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In BearBeItung
Annual Report 2010
HSH NordbaNk Group at a GlaNce
Income statement (¤ m) 2010 2009
net income before restructuring 545 -718
group net income / net loss for the year 48 -743
Balance sheet(¤ bn) 31.12.2010 31.12.2009
equity 5.1 4.4
total assets 150.9 174.5
Business volume 163.7 192.9
Capital ratios 1)
(%) 31.12.2010 31.12.2009
tier 1 capital ratio 15.4 9.5
regulatory capital ratio 22.4 14.5
Employees 31.12.2010 31.12.2009
total 3,852 4,188
germany 3,251 3,490
abroad 601 698
Full-time positions 3,388 3,610
germany 2,824 2,958
abroad 564 652
Long-term ratingsunguaranteed
liabilitiesguaranteed liabilities 2)
Public-sector Pfandbriefe
Mortgage Pfandbriefe
Ship Pfandbriefe
Moody’s A3 Aa1 Aaa Aaa A2
Fitch A- AAA – – –
1) Including market risk positions, before adoption of the financial statements2) Obligations covered by ‘gewährträgerhaftung’ (guarantee obligation)
Segment structure of HSH Nordbank
HSH NordbaNk Group at a GlaNce
Sector SpecialiSt baNk reGioNal baNk
otHer reStructuriNG uNit
Focussing on internationally attractive business
HSH nordbank is active internationally as a major financial partner in the
fields of shipping, aviation, renewable energy and infrastructure. these
sectors have the potential for long-term growth. at the same time they
represent particular strengths of the Hamburg and Schleswig- Holstein
region. Our involvement is based on comprehensive expertise and client
relationships some of which were established decades ago. With regard
to shipping, we are in a leading position globally and provide services for
our clients in all regions and market segments key to this in dustry. We
are also a leading specialist in the aviation industry with global reach. In
the renewable energy business, the Bank as a leading provider finances
wind and solar power projects in europe. In the infrastructure business,
our focus is on financing airports and sea ports amongst others.
Firmly rooted in the region
In the regional Bank segment we focus on activities in the region support-
ed by the Bank’s strong market position. these cover areas of economic
significance for northern germany: corporate clients, real estate financing,
private banking and our savings banks business. the corporate clients
business includes our involvement in attractive sectors such as the health
industry, the food & beverage industry, logistics and the services sector.
the Bank’s real estate clients business focuses on the northern german
core region as well as on german metropolitan regions with the aid of
its strong position as a specialist real estate financial provider. In private
banking, the Bank focuses on the needs of wealthy private clients and
foundations. the savings banks business covers integrated solutions for
business conducted by savings banks as well as debt and liquidity man-
agement for public-sector clients.
Focussed capital market activities
HSH nordbank’s capital markets area provides product and advisory solu-
tions which supplement services offered in the client business. this
refers mainly to tailor-made investment and risk management services
through which we strengthen our customer relationships. the capital
markets area’s central refinancing function is consistently in line with
HSH nordbank’s new business model. In addition, this segment includes
overall bank items that cannot be assigned to the other segments, for in-
stance, results from strategic participations and central portfolios.
Managing the winding down of portfolios
the restructuring unit, established as an internal unit within HSH nord-
bank, manages the winding down of portfolios that, as a result of
the restructuring, are no longer part of the core business of the Bank. the
items grouped together in the restructuring unit with total assets of
¤ 63 billion as at the end of 2010 include special capital market portfolios
such as the credit investment portfolio and non-strategic loan commit-
ments from various fields of business of the Bank, which were given up in
order to focus on the regional and sectoral core activities. the portfo-
lios are being wound-down in a risk-aware and value preserving manner.
letter of tHe MaNaGeMeNt board 02
turNING poINt reacHed 06
Well poSItIoNed for tHe future 08
buSINeSS areaS 10
Shipping, aviation, energy & infrastructure 10
Corporate clients, real estate financing,
private banking, saving banks 22
capItal MarketS, reStructurING uNIt 38
eMployeeS, SocIal reSpoNSIbIlIty, INteGrIty 40
Group MaNaGeMeNt report 43
Underlying conditions and business overview 44
Business developments 50
Outlook 67
Risk report 74
Group fINaNcIal StateMeNtS 111
Statement of comprehensive income 112
Statement of financial position 114
Statement of changes in equity 116
Cash flow statement 118
Explanatory notes 120
Auditor’s report 246
Responsibility statement by the Management Board 247
SupervISory board report 248
corporate GoverNaNce 252
HSH NordbaNk advISory board 255
MultI-year aNd Quarterly overvIeW 257
IMprINt 260
coNteNtS
FocuSSiNG oN StreNGtHS
We focus on both the strengths and the promising markets of our region. In our key business sectors we have many years of experience in addition to our in-depth knowledge of the market and strong client relationships.
As a bank for higher-end medium-sized companies, a provider of financing for real estate projects, a specialist in wealth management and a partner to sav-ings banks, we are firmly rooted in the regional economy. On an international scale we count among the leading financing specialists in the promising markets of shipping, aviation and renewable energy and infrastructure. Our capital markets area caters to the needs of our clients with financing solutions tailored to the specific requirements.
HSH NordbaNk 20102
ladieS aNd GeNtlemeN,
For HSH Nordbank, the financial year 2010 was characterised by the systematic imple-
mentation of the Bank’s strategic realignment. The 2010 consolidated financial
statements are proof of the success of these measures. In accordance with IFRS, we gen-
erated earnings before restructuring of € 545 million compared to a loss before
restructuring of € − 718 million in the previous year.
Group net income amounted to € 48 million despite expenses for public-sector guaran-
tees. This means that the Bank is back in the profit zone a year ahead of schedule.
Further progress was also made in the reduction of total assets. They were reduced by
around 13 per cent in 2010 and stood at € 151 billion at the end of the year. At
15.4 per cent as at the end of December 2010, the Tier 1 capital ratio was at a very solid
level compared to international competitors.
It goes without saying that the Bank also fulfilled all of its obligations arising from the
€ 10 billion second loss guarantee provided by the federal states of Hamburg and
Schleswig-Holstein in the year under review. In 2010, the Bank paid the federal states a
fee of more than € 400 million for providing the guarantee. In March 2011, we
initiated our scheduled reduction of the guarantee. As agreed, the guarantee facility from
the Financial Market Stabilisation Fund (SoFFin) expired at the end of 2010. The
€ 9 billion securities issued under the guarantee that are still outstanding will mature
according to their terms by July 2012. The Bank is once again able to refinance
itself independently.
The Bank’s successful placement of a public-sector Pfandbrief of € 500 million in June
2010 and the reduction of its refinancing costs are examples of how the capital mar -
kets have responded positively to the Bank’s restructuring programme. The Bank also
signed a declaration of intent for closer business relations with the China Develop-
ment Bank.
The Bank’s success in passing the CEBS stress test and impact analyses regarding
upcoming changes triggered by Basel III requirements underpinned the stabilisation of
its position.
In the course of our realignment, we have focussed on attractive, sustainable business
sectors which reflect the strengths of the Northern German region. Our core banking
business not only covers regional but also international activities in selected industries.
Both regionally and internationally, the Bank has strong client relationships and in-
depth expertise developed over many years.
As a bank for larger medium-sized companies, a specialist provider of real estate financ-
ing, a provider of wealth management and a partner to savings banks, we are firmly
rooted in the regional economy. Across the globe, we are active in the fields of shipping
and aviation as well as renewable energy and infrastructure, all of which have excel-
3
lent prospects for the future. Our capital markets area supports our business units as
an efficient product supplier.
The Bank’s non-strategic portfolios, which have been separated from its core business,
are consolidated in the Restructuring Unit. In 2010, we were able to wind these
down by around 18 per cent to € 63 billion. The portfolios are being wound down in a
risk-aware and value preserving manner.
The Bank’s investment portfolio has been reduced further and additional adjustments
have been made to its network of locations. The Bank’s total number of employees,
calculated on a full-time equivalent basis, decreased by 222 to 3,388 at the 2010 year end.
Alongside our strategic realignment, we have updated and improved the Bank’s core
processes and organisational structures. Most of the weaknesses identified in the
course of the financial crisis have been resolved. For example, the lending process and
the internal control system have been improved, and a new risk culture now pre-
vails across the Group.
While over the past two years we have focussed on streamlining the Bank’s portfo-
lios and updating the Bank’s processes, in 2011 we plan to concentrate once again on
our customer business and we are in a good position to take on new business.
The EU state aid proceedings that occupied us in 2010 will continue in 2011. One
requirement of the EU Commission could be for the federal states of Hamburg and
Schleswig-Holstein to give up their majority shareholding in the Bank in the medium
to long term, which is why we must create a new shareholder structure in the
future.
The course for our future has been set. We would like to thank our employees, share-
holders and clients for their loyalty even through turbulent times.
Prof. Dr. Dirk Jens Nonnenmacher
Chairman
Dr. Martin van Gemmeren Constantin von Oesterreich
Torsten Temp Bernhard Visker
Letter of tHe MaNageMeNt board
HSH NordbaNk 20104
maNaGemeNt board
dr. martiN vaN GemmereNBorn in 1970
responsible for the restructuring unit with the following divisions:
Divestments, Special Loans, Wind-
down Loans
Subsidiaries:
HSH Nordbank Securities S.A.
HSH Real Estate AG
branches:
Copenhagen, Luxembourg
coNStaNtiN voN oeSterreicHBorn in 1953
responsible for the following divisions:
Group Risk Management, Credit Risk
Management, Loan & Collateral Man-
agement, Restructuring
proF. dr. dirk JeNS NoNNeNmacHerChairman of the Management Board
Born in 1963
responsible for the following divisions:
Corporate Communications, Human
Resources, Legal, Internal Audit,
Corporate Development
Finance, Taxes (on a temporary basis)
IT, Operations (additional organisa-
tional / disciplinary allocation)
branches:
Asia, London, New York
Subsidiaries:
HSH Corporate Finance GmbH
(on a temporary basis)
neuer HIntergrund
5MaNageMeNt board
torSteN tempBorn in 1960
responsible for the following
divisions since 1 may 2010:
Aviation, Energy & Infrastructure,
Shipping
berNHard viSkerBorn in 1966
responsible for the following
divisions:
Corporate Clients, Real Estate Clients,
Private Banking, Savings Banks
Capital Markets Clients, Capital Mar-
kets Structuring & Trading, Group
Treasury (additional organisational /
disciplinary allocation; technical
responsibility lies with the entire Man-
agement Board)
Subsidiaries:
HSH Nordbank Private Banking S.A.
HSH NordbaNk 20106
After two years of systematic implementation of our strate-
gic realignment, the financial year 2010 marks a turning
point: we have returned into the profit zone a year ahead
of schedule. After reporting a loss before restructuring
of € − 718 million in 2009, we generated earnings before
restructuring of € 545 million in the financial year 2010.
The rise in the Bank’s Tier 1 capital ratio to 15.4 per cent
demonstrates its solid capital resources.
Rigorous portfolio adjustments have contributed signifi-
cantly to this achievement. Focussing on our core business
is just as much a prerequisite for this success as is the
return to more risk-conscious business practices. The EU
Commission’s decision on the restructuring plan and
stabilisation measures granted by our public-sector share-
holders is still pending. However, we have already
driven the implementation of the plan well forward and
already fulfil to a large extent the conditions expected to
be imposed by the EU Commission.
By the end of 2010, with the adjustment of our central pro-
cesses and organisational structures, we had remedied
a large share of the structural weaknesses identified follow-
ing the onset of the financial crisis. We have completely
reworked and at times redrafted processes and organisa-
tional structures. Outstanding examples are the reor-
ganisation of the lending process and the internal control
system. The new lending process is based on an appro-
priate risk culture and is directed at increasing the inde-
pendence and quality of risk management.
Focussing on our business has led to adjustments to our
foreign locations, divestments of numerous equity interests
and further reduction in staff numbers in 2010. At the
turNiNG poiNt reacHed
nOveMBer deceMBer January FeBruary MarcH aPrIl May
Successful platform change for foreign
payment transactions
Official launch of the restructuring unit
ulrich voss becomes chief Operating Officer
with effect from 1 december
adoption of Bank’s internal code of conduct
comprising all compliance guidelines
Introduction of new remuneration system
for the members of the Management Board
torsten temp appointed member of
the Management Board responsible
for the Bank’s sector businesses, with
effect from 1 May
coordinating
bank of ¤ 1.2 bil-
lion credit
facility within the
framework of
the restructuring
of Hapag-lloyd
HSH corporate
Finance is awarded
‘deal of the year‘
for its restructuring
of the chilean
shipping line cSavv
Placement
of ¤ 500 million
benchmark
public-sector
Pfandbrief
constantin von Oesterreich
becomes chief risk Officer with
effect from 1 november
Martin van gemmeren becomes
Member of the Management Board
responsible for the restructuring
unit with effect from 1 november
2009 2010
June
7tUrNINg PoINt reaCHed
same time, the Restructuring Unit reduced the non-strate-
gic portfolios assigned to be wound-down by € 14 billion
to € 63 billion by the end of the year 2010.
The guarantee facility from the Financial Market Stabilisa-
tion Fund (SoFFin), which we utilized during the finan-
cial crisis for purposes of supporting our issuing activities,
expired as agreed at the end of 2010. The SoFFin guar-
antees continue to apply to the capital market issues still
outstanding totalling € 9 billion until their respective
maturity dates. Likewise, from the first quarter of 2011, we
will gradually reduce the second loss guarantee provided
by the federal state of Schleswig-Holstein and the Free and
Hanseatic City of Hamburg, amounting to € 10 billion.
We initiated the first partial reduction of the guarantee of
€ 1 billion to € 9 billion in February 2011. In 2010, the
Bank paid the two federal states a fee of more than € 400
million for providing the guarantee.
The capital markets have also rewarded our restructuring
efforts. As a result, we were able to return to the cap-
ital markets with the placement of a jumbo public-sector
Pfandbrief with an issue amount of € 500 million in
June 2010. In December, the Bank received the highest pos-
sible rating, Aaa, from the rating agency Moody’s for
its mortgage cover pool. With the loan amounting to USD
500 million from the state-owned China Development
Bank, we have additionally strengthened the refinancing
of our US dollar business.
We are confident that the course we have set will continue
to be successful. Our business model is based on long-
term growth potential in promising markets and, in this
manner, provides the Bank with sustainable prospects
for the future.
July auguSt SePteMBer OctOBer nOveMBer deceMBer January
Successful completion of europe-
wide stress test conducted by the
committee of european Banking
Supervisors
Successful platform change for
domestic payment transactions
Paul Friedrich lerbinger appointed as Management Board
member with effect from 1 March and as chairman of the
Management Board with effect from 1 april 2011
capital increase of ¤ 511 million by way of a regular conver-
sion of silent participations
uSd 500 million loan by china development Bank
aaa rating by Moody’s for the mortgage cover pool
launch of the new risk-oriented
credit decision process throughout
the Bank
First positive quarterly result since
the start of the strategic realignment
Founding mem-
ber of eeHH,
an association to
promote re-
newable energy
in Hamburg
Signing of declaration of intent
for closer business relations with the
china development Bank
Placement of ¤ 500 million bench-
mark mortgage Pfandbrief
relaunch of the HSH nordbank brand
2011
FeBruary
HSH NordbaNk 20108
The financial crisis has not only changed the environment
in which we do business but also the Bank itself. HSH
Nordbank has learned its lessons and, since the end of
2008, has consistently realigned itself. We have been
able to correct major procedural and structural weaknesses.
In the course of our realignment, we have focussed on at-
tractive, sustainable business sectors which reflect the
strengths of our region. The newly-created Core Bank cov-
ers not only regional activities but also business in
selected sectors in which we operate internationally. In
both segments, the Bank has strong customer relation-
ships and in-depth expertise gained over many years. In
favour of the core region, we have significantly reduced
our international activities. The capital markets area sup-
ports our market and sales units by providing products
that enable us to offer our customers comprehensive solu-
tions tailored to their needs.
HSH Nordbank’s total assets will be significantly reduced
compared to the year 2008 in the course of its strategic
realignment. Total assets of the Core Bank should remain
almost constant at current levels. Cutting back total
assets is a painful process initially, but one which will be
rewarding in the long term. As a result of radical down-
sizing, the Bank will be more efficient and flexible. Wind-
ing down portfolios in the Restructuring Unit is neces-
sary to allow the Bank to focus on its strategic core busi-
nesses.
Our goal is to transform HSH Nordbank once again in-
to a stable, respected and successful financial institution
in the region – with consistent added value for share-
holders and investors as well as convincing solutions for
its clients.
partner for companies in Northern Germany
Our regionally-oriented activities include the corporates
business, real estate financing, private banking as well
as the savings bank business. We enjoy a strong position in
these sectors, which are of major economic significance
in the core region of Northern Germany. Going forward we
want to maintain and expand on this position. As a part-
ner for the region, we contribute significantly to its eco-
nomic development.
Over the years, the Bank has achieved an important and
leading position in the upper end of the corporate cus-
tomer business and in real estate financing. In the corpo-
rates sector, we have business relationships with more
than 50 per cent of our target clients. In addition, we are
one of the leaders in real estate project financing with
a high degree of market expertise in Germany. Our private
banking is among the top providers of wealth manage-
ment and one of the leading institutions for foundations.
We offer convincing solutions to the savings banks and
public-sector clients, such as municipalities, take advantage
of our products offered in the areas of debt and liquidity
management.
international activities in regionally significant markets
with future potential
As a sector specialist, we are targeting markets with future
potential where globally high rates of growth have been
forecast. At the same time, these sectors represent particu-
lar strengths for Hamburg and Schleswig-Holstein: the
shipping industry, aviation, renewable energy, as well as
infrastructure.
HSH Nordbank ranks among the world’s leading banks in
the shipping sector and advises clients in all important re-
Well poSitioNed For tHe Future
9
gions and market segments of the shipping business. With-
in the aircraft financing sector, we are one of the world’s
most important commercial banks and are a strong partner
for the global aviation industry. In the field of financ-
ing the renewable energy industry, we are one of the lead-
ing providers of financing for wind and solar power
projects in Europe.
HSH Nordbank’s capital markets area occupies a central
position especially in relation to securing refinancing
and managing liquidity. As a co-ordinator of bankwide syn-
dication and securitisation activities, it has an impor-
tant role in supporting the Bank in the management of its
total assets. In its function as risk manager, the capital
markets area manages all market price and liquidity risks,
including HSH Nordbank’s liquidity reserves, and exer-
cises an advisory role in the management of banking risks.
In addition, it supports customer activities in all areas
with tailored products, e. g. interest rate, currency and com-
modities price hedges.
With the Restructuring Unit, established on 1 December
2009, we created a segment with an independent organ-
isational structure within HSH Nordbank in which we con-
solidate non-strategic portfolios. The central task of the
Restructuring Unit is to wind down in a controlled manner
portfolios consisting of activities and business sectors
within the Bank that are no longer part of its future-ori-
ented strategy or are unreasonably risky. The aim is to
wind down these positions in a controlled manner with as
little impact as possible on earnings and / or on the Bank’s
capital base, or even sell these portfolios at a profit. In this
manner, the unit is making an essential contribution
to the recovery and reinforcement of the Core Bank. By the
end of 2010, we had already wound down a significant
share of the portfolios within the Restructuring Unit. In
this endeavour, all customers are, of course, being treated
in a responsible manner and in accordance with contrac-
tual agreements.
At the end of the year 2010, a second loss guarantee of
€ 10 billion from the federal states Hamburg and Schleswig-
Holstein was still available to HSH Nordbank. In light
of the continued reduction of risk, this risk-shield will be
gradually reduced from 2011 onwards. HSH Nordbank
has created a solution in the second loss guarantee which
has so far not burdened the budgets of Hamburg and
Schleswig-Holstein. We paid the two federal states a fee of
more than € 400 million for this risk-shield during the
2010 financial year. By including expenses for risk provi-
sioning of up to € 3.2 billion in the income statement as
part of our first loss piece, we are disclosing developments
within the Bank in a transparent manner.
Business developments in 2010 have shown that the Bank
has been implementing its plan consistently and success-
fully. With our new branding strategy we are emphasizing
our return to our regional roots – with renewed strength.
Thanks to our success in the financial year under review,
we have come significantly closer to our goal of getting
the Bank back on the track to success for the long term.
WeLL PoSItIoNed for tHe fUtUre
HSH NordbaNk 201010
Global. aNd experieNced.
LoreM IPSUMdoLor | LoreM IPSUMdoLor 11
For us, outstanding work is a matter of course. We bear a special responsibi- lity as a market leader.
HSH NordbaNk 201012
13SHIPPINg | bUSINeSS areaS
SHippiNG
As the market leader in global ship financing, HSH
Nordbank makes an important contribution to regional
economic development – and has done so for more
than 75 years. The year 2010 again demonstrated that even
under the difficult conditions of the world economic
crisis, our clients appreciate the Bank as a competent and
reliable partner who makes a major contribution to
the stabilisation of the shipping industry in Northern Ger-
many.
Alongside our pure lending business, we offer comprehen-
sive advice to shipping companies and all possible finan-
cial services on a one-stop basis. Instruments for hedging
interest rate, currency and oil price risks (e. g. trends in
fuel costs) are a major component of our range of products.
In this area we offer solutions tailored to the needs of
our customers. M & A and advisory activities increased in
importance in 2010. In these areas, we work together
with our subsidiary HSH Corporate Finance.
Our financial services include long-term ship mortgage
loans, business financing and structured ship financ-
ing. We offer these products to our clients not only for
new shipbuilding projects but also in connection with
the purchase of secondhand vessels. We focus on solutions
tailored to specific needs in the main sectors of con-
tainer vessels, tankers and bulk carriers, but also in the
area of special vessels – in particular in the offshore
segment.
recovery in parts of the shipping market
Following the unexpected strong recovery in the first half
of the year, the container ship market stabilised and
trended sideways during the second half of the year. Tank-
ers experienced a strong first half of the year as well,
followed, however, by a slump throughout the remainder
of the year. Trends in the bulk carrier markets were
consistently downwards. In container shipping, most ship-
ping lines realised remarkable profits following large
losses in the previous year. Worldwide demand for ship
financing exceeded available financing from interna-
tional banks in this segment in 2010.
We expect 2011 to be a more balanced year in which we
will again concentrate on new business.
We will continue to be counted among the world’s leading banks in the ship financing sector and will provide support to customers in all major regions and market segments. In doing so, we can rely on our years of experience as an arranger, advisor and risk manager.
Credit portfolio (in %) as at 31 December 2010
containers 36
Bulkers 18
tankers 18
Offshore vessels 5Other vessels 11
Other financing 12
HSH NordbaNk 201014
active. aNd tarGeted.
LoreM IPSUMdoLor | LoreM IPSUMdoLor 15
With our strong exper-tise, we successfully face the challenges of the market.
HSH NordbaNk 201016
17aVIatIoN | bUSINeSS areaS
aviatioN
We are among the world’s leading commercial banks in the field of aviation financing. With our expertise as a specialist finance provider, we support our clients in all stages of the industry cycle.
Recovery of the international aviation sector continued in
2010. Passenger and freight volumes increased again,
in particular in Asia, the Middle East and Latin America.
Despite the international focus, our regional roots are
important. Hamburg is among the world’s four most im-
portant aviation sites and ranks second in Europe after
Toulouse in France. European customers account for more
than a third of our financing volume. The Bank’s avia-
tion portfolio is well diversified and is clearly focussed on
modern and marketable aircraft.
Specialist expertise in demand
We provide financing for airlines, aircraft lessors and air-
craft manufacturers. Our team is made up of a broad
range of qualified specialists – from engineers, leasing and
financing experts to our advisory, arranger and risk
management specialists. As a result, we can offer a compre-
hensive range of services to our clients. This includes
financing of down-payments, medium-term and long-term
aircraft loans, as well as structured financing for the
purchase of new and secondhand aircraft. Hedging of inter-
est rate, currency and oil price risks (fuel) is also of great
relevance. This expertise is in great demand among com-
panies operating in the aviation industry in Germany
and abroad, especially as we provide solutions tailored to
the individual needs of the client. In the areas of M & A
and corporate finance advisory services, we work together
with our subsidiary HSH Corporate Finance. In addition,
we are able to offer attractive investment opportunities to
our clients.
positive outlook for the sector
Experts forecast continued strong profitability in the avia-
tion sector in 2011. During the crisis, the airlines had
reacted to the marked drop in demand with comprehen-
sive decommissioning, in particular of older aircraft.
In addition, support was provided by the fact that aircraft
manufacturers managed their deliveries in a flexible
manner. Demand for modern aviation technology remains
strong. And also, high kerosene prices are forcing the
airlines to continually modernise their fleets. Accordingly,
trends in fuel costs remain an important influencing
factor for both aircraft development and the industry.
According to estimates by many experts, global passenger
volumes will grow by approximately six per cent, and
thus stronger than gross domestic product, over the next
10 to 15 years. As a result, the sector will record dispro-
portionate growth. This is connected to a considerable need
for new aircraft.
We see ourselves as being well positioned to continue
providing comprehensive support to our clients in this
environment.
Credit portfolio by region (in %) as at 31 December 2010
34 Europe
33 Asia-Pacific
19 North and South America
14 Middle East and Africa
14
34
33
19
HSH NordbaNk 201018
SuStaiNable. aNd poWerFul.
LoreM IPSUMdoLor | LoreM IPSUMdoLor 19
We recognised the potential of renewable energy early on and now have more than twenty years of solid experience.
HSH NordbaNk 201020
21eNergY & INfraStrUCtUre | bUSINeSS areaS
eNerGY & iNFraStructure
With more than twenty years of experience, we are a leading provider of wind and solar power proj-ect financing in europe. the combination of our activities in the sectors of renewable energy with infrastructure and rail activities enables us to provide even more efficient support to our customers.
Infrastructure credit portfolio(in %) as at 31 December 2010
transportation infrastructure 68
rail 32
clear focus on wind and solar power in europe
With our focus on Europe, and on the asset classes of wind
and solar, we are active in business sectors with substan-
tial potential for growth. Despite the difficult market envi-
ronment in 2010, we were able to enter into attractive
new business together with international business develop-
ment banks, thus allowing us to secure our position as
one of Europe’s leading banks within the renewable energy
sector. This has been especially beneficial to our existing
customers. Our home region also benefits indirectly from
the creation of jobs in medium-sized companies and
industrial enterprises resulting from projects in Germany
and abroad. In addition, HSH Nordbank is a founding
member of ‘Verein zur Förderung des Clusters Erneuerbare
Energien Hamburg’, the association formed in 2010
to promote renewable energy in and around Hamburg.
By 2020, the market share of renewable energy is to be in-
creased in a legally binding manner to 20 per cent of
overall consumption within the European Union. In order
to achieve this goal, the European Wind Energy Associa-
tion expects an average annual increase within the wind
sector of 11 per cent or an annual investment volume
of approximately € 14 billion onshore and approximately
€ 9 billion offshore. Lasting positive stimulus for the
wind energy market is expected from Germany and the
United Kingdom; demand is increasing in Italy, Scandi-
navia, Eastern and South Eastern Europe as well. The Euro-
pean Photovoltaic Industry Association expects average
annual growth of at least 21 per cent or investment vol-
umes of more than € 20 billion. In the medium term,
Europe is likely to remain the most important photovoltaic
market, while the U.S. and some Asian countries, such
as China and India, are increasing in importance. We will
continue to focus on proven technologies in wind
and solar power within Europe and, therefore, on low-risk
transactions.
infrastructure and rail
Since the start of 2011, we have been efficiently consoli-
dating our expertise in project financing and in govern-
ment supported programme loans by adding transport in-
frastructure and rail to this segment. The emphasis is on
the financing of airports and sea ports as well as associated
infrastructure in Europe. For years now we have been
able to provide a high level of advisory expertise in the area
of railway financing, which is an important component
of our project financing activities. In addition to traditional
project financing, we offer our clients a broad range of
hedging instruments for interest rate, currency and infla-
tion risks.
In 2011, we see ourselves as being well positioned to
strengthen relationships with existing customers and gain
new customers. In addition to our extensive advisory
expertise, we offer products that go beyond pure financ-
ing and, for instance, allow clients to hedge their cur-
rency and interest rate risks in the best possible manner.
Energy credit portfolio (in %) as at 31 December 2010
Wind germany 27
Wind rest of europe 38
Solar germany 5Solar rest of europe 30
HSH NordbaNk 201022
cuStom-Fit. aNd perSoNal.
LoreM IPSUMdoLor | LoreM IPSUMdoLor 23
Our approach is to provide comprehensive financial solutions. Based on decades of experience and close client relationships.
HSH NordbaNk 201024
25CorPorate CLIeNtS | bUSINeSS areaS
corporate clieNtS
as the leading bank for large medium-sized companies, we are by tradition firmly rooted in the region of northern germany. thanks to our in-depth expertise of selected sectors, we are also a partner to businesses outside the region.
In the past financial year we have continued to focus
our strategy in the aftermath of the financial crisis. We
concentrate on large medium-sized companies in the
region of Northern Germany as well as on defined sectors
with strong growth throughout Germany. Within North-
ern Germany, more than 50 per cent of the companies in
our target segment already rely on our expertise. It is
also thanks to our broad and stable client base that the cor-
porate clients business is part of the Bank’s core busi-
ness.
comprehensive financial solutions
In 2010, we successfully reasserted our position within the
difficult market environment due to close client relation-
ships characterised by a spirit of partnership. In doing so,
we provide our clients with sustainable financial solu-
tions.
Due to the economic situation, which remained strained
in the first half of the year, loan extensions were primar-
ily in demand among our clients for purposes of preserv-
ing liquidity. The economic recovery enabled slightly
increased, but still moderate, new business in the second
half of the year, which was also influenced by a highly
competitive environment.
In addition to the financing of current assets, invest-
ments and transactions as well as import and export fi-
nancings, we also offer advisory services for the man-
agement of risks. Hedging transactions for interest rates,
foreign currency and commodities as well as the devel-
opment of tailor-made structured financing solutions are
of equal importance. Demand was just as strong in
2010 for foreign currency and commodities hedges as well
as advisory solutions for risk management. We were
once again able to report highly encouraging growth in
the area of client deposits for the past financial year,
which we regard as a sign of special trust.
active in sectors with growth potential
Businesses within the food & beverage industry, logistics,
health care industry as well as the services sector within
the region and beyond rely on our expertise. The strength-
ening of our sector-based approach to advising clients
has placed us in a good position for the future. On the basis
of our high level of industry and sector expertise, we
offer our clients tailor-made solutions utilising our com-
plete range of financial market products.
We continue to see ourselves as a reliable partner for
our clients above and beyond economic cycles and
develop solutions tailored to the strategic goals of their
businesses.
Credit portfolio by sector (in %) as at 31 December 2010
21 Industry
17 Services
17 Food & beverage and logistics
16 commerce
14 Health care
8 energy / utilities
7 automotive suppliers and Other
17
16
17
218
14
7
HSH NordbaNk 201026
SubStaNtiated. aNd Stable.
LoreM IPSUMdoLor | LoreM IPSUMdoLor 27
Often our involvement lays the foundations for the successful imple-mentation of real estate projects. We work together with our clients on the basis of long-term partnerships.
HSH NordbaNk 201028
29reaL eState fINaNCINg | bUSINeSS areaS
real eState FiNaNciNG
as a leading specialised finance provider we are firmly rooted in the northern german real estate market. We support our clients as a long-term and trustworthy partner for their real estate invest-ments.
In the real estate financing business, our focus is on our
home markets Hamburg and Schleswig-Holstein as well as
the German metropolitan regions. Within these markets
we enjoy an excellent market position and we have many
years of respected expertise. As a financing partner, it is
often our involvement that lays the foundations for the
successful implementation of real estate projects and,
therefore, we make a direct contribution to the develop-
ment of the regional economy. In addition, we support
our domestic clients in important Western European mar-
kets. Our loan portfolio is well balanced and is com-
prised mostly of residential, office and retail properties.
tailor-made financing solutions
We support our clients throughout the entire life-span
of their projects. On the basis of decades of experience in
financing real estate projects and our knowledge of the
sector, we also offer financing for sophisticated structures.
In contrast to many competitors, we still offer financing
for commercial and residential property development proj-
ects. In doing so, our team of experts works together
with our clients to develop solutions tailored to their spe-
cific needs.
In light of the low volume of new business, we have
placed great emphasis on – above all – being a reliable
partner to our existing client base. Accordingly, we
have focussed on the prolongation of maturing loans and
have con centrated on selected new business. Our pleas-
antly stable deposit volume is proof of the unvaried high
degree of confidence that our clients have in us.
We will continue to provide financing for our clients in
the future. We see good prospects for business in resi-
dential as well as commercial properties. This is especially
the case as the market for commercial property devel-
opment projects is likely to improve in the course of the
overall improvement in the economic environment.
Accordingly, we expect there to be an upturn in new
business in 2011 despite increasing competition. In addi-
tion to supporting our existing clients, we are pursuing
the goal of broadening our client base on a selec-tive basis.
Credit portfolio by property type(in %) as at 31 December 2010
42 Office and other commercial
36 Residential
16 Retail
6 Special usage
36
42
16
6
HSH NordbaNk 201030
truSted. aNd reliable.
LoreM IPSUMdoLor | LoreM IPSUMdoLor 31
We work in a sustai- nable manner. We appreciate the value of our clients’ assets and thus preserve their wealth from gene- ration to generation.
HSH NordbaNk 201032
33PrIVate baNkINg | bUSINeSS areaS
private baNkiNG
Providing comprehensive service for wealthy private clients has a long tradition at HSH nordbank. reliability, transparency and solidity have been our fundamental principles from the start. Our clients have also appreciated these principles during the crisis.
Despite the financial crisis, on the whole we have been
able to maintain the investment assets of our existing cli-
ent base in the Northern German core region at stable
levels. A significant contributing factor for this has been
the longstanding and trusted relationships with our cli-
ents. However, conditions for attracting new business have
been challenging. The investment behaviour of private
investors continued to be characterised by restraint and a
focus on security. Conservative fixed-income invest-
ments were especially in demand, and this sector was sub-
ject to strong competition during 2010. The same was
true in the lending business.
personal advice based on trust
Documentation and transparency of client advisory ser-
vices, and comparability of terms and conditions, have
been further improved not only by the introduction of
minutes for advisory meetings but also by the rules for
implementing the Consumer Credit Directive. At the same
time, we have implemented a structured advisory and
investment process which ensures a uniformly high quality
standard for personal advisory services for our clients.
With more than 400 foundations, we continue to be one
of the leading institutions in Northern Germany for the
establishing and advising of foundations. Our independent
family office Kontora offers a complete range of services.
It provides our clients with access to exclusive international
investor networks, to private placements and equity in-
vestments of other providers, as well as individual structur-
ing of equity investments. In 2010, Kontora was again
very successful in providing support with regard to large
and complex wealth.
Successful conservative investment strategy
The goal of our conservative and reliable investment strat-
egy is the long-term, also multi-generational, preser-
vation of assets. We were extremely successful in establish-
ing our asset management services in a difficult market
environment with a new investment strategy. Our very
positive annual performance in client portfolios signifi-
cantly exceeded the relevant European market indices in
2010. In this regard, our clients benefitted from the
fact that our positive portfolio performance in the course
of the year was steady compared to the market. Despite
difficult conditions, we have achieved an increase in assets
under management of over 30 per cent. One contrib-
utor to this growth was our open-ended fund for founda-
tions, called ‘VIA Stiftungsfonds UI’. It is specifically
designed to meet the needs of foundations for conservative
and sustainable investments of their purpose-tied assets.
cross-selling partner for wealthy private clients in the
market units
A significant share of our private banking business
consists of existing client relationships within the Bank.
Approximately 50 per cent of private banking clients
have more than one business relationship with HSH Nord-
bank. Going forward we intend to increase assets under
management, primarily using the potential of the Bank’s
existing clients.
The loyalty and trust of our clients form the basis of our
long-term success. Our primary goal in 2011 will again be
to ensure that we continually earn this trust.
HSH NordbaNk 201034
ForWard-tHiNkiNG. aNd co-operative.
LoreM IPSUMdoLor | LoreM IPSUMdoLor 35
We develop attractive tailor-made solu- tions together with the savings banks.
HSH NordbaNk 201036
37SaVINgS baNkS | bUSINeSS areaS
SaviNGS baNkS
as a partner to savings banks, we make a substantial contribution to the credit supply available to medium-sized companies in northern germany. We focus on tailored solutions for savings banks, as well as on debt and liquidity management for public sectors clients.
HSH Nordbank is the main banking partner of the savings
banks in Schleswig-Holstein and provides a secondary
banking relationship to savings bank clients throughout
Germany. Additionally, we have many years of experi-
ence in providing advice and implementing debt manage-
ment for the public sector and municipal entities.
Over the past year, we have increased our offerings of
services to meet the increasing requirements on overall
bank management for savings banks. We have devel-
oped solutions which take up ideas from the German Sav-
ings Banks Association (DSGV) project recommenda-
tions for active loan portfolio management. In addition, we
have been successful in linking the savings banks’ exper -
tise in the area of private clients with the core competen-
cies of HSH Nordbank for tailor-made solutions.
Supporting the regional credit supply
The syndicated loan business remained a key product in
2010. As a partner to the savings banks we provided
credit to medium-sized companies in Schleswig-Holstein
and beyond and in doing so made a significant contri-
bution to the regional credit supply. In addition, the sav-
ings banks have availed themselves of our offerings of
syndication transactions in loans and advances, thereby
diversifying the asset side of their balance sheets. Our
comprehensive range of advisory services is used by the
savings banks as a client retention measure for their
top corporate clients.
attractive investment options for savings banks and
public-sector clients
The difficult and volatile capital market environment
resulted in the savings banks implementing a conservative
investment strategy and the savings banks’ clients focus-
sing much more on security. We have reacted to this with
transparent and capital-guaranteed products and ser-
vices. The savings banks have focussed primarily on short
and mid-term investments with maturities of up to two
years associated with, on the whole, increased inflows of
liquidity for HSH Nordbank.
We are increasingly approaching municipal clients togeth-
er with the savings banks and in doing so we are provid-
ing support for a stronger connection between the savings
banks and their municipal owners.
Against the backdrop of the trend toward recovery,
which began in the second half of 2010, and the continued
development of our range of products and services, we
expect deposits to increase in 2011. The focus will remain
on loan portfolio management, syndicated loan trans-
actions, as well as on our hedge product business for cor-
porate clients of the savings banks.
Product groups by share of income 2010(in %)
52 liquidity management
20 Private clients 1)
15 corporate clients 2)
13 credit portfolio management
1) especially structured securities, equity investments2) especially foreign exchange transactions, foreign payment transactions
13
20
15
52
HSH NordbaNk 201038
Our refinancing activities, as well as the broadening of our investor base, demonstrate that the Bank is able to master the challenges of the demanding, and above all still very volatile, capital markets environment.
capital marketS
Our goal for 2010 was to continue to promote the Bank’s
capital market activities in the interests of its clients and to
improve the Bank’s own refinancing basis within an
overall difficult market environment. As an experienced
product provider for clients of the regional and sector
banks, as well as a refinancing specialist, the capital mar-
kets area combines the client relations of the Market
Units with expertise in capital market transactions. Our
risk management products within the interest rates, for-
eign currencies and commodities asset classes are strongly
oriented to the customer.
orientation to the new business model
Through close collaboration between capital markets
and the market units, as well as the consistent focus of our
products and structuring expertise, we have been able
to further optimise our range of products for the benefit
of our clients while at the same time positively impact-
ing the Bank’s profits. Along with future expansion of new
business we expect increasing levels of cross-selling
income. The internal organisation of the capital markets
units has been aligned with the Bank’s new business
model. For example, the units Group Treasury and Capi-
tal Markets Credit were merged in order to further
strengthen our funding and syndication activities through
the bundling of know-how and taking advantage of
synergies.
Sustainable refinancing strategy
Our refinancing strategy has again proven itself in the
past financial year. The Bank profited from its strong
access to savings banks as a refinancing source as well as
its strong networking within the German home market.
Through its broad client base, the Bank has been able to
hold its deposits at stable levels. Enhancing our inves-
tor relations efforts contributed to this success, while at
the same time broadening our investor base. In order
to strengthen our US dollar business, we concluded a five-
year refinancing agreement with the government-owned
China Development Bank in the amount of USD 500 mil-
lion.
Our successful liquidity management is based on the con-
sistent and integrated steering of our refinancing needs.
The liquidity allocation process is being optimised by the
Bank’s new risk-oriented approach to risk management.
The capital markets area has set the path for a sustainable
focus on successful capital markets activities. We see the
continuation of this course as an important task for 2011.
Cross-selling income from capital market products by segment 2010(¤ m)
Sector Specialist Bank 45
regional Bank 50
Other 27
restructuring unit 10
39CaPItaL MarketS, reStrUCtUrINg UNIt
reStructuriNG uNit
By winding down non-strategic portfolios, the restructuring unit is creating the conditions necessary for a clear business focus for the Bank while at the same time reducing total assets.
The Bank’s non-strategic portfolios, which have been
separated from the Bank’s core business, are consolidated
in the Restructuring Unit. Our aim is to wind down
these portfolios completely and efficiently, while at the
same time safeguarding profitability and minimizing
risk. These non-strategic portfolios include capital market
portfolios as well as loan commitments from all of the
Bank’s previous business sectors. Foreign commitments
make up a disproportionate share of these. The loan
commitments consist of restructuring and problem loan
cases as well as transactions with lower risk. Although
the latter are profitable, they are no longer of strategic in-
terest following the Bank’s realignment. The necessary
expertise for the restructuring and winding down process
is concentrated in this unit, which is organised separate
from the Core Bank. The Management Board has set clear
guidelines for the process of winding down, including
limiting potential losses, recovering fundamental values,
preserving liquidity and guarantees, as well as ensuring
cost efficiency. The first priority is to wind down particu-
larly high-risk portfolios. In cases of intensive loan man-
agement and restructuring, our primary concern is to facil-
itate successful restructuring to enable marketability
and subsequent disposal.
performance significantly ahead of plan
Despite the difficult market environment and the volatility
of the US dollar, the entire non-strategic portfolio was
wound down by approximately 18 per cent to € 63 billion
by the end of the year, which was significantly ahead of
plan. At the same time, as a result of successful restructur-
ing and recoveries in the markets, risk provision expen-
ses were below conservative expectations.
In particular, capital markets portfolios, especially the
credit investment portfolio, reported significant continuing
reductions despite a difficult environment precipitated
by the euro crisis. This was accomplished through various
trading options, e. g. portfolio transactions for sub-portfo-
lios. Alongside regular repayments, extraordinary repay-
ments resulting from active measures, such as contractual
negotiations, made a considerable contribution to the
reduction of loan commitments. There were a few cases of
placements on the secondary market, mainly in the
form of syndications. However, prolongations were neces-
sary in cases of intensive loan management and restruc-
turing, as well as in some other cases due to the general
reluctance on the part of the banks to grant new loans.
The Restructuring Unit will continue its winding down
activities in 2011, not only by continuing to take advan-
tage of opportunities for individual exposures but also by
developing and implementing strategic solutions for
portfolios. In light of the ongoing economic recovery, we
expect a stronger winding down of loan commitments.
Fair and viable solutions for clients
Despite our obligation to wind down commitments,
we offer our Restructuring Unit clients solution-oriented
support in line with contractual agreements. We state
clearly that the Bank will terminate the business relation-
ship at the end of the contractual term. Together with
our clients, we develop solutions that are fair and viable for
both parties. This process is supported by the Bank’s
avoidance of unnecessary losses due to premature liquida-
tion measures.
Segment assets by business type(¤ bn) as of 31 December 2010
lending business 35
capital market business 28
HSH NordbaNk 201040
realignment of the Bank can only be achieved with a great deal of effort on the part of all employ-ees. In 2010, human resources management focussed on the socially-responsible implementation of the reorganisation, maintaining a balance between staff reductions and employee retention.
emploYeeS
extensive personnel restructuring
Great progress was made in the area of personnel
re structuring related to the realignment in 2010. Approxi-
mately 40 per cent of all employees were affected by
the reorganisation and approximately 15 per cent are now
performing new functions for the Bank. Emphasis was
placed on the reorganisation of the Bank’s risk manage-
ment and the Market Units as well as on the restructur-
ing of the COO Unit (including IT, payment transactions,
trade settlements, and organisation) combined with
the establishment of new processes. More than a thousand
employees were affected by the reorganisation of the
Bank’s risk management alone, which led to the transfer
of credit analysis from the market units to the back-
office departments.
With 3,388 full-time employees at the end of the year, staff
reduction as part of the restructuring was carried out
slightly ahead of plan for 2010. The relatively larger share
of the redundancies occurred abroad. The Bank seeks to
work out individual solutions and implement these in a
socially-responsible and transparent manner. This also
applies to its subsidiaries and foreign branches. Examples
include the social compensation plan for Luxembourg,
as well as the reconciliation of interests and social compen-
sation plan for HSH Real Estate AG. Special solutions
were found for the employees of the Restructuring Unit,
taking into account the fact that jobs are lost with port-
folios that are wound down.
adjustments to the compensation system
As a result of new regulatory requirements (German Ordi-
nance on the Remuneration of Financial Institutions),
the Bank implemented a new compensation system at the
beginning of 2011 which was applied retrospectively to
the 2010 financial year. It determines the calculation and
levels of variable compensation. In this context, the
Bank also identified so-called risk takers who have a signifi-
cant influence on the Bank’s overall risk profile. In future,
a large part of their variable compensation will be paid
on a deferred basis over a period of up to four years and is
dependent on the Bank’s performance.
importance of qualifications and training
The new training processes span all levels of the loan deci-
sion process from development through to sale of prod-
ucts, thus offering uniquely comprehensive opportunities
for learning. We especially focus on a three-year training
period combined with a course of studies that concludes
with a Bachelor of Arts from the Hamburg School of
Business Administration or a Bachelor of Arts or a Bachelor
of Science from the Wirtschaftsakademie Schleswig-
Holstein in Kiel. Top performance is proof of the quality of
our training. In 2010, trainees from the Bank came first
in their class for all three courses of study.
Adjustments in connection with the Bank’s realignment
have been made to the established programmes for experts
and leaders; special training programmes for the busi-
ness units have been developed and implemented. In addi-
tion, team building measures have increasingly been
applied in order to enhance the process of realignment.
41eMPLoYeeS, SoCIaL reSPoNSIbILItY, INtegrItY
Social reSpoNSibilitY
We are committed to being responsible with regard to our employees, our environment as well as the society in which we live. We have remained a reliable partner in the region even in eco-nomically difficult times.
‘Family Friendly business’ award
Our efforts to support compatibility between work and
family have continued at a high level despite the diffi-
cult economic environment. Emergency childcare, day care
and school holiday services for children have eased the
balancing act between work and family for many parents.
There are numerous examples of ways in which career
opportunities for parents have been supported and realised
e. g. through individual part-time work schemes or tele-
working. The not-for-profit Hertie Foundation awarded the
certificate ‘Family Friendly Business’ to the Bank for
an additional three years in 2010.
occupational health management
The reorganisation and stricter statutory requirements
have led to an increased workload in many areas. Accord-
ingly, we have offered seminars and workshops on
the topics of healthy work, stress management and dealing
with pressure. In addition, we have strengthened our
links with partners in the health care sector in order to
offer a broader range of services. With the assistance
of the employee survey planned for 2011 on behalf of the
Federal Ministry of Education and Research and the
European Union, which we prepared in 2010, occupational
health management should be made even more effec-
tive. The goal is to achieve a reasonable balance between
performance and health at work.
Social commitment
With Kieler Woche and the HSH Nordbank Run we spon-
sored two major sporting events in 2010. As a ‘Partner
of the Region,’ we supported Kieler Woche both financially
and as a provider of creative ideas. We offered partici-
pants in the world’s largest sailing event (Kieler Woche)
valuable assistance on the water both before and during
competition in the form of our HSH Nordbank Blue Repair
Service. We will continue to support Kieler Woche as a
capable and reliable partner.
In 2010, more than 18,000 runners participated in the
HSH Nordbank Run, an athletic discovery tour of
Hamburg’s new Hafen City district. Thanks to the contri-
bution of all parties involved, a six-figure sum has
again been raised for charity. The HSH Nordbank team
comprised more than 500 participants in the largest
corporate run in Northern Germany – and was therefore
the biggest team. € 117,000 was donated in support
of the initiative ‘…und los! Kids in die Clubs!’ of the asso-
ciation ‘Kinder helfen Kindern e.V.’. The initiative
makes it possible for approximately 4,000 financially-dis-
advantaged children and young people to join sports
clubs and as a result offers them an important place to
meet people as well as enjoy athletic opportunities.
The Schleswig-Holstein Musik Festival is one of Northern
Germany’s cultural highlights. We are one of the main
sponsors of this event, alongside our partners at the Spar-
kassen-Finanzgruppe. HSH Nordbank made a conscious
decision to continue to support the Schleswig-Holstein
Musik Festival in the post-crisis year 2010.
As part of the Bank’s realignment, we will also make ad-
justments to our social commitments. We will remain
a reliable partner for the HSH Nordbank Run in Hamburg
and for Kieler Woche. In both cases greater emphasis
will be placed on our social responsibility within the frame-
work of our involvement in the events. Our involve-
ment in Kieler Woche in the future will be complemented
by a social project for the benefit of children.
HSH NordbaNk 201042
compliance with existing rules and regulations is an integral part of our corporate responsibility. We have reacted with determination to the failures of our past and have taken precautions to meet the now stricter statutory banking requirements.
iNteGritY
Systematic and consistent processing of suspicious
cases
In the financial year 2010 public opinion focused to a high
degree on HSH Nordbank. The Bank’s governing bodies
and its employees were suspected of breaches of rules or
even violations of law.
We have reacted to these suspicions with determination
and have sought clarification on specific suspicious
transactions. In several cases, the Supervisory Board and
the Management Board have also engaged independent
law firms and accounting firms with the investigation of
specific suspicious cases in order to support their com-
prehensive clarification. We have provided direct and on-
going support to the law enforcement authorities in
their independent investigations. Since October 2010, a re-
nowned external attorney has been managing all legal
disputes which do not affect the day-to-day activities of the
Bank, thus ensuring the systematic, transparent and
independent coordination, as well as the final clarification
of pending legal cases.
New security concept
As part of a critical stocktaking, we have reviewed all exist-
ing rules and responsibilities relating to a series of secu-
rity issues. They range from workplace and technical build-
ing security to IT and data security. Based on the results
of this stocktaking, we have begun to establish a central
management system that will consolidate and manage
our various Group security measures.
Further development of compliance
HSH Nordbank has further developed its Compliance
function and implemented new instruments and monitor-
ing procedures. The Compliance function monitors com-
pliance with the provisions concerning security trading,
money laundering prevention, financial sanctions and
prevention of fraud. Since 2010, it has been reporting to
the Management Board on the results of its management
and monitoring activities on a semi-annual basis and
to the responsible member of the Supervisory Board on an
annual basis.
By March 2010, all Management Board members as well
as senior executives and employees had completed a
bank-wide training course on the ‘Code of Conduct’, which
has served as HSH Nordbank’s compliance framework
since 2009. Special training courses have been standardised
and expanded.
We have continued our step-by-step examination of the
Bank’s old business for potential money laundering
risks and have submitted especially high-risk cases to the
Management Board for decision-making. The new re-quirements with regard to financial sanctions, investor
protection and securities consulting have been imple-
mented on schedule. The implementation of the new Min-
imum Requirements for the Compliance Function for
Investment Services Enterprises (MaCom) was monitored
as part of a project.
In 2010, the Bank received information regarding suspi-
cious cases concerning unlawful behaviour via the so-called
‘Whistleblowing Office’ and forwarded this information
to the responsible internal or external contacts. The office
will continue to be run by independent ombudsmen of
the BDO Warentreuhand AG. This allows the person report-
ing an incident to remain anonymous.
43lorem ipsumdolor | konzernlagebericht
Group ManaGeMent report
UNDERLYING CONDITIONS AND BUSINESS OVERVIEW 44
Underlying conditions 44
Business overview 46
BUSINESS DEVELOPMENTS 50
Overview of business performance 50
Earnings situation 50
Net assets and financial position 52
Employees 56
Business management and key indicator system 57
Segment reporting 58
OUTLOOk 67
Anticipated underlying conditions 67
Anticipated business situation 68
Anticipated refinancing situation 69
Anticipated segment performance 70
RISk REPORT 74
Risk management system 74
Default risk 82
Market risk 90
Liquidity risk 95
Operational risk 101
Strategic risk 104
Core Bank risks 104
Risks of the Restructuring Unit 106
Summary and outlook 108
CONTENTS
gro
up m
an
agem
ent
rep
ort
hsh nordbank 201044
unDerLYInG ConDItIonS anD BuSIneSS oVerVIeW
underlying conditions
recovery of the global economy at differing rates
The development of the global economy over the course
of 2010 had its ups and downs. Economic performance ex-
panded rapidly again after its slowdown in 2009. At the
same time international trade also increased very strongly
following its slump in the previous year. However, the
overall favourable developments were accompanied by a
new level of instability in the financial markets and the
need for further action by governments and central banks.
The growth in the global economy was driven in particular
by the Asian emerging markets, primarily China and
India. In contrast the recovery in the eurozone was only
sluggish. Furthermore there were clear divergent growth
patterns between the individual countries of the monetary
union. While some peripheral countries experienced
a crisis situation in their real estate and banking sectors or
suffered under government consolidation measures
and therefore were in recession or in effect stagnated, the
German economy grew strongly. This was primarily
driven by the upturn in international trade given the ex-
port-led German economy. Consumer confidence also
improved not least because of the reduction in unemploy-
ment. Moreover capital expenditure increased again
following its reduction in the previous year with the effect
that the growth base was broadened during the course
of the year.
In 2010 the gross domestic product of the US grew more
strongly than that of the eurozone. The US economy
benefited from various special effects, for example the ex-
traordinary expansive monetary policy of the Federal
Reserve and government support measures. However, the
recession in the real estate market is continuing; as a
result growth was again slowed down by declining invest-
ments in house building, and there were still no signs
of a sustained upturn in house prices.
Setbacks in stabilising the financial markets
Turbulence flared up again in the financial markets from
the second quarter onwards with the crisis regarding
the public finances in the eurozone peripheral countries.
In addition there were concerns in the meantime about
the stability of banks, particularly in the eurozone, and a
return of the US into recession. The granting of loan
facilities for Greece and Ireland, the start of an ECB pro-
gramme for the purchase of private and public sector
securities, the announcement of national government mea-
sures for the purposes of consolidating public sector financ-
es and the creation of the European Stabilisation Mecha-
nism (ESM) valid from mid 2013 onwards restored a certain
degree of calm to the situation in the eurozone. Never-
theless the spreads between government bonds of several
peripheral countries and German government bonds
(Bunds) had widened significantly by the year end.
The US Federal Reserve and the European central bank
held key interest rates at historically low levels in light of
the unstable economic situation and nervousness with-
in the financial markets. Whereas the apparent renewed
weakness in growth in the US had already caused the
US Federal Reserve to extend its quantitative measures in
August, it decided in November to pur chase additional
US government bonds in the amount of up to USD 600 bil-
lion. In view of the refinancing difficulties experienced
by several banks and countries in the eurozone the ECB
was forced to defer the intended phasing out of the ex-
traordinary monetary policy measures. Consequently it ex-
tended – contrary to otherwise expected – its full allo-
cation tender for three month operations to April 2011. In
addition it again significantly increased its securities pur-
chases from November 2010 onwards.
Yields on 10-year US Treasuries declined significantly until
the beginning of October as a result of new concerns
45underlYing conditions and business oVerVieW | group management report
about the economy and the prospect of further purchases
of government bonds by the US Federal Reserve. How-
ever, subsequently they increased noticeably again – driv-
en by investor concerns about the increased risk of in-
flation and the uncontrolled public finances of the US. The
10-year German Bunds viewed as a “safe haven” initial-
ly benefited from the concerns about economic growth and
the tensions in the financial markets. Their yield sank
to a historic low by the end of August. Even German Bunds
became less attractive as a result of the yield increase
in the US. Furthermore the positive trend in the German
economy as well as fears that Germany would be burdened
even further in the context of the support measures
within the eurozone caused the prices of German Bunds to
fall. Spreads on corporate bonds widened at the peak of
the public finance crisis in the eurozone in both the spring
and autumn, but remained much less volatile than in
2009.
The currency markets in 2010 were again characterised by
large fluctuations. The movement in the EUR / USD
exchange rate was dominated by concerns in turn about
the eurozone and the US. On balance the euro depre-
ciated slightly against the US dollar in 2010.
Contrary to a tendency often noticed in the past of the in-
ternational equity markets to behave in the same way
in principle, this past year saw very different patterns. In
the US the S & P 500 as well as the Dow Jones rose by a
good 10 % irrespective of the concern about the future eco-
nomic development. In Europe the very solid growth
of many companies, in particular in the industrial sector
in Germany on the one hand and the impact of the
debt crisis on these countries and affected financial institu-
tions on the other hand led to a widely differing pic-
ture. The DAX rose by almost 16 % in 2010, to which auto-
mobile stocks were the main contributors, the STOXX 50
was at the same level at the year end as that of the previ-
ous year end and the EURO STOXX 50 lost in fact almost
6 % during the course of the year.
Banking sector in upheaval
In its Financial Stability Review published in November
2010 the German Bundesbank stated that the German
banking system was in an overall better state despite the
continued existence of vulnerability. For example the
risk situation had eased, as market risks were declining and
the risks in the lending business had stabilised on the
whole. Fewer loan loss provisions were required compared
to 2009, according to the review. Furthermore the risk-
bearing capacity increased as a result of the reduction in
Movement in the Euro/US dollar exchange rate in 2010
1.50
1.40
1.30
1.20
1.10
1/10 2/10 3/10 4/10 5/10 6/10 7/10 8/10 9/10 10/10 11/10 12/10
EUR / USD
hsh nordbank 201046
debt ratios and the strengthening of Tier 1 capital. The
European stress test for banks of the Committee of Euro-
pean Banking Supervisors (CEBS) published in July 2010
showed that the majority of European banks would still be
sufficiently capitalised in the event of a renewed eco-
nomic downturn and turbulence in the financial markets
caused in particular by losses incurred on government
bonds in view of the restructuring of balance sheets and
capital contributions already completed or made.
HSH Nordbank took part in the above-mentioned stress test
and completed this successfully. The Tier 1 capital ratio
of the Bank would have been clearly above the minimum
values required by CEBS even in the most severe stress
scenarios. Please refer to the Risk Report in this Manage-
ment Report for more details.
It is intended to enhance the stability of the banking
system further by the regulatory changes initiated in 2010.
The “Basel III” framework to be introduced in 2013
and gradually strengthened in subsequent years should en-
sure that the capital adequacy and liquidity of banks
is increased. In Germany the Restructuring Law was ad-
opted. It provides for the establishment of a restruc-
turing fund for the purposes of financing future measures
required in the event of crises at banks that are impor-
tant to the system. The fund is to be financed through con-
tributions made by all credit institutions in Germany.
Consequently this so-called bank levy (Bankenabgabe) will
also be paid by HSH Nordbank in future. The exact
amount of this levy had not yet been fixed at the beginning
of 2011 as it was still subject to an ongoing legislative
process.
Business overview
the strategic realignment of HSH nordbank makes an
impact
HSH Nordbank has already initiated important steps on
the path to becoming a stable and successful bank in the
region on a sustainable basis. The strategic focus of the
Core Bank was clearly placed on regional and sectoral busi-
ness activities, and reductions in total assets through the
reduction of risk positions bundled together in the Restruc-
turing Unit have progressed faster than planned up to
now. As part of the focussing of the business the number
of employees and the network of locations of the Bank
was further reduced. Furthermore the Bank has optimised
numerous central processes and related organisational
structures. The progress made in implementing the strate-
gic realignment plan is also reflected in the annual
results and several key indicators, which have improved
more strongly than anticipated in the financial plan-
ning.
Under the strategic realignment the Bank is focussing on
attractive business fields in the core region of Northern
Germany. The newly created Core Bank covers regionally
directed activities in which the Bank has a strong mar -
ket position (Regional Bank segment). This covers areas of
economic significance for Northern Germany: corporate
clients, real estate financing, private banking and savings
banks. Furthermore the Bank is involved on an interna-
tional basis in the shipping, aviation, renewable energy
and infrastructure sectors as an important financing
partner (Sector Specialist Bank segment). These sectors offer
good long-term growth potential. At the same time
they represent particular strengths of the Hamburg and
Schleswig-Holstein region.
In both the Regional Bank and Sector Specialist Bank seg-
ments the Bank has mature customer relationships
and know-how built up over many years. The capital mar-
kets area of the Bank supplements the product range
in the customer business through providing needs-based
product solutions. With the significant reduction in
total assets achieved through the systematic winding down
of risk positions the Bank is strengthening its core activ-
ities and is creating a basis for a focussed expansion of busi-
ness over the next years.
Winding down of risk positions ahead of plan
An important objective of the strategic realignment of HSH
Nordbank is the winding down of transactions that
no longer conform to the Core Bank strategy. The winding
down process is managed by the internal Restructuring
Unit, which operates as a separate segment of the Bank.
Through reducing assets from € 77 billion to € 63 bil-
lion the Restructuring Unit has significantly exceeded the
47
plan targets for 2010. The reduction in the portfolios
has been driven by the Restructuring Unit on a risk-con-
scious and loss-minimising basis through targeted mea-
sures. Due to the improved risk situation the Restructuring
Unit segment was able to report net income before re-
structuring in excess of forecast.
The credit investment portfolio (CIP), which suffered
significant losses in value during the global financial crisis,
constitutes a part of the capital market portfolios to be
wound down. Since the end of 2007 this portfolio has been
reduced as part of the strategic realignment by approxi-
mately 60 % to € 12 billion (as at end of 2007: approximate-
ly € 30 billion). Details on the changes in the winding
down portfolios of the Restructuring Unit are set out and
explained in the Segments chapter.
reduction in the second loss guarantee
The risk-weighted assets of HSH Nordbank have declined
significantly in the 2010 financial year. The reasons
for this included – in addition to the winding down of the
portfolios – an improvement in the portfolio quality
in the second half of 2010 and a change in the way the first
loss piece of the second loss guarantee, which was made
available by the Free and Hanseatic City of Hamburg and
the Federal State of Schleswig-Holstein at the start of the
strategic realignment via HSH Finanzfonds AöR, is taken
account of. Against this backdrop it is planned to grad-
ually reduce the second loss guarantee of € 10 billion from
2011 onwards. The guarantee protects HSH Nordbank
against the risk of loss arising on the risk assets.
In February 2011, HSH Nordbank initiated the first partial
reduction of the guarantee by € 1 billion to € 9 billion.
The Bank expects approval to be granted by the guarantor
in the near future. The Bank pays a market rate for the
guarantee, which decreases based on reduced volume and
thereby improves the results of the Bank. The expense
for this guarantee amounted to € 405 million for 2010.
reorganisation of key processes
Since 2009 HSH Nordbank has carried out as part of its re-
alignment programme systematic analyses of its key pro-
cesses and the related organisational structures. These are
based on the weaknesses in the business organisation of
the Bank identified as part of the follow up on the global
financial crisis. The Bank regards the systematic imple-
mentation of process optimisations in central departments
as an important contribution to establishing its new
position for the future. The main focus is being placed on
the risk management, accounting, compliance and in-
ternal audit areas. By the end of 2010 the Bank has imple-
mented the highest priority measures. The reorganisa-
tion of the lending process and the internal control system
were included among the largest cross-departmental
projects in 2010.
Introduction of a risk-led lending process
In 2010 HSH Nordbank concentrated risk analysis com-
pletely in the back office departments and imple-
mented increased specialisation of these back office func-
tions as part of the implementation of a risk-oriented
lending process. The new lending process has been in force
since September 2010 and is aimed at ensuring a high-
er independence and quality of risk management in the
Bank. At the same time a new, efficient allocation of
work between the market and back office departments has
been created. The market departments will be relieved
of some of their functions and focus in future on customer
service and sales activities. Further information on the
lending process is set out in the Risk Report under “De-
fault risk”.
The market units will undergo significant organisational
changes as a result of the transfer of analysis tasks, loan
management and collateral processing functions to the
back office departments. During the financial year the
focus was placed on the consolidation of business support
functions, which were implemented in the market de-
partments at the beginning of October. The Bank is exploit-
ing synergies and potential for efficiencies through the
process adjustments made. Organisational changes were
also implemented in the sales units of market depart-
ments until the beginning of 2011. In this connection the
primary focus was to align their organisational struc-
ture to the strategic positioning of the Core Bank segments.
reorganisation of the internal control system
The Bank has achieved important milestones in the report-
ing year in the reorganisation of its internal control
underlYing conditions and business oVerVieW | group management report
hsh nordbank 201048
system. The particular objective of this is to systematically
analyse weaknesses and to ensure that stable processes
are in place on a sustainable basis. Furthermore the pro-
cesses will be systematically reviewed on a regular basis
with regard to the appropriateness and effectiveness of the
controls in place, thereby enabling the structure of the
business processes to be continually enhanced.
The Bank has defined the major processes that have been
gradually reorganised on a risk-oriented basis, docu-
mented them according to uniform criteria and provided
them with adequate control mechanisms since 2010.
In 2011 the restructuring of the internal control system for
the remaining processes is to be completed and the
systematic review of the processes included as a permanent
activity. Please refer to the Risk Report in this Manage-
ment Report for more details on the internal control sys-
tem of the Bank.
Coo function realigned
The COO unit was also further developed in 2010 with
regard to the realignment of the activities of the Bank. In-
cluded among the tasks of this function is to ensure
that Group-wide IT operations, payment transactions, pro-
cessing of trading transactions, the provision of other
central services as well as organisation management and
the new products / new markets area are maintained on
a proper basis. The focus was reorganisation through which
the COO function focuses systematically on the future
requirements of the Bank.
The primary goal is to ensure a high level of efficiency and
stability in the provision of important services to the
operating business of the Bank. As part of the reorganisa-
tion the technical platform for payment transactions
was outsourced to an external provider. This measure is
aimed at optimising the cost situation and modernis-
ing the systems.
number of locations further decreased
The reduction in the network of locations and the dispos-
al of a large number of equity investments are central
components of the realignment process. In the 2010 report-
ing year the Bank has again closed foreign locations
following the realisation of the planned closures of sever-
al branches and representative offices in 2008 and 2009.
Numerous equity holdings were also wound down by the
Bank in the past year. Further adjustments regarding
locations and equity holdings are planned for the coming
years, which will contribute to the focussing of our
business. At the 2010 year end HSH Nordbank had foreign
branches in Amsterdam, Copenhagen, London, Luxem-
bourg, New York, Paris and Singapore and domestic branch-
es in Berlin and Lübeck. The Bank also had represen-
tative offices in other domestic and foreign locations.
On 24 February 2011 the HSH Nordbank Group sold its
shares in Hamborner REIT AG, which is included at
equity in the consolidated financial statements as at 31 De-
cember 2010. The Group held 35.18 % of the shares of
the Duisburg REIT. The sale of the Hambor ner shares is a
result of the strategic realignment of HSH Nordbank AG.
progress made in reducing the number of employees
The reduction in positions, both domestically and abroad,
connected to the realignment of the Bank, was con-
tinued in the financial year. The number of employees, cal-
culated on a full-time equivalent basis (FTE), decreased
to 3,388 at the 2010 year end (2009: 3,610, 2008: 4,325).
The Bank is attempting to further reduce the number
of employees by the end of 2012. Termination agreements,
early and partial retirement models were again agreed
as methods for reducing headcount.
Changes to the Management Board
The Supervisory Board appointed Torsten Temp as a mem-
ber of the Management Board in its meeting held on
14 April 2010. Since 1 May 2010 he has been responsible
for the divisions Shipping, Transport and Energy. Mr
Temp had been employed at what is now called UniCredit
since 1989. The last position he held was that of the
head of the Global Shipping division.
At an extraordinary meeting held on 15 December 2010,
the Supervisory Board approved the mutually agreed
termination of the appointment of Prof. Dr. Dirk Jens Non-
nenmacher as Member and Chairman of the Manage-
ment Board of HSH Nordbank as of 31 March 2011 and
agreed a termination agreement with him. The Super-
visory Board thanked Mr Nonnenmacher for his major
49
and successful involvement in the strategic realignment
of the Bank.
At the same time the meeting decided on the appointment
of Dr. Paul Friedrich Lerbinger as a member of the Man-
agement Board with effect from 1 March 2011 and Chair-
man with effect from 1 April 2011 to 28 February 2014.
During his long career Mr Lerbinger has been Managing
Director and Head of the Investment Banking Division
Germany at Deutsche Bank as well as Deputy Chairman of
the Management Board of Citigroup Germany.
Corporate governance: new remuneration system
A change in the regulatory framework has necessitated a
revision to the existing performance-related remunera-
tion systems for members of the Management Board and
employees of the Bank.
Against this backdrop HSH Nordbank adopted a new com-
pensation system for board members of the Bank in
2009, which already takes into account many of the super-
visory and regulatory requirements and has been ap-
plied since the start of 2010. The new system implements
the limitation of monetary compensation of each board
member to a maximum of € 500,000 per year (fixed com-
pensation) as long as HSH Nordbank AG is not capable
of making dividend distributions. In addition to the fixed
salary Management Board members are entitled to
receive variable performance-based compensation depen-
dent on the achievement of certain strategic goals as
well as the Bank’s financial success taking into account in-
dividual performance. The payment of this variable
compensation is subject to the precondition that the Bank
is able to pay a dividend as at 31 December 2012 or at
the latest by 2013. It is payable in three annual tranches.
The new performance-related compensation system
does not yet apply to two board members. However, the
Supervisory Board is currently holding discussions re-
garding the changeover to the new system. In addition to
this the employment contracts still have to be amended
to include, amongst other things, the prohibition on enter-
ing into hedging / insurance strategies. Further informa-
tion on Management Board remuneration is set out in
note 62.
In parallel to the new rules regarding Management Board
remuneration the material requirements of the German
Ordinance on the Remuneration of Financial Institutions
(InstitutsVergV) were implemented below the Manage-
ment Board level. The amount of the variable compensa-
tion payable to employees is based on the new rules and
is calculated as a combination of the performance of the
Bank, its business unit and the employee’s individual
performance. Furthermore fixed upper limits for the pro-
portion of variable to fixed compensation are set for all
employees of the Group (including subsidiaries and branch-
es). Special rules apply to employees identified on a
Group-wide basis who have a significant influence on the
overall risk profile of the Bank, so-called risk takers. In
accordance with the InstitutsVergV parts of their variable
remuneration are paid on a deferred basis and are de-
pendent on the sustained performance of the Bank. The re-
muneration system applies retrospectively to the 2010
financial year in accordance with the requirements of the
InstitutsVergV. In accordance with the regulations, fur-
ther details will be published in a separate compensation
report on the website of HSH Nordbank.
Furthermore the individual members of the Supervisory
Board and the members of the committees established
by the Supervisory Board are listed in note 67. The Super-
visory Board Report provides information on the work
performed by the Supervisory Board and its committees
during the 2010 financial year.
HSH Nordbank as an unlisted company has adopted vol-
untarily the German Corporate Governance Code. The
declaration of conformity within the meaning of Section
161 of the German Stock Corporation Act (AktG) is in-
cluded in the Corporate Governance Report in this Annual
Report. Reasons for any exceptions to individual points
in the Code are given in the report.
underlYing conditions and business oVerVieW | group management report
hsh nordbank 201050
overview of business performance
Success of the realignment reflected in the earnings
performance
The progress made under the realignment programme is
also clearly evident in the results of HSH Nordbank.
For the 2010 financial year the Bank generated net income
before restructuring of € 545 million compared to a
net loss before restructuring of € − 718 million in 2009.
earnings situation
Furthermore the Bank was in the position for the first time
since 2007 – despite the expense for the state guar-
antees of € − 519 million – to report consolidated net in-
come for a full financial year of € 48 million. In the
previous year a net loss of € − 743 million had to be record-
ed. Overall, the results for 2010 thereby improved a
lot more strongly than was forecasted in the financial plan-
ning of the Bank. The lower level of charges in the lend-
ing business against the background of systematic portfolio
BuSIneSS DeVeLopMentS
Income statement (¤ m) 1.1.-31.12.2010
Following adjustment
1.1.−31.12.2009Change
absolute Change in %
Interest income 14,357 20,664 −6,307 −31
Interest expenses -12,692 −18,918 6,226 −33
Net income on hybrid financial instruments −163 375 −538 > −100
Net interest income 1,502 2,121 −619 −29
Loan loss provisions −129 −2,794 2,665 −95
Net interest income after loan loss provisions 1,373 −673 2,046 > 100
Net commission income 218 211 7 3
Result from hedging 8 146 −138 −95
Net trading income −359 568 −927 > −100
Net income from financial investments 230 −170 400 > 100
Net income from financial investments accounted for under the equity method 4 – 4 –
Administrative expenses −867 −830 −37 4
Other operating income −62 30 −92 > −100
Net income before restructuring 545 −718 1,263 > 100
Result from restructuring −9 −124 115 93
Expenses for government guarantees −519 −483 −36 7
Net income before taxes 17 −1,325 1,342 > 100
Income tax expenses (-) / income (+) 31 423 −392 93
Net income after taxes 48 −902 950 > 100
Income from the assumption of losses 0 159 −159 −100
Group net income / loss for the year 48 −743 791 > 100
Group net income attributable to non-controlling interests 51 −9 60 > 100
Group net income attributable to HSH Nordbank shareholders −3 −734 731 100
51
adjustments and the economic upturn in 2010 were the
decisive factors behind the positive performance.
The Core Bank benefited from the strategic focussing on
attractive business fields and generated net income of
€ 574 million (previous year: € 354 million) for the finan-
cial year 2010.
By means of the continued reduction of risk positions, total
assets were further reduced during 2010 to € 151 billion
as at the 2010 year end (31 December 2009: € 174 billion).
The Tier 1 capital ratio improved significantly to 15.4 %
and reflects a solid capital adequacy of HSH Nordbank at
the 2010 year end.
Balance sheet downsizing and valuation effects
noticeable
The targeted reduction of non-strategic business as part
of the realignment was reflected in the results of operation
of the Bank, in particular in net interest income. In ad-
dition, valuation effects were responsible for negative net
trading income. Against this backdrop total income
comprising net interest income, net commission income,
result from hedging relationships as well as net trading
income, net income from financial investments and the re-
sult from financial investments accounted for under the
equity method, decreased significantly to € 1,603 million
compared to the previous year amount of € 2,876 mil-
lion. In contrast the loan loss provision expense was sub-
stantially reduced to € − 129 million (previous year:
€ − 2,794 million). Administrative expenses of € − 867 mil-
lion were slightly above the previous year’s level (€ − 830
million). The detailed changes in income and expenses are
as follows:
Net interest income amounted to € 1,502 million compared
to € 2,121 million in the previous year. This reduction
reflects the significant decrease of € 23 billion in total as-
sets in the year 2010, which partly eliminated interest
income that was generated in previous years. It was also
impacted by the measurement of hybrid financial instru-
ments in accordance with IAS 39.A8. While a positive ef-
fect of € 375 million was recognised in 2009 on the basis
of the revaluation of expected cash flows taking into ac-
count expected loss allocations and coupon defaults,
a loss of € − 163 million had to be recorded in the 2010
reporting year that primarily relates to the scheduled amor-
tisation of the effect described above. Similarly, reduc-
tions in interest income were also related to increases in
the value-adjusted loan portfolio. Net interest income
was bolstered by the risk-adjusted interest pricing terms on
new commitments and prolongations.
Net commission income benefited in 2010 from success-
ful restructuring measures and reached € 218 million
(previous year: € 211 million). Commission income was ad-
versely impacted by the restricted volume of new busi-
ness in the reporting year.
Net trading income amounted to € − 359 million (previous
year: € 568 million). This was primarily attributable to
the widening of spreads in the financial year, which had an
adverse impact on the performance of structured prod-
ucts held in the credit investment portfolio and on govern-
ment bonds. In the previous year there were still rever-
sals of impairment losses in this area. It was also adversely
affected by the impact of the foreign currency conver-
sion of the loan loss provisions due to the movement in the
US dollar. The impact of valuation haircuts for counter-
party risk also had a negative impact in the derivatives
area.
By contrast, increases in value on investments held in the
credit investment portfolio, which had been subject to
impairment losses in previous years, had a positive effect
on net income from financial investments. In addition
income from financial investments was generated through
the winding down of risk positions. The reversal through
profit or loss of portfolio impairments due to increases in
the fair value of portfolios classified as LaR and due to
the extensive portfolio downsizing also had a positive ef-
fect. Losses were also recognised as a result of the adjust-
ment process carried out at the 2010 year end for equity
investment risk. Overall, net income from financial
investments improved to € 230 million (previous year:
€ − 170 million).
business deVelopments | group management report
hsh nordbank 201052
need for loan loss provisions significantly lower
In 2010 the Bank was able to substantially reduce the loan
loss provision expense to € − 129 million. Significantly
lower additions were required as a result of the advanced
stage of the portfolio adjustment process and the recov-
ery in the economic environment. At the same time signif-
icantly higher reversals were recorded, in part due to the
balance sheet effect of the second loss guarantee. In 2009
HSH Nordbank significantly increased its loan loss pro-
visions by € − 2,794 million due to the crisis. Net additions
for individual commitments amounted to € − 911 mil-
lion for 2010 (previous year: € − 2,318 million). This was
offset by income of € 782 million arising from the rever-
sal of portfolio valuation allowances (previous year: € − 476
million).
