Commerzbank Ag · XETR:CBK
Commerzbank — Debt Investor Presentation (January 2013)
75 slides from Commerzbank's debt investor presentation, January 2013
Slide 1: Commerzbank AG SME Structured Covered Bond
Commerzbank AG SME Structured Covered Bond Commerzbank AG | January 2013
Slide 2: Disclaimer
Disclaimer Important notice This document is a marketing information according to the German Securities Trading Act. This document is for information purposes only. Information and assessments provided herein ("Information") are solely directed to clients of Commerzbank AG within Europe. This inform
Slide 3: Agenda
Agenda 1 Executive Summary 2 Commerzbank Credit 3 The German Mittelstand's Role and Commerzbank's Franchise 4 The SME Structured Covered Bond 5 The Cover Pool 6 Credit Process, Monitoring of SME Loans and Commerzbank’s Internal Rating Methodology 7 Appendix Commerzbank AG | January 2013 2 This docum
Slide 4: Executive summary
Executive summary › Solid capital ratios (Core tier 1 at 12.2% under Basel II.5, >9% under Basel III phase in) › Significant increase in customer deposits, reduction of capital markets and interbank funding › Currently rated A(negative)/A-1 by S&P, A3(negative)/P-2 by Moody’s and A+(stable)/F1+ by F
Slide 5: Group operating profit of €216m – Core Bank with solid result
Group operating profit of €216m – Core Bank with solid result As of Sep 30, 2012 Group operating profit of €216m – negatively affected by NCA Operating profit in Core Bank with €692m up by 19% q-o-q, partly supported by one- off effects Slight increase in NCI in light of positive market sentiment, w
Slide 6: Core Bank with solid operating result
Core Bank with solid operating result As of Sep 30, 2012 Private Customers – Operating profit Mittelstandsbank – Operating profit €m €m +1% +13% 390 395 350 +24% Revenues still on a low Robust German economy level but increase in reflected in low LLP level -53% securities business and net releases 8
Slide 7: Due to run-down of NCA and strong increase in client deposits no significant capital market funding required
Due to run-down of NCA and strong increase in client deposits no significant capital market funding in the medium-term required Capital market funding €bn -88% Comments 33 5 › Significant increase in customer deposits related to assets (from 31% in 2009 to 40% in Q3 2012) 15 › Reduction of capital m
Slide 8: Our financial goals for 2016
Our financial goals for 2016 Our strategic agenda ROE CIR Basel III post-tax1) under phase-in Core Bank Core Bank Group >10% ~60% >9% Source: Commerzbank - Group Finance 1) Based on implicit tax rate. Commerzbank AG | January 2013 7 This document should not be distributed in the United States or to
Slide 9: Commerzbank's SME SCB programme at a glance
Commerzbank’s SME SCB programme at a glance Dual recourse 1. Obligation of Commerzbank AG Guarantee provided by the SPV in favor of the bondholders securing the payment 2. obligations of Commerzbank Guarantee, backed by a pool of SME loans, transferred to an insolvency remote SPV Commerzbank registe
Slide 10: Highlights of the SME Structured Covered Bond Programme
Highlights of the SME Structured Covered Bond Programme › Issuer Commerzbank AG, Rating A(neg)/A3(neg)/A+(stable) (S&P, Moody’s, Fitch) › Guarantor SME Commerz SCB GmbH is an insolvency remote limited liability company incorporated in Germany under German law and fully-owned by three German foundati
Slide 11: Pricing environment for Commerzbank's inaugural SME SCB
Pricing environment for Commerzbank’s inaugural SME SCB 110 CMZB 100 90 DPB 80 DB Commerzbank Benchmark 70 Senior Unsecured MUNHYP 60 ASW mid (in bps) 50 INGDIB 40 BHH 30 20 LBBW 10 Commerzbank's Pfandbrief HESLAN 0 Peer Group -10 Oepfe Hypfe -20 Senior -30 8-Jan-14 8-Jan-15 8-Jan-16 7-Jan-17 7-Jan-
Slide 12: Agenda
Agenda 1 Executive Summary 2 Commerzbank Credit 3 The German Mittelstand's Role and Commerzbank's Franchise 4 The SME Structured Covered Bond 5 The Cover Pool 6 Credit Process, Monitoring of SME Loans and Commerzbank’s Internal Rating Methodology 7 Appendix Commerzbank AG | January 2013 11 This docu
Slide 13: Commerzbank financials at a glance
