Risk Management in Times of Crisis - Commerzbank · Risk Management in Times of Crisis Risk...

Stefan Schmittmann ‌‌‌ CRO ‌‌‌ Frankfurt/Main ‌‌‌ November 25th, 2009

Risk Management in Times of CrisisRisk Management – Investors’ Day 2009

2Stefan Schmittmann ‌‌‌ CRO ‌‌‌ Frankfurt/Main ‌‌‌ November 25th, 2009

Prepared for tighter regulatory framework

- New regulatory requirements lead to higher risk charges (e.g. for market risk)

Able to withstand ongoing stressed economy

- Economic downturn has been simulated with various internal and external stress scenarios (e.g. CEBS)

› Capital adequacy ensured for 2012

- Even the stress case of our current planning scenario ensures a Tier 1 capital ratio within the 7 – 9% target corridor

Credit RiskMarket RiskOpRisk

RWASep ‘09

Portfolioreduction /de-risking

Changed regulations /downgrades

2012

RWA Regulatorytier 1 capital

(after deductions)

32

Commerzbank is well capitalized and well prepared

293

293 < 290

Tier 1 ratio = 10.9%

Regulatory capital situationSep '09in € bn

Total RWA


Risk overview Commerzbank Group

88%85%83%Coverage ratio (in %)

20.719.418.2Default portfolio (in € bn)

2.91.80.8LLP (YtD, in € bn)

25%26%25%– thereof Market Risk (in %)

61%60%62%– thereof Credit Risk (in %)

20.820.420.8Economic Capitalrequirement (in € bn)

293297316RWA (in € bn)

Sep ‘09Jun ‘09Mar ‘09

6

31

8630

11352

34

81 Private Customers

112 Mittelstandsbank

25 Central & Eastern Europe

99 Corporates & Markets

258 Asset Based Finance

38 PRU

44 Others & Consolidation

Exposure at DefaultSep '09in € bn

Risk DensitySep '09in bp

Commerzbank Group: 39 bp

657


Portfolio details Mittelstandsbank

In the first three quarters, LLP increased, predominantly driven by Financial Institutions (FI) and International Corporates.

So far, domestic Mittelstand portfolio LLP remain at expected level.

Lower charges for Financial Institutions and International Corporates, but increasing LLP in the granular Mittelstand business expected for 2010.

Mittelstandsbank total: 52 bp

11265 Corporates Domestic

29 Corporates International

19 Banks

60

46

32




79

Portfolio details Commercial Real Estate

USA: US recession has ended. However, office and retail market prospects remain negative. Investment market stays weak, further write-offs are expected.

Spain: Deterioration of the economy proceeds; office markets will face a fierce environment for a longer period to come.

UK: Despite some recent economic improvements, the market environment for real estate financing has not yet recovered; short to medium term outlook for the office market continues to be subdued.

Germany: With broad based recovery of industrial sector, economic growth will gain momentum in the near future.

CRE total: 46 bp

60

32

8532

20

36

23146

37 Germany

8 Great Britain

5 Spain

5 France

3 Italy

10 Other EU countries

6 USA

5 Other

Risk Density Sep '09in bp



22

Portfolio details Shipping

Shipping total*: 106 bpRisk Density Sep '09in bp

Container: Depressed freight rates caused substantial losses for main liner companies.

Tanker: Declining energy demand led to market rates below full capital service costs.

Bulker: Satisfactory business driven by continued boom in emerging markets.

Overall no recovery expected for 2010; focus on managing existing portfolio and risk reduction.

78

157

96

119

159

6 Container

6 Tanker

5 Bulker

1 Offshore

4 Other


*) including €5bn EaD for financing of banks and municipalities by Deutsche Schiffsbank


25

Portfolio details Central & Eastern Europe

CEE total: 113 bp

LLP remain high due to weak market environment.

