Deutsche Bank AG (DB) 2005 Q3 法說會逐字稿

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

Just to remind you all this call is being recorded.

I would now like to hand over to today’s chairperson, Wolfram Schmidt.

Please begin your meeting and I will be standing by.

Thank you Nadine, good morning.

This is Deutsche Bank’s third quarter call.

With me is the CFO of Deutsche Bank, Clemens Borsig.

At this point in time I trust you all had access here to our website and have printed for yourself the earnings release, the accompanying financial data supplement, the full interim report and in particular, the set of Powerpoint slides which will be the basis for Clemens’ presentation right now.

After the presentation, we will have time for questions as usual.

With this, Clemens, I hand over to you.

Thank you Wolfram and welcome to all of you on the call.

I want to discuss now the Powerpoint slides which Wolfram referred to, I start with page three.

This gives you the summary of our third quarter.

As you can see, the third quarter this year was our best third quarter ever.

Revenues were up by 31% to €6.6b, income before income taxes is up by 87% to €1.9b.

And net income up by 46% to €1b.

Also year-to-date very strong performance both in revenues as well as in profitability.

A few remarks our, as you can see, our absolute profitability this quarter was among the highest of our major peers.

Strong diversification of earnings.

All businesses within Deutsche Bank performed very well.

So it is no concentration on one or two businesses, all businesses performed very well, very strong year-on-year profit growth.

But costs closed among the lowest in the industry and very strong capital formation.

On page four, our very good results for our shareholders.

Our earnings per share are up 44% to now almost €6, just on the €2 for the quarter.

Actually, year-to-date September, our earnings per share are 31% higher than the earnings per share for the entire fiscal year 2004.

Pre-tax return on equity for the quarter was 29%, according to our target definition, that means stripping out restructuring expenses but also the gain on our DaimlerChrysler disposal would be 26%.

Year-to-date, we are both on a reported basis as well as on -- to our target on a pre-tax return of 28%.

And this compares with our target for the entire year 2005 of 25%.

Against this spectrum we remain confident that if market and economic conditions remains stable, we will reach our target of 25% for the fiscal year.

Let me now look in more detail at the results at Group level.

On page six, our third quarter pre-tax profit is the best third quarter pre-tax profit in Deutsche Bank’s history, 87% year-on-year growth.

This is among the best performance in terms of profit growth amongst our peers.

Reported pre-tax profitability nine, included are €337m positive targeted from the DaimlerChrysler disposal.

Restructuring related expenses were €156m negative.

In the third quarter –- the third quarter was also impacted by litigation charges in respect to legacy issues.

For the ninth month, our pre-tax profit now stands at €5.1b, up by 36%.

Business Realignment Program-related restructuring for the year more than offset gains from DaimlerChrysler.

The pre-tax profit therefore for the nine months is over €1b higher than the full-year 2004 figure of €4b.

On page seven, net income reached in the third quarter €1b.

It is here worth noting that the impact of the DaimlerChrysler disposal is only €37m because of the tax growth -- of the tax reversal.

The tax reversal, we have talked quite often about it.

It’s an entirely an accounting item, it has nothing to do with the tax expense relating to a payment to the income revenue service.

The ERP effect is 97% -- €97m negative, so the net impact of those two factors is a negative of €60m.

Year-to-date, net income achieved €3b.

This is an increase of 34% compared to last year and again you find or you see on the slide the impact of Daimler on one hand and the negative impact of our restructuring expenses on the other hand.

Page eight, revenue growth.

We have seen in the fourth quarter, accelerated –- in the first quarter, accelerated revenue growth.

The €6.6b do include the DaimlerChrysler revenues of €337m as I mentioned before.

The percentages on the slide refer to the underlying numbers, that means underlying -- known underlying effect, particularly DaimlerChrysler is stripped out.

And here we see, quarter-on-quarter a growth of 25%.

The growth of our underlying revenues year-to-date is 14% to €19.1b.

We see therefore, clearly excellent revenue growth and our business realignment program clearly contributed to this growth in global markets.

