Deutsche Bank AG (DB) 2002 Q2 法說會逐字稿

our semi-annual

analyst meeting,

in particular because I can host the meeting for the first time with Joe Ackermann in his capacity as chairman of the Group Executive Committee, and he will present to you the status of our strategic thinking . Also we've

Clemens Borsig, well known to you, our CFO. He will present our 2Q figures, which we have released earlier today. We are webcasting this event as usual by our own relations web site. That's why we have some technology in the room, so please do me a favor and switch off your mobiles because they would interfere. And also, on our web site, we do have the slide, which will be used in the presentation, so for those investors listening in, you can download all the slides, which will be used. I think that's all I have to say from the housekeeping side and I'm happy to hand over to Dr. Ackermann. Joe.

Thank you. Good afternoon ladies and gentlemen. Let me just give you very briefly, some of the highlights of the first half, second quarter, before Clemens Borsig will lead you through the numbers and then I will take over from him and talk about the strategic initiative. First , financial performance, as you see, the period of

the time, impacted by its own in capital gains, but also by

. So we used

capital gains that we've announced in our strategic initiatives, to get away with some old things which

the balance sheet

.

But more importantly I think we have a solid underlying performance in very difficult markets, we all know a little bit across the board, and I am very happy to say that in

you will be turned around the

site, the retail banking has done well, and for management, they certainly doing much better and I will show you in my second

presentation where we are having to

. Market performance, we have clearly benefited in market share terms for the difficult environment. We have kept the pace for quite some time and as you will see, my apology, notice that we have moved forward in every region in a very positive way.

The corporate covenants, the new top management structure, which has been discussed widely, especially in Germany, is in place in

. We feel that we have much better decision-making process, that businesses are fully involved and that actually the whole meetings are much more business oriented than ever before. And, I must say, a much more shareholder value oriented than ever before.

The corporate covenants principles are under you but we are announcing today that we are going to comply with the term corporate covenants products. So these initiatives, most of them have been first of all, communicated, externally as well as internally. There's a lot of support internally for these measures and you will see that the measures are showing the first of very tangible results.

So much for introduction now

will do the numbers.

Thank you

and welcome. Good afternoon ladies and gentlemen. Also from my side, I have the pleasure to present to you are second quarter results. In my presentation, I want to discuss the following key messages. First, profits and revenues and demonstrate that we achieved a solid performance in, what

just described as a challenging environment. Our cost management initiative shows tangible results. The divisional results are also impressive.

In risk management we have undertaken comprehensive measures to reduce our risk with exposure. In capital management, we achieved the further improvement in the

ratio and so also our costs and return on equity ratios have improved.

Before I go into my presentation, let me briefly comment on the current interim report. As you may have noticed, we made significant improvements. I hope you'll find those improvements helpful. These all have to seen in the context of our continued effort to improve our financial initiatives. We made improvements in formative terms, in qualitative terms, and hopefully we added also to the gravity of the report. Once again, I hope you will find this enlarged report helpful for your work.

Let me now go into the presentation and I start with our profit - with our profit performance. As you may have noticed in our - in our investor relations release, pretax profit came in at two point two billion in the second - in the second quarter. However, as always, we had some special items, some positive ones, and also some negative ones. All together the special, that effect was a one point three billion plus so in order to arrive at our underlying pretax profit, we had to take out this one point three billion, resulting in an underlying - in an underlying pretax profit of 900 - of 900 million in the second quarter, an increase of 41 percent quarter over quarter. And also in the context of last year, very strong number and I can also say that in this number, higher risk provisions are also included.

As far as the one point three special items are concerned, I will come back and explain this 1.3 billion in more detail later on. The revenue performance, again, a solid revenue performance. Underlying revenues, as defined here on the chart, you will also find the definition of all those terms which I'm using in my presentation on a backup slide to the presentation which was put on the Internet this morning.

Underlying revenues up 8 percent quarter on quarter to 6.3 billion in difficult markets. This achievement due to market share gains in various areas. Also, this

of the first

consolidation of

early April had an impact. One-third, you can say, of the increase came from this

integration. Net, also important is that the 6.3 billion is over the average of the last -- the preceding fourth quarter and very close to this underlying number. I have mentioned several times in presentations to you of the 6.5 billion in underlying revenues which we want to achieve.

Here, you see a breakdown of -- the breakdown of our revenues in the various components. The inquiries in our revenue performance, quarter on quarter, was due to higher trading performance and also commissions. In commissions, it's inquiries of 4.4 billion, again, partly impacted by the first time consolidation -- the first time consolidation of

. You see here in trading performance, 1.7 -- 1.7 billion. In the annual report, in the

, a number of 1.8 billion is mentioned. The difference is the positive mark to market effect on a hedge -- with industrial holding, and we take this hedge out of the calculation.

We closed all those hedges in the second quarter, so going forward, I don't want to have -- I don't have to bother you anymore with this special FAS 133 -- FAS 133 effect. As far as interest is concerned, various factors contributed to this mild decline in interest income. Was is lower dividends. Another one is also that we reduced our loan portfolio, and this, by definition, then results in a reduction of interest income.

So far, to

, revenues and I hope that those numbers clearly demonstrate that we will achieve a solid performance. Let me then move on to cost management. As you can see here from this chart, the operating cost base, as defined here, the operating cost base is down 10 percent, 10 percent year over year in the second quarter. Remarkable -- a remarkable result. This mild increase from the first to the second quarter is the result of

integration, and also of various individually small one-off items.

If I adjust the second quarter for the first-time consolidation of

and those small, but small one of items -- our operating cost base in the second quarter was down by almost five percent to 4.6, five percent quarter on quarter. So on an

adjusted basis we continue to make progress with respect to reducing cost space on a quarterly basis. The next chart gives you the breakdown of the operating cost space in

and non

, once again this mild increase of non

is entirely due to these affects which I mentioned. Adjusted for those, in fact, we would have also achieved a decline quarter on quarter.

The next chart, I think, is very important and it's very interesting and it'll compare some key figures out of the P&L, the first half this year against the first half of last year and what you can see here is that our -- the reduction of our operating cost space was larger than the decline of our underlying revenues, usually it's the other way around as we all know, but we clearly managed to reduce our costs much farther than our revenues declined. You'll recall, I hope, that in the first quarter -- the first half last year, particularly the first quarter, was very strong. So this 9 percent

I would describe, given the trading conditions, as a mild decline.

If you're -- if we take into account affects of the first time consolidation of

and deconsolidation of

and similar events, the consolidated adjustment reduction in the operating cost space was $1.9 billion or 17 percent. I do believe that this clearly shows that our cost reduction initiative has shown tangible results. The minus 9 percent here on the chart

into lower revenues by $1.2 billion. The operating cost space result in the positive of decline is $1.5 billion, so on that level we have an increase in our pretax target of $3.3 billion. Unfortunately, due to the deteriorating credit environment, we had higher

provisions, a subject I'm going to discuss in a moment and the higher

provisions more than absorb the gain which we achieved on -- from our -- from the reductions of our operating cost space and as you also can see clearly the cost income ratio -- the underlying cost income ratio has improved.

