and
              ment in general. We are also keeping a watchful           supranational institutions. The exposure is con-
              eye on Spain. Here, however, the green shoots             centrated in Germany and western Europe. North
              of recovery are not yet evident. The higher risk          America (US / Canada) accounts for around 16 %.
              density for the total portfolio at the time of this             Of the E aD for government and sub-govern-
              writing is an expression of our ongoing mildly            mental institutions, around € 16 billion is accounted
              conservative risk assessment. Market trends in            for by Greece (€ 2.9 billion, previous year: € 3.1
              Germany and in European core markets such as              billion), Italy (€ 9.0 billion, previous year: € 9.7
              the UK and France can be considered cautiously            billion), Portugal (€ 0.9 billion, previous year:
                                                                                                                                                 63




                                                                                                                                                      Letter to our Stakeholders
                                                                                                            Management Report >>> Risk Report




ead portfolio reduction public finance                                      retail banking
timeline in € billion                                                       breakdown regions




                                                                                                                                                      Board of the Managing Directors
                                                                            as at 31.12.2010 (2009) in € billion
Other                     7                                                 Baden-Württemberg                                Bavaria
USA                      15                                                 1 (1)                                            1 (1)
                                     7
                                    13         7                            Saarland, Saxony-Anhalt,
                                              12         6
                                                        14                  Saxony, Thuringia                                North-Rhine Westphalia
Western Europa           51                                        6
                                    47                            12        2 (2)                                            6 (6)
excl. Germany                                 45                                                           17 (19)
                                                        43                  Mecklenburg-West
                                                                  42        Pomerania, Hesse,
                                                                            Rhineland-Palatinate                             Lower Saxony, Bremen,
Germany                  79                                                 2 (3)                                            Schleswig-Holstein,
                                    69        64                                                                             Hamburg




                                                                                                                                                      Report of the Supervisory Board
                                                        56        48        Berlin, Brandenburg
                                                                            2 (2)                                            3 (4)


                          12.2008   06.2009   12.2009   06.2010   12.2010




          € 1.7 billion), and Spain (€ 2.8 billion, previous                activities are not part of the strategy for this
          year: € 3.7 billion).                                             business segment. Emphasis is placed on port-




                                                                                                                                                      Capital Market Communication
                  The remaining portfolio consists of € 41 bil-             folio reductions and earnings protection. Over
          lion in financial institutions (FI) mainly domiciled              the course of 2010, the E aD declined by € 2.6
          in Germany and western Europe (93 %). The                         billion to € 16.7 billion, with the focus remaining
          majority of the FI portfolio comprises securities                 on owner-occupied homes (€ 10.4 billion) and
          and loans, a large proportion of which have main-                 flats (€ 3.4 billion). Thanks to the portfolio’s
          tenance and guarantee obligations or other dec-                   robust LTVs due to the residual terms and pre-
          larations of liability from the public sector or were             dominantly prime collateral, the portfolio risk




                                                                                                                                                      Management Report
          issued in the form of covered bonds.                              can be considered stable, even more so given
                  By the end of 2011, we intend to reduce the               forecasts of improving economic conditions in
          entire Public Finance portfolio (including FI s)                  Germany.
          to below € 100 billion through exploitation of
          maturities. In line with the strategy, no new                     charges against earnings
          commitments are being made in this business                       The continuing tense situation in the financial
          segment (new business only in isolated cases as                   markets led once again to charges against earn-
          required to manage the cover pool).                               ings in 2010. The increase in loan loss provisions
                  The only trading book transactions carried                in the lending business is chiefly due to large
          out in 2010 were in the form of forward FX trans-                 individual charges in CRE Banking International
          actions. There were no other trading book activi-                 Strategic Markets and CRE Banking International
          ties.                                                             Global Restructuring, as well as impairments on
                                                                            the non-core portfolio in Germany. As shown in the
          retail banking                                                    following table, charges against earnings totalled
          Since the new business activities were trans-                     € 1.5 billion; the revaluation reserve had addi-
          ferred from Eurohypo’s Retail Banking seg-                        tional charges of € 262 million. Disposal losses
          ment to Commerzbank in 2007, Eurohypo only                        amounting to € 228 million were also incurred as
          manages the existing loan book. New business                      a result of risk reductions.
64   Management Report




               LaR loan loss provisions                          porate investments and financial investments
         Of the € 1.3 billion in loan loss provisions recog-     (€ 106 million) further diminished earnings.
         nised for commercial real estate finance (CRE)              Loan loss provisions in the Retail Banking
         in the reporting period, € 374 million related to       segment amounted to € 88 million, which is
         domestic and € 948 million to international business.   lower than in 2009. The positive economic devel-
               Loan loss provisions in the CRE portfolio         opments in Germany might result in further sta-
         were considerably higher than in 2009, and also         bilisation this year. However, there are risks
         higher than budgeted. Loan loss provisions of           inherent in the cyclical trends for European and
         some € 495 million were due to increased spe-           global economic partners. Still, most real estate
         cific loan loss provisions in Spain and the US . We     markets stabilised in 2010 on the back of the
         expect loan loss provisions to burden again this        general economic recovery.
         year, if not as heavily. Likewise, we anticipate            Our target markets of the US and Spain
         lower loan loss provisions for the US and Spain,        cannot yet keep pace with this trend, since
         based on a slight recovery in the US markets, but       they are still impacted by the general economic
         not an end to the crisis. Furthermore, we have          exaggerations of the last business cycle and in
         set aside € 220 million in provisions for our Ger-      some areas are still reporting declining real estate
         man non-core portfolio. Market forecasts and            prices. It is likely that corrections will continue
         development trends are taken into consideration         in some sub-markets in 2011. The European debt
         in our stress scenarios and are a key element of        crisis and consolidation processes among con-
         our risk management.                                    sumers, some of whom are heavily indebted,
               In addition to charges against earnings from      still harbour risks for further growth in the real
         specific loan loss provisions, impairments to cor-      estate markets.



         charges against earnings
         in € million                                                                        31.12.2010      31.12.2009
         Loan loss provisions LaR                                                                1,407           1,174
            Retail Banking                                                                          88             106
            Commercial Real Estate                                                               1,322           1,058
            Public Finance                                                                          –3              10
         Loan loss provisions LaR financial assets (GLLP)                                            2              25
         Impairments AfS financial assets                                                            1             122
         Impairments to corporate investments                                                      105                 5
         Total charges against earnings                                                          1,515           1,326
         Revaluation reserve (net)                                                                 262            – 676
         Total risk-related charges against capital                                              1,777             650
                                                                                                                                       65




                                                                                                                                            Letter to our Stakeholders
                                                                                                   Management Report >>> Risk Report




default portfolio
as at 31.12.2010 (2009) in € million




                                                                                                                                            Board of the Managing Directors
                                                                                                                    8,460 (8,080)
Eurohypo
                                             2,976 (2,671)                                                        5,287 (4,838)

                                                                                                    7,463 (6,791)
CRE
                                       2,580 (2,178)                                              4,748 (4,109)

                957 (1,242)
RB




                                                                                                                                            Report of the Supervisory Board
                366      539
               (456) (729)
                 40 (47)
PF
                30 (37)




  Default portfolio       Loan loss provisions   Collateral




                                                                                                                                            Capital Market Communication
        Default portfolio                                         impairments, the bank renegotiated restructur-
At 31 December 2010, the bank’s default portfo-                   ing loans worth € 2.3 billion.
lio amounted to € 8.5 billion. Collateral and loan                      Please refer to the Notes (1), page 84 ff. for
loss provisions result in a coverage ratio of 97.7 %.             information on the accounting policies.
The rise in default volumes was chiefly due to                          To reduce other risks, some real estate is
market trends in international commercial real                    taken over by property realisation companies. In




                                                                                                                                            Management Report
estate finance. In CRE and Retail Banking, almost                 the year under review we did not acquire any
all collateral relates to land charges on commer-                 properties that can be classified as investment
cial or residential real estate.                                  properties under IAS 40 (previous year: € 95 mil-
        At 31 December 2010, there was a total of                 lion). However, we acquired properties worth € 78
€ 477 million in loans with interest and principal                million (previous year: 0) which we plan to dis-
payments that were past due according to Basel                    pose of within one year and thus fall into the cat-
II but not yet in default. Around 85 % of the out-                egory “Assets held for sale” under IFRS 5 . As part
standing volume in CRE and Retail Banking is                      of the restructuring process, we acquired partici-
secured by collateral in the form of land charges /               pations in real estate companies for € 378 million
mortgages. To avoid outstanding amounts and                       (€ 26 million) that are reported as at-equity



arrears as at 31.12.2010
in € million                                                  > 0 ≤ 30 days   > 30 ≤ 60 days   > 60 ≤ 90 days                total
Retail Banking                                                          27               32                3                      63
Commercial Real Estate                                                 364               48                2                  414
Public Finance                                                           0                0                0                       0
Total                                                                  392               80                5                  477
66   Management Report




         investments. In addition, securities amounting             Credit derivatives
         to € 22 million (€ 129 million) were categorised       The bank held 32 credit default swaps (CDS) with
         as financial assets.                                   a nominal volume of € 0.7 billion at 31 December
              We booked € 54 million in impairments on          2010 (previous year: € 0.3 billion), 29 of which
         real estate valued according to IAS 40 and € 4         (€ 0.6 billion) serve to hedge risk positions. The
         million on real estate valued according to IFRS 5 ,    remaining three CDS represent a position that is
         and a further € 125 million on at-equity invest-       for the most part closed.
         ments. Assets were sold for a profit of € 9 million.
              Most of the properties are serviced and man-      cover portfolio
         aged in companies in which Eurohypo owns a             Eurohypo is a major bond issuer and market
         majority stake via subsidiaries. This is normally      leader in the Mortgage Pfandbrief segment
         EH Estate Management GmbH. The aim is to               (ranked 2nd in the Public-sector Pfandbrief market).
         increase the value and performance of the com-             Property financing and public sector lending
         mercially-focused real estate portfolio through        are the basis of the cover funds for Mortgage and
         EH Estate’s property expertise in order that the       Public-sector Pfandbrief issues.
         properties can be put on the market again in the           Eurohypo has a risk management system
         short to medium term.                                  which complies with the requirements of Section
                                                                27 of the German Pfandbrief Act (PfandBG ). Both
         special portfolios                                     the Mortgage Pfandbrief and Public-sector Pfand-
         asset backed securities (abs)                          brief businesses are fully integrated into Euro-
         The main forms of structured business at Euro-         hypo’s risk management system and are regularly
         hypo is investments in ABS portfolios, as well         subject to comprehensive internal and external
         as credit derivatives and other individual struc-      reviews.
         tured credit products. The student loan portfolio,         We implemented all the requirements of the
         representing around € 4 billion, has an institu-       2010 Pfandbrief Act amendment in full and on
         tional guarantee mechanism extending up to             time. The rating agencies currently award our
         the US Government. Eurohypo has public sector          Pfandbriefe the highest rating of “Triple A”.
         guarantees for another sub-portfolio worth € 1.3           Detailed information on Eurohypo’s cover
         billion. There is still no need for impairments on     portfolios is given in the information on the trans-
         these securities. Changes in exposure are due          parency rules in accordance with Section 28
         solely to changes in market values and maturi-         PfandBG , published on the Eurohypo website
         ties. No new business in securities or loans was       and the Association of German Pfandbrief Banks
         entered into.                                          website, as well as in the Notes on page 171 ff.
                                                                                                                                                     67




                                                                                                                                                          Letter to our Stakeholders
                                                                                                                 Management Report >>> Risk Report




                                                     eurohypo ag cover pool
                                                     as at 31.12.2010




                                                                                                                                                          Board of the Managing Directors
mortgage pfandbriefe                                                         public-sector pfandbriefe

  Capital cover – nominal                                    € billion          Capital cover – nominal                             € billion
     – Mortgage assets                                            50.9            – Public sector assets                                51.2
     – Mortgage Pfandbriefe outstanding                           38.4            – Public-sector Pfandbriefe outstanding               47.9
     – Surplus cover                                              12.5            – Surplus cover                                        3.3
  Net present value                                                             Net present value




                                                                                                                                                          Report of the Supervisory Board
     – Net present value of mortgage assets                       54.1            – Net present value of public sector assets           56.7
     – Net present value of Mortgage                                              – Net present value of Public-sector
       Pfandbriefe outstanding                                    40.8                 Pfandbriefe outstanding                          50.9
     – Surplus cover                                              13.2            – Surplus cover                                        5.8
     – Surplus cover in %                                      32.4 %             – Surplus cover in %                               11.5 %
  Sensitivity*                                                                  Sensitivity
     + Yield curve – shift upwards in %                        32.9 %             + Yield curve shift upwards in %                   10.4 %
     – Yield curve – shift downwards in %                      28.4 %             – Yield curve shift downwards in %                 11.6 %
  Substitute cover                                                  0.9         Substitute cover                                         3.0




                                                                                                                                                          Capital Market Communication
* Calculation conducted by dynamic simulation according to § 5 (1), 2 PfandBarwert V




market and liquidity risks                                                   Over the course of 2010, some limits were briefly
market risk                                                                  breached due to market turbulences, requiring an




                                                                                                                                                          Management Report
Market price risk comprises the risk of sustain-                             adjustment in the limit to a peak of € 130 million.
ing losses due to changes in market prices (inter-                           Since September 2010, we observe a less vola-
est rates, spreads, exchange rates, share prices,                            tile trend. Our current V aR limit is € 110 million,
etc.) or in parameters that affect prices such as                            which results from, among other things, a modi-
volatility and correlations. Management and                                  fication of methodology (inclusion of equity invest-
monitoring are handled at Group level. The Group                             ments). The average annual limit utilisation was
uses a wide range of instruments comprising                                  57 %.
sensitivities, value-at-risk figures, stress tests                                     We also monitor market liquidity risk, which
and scenario analyses. The stress test calculation                           takes the period of time into consideration to
is based on a combination of historical and syn-                             close or hedge risk positions to the extent desired.
thetic simulations for interest rates, credit spreads                                  Market risk exposure is determined by the
and currencies. This includes hypothetical changes                           banking books in Eurohypo’s investment portfo-
in risk parameters as well as historic worst-case                            lio. The key drivers are the Public Finance posi-
scenarios.                                                                   tions. The V aR (97.5 %, 1 day) was € 74 million
      Market risk is calculated on a daily basis and                         at 31 December 2010, which compares with € 22
limit utilisation is monitored.                                              million at the end of 2009. This increase is attribu-
      The limits are adjusted to reflect the current                         table in particular to a strong crisis-related rise
conditions.                                                                  in market volatility during the reference period
68   Management Report




         of the V aR calculation. Credit spread risks for all   Commerzbank’s internal liquidity risk model is
         Public Finance positions are also measured and         the basis for liquidity management. This liquidity
         limited using sensitivity analyses (upshift 1 bp).     risk measurement approach calculates the avail-
         At year-end, we had a credit spread sensitivity of     able net liquidity (ANL) for the next 12 months
         € – 58.9 million for L aR positions and € – 4.8 mil-   on the basis of contractual and economic cash
         lion for Public Finance positions in the category      flows and liquid assets. One important component
         “available for sale.”                                  is stress testing, which highlights the impact of
                                                                unforeseen events on the liquidity situation and
         liquidity risk                                         as a result provides the basis for sustainable con-
         Liquidity risk in the narrower sense is the risk       tingency planning. The regulatory provisions
         that the bank will be unable to meet its current       of the Liquidity Regulation were observed at all
         and future payment obligations as and when they        times. The solvency of Eurohypo was adequate at
         fall due. In the wider sense it includes the risk      all times during the period under review – even
         that in the event of a liquidity crisis funds can      under the assumptions of the stress scenarios.
         only be borrowed at very high market rates (refi-          The bank is actively involved in the Group’s
         nancing risk) or that assets can only be liquidated    preparations to introduce the liquidity risk ratios
         at a discount to market rates (market liquidity        defined in Basel III. For quantitative information
         risk), and the risk of limited access to funding       on liquidity risk, see note 85 “Maturity break-
         sources such as the capital market, money market       down” on page 147; for details on derivatives see
         and deposits.                                          the section starting on page 136 ff.
              Eurohypo’s liquidity is integrated into the
         Commerzbank Group’s liquidity management;              operational and other risks
         Eurohypo has a money market facility of € 7 bil-       operational risk
         lion, which is € 6.5 billion less than in the previ-   Operational risk is defined in accordance with
         ous year.                                              the Solvency Regulation as the risk of loss
              The ability to meet payment obligations is        resulting from the inadequacy or failure of inter-
         quantified and monitored on the basis of two           nal processes, systems and people or from exter-
         interlinked concepts:                                  nal events. This definition includes litigation
                                                                risks; it does not cover reputational or strategic
              Periods of up to one year – Available Net         risks.
              Liquidity (ANL) concept                               Functions in the area of operational risk
              Periods of one year or more – Stable Fund-        (OpRisk) necessary for fulfilling Group-wide and
              ing concept.                                      regulatory requirements have been transferred
                                                                                                                                                   69




                                                                                                                                                        Letter to our Stakeholders
                                                                                                               Management Report >>> Risk Report




available net liquidity
as at 31.12.2010 in € million




                                                                                                                                                        Board of the Managing Directors
  5,000


      0


 – 5,000


– 10,000


– 15,000




                                                                                                                                                        Report of the Supervisory Board
– 20,000
           Dez 10




                            Jan 11




                                     Feb 11




                                              Mrz 11




                                                       Apr 11




                                                                Mai 11




                                                                           Jun 11




                                                                                    Jul 11




                                                                                             Aug 11




                                                                                                      Sep 11




                                                                                                                      Okt 11




                                                                                                                                Nov 11




                                                                                                                                          Dez 11
 Eurohypo           Limit




                                                                                                                                                        Capital Market Communication
by Eurohypo over to Commerzbank. The Group                               business risk
has qualified as an institution for the internal                         Business risk is deemed to be a potential loss
capital model (advanced measurement approach).                           that results from deviations of actual income
All quantitative and qualitative requirements for                        (negative deviation) and costs (positive devia-
managing operational risk have been implemented,                         tion) from budgeted figures. This loss is mainly




                                                                                                                                                        Management Report
including corresponding management mecha-                                determined by business strategy and internal
nisms. Commerzbank calculates regulatory and                             budget planning as well as through changing
economic capital and is responsible for model-                           operating conditions for business volumes, tech-
ling stress scenarios for operational risk. There                        nical processes and the competitive situation of
were OpRisk losses of € 20.2 million in 2010,                            the bank and its competitors for customers. Busi-
largely stemming from refinancing losses and                             ness risk is managed by means of clear targets
legal risks. The regulatory capital required for                         for specific business areas as regards returns as
operational risks as determined by the advanced                          well as cost-income ratios.
measurement approach (AMA) was € 80.3 million
at 31 December 2010.                                                     other risks
                                                                         In order to meet the Pillar 2 requirements of the
     Outsourcing                                                         Basel framework, the minimum requirements of
Outsourcing risk comes under operational risk.                           risk management (MaRisk) necessitate a holistic
This risk is quantified within the methods and                           view of risk and hence that unquantifiable risk
procedures applicable there, in as far as this is                        categories also be taken into consideration. These
possible and economically meaningful.                                    are subject to Group-wide qualitative management
                                                                         and controlling processes.
70   Management Report




              Personnel risk                                   strategic corporate management lies with the
         Commerzbank defines four categories of person-        Board of Managing Directors and is determined
         nel risk:                                             in accordance with Group strategy. On the basis
              Adjustment risk: Employees and those stand-      of ongoing observation of the German and inter-
         ing in for them must have the required know-          national market and competitive environment,
         ledge and experience appropriate to their duties,     and of the requirements imposed by the regula-
         authority and responsibilities. Appropriate train-    tory authorities and the capital markets, key
         ing and continuing education programmes must          changes and developments are continuously ana-
         be offered to ensure that employee qualifications     lysed to determine the action needed to ensure
         at least keep pace with the current state of devel-   long-term corporate success.
         opments.
              Motivation risk: Pay and incentive systems           Reputational risk
         must be designed so that they do not lead to          The risk of deterioration of the bank’s reputation
         conflicts of interest or inappropriate incentives,    among shareholders, clients, employees, busi-
         especially in the case of senior managers.            ness partners and the public is described as repu-
              Departure risk: The company must ensure          tational risk. Risks to the bank’s reputation are
         that the absence or departure of employees will       usually the consequence of other types of risk,
         not result in long-term disruptions to operations.    e. g. compliance risk. The management’s aim is
         The criteria governing appointments to senior         early identification and monitoring of these risks,
         managerial positions in particular must be            as well as raising awareness of them among
         defined.                                              employees. Corporate communications is respon-
              Supply risk: The quantitative and qualitative    sible for managing such risks. The central tasks
         staffing of the bank must be based on internal        are analysis of reputational risk and coordinating
         operating requirements, business activities,          PR and operational management of day-to-day
         strategy and the risk situation.                      business in the event of a crisis. The Board of
                                                               Managing Directors and Supervisory Board are
              Business strategy risk                           informed regularly of current reputational risks
         Strategic risk is the risk of negative impacts on     by the responsible reputation manager.
         the achievement of Eurohypo’s strategic goals as
         the result of changes in the market and the com-          Compliance risk
         petitive environment, capital market requirements,    Eurohypo’s success is contingent upon the trust
         bank regulations or policies, or inadequate imple-    and confidence of our clients, our Pfandbrief
         mentation of Group strategy or inconsistent           investors, our staff and the public in our capacity
         development of business units. Responsibility for     and potential and especially in the integrity of our
                                                                                                                      71




                                                                                                                           Letter to our Stakeholders
                                                                                  Management Report >>> Risk Report




                                                                                                                           Board of the Managing Directors
bank and the entire Commerzbank Group. This           summary
confidence is based particularly on compliance        We have reported on the risks which are relevant




                                                                                                                           Report of the Supervisory Board
with applicable statutory, regulatory and internal    to the overall assessment of the Eurohypo Group.
regulations and conformity with customary mar-        No further risk criteria or circumstances that could
ket standards and codes of conduct (”compli-          jeopardise the bank’s existence are discernible.
ance“) in business activities. The Board of Man-      From the current standpoint, there is also no indi-
aging Directors has primary responsibility for        cation of future risks that could jeopardise the
compliance and assigned the function to Com-          continued existence of the company. In the finan-
merzbank Group Compliance in 2010. The pur-           cial year 2010, Eurohypo’s aggregated risk was




                                                                                                                           Capital Market Communication
pose of compliance is to identify at an early stage   in line with the bank’s risk-bearing capability.
any compliance risks that could cast doubt on             Where applicable, we have taken appropriate
the integrity and therefore the success of the        measures with respect to discernible risks through
company, to prevent such risks if possible, man-      write-downs or recognition of loan loss provisions
age them or resolve them appropriately in the         in the annual financial statements.
interests of the parties involved.




                                                                                                                           Management Report
b r a n d e n b u r g g at e , b e r l i n b i g b e n , l o n d o n p a l a c i o d e c o m u n i c a c i o n e s , m a d r i d e i f f e l t o w e r , p a r i s
h a g i a s o p h i a , i s t a n b u l p a l a c e o f c u lt u r e a n d s c i e n c e , w a r s a w s a i n t b a s i l’s c a t h e d r a l , m o s c o w
b e l é m t o w e r , l i s b o n m i l a n c a t h e d r a l , m i l a n s t a t u e o f l i b e r t y, n e w y o r k
                                                                                               Group Financial Statements >>> Contents   73




FINANCIAL STATEMENTS OF THE EUROHYPO GROUP
AS AT 31 DECEMBER 2010




Our Group accounts are drawn up in accordance with the International Accounting Standards (IAS) and the Inter-
national Financial Reporting Standards (IFRS) and their interpretation by the Standing Interpretations Committee
and the International Financial Reporting Interpretation Committee. We have taken account of all the standards
and interpretations that are binding in the European Union for the 2010 financial year.




    contents
           76 Statement of comprehensive income
           78 Appropriation of profit
           79 Balance sheet
           80 Statement of changes in equity
           82 Statement of cash flows


           84 Notes
              84 Significant accounting principles
              84 Accounting and valuation policies
	     		     		    84	 (1)	Basic	principles
	     		     		    85	 (2)	Changes	in	accounting	policies	
	     		     		    86	 (3)	Consolidated	companies	and	principles	of	consolidation	
	     		     		    87	 (4)	Financial	instruments:	recognition	and	measurement	(IAS	39)
	     		     		    92	 (5)	Currency	translation	
	     		     		    92	 (6)	Cash	reserve	
	     		     		    92	 (7)	Claims	




                                                                                                                                              Financial Statements
	     		     		    92	 (8)	Loan	loss	provisions
	     		     		    93	 (9)	Repurchase	agreements	and	securities	lending	transactions
	     		     		    93	 (10)	Positive	fair	values	attributable	to	derivative	hedging	instruments
	     		     		    93	 (11)	Trading	assets	
	     		     		    93	 (12)	Financial	investments	
	     		     		    95	 (13)	At-equity	investments	



                                                                                                                                              Auditor’s Report
	     		     		    95	 (14)	Investment	property	
	     		     		    95	 (15)	Assets	held	for	sale	
	     		     		    95	 (16)	Intangible	assets	
	     		     		    96	 (17)	Fixed	assets	
	     		     		    96	 (18)		Leasing	
                                                                                                                                              § 28 PfandbriefGS




	     		     		    96	 (19)	Taxes	on	income
	     		     		    97	 (20)	Liabilities	to	banks	and	customers	and	securitised	liabilities	
	     		     		    97	 (21)		Negative	fair	values	attributable	to	derivative	hedging	instruments	
	     		     		    97	 (22)	Trading	liabilities	
	     		     		    97	 (23)	Provisions	
                                                                                                                                              At a glance




	     		     		    98	 (24)	Provisions	for	pensions	and	similar	commitments	
	     		     		    99	 (25)	Staff	remuneration	plans	
	     		     		   101	 (26)	Subordinated	and	hybrid	capital	
	     		     		   101	 (27)	Equity	and	minority	interests	
	     		     		   101	 (28)	Trust	transactions	
	     		     		   101	 (29)	Contingent	liabilities	and	irrevocable	credit	commitments	
74   Group Financial Statements




                      102 Notes to the income statement
         	     		    		    102	 (30)	Net	interest	income	
         	     		    		    103	 (31)	Loan	loss	provisions	
         	     		    		    103	 (32)	Net	commission	income	
         	     		    		    104	 (33)	Net	income	on	hedge	accounting	
         	     		    		    104	 (34)	Net	trading	income	
         	     		    		    105	 (35)	Net	investment	income	
         	     		    		    105	 (36)	Current	income	on	companies	accounted	for	using	the	equity	method
         	     		    		    105	 (37)	Net	income	on	investment	properties
         	     		    		    106	 (38)	Operating	expenses	
         	     		    		    107	 (39)	Other	net	income	
         	     		    		    107	 (40)	Impairments	of	goodwill	
         	     		    		    107	 (41)		Restructuring	expenses	
         	     		    		    107	 (42)	Taxes	on	income	
         	     		    		    109	 (43)	Net	income	
         	     		    		    110	 (44)	Income	statement	by	quarter	
         	     		    		    112	 (45)	Segment	reporting	


                      117 Notes to the balance sheet – Assets
         	     		    		    117	 (46)	Cash	reserve	
         	     		    		    117	 (47)	Claims	on	banks	
         	     		    		    117	 (48)	Claims	on	customers	
         	     		    		    118	 (49)	Loan	loss	provisions	
         	     		    		    118	 (50)	Positive	fair	values	attributable	to	derivative	hedging	instruments	
         	     		    		    119	 (51)	Trading	assets
         	     		    		    119	 (52)	Financial	investments	
         	     		    		    120	 (53)	At-equity	investments	
         	     		    		    121	 (54)	Investment	property	
         	     		    		    121	 (55)	Assets	held	for	sale	
         	     		    		    121	 (56)	Intangible	assets	
         	     		    		    121	 (57)	Fixed	assets	
         	     		    		    122	 (58)	Statement	of	changes	in	fixed	assets	and	investments	
         	     		    		    126	 (59)	Tax	assets	
         	     		    		    127	 (60)	Other	assets	


                      128 Notes to the balance sheet – Liabilities
         	     		    		    128	 (61)	Liabilities	to	banks	
         	     		    		    128	 (62)	Liabilities	to	customers	
         	     		    		    128	 (63)	Securitised	liabilities	
         	     		    		    129	 (64)		Negative	fair	values	attributable	to	derivative	hedging	instruments	
         	     		    		    129	 (65)	Trading	liabilities
         	     		    		    129	 (66)	Provisions	
         	     		    		    132	 (67)	Tax	liabilities	
         	     		    		    132	 (68)	Other	liabilities	
         	     		    		    132	 (69)	Subordinated	capital	
         	     		    		    134	 (70)	Hybrid	capital	
         	     		    		    134	 (71)	Equity	structure	
         	     		    		    136	 (72)	Foreign	currency	positions	
                                                                                         Group Financial Statements >>> Contents   75




          136 Notes to financial instruments and risk management
	   		   		   136	 (73)	Derivative	transactions
	   		   		   139	 (74)	Use	of	financial	derivatives	
	   		   		   139	 (75)	Cash	flow	hedges	
	   		   		   139	 (76)	Market	risk
	   		   		   139	 (77)	Interest	rate	risk
	   		   		   140	 (78)	Credit	spread	risk
	   		   		   140	 (79)	Currency	risk
	   		   		   140	 (80)	Risk	reporting	
	   		   		   140	 (81)	Risk-weighted	assets	and	capital	ratios	
	   		   		   141	 (82)	Fair	value	of	financial	instruments	
	   		   		   146	 (83)	Assets	pledged	as	collateral	
	   		   		   146	 (84)	Maximum	default	risk	
	   		   		   147	 (85)	Maturity	breakdown	


          148 Other information
	   		   		   148	 (86)	Repurchase	agreements	(repo	and	reverse	repo	transactions)	and	cash	collateral	
	   		   		   148	 (87)	Securities	lending	transactions	
	   		   		   148	 (88)	Subordinated	assets	
	   		   		   149	 (89)	Off-balance	sheet	obligations	
	   		   		   149	 (90)	Trust	transactions	
	   		   		   149	 (91)	Employees	(average)	
	   		   		   150	 (92)	Related	parties	transactions
	   		   		   153	 (93)	Share-based	payment	plans	
	   		   		   154	 (94)	Securitisation	of	loans	
	   		   		   154	 (95)	Other	commitments	




                                                                                                                                        Financial Statements
	   		   		   154	 (96)	Date	of	release	for	publication	
	   		   		   154	 (97)	Letter	of	comfort	
	   		   		   155	 (98)	Holdings	in	affiliated	and	other	companies


     159 Management bodies
     160 Supervisory board committees



                                                                                                                                        Auditor’s Report
     161 Trustees
     162 Advisory board
     165 Supervisory board mandates
     166 Board of Managing Directors mandates
     167 Staff mandates
                                                                                                                                        § 28 PfandbriefGS




     168 Responsibility statement by the management board


169 auditor’s report

171 information under section 28 of the pfandbrief act
                                                                                                                                        At a glance




187 at a glance
     187 Addresses
     188 Glossary
76   Group Financial Statements




         eurohypo group
         STATEMENT OF COMPREHENSIVE INCOME


         income statement
                                                               1.1. – 31.12.2010   1.1. – 31.12.2009                Change
                                                       Notes          € million           € million    € million         %
         Interest	income	                                                7,263               9,146      –	1,883      –	20.6
         Interest	expenses	                                              5,925               7,858      –	1,933      –	24.6
         Net interest income                             30              1,338               1,288           50         3.9
         Loan	loss	provisions	                           31             –	1,407             –	1,174         233        19.8
         Net interest income after provisions                              – 69                114        – 183    > – 100.0
         Commission	income	                                                213                 180           33        18.3
         Commission	expenses	                                                28                  31          –	3       –	9.7
         Net commission income                           32                185                 149           36        24.2
         Net	income	on	hedge	accounting	                 33                  14                  98        –	84      –	85.7
         Net	trading	income	                             34               –	120                –	53        –	67    >	–	100.0
         Net	investment	income	                          35               –	335               –	248        –	87      –	35.1
         Current	income	on	companies	accounted	            	                   	                   	           	           	
         for	using	the	equity	method                     36                –	21                  –	3       –	18    >	–	100.0
         Net	income	on	investment	properties	            37                –	46                  –	7       –	39    >	–	100.0
         Operating	expenses	                             38                405                 434         –	29        –	6.7
         Other	net	income	                               39                  12                  12           0           –
         Impairments	of	goodwill	                        40                   –                  70        –	70     –	100.0
         Restructuring	expenses	                         41                   –                  73        –	73     –	100.0
         Pre-tax profit / loss                                            – 785               – 515       – 270      – 52.4
         Taxes	on	income	                                42                –	72               –	387         315        81.4
         Consolidated result                                              – 857               – 902          45         5.0
            Attributable	to	minority	interests	                               0                   0           0           –
            Attributable	to	Eurohypo	AG	shareholders                      –	857               –	902          45         5.0
                                                                                     Group Financial Statements >>> Statement of comprehensive income     77




condensed statement of comprehensive income
                                                                 1.1. – 31.12.2010         1.1. – 31.12.2009                                   Change
                                                     Notes               € million                € million             € million                   %
Consolidated result                                                         – 857                     – 902                   45                   5.0
    Change in revaluation reserve                         71                – 262                      676                  – 938             > – 100.0
        Reclassification	adjustments		                                           	                            	                 	                     	
        for	realised	gains	(+)	/	losses	(–)	                                   76                      147                   –	71               –	48.3
        Unrealised	net	gains	(+)	/	losses	(–)	                                   	                            	                 	                     	
        during	the	period                                                   –	338                      529                  –	867             >	–	100.0
    Change in cash flow hedge reserve                     71                    5                            7                –2                – 28.6
        Reclassification	adjustments		                     	                     	                            	                 	                     	
        for	realised	gains	(+)	/	losses	(–)	                                    5                            7                –	2               –	28.6
        Unrealised	net	gains	(+)	/	losses	(–)	                                   	                            	                 	                     	
                                                 	
        during	the	period                                                       –                            –                 –                     –
    Change in currency
    translation reserve                                   71                    5                           –2                 7               >100.0
        Reclassification	adjustments		                                           	                            	                 	                     	
        for	realised	gains	(+)	/	losses	(–)	                                    –                            –                 –                     –
        Unrealised	net	gains	(+)	/	losses	(–)	                                   	                            	                 	                     	
        during	the	period                                                       5                           –	2                7               >100.0
    Change in companies accounted
    for using the equity method during
    the period                                                                  –                            –                 –                     –
Other comprehensive income                                                  – 252                      681                  – 933             > – 100.0
Total comprehensive income                                                – 1,109                     – 221                 – 888             > – 100.0
   Attributable	to	minority	interests                                           0                            0                 0                     0
   Attributable	to	Eurohypo	AG	shareholders                               –	1,109                     –	221                 –	888             >	–	100.0




other comprehensive income
                                                                                     1.1. – 31.12.2010                                1.1. – 31.12.2009
in	€	million                                                   pre-tax           tax            after tax         pre-tax             tax     after tax
Change	in	revaluation	reserve	                                  –	382            120               –	262             988            –	312          676




                                                                                                                                                               Financial Statements
Change	in	cash	flow	hedge	reserve                                   7                –	2               5              10              –	3            7
Change	in	currency	translation	reserve                              5                 –                5              –	2              –            –	2
Change	in	companies	accounted		                                      	                 	                	               	               	             	
for	using	the	equity	method	during	the	period                       –                 –                –               –               –             –
Other comprehensive income                            	         – 370            118               – 252             996            – 315          681
   Attributable	to	minority	interests                               0                 0                0               0               0             0




                                                                                                                                                               Auditor’s Report
   Attributable	to	Eurohypo	AG	shareholders                     –	370            118               –	252             996            –	315          681


                                                                                                                                                               § 28 PfandbriefGS
                                                                                                                                                               At a glance
78   Group Financial Statements




         APPROPRIATION OF PROFIT



         in	€	million                                                   2010    2009
         Consolidated	result	attributable	to	Eurohypo	AG	shareholders   –	857   –	902
         Transfer	of	profits	(+)	/	assumption	of	losses	(–)	            –	672   –	151
         Allocations	to	(+)	/	releases	from	(–)	retained	earnings	      –	185   –	751
         Profit                                                            –       –
                                                                                     Group Financial Statements >>> Consolidated profit / loss / Balance sheet   79




BALANCE SHEET


assets
                                                                             31.12.2010         31.12.20091)                   Change       1.1.2009 2)
                                                                   Notes       € million          € million    € million             %       € million
Cash	reserve	                                                       6,	46             30                 36          –	6         –	16.7             19
Claims	on	banks	                                             7,	8,	47,	49        23,980             26,872      –	2,892          –	10.8        31,248
     of	which	pledged	as	collateral	                                              9,791               8,435       1,356           16.1          9,235
Claims	on	customers	                                         7,	8,	48,	49      116,299             129,695     –	13,396          –	10.3       150,263
Positive	fair	values	attributable		                                      	              	                  	           	               	              	
to	derivative	hedging	instruments                                 10,	50          5,105               5,430       –	325           –	6.0         5,096
Trading	assets	                                                   11,	51         10,112             11,275      –	1,163          –	10.3        12,618
Financial	investments	                                            12,	52         71,427             80,856      –	9,429          –	11.7        89,729
At-equity	investments	                                            13,	53            276                  24         252        >	100.0               0
Investment	properties	                                            14,	54            175                 272        –	97          –	35.7            198
Assets	held	for	sale                                              15,	55              74                  –          74	         100.0                –
Intangible	assets	                                                16,	56              73                 80          –	7          –	8.8           153
Fixed	assets	                                                     17,	57            148                 167        –	19          –	11.4           177
Current	tax	assets	                                               19,	59              39                 32           7           21.9              59
Deferred	tax	assets	                                              19,	59            883                 906        –	23           –	2.5         1,524
Other	assets	                                                         60            389                 416        –	27           –	6.5           516
Total                                                                          229,010             256,061     – 27,051          – 10.6      291,600



liabilities
                                                                             31.12.2010         31.12.20091)                    Change       1.1.2009 2)
                                                                   Notes       € million           € million   € million             %       € million
Liabilities	to	banks	                                             20,	61         84,907              85,681        –	774           –	0.9        85,408
Liabilities	to	customers	                                         20,	62         32,287              34,630      –	2,343           –	6.8        36,867
Securitised	liabilities	                                          20,	63         80,031             102,788     –	22,757         –	22.1       133,285
Negative	fair	values	attributable	to	derivative	                         	                  	              	            	              	               	
hedging	instruments                                               21,	64         12,171              11,391         780             6.8         13,991
Trading	liabilities	                                              22,	65         11,321              12,664      –	1,343         –	10.6         12,807
Provisions	                                                   23,	24,	66             264                310         –	46         –	14.8            296
Current	tax	liabilities	                                          19,	67             118                117            1            0.9            120




                                                                                                                                                                      Financial Statements
Deferred	tax	liabilities	                                         19,	67               33                88         –	55         –	62.5              51
Other	liabilities	                                                    68             129                161         –	32         –	19.9            243
Subordinated	capital	                                             26,	69           3,334              3,379         –	45           –	1.3         3,610
Hybrid	capital	                                                   26,	70             900                900            –               –           900
Equity	of	Eurohypo	Group	                                         27,	71           3,515              3,952        –	437         –	11.1          4,022
     Subscribed	capital	                                              71             914                914            –               –           914
     Capital	reserve	                                                 71           3,992              3,992            –               –         3,992



                                                                                                                                                                      Auditor’s Report
     Retained	earnings	                                               71             258                443        –	185         –	41.8          1,194
     Revaluation	reserve	                                             71         –	1,622             –	1,360       –	262         –	19.3        –	2,036
     Cash	flow	hedge	reserve	                                         71             –	35               –	40           5           12.5            –	47
     Currency	translation	reserve	                                    71                7                  2           5        >	100.0               4
     Consolidated	result                                                                –                  –           –               –              –
                                                                                                                                                                      § 28 PfandbriefGS




Total	before	minority	interests	                                                   3,514              3,951        –	383           –	9.8         4,021
     Minority	interests	                                                                1                  1           0               –              1
Total                                                                           229,010             256,061     – 27,051         – 10.6       291,600
1)
  	31.12.2009	was	adjusted	to	reflect	the	revised	balance	sheet	structure	(see	Note	(2)).
2)
  	1.1.2009	is	equivalent	to	31.12.2008
                                                                                                                                                                      At a glance
80   Group Financial Statements




         STATEMENT OF CHANGES IN EQUITY




                                                                            Subscribed    Capital   Retained
                                                                    Notes       capital   reserve   earnings
         Equity as at 1.1.2009                                        71           914     3,992      1,194
         Total comprehensive income
            Consolidated	result	
            Change	in	revaluation	reserve	
            Change	in	cash	flow	hedge	reserve	
            Change	in	currency	translation	reserve
            Change	in	companies	accounted	for	using		
            the	equity	method	during	the	period	
         Allocations to (+) / releases from (–) retained earnings     71                               – 751
         Transfer of profits (+) / assumption of losses (–)
         Changes in shareholdings
         Other changes
         Equity as at 31.12.2009                                      71           914     3,992        443




                                                                            Subscribed    Capital   Retained
                                                                    Notes       capital   reserve   earnings
         Equity as at 1.1.2010                                        71           914     3,992        443
         Total comprehensive income
            Consolidated	result	
            Change	in	revaluation	reserve	
            Change	in	cash	flow	hedge	reserve	
            Change	in	currency	translation	reserve
            Change	in	companies	accounted	for	using		
            the	equity	method	during	the	period	
         Allocations to (+) / releases from (–) retained earnings     71                               – 185
         Transfer of profits (+) / assumption of losses (–)
         Changes in shareholdings
         Other changes
         Equity as at 31.12.2010                                      71           914     3,992        258
                                                                       Group Financial Statements >>> Statement of changes in equity   81




                                                                                                  Minority
              Cash flow    Currency                     Total before                              interests
Revaluation      hedge    translation   Consolidated       minority            Minority         revaluation
    reserve     reserve      reserve           result      interests           interests            reserve              Total
    – 2,036        – 47            4               0          4,021                    1                  0             4,022
       676           7            –2           – 902          – 221                                                     – 221
                                               –	902          –	902                                                     –	902
       676                                                      676                                                       676
                     7                                            7                                                         7
                                  –	2                            –	2                                                       –	2



                                                 751              0                                                         0
                                                 151            151                                                       151



    – 1,360        – 40            2               0          3,951                    1                  0             3,952




                                                                                                   Minority
              Cash flow    Currency                     Total before                               interests
Revaluation      hedge    translation   Consolidated       minority            Minority         revaluation
    reserve     reserve      reserve           result      interests           interests            reserve              Total
    – 1,360        – 40            2                0         3,951                    1                   0            3,952
      – 262          5             5            – 857        – 1,109                                                  – 1,109
                                                –	857          –	857                                                    –	857
      –	262                                                    –	262                                                    –	262
                     5                                             5                                                        5
                                   5                               5                                                        5



                                                 185               0                                                        0
                                                 672            672                                                       672




                                                                                                                                            Financial Statements
    – 1,622        – 35            7                0         3,514                    1                   0            3,515




                                                                                                                                            Auditor’s Report
                                                                                                                                            § 28 PfandbriefGS
                                                                                                                                            At a glance
82   Group Financial Statements




         STATEMENT OF CASH FLOWS

         information concerning the statement of cash flows
         The statement of cash flows has been prepared in accordance with IAS 7 . It shows the composition of and changes
         in cash and cash equivalents during the financial year. The statement of cash flows is broken down into operating
         activity, investment activity and financing activity.

