BayernLB | Group InterIm report fIrst half of 2013

BayernLB | Group InterIm report

fIrst half of 2013

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BayernLB . Group Interim Report for the first half of 2013

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Contents


›› Contents 3

BayernlB Group – the first half of 2013 at a glance

selected business highlights in h1 2013

Board of managementForeword

Board of Management and responsibilities

Group Interim management reportOverview

Financial position and financial performance

Segments

Events after the end of the reporting period

Outlook

Risk report

Consolidated Interim financial statementsStatement of comprehensive income

Income statement

Statement of comprehensive income

Balance sheet

Statement of changes in equity

Cash flow statement

Notes

Responsibility statement by the Board of Management

Review Report

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The translation of consolidated interim financial statements – comprising the condensed state-ment of comprehensive income (including income statement), the balance sheet, statement of changes in equity, condensed statement of cash flows and selected explanatory notes – and the Group interim management report of the Bayerische Landesbank as well as the auditor’s review report is for convenience only; the German versions prevail.


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BayernLB Group – the first half

of 2013 at a glance


›› BayernLB Group – the first half of 2013 at a glance 5

BayernLB Group – the first half of 2013 at a glance

Income statement (IFrS)

EUR million

1 Jan –

30 Jun 2013

1 Jan –

30 Jun 2012

Change

in %/pp

Net interest income 955 855 11.8

Risk provisions in the credit business – 134 – 204 – 34.2

net interest income after risk provisions 821 651 26.2

Net commission income 143 140 1.9

Gains or losses on fair value measurement 179 248 – 27.9

Gains or losses on hedge accounting – 38 36 –

Gains or losses on financial investments 279 – 58 –

Income from interests in companies

measured at equity 3 – 14 –

Administrative expenses – 686 – 855 – 19.8

Expenses for bank levies – 52 – 53 – 1.9

Other income and expenses 76 47 62.5

Gains or losses on restructuring – 7 – 15 – 55.0

Profit before taxes 719 129 >100.0

Cost/income ratio (CIR) 52.2% 64.4% – 12.2 pp1

Return on equity (RoE) 10.3% 3.1% +7.2 pp1

Quarterly comparisonThe table below compares performance in the first and second quarters of 2013:

EUR million Q2 2013 Q1 2013 Change in %

Net interest income 495 461 7.4

Risk provisions in the credit business – 76 – 58 29.8

net interest income after risk provisions 419 402 4.2

Net commission income 71 71 0.1

Gains or losses on fair value measurement 85 94 – 9.7

Gains or losses on hedge accounting – 25 – 13 86.1

Gains or losses on financial investments 303 – 25 –


measured at equity 3 0 –

Administrative expenses – 349 – 337 3.5

Expenses for bank levies 0 – 52 –

Other income and expenses 57 20 >100.0

Gains or losses on restructuring – 2 – 5 – 66.7

Profit before taxes 563 156 >100.0

Rounding differences may occur in the tables.


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Balance sheet (IFrS)

EUR million 30 Jun 2013 31 Dec 2012 Change in %

Total assets 265,764 286,882 – 7.4

Business volume 308,401 330,348 – 6.6

Credit volume 200,672 207,771 – 3.4

Total deposits 157,676 161,340 – 2.3

Securitised liabilities 56,299 60,319 – 6.7

Subordinated capital 5,120 6,346 – 19.3

Equity 15,465 14,977 3.3

Banking supervisory ratios under the German Banking act (KWG)

30 Jun 2013 31 Dec 2012 Change in %/pp

Core capital (EUR billion) 13.8 13.0 6.5%

Own funds (EUR billion) 17.8 17.3 2.7%

Risk positions under the Solvency Ordinance

(EUR billion) 94.3 100.4 – 6.1%

Core capital ratio 14.7% 12.9% +1.8 pp1

Overall ratio 18.9% 17.3% +1.6 pp1

Core tier 1 ratio (according to EBA) 14.1% 11.6% +2.5 pp1

employees

30 Jun 2013 31 Dec 2012 Change in %

Number of employees 9,486 9,932 – 4.5

Current ratings

Long-term Short-term Pfandbrief2

Fitch Ratings A+ F1+ AAA

Moody’s Investors Service Baa1 Prime-2 Aaa

1 Percentage points

2 Applies to public-sector Pfandbriefs and mortgage Pfandbriefs


›› BayernLB Group – the first half of 2013 at a glance 7

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BayernLB , Group Interim Report for the first half of 2013

Selected business

highlights in H1 2013


›› Selected business highlights in H1 2013 9

The reason we are bound to our customers in long-term partnerships is simple: Together we are successful. This cooperation has proven itself anew with each project. Trust has grown with every transaction. Constant and intense dialogue was required to achieve this and dedication far beyond the call of duty. a variety of projects from the first half of the new financial year show that we are on the right track.

Success is binding

Unicredit S.p.A.Covered bond

Joint Lead Manager1.875 % January 2019

EUR 1 bn

GfK SEJoint Lead Arranger 7/10-year term February 2013

EUR 125 m

GATX CorporationChicago/USAUnderwriter, Bookrunner,Mandated Lead Arranger, Agent Syndicated loan

USD 205 m

MEYER Werft GmbHSole Bookrunner

Mandated Lead Arranger Agent & Fronting Bank

Syndicated loan

EUR 147.5 m

• SK Nördlingen• SK Erding-Dorfen• SK Fürth• SSK München• SK Nördlingen

EUR 3.5 m EUR 4 m EUR 2 m EUR 20 m

EUR 2.5 m

Exclusive issues

Invesco Real Estate GmbH “Stara Celnice” office building

Prague, Czech Republic

EUR 17.2 m

HYPO NOE Gruppe Bank AG Senior Unsecured

Joint Lead Manager1.625 % April 2018

EUR 500 m

Crédit AgricoleCovered BondJoint Lead Manager1.875 % June 2023

EUR 1 bn

RCI Banque S.A.Joint Lead Manager 1.75 % July 2016

EUR 500 m

HL komm Telekommunikations GmbHMandated Lead ArrangerCorporate-to-corporate

acquisition finance

EUR 20 m

Enercon GmbHEuler Hermes

Secured buyer loanExport finance

EUR 3.8 m


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SEB ABCovered Bond

Joint Lead Manager1.50 % February 2020

EUR 1 bn

ThyssenKrupp AGJoint Lead Manager 4 % August 2018 February 2013

EUR 1.25 bn

SIMBA-DICKIE-GROUP GmbHFinancierCorporate-to-corporateacquisition finance

HOCHTIEF Solutions AGConstruction and operation of the Paul-Moor schoolNurembergPPP project

EUR 20 m

IKB Leasing GmbHLead Arranger

Securitisation of leasing receivables via the “Corelux” ABCP program

EUR 100 m

• SK Passau EUR 5 m (Bank share) acquistion Clothing sector

• SK Niederbayern-Mitte EUR 4 m (Bank share) increase in general credit limit Agricultural machinery sector

• SK Bad Neustadt an der Saale EUR 2.5 m (Bank share) capital expenditure finance Automotive supplier sector

Plafond loans

Jointly issued bond Nuremberg & Würzburg

Type: Bearer bondRating: n. r.

Joint Bookrunner: BayernLB

Deutsche Bank Helaba

UniCreditCoupon: 1.875 %

EUR 100 m issue volume

Immobilien KAGFinancing

Office/business premises“Ludwigpalais” Munich

Akelius GmbHFinancing of a residential portfolio5-year termVarious German citiesMarch 2013

EUR 103.5 m

Müller-Elmau GmbHFunding by KfW

Energy standard 20 % under EnEV 2009Construction finance for a hotel

Elmau, Germany

EUR 19 m in conjunction with Sparkasse

Garmisch-Partenkirchen

Grenzebach BSH GmbHExport finance

EU

R 4

4.6

m


›› Selected business highlights in H1 2013 11


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Board of Management

›› Vorstand 13

Foreword

Board of Management and responsibilities

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Foreword

Ladies and gentlemen,

Dear customers and business partners,

The BayernLB Group posted an exceptionally good profit before taxes

of EUR 719 million in the first half of 2013. Our solid customer business,

focused on the Bavarian and German markets, was instrumental in the

results - delivering stable earnings while risk provisions were once again

moderate. This was due not least of all to the beneficial economic environ-

ment, particularly in the south of Germany. Another factor which had a

significant impact on earnings was the one-off income of EUR 351 million

from the sale of BayernLB’s stake in GBW AG in May. This positive effect

must be noted when making comparisons with the previous year’s earnings

(EUR 129 million), which were depressed by a one-off addition to pension

provisions. After adjusting for these special factors, it was still a good first

half of the year for BayernLB.

The Bank successfully met a broad range of challenges in the first six months.

On the one hand, it continued to set a strong pace in the Bank’s core

business, producing figures in the black in all customer-serving segments.

Examples include: 70 new large Mittelstand customers, six Schuldschein

note loan issues with a total volume of EUR 4.5 billion and new business

with commercial real estate customers totalling EUR 1 billion. Moreover,

BayernLB granted around 12,500 subsidised loans to customers of the

savings banks and its own customers, while DKB now serves just under

2.7 million online retail customers. All this is clear evidence of the new

BayernLB’s success in the customer business. Simultaneously, the staff

proceeded apace to further slim down the Bank by rapidly winding down

the non-core activities grouped in the Non-Core Unit (NCU) as profitably

as possible, while carrying out the painstaking process of disposing of

stakes in companies such as the recent sale of GBW AG. By 30 June 2013,


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total assets had been trimmed to EUR 265.8 billion. Just six months before

they were more than EUR 20 billion higher at just under EUR 287 billion.

At the mid point of 2013 BayernLB was still very much on track. This was

especially the case in regard to BayernLB’s extensive and sustained re-

structuring of its business activities, even though these are increasingly

under pressure from low interest rates, companies’ reluctance to spend

on capex and greater regulatory intervention. Furthermore, considerable

progress was made in meeting the conditions handed down in 2012 by the

European Commission in its ruling on the Bank’s state aid proceedings.

These included the sale of the holding in housing company GBW AG and

the disposal of an equity stake in Lufthansa at the beginning of the year.

BayernLB has even been paying the EUR 5 billion in state aid back to the

Free State of Bavaria ahead of schedule. By the mid point of the year, it had

paid a total of around EUR 1.1 billion. EUR 871 million was in aid payments;

the rest represents higher fees for the guarantee agreement on the ABS

portfolio. On 7 August of this year BayernLB transferred another tranche of

EUR 50 million. Since November 2012, taking into account the replenishment

of the silent partner contributions of the Free State of Bavaria and Bavarian

savings banks, BayernLB has paid EUR 1.6 billion to the owners.

Also related to the outcome of the state aid proceedings was a reshuffling

of the Bank’s ownership structure. On 25 June 2013, the Bavarian savings

banks increased their equity in BayernLB Holding AG by around EUR 830

million, thus raising their indirect stake in Bayerische Landesbank to ap-

proximately 25 percent. This means that BayernLB once again has a second

strong owner in addition to the Free State of Bavaria. This relationship is

reflected in the fact that the Bavarian savings banks appoint the deputy

chairperson of BayernLB’s new Supervisory Board. The Supervisory Board

was established on 4 July and replaces the Board of Administration. The

new board no longer includes any politicians from the Bavarian government


›› Board of Management Foreword 15

as ex officio board members. The transformation of the supervisory

board was also one of the conditions in the EU ruling.

BayernLB is well positioned for the second half of the year. BayernLB’s Board

of Management anticipates full-year results will be solid. But there will

not be a continuation of the performance in the first half, as the one-off

gains, of course, cannot be repeated. Political and regulatory uncertainty

will also cloud the picture. The banking industry is being hamstrung over

the long term by the European Central Bank’s (ECB) monetary policy, which is

hoping to cajole capital into flowing from the north to the south of Europe

through low interest rates. German savers are among the losers here as is

bank profitability, which is also being squeezed by the proliferation of

regulations from national and international supervisors that are driving up

labour and operating costs. Critical steps by regulators are often not co-

ordinated internationally and in some cases even contradict each other.

Developments in Hungary are of key importance for BayernLB. The country’s

government is toying with the idea of fresh political intervention on

foreign currency loans which could severely test the business of banks

operating there. BayernLB’s MKB subsidiary, which we are still restructuring

from the ground up for the long term, may then take another knock.

BayernLB is faced with several key challenges. The Bank needs to maintain

its equity ratios close to the very high levels it now has even after payouts

to owners and investors. Currently the core tier 1 ratio as defined by the

European Banking Authority (EBA) is 14.1 percent. Over the next five years

it is due to return another EUR 4 billion of core tier 1 capital to the Free

State of Bavaria. To meet these challenges, BayernLB will proceed along

two tracks at the same time. It will invest in its sales force, while simulta-

neously scrutinising the Bank’s cost structures. The goal is to grow the

customer business even more, while keeping production costs competitive

and making scant capital resources go further.

After reducing its total assets by around EUR 160 billion in the past four

years, BayernLB is the size it was at the end of the 1990s. Its infrastructure

in many cases, though, is more in keeping with that of a much larger bank.

Red tape has also raised platform costs. BayernLB will therefore be seeking


›› 16

to cut costs and improve efficiency. At the end of March it announced ad-

ministrative expenses at BayernLB (excluding its subsidiaries) will be reduced

by 15 percent by 2017. The Bank has started making good progress in

further downsizing its New York and London branches for example.

In the second half of the year the new BayernLB will continue to work

hard at achieving its goal of becoming a normal bank. We will continue

to trust in the loyalty of our customers and the dedication of our staff

and would like to offer a big thank you to them all.

Sincerely,

The Board of Management

Gerd Haeusler, CEO

Marcus Kramer, Member of the Board of Management

Dr. Edgar Zoller, Deputy CEO

Michael Bücker, Member of the Board of Management

Nils Niermann, Member of the Board of Management

Stephan Winkelmeier, Member of the Board of Management


›› Board of Management Foreword 17


Corporate CenterDeutsche Kreditbank aG

Gerd Haeusler Ceo

real estate & Savings Banks/association Bayerische Landesbodenkreditanstalt

Human resources

Dr edgar Zoller Deputy Ceo

risk Officerestructuring UnitGroup Compliance

Marcus Kramer member of the Board of management Cro

Responsibilities as at 1 August 2013


›› 18


Corporates, Mittelstand & Financial Institutions

Michael Bücker member of the Board of management

Markets Banque LBLux S. a. BayernInvest Kapitalanlagegesellschaft mbH

nils niermann member of the Board of management

Stephan Winkelmeier member of the Board of management Cfo/Coo

Financial Office Operating OfficeMKB Bank Zrt.


›› Board of Management 19


›› 20

Group Interim Management

report


Overview


Segments


Outlook

Risk report

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Overview

After a weak start to 2013, when the weather brought a noticeable chill, the German economy

made a strong comeback in spring. Although some of this was undoubtedly due to pent-up

demand, the recovery went beyond just that. Despite the weather, total economic output in the

first half of 2013 was slightly up on the second half of 2012. The labour market remained buoy-

ant. Severe flooding in May and June had no significant dampening effect on employment as

companies in the affected regions made greater use of short-time working. Coupled with recent

higher wage increases and moderate inflation in consumer prices, the improved situation on the

labour market boosted private consumption. Interest rates remained low, supporting the building

sector. Although the spell of unusually cold weather put the brakes on construction at the start of

the year, the impact is likely to have been reversed in spring when the economy came storming

back. Spending on plant and equipment as well as exports was, however, disappointing in the

first half. The uncertainty caused by the sovereign debt crisis continued to hold back capital

expenditure. And companies in Germany will not loosen the purse strings again until uncertainty

eases for good and earnings outlooks are more stable. The financing conditions for this remain

favourable. Falling demand for German exports from the crisis-hit countries in the eurozone was

not offset by growth in orders from the rest of the world. The temporary dip in the US economy

in October- March and the flattening out of economic momentum in China also played a major

role in this.

Although the European sovereign debt crisis eased once again in the first half of 2013, it is by

no means over. The risk of fresh financial market turmoil is no longer so acute as the European

Central Bank is ready to intervene on the government bond market (OMT programme). But the

countries in crisis still have a long hard road of structural adjustments ahead of them before they

bring public and private debt down to sustainable levels, stabilise their banking systems and

improve their competitiveness. The ECB’s assurances have bought national and EU politicians

time to implement reforms. But the pace of structural reform and budgetary spring cleaning has

slowed in some cases. And even the European Union has been pressured by the crisis-hit coun-

tries into extending the timeframe for the fiscal adjustment path. Not enough progress has been

made in creating a fiscal and banking union either. The uncertainty over the political stability of

Greece, Portugal and Italy is proof once again of the major risks on the path to achieving a stable

currency union.

Financial markets rallied in the first half of 2013. The highly expansionary policy of central banks

in the eurozone, US, UK and Japan has kept interest rates very low and resulted in major shifts in

portfolio assets (into equities and real estate). In May, the blue-chip DAX index hit a new all-time

high on the German stock exchange, though this was followed soon after by a short correction.

Altogether, Germany’s leading index gained 4.6 percent in the first half. Bond market yields had

trended to historic lows by the start of May. But a reversal set in in late spring, after the Federal

Reserve announced its exit from the current bond buyback programme. The euro-dollar exchange

rate moved sideways during the first half and was highly volatile at times. Based on weekly aver-

ages, at the end of June, the pair was trading at almost exactly the same rate as it was at the start

of the year.

Please refer to the Group management report and financial statements for 2012 for information

on BayernLB’s business model and strategy and also its organisation and structure.


›› 22


In the first half of 2013, earnings from the BayernLB Group’s core businesses were very satisfac-

tory. A high one-off effect in the non-core business inflated total profit before taxes. When com-

paring this year’s figure with the previous year’s, it should be noted that earnings for the first half

of 2012 were depressed by a one-off addition to pension provisions. Core business generated

profit before taxes of EUR 419 million (H1 2012: EUR 96 million). The deconsolidation gain of

EUR 351 million from the sale of the holding in GBW AG, Munich (GBW) was recognised in non-

core business. As a result, non-core business reported profits before taxes of EUR 300 million

(H1 2012: EUR 33 million). Total profit before taxes for the BayernLB Group therefore amounted

to EUR 719 million (H1 2012: EUR 129 million).

In addition to disposing of GBW, BayernLB completely sold its equity stake in Deutsche Lufthansa AG,

Cologne in the first half of 2013, thus fulfilling another condition of the European Commission’s

ruling. Two payments, one in February and one in May 2013, bring the total amount of state aid

repaid to the Free State of Bavaria to EUR 871 million as at 30 June 2013. The total amount that

has to be repaid under the EU’s ruling has thus fallen from around EUR 5 billion to approximately

EUR 4.1 billion.

Supervisory equity ratios improved again as a result of further winding down of risk positions in

the non-core business and the replenishment of silent partner contributions to their nominal

value reported in the 2012 annual financial statements. The core capital ratio as at 30 June 2013

was 14.7 percent (31 December 2012: 12.9 percent) and the own funds ratio 18.9 percent

(31 December 2012: 17.3 percent).

Income statement

The figures for the same period in 2012 include income from LBS Bayerische Landesbausparkasse

(LBS Bayern) which was sold on 31 December 2012. In the first half of 2012, LBS Bayern contri-

buted EUR 14 million to profit before taxes. The previous year’s figures were not adjusted.

Even without the EUR 93 million contribution to net interest income from LBS Bayern in H1 2012,

net interest income rose by 11.8 percent to EUR 955 million. A large share of the gain resulted

from a switch in Deutsche Kreditbank AG, Berlin (DKB)’s hedge accounting, but BayernLB also

increased earnings from interest rate hedges as a result of changes in market rates.

risk provisions in the credit business were EUR 134 million (H1 2012: EUR 204 million). These

largely related to DKB (EUR 68 million) and MKB Bank Zrt., Budapest (MKB) (EUR 94 million).

BayernLB saw a net release of provisions. Total risk provisions are significantly below target and,

going by previous trends, will increase in the second half of the year.

Commission income in the credit business remains behind the previous year due to the

targeted winding down of business. The increase in net commission income by EUR 3 million

to EUR 143 million is due to the sale of LBS Bayern, which weighed on net commission income

by EUR 13 million in the first half of 2012.