The next chart shows underlying profits -- first half last year, underlying profits. First half this year, down by 11 percent and this decline is now broken down into three components. The volume affect at 9 percent decline in revenues applying the same margin as last year cost us $.2 billion, but we gained on an improvement on margin due to the improved cost income ratio $.5 billion and then you have to hire risk provision so you can see that the higher risk provisions so you can see that the higher risk

they are the reason why we have this 11% decline. Now the

from our reported income before income taxes to the underlying pretax profit, as I mentioned before, 2.2billion pretax profits.

We had net gains and this

one 133 effect on our

holdings, that the positive side of 2 billion. We had net

on alternative assets in particularly an equity pickup. Both events are within our corporate investment, our

holding portfolio, so from a portfolio point of view, on

net, those two numbers, I'm showing those two numbers separately, to give you additional details

the net effect, if you will , out of our

holding portfolio, primarily was 1.5 billion. We had then net gains from subsidiaries disposed, and subsidiaries held

. The net gains from subsidiaries disposed, the positive side was the fail of Deutsche

, the net gain was .5 billion.

We accounted for this before the acquisition of

and the sale of

as one transaction, with the net effect that .2 billion of the gain on

was accounted, if you will against the goodwill from the

transaction. So if we had accounted this transaction as two transactions, the gain on

would have been higher by 200 million, this once again underlines the conservative approach we take when it comes to accounting. So we have 500 million from

so there must be somewhere, a loss of 300 million. And this loss of 300 million is an anticipated loss from the fail of the subsidiary in the US, in the factor of our financial service area. We decided two years ago, to go out of financial services, so we sold last year, our activities in Germany and in Europe that was

we realized the profit of 200 million.

In the US, because of the more difficult environment, we anticipate a loss of 300 million on that transaction, and we have fully provided for this expected loss in our second quarter P&L and then we have the restructuring and severance of .4. Taking into account all this adjustments, we end up with a .9 underlying pretax profit which we consider as the number you should look at when it comes to assessing the operating performance of the bank. The next chart gives you the reconciliation of our reported - our pretax profit to net income. On the 2.2 billion pretax, we have a tax - we have tax expenses - income tax expenses of 150 million. Why is that number so low? This is clear because capital gains tax in Germany - we don't have a capital gains tax in Germany. So the after-tax number if you will, is 2.1 billion. In addition then, we have this reversal effect we talked about in our US

workshop last October. And this reversal effect is totally artificial accounting treatment without any economic effect whatsoever. Gets us - is the one point nine billion and that's the reason why we do have as net income 200 million.

In the interim report, these affect once again, this describes in detail for you and it is explained why the

and investors should just neglect this one point nine billion when it comes to assessing our after tax - our after tax performance. Additional detail you can also find in the 20-F and in our annual - and in our annual report. Once again, these numbers do not have an effect. The tax credit, which we had to take into consideration '99 and 2000, didn't create any, or should I say, was absolutely

as far as the fiscal authorities here in Germany are concerned and as far as this one point nine billion is concerned, this doesn't create any tax liability with respect - with respect to the fiscal authority either.

Let me briefly show you the divisional - the divisional results. CIB once again, very consistent revenue performance, this clearly demonstrates the strengths of our CIB franchise. The next chart gives you on the cost development and it shows that costs within CIB have come down quite significantly.

As for on profit, you can see a mild reduction from point seven to point six. This is the result of our higher loan loss provision. If you compare our - the pretax profits in the first and second quarter this year and compare them with last year, you clearly see that we made - that a very solid pretax profit performance supported by a lower cost base.

, very stable - very stable revenues. Underlying revenues are up by seven percent quarter on quarter. Here this cover effect clearly helped. But even if you adjust for the first time consolidation of

and de consolidation of

, you have an increase quarter on quarter of more than two percent.

You can - you have heard the breakdown of our revenues by the three divisions and you can see both clear that as of management has benefitted from this cover and we've acquistioned while on the other hand, personal banking, insurance revenues went out.

Operating cost base down by 11 percent year on year. Once again, the increase quarter on quarter is the result of this - of this cover integration.

The next slide is very - is very important. And is shows an increase, a further increase in pretax, underlying pretax profits in Peking 246, and I suppose that this chart clearly shows that Peking has really tried the quarter and is on a very good path as far as their performance is concerned, and

will give you more details on that.

The next chart -- I don't think I should go too much into the detail here. It gives you additional detail as to the P&L of corporate investments -- just to make the development in that segment transparent for you. The 175 and 322 combined are the .5, which I mentioned on my chart. 15 and the 302 -- this is the

of the subsidiary which we are going to sell in the U.S.

The remaining result -- you might be, perhaps, a little bit surprised about the operating cost base of 314 million. This line is the effect of private equity investment, which we do have to fully consolidate because we own more than 50 percent in those private equity investments. That's primarily, for example,

.

As our financial service subsidiary in the U.S., is -- in quotation marks -- for sale, we transferred it at the beginning of this year from CIB to corporate investments. We own 100 percent. So, it's also in

, which is about as much with the

banking activities of

, is also

. This is the reason that we do have this 375 in revenues, why we do have

provisions, and why we do such an operating cost base.

The next chart, again, is the same format as in prior quarters. It gives you the breakdown of our alternative

, and it shows you that that on the private equity

, we managed to reduce that position. That's the result of this position. It's also a bit the result of

. I mentioned 175 in the second quarter, and the shift in exchange rate also helped a little bit.

The increased

real estate is the result of funding commitment, which we end up into last year and other prior years.

So far, to the divisional result, let me now come to risk management. We have undertaken comprehensive measures to reduce our risk exposure. But, before I come to that let me explain our

provisions in the second quarter. They came higher than most of you expected. There are three factors -- not only one factor, three factors, which contributed to this increase. Clearly a deteriorating credit environment, which resulted in significantly lower recovery rates. That's a special, if you will, a special feature of the

that recovery rates are much lower than they used to be in prior recessions. We had special events -- for example,

, but also the

. And, we had corporate scandals.

Out of -- if I take our first half-year

provisions of 895 million, one third came almost 900 million. One third came from lower recovery rates, and 20 percent from fallen

such as WorldCom and

. I mean, it is absolutely clear that particularly corporate scandals and their impact on LLP are very difficult to predict and are very difficult to cope with. Adjust for corporate scandals and for the lower recovery rates -- adjusted for those we are still on that basis of 40 percent -- 40 basic points LLP on the entire portfolio.

The next chart shows you the problem loans. We have a reduction of $1.2 billion since the beginning of this year, this is the result of

downs we have written down in the first half a $1,350,000,000. The shift in exchange rate also contributed. If you take this into account, we have a small increase but this increase is comparatively small if you take into consideration the deteriorating credit environment. As I said before, we have undertaken comprehensive measures to reduce our risk. We reduced the loan portfolio, which I'm going to show you in a moment. We reduced the commitment to extend credit. We also reduced the guarantees, detail can be found on page 34 in the interim report. We have taken additional measures the -- like the

of trading exposure and also hatching of concentration risk.

