Special Purpose Entities and Off Balance Sheet Arrangements


We engage in various business activities with certain entities, referred to as special purpose entities (SPEs), which are designed to achieve a specific business purpose. The principal uses of SPEs are to provide clients with access to specific portfolios of assets and risk and to provide market liquidity for clients through securitizing financial assets. SPEs may be established as corporations, trusts or partnerships.

We may or may not consolidate SPEs that we have set up or sponsored or with which we have a contractual relationship. We will consolidate an SPE when we have the power to govern its financial and operating policies, generally accompanying a shareholding, either directly or indirectly, of more than half the voting rights. If the activities of the SPEs are narrowly defined or it is not evident who controls the financial and operating policies of the SPE we will consider other factors to determine whether we have the majority of the risks and rewards. We reassess our treatment of SPEs for consolidation when there is a change in the SPE’s arrangements or the substance of the relationship between us and an SPE changes. For further detail on our accounting policies regarding consolidation and reassessment of consolidation of SPEs please refer to Note 01 “Significant Accounting Policies” in our consolidated financial statements.

In limited situations we consolidate some SPEs for both financial reporting and German regulatory purposes. However, in all other cases we hold regulatory capital, as appropriate, against all SPE-related transactions and related exposures, such as derivative transactions and lending-related commitments and guarantees.

The following sections provide details about the assets (after consolidation eliminations) in our consolidated SPEs and our maximum unfunded exposure remaining to certain non-consolidated SPEs.

Total Assets in Consolidated SPEs

Dec 31, 2012

Asset type

in € m.

Financial assets at fair value through profit or loss1

Financial assets available for sale

Loans

Cash and cash equivalents

Other assets

Total assets

1

Fair value of derivative positions is € 218 million.

Category:

 

 

 

 

 

 

Group sponsored ABCP conduits

79

8,433

12

16

8,540

Group sponsored securitizations

1,889

344

1,100

4

70

3,407

Third party sponsored securitizations

485

469

13

132

1,099

Repackaging and investment products

4,287

1,038

84

348

257

6,014

Mutual funds

4,115

493

8

4,616

Structured transactions

357

104

1,151

44

182

1,838

Operating entities

2,638

4,070

3,023

55

3,239

13,025

Other

215

333

499

31

343

1,421

Total

13,986

5,968

14,759

1,000

4,247

39,960

Dec 31, 2011

Asset type

in € m.

Financial assets at fair value through profit or loss1

Financial assets available for sale

Loans

Cash and cash equivalents

Other assets

Total assets

1

Fair value of derivative positions is € 580 million.

Category:

 

 

 

 

 

 

Group sponsored ABCP conduits

39

10,998

1

33

11,071

Group sponsored securitizations

2,044

191

1,169

3

48

3,455

Third party sponsored securitizations

493

14

156

663

Repackaging and investment products

5,032

971

207

606

409

7,225

Mutual funds

3,973

1,934

566

6,473

Structured transactions

2,425

43

3,748

22

334

6,572

Operating entities

2,116

3,879

3,228

102

3,439

12,764

Other

114

239

329

84

548

1,314

Total

15,704

5,362

20,172

2,766

5,533

49,537

Group Sponsored ABCP Conduits

The Group sets up, sponsors and administers asset-backed commercial paper (ABCP) programs. These programs provide our customers with access to liquidity in the commercial paper market and create investment products for our clients. As an administrative agent for the commercial paper programs, we facilitate the purchase of non-Deutsche Bank Group loans, securities and other receivables by the commercial paper conduit (conduit), which then issues to the market high-grade, short-term commercial paper, collateralized by the underlying assets, to fund the purchase. The conduits require sufficient collateral, credit enhancements and liquidity support to maintain an investment grade rating for the commercial paper. We are the liquidity provider to these conduits and therefore exposed to changes in the carrying value of their assets. We consolidate the majority of our sponsored conduit programs because we have the controlling interest.

Our liquidity exposure to these conduits is to the entire commercial paper issued of € 9.3 billion and € 11.6 billion as of December 31, 2012 and December 31, 2011, of which we held € 393 million and € 2.5 billion, respectively.