Costs slightly above the previous year’s level
Administrative expenses amounted to € − 867 million
compared to € − 830 million in the previous year. Person-
nel expenses increased to € − 410 million (previous year:
€ − 388 million). Without taking into account the Brinkhof
Group, included in the consolidated financial statements
as a bail-out purchase for a limited period of time, person-
nel expenses would have been lower by € 11 million.
The reported operating expenses increased to € − 457 mil-
lion (previous year: € − 442 million).
At € − 62 million, the item ‘Other operating income’ was
below the figure for the previous year of € 30 million. This
is primarily due to the amortisation of goodwill.
The restructuring result improved in 2010 to € − 9 million
compared to a result of € − 124 million in the previous
year.
expenses for state guarantees: ¤ − 519 million
The total expense for the provision of the state guaran-
tees amounted to € − 519 million as at the 2010 year end,
of which € − 405 million (previous year: € − 365 million)
– taking into account the reversal of provisions created –
is attributable to the second loss guarantee issued by the
Free and Hanseatic City of Hamburg and the Federal State
of Schleswig-Holstein. HSH Nordbank recorded an ex-
pense of € − 114 million for the guarantees issued by the
Financial Markets Stability Fund (SoFFin) (previous year:
€ − 118 million).
Group net income of ¤ 48 million
Net income before taxes for 2010 amounted to € 17 mil-
lion compared to a net loss before taxes of € − 1,325 million
in the previous year. While a net loss after taxes of
€ − 902 million and – after taking into account income
arising from the assumption of losses – a Group net
loss of € − 743 million were recorded in the previous year,
the Bank reported Group net income of € 48 million,
after taking into account income tax effects of € 31 million,
for 2010.
net assets and financial position
Further reduction in total assets
In 2010 HSH Nordbank continued to press ahead in reduc-
ing its non-strategic business. Total assets of the HSH
Nordbank Group were reduced accordingly during the
course of the year by − 13 % to € 150,930 million
(31 December 2009: € 174,484 million). Almost all balance
sheet positions were reduced significantly.
Loans and advances to banks decreased significantly by
€ 5,103 million to € 10,438 million (31 December 2009:
€ 15,541 million); loans and advances to customers de-
clined from € 110,557 million to € 102,858 million com-
pared to the previous year. Loan loss provisions amount-
ed to € − 4,623 million and were slightly down compared
to the previous year (31 December 2009: € − 4,718 mil-
lion). Trading assets declined significantly by € 5,597 mil-
lion to € 11,282 million compared to the previous year.
This is attributable in particular to the reversal of netting
positions in interest rate derivatives with external coun-
terparties on a neutral market risk basis. The decrease in
financial investments to € 25,001 million (31 December
2009: € 29,690 million) is mainly attributable to the con-
tinued winding down of the credit investment portfolio.
On the liability side of the balance sheet liabilities to banks
declined significantly from € 38,591 million to € 26,200
million. This resulted primarily from the lower utilisation
of central bank facilities. By contrast, liabilities to cus-
tomers increased slightly by € 643 million to € 50,446 mil-
lion. Securitised liabilities totalled € 44,726 million
(31 December 2009: € 53,121 million). Trading liabilities
53
comprising mainly negative fair values of existing deriva-
tives decreased by € 3,237 million in line with the move-
ment in derivatives disclosed as assets; they amounted to
€ 11,412 million as at the 2010 year end (31 December
2009: € 14,649 million). Subordinated capital decreased by
€ 165 million to € 8,719 million (31 December 2009:
€ 8,884 million).
Equity capital disclosed on the balance sheet increased to
€ 5,094 million (31 December 2009: € 4,442 million) as
at the end of the year 2010. In addition to an increase in
the revaluation reserves this is mainly attributable to
a scheduled capital increase for which the owners of the
Bank had subscribed for a convertible bond in 2008.
The capital increase amounted to € 510 million. € 175 mil-
lion of this amount was added to the share capital of
HSH Nordbank, which was increased to € 2,635 million in
this connection through the issue of 17,490,909 new
registered shares in the nominal value of € 10 per share.
The amount of € 335 million paid in excess of the nom-
inal value was recorded in capital reserves. An amount of
€ 816 million was released from capital reserves to off-
set the losses of HSH Nordbank AG brought forward from
2009. On balance, capital reserves were reduced to
€ 1,028 million.
Shareholdings changed through the capital increase
The owners’ shareholdings in HSH Nordbank were
changed by the capital increase. The new shareholder
structure is as follows as at 31 December 2010: the
direct and indirect shareholding held by the Federal State
of Schleswig-Holstein and the Free and Hanseatic City
of Hamburg decreased in total from 85.50 % to 83.26 %,
of which 59.92 % (previous year: 64.18 %) is held
by HSH Finanzfonds AöR jointly owned by both federal
states, 12.37 % (previous year: 10.89 %) by Hamburg
and 10.97 % (previous year: 10.43 %) by Schleswig-Hol-
stein. The share held by the Savings Banks Associa-
tion for Schleswig-Holstein increased to 6.08 % (previous
year: 5.31 %). The group of investors advised by J.C.
Flowers & Co. LLC held 10.66 % of the voting rights as at
31 December 2010 after the capital increase (previ-
ous year: 9.19 %).
noticeable decline in business volume
The winding down of non-strategic business was also re-
flected in the decline in business volume, which de-
creased significantly compared to the previous year by
€ − 29,201 million to € 163,726 million. The reasons
for this – in addition to the reduction in total assets –
were the decline in guarantees and warranty agree-
ments to € 3,270 million (31 December 2009: € 4,244 mil-
lion) and the reduction in irrevocable loan commit-
ments to € 9,526 million (31 December 2009: € 14,199 mil-
lion), which however have been drawn down in part.
business deVelopments | group management report
hsh nordbank 201054
Statement of financial position(¤ m) 31.12.2010
Following adjustment
31.12.2009Change
absolute Change in %
Assets
Cash reserve 1,410 1,296 114 9
Loans and advances to banks 10,438 15,541 −5,103 −33
Loans and advances to customers 102,858 110,557 −7,699 −7
Loan loss provisions −4,623 −4,718 95 −2
Positive fair value of hedging derivatives 1,838 1,684 154 9
Positive adjustment item from portfolio fair value hedges 232 295 −63 −21
Trading assets 11,282 16,879 −5,597 -33
Financial investments 25,001 29,690 −4,689 −16
Financial investments accounted for under the equity method 102 – 102 –
Intangible assets 108 197 −89 −45
Property, plant and equipment 140 101 39 39
Investment properties 14 316 −302 −96
Non-current assets held for sale and disposal groups 404 586 −182 −31
Current tax assets 272 518 −246 −47
Deferred tax assets 1,269 1,204 65 5
Other assets 185 338 −153 −45
Total assets 150,930 174,484 -23,554 -13
Liabilities
Liabilities to banks 26,200 38,591 −12,391 −32
Liabilities to customers 50,446 49,803 643 1
Securitised liabilities 44,726 53,121 −8,395 −16
Negative fair values of hedging derivatives 362 517 −155 −30
Negative adjustment item from portfolio fair value hedges 981 1,085 −104 −10
Trading liabilities 11,412 14,649 −3,237 −22
Provisions 1,332 1,619 −287 −18
Liabilities relating to disposal groups 6 19 −13 −68
Current tax liabilities 15 78 −63 −81
Deferred tax liabilities 81 93 −12 −13
Other liabilities 1,556 1,583 −27 −2
Subordinated capital 8,719 8,884 −165 −2
Equity 5,094 4,442 652 15
Share capital 2,635 2,460 175 7
Capital reserve 1,028 1,509 −481 −32
Retained earnings 1,724 1,607 117 7
Revaluation reserve −227 −341 114 −33
Currency conversion reserve −60 −90 30 −33
Group loss −3 −734 731 −100
Total before non-controlling interests 5,097 4,411 686 16
Non-controlling interests −3 31 −34 > −100
Total equity and liabilities 150,930 174,484 −23,554 −13
55
Substantial increase in the tier 1 capital ratio to 15.4 %
Regulatory figures * (%) 31.12.2010 31.12.2009
Equity ratio (solvency coefficient) 24.4 15.1
Total ratio / Regulatory capital ratio 22.4 14.5
Tier 1 capital ratio 17.3 10.0
Tier 1 capital ratio (including market risk items) 15.4 9.5
*) Ratios before adoption of the annual financial statements of HSH Nordbank AG
Regulatory capital in accordance with KWG (German Banking Act) for solvency pur- poses and regulatory capital requirements pursuant to the German Solvency Regu- lation (SolvV) *(¤ bn) 31.12.2010 31.12.2009
Eligible regulatory capital pursuant to Section 3 (1) Sentence 1 in conjunction with Section 2 (6) Sentence 1 SolvV. 9.3 13.2
Of which: core capital for solvency purposes 6.4 8.6
Total risk assets (including market risks and operational risk) 41.4 90.7
Of which: Risk assets counterparty default risk 33.1 82.3
*) Amounts before adoption of the annual financial statements of HSH Nordbank AG
The Tier 1 capital ratio of HSH Nordbank has increased
significantly during the reporting year and reflects a solid
capital adequacy at the 2010 year end. The Tier 1 capital
ratio (including market risk positions) increased to 15.4 %
(31 December 2009: 9.5 %) and the regulatory capital
ratio rose to 22.4 % (31 December 2009: 14.5 %). The reason
behind this was the significant progress made in reduc-
ing total assets as well as the changed allowance of the first
loss piece to the second loss guarantee issued by the
states of Hamburg and Schleswig-Holstein, which had been
deducted from equity since the second quarter and is
no longer accounted for under the risk-weighted assets as
was the case previously. Furthermore improved risk pa-
rameters caused a reduction in risk assets. The appreciation
of the US dollar had an offsetting effect on the ratios,
as its upward effect on risk assets could not be offset by a
corresponding effect on equity capital.
refinancing activities expanded
HSH Nordbank has expanded its refinancing activities and
at the same time broadened its investor basis. The
bonds issued by the Bank during the 2010 financial year
were for the most part placed with private customers
in the savings banks association and with institutional in-
vestors in Germany. Bond products developed by HSH
Nordbank were successfully marketed especially in the sav-
ings banks sector. The Bank returned to the capital mar-
kets in June 2010 with a jumbo Pfandbrief in the amount
of € 500 million. At the beginning of 2011 the Bank
also placed two mortgage Pfandbriefe in the amount of
€ 500 million and CHF 100 million, respectively. In
December 2010 the Bank had previously received from the
Moody’s rating agency the best possible rating of Aaa
for its mortgage cover pool.
With the issue of unsecured bonds and Pfandbriefe the
Bank has exceeded the issuance volume planned for the
whole year at the beginning of 2010. In view of a tempo-
rary unplanned increase in the refinancing requirements
– due in particular to the movement in the euro against
the US dollar and the higher than planned loan prolonga-
tions in sub-portfolios of the Bank –, the Bank took
further action. A series of initiatives were introduced to en-
sure that sufficient liquidity was in place at all times,
which has had an increasing effect in the second half of the
year. These included the expansion of the savings banks
funding, tight management and close monitoring of new
business and prolongations, expansion of the product
range in the deposit business as well as various individual
funding transactions. In addition, the liquidity position
was eased by the substantial progress made in reducing
portfolios within the Bank’s Restructuring Unit. During
the course of the year the Bank only accessed the tender
operations of central banks to a very small extent. The
positive earnings performance of the Bank in the 2010 fi-
nancial year should contribute to the further strengthen-
ing of the refinancing activities.
Against the backdrop of severe currency fluctuations in the
reporting year another focus of attention was the refi-
nancing of our US dollar business. In December 2010 the
Bank received a loan in the amount of USD 500 million
from the state-owned China Development Bank – an im-
portant step in strengthening the US dollar refinancing.
business deVelopments | group management report
hsh nordbank 201056
The above-described market activities represent for HSH
Nordbank a good starting basis for further capital markets
issues in the coming years.
In addition to the issuing activities, a stable and broadly
diversified volume of fixed-term and demand deposits con-
tinued to contribute to the refinancing of business. HSH
Nordbank has been able to maintain its collateral pool at
the European Central Bank at a stable level despite the
repayment of the SoFFin bonds deposited there, among oth-
er things, through the delivery of industrial loans. The
utilisation of the refinancing collateral pool amounted to
an average of about 50 % for the year; and about 40 %
as at 31 December 2010.
SoFFin guarantee facility expired
The guarantee facility of the Financial Market Stabilisa-
tion Fund (SoFFin) in an amount of € 17 billion, which HSH
Nordbank has utilised to support its issuing activities
against the backdrop of the global financial crisis, expired
at the 2010 year end in accordance with the agreement.
The SoFFin guarantees continue to apply to the capital mar-
ket issues still outstanding over the 2010 year end un-
til their respective maturity date (latest in July 2012). The
Bank had reduced its utilisation of the guarantee dur-
ing the course of the year through the repayment of bonds
in the amount of € 8 billion.
Detailed information on the liquidity and risk situation
is set out in the Risk Report section of this Management
Report.
employees
personnel reduction and restructuring programme
continued in the Bank
As part of the realignment HSH Nordbank has continued
the staff reduction and restructuring programme.
By the 2010 year end the number of employees on a
full-time equivalent (FTE) basis decreased further by 222
to 3,388 and reached a somewhat lower number than
planned. The relatively larger proportion of the redundan-
cies occurred in foreign locations due to the reduction in
the network of branches. The Bank is attempting to fur-
ther reduce the number of employees by the end of 2012.
Termination agreements, early and partial retirement
models were agreed as instruments in reducing the num-
ber of employees. As part of the agreements reached in
2009 redun dancies due to business operations were exclud-
ed until October 2012.
Personnel and position requirements in individual units of
HSH Nordbank have also changed due to the realign-
ment processes implemented in many business units, the
continued building up of the Bank’s internal Restruc-
turing Unit and the closing of locations. As a result of this
many positions in the Bank were transferred to other
units in 2010 and many employees re-assigned within the
Bank. More than a thousand positions were affected just
by the restructuring of the CRO function with the transfer
of credit analysis from market departments to back
office departments. The Bank has been able to also recruit
additional specialists in the market during the report-
ing year to fill central positions and to strengthen impor-
tant areas. An appropriate budget is also available for
2011 for training in order to meet the qualification require-
ments of the realigned Bank.
Through a “change initiative” the Bank has created,
among other things, a communication platform for an in-
ternal exchange of information on realignment topics.
For instance, as part of the initiative, individual main areas
of focus were identified through management surveys
and joint discussion events involving employees and the
Management Board, which are being followed up as
part of the realignment process. In 2011 specific measures
will be developed and implemented for example for
interdepartmental cooperation and business unit commu-
nication issues.
57
Business management and key indicator system
Corporate management aligned to the restructuring of
the Bank
The management system of the Bank is mainly aligned to
the restructuring requirements. A core function of bank
management is the development and regular updating of
the restructuring plan within the internal planning pro-
cess. The plan is implemented on the basis of a key indica-
tor system as part of the controlling process. All mate-
rial management information is supplied to the manage-
ment of the Bank by the controlling department within
the framework of the reporting system.
Important key indicators for the restructuring planning are
income before restructuring, pre-tax income, return on
equity, cost-income-ratio and the Tier 1 capital ratio. In ad-
dition the restructuring performance of the individual
business areas and the internal Restructuring Unit togeth-
er are reviewed with special key ratios regarding liquid-
ity, total assets, risk assets and risk capital.
HSH Nordbank uses further internal key indicators to
assess the performance of business fields. Material internal
key indicators are RaRoC (Risk adjusted Return on Capi-
tal) and the value added (gross income less liquidity, admin-
istrative, risk and capital costs). Key indicators such as
new business margin and cross-selling income are also ap-
plied in measuring performance.
Headcount 31.12.2010 31.12.2009
Total number of employees in the Group 1) 3,852 4,188
of which:
Women 1,706 1,905
Men 2,146 2,283
Employees in Germany 3,251 3,490
Employees abroad 601 698
Permanent Group employees 2) 3,780 4,094
of which:
Full-time equivalents (FTE) 3,388 3,610
HSH Nordbank AG 3,458 3,694
of which:
HSH Nordbank AG (FTE) 3,098 3,256
Key figures
Maternity and parental leave 116 174
Pensioners and surviving dependants / early retired 1,706 1,733
New employees 220 104
Part-time employees (%) 16.4 14.7
Turnover rate (%) 10.2 5.7
Sickness rate 3) (%) 3.8 4.1
Average age 3) (years) 41.2 40
Average period of employment (years) 10.1 9.9
1) Headcount
2) Total number of employees excluding trainees, temporary staff and interns
3) Head office only; does not include branches or subsidiaries
business deVelopments | group management report
hsh nordbank 201058
The key indicator and reporting system is developed on a
regular basis in order to take current management re-
quirements into account. In the financial year additional
key indicators for managing the winding down of the
business were developed for the internal Restructuring
Unit. Special key indicators are also used for monitor-
ing the portfolio protected by the second loss guarantee,
for instance utilisation of the agreed first loss piece as
well as actual confirmed payment defaults.
Segment reporting
Core Bank benefiting from focused strategy
Following the separation of non-strategic activities, HSH
Nordbank’s Core Bank consists of the Sector Specialist
Bank, Regional Bank and the segment Other. Results of the
Shipping, Transport and Renewable Energy core areas
as well as the related administrative function are reported
under the Sector Specialist Bank segment. The Regional
Bank segment reports the Bank’s activities in core areas
with a regional focus including its administrative func-
tions: Corporate Clients, Real Estate Clients, Savings Banks
and Private Banking. The segment Other includes the
financial market business, with the central refinancing
function for the Group and the Bank’s overall position in-
cluding strategic participations. In total, the Core Bank
reported net income before restructuring of € 574 million
(previous year: € 354 million) for the year 2010.
The Restructuring Unit, established as an internal unit
within HSH Nordbank, is responsible for and manages the
winding down of credit and capital market transactions
identified as non-strategic in the course of the realignment
of the Bank. Net income before restructuring of the Re-
structuring Unit comprises the net income from the areas
being wound down as well as the administrative func-
tions and amounted in 2010 to a net loss including consol-
idation of € − 29 million (previous year: net loss of
€ − 1,072 million).
Income elements not allocated to business units are re-
ported in the consolidation columns of the Core Bank and
the Restructuring Unit. The balance sheet effects of the
second loss guarantee are also contained in the consolida-
tion columns and not allocated to the segments.
Details of developments within the individual segments
are provided below.
Segment overview as at 31 December 2010 (¤ m)
Sector Specialist
BankRegional
bank Other
Consoli-dation
Core Banktotal
Core Bank
Re-structur-ing Unit
Consoli-dation
Restruc-turing
Unit
total re-structur-ing unit
Total income 2010 553 487 −9 72 1,103 496 4 500
2009 598 595 594 −31 1,756 1,194 −74 1,120
Loan loss provisions 2010 27 −148 49 166 94 −365 142 −223
2009 −713 −135 25 −30 −853 −1,941 – −1,941
Net income before restructuring 2010 363 130 −192 273 574 −203 174 −29
2009 −279 181 507 −55 354 −998 −74 −1,072
59
Markets benefiting from the economic upturn
An unexpected marked recovery in the shipping sector was
apparent during the first half of 2010 which was driven
by the upswing in the global economy. In the second half
of the year the demand for maritime transport contin-
ued to be positive, but at the same time the tonnage enter-
ing the market also increased significantly due to numer-
ous deliveries of ships. In light of growing overcapacities
the markets were again showing a somewhat weaker
trend.
In container shipping the number of laid up ships has
decreased significantly as a result of increased demand in
the first half of the year, freight rates, charter rates and
ship prices have risen significantly at the same time. Fol-
lowing a consolidation phase rates and ship values have
again moved on a somewhat downward trend at the recov-
ered level since the third quarter. Nevertheless, in 2010,
most shipping companies have again returned to profitabil-
ity after the heavy losses incurred in the previous year.
The market for bulk carriers initially benefited from a high
demand for raw materials emanating from China and a
greater demand in the industrialised countries. Following
initial increases charter rates and ship values had again
fallen sharply by the beginning of 2011 due to the high
level of ship deliveries and new shipbuilding orders.
Following a noticeable recovery in transport prices and
ship prices in the first half of the year the oil tanker market
experienced a downward trend in charter rates during
the remainder of the year. This is mainly attributable to the
reduction in the storage of crude oil and oil products on
ships thereby releasing excess tanker capacity; moreover,
fewer single-hull tankers were scrapped as was antici-
pated under the regulations of the International Maritime
Organisation.
The largest share of the volume financed by the Core
Bank is assignable to container ships at 36 %. The share of
bulk carriers amounts to approximately 18 % and oil
SeCtor SpeCIaLISt Bank SeGMent
Sector Specialist Bank segment (¤ m) 2010 2009 Change in %
Net interest income 600 567 +6
Net commission income 34 58 −41
Net trading income −57 27 > - 100
Net income from financial investments −24 −54 +56
Total income 553 598 −8
Loan loss provisions 27 −713 > - 100
Administrative expenses −176 −165 +7
Other operating income −41 1 > - 100
Net income before restructuring 363 −279 > + 100
Average equity 1,090 782 +39
Segment assets (¤ bn) 31 32 −3
In 2010, the markets for shipping, transport and renewable
energy recovered – in part significantly – from the
slump of the previous year. The need for loan loss provi-
sions in the Sector Specialist Bank segment decreased
markedly compared to the previous year through the im-
proved environment of the Bank while maintaining the
same conservative risk policy. As a consequence of this
a positive and considerably better result than in the previ-
ous year was reported for the segment.
business deVelopments | group management report
hsh nordbank 201060
by the crisis and the resultant improved yields on projects
created an impetus on the demand side and thereby fos-
tered an additional expansion of capacity on land in partic-
ular. However, the installed capacity in 2010 remained
at the previous year’s level due to the continued difficult
financial market environment. The solar energy sector
was able to record a noticeable increase in sales due to re-
duced prices for solar modules and to encourage the
expansion of generation capacity; in particular the reduc-
tions in the feed-in tariffs have for the most part lagged
behind this drop in prices.
Servicing existing clients plays the governing role
In the Sector Specialist Bank segment in 2010 focus
was placed on the management of credit risk following the
dramatic market slumps in previous years. During this
we have provided extensive support to our existing clients
through the prolongation of loans, moratoria and per-
formance of committed loan facilities. New commitments
were only entered into on a highly selective basis. In
this segment new payments made (total of prolongations
and new business) totalled € 11 billion (previous year:
€ 12 billion).
Net interest income of € 600 million for the segment (pre-
vious year: € 567 million) benefited from risk-adjusted
interest margins. This more than offset the lower new pay-
ment volume. The above-described business focus in
2010 was primarily reflected in net commission income,
which declined to € 34 million from the very good pre-
vious year level (€ 58 million). Net trading income was ad-
versely impacted by measurement effects resulting from
movements in the US dollar exchange rate. Despite the in-
come generated from cross-selling of capital markets
products (interest rate and currency hedging, fuel and bun-
ker hedges) a net trading loss of € 57 million was re-
corded (previous year: € 27 million). Total income stabilised
noticeably during the year, but at € 553 million was still
below the corresponding previous year amount (€ 598 mil-
lion).
Loan loss provisions were significantly reduced in the set-
ting of consistent management of the existing portfolios
in conjunction with the noticeable recovery in the markets.
As at the year end net reversals of € 27 million of loan
tankers comprise approximately 8 % of the volume. The
remainder, approximately 26 %, comprises other types of
ships. These include, for example, product tankers, chem-
icals tankers and RoRo ships. An additional 12 % relate to
other financing of companies active in the shipping in-
dustry.
The international air traffic markets have recovered faster
and more strongly during the course of the year than
had been initially expected in the sector. During the second
half of the year growth has slowed somewhat due to the
weakening of the catch-up effects. Nevertheless passenger
and freight volumes have already exceeded the pre-crisis
levels. In Europe aviation has developed less strongly than
in Asia and other regions. The increased demand was
accompanied by strict management of capacity, which led
to improved capacity utilisation. Overall, the global avia-
tion industry again returned to profitability after reporting
losses in 2009. This applies particularly to North Ameri-
can and Asian airlines, whereas several European airlines
have not yet been able to report profits.
During the year under review, harbours and airports
have returned to the path of growth on a worldwide basis
and, in some cases, have in fact exceeded pre-crisis reve-
nues. Transport volumes increased as a result of the growth
in international trade, particularly in Asia. European
airports were able to almost achieve pre-crisis volumes in
the case of freight traffic; however there is still scope for
improvement with regard to passenger traffic. European
ports have been able to increase overall volumes through-
out, in some cases substantially. However, there has
been an inconsistent pattern in developments at individu-
al ports. The German rail freight transport has also re-
covered strongly following its economic slump. In particu-
lar the transport of cyclically sensitive goods such as
iron and nonferrous metals as well as ores made up lost
ground with two digit growth rates, although the previ-
ous peaks in goods transported achieved in 2008 have not
yet been reached.
The market for renewable energy revived over the course
of 2010. Both major markets, wind power and solar energy,
were significantly influenced by declining prices. In the
wind energy sector the price reductions for turbines caused
61
loss provisions previously created were recorded in the Sec-
tor Specialist Bank segment. In the previous year a loan
loss expense of € − 713 million had to be recorded. Ship-
ping recorded the largest reversals, whereas individual
restructuring cases within the Energy division had an ad-
verse impact. Overall, the Sector Specialist Bank seg-
ment generated net income before restructuring of € 363
million, a considerably better result than in 2009 (loss
of € − 279 million).
Regional Bank segment(¤ m) 2010 2009 Change in %
Net interest income 419 469 −11
Net commission income 67 90 −26
Net trading income 14 39 −64
Net income from financial investments −13 −3 > - 100
Total income 487 595 −18
Loan loss provisions −148 −135 +10
Administrative expenses −185 −224 −17
Other operating income −24 −55 +56
Net income before restructuring 130 181 −28
Average equity 679 478 +42
Segment assets (¤ bn) 23 25 −8
Situation for businesses has improved
In the course of the economic recovery many businesses
serviced by the Corporate Clients business divisions were
able to recover from the crisis and noticeably improve their
financial situation. Our clients recorded marked increas-
es in sales and earnings across all sectors. The increasingly
positive assessment of the situation and prospects of
many businesses was generally reflected in the increase in
equity prices and the Ifo Business Climate Index that
improved several times in a row in the course of the year.
The positive development of the economic environment
also influenced the willingness to invest and the financing
requests of our clients. At the same time the competi-
tion to obtain clients in the market with a high credit rat-
ing further increased in the past financial year result-
ing in continued downward pressure on loan margins.
In 2010 the German real estate market emerged from
its trough. From the second half of the year we observed a
trend reversal in the office property market. The gener-
ally expected cutting back of jobs by businesses did not ma-
terialise and, as a result, the demand-related adverse
effects slowly levelled off. The underlying conditions for
the retail market further improved with the upturn
in the economy. This did not only lead to increasing retail
sales but also to strong demand for space in very good
locations. Both had a stabilising effect on prime rents. Con-
struction activity continued to lag behind demand in
the residential property market. The scarce supply was very
evident in sought-after areas in West German cities
– along with increases in rents and prices above the gen-
eral inflation rate.
Focus on existing clients
In 2010 the business in the Regional Bank segment con-
tinued to develop strongly influenced by the servicing of
our existing clients in the setting of the aftermath of
the economic slump in the previous year. For example, we
reGIonaL Bank SeGMent
The Regional Bank segment comprises the business divi-
sions Corporate Clients, Real Estate Clients, Savings Banks
and Private Banking. Net income before restructuring of
the segment for the financial year 2010 amounted to € 130
million (€ 181 million) in a stabilised environment.
business deVelopments | group management report
hsh nordbank 201062
provided support to our corporate and real estate clients
through the granting of new loans, follow-up financing
and prolongations of existing financings. New acquisitions
were only selectively undertaken. In the Regional Bank
segment new payments made (total of prolongations and
new business) totalled € 7 billion (previous year: € 12
billion).
The deposit level of the segment was increased during the
reporting year and contributed considerably to the fund-
ing of the Bank’s business; we consider this to be a sign of
the confidence placed in us by our clients in difficult
times. The focus of the savings banks business is the selling
and marketing of bond products to clients of the sav-
ings banks association, which constitute one of the most
important investor groups of HSH Nordbank (details
on the issuance business of the Bank are set out in the “Re-
financing activities” section in the chapter “Business
developments”). Moreover there was a demand for interest
rate hedging instruments on the part of corporate cli-
ents of the savings banks. In the case of the private banking
business, demand in 2010 was geared primarily to invest-
ments that preserved value. These kinds of products
issued by the business division were placed successfully on
the market.
Focussing on the existing portfolios is having a
noticeable effect
The impact of the stabilised environment has not yet
been reflected in any significant manner in the earnings of
the Regional Bank segment. As a result of the above-
described focus and the difficult competitive conditions
total income of € 487 million fell short of the previous
year’s amount of € 595 million. Additions to loan loss pro-
visions for the corporate clients and real estate business
were held below the planned amount. In total the loan
loss provision expense for the Regional Bank segment
amounted to € − 148 million (previous year: € − 135 mil-
lion). Consequently net income before restructuring
amounted to € 130 million (previous year: € 181 million).
otHer SeGMent
Other segment(¤ m) 2010 2009 Change in %
Net interest income −155 528 > - 100
Net commission income 9 −11 > + 100
Net trading income 114 17 > + 100
Net income from financial investments 23 60 −62
Total income −9 594 > - 100
Loan loss provisions 49 25 −96
Administrative expenses −205 −172 +19
Other operating income −27 60 > - 100
Net income before restructuring −192 507 > - 100
Average equity 377 290 +30
Segment assets (¤ bn) 34 40 −15
The net income of the Other segment was significantly
i nfluenced in 2010 by developments in the Bank’s overall
positions. These include results arising from strategic
participations, net income of the corporate and service de-
partments and from central portfolios that are not allo-
cated to the other segments. Furthermore the business
conducted by the financial markets area of HSH Nordbank
is reported in this segment, which includes in par ticular
the central refinancing function of the Bank and cross-sell-
ing activities with customer departments.
63
Competitive customer-related financial market business
The focus of the customer-related financial market busi-
ness is to provide the core segments of the Bank with
needs-based investment and risk management strategies for
clients. Sales of these cross-selling products benefited
from the intensive management of the existing business,
but contributed less in total to net income than in the
previous year. The low level of interest rates in 2010 cre-
ated demand on the part of our clients for interest rate
hedging alternatives as well as for the adjustment of exist-
ing interest rate hedges to current market conditions.
Interest in hedging commodity prices, which has increas-
ingly taken root alongside currency hedges, has also in-
creased. Net income from cross-selling activities is largely
reported in the other segments as part of the Bank’s
business management.
The refinancing base of HSH Nordbank has been expanded
through transactions entered into with institutional in-
vestors and in particular savings banks. Details on our refi-
nancing activities in 2010 are set out under “Refinanc-
ing activities expanded” in the chapter Business develop-
ments.
effect of the measurement of hybrid financial
instruments and concentration on customer business
noticeable
In total, the Bank reported a net loss before restructuring
of € − 192 million for the Other segment (previous year:
€ 507 million). This was attributable both to movements in
the positions of the overall bank and those of the Finan-
cial Markets unit. The effect of the measurement of hybrid
financial instruments in accordance with IAS 39.AG8
included the positions of the overall bank. While a positive
effect of € 375 million was recognised for the year 2009
on the basis of the revaluation of expected cash flows tak-
ing into account expected loss allocations and coupon
defaults, a loss of € − 163 million had to be recorded in the
2010 reporting year that primarily relates to the sched-
uled amortisation of the effect described above. In light of
the stronger focus placed by the financial markets area
on supporting the customer departments and the changed
interest rate environment lower income was generated
from money market and capital markets transactions. The
result from financial transactions amounted to € − 9 mil-
lion (previous year: € 594 million). A net reversal in loan
loss provisions in the amount of € 49 million (previous
year: € 25 million) was booked as a result of the reversal
of impairments in the financial markets business and
central portfolios.
reStruCturInG unIt SeGMent
portfolio successfully reduced further
The Restructuring Unit of HSH Nordbank was established
as a bank internal unit on 1 December 2009. Its mission
is to manage the winding down of the lending and capital
market transactions that were spun off organisationally
as part of the realignment and are no longer held in the
Core Bank.
The Restructuring Unit was divided into three business
divisions and structured independently from the market
and trading departments of the Bank. The Special Loans
division primarily manages restructuring cases and the
Wind-Down Loans division mainly manages the other
loan port folios. A third division is responsible for the cap-
ital market portfolios (Divestments). In addition the
Restruc turing Unit performs supporting administrative
functions. This organisational structure should ensure
that an efficient and ordered winding down process is in
place.
On an overall basis the Restructuring Unit has clearly ex-
ceeded the winding down targets set for 2010. Total
assets of this segment amounted to € 63 billion as at 31 De-
cember 2010. This is equivalent to a portfolio reduc-
tion of € 14 billion compared to the 2009 year end and of
€ 32 billion since the 2008 year end. The reduction in
the portfolios has been driven by the Restructuring Unit
on a risk-conscious basis through targeted measures.
Against this background the Restructuring Unit segment
reported net income that was above plan and an im-
provement on the previous year.
The significant fluctuations in the US dollar exchange rate
compared to the euro during the past three quarters
also had an influence on US dollar denominated credit
portfolios. Between the beginning of the year and the
business deVelopments | group management report
hsh nordbank 201064
2010 year end this increased total assets of the segment
by € 1.5 billion and created a negative measurement effect
Restructuring Unit segment(¤ m) 2010 2009 Change in %
Net interest income 578 742 −22
Net commission income 95 92 +3
Net trading income −403 509 > - 100
Net income from financial investments 226 −149 > + 100
Total income 496 1,194 −58
Loan loss provisions −365 −1,941 −81
Administrative expenses −283 −273 +4
Other operating income −51 22 > - 100
Net income before restructuring −203 −998 +80
Average equity 2,361 1,539 +53
Segment assets (¤ bn) 63 77 −18
of € 139 million on loan loss provisions denominated in
foreign currencies.
Winding down of lending transactions ahead of plan
The lending business consolidated within the Restructuring
Unit with a volume of € 35 billion as at 31 December
2010 (previous year: € 39 billion) includes, in particular,
the foreign real estate business, the business areas com-
modity trade finance, leasing refinance as well as portfoli-
os from the business sectors shipping, transport, renew-
able energy and corporate clients (LBO).
The winding down of the loan portfolios progressed dur-
ing the past financial year and is managed by the two
business divisions – Wind-down Loans and Special Loans
– responsible for the loan portfolios.
In addition to the scheduled principal repayments the
loan portfolio was further reduced by active winding down
measures implemented such as renegotiation of agree-
ments, particularly in the Wind-down Loans unit. Other
winding down successes were achieved through exploit-
ing market opportunities, for instance through syndica-
tions. Unscheduled principal repayments were recorded
primarily in the real estate financing (Europe), renew-
able energy (New York), commodity finance, lease refinanc-
ing and corporate clients (LBO) business units.
Most of the European real estate markets continued to
recover from the crisis over the past year. After significant
recoveries in value were recorded with respect to first
class properties in good locations in Great Britain during
the first half of the year, the trend continued during
the year at a moderate rate in Great Britain as well as in
France and Sweden. In contrast, the Danish market is
not expected to make a noticeable recovery for some time
yet.
In addition to the regular principal repayments made the
portfolio of the Bank was further wound down as a
result of the active measures taken and also in many cases
through unscheduled repayments. The situation in the
US real estate market remained difficult throughout the
year. However, the first signs of a slight improvement
were noticed in several asset categories. Despite the market
environment in the US, loans were reduced by quite
a considerable amount. However, a further increase in loan
loss provisions was required for individual transactions.
The portfolio in the shipping business has developed on
plan for the most part. Restructurings were also carried out
so that the portfolio can be wound down more markedly
65
in the event the market recovers further and the financing
business revives in the industry sector (information on
the development of shipping markets in 2010 is provided
under “Sector Specialist Bank segment”).
The credit quality of the corporate clients portfolio of
the Special Loans unit slightly improved in the 2010 finan-
cial year compared to the previous year. This applies in
particular to the Danish and British sub-portfolios. How-
ever, individual customers in the corporate clients port-
folio are still in a very difficult financial situation. There
was also positive development in the secondary market
for corporate loans, where prices again increased over the
course of the year 2010. The portfolios will be further
reduced through initial public offerings, M & A activities as
well as scheduled and unscheduled principal repay-
ments.
The foreign LBO portfolio was characterised by the stabi-
lisation of the Northern European credit markets which
enabled commitments to be reduced at a higher rate and
only required moderate additions to the loan loss provi-
sions.
The situation in the German leasing industry has stabilised
in 2010 at a lower level. The difficult refinancing situa-
tion of leasing companies above all had an adverse impact
on the industry sector. Nevertheless the refinancing
portfolio of HSH Nordbank AG has continued to be rapidly
wound down through scheduled and unscheduled prin-
cipal repayments as well as the placing of assets at partner
banks.
The assets of the Commodity Finance and Transport port-
folio characterised by US dollar positions were – primarily
through early repayments – wound down by more than
40 % on a euro basis. As a result risk concentrations could
be reduced in this business field.
Further progress was also made in the winding down of
non-European project financings for renewable energy
projects. In addition to early principal repayments, place-
ments and syndications on the primary market contrib-
uted to this success – provided projects were involved that
had become able to service debt as a result of comple-
tion. Compared to the 2009 year end amount this portfolio
was reduced by almost 50 % in US dollar terms.
Significant reductions in capital markets portfolios
The capital market portfolios bundled within the Restruc-
turing Unit comprised, as at 31 December 2010, assets
with a volume of € 28 billion (previous year: € 38 billion).
Despite the partly high level of volatility in the capital
markets the capital markets portfolios were significantly
reduced through targeted winding down measures. The
reduction in the capital markets business is demonstrated,
for example, by the successful decrease in concentration
risk in the area of US investment banks. Furthermore ex-
pensive refinancing especially in the field of uncovered
transactions as well as in foreign currencies (for example
Australian dollar, US dollar) was released through the
winding down of the portfolio.
In the credit investment portfolio (CIP) positive spread
movements led to the reversal of impairment losses
in some asset classes. Through the winding down of ABS
structures as well as debt instruments of individual
issuers, the CIP was reduced to some € 12 billion (2009:
€ 17 billion; 2008: € 22 billion). Significant increases
in spread were recorded in some asset classes, in particular
European government and financial instruments, in
the CIP as well as in the other capital markets portfolios,
which had an adverse impact on trading income.
The public sector financing business was characterised by
the debt crisis in the so-called PIGS countries. In the
fourth quarter 2010 the credit spreads of European periph-
eral countries again widened significantly. Against the
backdrop of uncertainty with regard to further debt devel-
opments and the stability of the euro, the risk premi-
ums also increased for bonds issued by core countries in
the eurozone such as Belgium, France and even Ger-
many. Further developments might depend on the extent
to which the aid and savings measures introduced are
effective in Europe. During 2010 opportunities were taken
to wind down sovereign risk in Central Eastern Europe
and in the peripheral states of the eurozone.
business deVelopments | group management report
hsh nordbank 201066
Loan loss provision expense reduced
In the Restructuring Unit segment the net loss before re-
structuring could be reduced to € − 203 million (pre-
vious year: € − 998 million). The market recovery and the
continued adjustments to the portfolio were crucial
factors behind the reduced expense for loan loss provisions.
The reversal of impairment losses on asset portfolios
also had a positive effect, which was reflected in the net
income from financial investments. This was offset by
a significant net trading loss caused by valuation losses on
positions held in the credit investment portfolio and
in the public sector financing business.
67
outLook
The following section should be read in conjunction with
the other chapters in this Management Report. The
forward-looking statements contained in this outlook are
based on our beliefs and assumptions made using in-
formation currently available to us. The statements rely on
a number of assumptions concerning future events and
are subject to uncertainties, risks, and other factors, many
of which are outside of our control. Therefore actual
results may differ from the following forward-looking state-
ments.
anticipated underlying conditions
Moderate weakening in the dynamics of the global
economy
The growth in the global economy should slow again in
2011. In fact the emerging economies should continue
to expand strongly despite government measures taken to
cool the economy. However, the US economy in partic -
ular will probably lose momentum. This is implied by the
widespread unemployment, the continued high level
of indebtedness of private households and the below aver-
age capacity utilisation, which suggests that consump-
tion and capital expenditure will only increase at a moder-
ate level despite the new fiscal and monetary policy mea-
sures. Furthermore, the situation in the real estate market
should remain difficult in view of the sustained over-
supply.
The eurozone should remain on its slow growth path.
The gap between the sluggish developing peripheral coun-
tries and some more dynamic economies will also re-
main wide in 2011. Germany, which is suffering compar-
atively less from structural problems, should take on
the role of the economic driver and grow at an above-aver-
age rate. The German companies will benefit again from
the expansion in international trade and also increase their
capital expenditure at the same time. A further improve-
ment in the labour market together with somewhat
stronger wage increases should also boost consumption,
which should also contribute markedly to growth.
Based on forecasts of the German Bundesbank in Novem-
ber 2010 the German banks are still facing impairments
of € 23 billion for the current year, which is a similar
amount as that in 2010. The restructuring of the sector will
continue in view of the changed regulatory require-
ments.
Given the only sluggish recovery of economies – both in
the US and the eurozone – together with the relatively
moderate rate of inflation to date in these economic areas,
the US Federal Reserve and the ECB will only gradu-
ally move away from their expansive monetary policy mea-
sures. Whereas the ECB may begin from the fourth
quarter onwards to raise the base rate, we expect that tight-
ening of monetary policy in the US will only com-
mence in 2012. Accordingly, the yields on shorter term gov-
ernment instruments should also increase in the latter
part of the year. The yields on government bonds with a
longer maturity will also increase, as the high level
of indebtedness and the risk of inflation should reduce
their attractiveness. This applies in particular to US
government bonds, for which we are accordingly expecting
a more marked increase in yields than for German
Bunds. The US dollar could depreciate against the euro by
the year end, if a sustained solution is found for the
public finance crisis in the eurozone and the ECB ends its
exceptional monetary policy measures earlier than the
US Federal Reserve.
The prospects for the equity markets continue to depend
on the development of the world economy. We consider
the economic environment anticipated in profit forecasts
to be very optimistic. This is accompanied by a latent risk
business deVelopments, outlook | group management report
hsh nordbank 201068
of a relapse, which continues to be countered by a certain
investment pressure which results, among other things,
from attractive dividend yields combined with compara-
tively unattractive yields on fixed-interest investments.
anticipated business situation
Strategic realignment of HSH nordbank continues on
schedule
The very noticeable successes achieved in implementing
the realignment programme including improvements
in results and key financial indicators show that the Bank
is on the right track to establishing a sustainable foun-
dation for the future. By concentrating on regional and sec-
toral activities the Core Bank has a clear position and
long-term growth prospects in attractive markets. At the
same time the Bank is creating through the systematic
winding down of non-strategic positions the foundation on
which it can drive forward its core business over the
coming years on a focussed basis.
Given the positive and better than expected business devel-
opments in the past year the plan assumptions of the
Bank have proved to be robust and sufficiently conserva-
tive. For the 2011 financial year HSH Nordbank is as-
suming that Group net income, which was positive for the
first time in 2010 since 2007, can be further increased.
As things stand at present we also expect the positive devel-
opments to be continued in 2012.
The main drivers are the reduction in the charges relating
to loan loss provisions given the stabilised credit envi-
ronment as well as the positive development in the mea-
surement effects in net trading income, which are due to
the continued winding down of risk positions and a grad-
ual normalisation of the capital markets and have
an overall positive effect.
In the Core Bank the Bank is planning a moderate and
risk-conscious expansion of new business in selected areas.
At the same time the customer divisions will continue
to focus on managing the existing commitments. At the
same time it is planned to maintain total assets of the
Core Bank largely at a stable level. Growth in net interest
income and net commission income is still dependent
in general on the loan demand of companies and the op-
portunities to set prices at a level commensurate with
the risk in a highly competitive bank environment.
In addition to the wide range of financing solutions we
are aiming to develop our cross-selling business. This
should account for an increasing proportion of income in
the future. The foundations for the strengthened sales
of needs-based cross-selling products, in particular invest-
ment and risk management products were further im-
proved in the past year.
Further cost savings are linked in the coming years to the
winding down of the business in the Restructuring Unit,
the closing of locations and the further reduction in em-
ployees. This is offset by higher expense due to the so-
called bank levy (Bankenabgabe) so that total administra-
tive expenses for 2011 should approximately reach the
previous year’s level.
The Bank is expecting a substantial decrease in expense
from public sector guarantees from 2011 onwards. A
reason for this are the SoFFin issues that are gradually ma-
turing. The SoFFin guarantee facility expired at the
2010 year end in accordance with the agreement; however,
the guarantee still applies to existing capital markets
issues until the final maturity of the bonds. Furthermore
a gradual reduction of the second loss guarantee is
planned given the stabilised capital situation. In February
2011, HSH Nordbank initiated the first partial reduc-
tion of the guarantee by € 1 billion to € 9 billion. The Bank
expects approval to be granted by the guarantor in the
near future. The fee expense is decreased accordingly on
the reduction of the guarantee amounts. This will have
an increasingly significant positive impact on the results
of the Bank over the coming years.
Following the unexpected strong upturn in the global
economy in 2010 we are assuming that the economic re-
covery will continue at a weakened rate. The environ-
ment will probably remain characterised by significant un-
certainties. In particular, the critical debt situation of
some countries could again lead to unrest in the markets
and cause problems in the banking sector.
69
At the beginning of 2011 HSH Nordbank and the state-
owned China Development Bank signed a letter of intent
to expand their business relationships. The focus is to
be placed on operational cooperation in internationally
aligned business fields. Joint financings and syndica-
tions will be the major focus. HSH Nordbank is expecting
that the operating strengths of the Bank can be expan-
ded through the cooperation.
Overall HSH Nordbank is confident that the course taken
will bear fruit, the targets associated with the realign-
ment will be reached and the Bank has strong prospects
for the future.
eu state aid proceedings continue
The continued existence of HSH Nordbank AG depends
on whether the European Commission in the foreseeable
future approves the stabilisation measures granted by
the Free and Hanseatic City of Hamburg and the Federal
State of Schleswig-Holstein on a permanent basis. It is
also necessary that the EU approval should only be tied to
such requirements that can be implemented within the
framework of a sustainable business plan and in particular
will not compromise the regulatory effectiveness of the
reduction in regulatory capital required brought about by
the stabilisation measures.
Nonetheless the Bank has pushed forward the imple-
mentation of the plan and the expected requirements in
the reporting year and has reached important mile-
stones. In addition to establishing the Restructuring Unit
for the purposes of clearly separating the non-strategic
portfolios and special risk positions from the core activities
of the Bank these include the advanced stage of the
winding down of the balance sheet together with, amongst
other things, the reduction in the network of locations
and a consolidation of the equity holdings portfolio. Dis-
cussions are also being held regarding an adjustment
to the remuneration regulations for the second loss guar-
antee of the states of Hamburg and Schleswig-Holstein.
anticipated refinancing situation
Development of additional refinancing potential
HSH Nordbank will continue in 2011 and 2012 the fund-
ing activities commenced in the previous year and will
focus on expanding its investor base for the purposes of
meeting the issue plan and refinancing the planned
new business. The funding activities are aimed at obtaining
a weighted mix of refinancing sources. The strong posi-
tive results trend in the 2010 financial year and the further
progress made in the strategic realignment of the Bank
should greatly aid its funding activities.
Deposit business with companies, public sector cus-
tomers and other target groups is to be expanded through
broadening the product range. The Bank will develop
additional potential in the savings banks sector and with
different investor groups in Germany and worldwide
through increased contact with investors and sales and
marketing initiatives.
A decision by the European Commission in the review
process currently still pending, which would be positively
received by the market, would further facilitate access
to other investor groups and would thereby support an ex-
pansion of the new business of the core business units.
Furthermore the Bank is aiming at a continued gradual re-
duction in its financing costs. A negative EU decision
from the investor perspective, also in respect of other Lan-
desbanks, could have an adverse impact on the funding
volume marketable in the market, the investor base and
the refinancing costs of the Bank.
Following the issuing of a public sector Pfandbrief in 2010
and a mortgage Pfandbrief at the beginning of 2011
the Bank is also aiming to issue benchmark bonds on the
capital markets when market conditions are good. It is
planned to issue unsecured instruments and Pfandbriefe.
In view of the top grade received from Moody’s for our
mortgage cover pool in December 2010 focus is also being
placed on an increase in the sale of mortgage Pfandbriefe.
Public funding programmes, commercial loans for deposit-
ing in the ECB collateral pool together with structured
funding transactions represent additional important instru-
ments within the refinancing strategy.
outlook | group management report
hsh nordbank 201070
Foreign currency assets, in particular those denominated
in US dollar, are refinanced at HSH Nordbank via deriv-
atives for the most part – as is the case at most European
banks. The Bank is currently assuming that sufficient
market depth required for this will continue to be available
in the future.
anticipated segment performance
The expectations of the individual segments are driven
by developments in the economy and in the financial mar-
kets, whereby the effects of future opportunities and
risks are expected to differ based on specific market condi-
tions within the sectors. Within different credit port-
folios, depending on economic developments and the mar-
kets, additional specific loan loss provisions may be re-
quired. The largest burden should still relate to portfolios
which no longer belong to the core business and which
have been consolidated in the Restructuring Unit for sys-
tematic winding down. Details regarding default risk
are set out in the Risk Report.
SeCtor SpeCIaLISt Bank SeGMent
recovery of the markets at differing rates
For 2011 we are expecting an upturn in demand in all
shipping markets in the course of the further recovery, still
at a somewhat slower rate, of the global economy. In
view of a continued relatively high level of orders for con-
tainers, bulk carriers and oil tankers and the associated
high number of deliveries the oversupply of ships should
still decline only slowly in 2012.
However, we are expecting a slight increase in charter rates
for container ships in 2011, which could continue into
2012, assuming the number of new orders reaches a low
level; we are expecting a sideways move in respect of
ship prices. Consequently the rock bottom hit at the end
of 2009 is considered to be finally overcome, so that we
are furthermore assuming predominantly profitable ship-
ping lines.
With regard to oil tankers we are expecting – despite
a catch-up effect on the scrapping of single-hull tankers –
further pressure on charter rates and ship prices in
view of the high delivery volume, the more so as demand
is growing at relatively low rates.
The orders for new bulk carriers have somewhat declined
lately, however the volume was very high up to the
second half of 2010. In this market the deliveries of bulk-
ers should barely decline over the next two years com-
pared to the currently high level. The oversupply of bulk
carriers will therefore increase further and the charter
rates and ship prices in this segment will remain under
pressure. Based on the very low level of rates at the
beginning of 2011, which was influenced over the short-
term by the floods in Australia, among other things,
there should be, however, a slight recovery over the course
of the year.
Despite these adverse effects we are assuming both for oil
tankers and bulkers that sufficient income will be gen-
erated at the important shipping lines to service the debt.
Following the strong recovery in the past year the growth
rate in air traffic should slow down in 2011 and return
to the level of the longer-term growth path. Capacity utili-
sation and thereby margins should decline in the case
of moderate economic momentum and further expansion
of the fleets. We are assuming that the majority of air-
lines will again be able to report profits in 2011 and 2012,
but at a somewhat lower level than in 2010. The major-
ity of European airlines should break even in 2011. Asia,
the Middle East, and Latin America should be among
the regions with the strongest growth.
The European markets for renewable energy should con-
tinue to gain momentum in 2011 and also maintain
this in 2012. The expansion of sustainable energy sources
is being pursued very actively in many countries in
order to attain an increasingly higher proportion of regen-
erative energy sources in the energy supply. Moreover
environmental and energy subjects are increasingly getting
on the political agenda in the individual countries in
Europe. The partly considerable reduction in feed-in tariffs
primarily reflects the price declines caused by techno-
71
logical advances and leads to a temporarily fluctuating
attractiveness in individual, local markets. The stable and
lower level of interest rates in the euro area together
with the gradual normalisation of the financial markets
continues to have a positive impact. The growth in
the market for wind energy should increase in 2011 and
again approximate the longer-term growth trend. In
the solar energy area we are anticipating continuing high
growth, although, in view of the drastic slump in prices
for solar modules, the investment volume in the market
should be tending downwards – with a simultaneous
high or in fact increasing number of projects.
As a result of increasing transport volumes a continuing
upward trend is expected in the European infrastructure
and rail industries. Various expansion projects at airports
and ports and regarding rail lines will ensure a continu-
ing high level of investment.
risk-conscious expansion of business
In view of the market stabilisation during the course of
2010 we are planning to expand our new business in
2011 and 2012 on a gradual and risk-conscious basis and
thereby increase income. We want to increasingly link
financing business with added value products, primarily
from the capital markets area. We expect that the foun-
dations put in place and improved over previous years for
a strengthened cross-selling business will make an im-
pact. Special focus will be placed on the continued expan-
sion of customer deposits. Against the background of
the lengthy recovery process for the shipping markets we
are assuming for 2011 in particular that various cus-
tomer commitments will continue to require intensive care
and restructuring and consequently a significant pro-portion of new loan payouts will initially still be tied to pro-
longations. At the same time we are expecting that the
conservative policy applied in previous years will also have
a positive effect in 2011 and that the loan loss provi-
sions will continue to be reduced.
Since the beginning of 2011 the former Transport business
division has been focussing on activities in the aviation
area and has been renamed “Aviation”. The other areas,
particularly infrastructure and rail, have been merged
with the former Energy business division. The objective of
this realignment is more effective management of clients
and commitments.
reGIonaL Bank SeGMent
Good opportunities in positive environment
German companies should benefit in 2011 and 2012 from
a relatively robust domestic economy and the expansion
of international trade. Production capacity is being utilised
increasingly better in view of the high demand for prod-
ucts made in Germany. We are anticipating a stronger lev-
el of investment activity on the part of companies, as
capital expenditure for replacement and expansion, which
was postponed during the crisis, should be made up in
the coming year and beyond. In the trade sector companies
should be in the position to further increase sales in
2011 thanks to the good economic environment. In the
food industry we are anticipating a significant increase
in commodity prices on the world markets. These price in-
creases are not only caused by an increased demand but
have been driven to a large extent by speculation.
Against the backdrop of these developments we are
assuming a strong need for working capital financing by
companies. With the increasing level of export activi-
ties we expect increasing demand for export financing and
products to reduce payment risk. Overall we are ex-
pecting that the stronger environment will have a positive
impact on our business in 2011. We will further in-
crease our exposure in selected sectors such as, for exam-
ple, the health industry, food industry and the trade
sector. At the same time we want to win new customers
through offering a wide range of services and maintain
our market position despite distinct competitive pressure
in the corporate clients business. Our customer activi-
ties will focus on advisory and risk management offers in
addition to providing financing. In leveraged finance
we are gradually recording an increasing number of trans-
action opportunities.
In the German office market the vacancy rate – after
reaching its peak – should come down in 2011, as we
are expecting a reduction in the number of building
completions and a noticeable rise in demand. Prime rents
outlook | group management report
hsh nordbank 201072
should increase again due to an increasing scarcity of
modern, large spaces. The upturn in the German economy
linked to positive consumer confidence and the high
regard investors have of Germany should benefit the invest-
ment market for retail property in Germany. With the
growing risk appetite of investors project developments are
also rapidly coming back into focus. We are expecting
a further increase in transaction volumes in the residential
property market, too.
We see very good business opportunities in the area of
financing residential and commercial properties, the more
so as the market for commercial project developments
should gain momentum in the near future. Consequently
we are assuming an increase in new business for 2011
and 2012 despite intense competition. In addition to ser-
vicing our existing clients we want to further broaden
our customer base and expand our position as a specialist
in property financing.
As a close partner of the savings banks, we expect that the
sale of needs-based forms of investment will continue
to develop positively. Further emphasis will be placed on
the area of cross-selling transactions and on funding ac-
tivities with the savings banks and municipalities. Within
the German Savings Banks Finance Group HSH Nord-
bank provides attractive solutions nationwide.
There are also good opportunities for HSH Nordbank
as a long-term partner for high net-worth private clients in
Northern Germany. We are increasingly concentrating
on profitable new business with private banking clients
and on wealth management including the management
of large and complex family assets. There are extensive
business opportunities in the area of establishing and
man aging foundations given our leading market position
in the region of Northern Germany with more than
400 foundations as customers.
In 2011 and 2012 special emphasis will be placed on the
building up and stabilising of customer deposits, which
make an important contribution to refinancing our busi-
ness. Furthermore we want to increasingly generate
additional income in all departments through cross-selling
transactions, with investment and risk management
products among other things.
otHer SeGMent
Focus on customers and investors
In the difficult environment of 2010 the focus was on the
continuing promotion of the capital markets activities
of the Bank in the interests of the clients and in order to
strengthen our own refinancing base. In the future the
focus of our activities will also remain the development
of needs-based capital market solutions for HSH Nord-
bank clients and investors as well as for savings banks. The
aim is to cement our customer relationships and to in-
crease and diversify the income base of the Bank. In this
connection the capital markets business area contin-
ues to support the customer departments in the Regional
Bank and Sector Specialist Bank core segments as an
innovative product provider. For example, good business
opportunities arise as a result of the increased interest
of corporate clients in strategies for hedging against fluctu-
ations in interest rates and foreign exchange rates. At
the same time the business area will also consistently align
its central refinancing function to the new business
model of HSH Nordbank in 2011 and 2012. Details on the
Bank’s planned refinancing activities are set out in
Outlook under “Anticipated refinancing situation”.
reStruCturInG unIt SeGMent
Continued winding down measures
The continued winding down of the risk positions con-
solidated in the Restructuring Unit is considered a key stra-
tegic target of the Bank. The reduction of the portfolios
in 2011 and 2012 will therefore be driven as was the case
previously through active measures – in addition to
portfolio reductions resulting from scheduled principal re-
payments. The success of these measures continues to
depend on the development of the economic environment
in the relevant industries and financial markets. The
downside potential will decrease in line with the continued
portfolio reduction. However increased additions to
risk provisions are expected for individual counterparties.
In the real estate sector, the economic crisis seems to
have bottomed out in the majority of European markets
and the sector should continue its recovery. Against this
73
backdrop, the Bank anticipates that it can continue to re-
duce its portfolios in European countries outside of
Germany. The situation in the US real estate market con-
tinues to be difficult for the time being, despite slight
recovery trends, so that we do not expect a significant re-
duction in the portfolio. Depending on the economic
development there may be the need for loan loss provisions
for individual transactions.
The winding down of positions in the shipping portfolio is
being made difficult by the reduced number of banks
active in the ship financing market. The opportunities to
drive forward the winding down process through syn-
dications and brokering to other banks is thereby limited
(information on expected developments in the shipping
markets are set out in “Sector Specialist Bank segment”).
With regard to the commodity finance and transport port-
folio we are aiming to realise the planned winding
down of the remaining amount following the successes
achieved in 2010.
In the corporate clients sector we are anticipating being
able to reduce larger amounts through scheduled and
unscheduled principal repayments. Individual loan items
in the corporate clients business continue to contain
potential for loss. Overall we are assuming positive devel-
opments for the Special Loans division with further
loss- minimising successes achieved in the winding down
process together with a declining need over the coming
years for loan loss provisions in the loan portfolio.
We anticipate further market stabilisation and increased
repayments in the foreign LBO business, although indi-
vidual positions continue to contain downside potential.
We are also expecting the leasing market to recover with
an improved refinancing situation for the German leasing
industry. We are assuming a rapid winding down of the
loan amounts through scheduled principal repayments and
individual syndications.
The continued success of the wind down measures in the
capital market units is primarily influenced by develop-
ments in the financial markets. The concern on the part
of market participants regarding the consolidation of pub-
lic finances remains undiminished. Consequently, the
volatility in the markets could increase markedly in 2011
and lead to higher risk premiums on individual assets
with the effect that the winding down process may not pro-
ceed as planned.
outlook | group management report
hsh nordbank 201074
rISk report
risk Management System
principles of risk management
Active risk management represents a core component of
overall bank management at HSH Nordbank. Against
this backdrop, the Bank has continued to develop its risk
culture and the methods and procedures applied in risk
management on a systematic basis.
HSH Nordbank defines risk as the threat that unfavour-
able future developments may adversely affect the Bank’s
earnings and liquidity situation. Material risks for the
Bank are classified as default risk, market risk, operation-
al risk, liquidity risk and strategic risk. The individual
elements of risk management constitute a system in their
entirety that ensures that risks are identified, analysed,
evaluated, managed, monitored continu ously and report-
ed on.
There are clear rules in the Bank concerning responsibili-
ties within the risk management framework. The over-
all responsibility for risk management in the Bank lies with
the Management Board. This also includes the methods
and procedures to be applied for measuring, managing and
monitoring risk. By taking all types of material risk into
account the risk strategy reflects the organisational and
strategic orientation of risk management. It includes
the planned development of all material business activities
from a strategic risk perspective and taking particular
account of the risk-bearing capacity.
The methods and instruments used in the risk manage-
ment process are documented in a risk manual that is pub-
lished throughout the Bank. The Management Board
and the Risk Committee of the Supervisory Board are in-
formed of the risk situation of the Group by means of
a comprehensive quarterly risk report. As an internal but
independent winding down unit for the Management
Board of the Bank, the Restructuring Unit is fully integrat-
ed into the Group’s risk management process. The risk
methods and processes of the Core Bank apply accordingly
to the Restructuring Unit.
Systematic enhancement of the lending process
In the year under review the Bank has made systematic
progress on the enhancement of the lending process start-
ed in 2009 for the purposes of strengthening the back-
office functions and the effectiveness of the lending deci-
sion process. 1)
In 2010 significant changes were made to the Bank’s
organisational structure and processes. For instance, the co-
operation between the market and back office divisions
was structured on a much more efficient basis by defining
clear responsibilities. In addition, the functions of credit
risk analysis as well as loan and collateral management
were successfully integrated into the back office. The
independent status and the quality of the back office were
thereby increased decisively. As a result, the lending
decision process previously shaped by the market divisions
was replaced by a much more risk-oriented approach.
This ensures that there is a balance between risk and re-
turn targets in the assessment, particularly in the case
of cyclical transactions. Overall, the measures implemented
have made a significant contribution to the further en-
hancement of the Bank’s risk culture and risk management.
organisation of risk management
The organisation of risk management at HSH Nordbank is
aligned with the requirements of the business model,
while at the same time taking regulatory requirements into
account.
The Management Board adopts the risk strategy of the
Bank on an annual basis as part of its overall responsibili-
ties. As a member of the Management Board, the Chief
1) Cf. Chapter “Organisation of default risk management”.
75
Risk Officer (CRO) is responsible for risk controlling, includ-
ing risk monitoring, as well as for the back office func-
tions of the Core Bank. He is responsible for the divisions
Group Risk Management, Credit Risk Management, Loan
and Collateral Management and Restructuring. The tasks
of the independent back office are integrated into each
of these divisions. Among the tasks of Credit Risk Manage-
ment are the preparation of the risk analysis, including
the determination of the internal rating and the drawing
up of the credit application as well as the structuring
of the processes and regulations for the lending business.
Since September 2010 the new separate division Re-
structuring has been responsible for restructuring cases
within the Core Bank. This function was previously as-
signed to Group Risk Management.
The member of the Management Board in charge of the
Restructuring Unit takes responsibility for the internal
winding down department, which has been set up from a
organisational and process-related perspective as a back-
office department. The Restructuring Unit decides whether
to wind down positions which have been transferred to
it. By the end of 2010, a second assessment had been made
here by Credit Risk Management on non-problem and
intensive care cases, in addition to the assessment made by
the Restructuring Unit independently of the market divi-
sions. Since the beginning of 2011, the relevant decisions
have in principle been made solely within the Restruc-
turing Unit under the dual control principle. The Restruc-
turing Unit processes and manages the restructuring
cases for positions for which it is responsible, mainly on
an independent basis.
The CRO and the board member responsible for the Re-
structuring Unit make decisions independently of the
members of the Management Board responsible for the
market or trading divisions. In this way the separation
of functions required under the regulatory rules between
the market and trading divisions on the one hand and
risk controlling, settlement and control as well as back
office activities on the other is taken into account at
all levels from an organisational perspective. The CRO pro-
vides the Management Board as well as the Risk Com-
mittee, a committee of the Supervisory Board, with infor-
mation on the risk situation of the Group.
Central risk controlling in Group Risk Management devel-
ops the methods and instruments for measuring, man-
aging and monitoring risks. In doing so, it ensures that the
material risks of the Group are transparent and manage-
able. Trading transactions are settled and controlled in the
Operations, Group Risk Management and IT divisions.
Active risk management for the Core Bank is performed in
particular in the market and trading divisions, which
are directly responsible for risks and profitability within the
scope of their business activities. At the same time the
risks are analysed and monitored decentrally by portfolio
managers at the level of the respective division.
The Restructuring Unit created in December 2009 is re-
sponsible for positions of business areas no longer consid-
ered strategic and special risk positions. Central respon-
sibility for the risk-oriented and loss-minimising winding
down of the Credit Investment Portfolio is also included
among its tasks.
In the year under review, the Management Board was
directly responsible for the management of the strategic
positions of the overall Bank, the management of the
risk-bearing capacity throughout the year and capital mea-
sures. At the beginning of 2011, the ongoing portfolio
management function was transferred to the newly formed
Asset Liability Committee. It comprises the Management
Board as well as the heads of the Group Treasury, Group
Risk Management and Finance divisions.
For lending decisions above a certain amount the vote of a
cross-division committee, which manages all the liqui-
dity outflows on the asset side required for the business, is
also taken into account. The composition of this com-
mittee was adjusted in February 2011, when the heads of
Group Risk Management, Group Treasury and Finance
became permanent members. The existing scope of the cri-
teria catalogue was also expanded, e. g. to include profit-
ability aspects.
Internal Audit reviews the effectiveness and appropriate-
ness of risk management and the internal control sys-
tem from a risk-oriented and process-independent perspec-
tive as well as the correctness in principle of all activities
risk report | group management report
hsh nordbank 201076
and processes. It includes the Core Bank, the Restructuring
Unit, outsourcing and equity holdings in its audit scope.
It plays an accompanying role in important projects while
maintaining its independence and avoiding any conflicts
of interest.
The Legal division monitors the legal risks of the Bank as
an independent department. The Compliance function
monitors compliance with the requirements of the Bank
with respect to securities compliance, anti money laun-
dering, financial sanctions and fraud prevention. The Com-
pliance reports to the Management Board on the results
of its control and monitoring activities on a semi-annual
basis and to the responsible committee of the Supervi-
sory Board on an annual basis.
Business segments are managed in line with worldwide
standards on the basis of a global head principle. In this
instance, the global heads – mainly heads of divisions –
are responsible on a worldwide basis for the manage-
ment of the business segments, administrative functions
and services assigned to them. The global head princi-
ple also applies to risk controlling to ensure that a Group-
wide coordinated risk controlling process is in place.
The Bank has stipulated rules under which formalised au-
dit processes are gone through prior to entering into
transactions in new products or new markets. This should
ensure that the products are properly considered under
risk aspects in the relevant systems and reflected in the rel-
evant processes and that such transactions are only
entered into with the approval of the Management Board.
As part of the Group-wide risk management process the
material subsidiaries are also taken into account in the
management and controlling of the individual risk types.
Internal Control System
restructuring of the Bank-wide internal control system
The Management Board of HSH Nordbank bears the overall
responsibility for ensuring that a correct business organ-
isation is in place at HSH Nordbank Group, including an
appropriate and effective internal control system (ICS).
As part of the improvement of the Bank’s business organi-
sation, restructuring of its ICS was begun in autumn
2009 as part of a Bank-wide project under the leadership of
the Chief Operating Officer and involving all divisions,
including the foreign branches. In this connection, a Bank-
wide main and sub-process structure (process map) was
specified and a member of staff responsible for the process
designated for all main processes. In addition, a so-called
ICS cycle was implemented, which is to be completed an-
nually, and includes the following levels: prioritisation
of the processes to be revised, updating of the process, risk
and control documentation, assessment of the appropri-
ateness and effectiveness of the controls, determination of
measures to be taken with regard to weaknesses identi-
fied in the controls and a final assessment after implemen-
tation of the measure. The top priority of this ICS assess-
ment is the structured and systematic examination of po-
tential or known weaknesses in processes together with
the definition of and the decision on measures to be taken
to eliminate them. The ICS cycle also ensures that sub-
sequent to the project’s completion the ICS is continuously
enhanced with respect to its correctness and functionality.
Clear roles and responsibilities were defined within the ICS
cycle to ensure that the tasks are performed in a proper
manner. These are, in particular, the members of staff re-
sponsible for the process, members of staff with line
responsibility, an ICS office and the ICS contacts in all divi-
sions. The members of staff responsible for the process
give the members of staff with line responsibility involved
in the process binding specifications for designing the
processes and controls and monitor adherence to these
specifications. The members of staff with line responsi-
bility design the process stage in their organisational unit
in accordance with the specifications and provide evi-
dence with regard to the appropriateness and effectiveness
of the ICS in the respective process stage. The ICS office
which is part of the Organisation division manages together
with the process advisers the steps to be taken in con-
nection with the cycle on the basis of a milestone plan.
It also monitors the operational performance of the
process responsibility by the respective member of staff
in charge and ensures a regular report for the Manage-
ment Board and the Supervisory Board. The ICS contacts
are the first points of contact with regard to ICS topics
in their divisions.
77
ICS regulations including the new roles and responsibili-
ties also affect the corporate culture of the Bank. They are
closely monitored by means of continuous communica-
tion and governance throughout the Bank in order to en-
sure that the system is functioning on a sustained basis.
The ICS expertise in the domestic and foreign divisions was
built up through a series of training measures so that
the tools for process management and ICS can be applied
on an independent basis in the individual divisions of
the Bank.
When transferring the main processes identified for the
Bank into the new ICS methodology, highest priority
is given to processes relating to the preparation of the con-
solidated and single-entity financial statements, the
management of requirements arising from the second loss
guarantee, management of the loan portfolios and /
or intensive care, liquidity management and risk manage-
ment. As part of the project, two thirds of the main
processes have already been re-designed in the year under
review and integrated into the process map. The num-
ber of the sub-processes processed per main process varies
between the main processes based on risk.
The milestones planned for 2010 were achieved for the
high priority processes in accordance with the ICS cycle.
Substantial progress was also made in numerous other
processes relating to the management of operational risk.
On completion of the project as at 31 December 2010,
the processes will continue to be transferred into the risk-
oriented ICS methodology as part of line organisation.
The rolling out of the ICS to selected subsidiaries and out-
sourced tasks is to be completed by the end of 2011. It
is also planned to further extend the linking of the ICS with
other risk management functions in the Bank, for exam-
ple through the joint classification of risks and determina-
tion of measures to be taken.
Internal control system with regard to the accounting process
The Finance division is responsible for the process of
preparing the consolidated and single-entity financial state-
ments and the correctness of the Group accounting
methods. The internal control system for the accounting
process should ensure compliance with the rules to be
applied and the generally accepted accounting principles.
This should create and maintain a quality standard
that ensures a true and fair view of net assets, financial
position and earnings situation. Furthermore, the
ICS makes a significant contribution to the effectiveness
of the accounting process by specifying uniform rules.
The organisation manual including all internal instructions
and regulations form the essential basis of the ICS.
As is the case with all defined ICS processes, the account-
ing process is reviewed on a regular basis. Of paramount
importance is the collection and allocation of material risks
and their inclusion in the risk relevant sub-processes. At
the same time, the process for preparing the consolidated
and single-entity financial statements is of high priority.
This complex main process consists of a number of sub-pro-
cesses. Accordingly, the number of control steps to be
carried out is comparatively high.
Under the leadership of the members of staff responsible
for the process and with the involvement of all mem-
bers of staff with line responsibility all existing controls
were included in the written documentation and addi-
tional controls required were defined and implemented.
Corresponding risk matrices were included in the docu-
mentation. The controls were assessed from a conceptual
perspective, whereby key controls were defined and re-
viewed as to their suitability for minimising risk and their
actual effectiveness. Furthermore, the extent to which
the controls were carried out in an appropriate manner was
reviewed and assessed. Based on the results, concrete
and binding measures were established where necessary
and have already been partially implemented in the
year under review. The remaining measures should be im-
plemented in the first half of 2011.
regulatory requirements
HSH Nordbank determines the amount of regulatory cap-
ital backing for default, market and operational risks
on the basis of the German Solvency Regulation (SolvV). In
this context, the so-called IRB Advanced Approach is
applied for default risk, for which the supervisory author-
ity has issued the relevant authorisation to the Bank.
Thus, the Bank applies the same parameters already being
used internally in risk management and default risk
management for regulatory reporting. The amounts allo-
risk report | group management report
hsh nordbank 201078
cated to market risk positions are determined in accordance
with the pre-defined or optional standard procedures.
Operational risk is taken into account under the standard
approach. All limits applicable in this respect were main-
tained at all times during the reporting year. 2) The changes
resulting from the Capital Requirements Directive (CRD)
II were implemented on time as at 31 December 2010. The
future requirements result-ing from Basel III are being
closely monitored as part of the involvement in bank ini-
tiatives.
In the year under review, the Bank completed implemen-
tation of the requirements that arose in 2009 from the
second MaRisk amendment. In December 2010, the Feder-
al Financial Supervisory Authority (BaFin) issued a new
version of MaRisk. The international regulatory guidelines
issued by the Committee of European Banking Super-
visors (CEBS, since 2011 EBA) and the Basel Committee on
Banking Supervision formed the essential basis for the
revision. The regulations on liquidity risk, risk-bearing ca-
pacity, stress tests and risk concentrations are particu-
larly affected by the changes. The Bank expects the new
requirements to be implemented in full by the end of
2011.
In accordance with the requirements of Section 26a of
the German Banking Act (KWG) and the German Solvency
Regulation respectively, we have been publishing report-
ing date material, qualitative and quantitative information
on equity capital, risks incurred, risk measurement pro-
cedures and risk management in a separate disclosure re-
port since 31 December 2008. As an institution that uses
the IRB Advanced Approach, particular requirements apply
to HSH Nordbank. The document provides more infor-
mation than statements made in this annual report on the
basis of the accounting principles applied, as it provides
comprehensive insight into the regulatory framework and
the current risk situation of the Bank based on regula-
tory figures. The reports are available on our website,
www.hsh-nordbank.de, under “Investor Relations”. With
the publication of the disclosure reports HSH Nord-
bank complies with the requirements of the third pillar
of Basel II (market discipline).
HSH Nordbank maintains a central data storage system,
which takes into account requirements of the German
Solvency Regulation, for the purposes of analysing, moni-
toring and reporting risks. In particular this includes the
provision of data and information for regulatory reporting
and disclosure under Basel II. Against the backdrop of
adjustments since made to methods and processes, an in-
spection audit was carried out by the supervisory author-
ity in the year under review.
risk-bearing capacity
HSH Nordbank has integrated a capital adequacy process
(ICAAP) into its risk management pursuant to MaRisk
in order to monitor and safeguard its risk-bearing capacity
on a sustained basis. Risk-bearing capacity is managed
in conjunction with equity capital and value added.
The economic capital required to cover unexpected losses
(overall risk) is regularly compared to the available
amount of economic risk coverage potential. This compar-
ison is made within an integrated limit system that
forms the basis of Group-wide economic risk limits on all
types of risk. HSH Nordbank analyses its risk-bearing
capacity comprehensively on a quarterly basis, as well as
within the framework of its annual planning process.
Economic risk coverage potential is determined using the
net asset value approach. In addition to equity capital
for economic purposes (including changes in the net asset
value) the net asset value approach takes into account,
amongst other things, unrealized gains and losses arising
on securities, equity holdings and the lending business
as well as effects from the second loss guarantee provided
by the Free and Hanseatic City of Hamburg and the Fed-
eral State of Schleswig-Holstein (total of economic mark-
ups / mark-downs).
Since the second quarter 2009, the risk coverage potential
has been reduced by the second loss guarantee provided
by the Free and Hanseatic City of Hamburg and the Federal
State of Schleswig-Holstein by the amount retained by
HSH Nordbank of € 3.2 billion. At the same time, the total
economic capital required for default risk has declined,
as no economic capital has been required since June 2009
for positions that fall under the guarantee.
2) Regulatory figures: cf. Chapter “Net assets and financial position”
79
The calculation of the risk-bearing capacity changed as at
31 December 2010. On the one hand total economic
mark-ups / mark-downs decreased by the deduction of de-
ferred taxes now carried out. On the other hand the
economic capital required for default risk has increased
due to the change in the recognition of concentration
parameters in the risk-bearing capacity.
Over the last five quarters, risk coverage potential devel-
oped as follows:
Economic risk coverage potential 31.12.09 31.3.10 30.6.10 30.9.10 31.12.10
¤ bn
Equity capital for economic purposes 12.9 13.0 13.0 13.0 12.9
Amount retained under guarantee transaction −3.2 −3.2 −3.2 −3.2 −3.2
Total economic mark-ups / mark-downs 1.2 1.8 1.2 2.4 1.0
Total 11.0 11.6 11.1 12.2 10.7
12.2
11.0 11.6
11.1
As at 31 December 2010, risk coverage potential amounted
to € 10.7 billion (previous year: € 11.0 billion). The re-
duction in the fourth quarter 2010 is mainly attributable
to the deduction of deferred taxes.