         The cash flows (inflows and outflows) from claims on banks and customers as well as securities from the trading
         portfolio and other assets are reported as cash flow from operating activities. Inflows and outflows from liabilities to
         banks and customers, securitised liabilities and other liabilities also form part of cash flow from operating activities.
         The interest and dividend payments resulting from operating activities are similarly reflected in cash flow from
         operating activities.

         Changes in cash flow from operating activities result in part from the disposal of consolidated companies.

         Cash flow from investment activities shows transactions for financial assets, intangible assets and fixed assets. Also
         indicated are cash flows connected to the sale or acquisition of subsidiaries. The cash flow from investment activity
         comprises proceeds from capital increases as well as incoming and outgoing payments in connection with subor-
         dinated and hybrid capital. Dividend payments are also indicated here.

         Cash and cash equivalents includes any cash equivalents that are readily convertible to liquid funds and are only
         subject to an insignificant risk of change in value. This includes the cash reserve, which comprises the cash on
         hand and the balances with central banks (see Note 46). Claims on banks due on demand are not included. To
         determine the cash flow, we changed the calculation basis during the year under review and adjusted it accord-
         ingly to the information from the previous year.

         Cash flow statements are not very meaningful for the Eurohypo Group. They replace neither our liquidity nor
         financial planning, nor are they used as a management tool.
                                                                                       Group Financial Statements >>> Statement of cash flows   83




statement of cash flows
in	€	million                                                                      Notes                    2010                   2009
Consolidated result                                                                                       – 857                  – 902
Non-cash	items	included	in	the	consolidated	result	to	reconcile	net	profit	             	                      	                      	
with	net	cash	provided	by	operating	activities:
Depreciation,	write-downs	and	write-ups	of	fixed	assets	and		                           	                      	                      	
financial	assets,	changes	in	provisions	and	changes	in	values		                         	                      	                      	
attributable	to	hedge	accounting                                               38,	39,	40                  702                     948
Changes	in	other	non-cash	positions	                                                                      –	570                    –	43
Loss	/	profit	from	the	sale	of	assets	                                                                     227                      96
Profit	from	the	sale	of	fixed	assets	                                             35,	39                      0                      0
Other	adjustments	(net	interest	income)                                                                 –	1,338                –	1,288
Sub-total                                                                                               – 1,836                – 1,189
Change	in	assets	and	liabilities	from	operating	activities	after	correction	            	                      	                      	
for	non-cash	items:
Claims
   –	on	banks	                                                                        47                 3,085                   4,217
   –	on	customers	                                                                    48                14,282                 18,192
Securities	held	for	trading	purposes	                                                                         –                      –
Other	assets	from	operating	activities	                                                                    157                   –	429
Liabilities
   –	to	banks	                                                                        61                –	1,816                    709
   –	to	customers	                                                                    62                –	2,753                –	2,089
Securitised	liabilities	                                                              63               –	23,451               –	29,465
Other	liabilities	from	operating	activities	                                                                 62                  1,349
Interest	received	                                                                    30                 7,678                 10,052
Dividends	received	                                                                   30                     12                     14
Interest	paid	                                                                        30                –	6,337                –	9,080
Income	tax	paid	                                                                      42                     10                    –	28
Cash flow from operating activities                                                                    – 10,907                – 7,747
Proceeds	from	the	sale	of	
   –	financial	assets	and	at-equity	investments                                                         11,255                   7,297
   –	fixed	assets                                                                                            43                      7




                                                                                                                                                     Financial Statements
Outgoing	payments	for	the	acquisition	of
   –	financial	assets	and	at-equity	investments                                                           –	406                  –	190
   –	fixed	assets	                                                                                         –	10                    –	98
Effects	of	changes	in	the	companies	included	in	the	consolidation
   –	cash	flow	from	the	acquisition	less	cash	equivalents	acquired                                         –	97                    –	70
   –	cash	flow	from	the	sale	less	cash	equivalents	sold                                                       –                      –




                                                                                                                                                     Auditor’s Report
Cash flow from investing activities                                                                     10,785                   6,946
Proceeds	from	capital	increases	                                                      71                      –                      –
Dividend	payments	                                                                    71                      –                      –
Changes	in	funds	from
   –	proceeds	from	assumption	of	losses	                                              71                   151                   1,055
                                                                                                                                                     § 28 PfandbriefGS




   –	proceeds	or	payments	from	subordinated	capital	                                  69                   –	35                  –	237
Cash flow from financing activities                                                                        116                     818
Cash and cash equivalents at the end of the previous period                                                  36                     19
+	/	–	Cash	flow	from	operating	activities	                                                             –	10,907                –	7,747
+	/	–	Cash	flow	from	investing	activities	                                                              10,785                   6,946
                                                                                                                                                     At a glance




+	/	–	Cash	flow	from	financing	activities	                                                                 116                     818
+	/	–	Effects	of	exchange-rate	changes	on	cash	and	cash	equivalents	                                          0                      0
Cash and cash equivalents as at 31.12.                                                                       30                     36
of	which:
   Cash	on	hand	                                                                      46                      0                      0
   Balances	with	central	banks	                                                       46                     30                     36
   Bills	                                                                             46                      –                      –
84   Group Financial Statements




         NOTES

         significant accounting principles
         Eurohypo AG is a bank and has its registered office in Eschborn, Germany. The present consolidated financial
         statements as at 31 December 2010 were prepared in accordance with section 315 a clause 1 HGB and Regulation
         (EC) 1606 / 2002 (IAS Regulation) of the European Parliament and the European Council of 19 July 2002 as well as
         other regulations on the adoption of certain international accounting standards on the basis of the International
         Accounting Standards (IAS) defined and published by the International Accounting Standards Board (IASB) and the
         International Financial Reporting Standards (IFRS) and their interpretations by the Standing Interpretations Com-
         mittee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC) . All standards and inter-
         pretations that are compulsory in the EU have been applied for the 2010 financial year.

         As permitted under the regulations, we have not applied standards and interpretations which are only required to
         be adopted for the 2011 financial year or later (e. g. IFRS 9 , revised IAS 24 as well as revised IFRIC 14 and 19 ; plus
         amendments arising from the IASB ’s annual improvement process).

         The adoption of IFRS 9 , which has been partially published by the IASB and not yet approved by the EU , could have
         significant effects on the Group’s accounting and measurement practices. Due to the fact that significant portions
         of the standard have not yet been finalised and the standard has yet to be adopted by the EU , it is impossible to
         quantify the effects with any degree of accuracy. We do not, however, expect any significant effects on the consoli-
         dated financial statements from other standards and interpretations.

         The standards and interpretations applied for the first time for the 2010 financial year (IFRS 1, 2, 3 and IAS 27, 32
         and 39 as well as IFRIC 12, 15, 16, 17 and 18 ; plus amendments from the IASB ’s annual improvement process) did
         not have any significant impact on the consolidated financial statements.

         In addition to the statement of comprehensive income and the balance sheet, the consolidated financial statements
         also include the statement of changes in equity, the cash flow statement and the notes. The segment report can be
         found in Note 45 on pages 112 to 116.

         The management report including the separate report on the opportunities and risks related to future developments
         (risk report) pursuant to section 315 HGB can be found on pages 57 to 71 of our Annual Report.

         All figures in the consolidated financial statements are given in euros. All amounts are shown in millions of euros
         unless otherwise stated.

         accounting and valuation policies
         (1) basic principles
         The consolidated financial statements are based on the going concern principle. Assets are usually valued at amortised
         cost. This is not the case for certain financial instruments, investment property and assets held for sale. Income
         and expenses are treated on an accruals basis and are recognised in the income statement for the financial period
         to which they apply. Interest including all contractual agreements relating to financial assets or liabilities is reported
         under net interest income for the period to which it applies or, if they result of trading transactions, under net trad-
         ing income. Dividend income is only recognised if a corresponding legal entitlement exists. Commission income
         and expenses are recognised in net commission income firstly on the basis of the accounting treatment of the related
         financial instruments and secondly on the basis of the nature of the activity. Commission for services which are
         performed over a certain period is recognised over the period in which the service is performed. Fees associated
         with the completion of a particular service are recognised at the time of completion of the service. Performance-
         related fees are recognised when the performance criteria are met. Commission on trading transactions is recorded
         in net trading income.

         Financial assets and liabilities relating to the same business partner are netted and shown in the balance sheet on
         a net basis if there is a legally enforceable right to net the amounts and the transactions are fulfilled on a net basis
         or the asset is realised simultaneously with the settlement of the liability. In addition to the netting of positive and
         negative fair values attributable to derivatives, this also applies to the netting of claims and liabilities from reverse
         repo and repo transactions (securities repurchase agreements).
                                                                                              Group Financial Statements >>> Notes   85




The financial statements for the Eurohypo Group are drawn up in accordance with the accounting and valuation
principles set out in these Notes.

We mainly used the financial statements prepared on 31 December 2010 for full consolidation as well as equity
valuation in the consolidated financial statements.

Within the Eurohypo Group, remaining terms are generally reported for all financial instruments that are subject to
contractual maturities (see Notes 73 and 85). A remaining term is defined as short-term if the period between the
reporting date and the instrument’s maturity date is less than one year. We differentiate between the main types of
provisions in Note 66. Financial instruments in trading assets and trading liabilities without contractual maturities, the
cash reserve as well as assets and liabilities held for sale are classified as short-term. Intangible assets, fixed assets
and investment assets, on the other hand, are classified as long-term.

The consolidated financial statements contain figures which are determined on the basis of estimates and assump-
tions, as permitted by the IAS . The estimates and assumptions used are based on past experience and other fac-
tors such as planning figures and forecasts currently considered probable. The forecasts and analyses together
with the assessment factors and valuation methods on which they are based are reviewed regularly and compared
with actual events. In our view, the parameters used are appropriate and reasonable. Estimates are subject to
uncertainties with regard to the calculation of pension obligations and goodwill. Pension obligations are calculated
using the projected unit credit method for defined-benefit pension plans. When calculating these obligations,
assumptions have to be made regarding long-term salary and pension trends and average life expectancy. Changes
in the valuation assumptions from year to year and variations in the actual annual effects are shown in the actuar-
ial gains and losses (for details of the impact of changes to the parameters, see Note 66 on provisions). The annual
impairment test for goodwill is carried out using the discounted cash flow method. Future expected net commis-
sion income is included in this test, based on the most recent management forecasts. For an analysis of the uncer-
tainties linked to estimating goodwill and the fair value of financial instruments, see Notes 16 and 82. For uncer-
tainties linked to estimating the fair value of investment properties, Note 54 contains analyses based on the prop-
erty yield and land value parameters. Estimates for deferred taxes, loan loss provisions, fair value valuation models
and the valuation of financial instruments are all subject to uncertainties. Please refer to the risk report in the man-
agement report for more information about loan loss provisions.

(2) changes in accounting policies
We have employed essentially the same accounting policies as for the financial statements as at
31 December 2009.




                                                                                                                                          Financial Statements
We have changed the balance sheet structure pursuant to IAS 1.54 . The items

     Current tax assets and liabilities
     Deferred tax assets and liabilities

are now recognised individually in the balance sheet. The level of detail shown for operating expenses was also
increased in Note (38). We have restated the prior-year figures accordingly.



                                                                                                                                          Auditor’s Report
We have also harmonized the maturity bands and are now reporting the nominal values of derivative transactions
in the current financial year in Note 73 in the following maturity bands:

     due on demand
     up to three months
                                                                                                                                          § 28 PfandbriefGS



     three months to one year
     one to five years
     over five years
                                                                                                                                          At a glance
86   Group Financial Statements




         (3) consolidated companies and principles of consolidation
              Consolidated companies
         Our consolidated financial statements cover all material subsidiaries in which the Eurohypo Group either directly
         or indirectly holds more than 50 % of voting rights or exercises a controlling influence by other means. This also
         includes significant special purpose vehicles and funds that are controlled as defined in SIC 12 . Significant associ-
         ated companies and joint ventures are valued using the equity method. Subsidiaries, associated companies and
         joint ventures which are of minor significance for the insight into the Group’s assets, financial position and income
         have not been fully consolidated or not valued at equity; instead, they are accounted for under financial assets as
         shares of non-consolidated subsidiaries or investments. Like in 2009, these companies account for less than 0.1 %
         of the Group’s total assets. A full list of all shareholdings of the Eurohypo Group can be found in Note 98.

         The following material subsidiaries were consolidated for the first time in 2010:

         EHNY Montelucia IV LLC , Dover, Delaware, USA , was founded during the first half of 2010. We hold 100 % of the
         shares and voting rights; the assets totalling € 26.5 million and debt totalling € 15.5 million were fully included in
         the financial statements.

         The bank founded Property Invest Italy, S. R. L. , Milan, Italy, for € 60.3 million in connection with foreclosed assets.
         We hold 100% of the shares and voting rights; the assets totalling € 75.2 million and debt totalling € 49.2 million
         were fully included in the financial statements.

         No differences requiring goodwill to be capitalised arose from the first-time consolidations.

         Eurohypo Representacoes Ltda., Sao Paulo, Brazil, discontinued its active operations in 2009; as a result of its new
         immaterial standing, it was deconsolidated and allocated to the group of subsidiaries not included in the financial
         statements.

         Significant changes to the group of at-equity investments arose through a debt swap in connection with the
         restructuring of the loan commitment to Inmobiliaria Colonial S.A. , Barcelona, Spain. The bank received shares in
         the borrower as a result of this swap. The swap took place in two stages. During the first stage, the convertible
         bond was converted into equity and during the second stage loans were converted into equity. The bank currently
         holds a 20% share of the company as a result.

         In 2010, the following subsidiaries joined the group of companies not included in the financial statements:

               Eurohypo Representacoes Ltda., Sao Paulo, Brazil
               EH Montelucia Manager LLC , Dover, Delaware, USA
               Number X Real Estate GmbH, Eschborn
               Compostela s. r. o., Prague, Czech Republic

              Principles of consolidation
         Subsidiaries are companies in which Eurohypo AG directly or indirectly holds a majority of the voting rights or is
         able to determine the company’s financial and business policies and can thereby exercise a controlling influence
         in order to benefit from its activities. They are consolidated from the date when the Group acquires a majority of
         the voting rights or a controlling influence.

         In the course of consolidation, we measure the total assets and liabilities of subsidiaries anew at the date of the
         acquisition irrespective of the size of the stake held. The revalued assets and liabilities are transferred to the con-
         solidated balance sheet taking account of deferred taxes. Any hidden reserves and debts which have been identi-
         fied are dealt with in subsequent accounting periods in line with the applicable standards. If a positive difference
         remains after revaluation, this is shown as goodwill.

         Associated companies are companies in which Eurohypo AG has a significant direct or indirect influence. A significant
         influence is presumed if between 20 % and 50 % of the voting shares are held. Further criteria for determining
         significant influence include material business transactions with the associated company, membership of a manage-
         ment or supervisory body or involvement in shaping the business policy of the associated company. Joint ventures
         are companies in which we share control with other companies. Joint control can be the result of equal voting
         rights or contractual agreements.
                                                                                             Group Financial Statements >>> Notes   87




Associated companies and joint ventures are valued using the equity method and reported as at-equity invest-
ments in the balance sheet. The acquisition costs of these investments including the related goodwill are deter-
mined at the date of first inclusion in the consolidated financial statements. The same rules are applied as for sub-
sidiaries. We recognise a carrying amount of the equity book value for material associated companies and joint
ventures.

Subsidiaries cease to be consolidated when the bank no longer has a controlling influence. Associated companies
and joint ventures are no longer reported under the equity method once the proportion of voting shares held falls
below 20 % or the bank no longer has the ability to influence the associated company. The equity valuation of
joint ventures ends when joint management is discontinued.

Holdings in subsidiaries which are of minor significance and therefore not consolidated as well as investments
and joint ventures are shown at their fair value, or if this cannot be reliably established, at cost under financial
assets.

The obligation to consolidate special purpose vehicles in certain circumstances arises from SIC 12 . Consolidation
is required if a financial analysis shows

    that the special purpose vehicle conducts its activities in such a way as to meet the special needs of the com-
    pany or at its behest so that the company derives benefit accordingly;
    the company has sufficient decision-making powers to obtain the majority of the benefits of the activities of
    the special purpose vehicle or delegates these decision-making powers by setting up an autopilot mechanism;
    the company has the right to obtain the majority of the benefits of the activities of the special purpose vehicle
    and therefore may be exposed to risks incident to the activities of the special purpose vehicle;
    the company retains the majority of the residual or ownership risks related to the special purpose vehicle in
    order to obtain benefits from its activities.

In the Eurohypo Group, the obligation to consolidate special purpose vehicles is reviewed using a process that
comprises both transactions in which a special purpose vehicle is founded by us with or without the involvement
of third parties as well as transactions in which we enter into contractual relationships with an existing special
purpose vehicle either with or without the involvement of third parties. Consolidation decisions are subject to regu-
lar reviews. The list of all consolidated special purpose vehicles is contained in Note 98.

There are no restrictions on the ability of special purpose vehicles to transfer financial resources such as cash
dividends from equity instruments or interest payments and repayments of debt instruments to the Eurohypo
Group. This applies firstly to special purpose vehicles where Eurohypo Group holds shares with voting rights




                                                                                                                                         Financial Statements
under company law which enable it to control all operational decisions including the transfer of financial resources.
There are also no restrictions with regard to special purpose vehicles where Eurohypo Group does not hold
shares under company law but has a right to financial transfers on the basis of corresponding debt contracts with
the special purpose vehicles.

Claims and obligations and also expenses and income arising from material intra-Group transactions are elimi-
nated in the process of consolidating debt, expenses and income. Intra-Group gains are deducted unless they are



                                                                                                                                         Auditor’s Report
of minor significance.

(4) financial instruments: recognition and measurement (ias 39)
In accordance with IAS 39 , all financial assets and liabilities, which also include derivative financial instruments,
must be recognised in the balance sheet. A financial instrument is a contract which simultaneously creates a
                                                                                                                                         § 28 PfandbriefGS




financial asset for one company and a financial liability or equity instrument for another company. Upon the first
occasion that they are reported, financial instruments must be measured at their fair value; this is the cost at the
time they are acquired. Fair value is the amount at which an asset could be exchanged or a debt repaid between
knowledgeable, willing parties in an arm’s length transaction on the balance sheet date. Fair value is determined
by the price established for the financial instrument on an active market (mark-to-market). Where no market
                                                                                                                                         At a glance




prices are available, the fair value is calculated by marking to model, whereby market data are used as parame-
ters wherever possible. In a subsequent valuation, financial instruments are recognised in the balance sheet at
(amortised) cost or fair value according to their category.
88   Group Financial Statements




         The following notes provide an overview of how the rules of IAS 39 in their current version have been applied within
         our Group:

         a) Acquisitions and disposals of financial instruments:
         A financial asset or financial liability is entered in the accounts if the Group is a contracting party to agreements
         relating to the financial instrument. In the case of standard spot purchases and /or sales of financial assets, the
         trading date and settlement date are usually different. For these standard spot purchases and sales, the transaction
         may be entered either using trade date accounting or using settlement date accounting. The Eurohypo Group uses
         settlement date accounting for sales and disposals that fall under the heading of loans and receivables (L aR) , whilst
         available-for-sale (AfS) assets and financial assets or financial liabilities at fair value through profit or loss are recorded
         using trade date accounting. The IAS 39 rules on disposals focus on the concept of risk and reward and on the
         power of disposal, whereby the evaluation process for derecognition gives precedence to the evaluation of risk and
         reward over the valuation of transferring power of disposal. If only part of the risks and rewards are transferred
         and the power of disposal is retained, the continuing involvement approach must be applied. The financial asset
         is then accounted for, using certain accounting and valuation methods, to reflect the extent of the continuing
         involvement. The scope of the continuing involvement is determined by the extent to which the Group still bears
         the risk of any change in value for the transferred asset. A financial liability (or part thereof) is written off when
         it is no longer valid, namely when the obligations set out in the contract have been settled, lifted or have expired.
         The repurchase of Group debt securities is covered by the rules on the derecognition of financial liabilities. If there
         is a difference between the book value of the liability (including premiums and discounts) being bought and the
         purchase price, bearer securities must be recognised under trading income, and all other liabilities entered under
         other income. If issued and resold at a later date, that constitutes a new financial liability, where the acquisition
         cost equal the proceeds from the disposal. Any difference between the new acquisition price and the contractual
         price at maturity are distributed using the effective interest rate method over the remaining lifetime of the debt
         security.

         b) Categorisation of financial assets and liabilities and their valuation:
             Loans and Receivables:
             Non-derivative financial instruments with fixed or determinable payment claims for which no active market
             exists are assigned to this category. This applies irrespective of whether the financial instruments were origi-
             nated by the bank or acquired in the secondary market. An active market exists if quoted prices are regularly
             made available, for example by an exchange or a broker, and these prices are representative of current trans-
             actions between unconnected third parties. Valuation is at amortised cost, which must be adjusted through
             profit or loss in the event of an impairment. Premiums and discounts are spread out over the lifetime of the
             asset and recognised in net interest income.

               Financial assets held to maturity:
               Non-derivative financial assets with fixed or determinable payments and a fixed maturity may be included in
               this category if there is both an intention and the ability to hold them to maturity. Valuation is at amortised
               cost, which must be adjusted through profit or loss in the event of an impairment. Premiums and discounts
               are recognised in net interest income over the lifetime of the asset. In the financial year 2010, the Eurohypo
               Group has again made no use of the held-to-maturity financial assets category.

               Financial assets or liabilities at fair value through profit or loss:
               This category consists of two sub-categories:

               Financial assets or liabilities held for trading:
               This category includes all financial assets and liabilities held for trading purposes and those derivatives that
               do not function as hedging instruments. Financial assets held for trading purposes include original financial
               instruments (in particular interest-bearing securities, equities and promissory notes), precious metals and
               derivatives with a positive fair value. Financial liabilities from trading activities include derivative financial
               instruments with a negative fair value.
                                                                                               Group Financial Statements >>> Notes   89




    Derivative financial instruments used as hedging instruments are only recognised as trading assets or trading
    liabilities from trading activities if they do not meet the conditions for applying the hedge accounting rules
    (see below). Otherwise they are shown as fair value attributable to hedging instruments.

    Trading assets and trading liabilities from trading activities are valued at their fair value at the yearend. Valuation
    and realisation gains or losses are included under trading income in the income statement.

    If transactions are executed for which the fair value is calculated using a valuation model where not all material
    input parameters are based on observable market parameters, these transactions are recorded at the transaction
    price. The difference between the transaction price and the fair value produced by the valuation model is
    known as day one profit or loss. The day one profit or loss is not recognised immediately but is instead recog-
    nised over the term of the transaction in the income statement. Where a reference price can be calculated for
    a transaction on an active market or the material input parameters are based on observable market data, the
    accrued day one profit or loss is recognised directly as trading income.

    Designated at fair value through profit or loss:
    In accordance with the fair value option it is possible to value every financial instrument at fair value and record
    the net result of this valuation in the income statement. The decision as to whether to use the fair value option
    has to be made on the date on which the financial instrument is acquired and is irrevocable.

    The fair value option may be used for a financial instrument provided that:

          an accounting mismatch will be prevented or significantly reduced, or
          a portfolio of financial instruments is managed, and its performance measured, on a fair value basis, or
          the financial instrument contains one or more embedded derivatives that must be separated.

    Where the fair value option is applied to financial instruments, the instruments are still posted under the relevant
    balance sheet items. The valuation gains and losses are entered under trading income in the income statement;
    interest income and expenses are recognised under net interest income.

    The Eurohypo Group does not currently make use of the fair value option sub-category.

    Financial assets available for sale:
    This category includes all non-derivative financial instruments which have not been assigned to any of the
    above categories or which have been designated as available for sale. These are primarily interest-bearing
    securities, equities and investments. They are valued at fair value. If, in exceptional circumstances, the fair




                                                                                                                                           Financial Statements
    value of an equity instrument cannot be reliably determined, valuation is at cost. Valuation gains and losses
    are recognised net of deferred taxes directly in equity in a separate item under capital and reserves (revaluation
    reserve). Premiums and discounts on debt instruments are recognised in net interest income over the life-
    time of the liability. If the financial asset is sold, the cumulative valuation previously recognised in the reval-
    uation reserve is released and recognised through profit or loss. In the event of impairment, the revaluation
    reserve is adjusted accordingly and the amount recognised through profit or loss. A distinction is made between



                                                                                                                                           Auditor’s Report
    write-ups for debt and equity instruments. Write-ups for equity instruments may only be recognised directly
    as equity, but once the reason for impairment has been eliminated, debt instrument valuations may be written
    up to a maximum of the amortised cost in the income statement.

    Other financial liabilities:
                                                                                                                                           § 28 PfandbriefGS



    All financial liabilities not categorised as held for trading and for which the fair value option has not been used
    fall under the category of other financial liabilities. This category includes liabilities to banks and customers
    and securitised liabilities. Valuation is at amortised cost. Premiums and discounts are recognised in net inter-
    est income over the lifetime of the asset.

The net gains and losses include fair value valuations, impairments, write-ups, realised gains and losses on dispos-
                                                                                                                                           At a glance




als and amounts recovered on written-down financial instruments from the IAS 39 category described above. The
components are shown in the Notes regarding net interest income, loan loss provisions, net trading income and
the net investment income for each IAS 39 category.
90   Group Financial Statements




         c) Financial guarantee contracts
         IAS 39 defines a financial guarantee as a contract under which the guarantor is obliged to make certain payments
         that compensate the party to whom the guarantee is issued for a loss arising in the event that a particular debtor
         does not meet payment obligations on time as stipulated in the original or amended terms of a debt instrument. If
         the guarantee is issued to the Eurohypo Group the guarantee is not recognised in the balance sheet and is only taken
         into account if the impairment of a secured asset is being determined. When the Eurohypo Group is the guarantor
         the liability arising from a financial guarantee is recognised when the contract is signed. Initial measurement is at
         fair value at the date of recognition. The fair value of a financial guarantee is zero at the date of entering into the
         guarantee, because for fair market contracts the value of the agreed premium generally corresponds to the value
         of the guarantee obligation. On subsequent measurement a review is performed to determine whether a provision
         is necessary.

         If a financial guarantee is held for trading purposes it will, in contrast to the foregoing description, be dealt with in
         accordance with the regulations for the held-for-trading category (cf. note 4b).

         d) Embedded derivatives
         IAS 39 also regulates the treatment of derivatives embedded in original financial instruments. These include, for
         example, reverse convertible bonds (bonds with a right to repayment in the form of equities) or bonds with index-
         related interest payments. In accordance with IAS 39 , under certain conditions the embedded derivative must be
         shown separately from the original host contract as a standalone derivative.

         Embedded derivatives must be shown separately if the following three conditions are met:

               the characteristics and risks of the embedded derivative are not closely related to those of the original host
               contract
               the separated derivative with the same terms as the embedded derivative would meet the definition of a
               derivative under IAS 39 and
               the host contract is not measured at fair value through profit and loss.

         In this case the separate embedded derivative has to be regarded as part of the trading portfolio and recognised at
         fair value. Changes on revaluation must be shown in profit and loss. The host contract is recognised and measured
         by applying the rules of the category to which the financial instrument is assigned.

         If the above three conditions are not fulfilled the embedded derivative is not shown separately and the hybrid
         financial instrument is valued as a whole in accordance with the general provisions of the category to which the
         financial instrument is assigned.

         e) Hedge accounting
         IAS 39 contains extensive hedge accounting regulations for hedging instruments – especially derivatives – and the
         underlying hedged transactions.

         The general rule is that derivatives are classified as trading transactions (trading assets or trading liabilities) and are
         measured at their fair value. Net valuation gains or losses are shown under net trading income.

         If it can be demonstrated that derivatives are used to hedge risks from non-trading transactions, IAS 39 permits the
         application of hedge accounting under certain conditions. Under IAS 39 , hedge accounting may take the form of
         fair value hedge accounting or cash flow hedge accounting:

               Fair value hedge accounting:
               IAS 39 prescribes the use of hedge accounting for derivatives which are employed to hedge the fair value of
               recognised assets or liabilities. The fair value risk relates primarily to the Group’s issuing and lending busi-
               ness, the securities portfolio and liquidity management, where this involves fixed-income securities. Interest
               rate and interest rate / currency swaps are the primary instruments used to hedge these risks.
                                                                                             Group Financial Statements >>> Notes   91




    Under the regulations for fair value hedge accounting, derivative financial instruments used for hedging pur-
    poses are shown at fair value as fair values from derivative hedging instruments. Changes on revaluation are
    taken to the income statement under result from hedge accounting. Any changes in the offset fair value of the
    hedged asset or hedged liability resulting from the hedged risk must be recognised and also shown in the
    income statement under net income on hedge accounting.

    Fair value hedge accounting may record interest rate risk either using the micro fair value hedge or the port-
    folio fair value hedge method:

    Micro fair value hedge accounting links the underlying transaction to one or more hedging transactions to
    form a hedge relationship. Any changes in the carrying amount of the individual underlying and hedging
    transactions are taken through the income statement. Portfolio fair value hedge accounting recognises inter-
    est rate hedging at portfolio level. Rather than hedging individual transactions or groups of transactions with
    similar risk structures, the method takes the amount of underlying fixed-income transactions for each matu-
    rity range in a portfolio. Portfolios may contain assets only, liabilities only, or both. With this type of hedge
    accounting, measurement changes in the underlying and hedge transactions are recognised as separate asset
    or liability items in the balance sheet.

    Eurohypo uses micro fair value hedge accounting.

    Cash flow hedge accounting:
    IAS 39 prescribes the use of cash flow hedge accounting for derivatives which are employed to hedge the risk
    of a change in future cash flows. A cash flow risk exists in particular for floating-rate loans, securities and lia-
    bilities and for expected transactions (for example, forecast fundraising or financial investments).

    Derivative financial instruments used in cash flow hedge accounting are shown at fair value as fair values
    attributable to derivative hedging instruments. Changes in value are divided into effective and ineffective
    portions. The effective portion of the hedging transaction is taken directly to equity, net of deferred taxes,
    under the cash flow hedge reserve. The ineffective portion is shown in the income statement under net income
    on hedge accounting. However, the counterpart change in value of the hedged underlying transaction is not
    recognised in the balance sheet. The change in value of underlying transactions is recognised on the date
    when the cash flow of the underlying transaction affects income for the period. At that time, the changes in
    value reflected in the reserve for cash flow hedges are released and recognised in the income statement for
    the period.

A number of conditions must be satisfied in order for the hedge accounting rules to be applied. These relate primarily




                                                                                                                                         Financial Statements
to the documentation of the hedge and to its effectiveness.

The hedge must be documented at the time it is established. Documentation must include, in particular, the identi-
fication of the hedging instrument and the underlying hedged transaction as well as details of the hedged risk and
the method employed to determine the effectiveness of the hedge.

In addition to documentation, IAS 39 calls for evidence of an effective hedge in order for the hedge accounting rules



                                                                                                                                         Auditor’s Report
to be applied. Effectiveness in this context refers to the ratio of change in fair value of the cash flow resulting from
the hedged underlying transaction to the change in fair value or the cash flow resulting from the hedge. If these
changes almost completely balance each other out, a high degree of effectiveness exists. Proof of effectiveness
requires, firstly, that a high degree of effectiveness can be expected from a hedge in the future (prospective effec-
tiveness). Secondly, when a hedge exists, it must be demonstrated that it was consistently highly effective during
                                                                                                                                         § 28 PfandbriefGS




the period under review (retrospective effectiveness). A high degree of retrospective effectiveness exists if the
ratio of changes in the fair values or the cash flow lies between 0.8 and 1.25. In the Eurohypo Group, prospective
effectiveness is measures using a shift scenario (the dollar-offset method) and retrospective effectiveness is measured
by regression analysis.
                                                                                                                                         At a glance
92   Group Financial Statements




         (5) currency translation
         Monetary assets and liabilities denominated in foreign currencies and outstanding spot forex transactions are trans-
         lated at the spot rates effective on the reporting date and currency forwards are translated at the forward rates effective
         on the reporting date. As a rule, expenses and income are translated at the spot rates effective at the time of reali-
         sation. Average rates may also be used to translate expenses and income provided these rates are not subject to
         significant fluctuations. Currency-hedged expenses and income are translated at the hedging rate. Expenses and
         income resulting from the translation of balance sheet items are recognised in the income statement as net trading
         income.

         Non-monetary items, such as corporate investments, are essentially translated using historical rates if they are mea-
         sured at amortised cost. However, if they are measured at their fair value, we use the rate effective on the reporting
         date. In line with the recognition of gains or losses, the results of translating gains or losses from non-monetary
         items are either booked directly to equity or recognised in the income statement.

         Income and expenses in the financial statements of consolidated subsidiaries and at-equity investments prepared in
         foreign currencies are translated at the market rates effective on the relevant transaction date. To simplify matters,
         the translation may also use the approximate translation rate on the day of the relevant transaction, for example the
         average rate in a period. All differences resulting from the translation must be recognised directly as a separate equity
         component in the reserve for currency translation. Translation gains and losses on consolidation are also recognised
         directly in equity in the reserve for currency translation. Translation differences on the disposal of these assets are
         recognised in the net investment income at the time of disposal.

         ( 6 ) cash reserve
         The cash reserve of the Eurohypo Group comprises cash at bank and balances with central banks. These are reported
         at nominal value.

         ( 7 ) claims
         Eurohypo Group’s claims on banks and customers not held for trading purposes and not quoted on an active mar-
         ket are shown at amortised cost. Premiums and discounts are recognised in net interest income over the lifetime
         of the liability. The carrying amounts of claims that qualify for micro fair value hedge accounting are adjusted for
         changes in fair value attributable to the hedged risk. Embedded derivatives that must be separated are valued at
         fair value and shown either under trading assets or trading liabilities.

         ( 8 ) loan loss provisions
         We fully provide for the specific default risks associated with the lending business by forming specific valuation
         allowances and portfolio valuation allowances.

         In order to account for the credit risks contained in our claims on customers and banks, we have formed specific
         valuation allowances based on uniform standards across the Group. A valuation allowance must be formed for a loan
         if it is probable that not all the interest payments and repayments of principal will be made as agreed. The level
         of valuation allowance corresponds to the difference between the carrying amount of the loan less the net present
         value of the expected future cash flow.

         We also account for credit risks by means of portfolio valuation allowances. The level of the portfolio valuation
         allowances to be formed is determined by an approach derived from the Basel II system.

         Insofar as it relates to claims in the balance sheet, the aggregate provision for loan losses is deducted directly from
         claims on banks and claims on customers. However, provisions for the off-balance sheet business (guarantees,
         endorsement liabilities, lending commitments) are shown under provisions for lending risks.

         Unrecoverable amounts for which no specific valuation allowance has been formed are written off immediately.
         Amounts recovered on claims written off are recognised in the income statement. Impaired claims are partly or
         wholly written off utilising any existing specific valuation allowances if the claim proves to be partly or wholly unre-
         coverable. Any portions of written-down claims which exceed the existing provisions are also directly written off in
         the event that they are unrecoverable.
                                                                                              Group Financial Statements >>> Notes   93




( 9 ) repurchase agreements and securities lending transactions
Repo transactions combine the spot purchase or sale of securities with their forward sale or repurchase, the
counterparty being identical in both cases. The securities sold under repurchase agreements (the spot sale) are
still recognised and measured in the consolidated balance sheet as part of the securities portfolio. The inflow of
liquidity from the repo transaction is recognised in the balance sheet as a liability either to banks or customers,
depending on the counterparty involved. The agreed interest payments are booked as interest expense in accor-
dance with the respective maturities. The agreed interest payments are booked as interest expense in accordance
with the respective maturities and reported in net trading income or, if they are not the result of trading transactions,
in net interest income.

The outflows of liquidity as a result of reverse repos appear as claims on banks or customers and are recognised
and measured accordingly. The securities bought under repurchase agreements and on which the financial trans-
action is based (the spot purchase) are not recognised or measured in the balance sheet. The agreed interest pay-
ments from reverse repos are treated as interest income, reflecting the respective maturities.

Securities lending transactions are recognised in the same way as repurchase agreements. The securities lent
remain part of our securities holdings and are measured in accordance with IAS 39 . Borrowed securities are not
recognised or measured in the balance sheet. Cash collateral provided by us for securities lending transactions
is recognised as a claim, whilst collateral received appears as a liability.

Financial assets that have been transferred but not derecognised are subject to the same risks and opportunities
as financial assets that have not been transferred, which are described in Note 4.

( 10 ) positive fair values attributable to derivative hedging instruments
Derivative financial instruments used for hedging purposes which qualify for micro fair value hedge accounting
and have a positive fair value are reported under this item. The hedging instruments are measured at fair value.

Listed hedging instruments are measured at market prices; unlisted hedging instruments are measured using
comparable prices and internal valuation models (net present value or option pricing models). The net valuation
gains / losses calculated under hedge accounting for fair value hedges are recognised in the income statement
under result from hedge accounting. We take the effective portions of the gains or losses on cash flow hedges
to equity under the reserve for cash flow hedges. Ineffective portions of the gains or losses on cash flow hedges
are taken to income under net income on hedge accounting.

( 11 ) trading assets




                                                                                                                                          Financial Statements
All claims that are held for trading purposes are included in this category. They are measured at fair value in the
balance sheet at the balance sheet date. Also shown at fair value are all derivative financial instruments that are
not used as hedging instruments under the hedge accounting rules and have a positive fair value. Market prices
are applied for listed financial instruments; for unlisted products comparable prices, indicative prices from pricing
service providers or other banks (lead managers) or internal valuation models (net present value or option pricing
models) are used. All realised gains and losses as well as unrealised measurement changes are reported in net



                                                                                                                                          Auditor’s Report
trading income in the income statement. Interest and dividend yields from trading assets and the corresponding
refinancing costs are also reported in net trading income.

( 12 ) financial investments
Financial investments comprise financial instruments that are not allocated to any other balance sheet item. Financial
                                                                                                                                          § 28 PfandbriefGS



investments include all bonds, notes and other fixed-income securities, shares and other equity-related securities,
investments and shareholdings in non-consolidated subsidiaries which are not held for trading purposes, unless they
are classified as available for sale under IFRS 5 . Investments in associated companies or joint ventures that are not
valued using the equity method for materiality reasons are reported under financial investments as investments.

Financial instruments from the loans and receivables category contained in this item are measured at amortised cost.
                                                                                                                                          At a glance




The fair value at the date of reclassification is recognised as the new carrying amount for reclassified securities hold-
ings. The revaluation reserve after deferred taxes for reclassified securities remains under the same item in equity
and is released over the remaining term of the reclassified securities holdings.
94   Group Financial Statements




         The financial investments assigned to the available for sale category are measured and recognised at fair value. If the
         fair value cannot be obtained from an active market, items are measured by means of comparable prices, indicative
         prices from pricing service providers or other banks (lead managers) or internal valuation models (net present value
         or option pricing models). Where the fair value of equity instruments in exceptional circumstances cannot be reliably
         determined, they are carried in the balance sheet at amortised cost less any necessary impairment.

         Changes in assets in the available for sale category are reflected – net of deferred taxes – in the revaluation reserve
         in equity. Realised gains and losses are only recognised in the net investment income when the assets are sold or
         impaired.

         Premiums and discounts are recognised in net interest income over the lifetime of the liability. Net interest income
         also includes interest income from bonds, dividend payments on shares and shareholdings in non-consolidated com-
         panies and current income from participating interests.

         If, however, an effective hedge with a derivative financial instrument exists for financial instruments shown here, that
         part of the change in fair value attributable to the hedged risk is shown under the net gains or losses from hedge
         accounting.

         In accordance with IAS 39.59 , financial instruments shown under financial investments must be reviewed for any
         objective indications (e. g. breach of contract, loss event, increased probability of financial reorganisation or insol-
         vency) that not all of the expected cash flow from the asset will be realised. An impairment exists if the net present
         value of the expected cash flow is less than the book value of the financial instrument concerned. In the event of
         an impairment, the net change is no longer recognised in the revaluation reserve as equity, but is instead shown as
         an impairment expense under net investment income in the income statement.

         For equity capital instruments, an impairment exists if, among other circumstances, the value falls either significantly
         or persistently below the acquisition cost.

