• The ramifications of the financial market crisis is exerting considerable pressure and led to a decline in profit from ordinary activities after tax amounting to -€821 million (fourth quarter: -€710 million)
• Of that amount, €581 million resulted from effects due to an active reduction of the entire equity portfolio within the scope of a program in the fourth quarter to optimize the quality of profit on a strategic basis.
• At 7.4%, the core capital ratio was considerably higher than in the previous year (6.9%) and that in the third quarter of 2008 (5.5%)
• Operating business developments increase significantly. Strong new business in retail banking

Turbulence on the capital markets exerted considerable pressure on Deutsche Postbank AG's result in 2008. For the first time in its more recent history, the bank concluded the fiscal year with a loss from ordinary activities after tax amounting to €821 million. The greatest share of these negative results amounted to -€710 million and was incurred in the fourth quarter. The result before tax amounted to -€974 million in comparison to a positive figure of €992 million the previous year. These results are due primarily to impact from the financial market crisis as well as one-time losses such as the announced complete and active reduction of the equity portfolio. In response to the intensified financial market crisis, Postbank already adopted a plan of action in fall 2008 to optimize its earnings quality as well as its risk profile. Among other things, this plan stipulates a reduction of the Bank's equity exposure.

Irrespective of the past year's extraordinary pressures, Postbank was able to consolidate its market position in operating customer business further. Despite the difficult economic environment primarily in retail banking, the development of new business proceeded in a positive manner in all key product categories so that Postbank can look back on a favorable development overall.

Consolidated income statement

Consolidated income statement While total income fell considerably due to the effects of the financial market crisis on net trading income and net income from investment securities, Postbank significantly increased net interest income as well as net fee and commission income in its core operating business.

Net interest income, the most important component of income, increased considerably by €255 million to €2.5 billion despite a predominantly flat and even partially inverted yield curve in 2008. This increase is chiefly due to the favorable development of volume.

Net fee and commission income increased slightly in fiscal year 2008 by €2 million to €1.43 billion. However, this observation underscores the actual operating strength. Net fee and commission income from actual banking business rose by an encouraging 10% to €749 million. On the other hand, the expected decline in income from the sale of postal services continued to counter this figure.

In contrast, net trading income as well as net income from investment securities were considerably negative due to developments on the capital market. Particularly due to effects of the valuation of embedded derivatives from structured credit substitution transactions, net trading income declined overall from €281 million in 2007 to -€389 million in the reporting year.

Net income from investment securities amounted to -€1.25 billion in comparison to €294 million in 2007. This decline is attributable to various consequences from the financial market crisis: Value adjustments with respect to structured credit substitution transactions amounted to a total of €156 million in the reporting year. Involvement in the insolvent Lehman Brothers Bank amounted to €336 million for the year as a whole. By means of the complete and active reduction of its equity portfolio, Postbank realized hidden encumbrances totaling €581 million.

Amounting to €408 million, allowance for losses on loans and advances surpassed the previous year's figure by €70 million due to additional effects from the financial market crisis. Among other things, this includes the entire provision for accounts receivable from Lehman Brothers amounting to €35 million. On a comparable basis, on the other hand, Postbank registered a relative decline in risk provisioning needed in its customer business.

Despite a considerable increase in the rate of inflation, administrative expenses remained nearly stable: They increased by only 1.1% to €2.97 billion although additional provisions and amortization of intangible assets and real estate were posted at the end of the year. These results can be attributed to successful initiatives regarding efficiency increases as well as strict cost discipline.

Net other income and expenses totaled €115 million compared with €23 million in the previous year.

Total assets increased from €202.9 billion at year-end 2007 to €231.3 billion on December 31, 2008. The core capital ratio (Tier 1) was 7.4% on December 31, 2008, following 6.9% at the end of 2007 and 5.5% on September 30, 2008.

Outlook

In line with its action plan, Postbank will focus even more strongly on its rigorous concentration on customer business as well as the reduction of risks and portfolios which are contingent upon the capital market. In light of the favorable operating development, Postbank believes it is well positioned – with stable income from its customer business and a solid refinancing potential. Within the scope of its “Next Step” strategy program, it intends to develop customer business further and resolutely. It will continue to pursue the path which has been struck in reducing capital market portfolios and risks. The medium-term objective is to strengthen net interest income and net fee and commission income which are derived from customer business. Net trading income and net income from investment securities, which are susceptible to fluctuations, are to be granted substantially less significance. Despite successes which already have been achieved, the Bank also aims to intensify its cost management efforts still further.

In the medium term and on a sustainable basis, Postbank is maintaining its objective of again generating a return on equity after tax of between 13% and 15%.

All disclosures are based on preliminary figures.