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Commerzbank AG — Interim / Quarterly Report 2020
Aug 5, 2020
81_10-q_2020-08-05_4a6bdc88-8470-4fdf-a240-a3c15624ecf4.pdf
Interim / Quarterly Report
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Interim Report as at 30 June
Key figures
| Income statement | 1.1.-30.6.2020 | 1.1.-30.6.20191 |
|---|---|---|
| Operating profit (€m) | – 74 | 555 |
| Operating profit per share (€) | – 0.06 | 0.44 |
| Pre-tax profit or loss (€m) | – 74 | 555 |
| Consolidated profit or loss2 (€m) | – 96 | 401 |
| Earnings per share (€) | – 0.08 | 0.32 |
| Operating return on equity based on CET3, 4 (%) | – 0.6 | 4.7 |
| Return on equity of consolidated profit or loss4, 9 (%) | – 1.0 | 3.2 |
| Cost/income ratio in operating business (excl. compulsory contributions) (%) | 73.5 | 73.4 |
| Cost/income ratio in operating business (incl. compulsory contributions) (%) | 82.5 | 81.1 |
| Balance sheet | 30.6.2020 | 31.12.20191 |
| Total assets (€bn) | 550.6 | 463.6 |
| Risk-weighted assets (€bn) | 187.1 | 181.8 |
| Equity as shown in balance sheet (€bn) | 31.8 | 30.6 |
| Total capital as shown in balance sheet (€bn) | 40.0 | 38.5 |
| Regulatory key figures | 30.6.2020 | 31.12.2019 |
| Tier 1 capital ratio (%) | 14.8 | 14.3 |
| Common Equity Tier 1 ratio5 (%) | 13.4 | 13.4 |
| Common Equity Tier 1 ratio5 (fully loaded, %) | 13.4 | 13.4 |
| Total capital ratio (%) | 17.6 | 16.8 |
| Leverage ratio (%) | 4.8 | 5.3 |
| Leverage ratio (fully loaded, %) | 4.7 | 5.1 |
| Staff | 30.6.2020 | 31.03.2020 |
| Germany | 33,417 | 33,775 |
| Abroad | 14,132 | 14,122 |
| Total | 47,549 | 47,897 |
| Ratings6 | 30.6.2020 | 31.03.2020 |
| Moody's Investors Service, New York7 | A1/A1/P– 1 | A1/A1/P– 1 |
| S&P Global, New York8 | A–/BBB+/A– 2 | A–/BBB+/A– 2 |
| Fitch Ratings, New York/London7 | BBB+/BBB/F2 | BBB+/BBB/F2 |
1 Prior-year figures restated.
2 Insofar as attributable to Commerzbank shareholders.
3 Average Common Equity Tier 1 capital (CET 1) fully loaded.
4 Annualised.
5 The Common Equity Tier 1 ratio is the ratio of Common Equity Tier 1 capital (CET1) mainly subscribed capital, reserves and deduction items) to risk-weighted assets. The fully loaded basis anticipates full application of the new regulations.
6 Further information can be found online at www.commerzbank.com.
7 Counterparty rating and deposit rating/issuer credit rating/short-term liabilities.
8 Counterparty rating/deposit rating and issuer credit rating/short-term liabilities. The downgrade of the counterparty
rating/deposit rating and issuer rating in April 2020 is already shown here
9 Ratio of net income attributable to Commerzbank shareholders after potential (completely discretionary) AT1-Coupon and average IFRS equity afterdeduction of goodwill and other intangible assets without additional equity components and before minorities.
Due to rounding, numbers and percentages in this report may not add up precisely to the totals provided.
Contents
4 Performance highlights 1 January to 30 June 2020
7 Interim Management Report
- 8 Economic conditions
- 8 Financial performance, assets, liabilities and financial position
- 12 Segment performance
- 14 Outlook and opportunities report
17 Interim Risk Report
- 18 Risk-oriented overall bank management
- 19 Default risk
- 26 Market risk
- 29 Liquidity risk
- 31 Operational risk
- 31 Other risks
36 Interim Financial Statements
- 38 Statement of comprehensive income
- 43 Balance sheet
- 44 Statement of changes in equity
- 46 Cash flow statement (condensed version)
- 47 Selected notes
- 116 Boards of Commerzbank Aktiengesellschaft
- 117 Responsibility statement by the Board of Managing Directors
- 118 Review report
U3 Significant Group companies
Performance highlights 1 January to 30 June 2020
Key statements
- Commerzbank performed well in customer business in the first half of 2020. On Group level, the Bank increased its net interest and commission income by around 6% compared with the same period of the previous year. In the Private and Small-Business Customers segment (PSBC), the Bank achieved further growth in customers and in lending and securities volume, primarily through its digital offerings. Adjusted income in the Private and Small-Business Customers segment was thus slightly higher in the first half of 2020, while in the Corporate Clients segment it was almost unchanged versus the prior-year level. An operating loss of €–74m was reported, despite a cost reduction of around 4%, due to a sharp increase in the risk result and negative impacts on earnings from revaluation effects.
- The Group risk result was reported at €–795m. The significant increase year on year was due in particular to the coronavirus pandemic and the unexpected impairment of a single loan commitment in the second quarter of 2020. The non-performing exposure (NPE) ratio was 0.8%.
- Operating expenses were reduced by 3.7% to €3,030m thanks to systematic cost management. Compulsory contributions, which include the European banking levy, contributions to the Deposit Protection Fund and the Polish bank tax, were reported separately and rose to €374m, due primarily to an increase in total assets and changed calculation parameters.
- The consolidated loss attributable to Commerzbank shareholders and investors in additional equity components was €–96m, compared with a profit of €401m in the prior-year period.
- The Common Equity Tier 1 ratio was 13.4%; the leverage ratio was 4.7% (fully loaded).
- The operating return on equity was –0.6%, compared with 4.7% in the prior-year period. The return on equity based on consolidated profit or loss (less intangible assets and AT1-related items) was –1.0%, compared with 3.2% in the previous year. The cost/income ratio was 73.5% with compulsory contributions excluded and 82.5% including compulsory contributions.
Performance of the Commerzbank share
In the first six months of 2020, events on the international stock markets were significantly overshadowed by the outbreak of the coronavirus pandemic and the measures taken to contain it. In the wake of the outbreak, previously dominant geopolitical events receded into the background, including tensions in the trade conflict between the USA and China, economic sanctions against Iran and continued unrest in the Middle East. A significant decline in business activity in conjunction with the stay-at-home restrictions for the general public and the phased shutdown of entire branches of industry ultimately led to a marked slump in economic output in Germany. Uncertainties about a potential economic recovery weighed on medium-term interest and inflation expectations both in the eurozone and worldwide. However, following a dramatic slump in the first quarter of 2020, leading stock exchanges have since recorded a positive trend reversal, which is largely attributable to extensive monetary policy measures, such as the long-term refinancing operations made available to the banks, and the announcement of
broad-based government emergency financial aid to companies damaged by the coronavirus pandemic. While the DAX lost around 7% in the first six months of the year, the EuroStoxx 50 fell by around 13%. Rising risk costs and the resulting significant reduction in profit expectations for 2020 were the main reasons why European banks performed far less well than the market as a whole. As the EuroStoxx Banks Index fell by 35.0% in the first six months of the year, the Commerzbank share price dropped by 28.1%.
| Highlights of the Commerzbank share | 1.1.–30.6.2020 | 1.1.–30.6.2019 |
|---|---|---|
| Shares issued in million units (30.6.) | 1,252.4 | 1,252.4 |
| Xetra intraday prices in € | ||
| High | 6.83 | 8.26 |
| Low | 2.80 | 5.59 |
| Closing price (30.6.) | 3.97 | 6.32 |
| Daily trading volume1 in million units | ||
| High | 38.1 | 19.7 |
| Low | 4.5 | 3.1 |
| Average | 15.3 | 7.8 |
| Index weighting in % (30.6.) | ||
| MDAX | 1.4 | 2.6 |
| EuroStoxx Banks | 0.3 | 0.7 |
| Earnings per share in € | – 0.08 | 0.32 |
| Book value per share2 in € (30.6.) | 22.67 | 22.40 |
| Net asset value per share3 in € (30.6.) | 21.42 | 21.20 |
| Market value/Net asset value (30.6.) | 0.19 | 0.30 |
1 Total for German stock exchanges.
2 Excluding non-controlling interests.
3 Excluding non-controlling interests and the cash flow hedge reserve and less goodwill.
Important staffing and business policy events in the second quarter
Changes in the Supervisory Board of Commerzbank
Anja Mikus and Dr. Markus Kerber both resigned as members of the Supervisory Board with effect from the date of the Annual General Meeting on 13 May 2020. As proposed by the Supervisory Board, the Annual General Meeting elected Dr. Jutta Dönges (Managing Director of the Federal Republic of Germany – Finanzagentur GmbH) and Dr. Frank Czichowski to the Supervisory Board of Commerzbank Aktiengesellschaft on 13 May 2020.
On 3 July 2020, Dr. Stefan Schmittmann announced his resignation as Chairman of the Supervisory Board of Commerzbank with effect from 3 August 2020. At its meeting on 3 August 2020, the Supervisory Board of Commerzbank elected Hans-Jörg Vetter as the future Chairman of the Supervisory Board. With his judicial appointment on 4 August 2020 this election became effective.
For full details of the Supervisory Board and the composition of the individual committees, please refer to the Commerzbank website at https://www.commerzbank.de/en/hauptnavigation/konzern/management_1/aufsichtsrat/index.html.
Changes in the Board of Managing Directors of Commerzbank
On 3 July 2020, Martin Zielke, Chairman of the Board of Managing Directors of Commerzbank, proposed to the Presiding and Nomination Committee of the Supervisory Board that his appointment to the Board of Managing Directors be terminated prematurely by mutual agreement if, in the view of the Supervisory Board, this is in the Bank's interest. On the recommendation of the Presiding and Nomination Committee, the Supervisory Board resolved by mutual agreement at its meeting on 8 July 2020 to terminate Martin Zielke's appointment and employment contract as Chairman of the Management Board. Martin Zielke has agreed to continue leading the Bank's operations in full until the succession is clarified. He will leave his post by 31 December 2020 at the latest.
Commerzbank successfully issues additional Tier 1 bond
At the beginning of June 2020, Commerzbank Aktiengesellschaft successfully issued the first additional Tier 1 bond under its new issuance programme for additional Tier 1 capital (AT1). The bond has a volume of €1.25bn and a fixed coupon of 6.125% per annum. At €9.5bn, the order book was heavily oversubscribed, reflecting the widespread interest among investors.
With the issue of the AT1 bond, Commerzbank is strengthening and optimising its capital structure and taking advantage of the most recent regulatory changes allowing AT1 to be used to a greater extent in meeting capital requirements. At the end of May 2020, the Bank launched an issuance programme that will enable it to successively issue subordinated debt securities with a total nominal value of up to €3bn over the next few years.
The new AT1 bond has a perpetual maturity and the first call date is in the period from October 2025 to April 2026. The bond terms provide for a temporary write-down in the event that the Bank's Common Equity Tier 1 ratio (CET1 ratio) drops below 5.125%. Shareholders' subscription rights were excluded.
Interim Management Report
8 Economic conditions
8 Overall economic situation
8 Financial performance, assets, liabilities and financial position
- 8 Income statement
- 9 Balance sheet
- 10 Funding and liquidity
12 Segment performance
- 12 Private and Small-Business Customers
- 13 Corporate Clients
- 14 Others and Consolidation
14 Outlook and opportunities report
- 14 Future economic situation
- 14 Future situation in the banking sector
- 15 Financial outlook
- 16 Anticipated performance
- 16 Interim Risk Report
Economic conditions
Overall economic situation
The measures to contain the coronavirus pandemic have plunged the global economy into the worst recession of the post-war era. With the easing of restrictions, however, economic activity has picked up again.
In the second quarter of 2020, China's economy was already able to recoup most of the set-backs it suffered in the first three months of the year. Many sectors are already back to the capacity utilisation levels seen before the crisis. In the eurozone, the economy slumped even harder in March/April than originally feared, but was able to recover significantly in May. In Germany, for example, the economy contracted by 10.1% in the second quarter compared with the first three months of this year. In the USA, overall economic production dropped by 9.5% in the second quarter.
To cushion the downturn, central banks around the world have greatly eased their monetary policies. At the beginning of June, the European Central Bank (ECB) increased the volume of bond purchases under its Pandemic Emergency Purchase Programme (PEPP) by a further €600bn to €1,350bn. In addition, the large industrialised countries have put together aid packages on an unprecedented scale to support their economies.
With the number of new infections declining in Europe, the markets have recovered noticeably since the end of March.
Financial performance, assets, liabilities and financial position
Explanations on the accounting and measurement methods applied as at 30 June 2020 are available in Note 5 to the interim financial statements. Information on adjustments to the prior-year figures can be found in Note 3 to the interim financial statements.
Income statement of the Commerzbank Group
Earnings performance in the first half of the current year was characterised by stable customer business, but the impacts of the coronavirus pandemic led to significantly negative remeasurement effects and higher risk provisions. Commerzbank made an operating loss of €–74m in the first six months of 2020, compared with an operating profit of €555m in the prior-year period.
The main items in the income statement performed as follows in the reporting period:
At €2,597m, net interest income in the period under review was 3.7% above the prior-year level. The Private and Small-Business Customers segment recorded nearly stable net interest income. In Germany, further volume growth, particularly in the retail mortgage financing portfolio, was not able to fully offset margin effects and declining interest income from deposit business. mBank once again achieved an increase in its net interest income, mainly due to volume growth in lending business. In the Corporate Clients segment, net interest income was slightly below the prior-year level.
Net commission income rose by 10.7% year on year to €1,668m. In the Private and Small-Business Customers segment, a marked increase in net commission income was the main income driver in the reporting period. Commission income was driven primarily by the high level of customer activity in domestic securities business, in conjunction with the at times extremely volatile development on the capital markets. Transaction-based income grew especially strongly at the subsidiary comdirect. Net commission income at mBank also increased markedly, primarily due to a significant rise in income from securities and card business. In the Corporate Clients segment net commission income was stable compared with the prior-year period.
The net income from financial assets and liabilities measured at fair value through profit or loss was €–141m in the reporting period, after €113m in the prior-year period. The marked decline was mainly attributable to valuation fluctuations in connection with the coronavirus pandemic, which were largely reported in Others and Consolidation.
The risk result was €–795m in the reporting period, compared with €–256m a year earlier. The significant increase was due in part to a top-level adjustment (TLA) totalling €–154m that was made because of the coronavirus pandemic. Further information on the TLA can be found in the Interim Risk Report on page 20 ff and in the interim financial statements in Note 26. The risk result in the Private and Small-Business Customers segment was significantly higher than in the previous year. The increase was largely due to the effects from the coronavirus pandemic. The TLA charge for the period under review amounted to €–70m. In the Corporate Clients segment, the increase in the risk result compared to the first half of 2019 was due in part to the default of a large exposure in the second quarter. The segment was also burdened by the effects of the coronavirus pandemic. In some cases, the charges resulted from larger individual counterparties where the effects of the crisis were the main reason for default or which required an increase in existing risk provisions. The TLA charge for the period under review amounted to €–82m.
8 Economic conditions
8 Financial performance, assets, liabilities and financial position
12 Segment performance 14 Outlook and opportunities report
Thanks to ongoing systematic cost management, operating expenses were 3.7% lower year on year in the reporting period at €3,030m. Personnel expenses were 2.0% below the prior-year level at €1,720m, in part due to further progress in headcount reduction, while administrative expenses, including depreciation on fixed assets and amortisation of other intangible assets, were reduced by 5.9% to €1,310m. This significant decrease was primarily due to lower costs for external staff on projects and lower advertising costs.
Compulsory contributions, which include the European banking levy, contributions to the Deposit Protection Fund and the Polish bank tax, were reported separately and were significantly above the previous year's level at €374m. This was due in particular to an increase in total assets and changed calculation parameters.
Pre-tax loss from continuing operations was €–74m, compared with a profit of €555m in the prior-year period.
Tax expense on continuing operations for the period under review was €51m, compared with €122m in the first six months of the previous year. Group tax expense mainly comprises the current tax expenses of the mBank subgroup and of comdirect bank AG for the reporting period.
The loss from continuing operations after tax was €–125m, compared with a profit of €433m in the prior-year period.
Discontinued operations posted a profit after tax of €50m. This includes the income and expenses of the Equity Markets&Commodities (EMC) division sold to Société Générale.
Net of non-controlling interests, a consolidated loss of €–96m was attributable to Commerzbank shareholders and investors in additional equity components for the 2020 reporting period, compared with a profit of €401m in the previous year.
Operating profit per share was €–0.06 and earnings per share €–0.08. The comparable figures in the prior-year period were €0.44 and €0.32 respectively.
Balance sheet of the Commerzbank Group
Total assets of the Commerzbank Group as at 30 June 2020 were €550.6bn. This represented an increase of €87.1bn compared with the end of 2019. The significant growth of 18.8% was due in particular to the Bank's participation in the Targeted Longer-Term Refinancing Operations III programme (TLTRO III) of the European Central Bank (ECB), the seasonal expansion of secured money market transactions and the increased lending business.
Cash on hand and cash on demand rose by €42.7bn to €83.8bn. The strong increase compared with the end of 2019 was due in particular to a rise in demand deposits held with central banks related to the use of the TLTRO III programme offered to banks by the ECB.
Financial assets at amortised cost increased by €14.9bn to €308.5bn compared with the end of 2019. The increase compared with the end of 2019 was largely attributable to a rise in lending business in private and corporate customer business and growth in loans and advances to banks and public-sector borrowers.
Financial assets in the fair value OCI category were €40.2bn, up €9.2bn from the end of 2019. This 29.8% rise resulted from an increase in securitised debt instruments.
At €44.7bn, financial assets mandatorily measured at fair value through profit or loss were €14.6bn higher than at the end of the previous year. The marked increase was primarily due to a seasonal rise in secured money market transactions in the form of reverse repos and cash collateral.
Financial assets held for trading were €55.4bn at the reporting date, up €10.6bn on the figure at the end of 2019, due largely to higher positive fair values of derivative financial instruments. Positive fair values of interest rate products rose by €5.8bn, while positive fair values of currency-related products and equity derivatives increased by €1.8bn overall.
Non-current assets held for sale and disposal groups were €2.2bn, compared with €8.0bn at the end of 2019. The decline resulted from portfolio transfers in connection with the sale of the EMC business to Société Générale.
On the liabilities side, financial liabilities at amortised cost were up €65.6bn to €417.5bn compared with the end of 2019. The increase versus year-end 2019 was attributable to a marked rise in deposits and other financial liabilities, especially in connection with money market transactions and customer deposits.
Financial liabilities under the fair value option increased by €16.4bn compared with the end of 2019 to €36.3bn. While debt securities issued increased only slightly by €0.7bn, deposits and other financial liabilities rose substantially by €15.7bn. The increase was largely due to the rise in secured money market transactions with financial services providers and banks.
Financial liabilities held for trading were €47.0bn, up €7.6bn compared with the end of 2019. The increase was due to the negative fair values of derivative financial instruments, especially interest-rate-related derivative transactions, which rose by €7.0bn.
Liabilities from disposal groups were €3.9bn, compared with €8.5bn at the end of 2019. The decline resulted from portfolio transfers in connection with the sale of the EMC business to Société Générale.
Equity
The equity capital attributable to Commerzbank shareholders reported in the balance sheet on 30 June 2020 was at the same level as the end of 2019 at €28.4bn. Further information on the change in equity can be found on page 44 ff. of the interim financial statements.
Risk-weighted assets were €187.1bn as at 30 June 2020, €5.3bn higher than at year-end 2019. The increase was mainly due to higher risk-weighted assets from credit risks in connection with the switch to the new securitisation framework and to the increase in lending in the core segments, particularly to corporate customers, coupled with higher exposure towards central governments. Slightly higher risk-weighted assets from market price risks were offset by lower risk-weighted assets from operational risks.
As at the reporting date, Common Equity Tier 1 capital was €25.1bn compared with €24.4bn as at 31 December 2019. The €0.7bn rise in Common Equity Tier 1 capital was in part attributable to the waiving of dividend distributions for the 2019 and 2020 financial years as at 30 June 2020 – in line with ECB recommendations – and a decrease in regulatory capital deductions in the first half of the year. The loss recognised in the first half of 2020 partially offset the increase in Common Equity Tier 1 capital. The Common Equity Tier 1 ratio was thus 13.4%. The Tier 1 ratio (with transitional provisions) was 14.8% as at the reporting date, compared with 14.3% as at the end of 2019. The higher Tier 1 ratio was due to the increase in Common Equity Tier 1 capital and the rise in additional Tier 1 (AT1) capital resulting from the issue of an AT1 capital instrument. The total capital ratio was 17.6% as at the reporting date, compared with 16.8% as at the end of 2019. The rise in capital resulted from the increase of Tier 1 capital, as described, and the issue of a Tier 2 capital instrument. An increase in riskweighted assets weakened the increase in the regulatory capital ratios.
The leverage ratio based on the CRD IV/CRR rules applicable on the reporting date, which is equal to Tier 1 capital divided by leverage exposure, was 4.8% (with transitional provisions) or 4.7% (fully loaded).
The Bank complies with all regulatory requirements. This information includes the consolidated profit attributable to Commerzbank shareholders for regulatory purposes.
Funding and liquidity
Commerzbank had access to the money and capital markets at all times during the reporting period, and its liquidity and solvency were always adequate. Furthermore, Commerzbank's liquidity management is always able to respond promptly to new market circumstances. Even against the background of increasing uncertainty due to the coronavirus pandemic, the Bank's liquidity situation is comfortable and complies with both internal limits and applicable regulatory requirements.
1 Based on reported figures.
- 8 Economic conditions
- 8 Financial performance, assets, liabilities and financial position
- 12 Segment performance 14 Outlook and opportunities report
Commerzbank implemented more than two thirds of its planning for long-term funding in the first half of 2020. The capital markets are very volatile due to the ongoing global coronavirus pandemic. Following the especially high degree of uncertainty in March and April, which caused a rise in credit spreads, the markets stabilised again in the following months. Commerzbank was able to use this to place various issues including two capital transactions. The Commerzbank Group raised a total of €5.1bn in long-term funding on the capital market. The average term of the issues made during the reporting period was over nine years.
In the unsecured area, Commerzbank Aktiengesellschaft issued the first AT1 bond from its new issuance programme (programme volume: €3bn) for additional Tier 1 capital in June. The bond has an issuance volume of €1.25bn and a fixed coupon of 6.125% per annum. It has a perpetual maturity and the first call date is in the period from October 2025 to April 2026. The bond terms provide for a temporary write-down in the event that the Bank's Common Equity Tier 1 ratio (CET1 ratio) drops below 5.125%. In addition, a subordinated bond (Tier 2) with a volume of €750m was issued in May. This bond has a term of 10.5 years with the first call date in the period from September to December 2025 and a fixed coupon of 4% p.a. Both capital issues were heavily oversubscribed and attracted great interest from foreign investors, who accounted for over 90% of demand. In addition, two non-preferred senior bonds were placed, one for €750m and the other for the first time for GBP 400m, with terms of seven and five years respectively, and a preferred senior benchmark bond was increased by €500m. €0.2bn in private placements were also issued.
In the secured area, a ten-year mortgage Pfandbrief for €1.25bn was issued in March.
In the second quarter of 2020, the eurozone money and capital markets also continued to be significantly influenced by the rapidly developing coronavirus pandemic and its repercussions.
In view of this, the ECB is implementing the comprehensive measures it decided in March 2020 to counter the economic downturn in the eurozone and the resulting impact on the financial sector. According to the ECB Governing Council there has not yet been any significant tensions in the money market or liquidity shortfalls in the banking system, but additional long-term refinancing operations have nonetheless been made available to the banks, mainly for the purpose of supporting lending to small and medium-sized enterprises.
Under TLTRO III, the ECB provided banks with additional liquidity of around €1,300bn. Commerzbank participated in this programme with a volume of €32.3bn. Given the resulting further increase in excess liquidity, it would also be possible to lift the tiering for central bank balances. The interest rates for the main refinancing operations, the marginal lending facility and the deposit facility were unchanged. At the end of the first half of 2020, the Bank had a liquidity reserve of €98.3bn in the form of highly liquid assets. The liquidity reserve portfolio functions as a buffer in stress situations. It is funded in line with the liquidity risk appetite to ensure that it is kept at the required size throughout the entire reserve period stipulated by the Board of Managing Directors. A part of this liquidity reserve is held in a separate stress liquidity reserve portfolio managed by Group Treasury to cover liquidity outflows should a stress event occur and to ensure solvency at all times.
The Bank also holds an intraday liquidity reserve portfolio. As at the reporting date, the total value of this portfolio was €6.0bn. Commerzbank took advantage of the ECB's new euro and US dollar facilities launched in the first quarter of 2020.
At 127.27% (average of the last 12 month-end values), Commerzbank was well above the minimum 100% level required for the liquidity coverage ratio (LCR). Further information on the LCR can be found in Note 42 to the interim financial statements. Commerzbank's liquidity situation therefore is comfortable given its conservative and forward-looking funding strategy.
Segment performance
The comments on the segments' results for the first six months of 2020 are based on the segment structure described on pages 67 and 247 ff. of the Annual Report 2019. The Asset & Capital Recovery segment was dissolved on 1 July 2019 following the successful winding down of assets over the last few years, with the remaining portfolios transferred to Others and Consolidation and to the Private and Small-Business Customers segment. The prior-year result achieved by the Asset & Capital Recovery segment up to the point of dissolution will continue to be shown in the segment reporting in the interim financial statements.
More information and explanations regarding restatements of prior-year figures can be found in Notes 3 and 39 to the interim financial statements.
| €m | 1.1.–30.6.2020 | 1.1.–30.6.20191 | Change in %/%-points |
|---|---|---|---|
| Income before risk result | 2,510 | 2,422 | 3.6 |
| Risk result | – 313 | – 100 | |
| Operating expenses | 1,735 | 1,743 | – 0.5 |
| Compulsory contributions | 201 | 179 | 12.5 |
| Operating profit/loss | 261 | 400 | – 34.6 |
| Average capital employed | 5,700 | 5,175 | 10.2 |
| Operating return on equity (%) | 9.2 | 15.4 | – 6.3 |
| Cost/income ratio in operating business (%) – excl. compulsory contributions |
69.1 | 72.0 | – 2.9 |
| Cost/income ratio in operating business (%) – incl. compulsory contributions |
77.1 | 79.4 | – 2.2 |
Private and Small-Business Customers
1 Figures adjusted due to restatements (see Notes 3 and 39 to the interim financial statements).
The Private and Small-Business Customers segment was able to increase its operating income in the first half of 2020 compared to the same period of the previous year, despite the major economic setbacks. Operating expenses for the period were also slightly below the previous year's level. The sharp rise in the risk result is thus the primary reason why the segment's operating profit of €261m was significantly lower than in the previous year. The deterioration in the risk situation due to the sharp downturn in economic activity and the unfavourable interest rate environment have the potential to continue to negatively impact earnings performance noticeably in the second half of the year.
Total segment income before risk result was €2,510m in the reporting period, up €88m on the prior-year figure. Net interest income overall decreased slightly by €25m to €1,330m year on year. In Germany, further volume growth, particularly in the retail mortgage financing portfolio, was not able to fully offset margin effects and declining interest income from deposit business. mBank once again achieved an increase in its net interest income, mainly due to volume growth in lending business. Net commission income was the main income driver in the reporting period, with a marked increase of €160m to €1,087m. Commission income was driven primarily by the high level of customer activity in domestic securities business, in conjunction with the at times extremely volatile development on the capital markets. Transaction-based income grew especially strongly at the subsidiary comdirect. Net commission income at mBank also increased markedly, primarily due to a significant rise in income from securities and card business. The other earnings components, which totalled €93m in the reporting period compared with €139m in the prior-year period, include an addition to provisions of €42m in the second quarter of 2020 for
- 8 Economic conditions
- 8 Financial performance, assets, liabilities and financial position 12 Segment performance
- 14 Outlook and opportunities report
legal risks in connection with mortgage loans issued in foreign currencies at mBank.
The risk result in the first half of 2020 was €–313m, compared with €–100m a year earlier. The increase was largely due to effects from the coronavirus pandemic. The TLA charge for the period under review amounted to €–70m.
Operating expenses amounted to €1,735m in the reporting period, compared with €1,743m in the first half of 2019. While there was a slight decline in Germany due to ongoing measures to improve cost efficiency, mBank recorded a slight increase in costs due to organic growth. The total cost of compulsory contributions amounted to €201m, an increase of €22m compared with the prioryear period.
Overall, the Private and Small-Business Customers segment posted a pre-tax profit of €261m in the reporting period, compared with €400m in the prior-year period.
Corporate Clients
| €m | 1.1.–30.6.2020 | 1.1.–30.6.20191 | Change in %/%-points |
|---|---|---|---|
| Income before risk result | 1,537 | 1,637 | – 6.1 |
| Risk result | – 456 | – 155 | |
| Operating expenses | 1,174 | 1,240 | – 5.3 |
| Compulsory contributions | 111 | 101 | 9.5 |
| Operating profit/loss | – 203 | 141 | |
| Average capital employed (from continuing operations) | 11,742 | 11,798 | – 0.5 |
| Operating return on equity (%) | – 3.5 | 2.4 | – 5.9 |
| Cost/income ratio in operating business (%) – excl. compulsory contributions |
76.4 | 75.7 | 0.7 |
| Cost/income ratio in operating business (%) – incl. compulsory contributions |
83.6 | 81.9 | 1.7 |
1 Figures adjusted due to restatements (see Notes 3 and 39 to the interim financial statements).
The first six months of 2020 posed major challenges for the Corporate Clients segment, including market distortions and general uncertainty caused by the coronavirus pandemic, which triggered an increase in customer activity and in particular a sharp rise in financing enquiries. Despite the widespread temporary lockdown of large parts of the economy and public life following the outbreak of the coronavirus pandemic in Europe, the containment of which still appears uncertain, the segment's performance in direct business with core customers was comparatively stable. However, this was offset by negative remeasurement effects and a significantly higher risk result, which had a markedly negative impact on the overall result. As a consequence, the Corporate Clients segment recorded an operating loss of €–203m in the first six months of 2020, compared with an operating profit of €141m in the same period of the previous year. A marked widening of spreads at the beginning of the current year, primarily a reflection of higher credit risk with counterparties in the derivatives business, led to negative remeasurement effects of €–50m, compared with €3m in the previous year.
The Mittelstand division benefited from the segment's strong market position, but recorded slightly lower transaction banking income, mainly due to the coronavirus pandemic. Against the background of higher credit volume, the International Corporates division recorded a positive contribution from bilateral lending business, while the capital market business in particular benefited significantly from increased hedging in customer business as well as from higher fee income from primary market business with bonds. Performance in the Institutionals division was stable overall, with lower income from transaction banking being largely offset by higher income from capital market business.
The Others division was especially affected by a huge widening of credit spreads caused by the coronavirus pandemic, which resulted in negative remeasurement effects in counterparty business. In addition, the result for the reporting period includes a penalty payment to the UK financial conduct regulator of around €41m.
Income before risk result was €1,537m in the first six months of the year, which was €100m lower than in the prior-year period. At €894m, net interest income was slightly below the prior-year level of €920m, while net commission income was €600m, matching the prior-year level. Net income from financial assets and liabilities measured at fair value through profit or loss fell sharply to €33m, however. This was €64m lower than the figure for the prior-year period, which included income from restructuring measures.
The risk result in the Corporate Clients segment was €–456m, compared with €–155m in the prior-year period. The increase compared to the first half of 2019 was due in part to the default of a large exposure in the second quarter. The segment was also burdened by the effects of the coronavirus pandemic. In some cases, the charges resulted from larger individual counterparties where the effects of the crisis were the main reason for default or required an increase in existing risk provisions. The TLA charge for the period under review amounted to €–82m.
Operating expenses were €1,174m, down €65m on the prioryear figure. The decline resulted from lower personnel and administrative expenses in connection with strict cost management.
The reported compulsory contributions of €111m relate primarily to the European banking levy and increased by €10m year on year.
Overall, a pre-tax loss of €–203m was posted, compared with a pre-tax profit of €141m in the prior-year period.
Others and Consolidation
The Others and Consolidation segment contains the income and expenses which are not attributable to the business segments. Others covers, for example, Group Treasury, equity holdings not allocated to the business segments and overarching specific individual matters such as expenditure on regulatory fees. Consolidation reconciles the figures shown in segment reporting with the Group financial statements in accordance with International Financial Reporting Standards (IFRS). Others and Consolidation also covers staff, management and support functions, which are likewise charged to the segments. For these units, restructuring costs are an exception to transfer charging, as they are reported centrally in the division.
The Others and Consolidation segment reported an operating loss of €–132m for the first half of 2020, compared with €–17m in the prior-year period. The prior-year period included positive effects from the reversal of provisions and valuations of equity investments of Commerz Ventures, effects that were not present to the same extent in the period under review. In addition, risk provisions were recognised for a residual portfolio of the dissolved Asset & Capital Recovery segment. In Group Treasury, a higher banking levy depressed the result as compared with the same period of the previous year. Others and Consolidation also recorded a pre-tax loss of €–132m for the first half of 2020.
Outlook and opportunities report
Future economic situation
The development in the second half of 2020 will greatly depend on the further course of the coronavirus pandemic. Even if there is not a massive second wave of infection, the economy in the eurozone will not return to its pre-crisis level any time soon. This is because it will take time to reorganise the supply chains. Also, global demand will continue to be hampered by the ongoing fight against the spread of the virus. We have lowered our growth forecast for 2020 as a whole to –7%. In Germany, the contraction is likely to be less severe at –5.5%. In the USA, a V-shaped upswing is also not to be expected, especially since the number of new infections has risen again significantly in some states. The dramatic increase in unemployment will slow the recovery of private consumption. Accordingly, the US gross domestic product is likely to record a decline for 2020 that is similar in magnitude to that of Germany.
If there is a second wave of infection, it is unlikely that restrictions will be as comprehensive as in March and April. But the economic recovery would be delayed and the return to pre-crisis levels would be postponed further into the future. In such an environment, there will always be setbacks on the markets. However, another slump like the one at the beginning of the crisis is unlikely owing to the much better level of information available today – and the correspondingly lower uncertainty.
Future situation in the banking sector
The effects of the coronavirus pandemic on the economy and banks in Germany are still serious. Planning uncertainties and risks in particular have increased massively. For the global economy, a further increase in infection rates is the central forecasting risk for the coming months. This uncertainty will lead to considerably higher volatilities in the valuation of assets than previously. Banks worldwide are currently facing completely new challenges, particularly with regard to earnings expectations and requirements for risk provisioning and capital.
- 8 Economic conditions
- 8 Financial performance, assets, liabilities and financial position
- 12 Segment performance 14 Outlook and opportunities report
At present, the banking sector appears to be in a robust position given its high capital buffers. However, the banks will be faced with more loan defaults and a mounting number of corporate and private insolvencies in the coming quarters. This is due to, among other things, the suspension of the three-week rule for filing for insolvency until the end of September 2020 if the over-indebtedness or insolvency is due to the consequences of the coronavirus pandemic. The German banking sector should be able to absorb the higher default rates given the capital strengthening measures that have been implemented for some time however.
The net interest margins of the banking sector remain under considerable pressure throughout Europe, but especially in Germany. Credit growth is high, but is exceeded by deposit growth from households and non-financial corporations. At the same time, the costs of market refinancing have risen. Government lending programmes are also narrowing margins, while at the same time the respective credit risk for the non-governmental banks has been noticeably reduced or even completely eliminated. All in all, this leaves little scope for banks to improve their margins on the liabilities side.
Even before the coronavirus crisis, the prospect of prolonged low interest rates was considered a key challenge for the banking sector. In view of the far-reaching economic effects of the pandemic and the reactions of the central banks in the form of a massive expansion of bond purchase programmes, zero interest rate policy and extensive provision of liquidity, capital market interest rates will remain very low for the foreseeable future. Increased revenues in the highly important interest-earning business will only be able to be achieved by raising lending rates and fees as well as introducing negative interest on customer deposits on a broad basis. Even the ECB's decision to implement a two-tier system for reserve remuneration that exempts part of banks' excess liquidity holdings from the negative deposit rate will do little to alter the negative consequences of the low interest rate environment.
Due to the earnings problems and persistent competitive pressure, cost reduction remains the main issue for German banks. For this reason, digitalisation of business processes and the utilisation of the data generated will advance rapidly. Financial institutions that offer their customers a wide range of online banking tools and tailor-made solutions will be in a much better position in the future. It is therefore all the more important to increase the focus on customers' use of multimedia channels and to make more resources and enhanced digital offers available.
Increasing risks are also becoming apparent in connection with Brexit, as no progress has yet been made in the trade agreement negotiations between the EU and the UK. A no-deal Brexit could harbour considerable risks for the European banking sector. If the UK government lowers regulatory standards to strengthen London as a financial centre, the competitive position of the banks in the remaining EU countries would be harmed. If London, which is Europe's financial centre, also loses its unrestricted access to the European single market, this will increase fragmentation in investment banking with its profitability suffering as a result.
Financial outlook for the Commerzbank Group
Planned funding measures
Commerzbank anticipates that its capital market funding requirement over the coming years will be in the order of €10bn. Due to participation in TLTRO III (targeted longer-term refinancing operations), the funding plan for 2020 was reduced to a volume of around €7bn. Commerzbank has access to the capital market through a broad range of products. In addition to unsecured funding instruments (preferred and non-preferred senior bonds, Tier 2 subordinated debt and additional Tier 1 capital), when refinancing Commerzbank can also issue secured funding instruments, in particular mortgage Pfandbriefe and public-sector Pfandbriefe. As such, Pfandbriefe are a key element of Commerzbank's funding mix. These give Commerzbank stable access to long-term funding with cost advantages compared with unsecured sources of funding. Issuance formats range from large-volume benchmark bonds to private placements.
By regularly reviewing and adjusting the assumptions used for liquidity management and the long-term funding requirement, Commerzbank will continue to respond actively to changes in the market environment and business performance in order to secure a stable liquidity cushion and an appropriate funding structure.
Planned investments
The Bank's investment plans did not change significantly in the first six months of the current year from the plans set out on pages 89 to 91 of the Annual Report 2019. The investments planned for the 2020 financial year stem from central initiatives relating to the "Commerzbank 5.0" strategy, in particular the ongoing digitalisation of the Group's products and processes, which will allow Commerzbank to provide its services more quickly and efficiently in future. Further investments will be for regulatory measures.
Anticipated liquidity trends
The ECB's TLTRO III programme has provided targeted longerterm funding options to banks. By participating, Commerzbank has secured stable funding for the next three years. Owing to the high excess liquidity in the market, the volume of longer-term securities repo transactions will remain restricted. The short-term repo market in high-quality securities such as government bonds, supranational bonds and covered bonds (high-quality liquid assets or HQLA) is functioning smoothly, however, even in the face of the coronavirus pandemic, and it plays an important role in servicing the bond and cash markets.
