CONSOLIDATED ANNUAL REPORT - BAWAG P.S.K. · CONSOLIDATED ANNUAL REPORT 20 0 5. 20 0 5 GROUP REPORT...

CONSOLIDATED ANNUAL REPORT

2 0 0 5

2 0 0 5

GROUP REPORT

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Key information 5

Preface by the CEO 6

Boards and officers 9

Structure 12

Group Management Report 15

Key events during the financial year 2005 15

Key events after the balance sheet date 22

Notes to the Annual Financial Statements for 2005 24

Important projects within the bank 26

Outlook 27

Consolidated Financial Report prepared in accordance with IFRS 29

Contents 29

Consolidated Financial Statements 31

Notes 36

Auditors’ Report 113

Supervisory Board’s Report 115

Boards and officers 117

Subsidiaries and offices abroad 125

Disclosures required by IFRS

Contents

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Key Information . Preface by the CEO . Boards and Officers . Structure . Human Resources . Group Communications

Business Review . Group Management Report . Customer Business . Consolidated Financial Report prepared in accordance with IFRS

Key informationBAWAG P.S.K. Group

Monetary values are in €mn 2005 2004

Assets 57,898 56,271Receivables from customers 29,273 29,446Securities in the banking book 19,854 16,356Commercial lending 49,127 45,802

Savings deposits 18,241 18,692Primary deposits (Primäreinlagen ) * 41,747 44,748

Cover 85% 98%

Core capital ** 2,226 1,772Eligible own funds ** 3,281 3,147Risk-weighted assets ** 28,510 28,761Core capital ratio ** 7.9% 6.2%Own funds ratio ** 11.6% 10.9%

Operating profit 217 280Consolidated profit 6 113

Staff on balance sheet date *** 6,632 6,275Bank branches 238 214Other outlets 1,571 1,847

Cost income ratio 74.6% 67.7%

Rating (Moody 's long-term) A3 A2

* Savings deposits and customer current accounts.

** No prior-year comparisons are possible because of the merger for the purposes of company law.

*** Full-time equivalent basis.

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Preface by the CEO

The financial year 2005 and the early months of 2006 saw events

that led up to a turning point in the history of BAWAG P.S.K. First,

during the year ended, two previously independent institutions —

BAWAG and P.S.K. — were merged with retrospective effect from

1 January 2005 to create the new BAWAG P.S.K. AG, the fourth-

largest Austrian bank, with 1.3 million personal banking customers

and some 60,000 corporate customers.

The drastic events that were to shape our bank’s future develop-

ment began to unfold in mid-October 2005, when international bro-

ker Refco in the United States had to file for bankruptcy under

suspicion of falsifying accounts. All of you will have followed the

public discussion about BAWAG transactions between 1995 and

2000 that came to light during investigations in connection with

Refco’s bankruptcy. Their consequences were extensive and led to

a thorough reform of our bank.

The Managing Board and Supervisory Board of BAWAG P.S.K. were

recomposed both structurally and with respect to their membership.

Our new management took decisive action during the early months

of this financial year to significantly improve the bank’s corporate

governance standards. The Managing Board was given new terms

of reference, those of the Supervisory Board were reviewed, and we

created a central managing board remit covering every aspect of risk. Furthermore, the bank’s new management

elected to adopt the corporate governance code applicable to listed companies in Austria.

Furthermore, the bank’s shareholders decided to sell their stake. The selling process has already been initiated

and is being carried out in accordance with best practice.

So as not to impede that selling process and to prevent a drawn-out period of uncertainty in connection with

potential litigation risks in the United States, we have striven for a settlement with Refco’s creditors and the US

authorities. To capture the necessary outlay in the accounts and in order to give our bank added stability and

strength, the Republic of Austria has issued a guarantee on behalf of BAWAG P.S.K. for E 900 million. In addition,

a consortium of Austrian financial institutions has furnished E 450 million to strengthen our capital base. This has

given us firm foundations for BAWAG P.S.K.’s positive development in years to come.

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The Managing Board welcomes the shareholders’ decision to sell the bank and is supporting the process that has

now been initiated. We have wholehearted confidence in BAWAG P.S.K.’s strengths. Our broad customer base,

a dense national sales network, close cooperation with the Austrian Post Office, a strong position as the principal

provider of banking services to our institutional clients and the public sector and our dominant position in pay-

ment services are all extremely attractive assets — and they are the reason why BAWAG P.S.K. can look forward

to a sustainable, stable and successful future.

One of the principal focuses of our business activities in 2005, and one that will be sustained, was our expansion

within Central Europe. For instance, Dresdner Bank CZ, acquired in 2005, merged with our subsidiary Interbanka

at the end of March 2005 to create BAWAG Bank CZ. Another milestone was the creation of a banking sub-

sidiary in Slovenia in September. Initially, this subsidiary, called BAWAG banka d.d., will concentrate exclusively on

corporate customers. Its entry into the personal banking segment will take place at a later date.

In July 2005, we became the first Central European bank to open a representative office in Tripoli, the capital of

Libya. The representative office receives support from BAWAG Malta Bank Ltd., which has been operating suc-

cessfully in Sliema for two years.

The events during 2005 and, above all, the first few months of 2006 put extraordinary strain on our workforce.

However, in an extremely tense period, their enormous dedication and hard work were exceptional, proving again

that they are, beyond doubt, our group’s most important resource. I must therefore express my thanks to every

single member of staff.

Our customers too gave us their confidence and loyalty during a very trying period, so let me end by thanking

them for doing so.

I undertake to do everything in my power to win you over to our new BAWAG P.S.K. and to confirm you in your

trust.

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Ewald Nowotny (CEO)

Chairman of the Managing Board

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Eduard ASCHENBRENNERRegierungsrat, Deputy Chairman,Gewerkschaft der Gemeindebediensteten, (Union of Municipal Employees), Vienna(from 1 October 2005 to 7 April 2006)

Herbert AUFNERGewerkschaft Bau - Holz, (Union of Constructionand Woodworkers), Federal Secretary, Vienna(from 1 October 2005 to 7 April 2006)

Erich FOGLARFinancial Officer, Central Secretary,Gewerkschaft Metall-Textil (Union of Metal and Textile Workers), Vienna(from 1 October 2005 to 7 April 2006)

Monika FRAISSLEVN Group(from 7 April 2006)

Albert HOCHLEITNERCEO of Siemens AG Österreich,Vienna (from 1 October 2005)

Rudolf JETTMARDeputy CEO,Österreichische Post AG, Vienna(from 1 October 2005 to 7 April 2006)

Max KOTHBAUERChairman of the Universitätsrat (university council) of Vienna University, Vienna(from 7 April 2006)

Georg KOVARIK Head of the Referat für Volkswirtschaft(economic affairs department) at the OeGB, Vienna(from 7 April 2006)

Members

Siegfried SELLITSCH, Dwora STEINVienna Federal CEO, Gewerkschaft der Privatangestellten(from 7 April 2006) (GPA: Union of Salaried Private Sector Employees),

Vienna (from 7 April 2006)

Günter WENINGER Rudolf KASKESenior Secretary, Chairman of the Gewerkschaft Hotel, Gastgewerbe, Österreichischer Gewerkschaftsbund Persönlicher Dienst (Union of Hotel, Restaurant and (OeGB : Austrian Trade Union Federation), Vienna Personal Service Workers), Vienna(from 1 October 2005 to 7 April 2006) (from 1 October 2005 to 30 March 2006)

Chairman Deputy Chairman

Boards and officers of BAWAG P.S.K. Bank für Arbeitund Wirtschaft und Österreichische PostsparkasseAktiengesellschaft (BAWAG P.S.K.)Details of the boards and officers of Bank für Arbeit und Wirtschaft Aktiengesellschaft, of Österreichische

Postsparkasse Aktiengesellschaft and of Kapital & Wert Bank Aktiengesellschaft are to be found in the Consolidated

Financial Report (Boards and Officers ), from page 181.

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The Supervisory Board of BAWAG P.S.K.

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Ingrid STREIBEL-ZARFLChairman of the Central Works Council, Vienna(from 1 October 2005)

Manuela GÖSTELChairman of the Works Council, Graz(from 1 October 2005)

Gerd GRÜNAUERChairman of the Works Council, Salzburg(from 1 October 2005 to 7 April 2006)

Brigitte JAKUBOVITS1st Deputy Chairman of the Central Works Council,Vienna(from 1 October 2005)

Rudolf LEEB3rd Deputy Chairman of the Central Works Council,Vienna(from 1 October 2005)

Beatrix PRÖLL2nd Deputy Chairman of the Central Works Council, Linz(from 1 October 2005)

Josef SINGERCentral Works Council, Vienna(from 1 October 2005 to 7 April 2006)

Werner MUHMDirector,Arbeiterkammer (Chamber of Labour), Vienna(from 1 October 2005)

Richard SCHENZRegierungsbeauftragter für den Kapitalmarkt(Government capital markets commissioner),Vienna(from 7 April 2006)

Peter STATTMANN Regional CEO for Lower Austria, GPA, St. Pölten(from 1 October 2005 to 7 April 2006)

Walter SUMETSBERGERCentral Secretary, Gewerkschaft der Post- undFernmelde-Bediensteten (Union of Postal andTelegraph Workers), Vienna(from 1 October 2005 to 7 April 2006)

Christoph SYKORAHead of Marketing, GPA, Vienna (from 1 October 2005 to 7 April 2006)

Leopold WALLNERCEO, Casinos Austria,Vienna(from 1 October 2005 to 7 April 2006)

Gottfried WINKLERDeputy Chairman of the Gewerkschaft derEisenbahner (Union of Railway Workers), Vienna(from 1 October 2005 to 7 April 2006)

Gabriela ZRAUNIGÖsterreichische Post AG, Vienna(from 7 April 2006)

Walter ZWIAUER Kammerrat, Deputy Chairman of the GPA,Vienna(from 1 October 2005 to 7 April 2006)

Works Council Delegates

State Commissioner Deputy

Helmut BRANDLKabinettschef,Bundesministerium für Finanzen(Federal Ministry of Finance), Vienna(from 1 October 2005)

Emmerich BACHMAYERSektionschef,Bundeskanzleramt (Federal Chancellery), Sektion III, Vienna(from 1 October 2005)

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Ewald NOWOTNY

CEO and Chairman of the Managing Board

(from 1 January 2006)

Stephan KOREN

Deputy CEO

(from 1 October 2005)

Jochen BOTTERMANN


Christian BÜTTNER

(from 1 October 2005 to 30 April 2006)

Hubert KREUCH


Herbert LEGRADI


Johann ZWETTLER


(from 1 October 2005 to 31 December 2005)

Peter NAKOWITZ


Josef SCHWARZECKER


Alois STEINBICHLER

(from 7 June 2006)

The Managing Board of BAWAG P.S.K.

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CEO EWALD NOWOTNY

Accounts

Controlling

Credit Ratings, Management Consulting

Corporate and Business Loans Management

Loan Processing (Personal Banking)

Market Risk Control

Legal Affairs

Basel II Project

Branch Management (Corporate and Business Banking)

Internal Services

Real-Estate Projects and Real-Estate Finance

Savings, Current Accounts

Treasury Settlements

Remits within the BAWAG P.S.K. Group

Risk Control and Risk Management Corporate and Business Customers

JOCHEN BOTTERMANNDEPUTY CEO STEPHAN KOREN

Group shareholdings

General Corporate Affairs

Investor Relations

Marketing and Product Development

Human Resources

Enterprise Development

Verband Österreichischer Sparvereine

Economic Analysis and Research

Advertising and Corporate Responsibility

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Communication Centre

eBusiness

Branch Management (Personal Banking)

Financial Services Sales at Post Offices

Information Technology

Mobile Sales and Sales Services

Processes and Logistics

The allegro Project

Key Accounts

International Business und Financial Institutions(West and East )

Institutional Clients and the Public Sector

Treasury and Investment Banking

Personal Banking Customers Treasury and Key Accounts

HERBERT LEGRADI ALOIS STEINBICHLER

Compliance Office

Internal Audit

REMITS OF THE MANAGING BOARD AS BODY

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Group Management Report

Merger

The BAWAG P.S.K. Group had an eventful year that led to numerous significant changes. The course of business

having been satisfactory during the first half of 2005, our work during the third quarter centred mainly on preparations

for the merger of BAWAG and P.S.K. BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse

AG came into being on 1 October 2005 following the merger for the purposes of company law of Bank für Arbeit und

Wirtschaft, Österreichische Postsparkasse and Kapital & Wert Bank (K&W ). Among other things, the simplification

of our group’s legal structure — which has left our organizational structure unchanged — and the continued pursuit

of our successful dual-brand strategy, which uses bank and post office branches as distinct sales channels,

have also created the basis for the entry of a new partner.

For the purposes of commercial law, Kapital & Wert Bank, a wholly-owned BAWAG subsidiary, acted as the ultimate

acquiring entity during this process. Initially, an affiliate, namely P.S.K., was merged with this bank. Then the banking

operations of BAWAG were demerged and transferred to K&W Bank.

In a final step, the “old” BAWAG was renamed as Anteilsverwaltung BAWAG P.S.K. Aktiengesellschaft (AVB) and K&W

Bank was renamed as BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse AG (BAWAG P.S.K.).

As a result of these measures under company law, BAWAG P.S.K. has a claim against AVB of € 1,531 million.

Since AVB ’s assets consist largely of its interest in BAWAG P.S.K., the valuation of this interest will be of material

importance when BAWAG P.S.K. is sold. The Managing Board has tested this claim for impairment taking account of

the circumstances that became known after year-end. Based on AVB ’s existing assets, which also include securities

in addition to its interest in BAWAG P.S.K., the board believes that the claim is fully recoverable.

BAWAG P.S.K.’s business focus on Austria and the adjoining countries has not changed. During the year under review,

the implementation of our strategy for Central Europe consisted of our business development work and the opening of

new outlets in the Czech Republic and Slovakia as well as the founding of BAWAG banka d.d. in Ljubljana, Slovenia.

Alongside Slovenian prime corporates and SMEs, the customers targeted by this bank and its 20 employees include,

above all, subsidiaries of Austrian and foreign enterprises.

Material events during the 2005 financial year



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The Refco loan

In October 2005, BAWAG P.S.K. was hit by the insolvency of US broker Refco. Immediately after being granted a loan

of € 350 million by BAWAG P.S.K., Refco published information regarding possible account falsification and the

suspension of its CEO Phillip Bennett. This resulted in a massive loss of confidence in the company in the

marketplace and among its customers and, in due course, Refco’s insolvency.

At the time of Refco’s insolvency, BAWAG P.S.K.’s exposure totalled € 425 million, comprising € 75 million from earlier

loans and the € 350 million loan referred to above. It proved possible to reduce this amount to roughly € 393 million

by selling part of the exposure in the secondary market for € 33 million in November 2005.

On 16 November 2005, BAWAG P.S.K. sued Phillip Bennett and the Refco Group in the United States for fraud,

unjust enrichment and deception and demanded the repayment of the € 350 million loan.

The Austrian Financial Market Authority (Finanzmarktaufsicht ) examined the granting of the loan,

completing its examination in December 2005. CEO Johann Zwettler resigned as of the end of 2005.

Measures to improve corporate governance

CEO Ewald Nowotny has been heading BAWAG P.S.K. since 1 January 2006. During the first quarter of this year,

he initiated fundamental action to improve our corporate governance procedures and put them into effect in a five-point

programme to define new terms of reference for the Managing Board; review the Supervisory Board’s terms of

reference; restructure Managing Board remits, creating clear firewalls between the front office and risk management

and installing a central Chief Risk Officer; amend our lending and risk control guidelines; and voluntarily adopt the

Austrian corporate governance code applicable to listed enterprises.

Adherence will be monitored by the bank’s auditors.

During investigations in connection with Refco’s bankruptcy, BAWAG transactions between 1995 and 2000 that had

been terminated with massive losses at the end of 2000 came to light. As of 31 December 2004, the outstanding loss-

es amounted to about € 1 billion. Thanks to guarantees with respect to these transactions that had been furnished by

our principal shareholder, ÖGB (the Austrian trade unions association), these losses did not have to be recognized in

the income statements for prior years. The Managing Board has appointed a team of experts supported by Internal

Audit with the task of investigating all past transactions and clarifying them in full detail. Furthermore, auditors Deloitte

have been hired to examine certain aspects of the accounts to supplement the work of the bank’s auditors KPMG, giv-

ing us absolute certainty regarding the 2005 financial statements.

Examining and accounting for past transactions led to important changes in BAWAG P.S.K.’s structure.



Material events after the reporting date16

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BAWAG P.S.K.’s Supervisory Board was recomposed and reduced in size. Since 7 April 2006, the Chairman

of the Supervisory Board has been Siegfried Sellitsch and his Deputy Chairman has been Ms. Dwora Stein.

The appointments of four members of the Managing Board, namely Christian Büttner, Hubert Kreuch,

Peter Nakowitz and Josef Schwarzecker, were rescinded. The settlement of claims in connection with

the dissolution of their contracts is still pending and will be handled by our lawyers.

The shareholders of BAWAG P.S.K. have decided to sell “up to 100 per cent” of their stake in the bank. The selling

process has already begun with the support of international investment bankers Morgan Stanley. Events eventually led

to Moody´s Investor Service adjusting BAWAG P.S.K.’s long-term rating, making it more expensive for us to obtain funds

in the international money and financial markets in certain maturities. The Financial Market Authority has resumed its

enquiries and will be extending its scrutiny back to the mid-1990s. The investigation is still ongoing.

Agreement reached with Refco creditors

In 2006, BAWAG P.S.K.’s fraud suit against Refco and Bennett was met by the announcement of a countersuit by

unsecured Refco creditors with claims against BAWAG P.S.K. totalling US$ 1.3 billion. At the same time, BAWAG

P.S.K.’s assets and accounts in the United States were briefly frozen. We successfully applied to have the freeze on

our accounts lifted within just a few days, allowing BAWAG P.S.K.’s international payments to resume without

restriction. However, assets totalling some US$ 1.1 billion remain frozen for the time being.

Following talks with the US authorities and representatives of Refco ’s creditors, BAWAG P.S.K. then agreed an

extensive settlement of the claims arising in connection with Refco ’s insolvency. It did so to avoid a lengthy period of

uncertainty during prolonged court proceedings. Settlement negotiations were completed at the beginning of June 2006.

The settlement provides that BAWAG P.S.K. makes an initial payment of US$ 158 million, US$ 150 million of which will

be divided equally between the Refco Creditors Committee and the Department of Justice; the Department of Justice,

in turn, will distribute the money paid to it by BAWAG P.S.K. to the Refco estate, the securities claimants and Thomas

H. Lee Partners. An additional US$ 8 million will also be paid directly to a class action settlement fund. Either after one

year or upon an earlier sale of the bank, another payment of US$ 525 million will have to be effected. In addition,

the settlement provides that 30 per cent of any amount of the BAWAG P.S.K. sales proceeds in excess of € 1.8 billion

will be payable to the settlement parties up to a maximum of US$ 200 million. BAWAG P.S.K. also agrees to drop its

own claims against Refco and the Refco creditors, but not its claims against Phillip Bennett. In exchange, the Refco

creditors have dropped their actions and the US Attorney has agreed not to prosecute the bank and its boards.

The extensive settlement also included other groups, namely Refco shareholders and stakeholders and investment

house Thomas H. Lee Partners. During the settlement’s implementation, Refco victims are only to receive payments if

they agree not to take legal action against BAWAG P.S.K. After this settlement, further serious actions in connection

with Refco are unlikely, but under US law, they cannot be ruled out entirely. The settlement is not an admission of guilt.

It was reached solely to give us the greatest possible legal security.

The settlement has given BAWAG P.S.K., its customers, business associates and investors legal security. Now that

a settlement has successfully been reached, the process of selling the bank can continue as planned and without

disruptions.

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18

Guarantee furnished by the federal government

To stabilize and strengthen BAWAG P.S.K., the Austrian Nationalrat (lower house of parliament) enacted a law,

the BAWAG P.S.K. Sicherungsgesetz (BAWAG P.S.K. guarantee act), on 8 May 2006, creating a guarantee facility of

€ 900 million in the bank’s favour with retrospective effect from 31 December 2005. Based on this legislation,

the federal minister of finance has signed a guarantee agreement with the bank. Moreover, we plan to strengthen the

capital base of AVB-Kreditinstitutsgruppe by creating special purpose entities in the course of 2006. Other financial

institutions will have stakes in these entities up to a total of € 450 million, held in the form of minority shareholdings.

The federal government’s guarantee encompasses a pool of receivables containing assets as specified by § 22 Abs. 2

BWG (Austrian banking act). A fee of 0.2 per cent is payable for the federal guarantee. The term of the guarantee

will end when BAWAG P.S.K. is sold but not later than 1 July 2007. However, an extension will be possible.

The BAWAG P.S.K. guarantee act lays down a series of conditions that must be met by BAWAG P.S.K. and its owners

for the guarantee to take effect. They are detailed in the Notes to the Consolidated Financial Statements.

The Managing Board of BAWAG P.S.K. has confirmed to the Austrian federal ministry of finance that all the conditions

for the guarantee have been met.

In the course of these developments and, in particular, because BAWAG P.S.K. has received help from outside in the

form of the federal guarantee, Moody’s Investor Service downgraded the bank’s Financial Strength rating at the end of

May 2006. We assume that BAWAG P.S.K.’s rating will improve again once all our restructuring measures have taken

effect.

The remedial measures we have described, including above all the federal guarantee, made it possible to prepare

BAWAG P.S.K.’s accounts on a going concern basis. Strengthening of the bank’s equity base in 2006 will allow it to

continue to recover.

BAWAG P.S.K. is thus poised to deliver good business results in every country in its extended home market,

comprising Austria and the adjoining CEECs (Czech Republic, Slovakia, Hungary and Slovenia). To support the

rapid growth of Istrobanka in Slovakia, the Managing Board decided to carry out a capital increase in January 2006.

Austrian supreme court ruling on Zinsgleitklauseln (variable rate clauses)

Other events after the reporting date included the ruling of the Austrian supreme court regarding changes in the

interest rates paid on savings deposits and the agreement between BAWAG P.S.K. and the VKI (Austrian consumer

protection information association) and the Arbeiterkammer (Austrian chamber of labour) concerning variable rate

clauses for personal loans. In a test case that affected the entirety of the Austrian banking industry, the supreme court

prohibited BAWAG P.S.K., from continuing to apply the clauses on changes in rates on passbooks taken from the

Bankwesengesetz (Austrian banking act) as before. As things stand at the moment, the complexity of this issue makes

it impossible to judge whether retrospective interest payments will be necessary. In the absence of a reliable way of

assessing the situation, these Annual Financial Statements do not take account of possible payment obligations.

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During the legal dispute regarding the application of variable rate clauses to loans before March 1997, BAWAG P.S.K.

made an offer to the consumer protection information association and the chamber of labour, which they accepted.

In this way, it proved possible to find a solution that is good for consumers. Appropriate provisions have already

been created.

The Group’s reports on the year 2005 were prepared in

accordance with the International Financial Reporting Standards (IFRS ). According to IFRS, the aforesaid merger of

BAWAG, P.S.K. and K&W for the purposes of commercial law has been treated as a reverse acquisition, with P.S.K.

acting as the acquiring entity. Pursuant to IFRS 3.21, P.S.K. was identified as the acquirer on the grounds, among

other things, of its significantly higher fair value and the retention of its management. Because the merger of BAWAG,

P.S.K. and K&W was entered in the Firmenbuch (Austrian companies register) in October, and since IFRS (unlike

Austrian commercial law) does not permit retrospective mergers, first-time consolidation of the BAWAG sub-group

took place as of 1 October 2005. Consequently, the figures for 2004 shown on the Balance Sheet and contained in

the Income Statement and Notes are for the P.S.K. sub-group, comprising essentially P.S.K., the BAWAG P.S.K. Leasing

sub-group and P.S.K.’s holding company. The latter company’s principal interests were Investkredit Bank (sold in

January 2005) and Österreichische Lotterien. Following the acquisition of a 100 per cent stake in insurer

Postversicherung (renamed P.S.K.Versicherung in 2006), this company too has been a part of the sub-group since 1

January 2005.

The figures in the Income Statement for 2005 capture the income of the P.S.K. sub-group throughout the year and of

the BAWAG sub-group in the 4th Quarter of 2005. During the first-time consolidation of BAWAG and its subsidiaries,

loans, securities investments classified as non-current assets, shareholdings held for investment purposes and land

and buildings were recognized at higher market values. Valuation write-ups came to € 136 million in the case of

loans, € 33 million in the case of securities, € 64 million in the case of land and buildings and € 54 million in the case

of shareholdings held for investment purposes. On the other hand, impaired loans connected with transactions in the

Caribbean were written off in the amount of € 534 million. For information purposes and to provide a clearer

presentation of the Income Statement, a pro forma account has been provided with the Income Statement for 2005

based on first-time consolidation of the BAWAG sub-group as of 1 January 2005 and covering the entire financial year.

