Deutsche Bank AG (DB) 2005 Q1 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Deutsche Bank Investor Relations Conference Call. [OPERATOR INSTRUCTIONS].

I would now like to hand over to today's chairperson, Mr. Wolfram Schmitt.

Please begin your meeting and I'll be standing by.

Welcome to our first quarter conference call.

We have published this morning the earnings release, a supporting financial data supplement, the complete interim report and the usual set of Powerpoint slides which will be used by now by our CFO, Clemens Borsig, in his presentation.

And with that, Clemens, I hand over to you

Good morning also to everyone from my side.

I'm very pleased to report a very successful first quarter with a record result If we go straight to page 3, you find a summary of our performance in the first quarter.

Revenues up by 10%, income before income tax up by 14%, net income by 17%, cost income ratio down, and that includes restructuring charges.

Return on equity is up, and earnings per share are also substantially up.

I will discuss those figures in detail in a moment.

We had above market growth in CIB, both in sales and trading, as well as in origination and advisory.

We attracted net new money in PCAM.

Our Business Realignment Program is well under way, and the share buyback program's been completed.

On page 4 you see our earnings per share are up at 25% to €2.09.

The effect of our -- after restructuring expenses per share is €0.20.

The €2.09 compare with last year's earnings per share of €4.53 for the entire year.

Pre-tax return on equity is also substantially up.

The figure which we use again -- to compare our performance is our target, is 33%.

This is the -- as I said last time, this is the pre-tax return on equity - pre-tax excluding restructuring expenses but also excluding other significant items.

We haven't had those items in this quarter.

So our performance in the first quarter analyzed was 33% compared with our target of 25%.

Let me now move on to page 6.

Here you see the quarterly development of our income before income taxes as I mentioned already, the €1.8b.

That is 14% more than what we achieved last year, and again it includes a restructuring charge of €169m.

So if you strip this out, our increase is even more impressive.

And I have to mention that last year we had a few non-underlying items - part of this is non-underlying items.

So the underlying profit performance is even higher than the numbers indicate here.

On the next page you have the revenues on a ForEx adjusted basis, €6.6b.

Our revenues in the first quarter were 10% up compared to last year, and again in the €6.2b there was some non-underlying items.

So splitting those out, revenues grew even faster.

Once again I would like to mention here, that concerns about our ability to grow our business as a result of the Business Realignment Program, have been totally unfounded.

Operating cost base on page 8.

Operate - The OCB is marginally high than a year before.

However, non-comp expenses are down, and the comps are slightly up but this reflects entirely intensive based compensation.

On an adjusted basis our OCB is lower in the first quarter '05 compared with the first quarter '04.

On page 9 we have the key ratios.

Again I mentioned the pre-tax return on equity, again reported at 30% and 33%, if we compare with our 25% then target.

And that's a significant improvement over our performance a year ago.

Really, as we all know, our business is seasonal and, therefore, one has -- one expects that the first quarter always shows the highest return in -- return on equity.

Nevertheless we think the 33% are impressive, and if we adjust for the seasonality, we are well on track to hit our 25% target.

So our performance - and that's very important - our performance in the first quarter is consistent with the target of 25%, which we discussed in the analysts conference 3 months ago.

Profit margin clearly has also going up.

Significant progress on the cost front of income ratio, including restructuring expenses, came in at 71%.

If you strip out the restructuring expenses which contribute -- give us 3 percentage points, the cost income ratio for the Group was 68%.

And I have always said that consistent with our 25% return on equity target, is a cost income ratio of around 70%, so we have done better in this regard.

Compensation ratio 46%, impacted by the accruals we had to make in consistency with our - with a strong performance in the investment bank.

And the non-comp ratio has come down significantly to 26%, of which 3% of the restructuring -- of restructuring charges.

And I also have to say that the non-comp ratio is negatively impacted by our outsourcing activities.

So bottom line there was significant progress on the non-comp front too.

Let me now turn to the segment results.

CIB's underlying profit is up 40% year-on-year, with very impressive growth of revenues driven by sales and trading.

I'll discuss those in a moment, and as you see the ratio's also improved quite substantially, with a pre-tax return on equity of 50%.

Very impressive performance in sales and trading, as you can see on page 13.

Sales and trading better [lot] of products, on a currency adjusted basis are up by 30% year-on-year to €2.4b.

I will discuss further details here in a moment, but I guess everybody agrees that this is an impressive result.