The risk tolerance of HSH Nordbank is determined as part
of the annual preparation of the risk strategy. Amongst
other things, this includes the level of the buffer between
the risk coverage potential and the maximum accepted
overall risk (global limit). The buffer serves to cover, in par-
ticular, risks resulting from special stress scenarios and
risks not yet quantifiable. The global limit is broken down
into limits for individual risk types within the frame-
work of the risk strategy.
The overall risk takes into account default risk, market risk,
operational risk as well as the liquidity maturity trans-
formation risk as an element of liquidity risk. Economic
capital required is an expression of unexpected losses
and is determined monthly for default, liquidity and mar-
ket risks in a methodical manner with a confidence level
of 99.9 % and a risk horizon of one year. In order to do so,
market risks are scaled up to this one year horizon based
on the daily value-at-risk. Operational risks are determined
in accordance with the standardised approach as defined
in the German Solvency Regulation (SolvV). The economic
capital requirements for the individual risk types are
aggregated to an overall economic risk. In doing so, no risk-
reducing correlations are utilised.
The following diagram shows the change in total economic
risk over the course of the last five quarters.
10.7
risk report | group management report
Economic capital required 31.12.09 31.3.10 30.6.10 30.9.10 31.12.10
¤ bn
Total 4.5 4.1 5.3 4.8 4.6
Default risk Market risk
Liquidity risk Operational risk
0.3
3.5
0.8
0.8
0.3
2.9
0.4
0.4
0.3
2.9
1.1
0.5
0.3
3.0
0.9
0.5
0.3
2.8
0.7
0.7
hsh nordbank 201080
In the case of losses arising from default risk, we make a
distinction between expected and unexpected loss. The
expected loss is equivalent to the default or loss in value
due to a change in credit rating, which is expected with-
in a year and is compensated for through the calculated
risk costs. The maximum amount by which an actual
loss can exceed the expected loss with a specified proba-
bility (99.9 %) within a specified time period (1 year) is
described as the unexpected loss. HSH Nordbank uses a
modified IRBA approach to determine the unexpected
loss, which is based, for example, on the analysis of the in-
dividual positions of subsidiaries classified as economi-
cally important and which waives the grandfathering pro-
vision regarding equity holdings. In addition to the
probability of default (PD) of the borrower, the relevant risk
parameters applied to this are the loss given default
(LGD) and the exposure at default (EaD). In addition to the
loan amount outstanding, the EaD also takes into ac-
count the expected drawdown on contingent liabilities and
commitments. The economic capital required for default
risk as at the reporting date amounted to € 3.0 billion (pre-
vious year: € 2.8 billion). Compared to 31 December
2009, the amount was up by € 0.1 billion mainly as a result
of the change in the recognition of concentration param-
eters and the stronger US dollar as compared to the end of
2009, while the continuing winding down of the risk
positions, a change in the LGD methodology implemented
in the second half of 2010 and an improvement in the
quality of the loan portfolio had offsetting effects. From
30 June 2009 onwards, the guarantee issued by the Free
and Hanseatic City of Hamburg and the Federal State of
Schleswig-Holstein has significantly eased the strain on
economic capital required.
In response to the liquidity shortage in the markets, HSH
Nordbank introduced a value-at-risk approach for quan-
tifying liquidity maturity transformation risk as early as at
the beginning of 2008. This long-term/structural liquid-
ity risk is an expression of the danger of increased refinanc-
ing costs on the open liquidity position. Compared to
the end of 2009, the liquidity value-at-risk (LVaR) decreased
by € 0.2 billion to € 0.5 billion. In particular, this devel-
opment reflects the decrease in liquidity gaps to be notion-
ally closed and partly the refinancing costs (volatilities)
which arise on closing out these gaps and which are deci-
sive for determining the LVaR. Insolvency risk, which
represents the more important aspect of liquidity risk in
general compared to the maturity transformation risk,
is backed by a buffer of liquid funds available at any time.
Information on managing the insolvency risk, amongst
other things, is included in the section “Liquidity risk”.
As part of the risk-bearing capacity concept, market risk
(value-at-risk), which is determined on a daily basis at
a confidence level of 99.0 % and a one day holding period,
is scaled up to show economic capital required for mar-
ket risk positions for purposes of managing risk-bearing
capacity with a confidence level of 99.9 % and a risk
horizon of one year. Since the end of March 2010, the cap-
ital requirements for the Core Bank’s portfolio and for
the Restructuring Unit’s positions have been determined
using a uniform liquidation horizon of 250 trading days.
In doing so, the diversification effects between the Core
Bank and the Restructuring Unit are taken into account
in such a way that the economic capital required for mar-
ket risk has sunk ceteris paribus in comparison to the end
of 2009. During the second quarter of 2010, however,
there was a significant increase in credit spread risk due to
the current debt crisis in some European countries. In
the third quarter of 2010, credit spread risks on securiti-
sation transactions were integrated into the daily VaR
measurement and thereby into the determination of eco-
nomic capital required. Since 2009, a monthly approxi-
mation calculation has been conducted to determine credit
spread risks. Compared to 31 December 2009, the eco-
nomic capital required for market risk increased in total by
€ 0.2 billion to € 0.9 billion as at 31 December 2010.
Operational risks are determined in accordance with the
standardised approach as defined in the German Solvency
Regulation (SolvV). The corresponding economic capital
required amounted to € 0.3 billion as at 31 December 2010
(previous year: € 0.3 billion).
As a result of the effects described above, overall economic
risk increased by € 0.1 billion compared to the end of
2009 and amounted to € 4.6 billion as at the reporting date
(previous year: € 4.5 billion). The utilisation of risk
coverage potential amounted to 44 % as at the reporting
date. The risk-bearing capacity was secured accordingly.
81
The following table shows the economic risk coverage
potential of the HSH Nordbank Group, the risk limits and
risk report | group management report
Risk-bearing capacity of the Group(¤ bn)
AbsoluteAs a % of the
risk coverage potential
2010 2009 2010 2009
Economic risk coverage potential 10.7 11.0 100 100
Risk limits
of which: Default risk 3.5 3.1 33 28
Market risk 2.2 1.5 21 13
Liquidity risk 0.8 0.8 7 7
Operational risk 0.3 0.3 3 2
Total 6.8 5.5 64 51
Economic capital required
of which: Default risk 3.0 2.9 28 26
Market risk 0.9 0.7 9 6
Liquidity risk 0.5 0.7 4 6
Operational risk 0.3 0.3 3 2
Total 4.6 4.5 44 41
Risk coverage potential buffer 6.0 6.5 56 59
the economic capital required for the individual risk
types and the remaining risk coverage potential buffer.
We regularly conduct a stress test across all risk types
in order to be in a better position to estimate the expected
effects of potential crises on the overall risk situation
of HSH Nordbank in addition to the assessment of the util-
isation of the risk coverage potential as at the report-
ing date. For this purpose, we simulate the increase in the
economic capital required that would arise on special
scenarios for default, market and liquidity risks, which as-
sume a massive deterioration in the risk parameters
compared to the current situation and consequently go
beyond the negative developments assumed within the
framework of the CEBS stress test carried out in June 2010.
The risk-bearing capacity of the Bank would have been
maintained during the financial year 2010, even in this
economic stress case.
Over time, the utilisation of the risk coverage potential
developed as follows:
Utilisation of risk coverage potential 31.12.09 31.3.10 30.6.10 30.9.10 31.12.10
¤ bn
in %
Normal Case 41 35 48 40 44
Stress Case 57 65 78 75 77
Utilisation (economic capital required)
Availability (economic risk coverage potential)
12
.2
11
.0 11
.6
11
.1
4.5
4.1
5.3
4.8
10
.74
.6
hsh nordbank 201082
HSH Nordbank uses recognised risk management instru-
ments for the management of both regulatory and
economic risk. For example, the Bank was one of the first
institutions to receive approval from the supervisory
authority to calculate the regulatory capital backing for
default risk on the basis of internally determined rat-
ings (so-called advanced IRB approach).
As part of the scenario analysis HSH Nordbank deter-
mines the changes in the risk parameters for the customer
lending portfolios. The PD and LGD are analysed for
the respective portfolios on the basis of market expecta-
tions specific to segments. Furthermore, the credit in-
vestment portfolio is reviewed by internal and external
experts on the basis of an analysis of carrying values,
market values and unrealised losses.
HSH Nordbank successfully participated in the EU-wide
regulatory stress test conducted by the CEBS – since
2011, the EBA – in the second quarter of 2010. As a result
of the economic downswing assumed in the stress
scenario in connection with a negative development of the
financial markets, HSH Nordbank would report a Tier 1
capital ratio (including market risk positions) of 9.9 % in
2011 – compared to 10.5 % established for the 2009
annual financial statement. An additional simulated in-
crease in the risk premium for government bonds would
affect the Tier 1 capital ratio by an additional 0.2 percent-
age points. HSH Nordbank thus considerably exceeds
the minimum value of 6 % required by CEBS, even in the
most severe scenario. Detailed results of the stress test
may be viewed on our website, www.hsh-nordbank.de, un-
der “Investor Relations”.
Default risk
In view of HSH Nordbank’s strong orientation towards the
lending business, entering into, managing and limiting
default risks are among the Bank’s core competencies. The
default risk is broken down into credit, country, equity
holding and settlement risk. In addition to the traditional
credit risk, credit risk also includes counterparty and issuer
risk. Settlement risk consists of clearing risk and ad-
vance performance risk. Clearing risk arises in the case of
possible loss of value if delivery or acceptance claims
pertaining to a transaction that is already due have not
been met by both parties. Advance performance risk
arises where the Bank has performed its contractual obliga-
tions but consideration from the contracting party is
still outstanding. All elements of default risk referred to are
taken into account within the context of the manage-
ment of equity capital. For risk concentrations (in particu-
lar at borrower / country level) and equity holding risks,
additional management measures are in place.
The organisation of and methods applied in default
risk management are being constantly improved in order
to reflect changes in market conditions and new regu-
latory requirements. The organisational and procedural
changes made during the reporting year, which have
led to a strengthening of back office functions, were al-
ready addressed in the chapter “Systematic enhance-
ment of the lending decision process”. Please refer to the
following chapter “Organisation of default risk man-
agement” for further details.
organisation of default risk management
The organisational structure of HSH Nordbank reflects the
functional separation of duties in the lending business
between market and back office departments and / or risk
controlling, also at Management Board level.
As part of the measures implemented by the Bank during
the financial market crisis, the previous lending pro-
cesses and structures of the loan divisions were subject to
an intensive analysis, which was developed into an
approach essentially based on risk. As a consequence, the
credit analysis, loan management and collateral man-
agement functions, which were previously assigned organ-
isationally to the market divisions, were integrated into
the back office.
Through the restructuring of the back office departments,
the tasks of Credit Risk Management have also changed
significantly. By assuming the task of credit analysis origi-
nally performed by the market divisions, the prepara-
tion and setting of the internal rating and the drafting of
the credit applications are now part of the tasks of risk
analysis. As a result, the independence of risk analysis from
83
the market divisions is further increased. Excluded from
this new structure is the risk analysis for the highly struc-
tured business of the Core Bank. This remains within
the market division, but the back office divisions are to be
closely involved. Furthermore, the organisation of the
processes and regulations for the lending business, includ-
ing the corresponding process responsibility, is among
the tasks of the Credit Risk Management division. Collat-
eral values are determined in the newly formed Loan
and Collateral Management division, the development and
operation of an early warning system and segment risk
analysis in the Group Risk Management division.
At the same time as the reorganisation of the back office,
new competence guidelines were established to reflect
the new structures. Lending decisions in the Core Bank are
made jointly by the market and back office departments.
Assessment and decision-making occur at the same time.
A decision contrary to that of the back office is not per-
mitted. In the restructuring division, lending decisions are
made under the dual control principle. The competence
levels are based on nominal amounts and the internal rat-
ing category.
HSH Nordbank makes use of the option to dispense with
the involvement of the back office within the meaning
of the MaRisk opening clause for lending transactions in
certain types of business and below certain amounts
classified as not important in terms of risk.
The principles and regulations contained in the Credit
Manual of HSH Nordbank, in particular on lending compe-
tencies, the determination of the rating, the treatment
of collateral and loan monitoring, form the basis of the op-
erating activities within the lending business. Credit
risks, which fall under the broader definition of the term
loan as set out in section 19 (1) of the German Banking
Act (KWG) are considered and treated differently based on
collateral, loan type, rating category and type of credit
risk. The basis is the Bank’s aggregate exposure per bor-
rower unit in accordance with Section 19 (2) of the
KWG, whereby the bearer of the economic risk is always
to be regarded as the relevant borrower.
The Bank has defined valuable collateral in order to differ-
entiate between collateralised and non-collateralised
loans. The focus is placed on meeting the requirements of
the German Solvency Regulation (SolvV) (e. g. availabil-
ity of a market value, realisation options, non-correlation
to the collateralised loan, legal enforceability, maturity
match). The range of approved collateral can be expanded
following an assessment carried out by a team indepen-
dent of the market divisions consisting of specialists from
the Credit Risk Management, Group Risk Management
and Legal divisions.
Credit risk management for single risks is supplemented
in particular by instructions on loan monitoring and early
identification of risks.
The Group Risk Management division is responsible for the
independent monitoring of risks at the portfolio level,
independent reporting and the management of country
risk for both the Core Bank and the Restructuring Unit.
As part of the introduction of a risk-oriented lending pro-
cess the organisational structure of the independent
portfolio management function within Group Risk Man-
agement was specified and a separate portfolio man-
agement unit established. For this purpose, the previous
monitoring unit was organisationally transferred from
the Credit Risk Management division into Group Risk Man-
agement. Portfolio management is responsible for ensur-
ing the transparency of the portfolio, independent segment
risk analysis and the operation of an early warning sys-
tem for identifying at an early stage borrowers that are be-
ginning to show signs of increased risk. In addition, the
Bank is planning to further expand portfolio management
with regard to processes, systems and instruments.
As part of the restructuring of the lending decision process,
an integrated market strategy and credit risk strategy
(IMKS) was developed in 2009 for the individual divisions
as a component of the consolidated credit risk strategy
for HSH Nordbank Group. The IMKS combines the assess-
ment of risks and opportunities in the respective mar-
kets. Furthermore, it defines a comprehensive, binding and
exclusive framework, within which lending business
may be carried out in the strategic business fields of the
Bank. Taking into account both market and risk per-
risk report | group management report
hsh nordbank 201084
spectives ensures that the guidelines for granting loans
(“credit standards”) are consistent with the developments
currently observed in the market and the position of
HSH Nordbank within this market. The Group Risk Man-
agement division coordinates the development of the
IMKS, in which the market divisions as well as the Corpo-
rate Development, Credit Risk Management and Group
Risk Management divisions are involved.
The expertise for winding down the portfolios is consoli-
dated in the Restructuring Unit, which was set up as
a back office unit from an organisational and processing
perspective. The Restructuring Unit makes the deci-
sion to reduce positions which are transferred to it. By the
end of 2010, a second assessment had been made here
by Credit Risk Management on non-problem and intensive
care cases in addition to the assessment of the Restruc-
turing Unit. Since the adjustment of the competence guide-
lines at the beginning of 2011, the relevant decisions
have been made solely based on the assessment of the Re-
structuring Unit under the dual control principle.
In principle, the Restructuring Unit processes and manages
restructuring cases for positions for which it is respon-
sible on an independent basis. Furthermore, it is respon-
sible for processing and decision-making on work-out
cases both for its own positions and those of the Core Bank.
The relevant subsidiaries – HSH Nordbank Securities S.A.,
HSH Real Estate AG and HSH Nordbank Private Bank-
ing S.A. – are especially included in the risk reporting in
order to ensure that default risk is controlled through-
out the Group.
Managing default risk
Default risks account for the major part of the risk poten-
tial of HSH Nordbank. The Bank has developed an
advanced range of instruments for their analysis, assess-
ment and proactive management.
The economic capital required for default risk has been re-
duced by the second loss guarantee issued by the Free
and Hanseatic City of Hamburg and the Federal State of
Schleswig-Holstein, as, since June 2009, there has been
no economic capital required for default risk for positions
that fall under the guarantee. HSH Nordbank manages
both the guaranteed and non-guaranteed portfolio in accor-
dance with regulatory and economic principles. For ex-
ample, the economic capital required for default risk on the
guaranteed positions without taking account of the
guarantee is additionally limited. The objective is to avoid,
if possible, a claim on the second loss guarantee provid-
ed by the Free and Hanseatic City of Hamburg and the Fed-
eral State of Schleswig-Holstein.
Default risk exposure
The loan amount outstanding represents the sum of loans,
securities, equity holdings, derivative financial instru-
ments and other off-balance sheet transactions such as irre-
vocable, undrawn loan commitments that are at risk.
The total loan amount outstanding was € 168,964 million
as at 31 December 2010.
The loan amount outstanding broken down by internal
rating categories is presented in the following table.
The loan amount outstanding with an investment grade
rating (rating category 1 [AAAA] to 5) accounts for
€ 97,514 million or 58 % of the total exposure (previous
year: € 129,438 million or 63 %).
Default risk structure by rating(¤ m)
Loan amount outstanding
2010 2009
1 (AAAA) to 1 (AA+) 35,733 48,675
1 (AA) to 1 (A-) 31,962 40,406
2 to 5 29,819 40,357
6 to 9 25,864 31,406
10 to 12 12,407 14,015
13 to 15 11,947 16,327
16 to 18 21,232 13,982
Total 168,964 205,168
With regard to the significant increase in the loan amount
in rating categories 16 to 18, it should be noted that
the rating methods applied by HSH Nordbank are based
solely on the probability of default and, particularly in
the case of asset financings, do not always permit a direct
indication of the actual risk content of the respective
financing. The increase in impaired loans from € 9.8 billion
85
at the end of 2009 to € 12.3 billion as at 31 December
2010 turned out to be considerably lower.
The loan amount outstanding broken down by sectors
important for the Bank is presented in the following table.
Default risk structure by sector(¤ m)
Loan amount outstanding
2010 2009
Industry 16,297 20,672
Shipping 33,330 34,941
Trade and transportation 11,141 13,092
Credit institutions 31,490 41,924
Other financial institutions 22,602 32,917
Land and buildings 24,141 26,799
Other services 11,259 12,896
Public sector 14,787 17,704
Private households 3,917 4,223
Total 168,964 205,168
The following table shows the loan amount outstanding
broken down by residual maturities:
Default risk structure by maturity(¤ m)
Loan amount outstanding
2010 2009
Up to 3 months 18,557 15,940
> 3 months to 6 months 5,925 8,906
> 6 months to 1 year 17,836 27,558
> 1 year to 5 years 69,023 81,123
> 5 years to 10 years 34,203 45,481
> 10 years 23,420 26,160
Total 168,964 205,168
rating procedure / LGD
HSH Nordbank collaborates intensively with other banks
in the initial and subsequent development and on-
going validation of various internal rating modules. This
is done in the association of Landesbanks via RSU
Rating Service Unit GmbH & Co. KG (RSU) and in coopera-
tion with Sparkassen Rating und Risikosysteme GmbH
(S Rating), a subsidiary of the German Savings Bank Asso-
ciation (DSGV).
The RSU is responsible for new development, consistent
updating and further development of the rating sys-
tems in accordance with the regulatory quality require-
ments and for the operation of the rating modules in
a standard IT environment. The RSU is supported in meth-
odology and expertise by specialists from the partici-
pating banks. In addition to the rating modules supported
by the RSU, HSH Nordbank also uses rating systems
that are provided, maintained and enhanced by S Rating.
HSH Nordbank is in charge of the shipping, leasing, lever-
aged finance and, since the start of 2011, aircraft financ-
ing rating modules. It is also jointly responsible for the in-
ternational real estate as well as the country and transfer
risk rating modules.
As part of the validation process the predictive accuracy
of the rating modules was reviewed in the year under
review with regard to the predicted probabilities of default
using anonymous, pooled data of the user group.
In order to determine the expected drawdown for contin-
gent liabilities and commitments in case of possible
default, so-called credit conversion factors (CCF) are calcu-
lated empirically and applied. The loan amount out-
standing weighted by CCF is described as exposure at de-
fault (EaD). HSH Nordbank has developed a differen-
tiated LGD methodology for lending and trading trans-
actions to forecast the loss given default for all business
divisions. Item-specific collateral recovery rates and
borrower-specific recovery rates are estimated based on his-
toric loss information. The respective default amount
is determined from the EaD using the LGD. The LGD and
CCF methods are reviewed and continually refined
in the RSU user group and under the leadership of HSH
Nordbank as part of the annual validation process.
The bank, corporates, international sub-sovereigns,
country and transfer risk, insurance companies, leveraged
finance, leasing and funds rating modules used by HSH
Nordbank, as well as the standard rating used for smaller
domestic corporate clients, are based on so-called score-
card methods. Within the framework of different scorecard
approaches, quantitative and qualitative characteristics
and factors are identified and, according to these, borrow-
risk report | group management report
hsh nordbank 201086
ers can be assigned to different rating categories. The
scorecard approach can be used only if there is a sufficient
number of relatively homogenous borrowers.
As this precondition is often not met with regard to spe-
cial lending, simulation techniques are usually used
in this case. For example, special lending in the shipping,
real estate, projects and aircraft areas are assessed with
the help of cash flow simulation models. Revenues from
the object financed represent the primary source for
reducing the liability. The cash flow of the object is simu-
lated using scenarios with different macroeconomic
and industry-specific conditions that simulate the future
development of factors such as rents, vacancy rates
and charter rates. The result is an individual probability of
default for each borrower and hence an allocation to a
concrete rating category.
The Bank uses an identical rating master scale for all
modules which not only allows comparison of differing
portfolio segments but also mapping with external rat-
ings. The internal guidelines are adapted continuously to
new methodological developments and validations.
The Bank aims to apply the methods newly developed and
refined according to Basel II, not only to determine the
regulatory economic capital required but also to integrate
them completely at an early stage in the internal manage-
ment system. Thus, all parameters connected to Basel II
form the basis for an integrative approach to overall bank
management and risk management at HSH Nordbank.
For example, the corresponding risk parameters are used
for pricing and are reflected in the determination of the
competence guidelines. In addition they are incorporated
in the system for integrated risk limitation and the plan-
ning and strategy process.
Management of default risk in pricing and actual costing
HSH Nordbank applies a uniform method across the Bank
for the pricing of lending transactions through calcu-
lating the present value of the expected and unexpected
losses arising on default risk positions taking into ac-
count, where necessary, any currency transfer risk. This
calculation reflects the overall contribution margin
formula up to the value added after capital costs or tax
effects. The rating, LGD and CCF risk parameters deter-
mined internally on an individual transaction basis are in-
corporated in the pricing. In the same way, an actual
costing (profit centre accounting) is made for all transac-
tions on a monthly basis. Based on the current risk para-
meters of the individual transactions, costs and the result-
ant value added are determined.
Stress tests
HSH Nordbank carries out regular stress tests to determine
the economic capital required for default risk. For this,
the risk parameters used to calculate the economic capital
required are varied, e. g. by changing the expected prob-
ability of default and the default ratios. An assessment is
made as to whether the budgeted risk limit for the de-
fault risks is still adhered to given the specific stress scenar-
ios. The same stress tests are applied to the regulatory
capital required to meet the requirements under the Ger-
man Solvency Regulation (SolvV).
risk concentrations
Effective limitation of risk concentrations is necessary for
economic reasons, as well as from a regulatory perspec-
tive. Corresponding limits for economic capital are set in
order to effectively manage and monitor risk concentra-
tions at the borrower level (borrower entities) and country
level. Limits are also applied to high risk countries,
which are described in the “Country risk” section. Limits
were derived from the risk coverage potential, taking
into account portfolio granularity. At least once a year, the
limits are reviewed on the basis of risk bearing capacity
and set by the Management Board in line with the Bank’s
risk strategy. The decision on each new lending trans-
action which could result in a limit being exceeded is made
by the Management Board. The Management Board
and the Risk Committee are informed in the quarterly risk
report of all cases where a limit has been exceeded on
new and existing lending transactions and of the status of
the key measures introduced.
Risk concentrations with respect to sectors and rating
categories are monitored in the framework of an integrat-
ed limit system. This enables early identification of
adverse developments and the implementation of relevant
countermeasures.
87
Additional limits for risk concentration are set at the level
of regulatory borrower entities (in accordance with Sec-
tion 19 [2] KWG) as part of the internal large risk manage-
ment. The large risk management procedure ensures
compliance with the regulatory limits for large exposures
at both HSH Nordbank AG and the HSH Nordbank
Group level and places the Bank in a position to identify
large exposures at an early stage, which could exceed
the applicable limit after taking account of the amounts
to be applied to it, and to introduce countermeasures
before they actually occur. In addition, there are limits
on classic lending and trading transactions.
Country risk
HSH Nordbank understands country risk as the risk that
agreed payments are not made or only made in part or
delayed due to government imposed restrictions on cross-
border payments (transfer risk). The risk is not related
to the debtor’s credit rating.
Country risk limitation is an additional management
dimension within the management of risk concentrations.
The risks involved in foreign lending activity are man-
aged using the economic capital required. Among other
things, the rating and the LGD of the specific economic
risk country are included in the country risk measurement
as the main risk drivers. Country ratings and country
LGDs are based on a methodology that was developed as
part of the joint project of the Landesbanks and the RSU.
In addition, portfolio granularity is taken into account in
order to provide a true portrayal of cluster effects.
The risk concentrations for all countries at Group level are
limited in principle by the country limits for economic
capital required as derived from the risk-bearing capacity.
In addition, limits at global head level are set by the
Management Board based on the strategic importance of
countries where the Bank conducts its core activities.
Utilisation of the limits is monitored continuously by the
country risk management.
The “Country exposure by region” table provides an over-
view of the breakdown of country exposure by region,
which reached € 96,187 million as at 31 December 2010
(previous year: € 111,887 million). Country exposure is
defined as the nominal exposure on lending and trading
transactions taking into account collateral relevant to
transfer risk. The item “Other” includes e. g. ABS and funds
that cannot be clearly allocated to a country or region.
Country exposure by region(¤ m)
Loan amount outstanding
2010 2009
Western Europe 53,867 61,160
of which: Eurozone countries 26,469 29,713
Central and Eastern Europe 2,805 3,464
of which: Eurozone countries 138 249
Africa 2,039 1,665
North America 21,767 25,274
Latin America 2,950 3,346
Middle East 969 845
Asia-Pacific region 10,803 14,927
International organisations 212 76
Other 775 1,130
Total 96,187 111,887
In view of the global financial crisis, country risk man-
agement has identified high risk countries which are likely
to be particularly affected by the negative macroeco-
nomic effects of the crisis. Narrow limits have been set for
these high risk countries and are monitored continu-
ously. The country risk concept for these limits comprises
all country risks and thus goes beyond observation of
the transfer risk described above. Because of the deteriora-
tion in their fiscal data, a number of countries in the
eurozone are subject to increased monitoring. Since 2009,
additional limits have been established for this pur-
pose, which at the end of 2010 affect Ireland, Greece, Por-
tugal and Spain and since January 2011 also Italy and
Belgium.
The loan amount outstanding on sovereign loans in the
countries Belgium, Greece, Ireland, Italy, Portugal
and Spain totalled € 1,921 million as at 31 December 2010.
risk report | group management report
hsh nordbank 201088
Sovereign loans to selected eurocountries(¤ m)
Loan amount outstanding
2010 2009
Portugal 165 129
Ireland 0 0
Italy 855 848
Greece 295 319
Spain 249 244
Belgium 357 317
Total 1,921 1,857
equity holding risk
The equity holding risk is the danger of financial loss due
to impairment of equity holdings.
The regulatory authorities state that equity holdings must
be consolidated, deducted from equity capital or backed
with equity capital in the exposure class ‘equity claims’. In
this context, regulatory law considers equity holdings
risk to be a sub-category of the default risk. The risks and
opportunities associated with an equity holding are
analysed extensively prior to the conclusion of the trans-
action. Equity holdings are only acquired if they meet
the strategic objectives of the Bank.
A regular company valuation represents an important
instrument for monitoring and managing equity holding
risk. At least once a year, impairment tests are performed
on all direct equity holdings and the relevant indirect
equity holdings of HSH Nordbank. Important equity hold-
ings are subject to a detailed valuation using the rele-
vant standards of the Institute of Public Auditors in Ger-
many (IDW). All other equity holdings undergo a risk-
oriented assessment.
Furthermore, all equity holdings in the portfolio are anal-
ysed once a year. The identification of potential risks
in the individual companies is the focus of this analysis.
Measures are derived from the analysis in order to be
able to actively counter the identified risks.
Regular reporting on business development and the eco-
nomic situation of the companies is performed in terms
of significance for the Bank at varying intervals and levels
of detail. Moreover, the articles and memoranda of asso-
ciation are formulated so as to ensure that the most inten-
sive management possible can be exercised for the bene-
fit of HSH Nordbank. In the case of particularly important
companies, the creation of supervisory bodies with repre-
sentatives of the Bank as members is of particular interest.
Loan loss provisions
As regards risk management, the Bank pays the most
attention to default risk. The credit risk relating to a bor-
rower is shielded through the creation of individual
valuation allowances for loans and advances and provi-
sions for contingent liabilities in the amount of the
potential loss in accordance with Group-wide standards.
The Bank also creates portfolio valuation allowances
for groups of financial assets with a comparable risk pro-
file. Default risk, which has already been incurred at
the reporting date but is not yet known to the Bank, is
thereby covered under the Basel II criteria.
In addition to work-out cases, restructuring loans are also
included under problem loans. In the case of problem
loans the IFRS carrying amount of the receivable less the
net present value of all payments still expected to be
received forms the basis of the amount of any loan loss pro-
vision. The expected incoming payments comprise in
particular all expected interest and redemption payments,
as well as payments from the liquidation of collateral.
At the same time, the collateral is revalued in each case.
The Bank’s experience in realising collateral and appropri-
ate individual risk haircuts are taken into account in
revaluing the collateral. The suitability of the loan loss pro-
vision is monitored continuously as part of the problem
loan processing. The loan loss provisions to be expected for
the financial year are determined on an ongoing basis
and reported to the Management Board on a quarterly ba-
sis. In the year under review, the loan loss provisioning
process was aligned to the organisational and processing
structure of the risk function within the framework of
the introduction of the risk-oriented credit process.
In 2010, the general stabilisation of the global economy
had a positive effect on the loan loss provisions and
the quality of our loan portfolios. Since the movement in
the loan loss provisions was characterised up to end
of 2009 by high net additions due to the financial and eco-
nomic crisis, a significantly reduced net change has
89
been evident since the beginning of 2010 as a result of the
economic recovery. This also specifically applies to the
shipping markets, which are of particular importance to
HSH Nordbank. The following table provides an over-
view of “Changes in loan loss provisions”.
risk report | group management report
Changes in loan loss provisionsin the lending business(¤ m)
1.1. – 31.12.2010 1.1. – 31.12.2009
Individual valuation
allowances / provisions
Portfolio valuation
allowances Total
Individual valuation
allowances / provisions
Portfolio valuation
allowances Total
Sector Specialist Bank 60 −33 27 −499 −214 −713
Regional Bank −201 53 −148 −144 9 −135
Other 15 34 49 7 18 25
Consolidation Core Bank 1 165 166 −12 −18 −30
Total Core Bank −125 219 94 −648 −205 −853
Restructuring Unit −786 421 −365 −1,670 −271 −1,941
Consolidation Restructuring Unit 0 142 142 0 0 0
Total Restructuring Unit −786 563 −223 −1,670 −271 −1,941
Group −911 782 −129 −2,318 −476 −2,794
At Group level, net additions to loan loss provisions
amounted to € − 129 million in the year under review (pre-
vious year: € − 2,794 million). There were relatively
high additions in the Restructuring Unit and particularly
in the Corporate Clients, Transport and Energy depart-
ments of the Core Bank. Against the backdrop of the market
recovery, releases of loan loss provisions were mainly
made in the Shipping division. € 318 million of the releases
of € 782 million of portfolio valuation allowances is
attributable to the balance sheet hedging effect of the sec-
ond loss guarantee, which occurred for the first time
as at 31 December 2010 and is not linked to a drawdown
under the guarantee and an obligation of the guaran-
tor. In view of the stable economic situation, we are there-
fore anticipating the loan loss provisions for 2011 will
continue to decline. Detailed information regarding devel-
opments within individual business areas as well as
our expectations for the 2011 calendar year are presented
in the chapters entitled “Segment report” and “Outlook” in
this Group management report.
The individual elements of loan loss provisions are shown
in the “Total loan loss provisions” table below:
Total loan loss provisions (¤ m) 31.12.2010 31.12.2009
Loans and advances to customers 102,858 110,557
Loans and advances to banks 10,438 15,541
Volume of impaired loans 12,282 9,819
Individual valuation allowances for loans and advances to customers −3,890 −3,165
Portfolio valuation allowances for loans and advances to customers −539 −1,183
Individual valuation allowances for loans and advances to banks −191 −363
Portfolio valuation allowances for loans and advances to banks −3 −7
Loan loss provisions for balance sheet items −4,623 −4,718
Provisions for individual risks in the lending business −362 −523
Provisions for portfolio risks in the lending business −77 −140
Loan loss provisions for off-balance sheet items −439 −663
Total loan loss provisions −5,062 −5,381
hsh nordbank 201090
The loss rate in the Group amounted to 0.31 % in the year
under review (previous year: 0.26 %). The loss rate is
calculated based on the actual amounts in default as a ratio
of the credit risk exposure. The total amount in default
in 2010 was: € 494 million (previous year: € 496 million)
and the credit risk exposure € 161,575 million (previous
year: € 190,296 million). The total of the actual amounts
in default is calculated from the utilisation of the individ-
ual valuation allowances deducted from the asset side in
the amount of € 507 million (previous year: € 461 mil-
lion), the utilisation of the provisions for the lending busi-
ness of € 2.0 million (previous year: € 6.0 million) as
well as of the direct write-downs made during the finan-
cial year in the amount of € 67 million (previous year:
€ 70 million), less recoveries on loans and advances previ-
ously written off in the amount of € 82 million (previ-
ous year: € 40 million). The credit risk exposure includes
all balance sheet and off-balance sheet assets, taking
account of the loan loss provision as an individual and port-
folio valuation allowance for loans and advances to
customers and banks that are subject to default risk. Total
loan loss provisions for the Group amounted to € − 5,062
million as at 31 December 2010 (previous year: € − 5,381
million).
Total specific loan loss provisions amounted to € − 4,443
million (previous year: € − 4,051 million), compris-
ing individual valuation allowances of € − 4,081 million
(previous year: € − 3,528 million) for loans and ad-
vances to banks and customers, € − 350 million (previous
year: € − 383 million) for contingent liabilities and
irrevocable loan commitments and € − 12 million (previ-
ous year: € − 140 million) for other off-balance sheet
transactions. The changes in the amounts are partly relat-
ed to currency factors.
The portfolio loan loss provisions totalled € − 619 million
(previous year: € − 1,330 million) and were composed
of portfolio valuation allowances of € − 542 million (previ-
ous year: € − 1,190 million) for loans and advances to
banks and customers and € − 77 million (previous year:
€ − 140 million) for contingent liabilities and irrevoca-
ble loan commitments.
Details regarding the total loan loss provisions are pre-
sented in notes 10, 26 and 42. Details on the credit risk
exposure are set out in note 56.
Market risk
Market risk represents the potential loss that can arise as
a result of adverse changes in market values on posi-
tions held in our trading and banking book. Market move-
ments relevant to the Bank are changes in interest rates
and credit spreads (interest rate risk), exchange rates (for-
eign exchange risk), stock prices, indices and fund
prices (equity risk) as well commodity prices (commodity
risk) including their volatilities.
organisation of market risk management
The Management Board determines the methods and pro-
cesses for measuring, limiting and steering market
risk and budgets for an overall global limit percentage for
market risks. Against the background of this upper
loss limit, the risks of all business bearing market risk are
limited by a dynamic system of loss and risk limits.
Market risk is actively managed directly in the Capital
Markets Structuring & Trading and Group Treasury divi-
sions. The Management Board was directly responsible
in the year under review for selected, strategic positions. At
the beginning of 2011, this overriding portfolio man-
agement function was transferred to the newly formed As-
set Liability Committee. The market positions of the
Restructuring Unit are also restricted through limits and
monitored on a daily basis. Daily market risk reports
regularly keep the Management Board and the trading divi-
sions informed on the extent of existing market risks
and current utilisation of limits.
An organisational division between market risk control-
ling, settlement and control on the one hand and the
trading divisions responsible for the positions on the oth-
er is ensured at all levels in accordance with MaRisk.
All major methodological and operative tasks for risk mea-
surement and monitoring are consolidated in the Group
Risk Management division.
91
Settlement and control, financial controlling and risk con-
trolling for the Core Bank and the Restructuring Unit
are managed by the corresponding divisions of the overall
bank. The Restructuring Unit processes the positions
allocated to it from the capital markets and credit invest-
ment businesses.
HSH Nordbank Securities S.A. was identified as a subsid-
iary to be included within the Group-wide market risk
management. Risk limits are set and risks monitored cen-
trally by HSH Nordbank AG.
Market risk management
Market risk measurement and limitation
Our system for measuring and managing market risk is
based, on the one hand, on the economic daily profit and
loss and on the other, on a a value-at-risk (VaR) ap-
proach. The economic profit and loss is calculated from
change in present values compared to the end of the
previous year. The market risk of a position represents the
loss in value (in euro) which will not be exceeded until
the position is hedged or realised within a predetermined
period with a predetermined probability.
The VaR is determined by the Bank using the historical
simulation method. It is calculated for the entire Group
based on a confidence level of 99.0 % and a holding
period of one day for a historical observation period of 250
equally weighted trading days.
The main market risks at HSH Nordbank are interest
rate risk (including credit spread risk) and foreign exchange
risk. In addition to these risk types, the VaR of HSH
Nordbank also covers equity and commodity risk for both
the trading book and the banking book. The individual
market risk types are not restricted by separate limits. Limi-
tation is applied within the VaR limit for the overall
market risk of the Bank. Limits are set for the VaR for the
different reporting entities for the purposes of man-
aging market risk, whereas losses incurred are restricted
through stop loss limits. There are clearly defined pro-
cesses for limit adjustment and breach.
Where necessary, HSH Nordbank enters into hedging
transactions to manage or reduce market risk in order to
offset the impact of unfavourable market movements
(e. g. with regard to interest rates, exchange rates) on its
own positions. Derivative financial instruments in par-
ticular, such as interest rate swaps, are used as hedging
instruments.
Market risks arising from the lending business and liabili-
ties of the Bank are transferred to the trading divisions
and taken into account in the corresponding risk positions.
There they are managed as part of a proactive portfolio
management and hedged through external transactions.
Market risk measurement enhanced
In the year under review, the risk measurement for credit
spread risk was enhanced to complement the existing
VaR methodology. The credit spread of a bond is a premi-
um payable for the default risk of an issuer. The credit
spread risk represents the risk that the value of a position
will rise or fall due to a change in the spread. During
the third quarter of 2010, credit spread risk on securitisa-
tion transactions, for which an approximate monthly
calculation had been made since the end of 2009, was inte-
grated into the daily VaR measurement and thus into
the determination of economic capital required. Further-
more, the risk measurement for government bonds
and Pfandbriefe was refined in June 2010. Differentiated
spread curves are now applied in the calculation of
the VaR and the profit and loss by country or collateral
category respectively.
As part of the regular process for identifying basis risk,
the Bank again analysed the overall portfolio in the year
under review with regard to importance for the Bank.
No significant changes were identified compared to the
previous year. The swap positions in particular contain
interest rate basis risk. The interest rate basis risk is defined
as the potential loss of value that results from differ-
ent payment frequencies and / or reference interest rates on
the variable side of swaps. As part of the integration of
interest rate basis risk into the daily measurement of mar-
ket risk, the remaining professional work for the sec-
ondary currencies of HSH Nordbank (DKK, SEK) was com-
pleted in the reporting year. Technical implementation
is planned for 2011.
risk report | group management report
hsh nordbank 201092
At the end of 2010, work was commenced to incorporate
into the internal management process the fair value
adjustments (FVA), which have been calculated for finan-
cial statement purposes for several years. As a first
step, the change in counterparty default adjustments, i. e.
the measurement of counterparty risk on derivatives,
was included in the calculation of the economic profit and
loss. Other types of FVA are to follow in 2011.
Since the end of the year under review, we have also been
measuring the market risk that arises on derivative
positions from the change in the market’s assessment of
the creditworthiness of the counterparties. This is par-
ticularly relevant for very positive market values on deriva-
tives. An appropriate measurement method was estab-
lished in the course of the year 2010.
The incorporation into the market risk calculation of so-
called smiles for volatilities is planned for 2011. For
ease of simplification volatilities independent of the inter-
est rate strike price have been assumed up to now for
the risk calculation. The calculation will be based on vola-
tility surfaces in the future. The improvement of the
consideration of the right to cancel bonds in the market
risk systems is an additional focus of the enhancement
measures.
The VaR model used and constantly enhanced by the
Bank contains all of the Bank’s significant market risks in
an adequate form.
Daily value-at-risk in the year under review
The following chart illustrates the movement in the daily
value-at-risk for the total trading and banking book
positions of HSH Nordbank over the course of 2010. Mar-
ket risk fluctuated between € 19 million and € 65 mil-
lion with the value-at-risk of the trading book positions
amounting to € 4 million as at 31 December 2010,
while that of the banking book transactions amounted to
€ 42 million. On the last trading day in 2010, the total
VaR of the Bank amounted to € 43 million, while the VaR
limit for restricting market risk amounted to € 80 mil-
lion. The utilisation of the limit was therefore 54 %. As part
of the risk-bearing capacity management, the VaR is
scaled up to the amount of € 0.9 billion in the framework
of aggregating the individual risk types to the overall
risk.
Daily value-at-risk in the course of 2010
¤ m
70
60
50
40
30
20
10
0
1/10 2/10 3/10 4/10 5/10 6/10 7/10 8/10 9/10 10/10 11/10 12/10
Maximum
Minimum
Integration phase credit spread risks from
securitisation transactions 9 to 16 August 2010
Average
Daily
93
In addition to the decline in trading activities, the decrease
in interest rate risk was a methodological result of the
elimination of data for the corresponding period in the pre-
vious year from the historical observations for the last
250 trading days, as well as of lower market volatility.
In the period from February to April 2010, the foreign
exchange risk for special repo transactions was exaggerated
at times due to technical reporting errors in the relevant
risk measurement system. Foreign exchange risk has again
been determined correctly since 24 April 2010.
As part of the further enhancement of the methodology,
the integration of credit spread risks from securitisation
transactions – for which a monthly approximation cal-
culation has been conducted since the end of 2009 – into
the daily VaR measurement began on 9 August 2010.
The significant increase in the credit spread risk resulting
from this, and therefore also the overall market risk,
decreased when the integration terminated on 16 August
2010.
In addition, since the third quarter, the foreign exchange
risk from unrealised losses on ABS has been initially
taken into account by the improved valuation of ABS in
the risk measurement systems. As a result of this, there
may be a noticeable increase in the measured foreign ex-
change risk in the Restructuring Unit. Foreign currencies
are not explicitly hedged, as the Bank does not expect
any actual losses from these unrealised losses and therefore
no foreign exchange risk exists from a long-term per-
spective. For this reason these foreign exchange risks have
not been considered up to now. These risks have now
been integrated into the measurement process in terms of
a uniform measurement of market risk.
At the beginning of December 2010, improvements were
made to the measurement of credit spread risk on sec-
uritisation transactions and of foreign exchange risk. On an
overall basis, this resulted in a significant reduction in
the overall market risk.
The “Daily value-at-risk” table shows the value-at-risk
for the total trading and banking book positions. The max-
imum and minimum represent the range over which
the respective risk amount moved in the course of the year
under review. The overall risk is determined by aggre-
gating the individual types of market risk. The market risk
of the Group is determined in full in HSH Nordbank
AG, taking account of the Group-wide correlations. Market
risk arising on derivative transactions is included in
the amounts disclosed. The volatility risk arising on the
option positions is also included here.
Daily value-at-risk of the Group(¤ m)
Interest rate risk *) Credit spread risk *) Foreign exchange risk
2010 2009 2010 2009 2010 2009
Average 10.0 33.7 28.7 27.0 12.7 20.6
Maximum 25.9 47.8 45.9 40.0 32.2 47.3
Minimum 6.7 20.7 21.1 20.7 1.9 2.2
Period end amount 9.2 25.4 38.6 21.3 10.2 2.3
*) Credit spread risk is a sub-type of interest rate risk. It is not disclosed as part of interest rate risk but as a separate item due to its significance to HSH Nordbank.
Daily value-at-risk of the Group(¤ m)
Equity risk Commodity risk Market risk (aggregated)3)
2010 2009 2010 2009 2010 2009
Average 3.2 5.3 0.2 0.3 37.3 49.8
Maximum 4.9 9.9 1.2 1.7 65.2 74.8
Minimum 2.5 2.6 0.1 0.0 18.7 27.2
Period end amount 3.3 2.7 0.2 0.2 43.3 29.9
risk report | group management report
3) The value-at-risk does not add up due to correlations.
hsh nordbank 201094
¤ m
20
10
0
−10
−20
VaR Daily profit and loss
1/10 2/10 3/10 4/10 5/10 6/10 7/10 8/10 9/09 10/09 11/10 12/10
A contribution to profit of € 17 million was generated in
May 2010 through share arbitrage transactions across an-
nual general meeting dates.
Stress tests
In addition to the limit-based management of the daily
VaR, at least weekly stress tests are performed that analyse
the effects of unusual market fluctuations on the pres-
ent value of the Bank’s positions. In doing so, we vary our
stress scenarios based on the risks specific to the econo-
my, the Bank and the Bank’s portfolios.
We differentiate between historical/standardised and hypo-
thetical stress scenarios on the one hand and risk-type
specific and risk-type overlapping stress scenarios on the
other. While the historical / standardised scenarios are
constant and take into account correlations that actually
occurred in the past in the case of risk-type overlapping
stress tests, the hypothetical scenarios represent notional
changes in the risk factors.
As part of the risk stress test a change in the risk factors
is simulated under extremely unusual market conditions,
e. g. by shifting or rotating the interest rate curve in the
interest rate risk stress test. For special analyses of the inter-
est rate risk of our banking book positions, we contin-
ually determine change in present value on interest rate
shocks of +130 and − 190 basis points. In doing so, we
fulfill the supervisory requirements for the determination
of the effects of a sudden and unexpected interest rate
The market risk that arises on derivative positions from the
change in the market’s assessment of the creditworthi-
ness of the counterparties amounted to € 8.3 million as at
the reporting date. This risk is not included in the value-
at-risk amounts disclosed for the Group.
Backtesting
The Bank performs daily backtests to verify the appropri-
ateness of our VaR forecasts. On the assumption of
unchanged positions, the daily profit and loss achieved in
theory due to the market developments observed are
compared with the VaR values of the previous day, which
were forecasted using historical simulation. Based on
the assumption of the confidence level of 99 % applied by
the Bank, up to four outliers indicate that the forecast-
ing quality for market risks is satisfactory. With a total of
four outliers in the year under review, the market risk
model of the Bank is validated accordingly. The results of
backtesting are taken into account in the ongoing devel-
opment of our VaR methodology.
The following chart shows the daily value-at-risk and the
actual daily profit and loss for the trading book positions
of the Core Bank over the course of the year:
95
change to positions held in the banking book. At the end
of 2010 the negative interest rate shock with a potential
loss of € − 226 million represented the most unfavourable
scenario for the Bank.
The potential loss under the scenario of an extreme in-
crease in credit spreads amounted to € − 514 million as at
31 December 2010. In this stress test the spread curves
are shifted according to their rating category. Spread shifts
of between +30 (AAA rating) and +1,500 basis points
(CCC rating) are applied to the curves.
At the end of 2010, the potential loss under the scenario
of a negative movement in exchange rates amounted
to € − 68.9 million. The following shifts in exchange rates
were taken into account in determining the change in
present value: USD − 9 %, GBP − 8 %, JPY − 16 % and − 9 %
for the currencies of the remaining industrialised coun-
tries and − 15 % for other currencies. The movement in the
US dollar is the significant factor influencing the result
of the stress test, as only smaller positions are held in other
currencies.
Furthermore separate stress tests are performed for curren-
cies, securities, commodities and volatilities, whereby
standard shifts are used as a basis for the respective posi-
tions.
Liquidity risk
HSH Nordbank divides its liquidity risk into insolvency risk
and liquidity maturity transformation risk. The insol-
vency risk refers to the danger of the Bank not being able
to meet its own payment obligations or refinancing
requirements as they fall due, or not to the extent desired.
Liquidity maturity transformation risk refers to the
risk that a loss will result from a mismatch in the contrac-
tual maturities of assets and liabilities, the so-called
liquidity maturity transformation position, and from the
change in the Bank’s refinancing surcharge. Liquidity
maturity transformation risk is also a component of our
risk-bearing capacity concept. The Bank uses various in-
struments to measure, manage and limit its liquidity risk.
organisation of liquidity risk management
Liquidity management is the responsibility of the Group
Treasury division which assumes this task as a cross-
divisional banking function. The splitting of the Bank into
a Core Bank and a Restructuring Unit has no impact
on the management of liquidity risk. The individual divi-
sions within the Restructuring Unit are integrated into
the processes and methods for managing liquidity risk in
the same way as are all relevant divisions in the Core
Bank. The objective of liquidity management is to ensure
the solvency of the Bank at all times, in all locations
and in all currencies. Group Treasury is also responsible for
funding and marketing.
The Group Risk Management division is responsible for the
methods used to measure and limit liquidity risk within
the Group. In addition it measures risk and monitors limits
as part of the daily reporting of liquidity risk. This sup-
ports Group Treasury in managing liquidity for all time
buckets and enables it to counter possible risks at an
early stage.
HSH Nordbank Securities S.A. as well as, since the end of
2010, HSH Nordbank Private Banking S.A. and the
HSH Real Estate Group are integrated as relevant subsidiar-
ies into the Group-wide examination of liquidity risk.
The Bank has a contingency plan which contains a cata-
logue of measures and regulated procedures and respon-
sibilities should a liquidity crisis occur. We have now also
incorporated early warning indicators as part of the en-
hancement of the contingency plan.
Our Liquidity Policy defines the basic parameters of the
Group in dealing with liquidity and the associated risks.
For example, responsibilities and processes are defined in
this policy, the measurement, monitoring and man-
agement of liquidity risk described and the risk tolerance
of the Bank for dealing with liquidity risk specified.
Liquidity risk management
Measurement of liquidity risk
The transactions of the Bank impacting liquidity are con-
verted into cash flows and the inflows and outflows
allocated to time buckets (liquidity development report) for
risk report | group management report
hsh nordbank 201096
the purposes of measuring insolvency risk or funding
requirements. The difference between inflows and outflows
represents a liquidity surplus or deficit (gap) in the
relevant time buckets. As a measure of insolvency risk the
individual gaps for 1 to 14 days are used to show con-
centrations of outflows and the cumulative gaps from 1 day
to 12 months to consider future liquidity require-
ments. They are compared to the liquidity potential which
is applied to close the cumulative gaps of the individ-
ual time buckets and consequently represents the limit for
insolvency risk.
Liquidity development reports are prepared daily at the
level of the Group, Overall Bank, foreign branches and
relevant subsidiaries. In addition to the total business re-
corded in the statement of financial position, loan com-
mitments already granted, guarantees, pre-value dated
transactions and other off-balance sheet transactions
are incorporated in the report. In order to better consider
economic maturities flow scenarios are used for some
items. In so doing any possible residual amounts from de-
posits and current accounts as well as the time to liq-
uidate assets and the amounts, for example, are modelled
conservatively as a matter of principle. These liquidity
development reports reflect the current market situation
as a base scenario (normal case assessment). In addi-
tion to calculating the liquidity development report in euro
equivalents, a separate liquidity development report
is prepared daily for all US dollar transactions. This en-
sures that our US dollar position is adequately man-
aged.
In addition to the normal case liquidity development re-
port, which is compiled on the assumption of business
developments in a normal market environment, the Bank
also compiles the results of a market liquidity stress test
on a daily basis in the form of a stressed liquidity develop-
ment report (stress case assessment) in order to reflect
critical market developments. The stress case includes, for
example, difficult funding conditions and additional
cash flows under stress assumptions.
HSH Nordbank has been quantifying its liquidity maturity
transformation risk since the beginning of 2008 by
means of a value-at-risk approach. The liquidity value-at-
risk (LVaR) is calculated using historical simulation
(confidence level 99.9 %) of the liquidity spread and its pres-
ent value effect on transactions, which would be neces-
sary theoretically in order to immediately close the current
maturity transformation position. In doing so, it is as-
sumed that these hypothetical close-out transactions could
actually be effected in the market and that full fund-
ing is therefore possible.
Limiting and monitoring liquidity risk
Limits are set for the individual gaps as well as the cumula-
tive gaps for the first 14 days as part of insolvency risk
management. Furthermore, limits are set for cumulative
gaps for numerous other time buckets up to 12 months.
Insolvency risk is in principle limited by the ability of HSH
Nordbank to exhaust its total liquidity potential. This
liquidity potential comprises different elements, the total
of which represents the total limit. The liquidity poten-
tial (limit) represents the respective ceiling for cumulative
gaps of individual maturities and is composed of a secu-
rities portfolio held as a crisis precaution measure (crisis
liquidity), further liquid securities and promissory
notes, according to how liquid they are, unsecured funding
options, secured funding potential from the issue of
Pfandbriefe and commercial loans eligible for refinancing
with central banks. In the year under review, the limit
was expanded to include other components, e. g. the plans
for the winding down of the portfolio within the re-
alignment of the Bank are now reflected in the limit based
on a conservative approach. Given the market situa-
tion, the unsecured short-term funding potential has been
reflected more precisely since 2010 and, as a result,
more restrictively in the liquidity potential through the
separate assessment of the prolongation ratios of banks
and non-banks. The components of the liquidity potential
are monitored continuously and validated in accor-
dance with internal minimum requirements. Safety buffers
and risk discounts were incorporated into the limits
in order to keep the probability of full utilisation or over-
drawing the limits as low as possible. These individual
discounts are, for example, haircuts or other safety margins
that reflect the uncertainty about the future develop-
ment of the respective limit component.
97
Group Risk Management calculates and monitors limit
utilisation daily and reports the results to the Man-
agement Board and Group Treasury. If limits are exceeded,
Group Treasury determines and implements appropri-
ate measures and their implementation is monitored by
Group Risk Management.
The liquidity value-at-risk for the liquidity maturity trans-
formation risk is determined each month by Group
Risk Management and reported to the Management Board
and management responsible for it. Limits are set at
Group level and are an integral part of the risk-bearing ca-
pacity concept.
Group Risk Management informs the Management Board
and the responsible management staff on a monthly
basis in aggregate form with regard to the overall assess-
ment of the liquidity situation of the Group. In addi-
tion to information on the market and funding situation,
this report also contains in particular limit utilisations
in the normal case and stress case, as well as in stress sce-
narios for insolvency risk.
Liquidity management
The Bank prepares a structural liquidity plan for the
strategic management of the liquidity resource over the
long-term. The internal liquidity committee is used,
among other things, to manage liquidity over the short-
term, whereby it makes decisions on a weekly basis
with regard to relevant upcoming outflows and new trans-
actions. The basis for decision-making is, among other
things, the structural liquidity development report, which
is updated regularly and is prepared in a manner con-
sistent with the Bank’s business planning.
The liquidity buffer on our securities and loans (collateral
pool) was also managed and enhanced by Group Trea-
sury in 2010 in order to utilise the potential for secured
funding in the best possible manner.
Backtesting
In our backtesting we review the modelling of products
with stochastic cash flows in the liquidity development re-
port on the basis of statistical evaluations of historical
cash flows. The selection of the relevant products is based
on the product volume and its risk content in terms of
uncertainty in previous modelling. In the year under re-
view, we have carried out backtesting for numerous
products, e. g. overdraft facilities, demand deposit / savings
deposits, cash collateral for OTC derivatives, early re-
demption of own issues and promissory notes, irrevocable
loan commitments / liquidity facilities and rollover
loans. Furthermore backtesting is performed on funding
potential and the methodology applied in taking ac-
count of new lending business, prolongations and repay-
ments.
In October 2010, we enhanced the parameters for measur-
ing and setting limits for insolvency risk on the basis of
the knowledge obtained from regular backtesting and the
statistical analyses of the methods. Overall, the adjust-
ments made resulted in a higher utilisation of the liquidity
potential in the normal case and a lower utilisation in
the stress case.
Stress tests
Our regular stress tests for insolvency risk include unusual
scenarios and their impact on the liquidity situation
of the Group in the risk assessment. When determining
these scenarios, the risk and significant parameters
were determined for all types of transactions included in
the liquidity development report, which change the
cash flow profile in the respective stress case. For example,
inflows are lower or occur later or outflows are higher
or occur earlier than expected.
The selection of our stress tests is the result of an analysis
of historical events and hypothetical models. The
knowledge obtained on the rating downgrade of HSH Nord-
bank in 2009 was also incorporated into the modell-
ing or the parameter structure. Within the different stress
modelling market specific scenarios (e. g. global reces-
sion) and institution specific scenarios (e. g. rating down-
grade of HSH Nordbank AG) are assessed on the basis
of assumed critical market developments. In each of these
scenarios it is assumed that new lending business will
continue to some extent and that loans and advances to
customers now maturing must be extended and refi-
nanced on an increasing basis while the rollover of liabili-
ties is partially cut back or is quite impossible and as
risk report | group management report
hsh nordbank 201098
a result a funding gap is created. Furthermore increased
drawdowns on loan commitments issued and the early
redemption of own issues and securitised liabilities are in-
corporated in the modelling. The stress test results are
reported to the Management Board and Group Treasury on
at least a monthly basis.
In addition to the previous calculations performed, we
have developed in the year under review a US dollar
stress test, which is applied to the normal case liquidity
development report and simulates an appreciation in
the US dollar affecting the US dollar cash flows and the
cash collateral for US dollar derivatives. The stress
factor for the appreciation is determined based on an anal-
ysis of the historical movement of the US dollar / euro
exchange rate.
As part of the enhancements, we have also developed in
the year under review a stress test for the liquidity matu-
rity transformation risk. This stress test analyses how the
liquidity value-at-risk (LVaR) moves on increasing liquidi-
ty spreads. The change in the liquidity spread is determined
from an analysis of the historical movement for the pur-
poses of deriving the scenario parameters. The stress LVaR
serves as an indicator for the sensitivity of the LVaR to
an increase in the spread / liquidity costs.
risk concentrations
Risk concentrations occur in liquidity risk in several ways.
Concentrations of both asset and liability products can
increase liquidity risk. In addition to the existing manage-
ment process for concentrations of asset products, HSH
Nordbank has developed a monitoring system for concen-
trations of liability products. Special emphasis is placed
on deposits that are analysed and reported on with regard
to the depositor structure (investor, sectors), maturities
(original and residual maturities) and currencies.
Various quantitative measures (e. g. concentration curve,
Herfindahl index and relationship ratios) are calculated for
the purposes of analysing risk concentrations. Further-
more, not only a simple structure analysis is performed but
emphasis is placed rather on the risk content in order
to derive efficient management incentives from the quan-
titative measures in combination with a qualitative dis-
cussion. For example, the residual maturities of deposits
together with historically derived prolongation ratios,
which also apply in the liquidity development report, are
reflected in the analysis of the largest depositors.
In addition to the analysis of the depositor structure,
liquidity concentrations are examined with regard to mac-
roeconomic factors. This identified a strong dependency
of the liquidity situation on the movement in the US dollar
due to the large amount of US dollar assets that are refi-
nanced through cross-currency swaps among other things.
Depositor structure as at 31 December 2010 (in %)
9 Shareholders
18 Public sector banks
6 Public sector
12 Banks
21 Insurance companies / financial services providers
34 Non-banks
18
6
12
9
21
34
99
In the course of the euro crisis, the increase in the cash
collateral to be provided for the currency derivatives repre-
sented a burden on liquidity halfway through the year
2010. For the purposes of analysing the dependency on the
US dollar, sensitivity analyses are therefore carried out
regularly for cash collateral. In addition a US dollar stress
test of the liquidity development report is performed.
Liquidity position stabilised further
Further normalisation was initially observed in the money
and capital markets at the start of 2010. However, un-
certainty surrounding high budget deficits in particular in
several Southern European countries and the associ-
ated weakness in the euro led to higher utilisation of the
liquidity potential from April 2010 onwards. Further-
more, the above-plan prolongations in the lending business
also had an initial adverse impact on the liquidity sit-
uation of HSH Nordbank. As the year progressed, the tem-
porary high utilisation of the liquidity potential half-
way through the year was significantly reduced by the re-
porting date through measures initiated by the Bank
and the more stable euro against the US dollar.
In the course of the year we have used the tender transac-
tions recently offered by the central banks just on a
small scale. The volume amounted to € 150 million at the
end of 2010. The liquidity received from the ECB in
2009 from the one year tender transactions in the total of
approx. € 7.7 billion did not need to be replaced on ma-
turity by follow-up tender transactions within the reported
year.
The following measures were taken in the year under re-
view in order to ensure a sufficient liquidity situation for
the Group:
− Greater efforts to attract long-term funding through,
among other things, increase in funds raising at savings
banks and to retail customers
− Growth in sometimes large volume funding through
private placements
− Increase in the cover pool and rating of the mortgage
cover pool by Moody’s with the top grade Aaa
− Floating of covered benchmark issues, e. g. issue of a
three year public sector Pfandbrief
− Identification of further assets (e. g. commercial loans)
eligible for refinancing with central banks for the
collateral pool and depositing at the corresponding cen-
tral banks.
− Measures to increase volume of customer deposits
− Close management of new business and prolongations
− Winding down of assets, e. g. from the credit invest-
ment portfolio
The following table shows the relative utilisation levels of
the liquidity potential for individual cumulative liquid-
ity gaps in the normal case and stress case as at 30 Decem-
ber 2010 as well as at 30 December 2009. Utilisation
represents the share of the cumulative gap in total liquid-
ity potential, which also includes utilisation of borrow-
ing options at the central banks.
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hsh nordbank 2010100
Limit on cumulative liquidity gapsUtilisation of liquidity potential (%)
Normal Case Stress Case
30.12.2010 30.12.2009 30.12.2010 30.12.2009
1st day 3 1 4 7
7th day 23 14 24 21
14th day 39 25 42 35
3rd week 46 33 52 44
4th week 52 38 66 54
8th week 57 48 74 68
3rd month 65 57 88 83
6th month 83 67 114 101
9th month 88 74 126 110
12th month 88 73 132 113
At the beginning of 2010, the Bank redefined its risk tol-
erance with regard to liquidity risk. Risk tolerance is
reflected, among other things, in the definition of a surviv-
al period in the sense of a minimum survival period,
which describes how long a liquidity potential under 100 %
may be maintained under the normal and stress cases
for insolvency risk.
In the normal case assessment the liquidity potential
had a peak utilisation of 88 % in the 9th month and 12th
month as at the reporting date. All limits within the
defined survival period of 12 months were thereby adhered
to. The stress case liquidity development report shows
that the liquidity potential was not exceeded within the
three-month survival period established by the Bank.
The utilisation rates have increased compared to the end of
2009, which is mainly attributable to expiring SoFFin
bonds and the more conservative methodology applied in
the liquidity risk measurement. However, no critical
limit utilisation was noted.
The results of the market-specific and Bank-related sce-
narios determined in addition to the stress case liquidity
development report show that in December 2010 the
liquidity requirement of HSH Nordbank was covered for
several weeks up to three months despite the strict
worst case assumptions for each scenario. The results show
that the Bank is suitably prepared for the crisis scenar-
ios assessed.
In the year under review, the liquidity value-at-risk as
an expression of the liquidity maturity transformation risk
moved on a monthly basis between € 387 million and
€ 768 million. It amounted to € 465 million as at 30 De-
cember 2010. A minor limit overdraft halfway through
the year in the amount of € 18 million was offset by appro-
priate measures.
101
Liquidity value-at-risk in the course of 2010
¤ m
800
600
400
200
0
1/10 2/10 3/10 4/10 5/10 6/10 7/10 8/10 9/10 10/10 11/10 12/10
Overall, the liquidity situation of HSH Nordbank has
been stable in the reporting period through the above-men-
tioned measures and market developments. The long-
term funding obtained is ahead of plan with a simultane-
ous stable movement in the deposit level. Access to
capital markets remains limited so that future funding and
the Bank’s rating continue to be significant challenges.
Liquidity ratio of HSH nordbank aG
The regulatory management parameter for liquidity risks
is the liquidity ratio defined by the German Liquidity
Regulation. With values between 1.44 and 2.01, our liquid-
ity ratio remained above the regulatory minimum value
of 1.0 at all times throughout the reporting year. The aver-
age value for 2010 was 1.72 (previous year: 1.66).
Liquidity ratio (LiqV) Month-end values 2010 2009 2008
January 2.01 1.37 1.27
February 1.87 1.17 1.23
March 1.99 1.30 1.18
April 1.99 1.50 1.18
May 1.74 1.41 1.26
June 1.44 1.72 1.35
July 1.59 1.92 1.29
August 1.45 1.67 1.26
September 1.58 1.88 1.23
October 1.74 2.17 1.18
November 1.59 1.92 1.18
December 1.67 1.87 1.34
operational risk
HSH Nordbank defines operational risk (OpRisk) as the
risk of direct or indirect losses caused by the inappro-
priateness or failure of the internal infrastructure, internal
procedures or staff or as a result of external factors (risk
categories). This definition includes legal risk, reputation
risk and compliance risk.
HSH Nordbank considers operational risk controlling and
the promotion of an appropriate risk awareness in the
Group as an integral component of its management sys-
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hsh nordbank 2010102
tems. This is particularly relevant given the dynamic
business environment, the ongoing restructuring measures
of the Bank, the limited options for transferring risk, to-
gether with the increased requirements of rating agencies
and other market players.
In the year under review, a training session was held for
employees of HSH Nordbank AG and selected subsidiar-
ies by means of an E-Learning program to further increase
the alertness of employees with regard to operational
risk.
The internal splitting of the Bank into a Core Bank and
a Restructuring Unit has no influence on the management
of operational risk. The individual divisions within the
Restructuring Unit are integrated into the Group-wide pro-
cesses and methods for managing operational risk in
the same way as are all relevant divisions in the Core Bank.
organisation of operational risk management
HSH Nordbank has set up an independent central con-
trolling unit to identify, analyse, evaluate and monitor op-
erational risk. It is responsible for developing and sup-
porting controlling instruments, providing expertise and
advice on operational risk and the promotion of the
risk awareness throughout the Group. Central risk control-
ling is also responsible for the independent reporting
to the management units of the Bank that are responsible
for managing risk.
Central controlling of operational risks is backed by a local
network of experts. All divisions have OpRisk officers
and OpRisk assistants who are responsible for maintaining
the controlling instruments and who act as an inter-
face between central risk controlling and the respective di-
visions. The OpRisk officers and OpRisk assistants re-
ceive training on their duties from central risk controlling.
All methods and procedures for controlling operational
risk are also employed at the Bank’s foreign branches.
The subsidiaries HSH Nordbank Securities S.A., HSH Real
Estate Group, HSH Nordbank Private Banking S.A. and
HSH Facility Management Holding AG have been identi-
fied as relevant and have been integrated in the Group-
wide assessment of operational risk.
operational risk management
Operational risk can affect all products, processes and
organisational units. For this reason, a functioning risk
awareness is of central importance in order to be able
to utilise the expertise of employees to identify operation-
al risk.
As part of the realignment of the Bank, a substantial
reduction in the number of employees is planned in addi-
tion to the associated staff restructuring under which
employees were affected in 2010, particularly by organisa-
tional restructuring and job changes. The reduction in
headcount planned for 2009 and 2010 was slightly exceed-
ed in the year under review. As a result, there is the
danger in some divisions that the upcoming tasks can only
be performed with the required diligence to a limited
extent. In order to counter the resultant operational risk,
the Bank has introduced measures to curb high staff
fluctuation, to manage the internal job market and to in-
tensify external recruiting. This ensured that the posi-
tions relevant for meeting the regulatory and legal require-
ments and other key positions critical to the success of
the realignment and risk management of the Bank, partic-
ularly in the Credit Risk Management, Group Risk Man-
agement, Restructuring, Compliance, Guarantee Manage-
ment, NPNM and Internal Audit divisions, were filled
in good time. In addition, the specific measures initiated
in 2009 for improving the personnel situation with
regard to the management of intensive and restructuring
cases, both in the Core Bank and the Restructuring Unit,
were also continued in the year under review.
Loss event database
The loss events arising from operational risk are consoli-
dated into a central loss event database for the Bank
and relevant subsidiaries. The loss events are recorded local-
ly by the divisions affected and forwarded to central
risk controlling. The central risk controlling unit checks the
data, consolidates losses into collective losses, if appli-
cable, and prepares analyses and reports. The results of the
analyses of actual loss events allow us to derive preven-
tative measures.
The central loss event database includes all loss events with
a gross loss of at least € 2,500. A gross loss is the sum
103
of losses that involve a cash outflow, lost earnings and con-
sumption of internal resources. Furthermore unexpect-
ed income arising from operational risk from an amount
of € 2,500 is also recorded in the loss event database,
as loss events with a positive income for the Bank can also
provide indications of, for example, procedural weak-
nesses. Classification of loss events leads to systematically
analyse the causes of losses and therefore contributes
indirectly to the identification of operational loss events.
Share of risk categories in gross operational losses(%, 2010)
13 Internal processes
29 Employees
58 External influences
0 Internal infrastructure
13
29
58
The largest individual gross loss in 2010 occurred in the
external influences category.
HSH Nordbank participates in the exchange of operational
loss event data as part of the Operational Risk Data Pool
(DakOR) at the level of the Association of German Public
Sector Banks (VÖB). The Bank played a key role in the
establishment of this pool.
Based on the experience of the participating institutions,
a catalogue of risk categories of banking risk scenarios
was developed and adopted in 2010. The scenario catalogue
has already been implemented by HSH Nordbank as a
basis for risk assessment in the annual risk inventory. Since
2011 the participating banks have also allocated all loss
events involving a certain minimum amount of gross loss
to a specific risk scenario. Thus, HSH Nordbank perspec-
tively obtains an improved data base for the evaluation of
risk scenarios and external comparisons.
risk inventory
Since 2005, HSH Nordbank has carried out a risk inven-
tory each year for the whole Group. Based on information
about the risk situation of the divisions gained from
this inventory, the reporting of operational risk to the man-
agement units is supplemented by forward-looking
risk estimates to encourage the proactive management and
monitoring of operational risk. The scenario catalogue
developed by DakOR was expanded by HSH Nordbank to
include internal scenarios and is now being used for
the bottom-up collection of potential loss events. The indi-
vidual scenarios are consolidated in core topics, e. g.
reorganisation and outsourcing, and supplemented by a
top-down analysis across divisions. Based on the risk
inventory, scenario analyses are to be performed in individ-
ual cases for the purposes of assessing the danger pre-
sented by particularly serious operational risk events that
are of particular importance with regard to establish-
ing suitable measures.
Legal risk
In accordance with the German Solvency Regulation
(SolvV), legal risk also falls under operational risk. The Le-
gal division is responsible for managing these risks. In
order to reduce, limit or prevent risk all divisions are given
comprehensive legal advice by regularly trained staff.
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hsh nordbank 2010104
A structured process with clear requirements and responsi-
bilities serves to ensure that the Bank’s contracts and
agreements are kept up-to-date.
Compliance risk
Compliance risk comprises legal and regulatory sanctions
or financial losses caused by non-compliance with cer-
tain laws, regulations and guidelines, as well as organisa-
tional standards and codes of conduct. The Compliance
department at HSH Nordbank is responsible for managing
risks with regard to the German Securities Trading Act
and related standards, fraud prevention, anti money laun-
dering and international financial sanctions.
There has been a further increase in the compliance
requirements on financial institutions. This is due firstly to
new legal and regulatory requirements and secondly to
compliance loss events in the area of international finan-
cial services. HSH Nordbank has responded to this by
continuously developing its compliance system and taking
current market standards into account.
The Code of Conduct summarises all behavioural require-
ments for compliance, which are set out in detail in
internal instructions. It applies to all employees, managers
and the Management Board of HSH Nordbank AG and
is a mandatory part of the agreement of personal goals. By
March 2010 all members of the Management Board,
managers and employees had attended a Bank-wide train-
ing programme on the Code of Conduct. Special training
sessions were standardised and expanded.
In 2010, the Bank received notification of suspicious cases
of misconduct from the so-called “whistleblowing office”
and forwarded these to the relevant internal and external
units. Furthermore, the whistleblowing office is staffed
by independent ombudsmen from BDO Deutsche Waren-
treuhand Aktiengesellschaft Wirtschaftsprüfungsge-
sellschaft and enables anonymous reporting of suspicious
cases.
During the year under review, several enhancements were
made with regard to the individual compliance topics.
These include the gradual review of the older existing port-
folio of HSH Nordbank with regard to any money laun-
dering risk. This was continued and specific high risk cases
were submitted to the Management Boards for their
decision. The new requirements with regard to financial
sanctions, investor protection and investment consult-
ing have been implemented in good time. The implemen-
tation of the Minimum Requirements for the Compli-
ance Function (MaComp) issued by the supervisory author-
ity in June 2010 was monitored as part of a project.
Strategic risk
Strategic risk is the risk of a financial loss being incurred
as a result of long-term decisions which are erroneous or
based on incorrect assumptions, particularly with respect
to the performance of individual areas of business or the
banking sector as a whole.
The strategic realignment of HSH Nordbank was success-
fully continued during the year under review. The stra-
tegic risk of the Bank was further reduced in the year un-
der review through concentrating on the core business
fields, the separation and active winding down of risk-bear-
ing and non-strategic portfolios in the Restructuring
Unit, the consolidation of the international network of lo-
cations together with the sale of numerous equity hold-
ings.
Risk management in the Bank was also refined during the
year under review and risk systems were continuously
improved. For instance, an efficient lending decision pro-
cess with strengthened competencies and responsibil-
ities was introduced into the back office as a result of the
implementation of a risk-oriented approach, the loan
and collateral management function of the Bank was cen-
tralised and the entire CRO sector was reorganised.
Core Bank risks
The risks of the “Core Bank” sub-portfolio are shown
separately below. These relate to the default risk and mar-
ket risk in the Core Bank. Liquidity risk, operational
risk and other risk are managed comprehensively at Group
level for the Core Bank as well as the Restructuring Unit.
105
Default risk in the Core Bank
The processes and methods applied in determining
default risk in the Core Bank have already been described
in detail in the “Default risk” section. As at 31 Decem-
ber 2010, the loan amount outstanding for the Core Bank
totalled € 97,296 million (previous year: € 119,938 mil-
lion).
Default risk exposure
The following table shows the loan amount outstanding of
the Core Bank by internal rating categories. The loan
amount outstanding with an investment grade rating (rat-
ing category 1 [AAAA] to 5) accounts for € 60,890 mil-
lion or 63 % of the exposure (previous year: € 81,455 mil-
lion or 68 % of the exposure).
Default risk structure of the Core Bank by rating(¤ m)
Loan amount outstanding
2010 2009
1 (AAAA) to 1 (AA+) 18,368 27,011
1 (AA) to 1 (A-) 22,010 26,811
2 to 5 20,512 27,633
6 to 9 18,623 19,178
10 to 12 7,065 7,550
13 to 15 3,844 7,385
16 to 18 6,874 4,370
Total 97,296 119,938
The following table shows the loan amount outstanding
by sectors that are significant for the Core Bank.
Default risk structure of the Core Bank by sector(¤ m)
Loan amount outstanding
2010 2009
Industry 9,902 11,640
Shipping 22,281 25,410
Trade and transportation 8,056 8,416
Credit institutions 23,376 29,303
Other financial institutions 8,193 16,435
Land and buildings 10,186 11,038
Other services 7,056 8,014
Public sector 5,950 7,674
Private households 2,296 2,008
Total 97,296 119,938
The following table shows the loan amount outstanding
of the Core Bank by residual maturities.
Default risk structure of the Core Bank by maturity(¤ m)
Loan amount outstanding
2010 2009
Up to 3 months 13,348 11,770
> 3 months to 6 months 3,421 5,064
> 6 months to 1 year 11,317 19,225
> 1 year to 5 years 40,146 45,874
> 5 years to 10 years 19,801 26,397
> 10 years 9,263 11,608
Total 97,296 119,938
Country risk
The following table provides an overview of the Core Bank’s
exposure by country region, which amounted to € 50,630
million as at 31 December 2010 (previous year: € 54,863
million).
Country exposure of the Core Bank by region(¤ m)
Loan amount outstanding
2010 2009
Western Europe 27,454 28,565
of which: Eurozone countries 13,329 14,837
Central and Eastern Europe 1,863 2,006
of which: Eurozone countries 36 114
Africa 1,663 1,433
North America 9,160 9,594
Latin America 1,864 2,142
Middle East 600 517
Asia-Pacific region 7,756 10,521
International organisations 136 26
Other 134 59
Total 50,630 54,863
Market risk in the Core Bank
The processes and methods applied in determining mar-
ket risk in the Core Bank have already been described in
detail in the “Market risk” section.