Economic situation in Ukraine has severely deteriorated. Further losses expected for Bank Forum

Poland has been one of the most resilient countries during the crisis in Eastern Europe

For 2010 we expect lower charges than 2009

20 BRE

1 CB Eurasija

1 Bank Forum

2 Other



74

214

1,000

55


Current forecast for charges against earnings more than €1bn below original guidance for 2009; more than 35% below 2008

Currentforecast

2009

Originalguidancefor 2009

7.3*

2008

9.7*

2.1

6.0

Target2012

Target2010

Target2011

LLP for core bank on track despite higher charges for Central and Eastern Europe

Increased LLP in Mittelstandsbankcompensated by lower charges in Investment Banking

Development of charges in ABF strongly dependent on bulk risks (CRE, Shipping)

LLP

Other charges

CoreABF

Currentforecast

2009

Originalguidancefor 2009

2008 Target2012

Target2010

Target2011

3.7*3.7*4.3

PRU

2.0

*restatement incl. €0.15bn unwinding effects

Charges against earningsSep '09in € bn

LLPSep '09in € bn

2.0Commerzbank Group< 0.1PRU

0.6Asset Based Finance0.3Corporates & Markets0.4Central & Eastern Europe0.4Mittelstandsbank0.3Private Customers

Target 2012LLP (in € bn)


2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Normalization of LLP expected after peak in 2009

Expected LossLLP

LLP vs. expected lossin bp of total lending

Due to time lag in rating cycle, current LLP significantly exceed statistically derived EL, …

… but are expected to converge towards EL by 2012

LLP expectation for 2012 of €2.0bn still conservative compared to normal levels(e.g. 2005 - 2007)17

9

5159

~ 35

15

2005 2006 2007 2008 Q1-Q32009*

2012E

Pre-crisis Crisis Post-crisis

Commerzbank GroupLLP in bp of EaD

* annualized


Top-down plausibility check of 2012 LLP planning (1)

MittelstandsbankLLP in bp of EaD

18

46

78

~ 30

-9

20

2005 2006 2007 2008 Q1-Q32009*

2012E

Winding down business with international, non-Germany related customers

Use of forward-looking and cash-flow based analysis of corporate portfolio

Selective new business based on credit processes along sector groups


Private ClientsLLP in bp of EaD

36 38

26

12

29~ 35

2005 2006 2007 2008 Q1-Q32009*

2012E

Pre-crisis Crisis Delayed LLP-effects anticipated until 2012

Continuous improvement of early warning triggers and processes

Pro-active adaption of policies to assure good quality of new business through the cycle

Post-crisis

* annualized



Corporates & MarketsLLP in bp of EaD

16

133

36 ~ 40

-1-7

2005 2006 2007 2008 Q1-Q32009*

2012E

De-risking in both Eastern European markets (Ukraine and Russia)

Setup of specialized restructuring and workout units with focus on Eastern Europe

New business based on sharpened credit conditions


Central & Eastern EuropeLLP in bp of EaD

24 729

79

281

~ 130

2005 2006 2007 2008 Q1-Q32009*

2012E


Continuous de-risking (e.g. bulk risks, legacy illiquid infrastructure, LBO transactions)

Customized credit strategies for banking sector - in particular for Emerging Markets

Setting tight risk frames for profitable but non-standard finance business

* annualized


Real EstateLLP in bp of EaD

~ 50

23

92 99

3045

2005 2006 2007 2008 Q1 - Q32009*

2012E


Public FinanceLLP in bp of EaD

~ 11211

4

2005 2006 2007 2008 Q1 - Q32009*

2012E



Real estate

Clear run-down targets; focus on bulk risks

Strict standards for selective new business

Shipping

Use of cash-flow oriented risk assessment

Restructuring where economically sensible

Public Finance

De-risking well on track (YTD 2009: -€23bn)

Asset Based FinanceLLP in bp of EaD

6

37

48

~ 30

916

2005 2006 2007 2008 Q1-Q32009*

2012E


**for 2005 – 2007 approximation including Dt. Schiffsbank* annualized

Shipping**LLP in bp of EaD

~ 75

-1

219

109

-2

2005 2006 2007 2008 Q1 - Q32009*

2012E



Credit risk in default portfolio comfortably covered by collateral and loan loss provisions

X% / Y% Coverage ratio excl./ incl. GLLP

Default portfolioExposures and Coverage RatiosSep '09, in € m

Default volume Loan loss provisions Collateral GLLP

NPL-Ratio*

2.5%

3.2%

2.7%

3.1%

3.8%

6.7%

2.7%

Default portfolio and coverage ratios contain all non performing loans (NPL), not only impaired loans *) NPL-Ratio: EaD Default portfolio / EaD Total (perf. + non-perf.)

