COMMERZBANK AKTIENGESELLSCHAFT

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Group Financial Statements 354 298 Commerzbank Annual Report 2011 (85) Market risk Market risk is the risk of financial losses due to changes in market prices (interest rates, commodities, credit spreads, exchange rates and equity prices) or in parameters that affect prices such as volatilities and correlations. The losses may impact profit or loss directly, e.g. in the case of trading book positions, or they may be reflected in the revaluation reserve or in hidden liabilities/reserves in the case of banking book positions. We also monitor market liquidity risk, which covers cases where it is not possible for the Bank to liquidate or hedge risky positions in a timely manner and to the desired extent on acceptable terms as a result of insufficient liquidity in the market. Market risk is managed by means of a sophisticated system of limits, combined with reliable and optimized methods for measuring and monitoring. Commerzbank uses economic capital (risk-taking capability) and business expectations to establish its market risk limits, which ensures a risk/reward-based management of market risk. The extent to which the limits are used, together with the relevant P&L figures, is reported daily to the Board of Managing Directors and the various heads of divisions. For the daily quantification and monitoring of market risk, especially that arising in proprietary trading, statistical methods are used to calculate the value at risk (VaR). The underlying statistical parameters for the regulatory capital adequacy requirements are based on an observation period of the past 254 trading days, a 10-day holding period and a confidence level of 99%. For internal market risk management the same observation period is used, with a 1-day holding period and a confidence level of 97.5%. The value at risk models are being constantly adapted to the changing environment. As a result of the takeover of Dresdner Bank and with the agreement of the German Federal Financial Supervisory Authority (BaFin) Commerzbank temporarily used two parallel market risk models which had both been approved by the supervisory authorities to determine its regulatory capital adequacy requirements in the first three quarters of 2011. For the positions of the old Commerzbank general market risk was calculated on the basis of an historical simulation, while specific interest rate risk (specific market risk) was calculated by means of a variance/covariance approach. For the positions of the former Dresdner Bank we used a VaR model based on historical data with a stochastic Gaussian normal distribution assumption. At the end of December 2011 the Federal Financial Supervisory Authority (BaFin) gave Commerzbank the authorisation to use the newly developed internal VaR model on the basis of an historical simulation to calculate both general market risk and specific interest rate risk. Commerzbank has been using this model since the fourth quarter of 2011 to calculate market risk and the capital adequacy requirements. The model includes methods and processes to calculate additional market risk indicators (Stressed VaR, Equity Event VaR and Incremental Risk Charge) to meet the Basel 2.5 regulatory requirements as of December 31, 2011. Commerzbank is now using the same market risk model based on an historical simulation for internal risk management and for calculating regulatory capital. This ensures that risk measurement is consistent across the whole Group and will meet the future requirements of Basel III. The reliability of the internal model in use at any time is regularly checked using backtesting methods. Apart from meeting supervisory requirements, the aim is to assess and steadily improve forecasting quality. The number of significant deviations is also used by the supervisory authorities as the basis for the evaluation of the internal risk models. The table below shows the group-wide regulatory market risk of the trading portfolio including the foreign exchange risks of the banking book, as used for calculating capital requirements. The value at risk shows the potential losses which will not be exceeded with a 99% degree of probability for a holding period of 10 days: Group €m 31.12.2011 31.12.2010 Minimum 119.3 165.2 Median 210.1 236.1 Maximum 323.2 320.8 Year-end figure 186.9 250.4
To our Shareholders Corporate Responsibility Management Report Risk Report Group Financial Statements Further Information 299 355 258 202 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 Because the value at risk concept forecasts potential losses under normal market conditions, Commerzbank also calculates stress tests to cover possible extreme scenarios. Stress tests are intended to simulate the impact of crises and extreme market conditions. Stress tests performed across portfolios simulate the impact of historical and conceivable future crisis scenarios on the Group (86) Interest rate risk The interest rate risk of the Commerzbank Group results from items in both the trading book and the banking book. In the latter, interest rate risk mainly arises through maturity mismatches between the Bank’s interest-bearing assets and liabilities - for instance, through the short-term funding of longdated loans. The interest rate items shown in the balance sheet as well as the derivatives employed to manage them are included in the measurement of interest rate risk. The interest rate risks at Group level are currently measured using a net present value approach. The impact of an interest rate shock on the economic value of the Group’s banking books is simulated monthly in compliance with regulatory requirements. In accordance with the Banking (87) Operational risk Operational risk (OpRisk) at Commerzbank is based on the German Solvency Regulation (SolvV) and is defined as the risk of loss resulting from the inadequacy or failure of internal processes and systems, people or from external events. This definition includes legal risks; it does not cover reputational risks or strategic risks. The Operational Risk Committee is kept regularly informed about the risk situation. It deals in particular with the management of operational risks within the Group. The aim is to optimise the expected loss from OpRisk from a cost-benefit perspective and to minimise the potential for unexpected loss. In so doing, the Operational Risk Committee takes an end-to-end view of the processes within the Bank with the aim of recognising risks in a timely manner. The Operational Risk Committee also deals with all issues relating to the as a whole. The overall picture is rounded off by monthly specific scenario analyses for each asset class (e.g. hypothetical interest rate, equity, foreign exchange and credit spread scenarios). Stress tests by division, adjusted to the risk factors of the individual portfolios, are also used. Directive, the Federal Financial Supervisory Authority (BaFin) has prescribed a uniform unexpected change in interest rates to be used by all banks, which have to report on the results of this stress test every quarter. BaFin amended the change in interest rates to be used to +200 basis points and –200 basis points at the end of 2011. The +200 basis point scenario produced a potential loss of €2,052m and the –200 basis point scenario a potential profit of €1,829m. These figures include the exposures of Commerzbank Aktiengesellschaft together with the subsidiaries Eurohypo Aktiengesellschaft and comdirect bank Aktiengesellschaft. The Bank was well below the defined threshold for a potential decline in equity (20% for “outlier” banks). implementation of AMA (the Advanced Management Approach) in the Group and arising from the Minimum Requirements for Risk Management (MaRisk) regulations with regard to operational risk. It is in particular responsible for the implementation of the guidelines under section 280 SolvV, which is the operational responsibility of Group Risk Control & Capital Management (GRM-CC). The Group’s operational risk profile, expressed in terms of the events incurred (losses and provisions) per event category under section 287 SolvV, shows that around 92% of the losses fall into the event category of product-related losses. GRM-CC conducts regular benchmarking of the values to data from the operational risk data exchange ORX and to public data; these confirm the high proportion of product-related losses on the market. 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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