Boards and Corporate Governance

Corporate Governance and Compensation Report

Corporate Governance: Guiding principle

Good corporate governance entails the responsible management of enterprises. It is of vital importance for achieving corporate objectives and a sustained increase in company value, which in turn strengthens the confidence of shareholders and investors in the capital market. Exemplary corporate governance is not characterised merely by adherence to formal regulations but above all by responsible management put into action. Bayerische Hypo- und Vereinsbank (HVB AG) lives up to this maxim of responsible management through the close and efficient co-operation between the Management Board and the Supervisory Board, and through the openness and transparency of its communication.

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Legal basis

As it is headquartered in Germany, HVB AG operates within the legal framework provided by the German Stock Corporation Act, the German Co-Determination Act, capital market law and the German Corporate Governance Code. In 2006, HVB AG complied with the recommendations given by the German Corporate Governance Code as amended on June 2, 2005 and June 12, 2006 with five exceptions, and will comply with it in future with two exceptions. The deviations are described in detail in accordance with the “comply or explain” principle in the Statement of Compliance of the Management Board and Supervisory Board of December 5, 2006. The full text of the statement, complete with comments on the deviations, is reproduced below under the heading “2006 statement of compliance with the German Corporate Governance Code pursuant to Section 161 of the German Stock Corporation Act”. The statement of compliance has also been made permanently available to shareholders on the Company’s website.

HVB AG follows the series of suggestions provided in the Corporate Governance Code with three exceptions:

• On co-determined supervisory boards, the shareholder representatives and employee representatives are required to prepare Supervisory Board meetings separately, if appropriate in conjunction with members of the Management Board. In 2006, no preparatory meetings were held by the shareholder representatives and no regular preliminary talks took place on the employee representatives’ side.
• There are no plans to introduce varying terms of office for the shareholder representatives on the Supervisory Board because such a move would be at odds with the desired continuity of the Supervisory Board’s work. It would also apply only to the shareholder representatives, and would thus amount to unequal treatment of Supervisory Board members.
• The remuneration paid to members of the Supervisory Board does not include any components linked to the company’s long-term success. A large majority of our Supervisory Board members are required to surrender the Supervisory Board compensation, which means that no individual member of the Supervisory Board would profit from a corresponding regulation. Hence, we do not believe that a rule governing compensation with a long-term incentive is advisable for our Supervisory Board.

The German Securities Trading Act, as amended by the German Act on the Improvement of Investor Protection and the German Act on the Implementation of the EU Transparency Directive, contains additional statutory regulations aimed at promoting transparency and preventing misuse of insider information. In particular, these statutes contain regulations covering a ban on insider trading, ad-hoc publications, the publication of directors’ dealings and announcements of investments in listed companies when the stake reaches, exceeds or falls below certain thresholds. In addition, the statutory regulations on combating money laundering and the directives issued in this connection must be observed. There is a separate unit in the Bank responsible for ensuring compliance with, and implementation of, these regulations.

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Articles of Association, internal regulations, guidelines, compliance

Apart from defining legal principles regulating the management and monitoring of joint stock companies, other rules governing these matters at HVB AG are the Articles of Association adopted by the Annual General Meeting of Shareholders and the respective internal regulations adopted by the Management Board and the Supervisory Board. In particular, the Supervisory Board’s by-laws contain statements on transactions requiring approval and details on disclosure and reporting obligations. The Bank has introduced Compliance Guidelines and employee guidelines for dealings in securities and real estate. Compliance with these regulations is monitored by the Bank’s compliance officer. As a member of the UniCredit Group, HVB also adopted the Integrity Charter of UniCredit last year. The Integrity Charter is a common set of values connecting all the companies in the UniCredit Group. It contains guidelines on employees’ conduct at the workplace and lays down obligatory standards of behaviour for all employees in companies belonging to the UniCredit Group. In addition, the Code of Conduct adopted several years ago by the Management Board of HVB remains in force. This code summarises existing regulations and principles of ethical conduct to create a binding standard of conduct for the Management Board and all HVB employees.

