Deutsche Bank AG (DB) 2008 Q2 法說會逐字稿

Good morning and good evening.

I am Sherrie, the operator for this conference.

Welcome to the second quarter analyst conference call.

(OPERATOR INSTRUCTIONS).

At this time I would like to turn the conference over to Dr.

Wolfram Schmitt, Head of Investor Relations.

Please go ahead, sir.

Yes thank you, Sherrie, and good morning to everybody.

This is Deutsche Bank Second Quarter call.

Earlier today we have issued our earnings release, our financial data supplement, the full interim report.

and I trust you all have in front of you the set of PowerPoint slides which will support this call.

I have to draw your attention to the legal disclaimer as usual regarding forward-looking statements and I trust you have read them all carefully and therefore I don't have to read it out.

It's an integral part of all our disclosure documents.

It's my pleasure to introduce Anthony di Iorio, CFO of Deutsche Bank, who will in good tradition brief you on this call on all the financials.

But I have to add that for all of us in Deutsche Bank it is a very special call because it's Tony's last analyst briefing, due to his retirement end of September, as you all know.

Tony, on this note let me hand over to you, the air is yours.

Thank you, Wolfram, and good morning everyone and thank you for joining us on the call.

This morning we announced our third -- second quarter results.

And if you start from the PowerPoint presentation, I will flip through these charts and then will be happy to answer questions when we're done.

Good performance, income before taxes of EUR600m net income of a comparable amount to diluted earnings per share.

The highlights of the quarter's performance are probably in CB&S, where we reported at EUR300m loss for the quarter, despite the fact that we took mark-downs of EUR2.3b, which we will discuss in a little more detail in a minute, and we believe that that result shows the strength of many of our underlying businesses.

The stable businesses, GTB and PCam businesses, reported income before taxes of EUR900m, indicating the results of our investments in those businesses and the resilience of those businesses even in difficult markets, such as we've experienced.

Corporate Investments had income of EUR300m.

Some of that was from the sale of Industrial Holdings.

Some of it was from dividends.

The second quarter is the normal height of the dividend season here in Germany, and it also has some mark-downs on our option position to buy more shares in the Chinese Bank (inaudible).

Capital risk and liquidity show continued strength, our Tier I ratio at the end of the quarter was 9.3%, well above our 8%-9% range that we've targeted.

There were significant reductions in exposures, and we'll go through those charts shortly.

We still have ready access to the funding markets.

We've raised over EUR40b in the first half of this year in the capital markets, with debt with a maturity of greater than one year, which stabilizes our funding source.

And we've reduced our balance sheet by EUR159m from a restated number in the first quarter, adjusted from some net-downs that we had not been taking previously, but I'll describe that in a second.

If you turn to the next page you will see the summary, and I won't spend too much time on this.

Revenues were down, but that's after the EUR2.3b of mark-downs.

I want to focus for a minute on the tax line because the tax line was a small net credit, and this is due to three factors.

The first is the geographic mix of our earnings.

Because of the mark-downs, we experienced losses in some entities in the United States.

The tax rate in the United States is the highest of all of our geographic tax rates, so that reduces our global rate mix.

In addition to that we had a benefit after the successful resolution of some pending tax matters which we had provided for and we released what we had provided.

And finally we had a negative effect because of the increase -- a decrease in our share price, we released some previously recorded tax benefits on the deduction from the amortization of our equity compensation.

So despite that charge in the quarter, the other two factors reduced our tax rate to a small negative.

If we turn to the next page you will see the -- where we took the mark-downs of the EUR2.3b and what we did with exposures during the quarter.

And I'm not going to read each of these because we will go through them as we go through the businesses.

But on the exposures that we are going to show you in detail we had EUR2.0b, of which EUR200m was in our Leveraged Finance portfolio and the balance was in our Sales and Trading businesses.

In addition to that we had about 100 - just under EUR100m of write-downs on some European RMBS securities that are not shown on this chart.

And we also took an impairment, this is the third straight quarter in which we've recorded an impairment on available for sale securities related to our consolidated conduits.

We've talked about this in the past and this charge has been reflected in the equivalent of other comprehensive income.

We deemed an event to have occurred and therefore transferred that from our Equity section through the P&L and that was about EUR200m.

If you go to the next chart you'll see our net revenues are down 39% to EUR5.4b, and a lot of that has to do with the mark-downs and with the strength continuing in our stable business.

If you go to the next chart which looks at expenses, and I want to spend some time on this.

Our expenses are down 23%.

And if we look at the compensation number this is driven by lower performance during the period.

And as we've indicated at prior meetings, we look and true up on year to date basis the impacts of the performance and the schemes -- the general accrual schemes we have for compensation.

When we look at accruing incentive compensation we look at two primary factors.

The first is segmental performance, and we accrue at different rates in each segment consistent with compensation levels in the market in our different businesses.

But we also look at Group performance.

And if overall Group performance is not at a standard or a level that Management believes is appropriate, then we always keep the option of adjusting the segmental accruals.

And we -- the barometer we use to make this evaluation is our overall comp ratio, and you will see later, or in the disclosures, that our comp ratio for the quarter was just over 50% so it's about 50%.

So that's how we approach it and we true that up on a year to date basis each quarter.

Compensation in this quarter -- in the first quarter also included some accelerated equity amortization and we mentioned this.

And this has to do with grants made in the first quarter to individuals who are eligible for early retirement and therefore don't have to provide service for those, so therefore we expense them when granted.

That number was a first quarter event.

We did not have-- We have a comparable number at each quarter but it's those people who in that quarter have reached that early retirement so the number is decreased by a significant amount.

If you look at the dark blue, the general administrative expenses, you will see that likewise that is down, and that's due to a series of factors.

The first is favorable FX movements in respect of the euro.

The second is lower litigation accruals compared to the second quarter last year and the third is cost containment initiatives, and this is principally in discretionary areas.

We have looked at professional service fees, travel, entertainment and similar expenses, and have seen good reductions in those.

In addition there was a charge in the second quarter last year related to the renovation project currently ongoing in our headquarters in Frankfurt, and that was a second quarter '07 event that was not repeated.

There is a small EUR100m shown at the bottom which we have been isolating.

That was a credit in the first quarter for policy holder benefits and claims in respect of Abbey Life, the closed book insurance company that we've acquired in our Global Markets business.

This quarter it was a charge and that has, in both quarters, zero net pre-tax income effect because there's a comparable amount in revenues.

If we look at segment results, you will see on page seven the description of what those results are.

Page nine isn't it?

Page nine, I'm sorry, page nine.

And I'll go through each of the business segments in a minute, but let me just focus on consolidation and adjustments.

We reported a loss of EUR176m there.

The bulk of that loss is due to the true up of our management accounts on which the segments are based to IFRS.

