After reading the unqualified report of the external auditors, PricewaterhouseCoopers AG, Frankfurt am Main, the Executive Board of the Deutsche Bundesbank decided to publish the financial statements for the business year 2005 and transfer the distributable profit to the Federal Government on 21 March 2006. The distributable profit amounts to € 2.9 billion (compared with € 0.7 billion in 2004), the full amount of which was paid over to the Federal Government, pursuant to section 27 number 2 of the Bundesbank Act.

Explaining the reasons for the increase of approximately € 2.2 billion in the distributable profit, Professor Axel A Weber, President of the Bundesbank, said: “The increase in profit is due primarily to the larger net interest income and to the much-reduced need to make write-downs on financial assets and positions, which was mainly a result of the depreciation of the euro. We transferred the full amount of the distributable profit to the Federal Government today.“

At the same time, Professor Weber gave a positive interim account of the Bundesbank's internal reorganisation. “Our comprehensive structural reform is right on course,“ he said. “The reform is improving our cost-effectiveness and is strengthening the bank's focus on Europe. Our process of consolidation has now made considerable progress. Between the end of 2001 and the end of 2005 the number of branches and operating units was reduced by 49 to 78. At the end of 2007, 47 branches will still be in operation. The concentration of operational activities in 21 service centres has been completed. As a result of the reform, we are already saving € 90 million a year on material costs, and from 2008 we shall save € 190 million a year on staffing. On the basis of the defined parameters, the number of staff will decline to approximately 10,300 by 2010 compared with approximately 12,300 at the end of 2004 and approximately 15,650 at the end of 2001.“

With respect to pursuing the structural reform beyond 2007, the Bundesbank President said: “The downsizing of the bank will continue. The Executive Board is currently working on the strategic targets for the period between 2008 and 2012.“

Professor Weber also dealt with the recent public discussion on possible gold sales by the Bundesbank and declared: “Gold constitutes an essential component of the Bundesbank's reserve assets and meets its needs for security and portfolio diversification. The gold reserves serve to secure confidence in, and the stability of, the single currency. When the balance sheet was being drawn up at the turn of the year, the Executive Board decided not to sell any gold up to September, which marks the end of the second year of the current gold agreement. This does not affect the option on eight tonnes a year during the term of the agreement to be used in connection with the Federal Ministry of Finance's gold coin programme. The Executive Board decides every autumn whether and, if so, to what extent the gold sales option will be exercised. The decisions about the nature and extent of the reserve assets are taken by us autonomously. This also applies to all decisions concerning the sale or reinvestment of reserve assets or the restructuring of our balance sheet as a whole.“

In his explanatory comments on the annual accounts Dr Hans Georg Fabritius, a member of the Executive Board, said: "Interest income rose in 2005 by a total of € 1.1 billion to € 6.0 billion. Interest income in foreign currency contributed € 0.3 billion to this increase, and interest income from monetary policy operations € 0.7 billion. Our balance sheet total grew strongly in 2005, rising by € 51 billion to € 344 billion. The substantial increase in the volume of banknotes in circulation is worth noting. The volume of banknotes issued by us rose by € 29 billion, or 15%, to € 229 billion (2002: € 129 billion). This means that in terms of value 40% of all euro banknotes in circulation have been issued by the Bundesbank. The reasons for this monetary expansion are the replenishment of cash stocks, the larger cash holdings as a result of the low level of interest rates and the heavy demand for euro banknotes outside the euro area."

On developments in staffing costs Dr Fabritius said: “Our staff costs rose by € 35 million, or 3.7%, in 2005. The reason for this is that we had to increase the provision for staff restructuring schemes by € 0.2 billion to € 0.4 billion because more employees took advantage of early retirement options. This was mainly a result of the change in the tax treatment of severance payments. If the changes in the provisions are disregarded, however, it becomes clear that our cost reduction programme is right on track. The staffing costs of providing operational services were reduced by € 123 million in 2005, and this reduction will probably amount to € 190 million by 2008.“

Dr Fabritius also explained that the Bundesbank's structural reform was now paying off financially, too. "In 2006," he said, "the 'dividend' from the structural reform (reduction in the cost of providing operational services) will exceed the cost of the structural reform charged to the balance sheet for the first time. By the end of 2007 the cumulative net saving is expected to amount to anything up to half a billion euro.“

The most important source of the Bundesbank's profit was interest income of € 6.0 billion, € 4.8 billion of which was denominated in euro. This was partly offset by interest expenditure of € 2.2 billion, with the result that net interest income amounted to € 3.8 billion. Another important source of income was the net result of financial operations, write-downs and risk provisions amounting to € 0.3 billion.

Balance sheet items which are subject to market price fluctuations are valued at market prices. Valuation gains arising from this are not included in the profit and loss account but are shown, instead, under the balance sheet liability item “Revaluation accounts“. The valuation gains amounted to € 44.3 billion (gold € 39.8 billion, US dollars € 4.0 billion, other currencies € 0.2 billion and securities € 0.3 billion).

Further information is contained in the Annual Report 2005.