Balance sheet

Total assets reduced by EUR 1.6 bn to EUR 41.7 bn in the first six months, in particular because of reducing excess liquidity. Loans and advances to customers remained stable at EUR 30.7 bn (31 December 2008: EUR 30.6 bn).

Structured ABS Portfolio

The structured loans portfolio was further reduced from EUR 366 m (31 December 2008) to EUR 311 m. The corresponding negative AFS-reserve reduced from EUR – 32 m to EUR – 20 m. This positive development was due in particular to disposals as well as improvements in share prices. Charges to the income statement arising out of this portfolio came to EUR – 9 m.

Result for the first half of the year

The developments in net interest income and in the overall operating income, which rose by EUR 147 m to EUR 544 m, were clearly positive. Risk provisions for loans and advances rose by EUR 190 m (or 119 %) compared to the figure for the comparable period in the previous year, to EUR 349 m. This was due in particular to large risk provisions for Bulgaria, Austria and Ukraine, and for the cross-border financing business run from Austria. Operating expenses rose only slightly, by EUR 3 m to EUR 266 m. The positive developments on operating income and expenses could not compensate in full for the large risk provisions. A negative result before taxes of EUR 84 m and a negative consolidated result (after minority interests) of EUR 162 m was recorded for the first six months.

Own capital funds

Own capital funds available as at 30 June 2009 stood at EUR 3,943 m, against an own capital funds requirement of EUR 2,668 m. As a result there is (over)coverage of EUR 1,275 m or 148 %. The Tier 1 ratio (related to credit risk) was 8.1 % as of the balance sheet date, and the total own capital funds ratio was 11.8 %.

Executive Board changes

Franz Pinkl assumed the position of Chairman of the Executive Board on 1 June 2009 and has been driving through the restructuring of the Group since that date. Anton Knett has also joined the Executive Board team as COO.

EU investigative procedure

The Commission of the European Union passed a resolution on 12 May 2009 to investigate in depth the capital measures (capital increase and participation capital) of December 2008. This process is expected to be completed in the third or fourth quarter of 2009.

Hypo Fit 2013 restructuring project

A wide-ranging project to restructure and realign the strategy of the whole Group was started together with BayernLB at the beginning of the year. Alongside this a concept to increase cost efficiency is being implemented, which includes an element of job reductions.

Rating downgrade

Moody’s downgraded the long-term obligation rating from A2 to Baa1 and the short-term obligation rating from Prime-1 to Prime-2 in the second quarter. The Bank Financial Strength Rating (BFSR) was also downgraded, from D– to E+.

Issue of a benchmark bond

The issue, in July 2009, of a state-guaranteed benchmark bond with a value over EUR 1 bn and a term of four years, attracted strong interest and was significantly oversubscribed.

Outlook for the second half of the year

An extremely difficult macro-economic environment is expected for the Group’s core markets in the second half of the year as well. The continuing reluctance on the part of consumers and businesses to spend and/or invest their money, a general rise in unemployment and a greater tendency on the part of consumers to save, will lead to a liquidity problem for countless numbers of businesses and will be reflected in an increase in arrears on credit repayment. Significantly lower valuations for collateral and a continuingly difficult economic enviroment will be factors affecting risk provisions in 2009. For these reasons a negative annual result is also expected for the whole year 2009.