         In the Eurohypo Group, equity instruments in the available for sale portfolio are written down if the fair value falls
         below the acquisition cost either significantly (> 20 %) or on a long-term basis (over a period of at least nine months).
         In addition to these quantitative trigger events, the instruments are reviewed according to the qualitative trigger
         events described in IAS 39.59 .

         Equity instruments in the available for sale category may not be written up through profit or loss; instead any write-
         ups are booked directly to the revaluation reserve. Therefore the only impact on profit or loss for these instruments is
         on impairment or disposal. No write-ups whatsoever may be made for unlisted equity instruments for which the fair
         value cannot be reliably determined and which are therefore measured at acquisition cost less any necessary impair-
         ment.

         If any of the IAS 39.59 qualitative trigger events occur, debt instruments in the available for sale category are reviewed
         and, if necessary, impaired. In implementing the qualitative trigger events operationally, the Eurohypo Group has
         developed additional indicators for write-downs. For example, debt instruments in the available for sale portfolio are
         normally written down if the borrower’s rating is CCC or lower and fair value is below amortised cost.

         If the reasons for an impairment of debt instruments in the available for sale portfolio cease to apply, the debt instru-
         ment is written up, the maximum write-up being the amount of the amortised cost. Any amount in excess of the
         acquisition cost is recognised in the revaluation reserve.

         For financial instruments classified as loans and receivables impairments are recognised on a similar basis to that
         applied in the lending business (set out in Note 4). The impairments are recognised in the net investment income.
         If the impairment indicator for particular securities no longer applies or no longer indicates an impairment, the
         impairment loss may be reversed to a level not exceeding amortised cost. Similarly, an improved risk environment
         can lead to the reversal of an impairment that was previously recognised at the portfolio level.
                                                                                          Group Financial Statements >>> Notes   95




(13) at-equity investments
Investments in associated companies and joint ventures are reported as available for sale assets using the equity
method. Joint ventures are also reported using the equity method. Unrealised gains on transactions with joint
ventures are eliminated on consolidation on a pro rata basis, insofar as the situation has a material impact.

(14) investment property
Investment properties are defined as land and buildings held for the purpose of earning rental income or because
they are expected to increase in value. Eurohypo Group mainly reports property acquired during collateral realization
under investment property.

Investment property is valued at the date of acquisition at cost in accordance with IAS 40 , taking into account any
directly attributable transaction costs. The fair value model is used for the subsequent valuation of investment
property. Fair value is determined on the basis of valuations that are reviewed annually by surveyors and the prices
achievable in the current market. Commercial properties are usually valued based on capitalised earnings; individual
apartment buildings are generally valued on a tangible asset or comparative value basis. Gains and losses arising
from changes in fair value are recognised in the income statement for the period.

(15) assets held for sale
Assets and disposal groups that can be sold in their current state and the sale of which is highly probable must
classified as held for sale. The corresponding assets must be shown at fair value less disposal costs where this is
lower than the carrying amount. In the event of resulting impairments, for disposal groups these must be recog-
nised in the income statement in the net investment income and for non-current assets they must be recognised in
other net income. Any subsequent write-up is limited to the sum of previously recognised impairments.

( 16 ) intangible assets
We report software and goodwill under intangible assets. They are reported at amortised cost and software is
amortised on a straight-line basis over its finite useful life. Annual impairment tests are carried out for goodwill.

Writedowns of goodwill are reported under a separate item in the income statement. Amortisation of software
and other intangible assets and depreciation of land, buildings, operating and office equipment are shown under
depreciation on fixed assets and amortisation of intangibles under operating expenses.

     Impairment test methodology
On each annual reporting date or if a trigger event occurs, all goodwill is examined with a view to its future eco-




                                                                                                                                      Financial Statements
nomic utility on the basis of cash generating units. The carrying amount of the equity committed to each segment
as a cash generating unit (including any attributable goodwill) is compared with the recoverable amount of that
unit. The recoverable amount is calculated on the basis of the value in use. This is based on the expected results
for the relevant unit and the capital effects set out in the mid-term plan as approved by the Board of Managing
Directors for the individual segments defined as cash generating units under IFRS 8 and described in Note 45.
Where the value in use is less than the carrying amount, the net realisable value (fair value less cost to sell) is



                                                                                                                                      Auditor’s Report
also calculated. The higher of the two values is applied.

If the reason for an impairment carried out in a previous financial year no longer applies, the assets are written
up at maximum to cost. Write-ups of goodwill are not permitted.

Software is amortised on a straight-line basis over its expected useful economic life of two to ten years and
                                                                                                                                      § 28 PfandbriefGS



charged to administrative expenses. Software includes both software developed in-house and software purchased
externally.
                                                                                                                                      At a glance
96   Group Financial Statements




         ( 17 ) fixed assets
         Fixed assets are reported at cost less scheduled straight-line depreciation in line with the expected useful life,
         when the assets are depreciable. Fixed assets are depreciated on a straight-line basis in line with their expected
         economic useful life over the following timescales:

         useful life
                                                                                                                           Years
         Office	buildings	                                                                                                    40
         Residential	buildings	                                                                                          up	to	50
         Operating	and	office	equipment	                                                                                  2	to	23


         Fixed assets are subjected to an impairment test if events or a change in circumstances indicate that an impairment
         may have occurred. In such cases, the impairment test is carried out in accordance with the principles for intangible
         assets set out in IAS 36 .

         Extraordinary depreciation is applied if a permanent impairment appears likely. If the reasons for extraordinary
         depreciation cease to apply, the asset is written up at a maximum to amortised cost.

         Acquisitions of low-value assets in the financial year are recorded directly as an administrative expense in the report-
         ing period for reasons of materiality. Interest on borrowings to finance fixed assets is not capitalised. Measures to
         maintain fixed assets are recorded as an administrative expense in the year in which they arise.

         Depreciation is reported under administrative expenses. Gains and losses on the disposal of fixed assets are recorded
         under other operating income.

         ( 18 ) leasing
         Under IAS 17 , leases are classified as operating leases if substantially all the risks and rewards incident to owner-
         ship are not transferred to the lessee. Finance leases, on the other hand, are leases in which substantially all the
         risks and rewards are transferred to the lessee. The transfer of risks and rewards is essentially determined by
         the net present value of the cash flows associated with the lease. Where the net present value is at least the same
         as the asset value of the leased asset, the lease is classified as a finance lease. Leased assets primarily comprise
         property and motor vehicles.

         If substantially all the risks and rewards incident to ownership of the leased asset are still held by the lessor
         (operating lease), the asset is still recognised in the balance sheet. The leased assets are recognised in the con-
         solidated balance sheet under other assets. The leased asset is recognised at cost less scheduled depreciation or
         impairment over its useful economic life. In the absence of any specific rules on income distribution, lease income
         is recognised on a straight-line basis over the duration of the lease under other income.

         Eurohypo Group does not have any finance leases; liabilities relating to operating leases are set out in Note 95.

         ( 19 ) taxes on income
         Current tax assets and liabilities were calculated by applying the current tax rates for refunds from or payments
         to the relevant tax authorities.

         Deferred taxes are recognized on the basis of substance over form. Thus deferred tax effects are entered under
         the economic entity whose business generates the effect, irrespective of whether it is liable for the actual tax debt.

         Eurohypo AG , as an indirect subsidiary of Commerzbank AG , therefore recognizes deferred taxes for Germany but
         is not the taxable entity.

         Deferred tax assets and liabilities are recognised to reflect differences between the IFRS carrying amounts of assets
         or liabilities and their taxable value, provided that these temporary differences are expected to increase or reduce
         future income taxes. In addition, deferred tax assets are recognised for tax loss carryforwards and tax credits
         that have not yet been used. The valuation of deferred taxes is based on income tax rates already in force as at
         31 December 2010, and which are applicable to the realisation of the temporary differences. Deferred tax assets –
         for example on as-yet unused tax loss carryforwards – are only recognised if taxable profits are likely to be gene-
                                                                                              Group Financial Statements >>> Notes   97




rated by the same tax unit in future. Tax assets and liabilities may not be discounted. Deferred tax assets and lia-
bilities are recognised either under income taxes in the income statement or directly in the relevant equity item,
depending on why they arose.

Income tax expenses and income are reported under income taxes in the consolidated income statement and in
the Notes and broken down into current and deferred tax assets and liabilities for the financial year. Other taxes
that are not related to income appear under other operating income/expense. Current and deferred tax assets and
liabilities appear as separate asset or liability items in the balance sheet.

Deferred tax assets and liabilities have been netted where the right to net current income taxes exists and the defer-
red tax assets and liabilities relate to income taxes charged by the same tax authority to the same taxable entity.

The taxable temporary differences in connection with shares in Eurohypo Group companies amount to less than
€ 1 million (previous year less than € 1 million). Deferred tax liabilities were not treated as deferred for this purpose
because the differences will not be resolved in the foreseeable future.

Current and deferred tax assets and liabilities are defined in Notes 59 and 67.

( 20 ) liabilities to banks and customers and securitised liabilities
Financial liabilities are recognised at amortised cost. Embedded derivatives that must be separated are measured
at fair value and shown either under trading assets or trading liabilities. Under micro fair value hedge accounting,
hedged liabilities are adjusted for the fair value attributable to the hedged risk.

( 21 ) negative fair values attributable to derivative hedging instruments
Derivative financial instruments used for hedging purposes and which qualify for micro fair value hedge account-
ing are shown under this item if they have a negative fair value. The hedging instruments are measured at fair
value. Listed hedging instruments are measured at market prices; unlisted hedging instruments are measured using
comparable prices and internal valuation models (net present value or option pricing models). Changes in the fair
value of hedging instruments used for fair value hedges are shown in the income statement under net income on
hedge accounting. We show the effective portions of the gains or losses on cash flow hedges in equity under the
reserve for cash flow hedges. Ineffective portions of the gains or losses on cash flow hedges are shown in the
income statement under net income on hedge accounting.

( 22 ) trading liabilities
Derivative financial instruments that are not used as hedging instruments under hedge accounting and which have




                                                                                                                                          Financial Statements
a negative fair value are shown as liabilities from trading activities. Liabilities from trading activities are recorded
at fair value through profit and loss. Market prices are applied for listed financial instruments; for unlisted products
comparable prices or internal valuation models (net present value or option pricing models) are used. All realised
gains and losses and unrealised measurement changes are reported in net trading income in the income statement.

( 23) provisions




                                                                                                                                          Auditor’s Report
A provision must be shown if, on the balance sheet date, as the result of a past event, a current legal or de facto
obligation has arisen, an outflow of resources to meet this obligation is likely and it is possible to make a reliable
estimate of the amount of this obligation. We therefore recognise provisions on the scale deemed necessary for
liabilities of uncertain amount towards third parties and for anticipated losses related to pending transactions.

The amount recognised as a provision represents the best possible estimate of the expense required to meet the
                                                                                                                                          § 28 PfandbriefGS




current obligation on the reporting date. Risks and uncertainties are taken into account in the estimate.

The different types of provisions are taken through a number of different items in the income statement. Provisions
for the lending business are charged to loan loss provisions and restructuring provisions to restructuring expenses.
The remaining provisions are usually charged to administrative expenses.
                                                                                                                                          At a glance




Restructuring provisions are reported if the Eurohypo Group has detailed formal plans for restructuring measures
and has already begun implementing the plan or has already announced the key features of the restructuring plan.
A detailed plan sets out the business segments affected, the approximate number of staff whose positions will be
affected, the associated costs and the period over which the restructuring measures will be carried out. The detailed
98   Group Financial Statements




         plan must be communicated in such a way as to allow those affected to make due preparations. The restructuring
         expenses item in the income statement also includes expenses that are directly linked to the restructuring measures
         and are not covered by the restructuring provisions.

         The amount recognised as a provision represents the best possible estimate of the expense required to meet the
         current obligations on the reporting date. Risks and uncertainties are taken into account in the estimate. Provi-
         sions are recognised at their net present value if the term is longer than one year.

         (24) provisions for pensions and similar commitments
         Company pension provision for current and former employees (and their surviving dependants) of Eurohypo
         Aktiengesellschaft and some domestic subsidiaries is based on a number of different pension schemes (both
         defined benefit and defined contribution plans).

         Firstly, employees obtain an entitlement to benefits based on an external pension commitment (a defined contribu-
         tion plan). To finance the scheme, the Group, together with its current employees, pays a fixed amount to external
         pension providers (including Versicherungsverein des Bankgewerbes a. G. (BVV), Berlin, and Versorgungskasse
         des Bankgewerbes e. V., Berlin).

         The level of the current and future pension benefits is determined in this case by the contributions paid and the
         associated investment income. The IAS 19 accounting principles for defined contribution plans are applied to these
         indirect systems, which means that the contributions to the external providers are shown as staff expenses. No
         provisions are formed.

         Secondly, there are pension entitlements and current benefit obligations based on a direct pension commitment by
         Eurohypo where the level of the benefit is fixed and determined by factors such as age, remuneration and length
         of service (defined benefit plan). The IAS 19 accounting principles for defined benefit pension plans are applicable
         to these pension schemes and provisions are therefore formed.

         In order to meet direct pension obligations, in 2008 cover assets were transferred to a legally independent trustee,
         Commerzbank Pension-Trust e. V. (CPT) .

         The trust assets held by CPT qualify as plan assets as defined by IAS 19.7 . In accordance with IAS 19.54 , the trans-
         ferred assets are netted against the pension provisions, which results in a corresponding reduction in pension pro-
         visions within the Group.

         The pension expenses for direct pension commitments reported under staff expenses consist of several components.
         They include the service cost, which represents the entitlements earned by members during the financial year, and
         the interest cost on the net present value of the pension obligations, as the time when the pension obligation will
         have to be met has moved closer by one year. The expected net income from the plan assets in the scheme reduces
         the pension expenses, however. Moreover, the level of pension expenses continues to be affected by the amortization
         of actuarial gains and losses not previously recognised in the income statement. If the direct pension commitments
         are changed and this leads to a change in the benefit obligation, a retroactive service cost or income must be recog-
         nised.

         The amount of the provision in accordance with IAS 19.54 is therefore as follows:

               Net present value of the defined benefit obligation (DBO)
               minus the fair value of plan assets
               minus / plus unrecognised actuarial
               gains or losses
               minus / plus any unrecognised
               retroactive service cost or income

         	     =	Amount	of	pension	provision	
                                                                                              Group Financial Statements >>> Notes   99




For defined benefit schemes, the provisions for pensions and similar obligations (age-related short-time working,
early retirement and anniversary provisions) are calculated annually by an independent actuary using the projected
unit credit method. The calculation is based on biometric assumptions (for example, Heubeck tables 2005 G), the
current market interest rate for top-quality long-term corporate bonds, staff turnover and career trends and antici-
pated future salary and pension increases.

In accordance with IAS 19.92 ff., any not yet amortised actuarial gains or losses do not have to be recognised until
the reporting period at the beginning of which they exceed the 10 % corridor around the higher of the DBO and
the fair value of plan assets.

Eurohypo has decided to recognise unrecognised actuarial gains or losses sooner than prescribed by the regula-
tions in IAS 19 . From a threshold of 75 % of the 10 % corridor, 20 % of gains or losses within the corridor are
amortised.

(25) staff remuneration plans
    Description of remuneration plans
    Long-term performance (LTP)
The Commerzbank Group set up long-term performance plans (LTP s) for senior managers and selected other staff
from 2006 to 2008. Participation was open to managers and employees of Commerzbank AG and various domestic
subsidiaries, including Eurohypo. The LTP s for the years 2006 – 2008 are still in place and permit remuneration
based on the performance of the shares and the index. No new LTP s have been offered since 2009.

Participation in the LTP s is tied to a participant investing their own money in Commerzbank shares. Payment from
the LTP is contingent on reaching at least one of the following milestones:

     For 50 % of the shares purchased with the participant’s own money:
     The performance of Commerzbank shares must exceed that of the Dow Jones Euro Stoxx® Banks index.

     For 50 % of the shares purchased with the participant’s own money:
     Commerzbank shares must rise in absolute terms. Payment from the LTP is also contingent on a dividend for
     the financial year being distributed by Commerzbank Aktiengesellschaft.

The base price of Commerzbank shares is the average daily closing price on Xetra in the first quarter of the year of
issue, adjusted for any capital changes. The base value for the index is the average daily closing price for the Dow Jones
Euro Stoxx® Banks index (price only) in the first quarter of the year of issue.

After three years the base values of the year of issue are compared with the data from the first quarter of the reporting




                                                                                                                                          Financial Statements
year to determine whether the Commerzbank share price has outperformed the Dow Jones Euro Stoxx® Banks index
by at least 1 % and risen by at least 25 % against the base value.

If neither of the exercise criteria have been met after three years the comparison is repeated annually. If neither of the
milestones has been met after five years, the plan is terminated. The LTP s are recognised in the balance sheet as share-
based payments settled in cash.



                                                                                                                                          Auditor’s Report
     Share awards
In 2010, share awards were introduced as a new remuneration model for the Board of Managing Directors and
some employees not covered by collective pay agreements. Share awards are deferred compensation through the
allocation of virtual Commerzbank shares. They are considered compensation for the past year and solely entitle
                                                                                                                                          § 28 PfandbriefGS



the holder to receive the gross equivalent cash value for the number of shares determined at the time of the com-
mitment. The number of shares is determined by dividing the bonus amount to be converted by the average clos-
ing price on Xetra for January and February of the allocation year and December of the previous year. As a rule,
payment is made three years after the allocation date, provided the following conditions are met:

     Observance of the applicable compliance requirements
                                                                                                                                          At a glance




     Compliance with competencies and working conditions
     Avoidance of individual misconduct that conflicts with the bank’s objectives
     Compliance with internal risk limits
100   Group Financial Statements




          The payment amount is also calculated using the average closing price of Commerzbank shares on Xetra in January
          and February of the year in which payment will be made and December of the previous year. The gross equivalent
          cash value on the payment date is thus calculated by multiplying this price by the number of shares determined on
          the allocation date.

          If Commerzbank pays dividends during the term of the share awards, a cash payment in the amount of the dividend
          will also be made.

               Accounting treatment
          The staff remuneration plans described here are treated in accordance with IFRS 2 Share-based Payments, which
          draws a distinction between remuneration plans settled with equity instruments and those settled in cash. In both
          cases, where share-based payments are made, these must be recognised at fair value in the financial statements
          for the year.

                Share-based payments settled in cash
                That part of the fair value of share-based payments settled in cash that relates to work performed before the
                measurement date is recognised under staff expenses and a matching provision created. Fair value is deter-
                mined anew on each reporting date, up to and including the payment day. All changes in the fair value of the
                liability must be taken to the income statement. Hence, on the payment date the provision should be equal to
                the payment to the beneficiaries.

                Share awards
                At the time of allocation (spring 2011) the portion of the provision for variable remuneration designated for
                share awards will be rebooked to the provision for share awards and recognised as a share-based payment set-
                tled in cash. The amount is calculated as the product of the number of allocated rights and the average closing
                price on Xetra in January and February of the allocation year and December of the previous year. On the fol-
                lowing balance sheet dates, the provisions fluctuate in line with the share price of Commerzbank Aktiengesell-
                schaft. Fluctuation discounts are not applied as share awards do not expire upon termination or death. If Com-
                merzbank Aktiengesellschaft pays dividends during the holding period, a payment equal to the amount of the
                dividend will be made for each share award on the payment date in addition to the payment value of the share
                award, for which provisions must be formed if necessary.

                Measurement models
                Commerzbank has appointed external actuaries to determine the fair value of the staff remuneration plans
                in place within the Commerzbank Group. A Monte Carlo model is used to simulate changes that would boost
                future share prices in order to value the rights granted under the LTP s. The model is based on the assump-
                tion that stock returns are statistically normally distributed around a mean corresponding to a risk-free deposit.
                                                                                            Group Financial Statements >>> Notes   101




(26) subordinated and hybrid capital
Under subordinated and hybrid capital we report issues of profit participation certificates, securities and nonsecuri-
tised subordinated liabilities and hybrid capital instruments. These are recognised at amortised cost less any expected
reduction in repayment claims under profit participation certificate issues. Premiums and discounts are recognised
in net interest income over the lifetime of the liability.

(27) equity and minority interests
Under IFRS , a company’s capital and reserves (equity) represents a residual claim on its assets after deduction of
all its liabilities or claims for which the investor has no termination option.

In accordance with IAS 39 , changes in the value of available for sale assets and effective portions of the changes in
value of cash flow hedges are taken directly to equity.

Buybacks of own equity instruments are deducted from equity in accordance with IFRS and the resultant gains or
losses recognised directly in equity. Under IAS 1 , minority interests are recognised in equity.

Translation gains and losses from the translation of financial statements of consolidated subsidiaries and at-equity
investments prepared in foreign currencies are reported directly in equity as reserves from currency translation.

(28) trust transactions
Trust transactions involving the management or placement of assets for the account of others are not shown on
the balance sheet. Commissions received from such transactions are included under net commission income in
the income statement.

( 29 ) contingent liabilities and irrevocable credit commitments
This item mainly shows contingent liabilities arising from guarantees and indemnity agreements and also includes
irrevocable lending commitments at nominal value.

Situations where the reporting company acts as guarantor to the creditor of a third party for the fulfilment of a
liability of that third party must be shown as guarantees. Indemnity agreements refer to contractual obligations
that are linked to achieving a given target or service.

All obligations that could incur a credit risk must be shown as irrevocable lending commitments. These include
obligations to grant loans (for example, lines that customers have been advised of externally), to buy securities or
issue guarantees or acceptances.




                                                                                                                                         Financial Statements
Provisions for contingent liabilities and irrevocable lending commitments are shown under provisions for risks
from the lending business.

Income from guarantees is reported in net commission income and its amount is determined by applying agreed
rates on the nominal amount of the guarantee.




                                                                                                                                         Auditor’s Report
                                                                                                                                         § 28 PfandbriefGS
                                                                                                                                         At a glance
102   Group Financial Statements




          notes to the income statement
          ( 30 ) net interest income

          in	€	million	 	           	             	                                                        2010                 2009
          Interest income from
             Real	estate	finance	                                                                         3,191                3,792
                  of	which	in	category	held	for	trading	                                                       6                   8
                  of	which	in	category	available	for	sale	(AfS)                                                –                   –
             Public	finance	                                                                              1,594                2,188
             Other	lending	and	money	market	business	                                                       214                  275
             Fixed-income	securities	and	book-entry	securities	                                           2,251                2,834
                  of	which	in	category	loans	and	receivables	(LaR)	                                       2,015                2,599
                  of	which	in	category	available	for	sale	(AfS)	                                            236                  235
             Current	income	from	shares	and	other	non-fixed	interest	securities	                             10                   13
             Current	income	from	participating	interests	and	associated	companies	                             2                   1
             Profits	on	the	sale	of	loans	and	receivables	                                                     1                  43
          Total interest income                                                                            7,263               9,146
          Interest expenses for
             Securitised	liabilities	                                                                     3,292                4,335
             Registered	Pfandbriefe	                                                                      1,207                1,325
             Loans	taken	out	                                                                               672                  932
             Other	borrowings	and	money	market	business	                                                    440                  834
             Subordinated	liabilities	                                                                      136                  140
             Profit	participation	certificates	                                                              15                   33
             Hybrid	capital	                                                                                   –                  17
             Current	result	from	swap	transactions		                                                           	                    	
             (net	of	interest	income	and	interest	expense)                                                  159                  218
             Losses	on	the	sale	of	loans	and	receivables	                                                      4                  24
          Total interest expenses                                                                         5,925                7,858
          Total                                                                                           1,338                1,288


          Net interest income includes interest income of € 7,259 million (2009: € 9,140 million) and interest expenses of € 5,765
          million (2009: € 7,641 million) for financial assets and liabilities not measured at fair value through profit or loss. The
          interest income from real estate financing includes € 51 million (2009: € 40 million) in early redemption penalties.

          Netting payments in relation to interest rate swaps with off-market coupons are recognised using the effective interest
          rate method in net interest income over the maturity of the swap.

          As in 2009, there was an unwinding effect of € 80 million for impaired commitments.
                                                                                                 Group Financial Statements >>> Notes   103




( 31 ) loan loss provisions
Loan loss provisions consist of valuation allowances and provisions for off-balance-sheet commitments in relation
to the lending business and are reported in the income statement as follows:

                                                                Retail               CRE                               Eurohypo
                                                              Banking             Banking     Public Finance              Group
                                                              € million           € million           € million            € million
1.1.	–	31.12.                                          2010       2009     2010       2009    2010        2009      2010       2009
Allocation	to	provisions	                              124         179    1,466      1,248       1            11   1,591      1,438
Reversals	of	provisions	                                81         128     288         234       4             1    373         363
Direct	write-downs	                                     50          61     146          48        –            –    196         109
Recoveries	on	loans	previously	written	down	             5           6       2           4       –             –      7          10
Total                                              	    88         106    1,322      1,058      –3            10   1,407      1,174


Net expenditure from additions to and releases of provisions comprises the following:

in	€	million                                                                                          2010                     2009
Specific	risks	
   Claims	on	banks	                                                                                      1                        3
   Claims	on	customers	                                                                           1,184                       1,055
   Off-balance	sheet	items                                                                               6                     –	14
Portfolio	risks	
   Claims	on	banks	                                                                                      0                        0
   Claims	on	customers                                                                                  32                       41
   Off-balance	sheet	items	                                                                             –	5                    –	10
Direct	write-downs,	write-ups,		                                                                          	                        	
recoveries	on	loans	previously	written	down                                                            189                       99
Total                                                                                             1,407                       1,174


( 32 ) net commission income

in	€	million                                                                                          2010                     2009
Commission income                                                                                      213                      180




                                                                                                                                              Financial Statements
   Securities	transactions	                                                                              0                        0
   Lending	and	guarantee	business	                                                                     159                      125
   Services	                                                                                            54                       55
Commission expenses                                                                                     28                       31
   Securities	transactions	                                                                              6                        5
   Lending	and	guarantee	business	                                                                      10                       14




                                                                                                                                              Auditor’s Report
   Services	                                                                                            12                       12
Net commission income                                                                                  185                      149
   Securities	transactions	                                                                             –	5                      –	5
   Lending	and	guarantee	business	                                                                     148                      111
   Services                                                                                             42                       43
                                                                                                                                              § 28 PfandbriefGS




Commission income includes € 185 million (2009: € 162 million) derived from transactions involving financial
instruments not recognised at fair value through profit and loss.
                                                                                                                                              At a glance
104   Group Financial Statements




          ( 33 ) net income on hedge accounting

          in	€	million                                                                                     2010                 2009
          From	fair	value	hedges	                                                                            14                   98
          Total                                                                                              14                   98


          The net income on hedge accounting includes measurement gains and losses on effective hedges under the hedge
          accounting rules.

          The result from fair value hedges of € 14 million (2009: € 98 million) comprises a loss of € 1,379 million (2009:
          € 2,313 million gain) on derivatives used for hedging purposes and a gain of € 1,393 million (2009: € 2,215 million
          loss) on the valuation of hedged items.

          ( 34 ) net trading income

          in	€	million                                                                                     2010                 2009
          CMBS	transactions	(New	York)	including	associated	derivatives	                                    –	10                –	48
          Result	from	other	derivative	financial	instruments	(not	hedge	accounting)	                       –	133                –	27
          Result	from	own	trading	                                                                            0                    1
          Other	trading	result	                                                                              23                   21	
          Total                                                                                            – 120                – 53


          The financial instruments in the trading portfolio are measured at fair value. Unlisted transactions are based on
          recognised net present value or option price models. Net trading income is the result of offsetting trading income
          against the corresponding expenses. The results from fair value measurement are included in the portfolios, i. e.
          unrealized price gains and losses are included in the reported result. As in 2009, no transactions were carried out
          in the year under review that would have led to a day one profit or loss.

          Net trading income comprises € 44 million in realisations (2009: € 98 million), a € 164 million loss (2009: € – 151 mil-
          lion) on measurement and € 0 million (2009: € 0 million) of net interest income.

          The other trading result comprises the gain realised on the redemption of liabilities of € 17 million (2009: € 21 million).
                                                                                                                                Group Financial Statements >>> Notes   105




( 35 ) net investment income
The net investment income includes measurement and disposal gains or losses (impairments) on securities in the
categories loans and receivables and available for sale, equity investments, companies measured at-equity and
investments in subsidiaries.

in	€	million	 	                 	             	                                                                                    2010                  2009
Net gain / loss from interest-bearing business                                                                                    – 230                 – 262
Available	for	sale	category	                                                                                                      –	109                 –	112
       Gains	on	disposal	(reclassification	from	revaluation	reserve)1)                                                                 1                     1
       Losses	on	disposal	(reclassification	from	revaluation	reserve)1)	                                                          –	110                 –	113
Net	measurement	gain	/	loss	                                                                                                           –                     –
Loans	and	receivables	category	                                                                                                   –	118                    –	3
       Gains	on	disposal	                                                                                                              5                   16
       Losses	on	disposal	                                                                                                        –	123                   –	19
 Net	measurement	gain	/	loss2)	                                                                                                      –	3                –	147
Net gain / loss from equity instruments                                                                                           – 105                    14
Available	for	sale	category
       Gains	on	disposal	                                                                                                              –                   19
       Losses	on	disposal	                                                                                                             –                     –
Available	for	sale	category,	measured	at	amortised	cost	                                                                               –                     –
Net	measurement	gain	/	loss	                                                                                                         –	1                   –	5
Net	gains	on	measurement	and	disposal	of	at-equity	investments                                                                    –	104                      –
Total                                                                                                                             – 335                 – 248
1)
     	ln	the	current	financial	year	this	item	contains	net	transfers	of	€	–	109	million	(2009:	€	–	227	million)	from	the	revaluation	reserve.
2)
     	This	item	includes	portfolio	impairments	of	€	2	million	(2009:	€	25	million)	on	financial	assets	in	the	LaR	category.


The available for sale portfolio is measured at fair value. However, if there is no liquid market price or no reliable
relevant factors can be determined for the valuation model, investments in associated companies and participating
interests are carried at amortised cost.

(36) current income on companies accounted for using the equity method
The current income from companies accounted for using the equity method is € – 21 million (2009: € – 3 million).
Including net gains on measurement and disposal of companies accounted for using the equity method of € – 104




                                                                                                                                                                             Financial Statements
million (2009: € 0 million) contained in the net investment income, the total result companies accounted for using
the equity method was € – 125 million (2009: € – 3 million).

(37) net income on investment properties

in	€	million                                                                                                                       2010                  2009




                                                                                                                                                                             Auditor’s Report
Income from investment properties
Rental	income	                                                                                                                        12                   13
Income	from	disposals	                                                                                                                 9                     0
Write-ups	                                                                                                                             0                     0
Other	income                                                                                                                           –                     3
                                                                                                                                                                             § 28 PfandbriefGS



Expenses for investment properties
Building	occupancy	and	office	costs	                                                                                                   8                     6
       of	which	rented	property	                                                                                                       8                     5
       of	which	vacant	property	                                                                                                       –                     1
Expenses	for	disposals	                                                                                                                0                     0
Impairment	                                                                                                                           58                   15
                                                                                                                                                                             At a glance




Other	expenses	                                                                                                                        1                     2
Total                                                                                                                               – 46                   –7
106   Group Financial Statements




          (38) operating expenses
          The Group’s operating expenses of € 405 million consist of personnel expenses of € 150 million, other expenses of
          € 224 million and depreciation on operating and office equipment and real estate and amortisation of other intan-
          gible assets amounting to € 31 million. The breakdown of operating expenses was as follows:

                  Personnel expenses

          in	€	million                                                                                 2010               2009
          Wages	and	salaries	                                                                          131                 144
          Expenses	for	pensions	and	similar	employee	benefits	                                          19                  17
          Total                                                                                        150                 161


          Personnel expenses include € 15 million in expenses for social security contributions (2009: € 16 million).

                  Other administrative expenses

          in	€	million                                                                                 2010               2009
          Expenses	for	office	space	                                                                    19                  22
          IT	expenses	                                                                                  65                  62
          Workplace	and	information	expenses	                                                             4                  5
          Compulsory	contributions                                                                        5                  6
          Advisory,	auditing	and	representation	                                                        22                  36
          Travel,	other	expenses	required	to	comply	with	company	law	and	advertising	expenses	          12                  14
          Personnel-related	operating	expenses	                                                           3                  5
          Other	operating	expenses	                                                                     94                 108
          Total                                                                                        224                 258


          Other operating expenses mainly include expenses from Service Level Agreements with the Commerzbank Group
          amounting to € 70 million (2009: € 79 million).

          Auditors’ fee recognized as an expense in Germany amounted to € 2,834 thousand (excluding VAT ) for the financial
          year 2010 (2009: € 3,484 thousand adjusted in accordance with the definition “in Germany”) can be broken down as
          follows:

          in	€	thousand                                                                                2010               2009
          Audit	of	financial	statements                                                               2,776              2,641
          Provision	of	other	certificates	or	assessments	                                               43                 310
          Tax	consulting	services	                                                                        –                  3
          Other	services	                                                                               15                 530
          Total                                                                                       2,834              3,484


          The expenses recognised for 2010 include € 15,000 (2009: € 35,000) for services provided during the financial
          year 2009.

                  Depreciation on operating and office equipment and real estate
                  and amortisation of other intangible assets

          in	€	million                                                                                 2010               2009
          Operating	and	office	equipment	                                                                 4                  5
          Real	estate                                                                                   20                   4
          Intangible	assets	                                                                              7                  6
          Total                                                                                         31                  15


          With regard to depreciation, amortisation and impairments on intangible assets, fixed assets and operating and
          office equipment, Eurohypo reviews the previous method of depreciation or amortisation and residual useful life at
          each balance sheet date. If there are signs of impairment, an impairment test is carried out. The recurring valuation
          led to extraordinary write-downs of € 17 million (2009: € 0 million).
                                                                                        Group Financial Statements >>> Notes   107




(39) other net income

in	€	million                                                                              2010                   2009
Other income
Rental	income	                                                                                5                      3
Realisation	gains	on	the	disposal	of	fixed	assets	                                            0                      1
Realisation	gains	on	liabilities	repurchased	                                               10                     50
Income	from	the	release	of	provisions	                                                      26                     21
Sundry	other	income	                                                                        14                       9
Total other income                                                                          55                     84


Other expenses
Realisation	losses	on	the	disposal	of	fixed	assets	                                           0                      1
Realisation	losses	on	liabilities	repurchased	                                              21                     45
Allocation	to	provisions	                                                                   17                     16
Sundry	other	expenses	                                                                        5                    10
Total other expenses                                                                        43                     72


Other net income                                                                            12                     12


Other income and expenses comprise items that cannot be allocated to other items in the income statement.

(40) impairments of goodwill
The impairment test for goodwill did not reveal a need for impairments in 2010.

Out of the writedown in 2009, € 34 million related to the goodwill on the acquisition of REIB London from
Deutsche Bank in 2002 and € 36 million to the acquisition of REIB US from Dresdner Bank in 2003.

(41) restructuring expenses
There were no restructuring expenses during the period under review. The prior year’s restructuring expenses
totalling € 73 million were linked to the strategic realignment of Commercial Real Estate.

(42) taxes on income
The breakdown of income tax expenses was as follows:




                                                                                                                                     Financial Statements
in	€	million                                                                              2010                   2009
Current taxes on income                                                                     22                    – 19
   Tax	expenses	/	income	for	the	current	year	                                             –	51                   –	56
   Tax	expenses	/	income	for	previous	years	                                                73                     37
Deferred taxes on income                                                                   – 94                 – 368



                                                                                                                                     Auditor’s Report
   Tax	expenses	/	income	due	to	change	in	temporary	differences		                             	                      	
   and	loss	carryforwards                                                                  176                     24
   Tax	rate	differences                                                                       –                    11
   Tax	income	from	previously	unrecognised	tax	loss	carryforwards	                            –                      –
   Adjustments	to	the	value	of	deferred	tax	assets	                                       –	270                 –	403
                                                                                                                                     § 28 PfandbriefGS




   Effect	of	changes	in	accounting	methods	                                                   –                      –
Total                                                                                      – 72                 – 387
                                                                                                                                     At a glance
108   Group Financial Statements




          The € 51 million in current tax expenses for 2010 stem from the foreign branches of Eurohypo AG , Eschborn, and
          the foreign subsidiaries of the Eurohypo subgroup.

          Tax provisions amounting to € 44 million were released following an audit by the fiscal authorities for the period
          from 2002 to 2006. A completed fiscal audit of Eurohypo’s Paris branch and changes in the tax declaration for the
          London branch resulted in € 29 million in tax rebates. On balance, there was € 73 million in current tax income
          from previous years.

          The majority of deferred tax expenses, which came to € 94 million, arose from an impairment of deferred tax
          assets on temporary differences and tax loss carryforwards for Eurohypo Inlandsbank AG and Eurohypo’s New
          York and Madrid branches.

          With the establishment of fiscal unity for income tax purposes with effect from 1 January 2007, the taxable income
          of Eurohypo AG , Eschborn, is added to that of the parent company Commerzbank AG , Frankfurt am Main, via the
          intermediate parent company Commerzbank Inlandsbanken Holding GmbH, Frankfurt am Main.

          The expected nominal average tax rate for Commerzbank AG , Frankfurt am Main, remains unchanged at 30.85 %.
          This is made up of a corporation tax rate including solidarity surcharge of 15.83 % and an effective trade tax rate
          of 15.02 %.

          The current and deferred taxes for Eurohypo Europäische Hypothekenbank S.A. , Luxembourg, Eurohypo (Japan)
          Corporation, Tokyo, and the foreign branches were calculated using the tax rates applicable in the countries con-
          cerned.

          The following table shows the reconciliation of the expected income tax expense in the relevant financial year with
          the reported income tax expense.

          The expected income tax income is calculated by multiplying the profit before tax by 30.85 %, which was the over-
          all tax rate for the Commerzbank Group in 2010.

          in	€	million                                                                               2010                2009
          Profit / loss before tax                                                                   – 785              – 515
          Group	income	tax	rate	                                                                  30.85	%            30.85	%
          Calculated income tax expenses in 2010                                                      242                159
          Effect	of	changes	in	tax	rate	                                                               13                     –
          Effect	of	different	tax	rates	on	deferred	taxes	and	rate	changes                             24                –	11
          Transfers	of	income	tax	                                                                       –                    –
          Tax	effects	of	profit	transfers	                                                            –	96                –	1
          Effect	of	taxes	from	previous	years	recognised	in	current	year	                              64                  39
          Effect	of	non-deductible	operating	expenses	and	tax-free	income	                              4                –	51
          Effect	of	trade	tax	allocations	and	deductions	                                               0                 –	1
          Effect	of	adjustments	                                                                     –	319              –	513
          Other	effects	                                                                               –	4                –	8
          Taxes on income                                                                             – 72              – 387
                                                                                           Group Financial Statements >>> Notes   109




The transfer of the tax loss from Eurohypo Inlandsbank AG to Commerzbank AG , Frankfurt am Main, produced a
reconciliation effect of € – 96 million whilst differences between foreign tax rates and the tax rate payable by the
Group had a reconciliation effect of € 24 million.

The € 13 million effect from changes in the tax rate was due largely to changes in the tax rate for Eurohypo’s New
York branch. Using the local tax rate resulted in a € 16 million effect from changes in the tax rate.

The fiscal audits and changes in tax declarations for previous years that took place in 2010 produced a reconciliation
effect of € 64 million. Of this, € 73 million came from tax rebates and the release of tax provisions. The adjustments
in temporary differences and tax loss carryforwards resulting from tax audits and changes in tax declarations for
previous years resulted in a deferred tax expense of € 9 million.

Besides the € – 270 million impairment to temporary differences and tax loss carryforwards, the reconciliation
effect of € – 319 million includes € 49 million from non-recognition of deferred tax assets on tax loss carryforwards
for the current year.

The following current and deferred income taxes have been credited or charged directly to the relevant item in
equity.

in	€	million                                                                                  2010                  2009
Current taxes on income                                                                          –                      0
   Revaluation	reserve	                                                                          –                      0
Deferred taxes on income                                                                       728                   610
   Reserve	from	cash	flow	hedges	                                                               16                    18
   Revaluation	reserve	                                                                        712                   592
   Other                                                                                         –                      –
Total                                                                                          728                   610



( 43 ) net income
The net income comprise fair value measurements, impairments, write-ups, gains and losses realised on disposals
and amounts recovered on financial instruments written off (see Note 4). We have included fair value measurements
in the net gains and losses for the first time in 2010, and adjusted the result for the previous year. Net interest
income includes the interest components described in the notes on net interest income and net trading income for
each IAS 39 category.




