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Financial situation and assets of the comdirect group

Main features of financial management and Treasury

The Treasury department of comdirect bank ensures adequate cash holdings at all times and manages the liquidity risk (see Liquidity risk). By investing customer deposits in the money and capital markets, the comdirect group achieves a positive interest margin. Here the bank carries out a significant share of the investments with companies in the Commerzbank Group. Claims on Commerzbank AG and other subsidiaries of the Commerzbank Group as well as the securities of these companies are comprehensively collateralised via a general assignment agreement. There are also five special funds that are included in the comdirect group’s accounts.

We maintained our conservative and risk-aware treasury strategy in the reporting year. Due to the relatively flat interest rate curve and spread volatilities that still remain high, apart from the Commerzbank Group, comdirect Treasury exclusively acquired securities from first class issuers with shorter term fixed interest rates. Promissory notes and fixed-term deposits were predominantly used for investments. Furthermore, the Treasury portfolio essentially comprises bonds and Pfandbriefe.

The comdirect group does not carry out any own account trading. The use of derivative financial instruments is restricted to the hedging of interest rate risks from bonds and interest book management in the Treasury portfolio. We increasingly entered into hedge positions as a result of rising market interest rates in the first half of 2011. As of 31 December 2011, the nominal volume of these hedging derivatives amounted to €123m (end 2010: €20m).

At the end of 2011, only around €70m (end 2010: around €390m) was attributed to Treasury positions in the PIIGS countries. The worsening of the sovereign debt crisis in the reporting year led at times to significant fluctuations in the market value of these positions. There were no losses resulting from issuer defaults in the reporting period. The only Greek government bond held in the portfolio was written down to 28.2% of its nominal value of €2.3m for market-related reasons. No other impairments on debt instruments were required.

Investments

The comdirect group invested more in both business lines than in the previous year. The investment volume climbed by 32.3% to €16.5m (previous year: €12.4m). Of this €12.2m (previous year: €8.1m) was attributable to the B2C business line and €4.3m as in the previous year to the B2B business line.

Investments
Investments by business lines

The balance sheet additions with regard to intangible assets of €13.4m (previous year: €9.0m) relate primarily to the acquisition and development of software in the B2C business line. Key projects in this regard comprised the implementation of the CFD platform and limit functions in OTC trading as well as the relaunch of comdirect’s website. Overall, we used €7.2m (previous year: €2.9m) for the acquisition of software. Taking account of depreciation on intangible assets, the net investment volume stood at €0.7m (previous year: €–0.4m).

Fixed asset investments of €3.0m (previous year: €3.4m) related to the new network and server components as well as equipping workplaces with more powerful computers. Net investments for fixed assets amounted to €–1.1m (previous year: €–1.4m).

There are no material subsequent financial obligations under current investment projects for the ensuing financial years.

Balance sheet structure of the comdirect group

The consolidated balance sheet increased marginally to €11.38bn (end 2010: €11.04bn) as a result of the moderately higher deposit volume. Liabilities to customers accounted for 94.2% of the balance sheet total (end 2010: 93.9%).

Structure of consolidated balance sheet – ASSETS
Structure of consolidated balance sheet – LIABILITIES

Assets

An even greater proportion of customer funds was invested in promissory notes than in the previous year. The volume of claims on banks, which essentially relate to promissory notes, was up 13.9% on the end of 2010 (€5.89bn) to €6.71bn.

The volume of financial investments fell by 17.3% to €3.86bn (end 2010: €4.67bn). This line item comprises bonds and floating rate notes. One of the reasons for the decrease is the reduction in the PIIGS portfolio. We also reinvested some maturing bonds in promissory notes because of the market situation. As in the previous year, equities played only a minor role in the Treasury strategy.

Structure of customer deposits
Structure of claims and financial investments

Claims on customers dropped to €224.7m (end 2010: €235.9m). This was mainly due to the lower volume of loans against securities. As a result of falling prices in the equity markets, our customers acted with caution which led to an overall decrease in drawdowns on credit facilities. The moderate rise in overdrafts on current accounts was primarily due to the higher number of accounts (see B2C business line ).

