Deutsche Bank AG (DB) 2006 Q1 法說會逐字稿

Good morning ladies and gentlemen.

This is the Chorus Call conference Operator.

Welcome to the Deutsche Bank publication of figures for Q1 2006 conference call.

As a reminder all participants are in listen-only mode and the conference is being recorded.

After the presentation there will be an opportunity to ask questions. [OPERATOR INSTRUCTIONS].

At this time I would like to turn the conference over to Dr. Wolfram Schmitt, Head of Investors Relations.

Please go ahead sir.

Thank you.

Thank you.

Sorry, we just had a pick-up noise.

Thank you and welcome to Deutsche Bank.

It’s my distinct pleasure to introduce this quarterly call because it’s a very special one.

I, today, am accompanied not only, as usual, by one CFO but two.

We have Dr. Clemens Borsig, our acting Chief Financial Officer and Risk Officer but also his successor as of tomorrow, Tony Di Iorio.

Both gentlemen will be available to answer questions but Clemens will take you through the presentation as usual.

As you know, Clemens has been appointed to become the Chairman of the Supervisory Board of this Bank as of tomorrow.

Also to be complete let me refer you to the full set of documentation that you will find on our website and this includes a PDF file of PowerPoint slides which we will use in our presentation.

And with that Clemens, it’s your call.

Thank you Wolfram.

And good morning to everybody on the call.

I’m walking you through the presentation which we have prepared for you and which we have put on the Internet.

This morning we released our results for the first quarter.

They were outstanding, we had the best first quarter ever both in CIB and PCAM, our revenues in Sales and Trading both in debt and equities were also at a record level.

Our deal pipeline and corporate finance is at exceptional levels and our net new money in PCAM is very solid.

But we haven’t compromised in any way on cost and risk discipline.

All our investments are paying off.

The business realignment program which is almost completed clearly has shown significant benefit and we feel that we are very well positioned on a going forward basis.

I’m on page four, return on equity, very strong momentum, an increase of 7 percentage points to 40% on an annualized basis from 33% to 40%.

This is the best return on equity we have ever had.

It’s a clean number and it’s also a very good number compared to our peers.

EPS is up by 58% to €3.30, up from €2.09.

We are already after the first quarter on EPS terms higher than what we will pay as a dividend for the fiscal year 2005.

In the first quarter we have accrued the same pay-out ratio as we had last year that was 36%.

Page five, in prior quarters we talked quite a bit about our investments in very selective areas.

All these investments are paying off very nicely and put us well very on what we have on this chart, as a sweet spot.

This is more a synopsis of our activities in the various areas and we feel we are well positioned.

Let me walk you through some of those sweet spots, as we call them, on page six.

In Germany, clearly is a sweet spot, its economical climate has significantly improved both from a business as well as from a consumer point of view.

And Deutsche is very well positioned and we have benefited from these improved trading conditions, we have benefited both in CIB and PCAM as you can see on the chart.

Another sweet spot right now is European Corporate Finance, on the left hand side you see the market development measured in announced M&A volume.

And Europe is of particular interest because as you do see here, first much higher growth rate than in the U.S. and also for the first time, with the exception of ’99 when we had the management transaction, Europe actually has overtaken quotation-wise the U.S., that’s very, very interesting.

And we are very well positioned as you can see on the right hand side.

We have grown faster in this area, in M&A, than our competitors.

We have grown particularly fast in Europe, right now we are advising on over 30% of the European transactions.

Next page eight, another strategic sweet spot is Investment Management for Private Clients.

Again, here, we are very, very well positioned.

As you can see on the chart our invested assets have grown by 15% or €76b of this net new money over a 12 month period, €23b of which €14b alone was achieved in the first quarter of ’06.

And finally, Emerging Capital Markets, again another strategic sweet spot.

The key Emerging Capital Markets continue to grow rapidly and Deutsche Bank is really well positioned to take advantage of those stable conditions.

Let me now move on to the Group results.

On page 11, we show the development of our income before income taxes.

Again it’s the best first quarter ever.

Last year we thought the first quarter was a record quarter, was exceptionally good, but we increased our pre-tax profit this quarter by 46% over the same period last year.

And again the €2.6b is a clean number.

Net income grew even faster to €1.7b, up 55%.

In the €1.7b we have also the effect of -- a cumulative effect of accounting changes which is explained in the documentation.

Also our ETR came in at 36% lower then the comparable number last year.

The comparable number last year was 38%, the 36% is very much in line with the guidance I gave you early February.

Revenues, on page 13, were up by 21% to €8b.

Again, this is a very clean number.

We have seen record revenue performance in a number of key businesses and once again the BRP program has very favorably impacted our revenue momentum.

And I would like to mention that when we announced the BRP some people were concerned that the BRP in the first place would adversely impact our revenue.

Absolutely the contrary is true.

On costs, again on costs it’s a very good picture.

Costs are up but revenues are up even much faster.

The increase on the comp side is entirely due to performance related compensation.

The last time I talked intensively about our non-comp costs, which went to €2.2b, I identified the special effects which we had in the €2.2b and I identified around €650m as special effects.

And our non-comp costs this quarter are proof of what I have said, we have a slight increase compared to the first quarter ’05 or a clean number of the fourth quarter ’05 and this is due to three factors.

