Annual Report 2010 · Corporate clients, real estate financing, private banking, saving banks 22...

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 responsibility 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.


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.


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.


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.


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.


We work in a sustainable manner. We appreciate the value of our clients’ assets and thus preserve their wealth from generation 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.


We develop attractive tailor-made solutions 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.


hsh nordbank 201054

Statement of financial position(¤ m) 31.12.2010


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 purposes 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.


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


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.


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


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.


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



Net income before restructuring −192 507 > - 100

Average equity 377 290 +30


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


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



Net income before restructuring −203 −998 +80

Average equity 2,361 1,539 +53


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.


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


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.


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-


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


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-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-


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)


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)


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-


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)


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.


hsh nordbank 201088

Sovereign loans to selected eurocountries(¤ m)


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”.


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.


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


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


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


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.


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-



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.



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).


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)


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


by sectors that are significant for the Core Bank.

Default risk structure of the Core Bank by sector(¤ m)


2010 2009

Industry 9,902 11,640

Shipping 22,281 25,410








Total 97,296 119,938


of the Core Bank by residual maturities.

Default risk structure of the Core Bank by maturity(¤ m)


2010 2009

Up to 3 months 13,348 11,770


> 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)


2010 2009



Central and Eastern Europe 1,863 2,006


Africa 1,663 1,433



Middle East 600 517



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



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.



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)


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


by sectors significant for the Restructuring Unit.

Default risk structure of the Restructuring Unit by sector(¤ m)


2010 2009

Industry 6,395 9,032

Shipping 11,049 9,531








Total 71,668 85,230


of the Restructuring Unit by residual maturity.

Default risk structure of the Restructuring Unit by maturity(¤ m)


2010 2009

Up to 3 months 5,209 4,170


> 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)


2010 2009



Central and Eastern Europe 942 1,458


Africa 376 232



Middle East 369 328



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



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


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


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


Statement oF Financial poSition as at 31 December 2010

(¤ m) Note 2010


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


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


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


Capital increases 175 335 – – – – – 510 – 510


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


Capital increases 1,579 1,421 – – – – – 3,000 – 3,000


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


Capital increases 175 335 – – – – – 510 – 510


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


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


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-


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


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


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



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



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



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



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



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.



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



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


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 %





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.



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


KG,Hamburg


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:



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



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



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:



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



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



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



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



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].



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:



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.



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


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


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



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.



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).



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


25. loanS and advanCeS to CuStomerS

Loans and advances to customers(¤ m)

2010 2009


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


containinformationregardingsecuritieslendingandrepurchase

agreementscanbefoundinnote[60].

26. loan loSS proviSionS

Loan loss provisions (¤ m) 2010 2009

Loans and advances to banks 194 370


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


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].



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


Equity holdings 835 885

Negotiable and listed 7 8


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.


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


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


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



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


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’.



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


Acquired software


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 – –


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


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


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].



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


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



Deferredtaxesaroseduetotemporarydifferencesinthefol-

lowingitemsinthestatementoffinancialpositionandtaxlosses

carriedforward:

Deferred tax assets (¤ m) 2010 2009

Assets



Risk provision 1 384

Trading assets 2 2,015


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


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


Thedecreaseinliabilitiestobanksisprimarilyduetoreduced

liabilitiestocentralbanks.

Thedifferencebetweenthecarryingamountofliabilities

designatedatfairvalueandtheirparvalue,whichcorresponds

tothecontractuallyagreedrepaymentamountatthedue

date,amountedasat31December2010to€−11million(pre-

viousyear:€−6million).


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


Total 185 338

Liabilities to banks(¤ m)

2010 2009


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



38. liabilitieS to CuStomerS

Liabilitiestobanksof€19,532million(previousyear:€21,812



designatedatfairvalueandtheirparvalue,whichcorresponds

tothecontractuallyagreedrepaymentamountatthedue

date,amountedto€103millionat31December2010(previous

year:€441million).


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


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).



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


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:



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).



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 – –


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 customers 68 81

Securitised liabilities – 4,668

Trading liabilities – 7


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).



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.


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


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



Asatthereportingdate31December2010therewasthe

followingmaterialprofitparticipationcapital:

Carrying amount of material profit participation capital Registered securities over ¤ 20 millionCommencement date ¤ m


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:



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


(¤ 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


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


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


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



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


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


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



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



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 –


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


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


Cash reserve

AfS 10 308 – 318


AfS – – 46 46

DFV – 161 52 213


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


AfS 3,833 3,942 1,873 9,648

DFV 1,280 1,049 1,011 3,340


AfS – – 63 63

DFV – – 428 428

HfT – 9 86 95

Total 5,637 22,876 5,366 33,879



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


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



DFV – 215 108 323


DFV – 649 3,087 3,736


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 to level 3



DFV – – – −55 55 –

Trading assets (HfT) 239 −33 51 −371 139 −25


AfS 1,632 −150 163 −1,638 6 −13

DFV 86 −148 171 −254 168 −23


AfS 31 −4 4 −31 – –

Total 1,988 −335 389 −2,349 368 −61

Transfer, assets(¤ m)

2009

Transfer to level 1


Transfer to level 2


Transfer to level 3


Trading assets (HfT) 2 – 1 −2 – −1


AfS 795 −341 316 −917 155 −8

DFV 529 −11 3 −613 95 −3


HfT – – 9 – – −9

Total 1,326 −352 329 −1,532 250 −21



Transfer, liabilities(¤ m)