›› Group Interim Management report Overview · Financial position and financial performance 23

Gains or losses on fair value measurement (including gains or losses on hedge accounting) were

EUR 141 million altogether and therefore significantly below the EUR 284 million of the previous-

year period. But the previous year’s high figure was offset by negative items of nearly the same

amount in net interest income, gains or losses on financial investments and other income and

expenses. There was a total negative contribution of EUR – 38 million (H1 2012: EUR – 167 million)

from the measurement of and current income from cross-currency swaps and own credit spreads

in H1 2013. Besides the customer margin of EUR 84 million (H1 2012: EUR 89 million), a large

contribution to the positive overall result came from impairment reversals in the ABS portfolio of

EUR 67 million (H1 2012: EUR 92 million) and reversals of fair value adjustments of EUR 46 million

(H1 2012: EUR 85 million).

The sale of GBW produced a deconsolidation gain of EUR 351 million, which is recognised in

gains or losses on financial investments. Including income from interests in companies

measured at equity, gains and losses on financial investments were EUR 282 million (H1 2012:

EUR – 72 million) in the first half of 2013. The valuation of the Umbrella guarantee agreement led

to a negative item of EUR – 124 million (H1 2012: EUR – 118 million) which was offset to a degree

by EUR 67 million in gains or losses on fair value measurement. The aim of the umbrella is to off-

set losses and measurement changes in the ABS portfolio, whereby for measurement reasons,

earnings are reported in different periods and interdependencies with the gains or losses on fair

value measurement arise.

administrative expenses amounted to EUR 686 million which was 19.8 percent lower than the

year before. It should be noted here that EUR 133 million of additions to the pension provisions

needed to be made as a result of the ruling by the German Federal Employment Court on retire-

ment benefits in the first half of 2012. Adjusted for this and the sale of LBS Bayern, administrative

expenses were on par with the previous year.

Other income and expenses covers both the activities of the real estate subsidiaries and the

gains or losses from buying back own issues, and amounted to EUR 76 million in the first half of

2013 (H1 2012: EUR 47 million).

expenses for bank levies were EUR 52 million (H1 2012: EUR 53 million). Of this, EUR 46 million

related to MKB, EUR 3 million to DKB and EUR 3 million to BayernLB.

restructuring expenses at the BayernLB Group fell to EUR 7 million (H1 2012: EUR 15 million).

return on equity (roe)1 was 10.3 percent (H1 2012: 3.1 percent). The cost/income ratio (CIr)2

was 52.2 percent (H1 2012: 64.4 percent).

1 Profit before taxes excluding non-controlling interests, bank levy expenses and gains or losses on restructuring/

subscribed capital + compound instruments (equity component) + capital surplus and retained earnings. Up to and

including 2012, excludes the share of earnings and equity from BayernLabo which is a non-competitive business.

2 CIR = administrative expenses/net interest income + net commission income + gains or losses on fair value

measurement + gains or losses on hedge accounting + other income and expenses


›› 24

Balance sheet items

Total assets fell to EUR 265.8 billion as at 30 June 2013, a fall of 7.4 percent on the end of 2012.

The steepest declines were in assets and liabilities held for trading, which were each around

EUR 12 billion lower. This was due to changes in interest rates and portfolio optimisation through

the termination and closing out of redundant swap transactions.

Loans and advances to customers saw another drop of EUR 8.1 billion to EUR 142.5 billion. Loans

and advances to foreign customers decreased by 11.7 percent to EUR 32.4 billion, while loans and

advances to domestic customers contracted by 3.4 percent to EUR 110.1 billion.

The three major pillars of the BayernLB Group’s funding are: liabilities to customers, liabilities to

banks and securitised liabilities; liabilities to customers rose again by 2.8 percent to EUR 93.4 bil-

lion. As funding needs were lower on the whole, liabilities to banks fell by EUR – 6.2 billion to

EUR 64.3 billion, and securitised liabilities by EUR – 4.0 billion to EUR 56.3 billion.

Subordinated capital went down by EUR 1.2 billion to EUR 5.1 billion as instruments fell due.

equity rose slightly by EUR 0.5 billion to EUR 15.5 billion.

Please consult the risk report for further information on the financial position.

Banking supervisory capital and ratios

In the first half of 2013, risk positions pursuant to the Solvency Ordinance, consisting of credit

and market risk positions and operational risks, were wound down by a further 6.1 percent to

EUR 94.3 billion.

Several measures were implemented in the first half of 2013 in connection with the conditions of

the European Commission’s state aid ruling and to ensure that BayernLB’s capital meets the forth-

coming requirements under CRR/CRD IV for classification as core equity tier 1. On 1 January 2013,

for example, the contractual provisions relating to specific-purpose capital were amended in line

with CRR/CRD IV requirements. The restructured capital instrument has been reported as a capital

contribution since the start of the year.

At the level of BayernLB Holding AG, the Bavarian savings banks subscribed to a capital increase

of around EUR 832 million through the Association of Bavarian Savings Banks (SVB). This took

effect on 25 June 2013 when it was recorded in the Commercial Register. The SVB’s indirect

equity interest in BayernLB rose to around 25 percent as a result with the Free State of Bavaria’s

stake falling correspondingly to around 75 percent. Besides cash, the capital increase was funded

by a contribution in kind of all the perpetual silent partner contributions of the Bavarian savings

banks in the amount of EUR 797 million. The capital raised was transferred directly by BayernLB

Holding AG into BayernLB’s capital surplus.


›› Group Interim Management report Financial position and financial performance 25

Core capital under the Solvency Ordinance was EUR 13.8 billion (up EUR 0.8 billion from

31 December 2012). One factor in this increase was the replenishment of silent partner contri-

butions to their nominal value reported in the 2012 annual financial statements.

Partly as a result of the sharp drop in risk positions in the non-core business, capital ratios

improved further. The core capital ratio was a solid 14.7 percent (31 December 2012: 12.9 percent),

while the own funds ratio was 18.9 percent (31 December 2012: 17.3 percent).

The BayernLB Group’s stable capital base is also reflected in the EBA ratio. As at 30 June 2013, the

core tier 1 ratio (CET 1 ratio) as defined by the European Banking Authority (EBA) was 14.1 percent

(31 December 2012: 11.6 percent). Besides the fall in risk positions, the increase is due to a capi-

tal increase by the Bavarian savings banks of around EUR 832 million, as the silent partner contri-

butions of the savings banks used for the capital increase are not included in the calculation of

the CET 1 ratio.

The BayernLB Group’s financial position and financial performance is sound.


›› 26

Segments

Core and non-core business of the BayernLB Group

As part of the strategic realignment and focusing of the business model, BayernLB defined its

businesses as either core or non-core in 2009. Non-core activities were rigorously scaled back to

free up liquidity and capital while keeping losses to a minimum. Based on the European Commis-

sion’s state aid ruling of 25 July 2012, the core business focused even more closely on business

activities with a connection to Germany. As a result further selected portfolios with non-core

character were transferred to the Restructuring Unit on 1 January 2013.

In response to these actions, BayernLB restructured its segments as at 1 January 2013. The core

business was segregated from all business activities that are to be discontinued or sold off in the

realignment of the Bank. The core business now consists of five segments: Corporates & Mittel-

stand, Real Estate & Savings Banks/Association, Deutsche Kreditbank sub-group, Markets and

Central Areas & Others. All non-core activities are being transferred to the new Non-Core Unit

segment. Besides the Restructuring Unit and the remaining non-core activities, this contains the

subsidiaries MKB Bank Zrt., Budapest (MKB) and Banque LBLux S.A., Luxembourg (LBLux).

The forward-looking core business performed very well in the first half of financial year 2013.

The sale of GBW boosted the performance of the Non-Core Unit, which reported a profit. Risk

positions in the non-core business were wound down by 14 percent in the first half of 2013.

1 Jan – 30 Jun 2013

Core business

(incl.

consolidation)

(eUr million) Percent

non-core

business

(incl.

consolidation)

(eUr million)

Total revenues 978 61.5 613

Risk provisions – 65 48.7 – 69

Administrative expenses – 488 71.1 – 198

Expenses for bank levies – 5 10.7 – 46

Profit before taxes 419 58.3 300

Risk positions 70,380 74.6 23,918

Segments

The segment report is based on the monthly internal management report to the Board of

Management and reflects the BayernLB Group’s six segments. The operating segments as from

1 January 2013 are Corporates & Mittelstand, Real Estate & Savings Banks/Association, Deutsche

Kreditbank sub-group and Markets. These incorporate BayernLB’s business areas, the legally

dependent institution Bayerische Landesbodenkreditanstalt (BayernLabo) and the subsidiaries

assigned to them. In addition, two other segments: Central Areas & Others and the Non-Core Unit

are also reported. Starting from 2013, the operating segments and the Central Areas & Others

segment only include core business activities; all non-core activities of these segments are reported

in the results for the Non-Core Unit.


›› Group Interim Management report Financial position and financial performance · Segments 27

The contributions of each segment to the BayernLB Group’s profit before taxes of EUR 719 million

(H1 2012: EUR 129 million) are shown below:

EUR million

1 Jan –

30 Jun 2013

1 Jan –

30 Jun 2012

Corporates & Mittelstand 130 78

Real Estate & Savings Banks/Association 102 67

Deutsche Kreditbank sub-group 80 187

Markets 50 – 216

Central Areas & Others 180 204

Non-Core Unit 306 12

Consolidation – 129 – 202

Corporates & Mittelstand segment

• Stable net interest income despite challenging conditions

• Good asset quality and solid risk management reflected in significantly lower risk provisions

Profit before taxes for the segment amounted to EUR 130 million in the first half (H1 2012:

EUR 78 million), an increase on the year before period. Net interest income from customer

business was stable at the previous year’s level despite low interest rates throughout the period,

high liquidity on the customer side, a subdued investment climate and a cutback in foreign busi-

ness required under the EU ruling. The slight decrease in commission business was more than

offset by lower administrative expenses (which were inflated last year by higher pension

provisions) of EUR – 120 million (H1 2012: EUR – 152 million) and lower risk provisions of

EUR – 11 million (H1 2012: EUR – 53 million) which were reduced by releases. Despite the reluc-

tance of companies to invest in expanding activities with a corresponding moderate demand for

credit, the business performed well, confirming it was the right strategy to focus on the Bank’s

role as a corporate lender to large German and Mittelstand companies as well as international

companies with a connection to Germany.

real estate & Savings Banks/association segment

• Higher earnings despite sale of LBS Bayern at the end of 2012

• Fall in administrative expenses reflects last year’s higher pension provisions and a net gain

from risk provisions

Profit before taxes was up 52 percent from H1 2012. Most of the EUR 103 million fall in net inter-

est income to EUR 121 million is due to the loss of earnings from LBS Bayern after its sale at the

end of 2012. Administrative expenses, which were inflated in all divisions due to the one-off

higher pension provisions in the year before period, dropped to EUR – 97 million (H1 2012:

EUR – 188 million). Profit before taxes was also lifted by a significant fall in and large releases of

risk provisions in the credit business.


›› 28

The customer business in the Real Estate division was again buoyant in the period under review.

Despite the withdrawal from foreign business with no connection to Germany, net interest

income and net commission income rose thanks to higher margin new business. While there was

a pleasing increase in total revenues, the jump in profit before taxes to EUR 56 million (H1 2012:

EUR 21 million) was largely due to a fall in administrative expenses and a turnaround in risk

provisions to a positive EUR 6 million (H1 2012: EUR – 9 million), driven by releases.

Total revenues in the Savings Banks & Association division fell, however, despite the productive

and close collaboration with the savings banks and the public sector. This was primarily due to

fewer sales of BayernLB’s own issues thanks to the Bank’s good liquidity at the moment. Despite

this, earnings rose to EUR 7 million (H1 2012: EUR 4 million), with a major contribution coming

from the decrease in administrative expenses.

Low interest rates and lower volumes weighed on BayernLabo’s total revenues. However, this

was offset by a significant rise in gains or losses on fair value measurement from interest rate

hedges and a fall in administrative expenses. Profit before taxes rose to EUR 35 million (H1 2012:

EUR 22 million) as a result.

Deutsche Kreditbank sub-group segment

• Persistent low interest rates weigh on earnings

• Risk provisions virtually unchanged on the previous year

• Customer deposits rise to EUR 42 billion

DKB’s business performed well in all customer groups. In the reporting period the credit business

grew by EUR 0.7 billion to EUR 55.9 billion despite customers taking advantage of low interest

rates to repay loans early or make large repayments and intense competition for customers

with good credit ratings. Customer deposits, which are an important source of funding, grew by

5.8 percent to EUR 42 billion. In addition to DKB’s success in positioning itself as “Your bank on

the web” reflected in its 2.7 million retail customers, there were also higher inflows of customers’

funds into the infrastructure and corporate customers segments. Nonetheless, profit before taxes

fell to EUR 80 million (H1 2012: EUR 187 million). Besides the one-off income in 2012 from the

sale of DKB Immo and fair value measurement, this was primarily due to the low interest rate

environment. When comparing net interest income with the previous year, it should be noted

that a change was made in the disclosure of interest rate hedges. Administrative expenses and

risk provisions were essentially unchanged on the previous year. Given current economic condi-

tions, DKB’s business has performed well overall.


›› Group Interim Management report Segments 29

Markets segment

• Significant increase in earnings, largely due to optimised net interest income and the dissolu-

tion of the valuation reserve for bid-ask spreads

• Good customer business

In the first half of 2013, the Markets segment earned profit before taxes of EUR 50 million

(H1 2012: EUR – 216 million), a significant year-on-year increase. The strong swing in earnings is

largely due to the gains or losses on fair value item. The negative figure in the year before was

mainly due to cross-currency swaps, own credit spreads and securities held in the strategic liquid-

ity reserve used to manage risks at BayernLB - Bank level. The optimisation of net interest income

by Asset Liability Management and the dissolution of the valuation reserve for bid-ask spreads

also contributed to the postive results. The fall in administrative expenses is due to the one-time

addition to the pension provisions in the previous year. Earnings from customers in the Corpo-

rates & Mittelstand and Real Estate segments were healthy and partly offset the weaker business

with savings banks and banks. Unexpected repayments of loans to banks also contributed to the

net gain from risk provisions.

Central areas & Others segment

This segment includes the central areas and business transactions executed in the overall inter-

ests of the Bank or Group and therefore not allocated to the business segments. Profit before

taxes in the first half of 2013 was a solid EUR 180 million (H1 2012: EUR 204 million).

non-Core Unit segment

• Earnings boosted by sale of GBW

• Measurement of umbrella guarantee agreement weighs on Restructuring Unit’s results

• MKB’s profits hit once again by the tough economic and political environment – focus on

repositioning and optimising costs

• Satisfactory earnings contribution from LBLux

Since the beginning of 2013, all non-core activities have been pooled in the segment. The sizeable

profit before taxes of EUR 306 million (H1 2012: EUR 12 million) was largely due to one-off

income from the sale of GBW, which easily offset the decreased earnings in the Restructuring

Unit and also losses at MKB.


›› 30

All domestic and foreign portfolios to be wound down as a result of the EU state aid proceedings

in the Real Estate, Corporates, Structured Finance and Public Sector divisions have now also been

transferred to the Restructuring Unit since the start of the year. The volume of all portfolios

including the non-core securities holdings fell by a total of EUR 5.4 billion over the reporting

period due to scheduled and early repayments, sales and restructuring. Profit before taxes of

EUR 27 million (H1 2012: EUR 61 million) was significantly below the year before period largely

due to a sharp fall in net interest and net commission income caused by the reduction in credit

volumes, and also a negative measurement result on the ABS portfolio hedge (Umbrella measure-

ment). Contributing to earnings were lower administrative expenses (due to the one-off effect on

pension provisions in the previous year), the net gain in risk provisioning and one-off income

from a sale of equity investments.

MKB once again reported a large loss before taxes of EUR – 108 million in the first half (H1 2012:

EUR – 66 million). The continuing losses are largely attributable to the ongoing difficult economic

and political environment in Hungary. In addition to a EUR 46 million expense for Hungary’s bank

levy, the introduction of a financial transaction tax in 2013 also weighed on earnings in the

amount of EUR 26 million. Also weighing on operating earnings were the country’s spluttering

economic recovery and a subdued climate for consumption and capital expenditure. However,

net interest income and net commission income rose slightly on the previous year period due to

one-off income from the payments business. Gains or losses on fair value measurement fell by

EUR 26 million due to mark to market losses on government and central bank bonds in the wake

of a sharp fall in the key interest rate and on FX swaps. Furthermore, the continued tough situa-

tion on the Hungarian real estate market means that additional high writedowns on the commer-

cial and private real estate portfolios had to be taken, resulting in an EUR 25 million addition to

risk provisions. Administrative expenses were, however, cut by a sizeable EUR 9 million thanks to

the systematic restructuring of MKB.

Although customer business in corporate banking and private banking remains subdued, LBLux

reported profit before taxes of EUR 18 million (H1 2012: EUR 19 million) thereby making a solid

contribution to the segment’s performance.

Since the start of the year, the non-core activities of DKB, additional non-core investments not

assigned to the divisions referred to above and business transactions in non-core business exe-

cuted in the overall interests of the Bank or Group are shown in the non-organisational Other

NCU division. Profit before taxes in the reporting period was EUR 362 million (H1 2012:

EUR 19 million), primarily due to the proceeds from the sale of GBW.


›› Group Interim Management report Segments 31


In December 2012 Hypo Alpe-Adria-Bank International AG, Klagenfurt, the respondent,

announced that until further notice it would make no more payments of principal and interest

on loans it has been granted as it is of the opinion that these loans granted after 2008 must be

classified as substitute equity instead. On 4 July 2013, in the legal dispute between Bayerische

Landesbank and the respondent to determine if an obligation to repay the loan exists, Munich

District Court I issued a preliminary opinion that the clause in the loan agreement defining the

place of jurisdiction as Munich was valid. Based on the respondent’s own submission, the court

has concluded that the respondent must argue and provide proof that the “capital replacement

provisions” apply and is of the opinion that the report submitted in evidence of this, which con-

tains only anonymised information, fails to do so. It is also doubtful whether the method selected

by an outside expert is suitable for determining the status of the respondent’s capital in the rele-

vant period of time.

The European Commission’s ruling called for certain changes to be made in respect of corporate

governance. In the constituent meeting of 4 July 2013, the former Board of Administration of

BayernLB was reconfigured into the Supervisory Board. The new board no longer includes any

politicians from the Bavarian government as ex officio board members.

On 15 August 2013, MKB signed a sales agreement to fully dispose of its Bulgarian subsidiary

MKB Unionbank. The sales agreement must be approved by the Bulgarian central bank and the

Bulgarian anti-trust authority before it can take effect. The process could take several months.

The transaction is expected to result in a deconsolidation loss in the middle double-digit millions

of euros range.


›› 32

Outlook

In the second half of 2013, the German economy should generally continue to expand. The

gradual shift from foreign trade to the domestic economy as drivers of activity is likely to con-

tinue. So private consumption should give the economy an additional leg up, and the very low

cost of borrowing will encourage businesses to expand. Foreign trade will probably provide only

limited stimulus as momentum in key emerging markets has started to flag.

The main assumption is that the eurozone debt crisis will not escalate again and seriously rattle

financial markets. Persistently high risk aversion is keeping interest rates very low. But Bund

yields should tend to tick upwards. Subdued corporate earnings mean that the stock market has

limited upside potential. The Federal Reserve’s announcement of an exit from the bond buyback

programme should nudge the euro south initially.

In “year one” following the EU ruling, BayernLB’s strategic focus as a corporate and real estate

lender and partner to the savings banks has paid off once again with good results reported in all

core businesses in the first two quarters of 2013. However, in its ruling in 2012, the European

Commission has placed a number of ambitious conditions on the Bank that will constrain its free-

dom of action over the coming years. For example, the Bank must shrink to around half of its size

at the end of 2008 and repay around EUR 5 billion in capital to the Free State of Bavaria by 2019.

Given the increasingly restrictive regulatory environment and consequent increase in capital

requirements, these capital repayments will be the biggest challenge in the next several years.

BayernLB has already made good progress this year in meeting the EU conditions. This was and

will continue to be regularly checked in detail by an independent monitoring trustee (audit

firm RBS RoeverBroennerSusat) on behalf of the Commission. The Bank is still resizing and it will

continue to drive this process forward. To further downsize the investment portfolio by a large

amount, the sale of MKB and LBLux is a key item on the agenda under the EU ruling. In the

medium term BayernLB will continue to hold equity stakes that for the duration will underpin its

business model as a corporate and real estate lender and partner to the savings banks focused on

the domestic market of Germany.