Higher transaction trading related expenses resulting from much higher business volumes.

Our continued investments in certain areas, for example in India, but also the first time consolidation of USG.

As a result of our very strict cost discipline our cost efficiency has further improved.

Our cost income ratio has come down to 68%.

This, again, is the best number I have ever seen for the Group.

And the underlying comp ratio stayed flat at 46% and the non-comp ratio has come down to 21%.

Let me now turn to the segments.

On page 17, an overview.

We have seen significant profit growth across the board.

In CB&S, brief, the underlying pre-tax profit increased by 34% to almost €2b.

The underlying pre-tax has slightly come down but this is the result of an increase in equity in the Group and therefore higher allocations.

But CB&S’ share of the [RWA] has also increased and also the allocation of USG goodwill has had an impact there, but still 47% return on equity isn’t a bad number.

Then GTB is up by 25% and the underlying pre-tax RoE is up to 66%.

Asset and Wealth Management very strong performance, profit up 46%, return on equity up to [19%].

And PBC, that was particularly pleasing to us, profit again up by 31% to €321m.

I guess this is the first time they have broken the €300m line in a quarter.

And the underlying pre-tax RoE has improved to 62%.

CIB, record profitability in strong markets.

Profits up by 33%, revenues up by 25%, we’ll come to the details in a moment.

We had a positive number on provisions, this is as a result of the [inaudible] provision releases owing to a series of successful work-outs.

But it’s also is a reflection of the high quality of our loan book and of a benign credit environment.

You will also note that we hedged part of our credit book.

And as credit was tightened during the course of the first quarter we had some negative mark to market movements on our hedges.

Last year it was the contrary so we can say we got some compensation on credit provisions for the mark to market movements.

Moving on to page 19, Sales and Trading Debt.

As you can see we exceeded the record first quarter in 2005 by 19% with revenues of almost –- of higher than €2.8b.

Very strong, very strong momentum in Credit Products and of course, in Foreign Exchange.

I come to Foreign Exchange in a moment.

I mentioned Emerging Markets, we benefited from our position in Emerging Markets and saw very good revenue momentum.

Most of you know that our exposure to commodities is, in relative terms, rather lower and we don’t take very much of a proprietary position here anyway so we didn’t benefit in the first quarter on very strong performance in the commodities market.

Sales and Trading Equity, revenues up by 90% to almost a €1.6b.

We have seen strength here across the board, a particular strength in equity derivatives.

I come back to this in a moment.

Also in Prime Services but also in Cash Equities almost around the globe and we also benefited from taking selective positions in proprietary trading, we clearly benefited from our know-how and the good market environment.

But what’s important here is that the relative share of the proprietary trading on Sales And Trading equity revenue hasn’t increased compared to the first quarter of last year.

Page 21, we clearly benefited from our, what we call, unique business model.

Again, in cross-trading our positions in relative terms are clearly lower than for some of our peers but clearly we do take profitable opportunities in favorable markets.

In Market Access products we have commanding market share and you see on page 21 our position in the Foreign Exchange market.

You see a consistent increase in our market share now to 19.3% according to EuroMoney which clearly gives us a very dominant number one position.

Intellectual Capital is another focus area for us and here, for example, you see in equity derivatives that we have grown revenues much faster then the market in this area.

On page 21 I want to talk about risk efficiency measured by VaR.

Our revenues increased by 37% but the average VaR during the course of the quarter increased by only 2%.

And this resulted in an increase in risk efficiency of 30%.

On page 23, continued strength in our Origination revenues are by 18%, very strong revenue momentum in Equity Capital Markets.

We rank number two now in Europe, number four in European IPOs.

And we increased of our market share in the Americas.

In the High Yield Syndicated Loan market we continued to perform very strongly and we saw also very good momentum in Investment Grade where we rank number two globally, and increased our overall market share in Europe.

Page 24, Advisory.

Here, again, substantial year-on-year growth, revenues up by 58% compared to the first quarter ’05.

Very strong momentum across the board, globally, in Europe and in Americas, and we have never had, I believe, a stronger pipeline here.

GTB very pleasing, continued good momentum with revenues -- with profit up 25%, revenues up 10%.

Some of you may recall that at the last analysts’ conference I talked about revenue momentum between 6 and 8% as our target.

So we clearly have exceeded our target here.

Further improvement in the cost income ratio now down to 68%, you may recall we come from something in the 90s and our target of 65% so we have moved decisively to this 65% target.

So far on CIB, let me now turn to PCAM on page 26.

As I mentioned before it was a record quarter also for PCAM business.

Revenues up 14%, profits up 37%, further improvement both in the cost income ratio as well in the return on equity.

Page 27 gives you an overview over the Invested Assets.

An increase of €19b in the first quarter to €885b, with net new money of €12b, movement in the currencies had an adverse impact on our numbers.

Next page, this is, for me, a very important page, it cuts our PCAM business slightly differently, more in strategic terms, Investment Management and Retail and Business Banking.

And the clear focus for us in PCAM is Investment Management, for Private Clients but also for Institutional Clients.

And here in Investment Management we have grown revenues by 20% and I can add the Private Client revenues went up by 23%.

