Bond IKB Industriebank AG 4% ( DE000A2GSG24 ) in EUR

IKB Industriebank AG

104.77 % ▼

Germany

DE000A2GSG24 ( in EUR )

4% per year ( payment 1 time a year)

30/01/2028

Prospectus brochure of the bond IKB Deutsche Industriebank AG DE000A2GSG24 en EUR 4%, maturity 30/01/2028

100 000 EUR

300 000 000 EUR

31/01/2027 ( In 355 days )

IKB Deutsche Industriebank AG is a German public bank specializing in financing medium-sized companies and offering a range of financial services including corporate banking, investment banking, and asset management.

The Bond issued by IKB Industriebank AG ( Germany ) , in EUR, with the ISIN code DE000A2GSG24, pays a coupon of 4% per year.
The coupons are paid 1 time per year and the Bond maturity is 30/01/2028

Prospectus dated 25 January 2018
IKB Deutsche Industriebank Aktiengesellschaft
(a stock corporation incorporated under the laws of the Federal Republic of Germany)
EUR 300,000,000 Subordinated Resettable Fixed Rate Notes due 2028
Issue Price 100.00 per cent.
IKB Deutsche Industriebank Aktiengesellschaft (the "Issuer" or "IKB AG" and, together with its consolidated subsidiaries,
the "IKB Group") will issue on 31 January 2018 (the "Issue Date") EUR 300,000,000 subordinated resettable fixed rate notes
with maturity in 2028 in a denomination of EUR 100,000 per Note (the "Notes").
The Notes will be governed by the laws of the Federal Republic of Germany ("Germany").
The Notes will bear interest from (and including) 31 January 2018 (the "Interest Commencement Date"), to (but excluding)
31 January 2023 (the "Reset Date") at a rate of 4.00 per cent. per annum, payable annually in arrear on 31 January of each
year, commencing on 31 January 2019. Thereafter, unless previously redeemed, the Notes will bear interest from (and
including) the Reset Date to (but excluding) 31 January 2028 (the "Maturity Date") at a rate equal to the annual mid-swap
rate for Euro swap transactions having a maturity of 5 years (as determined by the calculation agent on the second Business
Day (as defined in the Terms and Conditions) prior to the Reset Date) plus a margin of 3.617 per cent. per annum, payable in
arrear on 31 Janaury of each year, commencing on 31 Janaury 2024. The Notes are scheduled to be redeemed at the Final
Redemption Amount (as defined in the Terms and Conditions) on the Maturity Date. The Notes may be early redeemed, in
whole but not in part, at the option of the Issuer if the Issuer has to pay Additional Amounts (as defined in Condition 7 of the
Terms and Conditions), or if as a result of any amendment or supplement to, or change in, the applicable regulations which are
in effect as of the Issue Date, the Notes are fully or partially derecognised from the Tier 2 capital of the Issuer or the Issuer
together with its consolidated subsidiaries or on 31 January 2023 (the "Call Redemption Date"), as provided in the Terms and
Conditions and, in each case, subject to the prior consent of the competent supervisory authority.
This prospectus (the "Prospectus") constitutes a prospectus for the purpose of Part IV of the Luxembourg Law of 10 July
2005 on Prospectuses for Securities, as amended (the "Luxembourg Prospectus Law"). Application has been made to the
Luxembourg Stock Exchange to list the Notes on the official list (the "Official List") of the Luxembourg Stock Exchange and
to admit the Notes to trading on the Euro MTF market ("Euro MTF") operated by the Luxembourg Stock Exchange, which is
a multilateral trading facility for the purposes of the Market and the Financial Instruments Directive 2004/39/EC, as amended,
and therefore a non-EU-regulated market. Application has also been made to include the Notes in trading on the Open Market
(Regulated Unofficial Market) (Freiverkehr) of the Frankfurt Stock Exchange and the Primary Market (Primärmarkt) of the
Düsseldorf Stock Exchange.
The Notes will initially be represented by a temporary global note in bearer form (the "Temporary Global Note"). Interests in
the Temporary Global Note will be exchangeable, in whole or in part, for interests in a permanent global note (the
"Permanent Global Note" and, together with the Temporary Global Note, the "Global Notes" and each a "Global Note") on
or after the date 40 days after the Issue Date (the "Exchange Date"), upon certification as to non-U.S. beneficial ownership.
The Global Notes will be deposited prior to the Issue Date with Clearstream Banking AG ("Clearstream Frankfurt").
Sole Bookrunner
J.P. Morgan

