The BHW Group intends to use its core competences of home finance, Bauspar savings and provisioning to create the basis for a return to its previous earnings power. According to Henning R. Engmann, Chairman of the Management Board, the preconditions for improving income levels in the future are BHW's sales strength and its robust and profitable business model which is based on Bauspar savings and provisioning, coupled with considerable increases in efficiency and the release of synergies. In conjunction with the strength of Postbank, these will result in a marked rise in earnings, in particular. On the cost side, BHW identified significant potential savings last year and is rapidly implementing these alongside the integration measures. The deficit for the year of € 291 million at BHW is mainly accounted for by the high level of expenditure relating to the divestment of Allgemeine Hypothekenbank Rheinboden (AHBR).

In the past financial year, the BHW Group increased sales in its core competences of Private Home Finance and Private Asset Accumulation by 3.8% to € 23.8 billion.
The core division, Private Home Finance, recorded 480,000 new contracts with a Bauspar contract amount in excess of € 11.6 billion. This equates to a 9.7 % rise and means that BHW outperformed sector growth in Germany, further consolidating its market position. Outside Germany, 130,000 new Bauspar contracts were signed. Here, the Bauspar contract amount rose by almost 34% to EUR 1.9 billion.
Despite a reduction in building permits granted, loan commitments in non-Bauspar finance, especially mortgages, were up 10.8% to € 6.7 billion. Of this, € 5.4 billion was attributable to Germany and € 1.3 billion to other countries.
Private Asset Accumulation mainly covers fund and insurance products. Sales in this division totalled € 3.1 billion, with particularly high sales of fund products. New business amounted to € 521.2 million (up 32.1%), producing a record result.
As expected, the number of insurance policies taken out was down on 2004 when special factors caused a boom in life assurance. Nevertheless, 126,000 policies taken out (previous year: 174,000) for a total sum insured of € 2.1 billion (previous year: € 3.4 billion) was a pleasing result compared to the sector average.

Financial situation, assets and earnings
In the balance sheet, AHBR was deconsolidated. This reduced total assets of the BHW Group to € 40.7 billion as at 31 December 2005 (previous year: € 113.4 billion).
The annual financial statements, which were prepared in accordance with IAS/IFRS for the first time, reflect the accompanying negative impact of the AHBR divestment. Overall, operations could not compensate for the negative effects. As a result, the Group recorded net loss for the year of € 291.3 billion (previous year: net income of € 66.7 million). Net of the key AHBR factors as well as other non-recurring effects, pre-tax operating profit stood at € -28 million.
Profit contributions from the remaining BHW Group divisions after deconsolidation of AHBR varied in 2005. In Private Home Finance, profit before tax was down by € 26.4 million to € 185.9 million. This was caused by the marked reduction in sales of receivables and continued low interest rates.
In Private Asset Accumulation, previous investment in this division began to pay off. Profit before rose from € 26.9 million to € 37.4 million.
Net interest income declined by 13.1% to € 572.6 million, mainly due to the fact that interest rates remained low, which affected existing contracts and resulted in fewer Bauspar loans being allocated. This in turn generated lower investment income from the resulting surplus of deposits. Risk provisions increased from € 77.7 million to € 102.1 million. These include € 20.8 million resulting from the divestment of AHBR.
Net commission income improved considerably under IFRS accounting, with an increase to € 80.6 million (previous year: € 12.7 million). The Group reported financial income of € 17.0 million compared with € 27.2 million in the previous year. Administrative expenses saw a slight increase of 1.6% to € 492.6 million.

Effects of the integration and increased efficiency programme
During the integration, BHW will be restructured. The Hamelin base, as an important competence centre for loan processing, and the Bauspar division will be retained within the Postbank Group. The mobile sales teams from BHW and Postbank will be merged for optimal deployment of the combined sales channels.
As part of the programme to increase efficiency and the combining of functions, options for the Group as a whole will be used to the benefit of employees. In principle, all Group locations will be open to all employees. This provides opportunities for qualified employees, particularly those from Hamelin, who are affected by the changes. It is the intention that in future, the organisation will consist of a real mixture of employees from all the components of the Group. This is happening to a certain extent already.

Prospects for growth as a Postbank Group company
Following an integration and restructuring phase, Engmann aims to achieve a return to its former earnings power for BHW, now as part of the Postbank Group. Engmann explained: "Our powerful sales organisation and outstanding product portfolio will come into their own given the customer base, which now comprises 14.5 million individuals." The significant level of existing charges will gradually reduce over the coming years, once again proving the sustained profitability of our business model. Many Germans believe that owning their home is the ideal retirement provision, which means that BHW should benefit more than other companies from future growth in private provisioning. Henning R. Engmann highlighted, "I am very confident that within just a few years, BHW will be making a significant contribution towards Postbank Group profits. This will be our benchmark. This will reflect the high level of commitment already shown by BHW employees and managers to ensure the contribution of BHW's core competences in the Group as a whole by implementing the planned short and medium-term measures to increase efficiency."
Postbank announced its intention to take over the remaining shares in BHW Holding AG as part of a squeeze-out. As a result, BHW's Annual General Meeting, which was scheduled for 1 June 2006, will be postponed by several weeks.