The issuance calendar for the second quarter of 2020 was amended due to the increase in the German federal government's liquidity and financing requirements and its special funds as a result of the coronavirus pandemic. The repo markets' anticipation of the increased securities volume has resulted in a general reduction in repo rates across all HQLA markets since March. The situation in the bond markets is still being influenced by the ECB's securities purchase programme and high surplus liquidity, as well as by ongoing trade conflicts and political uncertainties. This is resulting in ongoing steady demand for good-quality borrowers. With interest rates set to remain in negative territory, additional demand will come from financial investors in search of returns.
Liquidity in the secondary markets, which in this context is already significantly reduced, will thus remain restrained. Despite rising government debt, we expect German government bond yields to remain very low, even in the long-term segment (yields are currently negative for up to nearly 30 years) and anticipate persistently high demand from investors for high-quality securities. In view of this, we believe credit spreads will remain tight.
Anticipated performance of the Commerzbank Group
We have again adjusted the guidance we gave in the interim report as at 30 March 2020 on the Commerzbank Group's expected performance in the 2020 financial year. In particular, the effects of the coronavirus pandemic and the ongoing difficult economic conditions have persisted in the year to date and continued to have a significant impact on our earnings performance in the first half of 2020.
Assuming that the situation does not deteriorate further, we expect largely stable earnings from the customer business of the Private and Small-Business Customers segment, while in the Corporate Clients segment, the effects from the coronavirus are expected to be stronger.
We will continue our efforts on the cost side in the second half of the year. By the end of 2020, we aim to achieve a cost base including IT investments that is slightly lower than the prior-year level.
Due to provisioning for a specific case in the second quarter of 2020, we have also adjusted our expectations regarding the risk result for the whole of 2020. We currently expect a risk result of between €–1.3bn and €–1.5bn for the current financial year.
Irrespective of the decisions still outstanding on the further development of our strategy, we aim to set up provisions for restructuring expenses this year based on the current strategy. Whether such provisions can be recognised and, if so, in what amount, will depend on how advanced the corresponding negotiations with the employee representative bodies are.
On balance, we expect to report a consolidated loss for the 2020 financial year, in view of the ongoing difficult market environment and risk factors, the higher risk result due to a provisioning for a specific case in the first half of the year, and the planned provisions for restructuring expenses.
Interim Risk Report
The Interim Risk Report is a separate reporting section in the Interim Report. It forms part of the Interim Management Report.
Interim Risk Report
18 Risk-oriented overall bank management
- 18 Risk management organisation
- 18 Risk-bearing capacity and stress testing
19 Default risk
- 19 Commerzbank Group
- 21 Private and Small-Business Customers segment
- 22 Corporate Clients segment
- 23 Further portfolio analyses
26 Market risk
- 26 Risk management
- 27 Trading book
- 28 Banking book
- 29 Market liquidity risk
29 Liquidity risk
- 29 Risk management
- 30 Quantification and stress testing
- 30 Liquidity reserves
- 30 Liquidity ratios
31 Operational risk
31 Other risks
Risk-oriented overall bank management
Commerzbank defines risk as the danger of possible losses or profits foregone due to internal or external factors. In risk management, we normally distinguish between quantifiable and non-quantifiable types of risk. Quantifiable risks are those to which a value can normally be attached in financial statements or in regulatory capital requirements, while non-quantifiable risks include compliance and reputational risk.
Risk management organisation
Commerzbank regards risk management as a task for the whole Bank. The Chief Risk Officer (CRO) is responsible for developing and implementing the Group's risk policy guidelines for quantifiable risks, laid down by the Board of Managing Directors, as well as for measuring these risks. The CRO regularly reports to the full Board of Managing Directors and the Supervisory Board's Risk Committee on the overall risk situation within the Group.
The risk management organisation comprises Group Credit Risk Management, Group Credit, Group Market Risk Management and Group Risk Controlling & Capital Management. All divisions have a direct reporting line to the CRO.
On 1 January 2020, Commerzbank established the new Group division "Group Cyber Risk & Information Security", which is also part of the risk management organisation and has a direct reporting line to the CRO.
It is Group Compliance's responsibility to establish appropriate governance, procedures and systems to avoid the Bank being unintentionally endangered as a consequence of compliance risks. This includes the risks associated with money laundering, terrorist financing, sanctions and embargoes, markets compliance, and fraud and corruption. Group Compliance is led by the Chief Compliance Officer, who reports directly to the member of the Board of Managing Directors with responsibility for Group Compliance.
Further details on the risk management organisation within Commerzbank can be found in the Group Risk Report 2019.
Risk-bearing capacity and stress testing
Risk-bearing capacity analysis is a key part of overall bank management and Commerzbank's ICAAP. The purpose is to ensure that sufficient capital is held at all times.
In terms of economic approach, the risk-bearing capacity concept is based on a going concern approach in accordance with regulatory requirements.
Risk-bearing capacity is also assessed using macroeconomic stress scenarios. The scenarios are simulated quarterly at Group level with a time horizon of 12 months.
Risk-bearing capacity is monitored and managed monthly at Group level. Risk-bearing capacity is deemed to be assured as long as the RBC ratio is higher than 100%. In the first half of 2020, the RBC ratio was consistently above 100% and stood at 149% on 30 June 2020. The increase in economically required capital compared with December 2019 reflects for default risk volume increases and increased credit spreads in the financial markets. These have an impact on the capture of issuer and counterparty risks (as part of default risk) and, together with the increased volatility of the markets, also cause the higher market risk. The economic risk coverage potential is also influenced by the market environment through the measurement of revaluation reserves and hidden liabilities. The RBC ratio is still well above the minimum requirement.
| Risk-bearing capacity Group €bn | 30.6.2020 | 31.12.2019 |
|---|---|---|
| Economic risk coverage potential | 24 | 24 |
| Economically required capital1 | 16 | 15 |
| thereof for default risk | 11 | 10 |
| thereof for market risk2 | 5 | 4 |
| thereof for operational risk | 1 | 1 |
| thereof diversification effects | – 2 | – 2 |
| RBC ratio (%)3 | 149 | 161 |
1 Including physical asset risk, risk of unlisted investments and the risk buffer for reserve risk and for the quantification of potential fluctuations in value of goodwill and intangibles.
2 Including deposit model risk.
3 RBC ratio = economic risk coverage potential/economically required capital (including risk buffer).
The massive global spread of the coronavirus pandemic led many countries to implement drastic containment measures, such as curfews, business closures and production stops, in March and April. Europe was thus able to effectively contain the pandemic in the course of the second quarter. Outside of Europe the situation is still critical. Especially in the USA and Latin America, the number of infections is continuing to rise sharply. An end to the outbreak in these regions is not foreseeable at present. However, the containment measures have also been relaxed in these countries in response to overwhelming public pressure.
18 Risk-oriented overall bank management 19 Default risk 26 Market risk 29 Liquidity risk
31 Operational risk
Default risk
Default risk is defined as the risk of losses sustained or profits foregone due to the default of a counterparty. It is a quantifiable material risk and includes the sub-risk types of credit default risk, issuer risk, counterparty risk, country and transfer risk, dilution risk and reserve risk.
Commerzbank Group
Commerzbank focuses its business on two customer segments, Private and Small-Business Customers (PSBC) and Corporate Clients (CC). In the Asset & Capital Recovery (ACR) segment, the Bank had bundled the activities of the Commercial Real Estate and Ship Finance areas and complex financings from the Public Finance area for the purpose of completely winding down the portfolios in these areas over time. The ACR segment was dissolved on 1 July 2019 following the successful winding down of assets over the last few years, with the remaining portfolios transferred to Others and Consolidation and to the Private and Small-Business Customers segment.
The massive global spread of the coronavirus pandemic led many countries to implement drastic containment measures, such as curfews, business closures and production stops, in March and April. Europe was thus able to effectively contain the pandemic in the course of the second quarter. Outside of Europe the situation is still critical.
This has been taken into account in the risk result particularly by means of a top-level adjustment. For the most part, this negative trend is not yet perceptible in the remaining risk figures, as it will only become noticeable here with a time lag over the course of the year.
Since the outbreak of the Corona pandemic, Governments and institutions are intervening on an unprecedented scale, providing liquidity, support and assistance programmes. Both in the Private and Small-Business Customers segment and in the Corporate Clients segment, around €1bn of KfW loans (entrepreneur/start-up loans and rapid loans) were drawn by our customers as at 30 June 2020. In addition, around 32,500 customers were granted deferrals on the same date, of which around 90% were under private moratoria. Overall, the quality of the portfolios has remained stable.
Credit risk parameters To manage and limit default risks in the Commerzbank Group, we use risk parameters, including the following: exposure at default (EaD), hereinafter also referred to simply as exposure, loss at default (LaD), expected loss (EL), risk density (EL/EaD), credit value at risk (CVaR = economically required capital for credit risk with a confidence level of 99.90% and a holding period of one year), risk-weighted assets and "allin" for bulk risks.
The credit risk parameters in the rating classes 1.0 to 5.8 as at 30 June 2020 were as follows:
| 30.6.2020 | 31.12.2019 | |||||||
|---|---|---|---|---|---|---|---|---|
| Credit risk parameters | Exposure at default |
Expected loss |
Risk density |
CVaR | Exposure at default |
Expected loss |
Risk density |
CVaR |
| €bn | €m | bp | €m | €bn | €m | bp | €m | |
| Private and Small-Business Customers | 186 | 406 | 22 | 1,737 | 178 | 425 | 24 | 2,207 |
| Corporate Clients | 194 | 471 | 24 | 4,954 | 184 | 473 | 26 | 4,607 |
| Others and Consolidation1 | 116 | 147 | 13 | 3,815 | 83 | 120 | 14 | 3,003 |
| Group | 496 | 1,025 | 21 | 10,505 | 445 | 1,017 | 23 | 9,817 |
1 Mainly liquidity portfolios of Treasury, and since 1 July 2019 the remaining portfolios of the dissolved ACR segment.
When broken down on the basis of PD ratings, 85% of the Group's portfolio is in the internal rating classes 1 and 2, which represent investment grade.
| 30.6.2020 | 31.12.2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Rating breakdown EaD % | 1.0-1.8 | 2.0-2.8 | 3.0-3.8 | 4.0-4.8 | 5.0-5.8 | 1.0-1.8 | 2.0-2.8 | 3.0-3.8 | 4.0-4.8 5.0-5.8 | |
| Private and Small-Business Customers | 31 | 52 | 13 | 3 | 1 | 31 | 51 | 14 | 3 | 1 |
| Corporate Clients | 19 | 61 | 16 | 3 | 2 | 20 | 60 | 16 | 3 | 2 |
| Others and Consolidation | 49 | 49 | 2 | 0 | 0 | 51 | 46 | 3 | 1 | 0 |
| Group | 31 | 55 | 12 | 2 | 1 | 30 | 54 | 13 | 2 | 1 |
The regional breakdown of the exposure corresponds to the Bank's strategic direction and reflects the main areas of its global business activities. Around half of the Bank's exposure relates to Germany, another third to other countries in Europe, 7% to North America and 8% to Asia. The rest is broadly diversified and is split among a large number of countries where we serve German exporters in particular or where Commerzbank has a local presence. The expected loss of the Group portfolio is mainly divided between Germany and the other European countries.
| 30.6.2020 | 31.12.2019 | |||||||
|---|---|---|---|---|---|---|---|---|
| Group portfolio by region |
Exposure at default €bn |
Expected loss €m |
Risk density bp |
Exposure at default €bn |
Expected loss €m |
Risk density bp |
||
| Germany | 247 | 460 | 19 | 235 | 526 | 22 | ||
| Western Europe | 112 | 225 | 20 | 90 | 191 | 21 | ||
| Central and Eastern Europe | 50 | 209 | 42 | 49 | 207 | 42 | ||
| North America | 37 | 41 | 11 | 34 | 32 | 9 | ||
| Asia | 39 | 54 | 14 | 27 | 32 | 12 | ||
| Other | 11 | 36 | 33 | 10 | 29 | 29 | ||
| Group | 496 | 1,025 | 21 | 445 | 1,017 | 23 |
Risk result The risk result relating to the Group's lending business in the first half of 2020 was €–795m (prior-year period: €–256m).
The following table shows the breakdown of the risk result by stage according to IFRS 9. Any fluctuations in the market values of fair value loans are not recognised in the risk result. They are recognised in the net income from financial assets and liabilities measured at fair value through profit or loss.
| 1.1.-30.6.2020 | 1.4.-30.6.2020 | 1.1.-31.3.2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Risk result €m | Stage 1 | Stage 21 | Stage 31 | Total | Stage 1 | Stage 21 | Stage 31 | Total | Stage 1 | Stage 21 | Stage 31 | Total |
| Private and Small | ||||||||||||
| Business Customers | – 7 | – 75 | – 231 | – 313 | – 2 | – 54 | – 97 | – 153 | – 6 | – 21 | – 133 | – 160 |
| Corporate Clients | – 16 | – 63 | – 377 | – 456 | – 11 | – 17 | – 261 | – 289 | – 5 | – 46 | – 116 | – 166 |
| Others and | ||||||||||||
| Consolidation | – 4 | 7 | – 30 | – 27 | – 3 | 1 | – 26 | – 27 | – 1 | 6 | – 4 | 0 |
| Group | – 27 | – 130 | – 637 | – 795 | – 16 | – 69 | – 385 | – 469 | – 12 | – 61 | – 253 | – 326 |
1 Stages 2 and 3 including POCI (POCI – purchased or originated credit-impaired).
| 1.1.-30.6.2019 | 1.4.-30.6.2019 | 1.1.-31.3.2019 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Risk result €m | Stage 1 | Stage 21 | Stage 31 | Total | Stage 1 | Stage 21 Stage 31 | Total | Stage 1 | Stage 21 Stage 31 | Total | ||
| Private and Small | ||||||||||||
| Business Customers | – 3 | 15 | – 112 | – 100 | – 1 | 20 | – 68 | – 48 | – 2 | – 5 | – 44 | – 52 |
| Corporate Clients | 1 | – 10 | – 146 | – 155 | 0 | 7 | – 134 | – 127 | 0 | – 17 | – 12 | – 28 |
| Asset & Capital | ||||||||||||
| Recovery | 0 | 2 | – 25 | – 24 | 0 | 0 | – 23 | – 23 | 0 | 2 | – 2 | – 1 |
| Others and | ||||||||||||
| Consolidation | – 3 | 52 | – 26 | 23 | – 2 | 48 | – 26 | 21 | – 1 | 4 | 0 | 2 |
| Group | – 5 | 58 | – 309 | – 256 | – 2 | 75 | – 250 | – 178 | – 3 | – 17 | – 58 | – 78 |
1 Stages 2 and 3 including POCI (POCI – purchased or originated credit-impaired).
The risk result increased significantly compared with the first half of 2019. The main reasons for this are effects of the coronavirus pandemic totalling €–315m (of which €–154m are in the form of a top-level adjustment, hereinafter referred to as a "TLA") and the default of a large exposure in the Corporate Clients segment.
19 Default risk 26 Market risk 29 Liquidity risk 31 Operational risk 31 Other risks
18 Risk-oriented overall bank management
Against the background of the coronavirus pandemic, Commerzbank had already included a TLA of €–111m in the risk result in the first quarter, which was reviewed in the second quarter. The portion of the TLA amounting to €–41m (of which €–17m for mBank) recognised in the first quarter due to significantly changed macroeconomic expectations was no longer necessary in the second quarter. The changed conditions are adequately reflected in the result from the model using the current baseline scenario. In the risk result, the release of the partial TLA is therefore offset by corresponding charges. The estimates of increased probabilities of default were partially adjusted versus the first quarter. This resulted in an additional risk provisioning requirement of €–30m in the second quarter. In addition, the point-in-time parameters relevant for determining risk provisions were recalibrated as required. Both effects are included as a charge in the risk result for the second quarter with a TLA allocation totalling €–84m (for details of the adjustment to the TLA, see Note 26 Credit risks and credit losses). The necessity and adequacy of the TLA will be reviewed again at the next reporting date. The further development observed in the portfolio will be of particular importance for the review.
Further drivers of the risk result in the first half of 2020 and the pro-rata TLA amounts are addressed in the following explanatory notes on the segments.
Key assumptions in our estimate of the impact of the crisis on default probabilities were that further global lockdowns on the scale of those seen in March and April could be avoided and that the economy would continue to gradually recover. We also assumed that the government aid measures would continue to prove effective during the crisis and prevent or considerably cushion a massive wave of insolvencies in 2020. On the basis of these assumptions, the risk result for 2020 as a whole is currently expected to be between €–1.3bn and €–1.5bn.
Default portfolio The Group's default portfolio increased by €725m in the first half of 2020 and stood at €4,460m as at 30 June 2020.
The following breakdown of the default portfolio shows the claims in the default portfolio in the amortised cost and fair value OCI (other comprehensive income) categories.
| 30.6.2020 | 31.12.2019 | ||||||
|---|---|---|---|---|---|---|---|
| Default portfolio Group €m | Loans | Securities | Total | Loans | Securities | Total | |
| Default portfolio | 4,457 | 3 | 4,460 | 3,735 | 0 | 3,735 | |
| LLP1 | 2,090 | 3 | 2,093 | 1,745 | 0 | 1,745 | |
| Coverage ratio excluding collateral (%)2 | 47 | 100 | 47 | 47 | – | 47 | |
| Collateral | 1,180 | 0 | 1,180 | 968 | 0 | 968 | |
| Coverage ratio including collateral (%)2 | 73 | 100 | 73 | 73 | – | 73 | |
| NPE ratio (%)3 | 0.8 | 0.9 |
1 Loan loss provisions.
2 Coverage ratio: LLP (and collateral) as a proportion of the default portfolio.
3 NPE ratio: default portfolio (non-performing exposures – NPE) as a proportion of total exposures (EaD including NPE) according to EBA Risk Dashboard.
Private and Small-Business Customers segment
The Private and Small-Business Customers segment (PSBC) comprises the activities of Private Customers, Small-Business Customers, comdirect bank and Commerz Real. mBank is also shown in the Private and Small-Business Customers segment. Private Customers includes Commerzbank's branch business in Germany for private customers as well as Wealth Management. Small-Business Customers comprises business customers and small corporate customers.
The focus of the portfolio is on traditional owner-occupied home financing and the financing of real estate capital investments (residential mortgage loans and investment properties with a total EaD of €90bn). We provide our business and small-business customers with credit in the form of individual loans with a volume of €24bn. In addition, we meet our customers' day-to-day demand for credit with consumer loans (overdrafts, instalment loans and credit cards, to a total of €16bn). The portfolio's expansion in the last six months was largely due to residential mortgage loans.
Compared with December 2019, the risk density of the portfolio decreased by 2 basis points to 22 basis points.
| 30.6.2020 | 31.12.2019 | ||||||
|---|---|---|---|---|---|---|---|
| Credit risk parameters | Exposure at default €bn |
Expected loss €m |
Risk density bp |
Exposure at default €bn |
Expected loss €m |
Risk density bp |
|
| Private Customers | 108 | 145 | 13 | 104 | 159 | 15 | |
| Business Customers | 33 | 69 | 21 | 31 | 73 | 23 | |
| comdirect bank | 3 | 6 | 20 | 3 | 7 | 23 | |
| Commerz Real | 1 | 3 | 50 | 1 | 2 | 43 | |
| mBank | 42 | 184 | 44 | 39 | 183 | 47 | |
| PSBC | 186 | 406 | 22 | 178 | 425 | 24 |
The risk result in the Private and Small-Business Customers segment was €–313m in the first half of 2020 (first half of 2019: €–100m). The increase is largely due to effects from the coronavirus pandemic, which totalled €–122m in the first half of the year (of which €–37m for mBank). The pro-rata TLA recorded in the first quarter to reflect the changed macroeconomic expectations was reversed in the second quarter, as already noted. Consequently, there was no further TLA in mBank at the reporting date. For the Commerzbank portfolio, the TLA recorded in the first quarter was reviewed with respect to higher estimated probabilities of default. The changed assumptions led to an additional requirement of €– 19m compared to the first quarter. This was mainly due to the fact that for the business customers sub-portfolio an increased probability of default was assumed even for customers in the rating range of > 4.0 (first quarter: > 4.8). This did not include customers who had already been provided with additional liquidity in the form of government aid loans since the beginning of the crisis, as in these cases it was assumed that the business model would be
sustainable beyond the crisis. In addition, the adjustment of pointin-time parameters in the second quarter due to the coronavirus pandemic led to an additional TLA requirement for the segment amounting to €–36m. As at the reporting date, the total TLA for the segment portfolio was thus €–70m, of which €–54m was recognised in the second quarter through profit or loss.
Another reason for the year-on-year increase was the new definition of default that has been applied at Commerzbank since the end of November 2019. Partly due to the three-month probation period, this leads to an increase in the default portfolio with corresponding risk provisioning. In addition, the risk result for the first half of 2019 included a reversal of €10m of loan loss provisions at Commerz Real, as well as slightly higher recoveries on receivables already written off.
The default portfolio in the segment stood at €2,049m as at 30 June 2020. The increase compared to year-end 2019 is due to an increase in the mBank default portfolio by €124m as well as to the effects from the application of the new definition of default.
| 30.6.2020 | 31.12.2019 | ||||||
|---|---|---|---|---|---|---|---|
| Default portfolio PSBC €m | Loans | Securities | Total | Loans | Securities | Total | |
| Default portfolio | 2,049 | 0 | 2,049 | 1,795 | 0 | 1,795 | |
| LLP | 981 | 0 | 981 | 895 | 0 | 895 | |
| Coverage ratio excluding collateral (%) | 48 | – | 48 | 50 | – | 50 | |
| Collateral | 713 | 0 | 713 | 575 | 0 | 575 | |
| Coverage ratio including collateral (%) | 83 | – | 83 | 82 | – | 82 |
Corporate Clients segment
The Corporate Clients segment (CC) comprises the Group's activities with mid-size corporate clients, the public sector, institutional customers and multinational corporates. The segment is also responsible for the Group's relationships with banks and financial institutions in Germany and abroad, as well as with central banks. The regional focus of our activities is on Germany and Western Europe. The Group's customer-oriented capital markets activities are also bundled in this segment.
18 Risk-oriented overall bank management
19 Default risk
- 26 Market risk
- 29 Liquidity risk 31 Operational risk
- 31 Other risks
| 30.6.2020 | 31.12.2019 | |||||
|---|---|---|---|---|---|---|
| Credit risk parameters | Exposure at default €bn |
Expected loss €m |
Risk density bp |
Exposure at default €bn |
Expected loss €m |
Risk density bp |
| Mittelstand | 82 | 203 | 25 | 79 | 257 | 33 |
| International Corporates | 73 | 141 | 19 | 68 | 112 | 16 |
| Financial Institutions | 22 | 67 | 30 | 20 | 54 | 27 |
| Other | 17 | 59 | 34 | 17 | 49 | 29 |
| CC | 194 | 471 | 24 | 184 | 473 | 26 |
The EaD of the Corporate Clients segment increased from €184bn to €194bn compared with 31 December of the previous year. Risk density decreased from 26 basis points to 24 basis points.
For details of developments in the Financial Institutions portfolio, please see page 24.
The risk result of the Corporate Clients segment in the first half of 2020 was €–456m (first half of 2019: €–155m). The increase compared to the first half of 2019 was due in part to the default of a large exposure in the second quarter. The segment was also burdened by the effects of the coronavirus pandemic, which manifested in charges totalling €–167m. In some cases, the charges resulted from larger individual counterparties where the effects of the crisis were the main reason for default or required an increase in existing risk provisions. The pro-rata TLA recorded in the first quarter for changed macroeconomic expectations was reversed in the second quarter, as noted above. The TLA recorded in the first quarter for higher estimated probabilities of default was reviewed. The changed assumptions led to a total additional requirement of €–10m. The adjustment of point-in-time parameters in the second quarter due to the coronavirus pandemic also led to additional TLA requirements for the segment amounting to €–18m. As at the reporting date, the total TLA for the segment was thus €–82m, of which €–28m was recognised in the second quarter through profit or loss.
The default portfolio in the segment stood at €2,198m as at 30 June 2020. The increase in the first half of 2020 was mainly due to defaults on larger exposures, especially in the second quarter.
| 30.6.2020 | 31.12.2019 | |||||
|---|---|---|---|---|---|---|
| Default portfolio CC €m | Loans | Securities | Total | Loans | Securities | Total |
| Default portfolio | 2,194 | 3 | 2,198 | 1,707 | 0 | 1,707 |
| LLP | 984 | 3 | 987 | 755 | 0 | 755 |
| Coverage ratio excluding collateral (%) | 45 | 100 | 45 | 44 | – | 44 |
| Collateral | 388 | 0 | 388 | 306 | 0 | 306 |
| Coverage ratio including collateral (%) | 63 | 100 | 63 | 62 | – | 62 |
The risk result in the Others and Consolidation segment was €–27m in the first half of 2020 (first half of 2019: €–1m). The driver of the increase versus the same period of 2019 was the coronavirus-related negative performance of a portfolio exposure, which required an increase in the existing risk provisions. In addition, slightly modified assumptions regarding the development of default probabilities of sovereigns and financial institutions were made as part of the TLA review, resulting in a TLA requirement for the segment of €–2m in the second quarter, which is also the amount for the segment at the reporting date.
Further portfolio analyses
The analyses below are independent of the existing segment allocation. The positions shown are already contained in full in the Group and segment presentations above.
Corporates portfolio by sector
Since the coronavirus infection first appeared in China and subsequently spread throughout the world, it has had an impact on all areas of economic life, albeit to varying degrees in some cases. The retail trade (excluding food), motor vehicle trade, tourism, the entertainment industry and certain service providers are directly affected by the bans on physical contact and certain economic activities. Manufacturing companies, for example in the chemical and automotive sectors, are facing the challenge of maintaining or replacing supply chains. Although some sectors have not yet been directly affected by the pandemic (food retailing, parcel delivery, construction), it can be assumed that they will also be negatively impacted if the pandemic continues for a longer period of time.
A breakdown of the corporates exposure by sector is shown below.
| 30.6.2020 | 31.12.2019 | |||||
|---|---|---|---|---|---|---|
| Corporates portfolio by sector | Exposure at default €bn |
Expected loss €m |
Risk density bp |
Exposure at default €bn |
Expected loss €m |
Risk density bp |
| Energy supply/Waste management | 22 | 88 | 39 | 21 | 82 | 40 |
| Technology/Electrical industry | 15 | 34 | 23 | 15 | 31 | 21 |
| Consumption | 15 | 52 | 34 | 15 | 49 | 34 |
| Transport/Tourism | 13 | 30 | 23 | 12 | 37 | 31 |
| Wholesale | 13 | 46 | 35 | 14 | 47 | 35 |
| Basic materials/Metals | 12 | 38 | 31 | 11 | 46 | 41 |
| Automotive | 12 | 46 | 37 | 10 | 38 | 39 |
| Services/Media | 11 | 34 | 30 | 10 | 28 | 27 |
| Mechanical engineering | 9 | 31 | 33 | 9 | 26 | 29 |
| Chemicals/Plastics | 9 | 41 | 44 | 9 | 46 | 49 |
| Construction | 6 | 16 | 27 | 6 | 16 | 28 |
| Pharmaceutical/Healthcare | 5 | 27 | 52 | 5 | 9 | 20 |
| Other | 6 | 6 | 11 | 7 | 14 | 21 |
| Total | 151 | 489 | 32 | 142 | 470 | 33 |
Financial Institutions portfolio
Our network of correspondent banks continued to focus on trade finance activities on behalf of our corporate customers and on capital market activities. In derivatives, we enter into trades with selected counterparties under the European Market Infrastructure Regulation (EMIR) standards.
We continue to keep a close watch on the impact of regulatory requirements on banks. In this context, we continue to pursue our strategy of holding as few exposures as possible which might absorb losses in the event of a bail-in of an affected institution.
We are keeping a close eye on developments in various countries affected by specific issues such as recessions, embargoes and economic uncertainty caused by political events (e.g. trade wars, Brexit) and are responding with flexible portfolio management that is tailored to the individual situation of each country. This applies in particular to the upheaval resulting from the coronavirus pandemic and oil price developments, which will have a major impact on the operating environment of our correspondent banks in both industrialised and developing countries. Overall, our risk appetite is geared to keeping the portfolio as responsive as possible.
| 30.6.2020 | 31.12.2019 | |||||
|---|---|---|---|---|---|---|
| FI portfolio by region | Exposure at default €bn |
Expected loss €m |
Risk density bp |
Exposure at default €bn |
Expected loss €m |
Risk density bp |
| Germany | 7 | 7 | 9 | 6 | 4 | 7 |
| Western Europe | 15 | 13 | 9 | 15 | 11 | 8 |
| Central and Eastern Europe | 3 | 13 | 41 | 3 | 15 | 55 |
| North America | 3 | 1 | 3 | 2 | 0 | 2 |
| Asia | 8 | 38 | 48 | 9 | 19 | 22 |
| Other | 6 | 20 | 37 | 5 | 19 | 38 |
| Total | 42 | 92 | 22 | 40 | 70 | 18 |
18 Risk-oriented overall bank management
26 Market risk
29 Liquidity risk 31 Operational risk
31 Other risks
Non-Bank Financial Institutions portfolio
The Non-Bank Financial Institutions (NBFI) portfolio mainly comprises insurance companies, asset managers, regulated funds and central counterparties. Business activities are focused on Germany, Western Europe, the United States and Asia.
Commerzbank conducts new business with NBFIs partly in consideration of regulatory requirements (clearing via central counterparties) and partly in the interests of our institutional customers, with a focus on attractive opportunities with customers with good credit ratings and valuable security. We manage our portfolios with the aim of ensuring their high quality and responsiveness. We are keeping a close eye on risks stemming from global events and are responding with flexible portfolio management that is tailored to the individual situation. The main focus at present is the upheaval caused by the coronavirus pandemic, which is having an impact on the operating environment of NBFI customers. We currently expect knock-on effects from this, but these should be manageable for the affected parties, especially in light of the aid packages being implemented by the government to support the real economy, despite the considerable challenges.
| 30.6.2020 | 31.12.2019 | |||||
|---|---|---|---|---|---|---|
| NBFI portfolio by region | Exposure at default €bn |
Expected loss €m |
Risk density bp |
Exposure at default €bn |
Expected loss €m |
Risk density bp |
| Germany | 17 | 23 | 13 | 18 | 38 | 21 |
| Western Europe | 14 | 17 | 12 | 12 | 23 | 20 |
| Central and Eastern Europe | 3 | 23 | 92 | 2 | 19 | 100 |
| North America | 9 | 10 | 11 | 9 | 12 | 13 |
| Asia | 2 | 3 | 15 | 2 | 2 | 13 |
| Other | 1 | 4 | 31 | 1 | 2 | 23 |
| Total | 46 | 80 | 17 | 43 | 96 | 22 |
Originator positions
Commerzbank has in recent years securitised receivables from loans to the Bank's customers with a current volume of €3.1bn, primarily for capital management purposes (31 December 2019: €5.4bn).
As at the reporting date of 30 June 2020, risk exposures with a value of €2.8bn were retained (31 December 2019: €5.0bn). By far the largest portion of these positions is accounted for by €2.7bn (31 December 2019: €4.8bn) of senior tranches, which are nearly all rated good or very good. In the period under review, two transactions originally representing total exposure of €3.5bn were repaid in accordance with the terms of the agreement. For the third quarter of 2020, Commerzbank plans to launch another securitisation transaction with an expected volume of €3.0bn.
As in the first quarter, we do not see any impacts from the coronavirus pandemic on risk positions in the second quarter of 2020.
| Securitisation pool Maturity €bn |
Senior | Mezzanine | First loss piece | Total volume1 |
|---|---|---|---|---|
| Corporates 2025 – 2036 |
2.7 | < 0.1 | 0.1 | 3.1 |
| Total 30.6.2020 | 2.7 | < 0.1 | 0.1 | 3.1 |
| Total 31.12.2019 | 4.8 | < 0.1 | 0.2 | 5.4 |
1 Tranches/retentions (nominal): banking and trading book.
Conduit exposure and other asset-backed exposures
The Bank provides financing to securitise receivables, in particular trade and leasing receivables, from customers in the Corporate Clients segment. In this context, Commerzbank acts mainly as an arranger of asset-backed securities transactions via the Commerzbank-sponsored multi-seller conduit Silver Tower. In view of regulatory changes and the relocation of the Silver Tower conduit to Luxembourg, since the beginning of 2019 financing has been carried out through the direct purchase of funding notes that are taken onto the Bank's balance sheet. The volume and risk values for the securitisation of receivables in the Corporate Clients segment were stable at €3.5bn in the first half of 2020.
Liquidity risks from securitisations are modelled in the internal liquidity risk model on a risk-adjusted basis. In the modelling, a worst-case assumption is made that Commerzbank will have to take on the funding of a major part of the purchase facilities provided to its special-purpose vehicles within the scope of the Silver Tower conduit. Also, the Bank's holdings of securitisation transactions only qualify as liquid assets if they are eligible for rediscount at the European Central Bank. These positions are only included in the liquidity risk calculation after risk-adjusted discounts are applied.
The other asset-backed exposures mainly comprise government-guaranteed asset-backed securities (ABS) held by Commerzbank Finance & Covered Bond S.A. and Commerzbank AG in Germany. In the first half of 2020 the volume increased to €4.8bn (December 2019: €4.2bn), as did risk values1 , rising to €4.8bn (December 2019: €4.2bn).
There are also investments in the Structured Credit area. The volume of new investments entered into since 2014 stood at €5.0bn (December 2019: €4.9bn). We have traditionally invested in bonds of senior tranches of securitisation transactions in the consumer (auto) ABS, UK RMBS and CLO asset classes, which have a robust structure and a moderate risk profile. Although market liquidity and the quality and quantity of observable prices temporarily deteriorated due to the coronavirus pandemic and only slightly normalised, the inherent structural features and credit support provide us with sufficient comfort to maintain our current strategy. At 30 June 2020 this portfolio predominantly contained AAA-rated CLO positions (also the case at the end of 2019). Remaining structured credit positions with a volume of €0.4bn were already in the portfolio prior to 2014 (December 2019: €0.7bn), while risk values stood at €0.2bn (December 2019: €0.3bn).
Market risk
Market risk is the risk of potential financial losses due to changes in market prices (interest rates, commodities, credit spreads, exchange rates and equity prices) or in parameters that affect prices such as volatilities and correlations. Losses may impact profit or loss directly, e.g. in the case of trading book positions. However, for banking book positions they are generally reflected in the revaluation reserve or in hidden liabilities/reserves.
Risk management
A standardised value-at-risk model (historical simulation) incurporating all positions that are relevant for market risk is used for the internal management of market risk. Smaller Commerzbank Group entities use standardised approaches under partial use rules. Value at risk (VaR) quantifies the potential loss from financial instruments due to changed market conditions over a predefined time horizon and with a specific probability. Further details on the methodology used are given in the Group Risk Report 2019.
In internal management, all positions relevant to market risk are covered, and trading and banking book positions are jointly managed. In addition, for regulatory purposes the trading book is managed separately (in accordance with regulatory requirements, including currency and commodity risks in the banking book) and interest rate risks in the banking book are managed on a standalone basis. In order to provide a consistent presentation in this report, all figures relating to VaR are based on a confidence level of 99%, a holding period of one day, equally weighted market data and a 254-day history.
The trend in the figures for the first half of 2020 was driven by the exceptionally strong market movements against the background of the coronavirus pandemic. Due to a changed management approach at group level, the Group opts not to present a VaR for the overall book as this would not be comparable with the information in the previous reports.
1 Risk value is the balance sheet value of cash instruments. For long CDS positions, it comprises the nominal value of the reference instrument less the net present value of the credit derivative.
18 Risk-oriented overall bank management
19 Default risk 26 Market risk
29 Liquidity risk
- 31 Operational risk
- 31 Other risks
Trading book
Below, we show how the regulatory market risk ratios of the trading book portfolio developed. Most of Commerzbank's trading book positions derive from the Corporate Clients segment and Group Treasury division. The VaR figures comprise all risks in the internal VaR model. Smaller Commerzbank Group entities use standardised approaches for their regulatory capital calculation under partial use rules. These figures are not contained in the VaR figures shown in this report.
The VaR rose from €6m to €14m in the first half of 2020. For the trading book, too, this was due to the strong market movements caused by the coronavirus pandemic, which led to new extreme scenarios in the VaR calculation. The VaR was largely stable compared to the first quarter of 2020.
| VaR of portfolios in the trading book €m |
1.1.-30.6.2020 | 2019 |
|---|---|---|
| Minimum | 5 | 4 |
| Mean | 12 | 7 |
| Maximum | 31 | 11 |
| VaR at end of reporting period | 14 | 6 |
The market risk profile is diversified across all asset classes. Interest rates, currencies and credit spreads are the dominant asset classes.
| VaR contribution by risk type in the trading book €m |
30.6.2020 | 31.12.2019 |
|---|---|---|
| Credit spreads | 3 | 1 |
| Interest rates | 4 | 1 |
| Equities | 1 | 1 |
| FX | 5 | 2 |
| Commodities | 1 | 1 |
| Total | 14 | 6 |
Further risk ratios are calculated for regulatory capital adequacy. This includes the calculation of stressed VaR. Stressed VaR is calculated using the internal model on the basis of the VaR method described above. The main difference lies in the market data used to value the assets. Stressed VaR measures the risk in the present position in the trading book by reference to market movements from a specified crisis period in the past. The crisis observation period used for this is checked regularly through model validation and approval processes and adjusted where necessary. The crisis observation period remained unchanged during the year. Stressed VaR increased from €26m at end-2019 to €32m at the end of the first half of 2020. As at the end of the first quarter stressed VaR stood at €28m. The influence of pandemicrelated market fluctuations on stressed VaR is lower than in the regulatory VaR, as the stressed VaR calculation is based exclusively on historical market data.
The market risk profile in stressed VaR is also diversified across all asset classes.
| Stressed VaR contribution by risk type in the trading book €m |
30.6.2020 | 31.12.2019 |
|---|---|---|
| Credit spreads | 10 | 5 |
| Interest rates | 7 | 5 |
| Equities | 1 | 5 |
| FX | 7 | 5 |
| Commodities | 7 | 5 |
| Total | 32 | 26 |
In addition, the incremental risk charge and the equity event VaR figures quantify the risk of deterioration in creditworthiness and event risks in trading book positions. The incremental risk charge in the Commerzbank Group rose by €10m to €24m in the first half of 2020. This was mainly attributable to changes in positions in the Corporate Clients segment and exlarged credit spread curves as a result of the coronavirus pandemic. Compared to the first quarter, this figure is down by €5m following the more recent decline in credit spread curves.
The reliability of the internal model (historical simulation) is monitored in various ways, including backtesting, on a daily basis. The VaR calculated is set against actually occurring profits and losses. The VaR used in backtesting is based on the complete historical simulation and therefore represents all internal models used in the market risk VaR calculation of capital adequacy requirements at Group level. The process draws a distinction between "clean P&L" and "dirty P&L" backtesting. In the former, exactly the same positions in the income statement are used as were used for calculating the VaR. This means that the profits and losses result only from changes in market prices (hypothetical changes in the portfolio value). In dirty P&L backtesting, by contrast, profits and losses from newly concluded and expired transactions from the day under consideration are also included (actual profits and losses induced by portfolio value changes). Profits and losses from valuation adjustments and model reserves are factored into dirty and clean P&L according to the regulatory requirements. If the actual loss exceeds the VaR, it is described as a negative backtesting outlier.
