1. Credit risk
Risk management
Credit risk is defined as potential losses arising from a customer default or downgraded credit rating.We distinguish here between the risk categories of loan default risk, counterparty risk, issuer risk and country risk.
Loan default risk
- Loan default risk is defined as the potential losses arising from commercial lending operations. It is taken into account by recognising allowances for losses on loans and advances in the balance sheet whenever specific indicators of a default have arisen in the past (incurred loss). The abstract expectation that customers could default in the future (the concept of expected loss and credit value-at-risk) must be seen separately from this.
Counterparty risk
- Counterparty risk is defined as the potential losses arising from the default or deterioration of credit ratings of counterparties with whom we have engaged in OTC derivatives transactions involving interest rates, foreign currencies, equities/indexes, or other futures or derivative transactions. It can be broken down into settlement risk, replacement risk and cash risk. For the Bank there is a settlement risk whenever payments are exchanged and, when processing the transaction, we make advance payments without being certain at the time of the payment that the counterparty will make the corresponding payment. The replacement risk is defined as the risk that the Bank must replace a transaction at less favourable market conditions following a default by the counterparty. The cash risk consists of the risk that the counterparty will not repay loans (taken out in cash). In the case of treasury products, cash risk is relevant in money trading.
Issuer risk
- Issuer risk reflects the risk from an issuer’s default or downgraded credit rating. It arises in connection with the purchase of securities for own account, securities issuance and placement transactions, and credit derivatives.
Country risk
- Country risk is defined as potential losses arising from transfer/ conversion restrictions, bans, or other sovereign measures imposed by the borrower’s country (transfer risk). Country risk arises in cross-border transactions in foreign currencies. The credit risk of central governments and central banks is also taken into account (sovereign risk). This includes all positions from lending and trading activities, including internal transactions within HVB Group and the issuer risk associated with tradable fixed-interest securities.
Credit risk is managed on the basis of an integrated concept of clearly defined policies, approval authority structures and risk assessment processes.
With reference to credit risk, all HVB Group units that are involved in credit business must take organisational steps to segregate business origination functions (“front office”) and credit risk management functions (“back office”) at all levels by way of fully independent reporting lines. The back-office functions are pooled under the Chief Risk Officer. In addition, centrally positioned senior risk managers are involved in the decision-making process in all divisions for exposures in excess of a certain amount. They bear risk responsibility for their assigned portfolios and manage the sectors in accordance with the portfolio strategies adopted by the Strategic Credit Committee.
The credit equivalents (exposure values) of a given treasury transaction serve as a basis for the credit decision within the framework of the credit process, and are examined in conjunction with the exposure values from commercial lending operations. This applies both to individual credit decisions and to the management of concentration risk in HVB Group.
Country risk is managed on the basis of value-at-risk and volumes. For this purpose, a HVB Group-wide strategy is established annually and compared over the course of the year with the actual situation.
Measurement methods
Loan default risk
We use differentiated risk measurement instruments to assess our
loan default risk:
Rating analysis
- It is vitally important for us to reliably assess the default probabilities
of our customers in the interest of credit decisions, pricing, future
regulatory capital coverage under Basel II (under the IRB approach),
and for our internal credit risk model. For this reason we place
particular emphasis on the ongoing development and fine-tuning of
our internal creditworthiness analysis instruments.
HVB Group has a wide range of rating and scoring processes tailored to the needs of the various customer groups.We continually optimise these systems, applying modern statistical processes, in order to ensure the best possible selectivity and forecasting accuracy with regard to the default probability of a customer.
The result of a rating or scoring process is the classification in a rating class with a ten-point scale. Rating classes 1–7 are set aside for performing loans and classes 8–10 for non-performing loans. For some processes, finer distinctions are made by subdividing each rating class into three subclasses (notches).
The rating and scoring processes are subject to continual monitoring. They are validated at regular intervals and recalibrated or fundamentally revised as required. A key aspect of this work in 2006 was in further development for private and business customers.
