Goodwill

Changes in Goodwill

The changes in the carrying amount of goodwill, as well as gross amounts and accumulated impairment losses of goodwill, for the years ended December 31, 2014, and 2013, are shown below by cash-generating units (“CGU”).

Goodwill allocated to cash-generating units

in € m.

Corporate Banking & Securities

Private & Business Clients

Global Transaction Banking

Deutsche Asset & Wealth Management

Non-Core Operations Unit1

Others

Total

1

Includes primary CGUs NCOU Wholesale Assets and NCOU Operating Assets.

2

Impairment losses of goodwill are recorded as impairment of intangible assets in the income statement.

Balance as of January 1, 2013

1,953

2,736

432

3,979

0

197

9,297

Goodwill acquired during the year

4

24

6

2

0

0

37

Purchase accounting adjustments

0

0

0

0

0

0

0

Transfers

(9)

0

8

1

0

0

0

Reclassification from (to) “held for sale”

0

0

0

(5)

0

0

(5)

Goodwill related to dispositions without being classified as “held for sale”

(1)

0

(1)

(1)

0

0

(3)

Impairment losses2

0

0

0

0

0

0

0

Exchange rate changes/other

(84)

(2)

(14)

(133)

0

(18)

(252)

Balance as of December 31, 2013

1,863

2,758

431

3,843

0

179

9,074

Gross amount of goodwill

2,963

2,758

431

3,843

651

646

11,292

Accumulated impairment losses

(1,100)

0

0

0

(651)

(467)

(2,218)

Balance as of January 1, 2014

1,863

2,758

431

3,843

0

179

9,074

Goodwill acquired during the year

0

0

0

0

0

0

0

Purchase accounting adjustments

0

1

0

0

0

0

1

Transfers

0

0

0

0

0

0

0

Reclassification from (to) “held for sale”

(13)

(1)

0

(3)

0

0

(17)

Goodwill related to dispositions without being classified as “held for sale”

0

0

(1)

(2)

0

0

(3)

Impairment losses2

0

0

0

0

0

(49)

(49)

Exchange rate changes/other

166

5

44

293

0

4

512

Balance as of December 31, 2014

2,016

2,763

474

4,131

0

134

9,518

Gross amount of goodwill

3,249

2,763

474

4,131

0

676

11,944

Accumulated impairment losses

(1,233)

0

0

0

0

(542)

(2,426)

In addition to the primary CGUs, the segments CB&S and NCOU carry goodwill resulting from the acquisition of nonintegrated investments which are not allocated to the respective segments’ primary CGUs. Such goodwill is summarized as “Others” in the table above. The nonintegrated investments in the NCOU consist of Maher Terminals LLC and Maher Terminals of Canada Corp.

In 2014, changes in goodwill (other than those related to exchange rate changes) mainly included the impairment of € 49 million recorded in the NCOU upon write-off of goodwill related to the nonintegrated investment in Maher Terminals LLC (included in column ‘Others’ of the above table), which was based on the continuing market uncertainty on the demand for U.S consumables impacting business volumes. The fair value less costs of disposal of the investment was determined based on a discounted free cash flow model. Accordingly, the fair value measurement was categorized as level 3 in the fair value hierarchy. The carrying amount of Maher Terminals LLC exceeded its recoverable amount, resulting in an impairment loss of € 194 million, which was recorded as impairment of intangible assets. Of that impairment amount, € 49 million was allocated to fully write-off related goodwill and another € 145 million was allocated to other intangible assets included in the CGU (see 'Other Amortizing Intangible Assets' in this Note). Key assumptions used in the fair value estimation included a discount rate (weighted average cost of capital, post-tax) of 9.3 % (prior year 9.1 %), a terminal value growth rate of 5.3 % and an average EBITDA growth rate of 13.2 %.

During 2013, changes in goodwill mainly included additions of € 37 million related to the step-acquisition of the Group’s joint venture Xchanging etb GmbH. For more details on this transaction, please refer to Note 3 “Acquisitions and Dispositions”.

In 2012, goodwill changes mainly included impairments of € 1,595 million recorded in the fourth quarter as a result of the annual goodwill impairment test conducted under the organizational structures both prior to as well as post re-segmentation.

