COMMERZBANK AKTIENGESELLSCHAFT

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Group Financial Statements 276 220 Commerzbank Annual Report 2011 Such a separation must be made if the following three conditions are met: • the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract; • a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative under IAS 39; and • the hybrid (combined) contract is not measured at fair value through profit or loss. In this case, the separately shown embedded derivative is regarded as part of the trading portfolio and recognised at fair value. Changes on remeasurement are recognised in profit or loss under net trading income. The host contract is accounted for and measured applying the rules of the category to which the financial instrument is assigned. If the above three conditions are not met, the embedded derivative is not shown separately and the hybrid financial instrument or structured product is measured as a whole in accordance with the general provisions of the category to which the financial instrument is assigned. f) Hedge accounting IAS 39 contains extensive hedge accounting regulations which apply if it can be shown that the hedging instruments – especially derivatives – are employed to hedge risks in the underlying non-trading transactions. Two main types of hedge accounting are used: • Fair value hedge accounting: IAS 39 prescribes the use of hedge accounting for derivatives which serve to hedge the fair value of assets or liabilities against one or more defined risks. It is above all the Group’s issuing and lending business and its securities holdings for liquidity management, where these consist of fixed-income securities, that are subject to interest rate risk. Interest rate swaps are primarily used to hedge these risks. In line with the regulations for fair value hedge accounting, the derivative financial instruments used for hedging purposes are recognised at fair value as fair values of derivative hedging instruments. Any changes in the fair value of the hedged asset or hedged liability resulting from an opposite move in the hedged risk are also recognised in profit or loss under net income from hedge accounting. Any portion of the changes in fair value that are not attributable to the hedged risk are accounted for in accordance with the rules of the valuation category to which the hedged asset or liability belongs. For interest rate risks fair value hedge accounting can take the form of either a micro fair value hedge or a portfolio fair value hedge. – In micro fair value hedge accounting an underlying transaction is linked with one or more hedging transactions in a hedging relationship. The carrying amounts of the hedged transactions are adjusted through profit or loss in the event of changes in fair value attributable to the hedged risk. – In a portfolio fair value hedge interest rate risks are hedged at the portfolio level. It is not individual transactions or groups of transactions with a similar risk structure that are hedged, but instead a portfolio of underlying transactions is created grouped by maturity bands in accordance with the expected repayment and interest adjustment dates. Portfolios may contain only assets, only liabilities, or a mixture of both. In this type of hedge accounting, changes in the fair value of the underlying transactions are reported in the balance sheet as a separate asset or liability item. The hedged amount of the underlying transactions is computed in the consolidated financial statements excluding demand or savings deposits (we have thus elected not to use the EU carve-out regulations). • Cash Flow Hedge Accounting: IAS 39 prescribes the use of cash flow hedge accounting for derivatives which serve to hedge the risk of a change in future cash flows. Derivatives used in cash flow hedge accounting are measured at fair value. The effective portion of gains and losses are recognised net of deferred taxes in the cash flow hedge reserve under equity. The ineffective portion, on the other hand, is reported in profit or loss in net income from hedge accounting. The general accounting rules set out above for the underlying transactions of the hedged cash flows remain unchanged by this.