Besides implementing the EU’s conditions, the Bank, as a systemically important institution in

Germany, still faces the challenge of complying with the burgeoning volume of regulations,

particularly CRR/CRD IV, which comes into effect on 1 January 2014, and implementing the

Minimum Requirements for Recovery Plans for Financial Institutions (MaSan).

The BayernLB Group expects full-year 2013 earnings to be positive. However, it is faced with

contingencies, particularly as the economic and political environment in eastern Europe remains

challenging. Developments in Hungary are of key importance for BayernLB. The country’s govern-

ment is toying with the idea of fresh political intervention on foreign currency loans which could

severely test the business of banks operating there. MKB, which is still being restructured from

the ground up, may then take another knock.

BayernLB’s funding situation is still very good. There is a significant surplus of liabilities in the

banking book available for future lending. Corporate deposits went up in the first half of 2013.

Funding needs for the whole of 2013 have largely been covered.

The statements made in this outlook section should be read in conjunction with the outlook

given in the 2012 annual report. Changes in the general economic situation may have a

corresponding impact on the BayernLB Group.


›› Group Interim Management report Events after the end of the reporting period · Outlook 33

Risk report

The information provided in the risk report of the Group interim report relates mainly to the

changes in the first half of 2013. The risk report in the 2012 Group management report gives a

detailed description both of the principles, methods, procedures and organisational structures of

the risk management used within the BayernLB Group and of the internal control and risk man-

agement system for ensuring the accounts have been properly prepared and are reliable.

Rounding differences may occur in the tables in the last digit to the right.

Key developments in the first half of 2013 and outlook

• Risk profile remained stable

• Core business expanded in line with strategy

• Progress in winding down non-core business

• Risk-bearing capacity maintained at all times

• Increase in market risk predominantly due to accounting policies

• Comfortable levels of liquidity

The BayernLB Group’s risk profile was stable overall in the first half of 2013.

The business model of the Group as a corporate and real estate lender and partner to the savings

banks with a regional focus on Bavaria and Germany is increasingly reflected in the portfolio

structure.

The standards set in the strategy were adhered to and significant progress made in building up

core and winding down non-core businesses.

The gross credit volume fell by a total of EUR 11.5 billion to EUR 289.9 billion as a result.

The share of the portfolio in Germany, the core market of BayernLB and Deutsche Kreditbank AG,

rose once again to 74 percent overall.

The foreign portfolio experienced a sharp fall. Gross credit volumes fell significantly, particularly

in western Europe (the United Kingdom, France and the GIIPS countries: Greece, Italy, Ireland,

Portugal and Spain).

The largest winding down by volume was in the Financial Institutions sub-portfolio (incl. ABSs).

In the Corporate Customers sub-portfolio, the winding down was centred on foreign business,

while in the Commercial Real Estate sub-portfolio, it was mainly exposures with low credit ratings

that were run down.

Portfolio quality was boosted by new business in core business areas, favourable business and

economic conditions in Germany and the reduction in volumes.

The investment grade share rose back up to 76.4 percent, while the non-performing ratio fell

to 3.2 percent compared with the 3.4 percent as at 31 December 2012. Risk provisions were

markedly lower in the first half of 2013 compared with the same period of the previous year.


›› 34

Risk-bearing capacity was maintained throughout the first half of 2013 as the provision of risk

capital was solid. The increase in risk capital requirements due to adjustments in methodology

for market risk did not impair risk-bearing capacity at any time. The BayernLB Group continued

to enjoy comfortable levels of liquidity.

The previous forecasts for risk trends therefore remain unchanged overall.

As before, factors which could affect the accuracy of the forecasts presented in the 2012 consoli-

dated financial statements include the difficult economic and political situation in Hungary, which

is the domestic market of subsidiary MKB, and the ongoing crisis affecting some financially

weaker EMU countries.

risk-bearing capacity

Risk-bearing capacity is monitored using the Internal Capital Adequacy Assessment Process

(ICAAP) at BayernLB level, the subsidiaries DKB, MKB and LBLux, and at Group level. The ICAAP

assesses whether the available risk cover funds fully cover the risks taken on or planned.

The method for calculating risk-bearing capacity is assessed and refined on a regular basis to

ensure it takes adequate account of external factors and internal strategic goals. BayernLB’s

ICAAP approach is designed to protect senior creditors in case of liquidation. This is computed

using internal target standards for the precision of risk measurement. This corresponds to a

confidence level of 99.95 percent and a rating score of A2 on Moody’s rating scale.

risk capital requirements

EUR million 30 Jun 2013 31 Dec 2012

risk capital requirements

• credit risk and country risk (counterparty risk)

• credit risk (specific interest rate risk)

• market risk*

• operational risk

• investment risk

5,331

2,639

1,990

533

169

4,717

2,776

493

493

664

291

* As from 30 April 2013 this includes specific interest rate risk.

The increase in market risk is largely due to the adjustments in methodology that were imple-

mented on 30 April 2013. To harmonise the holding period assumptions for market risk positions

with the risk observation horizons of the other risk types in the risk-bearing capacity, they were

set at a uniform 250 days Group-wide. This has resulted in much more conservative assumptions

of market risk in risk-bearing capacity. In this context and taking account of correlation effects,

general market risks and specific interest rate risks, which had been reported separately, were

merged into the single risk type “market risk”.

As a result of the adjustments in methodology, most of the increase in risk capital requirements

was due to market risk and specific interest rate risks. To a lesser extent, the rise was due to

higher interest rate volatility over the observation period.


›› Group Interim Management report Risk report 35

The BayernLB Group holds sufficient available economic capital (EUR 17.2 billion) to cover risk

capital requirements. The BayernLB Group had adequate risk-bearing capacity in the first half of

the year.

The possibility of a severe economic downturn (ICAAP stress scenario) arising is calculated in a

stress scenario. The risk capital requirement for the individual risk types in this case totals

EUR 11.1 billion. The BayernLB Group is adequately capitalised also for this scenario.

Management of the individual risk types in the Group

Credit risk

In accordance with its business model as a corporates and real estate lender and partner to the

savings banks with a regional focus on Bavaria and Germany, the largest risk for the BayernLB

Group in terms of amount is credit risk.

At the end of the first half of 2013, no significant changes had been made in the instruments and

methods for measuring, managing and monitoring credit risks as described in the risk report in

the 2012 consolidated financial statements.

Noteworthy upgrades were made in the internal rating procedures approved by supervisory

authorities, particularly the rating module for banks and corporate customers. In partnership

with RSU Rating Service Unit GmbH & Co. KG, bank default forecasts were further improved by

including additional market factors, while the balance-sheet rating and market data-based

models of the corporate customer rating module were redesigned. Further information on the

overall internal rating procedures is published in the 2012 disclosure report.

The following account uses both the management approach, which is based on the figures used

for internal reporting, and the balance sheet approach, which is based on balance sheet figures

and focuses on the value of the assets shown in the statement of financial position.

For the purposes of internal risk management and risk reporting to the Board of Management

and the risk committee of the Supervisory Board, credit volume is defined differently in certain

respects to how it is defined for balance sheet purposes (e.g. only irrevocable credit commit-

ments are included). Similarly, the materiality thresholds for including subsidiaries in the MaRisk

risk inventory for internal risk management may differ from those used to determine the scope

of consolidation. The figures under the management approach may therefore differ from those

under the balance sheet approach.


›› 36

Portfolio overview in accordance with IFrS 7.34 (a) (Management approach)

Gross credit volume by unit

30 Jun 2013 Total: EUR 289,933 million

31 Dec 2012 Total: EUR 301,439 million

Gross credit risk includes the gross volume of credit transactions (drawdowns plus unutilised

commitments) and the risk-weighted amounts of trading transactions (market values and the

credit equivalent amount from derivatives transactions).

Compared to the end of 2012, the BayernLB Group’s gross credit risk was cut by EUR 11.5 billion

or 3.8 percent to EUR 289.9 billion in line with the winddown strategy.

The bulk (EUR 10.6 billion or 5.0 percent) of this strategy-driven cut in volumes took place at

BayernLB. Credit volumes also fell in line with targets at subsidiaries LBLux (EUR 537 million or

11.2 percent) and MKB (EUR 610 million or 6.1 percent).

In line with business strategy, DKB’s credit portfolio posted further, albeit more modest, growth

of EUR 193 million or 0.3 percent, mainly in the corporate customers segment.

Credit volume in the BayernLB Group is broken down in the following by sub-portfolio, rating

class, region and size.

Gross and net credit volume by sub-portfolio

EUR million

Gross net

30 Jun

2013

31 Dec

2012

Change

(in %)

30 Jun

2013

31 Dec

2012

Change

(in %)

Financial Institutions incl. ABS 76,192 81,511 – 6.5 66,154 69,519 – 4.8

Corporate Customers 74,741 77,416 – 3.5 51,743 53,131 – 2.6

Countries/Public-Sector/

Non-Profit Institutions 57,181 58,059 – 1.5 54,430 48,269 12.8

Commercial Real Estate 47,149 49,207 – 4.2 10,058 9,985 0.7

Other

• of which retail customers

34,670

34,464

35,246

34,884

– 1.6

– 1.2

14,955

14,915

12,346

12,169

21.1

22.6

Total 289,933 301,439 – 3.8 197,340 193,249 2.1



BayernLB DKB MKB LBLux

EUR million

250,000

200,000

150,000

100,000

50,000

0

20

1,9

93

74

,27

4

9,4

01

4,2

64

21

2,5

46

74

,08

1

10

,01

1

4,8

01

Net credit risk is calculated by deducting the value of collateral, outplaced business and risk-free

transactions (transactions for account of a third party). The following analyses relate to gross

credit risk.

Financial Institutions sub-portfolio

Reductions in the BayernLB Group were concentrated in the Financial Institutions sub-portfolio,

which was cut by EUR 5.3 billion or 6.5 percent.

The credit volume with banks/savings banks fell in Germany, North America and the United

Kingdom in particular. The ABS portfolio continued to shrink (by more than 10 percent), largely

due to ongoing repayments. The volume in the insurance sector was, however, stable.

Germany’s share rose slightly from 64.8 to 65.3 percent, while the investment grade share

climbed from 86.6 to 87.7 percent.

Corporate Customers sub-portfolio

The credit volume of the second-largest sub-portfolio, Corporate Customers, was cut by a total

of EUR 2.7 billion or 3.5 percent in the first half of 2013. In line with strategy the focus of the

winding down was on the credit volumes abroad. The regional focuses were the United Kingdom,

North America and France.

Germany’s share was increased through new business acquisitions and was 65.8 percent on

30 June 2013. The investment grade share rose to 63.4 percent.

The largest sectors within the Corporate Customers sub-portfolio

30 Jun 2013 Total: (Top 11) EUR 69,403 million

31 Dec 2012 Total: (Top 11) EUR 71,550 million

Utilities Consumer goods,

wholesale & retail

Aerospace, hotels & tourism

Logistics Automotive Pharma-ceuticals & healthcare

Technology Gas & oil Construction Basic resources

Manufacturing & engineering

EUR million

25,000

20,000

15,000

10,000

5,000

0

20

,55

3

7,0

91

6,3

20

5,9

50

5,7

17

5,3

93

4,9

14

3,9

11

3,7

96

2,8

86

2,8

73

20

,66

1

7,4

13

6,4

15

6,5

96

6,1

95

5,1

54

4,8

87

4,3

33

3,9

04

3,2

35

2,7

58


›› 38

Among the sectors, the main increases in credit volume took place in the core pharmaceuticals

and healthcare and manufacturing & engineering sectors. Most new business in these sectors

was acquired in Germany, increasing the country’s share further to 89.8 and 87.1 percent

respectively.

The largest reduction in volume took place in the logistics and automotive sectors.

Country/Public-Sector/Non-Profit Institutions sub-portfolio

In the Country/Public-Sector/Non-Profit Institutions sub-portfolio, the third-largest sub-portfolio,

credit volumes were reduced by EUR 878 million or 1.5 percent. Most of the fall resulted from

redemptions by German states and in Spain and Hungary.

Germany’s share of this sub-portfolio remained high at 79.7 percent.

Commercial Real Estate sub-portfolio

The fall in the gross credit volume in the Commercial Real Estate sub-portfolio totalling

EUR 2.1 billion or 4.2 percent took place in all Group units.

Most of this related to non-core business in BayernLB’s Restructuring Unit. Credit volumes at MKB

and LBLux were run down by a total of EUR 356 million in line with strategy.

New business was mainly acquired in Germany. Germany’s share of the sub-portfolio rose from

76.1 to 78.1 percent.

Portfolio quality was improved through a significant ratings upgrade and targeted volume reduc-

tions in the non-investment grade and non-performing areas. This was clearly evident in the

increase in the investment grade share from 65.4 to 69.8 percent and the lower non-performing

ratio.

Retail Customers/Other sub-portfolio

The slight fall in gross credit volume in the Retail Customers/Other sub-portfolio of EUR 576 million

or 1.6 percent is due to the contraction in BayernLB’s retail customer business and repayment of

retail residential construction loans at DKB.



Gross credit volume by rating class and sub-portfolio



30 Jun 2013 EUR million MR 0 – 7 MR 8 – 11 MR 12 – 14 MR 15 – 18 MR 19 – 21 MR 22 – 24 Total

Financial institutions incl.

ABS/Country/Public-Sector 114,208 7,022 6,295 1,585 965 3,298 133,373

Corporate Customers 15,343 32,056 15,821 7,904 1,523 2,094 74,741

Commercial Real Estate 15,498 17,406 5,871 4,373 1,441 2,561 47,149

Retail Customers/Other 8,181 11,879 10,261 1,672 1,225 1,451 34,670

Total 153,229 68,362 38,248 15,536 5,155 9,404 289,933

31 Dec 2013 EUR million MR 0 – 7 MR 8 – 11 MR 12 – 14 MR 15 – 18 MR 19 – 21 MR 22 – 24 Total

Financial institutions incl.

ABS/Country/Public-Sector 116,656 8,966 8,045 1,463 1,086 3,354 139,571

Corporate Customers 15,229 33,043 16,666 8,615 1,458 2,405 77,416

Commercial Real Estate 15,131 17,034 7,464 5,101 1,561 2,917 49,207

Retail Customers/Other 7,808 12,610 10,715 1,492 1,188 1,433 35,246

Total 154,823 71,653 42,889 16,671 5,293 10,110 301,439

The investment grade share rose overall from 75.1 percent to 76.4 percent. This reflects the

success of the winding down strategy, which is focused on customers with no connection to

Germany and those with weaker credit ratings.

The non-performing ratio fell from 3.4 percent as at 31 December 2012 to 3.2 percent. The gross

volume of non-performing loans fell by EUR 706 million or 7 percent. Adequate risk provisions

were set aside to cover loans added to the default categories.

MR 0 – 7 MR 8 – 11 MR 12 – 14 MR 15 – 18 MR 19 – 21 MR 22 – 24

Default categoriesInvestment grade Non-investment grade

EUR million

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0

15

4,8

23

71

,65

3

42

,88

9

16

,67

1

5,2

93

10

,11

0

15

3,2

29

68

,36

2

38

,24

8

15

,53

6

5,1

55

9,4

04


›› 40

Credit volumes dropped across all rating categories, with the largest fall occurring in rating cate-

gories MR 12-14 particularly in the Financial Institutions (incl. ABS/Country/Public-Sector) and

Commercial Real Estate sub-portfolios. The sharp fall in this rating category in the Financial Insti-

tutions incl. ABS/Country/Public-Sector segment is due mainly to the targeted volume reduction

in credit volumes in Hungary and western Europe. The fall in Commercial Real Estate was due

largely to a shift of part of the Commercial Real Estate portfolio to investment grade and targeted

volume reductions.

Gross credit volume by region



In the reporting period the credit volume fell in all regions, with the decline outside Germany

(7.8 percent to EUR 76.3 billion) once again more pronounced than the fall in Germany

(2.3 percent to EUR 213.6 billion, primarily in the Financial Institutions sub-portfolio), in line

with strategy. Germany’s share of the whole portfolio rose from 72.5 to 73.7 percent.

Foreign volumes decreased the most in the Western Europe region, particularly the UK. There

was a slight increase with respect to supranational organisations.

In Eastern Europe/CIS, the fourth largest region, Hungary, MKB’s home country, is the largest

single country with a gross credit volume of EUR 8 billion. This fell by EUR 650 million in the first

half of 2013.

As Hungary continues to experience economic difficulties, it remains hard to predict the future

outlook for portfolio quality there.

In the Middle East, Egypt’s credit volume of EUR 112 million has been declining since the start of

the year and will still be closely monitored in view of the political unrest there.

Germany Western Europe

North America

Suprana-tional orgs

Middle East/Africa

Eastern Europe/CIS

Asia/ Australia/Oceania

Latin America/Caribbean

EUR million

250,000

200,000

150,000

100,000

50,000

0

21

3,5

99

37

,33

0

15

,66

5

2,5

92

2,6

42

15

,01

6

2,3

85

70

3

21

8,6

79

41

,28

4

16

,80

2

2,2

31

2,8

41

16

,08

5

2,5

62

95

7



Gross credit volume in selected eMU countries



In the first half of 2013, gross credit volume in the GIIPS countries, which have been heavily

affected by the sovereign debt crisis, fell by a further 7.3 percent to around EUR 7.0 billion. The

gross credit volume by sub-portfolio breaks down as follows:

Gross credit volume in selected eMU countries and by sub-portfolio

EUR million

Spain Italy Portugal Ireland Greece GIIPS total

Jun 13 Dec 12 Jun 13 Dec 12 Jun 13 Dec 12 Jun 13 Dec 12 Jun 13 Dec 12 Jun 13 Dec 12

Country/ Public Sector 209 326 462 463 – – 0 – 0 0 671 789

Banks/Savings Banks/Insurance Companies 1,077 905 553 845 39 39 28 38 4 4 1,701 1,830

Corporate Customers/ Real Estate/ABS/Other 2,239 2,479 1,543 1,588 360 364 332 342 127 132 4,602 4,905

Total 3,526 3,709 2,558 2,897 399 403 360 380 132 136 6,974 7,524

Although financial markets have been calmed somewhat by the ECB’s announcement that it

would make unlimited purchases of GIIPS bonds if necessary, it is still too early to call a definite

end to the crisis. The only success so far has been a noticeable improvement in these countries’

current accounts. Public debt and unemployment continue to rise, and there are only the first

tentative signs at best of the economic recovery expected in 2014. No significant improvement in

portfolio quality is therefore expected in these countries in the short term.

Since the end of 2012, new impairments have been very low.

BayernLB is unaffected by the crisis in the Cypriot banking sector. The credit volume of the

BayernLB Group in Cyprus is a relatively low EUR 45 million (31 December 2012: EUR 49 million),

with 95.6 percent of this in the Corporate Customers sub-portfolio.

EUR million

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

3,5

26

2,5

58

39

9

36

0

13

2

3,7

09

2,8

97

40

3

38

0

13

6

Spain Italy Portugal Ireland Greece


›› 42

net credit volume by size



Net credit volumes of customers with a net exposure of more than EUR 2.5 billion declined by a

total of EUR 1.5 billion. There are only a few exposures that still have a net credit volume of more

than EUR 2.5 billion. These are exclusively loans and advances to landesbanks, which are covered

almost completely by a guarantee obligation (Gewährträgerhaftung), and the Free State of

Bavaria.

The slight increase in customers with a net credit volume of between EUR 500 million and

EUR 1 billion was largely due to the customer relationship with the US Federal Reserve Bank

which is used for liquidity management purposes.

The net credit volume with customers below EUR 5 million rose by EUR 6.1 billion to

EUR 28.4 billion. The increase was mainly due to a conservative collateral netting method used

within the BayernLB Group. Overall the share of net credit volume below EUR 5 million in the

total volume rose from 11.5 to 14.4 percent.

Portfolio overview in accordance with IFrS 7.36 (a) (Balance Sheet approach)

Based on data from the IFRS consolidated financial statements, the table below shows the BayernLB

Group’s maximum credit risk under IFRS 7.36 (a) in conjunction with IFRS 7.B9. The gross carrying

amounts are reduced by the offsetting amounts calculated in accordance with IAS 32 and impair-

ment losses calculated in accordance with IAS 39. Credit risks included under “Non-current assets

or disposal groups classified as held for sale” are allocated to the relevant positions in the follow-

ing tables (for individual amounts see the details in note 26).

