Deutsche Bank AG (DB) 2003 Q3 法說會逐字稿

Good morning ladies and gentlemen.

Welcome to today's Deutsche Bank's Investor Relations Conference Call.

At this time, all participants are in a listen-only mode.

Later we will conduct a question and answer session and instructions will follow at that time.

If anyone should require assistance during the conference, please press star and then zero on your touchtone telephone.

As a reminder this conference call is being recorded.

I would now like to hand over to your chairperson, Dr. Schmitt.

Please go ahead sir and I shall be standing by.

Good morning and welcome to our third quarter conference call.

As always we have put the supporting slides on our website from where you can download.

We are targeting to close this call at 10 o'clock and with that I hand over to your presenter, our CFO, Clemens Borsig.

Thank you, good morning also from my side to everybody on this call.

What I am going to do first is walk you through the material, which we have put on the internet.

Let me start with a summary on the third quarter.

Clearly the economy has improved globally but there are still challenges around.

Against this backdrop, Deutsche Bank continued to achieve strong results.

We have shown strong profits in the third quarter, underlying profits coming at €0.7b compared with a [loss] one year before.

The reported numbers I would like to mention and the underlying numbers have come together very, very closely.

Our nine months underlying pre-tax profit is €9.2b.

This is up by 140%.

We have achieved resilient revenues.

The underlying revenues came in at €5.1b.

I will discuss those in more detail in a moment.

Clearly the quarter-on-quarter comparison is impacted by seasonality, which this year was more pronounced that in prior years.

However, I can say that in September business picked up very, very nicely.

The resilience of our revenues reflects the robustness of our client focus business models in the fact of challenging conditions during the third quarter.

We have made continued progress on cost.

We have implemented a permanent in structural reduction in our operating cost base.

Our loan quality has improved.

Provisions came down, problem loans came down and the coverage ratio has increased.

Our capital base is still very, very strong with a tier capital ratio of 9.5%.

We have very well digested the impact of SFAS 150 and we have significant financial flexibility.

Let me move on to page five, which gives you the condensed income statement.

Income before income tax expense was €0.8b.

The income tax expenses came down, we have a nominal effective tax rate of 33.4% compared with a 46.1% last quarter.

That explains the increase last quarter as a one-off effect.

We have then a tax reversal, a subject which we have discussed in several of our prior meetings and which is also explained in our various reports.

This tax reversal case comes from the disposition of our position in Heidelberg Cement.

We have a cumulative effect of accounting changes which I am going to explain in a moment, so the net income was €576m compared with a loss of €290m in the same quarter last year and a gain of €572m last quarter.

The following slide once again underlines the improvement, which we have achieved in terms of our underlying profitability.

The quarterly development is provided in the supplement.

I mentioned already that we had year-to-date compared to last year, we have seen an increase of our underlying pre-tax profit by 140% to €2.9b.

When we talk revenues, and particularly the comparison of revenues, we do have to take into consideration the currency impact but also the impact of the consolidation.

As you know as a result of our strategy to focus the bank on core businesses, we divested quite a few activities.

Year-on-Year the recorded underlying numbers are down by 5%, however if we adjust for the currency movement and deconsolidations, we seen an increase of 7%.

That is something very, very important.

The seasonality, which I mentioned, is the same this year as it was last year, perhaps a little more pronounced.

Let me now explain our net interest and trading revenues.

As we explained in our prior interim report, we combined the interest and trading revenues as depending upon the strategy of the trading, there is always a shift between interest and trading.

However, I would like to say here that the trading debt also generate commission income, fees and other revenues.

When we talk about the performance of our sales and trading organization, I refer to the segmental reporting and I will discuss their performance in a moment.

So the discussion here is entirely on those two revenue components in the P&L and is an accounting number if you will.

What you see is that our total net interest and trading revenues came in at €2.6b year-on-year, a decline by 2% once again impacted by deconsolidation and particularly also the shift in exchange rate.

As far as the quarter-on-quarter comparison is concerned, I have to mention two factors.

One factor is in Europe the dividend season is in the second quarter, so the dividends, which we received particularly on our industrial holdings, come in in the second quarter.

One-third of the difference between the second and the third quarter was €649m, one-third of that relates to lower dividends.