The next slide shows you the decline of our loan book, if you will, over a period of 15 months we have reduced from $295 to $253,000,000,000. Clearly

helped a little bit, $3,000,000,000 in the second quarter. The exchange rate helped also, a little bit, but if we take the whole thing into perspective I think this is an achievement we are proud of. We have taken comparable measures, as far as market risk's concerned they are mentioned here in detail and as you can see we have further reduced our value at risk and reduced risk exposure in various areas. Let me now move on to capital management. Risk rated

have come down 11 percent in 15 months and Joe will further comment on our targets, as far as risk rated

are concerned. The reduction risk rated assets and additional

got our tier one ratio to 9.3 percent in the second -- up at the end of the second quarter.

Let me now give you a brief update on share -- on the share buyback program. We started this program at the beginning of the third quarter, so our second quarter figures are not impacted by our share buyback program. So far, by the end of last week, we had bought 7,000,000,000 shares back. Let me finish my presentation by discussing briefly some ratios. As you can see, our cost income ratio -- this is the underlying cost income ratio, as we find in this presentation, has come down to 77 percent. A reduction in -- particularly the reduction in the compensation ratio has helped. This reduction in compensation ratio of a

. There was bonus accruals and also a reduction in our - in compensation and benefits. You also see a reduction of a non-compensation ratio, and once again this against the backdrop of a

decline on our revenues.

The next chart gives you the return on equity. Return on equity has improved to 11%. When we analyzed the return on equity, we look at our profit margin. This is 109 of the cost income ratio minus known

as a percent of revenues. That's the profit margin. Clearly the profit margin in the second quarter, also in the first and second quarter have been adversely impacted by higher risk provisions. Nevertheless, we managed to get to a return of equity of 11%. This is clearly not what we - you know, this is not our target number, but the trend is light.

If I adjust the profit margin, or let me say, if I adjust the loan

of 40 basic points, and we have always said that before the basic points are what we need in loan

in a typical quarter - in a typical recession 40 basic points on an annualized basis, if we adjust for this, we have a return on equity of 15%. My last slide deals with - now I don't have that slide - therefore I just want to comment, as we discussed before, in example in the US

workshop there is a new

on goodwill treatment,

140 -

142, and we had to check in the first half of this year, that what we do have an transitionary impairment of our goodwill which we have on the book at the beginning of this year, was a number of 8.4 billion.

we do have a

impairment as a result of this new

and I can inform you we have come through this test. We had this test reviewed by

and the result is exactly what we expected, it's also exactly what you expected. There's absolutely no goodwill impairment what so ever, as far as Deutsche Bank is concerned, and this concludes my presentation. Thank you.

thank you Clemens, and now we have

Ackermann.

okay. Lets now go into some of the strategic initiatives. Some of you have probably seen part of it, but not everyone, so let me just say a few words. We had a

in

position market

in the last five years, and as one of the reasons, we said we have to do something in order to increase profitability and in order to improve our market

substantially. We have seen that, since the announcement of the initiatives, we are slowly but surely moving up.

as an example, just to show how difficult the German market is, and I think that is also, if we take into account.

But I would like to emphasize once more, we are not aiming at any market

-

of a market

or anything which was somewhat quoted in the press. We are focusing on profitability in return

. That's the only goal we have and it's up to you and investors to find our share, attack it, and then hopefully that will help to push our price and market cap up. But it is all so clear that, and we have communicated that over and over, before we do not reach a different market cap, we are not in any way in aggressive mood. We are doing our homework first. Whether we do anything later on, is not on the horizon yet, but you'll know that conversation is probably not finished yet. Next.

Some of the peer comparison, which shows why our market cap is where it is, in terms of revenue that you see and

has just alluded to, the underlying revenues are quite strong and stable so that's probably not our problem. Our problem is that for a long time we have expanded, we have expanded in core businesses and non-core businesses and by doing that we've all been suffering from a certain time lag in terms of revenues and cost income ratios has gotten worse and worse. We are reversing that trend now as you have seen, minus five percent, but it is still not based in class, as you see. Although I would clearly emphasize that some of our U.S. peers are not by comparable. Neither from an option point of view, now from a business model point of view. Because if you are strong in an emerging market your cost income ratio is of course lower there but you have probably higher ups and downs on your probation tests.

Return equity, that's our clearly deficit, is not by far not enough. We had seven percent. I will show you where we are heading to just based on the measures we are taking right now. Next.

The group executive committee in order people, I think it's a very natural group, it's a committee group. It's a group where the chemistry works and it's a group, which is highly committed to improving shareholder value and also to improve the positioning of the bank in our core business. Next.

Based on that short analysis, we have defined four major priorities or initiatives mainly performance management, so no longer growth attitude all over. Clearly focusing on the core businesses. I'll come back to that. Third improvement of capital balance sheet management and the optimization of the Peking in most financial markets use a more stable platform. Next.

Now, again, the revenues, stable. I'll let

show it. Next.

Now the franchise and I like to show that because some people may say well if you do all you actually want to do, you are shrinking to glory. I know there are examples of the banking industry, which have done so. We are not doing that. We are focusing on the core businesses and in the core businesses we want to grow. And as you see, we have made tremendous progress again in the U.S. market, the

market, and M&A. Such a short while ago people said you are not even top 10, now we are a top player in Germany in U.K. and in Europe as well and making progress in other parts.

The awards are still coming in which shows that clients appreciate what we are doing. Just nominated best bank in Western Europe again and all the others I don't want to get through that. I don't want to say that we are putting too much emphasis on that. It's nice to have it. If you don't have it you may have a sleepless night, if you have it you are not spending too much time on it, just a little bit

psychology. Next one, now the cost base again, just to explain where we get there to $2,000,000,000 target efficiency gains highlighted some time ago and I will show where we are. Next, here are the detailed measures -- I don't want to go into all of them, but it shows the run rate -- the $2,000,000,000 has 14,470 FTE impact as our job search will disappear unfortunately. To date we have one time cost to achieve that and every 1.5 -- $20,000,000,000. Over a billion is already done, either in the reduction charges or through severance packages and the future costs are $490,000,000 of which $260,000,000 this year and $230,000,000 next year and we will not take any further reduction charges, they will be taken through the severance packages, through the P&L.

Next, as you have seen in the first six months we have already achieved a 300,000,000 efficiency gains and I'm just talking about the efficiency gains, not about cost reduction and it annualized means 0,6. We have announced 0.8 for the full year to achieve the $2,000,000,000 at the end of next year and I think we are on the right track as you see in this chart. Next, here you see the workforce reductions; all in all, as I said 40,470 of which 6,060 in Germany, 8,410 outside of Germany, 64 percent has already been realized. As you see, there are 3,250 more jobs to be cut in Germany and the remainder part roughly 6,400 outside of Germany and we are making good progress in moving very fastly.

