Banks

www.fitchratings.com 17 June 2013

Germany

DZ Bank AG Deutsche Zentral-Genossenschaftsbank Full Rating Report

Key Rating Drivers

GFG’s Mutual Support: DZ BANK and its main banking subsidiaries‟ IDRs are aligned with

those of the German cooperative banking group, Genossenschaftliche FinanzGruppe (GFG).

These supported ratings reflect DZ BANK‟s membership of GFG‟s mutual support scheme.

Crucial Roles Within GFG: The alignment also reflects the bank‟s and most of its (largely

retail-focused) subsidiaries‟ strong integration within and essential roles for GFG: dominant

central clearing institution, product supplier and wholesale market access provider for c.900 of

the 1,101 local cooperative banks. DZ BANK‟s product and structuring expertise underpins the

local banks‟ strong franchise, enhances their fee income and diversifies their earnings streams.

Domestic Systemic Importance: DZ BANK‟s Support Rating Floor (SRF) reflects Fitch Ratings‟

view that support would be likely from Germany if a severe crisis, compounded by DZ BANK‟s

size, necessitated more support than GFG could provide. Systemic support would be motivated by

GFG‟s reliance on DZ BANK, as Germany‟s third-largest commercial bank, to provide the domestic

economy with basic banking services. GFG‟s strong standalone profile makes future reliance on

state support unlikely. Neither DZ BANK nor GFG have required state support in the past.

Diversified Business Model: DZ BANK predominantly focuses on the robust German market.

Its retail activities (especially residential mortgage lending, insurance and asset management)

dominate profit generation, benefiting from their privileged access to GFG‟s vast local network

and strong client franchise. These retail businesses‟ solid and steady performance mitigates

the volatility of DZ BANK‟s wholesale businesses and sizeable vulnerable asset classes.

Sizeable Vulnerable Assets: DZ BANK‟s vulnerable assets, while shrinking, still amount to a

high multiple of its Fitch Core Capital (FCC) for a diversified banking group of its size. As well

as its still weak but gradually improving commercial real estate (CRE) and public-sector lending

business, restructured leasing operations following heavy losses in CEE and hitherto resilient

ship financing, DZ BANK‟s exposures to ABS and peripheral eurozone countries remain large.

A lasting low interest rate environment would pressure DZ BANK‟s hitherto steady mortgage

lending and insurance earnings and could gradually dilute their essential loss-mitigating function.

GFG Ensures Solid Funding: As the main investing vehicle for GFG‟s liquidity, DZ BANK has

privileged access to the local banks‟ EUR100bn structural (mostly retail) excess deposits.

Diversified covered bond issuance enhances its funding mix. The markets‟ perception of DZ

BANK as a core entity of GFG should considerably limit Basel III-related funding challenges.

Improving but Challenging Capitalisation: Volatile profits during the crisis have hindered the

necessary strengthening of DZ BANK‟s modest capitalisation ahead of Basel III. Fitch believes

that GFG would make its resources available to DZ BANK if needed, as it did in 2009. GFG‟s

backing also largely insulates DZ BANK from rising market expectations, which significantly

exceed the regulatory agenda. This enables the bank‟s continued growth, notably in capital-

intensive asset-based lending, creating an advantage over capital-constrained competitors.

Rating Sensitivities

Aligned With GFG: DZ BANK‟s IDRs would be downgraded if GFG‟s Viability Rating (VR) was

downgraded and its SRF revised downward. The latter would occur if Fitch changed its views

on governments‟ support propensity in general or Germany‟s ability to support (sovereign rating

downgrade). An upgrade of DZ BANK‟s Long-Term IDR would require an upgrade of GFG‟s VR.

Ratings

Foreign Currency

Long-Term IDR A+ Short-Term IDR F1+ Support Rating 1 Support Rating Floor (SRF) A+ Subordinated Lower Tier 2 debt A

Hybrid Capital Instruments

DZ Bank Capital Funding Trust I BBB

DZ Bank Capital Funding Trust II and III

BBB−

DZ Bank Perpetual Funding Issuer (Jersey) Limited Series I, VI, VII, VIII and IX

BBB−

Sovereign Risk Long-Term Foreign-Currency IDR AAA Long-Term Local-Currency IDR AAA

Outlooks

Long-Term Foreign-Currency IDR Stable Sovereign Long­Term Foreign­Currency IDR

Stable

Sovereign Long­Term Local­Currency IDR

Stable

Financial Data

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

1

2012 2011

Total assets (USDm) 537,322 525,199 Total assets (EURm) 407,236 405,926 Total equity (EURm) 10,431 8,565 Operating profit (EURm) 1,319 324 Net income (EURm) 969 609 Operating ROAA (%) 0.32 0.08 Operating ROAE (%) 14.1 3.7 Fitch core capital/RWA (%) 6.9 3.9 Regulatory Tier 1 ratio (%) 13.6 10.1 Tangible equity/assets (%) 2.3 1.8 Loans/deposits (%) 134 130

1 Consolidated group financials

Related Research

Genossenschaftliche FinanzGruppe (January 2013)

Fitch Affirms Genossenschaftliche FinanzGruppe and DZ BANK at 'A+'/Stable (April 2013)

Rated Members of Genossenschaftliche FinanzGruppe at End-March 2013 (April 2013)

Fitch Affirms R+V Lebensversicherung AG's IFS Rating at 'AA−'; Outlook Stable (February 2013)

2013 Outlook: German Banks (December 2012)

Analysts

Patrick Rioual +49 69 76 80 76 123 patrick.rioual@fitchratings.com

Michael Dawson-Kropf +49 69 76 80 76 113 michael.dawson-kropf@fitchratings.com

This report completes the full credit analysis on GFG published in January 2013 on www.fitchratings.com.

Banks

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

June 2013 2

Profile

The larger of the German cooperative group‟s two central banks, DZ BANK provides clearing

and a broad range of products and services to its 82%-owners, over 900 local cooperative

banks. It is also a diversified financial services group and Germany‟s third-largest commercial

bank by assets. We consider that its role and strong integration within GFG prevent a

meaningful standalone analysis. Consequently, we do not assign a VR to DZ BANK.

Most of DZ BANK‟s operations grew in 2012 as they do not face funding constraints. We

expect DG HYP and VR Leasing, its vulnerable CRE lending and leasing specialists, to remain

notable exceptions in the medium term as their restructuring should entail further shrinkage.

DZ BANK‟s strategic and business development follows GFG‟s “Verbund First” (group first)

principle, which has increasingly guided GFG‟s strategy in the last few years. This puts the

needs of the local banks‟ clients ahead of DZ BANK‟s own profit maximisation, and includes DZ

BANK AG‟s focus on central clearing functions, liquidity management and transaction banking.

DZ BANK will maintain wholesale client activities, which are not aligned with Verbund First. In

particular, the strategic value of its specialist transportation lender, DVB Bank (15% of DZ

BANK‟s client loans, entirely wholesale, mostly non-domestic and USD-denominated), for the

local banks is questionable. In our view, DVB Bank illustrates DZ BANK‟s pragmatic portfolio

management in the context of Verbund First. Market aversion to shipping risk and large

unsecured funding needs make a sale of DVB Bank unlikely in the foreseeable future.

Thus, DZ BANK is likely to continue to operate its subsidiary as a profitable way to invest some

of GFG‟s excess funding in risks it is able to assess, although not core for the local banks. This

strategy seems to pay off, as DVB Bank has thus far successfully handled the shipping crisis.

DZ BANK‟s CRE and public-sector lender DG HYP is gradually deepening its cooperation with

the local banks in domestic CRE, focusing its new business almost exclusively on Germany.

But its non-CRE and non-domestic lending still accounts for 13% of DZ BANK‟s total loans.

Verbund First does not rule out ad-hoc cooperation or joint ventures (eg, in transaction

banking) to serve the local banks. But it imposes a dominant German retail focus. Hence, DZ

BANK has reduced its modest international presence since 2009, divesting minority stakes in

European cooperative banks bailed out by third parties. Luxembourg-based DZ Privatbank

focuses on affluent German onshore clients, mostly SME owners and local bank clients.