Commerzbank financials at a glance As of Sep 30, 2012 Group Q3 2011 Q2 2012 Q3 2012 Operating profit (€m) -855 451 216 Core Tier I ratio B 2.5 (%) 9.4 12.2 12.2 RWA (€bn) 1) 244 210 206 Leverage ratio (%) 22 19 19 Core Bank (incl. O&C) Q3 2011 Q2 2012 Q3 2012 Operating profit (€m) 868 580 692 Op. Ro
Slide 14: Commerzbank today: a competent partner for private and corporate customers
Commerzbank today: a competent partner for private and corporate customers with a strong core franchise As of Sep 30, 2012 Private Customers Mittelstandsbank › ~11 million customers, of which 7.8 million in › House bank of German Mittelstand with the retail network market coverage >30% of German SME
Slide 15: NCA: continued portfolio reduction in PF and CRE
NCA: continued portfolio reduction in PF and CRE As of Sep 30, 2012 LLP and Risk Density ▼ LLP increase in NCA of 27% q-o-q with ongoing high LLP in Deutsche Schiffsbank and LLP increase in CRE as +27% expected +50% 383 ▲ Portfolio reduction of 5% in NCA q-o-q (-4% in PF and -6% 301 255 in CRE) LLP
Slide 16: Focused growth: realisation of revenue potential in the Core Bank
Focused growth: realisation of revenue potential in the Core Bank Establish new business/revenue model based on fairness and competence toward customers PC Increase customer base in comdirect benefiting from general trend toward direct banking Intensify customer acquisition in the small-cap segment
Slide 17: Adjust cost base: cost management is part of strategic agenda
Adjust cost base: cost management is an integrated part of Commerzbank’s strategic agenda As of Sep 30, 2012 Cost/income ratio in Core Bank % › Unmanaged, cost base to increase by €0.7bn- €0.8bn due to inflation and regulatory charges › In addition, investments to facilitate revenue growth, i.e. IT,
Slide 18: Optimise capital allocation: RWA reduction in NCA
Optimise capital allocation: RWA reduction in NCA results in significantly improved capital allocation in 2016 As of Sep 30, 2012 Asset Run-Down RWA Distribution EaD (incl. NPL), €bn %, eop -42% 160 100% Ship Finance 20 NCA Public Finance 80 93 O&C 14 CM CEE 84% 55 69% MSB CRE 56 Other 22 PC 4 <2 Q3
Slide 19: Basel III Core Tier I at all times >9% under phase-in
Basel III Core Tier I at all times >9% under phase-in As of Sep 30, 2012 Basel 2.5 Core Tier I and Basel III Core Tier I under phase-in CET I Basel III CT I under phase-in at all times >9% fully phased 12.2% >9% Expected RWA Retained earnings development in >9% RWA management >9% >7.5% the remainder
Slide 20: Significantly increased liquidity reserve
In light of turbulent market we have significantly increased our liquidity reserve As of Sep 30, 2012 Liquidity reserve1) €bn 10.4% 13.3% % of total assets Comments 89.9 › Historically high liquidity reserve reflects 68.8 very conservative approach › Central bank eligible assets with broad diversifi
Slide 21: Agenda
Agenda 1 Executive Summary 2 Commerzbank Credit 3 The German Mittelstand's Role and Commerzbank's Franchise 4 The SME Structured Covered Bond 5 The Cover Pool 6 Credit Process, Monitoring of SME Loans and Commerzbank’s Internal Rating Methodology 7 Appendix Commerzbank AG | January 2013 20 This docu
Slide 22: German economy has slowed down – but still outperforming Eurozone
German economy has slowed down – but still outperforming Eurozone Current development Our expectation for 2012/2013 Reasons for outperformance › German economy has slowed down › A still growing demand from outside No bubbles in the housing market significantly since fall 2011 the Euro area and expan
Slide 23: The German Mittelstand: engine of the German economy I
The German Mittelstand: engine of the German economy I German Mittelstand at a glance Scope Growth Contribution to society Comprises more than 99% of all The international turnover of the The training provided by the “German German firms “German Mittelstand” has been growing Mittelstand” makes a maj
Slide 24: The German Mittelstand: engine of the German economy II
The German Mittelstand: engine of the German economy II Share of family-owned firms among German SMEs Innovation-driven backbone of the German economy 5% › More than 99% of all 3.7 million 54 › More than half of German SMEs companies in Germany belong to the introduced a product or process Mittelsta
Slide 25: Commerzbank Mittelstandsbank