To our Shareholders Corporate Responsibility Management Report Risk Report Group Financial Statements Further Information 221 277 258 202 Statement of comprehensive income 260 204 Balance sheet 262 206 Statement of changes in equity 264 208 Cash flow statement 266 210 Notes 409 353 Auditors’ report The application of hedge accounting rules is tied to a number of conditions. These relate above all to the documentation of the hedging relationship and also to its effectiveness. The hedge must be documented at inception. Documentation must include in particular the identification of the hedging instrument, the related hedged item or transaction, the nature of the risk being hedged and how effectiveness of the hedge is assessed. In addition to documentation, IAS 39 requires the effectiveness of a hedge to be demonstrated during the entire term of the hedge in order for hedge accounting rules to be applied. Effectiveness in this context means the relationship between the change in fair value or cash flow of the hedged item and the change in fair value or cash flow of the hedging instrument. If these changes offset each other almost fully, a high degree of effectiveness exists. Proof of effectiveness requires, firstly, that a high degree of effectiveness can be expected from a hedge in the future (prospective effectiveness); secondly, when a hedge exists, it must be regularly demonstrated that it was highly effective during the period under review (retrospective effectiveness). Both the retrospective and prospective effectiveness must be within a range of between 0.8 and 1.25. Commerzbank uses regression analysis to assess effectiveness in micro fair value hedge accounting. The changes in fair value of the hedged transaction and the hedging instrument are determined by means of historical simulations for the prospective effectiveness test, while the actual changes in fair value are used for the retrospective effectiveness test. Regression analysis is also used for the prospective effectiveness test in portfolio fair value hedge accounting, while the dollaroffset method is used for the retrospective effectiveness test. (6) Currency translation Monetary assets and liabilities denominated in foreign currencies and pending spot foreign exchange transactions are translated at the spot mid rate, and foreign exchange forward contracts at the forward rate, on the balance sheet date. Realised income and expenses are normally translated using the spot rate applying on the date of realisation. Average prices may also be used to translate income and expenses, provided these prices are representative, i.e. the price has not undergone major fluctuations. Hedged expenses and income are translated using the hedge rate. Expenses and income resulting from the translation of balance sheet items are recognised in profit or loss under net trading income. Non-monetary items such as equity holdings are generally translated at historic exchange rates, if they are measured at amortised cost. The hedging instruments are measured at fair value. Gains and losses on the translation of non-monetary items are recognised either in equity or profit or loss depending on the way the net gain or loss is recognised. Income and expenses in the financial statements of consolidated subsidiaries and companies accounted for using the equity method are translated at the exchange rate prevailing on the transaction date. For simplification purposes a price can be used for translation which represents an approximation of the exchange rate on the transaction date, for example the average price of a period. All differences arising on translation are recognised as a separate component of equity in the currency translation reserve. Translation gains and losses from the consolidation of the capital accounts are also recognised in equity under the currency translation reserve. On the date such assets are sold, the translation gains or losses are recognised in profit or loss under net investment income. Group Financial Statements
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Fourth Supplement dated April 13, 2
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Financial Statements and Management
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Corporate Responsibility One bank.
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Environment As a financial services
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In a joint initiative by the overal
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Performance-related remuneration Th
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The members of the Board of Managin
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The monthly amount of the retiremen
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tion for the remainder of his term
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Loans to members of the Board of Ma
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Other details D&O liability insuran
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Details pursuant to Art. 289 of the
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up to five years effective from the
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The Supervisory Board oversees fina
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• Statements on presentation in t
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Since summer 2011, the environment
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At the beginning of December, Comme
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The changes in the individual earni
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As with the change in other assets
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Report on events after the reportin
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We assume that Germany will fare be
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the resulting impact on financial i
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The Asset Based Finance segment was
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Risk report Risk reporting takes pl
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Risk strategy and risk management T
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Macroeconomic stress tests are also
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Overview of management instruments
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The “reduction” area comprises
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Corporates & Markets This segment c
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Public Finance Commerzbank’s Asse
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Portfolio by region as at 31.12.201
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and Europe (CLOs). The exposure in
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In 2011, provisions in Central & Ea
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of the overdraft starts on the firs
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The year 2011 was mainly affected b
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The adjoining diagram documents the
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Available net liquidity in the comb
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OpRisk events by segment | €m 201
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Reputational risk Reputational risk
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Provisions for pensions are calcula
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Notes to the income statement (5) B
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(12) Securities At December 31, 201
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(16) Fiduciary transactions Financi
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(23) Other liabilities Financial St
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(27) Equity Financial Statements an
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c) Retained earnings € Financial
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(30) Non-distributable amounts Fina
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Other notes (33) Off-balance-sheet
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(34) Forward transactions Financial
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(36) Remuneration and loans to boar
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€1,000 LTP Number of participatin
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Name Registered office Share of cap
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) Associated companies Name Registe
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Foreign-exchange rates for €1 as
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Members of the Supervisory Board of
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(41) Boards of Commerzbank Aktienge
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Independent Auditor’s Report 1 To
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Significant subsidiaries and associ
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Annual Report 2011 of the Commerzba
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To our Shareholders Corporate Respo
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Group Risk Report In the Group Risk
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Recent developments Optimisation of
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COMMERZBANK AKTIENGESELLSCHAFT Fran
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Jahresabschluss und Lagebericht 201
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COMMERZBANK AKTIENGESELLSCHAFT

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