Internal credit risk model
- To measure credit risk, we employ an internal credit risk model to quantify and assess our loan default and counterparty risks in HVB Group. The advantage of this internally devised model is that its methodology and parameters perfectly match our portfolio and that it can be updated at any time to take account of new knowledge. Country risk is also assessed using a portfolio model.
Expected loss
- For purposes of credit risk measurement, we distinguish between
the expected loss and the unexpected loss (expressed as credit
value-at-risk). The expected loss reflects the default losses
expected from the current loan portfolio over the next twelve
months, taking into account the assigned ratings and the collateral
on hand.
To calculate the expected loss, the exposure at default is calculated as stipulated by Basel II. For loan default risk and country risk, this amount is equal to the line utilisation at the reporting date plus portions of the unused, externally committed credit lines. The calculation takes into account differences in the risk inherent in various credit types.
A credit equivalent is computed as a calculation basis for OTC derivatives (counterparty risk): the so-called expected exposure. The credit equivalent is equal to the current fair value of a transaction increased by the amount of the so-called add-on, a premium for potential future market movements. The counterparty exposure calculated in this way takes into account both risk-reducing netting agreements and dynamic collateral contracts that oblige the counterparty to provide collateral on a daily basis to match the fair value of current transactions.
The parameters assumed for measuring the exposure at default and the loss given default are based on long-term statistical averages derived from internal defaults and losses, and from external reference parameters.
Credit value-at-risk
- The credit value-at-risk (unexpected loss) provides information about the maximum negative deviation of the possible loss from the expected loss (99.95% probability) within one year. This potential loss is backed by economic capital as a safety cushion, taking portfolio effects into account.
Scenario analysis
- The credit value-at-risk is calculated under the assumption of normal conditions. Scenario analysis helps us to simulate the effects of future macroeconomic trends or exogenous shocks and quantify their impact on the potential losses in the credit portfolio of HVB Group. The analysis includes multi-year forecasts of interest rate trends, economic growth and unemployment, but also such events as extreme changes in the price of oil or political crises. The results of these scenario evaluations are used to manage and limit loan default and country risk.
Risk-based and market-oriented pricing
- To optimise the loan portfolio and hence enhance the profitability of our lending business, we apply a pricing methodology with an orientation towards the risk-reward ratio. The credit margin takes into account the internal rating, collateral coverage, loss ratios, internal costs, maturity, existing country risks and the contribution of the loan to the diversification of the HVB portfolio. This methodology ensures coverage of the processing and risk costs while reducing to a minimum any future price changes resulting from Basel II. To ensure consistency with capital markets, we carry out regular benchmarking of our lending margins against market prices.
Implementation of Basel II
- A core element of the new Basel Capital Accord in the area of loan
default risk is a stronger differentiation of risk for regulatory capital
requirements for loan default risk according to customers’ rating
classes and the collateral structure of the transactions. This applies
in particular to the most sophisticated approach, the so-called IRB
Advanced Approach, which our Bank intends to implement as of
2008. The related implications from Basel II are moving the regulatory
viewpoint towards the economic viewpoint of risk-adjusted
management, which is already established as an approach within
our Bank through our internal instruments.
In the context of Pillar 1, we continually improved the methods for risk assessment through the use of scoring and rating processes, adjusting and streamlining the internal processes accordingly. In the area of validation and calibration, we have extended the rating processes already implemented for rating procedures to the estimation of loss quotas and the size of exposures. This process utilises information both from the Bank’s own experience in liquidation of collateral and externally available benchmarks.We already assess our collateral on the basis of recovery rates.We regard the usage of these processes as Basel II-compliant. In the year under review we also finalised the so-called Basel II calculation engine and adapted it to the requirements of the German Solvency Ordinance (SolvV).