DZ BANK‟s residential mortgage lender Bausparkasse Schwäbisch Hall (BSH) shows that

exceptions to Verbund First are nonetheless possible. BSH‟s plan to expand its modest

franchise in the uncertain Chinese residential mortgage market bears asset quality risks, in our

view. However, BSH remains a strong, low-risk and stable business with long-standing foreign

(CEE) experience. In addition, we expect DZ BANK to monitor its foreign assets more closely

than in the past. With hindsight, it underestimated foreign asset risks at established (DG HYP)

or supposedly low-risk (VR Leasing) subsidiaries and European cooperative banking partners.

Most of DZ BANK‟s retail products (mainly mortgage and consumer loans, mutual funds and

insurance, which we estimate to slightly exceed 15% of DZ BANK‟s earnings at default)

command leading domestic market positions. However, they predominantly rely on the local

banks‟ client base and sales network. Despite their direct access to end-clients, DZ BANK‟s

subsidiaries are merely service providers to the local banks. Even its capital market business

regularly relies on the local banks‟ distribution capacity (for instance to place corporate debt

issuance arranged by DZ BANK), even though large corporate clients typically have no

relationships with the local banks.

Subordinating DZ BANK‟s key strategic decisions to Verbund First should increasingly contain

the bank‟s risk appetite within GFG‟s core competences. DZ BANK‟s ability to achieve a

Related Criteria

Global Financial Institutions Rating Criteria (August 2012)

Rating Criteria for Banking Structures Backed by Mutual Support Mechanisms (December 2012)

Evaluating Corporate Governance (December 2012)

Assessing and Rating Bank Subordinated and Hybrid Securities (December 2012)

Domestic focus.

Reliance on the local banks‟ distribution

network.

In this report, “DZ BANK” means the DZ

BANK group, consisting of the parent,

DZ Bank AG Deutsche Zentral-

Genossenschaftsbank (DZ BANK AG),

and its subsidiaries. Appendices 1and 2

contain an overview of the main

subsidiaries and a diagram situating the

group within GFG.

Funding does not constrain growth.

Local banks set strategic direction…

…but pragmatic approach remains.

Banks

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

June 2013 3

sustainable and adequate risk/return profile is highest in its home market. This should limit the

risk of misguided investments in foreign assets, which contributed to several loss-making years

at DG HYP and high loan impairment charges (LICs) at VR Leasing‟s Hungarian operations in

2012. This subordination should also improve the local banks‟ control over DZ BANK and

GFG‟s corporate governance.

The local banks might be tempted at times to dilute Verbund First‟s execution. If their own

performance suffered from the low interest rate environment and rising competition for retail

deposits, groups of local banks could be tempted to offset this pressure by demanding higher

returns – and thus higher risk-taking – from their central banks. Yet this risk is rather remote as

the current banking crisis should act as a powerful deterrent in the medium term.

Performance

We estimate DZ BANK‟s long-term average operating income potential to be close to

EUR1.5bn p.a. under normalised market conditions with moderate volatility. This moderate

level needs to be considered in the context of DZ BANK‟s role, which is to enable GFG‟s local

banks to achieve a strong, stable performance (0.9% average operating RoAA in 2009-2012).

DZ BANK‟s access to the local banks‟ cheap funding is creating a rising competitive advantage.

This should mitigate the margin pressure on retail deposits, corporate, consumer and CRE

loans from large domestic competitors‟ rising focus on Germany. At a still moderate 44bp of

total loans in 2012, DZ BANK‟s LICs should benefit from the robust German economy in 2013.

DZ BANK contributes a fairly stable EUR1.8bn or over 40% of the local banks‟ net fee income.

BSH‟s strong new business growth in the last few years has resulted in high distribution fee

expenses (EUR580m in 2012, predominantly paid to the local banks). This significantly and

negatively affects DZ BANK‟s net fee income, putting into perspective the bank‟s bottom line.

We expect the retail-focused activities (BSH, insurance subsidiary R+V Versicherung and, to a

lesser extent, Union Investment, the group‟s asset manager) to remain DZ BANK‟s main

earnings, growth and stabilising drivers, especially at times of high volatility. With about 25% of

DZ BANK‟s total assets, BSH and R+V‟s cumulative (non-consolidated) operating result of

EUR2bn in the particularly critical 2009-2011 period exceeded 70% of DZ BANK‟s total, making

an essential contribution to the protection of the bank‟s modest capital base.

R+V, the second-largest German life insurer, and BSH, the clear leader in German savings and

loans (Bauspar), are particularly successful at exploiting GFG‟s retail distribution capabilities.

BSH‟s 30% market share (7 million clients) exceeds GFG‟s 25% of German retail deposits.

Lasting low interest rates could erode BSH‟s and R+V‟s long-term earnings. This would affect

DZ BANK‟s most resilient profit contributors simultaneously, thus diluting diversification benefits.

Moreover, the rising share of online Bauspar business may increase commoditisation in the

long run. However, we expect both processes to be gradual. Thus, they are unlikely to

significantly hinder DZ BANK‟s necessary capital strengthening in the run-up to Basel III.

DG HYP‟s years of recurring losses have triggered EUR0.9bn of support from DZ BANK since

2007, ie, more than DG HYP‟s FCC at end-2012. DG HYP‟s legacy residential mortgage and

public-sector portfolios (discontinued in 2008) carry very low margins and long durations.

Earnings volatility may remain high in the medium term due to valuation swings of its GIIPS

and securitised assets (which amounted to 10 times DG HYP‟s FCC at end-2012).

Thus, several more years of disciplined risk pricing will be necessary to transform DG HYP into

an adequately capitalised, materially profitable business. Its share of CRE business originated

in cooperation with local banks has doubled to more than 30% since 2009, which should

gradually support margins. In Fitch‟s view, DG HYP is likely to eventually merge with WL BANK,

GFG‟s other CRE and public-sector lender, but the resulting cost savings should be limited.

Figure 1

85

260 120

543

0

200

400

600

2009 2010 2011 2012

SovereignNon-Sovereign

(%)

GIIPS Exposures/FCC

Source: DZ BANK, Fitch

Moderately positive prospects.

Disciplined implementation is key.

Positive risk implications of

subordination to Verbund First.

Key profit drivers resilient mortgage

lending and insurance operations.

Enhances local banks‟ performance.

Vulnerable public sector and CRE.

Unpredictable securitised assets.

Banks

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

June 2013 4

Despite these challenges, DG HYP should remain one of the three most active domestic CRE

lenders in the medium term, using the local banks‟ cheap excess funding to gain market shares.

Sizeable divestments of low-rated tranches to relieve regulatory capitalisation were primarily

responsible for the securitised investments‟ negative contribution of EUR225m to DZ BANK‟s

profit in 2012. The portfolio‟s performance remains unpredictable, but this sale should reduce

potential future losses, and the recovering US housing market is likely to support valuation.

VR Leasing incurred a high loss in 2012, mostly from high LICs at its Hungarian operations,

wiping out its equity and prompting a recapitalisation from DZ BANK and WGZ BANK, GFG‟s

smaller central bank. While its material CEE presence is being curtailed as a result, we expect

VR Leasing to be hardly profitable in 2013. Far from mitigating its unexpectedly poor

performance, the modest distribution fees paid by the unit to the local banks also, with

hindsight, hardly justify the risk taken.

The effectiveness of the deep restructuring initiated by VR Leasing‟s new management team in

2011 is untested, but the termination of some wholesale activities should improve the unit‟s risk

profile. The repositioning of VR Leasing from a universal provider to a niche player focusing on

GFG‟s small SME and retail clients should help it more effectively exploit the local banks‟

consumer lending franchise. New business growth is encouraging, helped by robust demand.

The performance of DVB Bank‟s EUR11bn shipping portfolio has been solid during the crisis.

Despite its use of the advanced internal rating-based (IRB) approach, which generally has pro-

cyclical effects on cyclical assets such as shipping, risk-weighted asset (RWA) volatility and

LICs have thus far remained very low compared with large German shipping lenders. This

mostly reflects DVB Bank‟s low exposure to the most troubled shipping segments (in particular

German borrowers, legacy tax-driven limited partnerships, equity pre-financing of shipping

funds, large container ships) and its adherence to risk-adequate pricing in the pre-crisis years.

Its resilient performance and access to GFG‟s reliable funding should enable DVB Bank to

remain in the increasingly limited group of significant shipping lenders that are not shrinking or

trying to exit the business outright. Its robust new business volumes and gross margins in 2012

suggest that the bank is already benefiting from the evolving competitive landscape.

