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• Operating profitability substantially improved 
• Costs decreased by a further 13% 
• Core capital ratio rises to 11.4% 
• Total assets reduced by 21% and RWA by 41 %
  

WestLB further improved its operating profitability in the Core Bank in 2010 thanks to a strong fourth quarter and expanded its customer business significantly. The core bank was profitable in a challenging market environment: profit before income tax amounted to € 446 million compared with € 138 million in 2009. Earnings rose by 22% to € 1.4 billion; administrative expenses in the core bank were reduced by 13%.

The result at the Group level was once again heavily influenced by charges incurred in connection with the systematic reorganisation of the Bank. The transfer of non-essential strategic assets to Erste Abwicklungsanstalt (EAA) has been completed and fully included in the figures. In addition to transfer effects, substantial restructuring costs weighed on the result. The pre-tax loss decreased to € 133 million (2009: € -503 million); the Group result after tax amounted to € -240 million (2009: € -531 million). The Bank improved its risk profile on a sustainable basis and raised its core capital ratio from 6.9% to 11.4%. Total assets fell by 21% and risk-weighted assets by 41%.

Dietrich Voigtländer, Chairman of the Managing Board, said: “WestLB proved in 2010 that it has a functioning business model. Even under challenging conditions we strengthened our customer business and also enlarged our customer base. Their confidence in WestLB shows that the Bank continues to play an important role in Germany´s financial sector. Further milestones in our future development have also been achieved. We have largely implemented the conditions imposed by the European Commission and submitted a restructuring plan within the agreed timeframe which we consider will meet with the approval of the Commission.”

Customer Business Further Expanded

In 2010 WestLB sharpened the business profile of the core bank and further expanded its customer-driven activities. Customer business accounted for 85% of the core bank´s total revenues of € 1.4 billion. All customer segments made a significant contribution: specialised finance clients (33%), corporate clients (29%), institutional clients (20%) and Verbund clients (18%). In a challenging competitive environment, the Bank held its course operationally and strengthened its market position in numerous business areas. As the leading Landesbank for equity capital transactions, WestLB participated in a total of 15 transactions. The Bank confirmed its strong position as a corporate lender in Germany, ranking third for Schuldscheindarlehen, fifth for bonds and eighth for syndicated loans. At the same time it cemented its market position as the leading German provider of project finance and as the third-largest issuer of certificates.

Net interest income in the Group amounted to € 1,457 million. The figure of € 1,868 million for 2009 included contributions for a full twelve months from portfolios transferred to EAA on April 30, 2010 with retroactive effect from January 1, 2010. With net allocations of € 242 million to the impairment charge for credit losses, the Bank took adequate account of all discernible credit risks. The decrease compared with the previous year (€ 796 million) was predominantly attributable to the portfolios transferred to EAA. Net fee and commission income amounted to € 368 million (2009: € 381 million).

The valuation of government bonds and similar assets transferred to EAA resulted in negative effects of € 327 million (2009: €+86 million), which substantially impacted the net trading result (€ -478 million; 2009: € -188 million).

The € -88 million result from financial investments (2009: € -10 million) primarily reflects the reversal of a revaluation reserve from transferred holdings in the amount of € -92 million.

Costs Reduced Substantially

WestLB Group reduced administrative expenses sharply for the fourth year in a row; they fell by a further 14% to € 1,023 million (2009: € 1,192 million). Personnel expenses decreased to € 486 million, or 19%, from a year earlier. The decrease was driven largely by headcount reductions, with the number of full-time employees dropping by 498 to 4,473. Other administrative expenses fell by 11% to € 460 million.

The net figure for other operating expense and income came to € 111 million, compared with € -39 million in the previous year, and was predominantly attributable to effects from the portfolios transferred to EAA. The restructuring expenses of € 238 million (2009: € 463 million) include, in particular, allocations to provisions incurred in connection with the sale of consolidated subsidiaries required by the European Commission (€ 211 million; 2009: € 335 million).