This Prospectus is to be read in conjunction with all documents which are incorporated herein by reference
(see "Documents Incorporated by Reference" below).
No person has been authorised to give any information or to make any representation other than those
contained in this Prospectus in connection with the issue or sale of the Notes and, if given or made, such
information or representation must not be relied upon as having been authorised by the Issuer or J.P. Morgan
Securities plc (the "Sole Bookrunner"). Neither the delivery of this Prospectus nor any sale made in
connection herewith shall, under any circumstances, create any implication that there has been no change in
the affairs of the Issuer since the date hereof or the date upon which this Prospectus has been most recently
supplemented or that there has been no adverse change in the financial position of the Issuer since the date
hereof or the date upon which this Prospectus has been most recently supplemented or that any other
information supplied in connection with the Notes is correct as of any time subsequent to the date on which
it is supplied or, if different, the date indicated in the document containing the same.
The distribution of this Prospectus and the offering or sale of the Notes in certain jurisdictions may be
restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer and the
Sole Bookrunner to inform themselves about and to observe any such restriction. The Notes have not been
and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act") or with
any securities regulatory authority of any state or other jurisdiction of the United States. The Notes will be
issued in bearer form and are subject to certain U.S. tax law requirements. Subject to certain exceptions, the
Notes may not be offered, sold or delivered within the United States or to U.S. persons (as defined in the
U.S. Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder). For a
description of certain restrictions on offers and sales of the Notes and on distribution of this Prospectus, see
"Subscription and Sale".
This Prospectus does not constitute an offer of, or an invitation by or on behalf of the Issuer or the Sole
Bookrunner to subscribe for, or purchase, any Notes.
The Sole Bookrunner has not separately verified the information contained in this Prospectus. The Sole
Bookrunner does not make any representation, expressly or implied, or accept any responsibility, with
respect to the accuracy or completeness of any information contained in this Prospectus. Neither this
Prospectus nor any financial statements are intended to provide the basis of any credit or other evaluation
and should not be considered as a recommendation by any of the Issuer or the Sole Bookrunner that any
recipient of this Prospectus or any financial statements should purchase the Notes. Each potential purchaser
of Notes should determine for itself the relevance of the information contained in this Prospectus and its
purchase of Notes should be based upon such investigation as it deems necessary. The Sole Bookrunner does
not undertake to review the financial condition or affairs of the Issuer during the life of the arrangements
contemplated by this Prospectus nor to advise any investor or potential investor in the Notes of any
information coming to the attention of the Sole Bookrunner. This Prospectus may only be used for the
purpose for which it has been published.
Prospective investors should have regard to the factors described under the section headed "Risk Factors" in
this Prospectus. This Prospectus identifies in general terms certain information that a prospective investor
should consider prior to making an investment in the Notes. However, a prospective investor should conduct
its own thorough analysis (including its own accounting, legal and tax analysis) prior to deciding whether to
invest in any Notes as any evaluation of the suitability for an investor of an investment in the Notes depends
upon a prospective investor's particular financial and other circumstances, as well as on the specific terms of
the Notes and, if it does not have experience in financial, business and investment matters sufficient to
permit it to make such a determination, it should consult its financial adviser prior to deciding to make an
investment on the suitability of the Notes.
2