Risk Management

Credit RiskDZ BANK‟s vulnerable asset classes will remain sizeable in the foreseeable future despite

their gradual shrinkage. Growth in CRE and, to a lesser extent, ship lending only partly offsets

the shrinkage of the GIIPS and securitised assets. The bank‟s exposure to what we consider

to be its most vulnerable assets (in which we include leasing and leveraged finance in addition

to the above) has been roughly halved as a percentage of its FCC since end-2009.

Taking into account the bank‟s lower-risk assets results in a manageable asset mix. These

lower-risk assets (domestic retail, insurance, covered bonds, intragroup exposures to GFG‟s

members, German (sub-) sovereign) account for almost half of the bank‟s total assets.

The Italian and Spanish bonds‟ moderate average residual maturities make the GIIPS

sovereign assets (which they dominate) increasingly manageable. A 50% haircut on the

Spanish sovereign would not breach the bank‟s regulatory solvency ratios, but the resulting

spread widening would probably make a capital injection from GFG necessary. Non-sovereign

Greek assets mostly relate to secured shipping loans, which are not exposed to sovereign risk.

Securitised assets (a quarter of which are sub-investment grade) are the primary driver of RWA

volatility at a time of challenging capital management. Despite substantial recovery of the

portfolio‟s fair value in 2012, it remains one of the most unpredictable sources of risk. Apart

from the larger sales performed in 2012 to achieve regulatory capital relief, divestments have

Figure 2

912

350

0

200

400

600

800

1,000

2008 2009 2010 2011 2012

(%)

Source: Annual reports, Fitch

CRE Exposure/FCC

Figure 3

36

91

0

20

40

60

80

100

2008 2009 2010 2011 2012

(%)

NPL include 90-day past due loans

LLR: Loan loss reserves

Source: Annual reports, Fitch

(NPL - LLR)/FCC

Manageable asset quality.

c.70% of credit exposure is domestic.

Leasing business restructured following

massive losses.

Resilient, profitable ship financing.

Large GIIPS sovereign assets.

Securitised assets drive RWA volatility.

Banks

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

June 2013 5

thus far been limited and opportunistic as the limited impairment-driven writedowns in DZ

BANK‟s German GAAP accounts only moderately affect its (until 2013 German GAAP-based)

regulatory capitalisation. The mandatory adoption of IFRS for regulatory capital reporting at

end-2013 could increase the bank‟s incentive to cut these assets more actively.

We estimate that about five years will be necessary for the securitised assets to become

immaterial. The slower amortisation of lower-rated tranches (a usual feature of such portfolios)

could trigger further deterioration. A confirmation of the recent signs of recovery in the US

residential market could take some pressure off the US RMBS (mostly subprime) assets, one

of the slowest redeeming and (beside US CDO CRE) vulnerable sub-segments of the portfolio.

Single-name risk will continue to arise from DZ BANK‟s sizeable wholesale operations, even

though no large single non-performing loans (NPLs) emerged in 2012. The structural

competition-driven margin pressure in the large-corporate segment is sufficiently mitigated by

the fact that DZ BANK‟s largest corporate exposures are some of the largest German blue-chip

companies, who are generally benefiting from the currently robust German economy.

DZ BANK‟s leveraged finance portfolio almost exclusively consists of first-lien/senior debt, and

single exposures account for a modest 20bp of the bank‟s FCC on average. The portfolio‟s size

and quality are stable, and its NPL and NPL coverage ratios appear adequate for this asset

class. The rapidly expanding project finance portfolio is similarly granular, and its quality seems

stable and acceptable. This appears sufficient to mitigate both portfolios‟ high concentration on

the 2007/2008 vintages. While these vintages have thus far remained robust in DZ BANK‟s

case, they correspond to a period of fairly aggressive structures in the market in general.

BSH‟s EUR26bn loans are predominantly in Germany, where credit risk regulation is very

protective for Bausparkassen, mitigating BSH‟s manageable CEE exposure. Asset quality also

benefits from the sound German residential real estate market. While some urban areas are

showing signs of overheating, after a decade of stability residential prices in most areas should

remain solid in the medium term, protecting the Bausparkassen‟s conservative loan/value ratios.

The material increase in overdue shipping loans in 2012 reflects the increasingly challenging

cash flow situation of borrowers in the shipping segments. This may add pressure to dispose at

scrap value of some vessels foreclosed since the start of the shipping crisis in 2009. However,

the portion of DVB Bank‟s non-performing and overdue shipping loans that are not covered by

collateral (which is conservatively assessed) or loan loss provisions is only a low-single digit

percentage of DZ BANK‟s FCC. DVB Bank‟s solid capitalisation should enable it to withstand a

severe (but realistic) stress without support from DZ BANK or GFG.

Market Risk

As GFG‟s dominant central clearer, DZ BANK concentrates most of the group‟s treasury

management (and thus trading) activities. As a by-product of this role, the credit spread risk

arising from the large GIIPS and securitised investment portfolios accumulated before the crisis

will remain a major market risk driver in the next few years. However, DZ BANK‟s access to

GFG‟s funding limits the risk that anticipated sales of these assets for liquidity management

purposes might result in cash losses.

DZ BANK has since 2012 curtailed its proprietary trading, which, in any case, was already

modest and not strategic in the context of Verbund First. This should reduce the bank‟s risk of

being materially affected by the new law – approved in May/June 2013 by the German

Parliament and due to come into force in 2014 – that foresees the transfer of large banks‟ high-

risk activities into dedicated units. However, we consider that the law‟s language leaves

significant room for interpretation with regard to the scope of assets to be ultimately affected.

We view the low interest rates‟ pressure on its insurance and mortgage lending units as DZ

BANK‟s major long-term challenge related to interest risk. But this pressure should be gradual.

Figure 4

154

472

51

87

2356

0

100

200

300

400

500

2009 2010 2011 2012

Total nominal exposureOf which sub-IG exposureOf which CDO exposure(%)

Securitised Assets/FCC

Source: DZ BANK, Fitch

Figure 5

443

193

0

5

10

15

0

150

300

450

2008 2009 2010 2011 2012

Total shipping exposure (LHS)

Shipping (NPL-LLR) (RHS)

Renegotiated ship. loans (RHS)

(%)

Shipping Assets/FCC

Source: Annual reports, Fitch

(%)

Figure 6

22103

103

468

0

100

200

300

400

500

2008 2009 2010 2011 2012

In % of FCCIn % of pretax income(%)

Stressed Trading VaR

10 days, 99%, max. intra-year VaR, x5 in

line with Fitch's standard stress

calculation

Source: Annual reports, Fitch

Granular leveraged and project finance.

Low-risk residential mortgage lending.

Resilient ship financing.

Major driver credit spread volatility of

GIIPS and securitised assets.

Limited FX risk. Interest rate risk could

become an issue in the long run.

Banks

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

June 2013 6

Since the start of the crisis, DZ BANK has had to cover with EUR-denominated sources most of

the funding needed for DVB Bank‟s generally USD-denominated EUR24bn assets. While the

FX mismatch from DVB Bank‟s new business is systematically hedged, FX volatility influences

hedging costs. DZ BANK remains reliant on the short-term USD funding market for a limited

volume of unhedged pre-crisis USD lending, but we believe that GFG‟s reputation as a solid

counterparty should continue to provide DZ BANK with reliable access to US investors.

Funding and Liquidity

DZ BANK‟s diversified funding profile reflects its dual structure as central clearing and universal

banking group. We consider that its funding‟s resilience is based on three pillars, which cover

up to 70% of its total needs and limit its reliance on unsecured debt capital markets: GFG‟s

local banks‟ excess retail deposits; covered bonds; and own client deposits.

The stability of GFG‟s local banks should prevent major shifts in DZ BANK‟s funding mix in the

foreseeable future. Like the rest of the German banking system, the bank does not rely on

central bank funding. (References to total funding (EUR282bn at end-2012) hereafter exclude

derivatives and the liabilities of the autonomously funded insurance business.)

