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 uncleared OTC derivatives transactions are expected to be phased in from December 2015. The European Regulation (EU) No 648/2012 on OTC Derivatives, Central Counterparties and Trade Repositories (“EMIR”) introduced a number of risk mitigation techniques for non-centrally cleared OTC derivatives in 2013 and the reporting of OTC and exchange traded derivatives in 2014. Mandatory clearing for certain standardized OTC derivatives transactions is expected to start in the second half of 2015, and margin requirements for uncleared OTC derivative transactions are expected to be phased in from December 2015.

Notional amounts and gross market values of derivative transactions

Dec 31, 2014

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

16,193,068

13,319,460

8,081,916

37,594,443

439,519

413,696

25,823

Exchange-traded

3,253,648

841,043

714

4,095,406

152

152

(1)

Total Interest rate related

19,446,716

14,160,503

8,082,630

41,689,849

439,671

413,849

25,822

Currency related:

 

 

 

 

 

 

 

OTC

4,783,759

1,307,251

609,549

6,700,559

130,775

134,567

(3,792)

Exchange-traded

12,428

103

0

12,531

55

106

(51)

Total Currency related

4,796,187

1,307,354

609,549

6,713,090

130,829

134,673

(3,844)

Equity/index related:

 

 

 

 

 

 

 

OTC

1,203,958

203,328

35,678

1,442,964

27,404

31,949

(4,545)

Exchange-traded

499,899

71,213

4,240

575,353

7,406

7,230

176

Total Equity/index related

1,703,857

274,542

39,919

2,018,317

34,810

39,179

(4,369)

Credit derivatives

337,245

935,967

119,549

1,392,760

25,370

23,074

2,296

Commodity related:

 

 

 

 

 

 

 

OTC

13,708

2,549

7,115

23,371

2,030

1,804

226

Exchange-traded

89,656

22,218

66

111,939

605

697

(92)

Total Commodity related

103,364

24,766

7,181

135,311

2,635

2,501

134

Other:

 

 

 

 

 

 

 

OTC

34,340

8,945

0

43,285

1,017

1,929

(912)

Exchange-traded

9,186

1,037

0

10,223

28

60

(32)

Total Other

43,526

9,982

0

53,509

1,045

1,989

(944)

Total OTC business

22,566,078

15,777,500

8,853,806

47,197,384

626,115

607,019

19,096

Total exchange-traded business

3,864,818

935,614

5,021

4,805,453

8,246

8,246

0

Total

26,430,896

16,713,114

8,858,826

52,002,836

634,361

615,265

19,096

Positive market values after netting and cash collateral received

 

 

 

 

49,416

 

 

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 value1

Net market value1

1

In 2014, figures for 2013 have been restated by € 3.0 billion (total) erroneously included in prior disclosure.

Interest rate related:

 

 

 

 

 

 

 

OTC

13,773,939

16,401,710

10,438,348

40,613,997

333,660

305,152

28,508

Exchange-traded

2,770,393

1,568,462

8,838

4,347,694

387

379

8

Total Interest rate related

16,544,331

17,970,173

10,447,186

44,961,690

334,047

305,531

28,517

Currency related:

 

 

 

 

 

 

 

OTC

4,000,994

1,433,173

628,773

6,062,940

96,805

99,182

(2,376)

Exchange-traded

27,390

350

0

27,739

42

60

(18)

Total Currency related

4,028,383

1,433,523

628,773

6,090,679

96,848

99,242

(2,394)

Equity/index related:

 

 

 

 

 

 

 

OTC

300,884

237,554

69,688

608,126

26,462

30,534

(4,072)

Exchange-traded

443,280

69,573

3,009

515,862

8,435

5,812

2,623

Total Equity/index related

744,164

307,127

72,697

1,123,988

34,897

36,346

(1,449)

Credit derivatives

363,890

1,599,773

148,388

2,112,051

33,461

32,727

735

Commodity related:

 

 

 

 

 

 

 

OTC

39,179

48,227

5,016

92,422

5,615

6,262

(647)

Exchange-traded

149,053

73,469

1,067

223,589

1,993

1,712

280

Total Commodity related

188,233

121,696

6,083

316,012

7,607

7,974

(367)

Other:

 

 

 

 

 

 

 

OTC

24,935

12,571

35

37,541

1,727

2,183

(455)