IN CONNECTION WITH THE ISSUE OF THE NOTES, J.P. MORGAN SECURITIES PLC (THE
"STABILISING MANAGER") (OR A PERSON ACTING ON BEHALF OF THE STABILISING
MANAGER) MAY OVER-ALLOT NOTES OR EFFECT TRANSACTIONS WITH A VIEW TO
SUPPORTING THE MARKET PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT WHICH
MIGHT OTHERWISE PREVAIL. HOWEVER, STABILISATION MAY NOT NECESSARILY OCCUR.
ANY STABILISATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE
PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE NOTES IS MADE AND, IF BEGUN,
MAY BE ENDED AT ANY TIME, BUT IT MUST END NO LATER THAN THE EARLIER OF 30
CALENDAR DAYS AFTER THE ISSUE DATE OF THE NOTES AND 60 CALENDAR DAYS AFTER
THE DATE OF THE ALLOTMENT OF THE NOTES. ANY STABILISATION ACTION OR OVER-
ALLOTMENT MUST BE CONDUCTED BY THE STABILISING MANAGER (OR A PERSON ACTING
ON BEHALF OF THE STABILISING MANAGER) IN ACCORDANCE WITH ALL APPLICABLE
LAWS AND RULES.
In this Prospectus, unless otherwise specified or the context otherwise requires, references to "EUR", "euro"
and "" are to the currency introduced at the third stage of the European economic and monetary union
pursuant to the Treaty establishing the European Community as amended by the Treaty on European Union.
References to "US$", "USD" and "U.S. dollars" are to the currency of the United States of America.
Cautionary note regarding forward-looking statements
This Prospectus contains certain forward-looking statements, including statements using the words
"believes", "anticipates", "intends", "expects" or other similar terms. This applies in particular to statements
under the caption "General Information" and statements elsewhere in this Prospectus relating to, among
other things, the future financial performance, plans, projections and expectations regarding developments in
the business of the Issuer. These forward-looking statements are subject to a number of risks, uncertainties,
assumptions and other factors that may cause the actual results, including the financial position and
profitability of the Issuer, to be materially different from or worse than those expressed or implied by these
forward-looking statements. The Issuer does not assume any obligation to update such forward-looking
statements and to adapt them to future events or developments.
PROHIBITION OF SALES TO EEA RETAIL INVESTORS - The Notes are not intended to be offered,
sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail
investor in the EEA. For these purposes, a retail investor means a person who is one (or more) of: (i) a retail
client as defined in point (11) of Article 4(1) of Directive 2014/65/EU ("MiFID II") or (ii) a customer within
the meaning of Directive 2002/92/EC ("IMD"), where that customer would not qualify as a professional
client as defined in point (10) of Article 4(1) of MiFID II. Consequently, no key information document
required by Regulation (EU) No 1286/2014 (the "PRIIPs Regulation") for offering or selling the Notes or
otherwise making them available to retail investors in the EEA has been prepared and therefore offering or
selling the Notes or otherwise making them available to any retail investor in the EEA may be unlawful
under the PRIIPS Regulation.
Solely for the purposes of each manufacturer's product approval process, the target market
assessment in respect of the Notes has led to the conclusion that: (i) the target market for the Notes is
eligible counterparties and professional clients only, each as defined in MiFID II; and (ii) all channels
for distribution of the Notes to eligible counterparties and professional clients are appropriate. Any
person subsequently offering, selling or recommending the Notes (a "distributor") should take into
consideration the manufacturers' target market assessment; however, a distributor subject to MiFID
II is responsible for undertaking its own target market assessment in respect of the Notes (by either
adopting or refining the manufacturers' target market assessment) and determining appropriate
distribution channels.
3

TABLE OF CONTENTS
Page
RISK FACTORS .............................................................................................................................................. 5
RESPONSIBILITY STATEMENT................................................................................................................. 24
TERMS AND CONDITIONS OF THE NOTES............................................................................................ 25
DESCRIPTION OF THE ISSUER................................................................................................................. 54
TAXATION .................................................................................................................................................... 81
SUBSCRIPTION AND SALE ....................................................................................................................... 86
GENERAL INFORMATION ......................................................................................................................... 88
DOCUMENTS INCORPORATED BY REFERENCE .................................................................................. 90
4

