CONSOLIDATED ANNUAL REPORT
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CONSOLIDATED ANNUAL REPORT
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Key figures 4
Preface by the CEO 5
Boards and officers 7
Structure 11
Group Management Report 13
The economy in 2006 13
Key events during the 2006 financial year 17
Notes to the Annual Financial Statements for 2006 23
Events after the balance sheet date 31
Outlook 31
Consolidated Financial Report prepared in accordance with IFRS 33
Contents 33
Consolidated accounts 35
Notes 40
Independent Auditors’ Report 128
Supervisory Board’s Report 132
Boards and officers 134
Subsidiaries and offices abroad 137
Disclosures required by IFRS
Contents
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Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
Key figures BAWAG P.S.K. Group
Monetary values are in €m 2006 2005
Assets 50,806 57,898Receivables from customers 27,579 29,273Securities in the banking book 14,762 19,854
Core capital * 2,574 2,226Eligible own funds * 3,514 3,281Risk-weighted assets 28,137 28,196Core capital ratio 9.2% 7.9%Own funds ratio 12.5% 11.6%
Operating profit 140 217Consolidated profit for the year 40 6
Staff on balance sheet date ** 6,670 6,632Bank branches 245 238Other outlets 1,575 1,571
Cost:income ratio 82.2% 74.6%Rating (Moody’s long-term) A3 A3
Notes** Including minority interests in Aviso Alpha and Aviso Beta in the amount of € 450 million.
** Full-time equivalent basis.
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Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
Preface to the Annual Report for 2006
BAWAG P.S.K. had a very eventful 2006. There were lasting
changes affecting both the bank itself and its shareholder structure.
The Bank’s difficulties were triggered by the discovery of losses suf-
fered by the former BAWAG during the so-called Caribbean trans-
actions between 1995 and 2000 and by subsequent legal action
taken by creditors of insolvent US broker Refco. The results were a
loss of confidence and sizeable withdrawals of customer deposits
and, for a period, constraints in the international money and capital
markets.
Directly after the announcement of the past losses, in April, BAWAG
P.S.K.’s Supervisory Board was entirely recomposed and four
Managing Board members were compelled to leave the Bank.
The Bank’s new Management voluntarily adopted the rules of the
Corporate Governance Kodex (Austrian corporate governance
code), fundamentally overhauled its risk policy and risk manage-
ment procedures and installed a Managing Board member with
central responsibility for risk control.
Help from the Republic of Austria (which, at the beginning of May
2006, agreed to issue a federal guarantee to stabilize BAWAG
P.S.K.) and from the Austrian finance sector (which, under the over-
all control of the Austrian national bank, gave BAWAG P.S.K. capital
support) did much to stabilize the situation. Another key step towards securing BAWAG P.S.K.’s future was the
agreement of a global settlement with the creditors in the Refco insolvency case. It was reached in June and
became legally effective in September 2006.
In the course of these events, the Österreichischer Gewerkschaftsbund (OeGB: Austrian Trade Union Federation)
decided to sell the entirety of BAWAG P.S.K. The selling process, which began in the second quarter, attracted
considerable interest, competition among the prospective acquirers being intense and a large and prestigious
international group of bidders taking part. It ended with the signature of the Share Purchase Agreement on
December 30, 2006.
The successful bidder was a consortium led by US private investment firm Cerberus, which included Austrian
companies Generali-Versicherung (insurer), Bausparkasse Wüstenrot (building and loan) and a group of Austrian
investors. It was agreed to hold further talks with Österreichische Post (the Austrian postal service) regarding a
possible investment in BAWAG P.S.K.
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Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
This new, financially powerful and well-capitalized group of owners has given BAWAG P.S.K. excellent foundations
for its successful future development. The inclusion of strategic partners in our shareholder structure has created
a raft of attractive opportunities for cooperation. We will be analyzing and exploring these opportunities in the
course of 2007.
Having crisis-managed a difficult 2006, BAWAG P.S.K. is now once again on the road to success. Since the very
beginning of 2007, the Bank has been back in the market with new product launches. Based on its strengths and
experience and in partnership with its new owners, BAWAG P.S.K. will be continuing to reinforce its position as a
skilled Central European financial service provider.
We were able to complete some essential groundwork during 2006. Having finished implementing its new IT sys-
tem, called Allegro, BAWAG P.S.K. now has Austria’s most sophisticated core banking software. All BAWAG and
post office branches are now directly connected into a network by a common system, allowing us to make even
more efficient and effective use of our centrally managed bank distribution network, which is Austria’s largest.
I would like to thank all our customers for the trust they placed in us during the year under review. I also espe-
cially thank our business associates for the help they gave us in strengthening and stabilizing the Bank. Not least,
I would like to extend my thanks to all the employees of the BAWAG P.S.K. Group. During an extraordinary 2006,
their enormous dedication enabled them to achieve a great deal under very difficult conditions.
We will continue to work hard to be worthy of the trust that has been placed in us, to remain an attractive
provider of banking services for every Austrian and to continue to be a reliable partner and business associate.
Ewald Nowotny (CEO) m.p.
Chairman of the Managing Board
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Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
Monika FRAISSLEVN Group(from April 7, 2006, until the AGM in 2008*)
Albert HOCHLEITNERVienna(from October 1, 2005, until the AGM in 2008*)
Max KOTHBAUERChairman of the Universitätsrat (universitycouncil) of Vienna University(from April 7, 2006, until the AGM in 2008*)
Georg KOVARIKHead of the Referat für Volkswirtschaft(economic affairs department) at the OeGB,(from April 7, 2006, until the AGM in 2008*)
Werner MUHMDirector,Arbeiterkammer (Chamber of Labor), Vienna(from October 1, 2005, until the AGM in 2008*)
Richard SCHENZRegierungsbeauftragter für den Kapitalmarkt(Government capital markets commissioner),(from April 7, 2006, until the AGM in 2008*)
Gabriela ZRAUNIGÖsterreichische Post AG, Vienna(from April 7, 2006, until the AGM in 2008*)
Members
The Supervisory Board of BAWAG P.S.K.
Siegfried SELLITSCH Dwora STEINVienna Federal CEO, GPA (Union of Salaried (from April 7, 2006, until the AGM in 2008*) Private Sector Employees),
Vienna(from April 7, 2006, until the AGM in 2008*)
Chairman Deputy Chairman
Boards and officers of BAWAG P.S.K.Bank für Arbeit und Wirtschaft undÖsterreichische Postsparkasse Aktiengesellschaft(BAWAG P.S.K.)
* Until the close of the AGM (= Annual General Meeting) adopting the Annual Financial Statements for 2007.
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Günter WENINGER, ChairmanSenior Secretary,
Österreichischer Gewerkschaftsbund, Vienna
(from October 1, 2005, to April 7, 2006)
Rudolf KASKE, Deputy ChairmanChairman of the Gewerkschaft Hotel, Gastgewerbe,Persönlicher Dienst (Union of Hotel, Restaurant and
Personal Service Workers), Vienna
(from October 1, 2005, to March 31, 2006)
Eduard ASCHENBRENNERRegierungsrat, Deputy Chairman,
Gewerkschaft der Gemeindebediensteten,
(Union of Municipal Employees), Vienna
(from October 1, 2005, to April 7, 2006)
Herbert AUFNERGewerkschaft Bau - Holz, (Union of Construction
and Woodworkers), Federal Secretary, Vienna
(from October 1, 2005, to April 7, 2006)
Erich FOGLARFinancial Officer, Central Secretary,
Gewerkschaft Metall-Textil (Union of Metal
and Textile Workers), Vienna
(from October 1, 2005, to April 7, 2006)
Rudolf JETTMARDeputy CEO,
Österreichische Post AG, Vienna
(from October 1, 2005, to April 7, 2006)
Peter STATTMANNRegional CEO for Lower Austria, GPA,
St. Pölten
(from October 1, 2005, to April 7, 2006)
Walter SUMETSBERGERCentral Secretary, Gewerkschaft der Post- undFernmelde-Bediensteten (Union of Postal and
Telegraph Workers), Vienna
(from October 1, 2005, to April 7, 2006)
Christoph SYKORAHead of Marketing, GPA, Vienna
(from October 1, 2005, to April 7, 2006)
Leopold WALLNERCEO,
Casinos Austria, Vienna
(from October 1, 2005, to April 7, 2006)
Gottfried WINKLERDeputy Chairman of the Gewerkschaft derEisenbahner (Union of Railway Workers), Vienna
(from October 1, 2005, to April 7, 2006)
Walter ZWIAUERKammerrat, Deputy Chairman of the GPA,
Vienna
(from October 1, 2005, to April 7, 2006)
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
Members of the Supervisory Board of BAWAG P.S.K. departing in 2006
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Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
Ingrid STREIBEL-ZARFLChairman of the Central Works Council, Vienna
Manuela GÖSTELChairman of the Works Council, Graz
Brigitte JAKUBOVITS1st Deputy Chairman of the Central Works Council,Vienna
Rudolf LEEB3rd Deputy Chairman of the Central Works Council,Vienna
Beatrix PRÖLL2nd Deputy Chairman of the Central Works Council,Linz
Works Council Delegates
Gerd GRÜNAUERChairman of the Works Council, Salzburg(to April 7, 2006)
Josef SINGERCentral Works Council, Vienna(to April 7, 2006)
State Commissioner Deputy
Helmut BRANDLKabinettschef,Bundesministerium für Finanzen(Federal Ministry of Finance), Vienna(from October 1, 2005, to December 31, 2006)
Emmerich BACHMAYERSektionschef,Sektion III, Bundeskanzleramt(Federal Chancellery), Vienna(from October 1, 2005 )
Credit Committee Nomination Committee
Siegfried SELLITSCHChairmanMax KOTHBAUERDeputy ChairmanGabriela ZRAUNIGMemberDwora STEINMemberIngrid STREIBEL-ZARFLMember of the Works CouncilBeatrix PRÖLLMember of the works council
Siegfried SELLITSCHChairmanDwora STEINDeputy ChairmanWerner MUHMMemberIngrid STREIBEL-ZARFLMember of the Works CouncilRudolf LEEBMember of the Works Council
Managing Board Affairs Committee
Audit Committee
Siegfried SELLITSCHChairmanDwora STEINDeputy ChairmanRichard SCHENZMember
Identical to the Supervisory Board of BAWAG P.S.K.
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Ewald NOWOTNYCEO and Chairman of the Managing Board
(from January 1, 2006)
Stephan KORENDeputy CEO
(from October 1, 2005)
Jochen BOTTERMANN (from October 1, 2005)
Herbert LEGRADI(from October 1, 2005)
Alois STEINBICHLER (from June 7, 2006)
The Managing Board of BAWAG P.S.K.
Christian BÜTTNER(from October 1, 2005, to April 30, 2006)
Hubert KREUCH(from October 1, 2005, to April 30, 2006)
Peter NAKOWITZ(from October 1, 2005, to April 30, 2006)
Josef SCHWARZECKER(from October 1, 2005, to April 30, 2006)
Members of the Managing Board of BAWAG P.S.K. to April 30, 2006
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
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Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
EWALD NOWOTNY
Accounts
Controlling
Credit Rating, Management Consulting
Corporate and Business Loans Management
Loan Processing (Personal Banking)
Market Risk Control
Legal Affairs
Basel II Project
Branch Management (Corporate and BusinessBanking) and Real Estate
Real-Estate and Facility Management
Savings, Current Accounts
Treasury Back-office
Remits within the BAWAG P.S.K. Group
Chief Financial Officer, Chief Risk Officer Corporate and Business Customers
JOCHEN BOTTERMANNSTEPHAN KOREN
Equity investments
General Corporate Affairs /
Group Press Office
Investor Relations
Marketing and Product Development
Human Resources
Enterprise Development
Verband Österreichischer Sparvereine
Economic Analysis and Research
Advertising and Corporate
Responsibility
Chief Executive Officer
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Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
Communication Center
eBusiness
Branch Management (Personal Banking)
Financial Services Sales at Post Offices
Information Technology
Mobile Sales and Sales Services
Processes and Logistics
The Allegro Project
Key Accounts
International Business und Financial Institutions(West and CEE Region)
Institutional Clients and the Public Sector
Treasury and Investment Banking
Personal Banking Customers Treasury and Key Accounts
HERBERT LEGRADI ALOIS STEINBICHLER
Compliance
Internal Audit
REMITS OF THE MANAGING BOARD AS A BODY
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Wichtige Kennzahlen . Vorwort des Generaldirektors . Organe . Aufbauorganisation . Unsere Mitarbeiterinnen und Mitarbeiter
Konzern-Kommunikation . Konzernlagebericht . Das Kundengeschäft . Konzernrechnungslegung nach IFRS
Group Management Report of BAWAG P.S.K.
State of the economy
The pace of growth of the world economy continued to increase during the year under review. Global output is
believed to have risen by more than 5 per cent. Virtually every geographical region contributed to the upswing.
As in prior years, China’s economy was highly dynamic. Growth in other emerging markets in Asia and Latin
America and in the oil-exporting countries of the Middle East remained vigorous, and in some countries, it even
accelerated. Most industrialized nations were able to close the output gaps created by excess capacities in prior
years. The resulting inflationary pressures were amplified by increases in the prices of fuels and commodities gen-
erated by globally high demand. The central banks of the key industrial nations reacted by tightening their mone-
tary policies.
The US economy rapidly recovered from the effects of hurricane damage at the beginning of 2006. However,
because of slackening domestic demand, GDP growth slowed considerably as the year progressed. Japan’s eco-
nomic recovery continued, although budget consolidation remained a persistent brake to progress. In addition,
private consumption slumped in the second half. A powerful recovery got underway in the eurozone, fueled
mainly by domestic demand. Low interest rates and good profits greatly boosted corporate investment. Private
consumption continued to lag behind demand in the economy as a whole during the first half, but it picked up
momentum progressively from the summer. Consumer sentiment became increasingly positive, thanks among
other things to improvements in the labor market. Against the background of a robust global economy, export
demand continued to grow vigorously. However, imports also expanded rapidly, so foreign trade’s contribution to
economic growth was small.
Economic recovery in Germany made a major contribution to the eurozone’s economic upswing. Germany’s real
GDP grew by 2.6 per cent in 2006, which was more than at any time since Germany’s boom year in 2000. This
growth gained its momentum from both domestic and foreign factors. Capital investment in equipment and con-
struction grew exceptionally powerfully. However, private consumption disappointed, despite expectations of
earlier-than-usual consumer spending ahead of a hike in VAT rates in 2007.
Initially, Austria’s economic recovery was driven by robust foreign demand. Austrian exports benefited from
recovery in Germany and Italy, and trade with Austria’s neighbors in Central and Eastern Europe, the OPEC
states and the dollar area also developed very well. As the year progressed, the impetus for growth shifted
increasingly from exports to domestic investment demand. Companies substantially increased their capital
investments in equipment during 2006, purchasing both more machinery and electrical equipment and larger
numbers of vehicles.
The increase in capital investment in construction likewise greatly exceeded expectations. The unusual growth in
this investment category was due, not least, to favorable weather conditions during the fourth quarter. For the
The economy in 2006
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Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
first time in a long period, recovery spread to the home construction sector as well. The improved economy and
lower unemployment also generated a slightly faster increase in available incomes than in 2005. However, the
saving rate rose concurrently, so private consumption gained little momentum. Overall, Austria’s economic growth
accelerated to 3.2 per cent in 2006, as against 2.0 per cent the year before.
Percentage Growth in Real GDP
Having declined for some time, the number of jobs in Austria rose significantly during 2006. Although the labor
supply also increased, there was a perceptible fall in the number of unemployed. This was the fruit both of the
healthy state of the economy and of a large increase in the number of training programs being carried out by
AMS (Austria’s labor market service). As a result, the annual average jobless rate improved to 6.8 per cent.
Thanks to falling oil prices, inflation slowed sharply. Moreover, increases in oil prices in recent years have not yet
had any second-round effects. Averaged over the year, inflation (Austrian CPI) was running at just 1.5 per cent.
Interest rates
The European Central Bank (ECB) reversed its monetary policy in December 2005 when it hiked its main refi-
nancing rate by 25 basis points to 2.25 per cent. Previously, key rates had been unchanged for two and a half
years. The ECB maintained its restrictive course during 2006, hiking rates in several steps as the economy thrived.
The final hike in the main refinancing rate, to 3.50 per cent, took place in December 2006. Money market rates
mirrored the central bank’s actions or, in some cases, anticipated them. The 3-month Euribor stood at 3.73 per
cent at year-end (year-end 2005: 2.49 per cent), signaling expectations of another hike in rates during the first
quarter of 2007.
2005 2006 2007
Eurozone Austria
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Capital market rates also rose during 2006, even if their rise was modest to begin with and yields had already
peaked by mid-year. In parallel, there was a brief rise in inflationary expectations. Having dropped in the fall,
interest rates rose again in December, with benchmark Austrian 10-year treasury bonds ending 2006 at 4.0 per
cent (up 70 basis points). The yield curve flattened significantly during the year, the spread between 10-year
swap rates and the 3-month Euribor narrowing from about a percentage point to one third of a percentage point.
Money and Capital-Market Rates
Exchange rates
As key rates rose, the euro strengthened perceptibly versus the currencies of Austria’s major trading partners
during 2006. The euro’s nominal effective exchange rate index rose by 5.1 per cent. Appreciation versus the
Japanese yen and the US dollar was most pronounced (13 per cent and 11.6 per cent, respectively).
The Japanese yen fell to its lowest level versus the euro since the beginning of 1999. The Swiss franc continue to
depreciate versus the euro, but its depreciation versus the US dollar and the yen was small. In contrast, the euro
lost some value versus sterling.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
Monthly Averages
5.0
4.0
3.0
2.0
1.0
0,0
Dec
04
Mar
05
Jun
05
Sep
05
Dec
05
Mar
06
Jun
06
Sep
06
Dec
06
10-year Bund
3-month Euribor
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Equity markets
Equity markets in all the industrial nations recorded impressive gains during 2006. The Dow Jones Industrial Index
rose over 16 per cent, having suffered a small loss in 2005. The 15 per cent rise in the EuroStoxx 50 Index mirrored
the eurozone’s economic recovery. The Frankfurt stock exchange showed particularly strong signs of life (DAX up
22 per cent). The Viennese market was not far behind, with the ATX closing the year up 21.7 per cent on 2005 to
an all-time high, even if its performance did not match the gains achieved in the previous two years (51 per cent
and 57 per cent). Japan’s performance was relatively weak compared with that of Europe and the US, the NIKKEI
gaining just 7 per cent.
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BAWAG P.S.K. had a very eventful 2006. There were lasting changes affecting both the bank itself and its share-
holder structure. It was clear that these developments were also going to leave a permanent mark on the Group.
The Refco loan and the settlement with the Refco litigants
In October 2005, BAWAG P.S.K. was hit by the insolvency of US broker Refco. Immediately after being granted a
loan of € 350 million by BAWAG P.S.K., Refco published information regarding possible account falsification and
the suspension of its CEO Phillip Bennett. This resulted in a massive loss of confidence in the company in the
marketplace and among its customers and, in due course, Refco’s insolvency.
On November 16, 2005, BAWAG P.S.K. sued Phillip Bennett and the Refco Group in the United States for fraud,
unjust enrichment and deception and demanded the repayment of the € 350 million loan. As a consequence of
the Refco loan, CEO Johann Zwettler resigned as of the end of 2005.
In April 2006, BAWAG P.S.K.’s fraud suit against Refco and Bennett was met by the announcement of a counter-
suit by unsecured Refco creditors with claims against BAWAG P.S.K. in the amount of US$ 1.3 billion. At the same
time, BAWAG P.S.K.’s assets and accounts in the United States were briefly frozen. BAWAG P.S.K. successfully
applied to have the freeze on its accounts lifted within just a few days, allowing its international payments to
resume without restriction. However, assets totalling some US$ 1.1 billion remained frozen for the time being.
Following talks with the US authorities and representatives of Refco’s creditors, BAWAG P.S.K. then agreed an
extensive settlement of the claims arising in connection with Refco’s insolvency. It did so to avoid a lengthy period
of uncertainty during prolonged court proceedings. Settlement negotiations were completed at the beginning of
June 2006. The key points of the settlement were as follows: BAWAG P.S.K. agreed to pay a total of US$ 675
million. US$ 150 million was payable at the time of the settlement, and either after not more than one year or
upon an earlier sale of the bank, another payment of US$ 525 million was to be effected. In addition, the settle-
ment provided that a third payment was to be made by the owners of BAWAG P.S.K. if sales proceeds exceeded
€ 1.8 billion, 30 per cent of any amount exceeding that amount being payable as an additional settlement up to a
maximum of US$ 200 million.
BAWAG P.S.K. also agreed to drop its own unsettled claims, including in particular the unsettled but already writ-
ten-off claims in the amount of € 393 million, against Refco and the Refco creditors, but not its claims against
Phillip Bennett. In exchange, the Refco creditors dropped their actions and the US Attorney agreed not to prose-
Events materially affecting the BAWAG P.S.K. Group during the 2006 financial year
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cute the bank and its boards. The extensive settlement also included other groups, namely Refco shareholders
and stakeholders and investment house Thomas H. Lee Partners. During the settlement’s implementation, Refco
victims were only to receive payments if they agreed not to take legal action against BAWAG P.S.K. This settle-
ment having been reached, further serious actions in connection with Refco are unlikely, but under US law, they
cannot be ruled out entirely. The settlement is not an admission of guilt. It was reached solely to give us the
greatest possible legal security.
The settlement gave BAWAG P.S.K. and its customers, business associates and investors the greatest possible
legal security. The settlement having successfully been reached, the process of selling the bank could continue as
planned and without disruptions.
Caribbean transactions
During investigations in connection with Refco’s bankruptcy, BAWAG transactions between 1995 and 2000 came
to light that had been terminated with massive losses at the end of 2000 (“the Caribbean transactions”). Thanks
to guarantees with respect to these transactions that had been furnished by our principal shareholder, OeGB,
these losses did not have to be recognized in financial statements for prior years. The Managing Board appointed
a team of experts supported by Internal Audit with the task of investigating all past transactions and clarifying
them in full detail.
Investigating and working through these transactions led to fundamental changes in BAWAG P.S.K.’s corporate
governance. BAWAG P.S.K.’s Supervisory Board was recomposed and reduced in size. Since April 7, 2006, the
Chairman of the Supervisory Board has been Siegfried Sellitsch and his Deputy Chairman has been Dwora Stein.
The appointments of four members of the Managing Board, namely Christian Büttner, Hubert Kreuch, Peter
Nakowitz and Josef Schwarzecker, were rescinded. The settlement of claims in connection with the dissolution
of their contracts is still pending and will be handled by our lawyers.
In addition, the FMA (Austrian Financial Market Authority) and the OeNB (Austrian National Bank) carried out a
special investigation of the Caribbean transactions ending with a detailed report and analysis of these transac-
tions. No new, previously unknown losses were uncovered during this investigation. The regulators’ criticisms of
our risk management procedures prompted us to remedy the weaknesses as quickly as possible. Clarifying the
consequences of the Caribbean transactions under commercial and tax law was one of our key internal missions
during the year under review. It proved possible to come to agreements with the Bundesministerium für Finanzen
(Austrian federal ministry of finance) and the responsible tax office on all the material tax issues.
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Improving corporate governance
CEO Ewald Nowotny has been heading BAWAG P.S.K. since January 1, 2006. During the first quarter of the year
under review, he initiated fundamental action to improve our corporate governance procedures and put them into
effect in a five-point program to define new terms of reference for the Managing Board; review the Supervisory
Board’s terms of reference; restructure Managing Board remits, creating clear firewalls between the front office
and risk management and installing a central Chief Risk Officer; amend our lending and risk control guidelines;
and voluntarily adopt the Austrian corporate governance code applicable to listed enterprises. With the exception
of questions regarding the actions of the Auditors themselves, compliance will be monitored by Deloitte.
Events in April and May 2006
Media reports about the Caribbean transactions and subsequent legal actions by the creditors of insolvent US
broker Refco resulted in a massive loss of confidence in the Company. BAWAG P.S.K. in the main, but also its
subsidiaries, suffered sizeable withdrawals of customer deposits and, for a period, constraints in the international
money and capital markets. At the peak of the crisis, we were only able to borrow in the money market on a
secured basis. In addition, we made use of the standard ECB refinancing facilities through the OeNB and took
appropriate liquidity management action on the assets side of the Balance Sheet. This process was coordinated
by a team made up of two members of the Managing Board and representatives from all the divisions concerned.
The bank auditors, the OeNB and the FMA were given minutes of its meetings. The provisions of § 25 BWG
(Austrian banking act: Liquidity) were satisfied even during these months.
In the course of these events, Moody’s Investors Service set the Bank’s rating at A3 at the end of May 2006.
We assume that BAWAG P.S.K.’s rating will improve again once all our restructurings have successfully been
completed.
Help from the Republic of Austria (which, at the beginning of May 2006, agreed to issue a federal guarantee to
stabilize BAWAG P.S.K.) and from members of the Austrian financial sector (who, under the overall control of the
Austrian national bank, provided BAWAG P.S.K. with core capital by virtue of their non-controlling interests) did
much to stabilize the situation.
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20
Guarantee furnished by the federal government
To stabilize and strengthen BAWAG P.S.K., the Austrian Nationalrat (lower house of parliament) enacted a law, the
BAWAG P.S.K. Sicherungsgesetz (BAWAG P.S.K. guarantee act), on May 8, 2006, creating a guarantee facility of
€ 900 million in the Bank’s favor with retrospective effect from December 31, 2005. Based on this legislation, the
federal minister of finance signed a guarantee agreement with the Bank.
The federal government’s guarantee encompasses a pool of receivables containing assets as specified by § 22
Abs. 2 BWG (Austrian banking act). A fee of 0.2 per cent per annum is payable for the federal guarantee. The
term of the guarantee was set to end at the time of BAWAG P.S.K.’s sale but not later than July 1, 2007. However,
an extension was to be possible.
The BAWAG P.S.K. guarantee act laid down a series of conditions to be met by BAWAG P.S.K. and its owners
for the guarantee to take effect. They are detailed in the Notes to the Consolidated Financial Statements for 2005.
In June 2006, the Managing Board of BAWAG P.S.K. confirmed to the Austrian federal ministry of finance that all
the conditions for the guarantee had been met.
The remedial measures we have described, including above all the federal guarantee, made it possible to prepare
BAWAG P.S.K.’s accounts for the 2006 financial year on a going concern basis.
Action taken by the Austrian financial sector
In June 2006, Aviso Alpha Veranlagung GmbH, whose shareholders include major Austrian banks, and Aviso Beta
Veranlagung GmbH, whose shareholders include major insurers, were set up as the Austria financial sector’s con-
tribution to securing BAWAG P.S.K.’s future. BAWAG P.S.K. holds 20 per cent of each company’s shares but, as
a result of their memoranda and articles of association, controls them. BAWAG P.S.K. thus named two members
of their three-man managing boards. The object of both companies is to invest in highly rated government securi-
ties issued by EU member states.
Applying § 30 Abs. 1 Z 3 BWG, both companies are included within the scope of the AVB Kreditinstitutsgruppe
(credit institution group), accounting for minority interests in its consolidated own funds of € 450 million. This
amount counts towards this credit institution group’s core capital. Creating these two companies increased the
AVB Group’s own funds to above the regulatory minimum. Thanks to the federal guarantee, BAWAG P.S.K. itself
and the BAWAG P.S.K. credit institution group already fulfilled the regulatory own fund requirements.
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Supreme Court ruling regarding clauses on changes in rates on passbooks
The ruling of the OGH (Austrian supreme court) in a test case that affected the entirety of the Austrian banking
industry prohibited BAWAG P.S.K. from continuing to apply as before the clauses, taken from the Austrian bank-
ing act, on changes in rates paid on passbooks. Since the fall of 2006, BAWAG P.S.K. has been offering to recal-
culate interest on customers’ passbooks. Some 3,000 applications had been made by the beginning of March
2007. To date, BAWAG P.S.K. has processed roughly 1,600 applications and recalculated the associated interest.
Additional payments have only had to be made in 65 cases, and they were small. BAWAG P.S.K. sees this interim
figure as confirmation that interest calculations in the past have generally been correct and still believes that only
occasional additional payments will be necessary. In any event, the provision that has been created should suf-
fice.
In April 2006, BAWAG P.S.K. reached a general agreement with Austria’s consumer protection institutions settling
the dispute about variable rate clauses in personal loan agreements. An appropriate framework agreement also
covering customers who had not yet brought actions against BAWAG P.S.K. was concluded in May 2006.
Handling the many individual cases, which differ considerably, has been a complex process, but with just a few
exceptions, it has already been completed. Appropriate provisions have been created to cover payments that are
still outstanding.
EU: The state aid investigation
On November 23, 2006, the Commission began the formal investigation into state aid provided by the Republic of
Austria in May 2006. The decision to open the investigation was announced in the Official Journal. No third par-
ties filed comments within the time allowed. According to Jean-Louis Colson, Head of the Competition
Directorate-General’s Case Team, the Commission will be able to stick to the planned 6-month timetable for the
investigation.
The parties to the guarantee agreement believe that the state aid was in any event permissible state aid requiring
approval under Article 87 of the EC Treaty and Article 61 of the EEA Agreement and, therefore, that the guarantee
can be invoked. However, we cannot rule out the possibility that the Commission might prescribe compensatory
measures to offset the competitive advantages arising due to the state aid. However, even if it does, such com-
pensatory measures should not affect the bank’s net asset value.
Sale of BAWAG P.S.K.