Next, now the efficiency gains all in all -- the -- if you take the total non interest expenses in first half 201 and throw it in 202 you see that we have come down from $3.6 billion to $11.3, but there is some specialized

for this we hold the benefit to claims and things like that, we have taken them out. We are concentrating on the operating cost space, which has come down from $11.2 to $9.7. $100,000,000 comes out of portfolio measures, namely divesting -- exiting certain businesses. $1.1 billion we call because you want to be on the conservative side. As we've always said this $2,000,000,000 excludes lower bonus accruals or portfolio measures. We want to achieve that by getting really more efficient and that's the $300,000,000 and the $1.1 billion includes a lot of low hanging fruit. I'm not saying they are coming back, I'm just saying we want to be on the conservative side and you will see that at the end. So all in all, operating cost space $1.5 billion. I don't really want to mention the annualized number, OK.

Next, now for businesses, these are our core businesses

basis. The corporate investments, I would like to say word here, as you have seen we are reducing

and we will continue to do so as aggressively as possible and you will see that in the outlook of what you want to achieve there. The -- some of the

are already divested. Most of the June

, with the exception of

, which is on the way. The asset finance business -- which is the

-- but, it's taken care of in our first half P&L. We are getting close to an agreement, I hope.

, the same, and we are, as you know, exiting asset management and

business.

And just to show you what the thinking is -- and I think that's important --

is a good business for us in terms of global ranking. We are roughly number four. But, we said to ourselves, first of all, it's not a good business from a

income point of view. Secondly, in order to catch up in terms of technology, we would have had to invest several hundred million, and we've had

a core business for us, so we're better exiting it.

We are, right now, starting the

, so we have serious

and we are confident that during the course of the year, we will be able to announce something.

The exiting

activities -- and I think that's important, because some people say, "well, you are giving up bottom line." The matter of fact is that we are reducing the cost basis -- that's in addition to the two billion and all the other things -- by 1.4 billion. Another 8,000 jobs will disappear. About 10 billion

assets. And now, the interesting thing is that the cost income ratio of this

, are over

. So, actually we are selling losses. And, that shows that the complexity of the bank has certainly not helped us to improve return on equity the way we want it.

Next. Now, the

capitalization -- we have started last year, at the same time with 313 billion. We have started aggressively to reduce that to a better risk management. Exiting exposures we don't like, either from an exposure management point of view, or because we don't see any additional benefit in it.

The impact of the

will be 22 billion. The

, just as I showed you, another 10 billion. So, pro forma -- we are yet at 256, and there's more to come. The launching of the share buy back has already been mentioned.

Now, the

franchise -- we have such strong asset-gathering in base in

alone. Of course, we have more assets overall, but in

, over a thousand billion. Now, you see that

had an impact here. Of course it is from market movements of the negative

, but I think it shows that we have a very strong platform here. And in relative terms, I think it shows how insignificant the actual

is, and, as you just said, it is subject to a

process right now.

Now, and you will see that for

. What we did is we said, "let's be conservative in the way -- let's take

revenue base," -- this is still aggressive going forward. But, let's say something we had -- and take the bottom line, which we would have reached at that time, excluding exceptional items -- and just say, we do what we are telling you what we are going to do. What will be the impact? And the impact of the headcount reductions, of branch closures, of any other things, will lead to an improvement in personal private banking of 650 million. And you see how important this

will be for us, going forward. So the retail piece, long as almost

perceived by many people will be a very stable -- I would almost say a cash cow for us going forward.

The same is true for us in management, which we turn around. Here, we have kept, more or less, the revenue base intact. We are selling the excess business, as you see, at 20 million negative, and we are, or have just, made 1500 people redundant, 1100 we completed, 400 to come. This will turn around this business and this will add another 420 million. So the

business, nothing assuming about higher revenues, just doing what we announced and just the impact, the effects of this restructuring will bring us to an underlying pre-tax of 1.6 billion from 530 million last year.

Now, we are having contract for delivery. We have on track to cut the 2 billion with the, as you have seen, run rate efficiency gains of 600 million to date. We have exited and are exiting non-core activities through the first quarter of next year, hopefully faster. We're doing that. We are exiting

4 billion operating costs again in addition to 2 billion. We have reduced pro forma risk-rated assets by 18 percent. We are actively in the market to buy back shares, 7 million out of the 62 million which we have the authorization for.

We have a -- having turn around

successfully. Now, what would that mean for the group as a whole? And again, no revenues assumptions just based on 201. I think that's the best way to show it. If we had the underlying revenues of 201, the

of 201, and we would

. We would then reduce discretionary spending, and you have seen we had 1.1 billion in the first quarter and the first half. Annualized, 2.2 billion. We have said, well, this may not be very conservative, so we took only part of it, only 700 million, in order to be on the safe side.

And the 2 billion efficiency gains, the exiting of non-core business and capital management. Capital management includes two things. One, namely the share buy back of the 10 percent, and secondly, to reduce private equity asset -- alternative assets exposure by 4 billion, and that's something we're working on. And reinvesting, redeploying this 4 billion capital to other business to our core businesses. So that would lead us to an underlying pre-tax profit up from 2.2 billion last year to 5.9 billion. The underlying earnings per share would then be 6.3 instead of 2. But you see that in terms of underlying cost-income ratio,

percent, much better than the 87. And the underlying return equity, 21 percent instead of 7, is getting us closer to what we have announced and have felt committed to, namely the 75 percent range, or below 75 for cost-income, and the 25% pretax underlying return

. So I think in addition to what we do on the cost side and restructuring side, market has to be better than in 2001 to achieve the full goal. But we wanted to be as straightforward - as honest a possible.

It doesn't make sense to talk about the goal, which I don't believe anyhow. That's just based on what we have achieved, what our normalized revenue base is, doing the measures we are doing, and then see what the outcome is. Now we have also changed - adjusted our mission statement, and I think it's important, because every word here has - and should have some meaning. We aspire to be a leading global provider of integrated, so we are not getting away from the integrated approach. Some people are talking about becoming even more focused, more

. I think we can afford that, although right now, as you all know, concentrating on very few businesses might be even better, but for demanding clients.

So we are not interested in

business and retail business outside of this European multi-country approach, which we have outlined. But we clearly have a different position in general market here, we want to be a fully fledged universal bank, but for the first time I think

are clearly indicated and are committed to generate exception value for our shareholders. That concludes our presentations.

Thank you Joe. I think this is setting the stage perfectly for our discussion. If you want to raise a question, please give

and we have two or three microphones in the room, wait for it for the benefit of all

listeners. So we start with Mr.

. Okay.

Thank you very much. I would like to ask you only two questions. First on

you had considerable increase in the second quarter. This year from 270 million first quarter to 588 million in the second quarter, could you give us an outlook for the rest of the year? Do you have a budget for full risk provision in the year 2002, to give us here, and advise, and second question is to Dr. Ackermann regarding his presentation and the

in

division. You show that you have a pro-forma underlying pretax profit potential of 1.6 billion Euros coming from 530 for the year 2001.