                                                                                                                                        Financial Statements
in	€	million                                                                                  2010                  2009
Net profit / loss from
   Trading	assets	and	liabilities                                                              –	64                   25
   Available	for	sale	financial	assets	                                                      –	236                 –	218
   Loans	and	receivables	                                                                   –	1,527               –	1,231
   Other	financial	liabilities                                                                   6                    50



                                                                                                                                        Auditor’s Report
Net interest income from
   Trading	assets	and	liabilities	                                                           –	155                 –	210
   Available	for	sale	financial	assets                                                         245                   248
   Loans	and	receivables	                                                                    7,008                 8,867
   Other	financial	liabilities                                                              –	5,761               –	7,617
                                                                                                                                        § 28 PfandbriefGS
                                                                                                                                        At a glance
110   Group Financial Statements




          ( 44 ) income statement by quarter


                                                           Q4      Q3      Q2      Q1
          in	€	million                                   2010    2010    2010    2010
          Interest	income	                               1,774   1,767   1,829   1,893
          Interest	expenses	                             1,449   1,450   1,480   1,546
          Net interest income                             325     317     349     347
          Loan	loss	provisions                           –	379   –	433   –	305   –	290
          Net interest income after provisions            – 54   – 116     44      57
          Commission	income	                               50      58      52      53
          Commission	expenses	                             10       7       6       5
          Net commission income                            40      51      46      48
          Net	income	on	hedge	accounting	                   9      –	5      4       6
          Net	trading	income                               17     –	66    –	27    –	44
          Net	investment	income	                         –	141    –	38   –	152     –	4
          Current	income	on	companies	accounted		            	       	       	       	
          for	using	the	equity	method                     –	12    –	10      1       0
          Net	income	on	investment	properties	            –	58      1       4       7
          Operating	expenses                               97     103     100     105
          Other	net	income	                                20      –	8      1      –	1
          Impairment	of	goodwill                             –       –       –       –
          Restructuring	expenses	                            –       –       –       –
          Pre-tax profit / loss                          – 276   – 294   – 179    – 36
          Taxes	on	income	                                –	22    –	44    –	12      	6
          Consolidated result                            – 298   – 338   – 191    – 30
             Attributable	to	minority	interests	            0       0       0       0
             Attributable	to	Eurohypo	AG	shareholders	   –	298   –	338   –	191    –	30
                                                               Group Financial Statements >>> Notes   111




                                                 Q4      Q3            Q2                 Q1
in	€	million                                   2009    2009          2009               2009
Interest	income	                               1,908   2,146        2,397              2,695
Interest	expenses	                             1,543   1,796        2,047              2,472
Net interest income                             365     350           350                223
Loan	loss	provisions                           –	449   –	264         –	293             –	168
Net interest income after provisions            – 84     86            57                 55
Commission	income	                               56      40            43                 41
Commission	expenses	                              9       8              7                  7
Net commission income                            47      32            36                 34
Net	income	on	hedge	accounting	                  44       6              0                48
Net	trading	income                              –	86    –	34          –	68               135
Net	investment	income	                          –	85    –	30          –	35               –	98
Current	income	on	companies	accounted		            	       	             	                  	
for	using	the	equity	method                      –	4      1              0                  0
Net	income	on	investment	properties	            –	15      1              6                  1
Operating	expenses                              102     103           120                109
Other	net	income	                                12       0              2                –	2
Impairment	of	goodwill                             –       –           70                   –
Restructuring	expenses	                            –     14            59                   –
Pre-tax profit / loss                          – 273    – 55         – 251                64
Taxes	on	income	                               –	114    –	70          –	93             –	110
Consolidated result                            – 387   – 125         – 344               – 46
   Attributable	to	minority	interests	            0       0              0                  0
   Attributable	to	Eurohypo	AG	shareholders	   –	387   –	125         –	344               –	46




                                                                                                            Financial Statements
                                                                                                            Auditor’s Report
                                                                                                            § 28 PfandbriefGS
                                                                                                            At a glance
112   Group Financial Statements




          ( 45 ) segment reporting

          income statement by segment
                                                                                                                          CRE Banking         CRE Banking
                                                                                     CRE Banking       CRE Banking        International International Global
                                                                                    Germany Core Germany Non-Core     Strategic Markets      Restructuring
                                                                                        € million        € million             € million          € million
                                                                                   2010     2009     2010     2009      2010       2009     2010       2009
          Net	interest	income	                                                      332      350       58       71       537        478      103        107
          Loan	loss	provisions                                                     –	154    –	93    –	220    –	166      –	775     –	760     –	173      –	39
          Net interest income after provisions                                      178      257    – 162     – 95      – 238     – 282      – 70        68
          Net	commission	income	                                                     45       40        0        0       136         96         9        17
          Net	income	on	hedge	accounting	                                      	      –        –        –        –          –         –         –         –
          Net	trading	income	                                                       –	14       1        0        –       –	46      –	48      –	17         –
          Net	investment	income	                                                     –	1       0        0        0      –	102     –	200         0         –
          Current	income	on	companies	accounted		                                      	       	         	        	         	          	        	          	
          for	using	the	equity	method	                                                –        –        –        –       –	21        –	4        –         –
          Net	income	on	investment	properties                                        –	1     –	1      –	48      –	8         3         0         0         0
          Operating	expenses	                                                       107       97       16       22       120        128       28         35
          Other	net	income	                                                           7        5       –	1    –	52          5        10         2         0
          Impairment	of	goodwill	                                                     –        –        –        –          –        70         –         –
          Restructuring	expenses	                                                     –       20        –        –          –        17         –        11
          Pre-tax profit / loss                                                     107      185    – 227    – 177      – 383     – 643     – 104        39


          Volumina
          Segment	assets																																							in	€	billion        28.4     30.2      3.3      4.3       32.4      32.5       7.9       8.3
          Average	RWA																																										 in	€	billion       16.1     17.0      2.7      4.1       27.5      32.2       6.8       7.3
          Average	allocated	capital																							 in	€	billion             1.1      1.2      0.2      0.3        1.9       2.3       0.5       0.5


          Key ratios
          RoE	before	tax	(in	%)1)                                                   9.4     15.4   –	117.9   –	62.5    –	19.9     –	28.0   –	21.9       7.6
          CIR	(in	%)1)                                                             29.2     24.5    177.5    202.2       23.4      38.5      28.7      28.1
          Average	staff	capacity	(FTE)	                                             392      432        –        –       193        232         –         –
            based	on	unrounded	figures	
          1)	
                                                                                                                           Group Financial Statements >>> Notes   113




                                                                                                                                                      Total
                                                                         Public Finance /                 Retail              Cross-              operating
                                                                                  Treasury             Banking             divisional             segments
                                                                                  € million            € million            € million              € million
                                                                          2010        2009     2010        2009    2010         2009      2010         2009
Net	interest	income	                                                       121          95      144         158      43           29     1,338       1,288
Loan	loss	provisions                                                         3        –	10     –	88       –	106       –            –    –	1,407     –	1,174
Net interest income after provisions                                       124          85       56          52      43           29       – 69        114
Net	commission	income	                                                      –	4         –	4    –	11        –	13      10           13       185         149
Net	income	on	hedge	accounting	                                      	      14          98        –           –       –            –        14           98
Net	trading	income	                                                       –	43          –	6       0           –       –            –     –	120         –	53
Net	investment	income	                                                   –	230        –	48       –	2          –       –            –     –	335        –	248
Current	income	on	companies	accounted		                                       	           	        	           	       	            	         	            	
for	using	the	equity	method	                                                 –           –        0           1       –            –       –	21          –	3
Net	income	on	investment	properties                                          –           0        0           2       –            –       –	46          –	7
Operating	expenses	                                                         61          73       58          66      15           13       405         434
Other	net	income	                                                           –	4         55       –	8       –	11      11            5        12           12
Impairment	of	goodwill	                                                      –           –        –           –       –            –          –          70
Restructuring	expenses	                                                      –           –        –           –       –           25          –          73
Pre-tax profit / loss                                                    – 204         107     – 23        – 35      49            9     – 785        – 515


Volumina
Segment	assets																																							in	€	billion        124.9       144.3     17.8        20.6     0.7          0.2     215.4       240.4
Average	RWA																																										 in	€	billion        12.1        11.0      3.1         3.8     0.3          0.7      68.6         76.1
Average	allocated	capital																							 in	€	billion              0.9         0.8      0.2         0.3    –	1.1        –	1.4      3.7          4.0


Key ratios
RoE	before	tax	(in	%)1)                                                  –	24.1       14.0    –	10.4      –	13.0      –            –     –	14.9        –	9.0
CIR	(in	%)1)                                                             –	41.6       38.3     46.9        48.3       –            –      39.4         35.1
Average	staff	capacity	(FTE)	                                               76          77        –           –    621          687      1,282       1,428




                                                                                                                                                                        Financial Statements
                                                                                                                                                                        Auditor’s Report
                                                                                                                                                                        § 28 PfandbriefGS
                                                                                                                                                                        At a glance
114   Group Financial Statements




          income statement by region
                                                                                                  Europe                                                Total
                                                                                            (excluding                                              operating
                                                                       Germany                  Germany)                  America                   segments
                                                                       € million                 € million                € million                  € million
                                                              2010         2009         2010         2009        2010         2009         2010          2009
          Net	interest	income	                                 660          632         560             531       118          125        1,338        1,288
          Loan	loss	provisions                                –	461        –	372       –	731        –	483        –	215        –	319     –	1,407       –	1,174
          Net interest income after provisions                 199          260        – 171             48       – 97        – 194         – 69         114
          Net	commission	income	                                 41           37        100             102         44           10         185          149
          Net	income	on	hedge	accounting	              	         16           98          –	2             0          –              –         14           98
          Net	trading	income	                                  –	53         –	19        –	52             14       –	15         –	48        –	120         –	53
          Net	investment	income	                              –	169         –	35       –	165         –	12          –	1        –	201        –	335        –	248
          Current	income	on	companies	accounted		                  	            	           	             	           	             	           	            	
          for	using	the	equity	method	                            0            1        –	21            –	4          –              –       –	21           –	3
          Net	income	on	investment	properties                  –	49          –	7         –	5              0          8              0       –	46           –	7
          Operating	expenses	                                  251          264         117             132         37           38         405          434
          Other	net	income	                                       7            3           2             8           3              1         12           12
          Impairment	of	goodwill	                                 –            –           –            34           –           36            –           70
          Restructuring	expenses	                                 –           45           –            19           –              9          –           73
          Pre-tax profit / loss                               – 259           29       – 431         – 29         – 95        – 515        – 785        – 515


                                                           € billion    € billion   € billion    € billion    € billion    € billion    € billion    € billion
          Segment	assets                                     153.0        177.1         57.9         58.3          4.5          5.0       215.4        240.4


          Average	staff	capacity	(FTE)	                      1,055        1,164         180             196         47           68       1,282        1,428



          reconciliation statement
                                                                                    Total operating                                                     Total
          in	€	million                                                                    segments              Reconciliation                         Group
          Income	                                                                               1,027                           –                      1,027
          Loan	loss	provisions                                                              –	1,407                             –                     –	1,407
          Operating	expenses	                                                                     405                           –                        405
          Impairment	of	goodwill	                                                                   –                           –                           –
          Restructuring	expenses	                                                                   –                           –                           –
          Pre-tax profit / loss                                                                 – 785                           –                       – 785
          Assets                                                                          215,440                         13,570                    229,010



               Segment reporting by Group units
          The segment reporting shows the results for the operating segments included in the Eurohypo Group consolidated
          financial statements. The segment information provided here is based on IFRS 8 Operating Segments, which uses
          the management approach: the segment information is calculated using the internal reporting system, which in turn
          helps the chief operating decision-maker to assess the performance of each segment and to make decisions
          regarding resource allocation. In the Eurohypo Group, the Board of Managing Directors serves as the chief operating
          decision-maker.

          On the sales side, segmentation by operating division is based on customer responsibilities.

          The CRE Banking Germany Core (CBG-Core) and CRE Banking Germany Non-Core (CBG-Non-Core) segments include
          domestic commercial real estate financing activities. Eurohypo’s core activities in Germany subsumed in the
          CRE Banking Germany Core segment. Loan portfolios classified as non-strategic and, in many cases, either high-risk
          or non-performing, are grouped in the CRE Banking Germany Non-Core segment.
                                                                                             Group Financial Statements >>> Notes   115




The CRE Banking International Strategic Markets (CBI-S) segment comprises activities in France, Italy, Poland,
Portugal, Russia, Spain, Turkey, the UK and the US .

The CRE Banking International Global Restructuring segment (CBI-GR) brings together the foreign markets that
do not correspond with the strategic realignment of the Eurohypo Group.

Public Finance and Treasury fall under PFT together with the money and capital market business. This segment
also includes the results of Eurohypo Europäische Hypothekenbank S.A. , Luxembourg.

Housing loans to individuals are recognised under the Retail Banking segment.

The regular expenses and income of EH Estate Management GmbH and the other property realisation companies
are allocated to the segments in which they originate, as is the case for income and expenses arising from the
valuation of properties.

The following expenses and income are recognised as cross-divisional positions:

     Interest on unserviced hybrid capital and profit-participation certificates
     Interest on the assumption of losses by Commerzbank Inlandsbanken Holding
     Income and expenses relating to the services performed by Eurohypo’s risk operations for Commerzbank
     Income from write-downs of profit participation certificates
     Restructuring expenses for the Corporate Center in conjunction with the Focus strategy project (2009)

     Principles of segment reporting
The aim of segment reporting is to allocate the pre-tax profit from the income statement of the Eurohypo Group
and the segment assets to the segments in which they originate.

As a first step, net interest income is split using the market interest rate method into two components: interest
contribution and the maturity transformation contribution. The interest contribution is calculated separately for
each individual client transaction and subsequently allocated to the customer segment in which it originates. The
maturity transformation contribution is allocated to PFT .

In addition to the interest contribution, the net interest income for each segment also includes imputed income
from interest on the non-interest-bearing balance sheet positions (equity, provisions, fixed assets). The imputed
interest rate corresponds to the risk-free rate on the capital market.

The capital benefit is allocated to the segments in proportion to the risk-weighted assets contained in the segment
in line with the Solvency Regulation pursuant to Basel II. In addition, PFT receives an imputed compensation pay-




                                                                                                                                          Financial Statements
ment from the customer segments for the higher spreads that have to be paid for the procurement of subordinated
capital and profit participation certificates.

When payments of early redemption penalties are allocated, the margin loss is allocated to the customer segments
and the funding loss to Treasury.

The unwinding effect is shown in net interest income and loan loss provisions. The unwinding effect reflects the



                                                                                                                                          Auditor’s Report
change in net present value of future cash flows arising from specific loan loss provisions (SLLP s) .

The provisions for loan losses reported in the segments comprise new provisions and the release of specific valua-
tion allowances, direct write-downs of claims, recoveries on loans written off and portfolio valuation allowances, as
well as unwinding.
                                                                                                                                          § 28 PfandbriefGS




Net commission income is allocated directly to the segments.

The net income on hedge accounting is allocated to PFT .

In net trading income, proprietary trading results, the result from derivatives not included in hedge accounting
and the result from the redemption of liabilities are allocated to PFT . The portion of the derivative result attribut-
                                                                                                                                          At a glance




able to CMBS transactions is shown under CRE Banking International Strategic Markets together with changes in
valuation and impairments of the CMBS loans. Credit default adjustments on ICM derivatives are allocated to the
segments on the basis of the applicable counterparty.
116   Group Financial Statements




          The companies Servicing Advisors Deutschland GmbH, Frankfurt am Main, and Delphi I LLC appear under the
          current income on companies accounted for using the equity method under Retail Banking, while Inmobiliaria
          Colonial S.A. , Barcelona, and FV Holding S.A., Brussels, are recognised under CRE Banking International Strategic
          Markets, and Urbanitas Grundbesitzgesellschaft mbH, Berlin, is recognised under CRE Banking Germany Non-Core.

          Income and expenses from investment properties are reported in the segment in which they originate.

          Administrative expenses include staff expenses and other operating expenses as well as depreciation and amorti-
          sation of fixed assets and other intangible assets (excluding goodwill). Administrative expenses are allocated to the
          segment in which they originate and in addition to direct expenses also include indirect expenses from internal
          charges for services. Following the integration of the Corporate Center into Commerzbank, services provided by
          the Corporate Center are charged as other operating expenses in accordance with the current service level agree-
          ment (SLA) .

          The segment assets of the real estate divisions include loans and securities portfolios backed by real estate. In
          addition to public sector finance, the segment assets of PFT also comprise deposits invested with other credit insti-
          tutions.

          Segment profit is measured on the basis of pre-tax profit, return on equity before tax and the CIR .

          The return on equity ratio shows the relevant segment result before tax as a percentage of the average capital
          employed in the segment. The average capital employed for the operating segments is calculated in such a way as
          to ensure that average risk-weighted assets (RWA) according to internal Group requirements are backed by 7 %
          core capital in line with the Solvency Regulation (SolvV) pursuant to Basel II. The average capital employed for the
          Eurohypo Group is calculated using the mean of the capital available on 1 January and 31 December of the previous
          year, excluding the revaluation reserve and cash flow reserves.

          If the approach used to calculate average capital employed per segment were applied to the Eurohypo Group, the
          result would be R oE – 16.4 %.

          The cost / income ratio is the ratio of administrative expenses to the total of all other pre-tax income items in the
          income statement excluding loan loss provisions, restructuring costs and goodwill impairments.

          All neutral results components that cannot be directly assigned to a segment and are not included in the cross-
          divisional positions within the segment breakdown are allocated to the segments in proportion to the risk-weighted
          assets contained in each segment in line with the SolvV pursuant to Basel II.

          The total income and expenses of the operating segments already include consolidation effects and correspond to
          IFRS consolidated profit, as there are no transactions at Eurohypo that would necessitate a reconciliation statement.

          The reconciliation of the segment assets of the operating segments with the balance sheet assets largely relates to
          measurement positions in connection with derivative financial instruments.

          Results and assets are also broken down by geographical market. Eurohypo’s core regions are Germany, Rest of
          Europe and America. The bulk of operating income for the Rest of Europe region came from the United Kingdom
          (€ 150 million) and Russia (€ 73 million). To simplify presentation, the Rest of Europe region also includes some
          activities in Asia.

          Due to the limited amount of non-current assets, these have not been recognised in the geographical breakdown.
          As Eurohypo is not managed according to products or services, income is not recognised or reported to manage-
          ment according to these criteria.
                                                                                   Group Financial Statements >>> Notes   117




notes to the balance sheet – assets
( 46 ) cash reserve

in	€	million	 	           	         	                                                 2010                  2009
Cash	on	hand	                                                                            0                      0
Balances	with	central	banks	                                                            30                    36
Bills	                                                                                   –                      –
Total                                                                                   30                    36


The balances at the Deutsche Bundesbank also serve to meet the minimum reserve requirements. The average
minimum reserve requirement for the period December 2010 to January 2011 amounted to € 26 million (previous
year: € 36 million).

( 47 ) claims on banks

in	€	million	 	           	         	                                                 2010                  2009
Due on demand                                                                       12,167                 9,229
Other claims
   Real	estate	finance	                                                                 87                    92
   Loans	to	public	sector	companies	                                                 9,166                11,144
   Other	claims	                                                                     2,592                 6,445
Total                                                                               24,012                26,910


Germany	                                                                            17,585                21,501
International	                                                                       6,427                 5,409
Total                                                                               24,012                26,910


Minus	loan	loss	provisions                                                             –	32                  –	38
Balance sheet total                                                                 23,980                26,872


Claims on banks are classified as loans and receivables.

( 48 ) claims on customers




                                                                                                                                Financial Statements
in	€	million	 	           	         	                                                 2010                  2009
Real	estate	finance	                                                                88,942                95,266
Loans	to	public	sector	companies	                                                   29,878                37,127
Other	claims	                                                                          673                   151
Total                                                                              119,493              132,544




                                                                                                                                Auditor’s Report
Germany	                                                                            70,254                82,865
International	                                                                      49,239                49,679
Total                                                                              119,493              132,544
                                                                                                                                § 28 PfandbriefGS



Minus	loan	loss	provisions	                                                         –	3,194               –	2,849
Balance sheet total                                                                116,299              129,695


Claims on customers are classified as loans and receivables.
                                                                                                                                At a glance
118   Group Financial Statements




          ( 49 ) loan loss provisions
          Loan loss provisions are recognised in accordance with Group-wide standards and cover all identifiable credit
          risks. Where losses arise that have not yet been identified, we determine portfolio valuation allowances using
          parameters derived from the Basel II methodology. On balance, loan loss provisions trended as follows:

                                                          Specific allowances                      Portfolio allowances                                    Total
          in	€	million                                  2010               2009                   2010             2009                   2010             2009
          As at 1 January                              2,618           2,148                      269              228                2,887                2,376
          Allocations                                  1,498           1,331                       36                  41             1,534                1,372
          Deductions                                   1,151                753                      4                  –             1,155                 753
          of	which	utilised	                             838                480                      –                  –                 838               480
          of	which	released	                             313                273                      4                  –                 317               273
          Changes in consolidated
          companies                                         –                 –                      –                  –                      –               –
          Exchange rate changes /
          transfers / unwinding                          – 47              – 108                     7                 0                  – 40             – 108
          As at 31 December                            2,918           2,618                      308              269                3,226                2,887


          Loan loss provisions can be broken down as follows:

                                                                                         Retail                 CRE                                    Eurohypo
                                                                                       Banking               Banking        Public Finance                Group
          in	€	million                                                       2010         2009       2010      2009         2010      2009          2010    2009
          As at 1 January                                                     498          598      2,339      1,738          50          40       2,887   2,376
          Allocations                                                         123          177      1,410      1,185           1          10       1,534   1,372
          Deductions                                                          206          256        938       497           11           –       1,155    753
          of	which	utilised	                                                  127          129        704       351            7           –        838     480
          of	which	released	                                           	       79          127        234       146            4           –        317     273
          Changes in consolidated
          companies                                                                –         –           –         –           –           –           –       –
          Exchange rate changes /
          transfers / unwinding                                              – 20          – 21       – 21      – 87           1           0        – 40   – 108
          As at 31 December                                                   395          498      2,790      2,339          41          50       3,226   2,887


          Taking into account direct write-downs, recoveries on receivables written off and additions to and releases of
          provisions, the additions and releases recognised in the income statement result in loan loss provisions of
          € 1,407 million (previous year: € 1,174 million). The unwinding effect reported in net interest income was € 80 million,
          as in the previous year.

          For contingent liabilities, provisions of € 81 million (previous year: € 80 million) were set aside, of which
          € 23 million (previous year: € 27 million) relate to portfolio provisions.

          ( 50 ) positive fair values attributable to derivative hedging instruments
          Derivative financial instruments with positive fair values which are used for hedging purposes and qualify for
          hedge accounting are reported here. The instruments are measured at fair value.

          in	€	million	 	          	          	                                                                                    2010                    2009
          Positive	fair	values	from	effective	fair	value	hedges	                                                                5,105                      5,430
          Positive	fair	values	from	effective	cash	flow	hedges	                                                                       –                        –
          Total                                                                                                                 5,105                      5,430
                                                                                          Group Financial Statements >>> Notes   119




( 51 ) trading assets
Claims assigned to the held for trading category are reported under trading assets, as are derivatives that are not
used for hedging purposes.

All trading assets are recognised at fair value.

in	€	million	 	           	           	                                                     2010                   2009
Claims                                                                                       245                    107
Positive fair values from derivative financial instruments
(not hedge accounting)
Interest	rate-related	transactions	                                                         8,826                10,419
Currency-related	transactions
   Cross-currency	swaps	                                                                     913                    717
   Currency	forwards	                                                                         94                     32
Credit	derivatives                                                                            34                       –
Other	derivatives                                                                               –                      –
Total derivatives                                                                           9,867                11,168
Total                                                                                     10,112                 11,275


( 52 ) financial investments
Financial investments comprise bonds, shares and other non-fixed-income securities, investments in associated
companies and participating interests (including not-at-equity investments in associates and joint-ventures) which
are not included in the financial statements. At-equity investments are reported separately.

in	€	million	 	           	           	                                                     2010                   2009
Bonds and other fixed-income securities                                                   71,271                 80,728
Bonds	and	notes	                                                                          71,271                 80,728
   issued	by	public	sector	borrowers	                                                     36,895                 42,865
   issued	by	other	borrowers                                                              34,376                 37,863
of	which	at	fair	value	                                                                     4,904                 6,477
of	which	at	cost	                                                                         66,367                 74,251
Shares and other non-fixed-income securities                                                 144                    114
of	which	at	fair	value	                                                                      144                    114
of	which	at	cost	                                                                               –                      –




                                                                                                                                       Financial Statements
Corporate investments                                                                           9                    11
of	which	at	fair	value	                                                                         6                      8
of	which	at	cost                                                                                3                      3
Investments in non-consolidated associated companies                                            3                      3
of	which	at	fair	value	                                                                         –                      –
of	which	at	cost	                                                                               3                      3



                                                                                                                                       Auditor’s Report
Total                                                                                     71,427                 80,856



Financial assets eligible for public listing                                     Listed                        Unlisted
in	€	million                                                        2010           2009             2010           2009
                                                                                                                                       § 28 PfandbriefGS




Bonds	and	other	fixed-income	securities	                          62,557         70,865          8,714            9,863
Shares	and	other	non-fixed-income	securities                         144           114                 –               –
Corporate	investments	                                                 –              –                –               –
Investments	in	non-consolidated	associated	companies	                  –              –                –               –
Total                                                             62,701         70,979          8,714            9,863
                                                                                                                                       At a glance




Financial investments include loans and receivables (L aR) of € 66,378 million (previous year: € 74,265 million), and
available for sale assets (A fS) of € 5,048 million (previous year: € 6,591 million).

In 2008 and 2009, securities from the Public Finance portfolio for which no active market existed were reclassified
from AfS to LaR. The fair value determined at the time of reclassification was recognised as the new carrying amount
of this portfolio.
120   Group Financial Statements




          The revaluation reserve after deferred taxes for all reclassified securities was € – 992 million (previous year:
          € – 1,095 million) and will be released over the remaining term.

          Excluding the reclassifications undertaken in 2008 and 2009, the overall position of the revaluation reserve after
          deferred taxes was € – 2,749 million (previous year: € – 1,309 million) at 31 December 2010. On the reporting date,
          the carrying amount was € 64,863 million with fair value at € 62,329 million.

          In addition to the € 50 million in impairments to the portfolio (previous year: € 49 million), a total of € – 118 million
          (previous year: € – 3 million) was taken to profit and loss in 2010 for reclassified positions.

          The transactions have average effective interest rates of between 0.8 % and 16.2 % (previous year: 1.2 % and
          16.2 %) and are expected to generate an inflow of funds of € 80.3 billion (previous year: € 90.6 billion).

          The financial assets at 31 December 2010 include, as in the previous year, € 6 million in unlisted equity-related
          securities (some of which are ownership interests in German limited companies) recognised at amortised cost,
          since no reliable data are available to calculate a market value. There are currently no plans to dispose of these
          assets.

          The following table contains financial information for not-at-equity investments in associates and joint-ventures:

          in	€	million	 	          	     	                                                                2010                  2009
          Non-current	assets	                                                                               13                    13
          Current	assets	                                                                                    0                     1
          Non-current	debt	                                                                                 14                    15
          Current	debt	                                                                                      2                     2
          Income                                                                                             2                     2
          Expenses                                                                                           2                     2



          (53) at-equity investments
          In 2010, as in 2009, this category included Delphi I LLC , Wilmington, Delaware, USA ; Urbanitas Grundbesitzgesell-
          schaft mbH, Berlin; Servicing Advisors Deutschland GmbH, Frankfurt am Main; and the joint venture activities of
          FV Holding S.A. , Brussels, plus new business related to Inmobiliaria Colonial, Madrid, Spain.

          The shareholding in Delphi I LLC , Wilmington, Delaware, USA was 33.3 %; the shareholdings in Urbanitas Grund-
          besitzgesellschaft mbH, Berlin and Servicing Advisors Deutschland GmbH, Frankfurt am Main were 50 % each;
          the shareholding in FV Holding S.A. , Brussels was 60 %; and the shareholding in Inmobiliaria Colonial, Madrid,
          Spain was 20.1 % at the reporting date.

          The Group has recognised the following financial assets related to the at-equity investments:

          in	€	million	 	          	     	                                                                2010                  2009
          Non-current	assets	                                                                              851                  137
          Current	assets	                                                                                  352                    27
          Non-current	debt	                                                                              1,146                  203
          Current	debt	                                                                                    131                    40
          Income                                                                                            84                    28
          Expenses                                                                                         200                    34

          The at-equity valuation was based on the most recent financial statements for financial year 2010, prepared under
          national accounting principles, analysed in accordance with IAS / IFRS and adjusted as necessary to conform with
          Group-wide accounting policies.

          in	€	million                                                                                           2010           2009
          At-equity	investments	                                                                                 276              24
          Total                                                                                                  276              24


                                                                                               Listed                        Unlisted
                                                                                 2010           2009             2010           2009
          At-equity	investments	                                                  259              –              17              24
          Total                                                                   259              –              17              24
                                                                                                Group Financial Statements >>> Notes   121




( 54 ) investment property
In the year under review, the investment property portfolio acquired no substantial assets through foreclosures
(previous year: € 95 million). Movements are shown in the statement of changes in fixed assets in Note 58.

In sensitivity analyses we assume a + 50 bp or – 50 bp change in the yield on income properties and a + 20 % or
– 20 % change in the land value for building sites. Thus the major income properties would undergo an adjustment
of around € – 8.5 million or € + 11.0 million. For building sites, the fair value would rise by € 10.2 million or fall by
€ 10.2 million.

( 55 ) assets held for sale
In the fourth quarter, Eurohypo acquired three foreclosure properties that served as collateral for a loan that was
in default. Eurohypo expects to dispose of these assets within 12 months and is actively seeking a buyer with the
assistance of agents and has published a sales prospectus. Against this backdrop, assets of € 74 million (previous
year: € – million) in the CRE Banking International Strategic Markets segment were reported as assets held for sale
under IFRS 5 .

( 56 ) intangible assets

in	€	million                                                                                       2010                  2009
Goodwill	                                                                                            58                    58
Internally	generated	assets	(software)	                                                              11                    16
Other	purchased	intangible	assets	                                                                    4                      6
Total                                                                                                73                    80


The impairment testing of goodwill did not identify any impairments in the financial year 2010.

As in previous years, the cash generating unit CRE Banking Germany Core (formerly Corporate Banking Germany,
CBG -Core) was allocated goodwill of € 58 million resulting from the acquisition of the real estate finance division
of Deutsche Bank in 2003. As in the previous year, the annual impairment test did not indicate any permanent
goodwill impairment on this.

The cash flow projections are based on multi-year financial plans approved by the Board of Managing Directors,
prepared on the basis of the past performance of the individual cash generating units and the expectations of the
Board of Managing Directors with regard to market trends.




                                                                                                                                             Financial Statements
The basis for determining the value of the basic assumptions for the cash generating unit CRE Banking Germany
Core is as follows:

        Profitable new business within the Group’s refinancing capacity
        Risk-focused portfolio management and reduction of value-eroding portfolios
        Strict cost management




                                                                                                                                             Auditor’s Report
Today’s Eurohypo was formed in 2002 from the merger of three institutions: the “old” Eurohypo, Deutsche Hyp
and Rheinhyp. In order to provide a suitably long monitoring period, the planning for all cash generating units was
extended to include an outline budget phase for the period 2014 to 2015. The growth rate for the terminal value
was assumed to be 2.0 % (previous year: 1.5 %). A segment-specific pre-tax discount rate ranging from 9.2 % to
11.2 % was applied (previous year: 11.3 % to 12.8 %).
                                                                                                                                             § 28 PfandbriefGS




The beta factor used for the CRE Banking Germany Core segment produced a ratio of fair value to carrying amount
of 134 %. With a beta factor of 0.8 %, the ratio rises to 148 %, whilst a beta factor of 1.5 brings the ratio down to 113 %.

( 57 ) fixed assets
                                                                                                                                             At a glance




in	€	million                                                                                       2010                  2009
Land	and	buildings	                                                                                132                    147
Operating	and	office	equipment                                                                      17                     20
Total                                                                                              149                    167
122   Group Financial Statements




          ( 58 ) statement of changes in fixed assets and investments
          The movements in non-current financial investments, at-equity investments, investment property, non-current
          assets available for sale, intangible assets and fixed assets in financial year 2010 were as follows:

                                                                                                      Non-current financial investments
                                                                                                     Shares in                 Shares in
                                                                                             non-consolidated     at-equity investments
                                                                 Corporate investments   associated companies         and joint ventures
          Cost
             As	at	1	January	2009	                                                 15                       6                        20
             Additions	                                                             –                       –                        26
             Disposals	                                                             2                       3                         –
             Net	transfers	/	changes	in	consolidated	companies                      3                       –                         –
             Adjustments	due	to	currency	translation	                               0                       –                         –
             As at 31 December 2009                                                16                       3                        46
          Depreciation
             As	at	1	January	2009                                                   1                       3                         1
             Depreciation	in	financial	year	                                        –                       –                         –
             Write-downs	in	financial	year                                          5                       –                        –	1
             Write-ups	in	financial	year	                                           –                       –                         –
             Net	transfers	/	changes	in	consolidated	companies                      –                       –                         –
             Disposals	                                                             1                       3                         –
             As at 31 December 2009                                                 5                       0                         0
             Accumulated	changes	from	measurement		                                  	                       	                         	
             at	fair	value	or	at-equity	                                            –                       –                      –	22
          Book value as at 31 December 2009                                        11                       3                        24


          Cost
             As	at	1	January	2010	                                                 16                       3                        46
             Additions	                                                             0                       0                       378
             Disposals	                                                             1                       –                         –
             Net	transfers	/	changes	in	consolidated	companies                      –                       –                         –
             Adjustments	due	to	currency	translation	                               0                       –                         –
             As at 31 December 2010                                                15                       3                       424
          Depreciation
             As	at	1	January	2010	                                                  5                       0                         0
             Depreciation	in	financial	year                                         –                       	–                        –
             Write-downs	in	financial	year                                          1                       0                       104
             Write-ups	in	financial	year	                                           –                       –                         –
             Net	transfers	/	changes	in	consolidated	companies                      –                       –                         –
             Disposals	                                                             –                       –                         –
             As at 31 December 2010                                                 6                       0                       104
             Accumulated	changes	from	measurement		                                  	                       	                         	
             at	fair	value	or	at-equity                                             0                       –                       –	44
          Book value as at 31 December 2010                                         9                       3                       276
                                                                                                          Group Financial Statements >>> Notes   123




                                                                                                                                 Assets
                                                                                         Investment property1)             held for sale
Cost
       As	at	1	January	2009                                                                               206                          –
       Additions	                                                                                          95                          –
       Disposals	                                                                                           6                          –
       Net	transfers	/	changes	in	consolidated	companies                                                    –                          –
       Adjustments	due	to	currency	translation	                                                             	–                         –
       As at 31 December 2009                                                                             295                          –
Depreciation
       As	at	1	January	2009                                                                                 –                          –
       Depreciation	in	financial	year	                                                                      –                          –
       Write-downs	in	financial	year                                                                        –                          –
       Write-ups	in	financial	year	                                                                         –                          –
       Net	transfers	/	changes	in	consolidated	companies                                                    –                          –
       Disposals	                                                                                           –                          –
       As at 31 December 2009                                                                               –                          –
       Accumulated	changes	from	measurement	at	fair	value	or	at-equity                                    –	23                         –
Book value as at 31 December 2009                                                                         272                          –


Cost
       As	at	1	January	2010	                                                                              295                          –
       Additions	                                                                                           0                        78
       Disposals	                                                                                          43                          –
       Net	transfers	/	changes	in	consolidated	companies                                                    –                          –
       Adjustments	due	to	currency	translation	                                                             –                          –
       As at 31 December 2010                                                                             252                        78
Depreciation
       As	at	1	January	2010	                                                                                –                          –
       Depreciation	in	financial	year                                                                       –                          –
       Write-downs	in	financial	year                                                                        –                          –
       Write-ups	in	financial	year	                                                                         –                          –




                                                                                                                                                       Financial Statements
       Net	transfers	/	changes	in	consolidated	companies                                                    –                          –
       Disposals	                                                                                           –                          –
       As at 31 December 2010                                                                               –                          –
       Accumulated	changes	from	measurement	at	fair	value	or	at-equity                                    –	77                       –	4
Book value as at 31 December 2010                                                                         175                        74
   Essentially	comprises	foreclosed	assets	acquired	as	part	of	collateral	realisation	
1)		




                                                                                                                                                       Auditor’s Report
                                                                                                                                                       § 28 PfandbriefGS
                                                                                                                                                       At a glance
124   Group Financial Statements




                                                                                               Intangible assets
                                                                                      Other          Internally-
                                                                 Goodwill   purchased assets   generated assets
          Cost
             As	at	1	January	2009	                                   135                204                  31
             Additions	                                                –                  1                   2
             Disposals	                                                –                 15                   –
             Net	transfers	/	changes	in	consolidated	companies         –                  –                   –
             Adjustments	due	to	currency	translation	                  –                  0                   –
             As at 31 December 2009                                  135                190                  33
          Depreciation
             As	at	1	January	2009	                                     7                197                  13
             Depreciation	in	financial	year	                           –                  2                   4
             Write-downs	in	financial	year                            70                  –                   –
             Write-ups	in	financial	year	                              –                  –                   –
             Net	transfers	/	changes	in	consolidated	companies         –                  –                   –
             Disposals	                                                –                 15                   –
             As at 31 December 2009                                   77                184                  17
             Accumulated	changes	from	measurement		                     	                  	                   	
             at	fair	value	or	at-equity	                               –                  –                   –
          Book value as at 31 December 2009                           58                  6                  16


          Cost
             As	at	1	January	2010	                                   135                190                  33
             Additions	                                                –                  0                   –
             Disposals	                                                –                  2                   –
             Net	transfers	/	changes	in	consolidated	companies          –                 –                   –
             Adjustments	due	to	currency	translation	                   –                 –                   –
             As at 31 December 2010                                  135                188                  33
          Depreciation
             As	at	1	January	2010	                                    77                184                  17
             Depreciation	in	financial	year	                            –                 2                   5
             Write-downs	in	financial	year                              –                 –                   –
             Write-ups	in	financial	year	                               –                 –                   –
             Net	transfers	/	changes	in	consolidated	companies          –                 –                   –
             Disposals	                                                 –                 2                   –
             As at 31 December 2010                                   77                184                  22
             Accumulated	changes	from	measurement		                     	                  	                   	
             at	fair	value	or	at-equity	                                –                 –                   –
          Book value as at 31 December 2010                           58                  4                  11
                                                                    Group Financial Statements >>> Notes   125




                                                                                     Fixed assets
                                                                                    Operating and
                                                      Land and buildings         office equipment
Cost
  As	at	1	January	2009	                                             191                        78
  Additions	                                                          0                          0
  Disposals	                                                          0                        16
  Net	transfers	/	changes	in	consolidated	companies                   –                          0
  Adjustments	due	to	currency	translation	                            –                          0
  As at 31 December 2009                                            191                        62
Depreciation
  As	at	1	January	2009	                                              40                        52
  Depreciation	in	financial	year	                                     4                          5
  Write-downs	in	financial	year                                       –                          –
  Write-ups	in	financial	year	                                        –                          –
  Net	transfers	/	changes	in	consolidated	companies                   –                          –
  Disposals	                                                          0                        15
  As at 31 December 2009                                             44                        42
  Accumulated	changes	from	measurement		                               	                         	
  at	fair	value	or	at-equity	                                         –                          –
Book value as at 31 December 2009                                   147                        20


Cost
  As	at	1	January	2010	                                             191                        62
  Additions	                                                          6                          1
  Disposals	                                                          –                          1
  Net	transfers	/	changes	in	consolidated	companies                   –                          –
  Adjustments	due	to	currency	translation	                            –                          0
  As at 31 December 2010                                            197                        62
Depreciation
  As	at	1	January	2010	                                              44                        42
  Depreciation	in	financial	year	                                     4                          4
  Write-downs	in	financial	year                                      17                          –




                                                                                                                 Financial Statements
  Write-ups	in	financial	year	                                        –                          –
  Net	transfers	/	changes	in	consolidated	companies                   –                          –
  Disposals	                                                          –                          1
  As at 31 December 2010                                             65                        45
  Accumulated	changes	from	measurement		                               	                         	
  at	fair	value	or	at-equity	                                         –                          –




                                                                                                                 Auditor’s Report
Book value as at 31 December 2010                                   132                        17


                                                                                                                 § 28 PfandbriefGS
                                                                                                                 At a glance
126   Group Financial Statements




          ( 59 ) tax assets
          Deferred tax assets represent the potential income tax relief arising from temporary differences between the carry-
          ing value of assets and liabilities under IFRS and the taxable values under the local tax regulations applicable to
          Group companies, and the future income tax relief arising from tax loss carryforwards.

          Deferred tax assets are only recognised insofar as trends in performance and the business environment indicate
          that sufficient taxable income is likely to be available within the five-year planning period.

          in	€	million                                                                                   2010                2009
          Current tax assets                                                                               39                  32
             In	Germany	                                                                                   15                  16
             Outside	Germany                                                                               24                  16
          –	to	be	realised	within	12	months	                                                               29                  20
          –	to	be	realised	in	more	than	12	months	                                                         10                  12
          Deferred tax assets                                                                             883                906
             Income	tax	assets	affecting	income	                                                          149                296
             Income	tax	assets	not	affecting	income	                                                      734                610
          Total                                                                                           922                938



          Tax loss carryforwards within the Eurohypo subgroup were generated primarily by Eurohypo’s New York, Madrid
          and Paris branches; there were also tax loss carryforwards from Eurohypo Inlandsbank prior to fiscal unity.

          For the following tax loss carryforwards, no deferred tax assets were recognised or existing deferred tax assets written
          down as at 31 December 2010, due to the limited planning horizon and thus the insufficient probability of their being
          required. For the same reason, deferred tax assets on temporary differences amounting to € 1,385 million were not
          recognised.
                                                                                            Group Financial Statements >>> Notes   127




in	€	million	 	            	        	                                                         2010                   2009
Corporation tax / Federal tax                                                                  751                    637
   Ability	to	carry	forward	–	unlimited	                                                       563                    245
   Ability	to	carry	forward	–	limited	                                                         188                    392
   of	which	due	to	expire	in	subsequent	period	                                                   –                      –
Trade tax / local taxes                                                                        656                    646
   Ability	to	carry	forward	–	unlimited	                                                          0                   233
   Ability	to	carry	forward	–	limited	                                                         656                    413
   of	which	due	to	expire	in	subsequent	period                                                    –                      –



Deferred tax assets have been recognised in connection with the following items:

in	€	million	 	            	        	                                                         2010                   2009
Fair	value	attributable	to	derivative	hedging	instruments	                                   1,982                  2,672
Trading	assets	and	liabilities                                                               3,113                  2,821
Claims	on	banks	and	customers	                                                                    0                      8
Financial	investments	                                                                         719                    125
Provisions	                                                                                       4                    41
Liabilities	to	banks	and	customers	                                                            415                    257
Securitised	liabilities	                                                                       472                    460
Other	balance	sheet	items	                                                                     247                    113
Tax	loss	carryforwards	                                                                         11                     50
Total                                                                                        6,963                  6,547
Netting	with	deferred	tax	liabilities	                                                       6,080                  5,641
Total after netting                                                                            883                    906



( 60 ) other assets
Other assets mainly comprise the following items:

in	€	million	 	            	        	                                                         2010                   2009
Collection	items	                                                                              339                    374
Accrued	and	deferred	items	                                                                       9                    11




                                                                                                                                         Financial Statements
Other	assets	                                                                                   41                     31
Total                                                                                          389                    416


The main item under other assets is surplus plan assets for pension provisions totalling € 33 million (previous year:
€ 25 million), which may be realised after more than 12 months. All other items in the other assets category may
be realised within 12 months.



