Deutsche Bank AG (DB) 2003 Q1 法說會逐字稿

Good morning and good afternoon, ladies and gentlemen, and welcome to today's Deutsche Bank investor relations conference call. I'd now like to hand you over to your Chairperson today, Dr. Wolfram Schmitt. Go ahead, sir, and I shall be standing by for questions.

Yes, thank you very much and welcome to all of you to the conference call of Deutsche Bank on our first quarter results which we released earlier today. We have released an investor relations release and also on the Web site you found supporting slides which we will refer to in our presentation. And the presentation, the discussion, will be done by our CFO, Clemens Borsig, who I'm handing over now.

Thank you, Wolfram. Good morning, good afternoon to everybody else from my side and it was mentioned this morning, European time, we have released our financial for the first quarter that you may have observed already we've modified our disclosure to conform with new regulation on non-GAAP disclosure and also reflecting some organizational changes. Restatements for the year 2002 were provided by Investor Relations.

The numbers for the first quarter show a very strong underlying performance and this is due to the successful transformation of the bank, which we talked about in prior meeting. In addition we have in the first quarter special charges with a net number of about 700 million. We announced those charges last week.

My presentation, I have the financial highlights of the first quarter on page 4. I guess I don't have to repeat them here, but I would like to say here is that this morning we released another divestiture, the successful completion of the Tele Columbus sale and this will bring our number in alternative to owned private equity down by another around 500 million, but I will address that subject in a moment.

Let me start my--let me start with the--with accrued revenues. As you can see on page 7, we had strong--on page 6, sorry. On page 6 we had strong underlying revenues and this despite a difficult equity market. On the chart, the reconciliation between underlying and reported is provided. The 700 million special charge which I mentioned, 600 million is related to revenues and a hundred million to cost. On the next slide--on the next slide you have the quarterly development of our non-interest expenses and the operating cost space. As you can see, the two come very close together. This is also something which we are

and I just would like to mention at this point that we are aiming at bringing the reported number and the underlying numbers more closely together. As you can see, we had another quarter of declining costs. The non-operating expense is the goodwill impairment, which was part of this special - of this special charter.

On the next slide, you do see the breakdown between - of our operating cost base into compensation, benefits, and non-comp. You see here a strong reduction on - of our non-comp expenses. Compared to the last quarter, our compensation and benefits stayed stable, although I have to mention here that as our underlying performance in the first quarter was much better and therefore we had to accrue more for bonus and therefore the non-bonus compensation went further - went further down. Also would like to mention that in the - in the non-comp expenses, there is a charge of slightly below 100 million for

.

So, all said, the operating the underlying profit came in at almost a billion. The reported pretax number is 200 million, and the reconciliation is provided on the chart. Six hundred million, as I mentioned before, that was impact of the special charges on revenues and 100 million - 100 million on goodwill.

The following slide - again, you are familiar with, shows you the development of underlying revenues. As you can see, once again the operating cost base declined more than the underlying revenues compared to the first quarter of last year. So our gross profit, if you will, before minority interest and particularly before credit losses, increased by roughly 400 million or 39 percent, once again demonstrating the strong underlying performance in the quarter on the - in the quarter on the review of our credit losses I will discuss in a moment. And so the underlying pretax profit, as I mentioned, almost a billion - 72 percent higher than in the first quarter. So, too, the underlying cost/income ratio also has declined significantly to 77 percent.

Following chart gives you, then, the headcount reduction - the headcount development. And as you can observe, we had a headcount reduction of 6,560 people to below 71,000 - 71,000 people. And this is partly the effect of the consolidation but also of our restructuring - of our restructuring efforts.

The following chart gives you, then, some ratio. I mentioned the 77 percent cost/income ratio and which is what a very good number - a very good number if you compared this with the year 2002, 2001, and even 2000. Compensation ratio has come down to 46 percent, and the non-comp ratio has come down to 30 percent, so both compensation and non-compensation contributed to this favorable development. Return on equity went up to 13 percent. The profit margin improved very much to 17 percent. Equity turnover stayed roughly at 76 percent.

So far for the group, let me now move on to the segment -- to the segment results. The first chart gives you an overview for the segments of net revenues and income before income taxes. As you can see, CIB had a very strong first quarter - very strong first quarter with net revenues of 4.1 billion and income before income taxes of a billion four. In this 4.1 and a billion four, there are 500 million for a gain on the disposition of the custody business. Even if you take this out, you come to the underlying performance of CIB - very, very strong with income before income taxes in CIB of 935 million. We consider this a very good number in PCAM. PCAM very consistent - very consistent development the first quarter with almost 0.3 billion, in which there is a gain on passive asset management. I

think we'll hear the detailed number in a moment.

As I said before, the special charges do not related to our core business, but do relate to our principle investments and they are, as you know, in corporate investments. So the impact of those charges can be observed in corporate investments and here you do see there's a loss before income tax expense, up a billion four. Compensation and adjustment again a small number and, as you know, this number relates to - this one says between market to market accounting, which we have in our management account. And some accrual accounting in our - in our financials.