But also the increase of 6% in Retail and Business Banking isn’t a bad number.

On the right hand side you can see that Assets Under Management pipeline were up by 15% to €525 -- €575b, so the result is better margin has also improved.

Next page gives you the money inflow.

Private clients gives a money inflow of €14b, Retail Funds and Asset Management very strong but also Private Wealth Management is strong and also net new money in PBC.

Asset and Wealth Management, revenues up 18%, pre-tax profit up 46% to €238m.

We saw continued strength both in Germany and also in Asia.

We had some gains in Real Estate but that’s part of the business model, we clearly benefited from the movement in Assets Under Management and we have further progress in the reorganization of our U.S. business.

Page 31, Asset Management on the left hand side you see the movement of our invested assets, and here you see very strong, very strong momentum in Retail.

Page 32, Private Wealth Management, the message is clear, growth in Invested Assets across the board in Germany, Italy, Europe, in the U.S., and particularly in Asia Pac.

And in PBC, again as I mentioned before, the best ever quarter, revenues up 11% and pre-tax profit up 31% to €321m.

We clearly benefited in PBC from the good market conditions particularly in Germany but also from our unique business model which focuses on affluent client and investment management for affluent clientele.

I mentioned also before the cost income ratio has come down to 69% and pre-tax return on equity up to 62%.

And in all those numbers we have digested our continuous investments in India, Poland and China, as well as in our European distribution channels.

The following pages give you a little bit an update on PBC’s initiatives.

Those two pages are meant for reference purposes and show you that we have made very good progress with our initiatives in Germany, in Europe but also in India.

We have the license in India for eight branches, they are now up and running, they are in full operation and we have 15,000 customers now, that’s not very much but the momentum is very good.

And we are quite positive as far as this activity in India is concerned.

So far for the segments, now let me move on to Risk and Capital Management.

I can be brief here, the story continues to be very good.

As a reflection of the benign credit environment but also the high quality of our loan book, [inaudible] and loans have further come down now to €36b that’s 2.2% of our loan book and the coverage ratio has increased by one notch to 51%.

Page 38, on provisioning, total provisions only €4m.

I explained already in CIB that we benefited from our good work-out activities and PCAM is very consistent and the PCAM provisioning reflects our strategy to grow in Consumer Finance.

Final page, page 39.

Risk weighted assets have stayed almost flat for three quarters.

I recall that by the middle of last year some of you were concerned about risk weighted assets and us having lost discipline but clearly this is not the case as you can see here.

We managed our risk weighted assets very tightly and kept them flat, as I mentioned, over three quarters.

And as a result our Tier 1 ratio also improved by one notch to 8.8%, that’s the upper end of our target range.

And again we achieved this despite our continued stock repurchase activity.

And that concludes my presentation and Tony and I are now happy to take any questions you may have.

Let me give back to the Moderator.

Thank you.

This is the Chorus Call conference operator.

We will now begin the question and answer session. [OPERATOR INSTRUCTIONS].

The first question is from Mr. Adrian Guild, Main First Bank.

Please go ahead sir.

Hi, Adrian Guild here.

Good morning and great numbers.

I have three questions please.

Two number questions and one general one.

The first number question is on the investment banking part, looking at the very strong top line revenue both for fixed income and equities, and I’d like to understand broadly, I don’t know whether you can give us splits like that, what the element to cash to non-cash trading and sales revenue that you have either for equity or fixed income?

Just trying to gauge how much is cash part and how much is non-cash part.

And also adjoining that question, can you give us a bit more quantitative indication, how important in terms of revenue prime brokerage was for you in the first quarter?

That’s question one please.

Question two is trying to –- you get a bit more into the treasury side of shares, the buyback has been very strong in the first quarter.

Can you give us a sense of where the proportion, how much of these treasury shares again would roughly be allocated to the investment of share options?

I think maybe you give that in a later segment, I’m just trying to get an update on that given that your share buyback was so strong in first quarter.

That’s question two.

The third one is strategically on PCAM and what I’d like to understand is has Scudder now returned back to profitability and supported your PCAM top line growth or was it mainly Germany and DWS driven?

That’s my third question.

Thank you very much.

Thank you.

I’ll start with the third on Scudder.

I mean, that is a little bit early, product clearly hasn’t contributed to the improved performance of PCAM.

That takes a little bit longer.

And on your first question, it would be a rough guess if I gave you a number now and I don’t want to mislead you.

So I suggest that Investor Relations comes back to you on that.

As far as our stock repurchase program is concerned we needed 12m shares for our RU –- excuse me, we needed 9m for our RU program.

That’s excellent, can I just ask one thing.

Germany –- and I’m sorry to ask another question but given that you’ve had such tremendous good results in Q1 surely you must be rethinking your Group targets.

Can you talk to us again, are you restating all your old Group targets, profitability targets 25% pre-tax, and EPS growth double-digit.

At this stage given your phenomenal results, will you be revising this?

Thank you.

That’s a little bit early days.

And it would be highly unfair by an outgoing CFO at the last day to tighten the targets for the Vorstand.

We have always said that as far as the return on equity is concerned this is for us more of a switch than a target, we want to generate how far and how far it’s measured in EPS growth.