The sales force, the combined sales force exploit product linkages across equity and debt, and in global banking the one phase to [indiscernible] has climbed and also resulted in higher revenue as I mentioned in the last quarter too.

Costs clearly remained under control, as you can see on page nine.

The increase which you see is due to higher performances but also it reflects the litigation expenses which I mentioned.

If you split those factors out as a matter of fact our costs actually are lower, the year-to-date number would be – 2005 would be below the year-to-date number 2004.

As a result, our cost ratios have improved.

A better measure of our cost efficiency are the underlying ratios, you find the reported ratios in the appendix of our presentation.

And as you can see, our underlying cost-income ratio has come down to 73%.

This is 8 percentage points below our cost-income ratio in the third quarter ’04 and year-to-date our cost-income ratio has come down to 72% compared with 77% the same period of last year.

Also, we’d like to highlight here the consistency of our underlying compensation ratio.

Let me now turn to the segmental result on page 12, you have the summary of our segmental result.

And again, you see here the strong performance by all our businesses.

Our Group pre-tax profit growth of 87% actually outstaged the performance of the businesses because we do have in CNA a negative €2b reflecting our litigation charges I just talked about.

On page 13, you see strong top-line growth across the board.

The overall picture is an outstanding performance in sales and trading equity, very strong growth of an already high base in sales and trading debt.

Origination and advisory had its best revenues for 11 quarters.

In PBC, we saw a growth in a positive environment for financial markets during the third quarter, good growth also in Asset and Wealth management and solid revenue growth in PPC.

In a moment I will go through these drivers.

Page 14.

Revenue growth has clearly reached the bottom line.

You see that all our businesses improved their profitability.

I have here the year-to-date number so the pre-tax -– underlying pre-tax profit in CBNS is up 51% year-to-date to €3.4b.

PBC profit is up by 76% to €412m.

Asset and Wealth management year-to-date is up by 26% to €493m and PBC is up by 0.4% to €745m.

Let me now turn to the segment, page 15.

CIB clearly had an outstanding third quarter driven by customer flow business.

We took full advantage of strong markets, customer confidence returned after turbulences in the second quarter.

Finally, capital market activity and M%A volumes especially in Europe were strong.

As a result, like several peers, but unlike previous years, the third quarter was stronger than the second quarter.

Most of our peers have reported strong results in the third quarter, however, 136% pre-tax profit growth is very strong even in this context.

And again, we exercised very vigorous cost discipline.

A higher future performance based variable compensation. [Non-core] were essentially flat despite higher market volumes.

And our cost-income ratio has improved to 67% in the third quarter or 69% for the nine months.

Our underlying pre-tax return on equity for nine months is now up to 36%.

Same period last year it was 25%.

But not just costs but also credit and market risk management remained rigorous.

I’ll talk to credit risk in a moment and for market risk I’m referring to the appendix and to the interim report.

Let me move on to page 16.

CIB retains top three position by revenue and sustained this top three position in investment banking product to the sales and trading costs of finance and loan products.

For the first nine months of 2005, we have the highest revenue growth rate for any of the top five houses. 20% over the nine months of 2004, this is -- we took advantage of good markets but we also performed well in the difficult markets in the second quarter.

Let me now turn to the drivers of growth.

Sales and trading debt and other products is up by 29%, strong growth and revenues higher than in the second quarter.

Here on the chart 17 and in the release of this morning, you see the drivers of this growth by product area.

But let me make here a few overall points.

Growth was driven by customer flow business, as volumes returned after a difficult second quarter.

This most notably in credit markets, we saw continuous benefits of the business model which emphasizes intellectual capital and we are more dependent on or driven by proprietary trading.

As one analyst rightly said recently, DB’s business model tends to out-perform in tough markets but experiences less top-driven growth in a benign environment.

Sales and trading equity, year-on-year’s gross of a 155% is considerably stronger than for most peers, again the drivers by product area are highlighted on the slide.

Again, we have a stable environment, strong market volumes and we have strong primary equity flows.

In Prop Trading, we saw a strong recovery compared to the third quarter ’04 on back of good equity markets.