Another third comes from an impact which I would call a FAS 133 impact and which I am going to explain in a moment.

So adjusted for those two factors, the quarter-on-quarter decline is 7% rather than 20% which are shown on this slide.

Given the seasonality of our business, I would consider this as a mild decline.

What is this FAS 133 effect?

I mean this is something which is explained in our interim report on page six in detail.

It is also explained in an applicated version in the Investor Relation Release and its effect which is well known in the industry.

Our comprehensive risk management practice includes hedging certain risks in our non-trading assets and liability risk derivatives, like some of the credit risk in the corporate loan book, the equity risk in our industrial portfolio and interest rate and foreign exchange risk in the bank's medium and long-term debt.

There is now an asymmetric between the risk, the effected risk management and the US GAAP accounting treatment on the other hand.

I also must say this is the same on the [indiscernible].

Not all the factors, not all hedges qualify for so-called hedge accounting.

What does that mean?

That means that hedges which will not qualify for hedge accounting are marked to market in trading revenues.

However the movement in the underlying assets is not recognized in the P&L.

This is that asymmetry, the sharp shift in interest rates which we saw in the third quarter accounted for some kind of a mismatch in this regard.

This is not a trading loss.

This is the result of an asymmetric accounting treatment and as it explained in page nine, the effects will then offset over the time of the hedge.

The total impact in the quarter for us was around €200m.

This is why I said one-third of that decline quarter-on-quarter related to FAS 133 effects.

Let me move on to costs, our costs have further come down.

I would also like to mention here it is clear that [indiscernible] movement and the sale of business has helped us in this regard, but also in particular our cost management program.

The decline in our operating cost base has decelerated by three factors which I would like to mention here.

First, by our severance payments resulting from our restructuring activities.

Those severance payments we account for on a pay-as-you-go basis.

They are this year up by 25% year-to-date and are included in the operating cost base.

Secondly, net occupancy expenses of premises, we do have as a result of our restructuring, we have made some [space] charges which amounted year-to-date to €163m.

Clearly as a result of our improved performance, the bonus accruals have not declined.

If we adjust our operating cost base off of those three factors, we see a decline of our operating cost base year-to-date September by 20%.

Headcount on page 11, has further come down.

We are now below 68,500 people.

This is working well.

Income ratio, we always have an increase of the cost income ratio in the quarter.

This is a result of the seasonality of revenues which I explained a moment ago.

However, it is worth noting that the increase this year was less than in the prior year.

We could partly mitigate the seasonality effect by reducing our operating cost base in the third quarter.

Return on equity, it is a similar story like on the cost income ratio.

Let me now explain and I am on page 14, the FIN 46 consolidation of variable interest effect.

FIN 46, we explained this new accounting standard in our 20F already and it was planned to be implemented in the third quarter and we stick to this time schedule even although the SEC permits registrants to defer the implementation a quarter or two, but we did it in this quarter.

FIN 46 deals with the consolidation of so-called variable interest entities basically the SPEs.

FIN 46 requires that the consolidation of variable interest entity is by the one who has the economic benefit or who takes the risk.

We have, as I said before, we have implemented this in the third quarter.

As far as we are concerned, this has the effect of a deconsolidation of certain SPEs, which had been consolidated before.

This deconsolidation led to an after-tax credit of €140m.

I would like to point out that this €140m is the reversal of a debit, if you will, which related predominantly to a FAS 133 effect which I mentioned before.

What we have as a negative impact on our revenue side, is on the upper tax basis a positive reversal.

Let me now move to the segment results.

On page 16 you have an overview of our segment results.

It is worth noting the total divisions came in with a profit of approximately €1b, the same level as in the quarter before.

Consolidation and adjustments shows a negative €0.2b compared with a positive €0.1b in the quarter before.

The difference here relates predominantly to the FAS 133 effect which I mentioned before.

The reason is that as we explained in our 20F, our management recording is strictly on mark to market basis and the financials are partly on an accrual basis and the reconsolidation between the mark to market management recording and the financial accounts take place in consolidation and adjustments.

CIB, you can see here a good revenue performance.

On a recorded basis an increase of 3%, but if we adjust for FX and deconsolidation, the increase is a 14% which we believe year-on-year is a very good number.