Commerzbank Mittelstandsbank Sustainable and strategic partner for the entire “Mittelstand” Segmentation in corporate banking Competitive Small caps Mid + large caps Multinationals comparison2) (<€25m) (≥€25m) (2011) Return on equity3) International Clients 28% (Outbound clients) PC Mittelstandsbank
Slide 26: Strong market position by means of unique business model
Strong market position by means of unique business model Unrivalled regional coverage in Regional and international coverage domestic market › 150 locations; ~1,700 relationship managers; ~1,400 local specialists in domestic market combined with dense international network › >30 international branch
Slide 27: Mittelstandsbank divisional split
Mittelstandsbank divisional split As of Sep 30, 2012 Mittelstand Germany – Revenues before LLP Corporate Banking & International – Revenues €m before LLP €m 412 379 376 › Stable revenues from › Stable loan and foreign trade German Mittelstand (loan 279 business 254 236 and foreign trade › Declining
Slide 28: Mittelstandsbank from a risk management perspective
Mittelstandsbank from a risk management perspective As of Sep 30, 2012 Exposure at default Sep 2012 €bn Dec Dec Sep 81 Corporates Domestic 2010 2011 2012 14 Corporates International Credit RWA (€bn) 63 53 50 114 19 Financial Institutions LLP (YtD, €m) 279 188 -12 Default portfolio (€bn) 3.9 2.9 2.9
Slide 29: Expansion of proven business model to capture growth opportunities
Expansion of proven business model to capture growth opportunities Economic environment Strategic implication › Germany maintains position as economic engine in Europe, while other European Further strengthen position in domestic market countries suffer from euro crisis (real GDP in Germany in 20131
Slide 30: Mittelstandsbank with ambitious targets for 2016
Mittelstandsbank with ambitious targets for 2016 As of Sep 30, 2012 Additional revenues of 4% p.a. Mittelstandsbank Return on equity (ROE) greater than 20%1) › Mittelstandsbank with unique business model and market Sustained cost efficiency, CIR below 45% position in Germany › Building on our streng
Slide 31: Agenda
Agenda 1 Executive Summary 2 Commerzbank Credit 3 The German Mittelstand's Role and Commerzbank's Franchise 4 The SME Structured Covered Bond 5 The Cover Pool 6 Credit Process, Monitoring of SME Loans and Commerzbank’s Internal Rating Methodology 7 Appendix Commerzbank AG | January 2013 30 This docu
Slide 32: Structural overview
Structural overview Similar to structured covered bonds in other jurisdictions Uses the German Refinancing Register legislation to register the cover pool for the benefit of the Guarantor SPV The structure and the inherent risk mitigation mechanisms address risks such as issuer default, credit quali
Slide 33: Key structural features
Key structural features Asset Guarantee Guarantor Credit Refinancing Amortisation Cover pool Coverage Activation event of enhancement Register Test Test Event default Eligible senior loans to German SME companies: – Loan agreements are governed by German law only Cover assets – Borrower has its head
Slide 34: Key structural features
Key structural features Asset Guarantee Guarantor Credit Refinancing Amortisation Cover pool Coverage Activation event of enhancement Register Test Test Event default Borrowers are scored using the Commerzbank Internal Rating methodology – The methodology is statistically based and is tested, calibr
Slide 35: Key structural features
Key structural features Asset Guarantee Guarantor Credit Refinancing Amortisation Cover pool Coverage Activation event of enhancement Register Test Test Event default The cover pool is dynamic – In case an additional bond shall be issued under the programme, the cover pool Cover assets volume needs
Slide 36: Key structural features
Key structural features Asset Guarantee Guarantor Credit Refinancing Amortisation Cover pool Coverage Activation event of enhancement Register Test Test Event default 1st: Claim against Commerzbank 2nd: Guarantee provided by a Guarantor SPV that owns the cover pool Dual recourse The bonds are a dire
Slide 37: Key structural features
Key structural features Asset Guarantee Guarantor Credit Refinancing Amortisation Cover pool Coverage Activation event of enhancement Register Test Test Event default The loans in the cover pool are required to be maintained at a level which incorporates a certain level of over-collateralisation Dua