Because of events in the spring of 2006, our then owners AVB decided in agreement with OeGB to sell the
entirety of their stakes in BAWAG P.S.K. The selling process took place with the assistance of international invest-
ment bankers Morgan Stanley. In December 2006, our owners accepted the offer from the consortium led by US
private investment firm Cerberus Capital Management L.P. (“Cerberus”).
21
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The consortium’s members in Austria are Generali, Wüstenrot and a private industrial group. Österreichische
Post AG is also to be included in the consortium.
The Share Purchase Agreement between AVB and the two Cerberus-owned Austrian acquirers was signed on
December 30, 2006. The effectiveness of the agreement is subject to a number of conditions precedent. In par-
ticular, competition and regulatory authority approvals are required. Suitable applications have already been made
to the relevant authorities or are under preparation. At the end of February, the EU Commission approved
BAWAG P.S.K.’s takeover by Cerberus for the purposes of EU competition law. The closing of this transaction,
marking the change of ownership, is scheduled for the second quarter of 2007. Proceeds from the sale will
enable BAWAG P.S.K.’s direct and indirect owners to fulfill their obligations to and honor their guarantees in favor
of the Bank.
BAWAG P.S.K.’s common core banking system
Release 4 of Allegro — our new core banking system — was installed as planned in November 2006. The goal of
this release was the changeover of core banking systems at the former Postsparkasse (post office savings bank)
to the Allegro system, which had been implemented at BAWAG in recent years in a 3-step process. This has
been one of the biggest IT changeovers in the European banking sector, costing about € 246 million. Our com-
mon core banking system is now in use in 156 bank branches and over 1,300 post offices, greatly improving the
service we offer customers. Release 5 is planned for 2007. It will provide the basis for implementing the require-
ments of Basel II. Besides BAWAG P.S.K., Spardabank and easybank also use Allegro.
The Basel II project
We restructured our Basel II project at the beginning of 2006, hiring zeb, a leading German consultancy firm in
this field. The project’s main focuses in 2006 were the introduction and enhancement of scoring and rating pro-
cedures, testing of the software core — supplied by zeb — for calculating regulatory own funds, and the develop-
ment of detailed plans for risk management on an economic capital basis. The central data warehouse for all our
activities in connection with Basel II is a relational database called gDWH. We extended it several times last year.
All the data gDWH needs will be available to it once we have carried out two releases in the course of 2007 made
necessary by data feeds from the zeb software core and by the new Allegro release. As of June 30, 2007, data
from the members of the credit institution group within the meaning of § 30 BWG were also being stored in
gDWH in a quality-assured form. This has created the prerequisites for BAWAG P.S.K.’s fulfillment of reporting
regulations and the requirements of Basel II from the beginning 2008. By agreement with the FMA, we intend to
submit reports using the standardized approach in 2008 and 2009 and to switch to an IRB approach from 2010.
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Integrating the credit institution group into the gDWH data warehouse
Besides the Allegro core banking system in use at BAWAG P.S.K., other customer systems are also in use at our
banking subsidiaries and leasing companies. They include, for instance, Flexcube in the Czech Republic and
Slovenia and Daidalos in our leasing sub-group. Furthermore, SAP-FI — the principal accounting and financial sys-
tem used by BAWAG P.S.K. — is not in use throughout the Group. We have therefore been planning for some
time to create a common, Group-wide data platform. Since May 2007, an automatic interface has linked the sys-
tems in use by subsidiaries carrying on customer business (all banks, leasing companies) to the gDWH database.
Data feeds take place daily. The other members of the credit institution group are connected to the database by a
specially developed application called ADA. In addition to fulfilling the requirements of Basel II, these data will in
future allow Group-wide evaluations and analyses in accordance with internal and external standards and as well
as supporting financial reporting in accordance with IFRS.
The Group’s reports on the year 2006 were pre-
pared in accordance with the International Financial Reporting Standards (IFRS). In the previous year, Österre-
ichische Postsparkasse Aktiengesellschaft (P.S.K.) was merged with Kapital & Wert Bank Aktiengesellschaft (K&W).
The banking operations of Bank für Arbeit und Wirtschaft Aktiengesellschaft (BAWAG) were demerged, likewise as
of October 1, 2005, and acquired by Kapital & Wert Bank Aktiengesellschaft. Kapital & Wert Bank
Aktiengesellschaft was given the new name BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische
Postsparkasse Aktiengesellschaft (BAWAG P.S.K.). As intragroup transactions, these restructuring processes did
not fall within the scope of application of IFRS 3. However, IAS 8.10 provides for the application of IFRS 3 mutatis
mutandis as a similar rule. IFRS 3 requires one of the parties to a business combination to be identified as the
acquirer. In accordance with IFRS 3.21, the affiliate combination of K&W Bank with P.S.K. was deemed to be a
reverse acquisition, and P.S.K. was identified as the acquirer. For the purposes of consolidation with respect to
2005, this means that the first-time consolidation of the banking operations of BAWAG and its subsidiaries took
place as of October 1, 2005. The Consolidated Financial Statements for 2005 captured the profit of the P.S.K.
sub-group for the year 2005 and of the BAWAG sub-group in respect of the fourth quarter of 2005. For informa-
tion purposes and to provide a clearer presentation of the Income Statement, a pro forma account for 2005 has
been appended to the Income Statement for 2006. It assumes first-time consolidation of the BAWAG sub-group
as of January 1, 2005 and captures the entire financial year. To improve comparability, in the Management Report,
results in 2006 are compared with the pro forma figures for 2005.
The Group consisted of 75 entities in Austria and abroad. Besides BAWAG P.S.K., the banks in the Group were
Österreichische Verkehrskreditbank, easybank, Sparda Bank, BAWAG Wohnbaubank, Istrobanka in Slovakia,
BAWAG Bank CZ in the Czech Republic, BAWAG Bank dd in Slovenia and BAWAG Malta Bank. The key financial
service providers in the Group were asset management company BAWAG P.S.K. Invest, the BAWAG P.S.K. leasing
group, BAWAG Versicherung and P.S.K. Versicherung. On the grounds of materiality, the BAWAG P.S.K. real-
estate sub-group, the Stiefelkönig shoe chain and the Bösendorfer piano company were also consolidated. TV
Notes to the Annual Financial Statements for 2006
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broadcaster ATV+ was accounted for using the equity method. Aviso Alpha Veranlagung GmbH and Aviso Beta
Veranlagung GmbH — set up by major Austrian banks and insurers in June 2006 as the Austrian financial sector’s
contribution to securing the future of BAWAG P.S.K. — were also accounted for using the equity method.
Our consolidated assets as of December 31, 2006, totaled € 50.81 billion, which was € 7.09 billion or 12.2 per
cent less than a year earlier. Most of the change was due to developments at BAWAG P.S.K. itself , which were
dominated by withdrawals of customer money during the second quarter of 2006 (see above). As a countermea-
sure, we rapidly sold liquid, low-margin securities. The drain on savings deposits increased our funding costs in
that it compelled us to raise additional funds in the money market, and funding costs were also increased by the
deterioration in our ratings. We responded by systematically realizing the aforesaid blocks of assets.
The following table details the movements in our assets:
€€m 12/2006 12/2005
Balance Percentage Balance Percentage +(-) Change
of Assets of Assets
Receivables from customers 27,579 54% 29,273 51% (1,694) (5.8%)Securities 14,762 29% 19,854 34% (5,092) (25.6%)Receivables from credit institutions 3,793 7% 4,104 7% (311) (7.6%)Other non-current assets 1,841 4% 1,809 3% 32 1.8%Other items 2,831 6% 2,858 5% (27) (0.9%)Assets 50,806 100% 57,898 100% (7,092) (12.2%)
Receivables from customers recognized on the Balance Sheet as of December 31, 2006, came to € 27.58 billion.
This was € 1.69 billion or 5.8 per cent less than at the end of the previous year. In addition to the systematic cut-
back in business described above, this line item was also reduced by scheduled repayments and premature repay-
ments of loans to the public sector. The portfolio of loans to local authorities remained stable. Receivables from the
public sector and receivables guaranteed by the public sector totaled € 9.01 billion as of December 31, 2006. This
was € 1.62 billion less than at the end of the previous year. Receivables from corporate customers came to € 12.40
billion, which was € 0.36 billion or 2.9 per cent less than at the end of 2005. The decline was caused by a reduction
in the portfolio of loans to international corporates and by sales of syndicated loans. Business with small and
medium-sized enterprises developed very well, as did the personal loans portfolio, with receivables from personal
banking customers increasing by € 0.30 billion or 5.0 per cent to € 6.16 billion.
As of December 31, 2006, the Group’s securities portfolio was worth € 14.76 billion. This was € 5.09 billion or
25.6 per cent less than a year earlier. For reasons of liquidity, maturing security investments were not replaced,
and we sold low-margin holdings.
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The following table details movements in the securities portfolio:
€m 12/2006 % 12/2005 % +(-) Change
Public sector bonds 4,687 32% 6,425 32% (1,738) (27.1%)Bonds ofother issuers 8,362 57% 10,400 53% (2,038) (19.6%)Investment certificatesand other securities 1,713 11% 3,029 15% (1,316) (43.4%)Banking book securities 14,762 100% 19,854 100% (5,092) (25.6%)
Besides BAWAG P.S.K., the following group members had material holdings of securities:
€m 12/2006 % 12/2005 % +(-) Change
BAWAG P.S.K. 11,188 76% 15,586 78% (4,398) (28.2%)Malta sub-group 1,469 10% 1,307 7% 162 12.4%Insurers 1,052 7% 1,026 5% 26 10.3%Other entities 1,053 7% 1,935 10% (882) (45.6%)Banking book securities 14,762 100% 19,854 100% (5,092) (25.6%)
Central management of BAWAG P.S.K.’s securities portfolio is the responsibility of the Treasury Division subject to
the directives of the Asset Liability Committee and the Managing Board. BAWAG P.S.K.’s trading books are
divided into a mismatch book and a Libor book. The mismatch book contains only securities that entail very little
or no credit risk, including above all eurozone government bonds. This book’s purpose is to earn money from
changes in the slope of the yield curve. Our yield curve projection (rise in money market rates expected to be
more pronounced than the rise in capital market rates) prompted us to further reduce our securities holdings in
this book by over € 2 billion during the fourth quarter of 2006.
BAWAG P.S.K.’s investments in the Libor book entail credit risk and consist of variable-rate instruments instru-
ments and asset swaps. At the end of December, this book was worth about € 5 billion. Over 40 per cent of the
securities held were AAA-rated, and 33 per cent were AA-rated. The Moody’s rating score of the book was 48,
which corresponds to a rating of Aa3.
The distribution of ratings across our proprietary portfolio reflected our Bank’s conservative investment policy.
Forty-nine percent of the securities in the portfolio were AAA-rated, another 22 per cent AA-rated and 25 per
cent A-rated. Just 1.5 per cent of the portfolio was rated BB or lower.
Most of BAWAG Bank Malta’s proprietary investments are in variable-rate securities, with an emphasis on asset-
backed instruments. BAWAG Malta is also responsible for managing the investment activities of Alternative
Investments (AI), which is a wholly owned subsidiary of BAWAG P.S.K. In the interests of structural streamlining,
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26
BAWAG P.S.K. sold securities worth € 248 million to this Maltese subsidiary, causing a corresponding increase in
its security holdings. The Group has investments in two ABS structures worth € 824 million via subsidiaries
Bodensee and Rhein, which are joint ventures set up with an international investor. As a result of our consolida-
tion policies, the Group recognizes the entirety of this investment on its Balance Sheet even though it only bears
51 per cent of the risk.
In accordance with the requirements of the Versicherungsaufsichtsgesetz (Austrian insurance supervision act),
insurers BAWAG Versicherung and P.S.K. Versicherung invest mainly in their life insurance reserves.
Declines in the investment holdings of the other Group members resulted from the sale of fund shares by Austrian
subsidiaries and transfers of ABS structures to BAWAG P.S.K.
The following table tracks movements on the equity and liabilities side of the Balance Sheet:
€€m 12/2006 12/2005
Balance Percentage of Balance Percentage of +(-) Change
Balance Sheet Total Balance Sheet Total
Savings deposits 14,645 29% 18,241 31% (3,596) (19.7%)Other customer deposits 9,411 18% 10,886 19% (1,475) (13.5%)Debt issues 12,209 24% 12,407 21% (198) (1.6%)Payables to banks 4,958 10% 7,352 13% (2,394) (32.6%)Other liabilities and equity 9,583 19% 9,012 16% 571 6.3%Balance sheet total 50,806 100% 57,898 100% (7,092) (12.2%)
Media reports about the Caribbean transactions and legal action by the Refco creditors led to massive with-
drawals of customer funds during the first half, including above all savings deposits. Although we were able to
halt the trend in the second half, the drain on our deposits could not be fully reversed. In the first few months of
2007, it has become apparent that customer confidence in BAWAG P.S.K. is being restored. This is clearly evi-
denced by the increase of over € 100 million in savings deposits and the increase of more than € 250 million in
sales of bonds issued by BAWAG Wohnbaubank since January 2007.
As of December 31, 2006, BAWAG P.S.K. securities in circulation were worth € 12.21 billion, which was € 0.20
billion or 1.6 per cent less than at year-end 2005. BAWAG P.S.K. issued 30 new securities during 2006, placing
bonds with a total nominal value of € 1.68 billion in the primary market.
The emphasis was on issuances of covered bonds in the Austrian and foreign capital markets. They were private
placements with maturities of between 2 months and 2 years.
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In addition to the specific cover pool, which currently consists exclusively of receivables from the Republic of
Austria, we also created a general cover pool. It too consists exclusively of receivables from the public sector,
most of which are from local authorities in Austria. Moody´s Investors Service has given both the specific cover
pool and the general cover pool an Aaa rating, which is the highest possible credit score.
Since we did not issue any public international bonds during 2006, Austrian personal banking customers were
another of our target markets. Here too — alongside the convertible bonds issued by Wohnbaubank — the empha-
sis was on covered bonds. We placed a total of about € 200 million with personal banking customers in Austria.
One of our more innovative issues was the BAWAG P.S.K. Gold Kassenobligation, which has a maturity of
18 months. Besides a guaranteed coupon of 2.5 per cent per annum, it carries a possible bonus coupon of 2.5
per cent per annum that depends on the price of gold.
In the wake of the withdrawals of customer deposits during the first half of 2006, our subsidiaries too have been
developing attractive products designed to win back customers.
easybank is the only direct bank in Austria that boasts the product line of a major bank. easybank thus stands
apart because of the large number of financial products it supplies. easybank offers its customers attractive terms
and conditions for giro and securities products, savings products, loans and private pensions. Its new easy-
premium account has proven very successful. It is a demand account that currently offers private individuals a
very attractive interest rate of 3.3 per cent. Every holder of an account at easybank can save in this way.
BAWAG Wohnbaubank AG did not issue any new securities after May 2006. As a result, sales during the year
under review, which came to € 50 million, were significantly down on previous years. However, the company
issued two securities at the beginning of 2007. Sales had already topped € 250 million by the end of March 2007,
with the Euribor-tracker at the centre of customer interest. In other words, sales of this product in just three
months far exceeded those of the company’s securities in the whole of the record year 2004. Since their coupons
are exempt from interest tax (Kapitalertragssteuer) up to 4 per cent, convertible bonds are particularly attractive
investments in the current climate of low interest rates. Moreover, their cost is allowable for tax purposes as part
of the holder’s special deductions. The proceeds from these bonds are lent mainly to not-for-profit residential
property developers and also, of late, to personal banking customers to finance the creation, maintenance and
renovation of residential real estate.
BAWAG P.S.K. Invest GmbH also offers the Group’s customers a steady stream of attractive investment opportuni-
ties. Its current product is the Energie-Kapitalgarant fund, which invests in international energy and commodity
stocks. Customers are given a capital guarantee: When this investment matures, each customer will receive at
least 80 per cent of the highest value reached during its term. BAWAG P.S.K. Invest again won a number of fund
awards in 2006 in recognition of its performance and professional asset management work.
27
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Our provisions decreased by € 0.35 billion to € 2.08 billion. This was mainly due to the use of the provision cre-
ated for litigation risks in connection with the Refco case (see our comments on the Refco exposure). Our under-
writing provisions increased by € 0.15 billion to € 1.37 billion, providing clear evidence of the sales success of
insurers BAWAG Versicherung and P.S.K. Versicherung.
The increase in the volume of funds raised by the Group through collateralized repurchase agreements in turn
increased our trading liabilities by € 1.32 billion to € 4.69 billion.
The following table summarizes our Income Statement:
€m 12/2006 12/2005 * +(-) Change
Net interest income 605 663 (58) (8.8%)Net commission income 157 177 (20) (11.4%)Net trading income 23 14 9 71.3%Administrative expenses (645) (637) (8) (1.3%)Operating profit 140 217 (77) (35.5%)
Charges for losses on loans and advances (128) (281) 153 54.6%Other operating profit 7 55 (48) (87.5%)Profit before tax 19 (9) 28 —
Income tax 49 13 36 288.8%Profit after tax 68 4 64 > 300.0%
Note* Pro forma figures: retroactive first-time consolidation of the BAWAG sub-group as of 1 January 2005.
Most of the decline in net interest income, which fell by € 58 million or 8.8 per cent to € 605 million, was due to
the fact that prevailing interest rates made it impossible to replace maturing government debt and bonds carrying
high fixed coupons with equivalent securities. Other reasons included the withdrawals of savings deposits, which
increased our funding costs, and the decrease in investment volumes caused by sales of securities and loan
repayments. Moreover, net interest income in 2005 had included the one-off effects of the Kirch/Premiere loan
work-out totaling € 45 million.
For the first time, the entirety of the fees paid to Österreichische Post AG for the banking business it generated
was recognized as commission expense. In 2005, these service fees had been recognized as operating expenses.
Adjusting prior-year figures accordingly, net commission income advanced by a very satisfactory € 16 million. This
was the fruit of our efforts to build up our service and advisory capabilities.
The re-allocation of fees paid to the Österreichische Post AG also affected administrative expenses, which were
€ 44 million up on the adjusted figure for the previous year. The increase was due to the creation of provisions in
respect of pre-retirement agreements, consultancy costs in connection with our Basel II project and additional
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staff, consultancy and equipment costs connected with our IT system changeover. Amortization of the Allegro
software package began in the second half of 2005, so full-year amortization was recognized for the first time in
respect of the 2006 financial year.
Operating profit came to € 140 million. Even allowing for the one-off effects described above, this was signifi-
cantly down on the previous year.
Charges for losses on loans and advances during the year under review came to € 128 million. Although this was
much less than in 2005, it was still well above the long-term average, The principal reason was pruning in our
portfolios of both Austrian and foreign projects.
Other operating profit encompasses mark-to-market gains and losses on securities and derivative instruments in
the banking book, income and expenses arising due to real-estate, finance leasing, insurance and retailing opera-
tions, net income from financial investments and the amortization and write-downs of goodwill. In total, this line
item came to € 7 million in 2006. It was negatively impacted by movements in interest rates during the first half
that led to unrealized and realized losses in the mismatch book. Unrealized and realized gains on financial invest-
ments in listed Austrian companies had a positive impact.
Our tax income in the amount of € 49 million resulted mainly from deferred tax assets associated with our tax loss
carryforward. When calculating these deferred tax assets, we only recognized tax loss carryforwards compatible
with the Bank’s business plan. In addition, we also deducted a haircut.
The results were profit for 2006 after tax of € 68 million and consolidated profit after minorities of € 40 million.
The following table tracks the BAWAG P.S.K. credit institution group’s consolidated own funds for the purposes of
BWG:
€m 12/2006 12/2005
Share capital 250 250Reserves 1,452 1,432
Goodwill, minorities, deductions 872 544Core capital (Tier 1) 2,574 2,226
Reserve pursuant to § 57 BWG, revaluation reserve 6 15Supplementary capital and subordinated debt capital 985 1,091Additional items (Tier 2) 991 1,106
Less equity investments (51) (51)Eligible own funds 3,514 3,281
Tier 3 43 31Own funds 3,557 3,312
29
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Our own funds requirement was as follows:
€m 12/2006 12/2005
Credit risk 2,251 2,256Market risk 43 31Requirement 2,294 2,287
This gave us a core capital ratio of 9.2 per cent and an own funds ratio of 12.5 per cent. The € 900 million guar-
antee furnished by the Republic of Austria is not recognized directly in these figures; it merely allowed us to
release impairment provisions in this amount. The capital support measures taken by the Austrian financial sector
were recognized as minority interests in our equity totalling € 450 million. Without those minority interests, our
core capital ratio would have fallen to 7.6 per cent and our own funds ratio would have been 10.9 per cent.
Non-financial performance indicators
During 2006 — which was an immensely difficult year for BAWAG P.S.K. — staff were particularly challenged both
in the normal conduct of business and in the implementation of projects. Management attached particular impor-
tance to the basic and advanced training of the workforce. As a result, employees consumed a total of 17,886
seminar days within the scope of our wide-ranging training program. Ensuring that apprentices receive quality
training is equally important. Once again, every one of our candidates passed his or her qualifying exam in 2006.
This exam also qualified them as skilled clerical workers.
The quality of the training provided by our Group was also demonstrated by the most recent professional compe-
tition for clerical apprentices in Vienna. Out of the 6,500 young entrants, three BAWAG P.S.K. apprentices again
stood out with excellent rankings in the Banking and Financial Services category. First-year BAWAG P.S.K.
apprentices won one of the main prizes in the Solidarity category in the We do it competition in a field of 24 com-
peting projects for their Lehrlinge mit Herz (apprentices with a heart) project. This competition was held by the
Kultur- und Sportverein (cultural and sporting association) of the Municipality of Vienna.
BAWAG P.S.K. has been running a traineeship program since 1992. Quality standards are high. The candidates
are chosen carefully and, after a nomination procedure, trained to become expert specialists or young manage-
ment personnel in programs that are closely tailored to our future staff needs.
As in prior years, most vacant positions in the Group were advertised and filled internally during 2006. This
approach gives BAWAG P.S.K. employees opportunities to change and develop and it also ensures the best pos-
sible use of the available internal human resources.
As far as possible, we want to continue to fill management positions in the Group with existing members of staff.
To this end, we focus particularly closely on carefully fostering employees with appropriate potential. Our staff
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Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
development work is the fruit of annual staff interviews, systematic assessment-based basic and advanced train-
ing plans and continuous evaluation of our success in developing young staff members. Annual coordinating
meetings between the responsible senior personnel and support staff from Human Resources are important foun-
dations for these measures. Their purpose is to prepare qualified staff members for future leadership roles or
careers as expert specialists. Existing management personnel are of course also given support in their leadership
roles in the form of coaching modules and our extended range of internal management seminars.
Events after the balance sheet date
Our Hermes project was launched at the end of January 2007. The purpose of this project, managed by the
Boston Consulting Group, is to effect the reorientation of BAWAG P.S.K and reformulate its overall strategy.
Various sub-projects address segmental topics like retail business, corporate banking and treasury operations as
well as across-the-board topics like incentives, organization and databases. The conceptual phase is scheduled
for completion by the time the Bank’s sale closes.
The sale transaction between AVB and the members of the consortium led by Cerberus (see above) has been
scheduled for closure in the second quarter of 2007. The ongoing selling process is proceeding according to
plan. Approval by the EU Commission for the purposes of EU competition law, granted in February 2007, was an
important milestone.
The Risk Report is part of the Notes to the IFRS-compliant financial statements.
Outlook
The economy’s performance
Global conditions should remain relatively favorable during 2007. Although the pace of global economic growth
will slow somewhat, it will still remain comparatively rapid. The US economy is likely to continue to lose momen-
tum, and this will, in turn, subdue the growth of China’s economy. The boom in the eurozone will be fuelled by
robust domestic demand, whereas exports to the dollar area could suffer, increasingly, from appreciation of the
euro. German exporters will be particularly hard hit. Nonetheless, thanks to strong domestic demand, the growth
of the bigger eurozone economies should slow only marginally during 2007. Nor should Germany’s VAT hikes
have much effect on its economic growth. Because of catch-up processes, the Central and Eastern European
economies will continue to grow much faster than those of the older EU members.
The recovery in Austria will continue during 2007. Austria’s Institut für Wirtschaftsforschung (economic research
institute) and Institut für Höhere Studien (institute for advanced studies) increased their forecasts again in March
2007. Austria’s real GDP is likely to grow by about 3 per cent this year, following record growth of 3.2 per cent in
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the year under review. Whereas export demand will probably lose some of its vigor in the course of the year, brisk
investment activity in the corporate sector should bolster the Austrian economy’s recovery. In addition, private
consumption will gain buoyancy from the healthy growth of incomes.
The BAWAG P.S.K. Group’s performance
The agreement for the sale of BAWAG P.S.K. to the consortium led by Cerberus was signed on December 30,
2006. In January 2007, the takeover plans were submitted to all the relevant authorities, Austria’s Financial Market
Authority, the regulatory authorities in the other countries where BAWAG P.S.K. operates and the European
Commission in Brussels. The EU Commission granted its approval on 28 February 2007. The sale’s closing and
the associated transfer of legal ownership are expected to take place this May.
The Bank’s performance during the first two months of this financial year was very promising. Despite high vol-
umes of maturing Kapitalsparbuch (fixed-term investment passbook) deposits, we recorded a net increase in sav-
ings deposits. Personal loan sales were up on the previous year. The issuances of two new Wohnbaubank (home
construction bank) bonds went particularly well, with over € 200 million being placed in the first eight weeks.
The federal guarantee furnished for BAWAG P.S.K. in the second quarter of 2006 will expire as agreed not later
than 60 days after the sale closes. The acquiring consortium has undertaken to ensure that BAWAG P.S.K. has
adequate equity by that time or before in order to satisfy all the relevant requirements.
Similarly, the special entities set up as support by the Austrian financial sector to help BAWAG P.S.K. satisfy own
funds requirements will be liquidated once the sale has closed. This will not have any further impact on BAWAG
P.S.K. because this bridging support was only required on the grounds of the poor own funds position of BAWAG
P.S.K.’s previous parent Anteilsverwaltung BAWAG (AVB). The transfer of ownership to the new group of share-
holders will terminate BAWAG P.S.K.’s relationship with AVB.
It has already been agreed that BAWAG P.S.K. will be cooperating closely with Generali-Versicherung in the
insurance sector.
Possible further strategic reorientation of our Bank will be discussed with our new owners once the sale has
closed. In any event, there will be opportunities for cooperation with the Austrian members of the acquiring con-
sortium.
Good results from our operations at the beginning of this year augur well for the rest of 2007.
Vienna
March 27, 2007
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Consolidated Financial Report prepared in accordance with
the International Financial Reporting Standards (IFRS)
Contents
Consolidated Balance Sheet as of December 31, 2006
Consolidated Income Statement for the 2006 Financial Year
Consolidated Statements of Changes in Equity for the 2006 Financial Year
Cash Flow Statement
1) Recognition and measurement principles
2) Cash reserve
3) Receivables from credit institutions and customers
4) Impairment provisions
5) Trading assets
6) Other current financial assets
7) Financial investments
8) Intangible and tangible non-current assets
9) Other assets
10) Payables to credit institutions and customers
11) Trading liabilities
12) Liabilities evidenced by paper
13) Provisions
14) Other liabilities
15) Supplementary capital and subordinated debt capital
16) Net interest income
17) Charges for losses on loans and advances
18) Net commission income
19) Net trading income
20) Administrative expenses
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
Consolidated Financial Statements
Notes
Details of the Consolidated Balance Sheet
Details of the Consolidated Income Statement
33
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21) Other operating profit
22)Income taxes
23) Fair value
24) Segment reporting
25) Receivables from and payables to subsidiaries and associates
26) Related individuals and entities
27) Disclosures required by IFRS 5 — Non-current Assets Held for Sale and Discontinued Operations
28) Assets pledged as collateral
29) Total collateralized debt
30) Subordinated assets
31) Contingent assets, contingent liabilities and commitments
32) Foreign-currency amounts
33) Genuine repurchase agreements
34) Leasing
35) List of selected equity investments
36) Market risk
37) Credit risk
38) Operational risk
39) Fiduciary assets and liabilities
40) Breakdown of securities in accordance with the Austrian banking act (BWG: Bankwesengesetz)
41) Consolidated own funds within the meaning of BWG
42) Hybrid capital
43) Human resources
44) Other disclosures required by BWG
45) Events after the balance sheet date
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
Further disclosures required by IFRS
Disclosures required by the Austrian banking and financial reporting acts
(Österreichisches Bankwesen- und Rechnungslegungsgesetz )
Risk Report
Boards and officers
Independent Auditors’ Report
Supervisory Board’s Report
34
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Consolidated Balance Sheet as of December 31, 2006
Assets
€€m (Note) 12/31/2006 12/31/2005
Cash reserve (2) 685 804Receivables from credit institutions (3) 3,793 4,104Receivables from customers (3) 27,579 29,273Impairment provisions (4) (584) (645)Trading assets (5) 1,436 1,219Other current financial assets (6) 8,315 13,579Financial investments (7) 7,252 7,064Intangible non-current assets (8) 447 426Tangible non-current assets (8) 589 594Other assets (9) 1,294 1,480Total assets 50,806 57,898
Equity and liabilities
€€m (Note) 12/31/2006 12/31/2005
Payables to credit institutions (10) 4,958 7,352Payables to customers (10) 24,056 29,127
Savings deposits 14,645 18,241Other deposits 9,411 10,886
Trading liabilities (11) 4,693 3,370Liabilities evidenced by paper (12) 10,611 10,766Provisions (13) 2,084 2,436Other liabilities (14) 731 1,182Subordinated debt capital and supplementary capital (15) 1,598 1,641Minorities 402 386Equity 1,673 1,638Total equity and liabilities 50,806 57,898
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
35
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Consolidated Income Statementfor the 2006 Financial Year
€€m (Note) 2006 2005 2005 (Proforma)
Interest income and similar income 1,986.4 949.9 1,919.1Interest expenses and similar expenses (1,381.5) (582.7) (1,255.9)Net interest income (16) 604.9 367.2 663.2
Charges for losses on loans and advances (17) (127.4) (205.1) (280.6)Commission income 302.3 161.5 282.2Commission expenses (145.1) (73.9) (104.7)Net commission income (18) 157.2 87.6 177.5
Net trading income (19) 23.3 5.1 13.6Administrative expenses (20) (645.7) (312.6) (637.7)Other operating profit (21) 6.9 39.8 55.1Profit (loss) before tax 19.2 (18.0) (8.9
Income taxes (22) 48.6 8.3 12.5Profit (loss) after tax 67.8 (9.7) 3.6
Minority interest in profit (27.4) (2.0) 2.6Consolidated profit (loss) 40.4 (11.7) 6.2
Figures in the Income Statement for 2005 are only comparable to a limited extent because they present the devel-
opment of the P.S.K. Sub-Group during the whole year and of the BAWAG Sub-Group during the fourth quarter
of 2005. Please note that profit for 2005 includes net interest income from P.S.K.’s investments with BAWAG dur-
ing the first three quarters in the amount of € 65 million.