GFG‟s local banks (and to a lesser extent WGZ BANK) generally provide about 25% of DZ

BANK‟s total funding (mostly in the form of deposits, but also by buying a large share of DZ

BANK‟s bond and Schuldscheine issuance) and over half of its unsecured short- and mid-term

needs. The local banks are encouraged to, and generally do, maintain with DZ BANK short-

term deposits equivalent to at least a high single-digit percentage of their own corporate

deposits. Typically liability-driven, the local banks have a loan-to-deposit ratio of 80%. A third to

half of their resulting EUR100bn excess funding is deposited at DZ BANK and generally rolled

over for several years.

Covered bonds account for c.15% of DZ BANK‟s total funding. About 40% are “DZ BANK

Briefe”, whose cover pool contains considerable exposures to GFG‟s local banks, while DG

HYP‟s traditional real estate- and public-sector-backed Pfandbriefe account for most of the

remainder. The rapid shrinkage of DG HYP‟s public-sector Pfandbriefe has resulted in DZ

BANK‟s total outstanding volume of covered bonds decreasing by EUR15bn since end-2010.

Nevertheless, this long-term funding source will remain substantial enough to help fulfil Basel

III‟s Liquidity Coverage Ratio and Net Stable Funding Ratio requirements.

While the DZ BANK Briefe enhance the bank‟s use of the liquidity freely available within GFG,

they also create some circularity (wrong-way risk): the credit quality of the DZ BANK Briefe‟s

cover pool strongly correlates with DZ BANK‟s own creditworthiness. This explains these

instruments‟ downgrade in May 2012 (Fitch Downgrades DZ Bank Briefe to ‘AA’ from ‘AAA’).

However, we consider that this structural weakness is sufficiently mitigated by GFG‟s excess

liquidity and the fact that the DZ BANK Briefe account for only 2% of GFG‟s total funding.

Client deposits contribute 25%-35% of DZ BANK‟s funding. Half of these deposits are BSH‟s

stable retail deposits, and most of the remainder are stable corporate and institutional deposits.

DZ BANK is also one of four dominant domestic issuers of “certificates”, structured debt

instruments with embedded derivatives typically linked to German corporate equities. They are

mostly medium-term, capital-protected and sold to the local banks‟ retail clients.

While riskier types of structured debt instruments have suffered from depressed demand due to

high risk aversion and increased litigation risk, capital-protected products have enjoyed fairly

resilient demand and are likely to remain popular among GFG‟s typically risk-averse retail

depositors. Thus, this should continue to provide attractively priced – albeit quantitatively

limited – retail funding while furnishing the local banks with a tool to foster client loyalty.

A large share of DZ BANK‟s long-term unsecured note issuance (EUR25bn in 2012) consists of

a continuous flow of small-ticket, bespoke structured notes for institutional clients or credit-

Figure 7

0

10

20

30

2008 2009 2010 2011 2012

-150

-90

-30

30

Trading assets/total assets (LHS)

Trading revenue/total revenue (RHS)

(%)

Trading Assets and

Revenue

Source: Annual reports, Fitch

(%)

Diversified client deposits.

Diverse funding mix, but reliance on

GFG. Adequate liquidity. Modest USD

funding.

Covered bonds enhance maturity

profile.

Local banks “captive” funding providers.

Low reliance on short-term, unsecured

or interbank funding outside GFG.

Banks

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

June 2013 7

linked notes for the local banks‟ retail clients, typically ranging from EUR20m to EUR100m.

At c.15% of total funding, DZ BANK‟s reliance on third-party (ie, non-GFG), short-term,

wholesale, senior unsecured or interbank funding is modest. This is positive in light of these

funding sources‟ increasingly uncertain and challenging nature. Moreover, this 15% includes a

material share of bilateral repos. But it excludes the EUR32bn (at end-2012) sponsored loans

from state-owned German development banks (eg, „AAA‟-rated KfW and NRW.BANK), which

are passed on to GFG‟s local banks with matching maturities, thus creating minimal liquidity

risk for DZ BANK.

DVB Bank‟s unsecured funding needs and DZ BANK‟s covered bond overcollateralisation

requirements create significant liquidity needs. In its role as Union Investment‟s custodian, DZ

BANK must also maintain sufficient liquidity to absorb sudden cash outflows from mutual funds.

DZ BANK funds most of DVB Bank‟s predominantly USD-denominated wholesale assets by

issuing in EUR and swapping into USD. Only a limited residual share is funded directly in USD.

In addition to providing a cushion against unexpected demands from its day-to-day operations,

DZ BANK‟s dedicated reserve of highly liquid securities is calibrated to absorb the seasonality

of the local banks‟ liquidity. We also expect the local banks to be able to rapidly gather enough

incremental funding to support their central bank, should it face severe funding problems.

Capital

Pressure on Capitalisation is Manageable in the Context of GFG

We assess DZ BANK‟s capital in the context of GFG only, not on a standalone basis. In this

context, we do not view its Basel III-driven capital challenges as a ground for concern as GFG‟s

members would make their resources available if necessary, as they did in 2009. In particular,

we expect DZ BANK to draw down its authorised capital by mid-2014, which should increase its

core equity by c.EUR1.4bn. While substantial, we consider that this relief will need to be

complemented by years of disciplined profit retention in the run-up to Basel III‟s implementation.

GFG‟s ability to provide support significantly exceeding this amount is strong: GFG‟s “surplus”

FCC – ie, capital in excess of the level needed to maintain an FCC ratio of 10% at GFG‟s level

– was equivalent to twice DZ BANK‟s FCC of EUR6bn at end-2012. DZ BANK‟s FCC is also

equivalent to 15 months of the local banks‟ internal capital generation at the current pace.

The contrast between the local banks‟ strong and DZ BANK‟s modest capitalisation illustrates

the suboptimal capital allocation within GFG. However, with its prompt reaction in 2009 to a

sudden and unexpected crisis-driven loss at DZ BANK, GFG has shown its ability to make up

for its inherent limited capital fungibility in an effective and timely manner when the need arises.

GFG‟s protection should continue to insulate DZ BANK from increasing market demands,

allowing a slower pace of capital bolstering than usually expected from large banks.

Despite Improvements, Capitalisation Remains Challenging Ahead of Basel III

Volatile and modest cumulated profits since 2008 have prevented DZ BANK from strengthening

its modest capitalisation in line with large European peers (many of which received capital

injections). At 2.3% at end-2012, its ratio of tangible equity/assets remains low and slowly

improving. At 6.9%, its FCC ratio remains modest despite significant strengthening in 2012

from retained earnings and ABS divestments. FCC was 40% lower than balance sheet equity

at end-2012, mostly due to the deduction of DZ BANK‟s insurance subsidiary‟s net asset value.

In this context, limited visibility on DZ BANK‟s medium-term performance combined with the

Basel III-driven reduction of its Tier 1 ratio by 700bp (pro forma) at end-2012 significantly

increases the likelihood that GFG‟s support will be necessary. We estimate the bank‟s pro-

forma FCC ratio at about 4% at end-2012, which shows the tight buffer available at the DZ

Figure 8

23

5226

56

0

20

40

60

2008 2009 2010 2011 2012

Wholesale funding/total

funding

Short-term portion of

wholesale funding(%)

Wholesale Funding

Reliance

Source: Annual reports, Fitch

Figure 9

6.9

2.62.0

13.6

7.4

1.60

4

8

12

16

2008 2009 2010 2011 2012

FCC ratioTier 1 ratio (basel 2/basel 2.5)Equity/total assets

(%)

Capital Ratios

Source: Annual reports, Fitch

Figure 10

-20-15-10-505

1015

2008 2009 2010 2011 2012

(%)

Source: Annual reports, Fitch

Internal Capital Generation(Net income - dividends)/equity

GFG‟s strong ability to support.

Banks

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

June 2013 8

BANK level. (DZ BANK‟s FCC is less sensitive to Basel III than its Tier 1 capital, notably as

FCC already excludes the hybrid capital instruments, which will be phased out under Basel III.)

As the third-largest German commercial bank, DZ BANK is likely to be subject to a still to be

determined capital surcharge applicable to financial institutions that are considered

systemically important on a national scale (domestic SIFIs). As a financial conglomerate, it will

be affected by the implementation of Solvency II. The mandatory shift of regulatory accounting

to IFRS from German GAAP at end-2013 does not only significantly narrow its regulatory equity

base. It is also likely to increase RWA volatility, making an additional capital buffer necessary.

