Disclosures unconsolidated structured entities

Disclosures unconsolidated structured entitiesIFRS 12 defines structured entity as an entity that has been designed so that voting or similar rights are not the dominant factor on deciding who controls the entity. Paragraph B23 of IFRS 12 provides the following examples of structured entities: Disclosures unconsolidated structured entities

  1. Securitisation vehicles. Disclosures unconsolidated structured entities
  2. Asset backed financings. Disclosures unconsolidated structured entities
  3. Some investment funds. Disclosures unconsolidated structured entities

The term ‘unconsolidated structured entities’ refers to all structured entities that are not controlled by the reporting entity.


Disclosures – Generic model

The level of disclosure in respect of unconsolidated structured entities will depend on the facts and circumstances of the entity but is likely to be more complex for a bank or other financial institution.

Disclosures will be in table forms specifying the following attributes [IFRS 12 26]:

Type of structured entity

Nature and purpose

Interest held by the reporting entity

Total assets

20×5

Total assets

20×4

Securitisation vehicles for loans and advances

Disclosures unconsolidated structured entities

Disclosures unconsolidated structured entities

To generate:

  • funding for the lending activities,
  • earn margin through the sale of notes to investors
  • earn fees for loan serving

These vehicles are financed through the issue of notes to investors through stock exchanges.

Investments in notes issued by the vehicles

Fees for loan servicing

Disclosures unconsolidated structured entities

Disclosures unconsolidated structured entities

1,023,500

1,150,800

Investment funds

Disclosures unconsolidated structured entities

To generate fees from managing assets on behalf of third-party investors.

These vehicles are financed through the issue of units to investors.

Investments in units issued by the fund

Management fees

2,450,000

2,310,000

The following table sets out an analysis of the carrying amounts of interests held by the reporting entity in unconsolidated structured entities. The maximum exposure to loss is the carrying amount of the assets held. [IFRS 12 29]

Carrying amount of assets held

Disclosures unconsolidated structured entities

During the year ended 31 December 2018, the reporting entity provided financial support of €10 million to an unconsolidated securitisation vehicle to enable it to make payments to the holders of the notes issued by the vehicle. Although it is under no contractual obligation to do so, the reporting entity decided to provide this support after careful consideration of its role in the set-up of the vehicle and its reputation in providing such services. The support was provided to assist the entity in managing its short-term liquidity. [IFRS 12 30]

The reporting entity considers itself a sponsor of a structured entity when it facilitates the establishment of the structured entity. The following table sets out information in respect of structured entities that the reporting entity sponsors, but in which the reporting entity does not have an interest. [IFRS 12 27]

Disclosures unconsolidated structured entities


Disclosures Deutsche Bank

Unconsolidated structured entities

Nature, purpose and extent of the Group’s interests in unconsolidated structured entities

The Group engages in various business activities with structured entities which are designed to achieve a specific business purpose. A structured entity is one that has been set up so that any voting rights or similar rights are not the dominant factor in deciding who controls the entity. An example is when voting rights relate only to administrative tasks and the relevant activities are directed by contractual arrangements.

A structured entity often has some or all of the following features or attributes:

  • Restricted activities;
  • A narrow and well defined objective;
  • Insufficient equity to permit the structured entity to finance its activities without subordinated financial support;
  • Financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches).

The principal uses of structured entities are to provide clients with access to specific portfolios of assets and to provide market liquidity for clients through securitizing financial assets. Structured entities may be established as corporations, trusts or partnerships. Structured entities generally finance the purchase of assets by issuing debt and equity securities that are collateralized by and/or indexed to the assets held by the structured entities. The debt and equity securities issued by structured entities may include tranches with varying levels of subordination.

Structured entities are consolidated when the substance of the relationship between the Group and the structured entities indicate that the structured entities are controlled by the Group, as discussed in Note 1 “Significant Accounting Policies and Critical Accounting Estimates”. The entities covered by this disclosure note are not consolidated because the Group does not control them through voting rights, contract, funding agreements, or other means. The extent of the Group’s interests to unconsolidated structured entities will vary depending on the type of structured entities.

Below is a description of the Group’s involvements in unconsolidated structured entities by type.