And that number could go up or down depending on what happens in the individual businesses.

If we look at CB&S, CB&S and we mentioned this in our summary, reported a pre-tax loss of EUR311m, but that is after taking, reflecting mark-downs of EUR2.3b.

We saw solid volumes in our Closed Sales and Trading businesses including our Finance business, our FX business and in Equities some of our Cash Equity business, as well as in our Prime Services businesses, and we'll go through those in a minute.

We have lower revenues in Origination and Advisory, including the EUR200m charge for Leveraged Finance.

And we saw substantial reductions in exposures.

Some of our peers have shown the chart similar to page 11 and so we thought we would also include it.

Looking at a comparison of what the pro-forma revenues would be in CB&S, absent the mark-downs.

And as you saw on the prior page, we reported revenues of EUR2.2b, the extreme right bar.

If we were to add back to that the EUR2.3b of mark-downs, net of hedges, we would have had pro-forma revenues of EUR4.4 which is within EUR900m, less than EUR1b from the second quarter last year.

And I want to emphasize the second quarter last year was our strongest second quarter in our history, so we are comparing against a very strong standard.

If you go to Sales and Trading debt.

You will see that our revenues were down to EUR602m for the quarter, and this is where EUR2b of the mark-downs are reflected.

If you look at the businesses that contributed, we have strong results from the FX rates and Money market businesses with strong client flows.

One of the things we're seeing, not only in this business but throughout, and I'll comment on this in Equities in one of the businesses in a minute, has been an increase in market share and a migration of clients to Deutsche Bank from many of our peers that are having or experiencing more difficulties in the markets than we are.

Our Credit business revenues are down and this was due to a reduction in our Structured Credit Business, we took some of the mark-downs in mono-line business against this activity.

And we also -- but however we did see good flow in our Customer Flow business.

Commodities was down, and this is primarily due to trading losses in the U.S.

power market.

Commercial Real Estate is down, we took mark-downs here but we're continuing to reduce the risk.

And in our RMBS this was the largest mark-down area we took about EUR1b, and this has principally been in the Alt-A portfolio.

Many of our peers began aggressively selling down their RMBS positions in the second quarter and we, as others, experienced a mark-down here because of the drop in the valuations in the market.

If we were to go to Equities, you will see that our revenues are down there as well.

Our Equity Derivative business saw reduced activity, and likewise we have a smaller ongoing effect in correlation from the first quarter, much smaller in size, but yet continuing.

Cash Equities, very challenging markets but we see continued growth in North America.

The Prime Services business is the other business where we have seen migration of flight to quality so to speak, or how we would express it, with not only existing clients doing more business with us, but likewise with new clients that we previously had not done much business.

Designated proprietary trading is flat to the second quarter last year.

Origination and Advisory revenues were down.

Our Advisory business M&A volumes down for the quarter, however, we had our strongest ever ranking in announced volumes, number four globally as it's shown on the chart, number two in Europe, Middle East and Asia, and number four in the United States.

So we've maintained and in some places increased our market share albeit the reduction in overall volumes.

Equity Origination we saw the same trend, with declining market values issuance of equities, likewise with the reduction of M&A activity has declined.

We're happy with the performance our Invest Grade debt origination where we've shown an increase in the revenues for the comparable period and we've maintained a top five ranking.

And in our High Yield and Leveraged Loan business, this was characterized principally by the mark-downs we took, although we did show healthy net interest margin offsetting, so we took EUR200m of losses approximately in the mark-downs, but that was offset by just over EUR150m of net interest margin.

Net interest margin has been declining as we de-risk the portfolio, and will continue on that trend as we continue de-risking unless we -- the business comes back to where it was previously, although we believe risk wise in the transactions we are seeing in the market are being structured very differently and many of them are coming from the strategic buyers rather than the financial buyers.

The next several pages deal with our exposures and the progress on our exposures.

These are detailed here but also in more detail in our Interim Report as well as with more extensive narrative than what is here.

The first is CDO subprime exposure.

This exposure and the next one on the residential mortgage backed securities, the data that is shown here assumes the loss we would have if 100% of the underlying assets defaulted and there was a zero recovery from that default.

As you can see our gross exposures are down and our hedges are about where they were, and they are down slightly as they have been re-adjusted.

So our net exposure is about flat.

To spend a little more time on the next chart which shows our RMBS business and you can see the reduction in the Alt-A portfolio of about EUR1b, that is principally from our mark-downs.

On the CDO book we were able to liquidate positions.

In the RMBS book the liquidations were fewer so the bulk of the change is the mark-down.

As I indicated earlier there was extensive selling in large blocks by many of our peers during the second quarter.

This put considerable pressure on values and that is reflected in the mark-downs we took of about EUR1b in this quarter.

We've monitored this risk very carefully, we're looking to do other things to de-risk, I would mention that there's still a considerable size, albeit lower, and therefore there is basis risk between these positions and the hedges.

Many of our Monoline hedges are also in this area and we'll talk about that on the next chart as to what we've done there.

The Monoline exposure and the Alt-A book you can see has increased from March to June and this would parallel the change in the value of those positions.

And on a total basis therefore we're up.

On a net basis however, we have provided over EUR500m for potential credit impairments on this Monoline activity in the quarter, and we derive these numbers on a fundamental name by name analysis, looking at ratings in many cases there is some very extensive discussions with the Monolines as to their situations and claim paying ability.

And we now have total allowances against this book of EUR800m, of which about EUR700m is taken against the exposures on the left hand side of the chart, the balance is against other Monoline exposures, and if you look at the first comment on the right, you will see that that exposure is an additional EUR2.2b.

In our Interim Report we've included an additional disclosure this quarter for the first time, which analyses this Monoline exposure by rating band, and so I'd reference you to that.

If we turn to our Commercial Real Estate business, on page 18, there's a summary of our traded loans, and you can see that our net exposure or carrying value rather, is down to EUr10.7b.

I do want to add, and make a couple of comments as to comparability for the prior period.

First is in the prior disclosures we did not include exposures in Asia, which we have for the first time here, and those exposures are less than EUR1b - Asia Pac.

In addition to that we had in place some synthetic risk reduction in the first quarter that we did not use, did not put on the table showing the reduction of what impact that would have but we're including it on this chart.

Overall those adjustments would not have changed the trend and we're showing a drop of considerable size on a pre-reserve or pre-allowance basis from EUR16.4b to EUR12b and on a net basis down from EUR14.4b to EUR10.7b.

So whichever way you look at it considerable.

We took EUR543m of additional gross mark-downs during the period, you can see that at the bottom of the chart, and we have some hedges against that.

If you look at the distribution of our remaining exposure, net exposure, you will see that the largest area of exposure we have is in Germany and the reduction has been most felt in North America where we are now down to less than half.

