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

 (unaudited)

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 of 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

 

Sep 30, 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 € 85 million and € 34 million as at September 30, 2014 and December 31, 2013, respectively.

Trading assets reclassified to loans:

 

 

 

 

Securitization assets

1,984

2,095

1,985

1,872

Debt securities

1,048

1,122

1,062

1,068

Loans

1,458

1,190

2,367

2,064

Total trading assets reclassified to loans

4,490

4,407

5,415

5,004

Financial assets available for sale reclassified to loans:

 

 

 

 

Securitization assets

1,726

1,765

1,972

1,955

Debt securities

1,308

1,439

1,220

1,284

Total financial assets available for sale reclassified to loans

3,034

3,203

3,192

3,239

Total financial assets reclassified to loans

7,5231

7,610

8,606

8,243

All reclassified assets are managed by NCOU and disposal decisions across this portfolio are made by NCOU in accordance with their remit to take de-risking decisions. For the nine months ending September 30, 2014, the Group sold reclassified assets with a carrying value of € 93 million, resulting in a net gain of € 5.7 million.

In addition to sales, the decrease in the carrying value of assets previously classified as trading includes redemptions and maturities of € 979 million. The reduction in the carrying value of assets previously classified as available for sale includes redemptions and maturities of € 417 million.

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

 

Three months ended

Nine months ended

in € m.

Sep 30, 2014

Sep 30, 2013

Sep 30, 2014

Sep 30, 2013

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

74

(3)

286

167

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

2

0

(6)

0

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

(1)

0

141

78

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

 

Three months ended

Nine months ended

in € m.

Sep 30, 2014

Sep 30, 2013

Sep 30, 2014

Sep 30, 2013

1

Significant reduction in interest income driven by accelerated de-risking during 2013.

2

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

Interest income1

22

57

98

250

Provision for credit losses

(23)

(175)

(60)

(310)

Other income2

0

(12)

5

(171)

Income (loss) before income taxes on reclassified trading assets

(1)

(130)

42

(231)

Interest income

25

28

62

76

Provision for credit losses

(4)

(24)

(9)

(24)

Other income2

0

0

0

(47)

Income (loss) before income taxes on reclassified financial assets available for sale

20

4

53

5

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

All IAS 39 reclassified assets were transferred into NCOU upon creation of the new division in the fourth quarter of 2012. 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 reclassification in 2008 and 2009

 

Sep 30, 2014

Dec 31, 2013

in € m.

Carrying value (CV)

Fair value (FV)

Unrealized gains/(losses)

Carrying value (CV)

Fair value (FV)

Unrealized gains/(losses)

Securitization assets and debt securities reclassified:

 

 

 

 

 

 

US municipal bonds

2,218

2,422

204

2,155

2,232

77

Student loans ABS

1,359

1,488

129

1,263

1,305

42

CDO/CLO

781

751

(31)

979

938

(41)

Covered bond

889

955

66

885

788

(97)

Commercial mortgages securities

188

188

1

281

260

(21)

Residential mortgages ABS

80

83

3

74

71

(3)

Other

550

532

(18)

602

585

(17)

Total securitization assets and debt securities reclassified

6,066

6,420

354

6,239

6,179

(60)

Loans reclassified:

 

 

 

 

 

 

Commercial mortgages

561

551

(10)

1,463

1,428

(35)

Residential mortgages

836

596

(240)

844

598

(246)

Other

61

44

(17)

61

38

(22)

Total loans reclassified

1,458

1,190

(267)

2,367

2,064

(303)

Total financial assets reclassified to loans

7,523

7,610

87

8,606

8,243

(363)