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Aareal Bank Group is well-positioned for the future

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Wiesbaden (ots)

- Market environment is expected to gradually improve, returning 
to normal as of 2012
- Outlook for 2010 confirmed - first-quarter performance on schedule
- Sound results achieved in 2009
- CEO Dr Wolf Schumacher: "We are well-positioned to master the 
current challenges we face, and to consistently exploit future growth
opportunities."
Aareal Bank Group expects a gradual improvement in the market 
environment, both during the current year and in 2011. The bank 
assumes that markets will return to normal again as of 2012. 
Commenting on the results, the Chairman of Aareal Bank's Management 
Board, Dr Wolf Schumacher, explained that Aareal Bank Group will 
derive above-average benefits, thanks to a lending policy that is 
focused on soundness and sustainability, the bank's dedicated 
proximity to clients and markets, a prudent funding policy and a 
sound balance sheet structure. He added that Aareal Bank Group 
survived the crisis relatively unscathed, pointing out that it is one
of the few finance providers to have retained its flexibility to act 
- both strategically and in operative terms. "Thanks to our coherent 
and viable business model, we are in a good position to deal with 
current challenges, to further sustainably expand our market position
in key markets and to establish ourselves as a leading player in our 
business", Schumacher added.
Allowance for credit losses remains manageable
Aareal Bank Group affirmed its outlook for the current year. 
Accordingly, the property financing specialist - active on three 
continents - sees good potential for improving consolidated operating
profit. Net interest income is expected to increase to between EUR 
460 million and EUR 480 million. Allowance for credit losses 
recognised in income is expected to range between EUR 117 million and
EUR 165 million, which means that it will remain at a clearly 
manageable level. From today's perspective, new business generated in
the Structured Property Financing segment is expected to increase to 
between EUR 4 billion and EUR 5 billion - with a reduction in the 
share of loan renewals. Operating profit in the Consulting/Services 
segment is expected to increase slightly over adjusted 2009 operating
profit. Consolidated administrative expenses are expected to remain 
in line with the previous year, reflecting the Group's continued 
strict cost discipline.
This outlook is confirmed by the business development to date in 
the current year: Aareal Bank's performance was on schedule during 
the first months of 2010, in spite of a market environment that 
continued to be challenging.
Against the background of a sound operating performance and a very
satisfactory capitalisation, the Management Board is aiming to 
already start repaying the silent participation from the German 
Financial Markets Stabilisation Fund (SoFFin) by early 2011.
The Management Board anticipates a further improvement in 
consolidated operating profit for the 2011 financial year, with both 
segments expected to contribute to this result. Net interest income 
is expected to continue to rise next year; at present, allowance for 
credit losses and administrative expenses are both expected to remain
roughly at 2010 levels.
Significant increase in return on equity targeted in the 
medium-term
"We believe in the future of commercial property financing, and 
expect markets to return to normal from 2012 onwards. This view is 
supported by the long-term increase in demand for property and 
property financings, as well as the changes in the competitive 
environment and client behaviour as a consequence of the crisis. 
Against this background, our competitive advantages - proximity to 
clients, flexibility provided by our mid-sized structure, sector 
expertise and our two-pillar business model - will be particularly 
effective", Dr Schumacher stated.
Aareal Bank Group is aiming for sustained profitable growth and a 
significant improvement in its financial indicators, expecting a 
return to normal conditions in the markets. For the Structured 
Property Financing segment, consistent implementation of its 
three-continent growth strategy will lead to significant growth in 
the credit portfolio, and accordingly, in income. Contributions from 
the Consulting/Services segment are also expected to increase 
significantly, thanks to anticipated improvement in the interest rate
environment for its deposit-taking business. Exploring new client 
groups, for example in the energy sector, will contribute to this 