Since the end of June, we've had additional reductions that are not reflected on this chart and will be reporting on those when the third quarter events occur.

We are continuing to look to sell.

I'm sorry, that's Leveraged Finance, not the Commercial Real Estate.

Commercial Real Estate, this does reflect through the synthetics of the others, I apologize for that.

On Leveraged Finance, the next chart, we have had continued reduction here.

These numbers are comparable to the way we presented them in the prior quarter.

You can see that there were considerable sales of EUR7.2b, there are some new commitments being made, and I alluded to these earlier when we talked about the Origination business.

And we've also had some cancellations.

That brings our carrying value at the end of the quarter to EUR24.5b, as I indicated earlier there have been some additional reductions since the end of June which we will report on the third quarter, and these bring our exposure to approximately 50% of where it was at the end of August last year.

So very considerable activity here.

I should add, because there was some questions at the last meeting and some of your reports, you raised the question as to the levels at which we're valuing these comparables to our peers.

Every week we publish a report showing the prior week's sales activity and one of the barometers that I look at that report is on the sales we've made, how close our realized profit or loss is to our unrealized, i.e., our marks, and I can tell you that we've been selling positions through July at approximately our marks and to me that says that a very thorough analysis process, and there is a lot of judgment involved in most of these valuations, are producing results that are comparable to what we're liquidating positions in the market.

In both the Commercial Real Estate as well as the Leveraged Finance, we've included additional disclosures which will show you the industry areas to which these commitments or loans apply.

And I think from looking at that chart, you will see that there is some notable areas that we are not exposed to, some notable industries, automotive for example, and that could make a difference between your estimates as to what these mark-downs or carrying values are and the actual values that we place on them.

Although, the actual values are ultimately determined by what we can sell for in the market and I want to reiterate that the value at which we're selling are at or near with very little difference, our marks.

If we turn to the next chart on the stable businesses you will see that there is continuing solid performance, EUR854m which is up from the second quarter last year, and I will go through these in detail.

First, in terms of GTB very strong trajectory, EUr283m up 15% on our income before taxes from the prior year second quarter, and this has been characterized by growth in our Custody business and our Trade Finance business and we've seen this growth in revenues despite the effects of lower interest rates and the weakening dollar particularly.

We announced in July the acquisition of the Dutch midcap business of being -- coming out of ABN as part of the large three way acquisition there.

And this indicates our strategy of looking for strategic expansion in stable businesses where we see values that will generate positive shareholder return within a reasonable period of time.

If you turn to Asset Wealth Management, here we've had a decline from the prior quarter -- prior period quarter by 17% and this is due to two primary factors.

The first is our fees that are asset based were lower, consistent with declines in deterioration of the markets particularly in the Equity markets and this affects our Mutual Fund business specifically.

And also a reduction in activity in our Real Estate business particularly where in the prior periods we either showed performance feeds which we said were lumpy, and in the current markets those are down, as well as reductions in both the sales of businesses that were reflected in the second quarter last year which we disclosed, one of our Australian businesses, as well as the sale of investments that were held in this business either into funds or into the market.

On a positive side we showed net new money during the quarter in invested assets of EUR8b and for the year to date in the Asset Wealth Management business of EUR15b, and we think that this is a very positive and strong result.

In talking to the people in these businesses, particularly the Private Wealth Management business, we're seeing a flow out of other banks that are currently experiencing problems to a greater extent than we are, and we believe that we have opportunities here to further strengthen these businesses, particularly in the Private Wealth Management arena.

As far as PBC is concerned we have an increase of 11%, EUR328m above -- 11% above the second quarter last year.

Revenues of almost EUR1.5b in the second quarter, and this came from increased margins on both our deposits and loans, but particularly on the deposit side where we've seen active campaigns in our retail branch network raising deposits.

I will show you a chart later where we talk about stable funding and as a bank with a large retail presence, we have opportunities to provide more stable funding in this area.

We've mounted fairly active campaigns here in Germany and we've been very successful, particularly in our (inaudible) business where our deposit flows have been very strong.

We've also seen increase in Insurance Brokerage and a lot of this has to do with some retirement products here in Germany, as well as in our Payment and Account Services businesses, and that's been somewhat offset by a reduction in the Securities Brokerage business consistent with the reduction in the market -- in the market conditions.

As far as net new money here we've seen EUR3b of inflows in the second quarter and EUR7b for the whole year.

If you turn to the next chart you will see what has driven our change in invested assets in PCAM and we're slightly above where we were at the end of the quarter and as you can see on the chart that comes from both negative performance in the market as well as some other activities which had to do with sales of businesses and transfer of businesses.

Modest FX effect this quarter, in prior quarters the FX effects were much stronger, and you can see that the EUR10b of net new money in PCAM again this pertains well we think, for the future and we anticipate continuing net new money coming into the bank.

If we turn to Risk Capital and Liquidity, our provisions for the quarter, and I'm on page 26 here, provisions for the quarter were EUR135m, and if you look at the bottom of the page you will see the business areas that drove that.

In CIB we had a net recovery, though lower than where we were in the second quarter last year of EUR9b -- EUR9m, but an increase in PCAM from EUR124m to EUR145m.

This increase comes from two principle factors.

The first is the growth in our Consumer Finance business and as volumes grow credit costs would grow with them.

And this we saw particularly in Poland which is a key strategic build up area for us, in our credit business consumer credit business there is performing very well, as well as increased credit costs in Spain where we've seen some softening in the market and those are reflected.

If we look at our problem loans on the next page, you will see that under the IFRS definition of an impaired loan, we're down to the level where we were in the second quarter of last year at EUR2.5b.

Our coverage ratio is approximately the same at 65%.

For transparency and for reference we also show on this chart the difference between the impaired loans and the problem loans.

The problem loans are under the SEC definition, U.S.

Gap definition and because we report that in our Interim and 20F Reports, we've included it here for your reference.

If we turn to the Tier I ratio, and this is something that shows significant strength, we've had yet another increase to EUR9.3b -- 9.3% I apologize, with risk rated assets of EUR305b.

And I would mention, as far as our dividend assumptions are concerned we continue to reflect in our net -- in our Tier I capital a reduction for the dividend on a pro rata basis equal to the EUR4.50 that we paid last year.

As I said in the first quarter call, this is not a commitment to pay that dividend, but it is a prudent treatment and in some respects it shows the strength of this 9.3% number because it was not achieved by changing our dividend accrual by other means, so it's something I would reflect on and will be monitoring the dividend as we go through.

The dividend decision is one based on recommendation in the beginning of next year by the Management Board and has to be ratified by the Supervisory Board.

Balance sheet size has been an issue of much discussion.

And in fact we've had reports from many of you raising the question, and we do hear you.

