Deutsche Bank

Annual Report 2015

Risk Profile

The table below shows our overall risk position as measured by the economic capital usage calculated for credit, market, operational and business risk for the dates specified. To determine our overall (economic capital) risk position, we generally consider diversification benefits across risk types.

Overall risk position as measured by economic capital usage by risk type

 

 

 

2015 increase (decrease)
from 2014

in € m.
(unless stated otherwise)

Dec 31, 2015

Dec 31, 2014

in € m.

in %

1

Diversification benefit across credit, market, operational and strategic risk (largest part of business risk).

Credit risk

13,685

12,885

799

6

Market risk

17,436

14,852

2,583

17

Trading market risk

4,557

4,955

(397)

(8)

Nontrading market risk

12,878

9,898

2,981

30

Operational risk

10,243

7,598

2,644

35

Business risk

5,931

3,084

2,846

92

Diversification benefit1

(8,852)

(6,554)

(2,297)

35

Total economic capital usage

38,442

31,866

6,576

21

As of December 31, 2015, our economic capital usage amounted to € 38.4 billion, which was € 6.6 billion, or 21 %, above the € 31.9 billion economic capital usage as of December 31, 2014. The higher overall risk position was mainly driven by a higher loss profile for strategic risk and operational risk, methodology enhancements in nontrading market risk and internal model recalibration in credit risk.

The economic capital usage for credit risk increased to € 13.7 billion as of December 31, 2015, € 799 million or 6 % higher compared to year-end 2014. This change mainly reflects increases from the internal model recalibration.

The economic capital usage for trading market risk decreased by € 397 million and was mainly driven by reductions in the credit spread and foreign exchange components. Nontrading market risk economic capital usage increased by € 3.0 billion or 30 % to € 12.9 billion as of December 31, 2015. The increase is mainly driven by methodology enhancements with regards to capturing credit spread risk of securities held as liquidity reserve, participation and equity compensation risk as well as an increased structural foreign exchange risk exposure mostly due to appreciation of the US dollar against the Euro. 

The operational risk economic capital usage totaled € 10.2 billion as of December 31, 2015, which is € 2.6 billion or 35 % higher compared to year-end 2014. The increase was mainly driven by legal operational risk losses including legal provisions and an increased operational risk loss profile of the industry as a whole. This is reflected in the operational risk loss data that has given rise to the increased economic capital usage and which is largely due to the outflows related to litigation, investigations and regulatory enforcement actions.

Our business risk economic capital methodology captures strategic risk, which also implicitly includes elements of non-standard risks including refinancing and reputational risk, and a tax risk component. The business risk increased by € 2.8 billion to € 5.9 billion as of December 31, 2015. This increase reflected a higher economic capital usage for the strategic risk component driven by a combination of planned restructuring costs and conservative earnings expectations for 2016.

The inter-risk diversification effect of the economic capital usage across credit, market, operational and strategic risk increased by € 2.3 billion, or 35 %, as of December 31, 2015, due to an increase in economic capital usage before diversification and a methodology update in the first quarter 2015.

Our mix of various business activities results in diverse risk taking by our business divisions. We also measure the key risks inherent in their respective business models through the undiversified Total Economic Capital (EC) metric, which mirrors each business division’s risk profile before taking into account cross-risk effects at the Group level.

Risk profile of our business divisions as measured by economic capital and risk-weighted assets

 

Dec 31, 2015

in € m. (unless stated otherwise)

Corporate Banking & Securities

Private & Business Clients

Global Transaction Banking

Deutsche Asset & Wealth Management

Non-Core Operations Unit

Consoli-
dation & Adjustments

Total in € m.

Total in %

N/M – Not meaningful

1

Diversification benefit across credit, market, operational and strategic risk (largest part of business risk).

2

Risk weighted assets and capital ratios are based upon CRR/CRD 4 fully-loaded.

Credit Risk

6,634

3,724

2,076

456

777

18

13,685

36

Market Risk

5,722

4,264

203

2,248

695

4,303

17,436

45

Operational Risk

6,778

871

1,077

1,054

463

0

10,243

27

Business Risk

5,662

0

7

1

261

0

5,931

15

Diversification Benefit1

(5,691)

(1,314)

(622)

(714)

(377)

(133)

(8,852)

(23)

Total EC in € m.