The analysis of the backtesting results serves to monitor the adequacy of the internal market risk model. In the first half of 2020, we saw three negative clean P&L outliers and two negative dirty P&L outliers. The outliers are all related to exceptionally strong market movements in response to the coronavirus pandemic, which obviously could not be predicted by historically calibrated VaR models. In some cases, the market movements that caused the P&L observed on these days significantly exceeded the historical fluctuation range in the one-year period on which the historical simulation was based.
Checks were carried out to verify that none of the observed backtesting outliers were caused by model weaknesses. The extent to which extraordinary market movements observed during the coronavirus pandemic are reflected by the model and thus also in regulatory capital was examined. For example, a capital buffer was recognised as of the second quarter for the significant volatility observed since the outbreak of the coronavirus pandemic in the precious metals future-forward basis in order to adequately reflect this effect in regulatory capital. This capital buffer is calibrated regularly.
Backtesting is also used by the supervisory authorities for evaluating internal risk models. Negative outliers are classified using a method prescribed by the supervisory authorities. All backtesting outliers that have led to losses (clean P&L and dirty P&L) at Group level must be analysed in detail and reported to the supervisory authorities. Given the temporary relief approved by the ECB, the consideration of coronavirus-based backtesting outliers is currently under review. However, at present this would have no impact on capital requirements.
As the VaR concept gives a prediction of potential losses assuming normal market conditions, it is supplemented by stress tests. These stress tests measure the risk to which Commerzbank is exposed, based on unlikely but still plausible events. These events may be simulated using extreme movements on various financial markets. The key scenarios relate to major changes in credit spreads, interest rates and yield curves, exchange rates, share prices and commodities prices. Examples of events simulated in stress tests include all stock prices falling by 15%, a parallel shift in the yield curve and changes to the curve's gradient. Extensive Group-wide stress tests and scenario analyses are carried out as part of risk monitoring.
The internal model's individual components are independently validated at regular intervals to assess their appropriateness for risk measurement. The identification and elimination of model weaknesses are of particular importance in this.
Banking book
The key drivers of market risk in the banking book are the Group Treasury portfolios, with their credit spread, interest rate and basis risks, and the positions held by the subsidiary Commerzbank Finance & Covered Bond S.A.
In market risk management, credit spread sensitivities in the banking and trading books are considered together. Credit spread sensitivities (downshift of 1 basis point) for all securities and derivative positions (excluding loans) were at €53m as at the end of the first half of 2020 (31 December 2019: €49m).
Most credit spread sensitivities related to securities positions measured at amortised cost. Changes in market price have no impact on the revaluation reserve or the income statement for these positions. The coronavirus pandemic resulted in a significant widening of credit spreads and cross-currency basis spreads, leading to losses in the other comprehensive income as well as in the income statement for items in the banking book measured at fair value.
The impact of an interest rate shock on the economic value of the Group's banking book is simulated monthly in compliance with regulatory requirements. In accordance with the EU Banking Directive, the German Federal Financial Supervisory Authority (BaFin) and the European Central Bank (ECB) have prescribed two scenarios of uniform, sudden and unexpected changes in interest rates (+/–200 basis points) to be used by all banks, which have to report on the results of this stress test every quarter. In the scenario –200 basis points, the yield curve is floored at 0 (negative sections of the yield curve are left unchanged).
As at 30 June 2020, a potential loss of €3,303m (31 December 2019: €2,635m potential loss) was calculated for the scenario +200 basis points and a potential profit of €296m (31 December 2019: €614m potential profit) for the scenario –200 basis points. Commerzbank does not, therefore, need to be classified as a bank with elevated interest rate risk, as the decline in net present value represents less than 20% of its regulatory capital.
The interest rate sensitivity of the overall banking book (excluding pension funds) amounted to €8.4m on 30 June 2020 (31 December 2019: €9.4m) per basis point of interest rate decline.
18 Risk-oriented overall bank management
26 Market risk
- 29 Liquidity risk 31 Operational risk
- 31 Other risks
19 Default risk
Pension fund risk is also part of market risk in the banking book. Our pension fund portfolio comprises a well-diversified investment section and a section comprising insurance-related liabilities. The duration of the liabilities is extremely long (cash outflows modelled over almost 90 years), and the main portion of the overall portfolio's present value risk is in maturities of 15 years and over. The main risk drivers are long-term euro interest rates, credit spreads and expected euro inflation due to anticipated pension dynamics. Equity, volatility and foreign exchange risk also need to be taken into consideration. Diversification effects between individual risks reduce the overall risk. The extremely long maturities of these liabilities represent the greatest challenge, particularly for hedging credit spread risk. This is because there is insufficient liquidity in the market for corresponding hedging products.
Market liquidity risk
Market liquidity risk is the risk of the Bank not being able to liquidate or hedge risky positions in a timely manner, to the desired extent and on acceptable terms as a result of insufficient liquidity in the market. Market liquidity risk is taken into account in Commerzbank's risk-bearing capacity concept by scaling the value at risk to one year, i.e. the implicitly recognised liquidation period. Additional valuation adjustments for market liquidity risk are also reflected in the calculation of the risk coverage capital. In particular, asset-backed securities (e.g. CLOs) and structured products show a higher market liquidity risk. The inherent structure and underlying credit quality of our CLO portfolios allow us to maintain the existing strategy for these portfolios.
Liquidity risk
We define liquidity risk in the narrower sense as the risk that Commerzbank will be unable to meet its payment obligations on a day-to-day basis. In a broader sense, liquidity risk describes the risk that future payments cannot be funded for the full amount, in the required currency or at standard market conditions, as and when they are due.
Risk management
Commerzbank uses a wide range of tools to manage and monitor liquidity risks on the basis of its own liquidity risk model. The stress scenario within the Bank that underlies the model and is relevant for management purposes allows for the impact of both a bank-specific stress event and a broader market crisis. Binding regulatory requirements are an integral component of the management mechanism.
Group Treasury is responsible for the Group's liquidity management operations. Group Treasury is represented in all major locations of the Group in Germany and abroad and has reporting lines into all subsidiaries. Commerzbank manages its global liquidity centrally using cash pooling. This approach ensures that liquidity resources are used efficiently and that this occurs across all time zones, as Group Treasury units are located in Frankfurt, London, New York and Singapore. Additional information on this subject can be found in the "Funding and liquidity" section of the Interim Management Report. Liquidity risk is monitored on the basis of the Bank's own liquidity risk model by the independent risk function.
The Bank has established early warning indicators for the purpose of managing liquidity risk. These ensure that appropriate steps can be taken in good time to secure long-term financial solidity.
Risk concentrations can lead to increased outflows of liquidity, particularly in a stress situation, and thus to increased liquidity risk. They can, for example, occur with regard to maturities, large individual creditors or currencies. By means of ongoing monitoring and reporting, emerging risk concentrations in funding can be recognised in a timely manner and mitigated through suitable measures.
This also applies to payment obligations in foreign currencies. The Bank also mitigates concentration by continuously using its access to broadly diversified sources of funding, in particular diverse customer deposits and capital market instruments. Commerzbank also ensures that it monitors foreign exchange risks and fulfils the currency matching requirements for highly liquid assets and net liquidity outflows.
In the event of a liquidity crisis, the emergency plan provides for various measures for different types of crisis, which can be launched by the central ALCO. The emergency plan forms an integral part of Commerzbank's recovery plan and is updated at least once a year; the individual liquidity emergency measures are checked regularly during the year for plausibility. The emergency plan also defines a clear allocation of responsibilities for the processes to be followed in emergency situations and gives details of any action that may need to be taken.
Additional information on the current developments caused by the coronavirus pandemic can be found in the Interim Management Report.
Quantification and stress testing
Commerzbank uses a wide range of tools to manage and monitor liquidity risks on the basis of its own liquidity risk model. In addition to internal economic considerations, liquidity risk modelling also factors in the binding regulatory requirements under the Capital Requirements Regulation (CRR) and the Minimum Requirements for Risk Management (MaRisk). Commerzbank incorporates this within its liquidity risk framework, thereby quantifying the liquidity risk appetite established by the full Board of Managing Directors.
The stress scenarios within the Bank that underlie the model and are relevant for management purposes allow for the impact of both a bank-specific stress event and a broader market crisis. The Commerzbank-specific idiosyncratic scenario simulates a stress situation arising from a rating downgrade of two notches, whereas the market-wide scenario is derived from experience of the subprime crisis and simulates an external market-wide shock. The main liquidity risk drivers of both scenarios are a markedly increased outflow of short-term customer deposits, above-average drawdown of credit lines, prolongations of lending business regarded as commercially necessary, the need to provide additional collateral for secured transactions and the application of higher risk discounts to the liquidation values of assets. As a complement to the individual scenarios, the Bank also simulates the impact on the liquidity gap profile (net liquidity position) of a scenario that combines idiosyncratic and market-specific effects. The liquidity gap profile is shown for the whole of the modelling horizon across the full spectrum of maturities and follows a multilevel concept. This allows for a nuanced presentation – deterministic and modelled cash flows in existing business on the one hand and the inclusion of prolongations on the other.
The table below shows the liquidity gap profile values after application of the respective stress scenarios for periods of one and three months as at the end of the first six months. Significantly more liquidity flows out in a combined scenario compared with the individual scenarios. As at the end of the first half of 2020, in the one-month and three-month periods, the combined stress scenario leaves net liquidity of €13.1bn and €11.8bn respectively (year-end 2019: €11.7bn and €11.2bn respectively).
The amounts reported for the Bank's liquidity show that Commerzbank's net liquidity situation actually improved slightly in the second quarter of 2020, despite the fact that Commerzbank has provided its customers with disproportionately high liquidity during the coronavirus pandemic.
| Net liquidity in the stress scenario €bn |
30.6.2020 | 31.12.2019 | |
|---|---|---|---|
| 1 month | 20.8 | 18.4 | |
| Idiosyncratic scenario 3 months |
20.1 | ||
| 1 month | 21.3 | 20.7 | |
| Market-wide scenario | 3 months | 20.0 | 20.2 |
| 1 month | 13.1 | 11.7 | |
| Combined scenario | 3 months | 11.8 | 11.2 |
Liquidity reserves
Significant factors in the liquidity risk appetite include the reserve period, the size of the liquidity reserve portfolio held to compensate for unexpected short-term liquidity outflows, and the limits in the various maturity bands. As the liquidity reserve portfolio consists of highly liquid assets, it functions as a buffer in stress situations. The liquidity reserve portfolio is funded in line with the liquidity risk appetite to ensure that it is kept at the required size throughout the entire reserve period stipulated by the Board of Managing Directors.
At the end of the first half of 2020, the Bank had a liquidity reserve of €98.3bn in the form of highly liquid assets (year-end 2019: €72.4bn). A part of this liquidity reserve is held in a separate stress liquidity reserve portfolio managed by Group Treasury to cover liquidity outflows should a stress event occur and to ensure solvency at all times.
The Bank also holds an intraday liquidity reserve portfolio. As at the reporting date, the total value of this portfolio was €6.0bn (31 December 2019: €6.3bn).
| Liquidity reserves from highly liquid assets €bn |
30.6.2020 | 31.12.2019 |
|---|---|---|
| Highly liquid assets | 98.3 | 72.4 |
| of which level 1 | 78.9 | 59.6 |
| of which level 2A | 19.2 | 11.5 |
| of which level 2B | 0.3 | 1.3 |
Liquidity ratios
Throughout the first half of 2020, the regulatory liquidity coverage ratio (LCR) remained above the limits set by the Board of Managing Directors.
18 Risk-oriented overall bank management
- 19 Default risk 26 Market risk
- 29 Liquidity risk
- 31 Operational risk
- 31 Other risks
The regulatory LCR is contained in the internal liquidity risk model as a binding secondary condition. The LCR is calculated as the ratio of liquid assets to net liquidity outflows under stressed conditions. It is used to measure whether a bank has a large enough liquidity buffer to independently withstand any potential imbalance between inflows and outflows of liquidity under stressed conditions over a period of 30 calendar days. Since 1 January 2018, banks have had to maintain a ratio of at least 100%.
At 127.27% (average month-end value over the last 12 months) Commerzbank significantly exceeded the minimum ratio of 100% for the LCR (as at the end of 2019: 132.72%).
The Bank has established corresponding limits and early warning indicators to ensure the LCR minimum requirements are met. Further information on the composition of the LCR is given in Note 42 (liquidity coverage ratio) of the interim financial statements.
Operational risk
Based on the Capital Requirements Regulation (CRR), Commerzbank defines operational risk (OpRisk) as the risk of loss resulting from the inadequacy or failure of internal processes, people and systems or from external events. This definition includes legal risks; it does not cover strategic or reputational risks. In view of their increased economic significance, compliance risk and cyber risk are managed as separate risk types. However, losses from compliance risks and cyber risks are incorporated into the model for determining the regulatory and economic capital required for operational risks.
Commerzbank takes an active approach to managing operational risk, aiming to systematically identify OpRisk profiles and risk concentrations and to define, prioritise and implement risk mitigation measures.
OpRisk management includes an annual evaluation of the Bank's internal control system (ICS) and a risk scenario assessment. Furthermore, OpRisk loss events are subjected to ongoing analysis and to ICS backtesting on an event-driven basis. Lessons learned activities are carried out after all material loss events.
Commerzbank uses the advanced measurement approach (AMA) to measure regulatory and economic capital for operational risks. Risk-weighted assets for operational risks on this basis came to €18.1bn at the end of the first half of 2020 (31 December 2019: €18.7bn). The economically required capital was €1.4bn (31 December 2019: €1.5bn).
The total charge for OpRisk events at the end of the first half of 2020 was approximately €98m (full-year 2019: €127m). The events mainly related to losses in the "Products and business practices" category.
The exceptional situation during the coronavirus pandemic is resulting in increased operational risk, especially due to changes in internal processes and the market environment. However, losses have been immaterial thus far and are limited to cost items such as cancellations (business trips, events), additional hygiene measures to protect employees and customers, and IT measures related to enhanced online availability.
| OpRisk events1 €m | 30.6.2020 | 31.12.2019 |
|---|---|---|
| Internal fraud | 1 | 6 |
| External fraud | 5 | 12 |
| Damage and IT failure | 7 | 2 |
| Products and business practices | 85 | 103 |
| Process related | 1 | 6 |
| HR related | 0 | – 1 |
| Group | 98 | 127 |
1 Losses incurred and provisions, less OpRisk-based income and repayments.
Other risks
To meet the requirements of the Basel framework, MaRisk requires an integrated approach to risk that also includes unquantifiable risk categories. At Commerzbank, these are subjected to a qualitative management and control process. Details of legal, compliance, cyber and model risk are shown below. As regards all other risks, there were no significant changes in the first half of 2020 compared with the position reported in the Group Risk Report 2019.
Legal risk Commerzbank and its subsidiaries are involved in a variety of court and arbitration cases, claims and official investigations (legal proceedings) in connection with a broad range of issues. They include, for example, allegations of defective advice, disputes in connection with credit finance or payment transactions, entitlements to occupational pensions, allegedly false accounting and incorrect financial statements, enforcement of claims due to tax issues, allegedly incorrect prospectuses in connection with underwriting transactions, alleged violations of competition laws, and cases brought by shareholders and other investors as well as investigations by US authorities. In addition, changes to rulings by supreme courts, which may render them more restrictive, as well as to legal conditions, e.g. in the private customer business, may result in more claims being brought against Commerzbank or its subsidiaries. In these court cases, claimants are mostly asking for the payment of compensation, claims on account of unjust enrichment or the reversal of agreements already entered into. If the courts were to find in favour of one or more of the claimants in these cases, Commerzbank could be liable to pay compensation, which could in some cases be substantial, or could incur the expense of reversing agreements or of other cost-intensive measures. Regulatory authorities and governmental institutions in various countries in which Commerzbank and its subsidiaries are or have been active have for some years been investigating irregularities in connection with the fixing of foreign exchange rates and with foreign exchange business in general. In the course of these investigations, regulatory authorities and governmental institutions have also sought checks on Commerzbank or have approached the company with requests for information. Commerzbank has cooperated fully with these bodies and also looked into the relevant matters on the basis of its own comprehensive investigations. The cases are no longer active with the exception of one case in which the investigating authority transferred the matter to the national competition tribunal. The possibility of financial consequences arising from some of these matters cannot be ruled out.
The public prosecutor's office in Frankfurt is investigating equity transactions conducted by Commerzbank and the former Dresdner Bank around the dividend record date (cum-ex transactions). Commerzbank had already initiated a forensic analysis of cum-ex transactions at the end of 2015, which was concluded at the start of 2018 in respect of Commerzbank's equity transactions and in September 2019 in respect of the equity transactions of the former Dresdner Bank. All back taxes demanded by the tax authorities have been paid.
The public prosecutor's office in Cologne has been conducting investigations at Commerzbank since September 2019 in connection with a separate case concerning cum-ex transactions. It is investigating on suspicion that the Bank (including Dresdner Bank) was involved in cum-ex transactions in various roles, including by supplying shares to third parties who were allegedly acting as short sellers. According to the current understanding, these proceedings do not involve Commerzbank's own tax credit claims with regard to capital gains tax and the solidarity surcharge on dividends.
The Bank is cooperating fully with authorities conducting investigations into cum-ex transactions. It is currently not possible to predict whether this will result in a burden, and if so in what amount.
In the circular of the German Federal Ministry of Finance (BMF) dated 17 July 2017, the tax authorities addressed the treatment of cum-cum transactions, declaring their intention to critically examine past transactions for indications of abuse of law. According to the view put forward in the BMF circular, abuse of law pursuant to Article 42 of the German Tax Code (Abgabenordnung, AO) is indicated if there are no economically reasonable grounds for the transaction in question and the structure of the transaction appears to be largely tax-induced (tax arbitrage). The circular provides a non-exhaustive list of cases which the BMF will assess for tax purposes. Within the framework of Commerzbank AG's ongoing tax on-site inspection, the tax auditors commented on the treatment of these transactions in the form of audit notes. Further discussions are taking place on this issue. Furthermore, in the assessments for the years 2014 and 2015, the tax office reduced the credit for capital gains taxes. In response, Commerzbank AG made value adjustments to tax credits shown in the balance sheet and set up additional provisions for possible repayment claims in order to reflect the changed risk situation appropriately. The possibility that this conclusion could alter as developments unfold, for example in connection with assessments made by the fiscal courts, cannot be completely ruled out.
With respect to cum-cum securities lending transactions, Commerzbank is exposed to compensation claims from third parties for crediting entitlements that have been denied. Based on the analyses performed, Commerzbank considers it rather unlikely that such claims could be enforced. However, it cannot be ruled out. Based on our estimates, the financial impact could be in the upper double-digit million range, plus interest on arrears, in these cases. The possibility that this conclusion could alter as developments unfold, for example in connection with assessments made by the tax authorities and fiscal/civil courts, cannot be completely ruled out. Appropriate provisions have been made for tax risks.
In May 2017, a Polish court admitted a class action lawsuit against a subsidiary of Commerzbank alleging the ineffectiveness of index clauses in loan agreements denominated in Swiss francs (CHF). In October 2018, the class action suit was dismissed in its entirety by the court of first instance. The claimants appealed the judgement. In March 2020, the court of appeal partially overturned the judgement of the court of first instance and referred it back. The subsidiary is considering appealing this decision. A total of 1,731 plaintiffs have joined the class action. In early June 2020, the court of appeal enacted a temporary order concerning the suspension of interest payment and repayment obligations and prohibited the subsidiary from issuing due date or cancellation notices. The subsidiary has filed a complaint against this decision. Irrespective thereof, numerous borrowers have additionally filed individual lawsuits against the Commerzbank subsidiary for the same reasons. In addition to the class action, 4,596 other individual proceedings were pending as at 30 June 2020. The subsidiary is defending itself against each of the claims. It has won the majority of the individual lawsuits.
The case law of the Polish courts on loans with indexation clauses has so far been inconsistent overall. This fact and the number of judgements handed down are not sufficient to permit a reliable estimate of future case law.
- 18 Risk-oriented overall bank management
- 19 Default risk
- 26 Market risk
- 29 Liquidity risk 31 Operational risk
- 31 Other risks
Against this backdrop, possible future lawsuits relating to the existing portfolio and the portfolio already repaid will be taken into account in addition to the lawsuits already filed when calculating the provision. The Group/subsidiary measures the provision for individual claims relating to existing and already repaid loans with CHF indexation clauses using the expected value method permitted under IAS 37. The provision relates both to the portfolio existing as at 30 June 2020 with a carrying amount of €3.1bn and to the portfolio already repaid. The portfolio that was already repaid amounted to 6.5bn Polish zloty at the time of disbursement. The provision as at 30 June 2020 for individual lawsuits was thus €137.2m.
The methodology used to calculate the provision is based on parameters that are varied, discretionary and in some cases associated with considerable uncertainty. Key parameters are the estimated total number of plaintiffs, the probability of losing a lawsuit in the last instance, the amount of the loss and the development of the exchange rate. Fluctuations in the parameters and the interdependencies between them may mean that the amount of the provision has to be adjusted significantly in the future.
Some of these cases could also have an impact on the reputation of Commerzbank and its subsidiaries. The Group recognises provisions for such proceedings if liabilities are likely to result from them and the amounts to which the Group is likely to be liable can be determined with sufficient accuracy. Since there are considerable uncertainties as to how such proceedings will develop, the possibility cannot be ruled out that some of the provisions recognised for them may prove to be inadequate once the courts' final rulings are known. As a result, substantial additional expense may be incurred. This is also true in the case of legal proceedings for which the Group did not consider it necessary to recognise provisions. The eventual outcome of some legal proceedings might have an impact on Commerzbank's results and cash flow in a given reporting period; in the worst case, it cannot be fully ruled out that the liabilities that might result from them may also have a significant impact on Commerzbank's earnings performance, assets and financial position.
Further information on legal proceedings may be found in Note 37 regarding provisions and Note 38 regarding contingent liabilities and lending commitments in the interim financial statements.
Compliance risk In 2015, Commerzbank reached settlements with various US authorities regarding violations of US sanctions and anti-money laundering provisions. The Bank has already dealt with the majority of the findings relating to the settlements. The Deferred Prosecution Agreement with the District Attorney of New York and the Deferred Prosecution Agreement with the US Department of Justice were subsequently terminated in March 2018 and May 2018 respectively, after consultation with the respective district attorney's offices. The Bank has also received various interim reports and on 15 October 2018 received the final report from the monitor appointed by the New York State Department of Financial Services (DFS), to which it has responded with corresponding implementation programmes. The Bank has made good progress in carrying out the implementation programmes and has executed most of the measures. The US monitor submitted its final report dated 15 October 2018, thus concluding its on-site investigations. In accordance with the terms of the engagement letter between the Bank and the monitor, the monitorship ended on 24 June 2019. Official confirmation from the DFS that Commerzbank is back under regular banking supervision following the monitorship is still pending.
In line with the requirements of the UK Financial Services and Markets Act 2000 (FSMA), in 2017 Commerzbank London mandated a consulting company as a "skilled person". The consulting company carried out a review of existing structures and processes (especially with regard to money laundering/financing of terrorism as well as sanctions/embargoes) and prepared a report for the UK Financial Conduct Authority (FCA). Commerzbank London subsequently launched a comprehensive remediation project, the implementation of which is being evaluated by the "skilled person", with half-yearly reports to the FCA. Substantial progress has been made since the fourth and final phase was completed. Accordingly, the FCA informed the Bank in advance by e-mail on 16 June 2020 that the "skilled person" process had been concluded. A small number of topics to be addressed have been transferred to the line function, the handling of which will be monitored by Group Audit. The Bank received a "warning notice" from the FCA on 14 May 2020. It addressed weaknesses identified by the FCA in 2017 for the years 2012 to 2017 (money laundering prevention, know-your-customer (KYC) and transaction monitoring). On 17 June 2020, the Bank reached an agreement with the FCA on a penalty payment of £37.8m.
Since 31 December 2012, Commerzbank has been provisionally registered as a swap dealer with the U.S. Commodity Futures Trading Commission (CFTC). On 8 November 2018, Commerzbank reached agreement with the CFTC in a consent order waiving an investigation into breach of the U.S. swap dealer rules in the U.S. Commodity Exchange Act and the regulations of the CFTC. In accordance with this consent order, Commerzbank has engaged an outside consultant approved by the CFTC (Compliance Consultant) for a period of two years. The CFTC may extend this period by a further year at its discretion, based on its assessment of Commerzbank's remedial efforts. The Compliance Consultant started work in April 2019 and submitted his first report to the CFTC on 17 June. The final report includes 51 recommendations and 25 observations requiring processing or improvements.
At the request of the Hong Kong Monetary Authority (HKMA), Commerzbank Hong Kong engaged an outside consultant to review the implementation of the branch's local control and governance structures. The outside consultant concluded their audit during the summer and provided a report on the audit findings; processing of the individual issues addressed in the report has been completed. The Branch project to implement a regulatory inventory as an overview of existing and relevant local regulatory requirements finalised the regulatory inventory and the coverage analysis as planned. Implementation in the written rules of procedure and controls is due to be completed by the end of the third quarter of 2020.
Cyber risk Cyber risk comprises risks that are directly relevant to security and risks that can become relevant to security (with respect to cyber space). The part of cyber space of relevance to Commerzbank is all connected IT environments within the Bank and those outside the Bank that lead to customers, business partners and service providers. Cyber risk is therefore concerned with the digital representation of the Bank's assets (data, information) within cyber space.
The strategic guidelines from the overall risk strategy and the information security strategy apply without limitation to cyber risk.
In order to prevent cyber risk organisationally, Commerzbank has – in addition to the established governance processes of information security, the related risk reports on key risk indicators and management via the Internal Control System (ICS) – set up a cyber security programme focusing on specific aspects of cyber security. The results of the cyber security programme feed both the ICS and the Bank's risk reporting.
Since 1 January 2020, cyber and information security risks have been managed by the new Group division "Group Risk Management – Cyber Risk & Information Security", which reports to the Group Chief Information Security Officer (CISO).
Cyber risk generally has consequences for operational risk and the Bank's other material risk types. These can be broken down into direct and indirect consequences.
There are currently no concrete attack patterns or other anomalies specifically related to the coronavirus pandemic to which our institution, other financial service providers or financial market infrastructures are exposed. In addition, we are not currently seeing any additional attack methods or an expansion of our attack surface due to the increased remote use of Bank resources such as split operations or home working.
However, there are a range of attack vectors that try to engage in criminal activity by capitalising on public fears (such as e-mails concerning precautionary measures purportedly sent by the WHO). This approach is known in the media as fearware and refers specifically to the most common form of its implementation, namely a combination of malware and social engineering powered by the fear of the person being targeted.
With regard to our customers, we are paying even more attention than usual to transactional anomalies, especially in the context of coronavirus-related fraud.
Model risk Model risk is the risk of incorrect management decisions based on an inaccurate depiction of reality by the models used. With regard to the causes of model risk we distinguish between model risk from exceeding model boundaries and model risk from model errors (manual errors in model development/implementation). In line with the focus of the Group risk strategy, namely to ensure that the Bank has adequate capital and liquidity, the models for assessing risk-bearing capacity (capital requirements under the Basel framework and economically measured capital requirements, respectively) and liquidity resources are central for risk management.
The basic principles of model risk management are the identification and avoidance of model risks and appropriate consideration of known model risks (e.g. through conservative calibration or consideration of margins of conservatism or model reserves). Model risks that are unknown and hence cannot be mitigated are accepted as an inherent risk in the complexity of the Commerzbank business model. In respect of the governance of model risk management, requirements relating to model validation and model changes are established.
The current coronavirus pandemic, with its considerable economic and social impact as well as the mitigating support provided by the governments, poses major challenges for the risk models used. Commerzbank has introduced a series of measures to counter the increased model risk and to ensure appropriate management even in the current phase. To this end, among other things, the ongoing monitoring of the performance of the models has been expanded and the processes for using the models have been partially refined and adapted.
18 Risk-oriented overall bank management
- 26 Market risk
- 29 Liquidity risk 31 Operational risk
- 31 Other risks
Disclaimer Commerzbank's internal risk measurement methods and models which form the basis for the calculation of the figures shown in this report are state-of-the-art and based on banking sector practice. The risk models produce results appropriate to the management of the Bank. The measurement approaches are regularly reviewed by Risk Controlling and Internal Audit as well as by German and European supervisory authorities. Despite being carefully developed and regularly checked, models cannot cover all the influencing factors that have an impact in reality or illustrate their complex behaviour and interactions. These limits to risk modelling apply in particular in extreme situations. Supplementary stress tests and scenario analyses can only show examples of the risks to which a portfolio may be exposed in extreme market situations. However, stress-testing all imaginable scenarios is not feasible. Stress tests cannot offer a final estimate of the maximum loss should an extreme event occur.
Interim Financial Statements
38 Statement of comprehensive income
- 38 Income statement
- 39 Condensed statement of comprehensive income
- 42 Income statement (by quarter)
43 Balance sheet
44 Statement of changes in equity
46 Cash flow statement (condensed version)
47 Selected notes
47 General information
- (1) Accounting policies
- (2) Initially applicable, revised and new standards and interpretations
- (3) Changes
- (4) Report on events after the reporting period
53 Accounting and measurement policies
- (5) Changes in accounting and measurement policies
- (6) Consolidated companies
54 Notes to the income statement
- (7) Net interest income
- (8) Dividend income
- (9) Risk result
- (10) Net commission income
- (11) Net income from financial assets and liabilities measured at fair value through profit or loss
- (12) Net income from hedge accounting
- (13) Other net income from financial instruments
- (14) Other net income
- (15) Operating expenses
- (16) Compulsory contributions
- (17) Taxes on income
- (18) Earnings per share
To our Shareholders Interim Management Report Interim Risk Report Interim Financial Statements 37
38 Statement of comprehensive Income 43 Balance sheet
44 Statement of changes in equity
46 Cash flow statement 47 Selected notes
63 Notes to the balance sheet
Financial assets and liabilities
- (19) Financial assets Amortised cost
- (20) Financial liabilities Amortised cost
- (21) Financial assets Fair value OCI
- (22) Financial liabilities Fair value option
- (23) Financial assets Mandatorily fair value P&L
- (24) Financial assets Held for trading
- (25) Financial liabilities Held for trading
Credit risks and credit losses
(26) Credit risks and credit losses
Other notes on financial instruments
- (27) IFRS 13 fair value hierarchies and disclosure requirements
- (28) Information on netting of financial instruments
- (29) Derivatives
Notes to the balance sheet (non-financial instruments)
- (30) Intangible assets
- (31) Fixed assets
- (32) Discontinued business division
- (33) Non-current assets held for sale and disposal groups
- (34) Liabilities from disposal groups
- (35) Other assets
- (36) Other liabilities
- (37) Provisions
- (38) Contingent liabilities and lending commitments
Segment reporting
- (39) Segment reporting
- 105 Other notes
- (40) Regulatory capital requirements
- (41) Leverage ratio
- (42) Liquidity coverage ratio
- (43) Related party transactions
116 Boards of Commerzbank Aktiengesellschaft
- 117 Responsibility statement by the Board of Managing Directors
- 118 Review report
Statement of comprehensive income
Income statement
| €m | Notes | 1.1.-30.6.2020 | 1.1.-30.6.20191 | Change in % |
|---|---|---|---|---|
| Interest income accounted for using the effective interest method | (7) | 3,509 | 3,830 | – 8.4 |
| Interest income accounted for not using the effective interest method | (7) | 490 | 619 | – 20.9 |
| Interest income | (7) | 3,999 | 4,450 | – 10.1 |
| Interest expenses | (7) | 1,402 | 1,944 | – 27.9 |
| Net interest income | (7) | 2,597 | 2,505 | 3.7 |
| Dividend income | (8) | 13 | 11 | 16.5 |
| Risk result | (9) | – 795 | – 256 | |
| Commission income | (10) | 1,972 | 1,870 | 5.4 |
| Commission expenses | (10) | 303 | 364 | – 16.6 |
| Net commission income | (10) | 1,668 | 1,507 | 10.7 |
| Net income from financial assets and liabilities measured at fair value through profit or loss |
(11) | – 141 | 113 | |
| Net income from hedge accounting | (12) | 64 | 96 | – 32.9 |
| Other sundry realised profit or loss from financial instruments | 28 | 18 | 56.9 | |
| Gain or loss on disposal of financial assets – Amortised cost | – 13 | – 7 | 89.1 | |
| Other net income from financial instruments | (13) | 15 | 11 | 36.1 |
| Current net income from companies accounted for using the equity method |
5 | 7 | – 28.7 | |
| Other net income | (14) | – 97 | 35 | |
| Operating expenses | (15) | 3,030 | 3,146 | – 3.7 |
| Compulsory contributions | (16) | 374 | 328 | 14.0 |
| Pre-tax profit or loss from continuing operations | – 74 | 555 | ||
| Taxes on income | (17) | 51 | 122 | – 57.9 |
| Consolidated profit or loss from continuing operations | – 125 | 433 | ||
| Consolidated profit or loss from discontinued operations | 50 | 12 | ||
| Consolidated profit or loss | – 75 | 445 | ||
| Consolidated profit or loss attributable to non-controlling interests | 21 | 44 | – 51.6 | |
| Consolidated profit or loss attributable to Commerzbank shareholders and investors in additional equity components |
– 96 | 401 |
1 Prior-year figures adjusted due to restatements (see Note 3).
| € | 1.1.-30.6.2020 | 1.1.-30.6.20191 | Change in % | |
|---|---|---|---|---|
| Earnings per share | (18) | – 0.08 | 0.32 |
1 Prior-year figures adjusted due to restatements (see Note 3).
The earnings per share, calculated in accordance with IAS 33, are based on the consolidated profit or loss attributable to Commerzbank shareholders. No conversion or option rights were outstanding either in the previous or current financial year. The figure for diluted earnings per share was therefore identical to the undiluted figure.