I would like to reiterate that the principle benchmark we use is risk weighted assets and if you look at the first page you will see the achievements that we've made there, but we hear you and we're looking to do some things as well in balance sheet size.

What we've done in this chart, we've shown several things, it's a very busy chart and I will try to give you a high level view of it.

At the end of March of this year we reported assets of EUR2.3b.

Subsequent to March we went back and reviewed the treatments of (inaudible) that we were applying under IFRS.

And we identified additional netting of EUR156b that was possible.

So we want to show the transparency of the number we reported previously to the number that you will see in our Interim Report now.

So the EUR2.305b has been reduced to EUR2b -- EUR2 trillion, I'm sorry I get my millions, trillions and billions mixed here.

The EUR2.3 trillion we reported at the end of March has been adjusted in our Interim Reports to EUR2.150 trillion, and we wanted to show you that bridge so that when you went back into the reports and looked at your models, it was clear that -- what drove that.

However, during the quarter there was some further reduction of EUR159b, most of it coming in the positive mark to markets from Derivatives, but also in Trading Securities and in the reverse repo line.

So from the numbers you were using to calculate ratios previously, we're down EUR314b although only EUR159b of that is due to activities.

The bank has recently asked Stefan Krause who will succeed me as CFO effective October 1, to head a project working with the businesses to find opportunities to reduce the balance sheet further, consistent with our goals of growing revenues and growing solid performing businesses.

And Stefan will report on that to you when he produces his first Analyst call in the third quarter -- for the third quarter this year.

One of the issues we do want to highlight is it is (inaudible) using gross balance sheet numbers, and we have mentioned this to many of you and I know we have not convinced you, but in our persistent effort to make the point, I hope we don't bother you by this, we're going to show you the calculation again.

If you look at the prior page, the fair value of our derivatives as of June 30, was EUR640b.

If you will look at the credit risk inherent in that portfolio, you would see that it's a whole lot less.

There is -- there are legally enforceable master netting agreements that we have available to us.

Many of these trends are derivatives or with exchanges.

Where we have a difference bet -- after netting we do ask our counterparts to provide collateral if we're in a net receivable position.

And we have some of these derivatives from Sovereigns and other public sector [entities].

If we were to adjust for those effects, the exposed credit risk on this portfolio is EUR677b.

I should also add that, in most cases because of the collateral, much of the gross or the net exposure provides funding for other collateral that we can use to hypothecate and raise funding.

So the funding impact and the credit impact of this large mark to market in our derivatives book has a very different risk profile from assets that we or others may carry in other categories.

If we continue on funding you'll see the effects of our fund -- of our stable -- what's happened to our stable funding base and we continue to strengthen it.

Since June of last year, we have transferred substantial amounts of short-term funding, dependence on overnight funding to more stable capital markets and retail deposits, as well as fiduciary balances.

And I've talked about both of the capital markets before.

We've had EUR40b of long-term debt issued so far this year, with maturities medium-term to long-term debt of greater than a year.

And I talked earlier in PBC but somewhat in PWM of the efforts to increase our stable deposit [base].

The next page raises another very interesting phenomenon which has not yet translated itself into equity evaluations.

But if you look at what's happened to our five-year CDS spread, what we can borrow money for.

Our spread, albeit higher than where it was a year ago, is substantially lower than many of our peers at 63 basis points, and we call your attention to that.

That's the end of my prepared remarks.

The highlights here are similar to what was on the first page so I'll stop and turn it back over to Wolfram, and we'll entertain questions.

Thank you, Tony.

And Sherry I will hand it over to you direct.

We will now begin the question and answer session.

(OPERATOR INSTRUCTIONS).

The first question is from Mr.

Michael Rohr of MainFirst.

Please go ahead, sir.

Yes, hi, a very good morning.

Three questions from my side.

First of all in terms of the underlying fixed income revenues, if we adjust for the one-offs that you had in the quarter and secondary fixed income, we are just talking a price percent year-over-year decline, and I just wanted to know, apart from the strong flow business that you had, how much do you think is due to the market situation, i.e.

people seeking Deutsche Bank for liquidity management, hedging and other trades that they need in the current market environment?

Second question which refers to page 12 of your presentation again.

If you could quantify the decline in the structured products revenue that you had and potentially elaborate a bit more on the trend going forward for this.

And how much this might influence the revenue line going forward, although it might be a relatively small item.

And the final question, a more personal view question to you, Tony.

How far do you think are you in terms of deleveraging at Deutsche Bank in terms of balance sheet size, and how comfortable do you feel in the environment right now?

Thank you.

(Inaudible) underlying revenues in fixed income, we think a substantial -- well, we think that there's two basic drivers.

The first is our footprint, the breadth and depth of our relationships, because if we didn't have that then nothing else would happen and nothing else would matter.

So we have a strong franchise, we've said this all along.

There've been some issues and dislocations in the market that have affected the revenues and performance.

But we continue to be convinced that we do have a strong depth and breadth globally by product, by any measure that you would look at, the abilities of our people.

We are seeing increased market share as well.

I wouldn't quantify that right now.

And we are seeing clients migrating to us.

Now, how much of that has to do with leaving where they are, how much of that has to do with our product and our platform, I don't know that I'm -- I can give a reasonable, rational answer to that.

But we are seeing the effect and we do measure the increased market share and we are seeing it.

So I believe your hypothesis that the decline is small, and that's due to a flow of clients we believe, is correct.

As far as the structured business is concerned, we've definitely seen a reduction in that activity.

We're looking to do some things and we believe that looking forward into the future, at least for some time, we'll see more straightforward plain vanilla product -- (inaudible).

We believe that the structured product business is not over, and I believe is founded on some very basic facts.

Bank capital is under pressure.

Businesses around the world have demand for continued funding.

And if it can't come from the banks it has to come from other sources.

And we believe that one of those sources is structured credit, perhaps in a different form from what had been offered structured previously.

Probably a different risk profile and other parameters but we don't see this business as over.

With regard to deleveraging, I don't think we'd want to forecast a number as to where our balance sheet would reach.

There's a lot of dynamics going on.

Some of that has to do with what's happening with values in the market.

Because if we have positions that increase or decrease in value that affects the balance sheet size.

But we do have a program underway, as I said.

It's got the new CFO -- or the future CFO's leadership so it's got Board member leadership.

And we'll be reporting and he'll be reporting to you on that as we go forward.

Alright.

Thank you very much, Tony.

You're welcome, Michael.

Thanks, Michael.

Can I please add that you limit to one question or keep it really crisp because I know we have a lot in the queue.

Please go ahead.

The next question is from Mr.

Huw van Steenis of Morgan Stanley.

Please go ahead, sir.

Morning everyone.

Just want to ask just a question (inaudible) questions around the balance sheet.