EUR million

50,000

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

22

,30

8

28

,44

5

39

,91

1

43

,23

5

21

,66

9

20

,82

7

34

,32

7

33

,10

1

26

,62

7

23

,86

6

18

,01

2

18

,74

2

16

,10

6

16

,28

3

14

,29

01

2,8

40

Up to EUR 5 m

EUR 5 m to EUR 50 m

EUR 50 m to EUR 100 m



EUR 500 m to EUR 1 bn

EUR 1 bn to EUR 2.5 bn

Over EUR 2.5 bn



Volume > EUR 500 million Volume EUR 50 to 500 million Volume < EUR 50 million

Maximum credit risk


Cash reserves

• Loans and receivables

• Available for sale

3,672

2,787

885

2,625

1,477

1,148

Loans and advances to banks


• Fair value option

45,143

45,124

19

43,916

43,894

22

Loans and advances to customers




141,307

140,533

30

743

148,701

147,881

33

787

assets held for trading*

• Held for trading

29,981

29,981

41,935

41,935

Positive fair values from derivative financial instruments

• Held for trading

3,400

3,400

4,162

4,162

Financial investments*




37,554

19,960

1,179

16,415

37,821

19,217

1,369

17,235

Contingent liabilities 12,547 12,727

Irrevocable credit commitments 21,575 22,102

Total 295,178 313,988

* Excluding equity instruments.

The maximum credit risk was reduced further in the first half of 2013, in line with the business

and risk strategy.


›› 44

Financial assets that are neither past due nor impaired

30 Jun 2013

in %

Maximum credit risk

rating categories

0-7 8-11 12-17 18-21Default

categories Unrated Total

Cash reserves 0.9 0.0 0.3 0.0 – 0.0 1.2 • Loans and receivables 0.9 0.0 0.0 0.0 – 0.0 0.9 • Available for sale – – 0.3 – – 0.0 0.3

Loans and advances to banks 12.2 1.9 0.9 0.0 0.0 0.1 15.2 • Loans and receivables 12.2 1.9 0.9 0.0 0.0 0.1 15.2 • Available for sale • Fair value option

– 0.0

– –

– –

– –

– –

––

– 0.0

Loans and advances to customers 18.5 13.7 9.5 1.9 0.1 2.5 46.1 • Loans and receivables 18.2 13.7 9.5 1.9 0.1 2.5 45.8 • Available for sale • Fair value option

– 0.3

– –

– –

– –

– –

– –

– 0.3

assets held for trading 8.2 1.3 0.3 0.1 0.1 0.0 10.2 • Held for trading 8.2 1.3 0.3 0.1 0.1 0.0 10.2

Positive fair values from derivative financial instruments 1.1 0.0 – – – – 1.2• Held for trading 1.1 0.0 – – – – 1.2

Financial investments 10.4 0.4 0.6 0.2 0.1 0.3 12.0 • Available for sale 5.6 0.2 0.4 0.0 0.1 0.0 6.4 • Fair value option 0.1 0.0 – 0.0 – 0.3 0.4 • Loans and receivables 4.7 0.2 0.2 0.2 0.0 0.0 5.2 • Held to maturity – – – – – – –

Contingent liabilities 2.0 1.1 0.9 0.1 0.0 0.1 4.2

Irrevocable credit commitments 2.7 3.2 1.2 0.1 0.0 0.0 7.2

Total 56.1 21.9 13.9 2.3 0.3 2.8 97.3



31 Dec 2012

in %

Maximum credit risk

rating categories

0-7 8-11 12-17 18-21Default

categories Unrated Total

Cash reserves 0.4 0.1 0.4 0.0 – 0.0 0.8 • Loans and receivables 0.4 0.1 0.0 0.0 – 0.0 0.5 • Available for sale 0.0 – 0.4 – – 0.0 0.4

Loans and advances to banks 11.0 1.9 1.0 0.0 0.0 0.0 13.9 • Loans and receivables 11.0 1.9 1.0 0.0 0.0 0.0 13.9 • Available for sale – – – – – – – • Fair value option 0.0 – – – – – 0.0

Loans and advances to customers 18.4 13.2 10.0 1.8 0.1 2.3 45.8 • Loans and receivables 18.1 13.2 10.0 1.8 0.1 2.3 45.5 • Available for sale – – – – – – – • Fair value option 0.3 – – – – – 0.3

assets held for trading 10.9 1.7 0.5 0.1 0.2 0.0 13.4 • Held for trading 10.9 1.7 0.5 0.1 0.2 0.0 13.4

Positive fair values from derivative financial instruments 1.3 0.0 – – – – 1.3 • Held for trading 1.3 0.0 – – – – 1.3

Financial investments 9.7 0.5 0.5 0.2 0.0 0.3 11.3 • Available for sale 5.1 0.2 0.4 0.0 0.0 0.0 5.6 • Fair value option 0.1 0.0 – 0.0 – 0.3 0.4 • Loans and receivables 4.5 0.3 0.2 0.2 0.0 0.0 5.2 • Held to maturity – – – – – – –

Contingent liabilities 1.9 1.1 0.9 0.0 0.0 0.1 4.0

Irrevocable credit commitments 2.4 2.9 1.6 0.1 0.0 0.0 7.0

Total 56.1 21.4 14.8 2.2 0.3 2.7 97.5


›› 46

Financial assets that are past due but not impaired*

30 Jun 2013

EUR million

Maximum credit risk

Time past due

≤ 30 days

> 30 days

to 3 months

> 3 months

to 1 year > 1 year TotalFair value

collateral

Cash reserves – – – – – – • Loans and receivables – – – – – – • Available for sale – – – – – –

Loans and advances to banks 1 16 44 47 107 – • Loans and receivables 1 16 44 47 107 – • Available for sale – – – – – – • Fair value option – – – – – –

Loans and advances to customers 849 120 324 211 1,503 907 • Loans and receivables 849 120 324 211 1,503 907 • Available for sale – – – – – – • Fair value option – – – – – –

assets held for trading 14 – – 2 16 – • Held for trading 14 – – 2 16 –

Positive fair values from derivative financial instruments – – – – – – • Held for trading – – – – – –

Financial investments – – – – – – • Available for sale – – – – – – • Fair value option – – – – – – • Loans and receivables – – – – – – • Held to maturity – – – – – –

Contingent liabilities 33 2 1 2 38 27

Irrevocable credit commitments 58 4 1 0 63 33

Total 955 141 370 262 1,727 967

Fair value collateral 683 100 56 128 967

* The portfolio reflects the creation of portfolio loan loss provisions: “not impaired” in this context means “no specific loan loss provision made”.



31 Dec 2012

EUR million

Maximum credit risk

Time past due

≤ 30 days

> 30 days

to 3 months

> 3 months

to 1 year > 1 year TotalFair value

collateral

Cash reserves – – – – – – • Loans and receivables – – – – – – • Available for sale – – – – – –

Loans and advances to banks 4 0 80 47 131 – • Loans and receivables 4 0 80 47 131 – • Available for sale – – – – – – • Fair value option – – – – – –

Loans and advances to customers 280 57 241 131 709 220 • Loans and receivables 280 57 241 131 709 220 • Available for sale – – – – – – • Fair value option – – – – – –

assets held for trading – – – – – – • Held for trading – – – – – –

Positive fair values from derivative financial instruments – – – – – – • Held for trading – – – – – –

Financial investments – – – – – – • Available for sale – – – – – – • Fair value option – – – – – – • Loans and receivables – – – – – – • Held to maturity – – – – – –

Contingent liabilities – – – – – –

Irrevocable credit commitments – – – – – –

Total 284 57 321 178 840 220

Fair value collateral 81 49 36 53 220

The significant rise in past due but not impaired loans and advances to customers in the first half

of 2013 is predominantly due to a change in methodology at MKB. The methodology adjustment

resulted in EUR 928 million being reclassified from the financial assets that are neither past due

nor impaired category to the financial assets that are past due but not impaired category as at

30 June 2013. The change in methodology had an impact of EUR 1 billion as at 31 December 2012;

the figures were not adjusted.


›› 48

Financial assets that are impaired

EUR million

Maximum credit risk Fair value collateral

30 Jun 2013 31 Dec 2012 30 Jun 2013 31 Dec 2012

Cash reserves – – – – • Loans and receivables – – – – • Available for sale – – – –

Loans and advances to banks 97 112 – – • Loans and receivables 97 112 – – • Available for sale – – – – • Fair value option – – – –

Loans and advances to customers 3,750 4,211 2,316 2,611 • Loans and receivables 3,721 4,174 2,288 2,585 • Available for sale 30 33 28 26 • Fair value option – – – –

assets held for trading – – – – • Held for trading – – – –

Positive fair values from derivative financial instruments – – – – • Held for trading – – – –

Financial investments 2,189 2,490 – – • Available for sale 1,210 1,491 – – • Fair value option – – – – • Loans and receivables 978 999 – – • Held to maturity – – – –

Contingent liabilities 42 62 2 2

Irrevocable credit commitments 114 136 0 2

Total 6,190 7,019 2,318 2,614

Portfolios with elevated risk profiles (Financial Stability Board recommendations)

The Financial Stability Board, which was established by the supervisory authorities and govern-

ments of countries in which the world’s leading financial centres are located, issued recommen-

dations in 2008 on the disclosure of information on portfolios with elevated risk profiles. The

greater transparency is intended to strengthen trust among financial market participants. Port-

folios with elevated risk profiles pursuant to the Financial Stability Board are the asset-backed

securities (ABS) portfolio, the leveraged finance portfolio and the exposure to US monoliners.

ABS portfolios

The portfolio for the securitisation business can be broken down into two segments: transactions

structured exclusively by BayernLB for customers, and investments in asset-backed securities (ABSs).



Asset-backed securities

In the first half of 2013, the nominal volume of asset-backed securities within the BayernLB

Group was reduced largely by repayments to around EUR 8.4 billion as at 30 June 2013

(31 December 2012: EUR 9.6 billion). BayernLB accounts for nearly all of the portfolio with

99 percent (31 December 2012: 99.1 percent).The remainder is held by Banque LBLux. Since

1 July 2009, the portfolio has been managed by the Restructuring Unit, which has been system-

atically reducing the portfolio while ensuring losses are kept to a minimum.

LBLux’s ABS portfolio amounts to around EUR 82 million. Of this amount, EUR 65 million is in the

CMBS asset category and EUR 16 million in the prime RMBS category. Four out of the five asset-

backed securities are investment grade. The other one has a sub-investment grade rating from

Standard & Poor’s.

BayernLB’s ABS portfolio (EUR 8.3 billion) is hedged by the guarantee agreement with the Free

State of Bavaria described below. The agreement was concluded between the Free State of

Bavaria as the protection seller and BayernLB as the protection buyer on 19 December 2008. The

guarantee covers actual losses in the ABS portfolio above a first loss of EUR 1.2 billion borne by

BayernLB. The guarantee is limited to EUR 4.8 billion.

The ABS portfolio hedge covers losses incurred from insolvency, non-payment of capital and

interest, capital writedowns and any sales before maturity. Besides hedging BayernLB’s ABS port-

folio, the guarantee agreement with the Free State of Bavaria also makes a material contribution

to reducing BayernLB’s capital charge for the ABS portfolio and minimising the impact on the

income statement from the ongoing marking to market of the ABS portfolio.

Up to 30 June 2013, losses totalling EUR 1 billion (31 December 2012: EUR 850 million) had

occurred and were charged against the first loss amount. The guarantee has therefore not been

utilised yet. Almost all realised losses were in the RMBS and CDO asset classes due to turmoil on

the US mortgage and real estate markets (in respect of RMBSs) and the large number of credit

events at European and US financial institutions (in respect of CDOs). The losses currently pro-

jected by BayernLB itself and by external portfolio advisers appointed by BayernLB under the

guarantee agreement are easily within the guarantee limits over the full remaining term of the

portfolio in all scenarios.

As part of its ongoing loss projections for the ABS portfolio, BayernLB and its advisers assess the

value and expected change in value of the underlying pool of securitised receivables and the

adequacy of the structural elements providing enhanced security. In addition, the impact of

structural factors and influence of the parties involved at individual transaction level are factored

in. The forecasts are made for the remaining terms of each asset-backed security using cash-flow

models. The assumptions used in the models are checked continuously for suitability by the Bank

and its portfolio advisers.


›› 50

In the current market environment, BayernLB relies on market prices where available to measure

the value of asset-backed securities. Otherwise it uses indicative prices obtained from market

data providers, counterparties, brokers and the portfolio advisors. Prices from different sources

are adjusted for statistical outliers and the average then taken. If a security has a wide range of

prices compared with similar securities, it is assessed separately and implausible prices are

eliminated. After this quality assurance check, the price of the security for valuation purposes is

calculated using an averaging procedure.

The following information on the composition of the portfolio relates to BayernLB’s EUR 8.3 billion

portfolio of asset-backed securities covered by the guarantee agreement with the Free State of

Bavaria.

aBS portfolio by asset class



Based on ratings assigned by Standard & Poor’s and Moody’s, 34.5 percent of the portfolio

was investment grade (rating categories AAA to BBB) as at 30 June 2013 (31 December 2012:

38.7 percent) and 64.3 percent was sub-investment grade (rating categories BB and below)

(31 December 2012: 60.1 percent). 1.2 percent of the portfolio (as at 30 June 2013 and

31 December 2012) is not externally rated.

The shift in portfolio quality from 31 December 2012 resulted mainly from the paying off of assets

in the investment grade segment and was therefore expected. 75 percent of sub-investment

grade asset-backed securities are US RMBS transactions which were downgraded when the US

mortgage and real estate markets came unhinged. The original rating of these securities at issue

was AAA; the rating migration of these securities mainly occurred between 2007 and 2009. The

remaining sub-investment grade asset-backed securities are distributed among the CDO/CLO,

CMBS and RMBS asset classes. These asset-backed securities were downgraded from their original

ratings between AAA and A largely due to their exposure in the European peripheral countries

and the mezzanine nature of the transaction structures. The resulting default risk is taken into

account in the portfolio loss projections of the Bank and its advisers.

EUR million

6,000

5,000

4,000

3,000

2,000

1,000

0

4,6

98

.6

2,0

07

.5

74

0.3

63

2.6

11

2.1

10

4.6

5,0

77

.8

2,2

20

.9

88

3.7

1,0

19

.0

12

8.7

13

1.0

Non-prime RMBS Prime RMBS CMBS CDO/CLO Commercial ABS Consumer ABS



Changes in IFrS carrying amounts and impairments in the aBS portfolio by asset class

30 Jun 2013 Total: EUR 6,038.5 million 30 Jun 2013 Total impaired: EUR 2,256.5 million

31 Dec 2012 Total: EUR 6,784.9 million 31 Dec 2012 Total impaired: EUR 2,238.2million

Customer transactions

In the first half of 2013, the nominal volume of transactions structured for customers rose to a total

of EUR 1.2 billion (31 December 2012: EUR 1.1 billion), with EUR 979 million (31 December 2012:

EUR 887 million) of this coming from the funding of receivables portfolios for BayernLB’s core

customers.

The share of transactions not on behalf of core customers continued to shrink and was around

EUR 244 million (31 December 2012: EUR 256 million). The transactions not related to core cus-

tomers are slated to be wound down and are being managed in the Restructuring Unit under

close observation with the aim of cutting them back quickly using individual strategies in a way

that minimises losses.

Monoliners

In the first half of 2013, credit volumes with monoliners (insurers that specialise, among

other things, in hedging structured securities) fell by 15 percent to a total nominal amount of

EUR 484 million (31 December 2012: EUR 568 million) and related exclusively to BayernLB’s

indirect credit exposures.

The fall over the reporting period is largely due to early repayments of direct credit exposures of

EUR 24 million and the sale of asset-backed securities guaranteed by monoliners.

With regard to its indirect exposure to US monoliners, the monoliners are not direct borrowers

but serve as guarantors. BayernLB always based its credit decision in these cases primarily on the

credit standing of the actual borrower, issuer or financing structure. The monoliner’s guarantee

was viewed at the time the transaction was concluded only as an additional hedging instrument.

Non-prime RMBS

Prime RMBS

CDO/CLO CMBS Commercial ABS

Consumer ABS

EUR million

4,000

3,000

2,000

1,000

0

3,0

36

.5

2,9

81

.3

1,9

59

.1

1,7

87

.5

67

5.8

39

7.2 86

4.1

66

5.3

12

1.0

10

4.5

12

8.5

10

2.7

1,3

55

.9

1,4

68

.0

59

9.8

54

4.3

23

4.9

20

3.2

47

.6

0 00 041

.0


›› 52

As at 30 June 2013, the volume of ABSs that it is anticipated will not be repaid in full by the actual

borrowers or issuers but is guaranteed by monoliners fell to EUR 202 million (31 December 2012:

EUR 213 million), mainly due to repayments.

Leveraged finance

Leveraged finance transactions generally have comparatively high debt ratios, are serviced from

the operating cash flows of the financed entity, and have relatively long terms (normally more

than five years). This definition therefore covers not only corporate acquisition financing, but also

other forms of financing with these features.

The volume of leveraged financing in the BayernLB Group as at 30 June 2013 fell by 18 percent to

EUR 989 million (31 December 2012: EUR 1.2 billion).

The decrease mainly took place in non-core business financing. Leverage financings in Asia and

Australia have now been fully wound down. In the Western Europe and North American regions

in particular, transactions were no longer extended when they fell due or were repaid early, and

opportunities to sell on the secondary market were used to shrink the portfolio and improve the

granularity of what is left.

In line with the business strategy, the regional focus in the portfolio is increasingly on Germany

and western Europe, with the other regions accorded less importance. Acquisition financing

within strict risk strategy parameters is particularly important for Mittelstand clients.

The charts below give a breakdown of the BayernLB Group’s leveraged finance transactions by

region, sector and rating.

Gross credit volume by region

30 Jun 2013 Total: EUR 989 million


Germany Western Europe

North America Eastern Europe/CIS

Australia/ Oceania

Asia

EUR million

1,000

800

600

400

200

0

85

8.4

83

0.7

22

0.5

14

2.3

20

.2

12

.4

4.1

3.8 34

.6

0.0 29

.2

0.0



Gross credit volume by sector



The amount by which non-strategic credit volumes and new business were wound down varied

from sector to sector in the first half of 2013, so that the rankings within the 10 largest sectors

changed slightly on 31 December 2012.

Gross credit volume by rating class



The overall quality of the leveraged finance portfolio improved again in the first half of 2013.

Due to the significant winding down of the portfolio and acquisition of new business, the share

of the portfolio that is investment grade and in the better rating categories rose to 60 percent

(31 December 2012: 51 percent). Risk provisions for problem loans fell significantly and

amounted to EUR 15 million (31 December 2012: EUR 56 million).

Media Technology Wholesale and retail

Chemicals Healthcare Telecommu-nications

Construction Automotive Pharma-ceuticals

Consumer durables

Other

EUR million

350

300

250

200

150

100

50

0

18

7.5

18

1.7

12

3.7

98

.8

61

.8

56

.1

41

.5

32

.0

31

.1

30

.6

14

4.5

20

3.7

22

3.5

83

.2

13

0.2

66

.2

58

.2

61

.0

36

.6

15

.5 39

.6

24

9.3

Investment grade Non-investment grade

EUR million

500

400

300

200

100

0MR 0 – 7 MR 8 – 11 MR 12 – 14 MR 15 – 18 MR 19 – 21 Default categories

0.0

17

8.2

41

3.6

32

2.6

35

.3

39

.5

0.0

21

0.4

39

0.9

40

5.9

15

.1

14

4.8


›› 54

Market risk

In the BayernLB Group, several tools are used to monitor and limit market risks, including value-

at-risk (VaR), risk sensitivity and stress tests, all of which form part of the mix in the assessment

of risk capacity to various degrees. The methodology for measuring, managing and monitoring

market risks as used in the risk report of the 2012 consolidated financial statements was changed

as follows: on 30 April 2013 the existing limits for the individual risk types were supplemented by

corresponding total VaR limits to take account of correlations across different market risk types.

These total VaR limits were incorporated in the current monitoring process including risk-bearing

capacity.

For operational management and monitoring, the VaR calculation for market risk uses a corre-

lated measurement procedure based on a one-day holding period and a confidence interval of

99 percent. In addition to historical simulation, which is the main method used at BayernLB, the

subsidiaries also use methods such as scenario matrix (LBLux) and variance-covariance (MKB).