An unaudited proforma statement has also been provided for information purposes and to give a meaningful pres-
entation of the Income Statement. It is a consolidated income statement of the Group for the whole of the 2005
financial year.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
36
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Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
37
Consolidated Statements of Changes in Equity for the 2006 Financial Year
€€m Subscribed Capital Retained AFS Translation Equity Minorities EquityCapital Reserves Earnings* Reserve Reserve without with
Minorities Minorities
Balance as of 1/1/2005 129.0 565.1 356.5 117.2 — 1,167.8 34.5 1,202.3Contribution of BAWAG sub-operation 121.0 333.8 — — — 454.8 352.6 807.4Change in scope of consolidation — — 22.1 — — 22.1 — 22.1Consolidated profit — — (11.7) — — (11.7) 2.0 (9.7)Foreign exchange differences — — — — 4.6 4.6 — 4.6Dividends — — — — — — (2.6) (2.6)Balance as of 12/31/2005 250.0 898.9 366.9 117.2 4.6 1,637.6 386.5 2,024.1
Balance as of 1/1/2006 250.0 898.9 366.9 117.2 4.6 1,637.6 386.5 2,024.1Change in scope of consolidation — — (21.6) — — (21.6) — (21.6)Consolidated profit — — 40.4 — — 40.4 27.4 67.8Foreign exchange differences — — — — 17.1 17.1 — 17.1Dividends — — — — — — (12.3) (12.3)
Note* Of which revaluation reserve in accordance with IFRS 3.59 (b) 8.5
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Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
38
Cash Flow Statement€€m 2006 2005
I. Profit (after tax, before minorities) 68 (10)
Non-cash positions in profit and reconciliation to net cash
from operating activities
Write-downs, gains and losses, write-ups 280 (139)Change in provisions 300 512Changes in other non-cash items 311 449Realized gains and losses from the sale of intangible non-current assets,
tangible non-current assets and financial investments (5) 12Other adjustments (649) (218)Subtotal 305 606
Change in assets and liabilities arising from operating activities after
corrections for non-cash items
Receivables from credit institutions and customers 1,050 3,725Trading assets (136) 610Other current financial assets 4,750 (1,817)Other assets 332 137Payables to credit institutions and customers (7,492) (2,445)Liabilities evidenced by paper 123 (93)Other liabilities and trading liabilities 648 (145)Interest and dividend receipts 2,048 912Interest paid (1,401) (675)Income taxes paid (8) (20)II. Net cash from operating activities 219 795
fi_033_106.qxp 13.06.2007 11:43 Uhr Seite 38
€€m 2006 2005Cash receipts from sales of
Financial investments 962 817Tangible and intangible non-current assets 7 16Cash paid for
Financial investments (1,213) (1,380)Tangible and intangible non-current assets (131) (42)Purchase of subsidiaries (minus acquired cash and cash-equivalents) — (16)Change in scope of consolidation — 224
III. Net cash used in investing activities (375) (381)
Dividends paid (12) (3)Subordinated liabilities and other financing activities 45 12
IV. Net cash from financing activities 33 9
Cash and cash equivalents at end of previous period 804 380
Net cash from operating activities 219 795
Net cash used in investing activities (375) (381)
Net cash from financing activities 33 9
Effect of exchange rate changes 4 1
Cash and cash equivalents at end of period 685 804
The Cash Flow Statement provides information about the Group’s cash and cash equivalents and about inflows
and outflows thereof. It presents inflows and outflows of cash and cash equivalents from and used in operating
activities, investing activities and financing activities. Reported cash and cash equivalents comprise cash on hand
and credit balances with central banks.
First-time consolidations and deconsolidations during the financial year did not affect the Group’s holdings of cash
and cash equivalents.
39
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fi_033_106.qxp 13.06.2007 11:43 Uhr Seite 39
Notes
2006 was a crucial year for BAWAG P.S.K. The uncovering of the losses in the Caribbean and involvement in the
Refco scandal led to sizeable withdrawals of funds that could only be stemmed by the federal guarantee. The sell-
ing process and our efforts to make up for lost business dominated our activities during the second half of 2006.
CEO Ewald Nowotny has been heading BAWAG P.S.K. since January 1, 2006. During the first quarter of this year,
fundamental action was taken to improve our corporate governance procedures and put them into effect in a five-
point program to define new terms of reference for the Managing Board; review the Supervisory Board’s terms of
reference; restructure Managing Board remits, creating clear firewalls between the front office and risk manage-
ment and installing a central Chief Risk Officer; amend our lending and risk control guidelines; and voluntarily
adopt the Austrian corporate governance code applicable to listed enterprises. During the 2006 financial year,
BAWAG P.S.K. voluntarily submitted to an external audit of its compliance with Austria’s corporate governance
code. The results of the audit were published on our website. With the exception of questions regarding the
actions of the Auditors themselves, our compliance with the corporate governance code is monitored by Deloitte.
Changes in boards and officers
Examining and accounting for past transactions led to major changes in BAWAG P.S.K.’s structure.
BAWAG P.S.K.’s Supervisory Board was recomposed and reduced in size. Since April 7, 2006, the Chairman of
the Supervisory Board has been Siegfried Sellitsch and his Deputy Chairman has been Dwora Stein. The appoint-
ments of four members of the Managing Board, namely Christian Büttner, Hubert Kreuch, Peter Nakowitz and
Josef Schwarzecker, were rescinded. The settlement of claims in connection with the dissolution of their contracts
is still pending and will be handled by our lawyers.
Rating and FMA Investigation
Media reports about the Caribbean transactions and subsequent legal actions by the creditors of insolvent US
broker Refco led to a massive loss of confidence in the Company. BAWAG P.S.K. in the main, but also its sub-
sidiaries, suffered sizeable withdrawals of customer deposits and, for a period, constraints in the international
money and capital markets. At the peak of the crisis, we were only able to borrow in the money market on a
secured basis. In addition, we made use of the standard ECB refinancing facilities through the OeNB and took
appropriate liquidity management action on the assets side of the Balance Sheet. This process was coordinated
by a team made up of two members of the Managing Board and representatives from all the divisions concerned.
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Consolidated Financial Report prepared in accordance with IFRS
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The bank auditors, the OeNB and the FMA were given minutes of its meetings. The provisions of § 25 BWG
(Austrian banking act: Liquidity) continued to satisfied throughout these months.
In the course of these events, Moody’s Investors Service set the Bank’s rating at A3 at the end of May 2006. We
assume that BAWAG P.S.K.’s rating will improve again once all our restructurings have successfully been com-
pleted.
Help from the Republic of Austria (which, at the beginning of May 2006, agreed to issue a federal guarantee to
stabilize BAWAG P.S.K.) and support from the Austrian financial sector (which, under the overall control of the
Austrian national bank, created for BAWAG P.S.K. a minority-interest model to improve the Group’s consolidated
capital adequacy) did much to stabilize the situation.
In addition, the FMA and OeNB carried out a special investigation of the Caribbean transactions. The results of
this investigation are contained in a detailed report. No new, previously unknown losses were uncovered during
this investigation. The regulators’ criticisms of our risk management procedures prompted us to remedy the
weaknesses as quickly as possible. Clarifying the consequences of the Caribbean transactions for the purposes
of commercial and tax law was one of our key internal missions during the year under review. It proved possible
to come to agreements with the Austrian federal ministry of finance and the responsible tax office on unsettled tax
issues.
Guarantee furnished by the federal government
To stabilize and strengthen BAWAG P.S.K., the Austrian Nationalrat enacted a law, the BAWAG P.S.K. Sicherungs-
gesetz, on May 8, 2006, providing for the creation of a guarantee facility of € 900 million in the Bank’s favor with
retrospective effect from December 31, 2005. Based on this legislation, the Austrian federal minister of finance
has signed a guarantee agreement with the Bank. The federal government’s guarantee encompasses a pool of
receivables containing assets as specified by § 22 Abs. 2 BWG. A fee of 0.2 per cent per annum is payable for the
federal guarantee. The term of the guarantee was set to end at the time of BAWAG P.S.K.’s sale but not later than
July 1, 2007. However, an extension was to be possible. This guarantee is described in detail in the Notes to the
Consolidated Balance Sheet as of December 31, 2005.
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The federal guarantee was a key prerequisite for the preparation of BAWAG P.S.K.’s separate and consolidated
financial statements as of and for the year ended December 31, 2006, on a going concern basis. The termination
of the federal guarantee following the transfer of ownership will necessitate the creation of impairment allowances
in the amount of roughly € 600 million that will require recognition in the Income Statement and, as a result, make
necessary a capital injection from our new owners.
EU: The state aid investigation
On November 23, 2006, the Commission began its formal investigation into state aid provided by the Republic of
Austria in May 2006. The decision to open the investigation was announced in the Official Journal. No third par-
ties filed comments within the time allowed. The investigation should last about six months.
The parties to the guarantee agreement believe that the state aid was in any event permissible state aid requiring
approval under Article 87 of the EC Treaty and Article 61 of the EEA Agreement and, therefore, that the guarantee
can be invoked. However, we cannot rule out the possibility that the Commission may prescribe compensatory
measures to offset the competitive advantages arising due to the state aid. However, even if it does, such com-
pensatory measures should not affect the bank’s net asset value.
Action taken by the Austrian financial sector
In June 2006, Aviso Alpha Veranlagung GmbH, whose shareholders include major Austrian banks, and Aviso
Beta Veranlagung GmbH, whose shareholders include major insurers, were set up as a contribution by the
Austrian financial sector to securing BAWAG P.S.K.’s future. BAWAG P.S.K. holds 20 per cent of each company’s
shares but, under their memoranda and articles of association, has the right to name two members of their three-
member managing boards. The object of both companies is to invest in highly rated government securities issued
by EU member states.
Applying § 30 Abs. 1 Z 3 BWG, both companies are included within the scope of the AVB credit institution group,
accounting for minority interests in its consolidated own funds of € 450 million. This amount counts towards this
credit institution group’s core capital. The creation of these two companies raised the AVB Group’s consolidated
own funds above the regulatory minimum. Thanks to the federal guarantee, BAWAG P.S.K. itself and the BAWAG
P.S.K. credit institution group already fulfilled the regulatory own fund requirements.
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Because of contractual restrictions and the temporary nature of this arrangement, the Group has only a significant
influence over these companies for the purposes of IFRS. Consequently, both are accounted for in these
Consolidated Financial Statements using the equity method.
OGH rulings on services for consumers
The ruling of the Austrian supreme court in a test case that affected the entirety of the Austrian banking industry
prohibits BAWAG P.S.K. from continuing to apply as before the clauses, taken from the Austrian banking act, on
changes in rates paid on passbooks (Sparbücher). Since the fall of 2006, BAWAG P.S.K. has been offering to
recalculate interest on customers’ passbooks. Some 3,000 applications had been made by the beginning of
March 2007. To date, BAWAG P.S.K. has processed some 1,600 applications and recalculated the associated
interest. Additional payments have only had to be made in 65 cases, and they were small. BAWAG P.S.K. sees
this interim figure as confirmation that its interest calculations in the past were generally correct and still believes
that only occasional additional payments will be necessary. In any event, the provision that has been created
should suffice.
In April 2006, BAWAG P.S.K. reached a general agreement with Austria’s consumer protection institutions settling
disputes about variable rate clauses in personal loan agreements. An appropriate framework agreement that also
covers customers who had not yet brought actions against BAWAG P.S.K. was concluded in May 2006. Handling
the many individual cases, which differ considerably, has been a complex process, but with just a few exceptions,
it has already been completed. Appropriate provisions have been created to cover payments that are still out-
standing.
Taxable group
Besides group parent BAWAG P.S.K., the taxable group (Steuergruppe) comprises 25 Austrian entities and one
foreign entity. The taxable group has changed in that BAWAG P.S.K. became Group parent with retrospective
effect from January 1, 2005. The scope of consolidation encompasses the Group parent and all Group members.
Within the taxable group, taxable profits can be offset against tax losses.
We elected to employ the stand-alone method when calculating tax contributions. This method assumes the fiscal
independence of individual Group members.
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Refco: Further developments
In April 2006, BAWAG P.S.K.’s fraud suit against Refco and Phillip Bennett was met by the announcement of a
countersuit by unsecured Refco creditors with claims against BAWAG P.S.K. in the amount of US$ 1.3 billion. At
the same time, BAWAG P.S.K.’s assets and accounts in the United States were briefly frozen. BAWAG P.S.K. suc-
cessfully applied to have the freeze on its accounts lifted within just a few days, allowing its international payments
to resume without restriction. However, assets totalling some US$ 1.1 billion remained frozen for the time being.
Following talks with the US authorities and representatives of Refco’s creditors, BAWAG P.S.K. then agreed an
extensive settlement of the claims arising in connection with Refco’s insolvency. Settlement negotiations were
completed at the beginning of June 2006. In the settlement agreement, BAWAG P.S.K. agreed to pay a total of
US$ 675 million. The settlement provided that a further payment was to be made by the former owners of
BAWAG P.S.K. if proceeds from the Bank’s sale exceeded € 1.8 billion, 30 per cent of any amount exceeding that
amount being payable as an additional settlement up to a maximum of US$ 200 million. BAWAG P.S.K. also
agreed to drop its own unsettled claims, including in particular the unsettled but already written-off loan claims in
the amount of € 393 million, against Refco and the Refco creditors, but not its claims against Phillip Bennett. In
exchange, the Refco creditors dropped their actions and the US Attorney agreed not to prosecute the bank and
its boards. The extensive settlement also included other groups, namely Refco shareholders and stakeholders and
investment house Thomas H. Lee Partners. During the settlement’s implementation, Refco victims were only to
receive payments if they agreed not to take legal action against BAWAG P.S.K. This settlement having been
reached, further serious actions in connection with Refco are unlikely, but under US law, they cannot be ruled out
entirely. The settlement is not an admission of guilt. It was reached solely to give us the greatest possible legal
security.
Claim against AVB
After the demerger of the company’s banking operations for the purposes of the acquisition as of December 31,
2004, the demerged company AVB still had a settlement liability of € 1,411 million. Interest due and deferred
interest increased BAWAG P.S.K.’s claim against this, its sole parent AVB, to € 1,575 million as of December 31,
2006. The recoverability of this claim will depend primarily on the parent’s assets being unimpaired. Besides
securities worth € 383 million, those assets consist largely of its 100 per cent stake in BAWAG P.S.K.
Now that the Bank has been sold to Cerberus, proceeds from the sale will enable BAWAG P.S.K.’s direct and
indirect owners to fulfill their obligations to and honor their guarantees on behalf of the Bank.
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Allegro: The Group’s common core banking system
Release 4 of Allegro — our new core banking system — was installed as planned in November 2006. The purpose
of this release was to change core banking systems at the former Postsparkasse over to the Allegro system, which
had already been implemented at BAWAG in recent years in a 3-step process. This has been one of the biggest-
ever IT changeovers in the European banking sector. Including capitalized self-produced items, it cost roughly
€ 246 million up to December 31, 2006. Our common core banking system is now in use in 156 bank branches
and over 1,300 post offices, greatly improving the service we offer customers. Release 5 is planned for 2007; it
will create the basis for implementing the requirements of Basel II.
These Consolidated Financial Statements were prepared
applying § 59a BWG, according to Regulation (EC) No 1606/2002 of the European Parliament and of the
Council of July 19, 2002, and in conformity with the provisions of the standards (IFRS) published by the
International Accounting Standards Boards (IASB) and the interpretations by the International Financial
Reporting Interpretations Committee (IFRIC/SIC) as applicable on the balance sheet date. All standards con-
tained in the International Financial Reporting Standards published by the IASB as adopted by the EU and
mandatory with respect to the Annual Financial Statements for 2006 were applied.
Our earlier comments on the federal guarantee made reference to the Republic of Austria’s BAWAG P.S.K.-Sicherungsgesetz of May 2006. With retrospective effect from December 31, 2005, the Republic of Austria
assumed liability as guarantor in respect of certain of BAWAG P.S.K.’s claims. Because of this guarantee, impair-
ment provisions in respect of receivables in the amount of € 900 million remained unrecognized in the
Consolidated Financial Statements as of and for the period ended December 31, 2005, even though IAS 10.10 pro-
hibits the retrospective recognition of such guarantees after the balance sheet date. The Bank’s Managing Board
is however of the opinion that the retrospective recognition of the guarantee in the Consolidated Financial
Statements for 2005 helps give as true and fair a view as possible of the Group’s assets and the results of its
operations in the financial years 2005 and 2006.
The basis for these Consolidated Financial Statements of BAWAG P.S.K. prepared in accordance with IFRS was
provided by the separate financial statements of all the consolidated Group members as of and for the period
ended December 31, 2005, prepared homogeneously throughout the Group in accordance with IFRS. Insofar as
the Group had a significant or controlling influence over them, associates were accounted for using the equity
method.
The preparation of annual financial statements in accordance with IFRS necessitates the making of assumptions
and estimates regarding material factors affecting business operations. Such assumptions are continually
reviewed and adapted. Any adaptations are taken account of in respect of the current period and, if their effects
are longer-term, in respect of future periods as well.
The recognition and measurement principles described below were applied throughout with respect to all the
financial years named in these Consolidated Financial Statements.
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1) Recognition and measurement principles
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The reporting currency is the euro. Unless stated otherwise, figures are rounded to the nearest million euros.
Amounts on the face of the Balance Sheet denominated in foreign currencies were translated at middle rates of
exchange. Currency forwards and futures were translated at the forward rates of exchange prevailing as of the
balance sheet date. The financial statements of foreign subsidiaries were brought in to the Consolidated Financial
Statements applying the functional currency approach.
Although the guarantee agreement was not concluded until June 2006, the Republic of Austria’s guarantee was
recognized in the Consolidated Financial Statements for 2005. IFRS does not provide for such retrospective
recognition. This approach also affected the results of our operations in the reporting period from January 1,
2006, through December 31, 2006.
Scope of consolidation and consolidation policies
The scope of consolidation included all material equity investments of BAWAG P.S.K., whether held directly or
indirectly.
The Consolidated Financial Statements as of and for the period ended December 31, 2006, accounted for 75 con-
solidated entities and three entities accounted for using the equity method. In the interest of materiality, the crite-
ria for inclusion were both the amount of an entity’s assets and its relative contribution to the Group’s consoli-
dated profit. The effect of the non-consolidated subsidiaries on the Group’s assets and financial state and the
results of its operations was immaterial. Note 35 (List of selected equity investments) contains a list of all the
Consolidated Group members and those accounted for using the equity method. As of December 31, 2006, asso-
ciates not accounted for using the equity method had a book value of € 198 million. Because their effect on the
Group’s assets and financial state and the results of its operations was immaterial, subsidiaries with a book value
of € 50 million were not consolidated.
The following entities were deconsolidated on the grounds of immateriality: Austost Handels und Treuhand Limited,
Guernsey; Austost Handels- und Treuhandgesellschaft m.b.H., Munich; AUST-INGEBE BeteiligungsverwaltungGmbH, Vienna. The decision to liquidate Austost Handels- und Treuhandgesellschaft m.b.H., Munich, had already
been made. Austost Handels und Treuhand Limited, Guernsey, is a non-operating company with share capital of
€ 3.22. The only function of AUST-INGEBE Beteiligungsverwaltung GmbH is to hold the Group’s stake in AustostHandels- und Treuhandgesellschaft m.b.H., Munich.
Aviso Alpha Veranlagung GmbH and Aviso Beta Veranlagung GmbH, set up in June 2006 by major Austrian banks
and insurers as the Austrian financial sector’s contribution to securing BAWAG P.S.K.’s future, were accounted for
using the equity method.
POLESTAR LIMITED, KLB Baulandentwicklung GmbH and Pluto Beteiligungsverwaltung GmbH were accounted
for in the Consolidated Financial Statements for the first time as of December 31, 2006. These Group members
had the following effects on the Consolidated Balance Sheet and Income Statement:
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Polestar LimitedKLB Baulandentwicklung GmbHPluto Beteiligungsverwaltung GmbH
Assets
€€m Aggregated Net effect of Effect onconsolidation Group
Cash reserve — — —Receivables from credit institutions 1.1 1.1 —Receivables from customers 3.7 0.7 3.0Impairment provisions — — —Other current financial assets 48.9 — 48.9Financial investments — — —Tangible non-current assets — — —Other assets 2.7 2.5 0.2Total assets 56.4 4.3 52.1
Equity and Liabilities
€€m Aggregated Net effect of Effect onconsolidation Group
Payables to credit institutions 76.8 76.8 —Payables to customers — — —Liabilities evidenced by paper — — —Provisions 1.5 — 1.5Other liabilities 0.5 0.5 —Subordinated debt capital and supplementary capital — — —Equity (22.4) — (22.4)Total equity and liabilities 56.4 77.3 (20.9)
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Income Statement
€€m Aggregated Net effect of Effect onconsolidation Group
Interest income and similar income — — —Interest expenses and similar expenses (0.4) (0.4) —Net interest income (0.4) (0.4) —
Charges for losses on loans and advances — — —Commission income — — —Commission expenses — — —Net commission income — — —Administrative expenses — — —Other operating profit (0.4) (0.4) —Profit (loss) before tax (0.8) (0.8) —
Income tax — — —Profit (loss) after tax (0.8) (0.8) —
POLESTAR LIMITED’s most important assets comprised its receivables from BAWAG P.S.K. arising due to its pur-
chase of all rental income from the property at Tuchlauben 5 up to and including 2051. POLESTAR LIMITED
acquired these rental receivables from BAWAG PSK Leasing GmbH & Co Hochholzerhof Errichtungs- und
Vermietungs KG in 1991 at a cost of € 27.6 million. The vendor realized almost all of the gain on the sale in 1991
and distributed it to BAWAG P.S.K. Because there was no corresponding liability in the accounts of BAWAG
P.S.K., the receivable arising due to the purchase of future rental income had to be eliminated during the first-time
consolidation of POLESTAR LIMITED. This reduced our consolidated equity by € 21.1 million.
KLB Baulandentwicklung GmbH developed out of the shell of Ingebe Immobilien Verwaltung GmbH. The first-time
consolidation of KLB Baulandentwicklung GmbH did not have any material effect on the Consolidated Financial
Statements. Pluto Beteiligungsverwaltung GmbH has a securities portfolio worth roughly € 50 million, comprising
mainly government bonds.
In accordance with IFRS 3, capital consolidation took place using the purchase method of accounting, the cost of
the acquiree being compared with the value of the acquired net assets as of the date of acquisition. Net asset
value was measured on the basis of the fair values of the acquiree’s identifiable assets, liabilities and contingent
liabilities as of the date of acquisition. Making use of the exceptions provided by IFRS 1, P.S.K. (from a financial
point of view, the reporting entity for the purposes of the IFRS sub-group financial statements) did not apply IFRS
3 retroactively during the first-time adoption of IFRS 3 as of January 1, 2004.
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Recognized goodwill was reported on the Balance Sheet in the line item Intangible non-current assets. In accor-
dance with IFRS 3 in conjunction with IAS 36 and IAS 38, the recognized goodwill of all cash generating units
(CGUs) is subject to annual impairment testing in accordance with IAS 36.
All other equity investments were also tested for impairment.
To calculate CGUs’ expected cash flows for valuation purposes, we determined the present value of the projected
pre-tax profit of each CGU or individual entity by discounting it using the risk-weighted pre-tax discount rate in
the market that was applicable to the CGU in question. As a rule, the planning horizon used for valuation pur-
poses lay between three and five years. The forecasting horizon was adjusted accordingly for start-ups. If there
were tax loss carryforwards, the present value of the tax saving was taken into account, increasing the entity’s
valuation.
The applied discount rate was based on yields on long-term Austrian treasury bonds (risk-free basic rate of 4.01
per cent). Asset-specific risk premia, which reflect the risks inherent to a particular asset, were determined indi-
vidually by sector or industry (beta), country and BAWAG P.S.K. rating. These calculations did not take account
of any items that had already been taken account of in our plan assumptions.
Based on the above assumptions, we calculated the value in use of the CGU or equity investment as of Sep-
tember 30, 2006, in accordance with IAS 36. Value in use is the present value of estimated future cash flows
expected from a cash generating unit. If they were known, we determined a net realizable value (fair value less
costs to sell) on the basis of prices on a stock exchange, of offers from third parties or of expert assessments of
the value of the entity. The recoverable amount is the higher of the value in use and net realizable value.
Goodwill in the amount of € 19 million was recognized during the first-time consolidation of LETHE LEASING
GmbH&Co „Center am Fleischmarkt“ Immobilien und Anlagen KG (previously COSMOS LEASING GmbH&Co
„Center am Fleischmarkt“ Immobilien und Anlagen KG) as of September 30, 2005. Since this goodwill resulted
largely from undisclosed reserves in non-current assets, undisclosed reserves were reported in the line item
Land and buildings rather than Goodwill in our 2006 accounts. This made corresponding reallocations necessary
in 2006. Undisclosed reserves are amortized according to the expected useful life of the building in question.
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Goodwill
€€m 12/31/2006 12/31/2005
Alinea Holding GmbH, Vienna 6 6BAWAG BANK CZ a.s., Prague 13 12BAWAG P.S.K. Fuhrparkleasing GmbH, Vienna 1 1BAWAG P.S.K. Invest GmbH, Vienna 71 71BAWAG P.S.K. IMMOBILIEN AG, Vienna 12 12BAWAG Versicherung Aktiengesellschaft, Vienna 34 34easybank AG, Vienna 1 1Istrobanka a.s., Bratislava 17 16Österreichische Verkehrskreditbank AG, Vienna 26 26P.S.K.Versicherung AG (formerly Postversicherung AG), Vienna 7 7LETHE LEASING GmbH & Co. „Center am Fleischmarkt“
Immobilien und Anlagen KG, Vienna — 19Goodwill 188 205
According to IAS 21.47, goodwill arising on the acquisition of a foreign operation must be treated as assets and
liabilities of the foreign operation. It was translated at the closing rate. Foreign exchange differences were recog-
nized in equity.
Non-consolidated equity instruments were measured in accordance with IAS 39 and designated as available for
sale. If a fair value could not be reliably determined, these instruments were measured at cost. Our equity invest-
ments not measured at fair value had a book value of € 208 million (year-end 2005: € 218 million).
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Recognition and measurement policies
Financial instruments
Recognition of financial instruments took place as of the date of the transaction.
a) Held to maturity
Held-to-maturity investments have fixed terms or determinable payments and are intended to serve the enterprise
on a permanent basis. An entity must be demonstrably able to hold the financial instruments concerned until they
mature. Such instruments were measured at amortized cost.
The recoverable amount of each asset is measured (impairment test) as of each balance sheet date. If this amount
is below its most recent book value (carrying amount), an appropriate impairment is recognized. No impairments
had to be recognized last financial year. To determine the recoverable amount, expected future net cash flows are
discounted applying the original interest rate on the financial investment. If an impairment becomes smaller in future
periods, a write-back must take place up to a ceiling of an asset’s amortized cost.
b) Financial assets and liabilities at fair value through profit or loss
– Held for trading
These financial instruments are recognized at fair value. Fair value is determined using prices on a stock
exchange or prices close to the market. All derivatives must be assigned to this category.
– Financial assets and liabilities at fair value through profit or loss
(fair value option)
If certain conditions are satisfied, IAS 39 provides that financial instruments can be designated as at fair value
through profit or loss upon acquisition or issuance/initial recognition (fair value option). This assignment is final.
In other words, it cannot be changed so long as such a financial instrument is held by the Group.
If the fair value can be measured reliably, one of the following three conditions must be satisfied for the fair value
option to be used (IAS 39.9 and 39.11(a)):
• the financial instrument is a hybrid financial instrument with one or more embedded derivatives that must, in
accordance with IAS 39.11, be separated from the host contract; in addition, the embedded derivative must be
financially material;
• the use of the fair value option would more accurately present the entity’s position because either
– not using the fair value option would cause an accounting mismatch, which means that a financially inappro-
priate presentation of the results of the entity’s operations would result that would be significantly mitigated
by using the the fair value option, or
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– a group of financial assets, financial liabilities or a combination of both is managed on a fair value basis; such
management must conform to a documented investment or risk management strategy and Management and
the members of the Managing Board must be given reports on this portfolio on this basis (“portfolio” fair
value option).