RISK FACTORS
The Issuer believes that the following factors may affect its ability to fulfil its obligations under the Notes.
All of these factors are contingencies which may or may not occur and the Issuer is not in a position to
express a view on the likelihood of any such contingency occurring.
Factors which the Issuer believes may be material for the purpose of assessing the market risks associated
with the Notes are also described below.
The Issuer believes that the factors described below represent the principal risks inherent in investing in the
Notes. However, the Issuer may be unable to pay interest, principal or other amounts on or in connection
with the Notes for other reasons and the Issuer does not represent that the statements below regarding the
risks of holding any Notes are exhaustive. Prospective investors should also read the detailed information
set out elsewhere in this Prospectus (including any documents deemed to be incorporated by reference
herein) and reach their own views prior to making any investment decision. Prospective investors should
note that the risks relating to the Issuer and IKB Group, their industries and the Notes summarised in this
section are the risks that the Issuer believes to be the most essential to an assessment by a prospective
investor of whether to consider an investment in the Notes. However, as these risks relate to events and
depend on circumstances that may or may not occur in the future, prospective investors should consider not
only the information on the key risks summarised in this section, but also, among other things, should
consult their financial, legal and tax advisers. In addition, prospective investors should be aware that the
risks described might combine and thus intensify one another.
Risk Factors that may affect the Issuer's ability to fulfil its obligations under the Notes
The Issuer is exposed to certain risk factors affecting their respective abilities to fulfil its obligations under
the Notes. These risk factors relate to the business and operations of the Issuer and IKB Group and include
matters such as risks arising from the financial markets, risks arising from the nature of the Issuer's business
and risks arising from legal and regulatory conditions. The following is a summary of these risk factors:
1
RISK FACTORS RELATING TO THE ISSUER
1.1
Risks Relating to the Economic and Financial Market Situation
IKB AG's financial condition may be adversely affected by general economic and business conditions.
The profitability of IKB AG's business could be adversely affected by a worsening of general economic
conditions and deteriorating individual markets. Factors such as interest rates, inflation, investor sentiment,
the availability and cost of credit, the liquidity of the global financial markets and the level and volatility of
equity and other asset prices could significantly affect the financial strength of IKB AG's counterparts. For
example:
·
an economic downturn or a significant change in interest rates could adversely affect the credit
quality of IKB AG's assets by increasing the risk that a greater number of IKB AG's customers would
be unable to meet their obligations;
·
a market downturn or worsening of the economy could cause IKB AG to incur mark to market losses
in its portfolios; and
·
a market downturn would likely lead to a decline in the volume of transactions that IKB AG executes
and, therefore, lead to a decline in fees, commissions and interest income.
5

