Balance Sheet Management

We manage our balance sheet on a Group level and, where applicable, locally in each region. In the allocation of financial resources we favor business portfolios with the highest positive impact on our profitability and shareholder value. We monitor and analyze balance sheet developments and track certain market-observed balance sheet ratios. Based on this we trigger discussion and management action by the Capital and Risk Committee. While we monitor IFRS balance sheet developments, our balance sheet management is principally focused on adjusted values as used in our adjusted leverage ratio, which is calculated using adjusted total assets and adjusted total equity figures, as well as on the exposure measure for leverage ratio purposes as defined by CRR/CRD 4.

Leverage Ratio according to internal definition (unaudited)

We calculate our leverage ratio as a non-GAAP financial measure by dividing total assets by total equity. We disclose an adjusted leverage ratio for which the following adjustments are made to the reported IFRS assets and equity:

  • Total assets under IFRS are adjusted to reflect additional netting provisions to obtain total assets adjusted. Under IFRS offsetting of financial assets and financial liabilities is required when an entity, (1) currently has a legally enforceable right to set off the recognized amounts; and (2) intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. IFRS specifically focuses on the intention to settle net in the ordinary course of business, irrespective of the rights in default. As most derivative contracts covered by a master netting agreement do not settle net in the ordinary course of business they must be presented gross under IFRS. Repurchase and reverse repurchase agreements are generally presented gross, as they do not settle net in the ordinary course of business even when covered by master netting agreement. However in certain situations where the IAS 32 netting criteria are met, then the repurchase and reverse repurchase agreements will be presented net in the financial statements. It has been industry practice in the U.S. to net the receivables and payables from unsettled regular way trades. This is not permitted under IFRS.
  • Total equity under IFRS is adjusted to reflect pro forma fair value gains and losses on our own debt (post-tax, estimate assuming that substantially all of our own debt was designated at fair value), to obtain total equity adjusted. The tax rate applied for this calculation is a blended uniform tax rate of 35 %.

We apply these adjustments in calculating the adjusted leverage ratio to improve comparability with competitors. The definition of the adjusted leverage ratio is used consistently throughout the Group in managing the business. There will still be differences in the way competitors calculate their leverage ratios compared with our definition of the adjusted leverage ratio. Therefore our adjusted leverage ratio should not be compared with other companies’ leverage ratios without considering the differences in the calculation. Our adjusted leverage ratio is not likely to be identical to, nor necessarily indicative of, what our leverage ratio would be under any current or future bank regulatory leverage ratio requirement.

Leverage Ratio according to CRR/CRD 4 (unaudited)

The CRR/CRD 4 framework introduced a non-risk based leverage ratio that is intended to act as a future supplementary measure to the risk based capital requirements. Its objectives are to constrain the build-up of leverage in the banking sector, helping avoid destabilizing deleveraging processes which can damage the broader financial system and the economy, and to reinforce the risk based requirements with a simple, non-risk based “backstop” measure. Banks will be required by January 1, 2018, to exceed the proposed minimum leverage ratio of 3 %. Prior to that date there are no regulatory requirements to exceed this threshold, while the disclosure of the leverage ratio and its components will be required starting January 1, 2015.

The exposure measure for purposes of the CRR/CRD 4 leverage ratio is higher than our total assets (adjusted) primarily due to the regulatory add-on for derivatives based on notional amounts and the consideration of weighted off-balance sheet exposures.

The key adjustments to IFRS total assets under our CRR/CRD 4 leverage ratio exposure measure definition are as follows:

  • Derivatives: reflect netting against corresponding liabilities permitted for regulatory purposes, partially offset by recognition of Potential Future Exposure (notional times supervisory add-on factor, depending on product and maturity);
  • Securities Financing Transactions: based on the ‘Supervisory Volatility Adjustments Approach’ which encompasses regulatory netting, collateral recognition and supervisory haircuts, and is also applied for non-cash SFT which are not reported on the balance sheet;
  • Remaining Assets: We apply trade date accounting for purchases or sales of financial assets requiring physical delivery of the respective assets, resulting in a temporary balance sheet gross-up until settlement occurs. We believe that the increase of the exposure measure arising from the use of trade date accounting should be adjusted for by assuming that unsettled positions subject to the application of trade date accounting are settled immediately, regardless of their accounting treatment;
  • Off-balance sheet exposure: undrawn commitments are recognized in the exposure measure with 100 % of their notional value, except for unconditionally cancellable commitments which get a preferred weight of 10 %, plus other off-balance sheet exposures e.g. in the form of guarantees or L/Cs that receive a weight of 100 %, or alternatively either 50 % or 20 % for certain trade finance-related products;
  • Regulatory adjustments, which include transition effects from an accounting to a regulatory view, e.g. for differences in consolidation circles, as well as regulatory capital deductions items (including goodwill and intangibles, deferred tax assets on unused tax losses) that can also be deducted from the exposure measure to ensure consistency between the numerator and denominator of the ratio.