The fair value option was used in the following cases:
• Prevention of accounting mismatches
– fixed-income BAWAG P.S.K. securities swapped for a variable rate using interest rate derivatives
– fixed-income current financial assets swapped for a variable rate using interest rate derivatives (asset swap
book)
– fixed-income loans micro hedged using derivatives
• Management on a fair value basis
– All securities and loans managed on a fair value basis were designated as at fair value through profit or loss.
Treasury positions were managed on the basis of their fair value by the Asset Liability Committee, which also
prepared decisions on the interest rate risk of the Bank. The Managing Board received regular reports on such
positions.
Note 23 lists the book values of the financial instruments to which the fair value option was applied.
c) Loans and receivables
Receivables were recognized on the Balance Sheet at nominal amounts inclusive of deferred interest and gross
(i.e. before the deduction of impairment allowances). Acquired receivables, designated as at fair value through
profit or loss in accordance with IAS 39, were recognized on the Balance Sheet at fair value. As a rule, their fair
value was ascertained by determining the present value of the contractually agreed cash flow applying a risk-
adjusted interest rate.
d) Available for sale
Available-for-sale financial assets are those financial assets that are not classified as
• loans and receivables,
• held-to-maturity investments or
• financial assets at fair value through profit or loss (IAS 39.9).
Available-for-sale financial assets were measured at fair value. Changes in fair values were recognized in the line
item Equity within an AFS reserve.
If it was not possible to reliably measure the value of an unquoted equity instrument, it was measured at cost in
accordance with IAS 39. Besides the aforesaid equities, such instruments included profit share certificates
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(Gewinnscheine) that were not traded on any market. As of December 31, 2006, they were reported in the line item
Current financial assets in the amount of € 19 million.
No reassignments between these categories took place after initial classification.
Impairment provisions
Our impairment allowances included specific and general charges for losses on loans and advances recognized on the
basis of past experience. Charges for losses on loans and advances were charged openly against Receivables on the
Balance Sheet. Provisions for off-balance-sheet lending were recognized in the line item Provisions on the equity and
liabilities side of the Balance Sheet.
Impairment allowances were recognized for individual credit risks too large to be covered by general charges for losses
on loans and advances in accordance with appraisals by our risk analysts, these appraisals being based on expected
future recoveries. Our lending authorities handbook regulates the procedure for approving write-downs. Derecognitions
take place by agreement with the Legal Affairs Division if it has proven impossible to recover a debt.
The general allowance for losses incurred but not yet reported was recognized in accordance with IAS 39 AG89 on the
basis of historical loss experience and a loss emergence period of six months.
One-off fees
When granting a loan, BAWAG P.S.K. charges its customers a one-off handling fee. From the Bank’s point of view, this is
compensation for the costs associated with granting the loan. In accordance with IAS 39.9, handling fees net of the
directly associated costs must be spread over the term of the loan.
BAWAG P.S.K. deducted the following direct costs from such one-off fees:
1. Sales commission paid to Österreichische Post AG, post office staff and other intermediaries (Allianz, AWD, etc)
2. Front-office and back-office processing costs (prorated cost of the counter clerk, cost of analyzing the customer’s
accounts when granting loan, cost of collateral evaluation, cost of inquiries to rating and credit scoring agencies)
3. The proportion of IT costs attributable to the granting of the loan.
The deduction these direct lending costs used up most of the one-off fees spreadable over the terms of loans.
Consequently, one-off fees were not spread in this way.
The fair value measurement of financial instruments
To measure instruments traded on a stock exchange (equity options, equity index options, futures and options on
futures), we fed exchange prices into our front-office systems on a daily basis, thus ensuring mark-to-market valuation.
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The basic valuation model used for plain vanilla OTC options was the Black-Scholes option price model, which
varies according to the underlying instrument(s)/hedged item(s). Currency options were measured using the
Garman-Kohlhagen model (adapted Black-Scholes model). Interest rate options were measured using the Black
or Hull-White models.
The total value of an interest rate swap is the sum of the present values of its fixed and variable rate legs.
Similarly, the total value of a cross currency swap is the sum of the present values of the two cash flows
expressed in terms of the functional currency.
In the case of foreign currency forwards and futures — i.e. agreements to exchange currency amounts at a future
date — the agreed forward rate, which will depend on movements in exchange and interest rates for both curren-
cies, was compared with the forward rate on the balance sheet date and the result was used to calculate the
instrument’s value.
Valuations by outside experts were also used when measuring complex structures (embedded derivatives,
hedges). Appropriate tests and verifications were carried out.
Transfers of financial instruments
A financial instrument was derecognized as soon as the Group was no longer entitled to receive the financial
rewards from it. As a rule, this was the case when the rights and obligations under the financial instrument
passed to a third party by exercise, lapse, sale or assignment or if the Group lost its right of disposal.
When financial assets and liabilities were transferred but BAWAG P.S.K. had continuing rights and obligations
under them, they continued to be recognized on the Consolidated Balance Sheet
Intangible non-current assets, tangible non-current assets
Intangible non-current assets consists mainly of acquired goodwill and other acquired intangible non-current
assets (in particular software) and projects recognized in accordance with IAS 38. In the case of recognized proj-
ects, we did not recognize borrowing costs.
Intangible non-current assets with an unlimited useful life were measured at cost. Intangible and tangible non-
current assets with limited useful lives were measured at cost of purchase or conversion less straight-line amorti-
zation or depreciation. Buildings were depreciated at a rate of between 2.5 and 4 per cent per annum. Other
tangible non-current assets were depreciated at between 5 per cent and 20 per cent per annum. Purchased and
self-produced intangible non-current assets (other than goodwill) were amortized at 20 per cent per annum. In
accordance with the principle of materiality explained in the Framework, the half-yearly amortization or deprecia-
tion customary under the Austrian enterprises code (UGB: Unternehmensgesetzbuch) was also applied in the
Consolidated Financial Statements prepared in accordance with IFRS.
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Land and buildings held for investment purposes (investment properties) were measured at amortized cost
(IAS 40). Besides reviewing the method of depreciation and their useful lives, we subjected them to impairment
tests as of each balance sheet date.
Leasing
In the case of finance leases, we recognized rights of claims against the lessee in the amount of the present value
of the contractually agreed payments taking account of any residual value. In contrast, operating leases, under
which the BAWAG P.S.K. Group retains all risks and rewards incidental to ownership of the leased asset, were
reported in the line item Tangible non-current assets. Each leased asset undergoes appropriate depreciation.
Lease payments received were recognized in the Income Statement.
Income tax and deferred taxes
Income tax was recognized and measured in accordance with IAS 12 using the balance sheet liability method. It
was computed on the basis of the local rates of tax that were legally mandatory at the time of preparation of the
Consolidated Financial Statements.
Deferred tax assets and liabilities result from differences between valuations of assets and liabilities recognized on
the Balance Sheet and their respective tax bases. These can be expected to lead to income tax assets or liabilities
in the future (temporary differences). Deferred tax assets resulting from carryforwards of unused tax losses were
recognized if the same taxable entity was expected to return taxable profits in the future. Deferred taxes were not
discounted.
Net attributable tax expenses were reported in the Consolidated Income Statement in Income taxes and divided
into current and deferred income taxes in the Notes. Other, non-income-dependent taxes were reported in Other
operating profit.
Under IAS 12.34, a deferred tax asset must be recognized for the carryforward of unused tax losses and unused
tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax
losses and unused tax credits can be utilized. As of December 31, 2006, unused tax losses and unused tax cred-
its at the level of BAWAG P.S.K. netted out at € 1 billion.
The utilizability of unused tax losses by BAWAG P.S.K. was tested on the basis of a five-year budget. The utiliza-
tion of unused tax losses applying an additional contingency charge of € 92.5 million was projected to be € 602.9
million within the forecast horizon of five years. In total, we recognized deferred tax assets for the carryforward of
unused tax losses of roughly € 159.9 million within the BAWAG P.S.K. Group, an additional amount of about € 23
million having been recognized in the 2006 financial year.
Liabilities
In accordance with IAS 39, financial liabilities not held for trading or designated as at fair value through profit or
loss were measured at amortized cost.
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Provisions
Provisions for “social” capital (Sozialkapitalrückstellungen: provisions for post-employment and termination benefits
and for jubilee benefits) were calculated using the projected unit credit method in accordance with IAS 19.
The present values of entitlements outstanding as of the measurement date were calculated on the basis of actu-
arial opinions applying an appropriate discount rate and taking account of the expected rates of increase in
salaries and post-employment benefits. They were recognized as a provision on the Consolidated Balance Sheet.
Actuarial gains and losses were recognized in their entirety in the same financial year.
The principal parameters underlying the actuarial calculations were:
Post-employment
benefit obligations: Interest rate used 4% p.a.
Increase in benefits 2% p.a.
Fluctuation allowance 8%
Termination and
jubilee benefits: Interest rate used 4% p.a.
Salary growth 4% p.a.
Fluctuation allowance 8%
Retirement age 57 – 65*
Note* The earliest possible retirement age under ASVG (Austria’s general social security act, as amended in 2004) was assumed in each case.
When calculating provisions for social capital, we employed the AVÖ 1999-P-Rechnungsgrundlagen für die
Pensionsversicherung, Pagler & Pagler generation mortality tables.
The post-employment benefit rights of a part of the workforce are being met by Allianz Pensionskasse AG or
APK- Pensionskasse AG. Payments to these pension funds were treated as expenditure in the current period.
No further obligations existed.
In 2005, sums were transferred to a pension fund for a certain group of employees at BAWAG P.S.K. The associ-
ated available assignable pension fund assets were set off against the existing obligation under the defined benefit
plan. Consequently, the gross defined benefit obligation to this group of employees as of December 31, 2005, and
as of December 31, 2006, was reduced by the amount of the assignable assets of the pension fund.
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The post-employment benefit rights of employees of Group parent BAWAG P.S.K. accounted for the lion’s share
of the post-employment benefit plans in place within the BAWAG P.S.K. Group that were being financed solely
through provisions created within the scope of defined benefit promises.
The allocated assets as disclosed by the pension fund were set off against the determined amounts of our provi-
sions for post-employment benefits.
Provisions for jubilee benefits are also designated as long-term employee benefits.
In accordance with IFRS 4, figures for the underwriting provisions of the insurance institutions accounted for in
the Consolidated Financial Statements were taken from their commercial financial statements (Handelsbilanz) pre-
pared in accordance with Austrian law (HGB and VAG [insurance supervision act]).
The principal underwriting risks in the life insurance segment were death and longevity risk. Occupational dis-
ability risk was not material. Probability tables were used to calculate them. Longevity risk in the annuity insur-
ance segment was measured using the new mortality table AVÖ2005R. Cancellation probabilities were not
taken into account when calculating premium rates in the life insurance segment. In the event of a cancellation,
we paid out the policy’s contractual cash-in value. The premium reserve created for a policy was at least its
guaranteed cash-in value. As a result, if the investment was sufficiently marketable, premium rate calculations
did not entail any special cancellation risk.
Insurers’ premium reserves were calculated on a policy-by-policy basis, implicitly taking account of future costs
and, with the exception of reserves for unit-linked life insurance policies, using a prospective method. As a rule,
these calculations took place on the same basis as when calculating premium rates. The interest rates used when
calculating premium reserves were chosen in accordance with the legislative provisions. We do not believe that
their long-term realizability is at risk.
In the case of insurance policies where longevity risk was of crucial importance, comprising mainly annuity poli-
cies, we proceeded as follows: liquid annuity portfolios were remeasured; appropriate provisions were created for
portfolios of deferred, future annuity obligations in the form of an additional general provision created applying the
latest published information regarding longevity risk in annuity portfolios.
The assumptions and policies applied when calculating the premium rates offered to customers were documented
in the relevant business plans and communicated to the Austrian Financial Market Authority. Both premium and
premium reserves and profit shares were measured on an actuarial basis. Calculations were based on the general
mortality tables for the particular rate generation and using the interest rates laid down in the directives regarding
maximum interest rates.
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Within the present state of knowledge, we consider all our assumptions and calculation policies to have been
adequate. They included reasonable safety margins that will suffice in the future. Given, above all, the ongoing
increase in longevity, we will continue to carefully evaluate the safety margins included in our assumptions and
calculation policies and, as necessary, react appropriately to changes when measuring premium reserves in the
future.
We created other provisions for indefinite liabilities in the amount of the expected liabilities.
Equity
Equity is made up of capital provided by shareholders (subscribed capital and capital reserves) and earned capital
(retained earnings, translation reserves, the AFS reserve, profit and profit brought forward). BAWAG P.S.K. has
share capital of € 250 million. There are 250,000,000 ordinary shares in issue. BAWAG P.S.K. is a wholly owned
subsidiary of Finanzholding Anteilsverwaltung BAWAG P.S.K. AG.
Latitude of judgement and uncertainty of estimates
The measurement of financial instruments and the associated estimates in respect of measurement parameters,
including above all the future development of interest rates, have a material effect on the results of our operations.
The parameter values applied by the Bank were derived largely from market conditions prevailing as of the report-
ing date.
Another material discretionary decision in the Financial Statements as of and for the period ended December 31,
2006, concerned the impairment or non-impairment of receivables from the Bank’s shareholders. The credit
standing of our shareholders depends, inter alia but to a large degree, on the Bank’s value. We refer the reader to
our comments in the introduction to the Notes regarding our receivables from AVB.
Regarding the uncertainty of estimates made in connection with legal disputes, we refer the reader to the notes
on the EU state aid investigation, the OGH ruling on services for consumers, Refco, claims by former Managing
Board members and the taxable group (Steuergruppe).
Assessments as to whether or not CGUs were unimpaired were based on our budgets. These naturally reflect
Management's evaluations, which are in turn subject to a degree of predictive uncertainty. Similarly, assessments
of the recoverability of long-term loans are based on assumptions regarding the borrower’s future cash flows, and
these too are subject to a degree of predictive uncertainty.
In these Consolidated Financial Statements as of and for the period ended December 31, 2006, we have recog-
nized goodwill and deferred tax assets whose value will depend crucially on the actual occurrence of projected
results in the future. Amounts recognized in connection with the Allegro system software were based on our esti-
mates of its future value in use.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
58
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On April 30, 2006, we terminated our contracts with Managing Board members Peter Nakowitz, Christian Büttner,
Herbert Kreuch and Josef Schwarzecker. Johann Zwettler resigned as of December 31, 2005. Because of criminal
proceedings currently ongoing against these persons, the Bank has rescinded various promises of remuneration
and, based on the views currently held by its legal advisors, is assuming that large portions of the claims existing in
principle in these persons’ contracts of employment will no longer be enforceable. A provision for the risks arising
due to these claims was recognized in the Consolidated Financial Statements as of and for the period ended
December 31, 2006. Our theoretical liability in the event that the views of the Bank and its legal advisors proved
wrong would be significantly bigger.
Effects of adopting amended and new standards
IFRS 7 will be applicable to annual periods beginning on or after January 1, 2007. This standard replaces IAS 30,
and the current provisions of IAS 32 regarding disclosures in notes on financial instruments have been transferred
to IFRS 7 and extended. The only effect on our Consolidated Financial Statements will concern the more detailed
disclosures required in notes.
As a result of IFRS 7, paragraphs 124(a) through 124(c) have been added to IAS 1. From January 1, 2007, IAS 1
will require additional disclosures regarding equity of the parent and capital requirements. The only effect on our
Consolidated Financial Statements will concern the more detailed disclosures required in notes.
IFRIC 7 is applicable to annual periods beginning on or after March 1, 2006. This interpretation concerns financial
reporting by entities in hyperinflationary economies and will not have any effect on the Consolidated Financial
Statements of BAWAG P.S.K.
Interpretations IFRIC 8 and IFRIC 11 concern the scope and application of IFRS 2 and are applicable to annual
periods beginning on or after May 1, 2006 (IFRIC 8), or March 1, 2007 (IFRIC 11). Since BAWAG PSK does not
engage in any group or treasury share transactions, they will not have any effect on the Consolidated Financial
Statements of BAWAG P.S.K.
IFRIC 9 clearly states that an entity must assess whether an embedded derivative is required to be separated from
the host contract and accounted for as a derivative when the entity first becomes a party to the contract. It is
applicable to annual periods beginning on or after June 1, 2006. Because of the designation of all structured prod-
ucts as at fair value through profit or loss in the Consolidated Financial Statements of BAWAG P.S.K., IFRIC 9 will
not lead to any changes.
IFRIC 10 rules that an entity should not reverse in a subsequent interim period an impairment loss that it had rec-
ognized in a prior interim period if this is prohibited by IAS 36 or IAS 39. It is applicable to annual periods begin-
ning on or after November 1, 2006. Since no such reversals have been carried out, IFRIC 10 will not have any
effect on the Consolidated Financial Statements of BAWAG P.S.K.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
59
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IFRIC 12 deals with the recognition of service arrangements contractually obliging the operator to provide serv-
ices to the public on behalf of a public sector entity. It is applicable to annual periods beginning on or after
January 1, 2008. IFRIC 12 will not have any effect on the Consolidated Financial Statements of BAWAG P.S.K.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
60
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Details of the Consolidated Balance Sheet
€€m 12/31/2006 12/31/2005
Cash on hand 390 350Balances at central banks 295 454Cash reserve 685 804
Breakdown of maturities of receivables from credit institutions
€€m On Up to From 3 months 1 – 5 From 5 years Totaldemand 3 months up to 1 year years and over
12/31/2005 569 2,559 479 327 170 4,104
12/31/2006 899 2,302 225 298 69 3,793
Breakdown of maturities of receivables from customers
€€m On Up to From 3 months 1 – 5 From 5 years Totaldemand 3 months up to 1 year years and over
12/31/2005 4,978 3,854 3,905 8,410 8,126 29,273
12/31/2006 5,144 2,443 3,044 8,317 8,631 27,579
Receivables from credit institutions, by country and region
€€m 12/31/2006 12/31/2005
Austria 1,182 648
Abroad 2,611 3,456
Western Europe 1,609 2,162Central and Eastern Europe 722 1,018North America 73 89Latin America — —Rest of the world 207 187
Receivables from credit institutions 3,793 4,104
Geographical assignment is based on the registered office of the counterparty.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
61
2) Cash reserve
3) Receivables from credit institutions and customers
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Receivables from customers, by country and region
€€m 12/31/2006 12/31/2005
Austria 22,752 24,201
Abroad 4,827 5,072
Western Europe 1,739 2,226Central and Eastern Europe 2,412 2,086North America 433 499Latin America 10 42Rest of the world 233 219Receivables from customers 27,579 29,273
Receivables from credit institutions, by credit type
€€m 12/31/2006 12/31/2005
Demand deposits 784 528Time deposits 1,753 1,980Loans 1,244 1,591Other 12 5Receivables from credit institutions 3,793 4,104
Receivables from customers, by credit type
€€m 12/31/2006 12/31/2005
Current accounts 4,540 4,289
Cash advances 1,416 2,134
Loans 20,169 21,418
One-off loans 19,399 20,693Current account loans 163 428Other 607 297Leasing 1,454 1,432
Receivables from customers 27,579 29,273
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
62
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Receivables from customers, by sector and industry
€€m 12/31/2006 12/31/2005
Public sector 7,271 8,340
Federal government 4,342 4,649Provinces 133 744Local authorities 2,787 2,787Federal enterprises 8 13Social security institutions 1 147Guaranteed by the public sector 1,722 2,301
Corporate and business banking customers 12,425 12,766
Personal banking customers 6,161 5,866
Receivables from customers 27,579 29,273
The impairment provision for significant individual counterparty risks was created on the basis of expected future
recoveries. Provisions for counterparty risks that were not individually of significance were created generally, on a
percentage basis, depending on the amounts overdue and based on our historical loss experience.
The Consolidated Financial Statements of BAWAG P.S.K. as of and for the period ended December 31, 2006, con-
tain an impairment provision of € 17.4 million for loan losses incurred but not yet reported. In the absence of
detailed loss histories and default probability statistics (suitable data are only now being collected), our calcula-
tions were based on a loss emergence period of six months and our historical loss experience over the past year
(adjusted for one-off effects) in the amount of about € 41.5 million.
We would normally create provisions for country risks in respect of the unsecured portion of exposures in high-
risk countries. However, no such provision was necessary as of December 31, 2006.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
63
4) Impairment provisions
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Impairment provisions
€€m Specific General General Totalcounterparty counterparty and country
risks risks risks
Balance as of 1/1/2005 42 102 — 144
AdditionsChange in scope of consolidation 542 217 — 759
Provisions created through profit or loss 744 33 17 794
DisposalsUsed as intended (64) (6) — (70)
Provisions released through profit or loss (932) (51) — (983)
Foreign exchange differences — — — —Balance as of 12/31/2005 333 295 17 645
Impairment provisions
€€m Specific General General Totalcounterparty counterparty and country
risks risks risks
Balance as of 1/1/2006 333 295 17 645
Reallocated 13 (13) — —
AdditionsProvisions created through profit or loss 170 70 17 257DisposalsUsed as intended (159) (10) — (169)Provisions released through profit or loss (71) (56) (17) (144)Foreign exchange differences (5) — — (5)
Balance as of 12/31/2006 281 286 17 584
Breakdown of impairment provisions
€€m 12/31/2006 12/31/2005
Receivables from credit institutions 1 1Receivables from customers 583 628Other assets — 16Impairment provisions 584 645
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
64
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Because of the guarantee furnished by the Republic of Austria, impairment provisions were released in the
amount of € 900 million as of December 31, 2005. In the regional breakdown that follows, the proceeds from
their release have been distributed according to the guarantee’s likely utilization in the event of its exercise.
Region €€m
Austria 416North America 395Western Europe 89Total 900
Impairment provisions, by country and region
€€m 12/31/2006 12/31/2005
Austria 517 571
Abroad 67 74
Western Europe 21 20Central and Eastern Europe 43 51North America 1 1Latin America 1 1Rest of the world 1 1Impairment provisions 584 645
€€m 12/31/2006 12/31/2005
Bonds and otherfixed-income securities 462 402
Public sector debt instruments 68 96Bonds issued by other issuers 394 306Positive fair values ofderivative financial instruments 501 413
Foreign currency derivatives 22 40Interest rate derivatives 479 373Other trading assets 473 404
Of which repurchase agreements 473 373Trading assets 1,436 1,219
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
65
5) Trading assets
fi_033_106.qxp 13.06.2007 11:43 Uhr Seite 65
€€m 12/31/2006 12/31/2005
Bonds and otherfixed-income securities 6,602 10,550
Public sector debt instruments 737 2,505Bonds issued by other issuers 5,865 8,045Shares and othervariable-rate securities 1,713 3,029
Shares 160 94Investment certificates 1,504 2,827Other 49 108Other current financial assets 8,315 13,579
Breakdown of maturities of bonds and other fixed-income securities classified as current financial assets
€€m On Up to From 3 months 1 – 5 From 5 years Totaldemand 3 months up to 1 year years and over
12/31/2005 9 434 1,312 4,565 4,230 10,550
12/31/2006 — 328 446 2,167 3,661 6,602
All financial instruments classified as current financial assets with the exception of Gewinnscheine (profit share
certificates), which were designated as available-for-sale, in the amount of € 19 million, were designated as at fair
value through profit or loss.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
6) Other current financial assets
66
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€€m 12/31/2006 12/31/2005
Bonds and otherfixed-income securities 6,447 6,276
Public-sector debt instruments 3,950 3,920Bonds issued by other issuers 2,497 2,356Interests in non-consolidated subsidiariesmeasured at amortized cost 50 55
Interests in associates 198 205
Interests in entities accounted for using the equity method 114 —
Other shareholdings 130 198
Let land and buildings 313 330
Financial investments 7,252 7,064
Premiums on securities classified as financial investments are recognized spread over their term. Expenses were
set off against interest income from the same securities.
The aggregated assets of associates not accounted for using the equity method came to € 1,908 million at the
end of the 2006 financial year. The aggregated equity of these investments came to € 407 million. They recorded
profit for the year of € 72 million. The aggregated assets of the associates accounted for using the equity method
came to € 599 million. Their aggregated equity came to € 565 million, and their accumulated loss came to € 20
million.
Breakdown of maturities of bonds and other fixed-income securities classified as financialinvestments
€€m On Up to From 3 months 1 – 5 From 5 years Totaldemand 3 months up to 1 year years and over
12/31/2005 1 168 246 3,715 2,146 6,276
12/31/2006 7 458 417 3,449 2,116 6,447
The line item Let land and buildings includes the properties that met the criteria for designation as investment
properties within the meaning of IAS 40.5. These were properties primarily held to earn rentals. To a small
degree, we also used some of these properties ourselves. However, because these portions could not be sold
separately and were insignificant for the purposes of IAS 40.10, the entirety of such properties was included in Let
land and buildings (100 per cent of most of these properties being used by third parties).
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
67
7) Financial investments
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Financial investments
€m Carrying Cost Change in Change in Change Additions Disposals Reallocations Write- Carrying Write-upsamount scope scope downs amount (write-
of of downs)consolidation consolidation
12/31/2004 1/1/2005 Cost Cumulative Foreign Cumulative 12/31/2005 Financialwrite- exchange yeardowns differences
Financial investments 882 787 5,703 (11) 1 1,380 (727) — (137) 7,007 (22)
Bonds and other fixed-incomesecurities 452* 452 5,035 (47) 2 1,329 (555) — (44) 6,219* (13)Interests in non-consolidated subsidiariesrecognized at amortizedcost 8 9 42 (1) (1) 4 (3) 3 1 55 —Interests inassociates 334 268 55 90 — 29 (142) (3 (2) 205 (2)Interests in other entities accounted for usingthe equity method 21 7 51 (69) — — — — (58) — (3)Other shareholdings 61 41 136 20 — 1 (20) — 40 198 (1)Let land andbuildings 6 10 384 (4) — 17 (7) — (74) 330 (3)
Note: * Bonds and other fixed-income securities does not include any deferred interest and is therefore not comparable with the amount recognized on the
Balance Sheet.
€m Carrying Cost Change in Change in Change Additions Disposals Reallocations Write- Carrying Write-upsamount scope scope downs amount (write-
of of downs)consolidation consolidation
12/31/2005 1/1/2006 Cost Cumulative Foreign Cumulative 12/31/2006 Financial-write- exchange yeardown
Financial investments 7,007 7,144 — — 4 1,213 (1,020) 55 (268) 7,128 (68)
Bonds and other fixed-incomesecurities 6,219* 6,263 — — 4 1,065 (933) — (77) 6,322* (43)Interests in non-consolidated subsidiariesrecognized at amortizedcost 55 54 — — — — (2) — (2) 50 (2)Interests inassociates 205 207 — — — 1 (2) — (7) 199 (4)Interests in other entities accounted for usingthe equity method — 58 — — — 122 — — (66) 114 (8)Other shareholdings 198 158 — — — 19 (45) — (2) 130 (1)Let land andbuildings 330 404 — — — 6 (38) 55 (114) 313 (10)
Note: * Bonds and other fixed-income securities does not include any deferred interest and is therefore not comparable with the amount recognized on the
Balance Sheet.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
68
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In the previous year, the line item Other land and buildings included repossessed properties. As of December 31,
2006, repossessed properties were recognized in the line item Other assets (Other items). Retrospective recogni-
tion of repossessed properties as of December 31, 2005, would have increased Other assets by € 6 million.
The new core banking system — Allegro — was one of our most important intangible non-current assets. It is
described in the introduction to the Notes. By December 31, 2006, it had cost about € 246 million. Roughly
€ 151 million of the cost of purchased software and other intangible non-current assets recognized as of Decem-
ber 31, 2006, was accounted for by Allegro and projects carried out within that context. Capitalized self-produced
items produced in connection with Allegro were recognized in the line item Self-produced software and intangible
non-current assets and accounted for about € 83 million of the total. Release 5, planned for 2007, was recognized
in Purchased intangible non-current assets under development and accounted for € 12 million.
€ 217 million of the total carrying amount of intangible non-current assets was accounted for by Allegro and proj-
ects carried out within that context and by the associated capitalized self-produced items and purchased intangi-
ble non-current assets under development. Allegro’s remaining useful life was 8.5 years.
