Annual Report 2004 New record result – comdirect banks on progress with growth and value strategy w w w. c o m d i re c t . d e Key figures of comdirect bank group 2004 1) 2003 Change in % Customer figures as of 31.12. Total customers 620,952 640,221 – 3.0 Customers in the segment comdirect online 620,274 640,197 – 3.1 Customers in the segment comdirect offline 2,114 67 3,055.2 Business line comdirect online Placed orders 6,897,298 7,648,711 – 9.8 Executed orders 5,947,687 6,368,969 – 6.6 Average order activity per custody account 11.0 10.7 2.8 Share of fund transactions in executed orders in % 21.5 15.2 41.4 Order volume per executed order in € 4,740 4,784 – 0.9 Total assets under custody as of 31.12. in € million 9,914 10,362 – 4.3 of which: portfolio volume (excluding funds) in € million 5,748 6,127 – 6.2 of which: funds volume in € million 1,831 1,479 23.8 of which: deposit volume in € million 2,335 2,756 – 15.3 Credit volume as of 31.12. in € million 166 184 – 9.8 Number of custody accounts as of 31.12. 538,522 591,642 – 9.0 Number of fund-based savings plans as of 31.12. 68,401 50,616 35.1 Number of current accounts as of 31.12. 88,905 69,085 28.7 Business line comdirect offline Advisers as of 31.12. 54 17 217.6 Offices as of 31.12. 8 3 166.7 Total revenues in € thousand 4,352 37 11,662.2 Earnings ratios Net commission income in € thousand 87,093 2) 83,107 4.8 Net interest income before provisions in € thousand 56,952 2) 57,207 – 0.4 Administrative expenses in € thousand 103,559 2) 112,494 – 7.9 Profit from ordinary activities in € thousand 51,090 39,102 30.7 Pre-tax profit in € thousand 51,090 39,102 30.7 Net profit in € thousand 33,969 23,361 45.4 Earnings per share in € 0.24 0.17 41.2 Balance-sheet key figures as of 31.12. Balance-sheet total in € million 2,978 3,426 – 13.1 Equity in € million 601 584 2.9 Equity ratio 3) in % 20.2 17.1 18.1 Own funds ratio according to BIS in % 72.2 68.0 6.2 Relative ratios Return on equity before tax in % 8.7 6.9 26.1 Cost/income ratio in % 66.8 2) 74.2 – 10.0 Earnings per customer in € 246.0 232.6 5.8 Employees’ figures as of 31.12. Employees 616 589 4.6 of which: in the segment comdirect online 601 580 3.6 of which: in the segment comdirect offline 15 9 66.7 Employees full-time basis 528.3 522.0 1.2 1) Unless marked, all figures are excluding contributions from comdirect ltd 2) Contributions from comdirect ltd in the first quarter are taken into account 3) Equity ratio = (subscribed capital + reserves + consolidated profit) / balance-sheet total Contents 01 2004 at a glance 40 Personnel 41 Earnings situation 02 Executive Summary 44 Investments 02 Foreword 44 Financial situation and assets 04 “Unique profile” – 46 Risk report Management interview 52 Outlook 55 Major events in financial year 2005 06 Strategy 55 Declaration of Board of Managing Directors 06 Growth and value added on Art. 312, German Stock Corporation Act programme, comvalue (AktG) 08 comdirect’s fields of competence 12 comdirect bank’s one-to-one approach 56 Consolidated financial statements 56 Income statement 14 The share 57 Balance sheet 58 Statement of changes in equity 18 Corporate Governance 59 Cash flow statement 19 Report of the Supervisory Board 60 Notes 23 Corporate Governance report 26 Compensation report 93 Auditors’ certificate 94 Glossary 28 Group Management Report 99 Financial calendar 2005 28 The financial year at a glance 100 Imprint 29 Market environment 32 Strategy 33 Changes in the scope of consolidation 34 Customer base and structure 34 Online Investment and Direct Banking 36 Financial Advisory 37 Innovation and product development 2004 auf einen Blick +5% + 0% – Number of customers as of 31.12. Executed Orders (in thousand) (in million) Germany United Kingdom Germany United Kingdom 600 50 8 32 6 400 0.43 0.21 621 4 590 590 200 5.94 5.95 2 5.49 0 0 2002 2003 2004 2002 2003 2004 +5% +31% Volume of total assets under custody Consolidated profit before tax as of 31.12. (in € billion) (in € million) Funds volume Deposit volume Portfolio volume United Kingdom 10 40 0.95 8 2.33 2.61 20 51.1 6 0.44 39.1 1.86 4 5.35 5.75 0 2 3.65 – 18.6 0 1.05 1.45 1.83 – 20 2002 2003 2004 2002 2003 2004 2004 at a glance Record profit means higher dividend Profit hits new record, dividend up 50 percent With pre-tax profit of €51.1m, comdirect bank achieved a new record and at the annual general meeting will be proposing a dividend of €0.24 per share for distribution to the shareholders. Earnings up, costs down Earnings rose by 2 percent while costs dropped by 8 percent. Despite the changeable market environment, we reduced our cost/income ratio by 7 percentage points to 67 percent. Number of customers hits new high The number of customers in Germany rose by 5 percent to 621,000 – the highest level since the bank was founded. Online Investment: still ahead of the field Our leading market position in trading and in fund business is paying off: our business line is bucking the trend in the stock market with rising commission income. Direct Banking: number one growth driver Almost 20,000 new current accounts and a comprehensive range of fixed-term deposit products are just two of the improvements comdirect bank is using to raise its profile as a main bank. Financial Advisory: rapid expansion With more than 2,100 customers, 54 advisers and 8 offices, comdirect private finance has started well. Customers have praised the quality of the advisory services. Sales and earnings are significantly higher than forecast. New pricing model: rewarding active customers Differentiated, transparent and individual – the new pricing model has been warmly welcomed. It offers customers a number of advantages, especially if they pool their banking transactions at comdirect bank. Technology and service: market leaders New functions, faster tools, more real-time prices at no charge – comdirect is still the number one choice for demanding investors. Our service was awarded top marks in independent comparative tests. Corporate Governance: transparent and up-to-date In a pioneering move in Germany, comdirect bank publishes its key operating figures every month. The compensation details for the Board of Managing Directors and the Supervisory Board are reported on an individualised basis for the first time. 2 Foreword With profit targets outperformed, dividend up and a sharper profile definition – 2004 has been a good year for comdirect bank. Even in a climate of fluctuating fortunes in the securities market, we have achieved record results with our three fields of com- petence, Online Investment, Direct Banking and Financial Advisory. Our aim now is to grow more quickly, with the aid of our growth and value added programme, comvalue. Dear Shareholders, Financial year 2004 was another good year for comdirect bank. At the beginning of the year, we forecast a pre-tax profit of around €45m. During the course of the year, we added €5m to this target and our actual results totalled €51.1m. You will, of course, share the benefits of this and at the annual general meeting, we intend to propose a dividend of 24 cents, which is 8 cents up on the previous year. Our key operating indicators are also good: by the end of 2004 we had 621,000 customers in Germany, 30,000 more than the previous year. By the end of the year, total assets under custody had risen by around €500m to €9.9bn, representing an increase of 5.4 percent. It is particularly pleasing that we have achieved this good result despite the difficult market conditions. We started the year well in Online Investment. However, even we were not immune to the lacklustre stock exchange performance that started during the second quarter. At 5.9 million, the number of securities transactions was on a par with the previous year. Growth has been particularly strong in Direct Banking. By the end of the year we had increased the number of current accounts by around 30 percent to 89,000. A number of fixed-term deposit campaigns also ensured that the deposit volume remained high. Our subsidiary, comdirect private finance, has also enjoyed strong growth in its first full financial year. Five new offices were opened and by the end of the year, comdirect private finance was servicing more than 2,100 customers via its eight offices. The high level of demand for financial advisory services was boosted in the second half of the year by the unusually high level of interest in life assurance. Start-up losses for comdirect private finance came in significantly below plan. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 3 Our good result is due to two factors in particular. Firstly, as ever, we have continued to maintain strict discipline on the cost side and here, we reduced our cost/income ratio to 67 percent, notably low by comparison with other banks. Secondly, the focus on our three fields of competence and the German market has proven to be successful. Even now, it is evident that this strategy has enabled us to sharpen our profile as an attractive main bank. A growing number of people now regard us not just as a top address for online brokerage, but as a leading all-round service provider of choice in terms of direct banks. And this is precisely what we are now building on. Our new growth and value added programme kicks off at the start of this year. As its name suggests, comvalue aims to proactively exploit the opportunities afforded by the market and strongly accelerate our growth. We intend to maintain our lead in online brokerage, acquire a significant market position in banking and to consistently promote the expansion of comdirect private finance as a first class financial advisory service which is represented in all the major conurbations. In short, we are investing in products, marketing and sales and, of course, in our staff. However, the bank is set to maintain profitable growth and its capacity to pay attrac- tive dividends. Our aim is to generate earnings that are not only significantly higher than in 2004 but also more stable and sustainable. By 2009, we intend to achieve pre-tax profit of €100m, which represents twice the income reported in financial year 2004, increasing the value of the bank long term. I should like to invite you to stay with us on this ambitious and worthwhile course. At the same time, I should like to thank you for the confidence you have placed in us during the past year. The recent record result testifies to the success of our turnaround and new strategic direction. Our business model and strategy have passed the test with flying colours and now, we are set full steam ahead for growth! With every good wish, Sincerely, Dr. Andre Carls CEO 4 Unique profile Management interview comdirect bank’s Board of Managing Directors, Dr. Andre Carls and Karin Katerbau, talk about comdirect bank’s programme for growth and the bank’s prospects in a wider competitive environment. Dr. Carls, Ms Katerbau, what exactly does the comvalue programme entail? Carls: In principle, the aim is to raise our profile and fast-track our establishment as a main bank for the modern investor. As the market leader in brokerage, with regard to new customer acquisition, we intend to focus even more on banking than in the previous year. This segment offers excellent market opportunities for our target group, the modern investor, with our current account as the key driving force. Katerbau: Indeed it is important to us to link our three fields of competence, Online Investment, Direct Banking and Financial Advisory even closer together and provide an all-encompassing service for our customers. comvalue is an integrated programme for growth. What is it going to cost and when does it kick off? Katerbau: We are forecasting additional growth costs of more than €50m between 2005 and 2007. These funds will be generated by operating activities. The programme started a while ago with marketing measures and the launch of our product offensive. We are also continuing to invest in the one-to-one capability of our entire infra- structure. Product offensive sounds good. Can you give us an example of this? Carls: Let’s look at our new current account, where instead of paying charges, our customers even get money back. Should customers wish to do so, they can auto- matically donate this money to charity via the bank. It’s a smart idea which has been very well received. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 5 If you are using funds from operating activities for the programme, then you are consciously forgoing profit. Is this not a little unreasonable on your shareholders? Katerbau: Our shareholders expect us to invest in growth, as the company’s sole focus is growth. Of course such investment has to be within reason, which means we will continue to be profitable in the next few years and will be able to pay a dividend. The measures we are taking as part of comvalue will increase the value of the company on a long-term basis. comdirect bank’s results should double and reach around €100m before tax by 2009. The results are set to be on a much more stable basis, with around 50 percent of earnings stemming from banking and advisory services in the future. With the growth strategy implemented in all three fields of competence, the number of competitors has increased. What impact has this made? Carls: First of all let me say that our profile is unique thanks to our three fields of com- petence, Online Investment, Direct Banking and Financial Advisory – or brokerage, banking and advice. The past year has shown that this has made comdirect even more attractive to many of our existing customers as well as many new ones. Life is very complex and our business model ensures that we have something to offer the modern investor at every life-stage. Katerbau: Focusing on our target groups is the right approach as the past year has shown. We perceive ourselves as the “one-to-one bank for the modern investor” with good reason. Today, we are in a position to precisely identify customer requirements, tar- get such customers and meet their needs accordingly. This is an area in which we excel. Where will comdirect bank be in three years’ time when the programme is completed? Carls: I’ll try to sum it up in one sentence: we will be the financial partner of choice for all modern, online investors who simply expect more from a bank than standard services and products. This is what our motto the “one-to-one bank for the modern investor” stands for. The basic structures are already in place. comdirect leads the field in online brokerage. In banking, we have been able to position our current account in the market within a very short space of time and are aiming to gain significant market share. Through comdirect private finance we offer customers comprehensive, fully integrated and intelligent advisory services on complex financial matters, which have been very well received. I am convinced that our status as a first class provider will soon apply to all our fields of competence in a wider competitive environment. “What do I want from my bank? Well, everything. For example, good investment opportunities, reliable account management, quicker technology and clever advice. And I want all this simply, quickly, cheaply from under one roof.” “ “What do I want from my bank? Well, everything. For example, good investment opportunities, reliable account management, quicker technology and clever advice. And I want all this simply, quickly, cheaply from under one roof.” “ “Oh – did I forget anything?” Well educated, mobile, open to new experiences, career-minded and ambitious, online, a high earner … and quite demanding. This is the typical modern investor. Around 6.4 million German households fit this profile and more than 600,000 modern investors are customers of ours. This makes us a prime port of call for this demanding target group, and looking more closely, we can see that this is just the beginning. In order to sharpen up our profile as the main bank for today’s investor, 2005 will see our continued investment in our fields of com- petence of Online Investment, Direct Banking and Financial Advisory. * zeb study: “Rentabilitäten im Privatkundengeschäft“, 2002 (Profitability of private client business); comdirect bank calculations 6 The one-to-one bank steps up a gear Growth and value added programme, comvalue The level of business activities in 2004 clearly confirmed our strategic focus as a one-to-bank for the modern investor and created the basis for our ambitious programme for growth and value added, comvalue. More customers, more assets, increased earnings, lower costs and a 30 percent increase on the record pre-tax profit achieved in the previous year – at the end of 2004 comdirect bank was in better shape than ever. The past year has confirmed that broad- ening our business model has been the right strategy: brokerage, banking and advice – each geared towards the needs of the clearly defined customer group that is the modern investor. Despite the adverse market conditions in 2004, this model has proved very successful and we are now stepping up a gear to accelerate our growth through the comvalue programme. Our financial targets are clear: within the next five years we intend to double our pre- tax profit from just over €50m in 2004 to around €100m in 2009. We also aim to make fundamental improvements to the structure of earnings. Around half our future earnings should come from Direct Banking and Financial Advisory. comdirect bank will not just generate more income but more income on a stable and sustained basis, without losing the potential for particularly good earnings when stock markets are on the upward trend. comvalue is set to add value to comdirect on a sustainable, long-term basis. Under comvalue, in 2005, 2006 and 2007 we will be investing some of the anticipated profit in sales and marketing, new products, improved services and the further expansion of our technology infrastructure. In total, the additional expenditure will amount to more than €50m. Spread across three years, this is a manageable sum and we intend to remain profitable and be able to pay a dividend at all times. Market offensive focuses on banking services In terms of our fields of competence, our programme for growth will focus primarily on banking products and services, without, however, losing momentum in our online brokerage and advisory services. In the current capital market environment, Direct Banking offers the greatest growth potential. With an enhanced product range, a current account offering excellent features and attractive terms for our fixed-term deposits, we will instantly be able to attract those customers looking for a better bank. Developments in 2004 confirm that this approach is right, as do all the customer and market research surveys. As the leading provider in Online Investment, we will continue to offer active traders and investors the first rate services that originally made us the market leader in this segment. Our expansion plans for comdirect private finance will continue as scheduled until we have teams in all the major conurbations. Our emphasis Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 7 here remains on highly qualified advisers and we will not sacrifice quality for the sake of rapid expansion. comvalue therefore stands for clear quality targets. Our aim is to establish ourselves as a unique bank for the modern investor – the market leader in Online Investment, a first class provider in Direct Banking and an expert in Financial Advisory services. This combination makes comdirect bank unique in Germany. Now is the right time for comvalue, as our market offers enormous opportunities. 6.4 million households in Germany presently fit the profile for our target group of modern investors. Demand for financial services in brokerage, banking and advice from this group is already generating an annual revenue of around €9.4bn. This market, in which we are now established, offers huge potential and we will continue to exploit the asscociated opportunities. The market is growing. As more and more online transactions are carried out on a daily basis, the number of modern investors happy to use the internet is increasing. Private provisioning is also becoming an important topic for an increased number of people. These trends demonstrate that our business model and market offensive are the right choice. We are confident that comdirect, in particular, will benefit from the growth in this market. Business model and strategy at a glance comdirect is evolving into a bank with a unique profile: A focus on the modern investor: this type of customer is happy to conduct advanced online brokerage and internet banking as well as to seek professional advice on personal finances and has an above-average income. 6.4 million households in Germany fit this profile. Three fields of competence: with Online Investment, Direct Banking and Financial Advisory we cover all the main financial areas for the modern investor. Quality provider: the highest standards in terms of products and services, the best online support, top quality financial advice – these are the attributes that will make us the partner of choice for our customers. One-to-one leading edge technology: with the aid of the latest internet technology, we are linking efficient online processes with personalised customer services. 8 In a class of its own comdirect’s fields of competence There have been significant developments in all three fields of competence in 2004 with more products, improved services and transparent pricing. As a result, we are now the main bank for more and more customers. A one-stop shop for brokerage, banking and advice offering top quality and intelligent products and services direct to the customer. Our online capability guarantees efficiency and our offline services add that necessary personal touch. In Germany, our unique profile sets us apart from the competition. Online Investment: leading the field We are the market leader in Online Investment and have been setting the standard for the industry for many years; 2004 was no exception. Our activities centred on the launch of our new pricing model, which is readily comprehensible and therefore ensures greater transparency. One major advantage under the new model is that customers who pool many of their transactions with comdirect are entitled to price discounts. This is just one of the reasons why the new pricing model has been well received by our customers. Another focus in Online Investment was to raise our profile as the partner of choice for frequent traders. Although only small in number, this customer group is very important to us. We have therefore implemented a series of improvements in trading, setting the standard in the industry. The number of no-fee campaigns totalled eleven following a significant increase from that of the previous year. This allowed our customers to trade in warrants and certificates from top providers free of charge. It has also ensured value added for online traders, enabling them to integrate attractive leveraged products free of charge as part of their investment strategies. The new no-fee basic version of TraderMatrix offers real-time quotes from our key trading partners in LiveTrading as well as real-time prices for equities and derivatives on the Stuttgart stock exchange. The TraderMatrix subscriber system includes the complete range of prices for Eurex and the Chicago Mercantile Exchange, currencies and US indices. Our professional front-end, ProTrader, is now equipped with 30 percent faster page downloads and flexible time-based session structures. The user group has also been expanded considerably, with ProTrader currently available free of charge to all traders carrying out at least 125 orders per half year. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 9 comdirect bank offers its customers a convincing range of products and services for long-term asset accumulation via securities. This provides comdirect customers with access to a range of more than 5,600 funds, making it one of the biggest fund offer- ings in Germany. These features are favourable, with comdirect offering a discount of up to 100 percent on the front-end load for over 3,900 of the funds. This discount is also available on the funds of the month, which have generally performed well in previous years. Fund and certificate-based savings plans are currently very popular and this is no exception at comdirect bank. We have therefore almost doubled the selection of certificates available for savings plans from 13 to 25. Our range of 100 funds available for savings plans includes top new funds selected in accordance with our strict quality criteria. Direct Banking: heading for the top In Direct Banking we moved into the group of leading providers on the product and services sides within a very short space of time and have been given top marks for our performance. We were awarded third place for service quality out of over 100 financial institutions examined in a test carried out by the magazine Capital. More important of course is the acceptance of our customers. We increased the number of current accounts by almost 20,000, thanks in part to our comdirect special fixed-term deposit campaigns. The very favourable terms and conditions of comdirect’s current account appeal to customers, resulting in strong growth. Our current account offers interest on credit balances and no-fee withdrawals from over 7,600 ATMs. EC/Maestro and Visa cards are free of charge, as is the account itself, provided that at least €1,250 is paid into the account each month. Starting in 2005, some customers will even have account charges refunded. Our range of cards is set to be complemented during the first quarter of 2005 with comdirect’s American Express card. It offers the same benefits as the acclaimed Linear, individual and transparent – the new pricing model Our new pricing model offers advantages for active customers. Now, more than ever, customers benefit from making comdirect their main bank. The key changes at a glance: Order fees are no longer calculated using flat-rate price tiers but using a basic fee plus a percentage of the order volume, making them quick and easy to calculate. No custody account charges are applied for anyone executing at least two trades per quarter, or using a current account in addition to their custody account, or for anyone paying into a savings plan. comdirect rewards customers who pool their banking transactions with the bank. Frequent traders reap double benefits: for many online investors the order amend- ment and limit fees no longer apply, and for 125 trades or more in the previous half year we refund 15 percent of the order fees. Partial execution fees for same-day XETRA orders have been completely abolished, setting new standards in the industry. 10 Amex Gold card, but with a considerably lower annual fee which is exclusive to our customers. We have also been awarded good marks for our product range for investment. For example, for time deposits amounts as low as €500 can be invested for a term of up to 60 months with comdirect at an attractive rate and investors can now renew the term online. Direct Banking has proved itself to be a key link in customer relationship management and a lever for successful cross-selling. A large number of our new customers have opened custody accounts alongside their current accounts and are using other products from the wide range offered by comdirect bank, such as our standard fixed-term deposit accounts with attractive interest rates. Conversely, many of our long-standing brokerage customers are now carrying out their daily financial transactions via a comdirect current account. Cross-selling effects are therefore already apparent. Financial Advisory: a credible partner Our wholly-owned subsidiary comdirect private finance AG, responsible for Financial Advisory, increased the number of its offices by five to a total of eight by the year-end. comdirect private finance teams are already active in Düsseldorf, Frankfurt, Hamburg, Stuttgart, Berlin and Munich, and four more offices will be established in 2005. Growth in our advisory services has been constant and the number of customers at the year-end exceeded expectations, while start-up losses were significantly lower than forecast. Financial Advisory enables us to offer our customers the right solutions and financial products for all life-stages, highlighting the advantages of our claim to be the one-to- one bank for the modern investor. The fact that, as in Online Investment, we offer an Tailor-made provisioning and asset planning comdirect bank’s Financial Advisory is wholly based on quality. Surveys show that four out of five customers are happy or very happy. The key features are: Comprehensive: we analyse the financial and provisioning situation of our customers and develop a tailor-made solution geared to life-stage, income and aims. Advisory expertise: comdirect private finance only uses self-employed advisers with many years’ experience in investment and insurance matters. Independent: our objectivity in terms of product provider and provisioning format is an integral part of our business model. Product range: we only act as brokers for products from quality assured providers – but our offering is unusually extensive, ranging from top life assurance products, annuity insurance and health insurance to best-in-class investment funds and alternative high-yield investments such as closed-end funds. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 11 objective range of products and providers makes us a particularly credible partner. Four out of five customers surveyed consider comdirect private finance advisers to be highly competent and provide top quality products and services, particularly when directly compared with established competitors. The response from customers here has been very positive and shows that we are building up an extremely valuable business. Moreover, Financial Advisory promotes links between our fields of competence, and this is impacting positively on brokerage and banking. As a result of our advisory services, many customers open current accounts or set up custody accounts and their demand for other products also increases. Overall, the same is true of the individual competences and for comdirect bank as a whole: better performance, more products, more bank for everyone. Our advertising slogan – “people who want more come to comdirect” – is more than just words. comdirect private finance offices Hamburg Berlin (2 offices) Düsseldorf Cologne (since 31.1.2005) Frankfurt Stuttgart Munich (2 offices) Contacts: D-10969 Berlin, Zimmerstrasse 23, Tel: +49 30 25 75 88-0 D-50674 Köln, Moltkestrasse 25, Tel: +49 2 21 13 0817-0 D-20354 Hamburg, Poststrasse 12, Tel: +49 40 69 45 54-0 D-60327 Frankfurt, „Kontorhaus“, Mainzer Landstrasse 181, Tel: +49 69 25 66 96-0 D-40476 Düsseldorf, Schwannstrasse 6, Tel: +49 211 5136 96-0 D-70178 Stuttgart, Rotebühlstrasse 121, Tel: +49 711 63 35 78-0 D-80636 München, Arnulfstrasse 126, 6. OG, Tel: +49 89 68 90 64-0 12 Operating excellence comdirect bank’s one-to-one approach We see ourselves as the one-to-one bank for the modern investor. In line with this profile, we further developed all our business lines in 2004 to create the basis for the programme for growth, comvalue. The future starts now. Our perception of ourselves as a one-to-one bank for the modern investor applies to all levels of the company. The requirements relating to this profile are highly complex. On the one hand we aim to provide customers with a personal service in line with their requirements, and standardised, off-the-peg solutions are of little help in this regard. On the other hand, we want to achieve cost benefits compared to traditional banks as a result of our focus as an online bank with leading edge technology. To make our one-to-one claim a reality, all the procedures and processes in the bank must be geared towards this aim, be highly efficient and supported by the best technology. The past financial year has seen progress across the bank reflecting our efforts to achieve this aim. Modern personnel development In terms of staffing, we have translated the many requirements for employees of a one-to-one bank into a competence model, and used this to develop career paths. On this basis we have also completely overhauled our compensation system, which is now more transparent than ever, offers clear performance incentives and highlights the possible professional development opportunities for everyone in the bank. The competence model also forms the basis for strategic staff and organisational develop- ment, a key factor for a one-to-one bank. For the first time in four years we have taken on new staff. At the year-end, the number of employees in Germany totalled 616 (2003: 512). Active customer contact even more successful For customers, the one-to-one banking experience is primarily a matter of good service. We have carried out a number of projects to enhance the level of service we provide. The high levels of customer satisfaction expressed in customer surveys are an important indicator for the quality we offer. Parallel to expanding our product range in Direct Banking, we have trained our personnel in new products and optimised the technical side of our processing procedures, such as credit assessments, so that they are suitable for large volume processing. Another clear step on our path as a one-to-one bank is our proactive approach to customer contact, making customers aware of selected products they may find attractive. We have been particularly successful in contacting inactive customers, many of whom Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 13 have been re-activated. We also have a specially trained customer service team, which is working for comdirect private finance and has met with very good response from customers. This is a good example of how we create synergies between the fields of competence. In our marketing activities, we raised the stakes compared to the previous year. “People who want more come to comdirect”: in traditional advertising, this slogan has been used to highlight the advantages of comdirect. This enabled us to gain more customers and, in particular, more high-income customers than ever before. We have contacted customers 6.2 million times during 100 campaigns through traditional direct mail campaigns and by sending messages to customers’ mailboxes (PostBox) on the comdirect platform. On the whole, we benefit enormously from previous investment in customer research and campaign capabilities. We are now in a position to contact even small customer groups on a targeted basis, for example when front-end loads on fund-based savings plans change. Our aim for the future is to make customer contact even more individual. Behind this, lies the vision to reach customers automatically via the perfect one-to-one campaign. Customers are offered what they want when they want it and via the fastest and most cost-effective route, which is online. As their financial partner of choice, we provide this service. Pioneering one-to-one applications Naturally, such a vision is contingent on a high degree of technical competence – an area in which comdirect has excelled from the start. The one-to-one concept is playing an increasingly important role in our IT. As part of our growth and value added programme, comvalue, we will be further developing our IT environment to meet these targets. We revised our IT strategy in 2004 and carried out the necessary work on a concept that ensures that all applications, systems and processes are contributing to comdirect bank’s one-to-one capability. Enhanced automation coupled with increased personalisation and online processing optimisation across all three fields of competence are just some of the topics we are addressing to move us forward as a one-to-bank. As a leading company in terms of sophisticated online technology, we are one of the pioneers in the field. We have maintained our operations at a con- sistently high level. Key tasks here were the launch of our new pricing model and the consolidation of our server environment. Overall, we have confirmed our leading position in terms of technology. The tasks facing us as a bank have been extensive, but we have mastered them capably whilst keeping a tight rein on costs. For the third year in a row, we have considerably reduced the cost/income ratio, from 74.2 percent in 2003 to 66.8 percent in 2004. Earnings per customer rose by €13 to €246, while costs decreased by €15 to €163. “I know what I’m doing when it comes to finance. And this is precisely why I value an adviser who really knows his onions.” “I know what I’m doing when it comes to finance. And this is precisely why I value an adviser who really knows his onions.” “Weird? Logical, I’d say.” comdirect private finance may still be in its infancy, but it is already one of the major cornerstones of our business model. The tailor-made advice we offer is helping us to sharpen our profile as a one-to-one bank, and to respond to the requirement many of our customers have for professional advice in their long-term retirement and asset accumulation planning and in the process, we are opening up interesting sources of income. By 2010, today’s 25 to 55 year-old modern in- vestors – a group where we are overproportionally represented – are set to provide at least 11.4 billion euros of banks’ earnings. 2.3 billion of this will be attributable to insurance.* We will profit from this development. * German Department of Statistics: “Population of Germany to 2050”, 2004; zeb study: “Rentabilitäten im Privatkundengeschäft“, 2002 (Profitability of private client business); Deutsche Bundesbank: “Monthly report for June 2004”; comdirect bank calculations 14 The share Holding steady after record performance After having tripled in 2003, the comdirect share price has held steady in 2004. The rise in trading volume also shows the growing interest of investors in our share. With big price increases at the beginning of the year, then a counter-trend up until Shareholders’ structure of late summer followed by a clear upturn in the fourth quarter, the development in comdirect bank AG comdirect’s share price has largely been in line with the German stock markets. On Commerzbank AG* 30 December 2004, the share closed the year at €7.16, 2.3 percent down on the T-Online International AG previous year’s closing quotation of €7.33. After a top performance in 2003, when Free float the comdirect share climbed 181.9 percent, making it the fastest growing MDAX *indirectly stock, our share has on the whole held steady during 2004. Shareholders have also profited from the distribution of the first dividend of €0.16 per share, corresponding 58.64% 21.35% to a total distribution of €22.48 million. While the comdirect share held steady in 2004, the comparative indices which our 20.01% share clearly outperformed in the previous year, have made up ground. The DAX climbed 7.3 percent to 4,256.08 points (previous year 3,965.16). The MDAX, which we joined on 22 September 2003, stood at 5,375.74 points at the end of 2004, up 20.3 percent on the previous year. The Prime Financial Services Price Index, which tracks the price development of financial services providers excluding major banks and real estate banks, closed the year with a rise of 16.6 percent. Development of share price of comdirect share 30.12.2004 to 7.2.2005 (in €) comdirect share MDAX (normalised to value of comdirect share) 10 9 8 7 6 5 Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 15 Share price performance comdirect’s share price got off to a flying start in 2004. Thanks to its outstanding results for financial year 2003 and a strong first quarter for the markets, the comdirect share price remained above €8 right through to April. On 11 February, shares reached the highest price for the year of €9.50. Although we are gradually reducing depend- ency on order activity, our share price was affected in the following months by a downturn in stock market trading. Coupled with profit-taking, this caused the share to drop to its lowest level of €5.04 on 12 August 2004 – a level which was then quickly corrected by the market, bringing the price back up to over €6. Following the publication of the nine-month figures, which proved to be better than market players had expected, and a brighter outlook for the equity markets, the comdirect share price continued to recover from the beginning of November to reach its year-end price of €7.16. Turnover Positive developments in comdirect bank’s earnings situation and its strategic further development have significantly increased investors’ interest in the share. During the year under review, this led to considerably improved liquidity. The daily turnover in units rose on average by 14 percent to 136,448. At almost 24 percent, the rise in XETRA trading was particularly strong. Overall 72.8 percent of trading took place on XETRA (previous year: 66.9 percent). This reflects the increased involvement of institutional investors who execute most of their trades using electronic marketplaces. Compared to 2003, the trading volume in value terms rose by 41.3 percent to €257.1m; over the year, we achieved a daily trading figure of €1.0m. comdirect share – daily turnover 2004 in units XETRA FFM Other Average 2003 stock exchanges 200,000 150,000 100,000 Source: Deutsche Börse AG 50,000 0 1 2 3 4 5 6 7 8 9 10 11 12 16 As of 30 December, our share was listed in six Deutsche Börse selection and bench- mark indices. Index Description Shares comdirect bank listed weigthing in %* MDAX Mid cap companies from traditional sectors, which in terms of market capitalisation and share turnover are ranked directly after the DAX companies 50 0.36 HDAX All DAX, MDAX and TecDAX shares 110 0.04 Prime All Share All shares listed in the Prime Standard 369 0.04 Prime Financial Services Financial services providers listed in the Prime Standard segment (excluding major banks and real estate banks) 17 2.27 Classic All Share Shares from traditional sectors listed in the Prime Standard 185 0.27 Mid-Cap Market All DAX and TecDAX shares 80 0.29 * measured in terms of market capitalisation of free float shares Investor Relations We have expanded our Investor Relations activities in 2004 to support the growing interest shown by portfolio managers and financial analysts in comdirect bank. The aim of our financial communications is to provide capital market players with fast and comprehensive information together with easy access to prepared data. Our quarterly figures are made available within 21 days in each case, significantly faster than the 45 day deadline specified by the German Corporate Governance Code. Moreover, in line with international standards, in August 2004 we became the first German bank to provide monthly information on key indicators (see page 24). We have used conference calls to give investors and analysts information regarding the quarterly figures as well as to explain our reasons for the sale of our British sub- sidiary – comdirect ltd – in June 2004. In each case these took place only a few hours after publishing the ad hoc notification. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 17 We presented the company to institutional investors during nine road shows and at Data and key figures on comdirect four conferences. We also participated in the CAI Cheuvreux German Corporate share Conference (Kronberg/Taunus Germany) in January, the WestLB German Mid&Small German Securities Cap Conference (London) in May, the Deutsche Bank German Corporate Conference code no. 542 800 (Frankfurt/Main) in June and the Deutsches Eigenkapitalforum (Frankfurt/Main) in ISIN code DE0005428007 November. In addition, we held many personal meetings with investors and analysts. Stock-exchange code COM comdirect bank is now regularly assessed by analysts from 13 (previous year: 10) research Reuters: CDBG.DE institutes. Bloomberg: COM GR Stock-exchange We have significantly enhanced our information offering for institutional and private segment MDAX investors as well as potential investors. The recordings of the annual analysts’ confer- Number of shares ence and quarterly conference calls regarding the quarterly figures are available on our issued 140,507,750 no-par-value website (www.comdirect.de/ir) along with the slide presentations. Interested parties shares can access our Annual Report quickly and easily via the internet. The online version of Designated Sponsor Commerzbank AG the Annual Report, provided for the first time in 2004, offers not only easy navigation through the text and a full text search facility, but also allows users to compare key Performance 2004 figures using the Quick Analyser function. By the end of the year, around 4,400 Average daily turnover in units visitors had accessed the interactive Annual Report. The printed version can be XETRA 99,382 ordered free of charge from the bank at www.comdirect.de/ir and also from a large Frankfurt 26,007 number of agencies. Other stock exchanges 11,059 136,448 Opening quotation XETRA (2.1.2004) €7.35 Highest price XETRA (11.2.2004) €9.50 Lowest price XETRA (12.8.2004) €5.04 Closing quotation XETRA (30.12.2004) €7.16 Market cap (30.12.2004) €1,006.0 Mio. Key figures per share 2003 2004 Earnings per share in € 0.17 0.24 Dividend per share in € 0.16 0.24 1) Dividend yield 2) in % 2.18 3.35 3) P/E Ratio 43.1 29.8 1) Dividend proposal 2) Based on closing quotation in each case 3) Based on closing quotation and net profit “If I tell friends that I’m still trading shares, they give me that pitying look, a bit like: Is he mad? After everything that’s happened on the stock exchange? Much too risky!” “If I tell friends that I’m still trading shares, they give me that pitying look, a bit like: Is he mad? After everything that’s happened on the stock exchange? Much too risky!” “Then I always tell them: No worries – I’ve got a good partner.” Today’s investors spread their invest- ments around a great deal more than they used to even just a few years ago. Shares, warrants, certifi- cates, funds – they make use of the whole spectrum of investment products. We support this with highly developed information tools and a range of products extending from simple savings plans to professional trading front-ends. According to our understanding, online investment is a growth market with immense potential. The amount spent on financial products in our target group will have risen by 22 percent by 2010.* The largest share of this will be accounted for by securities. And in this area, we are unbeatable. * German Department of Statistics: “Population of Germany to 2050”, 2004; zeb study: “Rentabilitäten im Privatkundengeschäft”, 2002 (Profitability of private client business); Deutsche Bundesbank: “Monthly report for June 2004”; comdirect bank calculations 18 Corporate Governance Responsible company management at comdirect bank AG The overall management of the bank is aimed at increasing the value of comdirect bank, and therefore the shareholder value, long term. With our focus on the interests of our shareholders, internationally recognised high standards in company management and controlling are a matter of course at comdirect. These are used as the benchmark for all strategic and operational measures. Trustworthy cooperation between the Board of Managing Directors and the Supervisory Board, efficient risk management, a transparent and appropriate compensation system and comprehensive and timely financial information are all key features of the Corporate Governance Standards at comdirect bank. These Standards are continually developed in line with the German Corporate Governance Code (GCGC). Consequently, the Board of Managing Directors and the Supervisory Board decided in March 2005 to disclose the compensation received by their members on an individualised basis from financial year 2004 onwards. In the Report of the Supervisory Board, the bank's supervisory body renders account of its activities during the financial year. The report includes the findings of its first efficiency review. In the Corporate Governance report, the Supervisory Board and the Board of Managing Directors provide detailed information on the measures performed in relation to corporate governance and control. The report also provides a comprehensive explanation for deviations from the recommendations and suggestions of the Code. The Compensation report by the Board of Managing Directors and the Supervisory Board outlines the main elements of the compensation system and gives a breakdown of the compensation received by the Board of Managing Directors and the Supervisory Board in the financial year. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 19 Report of the Supervisory Board Cooperation between the Board of Managing Directors and the Supervisory Board The Supervisory Board worked in close partnership with the Board of Managing Directors of comdirect bank AG in financial year 2004, providing regular advice and monitoring the management of the company. We have also complied with the legal framework conditions and the bank’s Articles of Association and have used the German Corporate Governance Code as a guideline. We have comprehensively carried out all of the duties specified by these rules and regulations. The Board of Managing Directors has agreed the continued strategic development of comdirect bank with us, based on the bank’s “one-to-one-bank for the modern investor” approach. The Board of Managing Directors has discussed the process of implementation with us at regular intervals. We were directly involved in all company decisions of vital importance, including all measures which may significantly affect comdirect bank’s situation regarding assets and liabilities, financial position or earnings. The Board of Managing Directors provided us with regular written and oral reports on the situation and development of comdirect bank AG and its subsidiaries. We received full and timely reports on all major business transactions, fundamental issues of business policy, management and corporate planning. In addition, the Chairman of the Supervisory Board was continuously given detailed information on all events that were of significant importance for the assessment of the situation and development as well as for the management of the company. He maintained frequent contact with the CEO and conferred with him on the strategy, business development and risk management of the comdirect bank group. He received all minutes of the meetings of the Board of Managing Directors and arranged for important matters to be addressed by the Supervisory Board committees. Main focus in 2004 The Supervisory Board met at five regularly convened meetings in the 2004 financial year: on 4 March, 28 April (before and after the annual general meeting held on the same day), 30 July and 29 October. The Supervisory Board also concluded addressed changes to the composition of the Board of Managing Directors at an extraordinary meeting on 9 November. Every member of the Supervisory Board took part in at least half of the meetings. Strategic decisions of crucial importance included the sale of the London subsidiary, comdirect ltd, in June 2004 and the debate regarding the growth programme for 2005. Both measures were unanimously resolved after intensive scrutiny of all options and careful consideration of opportunities and risks. 20 We also focused on the following issues in our discussions: the profit-and-loss transfer agreement of comdirect bank AG with comdirect private finance AG in preparation of the agenda for the 2004 annual general meeting; the overall risk strategy of comdirect bank; in particular, the further development of credit risk strategy in line with the minimum requirements for the lending business of financial institutions (MaK) and the bank’s risk management system were discussed in detail; the new pricing model for comdirect bank AG and its impact on the business model and income statement. Efficiency of Supervisory Board activities Where necessary under the law and the Articles of Association, the Supervisory Board approved the transactions submitted to it. To increase the efficiency of Supervisory Board activities and how complex matters are dealt with, we referred some matters to be dealt with by us to committees as in the previous year. On 4 March, the Audit Committee of the Supervisory Board dealt with the preliminary examination of the financial statements and dependency report as well as the independence of the commissioned auditors for the company and the group accounts. At its meeting on 12 March 2004, the Presiding Committee concerned itself with the issue of compen- sation of members of the Board of Managing Directors. A detailed report of activities of the committees was provided at the Supervisory Board meetings. The Supervisory Board reached decisions by means of written circulars, including those regarding the amendments to Rules of Procedure of the Board of Managing Directors and the Audit Committee and amendments to the Articles of Association necessary due to the change in share capital and conditional capital following the exercising of stock options. In line with Section 5.6 of the German Corporate Governance Code, the first efficiency audit of the Supervisory Board was carried out at the beginning of the financial year. At the meeting on 4 March, the Chairman of the Supervisory Board informed members of the findings of the questionnaire previously completed by them. Full details are pro- vided in the joint Corporate Governance report by the Board of Managing Directors and the Supervisory Board in accordance with Section 3.10 of the Code (see page 23ff.). At the same meeting, the new version of the Declaration of Compliance in accordance with Art. 161 of the German Stock Corporation Act (AktG) was approved. As in the previous years, there were no conflicts of interest among Supervisory Board Members as defined by Section 5.5 of the Corporate Governance Code during finan- cial year 2004. The Supervisory Board commissioned the auditors elected by the annual general meeting on 28 April 2004, BDO Deutsche Warentreuhand Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Hamburg, to conduct the audit for financial year 2004. We have obtained a certificate of independence from the auditors. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 21 Approval of the financial statements and dependency report The financial statements of comdirect bank AG (according to HGB and IFRS/IAS), the management report of comdirect bank AG (according to HGB) and the consolidated financial statements and the combined management report (according to IFRS/IAS), including the book-keeping for financial year 2004, have been examined by the audi- tors and issued with an unqualified certification. The financial statements documentation and the auditors’ reports were made available to the members of the Supervisory Board in good time. The auditors who signed the financial statements took part in today’s meeting of the Audit Committee and the subsequent meeting of the Supervisory Board dealing with the approval of the annual accounts. They reported on the key findings of the audit and answered questions. The result of the audit was thoroughly discussed with the Audit Committee. The Audit Committee then proposed to the Supervisory Board that the financial statements be approved. The Supervisory Board has acknowledged the results of the audit. Within the scope of the legal provisions, it has examined the financial statements and management report, the consolidated financial statements and group management report and the proposal of the Board of Managing Directors for appropriation of the distributable profit and raised no objections. At today’s meeting, the Supervisory Board approved the financial statements and the consolidated financial statements presented by the Board of Managing Directors. Accordingly, the financial statements are to be regarded as adopted. The Supervisory Board endorses the proposal for appropriation of the dis- tributable profit. Furthermore, the report of the Board of Managing Directors on the bank’s relationship with affiliated companies was also submitted to the Supervisory Board, together with the associated auditors’ report. The Supervisory Board examined the report of the Board of Managing Directors and found it to concur with its own findings and those of the auditors’ examination. After completing the examination, the auditors raised no objections to the report of the Board of Managing Directors and gave it the following unqualified certificate: “After conducting our audit in accordance with professional standards, we confirm that 1. the actual details of the report are accurate, 2. the fees paid by the company for the legal transactions detailed in the report were not disproportionately high.” After completing the examination, the Supervisory Board finds no cause for objection to the concluding statement by the Board of Managing Directors concerning the rela- tionship with affiliated companies. As part of their audit, the auditors also assess whether the Board of Managing Directors has implemented a monitoring system and has fulfilled the legal requirements concerning the early detection of risks that are likely to threaten the existence of the company. The auditors have confirmed that the risks described in the management report are presented accurately and that the measures taken by the Board of Managing Directors according to Section 91 (2) of the German Stock Corporation Act (AktG) are conducive to the early detection of developments that are likely to threaten the continued existence of the company. 22 Board of Managing Directors – changes Due to the appointment of Dr. Achim Kassow, former CEO at comdirect bank AG, to the Board of Managing Directors at Commerzbank AG, the Supervisory Board immediately convened an extraordinary meeting of the Supervisory Board to resolve the new division of tasks within the Board of Managing Directors. On the recommen- dation of the Presiding Committee, we unanimously elected Dr. Andre Carls CEO effective from 10 November 2004. Also unanimously, we appointed Karin Katerbau as member of the Board of Managing Directors for a period of three years. On 2 December 2004, the German financial supervisory authority (BaFin) confirmed that it took Karin Katerbau’s directorship as given. Dr. Achim Kassow continued to carry out the duties of a member of the Board of Managing Directors until the legal require- ments for the appointment of Karin Katerbau were fulfilled. As soon as Karin Katerbau could take up office, Dr. Kassow left the Board of Managing Directors of comdirect bank AG. We would like to take this opportunity to thank him for his excellent work and his strong commitment to comdirect bank and its shareholders. Election of the Supervisory Board At the annual general meeting on 28 April 2004, the shareholders’ representatives on the Supervisory Board were re-elected by large majority for a further five-year term. On 2 March 2004, the employee representatives were elected. Mitja Sack has been newly appointed to replace Maria Xiromeriti in the Supervisory Board role with effect from 28 April 2004. The Supervisory Board wishes to thank Maria Xiromeriti for her commitment to the company. In the constituent meeting following the annual general meeting, Martin Blessing was elected Chairman and Klaus Müller-Gebel, Deputy Chairman. Thanks for excellent performance We would like to thank the members of the Board of Managing Directors and all employees of comdirect bank for their excellent performance throughout 2004. It is because of their commitment and expertise that comdirect bank has been able to develop so positively despite some adverse circumstances. We would also like to thank the staff council for their committed and constructive cooperation in the interest of comdirect bank AG. Frankfurt, 4 March 2005 The Supervisory Board Martin Blessing Chairman Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 23 Corporate Governance at comdirect bank AG Joint report by the Supervisory Board and the Board of Managing Directors of comdirect bank AG pursuant to Section 3.10 of the German Corporate Governance Code At comdirect bank, corporate governance and control is based primarily on the requirements of the German Corporate Governance Code (GCGC). Following the resolution to disclose the individual compensation paid to the members of the Board of Managing Directors and the Supervisory Board, comdirect bank has implemented all the recommendations of the Code with the exception of one. The bank has also complied with most of the suggestions. Compliance The Government Commission did not make any changes to the GCGC in 2004 and we therefore did not need to make any comprehensive changes to our Corporate Governance Standards. Our Articles of Association, in their current version, and the Rules of Procedure for the boards comply with all requirements of the Code. During financial year 2004, there were no deviations from the Declaration of Compliance applicable for the period. There were no conflicts of interest. In order to implement the Code even more efficiently in future, the Board of Managing Directors and the Supervisory Board have appointed Joachim Herms, Head of Legal Affairs/Compliance as the Corporate Governance Officer with effect from 29 October 2004. Subjects covered by Supervisory Board efficiency review Efficiency review by the Supervisory Board Committees (number of meetings, topics, At its meeting on 4 March 2004, the Supervisory Board of comdirect bank conducted focus) a review of the efficiency of its activities (see box). All members of the Supervisory Information provided to Supervisory Board by Board of Managing Directors (up-to- Board took part in the review. Areas for improvement were identified using a detailed date, comprehensible, in-depth) questionnaire. In all areas it was noted that comdirect bank already has very efficient Meetings (number, topics, focus) corporate controls in place. Only a few suggestions were made regarding the work of Confidentiality the Supervisory Board and the activities of the committees, such as the timescales Composition of Supervisory Board (competencies, independence) within which the Supervisory Board should be informed of strategic subjects. The division of labour between the Supervisory Board and the committees was judged to be appropriate. The Supervisory Board has discussed the improvement suggestions with the CEO and in future these will be taken into account as part of the co- operation between the two boards. The Supervisory Board intends to conduct an efficiency review of its activities at least every two years. Shareholders and the annual general meeting 83.99 percent of the share capital was represented at the annual general meeting on 28 April 2004 at the Chamber of Commerce in Hamburg. comdirect bank had made all the required reports and documentation available beforehand, including on its website. All items on the agenda for resolution, including the new election for the Supervisory Board and the renewal of authorised capital, were passed by majorities of between 99.92 percent and 99.99 percent. The Chairman of the Supervisory Board outlined the key elements of the compensation system to the annual general meeting. The speeches by the Chairman of the Supervisory Board and the CEO were broadcast on the internet. 