Risk Management Executive Summary

Credit Risk Summary

  • Concerns over the outlook for global growth, coupled with geopolitical concerns and fears over the impact of US monetary policy tightening, drove a significant increase in market volatility in late September/early October. These concerns centered primarily on the eurozone where GDP stagnated in Q2 and is expected to grow only marginally in the second half of the year before a pick-up in 2015. The ECB has responded to this, and falling inflation, with additional stimulus measures including rate cuts and preparations for private sector asset purchases. In contrast, growth in the US remains solid supported by improving labour market conditions. The picture is mixed across Emerging Markets, but growth in aggregate is expected to accelerate modestly in 2015. Geopolitical risks remain elevated with tensions between Russia and the West in relation to the Ukraine escalating further in Q3 and pockets of heightened stress in the Middle East, Hong Kong and Africa. Potential impacts of these events on the credit portfolio are being monitored closely and we currently expect no material credit losses as a result. Credit exposure to Russia based on a country of domicile principle is € 5.2 billion as of September 30, 2014, focused on corporates in strategically important industry sectors. Credit exposure to Ukraine is relatively small at € 0.5 billion as of Septem-ber 30, 2014.
  • Provision for credit losses was € 765 million in the first nine months 2014, a decrease of € 575 million, or 43 %, compared to the first nine months 2013. This reduction primarily results from lower provisioning in NCOU, the non-recurrence of large single items in our Core businesses recorded in the first nine months 2013 and the ongoing good quality of the German retail market.
  • Increase in corporate credit exposure by € 57.0 billion or 11.9 % driven by acquisition financings, ongoing growth strategy in Asia and increased loan exposures in North America.
  • The portion of our corporate credit portfolio book carrying an investment-grade rating amounted to 72 % at September 30, 2014, marginally higher compared with December 31, 2013.
  • The economic capital usage for credit risk increased by € 1.1 billion to € 13.1 billion as of September 30, 2014, compared with € 12.0 billion at year-end 2013. This was mainly driven by higher risk exposures in CB&S.

Market Risk Summary

  • The nontrading market risk economic capital usage increased to € 9.8 billion as of September 30, 2014, compared with € 8.5 billion at year-end 2013. This increase was caused by a € 968 million increase in other non trading market risk economic capital mainly driven by higher Structural FX exposure and methodology enhancements for pension risk implemented in the second quarter 2014 and a € 338 million higher investment risk economic capital.
  • The economic capital usage for trading market risk totalled € 4.6 billion as of September 30, 2014, compared with € 4.2 billion at year-end 2013. The increase was mainly driven by increased exposures in the fair value banking book.
  • The average value-at-risk for the first nine months of 2014 was € 53.4 million and decreased slightly by € 0.2 million compared with the full year 2013. There has been a decrease in credit spread risk and commodities risk offset by an increase in interest rate risk and equity risk. Diversification benefit across risk types has decreased due to changes in the portfolio composition.

Operational Risk Summary

  • The economic capital usage for operational risk increased by € 1.5 billion to € 6.8 billion as of September 30, 2014, compared with € 5.3 billion at year-end 2013. The increase was mainly driven by an early recognition of the impact of model enhancements to our Advanced Measurement Approach (AMA) model implemented in the second quarter.
  • While our dialogue with BaFin on these model enhancements is ongoing, management has decided to recognise the impact of these model changes where such changes will lead to an increase in capital requirement over our models that have been previously approved by BaFin.

Liquidity Risk Summary

  • Liquidity reserves amounted to € 188 billion as of September 30, 2014 (compared with € 196 billion as of December 31, 2013). We maintained a positive liquidity stress result as of September 30, 2014 (under the combined scenario).
  • Our issuance plan of € 30-35 billion was completed in September 2014. Capital markets issuance activities in the first nine months of 2014 amounted to € 36.2 billion.
  • 72 % of our overall funding came from the funding sources we categorize as the most stable including capital markets issuance and equity, retail and transaction banking deposits.

Capital Management Summary

  • The CRR/CRD 4 Common Equity Tier 1 capital ratio was 14.7 % as of September 30, 2014, compared with 14.6 % at year-end 2013.
  • Risk-weighted assets according to CRR/CRD 4 increased by € 104 billion to € 404 billion as of September 30, 2014, compared with € 300 billion according to Basel 2.5 at year-end 2013, largely reflecting the impact of the CRR/CRD 4 framework.
  • The internal capital adequacy ratio increased to 177 % as of September 30, 2014, compared with 167 % as of December 31, 2013.
  • The CRR/CRD 4 fully loaded Common Equity Tier 1 ratio was 11.5 % as of September 30, 2014, compared with 9.7 % at year-end 2013.

Balance Sheet Management Summary

  • Our leverage ratio calculated as the ratio of total assets under IFRS to total equity under IFRS was 24 as of September 30, 2014, down compared with 29 at year end 2013.
  • As of September 30, 2014, our fully loaded CRR/CRD 4 leverage ratio, which is a non-GAAP financial measure, was 3.3 %, compared with 2.4 % as of December 31, 2013, taking into account a fully loaded Tier 1 capital of € 49.5 billion over an applicable exposure measure of € 1,478 billion (€ 34.0 billion and € 1,445 billion as of December 31, 2013, respectively).
  • On October 10, 2014 the European Commission adopted a delegated act introducing substantial changes in the calculation which lead to an increase of the leverage exposure measure to € 1,526 billion and a decrease of the leverage ratio to 3.2 % as of September 30, 2014.