So let me talk about CIB now. Compared to the fourth quarter last year, a very strong improvement in revenue performance, an increase of 18 - of 18 percent. Compared to the first quarter last year, there is a mild reduction of - a mild decline of six percent, but the currency plays a role here as CIB achieves quite a bit of their revenues in dollar and - in dollar and

. So very strong - a very strong performance as you can see. Here the cost decline continued. I mentioned that, as a result of this good performance, we had to increase our performance related bonus accrual and that's the reason why compensation and benefits then slightly up. Non-comp expenses further decline. And this all then results in, as you can see, a very strong - very strong underlying pretax in CIB of 935 million.

Moving onto PCAM, I should say very consistent - a very consistent revenue development. The decline from the fourth quarter last year to the first quarter. That's basically a - firstly, a seasonal effect. We had a lower deal flow, but that's a seasonal effect - a lower deal flow in DB - in DB real estate. Our net loss impact also had the market. You know that some of their revenues correlate with the equity market and the equity market, by the end of the first quarter, was lower when - by the end. Part of that, however, was compensated by an increase in our - in our revenues. Also on the PCAM side, cost management continues and shows results and therefore the

profit very consistent with 231 million.

So far to PCAM. I'm now moving onto corporate investment and alternative prices on page 22 on your slide.

As you can see, we had a reduction private equity direct. This is the result of our transaction, the MBO of the late stage private equity portfolio. As I said, in other occasions, it is our strategy to reduce our exposure in this field and as I said, we have successfully done this so far. And we will continue with this effort.

I mentioned Tele Columbus, which will take out 500,000 million of the 2.1 billion in the last conference call in February. I mentioned our efforts to reduce our peak in real estate investments. Those efforts are still on the way and we are very, very confident that we will see a transaction here not later than the third quarter. We are also working on transaction to reduce the bank exposure to their own real estate, say, the bank's buildings.

On industrial holdings, you will recall that we had a charge off here of about 200 million. The charge off was the result of our very rigid accounting policy, which we apply consistently if an available security faults in our 80 percent of its book value. It gets on our write off screen and it will be screened. And if it stays there or below for a period of six months, then we consider this reduction - this impairment, however temporary, and therefore we write it down and write it down then to the market level at the end of this period.

What you can see here on this chart 23 is that contrary to December 31, we had a net loss of 204 million book value compared with market value. However, in the meantime, the stock market had depreciated and this minus 204 has changed to a plus of 379. So we had an increase in the market value of our industrial holding portfolio of 13 percent or almost 600,000 million and four positions now are excellent value for overbook value.

The following chart then gives you a consecutive reconfigurization of our special charges in corporate investments that's billion 268, from which we deducted then the 500 million gain on the disposal of subsidiaries and that was then the net 700 million. You have here, transparency reconciliation between the market and the lines in the P&L. So far, on our principle investment and now moving on to credit and capital.

In the first quarter this year we have the second consecutive quarter of declining provisions. I mean, they are still high, this is true, but the good news is that they have been declining now for two--for two consecutive quarter. There are no special things which I should mention--that I should mention here. The credit losses came in as expected. The loan book stayed at the same level as last--as we had by the end of last year. On problem loans, we do have a positive development. Problem loans had come down to 9.3 billion and this not only a result of charge-offs, let me give you the full reconciliation of the decline of a billion five; 200 million is due to

effects, 200 million is due to de-consolidation, 600 million are charge-offs, and 500 million is a net reduction of our--of our problem loans, so I think this is quite an achievement in a still challenging credit environment. As a result of this, the coverage ratio, many of you attach great importance to this ratio, has increased to 42 percent and I should also mention here that the problem loans are further supported by collateral; our level of collateral has not been significantly impacted by this reduction of 1.5 billion. On capital, usually we have a seasonal effect as far as risk rated are concerned; they go up in the first quarter, but this time we could manage to keep the risk rated assets at the level we had by the end of last year and the tier one ratio stayed at the very healthy 9.6 percent.

The share buy back program, in the meantime, has been fully completed. We made an announcement and in the announcement we disclosed that 40 million of the roughly 60 million shares which we bought back will be cancelled and we also we proposed through the eight year monitoring the 10 for

for another buyback program of up to 10 percent of our outstanding share capital.

This concludes my presentation and I'm now happy to answer any question you may have.

Yes, we went back to the operator to steer the question and answer session.

Thank you. Ladies and gentlemen, we will now poll for questions. If you wish to ask a question, please press the number 1 on your telephone keypad. Press the hash or pound sign to cancel. Once again, if you wish to ask a question, please press the number 1 on your telephone keypad or it's the hash or pound sign to cancel. Please stand by while participants register their questions.

Thank you. Our first question comes from Jeremy Sigee. Please go ahead, announcing your company name.

