Deutsche Bank AG (DB) 2008 Q3 法說會逐字稿

Ladies and gentlemen, I am Maria, the operator for this conference.

Welcome to the third quarter 2008 analyst conference call of Deutsche Bank.

Please note that for the duration of the presentation, all participants will be in listen-only mode and the conference is being recorded.

After the presentation, there will be an opportunity to ask questions.

(Operator Instructions)

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

Wolfran Schmitt.

Please go ahead, sir.

Yes; thank you, Maria.

Good morning from Frankfurt to Deutsche Bank's third quarter call.

With me is the CFO of Deutsche, Stefan Krause, who will take you through our numbers which we have released this morning.

So by now, you should have copies of our earnings release, the financial data supplement, the full interim report hopefully, and the set of presentation slides which Stefan will use.

After his presentation we are, of course, ready to take your questions.

It goes without saying, I have to point you to the forward-looking statements we might make, and in this context, to our cautionary disclaimer in all our documents.

With that, Stefan, I would like to hand over to you.

Yes, thanks, Wolfran, and good morning, ladies and gentlemen.

I'm certainly very pleased to host this analyst call this morning and, as you all know, I couldn't have picked a better quarter for my start.

So let me walk you through this set of slides that we put out and to the presentation.

And then after that, obviously, as usual I'll gladly answer all the questions you may have.

So on the first page, on page three, we put out some highlights, and I think it's important to walk through those.

But mainly describing the situation in a nutshell, in one sentence is, yes, at Deutsche Bank our P&L continues to be under pressure, but our capital and funding situation are very strong.

And I think that's very good news as we move through this crisis.

Also, because there is some questions on the dividend, we accrued EUR2.25 in the first half of 2008.

That means we used the 2007 payout rate, but obviously as we've seen this changing environment, we did not accrue anything further in the third quarter of '08.

But there was no reversal of accruals made, to just be very clear.

And again, as you know, according to German corporate governance, we decide our dividends and our dividend policy in January, and the Board will make then the proposal to the Supervisory Board then for decision at the AGM.

Our income before taxes as you saw was positive EUR93 million.

We absorbed within this mark-downs of EUR1.2 billion, and it does only include a very minor gain on fair value on own debt.

As you know, we have consistently not used that option.

If we would have used it to the extent that some of our industry competitors made, our pretax profit would have been more than EUR2 billion.

We had a net income of EUR414 million, including a tax benefit of EUR321 million.

Our diluted EPS was EUR0.83.

What we are very proud of that we did achieve a Tier 1 ratio of 10.3%, which is above the newly issued target of 10%.

Our leverage ratio is at 34 per our target definition that I will cover later in the presentation.

Our total assets are slightly up by EUR2.1 trillion and that's, as I will disclose later, primarily due to movements in the exchange rate and in some derivative values, and it was partly offset by a managed reduction of EUR103 billion.

And on the liquidity side, we continue to have diversified unsecured funding of EUR521 billion, but which is not a concern to us because 86% is covered mainly by deposits or capital market instruments.

So only 14% is short term money market funding, and it's covered by a liquidity reserve.

So a very strong position in that area.

If we turn to page four, we had in the third quarter a brief, brief summary.

You see the comparison to the previous year and the second quarter here with net revenues of EUR4.4 billion after mark-downs of EUR1.2 billion, as I said.

So our non-interest expenses, I will come to that in a moment.

We have an EBIT of EUR93 million, we had a net income of EUR440 million, and our pretax ROE, if this number even means anything, is exactly 1%.

In the comparison of the third quarter there are some -- between the Q3 2008 and 2007, there are some special effects that I will cover later.

And on the tax issue, obviously, here we had somewhat the situation that, as you know, we looked into our tax rate mix, geographic tax rate mix as a result of where our profits occur.

And based on the fact the we couldn't accrue any more on an annual basis, as had to release the accrual that we did so far on the tax basis, and we applied our tax rate mix to the Q3 result, and that resulted into this net income increase of EUR440 million.

On page five, I think we have highlighted the usual topics that we have covered throughout the last quarters, and that have been the main issues as we moved along this crisis.

So we have further reduced our main exposures, the decline in fair value exposures and the leveraged finance business.

And, to even a lesser extent, the CRE partially reflects the reclassification of assets out of fair value into the loan category.

Here you also find the breakdown of our mark-downs of EUR1.2 billion.

So our leverage finance, which has what we call a carrying value of EUR22.5 billion, out of that we've transferred to the banking book EUR8.1 billion, so we have EUR9.2 billion now in loans.

Our legacy exposure remaining at fair value is, therefore, EUR11.9 billion, so exposure remains.

But as susceptibility to further mark-downs is certainly significantly reduced.

And on the CRE, now our carrying value is EUR9.7 billion and we transferred EUR1.3 billion into the banking book.

If we turn to page six, Group-wide revenues are EUR4.4 billion in Q3 2008, which is down 14% versus the prior year quarter.

This year's third quarter versus the third quarter 2007 is certainly impacted by some trading losses as you've seen in exceptionally tough conditions, which we will describe in a few moments, the already alluded to mark-downs of EUR1.2 billion, and we had lower revenues in corporate investments mainly to a lower disposal, so our gains were EUR0.5 billion -- EUR0.4 billion, excuse me.

And we had also weaker revenues in the [peak] of EUR0.5 billion, driven by specific items that I will explain later.

Our year-to-date revenues are down by approximately 20% before mark-downs.

On page seven, we talk about our non-comp expenses, and they were essentially unchanged year-on-year, despite the numbers being quite differently.

The increase in compensation and benefits on third quarter 2007 included partial reversal of performance-driven compensation after a very strong 2007.

So we just wanted to remind you that that was happened in the previous year, so we have some reversal effects in the previous year numbers.

We also had in '07 a VAT reimbursement, which was significant, of approximately EUR140 million in '07, and we have some significant releases from litigation provisions of about EUR100 million last year.

So when you compare both numbers you have to take these numbers out of the '07 number.

We also had some specific items in '08 with our charges related to the agreement to repurchase our auction rate securities from customers, which impacted the '08 number by about EUR60 million.

And we had a reclassification of a RREEF infrastructure investment which added about EUR40 million to our operating expenses.

So adjusted, if we were to take out these different effects, the ones in '08 and the ones in '07, our general administration expenses are more or less in line with the prior year quarter.

So let me move on to some key current issues that I'm sure will find your interest, and certainly the first one is the impact of the IAS 39 reclassification.

And as far as we are concerned in our valuation that we did, this finally removes the difference between IFRS and US GAAP and, therefore, makes our books more comparable to a US GAAP treatment of these assets.

We would, in those cases where we would be prepared to hold to maturity assets where there was either no liquid market or where the intrinsic value is not represented correctly by its dislocated markets, we have done this reclassification.

So accounting in this sense is now catching up with our true business intent that we have now in these volatile markets.