The methods used for measuring market risk are regularly assessed for the quality of their fore-

casting. In the backtesting process, the risk forecast is compared with actual outcomes (gains or

losses). As at 30 June 2013, based on the Basel traffic light approach used by BayernLB, DKB and

LBLux the forecasting quality of the procedure for measuring market risk was good. At MKB dur-

ing June, add-on factors for risk-bearing capacity were defined because the forecasting quality of

the backtesting results for equity and interest rate risk was just satisfactory.

For the interest rate risk in the banking book, an interest rate shock scenario of +/- 200 basis

points is calculated at both bank and Group level. As at the reporting date, the calculated change

in net present value relative to liable capital at both BayernLB and the BayernLB Group was well

below the 20 percent limit set in BaFin’s criterion for “institutions with elevated interest rate

risk”.

In the Group, the main factors affecting total VaR are general and specific interest rate risks.

Currency, equity, volatility and commodity risks play a secondary role in total market risk. Within

the Group, BayernLB has the largest share of market risks.



Var contribution by risk type (confidence level of 99 percent)

1 Jan 2013 to 30 Jun 2013

EUR million 30 Jun 2013 31 Dec 2012 average Maximum Minimum

General interest rate VaR 78.3 63.2 58.7 78.3 51.4

Specific interest rate VaR

(credit spreads)* 18.1 22.4 17.4 20.2 15.2

Currency VaR 8.6 3.2 4.9 8.6 1.8

Equities VaR 2.6 2.4 2.6 2.9 2.4

Commodities VaR 1.1 1.3 1.5 2.4 0.9

Volatility VaR 0.9 0.9 0.8 1.1 0.6

Total Var 85.8 69.9 68.2 85.8 61.3

* Intragroup positions are eliminated through Group consolidation (figures as at 31 December 2012 were adjusted accordingly); in addition to

calculating specific interest rate VaR, premiums for credit risk from money market transactions and OTC derivatives at BayernLB are also

taken into account when calculating the risk capital requirement for risk-bearing capacity.

General interest rate VaR has risen significantly since 31 December 2012 due to higher interest

rate volatility, particularly in June 2013. Specific interest rate risk has, however, fallen back,

mainly due to lower volatility in credit spreads on the market.

Liquidity risk

Liquidity overviews are drawn up each day across all currencies and separately for the major

currencies to manage and monitor liquidity risk on a consistent basis across the Group. This

involves calculating the short and medium-term liquidity surplus by subtracting in each maturity

band the cumulative liquidity gaps from the realisable liquidity counterbalancing capacity. A new

limit system takes account of the key variables here.

In addition, time-to-wall figures are calculated for stress scenarios, limited and monitored. These

show the length of time before the liquidity gap becomes negative under stressed conditions.

The methods applied across the Group to limit and manage liquidity risk are being constantly

checked and refined, helping to optimise liquidity management.

For further details on the measurement, management and monitoring of liquidity risk, please

refer to the relevant sections of the risk report as at 31 December 2012.

The following tables show the outcomes of the management scenario for the BayernLB

Group and give an overview of the liquidity situation as at 30 June 2013 compared with

31 December 2012:


›› 56

Liquidity situation as at 30 June 2013

Cumulative figures in EUR million

up to

1 month

up to

3 months

up to

1 year

up to

5 years

Liquidity surplus

• arising from

– liquidity counterbalancing capacity

• less

– liquidity gap (excl. commitments

and guarantees)

– liquidity gap (only commitments

and guarantees)

28,203

41,423

9,119

4,101

28,764

44,195

10,197

5,234

34,049

45,048

4,412

6,587

45,333

16,887

– 31,910

3,464

Liquidity situation as at 31 December 2012

Cumulative figures in EUR million

up to

1 month

up to

3 months

up to

1 year

up to

5 years

Liquidity surplus

• arising from

– liquidity counterbalancing capacity

• less

– liquidity gap (excl. commitments and

guarantees)

– liquidity gap (only commitments and

guarantees)

19,595

31,611

8,496

3,520

22,623

35,745

8,665

4,457

27,592

39,876

6,028

6,256

34,574

20,892

– 16,977

3,295

The liquidity position at the BayernLB Group was comfortable at all times during the period under

review.

The Liquidity Ordinance ratio (which must always exceed 1.0) was 1.93 at BayernLB on 30 June

2013, having varied between 1.70 and 2.04 over the first half of the year. The range for full-year

2012 was 1.82 to 2.41.

Regulatory changes relating to liquidity risk are constantly monitored, addressed in certain pro-

jects and implemented according to plan in close cooperation with all units affected. The main

changes are the new rules on liquidity from MaRisk, Basel III, CRD IV and CRR (Liquidity Coverage

Ratio (LCR) and Net Stable Funding Ratio (NSFR)). This ensures reporting requirements can be

properly met and this area can be efficiently managed in the future.

In the coming years, liquidity management and monitoring will continue to revolve around the

refinancing options available and focus on ensuring liquidity reserves are always adequate, even

in stress situations.

In view of the stable domestic investor base and its subsidiary DKB, BayernLB feels its long-term

wholesale business and high levels of retail deposits mean that it is well placed to meet rising

regulatory requirements.



As had been the case in the previous year, BayernLB’s funding situation in the first half of 2013

remained very sound. Most funding needs for 2013 had already been met by 30 June 2013. From

the present perspective, only minor funding operations are expected in the second half of 2013.

The strategic focus here is on maintaining and broadening the funding mix.

Operational risk

For the purposes of disclosure under the Solvency Ordinance (SolvV) and Basel II, BayernLB

applies the standardised approach (STA) to calculate capital requirements for operational risk at

Group and Bank level. BayernLB also uses the standardised approach in accordance with SolvV to

compute the OpRisk risk capital requirement in the Bank’s internal risk-bearing capacity calcula-

tion (ICAAP). OpRisk capital requirements for the BayernLB Group were EUR 533 million as at

30 June 2013.

The graph below shows the trend in OpRisk losses recorded at the main units of the BayernLB

Group in the first half of 2013 compared to financial year 2012.

Losses by Group unit

30 Jun 2013 Total: EUR 4.4 million

31 Dec 2012 Total: EUR 10.6 million

BayernLB DKB MKB LBLux

EUR million

9

8

7

6

5

4

3

2

1

0

0.6

3.5

0.4

0.0

1.3

8.5

0.8

0.1


›› 58




›› 60

Consolidated Interim Financial

Statements


›› Consolidated Interim Financial Statements 61


Income statement


Balance sheet


Cash flow statement

Notes

Responsibility statement by the

Board of Management

Review Report

62

62

63

64

66

68

69

106

107


Income statement

EUR million notes

1 Jan –

30 Jun 2013

1 Jan –

30 Jun 2012

• Interest income

• Interest expenses

Net interest income (5)

4,116

– 3,161

955

5,307

– 4,452

855

Risk provisions in the credit business (6) – 134 – 204

Net interest income after risk provisions 821 651

• Commission income

• Commission expenses

Net commission income (7)

341

– 199

143

386

– 246

140

Gains or losses on fair value

measurement (8) 179 248

Gains or losses on hedge accounting (9) – 38 36

Gains or losses on financial investments (10) 279 – 58


measured at equity 3 – 14

Administrative expenses (11) – 686 – 855

Expenses for bank levies (12) – 52 – 53

Other income and expenses (13) 76 47

Gains or losses on restructuring (14) – 7 – 15

Profit before taxes 719 129

Income taxes – 136 – 51

Profit after taxes 583 78

Profit attributable to non-controlling

interests – 8 3

Consolidated profit 575 81



›› 62

Statement of comprehensive income (condensed)1

EUR million

1 Jan –

30 Jun 2013

1 Jan –

30 Jun 2012

Profit after taxes as per the income statement 583 786

Components of other comprehensive income

temporarily not recognised in profit or loss2

• Changes in the revaluation surplus

– change not including deferred taxes

– change in deferred taxes

• Currency-related changes



Components of other comprehensive income

permanently not recognised in profit or loss3

• Changes due to remeasurement of defined benefit plans4



– 50

– 33

– 17

– 4

– 4

–

– 20

– 31

11

308

3235

– 165

23

235

–

– 521

– 522

1

Other comprehensive income after taxes – 74 – 190

Total reported comprehensive income recognised and

not recognised in profit or loss

• attributable:

– to BayernLB shareholders

– to non-controlling interests

509

502

7

– 1126

– 1196

7


1 Due to the first-time application of the amended IAS 1 standard “Presentation of Financial Statements” in financial year 2013, the structure

of the statement of comprehensive income and the previous year’s figures have been adjusted to reflect its retrospective application

(see note 1).

2 The components of the statement of comprehensive income temporarily not recognised in profit or loss are components which will be

reclassified subsequently to profit or loss as per IAS 1.82A (b) (so-called recycling), when specific conditions are met (e.g. sale).

3 The components of the statement of comprehensive income permanently not recognised in profit or loss are components which will not be

reclassified subsequently to profit or loss as per IAS 1.82A (a).

4 Reported for the first time due to implementation of the revised IAS 19 “Employee Benefits” (see notes 1 and 2).

5 Includes adjustments as per IAS 8.42 (see note 2).

6 Includes adjustments as per IAS 8.22 and IAS 8.42 (see note 2).


›› Consolidated Interim Financial Statements Statement of comprehensive income 63

Balance sheet

assets

EUR million notes 30 Jun 2013 31 Dec 2012 1 Jan 2012

Cash reserves (15) 3,489 2,583 2,645

Loans and advances to banks (16) 45,671 44,446 49,555

Loans and advances to customers (17) 142,471 150,612 157,589

Risk provisions (18) – 2,678 – 2,830 – 2,922

Portfolio hedge adjustment assets 1,877 2,334 1,393

Assets held for trading (19) 30,218 42,094 48,607

Positive fair values from derivative financial

instruments (hedge accounting) (20) 3,400 4,162 4,548

Financial investments (21) 38,223 38,606 41,926

Interests in companies measured at equity (22) 111 111 110

Investment property (23) 70 69 2,061

Property, plant and equipment (24) 616 629 611

Intangible assets (25) 193 186 147

Current tax assets 78 67 72

Deferred tax assets 362 476 818

Non-current assets or disposal groups

held for sale (26) 992 2,460 1,255

Other assets (27) 670 877 756

Total assets 265,764 286,882 309,172



›› 64

Liabilities

EUR million notes 30 Jun 2013 31 Dec 2012 1 Jan 2012

Liabilities to banks (28) 64,321 70,521 75,715

Liabilities to customers (29) 93,354 90,819 92,682

Securitised liabilities (30) 56,299 60,319 74,075

Liabilities held for trading (31) 23,210 34,747 35,717

Negative fair values from derivative financial

instruments (hedge accounting) (32) 3,151 3,864 3,306

Provisions (33) 3,126 3,122 3,644

Current tax liabilities 283 274 374

Deferred tax liabilities 105 90 778

Liabilities of disposal groups (34) 756 1,259 536

Other liabilities (35) 574 545 724

subordinated capital (36) 5,120 6,346 6,964

Equity

• Equity excluding non-controlling interests

– subscribed capital

– specific-purpose capital

– compound instruments (equity component)

– capital surplus

– retained earnings

– revaluation surplus

– foreign currency translation reserve

– consolidated profit

• Non-controlling interests

(37) 15,465

15,423

6,872

–

178

4,367

3,579

– 83

– 65

575

42

14,977

14,875

6,556

612

182

4,036

3,585

– 34

– 61

–

102

14,657

14,535

6,150

612

334

4,473

3,752

– 714

– 72

–

122

Total liabilities 265,764 286,882 309,172



›› Consolidated Interim Financial Statements Balance sheet 65


EUR million

Parent

non-control-ling in-terests

Co

nso

lid

ate

d e

qu

ity

Sub

scri

bed

cap

ital

Spec

ific

-pu

rpo

se c

apit

al

Co

mp

ou

nd

in

stru

men

ts

(eq

uit

y co

mp

on

ent)

Cap

ital

su

rplu

s

Ret

ain

ed e

arn

ing

s

Rev

alu

atio

n s

urp

lus

Cu

rren

cy t

ran

slat

ion

rese

rve

Co

nso

lidat

ed p

rofi

t

e qu

ity

be

fore

n

on

-co

ntr

oll

ing

in

tere

sts

as at 31 Dec 2011 6,150 612 334 4,473 3,313 – 660 – 74 – 14,148 122 14,270

Adjusted as per IAS 81 440 – 54 1 387 387

as at 1 Jan 2012 6,150 612 334 4,473 3,752 – 714 – 72 – 14,535 122 14,657

Changes in the revaluation

surplus2 304 304 3 308

Currency-related changes2 16 16 7 23

Changes due to remeasure-

ment of defined benefit

plans3 – 521 – 521 – 521

Other comprehensive income – 521 304 16 – 200 10 – 190

Consolidated profit – 7 88 81 – 3 78

Total comprehensive income – 528 304 16 88 – 119 7 – 112

Transactions with owners 8 8 8

Capital increase/

capital decrease – 1 – 1 – 1

Changes in the scope of

consolidation and other 3 3 – 10 – 7

as at 30 Jun 2012 6,150 612 333 4,473 3,236 – 410 – 56 88 14,426 120 14,545



›› 66

EUR million

Parent

non-control-ling in-terests

Co

nso

lid

ate

d e

qu

ity

Sub

scri

bed

cap

ital

Spec

ific

-pu

rpo

se c

apit

al

Co

mp

ou

nd

in

stru

men

ts

(eq

uit

y co

mp

on

ent)

Cap

ital

su

rplu

s

Ret

ain

ed e

arn

ing

s

Rev

alu

atio

n s

urp

lus

Cu

rren

cy t

ran

slat

ion

rese

rve

Co

nso

lidat

ed p

rofi

t

equ

ity

be

fore

n

on

-co

ntr

oll

ing

in

tere

sts

as at 31 Dec 2012 6,556 612 182 4,036 3,585 – 34 – 61 – 14,875 102 14,977

Adjusted as per IAS 8 – – – – –

as at 1 Jan 2013 6,556 612 182 4,036 3,585 – 34 – 61 – 14,875 102 14,977

Changes in the revaluation

surplus2 – 50 – 50 – 50

Currency-related changes2 – 3 – 3 – 4

Changes due to remeasure-

ment of defined benefit

plans3 – 20 – 20 – 20

Other comprehensive income – 20 – 50 – 3 – 73 – 74

Consolidated profit 575 575 8 583

Total comprehensive income – 20 – 50 – 3 575 502 7 509

Transactions with owners

Capital increase/

capital decrease4 – 4 35 31 31


consolidation and other4 315 – 612 297 15 14 – 67 – 53

as at 30 Jun 2013 6,872 – 178 4,367 3,579 – 83 – 65 575 15,423 42 15,465


1 The changes on the previous year period explained in note 2 reflect the impact of the change in accounting policy as per IAS 8.14 et seq.,

resulting from the retrospective application of the revised standard IAS 19 “Employee Benefits”.

2 Includes the share of other comprehensive income attributable to companies measured at equity, previously reported separately, which is now

to be allocated to the respective components of other comprehensive income in consequence of the first-time and retrospective application

of the amended IAS 1 standard “Presentation of Financial Statements” (see note 1 “Principles – Impact of amended and new International

Financial Reporting Standards”).

3 Changes due to remeasurement of defined benefit plans are reported under this item, as a result of changes in calculating actuarial gains and

losses in consequence of the first-time application of the revised standard IAS 19 “Employee Benefits” (see also note 2 “Changes on the previ-

ous year”).

4 Changes in subscribed capital, specific-purpose capital and capital surplus are explained in note 37.


›› Consolidated Interim Financial Statements Statement of changes in equity 67

EUR million

1 Jan –

30 Jun 2013

1 Jan –

30 Jun 20121

Cash and cash equivalents at end of previous period 2,583 2,645

+/– cash flow from operating activities 774 226

+/– cash flow from investing activities 979 – 105

+/– cash flow from financing activities – 1,188 – 66

+/– exchange-rate, scope of consolidation and measurement-related

changes in cash and cash equivalents 341 – 285

Cash and cash equivalents at end of period 3,489 2,415


1 Adjusted as per IAS 8.22 and IAS 8.42 (see note 2).

Cash flow statement (condensed)


›› 68

Notes

1 notes to the interim financial statements 70

2 accounting policies

(1) Principles

(2) Changes on the previous year

(3) Scope of consolidation

70

3 Segment reporting

(4) Notes to the segment report

76

4 notes to the statement of comprehensive income 82 (5) Net interest income

(6) Risk provisions in the credit business

(7) Net commission income

(8) Gains or losses on fair value

measurement

(9) Gains or losses on hedge accounting

(10) Gains or losses on financial

investments

(11) Administrative expenses

(12) Expenses for bank levies

(13) Other income and expenses

(14) Gains or losses on restructuring

5 notes to the balance sheet

(15) Cash reserves

(16) Loans and advances to banks

(17) Loans and advances to customers

(18) Risk provisions

(19) Assets held for trading

(20) Positive fair values from derivative

financial instruments

(hedge accounting)

(21) Financial investments

(22) Interests in companies measured

at equity

(23) Investment property

(24) Property, plant and equipment

(25) Intangible assets

(26) Non-current assets or disposal groups

classified as held for sale

(27) Other assets

(28) Liabilities to banks

(29) Liabilities to customers

(30) Securitised liabilities

(31) Liabilities held for trading

(32) Negative fair values from derivative

financial instruments

(hedge accounting)

(33) Provisions

(34) Liabilities of disposal groups

(35) Other liabilities

(36) Subordinated capital

(37) Equity

85

6 notes to financial instruments

(38) Fair value of financial instruments

(39) Financial instrument measurement

categories

(40) Reclassification of financial assets

(41) Fair value hierarchy of financial

instruments

(42) Financial instruments designated at

fair value through profit or loss

(43) Derivative transactions

93

7 Supplementary information

(44) Trust transactions

(45) Contingent assets, contingent liabilities

and other commitments

(46) Administrative bodies of BayernLB

(47) Related party disclosures

100


›› Consolidated Interim Financial Statements Cash flow statement (condensed) · Notes 69

notes to the interim financial statements

The consolidated interim financial statements as at 30 June 2013 have been prepared in accord-

ance with Commission Regulation 1606/2002 (IAS Regulation) of the European Parliament and

of the European Council of 19 July 2002 (including all amendments) on the application of inter-

national financial reporting standards, as well as supplementary provisions applicable under

Section 315a (1) of the German Commercial Code (HGB). The interim financial statements comply

with the requirements of IAS 34.

Unless otherwise stated, all amounts are given in EUR million and rounded up or down. Rounding

differences may occur in the tables. Plus or minus symbols are not inserted in front of figures

except where they are needed for clarity.

accounting policies

(1) Principles

With the exception of the changes referred to below, the accounting policies used for the interim

financial statements as at 30 June 2013 were essentially the same as those used for the 2012

consolidated financial statements. Information provided in these interim financial statements is

to be read in conjunction with the information in the published and audited consolidated finan-

cial statements as at 31 December 2012.

Income tax expenses for the interim financial statements are calculated on the basis of the

expected income tax ratio for the full year.

In financial year 2013 the following amended or newly issued standards and interpretations that

the European Commission has incorporated into European law were applied for the first time:

• IFrS 1

The amendments to IFRS 1 “First-time Adoption of International Financial Reporting Standards”

involve the removal of fixed dates for first-time adopters, standards for severe hyperinflation

and guidelines for the recognition of government loans. The changes had no impact on the

interim financial statements as at 30 June 2013.

• IFrS 7

The amendment to IFRS 7 “Financial Instruments: Disclosures” introduces new disclosure

requirements for certain netting arrangements. This information will be included in the

consolidated financial statements for 2013 for the first time. There is no impact on the interim

financial statements as at 30 June 2013.


›› 70

• IFrS 13

The new standard IFRS 13 “Fair Value Measurement” sets uniform rules applicable to all stan-

dards for calculating fair value. It defines the term and states which methods can be used to

calculate it. It also extends the disclosure requirements in this area. The implementation of the

new standard, which must be applied prospectively, had an impact on the interim financial

statements as at 30 June 2013 (see note 2). The information required to be disclosed by IFRS 13

is in note 41.

