COMMERZBANK AKTIENGESELLSCHAFT

Group Management Report
186
130 Commerzbank Annual Report 2011
Public Finance
Public Finance business involves funding sovereigns, federal states, municipalities and other
public-sector bodies as well as supranational institutions. It comprises the activities of Eurohypo
AG, including those of its Luxembourg subsidiary EUROHYPO Europäische Hypothekenbank
S.A. and the Commerzbank subsidiary Erste Europäische Pfandbrief- und Kommunalkreditbank
AG (EEPK) in Luxembourg. The secured funding for Public Finance’s
activities derives from issuing public-sector Pfandbriefe and lettres de gage Publiques. Repo
transactions also play a role in refinancing the portfolio. Commerzbank provides unsecured
finance. By changing Eurohypo’s funding concept to longer-term funding within the Group,
it has optimised funding via the residual terms and thereby created stable funding.
Portfolio reduction accelerated
The conditions for public finance worsened considerably again in 2011: the creditworthiness
of a number of countries, some outside Europe, was downgraded and the risk premiums for
nearly all European countries rose significantly.
This development not only confirmed that the reduction strategy chosen in 2010 was the
right one, but also resulted in the measures being extended. New Public Finance business
was concluded simply for cover pool management or to meet contractual agreements. Although
deliberately taking losses, we pressed ahead during the year with selling assets that
did not meet our creditworthiness requirements – either immediately or foreseeably – and/or
that had a negative impact on the portfolio’s profitability due to expensive follow-up funding.
Eurohypo AG also reduced its commitment in southern European countries under its active
downsizing programme. By December 31, 2011, the exposure at default on securities and
promissory note loans in Greece, Italy, Ireland, Portugal and Spain totalled €12.3bn compared
with €16.8bn at the end of 2010.
Outlook
Against the background of the continuing European sovereign debt crisis and the much
tighter capital adequacy requirements demanded by the European Banking Authority, we
will systematically press ahead with reducing the Public Finance portfolio in 2012.
Our view is that strict implementation of measures for budget consolidation in EU countries
and the USA remains doubtful; this is a basic requirement to enable confidence to return
and the markets to recover. We therefore assume that the markets will continue to be
volatile in 2012.