But sales and trading equities also is up by 6%.

Our performance in sales and trading was clearly positively impacted by our realignment -- by realignment synergies, which I can report are paying off much faster than anticipated.

And we have seen already substantial tangible results of those activities.

In global rates we had good result from complex liability management reduction for corporate and sovereign clients.

Global credit -- credit trading strong client flows across the continuum, credit continuum.

This is the high yield, the converts, the high grades, and the structured credit.

I will discuss our measures in sales and trading when we come to the Business Realignment Program.

Revenues in emerging markets were boosted by cross-asset class platform.

In foreign exchange we profited from -- we also profited from the realignment effort, particularly in this -- on the sales front.

And the same is true for global equity derivatives, and again in all those product areas we have seen very substantial growth in the first quarter.

Our performance in the first quarter underlines our global leadership in sales and trading, with an outstanding debt franchise.

Our debt franchise in revenues terms came at the number 1 franchise on a global basis, in the first quarter.

And our -- In equities - an area where we have sometimes been criticized, we came in so far as the number 3.

But the Swiss banks haven't released their numbers yet, but we can claim at this point in time we are in equities a strong number 3 or 4.

There are 4 factors which I -- or 3 factors which I would like to mention, which have driven our performance in sales and trading.

Number 1 is our different shaded business model, with emphasis on intellectual capital products which have proved to be very successful -- which have proven -- continuously proved to be very successful.

Secondly, our ability to seize opportunities presented by favorable market conditions and, as I mentioned before, benefits from our Business Realignment Program.

And once again, concerns about potential revenue attrition resulting from our restructuring have been unfounded.

And you see also on the slide, not also the comparison of our sales and trading revenues with our peers, but also the growth rate.

And if you express those growth rates in euros, that means in the same currencies, clearly our 19% growth in sales and trading stacks up very, very favorably.

That also in origination we had a very strong quarter.

Revenues are up by 16% on a currency adjusted basis, year-on-year.

We reached the global top 5 position by fee pool.

We maintain our leadership in Europe, and what's particularly important, we continued to significant -- to gain market share in the Americas.

In origination debt, strengthened corporate bonds investment grade and high yield, and solid growth in Europe.

In origination equity we all know that market conditions, for example in the US, are a little bit difficult - that's reflected also in our revenues.

However, we increased our global share in Europe and in the US, and in advisory good revenue growth, number 2 in announced M&A in Asia Pacific, and number 1 in technology in the US.

And I can say that at this point in time, we do have a very strong pipeline in this year in M&A, which should support revenue growth on a going forward basis.

In GTB, we have seen substantial, year-on-year profit growth.

At this point in time, GTB is a little bit more a cost story than a revenue story.

However, revenues last year had some tail-end revenues, if you will, from a disposed business on a like-for-like basis.

We have seen some revenues growth, but a big part of the improvement in profitability has come from restructuring activities.

And as you can see, as a result of this our cost income ratio has come down substantially now to 69%, which compares very favorably with a 80% which we had a year ago.

And a 85% for the entire 2004 return on equity has also increased.

In PCAM the underlying profit is comparable to the same quarter last year.

Revenues were steady, reflecting among others the challenging market conditions in Germany.

I can report an increase in invested assets, particularly in asset management where we have seen strong asset inflow in the institutional business in Europe.

But also in the mutual fund business in Europe, in both PBC and PW and attracted net new money.

The profitability in asset and wealth management is up 5% year-on-year - this on the basis of flat revenues.

PBC maintained its profitability level of last year, which is consistent with our €1b target.

We have seen very good development in Italy and Spain and, as I said a moment ago, business conditions in Germany in the fist quarter were somewhat challenging.

Here we are confronted with a stagnating market.

So for the overview of -- over the businesses, let me now come to risk and capital management.

Loan book - we have seen a slight -- an increase in our loan book in -- compared to the beginning of this year.

An increase both in corporate as well in financial institution and public sector.

What's noteworthy is that we have seen -- that we are seeing continuous, steady growth in our retail loan book which reflects our strategy to expand in this area.

Provision for credit losses are down year-on-year.

The -- Provisions for credit losses in Germany are driven by the retail loan book, and our -- part of this credit losses, if you will, in the non-German area reflect releases of earlier provisions.

Thanks to a result of our workout processes.

And on -- even on an underlying basis, we have benefited from the very high quality of our loan book, as well as favorable credit environment.