IKB AG has been and may continue to be affected by low or moderate growth in all major industrialised
countries as well as volatile financial markets due to ongoing unconventional monetary policy by all major
central banks.
A renewed slowdown in the European economy or other regions of the global economy cannot be excluded
and remains a risk, especially as debt levels remain elevated and the sustainability of European sovereign
debt levels remains a concern. Also, volatile commodity markets and unpredictable global capital flows
continue to impose risks on emerging markets. Although fiscal consolidation has reduced budget deficits,
support by central banks in form of low interest rates remains necessary to ensure an ongoing long-run debt
sustainability and an ultimate reduction in the ratio of debt to gross domestic product ("GDP"). In most
member countries of the European Economic and Monetary Union, the level of sovereign debt continues to
exceed 60% of GDP, which is the limit set by the Treaty of Maastricht. In some countries (e.g. Italy,
Belgium, Greece or Portugal), sovereign debt continues to exceed well over 100% of GDP. While the current
economic recovery across the Eurozone supports a stabilisation and reduction in debt ratios, these dynamics
have to prevail for an extended period of time in order to reduce debt ratios meaningfully. However, for
countries such as Italy, a weak banking sector and difficulties in implementing the necessary structural
reforms continue to be impediments to a noteworthy acceleration in growth. In general, uncertainty remains
over the strength and sustainability of the current recovery. Multiple geopolitical crises as well as the
forthcoming exit of Great Britain from the European Union ("EU") could fundamentally increase the
downside risks facing the global and European economy. As a result, risk premiums could show renewed
signs of volatility. However, the willingness and ability of the European Central Bank ("ECB") to act in
times of renewed financial distress should prevent any major widening in risk premiums among Eurozone
members. This is the case even with the gradual elimination of the ECB's programme of quantitative easing,
as long as the ECB continues to enjoy a high level of credibility among financial marktet participants.
However, the risk of a re-escalation of the Eurozone sovereign debt crisis, which could undermine the
recapitalisation of banks and other financial services providers cannot be discarded, especially if economic
conditions were to deteriorate significantly. Together with the uncertainty over growth prospects for
emerging markets, medium-term risks to the global growth outlook in general and Germany's export
prospects in particular remain.
Further risk could emanate from a change in monetary policy. The US Federal Reserve Bank is expected to
continue increasing its key lending rate, while the ECB is likely to terminate its quantitative easing
programme in the foreseeable future. This bears the risk of a general repricing of assets across financial
markets. Noteworthy changes in Eurozone interest rates could also lead to changes in the portfolio
composition of major financial institutions, thereby altering and possibly adversely affecting prices of
certain financial assets.
In the absence of a sustained recovery, regulatory and political actions by European governments and the
ECB may significantly influence money and capital markets, thereby increasing the spectrum of uncertainty
regarding the level of future interest rates, risk premiums and the regulatory framework for financial
institutions. Furthermore, a possible departure of any one or more countries from the Eurozone could have
unpredictable consequences on the financial system and the greater economy, potentially leading to declines
in business levels, write-downs of assets and losses across IKB AG's businesses. IKB AG's ability to protect
itself against these risks is limited.
The occurrence of any of the risks set out above could have material adverse effects on IKB AG's business
operations and financial condition.
1.2
Risks Relating to IKB AG and its Business
IKB AG faces liquidity risks and refinancing risks.
6