With regard to the requirements of Pillar 2 and Pillar 3 under the Basel II regulations and the EU Directive, the departments concerned have carried out a comprehensive in-house audit. The requirements of Pillar 2 were met through the on-schedule implementation within our Bank of the Minimum Requirements for Risk Management of the German banking supervision authorities. These include the treatment of concentration risk, stress-testing (of individual risk types and overall bank risk) and the determination of the ability to cover risk.
Through the participation of our Bank in the Quantitative Impact Study QIS 5.0 we have already had the opportunity to use the operational risk systems and the Basel II calculation engine.
Measuring country risk
- At HVB Group, we measure country risk mainly by using short-term
and medium-term country ratings. The country ratings consist of
two components: empirically calibrated statistical models permit
the determination of default probabilities and loss quotas on the
basis of macroeconomic factors. Moreover, the assessment of
political considerations and other soft facts is a crucial factor for
the final rating of states as assigned by HVB Group’s independent
Economic Research department. Along with the probability of
default and the loss ratio, the measurement of country risk takes
the structure of transactions into account.
A portfolio model building on this information is used to calculate the value-at-risk stemming from country risks for HVB Group every month. Due to the small number of countries, country portfolios tend by their nature to be rather undiversified. For this reason an accurate reflection of the portfolio and diversification effects among countries, regions and loan default risks (exceeding the Basel II standards) is an integral part of our portfolio management. The use of an internal portfolio model thus enables us even today to achieve important management effects anticipated as the Basel II requirements go into effect.
Risk monitoring
Risk monitoring takes place at two different levels:
– at the level of individual exposures,
– at the portfolio level.
Individual exposures are monitored in both lending and trading operations with the aid of classical monitoring systems such as rating analysis and early warning systems. Individual exposure limits serve to limit the risks assumed.
At HVB Group level, loan default risk concentrations with subsidiaries are limited by credit ratings together with a uniform methodology for all subsidiaries. For this purpose we use a database encompassing all exposures to borrowers within HVB Group worldwide. This ensures that information is regularly provided on concentrations of loan default risk and related limits.
Counterparty risk and issuer risk
We employ limit systems as a key element of our management and
control of counterparty risk and issuer risk to prevent the unintended
and uncontrolled increase of our risk positions. These systems are
available online at all key HVB Group facilities engaged in trading
activities, except for the Bank Austria Creditanstalt Group, where
limits are monitored using separate systems. Each new trade is
immediately entered and applied to the corresponding limit within an
appropriate time frame. For counterparty risk, this applies to both
replacement risk and settlement risk. For the latter, the risk for the
future value date is limited and monitored right from the time the Bank
enters into the transaction, so that a concentration of payments on a
single value date is prevented beforehand. This enables each trader to
check current limit utilisation and lets the risk controller perform
direct limit monitoring for each counterparty or issuer.
Country risk
Country risk is managed on the basis of the measurement methods
described above with the aid of regional value-at-risk limits. Transactions
with high levels of country risk are given a higher weighting
for inclusion in regional risk limits than transactions with low levels.
In taking this approach, we are striving to limit country risk while
implementing risk-oriented portfolio management and an exposure
management based on transaction potential. In addition, country
risk management works with volume limits for each country, broken
down by product risk group.
All credit risks are also monitored at the portfolio level. Particular attention is paid to country, industry or regional concentrations and their impact on the Bank’s ability to support risk.
Another instrument for risk monitoring, particularly at the portfolio level, is internal reporting. In compliance with the Minimum Requirements for Risk Management (MaRisk), the Management Board and the Audit Committee of the Supervisory Board must receive a report on the credit portfolio on a quarterly basis. In addition, risk reports are produced with a special focus on specific divisions, products or industries.
Quantification and specification
A decrease of €34.3 billion (8.5%) in loan default and counterparty risk was recorded in the year under review. The driving forces behind this decline were the ongoing systematic reduction of the Real Estate Restructuring (RER) portfolio, the sale of BPH in Poland and a strategically targeted reduction of the lending portfolio in Germany.