The Group comprises 75 enterprises in Austria and abroad. Besides BAWAG P.S.K., the banks in the Group are

Österreichische Verkehrskreditbank, easybank, Spardabank, BAWAG Wohnbaubank, Istrobanka in Slovakia,

BAWAG Bank CZ in the Czech Republic and BAWAG Malta Bank. BAWAG banka d.d. was set up in Slovenia in 2005.

The key financial service providers in the Group are asset management company BAWAG P.S.K. Invest, the BAWAG

P.S.K. Leasing Group, BAWAG Versicherung and P.S.K.Versicherung. Because of their significance, the BAWAG P.S.K.

real-estate sub-group, the Stiefelkönig shoe chain and the Bösendorfer piano company are also consolidated. TV

broadcaster ATV+ is accounted for using the equity method.

The following forms of presentation have been chosen for the Management Report: In the case of the Balance Sheet,

the figures in the Annual Financial Statements for 2005 are compared with figures in BAWAG ’s Consolidated Financial

Statements for 2004. In the case of the Income Statement, the aforesaid pro forma account (capturing the entire

financial year) is compared with BAWAG ’s consolidated figures for 2004. Material differences arise from the

Notes to the Annual Financial Statements for 2005

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demerging of AVB and the consolidation of P.S.K.Versicherung and BAWAG P.S.K. Invest, which were not accounted for

in this way in BAWAG ’s Consolidated Financial Statements for the previous year.

The banking group’s core business delivered very satisfactory results. Consolidated assets on 31 December 2005

came to € 57.89 billion, which was € 1.63 billion or 2.9 per cent more than at year-end 2004. Their growth was driv-

en by securities investments and loans to personal banking customers and small and medium-sized enterprises (SMEs).

€mn 12/2005 12/2004Assets In Assets In +(-) Change

Per Cent Per Cent

Receivables from customers 29,273 51 29,446 52 (173) 0,6%Securities 19,854 34 16,356 29 3.498 21,4%Receivables from credit institutions 4,104 7 5,432 10 (1.328) 24,4%Other fixed assets 1,809 3 2,209 4 (400) 18,1%Other items 2,858 5 2,828 5 30 1,1%Assets 57,898 100 56,271 100 1.627 2,9%

Receivables from customers were recognized on the Balance Sheet as of 31 December 2005 in the amount of

€ 29.27 billion. This was € 0.17 billion or 0.6 per cent less than at the end of the previous year. Maturing loans to the

public sector and related enterprises could not be replaced with equivalent assets, if only because of current interest

rate levels. The principal motor of growth was an increase in the volume of our core domestic business with corporate

customers, SMEs and personal banking customers.

Institutional clients and the public sector were one focus of our credit operations. This customer segment includes

the federal government, provinces and local authorities and a variety of demerged corporations as well as public and

private insurers, charitable and religious organizations, supra-regional institutions and official representative bodies.

In all, we were servicing over 1,600 public-sector and more than 200 institutional clients.

Given the economic and legal circumstances, the federal government and provinces remained rather cautious in their

conventional borrowing. Since the level of investment by communes and their enterprises remained high, demand in

this segment was still brisk. As in prior years, the BAWAG P.S.K. Group was able to continue to increase its market

share by providing personalized client support and stepping up its activities in the local authorities segment.

At the close of December 2005, it was 1.2 percentage points up on the end of the previous year at 15.5 per cent.

Looking back on 2005, our corporate banking business in general and operations in the SME segment in particular

developed very well. According to our own regular survey of customer satisfaction among SMEs, 58 per cent of the

responding companies were very happy with our bank’s products and services.

Our main focus in product sales was on self-employed customers, who were offered so-called “expansion loans”.

Besides interest-only loans, this line also includes supplementary services such as seminars and support from a tax

consultant, depending on the business needs of the company concerned.

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Personal banking business has always been one of our mainstays. In the spring of 2005, BAWAG P.S.K. launched

a campaign under the slogans Mit einem Schnipp zum BAWAG Wohnkredit (just a snap of your fingers away from

a BAWAG home loan) and Mit einem Schnipp zum P.S.K.Kreditkoffer (just a snap of your fingers away from a P.S.K.

loan). During this campaign, we were able to reinforce and build upon the reputation that BAWAG P.S.K. has

developed in recent years as a provider of consumer and home loans.

We stepped up and rounded off our presence in both sales channels with the help of personalized

“Home Coupon Books” filled with “advice vouchers” for comprehensive expert advice.

During the year under review, BAWAG P.S.K. granted nearly 50,000 new loans with a volume of over € 1 billion.

There were some 200,000 loans in the portfolio on 31 December. The volume outstanding of € 4.42 billion was

€ 0.22 billion or 5.3 per cent up on the end of the previous year. According to statistics published by the Austrian

Nationalbank, this increased our market share by 0.4 percentage points to 5.4 per cent.

BAWAG P.S.K. Leasing also had a successful spring sales campaign. The slogan was Einfach mehr Spielraum

(simply more room for manoeuvre). It underscored how simple car leasing is. The campaign used radio advertisements

combined with window posters, leaflets and material enclosed with account statements. Our Austrian finance leasing

group sold over 17,000 new contracts financing purchases totalling nearly € 500 million during the year under review.

The lease portfolio grew by 6 per cent on the year to € 1,302 million. Thirty-eight per cent of the total was accounted

for by real-estate leases, 25 per cent by movable property leases and 37 per cent by car leases. This confirmed our

status in the marketplace as one of Austria’s leading finance lessors.

Salary, pension and current accounts are lynchpins of our relationships with our customers. On 31 December 2005,

BAWAG P.S.K. was servicing 1.3 million personal bank accounts. In addition to stepping up sales of fixed-charge

account packages, we also continued to encourage the growing popularity of Maestro cards and our own credit cards

as a flexible means of making cash-free payments. Over 275,000 customers were enjoying the benefits offered by our

credit cards in 2005. More than 850,000 customers were using our Maestro card to make cash-free payments at

Bankomat POS terminals and to withdraw money from Bankomat cash machines.

On 31 December 2005, the Group’s securities portfolio was worth € 19.85 billion . This was € 3.50 billion or 21.4

per cent more than a year earlier. Nearly 60 per cent of our investments undertaken during the year under review

were in highly-rated fixed-interest government bonds. Our proprietary portfolio’s variable rate segment comprised

in roughly equal parts bank bonds and structured products like asset backed securities, mortgage backed securities

and collateralized debt obligations. This market segment was central to our investment activities during the year under

review, not least because of margins that were better than those offered by other asset classes. Corporate bonds

accounted for roughly 3 per cent of the portfolio.

The distribution of ratings across our proprietary portfolio reflected our bank’s conservative investment policy.

Forty-nine per cent of our investments were AAA-rated, another 22 per cent AA-rated and 25 per cent A-rated.

Just 1.5 per cent of the portfolio was rated BB or lower. The systematic and selective development of our alternative

investment portfolio continued to improve our diversification. These investments delivered above-average returns

combined with low volatility.

15_28 30.08.2006 10:37 Uhr Seite 21

Our securities portfolio:

€mn 12/2005 % 12/2004 % +(-) Change

Public sectordebt securities 6,425 32 4,437 27 1,988 44,8%Debt securities ofother issures 10,400 53 9,051 55 1,349 14,9%Investment certificates 2,827 14 2,716 17 111 4,1%Other securities 202 1 152 1 50 32,9%Banking book securities 19,854 100 16,356 100 3,498 21,4%

Central control of the securities portfolio is the responsibility of the Treasury Division subject to the directives of the

Asset Liability Committee. The portfolios of our Austrian subsidiaries are largely managed by BAWAG P.S.K. Invest as

so-called special funds or in consultation with Central Treasury.

Following a temporary increase as of year-end 2004, receivables from credit institutions were down by € 1.33 billion at

€ 4.10 billion, restoring this item to its long-term average.

Equity and liabilities:

€mn 12/2005 12/2004Absolute % of Absolute % of +(-) Change

Assets Assets

Saving deposits 18,241 31 18,692 33 (451) 2,4%Other customer deposits 10,886 19 12,610 22 (1.724) 13,7%Debt issues 12,407 21 11,958 21 449 3,8%Payables to credit institutiones 7,352 13 6,994 13 358 5,1%Other liabilities and equity 9,012 16 6,017 11 2.995 49,8%Balance sheet total 57,898 100 56,271 100 1.627 2,9%

Media reports about the Refco affair led to withdrawals of savings deposits between the second half of October and the

publication of the report by the Austrian Financial Market Authority (Finanzmarktaufsicht ). For this reason and because

we put more emphasis on sales of securities products, savings deposits with the bank were € 0.45 billion or

2.4 per cent down on the year at € 18.24 billion on 31 December 2005. The breaking of the news about our Caribbean

transactions and the bringing of a lawsuit against BAWAG P.S.K. by Refco creditors in the United States led to a drain

on our so-called primary funds (Primärmittel ) this year. However, deposits by banks made up for a large part of the

outflow. Withdrawals of customer deposits surged in the days that followed the filing of the action, but they subsided

for the most part when the Austrian federal government announced, on 1 May 2006, that it would be furnishing

a federal guarantee on behalf of BAWAG P.S.K. Nonetheless, the drop in savings deposits has been painful.

We have taken countermeasures to restore customer confidence and win back lost business.

Our banking subsidiaries also reported declines in primary funds, albeit of a much less severe nature.

22



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23



The BAWAG P.S.K. Group perceives itself as a “universal” financial services provider. BAWAG P.S.K.’s line is

supplemented by the products and services supplied by its subsidiaries.

easybank maintained its position as Austria’s biggest and most successful “direct” bank during the 2005 financial year.

Since being founded, easybank has achieved steady growth in every product segment and has continuously broadened

its product line. At year-end, it was already servicing over 140,000 customers.

easybank is more than just Austria’s biggest direct bank. It is also the only direct bank in Austria to offer its customers

the same range of services as a high-street bank. Uniquely, easybank is a one-stop financial services provider of

attractively priced current account, securities, credit and private pension and saving products.

There was also brisk demand for the private pension and saving products of the Group’s insurance subsidiaries.

Sales of single-premium endowment policies in the Limited Edition I und II lines developed very well during 2005,

increasing the market share of insurance subsidiary BAWAG Versicherung. There was also growth in the volume of new

recurring-premium endowment insurance business. Our premium income grew by some 35 per cent to € 113 million,

exceeding all our expectations. We have over 200,000 life assurance policies under management with an SI of

€ 2.9 billion.

P.S.K.Versicherung, wholly owned by BAWAG P.S.K. since 2005, sells its life assurance products through financial

advice centres and post offices. In its tenth year of operation, this insurer continued to record steady growth.

Its premium grew by over 23 per cent to more than € 78 million. On 31 December 2005, it had in excess of

114,000 policies under management with a total SI of € 1.5 billion.

Besides credit life insurance, P.S.K.Versicherung mainly sells standardized endowment policies. Most of the growth in

new business was generated by higher sales of standard products and by putting special emphasis on private pension

and saving products.

The bank’s debt issues in circulation on 31 December 2005 totalled € 12.41 billion. This was € 0.45 billion or

3.8 per cent more than a year earlier. During the year under review, BAWAG P.S.K. launched 15 new issues with

an aggregate nominal value of approximately € 1.37 billion.

Our special focus was on establishing covered bonds in the international capital markets. Following a successful issue

in 2004, we issued a second covered bond with a nominal value of € 1 billion and a maturity of five years in June 2006.

It was placed internationally. Thanks to the amendment of the Austrian law on covered bonds (Gesetz betreffend

fundierte Bankschuldverschreibungen ), in force since the beginning of June 2005, and a change in the methodology

used by Moody´s Investor Service, BAWAG P.S.K. was able to achieve the best-possible, AAA rating for this class of

bond, significantly reducing our funding costs. BAWAG P.S.K. was the first bank to float an issue under the amended

legislation. Our preparations for the issue included a Europe-wide roadshow.

Our construction finance subsidiary BAWAG Wohnbaubank AG issued securities worth a record € 170 million during

2005, increasing its total issues in circulation to over € 800 million. Its convertible bonds pay fixed or variable rates.

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Their coupons are exempt from interest tax (Kapitalertragssteuer ) up to 4 per cent, making them particularly attractive

investments in the current interest rates climate. Their cost is also allowable for tax purposes as part of the holder’s

special deductions. The proceeds from the bonds are mainly made available to not-for-profit developers and also,

in the meantime, to retail customers, to finance the creation, maintenance and renovation of residential real estate.

Demand for BAWAG P.S.K. Invest fund certificates remained buoyant. Assets under management grew by € 0.9 billion

or 14.7 per cent to € 6.2 billion. The company was managing 95 funds and had a market share of 4.9 per cent.

BAWAG P.S.K. Invest ’s funds performed very well thanks to good returns in the international equity and bond markets

during the 2005 financial year. Most notably, BAWAG P.S.K. Osteuropa Stock delivered a return of 62.0 per cent and

was placed first in its class in the Standard & Poor’s Fund Awards Austria 2005. So too was BAWAG P.S.K. Asien Stock,

which delivered 47.1 per cent.

Other customer deposits came to € 10.89 billion on 31 December 2005, which was € 1.72 billion down on the year.

The decline was attributable to a fall-off in public sector deposits.

Our provisions increased by € 0.90 billion to € 2.44 billion. This was above all due to the creation of a provision for

litigation risks in connection with the Refco exposure. Other key contributory factors were an increase of € 0.57 billion

in underwriting provisions (first-time consolidation of P.S.K.Versicherung ) and a release of € 0.21 billion of our risk

provisions for exposures in foreign markets.

The change required by the revision of IAS 32 in the recognition of hybrid capital, all of which must now be classified as

subordinated or supplementary capital, reduced minority interests.

Summary of the Income Statement (Simulating the Retrospective

First-Time Consolidation of the BAWAG Sub-Group as of 1 January 2005):

€mn 12/2005 12/2004 +(-) Change

Net interest income 663.2 715.9 (52.7) 7.4%Net commission income 177.5 142.9 34.6 24.2%Net trading income 13.6 7.7 5.9 76.6%General administrative expenses (637.7) (586.6) (51.1) 8.7%Net income from operations 216.6 279.9 (63.3) 22.6%

Loan loss provisioning (280.6) (118.0) (162.6 137.8%Other operating profit 55.1 8.5 46.6 >300%Profit before tax (8.9) 170.4 (179.3) —

Income tax 12.5 (32.1) 44.6 —Profit after tax 3.6 138.3 (134.7) 97.4%

15_28 30.08.2006 10:37 Uhr Seite 24



Net interest income in 2005 came to € 663 million, which was € 53 million or 7.4 per cent less than in 2004. It proved

impossible to replace maturing high-interest public sector loans and long-dated securities on the same terms as before.

Additional write-downs of premiums carried out in connection with revaluations during first-time consolidation reduced

net interest income by another € 60 million. Moreover, portfolio transfers from the banking to the trading book and the

consolidation of BAWAG P.S.K. Invest led to shifts between different income categories. Instead of being recognized on

a netted basis in income from shareholdings held for investment purposes, income and expense arising from this asset

management company were recognized separately under the corresponding items. Together, these changes diminished

net interest income by over € 20 million. Stripping out the impact of these exceptional factors, comparable net interest

income was roughly € 30 million up in the year.

We were very pleased with the advance in net commission income, which rose by € 35 million or 24.2 per cent to

€ 178 million. Besides the consolidation of BAWAG P.S.K. Invest, whose principal source of income is commission, the

increase was primarily due to growth in our commission income from customer securities business generated mainly by

our securities and fund sales drive. The increase in net trading income resulted from transferring derivative portfolios

from the banking book to the trading book. In the accounts for the previous year, this income was recognized under

net interest income.

General administrative expenses increased by € 51 million or 8.7 per cent to € 638 million. The reasons were a rise

in staff costs in the wake of the changeover in our IT infrastructure and the other administrative outlay incurred in this

context. Moreover, once the allegro system had been successfully implemented, we also began amortizing the

software package.

Our net income from operations, which is equivalent to operating profit under Austria’s banking act (Bankwesengesetz),

came to € 217 million. Given the aforesaid one-off effects of the additional write-downs that we were compelled to

carry out, this was roughly the same result as in 2004.

The development of our risk provisions during 2005 was mainly a reflection of the provisions created because of the

Refco affair. In this connection, write-downs, revaluations and impairment provisions in the amount of over € 1 billion

were shown in the Balance Sheet as of year-end 2005. We drew upon a provision of € 210 million as a balancing item.

It had been created during the sale of our stake in Refco to cover the risks arising from that transaction.

The guarantee furnished by the Republic of Austria allowed us to release impairment provisions in the net amount

of € 600 million.

Under IFRS, our other operating profit encompasses earnings from the revaluation of securities and derivative

instruments in the banking book, income and expenses arising from real-estate, finance leasing, insurance and

retailing operations, net income from financial fixed assets and the amortization and write-down of goodwill.

In total, other operating profit in 2005 came to € 55 million.

Adding tax income of € 12.5 million, 2005 closed with profit of € 3.6 million. This was € 135 million less than our profit

in the previous year.

25

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26



The BAWAG P.S.K. Group’s consolidated own funds

for the purposes of BWG:

€mn 12/2005

Share capital of BAWAG P.S.K. 250Reserves of BAWAG P.S.K. 1,432

Goodwill, minorities, deductions 544Core capital (Tier 1) 2,226

Reserve pursuant to § 57 BWG, revaluation reserve 15Subordinated and supplementary capital 1,090Additional items (Tier 2) 1,106

Less shareholdings held for investment purposes (51)Eligible own funds 3,281

Tier 3 30Own funds 3,312

Our capital requirement was as follows:

€mn 12/2005

Credit risk 2,256Market risk 30Requirement 2,286

This gave us a core capital ratio of 7.9 per cent and a total capital ratio of 11.6 per cent.

Important bank projects

Work on one of the biggest IT projects in Europe, namely the amalgamation of the core banking system of BAWAG

with that of P.S.K., continued to dominate our internal project activities during 2005. In partnership with consultants

Accenture, we implemented allegro — our core banking system — on the basis of the Alnova system in a four-release

process. Alnova was developed by a subsidiary of Accenture.

Release 3 in June 2005 completely replaced BAWAG ’s old core banking system after just 2fi years of project work.

We were thus able to complete a large slice of the project in 2005. Up to that time, it had cost BAWAG P.S.K. roughly

120,000 person-days, and about the same amount of work was done by our implementation partner Accenture.

The project has become one of Accenture ’s global reference accomplishments. In the next step, the old P.S.K. system

will be transferred to the new system, according to schedule, in the course of 2006. BAWAG P.S.K.’s full technical

integration will thus take place within the scope of the new allegro core banking system only one year after the legal

merger. We will then be one of the few banks in Central Europe to have a transparent, modern and integrated IT

15_28 30.08.2006 10:37 Uhr Seite 26



system for servicing and handling current account, saving account, card and credit transactions.

The resulting strategic benefits will constitute a solid basis for our customer service work and the continued

strengthening of BAWAG P.S.K.’s position in the market.

The EU parliament adopted the European Union’s draft guidelines for EU banking (BASEL II ) in September 2005.

The Basel recommendations regarding the capturing of risks and the capital adequacy of banks have thus been

integrated into European law. The next step is to incorporate these standards into national law.

The first drafts of the new Austrian banking act and the associated statutory instrument have been published.

This process should be completed by the end of July 2006.

The BAWAG P.S.K. Group's preparations for the new legal framework entered the concrete implementational phase in

2005. Alongside new rating and scoring systems, our work focused on developing the capital requirement calculation

software. In addition, we created an enterprise-wide database that comprehensively captures historical risk-related

data. Every member of the BAWAG P.S.K. Group is interfaced to it. We began rolling out our IT project for the

fully-automated Group-wide classification of corporate customer groups in the autumn of 2005.

The start-up of our data mining and statistical activities software has created the basis for refining our rating systems.

This is an important prerequisite for determining probability of default (PD) and loss given default (LGD),

the parameters for determining our capital requirement. We are also working on applying Pillar 2 of Basel II,

where the focus is on creating an integrated risk management system.

The integration of the BAWAG P.S.K. Group’s cross-border activities continued. The goal is to establish homogeneous

Group-wide procedures. There are still big differences between regulatory standards in individual countries.

These must be seen against the background of the largely harmonized regulations that exist within the EU.

The recommendations of the Committee of European Banking Supervisors (CEBS ) on cross-border cooperation

between supervisors should facilitate the integrated implementation of the new legislative provisions.

Outlook

According to current economic forecasts for 2006, the Austrian economy will recover and grow by 2.4 per cent in real

terms this year. The upturn will be driven by exports and capital expenditure. Falling fuel prices have slowed inflation

slightly since the end of 2005. If energy prices continue to stabilize, inflation is only likely to average about 1.9 per cent

during 2006. Key interest rates are expected to rise a little in the course of the year.

Developments during the first few months of 2006, when we had to grapple with BAWAG ’s costly activities in the past

both from an organizational point of view and as an object of media attention, have clouded the outlook for our banking

operations during 2006 as a whole. The bank’s liquidity has been temporarily affected by the loss of deposits triggered

by the massive media coverage of deals done in the past. However, it was never at serious risk.

Having successfully dealt with past problems, BAWAG P.S.K. is now well placed to meet future challenges.

As we systematically strengthen our bank in its core areas of expertise — in particular within the scope of our

27

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28

strong retail customers base and in the SME segment, in the public sector market, where our position is very strong,

and in payment services — BAWAG P.S.K. will, in the foreseeable future, again be able to build on its healthy

business performance of prior years.

During the remainder of 2006, our principal focus will be on restoring the trust of our customers and business

associates and, by offering customers attractive products and terms, regaining the business that we have lost.

Our new core banking system — allegro — will play an important part in improving our services and taking full

advantage of the potential created by our nationwide sales network.

Our goal is to remain Austria’s leading provider of personal banking services. We intend to attain that goal with the

help of our well-trained workforce. To this end, we will be increasing the number of days of training attended by each

member of staff. This will of course benefit corporate customers as well; they will receive optimal service in the form of

expert advice and support combined with innovative products, allowing us to record profitable growth in this segment.

In view of the requirements of Basel II, the BAWAG P.S.K. Group will also be developing additional finance leasing

products that will be especially tailored to the needs of SMEs.

We will, moreover, especially promote securities services for all our customers during 2006. Demand in this market is

generally on the increase — and BAWAG P.S.K. has first-class investment products in its range. We will be working to

make our customers more aware of them.

BAWAG P.S.K.’s troubled start to 2006 in Austria also affected our banking subsidiaries in Central and Eastern Europe,

which is part of our extended home market. Our plans for significant growth in our personal banking operations, which

are the heart of BAWAG P.S.K.’s customer base in this country, give us confidence in our ability to achieve lucrative

growth in the region. BAWAG P.S.K. will be providing further injections of capital sufficient to help finance the

investments that will be needed for those subsidiaries’ continued expansion.

The selling process that has already begun will have a major impact on BAWAG P.S.K.’s development this year.

We believe that the action we have taken to regain customer confidence and lost business will soon enable us to

resume our successful operational development of recent years. Our efforts will be accompanied by tight cost

management. As a result, we expect to return a solid result for the current financial year.

Vienna

6 June 2006

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Consolidated Financial Report prepared in accordance with

the International Financial Reporting Standards (IFRS)

Contents

Consolidated Balance Sheet as of 31 December 2005

Consolidated Income Statement for the Financial Year 2005

Statements of Changes in Consolidated Equity

Cash Flow Statement

1) Recognition and measurement principles

2) Cash reserve

3) Receivables from credit institutions and customers

4) Impairment provisions

5) Trading assets

6) Other current financial assets

7) Financial fixed assets

8) Intangible and tangible fixed assets

9) Other assets

10) Payables to credit institutions and customers

11) Liabilities evidenced by paper

12) Provisions (including provisions for retirement benefits)

13) Other liabilities

14) Subordinated and supplementary capital

15) Net interest income

16) Loan loss provisioning

17) Net commission income

18) Net trading income

19) General administrative expenses

20) Other operating profit

21) Income tax



Consolidated Financial Statements

Notes

Details of the Consolidated Balance Sheet

Details of the Consolidated Income Statement

29

29_94.qxp 30.08.2006 11:10 Uhr Seite 29

22) Fair value

23) Segment reporting

24) Receivables from and payables to subsidiaries and other enterprises

in which shareholdings were held for investment purposes

25) Related individuals and enterprises

26) Assets pledged as collateral

27) Total collateralized debt

28) Subordinated assets

29) Contingent liabilities and commitments

30) Foreign-currency assets and liabilities

31) Genuine repurchase agreements

32) Finance leases

33) List of selected shareholdings held for investment purposes

34) Market risk

35) Credit risk

36) Operational risk

37) Notes on first-time adoption of IFRS

38) Fiduciary assets and liabilities in local financial statements

39) Breakdown of securities in accordance with the Austrian banking act (BWG : Bankwesengesetz )

40) Consolidated own funds within the meaning of BWG41) Hybrid capital

42) Human resources

43) Other disclosures required by BWG44) Events after the balance-sheet date



Further disclosures required by IFRS

Disclosures required by the Austrian banking and financial reporting acts

(österreichisches Bankwesen- und Rechnungslegungsgesetz )

Risk Report

Board and officers

Auditors’ Report

Supervisory Board’s Report

Note: Any discrepancies in tables are due to rounding errors.