24 Transparency comdirect bank complied with all the recommendations of the Code on transparency in financial year 2004 and, with regard to the publication deadlines for financial reporting, has in some cases more than exceeded the recommendations. The Code recommends that quarterly reports be published within 45 days while comdirect bank published its quarterly reports within 22 days in each case. In line with international standards and in a pioneering move for Germany, comdirect has been publishing monthly key indicators for its operating business on the fifth bank working day of the following month since August. The acquisition or disposal of shares of the company by members of the Board of Man- aging Directors or the Supervisory Board was advised immediately in line with the require- ments of the Code. In financial year 2004, a total of 5,000 shares of the company were ac- quired by the then CEO Dr. Achim Kassow on 27 August 2004 at an average price of €5.63. Enhanced Declaration of Compliance On 29 October 2004, the Board of Managing Directors and the Supervisory Board decided not to continue the bank’s own Corporate Governance Standards, which had previously been published separately, because the Standards are so closely based on the German Corporate Governance Code. In future the bank will use the Code exclusively. The wording of the bank’s Corporate Governance Standards agreed largely with that of the Code and therefore did not provide shareholders with any additional information. Of particular relevance is the Declaration of Compliance to be furnished each year jointly by the Board of Managing Directors and the Supervisory Board; this directly indicates any present or future deviations from the Code. As a result, we have enhanced the Declaration of Compliance issued on 4 March 2005 to include statements regarding the suggestions in the Code in order to provide even greater transparency. Implementation of Code recommendations Given the public debate on whether or not the compensation paid to members of Boards of Managing Directors and Supervisory Boards is appropriate, we have decided to make the information provided even more transparent. In the Compensation report (see page 26f.) we explain the individual compensation components in detail. In addition, in the notes (see page 90) we disclose for the first time the different com- pensation components for the members of the Board of Managing Directors and the Supervisory Board on an individualised basis. comdirect bank is therefore complying with the recommendations under Sections 4.2.4 and 5.4.5 of the Code in the version dated 21 May 2003 and now only deviates from one recommendation as follows: In Section 4.2.2 the Code recommends that, at the proposal of the committee in charge of contracts for the members of the Board of Managing Directors, the Supervisory Board should regularly discuss and review the structure of the compensation system. comdirect bank regards regular information provided to the Supervisory Board by the Presiding Committee as sufficient. For reasons including our will to increase efficiency, we are of the opinion that the stipulation and regular review of the compensation structure should be a task of the Presiding Committee, the body that is also responsible for all other aspects of contracts for members of the Board of Managing Directors. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 25 Implementation of Code suggestions The suggestions of the Code have been or are being implemented for the most part. Exceptions only arise in cases where implementation of the “should” or “can” provision does not appear reasonable in comdirect bank’s specific situation or where the additional benefit for the shareholders appears doubtful: Section 2.3.3: the Code suggests that the representative to exercise shareholders’ voting rights appointed by the company should be contactable during the annual general meeting. The main reason for this is that because the discussion is broadcast on the internet, shareholders could change their voting behaviour at short notice. As a result of the limitation of the broadcast as described in the following (Section 2.3.4), comdirect bank does not comply with this suggestion. Section 2.3.4: The broadcast of the annual general meeting via the internet suggested by the Code is limited by comdirect bank to the speeches by the CEO and the Chairman of the Supervisory Board. We are of the opinion that the internet does not currently represent a suitable medium for broadcasting a discussion which generally lasts several hours. Section 3.6: The Code suggests that in Supervisory Boards with codetermination, representatives of the shareholders and of the employees should prepare the Supervisory Board meetings separately. This suggestion relates essentially only to Supervisory Boards of large companies which have to have an equal number of repre- sentatives from both parties under the Codetermination Act. The comdirect Supervisory Board, however, is comprised in accordance with the relevant legislation (Drittelbeteiligungsgesetz) and comprises six people, of which two are employee representatives. The meetings will be prepared separately only when required. Section 5.2: Contrary to the suggestion of the Government Code, the Chairman of the Supervisory Board of comdirect also acts as the Chairman of the Audit Committee. This deviation also results from the efficient corporate governance structures at comdirect bank. Section 5.4.4: The Code suggests that the changing requirements within the Supervisory Board are to be taken into account through the election or re-election of Corporate Governance members of the Supervisory Board at different dates and for different periods of office. on the internet The usefulness of such a provision is nevertheless controversial; we are of the opinion The complete Declaration of Compliance that the efficiency of the Supervisory Board is increased if the same members work issued on 4 March 2005 can be viewed on together on the Board for several years. At comdirect, members of the Supervisory our website www.comdirect.de/ir along with Board are therefore newly elected at one date and for a matching period of time. this Corporate Governance report, the Compensation report, previous versions of the Declaration of Compliance as well as the full Section 5.4.5: Contrary to the suggestion made in the Code, performance-related text of the German Corporate Governance compensation of the Supervisory Board does not contain a component that relates to Code. Information regarding current develop- the long-term success of the company, but is tied to the possible payment of a divi- ments in our Corporate Governance Standards dend. In line with trends in jurisprudence, we consider the differing calculation basis is also posted on the website. for performance-related components for the compensation of the Board of Managing Directors and the Supervisory Board to be appropriate. 26 Compensation of the Board of Managing Directors and Supervisory Board Joint report by the Supervisory Board and the Board of Managing Directors of comdirect bank AG pursuant to Section 4.2.3 of the German Corporate Governance Code Compensation of the Board of Managing Directors The compensation of the Board of Managing Directors of comdirect bank AG is speci- fied by the Supervisory Board. It comprises three components: a fixed compensation, a variable compensation component linked to the profit of the company and personal per- formance, and a component with long-term incentive effect and risk elements. Members carrying out Board functions at subsidiaries only receive expenses. All compensation components are appropriate both individually and as a whole. The compensation paid to the members of the Board of Managing Directors is disclosed on an individualised basis in the notes on page 90. The annual fixed salary for members of the Board of Managing Directors is set for the entire term of the relevant contract of employment and is paid in twelve monthly instalments. The salary is based on the economic position and future prospects of the bank as well as on the level of compensation paid in a comparable environment. In financial year 2004, the non-variable components amounted to 38.21 percent of the total compensation (excluding stock options). The variable compensation component is based on the business performance of the company and the attainment of individual targets in the previous financial year. Key factors governing the performance-related component are the development of earnings before interest and tax (EBIT) and the cost/income ratio achieved. The indi- vidual targets are agreed annually between the members of the Board of Managing Directors and the Presiding Committee. At the end of the financial year, the Presiding Committee examines the extent to which the targets have been achieved and sets the level for the performance-related component. In financial year 2004, 61.79 percent of the total compensation was accounted for by variable components. The component with long-term incentive effect and risk elements is based on the stock option programme set up in financial year 2000 and amended by the annual general meeting on 7 May 2003. Under this programme, the members of the Board of Managing Directors are offered performance-related subscription rights to shares of the company with the statutory waiting period of two years. The Supervisory Board’s Presiding Committee decides upon the amount of subscription rights to be granted. The stock option programme comprises two subsets, both of which meet the require- ments of the Corporate Governance Code. With regard to subset A, the options can Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 27 only be exercised if the comdirect bank share has outperformed the Prime Financial Services Price Index by at least 5 percent in the period since the options were granted. The exercise hurdle for subset B is a price gain by the comdirect bank share of at least 20 percent compared to the average price over the last 30 trading days prior to the time that they were granted. In financial year 2004, a total of 90,000 stock options were issued to members of the Board of Managing Directors. Including the 168,500 stock options granted in previous financial years, the notional value amounts to €250,952; as of the reporting date there were no exercise windows for any of the tranches. In financial year 2004 the Supervisory Board agreed to a cap for extraordinary, unforeseen developments. Compensation of the Supervisory Board The compensation of the Supervisory Board is stipulated in the Articles of Association. In addition to the reimbursement of expenses as of January 2005, the individual members of the Supervisory Board receive a fixed compensation of €10,000, with the Chairman of the Supervisory Board receiving triple that amount and his Deputy one and half times that amount. If the member of the Supervisory Board is also a member of a Supervisory Board Committee, then the member will additionally receive a quarter of the relevant fixed compensation; the Committee Chairman will receive a further quarter. A member of the Supervisory Board may receive a maximum of two and a half times the fixed compensation, i.e. €25,000. The maximum for the Chairman of the Supervisory Board is €75,000 and €37,500 for his Deputy. In line with the German Corporate Governance Code, the members of the Supervisory Board also receive a variable compensation payment. This component is dependent on the dividend distributed to shareholders. The Supervisory Board as a whole receives €1,500 for each half of a percentage point that the dividend exceeds the basic return on the share capital of 4 percent. For financial year 2004, a dividend of 24 percent will be proposed to the annual general meeting, and if approved by the annual general meeting, the variable compensation component paid to the Supervisory Board is set to amount to €60,000. Pursuant to a resolution by the Supervisory Board, this sum will be divided among the members of the Supervisory Board in accordance with the ratio for the non-variable compensation, regardless of activities on any committees. The compensation paid to the members of the Supervisory Board, including the reimbursement of VAT payable on Supervisory Board remuneration, is shown on an individualised basis in the notes on page 91. “A pension? Ten years ago the word pension simply wasn’t in my vocabulary. Today, I’m investing in two fund-based savings plans and a life policy. And that’s just the beginning.” . “A pension? Ten years ago the word pension simply wasn’t in my vocabulary. Today, I’m investing in two fund-based savings plans and a life policy. And that’s just the beginning.” . “Well how staid and sensible is that?” Private pensions are a huge growth market – and comdirect will benefit particularly from this. First and foremost, this is due to our products. Of around 59 billion euros annual earnings which banks make from their private client business, 22 billion euros are attributable to securities and savings products and a further 8 billion euros to insurance. Second, modern investors, our core target group, are particularly active and account for more than 9 of the 59 billion euros.* We are ideally set up as a one-to-one bank for the modern investor. * zeb study 2002: “Rentabilitäten im Privatkundengeschäft”, 2002 (Profitability of private client business) 28 Group Management Report The financial year at a glance: record results achieved, investment in growth comdirect bank achieved record results again in financial year 2004. Despite often difficult market conditions, pre-tax profit at group level rose by more than 30% to €51.1m. We therefore exceeded our profit target which had been increased to €50m. We intend to increase the dividend by 50% to 24 cents per share. Earnings were up on the previous year, and administrative expenses fell again as a result of increased process efficiency and consistent cost management. We have invested in all three fields of competence and aim to gain new customers, generate even more value added from existing customer relationships and achieve stable earnings whatever the market situation. With a growing customer base, increased portfolio volumes, more savings plans and current accounts in online business and more than 2,100 Financial Advisory customers, the positive trend in value drivers highlights the progress in our aim to become the one-to-one bank for the modern investor. The next stage begins in financial year 2005 with the launch of our comvalue programme for growth and value added. With regard to new customer acquisition, we will focus on our attractive current account, which was already a growth driver in 2004. We are establishing ourselves as a main bank for the modern investor and the first point of contact for investments. The planned growth will also provide a broader customer base for our activities in Online Investment and Financial Advisory. In the medium term, we aim to reduce our dependency on stock market trends and establish comdirect bank as an even higher-earning company. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 29 Market environment: hesitant upturn, consumer demand remains weak Growth in GDP Economic development (in %) Economic development in financial year 2004 was characterised by ups and downs, as was the situation in the capital markets. Overall, the economic fundamentals have Germany euro-zone stabilised during the course of the year. Following flat growth in German economic output in the previous year (minus 0.1%), gross domestic product improved during the 2.5 2.1* year under review. At plus 1.7%, Germany is below average compared with other 2.0 1.7 countries in the euro-zone (2.1%). The European Union, which now comprises 25 1.5 Source: Statistisches Bundesamt, Eurostat states, achieved growth of 2.4% according to European Commission forecasts. The 1.0 0.9 moderate upturn was supported by the improved global economic climate. However, 0.5 0.5 the positive trend in the global economy lost momentum again in the second half of 0.0 0.1 – 0.1 the year, particularly as a result of movement in oil prices, the slowdown in the USA – 0.5 and the restrictions curbing massive growth in China. 2002 2003 2004 * Forecast The rise in economic output in Germany was driven primarily by exports and despite the strength of the euro, and net of inflation, German exports rose by 8.2%. The domestic economy continued to suffer from weak consumer demand; net of inflation, consumer spending fell by 0.3%. Uncertainty prevailed as a result of the debate surrounding reforms to the social security system and ongoing high unemployment figures. Many Germans feared their own financial situations would deteriorate. The GfK consumer climate indicator closed the year at 2.9 points, compared to 4.0 points at the end of 2003. The lower value shows that consumers expect incomes to fall and are holding back from making purchases. Wage increases were moderate in 2004 as a result of the trend towards cutting pay- ments above the general pay scale and increasing working hours. Despite reductions in the tax burden in the wake of the first phase of the tax reform, disposable incomes were only 1.3% up on the previous year. The inflation rate rose from 1.1% to 1.6% and the savings ratio increased slightly and was up from 10.7% to 10.9%. Securities investment Growing concern about the stability of the upturn adversely affected the capital mar- kets for a large part of the year. The DAX started 2004 with strong rises in share prices, but like the Dow Jones Industrial Average Index, which is a barometer for the US stock market, it moved sideways in the second and third quarter. The psycho- logically important 4,000 points mark was not exceeded on a sustained basis until the last two months of trading. The DAX closed the year at 4,256.08 points, up 7.3% on the previous year's closing figure of 3,965.16. 30 The lack of movement in share prices discouraged trading, which impacted negatively Number of orders on German stock on business activities in Online Investment. Over the year as a whole, the VDAX, which exchanges (in million) reflects the expected percentage fluctuation range of the DAX within the next year, XETRA FFM Other stock remained below 30% and on 23 December 2004 hit a record low of 13.20%. In the exchanges previous year, the index occasionally attained values of 50%. Trading was dominated 200 largely by a lack of focus and this can also be seen in the order figures. The German spot market recorded 170.7 billion orders, down 2.5% on the previous year. The 150 26.1 33.6 34.6 performance in the second half of the year was significantly weaker, with the number of orders 19.1% below the figure for the first six months. Securities turnover amounted 100 86.6 70.1 66.7 Source: Deutsche Börse AG to €3,274bn (previous year: €3,199bn). 50 60.0 71.4 69.4 The primary market largely failed to provide any stimulus. The Frankfurt stock 0 exchange reported only five new issues with a total volume of €1.82bn. Market activity 2002 2003 2004 was therefore at the lower end of investment banks’ expectations, which in spring had forecast five to ten IPOs. Many projects scheduled for 2004 were postponed because of adverse market conditions or replaced by trade sales. The low level of volatility meant that the futures markets were unable to repeat the double-digit growth figures of previous years. The number of contracts traded on the Eurex increased by 5.0% to 1,066 million. Index and equity contracts were up, while futures contracts on listed index funds declined. Following a strong performance in the first quarter, the Stuttgart Stock Exchange’s EUWAX trading segment, which in Germany accounts for a large portion of stock market trading in derivative products, saw the number of trades fall considerably and at 4.94 million, the figure was only just up on 2003. The positive mood of investors in the first quarter gave way during the course of the year to more muted optimism. By the fourth quarter, only 31% of the financial decision-makers surveyed by market research organisation Forsa expected share prices to rise (first quarter: 52%). Many market players moved out of equities and according to the Deutsches Aktieninstitut, the number of shareholders and investors in equity funds fell by 696,000, or 6.3%, to 10.4 million in 2004. The trend towards lower risk investments also impacted on funds statistics. The equity funds (excluding special funds) issued by German institutions recorded net outflows of €3.5bn in 2004, while the net inflows in fixed-income funds (excluding special funds) totalled €12.9bn. Investment and borrowing The framework conditions for the deposit and lending business covered by the Direct Banking field of competence, remained largely unchanged in 2004 as a result of stable interest rates in the euro-zone. According to the Bundesbank January 2005 statistics, the volume of short term loans (term up to one year) extended by German banks to private individuals reduced to €89.5bn in the first nine months of the year (previous year: €95.3bn). In our deposit business, demand deposits increased by Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 31 8.5% to €420.9bn as of the end of November 2004, while fixed-term deposits fell 4.5% short of the previous year at €212.2bn. Savings deposits by private individuals remained almost the same as a year earlier. Within the euro-zone, debit and credit interest rates in retail banking were largely stable. According to the January 2005 monthly report by the Bundesbank, the effec- tive interest rate on deposits by private households with an agreed term of up to two years was 1.90% in November 2004 (December 2003: 1.97%). The effective interest rate on loans with a term of up to one year amounted to an average of 7.93% (2003 year-end: 8.04%). The key lending rate of the European Central Bank has remained unchanged since mid-2003 and this has had a stabilising effect on the money and bond markets. The average yields calculated by the Bundesbank for outstanding fixed-income securities ranged from 3.3% to 4.0%, with minor fluctuations, and were therefore largely the same as a year earlier. The yield curve continues to show an upward trend although as of 2004 year-end the differential between ten-year and one-year terms has reduced to 1.51% compared to 2.22% in 2003. The money market rate which is decisive for the euro-zone, EURIBOR (Euro Interbank Offered Rate), changed little and for one-week terms generally ranged from 2.0% to 2.1% as did the associated overnight money rate EONIA (Euro Overnight Index Average). The low interest rates limited the amount of interest income achievable during the financial year, but conversely had a positive effect on prices in the bond market. The REX performance index closed the year at 120.19 points, compared to 117.36 points on 30 December 2003. Financial planning and provision There has been a major structural change in the financial assets of private households over the last ten years. During the period from 1993 to 2003, the proportion of Asset structure of private households investment funds rose from 5.6% to 11.8%, insurances from 19.7% to 25.4%, while (in %) only 35.7% (1993: 44.9%) was still attributable to bank deposits. According to With banks Insurance policies Bonds market reports, this trend continued in 2004. The abolition of some of the tax bene- Shares Investment funds Other fits for life assurance, which takes effect when the Retirement Income Act came into force at the start of 2005, led to greater demand for this form of provision in the Source: Bundesverband der Deutschen Volks- und Raiffeisenbanken 100 9.7 9.9 second half of the year in particular. The measures taken by the legislator to limit the 80 5.6 11.8 7.9 5.9 rising costs of the social security system have also made personal private pensions 12.2 11.3 60 considerably more attractive. A poll by TNS Emnid revealed that in 2004, 10% of 19.7 25.4 insured persons were using this form of provision compared to only 7% two years 40 earlier. The growing trend towards private pensions aided the establishment of our 20 44.9 35.7 Financial Advisory field of competence. 0 1993 2003 The need for advice on asset accumulation and provision is great and is continuing to rise as a result of increased demand for such products and expansion of the range of products and services available. In its weekly report 30/04, the German Institute for Economic Research (DIW) pointed out that the security levels of investments were 32 often inaccurately estimated. In addition, the legislation already passed and the anticipated statutory regulations will considerably intensify competition between the different forms of provision, particularly from a tax perspective. The need for advisory services is expected to increase against this backdrop. Industry trend Like other direct banks, comdirect bank is benefiting from the sustained and growing trend towards internet banking. The e-FMDS survey by tns Infratest showed that the number of regular online users in Germany rose in 2004 by 1.4 million to 25.2 million. 11.6 million users already conduct banking transactions online and around 30% of these would like to conduct more even banking transactions online. Almost 80% can imagine dispensing with the services of a bank branch altogether. Around one in five users of Online Banking trades in securities online. There is great interest, in particular, in carrying out daily payment transactions online. According to the FMDS survey by tns Infratest, in the first half of 2004, 16.0% of Germans already maintained their current account online (2003: 14.6%); 10.8% of online bankers are customers of a direct bank. Strategy: towards an integrated business model We have continued to pursue our strategy and further improved our services in the three fields of competence – Online Investment, Direct Banking and Financial Advisory. We are a one-stop-shop able to meet key requirements relating to securities trading, asset accumulation and investment as well as daily payment transactions. With this range of products and services we aim to become the main bank for more and more customers. Enhanced analysis of customer data enables us to tailor our offering to customers and personalise our services to an even greater degree. As a result, we have Fields of competence at achieved greater value added from our customer relationships in financial year 2004. comdirect bank comdirect bank has focused its offering on the modern investor in Germany. We there- fore sold our UK subsidiary, comdirect ltd, to the Execution Services Group Limited. The divestment was in the interests of our shareholders: expanding the market position of the online investment services provider for private investors, which in terms of customer numbers ranks number three in the UK, would have required major invest- ment and the return would have been inadequate because of price competition in the Online Direct Financial Investment Banking Advisory UK market. comdirect ltd would not have made any significant contribution to value enhancement at the bank in the foreseeable future. comdirect bank’s ability to function as a main bank depends to a great extent on its offering for day-to-day payment transactions as well as for short and long-term investments in Direct Banking. We have therefore made this field of competence the central focus of our new customer development activities and taken advantage of the favourable market situation in direct banking, which is reflected in the strong growth in online current accounts for example. comdirect special campaigns enabled new customers to invest in time deposits featuring a special interest rate for six months in Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 33 each case. To control the associated costs, a ceiling was set for the amount invested and the number of new customers for each of the four campaigns. During the term of each campaign, we offered attractive follow-on products in all three fields of com- petence in order to tie in new customers long term. The new pricing model also promotes the integration of the three fields of com- petence. It offers big incentives to customers to pool their banking business at comdirect bank. For example, there are no charges on a custody account if at least two trades are carried out per quarter or if the customer has a current account or is investing in a savings plan. The overproportionally strong growth in our business activities which are not dependent on the stock markets has improved our earnings and risk structure in the medium term and guarantees a stable performance as part of our shareholder-friendly overall management of the bank. Changes in the scope of consolidation comdirect ltd was deconsolidated retrospectively to 31 March 2004. To facilitate comparison, comdirect ltd has also been excluded from the previous year’s figures for Online Investment and Direct Banking (pages 34 to 36) and these figures now refer only to our activities in the German market. The key figures table in the present report (see inside front cover) shows the comparative figures for 2003 including comdirect ltd as in the Annual Report for 2003. The line items in the group income statement include the figures for the UK subsidiary for the first quarter of 2004. These do not affect the consolidated profit for the current year, as the earnings contribution was neutralised during deconsolidation. After rebranding costs of €1.5m, the sale produced proceeds of €15.0m. The sale proceeds were positively affected by the fact that comdirect ltd moved into profit in the first quarter of 2004. Net of deconsolidation effects and provisions for the usual contractual risks, the earnings contribution amounts to €2.4m in 2004. This is included in income from investments and securities portfolio. comdirect private finance AG, which is responsible for the Financial Advisory field of competence, and comdirect bank AG signed a profit-and-loss transfer agreement on 26 January 2004 with retrospective effect from 1 October 2003. Following the approval of the annual general meetings of the two companies, the agreement was entered in the commercial register in June 2004. 