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Effective corporate supervision

Supervisory Board, committees

The Bank’s Supervisory Board has 20 members. In compliance with the German Co-Determination Act, it includes equal numbers of representatives of the shareholders and employees. When new members are nominated for election to the Supervisory Board, care is taken to ensure that they have the required knowledge and skills and do not serve on governing bodies or perform advisory functions for key competitors. The members of the Supervisory Board are obliged to act in the interests of the company. Under the Supervisory Board’s by-laws, any conflicts of interest must be disclosed to the Supervisory Board. To avoid any conflicts of interest, individual members of the Supervisory Board did not take part in corresponding voting procedures in 2006. Further details in this connection are provided in the Report of the Supervisory Board in this Annual Report. A summary of the mandates held by members of the Supervisory Board on other statutory supervisory boards or comparable supervisory bodies is published in the notes to the annual financial statements of HVB AG. In view of the composition of the Supervisory Board, sworn interpreters are present at Supervisory Board meetings to simultaneously translate the contributions made by each Supervisory Board member to ensure that they are understood.

Under the German Stock Corporation Act, the tasks of management and supervision must be strictly separated. The task of the Supervisory Board is to monitor and advise the Management Board as it conducts business. Key tasks of the Supervisory Board include the appointment and dismissal of members of the Management Board. In addition, certain types of transactions require the Supervisory Board’s approval, either by law or because the Supervisory Board has made them subject to this restriction. This applies primarily to capital measures and – in accordance with the internal rules of the Supervisory Board of HVB AG – to investments or disposals exceeding a certain amount. To support its work, the Supervisory Board has set up three committees. The composition and tasks of the committees are as follows:

Remuneration & Nomination Committee

• The Remuneration & Nomination Committee, comprised of the chairman of the Supervisory Board and the two deputy chairmen, is primarily concerned with succession planning for the Management Board and determines the remuneration of its members, including the remuneration structure.

Audit Committee

• The Audit Committee, which usually conducts four meetings a year, has five members. It is responsible in particular for preparing the Supervisory Board’s decision on the approval of the annual financial statements and consolidated financial statements, for conducting a preliminary audit on the report on relationships with related parties and for elucidating the quarterly financial statements. In addition, this committee prepares the Supervisory Board’s proposal for the election of the independent auditor by the Annual General Meeting of Shareholders. This includes an assessment of the independence of the auditor and the specification of the type and extent of non-auditing tasks to be performed by the auditor. The Audit Committee is also responsible for the appointment of the auditor for the annual financial statements and consolidated financial statements on the basis of the resolution passed by the Annual General Meeting of Shareholders, including the specification of the main areas subject to special scrutiny and the fee. The regular reports prepared by the internal auditing department on its findings are another topic addressed by the Audit Committee. As required in the Corporate Governance Code, this committee has also performed the tasks carried out previously by the Risk Committee since January 1, 2006. The risk situation and the early identification of risks are of fundamental importance for the company’s continuing existence. The Minimum Requirements for the Risk Management at Credit Institutions laid down by the German Financial Supervisory Authority require risk reports to be presented to the Management Board and the Supervisory Board each quarter. Moreover, the management must review the risk strategy at least once each year and discuss it with the Supervisory Board.
  
  This ensures that the Supervisory Board is provided with detailed reports on a regular basis, particularly on the risk strategy, credit risks, market risks and operational risks as well as liquidity and reputation risks.

Negotiating Committee

• The Negotiating Committee, which has two shareholder representatives and two employee representatives, is responsible for submitting proposals to the Supervisory Board pertaining to the appointment or dismissal of members of the Management Board when a vote by the Supervisory Board does not yield the required two-thirds majority. The Negotiating Committee required by law did not have to convene in the past year.

The chairmen of the committees report in detail on the committees’ activities at plenary meetings.