                                                                                                                                         Auditor’s Report
                                                                                                                                         § 28 PfandbriefGS
                                                                                                                                         At a glance
128   Group Financial Statements




          notes to the balance sheet – liabilities
          ( 61 ) liabilities to banks
          The breakdown of liabilities to banks is as follows:

          in	€	million	 	          	      	                                                           2010                2009
          Due	on	demand	                                                                               285                159
          Term	liabilities
             Promissory	notes                                                                       15,579              21,128
             Registered	Pfandbriefe	                                                                 2,925               3,703
             Other	liabilities	                                                                     66,118              60,691
          Total                                                                                     84,907              85,681


          Germany	                                                                                  74,808              71,643
          Outside	Germany	                                                                          10,099              14,038
          Total                                                                                     84,907              85,681


          Liabilities to banks are categorised as liabilities measured at amortised cost.

          ( 62 ) liabilities to customers
          The breakdown of liabilities to customers is as follows:

          in	€	million	 	          	      	                                                           2010                2009
          Due	on	demand	                                                                               431                520
          Term	liabilities
             Promissory	notes                                                                        7,097               7,965
             Registered	Pfandbriefe	                                                                24,530              25,893
             Other	liabilities	                                                                        229                252
          Total                                                                                     32,287              34,630


          Germany	                                                                                  31,887              34,225
          Outside	Germany		                                                                            400                405
          Total                                                                                     32,287              34,630


          Liabilities to customers are categorised as liabilities measured at amortised cost.

          ( 63 ) securitised liabilities

          in	€	million                                                                                2010                2009
          Bonds issued                                                                              80,031             102,788
             Mortgage	Pfandbriefe	                                                                  28,904              33,976
             Public-sector	Pfandbriefe	                                                             46,318              61,663
             Other	bonds	                                                                            4,809               7,149
          Other securitised liabilities                                                                  –                   –
          Total                                                                                     80,031             102,788


          Securitised liabilities are categorised as liabilities measured at amortised cost. In 2010 new bonds were issued for
          a total volume of € 7.4 billion. During the same period, redemptions and repurchases totalled € 0.5 billion and the
          volume of maturing issues was € 30.3 billion.
                                                                                          Group Financial Statements >>> Notes   129




( 64 ) negative fair values attributable to derivative hedging instruments
Derivative financial instruments with negative fair values which are used for hedging purposes and qualify for
hedge accounting are reported here.

in	€	million	 	             	             	                                                 2010                   2009
Negative	fair	values	from	effective	fair	value	hedges	                                    12,171                 11,391
Negative	fair	values	from	effective	cash	flow	hedges	                                           –                      –
Total                                                                                     12,171                 11,391



( 65 ) trading liabilities
Trading liabilities comprise negative fair values from derivative financial instruments not used as hedges under
hedge accounting.

in	€	million	 	             	             	                                                 2010                   2009
Negative fair values from derivatives
Interest	rate-related	transactions	                                                       10,532                 12,008
Currency-related	transactions
   Cross-currency	swaps	                                                                     674                    431
   Currency	forwards	                                                                        105                    218
Credit	derivatives	                                                                           10                       7
Other	derivatives                                                                               –                      –
Total                                                                                     11,321                 12,664



( 66 ) provisions
Provisions can be broken down as follows:

in	€	million	 	             	             	                                                 2010                   2009
Provisions	for	pensions	and	similar	commitments	                                                –                      –
Other	provisions	                                                                            264                    310
Total                                                                                        264                    310


    Provisions for pensions and similar obligations




                                                                                                                                       Financial Statements
Pension obligations are calculated annually by independent actuaries using the projected unit credit method.

in	€	million	 	             	             	                                                 2010                   2009
Interest	rate	                                                                            4.90	%                5.30	%
Changes	in	salaries	                                                                      2.50	%                2.50	%
Pension	increases	                                                                        1.80	%                1.80	%




                                                                                                                                       Auditor’s Report
Expected	return	from	plan	assets	                                                         5.70	%                6.00	%


Changes in pension obligations:

in	€	million	 	             	             	                                                 2010                   2009
                                                                                                                                       § 28 PfandbriefGS




Pension obligations as at 1 January                                                          310                    283
Service	cost	                                                                                   3                      3
Interest	expense	                                                                             16                     17
Pension	benefits	                                                                             16                     16
Change	in	actuarial	gains	/	losses
                                                                                                                                       At a glance




   Adjustments	for	past	experience	                                                           –	1                      –
   Other	adjustments	                                                                         16                     31
Sundry	other	adjustments
   Currency	fluctuations	                                                                       –                      –
   Net	transfers	                                                                               0                    –	8
   Plan	adjustments	                                                                            –                      –
Pension obligations as at 31 December                                                        328                    310
of	which	fully	or	partially	financed	by	plan	assets	                                          324                   310
of	which	not	financed	by	plan	assets                                                            4                     –
130   Group Financial Statements




          The pension obligations are allocated to the following regions:

          in	€	million                                                                                 2010               2009
          Germany	                                                                                     324                 307
          Europe	(without	Germany)                                                                        4                  3
          Total                                                                                        328                 310


          Sensitivity to moves in interest rates is calculated at € – 19 million on a + 50 bp change in the discount rate, and
          € 21 million on a – 50 bp change in the discount rate.

          Expenses for pensions and other employee benefits comprise the following components:

          in	€	million                                                                                 2010               2009
          Service	cost	                                                                                   3                  3
          Interest	expense	                                                                             16                  17
          Expected	return	from	plan	assets	                                                             16                  16
          Prior	service	cost	                                                                             –                  0
          Amortisation	of	actuarial	gains	(–)	/	losses	(+)                                                6                  0
          Expenses for defined benefit plans                                                              9                  4
          Expenses	for	defined	contribution	plans	                                                        2                  4
          Other	pension	expenses	(age-related	short-time	working,	early	retirement)	                      5                  3
          Sundry	expenses	for	pensions	and	other	employee	benefits	                                       3                  6
          Expenses for pensions and other employee benefits                                             19                  17


          Personnel expenses also include € 6 million (previous year: € 6 million) in employer contributions to the statutory
          pension fund.

          The expected income from plan assets is based on long-term yields in the capital market at the balance sheet date
          for fixed-interest securities and on past market performance for other investments.

          The changes in plan assets were as follows:

          in	€	million                                                                                 2010               2009
          Fair value as at 1 January                                                                   286                 271
          Allocations	/	releases	                                                                         –                     –
          Expected	return	from	plan	assets	                                                             16                  16
          Actuarial	gains	(+)	/	losses	(–)	                                                             11                  –	1
          Changes	in	consolidated	companies	                                                              –                     –
          Fair value as at 31 December                                                                 313                 286
          Actual	income	from	plan	assets	                                                                27                 15


          At the balance sheet date, there were no plans to top-up plan assets in 2011.

          We anticipate € 17 million in pension payments in 2011 (previous year: € 16 million).

          The plan assets can be broken down as follows:

          in	€	million                                                                                 2010               2009
          Cash	and	cash	equivalents	                                                                 3.2	%               1.8	%
          Equities	                                                                                 14.2	%               9.6	%
          Fixed-income	securities	                                                                  68.6	%              80.3	%
          Investment	funds	                                                                         11.0	%               0.0	%
          Derivatives	                                                                               3.0	%               0.0	%
          Other                                                                                      0.0	%               8.3	%
                                                                                                        Group Financial Statements >>> Notes   131




Summary overview of the main components of defined benefit pension plan:

in	€	million                                                         2010         2009         2008               2007           2006
Pension	obligations	(entitlements)	                                   328          310          283                301            341
Fair	value	of	plan	assets	                                            313          286          271                  –               –
Unrecognised	actuarial	gains	(+)	/	losses	(–)                         –	48         –	49         –	18               –	25           –	67
Pension provisions (+) / surplus plan assets (–)                      – 33         – 25          –6                276            274


The surplus plan assets are reported as an asset under other assets.

     Other provisions
Statement of changes in other provisions:

                                      Specific       General    Provisions                Provisions
                                      loan loss     loan loss          for    Restruc-           for           Sundry
                                  provisions       provisions   personnel        turing    litigation            other
in	€	million                           SLLP            GLLP       matters    provisions         risks       provisions           Total
As	at	1	January	2009                        67            37           11          106            28                47            296
Additions	                                  47            18            3           74            21                12            175
Accrued	interest	                            –             –            0            4             –                 –               4
Utilisation	                                 0             –            2           31             4                25             62
Disposals	                                  61            28            1            9            11                 4            114
Transfers	                                   0             –           –	1           0             0                12             11
Changes	in	consolidated	                      	             	            	            	             	                 	              	
	 ompanies
c                                            –             –            –            –             –                 0               0
Adjustments	due	to		                          	             	            	            	             	                 	              	
currency	translation	                        0             0            0            0             –                 0              0
As at 31 December 2009                      53            27           10          144            34                42            310


As	at	1	January	2010                        53            27           10          144            34                42            310
Additions	                                  44            13            1            3            14                11             86
Accrued	interest	                            –             –            1            4             0                 0              5
Utilisation	                                 1             –            2           27             2                 7             39
Disposals	                                  38            18            0           18             6                21            101




                                                                                                                                                     Financial Statements
Transfers	                                   0             0            0            0             0                 0              0
Changes	in	consolidated	                      	             	            	            	             	                 	              	
c
	 ompanies	                                  –             –            –            –             –                 –               –
Adjustments	due	to		                          	             	            	            	             	                 	              	
currency	translation	                        0             1            0            2             0                 0              3
As at 31 December 2010                      58            23           10          108            40                25            264



                                                                                                                                                     Auditor’s Report
  t
–		 o	be	realised	within		                    	             	            	            	             	                 	              	
 12	months	                                 30            10            9           33            39                24            145
  t
–		 o	be	realised	in	more	than	               	             	            	            	             	                 	              	
 12	months	                                 28            13            1           75             1                 1            119
                                                                                                                                                     § 28 PfandbriefGS




Provisions for personnel matters include service anniversary provisions, which are long-term in nature and are used
gradually over subsequent periods.

The restructuring provisions cover future obligations arising from the strategic realignment of Commercial Real
Estate, personnel obligations for early retirement and age-related short-time working arrangements and also from
                                                                                                                                                     At a glance




rental agreements.

At the time the provisions are set aside, it is not possible to predict the exact length of any legal proceedings that
may occur nor the amount of provisions that may be needed.

The additions to sundry other provisions mainly relate to advisory and audit costs.
132   Group Financial Statements




          (67) tax liabilities
          Provisions for income taxes are potential tax liabilities where no legally binding tax assessment has yet been issued.
          Deferred tax liabilities are potential income tax charges arising from temporary differences between the carrying
          value of assets and liabilities under IFRS and the taxable values under the local tax regulations applicable to Group
          companies.

          in	€	million                                                                                      2010                 2009
          Current tax liabilities                                                                            118                  117
             Tax	liabilities	to	tax	authorities	                                                                –                   –
             Provisions	for	income	tax                                                                       118                  117
          –	to	be	realised	within	12	months	                                                                  96                  117
          –	to	be	realised	in	more	than	12	months                                                             22                    –
          Deferred tax liabilities                                                                            33                   88
             Tax	liabilities	recognized	in	income	statement	                                                  26                   88
             Tax	liabilities	not	recognized	in	income	statement	                                                7                   –
          Total                                                                                              151                  205


          Deferred tax liabilities have been recognised in connection with the following items:

          in	€	million                                                                                      2010                 2009
          Trading	assets	and	liabilities                                                                    2,228               2,165
          Fair	value	attributable	to	derivative	hedging	instruments	                                        1,079               1,132
          Financial	Investments	                                                                            1,778               1,359
          Claims	on	banks	and	customers	                                                                     955                  989
          Liabilities	to	banks	and	customers	                                                                   3                   3
          Securitised	liabilities	                                                                              –                   –
          Other	balance	sheet	items	                                                                          70                   80
          Total                                                                                             6,113               5,728
          Netting	                                                                                          6,080               5,640
          Total after netting                                                                                 33                   88


          ( 68 ) other liabilities

          in	€	million                                                                                      2010                 2009
          Deferred	items	                                                                                     27                   43
          Other	liabilities	                                                                                 102                  118
          Total                                                                                              129                  161


          Other liabilities is largely made up of taxes and social security contributions payable totalling € 12 million (previous
          year: € 14 million), trade accounts payable amounting to € 4 million (previous year: € 6 million) and lending liabili-
          ties at € 6 million (previous year: € 31 million). Interest on profit participation certificates totalling € 46 million
          (previous year: € 31 million) will be realised after 12 months. All other items in other liabilities will be realised within
          12 months.

          ( 69 ) subordinated capital
               Subordinated liabilities
          Subordinated liabilities are own funds as defined in section 10 (5 a) of the German Banking Act (KWG) . In the event
          of insolvency proceedings involving the assets of the Bank or the liquidation of the Bank, subordinated liabilities
          are not repayable until all non-subordinated creditors have been satisfied. The issuer cannot be compelled to make
          early repayment.

          in	€	million                                                                                      2010                 2009
          Bearer	bonds	                                                                                      499                  495
          Promissory	notes                                                                                  2,155               2,168
          Total                                                                                             2,654               2,663


          Subordinated liabilities are categorised as liabilities measured at amortised cost.
                                                                                                                         Group Financial Statements >>> Notes   133




As at the balance sheet date, no individual items constituted more than 10 % of the total subordinated liabilities.

Interest expenses of € 136 million (2009: € 140 million) were incurred for subordinated liabilities.

        Profit participation certificates

in	€	million                                                                                                                2010                     2009
Profit	participation	certificates	                                                                                           680                         716
Total                                                                                                                        680                         716


List of main profit participation certificate issues:

                                            Nominal
                                             amount
Year of issue                            in € million                                                  Interest rate    Maturity date         Repayment
20001)                                             13                                                       7.30	%         31.12.2010         30.06.2011	
20001)                                            200	                                                       	
                                                                           Euribor	twelve-month	deposits	plus	             31.12.2012	        01.07.2013
	                                                    	              150	basis	points	on	2nd	working	day	prior	                         	
                                                                                                to	interest	period	
20011)                                             34                                            7.05	%	–	7.06	%           31.12.2011	        02.07.2012	
20031)                                              1                                                       6.62	%         31.12.2012	        01.07.2013	
20031)                                             40                                            6.65	%	–	6.70	%           31.12.2013	        01.07.2014	
2006	                                             200	                                                       	
                                                                           Euribor	twelve-month	deposits	plus	             31.12.2016	        01.07.2017
	                                                    	              110	basis	points	on	2nd	working	day	prior	                         	                   	
                                                                                                to	interest	period	
2007	                                             200	                                                       	
                                                                           Euribor	twelve-month	deposits	plus	             31.12.2017	        01.07.2018	
	                                                    	                85	basis	points	on	2nd	working	day	prior	                        	                   	
                                                                                                to	interest	period	
1)		
    When	the	Eurohypo	AG	merger	came	into	force,	holders	of	participation	certificates	in	the	former	Rheinhyp	and	Hypothekenbank	in	Essen	AG	
    were	granted	participation	rights	of	equal	value	with	the	same	payment	commitment	to	the	holders,	which	are	subordinate	to	all	liabilities	due	to	
    other	creditors	but	rank	equally	with	profit	participation	certificates	already	issued.	


Interest payable on profit participation certificates for 2010 amounted to € 15 million (2009: € 33 million).

The participation certificates grant a share in the profits which ranks ahead of the annual dividend distribution to




                                                                                                                                                                      Financial Statements
the shareholders; the certificates are subordinate to other creditors unless these too are subordinated. Subject to
the provisions on participation in a loss, repayment takes place at the nominal amount.

Profit participation certificates are classified as liabilities measured at amortised cost.

In the year under review, holders of profit participation certificates participated in the loss. The writedown of
repayment rights calculated in accordance with the German Commercial Code was € 79 million (2009: € 19 million).



                                                                                                                                                                      Auditor’s Report
On profit participation certificates where budgeting leads us to expect a writeup in subsequent years, we have
allowed for € 73 million (2009: € 18 million) of expected write-ups when measuring these certificates in the finan-
cial statements.

authorisation to issue profit participation certificates
                                                                                                                                                                      § 28 PfandbriefGS



At the Annual General Meeting of 30 August 2008, the Board of Managing Directors was authorised to issue profit
participation certificates on one or more occasions up to a total of € 700,010,000 by 24 August 2013.

The profit participation certificates must comply with the conditions of section 10 (5) of the German Banking Act,
according to which the capital obtained in return for the issue of profit participation rights may be allocated to the
liable capital. The participation certificates can be issued for a term of up to fifteen years. When utilising the authori-
                                                                                                                                                                      At a glance




sation, the Board of Managing Directors may exclude residual amounts from shareholder subscription rights.

In addition, as a result of the merger with Hypothekenbank in Essen AG and in accordance with section 23 of the
reorganisation of companies act (Umwandlungsgesetz), the board of managing directors has been authorised to
issue up to € 200,009,954.85 of profit participation certificates, excluding shareholder subscription rights, to the
issuer of profit participation rights by Hypothekenbank in Essen AG .

The Board of Managing Directors was authorised to determine the details, terms and conditions of the issues, in
particular the time of issue, type, level and maturity of the distribution and repayment claims, the issue price and
the term of the profit participation certificates.
134   Group Financial Statements




          ( 70 ) hybrid capital

          in	€	million                                                                                    2010               2009
          Hybrid	capital                                                                                   900                900
          Total                                                                                            900                900


          Eurohypo AG issued hybrid capital with a nominal amount of € 600 million in 2003 at an interest rate of 6.445 %
          via Eurohypo Capital Funding LLC I, Delaware, US and Eurohypo Capital Funding Trust I, Delaware, US . There is
          a call option dated 23 May 2013.

          In 2005, a further € 300 million of hybrid capital was issued via Eurohypo Capital Funding LLC II, Delaware, US
          and Eurohypo Capital Funding Trust II, Delaware, US , at an interest rate of 6.75 % There is an annual call option,
          the first being on 8 March 2011.

          No interest expenses (2009: € 17 million) arose during the year under review.

          Hybrid capital is categorised under liabilities measured at amortised cost.

          ( 71 ) equity structure
                  Composition of equity

          in	€	million                                                                                    2010               2009
          Subscribed	capital	                                                                              914                914
          Capital	reserve	                                                                               3,992              3,992
          Retained	earnings                                                                                258                443
          Revaluation	reserve	                                                                         –	1,622             –	1,360
          Reserve	from	cash	flow	hedges	                                                                  –	35                –	40
          Reserve	from	currency	translation	                                                                 7                  2
          Consolidated	result                                                                                –                  –
          Minority	interests	                                                                                1                  1
          Total                                                                                          3,515              3,952



              Subscribed capital
          The subscribed capital of Eurohypo AG as at 31 December 2010 was € 913,688,919.00, divided into 351,418,815
          bearer shares with no par value. The shares are fully paid up.

                                                                                                                  No. in thousands
          Number of outstanding shares as at 31.12.2009                                                                   351,419
          Number of shares issued as at 31.12.2010                                                                        351,419
          less:	treasury	shares	on	reporting	date	                                                                              –
          Number of outstanding shares as at 31.12.2010                                                                   351,419



          The value of the shares issued, outstanding and approved is as follows:

          Fair value of financial investments eligible for public listing
                                                                                              2010                           2009
                                                                       € million   No. in thousands   € million   No. in thousands
          Issued shares                                                     914            351,419         914            351,419
          Outstanding shares (subscribed capital)                           914            351,419         914            351,419
          plus:	shares	not	yet	issued		                                        	                  	           	                  	
          from	authorised	capital                                             –                  –           –                  –
          Total                                                             914            351,419         914            351,419


          The resolution passed at the Annual General Meeting on 29 August 2007 to transfer the shares owned by out-
          standing minority shareholders in Eurohypo AG to Commerzbank Inlandsbanken Holding GmbH, Frankfurt am
          Main (the majority shareholder) was entered in the Commercial Register of the company on 25 July 2008 and has
          thus taken effect.
                                                                                           Group Financial Statements >>> Notes   135




Following the entry into force of the transfer resolution, the shares owned by noncontrolling interests now only
represent an entitlement to an appropriate cash settlement. According to the resolution of the General Meeting
held on 29 August 2007 this amounts to € 24.32 per bearer share, of which € 2.60 represents a proportional
amount of the share capital of the company.

Commerzbank Inlandsbanken Holding GmbH, Frankfurt am Main, directly and indirectly via AFÖG GmbH & Co. KG ,
Frankfurt am Main holds 100 % of the share capital of the bank. Commerzbank Inlandsbanken Holding is a wholly
owned subsidiary of Commerzbank AG , Frankfurt am Main. The financial statements of the Eurohypo AG sub-group
are consolidated in the financial statements of Commerzbank Group, which are drawn up under IFRS. The Commerz-
bank consolidated financial statements are published in the electronic Bundesanzeiger.

On 29 August 2007 the annual general meeting of Eurohypo AG approved the control and profit transfer agreement
between Commerzbank Inlandsbanken Holding GmbH and Eurohypo AG . This took effect upon registration in the
Commercial Register on 4 September 2007. For the term of this agreement, Eurohypo AG is obliged to transfer its
profits to its shareholder; in turn, the latter is obliged to cover losses made by Eurohypo AG .

    Capital reserve
The capital reserve shows the premium from the issue of shares including subscription rights in excess of the
nominal or arithmetical value.

    Retained earnings
The retained earnings comprise statutory reserves and other revenue reserves.

The statutory reserves amounted to € 4 million as at 31 December 2010 (2009: € 4 million) and are subject to a
restriction on distribution. Other revenue reserves of € 254 million (2009: € 439 million) include reinvested consol-
idated profit including accumulated amounts from consolidation effects recognised through profit or loss as well
as the effects of first-time adoption of IFRS at the conversion date of 1 January 2003.

As at 31 December 2010 the Group had not issued any convertible bonds or bonds with warrants. There is there-
fore no requirement to split financial instruments into equity and debt components.

     Revaluation reserve
The revaluation reserve as at 31 December 2010 comprises the unrealised gains and losses on the revaluation of
available-for-sale financial instruments amounting to € – 2,334 million (2009: € – 1,952 million).

Deferred taxes arising on the revaluations of € 712 million (2009: € 592 million) are included in this figure.




                                                                                                                                        Financial Statements
    Reserve for cash flow hedges
Changes in fair value of the effective portion of hedges amounting to € – 51 million were recognised for cash flow
hedges (2009: € – 58 million).

This includes deferred taxes arising on the hedges of € 16 million (2009: € 18 million).



                                                                                                                                        Auditor’s Report
    Reserve for currency translation
The reserve for currency translation comprises the translation gains and losses arising on capital consolidation.
                                                                                                                                        § 28 PfandbriefGS
                                                                                                                                        At a glance
136   Group Financial Statements




          ( 72 ) foreign currency positions
          As at 31 December 2010 the Group reported the following assets and liabilities (excluding fair values from deriva-
          tives) in foreign currencies:

                                                                                                               2010       2009
          in	€	million                                USD         CHF        GBP         JPY      Other       Total       Total
          Cash	reserve	                                  0          0           3          –          0           3             2
          Trading	assets                               107          –          86          –          –        193             59
          Claims	on	banks	                           3,067        838        120       1,550         64       5,639      1,042
          Claims	on	customers	                       5,846      3,924       9,841        113        541      20,265     21,049
          Financial	investments	                    13,560        299       1,715      1,522      1,076      18,172     19,534
          Other	assets	                                  3          0           4         17          0          24            42
          Total assets in foreign currencies        22,583      5,061      11,769      3,202      1,681      44,296     41,728
          Liabilities	to	banks	                      8,929        968       2,356      2,593        133      14,979     13,699
          Liabilities	to	customers	                      3          4          25          4        138        174         567
          Securitised	liabilities	                   7,395      2,974        623         234        717      11,943     15,319
          Other	liabilities	                            32          4          42          9          8          95        101
          Total liabilities in foreign currencies   16,359      3,950       3,046      2,840        996      27,191     29,686


          Incoming and outgoing payments were made in these currencies in financial year 2010.

          The open balance sheet positions are matched by forward currency transactions or currency swaps with similar
          maturities.

          notes to financial instruments and risk management
          ( 73 ) derivative transactions
          The tables below show Eurohypo Group’s transactions in derivatives as at the balance sheet date.

          A derivative is a financial instrument whose value depends on the value of an underlying asset. This may be, for
          example, an interest rate, a commodity price, an exchange rate or the price of a bond or equity. The financial
          investment does not require any initial net investment, or an initial net investment that is smaller than would be
          required for other types of instrument that would be expected to have a similar response to changes in market
          factors. It is settled at a future date.

          Most of the derivative transactions involve OTC derivatives, where the nominal amount, maturity and price are
          negotiated each time between the bank and its counterparties. However, the bank also enters into derivatives
          transactions on regulated exchanges. These involve standardised contracts with standardised nominal amounts
          and delivery dates.

          The amount traded by the bank is the nominal amount. The positive and negative fair values shown in the tables
          represent the cost to the bank or the counterparty of replacing the contract originally entered into with economi-
          cally equivalent transactions. A positive fair value is the bank’s maximum potential counterparty-related default
          risk from derivative transactions as at the balance sheet date.

          In order to minimise both the economic and regulatory credit risk from these instruments, Eurohypo enters into
          bilateral master netting agreements with our business partners (e. g. as the 1992 ISDA Master Agreement Multi-
          currency Cross Border and the German Master Agreement for Financial Derivatives Transactions). These bilateral
          netting agreements allow us to offset the positive and negative fair values of the derivative contracts covered
          and reduce regulatory risk add-ons for future risks of these products. The netting process reduces the credit risk
          to a single net claim on the contract partner (close-out netting).

          Both for regulatory reporting and internal measurement and monitoring of our credit commitment, we only use
          such risk-reduction techniques where we believe they are enforceable in the relevant jurisdiction in the event of
          the insolvency of the business partner. We obtain legal opinions from various international law firms in order to
          verify enforceability.
                                                                                                  Group Financial Statements >>> Notes   137




Similar to the master agreements are the collateral agreements (e. g. collateralization annex for financial deriva-
tive contracts, Credit Support Annex), which we conclude with our business associates to secure the net claim or
liability remaining after netting (receiving or furnishing of security). As a rule, this collateral management reduces
credit risk by means of prompt – mostly daily or weekly – measurement and adjustment of the customer exposure.

The following table shows the nominal amounts and fair values of derivatives transactions broken down by con-
tracts based on interest rates, currencies and other price risks, and also the maturity structure of these transactions.
The fair values stated are the sum of positive and negative amounts per contract with no reduction for collateral
or any netting agreements which may be in place, as these are not product-based. Where options have been sold,
there is by definition no positive fair value. The nominal amount is the gross volume of all purchases and sales.
The maturity breakdown given is based on remaining maturities, taking the term of the contract rather than the
underlying asset. The table below also shows the fair value of derivatives based on the net method of presentation
as set out in Note 1.

breakdown by term
                                                                         Nominal amount / residual terms               Fair value
                                        Due on      Up to   3 months        1 year     Over        Total    Positive   Negative
in	€	million                           demand    3 months   to 1 year   to 5 years   5 years       2009        2009       2009
Foreign currency-based
forward transactions
OTC	products	
   Foreign	exchange	spot	and	                	          	           	            	         	           	           	            	
   f
   	 orward	contracts	                      –       8,660      1,967           39          –     10,666          32          218
   Interest	rate	and	currency	swaps	        –        292       1,470        3,693      5,540     10,995         836          670
Total                                       –       8,952      3,437        3,732      5,540     21,661         868          888


Interest rate-based forward
transactions
OTC	products	
   Forward	rate	agreements	                 –     17,250       9,940            –          –     27,190           1            –
   Interest	rate	swaps	                     –     41,262      76,976     201,925     179,559   499,722      15,632       22,930
   Call	options	on	interest		                	          	           	            	         	           	           	            	
   rate	futures	                            –           –          –           72       242         314          16            –
   Put	options	on	interest		




                                                                                                                                               Financial Statements
   rate	futures	                             –        10         395          721       734       1,860           –          133
   Other	interest	rate	contracts	            –      1,598      1,765        7,743      3,167     14,273          82           97
Products	traded	on	a	stock	exchange
   Interest	rate	futures	                    –          –          –            –          –          –           –            –
Total                                        –    60,120      89,076     210,461     183,702   543,359      15,731       23,160




                                                                                                                                               Auditor’s Report
Other forward transactions
OTC	products	
   Credit derivatives                        –          –          –            –       296         296           –            7


Total pending forward transactions
                                                                                                                                               § 28 PfandbriefGS



OTC	products	                                –    69,072      92,513     214,193     189,538   565,316      16,599       24,055
Products	traded	on	a	stock	exchange	         –          –          –            –          –          –           –            –
Total                                        –    69,072      92,513     214,193     189,538    565,316     16,599       24,055
                                                                                                                                               At a glance
138   Group Financial Statements




           breakdown by term
                                                                                         Nominal amount / residual terms                         Fair value
                                                   Due on      Up to    3 months            1 year         Over         Total      Positive       Negative
          in	€	million                            demand    3 months    to 1 year       to 5 years       5 years        2010          2010           2010
          Foreign currency-based
          forward transactions
          OTC	products	
             Foreign	exchange	spot	and	                 	          	              	              	              	             	              	            	
             f
             	 orward	contracts	                       –       9,310            620           134               –      10,064           94             105
             Interest	rate	and	currency	swaps	         –        190             805         5,618         6,430        13,043          996           1,054
          Total                                        –       9,500       1,425            5,752         6,430        23,107        1,090           1,159
          Interest rate-based forward
          transactions
          OTC	products	
             Forward	rate	agreements	                  –       6,000       2,100                 –              –       8,100            –               –
             Interest	rate	swaps	                      –     23,659       42,139         171,364        145,407       382,569       13,759          22,162
             Call	options	on	interest	rate	
             f
             	 utures	                                 –           –              –           183           260          443            14               –
             Put	options	on	interest	rate	
             f
             	 utures	                                  –       170              83           505           311         1,069            –              65
             Other	interest	rate	contracts	             –       834        2,992            7,209         2,960        13,995           76              96
          Products	traded	on	a	stock	exchange
             Interest	rate	futures	                     –       830               –              –              –        830             –               –
          Total                                         –    31,493       47,314         179,261        148,938       407,006       13,849          22,323


          Other forward transactions
          OTC	products	
             Credit derivatives                         –          –              –           501           156          657            33              10


          Total pending forward transactions
          OTC	products	                                 –    40,163       48,739         185,514        155,524       429,940       14,972          23,492
          Products	traded	on	a	stock	exchange	          –       830               –              –              –        830             –               –
          Total                                         –    40,993       48,739         185,514        155,524       430,770       14,972          23,492


          The table below shows the positive and negative fair values of the derivative transactions of Eurohypo Group broken
          down by counterparty. The majority of the derivatives business of Eurohypo Group is carried out with counterparties
          of impeccable credit standing. The overwhelming majority of fair value is concentrated in counterparties located in
          OECD states.


                                                                   Nominal                       Fair value         Nominal                      Fair value
                                                                                      Positive       Negative                     Positive       Negative
          in	€	million                                                  2010             2010           2010           2009          2009             2009
          OECD	banks	                                              387,249             12,922         23,363        520,525        14,473          23,994
          Other	companies,	private	individuals	                        43,521           2,050            129         44,791         2,126               61
          Total                                                    430,770             14,972         23,492        565,316        16,599          24,055
                                                                                             Group Financial Statements >>> Notes   139




( 74 ) use of financial derivatives
The table below shows how financial derivatives are used. Derivatives are used for hedging. Our accounting
policies describe the following criteria.

                                                                                       Fair value                Fair value
                                                                            Positive   Negative      Positive    Negative
in	€	million                                                                   2010         2010         2009         2009
Hedging	derivatives	that	cannot	be	used	for	hedge	accounting                  9,867      11,321       11,168        12,664
Derivatives	used	for	hedge	accounting
   For	fair	value	hedge	accounting	                                           5,105      12,171         5,431       11,391
   For	cash	flow	hedge	accounting	                                                 –           –            –             –
Total                                                                        14,972      23,492       16,599        24,055


( 75 ) cash flow hedges
The reserve reported results from the reserve arising from cash flow hedges that was taken over upon the merger
with the former Essen Hyp. This reserve is being released on a scheduled basis as the underlying transactions
mature. As at 31 December 2010 the remaining reserve amounted to € – 35 million (2009: € – 40 million) after
deferred taxes of € 16 million (2009: € 18 million).

The table below shows in which reporting periods the hedged cash flows are anticipated to occur and when
these are expected to impact on profit or loss:

                                                                               Up to   3 months         1 year        Over
in	€	million                                                                3 months   to 1 year    to 5 years      5 years
2009
   Cash	flow	from	assets	                                                         37         111          481          217
   Cash	flow	from	liabilities	                                                  –	23         –	60       –	157          –	44
Net cash flow                                                                     14          51          324          173


2010
   Cash	flow	from	assets	                                                         44         131          533          180
   Cash	flow	from	liabilities	                                                  –	23         –	64       –	147          –	36
Net cash flow                                                                     21          67          386          144




                                                                                                                                          Financial Statements
( 76 ) market risk
Market price risk comprises the risk of sustaining losses due to changes in market prices (interest rates, spreads,
exchange rates, share prices, etc.) or in parameters that affect prices such as volatility and correlations. We also
monitor market liquidity risk, which takes the period of time into consideration to close or hedge risk positions to
the extent desired. Management and monitoring is established at Group level. During the financial year method-



                                                                                                                                          Auditor’s Report
ological and organisational changes were implemented relating primarily to the calculation of value at risk (V aR) .

All significant market price risks are limited and monitored.

We have provided further information on the nature and scale of market price risks in the management report, in
particular in the risk report.
                                                                                                                                          § 28 PfandbriefGS




( 77 ) interest rate risk
Interest rate risk describes the risk of loss arising when the benchmark yield curve changes. Eurohypo uses the
swap curve of the relevant currency as the benchmark yield curve.

Interest rate risk is calculated every day using net present value methodology and applying delta (a measure of
                                                                                                                                          At a glance




sensitivity to moves in interest rates). In order to ascertain these indicators, the net present values of the assets
and liabilities on the balance sheet and of all derivatives are calculated. The interest rates on the underlying bench-
mark yield curve are then raised by one basis point in certain maturity ranges. The delta for a specific maturity
band is the cash equivalent loss – or gain – incurred if the benchmark yield curve rises.
140   Group Financial Statements




          ( 78 ) credit spread risk
          In addition to interest rate risks, credit spread risks are also calculated for all securities holdings both within and
          outside our cover pool. As with the systematic interest rate risks, these quantify the cash equivalent gain or loss
          resulting from a widening of issuer-specific credit spreads by one basis point.

          In both cases the measure used to quantify all market price risks is value at risk (VaR). VaR quantifies risk as a neg-
          ative deviation from the current value of all financial transactions carried out by the bank for a given probability
          and within a defined time horizon. It is calculated daily on the basis of the HistSim approach. A uniform confidence
          level of 97.5 % is applied throughout the Group for internal management purposes. The holding period is set at
          one day.

          ( 79 ) currency risk
          Currency risk is the risk of incurring losses due to exchange rate movements. The risk is determined by means of
          net exposure summaries (nominal). This risk is restricted by means of a volume restriction which sets a limit on
          the absolute level of open foreign currency positions.

          ( 80 ) risk reporting
          We have provided further information on the nature and scale of risks arising from financial instruments according
          to IFRS 7.31 – 42 in the management report, in particular in the risk report.

          ( 81 ) risk-weighted assets and capital ratios
          The German Banking Act and the Solvency Ordinance require German banks to maintain minimum capital ratios.
          They stipulate that banks have to back their risk weighted assets with at least 8 % in own funds (the own funds
          ratio).

          Own funds comprise liable capital that is made up of core and supplementary capital, plus Tier III capital. Core
          capital mainly consists of subscribed capital plus reserves, hidden reserves and noncontrolling interests, less
          deduction items such as goodwill, equity investments and intangible assets. Hybrid capital is counted as core
          capital under other capital, with certain limits on eligibility. Supplementary capital comprises outstanding profit-
          sharing certificates and subordinated non-current liabilities.

          Eurohypo seeks to achieve the following objectives in managing its capital:

                Adherence to the statutory minimum capital requirements at Group level and in all Group companies
                Provision of sufficient reserves to guarantee the bank’s freedom of action at all times
                Strategic allocation of core capital to business segments and divisions in order to exploit growth opportunities

          The core capital is allocated via a regular process which takes account of the bank’s strategic direction, profitable
          new business opportunities in the core business of each banking area as well as issues relating to risk-bearing
          capacity.

          All measures relating to the bank’s capital are proposed by the bank’s central asset-liability committee and
          approved by the Board of Managing Directors, subject to the authorisation granted by the annual general meeting.

          In the past year Eurohypo met the statutory minimum capital requirements at all times.
                                                                                                Group Financial Statements >>> Notes   141




The table below shows regulatory capital based on the figures given in the report to the supervisory authority in
accordance with the Solvency Ordinance, which the Eurohypo Group prepares on the basis of its financial statements
prepared in accordance with the German Commercial Code (HGB) :

in	€	million                                                                                       2010                  2009
Tier	I	capital
   Subscribed	capital	                                                                             900                    919
   Reserves,	noncontrolling	interests,	treasury	shares	                                           4,834                 4,763
   Hybrid	capital	                                                                                 900                    900
   Other	                                                                                         –	141                 –	298
Total                                                                                             6,493                 6,284
Supplementary	capital
   Hybrid	capital	                                                                                    –                      –
   Profit	participation	rights	                                                                       –                   673
   Reserves	in	securities	(eligible	45	%)	                                                            –                      –
   Subordinated	liabilities	                                                                      2,447                 2,485
   Other	                                                                                         –	149                 –	269
Total                                                                                             2,298                 2,889
Tier III capital                                                                                      –                      –
Eligible own funds                                                                                8,791                 9,173


The capital requirements and capital ratios prescribed under supervisory provisions were as follows:

in	€	million                                                                                       2010                  2009
Requirement	for	own	funds,	credit	risk	                                                           4,888                 5,729
Requirement	for	own	funds,	market	price	risk	                                                        13                      9
Requirement	for	own	funds,	operational	risk	                                                         80                    81
Requirement for own funds, total                                                                  4,981                 5,819
Eligible	own	funds                                                                                8,791                 9,173
Core	capital	ratio	                                                                                10.4                    8.6
Own	funds	ratio                                                                                    14.1                  12.6


( 82 ) fair value of financial instruments




                                                                                                                                             Financial Statements
     Determining fair value
The following deals in particular with determining the fair values attributable to financial instruments that do not
have to be reported at fair value in the balance sheet but for which a fair value must be given separately under
IFRS 7 . For financial instruments reported at fair value on the balance sheet, the methods for measuring them are
presented in the accounting policies (Notes 2 to 29) and later on under the sections headed “Measurement of
financial instruments” and “Fair value hierarchy”.



                                                                                                                                             Auditor’s Report
The nominal value of financial instruments falling due on demand is deemed to be their fair value. These instru-
ments include the cash reserve as well as overdrafts and sight deposits in the claims on banks and customers or
liabilities to banks and customers categories.

No immediate fair values are available for loans and deposits as there are no organised markets trading in such
                                                                                                                                             § 28 PfandbriefGS



instruments. Recognised theoretical measurement methods are used to determine the fair value of these instruments
with the aid of current market parameters. With loans, a discounted cash flow model is applied, the parameters of
which are based on a risk-free yield curve, credit spreads and a flat premium to cover liquidity spreads, adminis-
trative and regulatory capital costs. With liabilities, a risk-free yield curve is again used, whereby particular account
is taken of Commerzbank Aktiengesellschaft’s own credit spread and a premium for administrative costs. The model
also uses market credit spreads for mortgage Pfandbriefe, Public-sector Pfandbriefe and loans taken out by the bank.
                                                                                                                                             At a glance




The fair value for securitised liabilities, subordinated liabilities and hybrid capital is determined on the basis of quoted
market prices, where available. Measurement takes various factors into account including current market rates of
interest and the Group’s credit rating. If no quoted prices are available, fair values are determined by theoretical
measurement models (discounted cash flows, option price models), which in turn rely on yield curves, volatilities,
own credit spreads, etc.
142   Group Financial Statements




          The table below shows the fair values attributable to balance sheet items compared with their carrying value:

                                                                             Fair value              Book value                 Fair value1)     Book value
          in	€	million                                                            2010                    2010                        2009            2009
          Assets
          Cash	reserve	                                                              30                        30                          36           36
          Claims	on	banks	                                                      23,864                    23,980                    26,709          26,872
               Due	on	demand	                                                   12,139                    12,139                         9,201       9,201
               Real	estate	finance	                                                  83                        87                          90           92
               Loans	to	public	sector	companies	                                 9,047                      9,162                   10,967          11,134
               Other	claims	                                                     2,595                      2,592                        6,451       6,445
          Claims	on	customers	                                                115,691                    116,299                   130,559         129,695
               Real	estate	finance	                                             85,241                    85,757                    93,450          92,430
               Loans	to	public	sector	companies	                                29,777                    29,869                    36,958          37,114
               Other	claims	                                                        673                       673                         151          151
          Positive	fair	values	attributable	to	                                        	                          	                          	            	
          d
          	 erivative	hedging	instruments                                        5,105                      5,105                        5,430       5,430
          Trading	assets                                                        10,112                    10,112                    11,275          11,275
          Financial	investments	                                                68,959                    71,427                    80,613          80,856
          Liabilities
          Liabilities	to	banks                                                  85,017                    84,907                    85,680          85,681
               Due	on	demand	                                                       285                       285                         159          159
               Promissory	notes	                                                15,671                    15,579                    21,100          21,128
               Registered	Pfandbriefe	                                           2,943                      2,925                        3,730       3,703
               Other	liabilities	                                               66,118                    66,118                    60,691          60,691
          Liabilities	to	customers	                                             32,294                    32,287                    34,217          34,630
               Due	on	demand	                                                       431                       431                         520          520
               Promissory	notes	                                                 7,167                      7,097                        7,878       7,965
               Registered	Pfandbriefe	                                          24,467                    24,530                    25,567          25,893
               Other	liabilities	                                                   229                       229                         252          252
          Securitised	liabilities	                                              80,103                    80,031                   102,949         102,788
               Mortgage	Pfandbriefe	                                            29,390                    28,904                    34,603          33,976
               Public-sector	Pfandbriefe	                                       45,909                    46,318                    61,236          61,663
               Other	bonds	                                                      4,804                      4,809                        7,110       7,149
          Negative	fair	values	attributable	to	                                        	                          	                          	            	
          d
          	 erivative	hedging	instruments                                       12,171                    12,171                    11,391          11,391
          Trading	liabilities                                                   11,321                    11,321                    12,664          12,664
          Subordinated	capital	                                                  3,231                      3,334                        3,100       3,379
          Hybrid	capital                                                            410                       900                         366          900
            T
           		 he	figures	as	at	31	December	2009	have	been	partially	restated.	
          1)


            This	reduced	the	net	difference	between	the	carrying	amount	and	fair	value	from	a	total	of	€	3.3	billion	to	€	1.5	billion.




