Deutsche Bank AG (DB) 2005 Q4 法說會逐字稿

Ladies and gentlemen, good afternoon here in Frankfurt to Deutsche Bank’s Analyst Meeting, and also welcome to all listeners on the web. This is our analyst meeting as we have issued earlier today our full-year and fourth quarter 2005 numbers. With me, our CEO and CFO, Joe Ackermann and Clemens Borsig, and my colleague [Gordon Waters].

We will proceed as usual. Joe and Clemens will give a presentation and then we enter into the Q&A immediately. With that, may I ask Joe to start?

Good afternoon. I think I can be relatively brief because I’m sure many of the information are well known to you. First of all, I think we had a very good performance in 2005. We come back to some of the details of course later on. What is very good is that we have now started to grow again, growing rapidly 17% to almost €26b in revenues. I think that was important after this adjustment process and cost-cutting that we now start growing again and hopefully we continue to do so, and we’re very confident about that in 2006.

Profit has been up from €2.5b to €3.8b. After tax there is a €540m reversal in it unfortunately, much bigger than last year, otherwise the results would have been – and as you all know, you are looking through that, so I think we can talk about the higher number. Then pre-tax is €6.4b. And if you remember we end up pretty close to what we showed to you some years ago when we talked about 25%, I think at that time it was €6.5b and €3.9b, now we are €6.4b and €3.8b, but all in all, I think it’s a very good development.

As you know we delivered on our targets to where we defined it, 26%. I think we also delivered to our shareholders, earnings per share has gone up 12 times since I took over, and dividend per share has been almost doubled.

The different phases we had I think have now been completed. Phase 1 in 2002 and 2003 was refocusing of the business. And now 2004/2005 for us to grow 25% return on equity, I don’t think I have to go through the specifics of these two phases. But I think it’s good to see that we have delivered on what we have presented to you before we started the specific management agenda.

The business realignment program is well on track to achieve the strategic and financial checklist. The combined sales and trading platform is in place, and as we have seen we have benefited tremendously from that. The same is true for the unified coverage. Asset management not yet completed but getting close. We still have some work to do with Scudder in the United States.

We have clearly strengthened the regions, and I think we have also shown good results in Germany and we have streamlined the infrastructure. The achievement so far, the FTE reduction, close to 6,000 of the 6,400. Charges €1.1b and the run-rate cost savings €900m.

Now the different businesses. You see that very strong development in CIB since 2002, from €1.3b to €4.8b. But what is actually even more encouraging for me is the fact that we have been able to double pre-tax earnings now in PCAM from €900m to €1.8b. Remember many of you and many other service have had big doubts about whether we can turn around retail, whether we can turn around asset management, whether we can grow our private wealth management business successfully, and I think we are proving that this is achievable.

What is important that we have more momentum than some of our peers, and you see that our transaction banking is still smaller than the one in Citi and JP Morgan, but as you have seen this morning, very strong development, very good development. There’s a lot of stability with CIB and it’s a very stable business also over the quarters.

Sales and trading. I would like just to highlight one point and that’s franchise is well known. Equities are still weak from time to time but we are not yet there. You are never at the end of your dreams, but I would just like to highlight that we are as big as Merrill Lynch roughly, and just slightly behind Morgan Stanley. Goldman Sachs is stronger, but ahead of Lehman, JP Morgan and Citigroup and that. So I assume that UBS is a bit bigger but that puts us into a top five position in equities, which is a very strong achievement. And we have changed the business mix, less proprietary trading and much more now into equity derivatives. So the same business mix we have in global markets and the euro debt business is more and more coming through in equities this time.

Corporate finance has done well overall. We have had a leading position in ECM, Investment grade corporate bonds and we have moved to the number five in M&A in Europe, which is quite an important market share. Market share of course explains that there are more and more -- a lot of [advices] in the same transaction.

GTB, I’m really proud about that because it has been some [appalling] business for a lot of people, and a business which we thought cannot achieve the returns we would like to see. And I think through the restructuring and also some growth initiatives, we have been able to double the underlying pre-tax profit, it’s a very good result. And also shows the stability on a quarterly basis which is important and this is not the end of our dreams. I think we can do better. And this gives a lot of good momentum to our CIB business.

I think you all know that. If you don’t win them you are somewhat challenged. If you win them you try to play them down a little bit. But we have really won all the important awards in investment banking last year, and that makes us very proud. I was not able to reduce the bonus pool because of that. But at least it helps us to motivate people.

Something which I think is very important and I would like to highlight that a little bit at this time, is investment management. If I read some of the reports but also some of the media, they are still pointing to two weaknesses, one is equities, which I think should be behind us after the numbers, and the other one is the PCAM, especially the investment management piece. I think it is, for us, a very strong business in terms of revenues, it’s 20% of our revenues, and we have increased it from €4.6b to €5.0b.

What is rather a little bit the slow growth area in PCAM is, of course, the very traditional commercial banking activities for private clients, money transfer, account management, things like that. And this is primarily a fact that we just have a slow growth economy in our home market. But as Clemens will probably allude to, there are some other issues here. There had a lot of insurance businesses last year which we had to compensate for this year. But overall a rather stable business in the traditional retail business and a very strong development in investment management. And the same is true for invested assets, where we have grown our invested assets by about 15 to 16% in both areas, institutional and private.

And here we highlight a little bit more the private clients business, which I would say is actually a very good story. We have been able to, not only to increase our mutual funds business, from where we clearly had the leading position, but also the privatized management is now really showing momentum. And this in many parts of the world, Asia, Switzerland, Germany. And I think that’s such a very strong development, are we yet at the end of our initiatives? No, because the initial build-up phase, we always said it will take five years. Now we are starting the fourth year, but I’m very confident that we show the results we are aiming for.

PBC, I think good development. If you see net new money in the private clients business alone, you see €18b net new money, I think that’s a good development, that’s 4% of our invested assets. And as you know, we have still outflows in retail funds and Scudder, if you correct that, it would look even more impressive as you see here in the numbers below the column numbers. But this is part of our life, we have to restructure Scudder, and we are doing so over the next few months.

I don’t think I have to repeat that, it is clear now hopefully for everyone. We have given up the 60/40, because we think that the set-up we have is for the investment bank globally, one of the leading ones, and as you have just seen, a very strong and profitable private client franchise. They are mutually enforcing, I would just like to highlight three points. One is the funding base, the second one is the rating, which you probably wouldn’t have without the strong private client franchise, and the third one is the stability in the earnings structure and the distribution capability. So I think it’s important to see that they are reinforcing each other. We have good momentum in the Americas, in Asia and in more key emerging markets in the different businesses we are operating in.

Here you see the CIB growth investments. Hiring for key industry sectors. Where is the focus? I will mention two, healthcare, and oil and gas primarily. I think we do things rather -- add-ons in businesses where we are already strong, but I think we can add momentum, especially in global markets business here. We have completed -– are completing the UFG acquisition, the Bender Securities, and joint venture in Saudi Arabia, all things which are well known to you. But it shows that we are not making big steps on purpose, but we think we can add value by just doing a few intelligent, hopefully, add-ons and to eliminate and reduce some of the weaknesses we have in certain parts of the world.

That’s the Russian example.