If I look to the half-year report you have for

pretax profit of 627, its on page 34 in your interm report for the first six months. Am I right that in

this half year figures of over 600 million for

are included of the 500 millions total gain from Deutsche

if we would

this 500 million, you would be apart from your target, so my question is - sorry for the long question, when do you think you can reach the 1.6 billion and realize all this efficiency gains? Thank you very much.

well, for the second question, as Clemens

here showed you, the underlying profits are roughly 450 million in the first six months in

. So unrealized 900 and we are saying the underlying profit, after all the measures we are going through, will be one point six billion. So, it is as not yet included. But you are right in the reported numbers you have the insurance in

.

Do you have a time target when you can realize this?

Whatever we are saying, we are going to achieve by the end of 203. That's what we are committed to for all these things and hopefully sooner, rather than later. But 203, end of 203 is what we have said.

To the first question, I think

has said that the if you take the underlying portfolio of 40 basis points was the provision rate, we had some extraordinary items this quarter to handle, we alluded to. The question is, you know as much as I do, are there more times to come? Or are we back to the normalized level? So, I mean we are not expecting a third configuration. I think the U.S. is going through a cleaning process and you will see the end of this constant crisis. And I don't think you see a lot of hard times to follow. So in that sense you will all be back again to a more normalized level.

OK. Who's - the next question please.

So you start in the back. Start in the back and then we will come forward.

OK. Yes?

We ask you to speak up a little bit.

Is that better?

Yes. Great.

Yes. Two questions if I may, firstly, on credit quality. Could you comment on the coverage of non-performing loans with provisions and to what extent you're relying on collateral or the statistical probability of recovery for the remainder that's not covered? Secondly, could you comment on the asset management inflow or outflow position in that new money terms, focusing in particular on

? And possibly referencing, you know, the net new money data you gave with negative 15 million, billion, rather for the whole of the asset management division. I don't know whether you could comment on

specifically, maybe break out the 15 billion.

OK.

will take the first question.

As - you had two questions. The first was, you know, how do you determine the - how do you determine the recovery rates and the second was, you know, what is the impact of collateral. Clearly, as we have said, we do have collateral and we do believe that in most cases we do have - we do have, in our cases we do have good - we do have good collateral. However, as least on a quarterly basis, we do assess the value of those - of those collaterals and in case we do see deterioration as to the value of those collaterals, we take those and we take those into account. As far as the recovery ratios are concerned, it's a two-fold approach. One, it wasn't as clearly based upon in the brand statistics and it's based upon our database, which we have. And we do have - we do have statistical, you know, statistical data, for example, as to the recovery rates in prior periods.

However, then we go - we go on a one by one basis to all our credit exposures and assess, given the knowledge which we have at this point in time, to assess, you know, what the most likely recovery rate is going to - is going to be. And that is why I said that at this time, we do see

recovery rates than what we used to, and that means that is a deviation from our database, if you will.

So, the capital flow -- I think you see that on one page, the strong asset gathering base you see starting at the end of

, that

was down by two billion. Market movements, performance and

movements, triggered the 150 billion decline. The

and

-- the net affect is plus 299, which brings us to the

.

Now, your question was more concerning

.

has not, of course, not the full asset base as

, but we were actually surprised -- we lost very little. So, that so far, so good. And, the good thing is that we are not so heavily

dependent. It's more fixed income, which helps us, too.

Go over there. You have the first. OK. Thank you.

Good afternoon.

from

.

I was just wondering if you could fill us in on the treatment of potential

. I thought that you had emptied this category at the end of 2001. And, could you confirm that the .7 billion potential

that you're referring to is a potential problem that you've only just recognized in the second quarter. Thanks.

No. It has to do with the definition and classification. It's a loan, which is in arrears as far as interest rate payments are concerned,

by the end of last quarter, and therefore, by definition, don't qualify for our

loans, and therefore couldn't be taken into consideration in that 11.5

. However, I would like to mention that this

loan is entirely collateralized.

Now, it's easy to find out what it is.

OK.

. I'll be on then on the other side of the ...

Yes. Thank you.

I have, please, two questions, really on the technical side. The first one is on impairments. You say that there are absolutely no impairments after the test. This is clearly for the period January to June. Given that the markets have declined somewhat since that period, and assuming that, say nothing happens until the end of the year. Would you expect impairments to occur at the end of the year? And where would these be?

The second question is really regarding the trading mix. I'm just wondering how much of the fluctuations we've seen and the results from the derivative trading of equity and bonds is because of market movements versus maybe, allocation of your equity versus the different segments, i.e. strategy in trading? Thank you.

On impairments -- you are right. The impairment test, which we had to perform during the first half of this year, related to circumstances, generally the first of this year. And the issue was, or the question was, "is there an impairment of our good

?" which we had on our balance sheet, generally the first this year -- given circumstance on generally the first this year. And, it's called a transitional

impairment -- if there is an impairment -- because, until the end of last year, another

was enforced, and that's their --

-- as to assessing whether a

is impaired or not. We use the new standard as a

42 to determine whether our goodwill, as of January the 1st this year, was

basis upon the new methodology. The difference in simple terms -- the difference between the old

and the new

is that the new

is based upon fair value of discounted cash flows, while the old standard was that the accumulation of cash flow was -- on their decision, net cash flow

sufficient to cover the goodwill or not, so it's a

of test -- a

of test, if you will.

The fair value of the good -- the fair values, which we or our segment are much higher than we have allocated to those segments in terms of equity and in term so of goodwill and therefore those fair values are -- for each segment and combined accumulated higher than we have in terms of equity and in terms of goodwill. But you are right, we have to do, once again, an

test by the end of this year and you are asking with respect to the sensitivity that has and whether I do expect because of that sensitivity and

by the end of this year and the answer's no I don't expect an

and the reason for this is that our goodwill is

covered by the fair values in this by a wide margin.

Next you asked about revenues from our equity trading, which is negative here. This is a mandatory disclosure. This is a disclosure we don't think is -- I mean it's definitely right, but it might be misleading because it doesn't reflect the trading activities. It -- or the trading -- the revenues of the trading operation because it does not include interest income and interest expenses of that trading activity. As I discussed in my presentation, our trading performance was $1.7 billion, other than the $1,000,000,000 which we have in the financial according to those definitions. In the trading performance of equity you do have a trading revenues minus 255, but the trading performance of equity is fell over in the past year or so that was a positive revenue and therefore I can only reiterate this number -- this figure is not indicative to the trading performance which is achieved in those areas. I think the better number you'll find it on page 10, where you have the

. OK David.

Hello,

from Morgan Stanley. I'd like to ask, how relevant is the second quarter of the

period? I refer to slide 37 and specifically Deutsche's history has tended to suggest that courses one to three shows very good results, and then forth quarter, as we can see from your own slide here, an underlying cost

of 98%, equally how do you show in 2000 on here, that would have shown a similar result.

When it's - with regard to compensation ratio, it seems that your compensation ratio in the second quarter of 44 was so encouraging that that's the lowest level we've seen over the past eighteen months, and we can see from 2001, that having been averaging 47-48 during Q1 to 3, you then have to push it up to 59 in the forth quarter, as you find out the compensation was not as flexible as perhaps your previously assumed. So, really my question comes down to, can we expect in the forth quarter, to see the positive progress being made in the second quarter is - it's a return to the old

results?

