Deutsche Bank AG (DB) 2008 Q4 法說會逐字稿

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

Welcome to the joint analyst and media call.

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 the Dr.

Wolfram Schmitt, please go ahead, sir.

Yes.

Thank you, Maria.

Welcome from Frankfurt to this joint media and analysts call of Deutsche Bank.

For those who haven't met me, I'm Wolfram Schmitt, Head of Investor Relations, hosting this call jointly with my colleague, Stefan Baron, Head of Communications, who is sitting next to me.

Hello, everyone.

With us are Joe Ackermann and Stefan Krause.

As you know, we have issued today two releases -- one, trading update of our fourth-quarter performance; and an hour ago, a joint lease with Deutsche Post on the adjustment of our contract regarding Postbank.

Before we answer your questions, on both topics, first, Joe Ackermann will take you through our performance update and then Stefan Krause will explain to you the new structure of the Postbank transaction.

In doing so, you will refer to slides which are available from our website.

Please make sure that you have those printed and in front of you as well.

On that note, with that, I would like to hand over to Joe, please.

Thank you, Woldfram.

Good afternoon, ladies and gentlemen.

Let me just first say a few words about the fourth-quarter and full-year after-tax losses, as you know, on a preliminary basis.

The fourth-quarter loss will be approximately EUR4.8 billion after-tax, which brings us to a four-year after-tax loss of about EUR3.9 billion.

This result was caused, above all, by the impact of extreme market conditions since the collapse of Lehman Brothers on our sales and trading businesses.

Until the fourth quarter, we weathered the crisis relatively well.

The collapse of Lehman triggered a much more extreme new face of the crisis.

A breakdown of the relationship between trading positions and the corresponding hedges which offset those positions were basis risk, particularly in credit trading.

A drastic increase in correlation between different types of assets, in some cases correlation increased almost to its theoretical limits.

The market volatility rose to unprecedented levels and an extreme lack of liquidity distorted market prices and rendered some risk mitigation strategies ineffective.

In addition, we made significant additional provisions against certain of our monoline counterparties.

Derisking in illiquid markets in line with our stated strategy of deleveraging our balance sheet also caused substantial losses.

The losses occur principally in Credit Trading, both proprietary and client basis; in Equity Derivatives and Equities Prop Trading.

In both Credit Trading and Equities Prop Trading, we were hit above all by basis risk.

Derisking in extremely illiquid markets often at unfavorable prices involved realizing losses.

In Equity Derivatives, as a European leader in providing customized structured solutions for clients, we were negatively impacted, above all, by the unprecedented increases in both correlation and volatility in the fourth quarter.

Derisking in some other areas in illiquid markets also caused further realized losses.

Taken together, proprietary Credit Trading and Equities Prop Trading accounted for approximately 25% of the losses in the affected trading businesses.

In other businesses, PCAM performance was affected by a number of one-time effects -- in Asset and Wealth Management, an impairment charge related to DWS Scudder, money market fund injections, and charges related to auction-rate securities, together with some headcount reduction measures.

The combined impact of these effects within PCAM, was around EUR600 million.

On the other hand, GTB, the transaction banking, and our sales and trading flow businesses both performed strongly.

As we have stated before, we take a very conservative line on the use of the fair value option on our own debt, which we think is mortgaging the future.

If we had elected the fair value option on own issued debt in line with industry practice, this would have contributed an additional gain in excess of EUR5.5 billion for the year and, as a result, we would have almost completely eradicated the full-year loss.

So I think that is important in comparative terms.

However, we achieved our goals of significantly reducing key exposures while simultaneously maintaining a strong capital position.

We maintained our Tier 1 capital ratio at over 10%, in line with target and core Tier 1 of 7%.

This reflects a dividend accrual of $0.50 per share for 2008.

We reduced trading-related assets by approximately EUR300 billion; reduced our leverage ratio by target definition; we significantly reduced key legacy exposures such as leverage finance, commercial real estate and other key credit market exposures.

We expect no further material negative impacts from these areas.

These derisking measures did not prevent us from maintaining our corporate lending activity, including to mid-cap clients in Germany.

In fact, we grew our lending to German mid-caps during the fourth quarter.

Now, a summary of corrective measures we are taking and have already taken.

Clearly, a fourth-quarter loss and full-year loss is very disappointing.