Number one, the number of banks that have been suggesting they think there might be a new treatment for trading book assets over the coming two or three years.

Any views on that?

Jamie [Dimon] recently's been very critical of the calculation of risk-weighted assets with some of the US investment banks and I was wondering if you share some of his concerns and what that may mean to yourself?

And then, lastly, we obviously now seen the US investment banks balance sheets for the first time.

What's interesting is their assets to risk-weighted assets ratio is roughly three to one.

I think yours is about six and a half to one, if I even adjust yours to a US [debt basis] it's about four and a half to one.

And I was just wondering what you think contributes to why your assets to RWAs is so much higher than some of the US peers.

Thank you.

Huw, can you just clarify the first question on the trading book treatment?

A number of the European banks are suggesting they thought that the [Basel] Committee may have another look at what the right weightings would be for the way some assets on the trading book are treated.

Oh, the risk weightings.

Yes, the risk weightings, yes.

I'm sorry, I thought you meant the fair value treatment.

No, no, apologize.

I'm sorry for that lack of clarity.

Thanks.

You're welcome, Huw.

I don't want to forecast or project what the Basel II Committee or any other regulator's going to say or, for that matter, accounting standards body.

We'll just wait and see what happens and if they change then we'll modify the calculation.

On your second question, what I'd draw your attention to is the composition of the balance sheet.

And this is -- the reason that we don't believe, and I know there's different views here, we respect and appreciate those views, we don't believe that you can look at gross.

And the very points you've made -- now if the risk weightings on trading assets change, obviously that's going to have an impact.

But if you look on page 29 at the largest component of our balance sheet it's under derivatives.

If you look at the reverse repo book.

If you look at some -- you can't but we can, what's in our trading securities.

You've got to take effect for the inherent risk in the balance sheet positions.

If we hold -- there are others, we hold a larger percentage of our trading securities in governments or a smaller percentage in governments, that's going to make a difference in terms of risk profile.

If we have the chart that I showed on page 30, limited funding risk and limited credit risk in the derivatives book, that has a very large number.

We think it is potentially misleading just to use the gross position.

So assets to risk-weighted assets, while not perfect, and perhaps the regulators are going to modify their definitions, but has merit.

And you have to look at it that way.

The amount of capital that we have has to be consistent with the risk of carrying not a very blunt measure of absolute size.

Right, thank you.

The next question is from Mr.

Kian Abouhossein of JPMorgan Securities.

Please go ahead, sir.

Yes, two questions.

First of all, if I look at your underlying cost income ratio.

Kian, can you speak up?

Yes.

If I look at your underlying cost income ratio and CI -- CBNS I get to first quarter 56% -- sorry, second quarter 56% and first quarter 67%.

So about 61% underlying [clean] cost income ratio, which tells me that you will have to accrue material bonuses in the second half.

Can you give me your view on how you will look at cost income going forward?

Or is there any items on the revenue line that you don't need to accrue bonuses for which mean that we could run at a much lower level than what we used to at CBNS?

The second question is related to your write-downs.

Could you explain to me how you get your monoline write-downs?

We have quite a good understanding how the US guys are doing the write-downs.

I'm not sure from the statement how you come to your very limited write-downs on monoline.

And the second issue is on -- if I look at your US RMBS assets, I get to a write-down of about 50%.

We know what Merrills has done in terms of write-downs on CDOs, we know the ABX has deteriorated materially in July.

Have you adjusted for the deterioration in (inaudible) ABX on your RMBS book?

And lastly, why aren't there any write-downs on CDOs?

I don't think I've seen any CDO write-downs.

Okay, Kian.

Let's start with the underlying cost income ratio.

I think you're making an incorrect assumption.

You started off by saying, or one of the comments you made is that we're going to have to make the material bonus accruals in the second half of the year.

The bonused accruals we make are based on not underlying but actual NIBBT and we give reference -- of course underlying has to be reflected in somewhat, but we give -- we also give effect to our total [comp.] ratio.

We've had extensive discussions on this.

We've had extensive analysis done by our HR colleagues in terms of what effects the (inaudible) accruals will have.

And it was -- the conclusion after this analysis is that our bonus accruals [elected] in the first half of the year would be appropriate for the performance in the first half of the year.

If performance changes materially, obviously there's going to be a change in that number because we do true up on a year-to-date basis.

With regard to the write-downs and the monolines, we recorded a charge in our disclosures showing the distribution of our monoline risk by rating band.

And I don't know how anyone else has put values and looked at impairments, either on this or values on the RBS or CDO which I'll get to in a minute, but we do, in all these cases, a fundamental name-by-name individual analysis.

Now let me [sight] you some data that is shown in our interim report.

I know you guys haven't had a change to study this yet but we show a monoline exposure for monoliners rated AAA, for investment grade monoliners as a group that are not AAA and for non-investment grade monoliners.

We show the notional as well as the fair value and the allowances that we've taken.

And if you look at that chart, you'll see that we've got provided a small amount for the AAA.

We've got 60% of our fair value to the non-AAA investment grade provided.

And we've got 60% of the non-investment grade provided.

So, I don't know what this'll -- if this sheds more light on your question, but I'd study carefully this table.

Look at the movements in the table.

What you'll see is that there was a large notional movement in this first quar -- at the end of the first quarter from the non-AAA investment grade to the non-investment grade.

But, again, we don't just use external ratings, we have extensive conversations.

Our credit people, our business people do, with the monoliners, with the management of the monoliners.

And so that's the only thing I can tell you there.

As far as RMBS is concerned and the CDOs.

These are very complex instruments to value.

There is lot of judgment involved.

But you have to look beneath the security to see what's there.

[Percentages], the performance of the underlying mortgages or other assets with regard to the (inaudible) rates, with regard to severity of losses, with regard to prepayments, are important elements.

At the end of the day, we price to the market.

(Inaudible) validate many of those prices, most of those, by looking at [models].

We validate the values of many of our RMBS securities by looking at remittance data on the actual pool of mortgages underlying the security.

We don't look at the ABX to value anything.

The same as we don't look at the leverage debt indexes to value our leverage finance.

We do it on an inherent fundamental basis.

Based on that we believe our values as of June 30 and in prior periods where appropriate.

And I don't know what else to say to that.

And, in terms of you don't look at clearing prices like on the CDO side?

Absolutely -- we absolutely do.

Okay.

We absolutely do.

Now we've sold some CDOs during the period.

Now if you look at the level of our exposure on the CDOs and where that's come historically, it has been taken down considerably.

So we absolutely look at clearing prices.

I said we'd validate, and where there are no clearing prices we may depend upon on some models.

But the models are not based on -- are based to a great degree on what is happening in the inherent portfolio.

Okay.

