Deutsche Bank AG (DB) 2004 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to today’s Deutsche Bank investor relations conference call.

At this time all participants are in listen-only mode. [OPERATOR INSTRUCTIONS].

I would now like to handover to today’s chairperson, Mr. Wolfram Schmitt.

Please go ahead, sir, and I will be standing by.

Yes thank you, Ariana.

Good morning, and welcome everybody to our third quarter results call.

With me is Dr. Clemens Borsi,g the CFO of Deutsche Bank, who will take you through the presentation.

And he will refer to a flow of slides, which is, as usual, available on our home page.

With that Clemens, kick-off.

Thank you Wolfram.

Good morning to all of you also from my side.

As Wolfram said, I am walking you through the presentation which we have put on the internet.

Referring to page 3 now, which summarizes our headline numbers.

As you can see the third quarter numbers show a substantial improvement on the prior year quarter.

And the 9 months numbers are also significantly up.

And what’s particularly important our net income over the third quarter is up by 18%.

Earnings per share is up even more, and our return on equity is up to 16%.

Year-to-date, our net income is up by 145% to €2.3b.

EPS is significantly up, and return on equity has doubled.

With this, I’m referring now to page 5, our net income.

It’s the best third quarter of net income we have ever had in Deutsche Bank, as you can see.

In 1997 the 0.5, we had a substantial gain from disposal of our holding in [Karsa, Acquella], and also in [indiscernible].

And, as you know the year 2000 was the best year in banking history, and clearly exceptional.

Our improvement in pre-tax earning is even more pronounced as you can see on page 6.

Our pre-tax number for the third quarter this year was €1b, 33% more than what we achieved in the last year.

And this brings us on a year-to-date basis to an increase in pre-tax of 79%.

On page 7 you have the quarterly debt to quarterly trend.

On an underlying pre-tax basis we up by 22%, year-on-year.

And as you also can see the seasonal decline, which is typical for our business is about half of what it was a year ago.

And, on a year-to-date basis our underlying pre-tax is up by 16% to €3.4b.

Revenues [indiscernible] are relatively stable.

Again, what I said about profits is also applicable here.

The seasonality this year was less pronounced than last year.

On a currency adjusted basis and year-to-date we are about at the same level in revenues compared to last year.

I’m referring to page [9] on costs; we have continued our very strict cost discipline.

As you can see, our comp expenses have further gone down.

Our non-comp expenses were flat compared to last quarter.

But there is an important factor at work which I need to explain.

As a result of our outsourcing activities we have a shift from comp expenses to non-comp expenses.

Adjusted for that factor our non-comp expenses also have come down.

In the comp expenses this quarter there is a negative mark-to-mark from our hedging of our equity compensations.

Page 10, the return on equity; on a reported basis year-to-date we have achieved 20% -- third quarter 16%, on an underlying basis, 14% for the quarter and 18% year-to-date.

So, strong progress also on the return on equity-- on the return on equity front.

As far as the cost income ratio is concerned, page 11, clearly slightly lower revenues had an impact to our cost income ratio in the quarter -- slightly up, but significantly down compared to the same quarter last year.

And what you can see here are the compensation ratios.

We have managed our compensation ratio very effectively, so it has been more or less flat for all the quarters this year.

The non-compensation ratio for the third quarter up, as a result, impacted by our revenues, by that shift from comp to non-comp as I mentioned before

Page 13 summarizes our performance by business segment.

You can see [indiscernible] Corporate Banking and Securities there is a specific impact I’m talking about in a moment.

Global Transaction Banking very stable.

Asset and Wealth Management -- I’ll talk about the decline in a moment.

And very strong progress in Private and Business Clients.

CI is driven by our disposal strategy.

Let me first turn now to page 14, our CIB results.

Our CIB results reflect differing performance by business.

We have increased revenues in Sales & Trading (Debt) with continued focus on structured transactions.

I’ll talk about this in a moment.

In equities we have strong performance in Equity Derivatives and Prime Services and an overall decline, exactly due to the same factors which I outlined the last time.