To be also very clear, it is retrospective to July 1, so we certainly were not forced to take mark-downs that we did not believe we needed in the quarter.

So for the basis for the key assets that we reclassified, it's about EUR8.1 billion of leveraged loans, it's EUR9.5 billion of assets in consolidated assets like CP conduits previously classified as ASF, and other assets originally acquired or originated with the intent of security.

So as you see on the page, the impact we have, I think I don't need to go through all these numbers, but we have shown you what the impact would have been if we would have accounted with the previous, in our view, of the correct treatment.

If I move on to the balance sheet issue that we discussed also on our last conference call, our balance sheet size increased by EUR70 billion, and here we've disclosed the single effects to show you that we have worked in reducing our balance sheet, but regretfully, based on some of exchange rate and derivative valuation movement, they worked against us.

So the FX movement, as you saw, primarily due to strengthening of the US dollar and based on the fact about half of our balance sheet is US dollar denominated, pushed our balance sheet up by a total of EUR133 billion between the financial assets and other assets.

We had this increase in derivates by EUR38 billion, that's market valuation, and we have an increase in our pending settlement balances of about EUR30 billion.

But as disclosed to you, the really managed reductions, as you see, were the EUR103 billion or the EUR154 billion respective of managed reductions that we did.

There was IAS reclassification impact of about EUR25 billion, more or less that we also (inaudible).

I will move on now to page 11, and as we talk about and move into one of the concerns you have, which is our leverage situation, we always like to start at our balance sheet, and when I describe here, we really also have always to start based on the business model that Deutsche Bank has to really say that there is a significant difference between our US GAP balance sheet size and our IFRS balance sheet size.

And on this chart, we have shown you how this reconciliation would work with applying US GAAP on DB results, result in significant netting of the following positions.

As we show, derivatives by EUR564 billion, repos by EUR62 billion and pending settlements by EUR74 billion.

Therefore, our total assets were only EUR1.361 billion under US GAAP compared to this over EUR2 trillion under IFRS.

So, therefore, I turn to the next page, where we now compare our total assets to our major peers.

DB on a comparative basis, we can really say we are in the middle of the pack, whereas on a risk-weighted basis, we are below our peer average.

And that's why we continue to believe that risk-weighted assets is the right measure for measuring risk, which is what we intend to do when we look at the balance sheet because it really takes the business mix out of the comparisons.

And we do have the different business mix than some of our peers, and that's' why risk weighted assets comparisons really are more helpful in terms of comparing us and the risks carried in our balance sheet versus our peers.

Let me move to page 13, and this is the second effect that we always like to make everybody aware when you do these calculations on how the true leverage and, therefore, risk situation is with Deutsche Bank, is that our results only include fair value gains and own debt of EUR146 million in the quarter.

Since January 2007, our disclosed P&L benefit only adds up to EUR255 million which is very minor.

On average, our peers have benefit of more than EUR2.7 billion from fair value gains on own debt, and if we would have elected the same accounting treatment, we would have increased our pre-tax profit in the quarter by more than EUR2 billion, and it's a comparable number for year-to-date of about EUR6 billion.

Let's move on, therefore, to page 14, and here for the first time we now show the -- what we call our leverage ratio and describe our leverage ratio target.

We have now provided also a definition, so we clearly understand what we talk about and what the definition is.

So our methodology behind our calculation of this is we will base it on pro forma US GAAP in order to really now achieve a comparison because some of the leverage ratios that we have seen out there are not truly comparable on an FX to FX comparison, so this number should now provide you with the right number to be compared.

So it is based on pro forma US GAAP and also, in order to make it comparable, we have added back the fair value on the (inaudible) on all debt which results, therefore, in a leverage ratio in June of 38.

At the end of September we were at 34.

And, as you know, we've issued a target of 30, which we will commit we will achieve by the end of first quarter 2009.

So we, by the way, believe that we have made progress towards our leverage ratio target, and are definitely looking into the current market [environment].

We've really now stepped up our efforts to really attack our balance sheet size because I think that will be Deutsche Bank's way to achieve this 30 will be more on the side of the balance sheet size reduction than on any need for further capitalization.

So let me now go into the segment results.

and I think I can cover this fairly quickly.

So I'll start on page 16 with CB&S summary.

Performance was substantially impacted by the described mark-downs of EUR1.2 billion.

We had a positive impact from IAS of about EUR800,000 million, with losses obviously on prop trading related activities of EUR1.3 billion.

And that, obviously as you know, we have in general lower market activity, particularly in origination and advisory, but as you know, third quarters traditionally, last year was an exception but third quarters traditionally are weaker quarters in the calendarization of the year.

Especially in the CB&S, we have committed and we committed to further de leverage the business, and we certainly will cut into some of our asset base and we will recalibrate certain businesses within our CB&S businesses.

Now let me go into some of the respective businesses and trading debt.

We've definitely had a very challenging quarter.

The third quarter included mark-downs of some EUR700 million and trading losses of some EUR900 million in our (inaudible) business.

So revenues in foreign exchange money markets and interest-shaped products were a record, by the way, for the third quarter as we saw very strong client flows and favorable positioning.

So there's the good news and bad news we've seen in the business.

On page 18 as we move on, sales and trading equity has been impacted in -- by losses in equity prop trading of about EUR384 million.

Additionally, obviously, we've faced continued increase in correlation and significantly higher volatility which affected certainly our derivatives businesses.

But on the other hand, our prime brokerage business benefited from continued client migration towards our platform, the famous flights to quality that we've observed in the market over the last couple of weeks and months.

On page 19, we cover origination and advisory.

Revenues of new business were down significantly in significantly weaker markets, and we also absorbed here mark-downs of EUR467 million on our leverage finance exposure, despite the fact also here we have some goodness to the bad news we had.

The markets are pretty weak, but our market share has significantly improved.

So we continue to be as successful as we can be in current markets in this area.

Page 20, we cover our stable businesses, and again, we clearly stand by our strategy, even -- and I think that it's verified in current markets that we will continue to build up stable businesses even during this exceptionally destructive market.

In the third quarter our stable businesses did perform very well, although they were impacted by some exceptional items.

We had some losses on seed capital investment.

There was some support to money market funds on the year guidance.

There were some charges related to the reclassification of some RREEF infrastructure investments.

We talked about a new familiar with the auction rate securities settlement charges that we had to take, and, therefore, adjusted for these specific items, the pretax profit would have been EUR740 million.

So now let me go through these businesses quickly one by one.

I'll start with GTB.

It's really a success story that continues; a truly unbelievable success story.

We have seen continual revenue and profit growth driven by the growth in trade finance and a flight to quality in cash management which have continued to strengthen and further develop our GTB business.

If I move on to page 22, to our asset and work management business, performance certainly was impacted by lower performance and asset based fees resulting from the current market environment and specific items.

As said, I already alluded to the losses on seed capital investments; the money market fund injection that we inevitably had to do.

Inevitably also asset management has been affected my money market fund outflows.

