Deutsche Bank AG (DB) 2007 Q1 法說會逐字稿

Good morning ladies and gentlemen.

This is the Chorus Call operator.

Welcome to the Deutsche Bank analyst meeting.

[OPERATOR INSTRUCTIONS].

We will join you now into the analyst meeting with Dr.

Wolfram Schmitt, Head of Investor Relations.

Yes, thank you [Jan].

Good morning and welcome everybody to Deutsche Bank's first quarter call.

I trust by now you have all studied our earnings release, started to read the interim report and the financial data supplement, and you should in front of you the presentation slides to which we shall refer to in this presentation.

If this should not be the case with anybody please go to our website as all documents are easily accessible there.

Let me reminding you that the legal disclaimer at the end of all documents is part of our communication, but I think I save all our time by asking you to read it yourselves.

I will not read it to you.

And with that, with no further ado, I would like to hand over to Tony di Iorio.

Tony is your host today and he will take you through our first quarter numbers.

Tony?

Thank you Wolfram and good morning ladies and gentlemen, and thank you for participating in our call.

Before I start, I am going to start the Powerpoint slides, use those as a guide that are on the website.

But I'd first like to remind everyone this is our first quarter reporting IFRS results.

We explained the effects at the April 19 workshop.

And as we indicated there we have also restated or converted the comparable periods of 2006.

You turn to page three you can see the summary of our results, which are record results for first quarter.

Revenues, incomes before taxes, then net income all up more than 20%, with net income EUR2.1b, cost/income ratio down as you can see, and our ratios for RoE and EPS are up.

This quarter was much more challenging, with equity market volatility, significant corrections in emerging market equities, credit spreads widening substantially and dislocations in the U.S.

mortgage market.

In these conditions, our business model has proved to be resilient and we are proud and happy to be reporting outstanding results.

One comment -- two comments I'd like to make.

If you look at EPS, it is up at a higher rate than our net income.

And the simple explanation there is that our diluted shares were reduced.

As we indicated at the workshop on IFRS, there were certain contracts which are considered -- hedges of our own shares that are considered equity instruments under IFRS, and we said we would restructure them.

We did and that had the corrolary effect of not only increasing equity, but also reducing the diluted earnings per share.

We turn to page five, you can see that our income before taxes is up 22% to EUR3.2b.

Just remind you that in this number there is EUR305m approximately of profit from our corporate investment activity.

And that is a result of both the sale of alternative assets, principally FIAT, which we reported a gain of EUR128m.

We've now liquidated our entire position, remaining position in FIAT.

Last year we had an equity pickup of almost a comparable amount on our Eurohypo stake, EUR131m.

In addition to that, we had an equity pickup on an investment in Interhotel of just under EUR180m.

Turning to page six, you can see our net income up by 29% to EUR2.1b.

And this reflects a 29% increase.

Our effective tax rate for the quarter was 33%, which is down from 37% in the first quarter of last year, and that effect was about EUR125m.

The reduction in tax rate would have added about EUR125m to the net income.

For the full year 2007 our guidance is a tax rate of around 34%, and on a mid-term for years after 2007 we would look for the rate to be in the range of 33% to 35%.

Turning to revenues on page seven, our revenues for the quarter EUR9.6b, 20% increase.

And this reflects about EUR200m increase over the prior year from corporate investment activities plus about EUR200m in revenues from our acquisitions.

I should also mention that in looking at our results relative to our peers, and this would apply both for revenues and expenses, we are a euro reporting entity.

To the extent that we have revenues and expenses in America, with the weakening dollar there is a negative effect on our euro revenues and, of course, a beneficial effect on our expenses.

Page eight, non-interest expenses increased by 17% to EUR6.3b.

This is helped somewhat by the FX effect I just mentioned.

Compensation and benefits came in at EUR4.3b, an increase of EUR700m, and that reflects not only increased accruals for performance compensation in line with the improved results, but also an increase of just over EUR60m of comp for acquisitions.

And about EUR200m for the combination of accelerated equity compensation under the accounting rules for employees eligible for early retirement, plus an adjustment for social security on previously accrued REUs as a result of the increase in the share price.

Looking at non-comp, there is an increase of EUR200m, approximately, to EUR2b, but that includes EUR120m for the consolidation effect -- first-time consolidation effect on acquisitions, about EUR54m of impaired goodwill in our Corporate Investments business.

And that, by the way, is the balance of our goodwill in Corporate Investments, so we now have none left.

And about EUR50m for the consolidation of private equity investments, where we hold more than a 20% stake that under IFRS requires consolidation.

Absent the items I just talked about in non-comp, the increase over the prior year would have been approximately 3% in the non-comp, so maybe EUR50m or in that range.

Turning to the next page, you will see the effect on our efficiency ratios.

The cost/income ratio at 66% is the lowest we've reported for several years.

Our compensation ratio is 45%, and this absorbed the effects that I mentioned on the accelerated amortization.

By the way, the REU amortization is a one-time effect each year in the first quarter when we grant the new equity, so that is now behind us.

