Postbank achieves record results

In 2006, Postbank achieved the best results in its history: pre-tax profits totaled 941 million, up 31.6 percent on the previous year (the comparative figures for 2005 are pro forma figures including theoretical amounts for BHW and the Deutsche Post retail outlets). The Bank's other key figures are also extremely encouraging. The cost/income ratio improved from 75.0 percent to 68.3 percent, while the ratio for the traditional banking business, i.e. excluding transaction banking, fell by 6.8 percent to 66.7 percent. Return on equity before taxes increased by 4.0 percent to 18.9 percent.

The Bank's balance sheet-related revenues, i.e. the total of net interest income, net trading income and net income from investment securities, increased by 10.7 percent year-on-year to 2.71 billion.
Net interest income remained the key revenue driver, although interest rates provided only limited positive impetus: at 2.2 billion, net interest income was up 11.6 percent on the previous year. Among other things, this reflects the expansion on the volume of customer loans, and the low-risk mortgage lending portfolio in particular.

Net trading income increased by 6.1 percent year-on-year to 245 million, while net income from investment securities rose by 8.1 percent to 292 million. This includes the book gains from the sale of non-strategic equity interests in the amount of 84 million.

Net fee and commission income grew by 2.0 percent to 1.4 billion. This figure also includes income from transaction banking and the sale of non-banking services at branches, which declined in line with expectations. Adjusted for these items, net fee and commission income from traditional banking reflects the Bank's sales success in products requiring substantial advisory services and in the area of services, increasing by 10.6 percent to 669 million.
Total income rose by 7.5 percent as against the previous year to 4.1 billion.
The allowance for losses on loans and advances increased by 17.8 percent to 337 million. Adjusted for one-time effects, however, this increase was again lower than the growth rate recorded by our customer loan volume.

The Bank was able to cut administrative expenses by 2.0 percent to 2.8 billion thanks to its policy of strict cost management. Synergy effects from the integration of BHW have already been generated in the amount of 18 million.
Other income and expenses was also impacted by extraordinary factors in 2006, falling to 27 million (2005: 43 million). Net integration costs were primarily recognized in this item in the amount of 83 million.

Retail Banking contributed 924 million of the Bank's pre-tax profit of 941 million, meaning that the segment's profits improved by 14.6 percent year-on-year. This is particularly encouraging since the two major acquisitions, BHW and the Deutsche Post retail outlets, have been allocated to Retail Banking, meaning that the corresponding integration costs in the amount of 85 million were charged to this segment in full. Corporate Banking generated 165 million, up 10.7 percent on 2005, while the Transaction Banking segment grew by 17.4 percent to record profit before tax of 27 million. In the Financial Markets segment, profit before tax increased by 10.0 percent to 132 million. Pre-tax profit in the Others segment improved by 76 million to 307 million.
Based on a tax rate of 26.0 percent, the Bank's net profit for the period totaled 695 million compared with 489 million 2005.

The Management Board intends to propose that an unchanged dividend of 1.25 per share be paid for fiscal year 2006.
Balance sheet

Postbank's total assets increased moderately by 2.5 percent to 184.9 million. On the asset side, this was primarily due to the satisfactory growth in the Bank's customer loans business. On the liability side, the Bank reduced the volume of expensive refinancing instruments, thus making further structural improvements.

Loans and advances to customers grew by 6.7 billion to 87.2 billion. In particular, this reflects Postbank's continued success in selling private mortgage loans. The mortgage lending volume including home savings loans increased by 14.9 percent to 62.3 billion. This figure includes the purchases of securitized mortgage loan portfolios worth a total of 3.2 billion. The installment loan volume also increased by an impressive 14.3 percent to 2.4 billion. Postbank continued to scale back its legacy portfolios of comparatively low-margin public sector receivables, reducing this item by 3.3 billion to 5.4 billion in fiscal year 2006.

At 92.9 billion, money market and capital investments – loans and advances to other banks, trading assets and investment securities – fell only slightly by 0.7 billion year-on-year. Longer-term investment securities rose by a moderate 1.6 billion to 63.3 billion. Opposing trends were recorded in the two relatively short-term items, trading assets and loans and advances to other banks: trading assets rose by 2.8 billion to 13.3 billion, while loans and advances to other banks were reduced by 5.0 billion to 16.4 billion.
Postbank again increased amounts due to customers by 2.4 billion to 101.3 billion. While traditional savings deposits fell by 2.0 billion to 36.0 billion in line with market trends, home savings deposits were up from 16.1 billion to 17.1 billion. In the Corporate Banking segment, term deposits increased from 6.2 billion to 8.6 billion.

Money and capital market liabilities increased slightly by 2.0 billion to 66.8 billion. This enabled us to further optimize our funding structure.
At 5.2 billion, equity was up 0.1 billion on the previous year. Postbank's core capital ratio (Tier 1 ratio according to Basel I) was 5.5% at the balance sheet date, following 8.3 percent at the end of 2005. This decline was primarily due to the cash financing of the acquisitions of BHW and the Deutsche Post retail outlets without the issue of new shares to raise additional capital.