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February 18, 2009

Commerzbank: Neutral consolidated surplus in 2008

• Operating profit at minus EUR 378 m

• Operating profit without one-offs at EUR 2.1 bn

• Core capital ratio (Tier 1) 10.1%

• No bonuses paid for 2008

• Blessing: "The fourth quarter of 2008 was one of the most difficult ever for Commerzbank"

In 2008, Commerzbank's consolidated surplus attributable to its shareholders amounted to EUR 3 million. In the extraordinarily successful year 2007, the consolidated surplus attributable to Commerzbank shareholders stood at EUR 1.9 billion. After a respective positive consolidated surplus of around EUR 0.8 billion for the first nine months of 2008, in Q4 the consolidated loss amounted to EUR 809 million (Q4 2007: EUR 201 million).

The operating profit came at minus EUR 378 million, compared to an operating profit of EUR 2.5 billion as at December 31, 2007. For the fourth quarter, the bank posted an operating profit of minus EUR 822 million (Q4 2007: plus EUR 169 million). Excluding one-offs, the operating profit for the past year remained positive at EUR 2.1 billion. The bank's operating earnings potential remained impressive even in the financial markets crisis in the core segments Private & Business Customers, Mittelstandsbank and Central and Eastern Europe (CEE). However, this was not sufficient to offset the negative impact of the global market turbulence.

"With its strong core business, the bank developed well into the second half of the year in spite of the difficulties for the beleaguered financial markets", said Martin Blessing, Chairman of the Commerzbank Board of Managing Directors. ¿Caused by the worsening developments and the deteriorating economic environment since the end of the summer, we were not longer able to escape the effects of the global downturn during 2008. The fourth quarter was one of the most difficult ever for Commerzbank."

Core capital ratio (Tier 1) 10.1%, Hybrids will be serviced

For 2008, Commerzbank's core capital ratio (Tier 1) was reported in accordance with IFRS for the first time. It came at 10.1% at year end. The outstanding profit-sharing certificates, the SoFFin's (Sonderfonds Finanzmarktstabilisierung) silent participation and the other hybrid instruments will be fully serviced; there will be no participation in losses. Commerzbank will not pay any dividend for 2008. For 2007, a dividend of EUR 1.00 per share was awarded.

In the fourth quarter, the revaluation reserve amounted to minus EUR 2.2 billion. The major factors behind the EUR 1.1 billion decrease in the fourth quarter were the widening spreads among various Western European government bonds in the wake of Lehman Brothers and the Iceland moratorium requiring adjustments in the Public Finance portfolio. On the other hand stood positive silent reserves from claims and liabilities (fair value) amounting to EUR 5.9 billion pre-tax. In the fourth quarter, Commerzbank has utilized the changes in reclassifying assets (IAS 39 and IFRS 7) for parts of the securities allocated to Public Finance (EUR 33 billion). For the full year 2008 this resulted in charges of EUR 25 million in loan loss provisions. In Q4 the revaluation reserve was relieved by EUR 750 million net.

Private & Business Customers, Mittelstandsbank and CEE achieve positive operating profit

In spite of the turbulence in the financial markets, the core business areas Private & Business Customers and Mittelstandsbank continued to perform well in Q4 2008. The number of private customers in Germany rose by 574,000 throughout the year to more than six million (an increase of 10%). Dynamic growth was also recorded in customer deposits. They were at EUR 101.1 billion as of end-December after EUR 81.1 billion in the previous year (plus 25%). The credit volume to the Mittelstand in Germany rose by more than 10% to EUR 46.5 billion. Operating profit of the two segments was EUR 551 million and EUR 868 million respectively (2007: EUR 401 million and EUR 980 million).

The segment Central and Eastern Europe (CEE), which was newly formed in 2008, achieved an operating profit of EUR 304 million (2007: EUR 272 million). BRE Bank in particular posted a good annual result, despite being hit by the effects of the financial market crisis in the fourth quarter.

Loan loss provisions increased for the capital market related businesses

For 2008, Corporates & Markets (including Public Finance and Treasury) posted an operating profit of minus EUR 1.7 billion, compared with minus EUR 67 million in the previous year. In the fourth quarter 2008 the operating profit was at minus EUR 754 million. This includes the negative effects from a total return swap of minus EUR 303 million. The position has since been closed with a positive income contribution for 2009 totalling almost EUR 90 million. Profits were also dampened by trading activities, especially in credit derivatives (minus EUR 271 million). Adding to this were Lehman Brothers and the Iceland moratorium.

Commercial Real Estate (CRE) closed 2008 with an operating loss of EUR 424 million (2007: plus EUR 447 million). Increased loan loss provisions for possible defaults in the international real estate business (EUR 618 million) and a net investment income (minus EUR 473 million) weakened by writedowns on securitised US mortgages (RMBS-Portfolio) were the main reasons for the negative performance. The operative core of the real estate business, i.e. excluding the RMBS portfolio, delivered a positive result in 2008.

Net interest income reaches record level

In 2008, the net interest income of Commerzbank Group increased by 18% year-on-year to EUR 4.7 billion. The business segments Private & Business Customers and Mittelstandsbank played an important role in this success. Even in the difficult fourth quarter of 2008, net interest income in these segments was up 7% to EUR 364 million quarter-on-quarter and 22% to EUR 354 million, respectively.