Hi, Jeremy Sigee from Citigroup, or Smith Barney I think as we know it. Two questions, please, if I could. First, could you comment on the sustainability of the cost performance, particularly for example, in CBS, the 64 percent cost income ratio there, and just sort of give us indications how that's been achieved and how sustainable do you view that as.

Second question if I may, just I was surprised at the decline in equity revenues given the strength--in a number of other firms we've seen an equity derivatives and I just wondered if you could comment on that as well.

Your first question on cost - I mean we definitely do consider the cost reductions which we have achieved as being - as being permanent. On the contrary, we are still working on reducing our cost base - our cost base even further. And for example, you can see on the chart which we gave you as a backup information on headcount that we will still further - that we will still further reduce our headcount.

So as you know the bonus in CIB is entirely bonus - performance related - excuse me - is entirely performance related and therefore fluctuates with our - with our performance because income ratio is not only - in this situation, we don't only have the cost but also the revenue. But I guess we have demonstrated quite some flexibility as far as our cost base - as far as our cost base is concerned.

Can I just ask if beyond that have you shifted - I mean you've said in the past that your bonus accrual is formula driven. Have you - have you in effect shifted the terms of that formula, in effect making it less generous to employees?

I mean your question implies that it was very generous in the past. I guess all our employees would strongly contradict with - strongly contradict with it. I mean our bonus payments are absolutely in line with - in line with the street. We do pay competitive bonuses, but we wouldn't qualify our bonus payments as generous. Having said this, we have not - we have not - we have not changed our formula here.

Yes, I mean on sales - on sales and - sales and trading equity I guess you are referring to page eleven of our - of our interim report. It is true that our sales and trading equity is slightly lower than what we had in the first quarter last year, but it's also lower than what we had - what we had in the first - in the first quarter. But this is a result -- I mean that the first quarter as a matter of fact was a very -- was a very difficult quarter for the - for the equity market.

Origination was very, very -- was very, very slow, and you also know that in the first quarter, the deal flow in the first quarter were slow in connecting, you know, with political and other - and other worries. And - but what we can say here is that from a market position point of view, if anything, we have gained market share and not lost market share.

Thank you.

The next call, please?

Thank you. The next question comes from

. Please go ahead, announcing your company name.

Good afternoon. It's

with

. My first question is on State Street, after you've sold the business - the global cost business to State Street, State Street has been facing lower earnings. My question now is since the total price was 1.5 billion, but you've received 1.1 billion so far, what about the rest of your 0.4 billion? Is there - in the contract you've made, is there a possibility that this price will be lowered? And what would be the impact on the P&L? And my second question would be on the private equities - how comfortable do you feel with the write-downs you've done in Q1, which expects for the write-downs on private equity are on goodwill on private equity holdings in the course of this year. And the third question is relating to Gerling. Is it correct that you will pay 120 million for Gerling NCM and, if yes, what's the strategic rationale behind this move? Thank you very much.

OK. Let me first address your question with respect to private equities. I mean, for a CFO, a charge-off is never something I feel comfortable with. I mean, I did it because it - because it was necessary. Once again, we do have a very clear accounting policy as far as our private equity holdings are concerned. Every quarter - every quarter we assess the fair market value of those - of those - of those holdings and our - the charge-offs which we had in the first quarter, just reflected that decline - that decline in fair - in fair values.

As I don't have a crystal ball, I can only say as of the end of last quarter and also as of today, the values which we have on our books fairly reflect the fair value of our - of our - of our holdings. Going forward, depending on market developments, those fair values can go up. In those cases, we don't mind of our positions. However, should market deteriorate, clearly, this might have - this might have any impact. But as of today, we definitely do feel comfortable. We definitely do feel comfortable as far as our good values - our good values are concerned. And that we do have a very realistic accounting policy. I can only refer, once again, to the MBO of our

portfolio, which we could do without an adverse impact on our balance sheet.

a clear indication that our fair values are, if anything, very realistic.

On Gerling, anything's premature and I must say I'm not in a position to comment. Discussions are currently on the way to resolve this, for us, unhappy investment and for us to exit Gerling. But again, I'm not in a position to go beyond what I have said.

Yes.

The accounting for the

is a little bit difficult - a little bit difficult accounting, but what I can say is from the - from those proceeds, we won't have, going forward, an adverse impact from that transaction, on the - a billion of those proceeds went to - went to the P&L in the first quarter. I don't think I should comment anymore, but I can - I can give you comfort that there wont be a P&L hit from that booking. OK,

, enough?

OK. Thanks a lot.

Next please.

Thank you. Our next question comes from Mr. David Williams. Please go ahead sir, announcing your company name.

David Williams for Morgan Stanley, here. I just have a question on your share buy back. The 201 ratio is 9.6 percent. You're also very upbeat on the earnings outlook suggesting that your future courses you will be generating net free capital. And yet, while I recognize you're going to continue to ask for permission to buy back shares, you haven't really committed to actually continuing with the share buy back in '03, '04.