30

29_94.qxp 30.08.2006 11:10 Uhr Seite 30

Consolidated Balance Sheet as of 31 December 2005

Assets

€mn BAWAGP.S.K. P.S.K.Group Group

(Note) 2005 2004

Cash reserve (2) 804 380Receivables from credit institutions (3) 4,104 6,018Receivables from customers (3) 29,273 8,084Impairment provisions (4) (645) (144)Trading assets (5) 1,219 —Other current financial assets (6) 13,579 581Financial fixed assets (7) 7,064 892Intangible fixed assets (8) 426 21Tangible fixed assets (8) 594 114Other assets (9) 1,480 84Total assets 57,898 16,030

Equity and Liabilities

€mn BAWAGP.S.K. P.S.K.Group Group

(Note) 2005 2004

Payables to credit institutions (10) 7,352 2,133Payables to customers (10) 29,127 12,190

Savings deposits 18,241 7,661Other deposits 10,886 4,529

Liabilities evidenced by paper (11) 10,766 147Provisions (12) 2,436 141Other liabilities (13) 4,552 217

Of which trading liabilities 3,370 —Subordinated and supplementary capital (14) 1,641 —Minorities 386 34Equity 1,638 1,168Total equity and liabilities 57,898 16,030



31

29_94.qxp 30.08.2006 11:10 Uhr Seite 31

Consolidated Income Statementfor the Financial Year 2005

€mn BAWAG BAWAGP.S.K. P.S.K. P.S.K.Group Group Proforma

(Note) 2005 2004 2005

Interest income and similar income 946.8 564.8 1,919.1Interest expenses and similar expenses (579.6) (334.6) (1,255.9)Net interest income (15) 367.2 230.2 663.2

Loan loss provisioning (16) (205.1) (14.5) (280.6)Commission income 161.5 108.5 282.2Commission expenses (73.9) (64.1) (104.7)Net commission income (17) 87.6 44.4 177.5

Net trading income (18) 5.1 — 13.6General administrative expenses (19) (312.6) (204.6) (637.7)Other operating profit (20) 39.8 132.2 55.1Profit (loss) before tax (18.0) 187.7 (8.9)

Income tax (21) 8.3 (26.2) 12.5Profit (loss) after tax (9.7) 161.5 3.6

Minority interest in profit (2.0) (1.2) 2.6Consolidated profit (11.7) 160.3 6.2

The figures in the Income Statement for 2005 present the development of the P.S.K. Sub-Group during the whole

year and of the BAWAG Sub-Group during the 4th Quarter of 2005. A proforma statement has also been provided

for information purposes and to give a meaningful presentation of the Income Statement. It is a consolidated

income statement of the Group for the whole financial year. Please note that profit for 2005 includes net interest

income from P.S.K. ’s investments with BAWAG during the first three quarters in the amount of € 65 million.



32

29_94.qxp 30.08.2006 11:10 Uhr Seite 32

Cash Flow Statement



€mn 2005 2004

I. Profit (after tax, without minority interests) (12) 162

Non-cash positions in profit and transition to net cash

from operating activities

a) Write-downs, gains and losses, write-ups (139) (73)b) Change in provisions for staff entitlements and other provisions 512 24c) Changes in other non-cash items 449 8d) Net proceeds from selling intangible fixed assets, tangible fixed assets

and financial fixed assets 12 (16)e) Other adjustments (including interest received minus interest paid

and dividends received as well as income taxes paid) (218) (230)Subtotal 605 (126)

Change in assets and liabilities arising from operating activities after

corrections for non-cash items

a) Receivables from credit institutions and customers 3,725 (310)b) Trading assets 610 —c) Other current financial assets (1,817) 69d) Other assets 137 53e) Payables to credit institutions and customers (2,445) 639f) Liabilities evidenced by paper (93) (66)g) Other liabilities (145) 84

33

Consolidated Statement of Changes in Equity€mn Subscribed Capital Retained Translation Equity Minorities Equity

Capital Reserves Earnings Reserve without withMinorities Minorities

Balance at 1/1/2004 129.0 565.1 373.4 — 1,067.5 35.8 1,103.3Consolidated profit — — 160.3 — 160.3 1.2 161.5Dividends — — (60.0) — (60.0) (2.5) (62.5)Balance at 31/12/2004 129.0 565.1 473.7 — 1,167.8 34.5 1,202.3

Balance at 1/1/2005 129.0 565.1 473.7 — 1,167.8 34.5 1,202.3Contribution of BAWAG sub-operation 121.0 333.8 — — 454.8 352.6 807.4Change in scope of consolidation — — 22.1 — 22.1 — 22.1Consolidated profit — — (11.7) — (11.7) 2.0 (9.7Foreign exchange differences — — — 4.6 4.6 — 4.6Dividends — — — — — (2.6) (2.6)Balance at 31/12/2005 250.0 898.9 484.1 4.6 1,637.6 386.5 2,024.1

Of which revaluation reserve in accordance with IFRS 3 (59)(b) 10.8

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€mn 2005 2004Interest and dividend receipts 912 511Interest payments (675) (263)Income taxes paid (20) (18)II. Net cash from operating activities 794 573

Cash receipts from sales of

a) Financial fixed assets 817 22b) Tangible and intangible fixed assets 16 4Cash paid for

a) Financial fixed assets (1,380) (423)b) Tangible and intangible fixed assets (42) (17)Purchase of subsidiaries (minus acquired cash and cash-equivalents) (16) —Proceeds from selling subsidiaries — —Addition of the BAWAG Sub-Group 224 —

III. Net cash used in investing activities (381) (414)

a) Capital increases — —b) Dividends paid (3) (63)c) Subordinated obligations and other financing activities 12 15IV. Net cash from (used in) financing activities 10 (78)

Cash and cash equivalents at end of previous period 380 299

Net cash from operating activities 794 573

Net cash used in investing activities (381) (414)

Net cash from financing activities 10 (78)

Effect of exchange rate changes 1 —

Cash and cash equivalents at end of period 804 380

The Cash Flow Statement provides information about the Group’s cash and cash equivalents and about inflows

and outflows thereof. It presents inflows and outflows of cash and cash equivalents from and used in operating

activities, investing activities and financing activities. Reported cash and cash equivalents comprise cash and bal-

ances at central banks.

A further 60 per cent of P.S.K.Versicherung AG (formerly Postversicherung AG ) was acquired at the beginning of

the year under review, giving the Group a 100 per cent stake. The acquired assets and liabilities had the following

fair values:



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€mn

Cash and cash equivalents —Receivables from credit institutions and customers 5Impairment provisions —Current financial assets 330Financial and tangible fixed assets —Other assets 65Payables to credit institutions and customers (1)Subordinated liabilities (6)Other liabilities (378)Net assets 15Interests in enterprises accounted for using the equity method (6)The Group’s interest in the company’s equity 9Goodwill 7Purchase price 16Cash and cash equivalents —Cash flow on acquisition net of cash acquired (16)

K&W Bank AG and Österreichische Postsparkasse AG were merged and BAWAG ’s banking operations were con-

tributed to the newly created company as of 30 September 2005. The combinations and restructuring that took

place during the financial year 2005 are elucidated in detail in the pages that follow. The assets and liabilities

acquired during these transactions had the following fair values:

€mn

Cash and cash equivalents 224Receivables from credit institutions and customers 28,348Impairment provisions (759)Trading assets 1,871Current financial assets 10,970Financial and tangible fixed assets 7,080Other assets 1,234Payables to credit institutions and customers (30,021)Liabilities evidenced by paper (10,722)Subordinated liabilities (1,632)Other liabilities (5,715)Net assets 878Minorities (423)Increase in consolidated equity due to addition of BAWAG sub-operation (455)Purchase price —Cash and cash equivalents (224)Cash flow on addition of BAWAG Sub-Group net of cash acquired 224

35



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Notes

Pursuant to the entry in the companies register (Firmenbuch ) dated 1 October 2005, Österreichische Postspar-

kasse Aktiengesellschaft (P.S.K.) was merged with Kapital & Wert Bank Aktiengesellschaft (K&W ) as the acquiring

entity. The banking operations of Bank für Arbeit und Wirtschaft Aktiengesellschaft (BAWAG ) were likewise

demerged as of 1 October 2005 and acquired by Kapital & Wert Bank Aktiengesellschaft. Kapital & Wert Bank

Aktiengesellschaft was renamed, receiving the new company name of BAWAG P.S.K. Bank für Arbeit und Wirt-

schaft und Österreichische Postsparkasse Aktiengesellschaft (short name: BAWAG P.S.K. / FN 205340 x ).

BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse AG came into being in 2005 fol-

lowing the merger for the purposes of company law of Kapital & Wert (K&W ) Bank, Österreichische Postsparkasse

and Bank für Arbeit und Wirtschaft. For the purposes of commercial law, Kapital & Wert Bank — a wholly-owned

BAWAG subsidiary — acted as the acquiring entity during this process. First, an affiliate, P.S.K., was merged with

this bank. Then the banking operations of BAWAG were demerged and contributed to K&W Bank. In a final step,

the “old” BAWAG was renamed Anteilsverwaltung BAWAG P.S.K. Aktiengesellschaft (AVB ) and K&W Bank was

renamed BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse AG. BAWAG P.S.K.,

wholly owned by financial holding company AVB, is the superordinate credit institution in the credit institutions

group for the purposes of § 30 BWG and a rated issuer in the capital markets.

The share capital of Kapital & Wert Bank AG — € 69.4 million at 31 December 2004 — was increased by the

amount of the share capital of P.S.K. — € 129 million — in the course of the combination as of 1 January 2005 and

by the remeasurement of reserves in the amount of € 51.6 million. BAWAG P.S.K. thus has share capital of € 250

million, represented by 250,000,000 no-par shares.

These Consolidated Financial Statements of BAWAG P.S.K. for

the reporting year 2005 were prepared in accordance with the provisions of the International Financial Reporting

Standards (IFRS ). All standards and interpretations (SICs) issued by the International Financial Reporting

Interpretations Committee (IFRIC ) that were of relevance to the Group and already mandatory were taken

account of.

These Annual Financial Statements were prepared by P.S.K. in accordance with IFRS 1 First-time Adoption of

International Financial Reporting Standards. The effects of first-time adoption are presented in point 37.

We refer the reader to to the statements contained in the section entitled Guarantee furnished by the Republic of

Austria regarding the retroactive recognition of the effects of the guarantee agreement (Bürgschaftsvereinbarung)

dated 6 June 2006, which does not conform to IAS 10.10.



1) Recognition and measurement principles

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The basis for these Consolidated Financial Statements of BAWAG P.S.K. prepared in accordance with IFRS was

provided by the separate financial statements of all the consolidated Group-members as of and for the period

ended 31 December 2005 prepared homogeneously throughout the Group in accordance with IFRS.

The preparation of annual financial statements in accordance with IFRS necessitates the making of assumptions

and estimates regarding material factors affecting business operations. Such assumptions are continually

reviewed and adapted. Any adaptations are taken account of in respect of the current period and, if their effects

are longer-term, in respect of future periods as well.

The recognition and measurement principles described below were applied throughout with respect to all the

financial years named in these Annual Financial Statements as well as when preparing the IFRS opening balance

sheet as of 1 January 2004.

The reporting currency is the euro. Unless stated otherwise, figures are rounded to the nearest million euros.

Amounts on balance sheets denominated in foreign currencies were translated at middle rates in the spot market.

Currency forwards and futures were translated at the forward rates of exchange prevailing at the balance sheet

date.

Scope of consolidation and consolidation policies

The scope of consolidation included all material shareholdings of BAWAG P.S.K. held for investment purposes,

whether directly or indirectly.

On the date of first-time adoption, 1 January 2004, the enterprise’s interest in equity for the purposes of IFRS was

measured against carrying amounts of shareholdings and resulting negative goodwill was charged against

retained earnings.

As intragroup transactions, the combination and restructuring processes we have described do not fall within

the scope of application of IFRS 3. The application of IFRS 3 mutatis mutandis as a similar rule is provided for

in IAS 8.10. IFRS 3 requires one of the parties to the transaction to be identified as the acquirer for every busi-

ness combination. The acquirer is the combining entity that obtains control of the other combining entities or

businesses. If the fair value of one of the combining entities is greater than that of the other combining

entity(s), the entity with the greater fair value is likely to be the acquirer. One must also determine which of the

combining entities has the power to govern the financial and operating policies of the other entity.

Consequently, in accordance with IFRS 3.21, the affiliate combination of K&W Bank with P.S.K. can be deemed

to be a reverse acquisition within the meaning of IFRS 3.21. P.S.K. was identified as the acquirer, among other

things on the grounds of its significantly higher fair value and the retention of P.S.K.’s management in the com-

bined entity.



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Pursuant to IFRS 3, consolidated financial statements prepared following a reverse acquisition shall be issued

under the name of the legal parent, in this case “BAWAG P.S.K.” The Consolidated Financial Statements for 2004

encompassed P.S.K., as the (economic) group parent, and 20 other consolidated subsidiaries. Because consoli-

dated financial statements prepared following a reverse acquisition represent a continuation of the financial state-

ments of the legal subsidiary, the assets and liabilities of the legal subsidiary must be recognized and measured in

those consolidated financial statements at their pre-combination carrying amounts.

The addition of BAWAG ’s banking operations as of 1 October 2005 added another 55 consolidated enterprises

during the reporting year 2005.

As a transaction within the AVB Group, the contribution of BAWAG ’s banking operations is generally outside the

scope of IFRS 3. However, since the bank — as an issuer in the capital markets — prepares its own (sub-group)

consolidated financial statements separately from its parent AVB, the purchase method of accounting was used for

this combination mutatis mutandis pursuant to IFRS 3 applying the separate reporting entity approach on the basis

of the expert opinion Fachgutachten IDW ERS HFA 2 n.F.

The date of the first-time consolidation of BAWAG ’s banking operations was 1 October 2005. The profits for the

4th Quarter of 2005 of the subsidiaries undergoing first-time consolidation were recognized in the Consolidated

Financial Statements for 2005. The Consolidated Financial Statements include the profit of the P.S.K. Sub-Group

for 2005 and the profit of the BAWAG Sub-Group for the 4th Quarter of 2005.

During the first-time consolidation of BAWAG ’s banking operations and of its subsidiaries, loans, securities invest-

ments classified as fixed assets, shareholdings held for investment purposes and land and buildings were recog-

nized at their higher fair values. Write-ups came to € 136 million in the case of loans, € 33 million in the case of

securities, € 64 million in the case of land and buildings and € 54 million in the case of shareholdings held for

investment purposes. On the other hand, impaired loans connected with transactions in the Caribbean were writ-

ten off in the amount of € 534 million.

The Consolidated Financial Statements for 2005 included 75 consolidated enterprises and one enterprise

accounted for using the equity method. In the interest of materiality, the criteria for inclusion were both the

amount of an enterprise’s assets and the relative contribution made to the Group’s consolidated profit. The effect

of the non-consolidated subsidiaries on the Group’s assets, financial state and profit position was immaterial.

Point 33 (List of selected shareholdings held for investment purposes; page 155) contains a list of all the consoli-

dated Group-members.

Because of the reverse acquisition, figures for the P.S.K. Group were presented as the comparative 2004 values

on the Balance Sheet, in the Income Statement and in the Notes. Because of the change in the scope of consoli-

dation, they were not comparable with the figures in the Consolidated Financial Statements for 2005.



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The following assets and liabilities were contributed during combination and restructuring processes, presented

as of 1 October 2005:

Assets

€mn BAWAG Group Of which versus1 October 2005 P.S.K. Sub-Group

Cash reserve 224 —Receivables from credit institutions 7,013 751Receivables from customers 21,336 1,116Impairment provisions (759) —Trading assets 1,871 —Other current financial assets 10,832 —Financial fixed assets 5,692 58Intangible fixed assets 402 —Tangible fixed assets 490 —Other assets 1,868 123Total assets 48,969 2,048


€mn BAWAG Group Of which versus1 October 2005 P.S.K. Sub-Group

Payables to credit institutions 11,948 7,032Payables to customers 18,073 148Liabilities evidenced by paper 10,722 —Provisions 1,480 —Other liabilities 4,236 1Subordinated and supplementary capital 1,632 —Minorities 423 36Equity 455 34Total equity and liabilities 48,969 7,251



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The difference in minorities versus the P.S.K. Sub-Group of € 36 million arose from the P.S.K. Sub-Group’s inter-

ests in BAWAG P.S.K. Immobilien AG and BAWAG P.S.K. Invest GmbH. The interests in equity requiring consoli-

dation arose from the BAWAG Sub-Group’s interest in BAWAG P.S.K. LEASING GmbH. These items were

eliminated by consolidation with the P.S.K. Sub-Group.

In accordance with IFRS 3, capital consolidation took place using the purchase method of accounting, the cost of

the acquiree being compared with the value of the acquiree’s net assets as of the date of acquisition. The meas-

urement of the net assets was based on the fair value of all the acquiree’s identifiable assets, liabilities and contin-

gent liabilities as of the date of acquisition.

Recognized goodwill was reported on the Balance Sheet in Intangible fixed assets subject to annual impairment

testing in accordance with IFRS 3 Business Combinations in conjunction with IAS 36 Impairment of Assets and

IAS 38 Intangible Assets. Any impairment was charged against Other operating profit and thus recognized in

profit or loss. Goodwill arising from first-time consolidation was tested for impairment. There were no impair-

ments as of 31 December 2005.

Foreign-currency translations were carried out using the closing rate method. Intragroup transactions were nor-

mally subject to commercially available terms and conditions.

Goodwill of the following Group-members was recognized during first-time consolidation as of 1 October 2005

and reported in Intangible fixed assets:

€mn Goodwill at 30 September 2005

Alinea Holding, Vienna 6BAWAG BANK CZ a.s., Prague 12BAWAG P.S.K. Fuhrparkleasing GmbH, Vienna 1BAWAG P.S.K. Invest GmbH, Vienna 71BAWAG P.S.K. IMMOBILIEN AG, Vienna 12BAWAG Versicherung Aktiengesellschaft, Vienna 34COSMOS LEASING GmbH & Co. „Center am Fleischmarkt“Immobilien und Anlagen KG, Vienna 19easybank AG, Vienna 1Istrobanka a.s., Bratislava 16Österreichische Verkehrskreditbank AG, Vienna 26P.S.K.Versicherung AG (formerly Postversicherung AG ), Vienna 7

205



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According to IAS 21.47, goodwill arising on the acquisition of a foreign operation must be treated as assets and

liabilities of the foreign operation. It was translated at the closing rate. Foreign exchange differences were recog-

nized in equity.

Non-consolidated shareholdings held for investment purposes were measured at cost in accordance with IAS 39

or, in the case of quoted securities, at market value. The carrying amount of shareholdings held for investment

purposes not measured at market value was € 218 million.

Instead of presenting the BAWAG Sub-Group’s contribution to profit from 1 October 2005, we prepared a pro-

forma income statement for the whole year. During the financial year 2005, BAWAG Banka d.d., Cromer Inter-

national Ltd. and BAWAG Finance Malta Ltd. were founded and integrated into the Consolidated Financial

Statements in the course of first-time consolidation. We acquired another 60 per cent of Postversicherung AG at

the beginning of the year, giving the Group an interest of 100 per cent. Goodwill of € 7 million arose on the first-

time consolidation of Postversicherung AG. The following assets and liabilities of Postversicherung AG were

acquired as of 1 January 2005:

Assets

€mn 1 January 2005

Cash reserve —Receivables from credit institutions 5Receivables from customers —Impairment provisions —Trading assets —Other current financial assets 330Financial fixed assets —Intangible fixed assets —Tangible fixed assets —Other assets 65Total assets 400



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€mn 1 January 2005

Payables to credit institutions 1

Payables to customers —Liabilities evidenced by paper —Provisions 373Other liabilities 5Subordinated and supplementary capital 6Equity 15Total equity and liabilities 400

€ 4.3 million of consolidated profit for 2005 was accounted for by the company now named P.S.K.Versicherung

AG. € 13 million of cover shortfall arising from insurance business and € 18 of net income from current financial

assets were reportable in Other operating profit.

Recognition and measurement policies

Receivables

Receivables were recognized on the Balance Sheet at nominal amounts inclusive of deferred interest and gross

(i.e. before the deduction of impairments). Acquired receivables, designated as at fair value through profit or

loss in accordance with IAS 39, were recognized on the Balance Sheet at fair value. As a rule, their fair value

was ascertained by determining the present value of the contractually agreed cash flow applying a risk-adjusted

interest rate.

Impairment provisions

Our impairment provisions included specific and general loan loss provisions created on the basis of past experi-

ence. Loan loss provisions were charged openly against Receivables on the Balance Sheet. Provisions for off-

balance-sheet lending were recognized in Provisions on the equity and liabilities side of the Balance Sheet.

In accordance with IAS 39.9, Financial instruments are divided into four main categories (portfolios).

Classification took place as of 1 January 2004. Recognition of financial instruments took place as of the date of

the transaction.

a) Loans and receivables

These financial instruments were measured at amortized cost. Generally, loans acquired in the secondary market

also belong to this category, but BAWAG P.S.K. mainly designated them as at fair value through profit or loss.



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b) Held to maturity

Held-to-maturity investments have fixed terms or determinable payments and are intended to serve the enterprise

on a permanent basis. An entity must be demonstrably able to hold the financial instruments concerned until they

mature. These instruments were measured at amortized cost.

The recoverable amount of each asset is measured (impairment test) as of each balance sheet date. If this

amount is below its most recent carrying amount, an appropriate impairment is recognized. No impairments had

to be recognized last financial year. To determine the recoverable amount, expected future net cash flows are dis-

counted applying the original interest rate on the financial fixed asset. If the impairment becomes smaller in future

periods, a write-back must take place up to a ceiling of the asset’s amortized cost.

c) Financial assets and liabilities at fair value through profit or loss

– Held for trading

These financial instruments are recognized at fair value. Fair value is determined using exchange prices or

prices close to the market.

– Financial assets and liabilities at fair value through profit or loss

If certain conditions are satisfied, financial instruments lying within the scope of IAS 39 can be assigned to this

category on initial recognition.

At 1 January 2004, BAWAG P.S.K. assigned to this category all financial instruments managed on a fair-value

basis whose fair value could be reliably measured.

The exceptions were equity instruments without quoted prices on active markets whose fair value could not be

reliably measured. Following assignment to this category, any financial instrument can be measured at fair value

and changes in fair value can be recognized in profit or loss, without the restrictions arising from the initial

intention to hold them for trading.

– Financial liabilities

To prevent any accounting mismatch, hedged financial instruments issued by BAWAG P.S.K. and the associated

derivatives were measured at fair value through profit or loss (fair value option).

d) Available for sale

Available-for-sale financial assets are those financial assets that are not classified as

• loans and receivables,

• held-to-maturity investments or

• financial assets at fair value through profit or loss (IAS 39.9 ).



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Available-for-sale financial assets is the collective term for assets not assigned to any of the above measurement

categories.

Available-for-sale financial assets were measured at fair value. Because of the amendment to IAS 39, fluctuations

in value were booked against reserves.

If it was not possible to reliably measure the value of an unquoted equity instrument, it was measured at cost in

accordance with IAS 39. Such instruments include profit share certificates (Gewinnscheine) and equities not

traded on any market. They were reported in Other current financial assets in the amount of € 41 million.

No reassignments between these categories took place after initial classification.

The fair value measurement of financial instruments

To measure instruments traded on an exchange (equity options, equity index options, futures and options on

futures), we feed exchange prices into our front-office systems on a daily basis, ensuring mark-to-market valuation.

The basic valuation model used for plain vanilla OTC options was the Black-Scholes option price model, which

varies according to the underlying instrument(s). Currency options were measured using the Garman-Kohl-

hagen model (adapted Black-Scholes model). Interest rate options were measured using the Black or Hull-

White models.

The total value of an interest rate swap is the sum of the present values of its fixed and variable rate legs.

Similarly, the total value of a cross currency swap is the sum of the present values of the two cash flows

expressed in terms of the functional currency.

In the case of foreign currency forwards and futures — agreements to exchange currency amounts at a future

date — the agreed forward rate, which will depend on the development of both currencies’ exchange and interest

rates, was compared with the actual forward rate on the balance sheet date and the result was used to calculate

their value.

Transfers of financial instruments

A financial instrument was derecognized as soon as the Group was no longer entitled to receive the financial

rewards from said financial instrument. As a rule, this is the case when the rights and obligations under the

financial instrument pass to a third party by exercise, lapse, sale or assignment or if the Group loses right of

disposal.

When financial assets and liabilities were transferred but BAWAG P.S.K. had continuing rights and obligations

under such financial assets and liabilities, they continued to be recognized on the IFRS-compliant Consolidated

Balance Sheet.



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45

Intangible fixed assets, tangible fixed assets

Intangible fixed assets includes mainly acquired goodwill and recognized projects in accordance with IAS 38. In

the case of recognized projects, borrowing costs were not recognized.