The structure of the credit risk portfolio in terms of industries is essentially unchanged, despite the disposal of more than one third of the HVB Group portfolio as the decline affected all industry groups. The biggest decreases arose among retail customers, and banks and insurers. The trend in regional distribution reflects company strategy with a decrease in exposure in the Germany region. The sale of the Bank Austria Creditanstalt Group and other HVB Group companies has led to exposure in Austria and central and eastern Europen being almost completely eliminated.
Apart from an increase in the Wealth Management division, exposure declined by between 5% and 10% in all divisions.
The quality of the core portfolio remained stable. The core portfolio is defined as the HVB Group portfolio minus the exposures assigned to RER. The sale of the Bank Austria Creditanstalt Group and other HVB Group companies in central and eastern Europe affected all rating classes to the same extent, resulting in a sharp decline in each such class. Exposure in rating classes 9 and 10 declined by almost half.
The risk contribution from the divisions has changed, as reflected in the distributions of expected loss and value-at-risk. Both expected loss and value-at-risk decreased in the Retail division. The risk share of Markets & Investment Banking rose to make up almost half of the total value-at-risk in the activities remaining with HVB Group, on account of the large volumes involved. The share of risk from Corporates & Commercial Real Estate Financing declined slightly, whereas in Wealth Management, it remained stable at a low level.
Loan-loss provisions
Our total loan-loss provisions, including allowances for losses on
guarantees and indemnities, declined by €3.2 billion to €6.3 billion
in 2006, taking into account write-offs taken on the lending portfolio
of €3.8 billion.
Loan default risks
We created a total loan-loss provision of €0.9 billion for loan default
risks in 2006. More detailed information can be found in the notes to
the consolidated financial statements (Notes 35 and 46) in the present
Annual Report.
| € billions | 2006 | 2005 |
|---|---|---|
| Industry sector | ||
| Retail customers | 51.1 | 81.5 |
| Banks and insurers | 42.1 | 86.2 |
| Construction | 34.6 | 59.7 |
| Food, consumer goods, services | 24.5 | 50.2 |
| Chemicals, health, pharmaceuticals | 12.1 | 13.9 |
| Utilities | 11.5 | 15.0 |
| Transportation | 10.4 | 13.4 |
| Other | 9.1 | 12.3 |
| Public sector | 8.6 | 29.5 |
| Mechanical engineering, steel | 6.2 | 10.7 |
| Electrical, IT, communications | 6.0 | 8.1 |
| Automotive | 4.9 | 8.0 |
| Media, printing, paper | 4.7 | 6.7 |
| Mineral oil | 3.9 | 6.4 |
| HVB Group new | 229.7 | |
| ADiscontinued operations and non-current assets or disposal groups held for sale | 137.6 | |
| Full HVB Group | 367.3 | 401.6 |
| € billions | 2006 | 2005 |
|---|---|---|
| Region | ||
| Germany | 158.7 | 185.7 |
| Rest of Europe | 39.2 | 53.6 |
| North America | 13.4 | 17.6 |
| Other | 10.1 | 19.2 |
| Asia | 3.1 | 3.9 |
| Japan | 2.8 | 2.7 |
| Austria | 1.2 | 79.4 |
| Central and Eastern Europe | 1.2 | 39.5 |
| HVB Group new | 229.7 | |