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Management Board

The Management Board is the company’s management body. Under the Business Combination Agreement between HVB AG and UniCredit, an arrangement was made to adapt the organisational structures of HVB AG to those of UniCredit in order to create clear leadership and management structures across the entire group. The restructuring of the divisions was mostly completed by the end of July 2006. In the period from January 1 to August 31, 2006, the Management Board had ten members, one of whom was a deputy member. Since then the Management Board of HVB has consisted of nine regular members. These are the Board spokesman, the Chief Financial Officer (CFO), the Chief Risk Officer (CRO), the Chief Operating Officer (COO) and the Head of Human Resources Management (HRM), who also acts as Director of Labour Relations, and the heads of the other four operating divisions: Retail, Wealth Management, Corporates & Commercial Real Estate Financing, and Markets & Investment Banking. Thus the new structure and breakdown of responsibilities on the Management Board of HVB AG match the organisational structure in the other units of the UniCredit Group, which is divided into customer groups (business divisions) and functions. The Board spokesman, Dr Sprissler, is also a member of UniCredit's Management Committee, which advises and supports the Chief Executive Officer of UniCredit in implementing management decisions.

The Management Board of HVB AG provides the Supervisory Board with regular, timely and comprehensive reports on all issues relevant to corporate planning, including budget deviations, strategic development, the course of business and the state of the company, including the risk situation. The reports are generally submitted in text form; documents relevant for decision-making are made available to the Supervisory Board before the meeting. Given the composition of the Supervisory Board, presentations, reports and other documents are issued in two languages.

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Directors’ dealings and shares held by members of the Management Board and Supervisory Board

Compliant with Section 15a of the German Securities Trading Act, members of the Management Board and the Supervisory Board, and certain people closely related to them, are required to disclose transactions involving shares of HVB AG, or financial instruments based on such shares to the extent that such transactions exceed a figure of €5,000.00 in a calendar year.

The following transactions were notified to HVB AG for the 2006 financial year:

All transactions have been published under Corporate Governance on the Bank’s website at www.hvb.com/dealings.

Members of the Management Board did not hold any shares of HVB AG at December 31, 2006. At December 31, 2006, the members of the Supervisory Board held less than 1% of the entire stock issued by HVB AG.

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Shareholders, Annual General Meeting

The shareholders exercise their rights at the Annual General Meeting of Shareholders. The ordinary Annual General Meeting of Shareholders, to which the annual financial statements are submitted, takes place in the first half of the fiscal year. The “one share, one vote” principle applies for all holders of shares vested with voting rights. All holders of shares vested with voting rights can exercise their voting rights in person or through a proxy (such as a shareholder association or a bank), or authorise a designated proxy of the company to carry out their instructions. Voting instructions for the proxy by the company can also be issued via the internet – and hence via electronic communications. Shareholders will receive details with the invitation to the Annual General Meeting of Shareholders. The Annual General Meeting adopts resolutions on such matters as the appropriation of net income, the discharge from liability of the Management Board and the Supervisory Board, the election of shareholder representatives to the Supervisory Board, the appointment of the independent auditor, amendments to the Articles of Association, capital-raising and conversion measures.

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Risk management

HVB AG conducts extensive risk monitoring and risk management, encompassing its subsidiaries. The monitoring systems are geared to identifying risks at an early stage. Risk control and risk management are combined under the area of responsibility of the Chief Risk Officer, who reports to the Audit Committee of the Supervisory Board on a regular basis. Please refer to the Risk Report for further details.

Communication, transparency

The Bank greatly values regular and prompt communication with its customers, shareholders, employees and the general public. Press releases and reports provide information on the state of the company. Information that could have a substantial impact on the share price is published in ad-hoc communications and is also made available on the company’s website. In addition, the spokesman of the Management Board and the CFO report on issues important to the company and current business results at regular analyst conferences and press conferences. The dates of these conferences are published in a financial calendar.

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2006 statement of compliance with the German Corporate Governance Code pursuant to Section 161 of the German Stock Corporation Act

The Supervisory Board and the Management Board issued the following statement of compliance on December 5, 2006, which has also been made permanently available on the website of HVB AG.