And this would have been expense that we would have recorded over the vesting period in most of the units, that's over four years.

Our non-comp ratio came in at 21%.

Let's turn to the segment results, but before I discuss these, I want to talk about reporting -- segment reporting standards.

In November of '06 the IASB approved a new accounting standard for operating segments called IFRS8, and recommended early adoption.

IFRS8 basically permits the reporting of segments on a management reporting basis, even if that's different from what the strict IFRS accounting would be.

In our April workshop, and in our transition report for conversion to IFRS, we indicated that we would early adopt IFRS8.

And we made this decision for several reasons.

First, it's the way we steer the businesses.

Second, it permits the reporting of segments consistent with the way we have reported them for five years, so that helps you, looking at trends.

It's something that other German companies, which previously reported under U.S.

GAAP are doing.

And finally, it was recommended for adoption by the EU by two different accounting bodies that advised the EU.

However, IFRS8 has not been endorsed by the EU, and we learned after the workshop that the vote on endorsement has been deferred probably until no earlier than September of this year.

We are required to report both semi-annual and annual results under EU endorsed accounting standards.

Therefore, if the standard is not endorsed by the second quarter, which we don't believe it will be, we will have to disclose segment results on both an IFRS8 basis, the same as we're doing in this quarter, as well as under the old standard, which is IAS14.

The disclosure under IAS14 will not result in a redefinition of our segments, will not change Group consolidated results, but it will involve reporting in business segments certain items currently reported in consolidation and adjustments.

To comply with the EU requirements, which we'd have to file the results with the company register, we will do it under both bases.

We wanted to make sure that you understood this now so that when we publish our second quarter results, there would not be confusion.

We will continue to speak to the IFRS8 results in this conference call, as well as in future.

We do believe that ultimately, IFRS8 will be endorsed by the EU.

That aside, let's get into the results and talk about what happened.

On CB&S, page 11, you can see we've produced record results, EUR2.180b of income before taxes, which is an increase of 10% or more, just over EUR200m over the prior year.

Our cost/income ratio came in up slightly, but that absorbed a significant portion of the accelerated amortization and that I mentioned to you earlier.

We had record results in sales and trading in both equity and debt.

And if you look at our revenue to risk efficiency, the relationship between our daily revenues in sales and trading and our VaR, you would see that we've shown a slight increase over the prior year.

We've monitored most of our peers, and they have shown a decline in this same result.

Turning to page 12 on debt, we have record revenues in debt, EUR3.355b, up 20%, and if you look on the right side, you'll see the areas.

Our credit businesses had strong increases over the prior first quarter.

This came from favorable market positioning, and from increased distribution of products to retail channels.

In this segment, or in this, not segment, in this product line, we also benefited from a trading position which was put on in the late 2006, shorting the ABX index, because our traders felt that the U.S.

mortgage market was probably overheating and was potentially going to soften.

On FX and money markets, we had strong results and we were ranked again number one by Euromoney in FX.

Our commodities business, whilst small, has shown encouraging progress.

Our trading here in the commodities area is still not physical but derivative, and rates was substantial -- the rates businesses were substantially flat with the prior year as margin pressure builds, continues to build in the flow products.

We turn to sales and trading equity on page 13.

We show an increase of 11% to EUR1.7b.

It's up EUR167m.

I should mention that in the first quarter of last year, we had very strong profits in our designated equity prop unit.

If you remember, we said those results were just under EUR500m, and we had a decline in the second quarter.

This first quarter, our prop trading results in the designated prop unit ran just over EUR200m, so if you would adjust for those two quarterly effects, you would see that on the non-designated prop, our growth is in excess of the 11%.

The other point I'd mention in trying to compare these numbers with peers, is a difference between how we report brokerage clearance and certain settlement costs in the equity business.

We report them net against the revenues.

Most of the U.S.

broker dealers report them in operating expenses.

The effect of this different accounting is about EUR200m in our case in the first quarter, so our brokerage clearance costs, netted against the EUR1.7b are about EUR200m.

We had very strong results in our equity derivatives business.

As with the debt, we're seeing further synergies with the retail side, both with our own retail distribution as well as white label products for others.

And on cash equities and prime services, we showed substantial progress as well.

Turn to page 14, Origination and Advisory, revenues up EUR17m, 118 -- 17%, EUR118m, with strong results in Advisory, where we showed record results, and high yield and syndicated loans.

Our investment grade issuance revenues were down, but this is compared to a very strong first quarter of '06, and our equity origination revenues were also down, and this was affected in part by a change in the business mix between higher margin and lower margin products, including block trades and [converts] in the first quarter of this year.

GTB, one of our focused businesses, turned in another outstanding quarter, increased income before taxes of 18% or EUR33m to EUR214m over the prior year.

We saw a strong revenue growth in our Cash Management business, and in our Trust and Security Services business.

We continued to make investments in business growth, and this is showing effect across many of our regions, with Asia and Europe up strongly as well as growth we're seeing in the Americas and Germany.