The provision for credit losses reflects an improved credit environment, but also the effectiveness of our credit risk management.

Turning to page 15, fixed income, as you can see, very strong year-on-year growth.

On a currency adjusted basis our revenues in Sales & Trading (Debt and Other) projects are up by 10% compared to the same quarter last year.

I really would like to say here, last year the market expected –- or some people in the market expected for this year a decline of our revenues in Sales & Trading (Debt) by as much as up to 25%.

The reality is now on a year-to-date basis we up by 7%.

Clearly we have gained market share, and therefore it shows the strength of our franchise.

We focus on the delivery of high-value customized products, particularly in structured interest rate and credit derivatives and security products, which serves us very, very well.

And we achieved this result in Sales & Trading (Debt and Other) Products in this quarter with a significant reduction in market risk, as we will see in a moment.

So we have higher revenues, good revenues, and a decline in market risk in this area.

As I said before, our revenues in Equities are impacted by the same, on page 16, by the same factors as the last quarter.

However, our Equity Derivatives business and Prime Service businesses, as I explained a moment ago, have shown a very, very strong performance.

So, in a way as I said from last time, we are a little bit the victim of our success last year in the convertibles and in structure strategy.

Origination and Advisory; stable, a slight increase to last year; a very good performance in Origination - in Origination (Debt).

We maintained leadership in Europe and strengthened our position in America in high yield and leverage finance and we maintained our leadership position in Investment [Trade] Bonds in Europe.

Origination Equity.

Revenues were clearly impacted by market conditions on our strict business acceptance principles.

In Advisory, our revenues are up, we are top 3 in US M&A in the third quarter based on announcements, and we have continued leading share of the people in Europe.

Loan products declined compared to the last quarter, but also declined to last year.

This development is due to two facts: number 1, higher portfolio management costs.

As you know, we hedge our loan portfolio and we had increased our hedges here.

And the cost for these hedges has increased as credit risks have spread –- have tightened, that has had a negative effect on mark-to-market.

But we also do see somewhat reduced demand for loans.

PCAM, page 19.

Overall profit increased by 5% compared to last quarter, and this was entirely due to a very good performance in PBC, to which I’m coming now on page 20.

PBC is a business which is impacted by the holiday season.

Nevertheless, they have turned in a very solid profit.

The same profit as they achieved in prior quarters, which is a major achievement.

And, I can also say for the first time, really, we have seen revenue growth in that business in Germany; and which is basically a flat market.

We have a good revenue increase seen in the third quarter; very good revenue increases also in Italy and in Spain.

So we all expect PBC has now gained competitive growth momentum, and that growth comes both from the loan product as well as from investment products.

So this is clearly something we are very pleased about the performance, or the special performance, of our retail business.

In Asset Wealth Management we see a decline both in revenues and in profit.

Last year’s profit –- we talked about this last year -- were very favorably impacted by the placement of very large real estate funds, which also resulted in gains on disposals of real estate.

As usual, the investment assets report on page 22.

Again, like the last quarter, money outflows in Institutional Funds, once again the same factors at work like last quarter.

So, the Institutional Fund declined or [cut] primarily in the UK, but also somewhat in the US.

On the other hand, in PWS in Germany, our Mutual Fund operation has continued to gain market share in Germany with their market share now up to 25% and they captured this year 50% of the net new money in Germany.

So here we do see very strong performance.

In CI our strategy to reduce our exposure is paying off very well.

Our result: 61% on an underlying basis, income before income taxes +€41m.

I come now to risk and capital management.

Our loan book came slightly down to now €140b, and as you can see on the slide that decline was in the corporate sector in financial institutions and the public sector.

As you can see here we have increased our loan book in retail and as an [indiscernible], and we have made very good progress, particularly in consumer finance.

Our good work on credit risk management, together with an improved credit environment led to the eighth consecutive quarter of declining of the risk provisions to now €58m.

I should say that clearly in the €58m we had the positive effect, like in the prior quarter, of recoveries as a result of our successful work-out activities.

Page 27, continued focus on problem loans.

Problem loans came down during the year by 25%, are now at €5.4b, and the coverage ratio is 48%.

