As filed with the Securities and Exchange Commission on January 11, 2005
Registration No. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
REGISTRATION STATEMENT
on
SCHEDULE B
under the
SECURITIES ACT OF 1933
----------------
Landeskreditbank Baden-Wurttemberg - Forderbank
(Name of Registrant)
The State of Baden-Wurttemberg
(Guarantor and Co-Signatory)
----------------
Puglisi & Associates
850 Library Avenue, Suite 204
P.O. Box 885
Newark, Delaware 19715
(Name and address of Authorized Representative)
----------------
Copies to:
Stephan Hutter, Esq.
Shearman & Sterling LLP
Gervinusstrasse 17
60322 Frankfurt am Main
Germany
+49 69 9711-1000
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
==================================================================================================================
Proposed Proposed Maximum
Maximum Offering Aggregate Amount of
Title of each Class of Amount to Price per Unit Offering Price Registration
Securities to be Registered (1) be Registered (2) (2) Fee
- ------------------------------------------------------------------------------------------------------------------
Debt Securities of L-Bank...................... $10,000,000 $1,000 $10,000,000 $1,177
- ------------------------------------------------------------------------------------------------------------------
An explicit statutory Guaranty of the State of -- -- -- --
Baden-Wurttemberg..............................
==================================================================================================================
(1) In United States dollars.
(2) Estimated for the sole purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
CROSS-REFERENCE SHEET
Between Schedule B of the Securities Act of 1933
and the Prospectus
Schedule B Item Heading in Prospectus
- --------------------------------------------------------------------------------
1.................................... Cover page
2.................................... Use of Proceeds
3.................................... L-Bank
--Business--Sources of Funds
--Capitalization
Financial Statements of L-Bank
--Balance Sheet
--Supplementary Information on
Debt of L-Bank
The State of Baden-Wurttemberg
--Public Debt
--Debt Record
*
4.................................... L-Bank
--Debt Record
The State of Baden-Wurttemberg
--Debt Record
5.................................... Financial Statements of L-Bank
--Income Statement
The State of Baden-Wurttemberg
--Public Finance
--Debt Record
6.................................... Plan of Distribution
7.................................... Authorized Representative in the United
States
8.................................... Use of Proceeds
9.................................... Cover page
Prospectus cover page
Plan of Distribution
10................................... Prospectus cover page
Plan of Distribution
11................................... *
12................................... Legal Opinions
*
13................................... *
14................................... *
- --------------------
* Information included in Part II to this Registration Statement or as an
Exhibit thereto or to be filed by one or more amendments to this Registration
Statement.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to completion, dated January 11, 2005
PROSPECTUS
U.S.$ o
[L-BANK LOGO]
Staatsbank fur Baden-Wurttemberg
Landeskreditbank Baden-Wurttemberg - Forderbank
a corporation under public law of
The State of Baden-Wurttemberg
o% Notes due o
The notes bear interest at the rate of o% per year. We will pay interest on
the notes annually in arrears on o of each year, commencing on o, 2006. The
notes will mature on o. We may not redeem the notes prior to maturity.
We will make payments with respect to the notes without deduction of
withholding taxes, unless otherwise required by law. There will be no "gross-up"
provision requiring additional payments to be made in respect of the notes in
the event of the imposition of tax deduction or withholding.
Under our governing law, the notes will benefit from an explicit guaranty
by the State of Baden-Wurttemberg.
The notes will be governed by the laws of the Federal Republic of Germany.
Per Note Total
----------------- ---------------
Public offering price(1) $ $
Underwriting discount and commission $ $
Proceeds to L-Bank(1)(2)
---------------
(1) Plus accrued interest from o, 2005 if settlement occurs after that
date.
(2) Before deduction of expenses payable by L-Bank.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
The manager listed below is offering the notes subject to various
conditions. The manager will have the right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the notes will be made through the facilities of The Depository
Trust Company, also known as DTC, as well as through the facilities of other
clearing systems that participate in DTC, including Clearstream Banking, societe
anonyme, Luxembourg, also known as CBL, and Euroclear on or about o, 2005.
Citigroup Global Markets Limited
The date of this Prospectus is o, 2005
TABLE OF CONTENTS
About This Prospectus.............................................. .....2
Forward-Looking Information...............................................3
Terms Used In This Prospectus.............................................3
Prospectus Summary........................................................4
Application Of Proceeds...................................................7
L-Bank....................................................................7
General.............................................................7
Business...........................................................12
Debt Record........................................................24
Capitalization.....................................................24
Management Information.............................................25
Recent Developments................................................31
Management.........................................................33
Employees..........................................................36
Regulation And Supervision Of L-Bank In The Federal
Republic Of Germany................................................37
The State Of Baden-Wurttemberg...........................................49
General............................................................49
Economy............................................................50
Foreign Trade And Foreign Exchange.................................54
Public Finance.....................................................56
Public Debt........................................................59
Debt Record........................................................60
Budget Of The State Of Baden-Wurttemberg...........................62
Description Of The Notes.................................................63
Clearing And Settlement..................................................67
Currency Conversion Rates................................................71
Federal Republic Of Germany Taxation.....................................73
United States Taxation...................................................76
Summary Of Certain Differences Between Generally Accepted German
And United States Accounting Principles..................................79
Glossary ................................................................84
Plan Of Distribution.....................................................89
Limitations On Actions Against The State Of Baden-Wurttemberg............90
Enforcement Of Civil Liabilities Against-L-Bank..........................91
Legal Opinions...........................................................91
Authorized Representative In The United States...........................91
Official Statements And Documents........................................91
Independent Accountants..................................................92
Financial Statements Of L-Bank..........................................F-1
ABOUT THIS PROSPECTUS
This Prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission. This Prospectus contains information you
should consider when making your investment decision. You should rely only on
the information provided in this Prospectus. Neither we, nor Baden-Wurttemberg,
nor the manager have authorized anyone else to provide you with different
information. We are not offering to sell or soliciting offers to buy any
securities other than the notes offered under this Prospectus, nor are we
offering to sell or soliciting offers to buy the notes in places where such
offers are not permitted by applicable law. You should not assume that the
information in this Prospectus is accurate as of any date other than the date of
this Prospectus.
2
Further information concerning us and Baden-Wurttemberg and the Notes offered
hereby and the Guarantee may be found in the Registration Statement
(Registration No. 33-o) filed with the Securities and Exchange Commission, 450
Fifth Street, N.W. Washington, D.C. 20549 under the Securities Act of 1933 and
relating to the securities of L-Bank described in the Prospectus.
FORWARD-LOOKING INFORMATION
This Prospectus contains forward-looking statements. Statements that are
not historical facts, including statements about our and Baden-Wurttemberg's
beliefs and expectations, are forward-looking statements. These statements are
based on current plans, estimates and projections and therefore you should not
place undue reliance on them. The words "believe," "may," "will," "estimate,"
"continue," "anticipate," "intend," "expect" and similar words are intended to
identify forward-looking statements. Forward-looking statements speak only as of
the date they are made, and neither we nor Baden-Wurttemberg undertake any
obligation to update publicly any of them in light of new information or future
events. Forward-looking statements involve inherent risks and uncertainties. We
caution you that actual results may differ materially from those contained in
any forward-looking statements.
TERMS USED IN THIS PROSPECTUS
In this Prospectus, references to "Euro" or "EUR" are to the single
European currency adopted by certain participating Member States of the European
Union, including the Federal Republic of Germany, as of January 1, 1999.
References to "Deutsche Mark" or "DM" are to the former national currency unit
of the Federal Republic of Germany, which ceased to be legal tender in the
Federal Republic of Germany as of January 1, 2002. References to "U.S. dollars,"
"U.S.$" or "$" are to United States dollars. See "Currency Conversion" for
information regarding the rates of conversion of Euros into U.S. dollars for
subsequent periods.
Except as otherwise required by the context, references in this Prospectus
to "L-Bank," "we," "us" or "our" are to Landeskreditbank Baden-Wurttemberg -
Forderbank, and references to "Baden-Wurttemberg" are to the State of
Baden-Wurttemberg, a state of the Federal Republic of Germany.
---------------
In connection with this offering of notes, Citigroup Global Markets Limited
or its affiliates may over-allot or effect transactions with a view to
supporting the market price of the notes at a level higher than that which might
otherwise prevail for a limited period after the issue date. However, there may
be no obligation on Citigroup or its affiliates to do this. Such stabilizing, if
commenced, may be discontinued at any time, and must be brought to an end after
a limited period.
3
PROSPECTUS SUMMARY
The following summary should only be read in connection with, and is
qualified by, the more detailed information and financial data presented
elsewhere in this Prospectus.
L-Bank
L-Bank is the state development bank of Baden-Wurttemberg, one of the
states of the Federal Republic of Germany. We were established by statute
effective December 1, 1998, as a result of the separation of the state
development business from the commercial banking business of the former
Landeskreditbank Baden-Wurttemberg, whereby all assets and liabilities of the
state development business were transferred to us. We are wholly-owned by
Baden-Wurttemberg.
We provide funding in support of the numerous development activities of
Baden-Wurttemberg, acting as the state's own development bank. Pursuant to our
governing law, we carry out our business not as a competitor to, but as a
supportive partner of, private, cooperative and public-sector banks operating in
the open market.
As Baden-Wurttemberg's state development bank our main responsibilities and
activities are:
o the financing, primarily on a subsidized basis, of housing
construction, trade, industry, agriculture and forestry, environmental
protection, urban renewal and development projects, as well as
improvements to the state infrastructure in the form of loans, grants,
guaranties or equity capital, with special focus on providing support
for small and medium-sized enterprises in Baden-Wurttemberg; and
o administering the application of funds for a large number of state,
federal and European Union financial aid programs, especially for
family benefits.
The government of Baden-Wurttemberg, the German federal government and
other public authorities - including institutions of the European Union - all
fund our activities by way of loans and grants. In addition we employ own funds.
At December 31, 2003, we had total assets of EUR 46.2 billion. Our net
profit for the year ended December 31, 2003 amounted to EUR 103.4 million. The
following table shows our total assets as of December 31 of, and net profit for,
each of the years indicated (in millions of EUR):
2003 2002 2001
-------- -------- --------
Total assets........................ 46,225 43,585 43,391
Net profit.......................... 103.4 86.6 105.7
Under our governing law, the State of Baden-Wurttemberg guaranties all of
our obligations in respect of money borrowed by us, debt obligations issued by
us, including the notes offered hereby, forward or future contracts, rights
under option agreements, other credits extended to us, as well as credit
extended to third parties that we expressly guaranty. Under this explicit
guaranty, if we fail to make any payment of principal or interest or any other
amount required to be paid with respect to the notes offered hereby when that
payment is due and payable, Baden-Wurttemberg will be liable for that payment as
and when it becomes due and payable.
In addition, our governing law provides for certain guaranty and
maintenance obligations of Baden-Wurttemberg, which are described under
"L-Bank--General--Responsibility of Baden-Wurttemberg--Guaranty Obligation" and
"--Maintenance Obligation."
4
The State of Baden-Wurttemberg
Baden-Wurttemberg is the third largest, by area, of Germany's 16 states
(Lander). Baden-Wurttemberg is situated in southwestern Germany. It comprises an
area of 13,803 square miles, approximately 10% of Germany's total area. At the
beginning of 2003, Baden-Wurttemberg had 10.7 million inhabitants, or 12.9% of
Germany's total population of 82.5 million. Baden-Wurttemberg has an elected
parliament that legislates in areas not delegated to the German federal
government.
Baden-Wurttemberg is one of the most heavily industrialized states in
Germany and has one of the strongest economies of all the German states,
contributing 14.8% of Germany's gross domestic product in 2003. In terms of GDP
and employment, approximately one-half of Baden-Wurttemberg's economy is based
on the activities of small and medium-sized commercial enterprises, many of
which are involved in manufacturing and focused on technology, and the other
half consists of large industry.
Several well-known companies are located in Baden-Wurttemberg, such as
DaimlerChrysler, Porsche, Bosch, IBM Germany, Asea Brown Boveri Germany and
Hewlett-Packard Germany. This strong concentration of manufacturing activity
exposes the economy of Baden-Wurttemberg to a degree of cyclical pressure. In
addition to manufacturing enterprises, many universities and research
institutions also support the Baden-Wurttemberg economy.
Baden-Wurttemberg has its own budget separate from that of Germany. Tax
revenues in Germany are apportioned among the federal, state and municipal
governments. Financially stronger states, such as Baden-Wurttemberg contribute
revenues to financially weaker states.
For a discussion of the economic, political and financial situation in
Baden-Wurttemberg, see "The State of Baden-Wurttemberg."
5
The Offering
Issuer L-Bank.
Securities Offered U.S.$ o aggregate principal amount of o%
Notes due o.
Guaranty The notes benefit from an explicit guaranty
by the State of Baden-Wurttemberg. See
"L-Bank--General--Responsibility of
Baden-Wurttemberg--Unconditional Guaranty,"
"--Maintenance Obligation" and "--Guaranty
Obligation" in this Prospectus.
Maturity Date o
Interest Payment Dates We will pay interest on the notes annually
in arrears on o of each year, commencing on
o, 2006.
Interest Rate o% per year. Whenever it is necessary to
compute any amount of interest in respect
of the notes other than with respect to
regular annual payments, we will calculate
such interest on the basis of a 360-day
year consisting of twelve 30-day months.
Redemption We may not redeem the notes prior to
maturity.
Form and Settlement We will issue the notes in the form of one
or more permanent global certificates
registered in the name of the nominee of
DTC. Beneficial interests in the notes
will be represented through book-entry
accounts of financial institutions acting
on behalf of beneficial owners as direct
and indirect participants in DTC.
Definitive certificates representing
individual notes will only be issued in the
very limited circumstances described under
"Clearing and Settlement -- The clearing
systems -- DTC."
Withholding Tax We will pay principal and interest on the
notes without deduction or withholding of
taxes or other duties, unless such
deduction or withholding is required by
law. In the event of such deduction or
withholding, we will not pay any additional
amounts in respect of the notes.
Governing Law The notes will be governed by the laws of
the Federal Republic of Germany. Transfers
and pledges of notes held through DTC and
executed between DTC and DTC participants
will be governed by the laws of the State
of New York.
6
APPLICATION OF PROCEEDS
We estimate that the net proceeds from the sale of the notes will be
approximately U.S.$ o (after deducting underwriting discounts and estimated
expenses). We will use the net proceeds from the sale of the notes for our
financing and securities activities.
L-BANK
GENERAL
Introduction
L-Bank is the state development bank of Baden-Wurttemberg, one of the
states of the Federal Republic of Germany. We were established by statute
effective December 1, 1998, as a result of the separation of the state
development business from the commercial banking business of the former
Landeskreditbank Baden-Wurttemberg, whereby all assets and liabilities of the
state development business were transferred to us.
We provide funding in support of the numerous development activities of
Baden-Wurttemberg, acting as the state's own development bank. Pursuant to our
governing law, we carry out our business not as a competitor to, but as a
supportive partner of, private, cooperative and public-sector banks operating in
the open market.
We were established as an independent public law institution (Anstalt des
offentlichen Rechts) for an indefinite term under the Act concerning
Landeskreditbank Baden-Wurttemberg - Forderbank (Gesetz uber die
Landeskreditbank Baden-Wurttemberg - Forderbank, the "L-Bank Act"), as enacted
and amended by the State of Baden Wurttemberg. Our powers and internal
organization are further defined by our statutes (Satzung der Landeskreditbank
Baden-Wurttemberg - Forderbank, the "L-Bank Statutes"). We are a member of the
Federal Association of German Public Sector Banks (Bundesverband Offentlicher
Banken Deutschlands e.V.), Berlin.
Our headquarters are located at Schlossplatz 10, 76131 Karlsruhe, Federal
Republic of Germany, and our telephone number is +49 (0) 721-1500. We also
maintain a branch office in Stuttgart.
As Baden-Wurttemberg's state development bank our main responsibilities and
activities are:
o the financing, primarily on a subsidized basis, of housing
construction, trade, industry, agriculture and forestry, environmental
protection, urban renewal and development projects, as well as
improvements to the state infrastructure in the form of loans, grants,
guaranties or equity capital, with a special focus on providing
support for small and medium-sized enterprises (SMEs) in
Baden-Wurttemberg; and
o administering the application of funds for a large number of state,
federal and European Union financial aid programs, especially for
family benefits.
We also invest in securities in furtherance of our responsibilities as a
development bank.
The government of Baden-Wurttemberg, the German federal government and
other public authorities - including institutions of the European Union - all
fund our activities by way of loans and grants. In addition, we employ own
funds. The ongoing difficulties of the federal government and the government of
Baden-Wurttemberg to balance their budgets could result in a reduction of the
support of development programs, which could negatively affect the volume of our
business in the years to come.
In certain areas of financing, for example as part of our lending in
support of housing and agriculture, we extend loans on a fiduciary basis by
granting loans in our own name but on behalf and at the sole risk of certain
German or supranational governmental or quasi-governmental entities on terms
specified by such
7
entities ("fiduciary loans"). The funds used for such fiduciary loans are
supplied entirely by the relevant financing entity. We also administer loans
granted in the name of other entities on behalf and at the sole direction of
such entities, using funds supplied entirely by such entities ("administrative
loans"). See "--Business--Loan Portfolio Risks." We earn a fee for our fiduciary
and administrative responsibilities in those transactions.
Under certain public assistance programs, we extend grants to third parties
on behalf of Baden-Wurttemberg, the Federal Republic of Germany and/or the
European Union. In this context, we do not commit our own funds but administer
funds of such governmental authorities or their subdivisions. We earn an
administration fee for processing applications centrally and settling the
relevant payments.
Our activities are not subject to corporate income tax or trade tax in
Germany.
Under German law we prepare financial statements on an unconsolidated basis
only; we are currently not required to prepare consolidated financial
statements. The majority interests declared in the financial statements are of
minor significance overall. For this reason, we did not prepare consolidated
financial statements for the period (ss. 296 sub-section 2 German Commercial
Code (Handelsgesetzbuch)). Throughout this description we therefore discuss our
unconsolidated financial statements, which were prepared in accordance with the
provisions of the German Commercial Code (Handelsgesetzbuch), the German Banking
Act (Kreditwesengesetz - KWG), the Bank Accounting Directive Law of 1990
(Bankenbilanzrichtlinie-Gesetz) and the Regulation on the Accounting Principles
applied to Credit Institutions and Financial Services Institutions (Verordnung
uber die Rechnungslegung der Kreditinstitute und
Finanzdienstleistungsinstitute).
At December 31, 2003, we had total assets of EUR 46.2 billion. Our business
is concentrated predominantly in lending at fixed interest rates. At the same
date, we had outstanding credits of EUR 44.6 billion, of which 26.3% (EUR 11.7
billion) were loans to credit institutions, 55.1% (EUR 24.6 billion) were loans
to customers, and 18.0% (EUR 8.3 billion) were holdings of debt or equity
securities, excluding equity investments (as defined below) and repurchases of
our own notes. All amounts with respect to loans made and securities held by us
are based on the book values included in our balance sheet on the relevant date.
The following table sets out our assets and outstanding credits, together
with certain other selected financial data, for each of the years indicated:
Assets, Outstanding Credits and Other Selected Financial Data
(in millions of EUR)
2003 2002 2001
-------- -------- --------
(in millions of EUR)
Total assets(1)............................. 46,225 43,585 43,391
Total outstanding credits(2)................ 44,659 41,910 40,420
Loans to credit institutions(3).......... 11,761 10,562 9,774
Loans to customers(4).................... 24,584 23,258 23,287
Securities held(5)....................... 8,314 8,089 7,359
Total fiduciary assets(6)................... 512 667 816
Total guaranties(7)......................... 1,229 1,069 432
Total commitments made(8)................... 9,008 7,104 7,380
Net profit(9)............................... 103 87 106
- ---------------------
(1) Total assets at December 31 of the year indicated.
(2) Total outstanding credits consist of outstanding loans (other than
fiduciary loans and administrative loans) and holdings of debt or equity
securities (excluding equity investments and repurchased own notes) at
December 31 of the year indicated.
(3) Loans to credit institutions include mortgage loans, loans to public
authorities and entities organized under public law and other obligations
of credit institutions.
(4) Loans to customers (i.e. non-credit institutions) include mortgage loans,
loans to public authorities and entities organized under public law and
other obligations of customers.
(5) Aggregate book value of all debt or equity securities (excluding equity
investments and repurchased own notes), held by us at December 31 of the
8
year indicated. An "equity investment" (Beteiligung) is an investment in
another company (whether affiliated or non-affiliated) that we intend to
hold on a long-term basis in order to establish a permanent relationship
that contributes to our own business. See "--Business--Securities
Activities" and "--Glossary--Equity investments in non-affiliated
companies; equity investments in affiliated companies."
(6) Fiduciary assets consist of loans that are made by us in our name but on
behalf of other entities with funds entirely supplied by, and for a purpose
and on terms specified by, such other entities. See "--Business--Loan
Portfolio Risks" and "--Glossary--Fiduciary assets; fiduciary liabilities."
Amounts are as of December 31 of the year indicated.
(7) Total guaranties are contingent liabilities in respect of guaranties and
indemnity agreements as of December 31 of the year indicated.
(8) Total commitments represent the volume of funds committed by us for loans
(including fiduciary loans and administrative loans in an amount of EUR
121.6 million in 2003, EUR 120.0 million in 2002 and EUR 116.7 million in
2001), grants and guaranties and for the purchase of investment securities
during the year indicated, including amounts to be disbursed in future
years and not including amounts disbursed during the year indicated
pursuant to commitments made in prior years.
(9) Net profit is the difference between total income and total expenses before
allocations to retained earnings reserves for the year indicated. See also
our balance sheets and statements of income included elsewhere in this
Prospectus.
Responsibility of Baden-Wurttemberg
Ownership. We are wholly owned by Baden-Wurttemberg.
Explicit and Unconditional Guaranty of Baden-Wurttemberg. The L-Bank Act
(Section 5(3)) provides expressly that the State of Baden-Wurttemberg guaranties
all of our obligations in respect of money borrowed by us, debt obligations
issued by us, forward or future contracts, rights under option agreements, other
credits extended to us, as well as credit extended to third parties that we
expressly guaranty. Under this explicit guaranty, if we fail to make any payment
of principal or interest or any other amount required to be paid with respect to
the notes offered hereby when that payment is due and payable, Baden-Wurttemberg
will be liable for that payment as and when it becomes due and payable.
Baden-Wurttemberg's obligation under this explicit guaranty ranks equally,
without any preference, with all of its other present and future unsecured and
unsubordinated indebtedness. Holders of securities issued by us may enforce this
obligation directly against Baden-Wurttemberg without first having to take legal
action against us. The explicit guaranty of Baden-Wurttemberg is strictly a
matter of statutory law and is not evidenced by any contract or instrument. It
may be subject to defenses available to us with respect to the obligations
covered. The explicit guaranty constitutes a charge on public funds that, as a
legally established obligation, would be payable without the need of any
appropriation or other action to be taken by the parliament of
Baden-Wurttemberg.
In case of a change of Baden-Wurttemberg's ownership in us, our liquidation
or an amendment to the L-Bank Act, our payment obligations incurred prior to
such event, including the obligations in respect of the notes offered hereby,
the explicit guaranty of Baden-Wurttemberg would continue to support our payment
obligations incurred prior to such an event.
Guaranty Obligation. The guaranty obligation (Gewahrtragerhaftung) is based
on an express statutory provision included in the L-Bank Act (Section 5(2)). In
accordance with this provision, Baden-Wurttemberg is without restriction
directly liable to our creditors for all of our liabilities if they have not
been satisfied out of our assets. See "Description of the Notes--Governing law,
Jurisdiction, Enforcement and Language." The guaranty obligation is unlimited in
amount and covers any and all of our obligations arising out of the conduct of
our business.
The guaranty obligation applies to the notes offered hereby in addition to
the explicit guaranty of Baden-Wurttemberg. However, the explicit guaranty
confers a stronger right to the holders of our notes insofar as under the
explicit guaranty the noteholder does not have to demonstrate to
Baden-Wurttemberg that our obligations have not been satisfied by us out of our
assets.
As with the explicit guaranty, the guaranty obligation constitutes a charge
on public funds that, as legally established obligation, would be payable
without the need of any appropriation or other action to be taken by the
parliament of Baden-Wurttemberg.
In the event of a change of Baden-Wurttemberg's ownership in us, our
liquidation or an amendment
9
to the L-Bank Act, our payment obligations incurred prior to such event,
including the obligations in respect of the notes offered hereby, the guaranty
obligation would continue to support our payment obligations incurred prior to
such an event.
Maintenance Obligation. The principle of maintenance obligation
(Anstaltslast) is independent of and supplements the principle of guaranty
obligation. The maintenance obligation is codified in the L-Bank Act (Section
5(1)). It means, in general terms, that the public body that has established and
owns a public law institution (Anstalt des offentlichen Rechts), in particular a
public law credit institution such as L-Bank, is required under law to maintain
the economic viability of such institution, to keep it in a position to perform
its functions and to enable it, through the allocation of liquid funds or by
other appropriate means, to perform its obligations when due. The maintenance
obligation constitutes (i) an obligation to ensure our solvency, because it
includes an obligation of Baden-Wurttemberg to compensate any shortfall by which
our liabilities exceed our assets and (ii) an obligation to ensure our
liquidity, because it includes an obligation of Baden-Wurttemberg to provide
liquidity to us as necessary to meet our obligations as they come due.
Furthermore Baden-Wurttemberg would be required on its own authority to take
steps to enable us to perform our obligations when due. The maintenance
obligation is an obligation of Baden-Wurttemberg only to us, and not to any
third party. While the maintenance obligation does not constitute a formal
guaranty of our obligations by Baden-Wurttemberg, the effect of the maintenance
obligation is that our obligations, including our obligations to the holders of
the notes offered hereby, are fully backed by the credit of Baden-Wurttemberg.
As with the explicit guaranty and the guaranty obligation, the maintenance
obligation constitutes a charge on public funds that, as legally established
obligation, would be payable without the need of any appropriation or other
action to be taken by the parliament of Baden-Wurttemberg.
Understanding with the European Commission. Following a complaint lodged
with the European Commission by the European Banking Federation alleging that
the maintenance obligation and the guaranty obligation constitute state aid
within the meaning of Art. 87 of the Treaty establishing the European Community
(referred to as "EC Treaty"), an understanding (referred to as "Understanding
I") between the EU Commission and the Federal Republic of Germany concerning the
future successive abolition of those obligations regarding public banks was
reached on July 17, 2001. In a further understanding (referred to as
"Understanding II") with the Federal Republic of Germany on March 1, 2002, the
European Commission clarified that the state support mechanisms may continue for
development banks engaged in noncompetitive public functions such as for
instance, state financing measures concerning housing, small and medium-sized
enterprises, environmental protection, technology, innovation, infrastructure
and risk capital. Therefore, the maintenance and guaranty obligation and the
explicit guaranty of Baden-Wurttemberg continue to exist for us.
After December 31, 2007, new activities of a development bank falling
outside the allowed areas permitted by Understanding II will be treated as state
aid under the EC Treaty and must be either discontinued or transferred to
independent subsidiaries without state support. As a consequence, the advantages
resulting from state guaranties for such new activities will be treated as
impermissible state aid within the meaning of Art. 87 EC Treaty. In addition,
Understanding II clarifies that a violation of the state aid rules by single
development activities will have no effect on the continued existence of the
state guaranties as such.
As a development bank engaged in aforementioned noncompetitive public
functions, we will remain a beneficiary of the maintenance obligation, the
guaranty obligation as well as the explicit guaranty of Baden-Wurttemberg. On
March 10, 2004, the parliament of Baden-Wurttemberg slightly amended the L-Bank
Act and the L-Bank Statutes to reflect more precisely the activities permitted
to us by Understanding II; the amendments will become effective as of December
31, 2007. In our view, Understanding II does not, apart from minor adjustments,
require us to give up any activities.
Insolvency of L-Bank. Pursuant to Section 12 of the Insolvency Law
(Insolvenzordnung) and Section 45 of the Baden-Wurttemberg Law Implementing the
Judiciary Law (Gesetz zur Ausfuhrung des
10
Gerichtsverfassungsgesetzes), public law institutions are not capable of being
subject to insolvency proceedings. Therefore, as a public law institution, we
can currently only be dissolved in accordance with the L-Bank Statutes and with
the L-Bank Act.
Supervision of L-Bank. Pursuant to the L-Bank Act and the L-Bank Statutes,
we are subject to supervision by the Ministry of Finance of Baden-Wurttemberg in
consultation with the ministry of Baden-Wurttemberg having jurisdiction for the
particular matter concerned. We are also subject to the supervision of the
Federal Supervisory Authority for Financial Services (Bundesanstalt fur
Finanzdienstleistungsaufsicht) in conjunction with the Federal Central Bank
(Deutsche Bundesbank). For more information about our supervision, see the
discussion under the heading "--Regulation and Supervision of L-Bank in the
Federal Republic of Germany."
In addition, the State Accounting Office (Landesrechnungshof) of
Baden-Wurttemberg, which is responsible to the parliament of Baden-Wurttemberg
(Landtag), has an unrestricted right to audit us at any time, in particular with
regard to our compliance with the Baden-Wurttemberg Budgeting Principles Act
(Landeshaushaltsordnung), the law setting forth the principles and guidelines
relating to, among other things, the administration of public funds.
Our supervisory board (Verwaltungsrat) establishes guidelines for, and
oversees, the conduct of our business. Pursuant to the L-Bank Act, our
supervisory board is composed of eight representatives of the government of
Baden-Wurttemberg and seven other members, all of whom are appointed by the
government of Baden-Wurttemberg and vested with voting rights. In addition, the
supervisory board includes three advisory members without voting rights. The
government of Baden-Wurttemberg appoints one of the representatives of
Baden-Wurttemberg in our supervisory board as chairman of the supervisory board.
See "--Management."
11
BUSINESS
Our principal business is providing loans and other types of financings
relating to:
o the construction, purchasing and renovation of housing;
o trade and industry, business start-ups and small and medium sized
enterprises (SMEs);
o infrastructural development; and
o social welfare.
We also act as agent for Baden-Wurttemberg, for the Federal Republic of
Germany and for the European Union in administering a wide range of public
financial assistance programs and offer certain other banking-related services.
In support of our primary activities as a state development bank and for risk
management purposes, we also regularly invest in securities.
Housing
Our principal financing activity consists of the extension of loans and
guaranties related to the construction, renovation and purchase of single and
multi-family houses and apartment buildings. We also issue grants with respect
to such housing. At December 31, 2003, housing loans totaling EUR 21,836 million
accounted for 56.4% of our total outstanding loans. Of the outstanding housing
loans, a majority was granted to individuals.
The following table sets out our loans and commitments in connection with
housing-related financing for each of the years indicated:
Housing-Related Financing
Loans and Commitments
2003 2002 2001
-------- -------- --------
(in millions of EUR, except for %)
Loans outstanding(1)...................... 21,836 21,941 22,279
% of total loans outstanding.............. 56.4 61.0 64.7
Commitments made(2)....................... 1,139 973 1,062
% of total commitments made............... 12.6 13.7 14.4
- ---------------------
(1) Loans outstanding at December 31 of the year indicated. Loans outstanding
do not include fiduciary loans, and administrative loans.
(2) Commitments represent the volume of funds committed by us for loans
(including fiduciary loans and administrative loans), grants and guaranties
during the year indicated, including amounts to be disbursed in future
years and not including amounts disbursed during the year indicated
pursuant to commitments made in prior years.
We administer the State Housing Program of Baden-Wurttemberg, which
encompasses several different housing assistance programs, including
Baden-Wurttemberg state programs and joint programs of Baden-Wurttemberg and the
Federal Republic of Germany. Those programs are intended to address the housing
needs of targeted groups of people, such as large families, the elderly, the
severely handicapped and single-parent families. Housing assistance programs
included in the State Housing Program provide grants and loans at below-market
interest rates for the construction, expansion and renovation of residential
buildings, including apartment buildings, single and multi-family houses,
company housing and special care housing. Such programs provide financing either
to the builder or, in the case of housing sold to a member of a targeted group,
the purchaser. Some programs promote rental housing while other programs support
home-ownership and the purchase of existing housing by members of targeted
groups.
Our housing-related activities are funded partly from public funds and
partly from our own funds. In 2003, Baden-Wurttemberg contributed EUR 223.7
million to the State Housing Program, a decrease of 12.4 % from the amount it
contributed in 2002. In 2003, we committed an amount of EUR 19.5 million,
12
compared to EUR 19.5 million in 2002, to assist in the building, modernization
or purchase of 4,344 housing units, compared to 4,538 in 2002.
Trade and Industry-Related Financings; Financing of Business Start-ups and Small
and Medium Sized Companies
In respect of trade and industry related financing, we administer several
public assistance programs sponsored by Baden-Wurttemberg alone or jointly with
the Federal Republic of Germany. Those programs primarily support small and
medium-sized businesses located in Baden-Wurttemberg. They provide business
start-up assistance and financing for investments in technology, environmental
protection measures, forestry and agriculture. We provide liquidity assistance
to companies, offering low-interest financing for growth and consolidation,
mergers and acquisitions, debt restructurings and short- and medium-term
investments, and also issue guaranties required, for example, in connection with
foreign trade activities.
We provide financing both to financial institutions, which then lend the
proceeds to eligible borrowers, and to borrowers directly. Our financings take
the form of loans, equity capital investments, guaranties and other instruments.
In most cases, we extend loans to financial institutions, typically
commercial, cooperative or savings banks, which in turn lend the funds to
borrowers. In such financing transactions, the intermediary bank bears the
credit risk with respect to the ultimate borrower, while we bear the credit risk
with respect to the intermediary bank. In effect, we thereby pass on the
responsibility and administrative cost of granting and servicing loans to the
intermediary bank. Where we take the credit risk of companies, we do so by
taking sub-participations in loans extended by intermediary banks to their
customers or, where required by the relevant public assistance program, by
extending loans to customers directly.
In order to reduce the credit risk of intermediary banks and thereby
enhance their capabilities to extend more loans, especially to small and medium
sized companies, we also extend guaranties of collection in favor of
intermediary banks, offer protection with respect to individual creditors or
portfolios of creditors by way of credit default swaps and sometimes invest in
asset-backed securities sponsored by other banks or in credit linked notes.
Using these financing techniques, we do not, except for direct equity
investments described below, establish a direct customer relationship with the
ultimate creditor. We thereby fulfill our role as a state development bank, not
competing with commercial or public banks.
The following table shows our loans and commitments in this area of
business for each of the years indicated:
Trade and Industry-Related Financing
Loans and Commitments
2003 2002 2001
---------- -------- --------
(in millions of EUR, except for %)
Loans outstanding(1)................... 3,775.7(3) 3,765.73 3,457.29
% of total loans outstanding........... 8.58 9.16 8.51
Commitments made(2).................... 1,131.45 1,267.83 1,383.99
% of total commitments made............ 12.56 17.85 18.75
- ---------------------
(1) Loans outstanding at December 31 of the year indicated. We do not make
fiduciary loans or administrative loans in this area of financing.
(2) Commitments represent the volume of funds committed by us for loans, grants
and guaranties during the year indicated, including amounts to be disbursed
in future years and not including amounts disbursed during the year
indicated pursuant to commitments made in prior years.
(3) Of the total amount of loans outstanding approximately 93% represents loans
to credit institutions and 7% represents loans to customers, either
directly or by way of sub-participating in loans made by other credit
institutions.
13
In 2003, the majority of our total commitments with respect to start-up and
SME financings were commitments to financial institutions (L-Bank taking the
credit risk of those financial institutions).
Generally, loans that we extend in this area of financing have an original
term of between three and 12 years; in exceptional cases the original term may
be up to 20 years.
We also provide equity capital to start-up businesses as well as to
established small and medium-sized companies. We make those investments through
a business unit operating under the brand name L-EA (L-EigenkapitalAgentur).
However, all investments are included on our balance sheet. Specialized external
management teams working on the basis of consultancy contracts advise us in the
preparation of our investment decisions. Investment decisions (acquisitions and
sales of equity) in this area of business are being taken by our board of
management following the completion of a thorough due-diligence process. We try
to ascertain the reputational, operational and legal risks of each investment,
and especially we examine the business plans, business strategies and, if
already available the financial statements of the target companies. If advisable
we consult external legal or business advisors before we take a final decision.
Investment decisions exceeding the amount of two million Euro are to be taken by
our supervisory board.
The focus of our investments is directed at venture capital, in particular
at information and communications technology and biotechnology, and towards
equity investments financing the expansion or ownership restructuring of
established small and medium sized companies. As a general rule, we only invest
in minority holdings and as a co-investor - on equal terms - with other private
investors. We generally do not invest in stock exchange listed companies.
The maximum capital we envisage to invest through L-EA over the years
amounts to approximately EUR 253 million (including amounts already invested).
We do not intend to become a permanent investor in those companies; instead, we
intend to exit our investments on terms we deem favorable to us by way of
private or public sales. So far, we have also invested in private equity and
venture capital funds as well as in companies directly. In exceptional cases we
also grant mezzanine financing to companies in which we are invested.
In addition to our own investments, we hold minority interests in two
specialized private equity-companies, which undertake similar investments:
Mittelstandische Beteiligungsgesellschaft Baden-Wurttemberg mbH, in which we
hold 26.8%, and BWK GmbH Unternehmensbeteiligungs-gesellschaft, in which we hold
10%, both located in Stuttgart.
Furthermore, under our equity joint venture guaranty program, we assume the
default risk of equity investments by venture capital companies and private
investors in small and medium-sized businesses by way of guaranties. Those
guaranties cover amounts of up to 50% of the respective individual investments.
The following table sets out the amounts invested in each year indicated:
Total Equity Investments(1)
2003 2002 2001
-------- -------- --------
(in thousands of EUR)
Direct investments in companies 6,508 6,073 7,114
Investments in private equity funds 3,732 4,725 1,854
Mezzanine financings 5,700(2) 0 64
Commitments(3) 12,600 9,319 9,583
- ---------------------
14
(1) Holdings in companies for strategic purposes as of December 31 of the year
indicated, not including Mittelstandische Beteiligungsgesellschaft
Baden-Wurttemberg mbH and BWK GmbH Unternehmensbeteiligungsgesellschaft.
(2) In 2003, as a matter of policy, we increased our engagement in mezzanine
financings to complement our direct equity investment in order to further
strengthen the capital structure of our companies we are invested in.
(3) Commitments to further payments for equity or parts in equity funds.
Infrastructure
In order to enhance Baden-Wurttemberg's economic and technical
infrastructure, we administer several public assistance programs and provide
financing for different investments in this respect. We administer programs
sponsored by Baden-Wurttemberg, the Federal Republic of Germany and the European
Union. Through those programs we provide assistance and financing primarily for
investments in technology, tourism and economic infrastructure predominantly on
a local community level, as well as for investments to enhance the development
of rural areas and transport infrastructure.
We provide the relevant financing in the form of loans, grants as well as
guaranties. Through a network of subsidiaries, we maintain real estate
investments focused on business parks, technology parks and industrial parks in
Baden-Wurttemberg.
In most cases, we extend loans to financial institutions, typically
commercial, cooperative or savings banks, which on-lend the funds to the
ultimate borrower at the interest rate and for the purpose specified by us. The
intermediary bank bears the credit risk of the borrower, while we bear the
credit risk of the intermediary bank. In some cases we lend directly to
borrowers. In addition we increasingly extend funds to local authorities and
other political subdivisions of the Federal Republic of Germany or
Baden-Wurttemberg.
The following table shows our loans and commitments in connection with
infrastructure-related financing for each of the years indicated:
Infrastructure-Related Financing(1)
Loans and Commitments
2003 2002 2001
-------- -------- --------
(in millions of EUR, except for %)
Loans outstanding(2)....................... 4,043.14 2,156.01 2,172.38
% of total loans outstanding............... 9.18 5.25 5.34
Commitments made(3)........................ 3,571.99 1,399.62 1,373.54
% of total commitments made................ 39.65 19.7 18.61
- ---------------------
(1) Not including real estate investments
(2) Loans outstanding at December 31 of the year indicated. Loans outstanding
do not include fiduciary loans and administrative loans.
(3) Commitments represent the volume of funds committed by us for loans
(including fiduciary loans and administrative loans) during the year
indicated, including amounts to be disbursed in future years.
Social Welfare
In support of our owner, the State of Baden-Wurttemberg, we administer a
wide range of financial assistance programs, such as for the support of
facilities for handicapped or addicted people or for the construction of
hospitals, distributing funds provided by German state and federal governments
and the European Union. As of December 31, 2003, we administered 29 such
programs, an increase of 20 programs compared to the number of programs we
administered at December 31, 2002. In the course of 2003, we acted as a conduit
for disbursing financial aid totaling EUR 734 million.
We earn a fee for the administration of the funds, which is intended to at
least cover the costs we incur in connection with such administration.
15
In order to manage and process financial aid packages efficiently, we have
developed a number of software solutions. In 2003, we completed further
development work on our proprietary software, which handles data capture,
processing and evaluation for state subsidy programs, and which meets the high
standards for reporting and monitoring laid down by the European Union.
Additionally, we are the central authority for distributing federal and
state family benefits in Baden-Wurttemberg. We also provide advice to young
families in all matters relating to family benefits and statutory parental
leave.
In 2003, we approved 137,168 applications for federal family benefits, an
increase of 0.5 % from 2002, and 31,649 applications for state benefits, an
increase of 0.8 % from 2002. The volume of approved federal and state benefits
amounted to EUR 368.5 million and EUR 80.2 million, respectively, representing
increases of 0.7% and 13.6%, respectively, compared to 2002. The increases
reflect new higher income thresholds and an increase in the number of families
eligible for such benefits.
Securities Activities
To diversify the overall risk profile of our credit-portfolio and in order
to stabilize our liquidity position and to manage interest rate risks, we
regularly purchase debt securities of financial institutions and other issuers,
including public authorities and supranational organizations, in the market. We
conduct these activities in support of, and to manage the risks arising from,
our primary activities as a state development bank.
At December 31, 2003, 99.8% of the securities in our portfolio were
interest-bearing securities and 0.2 % consisted of equity securities, such as
shares and other non-interest-bearing securities. Equity securities representing
an `equity investment' (Beteiligung), that is an investment in another company
(whether affiliated or not affiliated with us) that we intend to hold on a
long-term basis in order to establish a permanent relationship that contributes
to our own business, are not included in our securities portfolio. See
"--Glossary--Equity investments in non-affiliated companies; equity investments
in affiliated companies."
The following table shows the aggregate book value of securities held by us
at December 31 of each of the years indicated:
Securities Portfolio
2003 2002 2001
-------- -------- --------
(in millions of EUR, except for %)
Total securities held(1)................. 8,314.2 8,089.3 7,359.2
of which:
Interest-bearing securities(2)........ 8,300.7 8,069.4 7,321.3
% of total securities(2)............ 99.8 99.8 99.5
Equity securities(3).................. 13.5 20.0 37.9
% of total securities(3)............ 0.2 0.2 0.5
- ---------------------
(1) Aggregate book value of debt and equity securities, excluding equity
investments and repurchased own notes (Balance Sheet assets items 4a, 4b
and 5), held by us at December 31 of the year indicated. An `equity
investment' (Beteiligung) is an investment in another company (whether
affiliated or non-affiliated) that we intend to hold on a long-term basis
in order to establish a permanent relationship that contributes to our own
business. See "--Glossary--Equity investments in non-affiliated companies;
equity investments in affiliated companies."
(2) Consists of notes or bonds and other interest-bearing securities (excluding
repurchased own notes)
(3) Equity securities in 2002 and 2001 include profit participation rights
(Genussscheine).
Loan Portfolio Risks
We maintain a policy of conservative evaluation of our loan portfolio. We
establish what we believe to be adequate reserves to take account of all
identifiable risks in our loan portfolio.
16
At year-end 2003, 56.4% of our total outstanding loans (other than
fiduciary loans and administrative loans) and guaranties were backed by credit
support, (compared to 55.6% at year-end 2002): 37.9% of total loans (compared to
40.9% at year-end 2002) were secured by mortgages and other collateral and 18.5%
(compared to 14.7% at year-end 2002) were loans to, or guarantied by, the
Federal Republic of Germany or Baden-Wurttemberg, political subdivisions thereof
or other governmental authorities, or were insured.
According to our internal guidelines determined by the board of management
direct lendings generally have to be secured, unless the debtor is, or is
guaranteed by, a Member State of the European Union, a municipality or by
another public law entity of a Member State of the European Union, or if the
debtor is a company engaged in the utility sector and the majority of its equity
is owned by any of the public law entities mentioned before. Furthermore, credit
support may not be required, if the debtor has a high degree of
credit-worthiness and other credit institution would normally extend loans to
this company on an unsecured basis. We have established an internal rating
framework and each debtor is classified according to a predefined rating
methodology suitable for the category of debtors to which the debtor belongs. As
a general rule, credit support is not necessary, if the debtor is classified in
one of the two highest internal rating categories.
At December 31, 2003, most of our loans and guaranties not backed by credit
support were made to banks and other credit institutions.
As part of our lending in support of housing and agriculture, we make
fiduciary loans, which are loans in our name on behalf of other entities, and
administrative loans, which are loans in the name of other entities on behalf of
the other entities, in each case using funds supplied by other entities. We do
not bear any credit risk in connection with fiduciary loans and administrative
loans. See "General--Introduction" and "--Glossary--Fiduciary assets; fiduciary
liabilities."
In accordance with the L-Bank Statutes, if loans and guaranties extended by
us are secured, they are generally secured on a junior basis. Housing-related
loans are usually secured by junior mortgages or, on a temporary basis until the
perfection of a mortgage, by bank guaranties or guaranties by local authorities
or entities established under public law. Bridge loans to persons with an
unmatured building-society savings contract (nicht zuteilungsreifer
Bausparvertrag) are additionally secured by an assignment of such contract.
Because of the risk inherent in junior mortgages, the municipality in which the
housing construction is located is, subject to its prior approval, obligated by
law to cover one-third of any losses incurred by us, provided that the relevant
loan is granted under the State Housing Program and is used for the construction
of houses or apartments. A Baden-Wurttemberg state administrative regulation,
however, limits our claims under the guaranty to an amount based on a ratio of
75% of the overall reasonable cost.
In certain areas of financing, such as trade-, industry- and
agriculture-related lending, we very frequently extend loans through
intermediary banks that on-lend the funds to their own borrowers - the end
customers. In addition to assuming the credit risk, we generally require
intermediary banks to secure such loans. To a very limited extent we may
guaranty collection of loans made by intermediary banks. Trade and
industry-related loans are in most cases secured by mortgages or security
interests in equipment, accounts receivable and other collateral.
In various areas of our business we make loans, including fiduciary loans,
to entities and, to a limited extent, to individuals - German and foreign - that
are incorporated or located outside of Germany, purchase debt securities of
foreign issuers and make equity investments in foreign entities. To the extent
these transactions are not denominated in Euros, we generally hedge any currency
risks by means of currency swaps. See "Business--Funding and Investment Policy."
The following table sets forth our cross-border loans, securities holdings,
guaranties and derivatives at December 31, 2003:
17
Cross-Border
Loans, Securities Holdings, Guaranties and Derivatives
Other
Other Member countries
European States of the Other and
Monetary European industrialized supra-national
Total Union(1) Union(2) USA countries(3) organizations
--------- ----------- -------------- --------- -------------- --------------
As of December 31, 2003
(in thousands of EUR(4))
Loans(5)....................... 421,942 286,637 21,084 59,915 25,365 28,941
Securities(6).................. 3,935,642 2,717,191 1,031,314 114,878 55,284 16,975
Equity investments............. 6,956 0 0 5,980 0 976
Guaranties(7).................. 536,580 457,427 1,914 0 0 77,239
Derivatives(8)................. 1,728,292 353,608 857,357 434,566 82,761 0
--------- ----------- -------------- --------- -------------- --------------
Total 6,629,412 3,814,863 1,911,669 615,339 163,410 124,131
========= =========== ============== ========= ============== ==============
- ---------------------
(1) The countries participating in the European Monetary Union are Austria,
Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the
Netherlands, Portugal and Spain.
(2) As of December 31, 2003, the Member States of the European Union that did
not participate in the European Monetary Union were Denmark, Sweden and the
United Kingdom.
(3) Includes Switzerland, Canada, Norway, Australia, Iceland, Japan and Turkey
(4) Any amounts denominated in foreign currencies are expressed in Euros based
on the rate of exchange on December 31, 2003.
(5) This item includes loans to credit institutions, companies, individuals and
public authorities, but does not include fiduciary loans. We generally do
not make cross-border administrative loans.
(6) This item includes debt securities (excluding repurchased own notes) and
equity securities.
(7) This item includes contingent liabilities in respect of guaranties, check
guaranties and indemnity agreements.
(8) This item consists primarily of interest rate and currency swaps for
hedging purposes, including credit derivatives.
Approximately 57% (EUR 3,815 million) of the amount of our cross-border
loans, securities holdings, guaranties and derivatives involve individuals or
entities located in countries participating in the European Monetary Union.
Approximately 86% (EUR 5,727 million) involve individuals or entities located
within the European Union.
Loan and Securities Loss Reserves
Our public mandate requires us to consider loan and other investments that,
due to their risk profile, commercial banks would refuse to contemplate for
commercial reasons. This is reflected in our contributions to risk provisions.
We make extensive specific and general loan loss reserves in our loan and
securities portfolio. We believe that our policy in this respect is prudent and
that our reserves are sufficient to provide for all identifiable and potential
risks in our loan and securities portfolio.
We establish specific reserves to provide for any identifiable risks
relating to specific loans or securities, specific reserves to provide for
identifiable risks relating to groups of borrowers or types of loans and a
general reserve intended to provide for potential risks not presently
identifiable but that are inherent in the loan and securities portfolio. In
accordance with German law and generally accepted accounting principles in
Germany, the foregoing reserves are created by reducing the loan and securities
balances reserved against and are not separately reflected as a reserve in the
balance sheet. On the liabilities side of our balance sheet, we are permitted
according to section 340g German Commercial Code, as a credit institution, to
establish reserves against general banking risks in a special item called "Fund
for general bank risks". Allocations to, or withdrawals from, this item must be
reflected in our income statement. See "--Summary of Certain Differences Between
Generally Accepted German and United States Accounting Principles."
Loans and payments made under guaranties are written off when our
management determines that there is no chance of recovery.
18
The following table sets forth the aggregate amount of interest and
principal payments in arrears on claims with an original maturity of four years
or more, the aggregate amount of loans and guaranty payments
(and housing-related loans and guaranty payments) written off by us and the
aggregate amount of recoveries on loans and guaranty payments previously written
off for each of the years indicated:
Credit Arrears, Write-Offs and Recoveries
2003 2002 2001
-------- -------- --------
(in millions of EUR)
Arrears(1)............................... 68.0 57.6 42.3
Write-offs(2):
Total................................. 116.8 95.6 162.7
Housing-related....................... 106.0 88.8 153.7
Recoveries(3) 2.2 3.0 3.4
- ---------------------
(1) Aggregate amount of principal and interest payments in arrears on claims at
December 31 of the year indicated.
(2) Aggregate amount of loans and guaranty payments written off during the year
indicated.