And I don't want to take more of your time but I think that there's some issues of what the US banks are doing clearly mark to market.

Citibank clearly gives indication how their mark to market, their monoline exposure, i.e.

cash flow based on CDS spreads rather than credit ratings.

So I think there's a -- there seems to be a difference of mark to market aggressiveness between the different players.

But I understand (inaudible).

Yes.

That's a suggestion and not a question.

I recommend we postpone this (inaudible).

Absolutely, yes.

Okay.

And again, we are -- I'm aware that we have a long list of your colleagues as to (inaudible).

We would appreciate it if everybody focused and we can give everybody our time.

Thank you.

Thank you, Kian.

The next question is from Mr.

Kinner Lakhani of ABN AMRO Equities.

Please go ahead, sir.

Yes, hi, good morning.

Just wanted to come back to the leverage question.

I appreciate your comments, but if we take out the netting effect in derivatives and we also strip out all collateral trading assets in line with the US definition of leverage ratio, I work out a leverage ratio that is close to 50 times compared to what I understand your US peer group being closer to 20 times.

Second question was in relation to the rates business.

I just wanted to ask you about what -- about your views on the sustainability of this trend?

And also if you could try and quantify for us the benefit from what you call favorable market positioning?

A final, very quick question.

What is the extent of CDS protection that you bought against monolines?

Hold on a second, let me just --.

Okay.

With regard to the first one, I would be interested in your calculation because we come up with slightly different effects.

But I go back and I don't know that we're going to resolve this on this call.

We believe you've got to look at risk and because, even in some of the data that is not so transparent, I talked about trading securities before, there are positions there that are hedging liabilities where we're [assured] something.

There are positions where you have to look at the liquidity.

Whatever the imperfections of the regulatory capital calculation, those calculations are based on inherent risk, they're not based on macro numbers.

The (inaudible) we're not going to convince you guys and Basel might change their position but we believe it's important to look at the underlying risk.

With regard to the rates business.

We can postpone it and come back to that later.

Okay.

Kinner, your question was on the rates business, could you rephrase that?

Its sustainability and particularly to quantify the extent of favorable market positioning or (inaudible) trading basically.

It's not -- mo -- a lot of it is customer flow.

The businesses that are in there are interest rate derivatives, credit derivatives to our clients.

We believe that business is not (inaudible) only by the current market conditions but demand (inaudible).

People need risk management tools and that business provides it.

And so there is some element of positioning there but a lot of it comes from what I said earlier.

The breadth and depth of our relationships and our technology, and that we believe will continue.

As far as the credit default swaps on the monoliners, correct number, maybe we'll just have to get it to you, I don't have it here with me.

And maybe you can just -- you can contact Wolfram and they can talk to you about that.

Okay, [later] thanks.

Thanks Kinner.

The next question is from Mr.

Jeremy Sigee of City Investment Research.

Please go ahead, sir.

Thank you very much.

Just three quick questions, please.

Firstly, in GTB, AWM and PBC, on my numbers all of the [beat] is driven by low cost numbers which you commented on.

I just wondered if you could talk a bit more about that.

Whether we should view the new run rates as a sustainable level or whether we should view this as a slightly favorable quarter on costs in those three divisions.

Second question.

I'm not sure you've given us the carrying value for -- the average carrying value of your RMBS portfolio and your CDO portfolios, could you give us that?

And, thirdly, can you give any update on your interest, or otherwise, in Postbank?

Okay if we're going to the first one, I think, Jeremy, you're correct.

The growth in those stable business profits are coming largely from reduced costs.

I indicated earlier that some of that reduction in cost is due to our accruals of incentive compensation.

We believe we will continue growing in revenues, particularly in -- as we have in GTB and PBC.

And we will see a turnaround, although it may be delayed in AWM.

So the revenue growth we believe as the markets begin to settle and stabilize and when that happens I don't know.

But we will continue to focus on the expenses.

With regard to the average [clearing] values on RMBS and CDOs, I don't' think we're prepared to give those numbers out.

First of all, I don't know what they'd tell you because operables on a com -- on a large average could be misleading because there's a mix of exposures, and you have to understand the exposures and so I don't know what that would do.

With regard to your final question.

We've indicated many times in the past that we're interested in looking at all strategic opportunities that are available, particularly those in our stable businesses and specifically here in Geermany.

We do that analysis reviewing the strategic fit and the return to our shareholders.

And we'll continue to do that.

But I don't think we're prepared, as we have in the -- as we've stated in the past, to speak about individual matters.

Okay, thank you.

Thanks, Jeremy.

The next question is from Mr.

Matthew Clark of Keefe, Bruyette.

Please go ahead, sir.

Good morning.

Two questions.

Firstly, on (inaudible).

But Matthew, we can hardly hear you.

Can you speak up?

Can you hear me now?

Much better.

Firstly on acquisitions.

Could you just tell us what return on investment you would expect or demand, is necessary in the current environment to make an acquisition attractive to you?

So maybe just define that the net return, meaning net profit of the acquired entity plus the net value of any synergies as a proportion of your consideration paid.

And then, secondly, on the credit default swap spreads being [meaningfully] tighter than the peer group.

Firstly, is this genuinely indicative of the real funding costs as far as you're concerned?

And, secondly, how do you expect this to translate into a competitive benefit and over what time period?

Do you see yourself -- or if you see yourself taking market share as a result, which business areas and what kind of pricing impact do you think that will have?

Thanks.

You're welcome, Matthew.

As far as acquisitions are concerned, our standards have not changed from those that we have disclosed earlier.

We look, and I'll break this down into categories, the -- one of the important things we look at is return on equity.

So we look at the purchase price, we make some assumptions based on our internal models and the risk and goodwill or intangibles in the target, and come up with some assumptions as to what the capital, or the equity component of the purchase price is.

Then we do forecasts including your existing business, cost synergies, revenue synergies, cost-selling opportunities, etc.

And we look to recover our pretax weighted adjusted cost to capital, which we assume to be 14%, within a period of two years or so.

And we look to achieve our hurdle rate of 25% by the fifth year or so.

Now, there's many other factors that go in, the impact on our tier one ratio, the impact on our diluted EPS.

How are we going to fund it?

Is it going to take -- what other resources is it going to take to do the acquisition?

That said, this is not a blackbox into which we will feed data and wait for an answer to come out.

There is a significant attention paid to strategic fit, to footprints, to growing in areas where we believe we should grow, namely the stable businesses.

And these standards have not changed and we continue to apply them consistently to the way we have in the past.

With regards to the CDS spread.

It's got to be indicative of something.

If we are borrowing money at 63 over, then that says those who are going to be lending us money have a view on the strength of Deutsche Bank.

If we can borrow money cheaper than others and that money is available to us, in the supply that we need, then that has to translate into a competitive advantage.