Our capital strengths, which we maintained despite very tough conditions, enables us to withstand this tough environment and we could and can afford to tackle our derisking program with determination.

Actually, I heard from one analyst who said exactly what we wanted to achieve -- to take all the necessary corrections without jeopardizing our Tier 1 ratio -- that was our goal.

We have moved swiftly to recalibrate our sales and trading businesses, moving people, assets and risk positions.

Proprietary Credit Trading has been shut down after already being derisked by over 50% since the beginning of the crisis in June 2007 and its positions folded into other businesses to be managed down.

Equities Prop Trading has been derisked by over 80% since its peak.

Global Equity Derivatives has been derisked by 50%.

Headcount in Global Markets was reduced by 900 in the quarter bringing the total to over 1,200, which is nearly 20% of the total headcount, since the beginning of the crisis, in June 2007.

Other people were reallocated to more resilient flow businesses.

Management has been restructured in the areas most affected by the fourth quarter, with a number of senior managers [leading] the platform.

Risk management has been enhanced and new functions have been added.

Corrective measures included deleveraging our trading platform.

The Global Markets balance sheet on a US GAAP equivalent basis was reduced by over EUR200 billion, non-derivative trading assets have been reduced by around [35%] since the end of the third quarter.

In PCAM, we have implemented restructuring measures, but without compulsory redundancies, and taken charges for impairments, money market fund injections and other one-time measures.

We will publish more on this topic on February 5th.

Let me sum up.

The end of 2008, clearly we are disappointed at these results, but our capital position remains strong, in fact, stronger than at the beginning of the crisis.

We have rigorously implemented the necessary corrective measures across our businesses.

We expect no further material negative impact from legacy exposures in toxic assets.

At the start of 2009, we have a strong capital base and I have to add that talking to regulators across the world there's absolutely no need from their side that we need more capital.

As a consequence, we do not foresee further equity raising measures.

We have a significantly deleveraged and derisked trading platform.

Our customer franchise remains very strong.

We have a very strong liquidity position and we have already raised the bulk of our 2009 funding plan.

As a matter of fact, we hardly intend to tap the Dutch market in 2009.

And I am pleased to say that our trading businesses have enjoyed a very strong -- actually a record start to January against a backdrop of stabilizing capital and credit markets, strong customer demand, and continued strong performance by our flow businesses.

Stefan Krause, our CFO, will now take you through the main point of the modified transaction agreement relating to Postbank.

Stefan?

Yes, thanks, Joe, and welcome, ladies and gentlemen, also from my side of this conference call.

I actually intend to very briefly only cover this restructuring.

I'm sure some of you may have listened in to the conference call from Post that also explains a little bit of this transaction.

We have provided a couple of slides because this will make it easier for you to understand how the new structure is different from the old structure, and I'll try to point out the advantages of that restructuring (technical difficulty) the potential which is good -- very substantial for both parties involved.

So the rationale was -- and we want to start the statement, we continue to be strategically very interested in Postbank and our participation in Postbank.

You know, there is no change, in our view, that in the long term, this share in Postbank enables us to have a good strategic position in the German retail market despite the crisis and therefore, we continue to be very positive on this transaction.

The benefit or the rationale for our restructuring clearly was to reduce the initial capital consumption, which we achieved with this transaction to reduce it from EUR2.2 billion to about EUR1 billion.

And the new transaction that was also important for us as the crisis has further evolved, as the old structure already had a lot of flexibility but we did want to increase even more the flexibility, and that mainly refers to the time frames in which we need to make decisions as the crisis moves on.

So the key elements that I will cover in more detail is we will have an initial tranche that we lowered from 29.75% to 22.9%, which represents about 50 million at Postbank shares, and this transaction will now not be a cash transaction, it will be paid what Deutsche Bank shares.

The second instrument is the mandatory exchangeable bond of EUR2.7 billion years issued by Post and that now will be settled in three years which refers to the extension of the transaction I was referring to initially.

This represents a share of 27.4%.

And then we have the optional third tranche which is a put and call option after conversion of the exchangeable, so that also means only after the period of three years.

Also value currently is about EUR1.1 billion.

Now, I do want to say that the value of each tranche could change, obviously, as we get to closing.

And again, to reiterate our interest in the Bank, we continue to believe that Postbank is a unique distribution platform.

