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Germany has undertaken that LBBW will implement the restructuring plan and has passed on the following commitments (with regard to the reduction of the balance sheet, impaired assets and sales) and behavioural undertakings: ‘The Federal German Government and LBBW hereby undertake to carry out the following measures to restructure LBBW: […] 3. LBBW will reduce its assets in 2008 (balance sheet total of around EUR 448 billion at 31 December 2008) by approximately EUR 182 billion, i.e. about 41 %. About EUR [125-135] billion of this will be achieved by 31 December 2013. 4. LBBW will reduce its impaired assets in 2008 (around EUR 178 billion at 31 December 2008) by approximately EUR [80-100] billion, i.e. around [40-60] %. About EUR [60-80] billion of this will be achieved by 31 December 2013. 5. LBBW will sell in the best way possible the following holdings, where they have not already been sold, by no later than the stated times. In doing this the main value determining elements of the present volume of business of the holdings will be preserved until the sale and sold. a. Sachsen DV Betriebs- und Servicegesellschaft mbH (sold in August 09) b. quirin bank AG (sold in September 09) c. DekaBank Deutsche Girozentrale (sale envisaged by the end of […]) d. Lasssarus Handels GmbH (sale/liquidation envisaged by the end of […]) e. LBBW Securities LLC (broker/dealer) (sale/closure envisaged by the end of […]) f. LBBW Luxemburg SA (sale of […] envisaged by the end of […], liquidation of […]) g. LRI Invest SA (sale envisaged by the end of […]) h. LBBW Asset Management (Ireland) plc (sale or closure envisaged by the end of […]) i. LBS Landesbausparkasse Baden-Württemberg […] (sale envisaged by the end of […]) j. SV Sparkassen Versicherung Holding AG (sale envisaged by the end of […]) k. LBBW Immobilien GmbH (housing stock) (sale envisaged by the end of […]) l. […] (sale envisaged by the end of […]) m. […] (sale envisaged by the end of […]). n. […] (sale envisaged by the end of […]). 6. A sale of one of the holdings referred to in paragraph 5 may be postponed by […] months, but until no later than 31 December 2013, if LBBW shows that the price that would be obtained by the transaction is lower than the book value of the holding in the individual accounts drawn up by LBBW in accordance with the German Commercial Code or would produce losses in the group accounts in accordance with the IFRS accounting standards. 7. The complete and correct implementation of the commitments in paragraph 5 will be supervised and monitored in detail by a sufficiently qualified expert (trustee), preferably an auditor. The trustee will also check that the purchase price is established in accordance with business criteria. Within three months of notification of this Decision, LBBW is to nominate a suitable independent trustee to the Commission. The trustee is to be appointed only with the assent of the Commission. The Commission may require explanations and clarifications from the expert. The costs of the expert are to be borne by LBBW. 8. If one of the associated companies referred to under paragraph 5 were not to have been sold by the specified date, even after using all the extension possibilities available, the Commission may then provide in a separate decision that the respective associated company is sold by a divestiture trustee. The costs of the divestiture trustee are to be borne by LBBW. 9. LBBW will close the following representation offices as quickly as possible and no later than 31 December 2010: a. Barcelona b. Madrid c. Paris d. Amsterdam e. Milan f. Budapest g. Warsaw h. Prague The branches in London, New York, Singapore and Tokyo will be significantly reduced in size. The Federal German Government and LBBW promise that LBBW will observe the following behavioural undertakings: 10. During the implementation of the restructuring plan LBBW will, up to 31 December 2012, only service subordinated capital or only avoid a participation in the losses of the subordinated capital in so far as it is obliged to do this without releasing reserves in accordance with section 340 et seq. HGB (German Commercial Code). 11. Until 31 December 2012 LBBW will not effect any purchases of financial institutions in competition with LBBW. Other share transactions, which are to be allotted to the original customer business as part of LBBW’s business model, will remain possible if they do not affect the viability of the bank. 12. LBBW will assist in a general consolidation of Landesbanks in accordance with economic principles and LBBW’s new business model. If mergers of individual Landesbanks come up for consideration by LBBW, LBBW will be guided by the need to ensure the long-term viability of the merged institution and its sustainable ability to make appropriate loans to the real economy. Any purchases/mergers as part of a possible consolidation of Landesbanks will require the prior approval of the European Commission. 13. In the markets in which it has a significant market share, i.e. in German SME and private customer business, LBBW will until 31 December 2012 not offer any more favourable prices than the prices of the most favourable of its 10 most important competitors (by market share). 14. LBBW will not use the granting of this aid or any advantages over competitors arising out of the aid for advertising purposes. 15. In its lending and capital investment LBBW will take into account the credit requirements of business, especially small and medium-sized enterprises, by offering generally accepted market terms which are appropriate for regulatory and banking purposes. 16. Furthermore LBBW will review the adequacy of its internal incentive schemes and take steps to ensure that they do not encourage unreasonable risk-taking, are geared towards long-term and sustainable business goals, and are transparent. 17. LBBW will further extend risk monitoring and risk supervision. In the course of this it will separate the entire credit substitute business from the bank’s core business areas and assign it to an organisationally and functionally separate Internal Restructuring Unit (IRU). This unit will ensure separate presentation, reporting and control of the activities to be reduced. 