Consolidation issues resulting from its complex group structure, and varying impacts of

regulatory changes on its highly heterogeneous subsidiaries contribute to limit visibility on the

medium-term development of DZ BANK‟s capital adequacy.

Complexity limits medium-term visibility.

Significant Basel III capital deductions.

Banks

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

June 2013 9

Appendix 1: DZ BANK Group’s Major Entities

Figure 11

DZ BANK AG and its Major Subsidiaries

Subsidiary IDRs Activities DZ BANK’s

Stake (%) Clients Size at End-2012 Growth (yoy %)

DZ BANK AG A+/Stable/F1+ DZ Group‟s holding functions, central bank functions for GFG‟s local banks, capital markets, corporate finance, structured finance, SME banking, cash management

Mostly wholesale

EUR239bn total assets

EUR1.8trn AuA (securities transaction processing)

-3

Union Investment A+/Stable/F1+ª Asset management. Third-largest mutual German fund provider (12% market share)

66 Mostly retail EUR191bn AuM (of which EUR107bn retail)

+12

DZ PRIVATBANK S.A. (DZ PB) A+/Stable/F1+ Private banking 70 Mostly retail EUR14bn AuM

TeamBank AG Nuernberg A+/Stable/F1+ Consumer finance 92 Only retail EUR6bn consumer loans +6

Bausparkasse Schwäbisch-Hall AG (BSH)

A+/Stable/F1+ Mortgage lending (savings and loans) 82 Only retail EUR27bn total loans +7

Deutsche Genossenschafts-Hypothekenbank AG (DG HYP)

A+/Stable/F1+ CRE (increasing focus) and public sector (shrinking) lending; legacy retail residential mortgage portfolio in run-off

100 Wholesale EUR20bn CRE loans EUR11bn muni. loans

+1 -6

VR-Leasing AG n.a. Leasing 83 Mostly SME EUR6bn total assets n.a.

DVB Bank SE A+/Stable/F1+ Transportation finance (shipping, aviation, rail)

95 Only wholesale

EUR20bn total loans (of which EUR12bn shipping)

+14

R+V Versicherung AG (R+V) n.a.b Insurance 75 Mostly retail EUR66bn total assets

c

EUR12bn gross premium

+5

AuM: assets under management; AuA: assets under administration ª The rated entities are: Union Investment Institutional GmbH, Union Investment Privatfonds GmbH and Union Investment Service Bank AG b R+V has an Insurer Financial Strength (IFS) Rating of 'AA−'/Stable

c At end-2011

Source: DZ BANK, Fitch

Banks

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

June 2013 10

Appendix 2: GFG’s Structure and Institutional Protection Scheme

Figure 12

Structure Diagram

ª At end-2012b Include most notably the following subsidiaries of DZ BANK and WGZ BANK : Bausparkasse Schwabisch Hall AG (mortgage lending), WL BANK (CRE and Public finance

lending), TeamBank AG (Consumer finance), DZ Privatbank S.A. (Private banking), DG HYP (CRE and public finance lending), DVB Bank (Transportation finance) and

subsidiaries of Union Investment (asset management)

Source: BVR

Genossenschaftliche FinanzGruppeª

BVR

GFG‟s Umbrella Organisation and Strategic Centre of Competence

Coordinates the Interest of GFG‟s Members and Represents them Externally

Mutual support fund (“Sicherungseinrichtung”) Segregated Trust Officially Recognised Deposit insurance Scheme

Mutual Support Mechanism (“Institutsschutz”) Protects Members‟ Viability

Produces GFG‟s Consolidated Accounts and Manages Group Ratings

7 Regional Cooperative Audit

Associations

Internal Rating Based Early Detection of Individual Members Negative Trends

Preventive and Restructuring Managements

Regular Contacts

Year-End Audit

Risk-adjusted Contributions

Additional guarantees

1,101 Local Cooperative Banks(Volksbanken and Raiffeisenbanken)

Collectively OwnDZ

BANKWGZ BANK

12 Further Central

Institutionsb

Muenchener Hyp

Supply with Specified Products and ServicesCollectively Own

17 Million Cooperative Owners

Membership

Operates

17.3

Banks

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

June 2013 11

BVR, the National Association of German Cooperative Banks, manages GFG‟s risk-monitoring

system, institutional support scheme and support fund. GFG‟s institutional protection scheme

(“Institutsschutz”) protects the viability of all member banks, ensuring that the group‟s troubled

members meet their obligations to all counterparties, not only depositors. We view it as highly

likely that all members will continue to benefit from intragroup support in light of GFG‟s high

incentive to protect its credibility with clients, investors and regulators, in line with its long

history of support.

The significant amount already paid into the trust accounts of the mutual support fund

(“Sicherungseinrichtung”) from the members‟ annual contributions can be made available for

support measures within days. Large bailout needs exceeding the committed amount would

require further ad hoc measures.

The fund‟s endowment has gradually increased in recent years as very few material bailout

cases have arisen. Improved monitoring has resulted in a continuous decline – even during the

financial crisis – of the number of outstanding restructuring cases among local banks. The

benign domestic economic environment will continue to relieve the fund‟s resources until the

next cyclical downturn gradually increases LICs, and therefore reduce the likelihood that new

support might be needed. GFG‟s members contribute to the fund following a risk-adjusted

pattern.

The institutional protection scheme is combined with a monitoring system including stress-tests

to detect deterioration at member banks. A regular member of GFG is specialised in taking

over and restructuring or winding down non-performing portfolios, while providing sound

members with portfolio optimisation. This smooth process limits the negative publicity that may

damage client relationships and GFG‟s reputation.

Strong institutional support.

Significant cash endowment.

Declining bailout cases.

Tested monitoring and restructuring.

Banks

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

June 2013 12

Appendix 3: Performance

DZ BANK‟s earnings from corporate/SME banking are modest in light of GFG‟s overall German

franchise. Already a domestic market leader with self-employed clients, GFG has exploited its

competitors‟ weaknesses to raise its market share. However, its franchise in the middle-market

SME segment remains well below its potential. Recently stepped-up efforts to improve DZ

BANK‟s cooperation with the local banks offer some upside. However, particularly fierce

competition in this segment, intensified by competitors rediscovering their hitherto neglected

SME clients, should make progress gradual, and margin erosion will remain a risk.

DZ BANK‟s capital market revenues should further benefit from a favourable competitive

environment, as large domestic competitors limit new business to preserve their funding and

capital ahead of Basel III. We expect DZ BANK to use this situation to consolidate its capital

market franchise, while cautiously managing the growth of the business in light of Verbund First

and containing market-risk driven RWA growth in light of Basel III. In the long term,

commoditisation in the mass capital market segments could erode margins.

Despite its modest contribution to DZ BANK‟s profit, transaction banking (cash management

and securities transactions) is a key source of stable earnings and a driver of client loyalty for

GFG, generating a large share of the local banks‟ fee income of about EUR4bn. DZ BANK

commands leading domestic market positions in cash management and securities processing.

TeamBank, DZ BANK‟s consumer finance specialist, is a lean, high-margin business whose

average operating RoA exceeded 1.5% during the last credit cycle. This reflects the

combination of still healthy post-impairment margins in the German consumer finance market

and TeamBank‟s robust pricing power benefiting from GFG‟s franchise. We estimate that, with

less than 1% of GFG‟s total loans, TeamBank generated (including the distribution fees paid to

local banks) about 3% of the group‟s operating income in 2012 (4.5% in 2011).

With a 25% market share, GFG is already a leader in German consumer finance. Households‟

robust demand and low unemployment should facilitate good-quality business by keeping

TeamBank‟s LICs close to their moderate, fairly stable level of 1.5% of total loans p.a.

DZ Privatbank‟s (DZ PB) modest size (EUR13bn AuM) and stagnating earnings during the last

cycle are largely explained by the fact that it cooperated with a small minority of GFG‟s local

banks historically. DZ PB increased in the last few years the scope and intensity of this active

cooperation, which now extends to one-third of the local banks. Thus, GFG‟s largely untapped

affluent onshore client base of SME owners offers growth potential. Yet DZ PB is likely to

remain a small player and a modest contributor to DZ BANK‟s performance.