Despite the challenging situation in the global financial markets, net commission income in the fourth quarter was EUR 677 million and only 8% below the same quarter last year (EUR 735 million). Again, this was due to encouraging results in the business segments Private & Business Customers and Mittelstandsbank. With regard to the whole year, net commission income was down 10% year-on-year at above EUR 2.8 billion.

Against the background of worsening economic expectations, the year closed with loan loss provisions up by EUR 1.4 billion to EUR 1.9 billion. In the fourth quarter, loan loss provisions totalled EUR 638 billion (a q-o-q increase of EUR 577 million). Strict cost management across all business lines paid off also in 2008, with operating expenses falling by 8% to EUR 5.0 billion.

Trading profit and net investment income with a loss

Following an outstanding trading profit in the second quarter (EUR 375 million), the capital market related segments posted considerable losses from July 2008 onwards. Corporates & Markets (including Public Finance and Treasury) alone showed a negative trading profit of EUR 674 million in the final quarter. On group level, 2008 trading profit was also negative at minus EUR 450 million (2007: EUR 879 million).

Net investment income decreased by EUR 126 million compared with 2007 to EUR 665 million, attributable primarily to impairments on asset-backed securities. Altogether, for the full year 2008 write downs on asset backed securities in trading profit and net investment income totalled around EUR 1.0 billion, thereof EUR 514 million on securitised US real estate loans (US-RMBS portfolio and CDOs), as well as EUR 350 million on Corporate CDOs.

In 2008, Commerzbank posted a consolidated surplus of EUR 62 million well above the operating profit (minus EUR 378 million). This was caused by tax loss carry-forwards capitalized in accordance with IAS 12. Thus at year-end, the tax entry showed an income of EUR 465 million (previous year: expenses of EUR 580 million). EUR 59 million of the consolidated surplus were allocated to minority interests.

Key liquidity ratio at a comfortable level

The key liquidity ratio according to the standardised approach under the Liquidity regulation was constantly maintained throughout 2008 at a comfortable level between 1.06 and 1.21. By the end of the fourth quarter the actual value was at 1.18. This also shows that the Commerzbank Group has a solid positioning and that funding was implemented according to plan.

The balance-sheet total for the Commerzbank Group in 2008 remained almost unchanged at EUR 625.2 billion. Claims on customers increased slightly to EUR 284.8 billion; a result of the deposit growth in the private customers segment. Claims on banks decreased considerably by 15% to EUR 63.0 billion. Liabilities to banks rose only slightly to EUR 128.5 billion (+3%).

No bonuses to be paid for 2008

"Our pre-tax earnings were negative. As a result, employees and members of the Board of Managing Directors of Commerzbank will not receive a bonus for 2008. Nevertheless we have to reward employees individual extra payments acknowledging their contribution and individually agreed salary components will also be settled", said Eric Strutz, the Chief Financial Officer of Commerzbank who is also in charge of Human Resources. This principle applies to Commerzbank AG and all fully owned subsidiaries.

"Of course, we know that our employees worked hard in 2008 and displayed great dedication and commitment. Many departments were profitable and many employees delivered the performance that was expected. This makes it all the more regrettable that the profit is insufficient for bonuses", Strutz continued. Commerzbank is currently working on a new incentive and compensation system. The new model will have to cope with the capabilities of the new Commerzbank in all business areas while at the same time it will have to be in line with the sustainability of returns. "This will continue to make us attractive for employees and to make high performers join us for the long term", said Strutz.

Outlook: 2009 will be another very difficult year

"We had a good start in January 2009, mainly driven by net interest income and trading profit. We will face further economic charges, which will however decrease in 2010", said Strutz. The integration of Dresdner Bank is proceeding according to plan. As budgeted, in 2009 the integration will generate costs that will be more than offset by synergy effects that the merger will produce over time. Strutz added: "Thanks to our effective structure, our high-yielding core business lines and the synergies, we will reap above-average benefits from an economic recovery. But we have to be realistic: 2009 will be another very difficult year."



Excerpt from Commerzbank's consolidated profit and loss statement 1)

in € m Q4 2008 Q4 2007 31.12.2008 31.12.2007
Net interest income 1,325 971 4,729 4,007
Loan loss provisions - 638 - 61 - 1,855 - 479
Net commission income 677 735 2,846 3,150
Trading profit - 701 73 - 450 879
Net investment income - 324 - 123 - 665 126
Other result - 137 - 27 - 27 196
Operating expenses 1,024 1,399 4,956 5,366
Operating profit - 822 169 - 378 2,513
Restructuring expenses - 8 25 8
Taxes on income 43 20 - 465 580
Consolidated profit attributable to Commerzbank shareholders - 809 201 3 1,917
Earnings per share in € - 1.22 0.31 0.00 2.92
Return on equity on the
consolidated surplus 2)
-22.5% 6.5% 0.0% 15.4%
Cost/income ratio in op. business 121.9% 85.9% 77.0% 64.2%

1) unaudited figures of Commerzbank Group without Dresdner Bank
2) adjusted for entire year

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