Group 20,69080%/88% 18,182

PC 2,08584%/94% 1,955

MSB 4,40772%/81% 3,584

CEE 1,77575%/88% 1,570

C&M 2,719

67%/74% 2,023

ABF 8,611

92%/98% 8,455

PRU 1,04552%/54% 563

8,125

0

2,213

2,741

8,440

5,175

972

1,617

399

540

657/1,093/205

667/664/239

1,293/533/197

538/0/25


Targets for 2009 achieved to date

Reduction of Market Risk in trading book started

Improve portfolio structure by reducing risk concentrations

“Growing together”: Set course for the new bank

Set up a clear de-risking strategy


Set up a clear de-risking strategy: more than 40% of theexposure at default classified as “optimize” or “downsize”

Mar ‘09 Jun ‘09 Sep ‘09 2010–2012

720

659 657

Steps to reduce exposure in 2009:

- Balance sheet structure within C&M already significantly strengthened through reduction of non-core assets

- Targeted reduction of Public Finance portfolio

- Wind down business with international, non-Germany related customers

Further wind down of the portfolio by:

- Optimization of ABF business

- Downsizing of PRU assets

361 Core258 ABF

38 PRU

EaD BreakdownSep '09in € bn

EaD TrendSep '09in € bn

657


Improve portfolio structure by reducing risk concentrations

CoreABF

Commerzbank Group

204

184 183

Mar ‘09 Jun ‘09 Sep ‘09 2010–2012

PRU

-10%

Bulk RisksSep '09EaD in € bn

Shared Clients Task Force has already consolidated all relevant bulk risk exposure of new Commerzbank

Improved identification and measure-ment of bulk risks using a Monte Carlo-based asset value model as well as notional amounts

Significant reduction of bulk risk exposure by implementation of a clear de-risking strategy

Additional focus on reduction of risk concentrations in Real Estate and Shipping portfolio and on country risks


Reduction of Market Risk in trading book started

De-risking with focus on cutback of PRU positions

Ongoing reduction of Market-VaRplanned

2010–2012

75

68

Sep ‘09Dec ‘08

-10%

43% Credit Spreads

18% Interest Rates

26% Equities

12% Other

VaR trading book – trend(99%, 1 day) in € m

VaR trading book – breakdown(99%, 1 day)Sep '09in € m

68


„Growing together“: The course for the new bank has been set

The risk function ensures that the integration progress stays on track along with operating stability under the banner of “Growing Together”

Differences regarding:

• Risk strategies and policies

• Authority and committee structure

• Methods, models and systems

• Management and reporting tools

• etc.

• Operating stability ensured

• Risk strategy and main policies harmonized

• Initial committee and authority structures established

• Harmonization of models and methods enhanced

• Consolidated management and reporting implemented

• Enhancement of portfolio risk management and focused early warning

• Integrated monitoring / forecast of all important risk measures incl. timely management decisions

• Systems integration of market and credit risk management

• Harmonization and downsizing ofthe IT architecture

Two seperaterisk functions...Two separate risk functions... ...successfully merged......successfully merged... ...continually improving....continually improving.


Roadmap 2012

Wind down of Investment Banking credit portfolio

Further reduction of risk concentrations

Targeted reduction of PRU and CRE exposure

Reduction of LLP to €2.0bn


Appendix


Risk overview Private Customers

Private Customers total: 34 bp94%Coverage ratio (in %)

2.1Default portfolio (in € bn)

174LLP (YtD, in € m)

14%- thereof Market Risk (in %)

46%- thereof Credit Risk (in %)

2.1Economic Capitalrequirement (in € bn)

31.5RWA (in € bn)

Sep ‘09



3111

23

44

5131

37 Residential mortgage loans

14 Individual loans

11 Consumer and installment loans& credit cards

6 Domestic subsidiaries

6 Foreign subsidiaries & others

5 Investment Properties

81


Risk overview Mittelstandsbank

Mittelstandsbank total: 52 bp81%Coverage ratio (in %)