However, Deutsche’s strategies to take advantage of selective opportunities and Prop Trading in flight -- gains are likely to be lower than for some peers.

And again, as you can see in the appendix and the interim report, our risk efficiencies method in revenues [indiscernible] has increased substantially and is again among the best in class.

Page 19, Origination and Advisory.

Good growth in both Origination and Advisory, as a matter of fact the third quarter ’05 shows the best results for 11 quarters.

It is a highly stable revenue stream.

In Origination, the drivers where primary equity and IPE volumes which were strong in the third quarter.

The high yield markets recovered, our strength narrowed in the third quarter, up to the second quarter and investment traded remains at good levels.

In Advisory, the drivers were high levels of corporate activity in Europe and market share gains for Deutsche in Europe.

Again, the success of our Business Realignment Program benefited -– contributed to our performance in Origination and Advisory.

Against this development we sustained our leadership in European investment banking, as you can see on page 20.

Only two banks, Deutsche and JP Morgan, are in top five in all categories of investment banking that capital market –- equity capital market and M&A.

Turning to PBC, significant profit growth throughout the year 2005.

We expanded our market share and growth in Trust and Security Services.

We saw continued growth in private trade and finance.

And stringent cost management contributed to a much-improved profit performance in the quarter as well as year-to-date.

Let me now turn to PCAM.

In PCAM, we achieved a 34% profit growth in the third quarter.

We saw substantial improvement in the cost-income ratio but also in return on equity.

Positive capital market environment has driven our investment performance.

This provided good revenue growth opportunity, however cost discipline remains tight, our operating cost basis has grown by only 22% and the result is a substantial bottom-line growth.

Turning to Asset and Wealth Management, significant improvement in profitability, more than doubling -- pre-tax profit more than doubled to €207m.

Strong contribution of European retail in asset management is very good inflows into European mutual funds ex-U.K.

In Private Wealth Management, we saw further strength and both in terms of net inflows, €6b year-to-date, as well as in revenue growth in key markets including Germany.

In Asset Management, revenues were driven by good performance fees.

Both in European Mutual Fund business as well as in Real Estate.

And again, the cost base remained essentially unchanged versus 2004 despite substantial reorganization costs.

The full P&L benefit from the disposal of parts of the U.K. business is not reflected in the underlying figures because the first -- biggest [let] closed in September 30.

Final closing is anticipated for end of November verwithsus some payments in the fourth quarter and also in the first quarter contingent upon client retention.

In PBC, we saw the seventh consecutive quarter of strong and stable earnings, revenue growth grew by 5% despite slow economic conditions in Germany.

The drivers of that growth were first investment and advisory services.

The brokerage fees in the third quarter were up by 25% compared to the third quarter ’04.

Consumer Finance and Mortgage Lending.

I will talk about the PBC loan book in a moment.

But also in the third quarter good momentum is in life assurance.

You know, life assurance was very strong last year because of a change in taxation of life assurance policies on January 1 of this year.

However, our commission from life insurance -- from selling life insurance policies reached in the third quarter almost the same level –- of the same high level we had in third quarter ’04.

The cost base remained essentially unchanged despite continued investment, so we had the best ever cost-income ratio.

We published our growth strategy in PBC.

Both for Germany and Europe and in key markets and I would like to elaborate a little bit on those growth initiatives now.

On page 25, we have the summary of our initiative in Germany and in Europe.

In Germany, we entered into an exclusive states co-operation agreement with ADFC, the German automobile club.

That club has 15 Morgan members.

We will sell savings products at the beginning of this partnership but we intend to broaden the product offering which will be sold through this sales channel.

We further expanded our mobile sales force.

We launched student loan program.

This will add new clients to our franchise with future high potential and we opened the branch of the future here in Berlin and this branch of the future has attracted much more attention by the public than we anticipated.

In Europe, we hold out a new pan-European consumer finance business line and Poland is a key country for internal growth where we intend to double our branch network.

Turning to page 26, our investment in key emerging markets.