We think that this will help us to create a leading -- and to become a leading European retail bank with a very strong position in Germany.

It will -- it's completely in line with our strategy to expand our stable businesses, and again, from our point of view, the deposit base of Deutsche Postbank as we move around in the crisis, will remain very important.

On page three of my slides, I now very briefly show the structure as it was before the current and the restructure transaction, and it's very important to note that, obviously, since the standard transaction we have had the capital increased done by Post, so that's why today, Post does not only hold 50% plus one share, but actually 62.3% of the shares and we obviously now, as agreed in the initial contract, are acquiring 62% of shares over time, or have the option to acquire 62.3% of the shares, depending on our strategic decision-making.

Here you see the three tranches.

The value of the initial tranche, A, is now EUR1.1 billion; the value of the mandatory exchangeable is about EUR2.7 billion; and the last, the put call option is about EUR1.1 billion to add to the chart the values of the different structures.

Now on the next chart, as I've covered some of this already, we basically have outlined some of the key elements of the structure.

As you know, we will have 50 million Postbank shares expected against the issuance of 50 million new DB shares which at the end will mean a capital increase for Deutsche Bank in a volume of about EUR1.1 billion.

Therefore, Deutsche Post will, and I may briefly become, Deutsche Bank's largest shareholder, holding about 8.1%.

And obviously, as you've heard from Mr.

Ackermann, there's no intention to stay a large shareholder and therefore obviously we have also, in order to protect our share price, agreed on a way out for Postbank to be market and value preserving.

The mandatory exchangeable allows us to acquire 60 million Postbank shares after three years, and we have elected to restructure because the structure is beneficial in the whole context and then again, I have this put -- we have this put and call option that represents 12.1% of the shares and we have outlined on the charts here the benefits of that as well.

So, I would like to add some aspects, of course, if there would be a requirement of further capitalization or Postbank, as in the old contract there's no change to that.

We agreed to participate on a pro rata basis for the period of the next three years.

Mandatory exchangeable in cash collateral that we put for the put option obviously provides Deutsche Post with liquid funds which is their main benefit out of the transaction.

The closing will take place later on the 27th of February of this year, and obviously, we will require still antitrust approval.

The next chart, very easily and, again, in line with the similar chart we did for the initial transaction now outlines for you the time frames and what we want to point out there.

Now, we have much more time and we have gained much more time to make the final decisions.

We have all options open.

We have not made a decision whether we really will go for 100% of the Postbank and as the crisis develops, we felt it extremely important to secure all optionality for Deutsche Bank to make unnecessary decisions and, as you see, we have been able now to extend the period of time in which we will be required to make these decisions.

On chart 6, I now show the current after the initial tranche.

We see the shareholding in Deutsche Postbank.

Obviously, Deutsche Post will remain the largest shareholder of Postbank after initial tranche, and you see the 8.1 shares at Deutsche Bank initially, but again, which they will convert to cash quickly as they contract in the instruments allow.

We keep a free float of 37.7% and obviously, we have now also options to look at this free float as our initial share that avoids consolidation significantly below 30%.

And, on the last chart that I'm going to cover in the presentation on page 7, we did want to highlight for you the components and how the effect -- the Tier 1 effect, the Tier 1 preservation affect works.

The previous structure here shown in the last bar on the chart to your left, was a charge of EUR2.2 billion.

This represented about 67 basis points Tier 1 consumption.

And as you have seen with the new structure, including the capital increase, we not only have a lower Tier 1 consumption off the transaction itself, but we also have, because of the Deutsche Bank capital increase, a net Tier 1 consumption of only EUR1 billion, which represents about a Tier 1 impact of 33 basis points, so overall, with this new transaction we have a Tier 1 impact savings of 34 basis points approximately.

So in summarizing, the new transaction gives us more flexibility.

It extends the time frame for strategic decision-making for Deutsche Bank.

It does have -- it contributed a significant Tier 1 savings.

It increased the capital for Deutsche Bank.

I would also [look at base] now on the lower average acquisition costs, our impairment risk has been reduced.

So in the accounting treatment of the transaction, I would say we have now a lower impairment risk due to the lower average price that we are paying for the whole transaction.

And by the way, from an accounting point of view, this transaction is being looked at as one package.