          The net total difference between the book value and fair value across all items was € – 2,788 million as at
          31 December 2010 (2009: € 1,524 million).

                Valuation of financial instruments
          In accordance with IAS 39 , all financial instruments must be measured at their fair value on initial recognition; plus,
          in case of a financial asset not at fair value through profit or loss, certain transaction costs. Financial instruments
          that are classified as having to be measured at fair value through profit or loss and available-for-sale financial assets
          are thereafter constantly measured at fair value. For this purpose, financial instruments that have to be measured
          at fair value through profit or loss include derivatives, instruments held for trading purposes and instruments that
          are designated as measured at fair value.
                                                                                             Group Financial Statements >>> Notes   143




The fair value of a financial instrument is the amount at which it could be exchanged between knowledgeable,
willing parties in an arm’s length transaction. The most suitable yardstick for fair value is the listed price for an
identical instrument on an active market. If no listed prices are available, instruments are measured on the basis
of the listed prices for similar instruments on active markets. To quote the price at which an asset or liability can
be exchanged or settled, assets are measured at their bid price and liabilities at their ask price.

If no listed prices are available for identical or similar financial instruments, fair value is determined using a suit-
able measurement model, where the input data come as far as possible from market sources that can be verified.
While most measurement methods rely on market sources that can be verified, certain financial instruments will
be measured using measurement models that rely on other inputs, for which there are not sufficient verifiable
market data available. By their very nature, these measurements are heavily dependent on management estimates.
These non-observable inputs may include data that are extrapolated, interpolated or determined in the form of
approximations from correlated or historical data. Nevertheless, use is made as much as possible of market data or
data provided by third parties and as little as possible of company-specific inputs.

Measurement models must comply with recognised business methods for measuring financial instruments and
take all factors into account that market participants would consider in establishing whether a price was reasonable.
All fair values are subject to the internal controls and procedures of the Commerzbank Group establishing the
standards for independently checking and validating fair values. These controls are administered by the Indepen-
dent Price Verification Group (IPV) as part of the finance function. The models, the input data and the resulting fair
values are regularly checked by senior management and the risk function.

     Fair value hierarchy
In accordance with IFRS 7 , financial instruments reported at their fair value fall under a three-level fair value mea-
surement hierarchy as follows:

    Level I: Financial instruments whose fair value is determined on the basis of listed prices in active markets for
    identical financial instruments.

    Level II: Financial instruments for which there are no listed prices for identical instruments on an active market
    and whose fair value is determined using measurement methods. These valuation techniques include compar-
    isons with quoted prices for similar financial instruments in active markets, comparisons with quoted prices
    for identical or similar financial instruments in inactive markets, and the use of valuation models for which all
    significant inputs are based, as far as possible, on observable market data.

    Level III: Financial instruments that are measured using measurement methods for which there are not suffi-




                                                                                                                                          Financial Statements
    cient observable market data for their input data and where these input data have more than a merely insig-
    nificant influence on the fair value so determined for the instruments. By their very nature, these measure-
    ments are heavily dependent on management estimates. The estimates and assessments used are based on
    past experience and other factors, such as projections and expectations or forecasts about future events that
    seem reasonable under the circumstances. The realisable fair values that are possible to determine at a later
    date may differ from the estimated fair values.



                                                                                                                                          Auditor’s Report
                                                                                                                                          § 28 PfandbriefGS
                                                                                                                                          At a glance
144   Group Financial Statements




          Financial instruments reported at their fair value in the balance sheet are grouped by category and measurement
          basis in the tables below. A distinction is made here according to whether the measurement is based on market
          prices (Level I), or whether the measurement models are based on observable market data (Level II) or on parame-
          ters that cannot be observed on the markets (Level III).

                                                                                                                                 2009
          in	€	million                                                            Level I          Level II         Level III    Total
          Positive	fair	values	attributable	to	derivative	hedging	instruments          –            5,430                   –    5,430
          Trading	assets                                                               –           11,168                 107   11,275
             of	which	positive	fair	values	attributable	to	derivatives	                –           11,168                   –   11,168
          Financial	investments	available	for	sale	                                6,493                 –                 98    6,591
          Total                                                                    6,493           16,598                 205   23,296



                                                                                                                                 2009
          in	€	million                                                            Level I          Level II         Level III    Total
          Negative	fair	values	attributable	to	derivative	hedging	instruments          –           11,391                   –   11,391
          Trading	liabilities                                                          –           12,665                   –   12,665
             of	which	Interest	rate-related	transactions                               –           12,009                   –   12,009
          Total                                                                        –           24,056                   –   24,056

          In the previous there were no reclassifications between Level I and Level II.

          The financial instruments attributable to Level III changed as follows during the previous year:

                                                                                                              Financial
                                                                                                         investments
          in	€	million                                                          Trading assets      available for sale           Total
          Fair	value	as	at	1.1.2009	                                                        180                    352            532
          Changes	in	consolidated	companies	                                                  –                      –               –
          Gains	/	losses	recognised	in	income	statement	during	the	period                   –	45                 –	236           –	281
          Gains	/	losses	recognised	in	equity                                                 –                    157            157
          Purchases	                                                                          –                      –               –
          Sales	                                                                              0                  –	145           –	145
          Issues	                                                                             –                      –               –
          Redemptions	                                                                      –	28                   –	30           –	58
          Reclassification	                                                                   –                      –               –
          Fair value as at 31.12.2009                                                       107                     98            205
                                                                                                    Group Financial Statements >>> Notes   145




                                                                                                                             2010
in	€	million                                                            Level I         Level II         Level III           Total
Positive	fair	values	attributable	to	derivative	hedging	instruments          –           5,105                   –          5,105
Trading	assets                                                               –           9,867                 245         10,112
   of	which	positive	fair	values	attributable	to	derivatives	                –           9,867                   –          9,867
Financial	investments	available	for	sale	                                5,048                –                  6          5,054
Total                                                                    5,048          14,972                 251         20,271



                                                                                                                             2010
in	€	million                                                            Level I         Level II         Level III           Total
Negative	fair	values	attributable	to	derivative	hedging	instruments          –          12,171                   –         12,171
Trading	liabilities                                                          –          11,321                   –         11,321
   of	which	Interest	rate-related	transactions                               –          10,532                   –         10,532
Total                                                                        –          23,492                   –         23,492

There were no reclassifications between Level I and Level II in 2010.

The financial instruments attributable to Level III changed as follows during the financial year:

                                                                                                   Financial
                                                                                              investments
in	€	million                                                          Trading assets     available for sale                  Total
Fair	value	as	at	1.1.2010                                                         107                    98                   205
Changes	in	consolidated	companies	                                                  –                     –                      –
Gains	/	losses	recognised	in	income	statement	during	the	period                     1                    –	1                     0
Gains	/	losses	recognised	in	equity                                                 –                     –                      –
Purchases	                                                                        138                     –                   138
Sales	                                                                              –                     –                      –
Issues	                                                                             –                     –                      –
Redemptions	                                                                      –	1                    –	1                   –	2
Reclassification	                                                                   –                   –	90                  –	90
Fair value as at 31.12.2010                                                       245                     6                   251


The transfers mainly reflect derecognition as a result of the exercise of a convertible bond.




                                                                                                                                                 Financial Statements
                                                                                                                                                 Auditor’s Report
                                                                                                                                                 § 28 PfandbriefGS
                                                                                                                                                 At a glance
146   Group Financial Statements




               Sensitivity analysis
          Where the value of financial instruments is based on unobservable input parameters, the precise level of these
          parameters at the balance sheet date may be derived from a range of reasonable possible alternatives. In preparing
          the consolidated financial statements, appropriate levels for these unobservable input parameters are chosen to
          be consistent with prevailing market conditions and in line with the Group’s approach to measurement control.

          The purpose of this disclosure is to illustrate the potential impact of the relative uncertainty in the fair values of
          financial instruments whose valuations are based on unobservable input parameters, although it should be noted
          that these parameters lie at the extreme ends of the range of reasonable possible alternatives. In practice, it is
          unlikely that all unobservable parameters would simultaneously lie at the extremes of their range of reasonable
          possible alternatives and the estimates given are thus likely to be greater than the true level of uncertainty in the
          fair value of these instruments. The purpose of these figures is not to estimate or predict future movements in fair
          value.

          ( 83 ) assets pledged as collateral
          Assets to the values indicated below were assigned as collateral for the following liabilities:

          in	€	million                                                                                      2010              2009
          Liabilities	to	banks	                                                                         35,090              36,958
          Securitised	liabilities	                                                                             –                 –
          Total                                                                                         35,090              36,958


          The following assets have been assigned as collateral for the abovementioned liabilities:

          in	€	million                                                                                      2010              2009
          Claims	on	banks	                                                                                   27                  –
          Claims	on	customers	                                                                                 –                 –
          Financial	assets	                                                                             36,762              40,510
          Total                                                                                         36,789              40,510


          The collateral was provided for funds raised under repo transactions. The transactions were carried out under the
          standard market terms for securities lending and repo transactions.

          ( 84 ) maximum default risk
          The maximum default risk exposure in accordance with IFRS 7 – excluding collateral or other credit enhancements –
          is equal to the book amount of the relevant assets in each class, or the nominal value in the case of irrevocable lending
          commitments and contingent liabilities. The table below shows the book amounts or nominal values of financial
          instruments with a potential default risk:

          in	€	million                                                                                      2010              2009
          Bonds	and	other	fixed-income	securities	under		
          				financial	investments
          Claims	on	banks	                                                                              23,980              26,872
          Claims	on	customers	                                                                         116,299             129,695
          Positive	fair	values	attributable	to	derivative	financial	instruments	under		                        	                  	
          			Trading	assets	                                                                             9,867	             11,168	
          			Hedging	instruments	as	defined	by	IAS	39	                                                   5,105               5,430
          Other	trading	assets	                                                                             245                107
          Irrevocable	credit	commitments	                                                                5,802               7,188
          Contingent	liabilities                                                                            899                971


          The maximum default risk exposures listed above do not form the basis for managing credit risk internally, as the
          management of credit risk also takes account of collateral, probabilities of default and other economic factors. To
          this extent these amounts are therefore not representative of the bank’s assessment of its actual credit risk.
                                                                                              Group Financial Statements >>> Notes   147




( 85 ) maturity breakdown
The residual term is the length of time between the balance sheet date and the date of contractual maturity of
the claim or liability. For claims and liabilities due in instalments, the residual term for each individual tranche is
shown.

2009                                                                                                          Residual term
                                                      Due on          Up to       3 months           1 year            Over
in	€	million                                         demand        3 months       to 1 year      to 5 years          5 years
Claims	on	banks	                                       9,229          3,040          2,782           6,852            5,007
Claims	on	customers	                                   5,148         14,970         13,866          57,299           41,261
Bonds	and	other	fixed-income		                             	              	               	               	                	
securities	(financial	investments)	and		                   	              	               	               	                	
promissory	notes	held	for	trading	                         –          3,817          4,903          22,392           49,723
Total 2009                                            14,377         21,827         21,551          86,543           95,991
Liabilities	to	banks	                                   159          47,092         17,363          17,500            3,567
Liabilities	to	customers	                               520           2,030          1,547           8,166           22,367
Securitised	liabilities	                                   –          8,391         23,590          50,453           20,354
Subordinated	capital	                                      –             65             36           2,049            1,229
Hybrid	capital	                                            –              –              –                –             900
Total 2009                                              679          57,578         42,536          78,168           48,417



2010                                                                                                          Residual term
                                                      Due on          Up to       3 months           1 year            Over
in	€	million                                         demand        3 months       to 1 year      to 5 years          5 years
Claims	on	banks	                                      12,161          1,036            638           7,068            3,108
Claims	on	customers	                                   4,848         11,393         14,051          53,863           35,338
Bonds	and	other	fixed-income		                             	              	               	               	                	
securities	(financial	investments)	and		                   	              	               	               	                	
promissory	notes	held	for	trading	                         –          2,013          3,406          21,778           44,370
Total 2010                                            17,009         14,442         18,095          82,709           82,816
Liabilities	to	banks	                                   275          43,022         11,345          26,218            4,046
Liabilities	to	customers	                               431           1,112          1,928           6,448           22,369
Securitised	liabilities	                                   –          9,787         13,068          41,722           15,455




                                                                                                                                           Financial Statements
Subordinated	capital	                                      –             95             57           2,141            1,040
Hybrid	capital	                                            –              –              –                –             900
Total 2010                                              706          54,016         26,398          76,529           43,810




                                                                                                                                           Auditor’s Report
                                                                                                                                           § 28 PfandbriefGS
                                                                                                                                           At a glance
148   Group Financial Statements




          other information
          ( 86 ) repurchase agreements (repo and reverse repo transactions) and cash collateral
          Eurohypo Group enters into repo transactions by selling securities with an obligation to buy them back and buying
          securities with an obligation to sell them back. The consideration received under repos where Eurohypo Group is
          the repo seller (and thus obliged to buy securities back) is recognised as a liability to banks or customers.

          In securities lending transactions, counterparty credit risk can be avoided by lodging collateral, for example in the
          form of cash. Where collateral is given for a lending transaction this is known as “cash collateral out”; where col-
          lateral is received it is known as “cash collateral in.”

          Repurchase agreements and cash collateral on the balance sheet date were as follows:

          in	€	million                                                                                  2010                2009
          Repo	transactions	as	borrower
          (Repo	agreements)
               Liabilities	to	banks	                                                                  35,090              36,958
          Cash	collateral	in
               Liabilities	to	banks	                                                                     131                    59
          Total                                                                                       35,221              37,017
          Repo	transactions	as	lender
          (Reverse	repo	agreements)
               Claims	on	banks	                                                                           26                      –
          Cash	collateral	out
              Claims	on	banks	                                                                         9,765               8,435
          Total                                                                                        9,791               8,435


          ( 87 ) securities-lending transactions
          Securities lending transactions are conducted with other banks and customers in order to cover our need to meet
          delivery commitments or to enable us to effect securities repurchase agreements in the money market. Eurohypo
          carries out securities lending transactions in order to expand its cover funds. We recognise lent securities in our
          balance sheet under our trading portfolio or under financial assets, whereas borrowed securities do not appear in
          the balance sheet. The expenses and income from securities lending transactions, insofar as they relate to the past
          financial year, were recognised under interest paid or received in the income statement and reflect the respective
          maturities.

          in	€	million                                                                                  2010                2009
          Lent	securities	                                                                                 –                      –
          Borrowed	securities	                                                                           592                    829
          Total                                                                                          592                    829


          ( 88 ) subordinated assets
          In the event of the bankruptcy or liquidation of the issuer, subordinated assets rank after the claims of all other
          creditors.

          in	€	million                                                                                  2010                2009
          Claims	on	banks	                                                                                52                    53
          Claims	on	customers	                                                                            17                    17
          Total                                                                                           69                    70
                                                                                          Group Financial Statements >>> Notes   149




( 89 ) off-balance sheet obligations

in	€	million                                                                                2010                   2009
Liabilities	under	indemnities	and	guarantees	                                                899                    971
   of	which	credit	guarantees	                                                               411                    351
   of	which	other	guarantees                                                                 488                    620
   of	which	letters	of	credit                                                                    –                     –
Other	obligations
   Irrevocable	credit	commitments	                                                         5,800                  7,188
   			of	which	book	credits                                                                1,774                  1,632
   			of	which	mortgage	loans	/	public	finance                                             3,950                  5,101
   			Sundry	obligations	                                                                       76                  455
Total                                                                                      6,699                  8,159


For reasons of practicality we have not disclosed the information required by IAS 37.86 and IAS 37.89 . Maturity
breakdown of contingent liabilities and irrevocable credit commitments:

in	€	million                                                                                2010                   2009
Due	on	demand	                                                                               939                  1,032
up	to	3	months	                                                                              341                    425
3	months	to	1	year	                                                                        1,541                  2,074
1	year	to	5	years	                                                                         2,977                  3,654
Over	5	years	                                                                                903                    974
Total                                                                                      6,701                  8,159


( 90 ) trust transactions
Trust transactions amounted to the following on the balance sheet date:

in	€	million                                                                                2010                   2009
Trust assets
   Claims	on	customers	                                                                         55                   67
Trust liabilities
   of	which	liabilities	to	banks                                                                10                   11




                                                                                                                                       Financial Statements
   of	which	liabilities	to	customers                                                            45                   56
Total                                                                                           55                   67



( 91 ) employees (average)

                                                                              2010                                 2009




                                                                                                                                       Auditor’s Report
Average	for	the	year                                 Female       Male        Total    Female         Male         Total
Full-time	                                              445        708       1,153        496          780        1,276
Part-time	                                              142         14         156        146           17          163
Trainees	                                                 –           –          –          –            1             1
Apprentices                                               6          8          14         10           11           21
                                                                                                                                       § 28 PfandbriefGS




Total                                                   593        730       1,323        652          809        1,461
                                                                                                                                       At a glance
150   Group Financial Statements




          ( 92 ) related parties transactions
          Natural persons and companies that may be influenced by Eurohypo AG , that may exercise any influence on Euro-
          hypo AG or that are under the influence of another related party of Eurohypo AG are deemed to be related parties
          as defined in IAS 24 .

          As part of its normal business Eurohypo AG and its consolidated companies do business with related parties. Key
          management personnel consist exclusively of members of the Board of Managing Directors and the Supervisory
          Board of Commerzbank AG and Eurohypo AG and their dependants as well as companies controlled by people in
          this group.

          Related companies include the parent company, affiliated companies, subsidiaries as well as parties that are
          controlled but not consolidated for reasons of materiality, associated companies and external service providers
          of occupational pensions for Eurohypo AG employees. Transactions with them are conducted at standard market
          terms and conditions.

          The following table shows claims on and liabilities to related companies and key management personnel. In this
          respect, it is irrelevant whether the company is included in Eurohypo’s consolidated financial statements as a sub-
          sidiary or an associated company. We have adjusted the previous year’s figures within the liabilities.

                                                                                                     Changes in
                                                                                                    consolidated
          in	€	million                                       1.1.2010    Additions      Disposals     companies    31.12.2010
          Claims	on	banks	                                     9,695        8,938         10,681              –         7,952
             Parent	company	                                   9,695        8,938         10,681              –         7,952
          Claims	on	customers	                                 1,016          735            230            379         1,900
             Parent	company	                                     665          693            191              –         1,167
             Holdings	in	companies	accounted	for		                  	            	              	              	            	
             using	the	equity	method	and	shareholdings		            	            	              	              	            	
             in	related	companies	                               303           40             35            379          687
             Other	related	parties	                               44            0              0              –           44
             Key	management	personnel	                             4            2              4              –             2
          Positive	fair	values	attributable	to	derivative	          	            	              	              	            	
          hedging	instruments	                                 3,008          177            407              –         2,778
             Parent	company	                                   3,008          177            407              –         2,778
          Trading	assets                                       6,380          754          1,808              –         5,326
             Parent	company	                                   6,380          754          1,808              –         5,326
          Total claims                                        20,099       10,604         13,126            379        17,956
                                                                                            Group Financial Statements >>> Notes   151




                                                                                             Changes in
                                                                                            consolidated
in	€	million                                          1.1.2010      Additions   Disposals     companies        31.12.2010
Liabilities	to	banks	                                   68,868        15,854       8,373                –          76,349
   Parent	company	                                      68,868        15,854       8,373                –          76,349
Liabilities	to	customers	                                1,205             0          23                –           1,182
   Other	related	parties	                                1,205             0          23                –           1,182
Securitised	liabilities	                                 5,751           301       1,543                –           4,509
   Parent	company	                                       5,751           301       1,543                –           4,509
Negative	fair	values	attributable	to	derivative	                	           	           	               	                	
hedging	instruments	                                     5,205           536         450                –           5,291
   Parent	company	                                       5,205           536         450                –           5,291
Trading	liabilities	                                     7,891           352       1,883                –           6,360
   Parent	company	                                       7,891           352       1,883                –           6,360
Other	liabilities                                          151             –         151                –                –
   Parent	company	                                         151             –         151                –                –
Subordinated	capital	                                      626             –          19                –             607
   Parent	company	                                         626             –          19                –             607
Total liabilities                                       89,697        17,043      12,442                –          94,298


Off-balance sheet items
Liabilities	under	guarantees	and	warranties                209            47           –                –             256
   Parent	company	                                         209            47           –                –             256



Income
in	€	million                                                                                  2010                   2009
Holdings	in	companies	accounted	for	using	the	equity	method		                                     	                      	
and	shareholdings	in	related	companies	–	interest                                                 1                      2
Other	related	parties	–	interest                                                                38                     15



Expenses
in	€	million                                                                                  2010                   2009




                                                                                                                                         Financial Statements
Holdings	in	companies	accounted	for	using	the	equity	method		                                     	                      	
and	shareholdings	in	related	companies	–	interest                                                 –                      –
Other	related	parties	–	interest                                                                50                     60




                                                                                                                                         Auditor’s Report
                                                                                                                                         § 28 PfandbriefGS
                                                                                                                                         At a glance
152   Group Financial Statements




                  a) Remuneration of key management personnel
          board of managing directors
          Total salaries of the Board of Managing Directors amounted to € 2,477 thousand (2009: € 1,986 thousand). Remu-
          neration attributable to payments in 2010 does not include payments under the staff remuneration plan (LFI / LTP)
          to the Board of Managing Directors (2009: € 165 thousand). The total salaries include € 996 thousand (2009: € 387
          thousand) in variable remuneration and € 360 thousand (2009: € 360 thousand) in long-term remuneration commit-
          ments. This amount also includes other payments of € 85 thousand (2009: € 73 thousand), including the benefits
          in kind normally granted (primarily the use of company cars, insurance and taxes and social security contributions
          payable on these benefits in kind). The remuneration for one member of the Board of Managing Directors is covered
          by Commerzbank and is therefore not included in the above figures as the function was duplicated.

          IAS 24 categorises basic salary, variable remuneration, remuneration for serving on the boards of companies
          included in the Eurohypo consolidated financial statements and other emoluments of the individual members of
          the Board of Managing Directors as short-term employee benefits.

          Staff expenses by IAS 24 category were as follows:

          Short term employee benefits € 2,072 thousand (2009: € 1,804 thousand), other long-term employee benefits
          € 386 thousand (2009: zero), expenses for post-employment benefits (service expense and payments to defined
          contribution plans) € 128 thousand (2009: € 110 thousand). There were no payments on termination of employ-
          ment or expenses for share-based remuneration as defined in IAS 24 . A payment of € 165 thousand was made in
          2009 for share-based remuneration.

          Members of the Board of Managing Directors were granted a total of € 34 thousand for their mandates at companies
          included in the consolidated financial statements by these companies.

          The bank has established a retirement benefit plan for present and former members of the Board of Managing
          Directors or their surviving dependants. To safeguard the total assets of this plan, they have been transferred to
          Commerzbank Pensions-Trust e. V. under a contractual trust arrangement.

          As at 31 December 2010, pension liabilities (defined benefit obligations) for serving members of the Board of
          Managing Directors amounted to € 507 thousand (2009: € 398 thousand) and for former members of the Board of
          Managing Directors or their surviving dependants to € 58,623 thousand (2009: € 56,553 thousand).

          After deducting the transferred plan assets and taking account of actuarial gains or losses, the defined benefit
          assets to cover pension obligations as at 31 December 2010 amounted to € 65 thousand (2009: € 44 thousand) for
          serving members of the Board of Directors and to € 7,529 thousand (2009: € 6,171 thousand) for former members
          of the Board of Directors or their surviving dependants.

          Serving members of the Board of Managing Directors (have) participated in the share-based long-term perfor-
          mance plans (LTP) outlined in Note 25. No payments were made from the LTP in 2010.

          supervisory board
          The following payments were made to the Supervisory Board:

          in	€	thousand                                                                                2010               2009
          Fixed	remuneration	                                                                            75                    88
          VAT	                                                                                           14                    16
          Total                                                                                          89                104



               b) Loans to key management personnel
          As at the balance sheet date, the aggregate amount of loans to key management personnel was as follows:

                                                                                                      Changes in
                                                                                                     consolidated
          in	€	thousand                                      1.1.2010     Additions      Disposals     companies     31.12.2010
          Board	of	Managing	Directors	                         1,918              –            43              –         1,875
          Supervisory	Board                                       76              –             3              –               73
          Total                                                1,994              –            46              –         1,948
                                                                                             Group Financial Statements >>> Notes   153




Loans to members of the Board of Managing Directors totalling € 1,875 thousand were granted with terms ranging
from on demand to a final due date in 2049 and interest rates of between 3.52 % and 4.36 %. The loans are granted
subject to normal market terms and conditions and, if necessary, to charges on property.

The loans to members of the Supervisory Board totalling € 73 thousand were advanced with final due dates in
2033 and at interest rates of between 4.68 % and 5.14 %. The loans are granted subject to normal market terms
and conditions and charges on property.

The companies of the Eurohypo Group did not have any contingent liabilities relating to members of the Board of
Managing Directors and the Supervisory Board in the year under review.

( 93 ) share-based remuneration plans
The valuation parameters of the share-based payment plans (“Long Term Performance Plan” (LTP) ) of Commerz-
bank AG are set out below.

     Commerzbank AG Long Term Performance Plans
As at 31 December 2010, LTP provisions amounted to € 0.1 million (2009: € 0.1 million). For further details and
the terms and conditions of the LTP , please refer to Note 25 in this annual report. Under IFRS 2 , all LTP s must be
recognised as cash-settled payment plans.

The estimated fair values as at 31 December 2010 and the change in the number of awards under the LTP s in the
financial year are shown in the tables below:

                                                                                         Fair value per option right in € on
Type   Date of award                                                                            2010                   2009
2006   1	April	2006	                                                                            0.00                   0.00
2007   1	April	2007	                                                                            0.00                   1.76
2008   1	May	2008                                                                               4.84                   4.60


                                                                                                2010                   2009
Number of rights awarded                                                                     in units               in units
Outstanding	at	beginning	of	year	                                                            44,750                 49,550
Granted	during	year	                                                                               –                      –
Exercised	during	year	                                                                             –                      –
Expired	/	forfeited	during	year	                                                              2,850                   4,800




                                                                                                                                          Financial Statements
Outstanding at year-end                                                                      41,900                 44,750

The expected remaining terms of the awards outstanding at year-end vary between 3 and 28 months.

The fair values of the LTP awards were calculated using a Monte Carlo model.

The inputs to the model were as follows:



                                                                                                                                          Auditor’s Report
                                                                                                2010                   2009
Volatility	of	the	Commerzbank	share	price                                               80	%	–	82	%            82	%	–	86	%
Volatility	of	the	DJ	Euro	Stoxx®	Banks	Index	                                           46	%	–	47	%            46	%	–	48	%
Correlation	of	the	Commerzbank	share	price	with	the	index	                                     80	%                   82	%
                                                                                                                                          § 28 PfandbriefGS



Dividend	yield	of	the	Commerzbank	share	                                                      1.3	%                  1.3	%
Dividend	yield	of	the	DJ	Euro	Stoxx®	Banks	Index	                                             2.8	%                  2.0	%
Risk-free	interest	rate	                                                                      0.9	%          1.5	%	–	1.7	%
Staff	turnover                                                                                4.5	%                  4.5	%


The volatility is based on the historical volatility of Commerzbank’s share price and the Dow Jones (DJ) Euro
                                                                                                                                          At a glance




Stoxx® Banks Index. The correlation is based on the period of time up to the valuation date, taking the expected
remaining term of the plans into account.
154   Group Financial Statements




          ( 94 ) securitisation of loans
          Securitisation is one element of our equity and risk management. The aim is to reduce the bank’s risk-weighted
          assets, free up the capital base and create scope for new, higher-margin business, thus generating a higher
          return on equity. In securitising financial assets, we sell credit risks to the capital market in the form of loan port-
          folios. The risks assigned are securitised by the special purpose vehicles acquiring the loans and sold to third
          parties.

          ( 95 ) other commitments
          Eurohypo AG is a lessee under operating leases. As at 31 December 2010, a variety of non-terminable operating
          leases were in place for properties and other fixed assets (vehicles, photocopiers) which are used to carry out
          the bank’s operating activities. The main leases include extension options and exit clauses which are in line with
          market conditions for business properties and which link adjustments to the lease payments to the price index.
          The minimum obligations under non-terminable leases for properties and other fixed assets will result in expenses
          of € 19 million in the 2011 financial year, of € 44 million in financial years 2012 to 2015 and € 18 million for the
          period from 2016 onwards.


          ( 96 ) date of release for publication
          These consolidated financial statements were approved by the Board of Managing Directors for submission to the
          Supervisory Board on 3 March 2011. It is the responsibility of the Supervisory Board to examine the consolidated
          financial statements and to declare its approval or otherwise. The Board of Managing Directors approved prelimi-
          nary key figures of the 2010 annual financial statements for publication on 24 February 2011.

          ( 97 ) letter of comfort
          We have given undertakings that the following companies will perform their contractual obligations, except in
          cases of political risk:

                Grundbesitzgesellschaft Berlin Rungestraße 22 – 24 mbH, Essen
                Rosaria Grundstücksvermietungs GmbH & Co. Objekt Cap Kiel, Düsseldorf
                                                                                           Group Financial Statements >>> Notes   155




(98) holdings in affiliated and other companies
The following list contains details of shareholdings pursuant to § 313 para. 2 of the German Commercial Code
(HGB) as at the date of the consolidated financial statements and pursuant to § 285 paras. 11 and 11 a HGB .
Explanations regarding the footnotes can be found at the end of this Note.

fully consolidated subsidiaries
                                                                Shareholding    Share of       Equity in         Profit in
Name / registered office                                                (%)    votes (%)    € thousand       € thousand
AGV	Allgemeine	Grundstücksverwaltungs-	und		                               	           	               	                     	
Verwertungsgesellschaft	mbH,	Eschborn	                                100.0       100.0              40              0	1)	2)	5)
GVG	Gesellschaft	zur	Verwertung	von		                                      	           	               	                     	
Grundbesitz	mbH,	Eschborn	                                            100.0       100.0              26              0	1)	2)	5)
IVV	Immobilien-Verwaltungs-	und	Verwertungs-		                             	           	               	                     	
gesellschaft	mbH,	Eschborn	                                           100.0       100.0              26              0	1)	2)	5)
BACUL	Beteiligungsgesellschaft	mbH,	Eschborn	                         100.0       100.0              16                –	7	5)
EH	Estate	Management	GmbH,	Eschborn	                                  100.0       100.0          11,026                0	1)	5)
Forum	Immobiliengesellschaft	mbH,	Eschborn	                           100.0       100.0             809              0	1)	2)	5)
Futura	Hochhausprojektgesellschaft	mbH,	Eschborn	                     100.0       100.0           2,421              0	1)	2)	5)
Unica	Immobiliengesellschaft	mbH,	Eschborn	                           100.0       100.0              43              0	1)	2)	5)
EHY	Real	Estate	Fund	I	LLC,	Wilmington,	Delaware,	USA	                100.0       100.0         –	2,628            –	264	5)
EHY	Sub	Asset	LLC,	Wilmington,	Delaware,	USA	                         100.0       100.0         –	5,913                63	5)
EHNY	IV	LLC,	Dover,	Delaware,	USA                                     100.0       100.0           –	619            7,267	5)
EHNY	Ashland	LLC,	Dover,	Delaware,	USA	                               100.0       100.0           –	619            7,267	5)
EHNY	MoLu	IV	LLC,	Dover,	Delaware,	USA	                               100.0       100.0          10,768            –	121	5)
Eurohypo	Capital	Funding	LLC	I,	Wilmington,	Delaware,	USA             100.0       100.0               1                   0	5)
Eurohypo	Capital	Funding	LLC	II,	Wilmington,	Delaware,	USA	           100.0       100.0               3                   0	5)
Eurohypo	Capital	Funding	Trust	I,	Wilmington,	Delaware,	USA	          100.0       100.0               1                   0	5)
Eurohypo	Capital	Funding	Trust	II,	Wilmington,	Delaware,	USA	         100.0       100.0               1                   0	5)
EUROHYPO	Europäische	Hypothekenbank	S.A.,	Luxembourg	                 100.0       100.0        115,749        –	22,794	*)	5)
Eurohypo	(Japan)	Corporation,	Tokyo,	Japan	                           100.0       100.0          26,473          –	3,669	5)
Frankfurter	Gesellschaft	für	Vermögensanlagen	mbH,	Eschborn	          100.0       100.0           5,952                0	1)	5)
FHB	Immobilienprojekte	GmbH,	Eschborn	                                100.0       100.0              26              0	1)	2)	5)
FI	Pro-City	GmbH,	Eschborn	                                           100.0       100.0              26              0	1)	2)	5)




                                                                                                                                        Financial Statements
GBG	Verwaltungs-	und	Verwertungsgesellschaft		                             	           	               	                     	
für	Grundbesitz	mbH,	Eschborn	                                        100.0       100.0             312              0	1)	2)	5)
Messestadt	Riem	“Office	am	See	I”	GmbH,	Eschborn	                      94.0        94.0           –	134              0	1)	2)	5)
Messestadt	Riem	“Office	am	See	II”	GmbH,	Eschborn	                     94.0        94.0             459              0	1)	2)	5)
Messestadt	Riem	“Office	am	See	III”	GmbH,	Eschborn                     94.0        94.0              19              0	1)	2)	5)
Nordboden	Immobilien-	und	Handelsgesellschaft	mbH,	                        	           	               	                     	
Eschborn                                                              100.0       100.0             315              0	1)	2)	5)



                                                                                                                                        Auditor’s Report
SB	Bauträger	Gesellschaft	mbH,	Eschborn	                              100.0       100.0              55              0	1)	2)	5)
SB	Bauträger	GmbH	&	Co.	Urbis	Hochhaus	KG,	Frankfurt	a.	M.            100.0       100.0             232                0	2)	5)
SB	Bauträger	GmbH	&	Co.	Urbis	Verwaltungs	KG,	Frankfurt	a.	M.         100.0       100.0              43                0	2)	5)
WESTBODEN-Bau-	und	Verwaltungsgesellschaft	mbH,	Eschborn	             100.0       100.0              55              0	1)	2)	5)
Westend	Grundstücksgesellschaft	mbH,	Eschborn	                        100.0       100.0             260              0	1)	2)	5)
                                                                                                                                        § 28 PfandbriefGS
                                                                                                                                        At a glance
156   Group Financial Statements




          fully consolidated subsidiaries
                                                                        Shareholding    Share of     Equity in     Profit in
          Name / registered office                                              (%)    votes (%)   € thousand    € thousand
          G-G-B	Gebäude-	und	Grundbesitz	GmbH,	Eschborn                       100.0       100.0           256           0	1)	5)
          Real	Estate	Top	Tegel	I	GmbH,	Eschborn	                              94.0        94.0           421         0	1)	2)	5)
          Real	Estate	Top	Tegel	II	GmbH,	Eschborn	                             94.0        94.0            60         0	1)	2)	5)
          Real	Estate	Top	Tegel	III	GmbH,	Eschborn	                            94.0        94.0            60         0	1)	2)	5)
          Real	Estate	Top	Tegel	IV	GmbH,	Eschborn	                             94.0        94.0            60         0	1)	2)	5)
          Real	Estate	Top	Tegel	VI	GmbH,	Eschborn	                             94.0        94.0           129         0	1)	2)	5)
          TARA	Immobiliengesellschaft	mbH,	Eschborn	                          100.0       100.0            25           0	1)	5)
          TARA	Immobilienprojekte	GmbH,	Eschborn	                             100.0       100.0            25           0	1)	5)
          gr	Grundstücks	GmbH	Objekt	Corvus,	Frankfurt	a.	M.	                 100.0       100.0            53         –	3	2)	5)
          gr	Grundstücks	GmbH	Objekt	Corvus	&	Co.                                  	           	             	                	
          Sossenheim	KG,	Frankfurt	a.	M.	                                     100.0       100.0           442        –	213	5)
          KENSTONE	GmbH,	Eschborn	                                            100.0       100.0            26         0	1)	2)	5)
          Property	Invest	GmbH,	Eschborn	                                     100.0       100.0       61,059      –	30,332	5)
          Property	Invest	Italy	S.r.l.,	Milan,	Italy                          100.0       100.0       60,280       –	4,116	5)
          Grundbesitzgesellschaft	Berlin	                                          	           	             	                	
          Rungestraße	22	–	24	mbH,	Eschborn	                                   94.0        94.0         1,159        –	908	5)
          Wohnbau-Beteiligungsgesellschaft	mbH,	Eschborn	                      90.0        90.0           307           –	8	5)




          non-consolidated subsidiaries
                                                                        Shareholding    Share of     Equity in     Profit in
          Name / registered office                                              (%)    votes (%)   € thousand    € thousand
          CAP	Kiel	Betriebs	GmbH,	Kiel	                                        51.0        51.0         –	254        –	197	4)
          Compostela,	s.	r.	o.,	Prague,	Czech	Republic	                       100.0       100.0           200              0	6)
          Delphi	I	EUROHYPO	LLC,	Wilmington,	Delaware,	USA	                   100.0       100.0            23           –	1	4)
          EHNY	Montelucia	Manager	LLC,	Dover,	Delaware,	USA	                  100.0       100.0             0              0	5)
          Eurohypo	Nominees	1	Ltd.,	London,	UK	                               100.0       100.0             0              0	5)
          Eurohypo	Representacoes	Ltda.,	Sao	Paulo,	Brazil	                   100.0       100.0            73          –	22	5)
          Eurohypo	Investment	Banking	Limited,	London,	UK	                    100.0       100.0         1,391          –	44	4)
          BELUS	Immobilien-	und	Beteiligungsgesellschaft	mbH,Eschborn         100.0       100.0           108         0	1)	2)	5)
          TARA	Immobilien-Besitz-GmbH,	Eschborn	                              100.0       100.0            25           0	1)	5)
          TARA	Immobilien-Verwaltungs-GmbH,	Eschborn	                         100.0       100.0            22           –	1	5)
          TARA	Property	Management	GmbH,	Eschborn	                            100.0       100.0            22           –	1	5)
          Number	X	Real	Estate	GmbH,	Eschborn                                 100.0       100.0            25              0	6)
          Proberty	Invest	Spain,	S.	L.,	Barcelona,	Spain                      100.0       100.0            14           –	3	5)
          Rosaria	Grundstücksvermietungs	GmbH	&	Co.	Objekt	                        	           	             	                	
          Cap	Kiel	KG,	Düsseldorf	                                             94.0        15.0            10       2,563	3)
                                                                                                 Group Financial Statements >>> Notes   157




associated companies and joint ventures valued using the equity method
                                                                   Shareholding      Share of        Equity in           Profit in
Name / registered office                                                   (%)      votes (%)      € thousand        € thousand
Delphi	I	LLC,	Wilmington,	Delaware,	USA	                                  33.3            33.3      –	328,537        –	52,533	2)	5)	
FV	Holding	S.A.,	Brussels,	Belgium	                                       60.0            50.0         43,762           –	5,051	5)
Urbanitas	Grundbesitzgesellschaft	mbH,	Berlin	                            50.0            50.0         –	9,250        –	1,521	2)	5)
Servicing	Advisors	Deutschland	GmbH,	Frankfurt	a.	M.                      50.0            50.0              793           2,245	4)
Inmobiliaria	Colonial,	Barcelona,	Spain                                   20.1            20.1        662,593       –	484,573	*)	4)




associated companies and joint ventures valued not using the equity method
                                                                                                 Shareholding           Share of
Name / registered office                                                                                    (%)        votes (%)
Ampton	B.V.,	Amsterdam,	Netherlands	                                                                        50.0             50.0
BONUS	Vermietungsgesellschaft	mbH,	Düsseldorf	                                                              30.0             30.0
MARIUS	Grundstücks-Vermietungsgesellschaft	mbH	&	Co.	Objekt	Hannover	KG,	Düsseldorf	                        21.0             40.0
Minerva	Grundstücks-Vermietungsgesellschaft	mbH	&	Co.	Objekt	Radolfzell	KG,	Düsseldorf	                     21.0             21.0
CETERA	Vermietungsgesellschaft	mbH	&	Co.	Objekt	Weinheim	KG,	Düsseldorf	                                     5.0             33.3
CHRISTA	Grundstücks-Vermietungsgesellschaft	mbH	&	Co.	Objekt	Rottweil,	KG,	Düsseldorf	                       2.0             33.3
MAECENA	Grundstücks-Vermietungsgesellschaft	mbH	&	Co.	Objekt	Dortmund	KG,	Düsseldorf	                        5.0             33.3
MANICA	Grundstücks-Vermietungsgesellschaft	mbH	&	Co.	Objekt	Neutraubling	KG,	Düsseldorf	                     5.0             50.0
Nossia	Grundstücks-Verwaltungsgesellschaft	mbH	&	Co.	KG,	Grünwald	                                           2.5             25.0




fully consolidated special purpose vehicles pursuant to sic 12
                                                                                                 Shareholding           Equity in
No., name / registered office                                                                               (%)      € thousand
Semper	Finance	2006-1	Ltd.,	St.	Helier,	Jersey,	Channel	Islands	                                             0.0                 0
Semper	Finance	2007-1	GmbH,	Frankfurt	a.	M.	                                                                 0.0            –	259




non-consolidated special purpose vehicles
                                                                                                 Shareholding           Equity in