34 Customer base and structure Customer base At year-end 2004, 620,952 customers were using our products and services, 5.2% more than a year earlier. With growth of more than 30,000 customers, we have expanded our position in the German market. Our targeted product initiatives in Direct Banking in particular gained a large number of new customers. Customer structure Number of customers as of 31.12. The customer structure in comdirect bank’s online business line has changed as more (in thousand) customers are making use of our current accounts, fixed-term deposit accounts and Germany United Kingdom time deposit accounts. By the end of the year, 13.2% (previous year: 8.2%) of our customers were already using mainly comdirect bank's Direct Banking services, raising 800 the profile of this field of competence. 600 50 32 The number of customers in the Online Investment segment has stabilised at around 400 the same level as the previous year. We also convinced many traders to move their 590 590 621 custody accounts from other banks to comdirect bank. 200 Financial Advisory had 2,114 customers by the end of the year. 0 2002 2003 2004 Online Investment and Direct Banking: attractive product portfolio boosts business Order figures and order volume Executed Orders comdirect bank benefited from lively trading on the stock exchanges in the first quarter (in million) of the year. A large number of investors became active players in the market once Germany United Kingdom again. The next two quarters, however, saw the trend reverse. The decline in trading on the German stock markets led to a downturn in activities by our customers. Trading 8 picked up again in the fourth quarter, but turnover remained below the figures for the same quarter in the previous year. 6 0.43 0.21 4 Overall, we executed 5.95 million trades in the year under review, almost exactly the same number as in the previous year (5.94 million trades). Our securities business has 5.49 5.94 5.95 2 outperformed the trend in order figures on the German stock exchanges (–2.5%). The primary reason for this was the overproportional growth in OTC securities trading 0 (LiveTrading). comdirect bank has 18 trading partners for LiveTrading; for warrants 2002 2003 2004 and certificates these partners are the relevant issuers, for equities the partners are Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 35 several banks that act as market makers and quote prices for our customers. Breakdown of securities turnover (in € billion) LiveTrading has become an important marketplace for our customers because of its competitive trading prices, high-performance systems and attractive price/performance Shares Other Warrants and certificates United Kingdom ratio. As each order placed in OTC securities trading is executed, the rate of order execution for all our orders rose from 84.1% to 86.2%. 40 30 2.31 As with the order figures, at €28.19bn securities turnover was almost on a par with 1.89 2.15 the previous year (€28.16bn), while sales in the German spot market on the whole 20 1.13 2.83 15.02 rose by 3.4%. 35.8% of turnover carried out by our customers related to equities (pre- 15.95 7.15 vious year: 40.0%). Trading in warrants and certificates contributed 56.6% (previous 10 year: 53.3%). 10.50 11.25 10.09 0 2002 2003 2004 Custody accounts and portfolio volume The number of custody accounts managed by comdirect bank dropped during the course of the year by 0.6% to 538,522 (previous year: 541,944). The portfolio volume (excluding funds) amounted to €5.75bn as at the reporting date (previous year: €5.35bn) and was up 7.5%. comdirect bank achieved net inflows in each quarter. The funds volume increased significantly to €1.83bn (previous year: €1.45bn). 18.5% Number of custody accounts as of 31.12. (in thousand) of the customer assets under custody at comdirect bank relate to funds; in financial year 2003 the figure was 15.4%. The 26.3% increase in funds volume was largely due Germany United Kingdom to the fact that more and more customer assets are being accumulated via fund- 600 based savings plans. By the end of 2004, we maintained 68,401 investment savings 33 50 plans for our customers, 35.1% more than a year earlier (50,616 savings plans). Of this figure, 94.3% was attributable to fund-based savings plans. 400 562 542 539 Deposit and lending business 200 As of the end of 2004, customer deposits amounted to €2.33bn, down 10.6% on the record figure in the previous year (€2.61bn). Around €800m of the previous year’s 0 volume was attributable to the ZinsPLUS fixed-term deposit campaign and therefore to a 2002 2003 2004 high-interest product. As of the reporting date 2004, at €122m, the volume of similarly structured fixed-term deposits (comdirect special) was considerably lower. Net of these fixed-term deposits with special terms and conditions that apply for a limited time, there has been sustained growth in deposit volume. Around one in three customers gained through the ZinsPLUS or comdirect special campaigns is now also using other comdirect products, with fixed-term deposits and time deposits as well as current accounts and custody accounts being the most popular. 36 In the deposits due on demand segment, demand deposits in current accounts recorded Number of current accounts as of 31.12. growth of 11.9%. This development stems from the fact that our current accounts are (in thousand) very attractive. The total number of current accounts rose by 19,820, or 28.7%, to 88,905 in financial year 2004. More than 60% of these show regular inflow of more than €1,250 and therefore carry no account charges. 100 80 The volume of loans extended to customers fell marginally during the course of financial year 2004 and at the year-end, the total amounted to €166m (previous year: 60 €183m). The largest portion was attributable to securities loans with the remainder 40 89 accounted for by overdrafts and overdraft facilities. 68 69 20 Customer assets 0 At the end of the year, the volume of assets under custody amounted to €9.91bn (pre- 2002 2003 2004 vious year: €9.41bn). This figure includes the portfolio and funds volume as well as the volume of deposits. Financial Advisory: forecasts exceeded Volume of total assets under custody as of 31.12. (in € billion) Expanding advisory activities Funds volume Deposit volume Business has outstripped our targets in the Financial Advisory field of competence. Portfolio volume United Kingdom comdirect private finance has increased its offices from three to eight. By the end of 12 the year, teams of advisers were active in Düsseldorf, Frankfurt, Hamburg and 10 0.95 Stuttgart with two teams in both Berlin and Munich. comdirect private finance is 8 2.61 2.33 therefore a great deal closer to achieving its aim of maintaining a presence in all major 6 0.44 German conurbations. The number of advisers more than tripled during the year under 1.86 4 5.35 5.75 review to 54 (previous year 17). With 2,114 customers as of 31 December 2004 2 3.65 (previous year: 67), comdirect private finance has exceeded its own target by 24.4%. 0 1.05 1.45 1.83 comdirect bank’s online and offline business lines are closely linked and we have 2002 2003 2004 leveraged the cross-selling potential offered in both segments. Customers of comdirect private finance AG have opened current accounts with us for example, while many Customers of comdirect private existing comdirect customers have had initial meetings with advisers. By the year-end, finance AG in the year 67.9% of customers in Financial Advisory were also using products and services offered by Online Investment and Direct Banking. Of these, around 70% also had a current account with comdirect bank. 2,500 Acceptance by customers 2,000 Customers welcome the independent, objective, comprehensive advice that comdirect 1,500 private finance has to offer. Representative surveys in the Munich, Düsseldorf, 1,000 2,114 Hamburg and Frankfurt regions show that more than 80% of customers are happy or more than happy with the advisory meeting. Advisers scored particularly highly on 500 1,107 their expertise and individual financial solutions which met the needs of the customer 578 0 244 with an all-round approach geared to specific life phases. Also singled out for praise 31.3. 30.6. 30.9. 31.12. were the extensive and readily comprehensible explanations provided for all topics Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 37 regarding asset accumulation and financial provision. On average, four out of five respondents believed that the quality of the Financial Advisory services was higher than that offered by competitors. Business activities and sales structure The boost in demand for life assurance products caused by changes in legislation dominated operating business at comdirect private finance in the second half of the year in particular. The number of policies taken out exceeded our targets. In addition to this top-selling product, we also recorded strong demand for private health insurance and occupational disability insurance. Innovation and product development: the one-to-one bank becomes a reality Pioneering technology and service In line with its positioning as the one-to-one bank for the modern investor, comdirect bank has further improved its products and services and tailored them to better meet the needs of its individual customers. In terms of technology, service and speed, we are one of the leading providers in the market. This is confirmed not only by polls carried out by the bank, but also by reviews in the trade press and representative market surveys. In the e-FMDS survey by tns Infratest, our website was awarded positive marks by around 96% of users in the first half of 2004, the best ranking in our sector. Trade magazine com! said that in a comparison of 14 online brokers, comdirect bank offered “the best mix of low prices and high performance” and named us the winner of the review. An analysis of banks by the magazine Capital ranked us third out of more than 100 financial institutions when it comes to service. With around 12 million visitors and over 105 million hits a month, our www.comdirect.de website is far and away the leading financial site in Germany and one of the most popular websites in Europe. The comprehensive relaunch in 2003 has considerably increased the appeal of the website and significantly greater use is being made of our personalised services. The number of “my comdirect” accounts rose in 2004 by 28.2% to 445,531. A poll of 5,000 comdirect customers carried out in the first quarter of 2004 shows that respondents believe our website provides a good overview, is readily comprehensible and offers a flexible range of products and services. The website was revised again and the content offered enhanced. The website now provides navigational help for beginners as well as detailed market data for traders. Users can see at a glance which pages are useful for them and can reach these sections in just a few clicks. 38 Product development in Online Investment Traders are particularly interested in system performance, comprehensive real-time price information and professional analysis tools. We have extended the information provided and increased the functionality offered in Online Investment for this extremely important target group. There are also technical incentives for traders to pool their activities with comdirect bank. A basic version of our TraderMatrix price information system, which can be used free of charge, went online at the end of July. In addition to real-time prices from our key LiveTrading partners, the system includes all real-time prices for equities and derivatives on the Stuttgart stock exchange. The number of prices that can be called up using the subscription version of TraderMatrix has also been considerably expanded. Pro Trader, our professional trading front-end featuring fast page downloads and flexible time-based session structures, was also launched at the end of July and can be used free of charge by all active traders executing at least 125 orders per half year. We have also upgraded some trading functionalities. For German orders the user can choose from various views as required and can also use the XETRA order suffixes fill- or-kill and immediate-or-cancel. This gives investors greater flexibility and can, for example, avoid executions with too low a unit number. In the middle of the year, we responded to the growing demand from customers by doubling our range of certificate-based savings plans. At the same time, we replaced funds for which there was little demand with new funds in the fund-based savings plans segment. Both measures have clearly enhanced our offering and provided an additional boost to asset accumulation via savings plans. We have also further upgraded our services for institutional customers. In August we extended the interface for our custody account management software for wealth managers and fund brokers. Since then, in addition to core data and transaction data, customers using MARKET MAKER software have been able to import data on earnings such as dividends, fund distributions and interest rates from comdirect bank’s systems. This improves the quality of their customer reporting and provides greater scope for customer service. Product development and process optimisation in Direct Banking comdirect bank employed its innovative, digitised process for contract conclusion for the first time during the comdirect special fixed-term deposit campaigns. By automat- ing a large part of the process, the amount of subsequent manual processing has been reduced to a minimum. All data is entered by the customer online and then auto- matically processed; only the customer identification process has to be carried out in paper form. This makes opening an account in Direct Banking quicker and easier for the customer and reduces the costs incurred by comdirect bank – a development from which Online Investment also benefits. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 39 In the fourth quarter of 2004, we signed a contract with American Express Services Europe Ltd. on the launch of the comdirect American Express (Amex) credit card during the first quarter of 2005. The card has the same services as the classic Amex gold card, including an insurance package and bonus programme, but at a much lower annual fee for comdirect customers. The credit card is the ideal complement to the Visa debit card which, for some time now, has been available free of charge and where payments are debited from the clearing account within a few days. This additional benefit will make comdirect bank even more attractive to its customers as a main bank. New pricing model In accordance with the new pricing model introduced at the beginning of the fourth quarter, the more active a customer is, or the more trading and banking activities a customer pools at comdirect bank, the more attractive the prices charged. The cross-divisional approach of the pricing model is in line with the strategy at comdirect bank and makes the bank even more appealing to the modern investor. Instead of the previous tiered model, commission on orders is now calculated on a linear curve. Flat rate price levels have been abolished. Particularly active traders also benefit from frequent trader discounts and free order limits. Our new pricing model is much more closely geared to the individual requirements of customers than the previous model. We have abolished the additional charges applying to same-day XETRA partial executions. The cross-selling approach of the new pricing model, which is also reflected, for example, in the various routes open to investors for a custody account with no charges, proved successful in 2004. A large number of customers ensured that their custody accounts are free of charge by opening a current account or taking out fund-based savings plans. Change in pricing model until 30.9.2004 from 1.10.2004 Transaction fee in € 100 Transaction volume in € thousand 80 60 40 20 0 0 5 10 15 20 25 30 35 40 45 50 40 Personnel: first increase in four years Number of employees Number of employees as of 31.12. Investment in growth at comdirect bank also impacted on the number of employees, which increased for the first time in four years. Personnel were taken on in Customer Germany Abroad Service and IT in particular as requirements rose with the launch of new functions and products in Online Investment and the expansion of Direct Banking and Financial 1,000 Advisory. 800 63 At year-end, the workforce totalled 616, which is 20.3% more than in the previous 600 77 year (512 excluding comdirect ltd). Of these, 601 were employed at comdirect bank 400 859 AG and 15 at comdirect private finance AG. On a full-time basis, the number of 616 200 512 employees as at 31 December amounted to 528.3 (previous year: 445.2). The 54 advisers with comdirect private finance AG are self-employed commercial agents 0 pursuant to Art. 84 of the German Commercial Code (HGB) and are therefore not 2002 2003 2004 included in the personnel numbers. Personnel management We have further developed our personnel work in tandem with our corporate strategy. The aim was to bring all personnel-related matters in line with the specific require- ments of a one-to-one bank. Our growing product range is increasingly geared to our target of becoming the main bank for our customers. Together with the multi-channel approach in sales, this is changing the profile of requirements for our personnel. These personnel topics relate to recruitment, training and further training, continuous professional development for personnel and managers, and team and organisational structures as well as compensation. As the strategic concept basis for all our personnel work, we have developed a competence model specifically for comdirect bank. It describes each function in the bank along with the competencies required and the scope of such competencies. The model differentiates between expert and basic competencies, and competencies in sales, operations, leadership and management. The competence model therefore forms the basis for defining career paths at comdirect bank which in some areas clearly differ in terms of requirements from those of other banks. Compensation system A major step in our personnel management strategy has been the agreement reached in December 2004 with the staff council on the introduction of a new compensation system. This compensation system regulates the level of basic salary received by employees in line with their position and performance on various paths. The com- pensation system ensures the highest possible transparency and traceability. The com- petence requirements have been rendered comparable across the various career paths and underlying salary bands allocated accordingly. The compensation system also provides scope for individual performance-related pay awards, including on the basic Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 41 salary, through regular performance appraisals. The new compensation system came into force in January 2005. Thanks to the transparency and flexibility it offers, the system supports the personnel development targets and will ensure that comdirect bank remains competitive when recruiting and retaining high performers. Earnings situation: dividend increase following record result Consolidated profit before and after Result for group and business lines tax (in € million) With pre-tax consolidated profit of €51.1m, we have reached yet another new record and outperformed the previous year by €12.0m or 30.7%. Despite adverse market before tax after tax conditions, which deteriorated significantly in the meantime, the bank succeeded in outperforming its profit target which had been revised upwards from €45m to €50m 60 in spring 2004. In the comdirect online business line, we achieved profit from ordinary 40 activities of €54.1m. Start-up losses in the comdirect offline business line fell under target at €–3.1m. 20 51.1 39.1 34.0 23.4 Essentially the marked rise in consolidated profit is attributable to two factors. On the 0 – 9.8 one hand, we have generated higher commission income on stable order figures in the – 18.6 – 20 German market thanks to our improved range of products and services. On the other 2002 2003 2004 hand, we have kept administrative expenses below the level of the previous year, although we have continued to progress the expansion of our business model and increased our customer base. The net profit of €34.0m outstripped the previous year’s figure (€23.4m) by 45.4%. Earnings per share rose from €0.17 in 2003 to €0.24. Proposal for appropriation of profits Return on Equity before tax On 4 May 2005, the Board of Managing Directors and the Supervisory Board will be (in %) proposing to the annual general meeting that the consolidated profit be distributed in full as in the previous year. After allocation to reserves, this amounts to €33.7m. This represents a 50% rise in the dividend from €0.16 to €0.24 per share. 10 Relative ratios 8 Return on equity before tax improved from 6.9% in 2003 to its present level of 8.7%. 6 The cost/income ratio came in below 70% for the first time and at 66.8% was 7.4 4 percentage points better than in the previous year (74.2%). Earnings of €246.0 per 8.7 6.9 customer (previous year: €232.6) were generated at a cost of €162.6 per customer 2 (previous year: €178.2). The value drivers on both the earnings and expenses side 0 0.8 have developed positively at comdirect bank. 2002 2003 2004 42 Net commission income Net commission income Net commission income totalled €87.1m (of which €3.1m comdirect ltd) after (in € million) €83.1m in the previous year (of which €6.3m comdirect ltd). In the German market Germany United Kingdom we achieved an increase of 9.5% despite virtually unchanged order figures and securities turnover. 100 80 3.1 This positive trend is primarily due to the significantly higher proportion of fund 3.3 6.3 business in securities trading as well as in assets under custody. In fund business, 60 comdirect bank achieved considerably higher earnings from front-end loads and com- 40 84.0 73.8 76.8 mission on portfolio holdings than a year earlier. The profit contribution from Financial 20 Advisory amounted to €1.5m. 0 Net interest income 2002 2003 2004 The trend in net interest income before provisions was also positive. Although at €57.0m, it was below the previous year’s €57.2m, net of comdirect ltd the figure was up 3.0%. Higher deposit volumes on average for the year were responsible for the rise Net interest income before provisions in interest income achieved in the German market to €84.8m (previous year: (in € million) €81.9m). The fixed-term customer deposits with special terms and conditions and call Germany United Kingdom money have been invested mainly in short-term instruments in the money market so we can respond quickly to any interest rate rises. Interest income generated on loans 80 to customers and equity investments was about equal to the previous year. 60 1.8 3.0 1.2 At €29.2m, interest expenses (excluding comdirect ltd) were up 5.4% on the previous 40 year (€27.7m). This was essentially attributable to the interest paid on fixed-term deposits forming part of comdirect special campaigns. Interest expenses also include 62.1 55.8 54.2 20 a provision for the additional interest expenses anticipated in 2005 for the third and fourth comdirect special campaigns. 0 2002 2003 2004 Interest expenses were reduced by the early repatriation of subordinated capital granted by Commerzbank AG of €16.6m, which comprised €6.4m subordinated liabilities and €10.2m profit-sharing certificates outstanding. The term for both components Net commission income and net originally ran until the end of 2006. The German Financial Supervisory Authority interest incom on a quarterly (BaFin) agreed the repatriation in accordance with the German Banking Act. comparison (in € million)* Net commission Net interest income income before provisions Following a slight reduction in provisions for possible loan losses in the previous year, these were topped up by net €0.3m in the year unter review. In October 2004 50 comdirect bank AG sold written-down claims totalling €4.5m. 40 15.1 30 13.2 14.2 20 13.3 10 27.8 19.8 16.8 19.7 0 Q1 Q2 Q3 Q4 * excluding comdirect ltd Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 43 Income from investments and securities portfolio Income from investments and securities portfolio stood at €3.9m (previous year: €4.8m). As in the previous year, comdirect bank took advantage of continued low interest rates to sell fixed-income securities, especially promissory notes and Pfand- briefe, before maturity for profit-taking purposes. This item also includes the proceeds from the sale of comdirect ltd of €2.4m. Other operating result At €7.0m, the other operating result exceeded the figure for the previous year (€6.5m). The management services provided by comdirect bank AG for Commerz Service Gesellschaft für Kundenbetreung mbH generated earnings of €1.6m (previous year: €1.3m). Commerz Service is a subsidiary of Commerzbank AG. Provisions amounting to €3.9m were also written back to income. Administrative expenses Rigorous and dynamic cost management was a contributing factor in comdirect bank Administrative expenses (in € million) achieving its ambitions profit target. By comparison with the previous year’s figure of Personnel costs Depreciation €112.5m (of which €13.9m comdirect ltd), we drove down administrative expenses Other administrative expenses United Kingdom by a further 7.9% to €103.6m (of which €4.1m comdirect ltd). Net of comdirect ltd, 150 costs rose moderately by 0.8%. Additional expenses for the expansion of our business model were largely offset by cost-savings on the other side. 16.0 100 21.0 4.1 13.9 11.1 Personnel costs fell from €31.7m to €28.8m. Excluding comdirect ltd, personnel 14.4 costs were almost on a par with the previous year at €27.5m. 66.4 50 56.6 60.9 At €63.2m, other administrative expenses were slightly down on the previous 34.7 27.6 0 27.5 year’s figure of €64.3m. In Germany they rose by 7.5% to €60.9m (previous year: 2002 2003 2004 €56.6m). Marketing and communications costs have risen, partly as a result of the print media advertising campaign carried out in the second quarter. Under the slogan “People who want more, come to comdirect”, we have highlighted the advantages of our services and strengthened our brand awareness. Our comdirect special campaigns also incurred additional marketing costs. Other administrative expenses for third party services, including order-related costs, rose by comparison with the previous year. This is largely due to the cost of procuring IT services in order to bring our infrastructure into line with new legal requirements. The clearly reduced investment budget in previous years led to noticeably lower depreciation in the year under review. Depreciation dropped by 30.3% to €11.5m (previous year: €16.5m). Excluding comdirect ltd, the drop amounted to 23.5%. 44 Investments: system optimisation The investment budget remained tightly focused in financial year 2004. Balance sheet Investments additions to fixed assets fell from €7.1m in 2003 to €4.5m. €3.1m (previous year: (in € million) €4.6m) was attributable to intangible assets. The main target for investment was Intangible Office furniture Land and improvements to the account and portfolio functions as well as the information tools assets and equipment buildings on the comdirect website, whereby such improvements can be capitalised. We invested 15 €1.4m in office furniture and equipment (previous year: €2.5m), most of which in new hardware. The comparatively low level of capitalised investment shows that the 10 3.3 costs primarily incurred by the expansion of our business model related mainly to interest and other administrative expenses, particularly marketing costs. 