Slide 38: Key structural features
Key structural features Asset Guarantee Guarantor Credit Refinancing Amortisation Cover pool Coverage Activation event of enhancement Register Test Test Event default In the event of a default by Commerzbank under the bonds, the investor has extension risk relating to the repayment of the bonds. The
Slide 39: Key structural features
Key structural features Asset Guarantee Guarantor Credit Refinancing Amortisation Cover pool Coverage Activation event of enhancement Register Test Test Event default The bonds are guaranteed by an insolvency remote SPV which purchases the cover pool Use of the Refinancing loans Register to achieve
Slide 40: Key structural features
Key structural features Asset Guarantee Guarantor Credit Refinancing Amortisation Cover pool Coverage Activation event of enhancement Register Test Test Event default Use of the Refinancing The Administrator of the Refinancing Register (Verwalter des Refinanzierungsregisters) Register to achieve ens
Slide 41: Key structural features
Key structural features Asset Guarantee Guarantor Credit Refinancing Amortisation Cover pool Coverage Activation event of enhancement Register Test Test Event default The ACT is found in other covered bond programmes and is used to confirm that the Ensures that minimum minimum over-collateralisation
Slide 42: Key structural features
Key structural features Asset Guarantee Guarantor Credit Refinancing Amortisation Cover pool Coverage Activation event of enhancement Register Test Test Event default Pass if the Asset Coverage Test Aggregate Asset Amount (AAAA) is equal to or exceeds Ensures that minimum the outstanding principal b
Slide 43: Key structural features
Key structural features Asset Guarantee Guarantor Credit Refinancing Amortisation Cover pool Coverage Activation event of enhancement Register Test Test Event default Following an issuer event of default, the guarantee is activated, the SPV has the obligation to make payments under the Guarantee, an
Slide 44: Key structural features
Key structural features Asset Guarantee Guarantor Credit Refinancing Amortisation Cover pool Coverage Activation event of enhancement Register Test Test Event default Where the cover pool assets are expected to be insufficient to meet all repayment Tests cover pool assets obligations of the programm
Slide 45: Key structural features
Key structural features Asset Guarantee Guarantor Credit Refinancing Amortisation Cover pool Coverage Activation event of enhancement Register Test Test Event default Pass if the Amortisation Test Aggregate Asset Amount is equal to or exceeds the Tests cover pool assets outstanding principal balance
Slide 46: Key structural features
Key structural features Asset Guarantee Guarantor Credit Refinancing Amortisation Cover pool Coverage Activation event of enhancement Register Test Test Event default Following a Guarantor Event of Default which includes a breach of the Amortisation Test Guarantor Event of Default All bonds become i
Slide 47: Key structural features
Key structural features Asset Guarantee Guarantor Credit Refinancing Amortisation Cover pool Coverage Activation event of enhancement Register Test Test Event default Role of the Trustee Guarantor Event of Default Consequences – For the purpose of securing the Trustee Claim the Guarantor pledges (ve
Slide 48: Agenda
Agenda 1 Executive Summary 2 Commerzbank Credit 3 The German Mittelstand's Role and Commerzbank's Franchise 4 The SME Structured Covered Bond 5 The Cover Pool 6 Credit Process, Monitoring of SME Loans and Commerzbank’s Internal Rating Methodology 7 Appendix Commerzbank AG | January 2013 47 This docu
Slide 49: Cover pool key statistics
Cover pool key statistics Preliminary as of Oct 31, 2012 Aggregate principal balance (in Euro) 650,000,000 Number of debtor groups 486 Number of debtors 501 Number of loan receivables 571 Weighted average life (in years) 0.63 Average internal Commerzbank rating / Avg. Rating 3.0 / Probability of def
Slide 50: Cover pool break-down I
Cover pool break-down I Preliminary as of Oct 31, 2012 Fitch industry description Number of purchased Aggregate outstanding Percentage of Distribution by … receivables principal amount in EUR aggregate principal balance Fitch industry sectors Industrial/manufacturing 86 96,722,393 14.9% Retail (gene