scenario. All in all, the Management Board expects that as of 2012, 
enhanced cost-efficiency amongst others will allow the bank to 
generate a consolidated return on equity before taxes of at least 12 
to 13 per cent.
"The winners in the crisis will be those banks that combine 
property-specific expertise with prudent judgement in their risk 
policy. We have proven our success in this respect in the past, and 
will continue to consistently exploit the growth opportunities 
presented to us in the future", Dr Schumacher continued.
Successful crisis management in the 2009 financial year; sound 
results generated at Group level
Despite the difficult market environment, Aareal Bank Group posted
a sound result for the 2009 financial year. Having achieved a 
positive result in all quarters since the outbreak of the financial 
markets crisis in summer of 2007, the bank remained on course, even 
in conditions that continue to remain challenging for the financial 
services industry. According to the audited figures, Aareal Bank 
Group concluded the 2009 financial year with a pre-tax result of EUR 
87 million (2008: EUR 110 million). This means that Aareal Bank will 
service all of its subordinated refinancing vehicles for the 2009 
financial year. This includes the silent participation by SoFFin.
Comparative figures for the full year 2008 differ from the values 
published in the 2008 Annual Report. This marks the successful 
conclusion of an IFRS accounting project Aareal Bank has conducted 
over several years: the related accounting change required minor 
adjustments to prior periods' results.
Net interest income for the 2009 financial year amounted to EUR 
460 million (2008: EUR 500 million). Higher margins in the lending 
business were offset by the impact of the low interest rate 
environment on the very comfortable liquidity reserve. Moreover, the 
unfavourable interest rate environment for the deposit-taking 
business with institutional housing industry clients had a negative 
effect on results. The figure for the previous year was characterised
by an extraordinarily strong net interest income for the fourth 
quarter, reflecting the favourable interest rate environment at the 
time.
Allowance for credit losses was recognised in an amount of EUR 150
million (2008:  EUR 80 million), in line with projections. Additional
allowance for credit losses in an amount of EUR 34 million, 
recognised in 2008 on account of the difficult market environment, 
was not utilised in the financial year under review; in fact, it was 
increased by an additional EUR 14 million, bringing the total 
additional allowance to EUR 48 million.
Net commission income of EUR 133 million (previous year: EUR 149 
million) reflected - amongst other things - EUR 17 million in running
costs for the guarantee facility extended by SoFFin.
Net trading income/expenses of EUR 44 million (2008: EUR -31 
million) was mainly accounted for by the measurement of financial 
instruments in the trading portfolio. This figure was due primarily 
to a recovery in the value of credit derivatives.
Restructuring the securities portfolio - conducted at the 
beginning of 2009 within the scope of the conservative risk policy 
adopted - was a main influencing factor upon the result from 
non-trading assets of EUR -22 million (2008: EUR -102 million). No 
further material burdens to non-trading assets were recognised during
the remainder of 2009.
Administrative expenses of EUR 361 million were virtually 
unchanged year-on-year (2008: EUR 364 million). This reflects the 
strict cost discipline pursued within the Group.
Taking into account net other operating income and expenses of EUR
-14 million (2008: EUR 30 million), consolidated operating profit for
the 2009 financial year totalled EUR 87 million, after EUR 110 
million in 2008. Taking into account taxes of    EUR 20 million and 
non-controlling interest income of EUR 18 million, net income 
attributable to shareholders of Aareal Bank AG amounted to EUR 49 
million (2008:   EUR 47 million). After deduction of the net EUR 26 
million cost of the SoFFin silent participation (taking into account 
the related tax effects), consolidated net income stood at EUR 23 
million.
Both of the business segments contributed to Aareal Bank Group's 
satisfactory results for 2009 in the face of difficult market 
conditions.
In the Structured Property Financing segment, Aareal Bank 
continued to pursue its conservative policy, with a strict focus on 
quality. A positive result was achieved here, despite the impact of 
the crisis affecting financial markets and the economy.
The focus for originating new business was on the existing client 
base, and on renewing facilities for existing financing projects. At 