Goodwill Impairment Test

For the purposes of impairment testing, goodwill acquired in a business combination is allocated to CGUs. On the basis as described in Note 1 “Significant Accounting Policies and Critical Accounting Estimates”, the Group’s primary CGUs are as outlined above. “Other” goodwill is tested individually for impairment on the level of each of the nonintegrated investments. Goodwill is tested for impairment annually in the fourth quarter by comparing the recoverable amount of each goodwill carrying CGU with its carrying amount. In addition, in accordance with IAS 36, the Group tests goodwill whenever a triggering event is identified. The recoverable amount is the higher of a CGU’s fair value less costs of disposal and its value in use.

The carrying amount of a primary CGU is derived using a capital allocation model. The allocation uses the Group’s total equity at the date of valuation, including Additional Tier 1 Notes (“AT1 Notes”), which constitute unsecured and subordinated notes of Deutsche Bank and which are classified as Additional equity components in accordance with IFRS. Total equity is adjusted for specific effects related to nonintegrated investments, which are tested separately for impairment as outlined above, and for an add-on adjustment for goodwill attributable to noncontrolling interests. The carrying amount (excluding the AT1 Notes) is allocated to the primary CGUs in a two-step process. In the first step, total equity that is readily identifiable is allocated to the respective individual CGUs. This includes goodwill (plus the add-on adjustment for noncontrolling interests), unamortized other intangible assets as well as certain unrealized net gains and losses recorded directly in equity and noncontrolling interests. In the second step, the remaining balance of the carrying amount (excluding the AT1 Notes) is allocated across the CGUs based on the CGU’s share of risk-weighted assets and certain capital deduction items relative to the Group (each is adjusted for items pertaining to nonintegrated investments). The AT1 Notes are allocated to the primary CGUs in proportion to their specific Leverage Ratio Shortfall (“LRS”), with LRS being a function of the Group’s target Leverage Ratio, the CGU’s Leverage Ratio Exposure Measure and the allocated Common Equity Tier 1 Capital. The carrying amount for nonintegrated investments is determined on the basis of their respective equity.

The annual goodwill impairment tests in both 2014 and 2013 did not result in an impairment loss on the goodwill of the Group’s primary CGUs as the recoverable amounts for these CGUs were higher than their respective carrying amounts.

As a result of the Group’s re-segmentation during the fourth quarter 2012 (see Note 4 “Business Segments and Related Information – Business Segments” for details), the annual impairment test had to be conducted both in the structure prior to re-segmentation (“old structure”) and post re-segmentation (“new structure”).These impairment tests resulted in goodwill impairments totaling € 1,595 million, consisting of € 1,174 million in the CGU CB&S under the old structure and of € 421 million in the CGUs Wholesale Assets (€ 369 million) and Operating Assets (€ 52 million) within the Corporate Division NCOU under the new structure.

Recoverable Amount

The Group determines the recoverable amounts of its primary CGUs on the basis of value in use and employs a DCF model, which reflects the specifics of the banking business and its regulatory environment. The model calculates the present value of the estimated future earnings that are distributable to shareholders after fulfilling the respective regulatory capital requirements. The recoverable amounts also include the value in use of the AT1 Notes, allocated to the primary CGUs consistent to their treatment in the carrying amount.

The DCF model uses earnings projections and respective capitalization assumptions (with capital ratios no lesser than: Common Equity Tier 1 capital ratio: 10 %, Tier 1 capital ratio: 11.5 % and a Tier 1 leverage ratio: 3.5 %) based on five-year financial plans agreed by management, which are discounted to their present value. Estimating future earnings and capital requirements involves judgment and the consideration of past and current performances as well as expected developments in the respective markets, and in the overall macroeconomic and regulatory environments. Earnings projections beyond the initial five-year period are, where applicable, adjusted to derive a sustainable level and are, in case of a going concern, assumed to increase by or converge towards a constant long-term growth rate of 3.2 % (2013: 3.2 %). This is based on expectations for the development of gross domestic product and inflation, and is captured in the terminal value.

Key Assumptions and Sensitivities

Key Assumptions: The value in use of a CGU is sensitive to the earnings projections, to the discount rate (cost of equity) applied and, to a much lesser extent, to the long-term growth rate. The discount rates applied have been determined based on the capital asset pricing model and comprise a risk-free interest rate, a market risk premium and a factor covering the systematic market risk (beta factor). The values for the risk-free interest rate, the market risk premium and the beta factors are determined using external sources of information. CGU-specific beta factors are determined based on a respective group of peer companies. Variations in all of these components might impact the calculation of the discount rates.

