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• Owners provide guarantee of up to € 5 billion for actual payment defaults
• Capital markets´ crisis negatively impacts the balance sheet and profit and loss account by € 2,011 million
• Despite losses, notable successes in the customer business
• Group profit before income tax falls to € -1,502 million
• Target by 2010: double-digit return on equity´

The risk shield for WestLB announced by the owners on February 8th is now in place. The complex transaction will be implemented in two stages. The first stage was implemented successfully in a very short space of time. As a result WestLB has been freed from the risks from the structured securities portfolios, which have now been ring-fenced off the balance sheet in a Special Purpose Vehicle (SPV). The resulting losses reported in the annual financial statements for 2007 will also be almost entirely absorbed. The provision of a comprehensive risk shield means that a capital contribution by the owners will not be necessary.

Alexander Stuhlmann, Chairman of the Managing Board of WestLB AG, said:
“This is good news for WestLB. The solution found will provide stability for the Bank. We will now concentrate all our efforts on the required restructuring of the Bank so that WestLB can make an active contribution to the consolidation of the Landesbank sector.”

WestLB posted a pre-tax loss of € 1,502 million last year as a result of losses from spread positions in proprietary trading and the consequences of the financial market crisis. These two factors eclipsed the successes achieved by WestLB in its customer business.

In the net trading result, WestLB recognised valuation losses of € 1,304 million in income from the financial market crisis alone. For financial instruments in other categories, a total of € 406 million was included in the impairment charge for credit losses (€ 221 million) and the result from financial investments (€ 185 million) in the statement of income as a result of an impairment charge which is expected to be permanent. Additionally, there were valuation losses of € 301 million which are reported in the revaluation reserve.

Higher Net Interest and Commission Income – Sharply Reduced Costs

Net interest income rose by € 78 million to € 1,090 million compared with the previous year. The increase was largely driven by successes in our customer business and first-time consolidations. Downside factors stemmed from the financial market crisis and lower income from financial participations. Net allocations of € 238 million have been reported under the impairment charge for credit losses, including € 221 million in connection with the financial market crisis. Net fee and commission income rose by € 81 million to € 406 million. This encouraging development was attributable in large measure to the lending and syndicated lending business.

The net trading result totalled € -1,616 million, following € 561 million the year before. The sharp drop is the result of losses from spread positions in our proprietary trading activities and valuation losses of € 1,304 million in our structured securities portfolios in connection with the crisis in the international financial markets. Capital gains in our private equity and equity investments business fuelled the € 291 million (2006: € 551 million) result from financial investments. Impairments on ABS and CDO holdings as a consequence of the financial market crisis kept the result from being even higher. Specific allowances attributable to these holdings totalled  € 185 million.

Administrative expenses were reduced considerably by € 254 million, or 14%, to € 1,576 million. Personnel expenses fell by 20% to € 823 million. In addition, there were savings of € 46 million in other administrative expenses, reflecting the progress made through our Lean Bank initiative launched in 2006. The net figure for other operating income and expense stood at € 107 million (2006: € 378 million). The figure for the previous year included positive effects from the deconsolidation of a number of Group companies.

The turmoil in the financial markets also had a significant impact on the segment results. Thanks to the strong customer business, pre-tax profit in the Corporates & Sparkassen segment rose by € 184 million to € 264 million, whilst pre-tax profit in the Capital Markets segment fell to € -1,784 million (2006: € 515 million). A successful treasury business enabled the Asset Liability Management segment to report a pre-tax profit of € 111 million (2006: € -7 million) despite the extensive market upheavals.

WestLB Group´s total assets rose slightly by € 1.2 billion to € 286.5 billion compared to the previous year. Given the crisis in the financial markets, the effects from the inclusion of additional companies in the consolidated financial statements were almost entirely offset by an overall decline in the money market business.

The profit participation certificates issued by the Bank will be serviced in full. Moreover, in the context of the annual financial statements prepared by the Managing Board, it is planned to service voluntarily the hybrid capital issued in 2005.

Risk Shield Creates Stable Basis

The risk shield which is now in place creates a stable, sustainable basis for WestLB´s future development. It will not only ensure that WestLB does not incur further earnings losses in the future due to possible fluctuations in the prices of the transferred structured securities, but will also largely absorb the related losses reported in the 2007 annual financial statements. A capital contribution by the owners will therefore not be necessary.

The ring-fenced securities portfolio of approximately € 23 billion, which was transferred at the nominal value, comprises € 15 billion invested in the three Structured Investment Vehicles Harrier, Kestrel and Greyhawk and € 8 billion of existing balance sheet business. The new special purpose company will fund the purchase of the securities through the issue of Senior and Junior Notes. The financing of the Junior Notes is secured by a guarantee from the owners of up to € 5 billion to cover actual payment defaults. The owners will meet any possible losses from these securities portfolios in line with their shareholdings in WestLB up to an amount of € 2 billion. Any further losses up to € 3 billion will be borne by the State of North Rhine-Westphalia.

The risk shield has been established in agreement with the supervisory authorities (e.g. BaFin) and registered with the European Commission. WestLB continues to maintain a close dialogue with the Commission.
Alexander Stuhlmann added:

“The comprehensive solution which has been found not only means that the Bank will be freed from most of the burdens resulting from the crisis in the financial markets, but also has the advantage for the owners that they do not need to inject cash funds. Yet we will still reach our targets: The balance sheet ratios will improve, and a stable basis will be created for ensuring the future viability of the Bank.” As a result, the core capital ratio is expected to rise again to approximately 7%.

Viable Business Model for the Future: Reduced Risk, Lower Costs and Improved Earnings Quality

WestLB has already made substantial progress regarding the detailed planning of the restructuring process and the strengthening of its business model. “In the very short space of time since the framework plan was submitted, we have identified the key measures that are required and have now begun to implement those measures without delay. These include, above all, our mid-cap and savings bank initiative. In Investment Banking we will concentrate on our core areas of expertise and expand our customer business. Both measures will help to reduce our earnings volatility and improve the risk profile of the Bank on a sustainable basis,” Alexander Stuhlmann said.

The framework plan envisages annual cost savings of € 300 million up to the year 2010, which will be achieved by increasing efficiency and adjusting the business. This will also involve a reduction in headcount of approximately 1,350 employees during the planning period. The Managing Board outlined the current planning situation to the Supervisory Board at its meeting yesterday.

Outlook

Looking ahead, Dr. Hans-Jürgen Niehaus, Chief Financial Officer, said:
“We are embarking on the restructuring process in what remain extremely challenging market conditions. The uncertainties in the capital market continue, and the margin and competitive pressure is undiminished. The unavoidable restructuring measures will again have an adverse impact on our results in 2008 and must be viewed as an investment in the future viability of the Bank. With the restructuring measures we have introduced, and shielded from future risks stemming from the financial market crisis, our aim is to increase the return on equity before taxes to a double-digit figure by 2010.”

Enclosures:
Group Statement of Income 2007                                                              
Group Balance Sheet at December 31, 2007