The problem loan ratio continues to decline and is now at 3.3%.

Problem loans are at €4.8b.

The next page - the capital ratio increased to 9.2%, and this despite an increase in risk-rated assets by €10b, of which 40% or €4b is driven by the shift in exchange rates.

And 60% is the net increase in risk-rated assets - that's primarily from the sales and trading side and the smaller piece from our loan book.

As you can see, Tier 1 capital is at €20.8b, is up almost -- is up more than €2b.

This is the result of the strong net income in the first quarter, and the issuance of an average instrument on 1 hand.

A negative -- On the other side we had the impact of the share -- the charge share buyback program.

Here you have a slide 20 -- on 27 the share buyback program as announced has been completed, and we bought back during this third share buyback program 45.5m shares, with a total capital consumption of €2.8b.

And now we will see authorization for a fourth program at the AGM in May, to have the necessary flexibility to manage and optimize our capital position.

On page 28 you have the VAR development.

I would like to point out the average VAR for the quarter is identical to the prior year period, despite significantly higher revenues.

That implies an increase in our risk efficiency and, as you can see from the trend line in the quarter, we are able to act quickly to seize market opportunities, but also to reduce risks rapidly if needed.

Let me now turn to our initiatives on page 30, I guess it is.

You have again our stated objectives in our Business Realignment Program.

You do know this chart from our prior analysts conference, so I don't have to discuss those.

Turning to the next page to global markets which now includes equity debt, sales and trading, under [EM2].

All organizational changes are implemented with a more transparent, streamlined structure.

The majority of personnel measures are done.

I talked already about the substantial revenue synergies which have -- which are already evident.

So that [contingencies] the cost, the credit continuum are now seamless.

We do have a unified platform for emerging markets which commits an integrated approach to clients in those regions.

For investors clients we do have the single coverage platform, permitting significant efficiency and cross-selling.

I alluded to those -- to that already a moment ago.

And research on companies covers the whole financial structure.

Global banking, turning to the next page.

Global banking includes global corporate finance, corporate banking and transaction banking under [market force].

The organizational changes are complete.

The merging of the sales forces are complete and all the clients are now allocated.

We have substantial investment in critical industry sector projects and specialists.

So that's all very well under way.

The organization of asset management - a subject we talked about in February - has made good progress, and that's now a new global management structure under Kevin Parker implemented.

Turning to page 34, investment in regional management- -the reorganization is substantially completed.

And we have, on turning to page 35, we have made substantial progress on the infrastructure side.

And the non-comp OCB is here used as a [box here], to show you the progress which we have achieved in this area.

Turning to page 36, I can report that the restructuring, as 1 component of the Business Realignment Program, is progressing as planned.

Around 40% of the people affected by the program have already departed or are notified.

Our original target for the overall cost savings remains on track.

The first quarter restructuring expenses are lower than what we told you when told you early February.

A key reason for that is, that we've managed the attrition during the bonus process much more effectively than we planned.

But also I guess that the businesses included a little bit of cushion in their restructuring budget for the first quarter.

As of today, we still assume that we will expend around the €750m, which we talked about early February if you remember, for our restructuring program.

It might be a little bit less but it is too early to tell.

And this concludes my presentation, and I now welcome any questions you may have.

So we hand back to the moderator to organize the Q&A, please.

Thank you. [OPERATOR INSTRUCTIONS].

Our first question comes from Jeremy Sigee from Citigroup, London.

Please go ahead with your question.

Thanks very much.

Good morning.

Could you talk a little bit more about transaction banking and private and business clients?

I guess I was surprised at the size of cost savings in transaction banking, and also surprised at the lack of cost savings in private and business clients.

Is this a reflection of where the magnitude of savings is going to be, or is it just a timing thing?

Or are there other factors at play there?

Yes, Jeremy, let me first address PBC.

I guess we say that clearly a quarter ago that the restructure in PBC, that was the subject of 2003 and 2004 and that is behind us.

And we do not expect significant additional restructuring within PBC.

On the contrary, after having done those restructure -- that restructuring in '03, '04, we do now have a very effective and efficient platform.

And we want to invest in the business now for growth.

They are now poised for growth.

We are making investments in Italy which have already seen -- where we have already seen results.

We are making investments in Poland.

We are making investments in other parts of -- in other parts of -- where we operate.

So I can only repeat, don't expect bottom line significant cost savings in PBC.