We view this positively in light of the challenges ahead in the private banking sector, especially

rising competition and regulatory pressure. These challenges may erode DZ PB‟s margins,

which are acceptable but not strong for a pure wealth manager. We believe that the success of

DZ PB‟s growth strategy will notably depend on its ability to cooperate with the established

private banking franchises of some of the larger primary banks.

Growing, profitable consumer finance.

Modest private banking franchise.

Medium-sized capital market business.

Leading transaction banking provider.

Expanding corporate/SME banking.

Banks

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

June 2013 13

Appendix 4: Funding and Capitalisation

Figure 13 Figure 14

18

13

1148

31

16

51

11

42

29

7

43

9

0

50

100

150

200

250

300

Others

Domestic retail clients

Foreign institutional clients

Foreign corporate clients

Domestic coporate clients

Foreign interbank/central banks

GFG members (intragroup) (1)

Non-GFG domestic interbank

Public sector/agencies

Structured credits

Corporate bonds

Covered bonds

FI unsecured

Money market investments

DZ BANK's Asset SplitEnd-2012

(EURbn)

Excl. insurance assets (EUR66bn) and derivatives (EUR37bn)(1) Of which EUR32bn sponsored loans e.g. from KfW and passed on to GFG's local banks for maturity-matched useSource: DZ BANK, Fitch

7

12

13

5

29

44

42

47

66

5

13

13

41

0

50

100

150

200

250

300

Retail deposits

Domestic Corporate deposits

Domestic institutional deposits

Foreign corporate deposits

Central bank

Foreign bank deposits

GFG member deposits (intragroup)

Non-GFG domestic bank deposits (1)

Covered bonds

Unsecured bonds/Schuldscheine (2)

Third Party short-term funding

Debt certificates

Money market deposits

Hybrid capital/Subordinated debt

DZ BANK's Funding SourcesEnd-2012

(EURbn)

Excl. insurance liabilities (EUR63bn) and derivatives (EUR37bn)(1) Of which EUR32bn sponsored loans e.g. from KfW and passed on to GFG's local banks for maturity-matched use(2) The majority of which is placed at GFG's local banksSource: DZ BANK, Fitch

The hybrid capital instruments issued by DZ BANK are all notched down from GFG‟s VR of „a+‟

in accordance with Fitch‟s assessment of each instrument‟s respective non-performance and

relative loss severity risk profiles. We view as high the probability that GFG would make its

resources available to prevent DZ BANK from becoming unable to meet its payments on these

instruments. Thus, these instruments‟ ratings are primarily sensitive to changes in GFG‟s VR.

DZ Bank Capital Funding Trust I is rated four notches below GFG‟s VR, two notches each for

higher loss severity and higher non-performance risk. The other hybrid capital instruments,

whose profit distribution triggers are less likely to be activated, are notched down three times

for non-performance risk, ie, five times in total.

Hybrid instruments notched four and

five times from GFG‟s VR respectively.

Banks

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

June 2013 14

DZ Bank AG Deutsche Zentral-GenossenschaftsbankIncome Statement

31 Dec 2012 31 Dec 2011 31 Dec 2010 31 Dec 2009 31 Dec 2008

Year End Year End Year End Year End Year End

EURm EURm EURm EURm EURmUnqualified Unqualified Unqualified Unqualified Unqualified