64.0RWA (in € bn)

Sep ’09



112

8436

2745

51

11118

6749

26 Financial Institutions

16 Basic Resources / Energy / Metal

16 Consumption

8 Sovereigns

7 Technology / Elektronics

7 Machines7 Services / Media

6 Transport / Tourism

19 Others




88%Coverage ratio (in %)






19.0RWA (in € bn)

Sep ‘09

CEE total: 113 bp

Risk overview Central & Eastern Europe

74

214

1000

55

20 BRE

1 CB Eurasija

1 Bank Forum

2 Other

25


99

Risk overview Corporates & Markets

Corporates & Markets total: 31 bp74%Coverage ratio (in %)






60.2RWA (in € bn)

Sep ‘09



17

73

20

29

26

40

34 Germany

35 Europe (excl. Germany)

18 North America

2 Central & Eastern Europe

1 Asia (incl. Middle East)

8 Other


Risk overview Asset Based Finance

Asset Based Finance total: 30 bp98%Coverage ratio (in %)






90.1RWA (in € bn)

Sep ‘09



258

6

106

41

*) including € 20bn Eurohypo Retail **) additional € 5 bn financing of banks and municipalities by Deutsche Schiffsbank (included in ABF total figure)

99 Real Estate*

22 Shipping**

133 Public Finance


Regulatory Capital and Expected LossSep '09 in € m

For regulatory purposes stand alone AMA-models for Commerzbank and Dresdner Bank still in use (reg. capital = €1,545m)

Integrated model (currently in discussion with the regulator) would result in a RWA-reduction of €2.6bn

Legal provisions reflect clients’increased readiness for legal actions

Financial crisis leads to an increase in product-related events

OpRisk calculation based on integrated model for the new bank

Losses and provisionsYtD Sep ‘09in € m

123 Provisions

22 Process related events

21 Product related events

7 External Fraud

2 Other

7101Others & Consolidation

1,340

126

46

434

74

169

391

Reg. Capital

177Total

10Asset Based Finance

7PRU

66Corporates & Markets

5Central & Eastern Europe

25Mittelstandsbank

57Private Customers

Expected LossSegment

7101Others & Consolidation

1,340

126

46

434

74

169

391

Reg. Capital

177Total

10Asset Based Finance

7PRU

66Corporates & Markets

5Central & Eastern Europe

25Mittelstandsbank

57Private Customers

Expected LossSegment

175


GlossaryABS (Asset Backed Securities) Securities whose interest payment and repayment of principal are covered, or backed, by the

underlying pool of claims. As a rule they are issued by a special purpose entity in securitized form.

AfS (Available-for-Sale) IFRS category. Financial instruments which are not used for dealing purposes, but neverthelessmight be sold.

EaD (Exposure at Default) Outstanding loan amount on default date (exposure at default). All products (including letters ofcredit, open committed lines, derivatives, etc.) are converted to the default risk of a cash loan basedon individual credit conversion factors or CCFs (e. g. undrawn externally committed lines at ~ 50%).EaD also represents the best estimate of the maximum credit risk position under IFRS.

EL (Expected Loss) Measure of the potential loss of a loan portfolio which can be expected within a single year on thebasis of historical loss data.

LLP (Loan Loss Provision) LLP (Loan Loss Provision): Provision for possible loan lossesGLLP (General Loan Loss Provision) is calculated for latent risks in the performing loan book (non-default), representing coverage for general credit risks which have not yet become transparent.Starting point for the calculation is the Expected Loss (EL) on basis of Basle II parametersSLLP (Specific Loan Loss Provision) is calculated for significant exposures in the non-performingloan book (default) on the basis of expected cash flows from collaterals and repayments discountedto a present value. Port LLP (Portfolio Loan Loss Provision) is calculated for non-significant exposures in the non-performing loan book (default) on the basis of Basle II parameters.

LaR (Loans and Receivables) IFRS category. Financial instruments not traded at official markets.

