Exposure to Monoline Insurers

The deterioration of the U.S. subprime mortgage and related markets has generated large exposures to financial guarantors, such as monoline insurers, that have insured or guaranteed the value of pools of collateral referenced by CDOs and other market-traded securities. Actual claims against monoline insurers will only become due if actual defaults occur in the underlying assets (or collateral). There is ongoing uncertainty as to whether some monoline insurers will be able to meet all their liabilities to banks and other buyers of protection. Under certain conditions (i.e., liquidation) we can accelerate claims regardless of actual losses on the underlying assets.

The following tables summarize the fair value of our counterparty exposures to monoline insurers with respect to U.S. residential mortgage-related activity and other activities, respectively, in each case on the basis of the fair value of the assets compared with the notional value guaranteed or underwritten by monoline insurers. The other exposures described in the second table arise from a range of client and trading activity, including collateralized loan obligations, commercial mortgage-backed securities, trust preferred securities, student loans and public sector or municipal debt. The tables show the associated Credit Valuation Adjustments (“CVA”) that we have recorded against the exposures. For monolines with actively traded CDS, the CVA is calculated using a full CDS-based valuation model. For monolines without actively traded CDS, a model-based approach is used with various input factors, including relevant market driven default probabilities, the likelihood of an event (either a restructuring or an insolvency), an assessment of any potential settlement in the event of a restructuring, and recovery rates in the event of either restructuring or insolvency. The monoline CVA methodology is reviewed on a quarterly basis by management; since the second quarter of 2011 market based spreads have been used more extensively in the CVA assessment.

The ratings in the tables below are the lowest of Standard & Poor’s, Moody’s or our own internal credit ratings.

Monoline exposure related to U.S. residential mortgages

Dec 31, 2013

Dec 31, 2012

in € m.

Notional amount

Value prior to CVA

CVA

Fair value after CVA

Notional amount

Value prior to CVA

CVA

Fair value after CVA

AA Monolines:

 

 

 

 

 

 

 

 

Other subprime

94

29

(5)

23

112

47

(11)

36

Alt-A

2,256

768

(105)

663

3,011

1,181

(191)

990

Total AA Monolines

2,350

797

(110)

686

3,123

1,228

(202)

1,026

Other Monoline exposure

Dec 31, 2013

Dec 31, 2012

in € m.

Notional amount

Value prior to CVA

CVA

Fair value after CVA

Notional amount

Value prior to CVA

CVA

Fair value after CVA

AA Monolines:

 

 

 

 

 

 

 

 

TPS-CLO

1,512

298

(41)

257

2,441

575

(101)

474

CMBS

1,030

(3)

(0)

(3)

1,092

2

0

2

Corporate single name/Corporate CDO

0

0

0

0

0

0

0

0

Student loans

285

0

0

0

297

29

(3)

26

Other

511

69

(7)

62

882

274

(127)

147

Total AA Monolines

3,338

364

(48)

316

4,712

880

(231)

649

Non investment-grade Monolines:

 

 

 

 

 

 

 

 

TPS-CLO

353

67

(8)

58

455

147

(40)

107

CMBS

1,444

7

(0)

6

3,377

92

(28)

64

Corporate single name/Corporate CDO

0

0

0

0

12

0

0

0

Student loans

604

116

(11)

105

1,284

534

(170)

364

Other

827

90

(31)

60

1,084

185

(66)

119

Total Non investmentgrade Monolines

3,228

280

(50)

229

6,212

958

(304)

654

Total

6,566

644

(98)

545

10,924

1,838

(535)

1,303

The tables exclude counterparty exposure to monoline insurers that relates to wrapped bonds. A wrapped bond is one that is insured or guaranteed by a third party. As of December 31, 2013 and December 31, 2012, the exposure on wrapped bonds related to U.S. residential mortgages was € nil and € 11 million, respectively, and the exposure on wrapped bonds other than those related to U.S. residential mortgages was € 15 million and € 40 million, respectively. In each case, the exposure represents an estimate of the potential mark-downs of wrapped assets in the event of monoline defaults.

A proportion of the mark-to-market monoline exposure has been mitigated with CDS protection arranged with other market counterparties and other economic hedge activity.

As of December 31, 2013 and December 31, 2012 the total Credit Valuation Adjustment held against monoline insurers was € 209 million and € 737 million respectively.