On page 18 you have the product detail for the CIB revenues.

Year-on-year comparable sales and trading is up by 15%.

Adjusted for currency movement the increase is 25%, a very strong increase year-on-year.

Sales on trading equity is up by 31%.

Currency adjusted 46%; and sales and trading debt and other products is up by 8%; currency adjusted by 16%.

According to our calculations, we maintained in sales and trading our pole position in the third quarter and also year-to-date September.

A decline in the third quarter from the second quarter to the third quarter is entirely attributable to seasonal effects.

The operating cost base, I am on page 19, has further come down.

On page 20, underlying pre-tax profit, very strong pre-tax profit also in the third quarter with almost €700m.

Our pre-tax profit in the third quarter is still higher than in any quarter during the course of 2002.

If we made a calculation the average quarterly profit in 2002 and the average in 2003, we see an increase of 250%.

The following page gives you the cost income ratio and the underlying return on equity.

PCAM, we see an increase year-on-year of 4%, adjusted for currency and deconsolidation increase of 7%.

The following slide gives you the details by product.

Page 24, the operating cost base [indiscernible] decrease of 3% year-on-year, but an increase of 5% quarter-on-quarter and this increase needs to be explained.

Half of that increase, around €40m, relates to asset and balance management.

The increase is the result of a much stronger performance in asset and balance management, resulting in slightly higher bonus accruals and also advisory fees and professional fees related to certain transactions.

In PBC we see an increase of also 40%.

This is related to primarily non-severance restructuring activities.

On page 25, you have profit development.

Here you see a very consistent improvement in the underlying profitability.

Year-to-date PCAM is up by 57% or €300m.

However, severance payments this year are higher by €168m, so adjusted for higher severance payments year-to-date underlying profit is up by 75%.

The following slide gives you the ratios.

I am now on page 27.

You see here a continuation of our reduction of our alternative asset exposure and what is particularly remarkable if you look at our private equity direct exposure, this has come down by two-thirds in the meantime.

Page 28, you have the list of our industrial holdings and we have seen a further increase in unrealized net gains to €0.7b.

During October in line with the development of the market, we have seen a further increase.

Let me now come to credit risk and capital.

Management on page 30, you see a further decline in our problem loans to €7.2b and an increase in the coverage ratio which I mentioned before, to 47%.

Credit losses have come down, they have further come down.

It is the fourth consecutive quarter of decline in credit losses, now below €200m.

The loan book has also further come down.

This you can see on page 32.

Our tier 1 ratio remains strong at 9.5%, as mentioned before.

We managed to further to reduce our risk rated assets.

As we discussed at the Investor Day we have started our stock re-purchase program and have bought back in September 5.9m shares.

On page 34, you have a [reconsolidation] between our Tier 1 capital at the end of June to the end of September.

This concludes my presentation.

I would be happy to discuss any questions you may have.

Ladies and gentlemen, if you would like to ask a question now, please press the number one on your touchtone telephone and to cancel your question the hash sign.

Once again, please press the number one to ask a question and the hash or pound sign to cancel it.

The first question comes from Mr. Jeremy Sigi.

Please go ahead sir, announcing your company name.

Thank you.

Jeremy Sigi from Citigroup.

Hi Jeremy.

Hi there.

I just wanted to ask two questions if I could?

One is just to clarify the FAS 133 effect of €200m in the third quarter.

It was actually pretty similar in the second quarter if I am looking at the right numbers.

If anything you had slightly heavier markdowns on your equity hedging and on your CDS hedge arrangements as well.

I just wondered if you could confirm that?

The second question, I had was just on the other revenues in asset management, which I know have occurred in previous quarters as well.

So there are lumpy but they do repeat.

I just wondered if you could sort of comment a little bit on the recurrence or sustainability of those other revenues in asset management?

Yes.

The thing is that on FAS 133, it is true that we incurred also losses in prior quarters and I highlighted those as they related to the hedging of our industrial holdings portfolio and our loan book hedging.

This quarter has a result of this movement in the interest rate; we had on the long-term funding of the bank also and FAS 133 effect.

The delta, I tried to explain the delta between the second and third quarter and the delta is around €200m.

The impact on FAS 133 on interest is also in that range.

We have a full reconsolidation of those numbers if you are interested in more details.