| Discontinued operations and non-current assets or disposal groups held for sale | 137.6 | |
| Full HVB Group | 367.3 | 401.6 |
| 2006 | 20051 | |||
|---|---|---|---|---|
| € billions | in % | € billions | in % | |
| Rating | ||||
| Free of credit risk | 7.8 | 2.1 | 13.5 | 3.5 |
| Not rated | 7.9 | 2.2 | 18.8 | 4.8 |
| Rating 1–4 | 109.8 | 30.2 | 220.5 | 56.5 |
| Rating 5–8 | 93.5 | 25.8 | 124.6 | 31.9 |
| Rating 9–10 | 6.6 | 1.8 | 12.9 | 3.3 |
| HVB Group new | 225.6 | 62.1 | ||
| Discontinued operations and non-current assets held for sale or disposal groups | 137.6 | 37.9 | ||
| Full HVB Group | 363.2 | 100.0 | 390.3 | 100.0 |
1 previous-year figures based on the 2006 divisional structure
| Expected loss | Value-at-Risk | |||
|---|---|---|---|---|
| in % | 2006 | 20051 | 2006 | 20051 |
| Division | ||||
| Retail | 13.7 | 16.0 | 7.6 | 10.7 |
| Wealth Management | 0.9 | 0.9 | 0.7 | 0.9 |
| Corporates & Commercial Real Estate Financing | 15.4 | 16.4 | 16.4 | 17.4 |
| Markets & Investment Banking | 22.1 | 15.4 | 28.3 | 19.7 |
| Other/consolidation | 16.1 | 14.9 | 8.0 | 10.1 |
| HVB Group new | 68.2 | 63.6 | 61.0 | 58.8 |
| Discontinued operations and non-current assets or disposal groups held for sale2 | 31.8 | 36.4 | 39.0 | 41.2 |
| Full HVB Group | 100.0 | 100.0 | 100.0 | 100.0 |
1 previous-year figures based on the 2006 divisional structure
2 item for 2005 includes companies disposed of in the 2006 financial year
Financial derivatives
HVB Group uses financial derivatives primarily to manage market
price risk (in particular risk arising from interest rate fluctuations and
currency fluctuations) arising from trading activities. They also serve
to provide cover for on- and off-balance-sheet items within asset/
liability management or, in the case of credit derivatives, to manage
credit risk.
At year-end 2006, the total nominal amount of worldwide derivative transactions of the full HVB Group amounted to approximately €2,713 billion.
.However, the nominal amounts do not reflect the potential risk inherent in derivative transactions, whereas the positive fair values are relevant for purposes of default risk as replacement values for the OTC derivatives. They represent the potential costs that HVB Group would incur to replace all of the original contracts with equivalent transactions in case of simultaneous default by all counterparties.
Without taking risk-reducing effects into account, the maximum counterparty risk (worst case scenario) for the full HVB Group at yearend 2006 totalled €41.5 billion (December 31, 2005: €47.5 billion).
In accordance with Principle I of the banking supervisory regulations, and taking into account the risk-reducing effects of existing, legally enforceable bilateral netting agreements and the provision of collateral provided by borrowers, credit equivalents (counterparty risk including add-on) for the full HVB Group totalled €20.1 billion (December 31, 2005: €19.5 billion) and the remaining risk after risk weighting amounted to €5.9 billion (December 31, 2005: €5.4 billion).
The tables below provide detailed information on the nominal values and fair values of the overall derivative transactions and credit derivative transactions of HVB Group.
