Postbank is the high-performance brand of the FINANCIAL SERVICES Corporate Division. With more than ten million private, business and corporate customers, Postbank occupies a strong position in Germany. Our core business is retail banking – business with private customers. In accordance with the Post Universaldienstleistungsverordnung (PUDLV – Postal Universal Service Ordinance) – the statutory regulations applicable to the mail business in Germany – Deutsche Post World Net must maintain a nationwide retail outlet network. This network is of great benefit to us and our customers in the FINANCIAL SERVICES Corporate Division in particular. Postbank is a multi-channel bank, which means that our customers are free to decide how and when they perform their banking transactions: in our retail outlets, over the telephone, by post, or over the Internet. And starting in 2003, our customers will also be able to call on our mobile sales units.

1) For a detailed explanation of the Corporate Division’s financial development,
please see the “Business Developments” section of the Group Management Report
2) Restatement of prior-period amounts due to reallocation of the retail outlets (see item 9 in the Notes)

Retail bank for private customers – specialist for corporate customers
Our product range is divided among the following Business Divisions: Services and Loans, Savings and Mutual Funds, Insurance Products, Mortgages, Business Services, Corporate Banking and Easytrade. Easytrade is our direct brokerage offering that has already attracted 450,000 customers.

We offer our private and business customers a clearly structured range of self-explanatory products. Modern technology and mass production allow us to provide our products to customers at low prices while still operating profitably. For products requiring in-depth consultation, our strategy is to focus on particularly profitable sectors such as insurance and investments.

In the Corporate Banking segment, we provide large companies with relationship banking services as well as supplementary customized financial services. We also develop specialized forms of finance for this target group. Logistics finance is one example of how we put our Group-wide expertise to work for our customers. Recently, we also began offering card-based payment transactions for the retail sector.

In addition to Postbank, FINANCIAL SERVICES includes the retail outlets as well as the Pension Service. This Service handles payments for the statutory pension and accident insurance funds in Germany as well as for various occupational pension providers, in addition to providing general and administrative services in this area.

Offering tailored to specific target groups resists market weakness
The trend towards consolidation continued in Germany’s financial sector in 2002. The weakness on the international stock exchanges dampened overall demand in securities trading. Private investors in particular appeared uncertain and showed renewed interest in traditional investment products. As a result, the shakeout in the direct brokerage market continued.

Postbank has adjusted its offering for private and business customers to take account of the ongoing difficult market conditions. We know that our customers are informed and sophisticated; compared with other financial institutions, we serve an exceptionally large proportion of well-educated salaried employees and self-employed individuals with high household incomes. In times of uncertainty on the stock exchanges, the demand for investment alternatives rises. Our response: innovative savings products such as DAX Sparbuch, a passbook that features a guaranteed minimum interest rate and a supplementary bonus if the DAX 30 develops positively.

Logistics finance is increasingly proving itself the growth driver in the Corporate Banking segment. This development accompanies the trend towards outsourcing, from which our LOGISTICS Corporate Division benefits directly. Our Financial Logistic Solutions enable us to fulfill our goal of offering one-stop, end-to-end solutions.We don’t just manage parts of the logistics supply chain – we arrange its financing as well.

Low interest rates impact revenue
The Corporate Division’s income fell slightly year-on-year from €8,876 million to €8,872 million, while Postbank recorded a 1.4% decrease in income. This was primarily due to the sustained low interest rates on the money and capital markets in 2002. This decrease did not have any direct impact on earnings because it was accompanied by a reduction in interest expense.

Earnings rise again
Bucking the market trend, we succeeded in increasing our earnings once again: after €522 million in the previous year, our profit from operating activities (EBITA) rose 19.0% to €621 million in the year under review. Please see the “Business Developments” section of the Group Management Report for details on the development of income and expenses.

Postbank’s cost/income ratio improved by 5.9 percentage points to 77.7%; this was due to a greater increase in the division’s income than in its expenses.

The return on equity (RoE) rose 1.3 percentage points year-on-year to 10.7%. This ratio serves as a measure of the profitability of the equity that has been utilized. It increased due to the fact that earnings improved once again.

Growth recorded for all banking products
In the checking accounts business, the number of private checking accounts grew from 3.75 million in the previous year to 3.94 million in the year under review. This corresponded to growth of 5.1%. The number of corporate checking accounts grew 2.0% to 374,000 in the year under review. Direct banking also continued to expand, with a 29.0% increase in the number of accounts managed online and a 22.7% increase in the number of telephone banking accounts.

In our investment and deposit business, we distinguish between customer investment fund accounts and brokerage accounts held with Postbank Easytrade. We were able to increase the total number of accounts by 2.1% to 694,000. However, this could not offset the downturn on the international capital markets: Postbank fund assets fell by a total of 15.0% to €2.9 billion in the year under review. In order to realize synergies in brokerage account management, we transferred 165,000 investment fund accounts to Postbank Easytrade in the middle of the year. As a result, the number of brokerage accounts held with Easytrade rose to a total of 446,000.

The deposit business recorded very encouraging development. Savings volumes were up 10.1% year on-year to €35.7 billion thanks to new products such as the DAX Sparbuch and SparCard 3000 plus direkt.