Repackaging and investment entities
Repackaging and investment entities are established to meet clients’ investment needs through the combination of securities and derivatives.

Third party funding entities
The Group provides funding to structured entities that hold a variety of assets. These entities may take the form of funding entities, trusts and private investment companies. The funding is collateralized by the asset in the structured entities. The group’s involvement involves predominantly both lending and loan commitments.

Securitization Vehicles
The Group establishes securitization vehicles which purchase diversified pools of assets, including fixed income securities, corporate loans, and asset-backed securities (predominantly commercial and residential mortgage-backed securities and credit card receivables). The vehicles fund these purchases by issuing multiple tranches of debt and equity securities, the repayment of which is linked to the performance of the assets in the vehicles.

The Group often transfers assets to these securitization vehicles and provide financial support to these entities in the form of liquidity facilities.

The Group also invests and provides liquidity facilities to third party sponsored securitization vehicles.

Funds
The Group establishes structured entities to accommodate client requirements to hold investments in specific assets. The Group also invests in funds that are sponsored by third parties. A group entity may act as fund manager, custodian or some other capacity and provide funding and liquidity facilities to both group sponsored and third party funds. The funding provided is collateralized by the underlying assets held by the fund.

Other
These are Deutsche Bank sponsored or third party structured entities that do not fall into any criteria above.

Income derived from involvement with structured entities
The Group earns management fees and, occasionally, performance-based fees for its investment management service in relation to funds. Interest income is recognized on the funding provided to structured entities. Any trading revenue as a result of derivatives with structured entities and from the movements in the value of notes held in these entities is recognized in ‘Net gains/losses on financial assets/liabilities held at fair value through profit and loss’.

Interests in unconsolidated structured entities
The Group’s interests in unconsolidated structured entities refer to contractual and noncontractual involvement that exposes the group to variability of returns from the performance of the structured entities. Examples of interests in unconsolidated structured entities include debt or equity investments, liquidity facilities, guarantees and certain derivative instruments in which the Group is absorbing variability of returns from the structured entities.

Interests in unconsolidated structured entities exclude instruments which introduce variability of returns into the structured entities. For example, when the group purchases credit protection from an unconsolidated structured entity whose purpose and design is to pass through credit risk to investors, the Group is providing the variability of returns to the entity rather than absorbing variability. The purchased credit protection is therefore not considered as an interest for the purpose of the table below.

Maximum Exposure to unconsolidated structured entities
The maximum exposure to loss is determined by considering the nature of the interest in the unconsolidated structured entity. The maximum exposure for loans and trading instruments is reflected by their carrying amounts in the consolidated balance sheet. The maximum exposure for derivatives and off balance sheet instruments such as guarantees, liquidity facilities and loan commitments under IFRS 12, as interpreted by the Group, is reflected by the notional amounts.

Such amounts do not reflect the economic risks faced by the Group because they do not take into account the effects of collateral or hedges nor the probability of such losses being incurred. At December 31, 2013, the notional related to the positive and negative replacement values of derivatives and off balance sheet instruments were € 311 billion, € 529 billion and € 27.3 billion respectively.

Size of structured entities

The Group provides a different measure for size of structured entities depending on their type. The following measures have been considered as appropriate indicators for evaluating the size of structured entities:

  • Funds – Net asset value or asset under management where the Group holds fund units and notional of derivatives when the Group’s interest comprises of derivatives.
  • Securitizations – notional of notes in issue when the Group derives its interests through notes its holds and notional of derivatives when the Group’s interests is in the form of derivatives.
  • Third party funding entities –Total assets in entities
  • Repackaging and investment entities – Fair value of notes in issue

For Third party funding entities, size information is not publicly available, therefore the Group has disclosed the greater of the collateral Deutsche Bank has received/pledged or the notional of the exposure Deutsche Bank has to the entity.

The following table shows, by type of structured entity, the carrying amounts of the Group’s interests recognized in the consolidated statement of financial position as well as the maximum exposure to loss resulting from these interests. It also provides an indication of the size of the structured entities. The carrying amounts presented below do not reflect the true variability of returns faced by the Group because they do not take into account the effects of collateral or hedges.

See further disclosure in the annual report of Deutsche Bank, here

Disclosures unconsolidated structured entities

Disclosures unconsolidated structured entities

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