German Postbank records growth in a turbulent environment

Deutsche Postbank AG is continuing to grow. Despite intense competition in the retail banking sector and the turbulent capital market environment, Postbank increased its profit before tax for the first nine months by 24.6 pct year-on-year to EUR806 million. Adjusted for the positive impact of the disposal of the Bank's insurance business and non-recurring effects, including the integration of BHW and the retail outlets, profit before tax increased by 8.4 pct to EUR752 million. The return on equity before taxes broke through the 20 pct barrier for the first time, increasing to 20.9 pct as of September 30, 2007 (previous year: 17.5 pct). The cost-income ratio improved to 65.5 pct (compared with 69.5 pct in the first nine months of the previous year), with the figure for the Company's traditional banking business, i.e. excluding Transaction Banking, improving to 63.2 pct (previous year: 68.0 pct).

Postbank has only been affected by the crisis on the U.S. real estate market to a minor extent. The Bank has always applied its conservative investment principles when investing in structured credit portfolios. Postbank performed an intensive analysis of the soundness of these investments in the third quarter, on the basis of which it recognized valuation adjustments totaling EUR 61 million.

Growth in checking accounts and new customers

Despite intense competition, Postbank has succeeded in gaining market share in key product segments. The Bonn-based bank opened 177,300 new private checking accounts in the third quarter of 2007, up 30 pct on the same period of the previous year and 60 pct higher than the average for the prior periods of the current year. In the first nine months of 2007, the number of newly opened accounts increased by 12.1 pct to 398,000.

The Bank's strong checking account performance also had a positive impact on the number of new customers, which increased by 5.0 pct year-on-year to 260,000 in the third quarter of 2007. In the first nine months of the year, Postbank gained more than 707,000 new customers, putting its target of one million new customers in 2007 well within reach.

New fund business on the rise

In the first nine months of the current year, Postbank increased its gross cash inflow from funds and certificates by 18.7 pct to EUR2.34 billion.

At September 30, the Bonn-based bank managed securities brokerage accounts with a volume of EUR11.5 billion, up 16 pct on the previous year. In the same period, the number of brokerage accounts administered by Postbank increased by 4.3 pct to 961,000.

Campaign to attract SMEs bears fruit

In the first nine months of 2007, Postbank increased its earnings before taxes from Corporate Banking by 17.2 pct year-on-year to EUR143 million. The Corporate Banking credit portfolio increased by EUR1.4 billion as against the end of the previous year, totaling EUR15.0 billion at September 30, 2007. In a special campaign running until the end of this year, Postbank is offering financing to small and medium-sized customers at particularly attractive conditions. Good progress is also being made in terms of the expansion of the workforce in this area.

Income statement

Total income, including gains on the disposal of the insurance business, increased by 7.2 pct year-on-year to EUR3.2 billion. Balance sheet income, which consists of net interest income, net trading income and net income from investment securities, increased by 10.9 pct to EUR2.2 billion.

Due to the flat yield curve, which has since become inverted, Postbank recorded only moderate year-on-year growth in net interest income to EUR1.6 billion in the first nine months of 2007. Net income from investment securities was dominated by the gains on the disposal of Postbank's insurance business to Talanx, increasing by 59.6 pct as against the first nine months of the previous year to total EUR292 million. Net trading income benefited from the strong income from derivatives as part of the Bank's overall risk management strategy and the effects of the slight reduction in long-term interest rates, which positively impacted the valuation of the Bank's trading portfolio of government bonds. At EUR267 million, net trading income was up 42.7 pct on the same period of the previous year.

Net fee and commission income amounted to EUR357 million in the third quarter of 2007, up EUR18 million or 5.3 pct on the second quarter. This development was driven by the initial impact of the customer sales measures that were announced in the first six months of the year with the aim of increasing net fee and commission income, among other things. Net fee and commission income for the first nine months of 2007 remained essentially unchanged year-on-year at EUR1.1 billion.

The allowance for losses on loans and advances increased by 3.5 pct to EUR268 million in the first nine months of 2007, meaning that it remains significantly below the 13.2 pct growth in the customer credit volume that was recorded in the same period.

Postbank is satisfied with the development of administrative expenses, which increased by just 0.9 pct over the first nine months of the year to total EUR2.1 billion. This is all the more remarkable considering that this figure includes the costs of HVB's payment transaction business for the first time, as well as non-recurring expenses such as transaction costs relating to the disposal of the insurance business, integration costs for BHW and the retail outlets, and the impact of the VAT increase. Adjusted for these factors, administrative expenses decreased in the first nine months of 2007. Postbank believes that this development underlines its ability to continually implement growing volumes in its customer business while ensuring that costs remain extremely stable.

Net other income and expenses amounted to EUR45 million, compared with EUR14 million in the first three quarters of the previous year.

Total assets increased from EUR184.9 billion at year-end 2006 to EUR194.0 billion as of September 30, 2007.

Outlook

Postbank is reiterating its target of gaining around one million new customers in the current year, and remains confident that it will generate a return on equity before taxes of more than 20 pct and a cost-income ratio from traditional banking of less than 63 pct in 2008. The Bank's aim of achieving a tier 1 capital ratio of 7.5 pct by 2009 remains unchanged.