Intangible fixed assets with an unlimited useful life were measured at cost. Tangible and intangible fixed assets

with limited useful lives were measured at cost of purchase or conversion less straight-line amortization or depre-

ciation. Buildings are depreciated at a rate of between 2.5 and 4 per cent per annum. Other tangible fixed assets

are depreciated at between 5 per cent and 20 per cent per annum. Acquired and self-produced intangible fixed

assets (other than goodwill) are amortized at 20 per cent per annum. In accordance with the principle of materi-

ality explained in the Framework, the half-yearly amortization or depreciation customary under the Austrian com-

mercial code (HGB : Handelsgesetzbuch ) was also applied under IFRS.

Land and buildings held for investment purposes (investment properties) were measured at amortized cost

(IAS 40 ). Besides review of the method of depreciation and their useful life, they are subject to impairment

tests at each balance sheet date.

Finance leasing

In the case of finance leases, we recognized rights of claims against the lessee in the amount of the present value

of the contractually agreed payments taking account of any residual value. In contrast, operating leases, under

which the BAWAG P.S.K. Group retains all risks and rewards incidental to ownership of the leased asset, were

reported in Tangible fixed assets. Each leased asset undergoes appropriate depreciation. Lease payments

received were recognized in the Income Statement.

Income tax and deferred taxes

Income tax was recognized and measured in conformity with IAS 12 using the balance sheet liability method. It

was computed on the basis of the local rates of tax that were legally mandatory at the time of preparation of the

Consolidated Financial Statements.

Deferred tax assets and liabilities result from differences between valuations of assets and liabilities on the

Balance Sheet and their respective tax bases. These will probably lead to income tax assets or liabilities in the

future (temporary differences). Deferred tax assets resulting from unused tax loss carryforwards were recognized

if the same taxable unit was expected to return taxable profits in the future. Deferred taxes were not discounted.

Net attributable tax expense was reported in the Consolidated Income Statement in Income tax and divided into

current and deferred income taxes in the Notes. Other, non-profit-dependent taxes were reported in Other oper-

ating profit.

In the financial year, a taxable group (Steuergruppe ) within the meaning of § 9 KStG (Austrian corporation tax

act) was set up with 28 group-members and Anteilsverwaltung BAWAG P.S.K. AG as group parent (Gruppen-

träger ). The scope of consolidation encompassed all group-members but not the group parent. Within the tax-

29_94.qxp 30.08.2006 11:10 Uhr Seite 45

able group, taxable profits can be offset against tax losses. This offsetting option reduces current tax expense

within the taxable group to the minimum amount of corporation tax payable by the individual group-members.

We elected to employ the stand-alone method for calculating tax contributions. This method assumes the fiscal

independence of the individual group-members. The line item Income tax contains tax contribution expenses in

the amount of € 3.4 million.

Tax loss carryforwards were only recognized to the extent that they could be expected to be allowed.

Liabilities

In accordance with IAS 39, financial liabilities not held for trading or designated as at fair value through profit or

loss were measured at amortized cost. In other words, they were recognized at amounts repayable.

Provisions

Provisions for “social” capital (Sozialkapitalrückstellungen: provisions for retirement and termination benefits and

for jubilee benefits) were calculated using the projected unit credit method in accordance with IAS 19.

The present value of entitlements outstanding on the measurement date were calculated on the basis of expert

actuarial opinions applying an appropriate discount rate and the expected rates of increase in salaries and retire-

ment benefits. They were recognized as a provision on the Consolidated Balance Sheet. Actuarial gains and

losses were recognized in their entirety in the same financial year.

The principal parameters underlying the actuarial calculation were:

Retirement benefit obligations: Interest rate used 4% p.a.

Increase in benefits 2% p.a.

Termination and

jubilee benefits: Interest rate used 4% p.a.

Salary growth 4% p.a.

Retirement age 57 – 65 *

* The earliest possible retirement age was assumed in each individual case to be in accordance with ASVG

(Austria’s general social insurance act, as amended in 2004).

The interest rate used at 1 January 2004 was 5 per cent. It was changed to 4 per cent in the course of 2004,

reflecting the development of market interest rates.



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When calculating provisions for social capital, we employed the AVÖ 1999-P-Rechnungsgrundlagen für die

Pensionsversicherung, Pagler & Pagler generation mortality tables, published in 1999.

The retirement benefit rights of a part of the workforce are being met by Allianz Pensionskasse AG or APK

Allgemeine Pensionskasse AG. Payments to these pension funds were treated as expenditure in the current

period. No further obligations existed.

In 2005, sums were transferred to a pension fund for a specific group of employees at BAWAG P.S.K.. The asso-

ciated available assignable pension fund assets were set off against the existing obligation under the defined ben-

efit plan. Consequently, the gross defined benefit obligation to this group of employees at 31 December 2005 was

reduced by the amount of the assignable assets of the pension fund.

The retirement benefit rights of employees of Group parent BAWAG P.S.K. accounted for the lion’s share of the

retirement benefit plans in place within the BAWAG P.S.K. Group that were being financed solely through provi-

sions created within the scope of defined benefit promises. The allocated assets as declared by the pension fund

were set off against the determined amounts of provisions for retirement benefits.

Provisions for jubilee benefits are also categorized as long-term employee benefits.

In accordance with IFRS 4 , figures for the mathematical and actuarial provisions of the insurance institutions

accounted for in the Consolidated Financial Statements were taken from their commercial financial statements

(Handelsbilanz) prepared in accordance with Austrian law (HGB and VAG [insurance supervision act]).

With the exception of reserves for unit-linked life insurance, insurers’ premium reserves were calculated on a pol-

icy-by-policy basis, implicitly taking account of future costs using a prospective method. The interest rates used

when calculating premium reserves conformed to the legislative provisions. Both premium and premium reserves

and profit shares were calculated applying actuarial principles. Calculations were based on the general mortality

tables for the particular rate generation and using the interest rates laid down in the directives regarding maximum

interest rates.

We created other provisions for indefinite liabilities in the amount of the expected liabilities.

Equity

Equity is made up of capital provided by shareholders (subscribed capital and capital reserves) and earned capital

(retained earnings, translation reserves, profit and profit brought forward).

Latitude of judgement and uncertainty of estimates

The measurement of financial instruments and the associated estimates of measurement parameters, including

above all the future development of interest rates, have a material effect on results. The parameters employed by



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the bank were derived largely from market conditions prevailing on the effective date, so there should not have

been any material uncertainty at the effective date for measurement purposes.

Another material discretionary decision in the Financial Statements for 2005 concerned the impairment or non-

impairment of receivables from the enterprise’s shareholders; the credit standing of the shareholders depends,

inter alia, to a large degree on the bank’s value (see point 25).

We refer the reader to the notes in point 29 regarding the uncertainty of estimates made in connection with legal

disputes.

Accounting for events after the balance sheet date (IAS 10)

Whereas the settlements agreed in connection with the Refco exposure (see point 44) related to events that

required accounting for in the Annual Financial Statements, the furnishing of a guarantee by the Republic of

Austria (see below) was an event after the balance sheet date that, under IAS 10, was on principle not to be

accounted for in the Financial Statements.

However, since there is a direct financial connection between the two events and because recognizing them in

profit or loss in different periods would have caused serious financial harm to the Group, both events have already

been accounted for in these Financial Statements. This was also the intention of Austria’s national legislators.

Guarantee furnished by the Republic of Austria

To stabilize and strengthen BAWAG P.S.K., the Austrian lower house of parliament (Nationalrat ) enacted a law,

the BAWAG P.S.K. guarantee act (BAWAG P.S.K. Sicherungsgesetz ), on 8 May 2006, creating a guarantee facility

of € 900 million in the bank’s favour with retrospective effect from 31 December 2005. Furthermore, the capital

base of AVB-Kreditinstitutsgruppe is to be strengthened by creating special purpose entities (SPEs) in the course

of 2006. Other financial institutions will have stakes in these vehicles up to a total of € 450 million, held in the

form of minority shareholdings.

The BAWAG P.S.K. guarantee act authorizes the Federal Minister of Finance (Bundesminister für Finanzen ) to

assume liability as guarantor for the bank on behalf of the Republic of Austria until 1 July 2007 if

1. the total amount of the liability does not exceed € 900 million,

2. liability for the credit institution’s outstanding receivables has been assumed,

3. all the direct and indirect shareholders of the credit institution have unconditionally (with the exception of con-

ditions relating to warding off insolvency on the part of the shareholders) and without any further limitation

accepted payer’s and guarantor’s liability (Bürge- und Zahlerhaftung, § 1357 ABGB [general civil code]) ,

4. all direct and indirect shareholders of the credit institution have declared their willingness to disclose their asset

position to the Austrian Nationalbank by not later than 31 May 2006.



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Liability can only be assumed if

1. the own funds of the credit institution or credit institutions group would, without the guarantee, fall short of

such own funds as required by § 22 BWG for more than a brief period,

2. the enterprise’s equity is insufficient to cope with its losses or to carry out the restructuring needed to improve

its financial position,

3. coping with the problems named in lines (1) and (2) is a matter of national economic interest.

Based on the BAWAG P.S.K. guarantee act, the Federal Minister of Finance concluded a guarantee agree-

ment (Bürgschaftsvereinbarung ) with BAWAG P.S.K. on 6 June 2006. Its contents were, essentially, designed to

enable BAWAG P.S.K. to release loan loss provisions in the amount of € 900 million so as to enhance its profit

and equity positions.

The preamble to the guarantee agreement states that the Republic of Austria has notified the Commission of the

European Communities of the authorization under the BAWAG P.S.K. guarantee act and that, in the opinion of the

parties and taking a macroeconomic view of the package of remedial measures, it constitutes either no state aid

or, should the Commission be of a different opinion, in any event permissible state aid requiring approval under

Article 87 of the EC Treaty and Article 61 of the EEA Agreement and based on Community guidelines regarding

the assessment of government aid for rescuing and restructuring ailing enterprises.

The guarantee can only be exercised if:

• BAWAG P.S.K. has not yet been sold;

• BAWAG P.S.K. has asked its direct and indirect shareholders to make payment and disclose their current asset

position;

• the financial threat to the bank (failure to meet legislative capital requirements) still exists;

• the solvency of BAWAG P.S.K. is threatened (because of inability to pay or excessive indebtedness) or

BAWAG P.S.K. is already insolvent.

The guarantee can also be exercised if BAWAG P.S.K.’s solvency is only threatened because the guarantee is to

expire on 1 July 2007. The federal government can avert its exercise by prolonging it.

Because of the guarantee’s accessoriness, the amount of the guarantee is basically dependent on the amount of

the guaranteed claims. However, if the guarantee is exercised, netting between the federal government and



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BAWAG P.S.K. is to take place, removing the element of accessoriness. For the maximum amount of the federal

guarantee laid down in the BAWAG P.S.K. guarantee act, namely € 900 million, to be reached, guaranteed

receivables for which specific impairment provisions have been created must (have) exist(ed) in that amount both

at the time of the guarantee agreement and at the time when the guarantee is exercised. However, at the time of

the guarantee agreement, BAWAG P.S.K. was also permitted to submit receivables to be guaranteed for which

impairment provisions had not yet needed to be created at that time so that, at a later time, if receivables for

which impairment provisions had originally been created no longer exist, for instance on the grounds of payment

or waiver, such receivables can be replaced by these new, impaired receivables so that the amount of the federal

guarantee of € 900 million can always be reached. The federal guarantee will only take effect if and insofar as the

following conditions are satisfied:

• confirmation by KPMG Wirtschaftsprüfungs- und Steuerberatungs GmbH, among other things, that the receiv-

ables listed by BAWAG P.S.K. contain impaired items in at least the maximum amount of the federal guarantee

and that such receivables require classification as troubled or irrecoverable so that the own funds requirement

of BAWAG P.S.K. or the credit institutions group for the purposes § 22 BWG at the level of AVB will, without

the guarantee, fail to be satisfied for more than a brief period or if the equity of BAWAG P.S.K. does not suffice

to cover BAWAG P.S.K.’s losses; furthermore, confirmation that the Annual Financial Statement of BAWAG

P.S.K. can, given the declaration of guarantee (Haftungserklärung ), be prepared on a going concern basis;

• assumption of unconditional liability by the shareholders of BAWAG P.S.K. as guarantors and payers with the

limitation that they need not go into insolvency as a result of assuming liability;

• an undertaking by the direct and indirect shareholders of BAWAG P.S.K. to disclose their asset position to

OeNB by not later than 31 May 2006;

• a declaration of commitment by the shareholders to the federal government to transfer all shareholdings in

BAWAG P.S.K. or AVB to third parties;

• an agreement between the federal government and the shareholders of BAWAG P.S.K. regarding the use of

the sale proceeds and the federal government’s rights of recourse against the shareholders in the event of

exercise of the guarantee.

Further conditions include, above all, the following:

• a declaration by BAWAG P.S.K. to the federal government that it is solvent and is not overindebted in a manner

of relevance for the purposes of insolvency law;

• BAWAG P.S.K.’s fulfilment, in its estimation, of the conditions for the federal guarantee as specified in § 1 Abs 2

BAWAG P.S.K. Sicherungsgesetz.



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The Managing Board of BAWAG P.S.K. has confirmed to the Federal Ministry of Finance that all the conditions for

the validity of the guarantee have been satisfied.

BAWAG P.S.K. must pay for the guarantee from the time of signature of said agreement a fee of 0.2 per cent per

annum of the capital amount outstanding at the end of any calendar quarter. If the shareholders’ shares are not

sold by not later than 1 July 2007 and if the federal guarantee is prolonged beyond 1 July 2007, the guarantee fee

will increase by one percentage point from that date.

If the core capital of BAWAG P.S.K. exceeds 1.5 times its statutory minimum core capital at the end of two quar-

ters in succession, commencing with (and including) the second calendar quarter of 2006, and if this is also

going to be the case in the next following Annual Financial Statements of BAWAG P.S.K., the federal guarantee

will be reduced by the difference reported in said Annual Financial Statements (Besserungsverpflichtung : obliga-

tion to ameliorate). Neither the federal guarantee nor the capital of SPEs set up to strengthen the consoli-

dated own funds of the credit institutions group at the level of AVB may be taken account of when calculating

core capital.

The guarantee agreement constitutes additional security for the loan receivables of BAWAG P.S.K. that already

exist. Because of the retroactivity provided for in the declaration of guarantee and in view of the furnishing of the

guarantee in the period during which the Financial Statements were being prepared, the impairment provisions in

respect of the receivables covered by the guarantee in the amount of € 900 million were released in the Annual

Financial Statements of BAWAG P.S.K., improving its capital and profit positions. This procedure is not provided

for by the provisions of IAS 10.10, which do not allow the retrospective adjustment of recognized amounts.

However, it was clearly the intention of Austria’s national legislators for it be possible to account for the guarantee

as of 31 December 2005. Moreover, taking into account the creation of the provision for the Refco loan, this mir-

rors the actual financial situation.

Effects of applying amended and new standards

International Accounting Standard 39 Financial Instruments: Recognition and Measurement has replaced IAS 39

Financial Instruments: Recognition and Measurement (revised in 2000). It is effective from the first reporting

period in a financial year beginning on or after 1 January 2005.

The changeover to the revised IAS 32 and revised IAS 39 mainly affects the recognition of hybrid capital and

securities and loans. The revised main categories under IAS 39 are explained in the section on Recognition and

measurement principles.

Since 1 January 2005, IAS 39 has no longer required differentiation between originated and acquired receivables.

Some acquired receivables are designated as at fair value through profit or loss.



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Because of the changes to IAS 32, hybrid capital can no longer be recognized as an equity instrument. It must

now be classified as debt. The allocation to regulatory capital remains unchanged.

Amendments to IAS 39 and IFRS 4 regarding financial guarantees were published in August 2005 and are effec-

tive for financial years beginning on or after 1 January 2006. Thereafter, such guarantees can be accounted for

either in accordance with IFRS 4 or in accordance with IAS 39 and IAS 32. The bank intends to continue to

account for such agreements in accordance with IAS 39.



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Details of the Consolidated Balance Sheet

€mn BAWAGP.S.K. P.S.K.Group Group2005 2004

Cash in hand 350 155Balances at central banks 454 225Cash reserve 804 380

Breakdown of maturities of receivables from credit institutions

€mn On Up to From 3 months 1 – 5 From 5 years Totaldemand 3 months up to 1 year years and over

BAWAG P.S.K. Group (2005) 569 2,559 479 327 170 4,104

P.S.K. Group (2004) 125 1,798 1,686 2,033 376 6,018

Breakdown of maturities of receivables from customers


BAWAG P.S.K. Group (2005) 4,978 3,854 3,905 8,410 8,126 29,273

P.S.K. Group (2004) 391 499 968 2,911 3,315 8,084

The P.S.K. Group’s receivables from credit institutions in 2004 were predominantly receivables from BAWAG.



53

2) Cash reserve

3) Receivables from credit institutions and customers

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Receivables from credit institutions, by country and region


Of which Of whichguaranteed guaranteed

Austria 648 — 5,983 —

Abroad 3,456 165 35 —

Western Europe 2,162 — 22 —Central and Eastern Europe 1,018 123 3 —North America 89 — 2 —Rest of the world 187 42 8 —Receivables from credit institutions 4,104 6,018

Geographical assignment is based on the registered office of the counterparty.

Receivables from customers, by country and region


Of which Of whichguaranteed guaranteed

Austria 24,201 1,670 7,786 —

Abroad 5,072 631 298 —

Western Europe 2,226 163 294 —Central and Eastern Europe 2,086 12 4 —North America 499 394 — —Latin America 42 — — —Rest of the world 219 62 — —Receivables from customers 29,273 2,301 8,084 —

Domestic receivables accounted for 83 per cent of total receivables, illustrating the focus of the Group’s credit

operations on the Austrian market.

The guarantees disclosed here were guarantees in the amount of € 900 million under the BAWAG P.S.K. guaran-

tee act (see our comments on the guarantee furnished by the Republic of Austria).



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Receivables from credit institutions, by credit type


Demand deposits 528 126Time deposits 1,980 5,892Loans 1,591 —Other 5 —Receivables from credit institutions 4,104 6,018

Receivables from customers, by credit type


Current accounts 4,289 225

Cash advances 2,134 51

Loans 21,418 6,473

One-off loans 20,693 6,335Current account loans 428 138Other 297 —Finance leasing 1,432 1,335

Receivables from customers 29,273 8,084

Receivables from customers, by sector and industry


Public sector 8,340 5,526

Federal government 4,649 2,792Provinces 744 52Local authorities 2,787 2,177Federal enterprises 13 448Social security institutions 147 57Guaranteed by the public sector 2,301 —

Corporate and business banking customers 12,766 1,221

Personal banking customers 5,866 1,337

Receivables from customers 29,273 8,084

The line item Guaranteed by the public sector contains guarantees under the BAWAG P.S.K. guarantee act in the

amount of € 900 million (see our comments on the guarantee furnished by the Republic of Austria).



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The most important provisions created during the financial year 2005 were provisions for receivables from Refco

in the amount of € 393 million and provisions for claims and counterclaims against the enterprise’s indirect share-

holders in the amount of € 300 million. Because of the BAWAG P.S.K. guarantee act and the resulting guarantee

agreement, impairment provisions in the amount of € 900 million were released.


€mn Specific General Country Totalcounterparty counterparty risks

risks risks

At 1 January 2005 42 102 — 144

AdditionsChange in scope of consolidation 542 217 — 759

Provisions created through profit or loss 754 33 7 794

DisposalsUsed as intended (64) (6) — (70)

Provisions released through profit or loss (932) (51) — (983)

Foreign exchange differences — — — —

At 31 December 2005 343 295 7 645


€mn Specific General Country Totalcounterparty counterparty risks

risks risks

At 1 January 2004 45 96 — 141

AdditionsChange in scope of consolidation — — — —

Provisions created through profit or loss 6 23 — 29

DisposalsUsed as intended (2) (7) — (9)

Provisions released through profit or loss (7) (10) — (17)

Foreign exchange differences — — — —

At 31 December 2004 42 102 — 144



4) Impairment provisions

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Breakdown of impairment provisions


Receivables from credit institutions 1 1Receivables from customers 628 143Other assets 16 —Impairment provisions 645 144

Impairment provisions, by country and region


Austria 571 136

Abroad 74 8

Western Europe 20 8Central and Eastern Europe 51 —North America 1 —Latin America 1 —Rest of the world 1 —Impairment provisions 645 144

Because of the federal guarantee in respect of the bank’s receivables in the amount of € 900 million, impairment

provisions for receivables were released in the same amount. Since this guarantee constitutes additional loan

security, the total amount was divided up between individual receivables and the corresponding impairment provi-

sions were released. In particular, the impairment provisions created in connection with the Refco exposure in the

amount of € 393 million were released on these grounds and are, therefore, not included in the above account.



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Debt securities and otherfixed-income securities 402 —

Public sector debt instruments 96 —Debt securities issued by other issuers 306 —Positive fair values arisingfrom derivative financial instruments 413 —

Foreign currency derivatives 40 —Interest rate derivatives 373 —Other trading assets 404 —

Of which repurchase agreements 373 —Trading assets 1,219 —


Debt securities and otherfixed-income securities 10,550 —

Public sector debt instruments 2,505 —Debt securities issued by other issuers 8,045 —Shares and othervariable-rate securities 3,029 581

Shares 94 —Investment certificates 2,827 539Other 108 42Other current financial assets 13,579 581



5) Trading assets

6) Other current financial assets

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Breakdown of maturities of debt securities and other fixed-income securities classified as currentfinancial assets


Current financial assets (2005) 9 434 1,312 4,565 4,230 10,550

Current financial assets (2004) — — — — — —

All financial instruments classified as current financial assets were recognized at fair value through profit or loss.


Debt securities and otherfixed-income securities 6,276 462

Public-sector debt instruments 3,920 430Debt securities issued by other issuers 2,356 32Interests in non-consolidated subsidiariesmeasured at amortized cost 55 8

Interests in associates 205 334

Interests in enterprises accounted for using the equity method — 21

Other shareholdings 198 61

Let land and buildings 330 6

Financial fixed assets 7,064 892

Premiums on securities classified as financial fixed assets are recognized spread over their term. Expenses were

set off against interest income from the same securities.

Breakdown of maturities of debt securities and other fixed-income securities classified as financialfixed assets


Financial fixed assets (2005) 1 168 246 3,715 2,146 6,276

Financial fixed assets (2004) — — — — 463 463



59

7) Financial fixed assets

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Financial fixed assets

€mn Carrying Cost Change in Change in Change Additions Disposals Reallocations Write- Carrying Write-upsamount scope scope downs amount (write-

of of downs)consolidation consolidation

31/12/200 1/1/2005 Cost Cumulative Foreign Cumulative 31/12/2005 Financial write- exchange yeardowns differences

Financial fixed assets 882 787 5,703 (11) 1 1,380 (727) — (137) 7,007 (22)

Debt securities and other fixed-incomesecurities 452* 452 5,035 (47) 2 1,329 (555) — (44) 6,219* (13)Interests in non-consolidated subsidiariesrecognized at amortizedcost 8 9 42 (1) (1) 4 (3) 3 1 55 —Interests inassociates 334 268 55 90 — 29 (142) (3) (2) 205 (2)Interests in enterprises accountedfor using the equity method 21 7 51 (69) — — — — (58) — (3)Other shareholdings 61 41 136 20 — 1 (20) — 40 198 (1)Let land and buildings 6 10 384 (4) — 17 (7) — (74) 330 (3)



1/1/2004 1/1/2004 Cost Cumulative Foreign Cumulative 31/12/2004 Financialwrite- exchange yeardowns differences

Financial fixed assets 375 394 — — — 423 (5) — 70 882 81

Debt securities and other fixed-incomesecurities 119* 135 — — — 337 — — (20) 452* (4)Interests in non-consolidated subsidiariesrecognized at amortizedcost 8 9 — — — — — — (1) 8 —Interests inassociates 188 200 — — — 73 — — 61 334 62Interests in enterprises accountedfor using the equity method 18 7 — — — — — — 14 21 3Other shareholdings 40 40 — — — 2 (1) — 20 61 20Let land and buildings 2 3 — — — 11 (4) — (4) 6 —

* Debt securities and other fixed-income securities does not include any deferred interest and is therefore not comparable with the amount recognized on

the Balance Sheet.



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Intangible fixed assets 21 24 491 (89) 1 10 — — (100) 426 (10)

Goodwill — — 205 — 1 — — — (1) 205 —Software and otherintangible fixedassets 21 24 257 (89 — 6 — — (99) 188 (10)

Of which acquired 21 24 157 (62) — 1 — — (69) 113 (6)Of which self-produced — — 100 (27) — 5 — — (30) 75 (4)

Intangible fixed assetsunder development — — 29 — — 4 — — — 33 —

Of which acquired — — 29 — — 4 — — — 33 —Of which self-produced — — — — — — — — — — —

Tangible fixed assets 114 169 1,057 (567) 2 32 (28) — (638) 594 (16)

Land and buildings used by the enterprisefor its own operations 101 146 349 (70) 1 3 (10) 1 (123) 367 (7)Other land andbuildings — — 43 (5) — 7 (11) — (5) 34 —Office furnitureand equipment 13 23 653 (492) 1 21 (5) 2 (510) 185 (9)Plant under construction — — 12 — — 1 (2) (3) — 8 —



61

8) Intangible and tangible fixed assets

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Intangible fixedassets 22 24 — — — — — — (3) 21 (1)

Goodwill — — — — — — — — — — —Software and otherintangible fixedassets 22 24 — — — — — — (3) 21 (1)

Of which acquired 22 24 — — — — — — (3) 21 (1)Of which self-produced — — — — — — — — — — —

Intangible fixed assetsunder development — — — — — — — — — — —

Of which acquired — — — — — — — — — — —Of which self-produced — — — — — — — — — — —

Tangible fixed assets 105 158 — — — 17 (5) — (56) 114 (6)

Land and buildings used by the enterprisefor its own operations 88 130 — — — 16 — — (45) 101 (4)Other land andbuildings — — — — — — — — — — —Office furnitureand equipment 17 28 — — — 1 (5) — (11) 13 (2)Plant under construction — — — — — — — — — — —

The line item Software and other acquired intangible fixed assets includes the right to the brand Bösendorfer valued at € 2

million. It is assumed to have an unlimited useful life. No straight-line amortization is being carried out. The Bösendorfer

brand embodies the traditional and world-famous piano manufacturer, which is over 175 years old.