So we have seen over many quarters now continued improvement on problem loans, and we do expect further improvement on a going forward basis.

I mentioned already the VaR; some people were concerned -- not us, but some people were concerned -- about the VaR development, particularly in the second quarter.

The VaR clearly is a measure for risk.

It is in our view not the best measurement for risk, but it’s a good, and people pay quite a bit of attention to it.

What’s particularly pleasing is that our VaR point-on-point has come down by 23%. 60% of this came from a reduction in [provision] in the balance from a better diversification effect.

The reduction as we can see on page 29 was particularly as to our VaR in the interest rate sector.

So once again if we look at our revenue development in Sales and Trading (Debt) and our VaR, this is a very, very strong result.

Page 30, capital.

Our Tier 1 ratio at 9.2%, almost the same level as the last quarter; and this despite the fact that we repurchased shares, as you can see on page 39, in the third quarter, with the total capital consumption of €900m.

And we redeemed a hybrid instrument, which qualified as Tier 1 capital by €700m.

So, if you will, we had a capital outflow of €1.6b, and nevertheless managed our Tier 1 ratio over our target basis.

This is a clear indication about the strength of this bank to create capital in its operating business.

Let me now come to the fifth point of my presentation and a little bit of the strategy.

As I said at the last conference call three months ago, when I was asked about our return on equity target, I said we were fully committed and that we would take all necessary measures in order to get to the 25%.

And we are taking those measures, those measures both on the revenue side, additional product initiatives, as well as on the cost side.

We realigned our Group Executive Committee, which has served us very, very well since we introduced the Group Executive Committee structure, and we made a few changes here, which we consider as very beneficial.

All the measures we are taking will unlock significant benefits for us and for our clients.

We have taken actions now to realign some of our Sales and Trading operations.

We moved to a unified coverage model in CIB.

We also strengthened the regions globally, but particularly also in Germany, and we do expect from our measures significant savings on the infrastructure side.

We’ve worked very hard on an execution plan.

We have designed the necessary projects.

You see this on page 35.

And we will finalize our plans in this regard during the fourth quarter, and then we can give you more detail when we communicate our fourth quarter results early February.

And this concludes my presentation, or let me conclude my presentation by once again reiterating a) our commitment to the 25% return on equity target and also and b) by assuring you that we will take the right measures in order to achieve that target and that we are highly confident, with all the activities and projects which are now on the drawing board, that we will achieve that 25% return on equity target by the end of 2005, as promised to you.

This concludes my presentation.

Thank you for your attention.

I welcome now any questions you have.

Operator, would you please coordinate this.

[Operator Instructions] The first question for today comes from [indiscernible] from Citigroup in London.

Good morning, it’s Kiri Metharaja here from Citigroup.

Just a quick question on slide 20 on Private and Business Clients, you mention there positive revenue growth in Germany.

I just wonder if you could elaborate on where that’s coming from, is it retail, small businesses, which products are driving the growth, and the extent to which margins may have helped?

Thanks.

Yeah, I guess I mentioned this.

We have seen the growth coming from both the loan portfolio as a result of increased volume, as well as from investment products.

For example, we had a very successful placement of a retail [close] and international real estate fund, and that fund saw within 10 days, that was a big fund and it showed the specific skills of our retail bank to move investment products.

Also we had in Germany a change in the tax legislation on life assurances.

And for contracts which are signed until the end of this year, they will remain tax exempt.

In the next year there will be a tax on life – on the returns from life assurance policy.

So, we are seeing very strong demand, as we are distributor of life assurance policies, very strong demand here.

But, I can say that each and every product has done better, has done better.

On the margin front, very stable margins both on the depository side as well as the loan side, which are also considered as a very healthy sign of the business.

Okay, thanks.

The next question for today comes from Jeremy Sege(ph) from Citigroup in London.

Please go ahead.

Thank you very much.

I wondered if you could touch in more detail on the proprietary losses and convertibles losses within your Equities, which are obviously sort of repeating again in this quarter.