I want to talk here about India and China.

In India, you should know that DB has already built a strong position in investment banking in India and now we want to expand also in India in retail.

We opened a branch in Mumbai on October 18 of this year.

We intend to open seven more branches by year end.

We have recruited more than 400 trained staff and our product offering will be both savings products, loan products, as well as investment products.

In China, we entered into a partnership agreement together with Sal Oppenheim, with Russia Bank.

Our stake is 9.9%, we will have a seat on the Russia board and we will set up with Russia Bank a partnership in the area of credit cards, affluent banking services, investment products have also cash management.

And we will provide to Russia Bank technical support in risk management technology, governance and retail and corporate banking.

So far to the segments and let me now turn to Risk and Capital Management.

In summary, this is continues to be a very good story.

Our loan book in the quarter, I’m on page 28, grew by €3b during the quarter.

This is primarily in the area of LA&G but also in PCAM.

The PCAM loan book now makes up 56% of the total loan book.

During the first nine months, our loan book grew by 9.5% of which the PCAM loan book grew by 6%.

The growth of the PCAM loan book reflects our growth strategy in the consumer and private client business.

And as you can see here, in private wealth management [Lombard] lending, the loan book grew by 24%, in retail consumer finance by 9% and in retail mortgages by 6%.

And it was particularly pleasing that we have made very, very strong progress in Italy but also good progress in Spain.

29, in the area of problem loans.

Continued improvement, our problem loans have further come down to €4.3b, that’s by far the lowest level we have ever had since we are reporting under U.S. GAAP.

We started, just to remind you, with a number of €12b.

And the problem loan ratio –- problem loans as a percent of total loan book is now 2.9%, also is the lowest we have ever had.

Provisions for loan losses, again, page 30, are down.

This is the development of our provision for loan.

This clearly reflect benign credit environment, the high quality of our loan book but also continued success of our work-out group.

Let me turn to capital, on page 30.

One, you see very strong capital formation.

Our shareholder equity is now up by 16% compared to the beginning of this year, to €30b.

This is a level which we had achieved –- which we had at the end of December 2002.

We are now back to those €30b despite a reduction of our equity in the meantime by €10b as a result of an accounting treatment of hedges for the first compensation, our share buyback program and dividend.

But we compensated those minus €10b by other comprehensive income than above all -- by our earnings growth.

Net assets value per share are up compared to the beginning of this year by 15% to almost €59 now per share and tier 1 capital is up by 22% to almost €23b.

This strong capital formation, I’m turning now to page 32, this strong capital formation allowed us to finance our growth in terms of risk-weighted assets, to buy back shares.

In the third quarter, we bought back 2.5m shares for a value of €180m and maintained a very strong tier 1 ratio at 9% at the other end of our target rate.

Let me summarize.

In the second quarter ’05, we out-performed in challenging conditions.

In the third quarter, we out-performed in good conditions.

The absolute level of profitability is very strong, €1.9b in pre-tax profit is excellent by any standards.

We achieved this despite abnormal seasonal patterns, so a record for a third quarter, and our return in equity is now on par with the best in the industry.

We have seen strengths across the board.

All businesses have performed strongly, therefore, we have seen a very good diversification of earnings.

We kept our top-line growth opportunities but without relaxing cost discipline.

Some market participants doubted our ability to do so but we solved this.

The third quarter year-on-year profit growth is among the highest in the industry.

At I mentioned just a moment ago, we have seen strong capital formation driven by earnings which allowed us to invest, grow our risk-weighted assets without compromising core capital ratio and also provide by the way for a higher dividend.

On the back of strict capital management can invest in growth, we buy back shares, we raised the dividend growth and of course we maintained our strong capital position.

And this concludes my discussion and I am now pleased to entertain any questions you have.

Nadine, back to you, and I’ll stand by to take questions.

[OPERATOR INSTRUCTIONS].

Our first question comes from Vasco Moreno.

Please announce your company and location, go ahead with your question.

Yes, good morning.

It’s Vasco Moreno from Keefe, Bruyette and Woods in London.