1. Interest Income on Loans 7,515 7,709 7,685 7,991 8,550

2. Other Interest Income 893 1,265 960 1,434 3,405

3. Dividend Income 136 132 67 (148) 206

4. Gross Interest and Dividend Income 8,544 9,106 8,712 9,277 12,161

5. Interest Expense on Customer Deposits n.a. n.a. n.a. 0 n.a.

6. Other Interest Expense 5,284 5,969 5,980 6,880 9,261

7. Total Interest Expense 5,284 5,969 5,980 6,880 9,261

8. Net Interest Income 3,260 3,137 2,732 2,397 2,900

9. Net Gains (Losses) on Trading and Derivatives 383 (601) 927 1,028 (1,905)

10. Net Gains (Losses) on Other Securities (442) (333) (708) (635) (640)

11. Net Gains (Losses) on Assets at FV through Income Statement n.a. n.a. n.a. n.a. n.a.

12. Net Insurance Income 532 348 406 314 141

13. Net Fees and Commissions 1,024 963 1,113 879 862

14. Other Operating Income (56) (73) (6) 17 123

15. Total Non-Interest Operating Income 1,441 304 1,732 1,603 (1,419)

16. Personnel Expenses 1,478 1,414 1,378 1,325 1,278

17. Other Operating Expenses 1,377 1,308 1,210 1,156 1,209

18. Total Non-Interest Expenses 2,855 2,722 2,588 2,481 2,487

19. Equity-accounted Profit/ Loss - Operating n.a. n.a. n.a. n.a. n.a.

20. Pre-Impairment Operating Profit 1,846 719 1,876 1,519 (1,006)

21. Loan Impairment Charge 544 379 285 659 402

22. Securities and Other Credit Impairment Charges (17) 16 (27) 24 143

23. Operating Profit 1,319 324 1,618 836 (1,551)

24. Equity-accounted Profit/ Loss - Non-operating n.a. n.a. n.a. n.a. n.a.

25. Non-recurring Income n.a. n.a. n.a. n.a. n.a.

26. Non-recurring Expense n.a. n.a. n.a. n.a. n.a.

27. Change in Fair Value of Own Debt n.a. n.a. n.a. n.a. n.a.

28. Other Non-operating Income and Expenses n.a. n.a. n.a. n.a. n.a.

29. Pre-tax Profit 1,319 324 1,618 836 (1,551)

30. Tax expense 350 (285) 493 490 (385)

31. Profit/Loss from Discontinued Operations n.a. n.a. n.a. n.a. n.a.

32. Net Income 969 609 1,125 346 (1,166)

33. Change in Value of AFS Investments 1,873 (664) (454) 816 (1,292)

34. Revaluation of Fixed Assets n.a. n.a. n.a. n.a. n.a.

35. Currency Translation Differences 13 0 22 (7) 5

36. Remaining OCI Gains/(losses) (790) 145 (86) (48) 108

37. Fitch Comprehensive Income 2,065 90 607 1,107 (2,345)

38. Memo: Profit Allocation to Non-controlling Interests 278 224 258 319 155

39. Memo: Net Income after Allocation to Non-controlling Interests 691 385 867 27 (1,321)

40. Memo: Common Dividends Relating to the Period 354 146 122 58 151

41. Memo: Preferred Dividends Related to the Period n.a. n.a. n.a. n.a. n.a.

Banks

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

June 2013 15

DZ Bank AG Deutsche Zentral-GenossenschaftsbankBalance Sheet

31 Dec 2012 31 Dec 2011 31 Dec 2010 31 Dec 2009 31 Dec 2008

Year End Year End Year End Year End Year EndEURm EURm EURm EURm EURm

AssetsA. Loans

1. Residential Mortgage Loans 25,447 23,975 22,182 20,663 19,310

2. Other Mortgage Loans 23,297 22,042 22,425 21,556 22,064

3. Other Consumer/ Retail Loans n.a. n.a. n.a. n.a. n.a.

4. Corporate & Commercial Loans n.a. n.a. n.a. n.a. n.a.

5. Other Loans 75,067 74,743 71,668 70,577 75,647

6. Less: Reserves for Impaired Loans/ NPLs 2,509 2,278 2,224 2,462 2,130

7. Net Loans 121,302 118,482 114,051 110,334 114,891

8. Gross Loans 123,811 120,760 116,275 112,796 117,021

9. Memo: Impaired Loans included above 4,743 4,033 4,632 4,851 4,290

10. Memo: Loans at Fair Value included above n.a. n.a. n.a. n.a. n.a.

B. Other Earning Assets

1. Loans and Advances to Banks 79,429 80,035 73,614 61,100 70,036

2. Reverse Repos and Cash Collateral n.a. n.a. n.a. n.a. n.a.

3. Trading Securities and at FV through Income 29,998 38,954 44,438 67,737 86,010

4. Derivatives 38,045 34,160 24,582 24,735 29,288

5. Available for Sale Securities 57,594 59,522 56,753 59,436 64,117

6. Held to Maturity Securities n.a. n.a. n.a. n.a. n.a.

7. At-equity Investments in Associates 2,198 2,168 1,979 1,993 2,205

8. Other Securities n.a. n.a. n.a. n.a. 0

9. Total Securities 127,835 134,804 127,752 153,901 181,620

10. Memo: Government Securities included Above 23,954 23,407 21,205 20,003 21,456

11. Memo: Total Securities Pledged n.a. n.a. n.a. n.a. n.a.

12. Investments in Property 89 117 112 109 83

13. Insurance Assets 69,849 62,781 61,322 57,099 52,295

14. Other Earning Assets n.a. n.a. n.a. n.a. n.a.

15. Total Earning Assets 398,504 396,219 376,851 382,543 418,925

C. Non-Earning Assets

1. Cash and Due From Banks 2,497 2,556 579 487 2,187

2. Memo: Mandatory Reserves included above n.a. n.a. n.a. n.a. n.a.

3. Foreclosed Real Estate n.a. n.a. n.a. n.a. n.a.

4. Fixed Assets 1,752 2,102 2,040 1,688 1,817

5. Goodwill 275 280 151 149 101

6. Other Intangibles 348 365 226 187 178

7. Current Tax Assets 576 703 756 739 953

8. Deferred Tax Assets 1,480 2,213 1,870 1,752 1,969

9. Discontinued Operations 199 113 47 68 70

10. Other Assets 1,605 1,375 944 912 927

11. Total Assets 407,236 405,926 383,464 388,525 427,127

Liabilities and EquityD. Interest-Bearing Liabilities

1. Customer Deposits - Current 10,968 11,493 7,185 6,534 8,114

2. Customer Deposits - Savings 40,935 38,745 36,158 31,959 30,518

3. Customer Deposits - Term 40,266 42,633 41,592 38,653 39,175

4. Total Customer Deposits 92,169 92,871 84,935 77,146 77,807

5. Deposits from Banks 100,596 106,919 104,156 55,556 59,643

6. Repos and Cash Collateral n.a. n.a. n.a. n.a. n.a.

7. Other Deposits and Short-term Borrowings 15,570 8,366 8,594 9,400 n.a.

8. Total Deposits, Money Market and Short-term Funding 208,335 208,156 197,685 142,102 137,450

9. Senior Debt Maturing after 1 Year 47,720 46,748 46,595 56,132 65,525

10. Subordinated Borrowing 3,923 3,445 3,710 3,968 4,350

11. Other Funding n.a. n.a. n.a. n.a. n.a.

12. Total Long Term Funding 51,643 50,193 50,305 60,100 69,875

13. Derivatives 40,279 37,379 27,711 27,402 34,365

14. Trading Liabilities 21,780 32,815 31,453 86,789 119,188

15. Total Funding 322,037 328,543 307,154 316,393 360,878

E. Non-Interest Bearing Liabilities

1. Fair Value Portion of Debt n.a. n.a. n.a. n.a. n.a.

2. Credit impairment reserves n.a. n.a. n.a. n.a. n.a.

3. Reserves for Pensions and Other 2,408 1,823 1,773 1,583 1,474

4. Current Tax Liabilities 376 300 287 329 403

5. Deferred Tax Liabilities 265 701 1,024 921 792

6. Other Deferred Liabilities n.a. n.a. n.a. n.a. n.a.

7. Discontinued Operations n.a. n.a. n.a. n.a. n.a.

8. Insurance Liabilities 63,260 57,437 56,216 52,351 48,205

9. Other Liabilities 5,870 5,857 5,731 6,169 5,999

10. Total Liabilities 394,216 394,661 372,185 377,746 417,751

F. Hybrid Capital

1. Pref. Shares and Hybrid Capital accounted for as Debt 379 490 552 546 958

2. Pref. Shares and Hybrid Capital accounted for as Equity 2,210 2,210 2,210 2,176 1,710

G. Equity

1. Common Equity 7,881 7,520 7,104 6,343 5,886

2. Non-controlling Interest 2,480 2,174 2,102 1,999 1,783

3. Securities Revaluation Reserves 36 (1,101) (680) (241) (926)

4. Foreign Exchange Revaluation Reserves 29 (3) 8 (22) (3)

5. Fixed Asset Revaluations and Other Accumulated OCI 5 (25) (17) (22) (32)

6. Total Equity 10,431 8,565 8,517 8,057 6,708

7. Total Liabilities and Equity 407,236 405,926 383,464 388,525 427,127

8. Memo: Fitch Core Capital 6,171 3,912 4,551 3,918 2,368

9. Memo: Fitch Eligible Capital n.a. n.a. n.a. n.a. n.a.

Banks

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

June 2013 16

DZ Bank AG Deutsche Zentral-GenossenschaftsbankSummary Analytics

31 Dec 2012 31 Dec 2011 31 Dec 2010 31 Dec 2009 31 Dec 2008Year End Year End Year End Year End Year End

A. Interest Ratios

1. Interest Income on Loans/ Average Gross Loans 6.12 6.56 6.64 6.96 7.71

2. Interest Expense on Customer Deposits/ Average Customer Deposits n.a. n.a. n.a. n.a. n.a.

3. Interest Income/ Average Earning Assets 2.15 2.38 2.26 2.31 2.90

4. Interest Expense/ Average Interest-bearing Liabilities 1.62 1.90 1.88 2.03 2.54

5. Net Interest Income/ Average Earning Assets 0.82 0.82 0.71 0.60 0.69