I just wonder if you can clarify what the position is for the share buy back and what you're thinking is on the matter please?

OK. I mean as we have said, we need shareholders approval for another phase of our share buy back program. But we have not taken - we have not taken any position as far as the board is concerned whether, when and to what extend then we deduce this opportunity. But we want to have this possibility available to us and when the board then decides now is a good time to buy back additional shares. We will do it.

At this point in time, we don't want to, you know, to take on any commitment.

OK. Thank you.

You can also refer to what Joe said in his

in front of the interim support.

Yes, David, I approach this as well. That we made the statement in the shareholders letter. Any other question from you? If there's not, OK, can we go on to the next one?

Thank you. Our next question comes from

. Please go ahead announcing your company name.

From

Research. I would like to ask

regarding your rating revenues. Firstly, could you please split up your true rating revenues regarding fixed income, equity and

percentage? And secondly, it looks like your fixed income business was excellent in the first quarter. And do everything you can keeps this high level of fixed income revenues for the rest of the year? And it may be certainly a question regarding Tele Columbus.

I haven't seen this news, so do you expect any capital gains or losses of Tele Columbus sale and which level could it be then? Thanks.

OK. First, on trading revenue, as I have said several times, the trading revenues in our financials according to U.S. GAAP are not indicative to the trading performance. Because interest revenues related to our trading activities are not taken into consideration here, and depending upon our risk management strategies and as you know that can be a wide variation between

in trading revenues and infrastructure.

Or, before we gave you a number which we call trading performance and this added the trading revenues and interest related to trading - interest related to trading. And this is a non-U.S. GAAP number and according to the new regulation which I mentioned in my introductory statement, we must not use this non-U.S. GAAP statement in our--number, excuse me, in our disclosure. Currently we are working on how we can, going forward, the wide view that's--the wide view here with something which used to be quite--used to be trading at performance. So at this point in time I'm not in a position--I'm not in a position to give you additional numbers here. But as I've always said, for purposes of performance assessment, I strongly refer everybody to our segment reporting and in the segment reporting then you have to break down by product and this is clear--and the sales by product actually include trading revenues defined under U.S. GAAP, interest revenues and also--and also commission revenues and, therefore, I guess is the best guide to our trading--to our trading performance.

On Tele Columbus, I mean, the press release went out--went out this morning. We also gave the number, as we mentioned in our release last week, we took a charge-off of 65 million, an additional charge-off of 65 million from--on Tele Columbus and so you shouldn't expect a capital gain, nor a capital loss.

OK, next one, please.

Thank you. Our next question comes from

. Please go ahead, announcing your company name.

, Dresden Bank. Good afternoon. Two questions. First question concerns page 8 of your handout and the non-compensation expenses there, which declined from 2.0 billion in first quarter 2002 to 1.7 billion in first quarter 2003, could you tell us how much of this decline is related to deconsolidation effects and could we regard the 1.7 billion as a kind of run rate for the next quarters?

And the other question concerns page 27 of your handout where you show us the development of your loan book. The virtually unchanged loan exposure at end of March 1st, end of December, it this the start of a kind of stabilization trend in your loan book or can we expect, as we have seen in the first half of last year, that the loan book will further decline? Thanks.

Very good question. Let me address the issue of the loan book--of the loan book first. The answer is no, this is not a stabilization. As we disclosed early February, we are changing our pricing strategy for the

loan book from a

model to an external

model and this clearly has the effect of making loans more expensive and, as a result of this, we expect our loan book to come further down and this is also very much in line with our--in line with our--with our strategy and we are currently already implementing--in the process of implementing this strategy.

OK.

On deconsolidation had a mild impact - a mild impact in this regard. But frankly I don't have the details available, so I would recommend that you go back to Investor Relations this afternoon and they will give you, then, the details.

OK.

Thank you again. Next one, please?

Thank you. Our next question comes from

. Please go ahead, announcing your company name.

Hi. It's

from J.P. Morgan. I'm calling you regarding the 4.4 billion of expenses. If I calculate your clean number ex-goodwill, ex-severance, and I think you also mentioned hundred million regarding leasing, I get about 4.1 billion. Is that - is that a number which we should see as a clean number excluding these items as correct?

This is - this is a non-U.S. GAAP statement and therefore I'll leave it at your - I'll leave it at your discretion. I just wanted to mention that our restructuring efforts are continuing, and that as a result of these restructuring efforts, we are absorbing in our operating cost base certain charges. And if you go on this quarter it was 116 in severance and it was this number slightly south of 100 for subleasing a building. I just provided particularly the levels you know to provide more - to provide more transparency, if you will.

We are managing our OCBs further down that we will see going forward in that managed down - further managed down OCB some special charges in this regard. I mean there are always a little bit special charges in OCB. So, having said this, I will leave it to you what you then consider our clean and - our clean OCB.