(3) Aggregate amount received during the year indicated in connection with
loans and guaranty payments written off in previous years.
The weaker German economy and the high number of commercial bankruptcies in
recent years, in particular in 2001 and 2003, has led to an increase in loan and
securities loss reserves.
In connection with our establishment on December 1, 1998, all assets of the
state development agency business of the former Landeskreditbank
Baden-Wurttemberg were transferred to us. Part of those assets was a large
portfolio of housing-related loans in eastern Germany, primarily in the federal
state of Saxony, which are secured by junior mortgages. The table above
therefore includes loan loss reserves with respect to commercial properties and
building projects in eastern Germany, established in accordance with generally
accepted German accounting principles. Except for the extension of loans in
connection with the restructuring of existing loans, we have not extended new
loans relating to real estate located in eastern Germany since our establishment
and are merely servicing those loans currently in our portfolio.
Reserves for Interest Subsidies
We also maintain reserves to support interest rate subsidies, which is the
difference between the prevailing market interest rate and the interest rate we
charge our customers under the public economic and social assistance programs
that we administer. These reserves are calculated on the basis of an amount
representing the difference between a fictitious yield over the entire term of
the subsidized loan, which is based on the market interest rate at the time that
the loan is being made, and the actual aggregate interest payments to be made by
the customer over the term of the loan. The reserves for interest subsidies are
funded by Baden-Wurttemberg and the German federal government, other public
authorities and by us. See "--Glossary--Deferred items" and "--Contingency
reserves."
Sources of Funds
Our principal sources of funds are the capital and money markets,
subscribed capital, capital surplus, retained earnings and public funds. At
December 31, 2003, our total assets, excluding fiduciary assets of EUR 511.9
million, amounted to EUR 45.7 billion. Of those total assets, 89.9% were
financed through long-term and short-term borrowings in the capital and money
markets, and 0.9% were financed through our retained earnings. The balance was
financed from other liabilities, including reserves.
We raise funds in the capital markets by issuing a variety of bonds, notes
and medium and long term loans evidenced by promissory notes placed with
investors (Schuldscheindarlehen). In 2003, we raised EUR 6,422 million (a 22.1%
decrease from EUR 8,248 million in 2002) through 40 issuances (27 in 2002) of
bonds and notes in the German and international capital markets. In 2001, we
established a EUR 20 billion debt issuance program, under which we have issued
EUR 8.6 billion by December 31, 2003.
19
The following table shows our borrowings made in the capital markets,
categorized by type of
instrument, during each of the years indicated:
Capital Market Borrowings(1)
2003 2002 2001
------------------- ------------------- -------------------
millions millions millions
of EUR % of EUR % of EUR %
Types of borrowings
- -------------------
Domestic bonds and notes............................ 1,492 23.2 1,045 12.7 3,880 56.7
International bonds and notes....................... 3,481 54.2 5,051 61.2 1,203 17.6
----------- ------ --------- ------ --------- -------
Total bonds and notes............................... 4,973 77.4 6,096 73.9 5,083 74.3
Schuldscheindarlehen and other borrowings(2)........ 1,449 22.6 2,152 26.1 1,760 25.7
----------- ------ --------- ------ --------- -------
Total capital market borrowings..................... 6,422 100.0 8,248 100.0 6,843 100.0
=========== ====== ======== ====== ========= =======
- ---------------------
(1) For information on the maturities of our outstanding capital markets
borrowings, see "Financial Statements of L-Bank--Supplementary Information
on Debt of L-Bank."
(2) Schuldscheindarlehen are a financing method of the German capital market,
where the lending entity, generally a bank, insurance company or public
pension fund, receives a promissory note evidencing its loan to the
borrower and stating the terms of such loan. Original maturities of
Schuldscheindarlehen range from one to 30 years.
As part of our liquidity management, we also raise funds in the money
markets, including short-term deposits from other banks. To fund our loans, we
also use the overdraft facility of the European Central Bank (drawdowns from
this facility are secured by eligible securities) and securities repurchase
agreements. See the notes to our financial statements included in this
Prospectus.
We also borrow from credit institutions, insurance companies and other
lenders under loan agreements. To fund loans under various public assistance
programs, we borrow funds appropriated in the Baden-Wurttemberg and German
federal budgets. Baden-Wurttemberg and Germany also contribute all the funds for
grants. We use funds supplied by the Baden-Wurttemberg and German federal
governments and other German, foreign or supranational entities to make
fiduciary loans and administrative loans. Grants and administrative loans do not
appear on our balance sheet.
The following table shows our borrowings outstanding at December 31 of each
of the years indicated:
Outstanding Borrowings(1)
2003 2002 2001
-------- -------- --------
(in millions of EUR)
Bonds and notes issued(2).................. 16,415.7 14,582.2 12,517.0
Liabilities to credit institutions(3)...... 18,900.4 19,729.2 21,629.4
Liabilities to customers(3)................ 5,160.3 3,996.1 4,150.0
Subordinated liabilities................... 598.8 444.8 442.2
-------- -------- --------
Total...................................... 41,075.2 38,752.3 38,738.6
======== ======== ========
- ---------------------
(1) See our financial statements, together with the related notes, included in
this Prospectus and "--Glossary."
(2) The equivalent balance sheet item is "certificated liabilities"; see
"--Glossary--Certificated liabilities." This item includes bearer
mortgage-backed bonds (Hypothekenpfandbriefe).
(3) Includes registered mortgage-backed bonds (Hypothekennamenspfandbriefe).
20
For more information concerning our borrowings at the end of 2003,
including the range of interest
rates paid by us and a repayment schedule, see "Financial Statements of
L-Bank--Supplementary Information on Debt Of L-Bank."
Funding and Investment Policy
Through our funding and investment policy we seek to achieve the most
favorable terms possible with respect to funds raised in the capital and money
markets. We also seek to minimize interest rate, exchange rate and currency
risks by using various hedging instruments.
The terms of most of our fixed-interest loans prohibit prepayments by the
borrower prior to ten years after the loan is made. Variable-rate loans,
however, may generally be prepaid at any time upon three months' notice. 94% of
our loans outstanding as of December 31, 2003 were at fixed interest rates. It
is our policy to exercise our right to preclude prepayments or to charge a
breakage fee to compensate us for any loss that we would incur by reinvesting
the loan proceeds at the prevailing market rate.
As of December 31, 2003, we were party to interest rate and currency
derivatives transactions with a total notional value of EUR 92.5 billion. We use
interest rate and currency swaps for the purpose of hedging our investments in
debt securities and our own issuance of debt and, in the past, to a limited
extent, for trading purposes. We principally enter into swap transactions only
with counterparties with a rating at least comparable to A3 or A- by a reputable
rating agency.
We use derivative transactions for hedging purposes only, either in form of
micro hedges (hedging single transactions) or macro hedges. We implement
separate portfolio hedges to a very limited extent only. We employ micro hedges
to hedge all our assets or liabilities containing an interest rate structure.
Currency positions will be hedged once marketable sizes have been attained in
the respective currency. According to German GAAP, such derivative transactions
are not to be included in the balance sheet, but have to be disclosed
separately, see "Financial Statements of L-Bank--Notes to the annual financial
statements of Landeskreditbank Baden-Wurttemberg - Forderbank for the financial
year ended December 31, 2003."
The total income and expenses of micro and macro hedges are reflected in
the positions "Interest Income" and "Interest Expenses" in our income statement,
without differentiating between micro and macro hedges.
Separate portfolio hedges are of minimal importance in the context of our
activities. The net effect of hedging in the context of portfolio hedges is
reflected in the position "Net Income from Financial Operations" in our income
statement. Losses reflecting negative market values of those portfolio hedges
are being accounted for in the balance sheet under the item "Contingency
Reserves" together with all other reserves built by us.
Risk Control
The measurement, monitoring and control of risks are all integral functions
of our global bank control system. Our board of management formulates our risk
policy and establishes the appropriate procedural framework for its
implementation. Our risk management system was designed to ensure that we can
estimate our risk exposure at any time and implement alternative risk management
options as required. The system consists of five subprocesses: risk
identification, risk evaluation, risk management, risk monitoring and risk
communication.
Risks are identified - that is, analyzed, structured and allocated - by our
risk controlling team in cooperation with the individual divisions in which the
risks arise. Our risk categories, which correspond to those set forth in the
German accounting standards, include counterparty default risk, market risk,
liquidity risk and operational risk. The data resulting from our risk
identification process are used as the basis for the
21
quantitative and qualitative evaluation of risks. For market risks and
counterparty default risks, we calculate the value at risk. For other risks,
we use estimates as the basis for evaluation. The results of the evaluation
process are continually documented, monitored by our risk controlling team and
reported in near real-time. At the same time, our operating units evaluate the
market risk for management purposes.
Risk management is the responsibility of our operating units, our board of
management and our lending committee, in each case acting within approved limits
and up to certain assigned competence levels.
Counterparty default risk
Counterparty default risks embody the greatest proportion of specific risks
to which we as a whole are exposed. They comprise credit risk, settlement risk,
country risk and investment portfolio risk. We evaluate counterparty default
risks using rating methods tailored to the peculiarities of each market segment.
In the case of commercial transactions and loans connected with liquid
investments and management of our own books of account, counterparty default
risks are limited by applying counterparty and country limits, which are
proposed by our lending analysis division and approved by our board of
management. Individual country limits are allocated and supervised according to
a set of guidelines established each year by our board of management.
Market risk
Our market risks consist primarily of interest rate risks and, to a lesser
extent, of currency risks. In addition, certain of our subsidiaries, such as
property development companies, are also exposed to price risks in the form of
real estate risks. These companies may incur potential losses as a result of
adverse developments affecting building costs or property prices and rents. To
control these risks, our board of management specifies value-at-risk and
stop-loss limits. Each day the risk controlling team uses the historical
simulation method to calculate the value at risk represented by interest rate
and currency risks. Back testing is used to check the reliability of the
calculation method applied. To estimate potential losses in the event of extreme
market fluctuations, we also carry out stress tests and simulate extreme and
worst-case scenarios.
To further limit our interest rate risk, our board of management regularly
defines a budgeted risk structure, which represents the target interest rate
risk profile. The permissible variance of the actual risk structure to the
budgeted risk structure is defined by setting a limit per range of maturities.
To quantify real-estate risks, we use worst-case projections to calculate the
potential reduced return on invested capital at the time of sale. The shortfall
in earnings is estimated by reference to historical and projected trends in
real-estate prices. Our risk controlling team monitors interest rate and
currency risks. The value-at-risk and stop-loss figures calculated each day are
compared with the specified limits. The team also monitors adherence to the
budgeted risk structure and authorized limits. A daily risk and performance
report is submitted to our board member responsible for controlling risks and
the board member responsible for the trading divisions.
Liquidity risk
Our liquidity management, which is the responsibility of our treasury
division, is based on a computer-generated liquidity projection, which takes
into account all foreseeable, scheduled payment flows over the next twelve
calendar months. The reporting system assesses, monitors and reports on the
liquidity risk. Our liquidity factor is calculated monthly, in line with the
reporting requirements of Principle II (governing liquidity) of the German
Banking Act (see "--Regulation and Supervision of L-Bank in the Federal Republic
of Germany--Liquidity Requirements").
Operational risk
Operational risk covers the potential for losses as a result of risks
associated with operational systems or processes. It includes operating risks
arising as a result of human or technical error, as well as legal risks arising
from contractual agreements or the underlying legislative framework. In
accordance with our system
22
for analyzing and evaluating operational risks, all product-related processes
in the individual divisions are analyzed once a year and evaluated with the help
of experts. Any risks identified are assigned to one of five risk categories.
These are measured according to the financial impact that potential exposure
may have on our net worth and the frequency with which such risks may arise over
a twelve-month period. The value at risk is calculated by analyzing the loss
rate separately from the extent of the losses.
23
DEBT RECORD
We have always paid promptly when due the full amount of principal of and
interest on our indebtedness.
CAPITALIZATION
The following table shows our capitalization at December 31, 2003:
Capitalization at December 31, 2003(1)
(in millions of EUR)
Liabilities
Liabilities to credit institutions(2)............................. 18,900
Liabilities to customers(3)....................................... 5,160
Certificated liabilities(4)....................................... 16,416
Subordinated liabilities(5)....................................... 599
Profit participation rights....................................... 0
Equity
Subscribed capital(6)............................................. 250
Capital surplus................................................... 951
Retained earnings reserves(7)..................................... 426
-------
Total capitalization....................................... 42,702
=======
- ---------------------
(1) See our balance sheet included elsewhere in this Prospectus.
(2) Includes EUR 11,700.0 million of liabilities with a remaining maturity of,
or that are subject to redemption or repayment in, less than five years.
Liabilities to credit institutions include registered mortgage-backed bonds
(Hypothekennamenspfandbriefe).
(3) Includes EUR 1,654.0 million of debt with a remaining maturity of, or that
are subject to redemption or repayment in, less than five years.
Liabilities to customers (i.e. non-credit institutions) include registered
mortgage-backed bonds (Hypothekennamenspfandbriefe).
(4) Includes EUR 14,273.5 million of bonds and notes with a remaining maturity
of, or that are subject to redemption or repayment in, less than five
years. This item includes bearer mortgage-backed bonds
(Hypothekenpfandbriefe).
(5) Includes EUR 22.8 million of liabilities with a remaining maturity of, or
that are subject to redemption or repayment in, less than five years. See
"Financial Statements of L-Bank--Financial Statements of L-Bank as of and
for the year ended December 31, 2003--Notes to the Financial Statements."
(6) Our original subscribed capital was DM 450 million (equivalent of EUR 230.1
million). As of January 1, 1999, the subscribed capital was increased to
EUR 250 million.
(7) For capitalization purposes, we are not subject to any legal reserves.
Between January 1, 2004, and November 30, 2004, we publicly issued bonds,
notes and miscellaneous liabilities (including privately placed bonds and notes,
Schuldscheindarlehen and other borrowings) with an aggregate value of EUR 7,034
million. In addition, between January 1, 2004, and November 30, 2004, we issued
subordinated debt in an aggregate amount of EUR 311 million and profit
participation rights in an aggregate amount of EUR 509 million in the capital
markets to strengthen our capital basis. These items are not reflected in the
capitalization table above. Apart from these items, there have been no material
changes in our capitalization since December 31, 2003.
24
MANAGEMENT INFORMATION
Introduction
The following Management information is based on our audited unconsolidated
annual financial statements as of and for the fiscal years ended December 31,
2003, 2002 and 2001.
Our financial statements as of and for the fiscal years ended December 31,
2003, 2002 and 2001 were prepared using German GAAP, as contained in the German
Commercial Code (Handelsgesetzbuch), in particular in the Supplemental
Regulations for Banks (Sections 340 et seq. of the German Commercial Code), and
in the German Accounting Principles applied to Credit Institutions and Financial
Services Institutions (Verordnung uber die Rechnungslegung der Kreditinstitute
und Finanzdienstleistungsinstitute).
For details regarding the principles governing the preparation of our
financial statements, see the notes to our financial statements included in this
Prospectus and "--Regulation and Supervision of L-Bank in the Federal Republic
of Germany--Financial Statements and Audits." For a description of certain terms
used in our balance sheet and statement of income, see "Glossary."
German GAAP differs in certain respects from the generally accepted
accounting principles of other countries, such as the United States. For a
discussion of certain differences between German GAAP and U.S. GAAP, see
"--Summary of Certain Differences between Generally Accepted German and United
States Accounting Principles."
Balance Sheet
Our total assets increased by EUR 2.6 billion, or 6.1%, in 2003 to EUR 46.2
billion at December 31, 2003, as compared to EUR 43.6 billion at December 31,
2002. In addition to public sector lending, loans to small and medium sized
businesses have been the major contributor to this growth. Loans to credit
institutions (assets item 2, "receivables from credit institutions") increased
by 11.3% in 2003 to EUR 11.8 billion and represented 25.4% of total assets at
December 31, 2003 (compared to 24.2% at December 31, 2002). The increase was
primarily caused by a growing number of purchases of registered securities
issued by public-law credit institutions in the context of our treasury
management and for reasons of risk diversification. Loans to customers other
than credit institutions (assets item 3, "receivables from customers") increased
by 5.7% in 2003 to EUR 24.6 billion and represented 53.2% of total assets at
December 31, 2003 (compared to 53.4 % at December 31, 2002). Borrowings from
credit institutions (liabilities item 1, "liabilities to credit institutions")
decreased by 4.2% over the previous year and amounted to an aggregate of EUR
18.9 billion at December 31, 2003. Borrowings from customers (liabilities item
2, "liabilities to customers") increased by 29.1% and amounted to an aggregate
of EUR 5.2 billion at December 31, 2003. This increase (liabilities item 2,
"liabilities to customers") was due primarily to the demand of insurance
companies for structured debt certificate borrowings (strukturierte
Schuldscheine). Bonds and notes issued (liabilities item 3, "certificated
liabilities") amounted to EUR 16.4 billion at December 31, 2003.
The following table shows the development in certain balance sheet items at
December 31 of the year indicated:
25
Development of the L-Bank Balance Sheet
2003 2002 2001
---------- ---------- ----------
(in millions of EUR)
ASSETS
Cash reserve.................................................... 257.5 246.0 335.7
Total receivables(1)............................................ 36,344.8 33,820.4 33,061.4
Receivables from credit institutions......................... 11,760.7 10,562.2 9,774.2
Receivables from customers (i.e. non-credit
institutions)................................................ 24,584.1 23,258.2 23,287.1
Fiduciary assets................................................ 511.9 666.6 816.3
Securities(2)................................................... 8,511.4 8,296.8 8,722.7
Other Assets(3)................................................. 599.1 555.1 455.4
----------- ------------ -------------
Total Assets.................................................... 46,224.7 43,584.9 43,391.4
=========== ============ =============
EQUITY AND LIABILITIES
Liabilities(4).................................................. 24,060.7 23,725.3 25,779.4
Liabilities to credit institutions........................... 18,900.4 19,729.2 21,629.4
Liabilities to customers..................................... 5,160.3 3,996.1 4,150.0
Certificated liabilities........................................ 16,415.7 14,582.2 12,517.0
Subordinated liabilities........................................ 598.8 444.8 442.2
Fund for general bank risks..................................... 129.0 108.9 108.9
Contingency reserves............................................ 749.8 817.5 867.0
Deferred items.................................................. 977.5 1,087.6 1,308.4
Other liabilities(5)............................................ 1,663.9 1,260.5 896.8
Own resources (including subscribed capital, capital surplus,
retained earnings reserves and distributable profit)............ 1,629.3 1,558.2 1,471.6
----------- ------------ -------------
Total liabilities............................................... 46,224.7 43,584.9 43,391.4
=========== ============ =============
- ---------------------
(1) Total receivables include loans and other obligations with an original
maturity or non-prepayment period of less than five years as well as those
with an original maturity or non-prepayment period of five years or longer.
(2) Aggregate book value of all debt and equity securities (including
repurchased own notes) except equity investments, held by us at December 31
of the year indicated. An `equity investment' (Beteiligung) is an
investment in another company (whether affiliated or non-affiliated) that
we intend to hold on a long-term basis in order to establish permanent
relationship that contributes to our own business. See
"--Business--Securities Activities" and "--Glossary--Equity investments in
non-affiliated companies; equity investments in affiliated companies."
(3) Includes equity investments in affiliated and non-affiliated companies,
tangible assets, deferred charges and prepaid expenses and other assets
(assets item 11).
(4) Liabilities include liabilities with an original maturity or non-prepayment
period of less than five years as well as those with an original maturity
or non-prepayment period of five years or longer.
(5) Includes fiduciary liabilities.
Our "credit volume" consists of loans to credit institutions and loans to
customers other than credit institutions. As of December 31, 2003, our credit
volume amounted to EUR 36.3 billion, an increase of 7.5% compared to year-end
2002. At December 31, 2003, loans to credit institutions accounted for
approximately 32.4% of our credit volume, compared to 31.2% at December 31,
2002. The outstanding amount for loans to credit institutions increased by 11.3%
to EUR 11.8 billion in 2003, compared to EUR 10.6 billion in 2002. Loans to
customers other than credit institutions accounted for approximately 67.6% of
the credit volume at December 31, 2003, compared to 68.8% at December 31, 2002.
The outstanding amount of loans to such customers increased by 5.7% to EUR 24.6
billion in 2003, compared to EUR 23.3 billion at December 31, 2002. The
outstanding amount of securities holdings (i.e. assets items 4a, 4b and 5)
increased by 2.8% to EUR 8.3 billion (EUR 8.1 billion at December 31, 2002).
We are not required to classify our loans according to their maturity. Our
assets can, however, be characterized as long term. At December 31, 2003, 38.7%,
or EUR 4.5 billion, of the loans to credit institutions and 81.3%, or EUR 20.0
billion, of the loans to customers other than credit institutions were long-term
loans (i.e., loans with an original maturity and non-prepayment period of five
years or longer). The
26
notes to our financial statements required by the German Commercial Code present
our loans according to their original maturity. See "Financial Statements of
L-Bank--Financial Statements of L-Bank as of and for the year ended December 31,
2003--Notes to the Financial Statements."
At December 31, 2003 our commitments for loans and guaranties totaled EUR
9.0 billion, an increase of EUR 1.9 billion or 26.8% from EUR 7.1 billion of
commitments at December 31, 2002. This was mainly due to the significant
increase in infrastructure related financing.
Commitments for infrastructure increased by 155% to EUR 3.6 billion at
December 31, 2003, compared to a 1.9% increase to EUR 1.4 billion at December
31, 2002. This significant increase in 2003 is due to the fact that the area of
infrastructure financing was explicitly mentioned as a permitted business
activity of state development banks in the context of Understanding II (for a
discussion of Understanding II, see "--General--Responsibility of
Baden-Wurttemberg--Understanding with the European Commission"). We therefore
placed a specific emphasis on the development of this business area in 2003. We
do not anticipate similar growth rates in future years, but intend to develop
this business area in line with all other business areas of our bank with
moderate growth rates.
Housing loan commitments increased by 17.1% to EUR 1.1 billion at December
31, 2003, compared to a 8.5% decrease to EUR 0.9 billion in 2002. The increase
in 2003 is to be seen in the context of publicly announced plans by the federal
government to cut subsidies for families to buy or build their first homes. This
caused many families to invest in first homes in 2003. In trade and
industry-related financing, there was a 10.8% decrease to EUR 1.1 billion in
commitments at December 31, 2003, compared to a 8.4% decrease to EUR 1.3 billion
at December 31, 2002. The decrease in 2002 and 2003 is to be seen in the context
of the general economic slowdown experienced in those years.
At December 31, 2003, the outstanding amount of bonds and notes
(certificated liabilities) had increased by 12.6% to EUR 16.4 billion from EUR
14.6 billion at December 31, 2002, which in turn was a 16.5% increase over EUR
12.5 billion in 2001. Both increases are caused by the establishment of our Debt
Issuance Program in 2001 which, because of its flexibility, facilitates the
issuance of structured bonds and notes on the international capital markets. See
"--Business--Sources of Funds."
Our equity ratio (the percentage of equity to total assets) decreased to
3.5% at December 31, 2003, compared to 3.6% at December 31, 2002 and to 3.4% at
December 31, 2001.
Statement of Income
In a difficult economic environment for credit institutions, we realized
comparatively stable earnings. Our operating profit increased by EUR 22.1
million to EUR 317.5 million for the year ended December 31, 2003.
The following table shows our earnings position for the years 2003, 2002
and 2001:
27
Earnings Position
Change(1) Change(1)
------------------- -------------------
2003 2003/2002 2002 2002/2001 2001
---------- ------------------- --------- ------------------- ----------
(in EUR millions) (in %) (in EUR millions) (in %) (in EUR
millions)
Interest and similar income(2).............. 2,380.8 (115.5) (4.6) 2,496.3 100.6 4.2 2,395.74
Interest expenses........................... (1,972.1) 131.7 (6.2) (2,103.8) 98.3 4.9 (2,005.5)
--------- ------- --------- ------ ---------
Net interest income...................... 408.8 16.3 4.1 392.5 2.3 0.6 390.2
Net fee and other income(3)................. 59.7 4.8 8.8 54.9 3.3 6.3 51.6
--------- ------- --------- ------ ---------
Gross profit............................. 468.5 21.1 4.7 447.4 5.6 1.3 441.8
General administrative expenses(4).......... (120.9) 7.6 (5.9) (128.5) (7.9) 6.5 (120.6)
Other operating expenses.................... (30.1) (6.7) 28.5 (23.4) (14.9) 174.5 (8.5)
--------- ------- --------- ------ ---------
Operating profit......................... 317.5 22.1 7.5 295.5 (17.2) (5.5) 312.6
Non-operating expenses(5)................... (214.1) (5.2) 2.5 (208.9) (1.9) 0.9 (207.0)
========= ======= ========= ====== ===========
Net profit............................... 103.4 16.9 19.5 86.6 (19.1) (18.1) 105.7
Allocation to retained earnings reserves.... 103.0 17.5 20.5 85.5 (18.6) (17.8) 104.1
Carried forward from previous year.......... 2.0 (31.3) (94.1) 33.2 1.6 5.1 31.6
Distributable profit..................... 2.4 (31.9) (93.0) 34.3 1.1 3.2 33.2
- ---------------------
(1) Percentage changes are calculated on the basis of unrounded figures.
(2) Similar income consists of current income from stocks, shares and other
non-interest bearing securities and equity investments in non-affiliated
companies and affiliated companies.
(3) Other income consists of net income from financial transactions and other
operating income.
(4) Includes depreciation and accumulated amortization on tangible and
intangible assets.
(5) Consists of write-offs, reserves in respect of loans and securities,
allocations to reserves for interest subsidies and income tax.
Net Interest Income. In addition to interest income from lending and money
market transactions and from interest-bearing securities and debt register
receivables (Schuldbuchforderungen), our net interest income also includes
current income from stocks, shares and other non-interest-bearing securities and
equity investments in non-affiliated and affiliated companies.
In an environment of generally declining interest rates, our interest and
similar income decreased by EUR 115.5 million, or 4.6%, to EUR 2,380.8 million
in 2003, as compared with EUR 2,496.3 million in 2002. At the same time, the
decrease in interest income was more than offset by a EUR 131.7 million, or
6.3%, decrease in interest paid from EUR 2,103.8 million in 2002 to EUR 1,972.1
million in 2003. In total, net interest income of EUR 408.8 million at year end
2003 therefore increased by EUR 16.3 million, or 4.1%, from EUR 392.5 million in
2002.
In 2002, net interest income increased by EUR 2.3 million, or 0.6%, from
EUR 390.2 million in 2001 to EUR 392.5 million in 2002.
In the context of our macro hedging of the banking book, certain interest
rate positions remain temporarily unhedged. Such positions will be hedged
depending on the prevailing interest rate environment. The hedging in such
circumstances may generate additional interest income. The increase in net
interest income discussed above in the context of the financial year 2003 was
due in part to such effects.
To control the risks of unhedged positions, our board of management
specifies tight value-at-risk and stop-loss limits. Each day the risk
controlling team uses the historical simulation method to calculate the value at
risk represented by interest rate and currency risks. Back testing is used to
check the reliability of the calculation method applied. To estimate potential
losses in the event of extreme market fluctuations, we also carry out stress
tests and simulate extreme and worst-case scenarios.
To further limit our interest rate risk, our board of management regularly
defines a budgeted risk structure, which represents the target interest rate
risk profile. The permissible variance of the actual risk
28
structure to the budgeted risk structure is defined by setting a limit per range
of maturities. The value-at-risk and stop-loss figures calculated each day are
compared with the specified limits. We also monitor adherence to the budgeted
risk structure and authorized limits. A daily risk and performance report is
submitted to our board member responsible for controlling risks and the board
member responsible for the hedge activities. For a general discussion on our
measurement, monitoring and control of risks, see "--Business--Risk Control".
Net Fee and Other Income. Net fee and other income consist of net
commission income, net income from financial transactions and other operating
income. Net fee and other income increased by EUR 4.8 million, or 8.8%, from EUR
54.9 million in 2002 to EUR 59.7 million in 2003, where a EUR 5.4 million, or
46.5%, increase in net commission income, was the main contributing factor,
primarily due to an increase in commission expenses, guaranties and receipts
from the processing of grants and subsidies.
Net fee and other income increased by EUR 3.3 million, or 6.3%, from EUR
51.6 million in 2001 to EUR 54.9 million in 2002.
General administrative expenses. The following table sets forth the
principal components of our general administrative expenses for the years ended
December 31, 2003, 2002 and 2001:
General administrative expenses
Change(1) Change(1)
2003 2003/2002 2002 2002/2001 2001
------- -------------------- ------- ------------------ -------------
(in millions (in %) (in millions (in %) (in millions
of EUR) of EUR) of EUR)
Wages and salaries............................. 58.3 2.0 3.5 56.3 4.4 8.5 51.9
Social security, pension and other benefit
and welfare expenses........................... 15.7 (7.1) (31.0) 22.8 6.6 40.7 16.2
------ ------ ------- ------ ------------
Total expenditure on personnel.............. 74.0 (5.1) (6.4) 79.1 11.0 16.2 68.1
Other general administrative expenses.......... 35.8 (2.5) (6.6) 38.3 5.1 15.2 33.3
Depreciation and amortization on intangible
and tangible assets............................ 11.1 0.0 0.0 11.1 (8.2) (42.6) 19.3
====== ====== ======= ====== =============
Total general administrative expenses....... 120.9 (7.6) (5.9) 128.5 7.9 6.5 120.6
- ---------------------
(1) Percentage changes are calculated on the basis of unrounded figures.
Total personnel expenses (wages and salaries, fringe benefits and expenses
for retirement pensions and benefits) decreased by EUR 5.1 million, or 6.4%, to
EUR 74.0 million in 2003, while they increased by EUR 11.0 million, or 16.2%,
from EUR 68.1 million in 2001 to EUR 79.1 million in 2002. The increase in 2002
was caused by a pay rise due to a collective bargaining agreement, see
"--Employees" and by higher salaries for parts of the staff which achieved a
higher job classification. Another reason was that, due to a change in law, we
had to make provisions for future employer's assistance payments for sickness
and illness costs for the first time. At the same time, the number of our
employees decreased by 1.1% from 1,147 at December 31, 2002 to 1,134 at December
31, 2003.
Total general administrative expenses, which in addition to personnel
expenses also include other general administrative expenses and depreciation and
amortization on intangible and tangible assets, decreased by EUR 7.6 million, or
5.9%, to EUR 120.9 million in 2003, following a EUR 7.9 million, or 6.5%,
increase from EUR 120.6 million in 2001 to EUR 128.5 million in 2002.
Other Operating Expenses. Other operating expenses increased by 28.5%, or
EUR 6.7 million, to EUR 30.1 million in 2003, after having increased by EUR 14.9
million, or 174.5%, to EUR 23.4 million in 2002 from EUR 8.5 million in 2001.
The increase in other operating expenses in 2003 compared to 2002 was caused by
exceptional maintenance costs for buildings. The main contributing factor to the
increase in other operating expenses in 2002 as compared to 2001 was a
contribution in the amount of EUR 15.3 million, which we first made in 2002,
pursuant to an agreement with Baden-Wurttemberg for infrastructure
29
developments in Baden-Wurttemberg. We are scheduled to continue to make such
contributions in the amount of EUR 15.3 million annually until 2006.
Operating Profit. For the reasons described above, our operating profit
(before non-operating expenses) increased by EUR 22.1 million, or 7.5%, to EUR
317.5 million in 2003 compared with EUR 295.5 million in 2002. The operating
profit for 2002 represented a EUR 17.2 million, or 5.5%, decrease over the 2001
operating profit of EUR 312.6 million.
Non-operating expenses. The following table sets forth the principal
components of our non-operating expenses for the years ended December 31, 2003,
2002 and 2001:
Non-Operating Expenses
Change(1) Change(1)
2003 2003/2002 2002 2002/2001 2001
-------- ------------------- ------- ------------------- ------------
(in millions (in %) (in millions (in %) (in millions
of EUR) of EUR) of EUR)
Depreciation and amortization on
receivables and certain securities,
together with allowances for possible loan
losses(2)..................................... (138.3) (5.7) 4.3 (132.7) 39.3 (22.8) (171.9)
Income (loss) from write-ups (write-downs)
on equity investments in non-affiliated
and affiliated companies and securities
treated as fixed assets....................... (6.6) (2.0) 42.6 (4.6) (57.8) (108.7) 53.1
Cost arising from loss assignments............ (0.0) 0.0 (20.0) (0.0) 13.0 (99.6) (13.0)
Taxes......................................... (0.3) 0.4 (58.0) (0.8) 0.1 (11.4) (0.8)
Allocation to reserves for interest rate
reductions(3)................................. (68.8) 2.0 (2.8) (70.8) 3.6 (4.8) (74.3)
======== ====== ========= ====== =============
Total non-operating expenses.................. (214.1) (5.2) 2.5 (208.9) (1.9) 0.9 (207.0)
- ---------------------
(1) Percentage changes are calculated on the basis of unrounded figures.
(2) Includes a transfer of EUR 20.1 million to the fund for general bank risks
for the year ended December 31, 2003. See "--Business--Loan and Securities
Loss Reserves" and "--Glossary."
(3) See "--Business--Reserves for Interest Subsidies."
The net effect of non-operating expenses increased by EUR 5.2 million, or
2.5%, to EUR 214.1 million in 2003, after having increased by EUR 1.9 million,
or 0.9%, from EUR 207.0 million in 2001 to EUR 208.9 million in 2002.
Non-operating expenses in 2001 were influenced by a book profit of EUR 57
million resulting from a sale of our investment in Sachsische Aufbaubank GmbH.
Net profit. Our net profit (after non-operating expenses) increased to EUR
103.4 million for the year ended December 31, 2003, compared to EUR 86.6 million
for the year ended December 31, 2002, after having decreased by EUR 19.2
million, or 18.1%, from EUR 105.7 million for the year ended December 31, 2001.
The decrease in 2002 was mainly due to the fact that we sold a participation in
2001 in Sachsische Aufbaubank GmbH, the increase in 2003 was caused by a higher
net interest income.
30
RECENT DEVELOPMENTS
Development of our Business in 2004
As of November 30, 2004 and 2003, respectively, we had committed funds as
follows:
November 30, 2004 November 30, 2003
----------------- -----------------
(in millions of EUR)
Housing......................... 488.7 999.5
Trade and Industry.............. 1,637.1 1,035.9
Infrastructure.................. 2,051.5 3,275.1
Family support.................. 369.2 416.9
Securities...................... 1,724.8 1,460.4
The decrease in infrastructure financing as of November 30, 2004 compared
to November 30, 2003 is mainly due to the fact that this business area has seen
a particular increase in 2003; see "--Management Information--Balance Sheet." We
intend to develop this business area with a more moderate growth rate in the
future.
The decrease in housing related financing is partly due to the fact that
public assistance programs in this area for 2004 were approved by the public
administration of Baden-Wurttemberg only by the end of March 2004, thereby
limiting the volume of new business in this area in 2004. At the same time, the
funds committed by Baden-Wurttemberg for interest subsidies in housing related
financing were reduced. Additionally, due to a general slowdown in economic
activity, the demand for such loans has generally decreased in 2004.
Change of Ownership Structure in our Equity Investments
Until December 31, 2004 we held 10.915% of BW-Holding GmbH (the
"Holding"), which is the largest shareholder of Baden-Wurttembergische Bank AG
("BW-Bank"). The other shareholders in the Holding were Landesbank
Baden-Wurttemberg ("LBBW") and a foundation wholly owned by Baden-Wurttemberg
(Landesstiftung Baden-Wurttemberg GmbH, the "Foundation"). On December 15, 2004,
we agreed with Baden-Wurttemberg and the Foundation to buy the Foundation's
28.45% interest in the Holding, contributing such interest, together with our
existing interest in the Holding, to LBBW against a 4.923% participation in
LBBW. This transaction became effective as of January 1, 2005. As a result, each
of Baden-Wurttemberg and the Savings Bank Association of Baden-Wurttemberg hold
35.611% in LBBW, while the City of Stuttgart holds 18.932% and each of the
Savings Bank and Clearing Association of Rheinland-Pfalz and us now hold 4.923%.
The Act establishing LBBW (the "LBBW Act") will likely be amended to reflect the
new ownership structure. For strategic reasons we agreed to these transactions
in order to strengthen our position in LBBW, which is now the fourth largest
bank in Germany in terms of total assets. For us, a direct investment in LBBW is
preferable to an equity interest in a subsidiary of LBBW. We also saw an
advantage in not being the smallest shareholder.
Since January 1, 2005 we thereby have been one of the guarantors
(Gewahrtrager) of LBBW, which means that we are jointly and severally liable to
creditors of LBBW, together with the other guarantors - the other owners of LBBW
- - for obligations of LBBW. However, according to Section 4(4) of the LBBW Act
and Section 2(4) of LBBW's statutes, in relation to the other guarantors of LBBW
our liability is limited to that portion of the obligations incurred by LBBW on
or after January 1, 2005 that corresponds to our ownership interest in LBBW. To
the extent we are required to make payments to LBBW's creditors under our
guaranty obligation in excess of our liability in relation to the other
guarantors, we will have an indemnity claim against the other guarantors.
31
In addition, we are required, together with the other guarantors, to
maintain the economic viability of LBBW, to keep it in a position to perform its
functions and to enable it, through the allocation of liquid funds or by other
appropriate means, to perform its obligations when due. However, similar to the
guaranty obligation mentioned above, in relation to the other guarantors of LBBW
our liability is limited to an amount equal to that portion that
corresponds to our ownership interest in LBBW. To the extent we are required to
make payments to LBBW under our maintenance obligation in excess of our
liability in relation to the other guarantors, we will have an indemnity claim
against the other guarantors.
For a general description of these support mechanisms see
"--General--Responsibility of Baden-Wurttemberg--Guaranty Obligation" and
"--Maintenance Obligation."
On July 18, 2005 the maintenance obligation in respect of LBBW will cease
to exist pursuant to Understanding I and the guaranty obligation will only have
effect for then existing obligations of LBBW that mature until December 31,
2015. See "--General--Responsibility of Baden-Wurttemberg--Understanding with
the European Commission."
Budget of Baden-Wurttemberg for 2005/2006
Pursuant to a budget plan for the years 2005 and 2006, which the government
of Baden-Wurttemberg agreed on September 29, 2004 to propose to the
Baden-Wurttemberg parliament for approval, we would be expected to distribute
EUR 100 million to Baden-Wurttemberg in each of 2005 and 2006 out of our annual
net profit.
It is also currently under discussion in connection with the
Baden-Wurttemberg budget plan for 2005 and 2006 that we might purchase from
Baden-Wurttemberg certain claims of Baden-Wurttemberg for future interest
payments from third parties, in particular from LBBW, in the amount up to EUR
707 million in net present value. Any purchase of such claims would be made at
prevailing market conditions.
32
MANAGEMENT
Board of Management
Our business is managed by our board of management (Vorstand), which
consists of at least three members: the chairman, the vice chairman and at least
one other member. Members of the board of management are full-time employees of
L-Bank and are employed for terms not longer than five years. Their contracts
may be renewed for consecutive terms. The chairman and the vice chairman of our
board of management are nominated by our supervisory board and appointed on the
basis of a resolution of the government of Baden-Wurttemberg. The supervisory
board appoints the remaining members of the board of management.
The chairman of the board of management serves as our chief executive
officer. The members of our board of management and the dates of their first
appointments are:
Name Date of first appointment
- ---- -------------------------
Christian Brand, Chairman 1998
Jurgen Hagele, Vice Chairman 1998
Dr. Manfred Schmitz 2000
Supervisory Board
Our supervisory board (Verwaltungsrat) establishes guidelines for the
conduct of our business and supervises the overall conduct of our affairs.
Pursuant to the L-Bank Act, our supervisory board consists of 15 members,
of which eight are representatives of the government of Baden-Wurttemberg and
the remaining seven are non-governmental members. The current Chairman of our
supervisory board is the Baden-Wurttemberg Minister of Economic Affairs and the
Vice Chairmen are the Minister of Finance, the Minister of the Interior and the
Minister for Food and Rural Planning, respectively. Alternates are designated
for each member. The members and alternates of the supervisory board are
appointed by the government of Baden-Wurttemberg for five-year terms of office
and may serve consecutive terms.
We are not subject to the Co-Determination Law (Mitbestimmungsgesetz),
which requires that the supervisory board of a company includes representatives
of the employees. Our supervisory board does, however, include representatives
of our staff as consultative members.
The members of our supervisory board and their respective deputy members
are:
Full members: Deputy members:
Ernst Pfistero, Chairman Dr. Horst Mehrlander* Prof. Dr. Willi Weiblen*
Baden-Wurttemberg Minister of State Secretary at the Assistant Undersecretary and Head
Economic Affairs Baden-Wurttemberg Ministry of of the Department of Economic and
Economic Affairs Structural Policy at the
Baden-Wurttemberg Ministry of
Economic Affairs
Gerhard Stratthauso, Vice Chairman Dr. Wolfgang Reinhart* Walter Leibold*
Baden-Wurttemberg Minister of State Secretary at the Assistant Undersecretary and Head
Finance Baden-Wurttemberg Ministry of of the Department of Financial
Finance Policy and Investments at the
Baden-
33
Wurttemberg Ministry of Finance
Heribert Recho, Vice Chairman Max Munding Prof. Konrad Freiherr von Rotberg*
Baden-Wurttemberg Minister of the Undersecretary at the Assistant Undersecretary and Head
Interior Baden-Wurttemberg Ministry of the of the Department of
Interior Constitutional, Municipal,
Savings Bank and Legal Affairs at
the Baden-Wurttemberg Ministry of
the Interior
Willi Stacheleo, Vice Chairman Rainer Arnold* --
Baden-Wurttemberg Minister for Food Undersecretary at the
and Rural Planning Baden-Wurttemberg Ministry for
Food and Rural Planning
Stefan Mappus* Dieter Hillebrand* Klaus Roscheisen*
Baden-Wurttemberg Minister of the State Secretary at the Assistant Undersecretary and Head
Environment, Transport and Baden-Wurttemberg Ministry of the of the Administration Department
Communications Environment, Transport and at the Baden-Wurttemberg Ministry
Communications of the Environment, Transport and
Communications
Tanja Gonner* Bernhard Bauer* Christian Luft*
Baden-Wurttemberg Minister of Undersecretary at the Assistant Secretary and Head of
Social Affairs Baden-Wurttemberg Ministry of the Central Office at the
Social Affairs Baden-Wurttemberg Ministry of
Social Affairs
Rudolf Bohmler* Hermann Strampfer* Reiner Moser*
State Secretary at the Assistant Undersecretary and Head Assistant Secretary and Head of
Baden-Wurttemberg Ministry of State of Dept. I at the the Budget and Fiscal Policy, Tax
Baden-Wurttemberg Ministry of Appraisal, Real Estate and
State Investments Section of the
Ministry of State
Dr. Rainer Hagele* Dr. Rudolf Kuhner* Norbert Schmitt*
Undersecretary at the Baden- Assistant Undersecretary and Assistant Secretary and Head of
Wurttemberg Ministry of Head of Dept. III at the the State Investment and
Finance Baden-Wurttemberg Ministry of Banking Section at the
State Baden-Wurttemberg
Ministry of Finance
Klaus Hackert Joachim Wohlfeil --
President of the Baden-Wurttemberg President of the Karlsruhe
Association of Craftsmen Chamber of Craftsmen
Wirtsch.-Ing. Bernd Bechtold Dr.-Ing. Hansjorg Rieger --
President of the Chamber of Managing Partner of RUD-
Commerce and Industry, Kettenfabrik Rieger & Dietz,
Karlsruhe, Managing director Aalen
34
of b.i.g. Bechtold
Ingenieurgesellschaft mbH,
Karlsruhe
Heinz Kalberer Gerhard Ro(beta)wog --
Lord Mayor of Vaihingen Chairman of the Board of
Badischer Genossenschaftsverband
Raiffeisen-Schulze-Delitzsch
e.V., Karlsruhe
Gisela Graber Frank Zach --
Deputy Chairman of the Regional Head of the Trade and Industry
Chapter VER.DI e.V., Stuttgart Department of the
Baden-Wurttemberg Chapter of
Deutscher Gewerkschaftsbund
Otwin Brucker Dr. Jurgen Schutz --
President of the Baden-Wurttemberg Vice President of the
Association of Municipalities Baden-Wurttemberg Association of
District Councils
Gerhard Burkhardt Andreas Schmitz --
Chairman of the Board of Management Spokesman of the General Partners
of the Verband of HSBC Trinkaus & Burkhardt
baden-wurttembergischer KGaA, Dusseldorf
Wohnungsunternehmen e.V., Stuttgart
Marco Freiherr von Maltzan Wilhelm Freiherr von Haller --
Chairman of the Board of Management Member of the Board of Management
of BERU AG, Ludwigsburg of Deutsche Bank AG, Stuttgart
* Representatives of the government of Baden-Wurttemberg.
Advisory members:
Rudiger Ruhnow....................... Chairman of the Central Staff Council at
L-Bank, Karlsruhe
Reiner Enzmann....................... Chairman of the Staff Council of L-Bank,
Karlsruhe
Gabriele Propp....................... Chairman of the Staff Council of L-Bank,
Stuttgart
An advisory board (Beirat) consisting of 54 members advises the board of
management and the supervisory board on general matters relating to us and
furthers the exchange of experience among us, private business and public
administration. Members of our advisory board are appointed by our board of
management in consultation with the Baden-Wurttemberg Ministry of Finance for a
term of five years.
Remuneration
For the year ended December 31, 2003, the aggregate amount of the direct
remuneration paid by us to members of our board of management was EUR 1.585
million, to members of our supervisory board EUR 0.16 million and to members of
the Advisory Board and its committees (including travel expenses) EUR 0.214
million. In 2003, the aggregate amount of remuneration paid to retired members
of our board of
35
management and their surviving dependents was EUR 1.048 million. Provisions
amounting to EUR 11.271 million were set-aside in 2003 to cover pension
liabilities in respect of retired members of our board of management. See also
the notes to our financial statements included in this Prospectus.
EMPLOYEES
During 2003, the average number of employees employed by us was 1,134
persons (including trainees and part-time employees and excluding staff gaining
work experience, cleaning and temporary staff). See also the notes to our
financial statements included in this Prospectus.
Our employee-related expenses, including salaries and wages, pension
contributions and other employee benefits, amounted to EUR 74.0 million in 2003.
We provide various employee benefits, including a non-contributory pension
(supplemental to the statutory pension). Most of our employees are covered by
collective bargaining agreements negotiated with the union VER.DI.
36
REGULATION AND SUPERVISION OF L-BANK IN
THE FEDERAL REPUBLIC OF GERMANY
Introduction to the German Banking System
The German banking system comprises a variety of public sector and private
sector banks of two general types: universal banks and specialized banks. We are
a specialized state development bank (Forderbank) that is subject to the same
regulation, in particular the German Banking Act (Kreditwesengesetz - KWG), as
all other German banks.
The German Banking Act and Regulation by the Federal Supervisory Authority for
Financial Services
On May 1, 2002, the three former separate supervisory authorities for the
financial sector -- the Federal Banking Supervisory Office (Bundesaufsichtsamt
fur das Kreditwesen), the Federal Securities Supervisory Office
(Bundesaufsichtsamt fur den Wertpapierhandel) and the Federal Insurance
Supervisory Office (Bundesaufsichtsamt fur das Versicherungswesen) -- were
combined into a single comprehensive financial services supervisory authority,
the Federal Supervisory Authority for Financial Services (Bundesanstalt fur
Finanzdienstleistungsaufsicht, the "BaFin"). The BaFin supervises banks,
insurance companies and financial services institutions.
All banks in Germany, including us, are subject to comprehensive
governmental supervision and regulation on a consolidated basis by the BaFin in
accordance with the German Banking Act. The BaFin is authorized to issue
regulations and guidelines implementing the provisions of the German Banking Act
and other laws affecting German banks. Its main purpose is to protect the
soundness of the German banking system. The German Banking Act and the
regulations issued thereunder have been amended over time in order to keep them
in line with internationally accepted principles. In doing so, Germany has
implemented the recommendations on banking supervision issued by the Basle
Committee on Banking Supervision (the "Basle Committee") at the Bank for
International Settlements and transformed the relevant European Council
Directives into German law.
In April 2003, the Basle Committee on Banking Supervision issued its third
Consultative Paper for a New Basle Capital Accord ("Basle II") that will replace
the current Basle Capital Standards. On June 25, 2004, the Basle Committee on
Banking Supervision approved, and one day later the central bank governors and
the heads of bank supervisory authorities in the Group of Ten (G10) countries
endorsed, the publication of the International Convergence of Capital
Measurement and Capital Standards: a Revised Framework. The goal of the Basle
Committee is that implementation by the member states shall take place by
year-end 2006. Basle II focuses on three key elements, or pillars: (i) minimum
capital requirements, which enhance the measurement framework of Basle I, the
first pillar; (ii) supervisory review of bank's capital adequacy, the second
pillar; and (iii) market discipline through effective public disclosure to
provide for sound banking practices, the third pillar.
In addition to this capital regulation, Basle II has the goal to increase
substantially the risk sensitivity of the minimum capital requirements by
closely aligning banks' capital requirements with prevailing modern risk
management practices.
Under the German Banking Act, all German banking and financial services
institutions are required to have a license from the BaFin to carry on business.
The BaFin supervises the operations of all banks, including us, to ensure that
they conduct their business in accordance with the provisions of the German
Banking Act and other applicable German laws and regulations. Particular
emphasis is placed on compliance with capital adequacy and liquidity
requirements, lending limits and prudential standards governing lending imposed
by the German Banking Act and the regulations promulgated thereunder.
37
Cooperation by the BaFin and the Bundesbank
The BaFin carries out its banking supervisory role in cooperation with the
Federal Central Bank (Deutsche Bundesbank, the "Bundesbank"), as required under
the German Banking Act. The BaFin has the sole authority to issue administrative
orders (Verwaltungsakte) and general regulations (Verordnungen) binding on
German banks. The BaFin must obtain the Bundesbank's consent before it issues
any general regulations in areas that require the Bundesbank's consent under the
German Banking Act, such as the regulations concerning capital adequacy and
liquidity requirements.
The Bundesbank is responsible for the ongoing monitoring of German banks.
This comprises in particular the analysis of submitted reports and examinations
for the purpose of determining capital adequacy and risk management. The
Bundesbank performs its monitoring functions primarily through its nine regional
offices (Hauptverwaltungen) which are responsible for different states and the
banks that have their corporate seat therein. We report to, and are monitored
by, the Hauptverwaltung for the State of Baden-Wurttemberg, which is based in
Stuttgart.
Capital Adequacy Requirements
The German Banking Act and the regulations promulgated thereunder contain
certain capital adequacy requirements.
Solvency Ratio
Under the German risk-based capital adequacy rules as set forth in the
so-called Principle I of the "Principles on the Own Funds and Liquidity of
Institutions" (Grundsatze uber die Eigenmittel und die Liquiditat der
Institute), each bank's ratio (the "Solvency Ratio") of Liable Capital (defined
below) to risk-weighted assets and certain off-balance sheet items (described
below) must equal at least 8% at the end of each business day.