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Tax assets 107 9Other assets of insurance companies 188 —Deferred items 90 7Other assets 434 68Positive fair values of derivatives 621 —Merchandise inventories 40 —Other assets 1,480 84

The line item Positive fair values of derivatives includes derivatives in the banking book measured at fair value.

The line item Other assets of insurance companies contains the investments of providers of unit-linked and index-

linked life insurance products and capitalized commission and other business acquisition costs.

Deferred tax assets broke down as follows:

Net deferred tax assets recognized on the Balance Sheet


Receivables from credit institutions and customers 2 —Financial fixed assets 2 —Current financial assets 6 —Provisions 47 1Tax loss carryforwards 134 4Other 28 —Deferred tax assets 219 5

Self-produced intangible assets 19 —Receivables from credit institutions and customers 41 —Financial fixed assets 14 —Current financial assets 29 —Tangible fixed assets 28 —Other 1 —Deferred tax liabilities 132 —

Net deferred tax assets on Balance Sheet 87 5

Deferred tax assets and liabilities vis-à-vis the same local tax authority were netted off for each Group-member

and reported in Other assets or Provisions for deferred taxes.



63

9) Other assets

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Breakdown of maturities of payables to credit institutions


BAWAG P.S.K. Group (2005) 1,397 3,140 1,532 496 787 7,352

P.S.K. Group (2004) 1,304 407 89 71 262 2,133

Breakdown of maturities of payables to customers


BAWAG P.S.K. Group (2005) 8,750 3,052 2,248 5,422 9,655 29,127

P.S.K. Group (2004) 3,265 782 480 4,026 3,637 12,190

Unspecified-term savings deposits were recognized homogeneously throughout the Group on the basis of the

average duration of deposits.

Payables to credit institutions, by country or region


Austria 1,740 2,122

Abroad 5,612 11

Western Europe 4,042 7Central and Eastern Europe 592 —North America 29 3Latin America — —Rest of the world 949 1Payables to credit institutions 7,352 2,133

Geographical assignment is based on the registered office of the counterparty.



10) Payables to credit institutions and customers

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Payables to customers, by country or region


Austria 25,854 10,476

Abroad 3,273 1,714

Western Europe 1,941 1,688Central and Eastern Europe 1,264 20North America 21 3Latin America 3 —Rest of the world 44 3Payables to customers 29,127 12,190

Payables to customers, by sector or industry


Savings deposits 18,241 7,661

Passbooks (Sparbücher ) 10,986 4,467Savings associations (Sparvereine) 492 —Fixed-term investment passbooks (Kapitalsparbücher ) 6,763 3,194Other deposits 10,886 4,529

Public sector 1,401 1,127

Federal government 816 917Provinces 261 16Local authorities 120 79Social insurance institutions 204 115Corporate and business banking customers 5,519 1,825

Personal banking customers 3,966 1,577

Payables to customers 29,127 12,190



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Breakdown of maturities of debt certificates issued by the Group

€mn Up to From 3 months 1 – 5 From 5 years Total3 months up to 1 year years and over

BAWAG P.S.K. Group (2005) 402 455 4,071 3,683 8,611

P.S.K. Group (2004) — 12 54 9 75

Breakdown of maturities of other liabilities evidenced by paper


BAWAG P.S.K. Group (2005) 184 26 399 1,546 2,155

P.S.K. Group (2004) 27 13 4 28 72

The debt securities issued by the Group were issues quoted on an exchange. The other liabilities evidenced by

paper were short-term notes (Kassenobligationen ) and private placements not quoted on an exchange. We refer

the reader to the notes in point 27 (page 151) regarding the total amount of collateralized loans.


Termination benefits 98 15Retirement benefits 253 36Jubilee benefits 34 4Tax provisions 63 55

Of which for current taxes 7 2Of which for deferred taxes 56 53

Threatened losses on pending business 1 —Underwriting provisions 1,226 —Other provisions 761 31Provisions 2,436 141

Provisions in the amount of roughly € 600 million were created for payments required under the settlement with

the Refco creditors, for legal fees and to cover further litigation risks.



11) Liabilities evidenced by paper

12) Provisions

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“Social” capital statement

€mn Provision for Provision for Provision for Provision for Provision for Totalretirement retirement retirement termination jubilee social capital

benefits benefits benefits benefits benefitsBAWAG P.S.K. Group (Funded) (Unfunded) (Total)

Present value of acquired entitlementsat 1 January 2005 — 36 36 15 4 55

Additions to the scope of consolidation 32 210 242 79 28 349 Service cost — 1 1 1 2 4Interest cost — 3 3 1 — 4Payments — (5) (5) (2) — (7)Underwriting loss at 31 December 2005 1 (3) (2) 4 — 2Present value of acquired entitlementsat 31 December 2005 33 242 275 98 34 407

Fair value of plan assets (22) — (22) — — (22)Provision at 31 December 2005 11 242 253 98 34 385

€mn Provision for Provision for Provision for Provision for Provision for Totalretirement retirement retirement termination jubilee social capital

benefits benefits benefits benefits benefitsP.S.K. Group (Funded) (Unfunded) (Total)

Present value of acquired entitlements at 1 January 2004 — 33 33 15 4 52

Additions to the scope of consolidation — — — — — —Service cost — 1 1 1 — 2 Interest cost — 1 1 1 — 2 Payments — — — (1) — (1)Pension fund contributions — — — — — —Underwriting loss at 31 December 2005 — 1 1 (1) — —Provision at 31 December 2004(present value of acquired entitlements) — 36 36 15 4 55



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Assignable unit-linked pension fund assets

€mn

Pension fund assets at 1 January 2005 —

Additions to the scope of consolidation 21Pension fund contributions (2005) 1Pension fund assets at 31 December 2005 22

Provisions

At Change in Re- At€mn 1 January scope of Added Used Released allocated 31 December

2005 consolidation 2005

Tax provisions 55 57 3 (48) (4) — 63

Current taxes 2 23 2 (16) (4) — 7 Deferred taxes 53 34 1 (32) — — 56 Other provisions 31 1,447 772 (237) (25) — 1,988

Underwritingprovisions — 1,115 126 (14) (1) — 1,226 Threatened losses onpending business — 1 — — — — 1 Other provisions 31 331 646 (223) (24) — 761

At Changes in Re- At€mn 1 January scope of Added Used Released allocated 31 December


Tax provisions 48 — 18 (8) (3) — 55

Current taxes 7 — 2 (7) — — 2 Deferred taxes 41 — 16 (1) (3) — 53 Other provisions 34 — 12 (12) (3) — 31

Other provisions 34 — 12 (12) (3) — 31

Underwriting provisions comprises provisions for policyholder claims under current insurance policies. Other provisions com-

prises provisions for staff entitlements (vacations, year-end bonuses) and for valuation risks.

Provisions in the amount of roughly € 600 million were created for settlement payments in connection with the settlement

with the Refco creditors and for legal fees and to cover further litigation risks.

Provisions for exposures in foreign market were used in the amount of € 210 million.



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Breakdown of underwriting provisions


Unearned premium 7 —Mathematical and actuarial provisions 1,170 —Provisions for insurance claimspending 2 —Provision for profit-dependent premium refundsand policyholder profit shares 47 —Underwriting provisions 1,226 —

Reconciliation of insurance obligations, reinsurance assets and the

associated deferred commission and other business acquisition costs

€mn Initial balance Change in Added Used Released Final balanceat 1 January scope of at 31 December


Insurance obligations — 10 8 (10) — 8Reinsurance assets — — 9 — — 9Deferred commission and other business acquisition costs — 44 4 (1) (1) 46



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Net deferred tax liabilities recognized on the Balance Sheet


Current financial assets — —Provisions 1 4Tax loss carryforwards 3 —Other 1 3Deferred tax assets 5 7

Receivables from credit institutions and customers 1 10Financial fixed assets 21 26Current financial assets 3 1Tangible fixed assets 17 13Other 19 10Deferred tax liabilities 61 60

Net deferred tax liabilities on Balance Sheet (56) (53)

Temporary differences for which no deferred tax liabilities were recognized as permitted by IAS 12.39 came

to € 603 million.


Other obligations 294 146

Other liabilities of insurance companies 17 —

Trading liabilities 3,370 —

Foreign currency agreements 35 —Interest rate agreements 326 —Repurchase agreements 3,009 —Negative fair values of derivatives 618 11

Deferred items 253 60

Other liabilities 4,552 217

The line item Negative fair values of derivatives presents the derivatives that were measured at fair value.



13) Other liabilities

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Breakdown of maturities of subordinated capital


BAWAG P.S.K. Group (2005) — — 545 640 1,185

P.S.K. Group (2004) — — — — —

Breakdown of maturities of supplementary capital


BAWAG P.S.K. Group (2005) — 1 148 307 456

P.S.K. Group (2004) — — — — —



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14) Subordinated and supplementary capital

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Details of the Consolidated Income Statement


Interest income on receivables from credit institutions 182.2 171.2Interest income on receivables from customers 471.8 293.4Interest income on fixed-income securities 135.3 15.9Current income from shares and othervariable-rate securities 74.3 22.3Current income from minor shareholdings held for investment purposes 7.0 1.8Current income from interests in associates 8.5 11.7Current income from interests insubsidiaries 13.5 0.3Current income from interests inenterprises accounted for using the equity method (3.1) 3.0Current income from finance leasing business 48.0 43.9Current income from investment properties 9.3 1.3Interest income and similar income 946.8 564.8

Interest expenses on payables tocredit institutions (101.3) (33.5)Interest expenses on payables tocustomers (380.1) (276.1)Interest expenses on liabilities evidenced by paper (78.5) (24.8)Interest expenses on supplementary and subordinated capital (19.7) (0.2)Interest expenses and similar expenses (579.6) (334.6)

Net interest income 367.2 230.2

Insofar as receivables were likely to be collectible, interest income and similar income was recognized on an

accrual basis. Interest income also included premiums on securities classified as financial fixed assets on the

accrual basis of accounting. Net interest income includes € 9.3 million from partly letting land and buildings to

others. Interest income on impaired receivables came to € 10.3 million in 2005.

The following table shows interest income and expenses on financial assets and liabilities not designated as at fair

value through profit or loss.



15) Net interest income

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Net interest income on financial instruments not designated as at fair value through

profit or loss


Interest income and similar income 814.0 512.8Interest expenses and similar expenses (533.6) (334.7)Net interest income 280.4 178.1


Direct write-downs of and loan loss provisioning forreceivables from credit institutions and customers (813.3) (32.9)Released from loan loss provisions for receivables from credit institutions and customers 982.8 16.5Recoveries on loans previously written off 0.3 1.2Loan loss provisioning for on-balance-sheet lending recognized in the Income Statement 169.8 (15.2)

Provisioning for contingent liabilitiesand commitments (602.5) —Released from provisions for contingent liabilitiesand commitments 227.6 0.7Loan loss provisioning for off-balance-sheet lending recognized in the Income Statement (374.9) 0.7

Loan loss provisioning (205.1) (14.5)

Our impairment provisioning during 2005 was dominated by provisioning for the Refco exposure. The Consoli-

dated Income Statement includes roughly € 400 million of loan loss provisioning for loan receivables from Refco

and provisioning for litigation risks, above all for payments arising from the settlement with the Refco creditors, in

the amount of € 600 million. Impairment provisions were created in the amount of € 300 million for receivables

from our shareholders and receivables guaranteed by our shareholders. The guarantee furnished by the Repub-

lic of Austria within the scope of the BAWAG P.S.K. guarantee act made it possible to release impairment provi-

sions in the amount of € 900 million. In addition, we used provisions created for foreign exposures in the

amount of € 210 million.



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16) Loan loss provisioning

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Payment transfers 103.3 85.5Lending 11.2 3.7Securities business and securities deposit business 11.3 (0.3)Foreign business, currency and notes and coin business 1.4 0.1Payments to Post Office (47.7) (52.3)Other services 8.1 7.7Net commission income 87.6 44.4

Net commission income includes all income and expenses arising from the Group’s service operations as well as

commission on new business.

Payments to Post Office contains the portion of payments made for the use of the counters of Österreichische Post

AG that depended on interest terms.


Interest rate transactions 3.6 —

Currency transactions 1.5 —Net trading income 5.1 —

Besides realized and unrealized gains and losses resulting from measurements to fair value, Net trading income

also takes account of dividend income on shares held for trading and interest accrued on other trading assets.



17) Net commission income

18) Net trading income

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Wages and salaries (80.4) (38.3)Statutory social security contributions (25.3) (12.7)Voluntary benefits (1.7) (1.1)Post-employment benefit costs (7.8) (1.6)(Increase) decrease of provision for retirement benefits 3.3 (3.3)(Increase) decrease of provision for termination benefits 0.6 (0.3)(Increase) decrease of provision for jubilee benefits (0.2) (1.0)Staff costs (111.5) (58.3)

Payment to Post Office (35.3) (40.5)Other items (137.5) (98.8)Other general administrative expenses (172.8) (139.3)

Depreciation/amortization/write-downs of tangible andintangible fixed assets and investment properties (28.3) (7.0)

General administrative expenses (312.6) (204.6)

Payments to Post Office contains the portion of payments made for the use of the counters of Österreichische Post

AG that depended on services rendered.

In 2005, directly attributable costs (primarily staff costs) in the amount of € 4.9 million were recognized as project

costs.

Wages and salaries includes expenditure on our staff benefits fund in the amount of € 0.4 million.



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19) General administrative expenses

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Other operating income 29.9 17.7Other operating expenses (22.2) (13.8)Net income from other current financial assets 4.9 28.0Net income from financial fixed assets 33.4 100.3Net income from insurance business (11.0) —Net income from retailing 4.8 —Other operating profit 39.8 132.2

Other operating income and Other operating expenses include items not reportable in other items of income or

expense.

In 2005, expenses on land and buildings let partly to others were reported in Other expenses in the amount of €

2.7 million. Vacant property costs came to € 0.1 million in 2005.

Net income from insurance business


Earned premium (net) 103.8 —Investment income 31.0 —Other income 1.1 —Total income 135.9 —

Claims and benefits expense (17.8) —Net movement in underwritingprovisions (111.7) —Underwriting costs (11.5) —Investment costs (6.3) —Other expenses (0.3) —Total expenses (147.6) —

Net income before premium refunds (11.7) —

Premium refunds 0.7 —Net income from insurance business (11.0) —



20) Other operating profit

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Current income tax 2.3 (12.2)Deferred income tax 6.0 (14.0)Income tax 8.3 (26.2)

The following reconciliation shows the relationship between computed tax expense and reported tax expense:


Profit before tax (18.0) 187.7

Tax rate 25% 34%Computed tax expense (4.5) 63.8

Reductions in taxdue to tax-exempt income from shareholdings held for investment purposes (2.0) (5.8)due to other tax-exempt income (0.9) (2.3)due to differing foreign tax rates (2.9) —due to other tax effects (3.9) (1.5)Tax rate difference — (17.1)Effects of group status for taxation purposes (Organschaft ) — (17.4)Increases in taxdue to the release of untaxed reserves 3.3 —due to non-allowable expenses 4.2 1.0due to remeasurements of shareholdings held for investment purposes 0.1 —due to other tax effects 2.9 0.2Income tax in the period (3.8) 20.9

Out-of-period income tax (4.5) 5.3Reported income tax (8.3) 26.2

Assets includes deferred tax assets accounted for on the grounds of the recognized benefits arising from as yet

unused tax loss carryforwards in the amount of € 133.9 million. The lion’s share of the tax loss carryforwards

could be carried forward for an unlimited period. The untaxed portion of the liability reserve (Haftrücklage ) was

€ 316.2 million. No material amounts of actual or deferred tax were charged directly against equity during the

financial year.



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21) Income tax

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Further disclosures required by IFRS

The following table presents the fair values of items on the Balance Sheet. These are the

amounts for which assets could be exchanged, or liabilities settled, between knowledgeable, willing parties in an

arm’s length transaction on the Balance Sheet date. If market prices were available from exchanges or other

functioning markets, they were used.

If no current liquid market values were available, generally accepted, customary state-of-the-art methods of

measurement were used. This applied to liabilities evidenced by paper (issued by BAWAG P.S.K.) and, in individ-

ual cases, other current financial assets (securities held by the bank in its proprietary portfolio). Non-option linear

instruments (e.g. interest rate swaps, currency forwards and futures) were recognized using the present value

method (discounting of future cash flows applying the current yield curve). Options were measured using option

price models such as Black Scholes, Garman-Kohlhagen (currency options) or Black or Hull-White (interest rate

options). The underlying market variables (above all yield curves, volatilities, foreign exchange rates) were

reviewed monthly by the Mid-Office Department, independently from the Treasury departments, to ensure the

firewalling of front office and back office units. These valuations were carried out by front-office systems using

consistent software tools. Values of proprietary positions in illiquid securities (e.g. private placements) were

measured using the present value method on the basis of current credit spreads. In individual segments, calcula-

tions were supported by external evaluations.

Investment properties were valued by independent external experts. The fair values of fixed-income receivables

and payables from or to credit institutions and customers with a remaining maturity or current interest rate adjust-

ment period of less than one year were taken to be their carrying amounts.

Shareholdings held for investment purposes were measured on the basis of expert appraisals. Quoted, liquid

shareholdings held for investment purposes were recognized in the fair value of financial fixed assets in the

amount of the enterprise’s interest in their market value on the balance sheet date.



22) Fair Value

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Fair value of items recognized on the Balance Sheet

€mn Carrying Amount Fair Value Carrying Amount Fair Value12/2005 12/2005 12/2004 12/2004

AssetsReceivables from credit institutions 4,104 4,104 6,018 6,018Receivables from customers 29,273 29,280 8,084 8,191Other current financial assets 13,579 13,579 581 581

Of which associated derivatives (63) (63) — —Financial fixed assets 7,064 7,091 892 890

Of which investment properties 330 336 6 7Total assets 54,020 54,054 15,575 15,680

Equity and liabilitiesPayables to credit institutions 7,352 7,358 2,133 2,133Payables to customers 29,127 29,171 12,190 12,215Liabilities evidenced by paper 10,766 10,763 147 147

Of which associated derivatives (433) (433) — —Supplementary and subordinated capital 1,641 1,731 — —Total 48,886 49,023 14,470 14,495

These figures do not include derivatives not directly assignable to an item on the Balance Sheet, which were

reported in Other assets or Other liabilities.

Gains and losses on financial liabilities accounted for using the fair value option were due to changes in interest

rates and not to changes in spreads.

Fair value of financial instruments

€mn Carrying amount Fair Value Carrying amount Fair Value12/2005 12/2005 12/2004 12/2004

Loans and receivables 33,073 33,080 13,798 13,863Held to maturity 6,276 6,297 463 463Financial assets at fair value through profit or loss 15,962 15,962 1,256 1,256

– Held for trading 1,839 1,839 — —– At fair value through profit or loss 14,123 14,123 1,256 1,256

Available for sale 260 260 32 32Total fair values 55,571 55,599 15,549 15,614



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In our segment reporting in accordance with IAS 14, we used business segments as our primary reporting format

and geographical segments as our secondary reporting format.

Our business segment statements differentiate between the following business segments:

a) The Personal and Business Banking Segment encompasses retail branch business, sales through post offices,

mobile sales and eBanking. The relevant customers are jobholders and small and medium-sized enterprises.

b) The Corporate Customers Segment encompasses the public sector, institutional clients and social insurance

institutions and domestic and foreign key accounts. Customers within Austria are assigned to this segment if their

annual revenues come to € 4 million or more.

c) The Financial Markets Segment encompasses the Group’s treasury activities, including in particular its earnings

from the banking book and its issuing activities.

d) The Real Estate and Finance Leasing Segment encompasses the earnings of the Group-members operating in

these fields and the credit financing of real-estate projects.

e) The Other Items Segment encompasses earnings from shareholdings held for investment purposes that are

not a part of our core operations, consolidation adjustments and so-called atypical profits and losses.

Net interest income was assigned using the market interest rate method. Costs were apportioned to individual

segments according to cause.

Profit in each business segment was measured on the basis of the profit before tax generated by that segment.



23) Segment reporting

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Primary segmentation (by business segment)

The figures from the proforma account were used in respect of 2005. The prior-year comparison with the P.S.K.

Sub-Group is provided for the sake of completeness for the purposes of IFRS.

€mn Personal and Corporate Financial Real Estate & OtherBusiness Customers Markets Finance Leasing Total

Net interest income 2005 370.9 117.4 109.5 48.6 16.7 663.22004 148.2 19.6 10.6 18.5 33.3 230.2

Loan loss 2005 (44.7) (209.1) 34.0 (1.9) (58.9) (280.6)provisioning 2004 (11.8) — — (2.7) — (14.5)Net commission income 2005 111.8 73.3 (5.6) 1.8 (3.8) 177.5

2004 19.0 23.9 (0.5) 2.0 — 44.4Net trading income 2005 — — 13.6 — — 13.6

2004 — — — — — —General administrative 2005 (446.2) (98.2) (27.7) (38.6) (27.1) (637.7)expenses 2004 (153.4) (9.9) — (17.4) (23.9) (204.6)Other operating 2005 13.3 19.9 (42.7) 6.4 58.2 55.1profit (loss) 2004 — 13.4 0.2 3.6 115.0 132.2Profit 2005 5.2 (96.6) 81.1 16.3 (14.9) (8.9)

before tax 2004 2.0 47.0 10.3 4.0 124.4 187.7

Assets 2005 9,812.2 15,096.6 24,177.2 3,381.1 5,429.9 57,898.02004 1,098.1 5,567.6 6,689.9 1,379.2 1,295.2 16,030.0

Liabilities 2005 23,464.2 5,394.0 23,763.7 483.8 4,791.4 57,898.02004 8,765.9 2,693.6 1,906.3 1,334.7 1,329.6 16,030.0

Increases in 2005 99.3 189.7 2,324.1 16.9 42.8 2,672.7fixed assets 2004 14.6 0.9 337.0 — 87.5 440.0Depreciation/amortization/ 2005 51.5 14.4 33.1 15.5 (10.9) 103.7write-downs of fixed assets 2004 1.1 0.1 4.0 — (79.2) (74.0)



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Segmentation by geographical segments

The geographical segmentation of the Corporate Customers Segment and our treasury operations was based on

the registered office of the counterparty; assignment in other segments depended on the registered office of the

respective Group-member.

The P.S.K. Sub-Group is not included in respect of 2004 because the entirety of its profits can be assigned to the

Austria Segment.

€mn Western Central and North Rest of theAustria Europe Eastern Europe America World Total

Net interest income 476.5 135.0 47.5 (1.4) 5.6 663.2

Impairment provisioning 51.6 52.5 (5.0) (384.7) 5.0 (280.6)

Net commission income 150.9 6.7 17.8 1.5 0.5 177.5

Net trading income 13.6 — — — — 13.6

General administrative expenses (572.9) (10.5) (51.9) (1.8) (0.6) (637.7)

Other operating profit (loss) 59.6 (5.6) 4.6 (3.5) — 55.1

Profit before tax 179.2 178.2 13.0 (389.9) 10.5 (8.9)

The BAWAG P.S.K. Group’s

receivables from and payables

to subsidiaries and other enterprises in which shareholdings were held for investment purposes were as follows.

Business relationships with these enterprises were subject to normal banking terms and conditions.


Receivables from credit institutions — 5,957

Receivables from customers 1,610 —Receivables fromsubsidiaries 1,610 5,957

Payables to credit institutions — 935Payables to customers 36 —Payables tosubsidiaries 36 935

This table only includes receivables and payable (no securities).



24) Receivables from and payables to subsidiaries and other enterprises in which shareholdings were held for investment purposes

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In 2005, interest income from business with subsidiaries came to € 128 million (2004: € 161 million). Interest

expenses came to € 55 million (2004: € 61 million).


Receivables from credit institutions 14 105Receivables from customers 162 20Impairment provisions (5) —Receivables from enterprises in whichshareholdings were held for investment purposes 171 125

Payables to credit institutions 33 —Payables to customers 69 33Payables to enterprises in which shareholdings were held for investment purposes 102 33

This table includes only receivables and payable (no securities).