Liquidity and refinancing risk is the risk of IKB AG no longer being in the position to meet its payment
obligations on schedule (liquidity risk) or to raise refinancing funds on the market at appropriate conditions
(refinancing risk).
In addition to secured financing on the interbank market, business involving retail customers, deposits and
promissory note loans (Schuldscheindarlehen) with corporate clients and institutional investors, IKB AG
also actively utilises programme loans and global loans from government development banks for its
customers. In addition, IKB AG issues bearer bonds.
Depending on the development of its new business, IKB AG expects its liquidity requirements to amount to
approximately 3.8 billion during the course of the next twelve months. As previously, the main options
currently available for refinancing these requirements are accepting customer deposits and promissory note
loans, secured borrowing on the interbank market (repo transactions), participating in ECB tenders and
issuing bearer bonds.
Liquidity planning is based on a range of assumptions such as the above and other factors that can determine
liquidity, both on the assets side and the liabilities side. The occurrence or non-occurrence of such
assumptions or factors may result in liquidity bottlenecks. For example, this may include market
developments that prevent IKB AG from extending liabilities covered by the deposit protection fund
(Einlagensicherungsfonds) or participating in ECB tenders to a sufficient extent or at all. Further, IKB AG
could experience difficulties in extending liabilities covered by the deposit protection fund due to recent
changes in the range of liabilities covered by the deposit protection fund, excluding promissory note loans
(Schuldscheindarlehen) and registered bonds held by non-retail clients from the coverage.
The occurrence of any of the risks set out above could have material adverse effects on IKB AG's business
operations and financial condition.
IKB AG's risk management measures and controls may not be successful.
IKB AG's risk management system and strategies may not be sufficient or fail, and IKB AG may suffer
unexpected losses from unidentified or incorrectly identified evaluated market developments, trends or other
circumstances. Although IKB AG seeks to monitor and manage its risk exposure through a variety of
separate but complementary financial, credit, market liquidity, operational, compliance and legal reporting
systems, there can be no assurance that IKB AG's risk management techniques will be effective under all
conditions and circumstances. The failure of IKB AG's risk management systems and risk management
measures could have a material adverse effect on IKB AG's financial condition.
IKB AG is exposed to substantial credit and counterparty risk.
IKB AG is exposed to the risk that loan or bond payments owed by customers or counterparties may not be
met when due or that pledged collateral may not cover the amount of the loans or bonds respectively. If IKB
AG's counterparties are unable to meet payment obligations due to declines in their financial condition or
credit quality (counterparty risk), such payments may need to be written off in part or in full, particularly if
the collateral IKB AG holds cannot be realized or liquidated at prices sufficient to recover the amounts owed
to IKB AG. Furthermore, IKB AG is exposed to underlying default risks resulting from participating in
credit default swap ("CDS") transactions in which IKB AG acts as so-called protection seller and where
underlyings are sovereigns, corporates or banks.
IKB AG monitors credit quality and counterparty risk as well as the overall risk stemming from loan, bond
and CDS portfolios, but there can be no assurance that such monitoring and risk management will suffice to
keep IKB AG's credit risk exposure at acceptable levels. In addition, IKB AG may not be able to accurately
assess default risk on loans provided to customers due to the unpredictability of economic conditions. If IKB
AG's credit risk evaluation procedures are unable to correctly evaluate the financial conditions of
prospective borrowers and accurately determine the ability of such borrower to pay, IKB AG would be
7

subject to increased risks of impaired loans and defaults, which could have a material adverse effect on its
financial condition.
A decline in the value or difficulties with the enforcement of the collateral securing IKB AG's loans may
adversely affect its loan portfolio.
A substantial portion of IKB AG's loans is secured by collateral such as real property, production equipment,
vehicles, securities and inventory. Downturns in the relevant markets or a general deterioration of economic
conditions may result in declines in the value of the collateral securing a number of loans to levels below the
amounts of the outstanding principal and accrued interest on those loans. If collateral values decline, they
may not be sufficient to cover uncollectible amounts on IKB AG's secured loans, which may require IKB
AG to reclassify the relevant loans, establish additional allowances for loan impairment and increase reserve
requirements. A failure to recover the expected value of collateral may expose IKB AG to losses, which may
materially affect its financial condition.
IKB AG's operations are concentrated on medium-sized enterprises in Western Europe (in particular in
Germany) and difficult economic conditions in this region may have a significant impact on IKB AG's
business activities and results of operations.
IKB AG's business focuses predominantly on medium-sized enterprises in Western Europe (in particular in
Germany). Therefore, adverse changes affecting the economy in this region, such as an economic downturn
as a result of the sovereign debt crisis and the saving measures taken by various governments, are likely to
have a significant adverse impact on IKB AG's loan portfolio and, as a result, on its financial condition.
IKB AG is exposed to country risk.
Country risk is the likelihood of a crisis situation in a certain country and, consequently, the level of risk
associated with the repayment of claims that originate from that specific country. The key concept employed
to assess and manage country risk is the country rating. In addition to Germany, IKB AG's home country and
core market, the key international markets for IKB AG's low level activities (other than leasing) are France,
Italy and Spain. The key international market for leasing products is Eastern Europe. IKB AG is subject to
the economic, legal and political environments in these countries and partly has, among others, to rely on the
cooperation and reliability of its local business partners. Crisis scenarios in the markets in which IKB AG
operates could have a material adverse effect on IKB AG's financial position.
IKB AG's business performance could be adversely affected if its capital is not managed effectively.
Effective management of IKB AG's capital is critical to its ability to operate its business and to pursue its
strategy. IKB AG is required by regulators in Germany to maintain adequate capital. The maintenance of
adequate capital is also necessary to enhance IKB AG's financial flexibility in the face of continuing
turbulence and uncertainty in the global economy.
IKB AG is examining the implementation of additional measures to simplify its capital structure in the
second half of the financial year 2017/18. The implementation of these measures would result in substantial
extraordinary expenses in the financial year 2017/18. There is considerable uncertainty as to whether the
income generated in the second half of the financial year 2017/18 will be sufficient to offset the expenses
incurred in connection with the measures. If income is not generated in the required amount, a substantial
consolidated net loss is to be anticipated.
IKB AG calculates its regulatory capital resources in accordance with the provisions of the Capital
Requirements Regulation ("CRR"). It applies the standardised approach for credit risk and for counterparty
default risk, the standard method for the calculation of the credit valuation adjustment charge, the basis
indicator approach for operational risk and the prescribed standard regulatory method for market price risk.
IKB AG continues to use the regulatory netting approach to determine the net basis of measurement for
8