OK. And FAS 123, what was the impact in the first quarter?

Modest.

OK.

Any additional question,

?

Yes, the last question is on PCAM, can you tell me what the loan transfer volume was from CBS into PCAM and does that explain the doubling of provisions I think relative to the fourth quarter?

That was our so-called customer segments at two or three from CIB to PCAM. The exact number of the amount of loans that which went from

to - from

to BBC, investor relations will provide to you. In increase - the increase in known provision partly clearly has to - has to do with this, but also reflects the credit environment - the credit environment in Germany.

OK, thank you very much.

Thank you.

Thank you. Our next question comes from

. Please go ahead, sir, announcing your location - sir, your company name.

Good afternoon. This is

from

here. I've got two questions this afternoon. The first is on cost. You've mostly brought your non-staff costs down quite considerably and IT is among that. Apart from a direct cut in the IT costs, has there been any change in depreciation policy or have you been capitalizing more of your IT expenditure? First, the first question. The second question is on fixed income. While it is an impressive performance, your fixed income numbers are roughly flat year on year. Some of the U.S. houses have seen a rise in that area. Could you comment a little bit on strength in Europe relative to strength in the U.S. in that market? Thank you.

I mean, at first, on that - on that product income side, I would like to mention here that our U.S. competitors, their accounting is in U.S. dollars and our accounting is in euros.

Sure.

And therefore, there is a currency effect. What I can comment on is absolutely clear that global market has gained - has gained market share and global market has come very close in the first quarter to our strongest competitor. The difference between them and us in the same currency is very, very - is very, very small. And we have made - we have made progress all over - all over the place. On - so far on

.

On our - on our non-comp costs, IT plays a major role. As we discussed in prior meetings, the IT organization is very much in our engineering program and therefore, that's the result of our efforts - of our efforts here. We definitely have not changed our depreciation policy. We steer a very, very clear course as far as our accounting policies are concerned.

Because ...

And you should note - you should also see that we - that we don't capitalize software which we develop ourselves.

OK.

briefly on the first question - on fixed income. Is there any way we could get some idea of the currency impact on those revenues? You described them as bringing - if you adjusted for that, in constant currency terms, you'd be very close to your peers. Is there any way you can quantify that?

I mean, I mean, in a way, I guess, we have now disclosed quite a lot of detail ...

Yes.

... about our revenue performance. We also have to be careful here, you know, because the more we disclose, we enter into

territory and this is clearly something which we - which we want to avoid. So I have to ask for your understanding that I do not want to go further.

All right. Thank you much.

Next one, please.

Thank you. Our next question comes from Derek Chambers. Please go ahead, announcing your company name.

Hello. Derek Chambers from HSBC. Your analysis of the good action in the

was very helpful. I was wondering if you could go just slightly further and say whether the underlying reduction of about 500 million euros was across all areas or was it concentrated in particular sectors - for example, energy. Also related to the bad debt charge, you've indicated that in the corporate sector, there was some charges for the telecom sector, which seems to go slightly against the trend in that some of your competitors had reported an improvement there. Would you be able to say if that was existing problems that got worse or was it new problems?

But, finally on the credit area, you changed the boundaries of prior business - customer business, as I understand it the restatement would already include the increases. And on the restate basis your showing the last year at that charges in that area were running at about 40 basis points of risk weight assets.

And that's increased to nearly 80 basis points in the first quarter of this year. I take what you say about the deteriorating environment. Do you have a view where the 40 basis points is close to the normalized level in 80 basis points?

Derek, we're not real sure we got your last question. Could you please rephrase your last question? We're not quite sure we understood that.

OK. In the prior times business climates corporate division.

OK.

I take it that the restatement in transpose of loans to that are already in the restated figures of last year. So the increase in bad debt charge there is an underlying one. And if I relate that charge to the risk weighted assets, it was running at an annualized 40 basis points last year and is now 80 basis points. Is that increase likely to be sustained, do you think, given the current environment?

You know, the problem is as always with forward-looking statements - let me say, we don't - at this point in time, we don't have any indication that this number will go further up. I guess, this is as far as I can go in this regard.

On the NPL, as you know, we don't disclose individual names or groups of individuals names, but what I can say is that the positive development in NPL didn't relate us to a few names. That was professional, no?

Yes. With regards to the close fee, the telecoms bad debt charge in the first quarter. Was that existing problems or new problems?

Which charge in the first - to telecom are you referring to?

In the discussion of the corporate banking and securities corporate division, you state that the bad debt charge was effected by some telecom's problems. And I was wondering if they were new problems or existing?

It's all over the place. It's German and - it's all over the place.

OK. And do you have any explanation of why you've got deterioration there when a lot of your competitors are reporting an improvement?

I think we check this separate and my colleagues will call you back on that. OK?

OK. Thanks.

We don't know from here. Thanks. Next one please.