I suggest that you give Investor Relations a call afterwards and they can walk you through.

Thank you.

On other revenue, PCAM.

This is explained in the interim report of revenues.

As you rightly said occur later [indiscernible], in PCAM and you know we are one of the largest real estate asset managers and certain revenues in this regard, for example, when we do the placement of real estate funds and before the [indiscernible] in the [indiscernible] real estate, those revenues go through our revenues.

They are clearly core revenues if you will, they do belong to the business but they are classified as other revenues.

Thanks very much.

Your next question comes from Mr. Mark Rubenstein.

Please go ahead sir announcing your company name.

Yes, it is Mark Rubenstein, Credit Suisse First Boston, good morning.

Just one additional question actually.

You mentioned in the press release that there will some assets that will be sold in the fourth quarter, which will incur some losses.

Could you just develop on that a little bit further please?

I have to be careful what I can say at this point in time.

In a way this is a quarterly statement in the interim report.

It is basically a large transaction in the area of bank owned real estate.

As we have been reducing headcount quite significantly, it is clear that we do have too much sales and as we also discussed in prior calls, we want to reduce our exposure to the real estate market.

We have been working on a transaction to reduce our exposure and also get rid of space, which we do not need anymore.

We expect in this context a charge, if you will, in the first quarter and wanted to alert you.

Okay.

You also indicate though that it might be offset by some gains elsewhere?

Where might they come from?

That is a gain on another real estate transaction, but this other real estate transaction is in the field of asset management.

Okay thank you.

The next question comes from Mr. Henson.

Please ago ahead announcing your company name.

Yes, good morning, Sal Oppenheim.

Two questions concerning your loan book, the first one is - we see currently improving margins especially also in Germany.

What is the strategy here?

Are you going to expand your loan book in 2004/2005, look forward?

The second question here is could you tell us whether also bearing in mind that economy seems to pick up, are you going to further hedge your loan book or are you going to decrease the levels of hedging?

Thanks.

A very good question.

As I explained at Investor Day, our efforts on the interest rate margin and clearly interest rate margins are on their way up and particularly also in Germany.

I guess this was the subject of an analyst call yesterday.

They clearly are on their way up and as we all know they have not been satisfactory.

Our strategy going forward is a selective strategy.

We are prepared to increase the loan book project as I explained, particularly in the area of consumer financing and Lombard credit.

Our strategy is very much as far as the corporate loan book is concerned, is very much dictated by our credit risk strategy.

We are more prepared to increase our risk exposure just of a few basic points higher margins.

As far as the corporate loan book is concerned, I do not expect here a substantial increase.

You asked about hedging.

We will engage in what we call a dynamic hedging, if you will in a way, very much depending upon the rating of the [counter party], the amount of our exposure.

Bottom line going forward, we will continue hedging, but we will do it in a more dynamic way.

Okay thank you.

Your next question comes from Mr. Vasco Merino(ph).

Please go ahead sir, announcing your company name.

Yes, Vasco Merino from Fox Pitt Kelton.

Just two questions.

The first one is related to your corporate investment group division.

We have done a lot of work on this recently and we have gotten it completely wrong on the cost side.

I was wondering if you could give us an idea as to whether the €92m cost that you have in the third quarter could be considered kind of the recurring level of cost post-Tele Columbus deconsolidation and whether the €91m loss or pre-tax loss for the quarter could be a sort of a recurring number ex any sort of disposals?

The second question is related to your acquisition strategy.

As you know you are acquired the Dresdner Bank Custody Unit recently and you are also rumored to be buying the GMAC Commercial Holding Corp in the United States.

Can you just in light of those two items, kind of reiterate your acquisition strategy at this stage?

Thank you.

Let me talk about or answer your question relating to acquisition first and then I will go to the Corporate Investment Division.

On acquisitions, as you know and as we have stated, we have been very, very selective and going forward we will be very, very selective.

We have very strict criteria in terms of value accretion and we do not accept dilution.

As far as the acquisition [indiscernible] is concerned, I mean this is a small piece.

It is an opportunistic move.

It relates to Germany and it helps us by taking their activity to increase efficiency dramatically.

It is a smaller thing.

As far as GMAC is concerned, you understand I am not in a position to comment on such an acquisition.