€m Carrying Cost Change in Change in Change Additions Disposals Reallocations Write- Carrying Write-upsamount scope scope downs amount (write-
of of downs)consolidation consolidation
12/31/2004 1/1/2005 Cost Cumulative Foreign Cumulative 12/31/2005 Financialwrite- exchange yeardowns differences
Intangible non-currentassets 21 24 491 (89) 1 10 — — (100) 426 (10)
Goodwill — — 205 — 1 — — — (1) 205 —Software and other intangible non-currentassets 21 24 257 (89) — 6 — — (99) 188 (10)
Of which purchased 21 24 157 (62) — 1 — — (69) 113 (6)Of which self-produced — — 100 (27) — 5 — — (30) 75 (4)
Intangible non-currentassets underdevelopment — — 29 — — 4 — — — 33 —
Of which purchased — — 29 — — 4 — — — 33 —Of which self-produced — — — — — — — — — — —
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
69
8) Intangible and tangible non-current assets
fi_033_106.qxp 13.06.2007 11:43 Uhr Seite 69
€m Carrying Cost Change in Change in Change Additions Disposals Reallocations Write- Carrying Write-upsamount scope scope downs amount (write-
of of downs)consolidation consolidation
12/31/2004 1/1/2005 Cost Cumulative Foreign Cumulative 12/31/2005 Financialwrite- exchange yeardowns differences
Tangible non-currentassets 114 169 1,057 (567) 2 32 (28) — (638) 594 (16)
Land and buildings used by the enterprisefor its own operations 101 146 349 (70) 1 3 (10) 1 (123) 367 (7)Other land and buildings — — 43 (5) — 7 (11) — (5) 34 —Office furniture and equipment 13 23 653 (492) 1 21 (5) 2 (510) 185 (9)Plant under construction — — 12 — — 1 (2) (3) — 8 —
€m Carrying Cost Change in Change in Change Additions Disposals Reallocations Write- Carrying Write-upsamount scope scope downs amount (write-
of of downs)consolidation consolidation
12/31/2005 1/1/2006 Cost Cumulative Foreign Cumulative 12/31/2006 Financialwrite- exchange yeardown
Intangible non-currentassets 426 526 — — 5 62 (2) (6) (138) 447 (33)
Goodwill 205 206 — — 2 — — (19) (1) 188 —Software and other intangible non-currentassets 188 287 — — 2 47 (2) 45 (137) 242 (33)
Of which purchased 113 182 — — 2 22 (2) 45 (92) 157 (18)Of which self-produced 75 105 — — — 25 — — (45) 85 (15)
Intangible non-currentassets underdevelopment 33 33 — — 1 15 — (32) — 17 —
Of which purchased 33 33 — — 1 15 — (32) — 17 —Of which self-produced — — — — — — — — — — —
Tangible non-currentassets 594 1,232 — — 8 69 (68) (16) (635) 590 (66)
Land and buildings used by the enterprisefor its own operations 367 490 — — 5 17 (2) 35 (134) 411 (14)Other land and buildings 34 39 — — — — (7) (32) — — —Office furniture and equipment 185 695 — — 3 47 (59) (7) (501) 178 (52)Plant under construction 8 8 — — — 5 — (12) — 1 —
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
70
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€€m 12/31/2006 12/31/2005
Tax assets 164 107
Current 34 20
Deferred 130 87Other assets of insurance companies 248 188Deferred items 30 90Other assets 111 434Positive fair values of derivatives 700 621Merchandise inventories 41 40Other assets 1,294 1,480
The line item Positive fair values of derivatives includes derivatives in the banking book measured at fair value.
As of December 31, 2006, the fair values of the derivatives in the banking book held for hedging purposes were
recognized separately in the line items Other assets and Other liabilities. In prior periods, they were recognized
netted in the line items Current financial assets, Liabilities evidenced by paper and Subordinated debt capital and
supplementary capital. Retrospective, separate recognition as of December 31, 2005, would have increased Other
assets by € 545 million.
In the previous year, repossessed properties were recognized in the line item Other land and buildings. As of
December 31, 2006, repossessed properties were recognized in the line item Other assets (Other items). A corre-
sponding adjustment of the figures for the previous year would have increased Other assets by € 6 million as of
December 31, 2005.
The line item Other assets of insurance companies contains the investments associated with unit-linked and index-
linked life insurance policies and capitalized commission and other business acquisition costs.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
9) Other assets
71
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Deferred tax assets broke down as follows:
Net deferred tax assets recognized on the Balance Sheet
€€m 12/31/2006 12/31/2005
Receivables from credit institutions and customers 1 2Financial investments 6 2Current financial assets 1 6Provisions 76 47Tax loss carryforwards 157 134Other 4 28Deferred tax assets 245 219
Self-produced intangible assets 21 19Receivables from credit institutions and customers 24 41Financial investments 13 14Current financial assets 24 29Tangible non-current assets 28 28Other 4 1Deferred tax liabilities 114 132
Net deferred tax assets on Balance Sheet 130 87
Deferred tax assets and liabilities vis-à-vis the same local tax authority were netted off for each Group member
and reported in Other assets or Provisions for deferred taxes.
Breakdown of maturities of payables to credit institutions
€€m On Up to 3 months 1 – 5 From 5 years Totaldemand 3 months up to 1 year years and over
12/31/2005 1,397 3,140 1,532 496 787 7,352
12/31/2006 1,562 2,064 476 286 570 4,958
Breakdown of maturities of payables to customers
€€m On Up to 3 months 1 – 5 From 5 years Totaldemand 3 months up to 1 year years and over
12/31/2005 8,750 3,052 2,248 5,422 9,655 29,127
12/31/2006 5,759 3,577 4,571 4,195 5,954 24,056
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
10) Payables to credit institutions and customers
72
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Payables to credit institutions, by country or region
€€m 12/31/2006 12/31/2005
Austria 1,720 1,740
Abroad 3,238 5,612
Western Europe 1,989 4,042Central and Eastern Europe 425 592North America 39 29Latin America — —Rest of the world 785 949Latin America 4,958 7,352
Geographical assignment is based on the registered office of the counterparty.
Payables to customers, by country or region
€€m 12/31/2006 12/31/2005
Austria 20,444 25,854
Abroad 3,612 3,273
Western Europe 2,340 1,941Central and Eastern Europe 1,213 1,264North America 20 21Latin America 3 3Rest of the world 36 44Payables to customers 24,056 29,127
Payables to customers, by sector or industry
€€m 12/31/2006 12/31/2005
Savings deposits 14,645 18,241
Passbooks (Sparbücher) 7,792 10,986Savings associations (Sparvereine) 349 492Fixed-term investment passbooks (Kapitalsparbücher) 6,504 6,763Other deposits 9,411 10,886
Public sector 1,341 1,401
Federal government 605 816Provinces 221 261Local authorities 129 120Social insurance institutions 386 204Corporate and business banking customers 4,467 5,519
Personal banking customers 3,603 3,966
Payables to customers 24,056 29,127
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
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€€m 12/31/2006 12/31/2005
Negative fair values of derivative financial instruments 430 361
Foreign currency agreements 14 35Interest rate agreements 416 326
Other trading liabilities 4,263 3,009
Of which repurchase agreements 4,260 3,009Trading liabilities 4,693 3,370
In the previous year, trading liabilities were recognized in the line item Other liabilities. In the year under review,
trading liabilities were presented separately here, in note 11. Prior-year figures have been adjusted accordingly.
Breakdown of maturities of bonds issued by BAWAG P.S.K.
€€m Up to From 3 months 1 – 5 From 5 years Total3 months up to 1 year years and over
12/31/2005 402 455 4,071 3,683 8,611
12/31/2006 990 123 3,866 3,055 8,034
Breakdown of maturities of other liabilities evidenced by paper
€€m Up to From 3 months 1 – 5 From 5 years Total3 months up to 1 year years and over
12/31/2005 184 26 399 1,546 2,155
12/31/2006 542 171 478 1,386 2,577
The bonds issued by BAWAG P.S.K. were listed securities. The other liabilities evidenced by paper were short-
term notes (Kassenobligationen) and unlisted private placements.
On the Balance Sheet as of December 31, 2006, the fair values of the derivatives used as hedges were recognized
in the line item Other liabilities. As of December 31, 2005, they were recognized in the line item Liabilities
evidenced by paper.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
11) Trading liabilities
12) Liabilities evidenced by paper
74
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€€m 12/31/2006 12/31/2005
Termination benefits 100 98Post-employment benefits 256 253Jubilee benefits 37 34Tax provisions 62 63
Of which for current taxes 13 7Of which for deferred taxes 49 56
Threatened losses on pending business 8 1Underwriting provisions 1,371 1,226Other provisions 250 761Provisions 2,084 2,436
Other provisions includes, among other things, provisions for pending litigation, mark-to-market valuations, risks
associated with selling equity investments and property valuations.
“Social” capital statement
€€m Provision for Provision for Provision for Provision for Provision forpost-employ- post-employ- post-employ- termination jubilee Totalment benefits ment benefits ment benefits benefits benefits social capital
(Funded) (Unfunded) (Total)
Balance as of 1/1/2005 — 36 36 15 4 55
Additions to the scope of consolidation 32 210 242 79 28 349 Service cost — 1 1 1 2 4 Interest cost — 3 3 1 — 4 Payments — (5) (5) (2) — (7) Actuarial gain (loss)as of 12/31/2005 1 (3) (2) 4 — 2Present value of acquired entitlements as of 12/31/2005 33 242 275 98 34 407
Fair value of plan assets (22) — (22) — — (22)Provision balance as of 12/31/2005 11 242 253 98 34 385
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
75
13) Provisions
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€€m Provision for Provision for Provision for Provision for Provision forpost-employ- post-employ- post-employ termination jubilee Totalment benefits ment benefits ment benefits benefits benefits social capital
(Funded) (Unfunded) (Total)
Balance as of 1/1/2006 11 242 253 98 34 385
Service cost — 2 2 6 3 11Interest cost — 10 10 4 1 15Payments — (10) (10) (2) (1) (13)Actuarial gain (loss)as of 12/31/2006 (2) 9 7 (6) — 1Present value of acquired entitlementsas of 12/31/2006 9 253 262 100 37 399
Fair value of plan assets (6) — (6) — — (6) Provision balance as of 12/31/2006 3 253 256 100 37 393
Assignable unit-linked pension fund assets
€€m
Pension fund assets as of 1//1/2006 22
Change in pension fund assetsarising due to exit of beneficiaries (18)Effect of changes in valuation method 2
Pension fund assets as of 12/31/2006 6
Provisions
As of Change in Re- As of€€m 1/1/2005 scope of Added Used Released allocated 12/31/2005
consolidation
Tax provisions 55 57 3 (48) (4) — 63
Current taxes 2 23 2 (16) (4) — 7 Deferred taxes 53 34 1 (32) — — 56 Other provisions 31 1,447 772 (237) (25) — 1,988
Underwritingprovisions — 1,115 126 (14) (1) — 1,226 Threatened losses onpending business — 1 — — — — 1 Other items 31 331 646 (223) (24) — 761
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
76
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As of Change in Re- As of€€m 1/1/2006 scope of Added Used Released allocated 12/31/2006
consolidation
Tax provisions 63 — 19 (3) (17) — 62
Current taxes 7 — 11 (3) (2) — 13Deferred taxes 56 — 8 — (15) — 49Other provisions 1,988 — 326 (651) (34) — 1,629
Underwritingprovisions 1,226 — 214 (53) (16) — 1,371Threatened losses onpending business 1 — 2 — — 5 8Other items 761 — 110 (598) (18) (5) 250
The line item Other provisions takes account of the use of about € 540 million of the provision for settlement pay-
ments in connection with the settlement with the Refco creditors.
Breakdown of underwriting provisions
€€m 12/31/2006 12/31/2005
Unearned premium 7 7Premium reserves 1,203 1,170Provisions for insurance claims pending 3 2Provision for profit-dependent premium refunds and policyholder profit shares 48 47
Provision for unit and index-linked life insurance policies 110 —Underwriting provisions 1,371 1,226
Underwriting provisions comprises provisions for policyholder claims under current insurance policies.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
77
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Reconciliation of insurance obligations, reinsurance liabilities and the
associated deferred commission and other business acquisition costs
€€m Initial balance Added Used Released Final balanceas of as of
1/1/2006 12/31/2006
Insurance liabilities 8 6 (8) — 6Reinsurance liabilities 9 — — — 9Deferred commission and other businessacquisition costs 46 8 (1) (4) 49
Net deferred tax liabilities recognized on the Balance Sheet
€€m 12/31/2006 12/31/2005
Provisions 1 1
Tax loss carryforwards 3 3Other — 1Deferred tax assets 4 5
Receivables from credit institutions and customers 1 1Financial investments 8 21Current financial assets 3 3Tangible non-current assets 22 17Other 18 19Deferred tax liabilities 53 61
Net deferred tax liabilities on Balance Sheet (49) (56)
Temporary differences for which no deferred tax liabilities were recognized, as permitted by IAS 12.39,
came to € 697.7 million.
€€m 12/31/2006 12/31/2005
Other obligations 239 294Other liabilities of insurance companies 15 17Negative fair values of derivatives 459 618Deferred items 18 253Other liabilities 731 1,182
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
14) Other liabilities
78
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In the previous year, trading liabilities were recognized in the line item Other liabilities. In the year under review, trad-
ing liabilities were presented separately in note 11. Prior-year figures were adjusted accordingly.
The line item Negative fair values of derivatives presents the derivatives held in the banking book, which were meas-
ured at fair value.
As of December 31, 2006, the fair values of the derivatives in the banking book held for hedging purposes were
reported separately in the line items Other assets and Other liabilities. In prior periods, they were recognized netted in
the line items Current financial assets, Liabilities evidenced by paper and Subordinated debt capital and supplementary
capital. Retrospective, separate recognition as of December 31, 2005, would have increased Other liabilities by
€ 237 million.
Breakdown of maturities of supplementary capital
€€m Up to From 3 months 1 – 5 From 5 years Total3 months up to 1 year years and over
12/31/2005 — 1 148 307 456
12/31/2006 16 3 212 143 374
Breakdown of maturities of subordinated debt capital
€€m Up to From 3 months 1 – 5 From 5 years Total3 months up to 1 year years and over
12/31/2005 — — 545 640 1,185
12/31/2006 — 150 400 674 1,224
Of the three hybrid notes issued to date (BCF, BCF II, BCF III), the terms of one (BCF) provide for a coupon step-up
at its first calling date, whereas no changes in the terms of the other two notes (BCF II, BCF III) are provided for dur-
ing their maturity. In the case of the BCF and BCF III notes, the coupon will change from fixed to variable on the first
calling date. Only the issuer has an ordinary right of redemption. The calling dates of the notes are as follows:
• BCF: first calling date is October 31, 2010, and quarterly thereafter; coupon step-up 1.85 per cent
• BCF II: first calling date is September 27, 2007, and quarterly thereafter
• BCF III: first calling date is April 5, 2014, and quarterly thereafter
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
79
15) Supplementary capital and subordinated debt capital
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Details of the Consolidated Income StatementFigures in the Income Statement for 2005 capture the profit of the P.S.K. Sub-Group for the whole year and of the
BAWAG Sub-Group during the fourth quarter of 2005, so they are only comparable to a limited extent.
€€m 2006 2005
Interest income on receivables from credit institutions 176.1 182.2Interest income on receivables from customers 1,053.5 471.8Interest income on fixed-income securities 535.5 135.3Current income from shares and other variable-rate securities 117.6 74.3Current income from other equity investments 7.1 7.0Current income from interests in associates 11.6 8.5Current income from interests in subsidiaries 8.5 13.5Current income from interests in other entities accounted for using the equity method 1.2 —Current income from leasing business 54.8 48.0Current income from investment properties 20.5 9.3Interest income and similar income 1,986.4 949.9
Interest expenses on payables to credit institutions (387.5) (101.3)Interest expenses on payables to customers (622.8) (380.1)Current expenditure on interests in entities accounted for using the equity method (9.2) (3.1)Interest expenses on liabilities evidenced by paper (301.5) (78.5)Interest expenses on supplementary capital and subordinated debt capital (60.5) (19.7)Interest expenses and similar expenses (1,381.5) (582.7)
Net interest income 604.9 367.2
Insofar as receivables were likely to be collectible, interest income and similar income were recognized on an
accrual basis. Interest income also includes premiums on securities classified as financial investments on the
accrual basis of accounting. Net interest income includes € 20.5 million from partly letting land and buildings to
others. Interest income on impaired receivables during 2006 came to € 18.5 million.
The unrecognized share of the losses of entities that were accounted for using the equity method as provided by
IAS 28.37 (g) came to € 1.4 million.
The following table shows interest income and expenses on financial assets and liabilities not designated as at fair
value through profit or loss.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
16) Net interest income
80
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Net interest income on financial instruments not designated as at fair value through profit or
loss
€€m 2006 2005
Interest income and similar income 1,376.9 814.0Interest expenses and similar expenses (1,126.2) (533.6)Net interest income 250.7 280.4
€€m 2006 2005
Direct write-downs of and charges for losses onreceivables from credit institutions and customers (276.4) (813.3)Released from loan loss provisions forreceivables from credit institutions and customers 144.3 982.8Recoveries on loans previously written off 5.8 0.3Charges for losses on on-balance-sheetlending recognized in the Income Statement (126.3) 169.8
Provisioning for contingent liabilitiesand commitments (1.3) (602.5)Released from provisions for contingent liabilitiesand commitments 0.2 227.6Charges for losses on off-balance-sheetlending recognized in the Income Statement (1.1) (374.9)
Charges for losses on loans and advances (127.4) (205.1)
Our charges for losses during 2005 had been dominated by charges for losses on the Refco exposure. The
Consolidated Income Statement included roughly € 400 million of charges for losses on the loan to Refco and
provisioning for litigation risks, above all for payments arising from the settlement with the Refco creditors, in the
amount of € 600 million. Impairment provisions were created in the amount of € 300 million for receivables from
our shareholders and receivables guaranteed by our shareholders. The guarantee furnished by the Republic of
Austria within the scope of the BAWAG P.S.K. guarantee act made it possible to release impairment provisions in
the amount of € 900 million.
There were no such one-off effects in 2006.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
81
17) Charges for losses on loans and advances
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€€m 2006 2005
Payment transfers 151.5 103.3Lending 28.7 11.2Securities and custody business 37.2 11.3Foreign business, currency and notes-and-coin business 6.2 1.4Payments to Österreichische Post AG (84.2) (47.7)Other services 17.8 8.1Net commission income 157.2 87.6
Net commission income includes all income and expenses arising due to the Group’s service operations as well as
agency commission on new business.
Net commission income now includes all payments under the contract with Österreichische Post AG. In 2005,
€ 35.3 million thereof was recognized in the line item Administrative expenses. However, the figure for 2005 has
not been adjusted. Retrospective adjustment would have increased the figure for payments to Österreichische
Post AG in 2005 to € 83 million.
€€m 2006 2005
Interest rate transactions 12.9 3.6Currency transactions 10.4 1.5Net trading income 23.3 5.1
Besides realized gains and losses and unrealized gains and losses resulting from measurements to fair value, Net
trading income also takes account of dividend income on shares held for trading and interest accrued on other
trading assets.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
19) Net trading income
18) Net commission income
82
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€€m 2006 2005
Wages and salaries (225.0) (80.0)Statutory social security contributions (64.7) (25.3)Voluntary fringe benefits (4.6) (1.7)Post-employment benefit costs (14.8) (7.8)(Increase) decrease of provision for post-employment benefits (3.3) 3.3(Increase) decrease of provision for termination benefits (2.6) 0.6(Increase) decrease of provision for jubilee benefits (2.5) (0.2)Contributions to company staff benefit fund (0.5) (0.4)Staff costs (318.0) (111.5)
Other administrative expenses (218.6) (172.8)
Depreciation/amortization/write-downs of tangible andintangible non-current assets and investment properties (109.1) (28.3)
Administrative expenses (645.7) (312.6)
On the Consolidated Balance Sheet as of December 31, 2006, all payments to Österreichische Post AG are recog-
nized in the line item Commission expenses. In 2005, € 35.3 million thereof was included in the line item
Administrative expenses. However, the figure for 2005 has not been adjusted. Retrospective adjustment would
have reduced the line item Other administrative expenses to € 137.5 million.
Post-employment benefit costs includes € 4.6 million of payments to pension funds under defined contribution
plans.
€€m 2006 2005
Other operating income 40.3 29.9Other operating expenses (50.3) (22.2)Net income from other current financial assets (30.6) 4.9Net income from financial investments 29.0 33.4Net income from insurance business 18.3 (11.0)Net income from retailing 0.2 4.8Other operating profit 6.9 39.8
Other operating income and Other operating expenses include items not reportable in other items of income or
expense.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
83
20) Administrative expenses
21) Other operating profit
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In 2006, expenses on land and buildings let partly to others were reported in Other expenses in the amount of
€ 5.3 million. Vacant property costs in 2006 came to € 0.7 million.
Net gains on foreign currency translations came to € 8.5 million.
Net income from insurance business
€€m 2006 2005
Earned premium (net) 183.3 103.8Investment income 66.2 31.0Other income 3.6 1.1Total income 253.1 135.9
Claims and benefits expense (66.4) (17.8)Net movement in underwritingprovisions (141.9) (111.7)Underwriting expenses (19.1) (11.5)Investment expenses (4.1) (6.3)Other expenses (0.5) (0.3)Total expenses (232.0) (147.6)
Net income beforepremium refunds 21.1 (11.7)
Premium refunds (2.8) 0.7Net income from insurance business 18.3 (11.0)
The line item Net income from other current financial assets includes the insurers’ net loss on securities of
€ 9.0 million (2005: net income from securities of € 18.1 million).
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
84
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€€m 2006 2005
Current income tax (7.2) 2.3Deferred income tax 55.8 6.0Income taxes 48.6 8.3
The following reconciliation shows the relationship between computed tax expenses and reported tax expenses:
€€m 12/31/2006 12/31/2005
Profit (loss) before tax 19.2 (18.0)Tax rate 25% 25%Computed tax credits (expenses) (4.8) 4.5
Reductions in taxdue to tax-exempt income from equity investments 6.2 2.0due to other tax-exempt income 3.6 0.9due to differing foreign tax rates 6.7 2.9due to other tax effects 8.5 3.9Increases in taxdue to the release of untaxed reserves 0.0 (3.3)due to non-allowable expenses (7.5) (4.2)due to gains and losses on equity investments 0.0 (0.1)due to other tax effects (2.7) (2.9)Income tax in the period 10.0 3.8
Out-of-period income tax 38.6 4.5Reported income tax 48.6 8.3
The Group’s assets included deferred tax assets accounted for on the grounds of the recognized benefits arising
from as yet unused tax losses in the amount of €159.9 million. The lion’s share of the tax losses could be carried
forward for an unlimited period. The untaxed portion of the liability reserve (Haftrücklage) was € 316.2 million.
No material amounts of actual or deferred tax were recognized directly in equity during the financial year.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
85
22) Income taxes
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Further disclosures required by IFRS
The table below presents the fair values of items on the Balance Sheet. These are the
amounts for which assets could be exchanged, or liabilities settled, between knowledgeable, willing parties in an
arm’s length transaction on the balance sheet date. If market prices were available on a stock exchange or other
functioning market, they were used.
Plain vanilla securities were measured using state-of-the-art models applying the yield curve and taking account
of the current credit spread. Structured securities — bonds dependent on at least two factors (FX-linked, equity-
linked, CMS spread) — were measured on the basis of an external valuation.
If no current, liquid market values were available, generally accepted, standard state-of-the-art methods of meas-
urement were used. This applied to liabilities evidenced by paper (issued by BAWAG P.S.K.) and, in individual
cases, other current financial assets (securities held by the Bank in its trading portfolio). Non-option linear instru-
ments (e.g. interest rate swaps, currency forwards and futures) were recognized using a present value technique
(discounting of future cash flows applying the current yield curve). The measurement to fair value of customers’
trading positions was carried out applying blanket credit spreads for each customer category. These were also
applied retrospectively as of December 31, 2005. The blanket credit spreads were applied as follows: 20 basis
points for credit institutions; 50 basis points for corporate and business banking customers; 80 basis points for
personal banking customers; and 70 basis points for other positions. No credit spreads were applied in the case
of public sector positions. Spreads of 20 basis points were applied to fixed-income deposits and to investments in
credit institutions shown on the assets side of the Balance Sheet.
Options were measured using option price models such as Black Scholes, Garman-Kohlhagen (currency options)
or Hull-White (interest rate options). The underlying market numbers (above all yield curves, volatilities, foreign
exchange rates) were fed by the Mid-Office Department, independently of Treasury departments, to ensure the
firewalling of front-office and back-office units. These valuations were carried out by front-office systems using
consistent software tools. Values of proprietary positions in illiquid securities (e.g. private placements) were
measured using a present value technique on the basis of current credit spreads. In a few segments, such calcu-
lations were supported by external evaluations.
To prevent accounting mismatches as of the reporting date caused by inadequate price liquidity when calculating
spreads, spreads were determined on the basis of averages obtained from the spread time series for four bench-
mark bonds from December 21 to 28, 2006. The values of securities issued by BAWAG P.S.K were then calcu-
lated by applying a discounting technique to the swap curve after adjustment by the amount of the spread. This
ensured yield curve consistency when carrying out valuations between the asset and the swap.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
23) Fair value
86
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During the period from December 31, 2005, to December 31, 2006, the portion of the change in the fair values of
the securities issued by BAWAG P.S.K. accounted for solely by changes in our credit rating (following the netting
of asset and liability portfolios) was € 10.3 million. In the year thereafter, a one basis point narrowing of the credit
spread could have been expected to reduce their fair value by € 1.6 million.
Most investment properties were valued by independent, external experts. The fair values of fixed-income receiv-
ables and payables from or to credit institutions and customers with a remaining life or rate adjustment periods of
less than one year were taken to be the same as their carrying amounts.
Equity investments were measured applying internal valuations. Listed, liquid equity investments were included in
the fair value of financial investments in the amount of the Group’s interest in their market value on the balance
sheet date.
Fair values of selected items on the Balance Sheet
€€m Carrying amount Fair value Carrying amount Fair value12/31/2006 12/31/2006 12/31/2005 12/31/2005
Selected assetsReceivables from credit institutions 3,793 3,777 4,104 4,101Receivables from customers 26,995 26,924 28,628 28,655Trading assets 1,436 1,436 1,219 1,219Other current financial assets 8,315 8,315 13,579 13,579
Of which the associated derivatives — — (124) (124)Financial investments 7,252 7,181 7,064 7,079
Receivables from customers 313 346 330 336Positive fair values of banking book derivatives 700 700 621 621Total selected assets 48,491 48,333 55,215 55,254
Selected liabilitiesPayables to credit institutions 4,958 4,932 7,352 7,356Payables to customers 24,056 24,003 29,127 29,101Trading liabilities 4,693 4,693 3,370 3,370Liabilities evidenced by paper 10,611 10,571 10,766 10,763Supplementary and subordinated debt capital 1,598 1,618 1,641 1,716Negative fair values of banking book derivatives 459 459 618 618Total selected liabilities 46,375 46,276 52,874 52,924
Receivables from customers are net of charges for losses on loans and advances.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
87
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The reporting of Current financial assets and Liabilities evidenced by paper was changed in these financial state-
ments. In contrast to 2005, the associated derivatives have not been netted within the corresponding line items.
Instead, they have been reported in Other assets or Other liabilities.
As of December 31, 2006, the fair value of the BAWAG P.S.K. securities recognized at fair value was € 66 million
above their nominal value.
Fair Value of Financial Instruments and Non-financial Instruments
€€m Carrying amount Fair value Carrying amount Fair value12/31/2006 12/31/2006 12/31/2005 12/31/2005
Loans and receivables 28,817 28,730 30,737 30,761Held-to-maturity financial instruments 6,447 6,343 6,276 6,285Held-for-trading financial instruments 2,136 2,136 1,840 1,840Held-for-trading financial instruments designated as at fair value through profit or loss 10,267 10,267 15,602 15,602Available-for-sale financial instruments 397 397 430 430Total financial instruments (assets) 48,064 47,873 54,885 54,918
Investment properties 313 346 330 336Interests in entities accounted forusing the equity method 114 114 — —Total non-financial instruments (assets) 427 460 330 336
Total selected assets 48,491 48,333 55,215 55,254
Financial instruments measured atcost 32,932 32,833 40,225 40,275Financial instruments designated as at fair value through profit or loss 8,291 8,291 8,661 8,661Held-for-trading financial instruments 5,152 5,152 3,988 3,988Total selected liabilities 46,375 46,276 52,874 52,924
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
88
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Fair value option
€€m Carrying amount Carrying amount12/31/2006 12/31/2005
AssetsReceivables from customers 1,971 1,995Other current financial assets 8,297 13,537Financial investments — 69
10,268 15,601
LiabilitiesPayables to customers 867 1,015Securities issued by BAWAG P.S.K. 7,424 8,661
8,291 9,676
In our segment reporting in accordance with IAS 14, we used business segments as
our primary reporting format and geographical segments as our secondary reporting format.
Our business segment statements differentiate between the following business segments:
a) The Personal and Business Banking Segment encompasses retail branch business, sales through post offices,
mobile sales and e-Banking. The customers in this segment are jobholders and small and medium-sized
enterprises.
b) The Corporate Customers Segment encompasses the public sector, institutional clients and social insurance
institutions and domestic and foreign key accounts. Customers in Austria are assigned to this segment if they
have annual revenues of € 4 million or more.
c) The Financial Markets Segment encompasses the Group’s treasury activities, including in particular its earnings
from the banking book and its issuing activities.
d) The Real Estate and Leasing Segment encompasses the earnings of the Group-members operating in these
fields and the credit financing of real estate projects.
e) The Other Items Segment encompasses earnings from equity investments that are not a part of our core oper-
ations, consolidation adjustments and so-called atypical profits and losses.
Net interest income was assigned using the market interest rate method. Costs were allocated to individual
segments according to cause.
Profit in each business segment was measured on the basis of the annual profit before tax generated by that seg-
ment.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
89
24) Segment reporting
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Primary Segmentation (by Business Segment)
€€m Personal and Corporate Financial Real Estate OtherBusiness Banking Customers Markets and Leasing Total
Net interest income 2006 355.8 121.0 120.2 52.2 (44.3) 604.92005 370.9 117.4 109.5 48.6 16.7 663.2
Charges for losses 2006 (61.0) (29.5) — (2.7) (34.2) (127.4)on loans and advances 2005 (44.7) (209.1) 34.0 (1.9) (58.9) (280.6)Net commission income 2006 81.1 76.9 0.2 2.6 (3.6) 157.2
2005 111.8 73.3 (5.6) 1.8 (3.8) 177.5Net trading income 2006 — — 23.3 — — 23.3
2005 — — 13.6 — — 13.6Administrative expenses 2006 (433.4) (106.1) (28.1) (41.0) (37.1) (645.7)
2005 (446.2) (98.2) (27.7) (38.6) (27.1) (637.7)Other operating 2006 14.0 (23.3) (29.4) 5.0 40.6 6.9profit (loss) 2005 13.3 19.9 (42.7) 6.4 58.2 55.1Profit 2006 (43.5) 39.1 86.2 16.1 (78.6) 19.2before tax 2005 5.2 (96.6) 81.1 16.3 (14.9) (8.9)
Risk-weighted assets 2006 7,084.1 7,750.5 7,503.4 2,322.7 3,746.3 28,137.02005 6,662.2 10,500.3 6,505.6 2,426.1 2,099.8 28,195.5
ROE 2006 — 5.5% 12.6% 7.6% — 0.7%2005 1.0% — 15.8% 8.5% — –
Cost:income ratio 2006 99.2% 53.6% 19.6% 74.7% — 82.2%2005 92.4% 51.5% 23.6% 76.5% 209.7% 74.7%
In 2006, the line item Net interest income included loan write-offs in the amount of € 58.9 million in the Other
Items Segment. They resulted from revaluations during the merger.