38 Statement of comprehensive Income
43 Balance sheet
44 Statement of changes in equity
46 Cash flow statement 47 Selected notes
Condensed statement of comprehensive income
| €m | 1.1.-30.6.2020 | 1.1.-30.6.20191 | Change in % |
|---|---|---|---|
| Consolidated profit or loss | – 75 | 445 | |
| Change from remeasurement of defined benefit plans not recognised in income statement |
351 | – 240 | |
| Change from remeasurement of equity instruments (FVOCIoR) | |||
| Reclassified to retained earnings | – 1 | – 0 | |
| Change in value not recognised in income statement | – 3 | 5 | |
| Change in own credit spreads (OCS) of liabilities FVO not recognised in income statement |
90 | – 47 | |
| Items not recyclable through profit or loss | 437 | – 282 | |
| Change in revaluation of debt securities (FVOCImR) | |||
| Reclassified to income statement | – 17 | – 25 | – 30.7 |
| Change in value not recognised in income statement | – 54 | 69 | |
| Change in cash flow hedge reserve | |||
| Reclassified to income statement | 1 | 2 | – 53.7 |
| Change in value not recognised in income statement | 77 | 7 | |
| Change in currency translation reserve | |||
| Reclassified to income statement | 1 | – | |
| Change in value not recognised in income statement | – 225 | 56 | |
| Change from non-current assets held for sale and disposal groups |
|||
| Reclassified to income statement | – | – | |
| Change in value not recognised in income statement | – | – | |
| Change in companies accounted for using the equity method | – 0 | – 0 | |
| Items recyclable through profit or loss | – 218 | 108 | |
| Other comprehensive income | 219 | – 174 | |
| Total comprehensive income | 144 | 272 | – 47.2 |
| Comprehensive income attributable to non-controlling interests | 7 | 57 | – 87.0 |
| Comprehensive income attributable to Commerzbank shareholders and investors in additional equity components |
136 | 214 | – 36.5 |
1 Prior-year figures adjusted due to restatements (see Note 3)
| €m | 1.4.-30.6.2020 | 1.4.-30.6.20191 | Change in % |
|---|---|---|---|
| Consolidated profit or loss | 233 | 309 | – 24.6 |
| Change from remeasurement of defined benefit plans not recognised in income statement |
– 149 | – 16 | |
| Change from the remeasurement of equity instruments (FVOCIoR) | |||
| Reclassified to retained earnings | – | – | |
| Change in value not recognised in income statement | – | 1 | |
| Change in own credit spreads (OCS) of liabilities FVO not recognised in income statement |
– 130 | – 36 | |
| Items not recyclable through profit or loss | – 279 | – 51 | |
| Change in revaluation reserve (FVOCImR) | |||
| Reclassified to income statement | – 1 | – 13 | |
| Change in value not recognised in income statement | 226 | 50 | |
| Change in cash flow hedge reserve | |||
| Reclassified to income statement | 0 | 1 | – 57.8 |
| Change in value not recognised in income statement | 20 | 2 | |
| Change in currency translation reserve | |||
| Reclassified to income statement | – | – | |
| Change in value not recognised in income statement | 31 | 1 | |
| Change from non-current assets held for sale or disposal groups | |||
| Reclassified to income statement | – | – | |
| Change in value not recognised in income statement | – | – | |
| Change in companies accounted for using the equity method | 1 | – 0 | |
| Items recyclable through profit or loss | 277 | 41 | |
| Other comprehensive income | – 1 | – 10 | – 86.2 |
| Total comprehensive income | 231 | 298 | – 22.4 |
| Comprehensive income attributable to non-controlling interests | 53 | 46 | 14.2 |
| Comprehensive income attributable to Commerzbank shareholders and investors in additional equity components |
179 | 252 | – 29.1 |
1 Prior-year figures adjusted due to restatements (see Note 3)
38 Statement of comprehensive Income
To our Shareholders Interim Management Report Interim Risk Report Interim Financial Statements 41
43 Balance sheet
44 Statement of changes in equity
46 Cash flow statement 47 Selected notes
The breakdown of other comprehensive income for the first six months was as follows
| Other comprehensive income €m | 1.1.-30.6.2020 | 1.1.-30.6.20191 | |||||
|---|---|---|---|---|---|---|---|
| Before taxes | Taxes | After taxes | Before taxes | Taxes | After taxes | ||
| Change in own credit spread (OCS) of liabilities FVO |
101 | – 10 | 90 | – 47 | – 0 | – 47 | |
| Change from remeasurement of equity instruments (FVOCIoR) |
– 5 | 0 | – 5 | 5 | – 0 | 5 | |
| Change from remeasurement of defined benefit plans |
505 | – 154 | 351 | – 290 | 50 | – 240 | |
| Change in revaluation of debt securities (FVOCImR) |
– 94 | 22 | – 71 | 56 | – 12 | 44 | |
| Change in cash flow hedge reserve | 97 | – 19 | 78 | 12 | – 3 | 9 | |
| Change in currency translation reserve | – 225 | 0 | – 225 | 56 | 0 | 56 | |
| Change from non-current assets held for sale and disposal groups |
– | – | – | – | – | – | |
| Change in companies accounted for using the equity method |
– 0 | – | – 0 | – 0 | – | – 0 | |
| Other comprehensive income | 379 | – 161 | 219 | – 208 | 34 | – 174 |
:
1 Prior-year figures adjusted due to restatements (see Note 3)
In the second quarter, the breakdown of other comprehensive income was as follows:
| Other comprehensive income €m | 1.4.-30.6.2020 | 1.4.-30.6.2019 | |||||
|---|---|---|---|---|---|---|---|
| Before taxes | Taxes | After taxes Before taxes | Taxes | After taxes | |||
| Change in own credit spread (OCS) of liabilities FVO |
– 137 | 7 | – 130 | – 37 | 0 | – 36 | |
| Change from remeasurement of equity instruments (FVOCIoR) |
– | – | – | 1 | – 0 | 1 | |
| Change from remeasurement of defined benefit plans |
– 215 | 66 | – 149 | – 25 | 10 | – 16 | |
| Change in revaluation of debt securities (FVOCImR) |
282 | – 56 | 226 | 45 | – 7 | 37 | |
| Change in cash flow hedge reserve | 25 | – 5 | 20 | 4 | – 1 | 3 | |
| Change in currency translation reserve | 31 | – 0 | 31 | 1 | 0 | 1 | |
| Change from non-current assets held for sale and disposal groups |
– | – | – | – | – | – | |
| Change in companies accounted for using the equity method |
1 | – | 1 | – 0 | – | – 0 | |
| Other comprehensive income | – 14 | 12 | – 1 | – 12 | 1 | – 10 |
Income statement (by quarter)
| €m | 20191 2020 |
|||||
|---|---|---|---|---|---|---|
| 2nd quarter | 1st quarter2 | 4th quarter | 3rd quarter | 2nd quarter | 1st quarter | |
| Interest income accounted for using the effective interest method |
1,696 | 1,814 | 1,814 | 1,911 | 1,918 | 1,912 |
| Interest income accounted for not using the effective interest method |
202 | 288 | 292 | 305 | 317 | 303 |
| Interest income | 1,897 | 2,102 | 2,106 | 2,216 | 2,235 | 2,215 |
| Interest expenses | 620 | 782 | 800 | 957 | 961 | 983 |
| Net interest income | 1,277 | 1,320 | 1,305 | 1,259 | 1,274 | 1,231 |
| Dividend income | 12 | 2 | 19 | 5 | 10 | 1 |
| Risk result | – 469 | – 326 | – 250 | – 114 | – 178 | – 78 |
| Commission income | 938 | 1,034 | 933 | 903 | 931 | 939 |
| Commission expenses | 146 | 157 | 147 | 139 | 192 | 171 |
| Net commission income | 791 | 877 | 786 | 763 | 739 | 768 |
| Net income from financial assets and liabilities measured at fair value through profit or loss |
163 | – 304 | 116 | 15 | 28 | 85 |
| Net income from hedge accounting | 135 | – 70 | – 27 | 36 | 46 | 50 |
| Other sundry realised profit or loss from financial instruments |
10 | 18 | 19 | – 5 | 33 | – 15 |
| Gain or loss on disposal of financial assets - Amortised cost |
– 8 | – 5 | 17 | – 15 | – 2 | – 5 |
| Other net income from financial instruments | 2 | 13 | 36 | – 20 | 31 | – 20 |
| Current net income from companies accounted for using the equity method |
3 | 2 | 2 | 2 | 2 | 5 |
| Other net income | – 109 | 12 | – 65 | 122 | – 2 | 37 |
| Operating expenses | 1,526 | 1,503 | 1,608 | 1,559 | 1,579 | 1,567 |
| Compulsory contributions | 73 | 301 | 65 | 60 | 63 | 265 |
| Impairments on goodwill and other intangible assets |
– | – | 28 | – | – | – |
| Restructuring expenses | – | – | 101 | – | – | – |
| Pre-tax profit or loss from continuing operations | 205 | – 278 | 120 | 449 | 309 | 246 |
| Taxes on income | – 22 | 74 | 95 | 108 | 26 | 97 |
| Consolidated profit or loss from continuing operations |
227 | – 352 | 25 | 341 | 283 | 149 |
| Consolidated profit or loss from discontinued operations |
6 | 44 | – 27 | – 3 | 26 | – 13 |
| Consolidated profit or loss | 233 | – 308 | – 2 | 338 | 309 | 136 |
| Consolidated profit or loss attributable to non controlling interests |
13 | 8 | 13 | 43 | 30 | 14 |
| Consolidated profit or loss attributable to Commerzbank shareholders and investors in additional equity components |
220 | – 316 | – 15 | 295 | 279 | 122 |
1 Prior-year figures adjusted due to restatements (see Note 3).
2 Adjusted values
38 Statement of comprehensive Income
43 Balance sheet 44 Statement of changes in equity
46 Cash flow statement 47 Selected notes
Balance sheet
| Assets €m | Notes | 30.6.2020 | 31.12.20191 | Change in % |
|---|---|---|---|---|
| Cash on hand and cash on demand | 83,843 | 41,164 | ||
| Financial assets – Amortised cost | (19) | 308,510 | 293,658 | 5.1 |
| of which pledged as collateral | 1,277 | 1,814 | – 29.6 | |
| Financial assets – Fair value OCI | (21) | 40,161 | 30,942 | 29.8 |
| of which pledged as collateral | 1,984 | 1,355 | 46.5 | |
| Financial assets – Mandatorily fair value P&L | (23) | 44,747 | 30,196 | 48.2 |
| of which pledged as collateral | – | 0 | ||
| Financial assets – Held for trading | (24) | 55,414 | 44,840 | 23.6 |
| of which pledged as collateral | 2,903 | 842 | ||
| Value adjustment on portfolio fair value hedges | 1,850 | 959 | 92.9 | |
| Positive fair values of derivative hedging instruments | 2,328 | 1,992 | 16.9 | |
| Holdings in companies accounted for using the equity method |
180 | 177 | 1.2 | |
| Intangible assets | (30) | 2,978 | 3,053 | – 2.4 |
| Fixed assets | (31) | 3,268 | 3,487 | – 6.3 |
| Investment properties | 13 | 13 | – | |
| Non-current assets held for sale and disposal groups | (33) | 2,179 | 7,955 | – 72.6 |
| Current tax assets | 424 | 439 | – 3.3 | |
| Deferred tax assets | 2,765 | 2,946 | – 6.1 | |
| Other assets | (35) | 1,970 | 1,739 | 13.3 |
| Total | 550,628 | 463,557 | 18.8 |
1 Prior-year figures adjusted due to restatements (see Note 3).
| Liabilities and equity €m | Notes | 30.6.2020 | 31.12.20191 | Change in % |
|---|---|---|---|---|
| Financial liabilities – Amortised cost | (20) | 417,516 | 351,909 | 18.6 |
| Financial liabilities – Fair value option | (22) | 36,321 | 19,964 | 81.9 |
| Financial liabilities – Held for trading | (25) | 46,990 | 39,366 | 19.4 |
| Value adjustment on portfolio fair value hedges | 1,471 | 1,212 | 21.4 | |
| Negative fair values of derivative hedging instruments | 5,868 | 4,402 | 33.3 | |
| Provisions | (37) | 1,910 | 2,704 | – 29.4 |
| Current tax liabilities | 392 | 438 | – 10.5 | |
| Deferred tax liabilities | 32 | 27 | 17.6 | |
| Liabilities of disposal groups | (34) | 3,878 | 8,528 | – 54.5 |
| Other liabilities | (36) | 4,494 | 4,418 | 1.7 |
| Equity | 31,758 | 30,589 | 3.8 | |
| Subscribed capital | 1,252 | 1,252 | – | |
| Capital reserve | 17,192 | 17,192 | – | |
| Retained earnings | 10,320 | 10,133 | 1.8 | |
| Other reserves (with recycling) | – 374 | – 169 | ||
| Equity attributable to Commerzbank shareholders | 28,390 | 28,409 | – 0.1 | |
| Additional equity components | 2,126 | 885 | ||
| Non-controlling interests | 1,242 | 1,296 | – 4.1 | |
| Total | 550,628 | 463,557 | 18.8 |
1 Prior-year figures adjusted due to restatements (see Note 3).
Statement of changes in equity
| €m | Subscribed Capital capital reserve |
Retained earnings |
Revaluation reserve |
Other reserves Cash flow hedge reserve |
Currency translation reserve |
Equity attribut able to Commerz bank share holders1 |
Additional equity com ponents2 |
Non con trolling interests1 |
Equity1 |
|---|---|---|---|---|---|---|---|---|---|
| Equity as at 31.12.2018 | 1,252 17,192 | 10,054 | – 9 | – 15 | – 264 | 28,211 | – | 1,200 | 29,411 |
| Change due to restatements | – | – – 148 |
– | – | 0 | – 148 | – | – 3 | – 151 |
| Equity as at 31.12.2018 (after restatements) |
1,252 17,192 | 9,906 | – 9 | – 15 | – 264 | 28,063 | – | 1,197 | 29,260 |
| Change from first-time application of IFRS 9 |
– | – 12 |
– | – | – | 12 | – | – | 12 |
| Equity as at 1.1.2019 | 1,252 17,192 | 9,918 | – 9 | – 15 | – 264 | 28,075 | – | 1,197 | 29,272 |
| Total comprehensive income | – | – 119 |
47 | 6 | 42 | 214 | – | 57 | 272 |
| Consolidated profit or loss | – | – 401 |
– | – | – | 401 | – | 44 | 445 |
| Change in own credit spread (OCS) of liabilities FVO |
– 47 | – | – | – | – 47 | – | – 47 | ||
| Change from remeasurement of defined benefit plans |
– 239 | – | – | – | – 239 | – 1 | – 240 | ||
| Change in measurement of equity instruments (FVOCIoR) |
4 | – | – | – | 4 | 1 | 5 | ||
| Change in revaluation of debt securities (FVOCImR) |
– | – – |
47 | – | – | 47 | – | – 3 | 44 |
| Change in cash flow hedge reserve |
– | – | 6 | – | 6 | – | 3 | 9 | |
| Change in currency translation reserve |
– | – | – | 42 | 42 | – | 13 | 56 | |
| Change from non-current assets held for sale and disposal groups |
– | – | – | – | – | – | – | – | |
| Change in companies accounted for using the equity method |
– | – | – | – 0 | – 0 | – | – | – 0 | |
| Dividend paid on shares | – 250 | – | – | – | – 250 | – 6 | – 257 | ||
| Changes in ownership interests | 2 | – | – | – | 2 | – 5 | – 3 | ||
| Other changes | 7 | – | – | – | 7 | 1 | 7 | ||
| Equity as at 30.6.2019 | 1,252 17,192 | 9,796 | 38 | – 9 | – 221 | 28,048 | – | 1,243 | 29,291 |
1 Prior-year figures adjusted due to restatements (see note 3).
2 Includes the Additional Tier 1 bond (AT1 bond), which is an unsecured subordinated bond classified as equity under IFRS.
38 Statement of comprehensive Income
43 Balance sheet 44 Statement of changes in equity
46 Cash flow statement 47 Selected notes
| €m | Subscribed | Capital | Retained | Other reserves | Equity | Additional | Non | Equity2 | ||
|---|---|---|---|---|---|---|---|---|---|---|
| capital | reserve | earnings | Revaluation reserve |
Cash flow hedge reserve |
Currency trans lation reserve |
attribut able to Commerz bank share holders |
equity components1 |
controlling interests |
||
| Equity as at 31.12.2019 (before restatements) |
1,252 | 17,192 | 10,211 | 10 | – 5 | – 174 | 28,487 | 885 | 1,296 30,667 | |
| Change due to retrospective adjustments |
– | – | – 78 | – | – | – | – 78 | – | – | – 78 |
| Equity as at 1.1.2020 | 1,252 | 17,192 | 10,133 | 10 | – 5 | – 174 | 28,409 | 885 | 1,296 30,589 | |
| Total comprehensive income |
341 | – 85 | 53 | – 173 | 136 | – | 7 | 144 | ||
| Consolidated profit or loss |
– 96 | – 96 | 21 | – 75 | ||||||
| Change in own credit spread (OCS) of liabilities FVO |
90 | 90 | – | 90 | ||||||
| Change from remeasurement of defined benefit plans |
351 | 351 | 0 | 351 | ||||||
| Change in measurement of equity instruments (FVOCIoR) |
– 4 | – | – 4 | – 1 | – 5 | |||||
| Change in revaluation of debt securities (FVOCImR) |
– 85 | – 85 | 14 | – 71 | ||||||
| Change in cash flow hedge reserve |
– | – | – | – | 53 | – | 53 | – | 25 | 78 |
| Change in currency translation reserve |
– 173 | – 173 | – 52 | – 225 | ||||||
| Change from non current assets held for sale and disposal groups |
– | – | – | – | – | – | ||||
| Change in companies accounted for using the equity method |
– 0 | – 0 | – | – | – 0 | |||||
| Increase of capital | – | – | – | |||||||
| Decrease of capital | – | – | – | |||||||
| Dividend paid on shares | – | – | – 0 | – 0 | ||||||
| Payments to instruments of additional regulatory Tier 1 capital |
– 48 | – 48 | – 0 | – 48 | ||||||
| Changes in ownership interests |
– 112 | – 112 | – 61 | – 173 | ||||||
| Other changes | 6 | 6 | 1,241 | 1 | 1,248 | |||||
| Equity as at 30.6.2020 | 1,252 | 17,192 | 10,320 | – 75 | 48 | – 347 | 28,390 | 2,126 | 1,242 31,758 |
1 Includes the Additional Tier 1 bond (AT1 bond), which is an unsecured subordinated bond classified as equity under IFRS.
2 Prior-year figures adjusted due to restatements (see note 3).
AT1 bond
In the third quarter of 2019, Commerzbank AG issued its first Additional Tier 1 bond (AT1 bond) under the Capital Requirements Regulation (CRR). The bond has a volume of USD 1bn and a fixed coupon of 7.0% per annum. The instrument has a perpetual maturity and the first call date is in April 2025. Furthermore, the bond terms provide for a temporary write-down in the event that the Bank's Common Equity Tier 1 ratio (CET1 ratio) should drop below 5.125%. We have classified this subordinated AT1 bond as equity in accordance with IFRS and presented it separately in the item "Additional equity components" less issuing costs of USD 9m.
In the second quarter of 2020, Commerzbank Aktiengesellschaft launched an issuance programme for additional tier 1 capital (Additional Tier 1 capital, AT1), which will enable it to successively issue subordinated bonds with a nominal value of up to €3bn. An AT1 bond with a volume of €1.25bn and a fixed coupon of 6.125% per annum was issued by 30 June 2020. The instrument is a perpetual bond with no fixed maturity and the first call date is in October 2025. The bond terms are the same as for the first Additional Tier 1 bond (AT1 bond). We have also classified this subordinated AT1 bond as equity in accordance with IFRS and presented it separately in the item "Additional equity components" less issuing costs of €9m.
Other changes
As at 13 May 2020 the Annual General Meeting of Commerzbank AG decided not to pay a dividend for the 2019 financial year. Commerzbank is thus following the recommenda-tion the European Central Bank made on 27 March 2020 to refrain from paying a dividend for 2019 and 2020 until at least 1 October 2020 in view of the uncertainties resulting from the coronavirus pandemic. For the 2020 financial year, Commerzbank will not plan on paying a dividend until the uncertainties caused by the coronavirus pandemic have been resolved. Afterwards the Board of Managing Directors will review this decision, if appropriate.
As at 30 June 2020, there was no material impact on "Other reserves" from assets held for sale and disposal groups.
The main changes in the currency translation reserve in the current financial year were thus far were due to the US dollar, Polish zloty, British pound, Russian rouble and Brasilian real. Other changes primarily include changes from taxes not recognised in the income statement.
The changes in ownership interests of-173 Mio. Euro in 2020 resulted soley from the purchase of additional shares in the already consolidated company comdirect bank Aktiengesellschaft.
Cash flow statement (condensed version)
| €m | 2020 | 20191 | Change in % |
|---|---|---|---|
| Cash and cash equivalents as at 1.1. | 41,164 | 53,914 | – 23.6 |
| Net cash from operating activities | 41,035 | 12,733 | |
| Net cash from investing activities | – 217 | – 180 | 20.4 |
| Net cash from financing activities | 1,950 | – 1,588 | |
| Total net cash | 42,768 | 10,964 | |
| Effects from exchange rate changes | – 89 | 69 | |
| Cash and cash equivalents as at 30.6. | 83,843 | 64,947 | 29.1 |
1 Prior-year figures adjusted due to restatements (see Note 3).
With regard to the Commerzbank Group, the cash flow statement is not very informative. The cash flow statement neither replaces the liquidity/financial planning for us, nor is it used as a management tool.
38 Statement of comprehensive Income 43 Balance sheet
44 Statement of changes in equity 46 Cashflow statement
47 Selected Notes
Selected notes
General information
(1) Accounting policies
The Commerzbank Group has its headquarters in Frankfurt/Main, Germany. The parent company is Commerzbank Aktiengesellschaft, which is registered in the Commercial Register at the District Court of Frankfurt/Main under registration no. HRB 32000. Our interim financial statements as at 30 June 2020 were prepared in accordance with Art. 315e of the German Commercial Code (Handelsgesetzbuch, or "HGB") and Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of 19 July 2002 (the IAS Regulation). In addition, other regulations for adopting certain international accounting standards on the basis of the International Financial Reporting Standards (IFRS) approved and published by the International Accounting Standards Board (IASB) and their interpretation by the IFRS Interpretations Committee have also been applied. This interim report takes particular account of the requirements of IAS 34 relating to interim financial reporting.
All standards and interpretations that are mandatory within the EU in financial year 2020 have been applied. We have not applied standards and interpretations that are not required until the 2021 financial year or later.
The interim management report, including the separate interim risk report pursuant to Art. 315 of the German Commercial Code, is published on pages 7 to 35 of this interim report.
Uniform accounting and measurement methods are used throughout the Commerzbank Group in preparing the financial statements. For fully consolidated companies and holdings in companies accounted for using the equity method we have generally used financial statements prepared as at 30 June 2020.
The Group financial statements are prepared in euros, the reporting currency of the Group. Unless otherwise indicated, all amounts are shown in millions of euros. All items under €500,000.00 are presented as €0.00, and zero items are denoted by a dash. Due to rounding, in some cases the individual figures presented may not add up precisely to the totals provided.
(2) Initially applicable, revised and new standards and interpretations
Initially applicable standards and interpretations IBOR reform
As part of the Interbank Offered Rates reform (IBOR reform), the IBOR reference rates and the EONIA will be replaced by the euro short-term rate (€STR). Replacement is expected to take place by the end of 2021 at the latest and is also dependent on the acceptance and establishment of the new reference interest rates in the market.
Commerzbank has implemented an IBOR reform programme with the aim of ensuring a smooth transition to alternative reference interest rates.
Due to the IBOR reform, IFRS 9, IAS 39 and IFRS 7 were revised and republished in phase one. These revised standards must be applied in the EU for financial years beginning on or after 1 January 2020 and pertain to the period up to the actual transition. Commerzbank decided to make use of the relief for hedge accounting provided by the IASB in connection with the revised standards and to refrain from amending the current approach. This concludes the decisions for the first phase of the IBOR reform project.
As part of phase two, the changeover of certain products from EONIA to €STR discounting is set for the second half of 2020, for which the Bank is currently making all the preparations. In addition, over the course of the rest of the year, the analysis for the upcoming discounting change from the Effective Federal Fund Rate (EFFR) to the Secured Overnight Financing Rate (SOFR) will be expanded
European Single Electronic Format (ESEF)
The EU Commission has issued a regulatory technical standard on the European Single Electronic Format (ESEF), which requires all companies to report their financial statements in a uniform format, Extensible Hypertext Markup Language (xhtml). The standard must be applied in the EU for financial years beginning on or after 1 January 2020. Commerzbank Aktiengesellschaft is currently preparing to meet these requirements and will publish its annual report as at 31 December 2020 in accordance with the ESEF requirement.
Revised standards
The revisions to IAS 1 and IAS 8 are amendments that sharpen the definition of materiality for the inclusion of information in the financial statements and harmonise it within the Conceptual Framework and the different standards. These changes have no material effects on the Group financial statements. The revised standards must be applied for financial years beginning on or after 1 January 2020.
The Amendments to References to the Conceptual Framework in IFRS Standards were endorsed in November 2019 This Commission Regulation adopts the Amendments to References to the Conceptual Framework in IFRS Standards. The amendments have impacts on the standards IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRS 2, IFRS 3, IFRS 6, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22 and SIC 32 and must be applied for all financial years beginning on or after 1 January 2020.
The revised standard IFRS 3 deals with more precise specifications for determining whether the acquisition of a business or the acquisition of a group of assets is involved. The endorsement process has been completed. The amendments must be applied for all financial years beginning on or after 1 January 2020.
The coronavirus pandemic related amendment to IFRS 16 is intended to make it easier for lessees to recognise concessions in connection with rent payment deferrals and rent reductions granted during the coronavirus pandemic. This change has no material effects on the interim consolidated financial statements. The revised standard must be applied for reporting periods beginning on or after 1 June 2020.
The amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets concern the definition and content of the costs of fulfilling a contract, which a company must take into account when making judgements. The revised standard must be applied for financial years beginning on or after 1 January 2022.
The Annual Improvements to IFRS Standards 2018–2020 result in minor amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments and IFRS 16 Leases. The revised standards must be applied for financial years beginning on or after 1 January 2022.
All other approved standard changes do not have a significant impact on our consolidated financial statements at present.
New standards
The new accounting standard IFRS 17 Insurance Contracts, which was published in May 2017, will replace the IFRS 4 standard. The new standard applies not only to insurance companies, but to all entities that issue insurance contracts within the scope of the standard. IFRS 17 aims to achieve consistent, principles-based accounting for insurance contracts. It stipulates that insurance liabilities must be measured at the current settlement amount, instead of at historical cost. The IASB's intention in issuing IFRS 17 is to create a uniform basis for recognising, measuring, reporting
and making disclosures in the notes regarding insurance contracts. The standard, which must be applied in the EU for financial years beginning on or after 1 January 2023, still needs to be transposed into EU law. Based on our current analyses, we do not expect any significant impact on the Group financial statements.
(3) Changes
In the case of one company included in the Group financial statements as a subsidiary, a retrospective adjustment was made to the right of use assets for leasing. As a result of this change, interest income increased by €2m, depreciation and amortisation decreased by €3m and other net income rose marginally. In addition, financial assets – loans and advances – measured at amortised cost increased by €66m as at 30 June 2019, while fixed assets fell by €61m. As a result of these adjustments, consolidated profit or loss increased by €5m in the second quarter. Accordingly, retained earnings rose by the same amount. This had no material impact on the statement of comprehensive income and earnings per share.
In the case of one company included in the Group financial statements as a subsidiary, a retrospective adjustment was made to its compulsory contributions. As a result, compulsory contributions decreased by €9m and consolidated profit or loss increased by the same amount. These adjustments increased earnings per share by €0.01 as at 30 June 2019. Other liabilities increased by €1m due to tax effects as at 30 June 2019. On the other hand, retained earnings decreased by €1m and non-controlling interests by €0m. This adjustment reduced retained earnings as at 1 January 2019 by €5m and non-controlling interests by €3m.
In addition, an error was corrected in the valuation allowances for risks from AC loans and advances associated with the systematic consideration of overly long maturities for receivables from letters of credit: this resulted in a reduction of €23m in the amount of valuation allowances recognised as at 30 June 2019. Consequently, deferred tax assets as at 30 June 2019 decreased by €5m. By contrast, other provisions for off-balance sheet items increased by €5m and retained earnings rose by €12m. This had no impact on consolidated profit or loss, the statement of comprehensive income or earnings per share. As a result of this adjustment, retained earnings were higher by €12m as at 1 January 2019.
38 Statement of comprehensive Income
43 Balance sheet
44 Statement of changes in equity 46 Cashflow statement
47 Selected Notes
In the cash flow statement, cash flows from financing activities (subordinated liabilities) amounting to €1,608m, €152m from investing activities and €176m from leases, which were still shown in operating cash flow in the previous year, have been reclassified to cash flow from financing activities. These adjustments had no effect on consolidated profit or loss, the statement of comprehensive income or earnings per share.
Furthermore, an error was corrected in the deferred taxes for a subordinated bond. Consequently, deferred tax assets as at 31 December 2019 decreased by €69m, and retained earnings declined by the same amount. This adjustment had no effect on consolidated profit or loss as at 30 June 2019, but consolidated profit or loss as at 31 December 2019 increased by €40m. Total comprehensive income therefore rose by the same amount. Earnings per share as at 31 December 2019 increased by €0.03. As a result of the adjustments, retained earnings were lower by €135m as at 1 January 2019.
Moreover, a retrospective adjustment was made to retained earnings due to duplicate entries of commitment interest made in previous years. As a result of this change, interest income as at 30 June 2019 decreased by €2m and taxes on income by €1m. As at 31 December 2019, retained earnings were reduced by €9m, other assets by €13m and current tax liabilities by €1m. In contrast, deferred tax assets increased by €3m. These adjustments did not have a material impact on the statement of comprehensive income and earnings per share, and reduced retained earnings by €6m as at 1 January 2019.
The total change resulting from the aforementioned adjustments to our published income statement as at 30 June 2019 and to our published balance sheet as at 31 December 2019 is summarised in the following tables:
| €m | Originally reported 1.1.-30.6.2019 |
Adjustments according to IAS 8 |
Restated 1.1.-30.6.2019 |
|---|---|---|---|
| Interest income | 4,449 | 0 | 4,450 |
| Interest expenses | 1,944 | – | 1,944 |
| Net interest income | 2,505 | 0 | 2,505 |
| Dividend income | 11 | – | 11 |
| Risk result | – 256 | – | – 256 |
| Commission income | 1,870 | – | 1,870 |
| Commission expenses | 364 | – | 364 |
| Net commission income | 1,507 | – | 1,507 |
| Net income from financial assets and liabilities measured at fair value through profit or loss |
113 | – | 113 |
| Net income from hedge accounting | 96 | – | 96 |
| Other net income from financial instruments | 11 | – | 11 |
| Current net income from companies accounted for using the equity method |
7 | – | 7 |
| Other net income | 36 | – 0 | 35 |
| Operating expenses | 3,150 | – 3 | 3,146 |
| Compulsory contributions | 337 | – 9 | 328 |
| Restructuring expenses | – | – | – |
| Pre-tax profit or loss from continuing operations | 542 | 13 | 555 |
| Taxes on income | 123 | – 1 | 122 |
| Consolidated profit or loss from continuing operations | 419 | 13 | 433 |
| Consolidated profit or loss from discontinued operations | 12 | – | 12 |
| Consolidated profit or loss | 432 | 13 | 445 |
| Consolidated profit or loss attributable to non-controlling interests | 41 | 3 | 44 |
| Consolidated profit or loss attributable to Commerzbank shareholders and investors in additional equity components |
391 | 11 | 401 |
38 Statement of comprehensive Income 43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
| Assets €m |
Originally reported 31.12.2019 |
Adjustments | Restated 31.12.2019 |
|---|---|---|---|
| Cash on hand and cash on demand | 41,164 | – | 41,164 |
| Financial assets – Amortised cost | 293,658 | – | 293,658 |
| Financial Assets – Available for sale | 30,942 | – | 30,942 |
| Financial Assets – Fair value option | 30,196 | – | 30,196 |
| Financial Assets – Held for trading | 44,840 | – | 44,840 |
| Value adjustment on portfolio fair value hedges | 959 | – | 959 |
| Positive fair values of derivative hedging instruments |
1,992 | – | 1,992 |
| Holdings in companies accounted for using the equity method |
177 | – | 177 |
| Intangible assets | 3,053 | – | 3,053 |
| Fixed assets | 3,487 | – | 3,487 |
| Investment properties | 13 | – | 13 |
| Non-current assets held for sale and disposal groups |
7,955 | – | 7,955 |
| Current tax assets | 439 | – | 439 |
| Deferred tax assets | 3,011 | – 66 | 2,946 |
| Other assets | 1,752 | – 13 | 1,739 |
| Total | 463,636 | – 79 | 463,557 |
| Liabilities €m |
Originally reported 31.12.2019 |
Adjustments | Restated 31.12.2019 |
|---|---|---|---|
| Financial libilities – Amortised cost | 351,909 | – | 351,909 |
| Financial liabilities – Fair value option | 19,964 | – | 19,964 |
| Financial liabilities – Held for trading | 39,366 | – | 39,366 |
| Value adjustment on portfolio fair value hedges | 1,212 | – | 1,212 |
| Negative fair values of derivative hedging instruments | 4,402 | – | 4,402 |
| Provisions | 2,704 | – | 2,704 |
| Current tax liabilities | 439 | – 1 | 438 |
| Deferred tax liabilities | 27 | – | 27 |
| Liabilities of disposal groups | 8,528 | – | 8,528 |
| Other liabilities | 4,418 | – | 4,418 |
| Equity | 30,667 | – 78 | 30,589 |
| Subscribed capital | 1,252 | – | 1,252 |
| Capital reserve | 17,192 | – | 17,192 |
| Retained earnings | 10,211 | – 78 | 10,133 |
| Other reserves (with recycling) | – 169 | – | – 169 |
| Total before non-controlling interests | 28,487 | – 78 | 28,409 |
| Additional equity components | 885 | 885 | |
| Non-controlling interests | 1,296 | – | 1,296 |
| Total | 463,636 | – 79 | 463,557 |
(4) Report on events after the reporting period
There have been no material events since the end of the reporting period.
38 Statement of comprehensive Income 43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
Accounting and measurement policies
(5) Changes in accounting and measurement policies
Coronavirus pandemic
The coronavirus pandemic had a major impact on the German economy and the global economy as a whole in the first half of 2020 and has therefore also affected the Commerzbank Group's interim financial statements. The effects of the pandemic on Commerzbank were reviewed in various projects and appropriate measures were decided upon. In addition to the information provided in the interim management report (see page 17 ff.), descriptions of the current effects of the pandemic can be found mainly in
(6) Consolidated companies
Merger of comdirect bank Aktiengesellschaft
On 5 May 2020, the Annual General Meeting of comdirect bank Aktiengesellschaft approved the squeeze-out under German reorganisation law. The minority shareholders of comdirect were paid an appropriate cash settlement as compensation for their shares. Entry in the commercial register was planned for the second half of 2020, following which comdirect will become a separate organisational unit of Commerzbank.
Acquisition of LeaseLink Sp. z.o.o.
In the first quarter of 2019, mLeasing, a leasing company from the mBank subgroup, acquired a 100% interest in LeaseLink Sp. z.o.o.. LeaseLink is a company from the fintech sector specialised in leasing payment services. The purchase price is equivalent to roughly €7m, resulting in goodwill of €6m.
The following table shows the assets and liabilities recognised in the balance sheet that were consolidated at the following values:
our note on credit risks and credit losses (see Note 26), as well as in the note on the statement of changes in equity; further details can be found in Notes 9, 27, 30, 37 and 42.
Beside this changes and except for changes described in Note 2, we have applied the same accounting and measurement policies in these interim financial statements as in our Group financial statements as at 31 December 2019 (see page 149 ff. of the Annual Report 2019).
| €m | 8.3.2019 |
|---|---|
| Financial assets - Amortised cost | 17 |
| Intangible assets | 1 |
| Fixed assets | 0 |
| Other assets | 1 |
| Total identified assets | 19 |
| Financial liabilities - Amortised cost | 18 |
| Total identified liabilities | 18 |
| Fair value of net assets | 2 |
| Purchase price/consideration | 7 |
| Goodwill | 6 |
There were only minor differences between the accounting at the time of acquisition and on conclusion of the purchase price allocation, resulting in a slight change in goodwill.
Apart from this, no material companies were newly included in the scope of consolidated companies in the first half of 2020. In addition, no material companies were sold or liquidated or are no longer consolidated for other reasons.
Notes to the income statement
(7) Net interest income
All interest income and interest expenses – including interest-like income and expenses – are reported in this item, provided they do not result from the held-for-trading portfolio.
Interest income includes all interest income that is generated from the primary bank business or banking-related transactions. This income results primarily from the provision of capital.
As with interest income, interest expenses contain all interest expenses, including reversals of premiums/discounts and other amounts based on the effective interest method, as well as interestlike expenses in connection with the ordinary banking business.
Other interest expenses include the net of interest income and interest expenses of hedge accounting items.
| €m | 1.1.-30.6.2020 | 1.1.-30.6.20191 | Change in % |
|---|---|---|---|
| Interest income accounted for using the effective interest method | 3,509 | 3,830 | – 8.4 |
| Interest income – Amortised cost | 3,323 | 3,612 | – 8.0 |
| Interest income from lending and money market transactions | 2,924 | 3,198 | – 8.6 |
| Interest income from the securities portfolio | 399 | 414 | – 3.7 |
| Interest income – Fair value OCI | 130 | 167 | – 22.2 |
| Interest income from lending and money market transactions | 6 | 12 | – 51.8 |
| Interest income from the securities portfolio | 124 | 155 | – 19.9 |
| Prepayment penalty fees | 57 | 51 | 10.4 |
| Interest income accounted for not using the effective | |||
| interest method | 490 | 619 | – 20.9 |
| Interest income – Mandatorily fair value P&L | 227 | 393 | – 42.3 |
| Interest income from lending and money market transactions | 191 | 363 | – 47.3 |
| Interest income from the securities portfolio | 35 | 30 | 16.6 |
| Positive interest from financial instruments held as liabilities | 263 | 226 | 16.5 |
| Interest expenses | 1,402 | 1,944 | – 27.9 |
| Interest expenses – Amortised cost | 1,049 | 1,311 | – 20.0 |
| Deposits | 630 | 818 | – 22.9 |
| Debt securities issued | 419 | 494 | – 15.1 |
| Interest expenses – Fair value option | 183 | 377 | – 51.6 |
| Deposits | 166 | 361 | – 53.9 |
| Debt securities issued | 16 | 16 | 2.2 |
| Negative interest from financial instruments held as assets | 156 | 235 | – 33.4 |
| Interest expenses on lease liabilities | 10 | 13 | – 22.2 |
| Other interest expenses | 4 | 9 | – 55.1 |
| Total | 2,597 | 2,505 | 3.7 |
1 Prior-year figures adjusted due to restatements (see Note 3).
38 Statement of comprehensive Income 43 Balance sheet
44 Statement of changes in equity 46 Cashflow statement
47 Selected Notes
(8) Dividend income
All dividends from shares and similar equity instruments – with the exception of dividends from trading portfolios – are reported in this item.
Here we also report the current net income from nonconsolidated subsidiaries, which is realised through profit and loss transfer agreements. The non-consolidated subsidiaries are assigned to the mandatorily fair value P&L category.
| €m | 1.1.-30.6.2020 | 1.1.-30.6.2019 | Change in % |
|---|---|---|---|
| Dividends from equity instruments – Fair value OCI | 1 | 2 | – 35.2 |
| Dividends from equity instruments – Mandatorily fair value P&L | 4 | 5 | – 30.7 |
| Current net income from non-consolidated subsidiaries | 9 | 4 | 92.1 |
| Total | 13 | 11 | 16.5 |
In 2019 a portfolio of European standard stocks (blue chips) held by a subsidiary in the Commerzbank Group was classified to the fair value OCI category. In the first six months of 2019, no dividends were received from these stocks and recognised in the income statement in dividend income.
(9) Risk result
The risk result contains changes to provisions recognised in the income statement for on- and off-balance-sheet financial instruments for which the IFRS 9 impairment model is to be applied. This also includes reversals of loss provisions when derecognition occurs because of scheduled redemptions, write-ups and amounts recovered on claims written-down and direct write-downs not resulting from a substantial modification. In addition, changes to provisions recognised in the income statement for certain offbalance-sheet items that are not financial guarantees as defined in IFRS 9 (certain guarantees, letters of credit, see Note 38) are taken into account.
| €m | 1.1.-30.6.2020 | 1.1.-30.6.2019 | Change in % |
|---|---|---|---|
| Financial assets – Amortised cost | – 759 | – 249 | |
| Financial assets – Fair value OCI | – 11 | 8 | |
| Financial guarantees | 0 | – 0 | – 84.1 |
| Lending commitments and indemnity agreements | – 25 | – 15 | 73.4 |
| Total | – 795 | – 256 |
For information on the organisation of risk management and on the relevant key figures, as well as additional analyses and explanatory material on the expected credit loss, please refer to the interim management report contained in this interim report (see page 7 ff.).
In the first six months of 2020, burdens due to the coronavirus pandemic amount to €–315m, of which €–154m are top-level adjustments (see note 26 and risk report page 20 ff.).
(10) Net commission income
The Group reports income and expenses generated from the utilisation of services in net commission income. These amounts are realised when clients are provided with operational facilities, special business relationships or creditworthiness without changing the capitalised balance of banking claims. This also applies with respect to commissions from the sale of foreign currencies, bank notes and precious metals, provided the activity relates to a service transaction and not to proprietary trading. The same applies conversely when the Bank utilises third-party services.
| €m | 1.1.-30.6.2020 | 1.1.-30.6.2019 | Change in % |
|---|---|---|---|
| Commission income | 1,972 | 1,870 | 5.4 |
| Securities transactions | 650 | 566 | 14.9 |
| Asset management | 170 | 155 | 9.5 |
| Payment transactions and foreign business | 680 | 696 | – 2.3 |
| Guarantees | 116 | 110 | 5.2 |
| Net income from syndicated business | 136 | 119 | 14.6 |
| Intermediary business | 81 | 82 | – 0.5 |
| Fiduciary transactions | 7 | 13 | – 42.1 |
| Other income | 132 | 130 | 0.9 |
| Commission expenses | 303 | 364 | – 16.6 |
| Securities transactions | 78 | 138 | – 43.1 |
| Asset management | 17 | 15 | 14.7 |
| Payment transactions and foreign business | 76 | 75 | 1.3 |
| Guarantees | 13 | 12 | 14.5 |
| Net income from syndicated business | 0 | 0 | |
| Intermediary business | 76 | 90 | – 15.0 |
| Fiduciary transactions | 3 | 8 | – 60.6 |
| Other expenses | 39 | 26 | 47.2 |
| Net commission income | 1,668 | 1,507 | 10.7 |
| Securities transactions | 572 | 428 | 33.6 |
| Asset management | 153 | 140 | 8.9 |
| Payment transactions and foreign business | 603 | 620 | – 2.7 |
| Guarantees | 103 | 98 | 4.1 |
| Net income from syndicated business | 136 | 119 | 14.5 |
| Intermediary business | 5 | – 8 | |
| Fiduciary transactions | 4 | 5 | – 9.1 |
| Other income | 93 | 104 | – 10.8 |
| Total | 1,668 | 1,507 | 10.7 |
To our Shareholders Interim Management Report Interim Risk Report Interim Financial Statements 57
38 Statement of comprehensive Income 43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
The breakdown of commission income into segments by type of services based on IFRS 15 is as follows:
| 1.1.-30.6.2020 €m |
Private and Small-Business Customers |
Corporate Clients |
Asset & Capital Recovery |
Others and Consolidation |
Group |
|---|---|---|---|---|---|
| Securities transactions | 639 | 23 | – | – 12 | 650 |
| Asset management | 168 | 2 | – | – | 170 |
| Payment transactions and foreign business | 314 | 373 | – | – 7 | 680 |
| Guarantees | 13 | 103 | – | – 1 | 116 |
| Net income from syndicated business | 1 | 135 | – | - | 136 |
| Intermediary business | 81 | 35 | – | – 35 | 81 |
| Fiduciary transactions | 6 | 2 | – | – | 7 |
| Other income | 110 | 32 | – | – 11 | 132 |
| Total | 1,331 | 705 | – | – 65 | 1,972 |
| 1.1.-30.6.2019 €m |
Private and Small- Business Customers |
Corporate Clients |
Asset & Capital Recovery |
Others and Consolidation |
Group |
|---|---|---|---|---|---|
| Securities transactions | 565 | 21 | 0 | – 20 | 566 |
| Asset management | 153 | 2 | – | 0 | 155 |
| Payment transactions and foreign business | 316 | 386 | 0 | – 6 | 696 |
| Guarantees | 14 | 100 | 0 | – 4 | 110 |
| Net income from syndicated business | 0 | 118 | 0 | 0 | 119 |
| Intermediary business | 81 | 38 | 0 | – 37 | 82 |
| Fiduciary transactions | 9 | 4 | – | 0 | 13 |
| Other income | 108 | 34 | – 0 | – 11 | 130 |
| Total | 1,245 | 703 | 0 | – 79 | 1,870 |
(11) Net income from financial assets and liabilities measured at fair value through profit or loss
This item includes the net income from all financial assets and liabilities measured at fair value through profit or loss. It contains the net gain or loss from financial instruments in the held-for-trading category, the net gain or loss from financial instruments in the mandatorily fair value P&L category, and the net gain or loss from financial instruments in the fair value option category.
