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 favour 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. Following the publication of the CRR/CRD 4 framework on June 27, 2013, we established a leverage ratio calculation according to that framework.

Leverage Ratio according to revised CRR/CRD 4 framework (fully loaded) (unaudited)

The CRR/CRD 4 framework introduced a non-risk based leverage ratio that is intended to act as a 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.

On October 10, 2014, the European Commission adopted a delegated act published in the Official Journal of the European Union on January 17, 2015. The delegated act leads to substantial changes in the calculation of the leverage exposure measure for the leverage ratio under a revised CRR/CRD 4 framework:

  • Written Credit Derivatives: The effective notional amount of written credit derivatives, i.e., the notional reduced by any negative fair value changes that have been incorporated in Tier 1 capital is now included in the leverage ratio exposure measure. The resulting exposure measure may be further reduced by the effective notional amount of a purchased credit derivative on the same reference name provided certain conditions are met.
  • Variation Margin Netting: Variation margin received in cash from counterparties may now be deducted from the current replacement cost portion of the leverage ratio exposure measure and variation margin paid to counterparties will be deducted from the leverage ratio exposure measure related to receivables recognized as an asset on the balance sheet, provided certain conditions are met.
  • Securities financing transactions (SFT): Gross receivables for securities financing transactions (SFT) are permitted to be netted with SFT payables if specific conditions are met. In addition to the gross exposure an add-on for the net counterparty exposure is required to be included in the SFT exposure measure. In the transition from the Supervisory Volatility Adjustments Approach (SVAA) to the Net Exposure the haircuts are removed from the exposure measure.
  • Off-balance sheet exposure: Off-balance sheet exposure follows the credit risk conversion factors (CCF) of the standardized approach for credit risk (0 %, 20 %, 50 %, or 100 %), which depend on the risk category subject to a floor of 10 %.
  • Regulatory Adjustments: Modification of regulatory adjustments with respect to investments into financial sector entities not deducted from regulatory capital.

To harmonize the disclosure of the leverage ratio and its components, Article 451(2) of the CRR contains a mandate for the European Banking Authority (EBA) to develop draft implementing technical standards (ITS) based on the Basel Committee publication of the framework and disclosure requirements for the Basel 3 leverage ratio. Against this background, the draft ITS on disclosure of the leverage ratio published on June 5, 2014 contains uniform templates for the disclosure of the leverage ratio and its components. As described above a delegated act was finally adopted by the European Commission and we expect that the draft ITS on disclosure of the leverage ratio will be modified accordingly. Pending final ITS templates, we have adjusted the draft templates to reflect the changes under the delegated act in the meantime.

The following tables show leverage ratio exposures based on revised CRR/CRD 4 rules:

Summary reconciliation of accounting assets and leverage ratio exposures

in € bn.
(unless stated otherwise)

Dec 31, 2014

Total assets as per published financial statements

1,709

Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation

(28)

Adjustments for derivative financial instruments

(276)

Adjustments for securities financing transactions

16

Adjustment for off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet exposures)

127

Other adjustments

(103)

Leverage ratio exposure

1,445

Leverage ratio common disclosure

in € bn.
(unless stated otherwise)

Dec 31, 2014

Derivative exposures:

 

Replacement cost associated with derivatives transactions after netting of cash variation margin received

72

Add-on amounts for PFE associated with derivatives transactions

221

Credit default swaps notional

65

Total derivative exposures

358

 

 

Securities financing transaction exposures:

 

SFT Gross

138

SFT Add-on for counterparty credit risk

14

Total securities financing transaction exposures

152

 

 

Off-balance sheet exposures:

 

Off-balance sheet items with a 10 % CCF

4

Off-balance sheet items with a 20 % CCF

10

Off-balance sheet items with a 50 % CCF

69

Off-balance sheet items with a 100 % CCF

44

Total off-balance sheet exposures

127

 

 

Other Assets

827

 

 

Asset amounts deducted in determining Tier 1 capital fully loaded

(19)

 

 

Capital and Total Exposures:

 

Tier 1 capital fully loaded

50.7

Total Exposures

1,445

Leverage Ratio – using a fully loaded definition of Tier 1 capital (in %)

3.5

Breakdown of on-balance sheet exposures (excluding derivative positions and SFTs)

in € bn.
(unless stated otherwise)

Dec 31, 2014

Total on-balance sheet exposures (excluding derivatives and SFTs)

827

thereof:

 

Trading book exposures

245

Banking book exposures

582

thereof:

 

Covered bonds

5

Exposures treated as sovereigns

147

Exposures to regional governments, MDB, international organisations and PSE not treated as sovereigns

2

Institutions

19

Secured by mortgages of immovable properties

159

Retail exposures

35

Corporate exposures

170

Exposures in default

11

Other exposures (e.g. equity, securitisations, and other non-credit obligation assets) after netting of cash variation margin paid

33

Description of the process used to manage the risk of excessive leverage (unaudited)

As described in the section “Risk Management Principles” of this report, the Capital and Risk Committee (CaR) is mandated to oversee and control integrated planning and to monitor our risk profile and capital capacity. We actively manage our limits

  • to allocate the leverage exposure capacity,
  • to support business achievement of strategic performance plans,
  • to provide a firm basis for achieving the target leverage ratio,
  • to incentivize businesses to make appropriate choices at the margin based on a group-wide benchmark, and
  • to maintain risk discipline.

In the case of limit excess the respective division is charged. The limit excess charges are calculated in accordance with the Group-wide limit-setting framework for leverage.

Description of the factors that had an impact on the leverage ratio in 2014 (unaudited)

As of December 31, 2014, our fully loaded CRR/CRD 4 leverage ratio under revised rules, which is a non-GAAP financial measure, was 3.5 % compared to our pro forma CRR/CRD 4 leverage ratio (not taking into account recent revisions to the leverage ratio rules) of 2.4 % as of December 31, 2013, taking into account as of December 31, 2014 a fully loaded Tier 1 capital of € 50.7 billion over an applicable exposure measure of € 1,445 billion (€ 34.0 billion and € 1,445 billion as of December 31, 2013, respectively).

Over the year 2014 the active management of our leverage exposure resulted in a decrease of the leverage ratio exposure amounting to € 177 billion, though this decrease was offset by currency impacts and the effect of rule changes introduced by the revised CRR/CRD 4 which we applied in the second half of 2014.

In the first six months of the year we reduced our leverage ratio exposure under previous rules by € 7 billion offset by currency effects of € 10 billion. The decrease mainly reflects exposure reductions in derivatives and securities financing transaction of € 31 billion and de-leveraging of € 24 billion in our NCOU which were partly offset by increases of € 44 billion in remaining assets, cash and deposits with banks and loans.

With the introduction of the revised CRR/CRD 4 rules in the second half of 2014, the leverage ratio exposure increased by € 85 billion due to the aforementioned substantial changes in the calculation rules as well as foreign exchange impacts of € 83 billion mainly caused by a weakening of the euro against the US dollar. These effects were offset by a decrease of our leverage ratio exposure of € 170 billion, mainly driven by reductions in our derivatives portfolio and securities financing activities of € 98 billion, non-derivative trading assets of € 27 billion, off-balance sheet and other items of € 25 billion – and € 20 billion de-risking within NCOU, which demonstrates our strong commitment to reduce our risk appetite.

For main drivers of the Tier 1 capital development please refer to section Liquidity and Capital Resources in this report.


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