I can only assure you that not relating to GMAC specifically, but in general whatever we do it must create shareholder value and must not be dilutive.

On the Corporate Investment Division, I agree that it was not easy for you guys to make forecasts.

What we have done so far, as you know we reduced our exposure and parallel to that, we also reduced our cost, if you will, to run the shop.

Going forward those costs will come further down.

The numbers have been impacted by investment, which had to be fully consolidated, and therefore the operating cost base in this regard did not make too much sense.

At least we have managed to reduce our cost to run the shop and we also have been able to reduce this one-off effect.

Now you want some forward-looking statement from me and whether the €91m is a good number going forward or not.

I must say it would be too dangerous for me at this point in time to make such a forward-looking statement.

I can only say that our objective is to reduce P&L volatility from Corporate Investment entirely.

The timeframe is not open but our objective clearly is to reduce P&L volatility in this regard entirely.

Thank you very much.

Your next question comes from Miss Fiona Swanfield.

Please go ahead madam, announcing your company name.

Good morning.

I am Fiona Swanfield from Execution.

Hi Fiona.

Hi.

Could we look at asset management because there are two things that I wanted to ask.

Firstly I think you had net outflows again, if I am right, on the third quarter and you now say that of the €12b in institutional, something like €5m is money market.

So I am assuming the rest is equity if that is right?

What are you doing about that?

The second issue is if you look at the retail bank, obviously there were some one-offs in the second quarter that I was not aware of.

Is there a treasury operation in the retail bank and if you take out those one-offs why is brokerage down?

The revenue trend seems to be quite poor in the third quarter.

Could you talk about that?

To your first question on assets on the management, I mean you gave yourself also the answer.

It is predominantly institutional.

It is predominantly money market, currency movement is also an effect because it took place in the US and there was also a mild appreciation of the euro.

There were also, I agree, some changes as far as certain mandates were concerned.

What are we doing to do about it?

I mean as Tom explained at Investor Day, what he explained is that performance is a key factor and we have strengthen our sales and distribution organization, also our sales organization as the institutional investors and we have greatly improved our performance in relative terms.

Therefore we do believe that we have taken the right measures not only to stop a decline in that new money, but also then to reverse the trend to an increase.

I am hopeful that going forward we will see this reversal.

Your next question then was on the [CNDPC], hang on just one moment, --

Your next question comes from Mr. Hewitt Graham.

Please go ahead sir, announcing your company name.

We were not finished with the question sorry.

I do apologize.

In [CNDPC] it was a positive effect from liquidity management in DB [indiscernible], but the treasury function is centralized but they get the credit and that was a one-off effect as you know in the second quarter.

You mentioned brokerage being down.

This clearly is impacted by the seasonal factors.

In the summer months, particularly in July and August, people are not as active as they are during the other months of the year.

Okay thank you.

The next question comes from Mr. Stewart Graham.

Please go ahead sir, announcing your company name.

Hi, it is Stewart Graham from Merrill.

Sorry another detailed question.

The difference between your headline pre-tax and operating profit is, I think, €29m, quite low this time as you said.

If I look at the P&L, you have got €69m going on securities available for sale, €139m equity method investments, so there seems a much larger difference there.

What is the difference between the P&L and the €29m that you have cited as different?

Yes, it is a detailed question.

You have detail on page 39.

What is important, gains from positive equity pick-ups are not necessarily non-underlying and in the third quarter positive equity pick-ups were underlying and occurred also in PCAM and also in this case asset and [indiscernible] management.

Part of the real estate transactions resulted in a positive equity pick-up.

So how do you decide what is recurring and what is non-recurring?

I did not say non-recurring, I have never said non-recurring.

I said underlying and non-underlying.

The non-underlying are specifically defined and relate to certain investments within Corporate Investment.

You have basically certain investments in Corporate Investments plus losses and gains from business dispositions.

Okay, I will follow up later.

That is fine.

Thank you.

Next question?

The next question is coming from Mr. Derek Chambers.

Please go ahead sir, announcing your company name.

Good morning.

It is Derek Chambers from HSBC.

I know you said you would give details of the FAS 133 adjustments later and you have given quite a bit.

Could I just ask one general point, if I can try to understand that?