2010

Transfer to level 1


Transfer to level 2


Transfer to level 3



DFV – – 28 −10 10 −28


DFV – – 100 −167 167 −100


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 to level 2


Transfer to level 3



DFV – – 109 – – −109


DFV – – 137 – – −137


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 ad-

vances to cus-tomers

Trading assets


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 ad-


Trading assets




1 January 2009 50 356 1,159 1,119 2,216 975 – – – 5,875


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



2010

Reconciliation, liabilities(¤ m)


Liabilities to cus-tomers


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


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)




Trading liabilities

Liabilities from disposals

Subordi-nated

capital Total


1 January 2009 256 3,098 4,553 1,229 – – 97 9,233


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 ad-


Trading assets




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 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



2009

Net income items from the reconciliation, assets (¤ m)


Loans and ad-


Trading assets





Net interest income – – −1 34 −1 −4 – – – 28

Net trading income – −15 160 −88 – 326 – – – 383


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 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)




Trading liabilities


Subordi-nated

capital Total



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)




Trading liabilities


Subordi-nated

capital Total



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


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.


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


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



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


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


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 – – – – – –


Cash reserve – – – – – –

Loans and advances to banks – – – – – –

Financial investments 37 8 65 33 6 –

Non-current assets held for sale and disposal groups – – – – – –


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.



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 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 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


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




Financial investments 2,759 3,340

Non-current assets held for sale and disposal groups 193 428


Cash reserve 407 318



Non-current assets held for sale and disposal groups 48 63


Cash reserve 1,003 978




Non-current assets held for sale and disposal groups 148 –


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



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)


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


Derivative transactions with currency risks(¤ m)


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)


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)


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)


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)


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


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



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.



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



Trust assets 349 388

Liabilities to banks 1 2


Trust liabilities 349 388



62. related partieS

TheHSHNordbankGroupdoesbusinesswithrelatedparties

andcompanies.TheseincludetheHSHFinanzfondsAöR

asparentcompany,theFederalStateofSchleswig-Holsteinand

theFreeandHanseaticCityofHamburg,whicheachpartici-

pateintheHSHFinanzfondsAöRat50%.Furthermore,business

relationsexistwithsubsidiarieswhicharecontrolledbutnot

consolidatedforreasonsofmateriality,associatedcompaniesnot


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


Positive fair values of hedging derivatives 33 25

Trading assets 223 273


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


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


Loan loss provisions −15 −21



Other assets 4 88

Total 828 1,273

Subsidiaries – liabilities (¤ m) 2010 2009


Trading liabilities 1 15

Provisions in the lending business 1 –


Total 123 159

Subsidiaries – income statement (¤ m) 2010 2009


Net commission income 2 3


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


Trading assets 8 73


Other assets 4 9

Total 1,718 2,787



Associated companies – liabilities (¤ m) 2010 2009



Securitised liabilities 98 99

Trading liabilities 1 –

Provisions in the lending business 1 –


Total 168 477

Associated companies – income statement (¤ m) 2010 2009


Net commission income −3 –


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


equitymethod:

Joint ventures – assets (¤ m) 2010 2009




Total 143 140

Joint ventures – liabilities (¤ m) 2010 2009


Trading liabilities – 1

Total 1 3

Joint ventures – income statement (¤ m) 2010 2009


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.



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.



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






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



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



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



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


Non-consolidated subsidiaries ShareVoting rights

Currency code



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



Currency code



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



Currency code



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



Currency code



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)



Currency code



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


Non-consolidated special purpose entities (under SIC 12) ShareVoting rights

Currency code



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



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


Non-consolidated associated companies ShareVoting rights

Currency code



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


Non-consolidated associated companies ShareVoting rights

Currency code



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


Voting rights exceeding 5 % (large corporations) ShareVoting rights

Currency code



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



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


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


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)


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


hans-werner Blöcker, helmstorf

FormerManagingDirector,VereinigteAsphalt-Mischwerke

GmbH&Co.KG

Berthold Bose, hamburg

Regionalfinancialservicesrepresentative,

ver.diHamburgdistrict

detlev Bremkamp, munich

FormermemberoftheManagementBoard,

AllianzAGHolding

jürgen Friedland, kiel


jens-peter Gotthardt, moorrege


torsten heick, rellingen


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


rieka meetz-Schawaller, kiel


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


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


lutz koopmann

rieka meetz-Schawaller

dr. david morgan

(from19January2010)

(d) members of the mediation committee

hilmar kopper

Chairman

olaf Behm


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


CreditRiskManagement,GroupRiskManagement,

LoanandCollateralManagement,Restructuring

Born1953

torsten temp

Responsibleforthefollowingdivisionssince1May2010:

Shipping,TransportandEnergy1)

Born1960


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


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.


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


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,


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


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.


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.


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


Income statement (¤ m)


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)


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


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

[email protected]

press relations

Phone+4940-3333-10907

Fax+4940-3333-34224

[email protected]

imprint

editing

CorporateCommunications

Finance

Note:

Ifattimesonlythemasculineformisusedforcertainterms

relatingtogroupsofpeople,thisisnotmeantinagender-

specificmanner,butoccursexclusivelyforthesakeofbetter

readability.

realisation

Heisters&Partner

BürofürKommunikationsdesign,Mainz

LOOK!WerbeagenturGmbH,Hannover

photography

FrankTusch,Düsseldorf

BerndOpitzPhotography,Hamburg

printed by

DruckereiBrünnerGmbH,Hamburg

translation

HK-ÜbersetzungenGmbH,Kiel

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 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

[email protected] www.hsh-nordbank.com

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