• IaS 1

The amendments to IAS 1 “Presentation of Financial Statements” require that the items in other

comprehensive income be divided according to whether they can or cannot be reclassified sub-

sequently to profit or loss (recycling). The corresponding income tax items and the share of

companies measured at equity in comprehensive income, which has previously been recognis-

ed separately, must be allocated accordingly. The amendments, which must be applied retro-

spectively, had an impact on the presentation of other comprehensive income in the statement

of comprehensive income and the statement of changes in equity.

• IaS 12

The revised IAS 12 standard “Income Taxes” amends the rules on the recognition of deferred

taxes on investment property measured at fair value. There is no impact on the interim financial

statements as at 30 June 2013.

• IaS 19

The amendment to IAS 19 “Employee Benefits” requires that actuarial gains or losses arising

from the difference between expected and actual values or changed assumptions are recognised

in other comprehensive income. The amendments also eliminate the method options whereby

actuarial gains or losses are amortised over future periods using the corridor approach or

immediately recognised in the income statement. They also introduced a net interest approach.

This prescribes the use of interest income and expenses based on net pension liabilities and

plan assets. The implementation of the amended standard, which, with limited exceptions,

must be applied retrospectively, had an impact on the interim financial statements as at

30 June 2013 (see note 2). The revised standard significantly increases the disclosure require-

ments for defined benefit plans. It will be implemented for the first time in the consolidated

financial statements for financial year 2013.

• IFrIC 20

The new interpretation IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine”

deals with the accounting treatment of the stripping costs in surface mining operations. There

is no impact on the interim financial statements as at 30 June 2013.


›› Consolidated Interim Financial Statements Notes 71

• Improvements to IFrS – 2009-2011 cycle

In its Annual Improvement Cycle, the International Accounting Standards Board published

minor amendments to the standards IFRS 1 “First-time Adoption of International Financial

Reporting Standards”, IAS 1 “Presentation of Financial Statements”, IAS 16 “Property, Plant

and Equipment”, IAS 32 “Financial Instruments: Presentation” and IAS 34 “Interim Financial

Reporting”. These changes did not materially impact the interim financial statements as at

30 June 2013.

New or amended standards and interpretations not yet incorporated into European law were not

applied to these interim financial statements. The standards already incorporated into European

law but which will not become compulsory until financial year 2014 were not applied either.

(2) Changes on the previous year

adjustments under IaS 8.14 et seq.

With the first-time application of IFRS 13 “Fair Value Measurement” in financial year 2013, the

BayernLB Group has measured financial instruments at mid-market prices. The previously-existing

valuation reserve for the bid-ask spread was dissolved. Also in the reporting period, a valuation

adjustment for own credit risk (debit value adjustment) in respect of OTC derivatives was calcu-

lated for the first time. The total impact of this on gains or losses on fair value measurement was

EUR 43 million.

The first-time application of revised IAS 19 standard “Employee Benefits”, led to changes in the

recognition of actuarial gains or losses in the BayernLB Group. Previously BayernLB amortised

Group-wide actuarial gains or losses arising from the difference between expected and actual

values or changed assumptions over future periods using the corridor method and recognised

them in instalments in the income statement. With the amendment of IAS 19, the total impact

from the remeasurement of defined benefit plans, such as actuarial gains or losses, is now

recognised directly in the period it arises in retained earnings within equity and not through the

income statement. Accordingly, the size of pension provisions, which corresponds to the net

pension liability comprising the balance of the liability’s present value and the plan assets used

to cover it, is adjusted subject to any impact from a pension asset ceiling.

Moreover, the changes to IAS 19 introduced the use of a net interest approach. This prescribes

the use of interest income and expenses based on the net of pension liabilities and plan assets.

The application of the net interest approach did not materially impact the interim financial state-

ments as at 30 June 2013.

As the implementation of amended IAS 19 is deemed a change in accounting policy under the

criteria in IAS 8.14 et seq., which must, with limited exceptions, be retrospectively applied, the

BayernLB Group has adjusted the figures for the comparison periods. The switchover from the

corridor method to the direct recognition of the total impact from the remeasurement of defined

benefit plans in equity resulted in a decrease in retained earnings of EUR 191 million as at

31 December 2012 (1 January 2012: EUR +419 million) and an increase in deferred tax assets of

EUR 59 million (1 January 2012: no change). Provisions rose accordingly by EUR 242 million as at

31 December 2012 (1 January 2012: EUR – 419 million) and the pension provisions reported under

“liabilities of disposal groups” by EUR 8 million (1 January 2012: no change).


›› 72

The impact of the retrospective adjustments on the income statement items in the first half of

2012 was as follows: net interest income fell by EUR 2 million and administrative expenses rose

by EUR 5 million, resulting in a total decrease of EUR 7 million to consolidated net profit from the

change in accounting policy.

The impact of these changes on the income statement and balance sheet items of the respective

comparison period is shown in the following overviews:

Impact on the affected income statement items between 1 January and 30 June 2012

EUR million

1 Jan – 30 Jun 2012

Before adjustment

adjustment

1 Jan – 30 Jun 2012

after adjustment

Net interest income 858 – 2 856

Administrative expenses – 850 – 5 – 855

Profit before taxes 174 – 7 167

Income taxes – 55 – – 55

Profit after taxes 119 – 7 112

Profit attributable to non-controlling interests 3 – 3

Consolidated profit 122 – 7 115

Impact on the affected balance sheet items as at 31 December 2012

EUR million

31 Dec 2012

Before adjustment

adjustment

31 Dec 2012

after adjustment

assets

• Deferred tax assets 417 59 476

Liabilities

• Provisions

• Liabilities of disposal groups

• Equity

– equity excluding non-controlling interests

retained earnings

2,880

1,250

15,168

15,066

3,775

242

8

– 191

– 191

– 191

3,122

1,259

14,977

14,875

3,585

The corresponding adjustments are recognised in the statement of comprehensive income

including the income statement, the balance sheet, the statement of changes in equity, cash flow

statement and the notes including segment reporting.

In addition to these accounting policy changes, as from financial year 2013 the segment report

will no longer include details on incomes taxes and profit after taxes (see note 4).



adjustments under IaS 8.41 et seq.

The following adjustments, which were also described in the consolidated financial statements as

at 31 December 2012, were made to the first half of 2012:

Pursuant to the amendments by the International Accounting Standards Board to IAS 39 and

IFRS 7 “Reclassification of Financial Assets” and to EU Commission Regulation 1004/2008, certain

available-for-sale securities were reclassified by BayernLB as loans and receivables as at 1 July

2008. During the term of asset-backed securities held by a foreign branch of BayernLB, the amor-

tised cost of these securities and associated revaluation surplus after reclassification were incor-

rectly stated in some cases, and the reported gains or losses on disposal, where early repayments

of these securities were made, did not comply with Group rules. This also had an impact on

deferred taxes. In the first half of 2012 overall, net interest income and gains or losses on finan-

cial investments were overstated by EUR 1 million and EUR 38 million respectively, while income

taxes were understated by EUR 4 million.

Adjustments were also made in the first half of 2012 in connection with the early termination of a

structured bond as gains or losses on hedge accounting were overstated by EUR 24 million and

other income and expenses understated accordingly. These items were correctly presented in the

consolidated financial statements as at 31 December 2012.

The impact of these changes on the income statement items in the comparison period is shown

in the following overview:

Impact on the affected income statement items between 1 January and 30 June 2012

EUR million

1 Jan – 30 Jun 2012

Before adjustment

adjustment

1 Jan – 30 Jun 2012

after adjustment

Net interest income 858 – 1 857

Gains or losses on fair value measurement 248 – 248

Gains or losses on hedge accounting 60 – 24 36

Gains or losses on financial investments – 20 – 38 – 58

Other income and expenses 24 24 47

Profit before taxes 174 – 39 136

Income taxes – 55 4 – 51

Profit after taxes 119 – 34 85

Profit attributable to non-controlling interests 3 – 3

Consolidated profit 122 – 34 88

The corresponding adjustments are recognised in the statement of comprehensive income

including the income statement, the statement of changes in equity, cash flow statement and

the notes including segment reporting.


›› 74

(3) Scope of consolidation

Besides the parent company, the group of companies consolidated within BayernLB comprises 29

subsidiaries (31 December 2012: 37) that are fully consolidated in accordance with IAS 27 and

SIC-12, including one special-purpose entity (31 December 2012: one) where the majority of risks

and rewards are borne by BayernLB in accordance with SIC-12. No entities in the interim financial

statements are proportionately consolidated.

Four joint ventures (31 December 2012: four) and five associates (31 December 2012: six) are

measured in accordance with the equity method; one associate previously measured at equity is

classified as held for sale.

Changes at BayernLB

GBW AG, Munich including its fully consolidated subsidiaries

• GBW Asset GmbH, Munich

• GBW Franken GmbH, Würzburg

• GBW Gebäudemanagement GmbH, Munich

• GBW Management GmbH, Munich

• GBW Niederbayern und Oberpfalz GmbH, Munich

• GBW Oberbayern und Schwaben GmbH, Munich

• GBW Regerhof GmbH, Munich

• GBW Wohnungs GmbH, Munich,

whose assets and liabilities have, since the previous year, been shown separately in the balance

sheet under “non-current assets or disposal groups classified as held for sale” and “liabilities of

disposal groups” in accordance with IFRS 5 was sold on 27 May 2013. The sale price for the equity

investments held by BayernLB and Deutsche Kreditbank Aktiengesellschaft, Berlin was EUR 898

million in total. Assets of EUR 2,143 million and liabilities of EUR 1,575 million were derecog-

nised as a result of the deconsolidation. The deconsolidation gain of EUR 351 million was

recognised under gains or losses on financial investments. The income statement of the BayernLB

Group includes income of EUR 9 million from GBW AG including its fully consolidated subsidiaries

for the period January to May 2013.

The associate KGAL GmbH & Co. KG, Grünwald was classified as held for sale on 30 June 2013.

Prior to that it was measured in accordance with the equity method.

Changes in the consolidated MKB Bank Zrt. sub-group

In the MKB Bank Zrt. sub-group, Budapest, the subsidiary MKB Nyugdíjpénztárt és Egészségpénz-

tárt Kiszolgáló Kft., Budapest has been fully consolidated since 1 January 2013. This did not

materially impact the interim financial statements of the BayernLB Group as at 30 June 2013.



Because the IFRS 5 criteria are satisfied, the assets and liabilities of the fully consolidated subsidiary

MKB - Unionbank AD, Sofia are reported in the balance sheet under “non-current assets or dis-

posal groups classified as held for sale” and “liabilities of disposal groups”. The same applies to

the fully consolidated subsidiary NEXTEBANK S.A. (formerly MKB Romexterra Bank S.A.), Targu

Mures. NEXTEBANK S.A. has been classified since 2011 as a disposal group but an extension to

the sales period has been granted. The classification under IFRS 5 of the fully consolidated

subsidiary MKB Romexterra Leasing IFN S.A., Bucharest, which had been classified as a disposal

group since the previous year, was reversed.

Determining the scope of consolidation

BayernLB’s scope of consolidation is determined by materiality criteria. Due to their secondary

importance individually and as a group in relation to the financial position and financial perfor-

mance of the Group, 151 companies (31 December 2012: 155) were neither consolidated nor

measured at equity. The impact on the balance sheet from the contractual relationships between

Group companies and these non-consolidated companies is reported in the interim financial

statements.

Segment reporting

(4) notes to the segment report

The segment report reflects the business structure of the BayernLB Group. A total of six segments

are shown comprising the operational business areas plus the Central Areas & Others and the

Non-Core Unit segments. Earnings of consolidated subsidiaries and units are also allocated to the

segment to which they have been assigned.

The structure of the operating segments in effect in 2012 – Corporates, Mittelstand & Retail

Customers; Real Estate & Savings Banks/Association; and Markets – has been changed to comply

with the EU state aid ruling in 2012. Starting from January 2013 the operating segments are:

Corporates & Mittelstand; Real Estate & Savings Banks/Association; Deutsche Kreditbank sub-

group (DKB) and Markets. In addition, there are the Central Areas & Others and the Non-Core

Unit segments.

The new segment structure differs in three significant ways. Segments are separated more rigor-

ously into core and non-core business; the core activities of the Deutsche Kreditbank Aktienge-

sellschaft, Berlin (DKB) sub-group are now reported as a separate segment; and loans (and their

refinancing) to former subsidiary Hypo Alpe-Adria-Bank International AG, Klagenfurt (HAA) as

well as to subsidiaries MKB Bank Zrt., Budapest (MKB) sub-group and Banque LBLux S.A.,

Luxembourg (LBLux) have been transferred to the Non-Core Unit segment.


›› 76

Customers and transactions without a connection to Germany have been removed from all

operating segments and transferred to the Restructuring Unit which contains those portfolios

that have been designated as non-core. The operational business areas now include only core

activities. All portfolios earmarked for exit are grouped together in the Restructuring Unit and

managed under the responsibility of a single Board of Management member.

As the segment structure in effect to the end of 2012 was largely dominated by the Corporates,

Mittelstand & Retail Customers segment and very heterogeneous in terms of size and earnings,

DKB was taken out of the segment and its core activities put into a separate segment. DKB’s non-

core activities were shifted to the Non-Core Unit. The subsidiary LBLux was also taken out of this

segment. All that remains in the segment now is the Corporates & Mittelstand business area from

which the segment gets its name.

The third change was the transfer of loans (including their refinancing) to HAA, MKB and LBLux

from the Markets segment to the Non-Core Unit, as the sale of all non-core holdings will mean

the termination of the associated intra-group funding.

The newly formed Non-Core Unit segment now contains the Restructuring Unit, the former

Eastern Europe segment with the subsidiary MKB, the subsidiary LBLux, DKB’s non-core activities

and other investments and non-core activities to be wound down. All non-core activities are thus

now grouped in the Non-Core Unit in order to systematically segregate the core business from all

business activities slated to be wound down under the Bank’s new strategy.

Figures from the comparison period have been adjusted to take account of the new segment

structure.

Starting with financial year 2013, the BayernLB Group only reports profit before taxes in the

segment report for all segments. For internal Group management purposes, profit before taxes

is a much more meaningful figure. External reporting therefore follows internal management

information practices.

Segment reporting is based on IFRS 8 and therefore on the monthly management reports submit-

ted to the Board of Management, which serves as the chief operating decision-maker as defined

by IFRS 8.7. The management reports – and therefore the segment structure – are based on the

accounting policies used in the consolidated financial statements under IFRS. Segment reporting

does not therefore need to be reconciled with the IFRS accounting policies used in the consoli-

dated financial statements. The earnings contributions reported under the segments are gener-

ated largely from financial services. The additional information about products and services

required under IFRS 8.32 and on non-current assets by geographical region required under

IFRS 8.33 (b) is not available and the costs of providing the information would be excessive.



Segment reporting as at 30 June 2013

EUR million Co

rpo

rate

s &

Mit

tels

tan

d

re

al

esta

te &

Savi

ng

s B

an

ks/

ass

oci

ati

on

DK

B

Ma

rke

ts

Ce

ntr

al

are

as

&

Oth

ers

no

n-C

ore

Un

it

Co

nso

lid

ati

on

Gro

up

Net interest income 173 121 294 114 169 203 – 118 955

Risk provisions in the

credit business – 11 7 – 64 5 – 2 – 69 – – 134

Net commission income 56 28 – 12 18 – 2 55 – 143

Gains or losses on

fair value measurement 30 31 10 35 – 9 93 – 10 179

Gains or losses on

hedge accounting – 4 – 24 1 1 1 – 20 – 38

Gains or losses on

financial investments 3 – 31 10 – 235 – 279

Income from interests

in companies measured

at equity – – – – – – 3 3

Administrative expenses – 120 – 97 – 153 – 111 – 7 – 198 – – 686

Expenses for bank levies – – – 3 – – 2 – 46 – – 52

Other income and expenses – 1 10 2 – 22 33 39 16 76

Gains or losses on

restructuring – – – – – – 7 – – 7

Profit before taxes 130 102 80 50 180 306 – 129 719

Risk positions 21,347 7,885 27,177 10,198 3,774 23,918 – 94,298

Average economic capital/

reported equity 2,187 821 3,004 1,139 501 2,726 4,604 14,983

Return on equity (RoE) (%) 10.8 19.5 5.2 7.4 – 24.7 – 10.31

Cost/income ratio (CIR) (%) 46.8 50.2 57.0 75.9 – 50.7 – 52.2

Average number of

employees (FTE) 506 607 1,703 498 1,769 3,833 – 8,916

1 From financial year 2013, BayernLabo’s earnings and share in Group equity are included in the return on equity (expressed in percent) at Group level. This relates

to the changes in equity described in note 37.


›› 78

Segment reporting as at 30 June 20121

EUR million Co

rpo

rate

s &

Mit

tels

tan

d

re

al

esta

te &

Savi

ng

s B

an

ks/

ass

oci

ati

on

DK

B

Ma

rke

ts

Ce

ntr

al

are

as

&

Oth

ers

no

n-C

ore

Un

it

Co

nso

lid

ati

on

Gro

up

Net interest income 171 223 183 34 2202 1883 – 165 8552,3

Risk provisions in the

credit business – 53 – 9 – 60 – 16 – 5 – 60 – – 204

Net commission income 76 11 – 1 12 – 6 49 – 140

Gains or losses on

fair value measurement 35 15 183 – 107 4 146 – 28 248

Gains or losses on

hedge accounting – – 2 – 6 443 6 2 – 8 363

Gains or losses on

financial investments – 1 1 42 1 1 – 1033 1 – 583

Income from interests

in companies measured

at equity – – – – – – – 14 – 14

Administrative expenses – 152 – 1882 – 147 – 144 – 142 – 210 – – 8552

Expenses for bank levies – – – 4 – – 3 – 46 – – 53

Other income and expenses 1 16 – 3 – 413 1 61 12 473

Gains or losses on

restructuring – – – – 1 – 15 1 – 15

Profit before taxes 78 672 187 – 216 2042 123 – 202 1292,3

Risk positions 22,557 10,448 27,620 16,780 3,238 31,130 – 111,775

Average economic capital/

reported equity 2,268 1,058 2,917 1,766 7402,3 3,649 2,053 14,4512,3

Return on equity (RoE) (%) 6.2 10.82 12.6 – 21.7 – 4.03 – 3.12,3,4

Cost/income ratio (CIR) (%) 53.6 71.52 41.3 – 249.4 – 47.13 – 64.42,3

Average number of

employees (FTE) 505 1,218 1,739 507 2,093 3,967 – 10,030

1 The new segment structure is reflected in all segments and in all line items (except for income from interests in companies measured at equity).

2 Adjusted as per IAS 8.22 (see note 2).


4 BayernLabo’s earnings and share in Group equity are not included in the return on equity (expressed in percent) at Group level.



For the purposes of internal management, economic capital is allocated to the segments on the

basis of risk positions assumed in accordance with the German Solvency Ordinance (Solvabilitäts-

verordnung (SolvV)). In the Consolidation column, economic capital is reconciled with reported

equity.

The risk positions include the figures on the reporting date for risk assets, market risk positions

and operational risk. The return on equity shown is calculated at segment level by dividing profit

before taxes less expenses for bank levies and gains or losses on restructuring by economic capi-

tal. For the segments, economic capital is derived from the higher of actual allocated economic

capital or budgeted equity. For the comparison period, due to the reorganisation, actual allo-

cated economic capital was used for simplicity’s sake. The cost-income ratio is the ratio of admin-

istrative expenses to the sum of net interest income, net commission income, gains or losses on

fair value measurement, gains or losses on hedge accounting, and other income and expenses.

notes on delimitation of segments

The Corporates & Mittelstand segment serves large German companies and international compa-

nies with a connection to Germany and also German Mittelstand customers primarily in the states

of Bavaria and North Rhine-Westphalia. These include in particular DAX and MDAX-listed compa-

nies and family-owned businesses which conduct international business from their German home

market. In addition, the Corporates & Mittelstand segment conducts syndicated business on

behalf of the Bavarian savings banks and their customers. The following core activities are

located in this segment: traditional loan financing (including working capital, capex and trade

financing), leasing finance and global project and export financing for customers worldwide with

a focus on the infrastructure, energy and renewable energy sectors. It also acts as lead manager

for its customers in syndicated loans and plays a key role in placing corporate bonds and Schuld-

schein note loans on the market in cooperation with the Markets business area.