“The Management Board and Supervisory Board of Bayerische Hypo- und Vereinsbank Aktiengesellschaft (‘HVB AG’) hereby declare that the recommendations of the ‘Government Commission German Corporate Governance Code’, as amended on June 2, 2005 and June 12, 2006, announced by the Federal Ministry of Justice in the official part of the electronic Federal Gazette was complied with in fiscal 2006, with the following deviations:

• Annexes 1.2, 1.3.3, 1.3.4–1 to 1.3.4–12 and 3.1 to the Master Agreement of January 16, 2006 as well as the relevant annexes to the Hive-Down Agreement of March 29, 2006 (cf. agenda items 13 and 14 of the Annual General Meeting of May 23, 2006) have not been published on the Internet for the reasons stated in the invitation to the Annual General Meeting. Accordingly, the recommendation in Section 2.3.1 (3) of the Code was not followed.
• Section 3.8 (3) of the Corporate Governance Code stipulates that an appropriate deductible must be agreed if the Company takes out D&O insurance for the Management Board and Supervisory Board.
  
  Responsible action is an obvious duty for all Board members and therefore no deductible is required in this regard.
• According to Section 4.2.3 (6) of the Code, stock options and comparable instruments shall be related to demanding, relevant comparison parameters. In addition, according to Section 4.2.3 (8) the Supervisory Board shall agree for extraordinary, unforeseen developments a possibility of limitation (cap).
  
  As “HVB AG” is a Group member company of UniCredito Italiano S.p.A., in 2006 the remuneration of the members of the Management Board of “HVB AG” was handled on a similar basis as that used in the UniCredit Group. As in the past, remuneration comprises three components: an individual basic salary, an annual performance-based bonus, and an annual long-term incentive. The long-term incentive plan of UniCredit comprises stock options on UniCredit shares and performance shares in the form of UniCredit shares. In departure from Section 4.2.3 of the Code, this long-term incentive plan provides neither for parameters to be drawn on for comparison purposes, nor – in relation to the stock options – for any performance targets; moreover, no form of limitation (cap) was agreed for extraordinary, unforeseeable developments.
• According to Section 4.2.4 (2) of the Code, as amended on June 2, 2005, the particulars of remuneration of Management Board members are to be disclosed individually in the Notes to the Consolidated Financial Statements.
  
  In fiscal 2005, this recommendation was only partly complied with, because only the remuneration for the spokesman of the Management Board is disclosed individually in the Notes to the Consolidated Financial Statements for 2005. For the other Management Board members, the previous practice of presenting only the total remuneration was continued. In the Notes to the Consolidated Financial Statements and in the Corporate Governance Report, the remuneration components, namely the fixed remuneration, performance bonuses and long-term incentives, were disclosed. In our view, the disadvantages would outweigh the advantages for the company if we reported remuneration on a more individualized basis.
  
  Meanwhile, at the Annual General Meeting of May 23, 2006, the so-called opting-out clause under the Act concerning the disclosure of Management Board remuneration was used and, following a proposal by the Management Board and Supervisory Board, it was resolved that in the Company’s Annual and Consolidated Financial Statements for fiscal 2006 through 2010, at the latest until May 22, 2011, however, the information required in Section 285 (1) No. 9 a and (5) to (9) and Section 314 (1) No. 6 a (5) to (9) of the Commercial Code is not to be disclosed.
• According to Section 5.4.3.(2), an application for the judicial appointment of a Supervisory Board member shall be limited in time up to the next annual general meeting.
  
  In 2006, this recommendation was only followed in the sense that when the judicial appointment of Mr. Ermotti was applied for, he was to be appointed a member of the Supervisory Board until the following ordinary General Meeting. In contrast, Mr. Ermotti’s election as a member of the Supervisory Board was not on the agenda of the Extraordinary Shareholders’ Meeting of October 25, 2006.

For clarification purposes, the appraisals by PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, of the enterprise value of the HVB AG units sold in Austria, central and eastern Europe (cf. the specific agenda items of the Extraordinary Shareholders’ Meeting of October 25, 2006) were not published on the Internet in line with the parameters laid down by PricewaterhouseCoopers in order to confine access by non-shareholders to these appraisals. However, the Management Board and Supervisory Board of HVB AG do not perceive this as a deviation from Section 2.3.1 of the Corporate Governance Code, in terms of which the reports and records required for the General Meeting by law are also to be published on the Company’s website.