Good morning gentlemen.

Just a few questions.

The first one is related to the buyback.

You didn’t do a lot in the third quarter in terms of the buyback.

Could you give us an idea as to why you were so slow in doing the buyback and could it have something to do with the [BCR] bid.

And now that you seem to be left out of that process, could that buyback accelerate?

The second question is related to the asset management fees in Asset and Wealth Management.

Pretty strong recovery in the third quarter.

Could you just elaborate on exactly what actually happened there?

Third question would be related to loan loss charges in PBC.

Again, just a bit more clarity on that increase in loan loss charges would be great.

And then last question would be related to the restructuring charges.

You’ve now done €440m out of €750m that you said you would do.

Does this basically mean that you’re going to be undershooting significantly this year in terms of your restructuring charges?

Thank you.

Yes, thank you.

On the buyback front, it is true.

We haven’t bought that many shares back in the third quarter.

Is this related to BCR?

No, it’s not related to BCR.

Do we intend to buy more in the fourth quarter?

I don’t want to give a forward-looking statement in this regard, you understand this, but I would like to highlight that we clearly do have, as you have seen, we do have the capacity to buy back, to buy more stock -- to buy more stock back.

We have the headroom in terms of our capital position as well as the authorities concerned which we have from the AGM.

And, as I said, buying back our stock is an important tool for us for an effective capital management.

I guess I was -- that is how far I can go as to the future of our stock buyback.

Sure.

You mentioned BCR.

This gives me an opportunity to reiterate our acquisition strategy, and Jo pointed this out just recently at an investor conference, and we have consistently said that we are interested pursuing attractive opportunities if they make sense from a strategy point of view, but also if they make sense from a financial point of view.

They have to make sense also for our shareholders.

And we are very, very disciplined in this regard.

We submitted an offer which we consider attractive which we hope would be competitive.

But I must say, these days there are other firms who are prepared to pay prices which we cannot -- which we cannot justify.

And then we say so be it.

So be it.

We don’t want to compromise.

We don’t want to compromise our discipline also on the acquisition front.

On asset management fees, I guess I can only repeat what I said.

We had very strong performance in mutual funds in continental Europe.

This is clearly predominantly [DWS] in Germany.

But we also had good performance fees in real estate.

And they -- those two factors contributed predominantly to the good performance of asset management.

Loan loss charges in retail, you know that’s a loan loss charge in retail, basically I would call them formula driven.

The factors which contributed here to the increase, year-to-date September ’04 to year-to-date September ’05, partly -- are predominantly an increase in volumes, especially in the consumer portfolio.

In consumer portfolio they had the highest specific loan loss provisions.

It’s a highly profitable business.

But even after loan loss provisions, but they have the high -- relatively high loan loss provisions.

We had an impact, but this impact is rather small, of higher insolvency rates -- of higher insolvency rates in Germany.

As most of you are aware that private insolvency rates have gone up in Germany.

I want to mention this factor.

But the impact is very, very small.

The impact is €5m.

We also had an impact, a one-time impact from recalibrating the model parameters of 2004.

Restructuring charges, you have the details in the appendix.

We have now outstanding €285m.

Still we assume that we will use the entire €750m, earmarked for the BRP program for this year.

However, I have to say that we might see a little bit of slippage here into the first quarter of next year.

You know that the accounting rules for restructuring charges are very tight, and we depend also in some areas on agreement with our partners from the employee [expenditures].

And it depends on at what time we can conclude those agreements.

That’s great.

Thank you very much gentlemen.

[OPERATOR INSTRUCTIONS].

Our next question comes from Jeremy Sigee.

Please announce you company and location and go ahead with your question.

Thanks.

Can you hear me okay this time?

Yes, fine.

Very good.

Thank you.

Jeremy Sigee at Citigroup.

Could I ask two questions please?

One in corporate banking and securities, the greatly improved cost-income ratio here for a third quarter.

Is that a reflection simply of a better revenue performance or is it any kind of change in approach, would you say?