The market risk of the Core Bank is primarily characterised
by interest rate, credit spread and currency risk arising
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hsh nordbank 2010106
from the lending business, funding and the trading book,
which predominantly contains positions resulting from
trading in interest rate and currency derivatives with cus-
tomers and bond trading. There is only a small amount
of equity and commodity risk.
Daily value-at-risk of the Core Bank(¤ m) 2010 2009
Interest rate risk 14.6 13.5
Credit spread risk 9.0 1.2
Foreign exchange risk 3.7 2.9
Equity risk 2.4 1.9
Commodity risk 0.2 0.2
Market risk (aggregated) 11.7 15.1
The value-at-risk of the trading book positions of the Core
Bank amounted to € 3.7 million at 31 December 2010
and that of the banking book to € 13.2 million. The total
VaR of the Core Bank amounted to € 11.7 million on
the last trading day of 2010 (previous year: € 15.1 million).
risks of the restructuring unit
The risks of the sub-portfolio ‘Restructuring Unit’ are de-
scribed separately below. In this connection, default
risks and market risks of the Restructuring Unit will be ad-
dressed. Liquidity risk, operational risk and other risks
are managed comprehensively at Group level for both the
Core Bank and the Restructuring Unit.
Risk reporting for the Restructuring Unit is generally car-
ried out by means of the management and reporting
systems of the Group Risk Management division. In addi-
tion to the regular risk reporting, additional winding
down and management reports have been established for
the Restructuring Unit. This provides the option of in-
cluding special elements relating to the winding down pro-
cess and of reacting to changes in the portfolio in a
flexible and timely manner. These reports are continuous-
ly refined and expanded.
In addition to the standard loan processing the loan port-
folios are wound down in a structured manner on the
basis of a specified process with clearly defined responsibil-
ities. This is carried out using different methods for
three exposure categories: normal cases, intensive cases
and restructuring cases. For normal cases, several wind-
ing down strategies are pursued under the premise of a
value-based winding down. For intensive cases, any in-
creased risks in the individual case are taken into account
on a winding down. For restructuring cases, a restruc-
turing concept is developed for each individual case and
evaluated. As a rule, winding down is only possible
after the restructuring has been successfully completed.
Positions are allocated to different categories on the basis
of the current market valuation and impairment losses
already recognised for the purposes of winding down the
capital markets business. Based on the characteristics
of the respective category, the positions are wound down
under a loss budget determined by the Management
Board and after weighing up any increased risks or poten-
tial for the reversal of impairment losses.
Default risk in the restructuring unit
The process and methods applied in determining
default risk in the Restructuring Unit have already been
described in detail in the “Default risk” section. The
loan amount outstanding of the Restructuring Unit amount-
ed to € 71,668 million (previous year: € 85,230 mil-
lion) as at 31 December 2010.
Default risk exposure
The following table shows the loan amount outstanding
of the Restructuring Unit by internal rating categories.
The loan amount outstanding with an investment grade
rating (rating category 1 [AAAA] to 5) amounts to
€ 36,624 million or 51 % of the exposure (previous year:
€ 47,983 million or 56 % of the exposure).
107
Default risk structure of the Restructuring Unit by rating(¤ m)
Loan amount outstanding
2010 2009
1 (AAAA) to 1 (AA+) 17,365 21,664
1 (AA) to 1 (A-) 9,952 13,595
2 to 5 9,307 12,724
6 to 9 7,241 12,228
10 to 12 5,342 6,465
13 to 15 8,103 8,942
16 to 18 14,358 9,612
Total 71,668 85,230
The following table shows the loan amount outstanding
by sectors significant for the Restructuring Unit.
Default risk structure of the Restructuring Unit by sector(¤ m)
Loan amount outstanding
2010 2009
Industry 6,395 9,032
Shipping 11,049 9,531
Trade and transportation 3,085 4,676
Credit institutions 8,114 12,621
Other financial institutions 14,409 16,482
Land and buildings 13,955 15,761
Other services 4,203 4,882
Public sector 8,837 10,030
Private households 1,621 2,215
Total 71,668 85,230
The following table shows the loan amount outstanding
of the Restructuring Unit by residual maturity.
Default risk structure of the Restructuring Unit by maturity(¤ m)
Loan amount outstanding
2010 2009
Up to 3 months 5,209 4,170
> 3 months to 6 months 2,504 3,842
> 6 months to 1 year 6,519 8,333
> 1 year to 5 years 28,877 35,249
> 5 years to 10 years 14,402 19,084
> 10 years 14,157 14,552
Total 71,668 85,230
Country risk
The following table provides an overview of the exposure
of the Restructuring Unit by country region, which
amounted to € 45,557 million as at 31 December 2010
(previous year: € 57,024 million).
Foreign exposure of the Restructuring Unit by region(¤ m)
Loan amount outstanding
2010 2009
Western Europe 26,413 32,595
of which: Eurozone countries 13,140 14,876
Central and Eastern Europe 942 1,458
of which: Eurozone countries 102 135
Africa 376 232
North America 12,607 15,680
Latin America 1,086 1,204
Middle East 369 328
Asia-Pacific region 3,047 4,406
International organisations 76 50
Other 641 1,071
Total 45,557 57,024
Market risk in the restructuring unit
The market risk of the Restructuring Unit is determined
in accordance with the same processes and methods as
applied in the Core Bank. 4)
The market risk in the Restructuring Unit arises predomi-
nantly from the credit investment business or the credit
investment portfolio in the banking book. Accordingly,
credit spread risk is the dominant factor.
4) Cf. “Market risk” chapter
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hsh nordbank 2010108
Daily value at risk at Restructuring Unit(¤ m) 2010 2009
Interest rate risk 18.7 18.2
Credit spread risk 30.0 21.4
Foreign exchange risk 13.6 1.5
Equity risk 2.0 1.8
Commodity risk 0.0 0.0
Market risk (aggregated) 48.9 24.2
The value-at-risk of the trading book positions of the
Restructuring Unit amounted to € 1.2 million as at 31 De-
cember 2010 and that of the banking book to € 48.8
million. The total VaR of the Restructuring Unit amounted
to € 48.9 million on the last trading day of 2010 (pre-
vious year: € 24.2 million).
Summary and outlook
In 2010, the Bank implemented a risk-oriented lending
process in a consistent manner. In this context, the credit
analysis function was transferred from all market divi-
sions in the Credit Risk Management division and the loan
and collateral processing in the Loan and Collateral divi-
sion. This was accompanied by corresponding measures
and changes relating to the organisational and process-
ing structure. A centralised loan loss provisioning process
based on the market standard was also implemented in
the year under review. Group Risk Management has been
re organised into four sub-areas – Group Risk Control-
ling, Market Risk Management, Portfolio Management und
Methods & Instruments – to reflect the new tasks as-
sumed.
In the year under review, the Bank has been able to achieve
a significant improvement in the risk situation. This was
also reflected in the risk parameters for default risk. For
instance, the borrower specific recovery rates in the port-
folios of the Core Bank and Restructuring Unit improved
significantly, particularly in the third and fourth quar-
ter, and the exposure at default (EaD) declined continuous-
ly over the year under review. The market risks mea-
sured under the VaR method decreased in the trading and
banking book, the liquidity value-at-risk at the year end
was significantly lower than the maximum recorded half-
way through the year and the liquidity development re-
port improved strongly despite the SoFFin bonds expiring
in 2011.
The state-aid proceedings of the EU Commission com-
menced in 2009 relating to the restructuring plan of the
Bank, and the stabilisation measures granted by the
public shareholders are still going on. Nonetheless, the
Bank has pushed forward its implementation of the
plan and the expected requirements in the year under
review and has achieved important milestones. This
also includes the reduction in the network of locations and
the consolidation of the equity holdings portfolio in
addition to the creation of the Restructuring Unit in order
to clearly separate the Bank’s core activies from the
non-strategic or high risk-bearing portfolios and the ad-
vanced stage of the winding down of the balance sheet.
Based on a continued market recovery, the challenges for
2011 lie in the further improvement of the risk struc-
ture of our loan portfolio with a simultaneous moderate
level of new business in the Core Bank. Against this
background, the newly formed Asset Liability Committee
plays a major role as the central risk and portfolio man-
agement instrument of the Bank. Furthermore, we will fur-
ther strengthen our internal organisational and process-
ing structure in the area of risk management and signifi-
cantly improve system support, particularly in the area
of lending, and play an active part in system consolidation
within capital markets. Overall, the divisions under the
responsibility of the CRO will actively shape the strength-
ening of the risk-adjusted profitability of the Bank.
The risk and bank management systems described in this
report are aligned to take account of risk on a system-
atic basis. This also applies to our expectations regarding
future market and business developments. We believe
that we have appropriately presented the opportunities
and risks inherent in the future development of our
business activities, among others in the “Outlook” and in
this Risk Report. Accordingly, we assume that the risk-
bearing capacity and solvency of HSH Nordbank will also
be maintained on a sustained basis in the future.
109
Hamburg / Kiel, 25 February 2011
Prof. Dr. Dirk Jens Dr. Martin van Gemmeren
Nonnenmacher
Constantin Torsten Temp
von Oesterreich
Bernhard Visker
risk report | group management report
HSH NordbaNk 2010110
Group Financial StatementS
Statement of ComprehenSive inCome 112
Statement of finanCial poSition 114
Statement of ChangeS in equity 116
CaSh flow Statement 118
explanatory noteS 120
General information 120
Notes on the income statement 152
Notes on the statement of financial position 163
Segment reporting 191
Notes on financial instruments 194
Other disclosures 217
auditor’S report 246
reSponSibility Statement by the management board 247
contentS
Gro
up F
iNaN
cial
Stat
emeN
tS
HSH NordbaNk 2010112
Statement oF comprehenSive income for the year 1 January to 31 December 2010
Income statement (¤ m) Note 2010
Followingadjustment
2009 Change in %
Interest income 14,357 20,664 −31
Interest expenses −12,692 −18,918 −33
Net income on hybrid financial instruments −163 375 > −100
Net interest income (9) 1,502 2,121 −29
Loan loss provisions (10) −129 −2,794 −95
Net interest income after loan loss provisions 1,373 −673 > 100
Net commission income (11) 218 211 3
Result from hedging (12) 8 146 −95
Net trading income (13) −359 568 > −100
Net income from financial investments (14) 230 −170 > 100
Net income from financial investments accounted for under the equity method (15) 4 – –
Administrative expenses (16) −867 −830 4
Other operating income (17) −62 30 > −100
Net income before restructuring 545 −718 > 100
Result from restructuring (18) −9 −124 93
Expenses for government guarantees (19) −519 −483 7
Net income before taxes 17 −1,325 > 100
Income tax expenses (-) / income (+) (20) 31 423 93
Net income after taxes 48 −902 > 100
Income from the assumption of losses – 159 −100
Group net income / loss for the year 48 −743 > 100
Group net income attributable to non-controlling interests 51 −9 > 100
Group net income attributable to HSH Nordbank shareholders −3 −734 > 100
Earnings per share (¤ ) Note 2010
Followingadjustment
2009
Undiluted (22) −0.01 −4.31
Diluted −0.01 −4.76
Number of shares (millions) 246 171
Potentially dilutive ordinary shares 17 17
Weighted average number of shares outstanding adjusted for the anticipated conversion – diluted 263 188
113StatemeNt oF compreHeNSive iNcome | Group FiNaNcial StatemeNtS
Reconciliation with total comprehensive income / loss (¤ m) 2010
Followingadjustment
2009
Group net income / loss for the year 48 −743
Changes in:
Revaluation reserve (before taxes) 139 329
of which: Exchange rate effects 10 −9
Income taxes not recognised in the income statement −25 −108
of which: Exchange rate effects 2 2
114 221
Currency conversion reserve 30 −5
Income taxes not recognised in the income statement – –
30 −5
Actuarial gains/losses (before taxes) 24 −45
Income taxes not recognised in the income statement −7 14
17 −31
Other comprehensive income for the period 161 185
Total comprehensive income 209 −558
Total comprehensive income attributable to non-controlling interests 47 −9
Total comprehensive income attributable to HSH Nordbank shareholders 162 −549
HSH NordbaNk 2010114
Statement oF Financial poSition as at 31 December 2010
(¤ m) Note 2010
Following adjustment
2009Change
in %
Assets
Cash reserve (23) 1,410 1,296 9
Loans and advances to banks (24) 10,438 15,541 −33
Loans and advances to customers (25) 102,858 110,557 −7
Loan loss provisions (26) −4,623 −4,718 −2
Positive fair value of hedging derivatives (27) 1,838 1,684 9
Positive adjustment item from portfolio fair value hedges 232 295 −21
Trading assets (28) 11,282 16,879 −33
Financial investments (29) 25,001 29,690 −16
Financial investments accounted for under the equity method (30) 102 – –
Intangible assets (31) 108 197 −45
Property, plant and equipment (32) 140 101 39
Investment properties (32) 14 316 −96
Non-current assets held for sale and disposal groups (33) 404 586 −31
Current tax assets (34) 272 518 −47
Deferred tax assets (35) 1,269 1,204 5
Other assets (36) 185 338 −45
Total assets 150,930 174,484 −13
115StatemeNt oF FiNaNcial poSitioN | Group FiNaNcial StatemeNtS
(¤ m) Note 2010
Following adjustment
2009Change
in %
Liabilities
Liabilities to banks (37) 26,200 38,591 −32
Liabilities to customers (38) 50,446 49,803 1
Securitised liabilities (39) 44,726 53,121 −16
Negative fair values of hedging derivatives (40) 362 517 −30
Negative adjustment item from portfolio fair value hedge 981 1,085 −10
Trading liabilities (41) 11,412 14,649 −22
Provisions (42) 1,332 1,619 −18
Liabilities relating to disposal groups (44) 6 19 −68
Current tax liabilities (45) 15 78 −81
Deferred tax liabilities (46) 81 93 −13
Other liabilities (47) 1,556 1,583 −2
Subordinated capital (48) 8,719 8,884 −2
Equity (49) 5,094 4,442 15
Share capital 2,635 2,460 7
Capital reserve 1,028 1,509 −32
Retained earnings 1,724 1,607 7
Revaluation reserve −227 −341 −33
Currency conversion reserve −60 −90 −33
Group loss −3 −734 −100
Total before non-controlling interests 5,097 4,411 16
Non-controlling interests −3 31 > −100
Total equity and liabilities 150,930 174,484 −13
HSH NordbaNk 2010116
Statement of Changes in Equity (¤ m)
Share capital capital reserve retained earnings
currency conversion
reserverevaluation
reserveGroup net
income / loss
totalbefore
non-controlling interests
non-controlling interests total
of which actuarial
gains / lossesper IAS 19
As at 1 January 2009 881 88 1,354 149 −85 −562 284 1,960 45 2,005
Group net loss for the year – – – – – – −670 −670 −9 −679
Changes due to restatements – – – – – 15 −64 −49 – −49
Changes not recognised in the income statement – – −31 −31 – −115 – −146 – −146
Changes recognised in the income statement – – – – – 325 – 325 – 325
Exchange rate changes – – – – −5 −4 – −9 – −9
Comprehensive income 2009 – – −31 −31 −5 221 −734 −549 −9 −558
Dividend payments and distributions – – – – – – – – −5 −5
Capital increases 1,579 1,421 – – – – – 3,000 – 3,000
Changes in retained earnings – – 284 – – – −284 – – –
Adjusted as at 31 December 2009 2,460 1,509 1,607 118 −90 −341 −734 4,411 31 4,442
Adjusted as at 1 January 2010 2,460 1,509 1,607 118 −90 −341 −734 4,411 31 4,442
Group net income / loss for the year – – – – – – −3 −3 51 48
Changes not recognised in the income statement – – 21 17 – 136 – 157 −4 153
Changes recognised in the income statement – – – – – −16 – −16 – −16
Exchange rate changes – – – – 30 −6 – 24 – 24
Comprehensive income 2010 – – 21 17 30 114 −3 162 47 209
Dividend payments and distributions – – – – – – – – −4 −4
Capital increases 175 335 – – – – – 510 – 510
Changes in retained earnings – – 82 – – – −82 – – –
Changes in capital reserves – −816 – – – – 816 – – –
Consolidation adjustments – – 14 – – – – 14 −77 −63
As at 31 December 2010 2,635 1,028 1,724 135 −60 −227 −3 5,097 −3 5,094
Statement oF chanGeS in equity
117StatemeNt oF cHaNGeS iN equity | Group FiNaNcial StatemeNtS
Statement of Changes in Equity (¤ m)
Share capital capital reserve retained earnings
currency conversion
reserverevaluation
reserveGroup net
income / loss
totalbefore
non-controlling interests
non-controlling interests total
of which actuarial
gains / lossesper IAS 19
As at 1 January 2009 881 88 1,354 149 −85 −562 284 1,960 45 2,005
Group net loss for the year – – – – – – −670 −670 −9 −679
Changes due to restatements – – – – – 15 −64 −49 – −49
Changes not recognised in the income statement – – −31 −31 – −115 – −146 – −146
Changes recognised in the income statement – – – – – 325 – 325 – 325
Exchange rate changes – – – – −5 −4 – −9 – −9
Comprehensive income 2009 – – −31 −31 −5 221 −734 −549 −9 −558
Dividend payments and distributions – – – – – – – – −5 −5
Capital increases 1,579 1,421 – – – – – 3,000 – 3,000
Changes in retained earnings – – 284 – – – −284 – – –
Adjusted as at 31 December 2009 2,460 1,509 1,607 118 −90 −341 −734 4,411 31 4,442
Adjusted as at 1 January 2010 2,460 1,509 1,607 118 −90 −341 −734 4,411 31 4,442
Group net income / loss for the year – – – – – – −3 −3 51 48
Changes not recognised in the income statement – – 21 17 – 136 – 157 −4 153
Changes recognised in the income statement – – – – – −16 – −16 – −16
Exchange rate changes – – – – 30 −6 – 24 – 24
Comprehensive income 2010 – – 21 17 30 114 −3 162 47 209
Dividend payments and distributions – – – – – – – – −4 −4
Capital increases 175 335 – – – – – 510 – 510
Changes in retained earnings – – 82 – – – −82 – – –
Changes in capital reserves – −816 – – – – 816 – – –
Consolidation adjustments – – 14 – – – – 14 −77 −63
As at 31 December 2010 2,635 1,028 1,724 135 −60 −227 −3 5,097 −3 5,094
HSH NordbaNk 2010118
caSh Flow Statement
Cash flow statement (¤ m) 2010 Following adjustment 2009
1. Group net income / loss for the year 48 −743
Adjustments to cash flow from operating activities
2. Depreciation, impairments and write-ups on loans and advances, property, plant and equipment, financial investments, intangible assets and investment properties 433 2,986
a) Loans and advances to customers and banks 452 2,630
b) Financial investments −170 259
c) Property, plant and equipment, intangible assets, investment properties 151 97
3. Changes in provisions −124 305
4. Other non-cash expenses / income 630 −895
5. Profit / loss from disposal of financial investments and property, plant and equipment / investment properties 205 215
a) Financial investments 204 212
b) Property, plant and equipment / investment properties 1 3
6. Other adjustments −1,325 −2,544
7. Subtotal −133 −676
8. Changes in loans and advances 12,509 12,616
a) to banks 5,094 7,136
b) to customers 7,415 5,480
9. Changes in trading assets 3,842 11,914
10. Changes in other assets from continuing operations 150 70
11. Changes in liabilities −11,697 −24,932
a) to banks −12,369 −22,524
b) to customers 672 −2,408
12. Changes in securitised liabilities −7,744 −4,563
13. Changes in trading liabilities −2,520 −5,336
14. Changes in other liabilities from continuing operations −229 −391
15. Interest and dividends received 15,460 20,749
16. Interest paid −13,900 −18,915
17. Income tax payments 99 −198
18. Cash flow from operating activities −4,163 −9,662
19. Receipts from disposals of 9,531 14,665
a) securities 9,085 14,548
b) interests in affiliated companies and equity holdings 30 107
c) property, plant and equipment 416 10
20. Purchases of −4,907 −7,364
a) securities −4,468 −6,949
b) interests in affiliated companies and equity holdings −254 −338
c) property, plant and equipment −185 −77
21. Cash flow from investing activities 4,624 7,301
119caSH Flow StatemeNt | Group FiNaNcial StatemeNtS
Cashandcashequivalentsisequivalenttothecashreserveitem
inthestatementoffinancialpositionandcomprisescashon
hand,balancesatcentralbanks,treasurybills,discountedtrea-
surynotesandsimilardebtinstrumentsissuedbypublic-
sectorbodies.
Thecashflowfromoperatingactivitiesiscalculatedusingthe
indirectmethod,wherebytheGroupnetincome/lossforthe
yearisadjustedfornon-cashexpenses(increased)andnon-cash
income(reduced)andforcashchangesinassetsandliabilities
usedinoperatingactivities.
Othernon-cashexpenses/incomecontainsprimarilymeasure-
menteffectsfromassetsandliabilitiesrecognisedandmea-
suredatfairvalue.
Cash flow statement (¤ m) 2010 Following adjustment 2009
22. Payments received from allocations to equity capital – 3,000
23. Payments made (-), payments received (+) from subordinated capital −269 −617
24. Payments made (-), payments received (+) from silent participations −60 −140
25. Distributions on equity capital −4 −5
26. Cash flow from financing activities −333 2,238
27. Cash and cash equivalents at the beginning of the period 1,296 1,419
28. Cash flow from operating activities −4,163 −9,662
29. Cash flow from investing activities 4,624 7,301
30. Cash flow from financing activities −333 2,238
31. Changes in cash and cash equivalents due to exchange rate fluctuations −14 –
32. Cash and cash equivalents at the end of the period 1,410 1,296
HSH NordbaNk 2010120
HSHNordbankAGhasissueddebtinstrumentsasdefinedin
Section2(1)sentence1oftheGermanSecuritiesTradingAct
(WpHG)onanorganisedmarketasdefinedinWpHGsection2
(5),andisthusobliged,asapubliclytradedcompanyasdefined
inRegulation(EC)No.1606/2002(IASRegulation)ofthe
EuropeanParliamentandtheCouncildatedJuly19,2002incon-
junctionwithSection315a(1)oftheGermanCommercial
Code(HGB),todrawupitsconsolidatedfinancialstatementsin
accordancewithInternationalAccountingStandards(IFRS/
IAS).
Internationalaccountingstandards,hereafterIFRSorstandards,
refertotheInternationalAccountingStandards(IAS)andthe
InternationalFinancialReportingStandards(IFRS)andtheasso-
ciatedinterpretationsbytheStandingInterpretationsCommit-
tee(SIC)andtheInternationalFinancialReportingInterpretations
Committee(IFRIC),publishedbytheInternationalAccounting
StandardsBoard(IASB)andadoptedundertheIASRegulation
aspartoftheEUendorsement.
ThesupplementaryprovisionsofSection315aHGBaretaken
intoaccountandareshownindividuallyinNote(66).
Theconsolidatedfinancialstatementsarepreparedinaccor-
dancewithIFRSaspublishedbytheIASBandadoptedasEuro-
peanlawbytheEuropeanUnion(EU).Theapplicationof
IFRSdidnotleadtoanydifferencesbetweenIFRSasadoptedby
theEUandIFRSaspublishedbytheIASB.
Thefollowingaccountingstandardswereappliedforthefirst
timeduringthereportingperiod:
IAS1 PresentationofFinancialStatements
TheamendmenttoIAS1relatestoIAS12.81(a,ab)(income
taxes).Totalcurrentanddeferredtaxesresultingfromitemswhich
directlyreduceorincreasetheequitycapitalaswellasthe
amountofincometaxesassociatedwitheachcomponentofother
netincomemustbestatedseparately.
IAS39 Financialinstruments:recognitionand
measurement–eligiblehedgeditems
IntheamendmenttoIAS39,hasbeenmadeclearthatoptions
canonlybeusedasahedginginstrumenttohedgepartofthe
risk.Inaddition,hedgingofinflationriskscanbequalifiedfor
variable-rateitems.HSHNordbankAGdoesnotusethese
typesofhedging.
IFRS3revised BusinessCombinationsand
IAS27amended ConsolidatedandSeparateFinancial
Statements
IntherevisionofIFRS3andIAS27,theIASBhasimplemented
theproposalsoftheBusinessCombinationsPhaseIIproject.
Indoingso,thedefinitionoftheterm‘businessoperation’was
altered.Howeverthisdoesnotleadtoadifferentcharacter-
isationofabusinessoperationforthepurposesofHSHNord-
bankAG.Therearechangesregardingthemethodsapplied
forsuccessivesharepurchases.Whilsttheoldapproachwas
basedontheprincipleoftotallingtheacquisitioncosts,under
theamendedstandardallcomponentsofthebusinesscombi-
nationaremeasuredatfairvalueatthetimeofacquisition.If
HSHNordbankAGgainscontroloftheacquiredcompany
bythepurchaseofadditionalshares,thepreviously-heldshares
mustbetreatedasiftheyhadbeensoldsothatthepur-
chasecouldbecarriedout.Iffurthersharesinsubsidiariesare
acquired,thisisaccountedforasanequitytransactionwith
theowners.Goodwillremainsunaffected.IFRS3allowsanac-
countingpolicychoiceintheeventofnon-controllinginterest
eithertomeasure100%ofthegoodwilloftheacquireeorthe
acquirer’sproportionateshareinthegoodwill.Thisleadsto
ahighergoodwillamountwhichresultsinahighernon-control-
General information
1. aCCounting prinCipleS
explanatory noteS
121explaNatory NoteS | Group FiNaNcial StatemeNtS
linginterestinthenetassetsoftheacquiree(so-called‘full
goodwillmethod’).
ThescopeofapplicationofIFRS3hasbeenexpanded.Inthe
currentversion,combinationsofmutualentitiesandcombina-
tionswithoutconsiderationhavebeenincludedinthescope
ofIFRS3.Amongtheadditionalchangestherearechieflyaddi-
tionalrulesforearn-outagreementsandtheprohibitionon
capitalisingtransactioncosts.
AspartofitsAnnualImprovementProject,theIASBpublished
changeswithregardtoexistingIFRS(‘ImprovementstoIFRS
2009’)inApril2009.Thesechangesaffectclarifications,changes
andsupplementstovariousIFRSandareeffectiveprincipally
withregardtofinancialyearswhichstartonorafter1January
2010.
Theapplicationofthesestandardsandtheinterpretationhad
nomaterialimpactontheGroup’snetassets,financialposition
andresultsofoperations.
ThestandardsandinterpretationswhichapplytoHSHNordbank
Groupinthefinancialyearinprinciplebutwerenotapplied
early–totheextenttheyhavealreadybeenadoptedbytheEU
(‘Endorsements’)–aresetoutbelow:
AmendmenttoIAS24
Exceptionstodisclosureobligationsforpublic-sectorentities,to
beappliedfrom1January2011atthelatest
AmendmenttoIAS32
Classificationofsubscriptionrights,tobeappliedfrom1Janu-
ary2011atthelatest
AmendmenttoIFRIC19
Repaymentoffinancialliabilitieswithequityinstruments,tobe
appliedfrom1January2011
Voluntaryearlyapplicationofstandards/interpretations,which
areonlymandatoryforfinancialperiodsstartingonorafter
1January2011,wasnotundertakenonthegroundsofimma-
terialityorirrelevance.
TheconsolidatedfinancialstatementsoftheHSHNordbank
GroupwerepreparedinlinewithIAS27.24accordingtouni-
formGroup-wideaccountingpolicies.Theconsolidatedfinancial
statementsincludethestatementofcomprehensiveincome,
statementoffinancialposition,statementofchangesinequity,
cashflowstatementandnotes,includingsegmentreporting.
Besidetheconsolidatedfinancialstatementaconsolidatedannual
reportwasgeneratedinaccordancewithSection315HGB.
Accountingandmeasurementarebasedonthegoingconcern
assumption.HSHNordbankGroupjustifiesthisassumptionpri-
marilybytheprioryearrecapitalisationbythefederalstate
ofSchleswig-HolsteinandtheFreeandHanseaticCityofHam-
burgandaviablerestructuringconceptwhichwillensurethe
Bank’sindependentcompetitiveness.Inevaluatingthegoing
concernstatustherearestillmaterialuncertaintiesindraw-
inguptheconsolidatedfinan-cialstatementswithregardtothe
conclusionoftheEUstateaidproceedings.Thecontinued
existenceofHSHNordbankAGdependsonwhethertheEuro-
peanCommissionapprovesthestabilisationmeasuresimple-
mentedbytheFreeandHanseaticCityofHamburgandthefed-
eralstateofSchleswig-Holsteinonapermanentbasisinthe
nearfuture.Furthermore,itisnecessaryforthisapprovaltobe
subjectonlytoconditionswhichcanbemetwithinviable
corporateplanningandspecifically,nottoendangertheregu-
latoryeffectivenessoftheregulatorycapitalreliefunderthe
stabilisationmeasures.
Groupincomeandexpensesarerecordedandreportedinthe
periodtowhichtheyrelate.Accountingforassets,liabilities,
incomeandexpensestakesplaceonaconsistentbasis.Devia-
tionsareonlymadeinjustifiedexceptionalcasesandareex-
plainedseparatelyinthenotesontherelevantitems.
Unlessstatedotherwise,allamountsareinmillionsofeuros
(€m).
Theyearunderreviewcorrespondstothecalendaryear.
IFRS7.31etseq.containsrulesonreportingtherisksarising
fromfinancialinstruments.Inthisregard,IFRS7.B6allowsfor
thepossibilityofdisclosingriskinasuitableformat,separately
fromtheconsolidatedfinancialstatements.Availingitselfofthis
option,theHSHNordbankGrouphaspublisheddisclosures
aboutfinancialinstrumentsaspermittedbyIFRS7.31etseq.
predominantlyintheGroupRiskReportwithintheGroup
ManagementReport.Specifically,thisrelatestotheoverallqual-
HSH NordbaNk 2010122
itativeandquantitativeriskinformationperIFRS7.33etseq.
andthetotalmarketriskreportingperIFRS7.40-42.Thisgives
auniformpresentationoftherisksituationinconjunction
withSection315HGBandGAS5andGAS5-10.
Inaddition,aspartofthesupplementaryGermancommercial
regulationstheGroupobservedthefollowingGermanAccount-
ingStandards(GAS)inpreparingtheseconsolidatedfinancial
statementsandthisGroupManagementReport:
GAS5-10RiskReportingbyFinancialInstitutions
GAS15 ManagementReporting
GAS17 ReportingontheRemunerationofMembersof
GoverningBodies.
AspartofthestrategicrealignmentoftheHSHNordbankGroup,
theManagementBoarddecidedtoclosetheLondonbranch
asof31December2012.TheSupervisoryBoardconfirmedthe
decisionatitsmeetingon17February2011.
Asaresultofthereductionofnon-strategicportfolios,aswellas
animprovedportfolioqualityseeninparticularduringthe
secondhalfof2010,thegradualreductionofthesecondloss
guaranteeprovidedbythefederalstateofSchleswig-Holstein
andtheFreeandHanseaticCityofHamburgattheoutsetofthe
strategicrealignmentisplannedstartingin2011.InFebruary
On2June2009thefederalstateofSchleswig-Holsteinandthe
FreeandHanseaticCityofHamburggrantedHSHNordbank
AGaguaranteefacilityintheamountof€10billionviatheHSH
FinanzfondsAöRinordertosecurethefutureoftheBank.
Theagreementregardingtheprovisionoftheguaranteefacility
issubjecttoapprovalbytheEuropeanCommissioninline
withthelawregardingstateaid.
Theguarantorguaranteesactualrating-relateddefaultsondebt
instrumentsselectedbasedoncertaindefinedcriteriathat
formpartoftheassetsofHSHNordbankAGandcertainsubsid-
iaries.Afirstlosspieceintheamountof€3.2billionremains
2011,HSHNordbankinitiatedthefirstpartialreductionofthe
guaranteeby€1billionto€9billion.TheBankexpectsap-
provaltobegrantedbytheguarantorinthenearfuture.
On24February2011theHSHNordbankGroupsolditsshares
inHambornerREITAG,whichisincludedatequityinthe
consolidatedfinancialstatementsasat31December2010.The
Groupmostrecentlyheld35.18%ofthesharesofthe
DuisburgREIT.ThesaleoftheHambornersharesisaresultof
thestrategicrealignmentofHSHNordbankAG.
withtheBankastheguaranteeholder.HSHNordbankAGand
theguarantorcanjointlyagreetoreducetheBank’sfirstloss
piece.
Defaultonaspecificcommitmentisdeterminedbytheout-
standingamount,takingintoaccounttheexistingspecificloan
lossprovisionasat31March2009.Theoutstandingamount
isatmosttheamountrepayableasat31March2009,plusall
interestowedandotherancillarypayments.Lossesmayonly
beallocatedundertheguaranteeoncetheguaranteecasehas
beenexaminedandapprovedbytheguarantor.
2. eventS aFter the reportinG date
3. proviSion of a guarantee faCility
123
Theguaranteeexpireswhenitisreturnedtotheguarantorafter
thelastreferencecommitmentinthehedgedportfoliohas
beenmetirrevocablyandinfullorhasresultedinaguarantee
claimforthefullamount.HSHNordbankAGmayreduce
theguaranteeto€4billionbetween1January2010andtheend
of2013throughpartialcancellationsofnomorethan€3bil-
lionperyear.Theguaranteemaybecancelledinfullfrom2014
onwards.Oncereduced,themaximumamountcannotbe
increasedagain.
InexchangefortheguaranteeHSHNordbankAGpaysacon-
tractualpremiumof4%p.a.ontheoutstandingguaranteevol-
ume.TheEUCommissioniscurrentlyreviewingtheappropri-
atenessoftheremunerationaspartofthestateaidproceedings.
Theguaranteefromthefederalstatesisrecognisedinthecon-
solidatedfinancialstatementsasafinancialguaranteecontract
inaccordancewithIAS39.9.
Asatthebalancesheetdate,thefinancialguaranteehada
securityeffectonthebalancesheetforthecoveredportfoliofor
thefirsttime.Portfoliovaluationallowances,whichrelateto
thecoveredportfolio,werereversedinpartduetothehedging
effect.Acashdraw-downoftheguaranteeoranobligationon
thepartoftheguarantordidnotresultfromthesecurityeffect
onthebalancesheetasatthereportingdate.
Ifduringtherestructuringandworkoutprogrammemeasures
consistentwiththeguaranteeareimplementedinrespectof
hedgedcommitmentsthatconflictwithrecognitionofthehedg-
inginstrumentinthefinancialstatementsasafinancialguar-
anteeunderIAS39.9,commitmentsmaybetransferredtoapar-
tialguaranteeundertheframeworkagreementthatfalls
underthedefinitionofacreditderivativeunderIFRS,subject
toapprovalfromatrusteeappointedbytheguarantor.The
maximumguaranteeamountisnotalteredbythecreationof
thepartialguarantee,asthesumoftheindividualamounts
remainsthesame.
Oncethecreditderivativehasbeencreatedtheguaranteepre-
miumisdividedproratabetweenthepartialguarantees.
Theaccountingtreatmentofthederivativeisinaccordancewith
therequirementsofIAS39.Sincetheacceptanceoftheguar-
anteefirstcommitmentsnotifiedtotheguarantorhavebeen
transferredtothepartialguaranteeofthecreditderivative
withoutbeingdisclosedonthefaceofthebalancesheet.
Thecostoftheguaranteepremiumisreportedunderexpenses
forgovernmentguarantees.Thepremiumpaymentsarerecog-
nisedasanexpenseproratatemporis.
4. adjuStmentS to previouS year Comparative figureS
Thepresentfinancialstatementscontainvariousadjustments
ofthecomparativefigures.Theadjustmentsmadewere
reviewedinaccordancewiththerequirementsofIAS8andclas-
sifiedaschangesinaccordancewithIAS8.41etseq.Thecor-
rectionswereundertakenwithregardtoallpublishedfinancial
statementsaffectedbytheerrorsretrospectively.Therestate-
mentsmadeintheconsolidatedincomestatementalsoinvolve
adjustmentsinthesegmentreportingforthe2009financial
year.Materialchangesinthenotesaredescribedseparately,also
withregardtochangeswhicharenotrelatedtochangesof
itemsinthestatementoffinancialpositionsandthestatement
ofcomprehensiveincome.
explaNatory NoteS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010124
i. correctionS to the Statement oF Financial poSition and Statement oF comprehenSive income under iaS 8.41 et Seq.
Thecorrectionssetoutbelowwerealreadyexplainedinthe
InterimFinancialStatementsasat31March2010.
corrections to financial investments
Write-upswereincorrectlyappliedasat31December2009in
thecaseoffourimpairedsecuritiesduetoamistakeinthe
work-flow;simultaneouslyasmallamountofimpairmentlosses
failedtobereversedinthecaseofthreesecuritiespositions
duetothesamemistake.Theresultantcorrectionscontributed
€−64milliontothenetincomefromfinancialinvestments.
Financialinvestmentsonthefaceofthebalancesheetwere
decreasedby€42millionduetotheadjustmentsoftheLaR
securitiespositionssincecorrespondingimpairmentitemswere
recorded.Financialinvestmentswerenotaffectedbyadjust-
mentstothegrosscarryingamountofasecuritycategorisedas
AfSagainsttherevaluationreservesandthesimultaneous
recognitionofanimpairmentitemeachtotalling€22million.
Inconnectionwiththepositivechangeintherevaluation
reserve,thedeferredtaxassetswerereducedby€7million.
Theadjustmentofthecomparativefigureshadnoeffecton
priorperiods.
Thefollowingtablesshowtheeffectsoftheadjustments,includ-
ingeffectsonincometaxes,forthekeyitemsatthereporting
date.
Adjustments 2009Income statement (¤ m)
2009
Before adjustment Adjustment
Following adjustment
Net income from financial investments −106 −64 −170
Other items (without adjustment) −1,155 – −1,155
Net income before taxes −1,261 −64 −1,325
Income tax expenses (-) / income (+) 423 – 423
Net income after taxes −838 −64 −902
Income from the assumption of losses 159 – 159
Group net loss for the year −679 −64 −743
Group net income attributable to non-controlling interests −9 – −9
Group net income attributable to HSH Nordbank shareholders −670 −64 −734
125
Adjustments 2009Reconciliation with total comprehensive income / loss (¤ m)
2009
Before adjustment Adjustment
Following adjustment
Group net loss for the year −679 −64 −743
Changes in:
revaluation reserve (before taxes) 307 22 329
of which: Exchange rate effects −9 – −9
Income taxes not recognised in the income statement −101 −7 −108
of which: Exchange rate effects 2 – 2
206 15 221
Currency conversion reserve -5 – −5
Income taxes not recognised in the income statement – – –
-5 – −5
Actuarial gains / losses (before tax) −45 – −45
Income taxes not recognised in the income statement 14 – 14
−31 – −31
Other comprehensive income for the period 170 15 185
Total comprehensive income −509 −49 −558
Total comprehensive income attributable to non-controlling interests −9 – −9
Total comprehensive income attributable to HSH Nordbank shareholders −500 −49 −549
Adjustments 2009Earnings per share (¤ m)
2009
Before adjustment Adjustment
Following adjustment
Group net income attributable to HSH Nordbank shareholders – undiluted −670 −64 −734
Dilution effects from: convertible bonds −159 – −159
Group net income attributable to HSH Nordbank shareholders – diluted −829 −64 −893
Number of shares (millions)
Average number of ordinary shares outstanding – undiluted 171 – 171
Dilution effects from: convertible bonds 17 – 17
Weighted average number of ordinary shares outstanding adjusted for the anticipated conversion – diluted 188 – 188
Earnings per share (¤)
Earnings per share (undiluted) −3.93 −0.38 −4.31
Earnings per share (diluted) −4.41 −0.35 −4.76
explaNatory NoteS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010126
ii. correctionS to the noteS under iaS 8.41 et Seq.
reclassifications of subordinated capital
Thenoteonsubordinatedcapitalwascorrectedastothedisclo-
sureofprofitparticipationrightswhichmatureinlessthan
twoyears.Theamountdisclosedwasincreasedby€1,734mil-
lionto€2,083millionasaresultofthefailuretoreportapro-
fitparticipationright.
recognition of certain certificates
Withregardtocertificatesissuedaspartofastructuredtrans-
actionthatwereerroneouslydisclosedasLIAinthe31Decem-
ber2009consolidatedfinancialstatements,disclosurewas
changedtoDFV.Thecorrectionisreflectedinthenotesonfinan-
cialinstrumentsandleadstoanincreaseinliabilitiesofthe
holdingcategoryDFVintheamountof€70millionandacor-
respondingdecreaseinliabilitiesofthecategoryLIA.
Adjustments 2009Statement of financial positionAssets (¤ m)
2009
Before adjustment Adjustment
Following adjustment
Financial investments 29,732 −42 29,690
Deferred tax assets 1,211 −7 1,204
Other items (without adjustment) 143,590 – 143,590
Total assets 174,533 −49 174,484
Adjustments 2009Statement of financial position Liabilities (¤ m)
2009
Before adjustment Adjustment
Following adjustment
Other items (without adjustment) 170,042 – 170,042
Equity 4,491 −49 4,442
Share capital 2,460 – 2,460
Capital reserve 1,509 – 1,509
Retained earnings 1,607 – 1,607
Revaluation reserve −356 15 −341
Currency conversion reserve −90 – −90
Non-controlling interests 31 – 31
Group loss −670 −64 −734
Total liabilities 174,533 −49 174,484
information on leasing transactions
Incorrectamountsrelatedtofinanceleasingtransactionswere
mistakenlyreportedunderthenote‘Leasereceivablesand
liabilities’.Asaresultofthiscorrection,asat31December2009
theamountofthetotalgrossinvestmentincreasedby€50
millionto€299millionandthepresentvalueoftheminimum
leasepaymentsincreasedby€6millionto€258million.
information regarding collateral
Asat31December2009,thecarryingamountsofloansand
advancestocustomers,whichweretransferredascollateral,as
wellasthecarryingamountsofthecorrespondingliabilities
tobanks,werereportedtoolowbytheamountof€244million.
Asaresultofthiscorrection,theamountsdisclosedeach
wereincreasedbythisamount.
127
reclassification under iaS 39 (2008 revision)
ThefairvalueofitemsreclassifiedfromAfStoLaRinthefinan-
cialyear2008,aswellasthefairvalueasat31December
2009,wasdecreasedby€40millionto€281millionandby€43
millionto€273millionrespectivelyasaresultofamistake.
Wehaddisclosedthiscorrectioninthe31March2010Interim
Report.
Theconsolidatedfinancialstatementsincludetheparent
companyHSHNordbankAGtogetherwiththeconsolidated
subsidiaries,includingspecialpurposeentities(SPEs),asan
economicunit.
Specialpurposeentitiesandspecificfundsincludedthereunder
areincludedinthescopeofconsolidationtotheextentthey
arematerialfortheHSHNordbankGroup’snetassets,financial
positionandresultsofoperationsandiftheyaresubsidiaries.
Allspecialpurposeentitiesaffectedintheyearunderreview
wererequiredtobeconsolidatedonthebasisofSIC-12.
Thefinancialstatementsofconsolidatedsubsidiariesusedto
drawuptheconsolidatedfinancialstatementsusethesame
reportingdateastheparentcompany.
Thepurchasemethodwasusedtoconsolidatesubsidiaries,in
accordancewithIAS27.18inconjunctionwithIFRS3.
Sharesheldbythirdpartiesintheequityofsubsidiariesare
shownasnon-controllinginterestsinGroupequity.Non-control-
linginterestsarethatpartofthenetresultsfortheperiod
andnetassetsofasubsidiaryrelatedtosharesnotdirectlyheld
bytheparentcompanyorbyaGroupsubsidiary.
UnderIAS27.20,intra-groupreceivables,liabilitiesandincome
areeliminatedintheconsolidatedfinancialstatements.Gains
aris-ingfromthetransferofassetswithintheGroupareelimi-
natedinaccordancewithIAS27.21.
5. ConSolidation prinCipleS
Subsidiarieswhichwerenotconsolidatedbecauseoftheirsub-
ordinateimportanceareaccountedforasavailable-for-sale
(AfS)financialinstrumentsusingthereportingandmeasure-
mentguidelinesofIAS39.
Jointventuresarebasedoncontractualagreementsunder
whichtwoormorecompaniesestablishaneconomicactivity
undersharedmanagement.Associatedcompaniesarecom-
panieswheretheGroupcanexerciseasignificantbutnotcon-
trollinginfluence.
HSHNordbankownssharesintwoassociatedcompaniesthatare
includedintheconsolidatedfinancialstatementsunderthe
equitymethod.TheGroup’ssharesintheassociatedcompanies
arerecognisedinitiallyattheiracquisitioncostsandthereafter
increasedordecreaseddependingontheGroup’sshareinan
associatedcompany’sprofitorloss.Theinvestmentsarestat-
edinthestatementoffinancialpositionunderaseparateline
item.
Inthereportingperiod,therewerenointerestsinjointventures
andotherassociatedcompaniesthatwouldhavebeenmate-
rialtotheproperpresentationoftheGroup‘snetassets,itsfinan-
cialpositionandtheresultsofoperations.Accordingly,no
consolidationofjointventuresorotherassociatedcompanies
wasperformedundertheequitymethod.Instead,allinterests
injointventuresandotherassociatedcompaniesareaccounted
foraccordingtothereportingandmeasurementguidelines
expanded disclosure of relations with related parties and
companies
Disclosureofrelationswithrelatedcompanieswasexpanded
inthecurrentcomprehensivefinancialstatementsinorderto
improvetheunderstandingofthisitem.Provisionscreated
withregardtoloansandadvancestocustomersareshownsepa-
ratelyintherespectivelinesfornon-consolidatedsubsid-
iaries,non-consolidatedaffiliatedcompaniesandnon-consoli-
datedjointventures.Inaddition,relationshipstojointven-
turesarepresentedseparately.Previously,theywereincluded
underassociatedcompanies.
explaNatory NoteS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010128
Fully consolidated companies Registered officeShare of equity
capital in %
1 Adessa Grundstücksverwaltungsgesellschaft mbH & Co. Vermietungs KG Wiesbaden 0.0
2 Bu Wi Beteiligungsholding GmbH Hamburg 100.0
3 Capcellence Private Equity Beteiligungen GmbH & Co. KG 5) Hamburg 100.0
4 Capcellence Vintage Year 05 / 06 Beteiligungen GmbH & Co. KG 1) Hamburg 83.3
5 Capcellence Vintage Year 06 / 07 Beteiligungen GmbH & Co. KG 1) Hamburg 83.3
6 Capcellence Vintage Year 07 / 08 Beteiligungen GmbH & Co. KG 1) Hamburg 83.3
7 Capcellence Vintage Year 09 Beteiligungen GmbH & CO. KG 1) Hamburg 83.3
8 Capcellence Vintage Year 10 Beteiligungen GmbH & Co. KG 1) Hamburg 83.3
9 CHIOS GmbH Hamburg 100.0
10 CPM Luxembourg S. A.2) Luxembourg 3.2
11 CPM Securitisation Fonds S. A.2) Luxembourg 3.2
12 DEERS Green Power Development Company S. L.6) Saragossa 99.0
13 EALING INVESTMENTS LIMITED London 100.0
14 Endor 8. Beteiligungs GmbH & Co. KG 3) Hamburg 94.8
15 EQUILON GmbH Hamburg 100.0
16 HGA Capital Grundbesitz und Anlage GmbH 3) Hamburg 100.0
17 HSH Corporate Finance GmbH Hamburg 100.0
18 HSH N Composits GmbH Kiel 100.0
19 HSH N Finance (Guernsey) Limited St. Peter Port 100.0
20 HSH N Funding I 4) George Town 100.0
21 HSH N Funding II George Town 100.0
22 HSH Nordbank Private Banking S. A.2) Luxembourg 100.0
23 HSH Nordbank Securities S. A. Luxembourg 100.0
24 HSH Private Equity GmbH Hamburg 100.0
25 HSH RE 2. Beteiligungs GmbH 3) Hamburg 100.0
26 HSH RE 3. Beteiligungs GmbH 3) Hamburg 100.0
InadditiontotheparentcompanyHSHNordbankAG,
Hamburg/Kiel,49companies(previousyear:46)havebeencon-
solidated.Thisincludes5(previousyear:7)specialpurpose
entitieswhichmustbeconsolidatedaccordingtotheprovisions
ofSIC-12.
6. SCope of ConSolidation
Thefollowingsubsidiariesorspecialpurposeentitiesare
includedintheconsolidatedfinancialstatementsofHSHNord-
bankAG:
ofIAS39asAfSinstrumentsandstatedunderfinancialin-
vestments.WheretheHSHNordbankGrouphasnoinformation
asofthereportingdatewhichwouldallowforthefairvalue
oftheseinstrumentstobereliablydetermined,measurementis
basedonacquisitioncostanalogouslytothepracticefornon-
consolidatedsubsidiaries.
129
Fully consolidated companies Registered officeShare of equity
capital in %
27 HSH RE 4. Beteiligungs GmbH 3) Hamburg 100.0
28 HSH RE 5. Beteiligungs GmbH 3) Hamburg 100.0
29 HSH RE 6. Beteiligungs GmbH 3) Hamburg 100.0
30 HSH RE 7. Beteiligungs GmbH 3) Hamburg 100.0
31 HSH Real Estate AG Hamburg 100.0
32 International Fund Services & Asset Management S. A.2) Luxembourg 51.5
33 JANTAR GmbH Hamburg 100.0
34 LB Immo Invest GmbH 3) Hamburg 100.0
35 Leashold Verwaltungs-GmbH & Co. KG Hamburg 100.0
36 Mesitis GmbH Hamburg 100.0
37 MINIMOA GmbH Hamburg 100.0
38 Neptune Finance Partner S. à. r. l. Luxembourg 100.0
39 Neptune Finance Partner II S. à. r. l. Luxembourg 100.0
40 Neptune Ship Finance (Luxembourg) S. à. r. l. & Cie, S. e. c. s. Luxembourg 100.0
41 Northern Blue 2009 S. A. Luxembourg 0.0
42 Plato No. 1 S. A. Luxembourg 0.0
43 PREGU GmbH Hamburg 100.0
44 RESPARCS Funding I Limited Partnership Hong Kong 0.0
45 RESPARCS Funding II Limited Partnership St. Helier 0.0
46 Solar Holding S. à. r. l. Luxembourg 100.0
47 Sotis S. à. r. l. 2) Luxembourg 100.0
48 Swift Capital 1 Europäische Fondsbeteiligungen GmbH & Co. KG Hamburg 99.3
49 THESTOR GmbH Hamburg 100.0
1) Subsidiary of Capcellence Private Equity Beteiligungen GmbH & Co. KG
2) Subsidiary of HSH Nordbank Securities S. A.
3) Subsidiary of HSH Real Estate AG
4) Subsidiary of HSH N Composits GmbH
5) Subsidiary of Private Equity GmbH
6) Subsidiary of Solar Holding S. à. r. l.
explaNatory NoteS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010130
ThecompaniesRESPARCSFundingIandRESPARCSFunding
IILimitedPartnershipareconsolidatedundertheprovisionsof
IAS27basedonthemajorityofvotingrights.
Theremainingcompanieswithanequityshareoflessthan
50%areconsolidatedasspecialpurposeentitiesunderSIC-12.
Thefollowingcompanieswereconsolidatedforthefirsttimein
thereportingperiod:
− BuWiBeteiligungsholdingGmbH,Hamburg
− DEERSGreenPowerDevelopmentCompanySL,Saragossa
− PlatoNo.1S.A.,Luxembourg
− SolarHoldingS.à.r.l.,Luxembourg
− CapcellencePrivateEquityBeteiligungenGmbH&Co.KG,
Hamburg
− CapcellenceVintageYear05/06BeteiligungenGmbH&Co.
KG,Hamburg
− CapcellenceVintageYear06/07BeteiligungenGmbH&Co.
KG,Hamburg
− CapcellenceVintageYear07/08BeteiligungenGmbH&Co.
KG,Hamburg
− CapcellenceVintageYear09BeteiligungenGmbH&Co.KG,
Hamburg
− CapcellenceVintageYear10BeteiligungenGmbH&Co.KG,
Hamburg
− CHIOSGmbH,Hamburg
Incontrasttothefinancialstatementsasat31December2009,
thefollowingcompaniesarenolongerincludedinthescopeof
consolidation:
− CarreraCapitalFinanceLimited,Jersey
− CarreraCapitalFinanceIrelandLimited,Dublin
− HSHAssetManagementS.A.,Luxembourg
− HSHInvestmentManagementS.A.,Luxembourg
− HSHREBeteiligungsGmbH,Hamburg
− NubesGmbH,Lockstedt
− RESPARCSFundingIIILimitedPartnership,Jersey
− HambornerREITAG(formerHambornerAktiengesellschaft),
Duisburg
Thefollowingcompanies:
− BrinkhofHoldingDeutschlandGmbH,Erfurt
− BrinkhofPersonalserviceGmbH,Cologne
− BrinkhofKraftwerk-undIndustrieserviceGmbH,
Oberhausen
wereincludedintheconsolidatedfinancialstatementsofHSH
Nordbankforthefirsttimeon1April2010.On30September
2010,thesecompanieswerenolongerincludedunderIAS
27.21duetoinsolvencyorlossofcontrol.
HSHAssetManagementS.A.wasmergedwithHSHNordbank
SecuritiesS.A.asof1January2010andHSHInvestment
ManagementwasmergedwithHSHNordbankSecuritiesS.A.as
of1April2010.
NubesGmbHandHSHREBeteiligungsGmbHweredeconsol-
idatedasof1January2010astheyarecurrentlynotoperating
entitiesandnolongerhaveamaterialinfluenceontheproper
presentationoftheHSHNordbankGroup’snetassets,its
financialpositionandtheresultsofoperations.
TheassetsattributabletoHSHNordbankfromCarreraCapital
FinanceLimited(incl.CarreraCapitalFinanceIrelandLimited)
weretransferredtotheBankinAugust2010.Thetransferofthe
assetsledtoalossofthemajorityoftherisksandrewardsof
ownershipperSIC12.Asper30September2010,thecompanies
willthereforenolongerbeincludedinthescopeofconsolida-
tion.Thedeconsolidationhadnoeffectsonnetincome.There-
mainingsharesfollowingthelossofcontrolwillbeaccounted
forunderIAS39asfinancialinvestments.
ThesilentparticipationsinHSHNordbankheldbyRESPARCS
FundingIIILimitedPartnershipweretransferred,according
totheagreement,totheshareholdersoftheBank,effectivefrom
30September2010.Thecompanypreviouslyincludedinthe
scopeofconsolidationunderSIC-12wasde-consolidatedasat
30September2010asitsoperationalactivitiesweretermi-
natedanditnolongerhasamaterialinfluenceontheproper
presentationoftheHSHNordbankGroup’snetassets,its
financialpositionandtheresultsofoperations.
Asatthe31December2010reportingdate,ownershipinterests
intwoassociatedcompaniesareincludedintheconsolidated
financialstatementsundertheequitymethod.
131
− HambornerREITAG,Duisburg
− BelgraviaShippingLtd.,London
Asaresultofthecapitalincrease,theGroup’sownershipinter-
estintheHambornerREITAG,whichhadpreviouslybeen
fullyconsolidated,declinedto35.18%.Accordingly,thecom-
panywasincludedintheconsolidatedfinancialstatements
undertheequitymethodforthefirsttimefromOctober2010.
Alossintheamountof€−11.0millionresultedfromthe
deconsolidation,whichisrecognisedundertheitemOtheroper-
atingincome.
Inaddition,BelgraviaShippingLtd.wasincludedintheconsol-
idatedfinancialstatementsasat1October2010forthefirst
timeasanassociatedcompanyundertheequitymethodforrea-
sonsofmateriality.BelgraviaShippingLtd.wasformedatthe
beginningofDecember2009inordertosecuretherestructuring
ofaloanexposure.HSHNordbankGroupholds33.3%ofthe
company’svotingshares.
Additionalinformationoncompaniestobeconsolidatedunder
theequitymethodmaybefoundundernotes[15]and[30].
BuWiBeteiligungsholdingGmbHacquiredallofthevoting
sharesinBrinkhofHoldingDeutschlandGmbHanditswholly-
ownedsubsidiaries,BrinkhofPersonalserviceGmbHand
BrinkhofKraftwerk-undIndustrieserviceGmbH(hereinafterre-
ferredtoastheBrinkhofGroup),uponconcludingashare
purchaseandtransferagreementon10March2010.Theagree-
mentwassubjecttotheconditionprecedentoftheapproval
bytheBundeskartellamtandentryofthechangeintheshare-
holderstructureintheCommercialRegister.Asof1April
2010BuWiBeteiligungsholdingGmbHgainedcontrolofthe
BrinkhofGroupwithinthemeaningofIAS27.Thisnolonger
exists,asaresultoftheinsolvencyoftheBrinkhofGroupinSep-
tember2010.
ThecompaniesoftheBrinkhofGroupprovidehumanresources
services.Therangeofservicesincludesthesupplyoftempo-
raryemployees,personnelplacement,humanresourcesconsult-
ingandhumanresourcesmanagementonsite.
TheBrinkhofGroupwasacquiredwithintheframeworkofa
bail-outpurchaseinordertosecuretheexistingloancommit-
mentsandinordertorestructurethecompanies.Therefore,
thecostsoftheacquisitionwerelimitedtothesymbolicvalue
of€1andweresettledincash.
Cash outflow due to acquisition(¤ m) 1.4.2010
Cash acquired by means of the investment 0.8
Cash outflow –
Actual cash inflow 0.8
Thetablebelowprovidesanoverviewofthefairvaluesatthe
timeofacquisitionoftheidentifiableassetsandliabilities
oftheBrinkhofGroupwhichwereusedfortheinitialconsoli-
dation:
explaNatory NoteS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010132
Duetothefactthatthepurchasepricewasclearlybelowthefair
valueoftheassetsandliabilitiesacquiredduetotherestruc-
turingintention,theallocationofthecostofthebusinesscom-
binationtothesharesinthecompanyacquiredasof1April
2010withintheremitofIFRS3resultsinapositivebalanceof
€31.5million.Thiswascapitalisedasgoodwill.
Duetotheeconomiccauseoftheacquisitionofsharesinthe
BrinkhofGroup(bail-outpurchaseofanon-performingbor-
rower)anextraordinaryimpairmenttestinaccordancewithIAS
36wascarriedoutinthesecondquarterof2010basedona
determinationofthevalueinuse.Asaresultofthisimpairment
testthegoodwill(€31.5million)wasfullywrittenoffandthe
amortisationdisclosedunderOtheroperatingincome.
ThecumulativegainsandlossesofthethreeBrinkhofcompa-
niesacquiredthatareshownintheconsolidatedfinancial
statementsasof31December2010amountto€−7million.The
Groupcontributed€12milliontoOtheroperatingincome.
HadtheGroupalreadybeenconsolidatedasof1January2010,
thiswouldhaveresultedinOtheroperatingincomeorloss
of€−55millionandaGroupnetlossof€44millionforthecon-
solidatedfinancialstatementsasof31December2010.The
contributionoftheBrinkhofGrouptotheseresultswouldhave
been€19millionandalossof€−11millionrespectively.
Duetothecaseofinsolvencyandtherelatedlossofcontrolover
theBrinkhofGroupthatoccurredattheendofthirdquarter,
thecompaniesweredeconsolidatedasof30September2010.A
positiveresultof€42.5millioncamefromthedeconsolida-
tion,whichisrecognisedundertheitemOtheroperating
income.
SolarHoldingsS.à.r.l.,Luxembourg(hereinafterreferredtoas
SolarHolding),newlyestablishedbyHSHNordbankAGin
July2010,acquired99%ofthevotingsharesandthusthecon-
trol,withinthemeaningofIAS27,overtheDeersGreenPow-
erDevelopmentCompany,SL,Saragossa(hereinafterreferredto
asDeers)uponconcludingasharepurchaseandtransferagree-
ment.Bothcompaniesarethereforeincludedinthepresentcon-
solidatedfinancialstatementsforthefirsttimeasfullycon-
solidatedsubsidiaries.
(¤ m)
Carrying amount prior to acquisition Adjustment
Fair value as of 1.4.2010
Assets
Cash reserve 0.8 – 0.8
Intangible assets 37.5 −37.4 0.1
Property, plant and equipment 0.2 – 0.2
Loans and advances to banks 0.6 – 0.6
Other assets 14.9 – 14.9
54.0 −37.4 16.6
Liabilities
Liabilities to banks 37.1 – 37.1
Provisions 0.1 – 0.1
Trading liabilities 0.8 2.2 3.0
Income tax liabilities 1.0 – 1.0
Other liabilities 6.9 – 6.9
45.9 2.2 48.1
Net assets at the date of acquisition 8.1 −39.6 −31.5
Total consideration –
Balance −31.5
133
Deersdevelopedandoperatesaphotovoltaicfacilitywitha
scopeofsupplyof10MWontheroofofanofficebuildingin
Saragossa,Spain.
Thecompanywasalsoacquiredwithintheframeworkofa
bail-outpurchaseinordertosecuretheexistingloancommit-
mentsandinordertorestructurethecompany.Theremu-
nerationfortakingover595newlyissuedA-sharestooktheform
ofacontributioninkind.Todoso,SolarHoldingacquired
solarpanelsatavalueof€5,284.80andcontributedthemtothe
Deerscompanyasacontributioninkind.AtDeersthepanels
werecapitalisedinproperty,plantandequipment.
Cash inflow due to acquisition(¤ m) 5.8.2010
Cash acquired by means of the investment 0.2
Cash outflow –
Actual cash inflow 0.2
Thetablebelowprovidesanoverviewofthefairvaluesat
thetimeofacquisitionoftheidentifiableassetsandliabilities
ofDeerswhichwereusedfortheinitialconsolidation:
(¤ m)
Carrying amount prior to acquisition
Pre-existingrelationship Adjustment
Fair value as of 5.8.2010
Assets
Property, plant and equipment 47.5 – – 47.5
Loans and advances to banks 0.1 – – 0.1
Other assets 0.4 – – 0.4
48.0 – – 48.0
Liabilities
Liabilities to banks 53.6 −53.6 – –
Trading liabilities 7.6 −7.6 – –
Other liabilities 8.5 – – 8.5
69.7 −61.2 – 8.5
Net assets at the date of acquisition −21.7 61.2 – 39.5
Group net income attributable to non-controlling interests −0.2 – −0.2
Total consideration 36.5
Balance 3.2
Considerationconsistsprimarilyofthepresentvalueoftrans-
actionsinexistencepriortothebusinesscombination,in
particularloans.Theallocationofthecostofthesharesinthe
companyacquiredwithinthemeaningofIFRS3resultsina
negativebalancetotheamountof€3.2million.Thisisrecog-
nisedwithinthemeaningofIFRS3.34inOtheroperating
incomeinthecurrentperiod.
Aloanrelationshipwhichexistedbeforeacquisitionhasbeen
fulfilledbetweenHSHNordbankAGandDeers,throughthe
businesscombination.Thefulfilmentamountofthispre-acqui-
sitionrelationshipamountsto€−24.8million,whichis
recognisedinthepresentconsolidatedfinancialstatementsasa
directwrite-offintheresultfromloanlossprovisions,inthe
lendingbusiness.
Atthetimeofacquisition,themeasurementofassetsidentified
atDeersintheareasofproperty,plantandequipmentand
retainedearningshadnotbeenfullycompleted.Bytheyearend
theHSHNordbankGrouphadobtainedinformationwhich
explaNatory NoteS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010134
hadnotbeenavailableatthetimeofacquisition.Accordingly,
themeasurementperiodendson31December2010sothat
thepresentationofthebusinesscombinationiscompleteinthe
currentconsolidatedfinancialstatements.Noretroactivead-
justmenttothepurchasepricecalculationwasperformeddur-
ingthemeasurementperiod.
ThecumulativegainsandlossesofDeersthatareshowninthe
consolidatedfinancialstatementsasof31December2010
amountto€−0.6million.Thecompanycontributed€1million
Aspermitted,estimatesandassumptionsforthemeasurement
ofassetsandliabilitieshavebeenincorporatedintotheconsoli-
datedfinancialstatementsofHSHNordbank.Allestimatesand
judgmentsnecessaryforaccountingandmeasurementaccording
toIFRSwereundertakeninaccordancewiththeappropriate
standardineachcase,arecontinuouslyreassessedandarebased
onpastexperienceandotherfactorsincludingexpectationsof
futureeventswhichappearreasonableunderthecircumstances.
Specifically,thedeterminationoftheloanlossprovisions
(seenote[8.I.C]),provisionsandpensionsandsimilarobligations
(seenote[8.III.6]),goodwill(seenote[8.III.I])andmeasure-
mentoffairvalue(seenote[8.I.D])anddeferredtaxes(seenote
[8.III.7])areaffectedbyuncertainty.Estimatesarealso
neededforthefuturecashflowofhybridfinancialinstruments
(seeNote[8.I.E]).Inconnectionwithinternallygenerated
software,estimatesarenecessaryregardingtechnicalfeasibility
andtheabilitytousethesoftware.
Whereestimateswerenecessaryonalargescale,theunderly-
ingassumptionsarepresentedingreaterdetailintherelevant
note.
Withtheexceptionofestimates,majordiscretionarydecisions
bymanagementintheapplicationofaccountingandmea-
surementmethodsinclude:
toOtheroperatingincome.Hadthecompanyalreadybeen
consolidatedasof1January2010,thiswouldhaveresultedin
Otheroperatingincomeof€−61millionandagroupnetin-
comeof€41millionfortheconsolidatedfinancialstatementsas
of31December2010.ThecontributionofDeerstothesere-
sultswouldhavebeen€1.8millionand€−7.4millionrespec-
tively.
− useofthefairvalueoptionforfinancialinstruments(see
note[8.I.A]),
− notcategorisingfinancialinstrumentsasheldtomaturity
(HtM);
− applyingthecurrentreclassificationrulesunderIAS39
(seenote[52]);
− determiningfairvaluesforcertainfinancialinstruments,
includingajudgementregardingtheexistenceofanactive
orinactivemarket.
7. management eStimateS and diSCretionary deCiSionS
135
i. Financial inStrumentS
a) categorisation of financial assets and liabilities
Afinancialinstrumentisanagreementwhichsimultaneously
createsafinancialassetforonecompanyandafinancial
liabilityorequityinstrumentfortheothercompany.Under
IAS39allfinancialassetsandliabilitiesincludingfinancial
derivativesmustbestatedinthestatementoffinancialposition
andmeasuredaccordingtothecategorytowhichtheyare
assigned.
Financialassetsandliabilitiesarestatedinthestatementof
financialpositionifHSHNordbankGroupisacounterparty
underthecontractforthecorrespondingfinancialinstrument.
Expectedfuturetransactionsorcontractsarenotrecognised.
Pendingtransactionsintheformofderivativesmustalways
bestatedinthestatementoffinancialpositionasfinancialassets
orliabilitiesandmeasuredatfairvalueonthetradingdate.
Spottransactionsinnon-derivativefinancialassets(so-called‘reg-
ularwaycontracts’)arerecognisedasofthesettlementdate.
Thechangeinfairvaluebetweenthetradingdateandsettlement
dateisrecognisedaccordingtothemeasurementrulesforthe
categoryofasset.Thismeansthatchangesinvalueoffinancial
instrumentsinthecategory‘availableforsale’mustbere-
cognisedintherevaluationreserve,whilechangesinvaluefor
thecategories‘designatedatfairvalue’and‘heldfortrading’
arerecognisedintheincomestatementinnettradingincome.
Othernon-derivativefinancialassetswhichdonotresultfrom
spottransactions,e.g.loansgranted,arerecognisedasofthe
settlementdate.
Non-derivativefinancialliabilitiesarerecognisedifoneofthe
twopartiestothecontracthasfulfilledthecontract(settlement
date).
Initialrecognitionismeasuredatfairvalue,whichgenerally
correspondstotheacquisitioncostofthefinancialinstrument.
Derecognitionofafinancialassettakesplaceonthesettlement
date.Inthecaseofderivatives,derecognitiontakesplaceon
thetradingdate.
Subsequentmeasurementoffinancialassetsandliabilities
dependsonwhichIAS39categorytheywereassignedtoatthe
timeofacquisition.Thefollowingdistinctionsaremadehere:
1.Financialassetsandliabilitieswhicharefinancialinstruments
atfairvaluerecognisedinprofitorlossincludebothinstru-
mentsheldfortrading(HfT)aswellasinstrumentswhichare
voluntarilyandirrevocablydesignatedatfairvalue(DFV)
atthetimeoffirstrecognition:
a.Allfinancialinstrumentsheldfortradingandderivatives
whicharenotpartofahedgeaccountingtransactionare
categorisedasheldfortrading(HfT).
Initialandsubsequentmeasurementisatfairvalue,with
transactioncostsbeingrecognisedinprofitorlossatthe
timeofacquisition.InaccordancewithIAS39.43,trans-
actioncostsareonlyincludedintheinitialrecognition
inthecaseoffinancialassetsorliabilitiesnotmeasuredat
fairvalueandrecognisedinprofitorloss.Whereamar-
ketpriceexistsintheformofanexchangequotation,thisis
usedforthepurposesofmeasurement.Inothercases,
themarketpriceofcomparableinstrumentsorrecognised
measurementmodels,especiallynetpresentvaluemeth-
odsandoptionpricingmodels,areusedtodeterminefair
value.
Thesetradinginstrumentsandderivativesarestatedunder
tradingassetsortradingliabilitiesonthestatementof
financialposition.Ongoingmeasurementgainsandlosses
andrealisedgainsandlossesonthesefinancialinstru-
mentsareincorporatedintonettradingincome.Interest
incomeandexpensesarisingfromHfTtransactionsare
recordedundernetinterestincome.
b.Inaddition,certaincomplexstructuresarisingfromissued
instrumentsandassetsthatcontainderivativesrequiring
separation,aswellascertainfinancialinstrumentswhich
areacomponentofaneconomichedgewithoutsatisfy-
ingtherequirementsofIAS39forhedgeaccounting,are
alsocatego-risedasdesignatedatfairvalue(DFV).Inad-
dition,thefairvalueoptioncanbeappliedatHSHNordbank
8. aCCounting poliCieS
explaNatory NoteS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010136
Grouptoportfolioswhosemanagementandperformance
measurementisdoneonafairvaluebasisinaccordance
withthedocumentedriskmanagementstrategy.Thisispos-
siblee.g.withspecialfundsandsimilarassetstobecon-
solidated.
ThedesignationintheHSHNordbankGroupservestoavoid
orreduceaccountingmismatchesfromsecuritiesand
loanshedgedwithinterestratederivatives.Inaddition,the
fairvalueoptionisgenerallyappliedtoanystructures
otherwiserequiredtobesegregated.
FinancialassetsdesignatedasDFVprimarilyrelatetoposi-
tionsinthecreditinvestmentportfolio(AssetBacked
Securities,syntheticCollateralisedDebtObligations,Credit
LinkedNotes)andconvertiblebonds.Financialliabilities
designatedasDFVspecificallycomprisestructuredregis-
teredandbearerinstrumentswithimbeddedinterest,
currency,equityandotherrisks.
Financialinstrumentsinthefairvalueoptionarestated
atfairvalue.Thesefinancialinstrumentsarestatedunder
loansandadvancestobanks,loansandadvancestocus-
tomers,financialinvestments,liabilitiestobanks,liabilities
tocustomers,securitisedliabilitiesandsubordinated
capital.Gainsorlossesarisingfromongoingmeasurement
andrealisedgainsorlossesarestatedundernettrading
income.Interestincomeandexpensesforthesefinancial
instrumentsarestatedundernetinterestincome.
2.Loansandreceivables,whicharestatedinthestatementof
financialpositionatamortisedcost:
Non-derivativefinancialassetswithfixedordeterminable
paymentsnottradedonanactivemarketwhenfirstrecog-
nisedareshownunderIAS39.9asloansandreceivables
(LaR).Exceptionally,thiscategoryalsoincludesfinancialin-
strumentswhichhavebeentransferredfromtheHfTand
AfScategoriesinaccordancewiththechangesinIAS39(rev.
2008)becausetherewasnolongeranactivemarketand
thereisanintentionandabilitytoholdthefinancialassetfor
theforeseeablefutureortomaturity.
Anactivemarketexistswhenquotedpricesareregularly
provided,e.g.byanexchangeorabroker,andtheseprices
arerepresentativeofactualtransactionsbetweenarms-
lengththirdparties.
Financialinstrumentsinthiscategoryarestatedatcostof
acquisition,equivalenttofairvalueatthetimeoffirstrecog-
nitionandtakingintoaccountanytransactioncosts.They
aremeasuredsubsequentlyatamortisedcost;wherebypremi-
umsordiscountsareamortisedaccordingtotheeffective
interestmethodoverthetermandrecognisedinnetinterest
income.FinancialinstrumentsintheLARcategoryare
shownundercashreserves,loansandadvancestobanksand
loansandadvancestocustomers,financialinvestmentsor
otherassets.
3.Financialassetsavailableforsale(AfS)recognisedatfair
valueandnottakenthroughtheincomestatement:
Thecategoryavailableforsale(AfS)encompassesallnon-
derivativeassetswhichcannotbeassignedtoanyoftheother
categories.TheGroup’sAfSholdingsrelateprimarilyto
marketablefixedincomesecurities,investmentfundunits
andequityinstrumentssuchasinterestsinaffiliatedcom-
paniesandequityholdingswhicharerecognisedinaccordance
withIAS39.Theyarerecognisedundercashreserves,finan-
cialinvestmentsandloansandadvancestobanks.
Theinitialmeasurementoffinancialassetsavailablefor
saleisatthefairvalueatthetimeofacquisitionplustrans-
actioncosts.Fairvalueatthetimeofacquisitiongenerally
correspondstothetransactionprice.Subsequently,financial
instrumentsAFSaremeasuredatfairvalueinaccordance
withIAS39.46,totheextentthatthiscanbereliablydeter-
mined.Particularlyforequitysecuritieswhicharenot
listedandwhosefairvaluecannotbedeterminedreliablyby
othermethods,subsequentmeasurementtakesplaceat
costinaccordancewithIAS39.46.(c)inconjunctionwithIAS
39.A81.Theseareprimarilyequityinstrumentsofunlisted
companiesforwhichnoactivemarketexistsandrealisticesti-
matesoftheparametersdeterminingmarketvaluearenot
possiblebecausefutureexpectationsaredifficulttoforecast.
Bycontrast,wherehedgedAfSinstrumentsareconcerned,
thefluctuationrelatingtothehedgedriskisrecognisedin
theincomestatementundernetincomefromhedges.When
anassetissoldandimpairedtherevaluationsurplusis
releasedandrecognisedasincomeorexpense,sothegainor
lossarisingfromthedisposalisrecognisedinprofitorloss.
137
Anywrite-upsrequiredafterimpairmentarenotrecognised
inprofitorlossforequitysecuritiesandrecognisedinprofit
orlossfordebtsecurities.
Thedifferencebetweencostsofacquisitionandrepay-
mentamountforinterest-bearingsecuritiesisstatedunder
netinterestincome,usingtheeffectiveinterestmethod.
4.Otherliabilities(LIA):
Otherfinancialliabilities(LIA)includeliabilitieswhichare
neitherpartofthetradingportfolionorcategorisedasDFV.
Financialliabilitiesarerecognisedatfairvalueatthetime
ofissueplustransactioncosts.Fairvalueatthetimeof
acquisitiongenerallycorrespondstothetransactionprice.In
subsequentperiods,theyaremeasuredatamortisedcost
usingtheeffectiveinterestmethod.
B) classification of financial instruments
Theclassificationoffinancialinstrumentsrequiredforreport-
ingbyIFRS7.6issimilartothecategorisationoffinancial
instrumentsaccordingtoIAS39fortheitemsinthestatement
offinancialposition,inordertoensureauniformandclear
pictureofthefinancialpositionandperformance.Thetable
belowshowstheclassesoffinancialinstrumentsatHSH
NordbankGroup:
explaNatory NoteS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010138
c) loan loss provision and impairment of financial instruments
Ateveryreportingdate,acheckisperformedtoestablish
whetherthereisobjectiveevidencefortheimpairmentofa
financialassetwhichisnotmeasuredatfairvaluerecog-
nisedinprofitorloss.
Animpairmenttestisperformedif,afterinitialrecognitionof
afinancialinstrument,thereisobjectiveevidenceofanimpair-
mentwhichwouldhaveanimpactontheanticipatedfuture
cashflowsfromthefinancialinstrument.
Criteriaforimpairmentareessentiallymajorfinancialdifficul-
tiesfortheborrowerorindicationsthat,basedoncurrent
information,interestpaymentscannotbemadeandanimprove-
mentinthefinancialsituationcannotbedemonstrated.