Our next question comes from Fiona Swaffield. Please go ahead announcing your company name.

Fiona Swarfield from Execution. I have two questions. The first thing was on - you mentioned SIM 46, which accounting for the CIE's and you mentioned that 45 billion of assets could come on balance sheet. Does that mean your Q1 ratio and is that the reason why you're reluctant to say anything on share buy backs?

And the second issue is on PCAM. You can see that the net outflows were quite large net outflows across the board. I just wondered if you could comment on the impact that that has and whether you think that's a continuing trend.

Fiona, on SIM 46, no, even if that number comes on the balance sheet, there is no impact on the tier one ratio as that 46 billion doesn't consume any regulatory capital. I mean, I have here as a net outflow, that's on page 36, we have here this --- of the 11 billion. So we are now confident that this trend --- that this trend can be --- can be reversed and in several area we have seen in the last couple of months an increase in new money. That decline relates particularly to passive asset management, passive asset management which we

.

OK.

OK, thanks Fiona.

Thank you. Our next question from

. Please go ahead, announcing your company name.

Yes, hello. My

. One question was concerning your loan book. Could you please tell us how much of this corporate loan book are you protecting through credit default swaps and could you also please elaborate on what is your strategy there because in Germany there was a lot of news flow concerning Deutsche Bank basically protecting more and more of its loan book and what could that imply for your loan loss provisions?

As I said, we are in the process of implementation. This new organizational unit which we--which we are setting up will be improving by the middle of June. We have given them, if you will, a budget, a budget for hedging, but I'm not in a position, as you may understand, to disclose this budget. But in the meantime, we have increased our--or we have increased our hedges in certain--in certain areas, but once again, I don't want to disclose the numbers here and just giving you the trend. What is the impact on loan loss provisions? The impact on loan loss provision is that loan loss provision should come down. I mean the hedges is like an insurance policy and you carry the premium and you expect, you know, that you would mend those last on the underlying asset.

Yes, but Dr. Borsig, when you gave out, let's say the target after the third quarter result concerning loan loss provisions, the maximum amount which perhaps we could get, was it already including these credit default swaps--protections or not?

Mr.

, this is a trick. I didn't mention in our analyst's conference then any target for the loan loss provision. At that time I talked about the volatility and I implied a certain level--a certain level of loan loss provisions we do not want to go over, but this wasn't meant to be a--this wasn't--I have to be careful here. It wasn't meant to be a target.

But that was not assuming that you're increasing the credit default swap protection.

I didn't talk - I mean I definitely know I didn't talk about targets or loan loss provisions.

Perhaps one last question -- on Gerling, if you manage to exit Gerling completely, would there be any legal obligations still let's say coming after that that you would be obliged to still, I don't know, meet some claims or payments? Or could you completely exit it also legally?

You know

I mean on hypothetical questions, I do not give theoretical answers. I mean we are - clearly we are a minority shareholder in Gerling, and over, above, beyond our investment in Gerling, we don't carry any obligation and we don't - we are not prepared to take on any at this obligation. And this has been consistently said and this is still - this is still our position. Legally, we are - as I said, legally there is absolutely no obligation and there is also no other - no other obligation in this regard.

Thank you.

Thanks, Nathan.

Thank you. Our next question comes from

. Please go ahead, announcing your company name.

This is

from Kelton International. If you looked at your corporate laybook on a -- on a geographic basis and I asked you whether you were more or less comfortable with the situation in the U.S. and in Europe versus the position at the end of 2002, what would your response be?

Well, I mean the first describing point is that our revenue mix by region is very well - is very well diversified. This is - this is number one.

Number two for us as I'm here in the U.S. now - the U.S. is clearly a growth - a growth area and we want to further grow our business here. Organically we have made significant progress and we are continuing to make significant progress and to

and he has a wonderful slide about our process in the U.S. And but I do not want, you know, to take the news of that slide away from - away from him. But it will get on the - on the Internet I'm sure and there you can see what kind of progress we have made - we have made in the U.S.

I also should say that Asia and the Far East and Japan are very important regions for us and in which we operate very successfully and we don't give up - we don't give up our - you know, the emphasis which we put on - which we put on Europe. But your question

opportunity again to mention while we definitely are in our field the last bank in Germany, Germany accounts for only 38 percent of our total revenues.

OK. And specifically in relation to the loan book in terms of the quality of the loan book, I mean we've had a number of comments from your competitors in the States suggesting that they certainly felt much more comfortable at the end of their first quarter than they perhaps did at the end of 2002 in terms of the outlook for that loan book. And could you comment on that specifically in relation to the U.S. and in relation to Europe?

Maybe I'm a little bit more careful than our peers as far as these forward-looking statements are concerned. But if you go back to my - to my slide on this provision and - which is slide number 26 - and what I said about this ramp which we had until the third - the third quarter. And this was mainly developed market and predominantly the U.S. and it was from an industry sector point of view, predominantly telecom. This clearly gives you a similar indication than the ones you got this quarter from our U.S. -- from our U.S. competitors.