In asset and wealth management, we are repositioning Scudder. As you have heard we are changing the Scudder mutual fund business into the DWS Scudder business, and it will be run under the global leadership of the DWS here in Frankfurt, I think that’s a good step in the right direction. We have stopped the bleeding of our business in the U.K., and we have started some joint venture partnerships in China and in other parts of the world as you see.

DWS, what I just said.

Private and business clients, we are expanding into other markets, doubling Poland. We are expanding into India and having this Hua Xia Corporation in China. These are all things which are developing fine. Here you have some of the details.

Objectives for the future, I think these are the segments we are operating in. CIBs are the investment banking [fields] plus transaction banking, asset management and retail. You have the platforms and some of the main areas of focus, and financial targets we would like to sustain. The 25% pre-tax RoE, we don’t want to shrink the glory to maximize RoE, but we would like to grow now on this profitability level and the added double-digit EPS growth.

So much as an introduction, now Clemens will continue before we take all your questions.

Thank you Joe. Good afternoon also from my side. I’m now going to present and explain to you the numbers which we disclosed today.

Briefly on the summary. Last fourth quarter was a very good fourth quarter, with revenues up, income up, net income up. And again, as I told you the last time, we have seen strength across the board. As a result fiscal year 2005 was for us an outstanding year. And what’s important our performance is growth driven, very, very important. We have seen greater consistency across businesses, that is what we meant by saying strength across the board, and we have seen greater consistency across the quarters. And we also have been many -- out-performance in many areas.

Delivery to shareholders, Joe mentioned the increase in earnings per share. Our earnings per share increased even faster than net income because we benefited here from additional stock repurchase activities, and pre-tax return on equity now at 26%, exceeding our target.

Let me know go into the details of our Group results. Net income for the quarter, €1.3b compared to €300m the year before. And, and this is very important, in pre-tax income there is included a provision for compensation of investors in our open real estate fund called [QualTI]. €200m is included here and included are the restructuring expenses, as you see €300m offset by a gain on the sales of Daimler Chrysler shares, but included is also an additional provision for legacy legal risks.

If we turn to the full-year numbers, you can see here this increase of 58% in pre-tax profit to €6.4b. And in this €6.4b again is included, one-off expenses of €1.2b, this is €750m for restructuring, it’s €247m for provision for legacy legal risks, and €203m I mentioned for Grundbesitz Invest. Partly offset by one-off gains, predominately Chrysler, but also a gain on Eurohypo of €800m. So in this €6.4b there are one-offs of net €400m. This is very important to note that this is included here.

And turning to net income. Very strong net income for the fourth quarter. Again in this net income there are all these one-offs, fully included. For the full year our net income increased to €3.8b, 53% higher than the year before. And once again included in this number is the after-tax effect of the €400m one-offs. And as Joe said, net income, we have this nasty tax reversal which has nothing to do with tax expenses or so, which is just an accounting driven reversal of the tax credit, which we took when we moved to U.S. GAAP in ’99/2000. I will come to this, because this €544m for 2005 becomes tangible capital, and you will see this when we talk about capital management.

What you also see here is our effective tax rate and I’m very pleased to be able to report that we have made good progress here. Our effective tax rate, excluding this accounting driven tax reversal, came down to 32%. However, we are very [puristic], then we also have to take out the tax regains on industrial holdings which carry the tax reversal. So if you adjust for that, our effective tax rate came down to 35.8% from 36.9%, so again good progress. And for you, it is our ambition for 2006 that our effective tax rate does not go higher than 36%. So this is a better tax rate than the tax rate we talked about a year ago.

Revenues, very strong second half. The third quarter was very strong, but the fourth quarter also was very strong. As a result our full-year revenues increased by 17% to €25.6b. On an underlying basis the increase for the year is 15%, so very good revenue growth, and once again revenue growth across the board. What’s also interesting that we have not observed the traditional seasonal pattern. You may recall that we talked at prior meetings about the seasonal pattern of our revenues, with 53% of our revenues in the first half, and 47% in the second half. And this time it’s nearly 50/50 and we are very pleased by this kind of consistency in our revenue performance.

Now talking about costs. The operating cost base for the fourth quarter was 4% higher than the fourth quarter the year before, compared to our revenue growth at 19%, this compares very, very favorably. The same is also true as far as our total costs for the entire fiscal year are concerned, we see an increase of 6% at €17.9b, and this again compares very favorably with our revenue increase of 15%.

However, at first we have to analyze our cost base of the fourth quarter in a little bit more detail here. The compensation and benefit here, the development is very good but you have observed already, I know, the increase in non-comp. In the slightly below €2b of non-comp, there is included provision for legacy legal risks of €121m. So that has to be taken into consideration. And then we have, and I will show this in a moment, what are the reasons why we have this increase from the third quarter to the fourth quarter, which is identified here with €240m. And I will explain this in a moment.

On a full-year basis, I said the 6% increase compares favorably with the revenue increase. The increase in compensational benefit is entirely driven by performance-related compensation. Given the fantastic performance which we have had, one has to assume that performance related compensation has to go up, because that compensation is performance driven by definition. What I need to explain here are our non-comp expenses.

There are -– if you start with the €6.9b, which is actually €6,868m, one has to take out at first the provision the legal risks, the €247m. This gets you down to €6,621m, which is €1,655m per quarter. I know I gave you indication that our target is to keep our non-comp expenses per quarter at the €1.5b level, so we have -– are higher by about 10% [in fact]. There are four reasons which I will explain.

The number one is growth. Number two are growth initiatives. Number three is that we have not seen the full-year positive impact of the BRP program, but also the smart-sourcing, as I mentioned before, has the effect to shift comp expenses into non-comp. To dig a little bit further, when I gave you the indication of €6b, or €1.5b non-comp expenses per quarter, it was based upon the famous chart called Achieving our RoE Target, and there I said in order to get the 25% we aim to reduce our costs by €1.2b. 40% of this €1.2b are non-comp expenses. This was based upon a revenue growth target of 4%. That’s all in the chart which you have, and which I know you like a lot. So based upon a 4% revenue growth, we said our costs will come down by €1.2b, respective €500m in non-comp. So the €6.7b minus €500m gets you to €6.2b.

However, we achieved not 4% revenue growth, but 15% revenue growth so the difference is 11 percentage points, and those 11 percentage points equal to €2.4b. So the non-comp cost/income ratio based upon those incrementals is 26% which is below our non-comp ratio. We can repeat it or Investor Relations can repeat you this logic, but the math are correct. The matter of the fact is that my guidance of €1.5b in non-comp is consistent with our performance here, because we do have significantly higher revenues. And I also have to say given better environment we also started growth initiatives because we felt encouraged by the development, and Joe just a moment ago, spoke about those initiatives.

Now let me dig even deeper and discuss a bit the unfavorable variance from the third to the fourth quarter in non-comp. 60% of this increase is related to increased business activity and growth activities. And I have to admit that’s typical that our growth initiatives, in terms of cost impact, were last year were somewhat back-loaded. Take our initiative in India, back-loaded. Take certain infrastructure investments, which had to do in order to catch up with developments in the fund [office]. And we also were generous and started a [blend] campaign in the fourth quarter on the back of the good performance which we have seen so far. So 60% of the unfavorable variance is related to growth initiatives and increased business activities.