Asset and Wealth Management had reported for the quarter a reduction in income before taxes of 19%, which is EUR45m from the prior year, to EUR188m.

On the positive side, we saw net new money inflows of EUR8b.

The results were impacted by a reduction in performance fees, particularly in our [REITs] business, and lower gains on sale of assets.

We recognized that these results are below the analyst expectations, and that many of you feel that progress is slower than expected.

We still are positive about this segment, and I'd like to just go through some steps that we're taking, and initiatives to improve performance, and many of these were discussed by Kevin and Pierre in our Investor Day in September.

The first challenge we had was to stabilize the asset base, and if you look back over the last three years particularly, in Asset Management, you will see that we went from a EUR42b outflow in 2006, to a net inflow of new money -- that was 2004.

I'm sorry, 2004 we had a EUR42b outflow, to a EUR6b net new money inflow in '06.

We've got initiatives in DWS responding to changes in the market, introducing new products, structured products and mutual funds, increasing our reach in Asia, and continuing to make progress in DWS.

The market timing issue on [Stutter] is behind us, and we're encouraged by that, and that will allow us to continue implementing our strategies in America.

I met with the business leaders in America last month, in April, to review their strategy, and they are committed to proceeding on that.

In the Alternatives business, the second focused business within Asset Management, we've just announced a large transaction acquisition of a terminal company in America to build our infrastructure business, and we're already the largest, or the world leader in real estate asset management, and we look forward to building a strong business in the infrastructure area.

In the Institutional business, one of our focuses there is in the insurance outsourcing.

We've already announced one large mandate, and we have several more that we hope to conclude and announce in the remaining months of this year.

So that's Asset Management.

Those initiatives we expect will show improved progress in that area in the next months.

As far as Private Wealth Management is concerned, as we've mentioned, we're digesting increased costs from new hires.

We mentioned that last year, we've hired more than 400 people, most in the front office.

These are client facing people, which would bring in net new assets, and we've been successful there, and we're absorbing these costs.

However, this is part of our growth strategy, and while, as I said earlier, some of you may feel progress is slower than you would have expected, we're still focused.

Pierre and his people are very focused on their initiatives and they expect to see improvements here.

We also see the effect in this quarter of Tilney, which made a positive contribution to our bottom-line.

Turning to PBC on page 17, results of income before taxes was down slightly from the prior year, EUR9m decrease, approximately 3%, and this reflects increased expenses in our investments in Poland and Asia.

We're happy to report that our acquisition of Berliner Bank is moving smoothly.

The results of Berliner Bank of this quarter were slightly better than expected.

As far as norisbank is concerned, as you remember, we did not acquire a platform, but rather, are building one, and converting them to our platform.

And the quarter, and perhaps other quarters this year in norisbank will be absorbing integration costs.

We can report that as far as norisbank, we were very pleased at how our retention of customers.

We had made some estimates as to what the attrition would be, and we're very pleased with the results.

As far as Berliner Bank, I mentioned earlier, we've picked up 320,000 new clients there, and again, strong retention.

And we've seen customer growth across our platform in Germany, Asia, as well as in Poland and other European countries.

Net new money for the period, the inflow was EUR7b, and we see that as an indicator of future revenues.

If we turn to risk, page 19, you will see the progress on problem loans, which continue to decline.

We're now down to EUR3.1b.

And for the first time we've split our problem loans into two components, and this is consistent with our conversion to IFRS.

[Ralf Leiber], who runs our Risk Controlling Unit, explained at the workshop the difference in definitions.

We continue to report total problem loans because under SEC guidance, that's what we are required to report in our 20-F.

So we didn't want to report impaired loans only, IFRS defined impaired loans during the quarters, and then report a higher number in our 20-F.

So we're reporting, as you can see, the light blue area, or light shaded area, if you don't have color, is our problem loans that are not considered impaired.

Impaired loans under IFRS are those where we expect to incur a loss.

The problem loans under SEC include other loans, where even if we don't incur a loss, we do not expect to collect the interest in principle in accordance with the original terms of the loan.

So we're showing a higher number.

Our coverage is 63% because that's the ratio of allowances to those loans that we believe will need, or use the allowances, the impaired loans, so we're changing that.

The other effect in the quarter is a reduction of problem loans to total loans, and we're down to 1.6%.

That number was 2% in the first quarter of last year.

Turning to provisions, you will see that we had an increase to EUR98m in the quarter, and if you look at the table below the graphs, you will see the components.

In CIB, we still had net releases of EUR20m but that's down from the very high net release number of 72 in the first quarter of last year.

With regard to PCAM, our provisions were EUR117m.

This includes about EUR22m for noris and Berliner Bank.

Absent that number, the provision for the remaining businesses was about EUR95m, up slightly from the first quarter, but about, on average for the prior year four quarters, and this reflects a growth in our loan book, which has also been a focus area that we've discussed with you in PBC, as well, I should say, as in PWM.

Turning to the next page, you can see our growth in RWA, up about EUR10b, producing a Tier 1 ratio of 8.7.

