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Aareal Bank AG

Investor Presentation • May 10, 2011

11_ip_2011-05-10_943122ec-4cc4-4b72-b43e-b24c423a324e.pdf

Investor Presentation

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May 10, 2011Dr. Wolf Schumacher, CEO – Hermann J. Merkens, CFO

Agenda

  • Q1 2011 results at a glance
  • Capital increase
  • SoFFin support measures
  • Group capital and funding position
  • Group figures Q1 2011
  • Asset quality
  • Outlook
  • Appendix
  • Definitions and Contacts

Q1 2011 results at a glance

Q1 2011 results at a glance On track

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Structured property financing New business with attractive risk-return profile

Consulting / ServicesSolid in IT & volumes – weak in deposit margins

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Sales revenue

SG I automatiseringcompensated the decrease of the deposit taking business revenues(deriving from the low interest rate environment)

Staff expenses

Stable even including SG I automatisering

Segment result

Client contract structure of SG I automatiseringwill regularly enhance Q4-results

Capital increase

Successfully completed rights issueGross proceeds of € 269.6 mn

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Shareholder structure

17 mn new shares guarantee a higher free float

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Intended use of the proceeds from the successfully completed rights issue

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Enhanced position by current rights issue

1) Pro-forma Tier 1 capital ratio as at 31.03.2011 includes repayment of € 75 mnof the SoFFin silent participation

Strong capital ratios & stable capital structure post transaction facilitate further growth

  • Targeted Core Tier 1 ratio acc. to Basel III in 2013 over-achieved as of today; new business opportunities will be captured only in accordance with achieving this target
  • Capital structure post transaction well in line with other European banks
  • Full repayment of remaining SoFFinsilent participation possible without further capital increase

Estimated Basel III fully loaded effects Core Tier 1 ratio ex SoFFin/hybrids, development until 2013

2) Estimated impact of Basel III implementation due to capital deductions and counterparty credit risk

(on the basis of pro forma regulatory figures as at 31.03.2011 including the capital increase)

SoFFin support measures

SoFFin support measures Demonstration of strength and soundness

  • Aareal Bank was the first bank to start the repayment of the capital support provided by SoFFin
  • First tranche amounts to € 150 mn
  • Second tranche amounts to € 75 mn
  • Manageable size of remaining € 300 mn SoFFin participation

SoFFin support measuresKey terms

Silent participation

  • Volume1): € 300 mn in one tranche
  • Coupon: 9% (tax deductible)
  • Term: perpetual
  • Fully recognised as Tier 1 capital
  • Call rights: by Aareal Bank only, acc. to sec. 10(4)3 German Banking Law (KWG)
  • No dividend payments during 2009 and 2010 for preceding years
  • Additional remuneration: coupon increases on a pro rata basis by 0.5 pp for each ~0.18 € DpS2)
  • Subordination in case of liquidation and insolvency: junior to existing and future Tier 2 instruments (incl. Genussrechte/-scheine) and other debt; pari passu with existing tier 1 hybrids and future tier 1 hybrid offerings; senior to shareholders
  • Loss sharing: pari passu with all other instruments with loss participation; no dividend payment until full compensation of shared losses
  • 1) Original volume: € 525 mn, first repayment tranche of € 150 mn in July 2010, second repayment tranche of € 75 mn in April 2011
  • 142) Adjusted relative to the capital increase
  • 3) After early redemption of second bond remaining volume down from € 4 bn

Government guarantee facility

  • Volume3): € 2 bn
  • Term: ≤36 months
  • Guaranteed obligations: bearer bonds
  • Drawdown period expired 31.12.2010
    • First bond: € 2 bn fully placed in 03/2009, maturing 26.03.2012
    • Second bond: € 2 bn onto own book 07/2010maturing 05.06.2013early redemption 04/2011
  • Commitment fee: 10 bp(for undrawn guarantee)
  • Drawdown fee:
    • ≤12 months: 50 bp p.a.
  • -> 12 months: 94.8 bp p.a.

