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THE BANK FOR CORPORATES
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Glossary
Hedging. Procedure under which an existing risk item is neutralized by a countervailing transaction.
Held to maturity. Category of securities that are assigned to fixed assets and are held until they fall due.
IAS. International Accounting Standards: accounting rules in the development of which international associations of accountants
and experts cooperate under the leadership of the International Accounting Standards Committee. The purpose is comparable
worldwide accounting and publicity and the processing of relevant information for a broad public, in particular, investors. The rules
include not only general accounting principles but also, currently, 40 standards, and are becoming accepted as an EU-wide system for
financial statements.
Index-linked notes. Bonds, the interest on which is tied to a stock exchange index.
Interest-rate risk. Risk of a reduction in revenue or an increase in costs and a loss of value resulting from a change in interest rates.
Interest-rate swap. Agreement between two contracting partners to exchange interest payments in one and the same country or
currency over a particular period of time (not an exchange of capital).
Internal rating. Rating of a corporate by the bank, see also Rating.
Investment grade. AAA (S&P) / Aaa (Moody’s) to BBB- (S&P) / Baa3 (Moody’s) ratings. The default risk is low in this range.
Investments accounted for under the equity method. Significant but not controlled equity investments are recognized in the
consolidated balance sheet at the share of own funds. The share of profits or losses for the year is entered in the consolidated income
statement.
Liability concept. Under the balance-sheet-oriented liability method, deferred taxes are regarded as liabilities to or claims against
the tax authorities.
Macrohedge. Protection of a portfolio of financial instruments that as a rule contains several derivatives.
Market-to-market valuation. Valuation of financial instruments at current fair prices, independently of acquisition costs and
including unrealized price gains.
Market capitalization. Value of all shares as at year-end.
Market risk. Danger of a loss in value arising through unexpected changes in fair prices (interest, share prices, exchange rates, prices
of goods), before the items affected can be closed or protected.
MBI. Management Buy-In. Acquisition of a business by an external management with the support of a financing bank and usually of
a financing investor.
MBO. Management Buy-Out. Acquisition of a corporate by the management with the support of a financing bank and usually of a
financial investor.
Mergers and acquisitions (M&A). Combinations or purchases and sales of corporates.
Mezzanine financing. Chiefly, subordinated financing that takes on functions similar to equity capital. Mezzanine capital occupies
a position between equity and borrowing in the financing structure.
Microhedge. Protection of a financial instrument by a derivative.
Migration probability. The probability that an corporate’s rating will deteriorate, improve or remain stable over a year.
Minimum capital requirements. Banks must have equity capital backing for at least 8% of their risk-weighted assets.
Money market. A market for the short-term investment or borrowing of money, see also Capital market.
Net trading result. Balance of earnings and expenses from a bank’s own trading in securities, financial instruments (in particular,
derivatives), foreign currency and precious metals that are valued at fair prices (market-to-market valuation). This item also includes
that part of current interest, dividends and refinancing components that is to be attributed to trading activities.
New Basel Capital Accord. Comprehensive approach to the minimum capital requirements of banks, prepared by the Basel Committee
on Banking Supervision, first published as a consultation paper in 1999. The 600-page second version is divided into seven technical
documents, see also: Basel II.
Non-investment grade. BB+ (S&P) / Ba1 (Moody’s) to D ratings. Investments in this range (e.g. high-yield bonds or junk bonds) carry
a higher default risk.
Online banking. Transaction of banking business via electronic networks (Internet) also known as electronic banking.
Operational risk. The risk of direct or indirect losses resulting from the failure or inadequacy of internal procedures, human error,
system failure or external events.
Option. The right to purchase (purchase option/call) a particular item (for example, securities or currency) from a contracting party
or to sell such item to him (selling auction/put) at a previously agreed price, at a particular time and over a particular period of time.
OTC derivatives. Financial instruments (derivatives) that are not standardized and are not listed on a stock exchange but are traded
directly between market participants – over the counter.