The cash reserve amounted to €527.8m as of 31 December 2011 and was consequently substantially higher than a year earlier (€185.0m). The average minimum reserve requirement of the comdirect group stood at €197.2m (end 2010: €190.3m) as of 31 December 2011.

Current income tax assets remained unchanged at €4.1m and were partially attributable to corporate tax credit balances from previous years. The decline in other assets to €5.9m (end 2010: €7.2m) is particularly due to lower receivables from local advisory services and from the securities business.

Financing

The financing side of the balance sheet essentially comprises the deposits of private customers.

The decline in liabilities on banks to €3.2m (end 2010: €40.8m) reflects the current level of the ongoing clearing accounts at Commerzbank.

As of the reporting date, the interest rate swaps used for hedging showed a negative fair value of €4.5m (end 2010: €38 thousand).

At €41.2m, provisions were down 6.4% on the previous year’s figure (€44.0m). This was because of the drop in other provisions from €29.6m to the present level of €25.3m. The main factors here were

  • the utilisation and reversal of some of the provisions for non-income taxes recognised in previous years,
  • the utilisation and reversal of some of the restructuring provisions recognised in 2009, the volume of which thus decreased to €1.2m (end 2010: €3.0m).

A large share of allocations related to variable compensation components (see note (25)). There was a payment under the comdirect group’s Long Term Incentive Programme (LTIP) following a three-year waiting period. The payment reduced the provision for outstanding performance shares to €1.3m (end 2010: €1.7m). Performance shares were first issued to members of the Board of Managing Directors as well as specialist and executive employees as part of the Long Term Incentive Plan in 2005. They were last issued in 2010.

Provisions for pensions amounted to €15.3m as of 31 December 2011 (end 2010: €14.0m). Pension obligations with a net present value of €20.3m (previous year: €19.2m) were countered by plan assets with a market value of €3.8m (previous year: €3.8m) administered by Commerzbank Pension Trust e. V. (see note (49)). In addition there are provisions for partial retirement and early retirement arrangements amounting to €0.5m (previous year: €0.4m).

Other liabilities amounting to €41.7m (previous year: €53.8m) primarily comprise trade account payable.

The sharp fall in deferred tax liabilities to €3.0m (end 2010: €14.8m) is due to price movements relating to financial investments. Most of these had an income-neutral effect. Assets and liabilities are netted in the line item (see note (50)).

Equity amounted to €547.3m, exceeding the level as of 31 December 2010 (€514.2m) by 6.4%. The substantially higher consolidated profit was partially offset by the movement in the revaluation reserve. This dropped to €11.3m (end 2010: €30.7m) mainly because of widening credit spreads, which resulted in lower carrying values for securities in the “available for sale” category.

Cash flow statement of the comdirect group

The cash flow arising from operating activities, which amounts to €418.6m (previous year: €–33.0m), was predominantly affected by the development of customer deposits and the net profit. The cash inflow generated by higher customer deposits basically matched the cash outflow arising from the reinvestment.

At €–16.4m (previous year: €–6.9m), the cash flow from investment activities was negative. This was due to the investment required to support growth.

The cash outflows from financing activities, which total €–59.3m (previous year: €–57.9m), stem from the dividend distribution of €0.42 per share in May 2011.

As of the reporting date, the comdirect group had a cash reserve of €527.8m (end 2010: €185.0m). This is almost completely attributed to credit balances with the Deutsche Bundesbank.

Deposit protection

comdirect bank AG and ebase GmbH are members of the deposit insurance scheme of the Bundesverband deutscher Banken e.V. (Association of German Banks), through which each customer was insured up to a deposit amount of €107.1m (comdirect) or €5.2m (ebase) as of 31 December 2011. In addition, customer deposits are legally insured under the compensation fund of German banks (Entschädigungsfonds deutscher Banken, EdB).