Mainly in the non-comp line there are expenses related to specific transactions. Certain [financial] transactions have several [actions], positive revenues, and also do have an expense lag which shows up in non-comp. And clearly as a result of higher volumes we had higher processing expenses, our donations for charitable activities increased by 10%, and then miscellaneous up 20%, of which and again I compare fourth with third quarter, €30m higher legal provision for legacy risks. So that is the explanation.

Bottom line, I do believe that despite this increase in non-comp, and despite having higher non-comp expense in 2005, that our performance here has been very, very consistent and compares very favorable and that we still can claim that our costs are very much under control and that we show great cost discipline. And that’s also once again the reason why against a backlog of revenue growth of 15% our costs went up by only 6%.

Quick briefing on the business realignment program, here are the expenses. We talked about expenses of roughly €800m a year ago, and we came in with those €800m, however, we spent roughly €200m for BRP-related measures, and €1.1b for the business realignment program as it was defined a year ago.

In terms of people, we have made very good progress, we are on track, as a matter of fact we are a little bit ahead of plan. As you can see, we talked about activities in 2006, activities being deferred in 2006, 900 people -– we talked about 900 people a year ago, and that number is now 500 people. On smart-sourcing we are also on track, of the 1,200 new jobs outsourced we have hired already and are on-side about 50%. So the business realignment program is well on track.

This chart shows you what we spent the money for at BRP-related measures. There’s particularly in asset management the €100m which relates predominately to restructuring activities related to the so-called Rosewood project. That is the disposal of our institutional business in the U.K. and in the U.S. We also initiated a voluntary retirement program in Italy, which people took up, which cost us €15m as a result of lower headcount, additional building disposals. And miscellaneous relate to additional related activity in global market, but also in the area of infrastructure outside Germany and Italy.

By this additional BRP-related measures, about 350 people were affected. So, so far on costs and the BRP program development in the cost income ratio, we do see very good improvement on this one for the full year because the income ratio came down by 7 percentage points to 73%. And I must say I’m particularly proud as to the development of the underlying compensation ratio. Most of you will recall that a year ago I said the following things. Number one, I want to see the comp ratio being more steady during the year. And I tried to manage, or we tried to manage the comp ration in the range of 45 to 46%. As you can see here, became enough for the full year at 45%, a decline from 48% to 45%.

And what was particularly important that we have not this year -– for 2005, this nasty hike-up in the fourth quarter. As a matter of fact our comp ration in the fourth quarter was the lowest for the entire year. That is totally different to what the practice in this bank was before. And I have to say here we have not achieved this very favorable development by getting extra [income] on deferred compensation. As a matter of fact, we have higher performance, better performance, therefore better or higher performance related compensation, but we kept our deferred compensation virtually flat. So the percentage of deferred compensation of total compensation came down quite a bit. So the ratio improved if you will, and we have achieved this on the back of a declining underlying compensation ratio. I really would consider this as a good achievement and we are a little bit proud about it.

So segment results. CIB shows a record result. The performance was growth driven, and what’s also important, the BRP played -- a lot of more positive effects of the BRP played a major role in this growth driven performance. And we have only seen, if you will, one third of the total expected benefits of the BRP program. The cost/income ratio for CIB at 70, given our business mix in line with the competition, and you see all of the substantial increase in RoE to 33%. As a result we have achieved this very good both revenue and profit performance without committing too much additional capital to the business.

Let me now talk and discuss the various product lines. Sales and trading debt sustained year-on-year growth. Very strong performance, continued strong performance in credit products, and this despite some concerns that some people had around May/June timeframe. Also in commodities very strong momentum, strong expansion activity in U.S. energy and the power sector. Emerging market debt also was very strong as well as rates. For the entire year our revenues in this area increased by a respectable 16%.

In sales and trading equity, Joe mentioned already our very, very good performance, with a revenue increase of 33%. We are particularly pleased by our performance in equity derivatives, and this is one of the areas where we can see the tangible results of our business realignment program, in terms of additional revenues.

Good progress in client services. Cash equities, good progress on the volume side, but margins were under pressure. But also increased revenues resulted from proprietary trading, as we took advantage of favorable market conditions.

In origination, continued good progress 23% quarter-on-quarter, 18%+ year-over-year, this particularly strong performance in equity capital markets, but also in high yield and investment grade. And as a result of this performance we clearly gained market share, as Joe mentioned in his presentation.

Advisory, also a very good story. Strong growth 22% quarter-on-quarter, 24% for the entire year, and we made very good progress globally, and also in Europe and in America, and once again the result is very good progress on the market position fund.

GTB, it’s an important business for us, it’s an important business for CIB, Joe mentioned this. And here we really achieved a very good performance, because we grew revenues and at the same time reduced our cost. The reported revenue increase for the entire year is 6%. However, as a result of our disposal of the global custody business, we had in 2004 some revenues of the discontinued business. Adjusting for that we achieved a revenue growth in GTB of 9%, or you can say in the two core products we achieved revenue growth of around 9%, which we do believe is a very good performance. We also made good progress at the same time, as I mentioned before, on the cost front and as a result our pre-tax profit doubled to more than €500m because income ratio came down. And here you can see more than doubling of our return on equity to 41%.

PCAM. PCAM really is one of the strengths of our story in the second half, but particularly in the fourth quarter, and we are very pleased by the performance in PCAM, and again this strong performance was across the board.

Asset and wealth management. Positive impact in asset management from our reorganization activities, but also positive impact from net money inflow as well as higher invested assets, as well as performance fees. Particularly good performance, Joe mentioned this, in private wealth management, and here again across the board.

You have asked us to provide more detail in terms of assets under management, and also on net money inflow, and we also want to meet your demands, and therefore we have expanded our disclosure in this regard. I discuss a few slides, but the back of my presentation you do have additional details.

In asset management, adjusted for discontinued business, our assets increased by 17% to [€536b] with a very strong performance, as you can see here, 30% in Germany, but also a good performance in the Americas. However, I have to admit the Americas business impacted by the shift in exchange rates.

Joe mentioned that the asset management reorganization is very well underway, for the reason which we discussed before, our institutional business in U.K. and in Philadelphia has been sold. What’s also important that we organize our distribution model. On hedge fund it was before predominantly captive distribution and we opened it up to third party distribution.

Scudder. Now the challenge is to reposition Scudder. And asset management developed by the comprehensive plan as to the repositioning of Scudder with a list of very detailed activities, and you find the most important ones here on this slide. It’s a comprehensive program, improvement in investment management, improvement in product management, in marketing, in sales and distribution and in administration. I personally discussed this plan with Kevin and his colleagues, and we are quite confident that asset management’s management will be able to implement this plan successfully.

There are additional costs for this program, and they are between €70 and €90m. Fortunately only a very small piece of that, say €50m, qualifies as restructuring expenses on the U.S. GAAP, as the U.S. GAAP treatment here is very, very restricted. And therefore, about €70m do not qualify as restructuring, and therefore go into the OCB, but I will make it very transparent to you every quarter, how much in OCB relates to this program. But I will also make transparent the kind of progress that’s been achieved in the reorganization of the Scudder business. And part of this reorganization is also, as Joe mentioned before, is to change the brand name, but also to establish a global product management capability, here in Frankfurt for all retail products, including the Scudder products.