Österreichischer Gewerkschaftsbund (OeGB: Austrian Trade Union Federation)

As the Austrian Trade Union Federation has, for decades, been the direct or indirect majority shareholder of

BAWAG and, since 2004, the sole shareholder of BAWAG (now BAWAG P.S.K.), the two entities have, for years,

been working together in many areas. Jobholders are one of the bank’s target groups, and the terms and condi-

tions offered to them have always been fair. In exchange, the OeGB has supported BAWAG ’s loan and deposits

operations through its ties to works councils. All issues of the OeGB ’s publications for its members have con-

tained advertising for BAWAG P.S.K. products, and annual payments have been agreed for this service. An

appropriate commission agreement (which can be terminated annually) has been concluded in respect of credit

business. The amount of commission is based on the volume of the portfolio and business acquired in the per-

sonal banking segment.



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25) Related individuals and enterprises

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During the demerger of BAWAG ’s banking operations prior to their contribution to the Group as of 31 December

2004, a liability remained in the accounts of the residual entity AVB. As a result, at 31 December 2005, BAWAG

P.S.K. had an interest-bearing receivable of € 1,531 million payable by its 100 per cent parent AVB. The recover-

ability of this receivable will depend primarily on whether the assets of the parent are free from impairment.

Besides the retained securities, these assets consist predominantly of its 100 per cent interest in BAWAG P.S.K.,

and they also include receivables from various subsidiaries and OeGB foundations (Stiftungen ) in the amount of

€ 349 million (€ 120 million of which comprising a right of recourse). The Group’s finance lease exposure was

€ 13 million, arising in connection with properties and office equipment. Lease agreements were in place with

subsidiaries of OeGB and with the OeGB president who resigned in 2006. In accordance with Austrian bank

secrecy legislation (§ 38 BWG ), no information has been provided regarding OeGB ’s deposits. Such disclosure

— which is not required by EU directives currently in force — would result in prosecution under § 101 BWG.

In the course of the combination and restructuring processes, which took place retroactively as of 31 December

2004, the bank wrote off receivables in the amount of € 534 million. Credit orders in place from indirect share-

holders Österreichische Gewerkschaftliche Solidarität Privatstiftung (in short, ÖGPS ) and ÖGB Vermögensverwal-

tungsgesellschaft mbH (in short, ÖVV ) were eliminated within that total. The only one of the original credit

orders from direct shareholders ÖGSP and ÖVV still outstanding at 31 December 2005 was the order relating to

the financing of the acquisition of an interest in Casinos Austria Palästina in Jericho (CAP ). This exposure came

to € 120 million. An impairment provision for the entire amount was recognized in these Financial Statements.

This impairment provision was released on the basis of the federal guarantee.

The OeGB has a material business and legal interest in the secure continued existence of the bank and in protect-

ing and preserving the jobs it provides. Consequently, the bank has in return received an irrevocable undertaking

from its indirect shareholders ÖVV, ÖGPS and OeGB, and from direct shareholder AVB, to furnish the bank with

additional equity as needed to satisfy the legislative minimum requirements incumbent upon the bank itself or the

credit institutions group under group leader AVB. It can be furnished by the shareholders themselves or by third

parties found by the shareholders. The guarantee also extends to satisfying the claims of the bank’s creditors so

as to avert a threat of insolvency.



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Moreover, OeGB, ÖVV and ÖGSP — as direct or indirect shareholders of the credit institution — have assumed

unconditional guarantor’s and payer’s liability (§ 1357 ABGB ) for the partially and wholly impaired loan receivables

of BAWAG P.S.K. in the total amount of € 900 million in the declaration of liability dated 31 May 2006 with the

limitation that they must not be forced into insolvency by assuming such liability. The declaration of liability is a

prerequisite for exercising the federal guarantee.

In the Annual Financial Statements, impairment provisions were created for receivables that were either receivable

from the shareholders or guaranteed by the shareholders in the amount of € 300 million (inclusive of the right of

recourse against CAP in the amount of € 120 million) and those receivables were included in the scope of the

guarantee furnished by the Republic of Austria.

Österreichische Lotterien GmbH

The BAWAG P.S.K. Group holds 36.2 per cent of the ordinary share capital of Österreichische Lotterien GmbH,

recognized in the amount of € 110 million.

To qualify for group status for taxation purposes as desired by Casinos Austria AG, it was necessary to set up a

holding company to which Casinos Austria AG and P.S.K.Beteiligungsverwaltung GmbH contributed their interests

in ÖLG. This holding company was set up as ÖLG Holding GmbH. P.S.K.Beteiligungsverwaltung GmbH and

CASAG contributed their interests to this company as investments in kind. This holding company thus holds an

interest of more than the 50 per cent interest in Österreichische Lotterien GmbH required for group taxation pur-

poses and receives 100 per cent of ÖLG ’s taxable profit. CASAG acts as group parent.

Our interest in Österreichische Lotterien GmbH was acquired in 1986 in the expectation of sustained profits. Since

then, the bank has received annual distributions from this investment. Distributions received by BAWAG P.S.K.

from Lotterien since the company was founded, including the distribution in respect of the financial year 2005,

have totalled about € 110 million.

ATV Privat-TV Services AG

Since the end of 1996, the BAWAG P.S.K. Group has held a stake in ATV Privat-TV Services AG. Wholly-owned

subsidiary Ingebe Medien Holding GmbH currently holds an interest of 43.11 per cent. The ATV Group operates

Austria’s first national private TV station, ATV+. It is still in the development phase. In recent years, the station has

successfully developed its viewer figures and has become widely known. The result has been a steady and strik-

ing growth in revenues.

Because it is still in its development phase, ATV+ still needs capital injections from its principal shareholders

BAWAG P.S.K. Group and the group affiliated with German film dealer Herbert Kloiber and his Tele München

Group.



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Alinea Privatstiftung (private foundation)

Alinea Privatstiftung holds 100 per cent of Alinea Holding GmbH. In 2003, BAWAG contributed the following

investments to this company: 71.4 per cent of BAWAG P.S.K. INVEST GmbH., 99.9 per cent of BAWAG Ver-

sicherung AG, 100 per cent of BAWAG Overseas Inc. (sold in 2004), and its general partner’s stake in BAWAG

P.S.K. Leasing GmbH & Co „Center am Fleischmarkt“ Immobilien und Anlagen KG, which includes the building at

Fleischmarkt 1– 5. In return for these contributions, BAWAG received profit share rights (Genussrechte ) with a

nominal value of € 281,865,000, entitling it to a maximum of 95 per cent of the issuer’s net profit and evidencing

an interest in the issuer’s assets and proceeds from its liquidation up to the same amount. Income from these

profit share certificates (Gewinnscheine ) during the year under review came to € 8.1 million. However, since

BAWAG P.S.K. continues to enjoy the economic benefits of this company via the distributions under the profit

share rights, Alinea Holding GmbH and its subsidiaries must, in accordance with SIC 12, be consolidated for the

purposes of IFRS.

The members of the managing board of Alinea Privatstiftung — Stephan Frotz, Christian Nowotny, Gerhard

Schüssler — work for BAWAG P.S.K. and/or its consolidated enterprises as consultants on arms-length terms.

Alinea Privatstiftung ’s investments with BAWAG P.S.K. take place on arms-length terms.

Europlex Building – Kinomax – Pulawska Planungs- und Errichtungs GmbH

Pulawska Planungs- und Errichtungs GmbH is a wholly owned subsidiary of BAWAG P.S.K. and, in turn, holds a

98.42 per cent interest in Kinomax Sp. z o o., Poland. The object of Kinomax is the letting and maintenance of a

multiplex centre in Warsaw. BAWAG P.S.K. granted the company a loan to finance Kinomax. The amount out-

standing at 31 December 2005 was approximately € 31 million.

In addition, BAWAG P.S.K., BAWAG Beteiligungsmanagement GmbH and P.S.K.Beteiligungsverwaltungs GmbH

hold profit share rights issued by Pulawska Planungs- und Errichtungs GmbH in the nominal amount of roughly

€ 21.3 million. These were recognized by the aforesaid companies in the amount of roughly € 27.3 million.

These rights entitle the holders to share in the profits of Pulawska Planungs- und Errichtungs GmbH and, in

part, guarantee an annual minimum profit share of 6.5 per cent. At 31 December 2005, the cumulative undis-

tributed minimum profit shares came to roughly € 6.9 million.

The members of the Managing Board, Supervisory Board and Works Council

Expenditure on termination and retirement benefits for the Managing Board of BAWAG P.S.K. and key management

personnel of BAWAG P.S.K. during the financial year came to € 12 million. Expenditure with respect to other

employees came to € 23 million.

Remuneration paid to active members of the Managing Board during the financial year came to € 4 million.

Termination and retirement benefits paid to former members of the Managing Board and their surviving depend-

ents came to € 2 million. Remuneration of members of the Supervisory Board came to € 0.3 million. The mem-



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bers of the Managing Board of BAWAG P.S.K. received € 6 thousand for their activities in the supervisory boards

of various subsidiaries.

On the balance sheet date, loans outstanding to the members of the Managing Board came to € 0.3 million.

Loans outstanding to members of the Supervisory Board came to € 0.4 million and were subject to commercially

available interest rates if granted to persons not employed by BAWAG P.S.K. Repayments of loans granted to

board members were made according to contract.

Lease agreements were in place with members of the Managing Board, former members of the Managing Board

and relatives of former members of the Managing Board. In 2005, an apartment previously let was sold to the

wife of a former member of the Managing Board. However, BAWAG P.S.K. is disputing the transaction.


Receivables assigned in favour ofOesterreichische Kontrollbank AG 878 —Collateral pledged in favour of theEuropean Investment Bank 630 —Cover pool for trust savings deposits 55 16Cover pool for covered bonds 3,262 —Other collateral 964 54Assets pledged as collateral 5,789 70


Receivables assigned in favour of Oesterreichische Kontrollbank AG 967 —Collateral pledged in favour of theEuropean Investment Bank 674 —Cover pool for trust savings deposits 37 —Cover pool for covered bonds 2,982 —Other collateral 150 —Total collateralized debt 4,810 —



87

26) Assets pledged as collateral

27) Total collateralized debt

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Assets recognized on the Balance Sheet included the following subordinated assets:


Receivables from credit institutions 1 —

Of which associates — —Receivables from customers 27 —

Of which associates 9 —Debt securities and otherfixed-income securities 47 —

Of which subsidiaries 7 —Other variable-rate securities 52 —


Contingent liabilities 2,914 2,801

Arising from guarantees 2,468 2,801Other contingent liabilities 446 —

Commitments 9,924 726

Arising from “non-genuine” repurchase agreements — —Other commitments 9,924 726

The most important portion of Other commitments comprised unused credit facilities.

Legal risks

Besides the Refco exposure, the material legal risks affecting the Group related to the ruling of the Austrian

supreme court regarding changes in the interest rates paid on savings deposits and to the agreement between

BAWAG P.S.K. and the Austrian consumer protection information association (Verein für Konsumentenschutz-

information ) and the Austrian chamber of labour (Arbeiterkammer ) concerning variable rate clauses for personal

loans.



28) Subordinated assets

29) Contingent liabilities and commitments88

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In a test case that affected the entirety of the Austrian banking industry, the supreme court prohibited BAWAG

P.S.K. from continuing to apply as before the clauses, taken from the Austrian banking act, on changes in rates on

passbooks. As things stand at the moment, the complexity of this issue makes it impossible to judge whether ret-

rospective interest payments will be necessary. In the absence of a reliable way of assessing the situation, these

Annual Financial Statements do not take account of possible payment obligations.

During a legal dispute lasting several years regarding the application of variable rate clauses to loans before

March 1997, BAWAG P.S.K. made an offer to the chamber of labour and the consumer protection information

association, which they accepted. Appropriate provisions have already been created.

In addition, the bank and a number of Group-members are involved in legal disputes on a scale usual in the bank-

ing business. As things stand at the moment, no material detrimental effects are to be expected that would

exceed the provisions that have been created.

At year-end 2005, the following volumes of assets and liabilities denominated in foreign currencies were held

within the BAWAG P.S.K. Group:


AssetsUS dollars 3,517 200Swiss francs 3,783 760Japanese yen 298 22Slovak crowns 718 —Czech crowns 971 —Other 1,033 20Foreign currencies 10,320 1,002

Euros 47,578 15,028

Total 57,898 16,030



89

30) Foreign-currency assets and liabilities

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LiabilitiesUS dollars 3,453 158Swiss francs 1,550 453Japanese yen 766 21Slovak crowns 585 —Czech crowns 802 —Other 1,191 35Foreign currencies 8,347 667

Euros 49,551 15,363

Total 57,898 16,030

This table includes only balance sheet items and does not include open currency positions.

In “genuine” repurchase agreements, financial instruments are sold

with a simultaneous agreement that the same financial instruments are to be retransferred at a specified price on

a specified date.

Genuine repurchase agreements outstanding within the BAWAG P.S.K. Group were as follows:


Trading assets 125 —Other current financial assets 1,140 —Securities classified as fixed assets 1,115 —Genuine repurchase agreements 2,380 —



31) Genuine repurchase agreements90

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The following table shows a reconciliation between gross investment value and present value:


Total of outstanding lease instalments(gross investment value) 1,583 1,533As yet unrealized financial income 264 298Receivables under finance leases(net investment value) 1,319 1,236

Impairments recognized in respect of irrecoverable minimum lease instalments came to € 24.8 million.

The following table shows the members of the BAWAG P.S.K. Group accounted for in the Consolidated Financial

Statements:

Companies consolidated in accordance with IFRS (2005) Method ofinclusion Stake

BanksBAWAG Bank CZ a.s., Prague C 100.00%

BAWAG Banka d.d., Ljubljana C 100.00%

BAWAG Malta Bank Limited, Sliema C 100.00%

BAWAG P.S.K. Invest GmbH, Vienna * C 28.57%

BAWAG Wohnbaubank Aktiengesellschaft, Vienna C 100.00%

easybank AG, Vienna C 100.00%

Istrobanka a.s., Bratislava C 100.00%

Österreichische Verkehrskreditbank AG, Vienna C 100.00%

SPARDA Bank AG, Vienna C 100.00%

Real-estate companiesBAWAG P.S.K. IMMOBILIEN AG, Vienna C 100.00%

BPI Holding GmbH & Co KEG., Vienna C 100.00%

BPI Holding GmbH & Co. Immobilien und Anlagen KG., Vienna C 99.65%

BPI Holding GmbH, Vienna C 100.00%

CARNI Industrie-Immobiliengesellschaft m.b.H., Vienna C 100.00%

P.S.K. Liegenschaften Vermietungs- und Verwaltungsgesellschaft m.b.H., Vienna C 100.00%

R & B Leasinggesellschaft m.b.H., Vienna C 100.00%



91

32) Finance leases

33) List of selected shareholdings held for investment purposes

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RF 2 BPI Holding GmbH & Co. KG., Vienna C 99.84%

RF zehn BPI Holding GmbH & Co KG., Vienna C 100.00%

RVG Immobilienholding GmbH, Vienna C 100.00%

RVG Realitätenverwertungsgesellschaft m.b.H., Vienna C 100.00%

Finance leasing companiesBAWAG P.S.K. Fuhrparkleasing GmbH, Vienna C 100.00%

BAWAG P.S.K. IMMOBILIENLEASING GmbH, Vienna C 100.00%

BAWAG P.S.K. Kommerzleasing GmbH, Vienna C 100.00%

BAWAG P.S.K. LEASING GmbH & Co. MOBILIENLEASING KG., Vienna C 100.00%

BAWAG P.S.K. LEASING GmbH, Vienna C 100.00%

BAWAG P.S.K. MOBILIENLEASING GmbH, Vienna C 100.00%

BAWAG P.S.K. Vermietungs- und Leasing GmbH, Vienna C 100.00%

B.L.H. BAWAG Leasing Holding GmbH, Vienna C 100.00%

FC Leasing GmbH, Vienna C 100.00%

Gara Feuerwehrzentralen Leasing Gesellschaft m.b.H., Vienna C 100.00%

Hafner See-Liegenschaftsverwaltungsgesellschaft m.b.H., Vienna C 100.00%

M. Sittikus Str. 10 Errichtungs GmbH., Vienna C 100.00%

P.S.K. IMMOBILIENLEASING GmbH, Vienna C 100.00%

RF 17 BAWAG Immobilienleasing GmbH, Vienna C 100.00%

RF elf Realitätenverwertungsgesellschaft m.b.H., Vienna C 100.00%

RF fünfzehn BAWAG Mobilien-Leasing Gesellschaft m.b.H., Vienna C 100.00%

RF sechs BAWAG P.S.K. LEASING GmbH & Co. KG., Vienna C 100.00%

RF zwölf BAWAG Leasing Gesellschaft m.b.H., Vienna C 100.00%

START Immobilienleasing GmbH, Vienna C 100.00%

Other non-banksAI-ALTERNATIVE INVESTMENTS LTD., Jersey C 100.00%

Alinea Holding GmbH, Vienna * C 0.00%

ATV Privat-TV Services AG Group, Vienna E 44.07%

AUST-INGEBE Beteiligungsverwaltung GmbH, Vienna C 100.00%

AUSTOST ANSTALT, Balzers C 100.00%

AUSTOST HANDELS UND TREUHAND LIMITED, Guernsey C 100.00%

AUSTOST HANDELS- UND TREUHANDGESELLSCHAFT M.B.H., Munich C 100.00%

BAWAG Beteiligungsmanagement GmbH, Vienna C 100,00%

BAWAG CAPITAL FINANCE II LIMITED, Jersey C 100.00%

BAWAG CAPITAL FINANCE III LIMITED, Jersey C 100.00%

BAWAG CAPITAL FINANCE LIMITED, Jersey C 100.00%

BAWAG FINANCE HOLDING LIMITED, Dublin C 100.00%

BAWAG Finance Malta Ltd., Sliema C 100.00%

BAWAG INTERNATIONAL FINANCE LIMITED, Dublin C 100.00%

BAWAG P.S.K. LEASING GmbH & Co. Hochholzerhof Errichtungs- und Vermietungs-KG., Vienna C 100.00%

BAWAG Versicherung Aktiengesellschaft, Vienna * C 0.10%



92

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Bodensee Limited, Sliema C 51.00%

COSMOS LEASING GmbH & Co. „Center am Fleischmarkt“ Immobilien und Anlagen KG, Vienna * C 0.00%

Cromer International Ltd., Jersey C 100.00%

FCH alpha Finanzierungsvermittlung GmbH, Vienna C 100.00%

FCH beta Finanzierungsvermittlung GmbH, Vienna C 100.00%

HBV Holding und Beteiligungsverwaltung GmbH, Vienna C 100.00%

„Ingebe“ Industrie- u. Gewerbe-Beteiligungsgesellschaft m.b.H., Vienna C 100.00%

Ingebe Medien Holding GmbH, Vienna C 100.00%

ISTRO - RECOVERY, s.r.o., Bratislava C 100.00%

ISTRO ASSET MANAGEMENT, spràv. spol.,a.s., Bratislava C 100.00%

Istrofinance s.r.o., Bratislava C 100.00%

L. Bösendorfer Klavierfabrik GmbH, Vienna C 100.00%

ÖKK Holding Gesellschaft m.b.H., Vienna C 100.00%

P.S.K.Beteiligungsverwaltung GmbH, Vienna C 100.00%

P.S.K.Versicherung AG (formerly Postversicherung AG), Vienna C 100.00%

RF 4 BAWAG P.S.K. LEASING GmbH & Co. OHG., Vienna C 100.00%

Rhein Limited, Grand Cayman C 51.00%

Stiefelkönig Schuhhandels Gesellschaft m.b.H., Graz C 100.00%

STK Beteiligung GmbH, Vienna C 100.00%

TADEMA Leasing und Beteiligung Gesellschaft m.b.H., Vienna C 100.00%

UHW Finanzierungsdienstleistungen beta GmbH, Vienna C 100.00%

* Consolidated in accordance with IAS 27 in conjunction with SIC 12 Consolidation—Special Purpose Entities.



93

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Companies consolidated in accordance with IFRS (P.S.K. Group, 2004) Methodof inclusion Stake

BanksBAWAG P.S.K. INVEST GmbH, Vienna E 28.57%

Real-estate companiesBAWAG P.S.K. IMMOBILIEN AG, Vienna E 29.27%

Finance leasing companiesBAWAG P.S.K. IMMOBILIENLEASING GmbH, Vienna C 62.61%

BAWAG P.S.K. Kommerzleasing GmbH, Vienna C 62.61%

BAWAG P.S.K. LEASING GmbH & Co. MOBILIENLEASING KG., Vienna C 62.61%

BAWAG P.S.K. LEASING GmbH, Vienna C 62.61%

BAWAG P.S.K. MOBILIENLEASING GmbH, Vienna C 62.61%

BAWAG P.S.K. Vermietungs- und Leasing GmbH, Vienna C 62.61%

B.L.H. BAWAG Leasing Holding GmbH, Vienna C 62.61%

FC Leasing GmbH, Vienna C 62.61%

Gara Feuerwehrzentralen Leasing Gesellschaft m.b.H., Vienna C 62.61%

Hafner See-Liegenschaftsverwaltungsgesellschaft m.b.H., Vienna C 62.61%

M. Sittikus Str. 10 Errichtungs GmbH., Vienna C 62.61%

P.S.K. IMMOBILIENLEASING GmbH, Vienna C 62.61%

RF 17 BAWAG Immobilienleasing GmbH, Vienna C 62.61%

RF elf Realitätenverwertungsgesellschaft m.b.H., Vienna C 62.61%

RF fünfzehn BAWAG Mobilien-Leasing Gesellschaft m.b.H., Vienna C 62.61%

RF sechs BAWAG P.S.K. LEASING GmbH & Co. KG., Vienna C 62.61%

RF zwölf BAWAG Leasing Gesellschaft m.b.H., Vienna C 62.61%

START Immobilienleasing GmbH, Vienna C 62.61%

Other non-banksP.S.K Beteiligungsverwaltung GmbH, Vienna C 100.00%

P.S.K. Versicherung AG (formerly Postversicherung AG), Vienna E 40.00%

UHW Finanzdienstleistungen beta GmbH, Vienna C 100.00%

Method of inclusion:

C = Consolidated

E = Accounted for using the equity method

The full list of shareholdings held for investment purposes required by HGB/BWG is contained in the Notes to the

Annual Financial Statements of BAWAG P.S.K. and can be requested free-of-charge.



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95

Risk Report 2005

General introduction

During 2005, we worked intensively on refining our risk management systems and preparing for Basel II compli-

ance. The BAWAG and P.S.K. merger is making unified risk processes possible and giving positions greater trans-

parency within a manageable diversity of systems, reducing operational risks.

Whereas our risk position in general developed very well last financial year, events were overshadowed by a major

loan to Refco, the world’s largest futures broker. Although it had been audited by the United States Securities and

Exchange Commission and the world’s leading investment banks just a short time before in connection with its

IPO, Refco was forced to seek Chapter 11 bankruptcy protection. Adequate impairment provisions were created

for the exposure.

Because of the suddenness and scale of the loan, the Austrian financial market authority (Österreichische Finanz-

marktaufsicht ) instituted a procedure to investigate it. In its audit report, the Austrian Nationalbank made sugges-

tions for further improvements in our internal control and reporting procedures. The Managing Board immediately

ordered their implementation, and they were put into effect during the first quarter of 2006.

We define market risk as the risk that an institution’s financial position will be harmed as a

result of adverse movements in market prices and rates or changes in their volatilities. Market risks affect the

trading book and general banking business. One key focus at BAWAG P.S.K. is the prompt identification, meas-

urement, analysis and management of market risk. Market risk in the Treasury Division is monitored on a daily

basis by Market Risk Control, which is a staff unit. Market risk at overall bank level is measured by Risk Control.

Market risk is subject to limits set by the Managing Board as a body. These limits consist of value-at-risk, sensitiv-

ity, volume and worst-case limits. The Managing Board receives daily reports on the Group’s risk position and

limit utilization and gains and losses on the Treasury Division’s positions within the scope of the market risk man-

agement process. All strategies, organizational processes and organizational policies pertaining to risk manage-

ment and risk monitoring and the market risk limits approved by the Managing Board as a body are recorded in a

special BAWAG P.S.K. Treasury Risk Management Manual and a Group Treasury Risk Management Manual that

cover all treasury processes and limits for subsidiaries.

34) Market risk

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96

Market risks in the trading book

Since 1998, BAWAG P.S.K. has been measuring value at risk (VaR) using an internal model for managing and lim-

iting trading-related market risks that has been audited by the Austrian Nationalbank and approved by the Federal

Ministry of Finance in accordance with § 26b BWG. It captures interest rate, equity and currency risk and is

structured according to risk types, analyzing linear risks and gamma and vega risks. Since the capturing of mar-

ket risk is standardized, the results of value at risk calculations are used both for our internal risk management

procedures and for the purposes of regulatory reporting.

The model is based on a variance/covariance approach in which value at risk is calculated in the PMS system for

all traded positions applying a confidence interval of 99 per cent taking account of all correlations and based on

retention periods of 1 day and 10 days. To assess the model’s predictive quality, we also subject the trading book

to Monte Carlo simulations and compare the results.