And last but not least, we were able and successfully able to keep and even improve all our optionality, so therefore, this contract doesn't bind us any or doesn't restrict us any more than the old contract did.

With that, I hand back to Wolfram for Q&A.

Thank you very much.

Thank you, Stefan, and thank you, Joe.

Before I hand back to the moderator, I would like to make the following announcement.

We really ask you to limit your questions to the two topics on which we have made disclosure today, so the performance update and the Postbank transactions.

Any questions you might have on details of our fourth-quarter results, we ask you kindly to postpone to the 5th of February when we will have our annual press conference and our analyst meeting.

Also, if participants wish so, we would also accept to ask questions in German language, but we will only answer in English language.

With that, Maria, over to you.

(Operator Instructions).

Kian Abouhossein, JPMorgan.

Michael Rohr, MainFirst Bank.

Good afternoon, ladies and gentlemen.

It's a few questions from my side, mainly on the technicality of risk weighted assets on the Postbank transaction.

First of all, if you can probably give us some more details on the exchangeable and also the put/call option, how this is going to impact your risk weighted assets going forward and if there is any capital need for that, please.

And secondly, a more general one on the overall risk migration in the quarter.

We've seen that at several other banks that risk weighted assets shot up substantially in the fourth quarter, which also had an impact on the Tier 1 ratio.

Obviously, you were able to mitigate that through reductions in the Global Markets division, partly offset by the derivatives business.

So I just wonder what your plans are for further reductions in the Global Markets unit and how this may or may not affect your P&L going forward.

And the final question relates to the investment or trading portfolio.

We've just seen the sovereign debt rating of Greece being downgraded by S&P to A-.

Just wonder whether this may have an impact on your trading book.

If you can just give us some indications for that.

Thank you very much.

So I would start with the first question.

Again, I think I'd like to answer it in two (inaudible).

First of all, you know, if you refer to risk weighted assets and obviously you know this initial tranche is mainly an issue relating to our capital and our capital development, the risk weighted assets will only come after consolidation now.

The mandatory exchangeable itself is due after three years, and it's clear that after -- within this period of time, unless we make any other decisions, there will be no consultation of Postbank.

Therefore, there will be no risk weighted asset charge in terms of the assets of Deutsche Postbank.

And again, in the chart on page 7, if you have it in front of you, we have separated now the Tier 1 capital consumption of the different and the mandatory exchangeable has about EUR800 million of impact.

So I hand off to.

And the second question on the risk weighted assets as refers to Q4, they were flat, more or less.

And again, I have to make a disclaimer.

We're talking preliminary numbers here, please, for all numbers.

So our current view is we had a flat development.

All right.

Now to be Global Markets question.

As you have seen, we can done very well until the third quarter of 2008 and the fourth quarter really hit us because of a new wave of dislocations.

And as I mentioned, this comes primarily from the basis risk and from correlation and from market volatility and, of course, also from the fact that we have derisked quite substantially.

We are continuing to see very strong flow business, as I indicated, and we only had that in 2008.

We continue to reduce our risk positions in Global Markets, and I think the deleveraging goal which we have set is still very high on our agenda.

The government bond issues, which were mentioned too, will not have a major impact on our business.

We have not taken outright government bond positions which we have to markdown.

That is why the situation, for us, is completely different, as I know you'll hear from other banks.

Okay, great.

Thanks a lot.

[Jan Bettinger], Bloomberg.

Yes, hi there.

I've got a question regarding the reference in your statement to substantial injections into money market funds.

I was wondering if you could give some background -- some background on this.

Why were these injections made, if you could also quantify them?

And I'm also wondering whether they were made because the funds fell below $1.00?

The problem was that we had a product which gave some guidance about the deal and, in order to achieve that, we had to inject money.

We have stopped that program and it will not hit us anymore in 2009.

About these costs, additionally, we don't want to disclose it, but it is in the EUR600 million I mentioned before for peak.

Joachim Mueller, Cheuvreux.

Yes, good afternoon.

Joachim Mueller, Cheuvreux.

I have a follow-up question on the Tier 1 capital, and maybe you can give at least some comments on the progression from Q3 to Q4?

You mentioned that you -- if I understood you right, you still accrued $0.50 of dividend.

Is that correct and this is an indication that you propose that the dividend for 2008?