Slide 51: Cover pool break-down II
Cover pool break-down II Preliminary as of Oct 31, 2012 Moody's industry description Number of purchased Aggregate outstanding Percentage of Distribution by … receivables principal amount in EUR aggregate principal balance Fitch industry sectors Beverage, Food & Tobacco 75 85,351,278 13.1% Capital E
Slide 52: Cover pool break-down III
Cover pool break-down III Preliminary as of Oct 31, 2012 Internal PD Fitch mapped Moody's Number of Aggregate outstanding Percentage of Distribution by … Rating Midpoint ratings mapped purchased principal amount in EUR aggregate principal Categories in % ratings receivables balance Fitch industry se
Slide 53: Cover pool break-down IV
Cover pool break-down IV Preliminary as of Oct 31, 2012 German Federal States Number of purchased Aggregate outstanding Percentage of aggregate Distribution by … receivables principal amount in EUR principal balance Baden-Wuerttemberg 84 102,363,020 15.7% Fitch industry sectors Bayern 87 104,408,084
Slide 54: Cover pool break-down V
Cover pool break-down V Preliminary as of Oct 31, 2012 Purchased Receivables by Number of purchased Aggregate outstanding Percentage of aggregate principal Distribution by … Annual Turnover in EUR receivables principal amount in EUR balance Fitch industry sectors up to 2.5 million 5 3,241,786 0.5% 2
Slide 55: Cover pool break-down VI
Cover pool break-down VI Preliminary as of Oct 31, 2012 Purchased receivables by maturity Number of purchased Aggregate outstanding Percentage of Distribution by … (Weighted average life) receivables principal amount in EUR aggregate principal balance Fitch industry sectors up to 3 months 374 434,39
Slide 56: Cover pool break-down VII
Cover pool break-down VII Preliminary as of Oct 31, 2012 Debtor group by size range Number of Aggregate outstanding Percentage of aggregate Max percentage of Distribution by … of principal balance in % debtor groups principal amount in EUR principal balance aggregate principal balance Fitch industry
Slide 57: Agenda
Agenda 1 Executive Summary 2 Commerzbank Credit 3 The German Mittelstand's Role and Commerzbank's Franchise 4 The SME Structured Covered Bond 5 The Cover Pool 6 Credit Process, Monitoring of SME Loans and Commerzbank’s Internal Rating Methodology 7 Appendix Commerzbank AG | January 2013 56 This docu
Slide 58: Credit process
Credit process Organisation Organisation › Commerzbank typically defines a corporate loan as a loan advanced to a company with an annual turnover in excess of € 2,500,000 › Loan origination of corporate customer business is decentralised and executed at the level of the branch that is responsible fo
Slide 59: Credit process
Credit process Depending on the borrower's exposure size, its internal PD-Rating and further credit Organisation risk parameters, the lending authorities are composed of: › A relationship manager (front office) and a credit officer (back office) › A segment credit committee (SKK) involving the segme
Slide 60: Credit process
Credit process The internal rating system R-Corp Organisation › Commerzbank has developed a fully integrated internal rating system (R-Corp) for medium-sized businesses, multi-nationals and large companies › This internal rating system generates two separate ratings for each borrower: a PD- Rating a
Slide 61: Credit process
Credit process Return on Equity (Profit Margin) Organisation › The calculation of the profit margin is part of the decision process for any new and incremental corporate lending business as well as for the extension of existing credit exposures › The profit margin calculation is adjusted by standard
Slide 62: Monitoring and problem loan procedures
Monitoring and problem loan procedures Monitoring individual credit exposures Monitoring individual credit exposures › The credit officer is responsible for the credit application and the subsequent credit reviews › All internal ratings are reviewed at least annually on receipt of the borrower's ann
Slide 63: Monitoring and problem loan procedures
Monitoring and problem loan procedures The Bank classifies “impaired” loans into three classes Monitoring individual credit exposures › Class 1: Intensive Care (IC) loans with an internal credit rating of the borrower of 4.0 to 5.8 › Exposures have to be presented to IC when the borrower has a PD-Ra