Private wealth management, as I said before, it’s really a success story. Invested assets grew very nicely and they grew very nicely across the board. We took advantage of high savings rate in Germany, but also of wealth being accumulated in Asia. The total number here is 168, which is an increase of 18%. This chart includes assets in our brokerage business in the U.S. So stripping out the debt, the increase is even higher than the 18% which I mentioned. And here you see, perhaps you recall from Joe’s presentation that assets in private wealth management grew by 20%, of which 8%, as you can see here, do come from net new money. And we have seen a particularly strong second half. Therefore the higher invested -- base of invested assets is a good start of this activity in 2006.

PBC, the title says it. Record profit despite growth investments. And in addition to this, Joe mentioned the effect in the life assurance business, of a change in tax treatment of life assurance policies in 2005, which led to a pull forward to 2006. If we adjust for that, revenues in PBC went up by 6.3%, which is not bad, particularly given the challenging economic environment here in Germany. In Germany consumption, that made it. On the other hand the savings rate continued to increase.

PBC took advantage of this with very good, as you can see here, very good performance with security products brokerage commission and the like. When talking costs her one has to take into consideration that PBC has the mandate to grow the business and to grow the business in Germany, but also outside Germany. They achieved 25%, the revenues outside Germany and the growth in those markets is faster than in Germany and therefore they need to diversify a bit away from Germany in the sense, capturing growth outside Germany This does come with a cost it’s clear, and that’s the reason why the OCB went up. But as you can see here they digested very well the higher costs in the pre-tax profit. And as a result their cost/income ratio actually went down, slightly down compared to last year. And the pre-tax return on equity still is 59%, at a very attractive level.

Risk and capital. Here the story continues to be good. I can be brief in terms of on the credit risk fund. Problem loans came further down to €3.9b, the coverage is 50%. Problem loans percent of the total book came further down to now 2.5%. That’s very good.

Risk provisions still below expected losses. As a matter of fact in CIB recovery is fully compensated additional risk provision. The increase in PCAM is predominantly the result of higher loan book. Their loan book is higher by 11% and we all know that consumer finance has higher specific risk cost than say mortgage lending, but the margin after risk is very attractive.

Capital management. The result of good profit performance, good return on equity is very strong capital formation. What do you do then with the capital which you have created, which you have built, which you have earned? There are two generic alternatives, one is growth and the other one is rewarding shareholders. And I want to show you that we have done both, but at the same time have not only maintained our strong capital ratio, but have also slightly, slightly improved our already very strong capital ratio.

So capital formation, our total shareholder equity is up by 17%. Net asset value per share is up even more by 22%, benefiting from stock repurchase activities. And also our Tier 1 capital is up by 21%. So it’s very important to note here that we have achieved our return on equity not on the basis of lower equity, but on the basis of higher equity which came from our growth. So that’s very important because sometimes I saw they said, well these guys will use their equity base, and as a result it’s not that difficult to get to a 25% return on equity.

Tier 1 ratio, at first as I promised to you, in the fourth quarter our risk-weighted assets compared to the level the quarter before actually went slightly down. Year-on-year the increase is 34%, which once again, given our revenue growth is not too much. But 34%, €12b, alone does come from the shift in exchange rate. So there is no operational reason behind it, there is no reason why we took on board more risk. It is the shift in exchange rate, but we do have a natural hedge against this increase of risk-weighted assets, and this is our capital denominated in sterling and in dollar. So we hedge risk-weighted assets, the currency of the risk-weighted assets with the currency of the capital.

€10b has come from credit risk of derivatives, and given the very, very strong performance in sales in trading in the derivative area, one has to expect that risk-weighted assets in this area go up. And another 11% is then from credit risks on loans and commitment. So I would like to say that our risk-weighted assets again have been very much under control. So, so far for growth.

Then, rewarding shareholders. We proposed to the AGM to increase the dividend from €1.70 to €2.50. I gave you guidance a half a year ago that we would aim at something between €2.10 and €2.50, and given our performance we decided to propose to the AGM the upper end of the range which I gave. Also on share buy-backs, we bought back around 36m shares. Or [6.4%] of share issues for a total of €2.6b, and will retire, in January, 40m of those shares. The purchase price of the 36m shares was slightly below €73. So in hindsight it was a very good deal for investors, given that our stockpile is now is between 88 and 90. So we want to reward shareholders with dividends and share buy-backs.

And this is my last slide, this is the summary of our capital management. It is a new slide, and we tend to believe, the finance organization, it is of a good slide. The total capital formation of this bank last year was €6b, €3.8b in net income. I mentioned the reversal of the tax credit, as those credits are deducted from our capital. Once we release it, it goes back to capital, so that is capital formation. The impact of the currency translation adjustment, because of the strengthening of the dollar, this is €1.1b. This has to be seen in connection with the exchange rate driven increase of risk-weighted assets. And also the amortization of our deferred compensation adds to capital under the accounting treatment FAS 150. And this then results in capital formation of €6b.

We re-invested in growth, this is RWA growth, for organic growth we only need RWA growth, €2.9b. Once again of which €1.1b is higher risk-weighted assets for -- due to shift in exchange rate. And then dividends €1.4b. However this €1.4b includes a dividend of €100m, for the shares which have been retired in January. So the payout will not be €1.4b, but will be €1.3b, and €100m will be carried forward.

And the share buy-backs is €1.8b, this is the net effect of what we actually bought back, and what we used for hedging of our equity compensation. So capital formation was €6b, capital deployment is €6.1b, or if you will, the €100m on the dividend which we don’t need. So it’s absolutely balanced. What you also see, is that we give slightly more than 50% of the capital which we created back to shareholders in the form of dividends and in the form of stock repurchase.

We also increased our hybrid Tier 1 capital by €0.5b, so the result is a net capital formation of €0.4b. And this capital formation of €0.4b translates into the 20 basis points increase in our Tier 1 ratio. So that’s fully reconciled. The key message of this job is strong capital formation, shareholders rewarded, growth financed and the capital ratio still strengthened. And this concludes my presentation, thank you very much for your attention. And Joe and I are now more than happy to answer any questions you may have.

Thank you Clemens, thank you Joe, for this, as I think, very comprehensive briefing. Please give [Nicky] a hand and then wait until one of the microphones have reached you, in the interests of our outside listeners. And I would also ask you to mention name and company, again in the interests of the outside listeners. Let’s see where we should start. Maybe we start on the left wing in the last row? Mr. [Tscischen]. Thank you.

Thank you. Three questions please. Given your through the cycle pre-tax ROE target, what pre-tax ROE do you actually expect the bank to make in a good market, to give you a bit of a buffer, in a less benign phase of the cycle?

Second question on allocated capital in CBS, which went up significantly, largely in line with revenues, but in general could you just give an outlook in terms of capital intensity of this business?

And third question please, you said that you would de-emphasize the Scudder brand name in the U.S. Does that have any impact on the Scudder related goodwill, which still should be around €1b, €1.1b? Thanks.

Thank you, if I understood you correctly. I think we should need the microphone -- my ears have difficulty.