They have to achieve, as I said this also before, they have to achieve cost savings in order to compensate for higher costs resulting from investing.

So they are now geared for growth.

I thought there might have been savings in terms of recharged expenses from central infrastructure.

But you think, on balance, that's not a big factor in this division?

No, small.

It's not -- Clearly, they will benefit from some restructuring activities within IT but again, there's not a big factor.

And quite frankly, I mean after the years of restructuring, it is important that PBC now close their revenues and that is what their focus is right now.

On PBC, I guess I haven't fully understood your question.

As you can see, year-on-year our operating cost base is down by 15%.

So that means we are seeing already benefits from restructuring activities in PBC.

But on a going forward basis PBC will be, for the remainder of the year, primarily a cost story and it will see further cost reductions.

Yes, and my question was it's an impressive cost reduction and is it sustainable?

And you're saying, actually it will go further.

So it's sustainable and it will be extended further?

Yes.

What, as I said, last year in the first quarter there was a tail-end from our -- from the disposal of our global securities services.

And there was a tail-end in the -- on the revenue side but there was always a tail-end on the cost side.

Yes.

Okay.

Thank you very much.

Thanks.

Our next question comes from [Willa Veschan] from UBS, Zurich.

Please go ahead with your question.

Hi, good morning.

I have 2 questions please.

Morning.

First on slide 10, with respect to the compensation ratio for the Group.

You said that in the first quarter it came in for 46%.

Obviously it's a bit of a problem that -- for peer group comparison, that we don't have the comp revenue ratio for CBS.

But I'M focusing on a Group level - do you think the 46% is going to be sustainable for the whole year, or do you expect this to be rather stable?

Or could we expect it in the fourth quarter last year, where there was even excluding the severance payments, a slight up tick which was in contrast to many other banks with your business model?

Or do you think you might trend up a bit in the second half?

Okay.

You know historically our comp ratio on a quarterly basis was a little bit lumpy.

And a year ago I said we are aiming at managing the comp ratio a little bit better, with a view of having less variance.

As this business, again, is our objective.

As I said in the first quarter this year you see -- if you analyze the number, the growth in revenues and the growth in profitability has come from the investment up on CIB.

And there particularly from areas where the bonus payout ratio plays an important role.

So the 46% is driven by, let me say, intended base compensation.

That's number 1.

On number 2, I want to keep it around 46% but, clearly, it depends on revenue development but the objective is to keep it at 46%.

But 49% last year, as you know, was also impacted by a reduction of the share of IUs as a percent of total bonus compensation.

Okay, just -- and the second question please.

What is your assessment of the operating conditions currently?

So could you refer please to the pipeline, for instance, in investment banking, and what is your feel how the business is going forward current -- given the current operating conditions?

This is the conference call in which we talk about the first quarter.

We talk about the first quarter -- the second quarter in about 3 months time.

And you'll understand, and as I have said repeatedly, that I don't want to engage in forward-looking statements.

But as we all know, capital markets have become a little bit more difficult since the middle of March.

I don't have the crystal ball to predict what's going -- what the future is for the capital market.

But was is important is, and we clearly now have demonstrated this.

Number 1 is that our franchise is of very high quality, there is no question about this.

And secondly, that the Business Realignment Program, which is underway positively, has already and continues to positively contribute to our performance.

And those 2 factors make us confident as far as our [indiscernible], at least on a medium-term basis are concerned.

Specifically, I mentioned that in investment banking this is an area where you do have pipeline, where do you have, if you will, backlog like in an industrial company.

In that area, the backlog of the pipeline is very strong.

Than you very much.

Thanks sir.

Next question.

Our next question comes from Vasco Moreno from DKW, London.

Yes.

Good morning gentlemen.

Just a few questions.

The first 1 is on the share buyback.

Are we right in assuming that, because you finished your current buyback program early and you're going to ask the AGM for the net authorization for the next buyback - I think it's on May 28?

It's the 18th.

The 18th, sorry, 18th.

Are we right in assuming that you will not be able to buy back for the next 3 weeks to a month or so?

The second question is on the restructuring charges.

I think we heard you correctly by -- we understood you correctly when you said that, even though we didn't have restructuring charges that were anywhere near the €350m guided originally.

That you still have the same level of full year restructuring charges, that in other words we'll see an acceleration of the restructuring charges in the next 3 quarters.

Can you just confirm that is indeed in the case?

And then, just lastly, could you just give an update on the UK institutional asset management business, and how close you are to a sale of that business?

