Following an agreement in principle reached in 2001, in the third quarter of 2002 we merged our mortgage bank subsidiary, EUROHYPO AG Europäische Hypothekenbank der Deutsche Bank AG (”Eurohypo Old”), with the mortgage bank subsidiaries of Dresdner Bank AG and Commerzbank AG, to form the new EUROHYPO AG. After the merger, we contributed part of our London-based real estate investment banking business to EUROHYPO AG in December 2002. In January 2003, our German commercial real estate financing division in Germany and Dresdner Bank AG’s U.S. based real estate investment banking team were transferred to EUROHYPO AG. Subsequent to these transactions, we owned 37.7% of the outstanding share capital of EUROHYPO AG.
Two members of the supervisory board of EUROHYPO AG are employees of Deutsche Bank AG. Additionally, two members of the Board of Managing Directors of EUROHYPO AG, including the Spokesman, were members of the management board of Eurohypo Old prior to the merger.
Besides our equity stake, which had a book value of € 2.4 billion at December 31, 2003, we provide EUROHYPO AG with loans and commitments. Total loans and commitments (including derivative lines) as of December 31, 2003 were € 5.5 billion, of which € 4.0 billion were utilized at that date.
Deutsche Bank AG, Commerzbank AG and Dresdner Bank AG each granted EUROHYPO AG financial guarantees to protect EUROHYPO AG against losses resulting from loan loss provisions arising from loans each contributed to the new entity up to a fixed maximum amount for the period until December 31, 2006. While the maximum amount of the financial guarantees of Commerzbank AG and Dresdner Bank AG has already been utilized by the end of 2003, our financial guarantee is still in force with an unutilized amount of € 187 million as of December 31, 2003. Furthermore, we held fixed income securities issued by EUROHYPO AG, classified as securities available for sale , in the amount of € 606 million as of December 31, 2003.
Under the agreement in principle referred to above, Deutsche Bank, Commerzbank AG and Dresdner Bank AG have agreed to certain transfer restrictions regarding their shares in EUROHYPO AG which are in force until December 31, 2008, including preemptive rights.
In March 2004, the major shareholders waived their rights to a dividend payment in respect of the fiscal year 2003 and EUROHYPO AG announced that it had taken a decision in March 2004 to establish additional general banking reserves allowable under German accounting rules (HGB). We account for our investment in EUROHYPO AG under the equity-method and as such recognize in our income statement our proportional share of the after-tax earnings or losses of EUROHYPO AG as reported applying U.S. GAAP .