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Wolfgang Kirsch, Chief Executive Officerzoom

Wolfgang Kirsch
Chief Executive Officer

The intensity of the demands on the financial sector resulting from a combination of political, regulatory, and economic requirements reached new levels in 2011. The sovereign debt crisis, EU capital exercises, and the ‘Occupy Wall Street’ protest movement were just some of the headline-grabbing issues during the past year, and they all point to one thing: within just a few years, the financial sector will look fundamentally different as a result of the impact of these forces. The industry is already working flat out to satisfy a whole raft of regulatory obli-gations that are on a scale unprecedented in recent times and that will bring about radical change, particularly in the requirements relating to capital adequacy and liquidity. The entire business model at many banks is being put to the test. It is still too early to predict how the interaction between these requirements will impact the real economy and international financial markets.

In this environment, the DZ BANK Group proved once again in the year under review that it is a sound, reliable partner for its customers and owners, and that it possesses a coherent business model as a network-oriented financial services group. During the year, there was another marked improvement in public perception of the group, which continued to be reflected in growth in new business. Furthermore, as part of the cooperative financial network, we now have the best credit rating among all German banks with a Standard & Poor’s rating that has been upgraded from A+ to AA-.

Board of Managing Directors



These shared successes are also the fruits of the corporate strategy in which the DZ BANK Group has continued to extend the level of cooperation within the organization and stepped up its focus on the cooperative banks, which are the group’s owners and most important customers. We work together – and we work on the matters that count. This is reflected in the DZ BANK Group’s adjusted profit before taxes for 2011 (before recognition of the charges related to the sovereign debt crisis) of just under €1.9 billion, which exceeded the good level achieved in 2010. Even when the impairment losses on Greek government bonds and the temporary writedowns on bonds from peripheral countries in the euro zone are taken into account, profit before taxes for 2011 still reached €324 million.

We are also making great strides in our efforts to strengthen our capital base. Despite the enhanced requirements under the regulatory framework now in force (known as ‘Basel 2.5’), our effective Tier 1 capital ratio reached 11.7 percent at the end of 2011 compared with 10.6 percent at the end of 2010. These results reflect the high degree of commitment shown by the workforce in the DZ BANK Group. My colleagues on the Board of Managing Directors and I would like to take this opportunity to say thank you to all employees.

The operating profit generated last year was largely the result of our broadly-based, balanced positioning, which is best demonstrated by a few examples from DZ BANK and our subsidiaries.

In 2011, we continued to sustain the positive trend in the joint credit business operated by DZ BANK and the local cooperative banks. The number of new applications in this business, which is aimed at small and medium-sized enterprises, was up by 7 percent. In Retail Banking, we maintained our position as number two in Germany with our AKZENT Invest brand, which enjoyed a market share of 16.6 percent as at December 31, 2011. DZ BANK dominates the capital preservation certificates segment with a market share of as much as 50 percent. We also achieved a significant year-on-year rise in revenue from our capital markets business with the local cooperative banks.

In 2011, Bausparkasse Schwäbisch Hall made further significant progress in consolidating its position as market leader. The year saw the volume of new home savings business grow by €3 billion or 10.5 percent to €31.7 billion, enabling Bausparkasse Schwäbisch Hall to increase its market share to just under 30 percent. R+V continued to steer a course of growth with gross premiums written amounting to €11.3 billion in 2011, representing a year-on-year increase of 2.1 percent. In tough market conditions, Union Investment, the fund provider in the cooperative financial network, achieved some of the best results in the history of the company and therefore remains the market leader by a long way in capital preservation funds and fund-based Riester solutions. In 2011, DZ BANK and WGZ BANK merged their private banking units under the umbrella of DZ PRIVATBANK, our center of competence for private banking. The two central institutions have thereby created a joint, decentralized partner for the cooperative banks in an important high-growth market.

These sales successes and forward-looking projects have enabled us to feel all the more confident, as the economic tailwind eased off, especially in the second half of 2011. Demanding and diverging economic conditions in the major economic areas of the world remained as much a part of the overall picture as the sovereign debt crisis in individual countries within the euro zone. The consolidation measures that have now been taken by these countries to deal with their significant budget deficits were an urgent necessity and are showing the first signs of progress, although they are initially bound to depress the euro zone economy in 2012. Much will depend on the extent to which the countries in question succeed in restoring confidence in the soundness of their public finances and in re-establishing competitiveness. Germany is currently benefiting from the fact that it went through this process of structural improvement in key locational factors at an early stage. We therefore believe that the opportunities for growth in Germany are better than in the rest of the euro zone and are also able to report that the DZ BANK Group has enjoyed an encouraging start to 2012.

On top of this economic uncertainty, our sector continues to be burdened by dramatic changes in the regulatory environment. The year under review again saw the advent of new standards,

which the DZ BANK Group views with some skepticism. This is because the European Banking Authority (EBA) has set seemingly arbitrary additional requirements for capital adequacy in addition to the capital and liquidity requirements arising from Basel III, which are challenging enough as it is. These new EBA requirements were reflected in one regular stress test and two capital exercises during 2011. The DZ BANK Group successfully completed the stress test and first exercise, but the second exercise revealed a capital shortfall of approximately €350 million. However, we were able to eliminate almost all of this shortfall from our own resources by the end of 2011.

There are still huge imponderables regarding the regulatory framework, as highlighted by the discussions around a financial transaction tax. The challenge for the DZ BANK Group will be to compensate for any adverse impact as best it can by carefully managing risk-weighted assets, further focusing its business activities on the cooperative financial network, and by retaining profits. Our dividend proposal is also derived from this assessment. A dividend payment of 5 cents per share will be proposed to the Annual General Meeting.

Against the background of these challenges, we know that we are driven by the shared conviction in our organization that we aim to be the masters of our own destiny. We are also prepared to mobilize our own resources to achieve this aim, as we intend to continue to generate growth together. This also includes the numerous types of cooperation that we continued to develop with WGZ BANK during 2011, for example in private banking, private equity business, payments processing, and loan securitization. This cooperation remains guided by our efforts to make the local cooperative banks even more competitive and to further lower their costs. The pursuit of these objectives is also supported by close cooperation in our Financial Services Advisory Council, in the special committees of the National Association of German Cooperative Banks, BVR, and with the specialized service providers within the cooperative sector.

Regardless of the worries about external factors, we can be proud of how we have successfully developed our cooperative financial network. Many factors indicate that we are on the right path in terms of our market positioning and our joint efforts in the areas of marketing, sales channels, and cost efficiency. So if we are looking to the future with optimism, this optimism – to paraphrase Joseph Schumpeter, the economist you need in times of upheaval – is not necessarily a sign that we are neglecting our duty.

Kind regards,

Wolfgang Kirsch

Chief Executive Officer



Member of the cooperative financial services network
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