And we want to achieve double-digit EPS growth with a high level of capital efficiency.

Return of equity is nothing else but capital efficiency and we want to achieve our growth targets with a high level of capital efficiency.

When we talked earlier this year about the double-digit EPS growth we were quite confident that we can achieve double-digit EPS growth in the first quarter, in a way that proves that our confidence was justified so far.

But now to further tighten that target, I don’t know, but I can clearly state that we are more confident, we are much more confident.

If we continue on that basis we may revisit our target in the second half of this year.

Thank you very much.

Thanks Adrian.

Next one please.

Next question is from Mr. Stuart Graham, Merrill Lynch.

Please go ahead sir.

Hi, I have two questions please.

The first one is on slide six where you give these individual increases in the German business.

I wonder do you have a figure for the aggregate increase in revenues in Germany, pulling all this together?

How much your German revenues have increased year-on-year?

The second question is going back to Scudder, I understand it takes time, but could you give us any indication that things are moving in the right direction, be that net new money flows or Morning Star ratings?

And in that context I’m interested as to why you’ve not yet settled with the SEC?

I know you’ve put that figure aside but I thought you were going to settle with them by the end of the first quarter and that hasn’t happened yet I don’t think.

So maybe you could explain that as well, thanks.

On Germany we don’t publish globally numbers for the regions.

But, Tony if you permit, I just –- I want to give you an indication.

You know Germany in a way is the most difficult region because that’s also the location of our parent Company.

All I can say on an underlying basis revenues in Germany were up by 9%.

9%.

Which I think is a very good -- and that’s purely Germany, which I think is a very good number.

I don’t have at my fingertips the franchise revenues, they are revenues with German clients but executed outside Germany, my guess is, if I include the franchise revenues, that number would be even higher.

Okay.

On Scudder and SEC.

You know I must not criticize in any way the SEC.

But I can tell you I’m very disappointed that we haven’t been able to settle and it’s not because of us.

And we are in talks with the SEC to accelerate this because clearly it’s not our fault.

You know we are in relative terms, a very minor participant in this activity and this was not to our -– in a way this is now a disadvantage because we are not important to the SEC in this regard.

On Scudder we will come with more details on Scudder in the next discussions with you guys and I cannot go beyond what I have said before.

But it’s clearly taking time.

So could we assume there’s going to be some sort of Investor Event at some stage?

Yes.

Okay.

Thanks.

Take the next one please.

The next question is from Mr. Marc Rubinstein, Credit Suisse.

Please go ahead sir.

Yes, good morning.

Morning Marc.

Couple of questions.

Firstly on CIB.

The non-comp development there was clearly very good.

The compensation ratio though deteriorated a little bit versus the first quarter of last year, looks like it was about 38% this time around, 36% last time around.

Now I would have thought given that a lot of the revenue upside has come in areas such as prop trading and equity, foreign exchange, also capital structure arbitrage opportunities is something you point out, I’d have thought many of these items would have been low comp.

And therefore the question is to explain that compensation ratio development.

That’s the first question.

Secondly on consumer credit.

Looks like you’re expanding the book there.

It’s something you’ve indicated in the past.

Can you give an indication of what size that book is now?

Maybe what sort of growth rate you’ve seen.

You’ve indicated it had an impact on loan and deposit revenues within PBC going up 7%.

But how much of that was driven by consumer credit?

And also when it might have an impact on the provisioning line.

You say that in this period, the impact was offset by some other issues, so when it might have an impact and what that impact might be.

Thanks.

On the comp issue on CIB, it’s not easy to calculate the comp ratio on CIB because part of CIB’s costs are allocated costs from our infrastructure book.

I would like to say that when we talk about comp during the course of this year and in CIB, clearly a key factor is the bonus accrual.

And once again, this is not a bonus payment.

This is an accrual.

And the payment then is decided towards the end of this year.

And therefore one must be absolutely clear.

This is just money which is set aside but which is not paid out and I can say is even not committed entirely to be paid out.

We have, from an accounting point of view, a very clearly defined policy.

And we, during the course of this year, we implemented policy.

And then in the fourth quarter we adjust depending on what the decision by the compensation committee of this bank is.

And clearly we want to be prudent.

We want to be consistent and we want to be prudent.

And I can only say that we have been very consistent and that we are very prudent.

We also had, during the course of the year, we have some [noises] which one also has to take into consideration of certain assumptions when one talks about the bonus accrual.

I mentioned that [LEMG] had a major effect -- had a significant, not a major, but had an effect on the bottom line.

We also make certain assumptions about how many are used -- we will give and we might be right or wrong.

But the key really is, and I defend this vigorously, that we do have a very consistent and also confirmed accrual policy.

And if you look back, I guess that we demonstrated that we haven’t had any hiccup as far as our bonus accrual and bonus payment were concerned.

On the consumer finance, this is now a book of around €19b.

You always have also the issue of definition of over [stress] by consumer segments you might find [inaudible], we combine those, so that is included in the €19b.

I must say, the provision level in PBC and therefore in PCAM is a very clean number.

That is a very clean number.

It reflects the quality of the loan book which is our risk management.

