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, 2014

Dec 31, 2013

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

95

30

(7)

23

94

29

(5)

23

Alt-A

1,405

423

(61)

361

2,256

768

(105)

663

Total AA Monolines

1,500

452

(68)

384

2,350

797

(110)

686

Other Monoline exposure

 

Dec 31, 2014

Dec 31, 2013

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

1,269

254

(43)

210

1,512

298

(41)

257

CMBS

712

(2)

0

(2)

1,030

(3)

0

(3)

Corporate single name/Corporate CDO

0

0

0

0

0

0

0

0

Student loans

322

44

(9)

35

285

0

0

0

Other

506

72

(14)

59

511

69

(7)

62

Total AA Monolines

2,810

368

(66)

302

3,338

364

(48)

316

Non investment-grade Monolines:

 

 

 

 

 

 

 

 

TPS-CLO

329

77

(16)

61

353

67

(8)

58

CMBS

1,476

(2)

0

(2)

1,444

7

0

6

Corporate single name/Corporate CDO

28

5

0

5

0

0

0

0

Student loans

679

66

(9)

57

604

116

(11)

105

Other

774

136

(50)

86

827

90

(31)

60

Total Non investment-grade Monolines

3,285

282

(75)

207

3,228

280

(50)

229

Total

6,095

650

(141)

509

6,566

644

(98)

545

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, 2014 and December 31, 2013, the exposure on wrapped bonds related to U.S. residential mortgages was € nil and € nil, respectively, and the exposure on wrapped bonds other than those related to U.S. residential mortgages was € 22 million and € 15 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.

The total Credit Valuation Adjustment held against monoline insurers as of December 31, 2014 was € 209 million. There has been no change in the overall monoline CVA reserve versus December 31, 2013, as the impact of reduced exposure has been offset by the movement in monoline credit spreads during the period.


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