In some cases, that competitive advantage is going to result in a larger balance sheet.

So we go back to the questions we had previously.

But we do take all these factors into account but we believe it does afford us a competitive advantage.

Okay, thanks Matthew.

Next please.

The next question is from Mr.

Christoffer Malmer of Goldman Sachs International.

Please go ahead, sir.

Thank you.

Good morning, it's Chris Malmer here from Goldman.

A few quick questions.

Just on slide number 5.

You show $100m of write-downs on European RMBS.

Can yo give us any detail on it any, what type of RMBS, are there any geographies

And is this is the first time you are actually taking provisions on European RMBS, anything that concerns carry value.

I took your comment previously so I assume you won't be able to say much on the carry value there.

Second question on the same slide, just on the impairments on the AFS assets, any clarity of those $219m whether there's actually equity assets that you are impairing at this point or if these other types of assets that you are deemed as being impaired so taking over the P&L.

Finally, just on the slide number 12, on the underlying fixed income revenues, if I just look at the sales and trading revenues in fixed income, they were about $2.7b underlying.

I think I took the 602 and added back the $2.1b of write-down.

That represents quite a significant increase from the first quarter, I think the same calculation you gave me, about $2.2 b underlying.

Would you argue that the significant increase there, just sequentially, under roughly similar market conditions is basically this -- what we refer to as favorable market positioning so the market moves and we're basing a small favorable in the second quarter?

Or are there any real changes in the activity levels between Q1 and Q2?

Thanks a lot.

Okay, Chris.

Chris, on the European RMBS, the largest pieces is in UK, we have some traded securities -- these are not the secure -- these are not the mortgages that are generated in our private banking PBC business.

These are obviously, in global markets.

The largest component is in the UK.

Yeah, I was just checking, my recollection is we did disclose it.

We got about -- I think it's 1.2 in trading in the UK and there's a piece I Germany and a piece in Spain.

These are not subprime assets, but they're probably of a nature similar to Alt-A subprime somewhere in that variety.

We have taken some write-downs in the past, some mark-downs.

We disclosed this because it is less that 100 but it rounds to 100, so when we get to that size, we felt it was important to disclose it and that's why we did.

The size of this is not exposure is not of the magnitude similar to what our US RMBS is.

And on page 16 of our interim report, we do get the distribution; it is 1.8 b in trading assets, 1.3 in the UK, 300 in Italy, 200 in Germany, and 70m in Spain.

So you can look at that, the write-downs for 71 and that's why we disclosed it.

As far as the impairment of the AFS assets, these assets are sitting in DB-sponsored conduits that we have consolidated.

If you remember, Chris, in the past, we indicated that there was about $27b of DB sponsored conduits that we consolidate.

The specific largest piece o this impairment has to do with a CDO, so debt security that were principally underlying US subprime and RMBS Alt-A mortgages.

We had written it down in OCI in previous quarters, we went through our valuation process at the end of the quarter and we did a very extensive analysis here looking at the factors that I referred to earlier in my answer I think to [Keane] or to Jeremy, and we concluded that the impairment was that there was an impairment and therefore, we just move the money from OCI into P&L.

With regard to -- the debt, the favorable market positioning, the designated proprietary activity was not a major piece.

There was some but I don't know if it was an equal amount but there was a substantial amount from the increase in the fall business -- customer business.

Okay, that's very helpful, thanks a lot.

You're welcome, Chris.

Thanks, Chris.

Next please.

The next question is from Mr.

Stuart Graham of Merrill Lynch International.

Please go ahead, sir.

Hi there, firstly, thanks very much for the exit disclosure, I have three very quick questions.

Firstly, on the reduction in the balance sheet, could we be imagining something like EUR500b of lower assets or is (inaudible) project much less modest than that?

Secondly, on the LBOs, can you split the 7.2b in sales by the where you provided financing and where you didn't provide financing to the buyers?

And third, everybody else is selling Alt-A in Q2, why were you not selling Alt-A?

Thank you.

Let me start with the final one, Stuart.

I don't know why everybody else is selling Alt-A and we -- I think, sold some of it, but most of it was on the mark-down, so I don't know how to answer that question.

I guess my question is did you think they were fundamentally the right value in the valuations that people sold [or they were short]?

Well, we think the valuations from many of the others were on bulk sales so we look to try to find where market levels are after those bulk sales particularly in the US RMBS.

If the question is are we holding them because we think the values are coming back, I don't know that that's how we would manage the book, this is a volatile book, there's a lot of risk as iv said in it.

We mark the positions where we see where there is not a reason to sell them, we were not under pressure either form a liquidity standpoint or other standpoints so we didn't.

As far as the LBO sales, I don't have the breakdown with me, but I think it is important to talk about how we treat those sales or when we determine that there is a true sale.

A large portion of that number was financed, we did provide financing.

But in order to account for this as a sale, we have to satisfy ourselves that there has been a risk transfer and that the first loss piece which is the equity investment is sufficient to cover the losses.

We have written provisions in the financing agreements where we would get first call on interest payments as well as principal pay-downs, and in all cases, we have looked at the financing rates to assure that they are at arm's length.

And so we go through an analysis, if the question is did we really unload the risk, w couldn't have accounted for it as a sale if we had not.

We believe the provisions and the conditions of the sale effectively transferred the risk.

We continue to have credit risk, but we think of a substantially different nature and the risk inherent on those is therefore solved.

With regards to the balance sheet size, I don't wanna put [Stefon] in a position before his analysis is done.

One of the things he is going to be challenged with is balance, he is looking at where we reduce the balance sheet and what impact it has on our business as well as on our capital.

And so rather than give a number prematurely, I would suggest we all wait and see what [Stefon] concludes after he has completed his analysis.

But you wouldn't rule out it could be hundreds of billions rather than tens of billions?

I think we wouldn't probably have to assign it to the CFO if it were tens.

Okay, cool.

Thanks.

I hope you are wrong in difference, Stuart.

Indeed, thank you.

You are welcome, Stuart.

Thank you, next please?

The next question is from Mr.

Dirk Hoffmann-Becking of Sanford Bernstein.

Please go ahead, sir.

Hi, good morning and thank you.

I'll try to limit myself to one question.

Is the impact of the balance sheet reduction on the businesses is something you've just mentioned, if we look at this quarter's results, actually the reduction in the balance sheet did not impact the business, so that is sort of a misconception because your underlying revenues over assets went up, even though the assets went down.

Is that a question?

(Multiple Speakers)

It is a question whether the reduction in assets have any impact on the business, on the underlying business and whether you believe they are more of assets around that can be reduced without impacting the business?

Dirk, I don't know that I've ventured a forecast on that; I think the analysis has to be completed.