Thanks.

On the share buyback program, you are basically right - the share buyback program has been completed.

On the restructuring charge for the entire year, I said that at this point in time we still stick to our €750m, but I also said it might be a little bit rich.

But at this point in time we do not want to give a new guidance, where we will end up and uplift.

I do believe that after the second quarter I will be then in a much better position, to give you guidance on the remainder of the year.

The update on the UK asset management business, as Jo Ackermann said on February 3, we have a [bow check] with the mandate assess whether we want to fix it.

Or you can fix it, or whether you want to sell it.

This [bow check] has made very good progress, it's well on the way.

But it would not be in our interest to -- for me to comment on the timing, as we want all the options available to us at this point in time.

Thank you for that but just going back to the first question.

I do know that you have finished your buyback program but is it -- as I said, does that mean that you -- you're not going be able to buyback until, say, May 18 on the new program?

Absolutely.

That's the answer.

Okay, thank you very much.

The business is [indiscernible].

Thanks Vasco.

Our next question comes from David Williams from Morgan Stanley, London.

Please go ahead with your question.

Hi David.

Hello, Mr. Williams?

Hello, sorry, I was on mute.

Hi, David.

Good morning.

I've got 3 questions for you, please.

First of all is on the interest rate markets.

Back in February when you had your full year, Dr. Ackermann said on the conference call that any bank that was in the marketplace, ought to be positioned for rising rates.

Obviously we had the rising rates, we had the credit spreads widened.

I just wonder, within your fixed income result, whether there was a significant contribution from your positioning on the book and that rise in rates?

And whether your 10% of prop, which is your usual guidance, adheres to the first quarter?

The second question, again in a similar area, to talk about the more difficult mid-March trading environment.

Did you say a significant down tick in the revenues in the last couple of weeks of March?

Or if you could just put -- provide a little bit more color on that?

And the third aspect is really is just on the seasonality of the business.

I know you acknowledge in your press release that you do have a seasonality and this is traditionally the strongest quarter.

But would you suspect that this year will display more seasonal patterns, or do you think the environment has been especially favorable in Q1?

David, all of those questions are pretty tricky ones.

And on prop trading in that, I guess I don't have to -- I can comment, it's we don't have seen a difference to our usual pattern.

And as far as our revenue developments within the quarter are concerned, this would drive our discloser a little bit too far.

Because then we can go to monthly reporting from quarterly reporting.

But I guess that we are open there, and we said that capital market conditions started at the beginning -- at the middle of March to be somewhat more challenging, and you guys you can interpret this properly.

On the seasonality of the business, I have absolutely no information or indication which would allow me to say this year will be different to prior years.

That doesn't mean this year it will be different, I don't -- but I don't have any information.

And if you recall a year ago we said absolutely the same about the first quarter '04, what we have said now about the first quarter '05, and the same was true in '03.

So I don't know it better than you do, but I can only say analytically if the pattern this year is the same as the average of prior years, we are well on track.

Great.

Just to follow up slightly on the more difficult environment from the mid-March.

Could you just say what specifically you were thinking about, or whether it's across the board.

Obviously you've talked in the past about diversified business within the fixed income area, and on slide 14 you talk about rates, credit, emerging markets, FX, and global equity derivatives.

Is it -- Would you characterize all those areas as having got more difficult from mid -March, or were you specifically thinking of specifically rates and credit?

David, you shouldn't push me too far.

You know -- You watch the market pretty closely, as I know, and you can draw your conclusion.

But once again, and that is what we have all said, our -- once again, our sales and trading business is not a business [after] taking a directional bet on the market.

If we get that back right we are doing well, and if we get it wrong we are doing badly.

This is not our business.

Absolutely.

Thank you.

Our next question comes from Fiona Swaffield from Execution, London.

Please go ahead.

Hi, good morning.

Just --

Good morning.

Just to start on this issue of fixed income.

On -- Could you give us a feel for how significant global credit is within fixed income?

Because I think in the investor presentation in '03 you seemed to -- Andrew James said it was about 20%, 25%, of the fixed income revenues on average.

Would that be -- Has it grown as a percentage?

Would that be about right?

The second question is on the option expiry that I've been expecting, I think from something called the Global Partnership Scheme.

I think your slides say that you had €4m of option expiry, but I think the 20-F says €14m.

I don't know if you could talk us through whether that's yet to come, or whether they just weren't -- they weren't exercised?

