Credit Exposure from Derivatives


Exchange-traded derivative transactions (e.g., futures and options) are regularly settled through a central counterparty, the rules and regulations of which provide for daily margining of all current and future credit risk positions emerging out of such transactions. To the extent possible, we also use central counterparty clearing services for OTC derivative transactions (“OTC clearing”); we thereby benefit from the credit risk mitigation achieved through the central counterparty’s settlement system.

Both the Dodd-Frank Wall Street Reform and Consumer Protection Act (“DFA”) and the European Regulation (EU) No 548/2012 on OTC Derivatives, Central Counterparties and Trade Repositories (“EMIR”) will introduce mandatory OTC Clearing for standardized OTC derivative transactions as well as margin requirements for uncleared OTC derivative transaction. The implementation of DFA and EMIR will further increase our use of credit risk mitigation.

The notional amount of OTC derivatives settled through central counterparties amounted to € 10.0 trillion as of December 31, 2012, and to € 10.8 trillion as of December 31, 2011.

Notional amounts and gross market values of derivative transactions

Dec 31, 2012

Notional amount maturity distribution

 

 

 

in € m.

Within 1 year

> 1 and ≤ 5 years

After 5 years

Total

Positive market value

Negative market value

Net market value

Interest rate related:

 

 

 

 

 

 

 

OTC

15,419,788

15,366,636

10,478,308

41,264,732

584,620

554,944

29,676

Exchange-traded

2,899,159

1,169,563

4,114

4,072,836

153

144

9

Total Interest rate related

18,318,947

16,536,199

10,482,422

45,337,568

584,773

555,088

29,685

Currency related:

 

 

 

 

 

 

 

OTC

4,290,214

1,188,952

428,949

5,908,115

94,639

101,738

(7,099)

Exchange-traded

19,381

470

19,851

8

7

1

Total Currency related

4,309,595

1,189,422

428,949

5,927,966

94,647

101,745

(7,098)

Equity/index related:

 

 

 

 

 

 

 

OTC

329,531

261,697

79,088

670,316

22,415

29,027

(6,612)

Exchange-traded

417,334

114,654

3,653

535,641

7,476

6,201

1,275

Total Equity/index related

746,865

376,351

82,741

1,205,957

29,891

35,228

(5,337)

Credit derivatives

499,717

1,914,989

207,623

2,622,329

49,733

46,648

3,085

Commodity related:

 

 

 

 

 

 

 

OTC

45,284

56,194

5,417

106,895

10,121

10,644

(523)

Exchange-traded

194,470

107,099

1,659

303,228

4,617

4,173

444

Total Commodity related

239,754

163,293

7,076

410,123

14,738

14,817

(79)

Other:

 

 

 

 

 

 

 

OTC

62,890

23,991

399

87,280

2,887

2,818

69

Exchange-traded

12,533

1,278

5

13,816

18

36

(18)

Total Other

75,423

25,269

404

101,096

2,905

2,854

51

Total OTC business

20,647,424

18,812,459

11,199,784

50,659,667

764,415

745,819

18,596

Total exchange-traded business

3,542,877

1,393,064

9,431

4,945,372

12,272

10,561

1,711

Total

24,190,301

20,205,523

11,209,215

55,605,039

776,687

756,380

20,307

Positive market values after netting and cash collateral received

70,054

Dec 31, 2011

Notional amount maturity distribution

 

 

 

in € m.

Within 1 year

> 1 and ≤ 5 years

After 5 years

Total

Positive market value

Negative market value

Net market value

Interest rate related:

 

 

 

 

 

 

 

OTC

17,946,681

17,288,349

12,014,092

47,249,122

595,127

574,791

20,336

Exchange-traded

635,771

179,024

6,282

821,077

101

50

51

Total Interest rate related

18,582,452

17,467,373

12,020,374

48,070,199

595,228

574,841

20,387

Currency related:

 

 

 

 

 

 

 

OTC

4,357,876

1,201,265

415,234

5,974,375

112,784

116,134

(3,350)

Exchange-traded

7,521

663

7

8,191

140

24

116

Total Currency related

4,365,397

1,201,928

415,241

5,982,566

112,924

116,158

(3,234)

Equity/index related:

 

 

 

 

 

 

 

OTC

294,563

334,739

88,739

718,041

29,682

35,686

(6,004)

Exchange-traded

206,953

71,092

2,310

280,355

5,764

2,000

3,764

Total Equity/index related

501,516

405,831

91,049

998,396

35,446

37,686

(2,240)

Credit derivatives

673,814

2,473,620

537,723

3,685,157

101,115

92,988

8,127

Commodity related:

 

 

 

 

 

 

 

OTC

84,681

112,629

4,687

201,997

13,949

14,077

(128)

Exchange-traded

72,321

42,353

673

115,347

2,718

2,636

82

Total Commodity related

157,002

154,982

5,360

317,344

16,667

16,713

(46)

Other:

 

 

 

 

 

 

 

OTC

77,574

38,746

2,956

119,276

5,516

4,895

621

Exchange-traded

19,704

2,781

22

22,507

247

324

(77)

Total Other

97,278

41,527

2,978

141,783

5,763

5,219

544

Total OTC business

23,435,189

21,449,348

13,063,431

57,947,968

858,173

838,571

19,602

Total exchange-traded business

942,270

295,913

9,294

1,247,477

8,970

5,033

3,937

Total

24,377,459

21,745,261

13,072,725

59,195,445

867,143

843,604

23,539

Positive market values after netting and cash collateral received

84,272

The following two tables present specific disclosures in relation to Pillar 3. Per regulation it is not required to audit Pillar 3 disclosures.

