SEC Form 20-F - Deutsche Bank Annual Report 2012
SEC Form 20-F - Deutsche Bank Annual Report 2012
SEC Form 20-F - Deutsche Bank Annual Report 2012
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<strong>Deutsche</strong> <strong>Bank</strong><br />
<strong>Annual</strong> <strong>Report</strong> <strong>20</strong>10 on <strong>Form</strong> <strong>20</strong>-F<br />
Update on Key Credit Market Exposures<br />
Item 5: Operating and Financial Review and Prospects 80<br />
The following is an update on the development of certain credit positions (including protection purchased from<br />
monoline insurers) of those CB&S businesses on which we have previously provided additional risk disclosures.<br />
These positions were those that significantly impacted the performance of CB&S during the recent financial<br />
crisis. In addition to these CB&S positions, we have also provided information about positions acquired from<br />
Postbank where relevant.<br />
Mortgage Related Exposure: We have mortgage related exposures through a number of our businesses,<br />
including our CDO trading and origination and U.S. and European mortgage businesses. The following table<br />
presents the mortgage related exposure from the businesses described net of hedges and other protection<br />
purchased. Hedges consist of a number of different market instruments, including protection provided by monoline<br />
insurers, single name credit default swap contracts with market counterparties and index-based contracts.<br />
Mortgage related exposure in our CDO trading<br />
and origination, U.S. and European residential<br />
mortgage businesses Dec 31, <strong>20</strong>10 Dec 31, <strong>20</strong>09<br />
in € m.<br />
Gross<br />
exposure<br />
Hedges<br />
and other<br />
protection<br />
purchased Net exposure<br />
Gross<br />
exposure<br />
Hedges<br />
and other<br />
protection<br />
purchased Net exposure<br />
Subprime 1 and Alt-A 2 CDO exposure in trading<br />
and origination businesses:<br />
CDO subprime exposure – Trading 4<strong>20</strong> 75 345 688 371 317<br />
CDO subprime exposure – Available for sale 34 – 34 34 – 34<br />
CDO Alt-A exposure – Trading 56 49 7 77 55 22<br />
Residential mortgage trading businesses:<br />
Other U.S. residential mortgage business<br />
exposure 3,4 3,428 3,153 275 4,315 3,<strong>20</strong>1 1,114<br />
European residential mortgage business<br />
exposure 169 – 169 179 – 179<br />
1 In determining subprime, we apply industry standard criteria including FICO (credit quality) scores and loan-to-value ratios. In limited circumstances, we also classify<br />
exposures as subprime if 50 % or more of the underlying collateral is home equity loans which are subprime.<br />
2 Alt-A loans are loans made to borrowers with generally good credit, but with non-conforming underwriting ratios or other characteristics that fail to meet the standards<br />
for prime loans. These include lower FICO scores, higher loan-to-value ratios and higher percentages of loans with limited or no documentation.<br />
3 Thereof € (267) million Alt-A, € 10 million Subprime, € 52 million Other and € 480 million Trading-related net positions as of December 31, <strong>20</strong>10 and € <strong>20</strong>2 million Alt-A,<br />
€ 71 million Subprime, € 244 million Other and € 597 million Trading-related net positions as of December 31, <strong>20</strong>09.<br />
4 The reserves included in the ‘Other U.S residential mortgage business’ disclosure have been revised to factor in an updated calculation of credit risk and is intended<br />
to better reflect fair value of the instruments underlying the exposure. We have revised the exposure as of December 31, <strong>20</strong>09, which results in a reduction in the net<br />
exposure of € 187 million to € 1.1 billion. As of December 31, <strong>20</strong>10, the exposure was also calculated on this basis and results in a reduction in the net exposure of<br />
€ 3<strong>20</strong> million to € 275 million.<br />
In the above table, net exposure represents our potential loss in the event of a 100 % default of securities and<br />
associated hedges, assuming zero recovery. It is not an indication of net delta adjusted trading risk (the net<br />
delta adjusted trading risk measure is used to ensure comparability between different exposures; for each<br />
position the delta represents the change of the position in the related security which would have the same<br />
sensitivity to a given change in the market).<br />
The table above relates to key credit market positions exposed to fair value movements. It excludes assets<br />
reclassified from trading or available for sale to loans and receivables in accordance with the amendments to<br />
IAS 39 with a carrying value as of December 31, <strong>20</strong>10 of € 1.8 billion (which includes European residential<br />
mortgage exposure of € 1.0 billion, Other U.S. residential mortgage exposure of € 339 million, CDO subprime<br />
exposure – Trading of € 402 million) and as of December 31, <strong>20</strong>09 of € 1.9 billion (which includes European<br />
residential mortgage exposure of € 1.1 billion, Other U.S. residential mortgage exposure of € 370 million, CDO<br />
subprime exposure – Trading of € 432 million).
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