OK. Could I ask a follow-up on - within the new structure of the assets and wealth management division, can you just remind me of the rationale for folding private banking into asset management? And, you know, is private banking making any money? Because, you know, one other thought that when you created this ultra-high net worth individual segment, we would be able to see what it was. But under the new reporting we can't see what it was, whether it makes any money or not. And I wonder whether you could make some comment on why you're reporting in this way when you've created, in theory, a pure private banking business. And what the underlying performance of that business in the current environment is, please.

The thing was when Deutsche - when Deutsche set up - set up by the bank and retail bank the first, we had then later on to learn that this segmentation wasn't - this segmentation wasn't perfect. And a lot of climbs in private banking were not truly private banking climbs, but were more affluent. And therefore had, you know, were much closer to the retail bank than to a truly private bank. So then we decided to split the private bank and the affluent lines, move them to retail and

- and then be

the truly highest network individuals. The whole thing was not driven by reporting consideration, but the whole thing was driven by business - by business consideration.

So if you go - the private bank was split and - into two pieces. And one piece, because of its affinity

to retail and the other one

when to asset management. And they are close in the latitudes between our activities in the asset management division and private wealth. And then high net worth in the - high net worth individual. What I can say is that our business is high net worth individual. Very

business - it's a truly global business. We are among the most global

in this - in this regard. And it is a profitable business.

OK.

I mean, if you take the, you know, the segmentation of our business and our reporting unit, you know that the whole thing is much more detailed than what you see from many of - from many of our - of our peers.

That's

because of the margin of a high net worth individual business such as yours is now would be much higher than the margins of an asset management business. And therefore, it's a pity, perhaps, that you don't split it out so we can see, really, what Deutsche's global position is within the private banking market. That's all.

I mean, you understand this. There's always, you know, there is a level of detail and you want to - you don't want to go beyond.

OK.

Perhaps if the high method in retail business rose substantially in

of

, we might consider our position.

All right. Thank you.

Can I ask, as a matter of information, the presentation which was mentioned by Clemens which will be given by

, the

of which will be made available at 11:00 American East coast time or 5:00 European central time on our Internet or investor relations web site.

Are there any more questions out?

Thank you. Our next question comes from Edgar Bettridge. Please go ahead announcing your company name.

Hi. Edgar Bettridge, Fox-Pitt Kelton. I just wanted to recap, actually, on the very first question of the conference call about the CBS cost space. And just to recap on that, you said that the income has increased first from the costs but the bonus formula is reportedly the same.

That's a very low CBS bonus accrual effect the fact that you plan to pay employees more in the third retention shares but do not impact the P&L?

No. No. No. Wait a minute. At first - in the first point, we are talking about bonus accruals and not bonus payment. The bonus payments are determined in the second week of January the following year.

Our methodology as far as the bonus accrual is concerned, is formula based and therefore follows certain rules. And those rules, you know, are based upon the performance of the individual divisions in that particular quarter. As far as retention payments are concerned, that is an expense, which is acquired over a

period, say between three and five years.

So, one third or one fifth, you know, then is expense every year. Does that satisfy your question?

Well, it - not really, I'm afraid. Because you would have thought, if that's the case, you would have thought that the cost would be higher. I can't quite understand why the costs are higher in CBS.

Yes, because the non-comp went down. Bonus comp went down.

Bonus comp went down, did you say?

No. No. OK. I want to make this crystal clear. In CIB on the compensation side, we have an increase in the first quarter compared with the fourth quarter last year of approximately 100 million from 1.5 to 1.6.

In compensation and benefits, the first place down is in bonus accruals and salary ranges and other which we say non-bonus comp. OK? The bonus accrual, as I said, is strictly determined by performance and therefore as the performance in the first quarter was much better than in the fourth quarter, that bonus accrual increased.

However, our expenses for our non-bonus comp went down. So what you are seeing is just the net effect, and this is that increase of 100 million. Is that clear?

Yes. Thanks.

Next question.

Thank you. Our next question comes from

. Please go ahead, announcing your company name.

May I come back to the trading revenue? I'm not asking for the trading performance, but the trading figure as itself, there should be no harm to disclose this.

What are you looking for, which number?

The split of the trading revenue as it used to be in fixed income, equity, currencies and other.

Yes, but once again--once again, as we don't--I mean, I do not have the details in front of me and as I said before, trading revenues per se are not very indicative to what the performance is. If we then give you a split into interest and credit, equity and so, then it's even less indicative and that makes the reconfiguration then to what we disclosed in the second reporting even more difficult. And as we don't want to add to transparency and perhaps even to confusion, that's the reason why we say we should not go, as far as the financials are concerned, beyond to what we have to --- what we have to provide.