And let me just talk about what dynamics went into these numbers.

As we indicated at the workshop, there were certain derivative contracts that were considered equity instruments under IFRS and not U.S.

GAAP, and we indicated we would restructure those.

And we did and if you look at the change in shareholders' equity in our interim report, you will see that there was an EUR825m benefit for that.

Offsetting that is about a EUR740m debit from [Fares 150] equivalent in IFRS, because we hedged the new REUs that we granted in February of this year, so those two effects about offset each other.

The Tier 1 ratio is up to 8.7, and that absorbed about 26 basis points for the combination of Berliner Bank and MortgageIT.

So we would have been closer to 9, absent those two effects, and we indicated in the fourth quarter last year that anticipating that impact, we slowed down our share buyback program.

In addition to that, we absorbed a EUR10b increase in RWA.

So the 8.7%, given all of these effects that I just mentioned, is a very strong result, and we think creates a base for continued strategic options and growth as we look forward.

Turning to page 22, you can see the effect in the quarter on our ROE and EPS targets.

And in both cases, the graphs report the results under our target definition, and that means that we have excluded from both of these ratios the impact of our gains on sales of assets and equity pickups in Corporate Investments, the significant ones, net of the goodwill impairment.

So net of those two effects, our ROE is at 41%, against a target of 25, and our diluted earnings per share are up 35% to EUR3.88, both very strong results.

In conclusion, and then we'll get into your questions, the first quarter was an outstanding quarter for Deutsche Bank, with increases in all of our key ratios, improvements in all of our key ratios, and delivery against our targets.

With that, I'll conclude, and turn it over to questions.

Thank you Tony, and Ben, back to you.

[OPERATOR INSTRUCTIONS].

The first question is from Mr.

Michael Rohr of MainFirst Bank.

Please go ahead sir.

Yes, hi, good morning, it's Michael from MainFirst.

I do have a couple of questions, of course, starting with the Asset Management performance there.

We saw portfolio fund management revenues in AM down 8%, year over year, while the Wealth Management had a pretty good performance, up 22% there.

Could you please again clarify what caused the decline in Asset Management, and also what mainly influenced the sharp rise in the cost/income ratio towards 81.5% in the first quarter?

The second question, I presume that's a pretty easy one, on the U.S.

dollar effect.

You said that it affected both revenues and costs, but if you can just give us the net effect to the Deutsche Bank Group.

And also a very specific question on the current situation we see at the exchanges on [Altana].

There has been a pretty strange and adverse development on the shares, on the lending about this stock and uncertain derivative positions.

If you could comment on this, simply because you are that strong in the equity derivatives business, whether this might have had an impact in the second quarter of this year.

And well, this finally concludes all my questions.

Thank you.

Okay, let me just sort something out here, and get to your first question.

First, as far as Asset Management and the performance fees are concerned, let me just whip through something here.

We had a reduction of just under EUR100m in the Asset Management revenues, and that's a combination -- from the prior year, relating to both performance fees and gains on asset sales.

In the first quarter last year we had strong performance fees in our real estate funds, as well as sales of assets, and this year, we had lower.

As we mentioned last year, including in the fourth quarter, because we had very strong results in the fourth quarter in those areas as well, performance fees are an integral part of the business.

That's why we're in that business, but they are lumpy, and do not come in at a steady pace.

Absent those, that effect, we had an increase in revenues and asset management apart from that.

With regard to PWM, the effect that you're seeing is beginning to show benefit from the increase in our investment advisor force, and therefore on the revenue side you're seeing an improvement there.

However, it's also manifesting itself in the cost base, as it does take some time to start up for these investment advisors to be producing assets, and therefore revenues, number one.

And number two, what we're seeing in the first quarter this year is a full quarterly effect of hiring that took place in later quarters than the first last year.

So with Asset Management, the issue is performance fees and asset gains, which are lumpy, but are part of the business.

I should add that we probably see a decrease in total performance fees this year, in real estate, but a return to a higher level in '08.

As far as the expenses, one other thing I should mention is in Asset Management, we also had an effect from the acceleration that I mentioned earlier of the REUs.

Okay.

As far to the U.S.

dollar impact, I don't have the net effect on the bottom line, but on the revenue side, it's a higher effect -- would be a higher effect than on the expense side, so we probably see an increase in revenues from 19 to perhaps 22, I think 22% on -- without the effect of the dollar, and expenses would have been slightly below that.

On your final question --

Can I take this, with your permission?

Yes.

Michael, you asked on a specific name, on a specific trade in Germany the second quarter.

We would like to stick to our policy not to comment on single client names or single trades, and in particular not on the second quarter, because this call covers on the first quarter.

Okay, sure.

Yes, absolutely, no problems.

It just seems to me that the situation is just pretty strange, and maybe if you had some clarifying comments overall in general.

Maybe just one final add-on to the asset management, is there any kind of guidance you can give us in terms of the quarterly run-rate you'd expect in terms of performance fees, or in terms of overall revenues from the portfolio fund management side on the Asset Management there?