The geographical segmentation of the Corporate Customers Segment and our treasury operations was based on
the registered office of the counterparty; assignment in other segments depended on the registered office of the
respective Group member.
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
90
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The Group’s Geographical Segments
€€m Western Central and North Rest of theAustria Europe Eastern Europe America World Total
Net interest income 2006 413.6 128.5 55.1 1.6 6.1 604.92005 476.5 135.0 47.5 (1.4) 5.6 663.2
Charges for losses on 2006 (103.1) (33.5) 10.3 (0.7) (0.4) (127.4)loans and advances 2005 51.6 52.5 (5.0) (384.7) 5.0 (280.6)Net commission income 2006 137.4 2.1 17.6 0.1 0.2 157.2
2005 150.9 6.7 17.8 1.5 0.5 177.5Net trading income 2006 23.3 — — — — 23.3
2005 13.6 — — — — 13.6Administrative expenses 2006 (588.0) (3.3) (54.4) — — (645.7)
2005 (572.9) (10.5) (51.9) (1.8) (0.6) (637.7)Other operating profit 2006 (19.1) 22.8 3.2 — — 6.9(loss) 2005 59.6 (5.6) 4.6 (3.5) — 55.1Profit before tax 2006 (135.9) 116.6 31.7 1.0 5.8 19.2
2005 179.2 178.2 13.0 (389.9) 10.5 (8.9)
The BAWAG P.S.K. Group’s receivables from and payables to subsidiaries and associates were as shown below.
Business relationships with these entities were subject to normal banking terms and conditions.
€€m 12/31/2006 12/31/2005
Receivables from credit institutions — —
Receivables from customers 1,709 1,610Receivables fromsubsidiaries 1,709 1,610
Payables to credit institutions — —Payables to customers 24 36Payables tosubsidiaries 24 36
In 2006, interest income from business with subsidiaries came to € 60 million (2005: € 128 million); interestexpenses came to € 0.3 million (2005: € 55 million).
Key Information . Preface by the CEO . Boards and Officers . Structure . Group Management Report
Consolidated Financial Report prepared in accordance with IFRS
91
25) Receivables from and payables to subsidiaries and associates
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€€m 12/31/2006 12/31/2005
Receivables from credit institutions 69 14Receivables from customers 316 162Impairment provisions — (5)Receivables from associates 385 171
Payables to credit institutions 4 33Payables to customers 121 69Payables to associates 125 102
Owners
BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse Aktiengesellschaft (BAWAG
P.S.K.) is a wholly owned subsidiary of Anteilsverwaltung BAWAG P.S.K. Aktiengesellschaft (AVB).
AVB’s shareholder structure is as follows:
46.43% ÖGB Vermögensverwaltungsgesellschaft m.b.H. (OeVV)
4.57% Österreichischer Gewerkschaftsbund (OeGB)
49.00% Österreichische Gewerkschaftliche Solidarität Privatstiftung (OeGSP)
OeGB holds an indirect stake of 100 per cent in OeVV via its wholly owned subsidiary ÖGB
Beteiligungsgesellschaft m.b.H. (OeBG).
BAWAG P.S.K. and OeGB have, for years, been cooperating in many areas. Jobholders are one of the Bank’s key
target groups, and the terms and conditions offered to them have always been fair. In exchange, OeGB has sup-
ported BAWAG P.S.K.’s loan and deposits operations through its ties to works councils. OeGB’s publications for
its members have contained advertising for BAWAG P.S.K.’s products, and annual payments have been agreed for
this service. An appropriate commission agreement, terminable annually, was concluded in respect of credit busi-
ness, the amount of commission being based on the size of the portfolio and amounts loaned. This agreement,
concluded on December 22, 2000, was terminated in 2006. A new cooperation agreement is to be concluded
once OeGB ceases to be one of BAWAG P.S.K.’s indirect shareholders.
During the demerger of BAWAG’s banking operations prior to their contribution to BAWAG P.S.K. as of Decem-
ber 31, 2005, a book liability remained in the accounts of the residual entity AVB. Consequently, as of December
31, 2006, BAWAG P.S.K. had an interest-bearing receivable of € 1,575 million payable by its 100 per cent parent
AVB. The recoverability of this receivable will depend primarily on whether the assets of the parent are free from
impairment. Besides retained securities, those assets consisted predominantly of its 100 per cent stake in
BAWAG P.S.K., but they also included receivables from various subsidiaries and OeGB foundations (Stiftungen) in
the amount of € 365 million (€ 120 million of which comprising a right of recourse).
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26) Related individuals and entities
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Austost Anstalt, Liechtenstein, transmits payments from buckets A through C of the AI portfolio to special purpose
entities. Their beneficiaries are, in turn, OeGB foundations in Liechtenstein. Under an agreement concluded in
November 2006, these OeGB foundations assigned their claims arising from the special purpose entities to
Austost Anstalt. The purchase price was agreed to be the amounts payable by Austost out of the buckets upon
their maturity.
The Group’s finance lease exposure was € 12 million, arising in connection with properties and office equipment.
Leases were in place with OeGB itself and with subsidiaries of OeGB. Because the Group’s headquarters build-
ing, owned by OeGB, was sold during the 2006 financial year, OeGB has rented premises in a building owned by
the BAWAG P.S.K. Group (Fleischmarkt 19, 1010 Vienna). Moreover, OeVV has a call option to purchase the
Maltschachersee vacation village from the BAWAG P.S.K. Group when the current lease has expired. Pursuant to
Austrian bank secrecy legislation (§ 38 BWG), OeGB’s deposits have not been disclosed. Such disclosure —
which is not required by EU regulations currently in force — would lead to prosecution under § 101 BWG.
Moreover, because of a call/put option agreed with a fund company, the Group has relations with an indirectly
held OeGB subsidiary within the scope of the Athena Fund.
OeGB has a material financial and legal interest in the secure, continued existence of the Bank and in the protec-
tion and preservation of the jobs it provides. Consequently, the Bank has received an irrevocable undertaking
from its indirect equity holders, OeVV, OeGPS and OeGB, and from direct equity holder AVB, to furnish the Bank
with additional equity as needed to satisfy the legislative minimum requirements applicable to the Bank itself or
the credit institution group under AVB. It can be furnished by the owners themselves or by third parties desig-
nated by the equity holders. The guarantee also extends to satisfying the claims of the bank’s creditors so as to
avert a threat of insolvency.
Moreover, OeGB, OeVV and OeGSP — as direct or indirect equity holders of the credit institution — have assumed
unconditional guarantor’s and payer’s liability (§ 1357 ABGB) for partially and wholly impaired loan receivables of
BAWAG P.S.K. in the total amount of € 900 million in the guarantee declaration dated May 31, 2006, subject to
the limitation that they must not be forced into insolvency by assuming such liability. The guarantee declaration is
a prerequisite for exercise of the federal guarantee.
Impairment allowances were recognized for receivables that were either receivable from the owners or guaran-
teed by the owners in the amount of € 300 million (inclusive of the right of recourse in the amount of € 120 mil-
lion).
On May 31, 2006, BAWAG P.S.K. concluded an extension agreement with its direct and indirect owners (OeGB,
OeGSP, OeBG, OeVV and AVB). This agreement safeguarded the solvency of OeVV, OeGB, OeBG and AVB, per-
mitting the orderly sale of BAWAG P.S.K. The original agreement would have been in force until December 31,
2006. In an addendum, it was agreed that the extension would last until five days after the closing of the sale of
BAWAG P.S.K.’s stock but not later than June 30, 2007.
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On December 18, 2006, BAWAG P.S.K. and its subsidiaries reached an agreement with OeGSP, OeVV, OeGB
and AVB regarding payments arising due to the non-prosecution agreement with the US Department of Justice
and the waiver of claims of recourse. The agreement states that the obligation to pay the damages agreed in the
non-prosecution agreement must be fulfilled exclusively by BAWAG P.S.K. and/or BAWAG companies and that
OeGB and the OeGB companies must pay 30 per cent of proceeds from the sale of BAWAG P.S.K. in excess of
€ 1.8 billion up to a maximum of US$ 200 million to the United States of America and the creditors’ committee.
On December 29, 2006, BAWAG P.S.K. concluded a general agreement with AVB, OeGB, OeGSP, OeBG and
OeVV. The purpose of the agreement is, as far as is legally possible, to put relations between BAWAG P.S.K. and
BAWAG P.S.K.’s former direct and indirect equity holders on a new footing once AVB has ceased to be a share-
holder of BAWAG P.S.K. The intention is, to the legally possible extent, for AVB, OeGB, OeGSP, OeBG and OeVV
to be freed from liabilities arising from all the guarantees they have provided.
ATV Privat-TV Services AG
As of December 31, 2006, BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse AG held a
42.5 per cent stake in ATV Privat-TV Services AG. This company is accounted for in the Consolidated Financial State-
ments using the equity method.
In the course of the ongoing capitalization of the ATV Group, a wholly owned, indirect subsidiary of BAWAG
P.S.K. subscribed to special dividend rights (Genussrechte) issued by ATV Privat-TV Services AG worth a nominal
€ 1.2 million. Alongside a credit line of € 3 million granted on arm’s length terms, this company has also been
granted a long-term subordinated loan of € 9.8 million. Moreover, a lease is in force between a real estate com-
pany that is a wholly owned, indirect subsidiary of BAWAG P.S.K. and ATV Privat-TV Services AG pertaining to
office premises and a studio in the property at Aspernbrückengasse 2, 1020 Vienna. The lease was concluded on
arm’s length terms.
This company has concluded motor vehicle and movable property leases with members of the BAWAG P.S.K.
Leasing Group on arm’s length terms. The amounts involved are small. Advertisements for BAWAG P.S.K. are
likewise broadcast by ATV on arm’s length terms, and they appear with customary frequency.
Alinea Privatstiftung (private foundation)
Alinea Privatstiftung holds 100 per cent of Alinea Holding GmbH. In 2003, BAWAG contributed the following
investments to this company: 71.4 per cent of BAWAG P.S.K. INVEST GmbH., 99.9 per cent of BAWAG
Versicherung AG, 100 per cent of BAWAG Overseas Inc. (sold in 2004), and its general partner’s stake in BAWAG
P.S.K. Leasing GmbH & Co „Center am Fleischmarkt“ Immobilien und Anlagen KG (now LETHE Leasing GmbH &
Co „Center am Fleischmarkt“ Immobilien und Anlagen KG), which includes the building at Fleischmarkt 1 – 5. In
return for these contributions, BAWAG P.S.K. received profit share rights with a nominal value of € 281,865,000,
entitling it to a maximum of 95 per cent of the issuer’s net profit and evidencing an interest in the issuer’s assets
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and proceeds from its liquidation up to the same amount. In 2006, income from these profit share rights came to
€ 10 million. However, since BAWAG P.S.K. continues to enjoy the economic benefits of this company by way of
the distributions under the profit share rights, Alinea Holding GmbH and its subsidiaries must, in accordance with
SIC 12, be consolidated for the purposes of IFRS.
The members of the managing board of Alinea Privatstiftung — Stephan Frotz, Christian Nowotny, Gerhard
Schüssler — work for BAWAG P.S.K. and/or its consolidated entities as consultants on arm’s length terms. Alinea
Privatstiftung’s investments with BAWAG P.S.K. take place on arm’s length terms, and business with the sub-
sidiaries of Alinea Holding is also carried on on arm’s length terms with the following exceptions:
The precondition for the FMA’s approval of the demerger of BAWAG Versicherung and BAWAG P.S.K. Invest to
Alinea was that BAWAG P.S.K. had to undertake, if asked to do so by Alinea Holding, to provide Alinea Holding
with another € 50 million of special dividend rights (Substanzgenussrechte) should BAWAG-Versicherung and
BAWAG P.S.K. Invest require recapitalization. This obligation on the part of BAWAG cannot be transferred to
another holder of profit share rights. This provision will only expire when Alinea Holding holds a stake in said
companies of less than 50 per cent. However, to date, Alinea Holding has not required BAWAG P.S.K. to sub-
scribe to additional special dividend rights.
At the FMA’s request, BAWAG P.S.K. was required to undertake, if necessary, to furnish BAWAG-Versicherung and
BAWAG P.S.K. Invest with supplementary capital up to the legal maximum for recognition as eligible own funds.
This right to subscription can be exercised by the managing board of BAWAG-Versicherung or the management of
BAWAG P.S.K. Invest at any time, but has not to date been exercised. BAWAG P.S.K. will be entitled and obliged to
impose this agreement on a prorated basis on its successor(s) should Alinea’s stake in BAWAG Versicherung or
BAWAG P.S.K. Invest fall below 33 per cent.
Property company LETHE Leasing GmbH & Co. „Center am Fleischmarkt“ Immobilien und Anlagen KG took up
from BAWAG P.S.K. a loan of € 37.6 million at an interest rate of just 3 per cent. This property company owns the
buildings at Fleischmarkt 1 and Fleischmarkt 3 – 5, which are let largely to BAWAG P.S.K. Group members. The
tenancies are based on arm’s length rents. (In one case, the regular rent paid by a Group member is lower, but
as an offset, a rental payment was made in advance.)
In December 2006, Alinea Privatstiftung granted BAWAG P.S.K. or the acquirer of BAWAG P.S.K., Pa-Zweiundfünf-
zigste WTP Beteiligungsverwaltungs GmbH (Cerberus), a call option for the acquisition of Alinea Holding GmbH.
The option entitles both BAWAG P.S.K. and the said acquirer of BAWAG P.S.K. to exercise it either in part or as a
whole in a way agreed between the holders of the option. However, Alinea Holding GmbH must always be
acquired in its entirety. The option can be exercised in the period between closure of the BAWAG P.S.K. sale
(date when ownership is transferred) and December 31, 2007, at a price that has already been fixed.
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Aviso Alpha Veranlagung GmbH and Aviso Beta Veranlagung GmbH
To strengthen BAWAG P.S.K.’s capital base, Austria’s banks founded Aviso Alpha Veranlagung GmbH with share
capital totaling € 437.5 million in June 2006. The special terms of the company’s memorandum and articles of
association allow BAWAG P.S.K. to control this company despite its small equity stake of just 20 per cent, with the
consequence that this investment qualifies as Tier 1 capital. It is thus possible to consolidate this company with
BAWAG P.S.K.’s own funds in accordance with § 24 BWG in conjunction with § 30 BWG.
At the same time, Aviso Beta Veranlagung GmbH was set up with share capital of € 125 million. Here too, in part-
nership with major Austrian insurers, the result has been to augment BAWAG P.S.K.’s own funds as described
above. The business activities of both companies are limited to investing in fixed-income securities and time
deposits. They do not have securities accounts or current accounts with BAWAG P.S.K. Each company has three
managing board members, two of whom are nominated by BAWAG P.S.K. and carry out their duties pro bono.
BAWAG P.S.K. carries on no other business with these companies. They are likely to be dissolved and their liqui-
dation will probably be put in train at the time of closure of the BAWAG P.S.K. sale (date when ownership is
transferred).
Europlex Building – Kinomax – Pulawska Planungs- und Errichtungs GmbH
Pulawska Planungs- und Errichtungs GmbH is a wholly owned subsidiary of BAWAG P.S.K. and, in turn, holds a
stake of 100 per cent in Kinomax Sp. z o o., Poland. The object of Kinomax was the letting and maintenance of a
multiplex center in Warsaw called the Europlex building. BAWAG P.S.K. granted this company a loan to finance
Kinomax. In addition, BAWAG P.S.K., BAWAG Beteiligungsmanagement GmbH and P.S.K.Beteiligungsverwaltungs
GmbH hold profit share rights issued by Pulawska Planungs- und Errichtungs GmbH in the nominal amount of
roughly € 21.3 million. These were recognized by the aforesaid companies at a book value of roughly € 20.9 mil-
lion (including deferred interest). These rights entitle the holders to share in the profits of Pulawska Planungs- und
Errichtungs GmbH and, in part, guarantee an annual minimum profit share of 6.5 per cent.
The Europlex building was sold in December of the year under review and the whole of the outstanding loan from
BAWAG P.S.K. was repaid.
Kongresshotel Linz Betriebsgesellschaft m.b.H. and Kongresshotel Linz Errichtungsgesellschaft m.b.H.
BAWAG P.S.K. holds stakes of 50 per cent in Kongresshotel Linz Betriebsgesellschaft m.b.H. and Kongresshotel
Linz Errichtungsgesellschaft via a subsidiary. The other 50 per cent stakes belong to companies associated with
the Raiffeisen Group. The operating company runs the hotel operations of the 4-star Courtyard by Marriott hotel in
Linz, operational responsibility having been transferred to hotel operator Marriott under an operating and manage-
ment agreement. In addition to the executive directors, Raiffeisen and BAWAG P.S.K. also nominate one unpaid
director each. BAWAG P.S.K. has granted the company an interest-free subordinated corporate loan of € 5.5 mil-
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lion for an indefinite period. Repayments will only take place as the company’s liquidity permits. A guarantee line
(Avalkredit) and an overdraft facility have been granted on arm’s length terms.
The development company lets the building to the operating company. One director is appointed by Raiffeisen,
and one by BAWAG P.S.K. (both unpaid). Besides a checking account held on arm’s length terms, BAWAG
P.S.K. has also granted Kongresshotel Linz Errichtungsgesellschaft a subordinated equity holders’ loan of € 3.2 mil-
lion for an indefinite period at an interest rate of 2.5 per cent. The loan having been granted for an indefinite
period, repayments will only take place as the company’s liquidity permits.
Omnitec Informationstechnologie-Systemservice GmbH
BAWAG P.S.K. holds a stake of 50 per cent in Omnitec Informationstechnologie-Systemservice GmbH via a sub-
sidiary. The other 50 per cent are held by Österreichische Post Aktiengesellschaft. BAWAG P.S.K. and Österrei-
chische Post AG appoint one director each. The object of the company is to plan, erect and operate a common IT
system for the post offices of Österreichische Post AG. The associated applications can be used both by
Österreichische Post AG and by P.S.K.
BAWAG Allianz Mitarbeitervorsorgekasse AG
BAWAG Allianz Mitarbeitervorsorgekasse AG (MVK: staff benefit fund) is owned half by the BAWAG P.S.K. Group
and half by Allianz Elementar Versicherungs-Aktiengesellschaft. The object of the company is to manage and
invest termination benefit plan contributions in accordance with Austria’s Betriebliches Mitarbeitervorsorgegesetz
(corporate benefits act), which requires all employers to pay 1.53 per cent of the remuneration of employees
employed on or after January 1, 2003, into a staff benefit fund. MVK is one of the market’s three leaders, and its
market share continued to grow in 2006. At year-end, it had a total of 37,022 contracts under management. As
of December 31, 2006, invested assets totaled € 167 million. They were managed by BAWAG P.S.K. Invest GmbH
under an asset management mandate. Applying the method of calculating the performance of pension and staff
benefit funds laid laid down by Österreichische Kontrollbank (OeKB), this asset pool delivered a return of 3.11 per
cent in 2006.
Other contractual relationships with related entities
Since 2001, B.I.S. BAWAG Internet Services GmbH has had a letter of comfort from BAWAG P.S.K. whose amount
and duration are unlimited. In addition, during the purchase of the Hamburg-Harburg property from Datchet Ltd.
in 2006, BAWAG P.S.K. gave Plato Grundstücksverwertung GmbH a full undertaking to indemnify it and hold it
harmless with respect to damages, legal disputes and asset impairments.
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The members of the Managing Board and Supervisory Board
Remuneration paid to active members of the Managing Board during the financial year under review came to
€ 3,840 thousand (previous year: € 4,088 thousand). Termination and post-employment benefits paid to former
members of the Managing Board and their surviving dependents came to € 2,070 thousand (previous year:
€ 2,009 thousand). Remuneration of members of the Supervisory Board came to € 293 thousand (previous year:
€ 340 thousand).
Expenditure on termination and post-employment benefits for the Managing Board and key management person-
nel came to € 9,091 thousand (previous year: € 12,168 thousand). Expenditure with respect to other employees
came to € 23,717 thousand (previous year: € 22,075 thousand).
A post-employment benefit arrangement is in place for four members of the Managing Board. Provisions for
direct benefit promises were recognized on the Balance Sheet. The post-employment benefit rights of three
members of the Managing Board have been transferred to a pension fund.
As of the balance sheet date, loans outstanding to the members of the Managing Board came to € 455 thousand
(previous year: € 325 thousand). Loans outstanding to the members of the Supervisory Board totaled € 359
thousand (previous year: € 433 thousand). These loans were subject to commercially available interest rates if
granted to persons not employed by BAWAG P.S.K. Repayments of loans granted to board members took place
as contractually agreed.
Post-employment benefit promises have not been made to all key management personnel. Key management per-
sonnel to whom a post-employment benefit promise has been made have rights on the basis of PR61 (Austrian
pension reform) or individual promises.
Below, we present BAWAG P.S.K.’s business relationships with related parties and members of their families.
These were conducted on arm’s length terms and conditions.
BAWAG P.S.K. had the following business relationships with related parties and members of their families:
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Average Balance/Value in 2006, €€ Related Persons Family Members
Checking accounts 1,782,426.41 11,497.28Homebuilders’ checking accounts 110,569.91 —One-off cash advances 1,200,359.60 5,303.10Passbooks 7,624,414.80 121,722.92Securities accounts 3,348,957.24 163,335.34
Business relationships between banking subsidiaries of BAWAG P.S.K. and related parties and members of their
families:
Average Balance/Value in 2006, €€ Related Persons Family Members
Checking accounts 266,577.92 —Homebuilders’ checking accounts — — One-off cash advances 2,749,354.59 —Passbooks 77,910.49 —Securities accounts 166,955.48 —
In addition, these persons conducted business relationships to a customary extent with BAWAG P.S.K. Group
members in the leasing, real estate and insurance fields and with the pension and staff benefit funds.
BAWAG P.S.K.’s Supervisory Board was recomposed on April 7, 2006. The new Supervisory Board contains nine
representatives of our equity holders (previously 14) and five works council representatives (previously seven). A
Credit Committee, an Audit Committee (identical to the Supervisory Board as a whole), a Nominations Committee
and a Managing Board Affairs Committee were constituted as of the same date. The remuneration scale for
members of the Supervisory Board approved by the General Meeting provides for payments for each calendar
year of € 48,000 to the Chairman of the Supervisory Board, € 36,000 to the Deputy Chairman of the Supervisory
Board and € 24,000 to each ordinary member of the Supervisory Board.
The process of selling the Group’s stake in L. Bösendorfer Klavierfabrik GmbH, initiated in the spring of 2006, was
halted, prospective acquirers having already expressed an interest, because of the ongoing process of selling the
BAWAG P.S.K. Group itself. Further decisions regarding the retention of this investment or the initiation of a struc-
tured selling process will be made by the Managing Board of BAWAG P.S.K. after consultation with the BAWAG
P.S.K. Group’s new owner and in line with its strategy.
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27) Disclosures required by IFRS 5 —Non-current Assets Held for Sale andDiscontinued Operations
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The following figures, including in particular those pertaining to securities, comprise carrying amounts in the
accounts of BAWAG P.S.K. (as a separate entity) as determined in accordance with BWG.
€€m 12/31/2006 12/31/2005
Receivables assigned in favor of Oesterreichische Kontrollbank AG 753 878Collateral pledged in favor of theEuropean Investment Bank 655 630Cover pool for trust savings deposits 54 55Cover pool for covered bonds 4,434 3,262Other collateral 127 964Assets pledged as collateral 6,023 5,789
The collateral listed in the table above corresponded to the following payables of BAWAG P.S.K. (as a separate
entity):
€€m 12/31/2006 12/31/2005
Payables to Oesterreichische Kontrollbanksecured by assigned receivables 752 967Payables arising due to refinancingby the European Investment Bank 441 674Trust savings deposits 33 37Payables secured by the cover pool forcovered bonds 3,760 2,982Other collateralized debts — 150Total collateralized debt 4,986 4,810
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28) Assets pledged as collateral
29) Total collateralized debt
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Line items on the assets side of the Balance Sheet included the following subordinated assets:
€€m 12/31/2006 12/31/2005
Receivables from credit institutions 10 1
Of which from associates — —Receivables from customers 36 27
Of which from associates 19 9Bonds and otherfixed-income securities 58 47
Of which issued by subsidiaries — 7Other variable-rate securities 23 52
€€m 12/31/2006 12/31/2005
Contingent assets 12 —
Contingent liabilities 2,346 2,914
Arising from guarantees 2,314 2,468Other contingent liabilities 32 446Commitments 12,485 9,924
Other commitments comprised mainly unused credit lines.
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31) Contingent assets, contingent liabilities and commitments
30) Subordinated assets
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As of December 31, 2006, the following amounts of assets and liabilities denominated in foreign currencies were
held within the BAWAG P.S.K. Group:
€€m 12/31/2006 12/31/2005
AssetsUS dollars 2,565 3,517Swiss francs 2,891 3,783Japanese yen 165 298Slovak crowns 843 718Czech crowns 954 971Other 489 1,033Foreign currencies 7,907 10,320
Euros 42,899 47,578
Total 50,806 57,898
LiabilitiesUS dollars 2,633 3,453Swiss francs 829 1,550Japanese yen 673 766Slovak crowns 767 585Czech crowns 745 802Other 894 1,191Foreign currencies 6,541 8,347
Euros 44,265 49,551
Total 50,806 57,898
This table includes only balance sheet items and provides no information about open currency positions.
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32) Foreign-currency amounts
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€€m 12/31/2006 12/31/2005
Trading assets 53 125Other current financial assets 644 1,140Securities classified as non-current assets 3,513 1,115Genuine repurchase agreements 4,210 2,380
The following table shows a reconciliation between gross investment value and present value, broken down
according to maturity:
12/31/2005€€m Up to 1 year 1 – 5 years Over 5 years Total
Total of outstanding lease installments (gross investment value) 153 713 605 1,470As yet unrealized financial income 5 49 98 151Receivables under finance leases(net investment value) 148 664 508 1,319
12/31/2006€€m Up to 1 year 1 – 5 years Over 5 years Total
Total of outstanding lease installments (gross investment value) 141 795 668 1,604As yet unrealized financial income 6 56 135 198Receivables under finance leases(net investment value) 135 738 533 1,406
Impairments recognized in respect of irrecoverable minimum lease installments came to € 0.7 million.