The Management Board and Supervisory Board of Bayerische Hypo- und Vereinsbank Aktiengesellschaft (“HVB AG”) further declare that the recommendations of the “Government Commission German Corporate Governance Code”, as amended on June 12, 2006, announced by the Federal Ministry of Justice in the official part of the electronic Federal Gazette will also be complied with in future, with the exception of Section 3.8 (3) (deductible under D&O insurance) and Section 4.2.3 (no parameters for comparison purposes and – in relation to stock options – no performance targets or forms of limitation (caps) to UniCredit shares within the scope of the long-term incentive plan).”

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Compensation report

In compliance with the German Corporate Governance Code, the basic principles underlying the system of compensation for the Management Board of Bayerische Hypo- und Vereinsbank (HVB AG) are explained below. In addition, the amount of compensation paid to members of the Supervisory Board is described in detail and shown individually, broken down into remuneration components.

1. Structure of compensation paid to members of the Management Board for 2006

The compensation paid to members of the Management Board is determined by the Remuneration & Nomination Committee of the Supervisory Board. The direct compensation has three components comprising fixed and variable elements: fixed compensation, variable compensation as a bonus featuring profit-related components (short-term incentive) and a long-term incentive.

The variable components are especially important as these are linked to the achievement of the targets agreed for the financial year and the targets in the strategic plan and can exceed the fixed salary. Competitive profit-related compensation and postponing payment to the near or far future as a result of participation in the long-term incentive plan of the UniCredit Group is intended to ensure that the management is bound to the company.

To ensure that the compensation for the responsibilities assumed by Management Board members is commensurate with market conditions, an external specialist performed a market survey on behalf of HVB AG which included similar companies. The compensation paid to members of the Management Board for 2006 was stipulated by the Remuneration & Nomination Committee taking account of this survey.

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1.1 Fixed salary

The fixed salary is equivalent to the level paid in similar companies. It is disbursed in 12 monthly amounts.

1.2 Bonus (short-term incentive)

The bonus is a short-term incentive, the size of which depends on certain targets agreed at the beginning of the year with all members of the Management Board being met. In 2006, these targets were specified in detail in the course of the year after completion of the three-year planning. The targets are shown in scorecards and include team targets, core targets and integration targets.

The team target for all members of the Management Board is based on the results achieved by the HVB sub-group. Some Management Board members responsible for regional divisions also have a divisional target as an additional team target. The main emphasis is placed on what are known as core targets, i.e. especially significant targets from the Management Board members’ own area of responsibility. The most important tasks arising during the process of integrating HVB AG into the UniCredit Group are covered by the integration targets.

Targets mainly relating to quantities, but also some quality targets, are agreed with the members of the Management Board. A relatively narrow range is defined for meeting the quantitative targets. If the lowest value of this range is not achieved, no points are awarded for the target. If the highest value is achieved, the Management Board member receives the highest number of points previously defined for this target. The Remuneration & Nomination Committee decides on the quality targets, taking into account the vote given for the target achievement by the head of the division or the function in which the Board member works.

The weighted total amount of points gained from each target results in the target achievement. A bonus is paid if a specified minimum number of points is achieved. Compliant with UniCredit’s treatment of this issue, the maximum bonus will be defined as the reference value from 2007. This maximum bonus can be utilised whenever a total number of 120 points is achieved in the scorecard. This means that the bonus has a maximum upper limit and a correspondingly lower percentage of the maximum bonus will be disbursed in future if targets are fully met.

The bonus for one member of the Management Board also includes a long-term incentive. In this case, the amount exceeding the target bonus is disbursed only after two years have passed if the Management Board member concerned is still working for HVB AG at this point (retention award).

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1.3 Long-term incentive

Each Management Board member takes part in the Stock Option & Performance Shares Plan of the UniCredit Group (long-term incentive plan of the UniCredit Group).This plan consists of two components.

On the one hand, each Management Board member is granted a certain number of options which can be exercised if the beneficiary is still working for the UniCredit Group after four years (vesting). Each option entitles the Management Board member to purchase a UniCredit share at a price which was fixed before the option was issued. The option may be exercised within a period of nine years after vesting. In 2006, the Management Board of HVB AG was granted a total of 508,633 stock options.

