Credit Exposure from Derivatives

Exchange-traded derivative transactions (i.e., 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.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“DFA”) introduced mandatory OTC clearing for certain standardized OTC derivative transactions in 2013 and margin requirements for un-cleared OTC derivatives transactions are expected to be introduced in late 2014 or early 2015. The European Regulation (EU) No 648/2012 on OTC Derivatives, Central Counterparties and Trade Repositories (“EMIR”) will introduce mandatory clearing for certain standardized OTC derivatives transactions, expected to start in the second half of 2014 and margin requirements for un-cleared OTC derivative transactions, which will be phased in from December 2015.

The notional amount of OTC derivatives settled through central counterparties amounted to € 12.5 trillion as of December 31, 2013, and to € 10.0 trillion as of December 31, 2012.

Notional amounts and gross market values of derivative transactions

Dec 31, 2013

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

13,773,939

16,401,710

10,438,348

40,613,997

333,660

311,538

22,122

Exchange-traded

2,770,393

1,568,462

8,838

4,347,694

387

383

4

Total Interest rate related

16,544,331

17,970,173

10,447,186

44,961,690

334,047

311,921

22,126

Currency related:

 

 

 

 

 

 

 

OTC

4,000,994

1,433,173

628,773

6,062,940

96,805

95,553

1,252

Exchange-traded

27,390

350

0

27,739

42

61

(18)

Total Currency related

4,028,383

1,433,523

628,773

6,090,679

96,848

95,614

1,234

Equity/index related:

 

 

 

 

 

 

 

OTC

300,884

237,554

69,688

608,126

26,462

31,007

(4,545)

Exchange-traded

443,280

69,573

3,009

515,862

8,435

5,880

2,555

Total Equity/index related

744,164

307,127

72,697

1,123,988

34,897

36,887

(1,990)

Credit derivatives

363,890

1,599,773

148,388

2,112,051

33,461

32,453

1,009

Commodity related:

 

 

 

 

 

 

 

OTC

39,179

48,227

5,016

92,422

5,615

6,189

(575)

Exchange-traded

149,053

73,469

1,067

223,589

1,993

1,732

261

Total Commodity related

188,233

121,696

6,083

316,012

7,607

7,921

(314)

Other:

 

 

 

 

 

 

 

OTC

24,935

12,571

35

37,541

1,727

2,208

(481)

Exchange-traded

8,896

1,226

0

10,122

14

43

(29)

Total Other

33,831

13,797

35

47,663

1,741

2,251

(509)

Total OTC business

18,503,821

19,733,008

11,290,248

49,527,077

497,730

478,948

18,782

Total exchange-traded business

3,399,012

1,713,080

12,914

5,125,006

10,871

8,099

2,773

Total

21,902,833

21,446,088

11,303,162

54,652,083

508,602

487,047

21,555

Positive market values after netting and cash collateral received

 

 

 

 

50,504

 

 

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

0

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

 

 

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, 2013

Dec 31, 2012

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 collateral2

Positive market values after netting and collateral agreements

1

Excludes for derivatives reported as other assets for December 31, 2013, and December 31, 2012, respectively, € 4.0 billion (€ 8.4 billion) positive market values before netting and collateral or € 493 million (€ 791 million) positive market values after netting and collateral.

2

Includes € 47.5 billion cash collateral and € 10.3 billion non-cash collateral as of December 31, 2013, and € 66.5 billion cash collateral and € 9 billion non-cash collateral as of December 31, 2012.

Interest rate related

327,761

269,903

41,253

16,604

578,128

490,905

61,838

25,384

Currency related

99,782

79,101

11,203

9,478

93,797

71,525

8,091

14,181

Equity/index related

34,566

23,542

2,590

8,434

29,621

19,209

2,061

8,352

Credit derivatives

33,216

27,712

1,896

3,609

49,285

39,677

2,459

7,149

Commodity related

7,536

4,954

657

1,925

14,701

8,231

649

5,821

Other

1,728

1,402

168

158

2,783

2,244

392

147

Total

504,590

406,616

57,767

40,207

768,315

631,791

75,490

61,034

The above table shows the positive market values after netting and collateral, which represent only 7.8 % 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, 2013

 

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

17,102

2,033

592,523

584,072

1,195,730

Credit default swaps – multi name

25,086

15,715

435,078

429,333

905,213

Total return swaps

34

843

6,282

3,950

11,108

Total notional amount of credit derivatives

42,222

18,590

1,033,883

1,017,356

2,112,051

 

Dec 31, 2012

 

Used for own credit portfolio

Aus Vermittlertätigkeit

 

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

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”).

Equity Exposure

The table below presents the carrying values of our equity investments according to IFRS definition split by trading and nontrading for the respective reporting dates. We manage our respective positions within our market risk and other appropriate risk frameworks.

Composition of our Equity Exposure

in € m.

Dec 31, 2013

Dec 31, 2012

1

Includes equity investment funds amounting to € 695 million as of December 31, 2013 and € 1.1 billion as of December 31, 2012.

Trading Equities

61,393

68,496

Nontrading Equities1

5,614

5,973

Total Equity Exposure

67,008

74,470

As of December 31, 2013, our Trading Equities is comprised of € 57.7 billion from CB&S activities, € 3.6 billion from DeAWM business and € 22 million from NCOU. Overall Trading Equities declined by € 7.1 billion year on year driven by decreased exposure in DeAWM (down € 3.7 billion), reductions in CB&S (down € 3.1 billion) and reduced NCOU positions (down € 0.3 billion).

For details about our Nontrading Equities exposure see the respective section “Equity Investments Held” in our nontrading market risk section.