The Real Estate & Savings Banks/Association segment incorporates business with commercial and

residential real estate customers, the savings banks and the public sector. The legally dependent

institution Bayerische Landesbodenkreditanstalt (BayernLabo) and the subsidiary Real I.S. AG

Gesellschaft für Immobilien Assetmanagement, Munich are also assigned to this segment.

The Real Estate division focuses on long-term commercial real estate financing in Bavaria and

Germany and business with residential construction companies and residential property

developers. BayernLB offers commercial real estate customers a comprehensive range of

services related to real estate financing.

The Savings Banks & Association division now forms the central hub for collaboration with savings

banks and public sector customers in Germany. Its activities include BayernLB’s business with

savings banks in Germany, particularly Bavaria. The savings banks are a fundamental part of

BayernLB’s business model as both customers and as sales partners. The division also serves

public-sector and municipal customers and institutions in public hands in Germany, which

BayernLB as a partner provides with a wide range of products and tailor-made solutions.

BayernLabo conducts the non-competitive residential construction and urban development

business under public mandate on behalf of BayernLB. It also provides financing for local

authorities in Bavaria.


›› 80

The DKB segment consists of the core business activities of the subsidiary DKB. DKB is well posi-

tioned in retail banking as “Your bank on the web”. Besides internet banking, DKB’s business

activities include the promising infrastructure and corporate customers markets. It specialises

here in sectors with long-term growth potential such as renewable energy, healthcare, and

education and research. DKB also focuses on the target markets of residential construction and

agriculture.

The Markets segment comprises the business area bearing the same name and BayernInvest

Kapitalanlagegesellschaft mbH, Munich, a consolidated asset manager which contributes to the

earnings of the segment. The Markets business area is assigned all trading and issuing activities,

asset liability management and BayernLB’s business relations with banks, insurance companies

and other institutional customers. Markets also provides a range of capital market and Treasury

products that are cross sold to BayernLB’s corporate, Mittelstand, savings bank and real estate

customers. Market and default risks are hedged and solvency assured at all times through risk

and liquidity management.

The Central Areas & Others segment incorporates the earnings contributions from the central

areas Corporate Center, Financial Office, Operating Office, and Risk Office. Its earnings come

primarily from holdings in companies assigned to it and expenditure for refinancing and manag-

ing these holdings. Refinancing costs for the Group’s subsidiaries are also allocated to this seg-

ment. The segment also includes cross-divisional transactions whose earnings contributions are

generated from core business but cannot be allocated to either a business area or a central area.

The consolidated subsidiary BayernLB Capital LLC I, Wilmington is also allocated to this segment.

All non-core activities are being transferred to the Non-Core Unit segment. It contains the

Restructuring Unit, the subsidiaries MKB and LBLux and the non-organisational Other NCU

division.

In the Restructuring Unit, selected portfolios are separated from the activities of the operating

segments. It also contains asset-backed securities affected by the financial market crisis in 2008,

their hedging instruments and a portfolio that includes a number of individual securities posi-

tions with problems.

Business activities in eastern and south-eastern Europe are reported under MKB. MKB’s business

model focuses on Mittelstand customers, small businesses and the high net worth customer

segment.

BayernLB has access to the financial centre of Luxembourg through its holding in LBLux. It is

focused on Mittelstand customers in the Benelux region and high net worth private customers,

and also operates as a custodian bank.

The GBW AG sub-group, Munich was reported in the non-organisational Other NCU division

until its sale in May 2013. DKB’s non-core activities, loans (including their refinancing) to HAA,

MKB and LBLux, silent partner contributions and equity interests in Landesbank Saar, Saarbrücken

are also reported in this segment.

The Consolidation column shows consolidation entries not allocated to any segment.



Income from typical banking operations after risk provisioning (net interest income, net commis-

sion income, gains or losses on fair value measurement, gains or losses on hedge accounting,

gains or losses on financial investments, and income from interests in companies measured at

equity) totalled EUR 1,387 million (30 June 2012: EUR 1,004 million1,2) of which EUR 178 million

(30 June 2012: EUR 210 million) relates to Europe excluding Germany and EUR 323 million

(30 June 2012: EUR 260 million2) to America.

notes to the statement of comprehensive income

(5) net interest income

EUR million

1 Jan –

30 Jun 2013

1 Jan –

30 Jun 2012

Interest income

• From lending and money market transactions

• From bonds, notes and other fixed-income securities

• Current income from equities and other non-fixed income securities

• Current income from interests in non-consolidated subsidiaries,

joint ventures, associates and other interests

• Current income from profit-pooling and profit transfer agreements

• Current income from other financial investments

• From hedge accounting derivatives

• From derivatives in economic hedges

4,116

2,781

278

2

6

1

7

554

488

5,307

3,3401

4212

3

9

1

4

1,014

514

Interest expenses

• For liabilities to banks and customers

• For securitised liabilities

• For subordinated capital

• For hedge accounting derivatives

• For derivatives in economic hedges

• Other interest expenses

3,161

1,422

438

121

754

380

47

4,452

1,927

832

148

896

428

2211

Total 955 855



(6) risk provisions in the credit business

EUR million

1 Jan –

30 Jun 2013

1 Jan –

30 Jun 2012

Additions 381 419

Direct writedowns 21 17

Releases 247 194

Recoveries on written down receivables 16 27

Other gains or losses on risk provisions 5 11

Total 134 204

The amounts include on-balance sheet and off-balance sheet credit business.




›› 82

(7) net commission income

EUR million

1 Jan –

30 Jun 2013

1 Jan –

30 Jun 2012

Securities business 37 30

Broker fees – 9 – 14

Lending business 79 96

Payments 8 2

Foreign commercial operations 2 3

Home loan savings business – – 17

Trust transactions 9 9

Miscellaneous 18 31

Total 143 140

(8) Gains or losses on fair value measurement

EUR million

1 Jan –

30 Jun 2013

1 Jan –

30 Jun 2012

net trading income

• Interest-related transactions

• Currency-related transactions

• Credit derivatives

• Other financial transactions

• Refinancing of trading portfolios

• Trading-related commission

• Fair value adjustments

207

65

34

59

19

– 5

– 11

46

276

134

321

82

6

– 45

– 18

85

Fair value gains or losses from the fair value option – 28 – 28

Total 179 248


(9) Gains or losses on hedge accounting

EUR million

1 Jan –

30 Jun 2013

1 Jan –

30 Jun 2012

Gains or losses on micro fair value hedges

• Measurement of underlying transactions

• Measurement of hedging instruments

– 14

152

– 166

35

– 2361

271

Gains or losses on portfolio fair value hedges

• Measurement of underlying transactions

• Amortisation of the portfolio hedge adjustment

• Measurement of hedging instruments

– 24

– 211

– 246

433

2

405

–

– 403

Total – 38 36


Since 1 July 2012, the amortisation of the portfolio hedge adjustment has been reported in gains

or losses on hedge accounting (previously net interest income).



(10) Gains or losses on financial investments

EUR million

1 Jan –

30 Jun 2013

1 Jan –

30 Jun 2012

Gains or losses on financial investments in the loans-and-receivables

category

• Gains or losses on sales

• Income from impairment reversals

• Expenses from impairments

99

30

79

10

42

171

981

731

Gains or losses on financial investments in the available-for-sale

category

• Gains or losses on sales

• Income from impairment reversals

• Expenses from impairments

– 171

– 94

286

363

– 141

– 82

162

222

Gains or losses on deconsolidation 351 41

Total 279 – 58


(11) administrative expenses

EUR million

1 Jan –

30 Jun 2013

1 Jan –

30 Jun 2012

Staff costs

• Salaries and wages

• Social security contributions

• Expenses for pensions and other employee benefits

337

276

36

25

481

285

42

1541

Other administrative expenses 313 344

amortisation and depreciation of property, plant and equipment and

intangible assets (not including goodwill) 37 30

Total 686 855


(12) expenses for bank levies

EUR million

1 Jan –

30 Jun 2013

1 Jan –

30 Jun 2012

Expenses for bank levies 52 53

Total 52 53

Expenses for bank levies include EUR 6 million (30 June 2012: EUR 7 million) for the German bank

levy and EUR 46 million (30 June 2012: EUR 46 million) for the Hungarian special tax on banks and

financial institutions.


›› 84

(13) Other income and expenses

EUR million

1 Jan –

30 Jun 2013

1 Jan –

30 Jun 2012

Other income 350 351

Other expenses 274 3041

Total 76 47


(14) Gains or losses on restructuring

EUR million

1 Jan –

30 Jun 2013

1 Jan –

30 Jun 2012

Income from restructuring measures 1 –

Expenses for restructuring measures 7 15

Total – 7 – 15

notes to the balance sheet

(15) Cash reserves


Cash 64 199

Deposits with central banks 2,541 1,236

Debt instruments issued by public entities and bills of exchange eligible

for refinancing with central banks 885 1,148

Total 3,489 2,583

(16) Loans and advances to banks


Loans and advances to domestic banks 27,860 29,304

Loans and advances to foreign banks 17,811 15,143

Total 45,671 44,446

(17) Loans and advances to customers


Loans and advances to domestic customers 110,105 113,955

Loans and advances to foreign customers 32,365 36,657

Total 142,471 150,612



(18) risk provisions


Specific loan loss provisions 2,464 2,583

Portfolio provisions 214 247

Total 2,678 2,830

Changes in specific loan loss provisions

EUR million

Loans and advances

to banks

Loans and advances

to customers Total

2013 2012 2013 2012 2013 2012

as at 1 Jan 535 559 2,048 1,991 2,583 2,550

Changes recognised

in income statement

• Additions

• Releases

• Unwinding

–

–

–

–

–

–

–

–

135

347

177

35

149

300

111

40

135

347

177

35

149

300

111

40

Changes not recognised

in income statement


• Utilisation

• Transfers/other changes

–

–

–

–

– 6

1

19

12

– 254

– 10

233

– 11

– 139

47

186

–

– 254

– 10

233

– 11

– 145

48

206

12

as at 30 Jun 535 553 1,929 2,000 2,464 2,553

Changes in portfolio provisions

EUR million

Loans and advances

to banks

Loans and advances

to customers Total

2013 2012 2013 2012 2013 2012

as at 1 Jan 32 55 215 318 247 372

Changes recognised

in income statement

• Additions

• Releases

– 6

–

6

– 5

2

8

– 5

28

33

41

48

6

– 11

28

40

36

50

14

Changes not recognised

in income statement


• Utilisation

• Transfers/other changes

–

–

–

–

–

–

–

–

– 21

–

21

–

– 30

1

17

– 15

– 21

–

21

–

– 30

1

17

– 15

as at 30 Jun 25 49 189 329 214 378

Risk provisions for contingent liabilities and other commitments are shown as provisions in the

credit business (see note 33).


›› 86

(19) assets held for trading


Bonds, notes and other fixed-income securities 3,791 4,620

Equities and other non-fixed income securities 249 160

Receivables held for trading 1,170 1,138

Positive fair values from derivative financial instruments

(not hedge accounting) 25,008 36,176

Total 30,218 42,094

Assets held for trading includes the fair value of the guarantee agreement with the Free State of

Bavaria (Umbrella) in the amount of EUR 909 million (31 December 2012: EUR 520 million).

(20) Positive fair values from derivative financial instruments (hedge accounting)


Positive fair values from micro fair value hedges 3,400 4,162

Total 3,400 4,162

(21) Financial investments


Financial investments in the fair-value-option category

• Bonds, notes and other fixed-income securities

• Equities and other non-fixed income securities

1,186

1,179

8

1,375

1,369

6

Financial investments in the loans-and-receivables category


16,415

16,415

17,235

17,235

Financial investments in the available-for-sale category


• Equities and other non-fixed income securities

• Interests in non-consolidated subsidiaries, joint ventures,

associates and other interests

• Other financial investments

20,622

19,840

171

476

135

19,996

19,217

200

443

135

Total 38,223 38,606

(22) Interests in companies measured at equity


Joint ventures 15 15

Associates 96 96

Total 111 111



(23) Investment property


Land and buildings for rental 68 67

Undeveloped land 2 2

Total 70 69

(24) Property, plant and equipment


Land and buildings for own use 540 546

Furniture and office equipment 77 83

Total 616 629

(25) Intangible assets


Intangible assets produced in-house 88 77

Other intangible assets 105 109

Total 193 186

(26) non-current assets or disposal groups classified as held for sale


Cash reserves 183 42

Loans and advances to banks 6 5

Loans and advances to customers 765 138

Risk provisions 108 61

Assets held for trading 11 –

Financial investments 120 231

Investment property – 1,990

Property, plant and equipment – 15

Intangible assets – 1

Current tax assets – 3

Deferred tax assets – 16

Other assets 14 80

Total 992 2,460


›› 88

As one of the conditions of the EU Commission’s ruling in BayernLB’s state aid proceedings, KGAL

GmbH & Co. KG, Grünwald, which performs asset management, is to be disposed of. Accordingly,

it was classified as held for sale on 30 June 2013. The change in the company’s classification from

measured at equity to held for sale did not result in any impairment.

GBW AG, Munich and its fully consolidated subsidiaries, which were classified as a disposal group

held for sale in the previous year, was deconsolidated in May 2013. In January 2013 the sale of

the shares in Deutsche Lufthansa AG, Cologne, classified as held for sale since the previous year,

was completed in full.

As at 31 December 2012, there was a permitted breach of the 12-month deadline for the sale of

the fully consolidated subsidiary NEXTEBANK S.A. (formerly MKB Romexterra Bank S.A.), Targu

Mures, which forms part of the MKB Bank Zrt. sub-group, Budapest (MKB) and which has been

classified as a disposal group since 2011. It still meets the conditions for classification under

IFRS 5. In the subsequent measurement, this resulted in an impairment of EUR 4 million in the

reporting period. In the reporting period, the sales process for the fully consolidated subsidiary

MKB - Unionbank AD, Sofia, which is included in the MKB sub-group, was also initiated. A sale is

still expected to take place in 2013. The conditions for classifying MKB - Unionbank AD as a dis-

posal group held for sale were met. The classification as held for sale resulted in an impairment

of EUR 13 million. The sales process for the MKB sub-group’s fully consolidated subsidiary MKB

Romexterra Leasing IFN S.A., Bucharest, which was classified as a disposal group in the previous

year, was ended in the first half of 2013 due to a restructuring and the business wound down.

For this reason, its classification under IFRS 5 was reversed. This produced no material impact.

(27) Other assets


Claims from reinsurance 207 206

Precious metals 95 180

Emissions certificates 89 136

Pre-paid expenses 36 20

Property as inventory 17 13

Other assets 226 322

Total 670 877



(28) Liabilities to banks


Liabilities to domestic banks 51,492 57,091

Liabilities to foreign banks 12,829 13,430

Total 64,321 70,521

(29) Liabilities to customers


Liabilities to domestic customers 82,417 80,435

Liabilities to foreign customers 10,937 10,383

Total 93,354 90,819

(30) Securitised liabilities


Bonds and notes issued 55,661 59,713

Other securitised liabilities 638 606

Total 56,299 60,319

The reporting period saw the issue of debt instruments (including money market securities) to

the value of EUR 7,943 million. Repurchases amounted to EUR 3,198 million and redemptions to

EUR 7,934 million.

(31) Liabilities held for trading


Trading portfolio liabilities 271 158

Negative fair values from derivative financial instruments

(not hedge accounting) 22,808 34,410

Fair value adjustments 130 179

Total 23,210 34,747

(32) negative fair values from derivative financial instruments (hedge accounting)


Negative fair values from micro fair value hedges 1,136 1,359

Negative fair values from portfolio fair value hedges 2,015 2,506

Total 3,151 3,864


›› 90

(33) Provisions


Provisions for pensions and similar obligations 2,623 2,5611

Other provisions

• Provisions in the credit business

• Restructuring provisions

• Miscellaneous provisions

503

101

203

199

561

140

221

2001

Total 3,126 3,122


(34) Liabilities of disposal groups


Liabilities to banks 28 809

Liabilities to customers 707 197

Securitised liabilities 15 –

Liabilities held for trading – 30

Provisions 1 301

Current tax liabilities – 7

Deferred tax liabilities – 11

Other liabilities 4 174

Total 756 1,259


(35) Other liabilities


Accruals 241 223

Deferred income 40 45

Distributions on compound instruments – 46

Other liabilities 294 231

Total 574 545

(36) Subordinated capital


Subordinated liabilities 4,611 5,306

Profit participation certificates (debt component) 327 325

Dated silent partner contributions (debt component) 115 499

Hybrid capital 66 216

Total 5,120 6,346



In the reporting period, EUR 592 million of subordinated liabilities and EUR 388 million of dated

silent partner contributions were repaid. Hybrid capital was reduced through an additional repur-

chase by a nominal volume of USD 170 million. There were no other material changes in the

reporting period.

(37) equity


equity excluding non-controlling interests

• Subscribed capital

– statutory nominal capital

– capital contribution

– perpetual silent partner contributions

• Specific-purpose capital

• Compound instruments

– profit participation certificates (equity component)

– dated silent partner contributions (equity component)

• Capital surplus

• Retained earnings

– statutory reserve

– other retained earnings

• Revaluation surplus

• Foreign currency translation reserve

• Consolidated profit

15,423

6,872

2,800

612

3,460

–

178

133

45

4,367

3,579

1,268

2,312

– 83

– 65

575

14,875

6,556

2,300

–

4,256

612

182

136

45

4,036

3,585

1,268

2,3171

– 34

– 61

–

non-controlling interests 42 102

Total 15,465 14,977


At the level of BayernLB Holding AG, Munich, which holds BayernLB’s nominal capital, a capital

increase of EUR 832 million was carried out. This took effect on 25 June 2013 when it was

recorded in the Commercial Register. As a result, the equity interest of the Association of

Bavarian Savings Banks, Munich in BayernLB Holding AG rose to 25 percent, with the Free State

of Bavaria’s stake falling correspondingly to 75 percent. Besides cash, the capital increase was

funded by a contribution in kind of all the perpetual silent partner contributions of the Bavarian

savings banks in the amount of EUR 797 million. The capital raised was transferred directly by

BayernLB Holding AG into BayernLB’s capital surplus.

In the reporting period BayernLB also increased its statutory nominal capital by converting a

portion of its capital surplus in the amount of EUR 500 million.

To ensure various equity components are recognised as tier 1 capital under the pending

CRR/CRD IV requirements, the specific-purpose capital was modified and transferred to the

reported capital contribution.


›› 92

As they are compound financial instruments, dated silent partner contributions, including those

that are callable by the lender, and profit participation certificates, must be divided into their

equity and debt components (split accounting). The equity component, being a residual claim for

the purposes of IAS 32.11, is equivalent to the net present value of expected future distributions.

As no half-yearly distributions are made, the amount of the equity component – with the excep-

tion of repurchases and redemptions in the first half of 2013 – corresponds to the value as at

31 December 2012. For a detailed description of the accounting methodology, see note 25 of

the 2012 annual report.

notes to financial instruments

(38) Fair value of financial instruments

Fair value

Carrying

amount Fair value

Carrying

amount

EUR million 30 Jun 2013 30 Jun 2013 31 Dec 2012 31 Dec 2012

assets

• Cash reserves

• Loans and advances to banks1

• Loans and advances to customers1

• Assets held for trading

• Positive fair values from derivative financial

instruments (hedge accounting)

• Financial investments

• Non-current assets or disposal groups

held for sale

3,489

45,833

145,786

30,218

3,400

38,250

977

3,489

45,671

142,471

30,218

3,400

38,223

977

2,583

45,664

155,574

42,094

4,162

38,542

354

2,583

44,446

150,612

42,094

4,162

38,606

354

Liabilities

• Liabilities to banks

• Liabilities to customers

• Securitised liabilities

• Liabilities held for trading

• Negative fair values from derivative financial

instruments (hedge accounting)


• Subordinated capital

65,592

94,905

56,799

23,210

3,151

750

4,864

64,321

93,354

56,299

23,210

3,151

750

5,120

72,290

93,319

61,055

34,747

3,864

1,036

5,924

70,521

90,819

60,319

34,747

3,864

1,036

6,346

1 Carrying amounts not including deduction of risk provisions for loans and advances to banks in the amount of EUR 560 million

(31 December 2012: EUR 567 million) and loans and advances to customers in the amount of EUR 2,118 million (31 December 2012:

EUR 2,263 million).