Liable Capital
Solvency Ratio = -------------------------------------------------
Risk-weighted assets and off-balance sheet items
The above formula does not relate to a bank's market risk position and to
Tier III Capital, both of which are discussed below.
Liable Capital
As described below, at least half of Liable Capital must be Core Capital.
Pursuant to the German Banking Act and calculated on the basis of the accounting
rules of the German Commercial Code, for a bank such as us, "Liable Capital"
(the numerator of the Solvency Ratio) consists principally of:
(1) paid-in subscribed capital;
(2) capital reserves;
(3) earnings reserves which are disclosed in the bank's annual balance
sheet;
(4) net profits which are shown in audited interim financial statements
and which will not be used for distribution or the payment of taxes;
(5) the fund for general bank risks (pursuant to Section 340g of the
German Commercial Code, a bank may create a reserve fund from its
after-tax retained earnings if advisable in its reasonable commercial
judgment in light of the special risks inherent in the banking
business);
(6) capital paid in by silent partners which meets certain conditions set
forth in the German Banking Act, including subordination to all
creditors and participation in the bank's losses;
38
(7) reserves for general banking risks (pursuant to Section 340f of the
German Commercial Code, a bank may record on its balance sheet certain
receivables and securities, which are neither investment securities
nor part of the trading portfolio, at a lower value than that
permitted for industrial and other non-banking corporations if the use
of a lower value is advisable in its reasonable commercial judgment to
safeguard against the special risks inherent in the banking business),
provided that such reserves may not exceed 4% of the book value of
such receivables and securities;
(8) capital paid in consideration of profit participation rights
(Genussrechte) which meets certain conditions set forth in the German
Banking Act, including subordination to all creditors and
participation in the bank's losses;
(9) long-term subordinated debt (with a term of at least five years)
meeting certain conditions set forth in the German Banking Act,
including subordination to all non-subordinated creditors;
(10) certain revaluation reserves (banks may allocate amounts equaling a
certain percentage of the difference between the book value and the
actual value of certain assets to revaluation reserves; these
revaluation reserves may, in an amount up to 1.4% of the risk-weighted
assets and certain off-balance sheet items, be counted as Liable
Capital, if the Core Capital of the bank amounts to at least 4.4% of
such risk-weighted assets and off-balance sheet items); and
(11) reserves pursuant to Section 6b of the German Income Tax Act
(Einkommensteuergesetz).
The German Banking Act also requires that balance sheet losses and certain
intangible assets (including goodwill), certain investments in banks or
financial services institutions and certain other items be deducted in computing
Liable Capital.
Core Capital is the portion of Liable Capital set forth in items (1)
through (6) above, less balance sheet losses, certain intangible assets
(including goodwill) and certain other items. Supplementary Capital is the
portion of Liable Capital referred to in items (7) through (11), less certain
deductions. In our case, Core Capital consists of (i) paid-in subscribed
capital, (ii) retained earnings reserves (including capital surplus) and (iii)
the fund for general bank risks pursuant to Section 340g of the German
Commercial Code.
In our case Supplementary Capital consists of (i) long-term subordinated
debt, (ii) profit participation capital and (iii) reserves for general bank
risks pursuant to Section 340f of the German Commercial Code. The German Banking
Act provides that the aggregate amount of Supplementary Capital must not exceed
the Core Capital. In addition, the sum of long-term subordinated debt must not
exceed 50% of the Core Capital. Core Capital reflects the same concept as Tier I
Capital and Supplementary Capital reflects a similar concept as Tier II Capital
(as such terms are used in the United States capital adequacy rules).
Risk-Weighted Assets and Off-Balance Sheet Items
To compute risk-weighted assets (the first part of the denominator of the
Solvency Ratio), the assets of a bank are assigned to six broad categories (0%,
10%, 20%, 50%, 70% and 100%) of relative credit risk depending on the debtor or
on the type of instrument or collateral securing the asset. The valuation basis
of each asset, being its book value subject to certain accounting adjustments,
is multiplied by the percentage weight applicable to its risk category to arrive
at the risk-weighted value.
The valuation basis for computing risk-weighted off-balance sheet items
(the second part of the denominator of the Solvency Ratio) depends on the type
of the off-balance sheet item. The valuation basis (1) for swap transactions and
any credit support obligation assumed in connection therewith is the principal
amount or - in absence of such principal amount - the current market value of
the underlying asset, and (2) for forward or futures contracts and rights under
option agreements and any credit support obligation assumed in connection
therewith, the current market value of the right of the bank to obtain delivery
or of the obligation of the counterparty to accept delivery of the underlying
asset assuming actual performance of the
39
contract. For all other off-balance sheet items, the valuation basis is their
book value subject to certain accounting adjustments.
To compute risk-weighted off-balance sheet items (the second part of the
denominator of the Solvency Ratio), different rules apply depending on the type
of off-balance sheet items. The valuation basis of off-balance sheet items,
other than swap transactions, forward or futures contracts and rights under
option agreements, is adjusted according to their risk classification depending
on the type of instrument (20, 50 and 100 percent). Swap transactions, forward
or futures contracts, and rights under option agreements, along with any credit
support obligation assumed in connection therewith, are taken into account
according to the mark-to-market method. Under that method, the asset is taken
into account with the amount required to cover (replacement value) if the
counterparty defaults plus an additional amount for future increase of risk.
After such adjustment of the valuation basis, the off-balance sheet items
are risk-weighted in the same manner as on-balance sheet items and for that
purpose are assigned to the credit risk categories depending on the type of the
counterparty or the debtor and multiplied by the applicable percentage weights.
Own Funds
The Solvency Ratio deals with the credit risks of a bank. The German
Banking Act also requires market risk positions of banks to be covered by
adequate capital. In that regard, two concepts are used by the German Banking
Act: (1) Own Funds (Eigenmittel) and (2) the distinction between trading
transactions which are allocated to a bank's trading book (Handelsbuch) (the
"Trading Book") and non-trading transactions which are allocated to a bank's
investment book (Anlagebuch) (the "Investment Book").
Own Funds consist of Liable Capital plus Tier III Capital. Tier III Capital
consists of:
(1) short-term subordinated debt (with a term of at least two years but
less than five years) that meets certain conditions set forth in the
German Banking Act, including subordination to all non-subordinated
creditors, and
(2) the net profits which would be realized if, at the end of a given day:
(i) all positions in the Trading Book were settled,
(ii) all foreseeable expenses and distributions on capital were
deducted, and
(iii) all probable losses that would be incurred in the Investment
Book if the bank were liquidated were deducted.
The sum of Tier III Capital plus the portion of Supplementary Capital that
is not required to cover risk positions in the Investment Book (in order to meet
the Solvency Ratio requirement) and therefore is eligible to support market
risks must not exceed 250% of the portion of Core Capital that is not required
to cover risk positions in the Investment Book (in order to meet the Solvency
Ratio requirement) and therefore is eligible to support market risks.
Trading Book and Investment Book
The Trading Book of a bank is comprised of the following:
(1) securities, money market instruments, derivatives and marketable
obligations and participations (all "instruments") that are held by
the bank for its own account for resale or trading;
(2) instruments held and transactions entered into for the purpose of
hedging the market risk of
40
the Trading Book and transactions to refinance such hedging;
(3) transactions subject to the designation of the counterparty
(Aufgabegeschafte);
(4) receivables for fees, interest and dividends related to positions in
the Trading Book; and
(5) repurchase agreements, loans or similar transactions related to
positions in the Trading Book.
Banks must establish guidelines for the inclusion of transactions in their
Trading Book, which must be submitted to the BaFin and the Bundesbank. The
Investment Book of a bank consists of all transactions that are not contained in
the Trading Book as set forth above.
Covering Market Risk Positions
Market risk positions are foreign exchange positions, commodity positions
and positions allocated to the Trading Book. The sum of the amounts of market
risk positions and, under certain circumstances, separately computed option
positions, may not exceed, at the close of each business day, the difference
between the bank's Own Funds and an amount equal to 8% of the risk-weighted
assets and off-balance sheet items. Additionally, an overall ratio of the bank's
eligible capital (numerator) to the sum of (1) risk-weighted assets and
off-balance sheet items plus (2) market risk positions and certain option
positions, both multiplied by 12.5 (denominator), must be computed and must also
be equal to at least 8%. The eligible capital is composed of the Liable Capital
not used to cover other risks under Principle I and that portion of the Tier III
Capital that is used to cover market risk positions and options. (The bank must
also report to the BaFin for information purposes the ratio of Tier III Capital
that remains unused but constitutes part of Own Funds to the above-mentioned
denominator of the overall Ratio). As a result, the amount of market risk
positions must be covered by Liable Capital or Tier III Capital, whereas under
the Solvency Ratio requirement, risk weighted assets and off-balance sheet items
must be covered by Liable Capital. Therefore, (1) Tier III capital may only be
used to cover market risk positions but not counterparty risk related to assets
or off-balance sheet items, and (2) Liable Capital not used to cover
counterparty risk related to assets and off-balance sheet items may be used to
cover market risk positions. Principle I does not permit Own Funds that have
already been used to cover a risk to cover other risks under Principle I.
The risk-weighted values of such market risk positions and certain option
positions must be computed in accordance with rules set forth in Principle I or,
in the case of market risk positions, in accordance with the bank's internal
risk computation models which have been approved by the BaFin.
During the period covered by this Prospectus we have always met the
risk-weighted capital adequacy rules of the German Banking Act.
Liquidity Requirements
The German Banking Act and the regulations issued by the BaFin and its
predecessors also contain liquidity requirements. According to Principle II,
banks must compute a liquidity factor at the end of every calendar month. The
liquidity factor is the quotient of liquid assets to payment obligations during
four time bands: (1) one day to one month; (2) more than one month to three
months; (3) more than three months to six months; and (4) more than six months
to twelve months. The liquidity factor for the one-month time band must not be
less than 1. The excess of liquid assets over payment obligations in one of the
other time bands may be counted as liquid assets for the succeeding time band.
The ratios between the respective liquid assets over the payment obligations in
the other three time bands are calculated for monitoring purposes only. The
liquidity factor and the monitoring ratios must be submitted at the end of each
calendar month to the Bundesbank, which passes the reports on to the BaFin.
41
At December 31, 2003 and at the end of every calendar month during the
period covered by this Prospectus, we met the liquidity requirements of the
German Banking Act.
Limitation on Large Credits
Own Funds and the distinction between Trading Book and Investment Book are
also relevant for the limitations on large credits. The term "credit" is defined
to include all items on the asset side of the balance sheet, derivative
transactions and related guaranties and equivalent off-balance sheet positions.
The term includes equity investments. Large credits are credits to a single
borrower or a connected group of borrowers that equal or exceed 10% of the
Liable Capital or Own Funds depending on whether the credit is allocated to the
Investment Book or to the combined Investment Book and Trading Book. There is no
separate Trading Book lending limit. The term "borrower" includes certain
affiliates of the borrower. The limitations on large credits are applied on a
risk-weighted basis in a manner similar to the application of the risk-weighted
capital adequacy rules discussed above.
The German Banking Act as it applies to us establishes the following
lending limits:
(1) A bank's aggregate disbursed large Investment Book credits may not
exceed eight times the bank's Liable Capital. A large Investment Book
credit of a bank is defined as the sum total of credits extended to
any one borrower or connected group of borrowers that are allocated to
the Investment Book and that, in the aggregate, are equal to or exceed
10% of the bank's Liable Capital.
(2) A bank's aggregate disbursed large combined Investment Book/Trading
Book credits may not exceed eight times the bank's Own Funds. A large
combined Investment Book/Trading Book credit of a bank is defined as
the sum total of all credits extended to any one borrower or connected
group of borrowers (allocated to the Investment Book or to the Trading
Book) that, in the aggregate, are equal to or exceed 10% of the bank's
Own Funds.
(3) The aggregate amount of credits extended by a bank to one borrower or
connected group of borrowers that are allocated to the Investment
Book, i.e., a borrower's Investment Book credit position, may not
exceed 25% of the bank's Liable Capital (20% in the case of a credit
to the bank's unconsolidated parent, subsidiary or sister company).
(4) The aggregate amount of credits extended by a bank to one borrower or
connected group of borrowers that are allocated to the Investment Book
or the Trading Book, i.e., the borrower's aggregate credit position,
may not exceed 25% of the bank's Own Funds (20% in the case of a
credit to the bank's unconsolidated parent, subsidiary or sister
company).
(5) In case total aggregate credits extended to one borrower or connected
group of borrowers that are allocated to the Trading Book or the
Investment Book, i.e., the borrower's aggregate credit position (see
(4) above), exceed (even with approval of the BaFin) the 25% (or 20%
in the case of a credit to the bank's unconsolidated parent,
subsidiary or sister company) of the bank's Own Funds ceiling, credits
extended to such borrower or connected group of borrowers that are
allocated to the Trading Book shall not, in the aggregate, exceed five
times the bank's Own Funds that are not required to cover risk
positions in the Investment Book.
(6) There is an additional over-all lending limit to the effect that the
aggregate portions of the borrower's aggregate credit position
(credits that are allocated to the Trading Book or the Investment
Book) (see (4) above) that exceed 25% (or 20% in the case of a credit
to the bank's unconsolidated parent, subsidiary or sister company) of
the bank's Own Funds ceiling for more than ten days shall, in the
aggregate, not exceed six times the bank's Own Funds that are not
required to cover risk positions in the Investment Book.
42
A bank must report its large credits to the Bundesbank, which forwards the
reports with its comments to the BaFin. With the approval of the BaFin, a bank
may exceed the eight times Liable Capital or Own Funds and the 25% (or 20%) of
Liable Capital or Own Funds ceilings referred to in paragraphs (1) to (4) above,
if the amount exceeding these ceilings is covered by Liable Capital and Own
Funds, respectively. The amounts of Liable Capital used to cover such excess
amount must be disregarded when computing the adequacy of Liable Capital under
the capital adequacy rules discussed above. If the 25% (or 20%) ceiling and the
eight times Liable Capital ceiling or Own Funds ceiling are exceeded, the larger
of both excess amounts must be covered by Liable Capital (in the cases of
paragraphs (1) and (3) above) and (in the cases of paragraphs (2), (4), (5) and
(6) above), Own Funds, respectively. A bank must notify the BaFin and the
Bundesbank without delay if it exceeds these ceilings. If a bank exceeds the
five times Own Funds ceiling referred to in paragraph (5) above or the six times
Own Funds ceiling referred to in paragraph (6) above, it must report this fact
to the BaFin and the Bundesbank and must cover such excess amounts with Own
Funds.
Limitations on Qualified Participations
The total nominal value (as opposed to the book value or price paid) of a
deposit-taking bank's Qualified Participations (as defined below) in an
enterprise (other than a bank, financial services institution, financial
enterprise, insurance company or bank service enterprise) may not exceed 15% of
the Liable Capital of such bank, and the aggregate nominal value of all such
Qualified Participations may not exceed 60% of such bank's Liable Capital. With
the approval of the BaFin, a bank may exceed the 15% and 60% limitation on
investments if it covers the Qualified Participations in excess of these limits
by Liable Capital. If both limitations are exceeded, the larger of both excess
amounts must be covered by Liable Capital. "Qualified Participation" is defined
in the German Banking Act as a (1) direct or indirect investment in at least 10%
of the capital or the voting rights of the target enterprise or (2) the ability
to exercise a significant influence over the management of the target
enterprise. An investment is indirect not only when it is made by one or more
subsidiaries but also when it is made by an enterprise with a "similar
relationship". All of the shares of an enterprise which the bank owns indirectly
through one or more subsidiaries are fully attributed to the bank.
Policies on Trading Activities
Pursuant to a 1995 release of the predecessor of the BaFin, German banks
must observe minimum requirements with respect to transactions relating to money
market activities, securities, foreign exchange, precious metals and
derivatives. The release stresses the responsibility of senior management for
the proper organization and monitoring of trading and sales activities, requires
that banks adopt written policies regarding such activities, imposes specific
requirements with respect to activities in new products and deals with the
qualifications and remuneration of trading and sales staff, record retention,
risk controlling and management and the internal organization of trading, sales,
settlement and accounting.
Reporting Requirements
In order to enable the BaFin and the Bundesbank to monitor compliance with
the German Banking Act and other applicable legal requirements and to obtain
information on the financial condition of the German banks, the BaFin and the
Bundesbank require the periodic filing of information.
Each bank must file with the BaFin or the Bundesbank, or both, among other
things, the following information:
(1) immediate notice of certain organizational changes, the extension or
increase of large credits, the acquisition or disposal of 10% or more
of the equity of another company or certain changes in the amount of
such equity investment, and the commencement or termination of certain
non-banking activities;
(2) monthly balance sheet and statistical information and annual audited
unconsolidated and consolidated financial statements;
43
(3) the acquisition or disposal of a Substantial Participation, or an
increase or decrease of a Substantial Participation which results in
the investment reaching or passing the threshold of 20%, 33% or 50% of
such voting rights or capital, as well as the fact that the bank
became or ceased to be a subsidiary of another enterprise, if the bank
has knowledge of such facts; and on an annual basis, the names and
addresses of holders of Substantial Participations in the bank and its
foreign subsidiary banks, and the amount of such investment if the
bank has knowledge of such facts (the definition of "Substantial
Participation" is substantially identical to the definition of
Qualified Participation, as set forth above);
(4) monthly compliance statements with regard to the capital adequacy
rules and the requirements on liquidity and statements on certain
foreign lending; and
(5) quarterly statements listing the borrowers to whom the reporting bank
has outstanding loans of EUR 1.5 million or more and certain
information about the amount and the type of the loan, including
syndicated loans exceeding this amount even if the reporting bank's
share does not reach EUR 1.5 million.
If several banks report to the Bundesbank loans of EUR 1.5 million or more
to the same borrower, the Bundesbank must inform the reporting banks of the
total reported indebtedness and of the type of such indebtedness of such
borrower and of the number of reporting lending banks.
Enforcement Powers
In order to secure compliance with the German Banking Act and the
regulations issued thereunder, the BaFin and the Bundesbank may require
information and documents from a bank and the BaFin may examine a bank without
having to give any particular reason. The BaFin may attend meetings of the
bank's supervisory board, its managing board and shareholders (and require such
meetings to be convened). In practical terms, because the BaFin has access to
our books and records in Germany, it is able to monitor our worldwide
activities.
To ensure that German banks, including us, fully comply with all applicable
legislation and reporting requirements, the BaFin requires that they maintain an
effective and independent internal auditing department of adequate size and
quality. A bank must also establish a written plan of organization, which sets
forth the responsibilities of its employees and operating procedures. The
internal auditing department must examine compliance with this plan and these
responsibilities and procedures.
If the BaFin discovers irregularities, it has a wide range of enforcement
powers. The BaFin can challenge the qualifications of the bank's management. If
the Own Funds of a bank are not adequate, or if the liquidity requirements are
not met and if the bank has failed to remedy the deficiency within a period set
by the BaFin, the BaFin may prohibit or restrict the distribution of profits or
the extension of credit.
If a bank is in danger of defaulting on its obligations to creditors, the
BaFin may take emergency measures to avert default. In this connection, it may,
inter alia: (1) issue instructions relating to the management of the bank, (2)
prohibit or restrict the acceptance of deposits and the extension of credit, (3)
prohibit or restrict the management of the bank from carrying on their functions
and (4) appoint supervisors. If these measures are inadequate, the BaFin may
revoke the bank's license and, if appropriate, order that the bank be closed. To
avoid the insolvency of a bank, the BaFin has the authority to prohibit payments
and disposals of assets, to suspend customer services, and to prohibit the
acceptance of payments other than the payment of debt owed to the bank. In
addition, violations of the German Banking Act may result in criminal and
administrative penalties.
44
Powers of the European Central Bank Affecting L-Bank's Conduct of Business
The European System of Central Banks ("ESCB") consists of the European
Central Bank ("ECB") and the national central banks of the 25 Member States of
the European Union (the "National Central Banks"). The ECB and the National
Central Banks of the 12 Member States of the European Union that have
transferred their monetary sovereignty to the ECB and have introduced the Euro
as their currency are referred to as the "Eurosystem". The primary objective of
the ESCB is to maintain price stability, to define and implement the monetary
policy of the European Community, to conduct foreign exchange operations, hold
and manage the official foreign reserves of the Member States and promote the
smooth operation of payment systems. The ESCB is governed by the decision-making
bodies of the ECB.
The National Central Banks of the Member States of the European Union that
are part of the Eurosystem retain the functions that are not transferred to the
Eurosystem. Thus, the Bundesbank continues to act as discount window for banks
for eligible securities whereby the discount rate is computed on the basis of
the so-called base rate. The base rate is adjusted on January 1 and July 1 of
each year by the number of percentage points by which the ECB's interest rate
for its most recent main refinancing operations has been raised or lowered since
the last change in the base rate.
The ECB requires credit institutions, including us, established in the 12
Member States of the European Union that are members of the Eurosystem, to hold
minimum reserves on accounts maintained with their respective National Central
Banks, which, in our case, are held by the Bundesbank. By issuance of the
regulation on minimum reserves, the ECB, as of January 1, 1999, set a 0% reserve
ratio on the following liability categories: "deposits with agreed maturity over
two years," "deposits redeemable with notice period over two years," "repurchase
agreements (repos)" and "debt securities issued with an agreed maturity over two
years." For all other deposits, debt securities issued and money market
instruments, the ECB set a 2% reserve ratio. The ECB may at any time change the
reserve ratios. Liabilities to other institutions subject to the Eurosystem's
minimum reserve system and liabilities to the ECB and the National Central Banks
are not included in the basis for minimum reserves. Furthermore the ECB imposes
statistical reporting obligations on credit institutions resident in Member
States of the Eurosystem to enable the ECB to fulfill the ESCB's tasks.
Securities Trading -- Regulation by the BaFin
The Securities Trading Act (Wertpapierhandelsgesetz) of 1995, as amended
(the "Securities Trading Act"), prohibits insider trading with respect to
securities admitted to trading or included in the over-the-counter market at a
German exchange or the exchange in another Member State of the European Union or
the European Economic Area. The Securities Trading Act also requires that the
issuer of securities admitted to trading on a German stock exchange publish
promptly any new fact relating to the issuer which is not publicly known if such
fact could have a material influence on the market price of such securities due
to its effects on the financial condition or the overall business performance of
the issuer.
The BaFin supervises securities trading and deals with irregularities in
the securities market. To enable the BaFin to carry out its securities trading
supervisory functions, the German banks and the other institutions that are
members of a German stock exchange are subject to comprehensive reporting
requirements with respect to all transactions in securities and derivatives that
are listed or traded on an exchange or other organized market in Germany or
another Member State of the European Union or a Member State of the European
Economic Area. The reporting obligation applies to transactions for a bank's own
account as well as for the account of its customers.
The Securities Trading Act also introduced so-called "Rules of Conduct" for
securities services enterprises, i.e., credit institutions and financial
services institutions engaged in the purchase and sale of securities or
derivatives for others or the intermediation of transactions in securities or
derivatives. In practice, the Rules of Conduct therefore apply principally to
all German banks. The BaFin has broad powers to investigate securities services
enterprises with a view to monitoring compliance with the Rules of Conduct. The
Securities Trading Act provides for an annual examination by the BaFin of a
bank's compliance with its
45
obligations under the Securities Trading Act; in addition, independent
accountants are required to prepare a report annually on a
bank's compliance with the reporting requirements under the Securities Trading
Act.
Supervision by the State of Baden-Wurttemberg
Pursuant to the L-Bank Act and the L-Bank Statutes, we are subject to
supervision by the Ministry of Finance of Baden-Wurttemberg in consultation with
the ministry of Baden-Wurttemberg having jurisdiction over the particular matter
concerned. The ministries are entitled to request information, undertake audits,
send representatives to meetings of our supervisory board, request that such
meetings be called and rescind unlawful resolutions and other actions of our
supervisory board or board of management. Furthermore, those ministries may
order us to perform legally required actions and, if we do not comply with such
demand or order, the ministries may themselves take such action. These
supervisory powers do not include the right to exercise influence over business
decisions by our board of management or supervisory board.
In addition, we are subject to auditing by the State Audit Office
(Landesrechnungshof) of Baden-Wurttemberg.
Financial Statements and Audits
Our financial statements are prepared in accordance with the German
Commercial Code, the German Banking Act (Kreditwesengesetz - KWG), general
corporate law, the Bank Accounting Directive Law of 1990
(Bankenbilanzrichtlinie-Gesetz), and the Regulation on the Accounting Principles
applied to Credit Institutions and Financial Services Institutions (Verordnung
uber die Rechnungslegung der Kreditinstitute und Finanzdienstleistungsinstitute)
issued by the Federal Minister of Justice (in conjunction with the Federal
Minister of Finance and the Federal Central Bank). The accounting principles set
forth in the above statutes and regulations are referred to herein as "German
GAAP."
Under German law, we must be audited annually by German independent
accountants (Wirtschaftsprufer) who are appointed annually by our supervisory
board. The BaFin must be informed of and may reject such appointment. The
independent accountants are required to prepare annually a long form audit
report (Prufungsbericht) on the financial statements prepared by our management,
and submit it to our supervisory board, our Guarantor, the BaFin and the Federal
Central Bank. This comprehensive audit report is in contrast to the much shorter
audit reports typically prepared for other German companies. The contents of the
report are prescribed in a regulation issued by the BaFin. In particular, the
auditor must review that the bank is in compliance with: (1) the regulatory
reporting requirements; (2) the large credit limitations; (3) the limitations on
extension of credit to related companies; (4) the requirements of the capital
adequacy and liquidity principles (described above) and (5) the regulations
concerning the prudent granting of credit. The audit report must also discuss in
detail certain large or important loans and review compliance with certain
provisions of the German Banking Act, match assets and liabilities bearing
interest at fixed rates according to maturity and assets and liabilities bearing
interest at floating rates according to interest periods, and explain the effect
of a change in interest rates on the unmatched portion of such assets and
liabilities, respectively. The auditor's opinion opines as to compliance with
German GAAP and all applicable legal requirements.
The audit reports of PwC for the years ended December 31, 2003, 2002 and
2001, dated March 29, 2004, April 8, 2003 and April 9, 2002, respectively, each
refer to a management report that has not been included to this Prospectus. The
examinations of and the audit reports upon such management reports are required
under German auditing standards. Those examinations were not made in accordance
with Statement on Standards for Attestation Engagements No. 10, "Management's
Discussion and Analysis." PwC does not provide an opinion on this information or
on the financial statements included in this Prospectus in accordance with U.S.
GAAP or U.S. attestation standards.
In addition, each year an independent accountant designated by the BaFin
must conduct an examination of any bank that acts as depositary of customers'
securities under the German Depositary Act (Depotgesetz). The examination is
made in accordance with the Depositary Act and concludes with an
46
opinion as to the proper execution of trading orders by such bank for its
customers and as to the safekeeping of securities for such customers.
Deposit Protection and Investor Compensation
In Germany, private sector commercial banks, credit institutions organized
under public law and credit cooperative institutions each have their own system
of deposit protection and investor compensation. According to the German Act on
Deposit Protection and Investor Compensation of 1998, as amended ("Deposit
Protection Act", Einlagensicherungs- und Anlegerentschadigungsgesetz), the
association of the German credit institutions organized under public law
(Bundesverband Offentlicher Banken Deutschlands e.V., "VOB") established a
company under the name Entschadigungseinrichtung des VOB GmbH
("Entschadigungseinrichtung GmbH") to provide deposit protection and investor
compensation for customers of German credit institutions organized under public
law. We are a member of the Entschadigungseinrichtung GmbH.
A creditor of L-Bank has a direct claim against Entschadigungseinrichtung
GmbH if (i) the BaFin determines that we are unable to repay deposits (as
defined in the Deposit Protection Act) or to satisfy obligations resulting from
the securities businesses for reasons that are directly connected to our
financial situation, and that no prospects exist for the repayment of the
deposits or the satisfaction of the obligations and (ii) the creditor is
eligible for compensation. A direct claim against Entschadigungseinrichtung GmbH
is limited to 90% of the customer's deposits and our obligations to the customer
resulting from the securities businesses respectively, and may not exceed in any
case EUR 20,000.
The Entschadigungseinrichtung GmbH is funded through annual contributions
by its members in the amount of 0.008% of their liabilities to non-bank
customers as shown in their most recent balance sheet. In such determination,
certain liabilities may be excluded. Member institutions may be required to make
additional contributions in case the funds of the Entschadigungseinrichtung GmbH
fall below an amount that equals twice the amount of the aggregate contributions
of all member institution for the previous year.
Furthermore, we are a member of the Freiwilliger Einlagensicherungsfonds
des VOB, a voluntary deposit protection fund, established by the VOB, that
supplements the statutory protection of the Deposit Protection Act. This deposit
protection fund covers deposits and obligations to customers. The compensation
by this fund is not limited, but customers do not have a claim against this
fund.
The notes offered hereby are not covered by the funds referred to above.
47
[MAP OF FEDERAL REPUBLIC OF GERMANY
HIGHLIGHTING BADEN-WURTTEMBERG]
48
THE STATE OF BADEN-WURTTEMBERG
GENERAL
Location, Area and Population
The Federal Republic of Germany was founded on May 24, 1949 when its
constitution, codified in the Grundgesetz (the "German Constitution"), took
effect. Baden-Wurttemberg is one of Germany's 16 states (Lander), together with
Bavaria (Bayern), Berlin, Brandenburg, Bremen, Hamburg, Hesse (Hessen), Lower
Saxony (Niedersachsen), Mecklenburg-Western Pomerania (Mecklenburg-Vorpommern),
North-Rhine Westphalia (Nordrhein-Westfalen), Rhineland-Palatinate
(Rheinland-Pfalz), Saarland, Saxony (Sachsen), Saxony-Anhalt (Sachsen-Anhalt),
Schleswig-Holstein and Thuringia (Thuringen).
The State of Baden-Wurttemberg
Baden-Wurttemberg is located in southwestern Germany. It is bordered on the
east by Bavaria, on the north by Hesse, on the west by the Alsace region of
France and Rhineland-Palatinate, and on the south by Switzerland. The largest
cities are Stuttgart, Mannheim, Karlsruhe, Freiburg and Heidelberg.
Baden-Wurttemberg encompasses an area of 13,803 square miles, or
approximately 10% of Germany's total area of 137,829 square miles.
Baden-Wurttemberg is the third-largest state of Germany by area, after Bavaria
and Lower Saxony.
At the beginning of 2003, Baden-Wurttemberg had 10.7 million inhabitants,
or 12.9% of Germany's total population of 82.5 million. Baden-Wurttemberg is the
third largest state of Germany by population, after the states of North
Rhine-Westphalia and Bavaria.
Politics and Foreign Relations
Many governmental powers have been allocated by the Constitution to the
federal government. The states have for instance legislative jurisdiction
regarding such areas as the educational system, cultural affairs and police
powers. The state enforces and administers not only state laws but also, subject
to supervision by federal authorities, most of the federal laws in Germany. The
administration of the courts on the lower level is the responsibility of the
states whereas the administration of the highest court is the responsibility of
the federal government. There is no separation between the state and the federal
judicial system as in the United States. Baden-Wurttemberg, like the other
states of Germany, has an elected parliament and an administration headed by a
Prime Minister (Ministerprasident) who is elected by the state parliament.
On March 25, 2001, elections for representatives to the parliament of
Baden-Wurttemberg were held. The parliament of Baden-Wurttemberg currently
consists of the following numbers of representatives of four political parties:
the Christian Democratic Union (CDU), 63 representatives; the Social Democratic
Party (SPD), 45 representatives; Alliance 90/the Greens, 10 representatives; and
the Free Democratic Party (FDP/DVP), 10 representatives; the CDU and FDP have
formed a government in coalition. The next elections will be held in the spring
of 2006.
Because foreign relations are reserved to the German federal government
under Article 32 of the German Constitution, Baden-Wurttemberg may not maintain
foreign relations with other countries without the consent of the German federal
government.
49
ECONOMY
General
Germany
The economy of Baden-Wurttemberg, as a state of Germany, must be considered
in the context of the German economy as a whole. Germany's economic system has
developed since 1945 into what has come to be called the soziale
Marktwirtschaft, generally understood to mean a socially-conscious market
economy, combining the free initiative of the individual with social principles.
The German Constitution guaranties freedom of private enterprise and private
property. The state mainly has an administrative function in the market economy,
setting the general framework of conditions within which market processes take
place. In Germany, there is almost no state intervention in price and wage
competition.
The German economy is one of the largest in the world. Compared with its
international rank as an industrialized nation, Germany is relatively poor in
raw material resources. It depends largely on imports for its raw material
needs. This foreign dependence is particularly significant in minerals such as
copper, bauxite, manganese, titanium, rock phosphate, tungsten and tin. Germany
currently imports nearly two-thirds of its energy requirements, including
virtually all of its oil and a significant portion of its natural gas, as well
as all of the enriched uranium needed for nuclear energy.
Exports and imports of goods and services contributing to the GDP (at
current prices) since 1999 have developed as follows:
Contribution of Exports and Imports of Goods and Services to GDP* in Germany
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(in %)
Exports/GDP........................... 37.3 36.6 35.2 33.5 30.4
Imports/GDP........................... 32.7 31.4 31.9 31.9 29.6
- ---------------------
* Date of computation of GDP: August 2004.
Source: Own calculations, based on: Federal Central Bank, Monthly Report,
November 2003 and November 2004, Table IX.1.
Baden-Wurttemberg
Baden-Wurttemberg is one of the most highly industrialized states in
Germany and has one of the strongest economies of all the German states. In
terms of GDP and employment, approximately one-half of Baden-Wurttemberg's
economy is based on the activities of small and medium-sized commercial
enterprises, many of which are involved in manufacturing and focused on
technology, and the other half consists of large industry. Several well-known
companies are located in Baden-Wurttemberg, such as DaimlerChrysler AG, Porsche
AG, Robert Bosch GmbH, IBM Germany, Asea Brown Boveri Germany and
Hewlett-Packard Germany. This strong concentration of manufacturing activity
exposes the economy of Baden-Wurttemberg to a degree of cyclical pressure. In
addition to manufacturing enterprises, many universities and research
institutions also support the Baden-Wurttemberg economy.
50
The real growth rates of Baden-Wurttemberg's and Germany's GDP (at 1995
prices) since 1999 have developed as follows:
Real Growth Rates*
2003 2002 2001 2000 1999
----- ----- ----- ----- -----
(in %)
Baden-Wurttemberg..................... (0.2) 0.2 2.6 3.3 2.3
Germany............................... (0.1) 0.2 0.8 2.9 2.0
- ---------------------
* Date of computation: August 2003/February 2004.
Source: State Statistical Office Baden-Wurttemberg and Federal Statistical
Office, data on economy and prices, available at
www.statistik.baden-wuerttemberg.de/VolkswPreise/ArbeitskreisVGR/
tab02.asp.
Gross Domestic Product
The following table shows the GDP of Baden-Wurttemberg in comparison to the
GDP of Germany for each of the years indicated:
Development of GDP*
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
(in billions of EUR)
At current prices for the year indicated:
Baden-Wurttemberg's GDP..................................... 314.3 312.4 306.2 293.9 285.9
Germany's GDP............................................... 2,129.2 2,110.4 2,073.7 2,030.0 1,978.6
At constant 1995 prices:
Baden-Wurttemberg's GDP..................................... 291.2 291.8 291.1 283.7 274.8
Germany's GDP............................................... 1,987.7 1,989.7 1,986.2 1,969.5 1,914.8
- ---------------------
* Date of computation: August 2003/February 2004.
Source: State Statistical Office Baden-Wurttemberg and Federal Statistical
Office, data on economy and prices, available at
www.statistik.baden-wuerttemberg.de/VolkswPreise/ArbeitskreisVGR/
tab01.asp and .../tab02.asp.
The following table shows the per capita GDP of Baden-Wurttemberg in
comparison to the per capita GDP of Germany for each of the years indicated:
Per Capita GDP in Baden-Wurttemberg and Germany*
2003 2002 2001 2000 1999
-------- --------- -------- -------- --------
(in thousands of EUR)
At current prices for the year indicated:
Baden-Wurttemberg........................................... 29.4 29.4 29.0 28.0 27.4
Germany..................................................... 25.8 25.6 25.2 24.7 24.1
- ---------------------
* Date of computation: August 2003/February 2004.
Source: State Statistical Office Baden-Wurttemberg and Federal Statistical
Office, data on economy and prices, available at
www.statistik.baden-wuerttemberg.de/VolkswPreise/ArbeitskreisVGR/
tab01.asp.
51
Industrial Structure
General Position of Industry
The largest share of the gross value added to the GDP of Baden-Wurttemberg
is attributable to services and other activities and to manufacturing. Commerce
and transportation, like agriculture and forestry, are of less significance.
The following table shows the gross value added in current prices to the
GDP of Baden-Wurttemberg during each of the years indicated:
Gross Value Added in Baden-Wurttemberg*
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(in %)
Attributable to:
Manufacturing.......................... 37.3 37.7 38.4 38.8 38.2
Agriculture and forestry............... 0.8 0.8 0.9 1.0 1.0
Commerce and transportation............ 15.8 15.8 15.8 15.2 14.7
Services and other activities.......... 46.1 45.7 44.9 45.0 46.1
- ---------------------
* Date of computation: August 2003/February 2004.
Source: State Statistical Office Baden-Wurttemberg and own calculations, data on
economy and prices, available at
www.statistik.baden-wuerttemberg.de/VolkswPreise/Landesdaten/
LRt2101.asp.
Branches of Industry
The branches of industry with the greatest significance in
Baden-Wurttemberg are the machinery, electrical engineering and automotive
industries. Of somewhat less importance are the chemical industry and the
textile and garment industries. Together with the metalworking industries, these
six branches employ about three quarters of the persons employed in industrial
enterprises in Baden-Wurttemberg.
From a geographic perspective, Baden-Wurttemberg's industrial structure is
evenly spread throughout its territory. In addition to the industrial center in
the central Neckar area around Stuttgart, there are a number of other industrial
centers, including Mannheim, Karlsruhe, Ulm, Heilbronn and
Villingen-Schwennigen. The primarily rural, less densely-populated areas of
Baden-Wurttemberg are also for the most part well supplied with industrial
enterprises. The small and medium-sized (SME) component of the economy of
Baden-Wurttemberg is particularly pronounced.
Tourism
Baden-Wurttemberg has numerous bathing resorts and is one of the most
significant states for spas in Germany. The city of Heidelberg, home of the
oldest university in Germany, and other well known tourist destinations, such as
the Black Forest and Lake Constance, attract many German and foreign tourists.
Baden-Wurttemberg is one of the states with the largest amount of tourist
traffic in Germany.
Prices and Wages
Prices in Germany generally have been stable. In 2003, prices increased by
1.1%, and in 2002 by 1.4%. Since January 1, 1999, the European Central Bank
(ECB) has assumed the task of conducting the single monetary policy for the
Euro-zone, having a free hand to maintain price and currency stability in the
Euro-zone. Before 1999, monetary policy in Germany was conducted by the Deutsche
Bundesbank, which served as a model for the ECB in respect of its independence
from political influence.
52
The following table shows the development of prices in Germany during each
of the years indicated:
Cost-of-living Index for all Households
(changes from previous year in %, 1995 = 100)
2003 2002 2001 2000 1999
----- ----- ----- ----- -----
Total............................... 1.1 1.4 2.0 1.4 0.6
Food.............................. (0.1) 1.0 5.1 (0.6) (1.1)
Other consumer goods
without energy.................... 0.3 0.8 0.3 (0.3) 0.1
Energy*........................... 4.0 0.3 5.7 14.0 4.0
Services without rents............ 1.4 2.4 2.4 1.0 0.3
Rents............................. 1.2 1.4 1.2 1.2 1.1
- ---------------------
* Electricity, gas and fuel.
Source: Federal Central Bank, Monthly Report November 2003 and November 2004,
Table IX.7.
The following table shows information concerning wages and salaries in
industry and commerce (including construction) in Baden-Wurttemberg for each of
the years indicated:
Wages and Salaries in Industry and Commerce
2003 2002 2001 2000 1999
------ ------ ------ ------ ------
(monthly averages in EUR)
Industry:
Gross weekly earnings
Blue collar, male................. 628 614 606 595 581
Blue collar, female............... 461 449 441 436 423
Industry and Commerce:
Gross monthly earnings
White collar, male................ 3,889 3,775 3,688 3,593 3,562
White collar, female.............. 2,677 2,587 2,516 2,441 2,387
- ---------------------
Source: State Statistical Office Baden-Wurttemberg, data on employment,
available at
www.statistik.baden-wuerttemberg.de/ArbeitsmErwerb/Landesdaten/
LRt1901.asp and .../LRt1902.asp.
Employment and Labor
Unemployment rates reached high levels during the 1980s and 1990s,
exceeding 9% from 1994 on, compared to unemployment rates in the 1970s of
between 0.9% and 4.7%. These high unemployment rates were due to a variety of
reasons, including competition from inexpensive foreign products,
computerization of factories and offices, the reunification of Germany and the
effects of a world economic recession. The unemployment rate in
Baden-Wurttemberg remains consistently lower than that of Germany as a whole. In
October 2004 the unemployment rate in Baden-Wurttemberg was 6.1% (in thousands:
333), compared with the unemployment rate for Germany of 10.1% (in thousands:
4,207) in the same month. Since January 1, 2004, labor market statistics no
longer classify unemployed persons who take part in suitability statement
measures and training measures as unemployed. Using the same criteria, the
unemployment rates for the previous years would, therefore, have been lower by
approximately 0.2%.
Source: Federal Labor Office, data on employment, available at
www.pub.arbeitsamt.de/hst/services/statistik/detail/d.html,
"Arbeitslose - nach Landern - Arbeitslosenquoten".
The following table shows the amount and rate of unemployment for each of
the years indicated:
53
Unemployment
2003 2002 2001 2000 1999
----- ----- ----- ----- -----
(annual average)
Baden-Wurttemberg
Unemployment (in thousands)............. 337 295 264 281 325
Unemployment rate (in %)................ 6.1 5.4 4.9 5.4 6.5
Germany
Unemployment rate (in %)................ 10.5 9.8 9.4 9.6 10.5
- ----------
Source: Federal Labor Office, data on employment, Jahresberichte, Arbeitsmarkt
2001, pp. 165 and 166 and Arbeitsmarkt 2003, pp. 131 and 134,
available at www.pub.arbeitsamt.de/hst/services/statistik/000100/html/
jahr/index.shtml.
Trade unions are few but large in Germany and in Baden-Wurttemberg. The
largest labor organization is the German Trade Union Federation (Deutscher
Gewerkschaftsbund), which, as of August 2004, was the umbrella organization for
eight individual trade unions. Trade unions enroll workers from an entire
industry, regardless of the kind of work a person does (the "one union, one
industry" principle). Generally, the employers of a given industry deal with
only one negotiating partner on the labor side. In comparison to other
countries, there are relatively few labor strikes in Germany because of certain
statutory provisions that regulate labor disputes. For example, any strike must
be approved by an affirmative vote of three quarters of a trade union's members.
Unions and employers, without government intervention, enter into
collective bargaining agreements called Tarifvertrage. The Tarifvertrage apply
in practice to all workers in the industry concerned, whether they are unionized
or not, if the employing firm is a member of the relevant association of
employers, as most are. The terms of Tarifvertrage are binding on both sides.
Deviations are permissible only if they benefit employees. Such deviations
regarding salaries and wages are fairly frequent.
Social Legislation and Services
Baden-Wurttemberg and its inhabitants participate in Germany's
comprehensive system of social legislation and services. This system includes
public health insurance, retirement and disability pensions, workmen's
compensation, unemployment insurance, child welfare programs, care of the
physically and mentally handicapped, allowances to orphans and single persons
with dependents, and general public assistance to persons in need.
The costs of the social insurance system are borne by the insured and their
employers through social contributions (Sozialbeitrage), by direct contributions
from federal, state and municipal governments, and by others. The most important
part of the social insurance system -- retirement pensions, health insurance,
insurance for nursing care, and unemployment insurance -- is funded primarily by
equal contributions from employers and employees.
FOREIGN TRADE AND FOREIGN EXCHANGE
Foreign Trade
The economy of Baden-Wurttemberg has a substantial connection to foreign
trade. Preliminary figures show that in 2003, goods with a value of
approximately EUR 661.6 billion were exported from Germany, approximately EUR
106.8 billion of which were exported from Baden-Wurttemberg. In comparison,
imports to Germany for 2003 have been preliminarily valued at EUR 535.4 billion,
approximately EUR 84.0 billion of which were imported to Baden-Wurttemberg.
According to these figures, exports from and imports to Baden-Wurttemberg in
2003 constituted 16.1% of the exports and 15.7% of the imports, respectively, of
Germany.
Source: http://www.destatis.de/basis/d/aussh/aushtab1.php.
54
The following table shows information concerning the foreign trade of
Baden-Wurttemberg for each of the years indicated:
Baden-Wurttemberg's Foreign Trade
2003* 2002 2001
----------- ----------- ----------
(in millions of EUR)
Total exports................................. 106,840 103,762 105,615
Machinery................................... 23,616 24,345 25,070
Automotive.................................. 27,224 27,441 25,547
Electrical products......................... 10,131 10,800 11,499
Chemical products........................... 10,736 9,376 12,468
Fine mechanical and optical products........ 6,047 6,249 6,378
Ultimate destinations of exports
Industrialized western countries.............. 83,359 80,492 82,218
USA......................................... 13,033 14,003 14,580
EU countries................................ 55,729 51,760 52,330
France................................... 10,997 10,885 10,910
Great Britain and Northern Ireland....... 7,966 7,914 7,291
Italy.................................... 8,548 7,818 7,786
Austria.................................. 5,631 5,494 5,556
Switzerland................................. 6,285 6,459 6,750
Developing countries.......................... 10,349 11,186 11,919
Countries in the process of reform(1)......... 13,100 12,013 11,411
Total imports................................. 83,997 77,928 81,808
Industrialized western countries............ 64,768 60,144 63,502
EU countries................................ 43,825 39,499 42,137
Developing countries........................ 7,578 7,899 8,646
Countries in the process of reform(1)....... 11,644 9,878 9,643
- ---------------------
Source: State Statistical Office Baden-Wurttemberg, Au(beta)enhandelsdatenbank,
available at
http://www.statistik.baden-wuerttemberg.de/AHDB and
www.statistik.baden-wuerttemberg.de/HandelBeherb/Landesdaten/
LRt1303.asp and.../LRt1304.asp and .../LRt1306.asp and
www.statistik.baden-wuerttemberg.de/HandelBeherb/Landeskennzahlen.asp.
* Preliminary figures
(1) Consists of former Eastern Bloc countries and Asian countries with
state-run economies.
Foreign Exchange
Since January 1, 1999 Germany's currency is the Euro, the common currency
of the Member States of the European Union participating in the third stage of
the EU's Economic and Monetary Union. The Euro is freely convertible. Currency
and capital transactions may be made without approval or a license.
The Euro-zone follows a mutual monetary policy formulated by the European
Central Bank, or ECB. The ECB is a politically independent institution whose
main goal is to pursue price stability free of political influence.
The following table sets forth, for the periods indicated, average exchange
rates between the Euro and the U.S. dollar, the Swiss Franc and the Japanese
Yen:
55
Average Exchange Rate
3rd quarter 2nd quarter 1st quarter
Currency 2004 2004 2004 2003 2002 2001
- ------------------ ----------- ----------- ----------- -------- -------- ------
U.S. Dollar....... 1.2220 1.2046 1.2497 1.1312 0.9456 0.8956
Swiss Franc....... 1.5363 1.5374 1.5686 1.5212 1.4670 1.5105
Japanese Yen...... 134.38 132.20 133.97 130.97 118.06 108.68
- ----------
Source: European Central Bank, Monthly Bulletin, November 2004, Table 8.2,
page S 68.
PUBLIC FINANCE
State Budget
The state government of Baden-Wurttemberg has its own budget independent
from the budget of the federal government of Germany. The state budget is
drafted for one year or two consecutive years (currently for 2004; the next
budget will be drafted for the years 2005 and 2006) and adopted by the
Baden-Wurttemberg parliament (Landtag). The fiscal year for the state budget is
the calendar year. In addition, the Minister of Finance presents in parliament a
medium-term financial plan based on planning figures collected from the various
state ministries. In general, a medium-term plan is drafted each year, and sets
forth for the current year and the four years to come the projected expenditures
that the Baden-Wurttemberg government believes will be necessary, how funds to
meet those expenditures are expected to be obtained, and how the projected
budgetary development will fit into the projected development of the economy as
a whole. The currently applicable plan runs from 2003 to 2007. The medium-term
financial plan assists the parliament in adopting the budget and provides the
bases for the next budget.
Generally, expenditures by Baden-Wurttemberg are permitted only if they are
explicitly provided for in the budget. In the event that the factual basis for
the budget calculation changes significantly during the fiscal year, the
Ministry of Finance must draft a supplementary budget, which also must be
adopted by parliament.
The appropriations in the budget are administered by Baden-Wurttemberg
ministries. This administration is under the unlimited supervision of the State
Accounting Office (Landesrechnungshof) of Baden-Wurttemberg, an agency organized
under public law. The State Accounting Office is strictly separated from the
state administration and is responsible only to parliament.
The following table provides a summary of Baden-Wurttemberg's revenues and
expenditures for each of the years indicated:
Revenues and Expenditures
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(in billions of EUR)
Revenues(1)(2).............. 31.4 30.5 31.9 30.6 32.4
Taxes....................... 22.0 21.3 22.1 23.0 22.3
Other....................... 9.4 9.2 9.9 7.6 10.1
Expenditures(1)(3).......... 31.7 31.0 31.7 30.4 32.0
- ----------
(1) Because, in 2000, Baden-Wurttemberg began to use a valuation method that
employed net borrowings, rather than gross borrowings as in previous years,
a comparison of the figures for 2000 to those for previous years has only
limited value. Repayment expenses that were included in Revenues totaled
EUR 3.1 billion in 2003, EUR 3.5 billion in 2002, EUR 2.6 billion in 2001
and EUR 3.5 billion in 2000.
(2) Includes revenues from borrowings and special financial transactions.
(3) Includes redemption of borrowings and special financial transactions.
Source: State Ministry of Finance, Department (Abteilung) 2, Team (Referat) 21.
56
For further information concerning the budget of Baden-Wurttemberg, see "--
Budget of the State of Baden-Wurttemberg."
Taxation
The system of apportionment of the tax revenues in Germany and its states
is governed by Articles 106, 106a and 107 of the German Constitution.
Article 106 allocates customs duties and specified special taxes to the
federal government and estate taxes, automobile taxes and other specified
transaction taxes to the states. Article 106 further provides that revenue
arising from personal income tax, corporate income tax and value added tax shall
belong jointly to Germany and the individual states (Gemeinschaftsteuern). The
revenue of municipalities consists principally of portions of personal income
tax, payments from the states, non-personal taxes, such as real estate
(Grundsteuer) and trade tax (Gewerbesteuer), and local tax on consumption and
expenditures (ortliche Verbrauchs- und Aufwandsteuern). Since January 1, 1996,
pursuant to Article 106a of the German Constitution, a certain amount of the
federal government's revenue has been allocated to public transportation in the
various states.