Inthecaseofsecurities,aninitialcheckisperformedastowheth-
erthemarketvaluehasdecreasedinthelasttwelvemonths,
eitherpermanentlybyatleast10%oronceinthelastsixmonths
by20%belowamortisedcost.Thisappliesastobothequity
anddebtinstruments.Ifsecuritiesmeeteitherofthesecriteria,
theyarecheckedaspartofamulti-stepriskassessmentpro-
cesstoseeifthereareanyindicatorsforimpairment.Anindi-
catorforanimpairmentofasecuritymeans,forexample,a
measurement method classes
IAS 39 Category Statement of financial position item / sub-item
Financial instruments measured at amortised cost
Loans and Receivables (LaR) Cash reserveLoans and advances to banksLoans and advances to customersFinancial investmentsNon-current assets held for sale and disposal groupsOther assets
Other Liabilities (LIA) Liabilities to banksLiabilities to customersSecuritised liabilitiesLiabilities relating to disposal groupsSubordinated capitalOther liabilities
Financial instruments measured at cost Available for Sale (AfS) Financial investmentsNon-current assets held for sale and disposal groups
Financial instruments measured at fair value
Held for Trading (HfT) Trading assetsNon-current assets held for sale and disposal groupsTrading liabilities Liabilities relating to disposal groups
Designated at Fair Value (DFV) Loans and advances to banksLoans and advances to customersFinancial investmentsNon-current assets held for sale and disposal groupsLiabilities to banksLiabilities to customersSecuritised liabilitiesLiabilities relating to disposal groupsSubordinated capital
Available for Sale (AfS) Cash reserveLoans and advances to banksFinancial investmentsNon-current assets held for sale and disposal groups
n / a Positive fair value of hedging derivativesNegative fair value of hedging derivatives
Financial instruments measured on the basis of other standards
n / a Receivables under finance leases
Off-balance-sheet transactions n / a Contingent liabilitiesIrrevocable loan commitmentsOther obligations
139
downgradetobelowinvestmentgrade.Whereasecurityis
alreadybelowinvestmentgradeandtheratingdeterioratesby
anotherthreecategories,thiswouldbeanotherindicator.
Assetbackedsecurity(ABS)transactionsarecheckedtoseeifthe
over-collateralisationmechanismshaveseenasignificant
deteriorationsincepurchaseorissue.Forcollateraliseddebtob-
ligations(CDOs)thepar-valueandinterest-covertestscan
normallybeused,forexample.
Specialrulesintheconsolidatedfinancialstatementsapply
tosecuritiesinthesubprimesegment(assetclasses‘Residential
MortgageBackedSecurities[RMBS]ofHomeEquityLoans
[HEL]’,‘CollateralizedDebtObligations[CDO]ofAssetBacked
Securities[ABS]’and‘CDOofCDO’).Thesesecuritiesmust
betestedforimpairmentwithoutexception,evenifthisisnot
apparentfromthemarketdevelopmentinagiveninstance.In
caseofCDOofABSandCDOofCDO,impairmentsarealways
regardedasduetochangesincreditstanding.ForUSHEL
transactions(RMBSofHomeEquityLoans),thelosscoverage
ratio(LCR)isapplied.TheLCRiscalculatedasthelossbuffer
(=subordinatedtranches)dividedbytheexpectedloss.HELtrans-
actionswithanLCRbelow150%oraratingbelowAAAare
assumedtoinvolveimpairmentinducedbyachangeincredit-
worthiness.
Identifiablerisksfromthelendingbusinessaredealtwithby
makingindividualvaluationallowancesfortheloanor
advanceinquestion.Tocalculatetheamountoftheindividual
valuationallowance,thenetpresentvalueoftheanticipated
cashflowsarisingfromtheloanoradvance–i.e.theachievable
amount–iscomparedtoitscarryingamount.Theantici-
patedcashflowsmaycomprisecapitalrepayments,interestpay-
mentsortheproceedsfromdisposalofcollaterallessliqui-
dationcosts.Ifthecarryingamountisgreaterthantherealisable
amount,anindividualvaluationallowanceiscreatedinthe
amountofthedifference.
Assessmentsastotheneedforriskprovisionsarefrequently
madeonthebasisofinformationwhichisinpartprovisionalin
nature(e.g.plannedrestructuringofborrowers,draftreor-
ganisationreports)oraresubjecttoincreasedvolatility(e.g.col-
lateralvalueofrealestateandships).Thisresultsinincreased
uncertaintyregardingestimatesofkeyparametersofloanloss
provisions.Insuchcases,thelargedegreeofuncertaintyis
mainlyduetotheassessmentofexpectedcashflowswhich
aredependentonborrowers,industries,theassessmentofthe
overalleconomyandotherfactors.
Withrespecttoriskswhichhavealreadyoccurredbuthave
notyetbeenidentified,portfoliovaluationallowancesarecre-
atedforgroupsofassetswhicharecomparableonthebasis
oftheirdefaultrisk.Whendeterminingtheportfoliovaluation
allowance,currentdevelopmentsintheeconomicenviron-
mentaretakenintoaccountthroughparametersfromanex-
pectedlossapproach.Theportfoliovaluationallowances
aredeterminedasofthereportingdateonthebasisoftheregu-
latorycalculationparametersunderBaselII,i.e.probability
ofdefault(PD)andlossgivendefault(LGD).Fortransactionscov-
eredbythecreditriskstandardisedapproach(CRSA),the
probabilityofdefaultistakenintoaccountbyinternalcontrol.
Thelossidentificationperiod(LIP)inthecalculationrepre-
sentstheintervalbetweentheoccurrenceofadefaulteventand
itsannouncement,transformingtheexpectedlossapproach
toanincurredlossapproach.
Giventhedeeprecessioninthefinancialyear2008,anaddi-
tionalsecuritypremiumwasformedfortheportfoliovaluation
allowance(‘managementadjustment’)fromthattimeonas
keyparametersrespondwithalagtothedevelopmentinthe
realeconomy.Duetotheeconomicrecoveryin2010,aswell
asthereductionandfurtherdevelopmentoftheLARsecurities
portfolio,themanagementadjustmentshavebeensignifi-
cantlyreduced.
Risksofuncertaintiesinassessmentareassumedbytheguar-
antorundertheSunriseguarantee.Theportfoliovaluation
allowancewasreducedforthefirsttimeinthereportingyear
afterthefirstlosspiecewasexceeded(cf.note3).
Asthepostingofthevaluationallowancedependsonthecate-
goryoffinancialassets,thefollowingdistinctionsmustbe
madewithregardtomeasurement:
a.FinancialinstrumentsbelongingtothecategoryLaR
whicharemeasuredatamortisedcost.
Impairmentstoloansandadvancestobanksandcustomers
arerecordedinseparatevaluationallowanceaccounts
underallowancesforimpairments.Allowancesforimpair-
mentsthuscreatedarewrittenoffatthetimewhenthe
explaNatory NoteS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010140
amountoftheactualdefaultofthereceivableisdeter-
minedorthereceivabledefaults.Irrecoverablereceivables
forwhichtherewasnoindividualvaluationallowance
arewrittenoffdirectlyasisthecaseforlossesinthecase
ofimpairedreceivableswhichexceededtherecorded
allowanceforimpairments.ImpairmentstoLaRsecurities
arerecordedbymeansofdirectwrite-downstothe
securities.Recoveriesonreceivableswritten-offarerecog-
nisedinprofitorloss.
b.FinancialinstrumentsbelongingtotheAfScategory
whicharemeasuredatfairvalueandnotrecognisedin
theincomestatement.
Inthecaseofpermanentorsignificantimpairmenttoan
AfSequityfinancialinstrument,adirectwrite-downis
recognisedinprofitorloss.Intheprocess,thecumulative
gainstakenthroughtheincomestatementandrecog-
nisedasequityarerebookedtonetinvestmentincome.This
approachisusedforAfSdebtinstrumentsaccordingly.
Inthecaseofdebtsecuritiesonly,ifthereasonsforimpair-
mentnolongerapply,awrite-uptothemaximum
ofamortisedcostisrecognisedinprofitorloss.Amounts
beyondthisandwrite-upstoequitysecuritiesare
enteredintherevaluationsurpluswithoutrecognitionin
theincomestatement.
c.EquitysecuritiesbelongingtotheAfScategorynotquoted
onanactivemarketandmeasuredatthecostofacqui-
sitionastheirfairvaluecannotbereliablydetermined.
InthecaseofimpairmenttoanAfSfinancialinstrument
measuredatacquisitioncostadepreciationtothefinancial
instrumentismade,whichisrecognisedinprofitorloss.
Individualandportfoliovaluationallowancesarealsomade
foroff-balance-sheettransactionsandcarriedonthe
statementoffinancialpositionasprovisionsinthelending
business.
d) determining fair value
FairvalueisdefinedinaccordancewithIAS39asthepriceat
whichafinancialinstrumentcanbetradedbetweentwo
informed,willingandindependentpartieswhoareunderno
obligationtodeal.Thefairvalueoffinancialinstrumentsis
determinedonthebasisofthelistedpriceonanactivemarket
(mark-to-market),orifthisisnotpossibleonthebasisof
recognisedvaluationtechniquesandmodels(mark-to-matrixor
mark-to-model).
Fairvaluecanbedeterminedusingthemarktomarketmethod
ifamarketpriceisavailableatwhichatransactioncouldbe
performedorhasbeenperformed.Thisisgenerallythecasefor
securitiesandderivativestradedonliquidmarkets.Suchan
unadjustedmarketpriceatthemeasurementdateforaniden-
ticalinstrumentisclassifiedaslevel1ofthevaluationhierar-
chyunderIFRS7.
Themark-to-matrixmethodisusedtodeterminefairvalue
wherenomarketpriceisavailableunderthemark-to-market
method.Fairvalueisdeterminedonthebasisofpricesapply-
ingatapointintimeshortlybeforethevaluationdate.Alterna-
tively,transactionpricesmaybeused,i.e.pricesfroma
recent,genuinetransaction.Iffairvaluecannotbedetermined
fromthemarketortransactionpricesofthefinancialinstru-
ment,eitheritisderivedfromthepricesofcomparablefinancial
instrumentsoramodelvaluationisconductedwithparame-
tersthatarealmostcompletelyobservableinthemarket.Alter-
natively,qualityassuredmarketdatafromsuitablepricing
agenciesisused.Adistinctioncanbedrawnbetweenprocedures
basedexclusivelyonobservablemarketdataoronlytoan
insignificantextentonnon-observableparametersandthose
basedtoasignificantextentonnon-observableparameters.
Observablemarketdataareusuallyavailableforliquidsecurities
andplainvanillaOTCderivativestradedonliquidmarkets
(forexampleinterest-rateswaps,FXforwards,FXoptionsincer-
taincurrenciesaswellasderivativesofcertainlistedequities
orindices).Ifthevaluationprocedureusesexclusivelyobserv-
ablemarketdataornon-observableparameterswithonly
insignificantinfluence,thefairvalueisclassifiedaslevel2in
thevaluationhierarchyunderIFRS7.
Fairvalueisdeterminedbythemark-to-modelvaluationusing
asuitablemodel(e.g.option-pricemodel,discountedcash
flowmethod,collateralizeddebtobligationmodel)ifavaluation
cannotbederived,eitherofadequatequalityoratall,using
themark-to-marketormark-to-matrixmethod.Valuationmodels
thatarebasedonnon-observableparameters,andwhich
thereforerequireassumptionsabouttheseparameters,areoften
necessaryforstructuredsecurities–ormoregenerallyfor
141
securitieswhosemarketsareilliquidandforcomplexOTCderiv-
atives.Examplesofnon-observableparametersarecorrela-
tions,volatilitiesandprepaymentrates.Inthiscase,assumptions
include,forexample,probabilitiesofdefaultandthelosses
givendefault.Ifthevaluationprocedureusesnon-observable
parameterswithinsignificantinfluenceonthefairvalue,
thefairvalueisclassifiedaslevel3inthevaluationhierarchy
underIFRS7.
Thefollowingsectiongivesanoverviewoftheparametersand
assumptionsused.
1. Parameters employed in valuation techniques and models
Thefollowingassumptionsareusedtodeterminethefairvalue
foreachclassoffinancialassetsandliabilities:
a.Tradingassets/tradingliabilities(HfT):
Securitiesinthetradingportfolioaremeasuredusingquoted
marketpricestoalargeextent.Ifnocurrentpricefroma
liquidmarketisavailable,interest-bearingsecuritiesaremea-
suredusingthediscountedcashflowmethodbasedon
rating-andsector-dependentyieldcurvesderivedfrommarket
dataoffixed-incomesecurities.
Exchange-tradedderivativesarealsomeasuredusingmarket
prices.Ifnocurrentpriceisavailable,recognisedmeasure-
mentmodels(suchasBlack-ScholesforEuropeanoptions)that
arebasedonnon-observableparameterstoaninsignificant
extentatmostareused.
OTCderivativesaremeasuredusingvaluationtechniquesand
models.Adistinctionisdrawnbetweenplainvanilladeriv-
ativestradedinliquidmarkets,suchasinterestrateswaps,
crosscurrencyinterestrateswaps,FXforwards,FX
options,single-nameandindexcreditdefaultswapsandcom-
plexderivativeswheremarketsareilliquid.Theformer
aremeasuredusingrecognisedtechniquesandmodelsthat
arebasedonnon-observablemarketparameterstoan
insignificantextentatmost,whilethelatterrequireasignifi-
cantbodyofestimatesinrelationtotheselectionofboth
themodelandtheparameters.
b.Positive/negativefairvaluesofhedgingderivatives:
Thisclasscontainsexclusivelyplainvanillainterestrateand
crosscurrencyinterestrateswapswhichcanbemeasured
usingrecognisedtechniquesandmodelsthatusenon-observ-
ablemarketparameterstoaninsignificantextent,ifatall.
c.Financialinvestments(AfS):
TheHSHNordbankGroup’sfinancialinvestmentscomprise
mainlyfixedincomesecurities.Substantialpartsarevalued
usingmarketprices.Ifnocurrentpricefromaliquidmarket
isavailable,interest-bearingsecuritiesaremeasuredusing
thediscountedcashflowmethodbasedonrating-andsector-
dependentyieldcurvesderivedfrommarketdataoffixed-
incomesecurities.
ThefinancialinvestmentsalsoincludeABSaspartialholdings
inthecreditinvestmentbusiness.Thesearemeasuredusing
thepricinghierarchydescribedabove.
Fairvalueisnotcalculatedforunlistedequityinstruments
(holdingsinaffiliatedcompaniesandequityholdingstreated
underIAS39)asthereisnoactivemarketforthemand
thenecessaryestimatescannotbemadewithinanacceptable
rangeofvariationandsuitableprobabilityofoccurrence.
Thereforethesefinancialinstrumentsarerecognisedatcost
ofacquisition.
d.Assets/liabilitiesdesignatedatfairvalue(DFV):
Assetsdesignatedatfairvalue,carriedunderfinancialinvest-
mentsandloansandadvancestocustomersorbanks
primarilycompriseholdingsinthecreditinvestmentbusiness
(ABS,syntheticCDOs,CLNs).FormeasuringCDOs,a
standardmarketmodel(Gauss-Copula)isusedwhichincludes
bothobservableandnon-observablemarketparameters.
Thepricinghierarchydescribedaboveisusedfortheother
products.
DFVliabilitiesstatedundersecuritisedliabilities,liabilities
tocustomersorbanksandsubordinatedcapitalinclude
complexstructuredregisteredandbearersecuritieswithem-
beddedinterest,currency,equityandotherrisks.Wherecur-
rentmarketpricesareavailableforsecuritisedliabilities
onliquidmarkets,theseareused.However,thepredominant
majorityofDFVliabilitiesaremeasuredusingvaluation
techniquesandmodels.Thesemakeextensiveuseofcomplex
techniquesandmodelswhichalsousemarketparameters
whicharenotdirectlyobservable.DFVliabilitiesareprinci-
pallyhedgedthroughoffsettingderivativessothatthere
explaNatory NoteS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010142
arepositionswhichcompensateformodelrisksorparameter
uncertainties.
Separatedeterminationofthechangeinfairvalueattribut-
abletocreditriskofDFVholdingsisdoneonthebasisofthe
carryingamount,theresidualmaturityofthefinancial
instrumentortransaction,informationfromexternalrating
agenciesandmarketspreadsforinstrumentsofthesame
ratingandmaturity.ForliabilitiescategorisedasDFV,adis-
tinctionismadeinassigninganappropriatespreadbe-
tweeninstrumentswithandwithoutguaranteeobligation.
2. Valuation adjustments
Ifthevalueofafinancialinstrumentasdeterminedbyavalua-
tiontechniqueormodeldoesnottakeadequateaccountof
factorssuchasbid-offerspreads,closingcosts,liquidity,model
risksandcreditorcounterpartydefaultrisks,theBankmakes
correspondingvalueadjustments.Themethodsusedmakepar-
tialuseofnon-observablemarketparametersintheformof
estimates.
3. Day One Profit and Loss
Useofavaluationmodelbasedtoasignificantextentonnon-
observablemarketdatacanleadtodifferencesbetweenthe
transactionpriceandmodelpriceattheacquisitiondate.For
financialinstrumentsmeasuredatfairvaluewithfairvalue
changesrecognisedinprofitorloss,suchdifferences(‘dayone
profitandloss’)areaccruedandspreadoverthematurity.
e) hybrid financial instruments
IAS39.A8statesthatthecarryingamountoffinancialassets
andliabilitiesmustbeadjustedandrecognisedinprofitorloss
iftheestimatedfuturecashflowsassociatedwiththeinstru-
mentchange.Thisalsoappliesforfinancialinstrumentsnot
measuredatfairvalue.Thenewcarryingamountisgiven
bythepresentvalueofthenewlyestimatedfuturecashflows
usingthefinancialinstrument’soriginaleffectiveinterest
ratefordiscounting.Insubsequentyearsthediscounteffect
reduceswithconstanteffectiveinterestrate,leadingtoawrite-
upforfinancialliabilitieswhichisrecognisedinnetinterest
income.
ApplicationofIAS39.A8hadaneffectintheyearunderreview
onvaluationofthehybridfinancialinstrumentsissuedby
HSHNordbankGroup,astheestimatedfuturecashflowsdiffer
fromthecontractualcashflows.
Theterm‘hybridfinancialinstruments’includessilentpartici-
pations,profitparticipationsandtwobondsissuedbycon-
solidatedsubsidiariesmeasuredatamortisedacquisitioncost.
Akeycommonfeatureoftheseinstrumentsisthattheir
interestdependsonprofitandtheyparticipateinanannualnet
lossoftheBank.
Thefuturecashflowswhoseamountandpaymentsdateshave
tobeestimatedarepaymentsofinterestandprincipalwhich
takeintoaccount
− participationsinlossbyinvestors,wherethesewillprobably
notbemadeupbytheexpectedredemptiondateofan
instrument,
− anycontractuallyagreedretrospectivecouponpayments.
ApplicationofIAS39.A8meansthatmeasurementofhybrid
financialinstrumentsinvolvesmorethanjustthelosssituation
intheperiodunderreview.Specifically,itinvolvesmore
thanassigningtheproratedlossintheperiodunderreview.In
addition,theeffectsofpossiblefutureassignmentoflossand
thecancellationorpostponementoffutureinterestpayments
mustberecognisedinprofitorlossintheperiodinwhich
theestimateischanged.Thiscanmeanthatinfutureloss-mak-
ingperiodsitisnotpossibletorecogniseanyfurtherloss
participationsinprofitorloss,ifthesefuturelossescorrespond
totheestimatesmadepreviously.Thelossparticipationrecog-
nisedinprofitorlossisaccordinglyanticipated,ratherthanbeing
lefttotheperiodinwhichthelossarises.Futureloss-related
reductionsininterestalsodonotresultinfullrelieftointerest
expenses,ifthereductionininteresthasalreadybeentaken
intoaccountintheestimate.Instead,thereversaloftheeffect
ofdiscountingappliedintheyeartheestimatewaschanged
isrecognisedinexpenses(write-upoftheliabilityduetothepas-
sageoftime).
Theestimationoffuturecashflowsfromhybridfinancialinstru-
mentsrequiredinapplyingIAS39.A8requiresmaterialas-
sumptionswhichareassociatedwithuncertainties.Amongthe
keysourcesofuncertaintyinestimationarethefutureprofit-
abilityofHSHNordbankGroup,whichdependsspecificallyon
thedevelopmentoftheeconomyandexpectedrequirements
bytheEuropeanUnioninconnectionwithapprovalofrestruc-
turingsubsidies.Assumptionsarealsorequiredabouttheex-
erciseofterminationorextensionoptionsassociatedwiththe
individualtransactions.Basedonthedegreeofknowledge
143
aboutuncertaintiesatthetimethefinancialstatementsare
drawnup,thepossibilitycannotbeexcludedthatchangingin-
formationinsubsequentperiodswillrequiredeparturefrom
previousassumptions,whichwouldrequirenewadjustments
tothecarryingamountofhybridfinancialinstrumentsrecog-
nisedinprofitorloss.Inthecaseofdecliningexpectationsof
loss,theparticipationinthelossofinvestorswouldalsode-
crease,whichwouldbeassociatedwithanincreaseinourrepay-
mentobligationsrecognisedinexpenses.Thesameconsider-
ationsapplytothereversecase.
Netincomefromhybridfinancialinstrumentsisshownasa
separateitemundernetinterestincome,andinadditiontocur-
rentinterestexpensesitincludestheeffectsofapplyingIAS
39.A8(seenote(9]).Deferredtaxesarisebecauseofthedifference
betweenvaluationfortaxpurposesandmeasurementinthe
consolidatedfinancialstatements.Theassociatedeffectsonnet
incomearerecognisedunderincometaxes.Hybridfinancial
instrumentsarerecognisedeitherassecuritisedliabilitiesoras
subordinatedcapital(note[39]and[48]).
F) hedge accounting
UnderIFRS,changesinvalueofitemsinIAS39categories
AFS,LARandLIAarenotrecognisedinprofitorloss.Changes
inthevalueofderivativesarealwaysrecognisedinprofitor
loss.IfunderlyingtransactionsinIAS39categoryAfS,LaRor
LIAarehedgedwithderivatives,theresultistodistortthe
incomestatementsothatitdoesnotcorrespondtotheeconomic
reality.Onepossibilitytoavoidthesedistortionsistouse
fairvaluehedgeaccounting.Infairvaluehedgeaccountingthe
changesinvalueofhedgeditems,whichareattributableto
thehedgedrisk,arerecognisedinprofitorloss.
HSHNordbankGroupemploysderivativestoeconomically
hedgeagainstmarketrisksarisingfromloans,issuesandsecu-
ritiesholdings.Individualloans,issuesandsecuritiesitemsas
wellasentireportfoliosofsuchfinancialinstrumentsarehedged
inthisway.
Microandportfoliofairvaluehedgeaccountingareusedto
avoiddistortionsintheincomestatement.Currentlyonlyhedges
offairvalueagainstinterestrateriskaretakenintoaccount.
Fixed-interestrateloans,issuedinstrumentsandsecuritiespo-
sitionsaredesignatedasunderlyingtransactions(hedged
items),whileonlyinterestrateandinterestratecurrencyswaps
aredesignatedashedginginstruments.
Whereindividuallending,issuingorsecuritiestransactionsare
hedgedbyderivativeswithnon-Groupcounterpartiesand
thishedgingarrangementsatisfiestherequirementsofIAS39,
microfairvaluehedgeaccountingisapplied.Whereportfo-
liosofhedgeditemsarehedged,thehedgingoftheseitemswith
matchingexternalderivativesisshownunderportfoliofair
valuehedgeaccountingtotheextentthatthismeetstherequire-
mentsofIAS39.
Inthecaseofamicrofairvaluehedge,thecarryingamountof
theunderlyingtransactionisadjustedintheincomestate-
mentforthefairvaluechangeattributabletothehedgedrisk.
Thefairvaluechangeswhicharenotattributabletothe
hedgedriskaretreatedinaccordancewiththegeneralrulesfor
thecorrespondingIAS39category.
Inthecaseofportfoliofairvaluehedgeforinterestratechange
risks,portfoliosofassetsandliabilitieshedgedforinterest
ratechangerisksaretakenintoaccount.Thisinvolvesanitera-
tiveprocedure.Atthestartofahedgingperiod,thefinancial
instrumentsintheportfoliosareallocatedtomaturityrangeson
thebasisoftheiranticipatedmaturityorinterestadjustment
dates,andthehedgedamountisthendeterminedforeachmatu-
rityrange.Thehedgingtransactionsarealsoallocatedatthe
startofthehedgingperiod.Attheendofthehedgingperiod,the
hedgeisrecognisedandmeasuredandanewhedgeisdesig-
nated.Thechangesinthefairvalueofthehedgedamountsof
theunderlyingtransactionsduetothehedgedriskarerecog-
nisedinaseparateiteminthestatementoffinancialposition
(assetorliabilityreconcilingitemsfromtheportfoliofair
valuehedge).Thefairvaluechangeswhicharenotattributable
tothehedgedriskaretreatedinaccordancewiththegeneral
rulesforthecorrespondingIAS39category.
Usingfairvaluehedgeaccountingrequiresaseriesofconditions
tobemet.Theseprincipallyrelatetothedocumentationof
thehedgeanditseffectiveness.IntheHSHNordbankGroupall
hedgingrelationshipsaredocumentedinaccordancewith
therequirementsofIAS39,includingthehedginginstrument,
thehedgeditem(underlyingtransaction),thehedgedrisk
andtheresultandmethodofmeasuringeffectiveness.
Futurechangesinvalueofunderlyingandhedgingtransactions
aresimulatedusingaregressionmodelwithintheframe-
workoftheprospectiveeffectivenesstest.Anyactualchanges
invalueareusedinretrospectiveeffectivenesstesting.The
explaNatory NoteS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010144
resultsofretrospectiveandprospectiveeffectivenessmeasure-
mentinmicrofairvaluehedgeaccountingareanalysed
usingregressionanalyses.Inportfoliofairvaluehedgeaccount-
ing,HSHNordbankGroupusesthedollaroffsetmethod
tomeasureeffectiveness.Thistestswhethertherelationship
betweenthechangesinvalueofunderlyingandhedgingtrans-
actionslieswithinanintervalof80%to125%.
Changesinvalueofunderlyingsandhedgingtransactionsin
effectivehedgeswhichareattributabletothehedgedriskare
recognisedintheresultfromhedging.
Incomeandexpensesfromthedepreciationofreconciling
itemsforthefairvaluehedgeportfolioandproceedsfromthe
closingoftheunderlyingtransactionswhichcontributedto
reconciliationitemsarereportedaspartofthenetinterestin-
come.
G) derecognition
Afinancialassetisderecognisedwhenallmaterialrisksand
opportunitiesassociatedwithownershipoftheassethavebeen
transferred,i.e.whencontractualclaimsoncashflowsfrom
theassethavebeenextinguished.Wherenotallrisksandoppor-
tunitiesaretransferred,theHSHNordbankGroupcarries
outacontroltesttoensurethatnocontinuinginvolvementdue
toopportunitiesandrisksretainedpreventsitfrombeing
derecognised.Financialassetsarealsoderecognisedifthecon-
tractualrightstopaymentstreamshaveexpired.Financial
liabilitiesarederecognisedwhentheyarerepaid,i.e.whenthe
associatedliabilityissettledorlifted,orwhendue.
h) repurchase agreements and securities lending transactions
HSHNordbankGrouponlyentersintogenuinerepotransac-
tions.Genuinerepurchaseagreements,repoagreementsorsell-
and-buy-backtransactionscombinethespotpurchaseorsale
ofsecuritieswiththeirforwardsaleorrepurchase,thecounter-
partybeingthesameinbothcases.
Forgenuinerepotransactionswithassetssoldunderrepurchase
agreements,thesecuritiescontinuetoberecognisedbythe
HSHNordbankGroup,astheinterest,creditratingandother
materialrisksassociatedwiththesecuritiescontinuetobe
bornebyHSHNordbankGroup.Accordingtocounterparty,the
inflowofliquidityfromtherepotransactionisshowninthe
statementoffinancialpositionasaliabilityeithertobanksor
customers.Interestpaymentsarerecognisedunderinterest
expenseoverthetermofthetransaction.Outflowsofliquidity
causedbyreversereposarereportedasloansandadvances
tobanksorcustomers.Correspondingly,thesecuritiesbought
underrepurchaseagreementsarenotcarriedormeasured
inthestatementoffinancialposition.Agreedinterestpayments
arebookedasinterestincomeoverthetermofthetrans-
action.Receivablesarisingfromreposarenotnettedagainstlia-
bilitiesfromreposinvolvingthesamecounterparty.The
emphasisinrepotransactionsisonbondsfromGermanpublic
sectorissuersaswellasfromeurozonebankissuersand
theBank’sownbonds.Correspondingtransactionswerealso
carriedoutinequities.
Securitieslendingtransactionsarecarriedonthestatementof
financialpositioninasimilarwaytogenuinerepurchase
agreements.Lentsecuritiesremaininthesecuritiesportfolio,
whileborrowedsecuritiesarenotcapitalisedonthestate-
mentoffinancialposition.Cashcollateralfurnishedforsecuri-
tieslendingtransactionsisshownasareceivable,while
collateralreceivedisshownasaliability.Repurchaseandsecu-
ritieslendingtransactionsarecarriedoutinequitieswith
anemphasisonbonds.
i) Financial guarantee contracts
PursuanttoIAS39.9,afinancialguaranteeisacontractthat
requirestheissuerofthecontracttomakespecifiedpayments
toreimbursetheholderofthecontractforthelossthatthe
holderincursbecauseaspecifieddebtorfailstomakepayment
whendueundertheoriginaloramendedtermsofadebt
instrument.Acreditderivativeistreatedasafinancialguarantee
basedontheprovisionsofIAS39iftherequirementsofIAS
39.9forthefinancialguaranteearemet.Creditderivativesthat
donotmeetthedefinitionofafinancialguaranteeareallo-
catedinaccordancewiththegeneralvaluationrulesfortheHfT
categoryandvaluedatfairvalue.
FinancialguaranteesattheHSHNordbankGroupareprovided
intheformofwarranties,bankguaranteesandlettersof
credit.Correspondingcontingentliabilitiesarebasedonpast
eventsthatmayresultinpossibleliabilitiesinthefuture.
Theseliabilitiesariseasaresultoftheoccurrenceofunspecified
futureeventswheretheamountrequiredtomeetthem
cannotbeestimatedwithsufficientreliability.Financialguaran-
145
teesarestatedinaccordancewiththenetmethod.Ifthe
premiumpaymenttotheHSHNordbankGroupisdistributed
overthetermofthefinancialguarantee,theguaranteewill
bestatedaszeroandthepremiumpaymentrecognisedonan
accrualbasis.IftheHSHNordbankGroupistheholderof
acontract,thefinancialguaranteewillbepresentedascollateral
fortheGroup.
ii. noteS on Selected itemS relatinG to Financial inStrumentS in the Statement oF Financial poSition
1. Cash reserve
Cashonhand,balanceswithcentralbanks,treasurybillsand
non-interest-bearingtreasurynotesarestatedundercashreserve.
Bothinitialandsubsequentmeasurementofassets(LAR)stated
undercashreservetakesplaceatparvalue,whichisequiva-
lenttofairvalueduetoitsshort-termnature.
Treasurybillsanddiscountedtreasurynotesrecognisedunder
AfSaremeasuredatfairvalue.
2. Loans and advances
Primarilyassetsfromtheloansandreceivables(LAR)category
arerecognisedinthestatementoffinancialpositionunder
loansandadvancestobanksandloansandadvancestocustom-
ers.Inaddition,financialinstrumentsinthecategoriesDFV
andAfSarerecognisedhere.Carryingamountsofreceivables
whichareanelementofmicrofairvaluehedgeaccounting
areadjustedforthechangeinvalueattributedtothehedgedrisk.
LoansandreceivablesoftheLaRcategoryarestatedgross
(beforedeductionofimpairments).Allowancesforimpairments
arestatedinaseparateitemloanlossprovisions,shown
underreceivablesasadeduction.Financialinstrumentsinthe
DFVandAfScategoriesarestatednet.Whereloansand
receivableshavebeenacquiredorincurredwiththeintention
oftrading,theyarestatedundertradingassets.
Interestincomefromloansandadvancestobanksand
customersisrecordedunderinterestincomefromlendingand
moneymarkettransactions.Thisalsoincludesearlyrepay-
mentpenaltiesfromprematurerepaymentofreceivables.Premi-
umsanddiscountsareaccruedusingtheeffectiveinterest
ratemethod.Accruedinterestisalsoallocatedtothisiteminthe
statementoffinancialposition.
3. Positive and negative market value of hedge derivatives
Thisitemshowsthemarketvalueofderivativeswhichhavea
positiveornegativefairvalueandwhichareusedinhedge
accounting.Onlyinterestrateandinterestratecurrencyswaps
aretakenintoaccountashedginginstrumentscurrently.Ifa
derivativeisonlypartiallydesignatedunderhedgeaccounting,
thisitemcontainsthecorrespondingshareofthatderivative’s
fairvalue.Inthesecases,theremainderisstatedundertrading
assetsortradingliabilities.
4. Reconciling asset and liability items from the fair value
hedge portfolio
Theasset-sidereconcilingitemfromportfoliofairvalue
hedgeaccountingcontainsthevaluechangeofthehedgedobject
tobeattributedtothehedgedriskfromportfoliofairvalue
hedgesforassets.Similarly,theliability-sidereconcilingitem
fromportfoliofairvaluehedgeaccountingcontainsthevalue
changeofthehedgedobjecttobeattributedtothehedgedrisk
fromportfoliofairvaluehedgesforliabilities.
5. Trading assets and trading liabilities
OnlyfinancialassetsclassifiedasHfTarestatedundertrading
assets.Theseincludeprimaryfinancialinstrumentsheldfor
tradingpurposes,particularlyfixedincomesecuritiesandpro
ratainterest,andalsoequitiesandothertradingportfolios
suchaspreciousmetals.Asignificantcomponentcontinuesto
bederivativeswithapositivemarketvaluewhichareeither
tradingderivativesornotdesignatedasahedgederivativebe-
causetheydonotmeettherequirementsofhedgeaccounting.
Measurementgainsandlossesarerecognisedintradingincome.
Interestanddividendincomeisrecognisedasnetinterest
incomeandcommissionincomeandexpensesarerecognisedin
netcommissionincome.
Inasimilarwaytotradingassets,tradingliabilitiesonlyinclude
financialobligationsbelongingtothecategoryheldfortrad-
ing(HfT),whichincludesderivativeswithanegativemarketval-
ueswhichareeithertradingderivativesorwhichhavenot
beendesignatedashedgederivativesbecausetheydonotmeet
therequirementsofhedgeaccounting.Deliverycommitments
explaNatory NoteS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010146
fromshortsalesofsecuritiesandproratainterestfromthese
arealsostatedinthiscategory.
6. Financial investments
Financialinvestmentsincludeparticularlysecuritiesincategory
AfS,andalsosecuritiesinthecategoriesLaRandDFV.This
itemincludesfixed-interestsecuritiesnotheldfortradinginclud-
ingaccruedinterest,equitiesandothernon-fixed-interest
securities,holdingsinunconsolidatedaffiliatedcompanies,and
holdingsinjointventuresandassociatedcompaniesnot
carriedatequity.Realisedgainsandlossesfromfinancialinvest-
mentsareshownintheincomestatementinnetincome
fromfinancialinvestmentstotheextenttheyarenotDFVhold-
ings.Netinterestincomefromfinancialinvestmentsis
showninnetinterestincome.Ifthedisposalofequityholdings
orinterestsinaffiliatedcompanieswasdecidedandinitiated
atthebalancesheetdateanditishighlyprobablethatitcan
becompletedwithinthefollowingtwelvemonths,they
arereclassifiedasnon-currentassetsheldforsaleanddisposal
groups.
7. Financial investments measured under the equity method
Duringthereportingyear,wehaverecognisedforthefirsttime
sharesinassociatedcompaniesinaseparateiteminthecon-
solidatedstatementoffinancialpositionatequity.Themeasure-
mentofsuchownershipinterestsismadeinaccordancewith
theguidelinesofIAS28.
8. Liabilities
LiabilitiesincludefinancialliabilitiesincategoriesLIAandDFV.
Theyarerecognisedasliabilitiestobanks,liabilitiestocustom-
ersandsecuritisedliabilities.
Financialliabilitiesarerecognisedatfairvalueatthetime
ofissueplustransactioncosts,whichgenerallycorrespondsto
thetransactionprice.Insubsequentperiodssecuritiescatego-
risedasLIAaremeasuredpursuanttoIAS39.47atamortised
costapplyingtheeffectiveinterestmethod.
ChangesinthemeasurementofLIAfinancialinstruments
areonlyrecordedwhentherelevantinstrumentissold.Differ-
encesbetweenacquisitioncostsandrepaymentamount(e.g.
premiumsanddiscounts)areallocatedaccordingtotheeffective
interestratemethodandtakentonetinterestincome.Cur-
rentgainsandlossesfrommeasuringDFVfinancialinstruments
arestatedundernetincomefromtrading.
Thecarryingamountofhedgedliabilitieswhichfulfilthe
requirementsofmicrofairvaluehedgeaccountingareadjusted
bythegainsandlossesarisingfromfluctuationsinfairvalue
attributabletothehedgedrisk.
Repurchasedowndebenturesaresetoffagainstsecuritised
liabilities.
9. Subordinated capital
Noobligationtoothercreditorsforprematureredemptionof
subordinatedliabilitiesispossible.Inthecaseofliquidationor
insolvency,subordinatedliabilitiesmayonlyberepaidafter
theclaimsofallseniorcreditorshavebeenmet.Profit-sharing
certificates,subordinatedliabilitiesandsilentparticipations
areshownundersubordinatedcapital,duetotheirdifferent
naturefromotherliabilities.Silentparticipationsarestruc-
turedasso-calledhybridfinancialinstrumentswithoutexcep-
tionandsoaresomeprofit-sharingcertificates(cf.note[8.I.E.]).
Basedontheircontractualstructureandfinancialcharacter,
theparticipationsofthetypicalsilentpartnerrepresentdebt,
whichiswhytheyarestatedundersubordinatedcapital.
SubordinatedcapitalcategorisedasLIAisrecognisedandmea-
suredinitiallyatcostofacquisitionandprincipallyatamor-
tisedcostinsubsequentperiods.Premiumsanddiscountsare
allocatedonaconstanteffectiveinterestratebasis.
Currentgainsandlossesfrommeasuringsubordinatedcapital
categorisedasDFVarestatedundernetincomefromtrading.
Seenote[8.I.E.]withregardtothetreatmentofhybridfinancial
instrumentsintheyearunderreview.
iii. noteS on other itemS in the Statement oF Financial poSition
1. Intangible assets
Softwareacquiredordevelopedin-house,acquiredgoodwill
andotherintangibleassetsarerecognisedandmeasuredunder
intangibleassets.InaccordancewithIAS38.21,theHSH
147
NordbankGroupcapitalisessoftwaredevelopmentcostsifthe
productionofthein-housesoftwareislikelytogeneratean
economicbenefitandthecostscanbereliablydetermined.Ifthe
criteriaforcapitalisationarenotmet,expensesarerecognised
inprofitorlossintheyeartheyareincurred.Goodwillarises
onacquisitionofsubsidiaries,associatesandjointventures
whenthecostofacquisitionexceedstheGroups’shareinthe
netassets(shareholders’equity)ofthecompanyacquired.
Theinitialmeasurementofintangibleassetsismadeatacquisi-
tionorproductioncostsinaccordancewithIAS38.24.They
aresubsequentlymeasuredatamortisedacquisitionorproduc-
tioncost.
Softwareissubjecttolineardepreciationoverthreetotenyears.
Allintangibleassetsarereviewedoneachreportingdatefor
signswhichsuggestimpairment.Intangibleassets,aswellas
goodwill,aresubjecttoanimpairmenttestannuallyevenif
therearenosignswhichsuggestimpairment,bycomparingthe
carryingamountoftheassetswiththeirrealisableamount.
Therealisableamountisdefinedasthegreateroffairvalueless
coststosellandvalueinuse.Anassetisimpairedifitscarry-
ingamountexceedsitsrealisableamount.
Examinationofthevalueofgoodwilliscarriedoutonthebasis
ofcash-generatingunits.Whereunderlyingsubsidiariesare
integrallyinvolvedinthebusinessactivitiesofdivisions,cash-
generatingunitswerepreviouslydefinedasthesegments
showninsegmentreporting.Afterthemodificationoftheseg-
mentsinthecourseoftherealignmentofHSHNordbank
Groupinthe2009financialyear,thecashgeneratingunitsto
whichgoodwillhasbeenallocated(oldsegments)havebeen
redefinedasthenewsegmentsspecialistbankingandregional
banking,andretaintheirvalidityinthisdefinition.However
ifthevalueinuseisexpectedtoberealisedbycashinflowsor
anincreaseinvalueofasubsidiaryalone,thenthesubsidiary
istreatedasacash-generatingunit.Wheretheanticipatedbene-
fitcannolongerbedetermined,awrite-downismade.
2. Property, plant and equipment
Landandbuildings,operatingequipmentandleasingassets
underoperatingleaseswhereHSHNordbankGroupactsaslessor
arestatedunderthisitem.Property,plantandequipmentis
statedatcostofacquisitionorproductionlesslineardepreciation
inlinewithitsexpectedusefullife.Subsequentcostsofac-
quisitionorproductionarecapitalizedprovidedtheyincrease
theeconomicutilityoftheassetconcerned.Interestpaidto
financeacquisitioncostsofproperty,plantandequipmentis
recordedasanexpenseintheperiodconcerned.
Physicalwearandtear,technicalobsolescenceandlegaland
contractualrestrictionsaretakenintoconsiderationwhen
determiningusefullife.Forproperty,plantandequipment,lin-
eardepreciationiscalculatedoverthefollowingperiods:
Property, plant and equipment categoryUseful life
in years
Buildings 50
Leasehold improvements 1)
Other operating equipment 4–13
Leasing assets 25
1) Calculation of residual life is based on the remaining term of the rental agreement.
Property,plantandequipmentisreviewedateachreporting
dateforsignswhichsuggestimpairment.
Gainsandlossesfromthedisposalofproperty,plantandequip-
mentareshownunderotheroperatingincomeintheincome
statement.Repairs,servicingandothermaintenancecostsare
recordedasanexpenseintheperiodconcerned.
3. Investment properties
Investmentpropertiesarepropertiesheldtoearnrentalincome
ormakecapitalgainsbutnotusedforownoperations.For
mixedusepropertiesapercentageallocationofcarryingamount
ismade.Own-usedpropertiesarereportedunderproperty,
plantandequipment;rented-outoremptypartsarereported
asinvestmentproperties.Thepropertiesarerecognisedat
acquisitioncostanddepreciatedonastraight-linebasis.Auseful
lifeofbetween33and50yearsisusedfordepreciationpur-
poses.
Thecapitalisedincomemethodisusedindeterminingthefair
valueoftheremaininginvestmentproperties,usingmarket
datafrominternalappraisers.Thefairvalueisdisclosedin
note[32].
explaNatory NoteS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010148
4. Non-current assets held for sale and disposal groups and
liabilities from disposal groups
Non-currentassetswhosecarryingamountwillbepredomi-
nantlyorprimarilyrealisedthroughasaleandnotthroughcon-
tinuingusemustbeclassifiedasheldforsaleinaccordance
withIFRS5,ontheconditionthatasalehasalreadybeende-
cidedonandinitiatedasofthereportingdate,andisextreme-
lylikelytobecompletedwithinthefollowingtwelvemonths.
Adisposalgroupisagroupofassetswhicharesoldtothesame
purchaserinasingletransactionandatasingleprice.Adis-
posalgroupcanalsoincludeliabilities,ifthesearetakenover
bythepurchasertogetherwiththeassets.HSHNordbank
Grouprecognisesasdisposalgroupsandliabilitiesfromdisposal
groupsspecificallytheassetsandliabilitiesofconsolidated
subsidiarieswhichmeettherequirementsofIFRSforclassifica-
tionasheldforsale.
Non-currentassetsanddisposalgroupsheldforsalearemea-
suredatfairvaluelesssalecostsincaseswherethisislower
thancarryingamount.Financialinstrumentscontinuetobe
measuredaccordingtotherequirementsofIAS39.
5. Other assets and Other liabilities
Allremainingassetsandliabilitiesnotallocabletoanyother
itemarestatedunderotherassetsorotherliabilities.This
includesaccrualsanddeferrals.
Thegeneralrecognitionandmeasurementcriteriaforassets
areobserved.Initialrecognitionisatcost.Forfinancialinstru-
mentsincludedinthisitemtheprovisionsofIAS39apply.
6. Provisions
ProvisionsarecreatedwhentheGrouphasexistinglegaland
actualobligationsresultingfrompreviouseventsanditis
likelythatmeetingtheobligationwillrequireanoutflowof
resourcesandareliableassessmentoftheamountoftheobli-
gationcanbemade.Provisionsareexaminedandredetermined
atleastquarterly.
a.Otherprovisions
Otherprovisionsinclude,forexample,provisionsinthelend-
ingbusiness,forrestructuring,litigationrisksandcosts,for
personnelexpenses(withoutpensions)andotherprovisions.
Provisionsinthelendingbusinessarecreated,amongotherrea-
sons,foranysuddencallstopayunderwarrantybonds,guar-
anteesandlettersofcredit.Theparametersusedforthecalcula-
tionarepresentedinthesectionAllowancesforimpairments
andimpairmentoffinancialinstruments[note8.I.C]).
Provisionsforrestructuringincluderestructuringexpenses
priortoactualdisbursementtotheextenttherequirementsof
IASforthecreationofprovisionsaremet.
ProvisionsforlitigationrisksaretobecreatedwhenHSH
Nordbankisthedefendantinanactionandtheprobabilitythat
theBankwilllosetheactionispresumedtobegreaterthan
50%.Provisionsincludeonlypaymentsforprobableliabilityfor
damagesandfines.Provisionsforlitigationcostscomprise
expectedpaymentsforcourtcostsaswellasfornon-courtcosts
inconnectionwithlitigationsuchas,e.g.attorneys’feesand
othercosts.Forlitigationinprogress,onlycostsforthecurrent
jurisdictionallevelmaybeincludedwithintheprovision.
Underpersonnelprovisions,ingeneralalloutstanding
benefitswithinthepersonnelexpensesarepresentedwiththe
exceptionofpensionobligations.IntheHSHNordbank,
theseareprimarilyanniversarypaymentsandlong-termcredits
forhours.Personnelprovisionslikewiseincludebenefitsin
connectionwiththeterminationofemploymentexplicitlyset
outinIAS19.
Provisionsforcostsrelatedtotheproductionoftheannual
financialstatements,documentationobligationsaswellasfor
potentiallossesfrompendingtransactionsareprimarilyre-
portedunderotherprovisions.
InaccordancewithIAS37,provisionsaremainlydetermined
basedonthebestestimateoftheexpenditurenecessaryto
meettheobligationsidentifiableonthereportingdate.Long-
termprovisionsarereportedatpresentvaluetotheextent
thediscountingeffectsaresignificant.Fordiscountingpurposes,
interestratesthatarevalidonthereportingdateandare
term-appropriateareusedbasedonarisk-freeswapcurve.Addi-
tionofaccruedinteresttobeperformedduringthereport-
ingyearisreportedundernetinterestincome.
Inaddition,otherprovisionsalsocontainprovisionsforper-
sonnelexpensesmeasuredinaccordancewithIAS19.The
resultingeffectsarerecognisedaspartofnetinterestincome.
149
b.Pensionprovisions
ThemajorityofemployeesofHSHNordbankAGaswellasem-
ployeesofseveraldomesticsubsidiariesareentitledtobenefits
fromdifferentstaffpensionplans,whichincludebothdefined
contributionanddefinedbenefitplans.
Inthecaseofdefinedcontributionplans,contributionsare
paidtoexternalpensionproviders,withemployeesalsocontrib-
utingashare.HSHNordbankAGalsoparticipatesinamulti-
employerplanwhichisrunbyBVVVersorgungskassedesBank-
gewerbese.V.HSHNordbankAGhasnoobligationstopen-
sionersbeyondthecontributionpayments.Therearealsopoli-
cieswithProvinzialNordLebensversicherungAGfordirect
insurancepoliciespartlyfinancedbyemployees.Astheinsur-
ancecompanyisrequiredtobeamemberofProtektor
Lebensversicherungs-AG,theinsuredemployeesareprotected
againstitsinsolvency,sothatHSHNordbankAGisnotbur-
denedevenintheeventofProvinzialNordLebensversicherung
AG’sinsolvency.Thesedirectinsurancepoliciesrepresent
insuredbenefitsandaretreatedasdefinedcontributionplans.
Inthecaseofthedefinedbenefitplans,theamountofbenefit
dependsonvariousfactors,suchasage,salaryandlength
ofservice.Pensionplansincludespecificallyretirementanddis-
abilitypensionsandsurvivorbenefits.Theyarebasedprimar-
ilyonemploymentcontractsofLandesbankSchleswig-Holstein
Girozentrale,theretirementplanofHamburgischeLandes-
bankGirozentrale,retirementpensionguidelinesoftheHam-
burgischeLandesbankGirozentralerelieffund,thepension
planofHamburgischeLandesbankGirozentraleandsection2(2)
oftheInvestmentBankActintheversionof23January1998.
Pensionprovisionsfordefinedbenefitplansareequivalenttothe
netpresentvalueofthepensionentitlementsearnedas
ofthereportingdate,factoringinanticipatedwageandsalary
increasesandthetrendinannuities.Calculationsarebased
solelyonactuarialreportsbasedonIAS19,whichareprepared
byindependentactuariesusingtheprojectedunitcredit
method.
Actuarialgainsandlossesarerecognisedunderequityin
retainedearningsintheyearinwhichtheyarise.Pensionprovi-
sionsarediscountedaslong-termliabilities.Theinterest
expenseincludedinexpenseforretirementpensionsisrecog-
nisedaspartofnetinterestincome.
Duringthefinancialyear,thedeterminationofthediscount
factorformeasurementofprovisionsforpensionobligations
waschanged.TheMercerPensionYieldCurveapproach
(MPDYC)wasusedasof31December2010todeterminethein-
terestrate.Forthepreviousyear,thediscountfactorhas
beendeterminedonthebasisoftheiBoxx€CorporateAAindex.
Thechangewasperformedwithaviewtotheincreasedcon-
siderationoflong-termcompanyloans,inorderfortheinterest
ratetoreflectthelong-termnatureofthepensionobligations
better.Furthermore,theexistingestimationmodelwasfurther
developedsothattheweightingoftheinterestratewhichis
relatedtocurrentbeneficiariesandpensionersnoworientates
itselfontheseparationofthecashvalueoftherespective
performance-orientedobligations.Previously,theweightingwas
basedonthenumberofcurrentbeneficiariesandpensioners.
Theeffectsoftheseadjustmentswerepresentedinthe30Sep-
tember2010InterimReport.
Thefollowingassumptionsaremadeincalculatingdefined
benefitpensionobligations:
explaNatory NoteS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010150
Definedbenefitpensionplansarepartlyfinancedfromassets
andqualifiedinsurancepoliciesusedexclusivelyforpensions
(planassets).Planassetsaremeasuredatfairvalueandrecog-
nisedinthestatementoffinancialpositionasreducingprovi-
sions.
Theexpectedreturnonplanassetsisdeterminedusingthelong-
termreturnonbonds.Suitableriskpremiumsareappliedto
thistoreflecttheplan’sassetstructure,basedoncapitalmarket
yieldsandexpectations.
7. Income taxes
Currenttaxassetsandliabilitiesarestatedattheamountof
theanticipatedrefundfrom,orpaymentto,thetaxauthorities,
applyingthetaxprovisionsofthecountriesinquestion.
Deferredtaxassetsandliabilitiesderivefromtemporarydiffer-
encesbetweenthevalueofanassetorliabilityasmeasured
byIFRSstandardsanditsassignedvalueintaxterms.Deferred
taxesontaxlossescarriedforwardarestatedastheamount
likelytobeusedinfuture.Deferredtaxesarecalculatedusing
thetaxratesandrulesanticipatedtobevalidatthetime
whenthedeferredtaxassetsaretoberealised.Theeffectsof
taxratechangesondeferredtaxesaretakenintoaccounton
adoptionofthelegislativeamendment.Deferredtaxassetsare
recognisedandmeasuredastaxassetsanddeferredtaxliabili-
tiesastaxliabilities.
Thebasisforcapitalisingdeferredtaxassetsisthegeneralbank
planningforthenextfiveyears,whichisusedtoderivetax
resultsplanning.Forthefurtherplanninghorizon,theresultfor
thelastplanningyeariscontinued.Despitepossibleestima-
tionuncertaintiesduetothecurrenteconomiccrisisanditscon-
sequences,noimpairmentisanticipatedfordeferredtax
assets.
Expensesandincomefromdeferredtaxesareinprinciplerecog-
nisedonanaccrualbasisintheincomestatementunder
incometaxes,separatefromactualtaxexpensesandincome.In
doingso,theaccountingtreatmentoftheunderlyingsitu-
ationistakenintoaccount.Deferredtaxesarerecognisedinthe
incomestatementiftheiteminthestatementoffinancial
positionitselfisrecognisedinprofitorloss.Ifthebalancesheet
itemitselfisnottakenthroughtheincomestatement,then
thedeferredtaxesarealsotakenstraighttoequityinthereval-
uationsurplusorretainedearnings(IAS12.61).
Actuarial assumptions 2010 2009
Discount rate
Domestic 5.4 % 5.1 %
Foreign 5.0 % – 5.4 % 5.3 % – 5.6 %
Expected return on plan assets 5.4 % – 7.0 % 5.1 % – 7.6 %
Salary growth 1.5 % – 5.5 % 2.0 % – 5.2 %
Adjustment rate for pensions
Domestic
Employment contract 1 / old pension provision rules individual individual
New pension provision rules 2.0 % 2.0 %
Employment contract 4 2.0 % 2.0 %
Foreign 3.8 % 3.2 %
Staff turnover
Age 20 6.0 % 6.0 %
Age 20 – 55 Linear decline to zero Linear decline to zero
Age 56 0.0 % 0.0 %
Retirement age in years 65–67 63–67
Mortality, disability, etc. Based on the 2005 G tables of K. Heubeck
Based on the 2005 G tables of K. Heubeck
151
iv. leaSinG tranSactionS
InaccordancewithIAS17adistinctionismadebetweenfinance
andoperatingleases.Theallocationdependsonwhethersub-
stantiallyalltherisksandrewardsaretransferredtothelessee
ornot.
Afinanceleaseisconsideredtobepresentwheretheeconomic
risksandrewardsasdefinedbyIAS17liewiththelessee;
consequently,theleasedassetisreportedinthelessee’sstate-
mentoffinancialposition.Allotherleasingarrangements
areclassifiedasoperatingleases.Theclassificationismadeatthe
beginningofeachlease.
1. Finance leases
Inthecaseoffinanceleases,theHSHNordbankGroupacts
solelyaslessorandrecognisesareceivableintheamountofthe
netinvestmentvalueeitherunderloansandadvancesto
banksorloansandadvancestocustomers,dependingonthe
lessee.
Leasingratesduearedividedintoarepaymentpartwhichisnot
recognisedinprofitorloss,andaninterestpartwhichis.The
parttakentoprofitorlossisrecognisedinnetinterestincome.
2. Operating leases
AslessortheHSHNordbankGroupstatesleasingobjectsasassets
measuredatamortisedcostunderproperty,plantandequip-
mentorasinvestmentproperties.Leasinginstalmentsreceived
arestatedunderotheroperatingincome,andthecorrespond-
ingdepreciationstatedinadministrationexpenses.
RentalexpensesfromcontractswheretheHSHNordbankGroup
actsaslesseearereportedasrentalexpensesunderadminis-
trationexpenses.
v. currency tranSlation
TheconsolidatedfinancialstatementsofHSHNordbankAG
aredrawnupineuros.Theeuroisthefunctionalcurrencyof
theoverwhelmingmajorityoftheindividualfinancialstate-
mentsincludedintheconsolidatedfinancialstatements.How-
eversomeGroupcompanieshaveanotherfunctionalcurrency.
Thefollowingprinciplesareappliedwhentranslatingforeign
currencyitemswithinindividualfinancialstatementsandfor
translatingthefinancialstatementsofGroupcompanieswhich
donotdrawuptheiraccountsineuros.
1. Presentation of foreign currency transactions in the single
entity financial statements
Initialmeasurementofassetsandliabilitiesfromallforeign
currencytransactionstakesplaceatthespotrateforthetrans-
action.
Insubsequentmeasurement,monetaryitemsaretranslated
basedonthespotmid-rateasofthereportingdate.Non-mone-
taryitemsthatarestatedinthestatementoffinancialposi-
tionatfairvaluearetranslatedusingthespotmid-rateapplica-
bleatthetimeofmeasurementandanyothernon-monetary
itemsatthehistoricalrate.
Expensesandincomeinforeigncurrencyarisingfromthemea-
surementofitemsinthestatementoffinancialpositionare
translatedusingtheratesappliedfortranslatingtheitemsin
question.Thetransactionratesareusedforallotherexpenses
andincome.
Formonetaryandnon-monetaryitemsmeasuredatfairvalue,
currencytranslationdifferencesarealwaysrecognisedin
theincomestatementoftheperiodwhentheresultarose.An
exceptioniscurrencytranslationgainsandlossesfromthe
measurementofnon-monetaryAfSfinancialinstrumentsrecog-
nisedatfairvalue,whichareincludedintherevaluation
reserve.
2. Translation of financial statements prepared in foreign
currency for inclusion in the consolidated financial statements
Assetsandliabilitiesfromfinancialstatementsdenominatedin
foreigncurrenciesaretranslatedattheperiod-endrate.Aver-
ageratesforthereportingperiodareusedtotranslateexpenses
andincome.Withtheexceptionoftherevaluationreservein
theparentcompanyfinancialstatements,whichistranslatedat
theperiod-endrate,equityistranslatedathistoricrates.
Anydifferencesarisingfromthismethodoftranslationare
reportedunderequityinaseparateitem.
explaNatory NoteS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010152
Interestincomeandexpensesrelatingtotradingandhedging
derivativesareshownunderinterestincomeandexpenses
fromderivativefinancialinstruments.
Thedeclineininterestincomeandexpensefromderivative
financialinstrumentsisduetothemarket-riskneutraltermina-
tionofnettingpositionsininterestratederivativeswithexter-
nalcounterparties.
Netinterestincomeincludesincomeandexpensesarisingfrom
theamortisationoftheadjustmentitemsforportfoliofair
valuehedgerelationshipsandcorrespondingproceedsfromthe
closingoftheunderlyingtransactionswhichcontributedto
theadjustmentitems.
Incaseofunchangedpaymentexpectations,achangein
thepresentvalueofimpairedloansandadvances(unwinding)
occursovertime.Theinterestincomefromsuchloansand
advancesiscalculatedasthepresentvaluebyaddingaccrued
interestusingtheoriginaleffectiveinterestrate.
Netinterestincomeincludesone-timegainsfrompromissory
notesintheamountof€122million(previousyear:€19mil-
lion).
Interestexpenseforsecuritisedliabilitiesincludesrealisednet
incomefromrepurchasedownbondsof€137million(previous
year:€167million).
Thecumulativenetincomefromhybridfinancialinstruments
amountsto€212million(previousyear:€375million).Net
incomefromreestimatinginterestandredemptioncashflows
recognisedfortheendoftheyear2009accountsfor€602
millionofthiscumulativenetincomeandthenetlossfromdis-
countingandcompoundingaccountfor€−390million(previ-
ousyear:€−224million).
notes on the income statement
9. net intereSt inCome
Net interest income (¤ m) 2010 2009
Interest income from
Lending and money market transactions 3,540 4,628
Fixed-interest securities 705 1,050
Trading transactions 43 173
Derivative financial instruments 9,764 14,598
Unwinding 184 111
Current income from
Equities and other non-fixed-interest securities 32 41
Associated companies 5 14
Equity holdings 75 40
Other holdings 9 9
Interest income 14,357 20,664
of which attributable to financial instruments not categorised as HfT or DFV 4,321 5,706
Interest expenses for
Liabilities to banks 810 1,255
Liabilities to customers 1,455 1,806
Securitised liabilities 1,208 1,744
Subordinated capital 253 273
Trading transactions – 1
Other liabilities 1 6
Derivative financial instruments 8,965 13,833
Interest expenses 12,692 18,918
of which attributable to financial instruments not categorised as HfT or DFV 3,246 4,573
Net income from reestimating interest and redemption cash flows 3 599
Net income from discounting and compounding −166 −224
Net income on hybrid financial instruments −163 375
of which attributable to financial instruments not categorised as HfT or DFV −163 375
Total 1,502 2,121
153NoteS oN tHe iNcome StatemeNt | Group FiNaNcial StatemeNtS
Thetotalofcurrentparticipationinlosses(notallowingfor
anticipatedwrite-ups)relatingtothe2010financialyearwas
€104million(previousyear:€400million).
Directwrite-downsof€67million(previousyear:€70million)
relatedentirelytoloansandadvancestocustomers.
Loanlossprovisionsinon-balance-sheetlendingbusinessrelate
exclusivelytoloansandadvancestobanksandcustomerscatego-
risedasLaR.
Thefollowingtableshowsthenetchanges:
Net changes in loan loss provisions (¤ m) 2010 2009
Individual valuation allowances −1,099 −2,081
Portfolio valuation allowances 714 −479
Total −385 −2,560
At€318million,thereversalofportfoliovaluationallowances
areallocabletothefinancialhedgeeffectoftheguarantee
facilityprovidedbythefederalstateofSchleswig-Holsteinand
theFreeandHanseaticCityofHamburgviatheHSHFinanz-
fondsAöR,seenote[3].Adraw-downoftheguaranteeoran
obligationonthepartoftheguarantordidnotresultfromthe
hedgeeffectasatthereportingdate.
Thenetchangesinprovisionsinthelendingbusinessduring
theperiodunderreviewarepresentedbelow:
Net changes in provisions in the lending business (¤ m) 2010 2009
Individual loan loss provisions
for contingent liabilities 35 −148
for loan commitments 25 71
for other credit risks 113 −130
Subtotal 173 −207
Portfolio valuation allowances
for contingent liabilities 32 −22
for loan commitments 36 25
Subtotal 68 3
Total 241 −204
10. loan loSS proviSionS
Thedifferencebetweenvaluationfortaxpurposesandvaluation
underIAS39.A8resultsindeferredtaxesof€32million(pre-
viousyear:€13million).
Loan loss provisions (¤ m) 2010 2009
− Expenses from allocations to loan loss provisions 2,772 3,482
+ Income from reversal of loan loss provisions 2,387 922
Subtotal −385 −2,560
− Expenses from allocations to provisions in the lending business 399 651
+ Income from reversal of provisions in the lending business 640 447
Subtotal 241 −204
− Direct write-downs 67 70
+ Payments received on loans and advances previously written down 82 40
Subtotal 15 −30
Total −129 −2,794
HSH NordbaNk 2010154
12. reSult from hedging
Thechangeinvalueattributabletothehedgedriskfordesig-
natedunderlyingandhedgingtransactionsineffectivehedging
relationshipsisreportedundertheitem‘Resultfromhedging’.
Theitemcontainsthecorrespondingprofitcontributionsfrom
microandportfoliofairvaluehedges.Hedgeaccountingis
usedsolelyforinterestraterisks.
FinancialinstrumentsnotclassifiedasHfTorDFVaccounted
for€216million(previousyear:€216million)ofnetcommis-
sionincome.
11. net CommiSSion inCome
Net commission income (¤ m) 2010 2009
Commission income from
Lending business 131 121
Securities business 61 43
Guarantee business 40 51
Foreign business 7 15
Payments and account transactions 14 7
Other commission income 49 66
Commission income 302 303
Commission expenses from
Lending business 13 23
Securities business 43 30
Guarantee business 2 1
Foreign business 3 5
Payments and account transactions 2 2
Other commission expenses 21 31
Commission expenses 84 92
Total 218 211
Result from hedging (¤ m) 2010 2009
Fair value changes from hedging transactions 286 580
Micro fair value hedge −22 87
Portfolio fair value hedge 308 493
Fair value changes from underlyings −278 −434
Micro fair value hedge 21 −84
Portfolio fair value hedge −299 −350
Total 8 146
155
13. net trading inCome
Nettradingincomecomprisesrealisedincome/lossandtheval-
uationresultforfinancialinstrumentsclassifiedasHeldfor
Trading(HfT)orDesignatedatFairValue(DFV).Interestincome
andexpensesforfinancialinstrumentsofthesecategoriesare
shownundernetinterestincome.
Incomefromforeignexchangetransactions,creditderivatives
andcommoditiesisstatedunderotherproducts.Gainsand
lossesoncurrencyconversionarealsostatedunderthisitem.
Thenettradingincomeofthereportingperiodwasinfluenced
bytheresultsofforeigncurrencyvaluation.Alossof€203
millionresultedfromforeigncurrencytranslationofloanloss
provisions(previousyear:gainintheamountof€17million)
whichwasprincipallyduetotheriseintheUSdollar.
Nettradingincomeincludesnetincomefromforeigncurrency
of€−160million(previousyear:€51million).
Inthefinancialyear,€−248million(previousyear:€486mil-
lion)ofthechangesinfairvalueofthefinancialassetscatego-
risedasDesignatedatFairValue(DFV)relatedtochangesin
thecreditspread,ratherthanchangesinmarketinterestrates.
Incumulativeterms,theamountof€−611million(previous
year:€−809million)wasattributabletochangesinthecredit
spread.
Duringthefinancialyear,changesinvaluerelatedtochanges
inthecreditspreadriskratherthantomarketinterestrate
changesforliabilitiesinthecategoryDFVamountedto€70mil-
lion(previousyear:€1million).Incumulativeterms,atotalof
€360million(previousyear:€342million)wasattributable
tochangesinthecreditspread.
Net trading income (¤ m)
Bonds and interest rate derivatives
Equities andequity derivatives Other products Total
2010 2009 2010 2009 2010 2009 2010 2009
Realised net income
Held for trading 118 216 3 −4 330 −110 451 102
Designated at fair value −265 −303 – −1 1 2 −264 −302
Subtotal −147 −87 3 −5 331 −108 187 −200
Valuation result
Held for trading 61 497 – 42 −381 304 −320 843
Designated at fair value −235 66 9 −140 – −1 −226 −75
Subtotal −174 563 9 −98 −381 303 −546 768
Total −321 476 12 −103 −50 195 −359 568
NoteS oN tHe iNcome StatemeNt | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010156
14. net inCome from finanCial inveStmentS
Inadditiontoanyrealisedgainsandlossesfromfinancialinvest-
mentscategorisedasLoansandReceivables(LaR)andAvailable
forSale(AfS),write-downsandwrite-upsandportfolioimpair-
mentallowancesarereportedunderthisitem.Inthecaseof
financialinvestmentsclassifiedasavailableforsale,write-ups
areonlyrecognisedintheincomestatementfordebtinstru-
mentsuptoamaximumoftheamortisedcost.
Intheyearunderreview,equityinstrumentscategorisedasAfS
notmeasuredatfairvaluewithacarryingamountof
€196million(previousyear:€95million)weredisposedof.This
resultedinrealisedincomeof€10million(previousyear:
€3million).Remaininginstrumentsofthiskindwerewritten
downby€149million(previousyear:€162million).
Net income from financial investments (¤ m) 2010 2009
Classified as AfS
+ Realised gains / losses (-) 30 63
− Depreciation 150 188
+ Write-ups 3 9
Subtotal −117 −116
Classified as LaR
+ Realised gains / losses (-) 30 26
− Depreciation 51 190
+ Write-ups 154 89
Subtotal 133 −75
− Additions to portfolio valuation allowances 7 56
+ Reversal of portfolio valuation allowances 221 77
Subtotal 214 21
Total 230 −170
157
16. adminiStrative expenSeS
Administrative expenses (¤ m) 2010 2009
Personnel expenses 410 388
Operating expenses 414 403
Depreciation on property, plant and equip-ment and amortisation on intangible assets 43 39
Total 867 830
Thedepreciationdoesnotcontainanyamortisationofgood-
will.Anysuchamortisationisstatedinotheroperatingincome
(seenote([17]).
Personnel expense (¤ m) 2010 2009
Wages and salaries 349 328
Social security contributions 46 42
Expenditure for pensions and support 15 18
Total 410 388
Pleaserefertonote[43]fordetailedinformationonexpenses
forpensionbenefitsandsupport,aswellasexpensesfordefined
contributionplans.
Operating expense (¤ m) 2010 2009
IT costs 148 148
Costs of external services and project work 85 68
Expenses for land and buildings 55 60
Legal service costs 42 21
Obligatory contributions and expenses related to corporate law 10 20
Costs of advertising, PR and promotional work 7 11
Expenses on property, plant and equipment 2 2
Other expenses 65 73
Total 414 403
Depreciationonproperty,plantandequipmentandintangible
fixedassetsarebrokendownasfollows:
Asatthebalancesheetdate31December2010,theHSH
NordbankGroupownssharesintwoassociatedcompaniesthat
areincludedintheconsolidatedfinancialstatementsunder
theequitymethod(seeNote[30]).
TheproratanetincomeallocabletotheGroupfromfinancial
investmentsaccountedforbasedontheequitymethod
amountedto€2millionasat31December2010.Inaddition,
thisincomeitemcontainsagainintheamountof€2million
resultingfromthefirst-timerecognitionofthesharesof
BelgraviaShippingLtd.,asthevalueofthecompany’snetassets
acquiredexceededtheacquisitioncostsoftheownership
interest.
Thisincomeisreportedinthesegmentreportasapartofnet
incomefromfinancialinvestmentswithintheconsolidation.
15. net inCome from finanCial inveStmentS aCCounted for under the equity method
NoteS oN tHe iNcome StatemeNt | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010158
17. other operating inCome
Depreciation (¤ m) 2010 2009
Scheduled depreciation on
Plant and equipment 8 8
Property 9 11
Acquired software 11 11
Software developed in-house 12 6
Leasing assets 1 1
Unscheduled depreciation of
Property 1 2
Other intangible fixed assets 1 –
Total 43 39
€8million(previousyear:€10million)ofscheduleddeprecia-
tionisoninvestmentproperties.€1million(previousyear:
€2million)ofunscheduleddepreciationisoninvestmentpro-
perties.
Other operating income (¤ m) 2010 2009
Income
from reversal of other provisions and release of liabilities 77 52
from investment properties (rental income) 21 26
from leasing transactions 4 2
from write-ups on property, plant and equipment and investment properties 1 1
Total income 103 81
Expenses
from the amortisation of goodwill 108 59
from additions to other provisions 95 10
for investment properties 4 1
Total expenses 207 70
Income from disposal of property, plant and equipment −1 −3
Other income and expenses (netted) 43 22
Total −62 30
Theprovisionsforapotentialhigherremunerationofthe
secondlossguaranteecreatedinthebeginningof2009were
reversedintheamountof€60millionasOtheroperating
income(cf.note[19]).
Otheroperatingincomeincludesamortisationofgoodwillto
theamountof€108million(previousyear:€59million).
Goodwillallocatedtothecash-generatingsegmentTransporta-
tion&Energy(inthesegmentSectorSpecialistBank)was
amortisedintheamountof€56million.Afurther€20million
ofamortisationofgoodwillwasallocatedtothecash-gen-
eratingsegmentRealEstate(inthesegmentRegionalBank).Al-
readyinthesecondquarterof2010,goodwillfromthecash-
generatingRestructuringUnitwasamortisedintheamountof
€32millioninconnectionwiththeinitialconsolidationof
theBrinkhofGroupwhichhadbeentemporarilyincludedinthe
consolidatedfinancialstatements.
Depreciationfromthepreviousyearof€59millionwasalloca-
bletotheRegionalbankingsegment.
Rentalincomeoninvestmentpropertiesistheresultofoperat-
ingleasingtransactions.
159
19. expenSeS for government guaranteeS
Expenses for government guarantees (¤ m) 2010 2009
Financial Market Stabilisation Fund (SoFFin) 114 118
HSH Finanzfonds AöR 405 365
Total 519 483
18. reSult from reStruCturing
Result from restructuring (¤ m) 2010 2009
Personnel expenses 25 71
Operating expenses 38 103
Income from the reversal of provisionsand the release of liabilities 54 50
Total −9 −124
DuringthefinancialyearHSHNordbankwasabletoreverse
provisionsandreleaseliabilitiesforrestructuringcosts,forsev-
erancecompensation,terminationsandadditionalhuman
resourcemeasuresforthereductionofpersonnelaswellasfor
projectcosts.
Expensesinconnectionwiththesecondlossguaranteeprovided
byHSHFinanzfondsAöRof€405million(previousyear:
€365million)correspondtotheguaranteefeetotheamount
of4%tobepaidunderthecontract.
Theprovisionforpotentiallyhigherremunerationforthesec-
ondlossguaranteecreatedfor€100millionwasreversedat
theendofthethirdquarter.Indoingso,amountsaddedduring
2010(€40million)wererecordedasareductioninexpenses
forpublic-sectorguarantees.Theprovisionintheamountof
€60millionwhichhadalreadybeencreatedattheendof
2009wasreversedasotheroperatingincome.
NoteS oN tHe iNcome StatemeNt | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010160
20. inCome tax expenSeS
Income tax expenses (¤ m) 2010 2009
Corporate tax and solidarity surcharge
Domestic 20 81
Foreign 32 −68
Trade tax
Domestic 7 22
Foreign 1 –
Other income tax – 1
Current income tax 60 36
Income tax from previous years 18 36
Other income tax from previous years – 1
Subtotal current income tax 78 73
Income from deferred tax
from temporary differences 106 −447
from losses carried forward −217 −52
from consolidation 2 3
Total deferred income taxes −109 −496
Income tax expense (+) / income (-) −31 −423
Taxesforpreviousyearsamountingto€18milliondepend
essentiallyondomesticsubsequentincometaxpayments.
Taxexpenseshavedevelopedasfollows:
Tax expenses (¤ m / %) 2010 2009
Group net income / loss for the year 48 −743
Income taxes −31 −423
Income before taxes incl. income from transfer of losses 17 −1,166
Domestic income tax rate to be applied in % 31.66 31.61
Imputed income tax expenses in the financial year 5 −369
Tax effects due to
previously unrecognised tax losses −16 36
differing effective tax rates domestically and abroad −3 29
non-deductible expenses 103 24
corrections to trade taxes 7 11
changes in tax rate – –
taxes for previous years 29 12
tax-free income −111 −175
devaluation and other effects −45 9
Total tax expense (+) / income (-) −31 −423
Incalculatingtaxesfor2010,arateof31.66%(previousyear:
31.61%)wasassumedasthedomesticincometaxratedueto
thechangeinthetradeincometaxrate.
Inthepreviousyear,theitemdevaluationandothereffects
included€175million,whichresultedfromthedevaluation
ofdeferredtaxassetsduetolastyear’slossesandtheresults
ofcoporateplanning.Thiswasaone-timespecialeffect.There
wasnoneedforavaluationdiscountduringthereporting
period.
Asat31December2010,thefollowingchangesnotrecog-
nisedinprofitorlossweremade:areductionofdeferredtax
assetsintherevaluationreserveof€25million(previous
year:decreaseof€108million)andanincreaseindeferredtax
liabilitiesinretainedprofitsof€7million(previousyear:
increaseindeferredtaxassetsof€14million).Ofthetaxesin
retainedearnings,€7million(previousyear:€14million)
relatestoactuarialgainsandlosses.
161
Thedifferencebetweenthevaluationfortaxpurposesoffinan-
cialinstruments(note[8.I.E])andthevaluationofsuchinstru-
21. net gainS and loSSeS from finanCial inStrumentS
Netgainsandlossesfromfinancialinstrumentsincludeboth
realisedgainsandmeasurementgainswithinnettrading
incomeandnetincomefromfinancialinvestmentstogether
withloanlossprovisionswithregardtobusinessshownon
thestatementoffinancialposition,brokendownintoIAS39
categories.Neithernetinterestnornetcommissionincome
isincludedinthisitem.
Net gains and losses from financial instruments (¤ m) 2010 2009
Designated at fair value (DFV) −490 −377
Available for Sale (AfS) −117 −116
Loans and Receivables (LaR) −23 −2,644
Held for Trading (HfT) 131 945
Total −499 −2,192
Thetransferstotheincomestatementoffairvaluechangescu-
mulatedinequityassociatedwithvalueadjustmentsandsales
offinancialinstrumentscategorisedasAfSareshowninnote49.
mentsunderIAS39.A8resultedindeferredtaxesof€32mil-
lion(previousyear:€13million).
NoteS oN tHe iNcome StatemeNt | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010162
22. earningS per Share
Tocalculateearningspershare,theGroupnetincomeattribu-
tabletoHSHNordbankshareholdersisdividedbytheweighted
averagenumberofordinarysharesoutstandingduringthe
periodunderreview.Thecalculationwasbasedonnon-rounded
values.
Earnings per share 2010 2009
Attributable Group net income (¤ m) – undiluted −3 −734
Dilution effects from: convertible bonds – −159
Attributable Group net income (¤ m) – diluted −3 −893
Number of shares (millions)
Average number of ordinary shares outstanding – undiluted 246 171
Dilution effects from: convertible bonds 17 17
Potentially dilutive ordinary shares 17 17
Weighted average number of ordinary shares outstanding adjusted for the anticipated conversion – diluted 263 188
Earnings per share (¤)
Undiluted −0.01 −4.31
Diluted −0.01 −4.76
Thedilutioneffectoccurredon29December2010asaresult
oftheissueofapproximately€17millionregisteredshares
(note[49]).Duetothelateoccurrenceofthischange,thepresen-
tationoftheabovetabledidnotchangeasitisbasedonaver-
agevalues.Defacto,asat31December2010,thereisnomath-
ematicalaswellasnoactualdifferencebetweennon-diluted
anddilutedearningspershare.
163
24. loanS and advanCeS to bankS
Ofloansandadvancestobanks,holdingsof€2,716million
(previousyear:€4,493million)havearesidualmaturityofmore
thanoneyear.
