13 – Amendments to IAS 39 and IFRS 7, “Reclassification of Financial Assets”

Under the amendments to IAS 39 and IFRS 7, issued in October 2008, certain financial assets were reclassified in the second half of 2008 and the first quarter 2009 from the financial assets at fair value through profit or loss and the available for sale classifications into the loans classification. No reclassifications have been made since the first quarter 2009.

The Group identified assets, eligible under the amendments, for which at the reclassification date it had a clear change of intent and ability to hold for the foreseeable future rather than to exit or trade in the short term. The reclassifications were made at the fair value of the assets at the reclassification date.

Reclassified Financial Assets

in € bn.
(unless stated otherwise)

Trading assets reclassified to loans

Financial assets available for sale reclassified to loans

Carrying value at reclassification date

26.6

11.4

Unrealized fair value losses in accumulated other comprehensive income

0.0

(1.1)

Effective interest rates at reclassification date:

 

 

upper range

13.1 %

9.9 %

lower range

2.8 %

3.9 %

Expected recoverable cash flows at reclassification date

39.6

17.6

Carrying values and fair values by asset type of assets reclassified in 2008 and 2009

 

Dec 31, 2014

Dec 31, 2013

in € m.

Carrying value

Fair value

Carrying value

Fair Value

1

There is an associated effect on the carrying value from effective fair value hedge accounting for interest rate risk to the carrying value of the reclassified assets shown in the table above. This effect increases carrying value by € 86 million and € 34 million as at December 31, 2014 and December 31, 2013 respectively.

Trading assets reclassified to loans:

 

 

 

 

Securitization assets

1,983

2,124

1,985

1,872

Debt securities

1,067

1,160

1,062

1,068

Loans

1,146

888

2,367

2,064

Total trading assets reclassified to loans

4,197

4,171

5,415

5,004

Financial assets available for sale reclassified to loans:

 

 

 

 

Securitization assets

1,782

1,743

1,972

1,955

Debt securities

1,378

1,493

1,220

1,284

Total financial assets available for sale reclassified to loans

3,160

3,236

3,192

3,239

Total financial assets reclassified to loans

7,3571

7,408

8,606

8,243

All reclassified assets are managed by the NCOU and disposal decisions across this portfolio are made by the NCOU in accordance with their remit to take the de-risking decisions. For the year ended December 31, 2014, the Group sold reclassified assets with a carrying value of € 137 million, resulting in a net gain of € 4.1 million on positions sold.

In addition to sales, the decrease in the carrying value of assets previously classified as trading includes redemptions and maturities of € 1.3 billion. The reduction in the carrying value of assets previously classified as available for sale includes redemptions and maturities of € 0.5 billion.

Unrealized fair value gains (losses) that would have been recognized in profit or loss and net gains (losses) that would have been recognized in other comprehensive income if the reclassifications had not been made

in € m.

2014

2013

2012

Unrealized fair value gains (losses) on the reclassified trading assets, gross of provisions for credit losses

342

245

38

Impairment (losses)/Reversal on the reclassified financial assets available for sale which were impaired

(6)

9

(29)

Net gains (losses) recognized in other comprehensive income representing additional unrealized fair value gains (losses) on the reclassified financial assets available for sale which were not impaired

137

130

415

Pre-tax contribution of all reclassified assets to the income statement

in € m.

2014

2013

2012

1

Relates to gains and losses from the sale of reclassified assets.

Interest income

161

272

578

Provision for credit losses

(40)

(348)

(186)

Other income1

5

(141)

(35)

Income before income taxes on reclassified trading assets

126

(217)

357

Interest income

97

96

139

Provision for credit losses

(13)

(25)

(228)

Other income1

0

(66)

(58)

Income before income taxes on reclassified financial assets available for sale

84

5

(147)

Reclassified Financial Assets: Carrying values and fair values by asset class

All IAS 39 reclassified assets were transferred into the NCOU upon creation of the new division in the fourth quarter of 2012. The NCOU has been tasked to accelerate de-risking to reduce total capital demand and total adjusted assets. A number of factors are considered in determining whether and when to sell assets including the income statement, regulatory capital and leverage impacts. The movements in carrying value and fair value are illustrated in the following table:

Carrying values and fair values by asset class reclassified in 2008 and 2009

 

Dec 31, 2014

Dec 31, 2013

in € m.