Yes, that's difficult, Michael, because the --

Yes, I know.

I know, and therefore you asked your question!

But we appreciate that.

We enjoy tough questions, although easier ones are appreciated as well.

We -- I don't think we're in a position to forecast that or to give a forward-looking statement with regard to that as well.

But thank you.

Okay, thank you.

The next question is from Mr.

David Williams of Morgan Stanley.

Please go ahead sir.

Yes, good morning.

I'd just like to ask you about the U.S.

mortgage market.

Clearly you did well in the sub-prime arena, and avoided any real problems there, but could you give us an update on MortgageIT, and specifically, is it making a positive contribution into the Group?

And given I understand some of the liquidity is dried up in the U.S.

mortgage arena, including the [altes], just what business level is it running at, compared to your expectations?

Obviously you announced the acquisition as before the turnaround in the mortgage market.

And just then a small second question.

In the loan products in the corporate bank area, you talk about the increase coming from sales of equity from restructured leveraged loans.

Presumably that's a one-off effect for this quarter and we shouldn't expect any more of that in future quarters?

Thank you.

Okay, David.

First on MortgageIT and the sub-prime effects, we're very positive about MortgageIT and we see it as a very strong long-term acquisition as well as short-term for us.

As far as our expectations are concerned, because of the softening in the U.S.

market and the decision that we made to even tighten further our credit standards, we had very tight credit standards but we've tightened them further, we see production softening from what we had first anticipated.

I should put this whole business into context though, and I don't mean to minimize its importance or the strategic commitment we have to it.

But our entire residential mortgage back-business, and I think Joe Ackermann might have cited this number in one of his presentations recently, is probably below 2% of our total revenues.

The sub-prime revenues were less than -- were about six tenths of a percent in prior years.

So while it's an important focus area for us, and while we believe we've made the right decision with MortgageIT, it's still a small component, and we see it growing.

So we see some softening in production, and we believe that that is prudent rather than be aggressive at this time in the market.

We also see the developments as providing opportunities for us.

And those opportunities will come in the secondary market activity, as well as with origination, as other originators may not have the ability to keep volumes up as time goes on, so that will be a good positioning for us.

With regard to loan products, the games there, I wouldn't say are one-off, but again, they're not consistent.

It depends on what's happening with the market for the -- what we've -- the equity we're holding on restructured debt, but -- so that's -- I'd look at that as an effect in the first quarter, but I don't know when we're going to see it again, or how much.

Thank you.

You're welcome, David.

Thanks David.

The next question is from Mr.

Stuart Graham of Merrill Lynch.

Please go ahead sir.

Oh hi, it's Stuart from Merrills.

I have three questions please.

Firstly on this EUR200m accelerated staff cost, how should I think about this?

Is the 45% comp ratio for Q1 how you imagine the Group, or do I take the 45% minus the EUR200m as your run-rate, or is that baked into that 45% because you're expecting lower accruals during the rest of the year, is the first question.

The second question is on acquisitions.

If I took your, I think you said, EUR200m of revenues, EUR180m of costs, EUR20m of provisions, that means acquisitions contributed zero in Q1 and you were talking about EUR300m of pre-tax profit for the full year by '08.

So what's going on?

Were there lots of start-up costs, one-off costs or are the acquisitions just not delivering what you thought they would?

And then the final question is on the ABX short.

There were rumors in the market that you made as much as $500m on that position.

I wonder if you want to comment upon those sorts of figures?

Thanks.

Okay.

With regard to the REU, our target for the year is to stay in about the same comp ratio that we've reported in the first quarter.

So -- and we do use comp ratio targets to adjust our bonus accruals and other comp expenses, so I would assume, for your purposes of looking at us, that 45 in that range is our target for this year.

Okay.

With regard to the acquisitions, your calculations were correct.

This quarter was reflecting integration costs, particularly on norisbank, and we would see those continuing for this year, and that was something we anticipated.

They may come in a little bit higher than we thought, but it's not a material effect with regard to the whole firm, but those are necessary, and we didn't acquire it for the results in 2007.

With regard to MortgageIT, as I said earlier, we see some softening there, and we would not -- we think it's prudent to continue softening.

So for this year, I don't want to forecast what the impacts are, but we will not have a great contribution, or a high contribution, from the acquisitions.

That said, we think that all of them are strategically important for us and right, and we anticipate that the effects in 2008 and forward would be as we anticipated.

Again, norisbank and Berliner -- Tilney and Berliner Bank came in a little bit stronger, but the size of the difference is still small.

In terms of the ABX short position, I don't think we would disclose what that effect is, but the number you cited is far in excess by multiples of what the result was.

Could I just ask that question in a different way?

In the past you've said that property is about 10% of your debt sales and trading.

Could you give us a feel for what it was in the first quarter?

It ran maybe a little bit higher than that, but stayed within -- our target -- our stated objective is to stay within the 10% to 15% range across both debt and equity as a percentage of sales and trading revenues.

And we were in that range in both cases.