First of all, I think, I'm talking about now the costs in general. I mean you see what we're doing and what our goals are, so that's - that you will see a positive impact. The bonus issue, the way we do it, and I'm strictly against anything else, but I know it is sometimes maybe aggressive. We are having a pre

with the different businesses. And then we are accruing that based on the

that's net income before bonus and tax. Now this may - up to now it is of course as you see, below last year if you include the exceptional first quarter. It is much closer to the

accrual of last year, so I think we are on the right track.

Now of course if the whole industry is doing much better in the second half, our bonus accruals will go up as well, because we will do better too. So that's why I'm always excluding bonus discussion, first of all in our presentation. That's why you're saying there's 2 billion and the 700 million low

has nothing to do with bonus, because it can go up and down. That depends what Morgan Stanley's doing, what

is doing, and others. Of course some of you have taken much more options outside the P&L, we haven't done that aggressively, as you know.

Some others have other

and

, so this is something which we decide in November and December. But I'm really a strong opponent of starting the bonus discussion in June and July. Now you may be right. You may see some pickup as everybody's doing better. So far I haven't seen that. But if someone is doing - or two are doing fantastically well, or getting into - which will

, if we just concentrated on global markets as some banks did, we would have

results in sales and

.

Higher than 2000, higher than 2001 again. Now if you just

on that, we cold be aggressively in recruiting people. Now we have other business as well, so this is something which I would exclude from any forecast yet. But I would not exclude, I think that would be not honest to exclude that the second half is stronger than the first half and second half is hopefully stronger than the last second half of last year, because this was a

. So we had a very strong accrual just based on our

accrual in the first half last year, and a lower one in second half. Now maybe this year is the other way around. I don't know. I know as much about markets as you do, but yes, this is a flexible

.

Okay....

May I just add a few remarks on this. I do believe that we have made significant progress as far as our quarterly reporting is concerned. We have made significant progress as far as our quarterly accruals are concerned. And we really do treat each quarter like a fiscal period, or as a fiscal period. As to the first quarter last year, once again, I would like to mention that the first quarter last year was impacted by some long ops. I explained those in, I guess, two analysts conferences before. And just on the come side in the first quarter I would like to mention the additional expenses which we had for the buyout of our global equity, the buyout of our global equity claim. We alerted you about this in our U.S. gab workshop in - last year in October. As of today, we do not foresee any of those - of those events going forward.

All right. But feeling now

.

Could I ask three questions? The first question is on the revenue swing of the group level underlying, I think you said you had five point eight and it increased to six point three. When I look at the divisions, I find it difficult to reconcile because CIB has gone down 100 million and

has gone up maybe 250 if you take out Deutsche

and the insurance. So I can only assume that if you look on page 25, the remaining results in corporate investment that you briefly mentioned the 375, were much lower in the first quarter. Why can't we reconcile what's going on at the group with what's going on at the division on an underlying basis is the first question?

The second question is the issue of costs. How much was the weaker dollar? How much does that help you in the second quarter versus the first quarter? And that would also be interesting on revenue as well.

And the third question was on hedging. You mentioned that you're using credit hedges. Could you be a bit more specific and say how significant this is and how much, I mean it must be costing quite a lot? And where that's going in the P&L on the income line? Thanks.

The - I don't have all the details. As far as the revenues are concerned, the increase from five point eight to six - to six point three, 150 million is from

. Then there is from corporate - from corporate investment - from corporate investment there is the increase of 260. And there is also an improvement of 200 million from - in consolidations and adjustments. In consolidation and adjustment we have only differences between our management account and U.S. gap difference between accrual - between accrual and market to market. That's the consolidation.

On credit hedges, that is why I said, you know, we started this. We did this, I guess it was on the sly, because back to concentration risk of large name. You are right we have to take a portfolio and purge in order to make it - to make it less expensive and clearly given the current situation we can only make it in a controlled way because it would be - it would be to expensive. And the cost going trading.

The exchange rate had more impact on our balance sheet items,

on flow figures, such as cost. So, the impact was not too big. However, should the

exchange rate prevail for the remainder of this year, we will benefit a little bit.

So who is next? I think we should take two questions here. Could you hang on?

This is

, then

.

Yes. Just a few brief questions.

. Is it on? Let's try again.

firstly, could you clarify the

.

Thank you.

Yes. Thank you.

Could you clarify the write down on the equity investment that was taken in the second quarter -- what exactly that relates to? Secondly, it looks like there's a portfolio of private equity investments of 5.6 billion euros. That's excluding the real estate. Could you give an indication how much of that is principle? How much is third party? And then tie that in with Dr.

comments about exiting four billion euros worth of principal, private equity investments. Maybe give an indication as well over what time period that could take place over.

And finally, related to the cost savings, there's a breakdown, which we've seen for the first time, which breaks down the two billion. Could you give a bit more color on what things, like

, rationalizing product offerings, and improving infrastructure -- what sort of things they actually consist of. Thank you.

OK. The

on private equity is combined with the

-- no, is combined with validation adjustment in our other corporate, industrial holding investments. The net

in private equity was 175 million in the second quarter. And if you want even more detail, the gross

was 227, against which we had a gain of 52.

You mentioned the portfolio of 5.4 -- is it 5.4? Or is it

minus 1.7 as the private equity portfolio? The approach

has taken in his presentation was, if you look into the sequential reporting, we do have equity allocated to the corporate investment segment of 7.3 billion. And, we want to reduce this investment allocation by four billion. You know our methodology is that we calculate the economic capital, because this is the best indicator for the level of risk we are taking in a particular business, and we have then the capital allocation facts, which makes sure that we fully allocate out of our equity that's 1.2.

So, when we talk about the four billion here -- because that was discussed within the context of return on equity -- we didn't talk about the

value. We talked about the allocated equity, and we want to reduce this allocated equity by four billion. OK, now the detailed measures. To realign coverage, what we are doing, we are -- we will have a new focus on what we call our tier one A client or tier one clients, so we are exiting client relationships. We are reducing overlaps within investment bankers and commercial bankers and

bankers in the coverage.

Rationalized product offering, we are rationalizing the wholesale cash equities, that you have already done 400 people. We are reducing our brokerage

force in the U.S. You remember we lost $200,000,000 in this -- the brokerage

last year and this will be a break even business by the end of the year. It's below $50,000,000 this year, already.

We will

. I'm going to give you my famous example; I think you've heard it before. We have not reactivated 600 applications after September 11th and we haven't had any complaints so there's a lot of redundancy. Then, of course, we are reducing spending for those people who are exiting,

for instance $700,000,000 and the

is primarily the headcount reduction I mentioned. We are consolidating locations. We are migrating

to the

platform.

The

platform, I think what is very important here we are merging the

business -- the business -- client's business and the retail business into one unit increases and the private clients. So doing -- expanding the

with major divisions

a lot of overlap

process and the coverage people, the product people know this is the

people in Germany which are still to come. We have minimized the

expense, and event in Mexico, Italy, Spain and Ireland. We are eliminating private banking

to Germany. We are migrating

. We'll eliminate our 200 branches in Germany, Spain and Italy

.