Accordingly, the tax revenues of Baden-Wurttemberg include taxes that are
due solely to Baden-Wurttemberg and Baden-Wurttemberg's share of the joint
federal and state taxes.
The following table sets forth the tax revenues of Baden-Wurttemberg for
each of the years indicated:
Tax Revenues
2003 2002 2001 2000 1999
------ ------ ------ ------ ------
(in millions of EUR)
Share of the Gemeinschaftsteuern and
share of trade tax....................... 19,387 18,669 19,342 20,369 19,607
Taxes exclusively allocated to the state... 2,610 2,634 2,721 2,618 2,708
------ ------ ------ ------ ------
Total...................................... 21,997 21,304 22,063 22,987 22,315
====== ====== ====== ====== ======
- ----------
Source: State Ministry of Finance, Department 5, Team 52.
The following table sets forth the projected tax receipts of
Baden-Wurttemberg for each of the years indicated:
Projected Tax Revenues
2008(1) 2007(1) 2006(1) 2005(2) 2004(2)
------- ------- ------- ------- -------
(in millions of EUR)
Projected tax revenues........ 25,100 24,060 22,960 21,850 22,290
- ----------
(1) Tax Appraisal May 2004.
(2) Tax Appraisal November 2004
Source: State Ministry of Finance, Department 5, Team 52.
Revenue Equalization
While the German federal government and the individual German states have
separate budgets and different sources of revenue enabling them to carry out
their respective functions and duties, a system of revenue equalization
(Finanzausgleich) is intended to ensure that each state, irrespective of its own
revenues, is sufficiently funded to fulfill its constitutional functions. This
system of revenue equalization has both "horizontal" and "vertical" aspects.
57
So-called "horizontal" revenue equalization (Landerfinanzausgleich),
provided for in Article 107 of the German Constitution, is intended to effect an
appropriate financial equalization among financially weaker and stronger states.
The German Constitution requires the federal legislature to ensure by federal
law that states whose revenues are on the average greater than those of other
states are obligated to transfer part of their tax revenues to the financially
weaker states. Horizontal revenue equalization has the effect that the financial
condition of an individual state, and thus its credit standing, is for the most
part consistent with the average level of all states.
Since Baden-Wurttemberg has an above-average economy in comparison with the
other German states, it is considered a "stronger" state for the purpose of
revenue equalization. It is therefore obligated to make regular equalization
payments.
Articles 106, 106a and 107(1) of the German Constitution provide for the
allocation, adjustments and distribution of tax revenues between the federal
government and the states (so called "vertical" revenue equalization). In
addition, they provide for special support payments from the federal government
to individual states in order to enable such states to meet financial burdens
imposed by the federal government or to support financially weaker states.
Furthermore, pursuant to Article 107(2) of the German Constitution, the federal
statute implementing the "horizontal" revenue equalization may also provide for
special support payments by the federal government to financially weaker states
in order to provide supplemental coverage for their general financial needs.
The federal government and the individual states are jointly entitled to
the revenues from personal income tax, corporate income tax and value added tax.
Whereas the revenues from personal and corporate income tax are shared equally
by the federal government and the individual states, the revenues from the value
added tax are prorated from time to time subject to the financial needs of the
federal government and the several states.
In the event of an extreme budget emergency in any state, the
constitutional principle of federal solidarity requires the federal government
and the other state governments to support, by appropriate constitutional means
such as financial aid, such state in order to enable it to remedy its budget
emergency and to fulfill its constitutional functions.
German Unity Fund
Pursuant to the Act of June 25, 1990 implementing the treaty of May 18,
1990, between the Federal Republic of Germany and the German Democratic
Republic, which laid the foundation for German unification in October 1990, the
German legislature established the German Unity Fund (Fonds Deutsche Einheit) to
provide financial support to the new German states. The federal government is
liable for the repayment of principal of and interest on the borrowings of the
German Unity Fund. (Source: Bundesgesetzblatt (BGBI) II 1990, pp. 518 seq.)
Until December 31, 2004, for the payment of interest on such securities and
borrowings, the German Unity Fund receives contributions from the federal budget
in the amount of 10% of the total borrowings outstanding at the end of the
preceding year. The 11 original German states must reimburse the federal
government for 50% of such contributions. In addition, beginning in 1995, the 11
original German states were each obligated to provide for an additional payment
in the amount of EUR 1.1 billion annually to the central government. The five
new German states are exempt from any payments. Because of low market interest
rates, the total regular annual payments were reduced from 10% in 1998 to 6.8%
in 2004.
The following table sets forth the incurred and projected payments of
Baden-Wurttemberg with respect to the German Unity Fund for each of the years
indicated:
58
German Unity Fund Repayment Obligations
2004 2003 2002 2001 2000
----- ----- ----- ----- -----
(in millions of EUR)
Baden-Wurttemberg payments.................. 343 379 388 462 500
Payments of all obligated German states..... 2,071 2,208 2,185 2,570 2,725
- ----------
Source: State Ministry of Finance, Department 5, Team 52.
PUBLIC DEBT
Summary of Debt
At December 31, 2003, Baden-Wurttemberg's total outstanding direct debt
amounted to EUR 35.7 billion. In 2003, Baden-Wurttemberg spent 8.3% of its tax
revenues on interest payments.
The following table sets forth the total principal amount of direct debt of
Baden-Wurttemberg outstanding at December 31 of each of the years indicated:
2003(3) 2002(3) 2001(3) 2000(2) 1999
------- ------- ------- ------- ------
(in millions of EUR)
Direct debt(1)............... 35,676 33,378 31,897 29,506 28,554
- --------------------------
(1) Does not include public sector debt.
(2) Includes borrowing for the purchase of a silent participation in LBBW for
an amount of EUR 302.9 million.
(3) Includes borrowing for the purchases of silent participations in LBBW for a
total amount of EUR 1,312.6 million (EUR 302.9 million in 2000 and EUR
1,009.7 million in 2001)
Source :State Ministry of Finance, Department 2, Team 26.
In addition to its own direct debt obligations, at December 31, 2003,
Baden-Wurttemberg had liabilities to the public sector and others in the amount
of approximately EUR 1.6 billion. Furthermore, Baden-Wurttemberg guarantied the
payment of the principal of and interest on certain obligations of various
public and private enterprises.
The following table sets forth the aggregate principal amount of such debt
guarantied by Baden-Wurttemberg outstanding at December 31 of each of the years
indicated:
2003 2002 2001 2000 1999
------ ------ ------ ------ ------
(in millions of EUR)
Guarantied Debt(1)........... 10,895 10,720 10,437 10,396 9,535
- -----------------------
(1) Does not include obligations under existing support mechanisms, such as
maintenance obligation (Anstaltslast), explicit guaranty or guaranty
obligation (Gewahrtragerhaftung) with respect to liabilities of certain
state-owned entities organized under public law.
Source: State Ministry of Finance, Department 5, Team 54.
In the period from 1952 to 2003, the long-term average default rate for the
aggregate guarantied debt amounted to 0.91%. The aggregate guarantied debt
contains guarantied debt for economic development programs, the long-term
average default rate of which amounted to 7.33%.
For more detailed information regarding Baden-Wurttemberg's debt and
guaranties, see the tables in "Debt Record."
59
Debt Service
The following table sets forth the projected debt service requirements for
each of the years indicated in respect of all of the direct debt of
Baden-Wurttemberg outstanding at December 31 of each of the years indicated:
2007 2006 2005 2004
------ ------ ------ ------
(in millions of EUR)
Debt Service Requirements.... 8,086 7,508 7,114 5,556
- ---------------
Source: State Ministry of Finance, Department 2, Team 26.
DEBT RECORD
Since its formation in 1952, Baden-Wurttemberg has always paid promptly
when due the full amount of the principal of and interest on its indebtedness.
Direct Debt of Baden-Wurttemberg as of December 31, 2003(1)
Principal
Interest Date of Amount
Debt rate (%) issue Maturity Outstanding
- ----------------------------------------------- ---------------- --------------- --------------- ---------------
(in millions of EUR)
Bonds and Government bonds
(1.) 6.20% of 1993.......................... 6.20 1993 2013 255.6
(2.) 6.50% of 1993.......................... 6.50 1993 2024 43.5
(3.) 6-M-E-0.25% of 1994(2)................. 6-M-E-0.25% 1994 2004 153.4
(4.) 7.50% of 1994.......................... 7.50 1994 2004 383.5
(5.) 6.50% of 1995.......................... 6.50 1995 2005 255.6
(6.) 6.00% of 1996.......................... 6.00 1996 2006 255.6
(7.) 6.50% of 1996.......................... 6.50 1996 2006 255.6
(8.) 6.50% of 1996.......................... 6.50 1996 2006 255.6
(9.) 6.25/7.75% of 1996..................... 6.25/7.75 1996 2026 127.8
(10.) 6.125% of 1996......................... 6.125 1996 2006 306.8
(11.) 6.00/7.625% of 1996.................... 6.00/7.625 1996 2027 153.4
(12.) 6.75% of 1996.......................... 6.75 1996 2026 51.1
(13.) 5.75% of 1998.......................... 5.75 1998 2028 511.3
(14.) 4.75% of 1998.......................... 4.75 1998 2008 383.5
(15.) 5.50% of 2000.......................... 5.50 2000 2008 50.0
(16.) 6.90% of 2000 (HK$500 million)(3)...... 6.90 2000 2005 75.0
(17.) 2.03% of 2001 ((Yen)3.0 billion)(4).... 2.03 2001 2016 27.3
(18.) 3-M-GBPLibor-0.205% of 2002 3-M-GBP
(100 Mio.GBP)(5) Libor-0.205% 2002 2005 161.3
(19.) 4.50% of 2002.......................... 4.50 2002 2005 750.0
(20.) 4.75% of 2002.......................... 4.75 2002 2008 500.0
(21.) 4.78% of 2002.......................... 4.78 2002 2008 100.0
(22.) 2.75% of 2002 (600 Mio CHF)(6)......... 2.75 2002 2007 408.9
(23.) 3.25% of 2003.......................... 3.25 2003 2008 1,500.0
(24.) 3.50% of 2003.......................... 3.50 2003 2010 750.0
-----------
Total bonds and government bonds.............. 7,714.9
Other borrowings(7)........................... 27,961.2
-----------
Baden-Wurttemberg's total direct
debt(1)..................................... 35,676.1
===========
- -------------------------
(1) Does not include liabilities to the public sector.
(2) Six month EURIBOR based floating rate note.
(3) This debt is carried at a value of EUR 75 million, which expresses a
notional Euro/Hong Kong dollar exchange rate of EUR 1.00 = HK$ 6.66667.
60
(4) This debt is carried at a value of EUR 27.3 million, which expresses a
notional Euro/Japanese yen exchange rate of EUR 1.00 = (Yen)109.89011.
(5) This debt is carried at a value of EUR 161.3 million, which expresses a
notional Euro/pound Sterling exchange rate of EUR 1.00 = (pound)0.61996.
(6) This debt is carried at a value of EUR 408.9 million, which expresses a
notional Euro/Swiss Francs exchange rate of EUR 1.00 = CHF1.46735.
(7) Medium- and long-term loans evidenced by promissory notes placed with
investors (Schuldscheindarlehen) and credit line agreements with a
remaining term of up to approximately 35 years (2038). The following table
presents a maturity break down of these borrowings:
Outstanding
Maturity Principal Amount
----------------
(in millions of
EUR)
2004......... 2,992.2
2005......... 2,836.1
2006......... 2,868.3
2007......... 3,365.3
2008......... 2,450.8
>2008........ 13,448.5
--------
Total........ 27,961.2
--------
Source: State Ministry of Finance, Department 2, Team 26.
Internal Guarantied Debt as of December 31, 2003, 2002, 2001 and 2000
2003 2002 2001 2000
-------- -------- -------- --------
(in millions of EUR)
1. Suretyships(1)
(a) Economic development....................... 50.3 42.4 46.6 47.5
(b) Housing.................................... 204.1 204.1 204.1 204.1
(c) Public Enterprises......................... 10,143.2 9,990.0 9,705.4 9,632.4
(d) Charitable and educational institutions
and other purposes....................... 10.9 10.9 10.9 10.9
2. Guaranties(2) and other credit support
(a) Economic development....................... 10.2 15.3 15.3 10.2
(b) Contingent liabilities under the Nuclear
Energy Law (Atomgesetz).................. 52.4 52.3 50.3 49.7
(c) Other...................................... 6.1 6.1 6.1 6.3
3. Suretyships for Sureties(3) and Guaranties
for Guarantors(4) for the benefit of
(a) Burgschaftsbank Baden-Wurttemberg
GmbH................................... 418.1 398.4 398.4 398.8
(b) L-Bank..................................... 0 0 0 35.8
-------- -------- -------- --------
Total(5)......................................... 10,895.3 10,719.5 10,437.1 10,395.7
======== ======== ======== ========
- ---------------------
(1) Surety (Burgschaft) by the State for the performance of the obligations of
another (Administrative Rule No. 1 to Section 39 of the Budgeting
Principles Act of Baden-Wurttemberg (Landeshaushaltsordnung) in connection
with Sections 765 et seq. of the German Civil Code (Burgerliches Gesetzbuch
-- BGB)).
(2) Agreements, independent of the underlying agreement, by which the state
secures a monetary interest of the recipient of the guaranty by agreeing to
assume the responsibility for the occurrence of a specific event, in
particular to assume, in whole or in part, the risk of a future contingent
loss (Administration Rule No. 2 to Section 39 of the Budgeting Principles
Act of Baden-Wurttemberg).
(3) A suretyship for a surety (Ruckburgschaft) is a suretyship within the
meaning of Sections 765 et seq. BGB that is given by the State in favor of
a surety by which the State promises to reimburse the surety, in whole or
in part, for payments made by the surety under his suretyship.
(4) A guaranty for a guarantor (Ruckgarantie) is a guaranty, being an agreement
independent of the underlying agreement, that is given by the State in
favor of a guarantor by which the State promises to reimburse the
guarantor, in whole or in part, for payments made by the guarantor under
his guaranty.
(5) In addition to the contingent liabilities arising from Burgschaften,
Garantien, and other warranties shown in the table above, Baden-Wurttemberg
is currently liable under existing support mechanisms, such as maintenance
obligation (Anstaltslast), explicit guaranty or guaranty obligation
(Gewahrtragerhaftung) with respect to liabilities of certain state-owned
entities organized under public law.
Source: State Ministry of Finance Baden-Wurttemberg, Department 5, Team 54.
61
BUDGET OF THE STATE OF BADEN-WURTTEMBERG
The following table sets forth the revenues and expenditures of
Baden-Wurttemberg for the years indicated.
Revenues and Expenditures for the fiscal years ended December 31, 2003,
2002, 2001 and 2000
Year ended Year ended Year ended Year ended
December 31, Change December 31, Change December 31, Change December 31,
2003 (1) 2002 (1) 2001 (1) 31, 2000
------------- ------ ------------ ------ ------------ ------ ------------
(in billions (in billions (in billions (in billions
of EUR) (in %) of EUR) (in %) of EUR) (in %) of EUR)
I. Revenue
1. Taxes.......................... 22.0 3.3 21.3 (3.4) 22.1 (4.0) 23.0
2. Net borrowing(2)............... 2.0 9.4 1.9 (17.4) 2.3 216.8 0.7
3. Miscellaneous revenues......... 7.4 1.0 7.3 (3.0) 7.6 9.2 6.9
4. Total.......................... 31.4 3.1 30.5 (4.3) 31.9 4.1 30.6
------------- ------------ ------------ ------------
II. Expenditures
1. Public servants................ 12.8 0.5 12.7 3.5 12.3 3.7 11.9
2. Investments(3)................. 2.9 (5.3) 3.1 (25.1) 4.1 20.2 3.4
3. Interest payments.............. 1.8 8.0 1.7 4.8 1.6 0.2 1.6
4. Principal payments............. 0.1 2.0 0.1 68.9 0.0 (48.2) 0.1
5. Payments for horizontal revenue
equalization(4)............... 1.9 2.6 1.8 (21.3) 2.3 18.6 1.9
6. Miscellaneous expenditures..... 12.3 5.7 11.6 2.7 11.3 (1.7) 11.5
7. Total.......................... 31.7 2.4 31.0 (2.2) 31.7 4.1 30.4
------------- ------------ ------------ ------------
III. Adjusted total expenditures(5)... 31.0 0.9 30.8 (2.5) 31.6 4.3 30.3
------------- ------------ ------------ ------------
- -------------------
(1) Percentage changes are calculated on the basis of unrounded figures.
(2) In the capital markets. Net borrowings include borrowings to finance the
purchases of silent participations in LBBW for an amount of EUR 302.9
million in 2000 and an amount of EUR 1,009.7 million in 2001.
(3) Investments include the purchases of silent participations in LBBW for an
amount of EUR 302.9 million in 2000 and an amount of EUR 1,009.7 million in
2001.
(4) Actual payments, not payment obligations, for the year indicated.
(5) Formal budget volume minus retirement of debt in the capital markets and
special financing procedures.
Source: State Ministry of Finance, Department 2, Team 21.
Projected Total Indebtedness
The following table sets forth projected total indebtedness of
Baden-Wurttemberg as formulated in the State's most recent medium term plan
drafted in 2004:
2004 2005 2006 2007
------ ------ ------ ------
(in millions of EUR)
Projected total indebtedness incurred......... 2,039 1,800 1,300 800
- ----------
Source: State Ministry of Finance, Department 2, Team 21.
62
DESCRIPTION OF THE NOTES
The following briefly summarizes the terms and conditions of the notes
offered by this Prospectus and the agency agreement in respect of the notes.
Copies of the form of the notes and the form of the agency agreement are filed
as exhibits to the registration statement of which this Prospectus is a part.
This summary does not purport to be complete and is qualified in its entirety by
reference to those exhibits. Terms that are used in this Prospectus and that are
defined in the agency agreements have the respective meanings given to them in
the agency agreements, unless otherwise defined in this Prospectus.
General provisions
Principal amount and denomination. The notes will be issued in an aggregate
principal amount of o U.S. dollars (U.S.$ o), divided into o notes in the
principal amount of U.S.$ 1,000 each, which will rank equally among themselves.
Global certificates -- form. The notes will be represented by one or more
permanent global certificates without interest coupons, which will be kept in
custody by Deutsche Bank Trust Company Americas (the "custodian"), or any
successor, as custodian for DTC until all our obligations under the notes have
been satisfied. The global certificates (as defined under "Clearing and
settlement--Certification and custody; appointment of registrar and paying
agent") will be manually signed by two of our authorized representatives and
will each be manually authenticated by or on behalf of the registrar (as
defined under "Clearing and settlement -- Certification and custody; appointment
of registrar and paying agent"). According to the conditions, definitive
certificates representing individual notes and interest coupons will not be
issued. Definitive certificates representing individual notes may however be
issued in the very limited circumstances described under "Clearing and
Settlement -- The clearing systems -- DTC."
Transfers. Transfers will be made by book-entry only as described in
further detail under "Clearing and Settlement -- Transfers."
Status
The notes will constitute unsecured and unsubordinated obligations of
L-Bank and will rank equally with all of our other present and future unsecured
and unsubordinated obligations, but subject to any applicable mandatory
statutory exceptions.
Interest
Interest rate and due dates. The notes will bear interest at the rate of o%
per year as from o, 2005. The notes will cease to bear interest upon the end of
the day preceding the day on which they become due for redemption. Interest is
payable annually in arrears on o of each year. The first interest payment will
be made on o, 2006 for the period commencing on o, 2005 (inclusive) and ending
on o, 2006 (exclusive). The interest amount for this period will total U.S.$ o
for the aggregate principal amount of U.S.$ o.
Late payment. Should we fail to repay the notes on the due date therefor,
interest on the notes shall, subject to the provisions with respect to business
days (as defined under "--Payments--Business days"), continue to accrue beyond
the due date until the expiry of the day preceding the actual repayment of the
notes at the default rate of interest established by German law, which currently
is 5% above the base rate (ss.ss. 247, 288 German Civil Code). If such default
event should take place the default rate as of the date of this prospectus will
be 6.21% p.a.
Accrued interest. If it is necessary to compute interest for a period of
other than a full year, interest shall be calculated on the basis of a 360-day
year consisting of twelve 30-day months.
63
Maturity, Repurchase
Maturity. The notes shall be redeemed at par on o. Neither we nor any
noteholder will be entitled to redeem the notes before their stated maturity.
Repurchase. We may at any time purchase and resell notes in the open market
or otherwise and at any price. We may, at our option, hold, resell or surrender
to the registrar for cancellation any notes purchased by us.
Payments
Payments. Payments of principal of, and interest on, the notes shall be
made on the relevant payment date (see "-- Payment date and due date") to the
registered holder of the global certificates in U.S. dollars as set forth below.
The amount of payments to the registered holder of the global certificates shall
correspond to the aggregate principal amount of notes represented by the global
certificates, as established by the registrar at the close of business on the
relevant record date (see "-- Record date"). Payments of principal shall be made
upon surrender of the global certificates to the paying agent.
All payments made by us to, or to the order of, the registered holder of
the global certificates shall discharge our liability under the notes to the
extent of the sums so paid.
Record date. The record date (the "record date") for purposes of payments
of principal and interest (see "-- Payments") shall be, in respect of each such
payment, the tenth New York business day prior to the relevant due date (see "--
Payment date and due date").
Payment business day. If any date for payment of principal or interest to
the registered holder of the global certificates is not a payment business day,
such payment shall not be made until the next day which is a payment business
day and no further interest shall be paid in respect of the delay in such
payment. A "payment business day" shall be any day on which (i) banking
institutions in New York City are not obligated and not authorized to close,
(ii) foreign exchange markets settle payments in New York and (iii) all relevant
parts of the Trans-European Automated Real-time Gross settlement Express
Transfer system (TARGET) are operational to forward the relevant payment.
Payment date and due date. For the purposes of the terms and conditions of
the notes, "payment date" means the day on which the payment is actually to be
made, where applicable as adjusted in accordance with the preceding paragraph,
and "due date" means the payment date provided for herein, without taking
account of any such adjustment.
Taxes
All payments by us in respect of the notes shall be made without deduction
or withholding of taxes or other duties, unless such deduction or withholding is
required by law. In the event of such deduction or withholding, we shall not be
required to pay any additional amounts in respect of the notes.
No Termination for default
The notes do not provide for any defaults or events of defaults entitling
noteholders to demand immediate redemption of the notes.
Registrar and paying agent
We will appoint Deutsche Bank Trust Company Americas, New York ("Deutsche
Bank"), as initial registrar (the "registrar") and paying agent (the "paying
agent"). We may at any time vary or terminate the appointment of the registrar
or the paying agent or approve any change in the office through which they act
64
(the "specified office") provided that there shall at all times be a registrar
and a paying agent, and provided further that so long as the notes are listed on
any stock exchange, we will maintain a paying agent with a specified office in
the city in which such stock exchange is located and/or in such other place as
may be required by the rules of such stock exchange. If payments at or through
the offices of all paying agents outside the United States become illegal or are
effectively precluded because of the imposition of exchange controls or similar
restrictions on the full payment or receipt of amounts in U.S. dollars, we will
also maintain a paying agent with a specified office in New York City. We will
give notice of any change in the registrar or paying agent or in their specified
offices by publication in the manner set forth under "--Notices", and any such
change will not take effect less than 30 days nor more than 45 days after such
notice has been given.
The registrar and the paying agent in such capacities are acting
exclusively as our agents and do not have any legal relationship of any nature
with or accountability to any noteholder.
Substitution of L-Bank
We may at any time substitute for us any other company as principal debtor
in respect of the notes. Any such substitution will not require the consent of
holders of the notes, but we will be required to guaranty the obligations of the
substitute obligor under the notes. No substitution may occur if such
substitution would result in the loss for noteholders of the benefit of the
guaranty obligation, the maintenance obligation and the explicit guaranty of
Baden Wurttemberg, and unless the substitute obligor is in a position to fulfill
all payment obligations under the notes without being required to withhold tax
at source in an amount which exceeds at the time of effectiveness of such
substitution the relevant amounts levied by withholding or deduction in the
place of our domicile or tax residence. In addition, neither the issuer nor the
substitute obligor will be required to indemnify the noteholders against any
tax, except for stamp duties, imposed on a noteholder in respect of such
substitution.
It is possible that a substitution of another company as principal debtor
in respect of the notes will result in the recognition of gain or loss for
United States federal income tax or German tax purposes by the holders of the
notes of that series and possibly other adverse tax consequences to those
holders. Holders should consult their own tax advisors regarding the tax
consequences of such a substitution.
Additional notes
We reserve the right, from time to time without the consent of the
noteholders, to issue additional notes, on terms identical in all respects to
those set forth in the terms and conditions of the notes (except as to the date
from which interest shall accrue), so that such additional notes shall be
consolidated with, form a single issue with and increase the aggregate principal
amount of, the notes. The term "notes" shall, in the event of such increase,
also include such additional issued notes.
Notices
All notices regarding the notes shall be published either (a) in a daily
newspaper having general circulation in the Federal Republic of Germany
(expected to be the Borsen-Zeitung) and a leading daily newspaper printed in the
English language and of general circulation in New York City (expected to be the
Wall Street Journal), or (b) by any other form of communication which is, in the
case of notes listed on a stock exchange, in compliance with the rules of such
stock exchange. Any notice so given will become effective for all purposes on
the third day following the date of its publication, or, if published more than
once, on the third day following the first day of any such publication.
In lieu of publications in the newspapers set forth above, we may deliver
the relevant notice to DTC, for communication by DTC to the noteholders,
provided that, so long as any notes are listed on any stock exchange, the rules
of such stock exchange permit such form of notice. Any notice so given will
become effective on the seventh day after the day on which such notice was given
to DTC.
65
Governing law, Jurisdiction, Enforcement and Language
Governing law. The notes, both as to form and content, as well as our
rights and duties and those of the noteholders shall be governed by and shall be
construed in accordance with the laws of the Federal Republic of Germany.
Transfers and pledges of notes held through DTC and executed between DTC
participants and between DTC and DTC participants will be governed by the laws
of the State of New York.
Jurisdiction. We will expressly and irrevocably submit to the jurisdiction
of any New York state and United States federal court sitting in New York
County, New York, in actions by any person, including any holder of a note,
arising out of or relating to the notes and, in respect of any such action, we
will appoint Law Debenture Corporate Services Inc., 767 Third Avenue - 31st
Floor, New York, NY 10017, as agent for service of process; provided that such
submission to jurisdiction does not extend to legal actions brought under the
United States securities laws. Notwithstanding the foregoing, any action by any
person, including any holder of notes, may be instituted against us in any
competent court in Frankfurt am Main, Germany. The jurisdiction of such courts
shall be exclusive according to Section 38 of the German Code of Civil Procedure
(ZPO) for proceedings solely involving merchants (Kaufleute), legal persons
under public law (juristische Personen des offentlichen Rechts), special funds
under public law (offentlich-rechtliche Sondervermogen) or persons not subject
to the general jurisdiction of the courts of the Federal Republic of Germany
(Personen ohne allgemeinen Gerichtsstand), otherwise it shall be nonexclusive.
The United States Foreign Sovereign Immunities Act of 1976, which applies
to Baden-Wurttemberg and may apply to us, provides that foreign states and their
agencies or instrumentalities and their respective property are in varying
degrees immune from the jurisdiction of courts in the United States. To the
extent that we have or may acquire any sovereign immunity from jurisdiction of
any court or from any legal process with respect to us or our property,
including any such immunity under the United States Foreign Sovereign Immunities
Act of 1976, we will expressly and irrevocably waive any such immunity in
respect of legal process relating to our obligations arising out of or relating
to the notes, that may be instituted in any New York state or United States
federal court sitting in New York County, New York or in any competent court in
Germany. This waiver (i) shall not extend to actions brought under any United
States securities law, (ii) shall not be deemed to be an effective waiver of
immunity from attachment of, and execution on a judgment against, certain
property in respect of which immunity from such attachment and execution may not
be waived under the laws of the United States or Germany, depending on the place
where such action has been initiated, (iii) insofar as it relates to any action
which may be instituted in any competent court in Germany, shall be deemed to
have only been given to the fullest extent permitted by German law, and (iv)
shall not extend to immunity from attachment in aid of jurisdiction or from
prejudgment attachment. Although this waiver also does not extend to actions
brought under the United States securities laws, the United States Foreign
Sovereign Immunities Act of 1976 may afford a jurisdictional basis for such
actions and preclude any claim of sovereign immunity in connection therewith.
Baden-Wurttemberg does not waive any immunity from jurisdiction of any court or
from any legal process with respect to itself or its property.
Any final and conclusive judgment for a definite sum obtained for the
recovery of amounts due and unpaid under the Credit Agreement or the Notes in a
New York State or United States Federal court sitting in New York will be
recognized and enforced by the courts of Germany without review of the merits,
subject to the limitations of Section 328 of the German Code of Civil Procedure
(ZPO), which provides that a foreign judgment will not be recognized (i) if,
applying German law, the courts in the country of the court having rendered the
foreign judgment did not have jurisdiction; (ii) if process has not been duly
served or has not been served in a timely fashion to permit a defense and the
defendant so pleads, unless the defendant has made an appearance; (iii) if the
judgment is incompatible with a judgment rendered by a German court or a prior
judgment rendered by a foreign court which is to be recognized in Germany, or if
the proceeding resulting in the judgment to be recognized is incompatible with a
proceeding previously commenced in Germany; (iv) if a recognition of the
judgment would obviously be incompatible with basic principles of German law, in
particular if the recognition would be incompatible with the basic rights under
the German Constitution; or (v) if reciprocity is not ensured.
66
Enforcement. Any noteholder may in any proceedings against us or to which
the noteholder and we are parties protect and enforce in its own name its rights
arising under its notes on the basis of (a) a certificate issued by its
custodian (i) stating the full name and address of the noteholder, (ii)
specifying an aggregate principal amount of notes credited on the date of such
statement to such noteholder's securities account maintained with such custodian
and (iii) confirming that the custodian has given a written notice to DTC,
containing the information pursuant to (i) and (ii) and bearing acknowledgments
of DTC and the relevant DTC participant and (b) a copy of the DTC global
certificate certified as being a true copy by a duly authorized officer of DTC.
For purposes of this paragraph only, "custodian" means any bank or other
financial institution of recognized standing authorized to engage in securities
custody business with which the noteholder maintains a securities account in
respect of any notes and includes DTC and any other clearing system which is a
participant in DTC.
Language. The Notes documentation (Terms and Conditions) are written in
German language and provided with an English language translation. The German
text shall be controlling and binding. The English language translation is
provided for convenience only.
CLEARING AND SETTLEMENT
The information set out below in connection with DTC, Euroclear or CBL,
which are collectively referred to as the clearing systems, is subject to any
change in or reinterpretation of the rules, regulations and procedures of the
clearing systems currently in effect. The information in this section concerning
the clearing systems has been obtained from sources that we believe to be
reliable, but neither we nor any manager takes any responsibility for the
accuracy thereof. Investors wishing to use the facilities of any of the clearing
systems are advised to confirm the continued applicability of the rules,
regulations and procedures of the relevant clearing system. We will not have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, interests in the notes held through the facilities
of any clearing system or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
Certification and custody; appointment of registrar and paying agent
Clearing and settlement arrangements, including the existing links between
Euroclear and CBL and the participation of these systems in DTC, will provide
investors access to three major clearing systems. At initial settlement, the
notes will be represented by one or more permanent global certificates (the
"global certificates") which will not be exchangeable for definitive
certificates representing individual notes except in very limited circumstances
described under "-- The clearing systems -- DTC." The global certificates, which
are to be held by the custodian as custodian for DTC, will be issued in
registered form in the name of DTC's nominee Cede & Co. and will represent the
notes held by investors electing to hold notes through financial institutions
that are participants in DTC ("DTC participants"). The notes are expected to be
accepted for clearance and settlement through DTC on o, 2005. Euroclear and CBL
participate in DTC, and, accordingly, notes held by investors electing to hold
notes through financial institutions that are participants in Euroclear and CBL
("Euroclear and CBL participants") are thus also represented by the global
certificates.
The notes represented by the global certificates will equal the total
aggregate principal amount of the notes outstanding at any time. Owners of
beneficial interests in the global certificates will not be entitled to have
notes registered in their names, and will not be entitled to receive physical
delivery of definitive certificates representing individual notes. We may issue
definitive certificates representing individual notes in the very limited
circumstances described under "-- The clearing systems -- DTC."
We will appoint Deutsche Bank as initial registrar and paying agent (in
performing both functions, the "Agent") as described in greater detail under the
heading "Description of the notes -- Registrar and paying agent". The details of
any such agent are set forth under "Further Information."
67
The Agent is acting exclusively as our agent and does not have any legal
relationship of any nature with or accountability to the noteholders.
The global certificates have been assigned an ISIN number of o, a CUSIP
number of o, a German securities number (WKN) of o and a common code of o.
Payments
As described under "Description of the notes--Registrar and paying agent,"
Deutsche Bank will act as our initial paying agent for the notes. Principal and
interest payments on the notes will be made by us through the paying agent to
the registered holder of the DTC global certificate in U.S. dollars as set forth
under "Description of the notes--Payments." All payments duly made by us to, or
to the order of, the registered holder of the DTC global certificate, shall
discharge our liability under the notes to the extent of the sum or sums so
paid. Therefore, after such payments have been duly made, neither we nor the
paying agent has any direct responsibility or liability for the payment of
principal or interest on the notes to owners of beneficial interests in the DTC
global certificate. Payments by DTC participants and indirect DTC participants
(as defined under "--The clearing systems--DTC" below) to owners of beneficial
interests in the DTC global certificate will be governed by standing
instructions and customary practices, and will be the responsibility of the DTC
participants or indirect DTC participants. Neither we nor the paying agent will
have any responsibility or liability for any aspect of the records of DTC
relating to or payments made by DTC on account of beneficial interests in the
DTC global certificate or for maintaining, supervising or reviewing any records
of DTC relating to such beneficial interests.
Transfers
Title to book-entry interests in the notes will pass by book-entry
registration of the transfer within the records of DTC, Euroclear or CBL, as the
case may be, in accordance with their respective procedures. Book-entry
interests in the notes may be transferred within DTC in accordance with
procedures established for this purpose by DTC. Book-entry interests in the
notes may be transferred within Euroclear in accordance with procedures
established for this purpose by Euroclear. Book-entry interests in the notes may
be transferred within CBL in accordance with procedures established for this
purpose by CBL.
The clearing systems
DTC
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the United States
Securities Exchange Act of 1934, as amended ("the Exchange Act"). DTC was
created to hold securities for DTC participants and to facilitate the clearance
and settlement of securities transactions, such as transfers and pledges,
between DTC participants through electronic computerized book-entry changes in
accounts of DTC participants, which thereby eliminates the need to physically
move securities certificates. DTC participants include certain of the U.S.
depositaries, securities brokers and dealers, banks, trust companies and
clearing corporations and certain other organizations. DTC is owned by a number
of DTC participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc.
Indirect access to the DTC system is also available to others, such as banks,
securities brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a DTC participant, either directly or indirectly
("indirect DTC participants"). Persons who are not DTC participants may
beneficially own securities held by DTC only through DTC participants or
indirect DTC participants. The rules that apply to DTC and DTC participants are
on file with the U.S. Securities and Exchange Commission.
Transfers of beneficial interests in notes in DTC may be made only through
DTC participants.
68
Indirect DTC participants are required to effect transfers through a DTC
participant. In addition, beneficial owners of notes in DTC will receive all
distributions of principal of and interest on the notes from the paying agent
through a DTC participant. Distributions in the United States will be subject to
tax reporting in accordance with relevant United States tax laws and regulations
as set forth in "United States taxation."
Because DTC can only act on behalf of DTC participants, who in turn act on
behalf of indirect DTC participants, and because beneficial owners will hold
interests in the notes through DTC participants or indirect DTC participants,
the ability of such beneficial owners to pledge notes to persons or entities
that do not participate in DTC, or otherwise take actions with respect to such
notes, may be limited.
The established procedures of DTC provide that (i) upon issuance of the
notes by us, DTC will credit the accounts of DTC participants designated by the
lead managers (as defined in "Subscription and sale") with the principal amount
of the notes purchased by the managers, and (ii) ownership of interests in the
DTC global certificate will be shown on, and the transfer of that ownership will
be effected only through, records maintained by DTC, the DTC participants and
the indirect DTC participants. The laws of some jurisdictions require that
certain persons take physical delivery in definitive form of securities, which
they own. Consequently, the ability to transfer beneficial interests in the DTC
global certificate is limited to such context.
CBL
CBL is incorporated under the laws of Luxembourg. CBL holds securities for
its participating organizations and facilitates the clearance and settlement of
securities transactions between CBL participants through electronic book-entry
changes in accounts of CBL participants, thereby eliminating the need for
physical movement of certificates. Transactions may be settled in CBL in various
currencies, including Euros. CBL provides to CBL participants, among other
things, services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing. CBL
interfaces with domestic markets in several countries. As a professional
depositary, CBL is subject to regulation by the Luxembourg Monetary Institute.
CBL participants are recognized financial institutions around the world,
including managers, securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations and may include the
managers. Indirect access to CBL is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a CBL participant either directly or indirectly. Distributions
with respect to notes held beneficially through CBL will be credited to cash
accounts of CBL participants in accordance with its rules and procedures.
Euroclear
Euroclear was created in 1968 to hold securities for participants of
Euroclear and to clear and settle transactions between Euroclear participants
through simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of certificates and any risk from
lack of simultaneous transfers of securities and cash. Transactions may be
settled in various currencies, including euro. Euroclear includes various other
services, including securities lending and borrowing, and interfaces with
domestic markets in several countries. Euroclear is operated by Euroclear Bank
S.A./N.V. (the "Euroclear operator"). All operations are conducted by the
Euroclear operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear operator. Euroclear
participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
managers. Indirect access to Euroclear is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear participant,
either directly or indirectly.
The Euroclear operator is regulated and examined by the Belgian Banking
Commission.
69
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System, and applicable Belgian
law (collectively, the "Euroclear terms and conditions"). The Euroclear terms
and conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments with
respect to securities in Euroclear. All securities in Euroclear are held on a
fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear operator acts under the Euroclear
terms and conditions only on behalf of Euroclear participants, and has no record
of or relationship with persons holding through Euroclear participants.
Distributions with respect to notes held beneficially through Euroclear
will be credited to the cash accounts of Euroclear participants in accordance
with the Euroclear terms and conditions, to the extent received by the Euroclear
operator.
Global clearance and settlement procedures
Primary market
Customary settlement procedures will be followed for participants of each
system at initial settlement. Settlement procedures applicable to the domestic
United States dollar market will be followed for primary market purchasers which
are participants in DTC, and notes will be credited to their securities accounts
on the settlement date against payment in U.S. dollars in same-day funds.
Settlement procedures applicable to conventional eurobonds in registered form
will be followed for primary market purchasers which are Euroclear or CBL
participants, and notes will be credited to their securities accounts on the
business day following the settlement date against payments for value on the
settlement date.
Secondary market
Secondary market trading between DTC participants will occur in the
ordinary way in accordance with DTC rules and will be settled in immediately
available funds using DTC's same-day funds settlement system. Secondary market
trading between Euroclear and CBL participants will occur in the ordinary way in
accordance with the applicable rules and operating procedures of Euroclear and
CBL and will be settled using the procedures applicable to conventional
eurobonds in immediately available funds.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Euroclear or
CBL, on the other, will be effected in DTC in accordance with DTC rules on
behalf of the relevant European clearing system by its U.S. depositary; however,
such cross-market transactions will require delivery of instructions to the
relevant European clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines.
The relevant European clearing system will, if a transaction meets its
settlement requirements, deliver instructions to its U.S. depositary to take
action to effect final settlement on its behalf by delivering or receiving notes
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear and CBL participants may
not deliver instructions directly to the U.S. depositaries of their respective
clearing systems.
Because of time zone differences, credits of notes received in Euroclear or
CBL as a result of a transaction with a DTC participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such notes settled
during such processing will be reported to the relevant Euroclear or CBL
participants on such business day. Cash received in Euroclear or CBL as a result
of sales of notes by or through a Euroclear or CBL participant to a DTC
participant will be received with value on the DTC settlement date but will be
available in the relevant Euroclear or CBL cash account only as of the business
day following settlement in DTC.
70
CURRENCY CONVERSION RATES
The following table sets forth, for the periods indicated, certain
information concerning the exchange rates between Euros and U.S. dollars based
on the noon buying rates in The City of New York for cable transfers in Euros,
as certified for customs purposes by the Federal Reserve Bank of New York (the
"Noon Buying Rates" and each a "Noon Buying Rate"):
Period End (1) Average (1)
-------------- -----------
($ per EUR1.00)
1999...................... 1.0070 1.0653
2000...................... 0.9388 0.9232
2001...................... 0.8901 0.8952
2002...................... 1.0485 0.9454
2003...................... 1.2597 1.1315
2004...................... 1.3538 1.2438
- -------------
(1) The Noon Buying Rates at each period end and with respect to the average
for each period differed from the exchange rates used in the preparation of
the our financial statements. Source:
http://www.federalreserve.gov/releases/g5a/,
http://www.federalreserve.gov/releases/G5/ and
http://www.federalreserve.gov/releases/h10/Hist/dat00_eu.txt.
Monthly Average Exchange Rates
Euro to U.S. Dollar (1)
2003 January........................1.0622
February.......................1.0785
March..........................1.0797
April..........................1.0862
May............................1.1556
June...........................1.1674
July...........................1.1365
August.........................1.1155
September......................1.1267
October........................1.1714
November.......................1.1710
December.......................1.2298
2004 January........................1.2638
February.......................1.2640
March..........................1.2261
April..........................1.1989
May............................1.2000
June...........................1.2146
July...........................1.2266
August.........................1.2191
September......................1.2224
October........................1.2507
November.......................1.2997
December.......................1.3406
- -------------------
(1) Source: Federal Reserve Bank of New York, Federal Reserve Statistical
Release, Foreign Exchange Rates (monthly),
http://www.federalreserve.gov/releases/G5/
On January 1, 1999, Austria, Belgium, Finland, France, Germany, Ireland,
Italy, Luxembourg, The Netherlands, Portugal and Spain (the "participating
states") commenced a new stage of economic and monetary union and introduced a
single currency, the Euro, in substitution for their prior currencies. Greece
adopted the Euro as its legal currency effective January 1, 2001. Bills and
coins in Euros were circulated for the first time on January 1, 2002. On January
7, 2005, the Noon Buying Rate between the Euro and U.S. dollar was EUR 1.00 =
U.S. $1.3187.
The conversion rates between the former currencies of each participating
state and the Euro were fixed irrevocably by the Council of the European Union
on December 31, 1998. The prior currency of
71
Germany, the Deutsche Mark or DM, had a fixed value relative to the Euro of EUR
1.00 = DM 1.95583. Information for periods prior to January 1, 1999 contained in
certain sections of this Offering Circular was originally prepared in Deutsche
Mark. In these sections, the Euro amounts for these periods have been calculated
on the basis of the official fixed conversion rate of EUR 1.00 = DM 1.95583. The
use of this conversion rate for periods prior to January 1, 1999 does not take
into account the value of the Deutsche Mark before January 1, 1999, which may
have been different than on that date.
No representation is made that the Deutsche Mark, Euro or U.S. dollar
amounts referred to herein could have been or could be converted into Deutsche
Mark, Euro or U.S. dollars, as the case may be, at any particular rate.
There are, except in limited embargo circumstances, no legal restrictions
in the Federal Republic of Germany on international capital movements and
foreign exchange transactions. However, for statistical purposes only, every
individual or corporation residing in the Federal Republic of Germany must
report to the Federal Central Bank (Deutsche Bundesbank), subject to a number of
exceptions, any payment received from or made to an individual or a corporation
resident outside of the Federal Republic of Germany if such payment exceeds
EUR12,500 (or the equivalent in a foreign currency).
72
FEDERAL REPUBLIC OF GERMANY TAXATION
The following is a general discussion of certain German tax consequences of
the acquisition and ownership of the notes offered by us. This discussion does
not purport to be a comprehensive description of all tax considerations that may
be relevant to a decision to purchase the notes. In particular, this discussion
does not consider any specific facts or circumstances that may apply to a
particular purchaser. This summary is based on the laws of Germany currently in
force and as applied on the date of this Prospectus, which are subject to
change, possibly with retroactive effect.
Prospective purchasers of the notes are advised to consult their own tax
advisors as to the tax consequences of the purchase, ownership and disposition
of the notes, including the effect of any state or local taxes, under the tax
laws of Germany and each country of which they are residents.
Tax Residents
Payments of interest on the notes, including interest having accrued up to
the sale of the notes and credited separately ("Accrued Interest", Stuckzinsen)
to persons who are tax residents of Germany (i.e., persons whose residence,
habitual abode, statutory seat, or place of effective management and control is
located in Germany) are subject to German personal or corporate income tax (plus
solidarity surcharge (Solidaritatszuschlag) at a rate of 5.5% thereon). Such
interest is also subject to trade tax if the notes form part of the assets of a
German business. Payments for Accrued Interest rendered upon the acquisition of
a note may be deducted from the note holder's income, if separately accounted
for, and may, therefore, reduce such note holder's personal income tax
liability. Corresponding to such reduction, however, the note holder will be
taxable in respect of interest payments that accrued when the note holder was
not actually holding the note to the extent such interest is paid to the note
holder.
In case, upon maturity of the notes, the initial subscriber to the notes
derives, in addition to, or, as in the case of zero coupon securities, instead
of the current interest on the notes, taxable investment income in an amount
equal to the difference between the issue price of the notes and the redemption
amount ("Original Issue Discount"), in the case of notes held as non-business
assets, however, only if the Original Issue Discount exceeds certain thresholds.
Provided that the notes can be classified as a financial innovation
(Finanzinnovation) under German tax law (including zero coupon securities,
floating rate securities or discounted securities), and are purchased or
disposed of while outstanding, or redeemed at maturity, the Original Issue
Discount (provided the holder of the note gives proof of the applicable yield to
maturity) to the extent attributable to the period over which the holder has
held the notes minus interest, including Accrued Interest, already taken into
account or, alternatively, the difference between the proceeds from the
disposition, assignment or redemption and the purchase price is subject to
personal or corporate income tax in the year of the disposition, assignment or
maturity of the notes. If, however the notes form part of the assets of a German
business, in each year the part of the Original Issue Discount attributable to
such year as well as interest accrued must be taken into account proportionately
as interest income and may also be subject to trade tax. Where the notes are
expressed in a currency other than the Euro, the difference referred to in the
sentence before the immediately preceding sentence is first computed as the
difference between the foreign currency denominated proceeds and the
foreign-currency denominated price and then translated into Euros.
In case the notes are not considered as financial innovations, capital
gains from the disposition of the notes, other than income from Original Issue
Discount exceeding certain thresholds, as defined above, are only taxable to a
German tax-resident individual if the notes are disposed of within one year
after their acquisition or form part of the assets of a German business, in
which case the capital gains may also be subject to trade tax. Capital gains
derived by German-resident corporate holders of notes will be subject to
corporate income tax (plus solidarity surcharge at a rate of 5.5% thereon) and
trade tax.
73
If the notes are held in a custodial account that the note holder maintains
with a German branch of a financial or financial services institution (the
"Disbursing Agent") a 30% withholding tax on interest payments (Zinsabschlag),
plus 5.5% solidarity surcharge on such tax, will be levied, resulting in a total
tax charge of 31.65% of the gross interest payment. Withholding tax is also
imposed on Accrued Interest.
If the notes qualify as financial innovations and are kept in a custodial
account, which the note holder maintains with a Disbursing Agent such Agent will
generally withhold tax at a rate of 30% (plus solidarity surcharge at a rate of
5.5% thereon) from interest payments, Accrued Interest as well as from the
positive difference between the redemption amount or proceeds from the
disposition or assignment and the issue or purchase price of the notes if the
notes have been kept in a custodial account with such Agent since the time of
issuance or acquisition, respectively, and will first compute such difference,
where the notes are expressed in a currency other than the Euro, as the
difference between the foreign-currency denominated proceeds and the
foreign-currency denominated price and will then translate such difference into
Euros. If the notes have not been kept in the custodial account since their
issuance or acquisition the 30% withholding tax is applied to 30% of the amounts
paid in partial or final redemption of the notes or the proceeds from the
disposition or assignment of the notes, respectively.
In computing the tax to be withheld the Disbursing Agent may deduct from
the basis of the withholding tax any Accrued Interest paid by the holder of the
notes to the Disbursing Agent during the same calendar year. In general, no
withholding tax will be levied if the holder of the notes is an individual (i)
whose notes do not form part of the assets of a German business nor gives rise
to income from the letting and leasing of property, and (ii) who filed an
exemption certificate (Freistellungsauftrag) with the Disbursing Agent but only
to the extent the interest income derived from the notes together with other
investment income does not exceed the maximum exemption amount shown on the
exemption certificate. Similarly, no withholding tax is deducted if the holder
of the notes has submitted to the Disbursing Agent a certificate of
non-assessment (Nichtveranlagungsbescheinigung) issued by the relevant local tax
office.
If the notes are not kept in a custodial account with a Disbursing Agent
the withholding tax will apply at a rate of 35% of the gross amount of interest
paid by a Disbursing Agent upon presentation of a coupon (whether or not
presented with the notes to which it appertains) to a holder of such coupon
(other than a non-German financial or financial services institution). In this
case proceeds from the disposition or redemption of a coupon, and if the notes
qualify as financial innovations 30% of the proceeds from the disposition,
assignment or redemption of the notes, will also be subject to withholding tax
at a rate of 35%. Where the 35% withholding tax applies no Accrued Interest paid
can be taken into account in determining the withholding tax base. Again
solidarity surcharge at a rate of 5.5% of the withholding tax applies so that
the total tax burden to be withheld is 36.925%.
Withholding tax and solidarity surcharge thereon are credited as
prepayments against the German personal or corporate income tax and the
solidarity surcharge liability of the German resident. Amounts overwithheld will
entitle the note holder to a refund, based on an assessment to tax.
Nonresidents
Interest, including Accrued Interest and Original Issue Discount, and
capital gains derived by persons who are not tax residents of Germany are not
subject to German taxation, unless (i) the notes form part of the business
assets of a permanent establishment, including a permanent representative, or a
fixed base maintained in Germany by the note holder or (ii) the interest income
otherwise constitutes income taxable in Germany (such as income from the letting
and leasing of certain German property). In the latter case, a tax regime
similar to that explained above under the heading "-- Tax Residents" applies;
capital gains from the disposition of notes are, however, only taxable in the
case of (i), unless the notes are considered financial innovations.
Nonresidents of Germany are, in general, exempt from German withholding tax
on interest and solidarity surcharge thereon. However, where the interest is
subject to German taxation as set forth in the
74
preceding paragraph and the notes are held in a custodial account with a
Disbursing Agent, withholding tax is levied as explained above under the heading
"-- Tax Residents". In case the notes are not kept in a custodial account with a
Disbursing Agent and interest or proceeds from the disposition, assignment or
redemption of the notes or coupons are paid by a Disbursing Agent to a
nonresident for tax purposes, the withholding tax will apply at a rate of 35% as
explained above at "--Tax Residents". The withholding tax may be refunded based
upon an applicable double tax treaty.