And we haven’t seen or we don’t foresee a further deterioration in the credit environment in Germany.

However, the equity was €80m which we have in credit losses in PCAM is not only consumer finance, it’s also impacted by retail and residential mortgages, this subject we talked about earlier.

Great.

Thanks.

And good luck in your new role.

Thanks.

The next question is from Mr. Jeremy Sigee, Citigroup.

Please go ahead.

Thank you.

Good morning.

A couple of questions, if I could.

Firstly in asset management.

I just wonder if you could clarify, I don’t know if you’ve specified how much was due to real estate gains versus underlying improvement in asset management revenues?

And secondly, could you talk a bit about diluted share count and the step-up in the dilution effect in the quarter and the outlook for that number going forward into the next quarter?

Okay, fine.

On real estate gains, as I said previously, those gains are part of the business model because we buy properties, we warehouse properties, then we reap -- then we package those properties into a fund, predominantly [a closed-end] fund, and then sell the closed-end fund to institutional investors and high net worth individuals.

And if we do our job well, we don’t lose on our warehousing activities.

On the contrary, we benefit from our warehousing activities.

It is not us taking a long-term view on the market and yet going long on real estate, it is a warehousing activity.

And to give you the numbers, this quarter we had a gain -- total gain in this area of around €60m.

And last year it was around €30m.

So you will always have some of those -- at least some of those gains, at least I hope.

So the net movement, the net movement isn’t very much.

And on the question with the diluted shares, I turn to Tony.

He knows.

There’s several factors at play there.

The €519m that we showed at the end of this year, part of that is due to increased equity grants at the end of the year.

And another part is our hedging program.

But another effect is a technical effect in just how the impact of a rising share price affects the way options -- historically granted options are reflected because the exercise price could buy back fewer shares.

The way the calculation is you assume the number of shares for the options you’ve exercised.

And the proceeds from the strike is assumed to repurchase shares in the market.

So in a rising share market -- share price market, the impact on the buyback is linked.

Okay Jeremy?

Thanks.

I may follow up offline on that actually.

Thank you.

Okay.

Next question?

The next question from Mr. [Hugh Pansini], Morgan Stanley.

Please go ahead sir.

Yes, morning.

Three questions.

First on equity derivatives on page 21, very helpful in terms of saying you’re growing twice what we think the market’s growing at.

Can you give us a bit more color on what’s going on in Q1 where I’d have thought it would be very buoyant, what the growth rate is or what share of equity trading?

Second, in commodities, commodities is probably the only area of fixed income you don’t have a major position.

I’ve seen you’ve made a few high-profile hires.

Can you give a bit more color on your ambitions and your plan and whether you’re going to step that up now?

And then thirdly, just going back to Stuart’s question, if I look on page 48, I thought you probably are quite disappointed with the flows both at Scudder and in Germany.

Do you want to give us a few -- could you give us a sense of what the outflow -- sorry, the inflows in Germany would have been before the outflows from the property fund.

And then Scudder, any milestones of when you think that business will start to become a more vibrant, growing business?

Thanks.

Yes, on the inflows and outflows, the real estate fund is not in -- the [Kunfosist Invest] is not in [new full] funds, the [Kunfosist Invest] is in real estate.

Then your first question was on the derivatives.

Again, as I have said, we have seen very good growth.

In more simple terms, we had a growth rate of 60% in the first quarter of this year compared to the first quarter of last year.

That’s right and then on commodities, any change in ambitions there given the recent hirings you’re making?

Gradually, but not a significant shift in our business -- change in our business model.

Once again, you always refocus on customer flows, high market shares, market [excess] products, and high market share in intellectual properties.

On money inflow results, I showed very strong numbers in Germany DWS, €7.7b in net new money.

And this was, by the way, 50% of the total net new money flowing into mutual funds in the first quarter of 2006.

We are not at all disappointed with our money inflow in Germany.

And on Scudder, as I said before, we will be more specific in one of the next occasions.

Thank you very much.

The next question is from [Ann Gerheim ], Execution.

Please go ahead.

It’s Ann Gerheim from Execution.

Three questions please.

The first one is on the buyback again.

Can you just tell us what’s basically the aim on the buyback?

Is it largely to offset the rising dilution, and also when you say a double-digit EPS growth, especially on diluted or stated number of shares?

And secondly, just to understand the increase in allocated equity in [CBS], it’s up 43% year on year, yet risk weighted assets are only up 21%, and the VaR is up 2%.

What’s basically driving the increase in allocated equity?

Is it -- you mentioned consolidation of U.S. key -- one of the key drivers.

And then just on asset and wealth management, can you give us an indication of growth rates and revenues and pre-tax profit, excluding the impact of the sales?

Thank you very much.

Okay.

So first on capital management.

We always said that structured purchase for us is one of the levers we have in capital management.

And it should also be seen in combination with our dividend policy.

It is important, when we talk about the 10% or the double-digit EPS growth over the medium term, we said we want to achieve this by improving the bottom line and not by reducing the number of shares.

And I gave you the rationale of our planning.

So our objective double-digit EPS growth is based upon growing the bank and not shrinking the bank.

Once again, I said it has to be seen in combination with our dividend policy.

Last year we had a 36% ratio.