And the third issue's just the assets, the net new money.

In the institutional bit, I remember you mentioning some inflows from Zurich from a contract with them.

Could you talk about how big that was, and whether there were -- what -- the size of the net outflows, if I exclude that?

Thanks.

Okay.

On the options, the 14 --the €14m expired, of which €4m were exercised.

There is a period in which you can exercise those options, and those -- and that period started -- has started in February.

So you can expect -- did we expect during, say, the course of the second quarter more of those options being exercised?

But -- And that will start particularly after the AGM.

Then again, we will have the authority to buy back those shares.

That's important - I guess that's important.

On net new money, usually we don't comment on individual clients.

I guess you understand this - this is not in our interest.

But I can repeat what we said the last time, that this mandate on that client whom you mentioned was significant.

Can I just follow up?

Would that be low margin business or would it be better margin than the money you've been losing historically?

Because you say that you've been losing a lower margin, money market funds.

Clearly, it's not -- at this institutional money it's not mutual fund, and therefore we don't have mutual fund margins.

But it is within the context -- it's within the context of the institutional side and, therefore, it's comparable markets.

On your first question - Now on your first question, if you take -- obviously Andrew James give the share of credit of PCT as percent of total trading income, debt and other products.

The guidance he gave you still holds true today.

So around -- of the global markets revenue, credit would be around 20%, 25%?

Yes.

Okay, thank you.

Thank you.

Our next question comes from Dieter Hein from Fairesearch, Frankfurt.

Please go ahead with your question.

Yes, good morning, Herr Dr. Borsig and Herr Dr. Schmidt.

There's 1 question left for me regarding your non-compensation costs on slide 35.

You showed there that in -- for the first quarter it came down by 9% compared to the average of the year 2004.

Is this level sustainable, this level of the first quarter, or could it even come down further for the rest of the year?

We have a multitude of factors at work here, and this is the outsourcing activities have a debt tendency, or think are negative, the fact that they increase OCE.

The saving then is on the comp line.

However, we have made good progress, for example, as far as IT expenses are concerned.

Also now as far as space costs are concerned.

There is a third element and this is - I have to mention this - that legal charges go through the OCE, and they can have a negative effect.

But absent of legal charges, this level should be sustainable on.

As a matter of fact, we are aiming at -- our aim is to further reduce this.

Our [longevity] target is to get our monthly non-comp OCE down to €500, of slightly below €500.

This gives you then a number of a €1.5b on the quarter.

Wonderful.

Thank you.

Our next question comes from Mark Rubenstein from Credit Suisse, London.

Please go ahead with your question.

Yes, good morning.

Morning Mark.

Actually, just on that last point.

You mentioned legal expenses in the context of the operating cost base.

Are you expecting any legal expenses going out?

Well, I don't expect them because if I had to expect them, I would have to account for them.

Can I rule them out in today's environment?

I can't rule them out but I can say, if you compare us with our peers, I guess we compare so far favorably as far as legal expense are concerned.

Okay, and secondly, fixed income obviously is an area that you've focused on already, it was clearly blowout in the first quarter.

Looks like you've done a lot better than the peer group.

Absolutely.

Now, I know you look at the peer group, judging from slide 15, where you show how you rank versus a bunch of the US peers.

What -- Why do you think your fixed income results were so much better than the peers in the first quarter?

It looks like fixed income specific VAR did go up a little bit in the quarter, so that's maybe some of it.

But I don't know if you could just talk about the rest of it?

Yes, but the first observation clearly is, that in the first quarter we were pretty risk efficient.

I mean I guess this is a fair statement and -- So be clearly the mark clearly indicates that you don't have massive directional debts in the book, and that those directional bets made the quarter.

This is a clear conclusion from the VAR [indiscernible].

No, I can only emphasize what [attention] I have said repeatedly.

We do have a different business model in fixed income, and we have -- we categorize our -- the product, the activities in the 3 categories - intellectual products, market access and proprietary.

And we are below average in the areas -- our share of revenues compared with the revenue mix of the average, if you will, peer group is a lower share in prop trading, a lower share in market assets, and a much higher share in intellectual products.

And this business model we have always said is a more successful business model, and the first quarter clearly has demonstrated this.

And the revenue increases came primarily from our intellectual products.

End of story.

Okay, so in spite of the difficult market conditions, you alluded to since mid-March, you'd be sticking to that line?