Inheritance and Gift Tax
No inheritance or gift taxes with respect to any of the notes will arise
under the laws of Germany, if, in the case of inheritance tax, neither the
decedent nor the beneficiary, or, in the case of gift tax, neither the donor nor
the donee, is a resident of Germany and such notes are not attributable to a
German business for which a permanent establishment is maintained, or a
permanent representative has been appointed, in Germany. Exceptions from this
rule apply to certain German expatriates.
Other Taxes
No stamp, issue, registration or similar taxes or duties will be payable in
Germany in connection with the issuance, delivery or execution of the notes.
Currently, net assets tax (Vermogensteuer) is not levied in Germany.
EU Savings Directive
On June 3, 2003, the EU Council adopted a directive regarding the taxation
of interest income. Under this directive, each EU Member State must require
paying agents (within the meaning of the directive) established within its
territory to provide to the competent authority of this state details of the
payment of interest made to individuals who are residents of a EU Member State
and are the beneficial owners of the interest. Such competent authority is then
required to communicate this information to the competent authority of the EU
Member State of which the beneficial owner of the interest is a resident. During
a transitional period, Austria, Belgium and Luxembourg may, instead of complying
with such information exchange, opt to withhold tax from interest payments
within the meaning of the directive at a rate of 15% starting from July 1, 2005,
of 20% from July 1, 2008 and 35% from July 1, 2011. If the application of the
provisions of the directive is delayed, these dates will be postponed
accordingly.
The EU Member States must apply the respective provisions implementing the
directive from July 1, 2005, provided that agreements on exchange of information
or tax matters with certain states that are not members of the EU are
implemented. It is presently not possible to predict when the provisions
implementing the directive will be applicable.
Holders should note that, if this directive is applicable, we will not pay
additional amounts under the terms and conditions of the notes in respect of any
withholding tax imposed as a result thereof.
Substitution of the Issuer
It is possible that a substitution of the Issuer by another company as
principal debtor in respect of the notes could lead to gain equal to the
difference between the fair market value of the notes as of the date of the
substitution and the relevant acquisition cost of the notes, which would be
subject to the same rules applicable to a disposition of the notes (discussed
above). In the event that such a substitution results in the recognition of
taxable income or gain to any holder, neither the issuer nor the substitute
obligor will be required to indemnify a holder for any income tax or tax
incurred by such holder as a result of such a substitution, except for any stamp
duties that might be imposed (see "Description of the Notes--Substitution of
L-Bank"). Holders should consult their own tax advisers regarding the possible
tax consequences of a substitution of the Issuer including any tax consequences
arising in any other taxing jurisdiction.
75
UNITED STATES TAXATION
The following discussion is a general summary of the material U.S. federal
income tax consequences of the purchase, ownership and disposition of the notes
by U.S. holders (as defined below). The summary is based on the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury regulations, rulings, judicial
decisions, and administrative pronouncements, all as in effect as of the date
hereof, and all of which are subject to change or changes in interpretation,
possibly on a retroactive basis. Except as specifically set forth below, this
summary addresses only notes purchased by holders in this offering at their
issue price and held as capital assets within the meaning of Section 1221 of the
Code. The "issue price" of a note will equal the first price to the public (not
including bond houses, brokers or similar persons or organizations acting in the
capacity of underwriters, placement agents or wholesalers) at which a
substantial amount of the notes is sold for money.
This summary does not discuss all of the tax consequences that may be
relevant to holders in light of their particular circumstances or to holders
subject to special tax rules, including U.S. expatriates, insurance companies,
tax-exempt institutions or investors, financial institutions, persons subject to
the alternative minimum tax, dealers in securities or foreign currencies,
traders who have elected "mark-to-market" treatment, investors that actually or
constructively own 10% or more of the voting stock or outstanding share capital
of the Company, persons holding their notes as part of a short sale, straddle,
hedging transaction, conversion transaction or other integrated transaction, or
U.S. holders whose functional currency is not the U.S. dollar. Such holders may
be subject to U.S. federal income tax consequences different from those set
forth below.
As used herein, the term "U.S. holder" means a beneficial owner of notes
that is (a) an individual citizen or resident of the United States for U.S.
federal income tax purposes, (b) a corporation or other entity created or
organized in or under the laws of the United States or any state thereof
(including the District of Columbia), (c) an estate whose income is subject to
U.S. federal income taxation regardless of its source, or (d) a trust if a court
within the United States can exercise primary supervision over the
administration of the trust and one or more U.S. persons are authorized to
control all substantial decisions of the trust.
As used herein, the term "non-U.S. holder" means a beneficial owner of
notes that, for U.S. federal income tax purposes, is a foreign corporation, a
non-resident alien individual, a non-resident alien fiduciary of a foreign
estate or trust, or a foreign partnership or other entity one or more of the
members of which is, for U.S. federal income tax purposes, a foreign
corporation, a non-resident alien individual or a non-resident alien fiduciary
of a foreign estate or trust.
If a partnership holds notes, the tax treatment of a partner generally will
depend upon the status of the partner and the activities of the partnership. If
a U.S. holder is a partner in a partnership that holds notes, the holder is
urged to consult its own tax advisor regarding the specific tax consequences of
the purchase, ownership and disposition of the notes.
Holders should consult their own tax advisors regarding the specific U.S.
federal, state, local and foreign tax consequences of acquiring, owning and
disposing of notes in light of their particular circumstances, as well as any
consequences arising under the laws of any other taxing jurisdiction.
U.S. Holders
Interest
The gross amount of interest paid on a note will be includible in the gross
income of a U.S. holder as ordinary interest income at the time the interest is
received or accrued, in accordance with the U.S. holder's method of accounting
for U.S. federal income tax purposes.
76
The interest income received by a U.S. holder will be income from sources
outside the United States, and with certain exceptions, will be treated
separately, together with other items of "passive" income or, in certain cases,
"financial services" income, for purposes of computing any foreign tax credit
allowable under U.S. federal income tax laws.
Purchase, Sale and Disposition of the notes
Upon the sale, exchange or other disposition of a note, a U.S. holder
generally will recognize gain or loss in an amount equal to the difference
between the amount realized (other than amounts attributable to accrued and
unpaid interest, which will be taxable as ordinary interest income in accordance
with the U.S. holder's method of tax accounting as described above) and the U.S.
holder's adjusted tax basis in the note. A U.S. holder's adjusted tax basis in a
note generally will equal such U.S. holder's initial investment in the note.
Such gain or loss generally will be long-term capital gain or loss if the note
was held for more than one year. In the case of a U.S. holder who is an
individual, capital gains, if any, that are recognized before January 1, 2009
are generally taxed at a maximum rate of 15% where the holder has a holding
period greater than one year. Any gain or loss recognized on a sale, exchange or
other disposition of a note, other than amounts attributable to interest,
generally will be treated as United States source income or loss. The
deductibility of capital losses is subject to limitations.
Tax Return Disclosure Requirements
A U.S. holder may be required to report a sale or other disposition of its
notes (or, in the case of an accrual basis U.S. holder, a payment of accrued
interest) on IRS Form 8886 (Reportable Transaction Disclosure Statement) if it
recognizes exchange loss that exceeds US$50,000 in a single taxable year from a
single transaction in the notes, if such U.S. holder is an individual or trust,
or higher amounts for other non-individual U.S. holders. U.S. holders are urged
to consult their tax advisors in this regard.
Non-U.S. Holders
Subject to the discussion below concerning backup withholding, payments of
principal and interest on the notes to any non-U.S. Holder will not be subject
to U.S. federal income tax, including withholding tax, unless the non-U.S.
Holder has an office or other fixed place of business in the United States to
which the payment is attributable, the payment is derived in the active conduct
of a banking, financing or other similar business within the United States or is
received by a corporation the principal business of which is trading in stock or
securities for its own account, and certain other conditions exist, or the
Holder is an insurance company carrying on a United States insurance business to
which the interest is attributable. In that event, the non-U.S. Holder will be
taxed in the same manner as if it were a United States Holder with respect to
such payments and such payments may also be subject to the branch profits tax
(described below).
A non-U.S. Holder of a note will not be subject to U.S. federal income tax
on gain realized on the sale, exchange or other disposition of such note, unless
(i) such non-U.S. Holder is an individual who is present in the United States
for 183 days or more in the taxable year of disposition, and either (a) such
individual has a "tax home" (as defined in Code Section 911(d)(3)) in the United
States (unless such gain is attributable to a fixed place of business in a
foreign country maintained by such individual and has been subject to foreign
tax of at least 10%) or (b) the gain is attributable to an office or fixed place
of business in the United States or (ii) such gain is effectively connected with
the conduct by such non-U.S. Holder of a trade or business in the United States.
In the event that clause (i) applies, such gain will generally be subject to a
30% tax. In the event that clause (ii) applies, the non-U.S. Holder will be
taxed in the same manner as if it were a United States Holder with respect to
such gain and such gain may also be subject to the branch profits tax.
The branch profits tax equals 30% (or such lower rate provided by an
applicable treaty) of a foreign corporation's effectively connected earnings and
profits for the taxable year, subject to certain adjustments. For purposes of
the branch profits tax, interest on and any gain recognized on the sale,
exchange or other
77
disposition of a note will be included in the effectively connected earnings and
profits of such non-U.S. Holder if such interest or gain, as the case may be, is
effectively connected with the conduct by the non-U.S. Holder of a trade or
business in the United States.
A note held by an individual who is not a citizen or resident (as specially
defined for estate tax purposes) of the United States at the time of his death
will not be subject to United States federal estate tax as a result of such
individual's death.
Substitution of the Issuer
It is possible that a substitution of another company as principal debtor
in respect of the notes will cause a taxable exchange for U.S. federal income
tax purposes of existing notes for new notes by the holders of the notes. Such
an exchange would require holders to recognize taxable gain or loss for U.S.
federal income tax purposes. In the event that such a substitution results in
the recognition of taxable income or gain to any holder, neither the issuer nor
the substitute obligor will be required to indemnify a holder for any tax
incurred by such holder as a result of such a substitution, except for any stamp
duties that might be imposed (see "Description of the Notes--Substitution of
L-Bank"). Holders should consult their own tax advisers regarding the possible
tax consequences of a substitution of the Issuer including any tax consequences
arising in any other taxing jurisdiction.
U.S. Information Reporting and Backup Withholding
Payments of interest on and proceeds from the sale, exchange or other
disposition of the notes will generally be subject to information reporting
requirements unless the holder qualifies as an exempt recipient such as a
corporation. Backup withholding (at a current rate of 28%) may apply to a holder
who fails to furnish a correct taxpayer identification number or any other
required certification, or who fails to report in full interest income from the
notes or dividend or interest income from stock or other securities held. U.S.
persons who are required to establish their exempt status generally must provide
a duly completed IRS Form W-9 (Request for Taxpayer Identification Number and
Certification). Non-U.S. holders generally will not be subject to U.S.
information reporting or backup withholding. However, these holders may be
required to provide certification of non-U.S. status (generally on IRS Form
W-8BEN) in connection with payments received in the United States or through
certain U.S.-related financial intermediaries. Holders should consult their own
tax advisors regarding the application of the information and backup withholding
rules.
Backup withholding is not an additional tax. Amounts withheld as backup
withholding may be credited against a holder's U.S. federal income tax
liability. A holder may obtain a refund of any excess amounts withheld under the
backup withholding rules by filing the appropriate claim for refund with the IRS
and furnishing any required information.
78
SUMMARY OF CERTAIN DIFFERENCES BETWEEN GENERALLY ACCEPTED
GERMAN AND UNITED STATES ACCOUNTING PRINCIPLES
Our audited financial statements for the years ended December 31, 2003,
2002 and 2001 have been prepared in accordance with generally accepted
accounting standards in Germany ("German GAAP") (see "Regulation and Supervision
of L-Bank in the Federal Republic of Germany--Financial Statements and Audits"),
which emphasize the concept of "prudence" (Vorsichtsprinzip) in the presentation
of the financial statements in order to protect the interest of creditors in
general. Our financial statements are not prepared in accordance with the
accounting and financial reporting practices followed in the United States and
have not been prepared in accordance with the accounting rules and regulations
adopted by the Securities and Exchange Commission under the Securities Act of
1933. As a result, our financial statements included in this Prospectus may
differ substantially from financial statements prepared in accordance with
accounting principles generally accepted and financial reporting practices
followed in the United States ("U.S. GAAP").
The matters described below summarize certain differences between German
GAAP and U.S. GAAP at December 31, 2003 and as of the date of this Prospectus
that may be material in the context of our financial statements. We are not
required to prepare and have not prepared any reconciliation of our financial
statements and any related footnote disclosures between German GAAP and U.S.
GAAP and have not quantified such differences. The following summary should not
be taken as exhaustive discussion of all differences. No attempt has been made
to identify all disclosures, presentation or classification differences that
would effect the manner in which transactions or events are presented in
financial statements or notes thereto. In making an investment decision,
investors must rely upon their own examination of the Company, the terms of the
offering and the financial information. Potential investors should consult their
own professional advisors for an understanding of the differences between German
GAAP and U.S. GAAP, and how those differences might affect the financial
information herein.
Financial Statements Presentation
Under German GAAP, the components of unconsolidated financial statements
are balance sheet, income statement and notes to the financial statements while
for consolidated financial statements, in addition, a statement of changes in
shareholders' equity and a cash flow statement are required. German GAAP
requires one year of comparatives. The Company is required to use a particular
balance sheet and income statement format and to address in their notes certain
disclosures in accordance with the German Commercial Code.
Under U.S. GAAP, financial statements comprise balance sheets, income
statements, statements of changes in shareholders' equity, cash flow statements
and notes to the financial statements for both unconsolidated and consolidated
financial statements. Financial statements for SEC registrants include two years
of comparatives (to the current year) for all statements except for the balance
sheet. Material components of each financial statement or line item have to be
disclosed separately and in a sufficient detail in the financial statements
including the notes to the financial statements.
Scope of Consolidation
Under German GAAP, consolidation of all majority-owned subsidiaries is
required. However, if the subsidiaries are of minor significance, the necessary
information cannot be obtained without unreasonable expense or delay and unless
the shares are held for purpose of sale or the control is temporary, German GAAP
permits excluding these subsidiaries from the consolidation. Similar
considerations apply to equity investments where significant influence is
exercised.
Under U.S. GAAP, the determination when an entity is to be consolidated has
traditionally been determined based on a voting control model and, accordingly,
all subsidiaries should be consolidated. While this model is still applicable,
new FASB Interpretation No. 46 'Consolidation of Variable Interest Entities'
("FIN 46") has broadened the scope of consolidation to include a risk and
rewards model. Variable interest
79
entities ("VIEs"), which often are special purposes entities, in which a parent
does not have a controlling voting interest but the parent absorbs the majority
of the VIE's expected losses or residual returns must also be consolidated. The
equity method of accounting is generally required for investments where the
parent company has more than 20% of the voting rights or if factors indicate
that significant influence exists.
Receivables (loans) and liabilities
Under German GAAP, receivables (loans) and liabilities are classified
according to the period after which the obligor thereof may, or may be required
to, repay in full such receivables or liabilities. The Regulation on the
Accounting Principles applied to Credit Institutions and Financial Services
Institutions (Rechnungslegungsverordnung fur Kreditinstitute und
Finanzdienstleistungsinstitute), together with ss.ss. 340 et seq. German
Commercial Code (Handelsgesetzbuch), which mainly comprise German GAAP for
credit institutions, requires that a bank classifies receivables and liabilities
on its balance sheet into short-term assets and liabilities that are payable on
demand (taglich fallig) and other assets and liabilities.
Under U.S. GAAP, financial institutions do not present so classified
balance sheets.
Property and equipment
Under German GAAP, property and equipment are reported at acquisition or
manufacturing cost, as applicable, and reduced by scheduled depreciation in
accordance with their estimated economic useful life. In practice, depreciation
is carried out on the basis of the depreciation tables issued by the Federal
Ministry of Finance. Based on the modified lower of cost or market principle,
any expected permanent impairment of property and equipment results in
additional depreciation. This additional depreciation is reversed when the
reason for the impairment no longer exists.
U.S. GAAP requires that property and equipment be carried at cost less
scheduled depreciation in accordance with the estimated economic useful life of
the asset. U.S. GAAP requires that assets be reviewed for impairment. If the sum
of the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, an impairment loss is recognized.
Such impairment losses shall not be reversed.
Investment securities
Under German GAAP, investment securities are defined in Section 7 of the
Regulation on Accounting by Credit Institutions (Verordnung uber die
Rechnungslegung der Kreditinstitute und Finanzdienstleistungsinstitute); in the
balance sheet they are disclosed under "Notes and other interest-bearing
securities" and "shares and other non interest-bearing securities." In
disclosing income and expenses, a distinction is made between securities held in
trading portfolios (Handelsbestand) and those held as liquidity reserves in the
liquidity portfolio (Liquiditatsreserve) (securities which are neither treated
as fixed assets nor held for trading purposes). In both cases the securities are
carried as current assets and are valued, for each type of security separately,
at the lower of cost or market value at the balance sheet date and included in
income.
Under U.S. GAAP, investments in equity and debt securities are classified
into the categories trading, available-for-sale or held-to-maturity (for debt
securities only). Debt securities held to maturity are carried at amortized
cost. Held to maturity and available for sale securities are subject to
(other-than-temporary) impairment tests. Trading and available-for-sale
securities are recorded at fair value and changes of trading securities in fair
value are included in the income statement. Changes in the fair value of
available-for-sale securities are included in other comprehensive income, a
separate component of equity, unless a decline in fair value is deemed to be
other-than-temporary. If the decline is other-than-temporary the loss is
included in the income statement.
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Provision for loan losses
Under German GAAP credit institutions are permitted to create loss risk
provisions that, in accordance with German law, are not disclosed.
The credit risk of the loan and securities portfolio is continuously
assessed with respect to each individual exposure. Specific provisions are
established in the loan portfolio and in the current asset securities portfolio
held as liquidity reserve by writing down the book value of each such item
according to its assessed risk (Einzelwertberichtigung). In addition, a general
provision is established for risk that is not individually identifiable but is
inherent in the loan portfolio (Pauschalwertberichtigung). Like specific
provisions, general provisions are deducted from the assets reserved against and
are therefore not shown separately on the balance sheet.
Under U.S. GAAP, general, unspecified reserves are not permitted. For loans
that are individually deemed impaired, specific reserves are determined based on
the present value of future cash flows discounted at the loan's effective
interest rate, or where the loan is collateral based on the fair value of the
collateral provided. Where available, the observable market price of the loan
can be used. U.S. GAAP requires recognition of a loss when (a) information
available prior to issuance of the financial statements indicates that it is
probable that an asset has been impaired at the date of the financial statements
and (b) the amount of the loss can be reasonably estimated, even though the
particular loans that are not collectible may not be identifiable.
Certain provisions and reserves
There are two provisions in the German Commercial Code (Handelsgesetzbuch),
which allow banks to establish reserves against general banking risks. Pursuant
to section 340g German Commercial Code banks may carry a special item called
"Fund for General Banking Risks" (Sonderposten fur allgemeine Bankrisiken) on
the liability side of their balance sheet for protection against general banking
risks. However, such a fund may only be established if, in accordance with
reasonable commercial judgment, the special risks inherent in the business of
banks require the establishment of such a fund. Any additions to the Fund for
General Banking Risks or any profits derived from its dissolution must be
reflected separately in the bank's income statement (see section 340g(2),
German Commercial Code), see "Glossary". By transferring EUR 20.1 million in
2003 L-Bank followed this rule. Funds for general banking risks established
pursuant to section 340g German Commercial Code are counted as part of core
capital.
In addition, banks may have contingency reserves for general banking risk,
which are permitted by section 340f German Commercial Code. According to this
rule, a bank may record on its balance sheet certain receivables, debt
securities and equity securities that are held as part of the "liquidity
reserve" at a lower value than that permitted for industrial and other
nonbanking corporations, if this is necessary, in accordance with reasonable
commercial judgment, to safeguard against the special risks inherent in the
business of banks. The reserves created by such recording of lower values may
not exceed four percent of the total book value of such receivables and
securities. Banks need not report in their financial statements on the creation
and dissolution of such reserves for general banking risks. With respect to
presentation in the income statement, banks are permitted to offset (without
disclosure) profits from the sale of certain securities (in the so-called
liquidity portfolio) and the revaluation of receivables (i.e., payments received
on loans previously written-off or write-backs of risk provisions) against
write-downs of the respective receivables and securities. Based on the
foregoing, we disclose the net result from movements in risk provisions and
management of the liquidity portfolio.
Besides sections 340f and 340g German Commercial Code (Handelsgesetzbuch)
there are no other possibilities for we to establish general reserves.
Assets, liabilities and pending transactions have been valued in accordance
with general provisions of
81
ss.ss. 252 et seq. of the German Commercial Code (Handelsgesetzbuch), taking
into account the special rules applying to credit institutions, ss.ss. 340e et
seq. of the German Commercial Code (Handelsgesetzbuch).
Under U.S. GAAP, provisions are only recorded when certain criteria are
met. A provision is only recognized when (a) information available prior to
issuance of the financial statements indicates that it is probable that an asset
has been impaired at the date of the financial statements and (b) the amount of
the loss can be reasonably estimated.
Derivative Instruments and Hedge Accounting
Under German GAAP, derivative instruments and embedded derivatives may be
included in a financial institution's trading book or investment book. Trading
derivatives are treated as current assets and accordingly carried at the lower
of cost or market. That is, while unrealized losses on trading derivatives are
recorded in current income, unrealized gains are not recognized. Hedge
accounting is permitted as micro-hedge, portfolio-hedge or macro-hedge (often
referred to as a gap hedge). Derivative financial instruments used for hedging
purposes are generally accounted for as off-balance-sheet transactions and, in
the case of the bank, are disclosed in notes to the financial statements.
Unrealized gains and losses of both the derivative financial instrument and
hedged items are generally not recorded on the balance sheet or in the income
statement. The related income and expense of a derivative financial instrument,
such as interest income related to interest rate swaps, is reported on a basis
consistent with the underlying hedged position pro rata temporis, often
resembling synthetic instrument accounting. Credit-default swaps in the non
trading book / investment book provided as credit risk protection are disclosed
as contingent liabilities.
Under U.S. GAAP, all derivative instruments and embedded derivatives are
recorded on the balance sheet at fair value as either assets or liabilities,
regardless of any hedge relationship that might exist. Changes in the value of
derivative instruments are recognized in the income statement as they arise,
unless they satisfy stringent criteria for hedge accounting (including
designation and high effectiveness), supported by formal documentation. The
accounting treatment of the hedging instruments as well as the hedged items
depends on the type of hedge designation (fair value hedge or cash flow hedge),
the offset being in either current income or other comprehensive income. Also
depending on the hedge designation, the carrying value of the hedged item may
need to be adjusted to offset the changes in the fair value of the hedging
derivative. Any ineffectiveness resulting from the hedge relationship is
recognized in income.
Loan origination fees
Under German GAAP, the direct costs incurred in the origination of new
loans are expensed as general administrative expense in the period incurred.
Loan origination fees received are recognized in the income statement as
commission income upon closing of the transaction unless such fees are
determined to be in lieu of interest. In that case, these fees are deferred and
recognized as interest income over the life of the loan (generally using
straight-line amortization).
U.S. GAAP requires that loan origination fees net of certain direct loan
origination costs are deferred and recognized over the life of the related loan
as an adjustment of yield using the effective interest method. Loan commitment
fees are deferred, except for certain retrospectively determined fees.
Commitment fees meeting specified criteria are recognized over the loan
commitment period; all other commitment fees shall be recognized as an
adjustment of yield over the related loan's life or, if the commitment expires
unexercised, recognized in income upon expiration of the commitment.
Pension provisions
Under German GAAP, pension obligations are determined using actuarial
principles, whereby the ongoing and future pension obligations and benefit
obligations to retired beneficiaries are determined using a certain valuation
benchmark (partial value) in line with tax regulations.
82
Under U.S. GAAP, the annual pension cost comprises the estimated cost of
benefits accruing in the period as determined in accordance with SFAS 87,
"Employers' Accounting for Pensions" which requires readjustment of the
significant actuarial assumptions annually to reflect current market and
economic conditions. Under SFAS 87, a pension asset representing the excess plan
assets over benefit obligations is disclosed and deferred in the balance sheet.
The pension benefit obligation is calculated by using a projected unit credit
method. Actuarial gains or losses within a 10% "corridor" are disclosed and can
be deferred.
Reacquired own debt securities
Under German GAAP, debt securities that are re-acquired with the intention
of resale are recorded as assets at acquisition cost, and subsequently valued at
the lower of cost or market. Gains or losses on resale of such securities are
recorded in current income.
Under U.S. GAAP, repurchased debt securities result in a reduction of
outstanding liabilities on the balance sheet, irrespective of whether the
securities are intended for resale or not. The difference between the cost of
re-acquisition and the book value of outstanding debt is recorded in current
income.
Assets and liabilities held in trust
Under German GAAP, assets and the equal liabilities held in trust are
recorded on the balance sheet. Under U.S. GAAP, these items would likely not be
recorded on the balance sheet.
Guaranties
Under German GAAP, a guarantor records an accrual and a corresponding
charge to the income statement when an enterprise has a present obligation as a
result of a past event and it is expected, based on available evidence, that
payment would have to be made to the guarantied party.
Under US GAAP, a guarantor is required to recognize, at the inception of
certain guaranties, a liability for the fair value of the obligation undertaken
in issuing the guaranty.
83
GLOSSARY
This glossary describes certain terms that are used in our financial
statements. It is not a part of our financial statements.
Cash on hand, cash at Federal Central Bank and cash in postal giro accounts
We are obligated to deposit minimum reserves with the Federal Central Bank
and other central banks pursuant to the Regulation on Minimum Reserves of
September 12, 2003 issued by the European Central Bank. Some of our deposits
with the Federal Central Bank included in this item consist of such minimum
reserves. See "--Regulation and Supervision of L-Bank in Germany--Powers of the
Federal Central Bank Affecting L-Bank's Conduct of Business."
Receivables from credit institutions
This item includes all amounts due from German and non-German banks, unless
the obligations are notes, bonds or other interest bearing securities that are
eligible for listing on a stock exchange (entered in Item 4 b)).
Receivables from customers
This item includes all amounts due from customers that are not credit
institutions, unless the obligations are notes, bonds or other interest bearing
securities that are eligible for listing on a stock exchange (entered in Item 4
b)).
This Item 3 encompasses mortgage-backed loans (Hypothekendarlehen) made by
us that meet certain requirements of the Law on Mortgage-backed Bonds and
Similar Securities Issued by Public Law Credit Institutions (Gesetz uber die
Pfandbriefe und verwandten Schuldverschreibungen offentlich-rechtlicher
Kreditanstalten). Such loans may be used as security (cover) for mortgage-backed
bonds issued by us (Hypothekenpfandbriefe). This Item 3 also includes loans to
public authorities and entities organized under public law (Kommunalkredite).
These are loans, e.g., to municipalities, counties, special purpose associations
of municipalities and counties (Zweckverband), and other entities and
associations established under German public law (Anstalten and Korperschaften),
and to member states of the European Union and their territorial subdivisions
meeting certain requirements, and loans guarantied by such entities. Such loans
may be used as security (cover) for public debt-backed bonds issued by us
(Offentliche Pfandbriefe, also referred to as Kommunalobligationen). See
"--Business--Sources of Funds."
Notes and other interest-bearing securities
This item includes interest-bearing debt securities that are eligible for
listing on a stock exchange, such as bearer securities
(Inhaberschuldverschreibungen), negotiable debt securities that are part of an
offering, and other money market instruments (such as commercial paper,
euro-notes and certificates of deposit), medium-term notes (with maturities of
generally 3-6 years) in bearer form (Kassenobligationen) and book-entry
securities (Schuldbuchforderungen). This item may include securities that are
part of the trading portfolio, securities that form part of the fixed assets
portfolio and securities that are part of the liquidity portfolio. See
"--Summary of Material Differences between Generally Accepted German and United
States Accounting Principles".
Bonds that are eligible as collateral for loans under the open-market
operations and the marginal lending facility at the European Central Bank must
be presented separately in the balance sheet (Item 4 aa, ab, ba and bb;
....eligible as collateral at the Federal Central Bank) even if they are
already serving as collateral for other obligations. Eligible securities are set
forth on a list of securities eligible as collateral maintained by the European
Central Bank. Loans under the marginal lending facility are short-term loans
extended by the
84
Federal Central Bank (acting for the European Central Bank in Germany) to banks
that are secured by collateral and usually bear interest at a rate of 1% over
the rate for open-market operations.
Bank's own notes
This item consists of securities that are eligible for listing on a stock
exchange that we issued in a public offering and later repurchased. Securities
issued that are not eligible for listing on a stock exchange and that we
repurchased are deducted from Item 3 a) on the liabilities side of the Balance
Sheet.
Shares and other non-interest-bearing securities
This item includes shares that are not contained in Items 6 or 7. It also
includes profit participation rights (Genussscheine) that are bearer or
negotiable instruments and that are eligible for listing on a stock exchange,
and all other non-interest-bearing securities that are listed on a stock
exchange. This item principally contains investment shares that are part of our
fixed assets portfolio. See "--Summary of Material Differences between Generally
Accepted German and United States Accounting Principles".
Equity investments in non-affiliated companies; equity investments in affiliated
companies
An "equity investment" (Beteiligung), as defined in ss. 271(1) of the
German Commercial Code (Handelsgesetzbuch), is a direct or indirect equity
interest in another company that we intend to hold on a long-term basis in order
to establish a permanent relationship that contributes to our business. Equity
interests of 20% or more are subject to a rebuttable presumption that they are
Beteiligungen.
"Non-affiliated companies" are companies that do not fulfill the definition
of "affiliated companies". "Affiliated companies" (verbundene Unternehmen)
within the meaning of ss. 271(2) of the German Commercial Code
(Handelsgesetzbuch) are companies (i) that are wholly or more than 50%-owned, or
otherwise controlled, by us, (ii) our interest in which is characterized as an
equity investment (Beteiligung) and (iii) which must be fully consolidated with
us in accordance with ss. 290 of the German Commercial Code (Handelsgesetzbuch).
Thus, our investments in all affiliated companies are Beteiligungen.
A Beteiligung can be an investment (i) in an affiliated company or (ii) in
a company that is not an affiliated company if the conditions of ss. 271(1) of
the equity investment in the German Commercial Code (Handelsgesetzbuch) are met.
Item 6 refers to equity investments in companies that are not affiliated
companies, whereas Item 7 refers to equity investments in affiliated companies.
A credit institution (Kreditinstitut) is defined in ss. 1(1), KWG which
enumerates certain activities as banking activities and provides that any
enterprise engaging in one or more of such banking activities commercially or on
a scale that requires a commercially organized business operation requires a
license pursuant to ss. 32(1), sentence 1, KWG.
A financial services institution (Finanzdienstleistungsinstitut) is defined
in ss. 1(1a), KWG which enumerates certain activities as financial service
activities and provides that any enterprise other than a credit institution
engaging in one or more of such financial service activities commercially or on
a scale that requires a commercially organized business operation requires a
license pursuant to section 32(1), sentence 1, KWG.
Companies in which a company owns at least 20 % of the capital must be
listed pursuant to ss. 285 No. 11 of the German Commercial Code
(Handelsgesetzbuch) in the Notes to Financial Statements. Such Notes indicate
which of the companies listed pursuant to ss. 285 No. 11 of the German
Commercial Code (Handelsgesetzbuch) are affiliated companies.
Fiduciary assets; fiduciary liabilities
The major portions of "fiduciary assets" and "fiduciary liabilities"
consist of fiduciary loans, which are loans made by us in our name but on behalf
of other entities with funds entirely supplied by, and for a
85
purpose and on terms specified by, such other entities. Our liability in
connection with fiduciary loans is limited to our duties as trustee of the other
entities' funds, and we bear no credit risks with respect to fiduciary loans.
See "--General--Introduction", and "--Business--Loan Portfolio Risks." An equal
amount appears under fiduciary loans on both the assets and the liabilities side
of our Balance Sheet.
Administrative loans, which are loans made by us in the name of other
entities on behalf of and at the sole direction of such entities using funds
entirely supplied by such entities, do not appear on our Balance Sheet. See
"--General--Introduction" and "--Business--Loan Portfolio Risks."
Tangible assets
This item includes land and buildings used by us for our business
activities and furniture and office equipment.
Liabilities to credit institutions
This item includes all kinds of liabilities to German and non-German credit
institutions, unless the liabilities are certificated liabilities (which are
included in Item 3 on the liabilities side). This item includes, among others,
registered debt securities (Namensschuldverschreibungen), negotiable debt
securities that are not part of an offering, registered money market
instruments, registered mortgage-backed bonds (Hypothekennamenspfandbriefe) and
obligations arising out of securities transactions or arising out of settlement
accounts and obligations arising from bills of exchange (drafts) sold by us for
which we have not received any payments from customers. This item also includes
medium or long term loans evidenced by non-negotiable promissory notes placed
with investors by credit institutions (Schuldscheindarlehen).
Liabilities to customers
This item includes all kind of liabilities to German and non-German
customers other than credit institutions, unless these obligations are
certificated liabilities (which are included in Item 3 on the liabilities side).
This item includes, among others, registered debt securities, negotiable debt
securities that are not part of an offering, registered mortgage-backed bonds
(Hypothekennamenspfandbriefe) and registered money market instruments. This item
also includes non-negotiable promissory notes placed with investors
(Schuldscheindarlehen).
Certificated liabilities
Certificated liabilities are debt obligations that are evidenced by a
transferable certificate other than a certificate registered in the name of the
holder. "Notes and bonds issued" are bearer debt securities
(Inhaberschuldverschreibungen) and negotiable debt securities that are part of
an offering, in each case irrespective of whether they are eligible for listing
on a stock exchange or not. Debt securities issued by us that are not eligible
for listing on a stock exchange and that were repurchased by us are deducted
from Item 3 a) on the liabilities side of our Balance Sheet. "Money market
securities" are bearer debt securities, and negotiable debt securities that are
part of an offering, irrespective of whether they are eligible for listing on a
stock exchange.
For a description of the types, amounts and maturities of, and interest
rates on, bonds and notes issued by us, see "--Business--Sources of Funds" and
"Financial Section--Supplementary Information on Debt of L-Bank."
Other liabilities
This item includes, among other things, equalization for exchange rate
differences, financial liabilities in swap transactions and premiums on the sale
of options.
86
Deferred items
This item consists of interest subsidies (the entire amount of subsidized
interest over the life of a subsidized loan) received from Baden-Wurttemberg,
the Federal Republic of Germany, the European Union or other public authorities.
On each interest payment date for any particular subsidized loan, an amount
equal to the subsidized portion of the interest, to the extent not debited from
an interest support reserve, is taken into income under income Item 1 on the
statement of income. See "--Contingency reserves" and "--Business--Reserves for
Interest Subsidies." Besides that, this item consists of deferred income in
connection with our own securities issues and our lending business, in each case
not yet taken into income on a pro rata basis.
Contingency reserves
This item includes reserves for pensions and similar obligations (Item 7
a)), reserves for taxes (Item 7 b)) and other reserves (Item 7 c)). The amount
to be accrued for our pension liabilities each year is the present value of
future payments computed by an actuarial method using a 6 % rate of discount.
The other reserves consist in large part of a reserve for interest
subsidies (the entire amount required over the course of a subsidized loan to
cover the difference between the actual interest payable by the borrower and the
yield from a market based interest rate) to the extent not covered by funds
supplied by Baden-Wurttemberg, the Federal Republic of Germany or the European
Union. On each interest payment date for any particular subsidized loan, an
amount equal to the subsidized portion of the interest, to the extent not taken
into income from deferred income, is debited from the reserve and credited to
income under income Item 1 on the statement of income. Expenses item
"Allocations to reserves for interest rate reductions" on the statement of
income indicates the net cost of interest rate subsidies. See "--Deferred items"
and "--Business--Reserves for Interest Subsidies."
The remaining amount of other reserves relates, among other things, to
reserves for contingent liabilities arising from export and other guaranties and
from swap and other option transactions, and liabilities in connection with an
obligation to grant early retirement benefits to staff members.
Fund for general bank risks
Funds for General Banking Risks pursuant to ss. 340g, German Commercial
Code are counted as part of core capital. Under that provision, banks may carry
a special item called "Fund for general bank risks" (Sonderposten fur allgemeine
Bankrisiken) on the liabilities side of their balance sheet for protection
against general banking risks. However, such a fund may only be established if,
in accordance with reasonable commercial judgment, the special risks inherent in
the business of banks require the establishment of such a fund. Any additions to
the Fund for general bank risks or any profits derived from its dissolution must
be reflected separately in the bank's income statement. See "--Regulation and
Supervision of L-Bank in Germany--The Banking Act and Banking Regulation by the
Federal Supervisory Authority for Financial Services."
Equity
See "--Capitalization."
Retained profit and reserves
We are not subject to any legal obligation or any obligation provided for
in the L-Bank Statutes to establish retained earnings reserves.
87
Contingent liabilities relating to negotiated cleared bills of exchange
This item includes contingent liabilities relating to negotiated cleared
bills of exchange settled with customers. It does not include liabilities in
connection with instruments deposited with the Federal Central Bank as
collateral for the marginal lending facility or open market operations.
Liabilities relating to guaranties and indemnity agreements
This item includes contingent liabilities in respect of guaranties, credit
default swaps, guaranties on bills of exchange, check guaranties and indemnity
agreements.
Depreciation and accumulated amortization on receivables and certain securities,
together with allowances for possible loan losses
This item represents depreciation and valuation adjustments on loans and
certain securities in accordance with ss. 340f(3) German Commercial Code
(Handelsgesetzbuch). See also "--Business--Loan and Securities Loss Reserves."
Depreciation and accumulated amortization on equity investments in
non-affiliated companies, affiliated companies and securities treated as fixed
assets; income from additions to equity investments in non-affiliated companies,
affiliated companies and securities treated as fixed assets
This item represents in accordance with ss. 340c(2) German Commercial Code
(Handelsgesetzbuch) the net expense or income from write-downs or write-ups,
respectively, on investment holdings (equity investments in affiliated and
non-affiliated companies and securities that form part of the fixed assets
portfolio; see "--Equity investments in non-affiliated companies; equity
investments in affiliated companies," "--Notes and other interest-bearing
securities" and "--Shares and other non-interest-bearing securities").
Allocations to reserves for interest rate reductions
This item represents our net cost of interest rate subsidies. See
"--Contingency reserves" and "--Business--Reserves for Interest Subsidies."
Derivative Transaction
Derivative transactions are primarily concluded in order to control
interest rate exposure; they are not valued for balance sheet purposes due to
the fact that under German GAAP derivative transactions are off-balance sheet
transactions (they are however valued for risk managing and risk monitoring
purposes). Derivative transactions are also concluded in order to hedge balance
sheet items in trading books of a bank, and furthermore a bank can trade
derivatives on its own account. Such derivative transactions are valued for the
purpose of the balance sheet of a bank. Market values for those derivatives are
based on interest rates prevailing on the last day of the year on which there is
a liquid market. Where transactions are concluded for hedging purposes in a
trading book, they are valued together with the relevant balance sheet items,
creating a net position.
88
PLAN OF DISTRIBUTION
Citigroup Global Markets Limited ("Citigroup") will, pursuant to a
subscription agreement expected to be dated o, 2005 (the "subscription
agreement"), agree with us to subscribe and pay for the aggregate principal
amount of the notes at o% of their principal amount less a combined commission
of o% of such principal amount. Under the terms and conditions of the
subscription agreement, Citigroup will be committed to take and pay for all of
the notes, if any are taken. We may agree to bear certain costs and expenses
incurred by Citigroup in connection with the issue, subscription and offering of
the notes. Citigroup proposes to offer the notes to the public at the initial
public offering price set forth on the cover page of this Prospectus through one
or more of its affiliates. After the initial public offering, the price to
public and concession may be changed.
The notes will be offered for sale in those jurisdictions in the United
States, Europe, Asia and elsewhere where it is legal to make such offers.
Citigroup will agree that it will comply with all applicable securities
laws and regulations in force in any jurisdiction in which it purchases, offers,
sells or delivers notes or possesses or distributes this Prospectus and will
obtain any consent, approval or permission required by it for the purchase,
offer, sale or delivery by it of notes under the laws and regulations in force
in any jurisdiction to which it is subject or in which it makes such purchases,
offers, sales or deliveries and we shall have no responsibility therefore.
Citigroup will agree not to offer or sell notes in Germany other than in
compliance with the Securities Selling Prospectus Act
(Wertpapier-Verkaufsprospektgesetz) of September 9, 1998 (as amended), or any
other laws applicable in Germany governing the issue, offering and sale of
securities. Citigroup will acknowledge the fact that no selling prospectus
(Verkaufsprospekt) within the meaning of the Securities Selling Prospectus
Act has been or will be registered or published in the Federal Republic of
Germany.
Citigroup will represent and agree that:
(i) it has not offered or sold and, prior to the expiry of a period of six
months from the closing date, will not offer or sell any such notes
to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and
will not result in an offer to the public in the United Kingdom within
the meaning of the Public Offers of Securities Regulations 1995 (as
amended) or the Financial Services and Markets Act 2000 (the "FSMA");
(ii) it has only communicated or caused to be communicated and will only
communicate or cause to be communicated any invitation or inducement
to engage in investment activity (within the meaning of section 21 of
the FSMA) received by it in connection with the issue or sale of the
notes in circumstances in which section 21(1) of the FSMA does not
apply to us; and
(iii) it has complied and will comply with all applicable provisions of
Part VI of the FSMA with respect to anything done by it in relation to
such notes in, from or otherwise involving the United Kingdom.
Citigroup is not registered as broker-dealer under section 15 of the
Exchange Act, and has agreed that, in connection with the Offering, no person
will offer or sell any notes in, or to persons who are nationals or residents of
the United States, other than through a United States registered broker-dealer,
which may be its
89
affiliate.
Citigroup will acknowledge that (other than in the United States of
America) no action has been or will be taken in any jurisdiction by the managers
or us that would permit a public offering of the notes, or possession or
distribution of any of the disclosure documents (as defined in the subscription
agreement) or any other offering material, in any jurisdiction where action for
those purposes is required. Citigroup will comply with all applicable laws in
each jurisdiction in which it purchases, offers, sells or delivers notes or has
in its possession or distributes any disclosure document or any other offering
material.
The subscription agreement will provide that the obligations of Citigroup
are subject to certain conditions, including approval of certain legal matters
by counsel. In addition, Citigroup may, after consultation with us, terminate
the subscription agreement at any time prior to the payment of the purchase
price if there shall have been such a change in national or international
financial, political or economic conditions or currency exchange rates or
exchange controls as would in their view be likely to prejudice materially the
success of the offering and distribution of the notes or dealing in the notes in
the secondary market.
The notes are a new issue of securities with no established trading market.
We have been advised by Citigroup that Citigroup and an affiliate that is a
United States registered broker-dealer intend to make a market in the notes.
Citigroup and such affiliate will agree to do so but may discontinue market
making at any time. No assurance can be given as to the liquidity of the trading
market for the notes.
In connection with this offering of notes, Citigroup or its affiliates may
purchase and sell the notes in the open market. These transactions may include
short sales, stabilizing transactions and purchases to cover positions created
by short sales. Short sales involve the sale by Citigroup or its affiliates of a
greater number of the notes than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the notes
while the offering is in progress.
These activities by Citigroup or its affiliates may stabilize, maintain or
otherwise affect the market price of the notes. As a result, the price of the
notes may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by Citigroup
or its affiliates at any time. These transactions may be effected in the
over-the-counter market or otherwise.
We will agree to indemnify Citigroup against certain liabilities, including
liabilities under the Securities Act of 1933.
It is expected that delivery of the notes will be made against payment on
or about the date specified in the last paragraph of the cover page of this
prospectus, which will be the o New York business day following the date of
pricing of the notes. Under Rule 15c6-1 of the Securities and Exchange
Commission under the Exchange Act trades in the secondary market generally are
required to settle in three business days, unless the parties to any such trade
expressly agree otherwise. Accordingly, if any purchaser has traded or wishes
to trade notes on the date of pricing of the notes or the next o succeeding New
York business days thereafter, it will be required, by virtue of the fact that
the notes will initially settle on the o New York business day following the
date of pricing of the notes, to specify an alternative settlement cycle at the
time of any such trade to prevent a failed settlement. Purchasers of the notes
who have traded or wish to trade the notes on the date of pricing of the notes
or the next o succeeding New York business days should consult their own
advisor.
LIMITATIONS ON ACTIONS AGAINST THE STATE OF BADEN-WURTTEMBERG
The State of Baden-Wurttemberg will not waive any immunity from
jurisdiction in the United States for any purpose. Baden-Wurttemberg is,
however, subject to suit in competent courts in Germany. The
90
United States Foreign Sovereign Immunities Act may provide an effective means of
service and preclude granting sovereign immunity in actions in the United States
arising out of or based on the United States federal securities laws. Under that
Act, execution upon the property of Baden-Wurttemberg in the United States to
enforce a judgment is limited to an execution upon property of Baden-Wurttemberg
used for the commercial activity on which the claim was based. A judgment of a
United States state or federal court may not be enforceable in a German court if
based on jurisdiction based on the United States Foreign Sovereign Immunities
Act or if based on the United States federal securities laws or if such
enforcement would otherwise violate German public policy or be inconsistent with
German procedural law. Under the laws of the Federal Republic of Germany,
certain property of Baden-Wurttemberg is not subject to attachment or to
seizure.
ENFORCEMENT OF CIVIL LIABILITIES AGAINST L-BANK
We are located in Germany and the members of our board of management and
our supervisory board, as well as the experts and governmental officials
referred to in this Prospectus, are non-residents of the United States, and all
or a substantial portion of our assets and of certain of such other persons are
located outside the United States. As a result, it may be difficult or
impossible for investors to obtain jurisdiction over those persons in
proceedings brought in courts in the United States, or to realize in the United
States upon judgments of United States courts against those persons, including
judgments predicated upon civil liabilities under the United States securities
laws. There may be doubt as to the enforceability in the German courts in
original actions of liabilities predicated upon U.S. securities laws and as to
the enforceability in German courts of judgments of United States courts
including judgments imposing liabilities predicated upon U.S. securities laws.
LEGAL OPINIONS
Certain legal matters, including the validity of the notes offered hereby,
will be passed upon on our behalf by Mr. Gerd Pfeifle, deputy head of our legal
department, and on behalf of the managers by Shearman & Sterling LLP, Frankfurt
am Main.
AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
The name and address of the authorized representative of L-Bank and
Baden-Wurttemberg in the United States for purposes of the United States
Securities Act of 1933 is Puglisi & Associates, 850 Library Avenue, Suite 204,
P.O. Box 885, Newark, Delaware 197159.
OFFICIAL STATEMENTS AND DOCUMENTS
The information set forth herein relating to Baden-Wurttemberg and Germany
has, except as stated below, been derived from publications of the
Baden-Wurttemberg Statistical Office, the Federal Labor Office, the
Baden-Wurttemberg Ministry of Finance, the Federal Statistical Office, the
European Central Bank or the Federal Central Bank, all of which are official
public documents, or from Baden-Wurttemberg state or German federal statutes,
all of which are official public documents.
The information in the tables included in the section captioned "The State
of Baden-Wurttemberg--Public Finance" (except for "--State Budget"), the
information in the table regarding debt guarantied by Baden-Wurttemberg included
in the section captioned "--Public Debt--Summary of Debt" and the information in
the table entitled "Internal Guarantied Debt as of December 31, 2003, 2002, 2001
and 2000" included in the section captioned "--Debt Record" has been supplied by
Walter Leibold, Assistant Undersecretary (Ministerialdirigent) of the
Baden-Wurttemberg Ministry of Finance, in his official capacity and is included
herein on his authority.
91
The information in the tables included in the sections captioned "The State
of Baden-Wurttemberg--Public Finance--State Budget," "--Public Debt" (other that
the information in the table regarding debt guarantied by Baden-Wurttemberg
included in the section captioned "--Summary of Debt") and "--Budget of the
State of Baden-Wurttemberg," as well as the information in the table entitled
"Direct Debt of Baden-Wurttemberg as of December 31, 2003" included in the
section entitled "--Debt Record" has been supplied by Gunther Benz, Assistant
Undersecretary (Ministerialdirigent) of the Baden-Wurttemberg Ministry of
Finance, in his official capacity and is included herein on his authority.
INDEPENDENT ACCOUNTANTS
The financial statements as of December 31, 2003, 2002 and 2001 and for the
years then ended, included in this Prospectus, have been audited by PwC Deutsche
Revision Aktiengesellschaft Wirtschaftsprufungsgesellschaft ("PwC"), independent
accountants, as stated in their reports appearing herein.
The audit reports of PwC for the years ended December 31, 2003, 2002 and
2001, dated March 29, 2004, April 8, 2003 and April 9, 2002, respectively, each
refer to a management report that has not been included in this Prospectus. The
examinations of and the audit reports upon such management reports are required
under German auditing standards. Those examinations were not made in accordance
with Statement on Standards for Attestation Engagements No. 10, "Management's
Discussion and Analysis." PwC does not provide an opinion on this information or
on the financial statements included in this prospectus in accordance with U.S.
GAAS or U.S. attestation standards.