On the other hand, each Management Board member is promised a specific number of UniCredit shares (to be tansferred free-of-charge) on condition that the relevant targets in UniCredit’s strategic plan are met after three years have passed and the beneficiary is still working for the UniCredit Group. The targets were combined in baskets. There are baskets for the UniCredit Group and for each division. Each basket has five targets, of which three must have been met.

Members of the Management Board working in operating activities receive the shares only if the division has achieved its target. They receive 50% of the shares if only the division has met its targets but 100% of the shares if the Group has also met its targets. The other Management Board members receive the shares if the Group has achieved its targets. The Management Board of HVB AG received 195,333 performance shares in 2006.

HVB AG reimburses the cost of participating in the long-term incentive plan to UniCredit.

The entitled person pays the taxes on the benefits gained, i.e. the value of the share less the fixed purchase price when the stock option is exercised and the value of the share for performance shares upon allotment.

One member of the Management Board, who also has a service contract with UniCredit, only receives a fixed compensation from HVB AG. In other words, he receives neither a bonus nor a long-term incentive. Furthermore, because of the functions he performs at UniCredit this member of the Management Board receives a fixed basic salary from this company; the respective bonuses and participation in the long-term incentive plan for the senior executives of the UniCredit Group are further components of this Board member’s compensation which are to be paid by UniCredit. HVB AG reimburses the compensation costs to UniCredit.

Another Management Board member, who also has a service contract with Bank Austria Creditanstalt (BA-CA), receives the same direct components of compensation from HVB AG as the other Management Board members. However, the amount of his compensation takes account of the fact that this Management Board member also works on a smaller scale for BA-CA and thus receives similar compensation in due proportion from BA-CA.

One member of the Management Board, who resigned from the Management Board in 2006 and as a member of UniCredit’s Management Committee also had a service contract with UniCredit, received only a fixed salary and an allocation to a retirement pension from HVB in the 2006 financial year.

Compensation paid to members of the Management Board for positions on supervisory boards of Group companies is surrendered to HVB AG.

The Annual General Meeting of Shareholders of May 23, 2006 invoked what is referred to as the opt-out clause of the Act on the Disclosure of Management Board Remuneration and resolved that the remuneration received by Management Board members would not be disclosed on an individualised basis.

The compensation paid to members of the Management Board for the 2006 financial year totalled €10 million.

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1.4 Compensation paid to members of the Management Board

¹ monetary value of equities-based compensation

The fair value on the date of granting is recorded as an expense on the basis of the expected number of options exercised/performance shares granted over the period or vesting period of the respective programme.

1.5 Pension commitments

Besides direct remuneration, Management Board members have received pension commitments. Except for three members of the Management Board, the Management Board members take part in the fund-linked deferred compensation scheme (FDC) which is also available to the Bank’s employees. HVB AG has fixed the contribution as 20% of the fixed salary and the short term incentive, subject to a cap of €200,000 per year. It has been agreed with the members of the Management Board that this amount of their pay would be converted, which means that, instead of a disbursed sum of money, the Management Board member receives a pension commitment to the same value from HVB AG.

HVB AG credits the deferred compensation amounts to the Management Board member’s capital account and invests them in a fund, currently the Pioneer Total Return Fund. HVB AG guarantees an annual return of 2.75%. A higher yield is initially used for allocation to a fluctuation reserve amounting to 10% of the separate funds for FDC. Any surplus return is credited to the Management Board member in due proportion. The fluctuation reserve is used to offset any actuarial losses.

When the beneficiary becomes entitled to receive benefits, the capital credit balance is converted into a pension for life. In the process, the actuarial calculations applicable at the time, in particular the life expectancy, are taken as a basis. An annual adjustment of 1% is granted for the pension; this fulfils the Bank’s obligation to adjust pension commitments. Alternatively, the capital can be disbursed if the eligible Management Board member has applied for this two years before the insured event occurs.

Notwithstanding the pension arrangements described, HVB AG had undertaken to provide one member of the Management Board a retirement pension for a fixed amount each year. Contributions will be paid to a pension fund for another member of the Management Board. HVB AG has not agreed a pension commitment with a further member of the Management Board. HVB AG has not agreed a pension commitment with a further member of the Management Board.