On the interest and foreign exchange hedging, I think one implication of what you are saying is that certain hedges which are still effective for economic purposes may have become ineffective for accounting purposes, which is presumably a continuing effect.

Is that what you are saying that the fluctuation was so much in the third quarter that these no longer count as hedges for accounting purposes on a continuing basis, and therefore we can expect similar volatility in future?

No.

At first this accounting noise on interest was caused by this very sudden dramatic increase in interest rates, which occurred on July 31 in New York and then on August 1 here in Europe.

You now the yield curve, it shifted by over 100 bps.

It is a little bit complicated, but in simple terms in risk management we engage also in certain mark [four] hedges, that means [indiscernible] hedge a portfolio for example.

In order that the hedges qualifies for hedge accounting under the accounting standards, you know you have to do micro-hedging and this is in many cases, either it is not possible or it is not feasible or it does not make sense.

That is also the reason why the industry has been criticised, for example IS 39, so much here in Europe because the requirements for hedge accounting are so restricted.

The result is that you have the derivate mark to market and the underlying, which is effectively hedged by the derivative, the movement of the underlying cannot be recognized in the P&L.

Economically the underlying moves and if the mark to market loss on the derivative there is an economic gain on the underlying that this gain is not recognized in the P&L and this exactly causes the accounting noise.

Okay thank you.

Can I also ask about [indiscernible] risk if you are on interest rate instruments, which seems to have risen quite a bit above the average of the first six months?

Is this something that peaked as you say around the end of July and early August and will it have come down subsequently?

Yes, what we say about the value of risk, the increase in the value of risk particularly [indiscernible] from an increase in volatility.

We have seen an increase in volatility and this translates into a higher value at risk.

The higher number, which you have seen, also indicates that in an opportunistic way we are not afraid to take risk if we do feel that the risk reward ratio is very much in our favour.

What we can also see is that we bring risk down also as quickly as we take additional risk.

What is also very important and that is something very important.

Risk exposure is less defined by the value at risk and the small defined economic capital, and because the economic capital yields to the tail end of the distribution curve.

The economic capital has not increased in parallel with the increased value of risk and this is another indication for our risk exposure.

Thank you.

Is there another question?

The next question comes from Kian Obihusian(ph).

Please go ahead announcing your company name.

Yes, hi it is Kian Obihusian from JP Morgan.

I have two questions.

The first one is related to your group cost base.

If I take out severance payments in the third quarter I get to €16b of costs compared to your target of €16.5b for 2004, this flat revenues ex severance.

I am just wondering what we should assume going forward as a run rate.

The second question is related to your CB&S division on the trading side.

If I take out props rating out of the second quarter, I get to a level of just over €1.5b.

You are reporting just over €1.3b.

The US investment banks are clearly stating that underlying client driven trading is flat or actually up which does not seem to be the case in your CB&S debt and sales in trading line.

I am just trying to get an explanation of why it would be different compared to US peer groups?

Okay wait a minute.

This was too complex a question.

First on the group cost base.

Where do you have this €16 point something from?

I have on the chart number 10, I have year-to-date €12.9b.

No, on the cost base I have just taken the third quarter and I have taken out severance and I get to roughly €4b of costs.

If I annualise that, that is €16b.

This is not in contradiction to what Jo Ackermann said at Investor Day.

Our plan for operating cost base next year is lower than €16.5b.

That is a lot lower.

This is very much [indiscernible] what do you expect from me now?

Just to get an indication of the basically run rate assuming these kinds of revenues ex severance?

I said what I mean, you understand I cannot go further than what Jo Ackermann said at the Investor Day and that means the OCB next year will be below €16.5b.

Okay.

Then on your [indiscernible].

Are you on page 18?

Yes.

I do not know where you do have the number of [indiscernible] trading from.

As I said before, our business model is a business model which relies on customer [indiscernible] and therefore our proprietary precisions are comparatively small and are particularly smaller than the precisions most of our peers are taking.

What we are saying is that customer flows are lower in the third quarter than in other quarters and this is the result of how declines behaved.

And the fact that we do have the seasonal effect is indicative or is to prove that our business model is a flow driven business model rather than a proprietary.

The seasonality is also more pronounced in Europe than in the US and clearly our share of European revenues is higher than the share of European revenues of our US peers.