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103
33) Genuine repurchase agreements
34) Leasing
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The following table shows the consolidated subsidiaries within the BAWAG P.S.K. Group:
Entities consolidated in accordance with IFRS (2006) Method ofinclusion Stake
BanksBAWAG Bank CZ a.s., Prague C 100.00%
BAWAG Banka d.d., Ljubljana C 100.00%
BAWAG Malta Bank Limited, Sliema C 100.00%
BAWAG P.S.K. Invest GmbH, Vienna * C 28.57%
BAWAG Wohnbaubank Aktiengesellschaft, Vienna C 100.00%
easybank AG, Vienna C 100.00%
Istrobanka a.s., Bratislava C 100.00%
Österreichische Verkehrskreditbank AG, Vienna C 100.00%
SPARDA Bank AG, Vienna C 100.00%
Real estateBAWAG P.S.K. IMMOBILIEN AG, Vienna C 100.00%
BPI Holding GmbH & Co KEG., Vienna C 100.00%
BPI Holding GmbH & Co. Immobilien und Anlagen KG., Vienna C 99.65%
BPI Holding GmbH, Vienna C 100.00%
CARNI Industrie-Immobiliengesellschaft m.b.H., Vienna C 100.00%
P.S.K. Liegenschaften Vermietungs- und Verwaltungsgesellschaft m.b.H., Vienna C 100.00%
R & B Leasinggesellschaft m.b.H., Vienna C 100.00%
RF 2 BPI Holding GmbH & Co. KG., Vienna C 99.84%
RF zehn BPI Holding GmbH & Co KG., Vienna C 100.00%
RVG Immobilienholding GmbH, Vienna C 100.00%
RVG Realitätenverwertungsgesellschaft m.b.H., Vienna C 100.00%
LeasingBAWAG P.S.K. Fuhrparkleasing GmbH, Vienna C 100.00%
BAWAG P.S.K. IMMOBILIENLEASING GmbH, Vienna C 100.00%
BAWAG P.S.K. Kommerzleasing GmbH, Vienna C 100.00%
BAWAG P.S.K. LEASING GmbH & Co. MOBILIENLEASING KG., Vienna C 100.00%
BAWAG P.S.K. LEASING GmbH, Vienna C 100.00%
BAWAG P.S.K. MOBILIENLEASING GmbH, Vienna C 100.00%
BAWAG P.S.K. Vermietungs- und Leasing GmbH, Vienna C 100.00%
B.L.H. BAWAG Leasing Holding GmbH, Vienna C 100.00%
FC Leasing GmbH, Vienna C 100.00%
Gara Feuerwehrzentralen Leasing Gesellschaft m.b.H., Vienna C 100.00%
Hafner See-Liegenschaftsverwaltungsgesellschaft m.b.H., Vienna C 100.00%
KLB Baulandentwicklung GmbH, Vienna C 100.00%
M. Sittikus Str. 10 Errichtungs GmbH, Vienna C 100.00%
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35) List of selected equity investments
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P.S.K. IMMOBILIENLEASING GmbH, Vienna C 100.00%
RF 17 BAWAG Immobilienleasing GmbH, Vienna C 100.00%
RF elf Realitätenverwertungsgesellschaft m.b.H., Vienna C 100.00%
RF fünfzehn BAWAG Mobilien-Leasing Gesellschaft m.b.H., Vienna C 100.00%
RF sechs BAWAG P.S.K. LEASING GmbH & Co. KG., Vienna C 100.00%
RF zwölf BAWAG Leasing Gesellschaft m.b.H., Vienna C 100.00%
START Immobilienleasing GmbH, Vienna C 100.00%
HBV Holding und Beteiligungsverwaltung GmbH, Vienna C 100.00%
Other non-banksAI-ALTERNATIVE INVESTMENTS LTD., Jersey C 100.00%
Alinea Holding GmbH, Vienna * C 0.00%
ATV Privat-TV Services AG Gruppe, Vienna E 42.50%
AUSTOST ANSTALT, Balzers C 100.00%
Aviso Alpha Veranlagung GmbH, Vienna E 20.00%
Aviso Beta Veranlagung GmbH, Vienna E 20.00%
BAWAG Beteiligungsmanagement GmbH, Vienna C 100.00%
BAWAG CAPITAL FINANCE II LIMITED, Jersey C 100.00%
BAWAG CAPITAL FINANCE III LIMITED, Jersey C 100.00%
BAWAG CAPITAL FINANCE LIMITED, Jersey C 100.00%
BAWAG FINANCE HOLDING LIMITED, Dublin C 100.00%
BAWAG Finance Malta Ltd., Sliema C 100.00%
BAWAG INTERNATIONAL FINANCE LIMITED, Dublin C 100.00%
BAWAG P.S.K. LEASING GmbH & Co. Hochholzerhof Errichtungs- und Vermietungs-KG., Vienna C 100.00%
BAWAG Versicherung Aktiengesellschaft, Vienna * C 0.10%
Bodensee Limited, Sliema C 51.00%
LETHE Leasing GmbH & Co. „Center am Fleischmarkt“ Immobilien und Anlagen KG, Vienna * C 0.00%
Cromer International Ltd., Jersey C 100.00%
FCH alpha Finanzierungsvermittlung GmbH, Vienna C 100.00%
FCH beta Finanzierungsvermittlung GmbH, Vienna C 100.00%
„Ingebe“ Industrie- u. Gewerbe-Beteiligungsgesellschaft m.b.H., Vienna C 100.00%
Ingebe Medien Holding GmbH, Vienna C 100.00%
ISTRO - RECOVERY, s.r.o., Bratislava C 100.00%
ISTRO ASSET MANAGEMENT, spràv. spol.,a.s., Bratislava C 100.00%
Istrofinance s.r.o., Bratislava C 100.00%
L. Bösendorfer Klavierfabrik GmbH, Vienna C 100.00%
ÖKK Holding Gesellschaft m.b.H., Vienna C 100.00%
Pluto Beteiligungsverwaltung GmbH, Vienna C 100.00%
POLESTAR LIMITED, Liechtenstein C 100.00%
P.S.K.Beteiligungsverwaltung GmbH, Vienna C 100.00%
P.S.K.Versicherung AG (formerly Postversicherung AG), Vienna C 100.00%
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105
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RF 4 BAWAG P.S.K. LEASING GmbH & Co. OHG., Vienna C 100.00%
Rhein Limited, Grand Cayman C 51.00%
Stiefelkönig Schuhhandels Gesellschaft m.b.H., Graz C 100.00%
STK Beteiligung GmbH, Vienna C 100.00%
TADEMA Leasing und Beteiligung Gesellschaft m.b.H., Vienna C 100.00%
UHW Finanzierungsdienstleistungen beta GmbH, Vienna C 100.00%
Note* Consolidated in accordance with IAS 27 in conjunction with SIC 12 Consolidation — Special Purpose Entities.
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Risk Report as of December 31, 2006
BAWAG P.S.K.’s Managing Board as a whole (Gesamtvorstand) decides and promulgates our risk strategy and
approves risk management principles, the type, scope and amount of limits on relevant risks and procedures for
monitoring risks. They are collected together within a framework of risk principles, organizational structures and
processes for measuring and monitoring risk. The concrete risk management process is laid down in risk hand-
books, working manuals and instructions for all material risk types, some of which are still under development.
BAWAG P.S.K.’s risk strategy defines the Bank’s basic risk policy principles, its systematic approach to risk classifi-
cation, and the cornerstones of risk-oriented planning and management of all material risks, creating inter alia the
foundations for the implementation of the Internal Capital Adequacy Assessment Process (ICAAP).
The key components of our new risk strategy are our risk policy principles, the importance that we attach to risk
diversification and the strict and seamless firewalling of front-office and back-office functions within the Group.
BAWAG P.S.K.’s risk monitoring and management processes distinguish between the following types of risk:
• Credit risks (default risks, counterparty risks, securitization risks, collateral risks, country risks, credit quality and
spread risks, settlement risks)
• Market risks (interest rate risks, currency risks, equity price risks, volatility risks, net asset value risks and basis
risks)
• Operational risks (model risks, system risks, human resources risks, fraud risks and legal risks)
• Other risks (liquidity risks, equity risks, strategic risks, selling risks, reputation risks, real estate risks and other)
In the second quarter of 2006, we created the post of Chief Risk Officer (CRO) at Managing Board level. As the
senior representative of all back-office units, the CRO is answerable for risk monitoring and risk control and is, in
this context, responsible for the Risk Control, Settlements and Control and Credit Risk Management departments.
Central Risk Control is responsible for developing and implementing methods and instruments for the quantifica-
tion and management of the key risk types and for the regular determination of our risk-bearing capacity. Market
and credit risks in the Treasury Division are monitored by a special Market Risk Control unit.
The BAWAG P.S.K. Group’s liquidity and market risks are managed by the Asset Liability Committee (ALCO).
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We define market risk as the risk associated with changes in market prices and rates (e.g.
interest and exchange rates, share prices), the correlations between them and their volatilities. Market risks affect
the trading book and the banking book. At BAWAG P.S.K., market risk in the Treasury Division is monitored by a
Managing Board staff unit called Market Risk Control. The Controlling Division is responsible for dealing with
market risks at BAWAG P.S.K. Group level.
The network of Managing Board approved limits in place to limit and manage market risk in the Treasury Division
consists of value-at-risk, sensitivity, stop loss, volume and worst-case limits in conjunction with warning levels.
Treasury risk positions are analyzed daily and monthly on an aggregated basis and measured against the defined
risk limits. The Managing Board then receives extensive reports on the Treasury Division’s risk position, limit
utilization and daily profits or losses.
Market risks in the trading book
BAWAG P.S.K. measures market risks in the trading book using a value at risk (VaR) methodology within the
scope of an internal model. It has been audited by the Austrian Nationalbank and was approved by the Austrian
Federal Ministry of Finance in accordance with § 26b BWG in 1998.
Besides VaR, the management of market risks is also supported by sensitivity (delta, gamma, vega), stop loss,
volume and worst case limits. These too are included in the daily risk reports to the Managing Board.
Employing a variance/covariance approach, value at risk is calculated daily using the PMS IT system for all traded
positions applying a confidence interval of 99 per cent and based on holding periods of 1 day and 10 days. The
possible losses captured in this way are compared with the results of a Monte Carlo simulation so as to detect
other possible risks in advance.
As of December 29, 2006, our value at risk (inclusive of gamma and vega risk) applying a confidence interval of
99 per cent and a holding period of 10 days was € 2.49 million (December 30, 2005: € 1.0 million).
Because of the effects of diversification between the various types of risk, the aggregated risk differs from the
total of the risks reported for each risk type. The following year-end and annual average values at risk were the
result:
36) Market risk
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Consolidated Financial Report prepared in accordance with IFRS
VaR Analysis (99 %, 10-Day HP) in the Trading Book in 2006 (€m)
Risk Type Minimum Maximum Average 12/29/2006
Currency 0.35 2.45 1.11 0.83Interest rate 0.78 3.79 1.97 2.23Uncorrelated 1.22 4.75 3.09 3.06Total (2006) 0.94 4.00 2.42 2.49Diversification — * — * (0.67) (0.58)
Note* Insignificant.
The results obtained from our internal model are used for the purposes of internal risk management (1-day hold-
ing period, 99 per cent confidence interval) and external regulatory reporting (10-day holding period, 99 per cent
confidence interval), applying the best possible multiplier — three — as specified by the Federal Ministry of Finance
when measuring our own funds.
Daily backtesting is used to verify the quality of the model, with the VaR (1-day holding period) based on actual
trading book positions being compared with the actual change in value on the next day. A backtesting result that
produces a bigger actual loss than the predicted VaR is described as an “outlier”. BAWAG P.S.K. did not have any
outliers during 2006 (2005: one outlier), confirming the model’s quality.
The chart that follows compares our daily VaR figures for the trading book in 2006 with the results of backtesting
(delta):
BAWAG P.S.K. — Trading Book in 2006VaR Backtesting (99 %, 1-Day Holding Period), €k
DELTA
VaR with Corr.
900.00
600.00
300.00
0.00
– 300.00
– 600.00
– 900.00
– 1.200.00
– 1.500.00
1/2/
2006
1/17
/20
06
2/1/
2006
2/16
/20
06
3/3/
2006
3/18
/20
06
4/2/
2006
4/17
/20
06
5/2/
2006
5/17
/20
06
6/1/
2006
6/16
/20
06
7/1/
2006
7/16
/20
06
7/31
/20
06
8/15
/20
06
8/30
/20
06
9/14
/20
06
9/29
/20
06
10/
14/
2006
10/
29/
2006
11/
13/
2006
11/
28/
2006
12/
13/
2006
12/
28/
2006
109
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110
With daily value at risk calculations forecasting possible losses under normal market conditions, we also carry out
stress tests during which the trading book is stressed and subjected to scenarios applying extreme movements in
the market that are not captured by the confidence interval. Market Risk Control differentiates between crisis
tests carried out at specific times and crisis tests carried out for specific reasons, using both statistical methods
(changes in correlation, higher confidence intervals, etc.) and simulations of extreme fluctuations in risk factors in
the market (equity prices and index values, interest rates, exchange rates, volatilities).
Market risks in the banking book
The interest rate risks that we measure in the banking book are the risk of a loss of present value and the risk of
possible unwanted future changes in net interest income caused by changes in interest rates.
The resulting reports provide the basis for decisions by the ALCO (Asset Liability Management Committee),
which discusses the interest rate, currency, liquidity and other risk implications of business opportunities of
relevance to the banking book with the active involvement of one Managing Board member responsible for
front-office operations and one Managing Board member responsible for risk and, as necessary, makes decisions
itself or makes recommendations to the Managing Board as a body for it to make such decisions. Having been
made, decisions are then put into effect by the Treasury Division. Because of the sharp rise in interest rates, we
gradually reduced our interest rate risk positions during the year.
To plot interest rate risks in the banking book, the nominal amounts of all fixed-income financial instruments are
assigned to time bands according to their current remaining duration as fixed-income instruments, all variable-rate
financial instruments are assigned according to their current duration and all positions with an indefinite duration
are assigned to appropriate time bands applying durations assessed at Group level.
All on-balance-sheet and off-balance-sheet positions together resulted in the following duration gaps, by time
band (positive items representing a surplus of asset items; negative values a surplus of liability items). This
presentation takes account of internal transactions between the trading and banking books.
In addition, issued securities hedged by variable-rate hedges were recognized from BAWAG P.S.K.’s viewpoint
as variable-rate securities.
Interest cash flows in foreign currencies that were included in our calculations were translated applying forward
rates.
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BAWAG P.S.K.’s Interest Sensitivity Gaps as of 12/31/2006, €€m
Interest Sensitivity Gap < 1Yr 1Yrs – 3Yrs 3Yrs – 5Yrs 5Yrs – 7Yrs 7Yrs – 10Yrs > 10Yrs Total Rate
Assets 33,318 4,646 2,552 2,191 1,643 618 44,967 3.96%
Loans 24,791 2,346 1,333 386 1,308 471 30,635 3.9%
Fixed loans 4,739 1,383 528 360 1,286 426 8,721 4.2%Euros 4,110 1,376 528 359 1,265 390 8,028 4.2%US dollars 465 — — — — — 465 5.1%Swiss francs 124 — — 1 21 36 182 2.7%Japanese yen — — — — — — — 1.1%Other currencies 39 6 — — — — 45 4.6%Other loans 20,052 964 805 26 22 45 21,914 3.8%Euros 16,393 927 805 26 21 43 18,215 3.9%US dollars 639 — — — — — 639 5.1%Swiss francs 2,615 32 — — 1 2 2,650 3.0%Japanese yen 134 — — — — — 134 1.1%Other currencies 271 4 — — — — 275 4.2%Securities 4,576 2,300 1,219 1,804 335 147 10,382 4.1%
Mismatch book 1,813 1,846 812 1,682 285 147 6,586 3.8%Euros 1,768 1,818 812 1,682 285 147 6,512 3.8%US dollars 44 28 — — — 1 72 6.6%Swiss francs 2 — — — — — 2 3.6%Japanese yen — — — — — — — 0.0%Other currencies — — — — — — — 0.0%LIBOR book 2,763 453 407 123 50 — 3,796 4.5%Euros 1,931 335 319 110 50 — 2,745 4.2%US dollars 600 36 18 12 — — 667 5.5%Swiss francs 19 73 32 — — — 125 3.7%Japanese yen 16 9 9 — — — 35 0.8%Other currencies 196 — 28 — — — 225 5.9%Other assets 3,950 — — — — — 3,950
Liabilities (36,012) (5,418) (2,823) (436) (746) (192) (45,628) 2.93%
Deposits (23,790) (4,788) (2,560) (420) (174) (202) (31,935) 2.9%
Fixed deposits (12,252) (2,996) (769) (420) (174) (202) (16,813) 3.7%Euros (10,280) (2,992) (759) (405) (143) (32) (14,612) 3.5%US dollars (1,507) (4) (9) (15) (31) (57) (1,624) 5.6%Swiss francs (170) — — — — — (170) 1.9%Japanese yen (7) — — — — (113) (119) 3.0%Other currencies (288) — — — — — (288) 4.1%
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Interest Sensitivity Gap < 1Yr 1Yrs – 3Yrs 3Yrs – 5Yrs 5Yrs – 7Yrs 7Yrs – 10Yrs > 10Yrs Total Rate
Other deposits (11,538) (1,792) (1,792) — — — (15,122) 1.9%Euros (11,022) (1,792) (1,792) — — — (14,605) 1.9%US dollars (379) — — — — — (379) 4.3%Swiss francs (105) — — — — — (105) 1.9%Japanese yen (2) — — — — — (2) 0.2%Other currencies (31) — — — — — (31) 1.7%Issued securities (9,215) (630) (263) (16) (571) 10 (10,685) 3.1%
Fixed-income securities (381) (630) (263) (16) (571 10 (1,851) 3.6%Euros (381) (630) (250) (16) (571 10 (1,839) 3.7%US dollars — — (13) — — — (13) 0.0%Swiss francs — — — — — — —Japanese yen — — — — — — —Other currencies — — — — — — —Variable-rate securities (8,834) — — — — — (8,834) 3.0%Euros (6,482) — — — — — (6,482) 3.0%US dollars (464) — — — — — (464) 5.2%Swiss francs (730) — — — — — (730) 1.9%Japanese yen (567) — — — — — (567) 0.3%Other currencies (591) — — — — — (591) 5.1%Other liabilities (3,007) — — — — — (3,007)
Off-balance-sheet 4,170 (1,757) (892) (512) (1,075) 34 (31)
Assets 59,149 400 491 159 747 (159) 60,786 3.2%
Euros 42,551 296 468 153 733 (344) 43,858 3.6%US dollars 3,610 17 5 — — 68 3,701 3.5%Swiss francs 11,030 51 — — — — 11,081 1.9%Japanese yen 744 — — — — 113 857 0.4%Other currencies 1,213 36 18 6 13 3 1,290 3.0%Liabilities (54,979) (2,157) (1,383) (670) (1,822) 193 (60,818) 3.2%
Euros (37,582) (1,942) (1,216) (594) (1,794) 277 (42,850) 3.6%US dollars (3,464) (32) (49) (38) (14) (69) (3,665) 3.6%Swiss francs (12,944) (130) (38) — — — (13,112) 1.7%Japanese yen (228) (9) (12) — — — (249) 0.2%Other currencies (761) (44) (68) (39) (14) (15) (942) 4.2%Total 12/31/2006 1,476 (2,529) (1,163) 1,243 (178) 460 (692)
Total 12/31/2005 (759) (711) (308) 546 163 598 (471)
112
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Comparison with the previous year shows that whereas in 2006 the Bank had a surplus of assets at the short end
up to a duration of one year, it had still had a surplus of liabilities in 2005. In the 1 to 5 years range, the surplus of
liabilities on the balance sheet date was much bigger than a year earlier. On the other hand, the surplus of assets
also grew in the 5 to 7 years range.
Following additional internal sensitivity analysis, the interest rate risk assuming a one basis point parallel shift in the
yield curve came to just under € 0.3 million as of December 31, 2006. This exploited 2.2 per cent of the maximum
permissible sensitivity of 20 per cent of our own funds given a parallel shift in yield curves of 200 basis points
(outlier ratio).
BAWAG P.S.K.’s Present Value of a Basis Point as of 12/31/2006, €€k
Interest Sensitivity Gap < 1Yr 1Yrs – 3Yrs 3Yrs – 5Yrs 5Yrs – 7Yrs 7Yrs – 10Yrs > 10Yrs Total
Total 185 253 403 (676) 147 (607) (295)
Assets (567) (977 (973) (1,175) (1,035) (707) (5,434)
Loans (435) (469 (508) (247) (801) (526) (2,985)
Fixed loans (85) (268) (199) (174) (746) (388) (1,861)Euros (74) (266) (198) (173) (733) (344) (1,789)US dollars (8) — — — — — (8)Swiss francs (3 (1) (1) (2) (13) (44) (63)Japanese yen — — — — — — —Other currencies — (1) — — — — (1)Other loans (350) (201) (309) (72) (55) (137) (1,124)Euros (277) (193) (301) (62) (37) (69) (939)US dollars (10) — — — — — (10)Swiss francs (55) (7) (7) (9) (17) (66) (163)Japanese yen (2) — — (1) (1) (2) (5)Other currencies (6) (1) — — — — (8)Securities (132) (508) (465) (928) (233) (181) (2,448)
Mismatch book (71) (411) (314) (866) (205) (181) (2,048)Euros (69) (406) (314) (866) (205) (181) (2,041)US dollars (1) (5) — — — (1) (7)Swiss francs — — — — — — —Japanese yen — — — — — — —Other currencies — — — — — — —
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Interest Sensitivity Gap < 1Yr 1Yrs – 3Yrs 3Yrs – 5Yrs 5Yrs – 7Yrs 7Yrs – 10Yrs > 10Yrs Total
LIBOR book (62) (98) (151) (62) (29) — (400)Euros (47) (72) (120) (55) (28) — (323)US dollars (10) (9) (7) (6) — — (34)Swiss francs (1) (13) (10) — — — (24)Japanese yen (1) (2) (3) — — — (6)Other currencies (3) (1) (10) — — — (13)Liabilities 669 979 1,045 269 456 228 3,645
Deposits 464 867 930 246 139 262 2,908
Fixed deposits 287 518 309 246 139 262 1,761Euros 260 513 297 229 103 24 1,427US dollars 24 4 9 14 29 56 136Swiss francs 1 — — — — — 1Japanese yen 1 1 2 3 6 182 196Other currencies 2 — — — — — 2Other deposits 177 349 621 — — — 1,147Euros 173 349 621 — — — 1,143US dollars 3 — — — — — 3Swiss francs 1 — — — — — 1Japanese yen — — — — — — —Other currencies — — — — — — —Issued securities 204 111 115 23 317 (34) 736
Fixed-income securities 16 111 115 23 317 (33) 551Euros 16 111 111 23 317 (33) 546US dollars — — 4 — — — 4Swiss francs — — — — — — —Japanese yen — — — — — — —Other currencies — — — — — — —Variable-rate securities 188 — (1) (1) — (1) 186Euros 150 1 — — 1 2 155US dollars 4 — — — — — 3Swiss francs 15 — — — — — 15Japanese yen 11 — (1) (1) (2) (6) 1Other currencies 9 — — — — 3 11
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Interest Sensitivity Gap < 1Yr 1Yrs – 3Yrs 3Yrs – 5Yrs 5Yrs – 7Yrs 7Yrs – 10Yrs > 10Yrs Total
Off-balance-sheet 84 252 330 230 726 (128) 1,494
Assets (838) (116) (226) (122) (506) (53) (1,861)
Euros (684) (90) (209) (109) (480) 244 (1,328)US dollars (38) (4) (6) (6) (11) (106) (170)Swiss francs (98) (10) — — — — (108)Japanese yen (7) (1) (2) (3) (6) (188) (208)Other currencies (12) (11) (9) (4) (9) (3) (48)Liabilities 922 368 557 352 1,232 (75) 3,355
Euros 714 311 492 308 1,202 (208) 2,818US dollars 46 18 22 23 18 106 233Swiss francs 144 23 11 — — — 179Japanese yen 3 2 4 — 1 15 26Other currencies 15 13 27 21 11 11 99
Interest rate risk at the level of the Group as a whole as of December 31, 2006, was as follows based on the sur-
plus of assets net of the (surplus of liabilities) in the following time bands, which specify when the rate will next
be fixed:
Interest Sensitivity Gaps of the BAWAG P.S.K. Group as of 12/31/2006, €€m
Interest Sensitivity Gap < 1Yr 1Yrs – 3Yrs 3Yrs – 5Yrs 5Yrs – 7Yrs 7Yrs – 10Yrs > 10Yrs Total
Total (341) (1,841) (745) 1,582 (70) 721 (693)
Euros 802 (2,235) (688) 1,627 (61) 555 1US dollars (920) 353 (35) (9) (18) 41 (588)Swiss francs (150) 17 (5) 1 22 46 (70)Japanese yen — — (3) — — 89 87Other currencies (73) 24 (15) (37) (13) (11) (123)
The following table shows the BAWAG P.S.K. Group’s interest rate risks as of December 31, 2006. It presents the
changes in the present values of all on-balance-sheet and off-balance-sheet positions in the banking book in the
entire Group in the individual time bands given a parallel one basis point shift in the market yield curve.
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BAWAG P.S.K. Group’s Present Value of a Basis Point (PVBP) as of 12/31/2006, €€k
Interest Sensitivity Gap < 1Yr 1Yrs – 3Yrs 3Yrs – 5Yrs 5Yrs – 7Yrs 7Yrs – 10Yrs > 10Yrs Total
Total 166 115 267 (848) 75 (898) (1,124)
Euros 120 194 257 (855) 91 (637) (831)US dollars 32 (68) 11 2 6 (42) (61)Swiss francs 3 (5) (7) (11) (30) (114) (164)Japanese yen 5 — — (1) (1) (115) (112)Other currencies 6 (5) 6 18 9 10 44
Besides classical methods of duration analysis, we also used a value-at-risk technique to quantify interest risk in
the banking book. Value at risk expresses the potential future loss (in fair value) that will not be exceeded in a
given portfolio within a specified period and with a certain probability. Value at risk was generally determined
using a variance/covariance approach applying a confidence interval of 99 per cent and a holding period of 10
days. As of December 31, 2006, value at risk arising from interest rate risk in the Group’s banking book came to
€ 31.35 million.
The results of action taken were reported in Net interest income when on-balance-sheet positions were used and
in Net income from financial investments when derivative positions were used.
Customer divisions are given a pricing benchmark that employs a standardized reference interest rate methodol-
ogy. It is neutral with respect to market risk. The reference interest rates it produces are used when analyzing
either risks or results.
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116
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Derivative financial instruments in the BAWAG P.S.K. Group’s accounts as of 12/31/2006
Derivative financial instruments are classified both as OTC (over-the-counter) transactions or transactions that
take place on an exchange and according to the hedged items that underlie them (interest rates, currencies,
loans). They are used equally for trading purposes in the trading book and for risk management purposes in the
banking book.
Derivative Financial Instruments in the BAWAG P.S.K. Group’s Accounts as of 12/31/2005
Nominal amounts/Maturity Fair values€€m Up to 1 year 1 – 5 years > 5 years Total Positive Negative
Interest rate derivatives 75,579 26,696 17,815 120,090 1,718 (1,192)
Of which interest rate swaps in the banking book 59,829 14,747 10,650 85,227 1,317 (732)interest rate options in the banking book 3,455 6,025 4,240 13,720 141 (120)interest rate forwards and futures in the banking book 7,987 262 — 8,249 1 (5)
interest rate swaps in the trading book 2,556 5,504 2,794 10,853 257 (332)interest rate options in the trading book 529 38 132 699 3 (2)interest rate forwards and futures in the trading book 1,222 120 — 1,342 — —
Exchange rate contracts 9,043 376 1,643 11,062 94 (112)
Of which cross currency swaps in the banking book 2,391 281 291 2,962 50 (27)forward currency transactions and options in the banking book 22 7 301 330 1 (33)cross currency swaps in the trading book 254 86 1,052 1,392 9 (20)forward currency transactions andoptions in the trading book 6,377 2 — 6,379 34 (32)
Securities contractsand other derivatives 1,404 300 507 2,211 55 (22)
Total 86,026 27,373 19,965 133,364 1,868 (1,326)
Of which in the banking book 74,862 21,623 15,988 112,473 1,565 (940)in the trading book 11,164 5,750 3,977 20,891 302 (386)
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Derivative Financial Instruments in the BAWAG P.S.K. Group’s Accounts as of 12/31/2006
Nominal amounts/Maturity Fair values€€m Up to 1 year 1 – 5 years > 5 years Total Positive Negative
Interest rate derivatives 47,041 22,679 18,244 87,965 1,064 (816)
Of which interest rate swaps in the banking book 28,290 5,738 5,568 39,596 603 (402)interest rate options in the banking book 46 188 689 923 5 (3)interest rate forwards and futures in the banking book 3,529 84 — 3,613 1 (1)
interest rate swaps in the trading book 6,941 11,036 7,108 25,085 360 (319)interest rate options in the trading book 5,248 5,634 4,879 15,760 92 (91)interest rate forwards and futures in the trading book 2,987 — — 2,987 3 —
Exchange rate contracts 6,728 466 1,551 8,745 114 (67)
Of which cross currency swaps in the banking book 2,928 179 225 3,332 29 (22)forward currency transactions andoptions in the banking book 157 31 248 436 39 (25)cross currency swapsin the trading book 114 72 997 1,183 24 (6)forward currency transactions andoptions in the trading book 3,528 184 81 3,793 22 (14)
Securities contractsand other derivatives 1,539 153 191 1,883 23 (6)
Total 55,308 23,299 19,986 98,592 1,201 (890)
Of which in the banking book 36,097 6,373 6,922 49,392 700 (459)in the trading book 19,210 16,926 13,064 49,200 501 (430)
Interest rate derivatives are used within the scope of strategic overall bank management processes to hedge indi-
vidual items on the Balance Sheet, such as securities investments, loans and issued securities.
Positions are measured online within our front-office systems applying generally accepted market standards . To
limit counterparty risks associated with instruments not traded on an exchange, derivatives are taken into account
in the credit lines approved by the Managing Board. Within our trading units, adherence to credit lines is moni-
tored on a real time basis.
New products for the trading and banking books go through a detailed product approval process during which
their possible effects from a risk, settlement, reporting and measurement point of view are evaluated and com-
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119
mented upon. This process must be completed before trade in a new product can commence. Final approval of
trading is given by the Managing Board at the recommendation of the Asset Liability Committee.
Breakdown of Derivatives Hedging Securities issued by BAWAG P.S.K. as of 12/31/2006:
Derivatives Hedging Securities issued by BAWAG P.S.K. as of 12/31/2005
Nominal amounts/Maturity Market values(Fair values)
€€m Up to 1 year 1 – 5 years > 5 years Total Positive Negative
Interest rate derivatives 460 3,146 3,965 7,572 500 (47)
Of which interest rate swaps andoptions in the banking book 460 3,146 3,965 7,572 500 (47)
Exchange rate contracts 8 30 429 468 13 (48)
Of which cross currency swaps in the banking book 8 30 429 468 13 (48)
Securities contractsand other derivatives 30 99 85 213 17 (1)
Of which securities contracts andother derivatives in the banking book 30 99 85 213 17 (1)
Total 499 3,275 4,479 8,253 529 (96)
Of which banking book transactions. 499 3,275 4,479 8,253 529 (96)
Derivatives Hedging Securities issued by BAWAG P.S.K. as of 12/31/2006
Nominal amounts/Maturity Market values(Fair values)
€€m Up to 1 year 1 – 5 years > 5 years Total Positive Negative
Interest rate derivatives 551 2,907 3,209 6,666 230 (96)
Of which interest rate swaps andoptions in the banking book 551 2,907 3,209 6,666 230 (96)
Exchange rate contracts — 15 362 376 23 (58)
Of which cross currency swaps in the banking book — 15 362 376 23 (58)
Securities contractsand other derivatives 14 63 75 153 14 (1)
Of which securities contracts andother derivatives in the banking book 14 63 75 153 14 (1)
Total 565 2,984 3,645 7,195 267 (155)
Of which banking book transactions 565 2,984 3,645 7,195 267 (155)
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Liquidity risk
Besides the risk of being unable to meet financial obligations when they fall due (liquidity risk in the narrower
sense of the term), this type of risk also includes the risk of not being able to raise sufficient funds on the
expected terms when they are needed (funding risk) and the risk of being unable to settle transactions or of only
being able to settle them at a loss due to inadequate market depth or as a result of market disruptions (market
liquidity risk).