Primary cash-generating units

 

Discount rate (pre-tax, determined implicitly based on post-tax rates)

 

2014

2013

1

Comprised of two primary CGUs: NCOU Wholesale Assets (14.8 %) and NCOU Operating Assets (14.5 %). Stated pre-tax discount rates assume worst case post-tax valuation scenarios, whereas both CGUs are valued applying identical post-tax discount rates. Varying pre-tax rates are due to different cash-flow composition and pattern.

Corporate Banking & Securities

14.5 %

16.5 %

Private & Business Clients

13.7 %

14.3 %

Global Transaction Banking

11.7 %

13.1 %

Deutsche Asset & Wealth Management

12.6 %

12.8 %

Non-Core Operations Unit1

14.8 %/14.5 %

17.0 %/16.6 %

Management determined the values for the key assumptions in the following table based on a combination of internal and external analysis. Estimates for efficiency and the cost reduction program are based on progress made to date and scheduled future projects and initiatives.

Primary cash-generating unit

Description of key assumptions

Uncertainty associated with key assumptions and potential events/circumstances that could have a negative effect

Corporate Banking & Securities

  • Focus on client flows and solutions, benefiting from leading client market shares and higher customer penetration
  • Improved macro environment, especially in the Americas, whilst Europe is expected to see slower growth
  • Overall CB&S revenue pools are expected to see moderate growth. Corporate Finance and Equities revenue pools expected to trend higher, but Sales & trading Debt revenue pools will remain under pressure.
  • Targeted risk and balance sheet reduction and execution of management action to mitigate the impact of regulatory change
  • Improved asset efficiency under new regulatory framework and rigorously managed risk exposure
  • Reap benefits from Operational Excellence (OpEx) Program
  • Focus on efficiency gains from front-to-back platform improvements, whilst fully complying with regulatory requirements
  • Capitalize on close co-operation with other areas of the organization
  • Potentially weaker macroeconomic environment due to still fragile growth impacted by potential event risks, particularly disorderly withdrawal of bank support for the global economy, leading to slowdown in activity and reduced investor appetite
  • Structure and content of a range of regulatory changes being drafted in various jurisdictions could have a more severe impact than anticipated
  • Potential margin compression and increased competition in products with lower capital requirements beyond expected levels
  • Outcome of major litigation cases
  • Cost and efficiency gains and expected benefits from Group-wide Operational Excellence (OpEx) Program are not realized as anticipated
  • Increase cost pressures from regulatory driven spend
  • Delay in execution of risk mitigation strategies and further headwinds from regulatory technical standards, regulatory focus on operational risk and the continued review of RWA measurement on Basel level

Private & Business Clients

  • Leading position in home market Germany, strong position in other European markets, growth options in key Asian countries and a highly efficient platform
  • Improvement of digital capabilities as key initiative in PBC - Selective growth in Credit Products and expanding in investment and insurance business in advisory banking horizon partially mitigating impacts from low interest rate environment and leverage constraints
  • Achievement of synergies between Deutsche Bank and Postbank on the revenue and the cost side
  • Cost savings in light of Group-wide OpEx
  • Efficient use from our growth investments in key Asian countries
  • Significant economic decline potentially resulting in higher unemployment rates, increasing credit loss provisions and lower business growth
  • The development of investment product markets and respective revenues additionally depend on customer confidence for investments
  • Continued low interest rates potentially leading to a further margin compression
  • Synergies related to Postbank acquisition are not realized or are realized later than foreseen
  • Lower synergy achievement rates related to PBC’s efficiency programs
  • An environment of tightening regulation leading to further not yet anticipated impact on revenues and costs

