entire - Deutsche Bank Annual Report 2012

Deutsche Bank 01 – Management Report 30
Financial Report 2010 Operating and Financial Review
Mortgage Related Exposure: We have mortgage related exposures through a number of our businesses,
including our CDO trading and origination and U.S. and European mortgage businesses. The following table
presents the mortgage related exposure from the businesses described net of hedges and other protection
purchased. Hedges consist of a number of different market instruments, including protection provided by monoline
insurers, single name credit default swap contracts with market counterparties and index-based contracts.
Mortgage related exposure in our CDO trading
and origination, U.S. and European residential
mortgage businesses Dec 31, 2010 Dec 31, 2009
in € m.
Gross
exposure
Hedges
and other
protection
purchased Net exposure
Gross
exposure
Hedges
and other
protection
purchased Net exposure
Subprime 1 and Alt-A 2 CDO exposure in trading
and origination businesses:
CDO subprime exposure – Trading 420 75 345 688 371 317
CDO subprime exposure – Available for sale 34 – 34 34 – 34
CDO Alt-A exposure – Trading 56 49 7 77 55 22
Residential mortgage trading businesses:
Other U.S. residential mortgage business
exposure 3,4 3,428 3,153 275 4,315 3,201 1,114
European residential mortgage business
exposure 169 – 169 179 – 179
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
exposures as subprime if 50 % or more of the underlying collateral is home equity loans which are subprime.
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
for prime loans. These include lower FICO scores, higher loan-to-value ratios and higher percentages of loans with limited or no documentation.
3 Thereof € (267) million Alt-A, € 10 million Subprime, € 52 million Other and € 480 million Trading-related net positions as of December 31, 2010 and € 202 million Alt-A,
€ 71 million Subprime, € 244 million Other and € 597 million Trading-related net positions as of December 31, 2009.
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
to better reflect fair value of the instruments underlying the exposure. We have revised the exposure as of December 31, 2009, which results in a reduction in the net
exposure of € 187 million to € 1.1 billion. As of December 31, 2010, the exposure was also calculated on this basis and results in a reduction in the net exposure of
€ 320 million to € 275 million.
In the above table, net exposure represents our potential loss in the event of a 100 % default of securities and
associated hedges, assuming zero recovery. It is not an indication of net delta adjusted trading risk (the net delta
adjusted trading risk measure is used to ensure comparability between different exposures; for each position
the delta represents the change of the position in the related security which would have the same sensitivity to
a given change in the market).
The table above relates to key credit market positions exposed to fair value movements. It excludes assets
reclassified from trading or available for sale to loans and receivables in accordance with the amendments to
IAS 39 with a carrying value as of December 31, 2010 of € 1.8 billion (which includes European residential
mortgage exposure of € 1.0 billion, Other U.S. residential mortgage exposure of € 339 million, CDO subprime
exposure – Trading of € 402 million) and as of December 31, 2009 of € 1.9 billion (which includes European
residential mortgage exposure of € 1.1 billion, Other U.S. residential mortgage exposure of € 370 million, CDO
subprime exposure – Trading of € 432 million).