During the second quarter of last year, the announcement of losses incurred in the past led to withdrawals of cus-
tomer deposits. They ended with the furnishing of a € 900 million guarantee by the Republic of Austria.
The Bank’s liquidity position was monitored in regular liquidity meetings during which we analyzed the current sit-
uation on the basis of the existing liquidity numbers to decide what action should be taken. Thanks to the stabi-
lization of the situation, customer deposits began growing again during the fourth quarter.
In addition, we were able to draw on new sources of strategic liquidity (French Commercial Paper Program). By
year-end, we had managed to reduce the amount of funds obtained by recourse to the ECB tender to nearly zero.
We stress that the requirements of § 25 BWG were satisfied throughout the year.
Currency risk in the banking book
§ 26 BWG sets a ceiling on open currency positions in the banking book. In addition, we apply internal limits that
are well below those set by BWG. Adherence to limits is monitored both on a decentralized basis and centrally.
Foreign currency positions are analyzed on a daily basis, and if certain predefined limits are reached, closed.
Credit risk is the risk of a counterparty being unable to fulfill its obligations or defaulting
when performance has already taken place (provisions of liquid funds, securities, services) or of it proving impos-
sible to collect unrealized gains from pending business.
We analyze the borrower’s creditworthiness before entering into a new exposure or extending an existing one.
This is done using the scoring or rating process required in the particular segment. The client’s default probability
is determined during the approval process, assigning it to one of 27 internal risk classes. Together with furnished
collateral, this probability is taken account of when specifying terms and conditions for the particular customer,
applying standard risk costs.
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37) Credit risk
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The quantity and performance of less creditworthy customers are monitored with the help of a watch list and
reported to the Managing Board by exposure type and risk class. If they perform negatively, bigger exposures are
taken out of the hands of front-office departments and handled by the Sondergestion (special management)
Department. Our new Allegro core banking system automatically generates specific loan loss allowances in the
retail loans segment.
This ensures that adequate allowances are recognized for amounts that are at risk. Loan amounts that are
deemed to be irrecoverable are written off in full. (Loans designated as troubled or irrecoverable are covered in
part by a guarantee for a total of € 900 million furnished by the Republic of Austria.)
The guarantee provided by the Republic of Austria will no longer be needed once BAWAG P.S.K. has been sold
to Cerberus thanks to the associated capital injection and the indemnity provided in respect of troubled loans.
The extent of non-performing loans (carrying amounts of impaired accounts) will be drastically reduced by the
closure of accounts for which impairments have already been recognized.
Our periodic Credit Risk Report presents in detail the exposures (besides the current carrying amounts of loans
and overdrafts, they also include guarantees and unused credit lines) in each segment and broken down by num-
ber of customers and exposures in each risk and volume class. In addition, the core topics dealt with in such
reports also include geographical and industry focuses.
Corporates: Exposures by Volume Class (BAWAG P.S.K. only)
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121
■ ≤ 1m■ > 1m and ≤ 5m■ > 5m and ≤ 20m■ > 20m and ≤ 50m■ > 50m and ≤ 100m■ > 100m and ≤ 500m
(77.4%)
(0.5%)(0.6%)
(1.3%)(5.6%)
(14.6%)
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122
Regional Distribution of Exposures
Risk-weighted assets measured in accordance with Basel I in the amount of € 28,137 million were spread as
follows between customer divisions, the Treasury Division and other positions:
From January 1, 2008, the capital charges for credit risk required by Basel II will be calculated using the standard-
ized approach. During our Basel II implementation project, we will be making all the preparations needed to
switch to the IRB approach as of January 1, 2010.
Equity risk
Equity risk is the risk of lost dividends, of having to perform unscheduled write-downs and of only being able to
sell investments at a loss because of the poor business performance of an entity in which an equity investment is
held. All our material equity investments underwent comprehensive impairment testing and were fairly valued.
(2.8%)(0.8%)(0.4%)
(32.0%)
■ Customer divisions■ Treasury■ Tangible non-current ■ assets and other assets
(2%)(21%)
(77 %)
■ Austria■ US■ EU and rest of Europe■ Rest of CEECs■ Asia-Pacific + Africa
(64.0%)
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As of December 31, 2006, the Group’s equity investments totaled € 492 million, with subsidiaries accounting for
€ 50 million thereof and investments in associates and other entities accounting for € 442 million thereof.
Investments in credit institutions came to € 155 million, and investments in non-bank entities came to € 337.
However, the latter were predominantly active in the financial services sector. Investments in credit institutions
comprised € 36 million of investments in associated credit institutions and € 119 of investments in other credit
institutions. Investments in non-bank entities comprised € 50 million of investments in subsidiaries, € 162 million
of investments in associates, € 114 million of investments in other entities accounted for using the equity method
and € 11 million of investments in other entities.
To limit losses caused by operational risks, heads of division are sensitized to possible
sources of risk using periodic control self assessments.
All loss events are captured centrally in the OP risk loss database and assigned to one of seven predefined loss
classes. The central follow-up analyses make it possible to detect accumulations in good time so as to take coun-
termeasures, helping avert further losses. If it is impossible to rule out the recurrence of a loss event, we attempt
to mitigate the risk as best we can.
In addition, we have guidelines assigning responsibilities and lending authorities throughout the Group and a risk-
oriented internal control system that employs IT-supported plausibility tests for the purposes of establishing a con-
trolled risk position. We refer the reader to the introduction to the Notes regarding corporate governance and the
Chief Risk Officer.
Internal Audit carries out additional routine and ad hoc audits of business transactions to ensure a high level of
security. Priority is also given to the use of new technologies and business processes in the mitigation of opera-
tional risks.
As of 2008, we will be using the standardized approach to calculating capital charges for operational risks in
accordance with Basel II.
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38) Operational risk
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Disclosures required by the Austrian banking andfinancial reporting acts (ÖsterreichischesBankwesen- und Rechnungslegungsgesetz)
€€m 12/31/2006 12/31/2006
Fiduciary assets 232 49
Receivables from customers 232 49Fiduciary liabilities 232 49
Payables to credit institutions 40 49Payables to customers 192 —
The following table breaks securities down in accordance with § 64 BWG Abs. 1 Z 10 und Z 11 as of
December 31, 2006:
BAWAGP.S.K.
Listed Group€€m Held to Other Total
Unlisted Listed maturity measurement 2006
Bonds and otherfixed-income securities 1,550 11,961 6,342 5,619 13,511Shares and othervariable-rate securities 594 1,119 — 1,119 1,713Entities in which equity investments are held and other investments 443 — — — 443Investments in non-consolidatedsubsidiaries 50 — — — 50Total securities 2,637 13,080 6,342 6,738 15,717
The difference between carrying amounts and lower repayment amounts for the purposes of §56 Abs. 2 BWG
was € 9 million. The difference between carrying amounts and higher repayment amounts for the purposes of
§ 56 Abs. 3 BWG was € 8 million.
Repayments expected during 2007 came to € 483 million (2006: € 943 million).
Liabilities evidenced by paper and subordinated debt capital in the nominal amount of € 1,953 million were due
for redemption in the following year.
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40) Breakdown of securities in accordance with BWG
39) Fiduciary assets and liabilities
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The following table presents our own funds requirement within the meaning of BWG and the composition of the
own funds of the credit institution group at the level of BAWAG P.S.K.:
€€m 12/31/2006 12/31/2005
Share capital 250 250
Reserves 1,452 1,432
Goodwill, minorities and deductions 872 544Core capital (Tier I) 2,574 2,226
Reserve under § 57 BWG, revaluation reserve 6 15Supplementary capital and subordinated debt capital 985 1,091Additional items (Tier 2) 991 1,106
Less equity investments (51) (51)Eligible own funds 3,514 3,281
Tier 3 43 31Own funds 3,557 3,312
Our own funds compared withthe following own funds requirement:
Credit risk 2,251 2,256
Market risk 43 31
For the purposes of BWG, the parent of BAWAG P.S.K., AVB, is a financial holding company. According to § 30
BWG, AVB is the parent of the credit institution group and regulatory provisions also apply to this group.
As of December 31, 2006, the consolidated own funds of the credit institution group at the level of AVB included
core capital (Tier 1) of € 1,271 million and eligible own funds of € 2,260 million. These figures compared with an
own funds requirement in respect of credit risk of € 2,154 million.
The entirety of the group’s market risk of € 43 million was covered by Tier 3 capital. As a result, the legislative
requirements were also satisfied at this level.
The Consolidated Financial Statements for 2006 recognize hybrid capital within the meaning of § 24 Abs. 2 Z 5
und 6 BWG in the amount of € 404 million. The entirety of this amount was reported on the IFRS Balance Sheet
for 2006 as borrowed capital in the line item Supplementary capital and subordinated debt capital.
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125
41) Consolidated own funds within the meaning of BWG
42) Hybrid capital
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On the reporting date, December 31, 2005, 7,378 people were working for the Group. Averaged over the year
2005, the Group’s human resources included 7,323 salaried employees.
The Balance Sheet entry for Land and buildings shows property with a carrying amount of € 116 million.
Obligations arising from the use of tangible non-current assets not recognized on the Balance Sheet were
expected to come to € 22 million in 2007; the expected amount in the five years following the year under review
was € 112 million.
The line item Other liabilities on the Balance Sheet contains deferred interest on supplementary capital bonds
(Ergänzungskapitalanleihen) in the amount of € 20 million.
Expenditure on subordinated liabilities came to € 87 million.
Our Hermes project was launched at the end of January 2007. The purpose of this project, managed by the
Boston Consulting Group, is to effect the reorientation of BAWAG P.S.K and reformulate its overall strategy. Ten
sub-projects are addressing segmental topics like retail business, corporate banking and treasury operations as
well as across-the-board topics like incentives, organization and databases. The conceptual phase is scheduled
for completion by the time the Bank’s sale closes.
The sale transaction between AVB and the members of the consortium led by Cerberus (see above) has been
scheduled for closure in the first half of 2007. The ongoing selling process is proceeding according to plan.
Approval by the EU Commission for the purposes of EU competition law, granted in February 2007, was an impor-
tant milestone.
In May 2006, BAWAG P.S.K. voluntarily paid the entirety of its share of the fine imposed in connection with ongo-
ing EU competition law proceedings (Lombard Club), which totaled € 17.8 million. The ruling of the court of first
instance in this case was given on December 14, 2006, reducing, to BAWAG P.S.K.’s advantage, the fine imposed
on (the former) P.S.K. AG from € 7.59 million to € 3.795 million. Consequently, these financial statements do not
need to recognize any allowance for these proceedings.
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44) Other disclosures required by BWG
45) Events after the balance sheet date
43) Human resources
126
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Release for publication
The Consolidated Financial Statements and Group Management Report were submitted to the Supervisory Board
for examination and approval on April 12, 2007.
Vienna
March 27, 2007
The Managing Board
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Independent Auditors’ Report
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of
BAWAG P.S.K. Bank für Arbeit und Wirtschaft und
Österreichische Postsparkasse
Aktiengesellschaft,
Vienna,
for the financial year from January 1, 2006 to December 31, 2006. These consolidated financial statements com-
prise the balance sheet as of December 31, 2006, the income statement, statement of changes in equity and cash
flow statement for the year ended December 31, 2006, and a summary of significant accounting policies and other
explanatory notes.
Management’s Responsibility for the Consolidated Financial Statements
The Company´s Management is responsible for the preparation of these consolidated financial statements and
that they give a true and fair view in accordance with International Financial Reporting Standards as adopted by
the EU. This responsibility includes: designing, implementing and maintaining internal control relevant to the
preparation and fair presentation of financial statements that are free from material misstatement, whether due to
fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are
reasonable in the circumstances.
Auditors´ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We
conducted our audit in accordance with laws and regulations applicable in Austria and in accordance with
International Standards on Auditing, issued by the International Auditing and Assurance Standards Board
(IAASB) of the International Federation of Accountants (IFAC). Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the con-
solidated financial statements. The procedures selected depend on the auditors´ judgment, including the assess-
ment of the risks of material misstatement of the financial statements, whether due to fraud or error.
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In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and
fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. An audit also includes assessing the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a reasonable basis for our audit opinion.
Opinion
Our audit gave rise to the following qualification:
The Auditors´ Opinion as of June 6, 2006 on the consolidated financial statements as of December 31, 2005 was
qualified regarding the following issue:
In a guarantee agreement dated June 6, 2006, the Republic of Austria guaranteed the recoverability of specific
BAWAG P.S.K receivables including interest with effect from December 31, 2005. Due to this guarantee, impair-
ments of receivables in the amount of EUR 900,000,000.00 were not recognized in the consolidated financial
statement as of and for the period ended December 31, 2005, even though International Financial Reporting
Standards do not allow the retroactive recognition of such guarantees. This also applies to receivables recognized
during first-time consolidation (as of October 1, 2005) at their (impaired) fair value.
Due to this fact, the consolidated income statement for the financial year from January 1, 2006 to December 31,
2006 is in accordance with the intentions of the Austrian legislator, but not in accordance with IFRS. Thus, we
qualify our opinion regarding the accounting treatment of the guarantee agreement of the Republic of Austria in
the consolidated balance sheet as of January 1, 2006 and the corresponding impact on the consolidated income
statement from January 1, to December 31, 2006.
Based on the results of our audit, in our opinion, the consolidated financial statements of BAWAG P.S.K. Bank für
Arbeit und Wirtschaft und Österreichische Postsparkasse Aktiengesellschaft, Vienna, present fairly, except for the
qualification mentioned above, the financial position of the group as of December 31, 2006, and its financial per-
formance and its cash flows for the financial year from January 1, 2006 to December 31, 2006 in accordance with
International Financial Reporting Standards as adopted by the EU.
Without further qualifying our opinion we draw attention to the following facts:
• In the Bundesgesetz betreffend die Haftungsübernahme zur Zukunftssicherung der BAWAG P.S.K. (federal act to
secure the future of BAWAG P.S.K.), BGBl I Nr 61/2006, the Republic of Austria authorizes the Federal Minister
of Finance to assume liability as guarantor on behalf of the Republic for certain of BAWAG P.S.K.’s receivables
129
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until July 1, 2007. In this act, the federal minister is further authorized to prolong this guarantee, with the
consent of the federal government. Based on this act, a guarantee agreement was concluded between the
Republic of Austria and BAWAG P.S.K. on June 6, 2006 that applies to a specific pool of receivables and is
limited to a maximum of EUR 900.0 million. This guarantee expires with the transfer of all BAWAG P.S.K. shares
to a buyer independent from the current owner but not later than July 1, 2007, unless the requirements of
prolongation of the federal act are fulfilled.
The legislative material (explanatory notes) explicitly points out that this guarantee will enable the bank to carry
specific receivables at their nominal values and not to record impairment provisions that would otherwise be
needed. Accordingly, impairment provisions in the amount of EUR 900.0 million were released as of
December 31, 2005, strengthening the bank’s earnings and equity position.
The European Commission has initiated proceedings to examine the guarantee agreement that are still ongoing.
According to the parties of the agreement, the guarantee agreement constitutes a state aid in any case
approvable according to Article 87 of the EC Treaty and Article 61 of the EEA Agreement and that therefore, the
guarantee commitment can be fulfilled. However, it cannot be excluded that the European Commission
demands compensatory measures in order to offset any competitive advantage occurred.
The Managing Board believes that the obligations arising from this guarantee agreement will either be assumed
by a acquirer of the shares of BAWAG P.S.K. or that they will be fulfilled by the direct and indirect shareholders
or that a financial obligation on the part of the federal government will be created by exercise of the guarantee
so that the prevailing accounting treatment can be retained.
• Furthermore, we refer to the explanations in the Notes to the Consolidated Financial Statements in respect of
the bank’s assessment of the risks and the resulting provisions in respect of claims against the bank in connec-
tion with the insolvency of Refco. Because of the US legal system the existing settlements can not provide full
legal certainty. Thus, it is possible that further plaintiffs can lay claims to BAWAG P.S.K., which leads to uncer-
tainties in this regard.
• Within the scope of the federal guarantee, the direct and indirect shareholders of the bank have agreed with the
Federal Minister of Finance to transfer all their shareholdings to third parties. In this context, we draw the reader’s
attention to the fact that the bank has a receivable against its parent AVB in the amount of EUR 1,574.9 million as
of December 31, 2006. The recoverability of this receivable depends materially on whether the purchase price
agreed in the course of signing the share purchase agreement at December 30, 2006 that allows its direct and
indirect shareholders to fulfil all their obligations to the bank can actually be obtained. Due to the expiration of the
guarantee agreement, because of the change of shareholders or at July 1, 2007 at the latest, additional capital of
approximately EUR 600.0 million will have to be paid in by the new shareholders to fulfil the regulatory solvency
ratio. Thus, the future development of the bank depends on the one hand on the existing guarantee agreement of
the federal government and on the other hand on the closing of the share purchase agreement.
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• The consolidated financial statements as of December 31, 2006 contain goodwill amounting to EUR 188.4 mil-
lion and deferred tax assets amounting to EUR 130.5 million. The measurement of these items depends to a
high degree on the future realisation of planned results. The amount of EUR 217.5 million capitalized for the core
banking system Allegro is based on the estimated future economic benefit of its utilization within the bank.
Report on Other Legal and Regulatory Requirements
Laws and regulations applicable in Austria require us to perform audit procedures whether the consolidated
management report is consistent with the consolidated financial statements and whether the other disclosures
made in the consolidated management report do not give rise to misconception of the position of the group.
In our opinion, the consolidated management report for the group is consistent with the consolidated financial
statements.
Responsibility and Liability
Our responsibility and liability as auditors against BAWAG P.S.K. and third parties are in conformity with Sec. 62a
of the Austrian Banking Act in connection with Sec. 275 of the Austrian Commercial Code. The liability is limited
with EUR 18.0 million and can only be called upon once.
Vienna, March 27, 2007
KPMG
Wirtschaftsprüfungs- und Steuerberatungs GmbH Deloitte Wirtschaftsprüfungs GmbH
Bernhard Mechtler m.p. Martin Wagner m.p. Kurt Schweighart m.p. Peter Bitzyk m.p.
Public Accountant Public Accountant Public Accountant Public Accountant
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Supervisory Board’s Report
BAWAG P.S.K.’s 2006 financial year was dominated by extraordinary events that led to permanent changes at the
Bank. Reports about earlier investments by BAWAG between 1995 and 2000 and the big losses that resulted led
to a serious loss of confidence and sizeable withdrawals of customer deposits during the first half of 2006.
Major changes took place in BAWAG P.S.K.’s boards in April 2007. Both the Supervisory Board and the
Managing Board of the Bank were reduced in size and recomposed. Moreover, the Bank’s owners decided to
sell their shares in BAWAG P.S.K.
To ward off legal actions by creditors and equity holders of insolvent US broker Refco, we signed a global agree-
ment in June 2006. It was finally confirmed by a ruling of the United States Bankruptcy Court dated Septem-
ber 11, 2006.
BAWAG P.S.K. was able to tide itself over the exceptional financial burdens arising from these events with the
help of a guarantee facility of € 900 million provided by the Republic of Austria. Further temporary assistance was
provided by Austria’s banks and insurers in the form of capital support totaling € 450 million, thus strengthening
our financial institution group’s equity base.
The process of selling BAWAG P.S.K. began, with the assistance of international investment bankers Morgan Stan-
ley, in the second quarter of 2006. After an intensive bidding phase, in which an international group of institutions
took part, our owners accepted the offer from the consortium led by US private investment firm Cerberus. The
Share Purchase Agreement was signed on December 30, 2006. Cerberus’ partners are Generali-Versicherung,
Bausparkasse Wüstenrot and a group of Austrian industrialists. In January 2007, applications for approval of the
planned takeover were made to the relevant authorities in Austria and the other countries where BAWAG P.S.K.
operates. The European Commission approved the merger on February 28, 2007. The sale will close when official
approval has been granted. This is expected to be in May 2007. Ownership of the Bank will then pass to the new
group of owners.
The federal guarantee furnished for BAWAG P.S.K. in the second quarter of 2006 will expire as agreed. The
acquiring consortium has agreed to furnish BAWAG P.S.K. with adequate capital by not later than that time in
order to fulfill all the relevant regulations.
The transfer of ownership to the new group of shareholders will terminate BAWAG P.S.K.’s relationship with AVB.
Consequently, it will be possible to return the capital provided by the Austrian financial sector.
The Supervisory Board of BAWAG P.S.K. held a total of 13 Supervisory Board meetings, nine Credit Committee
meetings and five other committee meetings during the 2006 financial year. The Bank’s Managing Board kept the
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Supervisory Board abreast of the course of business and the Company’s position, all topics being addressed
within the scope of open discussions between the Managing Board and the members of the Supervisory Board.
During its meetings, the Supervisory Board performed the tasks that are incumbent upon it by law and the
Satzung (memorandum and articles of association).
KPMG - Wirtschaftsprüfungs- und Steuerberatungs GmbH and Deloitte Wirtschaftsprüfungs GmbH audited the
accounts, the Annual Financial Statements for 2006 and the Management Report. The audit did not give rise to
any objections and the legislative requirements were met in full.
The Supervisory Board has endorsed the results of the audit, expresses its approval of the Annual Financial
Statements together with the Management Report as submitted by the Managing Board, including the proposed
appropriation of profit, and endorses the Annual Financial Statements for 2006, which are thus final for the pur-
poses of § 125 Abs. 2 Aktiengesetz.
KPMG - Wirtschaftsprüfungs- und Steuerberatungs GmbH and Deloitte Wirtschaftsprüfungs GmbH audited the
Consolidated Financial Statements for 2006, the Notes prepared in accordance with the International Financial
Reporting Standards (IFRS) and the Group Management Report. The audit did not give rise to any objections
and the legislative requirements were met in full. The Auditors’ Report included a qualification as required by IFRS
regarding the retrospective effect of the guarantee issued by the Republic of Austria.
As confirmed by the Auditors, the Consolidated Financial Statements present fairly, in all material respects, the
Group’s assets as of December 31, 2006, and the results of its operations and cash flows for the 2006 financial
year.
The Auditors also confirmed that the Group Management Report is consistent with the Consolidated Financial
Statements and that the legislative prerequisites for exemption from the preparation of consolidated accounts in
accordance with Austrian law have been satisfied.
The Supervisory Board concurs with the results of the audit.
Finally, the Supervisory Board would like to thank every member of staff for his or her outstanding work in a
particularly difficult year.
Vienna
April 12, 2007
The Supervisory Board
Siegfried Sellitsch m.p.
Chairman of the Supervisory Board
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Monika FRAISSLEVN Group(from April 7, 2006)
Albert HOCHLEITNERVienna
Max KOTHBAUERChairman of the Universitätsrat (university council) of Vienna University, Vienna (from April 7, 2006)
Georg KOVARIK Head of the Referat für Volkswirtschaft (economicaffairs department) at OeGB,Vienna (from April 7, 2006)
Werner MUHMDirector,Arbeiterkammer, Vienna
Richard SCHENZRegierungsbeauftragter für den Kapitalmarkt(Government capital markets commissioner),Vienna (from April 7, 2006)
Mag. Gabriela ZRAUNIGÖsterreichische Post AG,Vienna (from April 7, 2006)
Members
The Supervisory Board of BAWAG P.S.K.
Siegfried SELLITSCH Dwora STEINVienna Federal CEO, Gewerkschaft der Privatangestellten,(from April 7, 2006) (GPA: Union of Salaried Private Sector Employees),
Vienna (from April 7, 2006)
Chairman Deputy Chairman
Boards and officers of BAWAG P.S.K. Bank für Arbeit und Wirtschaft und ÖsterreichischePostsparkasse Aktiengesellschaft (BAWAG P.S.K.)
Members of the Supervisory Board departing in 2006
Günter WENINGER, ChairmanSenior Secretary,Österreichischer Gewerkschaftsbund,(OeGB),Vienna (to April 7, 2006)
Rudolf KASKE, Deputy Chairman.Chairman of the Gewerkschaft Hotel,Gastgewerbe, Persönlicher Dienst(Union of Hotel, Restaurant and Personal ServiceWorkers) (to March 31, 2006)
Eduard ASCHENBRENNERRegierungsrat, Deputy Chairman of theGewerkschaft der Gemeindebediensteten,(Union of Municipal Employees), Vienna (to April 7, 2006)
Herbert AUFNERGewerkschaft Bau – Holz,(Union of Construction and Woodworkers), Federal Secretary, Vienna (to April 7, 2006)
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Ingrid STREIBEL-ZARFLChairman of the Central Works Council, Vienna
Manuela GÖSTELChairman of the Works Council, Graz
Brigitte JAKUBOVITS1st Deputy Chairman of the Central Works Council,Vienna
Rudolf LEEB3rd Deputy Chairman of the Central Works Council,Vienna
Beatrix PRÖLL2nd Deputy Chairman of the Central Works Council,Linz
Gerd GRÜNAUERChairman of the Works Council, Salzburg(to April 7, 2006)
Josef SINGERCentral Shop Steward, Vienna(to April 7, 2006)
Erich FOGLARFinancial Officer, Central Secretary,Gewerkschaft Metall-Textil(Union of Metal and and Textile Workers), Vienna (to April 7, 2006)
Rudolf JETTMARDeputy CEO,Österreichische Post AG, Vienna(to April 7, 2006)
Peter STATTMANNRegional CEO for Lower Austria,GPA, St. Pölten(to April 7, 2006)
Walter SUMETSBERGERCentral Secretary, Gewerkschaft der Post- undFernmelde-Bediensteten(Union of Postal and Telegraph Workers), Vienna (to April 7, 2006)
Christoph SYKORAHead of Marketing of the GPA, Vienna (to April 7, 2006)
Leopold WALLNERCEO,Casinos Austria, Vienna (to April 7, 2006)
Gottfried WINKLERDeputy Chairman of the Gewerkschaft derEisenbahner (Union of Railway Workers), Vienna (to April 7, 2006)
Walter ZWIAUERKammerrat, Deputy Chairman of the GPA, Vienna (to April 7, 2006)
Works Council Delegates
State Commissioner Deputy
Helmut BRANDLKabinettschef,Bundesministerium für Finanzen(Federal Ministry of Finance), Vienna(to December 31, 2006)
Emmerich BACHMAYERSektionschef,Bundeskanzleramt (Federal Chancellery),Sektion III, Vienna
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136
Ewald NOWOTNYCEO and Chairman of the Managing Board
(from January 1, 2006)
Stephan KORENDeputy CEO
Jochen BOTTERMANN
Herbert LEGRADI
Alois STEINBICHLER(from June 7, 2006)
The Managing Board of BAWAG P.S.K.
Members of the Supervisory Board departing in 2006
Christian BÜTTNER(to April 30, 2006)
Hubert KREUCH(to April 30, 2006)
Peter NAKOWITZ(to April 30, 2006)
Josef SCHWARZECKER(to April 30, 2006)
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BAWAG P.S.K. subsidiaries and offices abroad
IRELAND
BAWAG International Finance Ltd. Herbert TAUCHER
Newmount House
22/24 Lower Mount Street,
Dublin 2
Phone: +35-31-661-1099
Fax: +35-31-661-3935
LIBYA
Representative office in Tripoli
Corinthia Bab Africa Hotel
Tripoli
Phone + Fax: +218-213 35-1964 or -1965
MALTA
BAWAG Malta Bank Ltd. Otto KARASEK
Strand Towers, Level 6,
36, The Strand,
Sliema,
Malta
Phone: +356-23 286-111
Fax: +356-21 315-137 or -147
SLOVAKIA
Istrobanka a.s. Volker PICHLER
Laurinska 1/P.O.B. 109,
SK-811 01 Bratislava
Phone: +421-2-59 397-333
Fax: +421-2-54 431-744
www.istrobanka.sk
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SLOVENIA
BAWAG Banka d.d. Joachim REITMEIER
Blaz BRODNJAK
Tivolska cesta 30,
SI-1000 Ljubljana
Phone: +386-1-2300-700
Fax: -386-1-2300-750
www.bawag.si
CZECH REPUBLIC
BAWAG Bank CZ a.s. Markus HERMANN
Vitezna 1/126,
CZ-150 21 Praha 5
Phone: +420-2-5700-6107
Fax: +420-2-5700-6200
www.bawag.cz
HUNGARY
MKB Bank Rt.
Austrian Desk Zsolt HAJNALKA
Zoltan TINDLER
Váci u. 38,
H-Budapest 1056
Phone: +361-268-8054 or -7398
Fax: +361-268-7468
www.mkb.hu
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Owner and publisher:Company name: BAWAG P.S.K.
Bank für Arbeit und Wirtschaft undÖsterreichische Postsparkasse Aktiengesellschaft
Address: Seitzergasse 2 – 4, A-1010 Vienna, AustriaRegistered Company No.: 205340xDVR No.: 1075217UID (EU VAT) No.: ATU51286308Internet address: www.bawagpsk.come-Mail: [email protected]: +43-1-53 453-0Fax: +43-1-53 453-22840
Graphic design and production:Department: Advertising and Cultural Affairs Department
Pre-production and printing:Printers: Ueberreuter Print und Digimedia GmbH.Address: Industriestrasse 1, A-2100 Korneuburg, Austria
Translated from the German originalTranslated by Adrian Weisweiller MA (Oxon), London
The English Auditors’ Report was provided by the Auditors.
Note: Any discrepancies in tables are due to rounding errors.
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