The way I answer this - ROE, in good markets and in challenging markets, in order to achieve the 25%? Is that the question?

Yes.

Okay, well as you have seen in 2005, I think we had 28, 29% in good markets, and we had some below 20% RoE in the fourth quarter, given the extra charges we had. So I would still think that the 25% on average will be our target, and it is a realistic target. But I assume, as long as financial markets are supporting us, as it is the case right now, we are above the 25%, but over time I think 25% should be a realistic target for us.

Now, the allocated capital and Scudder, Clemens.

Our methodology is how do we allocate capital? We allocate at first the economic capital as a matter for risk, and in addition the goodwill. We do have for example the bankers trust goodwill, we do have in U.S. dollar. So as a result of this the goodwill in euros resulting from this acquisition today is higher than what it was a year ago. And this is the main reason for the increase. We also have a slightly higher economic capital in CBNS, resulting from their revenue growth. Economic capital in sales and trading today is higher than what it was a year ago. But to put the whole thing into perspective, the key driver is the shift in exchange rates.

On Scudder -- on the brand. The intangibles are not allocated with a very small amount, I’m not talking about that amount, are not allocated to the brand name, so the intangibles are not impacted by us de-emphasizing the Scudder name.

That’s okay Phillip? Who was next? Yes, can we take the microphone to the first row? Dieter Hein next.

Dieter Hein from Fairesearch. Firstly congratulations to your really strong figures for the last year. And if you don’t mind I have two questions regarding your targets, and one regarding your staff reduction.

Firstly, your over-the-sight of targets are a little bit too general for me. Could you give us a little bit more concrete target for 2006? So what do you expect the return of equity for the current year? And also maybe a more concrete growth number for the earnings per share?

And the second question on the targets would be, what is the basis for this [mean] return on equity on a pre-tax level? The reported pre-tax profit, the reported equity or is it your underlying pre-tax profit and your active equities? Only your definition, and as well with the double-digit earnings per share growth, is it without the share buy-back effect and cancellation of shares? Or is this calculated within the expected growth rate for earnings per share?

And my last question regarding the staff reduction. You showed in a slide that you reduced staff by more than 5,000 people last year. If I look to your announced figures, end of last year compared to end of 2004, there is only a reduction of 2,000 people. So where are there the difference? Thank you.

Shall I start with the last one? Well, it’s always very difficult to reconcile the things based on the restructure program. We have restructured the 5,900 out of 6,400, but at the same time we have also realized some of our growth initiatives. I mentioned India, for instance, and several others. And so the net impact was still roughly 2,000. But we are restructuring and we are completing the business realignment program as we indicated and demonstrated. But at the same time, of course we are also in the growth mood in other parts of our business. And so the net impact on headcount was 2,000.

When we talked about the return on equity target we also talked about the underlying and reported having come very closely together, with the exception of the restructuring expenses. And so we said, let’s take the reported and take out the restructuring expenses. Then from your side came, yes but you guys you do have unrealized gains in industrial holdings. If you realized those was gains we hope you will take them out too, off your reported number. And then we said, well fair enough we will do it. And this is our target definition. You can say it is reported, adjusted for restructuring, in the sense that it is adjusted for truly one-offs restructuring, but also against an industrial holding. Which isn’t very conservative because if you -- all banks have some kind of investment which they realize we are, with a gain, and no one takes those gains out but we do.

Also a demonstration that all these numbers have come very nicely together now, and we are proud about this, is that there isn’t that much of a difference between our return on equity, according to the target definition, return on equity according to just reported numbers and on the line numbers. They are now all very closely together. But in terms of consistency I would like to just carry on with the definition which we have had, which also then allows you guys to better compare 2006 with 2005.

That is -- you also asked then, could you be more specific with the target? You understand that at this point in time we don’t want to become more specific, because for a variety of reasons and this ends up -- and then I give a presentation on 2006 plan. What’s really important for us now, and investors have told us this again and again, is that at this level of profitability that we also generate [alpha], because at the end of the day people buy our stock for growth. And therefore we are so pleased that we have demonstrated our organic growth potential last year, and we want to continue this without sacrificing the level of profitability which we have achieved.

Your question then is, the number of shares, what role do they play? The market wants us to give some of the capital which we generate back, because that capital is not -- we don’t own it, shareholders own it. And it is clear that with the kind of profitability we have, we generate excess capital, this is what my calculation demonstrated to you. And therefore we will continue to buy back shares because we don’t need, for our internal growth, all the capital which we generate. And that’s fair enough, but the trick to achieve a double-digit EPS growth is organic growth of our top line and our bottom line through growth of our top line. That is what we are aiming at.

Okay, next one.

Thanks. Two questions please. Firstly chart 37 on capital formation, that is very useful, so thanks for that. But it does illustrate that you are issuing a hybrid capital, whilst at the same time retiring ordinary share capital. So I was wondering if you had a strategy, what your objectives are concerning financial leverage going forward? If you have an intention to become more aggressive through the issuance of hybrid capital, for example?

Secondly, on the provisioning. You said that it came in, in 2005, lower than the expected loss rate. Can you give an update on what the expected loss rate is, particularly in light of the growth we’ve seen in consumer credit? Thanks.

We took advantage of very favorable market conditions last year, and increased our hybrid capital. And this was more, in terms of capital management, to generate a cushion. Because we don’t need the 8.8% Tier 1 ratio. We said to the rating agency, in 2002, we were aiming at between 8 and 9%, and in difficult times we said with a bias towards the upper end. And if you take our average Tier 1 ratio, during the course of last year, it was basically 9%. Given the level of our profitability, the diversification and stability of our business, we don’t need 9% Tier 1 ratio for our rating -- equity defined as we do. So you should see the €500m as a cushion, which uplifted our Tier 1 ratio. And even without this uplift, our Tier 1 ratio would have come in at 8.6, 8.7%, and that would have been absolutely fine as far as we are concerned. What was the next question?

The expected loss, it’s around €500m. The loan book has increased, but also our hedging activities have increased. So the hedging and the CIB book compensated the increase in expected loss of the retail book.

Next question, Alastair please.

Thank you. Alastair Ryan at UBS. It’s a question on retail strategy, so slide 23. It’s in three parts. Firstly build out the network in core Western Europe, can I confirm that that is still just your Italian and your Spanish businesses? You are not looking to expand anywhere else?

Could you repeat the question?

Twice as loud now. Slide 23 -- three part question on the retail business. First, build out of the network in core Western European markets, can I just confirm that that is still just Spain and Italy? You are not looking to expand any further?

Secondly, you are aspiring to 60 branches in Poland, which would give you a market share of about 1%. It doesn’t seem a particularly meaningful position. Is that the end of your ambitions in Central Europe? And why is 60 a better number than 30? With two banks there having 750-plus, if the [inaudible] merger goes through.

And third, while I appreciate India is an exciting market, where does seven branches get you over time? Is that the beginnings of a footprint for something much more meaningful? Thanks.