They amounted to EUR11 billion in Q3.

I think that market impact that we've seen with many in this area based on insecurity.

But on the other hand, after all this government action, we have seen this now ease down.

Then we suddenly had these charges related to the reclassification of the RREEF infrastructure investment, and I think we had also to take the Auction Rate Securities provision in our PWM business; but also here some good news, with a strong net new money inflow of EUR6 billion in the third quarter in PWM.

Let me now move on to page 23, to go into our PBC business.

It's really good to see that we have a very resilient top line, despite the decrease in brokerage, which was on the other hand mitigated by the launch of some successful portfolio management campaign.

Our provision for credit losses reflect the growth strategy in Poland on the one hand, so we had to take some additional charges there.

But also, we had to take some additional charges due to the weaker credit environment in Spain.

So despite the difficult market conditions, we gathered net new money of EUR3 billion for Q3 and EUR10 billion year-to-date, mainly driven by more deposits that we've been able to gather, which in this time and age is a good thing to have.

And we have been able to grow our client base by some 237,000 new customers.

Page 24 briefly describes our corporate investment and our results reflect gains on the sales of Allianz and Linde shares that we did.

However, these both are gains significantly below the previous year's quarter, which also included a positive mark-to-market impact on our option to increase our stake HuaXia.

As you know, in 2008, we only had EUR1 million impact from HuaXia in our P&L.

So let me move on now to the last part of the presentation, to our risk capital and liquidity management, and let me start with our Tier 1 ratio.

Now our risk-weighted assets, by the way, as you'll see in the chart were mainly up due to foreign exchange effects.

And again, to just briefly remind everybody, we have increased our Tier 1 target to 10%.

The reason the management team of Deutsche Bank decided to do that is that as we look into the current environment, we thought it's good to intensify our capital and to be prepared for the upcoming months.

And currently, we do believe that with a Tier 1 of 10%, we should be fine to survive in the coming months and quarters.

That's why we increased it, and definitely we are also proud that we already overachieved this target but, as you all know, we have the Equity Rights issue in this number, which some of it we will need in Q1 '09 in relation to the acquisition of the stake of Postbank, but we believe in this 10% ratio, even after Postbank certainly we will commit to achieving this Tier 1 ratio.

On page 27, we give you some insight into our funding situation and we've here highlighted the unsecured funding piece.

On the liquidity side, we really can say that, as you saw on the chart, we now only have a position of EUR75 billion which represents 14% of the unsecured funding base in total.

Of this EUR75 billion, we really can say the largest part, 86%, is covered by the asset or other capital market instruments, so it's not a concern to us, and on the remaining 14%, which is short, it is really completely covered by our liquidity reserve, so that I can really say we are in Board of Deutsche Bank not at all concerned about our funding situation.

I think definitely we continued to have the strength there.

[Excess] was consistently strong throughout the quarter, albeit concentrated in the overnight through the end of September and early October.

Churn availability has loosened in the past two weeks helped by [steepening] LIBOR costs.

We were very conservatively position in early September before this crisis in terms of that, and we're consistently putting cash into the market and are, therefore, able to absorb stresses such as [effects of] bank draws.

And as term availability has now improved, we have re-established our early September positioning on a like-to-like basis.

And, therefore, I think we continue to -- that we are in a strong position in terms of our funding position.

Let me move on now to page 28.

We discuss and provide you some information about our provision.

And the provisions in our CIB business were impacted by the move of the trading book assets to the banking book, the IAS 39 effect, obviously, and we've disclosed it here separately.

We're showing you that we've then had to take EUR72 billion in industry classification effect.

It's about EUR36 million for the European mortgage book, it's EUR31 million for single counterparty relationships, and it's about EUR5 million for the US leverage finance portfolio.

And in the PBC section, I've already talked to you where the main two effects are, the increase in business in Poland and the worsened credit quality that we observe all over the place but it's significant only in material only in our Spanish business.

Let me move on to page 29; problem loans were up EUR154 million for the quarter mainly due to EUR164 million of new problem loans reflecting the IAS 39 reclassification, and also our coverage ratios impacted by a technical effect relating to this reclassification.

So I think, therefore, I will be at the end of my prepared remarks, and I am looking forward to any questions you may have.

Okay, Stefan, thanks; and, Maria, would you please take over to steer the incoming questions.

Yes, sure.

We will now begin the question and answer session.

(Operator Instructions).

The first question is from Mr.

Rohr.

Please go ahead, sir.

Hi, a very good morning.

It's Michael from Mainfirst in Frankfurt.

It's just a few questions from my side please.

So first of all, if you can tell us what you expect as a fair value impact on the acquisition on Postbank in Q1 and probably detail a bit how that splits into the option, and potentially the stake and the fair value adjustment on that one.

Another question is on the dividend.

You accrued EUR2.25] in the first half and now it's probably nothing.

So if you can just give us an indication what you expect for the remainder of this year, if we can expect a EUR2.25 dividend for the year or probably something lower than that.

And a final one would be on your statement with regards to a potential takeover for the German rescue package.

Thank you.

Thanks, Michael.

Yes, hi Michael, thank you very much for your questions.

Let me start with the fair value of Postbank question.

We will probably not account at fair value for this position for the transaction so, therefore, I think there will be no fair value impact in that sense.

The accounting treatment will be value in use and, as you know, we will just have a different treatment on that.

On your dividend question, it was clear that the reason we decided to accrue versus the prior year is, as you know, corporate German covered governance, our view is that we will make the decision in January of '09 what our dividend policy will be overall.

So the best thing normally is you accrue the previous year dividend.

You accrue for it; that's, I think, the best way not to give any indication, not to take any early decision on what your dividend policy will exactly be.

But obviously we now notice, as we move into the second half of the year and we look at how that has developed, it would have been unrealistic to accrue (inaudible) dividend.

So we just decided in Q3 to stop dividend accrual.

It's very difficult to make a judgment how Q4 will now look like.

It's, therefore, also very difficult to make an assessment where our dividend should end up being, but we know that a EUR4.50 dividend would have not made sense.

And again, in January the Board will then make a proposal for a supervised report and for a decision at the AGM.

Okay.

And on German rescue package, again, I think I have shown the capital situation.

We are in no need for further capital right now so I --

Yes, sure.

I don't think it's about capital, it's probably about guarantees or things like that.

Do you at least show that you participate things like that?

Well, I really have no further comment on that.

I'll have to look into the situation.

But no need for capital; I think that's important.

Yes, all right.

Thank you.

Thanks, Michael.

Next, please.

The next question from Huw van Steenis, Morgan Stanley.

Please go ahead.

Morning, everyone.

Just, could I just pursue this line about capital?

You've obviously always made a virtue of the fact you haven't taken fair value of your own debt, but I noticed on page 44 you now include the fair value of your own debt in your definition of the leverage ratio which you've updated since you presented it three weeks ago.

So four quick questions, the first is, our understanding of the core leverage ratio that the US broker dealers now have to hit is about -- is over 5%.