And we have told you and investors that we want to gradually increase the payout ratio to something like 50%.

Most probably we will not do this in one step, but gradually over time.

But over time we want to increase the dividend -- the payout ratio to 50%.

And once again, you have to see structured purchase and dividend in combination.

Increase in allocated equity, Investor Relations can give you all the details.

But let me just give you the key points.

We reduced -- we sold some Daimler shares.

We sold Eurohypo, where we had [inaudible] significantly capital in corporate investment.

This has been our policy since we began the transformation of the bank.

And we said we want to free up capital in corporate investment and either return it to shareholders or allocate it to the business.

And we have done both.

As we have significantly reduced capital in corporate investment, you know the business had to take -- the business had to take it up because, overall, we wanted to have -- to maintain our Tier 1 ratio.

And therefore, for example, CIB got lower.

They also had more risk weighted assets in the first quarter this year than what they had in the first quarter last year.

But if you really want to have even more details, you can come back to Investor Relations.

Your question on asset and wealth management is a very good one.

It’s a very interesting one.

It’s exactly in line with my expectation and what I told you.

The more information we give you, the more detailed information you want to have.

And you want to peel the onion until there is no onion left.

Again, but I can only say in asset and wealth management, as I said, in private wealth management strength across the board.

The U.S. brokerage business is, for us, is a bit difficult because it’s a little bit [sub-state].

And we have to grow the business there further.

But the private wealth management business in the U.S., excluding the brokerage business, has done well.

It has done particularly well in Germany.

It has done, in relative terms, bad in Asia because it’s smaller there.

And our private wealth management offshore business which is basically Switzerland and Luxemburg, however we had a small onshore activity also in Switzerland.

They have done very well.

In asset management, Europe is very strong.

Real estate is very strong across the board.

And the U.S. is, for us, difficult.

And in Asia, which is small, we are in both a repositioning and growth phase.

We just announced a reorganization and growth of DWS in India.

India is for us a very attractive market also on mutual funds, also in combination with our PBC activities.

So the whole arm of the DWS mutual fund model in Asia will continue and we are quite positive on that.

Just quickly, did you say the 50% payout ratio at the beginning, did you say that’s dividend plus buyback.

No.

No.

Ultimately the 50% was the dividend.

Okay.

Thank you.

The next question is from Mr. Dirk Becker, Kepler Equities.

Please go ahead sir.

Yes, good morning.

It’s a follow-up question on this dividend issue.

We’re probably heading for a nice increase in EPS this year and you say that you want to increase the payout ratio.

As I understand, you’re accruing through the quarters the amount of dividend that you’re expecting to pay at the end of the year.

And I was wondering whether you could tell us for which level you have accrued in the first quarter.

Yes.

We used to do this.

Our practice was we took during the course of the year last year’s dividend, divided by 4, and that was what we accrued for.

And then if the supervisory board decided in January the following year for a higher dividend or whatever, a change in that assumption, then we adjusted the accrual in the fourth quarter.

And last year we came to the conclusion that with our significantly improved EPS, that this accrual methodology wasn’t appropriate any more.

And so, after the second quarter, we accrued against a higher dividend in this case against 250.

And this year, we went one step further and said we should not accrue against a fixed dividend, but we should accrue against a payout ratio because we might have seasonality as far as our EPS is concerned.

And therefore we used the payout ratio.

You know that the first quarter for us always is the strongest quarter, so using last year’s payout ratio for the first quarter then results in a higher accrual.

And, for example, at 36%, you can run the number, results in an accrual of 1.19.

But you should know, and I made this also clear yesterday to the audit committee, that we take a payout ratio.

Then, during the course in the second half, the supervisory board then can take a decision and advise the Vorstand to change the accrual methodology.

I hope I will have that discussion on the control on a going-forward basis.

Thank you Dirk for that question.

Thank you.

Next one please.

The next question is from Mr. Kian Abouhossein, JP Morgan.

Please go ahead sir.

Yes, hi.

Hi Kian.

Hi.

I have one question regarding FAS-123R.

Apologies, I haven’t fully understood exactly how much you took -- what the impact was of FAS-123 in your results.

I tried to understand on page 28, but it wasn’t clear to me.

Could you give --

Well, it’s a little bit difficult to understand because other banks quote FAS-123 for debit in their P&L and we quote it for the credit.

That’s right, yes.

So it’s not easy.

It’s not easy to understand.

But that is what I meant by our prudent policy.

Tony is the ultimate expert on 123R.

Tony, if you could explain, just note why and what it is?

I don’t know that I take credit for that.

But let me try to explain what it is.

There’s two effects of 123R.

The one on the face of the income statement, the credit is the adjustment of the fair value of grants made historically for expected forfeitures.

And that was required change effective when we adopted the standard in January.

Embedded in the cost expense is a debit which is what most of the other firms highlighted.

Ours is a much smaller number.

And what that represents is the acceleration of future amortization for people who hold restricted stock that were eligible to early retirement at the time of the grant.

And that number was in the low 20s.

So there was a debit of about 21 in comp expense.

And that related to the early retirement feature.

And there was a credit on the face of the income statement, which was the cumulative catch-up, and that related to the adjustment of the fair value of outstanding grants for expected forfeitures.