At 30 December 2005, our value at risk (inclusive of gamma and vega risk) applying a confidence interval of 99

per cent and a retention period of 10 days was € 1.00 million (30 December 2004: € 1.16 million). Comparisons

of maximum, minimum and average VaR in 2005 (in millions of euros) gave the following picture:

Risk class Minimum Maximum Average 30 December 2005

Equity risk — — — —Currency risk 0.42 2.60 1.12 0.42Interest rate risk 0.49 3.39 1.42 0.83Diversification — — (0.58) (0.25)Total (2005) 0.89 3.62 1.95 1.00

Daily backtesting is used to verify the quality and reliability of the model, with hypothetical gains and losses on

two successive trading days being compared with the value at risk on the first day. If the result of the backward

comparison produces a bigger actual loss than the predicted VaR, this is described as an “outlier”. BAWAG P.S.K.

had one outlier during 2005 (2004: one outlier), confirming the quality of the model and enabling us to continue

to use the best possible multiplier of three, as specified by the Federal Ministry of Finance, when measuring our

capital resources.

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97

The chart that follows compares our daily VaR figures for the trading book with the results of backtesting (delta):

Backtesting: Value at Risk (2005)(€mn)

In addition, the trading book is stressed applying extreme market scenarios to allow us to identify in good time

and more precisely possible losses not captured by the VaR model. We perform crisis tests at specific times and

for specific reasons, both carrying out simulations using statistical methods (changes in correlation, higher confi-

dence intervals, etc.) and simulating extreme fluctuations in risk factors (equity and index prices, interest rates,

exchange rates, volatilities).

Market risks in the banking book

The interest rate risks that we measure in the banking book are the risk of a loss of present value (loss of fair

value for the purposes of IFRS ) and the risk of possible unwanted future changes in net interest income caused

by changes in interest rates. The resulting reports provide the basis for decisions by the Asset Liability Manage-

ment Committee, which discusses the interest rate, currency, liquidity and other risk implications of business

opportunities of relevance to the banking book with the active involvement of one Managing Board member

responsible for market operations and one Managing Board member responsible for risk and, if necessary, makes

decisions itself or refers recommendations to the Managing Board as a body for it to make such decisions.

The action decided upon is then taken by the Treasury Division using interest rate instruments and derivatives.

The results of the action taken are reported in Net interest income when on-balance-sheet positions are used and

in Net income from financial investments when derivative positions are used.

- 0.8

- 1.2

- 0.4

0

0.4

0.8

3/1/

2005

23/1

/200

5

12/2

/200

5

4/3/

2005

24/3

/200

5

13/4

/200

5

3/5/

2005

23/5

/200

5

12/6

/200

5

2/7/

2005

22/7

/200

5

11/8

/200

5

31/8

/200

5

20/9

/200

5

10/1

0/20

05

30/1

0/20

05

19/1

1/20

05

9/12

/200

5

29/1

2/20

05

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98

Customer divisions are given a benchmark for setting terms and conditions that employs a standardized reference

interest rate methodology. It is neutral with respect to market risk. The reference interest rates it produces are

used when analyzing both risks and results.

To plot interest rate risks, all fixed-income financial instruments are assigned to time bands according to their cur-

rent remaining maturity as fixed-income instruments, all variable-rate financial instruments are assigned according

to their current duration and all positions with an indefinite duration are assigned applying a duration assessed at

Group level. All on-balance-sheet and off-balance-sheet items together resulted in the following duration gaps,

by time band:

< 1Y 1Y – 3Y 3Y – 5Y 5Y – 7Y 7Y – 10Y > 10Y

Euros 860 (1,192) (1,368) (51) (755) 1,980US dollars (308) 136 (17) (25) (44) 33Swiss francs 94 6 8 15 11 8Japanese yen (97) — (3) — — 2Czech crowns 328 230 19 (32) (18) (7)Slovak crowns 104 (49) 12 (11) (45) —Other currencies (9) (14) 3 (11) (5) —

The following table shows the BAWAG P.S.K. Group’s interest rate risks at 31 December 2005. It presents the

changes in the present values of all on-balance-sheet and off-balance-sheet positions in the banking book in the

entire Group in the individual time bands given a parallel 200 basis point shift in the market yield curve (OeNB

method ).

< 1Y 1Y – 3Y 3Y – 5Y 5Y – 7Y 7Y – 10Y > 10Y

Euros (44) 39 98 5 100 (376)US dollars 3 (5) 1 3 6 (7)Swiss francs 27 — (1) (1) (1) (2)Japanese yen — — — — — —Czech crowns (3) (6) (1) 3 2 1Slovak crowns — 2 (1) 1 6 —Other currencies 4 1 — 1 1 —

According to current regulatory requirements pertaining to interest rate risk in the banking book, our outlier

ratio taking account of subsidiaries’ market risks came to 6.72 per cent at 31 December 2005. Given eligible

own funds of € 3,281 million, this translates into a risk (= effect on present value of a parallel shift in yield

curves of 200 basis points) of € 220 million.

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99

Derivative financial transactions in the BAWAG P.S.K. Group’s accounts at 31 December 2005:

Nominal Amounts/Maturity Fair values€mn Up to 1 year 1 – 5 years > 5 years Total PositiveNegative

Interest rate derivatives 75,579 26,696 17,815 120,090 1,718 (1,192)

Of which interest rate swaps in the banking book 58,829 14,747 10,650 85,227 1,317 (732)

Interest rate options in the banking book 3,455 6,025 4,240 13,720 141 (120)Interest rate forwards and futures in the banking book 7,987 262 — 8,249 1 (5)

Interest rate swaps in the trading book 2,556 5,504 2,794 10,853 257 (332)Interest rate options in the trading book 529 38 132 699 3 (2)Interest rate forwards and futuresin the trading book 1,222 120 — 1,342 — —

Exchange rate contracts 9,043 376 1,643 11,062 94 (112)

Of which cross currency swaps in the banking book 2,391 281 291 2,962 50 (27)

Forward currency transactions andoptions in the banking book 22 7 301 330 1 (33)Cross currency swapsin the trading book 254 86 1,052 1,392 9 (20)Forward currency transactions andoptions in the trading book 6,377 2 — 6,379 34 (32)

Securities contractsand other derivatives 1,404 300 507 2,211 55 (22)

Of which in the banking book 1,179 300 507 1,986 55 (22)Of which in the trading book 226 — — 226 — —

Total 86,026 27,373 19,965 133,364 1,868 (1,326)

Of which trading book transactions 11,164 5,750 3,977 20,891 302 (386)

Derivative financial transactions are classified both as OTC (over-the-counter) transactions or transactions that

take place on an exchange and in accordance with the hedged items that underlie them (interest rates, curren-

cies, loans). In the banking book, they are usually employed when managing interest rate, currency and credit

risks. Interest rate derivatives are also used within the scope of the bank’s strategic asset liability management

processes to hedge individual items on the Balance Sheet, such as securities investments and loans.

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Positions are measured online within our front-office systems in keeping with market practice.

To limit counterparty risks associated with instruments not traded on an exchange, derivatives are allowed for in

the credit lines approved by the Managing Board. Adherence to credit lines is monitored on a real time basis

within our trading units. New products for the trading and banking book go through a detailed approval process

during which their possible effects from a risk, settlement, reporting and measurement point of view are evaluated

and discussed. This process is required before the decision to begin trading in the product can be made. This

decision is made by the Managing Board following assessment by the relevant departments and a recommenda-

tion by the Asset Liability Committee.

Derivative financial instruments hedging securities issued by BAWAG P.S.K. at

31 December 2005:

Nominal Amounts/Maturity Fair values€mn Up to 1 year 1 – 5 years > 5 years Total Positive Negative

Interest rate derivatives 460 3,146 3,965 7,572 500 (47)

Currency contracts 8 30 429 468 13 (48)

Securities contracts and other derivatives 30 99 85 213 17 (1)

Total 499 3,275 4,479 8,253 529 (96)

All transactions were banking book transactions.

We used derivative transactions to hedge against possible future fluctuations in the values of securities issued by

BAWAG P.S.K. The fair value option was used when accounting for securities issued by the BAWAG P.S.K. to elimi-

nate any accounting mismatch.

Liquidity risk

Comparisons of the maturity and repayment profiles of all our assets and liabilities make clear the extent to which we

have funding needs or have surpluses that need to be invested. The relatively stable proportion of primary deposits

reflects the Group’s secure liquidity position, although we did suffer an outflow of non-bank deposits and cuts in our

unsecured interbank lines in the wake of events surrounding the Refco exposure. We issued covered benchmark

bonds in order to use public sector finance and other securities positions to broaden our funding base both at home

and abroad.

When carrying out preliminary internal calculations in connection with larger individual transactions, we also take

account of spreads on longer capital commitments as well as bearing our liquidity targets in mind.

100

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Because of litigation against BAWAG P.S.K. in the United States in connection with the collapse of the Refco broker-

age group and as a result of media coverage, our bank suffered a drain on non-bank deposits. Since the completion

of negotiations with the Refco creditors was a condition of the federal guarantee, preparation of the Financial

Statements was delayed. Consequently, interbank lines that could not be renewed, above all because the Annual

Financial Statements as of and for the period ended 31 December 2005 were still unavailable, expired.

We carry out exact analyses of our liquidity position on a daily basis. A separate working group made up of mem-

bers of the Managing Board and the heads of the relevant departments, steers the available collateral and endeav-

ours to open new lines. We are confident that the situation will quickly return to normal following the agreement with

the Refco creditors and the publication of our Financial Statements.

Currency risk in the banking book

§ 26 BWG sets a ceiling on open currency positions in the banking book. In addition, we apply internal limits that are

well below those set by BWG. Adherence to limits is monitored both on a decentralized basis and centrally.

Accumulations of foreign currency positions are immediately analyzed, and if certain limits are reached, a report is

made and closure is ordered.

The management of credit risk is the responsibility of the Managing Board of the BAWAG

P.S.K. Group. It decides risk policy, approves internal risk control policies and decides all limits within the scope of

the legislative ceilings and those set by the Supervisory Board on a yearly basis. Credit customer departments are

firewalled from Marktfolge (back-office) departments throughout.

The monitoring and management of measures needed in connection with possible default and impairment losses

resulting from declines in credit quality are carried out by Risk Management. Risk Management reports on the

development of risk in individual divisions to the Managing Board as a body and to the heads of the divisions con-

cerned.

The entirety of BAWAG ’s loan portfolio was migrated to our new core bank system during its introduction. In some

cases, it was necessary to supplement or adapt data.

Our periodic credit risk reports contain detailed presentations of individual categories of risk in each business and

geographical segment and each sector and industry as well as presenting numbers of customers and exposure fig-

ures for the individual credit quality and volume classes.



101

35) Credit risk

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Corporates: Exposures by volume class (BAWAG P.S.K. only)

Corporates: Unsecured exposures, by sector and industry (BAWAG P.S.K. only)

Unsecured exposures, by region or country (BAWAG P.S.K. only)



102

■ < = 1 mn■ < = 5 mn■ < = 20 mn■ < = 50 mn■ < = 100 mn■ < = 500 mn

(77.6%)

(0.5%)(0.5%)

(1.5%)(5.2%)

(14.8%)

■ Public sector■ Financial institutions■ Real estate■ Services■ Manufacturing■ Utilities■ Trade■ Transport■ Construction■ Raw materials■ Other

(46,2%)

(1.7%)(2.3%)(2.9%)(3.8%)

(4.3%)

(6.8%)

(29.4%)

■ Austria■ America■ EU■ Rest of Europe■ Rest of Central and ■ Eastern Europe■ Other countries

(0.8%)(5.2%)

(0.9%)(4.9%)

(40.8%)

(47.4%)

(0.6%)(0.8%)

(1.0%)

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103

To minimize losses caused by operational risks, heads of division at BAWAG P.S.K. are

sensitized to possible sources of risk using control self assessments. The accuracy of estimates is checked by

evaluating the loss events recorded in our operational risk database. A high level of security is assured by addi-

tional routine and nonscheduled monitoring of business activities by Internal Audit. When employing new tech-

nologies and business processes, we endeavour to contain operational risks as best we can.

For three years, we have been capturing loss events from operational risks in a central loss event database and

assigning then to predetermined loss classes. The follow-up analyses are designed to detect accumulations in

good time so as to do everything possible to avert future losses.

Other risk factors

Market declines and violent swings in market volatilities

Declines in BAWAG P.S.K.’s core markets could reduce profits if we fail to cut costs accordingly. Adverse market

developments could be triggered both by economic factors and by other events such as natural disasters, terrorist

attacks, etc.

Selling shareholdings held for investment purposes

The business performance of enterprises in which we hold shareholdings for investment purposes could decline,

adversely affecting our ability to sell them or affecting the carrying amounts of such shareholdings.

More intense competition in the domestic marketplace

Competition in our principal fields of business in the Austrian banking market is intense and bank density remains

high. In particular, new competitors penetrating the market could cause us a loss of market share or, if we make

intensive efforts to defend our market share while pressure on terms and conditions intensifies, could lead to

poorer margins.

These Consolidated Financial Statements of the newly formed

BAWAG P.S.K. Group for the financial year 2005 were prepared in accordance with IFRS 1 adopting for the first

time the International Financial Reporting Standards (IFRS ) published by the International Accounting Standards

Board (IASB). Until and including 2004, P.S.K. only published separate financial statements in accordance with

the provisions of the Austrian commercial code and banking act.

36) Operational risk

37) Notes on first-time adoption of IFRS

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To make the differences clear, we present below the material effects of the first-time adoption of IFRS and provide

a reconciliation to the most recently published separate financial statements of P.S.K.

Required format

IFRS does not require any specific form of presentation of the Balance Sheet or Income Statement. An enterprise

is free to find for itself the format best suited to impart information. However, to achieve a clearer overview, IFRS

does require a condensed form of the Balance Sheet and Income Statement. This condensation is more than

made up for by numerous additional statements provided in the Notes.

One striking difference between financial statements in conformity with IFRS and financial statements in conform-

ity with BWG is the open disclosure of loan loss provisions on the Balance Sheet and of their effects on profit or

loss in the Income Statement in IFRS-compliant financial statements. This provides a much-improved insight into

the bank’s credit risk policies.

Trading assets are also presented in a separate line item on IFRS-compliant balance sheets. It includes mainly

securities measured at fair value and the positive fair values of derivatives.

Measurement principles

In contrast to Austrian financial reporting practice, the principle of prudence (Grundsatz der Vorsicht ) — including

in particular the principle of unequal (imparitätische ) realization of gains — is not applied under IFRS. Under IFRS,

the realization of gains on an accrual basis of accounting is the prime consideration.

Under IAS 39, securities classified as current assets, measured applying the strict lower of cost and market princi-

ple (strenges Niederstwertprinzip ) under HGB , and derivative financial instruments are measured at fair value.

Deferred taxes

Insofar as they will balance out in the future (temporary difference concept), differences between the tax bases of

individual assets and liabilities and their carrying amounts under IFRS give rise to deferred tax assets and

deferred tax liabilities whose recognition is required by IFRS. In contrast, applying Austrian financial reporting

standards, deferred taxes can only result from temporary differences between profit for the purposes of commer-

cial law (Handelsrecht ) and taxable profit, recognition on the Balance Sheet only being required for deferred tax

liabilities. HGB does not allow the recognition of deferred tax assets arising from tax loss carryforwards. As a

consequence, tax expense in a period for the purposes of IFRS consists both of tax paid in the period and of the

net change in deferred tax assets and deferred tax liabilities in the period.



104

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Differing parameters for calculating provisions for so-called “social” capital

Because the methods used to compute provisions for “social” capital under IFRS are different, they are usually

larger than the provisions created under HGB. IAS 19 requires use of the projected unit credit method, whereas

the partial value method (Teilwertverfahren ) is usually used to calculate such provisions under HGB.

The approaches also differ when it comes to the choice of discount factor. Under Austrian commercial law, this

factor is often based on the value permitted for taxation purposes, whereas when calculating provisions for social

capital in accordance with IFRS, a long-term capital market rate is used. Moreover, under IFRS, future salary

increases are also taken account of on a “career-trend” basis.

Equity reconciliation

€mn Equityat Profit Equity

31/12/2003 for at1/1/2004 2004 31/12/2004

Equity calculated in accordance with HGB 836.2 854.6Untaxed reserves 50.1 46.9

886.3 75.0 901.5

RemeasurementsRevaluation of properties (IFRS 1.16 ) 38.8 (2.3) 36.5Measurement at fair value (IAS 39 ) 7.4 26.8 34.2Application of IAS 19 (social capital) (10.6) (4.0) (14.6)Provisions for expenses (IAS 37 ) 6.7 — 6.7Recognition of deferred taxes (17.9) 0.4 (17.5)

24.4 22.9 45.3

Effects of consolidatingsubsidiaries 156.8 64.4 221.0

Equity (without minorities) / Profitcalculated in accordance with IFRS 1,067.5 160.3 1,167.8

Using the option provided by IFRS 1.16 , land and buildings with a total carrying amount of € 48.3 million were

measured at fair value and that fair value of € 87.1 million was taken to be their cost of purchase or conversion as

of 1 January 2004.

Financial assets were categorized as follows at 1 January 2004 in accordance with the provisions of IAS 39:

€mn Carrying amount Fair value

Loans and receivables 13,733 13,926Financial assets at fair value through profit or loss 802 802Held-to-maturity assets 118 118Available-for-sale assets 88 88



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Disclosures required by the Austrian banking andfinancial reporting acts (österreichisches Bankwesen-und Rechnungslegungsgesetz)


Fiduciary assets 49 11

Receivables from customers 49 11Fiduciary liabilities 49 11

Payables to credit institutions 49 11

The following table breaks securities down in accordance with § 64 BWG Abs. 1 Z 10 and Z 11 as of 31 December

2005:

BAWAGP.S.K.

Quoted Group€mn Not Held to Other Total

quoted Quoted maturity measurement 2005

Debt securities and otherfixed-income securities 2,065 15,162 6,162 9,000 17,227Shares and othervariable-rate securities 655 2,374 — 2,374 3,029Enterprises in which shareholdings are held forinvestment purposes and other shareholdings 337 70 — 70 407Interests in non-consolidatedsubsidiaries 175 — — — 175Total securities 3,232 17,606 6,162 11,444 20,838

The differences between carrying amounts and lower repayment amounts within the meaning of § 56 (Abs. 2)

BWG came to € 16 million. The differences between carrying amounts and higher repayment amounts within the

meaning of § 56 (Abs. 3) came to € 4 million.



38) Fiduciary assets and liabilities in local financial statements

39) Breakdown of securities in accordance with the Austrian banking act

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107

Repayments expected during 2006 came to € 943 million (2005: € 816 million).

Supplementary and subordinated capital in the Group’s own portfolio came to € 29 million.

Liabilities evidenced by paper in the nominal amount of € 1,041 million were to be payable upon maturity in the

following year.

The following table presents our own funds requirement under BWG and the composition of the own funds of the

credit institutions group.

€mn BAWAGP.S.K.Group2005

Share capital 250

Reserves 1,432

Goodwill, minorities and deductions 544Core capital (Tier I) 2,226

Reserve under § 57 BWG, revaluation reserve 15Supplementary and subordinated capital 1,090Additional items (Tier 2) 1,106

Less shareholdings held for investment purposes (51)Eligible own funds 3,281

Tier 3 30Own funds 3,312

Our own funds compared withthe following own funds requirement:

Credit risk 2,256

Market risk 30

The Consolidated Financial Statements for 2005 recognize hybrid capital within the meaning of §24 Abs. 2 Z 5 and

Z 6 BWG in the amount of € 404 million. The entirety of this amount was reported on the IFRS-compliant

Balance Sheet for 2005 as borrowed capital in Supplementary and subordinated capital.

40) Consolidated own funds within the meaning of BWG

41) Hybrid capital

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On the reporting date, 31 December 2005, 7,347 people were working for the Group. Averaged over the year

2005, the Group’s human resources comprised 7,287 salaried employees.

The Balance Sheet entry for Land and buildings shows property with a carrying amount of € 70 million.

Obligations arising from the use of tangible fixed assets not recognized on the Balance Sheet were expected to

come to € 21 million in 2006; the expected amount in the five years following the year under review was € 105

million.

Other liabilities on the Balance Sheet contains deferred interest on supplementary capital bonds

(Ergänzungskapitalanleihen) in the amount of € 20 million.

Expenditure on subordinated obligations came to € 87 million.

CEO Ewald Nowotny has been heading BAWAG P.S.K. since 1 January 2006. During the first quarter of this year,

fundamental action was taken to improve our corporate governance procedures and put them into effect in a five-

point programme to define new terms of reference for the Managing Board; review the Supervisory Board’s terms

of reference; restructure Managing Board remits, creating clear firewalls between the front office and risk man-

agement and installing a central Chief Risk Officer; amend our lending and risk control guidelines; and voluntarily

adopt the Austrian corporate governance code applicable to quoted enterprises. Adherence will be monitored by

the bank’s auditors.

During investigations in connection with Refco ’s bankruptcy, BAWAG transactions between 1995 and 2000 that

had been terminated with massive losses at the end of 2000 came to light. At 31 December 2004, the outstand-

ing losses amounted to about € 1 billion. Thanks to guarantees with respect to these transactions that had been

furnished by our principal shareholder, OeGB, these losses did not have to be recognized in the income state-

ments for prior years. The Managing Board has appointed a team of experts supported by Internal Audit with the

task of investigating all past transactions and clarifying them in full detail. Furthermore, auditors Deloitte have

been hired to examine certain aspects of the accounts to supplement the work of the bank’s auditors KPMG, giv-

ing us absolute certainty regarding the Financial Statements for 2005.

Examining and accounting for past transactions led to important changes in BAWAG P.S.K.’s structure.



42) Human resources

43) Other disclosures required by BWG

44) Events after the balance sheet date108

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BAWAG P.S.K.’s Supervisory Board was recomposed and reduced in size. Since 7 April 2006, the Chairman of

the Supervisory Board has been Siegfried Sellitsch and his Deputy Chairman has been Ms. Dwora Stein.

The appointments of four members of the Managing Board, namely Christian Büttner, Hubert Kreuch, Peter

Nakowitz and Josef Schwarzecker, were rescinded. The settlement of claims in connection with the dissolution of

their contracts is still pending and will be handled by our lawyers.

The shareholders of BAWAG P.S.K. have decided to sell “up to 100 per cent” of their stake in the bank. The sell-

ing process has already begun with the support of international investment bankers Morgan Stanley. Events

eventually led to Moody´s Investor Service adjusting BAWAG P.S.K.’s long-term rating. The Financial Market

Authority has resumed its enquiries and will be extending its scrutiny back to the mid-1990s. The investigation is

still ongoing.

In April 2006, BAWAG P.S.K.’s fraud suit against Refco and Bennett was met by the announcement of a counter-

suit by

unsecured Refco creditors with claims against BAWAG P.S.K. totalling US$ 1.3 billion. At the same time, BAWAG

P.S.K.’s assets and accounts in the United States were briefly frozen. We successfully applied to have the freeze

on our accounts lifted within just a few days, allowing BAWAG P.S.K.’s international payments to resume without

restriction. However, assets totalling some US$ 1.1 billion remain frozen for the time being.

Following talks with the US authorities and representatives of Refco ’s creditors, BAWAG P.S.K. then agreed an

extensive settlement of the claims arising in connection with Refco ’s insolvency. It did so to avoid a lengthy

period of uncertainty during prolonged court proceedings. Settlement negotiations were completed at the

beginning of June 2006. The settlement provides that BAWAG P.S.K. pays a total of US$ 675 million, US$ 150

million of which will be divided equally between the Refco Creditors Committee and the Department of Justice;

the Department of Justice, in turn, will distribute the money paid to it by BAWAG P.S.K. to the Refco estate, the

securities claimants and Thomas H. Lee Partners. An additional US$ 8 million will also be paid directly to a class

action settlement fund. Either after one year or upon an earlier sale of the bank, another payment of US$ 525

million will have to be effected. In addition, the settlement provides that 30 per cent of any amount of the

BAWAG P.S.K. sales proceeds in excess of € 1.8 billion will be payable to the settlement parties up to a maxi-

mum of US$ 200 million. BAWAG P.S.K. also agrees to drop its own claims against Refco and the Refco credi-

tors, but not its claims against Phillip Bennett. In exchange, the Refco creditors have dropped their actions and

the US Attorney has agreed not to prosecute the bank and its boards. The extensive settlement also included

other groups, namely Refco shareholders and stakeholders and investment house Thomas H. Lee Partners.

During the settlement’s implementation, Refco victims are only to receive payments if they agree not to take legal

action against BAWAG P.S.K. After this settlement, further serious actions in connection with Refco are unlikely,

but under US law, they cannot be ruled out entirely. The settlement is not an admission of guilt. It was reached

solely to give us the greatest possible legal security.



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110

The settlement has given BAWAG P.S.K., its customers, business associates and investors legal security. Now

that a settlement has successfully been reached, the process of selling the bank can continue as planned and

without disruptions.