EUR 3.8 billion, the volume of new business, including loan renewals,
exceeded the target corridor of EUR 2 to 3 billion originally 
announced.
Net interest income posted by the segment for the financial year 
under review amounted to EUR 410 million (2008: EUR 431 million).
Overall, operating profit for the Structured Property Financing 
segment was EUR 67 million, and thus slightly higher than last year's
figure of EUR 66 million. Taking into consideration tax expenses of 
EUR 13 million and EUR 16 million attributable to non-controlling 
interests, the segment result was EUR 38 million (2008: EUR 19 
million).
The Consulting/Services segment also highlighted its importance as
Aareal Bank Group's second pillar in the difficult environment during
2009. The volume of deposits from the institutional housing industry 
remained virtually stable, averaging around EUR 4.0 billion in the 
2009 financial year. This reflects the high level of confidence that 
institutional housing industry clients in Germany have been placing 
in Aareal Bank - as their long-standing, sound and reliable banking 
partner - for decades.
Sales revenue amounted to EUR 209 million in the 2009 financial 
year (2008: EUR 229 million). The decline was largely due to the low 
interest rate environment, which impacted unfavourably on 
profitability of the deposit-taking business with the institutional 
housing industry. Revenue generated by the Aareon Group subsidiary 
remained stable, thanks to its continued successful multi-product 
strategy, and despite the general economic weakness, which led to 
lower volumes of project tenders in the market - especially in the 
first half-year. The new Wodis Sigma product, which was launched in 
the second quarter, was met with great interest.
On balance, operating profit for the Consulting/Services segment 
was
EUR 20 million (2008: EUR 44 million). The year-on-year decline was 
on the one hand due to the effects of the historically low interest 
rate environment, which significantly impacted on the results 
generated in the deposit-taking business. On the other hand, 
non-recurring expenses for capacity adjustments at Aareon, as well as
expenditure for the suspension of non-core activities, also affected 
results. Taking into account these non-recurring effects, which 
amounted to an aggregate EUR 6 million, the segment's operating 
profit was within the communicated range of EUR 25-30 million.
After deduction of EUR 7 million in taxes and EUR 2 million in 
non-controlling interest income, the segment result stood at EUR 11 
million (2008: EUR 28 million).
Solid refinancing situation and good capitalisation
Aareal Bank continued to adhere to its forward-looking refinancing
policy during the year under review. Several private placements as 
well as public issues were successfully distributed to a broad 
investor base over the course of the year. Pfandbriefe totalling EUR 
2.3 billion were issued during the 2009 financial year. Aareal Bank 
benefited from an easing of market sentiment that was evident from 
mid-year onwards, to increase its placements of unsecured bonds and 
promissory note loans. The issuing volume for the year as a whole 
amounted to EUR 1.1 billion, plus a EUR 2 billion unsecured bond 
issue guaranteed by SoFFin.
As at 31 December 2009, Aareal Bank's Tier 1 ratio - measured in 
accordance with the Credit Risk Standard Approach (CRSA) - was 11.0 
%, which is high by international standards. The Tier 1 ratio is thus
clearly above the medium-term target ratio of 10 %, as defined by the
Management Board. Good capitalisation provides Aareal Bank with the 
necessary scope to continue to act as a reliable financing partner 
for its existing clients, and also to increasingly exploit the market
opportunities presented to it.
Note to editors: the full 2009 Annual Report is available for 
download at http://www.aareal-bank.com/financialreports.
Aareal Bank
Aareal Bank AG is one of the leading international specialist 
property banks. The Aareal Bank share is included in Deutsche Börse's
mid-cap MDAX index. Aareal Bank operates on three continents: 
leveraging its successful European business model, the bank has 
established similar platforms in North America and in the 
Asia-Pacific region. It provides property financing solutions in more
than 25 countries.

Contact:

Aareal Bank AG
Corporate Communications

Sven Korndörffer
phone: +49 611 348 2306
sven.korndoerffer@aareal-bank.com

Christian Feldbrügge
phone: +49 611 348 2280
christian.feldbruegge@aareal-bank.com

Investor Relations

Jürgen Junginger
phone: +49 611 348 2636
juergen.junginger@aareal-bank.com

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