2.8 5 2.5 1.4 Financial situation and assets: high level of stability 6.3 4.6 3.1 0 The stable earnings position of comdirect bank had a positive influence on balance- 2002 2003 2004 sheet indicators and the cash flow statement. The group continues to enjoy a very comfortable position in terms of its financial situation and assets. comdirect bank has complied with the Deutsche Bundesbank’s minimum reserve obligations and the obligatory principles of the German Federal Banking Supervisory Authority (BaFin) throughout the year. Structure of consolidated balance sheet ASSETS (in € million) Balance-sheet structure Claims on banks Investments and Several factors led to a reduction in the consolidated total assets of comdirect bank Claims on customers securities portfolio from €3.43bn to €2.98bn, including the deconsolidation of comdirect ltd. The fall Other assets 4,000 in liabilities to customers as at the year-end is also due to declining deposit volumes. On the assets side, the investments and securities portfolio was also lower. On the 3,000 liabilities side, there was the repatriation in full of the subordinated capital which 1,310 2,000 1,371 further reduced the bank’s overall liabilities. 184 166 1,000 1,894 As a result of the consolidated profit of €33.7m, equity rose by 2.8% to €600.5m 1,413 (previous year: €584.3m) as at 31 December 2004. This equates to an equity ratio of 0 38 28 20.2% (previous year: 17.1%). The own funds ratio according to BIS stood at 72.2% 2003 2004 (previous year: 68.0%). Structure of consolidated balance sheet Authorised capital LIABILITIES AND EQUITY The annual general meeting of comdirect bank AG authorised the Board of Managing (in € million) Directors on 28 April 2004 to increase the share capital of the company, with the Equity Other liabilities Liabilities to customers consent of the Supervisory Board, by issuing new no-par-value shares against cash or non-cash contributions on one or more occasions up until 27 April 2009 at the latest 4,000 and up to a total maximum amount of €60m. Subscription rights may be excluded in the event of a capital increase against non-cash contributions to acquire companies 3,000 or investments in companies in the interests of the company. They may also be ex- 2,000 2,775 cluded in the event of a capital increase against cash contributions up to an amount 2,338 of €12m or to issue employee shares up to an amount of €8m, to service bonds with 1,000 warrants and convertible bonds or to even out fractions. 67 39 0 584 601 2003 2004 Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 45 Stock option programme Under the stock option programme launched in accordance with the annual general meeting resolution of 11 May 2000, we have issued a total of 3,104,586 subscription rights to employees of comdirect bank, of which 695,770 were issued in financial year 2004. By the balance sheet date, 787,440 of the subscription rights had expired and 7,750 subscription rights had been exercised. For these exercised subscription rights, the same number of new no-par-value bearer shares in comdirect bank AG were issued. The subscribed capital of comdirect bank AG therefore increased during the course of the financial year by €4,400 to €140,507,750. The relevant payment established in connection with the stock option programme was allocated to the capital reserve pursuant to Art. 270 of the German Commercial Code (HGB). Cash flow statement The cash flow from operating activities increased from €–8.8m in the previous year to €39.3m. Decisive factors were the higher net profit and the development of the assets and liabilities situation. There was a downturn in customer deposits and over- proportional inflows from reductions in the investments and securities portfolio. This led to a net inflow from operating activities. The cash flow from investment activity stood at €1.0m at the end of financial year 2004 (previous year: €6.6m). This included a net inflow of €2.4m from the sale of comdirect ltd. The cash flow from financing activities reflects the first dividend payment and repatriation of subordinated capital. In total, cash and cash equivalents increased by €1.8m to €3.5m during the year under review. Deposit insurance comdirect bank is a member of the deposit insurance scheme of the Bundesverband deutscher Banken e.V. through which each customer is insured up to a deposit amount of €161m. In addition, comdirect bank also belongs to the German banks’ compen- sation fund (Entschädigungseinrichtung deutscher Banken GmbH). 46 Risk report Principles of risk policy Dealing professionally and proactively with risks is a core element of our value-oriented overall management of the bank and a central management task. At comdirect bank, the CFO is responsible for implementing the risk strategy which is described in the bank’s risk manual. This defines standards for dealing with all relevant types of risk. Risk management is geared towards identifying risks at an early stage, closely monitoring such risks and instigating measures to prevent and mitigate risk. We are constantly further developing the procedures we use to measure and manage risk, including amendments due to new statutory and regulatory requirements. The functionality and suitability of risk management activities are regularly reviewed in accordance with the minimum requirements for the internal audit function of credit institutions (MaIR). Risk management and controlling At comdirect bank there is a distinction between risk management and risk controlling. While the management of the various risks is carried out on a decentralised basis in the individual divisions, risk controlling is carried out centrally by the Risk Monitoring department. The department is responsible for implementing regulatory requirements, monitors their compliance and reports regularly to the Board of Managing Directors. The major risk indicators form part of the overall management of comdirect bank. In addition to detailed quarterly risk reports, monthly risk status reports provide information on the current development of major risk areas and are therefore integral to our early risk identification system. The risk radar integrated in the system highlights develop- ments requiring countermeasures at an early stage. comdirect bank has an early warning system for the credit risks associated with over- draft facilities and loans to purchase securities. Immediate action is taken to adjust or cancel the credit lines as required. The new Schufa scorecard also facilitates an even faster and more comprehensive assessment of the customer’s creditworthiness. As a result of the early risk identification activities and systematic reminder system, the development of provisions for possible loan losses in financial year 2004 has been considerably better than anticipated. The credit value-at-risk (CVaR) indicator was introduced for counterparty lines in the money and capital market. The CVaR indicates the possible level of default per counterparty. Market risks in trading are monitored on a daily basis. During the review of the associated limit system, which changed over to the new method of calculation in 2003, only a few minor amendments were made. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 47 Regulatory adjustments On 26 June 2004 the central banks and supervisory authorities of the G10 states approved the new Capital Accord for banks (Basel II) as submitted by the Basel Committee on Banking Supervision. The agreement provides the basis for harmonising banking supervisory regulations. The key aim is to gear the capital adequacy require- ments of banks more closely to individual risk policies and to adjust the risk manage- ment system in line with developments in the financial market. Banks can choose to use either standardised models or models they have developed in-house to assess the three central risk areas for banks – credit risk, market price risk and operational risk. With regard to recording credit risks, comdirect bank aims to use the bank’s internal rating procedure (IRB approach). We already use credit rating models when an application is made (application rating) and to constantly monitor creditworthiness (conduct rating ), whereby the conduct rating models have been developed exclusively in-house. The models will undergo continuous further development. Operational risks are recorded using a database for losses developed by Commerzbank. The framework conditions required are regularly updated with a view to the regulatory requirements resulting from Basel II. We expect implementation of Basel II to mean a clear reduction in the overall capital backing requirement. The main reason for this is that comdirect bank’s focus on private investor business means it has granulated risks and the danger of cluster risks, domino effect, is comparatively low including as a result of the automatic early warning system. We implemented the minimum requirements for the lending business by credit institutions (MaK) in financial year 2004, within the deadline prescribed by BaFin. The require- ments refer to the appropriate and proper organisation of lending business as well as the creation of suitable procedures to identify, control and monitor credit risks. We take a holistic approach to meeting the regulatory requirements. We believe the foreseeable integration of the various risk pillars MaK, MaIR and MaH (minimum requirements for the trading activities of credit institutions) in the new minimum requirements for risk management (MaRisk), which is currently being developed by BaFin and Deutsche Bundesbank, will provide even better framework conditions for comprehensive risk controlling. In financial year 2005, we will be carrying out a project to implement the requirements resulting from MaRisk. 48 Risk fields The overall risk-management system must ensure that existing risks are identified, analysed and measured, and also that risk-related information is passed on systematically to those responsible for taking decisions. At the comdirect bank group, we distinguish between the following risks: Market risk arises through changes in market prices or price-influencing parameters. Distinctions are made between general and specific types of market risk (in relation to specific financial instruments) as well as individual types of risk such as interest rate, currency and share price risk. Credit risk (credit default risk) is the risk of a loss or lost profit due to a business partner’s possible insolvency. This includes business involving customers as well as money and capital market transactions (counterparty risk) and shareholder risk. Liquidity risk is understood as the risk of not being able to meet payment obligations when they fall due. The refinancing risk relates to the ability to procure adequate liquidity when required on the expected terms and conditions. The market liquidity risk describes the risk of being unable to settle items to the desired extent as a result of the market situation. Operational risk comprises all the risks stemming from business systems or processes, which if they occur, might have a negative impact on the business development of the comdirect bank group. For the most part, these represent technical failure or human error as can occur by using inappropriate processes. Extreme events, such as natural disasters, are also included in operational risk. Other risks relate, for example, to legal risk resulting from contractual agreements or the overall legal framework and also to risks to comdirect bank arising from its strategic decisions. Reputation risk is also taken into account; this is the danger that the public or our customers could lose confidence in the bank as a result of possibilities such as incorrect conduct. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 49 Market risks Market risks arise for comdirect bank mainly through the conclusion of trading transactions, i.e. essentially the buying and selling of bonds, and also asset/liability management, i.e. the mismatch of fixed-interest periods between the assets and liabilities side. As the fixed-term deposits with time-limited special interest rates were invested in money market instruments with the same terms, no major risks were incurred from any outflows during the year. Monitoring of market risks at comdirect bank AG is performed under strict compliance with the “minimum requirements for the trading activities of credit institutions” (MaH) in accordance with the statement issued by the BAKred supervisory authority on 23 October 1995. In this regard, observing the limits to the bank’s risk-taking capability is particularly important. The intention is to be able to absorb potential trading losses without reducing equity. The value-at-risk (VaR) approach has become established in banking as the statistical method for measuring market risk. In order to monitor extreme market movements, the VaR calculations are complemented by what are known as stress tests at comdirect bank. Independently of fixed confidence levels, the stress tests are carried out on a daily basis to measure the scale of portfolio losses under worst-case conditions, with the main emphasis on changes in the yield curve. All theoretical possible scenarios such as reversals, parallel shifts and a levelling off are simulated. In addition to interest rate and currency scenarios, daily stress test calculations are also carried out for share price risks. Credit risks Retail lending In comdirect bank AG’s lending to customers, a distinction has to be made between the loans to purchase securities, which fall due on demand, and the overdraft facility on the current account. In the case of loans to purchase securities, potential losses may arise due to the pledged securities losing value as a result of the general market development or the specific market risk of individual securities; they may then no longer be sufficient to secure the claims on customers. As a rule, the provision of overdraft facilities is linked to regular salary payments and is dependent upon a check performed as part of our scoring model. The credit risk was steered efficiently over the entire reporting period and held below defined ceilings. The credit risk-taking capability was observed at all times. 50 Defaults in the money and capital markets In order to conduct trading activities, limits are generally required for the counterparties or the underlying transactions. These are approved by the Board of Managing Directors of comdirect bank AG. In the capital market, trading is only conducted with domestic clients of impeccable credit standing. No defaults occurred in trading in financial year 2004. The rating structure of the bonds held by us remained virtually unchanged. No credit lines needed to be changed for reasons of credit rating. Liquidity risks About liquidity risks At comdirect bank AG, Treasury is responsible for managing liquidity. In order to cover a possible removal of liquidity by customers, the bank maintains an appropriately large volume of funds due at call. All the securities in the liquidity reserve are items which can be sold at short notice. Refinancing risk In interbank trading for short-term funds, comdirect bank AG is able to borrow at short notice on terms in line with market conditions as a result of its contacts with various German banks. Moreover, it can take up short-term funds via Deutsche Bundesbank. Market-liquidity risks As a rule, the fixed-income securities held in the liquidity reserve are large-volume issues (jumbos). The market here is very liquid and offers permanent, fair pricing. It is normally possible to dispose of floating rate notes (FRNs) at any time at fair prices. Operational risks Apart from the physical infrastructure (especially hardware), the system architecture (e.g. multi-tier server structure and software) is of special importance for the comdirect bank group. In general, both have built-in redundancy or are of a modular construction in order to guarantee a constantly high level of availability for all the required systems or components. As part of business contingency planning for the IT area, external providers and their business contingency plans have also been taken into consideration. In this connection, comdirect bank AG has formulated certain requirements with regard to availability and used them to check the business contingency measures of key service providers. The very high standard of the comdirect infrastructure has been confirmed by experts and there was no requirement for significant improvements during the year under review. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 51 Both organisational and technical measures serve to prevent or limit loss for all areas of operational risk. Organisational instructions, staff training, IT project and quality management and business contingency measures should all be mentioned in this context. These risk mitigation measures are documented in detail in the risk manual of comdirect bank AG. During the reporting period, the average availability of comdirect’s IT systems was 99.8%. Changing the web server for transactions from AIX to LINUX and relocating the personal mailboxes (PostBox) of our customers onto a different server system did not adversely affect availability. Nor did the introduction of new instruments or the new pricing model. Other risks Legal risks Legal risks may arise from factors such as changes in the overall legal framework in our relevant markets and legal disputes with business partners or customers. The Legal department of comdirect bank AG is responsible for preparing the company in advance of any legal changes. The Legal department follows relevant developments carefully and informs the divisions concerned in good time, organising working groups to prepare the company for the potential changes and, if necessary, and to identify any impact these may have. comdirect bank’s membership of the Association of German Banks (Bundesverband deutscher Banken e.V.) provides the main source of information through general circulars and the membership of the working group for direct banks. The Legal department also monitors trade magazines and works closely with the Legal department of Commerzbank AG. No significant legal risks were registered in financial year 2004. The bank has made adequate provision for anticipated legal changes. Strategic risks Strategic risks are those which are bound up with past and future decisions relating to the business model. The emphasis here is primarily on aspects of corporate planning, the intensity of competition, product development and, a major influence on comdirect’s core business activity, the volatility of the securities business. Decisions with regard to the business model are made by the Board of Managing Directors of comdirect bank AG, based on extensive analyses. Depending on the subject to be decided, such issues are worked upon and prepared by the divisions of the bank responsible. 52 The extension of comdirect’s business model is naturally bound up with strategic risks. These are limited by carefully weighing up the strategic options with regard to their potential impact on the value drivers of comdirect bank. As a result of the positive continuing development of Financial Advisory, we are confident that the strategic risk potential and reputation risk in this field of competence will be manageable. The same applies to the risks associated with the programme for growth and its focus on Direct Banking in particular. Outlook Market development The economic recovery in Germany and Europe is expected to continue in 2005. The chief economists of German banks are forecasting growth of 1.4% for Germany and 1.8% for the euro-zone. An increase in the key lending rate in the euro-zone is not expected to emerge until the second half of 2005. Consequently, the framework conditions for generating interest income continue to be relatively unfavourable. The moderate upturn in the stock markets is expected to be sustained, boosted amongst other things by low interest rates. Market experts forecast that the DAX will rise by around 5% to almost 4,500 points as of the end of 2005. Factors that could jeopardise such a development include, in particular, oil price risks and further strong climbs in the value of the euro. Although no material external boost for order activi- ties carried out by private investors is expected, we assume that on the whole the market for our Online Investment activities will be stable. Strong growth in Online Banking should continue in 2005. We anticipate that the number of current accounts held at direct banks will continue to rise. Speed and security along with an extensive product range, which can be personalised to meet the needs of the individual customer, will continue to be key factors in our success. comdirect bank is also set to benefit from the rising demand for private old age pension products. Once some of the tax privileges for life assurance are abolished, the distribution here could shift towards private annuity insurance, including the fund-based version, as well as to investment savings plans. The market conditions for our online products for asset accumulation and our activities in Financial Advisory remain favourable. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 53 Strategy comdirect bank will further enhance its products and services in the three fields of competence as part of a comprehensive offering for the modern investor. The focus will be on the further development of our tools and services for professional online trading as well as leveraging greater synergies for investment and asset accumulation in our online and offline business lines. The Direct Banking field of competence, and our favourable current account in particular, will play a significant part in gaining new customers. The current account is a central product for all life-stages of an investor and incredibly important in terms of a long-term relationship with customers as well as comdirect bank’s capability as a main bank. Our activities in Online Investment and Financial Advisory will feel the benefit of growth in Direct Banking. Our programme for growth and value added, comvalue, which was launched in 2005, stands for improvements in all our fields of competence. The targeted increase in the earnings components which are independent of the trends on the stock market will also create the basis for even more stable earnings growth in subsequent years. Profit target Our target for financial year 2005 is to achieve a further increase in earnings. Some of these earnings will be used to implement comvalue, especially marketing and the strategic further development of IT and customer service. As a result of the additional growth expenditure totalling more than €50m in the next three years, we will probably not match the record results of 2004 in the next few years. However, we will ensure that we maintain our dividend-payment capacity. The aim in the medium-term is to double the 2004 pre-tax profit within five years on the back of clear improvements in our earnings structure. In future we intend to achieve 50% of our income from Direct Banking and Financial Advisory. 54 Online Investment and Direct Banking For traders, we will systematically develop our customer service and expand the range of products, information tools and trading functionalities available to them, thereby consolidating our position as the leading brokerage services provider for private in- vestors in Germany. In LiveTrading we expect strong growth to continue and another series of no-fee campaigns which allow customers to trade in options or certificates free of charge is scheduled for 2005. We also intend to increase our offering for asset accumulation through securities. The launch of the comdirect American Express card in the first quarter of 2005 forms part of our evolution in Direct Banking into a modern, sales-oriented bank for the demanding private investor. We also aim to increase considerably the number of current accounts held with us. Our attractive offering in fixed-term deposits and time deposits is aimed at ensuring further growth in the time-deposit segment. Financial Advisory We will continue to drive forward the establishment of Financial Advisory in financial year 2005. comdirect private finance plans to increase the number of its offices from 8 to 12 and intends to gain at least 5,000 customers by the year-end. Net commission income is set to rise strongly. After the surge in demand for life assurance products in financial year 2004, comdirect private finance will concentrate more closely on invest- ment and alternative provisioning products in the current year. Personnel Our positioning as a one-to-one bank for the modern investor has led to new require- ments for personnel at comdirect bank. The staff need to offer more personalised services, master a much more complex product range and adopt a proactive sales approach to a demanding customer group. These changes will be closely supported by the Personnel department. Following the launch of the competence model and a new compensation system at the beginning of 2005, the prerequisites are in place for active personnel and management development in the current year. The Personnel department will also focus on team-building and organisational development. Risk management In 2005, we will prepare for the certification of the bank’s internal rating procedure which should be in place by 2006, in accordance with Basel II. With the future incorporation MaRisk of various requirements under MaK, MaIR and MaH, the bank will also have fulfilled the second pillar of Basel II, which lays down the quality regulations for more stringent banking supervision. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 55 Major events in financial year 2005 No major events or developments of special significance have occurred since the reporting date. Declaration of Board of Managing Directors on Art. 312, German Stock Corporation Act (AktG) Under the circumstances known to us at the date on which the company concluded legal transactions or carried out or omitted measures, comdirect bank AG received adequate consideration for each such transaction and suffered no disadvantage from measures either being carried out or not carried out. No measures which must be reported were carried out or not carried out. “I need a present for Sylvia by tonight, my boss is waiting for me to call, my car is in the garage and mother’s coming to visit on Sunday. At the moment, life is really complicated.” “I need a present for Sylvia by tonight, my boss is waiting for me to call, my car is in the garage and mother’s coming to visit on Sunday. At the moment, life is really complicated.” “At least my bank’s working well. So simple.” Simple, reasonable and com- prehensive: when customers are asked what they expect from direct banking, these are the most frequently mentioned requirements. To many customers, direct banking represents the foundation of their relationship with their bank. Our response has been proactive and so we decidedly expanded our Direct Banking services. For example, our current accounts are among the best on the market. And it’s a market which is growing in leaps and bounds. By 2007, the number of Online Banking users will rise from the current 11.6 million to 16.7 million*. * e-FMDS 2004, October 2004; Datamonitor 2003; comdirect bank calculations 56 Income statement Income statement of comdirect bank group according to IFRS/IAS € thousand 1.1. to 31.12. Notes 2004 2003 Interest income 86,117 84,889 Interest expenses 29,165 27,682 Net interest income before provisions (24) 56,952 57,207 Provision for possible loan losses (25) – 290 35 Net interest income after provisions 56,662 57,242 Commission income 101,657 96,686 Commission expenses 14,564 13,579 Net commission income (26) 87,093 83,107 Income from investments and securities portfolio (27) 3,858 4,760 Administrative expenses (28) 103,559 112,494 Other operating result (29) 7,036 6,487 Profit from ordinary activities 51,090 39,102 Pre-tax profit 51,090 39,102 Taxes on income (30) 17,121 15,741 After-tax profit 33,969 23,361 Net profit 33,969 23,361 Allocation to reserves – 247 – 880 Consolidated profit 33,722 22,481 Earnings per share 1.1. to 31.12. Earnings per share 2004 2003 Net profit € thousand 33,969 23,361 Average number of ordinary shares Shares 140,505,908 140,500,729 Basic earnings per share € 0.24 0.17 Diluted earnings per share Net profit € thousand 33,969 23,361 Adjustment to the number of ordinary shares issued due to outstanding option rights Shares 952,301 416,204 Weighted average shares outstanding (diluted) Shares 141,458,209 140,916,933 Diluted earnings per share € 0.24 0.17 Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 57 Balance sheet Balance sheet of comdirect bank group according to IFRS/IAS Assets € thousand as of 31.12. Notes 2004 2003 Cash reserve (31) 3,532 1,749 Claims on banks (32) 1,371,129 1,310,434 Claims on customers (33) 166,140 183,773 Provision for possible loan losses (34) – 2,456 – 5,766 Investments and securities portfolio (35) 1,413,205 1,893,862 Intangible assets (36) 10,090 14,775 Fixed assets (37) 12,546 17,990 Tax assets 18 0 Other assets (39) 3,778 9,313 Total assets 2,977,982 3,426,130 Liabilities and equity € thousand as of 31.12. Notes 2004 2003 Liabilities to banks 0 0 Liabilities to customers (40) 2,338,461 2,774,791 Provisions (41) 15,359 18,556 Tax liabilities (42) 9,932 7,370 Other liabilities 13,704 24,509 Subordinated capital (43) 0 16,617 Equity 600,526 584,287 Subscribed capital 140,508 140,503 Capital reserve 367,261 367,240 Retained earnings Other revenue reserves 56,161 55,359 Revaluation reserve 2,874 – 1,296 Consolidated profit 33,722 22,481 Total liabilities and equity 2,977,982 3,426,130 58 Statement of changes in equity € thousand Subscribed Capital Retained Revaluation Con- Total Total capital reserve earnings reserve solidated 2004 2003 profit Equity as of 1.1. 140,503 367,240 55,359 – 1,296 22,481 584,287 563,708 Issue of new shares 5 21 – – – 26 22 Changes in revaluation reserve pursuant to IAS 39 – – – 4,170 – 4,170 – 1,625 Changes in the difference arising from currency translation – – 555 – – 555 – 1,179 Allocation to reserves – 0 247 – – 247 880 Dividend payment – – – – – 22,481 – 22,481 0 Consolidated profit – – – – 33,722 33,722 22,481 Equity as of 31.12. 