Due to the challenging capital markets and the appearance of the sovereign debt crisis in 2010 Eurohypo has decided to adjust and realign its Public Finance business model.

• Significantly higher capital and funding costs fundamentally changed the perception of this low-risk and low-margin business.

• The debt crisis in some European countries, persistently volatile financial markets and the anticipated tightening of capital and liquidity regulatory requirements (e.g. Basel III) have also hampered this business unit.

It is not only due to these new conditions that a continuation of the active public finance busi-
ness is almost impossible. We are also unable to generate the required return on equity for a sustainable business model, despite a high proportion of on-balance business. Additionally it is important to achieve requirements stipulated by the EU Commission.

The new Public Finance division business model centers around a prudent run down of the Public Finance portfolio. This realignment was an early reaction to forseeable and in the mean-
time effective changes of the economic conditions and regulatory framework. We will hold and manage all positions until maturity and effect a strictly risk-oriented reduction of the portfolio
as necessary with the goal of maximizing earnings. This portfolio run down will be primarily achieved through the tandem: assets and liabilities maturities. This means a reduction of the portfolio beyond the previously communicated target volume of EUR 100 billion by the end of 2012.

As has been the policy since the beginning of the year 2010, there will be no new public finance lending, unless this is essential for the management of our cover pool.