And, I wondered if you could help us get an idea of what the one-off impacts were versus what an underlying earnings level is in that specific division, the equity sales and trading.

And then secondly, I wondered if you could talk about the cost aspect of Corporate Bank and Securities.

The cost income has drifted up again in the third quarter.

And, I just wondered, in the past you’ve given definite indications on whether or note the scope to benchmark that [indiscernible] to cost income there relative to other groups which have lower cost incomes.

And, whether you do see substantial scope through realigned costs in that division?

Yes.

As to your first question I will only have to correct the perception.

I have not talked about losses and I couldn’t talk about losses because we don’t have losses in these areas.

We neither have losses in convertibles nor do we have losses in [indiscernible] on the contrary, we do have positive revenues.

But what I said is that a year ago we had higher revenues, much higher revenues in that area.

And therefore, for relative we have a decline in revenue and clearly a decline in profitability, but we don’t have, and this is very important for you to know, and I want to say it loud and clear, we don’t have losses in convertibles, nor indeed in Advisor.

It is once again in line with the performance industry, a decline in performance.

Costs in CB&S – CB&S actually you know is a combination of businesses, and part of it is the classical investment banking, plus Sales and Trading and the other one is, if you will, Commercial Banking.

And, therefore, no other bank has such a composition like we have in CB&S and therefore the P&L analysis is a little bit difficult.

I can only say that in Investment Banking, Sales and Trading and Investment Banking, our cost income ratio is absolutely in line with the competition.

In Commercial Banking our cost income ratio is still a bit too high, and there are two key reasons for this, number 1 the decline in volume, as I have talked about a moment ago.

Secondly, also some legacy infrastructure costs which are a bit too high.

I also have to mention here that in CB&S they capture – have the biggest share of our MTM(ph) losses on the Equity Compensation hedges.

Again, going forward, with the realignment of our Sales and Trading platform and our client coverage, we do see potential for further cost improvements.

If we compare ourselves with the competition, we see that on the comp side we are very much in line, but our non-comp expenses tend to be higher than what the competition has.

And, therefore our focus is on non-comp expenses infrastructure expenses.

And again, you will get more details in that in three months.

Thank you very much.

The next question comes from James Rossiter from Evening Standard in London.

Please go ahead.

Hi there.

I just wondered, you’re obviously saying, I understand that, not a loss, but there has been a decline in proprietary trading and in Equities, which you’ve admitted was your strongest part.

Now, where do you predict that going forward?

And, when we talk about cost income, what about bonuses, are they going to be hit?

Is that going to come down when they’re made in February?

And, it would be appreciated if you could clarify for the shareholders and all the thousands of bankers in London, what do you mean when Ulrich Cartellieri stepped down yesterday due to differences of opinion on the Bank strategy.

What is the difference?

Is it about going to London, is it about merging with another investment bank?

Could you give me much more explanation please?

Just for shareholders.

Number 1, as to proprietary trading, I can only repeat what I said before.

In 2003 we had a fantastic performance, and we have to give Kevin, my colleague, Kevin Parker, a lot of credit for having successfully set up this organization and particularly at the right time.

Early in the cycle when he set up his proprietary trading organization he was perfect in terms of execution and he was very good in terms of timing.

We know everything has its time.

This year is a more difficult year, and therefore we don’t have the benefits which we had the year before.

And, that is nothing unusual and it’s something we have to deal with.

On the bonus side, our bonus is performance related.

As I don’t know the performance in the fourth quarter, I clearly cannot tell you what the bonus is going to be.

And, I guess it will not be a surprise to you when I say that we will pay our people market prices, otherwise why should they stay?

That is we don’t pay less, we don’t pay more, we pay market prices and we are committed to – meritocracy we are committed to strict performance related bonuses, and in this regard we have to see what the fourth quarter is bringing us.

And your third question is exactly the question I can only answer with my standard answer, we are not in a position to comment on all this beyond our press release in this regard.

Okay.

Nothing at all, not even about London?

You talked about it in [Stern] and hypothetically about moving to London rather than Jersey or some other tax destination.

No, we didn’t talk -- No, we didn’t talk in an interview.