The net gain or loss from financial instruments in the held-fortrading category is the Bank's net trading income and is reported as the net balance of expenses and income. This item therefore includes:
- interest income, including dividends received and interest expenses from financial instruments held for trading;
-
realised gains and losses from the sale of securities held for trading purposes, claims, foreign currencies and precious metals;
-
net remeasurement gain or loss from remeasurements to fair value;
- net gain or loss from derivative financial instruments;
- net gain or loss from fair value adjustments (credit valuation adjustment/CVA, debit valuation adjustment/DVA, funding valuation adjustment/FVA);
- commission expenses and income incurred in connection with the acquisition or disposal of financial instruments held for trading purposes.
The net gain or loss from financial instruments in the mandatorily fair value P&L category and the net gain or loss from financial instruments in the fair value option category contain only net remeasurement gains or losses and realised profit or loss. Expenses and income are each presented on a net basis.
| €m | 1.1.-30.6.2020 | 1.1.-30.6.2019 | Change in % |
|---|---|---|---|
| Profit or loss from financial instruments – Held for trading | – 166 | 89 | |
| Profit or loss from financial instruments – Fair value option | – 34 | – 102 | – 67.0 |
| Profit or loss from financial instruments – Mandatorily fair value P&L | 58 | 125 | – 53.3 |
| Total | – 141 | 113 |
(12) Net income from hedge accounting
Net income from hedge accounting includes gains and losses on the valuation of effective hedges in fair value hedge accounting (fair value hedge). Net income from hedge accounting also includes the ineffective portion of effective cash flow hedges.
| €m | 1.1.-30.6.2020 | 1.1.-30.6.2019 | Change in % |
|---|---|---|---|
| Fair value hedges | |||
| Changes in fair value attributable to hedging instruments | – 1,563 | 148 | |
| Micro fair value hedges | – 983 | – 139 | |
| Portfolio fair value hedges | – 580 | 287 | |
| Changes in fair value attributable to hedged items | 1,627 | – 52 | |
| Micro fair value hedges | 1,065 | 197 | |
| Portfolio fair value hedges | 562 | – 250 | |
| Cash flow hedges | |||
| Gain or loss from effectively hedged cash flow hedges | |||
| (ineffective part only) | 0 | 0 | |
| Total | 64 | 96 | – 32.9 |
In the reporting period, cash flow hedge accounting was applied for the first time to hedge interest rate risks from mortgage loans with a nominal value of €287m and to hedge foreign currency
(13) Other net income from financial instruments
This item contains the gain or loss on disposal of financial assets in the fair value OCI category as well as the gain or loss from the repurchase of financial liabilities in the amortised cost category.
The result from the disposal of financial assets in the amortised cost category includes effects from sales of financial instruments measured at amortised cost that are not triggered by a change in credit rating. It also contains the results from contractual adjustments agreed when loan arrangements with customers are restructured due to a deterioration in their creditworthiness (substantial modifications).
In the case of financial assets in the fair value OCI category (with recycling), the difference between amortised cost and fair risks from mortgage bonds with a nominal value of €300m by means of a cross-currency swap. Accordingly, €1m was allocated to the cash flow hedge reserve.
value is recognised in the revaluation reserve until disposal (except for impairments) without effect on income, and therefore not in the income statement. The revaluation reserve resulting from debt securities is reversed through profit or loss when the asset is disposed of.
The disposal of financial liabilities in the amortised cost category results in a net realised profit or loss, which arises directly from the difference between the sale price and amortised cost.
This item also includes results from changes in estimates due to changes in expectations regarding future cash flows, as well as results from non-substantial modifications of financial instruments in the amortised cost category
38 Statement of comprehensive Income
43 Balance sheet 44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
| €m | 1.1.-30.6.2020 | 1.1.-30.6.2019 | Change in % |
|---|---|---|---|
| Other sundry realised profit or loss from financial instruments | 28 | 18 | 56.9 |
| Realised profit or loss from financial assets – Fair Value OCI | 17 | 25 | – 30.7 |
| Realised profit or loss from financial liabilities – Amortised Cost | 11 | 13 | – 16.4 |
| Gain or loss on non-substantial modifications – Amortised Cost | – 4 | – 3 | 42.1 |
| Gain or loss on non-substantial modifications – Fair Value OCI | – | – | |
| Changes in uncertainties in estimates – Amortised Cost | 4 | – 17 | |
| Changes in uncertainties in estimates – Fair Value OCI | – | – | |
| Gain or loss on disposal of financial instruments (AC portfolios) | – 13 | – 7 | 89.1 |
| Gains on disposal of financial instruments (AC portfolios) | 3 | 14 | – 75.5 |
| Losses on disposal of financial instruments (AC portfolios) | 17 | 21 | – 20.7 |
| Total | 15 | 11 | 36.1 |
The Commerzbank Group has loan portfolios totalling €309bn (previous year: €298bn) with financial instruments measured at amortised cost. This classification requires that the financial instruments included therein be allocated to a portfolio with the "hold to collect" business model and that no SPPI- non-compliant side agreements exist. These portfolios can involve not only redemptions but also sales of assets, while still remaining fundamentally in compliance with this business model. This is particularly the case if the debtor´s credit rating has deteriorated significantly or the asset no longer corresponds to the required criteria as set out in the internal guidelines, or if the sale is the result of portfolio reallocations just prior to the maturity of these assets.
The net gain or loss from the sale of financial instruments (AC portfolios) mainly resulted from the sale of promissory note loans as part of permitted portfolio measures and repayments of loans.
Commerzbank modifies some of the contractual terms of loans granted, as part of non-substantial modifications that do not result in the derecognition of the previous financial instrument. The default risk of these assets after the change is measured as at the respective reporting date and compared with the risk under the original conditions.
In response to legally imposed and private payment moratoriums due to the coronavirus pandemic, the payment flows from loans granted were adjusted as part of non-substantial modifications. The current moratoriums did not have a material effect on the result.
(14) Other net income
Other net income primarily comprises allocations to and reversals of provisions and income and expenses from operating leases.
This item also includes the realised profit or loss and net remeasurement gain or loss from associated companies and joint ventures.
| €m | 1.1.-30.6.2020 | 1.1.-30.6.20191 | Change in % |
|---|---|---|---|
| Other material items of income | 242 | 220 | 9.9 |
| Reversals of provisions | 40 | 75 | – 46.8 |
| Operating lease income | 77 | 85 | – 9.2 |
| Income from building and architects' services | 0 | 0 | – 6.4 |
| Hire-purchase income and sublease income | 6 | 7 | – 14.1 |
| Income from investment properties | 0 | 0 | – 25.8 |
| Income from non-current assets held for sale | – | – | |
| Income from disposal of fixed assets | 1 | 2 | – 68.2 |
| Income from FX rate differences | 42 | 9 | |
| Remaining other income | 75 | 41 | 84.7 |
| Other material items of expense | 328 | 181 | 81.6 |
| Allocations to provisions | 98 | 27 | |
| Operating lease expenses | 63 | 76 | – 17.7 |
| Expenses arising from building and architects' services | – | – | |
| Hire-purchase expenses and sublease expenses | 3 | 4 | – 17.9 |
| Expenses from investment properties | 0 | 0 | |
| Expenses from non-current assets held for sale | – | – | |
| Expenses from disposal of fixed assets | 1 | 1 | – 29.9 |
| Expenses from FX rate differences | 75 | 7 | |
| Remaining other expenses | 88 | 65 | 36.1 |
| Other tax (netted) | – 13 | – 7 | 84.6 |
| Realised profit or loss and net remeasurement gain or loss from | |||
| associated companies and jointly controlled entities (netted) | 2 | 3 | – 35.9 |
| Other net income | – 97 | 35 |
1 Prior-year figures adjusted due to restatements (see Note 3).
38 Statement of comprehensive Income 43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
(15) Operating expenses
| Personnel expenses €m | 1.1.-30.6.2020 | 1.1.-30.6.2019 | Change in % |
|---|---|---|---|
| Wages and salaries | 1,604 | 1,640 | – 2.2 |
| Expenses for pensions and similar employee benefits | 116 | 114 | 1.9 |
| Total | 1,720 | 1,754 | – 2.0 |
| Administrative expenses €m | 1.1.-30.6.2020 | 1.1.-30.6.2019 | Change in % |
|---|---|---|---|
| Occupancy expenses | 119 | 115 | 3.7 |
| IT expenses | 282 | 270 | 4.6 |
| Workplace and information expenses | 116 | 119 | – 2.5 |
| Advisory, audit and other expenses required to comply | |||
| with company law | 111 | 133 | – 16.8 |
| Travel, representation and advertising expenses | 85 | 114 | – 25.7 |
| Personnel-related administrative expenses | 41 | 60 | – 30.7 |
| Other administrative expenses | 83 | 82 | 0.2 |
| Total | 837 | 893 | – 6.3 |
| Depreciation and amortisation €m | 1.1.-30.6.2020 | 1.1.-30.6.20191 | Change in % |
|---|---|---|---|
| Office furniture and equipment | 54 | 57 | – 5.7 |
| Land and buildings | 6 | 6 | 8.6 |
| Intangible assets | 240 | 260 | – 7.9 |
| Right of use assets | 174 | 176 | – 1.5 |
| Total | 473 | 499 | – 5.2 |
1 Prior-year figures adjusted due to restatements (see Note 3).
(16) Compulsory contributions
| Compulsory contributions €m | 1.1.-30.6.2020 | 1.1.-30.6.20191 | Change. in % |
|---|---|---|---|
| Deposit Protection Fund | 73 | 73 | – 0.5 |
| Polish bank tax | 60 | 51 | 17.6 |
| European bank levy | 241 | 204 | 18.3 |
| Total | 374 | 328 | 14.0 |
1 Prior-year figures adjusted due to restatements (see Note 3).
(17) Taxes on income
Group tax expense was €51m as at 30 June 2020 (previous year: €122m). With pre-tax profit of €–74m (previous year: €555m; prior-year figures adjusted due to restatements; see Note 3) the Group's effective tax rate was –68.9%(previous year: 22.0% (Group income tax rate: 31.5% previous year: 31.5%). Group tax expense mainly comprises the current tax expenses of the mBank subgroup, and of comdirect bank Aktiengesellschaft for the reporting period. The negative effective tax rate was due to the negative pre tax result as well as tax expenses relating to and non-deductible operating expenses and changes of deferred tax assets.
(18) Earnings per share
| 1.1.-30.6.2020 | 1.1.-30.6.20191 | Change in % | |
|---|---|---|---|
| Operating profit (€m) | – 74 | 555 | |
| Consolidated profit or loss attributable to Commerzbank shareholders (€m) | – 96 | 401 | |
| Average number of ordinary shares issued | 1,252,357,634 | 1,252,357,634 | – . |
| Operating profit per share (€) | – 0.06 | 0.44 | |
| Earnings per share (€) | – 0.08 | 0.32 |
1 Prior-year figures adjusted due to restatements (see Note 3).
Earnings per share, calculated in accordance with IAS 33, are based on the consolidated profit or loss attributable to Commerzbank shareholders and are calculated by dividing the consolidated profit or loss by the weighted average number of shares outstanding during the financial year. As in the previous year, no conversion or option rights were outstanding in the reporting year. The figure for diluted earnings per share was therefore identical to the undiluted figure. The breakdown of operating profit is set out in the segment report (see Note 39).
38 Statement of comprehensive Income
43 Balance sheet
44 Statement of changes in equity 46 Cashflow statement
47 Selected Notes
Notes to the balance sheet
Financial assets and liabilities
(19) Financial assets – Amortised cost
If the contractually agreed cash flows of a financial asset comprise only interest and principal payments (i.e. the asset is SPPIcompliant) and this asset was allocated to the "hold to collect" business model, it is measured at amortised cost. The carrying amount of these financial instruments is reduced by any loan loss provision (see Note 26 on credit risks and credit losses).
Interest payments for these financial instruments are recognised in net interest income using the effective interest method.
| €m | 30.6.2020 | 31.12.2019 | Change in % |
|---|---|---|---|
| Loans and advances | 272,844 | 260,354 | 4.8 |
| Central banks | 1,259 | 876 | 43.8 |
| Banks | 25,422 | 24,418 | 4.1 |
| Corporate clients | 102,592 | 97,419 | 5.3 |
| Private customers | 112,788 | 109,700 | 2.8 |
| Other financial corporations | 14,254 | 13,007 | 9.6 |
| General governments | 16,529 | 14,934 | 10.7 |
| Debt securities | 35,666 | 33,304 | 7.1 |
| Banks | 2,758 | 2,432 | 13.4 |
| Corporate clients | 6,730 | 5,363 | 25.5 |
| Other financial corporations | 5,826 | 4,706 | 23.8 |
| General governments | 20,352 | 20,803 | – 2.2 |
| Total | 308,510 | 293,658 | 5.1 |
The business model for a portfolio of promissory note loans issued by British public-sector bodies, which had a carrying amount of €2.8bn, was changed as of 1 January 2019. As part of the planned closure of the Asset & Capital Recovery segment (run-off portfolio), this portfolio was grouped under Treasury and has been administered by the Investment Office since 1 January 2019 (see also Note 39). Distribution and sales activities for the portfolio have been discontinued. As of 1 January 2019, future sales for this portfolio are now only permitted in the event of a significant deterioration in credit quality. Portfolio management and the remuneration of management are no longer based on fair value. The objective of the portfolio is to generate contractually agreed cash flows. The contractually agreed cash flows are solely payments of interest and principal for the purposes of IFRS 9.
The change of business model resulted in reclassification from the mFVPL measurement category to the AC category.
The effective interest rate calculated at the time of reclassification was 2.8%. For the first six months of 2020, the interest income for the reclassified portfolio amounts to €44m (prior-year period: €35m) and the interest expenses were zero (prior-year period: €0m).
The fair value of the portfolio at 30 June 2020 was €3.1bn (previous year: €3.1bn). If the portfolio had remained in the mFVPL measurement category, the fair value change since the start of the year and the offsetting change in value of the derivatives held to hedge the portfolio would have been recognised in the income statement under net income from financial assets and liabilities measured at fair value through profit or loss. This would have resulted in net income of €–541m (prior-year period: €–65m), due mainly to credit spread effects. Since reclassification, the cash flows of the underlying transactions of the portfolio have been assigned to the portfolio fair value hedge accounting of Commerzbank.
(20) Financial liabilities – Amortised cost
As a rule, financial liabilities must be subsequently measured at amortised cost.
Deposits include primarily deposits due on demand, term deposits and savings deposits.
In other debt issues we also report those subordinated securitised and unsecuritised issues which in the event of an insolvency or liquidation can be repaid only after the claims of all nonsubordinated creditors have been satisfied.
| €m | 30.6.2020 | 31.12.2019 | Change in % |
|---|---|---|---|
| Deposits | 372,451 | 309,489 | 20.3 |
| Central banks | 38,133 | 4,006 | |
| Banks | 47,372 | 40,434 | 17.2 |
| Corporate clients | 93,161 | 84,602 | 10.1 |
| Private customers | 146,280 | 139,350 | 5.0 |
| Other financial corporations | 35,674 | 29,395 | 21.4 |
| General governments | 11,831 | 11,701 | 1.1 |
| Debt securities issued | 45,064 | 42,421 | 6.2 |
| Money market instruments | 1,432 | 1,580 | – 9.4 |
| Pfandbriefe | 19,851 | 18,670 | 6.3 |
| Other debt securities issued | 23,781 | 22,171 | 7.3 |
| Total | 417,516 | 351,909 | 18.6 |
In the reporting period, Commerzbank participated in the ECB's targeted longer-term refinancing operations (TLTRO III) with an amount of €32.3bn. The interest rate depends on the development of the credit volume in a benchmark portfolio, which, if favourable, results in a discount on the rate.
New issues with a total volume of €4.5bn were issued in the first six months of 2020 (prior-year period: €9.0bn). In the same period, the volume of bonds maturing amounted to €2.6bn (prior-year period: €7.1bn) and redemptions to €0.2bn (prior-year period: €0.5bn).
(21) Financial assets – Fair value OCI
Measurement at fair value with recognition of the change in value in other comprehensive income with recycling (FVOCI with recycling) is required if the financial instrument is allocated to a portfolio with the "hold to collect and sell" business model and, in addition, the contractually agreed cash flows are solely interest and principal payments and are thus SPPI-compliant.
The changes in fair value are recognised in the revaluation reserve (OCI) without effect on income, except for impairments, which are recognised in the income statement. The recognition of loan loss provisions is explained in Note 26 "Credit risks and credit losses". When a financial instrument is derecognised, the accumulated gains and losses recognised to date in OCI are reclassified to the income statement (recycling) and reported in other net income from financial instruments. Interest income from these financial assets is recognised in net interest income using the effective interest method.
In addition, the financial assets – fair value OCI also include equity instruments for which we have chosen the option of fair value measurement without recycling with no effect on income, provided that these meet the definition of equity in accordance with IAS 32 and are not held for trading purposes. Such a classification is set voluntarily and irrevocably per financial instrument. Gains or losses from these equity instruments are never reclassified to the income statement, rather they are reclassified into retained earnings when sold (without recycling). These equity instruments are not subject to impairment testing. Any dividends paid on these instruments are recognised as dividend income in the income statement, provided they do not involve a return of capital.
38 Statement of comprehensive Income
43 Balance sheet 44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
| €m | 30.6.2020 | 31.12.2019 | Change in % |
|---|---|---|---|
| Loans and advances (with recycling) | 852 | 779 | 9.5 |
| Central banks | – | – | |
| Banks | 162 | 151 | 7.5 |
| Corporate clients | 340 | 229 | 48.3 |
| Private customers | – | – | |
| Other financial corporations | 78 | 86 | – 9.6 |
| General governments | 272 | 312 | – 12.8 |
| Debt securities (with recycling) | 39,308 | 30,115 | 30.5 |
| Banks | 14,722 | 12,411 | 18.6 |
| Corporate clients | 1,229 | 564 | |
| Other financial corporations | 6,104 | 5,933 | 2.9 |
| General governments | 17,253 | 11,206 | 54.0 |
| Equity instruments (without recycling) | – | 49 | |
| Corporate clients | – | 47 | |
| Other financial corporations | – | 2 | |
| Total | 40,161 | 30,942 | 29.8 |
A portfolio of European standard stocks (blue chips) held by a subsidiary in the Commerzbank Group was classified to the fair value OCI category.
There were no equity holdings as at 30 June 2020. In the previous year, the fair value of equity holdings was €49m. Dividend payments of €1m from equity holdings already sold (prior-year period: €0m) were recognised in the income statement in dividend income. In addition, sales from this portfolio resulted in realised profit and loss totalling €1m (previous year: €0m) which was recognised in retained earnings without effect on income.
(22) Financial liabilities – Fair value option
Under IFRS 9 rules, in the case of an accounting mismatch the management of financial liabilities on a fair value basis and the existence of embedded derivatives requiring separation may also be conditions for applying the fair value option to liabilities.
If the fair value option is used for financial liabilities or for hybrid contracts, the changes in fair value resulting from fluctuations in own credit risk are not recognised in the income statement, but in other comprehensive income (without recycling) with no effect on income.
| €m | 30.6.2020 | 31.12.2019 | Change in % |
|---|---|---|---|
| Deposits | 34,898 | 19,202 | 81.7 |
| Central banks | 1,879 | 2,075 | – 9.4 |
| Banks | 8,547 | 4,224 | |
| Corporate clients | 1,051 | 791 | 32.8 |
| Private customers | 146 | 151 | – 2.8 |
| Other financial corporations | 23,055 | 11,730 | 96.5 |
| General governments | 221 | 231 | – 4.5 |
| Debt securities issued | 1,423 | 761 | 86.9 |
| Other debt securities issued | 1,423 | 761 | 86.9 |
| Total | 36,321 | 19,964 | 81.9 |
For liabilities to which the fair value option was applied, the change in fair value in the first six months of 2020 due to credit risk reasons was €–101m (previous year: €15m). The cumulative change was €–88m (previous year: €–47m).
€0m (previous year: €0m) realised from disposals of financial liabilities for which the fair value option was applied was recognised in retained earnings without effect on income.
New issues with a total volume of €2.2bn were issued in the first six months of 2020 (prior-year period: €0.1bn). During the same period the volume of repayments was €0.0bn (prior-year period: €0.2bn), there were no significant maturing issues within the same period or in the prior-year period.
38 Statement of comprehensive Income
43 Balance sheet 44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
(23) Financial assets – Mandatorily fair value P&L
This item includes financial instruments that are allocated to the residual business model and not reported in "Financial assets – Held for trading". In addition, transactions allocated to the "hold to collect" and "hold to collect and sell" business model are included here if they are not SPPI-compliant. Examples of such transactions include investment fund units, profit-sharing certificates, silent participations and assets managed on a fair value basis.
Equity instruments are exclusively contracts providing a residual interest in the assets of a company after deducting all associated debts, such as shares or interests in other joint-stock companies.
Equity instruments are not SPPI-compliant because the investor has no claim to interest and principal repayments. As a result, these instruments are usually measured at fair value through profit or loss. An exception to this rule exists for equity instruments for which the Group has chosen the option to measure them at fair value in other comprehensive income without recycling (see Note 21).
| €m | 30.6.2020 | 31.12.2019 | Change in % |
|---|---|---|---|
| Loans and advances | 37,917 | 26,181 | 44.8 |
| Central banks | 3,726 | 4,152 | – 10.3 |
| Banks | 11,921 | 10,254 | 16.3 |
| Corporate clients | 1,252 | 1,409 | – 11.1 |
| Private customers | 144 | 182 | – 20.8 |
| Other financial corporations | 20,841 | 10,167 | |
| General governments | 33 | 17 | 93.5 |
| Debt securities | 6,377 | 3,642 | 75.1 |
| Banks | 164 | 66 | |
| Corporate clients | 95 | 14 | |
| Other financial corporations | 1,236 | 1,326 | – 6.8 |
| General governments | 4,882 | 2,236 | |
| Equity instruments | 452 | 373 | 21.3 |
| Banks | 9 | 9 | – |
| Corporate clients | 374 | 291 | 28.8 |
| Other financial corporations | 69 | 73 | – 5.7 |
| Total | 44,747 | 30,196 | 48.2 |
(24) Financial assets – Held for trading
This category includes interest- and equity-related securities, promissory note loans and other claims, derivative financial instruments (derivatives that do not qualify for hedge accounting) as well as other trading portfolios allocated to the residual business model and held for trading. These financial instruments are used to realise profits from short-term fluctuations in prices or traders' margins.
Irrespective of the type of product, these financial assets are measured at fair value through profit or loss. The fair value changes of the respective transactions are therefore reported through profit or loss in the income statement. If the fair value cannot be established on an active market, items are measured by means of comparable prices, indicative prices of pricing service providers or other banks (lead managers), or internal valuation models (net present value or option pricing models).
Interest income and expenses and gains or losses on measurement and disposal from these financial instruments are recorded in the income statement under net income from financial assets and liabilities measured at fair value through profit or loss.
| €m | 30.6.2020 | 31.12.2019 | Change in % |
|---|---|---|---|
| Loans and advances | 1,952 | 1,683 | 16.0 |
| Banks | 669 | 506 | 32.3 |
| Corporate clients | 403 | 408 | – 1.4 |
| Other financial corporations | 830 | 769 | 7.9 |
| General governments | 50 | – | |
| Debt securities | 3,835 | 1,481 | |
| Banks | 304 | 326 | – 6.9 |
| Corporate clients | 318 | 174 | 83.3 |
| Other financial corporations | 461 | 409 | 12.7 |
| General governments | 2,752 | 572 | |
| Equity instruments | 1,081 | 1,413 | – 23.5 |
| Banks | 2 | 3 | – 22.8 |
| Corporate clients | 1,072 | 1,409 | – 23.9 |
| Other financial corporations | 6 | 1 | |
| Positive fair values of derivative financial instruments | 47,594 | 39,328 | 21.0 |
| Interest-rate-related derivative transactions | 35,911 | 30,124 | 19.2 |
| Currency-related derivative transactions | 8,065 | 6,975 | 15.6 |
| Equity derivatives | 1,572 | 879 | 78.7 |
| Credit derivatives | 305 | 303 | 0.7 |
| Other derivative transactions | 1,741 | 1,047 | 66.3 |
| Other trading positions | 953 | 935 | 1.9 |
| Total | 55,414 | 44,840 | 23.6 |
(25) Financial liabilities – Held for trading
This item comprises derivative financial instruments (derivatives that do not qualify for hedge accounting), own issues in the trading book and delivery commitments arising from short sales of securities.
| €m | 30.6.2020 | 31.12.2019 | Change in % |
|---|---|---|---|
| Certificates and other issued bonds | 12 | 28 | – 56.6 |
| Delivery commitments arising from short sales of securities | 1,581 | 1,574 | 0.4 |
| Negative fair values of derivative financial instruments | 45,397 | 37,764 | 20.2 |
| Interest-rate-related derivative transactions | 36,353 | 29,398 | 23.7 |
| Currency-related derivative transactions | 7,498 | 7,240 | 3.6 |
| Equity derivatives | 696 | 422 | 64.8 |
| Credit derivatives | 278 | 344 | – 19.2 |
| Other derivative transactions | 572 | 360 | 58.8 |
| Total | 46,990 | 39,366 | 19.4 |
- 38 Statement of comprehensive Income
- 43 Balance sheet
- 44 Statement of changes in equity 46 Cashflow statement
- 47 Selected Notes
Credit risks and credit losses
(26) Credit risks and credit losses
Principles and measurements
IFRS 9 stipulates that impairments for credit risks from loans and securities that are not measured at fair value through profit or loss must be recognised using a 3-stage model based on expected credit losses. In the Commerzbank Group, the following financial instruments are included in the scope of this impairment model:
- financial assets in the form of loans and advances as well as debt securities measured at amortised cost;
- financial assets in the form of loans and advances as well as debt securities measured at fair value through other comprehensive income (FVOCI);
- lease receivables;
- irrevocable lending commitments which under IFRS 9 are not measured at fair value through profit or loss;
- financial guarantees within the scope of IFRS 9 that are not measured at fair value through profit or loss.
The Group determines the impairment using a 3-stage model based on the following requirements:
In stage 1, as a rule all financial instruments are recognised if their risk of a loan loss (hereinafter default risk) has not risen significantly since their initial recognition. In addition, stage 1 includes all transactions with limited default risk as at the reporting date for which Commerzbank utilises the option provided for in IFRS 9 to refrain from making an assessment about a significant increase in the default risk. A limited default risk exists for all financial instruments with an investment-grade internal credit rating on the financial reporting date (corresponds to a Commerzbank rating of 2.8 or better). An impairment must be recognised for financial instruments in stage 1 in the amount of the expected credit loss over the next 12 months (12-month ECL).
Stage 2 includes those financial instruments with default risk that has risen significantly since their initial recognition and which, as at the financial reporting date, cannot be classified as transactions with limited default risk. Impairments in stage 2 are recognised in the amount of the financial instrument's lifetime expected credit loss (LECL).
Financial instruments that are classified as impaired as at the reporting date are allocated to stage 3. Commerzbank's criterion for this classification is the definition of a default in accordance with Art. 178 of the Capital Requirements Regulation (CRR). In 2016, the EBA published new guidelines on the application of the default definition under Article 178 of Regulation (EU) No 575/2013. Binding application must take place by 1 January 2021 at the latest. At Commerzbank, this was already implemented in the fourth quarter of 2019. In principle, the adjustment has no effect on the Bank's expected loss, so there was no significant impact on the impairment calculation or the consolidated result. This approach is consistent because the ECL calculation also uses statistical risk parameters derived from the Basel IRB approach, which are modified to meet the requirements of IFRS 9. The following events can be indicative of a customer default:
- Over 90 days past due.
- Unlikely to pay;
- Financial rescue/distressed restructuring with concessions;
- The Bank has demanded immediate repayment of its claims;
- The customer is in insolvency proceedings.
The LECL is likewise used as the value of the required impairment for stage-3 financial instruments in default. When determining the LECL, the Group distinguishes in principle between significant and insignificant cases. The amount of the LECL for insignificant transactions (volumes up to €5m) is determined based on statistical risk parameters. The LECL for significant transactions (volumes greater than €5m) is the expected value of the losses derived from individual expert assessments of future cash flows based on several potential scenarios and their probability of occurrence.
Financial instruments which when initially recognised are already considered impaired as per the aforementioned definition ("purchased or originated credit-impaired", "or POCI" financial instruments) are handled outside the 3-stage impairment model and are therefore not allocated to any of the three stages. The initial recognition is based on fair value without recording an impairment, using an effective interest rate that is adjusted for creditworthiness. The impairment recognised in subsequent periods equals the cumulative change in the LECL since the initial recognition in the balance sheet. The LECL remains the basis for the measurement, even if the value of the financial instrument has risen.
Receivables are written off in the balance sheet as soon as they become uncollectible. Uncollectibility may arise in the settlement process for various objective reasons, such as the demise of the borrower without realisable assets in the estate or completion of insolvency proceedings without further prospect of payments. Moreover, loans are generally regarded as (partially) uncollectible at the latest by 720 days after their due date and are (partially) written down to the recoverable amount within the framework of existing loan loss provisions. Such a (partial) written down has no direct impact on ongoing debt collection measures.
Calculation of expected credit loss
Commerzbank calculates the ECL as the probability-weighted, unbiased and discounted expected value of future loan losses over the total residual maturity of the respective financial instrument, i.e. the maximum contractual term (including any renewal options) during which Commerzbank is exposed to credit risk. The 12-month ECL used for the recognition of impairments in stage 1 is the portion of the LECL that results from default events which are expected to occur within 12 months following the end of the reporting period.
The ECL for stage 1 and stage 2 as well as for insignificant financial instruments in stage 3 is determined on an individual transaction basis taking into account statistical risk parameters. These parameters have been derived from the Basel IRB approach and modified to meet the requirements of IFRS 9. The significant main parameters used in this determination include the:
- customer-specific probability of default (PD);
- loss given default (LGD); and the
- exposure at default (EaD).
All risk parameters used from the Bank's internal models have been adjusted to meet the specific requirements of IFRS 9, and the forecast horizon has been extended accordingly to cover the entire term of the financial instruments. For example, the forecast for the development of the exposure over the entire term of the financial instrument therefore also includes, in particular, contractual and statutory termination rights.
In the case of loan products that consist of a utilised loan amount and an open credit line and for which in customary commercial practice the credit risk is not limited to the contractual notice period (in Commerzbank this relates primarily to revolving products without a contractually agreed repayment structure, such as overdrafts and credit card facilities), the LECL must be determined using a behavioural maturity, which typically exceeds the maximum contractual period. In order to ensure that the LECL for these products is determined in an empirically sound manner in compliance with IFRS 9 requirements, Commerzbank calculates the LECL directly for these products based on realised historical losses.
As a rule, the Group estimates the risk parameters specific to IFRS 9 based not only on historical default information but also, in particular, on the current economic environment (point-in-time perspective) and forward-looking information. This assessment primarily involves reviewing the effects which the Bank's macroeconomic forecasts will have regarding the amount of the ECL, and including these effects in the determination of the ECL.
A baseline scenario is used for this purpose which relies on the respective applicable consensus (forecasts of different banks on significant macroeconomic factors, such as GDP growth and the unemployment rate). This baseline scenario is then supplemented with additional macroeconomic parameters that are relevant for the model. In the current reporting period, the baseline scenario was prepared taking into account the ECB forecast of 4 June 2020. For mBank, the adjustment to a scenario specific to Poland was done locally. The transformation of the macroeconomic baseline scenario into effects on the risk parameters is based on statistically derived models. Giving consideration to the current situation, we have ensured that the relevant experts are sufficiently involved within the framework of the existing policies. Potential effects from non-linear correlations between different macroeconomic scenarios and the ECL are corrected using a separately determined adjustment factor. The appropriateness of this adjustment factor as at the reporting date was checked and verified.
When calculating the expected credit loss, additional effects may also have to be taken into account resulting from scenarios or events that are not reflected in the IFRS 9 ECL parameter set presented as part of the modelling (these may relate to singular events such as substantial political decisions or military conflicts); for these additional effects, a separately determined adjustment to the result from the IFRS 9 ECL model is made. The examination as to whether such top level adjustments with the involvement of senior management are necessary, as well as their possible implementation, are regulated in a policy.
Such an adjustment to the results of the IFRS 9 ECL model was deemed necessary in the first quarter of 2020 due to the coronavirus pandemic. As that time, the parameters used in the standard model reflected neither the economic effects of the global lockdowns nor the massive support and assistance measures taken by governments and institutions. This top-level adjustment was reviewed in the second quarter of 2020 in terms of its necessity and adequacy. The review took into account the extent to which the effects of the crisis were already sufficiently reflected in the parameters used in the ECL calculation, especially for the assumptions regarding the macroeconomic environment. The baseline scenario used in the second quarter of 2020 for the ECL calculation giving consideration to the ECB publication already reflects the anticipated effects of the coronavirus pandemic. It includes the following material assumptions:
38 Statement of comprehensive Income 43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
| Baseline scenario | 2020 |
|---|---|
| GDP growth | |
| Germany | – 7.1% |
| Euro zone | – 8.7% |
| Poland | – 4.2% |
| Rate of unemployment | |
| Germany | 6.1% |
| Euro zone | 9.8% |
| Poland | 7.0% |
The need for a TLA due to changed macroeconomic conditions no longer exists in the second quarter of 2020 under the new baseline scenario. Consequently, the TLA was reduced in the second quarter of 2020 by the partial amount set aside in the first quarter resulting from revised macro assumptions. This also applies to mBank, which calculates IFRS 9 risk provisions locally in line with Group requirements using its own infrastructure and specific macroeconomic assumptions. In the first quarter of 2020, a TLA was also applied there due to changed macroeconomic conditions. As the corresponding assumptions were already incorporated into the ECL model in the second quarter of 2020, there was no further need for this.
In addition, the result of the IFRS 9 ECL model was raised in the first quarter of 2020 because an increase in the probability of default was expected for parts of the portfolio during the pandemic. This was still considered necessary in the second quarter of 2020. The assumptions made for the derivation were reviewed and partially adjusted. Compared with the first quarter of 2020, the sectors or sub-portfolios assumed to be affected have been expanded and the estimated effects have been better differentiated. As a result, an increase in the probability of default during the pandemic was assumed for a larger proportion of the portfolio, albeit to a different extent in some cases than in the first quarter. The new assessments were made on the basis of the portfolio development already observed in the course of the crisis, including various individual case analyses. It emerged that the government programmes are generally having a good effect and that our customers are making use of the support and assistance measures offered and have benefited from them so far. However, the development we see going forward is heterogeneous at the subportfolio level. For example, we anticipate that among consumers with a weak credit rating, of whom the majority have made use of statutory deferrals, defaults will increase once the measures expire. Furthermore, for the small-business customers sub-portfolio, an increased probability of default was assumed in the second quarter for the TLA calculation even for customers in the rating range of > 4.0 (first quarter: > 4.8). Excluded from this were customers who had already received government aid loans since the beginning of the crisis, as in these cases it was assumed that the business model was fundamentally sustainable beyond the crisis. The effects for the banking portfolio in emerging markets were estimated to be more negative than in the first quarter. For German and international corporate customers, the TLA requirement also increased compared to the first quarter of 2020, as an increase in the probability of default over the course of the pandemic was assumed for larger portions of the portfolio. For the customers potentially most affected, the anticipated effects of the crisis, taking government aid into account, have already been largely factored in on a borrower-specific basis by the rating systems used and the strong focus of the credit risk and credit control function; this has been taken into account for the portfolio-based estimation of the probability of default in the TLA calculation.
Key assumptions in our estimate across all sectors and subportfolios were that further global lockdowns on the scale of those seen in March/April can be avoided and that effective local containment strategies can be found if infection rates should go up.
In the second quarter of 2020, the point-in-time parameters under IFRS 9 were also reviewed and adjusted as necessary in response to the coronavirus crisis. This also required that the results of the ECL model be increased by means of a top-level adjustment.
The effects of the adjustments on the stage allocation were taken into account in the calculation of the TLA.
For more information on ECL and TLA, see the Risk Report (page 19 ff.).
Overall, the valuation allowances for risks arising from financial assets and the provisions for off-balance sheet items changed as follows:
| €m | As at 1.1.2020 |
Net allocations / reversals |
Utilisation | Change in the group of consolidated companies |
Exchange rate changes / reclassification |
As at 30.6.2020 |
|---|---|---|---|---|---|---|
| Valuation allowances for risks from financial assets | 2,193 | 770 | 343 | – | 57 | 2,677 |
| Financial assets – Amortised cost | 2,185 | 759 | 343 | – | 58 | 2,659 |
| Loans and advances | 2,130 | 765 | 343 | – | 58 | 2,610 |
| Debt securities | 56 | – 6 | – | – | – 1 | 49 |
| Financial assets – Fair value OCI | 8 | 11 | – 0 | – | – 1 | 18 |
| Loans and advances | 1 | 7 | – | – | 0 | 8 |
| Debt securities | 6 | 4 | – 0 | – | – 1 | 10 |
| Provisions for financial guarantees | 9 | 0 | – | – | 0 | 9 |
| Provisions for lending commitments | 161 | 49 | – | – | – 1 | 210 |
| Provisions for indemnity agreements | 182 | – 24 | – | – | 1 | 160 |
| Total | 2,546 | 795 | 343 | – | 57 | 3,056 |
| €m | As at 1.1.2019 |
Net allocations / reversals |
Utilisation | Change in the group of consolidated companies |
Exchange rate changes/ reclassification |
As at 31.12.2019 |
|---|---|---|---|---|---|---|
| Valuation allowances for risks from financial assets | 2,206 | 538 | 702 | – | 151 | 2,193 |
| Financial assets – Amortised cost | 2,190 | 560 | 714 | – | 150 | 2,185 |
| Loans and advances | 2,083 | 586 | 689 | – | 149 | 2,130 |
| Debt securities | 107 | – 27 | 26 | – | 1 | 56 |
| Financial assets – Fair value OCI | 16 | – 21 | – 12 | – | 1 | 8 |
| Loans and advances | 7 | – 6 | – | – | 0 | 1 |
| Debt securities | 9 | – 16 | – 12 | – | 1 | 6 |
| Provisions for financial guarantees | 9 | – 0 | – | – | 0 | 9 |
| Provisions for lending commitments | 136 | 25 | – | – | – 0 | 161 |
| Provisions for indemnity agreements | 124 | 56 | – | – | 1 | 182 |
| Total | 2,476 | 620 | 702 | – | 152 | 2,546 |
The breakdown into stages in the current financial year is as follows:
| €m | Stage 1 | Stage 2 | Stage 3 | POCI | Total |
|---|---|---|---|---|---|
| Valuation allowances for risks from financial assets | 295 | 437 | 1,894 | 51 | 2,677 |
| Loans and advances | 257 | 419 | 1,891 | 51 | 2,618 |
| Debt securities | 38 | 19 | 3 | – | 59 |
| Provisions for financial guarantees | 2 | 1 | 3 | 3 | 9 |
| Provisions for lending commitments | 82 | 72 | 17 | 39 | 210 |
| Provisions for indemnity agreements | 1 | 78 | 78 | 2 | 159 |
| Total | 380 | 589 | 1,992 | 94 | 3,056 |
In determining risk provisions, it is necessary to make assumptions that are subject to high estimation uncertainty, particularly in a dynamic environment. On the reporting date, the expected credit loss (stages 1/2), calculated on the basis of the baseline scenario giving consideration to the ECB publication, was €1.0bn. In a stress scenario where the slow economic recovery ends abruptly in the fourth quarter due to a massive new wave of infection, resulting in further lockdowns and a prolonged global recession, one of several negative effects on earnings would be an increase in the expected credit loss (stage 1/2) by €0.4bn.