derivatives, taking existing netting agreements into account. The table set out in the Section entitled "D.
Description of the Issuer 2.2.4 Summary of Regulatory Indicators" provides an overview of the regulatory
capital position, including overview on risk weigthed assets and ratios as applicable.
Market risks associated with fluctuations in rates of interest, credit spreads and equity prices and other
market factors are inherent in IKB AG's business.
Market price risk is defined as the risk of economic and accounting losses as a result of changes in market
prices. Market price risk is broken down into the risk factors of interest rates, credit spreads and FX (foreign
exchange) rates.
Fluctuations in interest rates could adversely affect IKB AG's financial condition in a number of different
ways. Changes in the general level of interest rates as well as changes in the shape of yield curves and basis
spreads may adversely affect the interest rate margin realised between lending rates and borrowing costs in
IKB AG's banking operations. An increase in interest rates generally may decrease the value of IKB AG's
fixed rate loans and increase its funding costs. Such an increase could also generally decrease the value of
fixed rate debt securities in IKB AG's securities portfolio. In addition, an increase in interest rates may
reduce overall demand for new loans and increase the risk of borrower default, while general volatility in
interest rates may result in a gap between IKB AG's interest-rate sensitive assets and liabilities. As a result,
IKB AG may incur additional costs and expose itself to other risks by adjusting such asset and liability
positions through the use of derivative instruments. Interest rates are sensitive to many factors beyond IKB
AG's control, including the policies of central banks, domestic and international economic conditions and
political factors.
Fluctuations in credit spreads cause additional fluctuations in the fair values of IKB AG's assets and
liabilities. The net fair value effect of such fluctuations can be adverse and may be realised in part when
assets are not held until maturity.
IKB AG reports its financial results in euros. However, IKB AG enters into transactions in different
currencies, the most important being U.S. Dollars. As a result, IKB AG is subject to certain currency
exchange risks. Fluctuations in exchange rates could result in a mismatch between liabilities and assets.
There can be no assurance that IKB AG will be able to protect itself from the adverse effects of future
fluctuations in market prices which could lead to a reduction in net income and adversely affect IKB AG's
financial condition.
IKB AG's business entails operational risks.
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems,
or from external events. IKB AG's business depends on the ability to process a large number of transactions
efficiently and accurately while complying with applicable laws and regulations where it operates.
Operational losses can result from, among other things, fraud or other criminal acts by employees or other
persons, cyber crime, failure of internal processes or systems, unauthorised transactions by employees and
operational errors, including clerical or record-keeping errors or errors resulting from faulty computer or
telecommunications systems and problems with the security of IKB AG's IT systems and with its data
inventory. If IKB AG fails to adapt to rapid technological changes its competitiveness could decline.
Although IKB AG maintains a system of controls designed to keep operational risk at appropriate levels,
there can be no assurance that IKB AG will not suffer losses from any failure of these controls to detect or
avoid operational risk in the future.
Legal risk as part of operational risk constitutes the risk of losses incurred by breaching general statutory
conditions or new statutory conditions or by not complying with changes to or interpretations of existing
statutory regulations (e.g. high court decisions) which are unfavourable for IKB AG. There is inherent risk
of liability due to actual or alleged violations of these conditions and regulations.
9