Sorry, say again?

Pardon me?

I didn’t hear [indiscernible].

No Deutsche Bank employee gave an interview in any magazine recently.

I wonder how that appeared in Stern, okay.

Thank you very much.

The next question comes from Peter Hein(ph) from Frier(ph) Research in Frankfurt.

Please go ahead sir.

Yes, good morning Dr. Borsig and Dr. Schmitt.

I would like to ask three questions, the first two on your income statement.

There’s a line other revenues €220m for the third quarter this year, could you give us a little bit more details on that, especially the volume of gains on the sale of [meant] and net insurance reimbursement related to the September 11?

Second question, risk provisions are on a very low level, could you give us a target for the full-year 2004 for risk provisions?

And maybe a guidance – what’s your target there for next year?

And third question is regarding your Asset Management unit, you have again money outflow and pre-tax return on equity is in a single digit number.

When do you think, and how can you stop the money outflow?

And when do you think, can you increase the return on equity in this unit to your target 25% for the whole group?

Thank you very much.

Yeah, thanks Peter for the question.

First income statement other revenues – as I always tell you when talking about our revenue performance, our revenues in the segments and the breakdown by products is much more and better indicative to our performance than the US GAAP classification of the P&L.

You know that is totally accounting present.

But, I can give you the numbers.

The biggest here are revenues from loans held for sales.

This business and activity within Sales and Trading and loans held for sale are basically warehouse loans for subsequent securitization.

Usually we hedge our – those loans both from an interest as well as from a credit point of view, and the mark to market of those derivatives are then in the trading result.

So, what you see here is just one leg of a two leg transaction if you will, and therefore it’s only half the picture.

But, again this is how the account treatment is.

And, as I said revenues from loans held for sale are the biggest part here. 130 [Liberty] Street the gain was €50m.

On risk provisions, we don’t have I must say at this point in time, we don’t have a target for our risk provisions, because our provisioning policy is dictated not by our target, but our provision policy reflects the credit environment.

But, I can assure you we won’t see, as of today, a big increase of our loan provisions.

But, what I should say is that it is clear that this year risk provisions reflect the good work of our credit risk management, but are below the expected loss of the portfolio.

And, the expected loss in our portfolio is about 25 basis points, and this is the lowest in the street, if you will.

And once again, this reflects a very disciplined risk [balance sheet].

On Asset Management, as I said, the key drivers here are a structural change within our client base to a different investment strategies, that in the UK and in the US it’s also the result of prior restructuring efforts.

However, as we announced just recently, we won a major mandate from Serck(ph) Financial and this mandate will have a profound positive impact on our invested asset front.

Does this answer your question?

Yes, thank you very much.

The next question for today comes from Mr. [indiscernible] from JP Morgan in London.

Please go ahead.

Yes, hi.

I have three questions.

The first one is related again to your Equity business.

If I check the indices for convertible arbitrage as well as hedge fund indices, we’ve seen a big positive [indiscernible] compared to the second quarter, which doesn’t seem to be reflected in your numbers.

So, I really try to understand why you seem to have under-performed the average performer in that area.

Is it any particular area which might have been the reason?

And how is that business developing in October so far?

The second question is the loan product hedge.

Could you give me what the mark to market negative impact was in the third quarter?

And the last question is relating to your supervisory board changes.

I’m wondering if I look at the composition, you generate about two thirds of your revenues outside of Germany, which is not reflective in your supervisory board in terms of representation.

I was wondering what your thinking is in that respect.

The first question, we will not – we don’t compare ourselves with the average.

And, I guess you understand when I say going into details of hedge fund trading strategies that my answer is I’m not in a position to answer that question.

And, if I ask your guys – your guys in New York, you know they won’t give me an answer either.

And I can only – we hope the average is down compared to the last year, and we are also impacted by this situation.

On the loan hedge funds our total charge in the third quarter was €105m, of which 40% came from premiums and two thirds from mark to market movements.

On the supervisory board, it’s a brilliant idea to match the revenue mix with nationalities of the supervisory board.