Global Transaction Banking

  • Cost savings in light of Group-wide OpEx
  • Capitalize on synergies resulting from closer co-operation with other areas of the bank
  • Macroeconomic recovery
  • Interest rate recovery from mid 2015 onwards
  • Positive development of international trade volumes, cross-border payments and corporate actions
  • Deepening relationships with Complex Corporates and Institutional Clients in existing regions while pushing further growth in Emerging Markets
  • Successful turn-around of the commercial banking activities in the Netherlands
  • Slower recovery of the world economy and its impact on trade volumes, interest rates and foreign exchange rates
  • Unfavorable margin development and adverse competition levels in key markets and products beyond expected levels
  • Uncertainty around regulation and its potential implications not yet anticipated
  • Cost savings in light of Group-wide OpEx do not materialize as anticipated
  • Outcome of potential legal matters
  • Benefits from the turn-around measures of the commercial banking activities in the Netherlands are not realized as expected

Deutsche Asset & Wealth Management

  • Cost savings in light of Group-wide OpEx and Deutsche AWM platform optimization from merger of AM, PWM and Passive CB&S to form Deutsche AWM
  • Deutsche AWM’s overall internal strategy continuously informed by market trends and developments, including global wealth creation, a growing retirement market and the rapid expansion of alternatives and passive investment offerings
  • Expanding business with ultra high net worth clients
  • Building out the alternatives and passive/ETF businesses
  • Home market leadership in Germany through Wealth Management and DWS
  • Organic growth strategy in Asia/Pacific and Americas as well as intensified co-operation with CB&S and GTB
  • Strong coverage of emerging markets
  • Maintained or increased market share in the fragmented competitive environment
  • Major industry threats, i.e., market volatility, sovereign debt burden, increasing costs from regulatory changes
  • Investors continue to hold assets out of the markets, retreat to cash or simpler, lower fee products
  • Business/execution risks, i.e., under achievement of net new money targets from market uncertainty, loss of high quality relationship managers
  • Difficulties in executing organic growth strategies through certain restrictions, e.g. unable to hire relationship managers
  • Cost savings following efficiency gains and expected IT/process improvements are not achieved to the extent planned
  • Uncertainty around regulation and its potential implications not yet anticipated

Non-Core Operations Unit Wholesale Assets

  • Continued execution of successful de-risking program
  • Continued capitalization of other divisions sales and distribution networks to facilitate successful de-risking program
  • Potentially weaker macroeconomic environment due to still fragile growth impacted by event risks, particularly disorderly withdrawal of bank support for the global economy, leading to slowdown in activity and reduced ability to de-risk at an economically viable level
  • Structure and content of a range of regulatory changes being drafted in various jurisdictions could have a more severe impact than anticipated
  • Outcome of litigation cases

Non-Core Operations Unit Operating Assets

  • Continued efforts to improve the underlying performance of operating assets in preparation for eventual sale
  • Potentially weaker macroeconomic environment due to still fragile growth impacted by event risks, particularly disorderly withdrawal of bank support for the global economy, leading to slowdown in activity and reduced ability to dispose of operating assets at an economically viable level
  • Outcome of litigation cases

Sensitivities: In validating the value in use determined for the CGUs, certain external factors as well as the major value drivers of each CGU are reviewed regularly. Deutsche Bank’s market capitalization remained below book value in 2014. In order to test the resilience of the value in use, key assumptions used in the DCF model (for example, the discount rate and the earnings projections) are sensitized. Management believes that the only CGUs where reasonable possible changes in key assumptions could cause an impairment loss were CB&S and PBC, for which the recoverable amount exceeded the respective carrying amount by 16 % or € 5.0 billion (CB&S) and 63 % or € 9.9 billion (PBC).

Change in certain key assumptions to cause the recoverable to equal the carrying amount

Change in Key Assumptions

CB&S

PBC

N/M – Not meaningful

1

A rate of 0 % would still lead to a recoverable amount in excess of the carrying amount.

Discount rate (post tax) increase from/to

10.3 %/11.5 %

10.0 %/14.1 %

Projected future earnings in each period

(12) %

(34) %

Long term growth rates

N/M1

N/M1

The recoverable amounts of all remaining primary CGUs, except for those in the NCOU, were substantially in excess of their respective carrying amounts.

However, a review of the Group’s strategy or certain political or global risks for the banking industry such as a return of the European sovereign debt crisis, uncertainties regarding the implementation of already adopted regulation and the introduction of legislation that is already under discussion as well as a slowdown of GDP growth may negatively impact the performance forecasts of certain of the Group’s CGUs and, thus, could result in an impairment of goodwill in the future.


Key figures comparison

Compare key figures of the past years. more