They do include the fair value alone debt, but their ratios are 5.5% to 6% compared to maybe your 2.7%.

So question one is, if you feel the US definition's appropriate, why don't you feel 20 times or 30 times is appropriate?

I think question two is that on the other hand, UBS, Credit Suisse and we understand Barclays do not include the fair value alone debt in their Tier 1 leverage ratio.

That by implication would be in your Tier 1 leverage ratio as about 2.4% or about 41 times gross leverage.

So the second is, if you are going to be viewed more by a European peer group, to what extent does that concern you or concern the ratings agencies that you'll be now at least 10 or 11 notches higher than the target for the other European banks?

Thirdly would be, to what extent have you discussed this ratio with the German regulators?

Is it -- some investors I think will understand we view it slightly pick and mix of US and Europe since you first presented it?

And then lastly, your ratio obviously does get somewhat flattered by the capital you raised for Deutsche Postbank.

You obviously said by Q1 '09 you want to reduce it.

I just wonder why you are so dogmatic that you don't want to raise capital in the view of what is an extraordinarily challenging environment and obviously which was a very tough quarter also for your investment bank.

Would it not be -- is there not a case at least to say that it actually may reduce risk and actually put you in a slightly better position to win market share and actually take share in a very challenging market?

Thanks.

Thank you for your question, and I think you are at the heart of the big issue that we have been seeing over the last couple of months.

There's been endless discussions about comparisons of these leverage ratios.

And to be honest, we have tried for a long period of time to explain to the market the differences, and to be honest with you, we have given up to some extent because we have seen that in most of the comparisons that are done between especially -- and we constantly get selectively, we get compared against sometimes the US peers then we compared against the European peers, always the kind of find the hair in the soup type concept.

And to be honest if we go through the process, I will -- firstly we are continued to committed to our Basel II Tier 1 definition.

That's what our regulators care about, that's what we manage the business to it, we have increased the target to tell the market we will capitalize.

We don't know whether targets for business model like ours will be over time.

That's -- we have a discussion on the regulation side.

We will wait if there's any change coming to that, but at this point we feel a 10% ratio is a good ratio to have.

So that's what we continue to manage our business towards, that's what we continue to discuss with our regulator, and we have not changed anything in that definition, we continue our current definitions and accounting practices towards that Tier 1 ratio.

On the second side, but then when we look at our balance sheet issues, that's that the one you excluded from your commentary or you looked at our -- this fair valuing of that issue, we have to recognize that we are very often compared and we were compared with leverage ratios of 50 and the leverage ratios of 45 and so on versus peers to 30, and these were not [efforts-to-efforts] comparisons.

So to be honest, we're providing you this definition where we're trying to come as close to what we understand the competitive environment to be.

Now again, this may be a good number, but it still is not the best and not the perfect number.

We'll admit that in a minute, and that there is obviously definitions that you could look at and differences you can still look at.

And the biggest definition that regretfully these total balance sheet leverage ratios don't take out is the difference in business model.

That's why we like Tier 1 ratios as a (inaudible) because they take out the business model.

And exactly your question you asked, you compare us again against plain and pure breed investment banks which we're not, and, therefore, your comparison numbers don't comply.

Let me, why don't you compare us to the other German retail banks as an example?

They are -- our leverage ratio looks, I think, pretty good and our Tier 1 ratios look pretty good.

So we see this endless discussion on how to compare, and I can only say, we believe and I really gives you this assessment that we are well capitalized, that we have been able to access capital markets when we needed them, that we will not do stupid capital issuance when they're costly and in our mind, we don't need it.

We don't want to be driven to this situation, and that if you do -- if you now take all the possible comparisons, and that's what we tried to point out in the chart, I think we are in the middle of the pack as far as our total leverage balance sheet ratio goes.

And on our Tier 1, we are also in a very good and strong position.

So I think we would really like to end this discussion on comparisons, because in the end we should go at the bottom of it which is we are trying to measure risk and risk protection here.

And we can only say that we feel very comfortable with the position that we're in.

Okay, thanks.

Well, thanks ever so much.

I do think in the States it's pretty clear that post the broker [inaudible] becoming BHCs, it is now a Tier 1 leverage ratio rather than a gross leverage.

So maybe that's something we can talk about offline because I think it is clear that that is now the European and the US standard which is still somewhat different from what you've put in the pack.

But we can talk about that offline.

More than welcome, Huw.

More than welcome.

Okay.

May I suggest that we limit to one or two questions per caller?

Thank you.

Next please.

The next question is from Kian Abouhossein, JP Morgan.

Please go ahead.

Yes, hi.

First of all could you just talk about your CDS gain against your loan book?

I couldn't find that in your statement.

Maybe I missed that.

And your fixed income number underlying was very strong, EUR2.5 billion ex any write-downs, mark-downs, prop trading.

You talk about favorable market positioning; could you just comment on how much that could be in that number and how we should look at that number going forward?

If you could talk a little bit about trends.

Lastly, if I could just maybe add one more.

You talked about recalibration of the CB&S business.

I would be interested about capital movements between subdivisions in the investment banks.

How do you see your investment banking business changing over two or three years considering the decline in the structure to credit an equity structured business?

Thanks, Kian.

Yes; thanks, Kian, for your question.

We're trying to find you the numbers here.

That's why -- let me maybe go first into this issue of what you call the recalibration of businesses.

What we mean with recalibration of businesses that we have to do looking at the current market situation, what we really mean, we are taking a look at the balance sheet, the individual balance sheet positions.

Certainly, we'll cut or limit or balance sheets.

That's what we mean with it when we talk about recalibrating it.

We will look at expenses and we also look at the resources deployed in this business.

And certainly, as we've seen the significant market movement, we'll have to do some adjustments there in terms of recalibrating some of these businesses.

Does that mean that capital in the investment bank could be reduced on an absolute basis?

Not capital.

First of all our view was to reduce positions and exposures and put a cap on certain balance sheet sizes, not necessarily capital returns.

Okay, so your other questions were the fixed income underlying trends.

Yes.

Yes you're talking -- I get to EUR2.5 billion which is a very strong number.

You talk about favorable market positioning being included in.

Yes, and all I can say in these uncertain times in terms of predicting how this will be on a forward basis is it's very difficult to predict.

We are happy to see this strong but this has been, as I've tried has outline in our presentation, the story along.

We have this good news, bad news story; we have -- we continue to have some good underlying business, good underlying performance as well as bad ones.

So will I endeavor to make full forecasting here?

Probably not; I shouldn't be doing this in these times of (inaudible).

And on those numbers you requested, it looks like we'll have to get back to you after the call.

Okay, we take a note, Kian, and come back to you.

Thank you.

Sorry for that.

Thank you.

Next please.

The next question is from Jeremy Sigee, Citigroup.

Please go ahead.

Morning; I'm sorry I'm going to go back onto capital ratios, please.

Okay.