Loansandadvancestobanksincludemoneymarkettransactions
of€5,031million(previousyear:€3,831million).
23. CaSh reServe
notes on the statement of financial position
Informationoncollateralreceivedandtransferredwhichalso
containsinformationregardingsecuritieslendingandrepur-
chaseagreementscanbefoundinnote[60].
Cash reserve (¤ m) 2010 2009
Cash on hand 10 11
Balances at central banks 994 967
Of which: At the Deutsche Bundesbank 378 655
Treasury bills, discounted treasury notes and similar debt instruments issued by public-sector institutions 406 318
Of which: Eligible for refinancing at the Deutsche Bundesbank 299 278
Total 1,410 1,296
Loans and advances to banks (¤ m)
2010 2009
Domestic Foreign Total Domestic Foreign Total
Payable on demand 1,154 4,243 5,397 914 4,835 5,749
Other loans and advances 3,516 1,525 5,041 5,411 4,381 9,792
Total before loan loss provisions 4,670 5,768 10,438 6,325 9,216 15,541
Loan loss provisions 1 193 194 1 369 370
Total after loan loss provisions 4,669 5,575 10,244 6,324 8,847 15,171
NoteS oN tHe iNcome StatemeNt, NoteS oN tHe StatemeNt oF FiNaNcial poSitioN | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010164
25. loanS and advanCeS to CuStomerS
Loans and advances to customers(¤ m)
2010 2009
Domestic Foreign Total Domestic Foreign Total
Retail customers 1,869 145 2,014 2,391 190 2,581
Corporate clients 39,278 54,074 93,352 41,599 56,568 98,167
Public authorities 6,874 618 7,492 9,154 655 9,809
Total before loan loss provisions 48,021 54,837 102,858 53,144 57,413 110,557
Loan loss provisions 1,644 2,785 4,429 2,057 2,291 4,348
Total after loan loss provisions 46,377 52,052 98,429 51,087 55,122 106,209
Ofloansandadvancestocustomers,€67,316million(previ-
ousyear:€78,605million)hasaresidualmaturityofmorethan
oneyear.
Loansandadvancestocustomersincludemoneymarkettrans-
actionsof€1,519million(previousyear:€435million).
Loansandadvancestocustomersincludereceivablesunder
financeleasetransactionsof€273million(previousyear:€269
million).Thegrossinvestmentvalueoftheleasesis€300mil-
lion(previousyear:€299million).Furtherdetailsontheleasing
businesscanbefoundinnote[59].
Loans and advances to customers – collateral (¤ m) 2010 2009
Municipal loans 9,495 12,033
Loans secured by real estate 11,892 13,241
Loans secured by ship mortgages 13,507 13,420
Other loans and advances 67,964 71,863
Total 102,858 110,557
Informationoncollateralreceivedandtransferredwhichalso
containinformationregardingsecuritieslendingandrepurchase
agreementscanbefoundinnote[60].
26. loan loSS proviSionS
Loan loss provisions (¤ m) 2010 2009
Loans and advances to banks 194 370
Loans and advances to customers 4,429 4,348
Loan loss provisions for items in the statement of financial position 4,623 4,718
Provisions in the lending business 439 663
Total 5,062 5,381
165
Loanlossprovisionsforcustomersduringthefinancialyear
developedasfollows:
Development of loan loss provisions for liabilities to customers (¤ m)
Individual valuation allowances
Portfolio valuationallowances Total
2010 2009 2010 2009 2010 2009
As at 1 January 3,165 1,670 1,183 671 4,348 2,341
Additions 2,627 2,736 139 637 2,766 3,373
Reversals 1,505 676 849 117 2,354 793
Utilisation 383 447 – – 383 447
Reclassifications 28 −1 – – 28 −1
Unwinding −183 −108 – – −183 −108
Changes in the scope of consolidation – – – – – –
Exchange rate changes 141 −9 66 −8 207 −17
As at 31 December 3,890 3,165 539 1,183 4,429 4,348
Thevalueadjustmentsrelateexclusivelytoitemscategorised
asloansandreceivables(LaR).Thetotalvolumeofloans
impairedinthe2010reportingperiodamountedto€12,282
million(previousyear:€9,819million).
Development of loan loss provisions for banks (¤ m)
Individual valuationallowances
Portfolio valuationallowances Total
2010 2009 2010 2009 2010 2009
As at 1 January 363 362 7 48 370 410
Additions 6 106 – 3 6 109
Reversals 28 85 5 44 33 129
Utilisation 124 14 – – 124 14
Reclassifications −28 −3 – – −28 −3
Unwinding −1 −3 – – −1 −3
Changes in the scope of consolidation – – – – – –
Exchange rate changes 3 – 1 – 4 –
As at 31 December 191 363 3 7 194 370
Thedevelopmentofloanlossprovisionsforbanksduringthe
periodunderreviewwasasfollows:
NoteS oN tHe StatemeNt oF FiNaNcial poSitioN | Group FiNaNcial StatemeNtS
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27. poSitive fair value of hedging derivativeS
Thepositivefairvaluesofderivativesusedinhedgeaccounting
areaccountedforinthisitem.Onlyinterestrateandinterest
ratecurrencyswapsaretakenintoaccountashedginginstru-
mentscurrently.Ifaderivativeisonlypartiallydesignated
underhedgeaccounting,thisitemcontainsthecorresponding
shareofthatderivative’sfairvalue.Inthesecases,theremain-
derisstatedundertradingassets.Hedgeaccountingisusedsolely
forinterestraterisks.
Positive fair value of hedging derivatives (¤ m) 2010 2009
Positive fair value of derivatives used in micro fair value hedges 377 452
Positive fair value of derivatives used in portfolio fair value hedges 1,461 1,232
Total 1,838 1,684
Hedgingderivativesof€1,744million(previousyear:€1,544
million)havearesidualtermofmorethanoneyear.
Changesinthisitemaredirectlyrelatedtochangesintheneg-
ativefairvalueofhedgingderivatives.Theoverallchanges
intheitemsaremainlyduetoachangeinportfoliocomposi-
tionandmovementsininterestratesintheUSDandEUR
capitalmarkets.
28. trading aSSetS
OnlyfinancialassetsclassifiedasHfTarestatedundertrading
assets.Mainlyincludedinthiscategoryareoriginalfinancial
instrumentsheldfortradingpurposes,includingaccruedinter-
est,andderivativeswithapositivefairvaluewhichareeither
notdesignatedasahedgederivativeorareusedashedgingin-
strumentsbutdonotmeettherequirementsofIAS39for
hedgeaccounting.
167
29. finanCial inveStmentS
Financialinvestmentsincludespecificallyfinancialinstru-
mentsnotheldfortradingcategorisedasAfSandLaRand,to
alesserextent,asDFV.Thisitemincludesbondsandother
fixed-interestsecurities,equitiesandothernon-fixed-interest
securities,holdingsinunconsolidatedaffiliatedcompanies,
holdingsinjointventuresandassociatedcompaniesnotcarried
atequityintheconsolidatedfinancialstatements.
Trading assets(¤ m) 2010 2009
Debentures and other fixed-interest securities
Bonds and debentures
From public-sector issuers 913 1,077
Negotiable and listed 913 1,077
From other issuers 390 1,956
Negotiable and listed 362 1,756
Negotiable and not listed 28 200
Bonds and debentures 1,303 3,033
Debentures and other fixed-interest securities 1,303 3,033
Shares and other non-fixed-interest securities
negotiable and listed 13 16
negotiable and not listed – 9
not negotiable 2 11
Shares and other non-fixed-interest securities 15 36
Positive fair value of financial derivatives
Interest rate-related business 9,117 12,461
Currency-related business 570 691
Other business 269 606
Positive fair value of financial derivatives 9,956 13,758
Other, including promissory notes held for trading 8 52
Total 11,282 16,879
Tradingassetsof€9,612million(previousyear:€13,744mil-
lion)havearesidualtermofmorethanoneyear.
Informationoncollateralreceivedandtransferredwhich
alsocontainsinformationregardingsecuritieslendingand
repurchaseagreementscanbefoundinnote[60].
NoteS oN tHe StatemeNt oF FiNaNcial poSitioN | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010168
Financial investments (¤ m) 2010 2009
Debentures and other fixed-interest securities 23,367 27,777
Negotiable and listed 20,559 22,234
Negotiable and not listed 2,808 5,543
Shares and other non-fixed-interest securities 631 803
Negotiable and listed 58 46
Negotiable and not listed 287 619
Equity holdings 835 885
Negotiable and listed 7 8
Negotiable and not listed 54 90
Interests in affiliated companies 168 225
Negotiable and not listed – 1
Total 25,001 29,690
Financialinvestmentsof€22,122million(previousyear:
€27,211million)havearesidualtermofmorethanoneyear.
Individualvaluationallowanceswithregardtodebenturesand
otherfixed-interestsecuritiesamountedto€516million(pre-
viousyear:€841million)andwithregardtosharesandother
2010Development of equity holdings and interests in affiliated companies (¤ m) Equity holdings
Interests in affiliated
companies Total
Cost of acquisition as at 1 January 2010 1,186 324 1,510
Additions 135 196 331
Disposals 133 85 218
Reclassifications – – –
Exchange rate changes 4 1 5
Changes in the scope of consolidation – −113 −113
As at 31 December 2010 1,192 323 1,515
Impairment loss as at 1 January 2010 301 99 400
Additions 65 85 150
Disposals 8 29 37
Reclassifications – – –
Write-ups – – –
Exchange rate changes −1 – −1
Changes in the scope of consolidation – – –
As at 31 December 2010 357 155 512
Carrying amount as at 31 December 2010 835 168 1,003
Carrying amount as at 1 January 2010 885 225 1,110
non-fixed-interestsecuritiestheyamountedto€23million
(previousyear:€33million).
Portfoliovaluationallowancesamountedto€20million(pre-
viousyear:€233million).
Changesinindividualandportfoliovaluationallowancesare
recogniseddirectlyinnetincomefromfinancialinvestments.
Thisportfolioalsocontainsequitiesandothernon-fixed-interest
securitiescategorisedasAfSandmeasuredatcostof€471
million(previousyear:€488million).Equityinstrumentsac-
countedforatcostwhichrelatetosharesinassociatedcom-
paniesandequityholdingsamountto€996million(previous
year:€1,102million).Atpresent,therearenospecificplans
todisposeoftheseequityinstruments.
Informationoncollateralreceivedandtransferredwhich
alsocontainsinformationregardingsecuritieslendingand
repurchaseagreementscanbefoundinnote[60].
Developmentswithregardtoequityholdingsandinterestsin
affiliatedcompaniesarepresentedbelow:
169
30. finanCial inveStmentS aCCounted for under the equity method
Sharesinassociatedcompaniesincludedintheconsolidated
financialstatementsundertheequitymethodarereportedin
thisitem.
Asatthereportingdate,31December2010,HSHNordbank
ownssharesintwoassociatedcompaniesthatareincludedin
theconsolidatedfinancialstatementsundertheequitymethod.
Thecarryingamountoftheseequityholdingsamountedto
€102millionasat31December2010(previousyear:€0mil-
lion).
TheHSHNordbankGroupholdssharesin74associatedcom-
paniesandjointventureswhicharenotconsolidatedunder
theequitymethodbutratherareaccountedforasequityhold-
ingsunderIAS39.Thecompletelistoftheseequityholdings
issetoutinnote[65].
Financialinformationregardingthenon-consolidatedassociated
companies,andHSHNordbankGroupjointventures,ispre-
sentedhere:
Ofthefinancialinvestmentsaccountedforundertheequity
method,holdingsof€102millionhavearesidualmaturityof
morethanoneyear.
Asaresultofacapitalincreaseonthepartofthepreviously
fully-consolidatedHambornerREITAG(formerlyHamborner
Aktiengesellschaft),Duisburg,theGroup’sownershipinterest
inthecompanydeclinedto35.18%.Accordingly,thecompany
wasincludedintheconsolidatedfinancialstatementsunder
theequitymethodforthefirsttimefromOctober2010.
2009Development of equity holdings and interests in affiliated companies(¤ m) Equity holdings
Interests in affiliated
companies Total
Cost of acquisition as at 1 January 2009 1,161 189 1,350
Additions 227 111 338
Disposals 90 63 153
Reclassifications −111 56 −55
Exchange rate changes −1 – −1
Changes in the scope of consolidation – 31 31
As at 31 December 2009 1,186 324 1,510
Impairment loss as at 1 January 2009 221 29 250
Additions 110 52 162
Disposals 3 36 39
Reclassifications −24 23 −1
Write-ups −3 – −3
Changes in the scope of consolidation – 31 31
As at 31 December 2009 301 99 400
Carrying amount as at 31 December 2009 885 225 1,110
Carrying amount as at 1 January 2009 940 160 1,100
Associated companies / joint ventures (¤ m) 2010 2009
Total assets 1,133 1,066
Total liabilities 974 816
Net income / loss 7 1
NoteS oN tHe StatemeNt oF FiNaNcial poSitioN | Group FiNaNcial StatemeNtS
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31. intangible aSSetS
TheitemIntangibleassetsmainlycomprisessoftwareacquired
ordevelopedin-houseandacquiredgoodwill.
Intangible assets (¤ m) 2010 2009
Goodwill – 76
Software 81 73
developed in-house 58 43
acquired 23 30
Software in development 27 31
developed in-house 9 22
acquired 18 9
Other intangible assets – 17
Total 108 197
Asatthebalancesheetdate,thecurrentvalueoftheshares
heldintheHambornerREITAGamountedto€93million.
Inaddition,theBelgraviaShippingLtd.isincludedinthefinan-
cialstatementsasat31December2010forthefirsttime
intheconsolidatedfinancialstatementsasanassociatedcom-
panyundertheequitymethodonmaterialitygrounds.
HSHNordbankGroupowns33.33%ofthecompany’svoting
shares.
Theamountbywhichtheshareofthecompany’snetassets
acquiredexceedstheacquisitioncostsfortheequityinterestre-
sultingfromthefirst-timerecognitionundertheequity
method(€2million)is,inaccordancewithIAS28.23b)reported
underHSHNordbankAG’sshareofthenetincome/netloss
ofBelgraviaShippingLtd.forthe2010financialyearunderthe
itemnetincomefromfinancialinvestmentsaccountedfor
undertheequitymethod(cf.alsonote[15]).
Asummaryofthefinancialinformationastotheassociated
companiesincludedintheconsolidatedfinancialstatements
undertheequitymethodispresentedhere:
Associated companies consolidated under the equity method – Financial information (¤ m) 2010 2009
Hamborner REIT AG
Total assets 406 –
Total liabilities −180 –
Sales revenue 26 –
Net income / loss 3 –
Belgravia Shipping Ltd.
Total assets 42 –
Total liabilities −1 –
Sales revenue – –
Net income / loss – –
171
SoftwareSoftware in
development
2010Development in intangible assets (¤ m) Goodwill
Software developed in-house
Acquired software
Software developed in-house
Acquired software
Other intangible
assets Total
Acquisition costs as at 1 January 2010 273 59 166 22 9 17 546
Additions – 9 4 5 9 – 27
Disposals – – 4 – – – 4
Reclassifications – 18 – −18 – −17 −17
Changes in the scope of consolidation −24 – −1 – – – −25
As at 31 December 2010 249 86 165 9 18 – 527
Amortisation as at 1 January 2010 197 16 136 – – – 349
Additions 108 12 10 – – 1 131
Disposals – – 4 – – – 4
Reclassifications – – – – – −1 −1
Changes in the scope of consolidation −56 – – – – – −56
As at 31 December 2010 249 28 142 – – – 419
Carrying amount as at 31 December 2010 – 58 23 9 18 – 108
Carrying amount as at 1 January 2010 76 43 30 22 9 17 197
Changesinthecarryingamountofintangibleassetsareshown
below:
Otherintangibleassetswerereclassifiedto‘Assetsheldforsale
anddisposalgroups’.
NoteS oN tHe StatemeNt oF FiNaNcial poSitioN | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010172
Duetoindicatorsforanimpairmentofthegoodwillallo-
catedtothecash-generatingunitsRealEstateandTransportation
&Energy,therecoverableamountoftheseassetswasdeter-
minedinaccordancewithIAS36.9inthethirdquarter.Asare-
sultofthisextraordinaryimpairmenttest,amortisationof
goodwilloftheCGURealEstate(RegionalBanksegment)ofthe
fullresidualbookvalueof€20million,aswellasamortisa-
tionofthegoodwilloftheCGUTransportation&Energy(Sector
SpecialistBanksegment)ofthefullresidualbookvalueof
€56millionhasalreadybeenperformedintheInterimGroup
FinancialStatementsasat30September2010.
Theallocationofthepurchasepricecostperformedwithinthe
frameworkofinitialconsolidationofBrinkhofHolding
DeutschlandGmbHanditssubsidiariesasof1April2010re-
sultedingoodwillintheamountof€32million,which
wasallocatedtothecash-generatingRestructuringUnit.The
impairmenttestforthiscash-generatingunitshowedthata
futureeconomicbenefitcannotberealisedfromgoodwill.Asa
result,thevalueoftheallocatedgoodwillwasfullyadjusted
asof30June2010.
Amortisationongoodwillisreportedunder‘Otheroperating
income’.
Researchcostsof€1million(previousyear:€1million)were
inincurredinconnectionwiththeinstallationofsoftware
developedin-house.
SoftwareSoftware in
development
2009Development in intangible assets(¤ m) Goodwill
Software developed in-house
Acquired software
Software developed in-house
Acquired software
Other intangible
assets Total
Acquisition costs as at 1 January 2009 297 33 158 34 6 17 545
Additions – 2 8 14 9 – 33
Disposals – – 2 2 4 – 8
Reclassifications – 24 2 −24 −2 – –
Changes in the scope of consolidation −24 – – – – – −24
As at 31 December 2009 273 59 166 22 9 17 546
Depreciation as at 1 January 2009 162 10 127 – – – 299
Additions 59 6 11 – – – 76
Disposals – – 2 – – – 2
Changes in the scope of consolidation −24 – – – – – −24
As at 31 December 2009 197 16 136 – – – 349
Carrying amount as at 31 December 2009 76 43 30 22 9 17 197
Carrying amount as at 1 January 2009 135 23 31 34 6 17 246
173
Undertheitem‘Investmentproperty’allproperty(landor
buildings)isrecordedthatisheldtoearnrentalsorforcapital
appreciationbutisnotusedintheproductionorsupplyof
goodsorservicesoftheBank.Realestateleasedaslessorinthe
operatingleasingbusinessisalsoincludedinthisitem.
Investment property (¤ m)
2010
2009
Investment property 14 316
Total 14 316
Thefairvalueofinvestmentpropertiesamountedto€27mil-
lion(previousyear:€336million).
Thedevelopmentinproperty,plantandequipmentandinvest-
mentpropertiesinthefinancialyearwasasfollows:
2010Development in property, plant and equipment and real estate held as investment property(¤ m)
Land and buildings
Operating equipment
Assets under construction
Investmentproperties Leased assets
Acquisition costs as at 1 January 2010 56 83 2 393 22
Additions – 2 – 62 –
Disposals – 4 – – –
Reclassifications 3 – −2 −3 –
Exchange rate changes – – – – 2
Changes in the scope of consolidation −1 61 – −430 –
As at 31 December 2010 58 142 – 22 24
Depreciation as at 1 January 2010 12 46 – 77 4
Additions 1 8 – 9 1
Disposals – 2 – – –
Reclassifications – – – −1 –
Write-ups 1 – – −1 –
Exchange rate changes – – – – 1
Changes in the scope of consolidation −1 13 – −76 –
As at 31 December 2010 13 65 – 8 6
Carrying amount as at 31 December 2010 45 77 – 14 18
Carrying amount as at 1 January 2010 44 37 2 316 18
32. property, plant and equipment and inveStment propertieS
Landandbuildings,operatingequipmentandleasedassets
underoperatingleaseswhereHSHNordbankGroupactsasles-
sorarestatedunderthisitem.
Property, plant and equipment (¤ m) 2010 2009
Land and buildings 45 44
Operating equipment 77 37
Leased assets 18 18
Assets under construction – 2
Total 140 101
Furtherdetailsontheexistingleasingbusinesscanbefoundin
note[59].
NoteS oN tHe StatemeNt oF FiNaNcial poSitioN | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010174
Assetsunderconstructionof€2millionwerereclassifiedas
‘Landandbuildings’.
Inaddition,apropertywithacarryingamountof€2million
wasreclassifiedfrominvestmentpropertiesto‘Non-current
assetsheldforsaleanddisposalgroups’.Furthermoreaproperty
withacarryingamountof€1millionwasreclassifiedto
‘Landandbuildings’.
Changesinthescopeofconsolidationofoperatingequipment
resultedfromthefactthatDeersGreenPowerDevelopment
Companywasconsolidatedinthe2009financialyearforthe
firsttime.
Changestoinvestmentpropertyreportedunderchangesinthe
scopeofconsolidationareduetothereductionoftheequity
holdinginHambornerREITAGto35.18%asaresultofwhich
itisnolongerfullyconsolidated.
Additionstoinvestmentpropertiesresultedmainlyfromacqui-
sitionsinthefinancialyear.
2009Development in property, plant and equipment and investment properties (¤ m)
Land and buildings
Operating equipment
Assets under construction
Investmentproperties Leased assets
Acquisition costs as at 1 January 2009 59 100 – 353 22
Additions – 2 2 40 –
Disposals – 6 – 1 –
Reclassifications −3 – – 1 –
Exchange rate changes – – – – –
Changes in the scope of consolidation – -13 – – –
As at 31 December 2009 56 83 2 393 22
Depreciation as at 1 January 2009 11 53 – 68 3
Additions 1 8 – 12 1
Disposals – 4 – – –
Reclassifications – – – −2 –
Write-ups – – – −1 –
Exchange rate changes – – – – –
Changes in the scope of consolidation – −11 – – –
As at 31 December 2009 12 46 – 77 4
Carrying amount as at 31 December 2009 44 37 2 316 18
Carrying amount as at 1 January 2009 48 47 – 285 19
175
33. non-Current aSSetS held for Sale and diSpoSal groupS
Non-current assets held for sale and disposal groups(¤ m) 2010 2009
Loans and advances to banks – 98
Loans and advances to customers 144 330
Financial investments 241 63
Other trading assets – 86
Trading assets – derivatives – 9
Intangible assets 16 –
Other assets 3 –
Total 404 586
Asatthebalancesheetdate,theHSHNordbankGrouphaddes-
ignatedtwoconsolidatedcompaniesforsale.Theassetsand
liabilitiesofsuchcompaniesrepresentdisposalgroupsperIFRS
5.Inaddition,securitiesallocatedtotheCreditInvestment
Portfolio,aswellasreceivablesfromthelendingbusiness,the
saleofwhichisplannedaspartofthestrategicrealignment
areincludedunderthisitem.
Theassetsandliabilitiesreportedherearehighlylikelytobe
soldwithinthenexttwelvemonthsorthecorresponding
purchasecontractshavealreadybeensigned.ThesaleoftheLB
ImmoInvestGmbH,whichhadbeenreportedasadisposal
groupasatthebalancesheetdate,wascompletedinJanuary
2011.
Followingthebalancesheetdate,butstillduringtheperiod
forpreparingtheconsolidatedfinancialstatements,loansand
advancestocustomerswithinthecategoryLaRfulfilledthe
requirementsforclassificationaslong-termassetsheldforsale
inaccordancewithIFRS5.6etseq.Theseassetsarenotcon-
tainedintheabovepresentationunderIFRS5.12.Theyinclude
loansandpromissorynotesallocatedtotheRestructuring
Unitsegment.Thesaleoccurredaspartofthewindingdown
businessofthissegment.
34. Current tax aSSetS
Current tax assets (¤ m) 2010 2009
Domestic 213 408
Foreign 59 110
Total 272 518
NoteS oN tHe StatemeNt oF FiNaNcial poSitioN | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010176
Deferredtaxesaroseduetotemporarydifferencesinthefol-
lowingitemsinthestatementoffinancialpositionandtaxlosses
carriedforward:
Deferred tax assets (¤ m) 2010 2009
Assets
Loans and advances to banks 24 215
Loans and advances to customers 143 1
Risk provision 1 384
Trading assets 2 2,015
Financial investments 202 409
Property, plant and equipment 2 5
Other assets 117 249
Liabilities
Liabilities to banks 2 –
Liabilities to customers – 2
Securitised liabilities 66 –
Trading liabilities 2,780 3,018
Negative fair values of hedging derivatives 106 159
Negative adjustment item from portfolio fair value hedges 311 343
Provisions 248 304
Other liabilities 603 153
Tax losses carried forward 350 132
Subtotal for deferred tax assets 4,957 7,389
thereof long-term 153 11
Valuation allowance for deferred taxes – –
Netting off deferred tax liabilities −3,688 −6,185
Total 1,269 1,204
35. deferred tax aSSetS
Deferredtaxassetsontaxlossescarriedforwardwererecog-
nisedof€350million(previousyear:€132million).Basedon
HSHNordbankGroup’smediumtermplanningthereare
convincingsubstantialindicationsjustifyingtheconclusionthat
theBankwillinfuturehaveadequatetaxableincometouse
theavailabletaxlossescarriedforward.
Inaddition,asatthereportingdate,therewereunusedtax
lossescarriedforwardintheamountof€3,005million(previ-
ousyear:€2,696million)andtemporarydifferencesofap-
proximately€315million(previousyear:approximately€550
million)forwhichnodeferredtaxassetshadbeencreated.
Ofthedeferredtaxassets,€1,028million(previousyear:
€1,107million)wereincurredinGermanyand€241million
(previousyear:€104million)wereincurredabroad.
Thedifferencebetweenthevaluationfortaxpurposesoffinan-
cialinstruments(note[8.I.E])andthemeasurementofsuch
instrumentsunderIAS39.A8resultedindeferredtaxesof€32
million(previousyear:€15million).
177
36. other aSSetS
Otherassetsof€35million(previousyear:80million)have
aresidualtermofmorethanoneyear.
37. liabilitieS to bankS
Liabilitiestobanksof€12,831million(previousyear:€14,119
million)havearesidualtermofmorethanoneyear.
Thedecreaseinliabilitiestobanksisprimarilyduetoreduced
liabilitiestocentralbanks.
Thedifferencebetweenthecarryingamountofliabilities
designatedatfairvalueandtheirparvalue,whichcorresponds
tothecontractuallyagreedrepaymentamountatthedue
date,amountedasat31December2010to€−11million(pre-
viousyear:€−6million).
Informationoncollateralreceivedandtransferredwhichalso
containsinformationregardingsecuritieslendingandrepur-
chaseagreementscanbefoundinnote[60].
Other assets (¤ m) 2010 2009
Prepaid expenses 19 69
Tenant loans 14 12
Receivables from fund transactions 9 10
Receivables from participations and affiliates 8 96
Receivables from other taxes 3 4
Other assets 132 147
Total 185 338
Liabilities to banks(¤ m)
2010 2009
Domestic Foreign Total Domestic Foreign Total
Payable on demand 1,038 246 1,284 1,329 1,324 2,653
Other term liabilities 17,913 7,003 24,916 27,636 8,302 35,938
Total 18,951 7,249 26,200 28,965 9,626 38,591
NoteS oN tHe StatemeNt oF FiNaNcial poSitioN | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010178
38. liabilitieS to CuStomerS
Liabilitiestobanksof€19,532million(previousyear:€21,812
million)havearesidualtermofmorethanoneyear.
Thedifferencebetweenthecarryingamountofliabilities
designatedatfairvalueandtheirparvalue,whichcorresponds
tothecontractuallyagreedrepaymentamountatthedue
date,amountedto€103millionat31December2010(previous
year:€441million).
Informationoncollateralreceivedandtransferredwhich
alsocontainsinformationregardingsecuritieslendingandre-
purchaseagreementscanbefoundinnote[60].
Liabilities to customers by customer group (¤ m)
2010 2009
Corporate clients 46,704 45,828
Public authorities 3,014 3,044
Retail customers 728 931
Total 50,446 49,803
Liabilities to customers(¤ m)
2010 2009
Domestic Foreign Total Domestic Foreign Total
Savings deposits with agreed notice periods of
3 months 67 1 68 78 2 80
> 3 months 2 – 2 2 – 2
Other liabilities
Payable on demand 7,104 1,296 8,400 9,239 1,135 10,374
Term liabilities 38,696 3,280 41,976 35,908 3,439 39,347
Total 45,869 4,577 50,446 45,227 4,576 49,803
179
39. SeCuritiSed liabilitieS
40. negative fair valueS of hedging derivativeS
Thisitemshowsthenegativefairvalueofderivativesused
inhedgeaccounting.Atpresentonlyinterestswapsandinterest
ratecurrencyswapsaretakenintoaccountashedginginstru-
ments.Ifaderivativeisonlypartiallydesignatedunderhedge
accounting,thisitemcontainsthecorrespondingshareof
thatderivative’sfairvalue.Inthesecases,theremainderisstated
under‘Tradingliabilities’.Hedgeaccountingisusedsolely
forinterestraterisks.
Negative fair values of hedging derivatives (¤ m) 2010 2009
Negative fair values of derivatives used in micro fair value hedges 168 282
Negative fair values of derivatives used in portfolio fair value hedges 194 235
Total 362 517
Negativefairvaluesofhedgingderivativesof€347million
(previousyear:€493million)havearesidualtermofmorethan
oneyear.
Changesinthisitemaredirectlyrelatedtochangesintheitem
‘Positivefairvaluesofhedgingderivatives’.Theoverallchanges
intheitemsaremainlyduetoachangeinportfoliocomposi-
tionandmovementsininterestratesintheUSDandEURcapi-
talmarkets.
Securitised liabilities (¤ m) 2010 2009
Bonds issued 44,425 52,302
Money market securities issued 301 205
Other securitised liabilities – 614
Total 44,726 53,121
Securitisedliabilitiesof€35,082million(previousyear:
€39,068million)havearesidualtermofmorethanoneyear.
Bondsissuedinclude€653millionofhybridfinancialinstru-
ments(previousyear:€1,104million).Thecarryingamountof
thesehybridfinancialinstrumentswasdeterminedbasedon
assumptions(cf.note[8.I.E.]).
Thesecuritisedliabilitiescontainrepurchasedowndebentures
intheamountof€8,075million(previousyear:€15,254
million).
Thedifferencebetweenthecarryingamountofsecuritisedlia-
bilitiesdesignatedatfairvalueandtheirparvalue,which
correspondstothecontractuallyagreedrepaymentamountat
theduedate,amountedto€−112millionat31December
2010(previousyear:€−274million).
NoteS oN tHe StatemeNt oF FiNaNcial poSitioN | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010180
41. trading liabilitieS
OnlyfinancialassetsclassifiedasHfTarestatedunder‘Trading
liabilities’.Mainlyincludedinthiscategoryarederivatives
withanegativefairvaluewhichareeithernotdesignatedasa
hedgingderivativeorareusedashedginginstrumentsbut
donotmeettherequirementsofIAS39forhedgeaccounting.
Deliverycommitmentsfromshortsalesofsecuritiesarealso
statedinthiscategory.
Trading liabilities (¤ m) 2010 2009
Negative fair values from derivative financial instruments
Interest rate-related business 10,447 13,500
Currency-related business 771 811
Other business 192 337
Commitments to deliver securities 2 1
Total 11,412 14,649
Tradingliabilitiesof€9,953million(previousyear:€12,990
million)havearesidualtermofmorethanoneyear.
42. proviSionS
Provisionsof€1,178million(previousyear:€1,194million)
havearesidualtermofmorethanoneyear.
Changesinpensionprovisionsarepresentedinnote[43].
Provisions (¤ m) 2010 2009
Provisions for pension obligations and similar obligations 580 611
Other provisions
Provisions for personnel expenses 60 11
Provisions in the lending business 439 663
Provisions for restructuring 69 131
Provisions for litigation risks and costs 101 40
Other provisions 83 163
Total 1,332 1,619
181
Provisionsinthelendingbusinesschangedasfollows:
Provisions in the lending business (¤ m) 2010 2009
Specific loan loss provisions for
contingent liabilities 166 169
irrevocable loan commitments 184 214
other credit risks 12 140
Subtotal 362 523
Portfolio loan loss provisions for
contingent liabilities 52 82
irrevocable loan commitments 25 58
Subtotal 77 140
Total 439 663
2010Changes in other provisions (¤ m)
For personnel expenses
In the lending
business
For restruc-
turing
For litiga-tion risks and costs
Miscella-neous Total
As at 1 January 2010 11 663 131 40 163 1,008
Additions 59 399 49 72 125 704
Reversals 1 640 52 – 129 822
Interest expenses – – 1 2 – 3
Reclassifications −1 – – −1 −2 −4
Changes in exchange rates – 19 – – – 19
Changes in the scope of consolidation – – – – −2 −2
Utilisation in the financial year 8 2 60 12 72 154
As at 31 December 2010 60 439 69 101 83 752
2009Changes in other provisions(¤ m)
For personnel expenses
In the lending
business
For restruc-
turing
For litiga-tion risks and costs
Miscella-neous Total
As at 1 January 2009 23 472 131 30 193 849
Additions 8 651 111 13 95 878
Reversals 3 447 47 3 44 544
Reclassifications – 2 −13 – −7 −18
Changes in exchange rates −1 −9 – – – −10
Utilisation in the financial year 16 6 51 – 74 147
As at 31 December 2009 11 663 131 40 163 1,008
Otherprovisionschangedasfollows:
NoteS oN tHe StatemeNt oF FiNaNcial poSitioN | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010182
43. penSion obligationS and Similar obligationS
Inrecognisingandmeasuringdirectbenefitpensionplans,the
netpresentvalueisreducedbythefairvalueoftheplanassets.
Provisions for pension obligations and similar obligations (¤ m)
2010
2009 2008 2007
Net present value of obligations, wholly or partly financed through funds 23 21 16 15
Net present value of obligations not financed through funds 572 602 557 625
Net present value of pensions and similar obligations 595 623 573 640
Fair value of plan assets 15 12 10 10
Provisions for pension obligations and similar obligations 580 611 563 630
Thenetpresentvalueofpensionprovisionshaschangedas
follows:
Changes in net present value (¤ m) 2010 2009
Net present value as at 1 January 623 573
Current service cost 8 8
Interest expense 31 33
Benefits paid −37 −40
Reclassifications −3 –
Changes in consolidation group −7 –
Changes from currency conversion 1 1
Actuarial gains (-) / losses −24 45
One-time expense 3 3
Net present value as at 31 December 595 623
Theactuarialgainsforthefinancialyearbeforedeferredtaxes
amountedto€24million(previousyear:lossof€45million).
Allowingfordeferredtaxes,thisresultsinaprofitof€17mil-
lion(previousyear:lossof€31million),whichwasrecorded
directlyunderretainedearnings.Asat31December2010the
balanceofactuarialgains/lossesinretainedearningsamount-
edto€201million(previousyear:€177million)beforetaxand
€135million(previousyear:€118million)aftertax.
Thefairvalueofplanassetschangedasfollows:
Change in fair value of plan assets (¤ m) 2010 2009
Fair value of plan assets as at 1 January 12 10
Expected return on plan assets 2 1
Employer’s contributions 2 2
Benefits paid −1 −1
Fair value of plan assets as at 31 December 15 12
Planassetsarebrokendownasfollows:
Breakdown of plan assets (%) 2010 2009
Debentures and other fixed-interest securities 35 21
Equities and other non-fixed-interest securities 27 42
Real estate 7 4
Other assets 31 33
Total 100 100
Theactualincomefromplanassetsinthe2010financial
yearamountedto€442,000(comparedtoactualexpensesinthe
amountof€126,000inthepreviousyear).
183
Adjustmentsbasedonexperiencerepresentpartoftheactuarial
gainsandlossesofdirectbenefitpensionplans.Theyshowthe
effectsofdifferencesbetweenearlieractuarialassumptionsand
actualdevelopment.
Adjustments based on experience (¤ m) 2010 2009 2008 2007
Adjustments to plan obligations based on experience −3 −8 −7 19
Adjustments to plan assets based on experience 1 1 −2 –
Total −2 −7 −9 19
Thefollowingtableshowstheeffectsofadjustmentsbasedon
experienceontheplanobligationsandplanassets.
Expensesfordirectbenefitpensionplansduringthe2010
reportingperiodamountedto€41million(previousyear:€44
million),whichisbrokendownasfollows:
Expenses for pensions (¤ m) 2010 2009
Interest expense 31 33
Service cost 8 8
One-off expense 3 3
Expected return on plan assets −2 −1
Exchange rate changes 1 1
Total 41 44
Pensionobligationsmapfuturepaymentobligationsanddepend
ondiscretionarydecisionsbothastoamountandthedate
theyfalldue.Fluctuationsinthepresentvalueofpensionobliga-
tionsasatthebalancesheetdateresultinparticularfrom
changesintheinterestrate.Domesticobligationsaccountfora
netpresentvalueof€575millionor97%oftotalpension
obligations.Thescenarioofachangeintheinterestrateandits
influenceonthenetpresentvalueofdomesticobligations
issetoutbelow:
Areductioninthediscountrateby0.5%resultsinanetpresent
valueofpensionobligationsasat31December2010of€616
million.
Anincreaseinthediscountrateby0.5%resultsinanetpresent
valueofpensionobligationsasat31December2010of€539
million.
Forthe2011financialyear,theHSHNordbankGroupexpects
paymentstodirectbenefitpensionsplanstotallingapproxi-
mately€28million.
Expensesfordefinedcontributionpensionplanswithouttaking
intoaccountbenefitsfromstatutorypensionschemesinthe
2010financialyearwere€3million(previousyear:€3million).
NoteS oN tHe StatemeNt oF FiNaNcial poSitioN | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010184
45. inCome tax liabilitieS
Income tax liabilities (¤ m) 2010 2009
Current tax liabilities
Income tax liabilities to tax authorities – 12
Provisions for income taxes 15 66
Total 15 78
Liabilitiestotaxauthoritiesincludeliabilitiesonincometaxes
duetodomesticandforeigntaxauthorities.
Provisionsforincometaxesincludetaxliabilitiesforwhichno
legallybindingtaxassessmentnoticehasbeenreceived.
44. liabilitieS relating to diSpoSal groupS
Liabilities relating to disposal groups (¤ m) 2010 2009
Liabilities to banks – 1
Trading liabilities – derivatives – 15
Other liabilities – 3
Provisions 6 –
Total 6 19
Theholdingsunderthisitemarepartofdisposalgroupsclassi-
fiedassuchundertheGroup’sstrategicrealignment.
Commentsonlong-termassetsheldforsaleanddisposalgroups
aresetoutinnote[33].
185
46. deferred tax liabilitieS
Deferredtaxliabilitiesaroseforthefollowingitemsinthe
statementoffinancialposition.
Deferred tax liabilities (¤ m) 2010 2009
Assets
Loans and advances to banks – –
Loans and advances to customers 98 478
Loan loss provisions 427 –
Trading assets 2,459 156
Positive fair values of hedging derivatives 582 125
Positive adjustment item from portfolio fair value hedges 73 93
Financial investments – 94
Property, plant and equipment – 2
Other assets 56 39
Liabilities
Liabilities to banks – 72
Liabilities to customers 68 81
Securitised liabilities – 4,668
Trading liabilities – 7
Other liabilities 6 463
Total 3,769 6,278
Netting off deferred tax assets −3,688 −6,185
Total 81 93
Therewerenotimingdifferencesasofthereportingdatefor
whichdeferredtaxliabilitieshadnotbeenrecognised.
Ofdeferredtaxliabilities,€81million(previousyear:€91mil-
lion)wereincurredinGermanyandnodeferredtaxliabilities
(previousyear:€2million)wereincurredabroad.
Thedifferencebetweenthevaluationfortaxpurposesofhybrid
financialinstruments(note[8.I.E])andthemeasurementof
suchinstrumentsunderIAS39.A8didnotresultinanydeferred
taxes(previousyear:€2million).
NoteS oN tHe StatemeNt oF FiNaNcial poSitioN | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010186
47. other liabilitieS
Other liabilities (¤ m) 2010 2009
Collateral provided for guarantees given 1,230 1,186
Liabilities for outstanding invoices 40 42
Personnel liabilities 30 54
Deferred income 27 41
Liabilities for restructuring 22 27
Other tax liabilities 10 16
Other 197 217
Total 1,556 1,583
Otherliabilitiesof€1,233million(previousyear:€1,192mil-
lion)havearesidualtermofmorethanoneyear.
Thecollateralprovidedforassumedliabilitiesservestohedge
leasingtransactionsofourcustomerswiththirdparties.
48. Subordinated Capital
HSHNordbankGroupdisclosesitssubordinatedliabilities,silent
participationsandprofitparticipationrightsunderthisitem.
Subordinated capital (¤ m) 2010 2009
Subordinated liabilities 5,222 5,375
maturing in less than two years 190 245
Silent participations 1,466 1,341
Profit participation capital 2,031 2,168
maturing in less than two years 1,972 2,083
Total 8,719 8,884
Subordinatedcapitalintheamountof€6,495million(previ-
ousyear:€6,630million)hasaresidualtermofmorethanone
year.
Thedifferencebetweenthecarryingamountofliabilities
designatedatfairvalueandtheirparvalue,whichindicatesthe
contractuallyagreedrepaymentamountattheduedate,
amountedto€−173millionat31December2010(previous
year:€−17million).
Hybridfinancialinstrumentsincludedundersubordinated
capitalincludeallsilentparticipationsaswellasprofitparticipa-
tioncapitalwithacarryingamountof€147million(previ-
ousyear:€433million).Thecarryingamountoftheseinstru-
mentswasdeterminedonthebasisofassumptions(cf.Note
[8.I.E]).
187
Carrying amount of material subordinated liabilities in circulation Bearer securities over ¤ 80 millionCommencement date ¤ m
Million (currency) Issuer Interest rate % Maturity
14.2.2007 1,000 1,000 ¤ HSH Nordbank 1.35 14.2.2017
14.2.2007 776 776 ¤ HSH Nordbank 4.38 14.2.2017
25.5.2005 297 297 ¤ HSH Nordbank 3.63 23.12.2015
30.6.2005 265 354 USD HSH Nordbank 0.47 30.12.2015
23.5.2005 137 137 ¤ HSH Nordbank 1.43 23.12.2015
21.3.2001 108 144 USD LBSH 1) 0.71 21.3.2031
15.10.2002 105 105 ¤ LBSH 1) 1.37 15.10.2015
30.6.2005 100 100 ¤ HSH Nordbank 1.18 30.12.2015
22.1.2001 92 92 ¤ HLB 2) 1.40 22.1.2041
25.11.1999 86 86 ¤ LBSH 1) 1.42 25.11.2039
30.10.2000 80 80 ¤ HLB 2) 1.42 30.10.2040
Registered securities over ¤ 80 million
26.8.1997 128 13,916 JPY HLB 2) 6.42 26.8.2017
1) Landesbank Schleswig-Holstein
2) Hamburgische Landesbank
Thefollowingmaterialsubordinatedliabilitieswereincircula-
tionasatthereportingdate31December2010:
Asatthereportingdate31December2010therewerethe
followingmaterialsilentparticipations:
Carrying amount of material silent participationsOver ¤ 30 millionCommencement date ¤ m
Million (currency) Issuer Interest rate % Maturity
19.2.2002 449 449 ¤HSH N
Funding I 7.41 perpetual
17.6.2005 321 429 USD HSH N
Funding II 7.25 perpetual
24.7.2000 92 92 ¤ LBSH 1) 7.63 perpetual
1) Landesbank Schleswig-Holstein
NoteS oN tHe StatemeNt oF FiNaNcial poSitioN | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010188
Asatthereportingdate31December2010therewasthe
followingmaterialprofitparticipationcapital:
Carrying amount of material profit participation capital Registered securities over ¤ 20 millionCommencement date ¤ m
Million (currency) Issuer Interest rate % Maturity
24.1.2000 28 28 ¤ HLB 1) 7.35 31.12.2016
1) Hamburgische Landesbank
Thereisalsoaregisteredprofitparticipationrightwithacarry-
ingamountof€1,884million(previousyear:€1,734million)
issuedbyasubsidiaryunderastructuredtransaction.
Equity (¤ m) 2010 2009
Share capital 2,635 2,460
Capital reserve 1,028 1,509
Retained earnings 1,724 1,607
Gains on pension obligations and similar obligations not recognised in the income statement 201 177
Deferred taxes on gains from pension obligations and similar obligations not recognised in the income statement −66 −59
Revaluation reserve −227 −341
Currency conversion reserve −60 −90
Group loss −3 −734
Total before non-controlling interests 5,097 4,411
Non-controlling interests −3 31
Total 5,094 4,442
Duringthefourthquarterof2010,equityroseto€5,094mil-
lion(31December2009:€4,442million).Inadditiontoan
increaseintherevaluationreservesthisismainlyattributable
toascheduledcapitalincreaseforwhichtheownersofthe
Bankhadsubscribedforaconvertiblebondin2008.Following
conversion,theywerecontributedtoHSHNordbankinthe
formofanin-kindcontribution.Thecapitalincreaseamounted
49. equity
to€510million.€175millionofthisamountwasaddedtothe
sharecapitalofHSHNordbank,whichwasincreasedto
€2,635,082,770.00throughtheissueof17,490,909newregis-
teredsharesatanominalvalueof€10.00pershare.The
capitalauthorisedwasfullyutilisedforpurposesofthecapital
increase.Thecapitalincreasetookeffectuponentryin
thecommercialregistersinHamburgandKielon29December
2010.
Theamountof€335millionpaidinexcessofthenominalvalue
wasrecordedincapitalreserves.Anamountof€816mil-
lionwasreleasedfromcapitalreservestooffsetthelossesofHSH
NordbankAGbroughtforwardfrom2009.Thisreducedthe
balanceto€1,028million.
189
Share capital
Asaresultofthecapitalincreaseduringthefourthquarterof
2010,thesharecapitaloftheHSHNordbankGrouproseby
€175millionto€2,635million.Itisdividedinto263,508,277
registeredshareseachrepresentinganotional€10ofshare
capital.
Theshareholderstructurechangedasaresultofthecapital
increase.ThedirectandindirectshareholdingheldbytheFed-
eralStateofSchleswig-HolsteinandtheFreeandHanseatic
CityofHamburgdecreasedintotalfrom85.50%to83.26%.At
thereportingdateHSHFinanzfondsAöR,heldequallyby
theFreeandHanseaticCityofHamburgandstateofSchleswig-
Holstein,isthelargestshareholderwithadirectshareof
votingrightsof59.92%(previousyear:64.18%).Furtherdirect
andindirectvotingsharesheldbytheFreeandHanseatic
CityofHamburgroseto12.37%asatthebalancesheetdate(pre-
viousyear:10.89%)andthefurtherdirectandindirectshares
oftheFederalStateofSchleswig-Holsteinwere10.97%(previous
year:10.43%).ThedirectshareoftheSavingsBankAssoci-
ationforSchleswig-Holsteinasat31December2010was6.08%
(previousyear:5.31%).Asat31December2010thenine
groupsofinvestorsadvisedbyJ.C.Flowers&Co.LLCheld10.66%
ofthevotingrights(previousyear:9.19%).
NeitherHSHNordbankAGnoranycompanydependentonit
ormajority-ownedcompaniesholdtreasurystock.Thereis
nocross-shareholdingasdefinedbySection19oftheGerman
StockCorporationAct(AktG).
Changes in ordinary shares(number of shares) 2010 2009
Number at the beginning of the year 246,017,368 88,122,631
Capital increase 17,490,909 157,894,737
Number at end of the period 263,508,277 246,017,368
capital reServe
Withintheframeworkofthecapitalincreasepremiumsinthe
amountof€335milliononthepartexceedingthenominal
valueoftheshareswereearned.Theywereaddedtocapitalre-
serves.Anamountof€816millionwasreleasedfromcapital
reservestooffsetthelossesofHSHNordbankAGbroughtfor-
wardfrom2009.Asat31December2010thenetamountof
thecapitalreservesdecreasedto€1,028millioncomparedwith
€1,509millioninthepreviousyear.
retained earninGS and dividendS
TheitemRetainedearningsshowsamountsallocatedfrompre-
viousyearprofitsandtheprofitsofthecurrentyear.There
arenostatutoryreservesorlegalreservewithinthemeaningof
Section150(2)oftheGermanStockCorporationAct(AktG).
Nodividenddistributionsweremadeforpreviousyearsduring
the2010or2009financialyears.
revaluation reServe
TheeffectsofthemeasurementofAfSfinancialinstruments
recognisedatfairvaluenotrecognisedinprofitorlossare
recordedintherevaluationreserve.
Thechangesinvalueassociatedwithdeferredtaxesshownin
therevaluationreservearealsopresentedintherevaluation
reservepursuanttoIAS12.61.
Thedevelopmentoftherevaluationreservebreaksdownas
follows:
NoteS oN tHe StatemeNt oF FiNaNcial poSitioN | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010190
Development of the revaluation reserve (¤ m) 2010 2009
As at 1 January −341 −562
Addition / release of revaluation reserve due to measurement 120 −78
Changes due to foreign currency effects 10 −26
Subtotal −211 −666
Transfers to the income statement −18 306
Available for sale due to impairment −22 9
Available for sale due to disposal −9 282
Available for sale due to reclassification 13 15
Of which from currency effects 2 19
Available for sale due to disposal 2 19
As at 31 December −227 −341
of which: Deferred taxes not recognised in the income statement 75 99
Deferredtaxesof€−24million(previousyear:€−108million)
wererecognisedintherevaluationreserveintheyearunder
review.Asofthebalancesheetdate,deferredtaxesinthereval-
uationreserveamountedto€75million(previousyear:€99
million).
currency converSion reServe
Assetsandliabilitiesinfinancialstatementsofsubsidiariesin
foreigncurrenciesaretranslatedatthereportingdateexchange
rateinpreparingtheconsolidatedfinancialstatements,while
averageratesforthereportingperiodareusedtotranslateex-
pensesandincome.Equityistranslatedathistoricalrates,
withtheexceptionofrevaluationreservesinindividualfinancial
statementsinforeigncurrencies,whicharetranslatedatthe
reportingdateexchangerate.
Anydifferencesarisingfromthismethodoftranslationcom-
paredtocompletetranslationatthereportingdateexchangerate
arereportedinthisitemunderequity.
capital manaGement
ThecapitalmanagementofHSHNordbankGroupaimstocom-
plywithregulatoryminimumcapitalratios.Duetothepro-
visiontotheBankofliquidityguaranteesbySoFFin,thereisthe
requirementtocomplywithafurtheragreedminimumcore
capitalratio.Inadditiontothisminimumrequirement,capital
managementensuresthattheBank’scapitalmeetsthere-
quirementsofrisk-bearingcapacity.
Theregulatorycapitalisationisinaccordancewiththeprovisions
oftheGermanBankingActandGermanSolvencyRegulation.
HSHNordbankGroupcalculatestheregulatorycapitalrequire-
mentforitscounterpartyrisksinaccordancewiththeIRB
AdvancedApproachrecognisedbytheregulatoryauthorities.
Thecapitalbaseisreportedtotheregulatoryauthorities
quarterly.Theregulatoryminimumratioswerecompliedwith
oneachreportingdateinthecourseoftheyearunderre-
view.Theratiosarewellabovetheregulatoryminimumratios.
Regulatory figures (in %) 1) 2010 2009
Tier 1 capital ratio (incl. market risk position) 15.40 9.50
Total ratio / Regulatory capital ratio 22.40 14.50
1) Values before adoption of the annual financial statements of HSH Nordbank AG.
Theregulatorycapitalcommitmentismanagedbylimitingrisk-
weightedassets(RWA)atthelevelofthebusinessunits.
Withintheframeworkofinternalincomestatements,theregu-
latorycapitalrequirementisdecisivefortheallocationof
capitalcoststothebusinessunits.
191
Segment reporting
50. Segment report
(¤ m / %)
Sector Specialist Bank Regional Bank Other
Consolidation Core Bank Total Core Bank
2010 2009 2010 2009 2010 2009 2010 2009 2010 2009
Net interest income 600 567 419 469 −155 528 69 −163 933 1,401
Net commission income 34 58 67 90 9 −11 13 −18 123 119
Result from hedging – – – – – – 8 146 8 146
Net trading income −57 27 14 39 114 17 −24 28 47 111
Net income from financial investments −24 −54 −13 −3 23 60 6 −24 −8 −21
Total income 553 598 487 595 −9 594 72 −31 1,103 1,756
Loan loss provisions 27 −713 −148 −135 49 25 166 −30 94 −853
Administrative expenses −176 −165 −185 −224 −205 −172 −3 4 −569 −557
Other operating income −41 1 −24 −55 −27 60 38 2 −54 8
Net income before restructuring 363 −279 130 181 −192 507 273 −55 574 354
Result from restructuring – – – – – – 2 −52 2 −52
Expenses for government guarantees – – – – – – −258 −284 −258 −284
Net income before taxes 363 −279 130 181 −192 507 17 −391 318 18
Cost / income ratio (CIR) 32 % 28 % 38 % 38 % 52 % 32 %
Return on equity before tax and restructuring expenses 33 % −36 % 19 % 38 % 24 % 21 %
Average equity 1,090 782 679 478 377 290 199 106 2,345 1,656
Segment assets (¤ bn) 31 32 23 25 34 40 – – 88 97
NoteS oN tHe StatemeNt oF FiNaNcial poSitioN, SeGmeNt reportiNG | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010192
(¤ m / %)
Restructuring UnitConsolidation
Restructuring UnitTotal
Restructuring Unit Group
2010 2009 2010 2009 2010 2009 2010 2009
Net interest income 578 742 −9 −22 569 720 1,502 2,121
Net commission income 95 92 – – 95 92 218 211
Result from hedging – – – – – – 8 146
Net trading income −403 509 −3 −52 −406 457 −359 568
Net income from financial investments 226 −149 16 – 242 −149 234 −170
Total income 496 1,194 4 −74 500 1,120 1,603 2,876
Loan loss provisions −365 −1,941 142 – −223 −1,941 −129 −2,794
Administrative expenses −283 −273 −15 – −298 −273 −867 −830
Other operating income −51 22 43 – −8 22 −62 30
Net income before restructuring −203 −998 174 −74 −29 −1,072 545 −718
Result from restructuring – – −11 −72 −11 −72 −9 −124
Expenses for government guarantees – – −261 −199 −261 −199 −519 −483
Net income before taxes −203 −998 −98 −345 −301 −1,343 17 −1,325
Cost / income ratio (CIR) 54 % 29 %
Return on equity before tax and restructuring expenses 11 % −22 %
Average equity 2,361 1,539 62 29 2,423 1,568 4,768 3,224
Segment assets (¤ bn) 63 77 – – 63 77 151 174
SegmentreportingisinaccordancewiththeprovisionsofIFRS
8.Thesegmentsarebasedontheinternalorganisational
structureinalignmentwithproductandcustomergroups.
Followingtheseparationofnon-strategicactivitiesin2009,
HSHNordbank’sCoreBankconsistsoftheSectorSpecialist
Bank,RegionalBankandOthersegments.ResultsoftheShip-
ping,TransportandRenewableEnergycoreunitsarere-
portedundertheSectorSpecialistBanksegment.TheRegional
BanksegmentreportstheBank’sactivitiesincoreareaswith
aregionalfocus:CorporateClients,RealEstateClients,Savings
BanksandPrivateBanking.Netincomeinthesesegments
isearnedprimarilyfromloanandfinancialproductsaswellas
financing-relatedservices.Thesegment‘Other’includesthe
financialmarketbusiness,withthecentralrefinancingfunction
fortheGroupandtheBank’soverallpositionincludingstrate-
gicparticipations.
TheRestructuringUnit,establishedasaninternalunitwithin
HSHNordbank,isresponsibleforandmanagesthewinding
downofcreditandcapitalmarkettransactionsidentifiedasnon-
strategicinthecourseoftherealignmentoftheBank.The
RestructuringUnitwasdividedintothreebusinessunitsand
structuredindependentlyfromthemarketandtrading
departmentsoftheBank.TheSpecialLoansunitprimarilyman-
agesrestructuringcasesandtheWind-DownLoansunit
mainlymanagestheotherloanportfolios.Athirdunitisrespon-
sibleforthecapitalmarketportfolios(Divestments).Inaddi-
tiontheRestructuringUnitperformssupportingadministrative
functions.
Thebasisforthesegmentreportingisinternalreportingto
management.Incomeandexpenseswereassignedtotheseg-
mentsinwhichtheyoriginated.
InaccordancewithIFRS8.32and8.33,neithergeographical
informationnorinformationonproductsandservicesisdis-
closed.
Thecost/incomeratioandreturnonequityarenotshowninthe
segmentreportforthesegments‘RestructuringUnit’and
‘Other’.Thesegment‘Other’isasummaryinaccordancewith
IFRS8.16.Theratiosarenotshownforthissegmentasa
jointratioforthesummaryprovideslittleinformation.Inthe
193
caseoftheRestructuringUnit,thesegmentinvolvesbusiness
areaswhicharenotstrategicandarecurrentlybeingrun
down.Thissegmentisnotmanagedonthebasisoftheseratios.
NetinterestincomeiscalculatedinaccordancewithFund
TransferPricing(FTP).Theplannedinvestmentandfinancing
profitinthesegment‘Other’isdistributedamongthebusi-
nesssegmentsonthebasisofeconomiccapitalcommitted.The
transformationcontributionisallocatedtothesegments
‘SectorSpecialistBank’and‘RegionalBank’onthebasisofaver-
agereceivables.ThecostsoftheSoFFinliquidityguarantee
aretakenintoaccountinthisallocation.
Totalincomerecognisedinthesegmentsisexclusivelyfrom
externalcustomers.
Internalcostallocationsareusedtorepresenttheinternalser-
vicerelationships.Groupoverheadcostsinthesegment
‘Other’areallocatedtothesegmentsbasedonrisk-weighted
assetsbeforeguaranteesanddirectlyallocatedcosts.In
2010thebalancesheettotalwasaddedtothebasisofallocation.
Netincomeelementsnotallocatedtobusinessunitsarereported
intheconsolidationcolumnsoftheCoreBankandtheRestruc-
turingUnit.
Measurementandrecognitiondifferencesareprincipallyreport-
edundertheconsolidationofnetinterestincome.Toacer-
tainextent,theseresultedfromthecostsfortheSoFFinliquidity
guaranteeaspartoftheexpenseforpublicguaranteesaswell
asthepresentvalueofnetinterestincome.
Theresultfromhedgingaswellasthedevelopmentofthetrad-
ingresultduetohedgeinefficienciesundercommerciallaw
andcreditratingeffectsonDFVliabilitiesispartoftheconsoli-
dationprocessandisnotallocatedtosegments.
Portfoliovaluationallowancesareshowninthesegmentsin
whichtheyoriginated.Thereversalofportfolioloanloss
provisionsonthebasisofthehedgingeffectsofthesecondloss
guaranteearenotsubjecttoasegmentassignment.
Average(reported)equitycapitalwasallocatedtothesegments
onthebasisofrisk-weightedassetsbeforeguarantees.The
cost/incomeratioistheratioofadministrativeexpensestototal
income.Returnonequityistheratioofnetincomebefore
restructuringtoaverageequity.Seenote[17]forcommentson
thedepreciationofgoodwill.Seenote[15]forcommentson
companiesconsolidatedundertheequitymethodrecognisedas
partofnetincomefromfinancialinvestments.
SeGmeNt reportiNG | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010194
51. Carrying amountS of finanCial inStrumentS by iaS 39 Category
Carrying amounts of financial instruments by IAS 39 category(¤ m)
2010
LaR AfS DFV HfT LIA No IAS 39 category Total
Assets
Cash reserve 1,003 407 – – – – 1,410
Loans and advances to banks 10,188 42 208 – – – 10,438
Loans and advances to customers 101,428 – 1,156 – – – 102,584
Receivables under finance leases – – – – – 274 274
Positive fair values of hedging derivatives – – – – – 1,838 1,838
Trading assets – – – 11,282 – – 11,282
Financial investments 14,438 7,804 2,759 – – – 25,001
Non-current assets held for sale and disposal groups 148 48 193 – – – 389
Other assets 185 – – – – – 185
Total assets 127,390 8,301 4,316 11,282 – 2,112 153,401
Liabilities
Liabilities to banks – – 315 – 25,885 – 26,200
Liabilities to customers – – 3,519 – 46,927 – 50,446
Securitised liabilities – – 5,486 – 39,240 – 44,726
Negative fair values of hedging derivatives – – – – – 362 362
Trading liabilities – – – 11,412 – – 11,412
Liabilities relating to disposal groups – – – – – – –
Subordinated capital – – 2,030 – 6,689 – 8,719
Other liabilities – – – – 1,556 – 1,556
Total liabilities – – 11,350 11,412 120,297 362 143,421
notes on financial instruments
195NoteS oN FiNaNcial iNStrumeNtS | Group FiNaNcial StatemeNtS
Carrying amounts of financial instruments by IAS 39 category (¤ m)
2009
LaR AfS DFV HfT LIA No IAS 39 category Total
Assets
Cash reserve 978 318 – – – – 1,296
Loans and advances to banks 15,282 46 213 – – – 15,541
Loans and advances to customers 109,140 – 1,165 – – – 110,305
Receivables under finance leases – – – – – 252 252
Positive fair values of hedging derivatives – – – – – 1,684 1,684
Trading assets – – – 16,879 – – 16,879
Financial investments 16,702 9,648 3,340 – – – 29,690
Non-current assets held for sale and disposal groups – 63 428 95 – – 586
Other assets 338 – – – – – 338
Total assets 142,440 10,075 5,146 16,974 – 1,936 176,571
Liabilities
Liabilities to banks – – 323 – 38,268 – 38,591
Liabilities to customers – – 3,712 – 46,091 – 49,803
Securitised liabilities – – 5,587 – 47,534 – 53,121
Negative fair values of hedging derivatives – – – – – 517 517
Trading liabilities – – – 14,649 – – 14,649
Liabilities relating to disposal groups – – 1 15 1 – 17
Subordinated capital – – 1,934 – 6,950 – 8,884
Other liabilities – – – – 1,583 – 1,583
Total liabilities – – 11,557 14,664 140,427 517 167,165
HSH NordbaNk 2010196
HSHNordbankGroupexercisedtheoptionofreclassifying
assetsunderIAS39(2008revision),whichhavebeenreclassified
asLaRwheretheymettherelevantrequirements,werenot
intendedforshort-termsaleatthetimeofreclassificationand
areduetobeheldfortheforeseeablefuture.Theassetswere
reclassifiedin2008and2009duetotheglobalfinancialcrisis
andtheconsequencesithashadonthevaluationofsecuri-
tiesholdings.Thereclassificationswereperformedinaccordance
withIAS39.50DorIAS39.50Erespectively.
ThereclassificationasLaRmeasuresfairvalueatthetimeofre-
classificationatcostoramortisedcostrespectively.Atthetime
ofreclassificationaneffectiveinterestrateisdeterminedwhich
isusedforsubsequentmeasurementoftheamortisedacquisi-
52. reClaSSifiCation under iaS 39 (2008 reviSion)
tioncost.ForreclassificationoffinancialinstrumentsfromAfS
toLaRtherevaluationreserverecogniseduptothepointof
reclassificationisreleasedthroughnetinterestincomeonapro
ratatemporisbasisinaccordancewithIAS39.54a).
Duringthethirdquarterof2008,financialinstrumentswere
reclassifiedfromthecategoriesHfTandAfSintoLaR.
Theimpactofreclassificationsontheconsolidatedfinancial
statementsisshownbelow:
(¤ m)
2010 2009
Carrying amount as at
the time of reclassification
Carrying amount Fair Value
Carrying amount Fair Value
Reclassified from HfT to LaR 1,020 211 199 403 390
Reclassified from AfS to LaR 1,841 269 262 281 273
Total financial assets reclassified as LaR 2,861 480 461 684 663
Theeffectiveinterestrateappliedinthecaseoffinancialinstru-
mentsinthecategoryHfTwasbetween0.03%and14.72%
andforfinancialinstrumentsinthecategoryAfSwasbetween
2.97%and9.75%.Anticipatedrepaymentsamountedto
€2,988million.
Thedecreaseincarryingamountsandfairvaluesofthe
reclassifiedfinancialinstrumentswasduetoextensivechanges
inholdings.AtthetimeofreclassificationasHfT,thecarry-
ingamountofthefinancialinstrumentsaffectedwas€790mil-
lionandthecarryingamountofassetsclassifiedasAfSwas
€1,601million.Thechangesinholdingsaretheresultofsales
inthecourseofthestrategicrealignmentoftheHSHNord-
bankGroupandwerenotintendedorforeseeableatthetimeof
reclassification;someresultedfrommaturitiesarising.
Moreassetswerereclassifiedinthesecondquarterof2009.
Theseareshowninthefollowingtable:
197
(¤ m)
2010 2009
From HfT From AfS Total From HfT From AfS Total
Net interest income 23 153 176 39 131 170
Net trading income 1 3 4 −1 – −1
Net income from financial investments 5 26 31 8 28 36
Total 29 182 211 46 159 205
(¤ m)
2010 2009
Carrying amount as at
the time of reclassification
Carrying amount Fair Value
Carrying amount Fair Value
Reclassified from HfT to LaR 399 371 379 398 406
Reclassified from AfS to LaR 6,336 5,766 5,706 6,309 6,379
Total financial assets reclassified as LaR 6,735 6,137 6,085 6,707 6,785
Theeffectiveinterestrateappliedinthecaseoffinancialinstru-
mentsinthecategoryHfTwasbetween1.21%and5.06%
andforfinancialinstrumentsinthecategoryAfSwasbetween
0.87%and5.00%.Anticipatedrepaymentsamountedto
€6,859million.
Shownbelowistheimpactallholdingsreclassifiedtodate
wouldhavehadontheincomestatementandrevaluation
reserveiftheyhadnotbeenreclassified,alongwiththeactual
impactontheincomestatement:
− Ifthereclassificationhadnottakenplace,therewouldhave
beenavaluationresultof€59milliongainandareval-
uationreservegainof€92millionthroughDecember2009.
− ForfinancialinstrumentsreclassifiedfromHfTthevaluation
resultintheincomestatementforthecurrentreporting
periodwouldhavebeen€5millionforthefinancialinstru-
mentsreclassifiedinthe2008financialyearand€−2
millionforthefinancialinstrumentsreclassifiedinthe2009
financialyear.
− ForfinancialinstrumentsreclassifiedfromAfSthevaluation
resultintherevaluationreserveforthecurrentreporting
periodwouldhavebeen€2millionforthefinancialinstru-
mentsreclassifiedinthe2008financialyearand€−102
millionforthefinancialinstrumentsreclassifiedinthe2009
financialyear.
Shownbelowistheactualimpactofallholdingsreclassifiedto
dateontheincomestatementofthecurrentreportingperiod:
NoteS oN FiNaNcial iNStrumeNtS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010198
53. reSidual maturity breakdown of finanCial inStrumentS
Whendeterminingtheresidualmaturitiesoffinancialliabili-
tiesforpurposesofpresentingliquidityrisk,thecontractually-
2010Financial instruments (¤ m)
2010
Payable on demand
Less than 3 months
3 monthsto 1 year
1 yearto 5 years
Over5 years Total
Liabilities
Liabilities to banks 941 6,584 5,571 12,131 3,032 28,259
Liabilities to customers 8,550 17,102 5,518 12,222 16,180 59,572
Securitised liabilities – 2,243 8,274 34,321 4,952 49,790
Negative fair values of hedging derivatives – 52 64 198 66 380
Trading liabilities 18 1,199 2,386 5,588 2,714 11,905
thereof derivatives 17 1,199 2,385 5,587 2,714 11,902
Subordinated capital 1,946 19 209 4,321 4,377 10,872
Contingent liabilities 3,270 – – – – 3,270
Irrevocable loan commitments 9,526 – – – – 9,526
Total 24,251 27,199 22,022 68,781 31,321 173,574
agreedmaturitydatesofnon-discountedcashflowsareusedas
thebasis.
Interestswaps,cross-currentinterestrateswapsandequity
swapsarepresentedonthebasisoftheirfuturenetpay-
mentobligations.Otherderivativesareassignedtomaturity
bandsbyoverallmaturityattheircarryingamount.
Financial instruments (¤ m)
2009
Payable on demand
Less than 3 months
3 monthsto 1 year
1 yearto 5 years
Over5 years Total
Liabilities
Liabilities to banks 2,763 9,134 12,614 9,754 7,410 41,675
Liabilities to customers 10,275 11,234 6,840 10,874 21,343 60,566
Securitised liabilities 41 5,676 9,164 30,775 13,853 59,509
Negative fair values of hedging derivatives – 1 23 229 264 517
Trading liabilities 36 1,769 3,710 7,739 2,899 16,153
thereof derivatives 35 1,769 3,710 7,739 2,899 16,152
Liabilities relating to disposal groups – 2 5 1 9 17
Subordinated capital 2,035 19 308 2,017 7,401 11,780
Contingent liabilities 4,244 – – – – 4,244
Irrevocable loan commitments 14,199 – – – – 14,199
Total 33,593 27,835 32,664 61,389 53,179 208,660
Liquiditymanagementisdescribedindetailsintheriskreport
sectionoftheGroupmanagementreport.
199
54. diSCloSure of fair value in aCCordanCe with ifrS 7
i. Fair value oF Financial inStrumentS
Foreachclassoffinancialassetsandfinancialliabilities,the
fairvaluesaredisclosedbyclassesoffinancialinstrumentsand
comparedwiththerespectivecarryingamount(IFRS7.25).
Fair values of financial instruments (¤ m)
2010 2009
Carrying amount Fair Value Difference
Carrying amount Fair Value Difference
Assets
Held for trading (HfT)
Trading assets 11,282 11,282 – 16,879 16,879 –
Non-current assets held for sale and disposal groups – – – 95 95 –
Designated at fair value (DFV)
Loans and advances to banks 208 208 – 213 213 –
Loans and advances to customers 1,156 1,156 – 1,165 1,165 –
Financial investments 2,760 2,760 – 3,340 3,340 –
Non-current assets held for sale and disposal groups 193 193 – 428 428 –
Available for sale (AfS)
Cash reserve 407 407 – 318 318 –
Loans and advances to banks 42 42 – 46 46 –
Financial investments 7,804 7,804 – 9,648 9,648 –
Non-current assets held for sale and disposal groups 48 48 – 63 63 –
Loans and Receivables (LaR)
Cash reserve 1,003 1,003 – 978 978 –
Loans and advances to banks 9,994 10,005 11 14,912 15,313 401
Loans and advances to customers 96,999 96,817 −182 104,792 104,855 63
Financial investments 14,438 13,744 −694 16,702 15,654 −1,048
Non-current assets held for sale and disposal groups 148 154 6 – – –
Other assets 185 185 – 338 338 –
No IAS 39 category
Positive fair values of hedging derivatives 1,838 1,838 – 1,684 1,684 –
Receivables under finance leases 274 274 – 252 252 –
Total assets 148,779 147,920 −859 171,853 171,269 −584
NoteS oN FiNaNcial iNStrumeNtS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010200
Thefairvalueoffinancialinstrumentsforwhichthereisan
activemarketismeasuredbythestockexchangeormarketprice
atthereportingdate.Ifthereisnoactivemarketforfinancial
instruments,thefairvalueisdeterminedbyapplyingrecognised
valuationmodels.Forreceivablesandliabilitiesmeasuredat
amortisedacquisitioncost,fairvalueisdeterminedbydiscount-
ingcashflowstakingintoaccountrating-relatedspreadsas
wellasthecollateralisationratiofortheloans.Inthecaseof
receivableswithadefaultrating,themeasurementoffair
valueismadeonthebasisoftheexpectedfuturecashflows.For
currentreceivablesandliabilities(e.g.currentaccounts)the
carryingamountisshownatfairvalue.
Duringthereportingperiod,theprocessfordeterminingfair
valueoffinancialinstrumentsforwhichthereisnoactivemar-
ketwassubjecttofurtherdevelopment.Asat31December
2010,theadjustmentsmaderesultedinareductionofhidden
reservesby€865millioncomparedtothepreviousmethod.
Fair values of financial instruments (¤ m)
2010 2009
Carrying amount Fair Value Difference
Carrying amount Fair Value Difference
Liabilities
Held for trading (HfT)
Trading liabilities 11,412 11,412 – 14,649 14,649 –
Liabilities relating to disposal groups – – – 15 15 –
Designated at fair value (DFV)
Liabilities to banks 315 315 – 323 323 –
Liabilities to customers 3,519 3,519 – 3,736 3,736 –
Securitised liabilities 5,486 5,486 – 5,633 5,633 –
Liabilities relating to disposal groups – – – 1 1 –
Other liabilities – – – – – –
Subordinated capital 2,030 2,030 – 1,934 1,934 –
Other liabilities (LIA)
Liabilities to banks 25,885 26,108 223 38,268 38,412 144
Liabilities to customers 46,927 47,106 179 46,067 46,067 –
Securitised liabilities 39,240 39,149 −91 47,488 47,212 −276
Liabilities relating to disposal groups – – – 1 1 –
Other liabilities 1,556 1,556 – 1,583 1,583 –
Subordinated capital 6,689 5,048 −1,641 6,950 5,658 −1,292
No IAS 39 category
Negative fair values of hedging derivatives 362 362 – 517 517 –
Total liabilities 143,421 142,091 −1,330 167,165 165,741 −1,424
Thecarryingamountsofloansandadvancestobanksandloans
andadvancestocustomersclassifiedasLaRareshownless
thereportedloanlossprovisions,sincefairvaluealsoreflects
possibleimpairments.
ii. valuation hierarchy
Assetsandliabilitiesshowthefollowingbreakdownbyvaluation
levelinthevaluationhierarchyunderIFRS7.Forassetsand
liabilitiesrecognisedandmeasuredatfairvalue,thecarrying
amountsarebrokendownbyclassoffinancialinstrument
inthethreelevelsinthehierarchy.
201
Hierarchy levels, assets (¤ m)
2010
Assets recognised at fair value
Level 1 Level 2 Level 3 Total
Cash reserve
AfS – 407 – 407
Loans and advances to banks
AfS – – 42 42
DFV – 41 167 208
Loans and advances to customers
DFV – 39 1,117 1,156
Positive fair values of hedging derivatives – 1,838 – 1,838
Trading assets (HfT) 689 9,661 932 11,282
Financial investments
AfS 4,147 2,163 1,494 7,804
DFV 1,043 907 810 2,760
Non-current assets held for sale and disposal groups
AfS – – 48 48
DFV – – 193 193
HfT – – – –
Total 5,879 15,056 4,803 25,738
Hierarchy levels, assets (¤ m)
2009
Assets recognised at fair value
Level 1 Level 2 Level 3 Total
Cash reserve
AfS 10 308 – 318
Loans and advances to banks
AfS – – 46 46
DFV – 161 52 213
Loans and advances to customers
DFV – 112 1,053 1,165
Positive fair values of hedging derivatives – 1,684 – 1,684
Trading assets (HfT) 514 15,611 754 16,879
Financial investments
AfS 3,833 3,942 1,873 9,648
DFV 1,280 1,049 1,011 3,340
Non-current assets held for sale and disposal groups
AfS – – 63 63
DFV – – 428 428
HfT – 9 86 95
Total 5,637 22,876 5,366 33,879
NoteS oN FiNaNcial iNStrumeNtS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010202
FinancialinvestmentsAfSadditionallyincludeinterestsinaffili-
atedcompaniesandequityholdingsintheamountof€966
million(previousyear:€1,102million)whicharenotmeasured
atfairvaluebutratheraccountedforatcostunderIAS39.
Inaddition,financialinvestmentsincludeequitiesandother
non-fixedinterestsecuritiesintheamountof€471million
(previousyear:€488million)whicharelikewiseaccountedfor
atcost.Suchfinancialinstrumentsrecognisedandmeasured
atcostareshownundertheassetsrecognisedandmeasuredat
fairvalueandallocatedentirelytovaluationlevel3.
Hierarchy levels, liabilities(¤ m)
2010
Liabilities recognised at fair value
Level 1 Level 2 Level 3 Total
Liabilities to banks
DFV – 214 101 315
Liabilities to customers
DFV – 579 2,940 3,519
Securitised liabilities
DFV 21 2,409 3,056 5,486
Negative fair values of hedging derivatives – 362 – 362
Trading liabilities (HfT) 9 10,642 761 11,412
Subordinated capital
DFV – 2,012 18 2,030
Total 30 16,218 6,876 23,124
Hierarchy levels, liabilities(¤ m)
2009
Liabilities recognised at fair value
Level 1 Level 2 Level 3 Total
Liabilities to banks
DFV – 215 108 323
Liabilities to customers
DFV – 649 3,087 3,736
Securitised liabilities
DFV 46 2,107 3,480 5,633
Negative fair values of hedging derivatives - 517 – 517
Trading liabilities (HfT) 18 13,990 641 14,649
Liabilities relating to disposal groups
HfT – 15 – 15
DFV – – 1 1
Subordinated capital
DFV – 1,840 94 1,934
Total 64 19,333 7,411 26,808
203
Ofthefinancialinstrumentsallocatedtolevel3,€2,528million
ofassets(previousyear:€2,355million)or€6,228million
ofliabilities(previousyear:€6,286million)areinaneconomic
hedgingrelationship,sothattheuncertaintiesandriskposi-
tionsduetounobservableparametersoffseteachotheratthe
levelofthehedgingrelationshipsinvolved.