And maybe you can also highlight whether or not there has been some (inaudible) shares sold, contingent capital reclassified and other impacts on the Tier 1 capital?

And then secondly, on the risk weighted asset progression in the third quarter, could you tell us how much reduction in risk weighted assets you had from the EUR300 billion from the gross balance sheet from the derivatives business?

And then, finally, maybe if you could give the figure for reported shareholders equity and the goodwill you had in the fourth quarter, that would be great.

Thanks.

For the difference or the Tier 1 capital comes from the dividend cuts, which we had accrued more in the first three quarters, and now, of course, we have reduced dividend for the full year.

The level I mentioned before is $0.50.

Then we have the sale of treasury shares; we have a lower starting tangible.

We have restructuring of our restricted equity units program, and we had the sale of treasury shares.

That all adds up to the difference which we mentioned.

And to cover some of your other questions in what Wolfram said at the beginning really has to us -- to bear with us with exact numbers because, again, we went [ad hoc] today as our closing progress as we can't disclose and talk about final numbers.

So some of that we will have to defer -- some of your questions we will have to defer to the 5th of February in terms of the details.

We don't want to disclose preliminary numbers that we need to substantially -- or that we need to change.

I will make you aware, though, as we have disclosed, yes, we had -- we have a EUR300 billion reduction in terms of our exposures that we have done that obviously will lead to a reduction on the balance sheet.

But on the other hand, you know the volatility we had, especially also interest rates that impact our derivative balance.

So our IFRS balance sheet and that's what we have disclosed, we don't expect to decrease.

We rather expect, based on the derivative impact, to increase.

The accentuated effect probably was minimum.

As you know, the entry Q3 exchange rate on the dollar primarily, which comprises 50% of our balance sheet, are US dollar denominated versus the final exchange rate at year end were more or less comparable.

So we have in that transition, not a big exchange rate.

But we did and we will have a substantial change in the market value of our derivatives portfolio, which may lead to an increase of our balance sheet.

So only to look at the component of the derivative in terms of risk weighted assets may mislead you.

That's why I'm saying that there are content balancing effects as well.

But bear with us for more details then on February 5th.

But in general terms, as you know, there is a different treatment in US GAAP and in IFRS of the derivatives portfolio.

And we have always stated our leverage target based on comparable numbers with our [USB] as are based on the US GAAP.

And there we have made good progress.

Okay, and just for clarification, you basically said with regards to the government measures, so no capital injection, no funding guarantees, no risk shared from the government?

Absolutely nothing from the government, and we have absolutely no intention and no need -- we actually consider ourselves as the only remaining global investment bank, which has no money from sovereign bond funds nor from taxpayers, and we continue to do whatever we can not to get into this ball game.

Perfect.

Thanks a lot.

Carsten Werle, Sal.

Oppenheim.

Yes, Carsten Werle.

Good afternoon.

Two questions, please.

I mean the first one, on this last one on the government capital, I mean what is actually the rationale not to take liquidity guarantees?

Looking at the funding levels at Commerzbank, HSH Nordbank had with recently issued government guaranteed funds, I think it could be in the interest of your shareholders and I think the only criteria that you would have to meet is an 8% Tier 1 ratio, which is no problem for you.

So I doubt whether this could not be a cheaper way of funding for you going forward.

And the second question, what still puzzles me a bit, the mandatory exchangeable -- I mean as the word sales is mandatory, so why does this not trigger in the Postbank transaction that you go above the 30% threshold and would have to make an offer already to the minority shareholders?

Okay, let me quickly answer the first one and Stefan will take the second one.

On the short-term funding, we have extremely attractive rates, because for a long time now we have benefited from a flight to quality.

Actually, our rates were, during the worst phase of the crisis, below the pre-crisis level.

Hit has come back to above -- more or less the pre-crisis level, so very attractive.

Absolutely nothing we could improve with guarantees and this would not be covered anyhow.

On the capital market transaction, as I said, we have pre-funded in 2008 as much as we could, and we have in our liquidity plan very few minor transactions to tap the debt market.

We have indications for us in case we had to do (inaudible) -- we have absolutely no need and no interest in tapping the debt market yet.

But the difference between what some of our government supported peers had and us as relatively small, given the inclusion of the fees you have to pay for the guarantees.

And on the mandatory, according to the law, it doesn't create a mandatory takeover offer.