You're -- well, seriously I don't think it's going to go away for quite a long time to come so.

No, it looks like it.

You might wish otherwise, but I'm afraid that's how it is.

You're asking us to rely on the US GAAP equivalent asset figure so I wonder if you could -- could you give us a pro forma for what that looked like a the end of '07 and for 2Q '08?

That's my first question.

Second question, if you're relying on a notional gain on your own debt for this new leverage ratio target, why don't you book it in your accounts?

If intellectually you're saying that's the right thing to do, why don't you book it in and then we know it's an audited number?

Well, number one I don't know if we have these numbers here now with us, so we might have to provide you with numbers of -- we may have the 2007 number so --

I appreciate it will be an estimate anyway, but if you can give something it would help.

We can give you the exact numbers after the call.

Thank you.

But on the other discussion, again, we believe that we shouldn't evaluate our own debt.

Okay.

But as we have seen all the ratios out there, not -- when they do the comparison and when we see the write-ups about Deutsche Bank arguing that we are not well capitalized, that we especially have these leverages, they don't -- all these comparisons don't take out our specific business model, don't take out this inflated, if you so will, balance sheet that we have under our IFRS accounting, and they don't take out any comparisons to our peers the fair valuing.

So we have decided to provide a comparable number.

Let's not forget, and again I stand by what we say, we will continue to manage our business through risk-weighted assets that we believe in this device method to assess risk, and we will continue to manage our business to Tier 1, and we'll continue not to fair value our debt because we don't believe in it.

It will come back, we don't believe it's a true economic value you should be looking into, therefore, the fact that in one number here, just for comparative purposes, to make it easier for the market to understand why we really said we'd do this clean up, just doesn't mean that we necessarily believe it.

And, therefore, I don't believe that we should be accounting for it to be very frank and honest.

But if everybody else is doing and we are just getting hammered in the marketplace negatively and we have not been able to put that point out for the understanding, we need to put out a number that is in our mind the best number we can produce now to try to help you to make your jobs better, to make -- and try to help you maybe to put out this comparable number.

So that's all we can really -- I can really say to that.

Okay, and just to be clear, I think you're making a fair point about the distinction on the accounting and on the gains and own debts, it is a fair point.

And I think, as you say, it would help us if you keep disclosing that number so that we can at least look at it comparatively.

We definitely will do, Jeremy, and come back to you.

Thank you.

Thank you.

Next please.

The next question is from Matthew Czepliewicz, HSBC.

Hi, good morning.

So it's a question about your IAS 39 reclassifications.

If I just run through the numbers quickly, I guess you had 8.1 in leverage finance, 1.3 commercial real estate, 9.5 in consolidated CP conduit assets reclassifications, and then miscellaneous was the other.

And it's an open-ended question, but it is how much scope for interpretation or discretion is there in these new guidelines, and do you feel that you could have been more inclusive, were you more selective than you needed to be?

In other words, looking ahead, how much further scope for, almost retroactive application or more intense application if need arise?

Thanks for your question, Matthew, and I think I absolutely understand your concern there, because it is something that's changed, it's something -- and that was also one of our concerns.

It hopefully doesn't lead to perceptions that this was something where you now have a wide open door to do whatever you want.

So it is important for us that there was no -- there is really no big room for interpretation, and the same number one on our accounting policy rigor and the same auditor rigor was put onto those.

So this had to be done in a very short timeframe.

As you know, this change was just announced this month and we certainly didn't have a whole lot of time.

But I can only tell you that we really put in all the -- we put in a DB accounting policy, we decided on how we select those assets and we have had this fully audited and it was implemented with the same rigor where had and then approval process that we implemented is very strict because I do as CFO of Deutsche Bank absolutely share your concern that this isn't hopefully misused in terms of giving a lot of flexibility, and that was our guiding principal.

Now it doesn't have -- and one of the concerns that you raised is retroactive, let's not forget the retroactive nature to this July 1 was only for this quarter end closed.

That doesn't exist any more.

In the future, if the circumstances and the criteria for reclassification are met, then we will have to reclassify at the current value, at the date of the transfer.

Which, therefore, obviously then at the end, it doesn't have that similar impact it had in Q3.

That will remain a onetime impact we have had.

Now what we did when we selected these assets, we number one -- there were two criteria we strongly look at.

Did the business intent really change?

Is this really the business intent; was there really real change business intent or is there the original intent for example to trading, to continue to trade certain positions.

In the near future, for example, just hold them for a brief time and then trade them.

If that criteria was met, that the businesses intent, it's really to hold them now because, for example, there is the dislocated market, there is no market activity going on.

That was the first one.

And then we had an end criteria, so we -- that wasn't enough, just the fact that we were trying to -- that the business intent changed but we second, we definitely wanted to say that the quality, the intrinsic quality of that asset was not reflected any more in any fair value markets that were available.

And why is that important to us?

Because that's where we go back to say, therefore, what we have done now is the more proper treatment.

Number one, we're aligned to what the business intent is and number two, we have -- we will not force the business to sell assets at a value way under the intrinsic value of these assets, which I think was the valid, biggest criticism on the past IFRS practice.

And that to some extent we had to accept that increased sum of the market downturn that we have seen in the last quarter.

So, therefore, I can only tell you it was a strict process, it is -- we have very strong guidelines on it, we have it audited by KPMG, and this one effect we've had in Q3 will not repeat as we move on, as we go forward.

We will classify assets differently, fine, but there will obviously not be the P&L impact immediately.

Right, could I maybe ask one follow-up to that?

And I don't know whether this question --

Yes, if it's a quick one.

Okay -- whether this question actually makes sense.

But of the assets transferred, it is possible to give us an average duration of the portfolio given the intent to hold now?

No, we don't have -- sorry, Matthew, we don't have that number because it's all kinds of assets, yes?

Yes, okay.

But the belief is that (inaudible) [assets] certainly hold for a short term, because that's the ones we would not have accepted (inaudible).

Right, okay.

Thank you.

Thanks for calling in, Matt.

Can we take the next one, please?

The next question is from Christoffer Malmer, Goldman Sachs.

Please go ahead.

Yes, thank you.

It's Chris Malmer here from Goldman's.

Hi, Chris.

Just quickly onto areas.

First of all, on the prop trading losses both in the equity and the fixed income business, if you can give us any more clarity or color on what the reason and the cause was for those, whether there were any particular single exposures so we can get comfort that this should not be recurring.

And also, whether it's prompted any change at all in your risk appetite, whether we should expect a lower capital allocated towards these type of proprietary activities going forward and hence any impact that could have on revenues.

Secondly, or just to clarify on the Postbank situation, so should there not be any impact on your -- on Deutsche Bank's capital position from the change in the share price of Deutsche Postbank, either through the option or through the stake as such?

Thank you.

Okay, thank you; thank you, Chris, for that question and you can assume that we did expect this question to certainly come up.

