Significant strengthening of HVB Group´s future value-creation capability (DE)

Given the persistently difficult situation in the German real estate markets, the Management Board of HVB Group has decided to strategically realign the Germany Business Segment. To permit accelerated risk reduction, risk-encumbered legacy real estate exposures will be bundled and made marketable.

Commitment criteria in commercial real estate finance will become even more stringent. As it was the case in the past, private real estate finance will remain an integral part of the bank´s product range. These measures will also lead to a release
of resources and allow HVB Group to exploit market opportunities with considerably higher profitability in the Germany Business Segment.

The ailing portfolios of the entire German real estate finance business of HVB AG will be transferred to the new 'Real Estate Restructuring' Segment. It will comprise a volume of around €15 bn. The goal is to completely whittle down the portfolios
assigned to the Real Estate Restructuring Business Segment without placing a strain on the market, taking account of various options and the opportunities resulting from future trends in the real estate markets. Upon joining the Management Board, Johann Berger will assume responsibility for this portfolio reduction.

To enable a speedy reduction of these portfolios, a change in the valuation method used for these real estate collaterals is necessary. In deviation of the hitherto used approach, which was, in many cases, geared to a restructuring of the individual
exposures â€" also over a long-term horizon â€" with subsequent retransfer to normal business, these assets will now be recognized at their liquidation values. The change in valuation will enhance the marketability of the portfolios, the goal being to ensure faster capital release and an easing of refinancing and cost burdens.

To take account of the changed valuation method and ensure loss-free reduction, also by means of disposals, the segment will be secured with an extraordinary provision of €2.5 bn. This will lead to a significant increase in the risk coverage ratio. Due to the changed valuation of this real estate portfolio, HVB Group expects to see significantly reduced, normalized loanloss provisions of approximately €1.3 bn as early as this year.

Overall, HVB Group plans to achieve a return on equity after taxes approx. in line with its cost of capital in 2005. The core capital ratio of the group will be approx. 6.0% at year-end 2004. The goal is to rapidly realize a noticeable increase in this ratio as quickly as possible by means of earnings retention. Dieter Rampl, Board Spokesman of HVB Group: 'We will considerably relieve future income statements. HVB Group will now be able to focus its resources fully on its profitable core business. We are thus taking key steps to set the stage for rapid achievement of a competitive profitability level and a
strengthening of our earnings retention power.'

The extraordinary provision will be recognized in the 2004 consolidated financial statements and result in the reporting of a corresponding loss. In addition, HVB Group will post a restructuring charge of €250 mn associated with its announced efficiency program in its 2004 annual financial statements. The dividend for fiscal 2004 will have to be suspended. As usual, however, HVB will fully service all subordinate liabilities (participating certificates outstanding and hybrid capital).

Details on the 2004 annual financial statements, the separation of the Real Estate Restructuring Segment and the synergy effects associated with the efficiency program will be announced by HVB Group on February 24 upon publication of the key data of its annual financial statements.

Source: HVB

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