SEC Form 20-F - Deutsche Bank Annual Report 2012

Deutsche Bank
Annual Report 2010 on Form 20-F
Item 5: Operating and Financial Review and Prospects 81
In addition to these CB&S positions, Postbank has exposure to European commercial mortgage-backed securities
of € 192 million as well as residential mortgage-backed securities of € 428 million (which includes € 398 million in
Europe, € 27 million in U.S). In addition, Postbank has exposure to non-corporate CDOs of € 69 million where the
underlying assets include both commercial mortgage-backed securities and residential mortgage-backed securities.
These positions are mainly classified as loans and receivables and available for sale.
The table also excludes both agency mortgage-backed securities and agency eligible loans, which we do not
consider to be credit sensitive products, and interest-only and inverse interest-only positions which are negatively
correlated to deteriorating markets due to the effect on the position of the reduced rate of mortgage prepayments.
The slower prepayment rate extends the average life of these interest-only products which in turn
leads to a higher value due to the longer expected interest stream.
The various gross components of the overall net exposure shown above represent different vintages, locations,
credit ratings and other market-sensitive factors. Therefore, while the overall numbers above provide a view of
the absolute levels of our exposure to an extreme market movement, actual future profits and losses will depend
on actual market movements, basis movements between different components of our positions, and our ability
to adjust hedges in these circumstances.
Ocala Funding LLC: We own 71.4 % of the commercial paper issued by Ocala Funding LLC (Ocala), a commercial
paper vehicle sponsored by Taylor Bean & Whitaker Mortgage Corp. (TBW), which ceased mortgage
lending operations and filed for bankruptcy protection in August 2009. We classify the commercial paper as a
trading asset and measure it at fair value through profit or loss. As of December 31, 2010, the total notional
value of the commercial paper issued by Ocala which was held by the Group was € 904 million. As a result of
TBW filing for bankruptcy and based on information available at the time, we recognized a fair value loss of
approximately € 350 million for 2009 related to the Ocala commercial paper. On July 1, 2010, additional information
about the collateral held by Ocala was included in an Asset Reconciliation Report filed with the bankruptcy
court with respect to the TBW estate. Based on this new information and certain management assumptions
related to the eligibility of claims raised against the bankruptcy administrators, we recognized an additional fair
value loss in the second quarter 2010 of approximately € 270 million. In the third quarter 2010, we recorded a
further fair value charge of approximately € 90 million resulting in a fair value loss adjustment for 2010 of approximately
€ 360 million.
Exposure to Monoline Insurers: The deterioration of the U.S. subprime mortgage and related markets has
generated large exposures to financial guarantors, such as monoline insurers, that have insured or guaranteed
the value of pools of collateral referenced by CDOs and other market-traded securities. Actual claims against
monoline insurers will only become due if actual defaults occur in the underlying assets (or collateral). There is
ongoing uncertainty as to whether some monoline insurers will be able to meet all their liabilities to banks and
other buyers of protection. Under certain conditions (e.g., liquidation) we can accelerate claims regardless of
actual losses on the underlying assets.
The following tables summarize the fair value of our counterparty exposures to monoline insurers with respect
to U.S. residential mortgage-related activity and other activities, respectively, in each case on the basis of the
fair value of the assets compared with the notional value guaranteed or underwritten by monoline insurers. The
other exposures described in the second table arise from a range of client and trading activity, including collateralized
loan obligations, commercial mortgage-backed securities, trust preferred securities, student loans and
public sector or municipal debt. The tables show the associated credit valuation adjustments (“CVA”) that we