And it was -- it is also for us -- as you know our global markets business model, we've always consistently emphasized this management of basis risk rather than the assumption of outright exposure to market direction both in our customer facing and designated [proprietary] components.

So we've -- we know what our view on this strategy was, and as we've communicated to you and, obviously, we also have to see looking back that the strategy now has generated superior profitability for several years and really allowed us to escape the worst effect of the global financial crisis in the year end to August of '08.

Now what has happened however is that business relationships have undergone this unprecedented disruption in the weeks since the Lehman Brothers filed for bankruptcy.

And this collapse of a major prime broker and custodian of this hedge fund community caused a sudden and effective withdrawal of capital from the sector as you know.

And funds [faced] rising margin caused a growing investor redemption, in our view forced to liquidate relative value positions, driving certainly as you know valuations of formerly well hedged positions to all time low.

While we have made every effort to reduce risk that was possible, the result of this market disruption was profoundly negative.

particularly for our designated prop trading groups, both in credit and equity.

So at the end, a strategy that has worked very well for the Bank in what we would call normal markets, and even worked well in somewhat disturbed markets, is now the latest market hit with the -- didn't work well any more; we have to admit that.

So, therefore, we have now started to -- are currently working on consistently cutting our risk exposure now and reducing our capital commitment to prop trading.

And we will continue to do that.

And, therefore, we basically, and that's what we say, are reacting to these substantial losses that we're suffering, that we know that we have to recalibrate this business.

And I gave you the definition of what we call a recalibration of this business that we both look in terms of cutting assets, looking at our costs in this area, and also redeploying our resources.

So our equity prop trading group is composed overwhelmingly of convertible [LB] trusts and equity long short strategies.

And our credit prop trading unit is mostly a credit relative value group.

But unfortunately these strategies, again as I said, have performed particularly poorly since the Lehman Brothers applied for bankruptcy on September 15.

And that's certainly for us also a new development and that's why we are taking management actions to restrict and correct it.

On your Postbank question, we will have no impact on capital before the expected closing on Q1 anyway.

So it will not be in.

And we will have, obviously an expected impact in Q1 of about 62 basis points.

That is related also the fact that we will have to buy the stake.

And, as you know, we went for the capital race in the last couple of weeks and included (inaudible), so it's about 62 basis points.

Right, but that's unrelated to the share price, so Deutsche --

That's unrelated to the share price.

And the impairment question; again, we will use this value in use concept.

It's not a fair value concept.

That doesn't mean by the way, that there will be no impact.

We will have to prove that the value in use of the business and we will have to do an impairment test on Postbank at that point in time.

Now the good news, and I think that's what we also got out of their Q3 conference call, is that their underlying business model continues to be strong and continues to be performing' that they have been hit by also extraordinary effects.

So the value in use concept will obviously be determined how well the underlying profit is and how realistic their ongoing business plan is as you look into to.

And at this point I will venture to say, Postbank continues to have our support.

We continue to be very interested for strategic reasons in that stake, acquisition.

And at this point, we didn't see anything in their business model that would cause us to be concerned of suffering significant impairment.

Great.

So a very quick follow-up on the trading, just some of your peers have chosen to make a comment in relation to the VW situation.

I don't know if you care to make any comment or if you decide not comment on what's happening so far.

We don't comment on individual positions.

And, as I said jokingly, I didn't comment about VW in my previous job, and I won't comment on VW in this job.

Fair enough.

Thank you very much.

Thanks, Chris.

Being over an hour deep in the call, and we know there are more of you queuing to ask questions, so let's try to restrict because we want to accommodate everybody.

Next please.

The next question is from Philipp Zieschang, UBS.

Please go ahead.

Good morning, gentlemen.

Allow me to come back to the capital point.

Basically I'd like to know what could actually trigger a change in your thinking?

Would it be significant losses?

Would it be if it was imposed on you?

What could make you take a different view on whether you need a capital strengthening?

And the second thing is related -- it's regarding this leveraged ratio.

The way you describe it looks as if this was a number given to the equity market to please people and to lower their risk in terms of definitions used.

Is this being looked at by rating agencies, by a regulator too?

Or is this basically just a number for us?

And if I strip out -- assume the gain on own debt would revert back over time, could you nevertheless comment which asset categories are subject for reductions?

And what could be the potential P&L implication?

Because if this was rather a soft view, or a soft target given to people to please them, achieving this might have significant implications for your profitability; if you just could comment on that area too.

Thanks.

Yes, Philipp, thanks for your question, and you put a nice spin to it.

But I really to take that spin out of it because it was not to please people, it was just to provide a comparable number.

I think we have an obligation to you and to capital markets to disclose and to give you the right numbers.

And we have tried to initially describe the differences, and we thought that these difference will be taken into account when making the risk assessment in Deutsche Bank.

And regretfully we have to observe that they are not being taken into account.

So to some extent that's why we put out the number and yes, to answer very clearly, is that this is a number that we've put out there to address market concerns.

It is not a number that we need to be honest in the discussions with our rating agencies, it's not a number we need in discussion with any of other constituencies because they understand the risk-weighted concept, they understand the differences in our accounting.

And they at the end assess the risk situation of Deutsche Bank.

We are a bank with a Tier 1 ratio of 10% now.

You can find a few ones that are above them, but you can find lots of them way below this number.

And what we want to say that we are, at this point, not concerned.

Now you say, what could trigger a change in view?

To be honest, we don't believe at this point that we need to further capitalize the business, nor do we believe that we will be forced into, because anybody looking into the numbers will understand that the issue, and that's something we agree with you, and that's something we certainly took away from this discussion, is we need to attack our leverage situation from the balance sheet side of the equation, not from the capital side of the equation.

And that's why we wanted to make a strong commitment that we are going to do it.

Regretfully our initial efforts for this quarter, which resulted in a cut of this EUR103 billion in assets, were taken away by foreign exchange and derivative valuation increases in our balance sheet.

So we regretfully couldn't [proudfully] show you a reduction on the balance sheet at this [round].

But the issue and the focus of the management, and we have given out to businesses in order to reduce balance sheet (inaudible).

And that's mainly, if we look into the risk aspect, if we look back into the crisis, we had some positions, we have to admit, that in their size were just too big of what we may and should have had in such a situation.

And that's something we took away.

So I think the answer to the concern of the market on this leverage ratio in Deutsche Bank is related to our balance sheet size and, therefore, we are very committed.

And that's why we put also this number out as a commitment and we will continue to, when you talk about what Postbank will mean to our Tier 1, yes, of course, we will have an outflow there.

But at the same time we expect to reduce our balance sheet size and reduce risk-weighted assets with it as we move along.

So that's where we would like you to look at Deutsche Bank.

That's the task at hand.

And that's -- I think there's a strong commitment of the management team to achieve it.

And that's why we are constantly saying that we don't need to change any views or anything will trigger our change of view as long as we continue this process of reducing our balance sheet size.

And what will be the areas -- which areas will be reduced on the balance sheet?