Monte Carlo Simulation

Monte Carlo Simulation is a method of calculating Value at Risk by simulating a stochastic model alarge number of times (e.g. 10 000).

Risk density Ratio of Expected Loss and Exposure at Default

RWA (Risk-Weighted Assets) Risk-weighted assets calculated according to the provisions of the German Solvency Regulation(Solvabilitätsverordnung)

VaR (Value at Risk) VaR refers to a method of quantifying risk. VaR is only informative if holding period (e.g. 1 day) andconfidence level (e.g. 99%) are specified. VaR figure then indicates the loss ceiling which will not beexceeded within the holding period with a probability corresponding to the confidence level.

For more information, please contact Commerzbank´s IR team:

[email protected]

Jürgen Ackermann (Head of Investor Relations)P: +49 69 136 22338M: [email protected]

Christina Perić (Assistant)P: +49 69 136 22255 M: [email protected]

Michael H. Klein (Head of Equity IR)P: +49 69 136 24522M: [email protected]

Sandra BüschkenP: +49 69 136 23617M: [email protected]

Dr. Frank GrobeP: +49 69 263 50780M: [email protected]

Ute Heiserer-JäckelP: +49 69 136 41874M: [email protected]

Simone NuxollP: +49 69 136 45660M: [email protected]

Stefan PhilippiP: +49 69 136 45231M: [email protected]

Klaus-Dieter Schallmayer (Head of FR/FI)P: +49-69 263 57628M: [email protected]

Wennemar von BodelschwinghP: +49 69 136 43611M: [email protected]

Michael DesprezP: +49 69 263 54357M: [email protected]

Karsten SwobodaP: +49 69 136 22339M: [email protected]

Dirk Bartsch (Head of Strategic Research)P: +49 69 136 2 2799 M: [email protected]

Markus BärP: +49 69 136 43886 M: [email protected]

Ulf PlesmannP: +49 69 136 43888 M: [email protected]

Financial Reporting / Fixed IncomeEquity IR Strategic Research


Disclaimerinvestor relations

This presentation has been prepared and issued by Commerzbank AG. This publication is intended for professional and institutional customers.Any information in this presentation is based on data obtained from sources considered to be reliable, but no representations or guarantees are made by Commerzbank Group with regard to the accuracy of the data. The opinions and estimates contained herein constitute our best judgement at this date and time, and are subject to change without notice. This presentation is for information purposes, it is not intended to be and should not be construed as an offer or solicitation to acquire, or dispose of any of the securities or issues mentioned in this presentation.Commerzbank AG and/or its subsidiaries and/or affiliates (herein described as Commerzbank Group) may use the information in this presentation prior to its publication to its customers. Commerzbank Group or its employees may also own or build positions or trade in any such securities, issues, and derivatives thereon and may also sell them whenever considered appropriate. Commerzbank Group may also provide banking or other advisory services to interested parties.Commerzbank Group accepts no responsibility or liability whatsoever for any expense, loss or damages arising out of, or in any way connected with, the use of all or any part of this presentation.

This publication contains forward-looking statements on Commerzbank’s business and earnings performance, which are based upon our current plans, estimates, forecasts and expectations. The statements entail risks and uncertainties, as there are a variety of factors which influence our business and to a great extent lie beyond our sphere of influence. Above all, these include the economic situation, the state of the financial markets worldwide and possible loan losses. Actual results and developments may, therefore, diverge considerably from our current assumptions, which, for this reason, are valid only at the time of publication. We undertake no obligation to revise our forward-looking statements in the light of either new information or unexpected events. Copies of this document are available upon request or can be downloaded from www.commerzbank.com/aktionaere/index.htm

Germany: Commerzbank AG is registered in the Commercial Register at the Amtsgericht Frankfurt (local court) under the number HRB 32000 and is subject to supervision by the Bundesanstalt für Finanzdienstleistungen (BaFin), Lurgiallee 12, 60439 Frankfurt© Commerzbank 2009. All rights reserved.

Commerzbank AG GM-CKaiserplatz60261 FrankfurtTel.: + 49 69 136 222 55

Risk Management in Times of Crisis - Commerzbank · Risk Management in Times of Crisis Risk...

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