Duringtheperiodunderreviewfinancialinstrumentsmea-
suredatfairvalueweretransferredfromonehierarchylevelto
another.Thesetransfersareshownbelowwiththecarrying
amountsatthetimeoftransferforeachclassoffinancialinstru-
ments.
Transfer, assets(¤ m)
2010
Transfer to level 1
Transfer from level 1
Transfer to level 2
Transfer from level 2
Transfer to level 3
Transfer from level 3
Loans and advances to customers
DFV – – – −55 55 –
Trading assets (HfT) 239 −33 51 −371 139 −25
Financial investments
AfS 1,632 −150 163 −1,638 6 −13
DFV 86 −148 171 −254 168 −23
Non-current assets held for sale and disposal groups
AfS 31 −4 4 −31 – –
Total 1,988 −335 389 −2,349 368 −61
Transfer, assets(¤ m)
2009
Transfer to level 1
Transfer from level 1
Transfer to level 2
Transfer from level 2
Transfer to level 3
Transfer from level 3
Trading assets (HfT) 2 – 1 −2 – −1
Financial investments
AfS 795 −341 316 −917 155 −8
DFV 529 −11 3 −613 95 −3
Non-current assets held for sale and disposal groups
HfT – – 9 – – −9
Total 1,326 −352 329 −1,532 250 −21
NoteS oN FiNaNcial iNStrumeNtS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010204
Transfer, liabilities(¤ m)
2010
Transfer to level 1
Transfer from level 1
Transfer to level 2
Transfer from level 2
Transfer to level 3
Transfer from level 3
Liabilities to banks
DFV – – 28 −10 10 −28
Liabilities to customers
DFV – – 100 −167 167 −100
Securitised liabilities
DFV – – 41 −229 229 −41
Trading liabilities (HfT) 1 16 −91 90 −16
Total 1 – 185 −497 496 −185
Transfer, liabilities(¤ m)
2009
Transfer to level 1
Transfer from level 1
Transfer to level 2
Transfer from level 2
Transfer to level 3
Transfer from level 3
Liabilities to banks
DFV – – 109 – – −109
Liabilities to customers
DFV – – 137 – – −137
Liabilities relating to disposal groups
HfT – – 6 – – −6
Total – – 252 – – −252
Thelargesttransfermovementbetween2009and2010was
fromlevel2tolevel1inthefinancialinvestmentsAfSandtrad-
ingassets.Thisisduetoanimprovementinliquidityof
variousfixed-interestsecurities.
Bycontrast,transfersfromlevel1tolevel2intradingassets,
financialinvestmentsandnon-currentassetsheldforsale
anddisposalgroupsaretheresultofadecreaseintheliquidity
ofcertainsecurities.Asaresult,financialassetstotalling
€329millionweretransferredfromlevel1tolevel2.
Thefollowingshowsthereconciliationforallassetsand
liabilitiesrecognisedandmeasuredatfairvalueandallocatedto
valuationlevel3inthefairvaluehierarchy.Thedatais
presentedbyclassoffinancialinstrumentfromthestarttothe
endoftheperiod.Thetabletakesintoaccountallmove-
mentsofassetsandliabilitieswhichwereorareallocatedtoval-
uationlevel3duringthereportingperiod.
205
2010
Reconciliation, assets(¤ m)
Loans and advances to banks
Loans and ad-
vances to cus-tomers
Trading assets
Financial investments
Non-current assets held for sale and disposal groups Total
AfS DFV DFV HfT AfS DFV AfS DFV HfT
1 January 2010 46 52 1,053 754 1,873 1,011 63 428 86 5,366
Changes in holdings recognised in profit or loss
Unrealised net income (income statement) – −6 45 42 −154 −70 – 1 5 −137
Realised net income (income statement) – – – 17 24 101 – 1 −10 133
Net income not recognised in profit or loss – – – – 4 – – – – 4
Quantitative change
Purchases – – 19 34 343 35 – 20 6 457
Sales – – – −38 −563 −221 −7 −392 −87 −1,308
Settlements −4 – – −4 −57 −25 – – – −90
Transfer from level 3 – – −25 −13 −23 – – – −61
Transfer to level 3 55 – 139 6 168 – – – 368
Reclassification – 57 – – −1 −183 −8 135 – –
Exchange rate changes – 9 – 13 32 22 – – – 76
Changes in the scope of consolidation – – – – – −5 – – – −5
31 December 2010 42 167 1,117 932 1,494 810 48 193 – 4,803
Net income from assets held as at 31 December 2010 – −4 45 185 −101 −92 – – – 33
2009
Reconciliation, assets(¤ m)
Loans and advances to banks
Loans and ad-
vances to cus-tomers
Trading assets
Financial investments
Non-current assets held for sale and disposal groups Total
AfS DFV DFV HfT AfS DFV AfS DFV HfT
1 January 2009 50 356 1,159 1,119 2,216 975 – – – 5,875
Changes in holdings recognised in profit or loss
Unrealised net income (income statement) – −15 159 96 −159 76 – – – 157
Realised net income (income statement) – – – −150 48 246 – – – 144
Net income not recognised in profit or loss −1 – – – −46 – – – – −47
Quantitative change
Purchases – 48 65 210 589 74 – – – 986
Sales – −238 – −386 −690 −458 – – – −1,772
Settlements −3 – – −2 – – – – – −5
Transfer from level 3 – – – −1 −8 −3 – – −9 −21
Transfer to level 3 – – – – 155 95 – – – 250
Reclassification – −97 −330 −121 −221 48 63 428 95 −135
Exchange rate changes – −2 – −11 −11 −5 – – – −29
Changes in the scope of consolidation – – – – – −37 – – – −37
31 December 2009 46 52 1,053 754 1,873 1,011 63 428 86 5,366
Net income from assets held as at 31 December 2009 −1 −15 159 208 −148 52 – – – 255
NoteS oN FiNaNcial iNStrumeNtS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010206
2010
Reconciliation, liabilities(¤ m)
Liabilities to banks
Liabilities to cus-tomers
Securitised liabilities
Trading liabilities
Liabilities from disposals
Subordi-nated
capital Total
DFV DFV DFV HfT DFV HfT DFV
1 January 2010 108 3,087 3,480 641 1 – 94 7,411
Changes in holdings recognised in profit or loss
Unrealised net income (income statement) 4 −26 65 36 – – −1 78
Realised net income (income statement) – 122 −63 −2 – 1 – 58
Quantitative change
Purchases 7 84 5 3 – 6 – 105
Sales – −387 −211 −1 −1 −7 – −607
Issues, new business – – 22 – – – – 22
Settlements – −10 −582 −3 – – −92 −687
Transfer from level 3 −28 −100 −41 −16 – – – −185
Transfer to level 3 10 167 229 90 – – – 496
Reclassification – – – – – – – –
Exchange rate changes – 3 152 25 – – 17 197
Changes in the scope of consolidation – – – −12 – – – −12
31 December 2010 101 2,940 3,056 761 – – 18 6,876
Net income from liabilities held as at 31 December 2010 1 38 68 90 – – – 197
2009
Reconciliation, liabilities(¤ m)
Liabilities to banks
Liabilities to cus-tomers
Securitised liabilities
Trading liabilities
Liabilities from disposals
Subordi-nated
capital Total
DFV DFV DFV HfT DFV HfT DFV
1 January 2009 256 3,098 4,553 1,229 – – 97 9,233
Changes in holdings recognised in profit or loss
Unrealised net income (income statement) 19 220 403 −531 – – 1 112
Realised net income (income statement) −1 −6 −260 −22 – – – −289
Quantitative change
Purchases 16 2 11 119 – – – 148
Sales −36 −125 −398 −117 – – – −676
Issues, new business – 110 86 – – – – 196
Settlements −36 −76 −884 −24 – – – −1,020
Transfer from level 3 −109 −137 – – – −6 – −252
Transfer to level 3 – – – – – – – –
Reclassification −1 – – −6 1 6 – –
Exchange rate changes – 1 −31 −7 – – −4 −41
31 December 2009 108 3,087 3,480 641 1 – 94 7,411
Net income from liabilities held as at 31 December 2009 14 198 219 −265 – – 1 167
207
Transferstolevel3forfinancialinvestmentsAfSandDFVwere
mainlyduetoilliquidityofindividualsecurities.Thetransfers
fromlevel3wereduetotheavailabilityofinputdataobservable
inthemarketsforpurposesofmeasuringthefairvalueof
individualsecurities.
Transfersfromlevel3wereprimarilyliabilitiestobanksand
customerstransferredduetotheexpirationofstructuredele-
ments.
Additionally,modelvalidationswithregardtoindividualfinan-
cialinstrumentsledtotransfersbetweenlevel2andlevel3.
IntheyearunderreviewequityinstrumentscategorisedasAfS
notmeasuredatfairvalueachievedrealisednetincomeof€10
million(previousyear:€3million)andanunrealisedlossof
€−149million(previousyear:€−162million).Theseamounts
arerecognisedundernetincomefromfinancialinvestments.
Thefollowingtablesshowtheitemscontainingrealisedand
unrealisedgainsandlossesintheincomestatementandequity
(statementofcomprehensiveincome).
2010
Net income items from reconciliation, assets (¤ m)
Loans and advances to banks
Loans and ad-
vances to cus-tomers
Trading assets
Financial investments
Non-current assets held for sale and disposal groups Total
AfS DFV DFV HfT AfS DFV AfS DFV HfT
Realised / Unrealised net income (income statement)
Net interest income – – – 115 2 −4 – – −3 110
Net trading income – −6 45 −56 −11 35 – 2 −2 7
Net income from financial investments – – – – −121 – – – – −121
Net income, income statement total – −6 45 59 −130 31 – 2 −5 −4
Other net income for the period – – – – 4 – – – – 4
Net income from assets held as at 31 December 2010
Net interest income – – – 74 – −4 – – – 70
Net trading income – −4 45 111 – −88 – – – 64
Net income from financial investments – – – – −113 – – – – −113
Net income in profit or loss from assets held as at 31 December 2010 – −4 45 185 −113 −92 – – – 21
Other net income for the period from assets held as at 31 December 2010 – – – – 12 – – – – 12
NoteS oN FiNaNcial iNStrumeNtS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010208
2009
Net income items from the reconciliation, assets (¤ m)
Loans and advances to banks
Loans and ad-
vances to cus-tomers
Trading assets
Financial investments
Non-current assets held for sale and disposal groups Total
AfS DFV DFV HfT AfS DFV AfS DFV HfT
Realised / Unrealised net income (income statement)
Net interest income – – −1 34 −1 −4 – – – 28
Net trading income – −15 160 −88 – 326 – – – 383
Net income from financial investments – – – – −110 – – – – −110
Net income, income statement total – −15 159 −54 −111 322 – – – 301
Other net income / loss for the period −1 – – – −46 – – – – −47
Net income from assets held as at 31 December 2009
Net interest income – – −1 44 – −1 – – – 42
Net trading income – −15 160 164 – 53 – – – 362
Net income from financial investments – – – – −152 – – – – −152
Net income from assets held as at 31 December 2009 – −15 159 208 −152 52 – – – 252
Other net income for the period from assets held as at 31 December 2009 −1 – – – 4 – – – – 3
2010
Net income items from reconciliation, liabilities(¤ m)
Liabilities to banks
Liabilities to cus-tomers
Securitised liabilities
Trading liabilities
Liabilities relating to disposal groups
Subordi-nated
capital Total
DFV DFV DFV HfT DFV HfT DFV
Realised / Unrealised net income (income statement)
Net interest income – −13 −6 −15 – – – −34
Net trading income 4 109 9 49 – 1 −1 171
Net income, income statement total 4 96 3 34 – 1 −1 137
Net income in profit or loss from liabilities held as at 31 December 2010
Net interest income – 2 5 −18 – – – −11
Net trading income 1 36 63 108 – – – 208
Net income (income statement) from liabilities held as at 31 December 2010 1 38 68 90 – – – 197
209
2009
Net income items from reconciliation, liabilities(¤ m)
Liabilities to banks
Liabilities to cus-tomers
Securitised liabilities
Trading liabilities
Liabilities relating to disposal groups
Subordi-nated
capital Total
DFV DFV DFV HfT DFV HfT DFV
Realised / Unrealised net income (income statement)
Net interest income −2 1 −6 6 – – – −1
Net trading income 20 213 149 −559 – – 1 −176
Net income, income statement total 18 214 143 −553 – – 1 −177
Net income (income statement) from liabilities held as at 31 December 2009
Net interest income −1 5 −1 – – – – 3
Net trading income 15 193 220 −265 – – 1 164
Net income (income statement) from liabilities held as at 31 December 2009 14 198 219 −265 – – 1 167
NoteS oN FiNaNcial iNStrumeNtS | Group FiNaNcial StatemeNtS
iii. eFFectS oF non-oBServaBle parameterS
Ifthevaluationofafinancialinstrumentisbasedpartlyonnon-
observableparameters,thefairvaluedeterminedisthebest
estimatedvalueinaccordancewithadiscretionarydecisionby
theBank.However,itremainssubjectiveinthattheremay
bealternativeparameterselectionoptionsthatcannotberefuted
byobservablemarketdata.Analternativechoiceofparam-
etersdependingonthelimitsofapossiblerangewouldhavehad
theeffectsonthefairvalueofthefinancialinstrumentsin
questionsetoutinthefollowingtable.
Ifexistingriskpositionsoffseteachotherduetoanon-observ-
ableparameter(e.g.inthecaseofahedgecoveringmultiple
classes),onlytheneteffectisshown.Incontrasttotheinforma-
tioninnote54.IIfinancialinvestmentsrecognisedandmea-
suredatcostarenottakenintoaccount.
HSH NordbaNk 2010210
Fair value changes assets level 3(¤ m)
2010 2009
advantageous disadvan-
tageous advantageous disadvan-
tageousSignificant non-observable input data for purposes of deriving fair value
Financial investments
Credit investments:
hedge funds, other funds 4 1 20 4 Multiple measurement methods (Mark-To-Model, Mark-To-Matrix) for determining fair value, Probabilities of default, correlation between probabilities of default, loss amounts, repay-ment instalments
Synthetic CDO, CDO of ABS, CDO of CDO
14 3 13 3
Other ABS 2 – 11 2
Trading assets / Trading liabilities
Derivatives:
Interest rate derivatives 39 8 53 11
Statistical parameters in interest structure mod-els, certain swaption volatilities (out of the money), multiple valuation models for deter-mining fair valueFX derivatives 3 1 2 1
Liabilities to banks / Liabilities to customers Securitised lia-bilities
Structured liabilities
Interest structured bonds and promissory notes 3 – – –
Statistical parameters in interest structure models (mean reversion), certain swaption volatilities
Total 65 13 99 21
Thereof measured in profit and loss 65 13 86 18
Thereof not measured in profit and loss – – 13 3
Fairvaluesforfinancialinstrumentsinvaluationlevel3aresub-
jecttouncertainties,astherearenoobservablemarketprices
onthevaluationdateinanactivemarketfortheinstrumentto
bevalued,andthevaluationmethodusesnon-observable
inputdataaswellasobservablemarketdata.Therangeoffair
valuesgivenisprimarilyduetothreereasons.
First,theestimateforthefairvalueofcertainfinancialinstru-
mentswhicharenottradedonanactivemarketmayinvolve
pricesfromvarioussources(transactionprices,transactionprices
forsimilarfinancialinstruments,indexprices,pricesob-
tainedfrommarketpartners,pricesfrompriceserviceagencies,
modelprices).Inthesecases,therangeisderivedfromthe
differencesbetweenthevariouspricesources.
Second,differentvaluationmodelsareusedinthemarketfor
certainfinancialinstruments,i.e.thereisnouniformmarket
standard.Forsuchfinancialinstruments,possiblerangesin
determiningfairvalueariseoutofdifferencesbetweenthevar-
iousmodelprices.
Third,non-observableinputparameters(e.g.correlations,spe-
cificvolatilitiesetc.)areusedinthevaluationmodelforspe-
cificfinancialinstruments.Inthesecases,therangearisesout
ofalternativepossibleparameterselectionsinthemodel.
211
55. Credit riSk analySiS of finanCial aSSetS and detailS of Collateral
i. credit quality oF Financial inStrumentS which are neither impaired nor overdue
Thetablebelowgivesinformationonthecreditqualityoffinan-
cialinstrumentswhichwereneitherimpairednoroverdue
asofthereportingdate.Thetableprovidesabreakdownofthe
financialinstrumentsbycategoryandratingclassofthe
respectivecounterparty.
Themethodofcombiningthedatatodeterminetherating
classallocationwasfurtherrefinedduringthereportingyear.
iv. day one proFit and loSS
Thedayoneprofitandlossreservedevelopedasfollows:
Day One Profit and Loss (¤ m) 2010 2009
Holdings as at 1 January 19 22
Additions not recognised in profit and loss 14 –
Disposals recognised in profit and loss 9 3
Reserve as at 31 December 24 19
NoteS oN FiNaNcial iNStrumeNtS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010212
Credit quality(¤ m)
1 (AAA) to 1 (AA+) 1 (AA) to 1 (A-) 2 to 5 6 to 9
2010 2009 2010 2009 2010 2009 2010 2009
Held for Trading (HfT)
Trading assets 4,171 5,719 4,027 1,868 940 2,718 795 2,870
Non-current assets held for sale and disposal groups – 32 – 11 – 15 – 16
Designated at Fair Value (DFV)
Loans and advances to banks 131 120 50 69 27 24 – –
Loans and advances to customers 1,079 1,098 – – 11 67 66 –
Financial investments 796 1,333 1,519 1,577 137 85 175 167
Non-current assets held for sale and disposal groups 180 403 – – 2 25 11 –
Available for Sale (AfS)
Cash reserve 407 318 – – – – – –
Loans and advances to banks 26 5 11 33 3 8 2 –
Financial investments 4,134 4,826 1,816 2,262 548 976 379 597
Non-current assets held for sale and disposal groups 29 – 12 49 4 – 3 14
Loans and Receivables (LaR)
Cash reserve 1,003 978 – – – – – –
Loans and advances to banks 4,522 5,802 3,035 4,244 2,148 4,370 185 187
Loans and advances to customers 9,893 13,108 12,208 12,177 19,585 23,476 20,625 22,412
Financial investments 8,127 9,962 3,249 3,433 1,689 1,800 222 389
Non-current assets held for sale and disposal groups 17 – 21 – 34 – 35 –
Other assets – – – – – – 185 –
No IAS 39 category
Positive fair values of hedging derivates 833 694 978 935 14 26 11 4
Receivables under finance leases 32 34 39 33 62 61 66 58
Total 35,380 44,432 26,965 26,691 25,204 33,651 22,760 26,714
213
Credit quality (¤ m)
10 to 12 13 to 15 16 to 18
2010 2009 2010 2009 2010 2009
Held for Trading (HfT)
Trading assets 448 1,837 350 1,054 551 813
Non-current assets held for sale and disposal groups – 10 – 6 – 5
Designated at Fair Value (DFV)
Loans and advances to banks – – – – – –
Loans and advances to customers – – – – – –
Financial investments 2 – 111 178 20 –
Non-current assets held for sale and disposal groups – – – – – –
Available for Sale (AfS)
Cash reserve – – – – – –
Loans and advances to banks – – – – – –
Financial investments 37 8 65 33 6 –
Non-current assets held for sale and disposal groups – – – – – –
Loans and Receivables (LaR)
Cash reserve – – – – – –
Loans and advances to banks 63 173 2 1 – –
Loans and advances to customers 9,814 10,689 8,453 11,598 5,472 3,138
Financial investments 125 34 398 302 62 –
Non-current assets held for sale and disposal groups 17 – 15 – 9 –
Other assets – 102 – 171 – 65
No IAS 39 category
Positive fair values of hedging derivatives – 19 2 – – 6
Receivables under finance leases 31 28 27 30 17 8
Total 10,537 12,900 9,423 13,373 6,137 4,035
ii. carryinG amountS oF overdue, unimpaired Financial aSSetS
Thetablebelowshowsthefinancialassetswhichwereoverdue
butunimpairedasofthereportingdate.Therespectivecarry-
ingamountsarecomparedtotherenegotiatedcreditvolumeand
thecollateralreceived.Theassetsarebrokendownbycate-
gory.Categoriesnotshownhavenooverdueassets.
NoteS oN FiNaNcial iNStrumeNtS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010214
Carrying amounts of overdue, unimpaired financial assets (¤ m)
Overdue < 3 months
Overdue3 to 6 months
Overdue6 to 12 months
Overdue> 12 months
Value of collateral 1)
Renegotiatedvolume
2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009
Loans and Receivables (LaR)
Loans and advances to banks 5 8 – – – – – – 3 3 – –
Loans and advances to customers 1,369 2,333 481 730 691 93 783 64 2,028 1,762 1,594 1,112
Total 1,374 2,341 481 730 691 93 783 64 2,031 1,765 1,594 1,112
1) Comparative figure corresponds to the value as at 30 November 2009.
Paymentsof€139millionontransactionswithacarrying
amountvolumeof€794millionwerereceiveduptotendays
afterthereportingdateof31December2010.Payments
areregardedasbeinginarrearswhentheyareonedayoverdue.
Theoverdue,non-impairedcreditportfolioiscontrastedwith
collateralintheformofrealestateliens,shipmortgages,
aircraftmortgages,pledgeagreementsandassignments.Thecol-
lateralassignedlargelycomprisesphysicalassets.
Renegotiatedcreditvolumesarerestructuredloantransactions
whereanassessmentismadeoftherenegotiatedcontractual
termsresultinginchangestotheinterestratestructure,the
maturityandcontractualancillaryservices.
iii. impaired Financial aSSetS and aSSociated collateral
Thetablebelowshowsallimpairedfinancialassetsandthe
associatedcollateralreceivedasofthereportingdate.Thefinan-
cialassetsarebrokendownbycategory.
Impaired financial assets and associated collateral(¤ m)
Gross carrying amount of impaired
financial assets Impairment
Carrying amount of financial assets
after impairment Value of collateral 2)
2010 2009 2010 2009 2010 2009 2010 2009
Loans and Receivables (LaR)
Loans and advances to banks 228 497 191 363 37 134 – –
Loans and advances to customers 12,054 9,322 3,890 3,165 8,164 6,157 2,509 2,170
Financial investments 1) 1,080 1,593 514 810 566 783 35 47
Available for Sale (AfS)
Financial investments 1) 1,353 1,410 535 464 818 946 – –
Total 14,715 12,822 5,130 4,802 9,585 8,020 2,544 2,217
1) Financial investments classified as LaR and AfS are shown net in the statement of financial position, i. e. at their carrying amounts less impairment.
2) Comparative figure corresponds to the value as at 30 November 2009.
Theimpairedcreditportfolioissecuredwithcollateralinthe
formofrealestateliens,shipmortgages,aircraftmortgages,
pledgeagreementsandassignments.Thecollateralassigned
largelycomprisesphysicalassets.
215
56. Credit riSk expoSure
MaximumcreditriskexposureisbasedonboththeIFRScarry-
ingamountsreportedinnote[51],whicharenetofloanloss
provisionsof€4,623million(31December2009:€4,718mil-
lion),andtheoff-balancesheetbusinessshowninNote[57].
Fordetailsofcollateralreceivedpleaseseenote[60].Themaxi-
mumdefaultriskoftheloansandadvancesdesignatedatfair
value(DFV)isnotdecreasedbyassociatedcreditderivatives.
Credit risk exposure (¤ m)
Carrying amount / nominal volume
2010 2009
Assets
Held for Trading (HFT)
Trading assets 11,282 16,879
Non-current assets held for sale and disposal groups – 95
Designated at Fair Value (DFV)
Loans and advances to banks 208 213
Loans and advances to customers 1,156 1,165
Financial investments 2,759 3,340
Non-current assets held for sale and disposal groups 193 428
Available for Sale (AfS)
Cash reserve 407 318
Loans and advances to banks 42 46
Financial investments 7,804 9,648
Non-current assets held for sale and disposal groups 48 63
Loans and Receivables (LaR)
Cash reserve 1,003 978
Loans and advances to banks 9,994 14,912
Loans and advances to customers 96,999 104,792
Financial investments 14,438 16,702
Non-current assets held for sale and disposal groups 148 –
Other assets 185 338
No IAS 39 category
Positive fair values of hedging derivatives 1,838 1,684
Receivables under finance leases 274 252
Subtotal for balance sheet business 148,778 171,853
Off-balance-sheet business
No IAS 39 category
Contingent liabilities 3,270 4,244
Irrevocable loan commitments 9,526 14,199
Subtotal for off-balance sheet business 12,796 18,443
Credit risk exposure 161,574 190,296
NoteS oN FiNaNcial iNStrumeNtS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010216
57. Contingent liabilitieS and irrevoCable loan CommitmentS
Contingent liabilities (¤ m) 2010 2009
Contingent liabilities from guarantees and warranty agreements
Loan guarantees 529 599
Letters of credit 525 604
Other warranties 11 15
Other guarantees 2,205 3,026
Total 3,270 4,244
Irrevocable loan commitments (¤ m) 2010 2009
Irrevocable loan commitments for
Open account loans to banks 131 258
Open account loans to customers 9,371 13,890
Guarantees 8 34
Other 16 17
Total 9,526 14,199
Forreasonsofpracticalitynoinformationinaccordancewith
IAS37.86andIAS37.89isdisclosed.
217
58. report on buSineSS in derivativeS
Derivativefinancialinstrumentsareusedtoaconsiderable
degreeinordertohedgeriskefficiently,totakeadvantageof
marketopportunitiesandtocoverspecialcustomerfinancing
needs.ThederivativesbusinessofHSHNordbankGroupispre-
dominantlytransactedwithbanksbasedinOECDcountries.
i. volumeS
other disclosures
Derivative transactions with interest rate risks (¤ m)
Nominal values Positive market values Negative market values
2010 2009 2010 2009 2010 2009
Interest rate swaps 378,890 469,048 7,490 11,142 8,574 11,586
FRAs 4,122 6,944 – 1 2 5
Swaptions
Long positions 1,781 2,297 59 166 – –
Short positions 2,748 3,713 2 – 130 281
Caps, floors 17,637 24,012 206 259 146 191
Exchange-traded contracts 5,211 10,915 – – – –
Other forward interest rate transactions 21,957 9,768 522 187 450 215
Total 432,346 526,697 8,279 11,755 9,302 12,278
Derivative transactions with interest rate and currency risk(¤ m)
Nominal values Positive market values Negative market values
2010 2009 2010 2009 2010 2009
Cross currency interest rate swaps 43,188 40,275 838 706 1,145 1,237
Total 43,188 40,275 838 706 1,145 1,237
NoteS oN FiNaNcial iNStrumeNtS, otHer diScloSureS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010218
Derivative transactions with currency risks(¤ m)
Nominal values Positive market values Negative market values
2010 2009 2010 2009 2010 2009
Forward exchange transactions 19,421 33,067 237 490 468 613
Currency options
Long positions 1,859 2,108 333 201 – –
Short positions 1,609 2,010 – – 303 198
Total 22,889 37,185 570 691 771 811
Credit derivatives(¤ m)
Nominal values Positive market values Negative market values
2010 2009 2010 2009 2010 2009
Guarantor position 589 2,406 6 31 9 38
Secured position 1,113 3,033 100 347 5 30
Total 1,702 5,439 106 378 14 68
Derivative transactions with equity and other price risks(¤ m)
Nominal values Positive market values Negative market values
2010 2009 2010 2009 2010 2009
Equity options
Long positions 469 641 42 59 – –
Short positions 143 172 – – 36 45
Forward equity transactions – – – – – –
Exchange-traded contracts 33 72 5 6 7 17
Equity / index-based swaps 287 362 2 3 53 64
Commodity-based transactions 1,115 376 114 136 82 116
Total 2,047 1,623 163 204 178 242
Derivative transactions infair value hedge accounting(¤ m)
Nominal values Positive market values Negative market values
2010 2009 2010 2009 2010 2009
Fair value hedges
Interest rate swaps 35,317 44,110 1,793 1,609 357 477
Cross currency interest rate swaps 306 643 45 75 5 40
Total 35,623 44,753 1,838 1,684 362 517
219
ii. counterparty claSSiFication
iii. maturitieS
Counterparty classification(¤ m)
Nominal values Positive market values Negative market values
2010 2009 2010 2009 2010 2009
OECD banks 432,758 547,244 7,148 11,405 9,872 13,710
Non-OECD banks 359 179 14 10 4 20
Non-banks 1) 100,694 103,987 4,488 3,824 1,699 1,245
Public authorities 3,984 4,562 144 179 197 178
Total 537,795 655,972 11,794 15,418 11,772 15,153
1) Including exchange-traded contracts
Maturities (¤ m)
Positive market values of derivatives
Positive market values of derivatives from fair value hedging
Negative market values, derivatives
Negative market values of derivatives from fair value hedging
2010 2009 2010 2009 2010 2009 2010 2009
Residual terms
Up to 3 months 401 976 3 10 689 901 – 1
3 months to 1 year 734 831 91 130 769 762 14 23
1 year to 5 years 3,867 5,028 1,297 880 4,340 5,952 184 229
More than 5 years 4,954 6,899 447 664 5,612 7,021 164 264
Total 9,956 13,734 1,838 1,684 11,410 14,636 362 517
59. leaSe reCeivableS and liabilitieS
OperatingleaseswheretheHSHNordbankGroupactsasalessee
areforthepurposesofleasingtechnicalfacilitiesandequip-
mentrequiredtooperateITnetworks,amongotherpurposes.
InoperatingleasingtransactionsHSHNordbankGroupprimar-
ilyactsaslessorofrentalpropertiesshownasinvestment
properties.Themajorpartofactivitiesaslessorintheprevious
yearrelatedtorentalpropertiesdisclosedundertheitem
InvestmentProperties.ThisbusinesswasoperatedbytheHam-
bornerREITAG(formerHambornerAktiengesellschaft)
which,asatthebalancesheetdate,wasnolongerfullyconsoli-
datedbutratheraccountedforatequity.
TheHSHNordbankGroupalsoactsasalessorunderfinance
leasesintheUSmarket,includingfinancingrailvehicles,air-
craftandphotovoltaicinstallations.
otHer diScloSureS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010220
i. leSSee under operatinG leaSeS
Minimum lease payments under operating leases (¤ m) 2010 2009
Minimum lease payments due
Up to 1 year 77 63
1 year to 5 years 222 173
Over 5 years 174 141
Total 473 377
Expenses for lease payments (¤ m) 2010 2009
Expenses for
Minimum lease payments 50 64
Contingent lease payments 1 –
Total 51 64
Expensesonassetsusedunderoperatingleasesarerecognised
inadministrativeexpenses(Note[16]).
ii. leSSor under operatinG leaSeS
Minimum lease payments expected under operating leases (¤ m) 2010 2009
Minimum lease payments to be received
Up to 1 year 2 19
1 year to 5 years 5 62
Over 5 years – 50
Total 7 131
Incomefromconditionalleasepaymentswasneitherrecorded
inthereportingperiodnorinthepreviousyear.
iii. leSSor under Finance leaSeS
Comparedtothepreviousyear,thepresentationoffinance
leaseshasbeenexpandedinordertoprovidebettertransparency
inrelationtocomputationmethods.
Finance lease transactions (¤ m) 2010 2009
Outstanding lease payments 240 243
+ Guaranteed residual values 25 24
= Minimum lease payments 265 267
+ Non-guaranteed residual values 35 32
= Gross investment 300 299
- Unearned finance income 27 30
= Net investment 273 269
- Net present value of non-guaranteed residual values 17 11
= Net present value of the minimum lease payments 256 258
Thegrossinvestmentamountandthenetpresentvalueof
minimumleasingpaymentsbreakdownbymaturityasfollows:
221
Breakdown of residual maturity (¤ m)
Gross investment in the leaseNet present value of the
minimum lease payments
2010 2009 2010 2009
Minimum lease payments to be received
Up to 1 year 18 18 15 16
1 year to 5 years 68 64 59 61
Over 5 years 214 217 182 181
Total 300 299 256 258
Incomefromconditionalleasepaymentswasneitherrecorded
duringtheperiodunderreviewnorinthepreviousyear.
60. diSCloSureS on Collateral tranSferred and reCeived
i. collateral tranSFerred
Asat31December2010HSHNordbankGrouphadassets
transferredascollateralwithacarryingamountof€5,735mil-
lion(previousyear:€11,964million)whichdonotmeetthe
requirementsforderecognitionunderIAS39.Theassetstrans-
ferredascollateralcontinuetoberecognisedbytheHSH
NordbankGroup,astheinterestraterisk,creditriskandother
materialrisksaswellastheprospectsofappreciationand
interestincomelargelyresidewiththeHSHNordbankGroup.
Collateral transferred (¤ m) 2010 2009
Loans and advances 5,650 6,863
Loans and advances to banks 4,408 3,528
Loans and advances to customers 1,242 3,335
Trading assets / Financial investments 85 5,101
Total 5,735 11,964
Thecollateraltransferredcomprisesmainlyassetsusedforthe
collateralisationofOTCderivativetransactions.
Startingwiththeannualfinancialstatementsasat31December
2010,thecarryingamountsofsecurities,depositedinport-
foliosatcentralbanks,arereportedonlyintheamountofthe
shareofthedraw-downofthelendingvalueofsuchdeposited
portfolios.Inthiscontext,thefiguresforcomparisonunder
theitem‘Tradingassets/Financialinvestments’werereduced
by€6,565millionandwerereducedby€5,094millionun-
dertheitem‘Loansandadvancestocustomers’.
Inaddition,the‘Loansandadvancestocustomers’transferredas
collateral,andthecorresponding‘Liabilitiestobanks’,were
corrected.Detailsoncorrectionstofiguresfromtheprevious
yearareprovidedundernote[4].
Thedecreaseinthetradingassets/financialinstrumentstrans-
ferredascollateralandloansandadvancestocustomersaswell
asthemirroreffectincollateralisedliabilitiestobanksisdue
tothefactthatHSHNordbankreduceditsbusinesswithcentral
banksandusesrepurchaseagreementsforshort-termrefi-
nancingmoreintensely.Repurchaseagreementsareseparately
reportedbelow.Asmallamountofcollateralhasbeentrans-
ferredinthecourseofsecuritieslendingbusiness.
otHer diScloSureS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010222
Thefollowingtableshowsthecarryingamountsoftheliabilities
relatedtothecollateraltransferred:
Carrying amounts of liabilities (¤ m) 2010 2009
Liabilities to banks 545 11,741
Trading liabilities 4,809 4,088
Total 5,354 15,829
Thecarryingamountofliabilitiestodevelopmentsbanksare
recognisedintheamountofthecorrespondingloantransferred
ascollateral.
Moneymarketborrowinggenerallyinvolvespledgingandtrans-
ferringsecuritieslodgedwiththeEuropeanCentralBank.
Loannotesandotherreceivablesfromlendingarenotpledged
totheEuropeanCentralBank,butareassignedwithout
thisbeingdisclosed.Itisnotpossibletoresellorpledgeinthe
interim.
TheHSHNordbankGroupsecuritisedcustomerloansaspart
ofstructuredtransactionsandtherebygeneratedsenior
noteswhichwereeligibleforrefinancingatthecentralbankand
whichwerereceivedbytheECBpledgedsecuritiesaccount
intheamountof€1,283million.Theunderlyingcustomerloans
areincludedin‘Loansandadvancestocustomers’.
Inaddition,theHSHNordbankGroupconcludesrepurchase
agreementsunderrepomasteragreementsbothonanation-
alandinternationalscale.Theassociatedliabilitiesarerecog-
nisedunder‘Liabilitiestobanks’or‘Liabilitiestocustomers’.
Attheendofthereportingperiod,thecarryingamountofthe
securitiestransferredascollateralintheframeworkofrepo
transactionswas€7,106million(previousyear:€1,890million).
Thecorrespondingliabilitiesarerecognisedof€6,889million
(previousyear:€2,678million).Therequirementsforderecog-
nitionunderIAS39arenotmet.Thesecuritiessoldunder
repurchaseagreementscontinuetoberecognisedinthestate-
mentoffinancialpositionoftheGroup,astheinterestrate
risk,creditriskandothermaterialriskaswellasopportunities
relatedtoappreciationinvalueandinterestincomecontinue
tobebornebyHSHNordbankGroup.
Repoandsecuritieslendingtransactionsaremonitoredby
measuringtransactionsonadailybasis.Ifthereisashortfallin
collateralthecounterpartymayrequireHSHNordbankGroup
toprovideadditionalsecuritiestoincreasecollateral.WhereHSH
NordbankGrouphasprovidedcollateralandthemarketsitua-
tionchangessuchthatthecoverprovidedisexcessive,itis
entitledtorequirethecounterpartytoreleasecollateral.Thecol-
lateralprovidedissubjecttoafulltransferofrights,i.e.the
partyreceivingcollateralmayactlikeanownerandinparticu-
larmaytransferorpledgesuchcollateral.Inthecaseof
securitiescollateral,securitiesofthesametypeandquality(‘the
samesort’)mustbedeliveredorreturnedunencumbered.
Wherecollateralhasbeenprovidedintheformofsecurities,it
maynotbereturnedincash.
Theaboveconditionsandcollateralmodalitiesalsoapplytotri-
partyrepotransactionsbetweenHSHNordbankGroupand
itscounterpartiesaccordingly.Thetransactionsareexecutedvia
atripartyagent.
ii. collateral received
TheHSHNordbankGroupreceivedcollateralfromcounter-
partieswithatotalfairvalueof€3,591million(previousyear:
€8,407million).Thecollateralreceivedissplitupasfol-
lows:€566million(previousyear:€5,422million)relatedto
OTCderivativesandstructuredtransactionsincludingasmall
amountofcollateralrelatedtosecuritieslendingtransactions.
TheGroupreceivedcollateralintheamountof€3,025mil-
lion(previousyear:€2,985million)withintheframeworkof
genuinerepotransactionswhereitactedasthelender.This
includescashcollateralintheamountof€566million(previous
year:€512million).Ofthecollateralreceived€1,843mil-
lion(previousyear:€4,852million)wassoldorpledged.There
arenorestrictionsondisposalorrealisation.HSHNord-
bankGroupisobligedtoreturnallcollateralresoldorpledged
amountingtotheguarantorwithoutexception.
TheHSHNordbankGroupcarriesoutsecuritiesrepurchaseand
lendingtransactionsaswellastripartyrepotransactions
understandardmasteragreementswithselectedcounterparties.
Thesameconditionsandcollateralisationmethodsapply
asforcollateraltransferred.
223
iii. other collateral received
Inthereportingperiodnoassetsfromtherealisationofcollat-
eralwererecognised(previousyear:€37million).
InNovember2008,HSHNordbankAGreceivedaguaranteefacil-
ityforuptoamaximumof€30billionfromSoFFin.The
guaranteefacilityexpiredasagreedon31December2010.The
guaranteesforexistingissuesremaininforce.Asatthe
reportingdate,utilisationoftheguaranteeamountedto€9bil-
lion(previousyear:€17billion).
Withregardtothe€10billionsecondlossguaranteefacility
providedtoHSHNordbankandtwoofitssubsidiariesbythe
federalstateofSchleswig-HolsteinandtheFreeandHanseatic
CityofHamburgviaHSHFinanzfondsAöR,seenote[3].
Thecostsoftheseguaranteesaredisclosedintheincomestate-
mentundertheitem‘Expensesforgovernmentguarantees’
(seenote[19]).
61. truSt tranSaCtionS
Thetablebelowshowsthevolumeoftrusttransactionsnotrecog-
nisedinthestatementoffinancialposition:
Trust transactions (¤ m) 2010 2009
Loans and advances to banks 1 1
Loans and advances to customers 348 387
Trust assets 349 388
Liabilities to banks 1 2
Liabilities to customers 348 386
Trust liabilities 349 388
otHer diScloSureS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010224
62. related partieS
TheHSHNordbankGroupdoesbusinesswithrelatedparties
andcompanies.TheseincludetheHSHFinanzfondsAöR
asparentcompany,theFederalStateofSchleswig-Holsteinand
theFreeandHanseaticCityofHamburg,whicheachpartici-
pateintheHSHFinanzfondsAöRat50%.Furthermore,business
relationsexistwithsubsidiarieswhicharecontrolledbutnot
consolidatedforreasonsofmateriality,associatedcompaniesnot
includedintheconsolidatedfinancialstatementsunderthe
equitymethodandjointventures,withindividualsinkeyposi-
tionsandtheirrelativesandcompaniescontrolledbythese
individuals.Individualsinkeypositionscompriseexclusively
themembersoftheManagementandSupervisoryBoardsof
HSHNordbankAG.
Inthecourseofthenormalbusinessoperationstransactionsare
enteredintoatarm’slengthwithcompaniesandpartiesthat
arerelatedparties.Thesetransactionsincludeloans,sightand
termdeposits,derivativesandsecuritiestransactions.
Withregardtothe€10billionguaranteefacilityprovidedto
HSHNordbankandtwoofitssubsidiariesbythefederalstateof
burgviaHSHFinanzfondsAöR,seenote[3].
i. the parent company and companieS with joint manaGement or SiGniFicant inFluence on the company
TransactionswithHSHFinanzfondsAöRaswellaswiththefed-
eralstateofSchleswig-HolsteinandtheFreeandHanseatic
CityofHamburg,whicheachparticipateinHSHFinanzfonds
AöRtotheamountof50%,aredepictedbelow:
The parent company and companies with joint management or significant influence on the company – assets (¤ m) 2010 2009
Loans and advances to customers 505 656
Positive fair values of hedging derivatives 33 25
Trading assets 223 273
Financial investments 379 278
Total 1,140 1,232
The parent company and companies with joint management or significant influence on the company – liabilities(¤ m) 2010 2009
Liabilities to customers 1,330 1,283
Securitised liabilities – 264
Negative fair values of hedging derivatives 1 –
Trading liabilities 103 79
Other liabilities 102 102
Total 1,536 1,728
Therearenoirrevocableloancommitmentsonthereporting
date(previousyear:€65million).
225
The parent company and companies with joint management or significant influence on the company – income statement (¤ m) 2010 2009
Net interest income 10 21
Net income from hedging 4 −10
Net trading income −20 6
Net income from financial investments – 2
Other operating income 61 –
Expenses for government guarantees −405 −365
Total −350 −346
ii. SuBSidiarieS
Thetransactionswithunconsolidatedsubsidiariesareshown
below:
Subsidiaries – assets (¤ m) 2010 2009
Loans and advances to customers 479 837
Loan loss provisions −15 −21
Trading assets 44 29
Financial investments 316 340
Other assets 4 88
Total 828 1,273
Subsidiaries – liabilities (¤ m) 2010 2009
Liabilities to customers 118 139
Trading liabilities 1 15
Provisions in the lending business 1 –
Other liabilities 3 5
Total 123 159
Subsidiaries – income statement (¤ m) 2010 2009
Net interest income 10 49
Net commission income 2 3
Loan loss provisions −3 −19
Result from hedging 1 −1
Net trading income 11 13
Net income from financial investments −17 −21
Total 4 24
Furthermoretherearecontingentliabilitiestosubsidiariesin
theamountof€3million(previousyear:€15million)and
€33million(previousyear:€39million)ofirrevocableloan
commitments.
Thereare3millionofotherfinancialliabilitiestosubsidiaries
(previousyear:€0million).
iii. aSSociated companieS
Thefollowingtablesshowtransactionswithassociatedcompa-
niesnotincludedintheconsolidatedfinancialstatements
undertheequitymethod:
Associated companies – assets (¤ m) 2010 2009
Loans and advances to banks – 267
Loans and advances to customers 843 1,567
Loan loss provisions −36 −52
Trading assets 8 73
Financial investments 899 923
Other assets 4 9
Total 1,718 2,787
otHer diScloSureS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010226
Associated companies – liabilities (¤ m) 2010 2009
Liabilities to banks – 194
Liabilities to customers 67 182
Securitised liabilities 98 99
Trading liabilities 1 –
Provisions in the lending business 1 –
Other liabilities 1 2
Total 168 477
Associated companies – income statement (¤ m) 2010 2009
Net interest income 39 60
Net commission income −3 –
Loan loss provisions −4 −38
Net trading income 6 −5
Net income from financial investments 1 −68
Other operating income – −5
Total 39 −56
Inaddition,thereare€12million(previousyear:€111million)
ofcontingentliabilitiestoassociatedcompaniesand€88mil-
lion(previousyear:€229million)ofirrevocableloancommit-
ments.
Otherfinancialliabilitiestoassociatedcompaniesamountto
€30million(previousyear:€45million).
iv. joint ventureS
Thefollowingshowstransactionswithjointventuresnot
includedintheconsolidatedfinancialstatementsunderthe
equitymethod:
Joint ventures – assets (¤ m) 2010 2009
Loans and advances to customers 134 131
Loan loss provisions −5 −4
Trading assets 14 13
Total 143 140
Joint ventures – liabilities (¤ m) 2010 2009
Liabilities to customers 1 2
Trading liabilities – 1
Total 1 3
Joint ventures – income statement (¤ m) 2010 2009
Net interest income 4 4
Loan loss provisions −2 1
Net trading income 1 5
Total 3 10
v. other related partieS and companieS
Thefollowingtablecontainsdisclosuresrelatingtoindivid-
ualsinkeypositionsatHSHNordbankAG,includingtheirclose
relativesandcompaniescontrolledbytheseindividuals.
Related parties and companies – assets (¤ m) 2010 2009
Loans and advances to customers – 2
Total – 2
227
HSHNordbankAGapprovedanewcompensationsystemfor
boardmembersoftheBankin2009thathasbeenapplied
sincethestartof2010.Thenewsystemimplementsthelimita-
tionofmonetarycompensationofeachboardmembertoa
maximumof€500,000peryear(fixedcompensation)aslongas
HSHNordbankAGisnotcapableofmakingdividenddistri-
butions.
Variableperformance-basedcompensationisdependentonthe
achievementofcertainstrategicgoalsaswellastheBank’s
financialsuccesstakingintoaccountindividualperformance.It
willnotbepaidiftheBankisnotabletomakeadividend
distributionasof31December2012oratthelatest2013.Only
insuchcasescananyrightspotentiallyacquiredduring
2010and2012toavariable,performance-basedcompensation
bepaidinthreeannualtranches.Thepossibilityofanafter-
the-factreductionofpaymentsnotyetmadeisinthisrespecta
partofthecontractasisthelimitationofpaymentsupon
departure.
Inaddition,therearepensionbenefitsof20%ofthefixed
incomeportion,aswellasreasonablein-kindbenefits.Remu-
nerationforseatsonexternalsupervisoryboardsisoffset
againstcompensationinfull.
Thecompensationsystemapplicabletothemembersofthe
ManagementBoardisstillvalidfortwoboardmembers.Thisis
comprisedprimarilyoffixedcompensationlimitedto
€500,000–aslongasHSHNordbankAGisnotabletopaya
dividend–aswellasavariablebonuswhichisdependent
ontheBank’sfinancialsuccess–inparticulartheachievement
ofcertainbudgettargets.Inaddition,thereisapension
obligationastooneboardmemberinafixedamountaswellas
appropriatein-kindbenefitsforbothboardmembers.Remu-
nerationforseatsonexternalsupervisorybodiesisoffsetagainst
thevariablebonusaboveacertainlimit.
TheBankdoesnotofferadditionallong-termincentivessuchas
shareoptionschemes.
For2010,totalremunerationfortheManagementBoard
amountedto€12,361thousand(previousyear:€3,949thou-
sand).Thisincludesvariablecompensationintheamount
of€3,791thousand.TheincreaseinManagementBoardremu-
nerationcomparedtothepreviousyearresultedprincipally
frompaymentsinconnectionswiththeterminationofemploy-
mentrelationshipsofboardmembersandthevariablecom-
pensationnotpaidinthepreviousyear.
MrRothwasrelievedofhisrightsanddutiesasamemberof
theHSHNordbankManagementBoardbySupervisoryBoard
Remuneration of management(¤ k)
Management Board Supervisory Board Total
2010 2009 2010 2009 2010 2009
Short-term benefits 8,572 3,949 565 570 9,137 4,519
Termination benefits 3,789 – – – 3,789 –
Total payments 12,361 3,949 565 570 12,926 4,519
Post-employment benefits 2,319 1,145 – – 2,319 1,145
Total remuneration 14,680 5,094 565 570 15,245 5,664
vi. remuneration oF memBerS oF the manaGe-ment Board and SuperviSory Board
Thefollowingtableshowsbenefitsandchangesinthevarious
kindsofremunerationformembersofthemanagementinkey
positions.
otHer diScloSureS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010228
resolutiondated27April2009.MrRoth’semploymentrelation-
shipendedasperagreementon31December2010.Hisremu-
nerationisincludedinthecompensationofthemanagement.
Inthefinancialyearunderreview,€2,119thousand(previous
year:€1,145thousand)wastransferredtothepensionobli-
gationstoactiveandpriormembersoftheManagementBoard;
theseamountedto€4,109thousand(previousyear:€4,173
thousand)asat31December2010.Inaddition,duringtherepor-
tingperiodpaymentsweremadeforthefirsttimetoanexter-
nalpensioninstitutionintheamountof€200thousand.These
pensioncommitmentsexclusivelyrelatedtodefinedbenefit
plans.
PaymentstoformermembersoftheManagementBoardand
theirsurvivingdependentstotalled€3,062thousand(previous
year:€3,246thousand),whichasinthepreviousyeardidnot
includeanyvariablecomponents.Aswasthecasefortheprevi-
ousyear,therewerenoliabilitiesforcurrentobligations.In
thefinancialyearunderreview,€835thousand(previousyear:
€4,406thousand)wereaddedtopensionobligationsforfor-
mermembersoftheboardandtheirsurvivingdependants.As
at31December2010atotalof€38,701thousand(previous
year:€38,200thousand)hadbeensetasideforpensionobliga-
tions.Thisamountincludesareclassificationintheamount
of€2,182thousand(previousyear:€2,966thousand)fromthe
provisionsforactivemembersoftheManagementBoard.
ThemembersoftheSupervisoryBoardreceiveremuneration
fortheirserviceinanamountdeterminedbytheannualgeneral
meeting.Theexpectedtotalforthe2010financialyearof
€565thousandhasbeenrecognisedinprovisions.Theseprovi-
sionsareoffsetbyareleaseof€1thousandfromtheprovision
formedinthepreviousyear.Ofthetotalrecognisedinprovisions
in2009(€570thousand),€569thousandwaspaidoutto
membersoftheSupervisoryBoardintheperiodunderreview.
Thisincludes€91thousandofvalueaddedtax.
vii. advanceS, loanS and other liaBilitieS
Advances,loansandotherliabilitiestomembersoftheMan-
agementBoardasat31December2010amountedto€137
thousand(previousyear:€187thousand)and€279thousand
(previousyear:€1,343thousand)formembersoftheSuper-
visoryBoard.
TheadvancesandloanstomembersoftheManagementand
SupervisoryBoardsandotherliabilitiesonthepartofthis
groupofindividualsprimarilyinvolverealestatefinancingand
overdraftfacilities.LoanstomembersoftheManagement
Boardaregrantedwithmaturitiesfromvariabletofinalmatu-
rityin2027,loanstomembersoftheSupervisoryBoard
withmaturitiesfromvariabletofinalmaturityin2038.Loansto
membersoftheManagementandSupervisoryBoardareat
arm’slengthconditionswithinterestratesbetween4.43%and
4.52%forloanstoManagementBoardmembersand7.00%
and9.50%foroverdraftfacilitiesforManagementBoardmem-
bersaswellasbetween3.80%and5.64%forloanstoSuper-
visoryBoardmembersand7.00%and12.50%foroverdraftfacil-
itiesforSupervisoryBoardmembers.Inthe2010financial
yearnonewloansweregrantedtomembersoftheManagement
BoardoroftheSupervisoryBoard.
Collateralforloansisintheformoflandchargesforrealestate
financing;overdraftfacilitiesareopencredits.Inthe2010
reportingyear,membersoftheManagementBoardrepaidloans
intheamountof€56thousand(previousyear:€5thou-
sand).RepaymentsofloansbymembersoftheSupervisoryBoard
totalled€1,055thousandin2010(previousyear:€40thou-
sand).
63. letterS of Comfort
HSHNordbankAGhasundertaken–exceptinthecaseof
politicalrisk–toprovideHSHNResidualValueLtd.,Hamilton,
withsufficientfundstoallowittomeetwhenduetheobli-
gationsitenteredintoduringtheperiodwhenHSHNordbank
AGheldanequityinterestinHSHNResidualValueLtd.At
present,nouseofsuchfundsisanticipated.
229
64. other finanCial obligationS
Thetransactionslistedbelowincludepaymentobligationsunder
pendingcontractsorongoingdebtsthatcannotbereported
inthestatementoffinancialposition,aswellasotherfinancial
obligationsthatcouldhaveamaterialeffectonthefuture
financialpositionofHSHNordbankAG.
Thereareshareholderliabilitiesof€281millionforoutstanding
paymentsonsubscribednominalcapitalthathavenotyetbeen
calledin(previousyear:€372million).
Themaximumfundingobligationthatwouldresultfrom
membershipoftheHaftungsverbund(jointliabilityscheme)of
theSparkassen-Finanzgruppe,ifacaseoccurswheresupport
isneeded,is€280million(previousyear:€422million).Ifthe
resourcesofthesavingsbankguaranteefundareinsufficient
forthefinancialrescue,theadditionalfundingcanbeclaimed
immediately.
Furtherobligationsintheamountof€141million(previous
year:€178million)resultfromlong-termleasesforlandand
buildingsusedforbusinessoperations.Additionalobligations
amountingto€112million(previousyear:€152million)
resultfromleasingagreementsforITservices.
WithrespecttotheequityinterestinLiquiditäts-Konsortialbank
GmbH,FrankfurtamMain,thereisanadditionalfunding
obligationnotexceeding€17million(previousyear:€17mil-
lion).
Long-termrentalagreementsforofficespaceresultinannual
obligationsofapproximately€7million(previousyear:€6mil-
lion).
InadditionHSHNordbankisjointlyliablefortheDekaBank
DeutscheGirozentraletogetherwiththeothercompaniesin
DekaBankDeutscheGirozentraleasguarantor.
Therearenomaterialotherfinancialobligationsapartfrom
thoselistedabove.
otHer diScloSureS | Group FiNaNcial StatemeNtS
HSH NordbaNk 2010230
65. liSt of ShareholdingS
Consolidated subsidiaries ShareVoting rights
Currency code
Equity capital in respective currency
Income / loss in respective currency
1Bu Wi Beteiligungsholding GmbH (former IMCAFi 135. Verwaltungs GmbH), Hamburg 100.00 100.00 ¤ 9,117.55 −8,193.93
2Capcellence Private Equity Beteiligungen GmbH & Co. KG, Hamburg 1) 100.00 100.00 ¤ 65,086,511.52 −4,548,824.99
3Capcellence Vintage Year 05 / 06 BeteiligungenGmbH & Co. KG, Hamburg 1) 83.33 100.00 ¤ 17,254,192.18 −3,811.15
4Capcellence Vintage Year 06 / 07 Beteiligungen GmbH & Co. KG, Hamburg 1) 83.33 100.00 ¤ 18,836,914.36 −3,811.15
5Capcellence Vintage Year 07 / 08 Beteiligungen GmbH & Co. KG, Hamburg 1) 83.33 100.00 ¤ 28,955,185.62 −4,456,778.17
6Capcellence Vintage Year 09 Beteiligungen GmbH & Co. KG, Hamburg 1) 83.33 100.00 ¤ 36,761.10 −95,882.78
7Capcellence Vintage Year 10 Beteiligungen GmbH & Co. KG, Hamburg 1) 83.33 99.75 ¤ 5,124.31 −804,378.45
8 CHIOS GmbH, Hamburg 100.00 100.00 ¤ 29,396.23 −5,603.77
9DEERS Green Power Development Company, SL, Saragossa, Spain 1) 99.00 99.00 ¤ 9,693,985.00 14,384,007.00
10 EALING INVESTMENTS LIMITED, London, Great Britain 100.00 100.00 ¤ −32,518,688.00 8,900,393.00
11 Endor 8. Beteiligungs GmbH & Co. KG, Hamburg 1) 94.80 94.80 ¤ 2,482,825.34 129,387.62
12 EQUILON GmbH, Hamburg 100.00 100.00 ¤ 71,875,593.10 −8,465,349.46
13HGA Capital Grundbesitz und Anlage GmbH, Hamburg 1) 3) 100.00 100.00 ¤ 2,575,856.27 2,494,804.32
14 HSH Corporate Finance GmbH, Hamburg 100.00 100.00 ¤ 17,736,688.30 2,996,415.80
15 HSH N Composits GmbH, Kiel 100.00 100.00 ¤ 15,863,912.94 15,838,912.94
16HSH N Finance (Guernsey) Limited, St. Peter Port, Guernsey 5) 100.00 100.00 ¤ 335,054.00 41,307.00
17 HSH N Funding I, George Town, Cayman Islands 1) 100.00 100.00 ¤ 1,011,078,786.00 26,395,786.00
18 HSH N Funding II, George Town, Cayman Islands 100.00 100.00 USD 654,194,110.00 27,179,246.00
19HSH Nordbank Private Banking S. A., Luxembourg, Luxembourg 1) 100.00 100.00 ¤ 35,899,064.68 6,191,232.80
20HSH Nordbank Securities S. A., Luxembourg, Luxembourg 100.00 100.00 ¤ 690,464,754.42 0.00
21 HSH Private Equity GmbH, Hamburg 2) 100.00 100.00 ¤ 550,000.00 −19,340,983.58
22 HSH RE 2. Beteiligungs GmbH, Hamburg 1) 100.00 100.00 ¤ 22,020,658.13 −10,037.58
23 HSH RE 3. Beteiligungs GmbH, Hamburg 1) 100.00 100.00 ¤ 22,020,658.13 −10,037.58
24 HSH RE 4. Beteiligungs GmbH, Hamburg 1) 100.00 100.00 ¤ 22,020,658.13 −10,037.58
25 HSH RE 5. Beteiligungs GmbH, Hamburg 1) 100.00 100.00 ¤ 22,020,655.55 −10,040.16
26 HSH RE 6. Beteiligungs GmbH, Hamburg 1) 100.00 100.00 ¤ 22,020,658.13 −10,037.58
27 HSH RE 7. Beteiligungs GmbH, Hamburg 1) 100.00 100.00 ¤ 13,018,810.57 −10,037.58
28 HSH Real Estate AG, Hamburg 2) 100.00 100.00 ¤ 249,993,774.78 −127,754,268.91
29International Fund Services & Asset Management S. A., Luxembourg, Luxembourg 1) 51.51 51.51 ¤ 3,153,489.08 776,000.00
30 JANTAR GmbH, Hamburg 100.00 100.00 ¤ 7,674,628.60 232,864.38
31 LB Immo Invest GmbH, Hamburg 1) 3) 100.00 100.00 ¤ 5,000,100.00 3,599,222.28
32 Leashold Verwaltungs-GmbH & Co. KG, Hamburg 5) 100.00 100.00 ¤ 46,848,826.24 3,110,246.03
33 Mesitis GmbH, Hamburg 100.00 100.00 ¤ 6,563,159.62 −29,162.55
231otHer diScloSureS | Group FiNaNcial StatemeNtS
Consolidated subsidiaries ShareVoting rights
Currency code
Equity capital in respective currency
Income / loss in respective currency
34 MINIMOA GmbH, Hamburg 100.00 100.00 ¤ 22,045,311.52 2,014,322.65
35Neptune Finance Partner II S. A. R. L., Luxembourg, Luxembourg 100.00 100.00 USD 20,000.00 −6,503.48
36Neptune Finance Partner S. A. R. L., Luxembourg, Luxembourg 100.00 100.00 USD 20,000.00 429.73
37Neptune Ship Finance (Luxembourg) S. A. R. L. & CIE, SECS., Luxembourg, Luxembourg 5) 100.00 100.00 USD 20,000.00 −56,864,487.20
38 PREGU GmbH, Hamburg 100.00 100.00 ¤ 85,870,108.51 −13,649,863.61
39RESPARCS Funding II Limited Partnership, St. Helier, Jersey 1) 0.01 100.00 ¤ 2,696,086.00 −2,340,970.00
40RESPARCS Funding Limited Partnership I, Hong Kong, China 1) 0.01 100.00 USD 335,059.00 −788,654.00
41 Solar Holdings S. A. R. L., Luxembourg, Luxembourg 100.00 100.00 ¤ 12,500.00 52,319.20
42 Sotis S. A. R. L., Luxembourg, Luxembourg 1) 100.00 100.00 ¤ 23,613.91 1,954.18
43Swift Capital 1 Europäische Fondsbeteiligungen GmbH & Co. KG, Hamburg 99.26 99.50 ¤ 353,641,935.56 −10,080,508.75
44 THESTOR GmbH, Hamburg 100.00 100.00 ¤ 6,746,040.65 4,657,038.74
Special purpose entities consolidated under SIC 12 ShareVoting rights
Currency code
Equity capital in respective currency
Income / loss in respective currency
45Adessa Grundstücksverwaltungsgesellschaft mbH & Co. Vermietungs KG. Kiel 0.00 0.00 ¤ −440,281.69 −57,152.04
46 CPM Luxembourg S. A., Luxembourg 3.22 3.22 ¤ 778,565,966.11 115,421,930.89
47 CPM Securitisation Fonds S. A., Luxembourg 3.22 3.22 ¤ 28,792,583.00 13,515,388.00
48 Northern Blue 2009 S. A., Luxembourg 0.00 0.00 ¤ 30,000.00 0.00
49 Plato No. 1 S. A., Luxembourg 0.00 0.00 ¤ 31,000.00 0.00
Associated companies accounted for under the equity method Share
Voting rights
Currency code
Equity capital in respective currency
Income / loss in respective currency
50 Belgravia Shipping Ltd., London, Great Britain 1) 33.33 33.33 USD 54,428,000.00 29,428,000.00
51Hamborner REIT AG (former Hamborner Aktiengesellschaft), Duisburg 35.18 35.18 ¤ 86,894,000.00 7,076,000.00
HSH NordbaNk 2010232
Non-consolidated subsidiaries ShareVoting rights
Currency code
Equity capital in respective currency
Income / loss in respective currency
52AGV Irish Equipment Leasing No. 1 unlimited, Dublin, 0 Dublin 1, Ireland 5) 100.00 100.00 USD 68,019,473.00 3,650,219.00
53AGV Irish Equipment Leasing No. 4 Limited, Dublin 1, Ireland 5) 100.00 100.00 USD 26,825,239.00 2,229,934.00
54 Alliance HC I Limited Partnership, Chicago, USA 1) 99.90 99.90 USD 34,062,372.00 −1,280,924.00
55Alliance HC I Mezz Limited Partnership, Chicago, USA 1) 85.09 85.09 USD 18,218,397.00 −2,859,263.00
56 Alliance HC II Limited Partnership, Chicago, USA 1) 95.00 95.00 USD 25,920,569.00 −2,414,318.00
57 Alliance HC III GP, L. L. C., Chicago, USA 1) 0.00 100.00 USD 0.00 0.00
58 Alliance HC III Limited Partnership, Chicago, USA 1) 0.00 100.00 USD 0.00 0.00
59Alliance HC III Mezz Limited Partnership, Chicago, USA 1) 92.40 92.40 USD 25,472,934.00 −4,369,934.00
60 Alliance HC III Saybrooke GP, L. L. C., Chicago, USA 1) 0.00 100.00 USD 0.00 0.00
61Alliance HC III Saybrooke Limited Partnership, Chicago, USA 1) 0.00 100.00 USD 0.00 0.00
62 Alliance HC III Verandahs GP, L. L. C., Chicago, USA 1) 0.00 100.00 USD 0.00 0.00
63Alliance HC III Verandahs Limited Partnership, Chicago, USA 1) 0.00 100.00 USD 0.00 0.00
64Amentum Capital (Singapore) Pte. Ltd., Singapore, Singapore 100.00 100.00 SGD 45,169.00 2,824.00
65 AMENTUM CAPITAL LIMITED, Dublin, Ireland 100.00 100.00 ¤ 1,463,315.00 −705,067.00
66 Amentum Lux S. a. r. l., Luxembourg, Luxembourg 5) 100.00 100.00 ¤ −57,532.66 −27,770.88
67 Anthracite Balanced Company Ltd., Jersey 1) 100.00 100.00 ¤ 9) 9)
68 Arbutus GmbH, Hamburg 100.00 100.00 ¤ 29,421.08 490.22
69 Arilius Beteiligungs GmbH, Hamburg 1) 100.00 100.00 ¤ 32,398.05 −1,789.43
70Arilius Management GmbH (former Fay Gesellschaft mit beschränkter Haftung), Hamburg 1) 94.00 94.00 ¤ 58,344.81 −7,784.38
71Asian Capital Investment Opportunities Limited, Hong Kong, China 1) 51.00 51.00 HKD 115.00 −13.00
72AVUS Achte Grundstücksbeteiligungs-GmbH & Co. KG, Berlin 1) 100.00 100.00 ¤ −5,474.85 −26,417.42
73AVUS Dritte Grundstücksbeteiligungs-GmbH & Co. KG, Berlin 1) 100.00 100.00 ¤ 1,396,959.09 86,879.02
74AVUS Erste Grundstücksbeteiligungs-GmbH & Co. KG, Berlin 1) 100.00 100.00 ¤ 1,551,366.05 124,486.99
75 AVUS Fondsbesitz und Management GmbH, Berlin 1) 3) 100.00 100.00 ¤ 28,452.72 −1,461,512.46
76AVUS Fünfte Grundstücksbeteiligungs-GmbH & Co. KG, Berlin 1) 100.00 100.00 ¤ 1,795,697.74 137,623.78
77 AVUS Grundstücksverwaltungs-GmbH, Berlin 1) 3) 100.00 100.00 ¤ 25,000.00 27,553.93
78AVUS Siebte Grundstücksbeteiligungs-GmbH & Co. KG, Berlin 1) 100.00 100.00 ¤ 4,288.83 −26,472.34
79AVUS Vierte Grundstücksbeteiligungs-GmbH & Co. KG, Berlin 1) 100.00 100.00 ¤ 1,482,968.76 50,231.83
80 BALIBU Beteiligungsgesellschaft mbH, Willich 1) 100.00 100.00 ¤ 7) 7)
81 Bavaria Office GmbH & Co. KG, Hamburg 1) 100.00 100.00 ¤ 9,198,467.34 −908,651.06
82BEAGLE CONTAINERS LIMITED, Majuro, Marshall Islands 1) 100.00 100.00 USD 453.05 9)
83BINNENALSTER-Beteiligungsgesellschaft mbH, Hamburg 100.00 100.00 ¤ 2,377,887.15 91,497.55
233otHer diScloSureS | Group FiNaNcial StatemeNtS
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84BTO Grundstücksvermietungsgesellschaft mbH & Co. Verwaltungs KG, Munich 94.00 94.00 ¤ −5,970,245.97 −92,265.93
85BURGVILLE INVESTMENTS LIMITED, London, Great Britain 100.00 100.00 ¤ 24,330,065.00 462,963.00
86
CAPCELLENCE Dritte Fondsbeteiligung GmbH (former Capcellence Dritte Fondsbeteiligung GmbH i. G.), Hamburg 1) 100.00 100.00 ¤ 25,000.00 6)
87
CAPCELLENCE Erste Fondsbeteiligung GmbH (former Capcellence Erste Fondsbeteiligung GmbH i. G.), Hamburg 1) 100.00 100.00 ¤ 25,000.00 6)
88
CAPCELLENCE Zweite Fondsbeteiligung GmbH (former Capcellence Zweite Fondsbeteiligung GmbH i. G.), Hamburg 1) 100.00 100.00 ¤ 25,000.00 6)
89CRE Financial Group LLC (former: Roki LLC), Wilmington DE 19808, USA 100.00 100.00 USD 9) 9)
90 Credaris Portfolio Management GmbH, Kiel 100.00 100.00 ¤ 4,047,970.35 −26,238.46
91 DMS Beteiligungs GmbH, Radolfzell 1) 100.00 100.00 ¤ 4,800,000.00 4,306,911.10
92Dolus Grundstücksverwaltungsgesellschaft mbH, Wiesbaden, Mainz-Kastel 100.00 100.00 ¤ 22,692.51 3,035, 653.56
93 DYNAMENE GmbH, Hamburg 1) 100.00 100.00 ¤ 51,186.52 −4,344.83
94Dynamic Micro Systems (Shanghai) Traiding Co., Ltd, Shanghai, China 1) 100.00 100.00 CNY 292,136.18 0.00
95 Dynamic Microsystems L. L. C., Phoenix, USA 1) 99.98 99.98 USD 108,672.74 −12,999.77
96Dynamic Microsystems Semiconductor Equipment GmbH, Radolfzell 1) 100.00 100.00 ¤ 21,827.67 −2,243.63
97Einkaufs-Center Plovdiv G. m. b. H. & Co. KG, Hamburg 1) 75.00 75.00 ¤ 40,353,785.57 −496,271.59
98 Enders Holdings LLC, Dover, USA 2) 100.00 100.00 USD 15,600,041.00 −691,272.00
99 Endor 6. Beteiligungs GmbH & Co. KG, Hamburg 1) 100.00 100.00 ¤ 393,449.40 1,593,296.50
100 Endor 7. Beteiligungs GmbH & Co. KG, Hamburg 1) 100.00 100.00 ¤ 416,872.13 −69,477.04
101European Capital Investment Opportunities Limited, St. Helier, Jersey 1) 51.00 51.00 ¤ 77.00 5.00
102 Fastlane 1. Real Estate GmbH, Hamburg 1) 100.00 100.00 ¤ 1,276,811.62 −47,270.92
103 Fastlane 2. Real Estate GmbH, Hamburg 1) 100.00 100.00 ¤ 926,090.99 −62,566.59
104 Feronia GmbH, Hamburg 1) 100.00 100.00 ¤ 431,253.42 285,695.53
105Fonds III - Imbuschweg GbR, Berlin (former: GEHAG-Fonds III GbR, Berlin) 1) 69.97 69.97 ¤ −8,181,334.93 −121,406.81
106 Freebay Holdings LLC, Dover, USA 2) 100.00 100.00 USD −13,601,605.00 −2,493,263.00
107Galileo Containers Limited, Majuro, Marshall Islands 1) 100.00 100.00 USD 9) 9)
108 GbR Tocotax, Hamburg 0.00 66.67 ¤ 0.00 −106,570.21
109GBVI Gesellschaft zur BeteiligungsVerwaltung von Immobilien mbH & Co. KG, Hamburg 100.00 100.00 ¤ 32,018.92 −2,753.68
110 GODAN GmbH, Hamburg 100.00 100.00 ¤ 2,353,602.23 94,653.68
111 Gropius-Haus GmbH, Berlin 1) 100.00 100.00 ¤ 3,836.18 −13,130.98
112Grundstücksentwicklungsgesellschaft Gartenstadt Wismar mbH & Co. KG, Hamburg 100.00 100.00 ¤ 643,576.96 26,699.24
113Grundstücksgesellschaft Barstraße GbR (GEHAG-Fonds 18), Berlin 1) 69.75 69.75 ¤ −9,698,292.37 −48,969.25
114Grundstücksgesellschaft Goerzallee GbR (GEHAG-Fonds 15), Berlin 1) 72.57 72.57 ¤ −6,377,739.54 −132,142.66
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Equity capital in respective currency
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115Grundstücksgesellschaft Porstendorf mbH & Co. KG, Hamburg 5) 100.00 100.00 ¤ −2,013,333.05 54,677.22
116Grundstücksgesellschaft Rudow-Süd / Straße 633 GbR (GEHAG-Fonds 20), Berlin 1) 66.99 66.99 ¤ −5,645,698.89 9,860.98
117Grundstücksgesellschaft Rudow-Süd / Straße 634 GbR (GEHAG-Fonds 17), Berlin 1) 79.21 79.21 ¤ −6,237,146.98 248,267.32
118Hamburgische Betriebsverwaltungs-Gesellschaft am Gerhart-Hauptmann-Platz mbH, Hamburg 100.00 100.00 ¤ 563,146.46 −30,440.01
119Hamburgische Grundbesitz und Anlage AG & Co. London-St. Georges House KG, Hamburg 61.22 62.42 ¤ 21,278,683.66 1,366,070.72
120Hanseatische Immobilienfonds Holland XIII GmbH & Co. KG, Bremen 63.68 63.68 ¤ 3,046,717.67 −2,140,494.81
121 HGA Bavaria Office GmbH, Hamburg 1) 100.00 100.00 ¤ 386,387.39 −38,612.61
122 HGA CareConcept 1 Verwaltungs-GmbH, Hamburg 1) 100.00 100.00 ¤ 7,747.89 −7,497.55
123 HGA Fondsbeteiligung GmbH, Hamburg 1) 100.00 100.00 ¤ 37,349,814.30 −630,383.63
124 HGA Mikado I AG & Co. KG, Hamburg 1) 64.22 64.22 ¤ 7,667,803.76 −907,112.60
125 HGA Objekt Hamburg 4 GmbH, Hamburg 1) 3) 100.00 100.00 ¤ 25,000.15 −67,915.50
126HGA Objekte Hamburg und Hannover GmbH & Co. KG, Hamburg 1) 80.50 80.53 ¤ 14,902,264.30 −4,167,771.46
127 HGA USA IV fifth Avenue GmbH & Co. KG, Hamburg 1) 100.00 100.00 ¤ 34,032.94 −2,877.11
128 HGA USA V GmbH & Co. KG, Hamburg 1) 93.93 93.62 ¤ 24,116.55 114,394.57
129 HGA USA VI GmbH & Co. KG, Hamburg 1) 99.76 99.51 ¤ 26,399,216.10 58,242.05
130 HGA USA VII GmbH & Co. KG, Hamburg 1) 99.99 99.72 ¤ 22,262,476.74 −903,884.55
131HGA / COLONIA CareConcept 1 Beteiligungsgesellschaft mbH & Co. KG, Hamburg 1) 100.00 100.00 ¤ 4,817,381.58 49,308.66
132HGA / COLONIA CareConcept 1 Fondsgesellschaft mbH & Co. KG, Cologne 1) 58.71 55.96 ¤ 30,462,558.02 −2,305,152.21
133HGA / Hamburg Bavaria Office GmbH & Co. KG, Hamburg 1) 99.96 99.96 ¤ 1,090,056.01 −1,472,747.90
134HGA / Wohnportfolio Deutschland I GmbH & Co. KG, Hamburg 1) 100.00 100.00 ¤ 6,229,695.85 1,338,280.93
135HSG Hamburgische Städtebauförderungsgesellschaft mbH, Hamburg 1) 3) 100.00 100.00 ¤ 155,000.00 −21,121.33
136HSH Auffang- und Holdinggesellschaft mbH & Co. KG, Hamburg 100.00 100.00 ¤ 1,273,755.79 −17,055.86
137 HSH Baltic Sea GmbH, Kiel 1) 4) 100.00 100.00 ¤ 25,600.00 −273,822.19
138 HSH Capitalpartners GmbH, Hamburg 1) 3) 100.00 100.00 ¤ 24,694.45 −326,591.51
139 HSH Care+Clean GmbH, Hamburg 1) 4) 51.00 51.00 ¤ 25,000.00 23,016.88
140HSH Containers Security Trustee AB, Stockholm, Sweden 100.00 100.00 SEK 132,565.00 36,067.00
141 HSH Debt Advisory ApS, Copenhagen, Denmark 100.00 100.00 DKK 6) 6)
142 HSH Einkauf+Rechnungswesen GmbH, Kiel 1) 4) 100.00 100.00 ¤ 25,000.00 150,633.70
143 HSH Equitypartners GmbH, Hamburg 1) 100.00 100.00 ¤ 1,016,037.88 −1,180,946.89
144 HSH Facility Management Holding AG, Kiel 2) 100.00 100.00 ¤ 205,600.00 747,652.14
145 HSH Finance & Science GmbH, Kiel 100.00 100.00 ¤ 275,144.59 7,636.25
146 HSH Gastro+Event GmbH, Hamburg 1) 4) 100.00 100.00 ¤ 25,000.00 270,180.64
147 HSH Immobilien Management GmbH, Kiel 1) 4) 100.00 100.00 ¤ 50,000.00 455,254.45
148 HSH Invest GmbH, Kiel 2) 100.00 100.00 ¤ 1,100,000.00 −119,958.95
235otHer diScloSureS | Group FiNaNcial StatemeNtS
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Equity capital in respective currency
Income / loss in respective currency
149 HSH Move+More GmbH, Kiel 1) 4) 51.00 51.00 ¤ 25,000.00 70,020.75
150 HSH N Financial Securities LLC, Wilmington, USA 100.00 100.00 USD 4,892,041.00 −547,945.00
151HSH N Management Situations Limited, St. Helier, Jersey 100.00 100.00 GBP 2.00 0.00
152
HSH N Real Estate Management Ingatlankezelö Kft (in English HSH Real Estate Management Property Management Private Limited Liability Company), Budapest, Hungary 1) 100.00 100.00 HUF 155,090,000.00 20,546,000.00
153 HSH N Real I GmbH, Kiel 2) 100.00 100.00 ¤ 32,155.71 −47,973.86
154 HSH N Residual Value Ltd., Hamilton, Bermuda 100.00 100.00 USD 4,230,736.00 −769,264.00
155 HSH N Structured Situations Limited, St. Helier, Jersey 100.00 100.00 USD 703,577.00 703,574.00
156 HSH Print+Logistics GmbH, Hamburg 1) 4) 100.00 100.00 ¤ 25,000.00 1,610,830.17
157 HSH RE Beteiligungs GmbH, Hamburg 1) 3) 100.00 100.00 ¤ 21,310.59 −3,276,752.13
158HSH REAL ESTATE ASIA-PACIFIC PTE LTD, Singapore, Singapore 1) 100.00 100.00 SGD 76,461.00 −10,839.00
159 HSH Real Estate Care Invest GmbH, Hamburg 1) 3) 100.00 100.00 ¤ 23,938.73 −9,161.22
160HSH Real Estate Debt Advisory ApS, Copenhagen, Denmark 100.00 100.00 DKK 6) 6)
161HSH Real Estate Lux S. à. r. l., Luxembourg, Luxembourg 1) 100.00 100.00 ¤ 123,878.01 −16,821.01
162 HSH Real Estate Treuhand GmbH, Hamburg 1) 100.00 100.00 ¤ 4,479,110.45 74,430.75
163 HSH Real Estate US Invest, LLC, Wilmington, USA 1) 0.00 100.00 USD 15,644,888.42 −5,112,472.89
164HSH Restructuring Advisory ApS, Copenhagen, Denmark 100.00 100.00 DKK 6) 6)
165 IHG Biron GmbH, Hamburg 1) 100.00 100.00 ¤ 203,265.84 −40,303.03
166 IHG Inamori Beteiligungs GmbH & Co. KG, Hamburg 1) 100.00 100.00 ¤ 611,018.77 −5,350.78
167Indian Infrastructure Development Seed Asset Limited, Cybercity, Mauritius 1) 100.00 100.00 USD 2,754,282.00 −35,544.00
168 KAPLON GmbH & Co. KG, Hamburg 1) 100.00 100.00 ¤ 13,712,269.46 −8,484,867.45
169 Kipper Corporation, Wilmington, USA 100.00 100.00 USD 360,700.00 39,669.00
170Kontora Family Office GmbH (former Kontora GmbH), Hamburg 2) 75.02 75.02 ¤ 500,000.00 62,547.05
171 Lamatos GmbH, Hamburg 100.00 100.00 ¤ 2,489,518.28 1,422,676.70
172 LB Invest GmbH, Hamburg 1) 100.00 100.00 ¤ 25,568.09 2,144.92
173 Mandarin I Verwaltungs GmbH, Hamburg 1) 100.00 100.00 ¤ 1,340,864.81 −14,312.39
174 Marc Marco Polo Ventures GmbH & Co. KG, Krefeld 1) 90.91 90.91 ¤ 379,609.95 9)
175Milestone Apartments HC GP, Inc., Chicago 60601, USA 1) 0.00 100.00 USD 0.00 0.00
176Milestone Apartments HC Limited Partnership, Chicago 60601, USA 1) 0.00 100.00 USD 0.00 0.00
177Neptune Ship Finance (Luxembourg) S. á. r. l., Luxembourg, Luxembourg 100.00 100.00 USD 20,000.00 −3,184.99
178 Niederelbe Beteiligungs GmbH, Hamburg 100.00 100.00 ¤ 744,826.20 −4,073.19
179NORDIC BLUE CONTAINER II LIMITED; Majuro, Marshall Islands 100.00 100.00 USD 500.00 9)
180NORDIC BLUE CONTAINER III LIMITED; Majuro, Marshall Islands 100.00 100.00 USD 500.00 9)
181NORDIC BLUE CONTAINER IV LIMITED; Majuro, Marshall Islands 100.00 100.00 USD 500.00 9)
HSH NordbaNk 2010236
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Currency code
Equity capital in respective currency
Income / loss in respective currency
182NORDIC BLUE CONTAINER LIMITED; Ajeltake Island, Marshall Islands 100.00 100.00 USD 500.00 9)
183NORDIC BLUE CONTAINER V LIMITED; Majuro, Marshall Islands 100.00 100.00 USD 500.00 9)
184NORDIC BLUE CONTAINER VI LIMITED; Majuro, Marshall Islands 100.00 100.00 USD 500.00 9)
185NORDIC BLUE CONTAINER VII LIMITED; Majuro, Marshall Islands 100.00 100.00 USD 500.00 9)
186 Nubes GmbH, Lockstedt 100.00 100.00 ¤ −1,309,270.08 −11,425,504.64
187 Pateon 3. Verwaltungs GmbH, Hamburg 1) 3) 100.00 100.00 ¤ 23,960.23 −15,457.13
188 Pateon 5. Verwaltungs GmbH, Hamburg 1) 100.00 100.00 ¤ 21,141.30 −1,911.98
189 PERIMEDES GmbH, Hamburg 100.00 100.00 ¤ 20,861.91 −3,631.09
190 Quartett IV GmbH & Co. KG, Hamburg 1) 66.67 66.67 ¤ 35.48 −264.28
191Real Estate Venture Capital Fonds 1 GmbH, Hamburg 1) 85.10 85.10 ¤ 569,198.66 29,738.26
192RELAT Beteiligungs GmbH & Co. Vermietungs-KG, Pullach i. Isertal 94.00 55.29 ¤ −985,500.99 120,951.95
193 SBF II, LLC, Wilmington, USA 1) 100.00 100.00 USD −3,182,996.09 −3,182,996.09
194 SB-HSH Seed Holding Limited, Cybercity, Mauritius 100.00 100.00 USD 2,881,590.00 −10,413.00
195 Semos 4. Verwaltungs GmbH, Hamburg 1) 100.00 100.00 ¤ 21,827.67 −2,243.63
196 Swift Capital Partners GmbH, Hamburg 90.00 90.00 ¤ 1,235,392.45 1,210,392.45
197 Swift Capital Partners Verwaltungs-GmbH, Hamburg 100.00 100.00 ¤ 10,108.97 −4,090.30
198 Swift Treuhand GmbH, Hamburg 100.00 100.00 ¤ 72,457.98 16,214.40
199 TALAOS GmbH, Hamburg 1) 100.00 100.00 ¤ 3,287.85 −2,523.38
200TCP Trimontium Center Plovdiv EOOD, Sofia, Bulgaria 1) 100.00 100.00 BGN 58,752,000.00 77,000.00
201 TERRANUM ‘die Zweite’ AG & Co. KG, Hamburg 1) 100.00 100.00 ¤ 5,243,896.70 50,782.20
202TERRANUM Gewerbebau Verwaltungs-GmbH, Hamburg 1) 100.00 100.00 ¤ 121,950.09 −7,673.13
203 Teukros Canada Inc., Nova Scotia B3J 2X2, USA 1) 100.00 100.00 CAD 14,766,415.00 2,674,988.00
204 Teukros GmbH, Hamburg 100.00 100.00 ¤ −4,500,691.35 −55,255.96
205 Turis 1. Beteiligungs GmbH & Co. KG, Hamburg 1) 100.00 100.00 ¤ 25,615,040.38 −5,007,648.99
206 Turis 2. Beteiligungs GmbH & Co. KG, Hamburg 1) 100.00 100.00 ¤ 3,564.17 −1,138.00
207 Turis 3. Beteiligungs GmbH & Co. KG, Hamburg 1) 94.90 94.90 ¤ 211,969.71 17,542.20
208Unterstützungs-Gesellschaft der Hamburgischen Lan-desbank mit beschränkter Haftung, Hamburg 100.00 100.00 ¤ 2,769,882.88 −54,020.32
209 USTXVII Beteiligungs GmbH, Hamburg 1) 100.00 100.00 ¤ −100,225.87 247,499.66
210Verwaltung AVUS Immobilien-Treuhand GmbH, Berlin 1) 3) 100.00 100.00 ¤ 25,000.00 −15,485.22
211Verwaltungs- und Treuhandgesellschaft von 1963 mbH, Kiel 2) 100.00 100.00 ¤ 25,600.00 3,896.88
212Verwaltungsgesellschaft Gartenstadt Wismar mbH, Hamburg 100.00 100.00 ¤ 34,045.95 2,524.34
237otHer diScloSureS | Group FiNaNcial StatemeNtS
Non-consolidated special purpose entities (under SIC 12) ShareVoting rights
Currency code
Equity capital in respective currency
Income / loss in respective currency
213 Alchemy Plan (HLB) LP, St. Peter Port, Guernsey 1) 99.50 0.00 GBP 7,062,982.00 342,379.00
214 Alchemy Plan (HSH) L. P., St. Peter Port, Guernsey 1) 99.50 0.00 GBP 15,563,304.00 117,453.00
215 Argon Capital Plc. 52, Dublin, Ireland 0.00 0.00 ¤ 0.00 4,740,216.66
216 AVUS Immobilien-Treuhand GmbH & Co. KG, Berlin 1) 0.00 50.00 ¤ 428,624.19 −20,108.82
217 CEP Funding, LLC, Vancouver, USA 0.00 0.00 USD 9) 9)
218 Endor 4. Beteiligungs GmbH & Co. KG, Hamburg 1) 5.10 5.10 ¤ 67,003.50 −1,299.88
219 German Ground Lease Finance III SA, Luxembourg 0.00 0.00 ¤ 31,000.00 0.00
220Granville Private Equity Managers (Deutschland) Fund A Limited Partnership, London, Great Britain 1) 59.39 0.00 ¤ 1,485,996.00 −10,166.00
221LB Immo Invest Projekt I, Hamburg (former LB Projekt Invest) 100.00 100.00 ¤ 52,764.39 2,304.46
222Lyceum Capital Fund 2000 (Number Five) Limited Partnership, Stuttgart 1) 80.00 0.00 ¤ 2,584,115.00 2,121,171.00
223 MUST 4 GmbH & Co. KG, Munich 1) 74.72 0.00 GBP 3,437,071.00 414,976.00
224North Street Referenced Linked Notes, 2002-4 Limited, St. Helier, Jersey 0.00 0.00 USD 9) 9)
225PLUTON Grundstücks-Verwaltungsgesellschaft mbH & Co. KG, Grünwald 94.00 50.00 ¤ −6,750,685.55 62,235.53
226 Senior Assured Investment SA, Luxembourg 0.00 0.00 USD 31,000.00 0.00
227 Senior Preferred Investments SA, Luxembourg 0.00 0.00 USD 31,000.00 0.00
228SLK GmbH für Immobilien-Leasing & Co. KG Objekt Berlin Pohlstraße, Pöcking 94.00 40.00 ¤ −3,472,225.35 665,174.50
229 Turis 4. Beteiligungs GmbH & Co. KG, Hamburg 1) 100.00 50.00 ¤ 4,737.27 −362.73
Non-consolidated joint ventures ShareVoting rights
Currency code
Equity capital in respective currency
Income / loss in respective currency
230Extended Care Senior Living Portfolio, LLC, Wilmington, USA 1) 51.62 50.00 USD −20,371,554.00 −9,147,978.00
231 FREIGHTER LEASING S. A., Luxembourg, Luxembourg 22.62 22.22 USD 16,499,307.00 1,169,005.00
232 GbR realrace 2005 0.00 33.33 ¤ 9) 9)
233
Harmonia HSH Beteiligungsgesellschaft mbH (former: BTA HSH Beteiligungsgesellschaft Alstercampus mbH), Hamburg 1) 50.00 50.00 ¤ 868,766.03 -129,326.37
234 IHG Korund GmbH, Hamburg 1) 50.00 50.00 ¤ 239,755.04 1,034,058.55
235Konsortium HSH Real Estate AG, BNP Paribas Real Estate Consult GmbH Leo III GbR 0.00 50.00 ¤ 1,273.44 29,207.88
236PL Projekt-Anlagen Leasing Beteiligungsgesellschaft mbH & Co. Objekt Hemmingen, Hamburg 50.00 50.00 ¤ 268,967.93 541.75
237 Regional Jet Leasing 3 C. V. 53.33 53.33 USD -387,807.00 -608,936.00
238 Urbanitas Grundbesitzgesellschaft mbH, Berlin 50.00 50.00 ¤ -7,727,662.09 1,521,993.30
HSH NordbaNk 2010238
Non-consolidated associated companies ShareVoting rights
Currency code
Equity capital in respective currency
Income / loss in respective currency
239 Aeolis Wind Power Corporation, Sidney BC, Canada 21.39 21.39 CAD 5,785,335.00 −12,564,443.00
240 A-Dith-Fonds, Frankfurt 50.00 50.00 ¤ 0.00 788,890.52
241AGV Irish Equipment Leasing No. 7 Limited, Dublin 1, Ireland 1) 49.00 49.00 USD −6,170,374.00 5,731,551.00
242ALIDA Grundstücksgesellschaft mbH & Co. KG, Hamburg 45.00 45.00 ¤ 114,595,000.00 −17,616,186.00
243 ALIDA Grundstücksverwaltungs GmbH, Hamburg 45.00 45.00 ¤ 36,754.93 −3,740.00
244Amentum Aircraft Leasing No. Seven Limited, Dublin, Ireland 1) 49.00 49.00 USD −1,458.00 −1,602.00
245Amentum Aircraft Leasing No. Eleven Limited, Dublin 2, Ireland 1) 49.00 49.00 USD 100.00 6)
246Amentum Aircraft Leasing No. Five Limited, Dublin 2, Ireland 1) 49.00 49.00 USD −5,502,520.00 −5,441,146.00
247Amentum Aircraft Leasing No. Nine Limited, Dublin 2, Ireland 1) 49.00 49.00 USD 100.00 0.00
248Amentum Aircraft Leasing No. Six Limited, Dublin 2, Ireland 1) 49.00 49.00 USD −5,641,263.00 −5,641,402.00
249Amentum Aircraft Leasing No. Ten Limited, Dublin 2, Ireland 1) 49.00 49.00 USD 100.00 6)
250Amentum Aircraft Leasing No. Three Limited, Dublin 2, Ireland 1) 49.00 49.00 USD −3,357,834.00 −1,240,483.00
251Amentum Aircraft Leasing No. Two Limited, Dublin 2, Ireland 1) 49.00 49.00 USD 185,007.00 130,056.00
252 Araguari Real Estate Holding LLC, Wilmington, USA 31.25 31.25 USD 109,931,364.95 0.00
253AUGUR Financial Opportunity SICAV, Luxembourg, Luxembourg 22.54 22.50 ¤ 114,436,337.36 24,654,411.59
254 A-Westküstenfonds, Frankfurt 50.00 50.00 ¤ 0.00 698,308.45
255Arilius Flughafen Hotel Hamburg GmbH & Co. KG, Hamburg 5.95 5.95 ¤ −9,157.67 −1,096.92
256Azur Grundstücksverwaltungsgesellschaft mbH & Co. LBSH KG, Pöcking 94.00 50.00 ¤ −943,000.22 462,519.74
257BALIBU Indoor-Freizeitanlagen Beteiligungs-Holding GmbH & Co. KG, Willich 1) 7) 39.00 39.00 ¤ 7) 7)
258 BALIBU Management GmbH, Willich 1) 7) 33.00 33.00 ¤ 7) 7)
259BC Wind Power Corporation, V8L 5W5 Sidney BC, Canada 20.03 20.03 CAD −97,978.00 −99,106.00
260BIG BAU - INVESTITIONSGESELLSCHAFT mbH, Kronshagen 1) 40.50 40.50 ¤ 20,448,185.39 261,208.15
261 BIG-ANTEILSVERWALTUNGS GmbH, Kronshagen 1) 45.00 45.00 ¤ 4,027,070.57 174,114.30
262BIT Beteiligungs- & Investitions Treuhand AG, Neuwied 1) 25.10 25.10 ¤ 468,364.33 −920,489.89
263CAPCELLENCE Mittelstandspartner GmbH (former: Capcellence Private Equity GmbH), Hamburg 25.00 25.00 ¤ −307,820.91 −347,820.91
264DAL Deutsche Anlagen-Leasing Geschäftsführung GmbH, Wiesbaden 1) 40.00 40.00 ¤ 83,908.75 21,908.75
265DAL Deutsche Anlagen-Leasing GmbH & Co. KG, Wiesbaden 1) 39.96 39.96 ¤ 25,026,000.00 25,084,082.42
266DOLANA Grundstücksverwaltungsgesellschaft mbH & Co. Objekt Sehnde KG, Bad Homburg v. d. H. 28.50 28.28 ¤ 1,203.71 −998.99
267
DOL-ZIRCON Grundstücksverwaltungsgesellschaft mbH & Co., Objekt Hamburg KG, Bad Homburg v. d. H. 94.00 33.33 ¤ 11,048.01 −23,366.90
239otHer diScloSureS | Group FiNaNcial StatemeNtS
Non-consolidated associated companies ShareVoting rights
Currency code
Equity capital in respective currency
Income / loss in respective currency
268Extended Care Portfolio Tenant, LLC, Wilmington, USA 1) 24.90 24.90 USD 7,169,093.00 3,566,122.00
269 FHH Fonds Nr. 30 MS ‘Carelia’ GmbH, Hamburg 1) 33.33 33.33 ¤ 30,223.52 0.00
270GeRo Real Estate Aktiengesellschaft für Projektentwicklung und Consulting, Bellheim 1) 35.00 35.00 ¤ 239,973.85 534,530.21
271 Global Format GmbH & Co. KG, Munich 28.57 28.57 ¤ 775,354.12 −81,316.28
272 GmbH Altstadt Grundstücksgesellschaft, Wiesbaden 1) 50.00 50.00 ¤ −436,691.62 32,925.50
273 Golding Mezzanine SICAV III, Luxembourg 0.20 0.20 ¤ 288,885.39 −6,458.78
274 Golding Mezzanine SICAV IV Teilfonds 1, Luxembourg 0.02 0.02 ¤ 7,604.31 −25.23
275 Golding Mezzanine SICAV IV Teilfonds 2, Luxembourg 0.02 0.02 ¤ 889.07 −98.22
276 Golding Mezzanine SICAV V, Luxembourg 0.02 0.02 ¤ 985.00 0.00
277 gardeur Beteiligungs GmbH, Hamburg 1) 88.50 40.00 ¤ 266,178.01 −5,320,949.27
278H / H-Capital Management GmbH, Luxembourg, Luxembourg 1) 50.00 50.00 ¤ 7,552,869.00 −394,527.00
279 HGA Europa-Fonds Beteiligungs GmbH, Hamburg 1) 49.00 49.00 ¤ 464,124.58 20,342.29
280 HGA Invest GmbH, Hamburg 5.20 5.20 ¤ −724.04 3,251.84
281 HSH N Quartett I GmbH & Co. KG, Hamburg 0.87 0.87 ¤ 66,206.71 −3,058.52
282 HSH N Quartett II GmbH & Co. KG, Hamburg 0.98 0.98 ¤ 171,876.93 203.42
283 LRH-Fonds, Frankfurt 33.33 33.33 ¤ 0.00 667,481.91
284 NBV Beteiligungs-GmbH, Hamburg 28.57 20.00 ¤ 19,395,894.06 1,745,915.04
285Next Generation Aircraft Finance 2 S. a. r. l., Luxembourg, Luxembourg 1) 49.00 49.00 ¤ −105,276.55 −713,288.42
286Next Generation Aircraft Finance 3 S. a. r. l., Luxembourg, Luxembourg 1) 49.00 49.00 ¤ −141,271.36 −339,324.07
287Next Generation Aircraft Finance S. a. r. l., Luxembourg, Luxembourg 1) 48.80 48.80 ¤ 12,500.00 918,990.61
288NOBIS Asset Management S. A., Luxembourg, Luxembourg 1) 40.00 40.00 ¤ 7,722,747.04 2,300,180.99
289Northam Real Estate Investment Fund VI, L. P., Toronto, Ontario, Canada 1) 29.34 29.34 CAD 31,423,419.00 14,683,795.00
290Northern Diabolo (Holdings) S. á. r. l., Luxembourg, Luxembourg 1) 25.00 25.00 ¤ 37,468.62 −24,883.66
291PL Projekt-Anlagen Leasing Beteiligungsgesellschaft mbH, Hamburg 50.00 50.00 ¤ 51,573.39 −4,590.68
292PRIME 2006-1 Funding Limited Partnership, St. Helier, Jersey 47.50 0.00 ¤ 7,508,685.00 −11,160,030.00
293 Prime 2 L. P., St. Helier, Jersey 47.50 0.00 ¤ 4,750.00 0.00
294 QUNDIS Management GmbH, Mühlhausen 1) 75.38 40.00 ¤ 12,979,015.68 5,671,978.44
295 Railpool GmbH, Munich 50.00 50.00 ¤ 942,294.86 −2,492,027.14
296 Railpool Holding GmbH & Co. KG, Munich 50.00 50.00 ¤ 16,453,824.71 −107,353.15
297 Spheros Management Holding GmbH, Mühlhausen 1) 34.10 34.10 ¤ 1,260,897.00 −2,834,133.00
298 TAPES GmbH & Co. KG, Pöcking 94.00 33.33 ¤ 3,658,733.33 70,138.22
299 UST XXI NEW JERSEY, LTD., Orlando, USA 1) 24.00 24.00 USD 67,641,681.00 −113,734.00
300 RE-FundMaster, Frankfurt 49.83 49.83 ¤ 0.00 528,311.94
301 Via Stiftungsfonds UI, Frankfurt 16.40 16.40 ¤ 9) 9)
302 SP 89 Beeke, Hanover 50.00 50.00 ¤ 0.00 359,811.06
303Wilhelm Bartels Bavaria-Grundstücksgesellschaft mbH & Co. KG, Hamburg 1) 28.00 28.00 ¤ 8,961.55 −4,471.72
HSH NordbaNk 2010240
Voting rights exceeding 5 % (large corporations) ShareVoting rights
Currency code
Equity capital in respective currency
Income / loss in respective currency
304 Bürgschaftsbank Schleswig-Holstein GmbH, Kiel 10.19 10.19 ¤ 36,340,220.32 124,605.73
305 Bürgschaftsgemeinschaft Hamburg GmbH, Hamburg 8.35 8.35 ¤ 17,269,611.39 0.00
Other companies with a share of 20 % or more ShareVoting rights
Currency code
Equity capital in respective currency
Income / loss in respective currency
306 BPE Institutional Partners GmbH, Hamburg 1) 30.56 0.00 ¤ 18,484,411.17 −2,450,957.89
307 BRINKHOF Holding Deutschland GmbH, Erfurt 1) 100.00 0.00 ¤ 11,901,471.54 −4,577,577.51
308BRINKHOF Kraftwerks- und Industrieservice GmbH, Oberhausen 1) 100.00 0.00 ¤ 3,876,521.35 1,614,396.30
309 BRINKHOF Personalservice GmbH, Cologne 1) 100.00 0.00 ¤ 2,665,842.87 −839,791.54
310 Current, L. P., Dallas, USA 1) 31.59 4.90 USD 13,230,472.00 −16,596,805.00
311The Candover 2001 Fund L. P., London EC4M 7LN, Great Britain 1) 20.70 0.00 ¤ −52,004,000.00 969,000.00
1) Indirect holding.