So therefore, on top of it, it's looked at as being a forward purchase.

So it is not deemed -- and we have agreed with our auditors and legal, it doesn't create the issue.

Peter [Kula], Handelsblatt.

Yes, good afternoon.

Two questions.

First, it's --.

Could you speak, please, a little bit?

Yes, sure.

Sorry for that.

Can you have us a little bit of guidance of what further measures you have decided on to counter the crisis in the coming year?

And do you have further plans to reduce the staff, for example, in London are on a worldwide basis?

And the other question is, where will be the Tier 1 capital ratio going to be after the Postbank deal is completed?

Thank you.

Question number one.

We will, on February 5th, of course, talk more about some concrete measures.

We do not intend to have a major restructuring program, but as we have seen, we have already reduced our headcount in global markets by about 20%, and the problem areas have more or less either reduced headcount dramatically, or people were asked to leave or have left.

So in the flow businesses we are seeing extremely good volume and, as I said, record revenues in the first two weeks, so there is no intention to reduce that further.

On the contrary, we are actually beneficiaries of the fact that we are gaining huge market shares.

And by the way, the same is true for global banking.

On the Tier 1, I said it's tough.

The impact of the new transaction is a 33 basis points reduction of Tier 1.

That's what the chart that I showed you showed.

And now as the quarter develops, of course, as we have been building -- been able to build capital, so at every quarter, this -- we will see how it pans out.

But we are above 10%, so it's now under the new structure only be a minimal reduction of our Tier 1.

And then throughout the quarter we will have other affects and let's say, for example, we'll have a good quarter, it started very well, then we can build capital.

On top of it, as we are deleveraging the platform, we may see reductions on risk weighted assets as we move on, and that will also have a (inaudible).

So it will -- it's very difficult to predict at this point in time, but the impact itself of the redone transaction is a 33 points charge to Tier 1.

Carter Dougherty, New York Times.

Hello.

This is Carter Dougherty with the New York Times and the Herald Tribune.

Three quick questions.

First of all, because your answer to the first one was a tad bit garbled, the political question is inevitably going to arise in Germany as to whether this was because of the government role, and Deutsche Post (inaudible) towards recapitalization through the back door.

So what I just want to make clear is that how come in your comment you got absolutely nothing from the government?

You were talking about this transaction, right?

Let me answer that quickly.

First of all, we did not ask for money.

We offered shares to our counterparty which is the Post.

That the Post has a 30% stake of the government has absolutely nothing to do with our transaction.

We never talk to the government and we have absolutely no intention to talk to the government about Deutsche Bank in that context.

We are very happy to support the government's efforts and I'm absolutely of the opinion that it is good for Germany that we do have this program as it is for the United States and the UK and France and many other countries, but Deutsche Bank doesn't need it.

And by the way, if you calculate it through, the 8%, 30% makes about 2.5%, which is an indirect stake and, as we have heard, the Post tends to reduce that stake, so that is a marginal effect.

Okay.

(multiple speakers) nothing to do with government support.

Okay, then two quick questions.

One is regarding your policy of deleveraging and derisking.

Does Deutsche Bank need the government create a bad bank?

You've advocated this, this always seems to me to be a bit at odds with the assertion that Deutsche can deleverage via the balance sheet and that you don't need fresh capital?

And then my third question was on your dividend policy here, because this is almost as if you wish to flaunt your strong capital position to the markets.

Is that a fair interpretation of your policy there?

Okay, to the second point, there is still three pillars in the government program.

One is, of course, capital [intention], one is to guarantees, and the third one is to buy toxic assets from banks, something which is being discussed right now in the UK and United States, Japan has done it and many others.

I'm of the opinion that buying toxic assets from banks is a good thing, because I think confidence comes back into the banking system when you are certain or more certain that you have no time bombs ticking in balance sheet.

Now for Deutsche Bank, after all of the re-leveraging and deleveraging and the derisking we have done, I wouldn't even know what kind of assets we could still sell, so this is absolutely nothing Deutsche Bank needs.

In addition, I would like to add one point.

We had all these toxic assets in the trading book, that's why we had these huge markdowns over time.

Still, compared to many of our peers, on a relatively low-level, but still higher and higher than we would have ever anticipated.