We do have -- now, I will have to phrase it carefully because we are talking about two events. There is a number of -- around $30,000,000, which relates to an investment which we have an

in a software house and as we own more than 25 percent, this is accounted for at equity. Conservative as we are, we also take into consideration the value of our investment, which we have in our balance sheet on a market to market basis and in line with the

decline of stock prices of software companies that the stock prices come down and liquidity has dried up, so we made an adjustment of our investment in that the value of our investment on our books, taking into the consideration the decline in the stock price and lower liquidity.

The other -- the larger position relates to an investment which we do have in an insurance company, and we made a

adjustment. We feel fine as far as the value of that investment on our books is concerned. We made an adjustment of a

net asset value, or if you will, yeah, a

net asset value to our conservative accounting standards, and this was

in an adjustment, and this adjustment is accounted for as equity. And those two events together totaled 322 million.

Transparency. Do you have a microphone? No? Second row

.

Three questions please. Firstly, on the private equity, you talk about taking 4 billion out, but if I recall correctly, the directive is pretty clear

you focused on the indirect is basically the

business issues. The old banker's trust, US, are invested in 99-2000 so, I'd imagine that's got a

as well, so is that a good time selling those positions and can you really take 4 billion out, do you have to sell the good positions

stuff you can't get rid of. That's question one. The second question is basically on the 1.1 billion of discretionary costs you talk about taking out in the first half.

How do you define that - how much of that is bonuses and how much is falling away of things from last year, like New York stock exchange expenses, Euro costs, etc., what are you putting there, please? And the final question then is, going forward, the dollar/Euro I think is

with your cost cutting if it stays were it is, so it knocks about a billion off your costs without you doing anything, so how are you going to convince us, giving you don't disclose bonus, given that the currency is going to swing round. But you basically actually cut 2 billion in costs?

okay, first question will probably take a bit - we all know that this is not the easiest time to sell

and we are doing a lot of things - exiting businesses, we are constantly selling pieces. Your

pipeline. With market turnaround, we will do that immediately. We have interested parties to buy part of our portfolio and of course we also tried to raise third party money, which we are doing quite successfully, actually. So there are a lot of options available. The question is not the price, but as Clemens, maybe - I'm not

again today, but just in the press conference that we are very conservatively evaluating our private equity portfolio, because we have the - we take the right balance or we don't take the write offs.

So of course, the overall portfolio looks different. So we feel like it's balanced, then we take the bad things

, but we are not doing something with the good things, and in contrary to what you assumed, there's a lot of very good, very stable business,

exclusively. Not at all. The second - yes we are trying very hard and we have good - I think we have some good indications.

The other one is the 1.1,

is - part of it is

that's the best kept secrets in investment banking the bonus because not because of us, because all of us, everybody would like to know what we are doing to earn bonuses this year. But what is clear, the reason - a bonus element in it. There is a low hanging fruit element in it, like, you know, reducing marketing costs or containment costs and other things, consulting fees. That's why we haven't taken that into the efficiency. We want to be very conservative. We've only taken one third, as you have seen, from the annualized two point two billion into our long-term cost reduction fees.

The third one is, I think we have answered that before that the currency implication on debt rate, is yes. It is a capitalization, 14,470 people, now you can take an average count of 125,000, 150 and you have two billion. So, what - the dollar is a little bit up from that.

See at first we have to get the facts right. Total private equity direct is both EB capital partners and within the industrial holdings because you mentioned EB capital partners being only the indirect. Unfortunately, you know, the private equity indirects are the funds. They are entirely EB capital partners. And EB capital partners has also elect and direct in particularly, particularly in direct. The

issue,

advice and opt with the write down, which we took last year. The share of TNT in the entire portfolio has come down quite significantly and you do have - and you do have those numbers.

We start again on the right wing, I would say. Do we have a microphone in the middle? Sorry. That's OK. Let's start here and then we go over there. And then we start with

and then we move back wall.

Could I go back to sales trading? On trading performance, you've got various definitions. One is the sales trading, which I think is usually the best one to look at. And that's showing first quarter two point five billion Euros of revenue and the second quarter two point one billion Euros of revenue, with both 16 is on the equity side, down somewhat against the first quarter. I wonder how you can reconcile that with your statements about the overall trading performance, which after adding back the relevant interest is up from one point five to one point seven billion on first and second quarter. Obviously not all of it will be in the sales trading area, but presumably a lot is there.

And a couple of related questions. Could you just give comment on how equity derivatives trading performed in this period? Because we've had some very low volatility plays, while very high volatility, we should be good conditions for your business. Could you comment on how you see that - those conditions affecting the derivatives part of equity sale trading?

And finally on the - on the derivative side, you have made some mention of wider, credit spreads, having an adverse impact on revenues, on hedged positions. Could you say to what extent those mark to market positions might reverse and come back as profits or what sort of consensus would bring that back in the second half?

And then unrelated question, could you just explain what it is on

against Deutsche

that you've netted? Is it the restructuring provision or is it something else?

I guess I would start with the equity. The equity derivatives have been a stellar business in 2000, 2001. It is clearly below this level but is still a good business.

We always have this difference between a revenue category in our consolidate

financial P&L on U.S.

, and on the revenues which we have in our management report.

the performance of our sales and trading operation within CIB, global market and global equities. You have to refer to the 2.5 billion in the first quarter, and the 2.1 billion in the second quarter. Those numbers include trading, interest, commissions, and other revenue categories. It's clear that in a sales and trading organization, you do have commission income. In the trading performance of the

P&L, you just have the trading performance.

Secondly, in the

P&L, this is a consolidated number, and I give you one difference, which is very important, and which we have discussed several times, and this is the adjustment for gains and losses of trading in own equity.

The sales in CIB -- they take the gains and the losses. If they trade in our own equity -- which means in DB stock -- that's part of a portfolio of underlying stocks, which are

by a derivative. And if they make, for example, a loss, we have to reverse this loss in consolidation and adjustment, because any movement in our own stock goes directly to equity, and not through the P&L. So, we have to reconcile this. And the 1.8 billion for the second quarter -- 1.5 -- this figure includes that reconciliation.

So, no one for one comparison is possible. The best assessment of the performance -- not only the best -- the only performance figure for assessing the performance of our sales and trading organization is the number we gave you within the CIB revenues. OK?

On

, it's

complex. If you treat these two transactions as one transaction, there's a bit of complex accounting. But, in very simple term, the economic fact behind it, that you take a part of the profits that we made on

and netted, again, goodwill. It's not against amortizable, intangible or

. You netted against the goodwill.

OK. Let's see who gets to the microphone first.

I have two follow up questions. The first one is global markets. In your presentation, you mentioned how well it's done up to recently. But, if you look at the second quarter sales and trading fixed income number, we're looking at a decline, just in the 20 percent quarter on quarter. And you suggest in your presentation there's not much currency impact in the P&L. Is that purely an underlying business decline, rather than a currency impact?