A total of €560,000 was transferred to provisions for pensions in 2006, €463,000 of which was deferred compensation invested in a fund in 2006. The compensation paid to former members of the Management Board amounted to €11 million in 2006. At December 31, 2006, the reserves in the HVB sub-group for pension commitments to former members of the Management Board and their surviving dependants stood at €92 million. In accordance with IFRS, the value of the reserves for pension commitments for retired members of the Management Board amounts to €124 million.

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1.6 Fringe benefits

Other fringe benefits are of no material significance. The members of the Management Board can use their company car for private purposes. The Bank pays the premiums for an accident insurance policy valid 24-hours a day and a sum insured of €511,000 in the event of death and €1,024,000 in the event of complete disability. Furthermore, members of the Management Board receive the same preferential terms for bank services as the Bank’s employees.

1.7 Commitments in the event of the termination of Management Board activities

If a contract is not extended for reasons for which the member of the Management Board is not responsible, a transitional allowance of at least one year’s salary (fixed salary and bonus), but a maximum of three years’ salary depending on the length of service, is usually paid; the maximum amount is paid after 20 years. The transitional allowance is limited to the annual salaries (fixed salary and bonus) still outstanding until the age of 62 in each case. In the event that his contract is not extended, one member of the Management Board will not receive any benefits from HVB AG on account of another contract he has in the corporate group; another can receive a retirement pension.

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2. Compensation paid to members of the Supervisory Board

The compensation paid to members of the Supervisory Board is regulated in Article 15 of the Articles of Association of HVB AG. The currently applicable arrangements under these articles are based on a resolution adopted by the Annual General Meeting of Shareholders on May 23, 2006. The compensation is divided into a fixed and a variable, dividend-dependent component. Under the terms of the arrangements, the members of the Supervisory Board receive fixed compensation of €25,000 payable upon conclusion of the financial year and dividend-dependent compensation of €400 for every €0.01 dividend paid above the amount of €0.12 per no-par share. The chairman of the Supervisory Board receives twice the compensation stated, the deputy chairmen one and a half times the compensation stated. Furthermore, the Supervisory Board is entitled to a fixed annual compensation of €120,000 payable upon conclusion of the financial year, which is used to compensate committee members on the basis of a corresponding Supervisory Board resolution. According to this, the members of the Audit Committee receive annual compensation of €20,000 each for the 2006 financial year. The chairman of the committee receives twice this amount. The members of the Remuneration & Nomination Committee and the members of the statutory Negotiating Committee, which only meets if required, received no separate compensation for committee work. In addition, the members of the Supervisory Board are reimbursed their expenses and the value-added tax payable on their Supervisory Board functions. Where they sit on the Management Committee of UniCredit, the members of the Supervisory Board surrender to UniCredit the compensation they receive for supervisory board work, as the performance of supervisory board functions at subsidiaries is considered a typical management duty.

Members of the Supervisory Board who belonged to the Supervisory Board for only a part of the fiscal year received pro rata compensation.

The chairman of the Supervisory Board has an office complete with staff at his disposal. In 2006, expense allowances totalling €86,987.73 were paid to members of the Supervisory Board. No remuneration was paid in the 2006 financial year for services provided personally.

The following table shows the breakdown of compensation paid to members of the Supervisory Board for 2006.

¹ member of the Audit Committee since March 9, 2006
² since March 9, 2006
³ since August 22, 2006
⁴ until March 8, 2006
⁵ until August 21, 2006
⁶ after deduction of 30% supervisory board tax and 5.5% solidarity surcharge

Munich, March 20, 2007

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• HypoVereinsbank Profile
• Financial Highlights
• Strategy, Business Model and Results
• Human Resources & CSR
• Financial Statements: Management’s Discussion and Analysis
• Financial Statements: Consolidated Financial Statements
• Boards and Corporate Governance
  • Supervisory Board, Trustees & Management Board
  • Report of the Supervisory Board
  • Corporate Governance and Compensation Report
  • The HVB Share
  • Summary of Annual Financial Data
  • Summary of Quarterly Financial Data
  • Summary of Annual Financial Data
  • Financial Calendar
• UniCredit Group
• Notes

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