Well, I think there’s an official story, and there’s somewhat an unofficial story. The official one is, this is a core business for us, and we want to grow that business for all the reasons I mentioned before in my presentation. I think we have a good market position in Germany. We have a fast-growing market position in Italy above all, and to some extent in Spain. And the question is, where do you want to grow? You could say, okay some of you or one of you are saying sell all these businesses outside of Germany. The next question of course would be sell Germany or what do you want to do in Germany? In my view it is a stable business. And when we started at around 100-200m people said it’s too courageous and too ambitious to talk about [building] and we achieved it. And it’s a stable business, with a very high return on equity. The way we do the business, not so much in this official retail business, it’s much more an investment-driven retail business. In that sense it has contributed a lot to increasing shareholder value.

Now, I think to get into industrialized markets, France or others, was just a -- even to starting from scratch to buy a small boutique and then to grow out of this boutique, we tried that and this is not possible, it’s a failure. It will take a long time.

Now can you have a somewhat greenfield approach in other markets? I think we are, based on a small acquisition, trying that in Poland, actually quite successfully. And we are trying it in India, actually quite successfully so far. Are there any markets we would consider? Yes, we looked into Turkey, we looked into Romania, but as you know the prices, we felt -- even the prices or the structure of the conception was not attractive to us.

So we continue to try to test the markets in that sense, by building up branch networks. That’s the first step. In Poland, maybe we add another step or the next step if we see this is a successful way going forward. I think we have specific products to offer which are probably quite attractive.

Now there’s unofficial strategies, though. First of all, in India you are not allowed to buy any banks. But maybe one day the [country] will open up, and it’s better to have some kind of a network in place, which you could merge with another bank, or things like that. So I think it’s important to create some fantasy into the strategic moves we are doing in these countries. Who knows whether there is a second wave of consolidation in Eastern Europe? Is it better to be part of that already?

So these are some longer term strategic thoughts on this. But we are -- from a cost perspective, as you have seen, we are not running into big build-ups. But I think so far we have seen there is momentum and there is a demand for our products and for our franchise in big cities in India, but I am just going to India next week. And we see that this helps us in our private banking business, privatized management business, and also to some extent in our investment banking business. So in attractive markets, I think this is something where we can develop quite a nice franchise over time. But always with this second strategic thinking in mind.

Okay. Thank you. Who is taking the next question?

Thank you it’s Adrian Guild from Main First Bank. Three questions please, clarification mainly. Page 35 from Mr. Borsig’s presentation regarding risk-weighted asset movement. As a clarification, do I understand correctly, of your €34b in risk-weighted assets that you grew through the -- roughly €10b went to credit derivatives and growth in that business? I don’t know whether I understood that correctly. Please correct me if I am wrong. And the rest was for lending growth, and ethics and currency impact. That’s question one.

Question two is regarding simply Scudder, can you tell us what the net impact of Scudder’s operation was in 2005?

And question three, probably more difficult. I am trying to assess in my brain, what’s roughly the special costs we may have to face in 2006? Already on page 26, again on Scudder, we see €70 to €90m extra costs, restructuring of some sort. Can you give us a sense of timeline also for Scudder? And that you highlighted all the things you are doing there? When is that going to stop?

Second source of potential special costs for 2006. There are numerous litigations going on against Deutsche Bank, and not many are concluded. What is the chance or probability in the sense of the special legacy legal costs we may have to face in 2006?

And there is still a tail end of the BRP staff reduction to be seen in 2006. Any form of additional costs and severance etc we may have to face? Thank you.

Okay, a variety of questions. On the BRP, for the tail end, as you called it, we need roughly €100m this year. We have BRP-related expenses this year. To finish those is roughly another €100m. And €15m is for Scudder. So that adds up to €215m. So we have -- that’s the best guidance I can give you for 2005, more fund-loaded €215m restructuring expenses according to the definition on the U.S. GAAP. On top of this, between €70 and €80m reorganization expenses, which do not qualify for Scudder, spent during the course of the year. So leaving aside this accounting distinction, there is a €300m bill to us on that front.

I told you last time, a year ago, that the BRP core program would be a little bit cheaper than anticipated, because of [inaudible] levers. And this is now confirmed, because in order to finish the BRP we need €100m, but by the end of last year we had spent €200m less than we earmarked for BRP, this exactly in my presentation.

On legal costs. I don’t know. If I knew, I would have to provide for those risks. So by definition I don’t know. And the accounting rules, FAS 5, are very strict in this regard. I have to assess, or my people and I, we have to assess on a quarterly basis the likelihood, and estimate the cost. And if the likelihood is higher than 50% and we can estimate the cost, we have to provide a provision, and that’s the reason why we do have this €247m. We don’t have any -- we have a lot of cases. It’s become a practice all over that people try to sue the bank for compensation. But most of those litigations in our view are not likely, or we cannot estimate the cost. So therefore there is no, at this point in time, no legal exposure with a probability of more than 50% which has not been taken care of. Do I say that probability cannot move? No, of course. But as of today I just do not know better.

On Scudder, you know we are a bit reluctant to go beyond the segment reporting when it comes to profitability. But let me tell you this. In total, Scudder wasn’t breaking even, but we broke even in the U.S., in asset management. In the U.S. we have Scudder, we have real estate, those activities. We basically broke even a little bit short, I must admit. But we basically broke even in the U.S. Our risk business being quite profitable, and actually despite money outflow, our mutual fund business was marginally profitable too. So the downside came from the institutional for a variety of reasons, margin pressure and so on and so forth.

It is clear that the program, which we call [Costello], the name of the repositioning of Scudder. Most of the work will be done in 2006, and that’s the reason why the numbers for the cost for this program are between €70 and €90m. And as indicated we have milestones. We plan already improvements, underlying improvements for 2006. But we all know that the asset management business has longer lead times. People have to first get confidence in the -- before they commit additional money and so on and so forth. So we will see the bulk of the improvement in ’07 and ’08.

On the risk-weighted assets, I can just confirm, it is €34b, €12b for shifts in exchange rate, €11b for higher loans and commitments. And, for example, and you have it in the back of your presentation, the PCAM loan book comes in just an increase by 11%. Clearly this has an impact. And €10b of the credit list was from the derivatives.

Okay, who’s raising the next question? Yes, can you give the microphone here, then we come to you. Okay.

I have a question on the development of the assets under management in the retail business. I saw in the outline that there was also an outflow in Germany. First of all has this to do with Grundbesitz Invest? Or is this due to the usual seasonal pattern we see with the money market funds?

The second question would be on the PBC business. [Do we say that] approximately 25% of the revenues out of Germany, and the business out of Germany used to be more profitable than in Germany? Has this now changed with the expansion expenses we see?

And then the third question would be on the global transaction business. Why is the business so successful? And why are you so confident that it will continue to be successful? I have heard that you are even expecting more in this area.

Well, let me start with the final question. Well, because it’s a very stable revenue stream, as you have seen. And we have restructured that business and lowered the costs. And this is a business which benefits substantially from our corporate relationships, and as they are strong and getting stronger, we will benefit. But it’s already a very good base from 270 to 550, and this is one of the stable businesses, so we cannot break it. And I think there is a lot of momentum going forward. And we just bought the [piece] from JP Morgan, which helps us again. But this organic growth, it is an impressive one.