The proof of us not taking much to our proprietor, that position is that the seasonality shows through the numbers and it is not the other way round as you suggested.

Okay.

Thank you.

The next question comes from Mr. Jorge Cunless(ph).

Please go ahead sir, announcing your company name.

It is Jorge Cunless from West LB.

I have one question here concerning the hedge losses also.

You also mentioned that there were hedge losses on the industrial portfolio.

If I look at the amount for example, for most important holding Daimler, share price has not moved from the beginning of the quarter to the end of the quarter, or virtually not moved.

The question is, has this hedging started within the quarter or is it a permanent hedging?

No. [indiscernible] we have not had hedging losses and this is something which [indiscernible].

We have not had hedging losses.

I want to make this clear.

We have seen that if we hedged entering into derivatives and the underlying as you can see, the underlying has increased and this linked to a mark to market clearly a mark to market loss on the derivatives.

If you just take on page 28, the movement within the last six months we have seen an increase in the value by €900m and the mark to market loss on our hedging was mild against this.

It was very, very small.

I do not say that we have hedged the entire position.

We have hedged some of our position.

You understand that I do not want to elaborate here on our detailed hedging strategy.

This would be counter productive.

I can only say and this is clear we entered into hedging during the quarter this year and to protect the downside.

As a result of the positive movement of our position, clearly the derivatives lost in value.

I can also say that now most of our hedging exposure or our hedging transactions are negligible as far as industrial holdings are concerned.

Thank you.

Perhaps one or two more questions.

The next question comes from Mr. Adrian Fields.

Please go ahead sir, announcing your company name.

Hi it is Adrian from [indiscernible].

Very quickly, two questions.

One just on the boring numbers again.

This provision this time, you did mention there were some write-backs.

I do not know whether you actually gave us a number, can you specify how large the write-backs were in [indiscernible] third quarter?

Can you give us some indicators on where they came from?

That is the first question.

The second one, a little bit more interesting away from the Q3 specifically, the [indiscernible] this morning gave a very large article from, I think, what we call the Junior Finance Minister regarding a total reshuffle of the German Banking scene, basically saying they plan and would try to see consolidation, cross consolidation between corporate banks, savings bank and the public and private sector and also like to see basically efficiency rise in the banking scene overall.

This is a political and large rally call and I would just like to see what your view is on the sort of political impetus?

I must admit this morning I have not seen this article in the [indiscernible] as we did a rehearsal for this conference call as you can imagine.

I mean we have consistently said that the German so-called three-pillar system is the private banks and the cooperatives and the savings and loans that this three-pillar system is not efficient and effective going forward.

We should change this; we should change this and so allowing a consolidation across the three different sectors.

That has consistently been the view by the private banking sector.

However there is a lot of vested interest by other people, particularly the savings and loans in [indiscernible] have fiercely defended the current structure.

If you quoted the Finance Minister, if he now changes his view that would be very, very positive because we all feel that in Germany we do need a consolidation in the banking industry.

Given the structural complexities and so on and so forth, I do not think there is anything to be expected short-term.

On the [indiscernible] provision, I mentioned that the successful workout activities resulting in that we could, or had to, reverse some of those accruals, I have not given that number and I do not think I should give the number, but I can say even adjusted for those effects, credit losses have come down for the fourth consecutive quarter.

It would be definitely lower than in the quarter before.

I did not mention this to dilute this number of €191m credit losses.

I mentioned it to once again underline the effectiveness of our credit risk management operation.

Clemens has another commitment unfortunately.

We can take one more question please if it is a short one.

We have one more question from Philip Tichon(ph).

Please go ahead sir, announcing your company name.

This is Philip Tichon from UBS.

A quick question on share buybacks.

You have mentioned that you have bought back 5.9m in September.

Is that a run rate you would feel comfortable with?

We have a model based strategy and I guess we explained that strategy on other occasions, but I do not think I should go further than what we have disclosed, particularly at Investor Day.

I ask for your understanding.

Thanks.

Okay, as I said before, unfortunately we have to close here.

If there are remaining questions please call into the Investor Relations Team in Frankfurt.

Thank you all and we are looking forward.

Good-bye.

This concludes today's conference.

You may now disconnect your lines.