140,508 367,261 56,161 2,874 33,722 600,526 584,287 No use was made of the authorisation of the annual general meeting on 28 April 2004 to purchase own shares for the purpose of securities trading pursuant to Section 71 (1) No. 7 German Stock Corporation Act (AktG) in financial year 2004. No use was made of the resolution of the annual general meeting on 28 April 2004 on the authorisation to purchase own shares for other purposes than securities trading pursuant to Section 71 (1) No. 8 AktG in financial year 2004. Resulting from the exercise of option rights, a total of 7,750 new no-par-value bearer shares of comdirect bank AG were issued as part of our stock option programme. Each of these shares carries a proportion of the share capital in the sum of one euro. The relevant additional payment established in connection with the stock option programme was allocated to the capital reserve pursuant to Section 270 German Commercial Code (HGB). The total number of no-par-value bearer shares of comdirect bank AG issued under the stock option programme amounts to 7,750. Of this, 4,400 no-par-value bearer shares were issued in financial year 2004 and 3,350 in financial year 2003. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 59 Cash flow statement € thousand 1.1. to 31.12. 2004 2003 Net profit 33,969 23,361 Non-cash items and transfer to cash flow from operating activities contained in net profit Depreciation, valuation allowance, additions to tangible assets and assets and change in provisions 8,666 13,952 Gain from the sale of assets – 3,858 – 4,574 Result from the sale of tangible assets 17 67 Other adjustments (mainly net interest income) – 37,364 – 43,666 Sub-total 1,430 – 10,860 Change in assets and liabilities from operating activities after adjustment for non-cash items Claims on banks – 58,411 – 16,147 on customers 13,648 – 8,905 Securities 483,354 – 846,101 Other assets from operating activities 3,871 11,003 Liabilities to banks 0 – 14,913 to customers – 436,330 826,111 Liabilities in certificate form 0 0 Other liabilities and equity from operating activities – 16,413 4,116 Interest and dividends received 89,111 77,356 Interest paid – 29,165 – 27,682 Income tax payments – 11,755 – 2,805 Cash flow from operating activities 39,340 – 8,827 Cash inflows from the disposal of: Investments and shares in affiliated companies 15,000 866 Cash outflows for the acquisition of: Fixed assets – 1,406 – 7,087 Changes owing to the scope of consolidation – 12,634 12,773 Cash flow from investment activities 960 6,552 Proceeds from capital increases 26 22 Dividend payment – 22,481 0 Cash inflows/outflows from other financing activities – 16,617 0 Cash flow from financing activities – 39,072 22 Cash and cash equivalents as at the end of the previous period 1,749 5,181 Cash flow from operating activities 39,340 – 8,827 Cash flow from investment activities 960 6,552 Cash flow from financing activities – 39,072 22 Effects of changes in exchange rates 555 – 1,179 Cash and cash equivalents as at the end of the period 3,532 1,749 Cash and cash equivalents correspond to the balance-sheet item cash reserve and include cash on hand and balances held at central banks. 60 Notes Basis of accounting principles We report on both the implementation of the German legislation for The consolidated financial statements of comdirect bank as of control and transparency in the corporate sector (KonTraG) and on the 31 December 2004 were prepared in accordance with Directives risks posed by future development, pursuant to Art. 315, (1), HGB in 83/349/EEC (Consolidated accounts directive) and 86/635/EEC the risk report as part of the group management report. (Accounts of banks directive) and on the basis of the International Financial Reporting Standards (IFRS)/International Accounting Stand- In addition to the balance sheet and the income statement, the ards (IAS), which were approved and published by the International consolidated financial statements also include the statement of Accounting Standards Board (IASB)/International Accounting Stand- changes in equity, the cash flow statement and the notes. Seg- ards Committee (IASC), and interpreted by the International Financial ment reporting by business lines appears as part of the notes, on Reporting Interpretations Committee (IFRIC)/Standing Interpretations pages 86 – 87 (note 50). Committee (SIC). Following the group’s focus on the German market and subsequent A summary of all the regulations that have been applied can be found disposal of comdirect ltd, London/UK, the requirement for segment on pages 61– 62. reporting by geographic market no longer applies. As a subsidiary of Commerzbank AG, Frankfurt am Main, we are Unless otherwise indicated, all the amounts are shown in thousands exempted in accordance with Art. 291, German Commercial Code of euros. (HGB), from the duty to present sub-group financial statements. The consolidated financial statements have been prepared in order to satisfy the admission requirements/subsequent obligations (Prime Accounting and measurement methods Standard) of Deutsche Börse AG for the sub-section of the Regulated Market. As we have not presented the main differences between (1) Basic principles financial statements prepared in accordance with IFRS/IAS and those The consolidated financial statements of comdirect bank are based on prepared in accordance with the German Commercial Code, these the going concern principle. consolidated financial statements do not exempt us from presenting consolidated financial statements in accordance with Art. 292a, HGB. The principle of profit or loss for the period is applied in our consoli- dated financial statements. Income and expenses are recognised on The consolidated financial statements also reflect the standards a pro-rata basis; they are shown for the period to which they may be approved by the German Accounting Standards Board (GASB) and assigned in economic terms. published by the German Federal Ministry of Justice pursuant to Art. 342, (2), HGB. As a matter of principle, accounting is at net book value, with the exception of financial instruments as defined by IAS 39, which are The comdirect sub-group is included in the consolidated financial shown at their fair value. These financial instruments appear under the statements of our parent company. The consolidated financial state- balance-sheet item investments and securities portfolio. All financial ments of Commerzbank as of 31 December 2003 were deposited with instruments are shown in the balance sheet in accordance with the the lower regional court (Amtsgericht) of Frankfurt am Main, commer- “trade date accounting” method. cial register no. 32000, and published in the Federal Gazette, no. 122, pages 13,024 to 13,064 of 3 July 2004. With the exception of comdirect private finance AG, all the companies included in the consolidation prepared their financial statements as of 31 December 2004. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 61 comdirect private finance AG prepared its annual financial statements software purchased are reported under intangible assets. Only office for its financial year from 1 October 2003 through 30 September furniture and equipment is reported under fixed assets. The figures for 2004. comdirect private finance AG also prepared financial statements the previous year have been adjusted pursuant to IAS 1. for the period from 1 October 2004 to 31 December 2004 (short finan- cial year). We adjusted the annual financial statements as of the ref- (3) IAS, SIC and GASB rules applied erence date 31 December 2004 pursuant to IAS 27 taking into Within the comdirect bank group and within the Commerzbank group, account the financial statements for the short financial year. to which it belongs, only those IFRSs/IASs and SICs are applied for accounting and measurement purposes, which have been approved (2) Changes in reporting and published by 31 December 2004. The changes to various stand- With regard to the statements (IDW RS HFA 11) issued by the Institut ards brought about by the “Improvement Project” and which are to be der Wirtschaftsprüfer (IDW – Institute of Chartered Accountants) on applied latest in financial year 2005 are the exception to this. accounting for software purchased, both proprietary software and The consolidated financial statements are based on the IASB framework and the following IFRSs/IASs relevant for comdirect bank: IAS 1 Presentation of financial statements IAS 7 Cash flow statements IAS 8 Accounting and valuation methods, changes in estimates and errors IAS 10 Events after the balance-sheet date IAS 12 Income taxes IAS 14 Segment reporting IAS 16 Property, plant and equipment IAS 17 Leases IAS 18 Revenue IAS 19 Employee benefits IAS 21 The effects of changes in exchange rates IAS 24 Related party disclosures IAS 27 Consolidated financial statements and separate financial statements in accordance with IFRS IAS 30 Disclosures in the financial statements of banks and similar financial institutions IAS 32 Financial instruments: disclosure and presentation IAS 33 Earnings per share IAS 35 Discontinued operations IAS 36 Impairment of assets IAS 37 Provisions, contingent liabilities and contingent assets IAS 38 Intangible assets IAS 39 Financial instruments: recognition and measurement IAS 40 Investment property We did not apply IFRS 1, 2, 3, 4 and 5 and IAS 2, 11, 20, 23, 26, 28, 29, 31, 34 and 41, since they are either not relevant to us or are not applicable to the consolidated financial statements. 62 In addition to the Standards listed, we have taken into consideration the following SIC interpretations relevant to our consolidated financial statements: Relating to: SIC-6 Costs of modifying existing software (framework) IASB framework SIC-7 Introduction of the euro IAS 21 SIC-12 Consolidation – special purpose entities IAS 27 SIC-15 Operating leases – incentive agreements IAS 17 SIC-18 Consistency – alternative methods IAS 1 SIC-30 Reporting currency – translation from valuation currency to presentation currency IAS 21, IAS 29 SIC-32 Intangible assets – website costs IAS 38 (4) Consolidated companies Holdings in subsidiaries that are not included in the consolidation due Apart from the parent company, the consolidated companies consist to their minor importance are shown at historical cost in the invest- of one subsidiary, comdirect private finance AG, Quickborn, and ments and securities portfolio. two special funds, special purpose entities (SPE) in accordance with SIC-12. (6) Currency translation The items from the income statement and also the assets and comdirect bank AG holds 100% of the shares of the subsidiary and the liabilities from the balance sheet which are denominated in foreign special purpose entities. currencies are translated at the spot rates of the balance-sheet date. A contract was signed on 15 June 2004 for the sale of comdirect ltd, (7) Claims London/UK to Execution Services Group Limited. Adjusted for All claims on banks and customers originated by comdirect bank group rebranding costs totalling €1.5m, the net proceeds from the sale are shown at amortised costs without valuation allowances. amounted to €15.0m. Claims not originated by comdirect bank – promissory notes – that are As a result, comdirect ltd London/UK no longer forms part of the scope not held for trading purposes are included in the item investments and of consolidation and has been deconsolidated with effect from securities portfolio. 31 March 2004. Valuation allowances to claims appear under provision for possible A comprehensive overview of the subsidiaries and special funds loan losses. belonging to the comdirect bank group appears on page 92 (en- titled holdings). (8) Provision for possible loan losses We fully provide for the particular credit risks associated with banking (5) Principles of consolidation business by forming individual valuation allowances, country valuation The consolidation of the capital accounts is based on the book-value allowances and global valuation allowances. method, whereby the historical cost of the holding in the subsidiary is set off against the proportion of the subsidiary’s equity as of the date Valuation allowances were formed exclusively for claims on customers of acquisition. in the 2004 consolidated financial statements. Intra-group expenses and income, as well as claims and liabilities, are Throughout the group, the relevant individual valuation allowances eliminated as part of the consolidation. have been formed to the amount of the potential default to cover credit-standing risks related to claims on customers. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 63 Country valuation allowances were formed for claims in which All the interest income generated by securities of the “available- security is provided via securities involving an enhanced transfer risk for-sale” category is shown in the income statement under interest (country risk). We have reviewed the respective claim after deduction income. of the security provided to us – without taking into consideration the securities involving an enhanced transfer risk – and formed a This interest income amounts to €40,451 thousand as of the end of corresponding country valuation allowance based on the existing financial year 2004. risk volume. (10) Intangible assets We cover potential credit risks by means of global valuation Under intangible assets we include proprietary specialised software allowances. Past loan losses serve as a yardstick for the scale on which and purchased standard software. such valuation allowances have to be formed. Proprietary software is recognised if all the provisions of IAS 38 are The provision for possible loan losses is shown separately from claims. met. Recognition is made at producer cost. Unrecoverable accounts are written down immediately. Amounts In principle, proprietary software and standard software is amortised received on such claims appear in the income statement. Claims are using the straight-line method and according to schedule against deemed unrecoverable if income from them is unlikely to be received earnings over a period of five years. in the foreseeable future or if they have been waived either wholly or in part. Note 2 above – Changes in reporting – refers to the change in finan- cial reporting for purchased standard software. (9) Investments and securities portfolio Under investments and securities portfolio, we show all the securities (11) Fixed assets which we have assigned solely to the “available-for-sale” category. The item fixed assets shows land and buildings and office furniture and equipment. In addition, in accordance with IAS 39, we include in investments and securities portfolio all the claims on banks and customers not originated All the fixed assets are capitalised at historical cost. In accordance with by comdirect bank, in particular promissory notes. IAS 40 we have selected the historical cost approach permitted under this regulation. On the balance-sheet date, all bonds, other fixed-income securities, equities, and other variable-yield securities (investment fund units) not Office furniture and equipment are depreciated using the straight-line held for trading purposes were assigned to the “available-for- method and according to schedule to reflect their probable useful sale” category. economic lives. All the securities of this category were measured at their fair value. In determining the useful life, its likely physical wear and tear, its technical obsolescence as well as legal and contractual restrictions are Gains or losses on remeasurement are recognised with an income- taken into consideration. neutral effect in the form of a revaluation reserve as part of equity, taking into account deferred taxes. Realised gains and losses only All fixed assets are depreciated over a period of 3 to 14 years. affect the income statement when the holdings are sold or written-off. Gains and losses arising from the sale of fixed assets are shown in the The earnings resulting from the sale or maturity of financial instruments income statement under other operating result. amounted to €3,593 thousand as of the end of financial year 2004. Corresponding losses amounted to €2,101 thousand. Purchased standard software is reported under intangible assets for the first time in financial year 2004 (see note 10 Intangible assets). 64 Please see note 2 above – Changes in reporting – for the change in Members of the Board of Managing Directors receive the second financial reporting for purchased standard software. pension in the form of an indirect (premium-related) commitment, for which the comdirect bank group pays a fixed premium to (12) Other assets Versicherungsverein des Bankgewerbes a. G., Berlin (BVV). Other assets principally consist of other claims on Commerzbank AG and deferred items. Payment of the contributions to BVV are recognised as personnel costs for the current period. (13) Liabilities Liabilities are shown at the respective amounts to be repaid. The commitments similar to those for pensions include deferred compensation. (14) Other liabilities Other liabilities consist of liabilities to Commerzbank not arising from These refer to an offer to the Board of Managing Directors and a banking activities, trade liabilities, tax liabilities not related to earnings. specific group of employees whereby they give up a portion of their gross salary for pension benefits later on. (15) Provisions for pensions and similar commitments comdirect bank AG has insured by means of a contractual trust agree- The Board of Managing Directors of comdirect bank AG participates ment old-age pension commitments which are not covered against in at least two company pension schemes. insolvency by Pensions-Sicherungs-Verein (PSV). In the first company pension scheme, the members of the Board of In this connection, the trustee required for a bilateral trust was Managing Directors earn a right to a pension for their work as established by Commerzbank AG in the form of the Commerzbank members of the Board of Managing Directors at comdirect bank AG. Pension-Trust e. V. The commitments for this type of old age pension provision are based As of 31 December 2004, comdirect bank AG had transferred a total on the years of service, the pensionable salary and the current scales of €1,050 thousand (2003: €168 thousand) to the trust’s assets. for employer subsidies. In accordance with IAS 19, this pledged asset in its fair value is set off In accordance with IAS 19, the projected unit credit method was used against the allocations to the pension provisions. to calculate pension commitments. The pension costs relating to the pension for members of the Board of Commitments are calculated on the basis of actuarial surveys by an Managing Directors and deferred compensation to be recognised in independent actuary. The calculation also takes into account the rates the income statement comprise the service cost and the interest cost. of increase for salaries and pensions that can be expected in the future. Any actuarial increase or decrease in commitments resulting from the solution based on a 10 percent range is also recognised in the income statement in the relevant period. The net income generated from the trust assets is set off against the costs. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 65 (16) Other provisions (18) Conditional and authorised capital Other provisions were formed on the scale deemed necessary for Through the resolution adopted on 28 April 2004, and its entry into liabilities of uncertain amount towards third parties and for anticipated the commercial register on 10 June 2004, authorised capital of losses related to pending transactions. €60,000 thousand was created. The authorisation for the capital increase expires on 27 April 2009. (17) Income taxes Current tax assets and liabilities are calculated by applying the valid The Board of Managing Directors is authorised, with the consent of the tax rates at which a refund from or a payment to the relevant fiscal Supervisory Board, to increase the share capital of the company by authorities is expected. issuing new shares against cash or non-cash contributions on one or more occasions up to a maximum amount of €60,000 thousand. The Deferred taxes were formed in accordance with IAS 12. Temporary shareholders’ subscription right may be partially excluded by the Board differences are the result of the discrepancy between assigned values of Managing Directors, with the consent of the Supervisory Board. in accordance with IFRS/IAS and the respective tax rate that was applied. These temporary differences are measured using the German In addition, since the resolution adopted on 11 May 2000, and entered income-tax rates, which can be expected to apply for the period in into the commercial register on 31 May 2000, conditional capital of which they are realised. €3,600 thousand was created in order to service up to 3,600,000 subscription rights as part of the bank’s stock option programme Deferred taxes on as yet unused losses carried forward are shown in (conditional capital I). the balance sheet if taxable profits are likely to occur at the same tax unit. As of 31 December 2004, conditional capital I amounts to €3,592,250.00 due to the issue of 7,750 new bearer shares of Deferred tax assets and liabilities are formed and carried such that – comdirect bank AG. depending on the treatment of the underlying item – they are recog- nised either under taxes on income in the income statement or they Through the resolution adopted on 7 May 2003, and its entry into the are set off against the relevant equity item with no effect on the commercial register on 17 July 2003, an additional conditional income statement. capital of €30,000 thousand was created (conditional capital II). Deferred tax assets and liabilities are netted against one another, as The conditional capital II will only be effected to the extent that the they exist towards the same tax authority. holders of any bonds with warrants and/or convertible bonds may exercise their option or conversion rights. Claims on tax authorities are shown under tax assets in the balance sheet. The Board of Managing Directors is authorised to issue, with the approval of the Supervisory Board, bearer bonds with warrants and/or Other taxes not related to income appear under other operating result convertible bonds as mentioned above on one or more occasions, up to in the income statement. a maximum amount of €300,000 thousand. The term of these bonds is limited to a maximum of 20 years. This authorisation is limited until In financial year 2004, turnover tax unity was maintained only with 6 May 2008. Commerzbank AG, Frankfurt am Main. The tax unit also comprises comdirect private finance AG, Quickborn. (19) Appropriation of profits Basis for the appropriation of profits is the national legislation, espe- A breakdown of this item into current and deferred taxes can be found cially the German Commercial Code and the Stock Corporation Act. in these notes on page 72, note 30. For financial year 2004, comdirect bank AG reported a distribut- able profit according to federal legislation in the amount of €33,721,860.00. 66 The Board of Managing Directors and the Supervisory Board of Eligible participants are members of the Board of Managing Directors comdirect bank AG will propose to the annual general meeting a of comdirect bank AG, members of the executive bodies of affiliated dividend payment in the amount of €0.24 per no-par-value bearer companies, as well as executives and selected members of staff of share. comdirect bank AG and affiliated companies. The consolidated profit of the comdirect bank group based on the The Board of Managing Directors of comdirect bank AG individually applied IFRS/IAS also amounts to €33,722 thousand for financial selects the eligible participants. Where members of the Board of year 2004. Managing Directors are concerned, the Supervisory Board of the company makes the decision. (20) Earnings per share Earnings per share are calculated in accordance with IAS 33 and based The subscription rights may be granted at any time, but only until on the net profit for the year. Both the earnings per share and the 1 July 2005. diluted earnings per share are shown below the income statement. A total of 3,104,580 subscription rights in five tranches were issued In working out the earnings per share, we have set off the net profit through 31 December 2004. Of these subscription rights issued, a total for the year against the average number of shares in the financial year. of 787,440 have expired. The diluting effects result from a stock option programme launched in The subscription rights are equally divided into two subsets, which are July 2000 with a maximum of 3,600,000 subscription rights, of which different with regard to the exercise hurdles and the exercise price. Half approximately 3.1 million option rights had been issued in five of the subscription rights are thus always granted as subset A, and the tranches as of 31 December 2004. other half always as subset B. In calculating the diluted results, we also set off the two subsets of Eligible participants receive the right to purchase one bearer share rights under the stock option programme with their conditions against of comdirect bank AG, which carries a proportion of the share well-founded estimated values for them and took account of the capital in the sum of one euro, per subscription right under the residual amount. stipulated conditions. Each no-par-value bearer share carries a proportion of the share Subscription rights may only be exercised if stipulated targets capital in the sum of one euro. are attained. (21) Trust activities The following applies for subset A: Trust activities whose basis is the management or placement of assets The comdirect bank share outperforms the Prime Financial Services for the account of third parties are not disclosed in the balance sheet Price Index (previously NEMAX 50 Price Index) by more than five of comdirect bank in accordance with IAS 30. percentage points. Commission payments arising from such activities are recorded in the The following applies for subset B: income statement under net commission income. The absolute rise in the price of the comdirect bank share for subscrip- tion rights granted in 2000 is at least 25% compared to the issuing (22) Stock option programme price and for subscription rights granted beginning in 2001 or later a Under the stock option programme as approved by the annual rise of at least 20% compared to an average price determined prior general meeting resolution of 11 May 2000, up to 3,600,000 subscription to the time that they were granted. rights may be issued. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 67 The price that an eligible participant has to pay to comdirect bank AG On 8 February 2000, comdirect concluded another general agree- when exercising a subscription right corresponds to: ment with Commerzbank, in which Commerzbank undertook to provide internal auditing services on the basis of a plan to be agreed separately. for subset A: The agreement was concluded for an indefinite period and may be the daily price at the time of exercise minus 1% for every full per- terminated giving six months’ notice before the end of the calendar year. centage point of outperformance of the index over five percentage points, but at least 90% of the daily price for options granted between Outside of the general agreement, a separate agreement was con- 2000 and 2002 or 70% of the daily price for options granted in 2003. cluded with Commerzbank on 7 September 2000, covering the usage of the electronic security trading system “Intelligence Commerzbank”, for subset B: formally known as the “Warrant Trading System (WTS)”. The agreement the daily price at the time of exercise minus 1% for every full per- was concluded for an indefinite period and can be terminated at any centage point by which the absolute rise in the price of comdirect bank time without giving notice. share is higher, but at least 50%, of the daily price. Within the general agreement, a new service agreement “Determination 4,400 subscription rights were exercised in financial year 2004. All sub- of Risk Ratios” was concluded on 7 January 2003. scription rights were apportionable to subset A. For these exercised subscription rights, the same number of bearer shares of comdirect As part of the minimum requirements for trading activities of credit bank AG were issued. institutions, comdirect bank has to monitor the risk content of its trading activities on a daily basis. In this regard, Commerzbank furnishes As a result, the share capital of comdirect bank AG was increased by the daily determination of risk ratios based on data provided by €4,450.00 and the relevant payment established in connection with comdirect bank AG. the stock option programme was allocated to the capital reserve pursuant to Art. 270 HGB. The capital reserve therefore increased by On 27 August 2004, comdirect bank AG concluded a sales and agency a total of €21,323.00 in financial year 2004. agreement with Commerzbank AG on the sale of general trust agree- ments. As part of the general trust agreements concluded by comdirect (23) Relations with affiliated companies bank AG, Commerzbank AG exercises certain rights and obligations comdirect bank AG uses services provided by Commerzbank AG under a power of attorney. through a general agreement concluded in December 1999 (and effective as from 1 January 1999), as well as services agreed separately comdirect bank AG is party to an agreement of Commerzbank with on this basis. Brown Brothers Harriman, enabling comdirect to trade on US stock exchanges. The general agreement was automatically extended for a further period of three years on 31 December 2003. The term of the general On 22 March 2000, comdirect bank AG concluded an agreement with agreement now runs until 31 December 2006. Commerzbank concerning support for comdirect after its IPO. Among other things, the agreement relates to support for PR activities, On the basis of the general agreement, the following services were compliance with stock exchange and other obligations resulting from agreed upon and were used during financial year 2004: admission to the stock exchange and advice on the holding of the public annual general meeting of shareholders. Trading Services Processing Services On 29 May 2000, comdirect bank AG concluded an agreement with Printing services Commerzbank concerning the cash receiving office and depository Payments and cash dispenser service services for the shares of comdirect bank AG. IT services Other services 68 comdirect currently offers its customers approximately 5,600 funds from The letters of comfort provided in 2003 to secure the repayment claims more than 110 investment companies, including investment companies of insurance companies in the event of contract cancellations were time- of the Commerzbank group. In financial year 2004, comdirect received limited until a profit-and-loss-transfer agreement came into force. No commissions on portfolio holdings and sales at prevailing market rates letters of comfort were therefore in place as of 31 December 2004. from the investment companies of the Commerzbank group. In a letter dated 29 April 2004, comdirect bank AG granted comdirect On 12 November 2003, an agreement for the supply of services was con- private finance AG a loan of €5,000 thousand in order to finance cluded between Commerz Service Gesellschaft für Kundenbetreuung operating capital and furnish guarantees. mbH (CSG), a wholly-owned subsidiary of Commerzbank, and comdirect bank AG. The two companies support each other in the areas of comdirect private finance AG uses services provided by comdirect bank customer services and technical hotline. In the event of one company AG on the basis of the general agreement concluded on 1 October 2003 requiring additional staff, employees from the other company will be together with associated service agreements. delegated to that company and vice versa. Based on the general agreement, the following services plans were In addition, comdirect bank AG unilaterally makes available to CSG concluded and services procured in financial year 2004: personnel, technical and organisational resources. This provision of services was contractually documented in a service agreement signed Financial and controlling services on 25 March 2003. Organisational services Personnel support and administrative services Commerzbank and CSG received compensation in line with market rates Telecommunications and IT services for the goods and services they provided for comdirect. Auditing services comdirect bank AG has insured old-age pension commitments which are In addition, a sub-lease was concluded concerning the use of not covered against insolvency by Pensions-Sicherungs-Verein (PSV) premises at the Quickborn location. by means of an allocation to trust assets with Commerzbank Pension- Trust e. V. As security for the offices leased by comdirect private finance AG, comdirect bank AG submitted lease guarantees for each office. The As of 31 December 2004, the allocation of trust assets administered in volume as of 31 December 2004 amounted to a total of €138 the trust totalled €1,050 thousand (2003: €168 thousand). thousand. comdirect private finance AG is a wholly-owned subsidiary of comdirect comdirect bank AG received compensation in line with market rates bank AG. for the goods and services it provided for comdirect private finance AG. As of 31 December 2004, comdirect bank AG had provided equity With an agreement dated 9 January 2003, comdirect bank AG totalling €5,000 thousand to comdirect private finance AG. acquired a holding in WST-Broker GmbH, Frankfurt am Main. WST-Broker GmbH routes customer orders to execution on the With the profit-and-loss-transfer agreement concluded for an unlimit- trading floors on behalf of comdirect bank AG. ed period of time on 26 January 2004 comdirect private finance AG was incorporated in comdirect bank AG in financial, economic and organi- sational terms with retrospective effect from 1 October 2003. Five years after contract conclusion, the profit-and-loss-transfer agreement can be cancelled with six months’ notice to the end of a financial year. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 69 Notes to the income statement (24) Net interest income € thousand 2004 2003 Change in % Interest and dividends from shares and other variable-yield securities held in the available-for-sale portfolio 354 344 2.9 Interest income from fixed-income securities held in the available-for-sale portfolio and from government-inscribed debt 40,451 37,831 6.9 Other interest income including discount surplus 45,050 46,714 – 3.6 Operating income from investments and subsidiaries 262 0 – Interest income 86,117 84,889 1.4 Interest on profit-sharing certificates outstanding and subordinated liabilities 0 1,494 – 100.0 Other interest expenses 29,165 26,188 11.4 Interest expenses 29,165 27,682 5.4 Total 56,952 57,207 – 0.4 (25) Provision for possible loan losses The provisions of the comdirect bank group break down as follows: € thousand 2004 2003 Change in % Allocations to provisions 1,453 2,762 – 47.4 Write-back of provisions 1,479 2,904 – 49.1 Direct write-downs 364 122 198.4 Income received on written-down claims 48 15 220.0 Total – 290 35 – 928.6 (26) Net commission income € thousand 2004 2003 Change in % Securities transactions 83,091 81,339 2.2 Payment transactions 1,933 1,640 17.9 Other commission 2,069 128 1,516.4 Total 87,093 83,107 4.8 70 (27) Income from investments and securities portfolio The disposal proceeds and gains and losses on available-for-sale securities, claims not originated by the bank, investments, investments in associated companies, and holdings in subsidiaries which have not been consolidated are shown under the net result for investments and securities portfolio. € thousand 2004 2003 Change in % Result from available-for-sale securities portfolio 1,492 4,574 – 67.4 Result from disposals and measurements of investments, investments in associated companies and holdings in subsidiaries 2,366 186 1,172.0 Total 3,858 4,760 – 18.9 All the investments, investments in associated companies, holdings in subsidiaries which have not been consolidated were subject to an impairment test as of 31 December 2004. Overall, no relevant adjustments occurred. (28) Administrative expenses The comdirect bank group’s administrative expenses consist of personnel costs, other administrative expenses and depreciation of office furniture and equipment as well as on other intangible assets. Personnel costs € thousand 2004 2003 Change in % Wages and salaries 24,265 26,273 – 7.6 Compulsory social security contributions 4,101 4,113 – 0.3 Expenses for pensions and other employee benefits 435 1,287 – 66.2 Total 28,801 31,673 – 9.1 Breakdown of expenses for pensions and other employee benefits € thousand 2004 2003 Change in % Company pension scheme 430 1,280 – 66.4 Contributions to Versicherungsverein des Bankgewerbes a. G. (BVV) 5 7 – 28.6 Total 435 1,287 – 66.2 Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 71 Other administrative expenses € thousand 2004 2003 Change in % Marketing costs 16,460 12,364 33.1 Communication costs 2,045 4,042 – 49.4 Consulting costs 9,550 9,396 1.6 External services 18,804 17,942 4.8 Sundry administrative expenses 16,381 20,553 – 20.3 Total 63,240 64,297 – 1.6 Expenses incurred under operating leases are treated as rental and reported under sundry administrative expenses. Depreciation of office furniture and equipment and intangible assets € thousand 2004 2003 Change in % Office furniture and equipment 4,817 9,120 – 47.2 Intangible assets 6,701 7,404 – 9.5 Total 11,518 16,524 – 30.3 (29) Other operating result The other operating result primarily comprises income from recoverable input taxes and income from the writing-back of provisions. € thousand 2004 2003 Change in % Other operating expenses 662 1,702 – 61.1 Payments to settle customers’ complaints/provisions for process risks in Direct Brokerage business 477 795 – 40.0 Losses on the disposal of property, plant and equipment 17 67 – 74.6 Sundry expense items 168 840 – 80.0 Other operating income 7,698 8,189 – 6.0 Income from recoverable input taxes 1,091 1,061 2.8 Income from writing-back of provisions and accruals 4,018 4,257 – 5.6 Gains on the disposal of non-current assets 0 225 – 100.0 Income from service level agreements 1,576 1,327 18.8 Sundry income items 1,013 1,319 – 23.2 Total 7,036 6,487 8.5 72 (30) Taxes on income € thousand 2004 2003 Change in % Current taxes on income 17,069 8,846 93.0 Deferred taxes 52 6,895 – 99.2 Total 17,121 15,741 8.8 Transitional presentation of taxes on income € thousand 2004 Profit from ordinary activities 51,090 multiplied by the German income-tax rate of 35.70% = Calculated income-tax paid in financial year 18,239 – Tax free income from the disposal of shares in affiliated companies 1,187 + Other effects 69 Total 17,121 The income-tax rate selected as a basis for the transitional presentation is made up of the corporation-tax rate of 25.0% applicable in Germany for 2004, plus solidarity surcharge of 5.5%, and a rate of 14.5% for trade earnings tax. Taking into account the deductibility of trade earnings tax, the German income-tax rate is approximately 35.70%. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 73 Notes to the balance sheet (31) Cash reserve The cash reserve includes the following items: € thousand 31.12.2004 31.12.2003 Change in % Cash on hand 202 139 45.3 Balances held at central banks 3,330 1,610 106.8 Total 3,532 1,749 101.9 The minimum reserve requirement to be met at the end of December 2004 totalled €46,870 thousand (2003: €52,389 thousand). (32) Claims on banks € thousand Total Due on demand Other claims 31.12.2004 31.12.2003 Change 31.12.2004 31.12.2003 31.12.2004 31.12.2003 in % German banks 1,366,129 1,159,686 17.8 428,875 560,349 937,254 599,337 Foreign banks 5,000 150,748 – 96.7 5,000 150,748 0 0 Total 1,371,129 1,310,434 4.6 433,875 711,097 937,254 599,337 Claims on banks include foreign-currency amounts equal to €0 thousand (2003: €150,065 thousand). Claims on banks primarily consist of overnight money and fixed-term deposits (€1,364,254 thousand/2003: €1,269,398 thousand including accrued interest). (33) Claims on customers Claims on customers break down as follows: € thousand Total Due on demand Other claims 31.12.2004 31.12.2003 Change 31.12.2004 31.12.2003 31.12.2004 31.12.2003 in % Claims on German customers 162,760 179,339 – 9.2 161,699 177,941 1,061 1,398 Private customers 162,760 179,339 – 9.2 161,699 177,941 1,061 1,398 Claims on international customers 3,380 4,434 – 23.8 3,380 4,434 0 0 Private customers 3,380 4,434 – 23.8 3,380 4,434 0 0 Total 166,140 183,773 – 9.6 165,079 182,375 1,061 1,398 All claims on private customers are deemed to be due on demand. Claims on customers include €155,066 thousand (2003: €164,427 thousand) from loans to purchase securities. These claims are secured by securities. With regard to the concentration of credit risks, we would point out that the original lending business is carried out with private customers only. Claims on customers also include foreign-currency amounts equal to €0 thousand (2003: €440 thousand). 74 (34) Provision for possible loan losses € thousand Individual Country Global Total valuation allowances valuation allowances valuation allowances 31.12.2004 31.12.2003 31.12.2004 31.12.2003 31.12.2004 31.12.2003 31.12.2004 31.12.2003 Change in % Balance as of 1 January – 4,699 – 6,306 – 254 0 – 813 – 49 – 5,766 – 6,355 9.3 Allocations – 1,206 – 1,744 0 – 254 – 247 – 764 – 1,453 – 2,762 – 47.4 Deductions 4,716 3,351 47 0 0 0 4,763 3,351 42.1 of which utilised 3,284 447 0 0 0 0 3,284 447 634.7 of which reversals 1,432 2,904 47 0 0 0 1,479 2,904 – 49.1 Provision for possible loan losses as of 31 December – 1,189 – 4,699 – 207 – 254 – 1,060 – 813 – 2,456 – 5,766 57.4 The adjusted value of non-interest bearing and non-productive claims amounts to €282 thousand (2003: €3,808 thousand). The comdirect bank group made a direct write-down of €364 thousand (2003: €122 thousand) and recorded receipts on claims written down of €48 thousand (2003: €15 thousand). Taking into account additions and write-backs recognised in the income statement, this produces risk costs of – €290 thousand (2003: €35 thousand). The significant downturn in individual valuation allowances is due to the sale of non-performing loans with a total principal claim volume of €4.5 million to an institutional investor. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 75 (35) Investments and securities portfolio The item investments and securities portfolio consists of the bonds and notes and other fixed-income securities, equities and other variable- yield securities not held for trading purposes, as well as investments, holdings in subsidiaries not included in the consolidation and claims not originated by the bank – promissory notes. The financial instruments shown in investments and securities portfolio are allocated to the category available-for-sale and, with the exception of investments and holdings in subsidiaries not included in the consolidation, are valued at market prices. € thousand 31.12.2004 31.12.2003 Change in % Bonds, notes and other fixed-income securities of the available-for-sale portfolio 1,396,998 1,816,568 – 23.1 Money-market instruments 201,139 452,437 – 55.5 issued by public-sector borrowers 0 0 – issued by other borrowers 201,139 452,437 – 55.5 Bonds and notes 1,195,859 1,364,131 – 12.3 issued by public-sector borrowers 36,789 27,693 32.8 issued by other borrowers 1,159,070 1,336,438 – 13.3 Shares and other variable-yield securities of the available-for-sale portfolio 14,735 14,668 0.5 Investments 0 0 – Holdings in subsidiaries 27 27 0.0 Claims on customers not originated by the bank – promissory notes – 1,445 62,599 – 97.7 Total 1,413,205 1,893,862 – 25.4 As of the balance-sheet date, no financial instruments had been lent to customers as part of the securities lending business (2003: €13,954). (36) Intangible assets € thousand 31.12.2004 31.12.2003 Change in % Proprietary software 8,455 11,905 – 29.0 Software purchased 1,635 2,870 – 43.0 Total 10,090 14,775 – 31.7 Changes in intangible assets are shown in the schedule of assets (note 38). (37) Fixed assets € thousand 31.12.2004 31.12.2003 Change in % Land and buildings 3,309 3,309 0.0 Office furniture and equipment 9,237 14,681 – 37.1 Total 12,546 17,990 – 30.3 Changes in fixed assets are shown in the schedule of assets (note 38). 76 (38) Schedule of assets € thousand Fixed assets Land and Office furniture buildings and equipment 2004 2003 2004 2003 Book value as of 1 January 3,309 3,309 14,681 21,318 Costs of acquisition/manufacture as of 1 January 3,309 3,309 59,790 58,262 Additions 0 0 1,430 2,548 Disposals 0 0 – 9,283 – 1,020 Costs of acquisition/manufacture as of 31 December 3,309 3,309 51,937 59,790 Cumulative write-downs as of 1 January 0 0 45,109 36,944 Additions 0 0 4,507 9,120 Disposals 0 0 – 6,916 – 955 Cumulative write-downs as of 31 December 0 0 42,700 45,109 Book value as of 31 December 3,309 3,309 9,237 14,681 € thousand Intangible assets Proprietary Software software purchased 2004 2003 2004 2003 Book value as of 1 January 11,905 14,094 2,870 3,548 Costs of acquisition/manufacture as of 1 January 43,141 39,795 16,308 15,154 Additions 2,652 3,346 390 1,225 Disposals – 2,781 0 – 493 – 71 Costs of acquisition/manufacture as of 31 December 43,012 43,141 16,205 16,308 Cumulative write-downs as of 1 January 31,236 25,701 13,438 11,606 Additions 5,408 5,535 1,603 1,869 Disposals – 2,087 0 – 471 – 37 Cumulative write-downs as of 31 December 34,557 31,236 14,570 13,438 Book value as of 31 December 8,455 11,905 1,635 2,870 € thousand Investments Holdings in subsidiaries 2004 2003 2004 2003 Book value as of 1 January 0 866 27 12,800 Costs of acquisition/manufacture as of 1 January 10,500 11,366 27 12,800 Additions 0 0 0 – 27 Disposals 0 – 866 0 – 12,800 Costs of acquisition/manufacture as of 31 December 10,500 10,500 27 27 Cumulative write-downs as of 1 January 10,500 10,500 0 0 Additions 0 866 0 0 Disposals 0 – 866 0 0 Cumulative write-downs as of 31 December 10,500 10,500 0 0 Book value as of 31 December 0 0 27 27 Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 77 (39) Other assets € thousand 31.12.2004 31.12.2003 Change in % Deferred items 1,151 2,790 – 58.7 Sundry assets 2,627 6,523 – 59.7 Total 3,778 9,313 – 59.4 Other assets break down as follows: € thousand 31.12.2004 31.12.2003 Claims on group companies 135 882 Claims on affiliated companies 0 14 Other 2,492 5,627 Total 2,627 6,523 (40) Liabilities to customers € thousand Total Due on demand With agreed maturity or withdrawal notice 31.12.2004 31.12.2003 Change 31.12.2004 31.12.2003 31.12.2004 31.12.2003 in % Liabilities to German private customers 2,274,179 2,577,648 – 11.8 1,679,988 1,600,471 594,191 977,177 Liabilities to international private customers 64,282 197,143 – 67.4 50,415 182,773 13,867 14,370 Total 2,338,461 2,774,791 – 15.7 1,730,403 1,783,244 608,058 991,547 Liabilities to customers include foreign-currency amounts equal to €0 thousand (2003: €143,237 thousand). Through the depositor protection fund of the German banking association Bundesverband deutscher Banken e. V., Cologne, each customer is insured for deposits of up to €161 million. In addition, comdirect bank AG is a member of Entschädigungseinrichtung deutscher Banken GmbH. 78 (41) Provisions € thousand 31.12.2004 31.12.2003 Change in % Provisions for pensions and similar commitments 3,093 3,520 – 12.1 Other provisions 12,266 15,036 – 18.4 Total 15,359 18,556 – 17.2 Provisions for pensions: € thousand as of Pension Allocation Market as of 1.1.2004 commitments value of the 31.12.2004 plan assets Projected benefit obligation (PBO) 3,520 79 596 – 944 3,093 Pension commitments are determined on an annual basis by an independent actuary using the projected unit credit method. As of 31 December 2004, the projected unit credit value of pension commitments amounted to €4,659 thousand (2003: €3,942 thousand). The difference between this and the provisions for pensions is the result of changes in the actuarial parameters and accounting policies amounting to €453 thousand (2003: €253 thousand) and the market value of the plan assets of €1,113 thousand (2003: €169 thousand). The allocations to provisions for pensions break down as follows: € thousand 31.12.2004 Service cost 379 Interest cost 217 Cost arising from changes in actuarial calculations 0 Total 596 Changes in the trust assets administered by Commerzbank Pension-Trust e. V., which are to be set off against provisions for pensions in accordance with IAS 19: € thousand 31.12.2004 Allocation to the plan assets 938 Income from plan assets 6 Market value of the plan assets 944 The following parameters were included in the actuarial calculations: in % 31.12.2004 31.12.2003 31.12.2002 Calculatory interest rate 5.00 5.50 5.75 Changes in salaries 2.00 3.25 2.75 Changes in pensions 1.40 1.25 1.50 Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 79 Changes in other provisions: € thousand As of Utilised Depreciation Allocation/ As of 1.1.2004 change in 31.12.2004 scope of consoli- dation Provisions for staff 3,153 2,689 464 3,199 3,199 Provisions for anniversary bonuses 45 1 31 0 13 Provisions for non-income-related taxes 560 18 0 0 542 Provisions for contingent losses 8,205 4,435 1,002 2,980 5,748 Provisions for restructuring 1,498 978 260 0 260 Other provisions 1,575 386 250 1,565 2,504 Total 15,036 8,507 2,007 7,744 12,266 Provisions for staff mainly relate to provisions for bonuses. The provisions for staff are scheduled to be used in financial year 2005. Changes in provisions for contingent losses break down as follows: € thousand As of Utilised Depreciation Allocation/ As of 1.1.2004 change in 31.12.2004 scope of consoli- dation Implementation of the com one programme for the future 3,061 792 1,002 0 1,267 Products & Advertising 3,641 3,640 0 230 231 Restructuring 1,503 3 0 0 1,500 Sale of comdirect ltd 0 0 0 2,500 2,500 Other 0 0 0 250 250 Provisions for contingent losses 8,205 4,435 1,002 2,980 5,748 The extent of contingent losses was measured on the basis of the information about expected expenses available when the financial statements were prepared. 80 (42) Tax liabilities Tax liabilities break down as follows: € thousand 31.12.2004 31.12.2003 Change in % Current tax liabilities 6,199 6,005 3.2 Provisions for income taxes 6,199 6,005 3.2 Deferred tax liabilities 3,733 1,365 173.5 Total 9,932 7,370 34.8 Deferred tax claims and liabilities are netted out, since they are both due to the same tax authority. Deferred tax liabilities were created in connection with the following balance-sheet items: € thousand 31.12.2004 31.12.2003 Provisions for possible loan losses – 13 –7 Investments and securities portfolio 3,536 1,312 Intangible assets 3,433 4,304 Fixed assets – 355 – 260 Provisions – 2,467 – 2,951 Equity – 401 – 1,033 Total 3,733 1,365 The German income-tax rate used to compute deferred taxes is composed of the applicable tax rates effective in Germany for corporation tax (25.0%), which is valid again from 2005, plus solidarity surcharge (5.5%) and trade tax (14.5%). Taking into account that trade income tax is deductible, this yields a German income-tax rate of approximately 35.70%. (43) Subordinated capital € thousand 31.12.2004 31.12.2003 Change in % Subordinated liabilities 0 6,391 – 100.0 of which: maturing within two years 0 6,391 – Profit-sharing certificates outstanding 0 10,226 – 100.0 of which: maturing within two years 0 10,226 – Total 0 16,617 – 100.0 The profit-sharing certificates and subordinated liabilities were released as of 1 January 2004 by unanimous agreement by means of cancellation agreements dated 15 December 2003 and 17 December 2003 respectively. The German financial supervisory authority (BaFin) approved the relevant retransfer in accordance with Section 10 of the German Banking Act (KWG). Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 81 (44) Maturities, by remaining lifetime € thousand Total Remaining lifetimes as of 31.12.2004 Due on demand Up to three Three months One to More than and unlimited months to one year five years five years in time Claims on banks 1,371,129 433,875 708,254 157,000 72,000 0 Claims on customers 166,140 165,079 1,061 0 0 0 Bonds, notes and other fixed-income securities of the available-for-sale portfolio 1,396,998 0 274,636 244,259 845,879 32,224 Claims on customers not originated by the bank – promissory notes – 1,445 0 1,445 0 0 0 Total 2,935,712 598,954 985,396 401,259 917,879 32,224 Liabilities to banks 0 0 0 0 0 0 Liabilities to customers 2,338,461 1,730,403 469,691 34,428 103,939 0 Subordinated capital 0 0 0 0 0 0 Total 2,338,461 1,730,403 469,691 34,428 103,939 0 € thousand Total Remaining lifetimes as of 31.12.2003 Due on demand Up to three Three months One to More than and unlimited months to one year five years five years in time Claims on banks 1,310,434 711,097 354,337 185,000 60,000 0 Claims on customers 183,773 182,375 1,398 0 0 0 Bonds, notes and other fixed-income securities of the available-for-sale portfolio 1,816,568 0 51,261 537,197 1,132,062 96,048 Claims on customers not originated by the bank – promissory notes – 62,599 2,113 0 0 60,486 0 Total 3,373,374 895,585 406,996 722,197 1,252,548 96,048 Liabilities to banks 0 0 0 0 0 0 Liabilities to customers 2,774,791 1,783,244 751,053 237,852 2,642 0 Subordinated capital 16,617 0 16,617 0 0 0 Total 2,791,408 1,783,244 767,670 237,852 2,642 0 Time remaining to maturity is considered as the period between the balance-sheet date and the contractual maturity of the claim or obligation. 82 (45) Claims on/liabilities to affiliated companies € thousand 31.12.2004 31.12.2003 Change in % Claims on banks 893,779 338,495 164.0 Liabilities to banks 0 0 – Subordinated capital 0 16,617 – 100.0 Total 893,779 355,112 151.7 (46) Interest-rate risks Interest assets Interest liabilities Interest Interest gap differential € million Interest in % € million Interest in % € million % points Up to one year 2,255 2.64 2,347 1.05 – 92 1.59 One to five years 625 3.41 578 3.08 47 0.33 More than five years 31 4.93 0 0.00 31 4.93 (47) Number of employees at the end of the reporting period 31.12.2004 31.12.2003 Change Total Female Male Total Female Male (Total) in % Employees at the end of the reporting period 616 317 299 589 276 313 4.6 In Germany 616 317 299 512 254 258 20.3 Abroad 0 0 0 77 22 55 – 100.0 At comdirect bank AG 601 313 288 503 253 250 19.5 of which: in the call centre 240 125 115 184 101 83 30.4 in the back office 155 118 37 133 93 40 16.5 in other areas 206 70 136 186 59 127 10.8 The details listed above regarding employees include full-time and part-time staff. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 83 (48) Income statement of comdirect bank group according to IFRS/IAS – year-to-year comparison € thousand 01.01. to 01.01. to 01.01. to 01.01. to 01.01. to 31.12.2004 31.12.2003 31.12.2002 31.12.2001 31.12.2000 Interest income 86,117 84,889 99,220 138,621 121,046 Interest expenses 29,165 27,682 35,324 64,538 63,329 Net interest income before provisions 56,952 57,207 63,896 74,083 57,717 Provision for possible loan losses – 290 35 – 2,037 – 2,074 – 1,966 Net interest income after provisions 56,662 57,242 61,859 72,009 55,751 Commission income 101,657 96,686 79,024 96,957 192,656 Commission expenses 14,564 13,579 1,882 3,939 1,793 Net commission income 87,093 83,107 77,142 93,018 190,863 Trading profit/loss 0 0 – 285 – 29 – 133 Income from investments and securities portfolio 3,858 4,760 1,200 344 0 Administrative expenses 103,559 112,494 138,138 224,317 220,951 Personnel costs 28,801 31,673 38,721 51,432 43,513 Other administrative expenses 63,240 64,297 76,157 144,179 159,162 Marketing costs 16,460 12,364 14,530 55,356 59,148 Communication costs 2,045 4,042 10,792 16,552 19,929 Consulting costs 9,550 9,396 8,956 12,510 22,105 External services 18,804 17,942 23,477 28,992 38,675 Sundry administrative expenses 16,381 20,553 18,402 30,769 19,305 Depreciation of office furniture and equipment and intangible assets 11,518 16,524 23,260 28,706 18,276 Other operating result 7,036 6,487 2,917 6,659 35 Profit from ordinary activities 51,090 39,102 4,695 – 52,316 25,565 Extraordinary result and restructuring costs 0 0 – 23,295 – 98,264 0 Pre-tax profit/loss 51,090 39,102 – 18,600 – 150,580 25,565 Taxes on income 17,121 15,741 – 8,836 10,077 23,371 After-tax profit/loss 33,969 23,361 – 9,764 – 160,657 2,194 Profit/loss attributable to minority interests 0 0 0 0 484 Net profit/loss 33,969 23,361 – 9,764 – 160,657 2,678 84 (49) Income statement of comdirect bank group according to IFRS/IAS – quarterly comparison € thousand 2004 Q1 Q2 Q3 Q4 Interest income 23,964 20,716 20,874 20,563 Interest expenses 7,728 7,535 7,540 6,362 Net interest income before provisions 16,236 13,181 13,334 14,201 Provisions for possible loan losses 45 – 60 – 184 – 91 Net interest income after provisions 16,281 13,121 13,150 14,110 Commission income 35,558 22,618 19,511 23,970 Commission expenses 4,696 2,824 2,747 4,297 Net commission income 30,862 19,794 16,764 19,673 Income/loss from investments and securities portfolio 1,515 2,391 1,634 – 1,682 Administrative expenses 28,795 25,319 23,800 25,645 Personnel costs 7,856 6,202 7,118 7,625 Other administrative expenses 17,498 16,217 14,028 15,497 Marketing costs 4,027 5,238 3,252 3,943 Communication costs 783 682 469 111 Consulting costs 2,521 1,739 1,504 3,786 External services 5,578 5,097 4,976 3,153 Sundry administrative expenses 4,589 3,461 3,827 4,504 Depreciation of office furniture and equipment and intangible assets 3,441 2,900 2,654 2,523 Other operating result 1,110 2,041 1,689 2,196 Profit from ordinary activities 20,973 12,028 9,437 8,652 Pre-tax profit 20,973 12,028 9,437 8,652 Taxes on income 7,431 2,961 3,413 3,316 After-tax profit 13,542 9,067 6,024 5,336 Net profit 13,542 9,067 6,024 5,336 Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 85 € thousand 2003 Q1 Q2 Q3 Q4 Interest income 20,854 19,566 18,883 25,586 Interest expenses 5,484 3,925 4,071 14,202 Net interest income before provisions 15,370 15,641 14,812 11,384 Provision for possible loan losses – 370 – 247 0 652 Net interest income after provisions 15,000 15,394 14,812 12,036 Commission income 18,720 24,208 28,085 25,673 Commission expenses 2,793 3,207 3,817 3,762 Net commission income 15,927 21,001 24,268 21,911 Income from investments and securities portfolio 775 2,224 492 1,269 Administrative expenses 27,961 28,351 24,689 31,493 Personnel costs 8,101 7,934 6,808 8,830 Other administrative expenses 16,126 16,434 13,667 18,070 Marketing costs 3,031 2,439 2,661 4,233 Communication costs 1,697 858 778 709 Consulting costs 2,038 1,972 880 4,506 External services 4,832 4,420 3,820 4,870 Sundry administrative expenses 4,528 6,745 5,528 3,752 Depreciation of office furniture and equipment and intangible assets 3,734 3,983 4,214 4,593 Other operating result 957 98 1,938 3,494 Profit from ordinary activities 4,698 10,366 16,821 7,217 Pre-tax profit 4,698 10,366 16,821 7,217 Taxes on income 2,275 4,164 6,093 3,209 After-tax profit 2,423 6,202 10,728 4,008 Net profit 2,423 6,202 10,728 4,008 86 (50) Segment reporting by business line € thousand 1.1. to 31.12.2004 comdirect comdirect Group comdirect online offline management bank consolidation/ group others total Net interest income before provisions 56,979 – 27 0 56,952 Provision for possible loan losses – 290 0 0 – 290 Net interest income after provisions 56,689 – 27 0 56,662 Net commission income 85,605 1,531 – 43 87,093 Income from investments and securities portfolio 3,858 0 0 3,858 Administrative expenses 99,867 4,910 – 1,218 103,559 Other operating result 7,864 347 – 1,175 7,036 Profit/loss from ordinary activities 54,149 – 3,059 0 51,090 Pre-tax profit/loss 54,149 – 3,059 0 51,090 Taxes on income 16,490 631 0 17,121 After-tax profit/loss 37,659 – 3,690 0 33,969 Net profit/loss 37,659 – 3,690 0 33,969 Acquisition costs of segment assets 4,357 115 4,472 Depreciation on segment assets 10,712 311 11,023 Cost/income ratio 64.7% 265.3% 66.8% Segment income 195,883 4,706 – 1,259 199,330 Segment expenses 141,734 7,765 – 1,259 148,240 Segment assets 2,950,397 2,439 – 1,286 2,951,550 Segment debt 2,339,747 0 – 1,286 2,338,461 Allocation to the segments is based on the business lines of the comdirect bank group. Determination of the business lines was carried out in compliance with IAS 14 and its principle of materiality. Please note that comdirect private finance AG did not begin operations until 1 October 2003. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 87 Segment reporting by business line € thousand 1.1. to 31.12.2003 comdirect comdirect Group comdirect online offline management bank consolidation/ group others total Net interest income before provisions 57,184 23 0 57,207 Provision for possible loan losses 35 0 0 35 Net interest income after provisions 57,219 23 0 57,242 Net commission income 83,094 13 0 83,107 Income from investments and securities portfolio 4,760 0 0 4,760 Administrative expenses 109,044 4,209 – 759 112,494 Other operating result 7,217 29 – 759 6,487 Profit/loss from ordinary activities 43,246 – 4,144 0 39,102 Pre-tax profit/loss 43,246 – 4,144 0 39,102 Taxes on income 14,828 – 1,033 1,946 15,741 After-tax profit/loss 28,418 – 3,111 – 1,946 23,361 Net profit/loss 28,418 – 3,111 – 1,946 23,361 Acquisition costs of segment assets 6,385 734 7,119 Depreciation on segment assets 16,507 17 16,524 Cost/income ratio 71.6% 6,475.4% 74.2% Segment income 195,252 89 – 782 194,559 Segment expenses 152,006 4,233 – 782 155,457 Segment assets 3,383,978 1,839 – 1,765 3,384,052 Segment debt 2,776,556 0 – 1,765 2,774,791 Allocation to the segments is based on the business lines of the comdirect bank group. Determination of the business lines was carried out in compliance with IAS 14 and its principle of materiality. Please note that comdirect private finance AG did not begin operations until 1 October 2003. 88 (51) Other liabilities Rental and lease agreements concluded by the comdirect bank group will lead to expenses of €4,607 thousand in financial year 2005, an average of €2,384 thousand each for the years 2006 to 2009 and an average of €1,232 is expected each year as of financial year 2010. (52) Off-balance-sheet commitments € thousand 31.12.2004 31.12.2003 Change in % Contingent liabilities from guarantees and indemnity agreements Leasing guarantees 138 81 70.4 (53) Trust activities As of the reporting date, the trust activities which need not be disclosed in the balance sheet comprised the following: € thousand 31.12.2004 31.12.2003 Change in % Claims on banks 2,528 0 – Other assets 141,822 0 – Trust assets 144,350 0 – Liabilities to customers 144,350 0 – Trust liabilities 144,350 0 – (54) Letter of comfort In financial year 2003, comdirect bank AG issued letters of comfort on behalf of its wholly owned subsidiary, comdirect private finance AG, to insurance companies with which comdirect private finance AG had concluded agreements for the supply of products. The letters of comfort were time-limited until a profit-and-loss transfer agreement between comdirect bank AG and comdirect private finance AG came into force and would expire latest on 31 December 2005. The profit-and-loss transfer agreement between comdirect bank AG and comdirect private finance AG was approved by the annual general meetings of the two companies on 28 April 2004 and 27 April 2004 respectively, and came into force with retrospective effect from 1 October 2003. As a result, as of 31 December 2004, no letters of comfort were in place. Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 89 (55) Corporate Governance Code comdirect bank AG has submitted the Declaration of Compliance pursuant to Art. 161 of the German Stock Corporation Act (AktG) and has made it permanently available to shareholders on its website at www.comdirect.de. (56) The company’s boards Supervisory Board Martin Blessing Mitja Sack (from 28 April 2004) Frankfurt/Main Quickborn Chairman of the Supervisory Board Commercial employee Member of the Board of Managing Directors of Commerzbank AG, Frankfurt/Main Dr. Eric Strutz Frankfurt/Main Klaus Müller-Gebel Member of the Board of Managing Directors of Commerzbank AG, Frankfurt/Main Frankfurt/Main Deputy Chairman of the Supervisory Board Member of the Supervisory Board of Commerzbank AG, Maria Xiromeriti (until 28 April 2004) Frankfurt/Main Quickborn Deputy Chairman of the Staff Council of comdirect bank AG, Rainer Beaujean Quickborn Darmstadt Commercial employee Member of the Board of Managing Directors of T-Online International AG, Darmstadt Angelika Kierstein Quickborn Chairman of the Staff Council of comdirect bank AG, Quickborn Commercial employee Board of Managing Directors Dr. Andre Carls, CEO (from 10 November 2004) Karin Katerbau (from 2 December 2004) Dr. Achim Kassow (until 7 December 2004; CEO until 9 November 2004) 90 (57) Remuneration and loans to board members In addition to non-variable components, the remuneration of the members of the Board of Managing Directors comprises variable, performance- related components and components providing long-term incentives. The proportion of variable, performance-related components is set by the Presiding Committee of the Supervisory Board as is that of the non-variable components of remuneration. Taking into account commercial and accounting regulations, remuneration of €1,149 thousand was reported for the members of the Board of Managing Directors. Provided that the financial statements of comdirect bank AG are adopted in the present form, the members of the Board of Managing Directors will receive overall remuneration for financial year 2004 as follows: € thousand Dr. Andre Carls Dr. Achim Kassow 1) Karin Katerbau 2) Non-variable components in 2004 177 250 12 Variable remuneration in 2004 257 438 15 Total 434 688 27 In 2003, €650 thousand was paid as variable, performance-related remuneration to the members of the Board of Managing Directors in office at the time. The provisions set up in the previous year were used accordingly. The members of the Board of Managing Directors of comdirect bank AG are eligible under the stock option programme described in note 22. As of the reporting date, the members of the Board of Managing Directors were entitled to the following stock options: Dr. Andre Carls Dr. Achim Kassow 1) Karin Katerbau 2) Number Value Value Number Value Value Number Value Value per option in € per option in € per option in € in € tsd. in € tsd. in € tsd. Tranche 2001, subset A 6,750 0.5883 4 0 0.5883 0 0 0.5883 0 Tranche 2001, subset B 6,750 0.0649 0 0 0.0649 0 0 0.0649 0 Tranche 2002, subset A 12,500 1.0285 13 20,000 1.0285 21 0 1.0285 0 Tranche 2002, subset B 12,500 2.5325 32 20,000 2.5325 51 0 2.5325 0 Tranche 2003, subset A 17,500 0.1600 3 27,500 0.1600 4 0 0.1600 0 Tranche 2003, subset B 17,500 1.0626 19 27,500 1.0626 29 0 1.0626 0 Tranche 2004, subset A 27,500 0.4358 12 0 0.4358 0 17,500 0.4358 8 Tranche 2004, subset B 27,500 1.2485 34 0 1.2485 0 17,500 1.2485 22 Total tranches 128,500 117 95,000 105 35,000 30 As of the reporting date, no exercise windows existed for any of the tranches in accordance with the option terms. The values of the subscription rights as of the reporting date have been determined by an external expert. The mathematical model applied is based on the no-arbitrage pricing according to Black/Scholes. In financial year 2004, €678 thousand was paid to former members of the Board of Managing Directors (2003: €615 thousand). The bank makes retirement provision for current and former members of the Board of Managing Directors and their dependants. As of the reporting date, pension provisions amounted to €3,559 thousand (2003: €3,348 thousand). 1) for the period up to appointment to the Board of Managing Directors of Commerzbank AG 2) for the period following appointment Executive Summary Strategy The share Corporate Governance Management Report Financial Statements Notes 91 In addition, there is a provision for current members of the Board of Managing Directors for anniversary bonuses amounting to €13 thousand (2003: €45 thousand). In accordance with the German Corporate Governance Code, the purchase and sale of comdirect shares and options by members of the Board of Managing Directors must be notified within 30 days where it exceeds €25 thousand. On 27 August 2004, Dr. Achim Kassow, CEO at the time, acquired 5,000 comdirect bank AG shares worth €28 thousand. The remuneration of Supervisory Board members is regulated in Section 16 of our Articles of Association. In addition to the non-variable components, the remuneration comprises a separate component for committee activities and a variable component, which depends on the amount of the dividend to be distributed. Provided that the financial statements of comdirect bank AG are adopted in their present form and that the annual general meeting approves the proposed appropriation of profits, the remuneration of members of the Supervisory Board will total €217 thousand. The remuneration breakdown for the Supervisory Board members is as follows: € thousand Non-variable Variable Remuneration for Total components for 2004 remuneration for 2004 committee activities 2004 Martin Blessing 35 24 35 94 Klaus Müller-Gebel 17 12 9 38 Rainer Beaujean 12 8 0 20 Angelika Kierstein 12 8 6 26 Mitja Sack (from 28.04.2004) 8 5 0 13 Dr. Eric Strutz 12 8 0 20 Maria Xiromeriti (until 28.04.2004) 4 2 0 6 In 2003, €190 thousand was paid to the Supervisory Board members in office at the time. The provisions set up in the previous year were used accordingly. Neither advance payments nor loans were extended. comdirect did not take on any contingent liabilities. 92 Holdings Affiliated companies included in the consolidated financial statements: Name Domicile Share of Equity capital held in % in thousand comdirect private finance AG Quickborn/Germany 100.0 EUR 5,000 SPEs and special funds included in the consolidated financial statements as per IAS 27/SIC 12: Name Domicile/ Share of Fund volume Registered office capital held in % in thousand of the management company CDBS-Cofonds I Frankfurt am Main/Germany 100.0 EUR 112,843 CDBS-Cofonds II Frankfurt am Main/Germany 100.0 EUR 96,882 Other affiliated companies not included in the consolidated financial statements: Name Domicile Share of Equity capital held in % in thousand WST-Broker GmbH Frankfurt am Main/Germany 54.0 EUR 50 Quickborn, 15 February 2005 The Board of Managing Directors Dr. Andre Carls Karin Katerbau 93 Auditor’s Certificate We have audited the consolidated financial statements, voluntarily prepared by comdirect bank Aktiengesellschaft, consisting of the balance sheet, the income statement and the statements of changes in equity and the cash flow statement as well as the notes to the financial statements and the group management report for the financial year 1 January 2004 to 31 December 2004. The preparation of the consolidated financial statements and the group management report are the responsibility of the company’s legal representatives. Our responsibility is to express an opinion, based on our audit, whether the consolidated financial statements are in accordance with Internation- al Financial Reporting Standards (IFRS) and International Accounting Standards (IAS). We conducted our audit of the consolidated financial statements in accordance with German auditing regulations and generally accepted German standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer in Deutschland (IDW) as well as in accordance with the International Standards on Auditing (ISA). These standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. The evidence supporting the amounts and disclosures in the consolidated financial statements are examined on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by the legal represen- tatives, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, based on our audit, the consolidated financial statements dated 31 December 2004 give a true and fair view of the net assets, financial situation, results of operations and cash flows for the financial year in accor- dance with IFRS/IAS. Our audit, which also extended to the group management report prepared by the Board of Managing Directors for the financial year from 1 January 2004 to 31 December 2004, has not led to any reservations. In our opinion, on the whole the group management report provides a suitable understanding of the group’s position and suitably presents the risks of future development. Hamburg, 17 February 2005 BDO Deutsche Warentreuhand Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Rohardt Dr. Zemke German public accountant German public accountant 94 Glossary Accruals Book-value method Sub-category of financial liabilities. They are distinguish- Method of capital consolidation in which the acquisition able from provisions by a significantly higher degree of costs of a holding in a subsidiary is offset against the security in terms of amount or time of settlement equity ratio at the time of the acquisition. obligation. Cash flow Additional order stipulation The cash flow statement shows the funds of a company Condition attached to an order by the purchaser (e.g. that are available for self-financing and profit distribution. ➾ fill or kill) Cash flow is a measure of a company’s financial strength. Extraordinary income or income from other periods is not Available-for-sale included in the cash flow statement. IAS 39 classification which describes financial instru- ments available to sell immediately Certificate Derivative whose performance depends on the price BaFin development of the underlying securities and financial Bundesanstalt für Finanzdienstleistungsaufsicht – products, in particular indices (index certificates) and German financial supervisory authority specially structured stock baskets (basket certificates) Basel II Cluster risks Equity guidelines for financial institutions which will come Cluster risks occur in low diversification portfolios due into effect on 1 January 2006 with a 1-2 year transition to the concurrent development of individual risks in period. The guidelines stipulate how much equity banks certain market constellations. In the lending segment, for require to cover various risks and which methods should example, cluster risks can occur through the over- be used to assess risks. The guidelines also define weighting of certain sectors, as the financial situation of standards to monitor risk management applied by the the borrowers can deteriorate at the same time. banking supervisory authority and set out how risks are to be published. The title of the guidelines is derived from Commission on portfolio holdings the head office of the banking supervisory committee (in fund business) (consisting of representatives from central banks and the Annual fee paid by an investment company to the brokers supervisory bodies of the ten largest industrial states) in of its funds. Basel, which has developed the standards. Conditional capital Bearer shares Capital increase of a joint stock corporation which is only No-par-value shares which are not registered to a par- utilised to the extent required to service conversion or ticular owner (as opposed to registered shares). Transfer subscription rights. of ownership is possible. The share represents a fractional amount of the share capital. Convertible bond Interest-bearing debenture of a joint stock corporation, BIS which can be converted into a fixed number shares in the Bank for International Settlements based in Basel, Switzer- company within a predetermined period. land. The BIS is an international organisation which pro- motes international cooperation in the monetary and Cost/income ratio financial sectors and acts as a bank for central banks. Used to measure cost efficiency, i.e. the relationship between administrative expenses and earnings recorded Bond with warrant in a financial year. Bond issued by a corporation, which contains ➾ war- rants. These give the holder of the option the right to Credit value-at-risk (CVaR) purchase shares in the company during a certain period Risk indicator. Maximum anticipated loss, likely to be at a predetermined price. arising from credit defaults. Bonds Fixed-income securities 95 Cross-selling approach/effects/successes Dividend yield Business that can be generated on the basis of existing Ratio of dividend paid per share to share price. customer relationships by means of products or services not yet used by this customer group. Dow Jones Industrial Average Index Share index which lists the top 30 US shares listed on the Custody account New York Stock Exchange or the Nasdaq. Account in which a bank keeps an investor’s securities. Equity contract DAX Futures contract based on individual underlying shares. German share index. Comprises the top 30 shares listed on the Frankfurt stock exchange. Equity funds Funds which are either largely or exclusively shares- Deferred compensation based. Equity funds are usually structured according to Deferred remuneration. Under an occupational old age geographical factors (regions or countries), economic pension, part of an employee’s salary is invested to later factors (sector or index-based) or size (large/small caps). be converted into pension payments. EUWAX Deferred taxes Trading segment of the Stuttgart Stock Exchange for Income taxes to be paid or received in the future, which securitised ➾ derivatives. mainly result from the different valuation bases used for the tax balance sheet and the commercial balance sheet. Fair value They do not constitute actual tax office claims or Value at which assets and liabilities would normally be liabilities at the time the balance sheet is prepared. traded between business partners. In most cases, the fair value is identical to the market price. Demand deposits Direct access deposits with financial institutions Fill-or-kill order ➾ Additional order stipulation. Describes an ➾ order Deposit volume (e.g. purchase/sale of securities) which is to be cancelled Total volume of customer credit balances in current, call if it cannot be executed in full immediately. money and fixed-term deposit accounts. Fixed-income fund Derivative Investment fund which is exclusively or largely composed Financial product whose market value is determined by of fixed-income securities. an investment product (such as shares, bonds or gold). Options and certificates are derivatives. The basic principle Fixed-term deposit is that services and return services are agreed in advance Sum of money deposited with a financial institution at a for a future date. One purpose of derivatives is to hedge previously agreed rate of interest and term. The minimum against interest and exchange rate fluctuations. notice period is 30 days. Direct bank Floating rate note Bank which conducts its business exclusively by means of Bond with variable interest rate which is usually fixed electronic communication (telephone, internet, etc.) and every three to six months based on the short-term euro- has no branches. market interest rates. Dividend Free float Participation in the profits of a joint stock corporation The freely tradable shares of a company. Shareholdings of distributed per share. The amount is resolved by the more than 5% of all shares issued do not count as part annual general meeting on the basis of the proposal from of the free float. the Board of Managing Directors and the Supervisory Board. Front-end load Premium on the nominal value, calculated, for example, when fund units are acquired. 96 Fund-based savings plan Index contract Savings plan which is based on regular fixed (e.g. monthly) Futures contract based on a share index. sums being invested in fund units by financial institutions. Investment funds Funds volume Various investors pay sums into an investment fund, Current price of units in investment funds held by which are then invested in shares, bonds or property etc. customers. The risks associated with investment funds are generally lower than those associated with investing in shares etc. German Accounting Standards Board (GASB) – Deutscher Standardisierungsrat (DSR) – Jumbo According to the ➾ German Commercial Code (HGB), the Bonds with a large nominal value (at least €500m) Deutscher Standardisierungsrat is responsible for making recommendations on the application of accounting prin- Letter of comfort ciples, advising the Ministry of Justice on issues relating Obligation of a group parent company towards third to the development of accounting methods and parties, particularly capital providers and business representing the country to international standardisation partners, to meet the liabilities of a subsidiary. bodies. LiveTrading Gross domestic product comdirect OTC securities trading. Customer orders are not Figure expressing the total goods and services produced turned over to the stock market but sent directly to the within a certain period of time by a national economy in selected issuer who sets the price, or to the ➾ market exchange for payment. maker. HGB Market maker German Commercial Code (Handelsgesetzbuch) Professional trader responsible for setting fixed buying and selling prices, which apply at all times, for specified IAS/IFRS minimum quantities of one or more negotiable The International Accounting Standards (IAS) or instruments (foreign exchange, shares, fixed-income International Financial Reporting Standards (IFRS) are securities, futures, options) and to maintain a market for international accounting principles which facilitate these titles. international comparison of consolidated financial statements. Money-market instruments Short-term public sector debt securities (e.g. Treasury IASC/IASB/IFRIC bills) traded on the money market, generally with a The IASB (International Accounting Standards Board), maximum term of one year. These also include short-term formerly the IASC (International Accounting Standards bank and corporate bonds (commercial paper and invest- Committee), is responsible for approving accounting ment certificates). The term is usually up to one year. standards. It is supported by the IFRIC (International Financial Reporting Interpretations Committee), formerly Multi-tier server structure the SIC (Standard Interpretations Committee). Multi-layered software infrastructure in which the soft- ware components are shared between several systems. Immediate-or-cancel order Applications whose operation is based on a multi-tier ➾ Additional order stipulation. Describes an ➾ order server structure are served by an office server (client). This (e.g. purchase/sale of securities) which must be executed operates via a network with one server or several cascad- as soon as it comes on the market. Parts of the order ed intermediate servers which contain the main part of which cannot be executed are cancelled. the application logic. The last intermediate server in the chain exchanges information with a central server (back- “Improvement project” end), which stores relevant information in a database. Project being carried out by the ➾ IASB to revise the standards in order to correct voting rights and inconsistencies. 97 No-fee campaign Profit-and-loss transfer agreement Limited-period campaigns during which securities such as Agreement which obliges subsidiaries to transfer the net ➾ certificates may be bought without paying a fee. The profit of a given financial year to the parent company at fee is covered by the product provider. the same time as obliging the parent company to cover subsidiaries for any annual deficits, and vice versa. Order Request for a stock exchange transaction. Profit-sharing certificates outstanding Balance-sheet presentation of a company’s liabilities to Overdraft facility the bearers of profit-sharing rights issued by the Facility arranged by a bank for a private individual to company. overdraw on their current account up to a specified limit without a separate loan agreement. The corresponding Projected unit credit method interest is calculated daily. Method of calculating pension commitments. Factors such as future trends in terms of salary and pension Own funds ratio according to BIS increases are taken into account. According to the ➾ BIS definition, the equity ratio is the ratio of equity to risk-weighted risk assets. Promissory notes Long-term loans to large companies, the public sector P/E Ratio and certain specialist financial institutions. In terms of Price to earnings ratio of a share. features, they are similar to bonds but are not traded on the stock exchange. Partial execution Occurs when an ➾ order cannot be fully executed when Quick Analyser it is placed due to market circumstances. ➾ Tool in comdirect’s online Annual Report which facilitates the comparison and analysis of the bank’s key Pfandbrief indicators. Fixed-income security issued by private mortgage banks or public-sector financial institutions. Pfandbriefe are Rating backed by mortgages or land charges. Assessment of the creditworthiness of a company or private customer. Portfolio volume Total number of securities held by customers multiplied Regulated market by their respective stock exchange price on a reporting Stock market segment in Germany between regulated date. unofficial market and official market with less stringent admission criteria than for official market. The minimum Primary market capital for a listing is €250,000 and the minimum share Market for the issuing of securities. Its counterpart is the volume is 10,000 shares. secondary market, in which securities that have already been issued are traded. Residual amount The remainder resulting from a difference in values. Net Prime Standard assets, for example, is the residual amount after sub- Stock market segment of the Deutsche Börse. Companies tracting liabilities from assets. whose shares are listed on the Prime Standard must fulfil stricter requirements in terms of financial reporting and Return on equity accounting. The select indices (DAX, MDAX, SDAX and Ratio of profit from ordinary activities to equity capital. TecDAX) include Prime Standard shares. The other market segment is the General Standard. Risk-taking capability Defined upper limit of default risk for the lending busi- Principle of materiality ness of a bank. Basis for obligatory accounting principles: according to the ➾ IASB, an item of information is considered material Savings deposits if its non-representation or misrepresentation would Deposits by private individuals with banks. impact on the recipient’s financial decision. 98 Savings plan Subordinated capital Regular (e.g. monthly) payments of a fixed amount into a Liabilities which, in the event of a insolvency or the form of investment such as funds or certificates. winding up of a company, are settled after the liabilities of other creditors have been met. Scoring See Rating Term deposit Deposits made for a certain period of time Security loan Lending against securities: a percentage of investments Time deposit account such as shares, funds and bonds is used as a security for Investment account with a fixed term and fixed interest credit and transferred to the bank. The custody account rate. is treated as collateral. Tool Session time Information tool Time period from log-in until automatic log-out of a ➾ user in a secure area of a website in cases where Trade there has not been any recorded activity during that Executed online investment order period. Trading front-end SIC Interface through which customers can access securities Standard Interpretations Committee (see ➾ IASC) offerings of a company and use its IT infrastructure. Special fund Treasury Investment fund which is only available to a limited number Head office division that manages liquidity and market of institutional investors. price risks. Traditionally responsible for liquidity manage- ment, refinancing and carrying out transactions in foreign Special purpose entity exchange, money market, precious metals as well as (SPE) Company established for a particular purpose. issuing notes. Spot market Turnaround The German Stock Exchange’s spot market of Deutsche Positive change in trend in the business and earnings of a Börse encompasses the XETRA trading platform and company. Turnaround usually describes a company the trading floor of the Frankfurt Stock Exchange. The spot emerging from the red and into the black. market statistics of Deutsche Börse also indicate the trading volumes of other German stock exchanges. VDAX DAX volatility index which shows the anticipated extent Stock option programme of share price fluctuations of the (DAX 30) German share Issue of non-transferable subscription rights to selected index. employees, in particular management and executives, which entitle them to purchase the equivalent number of Warrant shares in the company within a specified exercise period The owner of a warrant is entitled (but not obliged) to once specific performance targets (exercise hurdles) have buy (call option) or sell (put option) a certain number of been achieved. The calculation formula for the exercise shares or other securities at a previously stipulated price price also forms part of the previously adopted exercise within a certain period of time. conditions. XETRA Stress test Electronic trading system of the Deutsche Börse Test method to analyse the effects of extreme situations (e.g. extraordinary increases in interest rates). 99 Financial calendar 2005 17 January 2005 CAI Cheuvreux German Corporate Conference in Kronberg/Ts. 14 February 2005 Press/Analysts’ conference in Frankfurt/Main 15 March 2005 Annual report 2004 22 April 2005 Quarterly report 2005 4 May 2005 Annual general meeting in Hamburg 25 May 2005 WestLB German Mid & Small Cap Conference in London 1 June 2005 Deutsche Bank German Corporate Conference 2005 in Frankfurt/Main 21 July 2005 Half-year report 2005 21 October 2005 Nine-month report 2005 100 Investor Relations Daniel Fard-Yazdani, CEFA Tel. +49 41 06 704-19 66 Fax +49 41 06 704-19 69 e-mail email@example.com Ullrike Hamer Tel. +49 41 06 704-19 60 Fax +49 41 06 704-19 69 e-mail firstname.lastname@example.org You can download our annual and interim reports in German or in English from our website at www.comdirect.de, under “Über uns/Investor Relations/Publications”. Our order service also offers the option of inclusion in the distribution list, which means that the reports will be sent to you on publication. An online version of the 2003 and 2004 annual reports is also available here. Press Relations Stephan Maaß Tel. +49 41 06 704-13 15 Fax +49 41 06 704-34 02 e-mail email@example.com You can find our published press releases in German or in English on our website at www.comdirect.de, under “Über uns/Presse”. comdirect bank AG Pascalkehre 15 D-25451 Quickborn www.comdirect.de Concept and layout ergo Unternehmenskommunikation, Cologne/Frankfurt am Main Photography Schlüter Fotografie, Essen Translation AGET Limited, London Our annual report is available in German and English. The English translation of the comdirect bank group annual report is provided for convenience only. The German original is definitive.
Pages to are hidden for
"Key figure"Please download to view full document