18. LBBW will report separately on the savings bank business from 31 December 2010 onwards. 19. LBBW will follow a prudent, sound business policy geared towards sustainability. 20. LBBW will not exploit any liquidity advantage as a result of the ECB eligibility of the guarantee structure. 21. LBBW will initially pay an annual fee of 6,25 % on the initial capital relief effect retrospectively to the time of the granting of the guarantee. This will be reduced in proportion to a reduction in the available size of the guarantee. LBBW will pay an additional annual compensation of 3,75 % on the part of the guarantee for the portfolio of securitised products (ABS portfolio) which will not exceed EUR 1,5 billion. In other words, LBBW will pay this additional compensation in full as long as the guarantee amount incurred on the portfolio is still at least EUR 1,5 billion; if the amount of the guarantee falls below EUR 1,5 billion, only a compensation of 3,75 % is to be paid on the outstanding amount of the guarantee. Commitments concerning corporate governance: 22. The current Administrative Board will be reshaped into an independent Supervisory Board in accordance with the model in the Corporate Governance Code. a. The supervisory and monitoring functions will be exclusively concentrated in the Supervisory Board and no longer divided between two bodies (the owners’ meeting and the Administrative Board). The normal approval reservations of the Supervisory Board will apply to transactions of fundamental importance. b. LBBW’s Board of Managing Directors will be independent in its day-to-day operational management and only under obligation to the company. Instructions, whether from the Supervisory Board or the owners’ or annual general meetings, are excluded. c. The current owners’ meeting will be converted into an owners’ or annual general meeting. Its powers will be concentrated on the typical tasks of an annual general meeting in accordance with company law (e.g. the taking of decisions concerning the use of the profits, the conclusion of business agreements, winding-up decisions etc.). d. All the members of the Supervisory Board are to have the qualifications laid down in the latest version of the Capital Requirements Directive (11)/section 36(3)(1) of the Banking Act [Gesetz über das Kreditwesen]. Members will be suitably qualified if they are reliable and have the necessary expertise to carry out the supervisory function and to assess and monitor the business which LBBW carries on. e. The number of members of the Supervisory Board will be reduced to 21. f. Half of the seats for the shareholders will be held by external experts. g. During the restructuring phase, i.e. with the introduction of the governance aspects until the completion of the change in legal form pursuant to paragraph 24 (below) in 2013, the chairmanship of the Supervisory Board will be held by a person who is a member of the Supervisory Board pursuant to paragraph 22(f) (above). Subsequently the appointment will be made in accordance with the procedure laid down in German or European company law. 23. Committees a. Risk Committee The current Credit Committee will be converted into a traditional Risk Committee, which not only has to approve loan decisions, but also has to concern itself intensively with general risk management issues. A member of the Supervisory Board with appropriate banking expertise will take over the chairmanship. b. Audit Committee The Audit Committee is to be led by a member of the Supervisory Board who has particular expertise in banking accountancy. c. Presiding Committee (Personnel and Nomination Committee) A Presiding Committee will be established for personnel issues. The shareholder representatives of this committee will also form the Nomination Committee, which presents suitable candidates for the Supervisory Board to the owners’ or annual general meeting. 24. Change in legal form: All the main governance aspects of an SE or public limited company (described in paragraphs 22 and 23) are to be introduced immediately and no later than by 31 December 2010. LBBW will be converted into an SE or public limited company by no later than 31 December 2013, when following the milestone of the introduction of the governance aspects by the end of 2010, the legal adaptations in accordance with the articles of association for the change in legal form will be prepared for in such a way that this is concluded by no later than 31 December 2013. 25. Management in accordance with business criteria a. Overall It is to be made clear in the Landesbank Baden-Württemberg Act [Gesetz über die Landesbank Baden-Württemberg] that the commercial activities of the Landesbank are to be carried out in accordance with business principles and the tasks for which the Landesbank is responsible should also be taken into account. b. Specific to the business It will be ensured that new business is calculated on the basis of reference interest rates which do not contain any distortion caused by guarantor liabilities. c. Relationship with shareholders The arms-length principle which is typical between a corporation and its owners should apply in relations with the shareholders. Assets may only be distributed to the owners in the form of profits and liquidation proceeds. 26. Aim to achieve a normal return on equity: In accordance with the restructuring plan in the medium term (i.e. after the conclusion of the restructuring in 2013) and also in future LBBW will aim to achieve a return on equity of at least [10-12] % before tax with capital resources appropriate to the risk profile. Other commitments: 27. Every year until 2013 inclusively, Germany is to send the Commission a progress report. The report must contain a review of progress in the implementation of the restructuring plan and details of all sales of holdings and closures of subsidiaries, departments and locations in accordance with this Decision. The report is to show the date of sale or closure, the book value at 31 December 2008, the selling price and all profits or losses in connection with the sale or closure. The report is to be sent each year within one month of the approval of LBBW’s annual accounts by LBBW’s Administrative Board (or supervisory board), but no later than 31 May’ (12).