Obviously, the size of the balance sheet is predicated on the business model and the business and the balance sheet size would not be there if it didn't have an impact on the revenues.

I think the issue that has to be addressed is how big the magnitude of the impact relative to the size of the reduction.

And so, any reductions that occur are going to have some revenue impact.

And I think the analysis -- one of the things the analysis is focusing on is not just the revenues but the P&L impacts, and whether or not those revenue impacts have ancillary effects.

And so it is a very complicated question but we believe any reduction in the balance sheet is going to have some impact on the revenues.

Okay, thanks.

You're welcome.

Thanks, Dirk.

Next please?

The next question is from Mr.

Philipp Zieschangg of UBS.

Please go ahead, sir.

Yes, a quick question on the derivative book.

What is the 77b underlying credit risk which you disclosed on slide 30?

What is the risk weighted asset equivalent to that or what is the total risk weighted assets related to the bookings we include on the [operations].

Thank you.

The RWAs on that 77b are probably just under that number.

And that doesn't surprise us because if you think about it, the process that we've gone through is going to say 77, there's probably some risk weightings that might be over or less than one.

And then you add the operational risk to that.

I don't know what the operational risk is, but what the charge is, but I think we disclosed somewhere out total operational risk charge and I believe that number is somewhere around 35b.

So some of this is on derivatives, some of it isn't.

And so I don't have the breakdown here with me, Philipp.

But the number is going to be in the same basic range, it is probably 5% to 10% smaller in terms of the RWA effect.

Okay.

Thank you.

You're welcome.

Next, please.

The next question is from Mr.

Jon Peace of Lehman Brothers.

Please go ahead, sir.

Yes, hi.

Good morning.

I just wanted to ask a quick question on sales and trading equities.

Your equity derivatives, as you told, has dropped quite sharply on prior year.

I noticed one of your recent competitors talked about record revenues in the same quarter.

So I just wanted to see if you could give us a little bit more color on the drop and where you're at in the quarter in this point?

And also on the same subject, what proportion of total equity revenues was designated from this quarter?

Thanks so much.

With regard to the first question, I think it depends on the nature of the equity derivatives business, a substantial portion of ours is related to the structured note business.

We have seen a softening in the demand for structured notes, and so the volumes of new business are down.

And the impact have also come from correlation.

I mentioned in the last quarter that we have seen correlations increase, we have continued to see that but at mitigated at a slower rate.

And so the negative effects of the increased correlation is substantially less than it was in the first quarter but it is having an effect in the second.

With regard to the proprietary, the designated equity prop, we indicated that we saw that number being somewhere in the 10% to 20% range, say about 15%, and it is run at about that range in the second quarter this year.

All right.

Thank you.

Okay, next please.

The next question is from Fiona Swaffield of Execution.

Please go ahead, madame.

Hi, I had two questions.

The first issue, just going back to the compensation, to sort of understand how you are looking at is, so you are basically saying that don't look at the division, it is all about the group performance, and so, we should assume that you're passing on the write-downs to the staff.

What I was trying to ask you is that's all well and good, but what if your peers don't do that because looking at everybody else, there don't seem to be occurring bonuses in that way, is it that you're taking a view that in the second half, they will?

So they will all true up?

But are you not worried about being uncompetitive in terms of compensation particularly within the investment bank is the first area.

And the second are is risk rated assets, you mentioned that you'd be managing them very actively and if I look at the credit risk rated asset, they are flat Q2-Q1.

Could you kind of explain the moving parts so how much of this is due to netting, how much involuntary asset growth have you had from the warehousing of risk finance, try and give us a feel of whether this is sustainable or if they could rise in the future.

Thanks.

Okay, Fiona, I don't know that we would characterize what we've accrued as passing on the losses to the employees, but if you --

The reason I said that is that you look at your compensation ratio, but you did it no reporting revenues which I think is quite a large write-down.

No, we don't do it on reported revenues.

Okay.

We do it on net income before bonus and taxes.

That's where the formulas come, and then we aggregate the effects and then we look across the whole firm at the revenue effect.

But in the first instance, it is based on a business by business analysis.

Joe Ackermann has been very active in an IIF analysis looking at compensation levels.

The bank believes that compensation should be reflective of performance not only of the individual business but of the firm, and the effect that that has on the shareholders.

And the view currently is that these accruals will be sufficient to pay the bonus levels, we have discussed it with the businesses, and there's obviously an active discussion ongoing.

But it is the bank's view as to what it would be interested in paying.

Obviously, we got to look to our peers, we got to look to the competition, we got to look at the effects that it would have on the franchise.

But we also have to look at the effects on the shareholders and on the returns to the shareholders.

So all of these elements are critical in the equation.

With regard to the credit change in RWAs, you're right, they're about flat, we have seen an increase in the Peckham credit RWAs and this is reflecting the growth in the businesses that I talked about earlier with regard to Spain and Poland, but also here in Germany.

There is also an impact for our commitment to increase our stake in the Chinese Bank, a small piece.

And so we have seen an increase there.

We have seen a decrease in RWAs in the global markets and this is a combination of lower exposure in the structured product area and a slightly higher exposure in corporate finance and part of the sale of the leveraged finance positions that we have talked about earlier.

Okay, Fiona, thank you.

The final question is from Georg Kanders of WestLB Equity Markets.

Please go ahead, sir.

I have a question, is it right -- (inaudible) was the dividend -- is this the same level as last year on absolute terms or is it just relative in the pay-out ratio?

Georg, it is on absolute terms, not on relative terms.

So just to make it clear, last year, our dividend was EUR4.50, and the first six months of this year, we have allocated against tier 1 capital of EUR4.50 per share, we have allocated EUR2.25.

So just taking 50% of last year, we put 25% in the first quarter, 25% in the second quarter, so we have reflected in the tier 1 capital, a dividend assumption of EUR2.25 as of June, per share.

Okay, thanks.

You're welcome.

Thanks.

Did in understand you right?

This was the last?

Yes, gentlemen, there are no more questions registered at this time.

Okay, before we close, I would like to give Tony the opportunity for a concluding remark.

Wolfram mentioned before that this is my final call.

I was reflecting on that in talking to Wolfram recently, I have been in my career through 60 -- approximately 60 of these and some of the times, it was as the primary speaker and other times, it was sitting, helping prepare or support the speaker.

I've got to tell you, every one of them has been different and the level of anxiety before each one does not change, but in every one, I both learned something and had a series of to dos as we will after this call.

I want to thank all of you for your attention, your participation, your diligence, your questions, and your challenges because all of that is helpful to all of us.

So thank you very much.

Thank you, Tony, all the best and this ends our call.

Good bye.

And ladies and gentlemen, thank you for joining, the conference is now concluded and you may disconnect your telephones.

Have a pleasant day.