| Nominal amount | Fair value | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Residual maturity | Total | Total | Positive | Negative | |||||
| € millions | Up to 1 year | 1 - 5 years | more than 5 years | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 |
| Interest rate derivatives | 548,351 | 521,308 | 398,182 | 1,467,841 | 1,952,534 | 19,062 | 37,310 | 20,502 | 37,668 |
| OTC products | |||||||||
| Forward Rate Agreements | 50,254 | 251 | – | 50,505 | 99,208 | 22 | 48 | 11 | 56 |
| Single-currency swaps | 366,245 | 452,540 | 343,730 | 1,162,515 | 1,541,569 | 16,927 | 34,239 | 18,213 | 34,429 |
| Interest rate options | |||||||||
| – purchased | 15,119 | 31,381 | 27,644 | 74,144 | 80,758 | 2,084 | 3,021 | – | – |
| – written | 9,293 | 28,618 | 26,808 | 64,719 | 80,719 | – | – | 2,278 | 3,177 |
| Other interest rate derivatives | 294 | 4 | – | 298 | 10,395 | 3 | 2 | – | 6 |
| Exchange-traded products | |||||||||
| Interest rate futures | 48,948 | 8,514 | – | 57,462 | 66,223 | – | – | – | – |
| Interest rate options | 58,198 | – | – | 58,198 | 73,662 | 26 | – | – | – |
| Foreign exchange derivatives | 156,295 | 75,478 | 27,496 | 259,269 | 323,298 | 3,872 | 4,542 | 3,679 | 4,949 |
| OTC products | |||||||||
| Foreign exchange forwards | 113,927 | 20,254 | 252 | 134,433 | 186,823 | 1,758 | 2,631 | 1,951 | 2,988 |
| Cross-currency swaps | 14,856 | 50,516 | 26,018 | 91,390 | 81,916 | 1,723 | 1,237 | 1,391 | 1,473 |
| Foreign exchange options | |||||||||
| – purchased | 12,454 | 2,248 | 645 | 15,347 | 29,202 | 391 | 674 | – | – |
| – written | 15,058 | 2,460 | 581 | 18,099 | 25,357 | – | – | 337 | 488 |
| Other foreign exchange derivatives | – | – | – | – | – | – | – | – | – |
| Exchange-traded products | |||||||||
| Foreign exchange futures | – | – | – | – | – | – | – | – | – |
| Foreign exchange options | – | – | – | – | – | – | – | – | – |
| Equity/index derivatives | 98,797 | 100,089 | 6,367 | 205,253 | 197,605 | 10,396 | 4,699 | 10,602 | 5,434 |
| OTC products | |||||||||
| Equity/index swaps | 14,384 | 4,521 | 495 | 19,400 | – | 484 | – | 228 | – |
| Equity/index options | |||||||||
| – purchased | 21,477 | 25,767 | 703 | 47,947 | 60,301 | 6,629 | 4,669 | – | – |
| – written | 23,294 | 41,567 | 3,110 | 67,971 | 83,009 | – | – | 6,836 | 5,359 |
| Other equity/index derivatives | 107 | 223 | – | 330 | 1,208 | 17 | 30 | – | 75 |
| Exchange-traded products | |||||||||
| Equity/index futures | 9,819 | – | – | 9,819 | 10,118 | – | – | – | – |
| Equity/index options | 29,716 | 28,011 | 2,059 | 59,786 | 42,969 | 3,266 | – | 3,538 | – |
| Credit derivatives1 | 36,148 | 142,713 | 73,207 | 252,068 | 139,688 | 2,748 | 903 | 3,231 | 1,743 |
| Other transactions | 1,348 | 1,316 | 407 | 3,071 | 2,290 | 295 | 117 | 291 | 122 |
| HVB Group new | 840,939 | 840,904 | 505,659 | 2,187,502 | 36,373 | 38,305 | |||
| Discontinued operations and non-current assets or disposal groups held for sale | 296,427 | 155,822 | 73,191 | 525,440 | 5,139 | 5,474 | |||
| Full HVB Group | 1,137,366 | 996,726 | 578,850 | 2,712,942 | 2,615,415 | 41,512 | 47,571 | 43,779 | 49,916 |
1 For details of credit derivatives, please see the tables “Credit derivatives” and “Credit derivatives by reference asset” below.