Exchange-traded

8,896

1,226

0

10,122

14

42

(28)

Total Other

33,831

13,797

35

47,663

1,741

2,225

(484)

Total OTC business

18,503,821

19,733,008

11,290,248

49,527,077

497,730

476,038

21,692

Total exchange-traded business

3,399,012

1,713,080

12,914

5,125,006

10,871

8,006

2,866

Total

21,902,833

21,446,088

11,303,162

54,652,083

508,602

484,044

24,557

Positive market values after netting and cash collateral received

 

 

 

 

50,504

 

 

The following table shows a breakdown of notional amounts of OTC derivative assets and liabilities on the basis of clearing channel.

Notional amounts of OTC derivatives on basis of clearing channel and type of derivative

 

Dec 31, 20141

 

Bilateral

CCP

 

in € m.

Nominal

in %

Nominal

in %

Total

1

Due to the first time disclosure of this table resulting from EDTF recommendations, no prior year information is included in the 2014 reporting.

Interest rate related

15,829,914

63 %

21,764,529

98 %

37,594,443

Currency related

6,677,149

27 %

23,410

0 %

6,700,559

Equity/index related

1,442,964

6 %

0

0 %

1,442,964

Credit derivatives

1,069,035

4 %

323,725

1 %

1,392,760

Commodity related

23,352

0 %

19

0 %

23,371

Other

43,285

0 %

0

0 %

43,285

Total

25,085,700

100 %

22,111,683

100 %

47,197,384

The notional amount of OTC derivative assets settled through central counterparties amounted to € 12.5 trillion as of December 31, 2013.

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 trading derivative transactions (unaudited)

 

Dec 31, 2014

Dec 31, 2013

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 qualifying for hedge accounting for December 31, 2014, and December 31, 2013, respectively, € 4.4 billion (€ 4.0 billion) positive market values before netting and collateral or € 566 million (€ 493 million) positive market values after netting and collateral.

2

Includes € 61.5 billion cash collateral and € 15.3 billion non-cash collateral as of December 31, 2014, and € 47.5 billion cash collateral and € 10.3 billion non-cash collateral as of December 31, 2013.

Interest rate related

435,569

366,769

52,638

16,161

327,761

269,903

41,253

16,604

Currency related

130,528

102,537

18,004

9,988

99,782

79,101

11,203

9,478

Equity/index related

34,810

27,663

3,417

3,730

34,566

23,542

2,590

8,434

Credit derivatives

25,370

20,587

1,798

2,985

33,216

27,712

1,896

3,609

Commodity related

2,635

1,231

949

456

7,536

4,954

657

1,925

Other

1,045

804

42

199

1,728

1,402

168

158

Total

629,958

519,590

76,848

33,520

504,590

406,616

57,767

40,207

The above table shows the positive market values after netting and collateral, which represent only 5.3 % of the total IFRS positive market values. Apart from master netting agreements, we have entered into various types of collateral agreements (such as credit support annexes, “CSAs”, to master agreements), with the vast majority being bilateral.

Nominal volumes of credit derivative exposure (unaudited)

 

Dec 31, 2014

 

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

10,067

418

435,814

416,060

862,359

Credit default swaps – multi name

184

100

259,089

258,356

517,729

Total return swaps

160

30

6,748

5,734

12,672

Total notional amount of credit derivatives

10,411

548

701,650

680,151

1,392,760

 

Dec 31, 2013

 

Used for own credit portfolio

Used for own credit portfolio

 

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

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 our 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 the section “Monitoring and Managing 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, 2014

Dec 31, 2013

1

Includes equity investment funds amounting to € 338 million as of December 31, 2014 and € 695 million as of December 31, 2013.

Trading Equities

69,831

61,393

Nontrading Equities1

6,402

5,614

Total Equity Exposure

76,233

67,008

As of December 31, 2014, our Trading Equities exposure was mainly comprised of € 65.2 billion from CB&S activities and € 4.6 billion from Deutsche AWM business. Overall Trading Equities increased by € 8.4 billion year on year driven by increased exposure in CB&S (up € 7.5 billion) and Deutsche AWM (up € 0.9 billion).

For details about our Nontrading Equities exposure see the respective section “Equity Investments Held” in our “Nontrading Market Risk” section.