38 Statement of comprehensive Income
43 Balance sheet 44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
The breakdown into stages as at 31 December 2019 is as follows:
| €m | Stage 1 | Stage 2 | Stage 3 | POCI | Total |
|---|---|---|---|---|---|
| Valuation allowances for risks from financial assets | 273 | 323 | 1,521 | 76 | 2,192 |
| Loans and advances | 239 | 295 | 1,521 | 76 | 2,130 |
| Debt securities | 34 | 28 | 0 | – | 62 |
| Provisions for financial guarantees | 2 | 2 | 3 | 3 | 9 |
| Provisions for lending commitments | 81 | 56 | 14 | 10 | 161 |
| Provisions for indemnity agreements | 1 | 77 | 89 | 15 | 182 |
| Total | 357 | 458 | 1,627 | 104 | 2,546 |
Other notes on financial instruments
(27) IFRS 13 fair value hierarchies and disclosure requirements
Fair value hierarchy
Under IFRS 13, financial instruments are assigned to the three levels of the fair value hierarchy as follows:
- Level 1: Financial instruments where the fair value is based on quoted prices for identical financial instruments in an active market.
- Level 2: Financial instruments where no quoted prices are available for identical instruments in an active market and the fair value is established using valuation techniques which rely on observable market parameters.
- Level 3: Financial instruments where valuation techniques are used that incorporate at least one material input for which there is insufficient observable market data and where at least this input has a more than insignificant impact on the fair value.
With respect to the methods of model-based measurements (level 2 and level 3) relevant for banks, IFRS 13 recognises the market approach and the income approach. The market approach relies on measurement methods that draw on information about identical or comparable assets and liabilities.
The income approach reflects current expectations about future cash flows, expenses and income. The income approach may also include option price models. These valuations are subject to a higher degree to judgements by management. Market data or third-party inputs are relied on to the greatest possible extent, and company-specific inputs to a limited degree.
Valuation models must be consistent with accepted economic methodologies for pricing financial instruments and must incorporate all factors that market participants would consider appropriate in setting a price.
The fair values that can be realised at a later date may fundamentally deviate from the estimated fair values.
All fair values are subject to the Commerzbank Group's internal controls and procedures, which set out the standards for independently verifying or validating fair values. These controls and procedures are carried out and coordinated by the Independent Price Verification (IPV) Group within the risk function. The models, inputs and resulting fair values are reviewed regularly by senior management and the risk function.
Disclosure obligations
Below, a distinction is made between:
- a) financial instruments measured at fair value (fair value OCI, fair value option, mandatorily fair value P&L and held for trading);
- b) financial instruments measured at amortised cost.
The respective disclosure requirements regarding these financial instruments are set out in IFRS 7 and IFRS 13. For example, they require explanatory statements on the valuation techniques applied and the inputs used for levels 2 and 3, as well as quantitative disclosures on unobservable inputs (level 3). The reporting entity must also provide the date of, reasons for and information about reclassifications between fair value hierarchy levels, reconciliations between the opening and closing balances for level 3 portfolios as at the respective reporting dates, and unrealised gains and losses. In addition, sensitivities for the unobservable inputs (level 3) are to be presented, and information on the day one profit or loss is to be provided.
a) Financial instruments measured at fair value
According to IFRS 13, the fair value of an asset is the amount for which it could be sold between knowledgeable, willing parties in an arm's length transaction. The fair value therefore represents an exit price. The fair value of a liability is defined as the price at which the debt could be transferred to a third party as part of an orderly transaction.
The measurement of liabilities must also take account of the Bank's own credit spread. If third parties provide security for our liabilities (e.g. guarantees), this security is not taken into account in the valuation of the liability, as the Bank's repayment obligation remains the same.
When measuring derivative transactions, the Group uses the possibility of establishing net risk positions for financial assets and liabilities. The measurement takes into account not only counterparty credit risk but also the Bank's own default risk. The Group determines credit valuation adjustments (CVAs) and debit valuation adjustments (DVAs) by simulating the future fair values of its portfolios of derivatives with the respective counterparty based on observable market data (e.g. CDS spreads). In the case of funding valuation adjustments (FVAs), the funding costs or income of uncollateralised derivatives, as well as collateralised derivatives where there is only partial collateral or the collateral cannot be used for funding purposes, are recognised at fair value. Like CVAs and DVAs, FVAs are also determined from the expected value of the future positive or negative portfolio fair values using observable market data (e.g. CDS spreads). The funding curve used to calculate the FVAs is approximated by the Commerzbank funding curve.
IFRS 9 requires that all financial instruments be measured at fair value upon initial recognition. This is usually the transaction price. If a portion relates to something other than the financial instrument being measured, fair value is estimated using a valuation method.
The following tables show the financial instruments reported in the balance sheet at fair value by IFRS 9 fair value category and by class.
38 Statement of comprehensive Income 43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
| Financial assets €bn | 30.6.2020 | 31.12.2019 | ||||||
|---|---|---|---|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |
| Financial assets – Fair value OCI | ||||||||
| Loans and advances | – | 0.9 | – | 0.9 | – | 0.8 | 0.0 | 0.8 |
| Debt securities | 28.9 | 10.1 | 0.3 | 39.3 | 20.4 | 9.7 | 0.0 | 30.1 |
| Equity instruments | – | – | – | – | 0.0 | – | – | 0.0 |
| Financial assets – Mandatorily fair value P&L |
||||||||
| Loans and advances | – | 35.8 | 2.1 | 37.9 | – | 23.7 | 2.4 | 26.2 |
| Debt securities | 1.7 | 3.7 | 1.0 | 6.4 | 0.9 | 1.6 | 1.1 | 3.6 |
| Equity instruments | 0.1 | – | 0.4 | 0.5 | 0.0 | – | 0.4 | 0.4 |
| Financial assets – Held for trading | ||||||||
| Loans and advances | 1.0 | 0.8 | 0.2 | 2.0 | 0.8 | 0.8 | 0.0 | 1.7 |
| Debt securities | 2.8 | 1.0 | 0.0 | 3.8 | 0.8 | 0.6 | 0.0 | 1.5 |
| Equity instruments | 1.1 | 0.0 | 0.0 | 1.1 | 1.4 | 0.0 | 0.0 | 1.4 |
| Derivatives | – | 47.2 | 0.4 | 47.6 | – | 37.7 | 1.6 | 39.3 |
| Others | 1.0 | – | – | 1.0 | 0.9 | – | – | 0.9 |
| Positive fair values of derivative financial instruments |
||||||||
| Hedge accounting | – | 2.3 | – | 2.3 | – | 2.0 | – | 2.0 |
| Non-current assets held for sale and disposal groups |
||||||||
| Loans and advances | – | 0.0 | – | 0.0 | – | 0.1 | – | 0.1 |
| Debt securities | 0.0 | 0.1 | – | 0.1 | 1.1 | 0.1 | 0.0 | 1.2 |
| Equity instruments | 0.0 | 0.0 | 0.0 | 0.0 | 3.6 | 0.1 | 0.0 | 3.6 |
| Derivatives | – | 2.0 | 0.2 | 2.1 | – | 2.6 | 0.2 | 2.9 |
| Total | 36.5 | 103.7 | 4.6 | 144.9 | 30.1 | 79.8 | 5.8 | 115.8 |
| Financial liabilities €bn | 30.6.2020 | 31.12.2019 | ||||||
|---|---|---|---|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |
| Financial liabilities - Fair value option | ||||||||
| Deposits | – | 34.9 | – | 34.9 | – | 19.2 | – | 19.2 |
| Debt securities issued | 1.4 | – | – | 1.4 | 0.8 | – | – | 0.8 |
| Financial liabilities - Held for trading | ||||||||
| Derivatives | – | 44.7 | 0.7 | 45.4 | – | 36.7 | 1.0 | 37.8 |
| Certificates and other issued bonds | 0.0 | – | 0.0 | 0.0 | 0.0 | – | 0.0 | 0.0 |
| Delivery commitments arising from short sales of securities |
1.5 | 0.1 | – | 1.6 | 1.2 | 0.3 | – | 1.6 |
| Negative fair values of derivative hedging instruments |
||||||||
| Hedge accounting | – | 5.9 | – | 5.9 | – | 4.4 | – | 4.4 |
| Liabilities of disposal groups | ||||||||
| Deposits | – | 1.0 | – | 1.0 | – | 2.2 | – | 2.2 |
| Debt securities issued | – | – | – | – | – | – | – | – |
| Derivatives | – | 2.1 | 0.1 | 2.2 | – | 2.0 | 0.3 | 2.3 |
| Certificates and other issued bonds | 0.5 | – | 0.1 | 0.7 | 3.2 | – | – | 3.2 |
| Delivery commitments arising from short sales of securities |
– | – | – | – | 0.4 | 0.0 | – | 0.4 |
| Total | 3.5 | 88.6 | 0.9 | 93.0 | 5.7 | 64.9 | 1.4 | 72.0 |
A reclassification to a different level occurs where a financial instrument is reclassified from one level of the 3-level valuation hierarchy to another. This may be caused, for example, by market changes that impact the input factors used to value the financial instrument.
Commerzbank reclassifies items as at the end of the reporting period.
In the first six months of 2020, €0.1bn of debt securities in the HFT category were reclassified from level 2 to level 1, as quoted market prices were available again. In contrast, €0.1bn of debt securities in non-current assets held for sale and disposal groups were reclassified from level 1 to level 2, as no quoted market prices were available.
A number of reclassifications from level 1 to level 2 were carried out in the 2019 financial year, as there were no listed market prices available. These related to €0.5bn in debt securities in the FVOCI category and €0.4bn in debt securities in the HFT category, €0.4bn in debt securities in the mFVPL category, €0.2bn delivery commitments arising from short sales of securities in the HFT category and €0.1bn in delivery commitments arising from short sales of securities liabilities included in disposal groups.
Furthermore €2.6bn of debt securities in the FVOCI category, €0.5bn of debt securities in the HFT category, €0.3bn of debt securities in the mFVPL category, and €0.6bn of delivery commitments arising from short sales of securities in the HFT category were reclassified, as quoted prices were again available. We did not make any other significant reclassifications between level 1 and level 2.
To our Shareholders Interim Management Report Interim Risk Report Interim Financial Statements 77
38 Statement of comprehensive Income 43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
The changes in financial instruments in the level 3 category were as follows:
| Financial assets €m | Financial assets – Fair value OCI |
Financial assets – Mandatorily fair value P&L |
Financial assets – Held for trading |
Non-current assets held for sale and disposal groups |
Total |
|---|---|---|---|---|---|
| Fair Value as at 1.1.2020 | 29 | 3,931 | 1,625 | 237 | 5,822 |
| Changes in the group of consolidated companies | – | – | – | – | – |
| Gains or losses recognised in income statement during the period | – 9 | – 128 | 58 | – 15 | – 94 |
| of which unrealised gains or losses | – 9 | – 128 | 42 | – 6 | – 101 |
| Gains or losses recognised in revaluation reserve | – | – | – | – | – |
| Purchases | 549 | 246 | 11 | – | 806 |
| Sales | – 28 | – 489 | – 54 | – 0 | – 571 |
| Issues | – | – | – | – | – |
| Redemptions | – | – | – 1,212 | – 25 | – 1,237 |
| Reclassifications to level 3 | 4,589 | 47 | 258 | 55 | 4,950 |
| Reclassifications from level 3 | – 4,847 | – 52 | – 43 | – 84 | – 5,027 |
| IFRS 9 reclassifications | – | – | – | – | – |
| Reclassifications from/to non-current assets held for sale and disposal groups |
– | – | – | – | – |
| Fair value as at 30.6.2020 | 282 | 3,555 | 643 | 168 | 4,648 |
| Financial assets €m | Financial assets – Fair value OCI |
Financial assets – Mandatorily fair value P&L |
Financial assets – Held for trading |
Non-current assets held for sale and disposal groups |
Total |
|---|---|---|---|---|---|
| Fair Value as at 1.1.2019 | 215 | 6,208 | 3,415 | 125 | 9,962 |
| Changes in the group of consolidated companies | – | – | – | – | – |
| Gains or losses recognised in income statement during the period | – 8 | – 261 | 1,007 | 61 | 799 |
| of which: unrealised gains or losses | – 8 | – 261 | 1,007 | 73 | 812 |
| Gains or losses recognised in revaluation reserve | – | – | – | – | – |
| Purchases | 25 | 877 | 100 | 44 | 1,046 |
| Sales | – 101 | – 1,146 | – 0 | – 20 | – 1,268 |
| Issues | – | – | – | – | – |
| Redemptions | – | – | – 2,790 | – 17 | – 2,807 |
| Reclassifications to level 3 | 142 | 1,089 | 41 | 84 | 1,356 |
| Reclassifications from level 3 | – 244 | – 74 | – 148 | – 40 | – 507 |
| IFRS 9 reclassifications | – 2,762 | – 2,762 | |||
| Reclassifications from/to non-current assets held for sale and disposal groups |
– | – | – | – | – |
| Fair value as at 31.12.2019 | 29 | 3,931 | 1,625 | 237 | 5,822 |
38 Statement of comprehensive Income
43 Balance sheet 44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
Unrealised gains or losses on financial instruments held for trading (securities and derivatives) and on claims and securities measured at fair value through profit or loss are a component of the net income from financial assets and liabilities measured at fair value through profit or loss.
In the first quarter of 2020, €4.8bn of debt securities, AAArated collateralised loan obligations, in the FVOCI category were reclassified from level 2 to level 3. Due to the coronavirus pandemic, various market participants withdrew from the secondary market for collateralised loan obligations in March 2020. In addition, almost no primary market issues were made during this period. The Bank classifies the transactions that have only taken place in isolated instances as non-formalised and accordingly no longer uses the prices of these transactions as input parameters for determining fair value. The valuation technique was changed to a mark-to-model approach, in which key input parameters were based on estimates. These holdings were reclassified back to level 2 in the second quarter of 2020, as observable market parameters were again available.
In addition, in the first six months of 2020, reclassifications from level 2 to level 3 were made for €0.1bn of derivatives in noncurrent assets held for sale and disposal groups and €0.2bn of loans and advances in the HTF category, as no observable market parameters were available. In contrast, reclassifications from level 3 to level 2 were made for €0.1bn of derivatives in non-current assets held for sale and disposal groups, as observable market parameters were once again available.
As at 1 January 2019 €2.8bn of a loans and advances portfolio in the mFVPL category was reclassified to the IFRS 9 AC category both in level 3 (see Note 19). €0.2bn of debt securities in the IFRS 9 FVOCI category and €0.1bn of debt securities in the IFRS 9 HFT category were reclassified in 2019 from level 3 back to level 2 because market parameters were again observable. In contrast, €0.4bn of debt securities of the mFVPL category and €0.1bn of debt securities in non-current assets held for sale and disposal groups were reclassified from level 1 to level 3 because no market parameters were observable. €0.4bn of loans and advances in the mFVPL category and €0.1bn of debt securities in the IFRS 9 FVOCI category were reclassified from level 2 to level 3 because no market parameters were observable. There were no other significant reclassifications.
The changes in financial liabilities in the level 3 category during the financial year were as follows:
| Financial liabilities €m | Financial liabilities – Fair value option |
Financial liabilities – Held for trading |
Liabilities of disposal groups |
Total |
|---|---|---|---|---|
| Fair Value as at 1.1.2020 | – | 1,050 | 336 | 1,386 |
| Changes in the group of consolidated companies | – | – | – | – |
| Gains or losses recognised in income statement during the period | – | 35 | 8 | 43 |
| of which unrealised gains or losses | – | 39 | 8 | 48 |
| Purchases | – | 28 | – | 28 |
| Sales | – | – 31 | – | – 31 |
| Issues | – | – | – | – |
| Redemptions | – | – 647 | – 53 | – 700 |
| Reclassifications to level 3 | – | 228 | 359 | 588 |
| Reclassifications from level 3 | – | – 6 | – 373 | – 379 |
| Reclassification from/to liabilities of disposal groups | – | – | – | – |
| Fair value as at 30.6.2020 | – | 658 | 276 | 934 |
| Financial liabilities €m | Financial liabilities – Fair value option |
Financial liabilities – Held for trading |
Liabilities of disposal groups |
Total |
|---|---|---|---|---|
| Fair Value as at 1.1.2019 | – | 3,330 | 334 | 3,665 |
| Changes in the group of consolidated companies | – | – | – | – |
| Gains or losses recognised in income statement during the period |
– | 442 | – 41 | 401 |
| of which unrealised gains or losses | – | 442 | 101 | 543 |
| Purchases | – | 282 | 16 | 298 |
| Sales | – | – 101 | – | – 101 |
| Issues | – | – | – | – |
| Redemptions | – | – 2,873 | – 18 | – 2,890 |
| Reclassifications to level 3 | – | – 16 | 70 | 54 |
| Reclassifications from level 3 | – | – 14 | – 27 | – 41 |
| Reclassification from/to liabilities of disposal groups | – | – | – | – |
| Fair value as at 31.12.2019 | – | 1,050 | 336 | 1,385 |
Unrealised gains or losses on financial liabilities held for trading are a component of the net income from financial assets and liabilities measured at fair value through profit or loss.
In the first six months of 2020, reclassifications of €0.2bn were made from level 2 to level 3 for derivatives in the HfT category, €0.1 for certificates and other emissions HfT and €0.1bn for derivatives in liabilities from disposal groups as no observable market parameters were available. By contrast, reclassifications of €0.3bn were made from level 3 to level 2 for derivatives in liabilities from disposal groups, as observable market parameters were available again. There were no other significant reclassifications.
There were no significant reclassifications of financial liabilities into or out of level 3 in the 2019 financial year.
Sensitivity analysis
Where the value of financial instruments is based on unobservable input parameters (level 3), the precise level of these parameters at the reporting date may be derived from a range of reasonable possible alternatives at the discretion of management. In preparing the Group financial statements, appropriate levels for these unobservable input parameters are chosen which are consistent with existing market evidence and in line with the Group's valuation control approach.
The purpose of this disclosure is to illustrate the potential impact of the relative uncertainty in the fair values of financial instruments with valuations based on unobservable input parameters (level 3). Interdependencies frequently exist between the parameters used to determine level 3 fair values. For example, an anticipated improvement in the overall economic situation may cause share prices to rise, while securities perceived as being lower risk, such as German Government Bonds, may lose value. Such interdependencies are accounted for by means of correlation parameters insofar as they have a significant effect on the fair values in question. If a valuation model uses several parameters, the choice of one parameter may restrict the range of possible values the other parameters may take. So, by definition, this category will contain more illiquid instruments, instruments with longer-term maturities and instruments where sufficient independent observable market data is difficult to obtain. The purpose of this information is to illustrate the main unobservable input parameters for level 3 financial instruments and subsequently present various inputs on which the key input parameters were based.
The main unobservable input parameters for level 3 and the key related factors may be summarised as follows:
• Internal rate of return (IRR):
The IRR is defined as the discount rate that sets the net present value of all future cash flows from an instrument equal to zero. For bonds, for example, the IRR depends on the current bond price, the nominal value and the duration.
38 Statement of comprehensive Income 43 Balance sheet
44 Statement of changes in equity 46 Cashflow statement
47 Selected Notes
The credit spread is the yield spread (premium or discount) between securities that are identical in all respects except for their respective credit quality. The credit spread represents the excess yield above the benchmark reference instrument that compensates for the difference in creditworthiness between the instrument and the benchmark. Credit spreads are quoted in terms of the number of basis points above (or below) the quoted benchmark. The wider (higher) the credit spread in relation to the benchmark, the lower the instrument's creditworthiness, and vice versa for narrower (lower) credit spreads.
• Interest rate-forex (IR-FX) correlation:
The IR-FX correlation is relevant for the pricing of exotic interest rate swaps involving the exchange of funding instruments in one currency and an exotic structured leg that is usually based on the development of two government bond yields in different currencies. Consensus market data for longer durations are not observable for certain exotic interest products. For example, CMT yields for US government bonds with a duration of more than ten years are not observable.
• Recovery rates, survival and default probabilities:
Supply and demand as well as the arbitrage relationship with asset swaps tend to be the dominant factors driving pricing of credit default swaps (CDS). Models for pricing credit default swaps tend to be used more for exotic structures and offmarket default swap valuation for which fixed interest payments above or below the market rate are agreed. These models calculate the implied default probability of the reference asset as a means of discounting the cash flows expected in a credit default swap. The model inputs are credit spreads and recovery rates that are used to interpolate ("bootstrap") a time series of survival probabilities of the reference asset. A typical recovery rate assumption in the default swap market for senior unsecured contracts is 40%. Assumptions about recovery rates are a factor determining the shape of the survival probability curve. Different recovery rate assumptions translate into different survival probability rates. For a given credit spread, a high recovery rate assumption implies a higher probability of default (relative to a low recovery rate assumption) and hence a lower survival probability. There is a relationship over time between default rates and recovery rates of corporate bond issuers. The correlation between the two is an inverse one: an increase in the default rate (defined as the percentage of issuers defaulting) is generally associated with a decline in the average recovery rate.
In practice, market participants use market spreads to determine implied default probabilities. Estimates of default probabilities also depend on the joint loss distributions of the parties involved in a credit derivative transaction. The copula function is used to measure the correlation structure between two or more variables. The copula function creates a joint distribution while keeping the characteristics of the two independent marginal distributions.
• Repo curve:
The repo curve parameter is an input parameter that is relevant for the pricing of repurchase agreements (repos). Generally, these are short-dated maturities ranging from O/N up to 12 months. Beyond 12-month maturities the repo curve parameter may become unobservable, particularly for emerging market underlyings, due to the lack of available independent observable market data. In some cases, proxy repo curves may be used to estimate the repo curve input parameter. Where this is deemed insufficient, the input parameter will be classified as unobservable. Furthermore, mutual-fund-related repos may also contain unobservable repo curve exposures.
• Price:
Certain interest rate and loan instruments are accounted for on the basis of their price. It follows that the price itself is the unobservable parameter of which the sensitivity is estimated as a deviation in the net present value of the positions.
• Investment fund volatility:
In general, the market for options on investment funds is less liquid than the market for stock options. As a result, the volatility of the underlying investment funds is determined based on the composition of the fund products. There is an indirect method of determining the corresponding volatility surfaces. This method is assigned to level 3 because the market data it uses are not liquid enough to be classified as level 2.
The following ranges for the material unobservable parameters were used in the valuation of our level 3 financial instruments:
| €m | 30.6.2020 | 30.6.2020 | ||||
|---|---|---|---|---|---|---|
| Significant unobservable | ||||||
| Valuation techniques | Assets | Liabilities | input parameters | Range | ||
| Loans and advances | 2,354 | – | – | – | ||
| Discounted cash flow | ||||||
| Repos | model | 1,248 | – | Repo-curve (bps) | 37 | 52 |
| Discounted cash flow | ||||||
| Ship financing | model | 36 | – | Credit spread (bps) | 550 | 1,900 |
| Discounted cash flow | ||||||
| Other loans | model | 1,070 | – | Credit spread (bps) | 150 | 2,900 |
| Debt securities | 1,313 | 151 | – | – | ||
| Interest-rate-related | ||||||
| transactions | Spread based model | 1,313 | 151 | Credit spread (bps) | 100 | 500 |
| Discounted cash flow | ||||||
| of which: ABS | model | 754 | – | Credit spread (bps) | 100 | 500 |
| Equity instruments | 402 | – | – | – | ||
| Equity-related | Discounted cash flow | |||||
| transactions | model | 402 | – | Price (%) | 90% | 110% |
| Derivatives | 579 | 783 | ||||
| Equity-related | Discounted cash flow | |||||
| transactions | model | 168 | 259 | IRR (%), price (%) | 5% | 20% |
| Option pricing model | – | – | Investment fund volatility | 1% | 40% | |
| Credit derivatives | Discounted cash flow | |||||
| (incl. PFI and IRS) | model | 405 | 355 | Credit spread (bps) | 100 | 1,500 |
| – | – | Recovery rate (%) | 0% | 80% | ||
| Interest-rate-related | ||||||
| transactions | Option pricing model | 6 | 169 | IR-FX correlation (%) | – 30% | 52% |
| Other transactions | – | – | – | – | ||
| Total | 4,648 | 934 |
38 Statement of comprehensive Income 43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
| €m | 31.12.2019 | 31.12.2019 | ||||
|---|---|---|---|---|---|---|
| Significant unobservable input |
||||||
| Valuation techniques | Assets | Liabilities | parameters | Range | ||
| Loans and advances | 2,502 | – | – | – | ||
| Discounted cash flow | ||||||
| Repos | model | 1,586 | – | Repo-curve (bps) | 240 | 265 |
| Discounted cash flow | ||||||
| Ship financing | model | 64 | – | Credit spread (bps) | 150 | 4,150 |
| Discounted cash flow | ||||||
| Other loans | model | 852 | – | Credit spread (bps) | 70 | 700 |
| Debt securities | 1,148 | 16 | – | – | ||
| Interest-rate-related | ||||||
| transactions | Spread based model | 1,148 | 16 | Credit spread (bps) | 100 | 500 |
| of which: ABS | Spread based model | 802 | – | Credit spread (bps) | 100 | 500 |
| Equity instruments | 355 | – | – | – | ||
| Equity-related | Discounted cash flow | |||||
| transactions | model | 355 | – | Price (%) | 90% | 110% |
| Derivatives | 1,817 | 1,369 | ||||
| Equity-related | Discounted cash flow | |||||
| transactions | model | 289 | 368 | IRR (%) | 5% | 20% |
| Investment fund | ||||||
| Option pricing model | – | – | volatility | 1% | 4% | |
| Credit derivatives | Discounted cash flow | |||||
| (incl. PFI and IRS) | model | 1,528 | 836 | Credit spread (bps) | 100 | 550 |
| – | – | Recovery rate (%) | 20% | 40% | ||
| Interest-rate-related | ||||||
| transactions | Option pricing model | – | 165 | IR-FX correlation (%) | – 30% | 52% |
| Other transactions | – | – | – | – | ||
| Total | 5,822 | 1,385 |
The table below shows the impact on the income statement of reasonable parameter estimates on the edges of these ranges for instruments in level 3 of the fair value hierarchy. The sensitivity analysis for financial instruments in level 3 of the fair value hierarchy is broken down by type of financial instrument:
| €m | 30.6.2020 | ||
|---|---|---|---|
| Positive effects on income statement |
Negative effects on income statement |
Changed parameters | |
| Loans and advances | 19 | – 19 | |
| Repos | 11 | – 11 | Repo curve |
| Ship financing | 0 | – 0 | Credit spread |
| Other loans | 8 | – 8 | Credit spread |
| Debt securities | 43 | – 43 | |
| Interest-rate-related transactions | 43 | – 43 | Price, discount margin |
| of which ABS | 20 | – 20 | Price, recovery rate, credit spread |
| Equity instruments | 4 | – 4 | |
| Equity-related transactions | 4 | – 4 | Price |
| Derivatives | 20 | – 20 | |
| Equity-related transactions | 14 | – 14 | IRR, price based, investment fund volatility |
| Credit derivatives (incl. PFI and IRS) | 5 | – 5 | Credit spread, recovery rate, price |
| Interest-rate-related transactions | 1 | – 1 | Price, IR-FX correlation |
| Other transactions | – | – |
| €m | 31.12.2019 | ||
|---|---|---|---|
| Positive effects on income statement |
Negative effects on income statement |
Changed parameters | |
| Loans and advances | 20 | – 20 | |
| Repos | 14 | – 14 | Repo curve |
| Ship financing | 0 | – 0 | Credit spread |
| Other loans | 6 | – 6 | Credit spread |
| Debt securities | 25 | – 25 | |
| Interest-rate-related transactions | 25 | – 25 | Price |
| of which ABS | 21 | – 21 | IRR, recovery rate, credit spread |
| Equity instruments | 4 | – 4 | |
| Equity-related transactions | 4 | – 4 | Price |
| Derivatives | 18 | – 18 | |
| Equity-related transactions | 12 | – 13 | IRR, price based, investment fund volatility |
| Credit derivatives (incl. PFI and IRS) | 4 | – 4 | Credit spread, recovery rate, price |
| Interest-rate-related transactions | 1 | – 1 | Price, IR-FX correlation |
| Other transactions | – | – |
The selected parameters lie at the extremes of their range of reasonable possible alternatives. In practice, however, it is unlikely that all unobservable parameters would simultaneously lie at the extremes of their range of reasonable possible alternatives. Consequently, the estimates provided are likely to exceed the actual uncertainty in the fair values of these instruments. The purpose of these figures is not to estimate or predict future changes in fair value. The unobservable parameters were either shifted by between 1 and 10% as deemed appropriate by our independent valuation experts for each type of instrument or a measure of standard deviation was applied.
Day one profit or loss
The Commerzbank Group has entered into transactions where the fair value was calculated using a valuation model, where not all material input parameters were observable in the market. The initial carrying value of such transactions is the fair value. The difference between the transaction price and the fair value under the model is termed the "day one profit or loss". The day one profit or loss is not recognised immediately in the income statement but over the term of the transaction. As soon as there is a quoted market price on an active market for such transactions or all material input parameters become observable, the accrued day one profit or loss is immediately recognised in the income statement in the gain or loss from financial assets and liabilities measured at fair 38 Statement of comprehensive Income
43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
value through profit or loss. A cumulated difference between the transaction price and fair value determined by the model is calculated for the level 3 items in all categories. Material impacts result only from financial instruments held for trading.
The amounts changed as follows:
| €m | Day-one profit or loss | ||||
|---|---|---|---|---|---|
| Financial assets – Held for trading |
Financial liabilities – Held for trading |
Total | |||
| Balance as at 1.1.2019 | – | 58 | 58 | ||
| Allocations not recognised in income statement | – | – | – | ||
| Reversals recognised in income statement | – | – 34 | – 34 | ||
| Balance as at 31.12.2019 | – | 24 | 24 | ||
| Allocations not recognised in income statement | – | – | – | ||
| Reversals recognised in income statement | – | – 7 | – 7 | ||
| Balance as at 31.3.2020 | – | 17 | 17 |
b) Financial instruments measured at amortised cost
IFRS 7 additionally requires disclosure of the fair values for financial instruments not recognised in the balance sheet at fair value. The measurement methodology to determine fair value in these cases is explained below.
The standard requires that transaction costs also be taken into account when initially measuring assets that will not be measured at fair value in subsequent measurements. These costs include the additional expenses incurred associated with the acquisition, issue or disposal of a financial asset or a financial liability. The transaction costs do not include premiums and discounts, finance costs, internal operating costs or holding costs.
The nominal value of financial instruments that fall due on a daily basis is taken as their fair value. These instruments include cash on hand and cash on demand, as well as overdrafts and demand deposits. We allocate these to level 2. Market prices are not available for loans, as there are no organised markets for trading these financial instruments. In the case of loans, the Bank therefore applies a discounted cash flow model.
The cash flows are discounted using a risk-free interest rate plus premiums for risk costs, refinancing costs, operating expenses and equity costs. The risk-free interest rate is determined based on swap rates (swap curves) that match the corresponding maturities and currencies. These can usually be derived from external data.
In addition, the Bank applies a premium in the form of a calibration constant that includes a profit margin. The profit margin is reflected in the model valuation of loans such that fair value as at the initial recognition date corresponds to the disbursement amount.
Data on the credit risk costs of major banks and corporate customers are available in the form of credit spreads, making it possible to classify them as level 2. If no observable input parameters are available, it may also be appropriate to classify the fair value of loans as level 3.
In the case of securities accounted for in the amortised cost category of IFRS 9, fair value is determined based on available market prices (level 1), assuming an active market exists. If there is no active market, recognised valuation methods are to be used to determine the fair values. In general, an asset swap pricing model is used for the valuation. The parameters applied comprise yield curves and the asset swap spreads of comparable benchmark instruments. Depending on the input parameters used (observable or not observable), classification is made at level 2 or level 3.
For deposits, a discounted cash flow model is generally used for determining fair value, since market data are usually not available. In addition to the yield curve, own credit spread and a premium for operating expenses are also taken into account. Since credit spreads of the respective counterparties are not used in the measurement of liabilities, they are usually classified as level 2. In the case of non-observable input parameters, classification at level 3 may also be appropriate.
The fair value of debt securities issued is determined on the basis of available market prices. If no prices are available, the discounted cash flow model is used to determine the fair values. A number of different factors, including current market interest rates, own credit spread and capital costs, are taken into account in determining fair value. If available market prices are applied, they are to be classified as level 1. Otherwise, classification at level 2 normally applies, since valuation models rely to a high degree on observable input parameters.
| 30.6.2020 €bn | Fair value | Carrying amount |
Difference | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|---|
| Assets | 394.7 | 394.2 | 0.4 | 12.1 | 128.0 | 254.5 |
| Cash on hand and cash on demand | 83.8 | 83.8 | – | – | 83.8 | – |
| Financial assets – Amortised cost | 310.8 | 308.5 | 2.3 | 12.1 | 44.1 | 254.5 |
| Loans and advances | 278.3 | 272.8 | 5.5 | – | 26.3 | 252.1 |
| Debt securities | 32.4 | 35.7 | – 3.2 | 12.1 | 17.9 | 2.5 |
| Value adjustment on portfolio fair value hedges | – | 1.8 | – 1.8 | – | – | – |
| Non-current assets held for sale and disposal groups |
0.0 | 0.0 | – | – | 0.0 | – |
| Loans and advances | 0.0 | 0.0 | – | – | 0.0 | – |
| Debt securities | – | – | – | – | – | – |
| Liabilities | 418.8 | 419.0 | – 0.2 | 33.6 | 381.3 | 3.9 |
| Financial liabilities – Amortised cost | 418.8 | 417.5 | 1.3 | 33.6 | 381.3 | 3.9 |
| Deposits | 372.6 | 372.5 | 0.1 | 0.0 | 371.4 | 1.2 |
| Debt securities issued | 46.3 | 45.1 | 1.2 | 33.6 | 9.9 | 2.8 |
| Value adjustment on portfolio fair value hedges | – | 1.5 | – 1.5 | – | – | – |
| Liabilities of disposal groups | 0.0 | 0.0 | – | – | 0.0 | – |
| Deposits | 0.0 | 0.0 | – | – | 0.0 | – |
| Debt securities issued | – | – | – | – | – | – |
| 31.12.2019 €bn | Fair value | Carrying amount |
Difference | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|---|
| Assets | 337.3 | 336.0 | 1.3 | 12.2 | 83.1 | 242.0 |
| Cash on hand and cash on demand | 41.2 | 41.2 | – | – | 41.2 | – |
| Financial assets – Amortised cost | 295.9 | 293.7 | 2.3 | 12.2 | 41.7 | 242.0 |
| Loans and advances | 265.1 | 260.4 | 4.7 | – | 25.0 | 240.1 |
| Debt securities | 30.8 | 33.3 | – 2.5 | 12.2 | 16.8 | 1.9 |
| Value adjustment on portfolio fair value hedges | – | 1.0 | – 1.0 | – | – | – |
| Non-current assets held for sale and disposal groups |
0.2 | 0.2 | – | – | 0.2 | – |
| Loans and advances | 0.2 | 0.2 | – | – | 0.2 | – |
| Debt securities | – | – | – | – | – | – |
| Liabilities | 354.4 | 353.4 | 1.1 | 29.9 | 321.4 | 3.1 |
| Financial liabilities – Amortised cost | 354.2 | 351.9 | 2.3 | 29.9 | 321.1 | 3.1 |
| Deposits | 309.3 | 309.5 | – 0.1 | – | 309.3 | – |
| Debt securities issued | 44.8 | 42.4 | 2.4 | 29.9 | 11.8 | 3.1 |
| Value adjustment on portfolio fair value hedges | – | 1.2 | – 1.2 | – | – | – |
| Liabilities of disposal groups | 0.3 | 0.3 | – | – | 0.3 | – |
| Deposits | 0.3 | 0.3 | – | – | 0.3 | – |
| Debt securities issued | – | – | – | – | – | – |
38 Statement of comprehensive Income
43 Balance sheet 44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
(28) Information on netting of financial instruments
Below we present the reconciliation of gross amounts before netting to net amounts after netting, as well as the amounts for existing netting rights that do not meet the accounting criteria for netting – separately for all financial assets and liabilities carried on the balance sheet that
- are already netted in accordance with IAS– 32.42 (financial instruments I), and are
- subject to an enforceable, bilateral master netting agreement or a similar agreement but are not netted in the balance sheet (financial instruments II).
For the netting agreements, we conclude master agreements with our counterparties, e.g. 1992 ISDA Master Agreement (Multicurrency – Cross Border) and German Master Agreement for Financial Futures. By means of such netting agreements, the positive and negative fair values of the derivatives contracts included under a master agreement can be offset against one another. This netting process reduces the credit risk to a single net claim on the party to the contract (close-out netting).