Yes.

Okay, thanks.

Thanks Mark.

Our next question comes from [Metta Hanzen] from Sal Oppenheim, Frankfurt.

Please go ahead with your question.

Yes, hi, good morning.

I have 2 questions.

First question concerning page 23, concerning your loan book.

I understand that it grew 4.3% Q1 versus Q4.

I assume that there are no FX effects.

What would you say was basically the primary driving factor behind it?

And could you also give us an outlook for the whole year, what we can expect in terms of loan book growth?

And also perhaps a hint on margins?

Perhaps also on the corporate and retail side, what margin developments are there?

And then the second question and final question, page 32.

You talk about intellectual know-how and capital.

What puzzles me is your fee pool market share, compared to the last year's has improved significantly, while your personnel numbers, for instance in corporate bank securities, basically fell over rather flat.

So how are you achieving this?

What's the magic formula behind that?

We have said when we announced the Business Realignment program that we do see positive effects in realigning the client coverage, and also we mentioned a comprehensive study which was conducted.

And then concern was that, while Deutsche would gain on the cost front, they would lose on the revenue front, and this is not true.

And, if you have too many cooks in the kitchen, usually the meal is burnt and is not better.

And we also -- the fact that we had over-capacity in the traditional, corporate banking sector, and that the new coverage model is more cost efficient.

But it's particularly more effective because we now have a seamless approach to the client, and we deliver the client to the bank by an effective, seamless sales organization.

And that's why there's no contradiction between us streamlining the client coverage.

And as a matter of fact, the key objective of that effort was to become more effective on the revenue side, and the cost side was secondary important.

And I believe PBC proved that our assumption has been right.

Going back to the loan book, as far as retail and commercial, the steady increase we have seen will -- it's not affected by shift in exchange rates, because that's all in Euroland.

And our strategy in PBC -- in PECAM is to grow our loan book because the risk benefit ratio here is favorably.

This is not that easy in Germany where demand is flat or declining, but we have demonstrated that we can grow the loan book also in Germany, and we will continue to do that.

Perhaps 1 question, a follow-up question on this loan business.

There were some news flow recently concerning the average buyout financing -- bridge financing, where you are perhaps encountering some problems.

Could you tell us your strategy in this bridge financing?

How will you be positioned there, and what is your strategy?

Will you pursue it more aggressively, or will you more and more refrain from that business?

This is a key business of ours.

We are very successful here.

We are 1 of the dominant players and this is the business which we like a lot which is high -- and which is very profitable.

We do have, as you know, a very effective risk management in place and I'm sure that we are pursuing here the right transaction.

The noise in the press - you always have -- in the recent, you always have to ask who has an interest.

But this is about a transaction which has been hit -- which hasn't hit the book yet, that we are highly confident this is not a risk issue.

This is a [timing] issue.

So the increase which you see in -- which you see here in the [loan book] and FI public sector loan book, is not the result that we do have inventory from prior transaction, which we couldn't sell.

And one has to expect some volatility of that number.

But also, as I said this 3 months ago, that the loan book by the end of 30 of last year, was a bit unexpectedly low, and you may see this as a bounce back from too low a number.

You asked about more specifically in Germany.

The mid-cap loan books stayed flat compared to the quarter before, which is a certain achievement as loan demand is pretty slow in Germany.

And as a result of a low demand in Germany, margins again have come somewhat under pressure but we are not prepared to compromise in this regard.

Okay, thanks.

Thanks Metta.

But we should, can we may be shorten -- accelerate a little bit shorter questions, so that I'm going to have to leave shortly.

Hello?

Our next question comes from Evo Dierick from Dexia in Brussels.

Please go ahead with your question.

Good morning.

I have only a small question.

Am I right to suggest will you cancel the 33m shares not used for the hedge?

We haven't taken it up quite frankly.

We haven't taken a decision yet.

It requires a formal decision by the Board, and you understand that I do not want to preempt the Board in this conference call.

Okay, thank you.

Thanks Evo.

Our next question comes from Stuart Graham from Merrill Lynch, London.

Please go ahead with your question.

Hi, there.

Firstly, congratulations on great numbers.

Thanks.

I have 2 quick questions.

You talked about the synergies between the fixed income business and the equity.

Can you give us a feel for of your 3 points you put in the trading income, how much of that was from new-found synergies between the equity and the debt business?

And, secondly, what do you think the expected loss is on your loan book at the moment?