Segment Results: Positive Trend in Corporates and Verbund Business

The marked expansion of the customer business is reflected in the business development of the customer segments. Profit before income tax in the Corporates & Structured Finance segment increased by 35% to € 370 million (2009: € 275 million). In the Capital Markets segment, profit before income tax was in line with expectations at € 64 million. The figure of € 341 million in the previous year was driven by exceptionally favourable conditions in the money market. Pre-tax profit in the Verbund & Mittelstand segment increased to € 25 million (2009: € -4 million); in Transaction Banking there was a decrease to € -6 million (2009: € 1 million) due to the low level of interest rates. As a result, the core bank showed a pre-tax profit of € 446 million (2009: € 138 million). The PEG/Unbundling segment, which captures the results from the portfolios transferred to EAA as well as from the participations to be sold, posted a pre-tax profit of € -579 million (2009: € -641 million).

Capital Ratios and Risk Profile Improved

WestLB improved its risk profile and capital ratios significantly in the 2010 fiscal year and systematically continued its risk management policy aimed at saving resources. The core capital ratio rose to 11.4% (2009: 6.4%) and the overall ratio to 15.9% (2009: 9.1%). Risk-weighted assets fell by € 34 billion to € 49 billion, with total assets decreasing by € 50.8 billion, or 21%, to € 191.5 billion. The decrease was attributable, in particular, to the transfer of non-essential strategic assets to EAA.

Refocusing of Business Largely Implemented

WestLB has largely implemented the decision of the European Commission of May 2009. In addition to reducing total assets and risk-weighted assets, the Bank made headway with the streamlining of the branch network and the sale of participations. Following the closure of the Cologne branch, the targeted presence for Germany has now been reached. In addition, the Bank closed its branch in Paris and the representative office in Dubai and sold its subsidiaries WestLB Bank Polska, Banque d´Orsay and WestLB International in Luxembourg. Regarding the sale of the WestImmo subsidiary, the German government applied for an extension of the deadline until at least July 31, 2011. The European Commission has so far not made a decision on this matter.

Revised Restructuring Plan Submitted

In autumn 2010 the European Commission informed the German government that the transfer of non-essential strategic assets to EAA constituted a new element of state aid. This view is contested by the Federal Republic of Germany. In mid-November the German government agreed to submit a revised restructuring plan to the Commission by February 15, 2011 which included measures to compensate for the state aid. The German government submitted this plan, which was approved by the WestLB Supervisory Board, to Brussels within the agreed timeframe as part of a comprehensive package. The Commission simultaneously received a status report on the sales process from the Sales Agent as well as a subsidiary “Verbundbank” concept prepared by the German Savings Banks and Giro Association (DSGV) in the event of the restructuring plan being rejected and the sales process failing to be brought to a successful conclusion. Under the revised restructuring plan, WestLB will reduce its total assets and risk-weighted assets further by approximately one third by 2015 compared with the currently valid target figures. In addition to the further focusing, the Bank is proposing the separation of four legally dependent but organisationally autonomous operating units (“Teilbetriebe”) under the umbrella of WestLB. These are: Verbund & Corporates, Specialised Finance, Transaction Bank and Group & Service Functions. This structure will improve the framework regarding future partnership options in a potential company transaction. Implementation would take roughly 12 – 24 months. Ultimately, every solution for WestLB will involve restructuring costs which cannot be borne by the Bank alone.

Dietrich Voigtländer added: “We fully understand that the Bank has to sharpen its focus even further. The European Commission insists on this. Our revised restructuring plan will establish profitable operating units under the umbrella of WestLB which can contribute value-creating, powerful expertise in the context of partner options. This solution guarantees that the savings banks and our other clients will continue to benefit from our comprehensive product and financing expertise. For us the crucial aspect is that all of these autonomous operating units have a future. This is the best way to protect our owners´ assets, safeguard as many jobs as possible and provide the best possible solution for the taxpayer.”

Enclosures 
Group and WestLB Core Bank Statement of Income 2010
Group Balance Sheet as at December 31, 2010