92
FINANCIAL STATEMENTS OF L-BANK
INDEX TO FINANCIAL STATEMENTS
Financial Statements of L-Bank as of and for the year ended December 31, 2003
Balance Sheet...........................................................F-3
Statement of Income.....................................................F-7
Notes to the Financial Statements.......................................F-9
Independent Auditors' opinion dated March 29, 2004.....................F-28
Financial Statements of L-Bank as of and for the year ended December 31, 2002
Balance Sheet..........................................................F-30
Statement of Income....................................................F-34
Notes to the Financial Statements......................................F-36
Independent Auditors' opinion dated April 8, 2003......................F-57
Financial Statements of L-Bank as of and for the year ended December 31, 2001
Balance Sheet..........................................................F-59
Statement of Income....................................................F-53
Notes to the Financial Statements......................................F-65
Independent Auditors' opinion dated April 9, 2002......................F-82
Supplementary Information on Debt of L-Bank.................................F-83
F-1
FINANCIAL STATEMENTS OF L-BANK
AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 2003
F-2
Landeskreditbank Baden-Wurttemberg - Forderbank - Balance sheet as of
December 31, 2003
- ------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------
Assets EUR EUR EUR EUR
1. Cash reserve
a) Cash on hand 42,241.10 35,219.32
b) Cash at central banks 257,485,390.46 246,001,697.70
hereof:
at Federal Central Bank
EUR 257,485,390.46 (246,001,697.70)
c) Cash in postal giro accounts --.-- --.--
257,527,631.56 246,036,917.02
- ------------------------------------------------------------------------------------------------------------------------------
2. Receivables from credit institutions
a) Payable on demand 91,035,045.39 67,679,885.74
b) Other receivables 11,669,629,275.91 10,494,519,446.74
11,760,664,321.30 10,562,199,332.48
- ------------------------------------------------------------------------------------------------------------------------------
3. Receivables from customers
thereof:
Mortgage loans
EUR 19,689,099,500.70 (19,846,929,401.53)
loans to public authorities and entities
organized under public law
EUR 3,065,463,938.41 (1,574,644,829.13)
24,584,056,954.30 23,258,188,570.40
- ------------------------------------------------------------------------------------------------------------------------------
4. Notes and other interest-bearing securities
a) Money market securities --.--
aa) Due from public-sector issuers --.--
thereof: eligible as collateral at
Federal Central Bank
EUR --.--(--.--)
ab) Due from other issuers --.-- --.-- --.--
thereof: eligible as collateral at --.--
Federal Central Bank
EUR --.--(--.--)
b) Bonds and notes
ba) Due from public-sector issuers 1,291,958,910.34 1,804,824,339.36
thereof: eligible as collateral at
Federal Central Bank
EUR 1,171,231,022.49
bb) Due from other issuers 7,008,756,949.33 6,264,559,928.09
thereof: eligible as collateral at 8,300,715,859.67 8,069,384,267.45
Federal Central Bank
EUR 5,473,135,432.82
(4,764,364,662.78)
c) Bank's own notes 197,221,813.93 207,469,685.79
Principal amount:
EUR 192,768,923.69 (198,787,248.89)
8,497,937,673.60 8,276,853,953.24
- ------------------------------------------------------------------------------------------------------------------------------
Carried forward: 45,100,186,580.76 42,343,278,773.14
F-3
Landeskreditbank Baden-Wurttemberg - Forderbank - Balance sheet as of
December 31, 2003
- ------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------
Equity and Liabilities EUR EUR EUR EUR
1. Liabilities to credit institutions
a) Payable on demand 112,389,611.08 192,408,782.68
b) With an agreed maturity or notice period 18,788,060,340.35 19,536,796,366.75
18,900,449,951.43 19,729,205,149.43
- ------------------------------------------------------------------------------------------------------------------------------
2. Liabilities to customers
a) Savings deposits
aa) With an agreed notice period --.-- --.--
of three months
ab) With an agreed notice period --.-- --.--
exceeding three months --.--
b) Other liabilities
ba) Payable on demand 122,014,468.53 115,740,022.12
bb) With an agreed maturity or 5,038,300,154.25 3,880,373,942.62
notice period
5,160,314.622.78 5,160,314,622.78 3,996,113,964.74
- ------------------------------------------------------------------------------------------------------------------------------
3. Certificated liabilities
a) Notes and bonds issued 16,415,697,411.11 14,582,209,402.22
b) Other certificated liabilities --.-- --.--
thereof: money market securities
EUR --.-- (--.--)
own acceptances and promissory notes
outstanding
EUR --.-- (--.--)
16,415,697,411.11 14,582,209,402.22
- ------------------------------------------------------------------------------------------------------------------------------
4. Fiduciary liabilities 511,876,387.93 666,549,301.80
thereof: fiduciary loans
EUR 511,274,426.95 (665,947,340.82)
- ------------------------------------------------------------------------------------------------------------------------------
5. Other liabilities 1,152,003,643.91 593,926,755.76
- ------------------------------------------------------------------------------------------------------------------------------
6. Deferred items 977,461,922.06 1,087,576,610.33
- ------------------------------------------------------------------------------------------------------------------------------
7. Contingency reserves
a) Reserves for pensions and similar 83,308,717.00
obligations 14,000.00 80,509,012.00
b) Reserves for taxes 666,492,854.26 15,437,306.66
c) Other reserves 721,532,963.27
749,815,571.26 817,479,281.93
- ------------------------------------------------------------------------------------------------------------------------------
8. Subordinated liabilities 598,818,103.10 444,760,064.00
- ------------------------------------------------------------------------------------------------------------------------------
Carried forward: 44,466,437,613.58 41,917,820,530.21
F-4
Landeskreditbank Baden-Wurttemberg - Forderbank - Balance sheet as of
December 31, 2003
- ----------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002
- ----------------------------------------------------------------------------------------------
Assets EUR EUR
- ----------------------------------------------------------------------------------------------
Brought forward: 45,100,186,580.76 42,343,278,773.14
- ----------------------------------------------------------------------------------------------
5. Shares and other
non-interest-bearing securities 13,498,105.66 19,960,602.95
- ----------------------------------------------------------------------------------------------
6. Equity investments in non-affiliated companies 173,361,827.53 155,447,573.28
thereof:
in credit institutions
EUR 976,726.00 (121,539,351.59)
in financial services institutions
EUR --.-- (--.--)
- ----------------------------------------------------------------------------------------------
7. Equity investments in affiliated companies 102,008,403.08 110,108,403.08
thereof:
in credit institutions EUR --.-- (--.--)
in financial services institutions EUR --.--
(--.--)
- ----------------------------------------------------------------------------------------------
8. Fiduciary assets 511,876,387.93 666,549,301.80
thereof: fiduciary loans
EUR 511,274,426.95 (665,947,340.82)
- ----------------------------------------------------------------------------------------------
9. Intangible assets --.-- --.--
- ----------------------------------------------------------------------------------------------
10. Tangible assets 122,665,210.34 125,982,633.07
- ----------------------------------------------------------------------------------------------
11. Other assets 60,145,306.87 47,369,786.03
- ----------------------------------------------------------------------------------------------
12. Deferred charges and prepaid expenses 140,946,144.52 116,207,303.09
- ----------------------------------------------------------------------------------------------
Total assets 46,224,687,966.69 43,584,904,376.44
F-5
Landeskreditbank Baden-Wurttemberg - Forderbank -- Balance sheet as of
December 31, 2003
- -----------------------------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002
- -----------------------------------------------------------------------------------------------------------------
Equity and Liabilities EUR EUR EUR
- -----------------------------------------------------------------------------------------------------------------
Brought forward: 44,466,437,613.58 41,917,820,530.21
- -----------------------------------------------------------------------------------------------------------------
9. Fund for general bank risks 129,000,000.00 108,905,170.69
- -----------------------------------------------------------------------------------------------------------------
10. Equity
a) Subscribed capital 250,000,000.00 250,000,000.00
b) Capital surplus 950,850,789.69 950,850,789.69
c) Retained profit and reserves
ca) Legal reserves --.-- --.--
cb) Reserve for treasury stock --.-- --.--
cc) Statutory reserves --.-- --.--
cd) Other retained profit 426,000,000.00 323,000,000.00
d) Distributable profit 2,399,563.42 34,327,885.85
1,629,250,353.11 1,558,178,675.54
- -----------------------------------------------------------------------------------------------------------------
Total equity and liabilities 46,224,687,966.69 43,584,904,376.44
-----------------------------------------
1. Contingent liabilities
a) Contingent liabilities relating to negotiated
cleared bills of exchange --.-- --.--
b) Liabilities relating to guarantees
and indemnity agreements 1,228,502,273.82 1,068,613,953.30
c) Liabilities relating to securities covering
third-party liabilities --.-- --.--
1,228,502,273.82 1,068,613,953.30
- -----------------------------------------------------------------------------------------------------------------
2. Other obligations
a) Repurchase obligations from the sale of
securities with put options --.-- --.--
b) Placement and underwriting obligations --.-- --.--
c) Irrevocable credit commitments 1,359,288,687.00 1,317,885,351.80
1,359,288,687.00 1,317,885,351.80
- -----------------------------------------------------------------------------------------------------------------
F-6
Landeskreditbank Baden-Wurttemberg - Forderbank
Statement of income for the period from January 1, 2003 to December 31, 2003
- ---------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002
- ---------------------------------------------------------------------------------------------------------------------------
EUR EUR EUR EUR
- ---------------------------------------------------------------------------------------------------------------------------
1. Interest income from
a) Lending and money market transactions 2,004,110,774.01 2,101,601,820.39
b) Fixed-interest securities and
debt register receivables 371,061,706.59 389,841,589.13
2,375,172,480.60 2,491,443,409.52
- ---------------------------------------------------------------------------------------------------------------------------
2. Interest expenses 1,972,054,532.46 2,103,783,365.73
403,117,948.14 387,660,043.79
- ---------------------------------------------------------------------------------------------------------------------------
3. Current income from
a) Shares and other
non-interest-bearing securities 463,406.51 605,093.36
b) Equity investments in non-affiliated 5,202,792.35 4,260,374.41
companies
c) Equity investments in affiliated companies --.-- --.--
5,666,198.86 4,865,467.77
- ---------------------------------------------------------------------------------------------------------------------------
4. Commission income 28,279,542.78 25,081,128.77
- ---------------------------------------------------------------------------------------------------------------------------
5. Commission expenses 11,258,353.10 13,459,113.11
- ---------------------------------------------------------------------------------------------------------------------------
6. Net income from financial transactions 2,093,939.16 2,109,754.84
- ---------------------------------------------------------------------------------------------------------------------------
7. Other operating income 40,596,141.64 41,134,887.96
- ---------------------------------------------------------------------------------------------------------------------------
8. General administrative expenses
a) Personnel expenses
aa) Wages and salaries 58,288,976.05 56,331,911.21
ab) Social security, pension and other
benefit and welfare expenses 15,711,878.08 22,767,299.91
thereof: for pensions 74,000,854.13 79,099,211.12
EUR 6,275,576.65 (8,945,552.10)
b) Other general administrative expenses 35,791,136.20 38,311,138.11
109,791,990.33 117,410,349.23
- ---------------------------------------------------------------------------------------------------------------------------
9. Depreciation and accumulated amortization
on intangible assets and tangible assets, 11,077,630.14 11,082,488.64
including property and equipment
- ---------------------------------------------------------------------------------------------------------------------------
10. Other operating expenses 30,105,729.78 23,436,330.00
- ---------------------------------------------------------------------------------------------------------------------------
Carried forward: 317,520,069.23 295,463,002.15
F-7
Landeskreditbank Baden-Wurttemberg - Forderbank
Statement of income for the period from January 1, 2003 to December 31, 2003
Dec. 31, 2003 Dec. 31, 2002
- --------------------------------------------------------------------------------------------------
EUR EUR
- --------------------------------------------------------------------------------------------------
Brought forward: 317,520,069.23 295,463,002.15
- --------------------------------------------------------------------------------------------------
11. Depreciation and accumulated
amortization
on receivables and certain securities,
together with allowances for possible
loan losses 138,327,759.32 132,669,003.32
thereof: transferred to special item
"Fund for general bank risks"
EUR 20,094,829.31 (--.--)
- --------------------------------------------------------------------------------------------------
12. Depreciation and accumulated
amortization
on equity investments in non-affiliated
companies, affiliated companies and
securities treated as fixed assets 6,610,878.35 4,636,327.14
- --------------------------------------------------------------------------------------------------
13. Costs arising from loss assignments 40,000.00 50,000.00
- --------------------------------------------------------------------------------------------------
14. Result from ordinary business operations 172,541,431.56 158,107,671.69
- --------------------------------------------------------------------------------------------------
15. Taxes on income 220,398.14 573,556.01
- --------------------------------------------------------------------------------------------------
16. Other taxes, where not shown
under item 10 95,151.53 177,782.24
- --------------------------------------------------------------------------------------------------
17. Allocation to reserves for
interest rate reductions 68,795,701.38 70,778,025.06
- --------------------------------------------------------------------------------------------------
18. Net profit 103,430,180.51 86,578,308.38
- --------------------------------------------------------------------------------------------------
19. Balance brought forward
from the previous year 1,969,382.91 33,249,577.47
105,399,563.42 119,827,885.85
- --------------------------------------------------------------------------------------------------
20. Transfers to retained profit and reserves
to other retained profit and reserves 103,000,000.00 85,500,000.00
- --------------------------------------------------------------------------------------------------
21. Distributable profit 2,399,563.42 34,327,885.85
- --------------------------------------------------------------------------------------------------
F-8
Notes to the annual financial statements of
Landeskreditbank Baden-Wurttemberg - Forderbank -
for the financial year ended December 31, 2003
General principles
Landeskreditbank Baden-Wurttemberg - Forderbank (L-Bank) was
established by legislation passed on November 11, 1998, which came into effect
on December 1, 1998. In accordance with ss. 2 para. 1 subpara. 1 of the L-Bank
Act, the share capital of the Bank is EUR 250 million.
The financial statements for L-Bank have been drawn up in accordance
with the provisions of the German Commercial Code (Handelsgesetzbuch [HGB]) and
the Regulation on the Accounting Principles Applied to Credit Institutions
(Verordnung uber die Rechnungslegung fur Kreditinstitute [RechKredV]).
Headings and items on the balance sheet and statement of income are
classified in accordance with the financial statement forms that appear in
RechKredV. In the process, L-Bank has added an extra item to the expenses side
of the statement of income, "Allocation to reserves for interest rate
reductions" (ss. 265 para. 5 HGB).
The majority interests declared in the financial statements are of
minor significance overall. For this reason the Bank did not prepare
consolidated financial statements for the period (ss. 296 para. 2 HGB).
Foreign currency translation principles
Foreign currency amounts have been translated in accordance with the
provisions set out in ss. 340h HGB and declaration BFA 3/95. Assets and
liabilities denominated in foreign currencies, together with unprocessed spot
exchange transactions, have been translated at the middle spot rate on December
30, 2003, being the last day of the year on which there was a liquid foreign
exchange market.
For purposes of currency translation, currency items have been
calculated by offsetting claims and obligations arising from on-balance-sheet
and off-balance-sheet transactions in the respective currencies. These
transactions were classified and valued using the special cover option in the
respective currencies. Accordingly, all expenses and earnings arising from
currency translation are shown in the income statement as required by ss. 340 h
para. 2 subparas. 1 and 2 HGB; there was no requirement to show income under a
separate heading as the items outstanding on the balance sheet date fall within
the same timeframe.
Methods of accounting and valuation
Assets, liabilities and pending transactions have been valued in
accordance with the general provisions of ss.ss. 252 ff. HGB, taking into
account the special rules applying to credit institutions (ss.ss. 340e ff. HGB).
Receivables from credit institutions and customers are shown at par
value, liabilities to credit institutions and customers at redemption value. Any
interest-based differences are shown under deferrals and pre-payments and
written back pro rata temporis. Service charges are entered immediately.
Low-interest or non-interest-bearing receivables are discounted. Reserves for
interest rate subsidies are set up to cover loans made under the auspices of
development programs. Zero bonds and similar securities issued are shown at the
issue price plus interest calculated up to the balance sheet date pro rata
temporis.
All recognized individual risks and country risks arising out of the
Bank's lending business were appropriately provided for, either by accumulated
amortization for losses on individual loan accounts or by reserves. Lump-sum
reserves have been established to cover latent credit risks, and the Bank
maintains prudential reserves to cover general banking risks. Individual
provisions and lump-sum reserves have been deducted from the assets or
liabilities side as appropriate, as has the reserve for general banking risks
set up in compliance with ss. 340f HGB.
F-9
Securities in the trading portfolio and liquidity reserve are valued
strictly according to the principle of lower of cost or market value as at the
balance sheet date. Securities treated as fixed assets are shown at net book
value, differences between book value and redemption value (i.e. premiums or
discounts) being marked up or down pro rata to term.
Equity investments in non-affiliated and affiliated companies are
valued at the lower of acquisition cost or fair value, according to the rules
applying to fixed assets.
Tangible assets are valued at acquisition or production cost, less
scheduled depreciation. Where the value of an item is expected to continue to
decline, unscheduled depreciation has been applied as appropriate. Minor fixed
assets are fully depreciated in the year of acquisition.
Reserves for pension commitments and for obligations under the Bank's
employee pension scheme have been calculated using the method of computation
provided for in ss. 6a of the German Income Tax Act (Einkommensteuergesetz
[EStG]) applying the updated Heubeck mortality tables. Adequate provisions have
been made to cover the early retirement scheme provided for by collective
agreement and the part-time employment scheme devised for employees approaching
retirement, as well as any obligations arising in connection with long-service
bonuses and other benefits.
Other reserves are set at the amount deemed necessary by the exercise
of reasonable business judgment to cover all uncertain liabilities and potential
losses on pending transactions.
The Bank concludes derivative transactions primarily in order to
control interest rate exposure - they are not valued. The Bank also trades in
derivatives in order to hedge balance sheet items and on its own account. Market
values are based on interest rates prevailing at December 30, 2003, being the
last day of the year on which there was a liquid foreign exchange market.
Transactions for hedging purposes are valued together with the relevant balance
sheet items.
The market values of bonds, notes and derivatives held for the Bank's
own account are determined individually as at the balance sheet date. The Bank
currently holds four portfolios governed by EUR interest rate risks and offsets
valuation gains and losses within these portfolios. In accordance with the
non-parity principle, any positive balance is not appropriated, whereas a
provision is made to cover a negative balance.
Principles of the German Banking Act (Kreditwesengesetz [KWG])
Throughout 2002, the Bank adhered to Principle I (relating to capital
adequacy) and Principle II (relating to liquidity).
F-10
Notes to the annual financial statements of
Landeskreditbank Baden-Wurttemberg - Forderbank -
for the financial year ended December 31, 2003
Maturities of selected balance sheet items
(to final maturity or first call)
- --------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002
- --------------------------------------------------------------------------------------------
EUR '000 EUR '000
- --------------------------------------------------------------------------------------------
Receivables from credit institutions
payable on demand 91,035 67,680
due in three months or less 2,447,805 2,456,809
due in more than three months to one year 1,233,705 1,015,186
due in more than one year to five years 3,440,884 2,997,131
due in more than five years 4,547,235 4,025,393
- --------------------------------------------------------------------------------------------
Receivables from customers
due in three months or less 727,522 502,867
due in more than three months to one year 1,051,845 649,987
due in more than one year to five years 2,817,343 2,400,261
due in more than five years 19,987,347 19,705,074
- --------------------------------------------------------------------------------------------
Notes and other interest-bearing securities
Loans and notes payable in
the following year 791,624 808,708
- --------------------------------------------------------------------------------------------
Liabilities to credit institutions
payable on demand 112,390 192,409
due in three months or less 4,016,730 3,402,134
due in more than three months to one year 1,261,686 1,764,600
due in more than one year to five years 6,309,218 4,488,868
due in more than five years 7,200,426 9,881,194
- --------------------------------------------------------------------------------------------
Liabilities to customers
payable on demand 122,014 115,740
due in three months or less 780,463 279,202
due in more than three months to one year 257,834 95,178
due in more than one year to five years 493,734 873,225
due in more than five years 3,506,268 2,632,769
- --------------------------------------------------------------------------------------------
Certificated liabilities
due in three months or less 368,727 635,384
due in more than three months to one year 2,917,473 1,816,999
due in more than one year to five years 10,987,280 10,140,068
due in more than five years 2,142,217 1,989,758
thereof under subitem
"Notes and bonds issued"
payable in the following year: TEUR
3,286,200
- --------------------------------------------------------------------------------------------
F-11
Notes to the annual financial statements of
Landeskreditbank Baden-Wurttemberg - Forderbank -
for the financial year ended December 31, 2003
Notes individual balance sheet items
- --------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002
- --------------------------------------------------------------------------------------------
EUR '000 EUR '000
- --------------------------------------------------------------------------------------------
Receivables from credit institutions
Under this heading are shown:
o receivables from
non-affiliated companies 128,000 286,209
o subordinated receivables 0 0
- --------------------------------------------------------------------------------------------
Receivables from customers
Under this heading are shown:
o receivables from affiliated companies 140,598 151,453
o receivables from
non-affiliated companies 230,430 247,276
o subordinated receivables 2,271 8,476
- --------------------------------------------------------------------------------------------
Notes and other
interest-bearing securities
The subitem "Bonds and notes"
does not include any certificated
subordinated receivables or receivables
from affiliated or non-affiliated companies.
Of the securities shown
under this heading:
o listed securities account for 8,341,014 8,116,537
o unlisted securities account for 156,924 160,317
Securities amounting to TEUR 8,192,630
are assigned to fixed assets.
Of these, TEUR 2,074,605
are valued as fixed assets.
- --------------------------------------------------------------------------------------------
F-12
Notes to the annual financial statements of
Landeskreditbank Baden-Wurttemberg - Forderbank -
for the financial year ended December 31, 2003
Notes to individual sheet items
- --------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002
- --------------------------------------------------------------------------------------------
EUR '000 EUR '000
- --------------------------------------------------------------------------------------------
Shares and other non-fixed interest securities
This item includes:
o subordinated assets in the amount of 0 6,462
o non-affiliated companies account for - -
Of the marketable securities included in this item:
o listed securities account for 0 6,462
o unlisted securities account for - -
- --------------------------------------------------------------------------------------------
Equity investments in non-affiliated companies
Of the marketable securities included under equity
investment in non-affiliated companies:
o listed securities account for 0 120,563
o unlisted securities account for 0 0
- --------------------------------------------------------------------------------------------
Equity investments in affiliated companies
This item does not include equity investments
which have been certified as marketable securities.
- --------------------------------------------------------------------------------------------
Fiduciary assets
This item is broken down as follows:
o Receivables from credit institutions 171,036 181,189
o Receivables from customers 340,841 485,361
- --------------------------------------------------------------------------------------------
Tangible assets
This item includes:
o real estate and buildings utilized
for the Bank's own activities 86,359 89,631
o furniture and office equipment 12,408 13,003
- --------------------------------------------------------------------------------------------
F-13
Notes to the annual financial statements of
Landeskreditbank Baden-Wurttemberg - Forderbank -
for the financial year ended December 31, 2003
Notes to individual balance sheet items
- --------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002
- --------------------------------------------------------------------------------------------
EUR '000 EUR '000
- --------------------------------------------------------------------------------------------
Deferred charges, prepaid expenses and deferred items
Assets
o Difference between net loan proceeds or
original cash outlay and lower par (nominal)
value of receivables 78,922 54,480
o Difference between amount issued and
higher amount repayable of payables 55,385 53,770
- --------------------------------------------------------------------------------------------
Liabilities to credit institutions
Under this heading are shown:
o liabilities to affiliated companies - -
o liabilities to non-affiliated companies 0 713
- --------------------------------------------------------------------------------------------
Liabilities to customers
Under this heading are shown:
o liabilities to affiliated companies 14,615 26,679
o liabilities to non-affiliated companies - -
----------------
- --------------------------------------------------------------------------------------------
Fiduciary liabilities
Fiduciary liabilities are divided up into:
o liabilities to credit institutions 66,746 85,759
o liabilities to customers 445,131 580,790
- --------------------------------------------------------------------------------------------
Deferred charges, prepaid expenses and deferred items
Liabilities
o Difference between net loan proceeds or
original cash outlay and higher par (nominal)
value of receivables 28,982 36,485
o Difference between amount issued and
lower amount repayable of payables 1,477 2,338
- --------------------------------------------------------------------------------------------
F-14
Notes to the annual financial statements of
Landeskreditbank Baden-Wurttemberg - Forderbank -
for the financial year ended December 31, 2003
Notes to individual balance sheet items
- --------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002
- --------------------------------------------------------------------------------------------
EUR '000 EUR '000
- --------------------------------------------------------------------------------------------
Subordinated liabilities
This item does not include any liabilities
to affiliated or non-affiliated companies.
Interest expenses in respect of subordinated
liabilities 21,493 18,412
- --------------------------------------------------------------------------------------------
Individual subordinated issues exceeding 10%
of the total amount of the subordinated liabilities
break down as follows:
Currency Amount in millions Interest rate (%) Due on
----------------------------------------------------------------------
EUR 85 Zero coupon issue Dec. 30, 2010
----------------------------------------------------------------------
EUR 250 4.1250 Jan. 14, 2009
----------------------------------------------------------------------
All subordinated liabilities constitute exclusively supplemental capital and
meet the requirements of the German Banking Act (Kreditwesengesetz [KWG]). Of
significance here is the subordinated nature of the Bank's liabilities in
relation to all non-subordinated liabilities due to other creditors. In the
event of liquidation, subordinated creditors are only entitled to receive
payment after all liabilities due to other creditors have been paid in full.
Retrospective limitation of the subordinated nature of the liability or the
original maturity (of at least five years) or the agreed period of notice, is
precluded.
In accordance with state legislation, L-Bank is unable to file for insolvency.
F-15
Notes to the annual financial statements of
Landeskreditbank Baden-Wurttemberg - Forderbank -
for the financial year ended December 31, 2003
Individual material items
- --------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002
- --------------------------------------------------------------------------------------------
EUR '000 EUR '000
- --------------------------------------------------------------------------------------------
Other assets
o Premiums on interest rate options 6,396 9,695
o Objets d'art 13,715 13,722
o Real estate and buildings in the current asset
portfolio 15,544 8,763
- --------------------------------------------------------------------------------------------
Other liabilities
o Adjustment item for foreign exchange valuation
of off-balance-sheet transactions 1,108,223 492,026
o Liabilities arising from contributions to state
highway construction project 15,339 15,339
o One-off payments on swaps due at maturity 11,321 4,700
o Liabilities relating to outstanding premiums on
interest rate options 6,956 9,275
o Trade payables 3,040 4,433
o Deductible taxes 2,434 2,461
- --------------------------------------------------------------------------------------------
Deferred items on the liability side
o Prepaid interest subsidies received from third
parties 907,619 1,007,367
o One-off payments on swaps due at maturity 38,899 40,822
- --------------------------------------------------------------------------------------------
Contingency reserves
o Under other reserves:
reserves for L-Bank interest subsidies 560,589 611,450
- --------------------------------------------------------------------------------------------
Commissions paid
o Commissions paid for administration of loans
in a fiduciary capacity 7,698 9,580
- --------------------------------------------------------------------------------------------
Other operating income
o Rental income 7,155 8,018
o Income from services to third parties 16,645 15,949
- --------------------------------------------------------------------------------------------
F-16
Notes to the annual financial statements of
Landeskreditbank Baden-Wurttemberg - Forderbank -
for the financial year ended December 31, 2003
Individual material items
- --------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002
- --------------------------------------------------------------------------------------------
EUR '000 EUR '000
- --------------------------------------------------------------------------------------------
Depreciation and accumulated amortization on equity
investments in non-affiliated companies, affiliated
companies and securities treated as fixed assets
o Unscheduled depreciation 17,705 4,720
- --------------------------------------------------------------------------------------------
Other operating expenses
o Expenses relating to grants and subsidies
provided under development programs managed
on behalf of the state of Baden-Wurttemberg 18,407 18,407
- --------------------------------------------------------------------------------------------
Total value of assets and debts
denominated in foreign currencies
o Assets 678,508 761,808
o Debts 4,612,033 3,455,007
The risk of exchange rate fluctuations arising from
balance sheet items denominated in foreign currencies
is essentially covered by off-balance-sheet
hedging transactions
- --------------------------------------------------------------------------------------------
Book value of assets sold for repurchase (true repo
agreements pursuant to ss. 340b para. 4 HGB)
In the context of sell and buy-back transactions
with other credit institutions 0 78,646
- --------------------------------------------------------------------------------------------
Assets lodged as security for liabilities
For other liabilities
o interest rate futures transactions 0 4,703
- --------------------------------------------------------------------------------------------
F-17
Notes to the annual financial statements of
Landeskreditbank Baden-Wurttemberg - Forderbank -
for the financial year ended December 31, 2003
Other financial obligations
- ----------------------------------------------------------------------------------------------------------
The total sum of other financial obligations
existing at the balance sheet date which are not
included in the balance sheet or shown below the
line is of minor significance to an evaluation
of the Bank's financial position.
Transactions involving derivatives
- ----------------------------------------------------------------------------------------------------------
At the balance sheet date, the following Replacement costs were calculated on the basis of
transactions involving financial derivatives market prices. All contracts with a positive
(forward transactions as defined in ss. 36 market value have been taken into account; they
RechKredV) formed part of L-Bank's portfolio. The have not been set off against contracts with a
majority of the transactions were undertaken in negative market value by contracting party. Taking
order to hedge interest rate and exchange rate all existing netting agreements into account,
fluctuations. The respective credit risk replacement costs have fallen by EUR 1,776
equivalents have been calculated using the market million, from EUR 2,509 million to EUR 733
valuation method based on the appropriate million.
counterparty weighting with the corresponding
percentage add-on. The practice of netting - the The following tables do not include fully hedged
offsetting of negative market values - was not derivative structures incorporated into standard
applied. Bank products.
Transactions involving derivatives - by contracting party
- ---------------------------------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002 Dec. 31, 2003 Dec. 31, 2003
- ---------------------------------------------------------------------------------------------------------------------
Credit risk
Nominal values Nominal values equivalents Replacement costs
- ---------------------------------------------------------------------------------------------------------------------
EUR million EUR million EUR million EUR million
- ---------------------------------------------------------------------------------------------------------------------
o Banks in the OECD 85,515 71,195 568 1,903
o Public-sector institutions in the OECD 549 75 35 32
o Other counterparties
(incl. stock exchange contracts) 7,489 6,429 829 574
Total 93,553 77,699 1,432 2,509
- ---------------------------------------------------------------------------------------------------------------------
F-18
Notes to the annual financial statements of
Landeskreditbank Baden-Wurttemberg - Forderbank -
for the financial year ended December 31, 2003
Transactions involving derivatives - by maturity
- -------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002 Dec. 31, 2003 Dec. 31, 2002 Dec. 31, 2003 Dec. 31, 2002
- -------------------------------------------------------------------------------------------------------------------------------
Interest rate Interest rate Currency Currency Credit derivative Credit derivative
risks risks risks risks risks risks
- -------------------------------------------------------------------------------------------------------------------------------
EUR million EUR million EUR million EUR million EUR million EUR million
- -------------------------------------------------------------------------------------------------------------------------------
Residiual maturities
o up to 3 months 5,062 5,850 452 169 20 100
o up to 1 year 19,185 6,615 921 28 30 55
o up to 5 years 25,176 24,422 3,139 3,144 566 340
o more than 5 37,854 36,256 715 435 433 285
years
Total 87,277 73,143 5,227 3,776 1,049 780
- -------------------------------------------------------------------------------------------------------------------------------
Transactions involving derivatives - by volume
- ------------------------------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002 Dec. 31, 2003 Dec. 31, 2003
- ------------------------------------------------------------------------------------------------------------------
Credit risk Replacement
Nominal values Nominal values equivalents costs
- ------------------------------------------------------------------------------------------------------------------
EUR million EUR million EUR million EUR million
- ------------------------------------------------------------------------------------------------------------------
Interest rate risks
o Interest rate swaps 86,625 72,138 635 2,078
o Interest rate options
- bought 0 0 0 0
- sold 0 0 - -
o Caps 383 895 0 0
o Stock exchange contracts 0 110 0 0
o Other forward transactions 269 0 35 31
Interest rate risks - total - 87,277 73,143 670 2,109
- ------------------------------------------------------------------------------------------------------------------
Currency risks
o Forward exchange deals 498 176 2 5
o Cross-currency interest rate 4,729 3,600 63 40
swaps
Currency risks - total - 5,227 3,776 65 45
- ------------------------------------------------------------------------------------------------------------------
Credit derivatives
o Credit default swaps
o as guarantor 675 525 343 2
o as guarantee 20 0 0 0
o Credit-linked notes
o as guarantor 354 255 354 353
Credit derivatives - total - 1,049 780 697 355
- ------------------------------------------------------------------------------------------------------------------
All credit default swaps have been assigned to investments. Credit default swaps
for which the Bank is acting as guarantor appear under contingent liabilities at
their nominal value. Credit-linked notes are shown under securities.
The transactions reported above include the following commercial transactions:
- ------------------------------------------------------------------------------------------------------------------
F-19
Notes to the annual financial statements of
Landeskreditbank Baden-Wurttemberg - Forderbank -
for the financial year ended December 31, 2003
Transactions involving derivatives - commercial transactions
- --------------------------------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002 Dec. 31, 2003 Dec. 31, 2003
- --------------------------------------------------------------------------------------------------------------------
Credit risk
Nominal values Nominal values equivalents Replacement costs
- --------------------------------------------------------------------------------------------------------------------
EUR million EUR million EUR million EUR million
- --------------------------------------------------------------------------------------------------------------------
0 Interest rate contracts 1,370 3,879 17 62
Total 1,370 3,879 17 62
- --------------------------------------------------------------------------------------------------------------------
Statement on tax liability
- --------------------------------------------------------------------------------------------------------------------
Under ss.5 para. 1 no. 2 of the Corporation Tax Act (Korperschaftsteuergesetz [KStG]) and ss.3 no. 2 of the Trade
Tax Act (Gewerbesteuergesetz [GewStG]), Landeskreditbank Baden-Wurttemberg - Forderbank is exempt from corporation
tax and trade tax.
- --------------------------------------------------------------------------------------------------------------------
F-20
L-Bank's equity holdings pursuant to ss. 285 no. 11 HGB
- ---------------------------------------------------------------------------------------------------------------
No. Name/Registered office Holding Equity capital (*) Net income/loss (*)
in % in Euro'000 in Euro '000
- ---------------------------------------------------------------------------------------------------------------
(direct)
1. Austria Beteiligungsgesellschaft mbH, Stuttgart 33.34 35,588 809
- ---------------------------------------------------------------------------------------------------------------
2. Industriepark Gottmadingen AG, Gottmadingen 100.00 25,813 1,573
- ---------------------------------------------------------------------------------------------------------------
3. MBG Mittelstandische Beteiligungsgesellschaft Baden- 26.80 16,175 978
Wurttemberg GmbH, Stuttgart
- ---------------------------------------------------------------------------------------------------------------
4. PT German Centre Indonesia, 83.67 -4,661(**) 1,735(**)
Bumi Serpong Damai, Indonesia
- ---------------------------------------------------------------------------------------------------------------
5. Technologiepark Karlsruhe GmbH, Karlsruhe 96.00 17,743 -568
- ---------------------------------------------------------------------------------------------------------------
6. Technologieparks Tubingen-Reutlingen, Tubingen 100.00 11,790 -462
- ---------------------------------------------------------------------------------------------------------------
7. StEP Stuttgarter EngineeringPark GmbH, Stuttgart 100.00 53,315 -532
- ---------------------------------------------------------------------------------------------------------------
8. STAIR Stuttgart Airpark GmbH, Stuttgart 100.00 665 -710
- ---------------------------------------------------------------------------------------------------------------
9. Mentasys GmbH, Karlsruhe 38.64 728 -918
- ---------------------------------------------------------------------------------------------------------------
10. detectis GmbH, Freiburg 39.43 -2 -845
- ---------------------------------------------------------------------------------------------------------------
11. Sympore GmbH, Reutlingen 27.95 -810 -1,922
- ---------------------------------------------------------------------------------------------------------------
12. Complexio GmbH, Freiburg 37.55 163 -125
- ---------------------------------------------------------------------------------------------------------------
13. Elexxion GmbH, Radolfzell 32.43 101 -49
- ---------------------------------------------------------------------------------------------------------------
14. Greenovation GmbH 33.82 -262 -1,648
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
(*) For last available financial year in each case
(**) Exchange rate as at Dec. 31, 2003: 1 euro = 10,617 rupiah
PT German Centre Indonesia was provided with a Letter of Support in respect of
financial year 2004, which capitalized the company sufficiently for it to meet
its obligations as they fall due.
Notes to the annual financial statements of
Landeskreditbank Baden-Wurttemberg - Forderbank -
for the financial year ended December 31, 2003
Fixed assets analysis
- ----------------------------------------------------------------------------------------------------------------------------
EUR '000
- ----------------------------------------------------------------------------------------------------------------------------
Write-offs Write-offs
Fixed assets - Historical and and
balance sheet cost Write- cumulative Book value depreciation
items - Jan. 1, 2003 Additions Retirements Transfers ups depreciation Dec. 31, 2003 in 2003
- ----------------------------------------------------------------------------------------------------------------------------
Notes and other
interest-bearing
securities 7,513,809 8,033,700 0
- ----------------------------------------------------------------------------------------------------------------------------
Shares and
other non-fixed-
interest
securities 0 Net adjustment in compliance with 0 0
- --------------------------------- ss. 34, para. 3, subpara. 2 RechKredV: ----------------------------------------------
Equity 187,701 TEUR 487,877 173,362 -6,705
investments in
non-affiliated
companies
- ----------------------------------------------------------------------------------------------------------------------------
Equity 119,682 102,008 -11,000
investments in
affiliated
companies
- ----------------------------------------------------------------------------------------------------------------------------
Tangible assets 174,778 8,167 -663 0 0 -59,617 122,665 -11,077
- ----------------------------------------------------------------------------------------------------------------------------
Other assets 13,741 37 -42 0 0 -22 13,714 -7
- ----------------------------------------------------------------------------------------------------------------------------
F-21
Landeskreditbank Baden-Wurttemberg - Forderbank -
hedging account for mortgage bonds at December 31, 2003
- --------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002
- --------------------------------------------------------------------------------
EUR million EUR million
- --------------------------------------------------------------------------------
Mortgage bonds issued 2,295 3,104
Specific assets allocated for hedging
o receivables from credit institutions 162 206
o receivables from customers 2,568 3,234
Surplus cover 435 336
F-22
Notes to the annual financial statements of Landeskreditbank Baden-Wurttemberg -
Forderbank - for the financial year ended December 31, 2003
Total emoluments paid out to authorities and administrative bodies
of Landeskreditbank Baden-Wurttemberg - Forderbank - in 2003
- ------------------------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002
- ------------------------------------------------------------------------------------------------------------
EUR '000 EUR '000
- ------------------------------------------------------------------------------------------------------------
o Board of Governors 160 160
o Board of Management 1,585 1,582
o Former members of the Board of Management
or their dependents 1,048 890
o Advisory Council (incl. travel expenses) 214 214
o Pension reserves for former members of the
Board of Management and their dependents 11,271 11,413
- ------------------------------------------------------------------------------------------------------------
Loans to members of administrative bodies (incl. contingent liabilities)
- ------------------------------------------------------------------------------------------------------------
Dec. 31, 2003 Dec. 31, 2002
- ------------------------------------------------------------------------------------------------------------
EUR '000 EUR '000
- ------------------------------------------------------------------------------------------------------------
o - Board of Governors 346 683
o - Board of Management 1,140 1,218
- ------------------------------------------------------------------------------------------------------------
Average number of staff employed in 2003
- ------------------------------------------------------------------------------------------------------------
Male Female Total
- ------------------------------------------------------------------------------------------------------------
Employees 506 628 1,134
of whom: full-time employees 495 420 915
part-time employees 11 208 219
excluding trainees, temporary staff, students
on placement, volunteers, cleaning staff
- ------------------------------------------------------------------------------------------------------------
F-23
Directorships held by members of the Board of Management and employees of
L-Bank pursuant to ss. 340a para. 4 no. 1 HGB
Christian Brand, Chairman of the Board of Management
Baden-Wurttembergische Bank AG, Stuttgart Member of the Supervisory Board
BWK GmbH Unternehmensbeteiligungsgesellschaft, Stuttgart Member of the Supervisory Board
Clariant GmbH, Frankfurt Member of the Supervisory Board
Sachsische Aufbaubank - Forderbank, Dresden Member of the Board of Governors
Tourismus-Marketing GmbH Baden-Wurttemberg, Stuttgart Vice Chairman of the Supervisory Board
Vorarlberger Landes- und Hypothekenbank AG, Bregenz Member of the Supervisory Board
Jurgen Hagele, Vice Chairman of the Board of Management
Business-Park Goppingen GmbH, Goppingen Member of the Supervisory Board
Industriepark Gottmadingen AG (IPG), Gottmadingen Chairman of the Supervisory Board
Dr. Manfred Schmitz, Member of the Board of Management
MBG Mittelstandische Beteiligungsgesellschaft
Baden-Wurttemberg GmbH, Stuttgart Member of the Supervisory Board
Industriepark Gottmadingen AG (IPG), Gottmadingen Vice Chairman of the Supervisory Board
Peter Arnold, Executive Officer
Business-Park Goppingen GmbH, Goppingen Member of the Supervisory Board
Industriepark Gottmadingen AG (IPG), Gottmadingen Member of the Supervisory Board
PT German Centre Indonesia, Bumi Serpong Damai, Indonesia Chairman of the Supervisory Board
Lothar Mierisch, Executive Officer
Finanzierungsgesellschaft fur Offentliche Vorhaben
des Landes Baden-Wurttemberg mbH, Stuttgart Member of the Board of Governors
Walter Weik, Executive Officer
Landsiedlung Baden-Wurttemberg GmbH, Stuttgart Member of the Supervisory Board
MBW Marketing- und Absatzforderungsgesellschaft fur Agrar- und
Forstprodukte aus Baden-Wurttemberg mbH, Stuttgart Member of the Supervisory Board
Stadtbau GmbH Pforzheim, Pforzheim Member of the Supervisory Board
Jurgen Schnieder, Head of Department
PT German Centre Indonesia, Bumi Serpong Damai, Indonesia Member of the Supervisory Board
F-24
Authorities of Landeskreditbank
Baden-Wurttemberg -- Forderbank
Board of Management Members of the Board of Governors 2003
- -----------------------------------------------------------------------------------------------------------------------------------
Christian Brand Full members: Advisory members:
Chairman
State government representatives:
Jurgen Hagele Dr. Walter Doring MdL
Vice Chairman Minister of Economic
Affairs
Chairman
Dr. Manfred Schmitz Wirtsch.-Ing. Rudiger Ruhnow
Member of the Board of Gerhard Stratthaus MdL Bernd Bechtold Chairman of the Central Staff
Management Minister of Finance President of the Karlsruhe Council at L-Bank, Karlsruhe
Vice Chairman Chamber of Commerce and Industry
(from Dec. 1, 2003)
Prof. Dr. Dieter Puchta Dr. Thomas Schauble MdL Heinz Kalberer Reiner Enzmann
Member of the Board of Minister of the Interior Lord Mayor of Vaihingen Chairman of the Staff Council
Management (to June 30, Vice Chairman of L-Bank, Karlsruhe
2003)
Willi Stachele MdL
Minister for Food and Rural Planning
Vice Chairman
Ulrich Muller MdL Gisela Graber Gabriele Propp
Minister of the Environment, Deputy Chairman of the Regional Chairman of the Staff Council
Transport and Communications Chapter ver.di e.V., Stuttgart of L-Bank, Stuttgart
Dr. Friedhelm Repnik MdL Otwin Brucker
Minister of Social Affairs President of the Baden-Wurttemberg
Association of Municipalities
Rudolf Bohmler
State Secretary at the Ministry of
State Gerhard Burkhardt
Chairman of the Board of
Dr. Rainer Hagele Management of the Verband baden-
Undersecretary at the Ministry of wurttembergischer
Finance Wohnungsunternehmen e.V.,
Stuttgart
Other members: Dr. Christoph Niemann
Member of the Supervisory Board of
Klaus Hackert HSBC Trinkaus & Burkhardt KGaA,
President of the Baden-Wurttemberg Dusseldorf (to Nov. 30, 2003)
Association of Craftsmen
Marco Freiherr von Maltzan
Norbert Keller Chairman of the Board of
President of the Karlsruhe Chamber Management of BERU AG,
of Commerce and Industry (to Nov. Ludwigsburg (from Dec. 1, 2003)
30, 2003)
F-25
- -----------------------------------------------------------------------------------------------------------------------------------
State government
deputy representatives
Dr. Karl Epple Hermann Strampfer Frank Zach Prof. Konrad Freiherr von
Undersecretary at the Ministry Assistant Undersecretary and Head of the Trade and Industry Rotberg Assistant
of Economic Affairs (to Nov. Head of Dept. I at the Department of the Undersecretary and Head
30, 2003) Ministry of State Baden-Wurttemberg Chapter of DGB of the Department of
Constitutional,
Municipal, Savings Bank
and Legal Affairs at the
Ministry of the Interior
Dr. Horst Mehrlander Julian Wurtenberger Georg Mehl Klaus Roscheisen
State Secretary at the Assistant Undersecretary and Senator (retd.) Assistant Undersecretary and
Ministry of Economic Affairs Head of Dept. II at the Wustenrot & Wurttembergische AG Head of the Administration
(from Dec. 1, 2003) Ministry of State (to Nov. 30, (to Nov. 30, 2003) Department at the Ministry
2003) of the Environment,
Transport and Communications
Wolfgang Ruckert MdL Dr. Rudolf Kuhner Assistant Dr. Jurgen Schutz Christian Luft
State Secretary at the Undersecretary and Head of Vice President of the Assistant Secretary and Head
Ministry of Finance Dept. III at the Ministry of Baden-Wurttemberg Association of of the Central Office at the
State (from Dec. District Councils (from Dec. 1, Ministry of Social Affairs
1, 2003) 2003)
Roland Eckert Undersecretary Deputy representatives: Karl-Heinz Reinheimer Bernhard Giess
at the Ministry of the Honorary Chairman of the Assistant Secretary and Head
Interior (to Jan. 31, 2003) Joachim Wohlfeil Bundesverband Freier of the State Budget, Real
President of the Karlsruhe Wohnungsunternehmen e.V., Estate and Investments
Chamber of Craftsmen Sindelfingen (to Nov. 30, 2003) Section of the Ministry of
State (to March 23, 2003)
Max Munding Undersecretary at Dr. Ing. Hansjorg Rieger Andreas Schmitz Reiner Moser
the Ministry of the Interior Managing Partner of General Partner of HSBC Trinkaus Assistant Secretary and Head
(from Feb. 1, 2003 to Nov. 30, RUD-Kettenfabrik Rieger & & Burkhardt KGaA, Dusseldorf of the Budget and Fiscal
2003) Dietz, Aalen (from Dec. 1, 2003) Policy, Tax Appraisal, Real
Estate and Investments
Section of the Ministry of
State (from March 24, 2003)
Heribert Rech MdL Egon Gushurst Wilhelm Freiherr von Haller Norbert Schmitt
State Secretary at the Certified Public Accountant Member of the Board of Management Assistant Secretary and Head
Ministry of the Interior (from and Honorary President of Deutsche Bank AG of the State Investment and
Dec. 1, 2003) Badischer Genossenschaftsverband Banking Section at the
Raiffeisen-Schulze-Delitzsch Ministry of Finance
e.V., Karlsruhe (to Nov. 30,
2003)
Rainer Arnold Undersecretary Gerhard Rosswog Spokesman for Prof. Dr. Willi Weiblen
at the Ministry for Food and the Board of Management of Assistant Undersecretary and
Rural Planning Badischer Genossenschaftsverband Head of the Department of
Raiffeisen-Schulze-Delitzsch Economic and Structural Policy
e.V., Karlsruhe (from Dec. 1, at the Ministry of Economic
2003) Affairs
Stefan Mappus MdL Walter Leibold
State Secretary at the Assistant Undersecretary and Head
Ministry of the Environment, of the Department of Financial
Transport and Communications Policy and Investments at the
Ministry of Finance
Bernhard Bauer Undersecretary
at the Ministry of Social
Affairs
F-26
Proposal of the Board of Management for the appropriation of retained profits
EUR 103.0 million of the net profit for the financial year 2003 has already been
appropriated to retained profit and reserves. Of the remaining distributable
profit totaling EUR 2,399,563.42, the Board of Management proposes that EUR
2,000,000 should be appropriated to retained profit and reserves, and that the
remaining EUR 399,563.42 should be carried forward to next year's account.
Karlsruhe, March 16, 2004
Landeskreditbank Baden-Wurttemberg - Forderbank
/s/ Christian Brand /s/ Jurgen Hagele /s/ Dr. Manfred Schmitz
- -------------------- ------------------ ------------------------
Christian Brand Jurgen Hagele Dr. Manfred Schmitz
F-27
Independent Auditors' opinion
We have audited the financial statements of Landeskreditbank
Baden-Wurttemberg - Forderbank - ("L-Bank" or "the Bank"), Karlsruhe, for the
financial year ending December 31, 2003. The accounting and preparation of the
financial statements and of the management report of the Bank in accordance with
German commercial law are the responsibility of the Board of Managing Directors
of L-Bank. Our responsibility is to express an opinion based on our audit on the
financial statements and the management report of the Bank. We conducted our
audit of the financial statements in accordance with ss. 317 HGB (the German
Commercial Code and the German generally accepted standards for the audit of
financial statements promulgated by the "Institut der Wirtschaftspufer" (IDW,
the German Institute of Certified Public Accountants). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the presentation of the net assets, financial position, and results of operation
in the financial statements, drawn up in accordance with the German generally
accepted accounting principles, and in the management report of the Bank are
free of material misstatement. Knowledge of the business activities and the
economic and legal environment of the Bank and evaluations of possible
misstatements are taken into account in the determination of audit procedures.
The effectiveness of the accounting-related internal control system and the
evidence supporting the disclosures in the books and records, the financial
statements, and the management report of the Bank are primarily examined on a
test basis within the framework of the audit. The audit of the financial
statements includes assessing the accounting principles applied and the
significant estimates made by the Board of Managing Directors of L-Bank and
evaluating the overall presentation of the financial statements and management
report of the Bank. We believe that our audit provides a reasonable basis for
our opinion.
Our audit did not lead to any objections.
In our opinion, the financial statements give a true and fair view of
the net assets, financial position, and results of operations of the Bank in
accordance with German generally accepted accounting principles. Seen in total,
the management report of the Bank is an accurate representation of the position
of the Bank and accurately reflects the risks entailed in its future
development.