But we do not have toxic assets in the banking book, which, I think is one of the risks, and we also think that we are not exposed to some of the riskier assets in the future, namely consumer lending or real estate or many others.

So we were hit by the second or third wave now.

I don't think we will be as much affected in the fourth wave, namely when the banking book or the credit risks become much more important.

That's for things like consumer lending and real estate, the fourth wave?

The dividend policy.

That's a good question.

It would add a few hundred million to our capital, but on the other hand, I think for a lot of private investors, dividend is still something they like to see.

So we will propose to the AGM a small dividend, but, yes.

You can't argue about that.

Okay, thank you.

Dirk Hoffmann-Becking, Sanford Bernstein.

Thank you.

Good afternoon.

Two questions on Postbank.

Firstly, are you going to take more operational control over Postbank now that you have a mandatory convertible?

And the second question is, your sort of strong stance on (inaudible) and any kind of government injections, does it apply to Postbank as well?

Okay, so two questions.

Number one, no, it doesn't change any of the controlled sector, we are a shareholder and we intend to remain a shareholder in Postbank.

And as you know, we have a cooperation agreement that is still ongoing in which we are cooperating with Postbank on several specific items, but we are not exercising any control over Postbank, nor do we intend to take any operational control.

And the mandatory -- look at the mandatory convertible, it's a different type of instrument.

It doesn't really change any of the governing structures or any of our intentions.

That was not what moved us to look at it.

And the second thing (multiple speakers).

Are you also (multiple speakers).

The second question you asked, quickly, is on the government money.

That's a decision of the Postbank management.

They are an independent bank, they have to assess their funding and liquidity and their position and ultimately, we as a shareholder, a smaller shareholder than Post is at this point, have -- we will follow the discussions, but it's a decision of the (inaudible) Postbank.

And so also in terms of sending people into the supervisory board, there the policy isn't changing?

No, we had -- obviously as also Mr.

Ackermann stated, that of course, he will, once he restructures his supervisory board, he will take into account the new shareholder structure, but there's no change to what we had anticipated or what -- and again, it's his decision and we understand that there's no change in his mind, based on the new structure.

Thank you very much.

[Philip Halthrek], Reuters.

Hello, Mr.

Ackermann.

A question concerning Q1.

Can you already give us guidance how quickly you will return to profit in Q1?

And a question on Postbank.

Again, because I heard that you said still not decided that you will get again majority control of Postbank.

I understood the exchangeable bond a bit different, this is already clear that after three years you will gain control.

So is this still open, or is this already decided?

Number one, I just will take -- of course, we're not going to give any guidance on Q1 at this point, but good try.

The second issue is regarding Postbank.

Look, we have -- the key for us was always as this crisis developed we wanted to maintain the maximum optionality.

And yes, of course, the mandatory based on its structure, we will get, in three years time, those shares.

And that -- what we wanted to build is to have enough time to make a decision, because, to be honest, at any point in time we could sell our initial stake into the market if we decided differently.

And in fact, there is no final decision as of today what we are going to do in the longer term, and we've built the structure to maintain that optionality so we can continue to observe how the financial crisis develops and how it impacts us.

At the same time, we again want to say that strategically, it does make a lot of sense for Deutsche Bank and it fits into our overall corporate strategy.

But, we wanted to keep these options open.

So there is no decision made yet.

Peter [Hein], [Fair] Research.

(speaking in German).

I would like to ask three questions.

First, two for my clarification what you said.

Regarding the Postbank share deal, the step one, are your shares -- you issued shares or the treasury shares?

Secondly, if I remind on the last meetings with (inaudible), Mr.

Krause, and what you said Mr.

Ackermann, I have the intention and that -- think that your investment banking business model is working well, but other times are bad.

So my question is, has Deutsche Bank's investment banking unit changed its business model material, or do you think it's enough to get rid of some people which are not as successful as you expected?

And a last question from my side and for me, most important, all the other is more or less history.

As representative of the shareholders, I would like to ask you, Mr.

Ackermann, for your personal expectation regarding the development of Deutsche Bank in the current year.

So do you expect that Deutsche Bank will release a profit in the current year?

And how big is, from your personal standpoint, the risk that the [sign] could be wrong as last year?

Is it possible to make a loss?

Okay, there are a lot of questions.

The first one is the -- the shares we are offering are new shares.

This is in German and it's (inaudible).