The collateral in the conduits includes a range of asset-backed loans and securities, including aircraft leasing, student loans, trust preferred securities and residential- and commercial-mortgage-backed securities. The collateral in the conduits has decreased due to the repayment of certain transactions and the sale of loans to other entities within the Group.

Group Sponsored Securitizations

We sponsor SPEs for which we originate or purchase assets. These assets are predominantly commercial and residential whole loans or mortgage-backed securities. The SPEs fund these purchases by issuing multiple tranches of securities, the repayment of which is linked to the performance of the assets in the SPE. When we retain a subordinated interest in the assets that have been securitized, an assessment of the relevant factors is performed and, if SPEs are controlled by us, they are consolidated. The fair value of our retained exposure in these securitizations as of December 31, 2012 and December 31, 2011 was € 3.4 billion and € 3.1 billion, respectively.

Third Party Sponsored Securitizations

In connection with our securities trading and underwriting activities, we acquire securities issued by third party securitization vehicles that purchase diversified pools of commercial and residential whole loans or mortgage-backed securities. The vehicles fund these purchases by issuing multiple tranches of securities, the repayment of which is linked to the performance of the assets in the vehicles. When we hold a subordinated interest in the SPE, an assessment of the relevant factors is performed and if SPEs are controlled by us, they are consolidated. The increase in the total assets of these SPEs is mainly due to the consolidation of certain Collateralized Mortgage Obligations in the period. As of December 31, 2012 and December 31, 2011 the fair value of our retained exposure in these securitizations was € 1.0 billion and € 0.6 billion, respectively.

Repackaging and Investment Products

Repackaging is a similar concept to securitization. The primary difference is that the components of the repackaging SPE are generally securities and derivatives, rather than non-security financial assets, which are then “repackaged” into a different product to meet specific individual investor needs. We consolidate these SPEs when we have the majority of risks and rewards inherent in the repackaging entity. Risks and rewards inherent in the repackaging entity may include price movements of the underlying asset for equity, credit, interest rate and other risks and the potential variability arising from those risks. Our consolidation assessment considers the exposures that both Deutsche Bank and the investor(s) have in relation to the repackaging entity via derivatives and other instruments. Investment products offer clients the ability to become exposed to specific portfolios of assets and risks through purchasing our structured notes. We hedge this exposure by purchasing interests in SPEs that match the return specified in the notes. The decrease in total assets of € 1.2 billion is mainly driven by the repayment of certain facilities in the period. In addition to the assets of consolidated repackaging vehicles shown in the table the nominal value of the total assets in non-consolidated repackaging vehicles was € 33 billion and € 35 billion as December 31, 2012 and December 31, 2011 respectively.

Mutual Funds

We offer clients mutual fund and mutual fund-related products which pay returns linked to the performance of the assets held in the funds. We provide a guarantee feature to certain funds in which we guarantee certain levels of the net asset value to be returned to investors at certain dates. The risk for us as guarantor is that we have to compensate the investors if the market values of such products at their respective guarantee dates are lower than the guaranteed levels. For our investment management service in relation to such products, we earn management fees and, on occasion, performance-based fees. We are not contractually obliged to support these funds and have not done so during 2012. During 2012 the amount of assets held in consolidated funds decreased by € 1.9 billion. This movement was predominantly due to client money outflows during the period.

Structured Transactions

We enter into certain structures which offer clients funding opportunities at favorable rates. The funding is predominantly provided on a collateralized basis. These structures are individually tailored to the needs of our clients. We consolidate these SPEs when we hold the controlling interest or we have the majority of the risks and rewards through a residual interest holding and/or a related liquidity facility. The composition of the SPEs that we consolidate is influenced by the execution of new transactions and the maturing, restructuring and exercise of early termination options with respect to existing transactions. The total assets decreased by € 4.7 billion during 2012 due to the unwinding of certain trades.

Operating Entities

We establish SPEs to conduct some of our operating business when we benefit from the use of an SPE. These include direct holdings in certain proprietary investments and the issuance of credit default swaps where our exposure has been limited to our investment in the SPE. We consolidate these entities when we hold the controlling interest or are exposed to the majority of risks and rewards of the SPE.