| Fair value | ||||
|---|---|---|---|---|
| Positive | Negative | |||
| € millions | 2006 | 2005 | 2006 | 2005 |
| OECD central governments (and central banks) | 141 | 337 | 133 | 286 |
| OECD banks | 24,849 | 41,072 | 26,139 | 42,805 |
| OECD financial institutions | 8,888 | 3,598 | 9,604 | 5,496 |
| Non-OECD central governments (and central banks) | 91 | 76 | 54 | – |
| Non-OECD banks | 71 | 31 | 98 | 89 |
| Non-OECD financial institutions | 188 | 51 | 140 | 59 |
| Other companies and private individuals | 2,145 | 2,406 | 2,137 | 1,181 |
| HVB Group new | 36,373 | 38,305 | ||
| Discontinued operations and non-current assets or disposal groups held for sale | 5,139 | 5,474 | ||
| Full HVB Group | 41,512 | 47,571 | 43,779 | 49,916 |
| Nominal amount | Fair value | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Residual maturity | Total | Total | Positive | Negative | |||||
| € millions | Up to 1 year | 1 - 5 years | More than 5 years | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 |
| Banking book | 462 | 2,149 | 11,688 | 14,299 | 15,003 | 485 | 235 | 798 | 804 |
| Protection buyer | |||||||||
| Credit default swaps | 323 | 979 | 7,537 | 8,839 | 10,139 | 462 | 163 | 53 | 10 |
| Total return swaps | – | – | 2,000 | 2,000 | 2,000 | – | – | 327 | 343 |
| Credit-linked notes | 45 | 65 | 515 | 625 | 261 | 2 | – | 2 | 254 |
| Other | – | – | – | – | – | – | – | – | – |
| Protection seller | |||||||||
| Credit default swaps | 49 | 1,091 | 1,606 | 2,746 | 2,550 | 21 | 19 | 415 | 197 |
| Total return swaps | – | – | – | – | – | – | – | – | – |
| Credit-linked notes | 45 | 14 | 30 | 89 | 53 | – | 53 | 1 | – |
| Other | – | – | – | – | – | – | – | – | – |
| Trading book | 35,686 | 140,564 | 61,519 | 237,769 | 124,685 | 2,263 | 668 | 2,433 | 939 |
| Protection buyer | |||||||||
| Credit default swaps | 6,609 | 68,463 | 35,218 | 110,290 | 54,212 | 393 | 248 | 1,614 | 236 |
| Total return swaps | 11,726 | 1,606 | 235 | 13,567 | 10,221 | 329 | 4 | - | 173 |
| Credit-linked notes | 57 | 310 | 284 | 651 | 153 | 15 | - | 4 | 153 |
| Other | – | – | – | – | – | – | – | – | – |
| Protection seller | |||||||||
| Credit default swaps | 5,536 | 68,525 | 25,503 | 99,564 | 50,483 | 1,524 | 221 | 477 | 374 |
| Total return swaps | 11,706 | 1,503 | 33 | 13,242 | 9,578 | - | 171 | 327 | 3 |
| Credit-linked notes | 52 | 157 | 246 | 455 | 38 | 2 | 24 | 11 | - |
| Other | – | – | – | – | – | – | – | – | – |
| HVB Group new | 36,148 | 142,713 | 73,207 | 252,068 | 2,748 | 3,231 | |||
| Discontinued operations and non-current assets or disposal groups held for sale | 827 | 3,762 | 1,505 | 6,094 | 15 | 14 | |||
| Full HVB Group | 36,975 | 146,475 | 74,712 | 258,162 | 139,688 | 2,763 | 903 | 3,245 | 1,743 |
| Nominal amount | ||||||
|---|---|---|---|---|---|---|
| € millions | Credit default swaps |
Total return swaps |
Credit linked notes |
Other |
Total 2006 |
Total 2005 |
| Public-sector bonds | 14,240 | – | 553 | – | 14,793 | 5,109 |
| Corporate bonds | 196,111 | 28,606 | 781 | – | 225,498 | 72,725 |
| Equities | – | – | – | – | – | – |
| Other assets | 11,088 | 203 | 486 | – | 11,777 | 61,854 |
| HVB Group new | 221,439 | 28,809 | 1,820 | – | 252,068 | |
| Discontinued operations and non-current assets or disposal groups held for sale | 4,390 | – | 1,704 | – | 6,094 | |
| Full HVB Group | 225,829 | 28,809 | 3,524 | – | 258,162 | 139,688 |
Country risk year-on-year
In the year under review, the exposures of the full HVB Group entailing
country risk decreased by €17.8 billion to €82.8 billion.