Cost-cutting and optimisation measures may not have the expected effect.
IKB AG is exposed to the risk that cost-cutting and optimisation measures may not be implemented properly
or may not have the expected effect on the financial situation of IKB AG. This could have an adverse effect
on the Issuer's financial strength and its possibility to make payments under the Notes.
IKB AG's business entails compliance risks.
As a German bank, IKB AG is subject, among other things, to the legal standards of the German Banking
Act (Kreditwesengesetz; "KWG"), the German Securities Trading Act (Wertpapierhandelsgesetz;
"WpHG"), the German Money Laundering Act (Geldwäschegesetz; "GwG") and the relevant circulars of
the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht; "BaFin") as
well as applicable EU regulations, which results in numerous obligations concerning but not limited to the
professional provision of investment services, the prevention of conflicts of interest, market manipulation
and insider trading as well as anti-money laundering, the combating of financing of terrorism, compliance
with applicable sanctions regimes, (insofar as these do not violate against section 7 of the German Foreign
Trade and Payments Ordinance), anti-bribery, anti-corruption and fraud prevention.
In view of the predominance of professional clients, a significant amount of confidential information is
received and exchanged within the lending and consulting business units respectively, which results in risks
of misuse of confidential information and/or breach of contractual and/or statutory obligations.
As a result of the annual risk inventory and the annual update of the risk analysis (Anti Financial Crime), the
business activities of IKB AG comprise possible risks regarding money laundering, terrorist financing,
fraud, bribery and corruption, as well as non-compliance with applicable sanctions regimes.
The occurrence of any of the risks set out above could have a material adverse effect on IKB AG's reputation
or results of operations.
Risk of defaults of other financial institutions or sovereign debtors
The Issuer is exposed to the risk of defaults of other financial institutions or sovereign debtors. Insolvencies
in the financial sector or the default of sovereign debtors could, due to the worldwide interdependency of the
financial market, have an adverse effect on the entire financial sector, including the Issuer and its ability to
make payments under the Notes.
Although KfW has agreed to indemnify IKB AG for certain claims in connection with Rhineland Funding,
Rhinebridge or the Havenrock entities (each a former off-balance sheet financing vehicle), under certain
circumstances, IKB AG's claims for such indemnification may be extinguished.
In an agreement dated 10/16 September 2008, KfW provided a degree of indemnification to IKB AG for
claims from legal disputes against IKB AG (including the relevant procedural costs) in connection with IKB
AG's former off-balance sheet financing vehicles (Rhineland Funding, Rhinebridge and the Havenrock
entities) for events which occurred before 29 October 2008. In this connection, IKB AG has had extensive
duties towards KfW in respect of information, disclosure, notification and action. Claims from IKB AG
shareholders or investors in financial instruments linked to the development of IKB AG shares are not
covered by the indemnification.
If IKB AG culpably violates a concrete obligation in the indemnification agreement in connection with a
concrete claim covered by the indemnification agreement, under certain circumstances, the indemnification
claim in relation to this specific claim may be extinguished. The indemnification claims of IKB AG are also
extinguished retroactively if the share sale and transfer agreement or the share transfer in rem between KfW
and LSF6 Europe Financial Holdings, L.P. ("LSF6") are or become null and void or one of the parties
exercises a right which results in the reversal of the performance rendered under the agreement.
Furthermore, the claims under the indemnification agreement are extinguished if, even taking into account
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