We have one person on the supervisory board who is not from Germany.

We would like to have a better international representation on our supervisory board.

Again, but this is not so easy for a variety of reasons I do not want to go into the details here.

Okay.

Thank you.

The next question comes from Adrian Pilf(ph) from [indiscernible] Bank in London.

Please go ahead.

Yes, hello, hi, good morning.

I have one broad question on the outlook.

I know you’re going to come back with details later.

But if I look at your target of 25% pre-tax ROE and your Q3 of 16%, and knowing that you have really sort of weakened in Q1, Q2 and now Q3, my fear is that markets may not help you for the foreseeable future.

So, the question is, if you are going to do three things, you’re going to cut costs, you’re going to try to reach greater revenue synergies and you’re going to buy-back shares to reduce equity.

Can you at least give me an indication in terms of magnitude or ranking, which of the three is going to have the biggest bearing to achieve your 25% pre-tax ROE?

Thank you.

Yeah.

Again, our business is seasonal in nature;

I can only repeat that.

And, therefore, the third quarter basically for us of 2.5 months it is not a full quarter because these people go on holidays.

This more pronounced here in Europe than in other parts of the world.

Therefore we are more exposed to the seasonality than for example our US peers.

And, we have never said we want to achieve 25% in the third quarter.

The 25% is a target which we have set ourselves for the fiscal year.

You are right, for us in order to get there it has to be a combination of revenue initiatives and some cost reductions.

All the measures we have agreed upon in the QC and which are now in – not in implementation, but are now on the drawing board for an execution plan, aim at both levers here, cost cut and revenue growth.

I can also say if you analyze our revenue numbers in sufficient detail you see that in quite a few businesses we have already huge revenue growth momentum, and I mentioned this for example when I talked about PBC.

As Jo said the other day, it’s clear if we do have a disastrous market environment then it will be very difficult to get to the 25%.

On the stock repurchase fund, if the -- We have currently an active equity of €24.4b, and given our profitability if we just want to maintain our active equity at that level we have to continue quite aggressively the stock repurchase programs.

But this is just to maintain our current equity base.

Therefore we don’t expect, after the reduction which we have achieved here in the last year, we do not expect much help as the return on equity from a further reduction in equity.

But, once again we have to run in order to stand still and no-one should conclude [that’s we’re saying] the equity base is not a lever for the return on equity, that we don’t buy back stock.

But, I have to say if we want to keep the current level we have to.

That’s great.

Thank you very much.

The next question comes from Alistair Rhine from UBS in London.

Please go ahead.

Thanks, good morning.

You’ve done very well from reducing your loan concentration risk over the past couple of years, which I know is an initiative back in sort of early 2003.

But, if we look at the convertible trading [problem] in the first half of this year, have you rather offset that by increasing the maximum concentration in individual trades that you’re putting on?

Because the scale of the loss must suggest – that was a fairly large single position that Deutsche is willing to put on in that particular market.

One thing, I don’t agree with you, with what you have said about concentration risk.

And secondly I do understand it, I do not go into the details as far as our positions are concerned.

But I can also tell you that – look at our VaR.

And, we have given all of those trading [desks] their VaR limits and they have never reached those limits.

So, we are very, very disciplined and there is really -- I don’t see why you seem to be concerned.

Okay.

Thank you.

The next question comes from David Volience(ph) from Morgan Stanley in London.

Please go ahead.

Hello, good morning.

Morning David.

I’ve got two questions.

One is on your headcount.

Looking here at slide 43 in your presentation pack, I see that in the Corporate Investment Bank headcount has gone up by 331 people over the quarter.

I think the street expectation, rightly or wrongly, is actually that you’d be getting a few cost benefits and reducing headcount in CIB.

I just wonder if you could comment on where that increase is coming from and on those headcount trends.

The second question refers back to some of your earlier comments on the bonuses.

You suggested that you would pay market prices for bonuses.

I just wonder if you could comment whether you [could] set industry-wide any upward pressure on compensation and the amounts individuals – especially in the fixed income area, are likely to be receiving come the year-end.

Thank you.