To stabilize and strengthen BAWAG P.S.K., the Austrian lower house of parliament (Nationalrat ) enacted a law,

the BAWAG P.S.K. guarantee act (BAWAG P.S.K. Sicherungsgesetz ), on 8 May 2006, creating a guarantee facility

of € 900 million in the bank’s favour with retrospective effect from 31 December 2005. Based on this legislation,

the Federal Minister of Finance has signed a guarantee agreement with the bank. Moreover, we plan to strength-

en the capital base of AVB-Kreditinstitutsgruppe by creating special purpose entities in the course of 2006. Other

Austrian financial institutions will have stakes in these entities up to a total of € 450 million, held in the form of

minority shareholdings.

The federal guarantee encompasses a pool of receivables containing assets as specified by § 22 Abs. 2 BWG. A

fee of 0.2 per cent is payable for the federal guarantee. The term of the guarantee will end when BAWAG P.S.K.

is sold but not later than 1 July 2007. However, an extension will be possible.

The BAWAG P.S.K. guarantee act lays down a series of conditions that must be met by BAWAG P.S.K. and its

shareholders for the guarantee to take effect. They are detailed under Guarantee furnished by the Republic of

Austria.

The Managing Board of BAWAG P.S.K. has confirmed to the Austrian Federal Ministry of Finance that all the con-

ditions for the guarantee have been met.

The measures we have described, including above all the federal guarantee, made it possible to prepare BAWAG

P.S.K.’s accounts on a going concern basis. Strengthening of the bank’s equity base in 2006 will allow it to con-

tinue to recover.

BAWAG P.S.K. is thus poised to deliver good business results in every country within its extended home market,

comprising Austria and the adjoining CEECs (Czech Republic, Slovakia, Hungary and Slovenia). To support the

rapid growth of Istrobanka in Slovakia, the Managing Board decided to carry out an appropriate capital increase

in January 2006.

Other events after the balance sheet date included a ruling by the Austrian supreme court (OGH ) regarding

changes in the interest rates paid on savings deposits and the agreement between BAWAG P.S.K. and the

Austrian consumer protection information association and Austrian chamber of labour concerning variable rate

clauses (Zinsgleitklauseln ) for personal loans.

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In a test case that affected the entirety of the Austrian banking industry, the supreme court prohibited BAWAG

P.S.K. from continuing to apply as before the clauses, taken from the Austrian banking act, on changes in rates on

passbooks. As things stand at the moment, the complexity of this issue makes it impossible to judge whether ret-

rospective interest payments will be necessary. In the absence of a reliable way of assessing the situation, these

Annual Financial Statements do not take account of possible payment obligations.

During a legal dispute lasting several years regarding the application of variable rate clauses to loans before

March 1997, BAWAG P.S.K. made an offer to the chamber of labour and the consumer protection information

association, which they accepted. Appropriate provisions have already been created.

Release for publication

The Consolidated Financial Statements and Group Management Report were submitted to Supervisory Board for

examination and approval on 6 June 2006.

Vienna

6 June 2006

The Managing Board



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Successful completion of a syndicated financing:In autumn 2005 the group International Business/ International Financing of BAWAG P.S.K. stood up to the strongcompetition of different banks in London.

sitting from left: Simon Reeves (Standard Bank), Mohammed Ashraf (Abu Dhabi Islamic Bank),

Ewa Gracey (WEstLB London), Massud Hayat (United Gulf Bank), William Khouri (United Gulf Bank),

Monika Grünanger (BAWAG P.S.K.), Semih Özcan (RZB), Ghyslain Brochat de Villiers (SMBCE)

standing from left: Christoph Tauber (BAWAG P.S.K.), David Testa (WEstLB London), Bashir Gazla

(BAWAG PSK Libya), Harald Raffay (BAWAG P.S.K.), Amine Fehmi (United Gulf Bank),

Anthony Saint (Standard Bank), Tarek Mourad (RZB), Manfred Filaus (BAWAG P.S.K.),

Mohammed Paracha (Norton Rose/Bahrain)

95_124.qxp 31.08.2006 14:09 Uhr Seite 112

Auditors’ Report

We have audited the Consolidated Financial Statements of BAWAG P.S.K. Bank für Arbeit und Wirtschaft und

Österreichische Postsparkasse Aktiengesellschaft (BAWAG P.S.K.), Vienna, for the financial year from 1 January

2005 to 31 December 2005. The preparation and contents of these Consolidated Financial Statements and the

Group Management Report in accordance with the International Financial Reporting Standards (IFRS ), as adopted

by the EU, and of the Group Management Report prepared in accordance with the provisions of Austrian com-

mercial law are the responsibility of the Company’s management. Our responsibility is to express an opinion on

these Consolidated Financial Statements based on our audit and to state whether the Group Management Report

is consistent with the Consolidated Financial Statements.

We conducted our audit in accordance with the laws and regulations applicable in Austria and Austrian standards

on auditing and the International Standards on Auditing (ISA). These principles require that we plan and perform

the audit to obtain reasonable assurance as to whether the Consolidated Financial Statements are free from mate-

rial misstatement and whether we can state that the Group Management Report is consistent with the Consoli-

dated Financial Statements. In determining the audit procedures, we considered our knowledge of the business

activities and economic and legal environment of the Group as well as the expected occurrence of errors. An

audit involves procedures to obtain evidence of amounts and other disclosures in the Consolidated Financial

Statements, primarily on a sample basis. An audit also includes assessing the accounting principles used and

material estimates made by management as well as evaluating the overall financial statement presentation. We

believe that our audit provides a reasonable basis for our opinion.

As disclosed in Note 1 to the Consolidated Financial Statements, in a guarantee agreement dated 6 June 2006, the

Republic of Austria guaranteed specific BAWAG P.S.K receivables including interest with effect from 31 December

2005. Under this guarantee, impairments of receivables in the amount of € 900,000,000.00 were not recognized in

the Consolidated Financial Statement as of and for the period ended 31 December 2005, even though the Inter-

national Financial Reporting Standards do not allow the retroactive recognition of such guarantees. This also applies

to receivables recognized during first-time consolidation (as of 1 October 2005) at their (impaired) fair value. In

our opinion, which is based on the results of the audit, apart from the exception described in the above paragraph,

the Consolidated Financial Statements are in accordance with legal requirements and present fairly in all material

respects the financial position of the Group as of 31 December 2005 and the results of its operations and its cash

flows during the financial year from 1 January to 31 December 2005 in accordance with the International Financial

Reporting Standards (IFRS ), as adopted by the EU. The Group Management Report is consistent with the

Consolidated Financial Statements.



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Without further qualifying our opinion we draw attention to the following facts:

• In the Bundesgesetz betreffend die Haftungsübernahme zur Zukunftssicherung der BAWAG P.S.K. (federal act to

secure the future of BAWAG P.S.K.), BGBl I Nr 61/2006, the Republic of Austria authorizes the Federal Minister

of Finance to assume liability as guarantor on behalf of the Republic for certain of BAWAG P.S.K.’s receivables

until 1 July 2007. Moreover, in this act, the federal minister is authorized, with the consent of the federal govern-

ment, to prolong this guarantee. Based on this act, a guarantee agreement was concluded between the Re-

public of Austria and BAWAG P.S.K. on 6 June that applies to a specific pool of receivables and is limited to a

maximum of € 900 million. In the opinion of the parties, the guarantee agreement constitutes either no aid or,

at most, state aid requiring approval under Article 87 of the EC Treaty and Article 61 of the EEA Agreement and,

therefore, that the guarantee commitment can be fulfilled. For further details, we refer the reader to the expla-

nations in the Notes. The legislative material (explanatory notes) explicitly points out that this guarantee will

enable the bank to carry specific receivables at their nominal values and not to record impairment provisions

that would otherwise be needed. Accordingly, impairment provisions in the amount of € 900 million were

released as of 31 December 2005, strengthening the bank’s profit and equity positions. The Managing Board

believes that the obligations under this guarantee agreement will be assumed by an acquirer of the shares of

BAWAG P.S.K. or that they will be fulfilled by the direct or indirect shareholders or that a financial obligation on

the part of the federal government will be created by exercise of the guarantee.

• Furthermore, we refer the reader to the explanations in the Notes to the Annual Financial Statements in respect

of the bank’s assessment of the risks and the resulting provisions in respect of claims against the bank in con-

nection with the insolvency of Refco.

• Within the scope of the federal guarantee, the direct and indirect shareholders of the bank have undertaken to

the Federal Minister of Finance to transfer all their shareholdings to third parties. In this context, we draw the

reader’s attention to the fact that the bank has a receivable against its parent AVB in the amount of € 1,531.2

million as of 31 December 2005. This receivable’s fair value will depend materially on whether or not a price is

obtained when selling the bank that allows its direct and indirect shareholders to fulfil all their obligations to the

bank. The Managing Board’s assumptions are described in the Notes.

Vienna

6 June 2006

KPMG

Wirtschaftsprüfungs- und Steuerberatungsgesellschaft

Hans Zöchling Martin Wagner

(Austrian Chartered Accountants)



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Supervisory Board’s Report

The financial year 2005 and the first months of BAWAG P.S.K.’s current financial year were dominated by major

events that will have a lasting impact. The corporate merger of BAWAG and P.S.K. was completed as planned

effective 1 October 2005. Subsequently, the resulting entity, Austria’s fourth-largest individual bank, was to face

turbulence from October 2005 triggered by the insolvency of US broker Refco Inc.

Immediately after a loan to the Refco Group had been paid out by BAWAG P.S.K., that quoted enterprise sought

Chapter 11 bankruptcy protection under US law. As a result of the official investigation that followed and of

reports in the media, earlier securities transactions by BAWAG came to light that had not previously been re-

ported to the Supervisory Board and that had been unknown to the supervisors and the public. These transac-

tions caused a loss in the bank’s accounts of € 1 billion as of 1 January 2005. On the other side of the account,

guarantees were in place furnished by shareholder OeGB.

The bank’s boards changed significantly in the wake of these developments. Both the Supervisory Board and the

Managing Board of BAWAG P.S.K. were reduced in size and recomposed. Moreover, the bank’s shareholders

decided to sell their shares in BAWAG P.S.K.

During the processing of Refco ’s bankruptcy in the courts, creditors and shareholders of Refco filed claims for

damages against BAWAG P.S.K. To prevent the long period of legal uncertainty that would inevitably have

resulted from lengthy lawsuits in the United States, the bank’s Managing Board decided to enter into negotiations

so as to rapidly reach as extensive a settlement as possible. It reported to the Supervisory Board of BAWAG

P.S.K. in detail about this decision and, in particular, about the results of settlement negotiations. The Supervisory

Board agreed to the settlement on 15 May 2006 and authorized the Managing Board to conclude the appropriate

agreements on 31 May 2006.

To enable BAWAG P.S.K. to cope with the exceptional financial burdens caused by these developments, the

Republic of Austria decided to set up a guarantee line of € 900 million for BAWAG P.S.K. Moreover, a consor-

tium of Austrian financial institutions undertook to furnish € 450 million of additional funds in a form that BAWAG

P.S.K. can recognize in equity, giving BAWAG P.S.K. stable foundations for its positive development in years to

come.

In the period from 1 October to 31 December 2005, the Supervisory Board of BAWAG P.S.K. held four board meet-

ings and one committee meeting. The Supervisory Board of BAWAG — the Group’s parent until 30 September

2005 — held five meetings and one committee meeting during the financial year 2005.

KPMG – Wirtschaftsprüfungs- und Steuerberatungs GmbH audited the accounts, the Annual Financial Statements

for 2005 and the Management Report. The services of Deloitte WirtschaftsprüfungsgmbH were also drawn upon

to address specific accounting issues (agreed-upon procedures). The audit did not give rise to any objections



115

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and the legislative requirements were met in full, so an unqualified Auditors’ Opinion was issued. However, a

number of notes regarding the furnishing of a guarantee by the Republic of Austria, the Refco exposure and rela-

tions with our shareholders were appended to the Auditors’ Opinion.

The Supervisory Board has endorsed the results of the audit, expresses its approval of the Annual Financial

Statements together with the Management Report as submitted by the Managing Board, including the proposal

for the appropriation of profit, and endorses the Annual Financial Statements for 2005, which are thus final for the

purposes of § 125 Abs. 2 Aktiengesetz.

KPMG - Wirtschaftsprüfungs- und Steuerberatungs GmbH audited the Consolidated Financial Statements for 2005,

the Notes prepared in accordance with the International Financial Reporting Standards (IFRS ) and the Group

Management Report. A qualification was appended to the Auditors’ Opinion to the effect that the retroactive

recognition of the guarantee furnished by the Republic of Austria is not provided for in the International Financial

Reporting Standards. As confirmed by the Auditors, the Consolidated Financial Statements give as true and fair a

view as possible of the assets and financial position of the Group as of 31 December 2004 and as of 31 December

2005 and of its profit position and cash flows during the financial year from 1 January 2004 to 31 December 2004

and during the financial year from 1 January 2005 to 31 December 2005 in accordance with the International

Financial Reporting Standards (IFRS ), as adopted by the EU.

The Auditors also confirm that the Group Management Report is consistent with the Consolidated Financial

Statements.

The Supervisory Board concurs with the results of the audit.

Finally, the Supervisory Board would like express its thanks and appreciation to every member of staff for his or

her work.

Vienna

6 June 2006

The Supervisory Board

Siegfried Sellitsch

Chairman of the Supervisory Board



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117



Eduard ASCHENBRENNERRegierungsrat, Deputy Chairman of theGewerkschaft der Gemeindebediensteten (Union ofMunicipal Employees), Vienna(from 1 October 2005 to 7 April 2006)

Herbert AUFNERGewerkschaft Bau - Holz (Union of Construction, and Woodworkers), Federal Secretary, Vienna(from 1 October 2005 to 7 April 2006)

Erich FOGLARFinancial Officer, Central Secretary,Gewerkschaft Metall-Textil (Union of Metal andand Textile Workers), Vienna(from 1 October 2005 to 7 April 2006)

Monika FRAISSLEVN Group(from 7 April 2006)

Albert HOCHLEITNERCEO of Siemens AG Österreich,Vienna (from 1 October 2005)

Rudolf JETTMARDeputy CEO,Österreichische Post AG, Vienna(from 1 October 2005 to 7 April 2006)

Max KOTHBAUERChairman of the Universitätsrat (universitycouncil) of Vienna University, Vienna(from 7 April 2006)

Georg KOVARIK Head of the Referat für Volkswirtschaft (economicaffairs department) at the OeGB, Vienna(from 7 April 2006)

Members

Siegfried SELLITSCH Dwora STEINVienna Federal CEO, Gewerkschaft der Privatangestellten(from 7 April 2006) (GPA: Union of Salaried Private Sector Employees),

Vienna (from 7 April 2006)

Günter WENINGER Rudolf KASKESenior Secretary, Chairman of the Gewerkschaft Hotel,Österreichischer Gewerkschaftsbund Gastgewerbe, Persönlicher Dienst(OeGB: Austrian Trade Union Federation), Vienna (Union of Hotel, Restaurant and Personal Service (from 1 October 2005 to 7 April 2006) Workers), Vienna

(from 1 October 2005 to 30 March 2006)


Boards and officers of BAWAG P.S.K. Bank für Arbeitund Wirtschaft und Österreichische PostsparkasseAktiengesellschaft (BAWAG P.S.K.)BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse Aktiengesellschaft (short designa-tion: BAWAG P.S.K. / FN 205340 x) was created as a new credit institution entered in the Austrian companies regis-ter (Firmenbuch) on 1 October 2005. Kapital & Wert Bank Aktiengesellschaft was the corporate predecessor toBAWAG P.S.K. for the purposes of companies register law. In a first step, Österreichische Postsparkasse Aktiengesell-schaft was merged with Kapital & Wert Bank Aktiengesellschaft, which, in a second step, took over the banking opera-tions of Bank für Arbeit und Wirtschaft Aktiengesellschaft. For these reasons, the boards and officers of Bank fürArbeit und Wirtschaft Aktiengesellschaft, Kapital & Wert Bank Aktiengesellschaft and Österreichische PostsparkasseAktiengesellschaft in the period from 1 January 2005 to 30 September 2005 are also disclosed here.

The Supervisory Board of BAWAG P.S.K.

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Ingrid STREIBEL-ZARFLChairman of the Central Works Council, Vienna(from 1 October 2005)

Manuela GÖSTELChairman of the Works Council, Graz(from 1 October 2005)

Gerd GRÜNAUERChairman of the Works Council, Salzburg(from 1 October 2005 to 7 April 2006)

Brigitte JAKUBOVITS1st Deputy Chairman of the Central Works Council,Vienna(from 1 October 2005)

Rudolf LEEB3rd Deputy Chairman of the Central Works Council.Vienna, (from 1 October 2005)

Beatrix PRÖLL2nd Deputy Chairman of the Central Works Council,Linz, (from 1 October 2005)

Josef SINGERCentral Shop Steward, Vienna(from 1 October 2005 to 7 April 2006)

Werner MUHMDirector, Arbeiterkammer, Vienna(from 1 October 2005)

Richard SCHENZRegierungsbeauftragter für den Kapitalmarkt(Government capital markets commissioner),Vienna(from 7 April 2006)

Peter STATTMANN Regional CEO for Lower Austria,GPA, St. Pölten(from 1 October 2005 to 7 April 2006)

Walter SUMETSBERGERCentral Secretary, Gewerkschaft der Post- undFernmelde-Bediensteten (Union of Postal andTelegraph Workers), Vienna(from 1 October 2005 to 7 April 2006)

Christoph SYKORAHead of Marketing of the GPA, Vienna(from 1 October 2005 to 7 April 2006)

Leopold WALLNERCEO,Casinos Austria, Vienna(from 1 October 2005 to 7 April 2006)

Gottfried WINKLERDeputy Chairman of the Gewerkschaft derEisenbahner (Union of Railway Workers), Vienna(from 1 October 2005 to 7 April 2006)

Gabriela ZRAUNIGÖsterreichische Post AG, Vienna(from 7 April 2006)

Walter ZWIAUER Kammerrat, Deputy Chairman of theGPA, Vienna(from 1 October 2005 to 7 April 2006)



Helmut BRANDLKabinettschef,Bundesministerium für Finanzen(Federal Ministry of Finance), Vienna(from 1 October 2005)

Emmerich BACHMAYERSektionschef,Bundeskanzleramt (Federal Chancellery),Sektion III, Vienna(from 1 October 2005)

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Eduard ASCHENBRENNER

Regierungsrat, Deputy Chairman of the

Gewerkschaft der Gemeindebediensteten,

Vienna

(to 30 September 2005)

Herbert AUFNER

Federal Secretary,

Gewerkschaft Bau - Holz, Vienna


Günther CHALOUPEK

Head of the Abteilung Wirtschaftswissenschaft und

Statistik (department for economic science and sta-

tistics) at the Kammer für Arbeiter und Angestellte

(Chamber of Workers and Salaried Employees),

Vienna

(to 29 April 2005)

Erich FOGLAR

Financial Officer, Central Secretary,

Gewerkschaft Metall-Textil, Vienna


Albert HOCHLEITNER

CEO of Siemens AG Österreich,

Vienna


Werner MUHM

Director,

Arbeiterkammer, Vienna

(from 29 April 2005 to 30 September 2005)

Members

The Supervisory Board of BAWAG

Günter WENINGER Rudolf KASKE

Senior Secretary, Chairman of the Gewerkschaft Hotel,

Österreichischer Gewerkschaftsbund, Gastgewerbe, Persönlicher Dienst ,

Vienna Vienna

(to 30 September 2005) (to 30 September 2005)


Boards and officers of Bank für Arbeit und Wirtschaft Aktiengesellschaft (BAWAG)

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Ingrid STREIBEL-ZARFL

Chairman of the Central Works Council, Vienna


Manuela GÖSTEL

Chairman of the Works Council, Graz


Brigitte JAKUBOVITS

1st Deputy Chairman of the Central Works Council,

Vienna


Rudolf LEEB

2nd Deputy Chairman of the Central Works Council,

Vienna


Beatrix PRÖLL

Chairman of the Central Works Council,

Linz


Peter STATTMANN

Regional CEO for Lower Austria,

GPA, St. Pölten


Walter SUMETSBERGER

Central Secretary, Gewerkschaft der Post- und

Fernmelde-Bediensteten , Vienna


Walter ZWIAUER

Kammerrat, Deputy Chairman of the

GPA , Vienna




Helmut BRANDL

Kabinettschef,Bundesministerium für Finanzen,

Vienna


Josef MANTLER

Ministerialrat,Bundesministerium für Finanzen,

Vienna


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Rudolf JETTMAR

Deputy CEO,

Österreichische Post AG, Vienna


Christoph SYKORA

Head of Marketing of the GPA, Vienna


Leopold WALLNER

CEO,

Casinos Austria AG, Vienna


Günter WENINGER

Senior Secretary,

Österreichischer Gewerkschaftsbund,

Vienna


Members

The Supervisory Board of P.S.K.

Johann ZWETTLER Ingrid WINTER-REUMANN

CEO, Bank für Arbeit und Wirtschaft AG, Vienna

Bank für Arbeit und Wirtschaft AG, Vienna (to 30 September 2005)



Volkmar HARWANEGG

Chairman of the Works Council, Vienna


Erich GOTHE

Member of the Works Council, Vienna


Regina SIMPERLER

Member of the Works Council, Vienna



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The Supervisory Board of Kapital & Wert Bank AG

Peter NAKOWITZ Ingrid WINTER-REUMANN

Bank für Arbeit und Wirtschaft AG, Bank für Arbeit und Wirtschaft AG,

Vienna Vienna


Reno KROBOTH Robert SCHATZER

Bank für Arbeit und Wirtschaft AG, Bank für Arbeit und Wirtschaft AG,

Vienna Vienna


Chairman

Members

Deputy Chairman

Boards and officers of Kapital & Wert BankAktiengesellschaft


Emmerich BACHMAYER

Sektionschef,Bundeskanzleramt,Sektion III, Vienna


Bernadette GIERLINGER

Bundesministerium für Finanzen,

Abteilung III/4, Vienna


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Ewald NOWOTNY


(from 1 January 2006)

Stephan KOREN

Deputy CEO


Jochen BOTTERMANN


Christian BÜTTNER


Hubert KREUCH


Herbert LEGRADI


Johann ZWETTLER


(from 1 October 2005 to 31 December 2005)

Peter NAKOWITZ


Josef SCHWARZECKER


Alois STEINBICHLER

(from 7 June 2006)

The Managing Board of BAWAG P.S.K.

Johann ZWETTLER



Christian BÜTTNER


Hubert KREUCH


Peter NAKOWITZ


Josef SCHWARZECKER


The Managing Board of BAWAG

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The Managing Board of P.S.K.

Stephan KOREN

CEO


Jochen BOTTERMANN


Herbert LEGRADI


The Managing Board of Kapital & Wert Bank AG

Berthold SCHMIDT


Max WEINHANDL

(to 30 September 2005)124

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BAWAG P.S.K. subsidiaries and offices abroad

CZECH REPUBLIC

BAWAG Bank CZ a.s. Markus HERMANN

Vitezna 1/126,

CZ-150 21 Praha 5

Phone: +420-257 006 111

Fax: +420-257 006 200

www.bawag.cz

HUNGARY

Magyar Külkereskedelmi Bank Rt.

Austrian Desk Zsolt HAJNALKA

Zoltan TINDLER

Váci u. 38,

H-Budapest 1056

Phone: +361-268-8054 or -7398

Fax: +361-268-7468

www.mkb.hu

IRELAND

BAWAG International Finance Ltd. Herbert TAUCHER

Newmount House,

22/24 Lower Mount Street,

Dublin 2

Phone: +35-31-661-1099

Fax: +35-31-661-3935

LIBYA

Representative office in Tripoli Bashir GAZLA

Corinthia Bab Africa Hotel,

Tripoli

Phone + Fax: +218-21335-1964 or -1965

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MALTA

BAWAG Malta Bank Ltd. Otto KARASEK

Strand Towers, Level 6,

36, The Strand,

Sliema,

Malta

Phone: +356-23 286-111

Fax: +356-21 315-137 or -147

SLOVAKIA

Istrobanka a.s. Volker PICHLER

Laurinska 1/P.O.B. 109,

SK-811 01 Bratislava

Phone: +421-2-59 397-583

Fax: +421-2-54 431-744

www.istrobanka.sk

SLOVENIA

BAWAG Banka d.d. Joachim REITMEIER

Blaz BRODNJAK

Tivolska cesta 30,

SI-1000 Ljubljana

Phone: +386-1-2300-700

Fax: -386-1-2300-750

www.bawag.si



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Owner and publisher:BANK FÜR ARBEIT UND WIRTSCHAFTund ÖSTERREICHISCHE POSTSPARKASSEAktiengesellschaftSeitzergasse 2– 4, 1010 Vienna

Graphic design and production:Advertising and Cultural Affairs Department

Pre-production and printing:Ueberreuter Print und Digimedia GmbH,Industriestrasse 1, 2100 Korneuburg

Translated from the German originalTranslated by Adrian Weisweiller MA (Oxon), London

125_128.qxp 30.08.2006 12:01 Uhr Seite 128

CONSOLIDATED ANNUAL REPORT - BAWAG P.S.K. · CONSOLIDATED ANNUAL REPORT 20 0 5. 20 0 5 GROUP REPORT...

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