19,105

7,544

2,741

3,045

1,819

4,188

38,442

100

in %

50

20

7

8

5

11

100

N/M

Risk-weighted assets2

195,096

80,016

52,062

23,795

34,463

11,283

396,714

N/M

 

Dec 31, 2014

in € m. (unless stated otherwise)

Corporate Banking & Securities

Private & Business Clients

Global Transaction Banking

Deutsche Asset & Wealth Management

Non-Core Operations Unit

Consoli-
dation & Adjustments

Total in € m.

Total in %

N/M – Not meaningful

1

Diversification benefit across credit, market, operational and strategic risk (largest part of business risk).

2

Risk weighted assets and capital ratios are based upon CRR/CRD 4 fully-loaded. Amounts allocated to the business segments have been restated to reflect comparatives according to the structure as of December 31, 2015.

Credit Risk

5,799

3,547

2,302

323

868

46

12,885

40

Market Risk

5,153

3,200

185

1,987

1,308

3,020

14,852

47

Operational Risk

3,569

1,088

150

722

2,070

0

7,598

24

Business Risk

2,581

0

4

1

499

0

3,084

10

Diversification Benefit1

(3,441)

(1,095)

(262)

(611)

(1,087)

(59)

(6,554)

(21)

Total EC in € m.

13,661

6,740

2,379

2,420

3,658

3,008

31,866

100

in %

43

21

7

8

11

9

100

N/M

Risk-weighted assets2

175,575

79,571

43,265

16,597

58,524

20,437

393,969

N/M

Corporate Banking & Securities’ (CB&S) risk profile is dominated by its trading in support of origination, structuring and market making activities, which gives rise to market risk and credit risk. Further credit risks originate from exposures to corporates and financial institutions. The share of the operational risk in CB&S’ risk profile has increased significantly over the last year reflecting a higher loss profile in the industry, internal losses as well as a change in the allocation methodology within the Group. The remainder of CB&S’ risk profile is derived from strategic risk component of the business risk in light of the less optimistic earnings outlook for 2016.

Private & Business Clients’ (PBC) risk profile comprises credit risk from retail and small and medium-sized enterprises (SMEs) lending as well as nontrading market risk from investment risk, modeling of client deposits and credit spread risk. The increase in PBC’s overall risk profile over 2015 was mainly driven by methodology update for investment risk (primarily related to Hua Xia Bank Co. Ltd.) as well as higher credit spread risk.

Global Transaction Banking’s (GTB) revenues are generated from various products with different risk profiles. The vast majority of its risk relates to credit risk in the Trade Finance business and operational risk. The relatively low market risk mainly results from modeling of client deposits.

The main risk driver of Deutsche Asset & Wealth Management’s (Deutsche AWM) business are guarantees on investment funds, which we report as nontrading market risk. Otherwise Deutsche AWM’s advisory and commission focused business attracts primarily operational risk. The increased economic capital usage over 2015 was mainly driven by a higher non-trading market risk from increased credit spread and default risk in guaranteed funds’ portfolio composition as well as an increased share from group operational risk capital based on the change in the divisional allocation methodology within the AMA model.

The Non-Core Operations Unit (NCOU) portfolio includes activities that are non-core to the Bank’s future strategy; assets earmarked for de-risking; assets suitable for separation; assets with significant capital absorption but low returns; and assets exposed to legal risks. NCOU’s risk profile covers risks across the entire range of our operations primarily comprising credit and market risks targeted where possible for accelerated de-risking. The share of the operational risk in NCOU’s risk profile has decreased significantly over the last year reflecting a change in the allocation methodology within the Group.

Consolidation & Adjustments mainly comprises nontrading market risk for structural foreign exchange risk, pension risk and equity compensation risk. The increase in nontrading market risk compared to 2014 was mainly driven a higher structural foreign exchange risk and a methodology change for equity compensation risk.