Assets under management on 47, it shows that asset management had, in the fourth quarter, an outflow in Germany of €1b. Off the top of my head, this is institutional. This is institutional, I am not aware, but Investor Relations will confirm, I’m not aware there would be -- that we had a money outflow in the fourth quarter. But as you can see, in asset management, overall the story in Germany is very strong with a €35m money inflow in the entire year, and again there is some institutional money in the first -- big institutional money in the first quarter. But it can only say that the retail business, which are the mutual funds, had a very good year in terms of performance, but also in terms of money inflow. We are talking here DWS.

Did this answer all your questions?

Yes.

Okay we will take it offline after the meeting. Can we have the microphone here? The lady in the second row, please.

Hi it’s Joanne here from Lehman Brothers. Just a couple of questions on your business mix, mostly in the U.S. You have mentioned the equity derivatives and wanting to increase the content of that within your equity business. And just wondering if you think that as an issue of hiring or organizational change, or better penetration of your clients?

And then secondly on the fixed income business. Just wondering how happy you are with the mix of your business between flow and your intellectual capital products, perhaps relative to Europe? And whether some of the hiring and expansion you are doing in the mortgage area is related to changing that mix?

And then I guess more generally what are your plans for mortgage expansion in Europe too?

Business mix in the U.S. More can be further improved, for example in equity derivatives. I mentioned before that we are very, very pleased by the positive impact our realignment in CIB has had on our top line growth. The combination of that and equity, and therefore the combination of the two sales forces has proven to be very, very powerful for us. And it is absolutely clear that huge progress which we have made in certain product areas, for example in equity derivatives, are the direct result of this combination.

The second leg of the business realignment program was a unified coverage model. And this is that GTB coverage, commercial banking coverage, investment banking coverage, they all came together.

So as a result we have sales in global markets, and sales in this other unified coverage model. And this allows co-operation as to the overall coverage of the client much better. It’s clear if you have to co-ordinate two, it’s easier than if you have to co-ordinate four or five. And again, we call this the unified coverage model, has made us not only more efficient in terms of cost, but also has made us much more effective in terms of bringing the whole bank to the client and providing the full offering. And as I said we have [only] estimate that despite the success which we have had in 2005, that we have only seen one third of the benefit of this realignment. Clearly there are now a lot of additional tactical measures in the U.S., but also elsewhere, to continue to capture market share, and we will engage in those. But there is no question in our mind that wide measures are in place which will allow us to further expand our footprint in the U.S. Does that answer your question?

Maybe just one word. All we are talking about [in that sense of trading] is very much dependent on our primary market activities. And I think there we are not yet fully in a position to exploit the overall potential. And that’s why I mentioned that in my short presentation, that we are going to strengthen our equity capital market operations and some of our industry groups in the U.S. That is still, although having made tremendous progress, still something which we can do better.

And I think we have, from a client prospective, been extremely successful in covering the financial response to this universe, which as we all know one of the most active ones. And that helps us to break into that very important U.S. market. So I would say from a client coverage point of view we are having been successful, from a product area we have to do more on the primary side, which we are doing. And then of course the secondary and the [sense of trading fees] is almost a consequence of that, and then I think, as Clemens said, we are very happy.

A couple of number questions please. Non-staff costs for €2b for the fourth quarter? If we take out the litigation costs, so let’s say €1.9b, given -- if we assume the revenue environment stays as it is, should we be understanding that that’s the new base now? We should simply be multiplying that by four for ’06, or are there some BLP costs or some investment costs that could drop out of that, otherwise you’ve got a pretty big headwind from non-staff costs year-on-year in ’06?

Second question was the €140m of investment spend, which you identified for the fourth quarter, can you give us a feel for the revenue payback on that? What revenues will you get back on that, and how long do we have to wait before we see that?

And then the third question was related to this trader who is alleged to have overstated his books. That sounds like a pretty basic error, which shouldn’t happen at a bank like Deutsche Bank. What went wrong there? What went wrong with your systems, and what assurances can you give us that that won’t be repeated? Thank you.

Second question [inaudible] is your fourth quarter base now -- your fourth quarter cost base going -- the base going forward. The end is not -- but still I have to tell you, on some of those investments we won’t see any revenue payback, and this is, for example, in infrastructure. Joe mentioned the issue of confirmation of trade. It is clear that, after the phenomenal growth which we have seen in certain areas, that the infrastructure has to catch up. This is a condition, but it is very difficult to say, because of this improvement of infrastructure to generate those revenues at the end so as you cannot go forward without having improved the infrastructure.

Secondly, no-one expected 2005 to be that good and, therefore, we had certain initiatives at the beginning of last year on our drawing board which we had not approved at the time, because we were not 100% certain that it was appropriate also in terms of the environment. As we gained more confidence, clearly then we approved those initiatives, and then the result is that the expenses are somewhat back-loaded. I would be very disappointed if €2b in non-comp was our new base, I must say. I would be very, very disappointed.

But you know we have to look also beyond just tomorrow, and if you take the -- we only have seen phenomenal growth over the last years, not just 2005, in sales and trading, and we do feel that we do have to spend a little bit. It’s not a catch-up spend, but we have to spend a little bit in terms of improving our infrastructure. Then we do have the impact this year now of stocks from ’04, but also of IFRS, which together then add up €40, €50m for the entire year. It’s not big numbers but at least it’s €10m per quarter.

But there is also good news I’d like to share with you. Our -- and this then leads me to this trader incident. As a result of all our efforts to comply with SOX 404, which is about internal control, our operational costs have come down, and we really feel that the reason why, or one of the key reasons why those costs have come down is because of our efforts in 404. So there is a return on this investment.

On this trader, it should not happen. It’s not exceptional that it happened at Deutsche. What I feel is exceptional, that we can read about him in the paper. This is something which really annoys me. We have one perfect -– we have very good controls. And as a matter of fact the thing came up because of our controls. It was discovered by the bank. It was discovered jointly by the control and the front office so it was not discovered by auditors, be they internal or external auditors. So in a way it demonstrates that we do have effective controls.

Now we can get into an argument, how long did it take us to find it out and shouldn’t we have found out earlier, and so? Clearly there are lessons learned, and we will further improve here our control environment. But I must say the good is that it was discovered, it was discovered by us because of our control processes. But I can assure you that me and my colleagues, we were greatly disappointed about this incident and it was very, very unfortunate because, before we had felt that we had made very good progress in terms of controls particularly in this area, so it was a disappointment.

But I must say the only reason why we talk about this, and why you feel we might be exceptional, is because, for one reason or another, it leaked to the press and why, because it was a relatively small incident by the way, given the size of our operation. Why it deserved such a big article and big coverage in the press?

[Andreas Thom], [D K Investments]. I have three questions. First of all, I would be interested again in the legal charge you’ve taken. Is it -- most of it you mentioned that [is] different incidents, but most of it, I hope -- so I want to ask was it taken also for the Scudder litigation which is still open?

And the second question would be, again I have to be more –- want to be -– have more specific knowledge about the non-comp costs. How much can be laid in these initiatives, which are fine, in the gross initiatives in CEE India and so on as a base level coming in 2006? So the €1.5b base level is now maybe a little bit higher because of ongoing issues.

And the last thing is the pipeline in investment banking. How does it look like at the moment? The pipeline in investment banking, how does it look like at the moment?