Stuttgart, March 29, 2004
PwC Deutsche Revision
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
/s/ Schuldt /s/ Apitzsch
- ------------------------ ------------------------
Schuldt ppa. Apitzsch
Auditor Auditor
F-28
FINANCIAL STATEMENTS OF L-BANK
AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 2002
F-29
Landeskreditbank Baden-Wurttemberg - Forderbank - Balance sheet as of December 31, 2002
- --------------------------------------------------------------------------------------------------------------------------------
Assets Dec. 31, 2002 Dec. 31, 2001
- --------------------------------------------------------------------------------------------------------------------------------
EUR EUR EUR EUR
- --------------------------------------------------------------------------------------------------------------------------------
1. Cash reserve
a) Cash on hand 35,219.32 34,509.31
b) Cash at central banks 246,001,697.70 335,645,325.62
thereof: at Federal Central Bank
EUR 246,001,697.70 (335,645,325.62)
c) Cash in postal giro accounts -.- -.-
246,036,917.02 335,679,834.93
- --------------------------------------------------------------------------------------------------------------------------------
2. Receivables from credit institutions
a) Payable on demand 67,679,885.74 63,689,244.49
b) Other receivables 10,494,519,446.74 9,710,543,892.79
10,562,199,332.48 9,774,233,137.28
- --------------------------------------------------------------------------------------------------------------------------------
3. Receivables from customers 23,258,188,570.40 23,287,140,379.02
thereof:
mortgage loans
EUR 19,846,929,401.53 (19,967,862,497.92)
loans to public authorities and entities
organized under public law
EUR 1,574,644,829.13 (1,490,664,208.07)
- --------------------------------------------------------------------------------------------------------------------------------
4. Notes and other fixed-interest securities
a) Money market securities
aa) Due from public-sector issuers 0.00 0.00
thereof: eligible as collateral
at Federal Central Bank
EUR -.- (-.-)
ab) Due from other issuers 0.00 0.00 0.00
thereof: eligible as collateral 0.00
at Federal Central Bank
EUR -.- (-.-)
b) Bonds and notes
ba) Due from public-sector issuers 1,804,824,339.36 1,586,528,000.59
thereof: eligible as collateral
at Federal Central Bank
EUR 1,618,044,726.23
(1,385,845,636.43)
bb) Due from other issuers 6,264,559,928.09 5,734,742,009.58
thereof: eligible as collateral 8,069,384,267.45 7,321,270,010.17
at Federal Central Bank
EUR 4,764,364,662.78
4,745,949,371.52)
c) Bank's own notes 207,469,685.79 1,363,487,926.63
Principal amount: 8,276,853,953.24 8,684,757,936.80
EUR 198,787,248.89 (1,311,469,555.12)
Carried forward: 42,343,278,773.14 42,081,811,288.03
F-30
- --------------------------------------------------------------------------------------------------------------------------------
Equity and Liabilities Dec. 31, 2002 Dec. 31, 2001
- --------------------------------------------------------------------------------------------------------------------------------
EUR EUR EUR EUR
- --------------------------------------------------------------------------------------------------------------------------------
1.0 Liabilities to credit institutions
a) Payable on demand 192,408,782.68 257,468,529.10
b) With an agreed maturity or notice
period 19,536,796,366.75 21,371,955,624.79
19,729,205,149.43 21,629,424,153.89
- --------------------------------------------------------------------------------------------------------------------------------
2.0 Liabilities to customers
a) Savings deposits
aa) With an agreed notice period -.- -.-
of three months
ab) With an agreed notice period -.- -.-
exceeding three months -.-
b) Other liabilities
Ba) Payable on demand 115,740,022.12 82,302,965.30
bb) With an agreed maturity or 3,880,373,942.62 4,067,716,506.49
notice period 3,996,113,964.74 3,996,113,964.74 4,150,019,471.79
- --------------------------------------------------------------------------------------------------------------------------------
3.0 Certificated liabilities
a) Notes and bonds issued 14,582,209,402.22 12,517,035,139.85
b) Other certificated liabilities -.- -.-
Thereof: money market securities 14,582,209,402.22 12,517,035,139.85
EUR -.- (-.-)
own acceptances and promissory notes
outstanding
EUR -.- (-.-)
- --------------------------------------------------------------------------------------------------------------------------------
4.0 Fiduciary liabilities 666,549,301.80 816,284,765.82
thereof: fiduciary loans
EUR 665,947,340.82 (815,682,804.85)
- --------------------------------------------------------------------------------------------------------------------------------
5.0 Other liabilities 593,926,755.76 80,508,648.58
- --------------------------------------------------------------------------------------------------------------------------------
6.0 Deferred items 1,087,576,610.33 1,308,442,177.07
- --------------------------------------------------------------------------------------------------------------------------------
7.0 Contingency reserves
a) Reserves for pensions and similar
Obligations 80,509,012.00 74,551,058.90
b) Reserves for taxes 15,437,306.66 14,099,306.66
c) Other reserves 721,532,963.27 778,399,144.47
817,479,281.93 867,049,510.03
- --------------------------------------------------------------------------------------------------------------------------------
8.0 Subordinated liabilities 444,760,064.00 442,166,011.68
Carried forward: 41,917,820,530.21 41,810,929,878.71
F-31
Landeskreditbank Baden-Wurttemberg -
Forderbank - Balance sheet as of December 31, 2002
- --------------------------------------------------------------------------------------------------------------------------------
Assets Dec. 31, 2002 Dec. 31, 2001
- --------------------------------------------------------------------------------------------------------------------------------
EUR EUR
- --------------------------------------------------------------------------------------------------------------------------------
Brought forward: 42,343,278,773.14 42,081,811,288.03
- --------------------------------------------------------------------------------------------------------------------------------
5.0 Shares and other 19,960,602.95 37,940,125.39
non-interest-bearing
securities
- --------------------------------------------------------------------------------------------------------------------------------
6.0 Equity investments in 155,447,573.28 149,938,251.52
non-affiliated companies
thereof:
in credit institutions
EUR 121,539,351.59
(121,539,351.59)
in financial services
institutions
EUR -.- (-.-)
- --------------------------------------------------------------------------------------------------------------------------------
7.0 Equity investments in 110,108,403.08 22,408,403.08
affiliated companies
thereof:
in credit institutions
EUR -.- (-.-)
in financial services
institutions EUR -.-
(-.-)
- --------------------------------------------------------------------------------------------------------------------------------
8.0 Fiduciary assets 666,549,301.80 816,284,765.82
thereof: fiduciary
loans
EUR 665,947,340.82
(815,682,804.85)
- --------------------------------------------------------------------------------------------------------------------------------
9.0 Intangible assets -.- -.-
- --------------------------------------------------------------------------------------------------------------------------------
10.0 Tangible assets 125,982,633.07 141,462,084.46
- --------------------------------------------------------------------------------------------------------------------------------
11.0 Other assets 47,369,786.03 51,591,829.83
- --------------------------------------------------------------------------------------------------------------------------------
12.0 Deferred charges and 116,207,303.09 89,998,668.43
prepaid expenses
Total assets 43,584,904,376.44 43,391,435,416.56
- --------------------------------------------------------------------------------------------------------------------------------
F-32
- --------------------------------------------------------------------------------------------------------------------------------
Equity and Liabilities Dec. 31, 2002 Dec. 31, 2001
- --------------------------------------------------------------------------------------------------------------------------------
EUR EUR EUR
- --------------------------------------------------------------------------------------------------------------------------------
Brought forward: 41,917,820,530.21 41,810,929,878.71
- --------------------------------------------------------------------------------------------------------------------------------
9.0 Fund for general bank risks 108,905,170.69 108,905,170.69
- --------------------------------------------------------------------------------------------------------------------------------
10.0 Equity
a) Subscribed capital 250,000,000.00 250,000,000.00
b) Capital surplus 950,850,789.69 950,850,789.69
c) Retained profit and reserves
ca) Legal reserves -.- -.-
cb) Reserve for treasury stock -.- -.-
cc) Statutory reserve -.- -.-
cd) Other retained profit 323,000,000.00 237,500,000.00
d) Distributable profit 34,327,885.85 33,249,577.47
1,558,178,675.54 1,471,600,367.16
Total equity and liabilities 43,584,904,376.44 43,391,435,416.56
- --------------------------------------------------------------------------------------------------------------------------------
1.0 Contingent liabilities
a)Contingent liabilities relating to
negotiated cleared bills of exchange -.- -.-
b)Liabilities relating to guarantees and
indemnity agreements 1,068,613,953.30 431,759,983.85
c)Liabilities relating to securities
covering third-party liabilities -.- -.-
1,068,613,953.30 431,759,983.85
- --------------------------------------------------------------------------------------------------------------------------------
2.0 Other obligations
a)Repurchase obligations from the sale
of securities with put options -.- -.-
b)Placement and underwriting obligations -.- -.-
c)Irrevocable credit commitments 1,317,885,351.80 1,522,977,890.47
1,317,885,351.80 1,522,977,890.47
F-33
Landeskreditbank Baden-Wurttemberg - Forderbank
Statement of income for the period
from January 1, 2002 to December 31, 2002
- --------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2002 Dec. 31, 2001
- --------------------------------------------------------------------------------------------------------------------------------
EUR EUR EUR EUR
- --------------------------------------------------------------------------------------------------------------------------------
1.0 Interest income from
a)Lending and money market
transactions 2,101,601,820.39 2,032,059,758.72
b)Fixed-interest securities and
debt register receivables 389,841,589.13 357,301,098.12
2,491,443,409.52 2,389,360,856.84
- --------------------------------------------------------------------------------------------------------------------------------
2.0 Interest expenses 2,103,783,365.73 2,005,496,735.15
387,660,043.79 383,864,121.69
- --------------------------------------------------------------------------------------------------------------------------------
3.0 Current income from
a)Shares and other
non-interest-bearing securities 605,093.36 792,889.41
b)Equity investments in
non-affiliated companies 4,260,374.41 5,561,935.66
c)Equity investments in
affiliated companies -.- -.-
4,865,467.77 6,354,825.07
- --------------------------------------------------------------------------------------------------------------------------------
4.0 Commission income 25,081,128.77 25,624,281.98
- --------------------------------------------------------------------------------------------------------------------------------
5.0 Commission expenses 13,459,113.11 12,485,132.48
- --------------------------------------------------------------------------------------------------------------------------------
6.0 Net income from financial 2,109,754.84 1,230,345.09
transactions
- --------------------------------------------------------------------------------------------------------------------------------
7.0 Other operating income 41,134,887.96 37,234,241.31
- --------------------------------------------------------------------------------------------------------------------------------
8.0 General administrative expenses
a) Personnel expenses
aa) Wages and salaries 56,331,911.21 51,901,035.42
ab) Social security, pension
and other benefit and
welfare expenses thereof:
for pensions 22,767,299.91 16,177,612.27
EUR 8,945,552.10 79,099,211.12 68,078,647.69
(7,707,050.11)
b) Other general administrative
expenses 38,311,138.11 33,253,509.08
117,410,349.23 101,332,156.77
- --------------------------------------------------------------------------------------------------------------------------------
9.0 Depreciation and accumulated 11,082,488.64 19,309,431.37
amortization on intangible
assets and tangible assets
including property and equipment
- --------------------------------------------------------------------------------------------------------------------------------
10.0 Other operating expenses 23,436,330.00 8,539,154.54
- --------------------------------------------------------------------------------------------------------------------------------
11.0 Depreciation and accumulated 132,669,003.32 171,947,306.05
amortization on receivables and
certain securities, together
with allowances for possible
loan losses
Carried forward: 162,793,998.83 140,694,633.93
F-34
- --------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2002 Dec. 31, 2001
- --------------------------------------------------------------------------------------------------------------------------------
EUR EUR EUR EUR
- --------------------------------------------------------------------------------------------------------------------------------
Brought forward: 162,793,998.83 140,694,633.93
- --------------------------------------------------------------------------------------------------------------------------------
12.0 Depreciation and accumulated 4,636,327.14 -.-
amortization on equity
investments in non-affiliated
companies, affiliated companies
and securities treated as fixed
assets
- --------------------------------------------------------------------------------------------------------------------------------
13.0 Income from additions to equity -.- 53,172,310.19
investments in non-affiliated
companies, affiliated companies
and securities treated as fixed
assets
- --------------------------------------------------------------------------------------------------------------------------------
14.0 Costs arising from loss 50,000.00 13,026,267.23
assignments
- --------------------------------------------------------------------------------------------------------------------------------
15.0 Result from ordinary business 158,107,671.69 180,840,676.89
operations
- --------------------------------------------------------------------------------------------------------------------------------
16.0 Taxes on income 573,556.01 672,108.74
- --------------------------------------------------------------------------------------------------------------------------------
17.0 Other taxes, where not shown 177,782.24 176,062.72
under item 10
- --------------------------------------------------------------------------------------------------------------------------------
18.0 Allocation to reserves for 70,778,025.06 74,336,681.36
interest rate reductions
- --------------------------------------------------------------------------------------------------------------------------------
19.0 Net profit 86,578,308.38 105,655,824.07
- --------------------------------------------------------------------------------------------------------------------------------
20.0 Balance brought forward from the 33,249,577.47 31,646,572.41
previous year
119,827,885.85 137,302,396.48
- --------------------------------------------------------------------------------------------------------------------------------
21.0 Transfers to retained profit and 85,500,000.00 104,052,819.01
reserves to other retained
profit and reserves
- --------------------------------------------------------------------------------------------------------------------------------
22.0 Distributable profit 34,327,885.85 33,249,577.47
- --------------------------------------------------------------------------------------------------------------------------------
F-35
Notes to the annual financial statements of Landeskreditbank Baden-Wurttemberg -
Forderbank - for the financial year ended December 31, 2002
General principles
Landeskreditbank Baden-Wurttemberg - Forderbank (L-Bank) was
established by legislation passed on November 11, 1998, which came into effect
on December 1, 1998. In accordance with ss. 2 para. 1 subpara. 1 of the L-Bank
Act, the share capital of the Bank is EUR 250 million.
The financial statements for L-Bank have been drawn up in accordance
with the provisions of the German Commercial Code (Handelsgesetzbuch [HGB]) and
the Regulation on the Accounting Principles Applied to Credit Institutions
(Verordnung uber die Rechnungslegung fur Kreditinstitute [RechKredV]).
Headings and items on the balance sheet and statement of income are
classified in accordance with the financial statement forms that appear in
RechKredV. In the process, L-Bank has added an extra item to the expenses side
of the statement of income, "Allocation to reserves for interest rate
reductions" (ss. 265 para. 5 HGB).
The majority interests declared in the financial statements are of
minor significance overall. For this reason the Bank did not prepare
consolidated financial statements for the period (ss. 296 para. 2 HGB).
Foreign currency translation principles
Foreign currency amounts have been translated in accordance with the
provisions set out in ss. 340h HGB and declaration BFA 3/95. Assets and
liabilities denominated in foreign currencies, together with unprocessed spot
exchange transactions currencies, together with unprocessed spot exchange
transactions, have been translated at the middle spot rate on December 30, 2002.
For purposes of currency translation, currency items have been
calculated by offsetting claims and obligations arising from on-balance-sheet
and off-balance-sheet transactions in the respective currencies. These
transactions were classified and valued using the special cover option in the
respective currencies. Accordingly, all expenses and earnings arising from
currency translation are shown in the income statement as required by ss. 340h
para. 2 subparas. 1 and 2 HGB; there was no requirement to show income under a
separate heading as the items outstanding on the balance sheet date fall within
a limited timeframe.
Methods of accounting and valuation
Assets, liabilities and pending transactions have been valued in
accordance with the general provisions of ss.ss. 252 ff. HGB, taking into
account the special rules applying to credit institutions (ss.ss. 340e ff. HGB).
Receivables from credit institutions and customers are shown at par
value, liabilities to credit institutions and customers at redemption value. Any
interest-based differences are shown under deferrals and prepayments and written
back pro rata temporis. Service charges are entered immediately. Low-interest or
non-interest-bearing receivables are discounted. Reserves for interest rate
subsidies are set up to cover loans made under the auspices of development
programs. Zero bonds and similar securities issued are shown at the issue price
plus interest calculated up to the balance sheet date pro rata temporis.
All recognized individual risks and country risks arising out of the
Bank's lending business were appropriately provided for, either by accumulated
amortization for losses on individual loan accounts or by reserves. Lump-sum
reserves have been established to cover latent credit risks, and the Bank
maintains prudential reserves to cover general banking risks. Individual and
lump-sum accumulated amortization/reserves have been deducted from the assets or
liabilities side as appropriate, as has the reserve for general banking risks
set up in compliance with ss. 340f HGB.
F-36
Securities in the trading portfolio and liquidity reserve are valued
strictly according to the principle of lower of cost or market value as at the
balance sheet date. Securities treated as fixed assets are shown at net book
value, differences between book value and redemption value (premium/discounts)
being marked up or down pro rata to term.
Equity investments in non-affiliated and affiliated companies are
valued at the lower of acquisition cost or fair value, according to the rules
applying to fixed assets.
Tangible assets are valued at acquisition or production cost, less
scheduled depreciation. Where the value of an item is expected to continue to
decline, unscheduled depreciation has been applied as appropriate. Minor fixed
assets are fully depreciated in the year of acquisition.
Reserves for pension commitments and for obligations under the Bank's
employee pension scheme have been calculated using the method of computation
provided for in ss. 6a of the German Income Tax Act (Einkommensteuergesetz
[EStG]) applying the updated Heubeck mortality tables. Adequate provisions have
been made to cover the early retirement scheme provided for by collective
agreement and the part-time employment scheme devised for senior employees, as
well as any obligations arising in connection with long-service bonuses and
other benefits.
Other reserves are set at the amount deemed necessary by the exercise
of reasonable business judgment to cover all uncertain liabilities and potential
losses on pending transactions.
The Bank concludes derivative transactions primarily in order to
control interest rate exposure - they are not valued. The Bank also trades in
derivatives in order to hedge balance sheet items and on its own account. Market
values are based on interest rates prevailing at December 30, 2002. Transactions
for hedging purposes are valued together with the relevant balance sheet items.
The market values of bonds, notes and derivatives held for the Bank's
own account are determined individually as at the balance sheet date. The Bank
currently holds four portfolios governed by EUR interest rate risks and offsets
valuation gains and losses within these portfolios. In accordance with the
non-parity principle, any positive balance is not appropriated, whereas a
provision is made to cover a negative balance.
Principles of the German Banking Act (Kreditwesengesetz [KWG])
Throughout 2002, the Bank adhered to Principle I (relating to capital
adequacy) and Principle II (relating to liquidity).
F-37
Notes to the annual financial statements of Landeskreditbank Baden-Wurttemberg -
Forderbank - for the financial year ended December 31, 2002
- --------------------------------------------------------------------------------------------------------------------
Maturities of selected balance sheet items
(to final maturity or first call)
- --------------------------------------------------------------------------------------------------------------------
Dec. 31, 2002 Dec. 31, 2001
- --------------------------------------------------------------------------------------------------------------------
EUR '000 EUR '000
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Receivables from credit institutions
payable on demand 67,680 63,689
due in three months or less 2,456,809 2,943,491
due in more than three months to one year 1,015,186 657,886
due in more than one year to five years 2,997,131 2,740,300
due in more than five years 4,025,393 3,368,867
- --------------------------------------------------------------------------------------------------------------------
Receivables from customers
due in three months or less 502,867 474,632
due in more than three months to one year 649,987 719,364
due in more than one year to five years 2,400,261 2,263,512
due in more than five years 19,705,074 19,829,632
no fixed maturity 0 0
- --------------------------------------------------------------------------------------------------------------------
Notes and other interest-bearing securities
Loans and notes payable in the following year 808,708 726,732
- --------------------------------------------------------------------------------------------------------------------
Liabilities to credit institutions
payable on demand 192,409 257,468
due in three months or less 3,402,134 5,403,174
due in more than three months to one year 1,764,600 1,943,089
due in more than one year to five years 4,488,868 3,884,975
due in more than five years 9,881,194 10,140,718
- --------------------------------------------------------------------------------------------------------------------
Liabilities to customers
payable on demand 115,740 82,303
due in three months or less 279,202 363,286
due in more than three months to one year 95,178 146,862
due in more than one year to five years 873,225 1,068,285
due in more than five years 2,632,769 2,489,283
- --------------------------------------------------------------------------------------------------------------------
Certificated liabilities
payable on demand 0 2,045
due in three months or less 635,384 985,533
due in more than three months to one year 1,816,999 702,913
due in more than one year to five years 10,140,068 7,773,132
due in more than five years 1,989,758 3,053,412
thereof under subitem
"Notes and bonds issued"
payable in the following year: TEUR 2,452,383
F-38
- --------------------------------------------------------------------------------------------------------------------
Notes to individual balance sheet items
- --------------------------------------------------------------------------------------------------------------------
Dec. 31, 2002 Dec. 31, 2001
- --------------------------------------------------------------------------------------------------------------------
EUR '000 EUR '000
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Receivables from credit institutions
Under this heading are shown:
o receivables from non-affiliated companies 286,209 210,478
o subordinated receivables 0 0
- --------------------------------------------------------------------------------------------------------------------
Receivables from customers
Under this heading are shown:
o receivables from affiliated companies 151,453 192,528
o receivables from non-affiliated companies 247,276 196,055
o subordinated receivables 8,476 175
- --------------------------------------------------------------------------------------------------------------------
Notes and other interest-bearing securities
The subheading "Bonds and notes" does not include any certificated
subordinated receivables or receivables from affiliated or non-affiliated
companies.
Of the securities shown under this heading:
o listed securities account for 8,116,537 8,543,378
o unlisted securities account for 160,317 141,380
Securities amounting to EUR 7,638 million were assigned to fixed asset. Of
these, EUR 1,638 million were valued as fixed assets.
F-39
Notes to the annual financial statements of Landeskreditbank Baden-Wurttemberg -
Forderbank - for the financial year ended December 31, 2002
- --------------------------------------------------------------------------------------------------------------------
Notes to individual balance sheet items
- --------------------------------------------------------------------------------------------------------------------
Dec. 31, 2002 Dec. 31, 2001
- --------------------------------------------------------------------------------------------------------------------
EUR '000 EUR '000
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Shares and other non-interest-bearing securities
Under this heading are shown:
o subordinated assets in the amount of 6,462 -
o non-affiliated companies account for - -
Of the marketable securities shown under this heading:
o listed securities account for 6,462 24,240
o unlisted securities account for - -
- --------------------------------------------------------------------------------------------------------------------
Equity investments in non-affiliated companies
Of the marketable securities included under equity investments in
non-affiliated companies:
o listed securities account for 120,563 120,563
o unlisted securities account for 0 0
- --------------------------------------------------------------------------------------------------------------------
Equity investments in affiliated companies
This item does not include equity investments which have been certified as
marketable securities.
- --------------------------------------------------------------------------------------------------------------------
Fiduciary assets
This item is broken down as follows:
o receivables from credit institutions 181,189 191,115
o receivables from customers 485,361 625,170
- --------------------------------------------------------------------------------------------------------------------
Tangible assets
This item includes:
o real estate and buildings utilized for
the Bank's own activities 89,631 93,555
o furniture and office equipment 13,003 12,408
- --------------------------------------------------------------------------------------------------------------------
F-40
- --------------------------------------------------------------------------------------------------------------------
Notes to individual balance sheet items
- --------------------------------------------------------------------------------------------------------------------
Dec. 31, 2002 Dec. 31, 2001
- --------------------------------------------------------------------------------------------------------------------
EUR '000 EUR '000
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Deferred charges, prepaid expenses and deferred items
- - Assets
o Difference between net loan proceeds or original cash
outlay and lower par (nominal) value of receivables 54,480 34,297
o Difference between amount issued and higher
amount repayable of payables 53,770 47,530
- --------------------------------------------------------------------------------------------------------------------
Liabilities to credit institutions
Under this heading are shown:
o liabilities to affiliated companies - -
o liabilities to non-affiliated companies 713 17,292
- --------------------------------------------------------------------------------------------------------------------
Liabilities to customers
Under this heading are shown:
o liabilities to affiliated companies 26,679 9,331
o liabilities to non-affiliated companies - -
- --------------------------------------------------------------------------------------------------------------------
Fiduciary liabilities
Fiduciary liabilities are divided up into:
o liabilities to credit institutions 85,759 99,177
o liabilities to customers 580,790 717,108
- --------------------------------------------------------------------------------------------------------------------
Deferred charges, prepaid expenses and deferred items
- - Liabilities
o Difference between net loan proceeds or
original cash outlay and higher par (nominal)
value of receivables 36,485 41,059
o Difference between amount issued and lower
amount repayable of payables 2,338 3,023
- --------------------------------------------------------------------------------------------------------------------
F-41
Notes to the annual financial statements of Landeskreditbank Baden-Wurttemberg -
Forderbank - for the financial year ended December 31, 2002
- --------------------------------------------------------------------------------------------------------------------
Notes to individual balance sheet items
- --------------------------------------------------------------------------------------------------------------------
Dec. 31, 2002 Dec. 31, 2001
- --------------------------------------------------------------------------------------------------------------------
EUR '000 EUR '000
- --------------------------------------------------------------------------------------------------------------------
Subordinated liabilities
This item does not include any liabilities to affiliated or non-affiliated
companies.
Interest expenses in respect of subordinated
liabilities 18,412 18,298
Individual subordinated issues exceeding 10% of the total amount of the
subordinated liabilities break down as follows:
Currency Amount in millions Interest rate (%) Due on
EUR 85 0.0000 Dec. 30, 2010
EUR 50 4.0800 Jan. 23, 2009
EUR 250 4.1250 Jan. 14, 2009
EUR 50 4.4600 Jan. 20, 2014
All subordinated liabilities constitute exclusively supplemental capital and
meet the requirements of the German Banking Act (Kreditwesengesetz [KWG]). Of
significance here is the subordinated nature of the Bank's liabilities in
relation to all non-subordinated liabilities due to other creditors. In the
event of liquidation, subordinated creditors are only entitled to receive
payment after all liabilities due to other creditors have been paid in full.
Retrospective limitation of the subordinated nature of the liability or the
original maturity (of at least five years) or the agreed period of notice, is
precluded.
In accordance with state legislation, L-Bank is unable to file for insolvency.
F-42
- --------------------------------------------------------------------------------------------------------------------
Individual material items
- --------------------------------------------------------------------------------------------------------------------
Dec. 31, 2002 Dec. 31, 2001
- --------------------------------------------------------------------------------------------------------------------
EUR '000 EUR '000
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Other assets
o Premiums on interest rate options 9,695 18,164
o Objets d'art 13,722 13,637
- --------------------------------------------------------------------------------------------------------------------
Other liabilities
o Delivery commitments arising from
securities operations 87,483 49,692
o Adjustment item for foreign exchange
valuation 492,026 7,596
o One-off payments on swaps due at maturity 4,700 0
o Liabilities relating to outstanding
premiums on interest rate options 9,275 11,594
o Trade payables 4,433 6,649
o Deductible taxes 2,461 2,352
- --------------------------------------------------------------------------------------------------------------------
Deferred items
o Prepaid interest subsidies received from
third parties 1,007,367 1,220,285
o One-off payments on swaps due at maturity 40,822 43,430
- --------------------------------------------------------------------------------------------------------------------
Contingency reserves
o Under other reserves, reserves for L-Bank
interest subsidies 611,450 654,094
- --------------------------------------------------------------------------------------------------------------------
Commissions paid
o Commissions paid for administration of
loans in a fiduciary capacity 9,580 10,260
- --------------------------------------------------------------------------------------------------------------------
Other operating income
o Rental income 8,018 12,041
o Income from services to third parties 15,949 18,915
- --------------------------------------------------------------------------------------------------------------------
F-43
Notes to the annual financial statements of Landeskreditbank Baden-Wurttemberg -
Forderbank - for the financial year ended December 31, 2002
- --------------------------------------------------------------------------------------------------------------------
Individual material items Dec. 31, 2002 Dec. 31, 2001
- --------------------------------------------------------------------------------------------------------------------
EUR '000 EUR '000
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Depreciation and accumulated amortization on
intangible assets and tangible assets
o Unscheduled depreciation 0 8,028
- --------------------------------------------------------------------------------------------------------------------
Other operating expenses
o Expenses relating to grants and subsidies
provided under development programs
managed on behalf of the state of
Baden-Wurttemberg 18,407 3,068
- --------------------------------------------------------------------------------------------------------------------
Total value of assets and debts denominated in
foreign currencies
o Assets 761,808 762,891
o Debts 3,455,007 1,587,830
The risk of exchange rate fluctuations arising from balance sheet items
denominated in foreign currencies is essentially covered by
off-balance-sheet hedging transactions.
- --------------------------------------------------------------------------------------------------------------------
Book value of assets sold for repurchase (true
repo agreements pursuant to ss. 340b para. 4 HGB)
o Open-market transactions with Federal
Central Bank 0 98,090
o In the context of sell and buy-back
transactions with other credit
institutions 78,646 0
- --------------------------------------------------------------------------------------------------------------------
Assets lodged as security for liabilities
For liabilities to credit institutions
o open-market transactions with Federal
Central Bank 0 98,090
For other liabilities
o interest rate futures transactions 4,703 4,969
- --------------------------------------------------------------------------------------------------------------------
Other financial obligations
o The total sum of other financial obligations existing at the balance sheet
date which are not included in the balance sheet or shown below the line is
of minor significance to an evaluation of the Bank's financial position.
Transaction involving derivatives
- --------------------------------------------------------------------------------
o At the balance sheet date, the following transactions involving financial
derivatives (forward transactions as defined in ss. 36 RechKredV) formed
part of L-Bank's portfolio. The majority of the transactions were
undertaken in order to hedge interest rate and exchange rate fluctuations.
The respective credit risk equivalents have been calculated using the
market valuation method based on the appropriate counterparty weighting
with the corresponding percentage add-on. The practice of netting - the
offsetting of negative market values - was not applied.
o Replacement costs were calculated on the basis of market prices. All
contracts with a positive market value have been taken into account; they
have not been set off against contracts with a negative market value by
contracting party. Taking all existing netting agreements into account,
replacement costs have fallen by EUR 1,490 million, from EUR 2,326 million
to EUR 836 million.
- --------------------------------------------------------------------------------------------------------------------
Dec. 31, 2002 Dec. 31, 2001 Dec. 31, 2002 Dec. 31, 2002
- --------------------------------------------------------------------------------------------------------------------
Credit risk
Nominal values Nominal values equivalents Replacement costs
- --------------------------------------------------------------------------------------------------------------------
EUR million EUR million EUR million EUR million
- --------------------------------------------------------------------------------------------------------------------
Transactions involving derivatives - by
contracting party (incl. commercial
transactions)
o Banks in the OECD 71,195 65,476 934 2,068
o Public-sector institutions in the OECD 75 0 0 0
o Other counterparties (incl. stock
exchange contracts) 6,429 5,379 324 258
- --------------------------------------------------------------------------------------------------------------------
Total 77,699 70,855 1,258 2,326
- --------------------------------------------------------------------------------------------------------------------
F-45
Notes to the annual financial statements of Landeskreditbank Baden-Wurttemberg -
Forderbank - for the financial year ended December 31, 2002
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Transactions involving derivatives
- -------------------------------------------------------------------------------------------------------------------
Dec. 31, 2002 Dec. 31, 2001 Dec. 31, 2002 Dec. 31, 2002
- -------------------------------------------------------------------------------------------------------------------
Interest rate Interest rate Currency risks Currency risks
risks risks
- -------------------------------------------------------------------------------------------------------------------
EUR million EUR million EUR million EUR million
- -------------------------------------------------------------------------------------------------------------------
Transactions involving derivatives -
maturity (incl. commercial transactions)
Residual maturities
o up to 3 months 5,850 3,810 169 0
o up to 1 year 6,615 6,384 28 0
o up to 5 years 24,422 22,518 3,144 0
o more than 5 years 36,256 36,398 435 0
- -------------------------------------------------------------------------------------------------------------------
Total 73,143 69,110 3,776 0
- -------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Dec. 31, 2002 Dec. 31, 2001
- ---------------------------------------------------------------------------------------------------------------------
Credit Credit
derivatives derivatives
- ---------------------------------------------------------------------------------------------------------------------
EUR million EUR million
- ---------------------------------------------------------------------------------------------------------------------
Residual maturities
o up to 3 months 100 0
o up to 1 year 55 0
o up to 5 years 340 0
o more than 5 years 285 0
- ---------------------------------------------------------------------------------------------------------------------
Total 780 0
- ---------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Transactions involving derivatives
- --------------------------------------------------------------------------------------------------------------------
Dec. 31, 2002 Dec. 31, 2001 Dec. 31, 2002 Dec. 31, 2002
- --------------------------------------------------------------------------------------------------------------------
Nominal values Nominal values Credit risk Replacement
equivalents costs
----------------------------------------------------------------------
EUR million EUR million EUR million EUR million
----------------------------------------------------------------------
Transactions involving derivatives - by
volume (incl. commercial transactions)
- --------------------------------------------------------------------------------------------------------------------
Interest rate risks
o Interest rate swaps 72,138 67,845 625 2,028
o FRAs 0 250 0 0
o Interest rate options - sold 0 0 0 0
o Caps 895 895 0 0
o Stock exchange contracts 110 120 0 0
- --------------------------------------------------------------------------------------------------------------------
Total interest rate risks 73,143 69,110 625 2,028
- --------------------------------------------------------------------------------------------------------------------
Currency risks
o Forward exchange deals 176 103 1 2
o Cross-currency interest rate swaps 3,600 1,642 55 41
- --------------------------------------------------------------------------------------------------------------------
Total currency risks 3,776 1,745 56 43
- --------------------------------------------------------------------------------------------------------------------
Credit derivatives
o Credit default swaps - protection seller 525 0 322 1
F-46
- --------------------------------------------------------------------------------------------------------------------
Transactions involving derivatives
- --------------------------------------------------------------------------------------------------------------------
Dec. 31, 2002 Dec. 31, 2001 Dec. 31, 2002 Dec. 31, 2002
- --------------------------------------------------------------------------------------------------------------------
Nominal values Nominal values Credit risk Replacement
equivalents costs
----------------------------------------------------------------------
EUR million EUR million EUR million EUR million
----------------------------------------------------------------------
o Credit-linked notes - protection
seller 255 0 255 255
- --------------------------------------------------------------------------------------------------------------------
Total credit derivatives 780 0 577 256
- --------------------------------------------------------------------------------------------------------------------
All credit default swaps have been assigned to investments and appear under
contingent liabilities at their nominal value. Credit-linked notes are
shown under securities.
- --------------------------------------------------------------------------------
F-47
Notes to the annual financial statements of Landeskreditbank Baden-Wurttemberg -
Forderbank - for the financial year ended December 31, 2002
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Transactions involving derivatives
- --------------------------------------------------------------------------------------------------------------------
Dec. 31, 2002 Dec. 31, 2001 Dec. 31, 2002 Dec. 31, 2002
- --------------------------------------------------------------------------------------------------------------------
Credit risks Replacement
Nominal values Nominal values equivalents costs
-----------------------------------------------------------------
EUR million EUR million EUR million EUR million
-----------------------------------------------------------------
Transactions involving derivatives - commercial
transactions
- --------------------------------------------------------------------------------------------------------------------
- - Interest rate contracts 3,879 4,139 32 100
- --------------------------------------------------------------------------------------------------------------------
Total 3,879 4,139 32 100
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement on tax liability
- --------------------------------------------------------------------------------
Under ss. 5 para. 1 no. 2 of the Corporation Tax Act
(Korperschaftsteuergesetz [KStG]) and ss. 3 no. 2 of the Trade Tax Act
(Gewerbesteuergesetz [GewStG]), Landeskreditbank Baden-Wurttemberg -
Forderbank is exempt from corporation tax and trade tax.
- --------------------------------------------------------------------------------
F-48
- --------------------------------------------------------------------------------
L-Bank's equity holdings pursuant to ss. 285 no. 11 HGB
- --------------------------------------------------------------------------------------------------------------------
No. Name/Registered office Holding Equity capital Net income/loss 1)
- --------------------------------------------------------------------------------------------------------------------
in %
(direct) in EUR '000 in EUR '000
- --------------------------------------------------------------------------------------------------------------------
1.0 Austria Beteiligungsgesellschaft mbH, 33.34 35,670 805
Stuttgart
2.0 Industriepark Gottmadingen AG, Gottmadingen 100.00 5,740 (**)
MBG Mittelstandische Beteiligungsgesellschaft
3.0 Baden-Wurttemberg, GmbH, Stuttgart 26.80 15,197 1,402
PT German Centre Indonesia, Bumi Serpong
4.0 Damai, Indonesia 83.67 -7,391(*) -4,056(*)
5.0 Technologiepark Karlsruhe GmbH, Karlsruhe 96.00 3,310 -486
6.0 Technologieparks Tubingen-Reutlingen, Tubingen 100.00 1,752 -218
StEP Stuttgarter EngineeringPark GmbH,
7.0 Stuttgart 100.00 10,147 -970
8.0 Business-Park Goppingen GmbH, Goppingen 40.00 3,119 26
9.0 STAIR Stuttgart Airpark GmbH, Stuttgart 100.00 1,375 -625
10.0 Mentasys GmbH, Karlsruhe 32.00 1,646 -379
11.0 detectis GmbH, Freiburg 39.43 791 -413
12.0 Sympore GmbH, Reutlingen 27.95 -1,883 -2,166
13.0 Complexio GmbH, Freiburg 33.80 (***) (***)
14.0 Elexxion GmbH, Radolfzell 36.00 (***) (***)
- ---------------------------------------------------------------------------------------------------------------
(*) Exchange rate: 1 euro = 9,188 rupiah
(**) Profit and loss transfer agreement existed until June 30, 2002
(***) Established in 2002
1) Last available financial year in each case
- ------------------------------------------------------------------------------
Equity investments in non-affiliated
companies pursuant to ss. 340a para. 4 no. 2 HGB
- ------------------------------------------------------------------------------
No. Name/Registered office
- ------------------------------------------------------------------------------
1.0 Baden-Wurttembergische Bank AG, Stuttgart
- ------------------------------------------------------------------------------
F-49
Notes to the annual financial statements of Landeskreditbank Baden-Wurttemberg -
Forderbank - for the financial year ended December 31, 2002
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fixed assets analysis
- --------------------------------------------------------------------------------
EUR `000
- ---------------------------------------------------------------------------------------------------------------------
Write-offs Write-offs
Fixed assets Historical and Book value and
- - balance cost cumulative Dec. 31, depreciation
sheet items - Jan. 1, 2002 Additions Retirements Transfers Write-ups depreciation 2002 in 2002
- ---------------- ------------ ----------- ------------ ----------- --------- ------------- ------------ -------------
Notes and 7,481,851 0
other
interest-bearing
securities 6,428,934
Shares and
other
non-interest-
bearing securities 0 Net adjustments in compliance 0 0
Equity with ss. 34 para. 3 subpara. 2 RechKredV:
investments in TEUR 1,109,666
non-affiliated
companies 176,825 155,448 -4,720
Equity
investments in
affiliated
companies 31,982 110,108 0
Tangible assets 180,113 11,158 -16,493 0 0 -48,795 125,983 -11,082
Other assets 13,663 88 0 0 0 -19 13,722 -3
- ---------------- ------------ ----------- ----------- ------------ ----------- ------------ ---------- -------------
- --------------------------------------------------------------------------------
Landeskreditbank Baden-Wurttemberg - Forderbank - hedging account for mortgage
bonds at December 31, 2002
- ------------------------------------------------------------------------------------------
Dec. 31, 2002 Dec 31, 2001
- ------------------------------------------------------------------------------------------
EUR million EUR million
- ------------------------------------------------------------------------------------------
Mortgage bonds issued 3,104 3,808
Specific assets allocated for hedging
- - receivables from credit institutions 206 137
- - receivables from customers 3,234 4,268
Surplus cover 336 597
- ------------------------------------------------------------------------------------------
F-50
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total emoluments paid out to authorities and administrative bodies of
Landeskreditbank Baden-Wurttemberg - Forderbank - in 2002 (EUR '000)
- ----------------------------------------------------------------------------------------------------------------------
Dec. 31, 2002 Dec. 31, 2001
- ----------------------------------------------------------------------------------------------------------------------
EUR '000 EUR '000
- ----------------------------------------------------------------------------------------------------------------------
- Board of Governors 160 130
- Board of Management 1,582 1,380
- Former members of the Board of
Management or their dependents 890 793
- Advisory Council (incl. travel expenses) 214 200
- Pension reserves for former members of the
Board of Management and their dependents 11,413 9,364
- ----------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Loans to members of administrative bodies
(incl. contingent liabilities)
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Dec. 31, 2002 Dec. 31, 2001
- ----------------------------------------------------------------------------------------------------------------------
EUR '000 EUR '000
- ----------------------------------------------------------------------------------------------------------------------
- Board of Governors 683 540
- Board of Management 1,218 1,492
- ----------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average number of staff employed in 2002
- ----------------------------------------------------------------------------------------------------------------------
male female total
- ----------------------------------------------------------------------------------------------------------------------
Total no. of employees 508 639 1,147
of whom:full-time employees 497 432 929
part-time employees 11 207 218
trainees (not included in the total number)
excluding temporary staff, students on placement,
volunteers, cleaning staff
- ----------------------------------------------------------------------------------------------------------------------
F-51
Directorships held by members of the Board
of Management and employees of L-Bank pursuant
to ss. 340a para. 4 no. 1 HGB
- --------------------------------------------------------------------------------
Christian Brand, Chairman of the Board of Management
- ------------------------------------------------------------ ---------------------------------------------------------
Baden-Wurttembergische Bank AG, Stuttgart Member of the Supervisory Board
BWK GmbH Unternehmensbeteiligungsgesellschaft, Stuttgart Member of the Supervisory Board
Clariant GmbH, Frankfurt Member of the Supervisory Board
Sachsische Aufbaubank GmbH, Dresden Member of the Supervisory Board
Tourismus-Marketing GmbH Baden-Wurttemberg, Stuttgart Vice Chairman of the Supervisory Board
Vorarlberger Landes-und Hypothekenbank AG, Bregenz Member of the Supervisory Board
- ----------------------------------------------------------------------------------------------------------------------
Jurgen Hagele, Vice Chairman of the Board of Management
- ----------------------------------------------------------------------------------------------------------------------
Business-Park Goppingen GmbH, Goppingen Member of the Supervisory Board (from Oct. 18, 2002)
Industriepark Gottmadingen AG, Gottmadingen Chairman of the Supervisory Board (from Oct. 11, 2002)
- ----------------------------------------------------------------------------------------------------------------------
Dr. Manfred Schmitz, Member of the Board of Management
- ----------------------------------------------------------------------------------------------------------------------
MBG Mittelstandische Beteiligungsgesellschaft
Baden-Wurttemberg GmbH, Stuttgart Member of the Supervisory Board
Industriepark Gottmadingen AG (IPG), Gottmadingen Vice Chairman of the Supervisory Board
- ----------------------------------------------------------------------------------------------------------------------
F-52
- ----------------------------------------------------------------------------------------------------------------------
L-Bank employees
- ----------------------------------------------------------------------------------------------------------------------
Peter Arnold, Executive Officer
- ----------------------------------------------------------------------------------------------------------------------
Business-Park Goppingen GmbH, Goppingen Member of the Supervisory Board
Industriepark Gottmadingen AG (IPG), Gottmadingen Member of the Supervisory Board
PT German Centre Indonesia, Bumi Serpong Damai,
Indonesia Chairman of the Supervisory Board
- ----------------------------------------------------------------------------------------------------------------------
Stephan Tribull, Executive Officer
- ----------------------------------------------------------------------------------------------------------------------
Finanzierungsgesellschaft fur Offentliche Vorhaben Member of the Board of Governors (to Dec. 31,
des Landes Baden-Wurttemberg mbH, Stuttgart 2002)
- ----------------------------------------------------------------------------------------------------------------------
Walter Weik, Executive Officer
- ----------------------------------------------------------------------------------------------------------------------
Landsiedlung Baden-Wurttemberg GmbH, Stuttgart Member of the Supervisory Board
MBW Marketing- und Absatzforderungsgesellschaft fur
Agrar- und Forstprodukte aus Baden-Wurttemberg mbH,
Stuttgart Member of the Supervisory Board
Stadtbau GmbH Pforzheim, Pforzheim Member of the Supervisory Board
- ----------------------------------------------------------------------------------------------------------------------
Jurgen Schnieder, Group Manager
- ----------------------------------------------------------------------------------------------------------------------
PT German Centre Indonesia, Bumi Serpong Damai, Member of the Supervisory Board
Indonesia
- ----------------------------------------------------------------------------------------------------------------------
F-53
Authorities of Landeskreditbank
Baden-Wurttemberg - Forderbank
- --------------------------------------------------------------------------------
Members of the Board
Board of Management: of Governors 2002
Christian Brand, Full members: Advisory members:
Chairman
Hans Beerstecher State government Other members 2) Rudiger Ruhnow
Vice Chairman representatives 1) Chairman of the Central
(to Aug. 31, 2002) Staff Council at L-Bank,
Karlsruhe
Jurgen Hagele Dr. Walter Doring MdL Klaus Hackert Reiner Enzmann
Vice Chairman Minister of Economic President of the Chairman of the Staff
(from Sept. 1, 2002) Affairs - Chairman Baden-Wurttemberg Council of L-Bank,
Association of Craftsmen Karlsruhe
Dr. Manfred Schmitz Gerhard Stratthaus MdL Norbert Keller Gabriele Propp
Member of the Board Minister of Finance President of the Karlsruhe Chairman of the Staff
of Management Vice Chairman Chamber of Commerce Council of L-Bank,
and Industry Stuttgart
Prof. Dr. Dieter Puchta Dr. Thomas Schauble MdL Heinz Kalberer
Member of the Board Minister of the Interior Lord Mayor of Vaihingen
of Management Vice Chairman
(from Aug. 1, 2002)
Willi Stachele MdL Gisela Graber
Minister for Food Deputy Chairman
and Rural Planning of the Regional Chapter
Vice Chairman ver.di e.V., Stuttgart
Ulrich Muller MdL Otwin Brucker
Minister of the Environment, President of the
Transport and Baden-Wurttemberg
Communications Association
of Municipalities
Dr. Friedhelm Repnik MdL Gerhard Burkhardt
Minister of Social Affairs Chairman of the
Board of Management
of the Verband
baden-wurttembergischer
Wohnungsunternehmen
e.V., Stuttgart
Rudolf Bohmler Dr. Christoph Niemann
State Secretary at Member of the
the Ministry of State Supervisory Board
of HSBC Trinkaus &
Burkhardt KGaA, Dusseldorf
Klaus Fischer
Undersecretary (retd.)
(to Sept. 30, 2002)
Dr. Rainer Hagele
Undersecretary at the
Ministry of Finance
(from Oct. 01, 2002)
- --------------------------------------------------------------------------------
Deputy members:
State government Deputy representatives:
deputy representatives
Dr. Karl Epple Joachim Wohlfeil Karl-Heinz Reinheimer Klaus Roscheisen
Undersecretary at the President of the Karlsruhe Honorary Chairman of Assistant Undersecretary
Ministry of Economic Chamber of Craftsmen Bundesverband Freier and Head of the
Affairs Wohnungsunternehmen Administration
e.V., Sindelfingen Department
at the Ministry of the
Environment, Transport
and Communications
Wolfgang Ruckert MdL Dr. Ing. Hansjorg Rieger Wilhelm Freiherr Christian Luft
State Secretary at the Managing Partner von Haller Assistant Secretary
Ministry of Finance of RUD-Kettenfabrik Member of the Board and Head of the Central
Rieger & Dietz, Aalen of Management Office at the Ministry
of Deutsche Bank AG of Social Affairs
Roland Eckert Egon Gushurst Prof. Dr. Willi Weiblen Bernhard Giess
Undersecretary at the Certified Public Accountant Assistant Undersecretary Assistant Secretary and
Ministry of the Interior and Honorary and Head of the Head of the State Budget,
President of Badischer Department of Economic Real Estate and Investments
Genossenschaftsverband and Structural Policy Section of the Ministry of
Raiffeisen-Schulze- at the Ministry State
Delitzsch e.V., Karlsruhe of Economic Affairs
Rainer Arnold Frank Zach Walter Leibold Norbert Schmitt
Undersecretary at Head of the Trade and Assistant Undersecretary Assistant Secretary and
the Ministry for Food Industry Department and Head of the Head of the State
and Rural Planning of the Baden-Wurttemberg Department of Financial Investments
Chapter of DGB Policy and Investments and Banking
at the Ministry of Finance Section at the Ministry
of Finance
Stefan Mappus Georg Mehl Prof. Konrad Freiherr
State Secretary at Senator (retd.) von Rotberg
the Ministry of the Wustenrot & Assistant Undersecretary
Environment, Transport Wurttembergische AG and Head of the Department
and Communications of Constitutional,
Municipal, Savings Bank
and Legal Affairs at the
Ministry of the Interior
Bernhard Bauer
Undersecretary at the
Ministry of Social Affairs
Hermann Strampfer
Assistant Undersecretary
and Head of Dept. I
at the Ministry of State
Julian Wurtenberger 1) ex officio members
Assistant Undersecretary 2) personally appointed
and Head of Dept. II
at the Ministry of State
F-55
Proposal of the Board of Management
for the appropriation of retained profits
- --------------------------------------------------------------------------------
EUR 85.5 million of the net profit for the financial year 2002 has already been
appropriated to retained profit and reserves. The Board of Management proposes
that the remaining distributable profit of EUR 34,327,885.85 should be carried
forward to next year's account.
Karlsruhe, March 25, 2003
Landeskreditbank Baden-Wurttemberg - Forderbank
/s/ Christian Brand /s/ Jurgen Hagele
- ----------------------------- -----------------------------
Christian Brand Jurgen Hagele
/s/ Dr. Manfred Schmitz /s/ Prof. Dr. Dieter Puchta
- ----------------------------- -----------------------------
Dr. Manfred Schmitz Prof. Dr. Dieter Puchta
F-56
Independent Auditors' opinion
We have audited the financial statements of Landeskreditbank
Baden-Wurttemberg - Forderbank - ("L-Bank" or "the Bank"), Karlsruhe, for the
financial year ending December 31, 2002. The accounting and preparation of the
financial statements and of the management report of the Bank in accordance with
German commercial law are the responsibility of the Board of Managing Directors
of L-Bank. Our responsibility is to express an opinion based on our audit on the
financial statements and the management report of the Bank. We conducted our
audit of the financial statements in accordance with ss. 317 HGB (the German
Commercial Code and the German generally accepted standards for the audit of
financial statements promulgated by the "Institut der Wirtschaftsprufer" (IDW,
the German Institute of Certified Public Accountants). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the presentation of the net assets, financial position, and results of operation
in the financial statements, drawn up in accordance with the German generally
accepted accounting principles, and in the management report of the Bank are
free of material misstatement. Knowledge of the business activities and the
economic and legal environment of the Bank and evaluations of possible
misstatements are taken into account in the determination of audit procedures.
The effectiveness of the accounting-related internal control system and the
evidence supporting the disclosures in the books and records, the financial
statements, and the management report of the Bank are primarily examined on a
test basis within the framework of the audit. The audit of the financial
statements includes assessing the accounting principles applied and the
significant estimates made by the Board of Managing Directors of L-Bank and
evaluating the overall presentation of the financial statements and management
report of the Bank. We believe that our audit provides a reasonable basis for
our opinion.
Our audit did not lead to any objections.
In our opinion, the financial statements give a true and fair view of the net
assets, financial position, and results of operations of the Bank in accordance
with German generally accepted accounting principles. Seen in total, the
management report of the Bank is an accurate representation of the position of
the Bank and accurately reflects the risks entailed in its future development.