Okay, great.

Thanks.

A little bit higher than 10 on the debt, so okay.

Thank you.

You're welcome, Stuart.

The next question is from Mr.

Kinner Lakhani of ABN Amro.

Please go ahead sir.

Yes, good morning.

Just a couple of follow-ups actually.

Firstly on the Asset Management business, clearly some outflows coming through in the America side of the business, having had two positive quarters in the second half of last year.

If you could perhaps provide more information on that?

And secondly, in terms of the impact of the norisbank and Berliner Bank acquisitions on the P&L, is that roughly the same numbers as the impact on the Group, basically?

And would you mind just going through those numbers again, because I think I've missed them?

Impact on the P&L and the Group --

I.e.

revenues, costs, provisions, basically.

How much are they adding in the first quarter?

Okay.

With regard to the asset flows in America, a lot of that, my recollection is that there was one fund, I believe it was a closed-end fund, that we were the managers and the board changed -- the [Korea] fund.

The board of the fund changed investment managers to a different firm or they went to a different firm.

So a lot of that outflow was due to that incident, or that effect.

And the rest of the business is we have some fund offerings this year.

We had some last year and we have some more this year.

And we hope that -- we expect, rather, that those will show positive results.

With regard to Tilney -- norisbank and Berliner Bank, the effects on the P&L were roughly flat, with improved results in Berliner Bank and integration costs producing a small loss in norisbank, but that's part of taking on an acquisition.

The net effects were probably 100 on the revenue line in combination and then about the same number, obviously, on the provisions and the non-interest expenses.

Thank you.

You're welcome.

The next question is from Mr.

Jeremy Sigee of Citigroup.

Please go ahead, sir.

Thank you very much.

Good morning.

Could I ask you to talk a bit more about the cost of the operations in PBC in Poland and India, either telling us what the quarterly run rate of cost is in those two locations or, alternatively, telling us how much of the year on year increase is due to those two?

And could you maybe talk a bit about the P&L?

I'm assuming those are both loss-making at the minute.

Could you talk about the extent of that and also the trends, whether costs are still going up in those areas?

So that's that.

The second question that I had, which I'm probably going to regret, but I was going to ask you just to talk a little bit about the movement in diluted share count, the slide you provide at the back of your pack, and whether we should expect any of those positions to reverse and the share count to go back up again in the second quarter.

With regard to Asia and Poland, I don't have the run rates here, but I can talk about the trend.

On a net basis, those are still not producing top positive results.

We anticipated that before we started the investments.

In Poland, we've got two basic businesses.

And one of them is a longer-standing business, the normal, commercial, retail banking, and then we have some loan production business.

And they're both progressing well.

In India, principally, we're showing positive asset flows as well as customer growth, so our investments, we believe, will show good results as they come in.

That said, we're still seeing continuing investments and we're fortunate that we have a very strong PBC business in other parts of our geographic range.

And so we believe that it is important to build and, with strong results in Europe particularly, we have the profits to fund that building.

So we see additional expenses in both Poland and Asia, for example, but we think that that is smart to do.

I hope you don't regret the question on EPS, but if I draw your attention to the dilutive effect line, you'll see a drop from 53 to 21m shares.

And a lot of that has to do with this restructured derivative position that I mentioned.

And does it stay at that 21m level, so if we roll into Q2, Q3 --

I don't know what the effect is going to be going forward, but what I can tell you is the contracts that we've restructured will not have an effect any further, because they've been restructured now, so they're derivatives under IFRS and not equity transactions.

Okay.

Sorry, can I just come back on the Poland and India thing?

I guess what I was looking at in PBC, there's this EUR100m year on year increase in the cost base.

Now, obviously, a chunk of that, and you've quantified it, is acquisitions and consolidation changes.

I was just trying to get a rough idea of how much of the rest is Poland and India.

Is it single-digit millions, or is it into the double digits?

Anything I tell you off the top of my head -- I'm prepared for a lot of other questions, but that one I don't have the data here.

Maybe what we can do is Wolfram [inaudible] talk to you offline.

Okay, thank you very much.

[Call the office] [inaudible], Jeremy.

Very good.

Thank you.

Thanks.

Next, please.

The next question is from Mr.

Kian Abouhossein of JP Morgan.

Please go ahead, sir.

Yes, hi.

I've got a few questions, unfortunately, one coming back to --

Kian, we can't really hear you.

Can you speak up?

Is that possible?

Yes, can you hear me now?

Excellent.

Perfect.

Yes, hi.

Yes, just a few questions, one coming back to share count, unfortunately.

FAS 150 shares, could you tell me how many shares you have hedged under FAS 150 and how do I see these shares in your share count calculation on page 25 of the presentation?

Secondly, AWM, you make about 60% of your 2008 pre-tax target of EUR1.3b.

Just trying to understand how do you compare between your target of asset management and PWM asset management [800] TWM or PW, EUR500m?

How were the weaknesses?

And if you could also give, basically, some indication of how Alex Brown is indicating -- is performing.