Well let me start with this last question. As I, I think, indicated, the financial markets have been, in general, quite attractive in the first few weeks of this year. This is true for pipeline, as well as for the actual activities, so it’s no secrecy that we are given, having the position we have, are also benefiting from this kind of attractive financial market. So everything looks good at the time being.

On the legal charges, I was asked this question this morning and, unfortunately, there is one standard answer and this is, we cannot go into a specific case and say what we have provided and what we have not provided. What we do in the [inaudible], there is a summary of all legal risks, and there is also an indication for an aggregate number, but we cannot break down the aggregate number by the legal cases, and it’s clear this would not be in the interest of the bank who tells the market what the ammunition is.

On non-comp, clearly the €1.5b I talked about was related to a lower revenue level. And quite frankly I would like to go away from an absolute number in terms of cost and concentrate more on a cost/income ratio because if revenue development is so different to what you assume in the plan then the absolute number in a way reflects –- is not the right number. What we have observed is, and I mentioned this, we made good progress on the cost/income ratio front also on the non-comp side. Clearly we do not want to see those ratios to deteriorate and our ambition is to maintain those or even to improve those. But I must caution you, the 45% gross income ratio, given the business mix which we do have, is a good number and is very much in line with peers.

There is no peer [incumbent] bank with similar or with an identical business set-up. But I can assure you that the 45% is a highly competitive number. Whether the 28% is the end of our dreams, that is debatable. But I would also like to reiterate, our investors want us to grow the franchise in a profitable way. They want to see how we grow the business, and this means certain costs. But the money spent for organic growth is so much better spent in terms of creating value and, therefore, for the shareholders, than making acquisition. But I can assure you they will not get extravagant on the cost front.

Let me -– I think it is very important because it is a delicate issue involved. Some people could read into it, now they are opening up all the avenues and investing. This is not the case. But we have been very disciplined in our acquisitions. We have said no many, many times because we have felt it is not in our interest. Now, of course, on the other hand if they say we want to have organic growth we also, after so many years of adjustment and down-sizing and focusing on core activities, we have to re-build, or build up, certain businesses where we think there is a lot of potential. That’s true for private wealth management. That’s true for corporate finance and I mentioned healthcare, oil and gas in the United States and others. So there is some investment activities on the retail side and we said that.

If we stick to the 25%. If we say our cost/income ratio is an important measurement in relative terms. If we say we are not going to do crazy acquisitions, which are not in the interest of shareholders, then I think it clearly demonstrates that we will not forget the risk discipline, the cost discipline and the capital discipline which we have shown. But it is clear that now, instead of the €22 or €23b which we had in our forecast for the revenues for 2005, we are now at the €26b level, that this means that costs will follow to some extent. But the important thing is that the bottom line is in line with what we are saying and planning.

And you remember when we talked about 25%, and I said it before, we talked about €6.5b pre-tax, which brought us at the time to about €3.9b after tax. This was the 25% model. We are very close to that. We have a somewhat lower capital than we thought at the time, also currency related. And we have seen the revenues and the pre-tax profit develop the same way. So, I don’t want to give any message that we are losing out in terms of cost discipline. But we are also saying, yes, we grow organically which means that where we see potential, revenue potential, we are investing, and this is true for retail, this is true for private wealth management, this is true for sales and trading and this is true for corporate finance, but in a very disciplined way. We’re not talking about big investments.

Okay, we have time for maybe one or two concluding questions. The next one is Derek Chambers.

Thank you. It’s a question about margins in asset and wealth management going forward. Clearly, there has been a lot of structural change there. You’ve had two very good quarters, based on success fees and some disposal gains. Once you’ve been through all this process, do you have any guidance as to what sort of cost/income ratio or return on equity you’d hope that area to get?

And on the disposal gains that you refer to making in the fourth quarter, are those similar to the ones you made in 2003 on warehousing real estate, or was it something else?

And could I ask a different question, which was relating to number of shares on issue? You’ve said you’re going to cancel the shares. Last year, I think, you gave some guidance on how many shares you might issue early in the year, as a result of employee compensation. Do you have any guidance on that?

The number of shares, I said in my presentation that the euro value of deferred comp will not be much different to what we had the year before. I don’t have the reference price being applied -- stock price, the relevant stock price being applied, so I don’t know exactly but, clearly, in terms of number of shares it is a lower number because last year the reference price was around €64.5. But by the way, those shares are not issues. We have already re-purchased those shares and then we can use those shares for hedging purposes. So it’s not an issuing of shares that were, I guess, this is very important. Is that fair enough? Okay.

On asset management the gain in the fourth quarter has nothing to do with disposals, because disposal gains are non-underlying. As I said, we are very focused and, therefore, we take it out. It’s in the recorded number but it’s not in the underlying number, and it wasn’t a large number anyway.

Now, the reason for the good performance of asset management in the fourth quarter was good activity, higher invested assets and performance fees. Part of their remuneration, part of their revenues depends upon the performance of the assets under management. So, if markets are good and these guys perform well, they get additional performance fees, and that was a key factor here.

Then, your third question, or it was actually your first question is, can you give me an indication about the margin? I clearly have a strong view what the margin should be, but I don’t know whether this is now the appropriate time to talk about the margin. The segment, as you know, also includes private wealth management and our brokerage business, so it’s a mixed number, but the cost/income ratio of 80 for all those businesses clearly is something I want to see much lower. And according to our mid-term plan, which goes to 2008, all three businesses will have a lower number. But, as a rule of thumb, I feel that in this business the margin could be as high as 35%.

Okay. Anyone volunteer for a concluding question? Dirk Becker. Can we have a microphone in the middle? Thank you.

Yes, my question refers to the open and real estate funds. You set aside in Q4 this €200m. This must include some assumptions about the revaluation, because the revaluation is only coming out in February, I understand. So is there a possibility that you will be able to provide back-off of some of this €200m if the revaluation is less severe than you think at the moment?

The second aspect of the question is, I think you expanded the guarantees to date to all holders of these units rather than only the holders who hold it for the last two years. Might this involve some additional charges for this issue? Very nice concluding question, I guess.

Yes, the answer is clear, it’s right. There is an assumption, and I think it’s a conservative assumption but we will see in the second half of February what the final valuation will bring us, but we assume that we are on the safe side there.

You should understand, for the accounting, the closing of the books, we have to work with a certain model. We have to work with a certain assumption, because the auditors want to see from us a good reasoning why the number is €203m and not €150m or €300m. So, are we in a position to share this model and those assumptions? No, we are not in a position and, particularly as the valuation is done by independent outside appraisers and they don’t want us, in any way, to express views upon the valuation and therefore you have to trust us that our approach was a prudent approach. You have trust us, because I cannot share the rationale [trait] with you more, and everything else we have to wait and see then what the outcome of the appraisal process is.

Okay, on that --.

This makes it clear what the €200m are meant for, that’s understood.

And this subject was very much in the focus of the press conference this morning. I’m pretty sure there will be more media coverage tomorrow. Let me say on behalf of senior management and also on behalf of all colleagues in Deutsche Bank who were in the last weeks involved in preparing all the disclosure documents of today, we are pleased with your interest and we appreciate your effort to come to Frankfurt, join us in this meeting and we are looking forward to working with you in the next days. Thank you.