UniCredit Bank AG

Financial Statements (2) | Consolidated Financial Statements
Accounting and Valuation (CONTINUED)
– Equity instruments for which there is no quoted market price in an active market and whose fair value cannot be reliably determined are measured at
amortised cost. Besides shares in unlisted companies, this primarily concerns investments in private equity funds, which we measure at cost. It is not
possible to reliably determine a fair value for these equity instruments since there is no active market in these instruments and, especially with regard
to investments in private equity funds, the Bank as shareholder with a small holding does not have enough influence to obtain the necessary data
promptly for a model-based determination of fair value. Consequently, they are not included in the AfS reserve.
The regulations set forth in IAS 39 regarding reclassifications have been observed. Purchases and sales of financial assets are normally recognised at the
trade date.
Determination of fair value
We can normally reliably determine the fair value of financial instruments measured at fair value. Fair value is the amount for which an asset could be
exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s-length transaction (other than in a forced or liquidation sale) at the
balance sheet date.
The fair value is determined in accordance with the following valuation hierarchy (IAS 39.48 et seq. in conjunction with IAS 39.AG 71 et seq.):
Listed prices on an active market are used as fair value:
– Prices on the closing date
– Prices shortly before the closing date to be adjusted to the extent that the economic data have changed materially since the date the price was determined
If there is no active market, the fair value is derived using valuation methods:
– The latest transactions between knowledgeable, willing parties in an arm’s-length transaction for an identical financial instrument are used
– The amount is compared with the current fair value of a different, essentially identical financial instrument
– Valuation models are used (such as discounting of expected cash flows, option price models or other valuation models normally used by market
players to value these financial instruments) as far as possible taking into account normal market valuation parameters
The own credit spread is also included in the underlying valuation parameters for liabilities held for sale. Suitable adjustments are taken on the fair values
determined in this way to reflect further factors affecting the fair value (such as the liquidity of the financial instrument or model risks when the fair value
is determined using a valuation model).
In addition to the method described above for the valuation or determination of fair values, the fair values in the hierarchy compliant with IFRS 7.27A are
shown in Note 75 for further information. A three-level fair-value hierarchy is listed for every class of financial asset and financial liability carried at fair
value in the balance sheet. Note 75 similarly contains a detailed description of this hierarchy, which is only used for the purpose of disclosure in the notes.
Financial guarantees
Under IAS 39, a financial guarantee contract is a contract that requires the issuer to reimburse the holder for a loss it incurs because a specific debtor
fails to make payment when due in accordance with the original or modified terms of a debt instrument.
Viewed overall, the fair value of a financial guarantee is zero when the contract is concluded because the value of the premium received will normally
match the value of the guarantee obligation in standard market contracts. The guarantee premium is recognised on a pro-rata basis. The need for an
allowance to be taken for losses on guarantees is checked during the subsequent measurement.
Credit derivatives, and most notably standardised credit default swaps (CDSs), are measured at fair value through profit or loss as they are considered
derivatives held for trading and not financial guarantees.
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102 2009 Annual Report · HypoVereinsbank