Slide 64: R-Corp: Commerzbank's internal rating system for rating corporates
R-Corp: Commerzbank‘s internal rating system for rating corporates › Rating methods form an integral part of Commerzbank’s risk management and are thus a core competence and forward-looking competitive factor › Since January 2010 the same rating systems are applied to Commerzbank and former Dresdner
Slide 65: R-Corp: a flexible combination of modules
R-Corp: a flexible combination of modules l of s o e Fundamental analysis of Analysis of external data po dul customer basis data provided by Creditreform o m Behavior analysis of Qualitative risk analysis Financial analysis of current accounts SME annual accounts - SME Behavior analysis of Qualitat
Slide 66: Commerzbank's internal rating system: Master Scale
Commerzbank‘s internal rating system: Master Scale Commerzbank Internal Rating PD and EL midpoint (as %) PD and EL range (as %) 1.0 0.00 0.00 - 0.00 1.2 0.01 0.00 - 0.02 1.4 0.02 0.02 - 0.03 1.6 0.04 0.03 - 0.05 1.8 0.07 0.05 - 0.08 2.0 0.11 0.08 - 0.13 2.2 0.17 0.13 - 0.21 2.4 0.26 0.21 - 0.31 2.6
Slide 67: R-Corp: Mapping tables
R-Corp: Mapping tables Mapped ratings used by Fitch and Moody’s to › As of Oct 31, 2012 assess required over-collateralisation › Mapping tables may be reviewed by Fitch Commerzbank Internal Rating Fitch Moody's and/or Moody’s 1.0 AA- to A Ba1 1.2 AA- to A Ba1 1.4 A+ to A- Ba1 1.6 A to BBB+ Ba1 1.8 A
Slide 68: Agenda
Agenda 1 Executive Summary 2 Commerzbank Credit 3 The German Mittelstand's Role and Commerzbank's Franchise 4 The SME Structured Covered Bond 5 The Cover Pool 6 Credit Process, Monitoring of SME Loans and Commerzbank’s Internal Rating Methodology 7 Appendix Commerzbank AG | January 2013 67 This docu
Slide 69: Frequently asked questions
Frequently asked questions Structure Does the bondholder have Yes, direct recourse recourse to Commerzbank? Who owns the cover The insolvency remote Guarantor SPV (SME Commerz SCB GmbH) assets? Is the issuer also the Yes, all loans in the cover pool are originated by Commerzbank and its affiliates (
Slide 70: Frequently asked questions
Frequently asked questions Legal Framework (cont’d) What is the legal framework The loans in the cover pool are segregated from the insolvency of Commerzbank by a sale to providing the Guarantor and the Guarantor SPV, who is registered as the beneficiary (Übertragungsberechtigter) of the ultimately
Slide 71: Frequently asked questions
Frequently asked questions Cover assets (cont’d) How long is the average life As of 31 October 2012 the average life of the provisional cover pool provided is 0.63 years. A of the cover pool loans? large percentage of loans in the cover pool have an original maturity of less than 1 year What is the
Slide 72: Frequently asked questions
Frequently asked questions Cover assets (cont’d) Is there a third party looking As an Advanced-IRB bank the internal rating process and model is subject to ongoing to the Commerzbank SME regulatory oversight internal rating process? Is there a mandatory over- There is an over-collateralisation requi
Slide 73: Frequently asked questions
Frequently asked questions Monitoring and supervision Is there third party The administration of the register is supervised by an administrator supervision over the cover (Refinanzierungsregisterverwalter) who is appointed by the German bank regulator. The pool and the Refinancing administrator is n
Slide 74: Frequently asked questions
Frequently asked questions Segregation of assets and insolvency remoteness (cont’d) Is there recourse to Yes, pari passu with unsecured creditors of Commerzbank Commerzbank’s insolvency estate upon a cover pool default? Are derivatives included in No derivatives are included the cover pool? Other qu
Slide 75: Frequently asked questions
Frequently asked questions Other questions (cont’d) How will regulators treat Banking: It is our view that this transaction may be treated as a secured bank bond (however this product? not governed by a specific covered bond legislation). As such, it probably will not be an eligible instrument for t
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