B/S structure & funding position

Asset- / Liability structure according to IFRSAs at 31.03.2011: € 39.9 bn (31.12.2010: € 41.2 bn)

Refinancing situation 2011Flexible use of unsecured and secured funding

Refinancing situationDiversified funding sources and distribution channels

  • Aareal Bank has clearly reduced its dependency upon wholesale funding
  • At the beginning of 2002, long term wholesale funding accounted for 47% of overall funding volumes - by 31.03.2011, this share had fallen to 27% (or even 10% without Pfandbriefe)

Group figures Q1 2011

Net interest incomeHigher margins "paying off"

NII Consulting / ServicesNII Structured Property Financing

  • Net interest income Q1 2011: € 134 mn
  • Q4 2010 was boosted by € 3 4 mnone-offs
  • Net interest income influenced by
    • Structured Property Financing: Mainly results from higher margins
    • Consulting / Services: Low interest rate level still burdens the deposit taking business

Loan loss provisionsLoan loss provisions proving high portfolio quality

  • Q1 loan loss provisions of € 18 mnstays annualised below the given range of € 110 mn to € 140 mn
  • Loan loss provisions may vary quarter by quarter
  • Close monitoring of our loan portfolio and successful restructuring efforts results in only € 18 mn LLP in Q1

Net commission incomeCosts for additional SoFFin guarantee since Q3

  • All quarters shown are burdened with ~€ 5 mn costs for the first SoFFin guarantee facility
  • The impact increased to ~€ 10 mnstarting in Q3 2010 due to the additional SoFFin guarantee facility drawn at the end of Q2 2010 (which was held onto own book)
  • Considering these facts net commission income of € 30 mnis a good performance regarding the challenging environment

Q1 2011 includes revenues from SG I automatisering of around € 3 mn

Trading, non trading and hedge accountingResult reflects volatile markets in Q1 2011

Trading result reflects burden from cross-currency basis swaps and positive development of credit derivatives

Admin expensesHigh cost discipline further maintained

  • Q1 2011-figures with € 91 mnabout the average of the last quarters and showing that the efficiency measures still keeping the admin expenses under control
  • Q1 2011 includes for the first time ~ € 1 mn addition burden from the German bank levy
  • Includes effect of consolidation of Aareon's Dutch acquisition SG I automatisering since Q4 2010 (~€ 3 mn per quarter)

Asset quality

Total property finance portfolio High diversification and sound asset quality

Total property finance portfolio NPL-level stabilising with constant coverage ratios

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1) Incl. property finance portfolio still on DEPFA'sbalance sheet

2) General LLP consists to a high degree of Basel II expected loss which

are allocated specific loans in most cases

27

Western Europe (ex Ger) credit portfolioTotal volume outstanding as at 31.03.2011: € 5.3 bn

Southern Europe credit portfolioTotal volume outstanding as at 31.03.2011: € 4.1 bn

German credit portfolio

Total volume outstanding as at 31.03.2011: € 3.8 bn1)

Northern Europe credit portfolio Total volume outstanding as at 31.03.2011: € 2.8 bn

Eastern Europe credit portfolio Total volume outstanding as at 31.03.2011: € 2.7 bn

North America credit portfolio Total volume outstanding as at 31.03.2011: € 2.8 bn

Asia credit portfolioTotal volume outstanding as at 31.03.2011: € 0.7 bn

Treasury portfolio€ 12.1 bn of high quality assets

Outlook

Outlook

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1) As in 2010, the bank cannot rule out additional allowances for credit losses