We apply netting to receivables and liabilities from genuine repurchase agreements (reverse repos and repos) with central and bilateral counterparties, provided they have the same term. OTC derivatives with customers and cleared own portfolios are likewise netted.
| Assets €m | 30.6.2020 | 31.12.2019 | ||
|---|---|---|---|---|
| Reverse repos | Positive fair values of derivative financial instruments |
Reverse repos | Positive fair values of derivative financial instruments |
|
| Gross amount of financial instruments | 58,042 | 197,384 | 49,270 | 145,892 |
| Book values not eligible for netting | 13,208 | 4,172 | 14,695 | 2,918 |
| a) Gross amount of financial instruments I and II | 44,833 | 193,212 | 34,575 | 142,973 |
| b) Amount netted in the balance sheet for financial instruments I1 |
22,211 | 145,317 | 24,900 | 101,709 |
| c) Net amount of financial instruments I and II = a) – b) |
22,622 | 47,895 | 9,675 | 41,264 |
| d) Master agreements not already accounted for in b) |
||||
| Amount of financial instruments II which do not fulfil or only partially fulfil the criteria under IAS 32.422 |
3,065 | 28,803 | 1,724 | 25,570 |
| Fair value of financial collateral relating to financial instruments I and II not already accounted for in b)3 |
||||
| Non-cash collateral4 | 17,043 | 11 | 5,529 | 45 |
| Cash collateral | 8 | 8,390 | 98 | 8,653 |
| e) Net amount of financial instruments I and II = c) – d) |
2,507 | 10,691 | 2,324 | 6,996 |
| f) Fair value of financial collateral of central counterparties relating to financial instruments |
859 | 16 | 154 | 0 |
| g) Net amount of financial instruments I and II = e) – f) |
1,648 | 10,675 | 2,169 | 6,996 |
1 Of which for positive fair values € 6,578m (previous year: €5,118m) is attributable to margins.
2 Lesser amount of assets and liabilities.
3 Excluding rights or obligations to return arising from the transfer of securities.
4 Including financial instruments not reported on the balance sheet (e.g. securities provided as collateral in repo transactions).
| Liabilities €m | 30.6.2020 | 31.12.2019 | ||
|---|---|---|---|---|
| Negative fair values of derivative financial |
Negative fair values of derivative financial |
|||
| Repos | instruments | Repos | instruments | |
| Gross amount of financial instruments | 55,546 | 195,898 | 43,512 | 144,775 |
| Book values not eligible for netting | 8,278 | 1,934 | 9,948 | 1,951 |
| a) Gross amount of financial instruments I and II | 47,268 | 193,964 | 33,564 | 142,824 |
| b) Amount netted in the balance sheet for financial instruments I 1 |
22,211 | 142,442 | 24,900 | 100,260 |
| c) Net amount of financial instruments I and II = a) – b) |
25,056 | 51,522 | 8,664 | 42,564 |
| d) Master agreements not already accounted for in b) |
||||
| Amount of financial instruments II which do not fulfil or only partially fulfil the criteria under IAS 32.422 |
3,065 | 28,803 | 1,724 | 25,570 |
| Fair value of financial collateral relating to financial instruments I and II not already accounted for in b) 3 |
||||
| Non-cash collateral 4 | 6,763 | 6 | – | 277 |
| Cash collateral | 8,978 | 12,390 | 3,712 | 11,427 |
| e) Net amount of financial instruments I and II = c) – d) |
6,251 | 10,323 | 3,229 | 5,291 |
| f) Fair value of financial collateral of central counterparties relating to financial instruments I |
6,123 | 0 | 3,007 | 2 |
| g) Net amount of financial instruments I and II = e) – f) |
128 | 10,323 | 221 | 5,289 |
1 Of which for negative fair values € 9,453m (previous year: €6,569m) is attributable to margins.
2 Lesser amount of assets and liabilities.
3 Excluding rights or obligations to return arising from the transfer of securities.
4 Including financial instruments not reported on the balance sheet (e.g. securities provided as collateral in repo transactions).
(29) Derivatives
The total effect of netting amounted to €151,895m as at 30 June 2020 (previous year: €106,828m). On the assets side, €145,317m of this was attributable to positive fair values (previous year: €101,710m) and €6,578m to claims for variation margins (previous year: €5,118m). Netting on the liabilities side involved negative fair values of €142,442m (previous year: €100,259m) and liabilities for variation margins payable of €9,453m (previous year: €6,569m).
To our Shareholders Interim Management Report Interim Risk Report Interim Financial Statements 89
38 Statement of comprehensive Income 43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
Notes to the balance sheet (non-financial instruments)
(30) Intangible assets
| €m | 30.6.2020 | 31.12.2019 | Change in % |
|---|---|---|---|
| Goodwill | 1,521 | 1,522 | – 0.0 |
| Other intangible assets | 1,457 | 1,531 | – 4.8 |
| Customer relationships | 81 | 91 | – 11.3 |
| In-house developed software | 986 | 1,047 | – 5.9 |
| Purchased software and other intangible assets | 391 | 393 | – 0.5 |
| Total | 2,978 | 3,053 | – 2.4 |
Goodwill
a) Impairment test methodology for goodwill and other intangible assets
All goodwill is allocated to the cash generating units (CGUs) at the time of acquisition. Commerzbank has defined the segments as CGUs in accordance with IFRS 8. Further details on the segments are provided in Note 39. In accordance with IAS 36, these assets are tested for impairment at the level of the CGUs at least at every reporting date and if a trigger event occurs. The trigger event for the impairment test as at 30 June 2020 was a reduction of the Polish reference interest rate in several steps over a few months because of an economic slowdown caused by Coronavirus pandemic. This scenario will have a negative impact on mBank's net interest income. In reviewing recoverability, the carrying amount of the capital employed in a segment as a cash-generating unit (including the attributed goodwill) is compared with the recoverable amount of these assets. The carrying amount of the capital employed is determined by allocating the Group's capital to the cash-generating units (CGUs).
First, all directly allocable components are allocated to the segments and then the remaining capital is allocated to the segments in proportion to the total risk-weighted assets. Solely for the purposes of the goodwill impairment test, the Group equity allocated to Others and Consolidation is allocated completely to the other segments based on the ratio of risk-weighted assets to total riskweighted assets. The recoverable amount is the higher of value in use and fair value less cost of disposal. The value in use is based on the expected results of the unit and the effects on capital according to the multi-year plans of the individual segments approved by the Board of Managing Direc-tors. Also, solely for the purposes of the impairment test, the main expenses in Others and Consolidation are distributed to the segments based on a precise key. mBank S.A. was fully reintegrated into the system described above following the cancellation of the sale originally planned under Commerzbank 5.0., and was included in the value in use.
Any non-controlling interests are included in the calculation of the carrying amount and the recoverable amount of the CGU and thus in the excess cover presented below.
b) Assumptions of the impairment test for goodwill and otherintangible assets.
Commerzbank uses the Capital Asset Pricing Model (CAPM), with inputs mainly from parameters observable on the market, to determine the recoverable amount. The risk-adjusted interest rates deriving from the model are used to discount the expected cash flows of the cash-generating units. This produces the recoverable amount, which can be higher or lower than the carrying amount. If the recoverable amount is lower than the carrying amount, Commerzbank initially recognises an impairment on the goodwill of the cash-generating unit, which is reported under impairments of goodwill and other intangible assets in the income statement. Any additional impairment required is divided pro-rata between the remaining assets in the unit and is also reported in this item in the income statement. The expected results of the cash-generating units are generally based on the segments' multi-year planning, which has a horizon of four planning years. This multi-year planning was carried forward by a further planning year and at the present time largely still comprises the multi-year planning of 2019. As no new approved multi-year plan was available when the half-year financial statements were prepared, the last multi-year plan adopted was adjusted to the current economic framework parameters with respect to the present coronavirus pandemic. Financial years beyond this are adjusted to a sustainable level of results, and a constant growth rate based on forecasts for GDP growth and inflation is applied for the calculation of the perpetuity. This factor is 1.6% in the Private and Small-Business Customers segment. Since the Bank had already prepared an additional planning year beyond the four-year planning period as part of the planning process, this was included in the perpetuity as the starting point for the growth factor the adjusted planning is based both on management's past experience and an assessment of risks and opportunities in line with the forecasts, particularly with regard to interest income.
In addition, the effects of the EU's Capital Requirements Directive IV – often referred to as Basel IV – were examined in the multi-year planning. The reform package for the standardised calculation of risk-weighted assets and capital floors is to enter into force uniformly on 1 January 2022. Regarding the "output floor", however, a transitional period with gradual phasing in through to 2027 is planned.
At Group level, no significant effect is expected from the introduction of Basel IV, so that no separate consideration was required in determining the value of use of the private and small business customers segment.
The main management assumptions on which the cash flow forecasts for each CGU were based and the management approach chosen were as follows for the Business Segment Private and Small-Business Customers:
| Segment | Main assumptions | Management approach |
|---|---|---|
| Private and Small Business Customers |
Through Commerzbank 5.0, the Bank is building on Commerzbank 4.0 and continuing the systematic development of the Private and Small Business Customers segment: • "Mobile First" strategy: systematic expansion of mobile banking • Leveraging of the potential offered by the successful enlargement of the customer base through the targeted use of data and algorithms (customer intelligence), permitting the creation of customised offerings for cross- and up-selling • Efficient and targeted acquisition of new customers through the use of data and new technologies • Greater choice for customers through new pricing and premium strategy • Systematic digitalisation of products and processes and further simplification of the product range Increased ability to complete transactions in products on the ONE digital platform with the aim of creating a consistent digital and personal customer experience across all relevant touchpoints • Gradual restructuring of the branch network towards a target of around 800 branches • Further development of the advisory model in line with ongoing digitalisation • Further development and expansion of the Customer Centre to become a sales channel • Personal means special: expansion of premium offerings and busi ness with wealthy and small-business customers • Fulfilment of all regulatory requirements • Expansion and strengthening of Commerz Real's market position, |
• Central assumptions based on internal analyses and external studies of economic development and the market • Management projections for growth in new customers and the stabilisation of costs based on progress achieved so far • Institutionalised customer surveys and measurement of customer satisfaction • Inclusion of independent benchmark analysesInitiatives that are part of the strategy to be based on business plans developed by man agement |
| primarily through its lead role as a sustainable digital asset manager and integrated investment service provider |
||
| • Integration of comdirect bank AG to leverage synergies and strengthen the multi-channel banking approach, thereby offering a holistic and innovative banking experience for both comdirect and Commerzbank customers (provisions for the planned restructuring have not been formed so far, that any cost synergies within the scope of the impairment test were not to be taken into account • Cost synergies that are dependent on planned restructuring |
||
| provisions from the comdirect merger and from Coba 5.0 were not taken into account in the impairment test. |
38 Statement of comprehensive Income
43 Balance sheet
- 44 Statement of changes in equity
- 46 Cashflow statement 47 Selected Notes
Due to the assumptions underlying the cash flow forecasts and the uncertainties that are inevitably involved, the following circumstances may have an adverse impact on the cash flow forecasts of the CGUs (the list is not exhaustive):
- Macroeconomic environment worse than expected
- Interest rate outturn differs from economic forecast or the Bank's expectations
- Uncertainties about the regulatory environment, particularly the implementation of new rules at the European level
- Greater intensity of competition than assumed
c) Change in Goodwill
The unscheduled impairment test at 30. June 2020 did not result in any write-downs being required. The Private and Small-Business Customers segment has high excess cover.
Sensitivities
A sensitivity analysis was also performed to further validate the recoverability of goodwill. It identified no potential impairment requirement for the Private and Small-Business Customers CGU. Varying the risk-adjusted interest rate (after tax) by – 25 and + 25 basis points (bps) for the detailed planning phase produced the • Worse than expected results from planned strategic measures from Commerzbank 5.0, e.g. deviation of the expected net realisable value from the actual net realisable value of mBank S.A.
Risk-adjusted interest rates were calculated on the basis of the risk-free interest rate, the market risk premium and the systematic risk (beta factor). We drew on data from external providers for the risk-free interest rate and the market risk premium. The beta factor was calculated on the basis of segment-specific comparator groups reflecting the specific investment risk of the segments.
following ratios of excess cover to carrying amount for the Private and Small-Business Customers CGU; cover was not deficient at any point in the reporting year. Any non-controlling interests were taken into account when determining the sensitivity.
| Private and Small Business Customers | |||
|---|---|---|---|
| 30.6.2020 | 31.12.2019 | ||
| Baseline scenario1 | 10.1% | 36.1% | |
| Sensitivity analysis1 | Risk- adjusted interest rate – 5 bps (advantageous) | 14.5% | 40.4% |
| Risk- adjusted interest rate + 25 bps (disadvantageous) | 5.9% | 32.0% | |
| Sensitivity analysis1 | Growth rate + 25 bps (advantageous) | 11.5% | 38.3% |
| Growth rate – 25 bps (disadvantageous | 8.7% | 33.9% |
1 Positive percent values indicate excess cover; negative percent values indicate deficient cover.
Changes in underlying premises and key planning assumptions used to calculate the recoverable amount of the Private and Corporate Clients CGU, where the recoverable amount and carrying amount are the same.
| Private- and Small- Business Customers | ||
|---|---|---|
| 30.6.2020 | 31.12.2019 | |
| Risk-adjusted interest rate (after taxes) from/to | 9.5% / 10.1% | 8.6% / 11.6% |
| Growth rate from/to | 1.6% / negativ1 | 1.5% / negativ1 |
| Risk result/risk-weighted assets based on the end of the planning phase from/to | 65 BP /89 BP | 58 BP / 184 BP |
1 Impossible to quantify, as the recoverable amount is above carrying amount even with a long-term growth rate of 0
(31) Fixed assets
| €m | 30.6.2020 | 31.12.2019 | Change in % |
|---|---|---|---|
| Land and buildings | 317 | 326 | – 2.8 |
| Rights of use (leases) | 1,897 | 2,034 | – 6.7 |
| Land and buildings | 1,873 | 2,006 | – 6.6 |
| Office furniture and equipment | 24 | 28 | – 14.7 |
| Office furniture and equipment | 389 | 425 | – 8.4 |
| Leased equipment | 664 | 701 | – 5.2 |
| Total | 3,268 | 3,487 | – 6.3 |
(32) Discontinued business division
In the second quarter of 2020, Commerzbank Aktiengesellschaft, Frankfurt and Société Générale Group, Paris, France completed the transfer of the Equity Markets & Commodities (EMC) division of the Corporate Clients segment with economic effect. Legally, several portfolios still remain temporarily with Commerzbank;in substance, these have already been transferred by means of derivatives. The legal transfer of the relevant assets and liabilities, which also requires their derecognition from the balance sheet,will only take place at later stages in the transaction and is expected to be completed in 2021
As at 30 June 2020, the remaining assets and liabilities of the discontinued operation amounted to €2.2bn (previous year: €8.0bn) and to €3.9bn (previous year: €8.5bn) The assets and liabilities are mostly measured at fair value.
The earnings of this business division are presented separately in the income statement. In order to achieve an economically appropriate presentation of the discontinued operation, intragroup services between continuing operations and the discontinued business division are eliminated under continuing operations.
Detailed information on the discontinued business division is provided below.
| €m | 1.1.–30.6.2020 | 1.1.–30.6.2019 | Change in % |
|---|---|---|---|
| Income | 98 | 106 | – 7.7 |
| Expenses | 47 | 105 | – 55.0 |
| Pre-taxprofit or loss | 50 | 0 | |
| Taxes on income | 0 | – 12 | |
| Consolidated profit or loss from discontinued operations | 50 | 12 |
The profit attrbutable to Commerzbank shareholders from continuing operations amounted to €–147m (previous year: €389m) (see Note 3).
| € | 1.1.–30.6.2020 | 1.1.–30.6.2019 | Change in % |
|---|---|---|---|
| Earnings per share for discontinued operations | 0.04 | 0.01 |
| €m | 2020 | 2019 | Change in % |
|---|---|---|---|
| Net cash from operating activities | 50 | 12 | |
| Net cash from investing activities | – | – | |
| Net cash from financing activities | – | – |
To our Shareholders Interim Management Report Interim Risk Report Interim Financial Statements 93
38 Statement of comprehensive Income 43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
(33) Non-current assets held for sale and disposal groups
| €m | 30.6.2020 | 31.12.2019 | Change in % |
|---|---|---|---|
| Financial assets – Amortised cost | 20 | 187 | – 89.2 |
| Loans and advances | 20 | 187 | – 89.2 |
| Debt securities | – | – | |
| Financial assets – Fair value OCI | – | – | |
| Loans and advances | – | – | |
| Debt securities | – | – | |
| Equity instruments | – | – | |
| Financial assets – Mandatorily fair value P&L | 6 | 76 | – 92.1 |
| Loans and advances | 6 | 76 | – 92.3 |
| Debt securities | – | – | |
| Equity instruments | 0 | 0 | – |
| Financial assets – Held for trading | 2,226 | 7,742 | – 71.3 |
| Loans and advances | – | – | |
| Debt securities | 79 | 1,248 | – 93.6 |
| Equity instruments | 0 | 3,631 | – 100.0 |
| Derivatives | 2,146 | 2,863 | – 25.0 |
| Intangible assets | – | 6 | |
| Fixed assets | – | – | |
| Other assets | – 73 | – 57 | 28.9 |
| Total | 2,179 | 7,955 | – 72.6 |
In 2019 assets of disposal groups of the previous year mainly relate to the discontinuation of the EMC business division (see Note 32).
(34) Liabilities from disposal groups
| €m | 30.6.2020 | 31.12.2019 | Change in % |
|---|---|---|---|
| Financial liabilities – Amortised cost | 20 | 258 | – 92.3 |
| Deposits | 20 | 258 | – 92.3 |
| Debt securities issued | – | – | |
| Financial liabilities – Fair value option | 999 | 2,205 | – 54.7 |
| Deposits | 999 | 2,205 | – 54.7 |
| Debt securities issued | – | – | |
| Financial liabilities – Held for trading | 2,852 | 6,027 | – 52.7 |
| Certificates and other issued bonds | 660 | 3,249 | – 79.7 |
| Delivery commitments arising from short sales of securities | – | 435 | |
| Derivatives | 2,192 | 2,344 | – 6.5 |
| Other liability items | 6 | 38 | – 83.9 |
| Total | 3,878 | 8,528 | – 54.5 |
In 2019 liabilities from disposal groups of the previous year mainly relate to the discontinuation of the EMC business division (see Note 32).
(35) Other assets
| €m | 30.6.2020 | 31.12.20191 | Change in % |
|---|---|---|---|
| Precious metals | 79 | 26 | |
| Accrued and deferred items | 304 | 229 | 33.0 |
| Defined benefit assets recognised | 83 | 96 | – 13.4 |
| Other assets | 1,504 | 1,387 | 8.4 |
| Total | 1,970 | 1,739 | 13.3 |
1 Prior-year figures adjusted due to restatements (see Note 3).
(36) Other liabilities
| €m | 30.6.2020 | 31.12.2019 | Change in % |
|---|---|---|---|
| Liabilities attributable to film funds | 316 | 316 | |
| Liabilities attributable to non-controlling interests | 60 | 57 | 5.2 |
| Accrued and deferred items | 317 | 292 | 8.5 |
| Lease liabilities | 2,007 | 2,094 | – 4.2 |
| Other liabilities | 1,793 | 1,658 | 8.2 |
| Total | 4,494 | 4,418 | 1.7 |
(37) Provisions
| m€ | 30.6.2020 | 31.12.2019 | Change in % |
|---|---|---|---|
| Provisions for pensions and similar commitments | 73 | 713 | – 89.7 |
| Other provisions | 1,836 | 1,990 | – 7.7 |
| Total | 1,910 | 2,704 | – 29.4 |
The provisions for pensions and similar commitments relate primarily to direct pension commitments in Germany (see page 233 ff. of the Annual Report 2019). The actuarial assumptions underlying these obligations at 30 June 2020 were: a discount rate of 1.2% (previous year: 1.1%) and an expected adjustment to pensions of 1.4% (previous year: 1.4%).
38 Statement of comprehensive Income
43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
In the first quarter of 2019, binding agreements were concluded with an insurance company for a UK pension plan to cover a major portion of the claims from defined benefit pension obligations by concluding insurance contracts, whereby the legal obligation remains with Commerzbank ("buy-in"). This transaction resulted in an reduction equivalent to €283m in the existing pension plan surplus cover recognised in the statement of comprehensive income under other net income.
Other provisions consisted primarily of restructuring provisions and provisions for personnel-related matters. We expect the restructuring provisions of €346m (previous year: €401m) to be utilised in the period from 2020 to 2021.
Legal disputes
With respect to legal proceedings and potential recourse claims for which provisions of €285m (previous year: €261m) were recognised and which are contained in the other provisions, neither the duration of the proceedings nor the level of utilisation of the provision can be predicted with certainty at the date the provision is recognised. The provisions cover the future costs expected according to our judgement. We have not set out the provision amounts and sensitivities individually to avoid influencing the outcome of the various proceedings.
- Commerzbank and its subsidiaries operate in a large number of jurisdictions subject to different legal and regulatory requirements. In isolated cases in the past, infringements of legal and regulatory provisions have come to light and have been prosecuted by government agencies and institutions. Some companies within the Group are currently still involved in a number of such cases.
- Commerzbank and its subsidiaries are especially active in the area of investment advisory within the Private and Small-Business Customers segment. The legal requirements for investor- and investment-oriented advisory services have been made more rigorous, especially in recent years. Commerzbank and its subsidiaries have consequently been involved in a number of legal disputes, some of which are still pending, with investors who claim to have received poor or inadequate investment advice and who demand compensation for damages or the reversal of investment transactions where information regarding commission fees was lacking (e.g. for closed-end funds).
- Following a ruling by the German Federal Court of Justice in October 2014 declaring that non-term-related processing fees in preformulated contractual terms and conditions for consumer loans were invalid, a large number of customers have lodged claims with Commerzbank for repayment of the processing fees. The majority of these claims have now been settled. In its ruling given at the beginning of July 2017, the
German Federal Court of Justice extended the principles on the invalidity of non-term-related processing fees in preformulated contractual terms and conditions to loan agreements concluded between banks and entrepreneurs. To date, only a few corporate customers have submitted claims for the recovery of fees paid in the past. Commerzbank does not currently anticipate any further significant recovery claims in the future.
• Commerzbank is exposed to claims from customers owing to "cancellation joker" ("Widerrufsjoker") issues. Following a change in the law, according to which any right to cancel loan agreements concluded between 2002 and 2010 could lapse no later than on 21 June 2016, many borrowers cancelled their agreements and asserted that the information given to them about cancellation when they concluded the agreement had been deficient. Some of them took legal action against the Bank when it refused to accept their cancellation, intending to immediately pay back the loan prior to the expiry of the fixed interest term without having to compensate the Bank for the loss incurred as a consequence of the early repayment. For agreements concluded after 2010, an attempt is also being made to use the cancellation joker to withdraw from the agreements prematurely. The Bank has contested these claims.
In its judgement of 26 March 2020, the European Court of Justice decided that a reference to other legal provisions contained in the (statutory) boilerplate information on cancellation for customer loan agreements was unclear to the consumer and regarded this as a breach of the requirements of the European Consumer Credit Directive. In its consumer loan agreements the Bank has used the legal model which the German Federal Court of Justice has already deemed to be in order in several decisions. The Federal Court of Justice has convincingly justified this by arguing that the German courts cannot disregard a national standard which is clear in its wording and meaning. The Federal Court of Justice most recently confirmed its stance in, a decision on 31 March 2020. For this reason the Bank does not consider itself to be exposed to any increased risks as a result of the ECJ ruling for the current portfolio of consumer loans.
• A subsidiary of Commerzbank was involved in a South American bank which in the meantime has gone into liquidation. A number of investors and creditors of this bank have launched various legal actions in Uruguay and Argentina against the subsidiary, and, in some cases, Commerzbank as well, alleging liability as shareholders of the bankrupt companies as well as breaches of duty by the persons nominated by the subsidiary for the banks' supervisory boards. In addition, the subsidiary was involved in two funds which raised money from investors and were managed by third parties. The liquidators of these funds have launched court proceedings in the USA demanding the repayment of amounts received by the subsidiary from the funds.
- A subsidiary of Commerzbank was sued by a customer in May 2014 for compensation due to alleged fraudulent misselling of derivative transactions. The subsidiary has defended itself against the claim.
- In May 2017, a Polish court admitted a class action lawsuit against a subsidiary of Commerzbank alleging the ineffectiveness of index clauses in loan agreements denominated in Swiss francs (CHF). In October 2018, the class action suit was dismissed in its entirety by the court of first instance. The claimants appealed against this judgement. In March 2020 the court of appeal partially overturned the judgement of the court of first instance and referred it back. The subsidiary is considering appeals against this decision. A total of 1,731 plaintiffs have joined the class action. In early June 2020, the court of appeal enacted a temporary order concerning the suspension of interest payment and repayment obligations and prohibited the subsidiary from issuing due date or cancellation notices. The subsidiary has appealed this decision
In addition to the class action, 4,596 other individual proceedings were pending as of 30 June 2020. The subsidiary is defending itself against each of the claims. It has won the majority of the individual lawsuits.
The case law of the Polish courts on loans with indexation clauses has so far been inconsistent overall. This and the number of judgements handed down are not sufficient to permit a reliable assessment of future case law. Consequently the Group/subsidiary decided to take into account possible
(38) Contingent liabilities and lending commitments
This item mainly shows contingent liabilities arising from guarantees and indemnity agreements as well as irrevocable lending commitments at their nominal value.
Provisions for risks in respect of contingent liabilities and lending commitments are included in provisions for loan losses.
The contingent liabilities include the irrevocable payment obligation provided by the Federal Republc of Germany – Finanzagentur GmbH (Deutsche Finanzagentur) after approval of the Bank's request for security for payment of part of the banking levy.
future lawsuits relating to the existing portfolio and the portfolio already repaid in addition to the lawsuits already filed when calculating the provision. The Group/subsidiary measures the provision for individual claims relating to existing and already repaid loans with CHF indexation clauses using the expected value method permitted under IAS 37.
The provision relates both to the portfolio existing as at 30 June 2020 with a carrying amount of €3.1bn and to the portfolio already repaid. The portfolio already repaid amounted to PLN 6.5bn at the time of disbursement. For individual lawsuits the provision as of 30 June 2020 comes to €137.2m.
The methodology used to calculate the provision is based on parameters that are varied, discretionary and in some cases associated with considerable uncertainty. Key parameters are the estimated total number of plaintiffs, the probability of losing a lawsuit in the last instance, the amount of the loss and the development of the exchange rate. Fluctuations in the parameters and the interdependencies between them may mean that the amount of the provision must be adjusted significantly in the future.
- A Commerzbank subsidiary together with another bank was sued for damages in May 2018 due to alleged unfair price collusion in connection with the levying of settlement fees. The subsidiary is defending itself against the action.
- A subsidiary of Commerzbank was sued by a customer for compensation due to alleged unlawful selling of collateral. The subsidiary has defended itself against the claim.
The figures listed in the table below do not take account of any collateral and would only have to be written off if all customers utilised their facilities completely and then defaulted (and there was no collateral). In practice, the majority of these facilities expire without ever being utilised. Consequently, these amounts are unrepresentative in terms of assessing risk, the actual future loan exposure or resulting liquidity requirements.
38 Statement of comprehensive Income 43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
| €m | 30.6.2020 | 31.12.2019 | Change in % |
|---|---|---|---|
| Contingent liabilities | 42,218 | 40,832 | 3.4 |
| Banks | 7,012 | 6,101 | 14.9 |
| Corporate clients | 31,823 | 31,503 | 1.0 |
| Private customers | 184 | 197 | – 6.3 |
| Other financial corporations | 3,128 | 2,954 | 5.9 |
| General governments | 71 | 78 | – 8.0 |
| Lending commitments | 81,752 | 80,871 | 1.1 |
| Banks | 1,516 | 1,563 | – 3.0 |
| Corporate clients | 61,917 | 62,189 | – 0.4 |
| Private customers | 11,378 | 10,167 | 11.9 |
| Other financial corporations | 6,171 | 6,425 | – 3.9 |
| General governments | 769 | 527 | 45.7 |
| Total | 123,970 | 121,704 | 1.9 |
In addition to the credit facilities listed above, the Commerzbank Group may also sustain losses from legal and tax risks the occurrence of which is not very probable and for which reason no provisions have been recognised. However, since there is some probability of their occurrence, they are presented under contingent liabilities. It is impossible to reliably estimate the date on which such risk may materialise or any potential reimbursements. Depending on the outcome of the legal and fiscal proceedings, the estimate of our risk of loss may prove to be either too low or too high. However, in a large majority of cases the contingent liabilities for legal risks do not ever materialise and, therefore, the amounts are not representative of the actual future losses. As at 30 June 2020, the contingent liabilities for legal risks amounted to €406m (previous year: €511m) and related to the following material issues:
- Several actions have been taken against a subsidiary of Commerzbank by customers of a former, now bankrupt, corporate customer which held its bank accounts with the subsidiary. The aim of the action is to obtain claims for damages from the subsidiary for allegedly assisting the management of the bankrupt corporate customer in its fraudulent dealings in relation to the management of its accounts. The claims of various customers were subsequently acquired by a company, which is now asserting a collective claim. These claims for damages were dismissed by the court of first instance. The claimant has lodged an appeal.
- The former Dresdner Bank had an equity holding in a US company that was sold by way of a leveraged buyout. During the insolvency proceedings of this company a number of lawsuits were brought in the USA against several banks, including Commerzbank as the legal successor of Dresdner Bank, for repayment of the proceeds it received from the sale of its stake. The action brought by the insolvency administrator
was dismissed in the first instance; an application to review the decision is currently pending at the relevant court of appeal. The actions brought by the Company's pensioners and bondholders have been dismissed by the court of appeal in favour of, among others, the Bank; appeals against the decisions are still possible.
- Commerzbank was sued for damages by a former borrower in Hungary in April 2016. After the borrower failed to remedy multiple breaches of the loan contract, Commerzbank terminated the contract and ceased any further loan disbursements. The plaintiff was liquidated in January 2019. As a result, in February 2019 the court dismissed the claims for intangible damages and suspended the rest of the proceedings. In February 2019, a group company of the Hungarian borrower filed a petition for the continuation of the proceedings on the basis of an (allegedly) assigned right of 75% of the claim. The petition was dismissed in September 2019. The appeal was rejected in February 2020.
- A customer sued Commerzbank for recovery of monies in April 2016. The claimant is demanding, among other things, the repayment of interest which in its view was wrongly paid to Commerzbank and is also demanding the release of collateral which is being held as security for a claim by Commerzbank against the claimant. Commerzbank and the claimant are in dispute about the legal validity of Commerzbank's secured claim. Commerzbank is defending itself against the action.
- In a lawsuit filed in May 2019, a Commerzbank customer sought a ruling that the Bank must compensate the claimant for material damages caused by alleged false advice in connection with derivatives in the form of swap contracts. Commerzbank considers the lawsuit to be unfounded and has defended itself against the claim.
• A Commerzbank subsidiary together with another bank was sued for damages in February 2020 due to alleged unfair price collusion in connection with the levying of settlement fees. The subsidiary is defending itself against the action.
The contingent liabilities for tax risks relate to the following material issues:
• In the circular of the German Federal Ministry of Finance (BMF) dated 17 July 2017, the tax authorities addressed the treatment of cum-cum transactions, declaring their intention to critically examine past transactions for indications of abuse of law. According to the view put forward in the BMF circular, abuse of law pursuant to Article 42 of the German Tax Code (Abgabenordnung, AO) is indicated if there are no economically reasonable grounds for the transaction in question and the structure of the transaction appears to be largely tax-induced (tax arbitrage). The circular provides a nonexhaustive list of cases which the BMF will assess for tax purposes. Within the framework of Commerzbank AG's ongoing tax audit, the tax auditors commented on the treatment of these transactions in the form of audit notes. Further discussions are taking place on this issue. Furthermore, in the assessments for the years 2014 and 2015, the tax office reduced the credit for capital gains taxes. In response, Commerzbank AG made value adjustments to tax credits shown in the balance sheet and/or set up additional provisions for possible repayment claims in order to reflect the changed risk situation appropriately. The possibility that this conclusion could alter as developments unfold, for example in connection with assessments made by the fiscal courts, cannot be completely ruled out. Commerzbank is exposed here to compensation claims from third parties relating to cum-cum securities lending transactions for which credit entitlements have been denied. Based on the analyses performed,
Commerzbank considers it unlikely that such claims could be enforced. However, it cannot be ruled out. Under these circumstances, Commerzbank estimates the potential financial impact in the upper double-digit million range, plus interest on arrears.
The possibility that this conclusion could alter as developments unfold, for example in connection with assessments made by the tax authorities and fiscal/civil courts, cannot be completely ruled out Appropriate provision has been made for the tax risks.
• The public prosecutor's office in Frankfurt is investigating equity transactions conducted by Commerzbank and the former Dresdner Bank around the dividend record date (cum-ex transactions). Commerzbank had already initiated a forensic analysis of cum-ex transactions at the end of 2015, which was concluded at the start of 2018 in respect of Commerzbank's equity transactions and in September 2019 in respect of the equity transactions of the former Dresdner Bank. All back taxes demanded by the tax authorities have been paid.
The public prosecutor's office in Cologne has been conducting investigations at Commerzbank since September 2019 in connection with a separate case concerning cum-ex transactions. The Cologne public prosecutor's office is investigating on suspicion that the Bank (including Dresdner Bank) was involved in cum-ex transactions in various roles, including by supplying shares to third parties who were allegedly acting as short sellers. According to the current understanding, these proceedings do not involve Commerzbank's own tax credit claims with regard to capital gains tax and solidarity surcharge on dividends.
The Bank is cooperating fully with authorities conducting investigations into cum-ex transactions. It is currently not possible to predict whether this will result in a burden, whether it will occur, or the amount of any resulting burden.
38 Statement of comprehensive Income
43 Balance sheet 44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
Segment reporting
(39) Segment reporting
Segment reporting reflects the results of the operating segments within the Commerzbank Group. The following segment information is based on IFRS 8 Operating Segments, which applies the management approach. The segment information is prepared on the basis of internal management reporting, which the chief operating decision maker draws on in assessing the performance of the operating segments and determining the allocation of resources to the operating segments. Within the Commerzbank Group, the function of chief operating decision maker is exercised by the Board of Managing Directors.
Our segment reporting addresses the segment structure, comprising Private and Small-Business Customers, Corporate Clients and the Others and Consolidation segment. The Asset & Capital Recovery segment, which was discontinued on 1 July 2019, is shown separately with its previous-year result. This reflects the Commerzbank Group's organisational structure and forms the basis for internal management reporting. The business segments are defined by differences in their products, services and/or customer target groups. The income and expenses of the Corporate Clients segment and of the Group are presented without the discontinued business division (see Note 32).
In the first quarter of 2019, as part of the wind-down strategy of the Asset & Capital Recovery segment, transfers of these receivables from local authorities and public-sector or quasi-publicsector institutions in North America and the UK were made to the Others and Consolidation segment. No adjustment was made to the prior-year values due to the specific features of a wind-down portfolio. The remaining assets of the Asset & Capital Recovery segment, which was discontinued as of 1 July 2019, were transferred to the Private and Small-Business Customers segment, and in particular to the Others and Consolidation segment. As part of its digitisation strategy, Commerzbank has reorganised product development and operations in the delivery organisation as of 1 July 2019 by linking the business and IT sides in agile teams. This does not result in any changes to the previous segment reporting.
As at 30 June 2020, the carrying amount of the receivables transferred from the Asset & Capital Recovery segment to the Others and Consolidation segment in the first quarter of 2019 was €5.1bn. The main earnings drivers were as follows: €40m net interest income,€ –1m Risk result, €–5m net income from financial assets and liabilities at fair value through profit or loss, €–30m net income from hedge accounting, €5m income before risk result, €4m income after risk result, €1m operating expenses and €3m pre-tax loss.
For the Asset & Capital Recovery segment, which was dissolved as of 1 July 2019, a carrying amount of €0.5bn was shown in the balance sheet for the Private and Small-Business Customers segment and €14.4bn for the Others and Consolidation segment as of 30 June 2020. The main earnings drivers for the first half year were: for the Private and Small-Business Customers segment, €–2m net interest income, €–2m net income from financial assets and liabilities measured at fair value through profit or loss, €12m other net income, €8m income before risk result, €8m income after risk result and €1m administrative expenses and €7mpre-tax profit. For the Others and Consolidation segment, €5m net interest income, €–30m risk result, €–1 commission income€, –113m net income from financial assets and liabilities at fair value through profit or loss, €54m net income from hedge accounting, €1m other income, €–54m income before risk result, €–84m income after risk result, €6m administrative expenses, €8m compulsory contributions and €–99m pre-tax loss.
Further information on the segments is provided in the management report section of this interim report. The operating segments' capital requirement for risk-weighted assets is 12 %. A capital requirement of 15 % of risk-weighted assets was applied to the Asset & Capital Recovery segment until its discontinuation.
The performance of each segment is measured in terms of operating profit or loss and pre-tax profit or loss, as well as operating return on equity and the cost/income ratio. Operating profit or loss is defined as the sum of net interest income, dividend income, risk result, net commission income, net income from financial assets and liabilities measured at fair value through profit or loss, net income from hedge accounting, other net gain or loss from financial instruments, current net income from companies accounted for using the equity method and other net income less operating expenses and compulsory contributions. The operating profit does not include any impairments of goodwill or other intangible assets or restructuring expenses. As we report pre-tax profits, noncontrolling interests are included in the figures for both profit and loss and average capital employed. All the revenue for which a segment is responsible is thus reflected in the pre-tax profit. When showing the elimination of intragroup profits from intragroup transactions in segment reporting, the transferring segment is treated as if the transaction had taken place outside the Group. Intragroup profits and losses are therefore eliminated in Others and Consolidation.
The operating return on equity is calculated as the ratio of operating profit to average capital employed. It shows the return on the capital employed in a given segment. The cost/income ratio in operating business reflects the cost efficiency of the various segments. It is calculated from the ratio of the sum of operating expenses and compulsory contributions to income before the risk result. We also report a cost/income ratio in operating business that excludes compulsory contributions, to take account of the fact that this item cannot be influenced in terms of either amount or periodicity.
Income and expenses are reported within the segments by originating unit and at market prices, with the market interest rate method being used for interest operations. The actual funding costs for the business-specific equity holdings of the segments are shown in net interest income. The Group's return on capital employed is allocated to the net interest income of the various segments in proportion to the average capital employed in the segment. The interest rate used is the long-term risk-free rate on the capital market. Net interest income also contains liquidity costs. These costs include both externally paid funding costs as well as the complete allocation of liquidity costs to the businesses and segments based on our transfer price system for liquidity costs. This system is used to allocate the interest expenses resulting from the Bank's external funding to the individual transactions and portfolios of the segments. This allocation is based on a central liquidity price curve in accordance with cost causation. The average capital employed in the segments is calculated based on the average segmented risk-weighted assets. For the Corporate Clients segment, the average capital employed in the segment is calculated without the discontinued business division. At Group level, Common Equity Tier 1 (CET1) capital is shown, which is used to calculate the operating return on equity. The reconciliation of average capital employed in the segments to the Group's CET1 capital is carried out in Others and Consolidation. We also report the assets and liabilities for the individual segments and the carrying amounts of companies accounted for using the equity method. Due to our business model, the segment balance sheet only balances out at Group level.
The operating expenses reported under operating profit or loss contain personnel expenses, administrative expenses (excluding compulsory contributions) as well as amortisation, depreciation and write-downs on fixed assets and other intangible assets. Restructuring expenses and impairments of both goodwill and other intangible assets are reported below the operating profit line in pre-tax profit or loss. Operating expenses and compulsory contributions are attributed to the individual segments on the basis of cost causation. The indirect expenses arising in connection with internal services are charged to the user of the service and credited to the segment performing the service. The provision of intragroup services is charged at full cost or at market prices.