Are you still talking about €600m in the provision for the full year?

Thanks.

No, we expect -- the expected loss on the loan book I talked about a number around €500m, and the expected loss actually hasn't come down.

But you know we don't accrue according to the expected growth, but we expect when we do the plan the expected loss is the best assumption we have for our accruals.

Let's say, in a neutral credit risk environment.

As this point in time we do expect to come in a little bit lower than we expect -- with our credit losses than we expect it, or the provisions for private losses to be specific.

It'll be a little bit lower than that number.

To the second question, or the first question was on the synergy.

I need to identify exactly the revenue amount coming from synergies - that is very, very difficult.

But I give you, for example, we have seen very, very good growth in global equity derivatives, and we do know that global equity derivatives clearly - I'm talking about substantial growth - clearly benefited from the realignment of our sales organization in that area, as outlined on page - hang on - on page 31.

There's 1 unified client coverage for the institutional client group, but we haven't done exercise because it's impossible.

So it's a qualitative assessment build that really benefited already, in a substantial way from the synergies.

And as of matter of fact, when we launched the -- or decided on the program, we expected the first tangible benefits to come in in the second half of this year [indiscernible].

So we were by a way too pessimistic.

Okay, thanks.

Due to other commitments, we -- I think we can take 2 more questions, and then we have to conclude.

Next please.

Our next question comes from Karim Aba Hussain from JP Morgan, London .

Please go ahead with your question.

Yes.

I have 2 questions.

On page 40, you outline the staff reductions in the Group, and at the same time you talk about 2,400 people who signed up to leave the Group, and some of them have left already.

Is it fair to say that all of these staff reduction are in line with a -- are related to the program of your staff reduction program?

And secondly, how long will it take for these people really to leave the Group, and we see a P&L impact?

Okay.

We identified in this, or in our program, only leavers who are part of the Business Realignment Program.

This is not the entire movement.

Those are just the leavers, 2,400 people, and 75% of those have left the platform, and 25% have been notified, in rough terms.

Okay.

And the second question is related to your pre-tax RE target of 25%.

You indicated, or Mr. Ackermann indicated, 4% revenue growth to reach that target, on an underlying basis.

Now looking at your numbers they, of course, are extremely strong, both on the revenue side and bonus accrual side.

How do the numbers look like at this point, considering the very strong first quarter?

Well, again, Mr. Ackermann has already said, this is the model and this is an assumption.

Those are the cost savings which we are planning and those are the revenues which are needed, in order to square up the cycle.

And clearly, in the first quarter our revenue momentum was higher than the 4%, and as a result of this, we had higher bonus accrual.

The chart -- Herr Ackermann's chart was just a list for this.

As far as now this year's concerned, clearly as far as revenues are concerned, we are ahead.

The pre-tax altogether is consistent with the 25% target, and how the remainder of the year is shaping up, we have to see.

All right.

Thank you.

Thanks.

Last question. 1 more.

Our next question comes from Richard Ramsden from Goldman Sachs, London.

Please go ahead with your question.

Yes, I just have 1 quick question on Eurohypo, which is that there's been some talk of a secondary public offering of Eurohypo.

Can you talk first about potential timing of any transaction, and secondly about your willingness to participate in selling down your stake?

And linked to that, could you confirm that the carrying value of Eurohypo is still around €21 on your books?

The first - I cannot confirm your number because it's not the right number, and I guess the €21 is the current stock price of the -- it's around -- our carrying value is lower.

If, and second, we have always said and all 3 partners have said, that we want to reduce our stake in Eurohypo and ultimately want to exit Eurohypo.

All those then -- the disposals will be done jointly, and on a pro rata basis.

So there will not be a SDO, and 1 of the partner's not participating, and we will also decide on a capital market transaction jointly and has to be mutual.

There has to be mutual agreement.

Clearly, we are watching the market.

Eurohypo has made very good progress, both on the credits fund as well as on the cost fund, but also on -- I have to say, on the revenue and the revenue fund.

Any capital market transaction clearly is dictated by capital market conditions, but there is no question about [indiscernible] the strategy want the partners to go out of Eurohypo [indiscernible].

That's all I can say at this point in time.

Okay, thank you.

Thanks Richard.

So we would now like to conclude this call.

Thank you all very much for your time and the interest.

Bye.

Ladies and gentlemen, thank you for your participation.

This concludes today's conference, you may now disconnect your lines.

Thank you.