Main drivers of RoE improvement

p
Ke
f
ig
2
0
1
0
y
ur
es
01.01
.-		 01.01
.-
31.12
.2010		 31.12
.2009		 Chan
Euro
mn		 Euro
mn
Profi
t and
loss
unt
acco
Net in
teres
t inco
me		 509 460
Allow
for c
redit
losse
ance
s		 105 150
Net i
ntere
st inc
afte
r allo
ce fo
dit lo
ome
wan
r cre
sses		 404 310
Net c
ission
inco
omm
me		 123 133
Net r
esult
on h
edge
untin
acco
g		 -2 -2
Net t
radin
g inc
/ exp
ome
ense
s		 8 44
Resu
lts fro
n-trad
ing a
ssets
m no		 -12 -22
Resu
lts fro
ies a
nted
for at
ity
m co
mpan
ccou
equ		 5 1
Resu
lts fro
m inv
estm
ent p
ties
roper		 -17 0
Admi
nistra
tive e
xpen
ses		 366 361
Net o
ther o
perat
ing in
/ exp
come
ense
s		 -9 -14
Impa
irmen
t of g
oodw
ill		 0 2
Oper
ating
Prof
it		 134 87
Incom
e tax
es		 40 20
Net i
e / lo
ncom
ss		 94 67
Alloc
ation
of re
sults
Net in
/ los
s attr
ibuta
ble to
contr
olling
inter
ests
come
non-		 18 18
Net in
/ los
ibuta
ble to
shar
ehold
f Aar
eal B
ank A
G
s attr
come
ers o		 76 49
opria
tion
of pr
ofits
Appr
Silen
nersh
ip co
ntribu
tion b
y So
FFin
t part		 30 26
Cons
/ acc
olida
ted r
etain
ed p
rofit
lated
loss
umu		 46 23

Net interest income expected to increase until 2012; in normalised markets under pressure due to lower margins but still on / above 2010 level

Loan loss provisions expected to improve over time

Net commission income expected to increase driven by intern. business of Aareon and early redemption / maturity of SoFFin bonds

Admin expenses expected to decrease due to efficiency and cost cutting measures

Expected pre-tax RoE in normalised markets: 12% - 13%

Appendix

Aareal Bank GroupKey figures Q1 2011

0
1.
0
1.-
3
1.
0
3.
2
0
1
1		 0
1.
0
1.-
3
1.
0
3.
2
0
1
0
Eu		 C
ha
ng
e
f
i		 Eu
ro
mn		 ro
mn
Pr
t a
d
lo
t
o
n
ss
a
cc
ou
n
Ne
in
inc
t
te
t
res
om
e		 1
3
4		 1
1
7		 1
5
%
A
l
low
for
d
i
los
t
an
ce
c
re
se
s		 1
8		 3
2		 4
4
%
-
Ne
in
in
f
l
lo
fo
d
i
lo
t
te
t
te
t
re
s
co
m
e
a
r a
an
ce
r c
re
ss
es
w		 1
1
6		 8
5		 3
6
%
Ne
iss
ion
inc
t c
om
m
om
e		 3
0		 3
0		 0
%
Ne
l
he
dg
ing
t r
t o
t
es
n
e a
cc
ou
n
u		 -2 2 -
Ne
d
ing
inc
/ e
t
tra
om
e
xp
en
se
s		 -8 6 -
Re
l
fro
d
ing
ts
tra
ts
su
m
no
n-
a
ss
e		 2 0 -
fro
for
Re
l
ies
d
i
ts
te
t e
ty
su
m
co
mp
an
a
cc
ou
n
a
q
u		 0 - -
fro
Re
l
inv
ies
ts
tm
t p
t
su
m
es
en
rop
er		 2 0 -
A
dm
in
is
ive
tra
t
ex
p
en
se
s		 9
1		 9
1		 0
%
Ne
he
ing
inc
/ e
t o
t
t
r o
p
era
om
e
xp
en
se
s		 -2 2
-		 -
Im
irm
f g
dw
i
l
l
t o
p
a
en
oo		 - 0 -
Op
in
Pr
f
i
t
t
er
a
g
o		 4
7		 3
0		 5
%
7
Inc
tax
om
e
es		 1
2		 9 3
3
%
Ne
in
/
lo
t
co
m
e
ss		 3
5		 2
1		 6
%
7
io
f r
A
l
lo
t
l
ts
ca
n
o
es
u
/
Ne
inc
los
i
bu
b
le
l
l
ing
in
t
t
tr
ta
to
tro
te
ts
om
e
s
a
no
n-c
on
res		 5 5 0
%
/
G
Ne
inc
los
i
bu
b
le
ha
ho
l
de
f
Aa
l
Ba
k
A
t
t
tr
ta
to
om
e
s
a
s
re
rs
o
rea
n		 3
0		 1
6		 8
8
%
Ap
ia
io
f p
f
i
t
ts
p
ro
p
r
n
o
ro
S
So
i
len
h
ip
i
bu
ion
by
F
F
in
t p
tn
tr
t
ar
ers
co
n		 6 8 2
%
5
-
Co
l
i
da
d
in
d
f
i
/ a
la
d
lo
te
ta
t
te
ns
o
re
e
p
ro
cc
um
u
ss		 2
4		 8 2
0
0
%

