12 – 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, 2010

Dec 31, 2009

1

Includes traded loans of € 23,080 million and € 21,847 million at December 31, 2010 and 2009 respectively.

2

Includes € 8 billion of Postbank loans designated at fair value through the profit or loss.

Trading assets:

 

 

Trading securities

238,283

206,710

Other trading assets1

33,008

28,200

Total trading assets

271,291

234,910

Positive market values from derivative financial instruments

657,780

596,410

Financial assets designated at fair value through profit or loss:

 

 

Securities purchased under resale agreements

108,912

89,977

Securities borrowed

27,887

19,987

Loans

23,2542

12,964

Other financial assets designated at fair value through profit or loss

11,873

11,072

Total financial assets designated at fair value through profit or loss

171,926

134,000

Total financial assets at fair value through profit or loss

1,100,997

965,320

in € m.

Dec 31, 2010

Dec 31, 2009

1

These are investment contracts where the policy terms and conditions result in their redemption value equaling fair value. See Note 39 “Insurance and Investment Contracts”, for more detail on these contracts.

Trading liabilities:

 

 

Trading securities

65,183

62,402

Other trading liabilities

3,676

2,099

Total trading liabilities

68,859

64,501

Negative market values from derivative financial instruments

647,171

576,973

Financial liabilities designated at fair value through profit or loss:

 

 

Securities sold under repurchase agreements

107,999

52,795

Loan commitments

572

447

Long-term debt

15,280

15,395

Other financial liabilities designated at fair value through profit or loss

6,303

4,885

Total financial liabilities designated at fair value through profit or loss

130,154

73,522

Investment contract liabilities1

7,898

7,278

Total financial liabilities at fair value through profit or loss

854,082

722,274

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 € 160 billion and € 123 billion as of December 31, 2010, and 2009, 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 € 136.8 billion and € 110.0 billion at December 31, 2010 and December 31, 2009 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 € 23.3 billion and € 13.0 billion as of December 31, 2010 and 2009, 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 € 57.3 billion and € 50.9 billion as of December 31, 2010, and 2009, respectively. The notional value of credit derivatives used specifically to mitigate the exposure to credit risk on these drawn loans and undrawn irrevocable loan commitments designated at fair value was € 38.0 billion and € 34.7 billion as of December 31, 2010, and 2009, respectively.

The changes in fair value attributable to movements in counterparty credit risk for instruments held at the reporting date are detailed in the table below.

 

Dec 31, 2010

Dec 31, 20091

in € m.

Loans

Loan commitments

Loans

Loan commitments

1

Prior year amounts have been adjusted.

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

 

 

 

 

Cumulative change in the fair value

3

490

143

66

Annual change in the fair value in 2010/2009

394

938

1,703

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

 

 

 

 

Cumulative change in the fair value

(9)

(151)

(47)

(82)

Annual change in the fair value in 2010/2009

(27)

(230)

(1,250)

(1,470)

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, 2010

Dec 31, 2009

Cumulative change in the fair value

76

30

Annual change in the fair value in 2010/2009

43

(264)

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 € 23.7 billion and € 36.8 billion more than the carrying amount as of December 31, 2010 and 2009, 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 € 0.6 billion as of December 31, 2010, and 2009, respectively.

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