Approximately 94.3 percent of the total exposure are from countries with rating classes 1–4 (investment grade). Of the exposure in rating classes 5–8, a volume of €2.3 billion (4.8%) was in rating class 5.
The business strategy of HVB Group is also reflected in the development of the exposure and the value-at-risk for each country. This is the cause of a significant increase in the country value-at-risk for countries in eastern Europe. Decreases in the exposure, by contrast, are related primarily to treasury transactions in rating classes 1–4.
The portfolio of the new HVB Group displays good regional diversification. The majority (53%) of the exposure of the new HVB Group is related to low-risk western Europe (rating class 1).
The top 10 countries also include mainly low-risk countries in western Europe, North America and Asia.
| Exposure | Value-at-risk | |||
|---|---|---|---|---|
| € millions | 2006 | 2005 | 2006 | 2005 |
| Rating | ||||
| Rating 1–4 | 45,244 | 95,850 | 35 | 115 |
| Rating 5–8 | 2,714 | 4,771 | 31 | 76 |
| Rating 9 | 3 | 51 | 0 | 8 |
| HVB Group new | 47,961 | 66 | ||
| Discontinued operations and non-current assets or disposal groups held for sale | 34,877 | 207 | ||
| Full HVB Group | 82,838 | 100,672 | 273 | 199 |
1 net of collateral; excluding transactions with loan-loss p
| Lending | Trading | Issuer risk | Total | |||||
|---|---|---|---|---|---|---|---|---|
| € millions | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 |
| Region | ||||||||
| Africa | 327 | 755 | 190 | 203 | 7 | 8 | 524 | 966 |
| North America | 1,755 | 5,054 | 2,156 | 6,934 | 302 | 2,891 | 4,213 | 14,879 |
| Eastern Europe | 3,785 | 11,885 | 640 | 5,372 | 63 | 701 | 4,488 | 17,958 |
| Central and South America | 2,578 | 3,070 | 2,115 | 8,010 | 1,270 | 1,306 | 5,963 | 12,386 |
| Asia/Pacific | 4,033 | 4,989 | 3,058 | 6,395 | 134 | 691 | 7,225 | 12,075 |
| Western Europe | 6,868 | 14,551 | 17,931 | 26,148 | 749 | 1,709 | 25,548 | 42,408 |
| HVB Group new | 19,346 | 26,090 | 2,525 | 47,961 | ||||
| Discontinued operations and non-current assets or disposal groups held for sale | 19,069 | 10,510 | 5,297 | 34,877 | ||||
| Full HVB Group | 38,415 | 40,304 | 36,600 | 53,062 | 7,822 | 7,306 | 82,838 | 100,672 |
1 net of collateral; excluding transactions with loan-loss provisions
| Exposure | Value-at-risk | |||
|---|---|---|---|---|
| € million | 2006 | 2005 | 2006 | 2005 |
| Country | ||||
| UK | 18,595 | 32,449 | 0 | 0 |
| Cayman Islands, off-shore | 3,662 | 7,138 | 7 | 20 |
| Switzerland | 3,633 | 5,757 | 0 | 0 |
| USA | 2,510 | 12,078 | 0 | 0 |
| Russia | 1,531 | 1,989 | 10 | 10 |
| Japan | 1,517 | 3,055 | 0 | 0 |
| Norway | 1,310 | 1,272 | 0 | 0 |
| Turkey | 1,288 | 1,912 | 13 | 17 |
| Cayman Islands, on-shore | 1,174 | 3,700 | 2 | 4 |
| Canada | 905 | 2,337 | 0 | 0 |
| HVB Group new | 36,125 | 32 | ||
| Discontinued operations and non-current assets or disposal groups held for sale | 17,111 | 23 | ||
| Full HVB Group | 53,236 | 71,687 | 55 | 51 |
1 net of collateral; excluding transactions with loan-loss provisions