Stuttgart, April 8, 2003
PwC Deutsche Revision
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
/s/ Schuldt /s/ Apitzsch
- -------------------------- --------------------------
(Schuldt) (ppa. Apitzsch)
Auditor Auditor
F-57
FINANCIAL STATEMENTS OF L-BANK
AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 2001
F-58
Landeskreditbank Baden-Wurttemberg - Forderbank Balance Sheet as of
December 31, 2001
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2001 Dec. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------
Assets EUR EUR EUR
- -------------------------------------------------------------------------------------------------------------------------
1. Cash reserve
a)Cash on hand 34,509.31 39,179.89
b)Cash at central banks thereof: 335,645,325.62 262,610,279.02
at Federal Central Bank
EUR 335,645,325.62 (262,610,279.02) --.-- --.--
c)Cash in postal giro accounts
335,679,834.93 262,649,458.91
- -------------------------------------------------------------------------------------------------------------------------
2. Receivables from credit institutions
a)Payable on demand 63,689,244.49 104,543,718.61
b)Other receivables 9,710,543,892.79 8,614,021,037.03
9,774,233,137.28 8,718,564,755.64
- -------------------------------------------------------------------------------------------------------------------------
3. Receivables from customers thereof: 23,287,140,379.02 23,542,029,894.07
mortgage loans
EUR 19,967,862,497.92 (19,624,989,802.48)
loans to public authorities and entities
organized under public law
EUR 1,490,664,208.07 (1,993,864,928.47)
- -------------------------------------------------------------------------------------------------------------------------
4. Notes and other interest-bearing securities
a)Money market securities
aa)due from public-sector issuers --.-- 119,773,273.43
thereof: eligible as collateral
at Federal Central Bank
EUR --.-- (--.--)
ab)due from other issuers --.-- --.-- 90,693,403.11
thereof: eligible as collateral 210,466,676.54
at Federal Central Bank
EUR --.-- (25,188,369.86)
b)Bonds and notes
ba)due from public-sector issuers 1,586,528,000.59 1,552,657,037.07
thereof: eligible as collateral
at Federal Central Bank
EUR 1,385,845,636.43
(1,310,679,084.17)
bb)due from other issuers 5,734,742,009.58 4,165,589,256.20
thereof: eligible as collateral 7,321,270,010.17 5,718,246,293.27
at Federal Central Bank
EUR 4,745,949,371.52
(3,751,359,206.05)
c)Bank's own notes 1,363,487,926.63 79,533,584.28
principal amount:
EUR 1,311,469,555.12 (80,020,758.45)
8,684,757,936.80 6,008,246,554.09
- -------------------------------------------------------------------------------------------------------------------------
5. Shares and other
non-interest-bearing securities 37,940,125.39 19,700,340.32
Carried forward: 42,119,751,413.42 38,551,191,003.03
F-59
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2001 Dec. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------
Equity and Liabilities EUR EUR EUR
1. Liabilities to credit institutions
a)Payable on demand 257,468,529.10 276,968,022.77
b)With an agreed maturity
or notice period 21,371,955,624.79 21,582,145,698.52
21,629,424,153.89 21,859,113,721.29
- -------------------------------------------------------------------------------------------------------------------------
2. Liabilities to customers
a)Savings deposits
aa)with an agreed notice period
of three months --.-- --.--
ab)with an agreed notice period
exceeding three months --.-- --.--
b)Other liabilities
ba)payable on demand 82,302,965.30 --.-- 76,341,483.24
bb)with an agreed maturity 4,153,761,895.75
or notice period 4,067,716,506.49
4,150,019,471.79 4,150,019,471.79 4,230,103,378.99
- -------------------------------------------------------------------------------------------------------------------------
3. Certificated liabilities
a)Notes and bonds issued 12,517,035,139.85 7,901,018,199.10
b)Other certificated liabilities --.-- --.--
thereof: money market 12,517,035,139.85 7,901,018,199.10
securities
EUR --.-- (--.--)
own acceptances and promissory
notes outstanding
EUR --.-- (--.--)
- -------------------------------------------------------------------------------------------------------------------------
4. Fiduciary liabilities 816,284,765.82 999,658,505.71
thereof: fiduciary loans -------------------
EUR 815,682,804.85 (999,056,544.74)
- -------------------------------------------------------------------------------------------------------------------------
5. Other liabilities 80,508,648.58 875,972,379.87
- -------------------------------------------------------------------------------------------------------------------------
6. Deferred items 1,308,422,177.07 1,445,373,419.35
- -------------------------------------------------------------------------------------------------------------------------
7. Contingency reserves
a)Reserves for pensions and
similar obligations 74,551,058.90 68,317,013.24
b)Reserves for taxes 14,099,306.66 12,756,102.70
c)Other reserves 778,399,144.47 802,979,203.78
867,049,510.03 884,052,319.72
- -------------------------------------------------------------------------------------------------------------------------
8. Subordinated liabilities 442,166,011.68 439,685,205.61
- -------------------------------------------------------------------------------------------------------------------------
9. Fund for general bank risks 108,905,170.69 108,905,170.69
Carried forward: 41,919,835,049.40 38,743,882,300.33
F-60
Landeskreditbank Baden-Wurttemberg - Forderbank - Balance sheet as of
December 31, 2001
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2001 Dec. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------
Assets EUR EUR EUR
- -------------------------------------------------------------------------------------------------------------------------
Brought forward: 42,119,751,413.42 38,551,191,003.03
- -------------------------------------------------------------------------------------------------------------------------
6. Equity investments in
non-affiliated companies 149,938,251.52 269,616,096.92
thereof: in credit institutions
EUR 121,539,351.59 (250,163,056.28)
thereof: in financial services
institutions EUR --.-- (--.--)
- -------------------------------------------------------------------------------------------------------------------------
7. Equity investments in
affiliated companies 22,408,403.08 7,908,403.08
thereof: in credit institutions
EUR --.-- (--.--)
thereof: in financial services
institutions EUR --.-- (--.--)
- -------------------------------------------------------------------------------------------------------------------------
8. Fiduciary assets 816,284,765.82 999,658,505.71
thereof: fiduciary loans
EUR 815,682,804.85 (999,056,544.74)
- -------------------------------------------------------------------------------------------------------------------------
9. Intangible asset --.-- --.--
- -------------------------------------------------------------------------------------------------------------------------
10. Tangible assets
141,462,084.46 154,226,120.96
- -------------------------------------------------------------------------------------------------------------------------
11. Other assets 51,591,829.83 53,573,086.61
- -------------------------------------------------------------------------------------------------------------------------
12. Deferred charges
and prepaid expenses 89,998,668.43 73,653,627.11
- -------------------------------------------------------------------------------------------------------------------------
Total assets 43,391,435,416.56 40,109,826,843.42
F-61
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2001 Dec. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------
Equity and Liabilities EUR EUR EUR
- -------------------------------------------------------------------------------------------------------------------------
Brought forward: 41,919,835,049.40 38,743,882,300.33
- -------------------------------------------------------------------------------------------------------------------------
10. Equity
a) Subscribed capital 250,000,000.00 250,000,000.00
b) Capital surplus 959,850,789.69 950,850,789.69
c) Retained profit and reserves
ca) Legal reserves --.-- --.--
cb) Reserve for treasury stock --.-- --.--
cc) Statutory reserve --.-- --.--
cd) Other retained profit 237,500,000.00 133,447,180.99
d) Distributable profit 33,249,577.47 31,646,572.41
1,471,600,367.16 1,365,944,543.09
- -------------------------------------------------------------------------------------------------------------------------
Total equity and liabilities 43,391,435,416.56 40,109,826,843.42
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
1. Contingent liabilities
a) Contingent liabilities relating
to negotiated cleared bills
of exchange --.-- --.--
b) Liabilities relating to guarantees
and indemnity agreements 431,759,983.85 245,533,713.29
c) Liabilities relating to
securities covering
third-party liabilities --.-- --.--
- -------------------------------------------------------------------------------------------------------------------------
2. Other obligations
a) Repurchase obligations from the
sale of securities with put options --.-- --.--
b) Placement and underwriting
obligations --.-- --.--
c) Irrevocable credit commitments 1,522,977,890.47 1,343,927,525.78
1,522,977,890.47 1,343,927,525.78
F-62
Landeskreditbank Baden-Wurttemberg - Forderbank
Statement of income for the period from January 1, 2001 to December 31, 2001
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2001 Dec. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------
EUR EUR EUR EUR
- -------------------------------------------------------------------------------------------------------------------------
1. Interest income from
a) Lending and money
market transactions 2,032,059,758.72 1,948,023,353.09
b) Fixed-interest securities and
debt register receivables 357,301,098.12 219,230,720.39
2,389,360,856.84 2,167,254,073.48
- -------------------------------------------------------------------------------------------------------------------------
2. Interest expenses 2,005,496,735.15 1,822,330,843.71
383,764,121.69 344,923,229.77
- -------------------------------------------------------------------------------------------------------------------------
3. Current income from
a) Shares and other
non-fixed interest securities 792,889.41 937,829.17
b) Equity investments in
non-affiliated companies 5,561,935.66 4,603,214.10
c) Equity investments in
affiliated companies --.-- --.--
6,354,825.07 5,541,043.27
- -------------------------------------------------------------------------------------------------------------------------
4. Commission income 25,624,281.98 22,800,272.64
- -------------------------------------------------------------------------------------------------------------------------
5. Commission expenses 12,485,132.48 11,593,564.30
- -------------------------------------------------------------------------------------------------------------------------
6. Net income from financial 1,230,345.09 701,067.31
transactions
- -------------------------------------------------------------------------------------------------------------------------
7. Other operating income 37,234,241.31 34,257,301.95
- -------------------------------------------------------------------------------------------------------------------------
8. General administrative expenses
a) Personal expenses
aa) Wages and salaries 51,901,035.42 50,130,033.55
ab) Social security, pension
and other benefit
and welfare expenses 16,177,612.27 16,002,335.28
thereof: for pensions 68,078,647.69
EUR 7,707,050.11 (7,637,649.44)
b) Other general administrative 33,253,509.08 38,311,374.90
expenses
101,332,156.77 104,443,743.73
- -------------------------------------------------------------------------------------------------------------------------
9. Depreciation and accumulated
amortization on intangible
assets and tangible assets,
including property and equipment 19,309,431.37 9,780,367.98
- -------------------------------------------------------------------------------------------------------------------------
10. Other operating expenses 8,539,154.54 7,719,656.91
- -------------------------------------------------------------------------------------------------------------------------
11. Depreciation and accumulated
amortization on receivables
and certain securities,
together with allowances
for possible loan losses 171,947,306.05 125,005,674.58
Carried forward: 140,694,633.93 149,679,907.44
F-63
Dec. 31, 2001 Dec. 31,2000
- -------------------------------------------------------------------------------------------------------------------------
EUR EUR EUR
- -------------------------------------------------------------------------------------------------------------------------
Brought forward: 140,694,633.93 149,679,907.44
- -------------------------------------------------------------------------------------------------------------------------
12. Income from additions
to equity investments in
non-affiliated companies
affiliated companies and
securities treated as fixed assets 53,172,310.19 93,544,044.44
- -------------------------------------------------------------------------------------------------------------------------
13. Costs arising from
loss assignments 13,026,267.23 3,212,358.01
- -------------------------------------------------------------------------------------------------------------------------
14. Result from ordinary 180,840,676.89 240,011,553.87
business operations
- -------------------------------------------------------------------------------------------------------------------------
15. Extraordinary earnings --.-- 4,608,667.15
- -------------------------------------------------------------------------------------------------------------------------
16. Extraordinary expenditure --.-- 90,755,963.48
- -------------------------------------------------------------------------------------------------------------------------
17. Extraordinary result --.-- 86,167,296.33
- -------------------------------------------------------------------------------------------------------------------------
18. Taxes on income 672,108.74 638,481.14
- -------------------------------------------------------------------------------------------------------------------------
19. Other taxes, where not
shown under item 10 176,062.72 171,058.44
- -------------------------------------------------------------------------------------------------------------------------
20. Allocation to reserves
for interest rate reductions 74,336,681.36 56,392,186.16
- -------------------------------------------------------------------------------------------------------------------------
21. Net profit 105,655,824.07 96,642,531.80
- -------------------------------------------------------------------------------------------------------------------------
22. Balance brought forward 31,646,572.41 27,803,517.05
from the previous year 137,302,396.48 124,446,048.85
- -------------------------------------------------------------------------------------------------------------------------
23. Transfer to retained profit and reserves
to other retained profit and reserves 104,052,819.01 92,799,475.44
- -------------------------------------------------------------------------------------------------------------------------
24. Distributable profit
33,249,577.47 31,646,572.41
F-64
Notes to the annual financial statements of Landeskreditbank Baden-Wurttemberg -
Forderbank for the financial year ended December 31, 2001
General principles
Landeskreditbank Baden-Wurttemberg - Forderbank (L-Bank) was established by
legislation passed on November 11, 1998, which came into effect on December 1,
1998. In accordance with ss. 2 para. 1 subpar. 1 of the L-Bank Act, the share
capital of the Bank is EUR 250 million.
The financial statements for L-Bank have been drawn up in accordance with
the provisions of the German Commercial Code (Handelsgesetzbuch [HGB] and the
Regulation on the Accounting Principles Applied to Credit Institutions
(Verordnung uber die Rechnunglegung fur Kreditinstitute [RechKredV]).
Headings and items on the balance sheet and statement of income are
classified in accordance with the financial statement forms that appear in
RechKredV. In the process, L-Bank has added an extra item to the expenses side
of the statement of income, "Allocation to reserves for interests rate
reductions" (ss. 265 para. 5 HGB).
The majority interests declared in the financial statements are of minor
significance overall. For this reason the Bank did not prepare consolidated
financial statements for the period (ss. 296 para. 2 HGB).
Foreign currency translation principles
Foreign currency amounts have been translated in accordance with the
provisions set out in ss. 340 h HGB and declaration BFA 3/95. For purposes of
currency translation, currency items have been calculated by offsetting claims
and obligations arising from on-balance-sheet and off-balance-sheet transactions
in the respective currencies. These transactions were classified and valued
using the special cover option in the respective currencies. Accordingly, all
expenses and earnings arising from currency translation are shown in the income
statement as required by ss. 340 h para. 2 subparas. 1 and 2 HGB; there was no
requirement to show income under a separate heading as the items outstanding on
the balance sheet date fall within a limited timeframe.
Methods of accounting and valuation
Assets and liabilities have been valued in accordance with the general
provisions of ss.ss. 252 ff. HGB, taking into account the special rules applying
to credit institutions (ss.ss. 340e ff. HGB).
Receivables from credit institutions and customers are always shown at par
value, liabilities to credit institutions and customers at redemption value. Any
interest-based differences are shown under deferrals and repayments and written
back pro rata temporis. Service charges are entered immediately. Low-interest or
non-interest-bearing receivables are discounted. Reserves for interest rate
subsidies are set up to cover loans associated with development programs. Zero
bonds and similar securities issued are shown at the issue price plus interest
calculated up to the balance sheet date pro rata temporis.
All recognized individual risks and country risks arising out of the Bank's
lending business were appropriately provided for, either by accumulated
amortization for losses on individual loan accounts or by reserves. Lump-sum
reserves have been established to cover latent credit risks, and the Bank
maintains prudential reserves to cover general banking risks. Individual and
lump-sum accumulated amortization/reserves have been deducted from the assets or
liabilities side as appropriate, as has the reserve for general banking risks
set up in compliance with ss. 340f HGB.
Securities in the trading portfolio and liquidity reserve are valued
strictly according to the principles of lower of cost or market value as at the
balance sheet date. Securities treated as fixed assets are shown at net book
value, differences between book value and redemption value (premiums/discounts)
being marked up or down pro rata to term.
F-65
Equity investments in non-affiliated and affiliated companies are valued at
the lower of acquisition cost or fair value, according to the rules applying to
fixed assets.
Tangible assets are valued at acquisition or production cost, less
scheduled depreciation. Where the value of an item is expected to continue to
decline, unscheduled depreciation has been applied as appropriate. Minor fixed
assets are fully depreciated in the year of acquisition.
Reserves for pension commitments and for obligations under the Bank's
employee pension scheme have been calculated using the method of computation
provided for in ss. 6 a of the German Income Tax Act (Einkommensteuergesetz
[EstG]) applying the updated Heubeck mortality tables. Adequate provisions have
been made to cover the early retirement scheme provided for by collective
agreement, the part-time employment scheme devised for senior employees and any
obligations arising in connections with long service bonuses.
Other reserves are set at the amount deemed necessary by the exercise of
reasonable business judgment to cover all uncertain liabilities and potential
losses on pending transactions.
The Bank concludes derivative transactions primarily in order to control
interest rate exposure - they are not valued. The Bank also trades in
derivatives in order to hedge balance sheet items and on its own account.
Transactions for hedging purposes are valued together with the relevant balance
sheet items.
The market values of bonds, notes and derivatives held for the Bank's own
account are determined individually as at the balance sheet date. The Bank
currently holds four portfolios governed by EUR interest rate risks and offsets
valuation gains and losses within these portfolios. In accordance with the
non-parity principle, any positive balance is not appropriated, whereas a
provision is made to cover a negative balance.
Principles of the German Banking Act (Kreditwesengesetz [KWG])
Throughout 2001, the Bank adhered to Principle I (relating to capital
adequacy) and Principle II (relating to liquidity).
F-66
Maturities of selected balance sheet
items
(to residual maturity or first call)
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2001 Dec. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------
EUR '000 EUR '000
- -------------------------------------------------------------------------------------------------------------------------
Receivables from credit institutions
payable on demand 63,689 104,544
due in three months or less 2,943,491 2,668,785
due in more than three months to one year 657,886 559,018
due in more than one year to five years 2,740,300 2,652,054
due in more than five years 3,368,867 2,744,163
- -------------------------------------------------------------------------------------------------------------------------
Receivables from customers
due in three months or less 474,632 1,057,291
due in more than three months to one 719,364 418,969
year
due in more than one year to five years 2,263,512 2,209,080
due in more than five years 19,829,632 19,856,090
no fixed maturity -- --
- -------------------------------------------------------------------------------------------------------------------------
Notes and other interest-bearing
securities
Loan and notes
payable in the following year 726,732 772,887
- -------------------------------------------------------------------------------------------------------------------------
Liabilities to credit institutions
payable on demand 257,468 276,968
Due in three months or less 5,403,174 5,799,658
Due in more than three months to one 1,943,089 2,081,271
year
Due in more than one year to five years 3,884,975 4,002,709
Due in more than five years 10,140,718 9,698,507
- -------------------------------------------------------------------------------------------------------------------------
Liabilities to customers
payable on demand 82,303 76,342
Due in three months or less 362,286 267,760
Due in more than three months to one 146,862 112,651
year
Due in more than one year to five years 1,068,285 730,429
Due in more than five years 2,489,283 3,042,922
- -------------------------------------------------------------------------------------------------------------------------
Certificated liabilities
payable on demand 2,045 --
Due in three months or less 985,533 227,354
Due in more than three months to one 702,913 301,304
year
Due in more than one year to five years 7,773,132 5,358,146
Due in more than five years 3,053,412 2,014,215
thereof under sub-item
"Notes and bonds issued" payable
In the following year: TEUR 1,690,491
F-67
Notes to individual balance sheet items
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2001 Dec. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------
EUR '000 EUR '000
- -------------------------------------------------------------------------------------------------------------------------
Receivables from credit institutions
Under this heading are shown:
o receivables from
non-affiliated companies 210,478 948,437
o subordinated receivables -- --
- -------------------------------------------------------------------------------------------------------------------------
Receivables from customers
Under this heading are shown:
o receivables from affiliated companies 192,528 129,858
o receivables from non-affiliated companies 196,055 156,462
o subordinated receivables 175 175
- -------------------------------------------------------------------------------------------------------------------------
Notes and other interest-bearing
securities
The subheading "Bonds and notes" does not include any certificated subordinated
receivables or receivables from affiliated or non-affiliated companies
Of the securities shown
Under this heading
o listed securities account for 8,543,378 5,804,190
o unlisted securities account for 141,380 204,057
Securities amount to EUR 6,540 million were assigned to fixed assets. Of these,
EUR 2,915 million were valued as fixed assets.
- -------------------------------------------------------------------------------------------------------------------------
Shares and
Other non-fixed interest securities
Under this heading are shown:
o subordinated assets in the amount of -- --
o non-affiliated companies account for -- --
Of the marketable securities shown under this heading:
o listed securities account for 24,240 5,594
o unlisted securities account for -- --
F-68
Notes to individual balance sheet items
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2001 Dec. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------
EUR '000 EUR '000
- -------------------------------------------------------------------------------------------------------------------------
Equity investments in non-affiliated
companies
Of the marketable securities included under equity investments in non-affiliated
companies:
o listed securities account for 120,563 120,563
o unlisted securities account for 0 0
- -------------------------------------------------------------------------------------------------------------------------
Equity investments in affiliated
companies
This item does not include equity investments which have been certified as
marketable securities
- -------------------------------------------------------------------------------------------------------------------------
Fiduciary assets
This item is broken down as follows:
o receivables from credit institutions 191,115 200,758
o receivables from customers 625,170 798,901
- -------------------------------------------------------------------------------------------------------------------------
Tangible assets
This item includes:
o real estate and building
utilized for the Bank's own activities 93,555 97,545
o furniture and office equipment 12,408 12,257
- -------------------------------------------------------------------------------------------------------------------------
Deferred charges, prepaid expenses and
deferred items
Assets
o Differences between net loan proceeds or original
cash outlay and lower par (nominal) value of receivables 34,297 27,549
o Differences between amount issued and higher amount
repayable of payables 47,530 37,644
- -------------------------------------------------------------------------------------------------------------------------
Liabilities to credit institutions
Under this heading are shown:
o liabilities to affiliated companies -- --
o liabilities to non-affiliated companies 17,292 543,082
- -------------------------------------------------------------------------------------------------------------------------
Liabilities to customers
Under this heading are shown:
o liabilities to affiliated companies 9,331 4,518
o liabilities to non-affiliated companies -- --
F-69
Notes to individual balance sheet items
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2001 Dec. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------
EUR '000 EUR '000
- -------------------------------------------------------------------------------------------------------------------------
Fiduciary liabilities
Fiduciary liabilities are divided up into:
o liabilities to credit institutions 99,177 111,987
o liabilities to non-affiliated companies 717,108 887,671
- -------------------------------------------------------------------------------------------------------------------------
Deferred charges, prepaid expenses and
deferred items
Liabilities
o Difference between net loan proceeds or original cash outlay
and higher par (nominal) value of receivables 41,059 45,107
o Difference between amount issued and lower amount repayable
of payables 3,023 2,392
- -------------------------------------------------------------------------------------------------------------------------
Subordinated liabilities
This item does not include any
liabilities to affiliated or
non-affiliated companies
For subordinated liabilities, interest
expenses were incurred in the amount of 18,298 18,190
Individual subordinated issues exceeding 10% of the total amount of the
subordinated liabilities, are as follows:
Currency Amount in millions Interest rate Due on
(%)
DM 167 0.0000 Dec. 30, 2010
EUR 50 4.0800 Jan. 23, 2009
EUR 250 4.1250 Jan. 14, 2009
EUR 50 4.4600 Jan. 20, 2014
All subordinated liabilities constitute exclusively supplemental capital and
meet the requirements of the General Banking Act (Kreditwesengesetz [KWG]). Of
significance here is the subordinated nature of the Bank's liabilities in
relation to non-subordinated liabilities due to other creditors. In the event of
liquidation, subordinated creditors are only entitled to receive payment after
all liabilities due to other creditors have been paid in full.
Retrospective limitation of the subordinated nature of the liability or the
original maturity (of at least five years) or the agreed period of notice, is
precluded.
In accordance with state legislation, L-Bank is unable to file for insolvency.
F-70
Individual material items
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2001 Dec. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------
EUR '000 EUR '000
- -------------------------------------------------------------------------------------------------------------------------
Other assets
o Premium on interest rate options 18,164 26,766
o Objects d'art 13,637 13,626
- -------------------------------------------------------------------------------------------------------------------------
Other liabilities
o Delivery commitments arising
from securities operations 49,692 774,336
o Adjustment item for foreign
exchange valuation 7,596 76,468
o Liabilities relating to
outstanding premiums on interest
rate options 11,594 13,912
o Trade payables 6,649 5,740
o Deductible taxes 2,352 2,427
- -------------------------------------------------------------------------------------------------------------------------
Deferred items
o Prepaid interest subsidies
received from third parties 1,220,285 1,339,676
o One-off payments on swaps due
at maturity 43,430 56,610
- -------------------------------------------------------------------------------------------------------------------------
Contingency reserves
o Under other reserves,
reserves for L-Bank interest
subsidies 654,094 695,804
- -------------------------------------------------------------------------------------------------------------------------
Commissions paid
o Commissions paid for
administration of loans in a
fiduciary capacity 10,260 11,432
- -------------------------------------------------------------------------------------------------------------------------
Other operating income
o Rental income 12,041 8,443
o Income from services to third parties 18,915 20,626
- -------------------------------------------------------------------------------------------------------------------------
Depreciation and accumulated
amortization on intangible assets and
tangible assets
o Unscheduled depreciation 8,028 --
- -------------------------------------------------------------------------------------------------------------------------
Extraordinary result
o Nonrecurrent charges incurred
by the early repayment of high
interest refinancing -- 90,776
o Nonrecurrent earnings from
the early repayment of
high-interest refinancing -- 4,609
F-71
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2001 Dec. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------
EUR '000 EUR '000
- -------------------------------------------------------------------------------------------------------------------------
Total value of assets and debts denominated in foreign
currencies
Assets 762,891 844,625
Debts 1,587,830 344,349
The risks of exchange rate fluctuations arising from balance sheet items
denominated in foreign currencies is essentially covered by off-balance-sheet
hedging transactions
- -------------------------------------------------------------------------------------------------------------------------
Book value of assets sold for repurchase (true repo
agreements pursuant to ss. 340 b. para. 4 HGB)
Open market transactions with Federal Central Bank 98,090 1,060,955
In the context of sell and buy-back transactions
with other credit institutions -- 162,360
- -------------------------------------------------------------------------------------------------------------------------
Assets surrendered as security for liabilities
For liabilities to credit institutions
o open-market transactions with Federal Central
Bank for other liabilities 98,090 1,060,955
o interest rate future transactions 4,969 5,255
- --------------------------------------------------------------------------------
Other financial obligations
The total sum of other financial obligations existing at the balance sheet date,
which are not included in the balance sheet or shown below the line, is of minor
significance to an evaluation of the Bank's financial position.
- --------------------------------------------------------------------------------
Transactions involving derivatives
At the balance sheet date, the following transactions involving financial
derivatives (forward transactions as defined in ss. 36 RechKredV) formed part of
L-Bank's portfolio. The majority of the transactions were undertaken in order to
hedge interest rate and exchange rate fluctuations. he respective credit risk
equivalents have been calculated using the market valuation method based on the
appropriate counterparty weighting with the corresponding percentage add-on. The
practice of netting - the offsetting of negative market values - was not
applied. Replacement costs were calculated on the basis of market prices. All
contracts with a positive market value have been taken into account; they have
not been set off against contracts with a negative market value by contracting
party.
Transactions involving derivatives - by contracting party
- --------------------------------------------------------------------------------
Credit risk Replacement
Nominal values equivalents costs
Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2001
- -------------------------------------------------------------------------------------------------------------------------
EUR million EUR million EUR million EUR million
- -------------------------------------------------------------------------------------------------------------------------
Banks in the OECD 65,476 48,958 330 977
Other counterparties 5,379 1,781 84 110
(incl. stock
exchange contracts)
Total 70,855 50,739 414 1,087
Transactions involving derivatives - by maturity
- --------------------------------------------------------------------------------
Interest rate risks Currency risk
Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------
EUR million EUR million EUR million EUR million
- -------------------------------------------------------------------------------------------------------------------------
Residual maturities
Up to 3 months 3,810 3,393 80 679
Up to 1 year 6,384 3,525 46 195
Up to 5 years 22,518 15,925 1,255 147
over 5 years 36,398 26,601 364 274
Total 69,110 49,444 1,745 1,295
F-72
Transactions involving derivatives - by volume
- --------------------------------------------------------------------------------
Credit risk Replacement
Nominal values equivalents costs
Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2001
- -------------------------------------------------------------------------------------------------------------------------
EUR million EUR million EUR million EUR million
- -------------------------------------------------------------------------------------------------------------------------
Interest rate risks
Interest rate swaps 67,845 47,918 387 1,071
FRAs 250 200 0 0
Interest rate options
- -sold- 0 0 - -
Caps 895 895 1 0
Stock exchange contracts 120 431 - -
Total interest rate 69,110 49,444 388 1,071
risks
Currency risks
Forward exchange deals 103 833 0 1
Cross-currency interest
rate swaps 1,642 462 26 15
Total currency risks 1,745 1,295 26 16
Transactions involving derivatives - commercial transactions
- --------------------------------------------------------------------------------
Credit risk Replacement
Nominal values equivalents costs
Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2001
- -------------------------------------------------------------------------------------------------------------------------
EUR million EUR million EUR million EUR million
- -------------------------------------------------------------------------------------------------------------------------
Interest rate contracts 4,139 5,825 25 63
Total 4,139 5,285 25 63
Statement on tax liability
Under ss. 5 para. 1 no. 2 of the Corporation Tax Act (Korperschaftsteuergesetz
[KStG]) and ss. 3 no. 2 of the Trade Tax Act (Gewerbesteuergesetz [GewStG]),
Landeskreditbank Baden-Wurttemberg - Forderbank is exempt from corporation tax
and trade tax.
F-73
L-Bank's equity holdings pursuant to ss. 285 no. 11 HGB
- --------------------------------------------------------------------------------
Holding Equity Capital Net income/loss 1)
- -------------------------------------------------------------------------------------------------------------------------
No. Name/Registered office in $ in EUR '000 In EUR '000
- -------------------------------------------------------------------------------------------------------------------------
Other assets (direct)
1. Austria Beteiligungsgesellschaft mbH, Stuttgart 33.34 35,601 1,273
2. Industriepark Gottmadingen AG, Gottmadingen 100.00 627 (**)
3. MBG Mittelstandische Beteiligungsgesellschaft
Baden-Wurttemberg GmbH, Stuttgart 26.80 13,795 1,973
4. PT German Centre Indonesia, Bumi Serpong Damai,
Indonesia 83.67 - 2,947 (*) - 7,183 (*)
5. Technologiepark Karlsruhe GmbH, Karlsruhe 96.00 1,797 - 527qq
6. Technologieparks Tubingen-Reutlingen, Tubingen 100.00 1,971 - 29
7. StEP Stuttgarter EngineeringPark GmbH, Stuttgart 100.00 2,117 - 383
8. Business-Park Goppingen GmbH, Goppingen 40.00 1,232 - 18
9. Buropark Fasanenhof GmbH, Stuttgart 100.00 (***) (***)
10. SCIO Knowledge Systems GmbH, Karlsruhe 32.00 (***) (***)
11. detectis GmbH, Freiburg 39.43 (***) (***)
(*) Exchange rate: 1 euro = 10,400 rupiah
(**) Profit and loss transfer agreement exists
(***) Established in 2001
1) Last available financial year in each case
Equity investments in non-affiliated companies pursuant to ss. 340 a para. 4 no.
2 HGB
- ------------------------------------------
No. Name/Registered office
- ------------------------------------------
1. Baden-Wurttembergische Bank AG, Stuttgart
F-74
Fixed assets analysis
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Fixed Historical Write-offs Book Write-offs
assets cost and value and
- balance Jan. 1, cumulative Dec. 31, depreciation
sheet items 2001 Additions Retirements Transfers Write-ups depreciation 2001 in 2001
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
EUR '000 EUR '000 EUR '000 EUR '000 EUR '000 EUR '000 EUR '000 EUR '000
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Notes Net adjustment in compliance
and other
fixed- with ss. 34, para. 3, subpara. 2
interest RechKredV:
securities 4,964,464 TEUR 1,305,129 6,410,731 0
- -------------- ------------ ---------------------------------------------------------------- ------------ ------------
Shares and
other
non-fixed-
interest
securities 5,551 0 0
- -------------- ------------ ---------------------------------------------------------------- ------------ ------------
Equity
investments
in
non-affiliated
companies 295,564 149,938 - 939
- -------------- ------------ ---------------------------------------------------------------- ------------ ------------
Equity
investments
in affiliated
companies 12,369 22,408 - 5,113
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Tangible
assets 173,662 6,606 - 151 0 0 - 38,655 141,462 - 19,309
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Other
assets 13,638 15 0 0 0 - 16 13,637 - 5
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
F-75
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 2001 Dec. 31,2000
- -------------------------------------------------------------------------------------------------------------------------
Landeskreditbank Baden-
Wurttemberg - Forderbank hedging
account for mortgage bonds
at December 31, 2001 (EUR million)
Mortgage bonds issued 3,808 4,458
Cover for specific assets
o Receivables from credit institutions 137 0
o Receivables from customers 4,268 4,532
Surplus cover 597 73
- -------------------------------------------------------------------------------------------------------------------------
Total emoluments paid out to
authorities and administrative bodies of
Landeskreditbank Baden-Wurttemberg
- -Forderbank in 2001 (EUR '000)
Board of Governors 130 167
Board of Management 1,380 1,581
Former members of the Board of
Management of their dependents 793 787
Advisory Council (incl. travel
expenses) 200 213
Pension reserves for former members
of the Board of Management and their
dependents 9,364 8,316
- -------------------------------------------------------------------------------------------------------------------------
Loans to members of administrative
bodies (EUR'000) (incl. contingent
liabilities)
Board of Governors 540 4,233
Board of Management 1,492 1,745
- -------------------------------------------------------------------------------------------------------------------------
Average number of staff employed in 2001
male female Total
Total number of employees 496 599 1,095
of whom: full-time employees 487 412 899
part-time employees 9 187 196
trainees
(not included in the total number)
excluding temporary staff, students on placement,
volunteers, cleaning staff
F-76
Directorships held by members of the Board of Management and employees of
L-Bank pursuant to ss. 340 a para. 4 no.1 HGB
Christian Brand,Chairman of the Board of Management
Baden-Wurttemberg Bank AG, Stuttgart Member of the Supervisory Board
BWK GmbH Unternehmensbeteiligungsgesellschaft, Member of the Supervisory Board
Stuttgart
Clariant GmbH, Frankfurt Member of the Supervisory Board
LEG Landesentwicklungsgesellschaft Member of the Supervisory Board
Baden-Wurttemberg mbH, Stuttgart (to Dec. 31, 2001)
Sachsische Aufbaubank GmbH, Dresden Member of the Supervisory Board
SG Holding AG, Stuttgart Member of the Supervisory Board
(to Nov. 29, 2001)
Tourismus-Marketing GmbH Baden-Wurttemberg, Vice Chairman of the Supervisory
Stuttgart Board
Unternehmensbeteiligungsgesellschaft Chairman of the Supervisory Board
Baden-Wurttemberg AG, Stuttgart i. L. (to July 12, 2001)
Vorarlberger Landes- und Hypothekenbank AG, Member of the Supervisory Board
Bregenz
Hans Beerstecher,Vice Chairman of the Board of Management
Business-Park Goppingen GmbH, Goppingen Vice Chairman of the Supervisory
Board
GWZ Gesellschaft fur internationale wirtschaftliche Member of the Supervisory Board
Zusammenarbeit Baden-Wurttemberg mbH, Stuttgart
Industriepark Gottmadingen AG (IPG), Chairman of the Supervisory Board
Gottmadingen
Jurgen Hagele,Member of the Board of Management
Sachsische Aufbaubank GmbH, Dresden Member of the Supervisory Board
(to Dec. 19, 2001)
Dr.Manfred Schmitz, Member of the Board of Management
MBG Mittelstandische Beteiligungsgesellschaft Member of the Supervisory Board
Baden-Wurttemberg GmbH, Stuttgart
Industriepark Gottmadingen AG (IPG), Member of the Supervisory Board
Gottmadingen (from Aug. 29, 2001)
Vice Chairman of the Supervisory
Board
(from Dec. 14, 2001)
F-77
L-Bank employees
Peter Arnold, Executive Officer
Business-Park Goppingen GmbH, Goppingen Member of the Supervisory Board
Industriepark Gottmadingen AG (IPG), Gottmadingen Vice Chairman of the Supervisory
Board
(to Dec. 14, 2001)
Member of the Supervisory Board
(from Dec. 14, 2001
PT German Centre Indonesia, Bumi Serpong Damai, Chairman of the Supervisory Board
Indonesia
Stephan Tribull, Executive Officer
Finanzierungsgesellschaft fur Offentliche Vorhaben Member of the Board of Governors
des Landes Baden-Wurttemberg mbH, Stuttgart
Walter Weik, Executive Officer
Landsiedlung Baden-Wurttemberg GmbH, Stuttgart Member of the Supervisory Board
MBW Marketing- und Absatzforderungsgesellschaft Member of the Supervisory Board
fur Agrar- und Forstprodukte aus Baden-Wurttemberg
mbH, Stuttgart
Stadtbau GmbH Pforzheim, Pforzheim Member of the Supervisory Board
Jurgen Schnieder, Group Manager
PT German Centre Indonesia, Bumi Serpong Damai, Member of the Supervisory Board
Indonesia
F-78
Authorities of Landeskreditbank Baden-Wurttemberg - Forderbank
Board Members of the - Other members -2) Advisory members:
of Management: Board of Governors
2001
Christian Brand Full members: Klaus Hackert Rudiger Ruhnow
Chairman President of the Chairman of the
Baden-Wurttemberg Central Staff Council
Association of Landeskreditbank
of Craftsmen Baden-Wurttemberg
- Forderbank
Hans Beerstecher - State government Norbert Keller Reiner Enzmann
Vice Chairman representatives - 1) President of the Chairman of the
Karlsruhe Chamber of Staff Council
Commerce and Industry at the Head Office
of Landeskreditbank
Baden-Wurttemberg
- Forderbank
Jurgen Hagele Dr. Walter Doring MdL Heinz Kalberer Gabriele Propp
Minister of Economic Lord Mayer of Chairman of the
Affairs- Chairman - Vaihingen Staff Council at the
Branch Office of
Landeskreditbank
Baden-Wurtemberg
- Forderbank
Dr. Manfred Schmitz Gerhard Stratthaus MdL Gisela Graber
Minister of Finance Head of the
- Vice Chairman Baden-Wurttemberg
Chapter of DAG
Dr. Thomas Schauble MdL Otwin Brucker
Minister of Interior President of the
- Vice Chairman Baden-Wurttemberg
Association of
Municipalities
Gerdi Staiblin Gerhard Burkhardt
Minister of Rural Chairman of the
Planning Board of Management
- Vice Chairman - of the Verband
to June 30, 2001 baden-wurttembergischer
Wohnungs-unternehmen
e.V.
Willi Stachele MdL Dr. Christoph Niemann
Minister for Food and General Partner of
Rural Planning HSBC Trinkaus &
- Vice Chairman - Burkhardt KgaA
from July 1, 2001
Ulrich Muller MdL
Minister of the
Environment, Transport
and Communication
Dr. Friedhelm Repnik
MdL
Minister of Social
Affairs
Rudolf Bohmler
State Secretary at the
Ministry of State
Klaus Fischer
Undersecretary at the
Ministry of Finance
F-79
Deputy members - Deputy Prof. Dr. Willi Weiblen Klaus Roscheisen
representatives - Assistant Undersecretary Assistant
- State government and Head of the Undersecretary and
deputy Joachim Wohlfeil Department of Economic Head of the
respresentatives - President of the and Structural Policy Administration
Karlsruhe Chamber at the Ministry of Department at the
Dr. Karl Epple of Craftsmen Economic Affairs Ministry of the
Undersecretary at Environment, Transport
the Ministry of Dr. Ing.Hansjorg Roeger Prof. Dr. Ulrich Hieber and Communications
Economic Affairs President of the Assistant Undersecretary from July 1, 2001
East Wurttemberg and Head of the
Wolfgang Ruckert MdL Chamber of Commerce Department of Christian Luft
State Secretary at and Industry Construction Law, Urban Assistant Secretary
the Planning, Housing and and Head of the
Ministry of Finance Historic Monuments Central Office at the
Egon Gushurst at the Ministry of Ministry of Social
President and Economic Affairs Affairs
Roland Eckert Chairman of the to Sep. 30, 2001
Undersecretary at Management Board of
the Badischer Genossen- Walter Leibold
Ministry of the schaftsverband Assistant Undersecretary Bernhard Gie(beta)
Interior Raiffeisen - Schulze- and Head of the Assistant Secretary
Delitzsch d.V. Department of Financial and Head of the
Rainer Arnold Policy and Investments State Budget,
Undersecretary at Frank Zach at the Ministry of Finance Real Estate and
the Head of the Trade and Investments Section
Ministry of Industry Department of Prof. Konrad Freiherr von of the Ministry
Rural Planning the Baden-Wurttemberg Rotberg of State
Chapter of DGB Assistant Undersecretary and
Stefan Mappus Head of the Department of
State Secretary at Georg Mehl Constitutional, Municipal, Norbert Schmitt
the Senator (retd.) Savings Bank and Legal Assistant Secretary
Ministry of the Wustenrot & Wurttem- Affairs and Head of the
Environment, bergische AG at the Ministry of the State Investments
Transport Interior and Banking
and Communications Karl-Heinz Reinheimer Section at the
Honarary Chairman Prof. Dr. Jurgen Patzold Ministry of Finance
Bernhard Bauer of Bundesverband Assistant Undersecretary and
Undersecretary at Frier Wohnungs- Head of the Administration
the unternehmen e.V. Department at the Ministry of
Ministry of the Environment, Transport
Social Affairs Wilhelm Freiherr von and Communications to
Haller June 30, 2001
Hermann Strampfer Member of the Board
Assistant of Management
Undersecretary and of Deutsche Bank AG
Head of Dept. I at
the
ministry of State
Julian Wurtenberger
Assistant
Undersecretary and
Head of Dept. II at
the
Ministry of State
1) ex officio members
2) personally appointed
F-80
Proposal of the Board of Management for the appropriation of retained profits
EUR 104,1 million of the net profit for the 2001 financial year has already been
appropriated to retained profit. The Board of Management proposes that the
remaining distributable profit in the amount of EUR 33,249,577.47 should be
carried forward to next year's account.
Karlsruhe, March 26, 2002
Landeskreditbank Baden-Wurttemberg - Forderbank -
/s/ Christian Brand /s/ Hans Beerstecher /s/ Jurgen Hagele /s/ Dr. Manfred Schmitz
- -------------------- -------------------- -------------------- -----------------------
Christian Brand Hans Beerstecher Jurgen Hagele Dr. Manfred Schmitz
F-81
Independent Auditors' opinion
We have audited the financial statements of Landeskreditbank
Baden-Wurttemberg - Forderbank - ("L-Bank" or "the Bank"), Karlsruhe, for the
financial year ending December 31, 2001. The accounting and preparation of the
financial statements and of the management report of the Bank in accordance with
German commercial law are the responsibility of the Board of Managing Directors
of L-Bank. Our responsibility is to express an opinion based on our audit on the
financial statements and the management report of the Bank. We conducted our
audit of the financial statements in accordance with ss. 317 HGB (the German
Commercial Code and the German generally accepted standards for the audit of
financial statements promulgated by "Institut der Wirtschaftsprufer" (IDW, the
German Institute of Certified Public Accountants). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
presentation of the net assets, financial position, and results of operation in
the financial statements, drawn up in accordance with the German generally
accepted accounting principles, and in the management report of the Bank are
free of material misstatement. Knowledge of the business activities and the
economic and legal environment of the Bank and evaluations of possible
misstatements are taken into account in the determination of audit procedures.
The effectiveness of the accounting-related internal control system and the
evidence supporting the disclosures in the books and records, the financial
statements, and the management report of the Bank are primarily examined on a
test basis within the framework of the audit. The audit of the financial
statements includes assessing the accounting principles applied and the
significant estimates made by the Board of Managing Directors of L-Bank and
evaluating the overall presentation of the financial statements and management
report of the Bank. We believe that our audit provides a reasonable basis for
our opinion.
Our audit did not lead to any objections.
In our opinion, the financial statements give a true and fair view of the
net assets, financial position, and results of operations of the Bank in
accordance with German generally accepted accounting principles. Seen in total,
the management report of the Bank is an accurate representation of the position
of the Bank and accurately reflects the risks entailed in its future
development.
Stuttgart, April 9, 2002
PWC Deutsche Revision
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
/s/ Schuldt /s/ Apitzsch
- ------------------------------ ------------------------------
Schuldt ppa. Apitzsch
Auditor Auditor
F-82
SUPPLEMENTARY INFORMATION ON DEBT OF L-BANK
Debt of L-Bank at December 31, 2003
Principal amount
outstanding
Year of incurrence Maturity (in millions of EUR)
------------------ -------- ---------------------
1. Bonds and Notes issued
a) Bonds(1) 1994-1998 2004-2008 1,076.3
b) Notes(2) 1999-2003 2004-2043 15,339.4
--------
16,415.7
2. Liabilities(3)
a) Liabilities to credit institutions(4) 1952-2003 2004-2043 18,900.4
b) Liabilities to customers(5) 1957-2003 2004-2051 2,912.1
c) Borrowings from the Federal Republic of Germany(6) 0
d) Borrowings from the State of Baden-Wurttemberg(6) 1953-2003 2004-2008 2,247.1
e) Borrowings from the State of Saxony 1993 2099 1.1
--------
24,060.8
3. Subordinated Liabilities
a) Bonds and Notes(7) 1999-2003 2009-2015 297.4
b) Others(8) 1999-2003 2008-2023 301.4
--------
598.8
Total debt outstanding(9) 41,075.3
========
- ---------------
(1) This item consists of mortgage-backed bonds (Hypothekenpfandbriefe).
(2) This item consists of other bonds and notes. See "L-Bank--Business--Source
of Funds."
(3) Liabilities include liabilities with an original maturity or non-prepayment
period of less than four years, as well as those with an original maturity
or non-prepayment period of four years or longer.
(4) Liabilities to credit institutions include mortgage-backed bonds and public
debt-backed bonds issued by L-Bank and other liabilities of L-Bank.
(5) Liabilities to customers (i.e. non-credit institutions) include
mortgage-backed bonds and public debt-backed bonds issued by L-Bank and
other liabilities of L-Bank except liabilities to Germany,
Baden-Wurttemberg and the state of Saxony.
(6) The dates of maturity of borrowings from Baden-Wurttemberg or Germany match
the dates of maturity of loans made by L-Bank with such funds in connection
with subsidized loan programs.
(7) Includes Bonds and Notes in foreign currencies.
(8) Includes other borrowings in foreign currencies and medium and long-term
loans evidenced by promissory notes placed with investors
(Schuldscheindarlehen).
(9) Includes the following debt in foreign currencies:
Currency Amount
(currency in millions)
U.S. Dollar 30,962.0
Australian Dollar 200.9
Canadian Dollar 105.9
Swiss Franc 665.8
Danish Kroner 0.2
British Pound 78.5
Japanese Yen 804.6
Norwegian Kroner 139.4
F-83
Repayment Schedule for Debt of L-Bank
Outstanding at December 31, 2003
(in millions of EUR)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015-2023
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---------
Bonds and Notes
Principal 3,059 4,810 1,244 1,834 3,113 166 1,080 15 30 173 0 403
Interest 606 463 307 254 191 93 85 26 26 30 21 151
Other liabilities
Principal 5,024 1,746 1,519 943 2,610 3,892 666 940 273 419 499 522
Interest 845 759 671 584 534 367 156 125 79 67 50 195
Total 9,534 7,778 3,741 3,616 6,448 4,518 1,987 1,106 409 690 571 1,271
- --------------------
(1) Certain outstanding debt of L-Bank matures after 20 years. Repayments
thereof scheduled after 2023 are not included in this table.
(2) Floating rate interest is calculated on the basis of the most recent
interest rate adjustment made before December 31, 2003.
(3) The repayment schedule with respect to borrowings by L-Bank from Germany
and Baden-Wurttemberg includes only the minimum required amortization since
the terms of such borrowings provide for repayment by L-Bank generally at
the time that L-Bank has been repaid by the ultimate recipient of such
funds under the relevant public support programs. Other liabilities include
liabilities to credit institutions and liabilities to customers (excluding
loans granted with funds provided by the federal or state governments or by
Kreditanstalt fur Wiederaufbau), subordinated liabilities and profit
participation capital.
F-84
U.S.$ o
[L-BANK LOGO]
Staatsbank fur Baden-Wurttemberg
o% Notes due o
Citigroup
Prospectus
Dated o, 2005
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Amount of Funded Debt and Estimated Amount of Floating Debt
The only type of secured debt L-Bank has outstanding are mortgage-backed
bonds (Hypothekenpfandbriefe). See "L-Bank--Glossary--Receivables from
customers" in the prospectus. The security for such debt is determined in
accordance with the Law on Mortgage-backed Bonds and Similar Securities Issued
by Public Law Credit Institutions (Gesetz uber die Pfandbriefe und verwandten
Schuldverschreibungen offentlich-rechtlicher Kreditanstalten). When loans or
other indebtedness constituting security for L-Bank's mortgage-backed bonds are
repaid, they are replaced on a regular basis by other eligible security without
notice to the bondholders.
All of the debt of Baden-Wurttemberg is unsecured. Hence, there is no
provision for substitution of security with regard thereto.
Estimated Expenses
It is estimated that the expenses, other than underwriting fees and
commissions, payable by L-Bank in connection with the issuance and sale of the
notes will be as follows:
Securities and Exchange Commission Registration Fee.....................$ 1,177
Printing and Engraving Fees and Expenses................................$ 8,500
Auditors' Fees and Expenses.............................................$ 35,000
Legal Fees..............................................................$100,000
Partial Reimbursement of Underwriters' Fees and Expenses................$300,000
--------
Total..........................................................$444,677
Undertakings
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-1
SIGNATURE OF LANDESKREDITBANK BADEN-WURTTEMBERG - FORDERBANK
Pursuant to the requirements of the Securities Act of 1933,
Landeskreditbank Baden-Wurttemberg - Forderbank has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Karlsruhe, Federal Republic of Germany, on
January 11, 2005.
LANDESKREDITBANK BADEN-WURTTEMBERG - FORDERBANK
By /s/ Christian Brand
----------------------------------------
Christian Brand
Chairman of the Board of Management
By /s/ Jurgen Hagele
----------------------------------------
Jurgen Hagele
Vice Chairman of the Board of Management
II-2
SIGNATURE OF THE STATE OF BADEN-WURTTEMBERG
Pursuant to the requirements of the Securities Act of 1933, the State of
Baden-Wurttemberg has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Stuttgart, Federal Republic of Germany, on January 11, 2005.
THE STATE OF BADEN-WURTTEMBERG
By /s/ Gerhard Fink
------------------------------------------
Gerhard Fink
Attorney-in-Fact
II-3
SIGNATURE OF AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, the Authorized
Representative of Landeskreditbank Baden-Wurttemberg - Forderbank and the State
of Baden-Wurttemberg in the United States has duly signed this registration
statement on January 11, 2005.
PUGLISI & ASSOCIATES
By /s/ Donald J. Puglisi
----------------------------------------
Donald J. Puglisi
II-4
Exhibit
Number Description of Exhibit
- ------ ----------------------
1.1 Subscription Agreement for the Notes of Landeskreditbank Baden-
Wurttemberg - Forderbank.
3.1 Act Concerning Landeskreditbank Baden-Wurttemberg - Forderbank
(English language translation).
3.2 Statutes of Landeskreditbank Baden-Wurttemberg - Forderbank
(English language translation).
4.1 Form of Agency Agreement between Landeskreditbank Baden-Wurttemberg
- Forderbank and Deutsche Bank Trust Company Americas, New York, as
Registrar and Paying Agent.
4.2 Form of Notes (included in Exhibit 4.1).
5.1 Opinion (including consent) of Shearman & Sterling LLP,
Gervinusstrasse 17, 60322 Frankfurt am Main, Federal
Republic of Germany, in respect of the legality of the
Notes.
23.1 Consent of PwC Deutsche Revision Aktiengesellschaft
Wirtschaftsprufungsgesellschaft.
23.2 Consent of Shearman & Sterling LLP (included in Exhibit 5.1).
23.3 Consent of Gunther Benz, Ministerialdirigent, Ministry of Finance,
State of Baden-Wurttemberg.
23.4 Consent of Walter Leibold, Ministerialdirigent, Ministry of
Finance, State of Baden-Wurttemberg.
24.1 Power of Attorney of Walter Leibold, Ministerialdirigent,
Ministry of Finance, State of Baden-Wurttemberg,
(English translation)
II-5