Risk Management Executive Summary

Credit Risk Summary

  • Maximum Exposure to Credit Risk decreased by € 420 billion or 20 % to € 1.6 trillion compared to December 31, 2012, largely due to decreases in positive market values from derivative instruments and other reductions reflecting various de-risking and balance sheet optimization initiatives. Credit quality of Maximum Exposure to Credit Risk was 78 % investment-grade rated as of December 31, 2013, slightly decreased from 80 % as of December 31, 2012.
  • Credit exposure remained diversified by region, industry and counterparty. Regional exposure is evenly spread across our key markets (North America 29 %, Germany 28 %, Rest of Western Europe 28 %) and the regional distribution has been relatively stable year on year. Our largest industry exposure is to Banks and Insurances, which constitutes 33 % of overall gross exposures (i.e., before consideration of collateral), flat versus December 31, 2012. These exposures are predominantly with highly rated counterparties and are generally collateralized. On a counterparty level, we remained well diversified with our top ten exposures representing 10 % of our total gross main credit exposures compared with 11 % as of December 2012, all with highly rated investment-grade counterparties.
  • Provision for credit losses recorded in 2013 increased by € 344 million or 20 % to € 2.1 billion driven by NCOU as well as our Core Bank. The increase in NCOU reflects a number of single client items among others related to the European Commercial Real Estate sector. The Core Bank suffered from a single client credit event in GTB as well as higher charges on loans to shipping companies recorded in CB&S. Reductions in PBC partly offset these increases and reflected the improved credit environment in Germany compared to prior year.
  • Our overall loan book decreased by € 20 billion or 5 %, from € 402 billion as of December 31, 2012 to € 382 billion as of December 31, 2013. Reductions were mainly driven by de-risking within the NCOU. Our single largest industry category loan book is household mortgages, equating to € 148 billion as of December 31, 2013, with € 116 billion of these in the stable German market. Our corporate loan book, which accounts for 52 % of the total loan book, contained 64 % of loans with an investment-grade rating as of December 31, 2013, slightly decreased from 66 % as of December 31, 2012.
  • The economic capital usage for credit risk decreased to € 12.0 billion as of December 31, 2013, compared with € 12.6 billion at year-end 2012 reflecting process enhancements and reduced exposures, primarily in NCOU, partially offset by increases from the internal model recalibration.

Market Risk Summary

  • Nontrading market risk economic capital usage increased by € 46 million or 1 % to € 8.5 billion as of December 31, 2013. The increase was primarily driven by methodology changes for structural foreign exchange risk and longevity risk in pension plans which were partially offset by de-risking activities in NCOU.
  • The economic capital usage for trading market risk totaled € 4.2 billion as of December 31, 2013, compared with € 4.7 billion at year-end 2012. This decrease was mainly driven by risk reductions from within NCOU.
  • The average value-at-risk of our trading units was € 53.6 million during 2013, compared with € 57.1 million for 2012. The decrease was driven by lower exposure levels in the interest rate risk and credit spread risk.

Operational Risk Summary

  • The economic capital usage for operational risk increased to € 5.3 billion as of December 31, 2013, compared with € 5.0 billion at year-end 2012. This is mainly driven by the implementation of a change in our AMA Model to better estimate the frequency of Deutsche Bank specific operational risk losses. The change led to an increased economic capital usage of € 191 million. An additional driver was the increased operational risk loss profile of Deutsche Bank as well as that of the industry as a whole. The related operational risk losses that have materialized and give rise to the increased economic capital usage are largely due to the outflows related to litigation, investigations and enforcement actions. The economic capital continues to include the safety margin applied in our AMA Model, which was implemented in 2011 to cover unforeseen legal risks from the recent financial crisis.
  • The execution of our divestment strategy in NCOU has resulted in a reduced balance sheet, which triggered a review of our operational risk allocation framework. In line with the NCOU business wind down, we reallocated economic capital for operational risk amounting to € 892 million to our Core Bank in the third quarter of 2013.

Liquidity Risk Summary

  • Liquidity reserves amounted to € 196 billion as of December 31, 2013 (compared with € 232 billion as of December 31, 2012), which translate into a positive liquidity stress result as of December 31, 2013 (under the combined scenario). The reduction in liquidity reserves is largely in line with the reduction in our short term wholesale funding as well as other liability sources.
  • Our funding plan of € 18 billion for the full year 2013 has been fully completed.
  • 66 % of our overall funding came from the funding sources we categorize as the most stable comprising capital markets and equity, retail and transaction banking.

Capital Management Summary

  • The Common Equity Tier 1 capital ratio (formerly: Core Tier 1 capital), calculated on the basis of Basel 2.5, was 12.8 % as of December 31, 2013, compared with 11.4 % at year-end 2012.
  • Risk-weighted assets decreased by € 34 billion to € 300 billion as of December 31, 2013, compared with € 334 billion at year-end 2012, mainly driven by a € 27 billion decrease in risk-weighted assets from credit risk, primarily due to loss given default and rating migration, increased collateral and netting coverage as well as asset disposals.
  • The internal capital adequacy ratio increased to 167 % as of December 31, 2013, compared with 158 % as of December 31, 2012.
  • The CRR/CRD 4 pro forma fully loaded Common Equity Tier 1 ratio significantly improved in 2013 from 7.8 % as of December 31, 2012 to 9.7 % as of December 31, 2013. The 190 basis points ratio increase was driven by our ex-rights issue of common shares in the second quarter of 2013 which accounted for approximately 80 basis points. The remainder of the increase was driven by reductions in risk-weighted assets.

Balance Sheet Management Summary

  • 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 reduce 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.