But as I said, we are looking for ways and means to improve--to improve--I mean I can assure you that we have a very consistent performance in those numbers. But I apologize, I mean we are restricted by this new --- by this new regulation and it's taking us more time to find a way how we can satisfy you, and at the same time, fully comply with the regulation. But once again, I will refer you to the second reporting and that's the reason why we have expanded our segment reporting so much, because we consider this as the best--as I said before, the best indication for the performance of the division, and therefore the bank.

Nevertheless, I think it was easier before, when we had this trading performance for making estimates...

I fully agree, I fully agree and this is why we, in line with other banks, introduced this concept of trading performance. But as I told you, we were told by the regulator that we must not do this going forward.

And why can Citigroup publish it in trading related revenue by income statement line?

I cannot comment on the practice of other--of other firms that are

so I can ask them or why or what.

Yes, it's--so that's the question.

OK,

, if we have more on this we will come on that.

OK, thanks.

Thanks. Next one, please.

Thank you. Our next question comes from Mr. Stewart Graham. Please go ahead, sir, announcing your company name.

Hi, Stewart Graham from Merrill. I have two very simple questions on cost, please. In the past you had this target of 2.7 billion of cost savings plus the 1.4 from divestments. I just wondered if you could tell us where you think you are on that 2.7 billion cost savings now.

And the second question is other expenses in,

of course, 477 for the first quarter. That seems to be down about 2 to 250 million on the run rate of last year. Were there any big positions that were swinging around in other expenses in

costs in the first quarter, please?

In the first - in the first - yes,

, on cost

we started as two and then we said out of the discretional spending, 700 million is permanent

2.7 and the divestitures then at 1.4 - 1.4. This gets us to 4.1. And that's been showed - that's been showed by the end of last year. We had achieved 5.5 billion, and we said, therefore, we have overachieved our target before we had fully implemented those reengineering programs as well as the divestiture - the divestiture program. And if you analyze now our first quarter run rate, you will see that we have achieved savings on an annualized basis of 6.2 - again

overachievement.

I can say an indication for how much has been done already as far as the original reengineering program of two billion is concerned, the headcount information which we gave you as an appendix is absolutely indicative and it shows that roughly 80 percent of the reengineering program has been accomplished already and most of the remaining 20 percent will be achieved during the course of this - of this year.

But the 6.1 includes bonus, doesn't it, whereas the 4.1 never did. And we don't know what the bonus is, so we can't check it. So, should I take 80 percent of the right hit rate or do you think it's more than that?

No, no, no, no. Again, I mean on - we don't disclose the bonus numbers separately, but you can say a big portion - the big portion of the 5.5 which I mentioned by the end of last year was - the big portion was bonus - let's say bonus neutral.

Right.

And now the 6.2, most of it is bonus - most of it is bonus neutral, so you can take the full number off and say that's indicative for the kind of savings they have achieved.

On - hang on - hang on just one moment

on the - on the other expenses, ...

Yes?

... you know that in other - on the U.S. GAAP in other expenses, you have two items which are a little bit unfortunate that they are in other expenses and these are the minority - the minority interest and expenses for the minority interest and net provision for off-balance sheet exposures. Last year because in the first quarter we still owned, for example,

, which had third-party shareholders, we had a negative minority interest. This year it's literally zero, so that swing - that was a swing of 30 million. And the net provision for off-balance sheet exposure, last year there was a charge for

- yes,

I can mention - of 100 - say, 114 was the number. And this year, as you see in my slides, they climbed

so it was being over 150. So that's 180. And that explains a lot of the difference.

There's no other big items flying around?

No. No.

All right. OK. Thank you.

In the interest of time, I think we can take one more question because we have to head to another commitment.

OK. Thank you, sir. Your next question come from

of Citigroup in London. Please go ahead.

Thanks. It's

of Citigroup. I have a follow-up question on the invested assets page - page number 36 in the presentation. Just to follow up on

's question. Specifically on the inflows or rather outflows of institutional funds, if I annualize that, that's about an eight, nine percent run rate

outflows. Can you just give us some color of what's going on there? Is this to do with the U.S. or is it to do with Europe, number one. If it's to do with the U.S., is it still risk factor rates to the

? And is there anything else you can add into it? Is it performance related? Is it certain product areas you're strong in or you're not strong in that's driving it? Thank you.

No, this - I don't know want to end this question without going - without going back to the details. So if you permit

I will come back to you then with a detailed - with a detailed answer.

Will you mind calling our investor relations team, please?

Sure. We'll do that. Thank you.

We don't have the details here. Sorry for that. As I said, unfortunately, we have another meeting to attend in five minutes, so I apologize for that. But please keep going with your questions to my team. So thank you very much and, Clemens, do have a ...

Yes. Thanks for - thanks for your - thanks for your interest and all of your question. I hope I could, most of the time, answer to your - to your satisfaction. And any additional question you may have, please feel free and contact my investor relations department. And once again, thanks for joining us and have a good day.

Thanks.