Because if the gain on own debt reverses over time, your target still implies a significant reduction.

You obviously attached a timeline to it today.

Yes, I will not go into single individual areas because that's work in progress that we are doing, but I what I will give you, because there is some concern, that if we now go into further reductions, it will also cut significantly into profit.

And I will tell you only we do have some areas in our balance sheet that the marginal rate of returns is not there where it should be.

And, therefore, we don't think that these further cuts, by the way, that we could even increase also the quality of our profit by reducing and cutting some of these assets.

Don't forget, two thirds of our assets are fair valued, so we have a large group of assets to be able to look at.

Thank you.

Philipp, [thank you].

Next please.

The next question is from Joachim Muller, Cheuvreux.

Please go ahead.

Yes, good morning; I'll try to be quick.

One question is on your risk provisions.

Did you change your expected loss forecast?

And if so, maybe you could give us the new expected loss number that you have.

And secondly, you've been pretty adamant about not taking up capital injections from the government, but maybe you can comment on the term funding guarantee whether or not that would apply to you, particularly in the context of the competitive landscape in Europe If you're not taking it up and others are, then obviously you have different funding levels versus your competitors going forward.

Maybe you can just shortly comment on that.

Thank you.

To be honest, on our risk provisions, no, there is no change, and there's no change in target; no, unchanged.

We had a little technical effect due to the 39 reclassification; it's a mathematical effect why the coverage went down.

But if we were to take out that mathematical effect that the reclass shows, we would be at a comparable level to the previous levels.

And there is no real change, and the model itself is completely unchanged, so no changes to report there.

Let's go back to this discussion on would there be a competitive disadvantage.

We feel there will be a competitive disadvantage if we undercapitalize, and people have concerns with Deutsche Bank.

And there would be a competitive disadvantage if we had funding problems.

And I think on these two issues we have tried to outline that we feel very comfortable where Deutsche Bank at this point in time.

So that's really I would leave these comments at that I think we have no concern.

And, as we move along, we don't fear a competitive disadvantage.

Sorry, if I can come back to this.

I don't necessarily mean funding needs, more like the spreads at which you can fund in the market vis-a-vis like the government guaranteed funding for other banks.

Wouldn't that put you at a competitive disadvantage?

Not with regards to the funding that you need, but with regards to the spreads at which you could fund?

Well, that's something we have to continue to monitor and see as we've seen some negative development in the last couple of days.

But it also eased down again somewhat, so we'll have to continue to look into it.

And at the end, we believe that the funding costs will be determined on how we have proceeded this as an individual credit.

And as we move on and continue this process to reduce our balance sheet, and, therefore, prove that the Bank continues to have strength then certainly (inaudible) will go back in line.

Thank you.

It's something we have to monitor, you're right.

Okay, thank you, Joachim.

Next one?

The next question is from Fiona Swaffield, Execution Limited.

Please go ahead.

Hi, it's just in two areas.

On the risk-weighted assets and the market risk-weighted assets which are pretty stable, could you just talk about what you think could happen post the incremental risk charge coming in under Basel II, but more importantly, how what you've done on reclassification could affect risk-weighted assets?

I don't know if it means that you wouldn't have so much of a problem on market risk-weighted assets going forward because you've moved them out, or what's going on credit risk-weighted assets as a result.

And just a second area; just costs.

So if I look in the investment bank, the costs are again pretty low and it looks like you're passing on the prop losses and write-downs to your staff relative to others.

Could you just talk about how you see bonuses panning out and your attitude to how much pain you're going to pass on to your staff?

Thanks.

Okay, let me start with your risk-weighted assets.

Number one, the reclass, of course, had an impact on risk-weighted assets of about EUR2 billion, additional risk-weighted assets that were generated through this approximately EUR25 billion of assets being reclassified.

And on the risk-weighted assets, now you're absolutely right that that's also change we expect this market.

And you know we have done some testing on it, and we would believe that in aggregate, this would mean an approximate of about EUR50 billion in additional risk-weighted assets by the year 2010/2011, just to give you a size number of that impact.

Your other question was on --?

Just on the attitude to costs, particularly in the investment bank because bonus accrual looks very low.

The bonus investment.

As you have heard, bonus news on Deutsche Bank we are cutting all over the place.

And definitely it's something that we just acknowledged the current performance situation of the Bank.

And we think it's fair and acceptable that we need to reduce bonuses, but we also have to be realistic.

We are in a competitive environment; the only thing that will help us drag our business and continue to strengthen our business out of this crisis is we need good people that develop profitable business and generate revenues.

So we will not do anything that really harms our platform.

And, therefore, this is the balancing act that we are working through.

And certainly that will be as we move now into the end of the year a very challenging question.

We need to protect our platform; we need to keep the people that can help us to continue to survive this crisis as well.

We need to honor their good performance, because as we've also described in the paper we have lots of part of the Bank where we have exceptionally good performance right now.

And, therefore, we need to certainly honor that.

But we also have to acknowledge the Group and shareholder situation right now and, therefore, that's a balancing act.

And that's why, as you know, we've taken at least the decision at the management levels of Deutsche Bank will forego their bonuses because I think we have to accept the responsibility for running the business and accept the responsibility for running the business in difficult times.

But at the individual level and the individual business level, we have to make very cautious decisions, because we understand the competitive environment.

Thank you.

Could I just double-check what you said about risk-weighted assets?

So is that basically the EUR21 billion goes to EUR71 billion approximately?

And I just wondered how you'll absorb that, through retained profits or through reducing other risk-weighted assets, because that obviously means --

Both of course, yes.

Okay, but it is that it is EUR50 billion incremental?

EUR50 billion incremental.

Thank you.

Thank you, Fiona.

Fiona, I can just provide you two numbers, if you like.

It's EUR24 billion for 2010 and EUR26 billion for 2012.

'11.

'11; 2011, sorry.

Okay, thank you.

Thanks.

The next question is from Georg Kanders, WestLB.

Please go ahead.

Yes, I have a question on the capital.

Is this contingent trust capital conversion is not included in the Tier 1 you report from the 10.3%?

Is this right?

And the second question is on the equities, say the trading business.

Apart from these equity propriety positions, I assume that there are other areas with losses.

Is this correct?

To answer your first question, it's EUR1 billion, and about EUR900 million are not.

Okay?

EUR1 billion is included, but about EUR900 million is not included.

And your second question, sorry, can you repeat it?

The second question as on the equity [sales] trading business.

Apart from these prop trading losses you report of EUR380 million, I assume that there are other areas where there are losses.

Is this correct?

Yes, that's correct.

Georg, that's okay?

Yes, that's okay.

Okay, thank you.

Next one, please.

The next question is from [Jon Peace], Nomura.

Please go ahead.

Hi; morning, everybody; I'll keep it to a very quick one.

I just wanted to understand with your leverage target of 30 times, is that on an apples for apples basis?

In other words, you've adjusted assets to US GAAP, have you also adjusted equity to US GAAP?