Aareal Bank Group: Segment Reporting Key figures Q1 2011 by operating units

S
tru
c
Pr
op
F
in
an		 d
tu
re
ty
er
in
c
g		 Co
ns
u
Se
rv		 /
l
t
in
g
ice
s		 Co
l
i
ns
o
Re
co
nc		 /
da
t
io
n
i
l
ia
io
t
n		 Aa
l
Ba
k
re
a
n
Gr
ou
p
0
1.
0
1.-
3
1.
0
3.
2
0
1
1		 0
1.
0
1.-
3
1.
0
3.
2
0
1
0		 0
1.
0
1.-
3
1.
0
3.
2
0
1
1		 0
1.
0
1.-
3
1.
0
3.
2
0
1
0		 0
1.
0
1.-
3
1.
0
3.
2
0
1
1		 0
1.
0
1.-
3
1.
0
3.
2
0
1
0		 0
1.
0
1.-
3
1.
0
3.
2
0
1
1		 0
1.
0
1.-
3
1.
0
3.
2
0
1
0
Eu
ro
mn
Ne
in
inc
t
te
t
res
om
e		 1
2
5		 1
0
6		 0 0 9 1
1		 1
3
4		 1
1
7
A
l
low
for
d
i
los
t
an
ce
c
re
se
s		 1
8		 3
2		 1
8		 3
2
Ne
in
in
f
l
low
fo
d
i
lo
t
te
t
te
t
re
s
co
me
a
r a
an
ce
r c
re
ss
es		 1
0
7		 7
4		 0 0 9 1
1		 1
1
6		 8
5
Ne
iss
ion
inc
t c
om
m
om
e		 -5 4
-		 4
4		 4
5		 9
-		 1
1
-		 3
0		 3
0
Ne
l
he
dg
ing
t r
t o
t
es
u
n
e a
cc
ou
n		 -2 2 -2 2
Ne
d
ing
inc
/ e
t
tra
om
e
xp
en
se
s		 -8 6 -8 6
Re
l
fro
d
ing
ts
tra
ts
su
m
no
n-
a
ss
e		 2 0 2 0
Re
l
fro
ies
d
for
i
ts
te
t e
ty
su
m
co
mp
an
a
cc
ou
n
a
q
u		 0 0
Re
l
fro
inv
ies
ts
tm
t p
t
su
m
es
en
rop
er		 2 0 2 0
A
dm
in
is
ive
tra
t
ex
p
en
se
s		 5
1		 5
2		 4
0		 3
9		 0 0 9
1		 9
1
Ne
he
ing
inc
/ e
t o
t
t
r o
p
era
om
e
xp
en
se
s		 2
-		 2
-		 0 0 0 0 2
-		 2
-
Im
irm
f g
dw
i
l
l
t o
p
a
en
oo		 0 0
Op
in
f
i
t
t
er
a
g
p
ro		 4
3		 2
4		 4 6 0 0 4
7		 3
0
Inc
tax
om
e
es		 1
1		 7 1 2 1
2		 9
in
/
Ne
t
lo
co
me
ss		 3
2		 1
7		 3 4 0 0 3
5		 2
1
A
l
lo
io
f r
l
t
ts
ca
n
o
es
u
/
Ne
inc
los
i
bu
b
le
l
l
ing
in
t
t
tr
ta
to
tro
te
ts
om
e
s a
no
n-c
on
res		 4 4 1 1 5 5
Ne
inc
/
los
i
bu
b
le
ha
ho
l
de
f
Aa
l
Ba
k
A
G
t
t
tr
ta
to
om
e
s a
s
re
rs
o
rea
n		 2
8		 1
3		 2 3 0 0 3
0		 1
6

