2017 Half-Year Financial Report

Letter to shareholders

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Wolfgang Kirsch, Chief Executive Officer

The DZ BANK Group delivered a strong business performance in the first six months of 2017 thanks to continued growth in demand from customers. This positive trend was achieved in a challenging market environment and in parallel to the rapid progress made with integration following our merger.

At the same time, we had to absorb a greatly increased level of allowances for losses on loans and advances in the shipping finance business at DVB Bank. Against this backdrop, the fact that we achieved a profit before taxes of €939 million underlines the overall strength of our banking group.

This half-year financial report is also the first to fully reflect the performance of the merged bank in all regular line items in the income statement. The figures are therefore not comparable with the prior-year values.

The results in detail: Net interest income of the DZ BANK Group was €1.43 billion, reflecting the effects of the merger and growth in the retail and corporate banking business of the DZ BANK Group. We recently strengthened the support we provide to corporate customers in their undertakings outside Germany by opening a representative office in Jakarta. Allowances for losses on loans and advances stood at €396 million and were primarily affected by the high level of additions to this line item at DVB Bank. These were made due to a further deterioration in the market situation as a result of overcapacity in parts of the maritime sector. In all other group entities, there were no notable changes in the level of allowances for losses on loans and advances. Net fee and commission income rose to €977 million, again driven by the strong business performance of Union Investment. Gains and losses on trading activities stood at a gain of €304 million, primarily reflecting the satisfactory performance of the capital markets business at DZ BANK AG. The prior-year figure included significant one-off gains. Gains and losses on investments amounted to a gain of €88 million. Net income from insurance business reached €451 million, with R+V managing to increase premiums earned once again. Gains and losses on investments held by insurance companies remained at a high positive level but fell back slightly. Administrative expenses in the DZ BANK Group amounted to €1.94 billion. This figure reflected the effects of the merger as well as continued investment in our customer business and considerable expenses once again in relation to IT and other projects driven by regulatory requirements. The net income from the business combination with WGZ BANK amounted to a loss of €58 million and included integration and migration expenses. By contrast, the prior-year net income of €363 million was strongly influenced by positive measurement effects.

The positive business performance reflects the hard work and dedication of employees in the DZ BANK Group. My colleagues on the Board of Managing Directors and I would like to take this opportunity to express our sincere gratitude to them.

The capital base of the DZ BANK Group remains extremely robust thanks to the continued diligent management of its risk assets. Applying the provisions of the Capital Requirements Regulation (CRR) in full, the common equity Tier 1 capital ratio of the DZ BANK Group as at June 30, 2017 was 13.0 percent (December 31, 2016: 14.5 percent). This decline was already known and resulted from the change in the regulatory treatment of investments in insurance companies in the calculation of capital.

We anticipate positive stimulus from the wider economy in the second half of the year. For Germany, we forecast robust growth of 2 percent for 2017 overall. Against this background, our aim of generating profit before taxes at the lower end of the long-term earnings range of €1.5 billion to €2 billion still appears possible but has become more ambitious in view of the increased level of allowances for losses on loans and advances at DVB Bank.

Looking to the future, we continue to work on the sustainability of our organization. As the newly merged DZ BANK, and following the soon to be completed IT migration, we will be able to focus even more on tapping into synergies. In the real estate business, the merger of DG HYP and WL BANK to form the real estate bank DZ HYP will underpin our already strong market position. The project is proceeding entirely to plan. And last but not least, we are preparing for the evolution of our structures in line with the long-term succession plan for our Board of Managing Directors as announced at the beginning of July.

In the first six months of 2017, the continued trust placed in us by our customers and the clear stability of our broadly positioned financial services group further demonstrated the success of our corporate strategy, paving the way for further targeted growth in our customer business.

Kind regards,

Wolfgang Kirsch
Chief Executive Officer