                                                                                                                                              Financial Statements
No., name / registered office                                                                               (%)      € thousand
Opera	France	One	FCC,	Paris,	France                                                                          0.0                 0
Opera	Germany	(No.	1)	GmbH,	Frankfurt	a.	M.                                                                  0.0                26
Opera	Germany	(No.	2)	plc,	Dublin,	Ireland	                                                                  0.0                14
Opera	Germany	(No.	3)	Ltd.,	Dublin,	Ireland	                                                                 0.0            –	372
Opera	White	Tower	France	FCC,	Paris,	France	                                                                 0.0              264




                                                                                                                                              Auditor’s Report
EHNY	Montelucia	Holdings	Trust,	Dover,	Delaware,	USA	                                                       30.8          54,486




special funds
                                                                                  Investor’s shareholding          Fund volume
                                                                                                                                              § 28 PfandbriefGS




Name / registered office                                                                  in the fund (%)          in € thousand
Apollo	Real	Estate	Parallel	Fund	V-B,	L.P.,	New	York,	USA                                           1.43                198,157
Goldman	Sachs	Real	Estate	Partners,	New	York,	USA	                                                  1.76                  24,190
Kingswood	Unit	Trust,	St.	Helier,	Jersey,	Channel	Islands	                                          0.34                  68,855
                                                                                                                                              At a glance
158   Group Financial Statements




          participating interests
                                                                                                                       Shareholding    Share of
          No., name / registered office                                                                                        (%)    votes (%)
          BATOR	Vermietungsgesellschaft	mbH,	Düsseldorf	                                                                        5.0         5.0
          BATOR	Vermietungsgesellschaft	mbH	Objekt	Nürnberg,	Düsseldorf	                                                        7.9         7.9
          Bürgschaftsgemeinschaft	Hamburg	GmbH,	Hamburg                                                                         0.3         0.3
          Börse	Düsseldorf	AG,	Düsseldorf                                                                                       0.7         0.7
          Dr.	Gubelt	Grundstücks-Vermietungsgesellschaft	mbH	&	Co.	Objekt	Dortmund	KG,	Düsseldorf                               0.0         0.0
          Dr.	Gubelt	Grundstücks-Vermietungsgesellschaft	mbH	&	Co.	Objekt	Duisburg	KG,	Düsseldorf	                              0.0         0.0
          Dr.	Gubelt	Grundstücks-Vermietungsgesellschaft	mbH	&	Co.	Objekt	Stuttgart	KG,	Düsseldorf	                             0.6         0.6
          GAG	Gemeinnützige	Aktiengesellschaft	für	Wohnungs-,	Gewerbe-	und	Städtebau,		                                           	           	
          Ludwigshafen	am	Rhein                                                                                                 0.6         0.6
          GEWOBA	Aktiengesellschaft	Wohnen	und	Bauen,	Bremen	                                                                   2.9         2.9
          Interessengemeinschaft	Frankfurter	Kreditinstitute	GmbH,	Frankfurt	a.	M.                                              4.2         4.2
          Korona	Grundstücks-Verwaltungsgesellschaft	mbH	&	Co.	KG	i.	L.,	Grünwald                                               5.3       14.3
          Liquiditäts-Konsortialbank	GmbH,	Frankfurt	a.	M.                                                                      0.0         0.0
          MAECENA	Grundstücks-Vermietungsgesellschaft	mbH	&	Co.	Objekt	Bremen	KG,	Düsseldorf	                                 10.0        10.0
          Merino	Grundstücks-Verwaltungsgesellschaft	mbH	&	Co.	KG	i.	L.,	Wiesloch	                                              0.0         0.0
          MIDAS	Grundstücks-	Vermietungsgesellschaft	mbH	&	Co.	Objekt	Langenhagen	KG,	Düsseldorf	                               5.0         5.0
          NESTOR	Grundstücks-Vermietungsgesellschaft	mbH	&	Co.	Objekt	Landau	KG,	Düsseldorf	                                    5.0         5.0
          SARIO	Grundstücks-Vermietungsgesellschaft	mbH	&	Co.	Objekt	Nürnberg	KG,	Düsseldorf	                                   2.6         5.0
          Ski	Leasing	No.	1,	London,	UK	                                                                                        0.5         5.0
          Ski	Leasing	No.	2,	London,	UK	                                                                                        0.5         5.0
          Joparny	S.L.,	Madrid,	Spain	                                                                                          0.5         5.0
          SOREX	Grundstücks-Vermietungsgesellschaft	mbH	&	Co.	Objekt	Hamburg	KG,	Düsseldorf	                                    1.2         1.1
          TABA	Grundstücks-Vermietungsgesellschaft	mbH	&	Co.	Objekt	München	KG,	Düsseldorf	                                     5.0         1.0
          True	Sale	International	GmbH,	Frankfurt	a.	M.	                                                                        7.7         7.7
          TSI	Services	GmbH,	Frankfurt	a.	M.	                                                                                   7.7         7.7
          VBW	Bauen	und	Wohnen	GmbH,	                                                                                           3.9         3.9
          ZEPAS	Beteiligungs	GmbH	&	Co.	Vermietungs-KG,	München,	Pullach                                                      10.0          5.6
          *)
            	Large	company	under	§	340	a	para.	4	No.	2	HGB.	
          1)
             	Profit	and	loss	transfer	agreement.	
          2)
             	Including	shares	held	indirectly	pursuant	to	§	16	para.	4	of	the	German	Stock	Corporation	Act	(AktG).	
          3)
             	Figures	from	the	2008	financial	statements.	
          4)
             	Figures	from	the	2009	financial	statements.	
          5)
             	Figures	from	the	2010	financial	statements.	
          6)
             	Newly	established	in	2010,	no	results	available	as	yet.	
                                                     Group Financial Statements >>> Notes / Management bodies   159




MANAGEMENT BODIES


supervisory board               board of
                                managing directors



Jochen Klösges                  Dr Frank Pörschke
         Chairman                  Chairman




Klaus Müller-Gebel              Dr Thomas Bley
         Deputy Chairman




Ingo Felka1)                    Thomas Köntgen




Eva-Maria Jäger1)               Ralf Woitschig




Michael Reuther




Dr Stefan Schmittmann




                                                                                                                      Financial Statements
                                                                                                                      Auditor’s Report
                                                                                                                      § 28 PfandbriefGS
                                                                                                                      At a glance




1)
     	Employee	representative
160   Group Financial Statements




          SUPERVISORY BOARD COMMITTEES


          standing committee       audit committee      risk committee




          Jochen Klösges           Klaus Müller-Gebel   Dr Stefan Schmittmann
                Chairman              Chairman             Chairman




          Klaus Müller-Gebel       Eva-Maria Jäger      Jochen Klösges




          Dr Stefan Schmittmann    Michael Reuther      Michael Reuther
                                                                                   Group Financial Statements >>> Supervisory board committees / Trustees   161




TRUSTEES


trustees                                               deputy trustees




Jost Keiner                                            Bernd Dürr                                        Dr Hans-Joachim Schmidt
          Counsellor at the Hessen                           Accountant,                                       Deputy director at the
          Government Audit Office                            Tax Consultant                                    Hessian Construction
          in Darmstadt                                       Frankfurt am Main                                 management
          Frankfurt am Main                                                                                    Hofheim-Wallau


                                                       Hartmut Graf                                      Thomas Schwenkreis
                                                             Accountant,                                       Accountant,
                                                             Tax Consultant                                    Tax Consultant
                                                             Lübeck                                            Frankfurt am Main
                                                                                                               until 30 april 2010


                                                       Gunthard Hansen
                                                             Senior Counsellor at the Tax
                                                             Authorities in Hamburg (retired)
                                                             Hamburg




                                                       Wolfgang Barchewitz1)                             Heinrich Drügh1)
                                                             Lawyer                                            Lawyer
                                                             Cologne                                           Lohmar




                                                                                                                                                                  Financial Statements
                                                                                                                                                                  Auditor’s Report
                                                                                                                                                                  § 28 PfandbriefGS
                                                                                                                                                                  At a glance




1)
     	with	special	responsibilities	at	Zurich	Group	Investment	Europe	(Deutschland)	GmbH
162   Group Financial Statements




          ADVISORY BOARD


          germany




          Dr Patrick Adenauer              Dirk Große Wördemann            Michael Jung
                Managing Partner               Managing Director              Managing Partner
                Bauwens GmbH & Co. KG          Pacific Star Europe GmbH       Continuum Capital GmbH
                Cologne                        Grasbrunn                      Frankfurt am Main
                                               until 1 december 2010


          Dr Hans-Jürgen Ahlbrecht         Bernhard H. Hansen              Dr Ralph Ulrich Knist
                Managing Director              Chairman and                   Member of the Management
                Deutsche Real Corp (DRC)       Managing Director              Board Dr. Helmut Greve Bau-
                GmbH & Co. KG                  VIVICO Real Estate GmbH        und Boden-AG
                Berlin                         Frankfurt am Main              Hamburg


          Dieter Becken                    Dr Nikolaus B. Hensel           Michael A. Kremer
                BECKEN Holding GmbH            Lawyer and Notary              Managing Director
                Hamburg                        Bögner Hensel & Partner        Strategie Value Partners
                                               Frankfurt am Main              (Deutschland) GmbH
                                                                              Frankfurt am Main
                                                                              until 31 december 2010

          Caspar-Florens                   Karsten Hinrichs                Hermann Marth
          von Consbruch                        Managing Director and CFO      Chairman of the
                Lawyer                         ECE Projektmanagement          Board of Trustees
                Hiddenhausen                   GmbH & Co. KG                  Stiftung Zollverein
                                               Hamburg                        Essen


          Alfons Doblinger                 Ulrich Höller                   Friedrich von Metzler
                Chairman of the                Chairman of the                Personally liable partner
                Management Board               Management Board               Bankhaus Metzler seel.
                DIBAG Industriebau AG          DIC Deutsche Immobilien        Sohn & Co. KGaA
                Munich                         Chancen AG & Co. KGaA          Frankfurt am Main
                                               Frankfurt am Main
                                                                 Group Financial Statements >>> Advisory board Germany   163




Dr Job von Nell             Philipp Schmitz-Morkramer
   Managing Director            Member of the
   FINAP GmbH                   Management Board
   Berlin                       Quantum Immobilien AG
                                Hamburg


Prof Matthias Ottmann       Prof Dr Karl-Werner Schulte
   Managing Director            IREBS Institut für Immobilien-
   Ottmann GmbH & Co.           wirtschaft International
   Südhausbau KG                Real Estate Business School
   Munich                       Wiesbaden


Joachim Plesser             Jürgen Schulte-Laggenbeck
   Ratingen                     Member of the
   since 1 april 2010           Management Board
                                Otto (GmbH & Co. KG )
                                Hamburg


Dr Helmut Röschinger        Prof Dr Hans Sommer
   Managing Partner             Member of the
   Argenta Internationale       Supervisory Board
   Anlagegesellschaft mbH       Drees & Sommer AG
   Munich                       Stuttgart
   until 30 june 2010

Prof Dr-Ing Martin Rohr     Frank Stieler
   Member of the                Member of the
   Management Board             Management Board
   HOCHTIEF AG                  HOCHTIEF AG
   Essen                        Essen




                                                                                                                               Financial Statements
   until 10 november 2010       since 10 november 2010




                                                                                                                               Auditor’s Report
                                                                                                                               § 28 PfandbriefGS
                                                                                                                               At a glance
164   Group Financial Statements




          ADVISORY BOARD


          international




          Léon Bressler                         Gerald Hines                         Luis José Pereda
                Partner                            Chairman                              Presidente
                Perella Weinberg Partners LLP      Hines Europe                          Grupo Lar
                London                             London                                Madrid



          Alice M. Connell                      Jordan Kaplan                        Joseph E. Robert, Jr.
                Managing Principal                 President & CEO                       Chairman & CEO
                Bay Hollow Associates, LLC         Douglas Emmett, Inc.                  J.E. Robert Companies
                New York                           Santa Monica                          McLean
                                                   since 25 march 2010


          Sebastián Escarrer Jaume              William L. Mack                      Barry Sternlicht
                Vice-Chairman                      Chairman                              Chairman & CEO
                Grupo Sol Meliá                    Apollo Real Estate                    Starwood Capital Group
                Palma de Mallorca                  Advisors LP                           Greenwich
                                                   New York


          Mike Fascitelli                       Dan Neidich                          Birger Strom
                President & CEO                    Chairman & CEO                        Président
                Vornado Realty Trust               Dune Capital Management LP            Société des
                New York                           New York                              Centres Commerciaux
                                                                                         Paris


          Fernando Guedes de Oliveira           Mark Newman                          Georg von Werz
                CEO                                Managing Partner                      CEO
                Sonae Sierra, SGPS, SA             Broadcliff Capital Partners LLP       Pramerica Real Estate
                Maia                               London                                International AG
                since 1 january 2010                                                     Munich


          Arnold L. de Haan                     Eyal Ofer
                Boishaen BV                        Chairman
                Blaricum                           Ofer Global Holdings
                                                   London
                                       Group Financial Statements >>> Advisory board International / Supervisory board mandates   165




SUPERVISORY BOARD MANDATES

mandates pursuant to section 340 a paragraph 4 no. 1 of the german commercial
code (hgb) in supervisory bodies to be established under law of large corporations
(section 267 paragraph 3 hgb)

                              Mandates in other Supervisory                    Membership of comparable
                              Boards (of German companies)                     German and international
                              to be established under law                      supervisory bodies of com-
Name, Profession                                                               mercial companies

Jochen Klösges                Commerz	Real	AG,	Eschborn                        Commerzbank	Auslandsbanken	Holding	
                              (Chairman)                                       Nova	GmbH,	Frankfurt	am	Main
Frankfurt am Main
                              Commerz	Real	Investmentgesellschaft	mbH,	        (Member	of	the	Supervisory	Board)
Chairman                      Wiesbaden,	(Chairman)                            Commerzbank	Inlandsbanken	Holding	
Member of the Board           Deutsche	Schiffsbank	AG,	Hamburg	/	Bremen        GmbH,	Frankfurt	am	Main
                              (Chairman)                                       (Deputy	Chairman)
of Managing Directors
Commerzbank AG

Klaus Müller-Gebel            comdirect	bank	AG,	Quickborn	                    –
                              (Deputy	Chairman)
Bad Soden
                              until	7	May	2010
Deputy Chairman               Deutsche	Schiffsbank	AG,	Hamburg	/	Bremen
Lawyer                        (Deputy	Chairman)	


Ingo Felka                    –                                                –
Maintal
Bank Employee

Eva-Maria Jäger               –                                                –
Schmitten im Taunus
Bank Employee

Michael Reuther               –                                                –
Bad Nauheim
Member of the Board
of Managing Directors
Commerzbank AG




                                                                                                                                        Financial Statements
Dr Stefan Schmittmann         Commerz	Real	AG,	Eschborn                        KGAL	GmbH	&	Co.	KG,	Grünwald	
                              (Deputy	Chairman)                                (Member	of	the	Administrative	Board)
Grünwald
                              Commerzbank	Auslandsbanken	Holding	AG,	          since	14	January	2009	
Member of the Board           Frankfurt	am	Main                                Verlagsgruppe	Weltbild	GmbH,	Augsburg
of Managing Directors         Schaltbau	Holding	AG,	Munich                     (Member	of	the	Supervisory	Board)
                                                                               BRE	BANK
Commerzbank AG




                                                                                                                                        Auditor’s Report
                                                                                                                                        § 28 PfandbriefGS
                                                                                                                                        At a glance
166   Group Financial Statements




          MANAGEMENT BOARD MANDATES

          mandates pursuant to section 340 a paragraph 4 no. 1 of the german commercial
          code (hgb) in supervisory bodies to be established under law of large corporations
          (section 267 paragraph 3 hgb)

                                        Mandates in other Supervisory               Membership of comparable
                                        Boards (of German companies)                German and international
                                        to be established under law                 supervisory bodies of com-
          Name, Profession                                                          mercial companies

          Dr Frank Pörschke             –                                           EH	Estate	Management	GmbH,	Eschborn*
                                                                                    (Member	of	the	Supervisory	Board)
          Chairman of the Board
                                                                                    ECE	Projektmanagement	GmbH	&	Co.	KG,
          of Managing Directors                                                     Hamburg	(Member	of	the	Advisory	Board)
                                                                                    since	1	July	2010


          Dr Thomas Bley                Commerz	Real-Investmentgesellschaft	mbH,	   EH	Estate	Management	GmbH,	Eschborn*	
                                        Wiesbaden                                   (Member	of	the	Supervisory	Board)
                                        Deutsche	Schiffsbank	AG,	Hamburg	/	Bremen   EUROHYPO	Europäische	
                                                                                    Hypothekenbank	S.A.,	Luxemburg*	
                                                                                    (Member	of	the	Administrative	Board)
                                                                                    EUROHYPO	(Japan)	Corporation,	Tokyo*
                                                                                    (Member	of	the	Administrative	Board)
                                                                                    Servicing	Advisors	Deutschland	GmbH	
                                                                                    Frankfurt	am	Main
                                                                                    (Member	of	the	Advisory	Board)


          Thomas Köntgen                –                                           EH	Estate	Management	GmbH,	Eschborn*	
                                                                                    (Deputy	Chairman	of	the	Supervisory	Board)


          Ralf Woitschig                –                                           Erste	Europäische	Pfandbrief-	
                                                                                    und	Kommunalkreditbank,	Luxemburg
                                                                                    (Chairman	of	the	Administrative	Board)
                                                                                    EUROHYPO	Europäische	
                                                                                    Hypothekenbank	S.A.,	Luxemburg*	
                                                                                    (Chairman	of	the	Administrative	Board)

          *	Internal	Group	Mandate
                                                  Group Financial Statements >>> Management board mandates / Staff mandates   167




STAFF MANDATES

mandates pursuant to section 340 a paragraph 4 no. 1 of the german commercial
code (hgb) in supervisory bodies to be established under law of large corporations
(section 267 paragraph 3 hgb)

                              Mandates in other Supervisory                 Membership of comparable
                              Boards (of German companies)                  German and international
                              to be established under law                   supervisory bodies of com-
Name, Profession                                                            mercial companies

Stéphane R. Adolf             –                                             EUROHYPO	(Japan)	Corporation,	Tokyo*
                                                                            (Member	of	the	Administrative	Board)


Hendrik Gienow                –                                             EUROHYPO	(Japan)	Corporation,	Tokyo*
                                                                            (Chairman	of	the	Administrative	Board)


Reinolf Dibus                 –                                             Erste	Europäische	Pfandbrief-	und
                                                                            Kommunalkreditbank	AG,	Luxembourg,	
                                                                            Luxembourg
                                                                            (Executive	Member	of	the	
                                                                            Administrative	Board)


Rupert Hackl                  Rathgeber	AG,	München	(Chairman)              Alba	BAUPROJEKT	MANAGEMENT	GmbH,
                              Bürgerliches	Brauhaus	Immobilien	             Oberhaching
                              Ingolstadt	(BBI)	AG                           (Member	of	the	Administrative	Board)
                              Herzog	von	Arenberg’sche	Vermögens-
                              verwaltung	GmbH,	Grasbrunn


Christoph Kettel              –                                             KENSTONE	GmbH,	Eschborn*
                                                                            (Chairman	of	the	Advisory	Board)


Markus Leininger              –                                             Flowermills	Holdings	B.V.,	Amsterdam
                                                                            (Member	of	the	Administrative	Board)
                                                                            Marisana	Enterprises	Limited,	Limassol
                                                                            (Member	of	the	Administrative	Board)


Dr Peter Otto                 –                                             VBW	Bauen	und	Wohnen	GmbH,	Bochum	


Martin Seimetz                –                                             EH	Estate	Management	GmbH,	Eschborn,	
                                                                            (Member	of	the	Supervisory	Board)*




                                                                                                                                    Financial Statements
Philipp Treuner               –                                             EUROHYPO	Europäische	
                                                                            Hypothekenbank	S.A.,	Luxemburg,	
                                                                            (Member	of	the	Administrative	Board)*


Theo Weyandt                  –                                             MOMENI	Projektentwicklung	GmbH,	
                                                                            Hamburg




                                                                                                                                    Auditor’s Report
*	Internal	Group	Mandate

                                                                                                                                    § 28 PfandbriefGS
                                                                                                                                    At a glance
168   Group Financial Statements




          RESPONSIBILITY STATEMENT BY THE MANAGEMENT BOARD

          To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial
          statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and
          the management report of the Group includes a fair review of the development and performance of the business
          and the position of the Group, together with a description of the principal opportunities and risks associated with
          the expected development of the Group for the remaining months of the financial year.




          Eschborn, 3 March 2011

          Eurohypo Aktiengesellschaft
          The Board of Managing Directors




          Dr Frank Pörschke                            Dr Thomas Bley




          Thomas Köntgen                               Ralf Woitschig
                                                        Group Financial Statements >>> Responsibility statement by the management board / Auditor’s Report   169




AUDITOR’S REPORT 1)

We have audited the consolidated financial statements prepared by the Eurohypo Aktiengesellschaft, Eschborn,
comprising the statement of financial position, the statement of comprehensive income, statement of changes in
equity, cash flow statement and the notes to the consolidated financial statements, together with the group man-
agement report for the business year from 1 January to 31 December 2010. The preparation of the consolidated
financial statements and the group management report in accordance with the IFRS s, as adopted by the EU , and
the additional requirements of German commercial law pursuant to § (Article) 315 a Abs. (paragraph) 1 HGB
(“Handelsgesetzbuch”: German Commercial Code) are the responsibility of the parent Company’s Board of Man-
aging Directors. Our responsibility is to express an opinion on the consolidated financial statements and on the
group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with § 317 HGB and German
generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschafts-
prüfer (Institute of Public Auditors in Germany) (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 consolidated financial statements in accordance with the applicable financial reporting frame-
work and in the group management report are detected with reasonable assurance. Knowledge of the business
activities and the economic and legal environment of the Group and expectations as to possible misstatements are
taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal
control system and the evidence supporting the disclosures in the consolidated financial statements and the group
management report are examined primarily on a test basis within the framework of the audit. The audit includes
assessing the annual financial statements of those companies included in consolidation, the determination of the
companies to be included in consolidation, the accounting and consolidation principles used and significant esti-
mates made by the Company’s Board of Managing Directors, as well as evaluating the overall presentation of the
consolidated financial statements and the group management report. We believe that our audit provides a rea-
sonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion based on the findings of our audit the consolidated financial statements comply with the IFRS s as
adopted by the EU and the additional requirements of German commercial law pursuant to § 315 a Abs. 1 HGB and
give a true and fair view of the net assets, financial position and results of operations of the Group in accordance
with these requirements. The group management report is consistent with the consolidated financial statements
and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks
of future development.




                                                                                                                                                                   Financial Statements
Frankfurt am Main, 3 March 2011



                                                                                                                                                                   Auditor’s Report
PricewaterhouseCoopers
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft
                                                                                                                                                                   § 28 PfandbriefGS




sign. Lothar Schreiber                      sign. ppa. Carsten Butzke
Wirtschaftsprüfer                           Wirtschaftsprüfer
(German Public Auditor)                     (German Public Auditor)
                                                                                                                                                                   At a glance




1)
      T
     		 ranslation	of	the	auditor’s	report	issued	in	German	language	on	the	consolidated	financial	
      statements	prepared	in	German	language	by	the	management	of	Eurohypo	AG.
b r a n d e n b u r g g at e , b e r l i n b i g b e n , l o n d o n p a l a c i o d e c o m u n i c a c i o n e s , m a d r i d e i f f e l t o w e r , p a r i s
h a g i a s o p h i a , i s t a n b u l p a l a c e o f c u lt u r e a n d s c i e n c e , w a r s a w s a i n t b a s i l’s c a t h e d r a l , m o s c o w
b e l é m t o w e r , l i s b o n m i l a n c a t h e d r a l , m i l a n s t a t u e o f l i b e r t y, n e w y o r k
                                                                                          Information under Section 28 of the Pfandbrief Act   171




INFORMATION UNDER SECTION 28 OF THE PFANDBRIEF ACT


pfandbrief act section 28 ( 1 ) no. 1                                                                     Net present value of risks
                                                        Nominal value            Net present value              dynamic procedure
in	€	million                           31.12.2010          31.12.2009   31.12.2010     31.12.2009       31.12.2010        31.12.2009
Mortgage Pfandbriefe
Outstanding	                               38,421             44,853       40,848          47,431           42,439            49,307
Cover	pool                                 50,920             51,884       54,089          55,150           54,479            56,012
   –	Cover	assets                          50,040             49,843       53,117          53,017           53,442            53,825
     F
     	
   –		 urther	cover	assets		                     	                  	            	               	                 	                 	
     according	to	Section	                       	                  	            	               	                 	                 	
     19	No.	1	Pfandbrief	Act                  880              2,041          972           2,133            1,037             2,187
Surplus	cover                              12,499              7,031       13,241           7,719           12,040             6,705
Public-sector Pfandbriefe
Outstanding	                               47,890             62,447       50,894          65,752           48,124            62,488
Cover	pool                                 51,226             66,825       56,739          72,530           53,111            68,043
     c
   –		 over	assets	according		                   	                  	            	               	                 	                 	
    to	Section	20	No.	1		                        	                  	            	               	                 	                 	
    Pfandbrief	Act                         48,276             63,194       53,482          68,636           50,059            64,375
     c
   –		 over	assets	according		                   	                  	            	               	                 	                 	
    to	Section	20	No.	2		                        	                  	            	               	                 	                 	
    Pfandbrief	Act                          2,950              3,631        3,257           3,894            3,052             3,668
Surplus	cover                               3,336              4,378        5,845           6,778            4,987             5,555


pfandbrief act section 28 ( 1 ) no. 2                                        Mortgage Pfandbriefe          Public-sector Pfandbriefe
in	€	million                                                            31.12.2010      31.12.2009       31.12.2010        31.12.2009
Maturity structure of outstanding Pfandbriefe:
   Term	≤	1	year                                                            5,818          10,170            12,056           17,546
   Term	>	1	year	≤	2	years                                                  8,174           5,788             5,865           12,014
   Term	>	2	years	≤	3	years                                                 3,462           7,890             8,443             5,803
   Term	>	3	years	≤	4	years                                                 3,215           3,166             3,644             6,748
   Term	>	4	years	≤	5	years                                                 5,561           2,447               901             2,836
   Term	>	5	years	≤	10	years                                               10,015          13,393             8,114             7,576
   Term	>	10	years                                                          2,176           1,999             8,867             9,924
Total result                                                               38,421          44,853            47,890           62,447




                                                                                                                                                     Financial Statements
                                                                                       Cover pool                         Cover pool
                                                                             Mortgage Pfandbriefe          Public-sector Pfandbriefe
in	€	million                                                            31.12.2010      31.12.2009       31.12.2010        31.12.2009
Fixed rate terms for cover pools:
   Term	≤	1	year                                                           27,239          25,940            21,248           29,935
   Term	>	1	year	≤	2	years                                                  4,709           3,623             2,753             6,405




                                                                                                                                                     Auditor’s Report
   Term	>	2	years	≤	3	years                                                 4,221           4,522             4,669             2,753
   Term	>	3	years	≤	4	years                                                 3,434           4,395             3,245             4,689
   Term	>	4	years	≤	5	years                                                 3,205           3,419             1,992             3,295
   Term	>	5	years	≤	10	years                                                6,738           8,460             6,083             7,084
   Term	>	10	years                                                          1,374           1,525            11,236           12,664
                                                                                                                                                     § 28 PfandbriefGS




Total result                                                               50,920          51,884            51,226           66,825



pfandbrief act section 28 ( 1 ) no. 3
As at December 31, 2010, there are no derivatives in the cover pool.
                                                                                                                                                     At a glance




pfandbrief act section 28 ( 1 ) no. 4
in	€	million                                                                                            31.12.2010        31.12.2009
Mortgage Pfandbriefe
Further	cover	assets
   –	according	to	section	19	(1)	No.	2	Pfandbrief	Act                                                           880            2,041
   –	according	to	section	19	(1)	No.	3	Pfandbrief	Act                                                           880            2,041
Public-sector Pfandbriefe
Further	cover	assets
   –	according	to	section	20	(2)	No.	2	Pfandbrief	Act                                                        2,950             3,631
172   Information under Section 28 of the Pfandbrief Act




          pfandbrief act section 28 ( 2 ) no.1

          claims used as cover for mortgage pfandbriefe
          by volume
          in	€	million                                                                      31.12.2010    31.12.2009
          Cover mortgages
          Up	to	and	including	€	300,000                                                        14,453         15,563
          Over	€	300,000	up	to	and	including	€	5	million                                        7,357          8,147
          Over	€	5	million                                                                     28,230         26,133
          Total                                                                                50,040         49,843


          claims used as cover for mortgage pfandbriefe by region
          in which mortgaged real estate is based and type of use

          germany                                                           Cover assets                 Cover assets
                                                                             31.12.2010                   31.12.2009
          in	€	million                                         Commercial    Residential   Commercial     Residential
          Flats                                                         –         3,309             –          3,527
          Single	family	homes                                           –         9,385             –         10,031
          Multi-dwellings                                               –         7,297             –          7,818
          Office	buildings                                          6,127             –         6,108              –
          Retail	buildings                                          5,001             –         5,071              –
          Industrial	buildings                                      1,285             –         1,437              –
          Other	commercially	used	real	estate                       1,665             –         1,684              –
          Unfinished	new	buildings	not	yet	generating	income         425             99           430             92
          Building	sites                                              33              3            35             25
          Country total                                            14,536        20,093        14,765         21,493



          austria                                                           Cover assets                 Cover assets
                                                                             31.12.2010                   31.12.2009
          in	€	million                                         Commercial    Residential   Commercial     Residential
          Flats                                                         –             –             –              –
          Single	family	homes                                           –             –             –              –
          Multi-dwellings                                               –             –             –              –
          Office	buildings                                           182              –           137              –
          Retail	buildings                                           208              –           209              –
          Industrial	buildings                                          –             –             –              –
          Other	commercially	used	real	estate                         54              –            54              –
          Unfinished	new	buildings	not	yet	generating	income            –             –             –              –
          Building	sites                                                –             –             –              –
          Country total                                              444              –           400              –



          belgium                                                           Cover assets                 Cover assets
                                                                             31.12.2010                   31.12.2009
          in	€	million                                         Commercial    Residential   Commercial     Residential
          Flats                                                         –             –             –              –
          Single	family	homes                                           –             –             –              –
          Multi-dwellings                                               –             0             –              –
          Office	buildings                                            58              –            65              –
          Retail	buildings                                            47              –            49              –
          Industrial	buildings                                          –             –             –              –
          Other	commercially	used	real	estate                          5              –             5              –
          Unfinished	new	buildings	not	yet	generating	income            –             –             –              –
          Building	sites                                                –             –             –              –
          Country total                                              110              0           119              –
                                                                       Information under Section 28 of the Pfandbrief Act   173




cyprus                                                             Cover assets                      Cover assets
                                                                    31.12.2010                        31.12.2009
in	€	million                                         Commercial     Residential     Commercial         Residential
Flats                                                         –              –                 –                 –
Single	family	homes                                           –              –                 –                 –
Multi-dwellings                                               –              –                 –                 –
Office	buildings                                              –              –                 –                 –
Retail	buildings                                            55               –                 –                 –
Industrial	buildings                                          –              –                 –                 –
Other	commercially	used	real	estate                           –              –                 –                 –
Unfinished	new	buildings	not	yet	generating	income            –              –                 –                 –
Building	sites                                                –              –                 –                 –
Country total                                               55               –                 –                 –



czech republic                                                     Cover assets                      Cover assets
                                                                    31.12.2010                        31.12.2009
in	€	million                                         Commercial     Residential     Commercial         Residential
Flats                                                         –              –                 –                 –
Single	family	homes                                           –              –                 –                 –
Multi-dwellings                                               –              –                 –                 –
Office	buildings                                           127               –               129                 –
Retail	buildings                                           107               –               107                 –
Industrial	buildings                                          –              –                 –                 –
Other	commercially	used	real	estate                         10               –                23                 –
Unfinished	new	buildings	not	yet	generating	income            –              –                 –                 –
Building	sites                                                –              –                 –                 –
Country total                                              244               –               259                 –



denmark                                                            Cover assets                      Cover assets
                                                                    31.12.2010                        31.12.2009
in	€	million                                         Commercial     Residential     Commercial         Residential
Flats                                                         –              –                 –                 –




                                                                                                                                  Financial Statements
Single	family	homes                                           –              –                 –                 –
Multi-dwellings                                               –              –                 –                 –
Office	buildings                                             2               –                 3                 –
Retail	buildings                                              -	             –                 2                 –
Industrial	buildings                                         3               –                16                 –
Other	commercially	used	real	estate                           –              –                 –                 –




                                                                                                                                  Auditor’s Report
Unfinished	new	buildings	not	yet	generating	income            –              –                 –                 –
Building	sites                                                –              –                 –                 –
Country total                                                5               –                21                 –                § 28 PfandbriefGS



finland                                                            Cover assets                      Cover assets
                                                                    31.12.2010                        31.12.2009
in	€	million                                         Commercial     Residential     Commercial         Residential
Flats                                                         –              –                 –                 –
Single	family	homes                                           –              –                 –                 –
Multi-dwellings                                               –              –                 –                 –
                                                                                                                                  At a glance




Office	buildings                                            75               –               118                 –
Retail	buildings                                            39               –               195                 –
Industrial	buildings                                        12               –                29                 –
Other	commercially	used	real	estate                           –              –                 –                 –
Unfinished	new	buildings	not	yet	generating	income            –              –                 –                 –
Building	sites                                                –              –                 –                 –
Country total                                              126               –               342                 –
174   Information under Section 28 of the Pfandbrief Act




          france                                                            Cover assets                Cover assets
                                                                             31.12.2010                  31.12.2009
          in	€	million                                         Commercial    Residential   Commercial    Residential
          Flats                                                         –             2             –             –
          Single	family	homes                                           –             0             –             –
          Multi-dwellings                                               –             0             –             1
          Office	buildings                                          1,331             –         1,100             –
          Retail	buildings                                           297              –          354              –
          Industrial	buildings                                       232              –          150              –
          Other	commercially	used	real	estate                         46              –           47              –
          Unfinished	new	buildings	not	yet	generating	income         252              –          198              –
          Building	sites                                                –             –             –             –
          Country total                                             2,158             2         1,849             1



          greece                                                            Cover assets                Cover assets
                                                                             31.12.2010                  31.12.2009
          in	€	million                                         Commercial    Residential   Commercial    Residential
          Flats                                                         –             –             –             –
          Single	family	homes                                           –             –             –             –
          Multi-dwellings                                               –             –             –             –
          Office	buildings                                              –             –            7              –
          Retail	buildings                                            75              –           90              –
          Industrial	buildings                                          –             –             –             –
          Other	commercially	used	real	estate                           –             –             –             –
          Unfinished	new	buildings	not	yet	generating	income            –             –             –             –
          Building	sites                                                –             –             –             –
          Country total                                               75              –           97              –



          hungary                                                           Cover assets                Cover assets
                                                                             31.12.2010                  31.12.2009
          in	€	million                                         Commercial    Residential   Commercial    Residential
          Flats                                                         –             –             –             –
          Single	family	homes                                           –             –             –             –
          Multi-dwellings                                               –             –             –             –
          Office	buildings                                           150              –          191              –
          Retail	buildings                                            91              –           80              –
          Industrial	buildings                                         9              –            7              –
          Other	commercially	used	real	estate                         33              –           33              –
          Unfinished	new	buildings	not	yet	generating	income          56              –           55              –
          Building	sites                                                –             –             –             –
          Country total                                              339              –          366              –



          iceland                                                           Cover assets                Cover assets
                                                                             31.12.2010                  31.12.2009
          in	€	million                                         Commercial    Residential   Commercial    Residential
          Flats                                                         –             –             –             –
          Single	family	homes                                           –             –             –             –
          Multi-dwellings                                               –             –             –             –
          Office	buildings                                            11              –            6              –
          Retail	buildings                                            28              –           12              –
          Industrial	buildings                                          –             –             –             –
          Other	commercially	used	real	estate                           –             –             –             –
          Unfinished	new	buildings	not	yet	generating	income            –             –             –             –
          Building	sites                                                –             –             –             –
          Country total                                               39              –           18              –
                                                                      Information under Section 28 of the Pfandbrief Act   175




ireland                                                           Cover assets                      Cover assets
                                                                   31.12.2010                        31.12.2009
in	€	million                                         Commercial    Residential     Commercial         Residential
Flats                                                         –             –                 –                 –
Single	family	homes                                           –             –                 –                 –
Multi-dwellings                                               –             –                 –                 –
Office	buildings                                            72              –                40                 –
Retail	buildings                                            58              –                56                 –
Industrial	buildings                                          –             –                 –                 –
Other	commercially	used	real	estate                           –             –                 –                 –
Unfinished	new	buildings	not	yet	generating	income            –             –                 –                 –
Building	sites                                                –             –                 –                 –
Country total                                              130              –                96                 –



italy                                                             Cover assets                      Cover assets
                                                                   31.12.2010                        31.12.2009
in	€	million                                         Commercial    Residential     Commercial         Residential
Flats                                                         –             –                 –                 –
Single	family	homes                                           –             –                 –                 –
Multi-dwellings                                               –             –                 –                 –
Office	buildings                                           360              –               459                 –
Retail	buildings                                           622              –               601                 –
Industrial	buildings                                        30              –                64                 –
Other	commercially	used	real	estate                         88              –                87                 –
Unfinished	new	buildings	not	yet	generating	income         102             76                66                75
Building	sites                                                –             –                 –                 –
Country total                                             1,202            76            1,277                 75



lithuania                                                         Cover assets                      Cover assets
                                                                   31.12.2010                        31.12.2009
in	€	million                                         Commercial    Residential     Commercial         Residential
Flats                                                         –             –                 –                 –




                                                                                                                                 Financial Statements
Single	family	homes                                           –             –                 –                 –
Multi-dwellings                                               –             –                 –                 –
Office	buildings                                              –             –                 –                 –
Retail	buildings                                            42              –                42                 –
Industrial	buildings                                          –             –                 –                 –
Other	commercially	used	real	estate                           –             –                 –                 –




                                                                                                                                 Auditor’s Report
Unfinished	new	buildings	not	yet	generating	income            –             –                 –                 –
Building	sites                                                –             –                 –                 –
Country total                                               42              –                42                 –                § 28 PfandbriefGS



luxembourg                                                        Cover assets                      Cover assets
                                                                   31.12.2010                        31.12.2009
in	€	million                                         Commercial    Residential     Commercial         Residential
Flats                                                         –             –                 –                 –
Single	family	homes                                           –             –                 –                 –
Multi-dwellings                                               –             –                 –                 –
                                                                                                                                 At a glance