Aareal Bank Group: Segment Reporting Key figures - quarter by quarter

Str
uct
d P
ert
ure
rop
y
Fin
cin
an
g		 Co
ltin
/ S
ice
nsu
g
erv
s		 Co
/
lid
ati
nso
on
Re
ilia
tio
co
nc
n		 Aa
l B
k G
rea
an
rou
p
Q1 Q4 Q3 Q2 Q1 Q1 Q4 Q3 Q2 Q1 Q1 Q4 Q3 Q2 Q1 Q1 Q4 Q3 Q2 Q1
20
11		 20
10		 20
10		 20
10		 20
10		 20
11		 20
10		 20
10		 20
10		 20
10		 20
11		 20
10		 20
10		 20
10		 20
10		 20
11		 20
10		 20
10		 20
10		 20
10
Eu
ro
mn
Ne
t in
in
ter
est
com
e		 125 129 121 111 106 0 0 0 0 0 9 10 10 11 11 134 139 131 122 117
e fo
All
red
it lo
ow
anc
r c
sse
s		 18 8 32 33 32 18 8 32 33 32
Ne
t in
in
af
ter
est
ter
co
me		 107 121 89 78 74 0 0 0 0 0 9 10 10 11 11 116 131 99 89
all
fo
red
it l
ow
an
ce
r c
oss
es		 85
Ne
mis
sio
n in
t c
om
com
e		 5
-		 1
-		 5
-		 1 4
-		 44 49 39 43 45 9
-		 11
-		 10
-		 12
-		 -11 30 37 24 32 30
Ne
t re
lt o
n h
edg
unt
ing
su
e a
cco		 2
-		 4
-		 2
-		 2 2 -2 4
-		 2
-		 2 2
Ne
adi
inc
e /
t tr
ng
om
ex
pen
ses		 8
-		 13 2 13
-		 6 -8 13 2 13
-		 6
Re
lts
fro
din
-tra
ts
su
m
non
g a
sse		 2 23
-		 4
-		 14 0 0 1 0 2 23
-		 3
-		 14 0
Re
lts
fro
ani
su
m
co
mp
es		 0 0 5 0 0 0
fo
ted
r at
uity
acc
oun
eq		 0 5
Re
lts
fro
inv
est
nt
su
m
me		 2 17 0 0 2 17 0 0
rtie
pro
pe
s		 - 0 - 0
Ad
min
istr
ativ
e e
xpe
nse
s		 51 56 54 55 52 40 40 35 38 39 0 1
-		 1
-		 1
-		 0 91 95 88 92 91
Ne
the
atin
inc
e /
t o
r o
per
g
om		 -2 2 2 7 2 0 0 0 1 0 0 0 1 0 0 2 2 1 6 2
exp
ens
es		 - - - - - - - -
Imp
airm
of
dw
ill
ent
goo		 0 0 0 0
Op
tin
rof
it
era
g p		 43 31 28 25 24 4 9 5 6 6 0 0 0 0 0 47 40 33 31 30
Inc
e t
om
axe
s		 11 8 10 7 7 1 3 1 2 2 12 11 11 9 9
Ne
t in
/ l
co
me
oss		 32 23 18 18 17 3 6 4 4 4 0 0 0 0 0 35 29 22 22 21
All
ati
of
lts
oc
on
re
su
Ne
t in
e /
los
ttri
but
abl
e t
com
s a
o		 4
ntr
olli
inte
ts
non
-co
ng
res		 4 4 4 4 1 0 1 0 1 5 4 5 4
Ne
t in
e /
los
ttri
but
abl
e t
com
s a
o		 28 19 14 14 13 2 6 3 4 3 0 0 0 0 0 30 25 17 18
sha
reh
old
of
Aa
l B
ank
AG
ers
rea		 16

Revaluation reserveChange mainly driven by asset spreads

43

Development property finance portfolioDiversification continuously strengthened (in € mn)

Property finance under management

From asset to risk weighted asset (RWA) Essential factors affecting volume of RWA