And thirdly, looking at your mortgage revenues, you mentioned the 2%.

I'm quite interested in understanding what this 2% means.

Does it include RMBS securitization business?

And in particular, how do you see RMBS developing following the sub-prime correction?

Thanks.

Okay.

On the FAS 150 effect, if you look in our interim report, you can see on the consolidated statement of changes in equities, page 19, that -- you'll see an item there, it's equity classified as obligation to purchase shares, and there's an item called additions.

And that's EUR742m and that's the shares.

We hedged somewhere in the range of probably EUR800 to EUR850m, I think.

The number of shares granted is shown in the 20-F and that was over EUR1b in principal face.

Given that there'll be some forfeitures and other effects, we don't hedge 100% of that, so it's somewhere in that range.

So if you divide EUR742m by somewhere just under EUR100 per share, that will give you a sense of how many we hedged.

As far as the AWM segment, I've spoken to our guys recently in both asset management as well as PWM.

They are working towards achieving the forecast that we indicated in terms of the 2008 vision.

And we're monitoring and revisit that with them on a current basis and so they're continuing to work in that direction.

With regard to the mortgage revenues, that is all of RMBS.

It's all of RMBS U.S., or --

I think it's globally RMBS.

Most of it, Kian, is U.S.

Okay.

Alright, thank you.

It is a global number.

As far as PCS is concerned and Alex Brown, I think I answered [this].

Our guys are still working [towards the guidance] that they articulated.

And then just one more question.

When you say 2% revenue from RMBS, that's the securitization ex-origination or that's the whole wallet of RMBS that you're looking at against Group revenues?

It's the whole wallet.

Okay, thank you.

You're welcome.

Thanks, Kian.

The next question is from Mr.

Ivan Vatchkov of Credit Suisse.

Please go ahead, sir.

Good morning.

I was just following up on two topics, I guess, the dilution effects and Asset Wealth Management.

On Asset Wealth Management, do you anticipate that this year there is a possibility of you having revenue growth slower than cost growth because of the additions of headcount that you were referring to?

Certainly, the operating leverage in the first quarter appeared to be negative.

If you could just comment on where you see that, potentially, reversing.

And secondly, on the dilution effect of the new shares and, I guess, capital in relation to that, some of your U.S.

peers have policies of intentionally offsetting any potential dilution from share awards via buybacks.

I just wanted to hear your thoughts on that in terms of how we proceed into '08 and '09.

And you mentioned before that the priority of excess capital distribution would be probably dividends, potentially acquisitions and fine-tuning through buyback.

Can we anticipate that, unless your Q1 breaches 9%, you won't be looking at buybacks, or is that too specific a rule?

Thanks.

Okay.

On Asset and Wealth Management, the current plans that our business guys have submitted would show a higher growth in revenues than expenses.

But, of course, some of the revenues in the Asset Management business are lumpy and they're anticipating them later in the year.

But their forecasts are -- my recollection is for a higher growth [inaudible].

Let me go back, there.

I think we have to focus on margins, because, to the extent that there were high performance fees last year and I said earlier will probably not be repeated, so if we look at our margins in terms of revenues and expenses, so we -- I anticipate that, in Asset Management, we may see some decline over the very high portfolio fees from performance fees last year.

But notwithstanding that, they were looking at improved margin.

With regard to dilution, we wish we could buy back shares to hedge our equity compensation.

Under German law, we're restricted in several respects, both in terms of the number of shares we can hold in treasury as a percentage of our outstanding shares and there's also some rules on the delivery of shares at prices different from current market values.

As a result of those requirements under German law -- don't want to go un-hedged, because we expect and we anticipate and hope share prices will increase and if we had to wait till the vesting date to go out in the market and buy shares, we'd be buying them at much higher values than the grant prices.

And so we do hedge them.

Because we cannot hedge them by buybacks, we do them through these derivative contracts.

Under the accounting rules, though, the effect of hedging them the way we do versus the buybacks is intended to be roughly the same because if we bought them, they would be treasury stock, which would reduce our equity.

Instead, the obligation to buy shares reduces the equity and costs are treated the same way.

Regard to capital management, we will be asking for authority to buy back shares at the AGM later this month and we bought back 3.3m during the month.

Some of -- quarter.

Some of those were to fund the share buybacks, because we used those to deliver against a forward sale.

That's how we do the [inaudible] hedges.

But we still look each quarter at the trade-offs on dividends.

Dividends, we're anticipating and we have reflected in these numbers an accrual against our diluted earnings per share at the 37% that we indicated.

That's from the, not the target definition, but the reported EPS.

And so we look at all the options, Ivan, and we decide depending on our plans and where we see things at that time, whether we will buy back shares or husband the resources for higher dividends or organic or acquisition growth.

Okay, but, in terms of your intention, I know you're severely restricted under accounting and legal restrictions, but in terms of your intentions, looking a few years out, you wouldn't anticipate that your diluted EPS -- diluted share count would be growing consistently.

You would aim to try and hold that growth back via the options that you have available.

