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					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 investorrelations@comdirect.de


      Ullrike Hamer
      Tel. +49 41 06 704-19 60
      Fax +49 41 06 704-19 69
      e-mail investorrelations@comdirect.de


      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 presse@comdirect.de


      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.

				
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