2) A profit and loss transfer agreement with the company is in place.
3) Profit and loss transfer agreement with HSH Real Estate AG.
4) Profit and loss transfer agreement with HSH Facility Management Holding AG.
5) Both direct and indirect holdings.
6) No information available due to newly established company.
7) No information available due to insolvency of the company.
8) No information available due to pending legal proceedings.
9) No data available.
Foreign exchange rates for ¤ 1 as at 31 December 2010
Bulgaria BGN 1.9558
China CNY 8.822
Denmark DKK 7.4535
Great Britain GBP 0.86075
Canada CAD 1.3322
Sweden SEK 8.9655
Singapore SGD 1.7136
Hong Kong HKD 10.3856
Hungary HUF 277.95
USA USD 1.3362
241otHer diScloSureS | Group FiNaNcial StatemeNtS
i. BaSic documentS
UnderthetermsofSection315a(1)HGB,HSHNordbankGroup
isrequiredtoobservethestandardsoftheGermanCommer-
cialCodeinpreparingandpresentingtheannualfinancialstate-
ments,aswellastheIFRSstandards.Youmayrequestthe
unabridgedIFRSconsolidatedfinancialstatementsfollowing
thislink:www.hsh-nordbank.com.Thecompletelistofshare-
holdingsmaybefoundundernote[65].
ii. numBer oF employeeS
Theaveragenumberofemployeesasofthereportingdate
iscalculatedonthebasisofstafffiguresatquarter-endforall
fullyconsolidatedcompanies:
Number of employees
2010 2009
Male Female Total Total
Full-time employees 2,176 1,088 3,264 3,434
Part-time employees 83 528 611 624
Subtotal (excluding trainees) 2,259 1,616 3,875 4,058
Trainees 34 26 60 83
Total 2,293 1,642 3,935 4,141
iii. corporate Governance code
HSHNordbankAGsupportstheaimsoftheGermanCorpo-
rateGovernanceCodeandhasrecognisedtheCode’srulesona
voluntarybasisasanunlistedcompany.TheManagement
BoardandSupervisoryBoardofHSHNordbankAGhavegiven
adeclarationofconformitypursuanttoSection161ofthe
GermanStockCorporationAct(AktG)thattherecommendations
oftheGermanCorporateGovernanceCodeCommission
togetherwiththerestrictionshavebeencompliedwithand
willbecompliedwithuntilasubsequentdeclarationis
made.ThedeclarationofconformityispublishedonHSHNord-
bankAG’swebsiteandprintedinthe2010AnnualReport.
Similarly,theHambornerREITAG,whichisincludedatequity
intheconsolidatedfinancialstatementshasalsorecognised
theGermanCorporateGovernanceCodeandsubmittedadecla-
rationofconformityinaccordancewithSection161AktG.This
isalsoavailabletoshareholdersonline(www.hamborner.de).
iv. auditor’S FeeS
Auditor’s fees (¤ 000) 2010 2009
Auditing 8,513 11,202
Other certification and valuation services 4,587 4,507
Total 13,100 15,709
Contrarytothepreviousyear,auditor’sfeespresentedheredo
notincludeVAT.
66. diSCloSureS in aCCordanCe with german CommerCial law
HSH NordbaNk 2010242
v. SeatS on SuperviSory BodieS
Onthereportingdate,thefollowingseatswereheldbymem-
bersoftheManagementBoardonsupervisorybodiesofmajor
corporationsorfinancialinstitutions.
prof. dr. dirk jens nonnenmacher
DekaBankDeutscheGirozentrale,FrankfurtamMain
MemberoftheAdvisoryBoard
Hapag-LloydAG,Hamburg
MemberoftheSupervisoryBoard(from1June2010)
dr. martin van Gemmeren
HSHNordbankSecuritiesS.A.,Luxembourg,
ChairmanoftheSupervisoryBoard
Bernhard visker
HSHNordbankPrivateBankingS.A.,Luxembourg,
ChairmanoftheSupervisoryBoard
constantin von oesterreich
HSHNordbankSecuritiesS.A.,Luxembourg,
MemberoftheSupervisoryBoard(from4February2010)
243otHer diScloSureS | Group FiNaNcial StatemeNtS
i. the SuperviSory Board oF the hSh nordBank Group
hilmar kopper, rothenbach
Formerspokespersonofthe
ManagementBoardofDeutscheBankAG
Chairman
olaf Behm, tangstedt
EmployeeofHSHNordbankAG
DeputyChairman
Sabine-almut auerbach, neumünster
Districtmanager,ver.diSouthernHolsteindistrict
astrid Balduin, kiel
EmployeeofHSHNordbankAG
hans-werner Blöcker, helmstorf
FormerManagingDirector,VereinigteAsphalt-Mischwerke
GmbH&Co.KG
Berthold Bose, hamburg
Regionalfinancialservicesrepresentative,
ver.diHamburgdistrict
detlev Bremkamp, munich
FormermemberoftheManagementBoard,
AllianzAGHolding
jürgen Friedland, kiel
EmployeeofHSHNordbankAG
jens-peter Gotthardt, moorrege
EmployeeofHSHNordbankAG
torsten heick, rellingen
EmployeeofHSHNordbankAG
oke heuer, kiel
DeputyHeadofInternalAudit,SavingsBanksAssociation
forSchleswig-Holstein
67. nameS of board memberS and direCtorShipS held
dr. rainer klemmt-nissen, hamburg
ManagingDirectorofHGVHamburgerGesellschaftfür
Vermögens-undBeteiligungsmanagementmbH
lutz koopmann, altenholz
FormerChairmanoftheManagementBoard,
InvestitionsbankSchleswig-Holstein
dr. joachim lemppenau, korschenbroich
FormerChairmanoftheManagementBoard,
VolksfürsorgeVersicherung
manfred lener, kiel
EmployeeofHSHNordbankAG
rieka meetz-Schawaller, kiel
EmployeeofHSHNordbankAG
dr. david morgan, london
ManagingDirectorofJ.C.Flowers&Co.UKLtd
dr. hans reckers, Bad homburg
FormermemberoftheManagementBoard,
DeutscheBundesbank
edda redeker, kiel
ver.di,Northerndistrict
Bernd wrede, hamburg
FormerChairmanoftheExecutiveBoardofHapagLloydAG
(a) members of the risk committee
dr. hans reckers
Chairman
dr. david morgan
DeputyChairman
(from19January2010)
astrid Balduin
olaf Behm
HSH NordbaNk 2010244
jürgen Friedland
torsten heick
dr. rainer klemmt-nissen
hilmar kopper
manfred lener
Bernd wrede
(b) members of the audit committee
dr. joachim lemppenau
Chairman
lutz koopmann
DeputyChairman
olaf Behm
jürgen Friedland
jens-peter Gotthardt
oke heuer
hilmar kopper
rieka meetz-Schawaller
(c) members of the General committee
hilmar kopper
Chairman
olaf Behm
oke heuer
dr. rainer klemmt-nissen
lutz koopmann
rieka meetz-Schawaller
dr. david morgan
(from19January2010)
(d) members of the mediation committee
hilmar kopper
Chairman
olaf Behm
dr. rainer klemmt-nissen
manfred lener
ii. the manaGement Board oF the hSh nordBank Group
prof. dr. dirk jens nonnenmacher
Chairman
Responsibleforthefollowingdivisions:
CorporateCommunications,Legal,CorporateDevelopment,
InternalAudit,HumanResources
Alsoresponsibleonatemporarybasisfor:
Taxes,Finance
Additionalorganisational/disciplinaryallocationfor:
IT,Operations
Born1963
dr. martin van Gemmeren
ResponsiblefortheRestructuringUnit
withthedivisions
Wind-downLoans,SpecialLoans,Divestments
Born1970
constantin von oesterreich
Responsibleforthefollowingdivisions:
CreditRiskManagement,GroupRiskManagement,
LoanandCollateralManagement,Restructuring
Born1953
torsten temp
Responsibleforthefollowingdivisionssince1May2010:
Shipping,TransportandEnergy1)
Born1960
245otHer diScloSureS | Group FiNaNcial StatemeNtS
date of release for publication
TheManagementBoardofHSHNordbankhasreleasedthe
consolidatedfinancialstatementsforforwardingtotheSuper-
visoryBoardon25February2011.TheSupervisoryBoardis
responsibleforreviewingtheconsolidatedfinancialstatements
andapprovingthese.
Hamburg/Kiel,25February2011
Prof.Dr.DirkJens Dr.MartinvanGemmeren
Nonnenmacher
Constantin TorstenTemp
vonOesterreich
BernhardVisker
1) Since the beginning of 2011, the former business unit Transport focuses on operations in the aviation sector and has been renamed ‘Aviation’. The other areas within the business unit Transport, in particular infrastructure and rail, have been combined with the former business unit Energy into a new business unit ‘Energy & Infrastructure’.
2) The business unit Asset and Investment Management was dissolved as part of the strategic realignment as of 31 December 2010.
Bernhard visker
Responsibleforthefollowingdivisions:
CorporateClients,RealEstateClients,PrivateBanking,
SavingsBanks
Additionalorganisational/disciplinaryallocationfor:
GroupTreasury,CapitalMarketsClients,CapitalMarkets
Structuring&Trading,AssetandInvestmentManagement2)
TechnicalresponsibilitylieswiththeentireManagementBoard.
Alsoresponsibleuntil30April2010for:
Shipping,TransportundEnergy1)
Born1966
InthecapacityofChiefOperatingOfficerMrUlrichVoßis
responsibleforthedivisionsITandOperations.
MrRothwasrelievedofhisrightsanddutiesasamemberof
theHSHNordbankManagementBoardbySupervisoryBoard
resolutiondated27April2009.MrRoth’semployment
relationshipendedasperagreementon31December2010.
Initsextraordinarymeetingon15December2010,theSupervi-
soryBoardapprovedthemutuallyagreedterminationofthe
appointmentofProf.Dr.DirkJensNonnenmacherasMember
andChairmanoftheManagementBoardeffectiveasof31
March2011.Atthesametime,theSupervisoryBoardapproved
theappointmentofDr.PaulLerbinger(bornin1955)asa
MemberoftheManagementBoardeffectiveasof1March2011
andasChairmanoftheHSHNordbankAGManagement
Boardeffectiveasof1April2011.
HSH NordbaNk 2010246
auditor’S report
Wehaveauditedtheconsolidatedfinancialstatementspre-
paredbyHSHNordbankAG,HamburgandKiel,comprisingthe
statementoffinancialposition,thestatementofcomprehen-
siveincome,thestatementofchangesinequity,thestatement
ofcashflowsandthenotes,togetherwiththegroupmanage-
mentreportforthebusinessyearfromJanuary1sttoDecember
31st,2010.Thepreparationoftheconsolidatedfinancial
statementsandthegroupmanagementreportinaccordance
withIFRSs,asadoptedbytheEU,andtheadditionalrequire-
mentsofGermancommerciallawpursuantto§315aAbs.1
HGB[Handelsgesetzbuch‘GermanCommercialCode’]arethe
responsibilityoftheparentcompany’smanagement.Our
responsibilityistoexpressanopinionontheconsolidatedfinan-
cialstatementsandonthegroupmanagementreportbased
onouraudit.
Weconductedourauditoftheconsolidatedfinancialstatements
inaccordancewith§317HGB[Handelsgesetzbuch‘German
CommercialCode’]andGermangenerallyacceptedstandards
fortheauditoffinancialstatementspromulgatedbythe
InstitutderWirtschaftprüfer[InstituteofPublicAuditorsinGer-
many](IDW).Thosestandardsrequirethatweplanandper-
formtheauditsuchthatmisstatementsmateriallyaffectingthe
presentationofthenetassets,financialpositionandresults
ofoperationsintheconsolidatedfinancialstatementsinaccor-
dancewiththeapplicablefinancialreportingframeworkand
inthegroupmanagementreportaredetectedwithreasonable
assurance.Knowledgeofthebusinessactivitiesandtheeco-
nomicandlegalenvironmentoftheGroupandexpectationsas
topossiblemisstatementsaretakenintoaccountinthedeter-
minationofauditprocedures.Theeffectivenessoftheaccount-
ing-relatedinternalcontrolsystemandtheevidencesupport-
ingthedisclosuresintheconsolidatedfinancialstatementsand
thegroupmanagementreportareexaminedprimarilyona
testbasiswithintheframeworkoftheaudit.Theauditincludes
assessingtheannualfinancialstatementsofthoseentities
includedinconsolidation,thedeterminationofentitiestobe
includedinconsolidation,theaccountingandconsolidation
principlesusedandsignificantestimatesmadebymanagement,
aswellasevaluatingtheoverallpresentationoftheconsoli-
datedfinancialstatementsandgroupmanagementreport.
Webelievethatourauditprovidesareasonablebasisforour
opinion.
Ouraudithasnotledtoanyreservations.
Inouropinion,basedonthefindingsofouraudit,theconsoli-
datedfinancialstatementscomplywithIFRSs,asadoptedby
theEU,theadditionalrequirementsofGermancommerciallaw
pursuantto§315aAbs.1HGBandgiveatrueandfairview
ofthenetassets,financialpositionandresultsofoperationsof
theGroupinaccordancewiththeserequirements.Thegroup
managementreportisconsistentwiththeconsolidatedfinancial
statementsandasawholeprovidesasuitableviewofthe
Group’spositionandsuitablypresentstheopportunitiesand
risksoffuturedevelopment.
Withoutqualifyingthisauditopinion,werefertothediscussion
inthegroupmanagementreportintheparagraph‘EUBeihil-
feverfahrendauertan’[EUstateaidproceedingscontinue]as
wellastoNote1totheconsolidatedfinancialstatements.
ThereinitisdisclosedthatthecontinuedexistenceofHSHNord-
bankAGasagoingconcerndependsonwhethertheEuro-
peanCommissionapprovesthestabilisationmeasuresimple-
mentedbytheFreeandHanseaticCityofHamburgandthe
StateofSchleswig-Holsteinintheforeseeablefutureonaperma-
nentbasis.ItisalsonecessarythattheEUapprovalshould
onlybetiedtorequirementswhichcanbeimplementedwithin
theframeworkofreasonablebusinessplanning,andinpar-
ticular,whichwillnotconflicttheeffectofstabilisationmeasures
thatrelievetheregulatorycapital.
Hamburg,4March2011
KPMGAG
Wirtschaftsprüfungsgesellschaft
Krall Madsen
Wirtschaftsprüfer Wirtschaftsprüfer
The Auditor’s Report was issued in German language and refers to the consolidated financial statements that were issued in German language. Only the German version of the Auditor’s Report is legally binding.
247auditor’S report, reSpoNSibility StatemeNt by tHe maNaGemeNt board| Group FiNaNcial StatemeNtS
reSponSiBility Statement By the manaGement Board
Weherebyaffirmthattothebestofourknowledgetheconsoli-
datedfinancialstatementshavebeenpreparedinaccordance
withtheapplicableaccountingprinciplesandgiveatrueand
fairviewofthenetassets,financialpositionandresultsof
operationsoftheHSHNordbankGroupandthatthegroupman-
agementreportpresentsthecourseofbusiness,includingthe
resultsofthebusinessandtheHSHNordbankGroup’ssituation,
insuchamannerthatitgivesatrueandfairviewandde-
scribesthemainopportunitiesandrisksfortheHSHNordbank
Group’sforeseeableperformance.
Hamburg/Kiel,25February2011
Prof.Dr.DirkJens Dr.MartinvanGemmeren
Nonnenmacher
Constantin TorstenTemp
vonOesterreich
BernhardVisker
HSH NordbaNk 2010248
SuperviSory Board report
TheSupervisoryBoardcloselymonitoredtheBankonitspathof
realigningitsbusinesspolicyandreorganisingitsstructures
andprocessesinthefinancialyear2010.Theprogressmadeis
alreadyreflectedintheBank’squarterlyresultsandannual
financialstatements.Inthisconnectiontheupturninunderly-
ingglobaleconomicconditionscertainlybenefitedtheBank
inspiteoftherepeatedsetbacksduetoexchangerateswingsand
relateduncertainties,causedbyturbulenceintheeurozone.
ItisstillunclearwhethertheEUCommissionwillfinallyap-
provethesupportingmeasuresofthefederalstates.The
resultantcontinuinguncertaintyregardingtheconditionstied
toapprovalconstitutesanobstacletotheBank’sfuturedevel-
opment.Togetherwiththeshareholders,businesspartners,in-
vestorsand,lastbutnotleast,theemployeesoftheBankare
waitingforfinalclarification.
InadditiontotheBank’sbusinessdevelopment,theSupervi-
soryBoardalsohelddetaileddiscussionsonthedebatesurround-
ingaccusationsagainstemployeesoftheBankandagainstthe
ChairmanoftheManagementBoardinparticularthathascon-
tinuedamongpoliticians,inthemediaandthusinthepublic
sincetheendof2009.Onthistopicin2010too,theSupervisory
Boardcommissionedvariousinvestigationsbydistinguished
lawfirmsandfirmsofauditors.Allinall,theseexpertisesand
reportsprovidednoindicationsofbreachesofdutybymem-
bersoftheManagementBoard,withtheresultthattheSuper-
visoryBoardhadnooccasiontoinitiateanymeasures.Should
anynewinformationresultfromtheinvestigationspendingby
thepublicprosecutor'soffice,theSupervisoryBoardwilltake
upthesetopicsagain.Nevertheless,theBank’stwolargestshare-
holdersaskedtheSupervisoryBoardtoarrangeforthedepar-
tureofProf.Dr.Nonnenmacher.Againstthebackdropofthe
continuingpublicdebate,whichwasfrequentlyfarremoved
fromthefactsofthecaseandharmedtheBank’sreputation,the
SupervisoryBoardhaddecidedtoinitiateachangeinthe
chairmanshipoftheManagementBoard,tobeimplementedat
thebeginningofthesecondquarterof2011.
In2010,overandabovetheaforementionedpoints,theSuper-
visoryBoardfulfilledthetasksincumbentonitbylaw,the
ArticlesofAssociation,RulesofProcedureandCorporateGover-
nanceCode.Indoingsoitdealtwiththeeconomicandfinan-
cialperformanceaswellasrisk,liquidityandcapitalmanage-
ment.Planningandstrategicrealignmentwerediscussedin
detail,takingaccountofthependingEUdecisionandanypossi-
bleresultantimpactonthebusinessmodel.TheManagement
BoardinformedtheSupervisoryBoardregularly,promptlyand
comprehensivelyaboutbusinesspolicyandotherfunda-
mentalquestionsofcorporatedevelopmentandplanning.The
SupervisoryBoardwasinvolvedintransactionsandevents
ofconsiderablesignificance.TheSupervisoryBoardadvisedthe
ManagementBoardandmonitoreditsmanagementactivities.
Importantissuesandupcomingdecisionswerediscussedinregu-
larconversationsbetweentheChairmanoftheSupervisory
BoardandtheChairmanoftheManagementBoard.
meetings of the Supervisory Board
In2010theSupervisoryBoardmetforninemeetings,threeof
whichwereconvenedforextraordinaryreasons.Inaddition,
oneresolutionwaspassedbymeansofwrittencirculation.At
themeetingstheManagementBoardkepttheSupervisory
BoardcontinuouslyinformedoftheBank’scurrentbusinesssitu-
ationandanyfurtherdevelopmentsworthreporting,and
discussedthemwiththeSupervisoryBoard.Themainpointsre-
latedtoprogressmadewithrealignmentandthestatusinthe
EUstateaidproceedings,aswellasthecapitalandliquiditysit-
uationandthemeasurestakenbytheManagementBoardin
thisregard.
Thetwoextraordinarymeetingsatthebeginningoftheyear
weredevotedtothediscussionofdecisionsofparticularsig-
nificanceconcerningbusinesspolicywiththeSupervisoryBoard
andrequestingitsapproval.Themeetingon6January2010
dealtwiththedissolutionoftheOmega52and55liquidityfacil-
249SuperviSory board report
itiesandthaton19January2010withthedecisionnotto
makeanapplicationtousetheso-calledSPVmodelaccording
toSection6aoftheGermanActontheFinancialMarket
Stabilisationfund(FMStFG).TheSupervisoryBoardacceptedthe
proposaloftheManagementBoardinbothcases.
Attheordinarymeetingon18February2010theSupervisory
BoardReportandtheCorporateGovernanceReport,together
withtheDeclarationofConformityinconnectionwiththe2009
annualfinancialstatements,wereapproved.Furthermore,
theSupervisoryBoardobtainedinformationaboutthestatusof
theD&Oinsuranceand–inlinewiththestipulationsofthe
GermanCorporateGovernanceCodeandtheprovisionsofthe
GermanManagementBoardRemunerationAct(Vorstands-
Vergütungsgesetz)–decidedtoincludeadeductibleintheD&O
insurancefortheSupervisoryBoard,too.Inadditionto
this,arecommendationwasmadetoshareholderstoapprove
amendedconditionsofvariousprofitparticipationcertificates.
Followingupontheexpertopiniononpossiblebreachesofduty
bymembersoftheManagementBoard,onthebasisofalegal
opinionbyFreshfieldsBruckhausDeringerLLP,theSupervisory
Boarddecidedtolodgeclaimsfordamagesagainstformer
membersoftheManagementBoard.Afurthertopicofthemeet-
ingwastherequestbytheParliamentaryCommissionsof
EnquirytoreleasetheminutesofSupervisoryBoardmeetings,to
whichtheSupervisoryBoardagreed.Thealteredrequirements
forcompensationsystemsimposedbothbythefinancialsuper-
visoryauthorityandthefederalstates,whichsupportedthe
Bankintheformofcapitalandaguaranteefollowingthefinan-
cialcrisis,calledforaresolutiononcorrespondingremuner-
ationrules,alsoforemployeesbelowManagementBoardlevel.
Inaddition,theSupervisoryBoardwasinformedregarding
pendingauditsfromtheFinancialReportingEnforcementPanel.
ThemainitemontheagendaofthemeetingoftheSupervisory
Boardon14April2010wastheadoptionoftheannualfinan-
cialstatementsfor2009andtheotherusualresolutionsonthe
recommendationstoshareholdersattheannualgeneralmeet-
ingtobepassedinthisconnection.Apartfromthis,theSuper-
visoryBoarddiscussedthereportonthefinancial,invest-
mentandpersonnelplanningfortheperiod2010to2012and
theBank’sannualreportonequityholdings.Inadditionto
this,theManagementBoardsubmittedtotheSupervisoryBoard
overviewsoftheoutsideactivitiesoftheManagementBoard
membersandofthedonationsmadebytheBank.Anewmem-
beroftheManagementBoard,MrTorstenTemp,wasap-
pointed.ThetargetagreementformembersoftheManagement
Boardforthefinancialyear2010wasapproved.
Atitsmeetingon17June2010theSupervisoryBoardapproved
furthernecessaryadjustmentstotheLendingGuidelinesand
dealtwiththespecificdetailsoftheguaranteeagreementwith
thefederalstates,whichwereapprovedintheformofawrit-
tenresolutionaftercompletionofnegotiations.Furthermore,the
ManagementBoardinformedtheSupervisoryBoardabouta
newlylaunchedinternal‘GroupSecurityManagement’project.
TheSupervisoryBoardmeetingon26August2010wasdomi-
natedbytheaccusationscirculatinginthemediaagainstmem-
bersofstaffandinparticularagainsttheChairmanofthe
ManagementBoardinconnectionwiththedismissalofaformer
memberoftheManagementBoard.Furthermore,theSuper-
visoryBoarddiscussedtheintendedsalesofsubsidiariesand
equityholdings,whicharerelatedtoconditionsimposedby
theEUCommission–andapprovedtheseasfarasthiswasre-
quiredbytheArticlesofAssociation.
Atthemeetingon21October2010discussionofthetopicsfrom
theAugustmeeting,whichwerealsosubjecttopublicdebate,
wascontinued.Theprincipalfindingsoftheexpertopinionsby
thelawfirmWilmerHaleandKPMGAGWirtschaftsprü-
fungsgesellschaftcommissionedinthisconnectionwerean-
nouncedinpressreleases.TheSupervisoryBoardapproved
theBank’sdecisiontopresscriminalchargesagainstpersons
unknownonaccountofsuspectedcriminaloffencesinac-
cordancewithSection404oftheGermanStockCorporationAct
duetotherepeatedpublicationinthepressofconfidential
BankandSupervisoryBoarddocuments.Furthermore,theSuper-
visoryBoardsubmittedarecommendationthatshareholders
passaresolutionatanextraordinarygeneralmeetingtoamend
partialprofitandlosstransferagreementsasrequiredin
connectionwithacapitalincreasefromauthorisedcapital.The
SupervisoryBoardapprovedtheManagementBoard'spro-
posalthatnoapplicationbesubmittedtomakeuseoftheso-
calledAiDAsolutioninaccordancewithSection8aofFMStFG.
Atitsordinarymeetingon2December2010theSupervisory
BoarddealtwithvariousManagementBoardmatters.Apart
fromtheManagementBoardcompensationsystem,adjustments
totheremunerationrulesbelowtheManagementBoardlevel,
HSH NordbaNk 2010250
approvedattheFebruarymeeting,hadalsobecomenecessary
duetonewregulatoryrequirements.Furthermore,theSuper-
visoryBoardalsogaveitsapprovaltoexercisetheauthorisedcap-
italpursuanttopursuanttoSection3aoftheBank’sArticles
ofAssociationandapprovedacorrespondingamendmenttothe
versionoftheArticlesofAssociationafterimplementation
ofthecapitalincrease.Moreover,amendmentstotheGerman
CorporateGovernanceCodeandchangesinthelawnecessi-
tatedadjustmentstotheRulesofProcedurefortheSupervisory
BoardandManagementBoard,whichwereapprovedbythe
SupervisoryBoard.Finally,theSupervisoryBoardreceivedare-
portonthefindingsofaninvestigationcommissionedbythe
ManagementBoardfromKPMGAGWirtschaftsprüfungsgesell-
schaftinconnectionwithaprojectwithintheBank.Thedis-
cussionwascontinuedatthefollowingextraordinarymeeting
on15December2010.Furthermore,atthismeetingthe
departureofProf.Dr.DirkJensNonnenmacherasamemberand
ChairmanoftheManagementBoardonanamicablebasis
wasapproved.AtthesametimeDr.PaulFriedrichLerbingerwas
appointednewmemberoftheManagementBoardandits
newChairman.
AllmembersoftheSupervisoryBoardattendedatleasthalfof
allmeetingsoftheSupervisoryBoard.
WhereindividualmembersoftheSupervisoryBoardwereaffec-
tedbydecisionsmadebytheSupervisoryBoard,eitherin
personoronaccountoftheirfunction,theydidnotparticipate
inthedeliberationsanddecisionsintheexecutivebodycon-
cerned.
committees of the Supervisory Board
TheSupervisoryBoardformedfivecommitteesfromamongits
membersforsupportinitswork.
TheGeneralCommitteemetseventimeslastyear.Inaccor-
dancewiththeRulesofProcedure,theGeneralCommitteepre-
paredtheSupervisoryBoardresolutionsfortheSupervisory
BoardaswellasdealingwithManagementBoardmatters,inpar-
ticularemploymentcontractsofmembersoftheManagement
Boardandtheinvestigationsinconnectionwiththeaccusations
againstmembersoftheBank’sManagementBoard.
TheRiskCommitteemetsixtimesinthepastfiscalyear.This
Committeedealtprincipallywiththequarterlyriskreport,
whichprovidescomprehensiveinsightintotheBank’srisksitu-
ation.Inaddition,atallmeetingsitobtainedreportsoncurrent
eventsanddevelopmentsandtheirpossibleimpactonthe
risksituation,inparticularonthecreditandliquidityrisk.Fur-
thermore,theRiskCommitteedealtwiththeriskstrategy
presentedbytheManagementBoard,inlinewiththeMinimum
RequirementsforRiskManagement(MARisk),anddiscussed
necessaryadjustmentstotheLendingGuidelines.Furthermore,
atitsmeetingsitwasinformedaboutallexposuressubjectto
mandatoryreportingandgaveitsapprovaltobusinesstransac-
tionsrequiringapprovalbylaw.
TheAuditCommitteemetfourtimesin2010.Atitsfirstmeeting
itdealtprincipallywiththeauditofthe2009annualfinancial
statementsanddiscussedtheauditor’sreportswiththeauditor.
Apartfromthis,theAuditCommitteepreparedtheappoint-
mentoftheauditorforthe2010annualfinancialstatements,
examininginparticularitsdeclarationofindependence
pursuanttoSection7.2.1oftheGermanCorporateGovernance
Code.Furthertopicswerethediscussionoftheannual‘Com-
pliance’reportandthereportoftheInternalAuditdepartment.
Thefurtherdevelopmentofinternalauditprocedureswas
alsothesubjectofconsultationsatthefollowingmeetings.The
Committeereceivedregularreportsonthestatusofimple-
mentationofthemeasurestoaddressthecomplaintsmadeby
theauditor.AtthefurthermeetingsoftheAuditCommittee,
theauditoralsopresenteditsfindingsofthereviewofthein-
terimreportsanddiscussedthemwiththeCommittee.The
AuditCommitteealsomonitoredtheimplementationandfur-
therdevelopmentoftheInternalControlSystemandobtained
reportsonthistopic.Furthermore,theCommitteereceivedthe
resultsofthesecuritiesaccountauditandtheauditofthe
investmentservicespursuanttotheGermanSecuritiesTrading
Act(WpHG)forinformationpurposes.Acircularresolution
waspassedapprovingtheestablishmentofanIndependence
Complianceprocesstoensuretheindependenceofthe
auditor.Finally,theAuditCommitteewasinformedofthestatus
ofthependingauditsbytheFinancialReportingEnforcement
Panelateachsession.
MeetingsoftheNominatingCommitteeandtheMediationCom-
mitteetobeformedpursuanttoSection27(3)oftheGerman
Co-determinationAct(Mitbestimmungsgesetz)werenotneces-
saryin2010.
251
ThechairmenofthecommitteesregularlyreportedtotheSuper-
visoryBoardduringthesubsequentplenarysessionsabout
theworkandresultsofthecommittees’deliberations.
audit and adoption of the annual financial statements
and consolidated financial statements for 2010
Theauditorofthefinancialstatementsandconsolidatedfinan-
cialstatementselectedbyshareholdersattheannualgeneral
meeting,KPMGAGWirtschaftsprüfungsgesellschaft,hasaudited
theannualandconsolidatedfinancialstatementsofHSH
NordbankAGandmanagementreportsofHSHNordbankAG
andoftheGroupandissuedanunqualifiedauditor’sopinion
withtheadditionalnotethat,althoughitdidnotprejudicethe
assessment,thesurvivalofHSHNordbankAGdependedon
whethertheEuropeanCommissionapprovesthestabilisation
measuresconcededbythetwofederalstatesintheforesee-
ablefutureonapermanentbasisandthisapprovalnotbeing
linkedtosuchconditionsaswouldjeopardisethefeasibility
ofcorporateplanningandtheeffectivenessofthestabilisation
measures.
TheAuditCommitteediscussedthefinancialstatementsand
auditreportson30March2011.Theauditorreportedonthe
principalfindingsofhisauditanddiscussedquestionswiththe
AuditCommitteeindetail.TheChairmanoftheAudit
CommitteereportedthefindingsoftheaudittotheSupervisory
Board,whichtheauditoralsoattended,atitsmeetingon
31March2011.Followingitsownexaminationofthereportsof
theauditorandin-depthdiscussionandontherecommen-
dationoftheAuditCommittee,theSupervisoryBoardagreed
withthefindingsoftheauditsandestablishedthatfollowing
thefinalresultofitsowninspectionstherewerenoobjections
toberaised.TheSupervisoryBoardadoptedthe2010annual
financialstatementsdrawnupbytheManagementBoardand
approvedthe2010consolidatedfinancialstatements.
changes in personnel
TherewerenochangesinpersonnelontheSupervisoryBoard
inthefinancialyear2010.
ThefollowingchangesweremadeontheManagementBoard:
Witheffectfrom1May2010,MrTorstenTempwasappointed
Boardmember.Furthermore,theSupervisoryBoardappointed
Dr.PaulFriedrichLerbingertotheBank’sManagementBoard
witheffectfrom1March2011andappointedhimChairman
oftheManagementBoardwitheffectfrom1April2011.Prof.
Dr.DirkJensNonnenmacherlefttheManagementBoardatthe
endof31March2011.
TheSupervisoryBoardwishestothanktheManagementBoard
andallemployeesfortheirsuccessfulworkinconnectionwith
theBank’srealignment.
Hamburg/Kiel,31March2011
TheSupervisoryBoard
HilmarKopper
ChairmanoftheSupervisoryBoardofHSHNordbankAG
SuperviSory board report
HSH NordbaNk 2010252
corporate Governance
all statements in this corporate Governance report reflect the situation that prevailed on 17 February 2011.
Asanunlistedcompany,HSHNordbankhasbeenrecognising
theGermanCorporateGovernanceCode(GCGC)voluntarily
since2005.TheManagementBoardandtheSupervisoryBoard
ofHSHNordbankexpresslysupporttherecommendations
andobjectivesoftheGCGC.InadditiontotheGCGC,corporate
governanceatourBankisprincipallybasedontheprovisions
oftheGermanStockCorporationActaswellasinternalrules
suchastheArticlesofAssociation,theRulesofProcedure
applicabletotheManagementBoardandtheSupervisoryBoard
aswellastheCodeofConduct.Bypresentingoursystemof
corporategovernanceandtransparentreportingonconformity
totherecommendationsoftheCode,weaimtostrengthen
theconfidenceofinvestors,clientsandemployeesaswellasthe
generalpublic.
declaration in accordance with Section 161 of the
German Stock corporation act
InaccordancewithSection161oftheGermanStockCorpora-
tionAct,theManagementBoardandSupervisoryBoardof
listedcompaniesmustpublishanannualdeclarationofhow
theirmanagementandsupervisionsystemsconformtothe
recommendationsoftheGermanCorporateGovernanceCode
ordeviatefromthem.OuraimistoconformtotheGCGC
asfullyaspossibleevenasanon-listedcompany.InFebruary
2011,theManagementBoardandtheSupervisoryBoardof
HSHNordbankthereforevoluntarilyissuedaDeclarationofCon-
formityinwhichthedeviationsfromtheGCGCrecommen-
dationsweredisclosed.
declaration of conformity
TheManagementBoardandtheSupervisoryBoardofHSH
NordbankdeclarethatsincepublishingitslastDeclarationof
ConformityinFebruary2010,HSHNordbankhasconformed
totherecommendationsoftheGermanCorporateGovernance
Codeintheversionsdated18June2009or26May2010
respectivelyineveryrespectsavefortheexceptionsstatedbelow.
UntilthedateonwhichthenextDeclarationofConformity
ispublished,HSHNordbankwillbeconformingtoalltherecom-
mendationsoftheCodeintheversiondated26May2010
savefortheexceptionsstatedbelow.
− AccordingtothefinalparagraphofSection4.2.3theChair-
manoftheSupervisoryBoardshalloutlinethesalientpoints
ofthecompensationsystemandanychangestheretotothe
GeneralMeeting.
In2010,theSupervisoryBoardpassedaresolutiontomodify
theManagementBoardcompensationsystemadoptedin
2009.Itwasnotnecessarytonotifyshareholdersattheannual
generalmeetingastheirrepresentativeshadbeeninformed
ofthesechangesviaotherchannels.
− Section5.4.6(3)recommendsthatthecompensationofthe
membersoftheSupervisoryBoardshallbereportedindivid-
uallyintheCorporateGovernanceReport,subdivided
accordingtocomponents.
ThecompensationforindividualmembersoftheSupervi-
soryBoardisnotdisclosedbyHSHNordbank.Thesharehold-
ersreceivesufficientinformationonthecompensationfor
themembersoftheSupervisoryBoardbyvirtueofthefact
thatthiscompensationisdeterminedbytheshareholders
themselvesattheannualgeneralmeeting.Inanycase,HSH
Nordbankconsidersdisclosureofthetotalcompensation
paidtotheSupervisoryBoardtobesufficientforassessingits
appropriateness.
− AccordingtoSentence4ofSection7.1.2,theconsolidated
financialstatementsshallbepubliclyaccessiblewithin
90daysoftheendofthefinancialyearandinterimreports
253corporate GoverNaNce
shallbepubliclyaccessiblewithin45daysoftheendofthe
reportingperiod.
Asanunlistedcompany,HSHNordbankdoesnotyetpublish
itsfinancialreportswithintheperiodsrecommendedby
theCode.However,theBankiscontinuingtotakestepsto
ensurecompliancewiththereportingperiodsandisaim-
ingtopublishitsconsolidatedfinancialstatementsfor2010
withinthestipulatedreportingperiodforthefirsttime.
AnumberofformerGCGCrecommendationshavesincebeen
incorporatedintoGermanlawbutapplyonlytolistedcompa-
niesandthereforenottoHSHNordbank.Accordingly,theseare
nolongerrecommendations,deviationfromwhichmustbe
disclosedintheDeclarationofConformity.Atthesametime,the
Bankasanunlistedcompanyisnotrequiredtosatisfythese
requirements.However,intheinterestsoftransparentcorporate
governancereportingandgiventhatitcanbeassumedthat
therequirementsinquestionhavegainedadditionalsignificance
sincebecomingGermanlaw,theBankdisclosesbelowany
deviationsfromsuchformerrecommendationsandcurrentstat-
utoryprovisions.
− InaccordancewithSentence3ofSection2.3.1theconvening
oftheannualgeneralmeetingaswellasthereportsand
documents,includingtheAnnualReportandthepostalvote
formsrequiredbylawfortheGeneralMeetingaretobe
publishedonthecompany’swebsitetogetherwiththeagenda.
WiththeexceptionofitsAnnualReport,HSHNordbankdoes
notpublishthesedocumentsonitswebsitepriortothe
annualgeneralmeetingduetothesmallnumberofitsshare-
holders.Inadditiontopublicationintheelectronic‘Bundes-
anzeiger’ofthenoticeconveningtheannualgeneralmeet-
ing,allshareholdersaresentthedocumentsingoodtime
bymail,meaningthattheirrighttoreceiveinformationin
accordancewiththisrecommendationissufficientlyobserved.
− InaccordancewithSection4.2.4thetotalcompensationof
eachoneofthemembersoftheManagementBoardisto
bedisclosedbyname,dividedintofixedandvariablecompen-
sationcomponents.
ThecompensationofindividualmembersoftheManagement
BoardisnotdisclosedbyHSHNordbank.Inaddition,the
disclosuredutiesfor‘significantinstitutions’prescribedbythe
GermanOrdinanceontheRemunerationofFinancial
Institutions(Institutsvergütungs-Verordnung)areobserved.
Accordingly,HSHNordbankconsidersdisclosureofthe
totalcompensationpaidtobesufficientforassessingitsappro-
priateness.
AllDeclarationsofConformitypreviouslypublishedbyHSH
Nordbankareavailableinthe‘InvestorRelations’sectionof
HSHNordbank‘swebsite.
Supervisory Board
HSHNordbank’sSupervisoryBoardconsistsof20members,of
whom–inaccordancewiththeprovisionsoftheGerman
Co-DeterminationAct(Mitbestimmungsgesetz)–halfarerepre-
sentativesofthecapitalsideandhalfareemployeerepre-
sentatives.FollowingtheelectionofthenewSupervisoryBoard
in2009,theBank’scapitalsideisnolongerrepresented
mainlybyshareholderrepresentativesbutbyindependentand
renownedrepresentativesofthebusinesscommunitywho
arelargelyindependentofboththeshareholdersandtheBank.
ThemembersoftheSupervisoryBoardarelistedonpage243
ofthisAnnualReport.
Section5.4.1oftheGCGCstipulatesthattheSupervisoryBoard
shallspecifyconcreteobjectivesregardingitscomposition
which,whilstconsideringthespecificsoftheenterprise,take
intoaccounttheinternationalactivitiesoftheenterprise,
potentialconflictsofinterest,anagelimittobespecifiedforthe
membersoftheSupervisoryBoardanddiversity.Thelatter
objectiveshall,inparticular,provideforanappropriatedegree
offemalerepresentation.
Atitsmeetingon17February2011,theSupervisoryBoard
deliberatedonthesemattersandadoptedthefollowingspecific
objectives:
1.HSHNordbankwillseektocontinuetohaveatleastthe
samenumberofinternationalmembersonitsSupervisory
Boardasitcurrentlyhas(minimumonemember).
2.WhennominatingnewmemberstotheSupervisoryBoard
HSHNordbankwillseektoavoidpotentialconflictsofinter-
est,whilealsotakingtheRulesofProcedurefortheSuper-
visoryBoardintodueconsideration,infutureaswell.
HSH NordbaNk 2010254
3.HSHNordbankwillseektoadheretotheagelimitof68years
atthedateofappointmentstipulatedintheRulesofProce-
durefortheSupervisoryBoardinfuture.
4.HSHNordbankwillseektomaintaintheproportionofrepre-
sentationbywomenatleastatthecurrentlevelof20%in
futureaswell.TheSupervisoryBoardconsidersrepresenta-
tionbywomenofinitially30%tobeanappropriateobjective.
TheSupervisoryBoardwillreporthereregularly(annually)
ontheprogressbeingmadeinimplementingtheseobjectives.
TheSupervisoryBoardappoints,monitorsandadvisestheMan-
agementBoardandisinvolvedinfundamentaldecisions
madebytheBank.TheManagementBoardinformstheSupervi-
soryBoardregularlyandingoodtimeoftheproposedbusi-
nesspolicyandotherfundamentalmattersduringthemeetings
andalsoorally,particularlyinconversationsbetweenthe
ChairmanoftheManagementBoardandtheChairmanofthe
SupervisoryBoard.
Themaincontentofthemeetingsheldintheperiodunderre-
viewcanbeseenfromthereportoftheSupervisoryBoard,
whichalsocontainsfurtherinformationontheSupervisory
Board'scommittees.Allrelevantdocumentsareprovidedin
EnglishfortheEnglish-speakingmembersoftheSupervisory
Board.Inaddition,interpretersareavailableforsimulta-
neoustranslationatthemeetings.
ThemembersoftheSupervisoryBoarddisclosedconflictsof
interestastheysawthemanddidnottakepartinanydelibera-
tionsorvoteonanyresolutionsinwhichaconflictofinterest
wasinvolved.
Inaccordancewiththeapplicableschedule,theSupervisory
Boarddidnotconductanefficiencyreviewintheperiodunder
review.TheGCGCimposedontheSupervisoryBoardthe
dutytoreviewtheefficiencyofitsworkatregularintervals.
Article12oftheRulesofProcedureoftheSupervisory
Boardprovidesforthistobedonebi-annually.Thelastformal
efficiencyreviewwascompletedinspring2009.Accordingly,
theSupervisoryBoardplanstoperformitsnextefficiencyreview
in2011.
management Board
TheManagementBoardisresponsibleforthemanagement
oftheBankandworkswithHSHNordbank’sothercorporate
bodiesandwiththeemployees’representativesonabasis
ofmutualtrustintheBank’sbestinterests.ItdefinestheBank’s
strategicalignmentinconsultationwiththeSupervisory
Board.TheChairmanoftheManagementBoardrepresentsthe
ManagementBoardasacollegialbody,presidesoveritsmeet-
ingsandcoordinatesitswork.TheManagementBoardmetonce
ortwiceaweekduringtheperiodunderreview.Themem-
bersoftheManagementBoardarejointlyresponsibleforrun-
ningtheBank’sbusiness.Theirdutiesandresponsibilitiesare
laiddownintheRulesofProcedurefortheManagementBoard,
assupplementedbythebusinessallocationplan.Detailsof
thecompensationsystemfortheBank’sManagementBoardcan
befoundintheconsolidatedfinancialstatements.
Shareholders, annual general meeting
HSHNordbank’sshareholdersexercisetheirrightsattheannual
generalmeeting.TheManagementBoardconvenesthean-
nualgeneralmeetingonceayear,statingtheagendaandinclud-
ingtherequisitereportsanddocuments.
Aswellastheannualgeneralmeetingheldin2010,afurther
twoextraordinarymeetingsofshareholderswereconvenedin
theperiodunderreview:anextraordinarymeetingofshare-
holderswasconvenedinApril2010todeliberateontherenewal
oftheprofitparticipationcertificates.Anextraordinarymeet-
ingofshareholderswasconvenedinNovember2010topassa
resolutionamendingthepartialprofitandlosstransferagree-
mentsinthecontextofcapitalisationmeasures.
Hamburg/Kiel,February2011
Forthe Forthe
ManagementBoard: SupervisoryBoard:
Prof.Dr.DirkJensNonnenmacher HilmarKopper
255corporate GoverNaNce, HSH NordbaNk adviSory board
hSh nordBank adviSory Board
chairman
Dr.FritzSüverkrüp
VicePresident,KielChamberofIndustryandCommerce
deputy chairman
ThomasH.Eckelmann
ChairmanoftheGroupManagementBoardEUROKAIKGaA,
Hamburg
representatives of hamburg’s economy
MichaelBehrendt
ChairmanoftheExecutiveBoardHapagLloydAG,Hamburg
Hans-GeorgFrey
ChairmanoftheBoardofManagementJungheinrichAG,
Hamburg
(until31December2010)
FrankHorch
FormerPresidentoftheHamburgChamberofCommerce,
Hamburg
Dr.ThomasKabisch
CEOMEAGMUNICHERGOAssetManagementGmbH,Munich
(until31December2010)
Dr.BerndKortüm
ManagingDirectorNorddeutscheVermögenHoldingGmbH&
Co.KG,Hamburg
Dr.Claus-GeorgNette
MemberoftheExecutiveBoardMarquard&BahlsAG,
Hamburg
Dr.HaraldVogelsang
ChairmanoftheBoardHamburgerSparkasseAG,Hamburg
representatives of Schleswig-holstein’s economy
GötzBormann
ChairmanoftheBoardFördeSparkasse,Kiel
GerhardLütje
ManagingShareholder
CITTIHandelsgesellschaftmbH&Co.KG,Kiel
WolfgangPötschke
ChairmanoftheBoardSparkassezuLübeckAG,Lübeck
representatives of the hamburg parliament
BarbaraAhrons
Spokespersonforeconomicaffairs,medium-sizedbusinesses
andtradeoftheCDUparliamentarygroupintheHamburg
Parliament,Hamburg
JensKerstan
ChairmanandSpokespersonforeconomicaffairsandpublic
budgetoftheGALparliamentarygroupHamburginthe
Parliament,Hamburg
HSHNordbankAGcreatedanAdvisoryBoardforpurposes
ofprovidingknowledgeableadvicetotheManagementBoardin
transactingitsbusinessaswellaspromotingcontactsbetween
theeconomy,publicadministrationandthesavingsbanks.The
membersoftheAdvisoryBoardwereappointedbytheSuper-
visoryBoardontherecommendationoftheManagementBoard.
HSH NordbaNk 2010256
RüdigerKruse,
MemberoftheBudgetReviewCommitteeandBudgetCom-
mitteeoftheGermanBundestag,Berlin
FormerMemberoftheCDUparliamentarygroupinthe
HamburgParliament,Hamburg
representatives of the Schleswig-holstein parliament
MonikaHeinold,MdL
ParliamentarysecretaryoftheBÜNDNIS90/DIEGRÜNEN
parliamentarygroupintheSchleswig-HolsteinParliament,Kiel
(until30June2010)
MartinKayenburg
FormerPresidentoftheSchleswig-HolsteinParliament,Kiel
GünterNeugebauer
FormerChairmanoftheFinanceCommitteeofSchleswig-
HolsteinParliament,Kiel
(until20April2010)
representative of Schleswig-holstein municipalities
Hans-JoachimGrote
LordMayor
CityofNorderstedt,Norderstedt
chairman of the association meeting of the Savings
Banks association for Schleswig-holstein
ReinhardSager
HeadoftheOstholsteinDistrictauthority(Landrat),Eutin
257HSH NordbaNk adviSory board, multi-year overview
multi-year overview
HSH Nordbank Group 2006 – 2010 2010 2009 2008 2007 2006
Income statement (¤ m)
Net income before restructuring 545 −718 −2,796 – –
Net income before taxes 17 −1,325 −2,968 129 1,195
Group net income / net loss for the year 48 −743 −2,844 270 832
Balance sheet (¤ m)
Equity 5,094 4,442 2,005 4,368 4,476
Total assets 150,930 174,484 208,370 204,827 194,341
Business volume 163,726 192,927 237,796 241,897 223,964
Capital ratios 1) (%)
Tier 1 capital ratio 15.4 9.5 7.5 6.2 6.1
Regulatory capital ratio 22.4 14.5 11.6 10.4 10.2
Employees
Total 3,852 4,188 5,070 4,756 4,431
Germany 3,251 3,490 4,087 3,830 3,613
Abroad 601 698 983 926 818
1) Including market risk positions, before adoption of the financial statements; since end of 2008 the Tier 1 capital ratio has been shown according to Basel II / German Solvency Regulation (SolvV).
Übersetzung nicht klar
HSH NordbaNk 2010258
Income statement (¤ m)
Following adjustment
q4 / 2010 q3 / 2010 q2 / 2010 q1 / 2010 q4 / 2009 q3 / 2009 q2 / 2009 q1 / 2009
Interest income 3.002 3.531 3.851 3.973 4.017 4.602 5.282 6.763
Interest expenses −2.641 −3.104 −3.418 −3.529 −3.556 −4.187 −4.837 −6.255
Net income on hybrid financial instruments −48 −40 −38 −37 375 −30 −28 −25
Net interest income 313 387 395 407 836 385 417 483
Loan loss provisions 123 55 22 −329 −953 −646 −771 −424
Net interest income after loan loss provisions 436 442 417 78 −117 −261 −354 59
Net commission income 48 76 52 42 57 48 55 51
Result from hedging −1 6 −1 4 40 16 46 44
Net trading income 252 −233 −246 −132 89 33 236 210
Net income from financial investments 37 79 87 27 −11 154 −44 −269
Net income from financial investments accounted for under the equity method 4 – – – – – – –
Administrative expenses −250 −215 −205 −197 −181 −213 −222 −214
Other operating income −82 56 −44 8 −20 26 16 8
Net income before restructuring 444 211 60 −170 −143 −197 −267 −111
Result from restructuring – 5 −15 1 −45 −7 −44 −28
Expenses for government guarantees −126 −90 −152 −151 −197 −136 −130 −20
Net income before taxes 318 126 −107 −320 −385 −340 −441 −159
Income taxes −24 8 3 44 356 86 53 −72
Net income after taxes 294 134 −104 −276 −29 −254 −388 −231
Income from the assumption of losses – – – – 159 – – –
Group net income / loss 294 134 −104 −276 130 −254 −388 −231
Group net income attributable to non-controlling interests 1 30 17 3 4 9 −1 −21
Group net income attributable to HSH Nordbank shareholders 293 104 −121 −279 126 −263 −387 −210
quarterly overview
259
Reconciliation with total comprehensive income / loss(¤ m)
Following adjustment
q4 / 2010 q3 / 2010 q2 / 2010 q1 / 2010 q4 / 2009 q3 / 2009 q2 / 2009 q1 / 2009
Group net income / loss 294 134 −104 −276 130 −254 −388 −231
Changes in:
Revaluation reserve (before tax) −15 61 −8 101 13 262 205 -151
of which: Exchange rate effects 1 −21 18 12 −5 25 -25 -4
Income taxes not recognised in the income statement 32 −21 −11 −25 −9 −62 -42 5
of which: Exchange rate effects – −1 2 1 3 −4 – 3
17 40 −19 76 4 200 163 -146
Currency conversion reserve 11 −6 6 19 −3 −2 -39 39
Income taxes not recognised in the income statement – – – – – – – –
11 −6 6 19 −3 −2 −39 39
Actuarial gains / losses (before tax) 88 24 −25 −63 −24 −21 – –
Income taxes not recognised in the income statement −27 −8 8 20 7 7 – –
61 16 −17 −43 −17 −14 – –
Other comprehensive income for the period 89 50 −30 52 −16 184 124 −107
Total comprehensive income 383 184 −134 −224 114 −70 −264 −338
Total comprehensive income attributable to non-controlling interests 1 29 18 −1 2 11 −1 −21
Total comprehensive income attributable to HSH Nordbank shareholders 382 155 −152 −223 112 −81 −263 −317
quarterly review
HSH NordbaNk 2010260
contact
HSHNordbankAG
Gerhart-Hauptmann-Platz50
20095Hamburg,Germany
Phone+4940-3333-0
Fax+4940-3333-34001
Martensdamm6
24103Kiel,Germany
Phone+49431-900-01
Fax+49431-900-34002
investor relations
Phone+4940-3333-14601
Fax+4940-3333-614601
investor-relations@hsh-nordbank.com
press relations
Phone+4940-3333-10907
Fax+4940-3333-34224
presse@hsh-nordbank.com
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Note:
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relatingtogroupsofpeople,thisisnotmeantinagender-
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ThisAnnualReportisavailablefordownloadat
www.hsh-nordbank.com.
ThisisanEnglishtranslationoftheoriginalGermanversionof
theAnnualReport.
TheAnnualReportwasprintedonenvironmentally-friendly,
PEFC-certifiedpaper.
Forward-looking statements
ThisAnnualReportincludescertainforward-lookingstatements.
Thesestatementsarebasedonourbeliefsandassumptionsas
wellasonconclusionsdrawnfrominformationcurrentlyavail-
abletousfromsourceswhichweconsidertobereliable.A
forward-lookingstatementinvolvesinformationthatdoesnot
simplyreflecthistoricalfacts,includinginformationrelating
topossibleoranticipatedfuturegrowthandfutureeconomic
development.
Suchforward-lookingstatementsarebasedonanumberofas-
sumptionsconcerningfutureeventsandaresubjecttouncer-
tainties,risks,andotherfactors,manyofwhicharebeyondour
control.Thereforeactualeventsmaydifferconsiderably
fromthoseforecastintheforward-lookingstatements.Inview
ofthis,youareadvisednevertorelytoaninappropriate
degreeonforward-lookingstatements.Wecannotacceptanylia-
bilityfortheaccuracyorcompletenessofthesestatements
orfortheactualrealisationofforecastsmadeinthisAnnual
Report.Furthermore,wearenotobligedtoupdatethefor-
ward-lookingstatementsfollowingpublicationofthisinforma-
tion.Inaddition,informationcontainedinthisAnnualReport
doesnotrepresentanykindofofferfortheacquisitionorsale
ofanytypeofsecuritiesofHSHNordbankAG.
contact / imprint
HSH NordbaNk 2010262
hSh nordbank aG Gerhart-Hauptmann-Platz 50 20095 HamburgGermany Phone +49 40 3333–0 Fax +49 40 3333–34001
Martensdamm 624103 KielGermany Phone +49 431 900–01 Fax +49 431 900–34002
info@hsh-nordbank.com www.hsh-nordbank.com