And second question, in private and business clients, could you talk about the profitability and the growth rates that you’re seeing in your Italian and Spanish businesses, compared to the German business?

Yes, first then on CB&S.

It’s performance, it’s not a change in our approach.

In PBC, 75% of our revenues are in Germany. 25% are basically outside Germany.

And we know that Germany is a more challenging market.

As a matter of fact, both in Italy and in Spain we are now growing faster than the market.

In terms of profitability, this also translates into profitability.

So the top performer in pre-tax is Italy, followed by Spain and then comes Germany.

And we -- our objective is to broaden the growth areas, if you will, the growth regions, if you will, within PBC by building our revenue base outside -- by building our revenue base outside Germany.

Thank you.

Thanks very much.

Our next question comes from Kian Abouhossein.

Please announce your company and location and go ahead with your question.

Yes, hello.

It’s Kian Abouhossein from JP Morgan in London.

Morning.

Hi.

I have three questions.

The first one is related to your Business Realignment Program.

Slides 35 and 36 are very useful, but it seems to me that you are missing one slide and that is the cost savings that you are actually achieving.

And for a year now you haven’t really talked about the €800m of cost savings that you are focusing on.

At the same time, you are discussing 1,000 staff reductions.

But on a net basis, on a Group basis you’re actually flat on a quarter-by-quarter basis.

So it would be great to get a little bit more color of the €800m where you stand and in what divisions.

The second question is on equity sales and trading. €1b - you haven’t made €1b for over four years now.

I am trying to understand how much problem convertible trading is in that equity sales and trading number.

And the third one is on fixed income.

Your performance is quite different from other credit derivative houses.

I wonder how you accrue or if you mark to market for the long tail part of your business in credit derivatives.

Thanks.

On the BRP program, we gave you actually the two slides which are mentioned on headcount and the other on expenses, but not on cost.

I can tell you that on cost we are in line with -- we are in line with our plan.

But as a result of our growth, we do have cost increases, predominantly in terms of accruals -- bonus accruals, but also in some other areas.

We all -- and I mentioned also the issue of legal provisions for legacy charges.

My concern is if I go too much into the detail here then I have to show you the cost bases, that bonus accrual and this bonus accrual, and this is exactly the kind of transparency we are not in a position to provide.

So, in a way, you have to believe me if I tell you that we are here on track.

In terms of headcount reduction, BRP-related headcount reduction right now is, you have here a number, 4,600 people either departed or notified.

The exact number is a little bit higher, by 80 people.

So about 75% of the 6,400 people have been -- have departed or have been notified. 25% are outstanding.

Of this 4,600, more than 80% have left the platform.

Once again, so, why can’t you see in our headcount development a net reduction of 3,878?

That is the number of departures under the program.

And why do you see a lower number for headcount reduction?

This has to do with our smart sourcing initiatives.

We also said that from the 6,400 we had -- we will smart source in low-cost countries 1,200.

And it is clear that you have to hire those people in those countries before the people depart in Germany or in other locations.

So that’s the distortion.

The other distortion comes from the apprentices which were higher in the third quarter.

And we also said that we do selective hiring in growth areas, such, for example, investment banking in the U.S.

And we -- so we never pretended that the 6,400, or the 5,200, would be a net number.

But we are tracking the headcount development under the BRP program very, very closely.

So, on the equity front, I said that all our business -- all our product lines within equity contributed to this very good performance, to this increase of 138%.

And year-on-year growth was strong in cash and program trading, it was strong in equity markets, was particularly strong, that’s the strongest area, was particularly strong in global equity derivatives, but was also strong in prime services.

So in all the customer-driven areas, we have seen very, very strong growth.

I mentioned equities proprietary trading and we made clear we have a selective approach.

And there we do see the risk-reward ratio working very, very well.

We seized those opportunities.

But prop trading as a percent of our total equity revenues are not higher than in the average of prior quarters, and are definitely below the average of the [street].

Fixed income, do we have more conservative accounting practices on long-term derivatives?

I don’t know what the accounting practices of other firms are.

I only know that we do have a prudent approach to the accounting.