We still count for the forfeitures, as others did, on a pay-as-you-go basis.

Is that clear now?

Okay.

Yes.

That makes it clear.

The second question is regarding UFG.

Did you just consolidate that for one month?

Yes.

We had -- for two months.

For two months, okay.

And can you give us the profit impact?

You can deal with that offline.

Okay.

And the third point is you give quite nice stress testing analysis in your annual report which a lot of banks don’t do.

But I’m still wondering about your real prop trading exposure.

I understand that your pure prop trading exposure is smaller than some of your peers.

But I assume you have quite a big flow prop contribution, especially to this quarter in equities.

And I was wondering if you can talk me around a little bit of what has been historic flow prop, or prop trading on the back of flow business and what you’ve seen in the first quarter.

Even if you can’t give numbers, but just talk about generally in terms of what you have seen and against historic levels because otherwise I don’t understand how you can grow equity sales and trading by 90% when margins are declining.

And my understanding of equity derivatives generally in that year have been strong, but not that strong.

Yes.

The problem is that question starts with the definition of the prop trading, the trade or take the position and deal the position in 30 minutes. 30 minutes later, was that prop trading or wasn’t it prop trading?

So how do you define prop trading?

But we do run certain exercises and we also have [inaudible] the debt through trade entirely on behalf -- with the money of the bank.

That is the easiest definition, if you will.

But as my answer, I guess I will disappoint you.

And this is the client-driven business in the first quarter and equity products were so strong across the board that the share of prop trading, as I said, didn’t go up in a significant way, however we slice and cut the volumes.

So our total revenues were up by 90%.

Client activities were up by 90%.

And prop trading was up by 90%.

And, as a result, the share is the same.

And despite cash margins under pressure, we have seen volumes going up much more, and that is also reflected in us moving up in the rankings.

UBS isn’t out yet.

We were number four or five a year ago -- number five we were, and now we are even number two.

And if UBS have overtaken us, then we are number two.

So we went up two or even maybe three notches in the rankings.

And this is not -- this wasn’t achieved with prop trading.

This was achieved with strong customer flow.

And I would like to quote in this regard again what we said before, the realignment of a combination of all of our sales and trading activities for all asset classes, debt and equity has benefited us very, very well.

Okay.

Thank you very much.

Thank you.

I understand we have more waiting in the queue.

Can we work on the basis of short question, short answer in the interest of time?

Thank you.

The next question from Mr. Matthew Clark, KBW.

Please go ahead sir.

Good morning.

Couple of quick questions.

Morning Matthew.

Firstly, the costs in the GTB division were down 20% in the fourth quarter.

Is that seasonal?

The next question is the cost income ratio in the asset and wealth management division, just where can that go?

And then last question is just on the asset management fees, again, in the asset and wealth management division.

Seem to be earning a higher gross margin there.

Is that due to a mix shift towards equities, etc?

Should we think that’s going to be sustainable at the higher level in the last three quarters?

Thank you.

Okay.

On asset and wealth management, the cost income ratio went down to 77%.

I talked to you and investors about what is the target rate.

And ultimately, the target rate will be 65%.

But this isn’t achievable -- this isn’t achievable this year, but the guys are making good progress.

This is, again, the target cost income ratio rate.

On margins, in asset -- margin asset and wealth management margin, the profitable -- let me put it this way, the profitable businesses in asset and wealth management have grown much faster than the low-margin businesses and the result is an improvement in margins.

Basically that’s [stated] that [simple].

In the cost situation in GTB, last -- during the course of last year in GTB, we implemented some cost reduction programs.

We talked about that early February.

And the result clearly -- the result of that is a lower cost base despite higher revenues.

Okay.

Thank you very much.

Thank you.

Next please.

The next question is from Mr. Christopher Wheeler, Bear Stearns.

Please go ahead sir.

Yes.

Good morning gentlemen.

Hi Christopher.

Two quick questions.

Firstly on provisions.

Clemens, you mentioned earlier there were some comments on provisions.

But clearly I’d just like to get any flavor you have from your risk management people, where you think you are going the rest of the year.

Clearly whether the recoveries can continue in the corporate and investment bank, and whether you’re actually going to see an improvement or whether actually, like Commerzbank, perhaps suggesting that you might see further pricing provisions within PBC.

That’s the first question.

Second question, quickly we’ve touched on this and I don’t quite understand it, outflows within asset management in institutional, I wondered if you had any comments on that because it does appear, if you look between slides 46 and 48, and making the assumption that a large part of the retail has come from Germany, that you haven’t seen much, if any, growth in Germany in institutional, obviously, and certainly you see some weakness rest of the world.

Where are we on the institutional business?

Yes, on provisioning, I guess it would be correct to assume that we will continue with the level of recoveries which we have seen in the first quarter.

The first quarter was not only impacted -- was not only impacted by the recoveries and provision releases, but also lower additions to provisions in other areas due to the benign credit environment.

You will recall I talked last year for the entire loan book about an expected loss of around €550m plus or minus.

We don’t foresee a change in the benign credit environment.

So we do believe that in CIB next quarter we will come in below expected loss levels.

However, as I said, one has to be prudent and not expect too many recoveries.