To provide an indication of the potential impact of this new regulatory leverage ratio on us, we have estimated our adjusted pro forma CRR/CRD 4 leverage ratio as shown below. Because the CRR/CRD 4 were not yet in force as of December 31, 2013, such measures are also non-GAAP financial measures. The table also includes a reconciliation of the exposure measures under IFRS against internal definitions and CRR/CRD 4.

Reconciliation of Exposure Measures applied to adjusted pro forma CRR/CRD 4 leverage ratio calculation

 

Dec 31, 2013

Dec 31, 2012

in € bn.
(unless stated otherwise)

Total Assets IFRS (audited)

Total Assets (adjusted/ unaudited)

Pro forma CRR/CRD 4 (unaudited)

Total Assets IFRS (audited)

Total Assets (adjusted/ unaudited)

1

Including derivatives qualifying for hedge accounting.

2

Total Assets (adjusted): credit line netting, pro forma CRR/CRD 4: regulatory netting.

3

Including Prime Brokerage receivables.

4

Includes regulatory netting, collateral recognition and supervisory haircuts, also for non-cash SFT.

5

Including transition from accounting to regulatory view as well as regulatory adjustments.

6

The estimated cumulative tax effect on pro forma fair value gains (losses) on such own debt was € (0.9) billion for both December 31, 2013, and December 31, 2012.

Exposure Measure (spot value at reporting date)

1,611

1,066

1,445

2,022

1,209

Total Delta to IFRS

 

(545)

(167)

 

(813)

Major exposure components and breakdown of delta to IFRS from:

 

 

 

 

 

Derivatives1

509

51

373

777

71

Delta to IFRS from

 

 

 

 

 

Netting2

 

(410)

(401)

 

(639)

Application of cash collateral received

 

(47)

 

 

(66)

Add-on

 

 

266

 

 

Securities Financing Transactions3

207

190

44

220

194

Delta to IFRS from

 

 

 

 

 

Netting

 

(17)

 

 

(26)

Supervisory Volatility Adjustments Approach4

 

 

(163)

 

 

Remaining Assets

896

826

866

1,026

944

Delta to IFRS from

 

 

 

 

 

Cash Collateral Pledged & Pending Settlements Netting

 

(70)

(30)

 

(82)

Off-Balance Sheet Exposure

 

 

199

 

 

With 100 % credit conversion factor

 

 

185

 

 

With 50 % credit conversion factor

 

 

2

 

 

With 20 % credit conversion factor

 

 

8

 

 

With 10 % credit conversion factor

 

 

5

 

 

Adjustments5

 

 

(38)

 

 

 

 

 

 

 

 

Total equity (IFRS)

55.0

 

 

54.2

 

Adjustment for pro forma fair value gains (losses) on the Group's own debt (post-tax)6

 

1.7

 

 

1.7

Total equity (adjusted)

 

56.7

 

 

55.9

 

 

 

 

 

 

Fully loaded Common Equity Tier 1 capital

 

 

34.0

 

 

Eligible Additional Tier 1 capital instruments under the phase-out methodology

 

 

11.2

 

 

Adjusted Tier 1 capital

 

 

45.2

 

 

 

 

 

 

 

 

Leverage Ratio (in x)

29.3

18.8

 

37.3

21.6

Adjusted pro forma CRR/CRD 4 leverage ratio (in %)

 

 

3.1

 

 

As of December 31, 2013, our adjusted leverage ratio was 19, down from 22 as of prior year-end.

Our leverage ratio calculated as the ratio of total assets under IFRS to total equity under IFRS was 29 as of December 31, 2013, a significant decrease compared to 37 as at end of 2012.

Following the publication of the CRR/CRD 4 framework on June 27, 2013, we have established a new leverage ratio calculation according to the future legally binding framework. As of December 31, 2013, our adjusted pro forma CRR/CRD 4 leverage ratio was 3.1 %, taking into account an adjusted pro forma Tier 1 capital of € 45.2 billion over an applicable exposure measure of € 1,445 billion. The adjusted pro forma Tier 1 capital comprises our pro forma fully loaded Common Equity Tier 1 capital plus all Additional Tier 1 instruments that were still eligible according to the transitional phase-out methodology of the CRR/CRD 4. As of December 31, 2012, our Additional Tier 1 instruments from Basel 2.5 compliant issuances amounted to € 12.5 billion. During the transitional phase-out period the maximum recognizable amount of these Additional Tier 1 instruments will be reduced at the beginning of each financial year by 10 % or € 1.3 billion through 2022. For December 31, 2013, this resulted in Additional Tier 1 instruments of € 11.2 billion eligible according to CRR/CRD 4 that are included in our adjusted pro forma CRR/CRD 4 leverage ratio. We intend to issue new CRR/CRD 4 eligible Additional Tier 1 instruments over time to compensate effects from those that are being phased out under CRR/CRD 4.


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