1) Excl. of market risk

2) Exposure to Sovereigns amounts to € 18 mn

453) Exposure to investment shares amounts to € 16 mn

Details on successfully completed rights issue terms

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Definitions and contacts

Definitions

Property Financing Portfolio

  • Paid-out financings on balance sheet
  • Incl. remaining property loans on DEPFA books

New Business

  • Newly acquired business incl. renewals
  • Contract is signed by customer
  • Fixed loan value and margin
  • Pre tax RoE = Operating profit ./. Net income/loss attributable to non-controlling interestsAllocated (average) equity

Allocated Equity

Average of:

  • Equity (excluding minorities and revaluation surplus but including silent participation by SoFFin) start of period less dividends and
  • Equity (excluding minorities and revaluation surplus but including silent participation by SoFFin) end of period less expected dividends
  • CIR =Admin expenses Net income

Net Income

net interest income + net commission income + net result on hedge accounting + net trading income + results from non-trading assets + results from investments accounted for at equity + results from investment properties + net other operating income

Contacts

Jürgen Junginger Managing Director Investor Relations Phone: +49 611 348 [email protected]

Alexandra Beust

Director Investor RelationsPhone: +49 611 348 [email protected]

Sebastian Götzken

Senior Manager Investor RelationsPhone: +49 611 348 [email protected]

Disclaimer

© 2011 Aareal Bank AG. All rights reserved.

  • This document has been prepared by Aareal Bank AG, exclusively for the purposes of a corporate presentation by Aareal Bank AG. The presentation is intended for professional and institutional customers only.
  • This presentation must not be modified or disclosed to third parties without the explicit permission of Aareal Bank AG. Any persons who may come into possession of this information and these documents must inform themselves of the relevant legal provisions applicable to the receipt and disclosure of such information, and must comply with such provisions. This presentation may not bedistributed in or into any jurisdiction where such distribution would be restricted by law. This document is directed at and/or for distribution in the United Kingdom only to (i) persons who have professional experience in matters relating to investments falling within article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (ii) high net worth entities falling within article 49(2)(a) to (d) of the Order (all such persons are referred to herein as "relevant persons"). This document is directed only at relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents. Any investment or investment activity to which this document relates is available only to relevant persons and will be engaged in only with relevant persons.
  • This presentation does not contain or constitute an offer of, or the solicitation of an offer to buy or subscribe for, securities to any person in Australia, Canada, Japan, or the United States of America (the "United States") or in any jurisdiction to whom or in which such offer or solicitation is unlawful. The securities referred to herein may not be offered or sold in the United States absentregistration under the U.S. Securities Act of 1933, as amended (the "Securities Act") except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Subject to certain exceptions, the securities referred to herein may not be offered or sold in Australia, Canada or Japan or to, or for the account or benefit of, any national, resident or citizen of Australia, Canada or Japan. The offer and sale of the securities referred to herein has not been and will not be registered under the Securities Act or under the applicable securities laws of Australia, Canada or Japan. There will be no public offer of the securities in the United States.
  • This presentation is provided for general information purposes only. Aareal Bank AG has merely compiled the information on whichthis document is based from sources considered to be reliable – without, however, having verified it. Therefore, Aareal Bank AGdoes not give any warranty, and makes no representation as to the completeness or correctness of any information or opinion contained herein. Aareal Bank AG accepts no responsibility or liability whatsoever for any expense, loss or damages arising out of, or in any way connected with, the use of all or any part of this presentation. This presentation is an advertisement and not a prospectus. Investors should not purchase or subscribe for any shares referred to in this document except on the basis of information in the prospectus to be issued by the company in connection with the offering of such shares. Copies of the prospectus will, following publication, be available free of charge from Aareal Bank AG at Paulinenstraße 15, 65189 Wiesbaden, Germany or on Aareal Bank AG's website (www.aareal-bank.com).
  • This presentation may contain forward-looking statements of future expectations and other forward-looking statements or trend information that are based on current plans, views and/or assumptions and subject to known and unknown risks and uncertainties, most of them being difficult to predict and generally beyond Aareal Bank AG´s control. This could lead to material differences between the actual future results, performance and/or events and those expressed or implied by such statements.
  • Aareal Bank AG assumes no obligation to update any forward-looking statement or any other information contained herein.

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