On headcount, this is the result of [apprentice] hiring in the third quarter.

That’s the explanation and it’s the only explanation we hire from the university as we tend to [build] our people rather than hiring from them from other banks.

On the bonus – the thing is it’s a mixed picture.

And I know the market is hot in some areas, in other areas it’s not so hot.

And, I can say as far as the bonus is concerned, us having a very attractive stable world class platform clearly attracts people.

Other people who don’t have such a platform they have to pay above market.

We are in the fortunate position that we don’t have to pay higher than the market, because we have such a high quality franchise.

Thank you.

The next question comes from Mr. Philip Fisher(ph) from UBS in Zurich.

Please go ahead sir.

Good morning.

Three questions, first your growth outlook for private and business clients.

It’s certainly a tremendous turnaround being achieved, but what makes you confident that actually this business can grow substantially above GDP given that you’ve taken out quite a substantial cost number?

Second question, given your sluggish continued performance in Asset Management and probably also in GD Alexpron(ph) in the US, could you comment on potential goodwill write-downs.

And the third question is just on costs again.

Could you just remind me, regarding the spike up in other expenses in the third quarter, what was the driver behind that?

And again on bonuses, certainly you will pay according to market at the end of the year, but in the first quarter you indicated that you’ve changed your accrual methodology, which could give you some [indiscernible] basically on the bonus lines throughout the year.

And do you still think that you have that?

In particular if you look at comp over total core revenues, which are net interest income commissions in trading on a group level, you’ve actually stepped up the comp ratio on that basis by 2 percentage points in the third quarter.

Thanks.

Yeah.

On private and business clients banks are [becoming] that it’s a major achievement to close the business in a flat environment.

As far as PBC is concerned, one has to understand that for the last couple of years these guys were in restructuring mode.

If you are in a restructuring mode it’s not the best time to grow and to grow revenues.

This is now clearly behind us and these people can now concentrate on clients and on the business.

And, we tend to believe, and I think it’s clear, we do have very attractive modern platform, a very attractive business model and we have good products and we have good people.

Clearly in Germany we cannot expect a nominal [growth], but we do expect growth, more growth than GDP growth, and part of it I must say is also taking market share.

And, for example if you take DWS and PBC as one of the base distributors of those funds, DWS as I said are gaining market share.

In particularly these times quality sells much better than low quality products, and our products are high quality.

And I also said we have seen good revenue momentum in Italy and in Spain.

On Asset Management, no our business is so profitable we don’t have any issue as to an impairment of the goodwill which sits in the supporting unit.

And, if you’ve done the numbers you’d quickly [indiscernible].

Costs other than expenses – they are higher this quarter than in the last quarter because in this, unfortunately in these other expenses there are also expenses for off-balance sheet liabilities, that means guarantees and that stuff.

And in the first/second quarter we had a relief here, a much higher relief than we had this quarter.

And secondly, I mentioned the outsourcing activity and our [indiscernible] and ETB were transferred to outside third party ownership and as a result of this we now receive all our proforma – all our [indiscernible] costs now in this line before those costs [indiscernible] all over the P&L.

Those are the big items here.

On the compensation side we have never been more effective in managing our compensation ratio this year, because in the first, second, third quarter it always came in at 46%, and this despite some volatility on the revenue side.

But then stripping out the other revenues, which are either depressed or inflated by gains or by one-offs, it shows actually that you had an increase in the comp ratio based on your core banking revenues in the third quarter.

Does it indicate that you don’t feel any longer that you have [fat] in terms of bonus accruals or is it just a line where you don’t actually pay attention to it because you manage it on a total revenue basis?

No, no wait a minute.

Once again I have to repeat.

Our core revenues are not necessarily non-operating revenues.

And, we have, as I said, by loans held for sale for example, those revenues are in Sales and Trading, these are our activities [indiscernible].

Our core businesses, therefore please – I really dismiss the assumption that you can just take out our other revenues in order to arrive at underlying revenues.

We have given you the reconciliation from what is operating, what is non-operating, and this is really then the basis for your calculation and not just stripping out other revenues.