Positive market values or replacement costs of derivative transactions (unaudited)

 

Dec 31, 2012

Dec 31, 2011

in € m.1

Positive market values before netting and collateral agreements

Netting agreements

Eligible collateral2

Positive market values after netting and collateral agreements

Positive market values before netting and collateral agreements

Netting agreements

Eligible collateral

Positive market values after netting and collateral agreements

1

Excludes for derivatives reported as other assets for December 31, 2012, and December 31, 2011, respectively, € 8.4 billion (€ 7.6 billion) positive market values before netting and collateral or € 791 million (€ 612 million) positive market values after netting and collateral.

2

Includes € 66.5 billion cash collateral and € 9 billion non-cash collateral as of December 31, 2012, and € 61.1 billion cash collateral and € 10.7 billion non-cash collateral as of December 31, 2011.

Interest rate related

578,128

490,905

61,838

25,384

587,718

502,390

51,645

33,683

Currency related

93,797

71,525

8,091

14,181

112,924

86,403

9,477

17,044

Equity/index related

29,621

19,209

2,061

8,352

35,412

23,368

3,344

8,700

Credit derivatives

49,285

39,677

2,459

7,149

101,113

84,747

6,002

10,364

Commodity related

14,701

8,231

649

5,821

16,648

12,602

809

3,236

Other

2,783

2,244

392

147

5,768

4,743

515

510

Total

768,315

631,791

75,490

61,034

859,583

714,253

71,793

73,537

The above table shows the positive market values after netting and collateral, which represent only 8 % of the total IFRS positive market values. Apart from master netting agreements, we have entered into various types of collateral agreements (such as “CSAs” to master agreements), with the vast majority being bilateral.

Nominal volumes of credit derivative exposure (unaudited)

 

Dec 31, 2012

 

Used for own credit portfolio

Acting as intermediary

 

in € m.

Protection bought

Protection sold

Protection bought

Protection sold

Total1

1

Includes credit default swaps on indices and nth-to-default credit default swaps.

Credit default swaps – single name

38,885

650

779,669

758,427

1,577,631

Credit default swaps – multi name

9,209

168

512,299

509,832

1,031,508

Total return swaps

919

1,759

6,388

4,124

13,190

Total notional amount of credit derivatives

49,013

2,577

1,298,356

1,272,383

2,622,329

 

Dec 31, 2011

 

Used for own credit portfolio

Acting as intermediary

 

in € m.

Protection bought

Protection sold

Protection bought

Protection sold

Total1

1

Includes credit default swaps on indices and nth-to-default credit default swaps.

Credit default swaps – single name

48,085

844

1,017,110

999,112

2,065,151

Credit default swaps – multi name

604

55

782,384

824,100

1,607,143

Total return swaps

454

927

6,416

5,066

12,863

Total notional amount of credit derivatives

49,143

1,826

1,805,910

1,828,278

3,685,157

The tables split the exposure into the part held in the regulatory banking book, which is shown under the heading “used for own credit portfolio” and the part held in the regulatory trading book, referred to as “acting as intermediary”. The decrease in credit derivatives is primarily related to trade compression, de-risking activities and reduced volumes in the credit derivatives market.

As the replacement values of derivatives portfolios fluctuate with movements in market rates and with changes in the transactions in the portfolios, we also estimate the potential future replacement costs of the portfolios over their lifetimes or, in case of collateralized portfolios, over appropriate unwind periods. We measure the potential future exposure against separate limits. We supplement the potential future exposure analysis with stress tests to estimate the immediate impact of extreme market events on our exposures (such as event risk in our Emerging Markets portfolio).

The potential future exposure measure which we use is generally given by a time profile of simulated positive market values of each counterparty’s derivatives portfolio, for which netting and collateralization are considered. For limit monitoring we employ the 95th quantile of the resulting distribution of market values, internally referred to as potential future exposure (“PFE”). The average exposure profiles generated by the same calculation process are used to derive the so-called average expected exposure (“AEE”) measure, which we use to reflect expected future replacement costs within our credit risk economic capital, and the expected positive exposure (“EPE”) measure driving our regulatory capital requirements. While AEE and EPE are generally calculated with respect to a time horizon of one year, the PFE is measured over the entire lifetime of a transaction or netting set for uncollateralized portfolios and over an appropriate unwind period for collateralized portfolios, respectively. We also employ the aforementioned calculation process to derive stressed exposure results for input into our credit portfolio stress testing.

The PFE profile of each counterparty is compared daily to a PFE limit profile set by the responsible credit officer. PFE limits are integral part of the overall counterparty credit exposure management in line with other limit types. Breaches of PFE limits at any one profile time point are highlighted for action within our credit risk management process. The EPE is directly used in the customer level calculation of the IRBA regulatory capital under the so-called internal model method (“IMM”), whereas AEE feeds as a loan equivalent into the Group’s credit portfolio model where it is combined with all other exposure to a counterparty within the respective simulation and allocation process (see Chapter “Monitoring Credit Risk”).

Credit Exposure from Nonderivative Trading Assets

Composition of nonderivative trading assets

in € m.

Dec 31, 2012

Dec 31, 2011

Government paper & agencies

94,597

95,336

Financial institutions & corporates

53,994

56,442

Equities

65,457

59,754

Traded loans

18,152

18,039

Other

13,338

11,353

Total nonderivative trading assets

245,538

240,924

Traded credit products such as bonds in our developed markets’ trading book are managed by a dedicated risk management unit combining our credit and market risk expertise. We use appropriate portfolio limits and ratings-driven thresholds on single-issuer basis, combined with our market risk management tools to risk manage such positions.