COMMERZBANK AKTIENGESELLSCHAFT

262 Commerzbank Interim Report as of June 30, 2009
b) Indirect LAF exposure
Compared with the beginning of the year, the EaD of the
indirect LAF exposure was down by approximately €2.7bn
to €1.7bn at the end of June 2009. This is largely due to the
workout of transactions. The exposure was also reduced
through asset sales and limit reductions.
As a result of the downturn in the economic situation, the
quality of the mezzanine debt portfolios (around 35 % of the
total portfolio) has deteriorated, with defaults also occurring
within the portfolios themselves. This led to rating downgrades
for the junior tranches of two transactions (approx.
€37m) and to a covenant breach (overcollateralization covenant)
on one of them. Losses from this transaction cannot
be excluded. However, the senior debt portfolios (65 % of
the total portfolio) remained stable. Another increase in
MtM losses cannot be ruled out given the volatility of secondary
markets.
As the recession continues, we expect further defaults on
leveraged loans, particularly in the mezzanine portfolios.
The portfolio will be serviced by the Portfolio Restructuring
Unit as from July 1 and worked out there. We will take
advantage of any further stabilization in the markets to
rigorously reduce exposure while protecting earnings.
3) Financial Institutions
a) Financial Institutions (banks)
Financial markets stabilized in the first half of 2009. Both
state support measures and positive first-quarter results as
well as the stress tests conducted by the Federal Reserve for
US banks sent positive signals to the financial markets.
Financial stocks have regained some 40 % since March and
the iTraxx Index for 5-year bank CDSs narrowed to 110 bp
at the end of June after posting a high for the year of 207 bp
in early March. Overall, the banks have substantially
increased their regulatory capital, in particular by means of
capital increases, while risk assets were only reduced to a
moderate extent at the majority of banks. In the US the big
banks have taken the first steps towards repaying funds
from the Treasury’s Troubled Assets Relief Program
(TARP).
This development runs counter to the ongoing downswing
in the world economy, which will lead to an increase
in banks’ loan loss provisions in the second half-year as
well. The ECB continued to combat the lack of confidence in
the interbank markets with its first-ever 12-month refinanc-
ing operation, which injected €442bn of liquidity into the
eurozone money markets in June. With the approval of
its bad bank legislation, the German Government has also
created the prerequisites for further improving the banks’
risk situation and averting a credit crunch for German business.
We succeeded in significantly reducing the EaD of the
Financial Institutions (banks) portfolio from €152bn to
€125bn in the second quarter. The expected loss for the
portfolio remained virtually stable at €92m.
Breakdown by segment as at June 30, 2009
Exposure Expected
at Default Loss
in € bn in € m
Mittelstandsbank 20 64
Central and Eastern Europe 2 2
Corporates & Markets 78 22
Commercial Real Estate