Once again, you guys shouldn’t pay so much attention to the US GAAP classification of revenues.

Once again our product breakdown is much more indicative to the performance of our business.

Thanks.

The next question for today comes from Mr. Wasco Moreno(ph) from [Keith] in London.

Please go ahead sir.

Yes good morning, I’m calling from Keith [indiscernible].

I just have a few questions.

The first one is, can you give us a little bit more detail on the comp to non-comp cost shift that you mentioned before?

The second one is related to the corporate center.

You mentioned that you have a €110m interest income on tax refunds.

Could you give us an idea as to what kind of – is this going to be a recurrent item here, given that it’s interest income on tax refunds, or are we talking about just a one-off?

And then lastly, on the overall group tax rate of 32% against what we were going for, which is about 39%, could you give us some further color on that as well?

Thank you.

On the comp ratio that shift, this is something we are always discussing with our CO, what it is they impact on the classification of costs from outsourcing.

This quarter I can tell you from [GDP] and exchanging the number is €50m.

Is that [fall] from comp to non-comp I would say 60% has come – so if you assume, if you say I double that number for the entire impact, it might be – you might be right.

But I must tell you we haven’t, it is something we are working on but we haven’t come up with a solid number.

On the corporate center you mentioned this €110m.

At first this is a great thing.

And, in Germany if you pay the tax man more than you owe him, you get a 6% return on that payment.

And, given the current interest rate environment, I guess we should lend more money to the tax authority, because 600 basis points is not a bad deal. [indiscernible] Clearly we had funding costs, if you will, [imply] a quarter.

I talked, not in a very serious way, talked to the global head of tax to say, please make this current funding which will recur every quarter, and he’s not very optimistic that he can achieve this to say the least.

But it’s a major, major achievement of our tax department.

Would you say that that is – sorry to interrupt you – would you say that that is then partly recoverable, or partly recurrent, I should say?

It’s not – no I wouldn’t say it’s recurring.

But, what we see now I come to your first question, and this is the tax rate.

I gave you the indication at the beginning of this year, our tax rate would be on average about 39%.

Due to some measures which the tax department has taken we have lowered now this average tax rate, against which we track our, the more positive and negative [loan pot], we have reduced this to 38%.

So, the guidance for next year is 38%.

And, this quarter we had some positive effects, again resulting from the good work of our tax department, which brought then the tax rate down to 32%.

Is that recurring?

I don’t know, I don’t think so.

But we are working on reducing our tax rate to get it down to an internationally competitive level.

Okay.

Thank you very much.

[inaudible – German]

The last question for today comes from Mr. George Cummings from [indiscernible].

Please go ahead sir.

I have a question, can we expect in Q4 substantial restructuring charge due to the restructuring you’re planning in the investment banking unit?

And second you mentioned a negative hedge effect upon the personal costs, could you quantify this?

Could you repeat your second question?

You had this negative effect on the hedges for the equity based payments.

Can you quantify this?

Yep, okay, I can.

On the restructuring front, at first I would like to say the biggest part of our restructuring efforts have already taken place, for we reduced our headcount from more than 90,000 people to 65,000.

We outsourced and we reduced our costs by €6.5m.

So, most of the job has already been done in the context of management agenda number 1.

On a going forward basis, as we have said before, we cannot rule out restructuring charges.

But I have to say the US GAAP treatment is very, very restrictive as far as restructuring charges are concerned.

And additionally, most of the job has already been done.

But, you understand I’m not in a position now to quantify, because I don’t know the number.

Even if I wanted to tell you the number I couldn’t, because I don’t know.

But, my assumption is it will -- I don’t expect, for the reasons which I have just explained, too dramatic a number.

On the hedge fund €71m.

Okay.

Thanks.

So, unfortunately I have to rush to another board meeting.

So, I thank you very much for your attention and your questions and your interest and I’m handing over to Wolfram.

I can only add, thank you very much for your interest, and we’re looking forward to continue the dialogue.

Good bye.

Ladies and gentlemen, that concludes today’s conference.

You may now disconnect your lines.

Thank you for participation and good bye.