38 Statement of comprehensive Income
43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
| 1.1.-30.6.2020 €m | Private and Small Business Customers |
Corporate Clients |
Asset & Capital Recovery |
Others and Consolidation |
Group |
|---|---|---|---|---|---|
| Net interest income | 1,330 | 894 | – | 374 | 2,597 |
| Dividend income | 12 | 3 | – | – 2 | 13 |
| Risk result | – 313 | – 456 | – | – 27 | – 795 |
| Net commission income | 1,087 | 600 | – | – 20 | 1,668 |
| Net income from financial assets and liabilities measured at fair value |
|||||
| through profit or loss | 96 | 33 | – | – 270 | – 141 |
| Net income from hedge accounting | 1 | 9 | – | 54 | 64 |
| Other net income from financial instruments |
11 | – 3 | – | 7 | 15 |
| Current net income from companies accounted for using the equity method |
0 | 5 | – | 0 | 5 |
| Other net income | – 28 | – 3 | – | – 65 | – 97 |
| Income before risk result | 2,510 | 1,537 | – | 77 | 4,125 |
| Income after risk result | 2,197 | 1,082 | – | 51 | 3,329 |
| Operating expenses | 1,735 | 1,174 | – | 121 | 3,030 |
| Compulsory contributions | 201 | 111 | – | 62 | 374 |
| Operating profit or loss | 261 | – 203 | – | – 132 | – 74 |
| Impairments on goodwill and other intangible assets Restructuring expenses Pre-tax profit or loss from continuing operations |
– – 261 |
– – – 203 |
– – – |
– – – 132 |
– – – 74 |
| Assets | 158,896 | 188,289 | – | 203,443 | 550,628 |
| of which: discontinued assets | – | 2,179 | – | – | 2,179 |
| Liabilities | 194,480 | 192,141 | – | 164,008 | 550,628 |
| of which: discontinued liabilities | – | 3,878 | – | – | 3,878 |
| Carrying amount of companies accounted for using the equity method |
30 | 149 | – | 1 | 180 |
| Average capital employed (from continuing operations) (based on CET1)1 |
5,700 | 11,742 | – | 7,012 | 24,453 |
| Operating return on equity (%)2 | 9.2 | – 3.5 | n/a | – 0.6 | |
| Cost/income ratio in operating business (excl. compulsory contributions) (%) |
69.1 | 76.4 | n/a | 73.5 | |
| Cost/income ratio in operating business (incl. compulsory contributions) (%) |
77.1 | 83.6 | n/a | 82.5 |
1 Average CET1 capital fully loaded. Reconciliation carried out in Others and Consolidation.
2 Annualised.
| 1.1.-30.6.2019 €m1 | Private and Small Business Customers |
Corporate Clients |
Asset & Capital Recovery |
Others and Consolidation |
Group |
|---|---|---|---|---|---|
| Net interest income | 1,355 | 920 | – 23 | 254 | 2,505 |
| Dividend income | 5 | 3 | – | 3 | 11 |
| Risk result | – 100 | – 155 | – 24 | 23 | – 256 |
| Net commission income | 928 | 595 | 0 | – 16 | 1,507 |
| Net income from financial assets and liabilities measured at fair value |
|||||
| through profit or loss | 105 | 97 | 111 | – 200 | 113 |
| Net income from hedge accounting | 1 | 12 | 10 | 72 | 96 |
| Other net income from financial instruments |
12 | 2 | – 19 | 15 | 11 |
| Current net income from companies accounted for using the equity |
|||||
| method | 3 | 4 | – 0 | – | 7 |
| Other net income | 13 | 4 | – 0 | 19 | 35 |
| Income before risk result | 2,422 | 1,637 | 79 | 148 | 4,285 |
| Income after risk result | 2,322 | 1,482 | 55 | 171 | 4,029 |
| Operating expenses | 1,743 | 1,240 | 15 | 148 | 3,146 |
| Compulsory contributions | 179 | 101 | 9 | 39 | 328 |
| Operating profit or loss | 400 | 141 | 31 | – 17 | 555 |
| Impairments on goodwill and other intangible assets |
|||||
| Restructuring expenses | – | – | – | – | – |
| Pre-tax profit or loss from continuing operations |
400 | 141 | 31 | – 17 | 555 |
| Assets | 144,551 | 200,721 | 11,226 | 161,415 | 517,912 |
| of which: discontinued assets | - | 13,613 | - | - | 13,613 |
| Liabilities | 180,932 | 200,151 | 10,130 | 126,699 | 517,912 |
| of which: discontinued liabilities | - | 12,832 | - | - | 12,832 |
| Carrying amount of companies accounted for using the equity |
|||||
| method | 28 | 149 | – | 1 | 177 |
| Average capital employed (from continuing operations) (based on CET1)2 |
5,175 | 11,798 | 1,620 | 5,042 | 23,635 |
| Operating return on equity (%)3 | 15.4 | 2.4 | 3.8 | 4.7 | |
| Cost/income ratio in operating | |||||
| business (excl. compulsory | |||||
| contributions) (%) Cost/income ratio in operating business (incl. compulsory |
72.0 | 75.7 | 19.3 | 73.4 | |
| contributions) (%) | 79.4 | 81.9 | 30.7 | 81.1 |
1 Prior-year figures adjusted due to restatements (see Note 3).
2 Average CET1 capital fully loaded. Reconciliation carried out in Others and Consolidation.
3 Annualised.
To our Shareholders Interim Management Report Interim Risk Report Interim Financial Statements 103
38 Statement of comprehensive Income
43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
Details for Others and Consolidation:
| €m | 1.1.-30.6.2020 | ||
|---|---|---|---|
| Others | Consolidation | Others and Consolidation |
|
| Net interest income | 376 | – 3 | 374 |
| Dividend income | – 2 | 0 | – 2 |
| Risk result | – 27 | – | – 27 |
| Net commission income | – 16 | – 4 | – 20 |
| Net income from financial assets and liabilities measured at fair value through profit or loss |
– 278 | 8 | – 270 |
| Net income from hedge accounting | 54 | – | 54 |
| Other net income from financial instruments | 5 | 2 | 7 |
| Current net income from companies accounted for using the equity method | – | 0 | 0 |
| Other net income | – 63 | – 3 | – 65 |
| Operating expenses | 126 | – 6 | 121 |
| Compulsory contributions | 62 | 0 | 62 |
| Operating profit or loss | – 139 | 7 | – 132 |
| Assets | 203,288 | 155 | 203,443 |
| Liabilities | 163,872 | 135 | 164,008 |
| €m | 1.1.-30.6.20191 | ||
|---|---|---|---|
| Others | Consolidation | Others and Consolidation |
|
| Net interest income | 244 | 10 | 254 |
| Dividend income | 2 | 2 | 3 |
| Risk result | 23 | – 0 | 23 |
| Net commission income | – 14 | – 2 | – 16 |
| Net income from financial assets and liabilities measured at fair value through profit or loss |
– 223 | 24 | – 200 |
| Net income from hedge accounting | 72 | – | 72 |
| Other net income from financial instruments | 17 | – 3 | 15 |
| Current net income from companies accounted for using the equity method | – | – | – |
| Other net income | 27 | – 8 | 19 |
| Operating expenses | 157 | – 9 | 148 |
| Compulsory contributions | 39 | 0 | 39 |
| Operating profit or loss | – 48 | 32 | – 17 |
| Assets | 161,041 | 374 | 161,415 |
| Liabilities | 126,401 | 298 | 126,699 |
1 Prior-year figures adjusted due to restatements (see Note 3).
Under "Consolidation" we report consolidation and reconciliation items from the results of the segments and "Others" affecting the Group financial statements. This includes the following items, among others:
- Effects from the consolidation of intragroup-transactions between segments
- Effects from the consolidation of expenses and income
- Income and operating expenses of staff and management functions, which are charged to the segments and Others.
- Elimination of the net measurement gains or losses on own bonds incurred in the segments;
The breakdown within segment reporting by geographical region, which is essentially based on the location of the branch or group entity, was as follows:
| 1.1.-30.6.2020 €m |
Germany | Europe without Germany |
Americas | Asia | Others | Total |
|---|---|---|---|---|---|---|
| Income before risk result | 3,008 | 910 | 117 | 90 | 0 | 4,125 |
| Credit-risk-weighted assets (with transitional provisions) |
96,245 | 49,513 | 6,618 | 5,110 | – | 157,486 |
In the prior-year period we achieved the following results in the various geographical regions:
| 1.1.-31.3.20191 €m |
Germany | Europe without Germany |
Americas | Asia | Others | Total |
|---|---|---|---|---|---|---|
| Income before risk result | 3,019 | 1,076 | 67 | 122 | 0 | 4,285 |
| Credit-risk-weighted assets (with transitional provisions) |
93,826 | 48,378 | 5,456 | 4,429 | – | 152,089 |
1 Prior-year figures adjusted due to restatements (see Note 3).
Credit-risk-weighted assets are shown for the geographical segments rather than non-current assets. In accordance with IFRS 8.32 Commerzbank has decided not to provide a breakdown of the Commerzbank Group's total profits by products and services. We decided not to collect this data for efficiency reasons, as it is used neither for internal management activities nor for management reporting.
38 Statement of comprehensive Income
43 Balance sheet 44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
Other notes
(40) Regulatory capital requirements
The overview below of the composition of the Commerzbank Group's capital shows the figures on a basis with transitional provisions (currently used) and a fully loaded basis. The reconciliation of equity reported in the balance sheet with regulatory capital is already integrated in these figures.
| Position €m | 30.6.2020 | 31.12.2019 | 30.6.2020 | 31.12.2019 |
|---|---|---|---|---|
| with transitional provisions |
with transitional provisions |
fully loaded | fully loaded | |
| Equity as shown in balance sheet | 31,758 | 30,667 | 31,758 | 30,667 |
| of which: additional equity components1 | 2,126 | 885 | 2,126 | 885 |
| Equity as shown in balance sheet without additional equity components |
29,632 | 29,782 | 29,632 | 29,782 |
| Fair value gains and losses arising from the institution's own credit risk related to derivative liabilities |
– 110 | – 79 | – 110 | – 79 |
| Cumulative gains and losses due to changes in own credit risk on fair valued liabilities |
– 76 | 13 | – 76 | 13 |
| Correction to non-controlling interests (minorities) |
– 510 | – 557 | – 510 | – 557 |
| Goodwill | – 1,521 | – 1,522 | – 1,521 | – 1,522 |
| Intangible assets | – 1,115 | – 1,174 | – 1,115 | – 1,174 |
| Surplus in plan assets | – 57 | – 73 | – 57 | – 73 |
| Deferred tax assets from loss carryforwards | – 403 | – 533 | – 403 | – 533 |
| Shortfall due to expected loss | – 63 | – 270 | – 63 | – 270 |
| Prudential valuation | – 226 | – 185 | – 226 | – 185 |
| First loss positions from securitisations | – 70 | – 171 | – 70 | – 171 |
| Deferred tax assets from temporary differences which exceed the 10% threshold |
– 196 | – 382 | – 196 | – 382 |
| Unrecognised gains | – 17 | – 218 | – 17 | – 218 |
| Others and rounding | – 204 | – 265 | – 204 | – 265 |
| Common Equity Tier 1 capital2 | 25,064 | 24,366 | 25,064 | 24,366 |
| Additional Tier 1 capital3 | 2,688 | 1,649 | 2,236 | 977 |
| Tier 1 capital | 27,752 | 26,015 | 27,300 | 25,343 |
| Tier 2 capital | 5,188 | 4,583 | 5,036 | 4,491 |
| Own Funds | 32,940 | 30,598 | 32,336 | 29,834 |
| Risk-weighted assets | 187,051 | 181,765 | 187,051 | 181,765 |
| of which: credit risk | 157,486 | 151,903 | 157,486 | 151,903 |
| of which: market risk3 | 11,510 | 11,134 | 11,510 | 11,134 |
| of which: operational risk | 18,056 | 18,728 | 18,056 | 18,728 |
| Common Equity Tier 1 capital ratio (%) | 13.4% | 13.4% | 13.4% | 13.4% |
| Tier 1 capital ratio (%) | 14.8% | 14.3% | 14.6% | 13.9% |
| Total capital ratio (%) | 17.6% | 16.8% | 17.3% | 16.4% |
1 AT1 issue which is equity as shown in balance sheet and which is taken into account as Additional Tier 1 capital according to CRR.
2 This information includes the consolidated profit attributable to Commerzbank shareholders for regulatory purposes.
3 Includes credit valuation adjustment risk.
4 According to Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013.
The table reconciles reported equity to Common Equity Tier 1 (CET1) and the other components of core capital and regulatory capital. The main changes in Common Equity Tier 1 capital compared with 31 December 2019 resulted from the loss in the first half of the year. However, this was more than offset by lower regulatory deduction items and the fact that, in line with the ECB's recommendation, no dividend payment was included for 2019 and 2020. The higher Tier 1 capital compared with the end of the year was due to the increase in Common Equity Tier 1 capital and the rise in additional Tier 1 capital resulting from the issue of an AT1 capital instrument (nominal volume of €1.250m) in June 2020. To-
(41) Leverage ratio
The CRD IV/CRR has introduced the leverage ratio as a tool and indicator for quantifying the risk of excessive leverage. The leverage ratio shows the ratio of Tier 1 capital to leverage ratio exposure, consisting of the non risk-weighted assets plus off-balance sheet positions. The way in which exposure to derivatives, securities financing transactions and off-balance sheet positions is calculated is laid down by regulators. As a non risk-sensitive figure the leverage ratio is intended to supplement risk-based measures of capital adequacy.
Avoiding the risk of excessive leverage is an integral part of Commerzbank's management of its balance sheet. Commerzbank has set up a quantitative and qualitative framework to calculate, monitor and manage the leverage ratio.
Group Finance is responsible for quantifying the leverage ratio on the basis of regulatory requirements and provides regulators with quarterly reports.
Commerzbank has set an internal target for the leverage ratio which supplements the targets for the risk-based capital ratios.
tal capital was higher due to the above-mentioned increase in Tier 1 capital and to the issue of a Tier 2 capital instrument (nominal volume of €750m) in May 2020. The increase in both the Tier 1 ratio and the total capital ratio was weakened primarily by the rise in risk-weighted assets.
The rise in risk-weighted assets was mainly due to higher riskweighted assets from credit risks in connection with the switch to the new securitisation framework and to the increase in lending in the core segments, particularly to corporate clients. This was underscored by an increase in exposure towards central governments.
Developments in the segment-specific leverage ratio exposures relative to guidelines are monitored monthly. Group Finance reports regularly to the Central Asset Liability Committee (ALCO) and the Board of Managing Directors on the Group's leverage ratio.
The future development of the leverage ratio exposure and the leverage ratio continues to be forecast in the Bank's internal multiyear planning process. They are also reviewed regularly between the annual review dates in the forecasting for the current year.
Furthermore, Group Finance monitors anticipated changes in regulatory requirements and performs impact analyses of such changes on the leverage ratio. The development of the leverage ratio is also analysed under adverse macroeconomic scenarios as part of the recovery planning process.
Key decisions on management and monitoring of the leverage ratio are taken by ALCO, subject to confirmation by the Board of Managing Directors.
.
38 Statement of comprehensive Income 43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
| Summary reconciliation of accounting assets and leverage ratio exposures | Applicable amounts |
|---|---|
| €m | 30.6.2020 |
| Total assets as per published group financial statements | 550,628 |
| Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation |
– 35 |
| (Adjustment for fiduciary assets recognised on the balance sheet pursuant to the applicable accounting framework but excluded from the leverage ratio total exposure measure in accordance with Article 429(13) of Regulation (EU) No. 575/2013) |
– |
| Adjustments for derivative financial instruments | – 41,904 |
| Adjustment for securities financing transactions (SFTs) | 4,377 |
| Adjustment for off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet exposures) |
53,506 |
| (Adjustment for intragroup exposures excluded from the leverage ratio total exposure measure in accordance with Article 429 (7) of Regulation (EU) No. 575/2013) |
– |
| (Adjustment for exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (14) of Regulation (EU) No. 575/2013) |
– |
| Other adjustments | |
| With transitional provisions | 12,569 |
| Fully loaded | 12,569 |
| Leverage ratio total exposure measure | |
| With transitional provisions | 579,142 |
| Fully loaded | 579,142 |
| Leverage ratio common disclosure | CRR leverage ratio exposures |
|---|---|
| €m | 30.6.2020 |
| On-balance sheet exposures (excluding derivatives and SFTs) | |
| On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but including collateral) | 476,122 |
| (Asset amounts deducted in determining Tier 1 capital) | |
| With transitional provisions | – 3,478 |
| Fully loaded | – 3,478 |
| Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary assets) | |
| With transitional provisions | 472,644 |
| Fully loaded | 472,644 |
| Derivative exposures | |
| Replacement cost associated with all derivatives transactions (i.e. net of eligible cash variation margin) | 6,593 |
| Add-on amounts for PFE associated with all derivatives transactions (mark-to-market method) | 25,393 |
| Exposure determined under Original Exposure Method | – |
| Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the applicable accounting framework |
– |
| (Deductions of receivables assets for cash variation margin provided in derivatives transactions) | – 19,786 |
| (Exempted CCP leg of client-cleared trade exposures) | – 3,553 |
| Adjusted effective notional amount of written credit derivatives | 10,380 |
| (Adjusted effective notional offsets and add-on deductions for written credit derivatives) | – 8,864 |
| Total derivative exposures | 10,164 |
38 Statement of comprehensive Income 43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
| Leverage ratio common disclosure (continuation) | CRR leverage ratio exposures |
|---|---|
| €m | 30.6.2020 |
| Securities financing transaction (SFTs) exposures | |
| Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions | 60,663 |
| (Netted amounts of cash payables and cash receivables of gross SFT assets) | – 22,211 |
| Counterparty credit risk exposure for SFT assets | 4,377 |
| Derogation for SFTs: Counterparty credit risk exposure in accordance with Articles 429b (4) and 222 of Regulation (EU) No. 575/2013 |
– |
| Agent transaction exposures | – |
| (Exempted CCP leg of client-cleared SFT exposure) | – |
| Total securities financing transaction exposures (SFTs) | 42,829 |
| Other off-balance sheet exposures | |
| Off-balance sheet exposures at gross notional amount | 181,046 |
| (Adjustments for conversion to credit equivalent amounts) | – 127,540 |
| Total other off-balance sheet exposures | 53,506 |
| (Exempted exposures in accordance with Article 429 (7) and (14) of Regulation (EU) No 575/2013 (on- and off-balance sheet)) |
|
| (Intragroup exposures (solo basis) exempted in accordance with Article 429 (7) of Regulation (EU) No. 575/2013 (on- and off-balance sheet)) |
– |
| (Exposures exempted in accordance with Article 429 (14) of Regulation (EU) No. 575/2013 (on- and off-balance sheet)) |
– |
| Capital and total exposure measure | |
| Tier 1 capital | |
| With transitional provisions | 27,752 |
| Fully loaded | 27,300 |
| Leverage ratio total exposure measure | |
| With transitional provisions | 579,142 |
| Fully loaded | 579,142 |
| Leverage ratio | |
| With transitional provisions (%) | 4.8 |
| Fully loaded (%) | 4.7 |
| Choice on transitional (phase-in) arrangements and amount of derecognised fiduciary items | |
| Choice on transitional (phase-in) arrangements for the definition of the capital measure | |
| With transitional provisions | – |
| Fully loaded | – |
| Amount of derecognised fiduciary items in accordance with Article 429 (13) of Regulation (EU) No. 575/2013 | – |
| Split-up of on-balance sheet exposures (excluding derivatives, SFTs and exempted exposures) | CRR leverage ratio exposures |
|---|---|
| €m | 30.6.2020 |
| Total on-balance sheet exposures (excluding derivatives, SFTs and exempted exposures), of which: | 476,122 |
| Trading book exposures | 31,046 |
| Banking book exposures, of which: | 445,075 |
| Covered bonds | 7,682 |
| Exposures treated as sovereigns | 128,797 |
| Exposures to regional governments, MDBs, international organisations and PSE not treated as sovereigns | 10,119 |
| Institutions | 20,527 |
| Secured by mortgages of immovable properties | 72,763 |
| Retail exposures | 54,837 |
| Corporate | 97,525 |
| Exposures in default | 2,012 |
| Other exposures (e.g. equity, securitisations and other non-credit obligation assets) | 50,812 |
The leverage ratio based on the CRR with transitional provisions was 4,8% as at 30 June 2020 (31 March 2020: 4,8%). The leverage ratio fully loaded stood at 4,7%, compared with 4,7% as at 31 March 2020.
Both leverage ratio fully loaded and leverage ratio with transitional provisions were stable due to increased Tier 1 capital mainly due to a new AT1 bond (notional €1.25 bn) issued in June, nearly completely offset by increased leverage ratio exposure. As at the reporting date, the leverage ratio exposure was €579,1bn; as at 31 March 2020 it was €539,2bn.
Leverage ratio exposure with transitional provisions and leverage ratio exposure fully loaded have been identical since 2018 due to the expiry of the transition period for the leverage ratio exposure relevant capital deductions. However, transitional rules still apply to the numerator of the leverage ratio, i.e. the Tier 1 capital. Therefore, a ratio with transitional provisions is still to be declared.
38 Statement of comprehensive Income
43 Balance sheet 44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
(42) Liquidity coverage ratio
The liquidity coverage ratio (LCR) is the regulatory minimum liquidity ratio. It is a measure of the near-term solvency of the Bank under a predetermined stress scenario. Based on the requirements of the Basel Committee, the EU Commission set out the legal foundation for the LCR in the Capital Requirements Regulation (CRR) and in Regulation (EU) No. 575/2013, in conjunction with Delegated Regulation EU/2015/61 (D-REG).
The ratio itself is defined as the relationship between high quality liquid assets (HQLA) and net liquidity outflows (NLOs) within a 30-day period. Under the CRR, a minimum value of 100% must be observed for the LCR since 2018. Commerzbank has integrated the LCR into its internal liquidity risk model as a binding secondary condition, and the change in the LCR is monitored regularly.
The Bank has established internal early warning indicators for the purpose of managing liquidity risk. These ensure that appropriate steps can be taken in good time to secure long-term financial solidity. Risk concentrations can lead to increased outflows of liquidity, particularly in a stress situation. They can, for example, occur with regard to maturities, large individual creditors or currencies. By means of ongoing monitoring and reporting, emerging risk concentrations in funding can be recognised in a timely manner and mitigated through suitable measures. This also applies to payment obligations in foreign currencies. The Bank also mitigates concentrations through the continuous use of the broadly diversified sources of funding available to it, particularly in the form of diverse customer deposits and capital market instruments.
Commerzbank manages its global liquidity centrally using cash pooling. This approach ensures liquidity resources are used efficiently across all time zones, as Commerzbank Treasury units are located in Frankfurt, London, New York and Singapore.
For further information about liquidity risk management and the corresponding internal models, including those relating to the coronavirus pandemic, can be found in the management report and in the liquidity risk section of the risk report.
The calculation of the LCR for the last four quarters is shown below. The averages of the 12 previous month-end values are calculated for each quarter. The resulting values are shown in the table below. The values are rounded to a full-million amount in euros and are presented on a consolidated basis for the Commerzbank Group.
| Total unweighted value (average) | |||||
|---|---|---|---|---|---|
| €m | 30.9.2019 | 31.12.2019 | 31.3.2020 | 30.6.2020 | |
| Number of data points used in the calculation of averages | 12 | 12 | 12 | 12 | |
| High-quality liquid assets | |||||
| 1 | Total high-quality liquid assets (HQLA) | ||||
| Cash outflows | |||||
| 2 | Retail deposits and deposits from small business customers, of which: |
124,862 | 128,364 | 131,572 | 137,112 |
| 3 | Stable deposits | 85,126 | 87,611 | 90,429 | 94,182 |
| 4 | Less stable deposits | 39,736 | 40,753 | 41,143 | 41,084 |
| 5 | Unsecured wholesale funding | 106,800 | 107,793 | 109,098 | 111,440 |
| 6 | Operational deposits (all counterparties) and deposits in networks of cooperative banks |
35,377 | 36,132 | 36,808 | 37,432 |
| 7 | Non-operational deposits (all counterparties) | 70,120 | 70,487 | 71,423 | 73,346 |
| 8 | Unsecured debt | 1,303 | 1,174 | 867 | 662 |
| 9 | Secured wholesale funding | ||||
| 10 | Additional requirements | 85,033 | 85,115 | 85,161 | 85,115 |
| 11 | Outflows related to derivative exposures and other collateral requirements |
7,716 | 7,158 | 7,273 | 7,434 |
| 12 | Outflows related to loss of funding on debt products | 421 | 416 | 394 | 261 |
| 13 | Credit and liquidity facilities | 76,896 | 77,541 | 77,495 | 77,420 |
| 14 | Other contractual funding obligations | 4,233 | 4,036 | 3,827 | 3,662 |
| 15 | Other contingent funding obligations | 106,847 | 105,908 | 104,396 | 103,423 |
| 16 | Total cash outflows | ||||
| Cash inflows | |||||
| 17 | Secured lending (e.g. reverse repos) | 66,572 | 66,964 | 64,569 | 61,484 |
| 18 | Inflows from fully performing exposures | 25,056 | 25,231 | 25,201 | 25,091 |
| 19 | Other cash inflows | 6,860 | 6,724 | 7,027 | 7,248 |
| EU– 19a | (Difference between total weighted inflows and total weighted outflows arising from transactions in third countries where there are transfer restrictions or which are denominated in non convertible currencies.) |
||||
| EU– 19b (Excess inflows from a related specialised credit institution) | |||||
| 20 | Total cash inflows | 98,488 | 98,919 | 96,797 | 93,823 |
| EU– 20a Fully exempt inflows | 0 | 0 | 0 | 0 | |
| EU– 20b Inflows subject to 90% cap | 0 | 0 | 0 | 0 | |
| EU– 20c Inflows subject to 75% cap | 91,939 | 92,227 | 90,095 | 87,846 | |
| 21 | Liquidity buffer | ||||
| 22 | Total net cash outflows | ||||
| 23 | Liquidity coverage ratio |
38 Statement of comprehensive Income
43 Balance sheet
44 Statement of changes in equity
46 Cashflow statement 47 Selected Notes
| €m 30.9.2019 31.12.2019 31.3.2020 30.6.2020 Number of data points used in the calculation of averages 12 12 12 12 High-quality liquid assets 1 Total high-quality liquid assets (HQLA) 86,557 85,942 84,993 86,482 Cash outflows Retail deposits and deposits from small business customers, of 2 which: 8,564 8,800 8,974 9,145 3 Stable deposits 4,256 4,381 4,521 4,709 4 Less stable deposits 4,307 4,419 4,452 4,436 5 Unsecured wholesale funding 53,070 53,114 53,612 54,904 Operational deposits (all counterparties) and deposits in 6 networks of cooperative banks 8,809 8,995 9,162 9,322 7 Non-operational deposits (all counterparties) 42,958 42,945 43,583 44,920 8 Unsecured debt 1,303 1,174 867 662 9 Secured wholesale funding 5,807 5,936 6,162 6,777 10 Additional requirements 22,221 21,527 21,134 20,715 Outflows related to derivative exposures and other collateral 11 requirements 7,038 6,538 6,713 6,964 12 Outflows related to loss of funding on debt products 421 416 394 261 13 Credit and liquidity facilities 14,763 14,572 14,026 13,490 14 Other contractual funding obligations 3,272 3,054 2,856 2,740 15 Other contingent funding obligations 2,196 3,286 4,254 4,694 16 Total cash outflows 95,130 95,716 96,990 97,984 Cash inflows 17 Secured lending (e.g. reverse repos) 6,635 6,528 6,710 6,145 18 Inflows from fully performing exposures 17,775 17,845 17,952 17,793 19 Other cash inflows 6,599 6,489 6,768 6,989 (Difference between total weighted inflows and total weighted outflows arising from transactions in third countries where |
|---|
| there are transfer restrictions or which are denominated in non |
| EU– 19a convertible currencies.) 0 0 0 0 |
| EU– 19b (Excess inflows from a related specialised credit institution) 0 0 0 0 |
| 20 Total cash inflows 31,009 30,863 31,430 30,928 |
| EU– 20a Fully exempt inflows 0 0 0 0 |
| EU– 20b Inflows subject to 90% cap 0 0 0 0 |
| EU– 20c Inflows subject to 75% cap 31,009 30,863 31,430 30,928 |
| 21 Liquidity buffer 86,557 85,942 84,993 86,482 |
| 22 Total net cash outflows 64,121 64,853 65,560 68,047 |
| 23 Liquidity coverage ratio 135.20% 132.72% 129.94% 127.27% |
The average quarterly LCR values have been high. As at each of the reporting dates, Commerzbank considerably surpassed the required minimum ratio of 100% for 2018. The composition of the highly liquid assets available to cover the liquidity outflows in the reporting period is set out below:
| Highly liquid assets in accordance with EU/2015/61 (average of the last 12 month-end values) €m |
Q3/2019 | Q4/2019 | Q1/2020 | Q2/2020 |
|---|---|---|---|---|
| Total: | 86,557 | 85,942 | 84,993 | 86,482 |
| thereof Level 1 | 77,440 | 76,271 | 73,594 | 72,979 |
| thereof Level 2A | 7,746 | 8,269 | 10,113 | 12,597 |
| thereof Level 2B | 1,372 | 1,402 | 1,286 | 906 |
Commerzbank also reports the LCR in US dollars and, in June 2020 Polish zloty (PLN), as they are deemed to be a significant foreign currencies under the CRR. In addition, the Bank ensures that foreign-exchange risk is monitored as well as limited and managed using an internal model.
When calculating the LCR, the Bank takes into account the liquidity inflows and outflows for derivatives over the next 30 days. When standardised master agreements are involved, the liquidity inflows and outflows are calculated on a net basis. Commerzbank also takes into account further items that could lead to additional outflows of liquidity. These items include variation margins for changes in the value of securities pledged as collateral and a possible deterioration in credit rating, as well as additional collateral furnished because of adverse market scenarios for derivatives transactions. For other contingent liabilities, since June 2019 Commerzbank has used additional outflow weightings in accordance with Article 23 of Commission Delegated Regulation (EU) 2015/61.
(43) Related party transactions
As part of its normal business, Commerzbank Aktiengesellschaft and/or its consolidated companies engage in transactions with related entities and persons. These include:
- subsidiaries that are controlled but not consolidated for reasons of materiality;
- joint ventures;
- associated companies;
- equity holdings;
- external providers of occupational pensions for employees of Commerzbank Aktiengesellschaft;
- key management personnel and members of their families; and
- companies controlled by these persons/entities.
Banking transactions with related parties are carried out at normal market terms and conditions.
Key management personnel refers exclusively to members of Commerzbank Aktiengesellschaft's Board of Managing Directors and Supervisory Board who were active during the reporting period.
Besides the stake held by the German federal government, other factors (including membership of the supervisory board) that could potentially allow a significant influence to be exerted on Commerzbank Aktiengesellschaft also need to be taken into account. Accordingly, the German federal government and entities controlled by it are classified as related entities and persons in accordance with IAS 24.
Transactions with non-consolidated subsidiaries
The assets relating to non-consolidated subsidiaries in the amount of €358m (previous year: €410m) as at 30 June 2020 included primarily loans and advances. Liabilities in the amount of €218m (previous year: €195m) comprised mostly deposits.
The income of €8m (prior-year period: €13m) comprised interest income and expenses of €36m (prior-year period: €35m), mostly from administrative expenses.
In the course of its ordinary banking activities, the Bank granted guarantees and collateral totalling €85m (previous year: €85m).
Transactions with associated companies
The assets relating to associated companies as at 30 June 2020 in the amount of €18m (previous year: €16m) included primarily loans and advances. Liabilities in the amount of €31m (previous year: €34m) comprised mostly deposits.
The income of €7m (prior-year period: €10m) resulted primarily from commission income and current net income from companies accounted for using the equity method.
In the course of its ordinary banking activities, the Bank granted guarantees and collateral totalling €32m (previous year: €39m).
38 Statement of comprehensive Income 43 Balance sheet
- 44 Statement of changes in equity
- 46 Cashflow statement 47 Selected Notes
Transactions with other related entities/persons
The assets pertaining to other related entities/persons as at 30 June 2020 in the amount of €0m (previous year: €27m). In the previous year this included primarily loans and advances as well as debt securities. Liabilities in the amount of €209m (previous year: €209m) comprised mostly deposits. The deposits were mostly attributable to external providers of occupational pensions.
As at 30 June 2020, income was €0m (prior-year period: €1m), the expenses amounted to €4m (previous year €4m).
No guarantees and collateral were granted in the ordinary banking activities (previous year :€0m).
Transactions with key management personnel
As at 30 June 2020, there were no significant assets or liabili-ties relating to key management personnel.
The expenses represent personnel expenses in the amount of €8m (prior-year period: €7m) and include remuneration for key management personnel, salaries of the employee representatives on the Supervisory Board who are employed by the Commerzbank Group and value added tax reimbursed to members of the Supervisory Board.
Transactions with entities controlled by the German federal government
The assets relating to entities controlled by the German federal government as at 30 June 2020 in the amount of €45,830m (previous year: €20,535m) comprised primarily deposits with Deutsche Bundesbank totalling €41,129m (previous year: €17,770m). Of the liabilities related to entities controlled by the German federal government in the amount of €13,946m (previous year: €12,260m), €13,938m were deposits (previous year: €12,247m). As at 30 June 2020, the Bank had granted guarantees and collateral totalling €214m to entities controlled by the German federal government (previous year: €260m).
Boards of Commerzbank Aktiengesellschaft
Supervisory Board
| Dr. Stefan Schmittmann | Dr. Jutta A. Dönges | Anja Mikus |
|---|---|---|
| Chairman (until 3.8.2020) |
(since 13.5.2020) | (until 13.5.2020) |
| Uwe Tschäge1 | Monika Fink1 | Dr. Victoria Ossadnik |
| Deputy Chairman | Robin J. Stalker | |
| Heike Anscheit1 | Dr. Tobias Guldimann | |
| Dr. Rainer Hillebrand | Nicholas Teller | |
| Alexander Boursanoff1 | Dr. Gertrude Tumpel-Gugerell | |
| Gunnar de Buhr1 | Christian Höhn1 | |
| Stefan Burghardt1 | Kerstin Jerchel1 | Stefan Wittmann1 |
| Dr. Frank Czichowski (since 13.5.2020) |
Dr. Markus Kerber (until 13.5.2020) |
|
| Sabine U. Dietrich | Alexandra Krieger1 | Klaus-Peter Müller |
1 Elected by the Bank's employees.
Board of Managing Directors
| Martin Zielke | |
|---|---|
| Chairman | |
| Stephan Engels | |
| (until 31.3.2020) | |
| Dr. Bettina Orlopp |
Roland Boekhout (since 1.1.2020)
Jörg Hessenmüller)
Sabine Schmittroth (since 1.1.2020)
Dr. Marcus Chromik
Honorary Chairman
Michael Mandel
- 38 Statement of comprehensive Income 43 Balance sheet
- 44 Statement of changes in equity
- 46 Cashflow statement 47 Selected Notes
To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, we confirm that the consolidated interim Group financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Group, and that the interim Group management report provides a true and fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group for the rest of the financial year.
Frankfurt/Main, 3 August 2020 The Board of Managing Directors
Jörg Hessenmüller Michael Mandel Bettina Orlopp
Sabine Schmittroth
Martin Zielke Roland Boekhout Marcus Chromik
Translation from the German language of the review report
To COMMERZBANK Aktiengesellschaft, Frankfurt am Main
We have reviewed the interim condensed consolidated financial statements, which comprise the statement of comprehensive income, balance sheet, statement of changes in equity, condensed cash flow statement and selected explanatory notes, and the interim group management report of COMMERZBANK Aktiengesellschaft, Frankfurt am Main, for the period from 1 January to 30 June 2020, which are part of the half-year financial report pursuant to Sec. 115 WpHG ["Wertpapierhandelsgesetz": German Securities Trading Act]. The executive directors are responsible for the preparation of the interim condensed consolidated financial statements in accordance with IFRSs on interim financial reporting as adopted by the EU and of the interim group management report in accordance with the requirements of the WpHG applicable to interim group management reports. Our responsibility is to issue a report on the interim condensed consolidated financial statements and the interim group management report based on our review.
We conducted our review of the interim condensed consolidated financial statements and of the interim group management report in compliance with German Generally Accepted Standards for the Review of Financial Statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW) and in supplementary compliance with the International Standard on Review Engagements "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" (ISRE 2410). Those standards require that we plan and perform the review to obtain a certain level of assurance in our critical appraisal to preclude that the interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IFRSs on interim financial reporting as adopted by the EU and that the interim group management report is not prepared, in all material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. A review is limited primarily to making inquiries of the Company's employees and analytical assessments, and therefore does not provide the assurance obtainable from an audit of financial statements. Since, in accordance with our engagement, we have not performed an audit of financial statements, we cannot issue an auditor's report.
Based on our review, nothing has come to our attention that causes us to believe that the interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IFRSs on interim financial reporting as adopted by the EU or that the interim group management report is not prepared, in all material respects, in ac-cordance with the provisions of the WpHG applicable to interim group management reports.
Eschborn/Frankfurt am Main, 4 August 2020
Ernst&Young GmbH Wirtschaftsprüfungsgesellschaft
Claus-Peter Wagner Marcus Binder Wirtschaftsprüfer Wirtschaftsprüfer
(German Public Auditor) (German Public Auditor)
Significant Group companies
| Germany |
|---|
| comdirect bank AG, Quickborn |
Commerz Real AG, Wiesbaden
Abroad
Commerzbank Brasil S.A. – Banco Múltiplo, São Paulo Commerzbank (Eurasija) AO, Moscow Commerzbank Finance & Covered Bond S.A., Luxembourg Commerzbank Zrt., Budapest Commerz Markets LLC, New York mBank S.A., Warsaw
Operative foreign branches
Amsterdam, Barcelona, Bratislava, Beijing, Brno (office), Brussels, Dubai, Hong Kong, London, Luxembourg, Madrid, Milan, New York, Paris, Prague, Shanghai, Singapore, Tokyo, Vienna, Zurich
Representative Offices and Financial Institutions Desks
Abidjan, Addis Ababa, Almaty, Ashgabat, Baghdad, Baku, Bangkok, Beijing (FI Desk), Beirut, Belgrade, Brussels (Liaison Office to the European Union), Buenos Aires, Cairo, Caracas, Dhaka, Dubai (FI Desk), Ho Chi Minh City, Hong Kong (FI Desk), Istanbul, Jakarta, Johannesburg, Kiev, Kuala Lumpur, Lagos, Luanda, Melbourne, Milan (FI Desk), Minsk, Moscow (FI-Desk), Mumbai, New York (FI Desk), Panama City, São Paulo (FI Desk), Seoul, Shanghai (FI Desk), Singapore (FI Desk), Taipei, Tashkent, Tblisi, Tokyo (FI Desk), Zagreb
The German version of this Interim Report is the authoritative version.
Disclaimer
Reservation regarding forward-looking statements
This interim report 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.
| 2020/2021 Financial calendar | |
|---|---|
| 5 November 2020 | Interim Report as at 30 September 2020 |
| 11 February 2021 | Annual Results Press Conference |
| End March 2021 | Annual Report 2020 |
| 5 May 2021 | Annual General Meeting |
| 12 May 2021 | Interim Report as at 31 March 2021 |
| 4 August 2021 | Interim Report as at 30 June 2021 |
| 4 November 2021 | Interim Report as at 30 September 2021 |
Commerzbank AG
Head Office Kaiserplatz Frankfurt am Main www.commerzbank.com
Postal address 60261 Frankfurt am Main Tel. + 49 69 136-20 [email protected]
Investor Relations Tel. + 49 69 136-21331 Fax + 49 69 136-29492 [email protected]