6. Net Int. Inc Less Loan Impairment Charges/ Av. Earning Assets 0.68 0.72 0.64 0.43 0.59

7. Net Interest Inc Less Preferred Stock Dividend/ Average Earning Assets 0.82 0.82 0.71 0.60 0.69

B. Other Operating Profitability Ratios

1. Non-Interest Income/ Gross Revenues 31 9 39 40 (96)

2. Non-Interest Expense/ Gross Revenues 61 79 58 62 168

3. Non-Interest Expense/ Average Assets 0.70 0.70 0.66 0.61 0.58

4. Pre-impairment Op. Profit/ Average Equity 19.7 8.2 22.8 18.8 (10.1)

5. Pre-impairment Op. Profit/ Average Total Assets 0.45 0.18 0.48 0.37 (0.23)

6. Loans and securities impairment charges/ Pre-impairment Op. Profit 28.6 54.9 13.8 45.0 (54.2)

7. Operating Profit/ Average Equity 14.1 3.7 19.7 10.4 (15.6)

8. Operating Profit/ Average Total Assets 0.32 0.08 0.41 0.20 (0.36)

9. Taxes/ Pre-tax Profit 27 (88) 30 59 25

10. Pre-Impairment Operating Profit / Risk Weighted Assets 2.06 0.72 2.16 1.60 (0.85)

11. Operating Profit / Risk Weighted Assets 1.47 0.33 1.86 0.88 (1.31)

C. Other Profitability Ratios

1. Net Income/ Average Total Equity 10.4 7.0 13.7 4.3 (11.8)

2. Net Income/ Average Total Assets 0.2 0.2 0.3 0.1 (0.3)

3. Fitch Comprehensive Income/ Average Total Equity 22.1 1.0 7.4 13.7 (23.6)

4. Fitch Comprehensive Income/ Average Total Assets 0.5 0.0 0.2 0.3 (0.6)

5. Net Income/ Av. Total Assets plus Av. Managed Securitized Assets n.a. n.a. n.a. n.a. n.a.

6. Net Income/ Risk Weighted Assets 1.1 0.6 1.3 0.4 (1.0)

7. Fitch Comprehensive Income/ Risk Weighted Assets 2.3 0.1 0.7 1.2 (2.0)

D. Capitalization

1. Fitch Core Capital/Weighted Risks 6.9 3.9 5.2 4.1 2.0

2. Fitch Eligible Capital/ Weighted Risks n.a. n.a. n.a. n.a. n.a.

3. Tangible Common Equity/ Tangible Assets 2.3 1.8 2.1 1.8 1.2

4. Tier 1 Regulatory Capital Ratio 13.6 10.1 10.6 9.9 7.4

5. Total Regulatory Capital Ratio 13.8 11.5 12.7 12.4 9.7

6. Core Tier 1 Regulatory Capital Ratio n.a. n.a. n.a. n.a. n.a.

7. Equity/ Total Assets 2.6 2.1 2.2 2.1 1.6

8. Cash Dividends Paid & Declared/ Net Income 36.5 24.0 10.8 16.8 (13.0)

9. Cash Dividend Paid & Declared/ Fitch Comprehensive Income 17.1 162.2 20.1 5.2 (6.4)

10. Cash Dividends & Share Repurchase/Net Income n.a. n.a. n.a. n.a. n.a.

11. Net Income - Cash Dividends/ Total Equity 5.9 5.4 11.8 3.6 (19.6)

E. Loan Quality

1. Growth of Total Assets 0.3 5.9 (1.3) (9.0) (1.0)

2. Growth of Gross Loans 2.5 3.9 3.1 (3.6) 10.1

3. Impaired Loans(NPLs)/ Gross Loans 3.8 3.3 4.0 4.3 3.7

4. Reserves for Impaired Loans/ Gross loans 2.0 1.9 1.9 2.2 1.8

5. Reserves for Impaired Loans/ Impaired Loans 53 56 48 51 50

6. Impaired Loans less Reserves for Imp Loans/ Equity 21 20 28 30 32

7. Loan Impairment Charges/ Average Gross Loans 0.44 0.32 0.25 0.57 0.36

8. Net Charge-offs/ Average Gross Loans 0.22 0.26 0.35 0.25 0.24

9. Impaired Loans + Foreclosed Assets/ Gross Loans + Foreclosed Assets 3.8 3.3 4.0 4.3 3.7

F. Funding

1. Loans/ Customer Deposits 134 130 137 146 150

2. Interbank Assets/ Interbank Liabilities 79 75 71 110 117

3. Customer Deposits/ Total Funding excl Derivatives 33 32 30 27 24

Banks

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

June 2013 17

DZ Bank AG Deutsche Zentral-GenossenschaftsbankReference Data

31 Dec 2012 31 Dec 2011 31 Dec 2010 31 Dec 2009 31 Dec 2008

Year End Year End Year End Year End Year EndEURm EURm EURm EURm EURm

A. Off-Balance Sheet Items

1. Managed Securitized Assets Reported Off-Balance Sheet n.a. n.a. n.a. n.a. n.a.

2. Other off-balance sheet exposure to securitizations n.a. n.a. n.a. n.a. n.a.

3. Guarantees 5,380 5,610 5,222 n.a. n.a.

4. Acceptances and documentary credits reported off-balance sheet n.a. n.a. n.a. n.a. n.a.

5. Committed Credit Lines 20,462 20,834 20,236 n.a. n.a.

6. Other Contingent Liabilities n.a. n.a. n.a. n.a. n.a.

7. Total Business Volume 433,078 432,370 408,922 388,525 427,127

8. Memo: Total Weighted Risks 89,596 99,564 86,868 95,125 118,025

9. Fitch Adjustments to Weighted Risks. n.a. n.a. n.a. n.a. n.a.

10. Fitch Adjusted Weighted Risks 89,596 99,564 86,868 95,125 118,025

B. Average Balance Sheet

Average Loans 122,753 117,495 115,721 114,851 110,865

Average Earning Assets 397,942 383,091 385,236 401,555 420,002

Average Assets 406,664 390,912 392,008 408,494 429,431

Average Managed Securitized Assets (OBS) n.a. n.a. n.a. n.a. n.a.

Average Interest-Bearing Liabilities 325,654 313,637 317,741 339,561 364,176

Average Common equity 7,665 7,370 6,680 6,192 7,033

Average Equity 9,360 8,756 8,216 8,074 9,926

Average Customer Deposits 92,387 89,676 80,603 77,411 77,223

C. Maturities

Asset Maturities:

Loans & Advances < 3 months 23,539 24,403 23,897 23,544 n.a.

Loans & Advances 3 - 12 Months 16,307 14,199 14,893 15,238 n.a.

Loans and Advances 1 - 5 Years 59,322 34,190 62,270 61,479 n.a.

Loans & Advances > 5 years 22,134 30,791 31,582 29,999 n.a.

Debt Securities < 3 Months 14,984 16,778 18,255 32,163 n.a.

Debt Securities 3 - 12 Months 8,288 11,611 13,321 16,392 n.a.

Debt Securities 1 - 5 Years 36,499 41,588 42,637 48,704 n.a.

Debt Securities > 5 Years 33,363 33,358 33,078 36,755 n.a.

Interbank < 3 Months 17,922 18,626 15,742 7,452 n.a.

Interbank 3 - 12 Months 7,831 6,602 5,198 8,395 n.a.

Interbank 1 - 5 Years 33,890 34,190 26,561 26,147 n.a.

Interbank > 5 Years 19,786 30,791 34,903 31,249 n.a.

Liability Maturities:

Retail Deposits < 3 months n.a. n.a. n.a. n.a. n.a.

Retail Deposits 3 - 12 Months n.a. n.a. n.a. n.a. n.a.

Retail Deposits 1 - 5 Years n.a. n.a. n.a. n.a. n.a.

Retail Deposits > 5 Years n.a. n.a. n.a. n.a. n.a.

Other Deposits < 3 Months 24,972 24,048 16,701 12,911 n.a.

Other Deposits 3 - 12 Months 3,206 2,279 3,132 3,425 n.a.

Other Deposits 1 - 5 Years 9,655 9,928 8,571 7,350 n.a.

Other Deposits > 5 Years 54,336 29,328 36,217 39,735 n.a.

Interbank < 3 Months 41,802 43,615 42,282 7,445 n.a.

Interbank 3 - 12 Months 10,897 18,229 12,472 7,420 n.a.

Interbank 1 - 5 Years 27,800 32,034 26,458 21,605 n.a.

Interbank > 5 Years 20,097 22,496 28,037 24,800 n.a.

Senior Debt Maturing < 3 months 11,418 7,987 6,782 6,501 n.a.

Senior Debt Maturing 3-12 Months 8,850 7,120 9,917 13,405 n.a.

Senior Debt Maturing 1- 5 Years 32,412 35,311 31,946 35,610 n.a.

Senior Debt Maturing > 5 Years 15,308 11,437 14,649 20,522 n.a.

Total Senior Debt on Balance Sheet 67,988 61,855 63,294 76,038 n.a.

Fair Value Portion of Senior Debt n.a. n.a. n.a. n.a. n.a.

Covered Bonds n.a. n.a. n.a. n.a. n.a.

Subordinated Debt Maturing < 3 months n.a. n.a. n.a. n.a. n.a.

Subordinated Debt Maturing 3-12 Months n.a. n.a. n.a. n.a. n.a.

Subordinated Debt Maturing 1- 5 Year n.a. n.a. n.a. n.a. n.a.

Subordinated Debt Maturing > 5 Years n.a. n.a. n.a. n.a. n.a.

Total Subordinated Debt on Balance Sheet 3,923 3,445 3,710 3,968 4,350

Fair Value Portion of Subordinated Debt n.a. n.a. n.a. n.a. n.a.

D. Equity Reconciliation

1. Equity 10,431 8,565 8,517 8,057 6,708

2. Add: Pref. Shares and Hybrid Capital accounted for as Equity 2,210 2,210 2,210 2,176 1,710

3. Add: Other Adjustments n.a. n.a. n.a. n.a. n.a.

4. Published Equity 12,641 10,775 10,727 10,233 8,418

E. Fitch Eligible Capital Reconciliation

1. Total Equity as reported (including non-controlling interests) 10,431 8,565 8,517 8,057 6,708

2. Fair value effect incl in own debt/borrowings at fv on the B/S- CC only 0 0 0 0 0

3. Non-loss-absorbing non-controlling interests 0 0 0 0 0

4. Goodwill 275 280 151 149 101

5. Other intangibles 348 365 226 187 178

6. Deferred tax assets deduction 309 680 198 659 1,361

7. Net asset value of insurance subsidiaries 3,328 3,328 3,391 3,144 2,700

8. First loss tranches of off-balance sheet securitizations 0 0 0 0 0

9. Fitch Core Capital 6,171 3,912 4,551 3,918 2,368

10. Eligible weighted Hybrid capital n.a. n.a. n.a. n.a. n.a.

11. Government held Hybrid Capital 0 0 0 0 0

12. Fitch Eligible Capital n.a. n.a. n.a. n.a. n.a.

Banks

DZ Bank AG Deutsche Zentral-Genossenschaftsbank

June 2013 18

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