We fully comply with the accounting standards.

And we are clearly not overly impressive in this regard.

Whether other firms have different approaches, I don’t know.

Do you accrue long-tail derivative gains or losses or do you mark to market every quarter?

Mark to market.

Okay.

Thank you.

Thanks Kian.

Next question?

Our next question comes from Matthew Czepliewicz.

Please announce your company and location and go ahead with your question.

Yes, good morning.

It’s Matthew Czepliewicz at HSBC in London.

Morning.

Hello.

A follow-up question really on equity sales and trading.

It was a very impressive quarter.

Could you possibly tell us what percentage of the revenues from the first three categories you highlight, equity derivatives, prime services and cash equities, come from the U.S?

I don’t have the number at my fingertips.

So before I give you an imprecise answer, perhaps if you could after the call, call Investor Relations.

Okay.

Will do.

But then a second question there.

I understand that you don’t like to break out the contribution percentage or absolute.

But could you possibly say in the year-to-date, so for the first nine months, what percentage of revenues from equity sales and trading have come from equity derivatives roughly?

Yes, you know people have -- it’s also a question of definition.

It’s not 100% precise.

But if you guess this in the 20% range, you are not off the mark.

Okay.

That’s great.

Thank you.

Thanks Matthew.

Our next question comes from Marc Rubenstein.

Please announce your company and location and go ahead with your question.

Yes, good morning.

It’s Marc Rubenstein from Credit Suisse.

Good morning Marc.

A couple of questions.

Firstly risk-weighted asset growth, specifically in the CIB division, was 7% in the quarter.

Now I guess some of that is the increase in the loan book which went from €53b to €65b according to the slides.

I was wondering if anything else was going on there, particularly as total assets in that division were only up by about 1%.

And secondly, you have been very good in the past identifying trends in the credit cycle.

I remember you called the bottom at the end of 2002.

I’m just wondering if you’re ready to call the top at this stage, particularly as gross charge-offs on your balance sheet seem to be creeping up from the low in the first quarter.

Thanks.

Yes, Marc.

On the risk-weighted assets we have the effect of ForEx movement because in CIB part of the loan -- quite a big part of the loan book is in dollars.

Secondly, we have risk-weighted asset growth as a result of our growth in derivatives.

We have seen a bit of risk-weighted asset growth as a result of a higher loan book, as you rightly mentioned.

But also commitment for loans and guarantees also translate into risk-weighted assets.

So off-balance sheet obligations on the credit front translate into risk-weighted assets and it’s a combination of all those.

So besides the ForEx effect, it is growth-driven, but it’s definitely below the growth of the top line.

On loan loss provisions, as I have said repeatedly in the last quarters, we are benefiting also from good results on [work outs] so we get releases of loan loss provisions which are helping us here.

So if you will, the underlying, if that term exists, the underlying loan loss provision is a bit higher.

I have always said that the total expected loss in our loan portfolio is around €500m as we are not accruing on the basis of expected loss.

Given the benign credit environment, the underlying loan loss provisions clearly are below €500m.

The future development, as I said, we are pursuing a growth strategy in the area of PBC and here, particularly, in consumer finance.

And consumer finance, as said, has a higher specific loan loss provision.

So, as a result -- just as a result of the growth in PBC, in consumer finance, you see corresponding growth in our expected loss and in the loan loss provisions.

But once again, we are not talking big numbers here.

But again, if you ask me what is my expectation, and my expectation for next year, my best guess is it’s the level of expected loss because this is not something that we can mathematically calculate.

This is around €500m.

But I would assume -- I would assume that if the credit environment stays benign, we can come in a little bit lower than that number.

Okay.

Thanks.

Thank you Marc.

[OPERATOR INSTRUCTIONS].

Our next question comes from Kiri Vijayarajah.

Please announce your company and location and go ahead with your question.

Yes, good morning.

It’s Kiri Vijayarajah from Citigroup.

I have a follow-up question on your buybacks.

You said the reason the buybacks were so low in the third quarter had nothing to do with BCR.

I was just wondering why, indeed, were the buybacks so low?