Office	buildings                                           230              –               236                 –
Retail	buildings                                              –             –                 –                 –
Industrial	buildings                                          –             –                 –                 –
Other	commercially	used	real	estate                           –             –                 –                 –
Unfinished	new	buildings	not	yet	generating	income            –             –                 –                 –
Building	sites                                                –             –                 –                 –
Country total                                              230              –               236                 –
176   Information under Section 28 of the Pfandbrief Act




          netherlandes                                                      Cover assets                Cover assets
                                                                             31.12.2010                  31.12.2009
          in	€	million                                         Commercial    Residential   Commercial    Residential
          Flats                                                         –             –             –             –
          Single	family	homes                                           –             –             –             –
          Multi-dwellings                                               –             –             –             –
          Office	buildings                                           455              –          513              –
          Retail	buildings                                            32              –           28              –
          Industrial	buildings                                       219              –          199              –
          Other	commercially	used	real	estate                         82              –           32              –
          Unfinished	new	buildings	not	yet	generating	income            –             –             –             –
          Building	sites                                                –             –             –             –
          Country total                                              788              –          772              –



          poland                                                            Cover assets                Cover assets
                                                                             31.12.2010                  31.12.2009
          in	€	million                                         Commercial    Residential   Commercial    Residential
          Flats                                                         –             –             –             –
          Single	family	homes                                           –             –             –             –
          Multi-dwellings                                               –             –             –             –
          Office	buildings                                           139              –          129              –
          Retail	buildings                                           723              –          696              –
          Industrial	buildings                                        40              –             –             –
          Other	commercially	used	real	estate                           –             –             –             –
          Unfinished	new	buildings	not	yet	generating	income          18              –           24              –
          Building	sites                                                –             –             –             –
          Country total                                              920              –          849              –



          portugal                                                          Cover assets                Cover assets
                                                                             31.12.2010                  31.12.2009
          in	€	million                                         Commercial    Residential   Commercial    Residential
          Flats                                                         –             –             –             –
          Single	family	homes                                           –             –             –             –
          Multi-dwellings                                               –             –             –             –
          Office	buildings                                           466              –          494              –
          Retail	buildings                                          1,174             –         1,193             –
          Industrial	buildings                                        18              –            5              –
          Other	commercially	used	real	estate                         33              –           34              –
          Unfinished	new	buildings	not	yet	generating	income            –             –             –             –
          Building	sites                                               3              –            3              –
          Country total                                             1,694             –         1,729             –



          romania                                                           Cover assets                Cover assets
                                                                             31.12.2010                  31.12.2009
          in	€	million                                         Commercial    Residential   Commercial    Residential
          Flats                                                         –             –             –             –
          Single	family	homes                                           –             –             –             –
          Multi-dwellings                                               –             –             –             –
          Office	buildings                                            26              –           26              –
          Retail	buildings                                            62              –           60              –
          Industrial	buildings                                         7              –            8              –
          Other	commercially	used	real	estate                           –             –             –             –
          Unfinished	new	buildings	not	yet	generating	income            –             –             –             –
          Building	sites                                                –             –             –             –
          Country total                                               95              –           94              –
                                                                      Information under Section 28 of the Pfandbrief Act   177




slovakia                                                          Cover assets                      Cover assets
                                                                   31.12.2010                        31.12.2009
in	€	million                                         Commercial    Residential     Commercial         Residential
Flats                                                         –             –                 –                 –
Single	family	homes                                           –             –                 –                 –
Multi-dwellings                                               –             –                 –                 –
Office	buildings                                            19              –                19                 –
Retail	buildings                                            13              –                12                 –
Industrial	buildings                                        47              –                46                 –
Other	commercially	used	real	estate                           –             –                 –                 –
Unfinished	new	buildings	not	yet	generating	income            –             –                 –                 –
Building	sites                                                –             –                 –                 –
Country total                                               79              –                77                 –



spain                                                             Cover assets                      Cover assets
                                                                   31.12.2010                        31.12.2009
in	€	million                                         Commercial    Residential     Commercial         Residential
Flats                                                         –             –                 –                 –
Single	family	homes                                           –             –                 –                 –
Multi-dwellings                                               –             –                 –                 –
Office	buildings                                           984              –            1,017                  –
Retail	buildings                                           990              –            1,055                  –
Industrial	buildings                                        86              –                87                 –
Other	commercially	used	real	estate                        344              –               308                 –
Unfinished	new	buildings	not	yet	generating	income          12              –                14                 –
Building	sites                                              20              –                20                 –
Country total                                             2,436             –            2,501                  –



sweden                                                            Cover assets                      Cover assets
                                                                   31.12.2010                        31.12.2009
in	€	million                                         Commercial    Residential     Commercial         Residential
Flats                                                         –             –                 –                 –




                                                                                                                                 Financial Statements
Single	family	homes                                           –             –                 –                 –
Multi-dwellings                                               –             –                 –                 –
Office	buildings                                            66              –                72                 –
Retail	buildings                                             8              –                 8                 –
Industrial	buildings                                        22              –                13                 –
Other	commercially	used	real	estate                           –             –                 –                 –




                                                                                                                                 Auditor’s Report
Unfinished	new	buildings	not	yet	generating	income            –             –                 –                 –
Building	sites                                                –             –                 –                 –
Country total                                               96              –                93                 –                § 28 PfandbriefGS



switzerland                                                       Cover assets                      Cover assets
                                                                   31.12.2010                        31.12.2009
in	€	million                                         Commercial    Residential     Commercial         Residential
Flats                                                         –             –                 –                 –
Single	family	homes                                           –             –                 –                 –
Multi-dwellings                                               –             –                 –                 2
                                                                                                                                 At a glance




Office	buildings                                           253              –               253                 –
Retail	buildings                                            33              –                90                 –
Industrial	buildings                                        20              –                17                 –
Other	commercially	used	real	estate                        120              –               104                 –
Unfinished	new	buildings	not	yet	generating	income            –             –                 –                 –
Building	sites                                                –             – 	               –                 –
Country total                                              426              –               464                 2
178   Information under Section 28 of the Pfandbrief Act




          uk                                                                Cover assets                 Cover assets
                                                                             31.12.2010                   31.12.2009
          in	€	million                                         Commercial    Residential   Commercial     Residential
          Flats                                                         –             –             –              –
          Single	family	homes                                           –             –             –              –
          Multi-dwellings                                               –           235             –             54
          Office	buildings                                          1,542             –          819               –
          Retail	buildings                                           796              –          411               –
          Industrial	buildings                                       442              –          249               –
          Other	commercially	used	real	estate                        213              –          127               –
          Unfinished	new	buildings	not	yet	generating	income         140              –          146               –
          Building	sites                                                –             –             –	             –
          Country total                                             3,133           235         1,752             54



          usa                                                               Cover assets                 Cover assets
                                                                             31.12.2010                   31.12.2009
          in	€	million                                         Commercial    Residential   Commercial     Residential
          Flats                                                         –             –             –              –
          Single	family	homes                                           –             –             –              –
          Multi-dwellings                                               –             –             –              –
          Office	buildings                                           187              –             –              –
          Retail	buildings                                            36              –             –              –
          Industrial	buildings                                          –             –             –              –
          Other	commercially	used	real	estate                          9              –             –              –
          Unfinished	new	buildings	not	yet	generating	income            –             –             –              –
          Building	sites                                                –             –             –              –
          Country total                                              232              –             –              –



          totals                                                            Cover assets                 Cover assets
                                                                             31.12.2010                   31.12.2009
          in	€	million                                         Commercial    Residential   Commercial     Residential
                                                                   29,634        20,406        28,218         21,625
                                                                                                            Information under Section 28 of the Pfandbrief Act   179




pfandbrief act section 28 (2) no. 2

arrears on mortgage claims
in	€	million                                                                                                                       2010           2009
Total amount of payments in arrears by at least 90 days
Germany                                                                                                                             59               57
Austria                                                                                                                              0                –
Belgium                                                                                                                               –               –
Cyprus                                                                                                                                –               –
Czech	Republic	                                                                                                                       –               –
Denmark                                                                                                                               –               –
Finland                                                                                                                               –              10
France                                                                                                                               0                –
Greece                                                                                                                               0                –
Hungary                                                                                                                               –               –
Iceland                                                                                                                               –               –
Ireland                                                                                                                               –               –
Italy                                                                                                                                 –               –
Lithuania                                                                                                                             –               –
Luxembourg                                                                                                                            –               –
Netherlands                                                                                                                           –               –
Poland                                                                                                                                –               –
Portugal                                                                                                                              –               –
Romania                                                                                                                               –               –
Slovakia                                                                                                                              –               –
Spain                                                                                                                               23                1
Sweden                                                                                                                                –               –
Switzerland                                                                                                                           –               –
UK                                                                                                                                    –               –
USA                                                                                                                                   –               –
Total                                                                                                                               82               68


pfandbrief act section 28 ( 2 ) no. 3




                                                                                                                                                                       Financial Statements
enforcement measures                                                                                                           of which attributable to
                                                                                                                   commercial                residential
                                                                                                                    real estate               purposes
Pending	as	at	31	December	2010                                                               No. of cases           properties               properties
Forced	auctions	                                                                                     138                     16                     122
Forced	administration                                                                                341)                    14                      20



                                                                                                                                                                       Auditor’s Report
Forced	auctions	in	2010                                                                              108                       7                    101
1)
  	For	10	of	the	total	34	cases	of	forced	administration,	forced	auction	was	also	pending.


No property was taken over to avoid losses. During the financial year no properties were sold.
                                                                                                                                                                       § 28 PfandbriefGS




interest arrears from mortgage business where the receivable
was used to cover mortgage pfandbriefe
Total interest arrears from mortgage debtors not already written off in earlier years was € 9 million.

in	€	million	 	             	            	                                                                                 2010                    2009
                                                                                                                                                                       At a glance




Interest	arrears	attributable	to
     commercial	real	estate                                                                                                    6                      3
     residential	real	estate                                                                                                   3                      6
Total                                                                                                                          9                      9
180   Information under Section 28 of the Pfandbrief Act




          pfandbrief act section 28 (3) no. 1

          claims used as cover for
          public-sector pfandbriefe
                                                                    Cover assets   Cover assets
          in	€	million                                               31.12.2010     31.12.2009
          Cover assets according to Section 20 (2) Pfandbrief Act         2,950          3,631



          germany                                                   Cover assets   Cover assets
          in	€	million                                               31.12.2010     31.12.2009
          Central	government                                              2,396          2,879
          Regional	bodies                                                29,599         40,566
          Local	bodies                                                    2,306          2,583
          Other                                                             625            693
          Country total                                                  34,926         46,721



          austria                                                   Cover assets   Cover assets
          in	€	million                                               31.12.2010     31.12.2009
          Central	government                                                571          1,342
          Regional	bodies                                                 1,798          2,003
          Local	bodies                                                       24             30
          Other                                                               –              –
          Country total                                                   2,393          3,375



          belgium                                                   Cover assets   Cover assets
          in	€	million                                               31.12.2010     31.12.2009
          Central	government                                                377            391
          Regional	bodies                                                    65             35
          Local	bodies                                                        –              –
          Other                                                               –              –
          Country total                                                     442            426



          bulgaria                                                  Cover assets   Cover assets
          in	€	million                                               31.12.2010     31.12.2009
          Central	government                                                  7              7
          Regional	bodies                                                     –              –
          Local	bodies                                                        –              –
          Other                                                               –              –
          Country total                                                       7              7



          canada                                                    Cover assets   Cover assets
          in	€	million                                               31.12.2010     31.12.2009
          Central	government                                                  –              –
          Regional	bodies                                                   123            548
          Local	bodies                                                       41             36
          Other                                                              56             52
          Country total                                                     220            636
                     Information under Section 28 of the Pfandbrief Act   181




cyprus                     Cover assets            Cover assets
in	€	million                31.12.2010              31.12.2009
Central	government                   125                    160
Regional	bodies                        –                       –
Local	bodies                           –                       –
Other                                  –                       –
Country total                        125                    160



czech republic             Cover assets            Cover assets
in	€	million                31.12.2010              31.12.2009
Central	government                    60                      94
Regional	bodies                       40                      40
Local	bodies                           9                       9
Other                                  –                       –
Country total                        109                    143



denmark                    Cover assets            Cover assets
in	€	million                31.12.2010              31.12.2009
Central	government                     –                       –
Regional	bodies                        9                      10
Local	bodies                           –                       –
Other                                  –                       –
Country total                          9                      10



estonia                    Cover assets            Cover assets
in	€	million                31.12.2010              31.12.2009
Central	government                     –                       –
Regional	bodies                        –                       –
Local	bodies                          15                      17
Other                                  –                       –
Country total                         15                      17




                                                                                Financial Statements
finland                    Cover assets            Cover assets
in	€	million                31.12.2010              31.12.2009
Central	government                     –                       –
Regional	bodies                        –                       –
Local	bodies                         119                    124




                                                                                Auditor’s Report
Other                                  –                       –
Country total                        119                    124



france                     Cover assets            Cover assets
                                                                                § 28 PfandbriefGS



in	€	million                31.12.2010              31.12.2009
Central	government                   503                    503
Regional	bodies                       25                      23
Local	bodies                          41                      53
Other                                  –                       –
Country total                        569                    579
                                                                                At a glance
182   Information under Section 28 of the Pfandbrief Act




          greece                                           Cover assets   Cover assets
          in	€	million                                      31.12.2010     31.12.2009
          Central	government                                       325             35
          Regional	bodies                                            –              –
          Local	bodies                                               –              –
          Other                                                      –              –
          Country total                                            325             35



          hungary                                          Cover assets   Cover assets
          in	€	million                                      31.12.2010     31.12.2009
          Central	government                                       110            508
          Regional	bodies                                           50             50
          Local	bodies                                               –              –
          Other                                                      –              –
          Country total                                            160            558



          iceland                                          Cover assets   Cover assets
          in	€	million                                      31.12.2010     31.12.2009
          Central	government                                       180            213
          Regional	bodies                                            –              –
          Local	bodies                                              40             40
          Other                                                     49             45
          Country total                                            269            298



          italy                                            Cover assets   Cover assets
          in	€	million                                      31.12.2010     31.12.2009
          Central	government                                       304            398
          Regional	bodies                                          829            812
          Local	bodies                                             294             74
          Other                                                      –              –
          Country total                                          1,427          1,284



          japan                                            Cover assets   Cover assets
          in	€	million                                      31.12.2010     31.12.2009
          Central	government                                         9              8
          Regional	bodies                                           92            171
          Local	bodies                                              33             80
          Other                                                      –              –
          Country total                                            134            259



          latvia                                           Cover assets   Cover assets
          in	€	million                                      31.12.2010     31.12.2009
          Central	government                                         –             40
          Regional	bodies                                            –              –
          Local	bodies                                               –              –
          Other                                                      –              –
          Country total                                              –             40
                     Information under Section 28 of the Pfandbrief Act   183




lithuania                  Cover assets            Cover assets
in	€	million                31.12.2010              31.12.2009
Central	government                     5                    120
Regional	bodies                        –                       –
Local	bodies                           –                       –
Other                                  –                       –
Country total                          5                    120



luxembourg                 Cover assets            Cover assets
in	€	million                31.12.2010              31.12.2009
Central	government                     –                       –
Regional	bodies                        –                       –
Local	bodies                         120                    120
Other                                  –                       –
Country total                        120                    120



netherlands                Cover assets            Cover assets
in	€	million                31.12.2010              31.12.2009
Central	government                     –                       –
Regional	bodies                        –                       –
Local	bodies                          52                      62
Other                                  –                       –
Country total                         52                      62



poland                     Cover assets            Cover assets
in	€	million                31.12.2010              31.12.2009
Central	government                   560                    639
Regional	bodies                        –                       –
Local	bodies                           –                       –
Other                                  –                       –
Country total                        560                    639




                                                                                Financial Statements
portugal                   Cover assets            Cover assets
in	€	million                31.12.2010              31.12.2009
Central	government                    51                      51
Regional	bodies                      120                       –
Local	bodies                           –                       –




                                                                                Auditor’s Report
Other                                 80                      80
Country total                        251                    131



slovakia                   Cover assets            Cover assets
                                                                                § 28 PfandbriefGS



in	€	million                31.12.2010              31.12.2009
Central	government                    60                      60
Regional	bodies                       50                      50
Local	bodies                           –                       –
Other                                  –                       –
Country total                        110                    110
                                                                                At a glance
184   Information under Section 28 of the Pfandbrief Act




          slovenia                                         Cover assets   Cover assets
          in	€	million                                      31.12.2010     31.12.2009
          Central	government                                       183            198
          Regional	bodies                                            –              –
          Local	bodies                                               –              –
          Other                                                      –              –
          Country total                                            183            198



          spain                                            Cover assets   Cover assets
          in	€	million                                      31.12.2010     31.12.2009
          Central	government                                         –            276
          Regional	bodies                                        1,325          1,812
          Local	bodies                                              10             91
          Other                                                      –              –
          Country total                                          1,335          2,179



          supranational                                    Cover assets   Cover assets
          in	€	million                                      31.12.2010     31.12.2009
          Central	government                                        85             60
          Regional	bodies                                          237            361
          Local	bodies                                               –              –
          Other                                                      –              –
          Country total                                            322            421



          sweden                                           Cover assets   Cover assets
          in	€	million                                      31.12.2010     31.12.2009
          Central	government                                         –            102
          Regional	bodies                                            –              –
          Local	bodies                                              22             79
          Other                                                      –              –
          Country total                                             22            181



          switzerland                                      Cover assets   Cover assets
          in	€	million                                      31.12.2010     31.12.2009
          Central	government                                         –              –
          Regional	bodies                                          969            945
          Local	bodies                                             153            129
          Other                                                      –              –
          Country total                                          1,122          1,074



          uk                                               Cover assets   Cover assets
          in	€	million                                      31.12.2010     31.12.2009
          Central	government                                       660            660
          Regional	bodies                                            –              –
          Local	bodies                                               8              7
          Other                                                    158            153
          Country total                                            826            820
                                                                             Information under Section 28 of the Pfandbrief Act   185




usa                                                                                Cover assets            Cover assets
in	€	million                                                                        31.12.2010              31.12.2009
Central	government                                                                             –                    281
Regional	bodies                                                                              762                    707
Local	bodies                                                                               1,332                  1,455
Other                                                                                         25                      24
Country total                                                                              2,119                  2,467




pfandbrief act section 28 ( 3 ) no. 2

total amount outstanding by a minimum of 90 days
There are no payments outstanding on claims used as cover for Public-sector Pfandbriefe.




                                                                                                                                        Financial Statements
                                                                                                                                        Auditor’s Report
                                                                                                                                        § 28 PfandbriefGS
                                                                                                                                        At a glance
b r a n d e n b u r g g at e , b e r l i n b i g b e n , l o n d o n p a l a c i o d e c o m u n i c a c i o n e s , m a d r i d e i f f e l t o w e r , p a r i s
h a g i a s o p h i a , i s t a n b u l p a l a c e o f c u lt u r e a n d s c i e n c e , w a r s a w s a i n t b a s i l’s c a t h e d r a l , m o s c o w
b e l é m t o w e r , l i s b o n m i l a n c a t h e d r a l , m i l a n s t a t u e o f l i b e r t y, n e w y o r k
                                                                                            At a glance >>> Addresses   187




ADDRESSES


                                                                        Representative Office Moscow
head office                         cre banking international
                                                                        RUS-119071 Moscow
                                                                        15a,	Leninsky	Prospekt,	floor	10	
65760 Eschborn                      Athens Branch
                                                                        Tel.	(+7)	495.	9	67	67	30
Helfmann-Park	5                     GR-10674 Athens
                                                                        Fax	(+7)	495.	9	67	67	49
Tel.	+49	(0)	69.	25	48-0            Vasilissis	Sofias	Avenue	23
www.eurohypo.com                    Tel.	(+30)	210.	7	29	49	00          New York Branch
                                    Fax	(+30)	210.	7	29	49	06           New York, NY 10036
                                                                        1114	Avenue	of	the	Americas
                                    Representative Office Bucharest
cre banking germany                                                     2nd	Floor
                                    RO-011635 Bucharest
                                                                        Tel.	(+1)	212.	4	79-57	00
                                    Tudor	Vianu	5	–	7
10117 Berlin                                                            Fax	(+1)	212.	4	79-58	00
                                    Tel.	(+4)	037.	274	35	34
Leipziger	Platz	11
                                    Fax	(+4)	037.	287	48	98             Paris Branch
Tel.	+49	(0)	30.	8	00	95-2	19	00
                                                                        F-75008 Paris
Fax	+49	(0)	30.	8	00	95-8	19	00     Representative Office Istanbul
                                                                        30,	Avenue	George	V
                                    TR-34394 Levent-Istanbul
40212 Düsseldorf                                                        Tel.	(+33)	1.	73	02	56	00
                                    Kanyon	Ofis	Blogu	Kat:	3	
Königsallee	53                                                          Fax	(+33)	1.	73	02	56	10
                                    Buyukdere	Caddesi	No:	185
Tel.	+49	(0)	211.	8	82	96-2	15	00
                                    Tel.	(+90)	212.	3	17	22	00          Representative Office Shanghai
Fax	+49	(0)	211.	8	82	96-8	15	00
                                    Fax	(+90)	212.	3	17	22	10           200120 Shanghai
20354 Hamburg                                                           37F	Shanghai	World	Financial	Center
                                    Lisbon Branch
Valentinskamp	91                                                        100	Century	Avenue
                                    P-1050-094 Lisbon
Tel.	+49	(0)	40.	30	86-2	12	00                                          Tel.	(+86)	21	6877	8608
                                    Praca	Duque	de	Saldanha	1
Fax	+49	(0)	40.	30	86-8	12	00                                           Fax	(+86)	21	6877	8602
                                    Edificio	Atrium	Saldanha,	8°	F
04109 Leipzig                       Tel.	(+351)	21.	3	51	03	70          Representative Office Warsaw
Dittrichring	5	–	9                  Fax	(+351)	21.	3	51	03	80           PL-00-124 Warsaw
Tel.	+49	(0)	341.	3	39	96-0                                             Rondo	ONZ 	1
                                    London Branch
Fax	+49	(0)	341.	3	39	96-8	23	00                                        Tel.	(+48)	22.	5	44	83	00
                                    GB-London WC2E 9RA
                                                                        Fax	(+48)	22.	5	44	83	09
80333 München                       90	Long	Acre,	Covent	Garden
Karlstraße	10                       4th	Floor
Tel.	+49	(0)	89.	20	50	86-2	16	00   Tel.	(+44)	20.	77	59	76	00
                                                                        group companies
Fax	+49	(0)	89.	20	50	86-8	16	00    Fax	(+44)	20.	77	59	76	72




                                                                                                                              Financial Statements
70178 Stuttgart                     Madrid Branch                       Eurohypo (Japan) Corporation
Rotebühlplatz	23                    E-28046 Madrid                      Tokyo 105-6240
Tel.	+49	(0)	711.	4	90	87-2	21	00   Paseo	de	la	Castellana	110,	        40	F	Atago	Green	Hills	MORI	Tower
Fax	+49	(0)	711.	4	90	87-8	21	00    7a	planta                           2-5-1	Atago,	Minato-ku	
                                    Tel.	(+34)	91.	7	87	74	50           Tel.	(+81)	3.	4530-88	00
                                    Fax	(+34)	91.	7	87	74	90            Fax	(+81)	3.	4530-88	02



                                                                                                                              Auditor’s Report
                                    Representative Office Mexico        EUROHYPO
                                    MX-Mexico City 06500, DF            Europäische Hypothekenbank S.A.
                                    Torre	Mayor                         L-1736 Senningerberg / Luxembourg
                                    Paseo	de	la	Reforma	505,	Floor	40   Airport	Center,	5,	rue	Heienhaff
                                    Tel.	(+52)	55.	52	56	06	20          Tel.	(+352)	26	34	55-1
                                                                                                                              § 28 PfandbriefGS




                                    Fax	(+52)	55.	52	56	06	25           Fax	(+352)	26	34	55-222

                                    Milan Branch
                                    I-20122 Milan
                                    Corso	di	Porta	Romana	68            Registered Office
                                                                                                                              At a glance




                                    Tel.	(+39)	02.	86	95	991            Eschborn,	HRB 	45701
                                    Fax	(+39)	02.	86	98	44	43           Amtsgericht	Frankfurt	am	Main
188   At a glance




          GLOSSARY

          Asset Backed Security (ABS)               Collateralised Debt Obligations            Cover asset
          Tradable	notes	which	are	collatera-       (CDOs)                                     The	cover	asset	of	a	mortgage	bank	
          lised	by	claims.                          A	type	of	ABS	secured	by	a	pool	of	        is	the	total	mortgage	lending	and		
                                                    different	assets,	in	particular	loans	     public	sector	finance	which	is	eligible	
          Available for Sale (AfS)                  and	other	securitised	bonds.               as	cover	for	Pfandbriefe	or	Public-
          A	category	defined	by	IAS	39	which	                                                  sector	Pfandbriefe	pursuant	to	the	
          is	applied	to	financial	instruments	      Commercial mortgage backed                 requirements	of	the	German	Pfand-
          which	are	classified	or	designated		      securities (CMBS)                          brief	law.	The	cover	funds	are		
          as	available	for	sale.                    Bonds	which	are	used	to	securitise	        managed	separately	from	other		
                                                    credit	risks	arising	from	a	commer-        assets.	Compliance	with	the	provi-
          Backtesting                               cial	property	portfolio	(see	also	mort-    sions	of	the	German	Pfandbrief	law	
          A	procedure	for	monitoring	the		          gage	backed	securities).                   on	cover	is	monitored	by	trustees	
          quality	of	value-at-risk	models.	For	                                                and	regular	checks	by	BaFin.
          this	purpose,	the	potential	losses	       Confidence level
          projected	by	the	VaR	model	are	           The	confidence	level	defines	the		         Credit Default Swap (CDS)
          examined	over	a	long	period	to		          probability	of	a	potential	loss	arising	   Financial	instrument	which	transfers	
          ascertain	whether	in	retrospect	they	     during	the	time	specified	by	the		         the	credit	risk	of	an	underlying	asset	
          were	not	exceeded	far	more	fre-           value	at	risk.                             (e.	g.	a	security	or	a	loan).	The	buyer	
          quently	than	the	applied	confidence	                                                 of	protection	pays	the	seller	of	pro-
          level	would	have	suggested.               Corporate Governance                       tection	a	premium	and	in	return		
                                                    In	general	terms	Corporate	Gover-          receives	a	compensation	payment	if	
          Basis point                               nance	refers	to	the	totality	of	all		      a	specified	credit	event	occurs.	
          A	basis	point	is	one	hundredth	of	a	      national	and	international	standards	
          percentage	point	(0.01	%).	               and	values	of	good	and	responsible	        Credit-tenant-lease properties
                                                    management	applying	to	both	com-           Credit-tenant-lease	properties	are	
          Benchmark bonds                           pany	staff	and	management.                 properties	that	are	predominantly	
          The	major	mortgage	banks,	which	                                                     leased	to	customers	with	good	cre-
          regularly	issue	high	volume	Pfand-        Covered Bonds                              ditworthiness.	Such	customers	are	
          briefe	(Jumbo-Pfandbriefe),	aim	to	       Covered	bonds	is	the	umbrella	term	        obliged,	in	addition	to	the	interest	
          position	these	Pfandbriefe,	which	        for	debt	instruments	that	are	backed	      costs	and	loan	repayments,	to	pay	
          feature	high	liquidity	and	credit		       by	collateral.	In	Germany,	covered	        the	costs	related	to	the	use	and		
          ratings,	as	benchmark	bonds.              bonds	are	predominantly	issued	in	         upkeep	of	the	properties.
                                                    the	form	of	a	Pfandbrief.	The	col-
          Bonds                                     lateralisation	of	these	instruments	       Deferred taxes
          Collective	term	for	fixed-interest	       (by	mortgages	or	loans	to	the	public	      Deferred	taxes	are	future	tax	burdens	
          debt	instruments.                         sector)	is	governed	by	various	laws	       or	tax	reductions	resulting	from	
                                                    including	the	Pfandbrief	Act	(Pfand-       temporary	differences	and	from		
          Cash flow hedge                           briefgesetz).                              unused	tax	losses	and	tax	credits.	
          Cash	flow	hedges	are	used	to	insure	                                                 Such	temporary	differences	include	
          against	the	risk	of	a	change	in	future	   Credit spreads                             differences	in	the	value	of	an	asset	
          cash	flows,	such	as	interest	pay-         The	credit	spread	is	the	share	of	yield	   or	liability	recognised	for	financial	
          ments	from	a	floating	rate	on-balance-    attributable	to	the	borrower’s	credit	     reporting	or	IFRS	accounting	purpo-
          sheet	transaction	involving	a	swap.	      rating,	constituting	the	risk	pre	
                                                                                     -         ses	and	the	values	recognised	for		
          They	are	measured	at	fair	value.          mium	versus	government	bonds,	for	         tax	purposes	(liability	method),	which	
                                                    example.	The	risk	resulting	from	the	
                                                    change	in	credit	spreads	is	assessed	
                                                    using	the	methodology	for	measu-
                                                    ring	market	risks	(VaR	approach).
                                                                                                             At a glance >>> Glossary   189




balance	each	other	out	in	later		          Fair value hedge                           Issue of securities
financial	years	and	result	in	actual	      Describes	a	fixed-interest	balance	        Securities	can	either	be	issued		
tax	effects.	Deductible	temporary	         sheet	item	(e.	g.	receivables	or	secu-     directly	by	an	issuing	entity	itself	or	
differences	and	unused	tax	losses	         rities),	where	a	swap	is	used	to	          by	commissioning	banks	to	do	so.		
and	tax	credits	lead	to	deferred	tax	      hedge	against	market	risks.	Valua-         In	the	latter	case	the	bank	either		
assets,	while	taxable	temporary		          tion	is	based	on	the	fair	value.           carries	out	the	sale	of	the	securities	
differences	lead	to	deferred	tax		                                                    on	behalf	of	the	issuer	on	a	commis-
liabilities.	Deferred	tax	assets	/	tax		   Goodwill                                   sion	basis	or	buys	the	securities	at		
liabilities	must	be	reported	separately	   In	an	acquisition	the	difference	bet-      a	fixed	price	and	offers	them	to	the	
from	the	actual	tax	assets	/	tax		         ween	the	purchase	price	and	the		          public	at	a	higher	price	(market	
     l
liabi	ities.                               value	of	the	net	assets	acquired	after	    placement).
                                           disclosure	of	hidden	reserves	and	
Derivatives                                unrealised	losses.                         Jumbo-Pfandbriefe
Financial	instruments	whose	value	                                                    Fixed-coupon,	bullet	repayment	
depends	on	the	value	of	another		          Hedge accounting                           Pfandbriefe	with	annual	retrospective	
financial	instrument.	The	price	of		       Presentation	of	opposing	perfor-           payment	of	interest	and	an	issue		
the	derivative	is	derived	from	the		       mance	of	a	hedging	transaction		           volume	of	at	least	€	1	billion,	issued	
price	of	an	underlying	value	(i.e.	        (e.	g.	an	interest	rate	swap)	and	the	     by	a	consortium	of	banks.	
the	interest	rate).	These	instruments	     underlying	transaction	(e.	g.	a	loan).	
offer	extensive	opportunities	for		        The	aim	of	hedge	accounting	is	to	         Letter of comfort
risk	management	and	control.               minimise	the	impact	of	the	valuation	      Usually,	the	commitment	of	a	parent	
                                           affecting	income	and	recording	of	         company	towards	third	parties	(e.	g.	
Expected loss (EL)                         the	valuation	results	of	derivatives	      banks)	to	ensure	orderly	business	
In	statistics,	the	expected	loss	is		      transactions	on	the	Income	Statement.      conduct	on	the	part	of	its	subsidiary	
calculated	from	a	distribution	func-                                                  and	the	latter’s	ability	to	meet	its		
tion.	Since	the	Basel	Capital	Accord	      Hedging                                    liabilities.	
came	into	force,	expected	loss	has	        A	strategy	in	which	hedging	trans-
played	a	key	role	in	measuring	credit	     actions	are	agreed	with	the	aim	           Loan to value (LTV)
risk.	EL	is	the	expected	value	of	the	     of	protecting	against	the	risk	of		        The	loan-to-value	ratio	expresses		
future	losses	from	credit	defaults		       unfavourable	price	trends	(interest	       the	loan	amount	as	a	percentage	of	
calculated	as	the	product	of	EaD,	PD	      rates,	share	prices).                      the	market	or	fair	value.	
and	LGD;	it	is	frequently	also	referred	
to	as	’standard	risk	costs’.               Hybrid capital                             Mark-to-model




                                                                                                                                              Financial Statements
                                           Offerings	in	the	form	of	assets	of		       A	measurement	method	used	for	a	
Exposure at Default (EaD)                  silent	shareholders	or	preference	         specific	financial	product	or	portfolio	
EaD	is	a	risk	parameter	used	by	           shares,	which	are	issued	under		           based	on	internal	assumptions	or		
banks	and	is	a	measure	of	an	insti-        intervention	of	a	group	SPV	and	           financial	models.	The	mark-to-model	
tution’s	exposure	to	a	borrower	when	      recognised	under	banking	regula-           approach	is	used	for	products	for	
a	default	takes	place	(see	also	Basel	     tions	as	core	capital.                     which	no	liquid	market	exists	or	for	




                                                                                                                                              Auditor’s Report
II).	It	includes	all	outstandings	and	                                                which	a	market	price	cannot	regu-
anticipated	future	drawdowns	by	the	       International Financial Reporting          larly	be	calculated.
borrower	in	the	observation	period	        Standards (IFRS) / International
(usually	one	year).                        Accounting Standards (IAS)                 Maturity transformation
                                           Accounting	regulations	issued	by	the	      The	professional	management	of		
                                                                                                                                              § 28 PfandbriefGS



Fair value                                 International	Accounting	Standards	        different	maturities	and	the	asso-
Amount	at	which	financial	instru-          Board.	The	objective	of	financial	         ciated	varying	interest	rate	implica-
ments	are	bought	or	sold	at	fair	          statements	prepared	according	to	          tions	for	assets	and	liabilities	on	the	
terms.	Valuation	is	based	on	either	       IFRS	/	IAS	is	to	provide	investors	with	   balance	sheet.	Current	and	antici-
market	prices	(stock	exchange	pri-         information	to	help	them	reach	a		         pated	future	market	interest	rates	
ces)	or,	where	these	are	missing,		        decision	with	regard	to	the	company’s	     are	taken	into	account	for	this	pur-
                                                                                                                                              At a glance




internal	valuation	models.                 net	assets,	financial	position	and		       pose.
                                           results	of	operations,	including	chan-
                                           ges	over	time.	By	contrast,	financial	
                                           statements	according	to	HGB	(Ger-
                                           man	Commercial	Code)	are	primarily	
                                           geared	to	investor	protection.
190   At a glance




          Minimum requirements for risk                Public private partnership (PPP)           SolvV (Basel II)
          management (“MaRisk”)                        Partnerships	between	the	public	sec-       The	Solvency	Regulation	(Solvabili-
          Regulations	issued	by	the	German	            tor	and	private	companies	for	the	         tätsverordnung),	which	governs	the	
          banking	regulators	on	the	imple-             implementation	of	infrastructure	          capital	adequacy	of	financial	institu-
          mentation	of	the	requirements	of	            projects.                                  tions,	financial	institution	groups	and	
          Section	25	a	of	the	German	Banking	                                                     financial	holding	groups,	was	issued	
          Act	in	risk	management.	The	mini-            Rating                                     by	the	German	Federal	Ministry	of	
          mum	requirements	for	risk	manage-            Standardised	assessment	of	the	            Finance	as	part	of	banking	regulatory	
          ment	were	published	by	the	Federal	          credit	standing	of	the	issuer	and	its	     law	on	14	December	2006.	It	speci-
          Financial	Supervisory	Authority	on	          debt	paper	by	specialised	agencies	        fies	the	requirements	of	the	German	
          20	December	2005.                            (e.	g.	Moody’s	and	Standard	&	Poor’s).     Banking	Act	in	relation	to	minimum	
                                                                                                  capital	requirements.	The	Basel	II		
          Mortgage backed securities (MBS)             Repo business                              regulations	were	incorporated	in	
          MBS	are	a	special	form	of	asset	             (Repurchase agreement)	                    common	EU	directives,	which	form	
          backed	securities.	In	this	process,	a	       Repurchase	agreements	for	securi-          the	basis	for	the	Solvency	Regulation.	
          bank	sells	or	securitises	parts	of	its	      ties	transactions	(true	repo	transac-
          credit	risks	from	property	lending		         tions,	whose	object	continues	to		         Spread
          by	issuing	bonds.	The	main	purpose	          accrue	to	the	borrower).                   The	spread	refers	to	the	difference	
          of	this	kind	of	transaction	is	to	ease	                                                 between	the	buying	(bid	/	ask)	and	
          the	burden	of	the	risk	assets,	which	        RESI Portfolio                             selling	(offer)	price.	
          have	to	be	backed	by	equity.	                Real	Estate	Security	Investment-	
                                                       Portfolio.                                 Standard risk costs for credit risks
          Mortgage Pfandbriefe                                                                    Ex	ante	calculated	risk	premiums	for	
          Bonds	issued	by	mortgage	banks.	             Return on equity (RoE)                     the	lending	business.	These	indicate	
          They	enable	the	bank	to	finance	             The	ratio	of	profit	before	or	after	tax	   the	loss	anticipated,	on	the	basis		
          mortgage	loans.                              to	the	average	balance	sheet	equity.	      of	historical	experience,	within	one	
                                                       The	return	on	equity	shows	the	yield	      year	as	a	result	of	defaulting	loans.
          Participation certificates                   generated	by	the	capital	employed	in	
          Certificates	granting	the	right	to	par-      the	business.                              Stress test
          ticipate	in	the	net	profit	and	/	or		                                                   Stress	tests	are	intended	to	model	
          proceeds	of	liquidation	(particularly	       Risk-weighted assets (RWA)                 the	effects	of	extreme	market	fluc-
          for	public	limited	companies	and		           The	bank	must	allocate	regulatory	         tuations	in	terms	of	losses.	These		
          limited	liability	companies).	The	           risk	weightings	to	all	assets	and	off-     effects	cannot	be	adequately	taken	
          right	is	vested	in	the	participation	        balance	sheet	items	and	add	up	the	        into	account	using	VaR	models.	VaR	
          certificate.	                                risk-weighted	values	of	the	asset		        risk	indicators	are	based	on	“nor-
                                                       positions.	A	risk	weighting	of	100	%	      mal”	market	fluctuations	and	not	on	
          Portfolio                                    means	that	the	full	value	of	the		         the	very	rare,	extreme	situations	
          Part	or	all	of	one	or	all	classes	of		       asset	has	been	taken	into	account		        which	are	difficult	to	record	statisti-
          assets	(i.	e.	securities,	loans,	holdings	   in	calculating	the	risk	weighting.		       cally.	Stress	tests	therefore	are	a		
          or	property).	                               The	regulatory	minimum	require-            meaningful	supplement	to	the	VaR	
                                                       ment	for	the	equity	ratio	is	8	%	of	       analyses;	they	are	also	promoted	by	
          Present value                                this	value.	According	to	the	applica-      the	supervisory	authorities.	
          Current	value	of	future	cash	flows.	         ble	regulations,	the	individual	risk	
          This	is	calculated	by	discounting	all	       weightings	depend	on	the	general	          Subprime
          future	incoming	and	outgoing	pay-            risk	weighting	of	the	debtor	(i.	e.		      Subprime	mortgages	are	mortgage	
          ments	to	the	current	point	in	time.          states,	banks	or	commercial	compa-         loans	granted	to	borrowers	with	a	
                                                       nies).	                                    poor	standard	of	creditworthiness.	
          Primary market
          The	primary	market	covers	all	acti-          Securitisation
          vities	in	connection	with	the	distri-        The	securitising	of	assets.	Tradable	
          bution	of	new	issues.	                       securities	replace	book	credits.	Mor-
                                                       tgage	backed	securities	(see	entry	
                                                       above)	are	a	form	of	securitisation.
                                                                                                                     At a glance >>> Glossary   191




Swaps                                               Total return swap                         VaR
A	financial	instrument	in	which	cur-                A	total	return	swap	is	a	credit	deriva-   Measurement	method	to	record		
rency	and	/	or	interest	exposures	are	              tive	where	the	buyer	of	the	protection	   interest	rate	and	credit	spread	risks.	
swapped	between	two	counterpar-                     transfers	the	entire	risk	of	an	under-    Using	the	VaR	method,	risk	is	defined	
ties	(e.	g.	by	swapping	future	liabili-             lying	asset	(e.g.	a	bond	or	index)	to	    as	a	negative	deviation	from	the		
ties	in	US	dollars	for	Euro	liabilities	            the	seller	of	the	protection	by	peri-     current	value	of	all	of	the	Bank’s		
or	by	swapping	variable	for	fixed		                 odically	accepting	a	variable	or	fixed	   financial	transactions.	To	be	mean-
interest	payments).                                 rate	of	interest	and	cover	for	any		      ingful,	it	must	also	state	the	holding	
                                                    impairment	to	it	in	return	for	the		      period	and	the	confidence	interval	
Syndication                                         assigned	income	from	it	and	any		         (see	confidence	level).	The	VaR	
This	refers	to	the	issue	of	securities	             increase	in	its	value.                    figure	designates	the	maximum	loss	
or	lending	(syndicated	loans)	by	a	                                                           that	will	not	be	exceeded	within	the	
consortium.                                         Underwriting guarantee                    holding	period	with	a	probability	
                                                    When	securities	are	issued	a	finan-       equal	to	the	confidence	interval.
Tier 1 capital (core capital)                       cial	institution	may	provide	a	guaran-
A	measure	of	a	bank’s	financial	                    tee	in	the	underwriting	agreement		       Volatility
strength	from	a	regulatory	viewpoint.	              to	purchase	a	certain	proportion	of	      Indicator	of	price	fluctuations	of		
Tier	1	capital	is	defined	as	fully	paid	            the	issue.                                securities	or	currencies.	Volatility	is	
share	capital	and	disclosed	reserves	                                                         often	calculated	on	the	basis	of	the	
plus,	at	group	level,	any	differences	              Unwinding                                 price	history.	The	higher	the	volatility,	
arising	from	the	consolidation	of		                 Unwinding	is	the	change	in	the	pre-       the	greater	the	risk,	for	example,	in	
capital,	less	deduction	items	such		                sent	value	of	loan	loss	provisions		      holding	an	asset.	
as	intangible	assets.                               calculated	by	discounting	estimated	
                                                    future	cash	flows	(of	recoverable	
                                                    amounts)	at	the	balance	sheet	date.	




                                                                                                                                                      Financial Statements
                                                                                                                                                      Auditor’s Report
                                                                                                                                                      § 28 PfandbriefGS
                                                                                                                                                      At a glance




There	may	be	discrepancies	in	totals	figures	and	percentages	
in	this	report	due	to	rounding	effects.
b r a n d e n b u r g g at e , b e r l i n b i g b e n , l o n d o n p a l a c i o d e c o m u n i c a c i o n e s , m a d r i d e i f f e l t o w e r , p a r i s
h a g i a s o p h i a , i s t a n b u l p a l a c e o f c u lt u r e a n d s c i e n c e , w a r s a w s a i n t b a s i l’s c a t h e d r a l , m o s c o w
b e l é m t o w e r , l i s b o n m i l a n c a t h e d r a l , m i l a n s t a t u e o f l i b e r t y, n e w y o r k
     financial calendar 2011


     Publication	of	preliminary	figures	for	2010                             24	February	2011
     Publication	of	the	2010	Annual	Report                                       1	April	2011
     Publication	of	the	Interim	Report	1	H	2011                              Mid-August	2011




editorial information


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