The positive trend that characterized the lending business in 2001 continued in the year under review: the volume of private loans granted by us rose 26.5% to €937 million. Despite continued weakness in the construction industry, the private building loans business also recorded strong growth once again. We were able to increase the volume of residential building loan commitments by 35.0% year-on-year to almost €2.6 billion. Our residential building loan portfolio increased by 14.3% to €15.2 billion.

We also recorded an increase in lending business with our corporate customers. New lending business totaled €6.3 billion, resulting in an increase in total lending volume of 4.9% to €20.0 billion in the period under review. Property financing was once again successful. Our domestic and international commercial finance portfolio increased to a total volume of €4.7 billion.

All key products for logistics finance have been developed and launched since 2000. Logistics finance and related forms of finance such as leasing and factoring grew 100% to a volume of €800 million in 2002. We won a number of new customers in this area, including the Lidl & Schwarz group. Our US subsidiary PB Capital Corporation developed according to plan. This company forms our platform for logistics finance in North America. At Group level, we are already working closely together with the logistics units DHL and Danzas. The most recent product of this collaboration is cash forwarding, a combination of transport and factoring that we developed together with DHL.

The insurance business, which we began in 1999, also demonstrated encouraging development. PB Versicherung was able to increase the number of new policies in its accident segment by 24.8%, and life insurance policies surged 148.9% as a result of the arrival of the new Riester products.We sold around 109,000 policies for Riester products by the year’s end and are thus the most successful provider of these products among the banks.

Expansion of information technology and risk management
Information technology and risk management were the focus of our investments in 2002. The first module of the standard software for banks that we developed together with SAP was implemented in November. This module facilitates the management of customer master data. We have completed the development of and successfully tested an additional module for account management, which will be implemented in 2003. The new software enables us to process large numbers of accounting entries quickly and cost-effectively. We are also improving our IT architecture in the area of multichannel banking. In the future, we will offer our customers a uniform range of services via all sales channels while still leveraging the individual strengths of our retail outlets, the Internet and the telephone. In addition, we implemented new risk management instruments in the areas of foreign currency, securities trading and the lending business.

Competence center created for financial assets
In the spring Postbank Financial Services GmbH (PFS) in Frankfurt am Main commenced operations. With this step, we are continuing to develop our expertise in the area of portfolio and asset management and are concentrating capacities that were previously spread across different locations close to the stock exchange in Frankfurt. PFS advises and manages our public and special funds, develops new investment products and assumes an active role as the Group’s financial service provider. At the same time, we have concentrated our risk management activities for the money, foreign currency and capital markets in Frankfurt. This will allow us to realize synergies from the in-depth information exchange that occurs between portfolio managers and risk managers.

1) Customer survey
2) Value from IPSOS study adjusted to Kundenmonitor survey
3) Test customers

Our retail outlets: addresses for one-stop-shopping
Every day, we serve two to three million people in our retail outlets – the outlet network is thus an important element in our multi-channel strategy. The following table contains additional facts about our outlets. Their traditional product range has been expanded to include telecommunications services and a residence service, which handles matters such as electricity contracts. In the future, the residence service is expected to be expanded to include a relocation and address registration service, which is already being tested as a pilot project. At the same time, we are fulfilling our customers’ demand for 24-hour service: around 5,000 postage stamp machines and 7,600 ATMs (including Cash group) allow for quick self-service.

Quality for our customers
Our customers value Postbank’s high standards of quality. Postbank scored high marks once again in the German customer survey “Kundenmonitor Deutschland 2002”, ranking second among all banks and savings banks.

Customers also continue to report high levels of satisfaction with the service they receive in the retail outlets (see table above). We are taking comprehensive measures to reverse the slight decline in customer satisfaction in 2002 that was due to longer waiting times caused by the changeover to the euro. Our goal for 2003 is to increase customer satisfaction once again.

Leveraging our strengths to achieve additional increases in earnings
We will do everything in our power to further increase our profit from operating activities in 2003. In addition to generating another rise in net interest income and net fee and commission income, we plan to intensify business with corporate customers in particular: while payment transactions will remain an important component, we will judiciously expand our lending business with the help of our new risk management instruments.We will also establish logistics finance as a major pillar of our business – we expect to see positive developments in this area following the integration of the Group’s express and logistics activities under the umbrella of the DHL brand.

We will also reach out to our private customers on an even more individual basis in the future and have further developed our sales concept to help us achieve this: with modern, multi-channel banking, we will continue to offer customers our complete range of products with the same high quality, regardless of whether they are purchased in our retail outlets, online, or over the telephone. By intensifying the links between these sales channels, we will combine regional accessibility with centralized sales and marketing expertise.

In addition to this, we are developing the new Postbank Vermögensberatung AG, a personalized financial and investment consultancy for high net worth individuals. To this end, we acquired two subsidiaries from Credit Suisse (Deutschland) AG in December 2002. Customers of Postbank Vermögensberatung AG will have access to an expanded product range featuring direct investments in equities, bonds, certificates and options.

These customers will also be able to choose whether they prefer to be advised in our retail outlets or in their own offices or homes. With around 100 highly qualified consultants, we will institute mobile sales units to supplement our outlet sales network in 2003.

At present, our outlet network comprises around 12,700 outlets. In the future, we will adjust our network to changes in customer demand while strictly adhering to the provisions of the PUDLV. Our outlets will remain the most important sales channel for us as well as our customers in the future.