Is that correct?

I'd rather not forecast what that number is going to be because there's many factors that will play into that.

Okay, thanks.

Thanks, Ivan.

The next question is from Mrs.

Fiona Swaffield of Execution.

Please go ahead, ma'am.

Hi.

Just some more questions, firstly on the risk-weighted assets growth.

Could you just reiterate what was the cost of the new acquisitions in the risk-weighted assets and then just talk about your plans for organic growth in the balance sheet, because I think, underlying, the growth isn't that strong in risk-weighted assets?

And then, in terms of Asset Wealth Management, is it that the real estate business has come off a very high level, so that the current level in the first quarter number is more normal?

Or could we get more lumpy performance fees over additional quarters, which is why you haven't really changed the EUR1.3b pre-tax guidance?

Thanks.

Okay.

Fiona, as far as RWA is concerned, we have added, a combination of Berliner Bank and MortgageIT, just over EUR2.2b of RWA.

So I don't know if that answers the question.

The combination of those two on the Tier I ratio, including the impact of the goodwill and the intangibles, is just under 30 basis points, as I said earlier.

The rest of the growth in the RWA, there's EUR10b, about EUR6b of that is in CIB, with a lot of that coming from the growth in our derivatives business as well as in our fixed income prime brokerage business, which was again a focus area that we've established, that we've articulated in the past.

And we're seeing the effects of that focus.

Apart from that, we've had just under EUR1b of RWA growth from PWM, on the margin lending, and then there's again under EUR1b relating to core PBC businesses.

With regard to the performance fees, I don't know what the levels are going to be for the rest of this year, and those are difficult to forecast.

The business does believe that from time to time there will be some performance fees.

How much would be this year is dependent on realizations.

That's going to be a decision that they make in managing the assets.

Thanks.

And the other thing is could I just check on the early retirement amortization?

Is that something that's ongoing because of the way that you're doing your share-based compensation, so we should expect that to be an ongoing feature, the IFRS2 charge, every first quarter?

It's not something you can change, if you change the way you structure the share awards.

That's correct.

Okay, thanks.

Thanks, Fiona.

The next question is from Mr.

Jon Peace of Fox-Pitt.

Please go ahead, sir.

Yes, hi.

Morning.

I've got two questions.

The first one is just on acquisitions.

You often show us a slide which shows the number of acquisitions you've made in different business lines globally in the recent past.

And I just wondered, as you're thinking forward from here, what are your strategic priorities for acquisitions?

Which business lines or geographies would you prioritize for further in-fills?

The second question is just on the target that you gave us at the Investor Day, EUR8.4b in pre-tax profit for 2008.

Mr.

Ackermann said at the time that he hoped it was a conservative number.

I believe he's repeated several times since then that it's a conservative figure.

And I just wondered whether you had any plans to revise that or what you thought a more realistic figure might be.

Thanks.

Okay.

Jon, as far as acquisition priorities, I think they continue to be the same as we've always said.

With that, let me just review the primary areas.

I think we look at filling out our product [array] in CIB.

So we would look at things in the growth areas that we've stated, which would be commodities, would be other -- filling out product areas in our derivatives and risk businesses, perhaps even expanding geographically.

And there may be others that I'm not mentioning that come up and, opportunistically, we would pursue.

As far as PCAM is concerned, we always look at things with regard to our retail business as well as AWM.

So we -- the priorities look to be the same.

As far as our target, I am an accountant and EUR8.4b is our target and our vision.

And I think I would not characterize that as either aggressive or conservative, but rather as our stated target.

Okay, thanks.

Thanks.

Is there more questions?

The last question is from Mr.

Peter Thorne of Helvea SA.

Please go ahead, sir.

Thank you.

In October last year, you said that you had a revenue gap in investment banking compared to your peers of EUR900 to EUR1.3b in areas like MBS, commodities etc.

Can you say how you've done in the first quarter?

Have you closed that, or some of it, already?

And secondly, can you maybe give us some indication of the revenue in fixed income, maybe just broad percentages between credit rates and the other categories that you also talked of in October last year?

With regard to the revenue gap, the EUR1 point -- the EUR1b or so, and I think Anshu presented this on Investor Day, the two areas that were the largest component of that were the MBS and the commodities.

Commodities, as I said earlier, is still a small part of our business.

We're looking to build there organically as well as potentially through strategic acquisitions.

And we're still focused on that.

How much we've closed that gap relative to our peers, I couldn't estimate here.

The other areas are prime brokerage, particularly in the fixed income area and in cash equities, and we've shown good progress during the quarter, although there's going to be time proceeding there.

As far as the fixed income growth, we have a very large contribution from credit trading, but we also have substantial revenues from global rates.

And I'd leave it at that, as well as the other areas in debt.

Okay, Peter?

Yes, thank you.

Okay.

As we learned from the moderator, this was the last question.

We close our first quarter conference call here.

Thanks to all listeners and those who participated with questions.

We appreciate your interest and have a good day.

Thanks, Tony.

Thank you.