Because I remember when you gave us the reconciliation there were some very large moving items in there with regards to things like pensions and derivative and minority interests.

Thanks.

The answer to your question is, yes.

That was exactly the intent to get it as close as possible to a comparable number.

So in order to support your analysis and your views, we have a number that is truly comparable.

We have been working -- we have refined, but there was no big, to be honest -- I described in my presentation the balance sheet part of it.

We described the fair value part of it; these are the two material parts of it.

But in equity there is not a substantial difference.

Okay, that's great Thanks.

Thank you, Jon.

Next one, please.

The next question is from Stuart Graham, Merrill Lynch.

Please go ahead.

Hello there, I have two questions please.

Sorry, coming back to capital again.

Your 10% Tier 1 target, if I look at your peers the US and Swiss guys, the guys who you put on slide 13 who I guess you regard as your peers, they're all much higher than 10%.

I think the average is 13.7%.

So a 10% target would put you at the bottom end of that peer group range.

I just want to understand, are you saying they're overcapitalized, or are you saying you've got a better business model and that's why you're happy to be at the low end of that?

That's question one.

And then question two is, on the IAS 39, the two points you made about has the business intent changed and is the intrinsic value not there, the fact that you give us the very precise figure of what it would have been hadn't you changed it shows you can quantify the value of these assets.

So clearly, the factor is the intrinsic value you don't believe is there.

And I wonder if you could maybe just talk us through how you actually come to a view on which assets are correctly intrinsically valued and which assets are not; if you could just talk us through that process.

Thank you.

Okay.

Let me start on your 10%.

It is quite interesting how we see this because it's a relative question.

And now I would ask back the question to you, what is the right number for right now?

Not too long ago we had long discussions that many banks were overcapitalized, and this is not even two years ago.

So the question really comes back, is the assessment that we have to what, what's the right capital?

Will it now be 10%, will it be 15%, will it be 13%, etc.

So you can compare, yes, you can say that where we are.

But we do many comparisons and if we look at the mix of our business model between whilst the investment is the average is 10.3%, and if I look at what our peers on the retail banking side, for example, on the stable businesses, on the slow business side have versus what the investment bank's is and we take an average out of it, we feel comfortable with the 10% right now, even in a market comparison.

Do we have to improve this situation; would it be wise to improve this situation?

That's exactly what we're saying by saying that we have to reduce our balance sheet size and, therefore, getting to a better ratio.

And that's certainly the commitment of the management team that at this point in time with this market volatility, with that amount of risk out there, it is a good idea to continue to work on.

So at the same time where we're saying we're not uncomfortable with the position we are on right now, at the same time we're saying we are continuously working on it to further improve it.

But what will be the right number, we don't know yet.

But in our business model as compared -- don't forget the mix that we have between for example a large retail bank operation and the investment bank, we just feel comfortable if you were to average what's out there in comparable basis that we, at this point, are certainly fine.

But we will continue to work on it.

On the IAS 39, I think you -- we quantify it because we wanted to give you a fair disclosure.

How good is that number of the qualification?

Well, it's subject to the same unavailable market prices that are out there.

It's subject to the same questions that you should probably raise on the level 3 asset how good are your parameters that you use.

So you probably -- if we put out a number, you would have questioned are your parameters okay and is this number a correct one.

It's the best number we have based on the information that we can -- and we did want to provide a number as clear-cut as we could, to give you a sense of what the impact is.

But could you challenge this number, and could you question whether these are the right parameters that we use or not?

So to say that this is an exact number and, therefore, to say that we do have a value for these assets, would be turning the arguments around from the backside, in my mind.

We just wanted to give you an idea of what about this valuation difference would be [appropriate].

And I appreciate that; thank you for the number.

My question was more, in that process where you're looking at positions and you're saying, okay, we think that's an intrinsic value/we don't think that's an intrinsic value, can you just talk us through that very fine line between how one position could get ticked up as okay, and one position you could say that's not intrinsic fair value?

Well, it was really an -- it was a position by position analysis, and it was a step-by-step process, and at the end it was business judgment.

It was a discussion with all business partners to come to this judgment.

Are these decisions judgmental?

Yes, certainly they are to some extent, but it's at the end business judgment of what we believe what the intrinsic value truly can be.

And does it --?

As we all know, in current market, it is very difficult, and we all understand that, but we've tried to do our best in getting to this assessment.

And does it work both ways?

If you're, for example, short on asset, which you think has gone to a wacko, stupid low valuation and you know the valuation is really higher, would you not fully book that short gain, or would you book that short gain?

Does it work both ways?

Yes, this is only loans, Graham.

Don't forget.

Stuart.

Stuart, sorry.

Okay; All right.

Thank you.

Thank you.

Thank you.

Do we have more?

The next question is from Kinner Lakhani, RBS.

Please go ahead.

Yes, hi; good morning.

Just a couple of quick ones.

Firstly, on the leverage finance book, you're currently valuing your book at EUR0.88 on the dollar, as I understand it, JP Morgan has marked its book at EUR0.71 on the dollar, Credit Suisse, below EUR0.75 on the dollar, S&P LCD indices are in the high 60s.

How would you account for such a large difference, and, if so, can you provide some more color?

And secondly, on the capital question, in my perspective, your Core Tier 1 on a pro forma basis with Postbank looks to be something like 6.9%.

Banks with much lesser dependence on investment banking are aiming for 8% or higher.

Is Core Tier 1 something that you care about?

Okay.

So let's start with your markings on the leverage finance book.

Again, after the reclassification according to IAS 39, we have EUR11.9 billion left, of which EUR10.5 billion are unfunded.

And they -- only to describe you what's in this portfolio -- and they basically represent two main transactions.

That's why our valuation principle is based in looking into those two main transactions.

That's why we don't really look so much into overall -- or I think it's not helpful to look into overall portfolio averages in that sense and compare them because we know exactly these two transactions; we know them exactly and we've valued them individually.

And it comes out to be this portfolio average we have, and that's, I think, we are finally marked with it.

And I think there's no more to say to that.

I think that our approach is correct and, finally, we should not apply a portfolio aspect to it.

And on capital, of course, we continue to believe on Core Tier 1, but obviously, Tier 1 is the figure that we manage towards as Tier 1 hybrids are available to protect us against losses as well.

But, of course, we look, and we have to look, and certainly its -- there's a root system in place that we have to look and also have limits on Core Tier 1.

So -- but in our view, what are we trying to achieve here is managing risk and managing the exposure of the Bank.

And, therefore, I think it's the right thing to look at all the instruments available in case of substantial [default].

Okay?

Thank you.

Thank you very much.

Ladies and gentlemen, there are no more questions at this time.

So we are done, Maria?

Yes.

Okay.

So thank you everybody for this call, and if there are any follow-ups, please give us a call in Frankfurt.

Thank you.

Thank you very much.

Goodbye.

Goodbye.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone.

Thank you for joining, and have a pleasant day.