Part of the Consolidated Financial Statements as of 31 December 2009; audited by KPMG AG Wirtschaftsprüfungsgesellschaft.

[11] Financial Assets/Liabilities at Fair Value through Profit or Loss


The following are the components of financial assets and liabilities at fair value through profit or loss.

in € m.

Dec 31, 2009

Dec 31, 2008

1

Includes traded loans of € 21,847 million and € 31,421 million at December 31, 2009 and 2008 respectively.

Trading assets:

 

 

Trading securities

206,710

204,994

Other trading assets1

28,200

42,468

Total trading assets

234,910

247,462

Positive market values from derivative financial instruments

596,410

1,224,493

Financial assets designated at fair value through profit or loss:

 

 

Securities purchased under resale agreements

89,977

94,726

Securities borrowed

19,987

29,079

Loans

12,964

18,739

Other financial assets designated at fair value through profit or loss

11,072

9,312

Total financial assets designated at fair value through profit or loss

134,000

151,856

Total financial assets at fair value through profit or loss

965,320

1,623,811

in € m.

Dec 31, 2009

Dec 31, 2008

1

These are investment contracts where the policy terms and conditions result in their redemption value equaling fair value. See Note [39] for more detail on these contracts.

Trading liabilities:

 

 

Trading securities

62,402

56,967

Other trading liabilities

2,099

11,201

Total trading liabilities

64,501

68,168

Negative market values from derivative financial instruments

576,973

1,181,617

Financial liabilities designated at fair value through profit or loss:

 

 

Securities sold under repurchase agreements

52,795

52,633

Loan commitments

447

2,352

Long-term debt

15,395

18,439

Other financial liabilities designated at fair value through profit or loss

4,885

4,579

Total financial liabilities designated at fair value through profit or loss

73,522

78,003

Investment contract liabilities1

7,278

5,977

Total financial liabilities at fair value through profit or loss

722,274

1,333,765

Loans and Loan Commitments designated at Fair Value through Profit or Loss

The Group has designated various lending relationships at fair value through profit or loss. Lending facilities consist of drawn loan assets and undrawn irrevocable loan commitments. The maximum exposure to credit risk on a drawn loan is its fair value. The Group’s maximum exposure to credit risk on drawn loans, including securities purchased under resale agreements and securities borrowed, was € 123 billion and € 143 billion as of December 31, 2009, and 2008, respectively. Exposure to credit risk also exists for undrawn irrevocable loan commitments.

The credit risk on the securities purchased under resale agreements and securities borrowed designated under the fair value option was € 110.0 billion and € 123.8 billion at December 31, 2009 and December 31, 2008 respectively, this credit risk is mitigated by the holding of collateral. The valuation of these instruments takes into account the credit enhancement in the form of the collateral received. As such there is no material movement during the year or cumulatively due to movements in counterparty credit risk on these instruments. The credit risk on the loans designated under the fair value option of € 13.0 billion and € 18.7 billion as of December 31, 2009 and 2008, respectively, is mitigated in a number of ways. The majority of the drawn loan balance is mitigated through the purchase of credit default swaps, the remainder is mitigated by the holding of collateral.

The valuation of collateralized loans takes into account the credit enhancement received. Where the instruments are over-collateralized there is no material movement in valuation during the year or cumulatively due to movements in counterparty credit risk, rather the fair value movement of the instruments is due to market risk movements in the value of the collateral and interest rates.

Of the total drawn and undrawn lending facilities designated at fair value, the Group managed counterparty credit risk by purchasing credit default swap protection on facilities with a notional value of € 48.9 billion and € 50.5 billion as of December 31, 2009, and 2008, respectively. The notional value of credit derivatives used to mitigate the exposure to credit risk on drawn loans and undrawn irrevocable loan commitments designated at fair value was € 32.7 billion and € 36.5 billion as of December 31, 2009, and 2008, respectively.

The changes in fair value attributable to movements in counterparty credit risk are detailed in the table below.



 

Dec 31, 2009

Dec 31, 2008

in € m.

Loans

Loan  com-
mitments

Loans

Loan  com-
mitments

Changes in fair value of loans and loan commitments due to credit risk

 

 

 

 

Cumulative change in the fair value

28

(24)

(870)

(2,731)

Annual change in the fair value in 2009/2008

938

1,565

(815)

(2,558)

Changes in fair value of credit derivatives used to mitigate credit risk

 

 

 

 

Cumulative change in the fair value

(47)

(51)

844

2,674

Annual change in the fair value in 2009/2008

(1,250)

(1,355)

784

2,482

The change in fair value of the loans and loan commitments attributable to movements in the counterparty’s credit risk is determined as the amount of change in its fair value that is not attributable to changes in market conditions that give rise to market risk. For collateralized loans, including securities purchased under resale agreements and securities borrowed, the collateral received acts to mitigate the counterparty credit risk. The fair value movement due to counterparty credit risk on securities purchased under resale agreements was not material due to the credit enhancement received.

Financial Liabilities designated at Fair Value through Profit or Loss

The fair value of a financial liability incorporates the credit risk of that financial liability. The changes in fair value of financial liabilities designated at fair value through profit or loss in issue at the year-end attributable to movements in the Group’s credit risk are detailed in the table below. The changes in the fair value of financial liabilities designated at fair value through profit or loss issued by consolidated SPEs have been excluded as this is not related to the Group’s credit risk but to that of the legally isolated SPE, which is dependent on the collateral it holds.

in € m.

Dec 31, 2009

Dec 31, 2008

Cumulative change in the fair value

30

364

Annual change in the fair value in 2009/2008

(264)

349

The fair value of the debt issued takes into account the credit risk of the Group. Where the instrument is quoted in an active market, the movement in fair value due to credit risk is calculated as the amount of change in fair value that is not attributable to changes in market conditions that give rise to market risk. Where the instrument is not quoted in an active market, the fair value is calculated using a valuation technique that incorporates credit risk by discounting the contractual cash flows on the debt using a credit-adjusted yield curve which reflects the level at which the Group could issue similar instruments at the reporting date.

The credit risk on undrawn irrevocable loan commitments is predominantly counterparty credit risk. The change in fair value due to counterparty credit risk on undrawn irrevocable loan commitments has been disclosed with the counterparty credit risk on the drawn loans.

For all financial liabilities designated at fair value through profit or loss the amount that the Group would contractually be required to pay at maturity was € 36.8 billion and € 33.7 billion more than the carrying amount as of December 31, 2009 and 2008, respectively. The amount contractually required to pay at maturity assumes the liability is extinguished at the earliest contractual maturity that the Group can be required to repay. When the amount payable is not fixed, the amount the Group would contractually be required to pay is determined by reference to the conditions existing at the reporting date.

The majority of the difference between the fair value of financial liabilities designated at fair value through profit or loss and the contractual cash flows which will occur at maturity is attributable to undrawn loan commitments where the contractual cash flow at maturity assumes full drawdown of the facility. The difference between the fair value and the contractual amount repayable at maturity excluding the amount of undrawn loan commitments designated at fair value through profit or loss was € 0.6 billion and € 1.4 billion as of December 31, 2009, and 2008, respectively.

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