In PCAM, with the €80m, we are -- or €79m, we are consistent.

And here again I don’t foresee a deterioration in the environment.

But as the book continues to grow, you know we will see a proportion of increase in our provisioning here.

On money flows, I agree that on the institutional side, we haven’t seen much movement in Germany.

Thank you very much.

Thank you.

Thank you.

Next please.

The next question is from Miss Joanna Nader, Lehman Brothers.

Please go ahead madam.

Hi.

Good morning.

I just wondered if you could comment a little bit more on your risk weighted asset growth.

As you pointed out, it’s been pretty flat for the Group as a whole, and up a little bit for CIB.

What do you think, given your product exposures that you have right now, what the normal relationship between the revenue growth and risk weighted asset growth should be?

And just wondering if you’d differentiate a little bit between fixed income and equities there.

I’m not in a position to answer that question.

That is very, very specific.

However, if you look, and this is in the broad scheme of things, if you look at our P&L, you do see that our, let’s say, known balance sheet related income grows faster than the balance sheet related income, if one assumes that part of the balance sheet related income translates into risk weighted assets, one assumes that revenues grow faster than the risk weighted assets.

And this has been the case for the last, I don’t know, for the last 10 years.

I also have to say risk weighted assets, that is the definition by the regulator.

And it’s a bit complicated.

And clearly for us it’s important because it consumes capital.

Okay, so there’s --

And the key driver of these high loans and derivatives are VaR and there’s two other factors in the drop.

I said in the drops, it’s a bit difficult and the reason is it’s not a linear relationship.

But it’s clearly our objective to see if risk weighted assets grow much more slowly than revenues and profitability.

Okay.

Thanks.

Thank you Joanna.

I understand we have one more participant.

Is that correct?

Correct sir.

The last question is from Mr. Derek Chambers, Standard & Poor’s.

Please go ahead sir.

Good morning.

This is Derek Chambers from Standard & Poor’s Equity Research.

First question’s about M&A and client activity in structural products.

On M&A you make some interesting points about your growth of market share and your revenues are up, but a lot of your competitors’ revenues are up by similar amounts.

And you’re still smaller than many of your U.S. competitors in terms of declared M&A related revenues.

I just wondered if you had any comments about whether this growth of business you’re seeing will come through in higher declared -- is likely to come through in higher declared revenues as the mechanics of the business work out.

And on the structured products and customer activity side, I just wonder if you could say anything about the trends that you see.

In the statement you say that there’s been increasing customer activity and credit derivatives in securitized products.

I wonder if you could say anything about how likely that is to continue in a benign credit environment.

And you also mentioned a decline in customer activity in some interest rate related structured investment products.

Could you say something about whether there’s a short term or a trend or anything like that?

On M&A, I would like to say that we have made very good progress.

And if you analyze our numbers, you see continued growth in our M&A revenues.

Page seven, which I gave you, this is not the market based upon booked revenues, this is the market based upon announced M&A volume.

This is very, very important.

And what I would like to tell you with this indirectly, most of those transactions haven’t been booked as revenues yet.

Therefore we are talking about a revenue pipeline because we are in these deals.

We are mandated.

It’s not us having interesting discussions with clients about potential transactions.

These are transactions we are working on and which translate into revenues going forward.

I also would like to say if you take our revenue level in M&A, I don’t want to give you beyond what I said so far, indications where we do see revenues here at year end.

But we don’t compare that unfavorably, as you have implied in your question, with our peers.

And, as a matter of courtesy, as this is the last question now, I want to give this question to Tony.

Then I would like to conclude the call with the final remarks.

Tony?

The revenues on our structured product activities, first the volumes in the quarter have been very good.

What we have seen is a shift in the underlying, historically from interest rate products to credit products and equity products.

And what we try to do is to be responsive to the market with the demands of our [channel] partners and our customers.

Apart from that, I think we still see this as a very important business, part of our model that differentiates us from our competitors.

Okay.

Thank you, Tony.

I guess we have come to the end of this call.

I would like to conclude this call on a personal note.

First, I would like to thank all of you very much for the interest you have shown in Deutsche Bank and for the coverage of Deutsche Bank.

I have worked with you now for more than six years.

I have always enjoyed working with you.

And I appreciated your questions, sometimes also your criticism.

I would like to say perhaps there was a 10% of that criticism which I didn’t enjoy that much.

But 90% I greatly enjoyed.

I hope you feel that we have responded well to your information requests, to your -- also to your comments and remarks.

I think that we have massively improved the material which we provide to you during those six years.

We developed a concept of financial transparency.

And therefore we have to live up to our promises as to financial transparency.

I wish that the same confidence you had in me you will now give to Tony.

And I know from him that he takes the work with you very, very seriously and it has a key priority in his portfolio.

So I thank you once again.

I thank you very much.

And I wish all of you the best in the future.

And perhaps whenever we talk about -- I am interested to know what you think and I will follow your reports.

And so anyway, I am on the mailing list, on Wolfram’s mailing list also on a going forward basis.

So, thank you very much and all the best to you.

Thank you.

Goodbye.

Ladies and gentlemen, the conference call is now over and you may disconnect your telephones.

Thank you very much for joining.

Goodbye.