(39) Financial instrument measurement categories


assets

• Financial assets at fair value through profit or loss

– held-for-trading financial assets

assets held for trading

non-current assets or disposal groups held for sale– fair value option

loans and advances to banks

loans and advances to customers

financial investments• Loans and receivables

– cash reserves

– loans and advances to banks1

– loans and advances to customers1

– financial investments

– non-current assets or disposal groups held for sale

• Available-for-sale financial assets

– cash reserves

– loans and advances to customers

– financial investments

– non-current assets or disposal groups held for sale

• Positive fair values from derivative financial instruments

(hedge accounting)

32,178

30,230

30,218

11

1,948

19

743

1,186

207,216

2,605

45,652

141,698

16,415

846

21,657

885

30

20,622

120

3,400

44,278

42,094

42,094

–

2,184

22

787

1,375

213,007

1,435

44,425

149,790

17,235

123

21,410

1,148

36

19,996

231

4,162

Liabilities

• Financial liabilities at fair value through profit or loss

– held-for-trading financial liabilities

liabilities held for trading

liabilities of disposal groups– fair value option

liabilities to banks

liabilities to customers

securitised liabilities

subordinated capital• Financial liabilities measured at amortised cost

– liabilities to banks

– liabilities to customers

– securitised liabilities

– liabilities of disposal groups

– subordinated capital

• Negative fair values from derivative financial instruments

(hedge accounting)

32,479

23,210

23,210

–

9,269

616

3,728

4,897

28

210,575

63,706

89,626

51,402

750

5,091

3,151

44,321

34,777

34,747

30

9,544

639

3,935

4,850

120

219,466

69,882

86,884

55,469

1,006

6,226

3,864

1 Not including deductions of risk provisions.


›› 94

(40) reclassification of financial assets

Pursuant to the amendments by the International Accounting Standards Board to IAS 39 and

IFRS 7 “Reclassification of Financial Assets” and to EU Commission Regulation 1004/2008, certain

available-for-sale and held-for-trading assets were reclassified by BayernLB as loans and

receivables as at 1 July 2008. There were no other reclassifications during the reporting period.

The fair values and carrying amounts of the reclassified securities broken down by category at the

end of the reporting period in accordance with IAS 39 in conjunction with IFRS 7.12A (b) were:

Fair value

Carrying

amount Fair value

Carrying

amount

EUR million 30 Jun 2013 30 Jun 2013 31 Dec 2012 31 Dec 2012

Available-for-sale securities reclassified as loans

and receivables 16,355 16,339 17,001 17,159

Held-for-trading securities reclassified as loans

and receivables 50 54 49 54

Total 16,405 16,393 17,050 17,213

As at the reporting date the nominal volume of the reclassified securities was EUR 17,477 million

(31 December 2012: EUR 18,408 million).

In the following table, in accordance with IAS 39 in conjunction with IFRS 7.12A, the changes in

value recognised and not recognised in profit or loss and current income “without reclassifica-

tion” are compared with the corresponding “with reclassification” figures. All earnings effects

including current earnings components have been recognised.

Without

reclas -

sification1

With

reclas -

sification2

Without

reclas-

sification1

With

reclas-

sification2

EUR million

1 Jan –

30 Jun 2013

1 Jan –

30 Jun 2013

1 Jan –

30 Jun 2012

1 Jan –

30 Jun 2012

reclassification from the

available-for-sale category

• Net interest income

• Gains or losses on hedge accounting

• Gains or losses on financial investments

• Change in the revaluation surplus

92

– 34

103

259

93

– 34

99

57

176

3

46

396

1783

3

413

1153

Total 420 214 620 337

reclassification from the

held-for-trading category

• Net interest income

• Gains or losses on fair value measurement

• Gains or losses on financial investments

–

2

–

–

–

–

–

2

–

1

–

1

Total 2 – 2 2

1 Taking account of categories before reclassification.

2 Taking account of categories after reclassification.




(41) Fair value hierarchy of financial instruments

The fair value hierarchy divides the inputs used to measure the fair value of financial instruments

into three levels:

• Quoted prices (unadjusted) in active markets for identical financial instruments that the BayernLB

Group can access at the measurement date (Level 1)

• Inputs other than the quoted prices included within Level 1 that are observable either directly

or indirectly, i.e. quoted prices for similar instruments in active markets, quoted prices in

markets that are not active, other observable inputs that are not quoted prices, and market-

corroborated inputs (Level 2)

• Unobservable inputs (Level 3).

Financial instruments measured at fair value

In the overviews below, financial instruments recognised at fair value in the balance sheet are

classified according to whether they are measured with prices quoted on active markets (Level 1),

their fair value is calculated using measurement methods whose key inputs can be directly or

indirectly observed (Level 2) or are not based on observable market data (Level 3).

EUR million

Level 1 Level 2 Level 3 Total

30 Jun

2013

31 Dec

2012

30 Jun

2013

31 Dec

2012

30 Jun

2013

31 Dec

2012

30 Jun

2013

31 Dec

2012

assets

• Cash reserves

• Loans and advances to banks

• Loans and advances to

customers


• Positive fair values from

derivative financial instruments

(hedge accounting)

• Financial investments1

• Non-current assets or disposal

groups held for sale1

885

–

–

3,315

–

16,087

129

1,148

–

–

3,926

–

14,543

91

–

19

773

25,375

3,400

2,356

–

–

22

822

37,132

4,162

3,010

–

–

–

–

1,528

–

3,364

3

–

–

–

1,037

–

3,241

–

885

19

773

30,218

3,400

21,808

132

1,148

22

822

42,094

4,162

20,793

91

Total 20,416 19,706 31,924 45,147 4,895 4,278 57,235 69,132

Liabilities





• Negative fair values from

derivative financial instruments

(hedge accounting)


• Subordinated capital

–

–

1,200

311

–

–

–

–

–

966

244

–

30

–

616

3,728

3,697

22,615

3,151

–

28

639

3,935

3,884

34,144

3,864

–

120

–

–

–

283

–

–

–

–

–

–

359

–

–

–

616

3,728

4,897

23,210

3,151

–

28

639

3,935

4,850

34,747

3,864

30

120

Total 1,511 1,240 33,836 46,586 283 359 35,630 48,186

1 Including investments since financial year 2013.


›› 96

Fair values calculated on the basis of unobservable market data (Level 3) by risk type

EUR million

Interest rate

risks

equity and

other price

risks Credit risks Total

30 Jun 2013 30 Jun 2013 30 Jun 2013 30 Jun 2013

assets


• Financial investments

• Non-current assets or

disposal groups held for sale

522

2,843

–

–

522

3

1,006

–

–

1,528

3,364

3

Total 3,364 525 1,006 4,895

Liabilities

• Liabilities held for trading – – 283 283

Total – – 283 283

reclassifications between Level 1 and Level 2

reclassifications

EUR million

to Level 1 from Level 2 to Level 2 from Level 1

1 Jan – 30 Jun 2013 1 Jan – 30 Jun 2013

assets

• Financial investments 411 –

Total 411 –

Liabilities



168

–

24

2

Total 168 26

In the reporting period, financial instruments were reclassified between Level 1 and Level 2, as

they will be measured again/will no longer be measured using prices quoted on active markets.

The amounts reclassified were calculated on the basis of the fair value at the end of the reporting

period.



Changes in fair value calculated on the basis of unobservable market data (Level 3) – assets

EUR million

assets held

for trading

Financial

investments

non-current

assets or dis-

posal groups

held for sale Total

2013 2013 2013 2013

as at 1 Jan 1,037 3,757 11 4,805

Currency-related changes 14 19 – 33


consolidation – – – 7 – 7

Income and expenses recognised

in the income statement 481 202 – 683

Changes in the revaluation surplus – – 11 – – 11

Purchases – 10 – 10

Sales – 7 2 9

Settlements 3 606 – 609

as at 30 Jun 1,528 3,364 3 4,895

Income and expenses recognised

in the income statement during

the period for financial instruments

held at 30 June 481 129 – 610

Changes in fair value calculated on the basis of unobservable market data (Level 3) – liabilities

EUR million

Liabilities held

for trading Total

2013 2013

as at 1 Jan 359 359

Currency-related changes 2 2

Income and expenses recognised in the

income statement – 70 – 70

Settlements 8 8

as at 30 Jun 283 283

Income and expenses recognised in the income

statement during the period for financial instruments

held at 30 June – 60 – 60


›› 98

The income and expenses recognised in the income statement are shown under the gains or

losses on fair value measurement item if they are not measurement gains or losses on hedge

accounting (recognised in gains or losses on hedge accounting) or impairments on financial

investments in the available-for-sale category (recognised in gains or losses on financial invest-

ments). Changes in the revaluation surplus are a component of other comprehensive income.

All calculated fair values are subject to internal controls and independent audits and validations.

The procedures used are defined in the guidelines for the BayernLB Group. These controls, audits

and validations are conducted by the risk-controlling units and other responsible units within the

Group. The models, inputs and resulting fair values are regularly reviewed by the responsible

managers.

A measurement model is used to calculate the fair value of the guarantee agreement with the

Free State of Bavaria (Umbrella), which is recognised as a credit derivative. For a detailed descrip-

tion of the measurement methodology, see note 6 of the 2012 annual report. The sensitivity of

key inputs in this model is

• for a ten-basis-point upward (downward) shift in the euro yield curve:

EUR +2.5 million (EUR – 2.6 million)

• for a one-year extension (reduction) in the term of the underlying asset-backed securities and

the expected term of the guarantee agreement:

EUR – 41.6 million (EUR +47.8 million).

(42) Financial instruments designated at fair value through profit or loss

The maximum default risk for loans and receivables in the fair-value-option category was

EUR 762 million on the reporting date (31 December 2012: EUR 808 million). Rating-related

changes in the fair value of these financial assets in the reporting period were EUR 1 million

(30 June 2012: EUR 2 million), and EUR 7 million (30 June 2012: EUR 3 million) since designation.

For financial liabilities under the fair value option, credit-rating driven fair value changes in

the reporting period were EUR – 23 million (30 June 2012: EUR – 74 million), and EUR – 1 million

(30 June 2012: EUR 59 million) since designation. The difference between the carrying amount

of the financial liabilities and the redemption amount at maturity was EUR 493 million on the

reporting date (31 December 2012: EUR 705 million).

The credit rating-related changes in fair value are determined by subtraction, in which the fair

value based on the credit spreads at the end of the reporting period was compared with the fair

value based on the credit spreads at the beginning of the reporting period.



(43) Derivative transactions

The table below shows interest rate and foreign currency-related derivatives and other forward

transactions and credit derivatives not yet settled as at the reporting date. Most were concluded

to hedge fluctuations in interest rates, exchange rates or market prices or were trades for the

account of customers.

EUR million

nominal value Positive fair value negative fair value

30 Jun

2013

31 Dec

2012

30 Jun

2013

31 Dec

2012

30 Jun

2013

31 Dec

2012

Interest rate risks 968,784 1,041,321 25,258 37,100 24,017 35,493

Currency risks 109,332 118,002 2,341 2,639 1,904 2,362

Equity and other price risks 6,996 6,252 392 311 273 310

Credit derivative risks 8,162 8,606 1,018 543 295 369

Total 1,093,274 1,174,181 29,009 40,593 26,490 38,534

of which:

Derivatives for trading purposes 995,215 1,098,556 24,472 35,734 22,923 34,162

Supplementary information

(44) Trust transactions


assets held in trust

• Loans and advances to banks

• Loans and advances to customers

• Other assets

8,438

79

5,376

2,982

8,580

86

5,654

2,839

Liabilities held in trust



• Other liabilities

8,438

16

5,440

2,982

8,580

17

5,724

2,839

(45) Contingent assets, contingent liabilities and other commitments


Contingent liabilities

• Liabilities from guarantees and indemnity agreements

12,530

12,530

12,712

12,712

Other commitments

• Placement and underwriting commitments

• Irrevocable credit commitments

21,669

118

21,551

22,174

94

22,080

Total 34,199 34,886

As at the reporting date there were also contingent assets from legal disputes where the Bank

considers an inflow of economic benefits that cannot be reliably estimated at present probable.


›› 100

(46) administrative bodies of BayernLB

Board of administration until 30 June 2013

Dr Markus Söder

Chairman

State Minister

Bavarian State Ministry of Finance

Munich

alexander Mettenheimer

First Deputy Chairman

Former financier

Munich

Walter Strohmaier

Second Deputy Chairman

Chairman of the Board of Directors

Sparkasse Niederbayern-Mitte

Straubing

Dr Dr axel Diekmann

Shareholder

Verlagsgruppe Passau GmbH

Passau

ralf Haase

Chairman of the General Staff Council

BayernLB

Munich

Joachim Herrmann

State Minister

Bavarian State Ministry of the Interior

Munich

Jakob Kreidl

President of the Bavarian Districts Council

Chief District Administrator

Miesbach

Wolfgang Lazik

Deputy Secretary


Munich

Dr Klaus von Lindeiner-Wildau

Member of the Executive Board (retired)

Wacker Chemie GmbH

Independent Consultant

Munich

Professor Dr Christian rödl

Managing Partner

Rödl & Partner GbR

Nuremberg

Martin Zeil

State Minister

Bavarian State Ministry of Economic Affairs,

Infrastructure, Transport and Technology

Munich



Supervisory Board since 1 July 2013

Michael Schneider

Chairman

since 4 July 2013

Former chairman of the

Board of Directors of LfA

Munich

Walter Strohmaier

Deputy Chairman

since 4 July 2013

Chairman of the Board of Directors

Sparkasse Niederbayern-Mitte

Straubing

Dr Dr axel Diekmann

Shareholder

Verlagsgruppe Passau GmbH

Passau

ralf Haase

Chairman of the General Staff Council

BayernLB

Munich

Dr Ulrich Klein

Under Secretary


Munich

Jakob Kreidl

President of the Bavarian Districts Council

Chief District Administrator

Miesbach

Wolfgang Lazik

Deputy Secretary


Munich

Dr Klaus von Lindeiner-Wildau

Member of the Executive Board (retired)

Wacker Chemie GmbH

Independent Consultant

Munich

Professor Dr Christian rödl

Managing Partner

Rödl & Partner GbR

Nuremberg

Professor Dr Bernd rudolph

Professor emeritus at the

Ludwig-Maximilians-Universität München

Faculty of Business Administration

Munich

Dr Hans Schleicher

Deputy Secretary

Bavarian State Ministry of Economic Affairs,

Infrastructure, Transport and Technology

Munich


›› 102

Board of Management (including allocation of responsibilities from 1 august 2013)

Gerd Haeusler

CEO

Corporate Center

Deutsche Kreditbank Aktiengesellschaft

Dr edgar Zoller

Deputy CEO

Real Estate & Savings Banks/Association

Bayerische Landesbodenkreditanstalt1

Human Resources

Marcus Kramer

CRO

Risk Office

Restructuring Unit

Group Compliance

Stephan Winkelmeier

CFO/COO

Financial Office

Operating Office

MKB Bank Zrt.

nils niermann

Markets

Banque LBLux S.A.

BayernInvest Kapitalanlagegesellschaft mbH

Michael Bücker

since 1 February 2013

Corporates, Mittelstand & Financial Institutions

Jan-Christian Dreesen

until 31 January 2013

1 Dependent institution of the Bank.



(47) related party disclosures

The BayernLB Group maintains business relationships with related parties. These include the Free

State of Bavaria and since 25 June 2013 the Association of Bavarian Savings Banks, Munich (SVB)

(whose indirect stakes in BayernLB are 75 percent and 25 percent respectively), non-consolidated

subsidiaries, joint ventures and associates. The members of BayernLB’s Board of Management and

Board of Administration and their close family members and companies controlled or jointly con-

trolled by these parties are also deemed related parties.

With the exception of the guarantee agreement with the Free State of Bavaria (Umbrella), busi-

ness with related parties was transacted in the course of ordinary activities at standard market

conditions.

relationships with the Free State of Bavaria


Loans and advances 4,870 4,924

Assets held for trading 1,057 571

Financial investments 127 52

Liabilities 121 161

Liabilities held for trading 8 14

Liabilities held in trust 5,388 5,248

Contingent liabilities 3 3

Other commitments 965 965

The following were material relationships with companies controlled by the Free State of Bavaria,

or over which it exercises common control or has significant influence:


Loans and advances to banks 37 38


Assets held for trading 101 207

Liabilities to banks 3,171 3,173


Securitised liabilities 104 111


Assets held in trust 407 409


›› 104

relationships with the association of Bavarian Savings Banks

EUR million 30 Jun 2013

Loans and advances 5

Assets held for trading 2

Liabilities 53

Liabilities held for trading 3

The following were material relationships with companies controlled by the SVB, or over which it

exercises common control:

EUR million 30 Jun 2013

Loans and advances to banks 114

Liabilities to banks 2,684

Securitised liabilities 146

relationships with investees


Loans and advances to banks 1,170 1,311


Risk provisions 15 21

Assets held for trading 101 131

Financial investments 1,754 1,989

Non-current assets or disposal groups held for sale – 10

Other assets 19 26

Liabilities to banks 572 910



Negative fair values from derivative financial instruments

(hedge accounting) 34 43

Provisions 3 4

Other liabilities 5 –

Subordinated capital 12 12

Contingent liabilities 15 18

Other commitments 59 21

In the reporting period, an expense of EUR 7 million (30 June 2012: EUR 0 million) was recognised

for non-recoverable or doubtful receivables.

relationships with other related parties

On the reporting date, receivables to other related parties totalled EUR 18 million

(31 December 2012: EUR 18 million).



Responsibility statement by the Board of Management

To the best of our knowledge, and in accordance with the applicable principles for interim finan-

cial reporting, the consolidated interim financial statements give a true and fair view of the finan-

cial performance and financial position of the Group, and the Group interim management report

contains a fair review of the development and performance of the business and the position of

the Group, together with a description of the principal opportunities and risks associated with

the expected development of the Group.

Munich, 20 August 2013

Bayerische Landesbank


Gerd Haeusler Dr Edgar Zoller Marcus Kramer

Stephan Winkelmeier Nils Niermann Michael Bücker


›› 106

To Bayerische Landesbank, Munich

We have reviewed the condensed consolidated interim financial statements – comprising the

condensed statement of comprehensive income (including income statement), the balance sheet,

statement of changes in equity, condensed statement of cash flows and selected explanatory

notes – and the interim group management report of the Bayerische Landesbank for the period

from 1st January, 2013 to 30th June, 2013 which are part of the half-year financial report pursuant

to § (Article) 37w Abs. (paragraph) 2 WpHG (“Wertpapierhandelsgesetz”: German Securities

Trading Act). The preparation of the condensed consolidated interim financial statements in

accordance with the IFRS applicable to interim financial reporting as adopted by the EU and of

the interim group management report in accordance with the requirements of the German

Securities Trading Act applicable to interim group management reports is the responsibility of

the company’s Board of Managing Directors. Our responsibility is to issue a review report on the

condensed consolidated interim financial statements and on the interim group management

report based on our review.

We conducted our review of the condensed consolidated interim financial statements and of the

interim group management report in accordance with German generally accepted standards for

the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of

Public Auditors in Germany) (IDW). Those standards require that we plan and perform the review

so that we can preclude through critical evaluation, with a certain level of assurance, that the

condensed consolidated interim financial statements have not been prepared, in all material

respects, in accordance with the IFRS applicable to interim financial reporting as adopted by

the EU and that the interim group management report has not been prepared, in all material

respects, in accordance with the requirements of the German Securities Trading Act applicable

to interim group management reports. A review is limited primarily to inquiries of company

personnel and analytical assessments and therefore does not provide the assurance attainable

in a financial statement audit. Since, in accordance with our engagement, we have not performed

a financial statement audit, we cannot issue an auditor’s report.

Based on our review, no matters have come to our attention that cause us to presume that the

condensed consolidated interim financial statements have not been prepared, in all material

respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the

EU or that the interim group management report has not been prepared, in all material respects,

in accordance with the requirements of the German Securities Trading Act applicable to interim

group management reports.

Munich, 20th August 2013

Deloitte & Touche GmbH

Wirtschaftsprüfungsgesellschaft

Klaus Löffler Herbert Apweiler

Wirtschaftsprüfer Wirtschaftsprüfer

(German Public Auditor) (German Public Auditor)

Review Report


›› Consolidated Interim Financial Statements Responsibility statement by the Board of Management · Review Report 107

Bayerische Landesbank

Brienner Strasse 18

80333 Munich

Germany

www.bayernlb.de

Documents

BayernLB | Group InterIm report fIrst half of 2013