Is this a start of a slowdown in fixed income markets that's coming through and the second question relates to

, you said that since

goes very well and we can see that on the cost side, but you say you haven't suffered many outflows yet the data we can track publicly in mutual funds shows that your hemorrhaging money in equity mutual funds. Are you gaining money elsewhere in the business in

, which has given you a more optimistic overall picture?

Our

to have ever been close to global markets

. First quarter is always very strong. Second quarter is still good, but somewhat

. The third is always the most difficult one and normally

the fourth quarter is very strong and you see that on page 11. Last year -- I mean we had $1.4 billion this year's second, $1.7 in the first. Last year in the second we had $1.4, so we are better than last year

second quarter, but the second is normally weaker than the first quarter. Sometimes

trade has

-- you know, taking a little a bit into the new year.

Their all going to say that's not true, but it's every the same. First quarter is always exceptionally

and more over

. And, you know, well recovered after Christmas. No, but your more serious question -- is the global market business -- is it more challenging. Well, this year it has been much more challenging. We didn't have a clear trend you had in other years and even more surprisingly they -- that they have a better

, asking them why because we gained dramatic

market share and we have very balance and broad vision from emerging markets to credit derivatives, which is outstanding to foreign exchange to -- plus the normal fixed income business, so -- but traditional businesses are somewhat weaker and others are doing much better, but in a nutshell we are confident that we keep that pace.

Can I quickly, on this one question about

cost. I know you're referring to a public source that were also in the

mutual fund, we have checked with our colleagues in New York and they are saying there is -- this is partly replaced by flows from this equity fund into fixed income products, so they're

.

Could you hand over the microphone?

,

hello. Can I come back to your credit

, please? I've got a question, I see a trend in provisioning in the last quarter that, basically, provision for loan loses was lowered and then that charge of

in the first half we seen a charge of $1.35 billion and loan

of only $900,000,000. So looking at the trend I would expect a German bank, basically, to increase coverage ratio.

I see the coverage ratio at 42 percent, do you still feel comfortable at this level or would you say this is a conservative level and if so can you give some details on the value

behind

please, thanks.

Yes,

against loan loss published. As we discussed, also, in prior meetings here, our practice has been to keep -- to provide for problem loan as fast as necessary or in some cases as fast as possible, but keep it on the books until all legal actions have fully expired. So we made provisions quickly, but the write offs to place very late. The US crisis is different. You write off a loan, you know when you have

to assume that you will not recover that loan, and you don't wait until you know all

have expired. This is the difference in practice. And currently we are adjusting to this practice and this is the reason why in 2001 and in 2002 we had significantly higher write offs than

. And in a steady state, clearly write offs and

you know, have to be more or less the same. And I do expect going forward, that eventually we will reach that state.

However we are currently in a - not in normal conditions, so you can expect a difference between write offs and

. But going forward in steady

it should be more or less the same if the size of the loan portfolio stays the same. Bottom line, that's the key message for you as we are still in an adjustment mode. And secondly you asked about whether we do feel comfortable with the level of a coverage of loan

provisions which we have, and the answers are absolutely yes. If we will not

we would have to increase our

. If that number looks a little bit low for you, the answer is, the

or the risk provision

the quality of our portfolio plus the collaterals which we do have, and therefore it's very difficult in many cases, to make comparison between one bank and another bank because the situation with respect to collateral can be totally different.

okay. In the interest of time we will take maybe one concluding question.

in the front. Patrick,

.

well, looking through all the slides, if I combine the slide of where you are compared to your peer group, with the loss slide which shows us some indication of normalized

I sort of made some calculations, and getting to a cost and income ratio of, well, say 72% would imply you would have to cut another 1 billion in costs, getting you to a

of around 16-1/2

would you agree that's sort of those kind of levels of

information

would be, well what you would be in for in terms of getting into line with that global peer group? And well, maybe related, would you say that that revenues level for 2001 is a normalized revenue level.

are you now started with the 2 billion, or the 2.7 billion? I mean our own calculations here showed we are at 76% cost income ratio and at 21%.

no, what I'm saying is, if you would take

ratio of 72%

understand.

1 billion.

based on what? Based on 2.7 billion, or on 2 billion?

based on 2 billion, because

if you have seen, therefore, include in another 700 million. So we are at 2.7 billion.

yeah.

are you - you will add another - I think that's what I said. I said with the methods we are taking, the result you get is 21% pretax, you will talk about after tax, and we are getting a 76% cost income ratio. Yes, you are right. If you add another 300 million based on the 2001 revenue base, then you are coming down probably to the 72 percent. I said, I think I told it's politically important, right now we are doing what we announced and this will bring us, given the revenue level we have, to a good result already. I mean to a better result. If we have somewhat better money, if we had 2000 revenue level we would, with these measures, be probably in the lower 70s, maybe even below 70. Now the question is, and that in my view more important, are we cutting to deeply? And if revenue has come back, would we have to rebuild? And the answer is no. I think that's the most important.

Of course, if - the second question, if it gets worse, you have to cut deeper. There my answer is if the whole world collapses, probably yes, but we are not the only one. But, assuming the markets stay as they are, I think we have now downsized in a way which is sustainable and which brings us to this 16 and 21 percent return in equity. But we are not yet, with these measures at the current revenue level at17 - at 25 percent, which is our objective. So it is very - there has to be some growth in it.

Now, having said that, if we deploy capital differently, which we are doing to the high return equity businesses, then of course we will - it will change the picture as well. So there's more to come. We are not at the end of power.

And the third question is, which I think I highlighted shortly, are we, you know, running the risk of shrinking to glory? No. In the core businesses, we want to grow. So we are adding research capability in the U.S. because that's one of the deficits. We are still lacking the

practice in rank analysts and aligning these corporate financing activities. We are - were number seven and right now we are in the U.S. and we want to be among the top six. So we have to invest probably about $100 million in building up our research capabilities.

So it clearly - the clear response is no. We can grow organically but we need more build up, but it's a very small one. We will not in any way jeopardize our cost income situations or our cost build up will not come back. So we will reduce and part of - very small part, talking about 100 million in equity, we will build up.

In corporate finance, we think we are fine with the current infrastructure.

In global markets, we are gaining so quickly market share, that we are rather building up a little but, but not much, but they can afford that.

In action banking we are reducing. In, I guess you know the overlaps things

asked about and about the complete measures in active management, no build up in private sell, the answer is yes. Slow build up, that is a five-year time horizon, which we have.

And retail and business clients we achieve these numbers and actually we are more confident in our internal calculations without any further build up. This is just - this is just what we think will happen and there's no revenue uptake in it, that's important. But, as I said, to get to the 25 percent and to 72 percent, because income ratio, we need to ease a little bit more on the revenue side or on the lower provision level or we'll have to cut costs again. But this is not on the horizon.

Well, on that note, I would like to close our meeting. Also on behalf of

,

we thank you for coming to Frankfort, joining us here, or listening in. We appreciate your time.

On a personal note, for those who are going into summer break, enjoy the time. I think we all deserve some rest. Thank you. Bye.