Are you anticipating a further acceleration risk asset growth in the coming quarters?

Say it again.

I didn’t catch your last sentence.

You were asked earlier why the pace of buybacks was so low and you said it wasn’t to do with potentially bidding for BCR.

And I wondered if it wasn’t to do with BCR, then why was it so low?

Well one reason was a bit of risk-weighted -- the RWA growth which we expected and we also thought it might be -- it might be a good time to take a little pause.

You should also take into the equation the fact that we have accrued a much higher amount than last year.

And that accrual has deducted from regulatory capital.

Okay.

Our next question comes from Michael Klein.

Please announce your company and location and go ahead with your question.

Yes, good morning.

It’s Michael Klein, ABG, Dusseldorf.

I have two questions.

One is regarding your revenue split in the trading performance, especially in CIB and the loan products.

There we can see for Q3 only an amount -- an interest rate of €109m.

So it’s drop of around 50% regarding Q2 or Q1.

Could you elaborate a little bit on that?

And my second question is regarding the overall margin development.

And if I may ask a third question regarding your invested assets, you had again an outflow in third quarter.

Can you also elaborate on that?

Thank you.

Let me start with the outflow in the third quarter.

As you can see from the slide which was provided to you, the outflow related to the business -- predominantly to the businesses which we had sold and but which we had on the books until the end of September.

Adjusted for that -- adjusted for that we have -- there is very little outflow in asset management net, and a good inflow in Europe is offset by an outflow in the U.S.

On CIB loan products, you should know that in loan products we have also included the hedging derivatives.

They are in trading results.

And we had negative mark to market in the third quarter.

What was your question on margins?

Which margins were that?

Just your margin development in Europe or also in the U.S.

We can see a further decline in margins in the overall net interest income.

So I think it’s -- everybody knows very strong competition in that field.

I am always saying that the U.S.

GAAP P&L classification is not a good basis for the analysis of margin development because in that interest revenue you have, among others, so many different things.

As a matter of fact, the underlying margin in the loan book, the underlying margin in the loan book in CIB actually has slightly improved.

And in PCAM the margin -- the loan margin has stayed flat.

Thank you.

Our next question comes from Patrick Lemmens.

Please announce your company and location and go ahead with your question.

Yes, good morning.

Patrick Lemmens, ABN Amro Asset Management in Amsterdam.

A damn good set of results.

I don’t say this often, but it is like it is.

One question or two questions please.

I was a little late so I don’t know, maybe the question was already asked.

But can you maybe give a little bit more color on the dividend outlook?

Is it too aggressive to assume a level of around €270?

I would say that, well, again, given the profit we are looking at, that should be achievable.

And second, maybe looking a little bit forward, but how about changing the RE range now, or RE target, moving forward to the 15 to 20% range after tax rather than just aiming for 25% plus?

A good question.

On the dividend, I have talked about our accrual methodology and I’ve talked about a range between €2 and €2.50.

And we have now accrued three quarters of a €250 dividend.

And clearly the dividend reflects the performance for the entire year, and the decision is taken by theVorstand and then the Supervisory Board in February, and I cannot prejudice them.

But I can only say that reflecting the good results which we have achieved year-to-date, we have accrued a substantially higher number.

I have always talked about a range of between €2 and €2.50.

So let’s wait until February.

On the return on equity, it is our objective to go eventually to an after-tax --- to focus on the after-tax number.

But that is one of the next steps.

Here we need a little bit more consistent effective tax rate.

And you also understand that the effect of the tax reversal really distorts the after-tax return on equity because the tax reversal is included in the tax line and is included in net income.

Okay.

Thank you.

Thanks a lot.

Mr. Schmidt?

Yes.

We don’t have any further questions.

I hand the conference back to you.

Okay.

Thank you very much.

If this is the case, we would like to thank all who participated and invested their time, and speak to you in the next days.

Thank you very much.

Bye.

Ladies and gentlemen, thank you for your participation today.

This concludes today’s conference.

You may now disconnect your lines.

Thank you very much.