Carrying value (CV)

Fair value (FV)

Unrealized gains/(losses)

Carrying value (CV)

Fair value (FV)

Unrealized gains/(losses)

1

Includes asset backed securities related to the aviation industry and a mixture of other securitization assets and debt securities.

Securitization assets and debt securities reclassified:

 

 

 

 

 

 

US municipal bonds

2,302

2,503

201

2,155

2,232

77

Student loans ABS

1,464

1,529

65

1,263

1,305

42

CDO/CLO

717

689

(28)

979

938

(41)

Covered bond

893

987

95

885

788

(97)

Commercial mortgages securities

187

192

5

281

260

(21)

Residential mortgages ABS

83

92

9

74

71

(3)

Other1

566

528

(38)

602

585

(17)

Total securitization assets and debt securities reclassified

6,211

6,520

309

6,239

6,179

(60)

Loans reclassified:

 

 

 

 

 

 

Commercial mortgages

227

226

0

1,463

1,428

(35)

Residential mortgages

871

616

(255)

844

598

(246)

Other

49

46

(3)

61

38

(22)

Total loans reclassified

1,146

888

(259)

2,367

2,064

(303)

Total financial assets reclassified to loans

7,357

7,408

51

8,606

8,243

(363)

Securitized Assets and Debt Securities

Municipal Bonds – The US Municipal bonds have a fair value above carrying value due to being predominantly fixed rate instruments with interest rates falling since reclassification. Fair value is also impacted by liquidity and market expectation of credit risk which has generally improved in the year increasing the fair value. The carrying value increase is predominantly due to FX movements, partly offset by redemptions and impairment losses of € 16 million.

Covered Bonds – The majority of the exposure in the portfolio is to Spanish bank and government issuers. The fair value is above carrying value and has increased in the year following improvements in the Eurozone credit risk and increased liquidity on these positions. There was no significant impairment of the portfolio during the year.

CDO/CLO – This comprises a diverse portfolio with a variety of underlying assets and tranching levels in the capital structure. The difference between carrying value and fair value arises due to a number of factors including liquidity and the fair value model capturing market expectations of lifetime expected losses compared with the amortized cost impairment model largely based on incurred credit losses. The main movement in the carrying value to fair value difference is due to principal paydowns in the period somewhat offset by FX movements and accretion of discount. No significant loan loss provisions were taken in the period.

Student Loans ABS – There was continued improvement in liquidity for student loan ABS resulting in increased fair values. The carrying value increase is predominantly due to FX movements. There was no de-risking activity or impairments on this asset class in the period.

Commercial Mortgages Securities – The fair value to carrying value difference is due to a number of factors including liquidity and market expectations of credit losses compared with the incurred loss model. The carrying value decreased in the period mainly due to redemptions of € 55 million, impairments of € 22 million and sales of € 25 million.

Other – Other comprises a variety of assets including securitizations with Aircraft and Commodity underlyings, Infrastructure Project Finance exposure and structured corporate bonds. The small reduction in carrying value is due to principal repayments somewhat offset by FX movements.

Loans

Commercial Mortgages – The fair value to carrying value difference is due to a number of factors including liquidity and market expectations of credit losses compared with the incurred loss model. The carrying value change is predominantly due to redemptions in the period of € 1.1 billion. The loan loss provisions in the period on this category were € 19 million.

Residential Mortgages – This category includes residential mortgages in the UK, Italy, Spain and Germany. The fair value to carrying value difference has remained consistent year on year predominantly due to a larger discount rate being applied to determine fair value which, whilst not observable in the market, reflects estimated market liquidity. There have been no sales or significant changes in loan loss provisions in the portfolio in the period.


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