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Geschäftsbericht 2014, englisch - Letter from the Board of Management

6 münchener Hypothekenbank eg | annual report 2014Letter from the Board of Management Letter from the Board of Management The 2014 business year was one of the most extraordinary years in the history of Münchener Hypothekenbank. Despite the chal- lenges we faced, we managed to master them and remained fo- cused on our business. The European Central Bank (ECB) posed a challenge in the fall of 2013 when it deemed MünchenerHyp a “significant” bank under the Single Supervisory Mechanism (SSM). This status meant that the ECB took over direct supervi- sion of our bank as of November 2014. A major portion of our activities in the past year were focused on preparing for this event and required a high level of performance from all involved. Strong growth noted for new business The development of our lending business was an even greater source of satisfaction as we granted more than € 4.4 billion in loans to finance residential and commercial property transac- tions. This figure meant that our new business results were about one-quarter better than in the previous year. The surge in growth was fuelled by favourable overall conditions. Above all, we noted unbroken high demand for houses, apartments and commercial property in our home market of Germany – and this in turn stim- ulated demand for property financing. Although competition for customers remained tough, we were able to succeed thanks to our collaboration with our strong sales partners, and especially due to the deep and close customer relationships maintained by the Volksbanken and Raiffeisenbanken. Our portfolios also benefited from the pace of new business ex- pansion as our mortgage loan portfolio grew by a good 10 per- cent to € 23.4 billion. The sum of our net interest income and net commission income also posted a significant increase of 17 percent to € 110.5 million. Despite our rapid growth we did not assume higher risks than in previous years. For this reason we are quite content with the risk situation of our lending busi- ness. Provisions made for risks were once again low. Innovative Pfandbrief issuer The Pfandbrief retained its role as our preferred refinancing in- strument. Thanks to our good standing in the capital market we could once again obtain refinancing at very favourable condi- tions. Investors honoured our efforts to further develop the Pfandbrief as an innovative and particularly safe capital mar- ket instrument. Last year we became the world’s first issuer of a sustainable Pfandbrief (ESG Pfandbrief). The proceeds of the issue were used to refinance loans to cooperative home build- ing associations. The housing provided by these associations fulfilled the sustainability criteria of oekom research, a sustain- ability rating agency. Investors responded enthusiastically to the issue, especially investors focused on sustainability-oriented in- vestments. This was a very nice success for us as an issuer, as well as for our commitment to the concept of sustainability. This was confirmed by the numerous awards we received for this issue. Great trust shown by our members Our preparations ahead of the ECB assuming direct supervision of the Bank, along with our efforts to meet the associated re- quirements, posed an extraordinary challenge. This refers, in particular, to the ECB’s minimum 8 percent requirement for common equity Tier 1 capital ratio. Prior the ECB’s surprising announcement that it had deemed Münchener Hypothekenbank as one of the significant banks within the eurozone we had met the valid requirements at that time with a ratio of 6.3 percent. We now had just eight weeks time to raise at least € 240 million in common equity Tier 1 capital we needed to meet the ECB’s minimum requirements before its date of record deadline of December 31, 2013. Not enough time for a cooperative bank. In contrast to a listed corporation, we were unable to quickly obtain additional capital from the capital markets to increase our common equity Tier 1 capital and could only attract addi- tional capital by addressing our members individually. This meant that we had to embark on a carefully planned cam- paign to attract to new paid-up capital from all of our members during the first half of 2014 – a unique endeavour in the history of MünchenerHyp, which addressed all cooperative banks and the institutions within the Cooperative Financial Network, as well as our private members. Our efforts met with exceptional solidarity and support from both our cooperative banking mem- bers as well as private members. A total of € 415 million in new paid-up capital was subscribed, of which the Cooperative Financial Network accounted for € 380 million with the remaining € 35 million subscribed by our private members. These results underline the complete success of the campaign. We more than met the minimum requirement for the common equity Tier 1 capital ratio as we posted a 12.4 percent ratio on September 30, 2014 – although it was inevitable that we Dear shareholders and business associates,

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