Yes, I know.

The second one is, Investment Banking.

I'm a strong believer in investment banking, and yes, we have made mistakes, as everybody did.

We were in the warehousing business and warehousing means that you build up quite some stock in order to securitize.

As markets dry up you are stuck with stocks and you have to mark them down if prices collapse.

So in the future we will certainly not have the same level as we had, for instance, leveraged finance where we had 36 billion for a while now.

Of course we are down to a very low number, below 1 billion.

But it just shows that was not an easy thing to achieve and cost quite some money.

The flow businesses, the advice based Capital Market businesses, has always performed, and is performing again, also because emerging economies are still playing an important role, and we have one of the largest global setups, and we are clearly gaining market share, as we have an intact platform in terms of resources, people, products, and also in terms of capital.

By the way, if we split the bank from a capital point of view and said we are allocating the normal retail Tier 1 ratio to our stable businesses, then of course our Tier 1 ratio in investment banking is also substantially higher.

Which shows that we can support, also from a capital allocation point of view, our investment banking activities.

Yes, we have restructured certain people, some have also decided to leave, and we have reorganized certain businesses where we didn't see the performance which we anticipate, expected.

We are a bank very much based on (inaudible) in our culture and this had some consequences, of course, also in terms of compensation.

The expectation for '09, as we said for the first quarter, we cannot give any guidance.

But what I said in my opening remarks is very important.

We have derisked the bank so that we do not expect any material impact from all these toxic assets.

And the risks which are probably becoming more important going forward, namely in the credit portfolio in the banking book stemming from consumer lending, from car loans, from real estate, we are clearly less exposed, because we are, in many countries where you have major problems and challenges, just not in this business, which I think is a very good thing.

And in addition, of course, we have taken steps on the cost side and that's why we start this year, after having taken the hits in 2008, which we think was the right thing to do in a bad year, anyhow, and so we start the year with some confidence.

Okay.

Thank you very much.

Stefan Stalmann, Dresdner.

Yes, good afternoon, gentlemen.

I have three questions, please.

The first question, could you share with us the strike price of the puts you have with Deutsche Post?

The second question is, you pointed out that a lot of the losses in the fourth quarter have actually resulted from basis risk.

And assuming that you still have at least some of the positions that caused these losses, is it fair to assume that some of these losses may actually reverse if volatility comes down and correlation decreases again?

And the third question may be a bit broader.

My rough guestimate would be that you suffered trading losses of around about EUR6 billion in the fourth quarter and that is -- clearly that must come as a huge surprise not only for us, but also for you internally as regards to how your risk management systems and your risk management philosophy has performed.

What does it mean for your risk taking appetite and for your approach in these risk-taking businesses going forward?

Are you making a tactical retreat right now or is this really a strategic retreat from risk taking?

Thank you.

First of all, absolutely no strategic retreat from risk-taking.

This is our business, and I think we have performed extremely well for many, many years.

But the dislocations in the market, especially in the fourth quarter, were extreme.

If correlation approaches theoretical levels, which -- if you assume that this is going to continue, it will be a completely different business and there's absolutely no logic in that.

The same is true for basis risk.

One of the reasons is, also, that we see good results in January so far, is that some of these issues have started to normalize, especially the basis risk, but also correlation, volatility looks different, much more in line with our theoretical assumptions and I think that is very good news.

And the liquidity in the market, also investors coming back to be interested in this kind of product is a very good sign.

So no strategic change, but on a tactical level, yes, we are looking much more into notional amounts.

That's why we have derisked our trading assets by EUR300 billion in the fourth quarter alone and we are certainly not going to build that up again.

So the notional amount, which is at stake and covered with hedges and value at risk and economic capital and all the other models, we look much more through that now and, in a more granular analysis, asking about the quality and the volume of these positions, and that is the lessons we and others learned.

Now the strike price, Stefan?

The strike price issue, we are not disclosing strike prices for obvious reasons.

Thank you.

[Greta Schmitt], Merrill Lynch.

Yes, hello.

I've got two questions, basically.

First of all, maybe you can comment a little bit on your kind of thinking.

Obviously you're paying for, for the Postbank, for the 62% of Postbank shares from Deutsche Post now, but you're only getting a hold of 22.9% of the earnings stream and 4% (inaudible) on the mandatory.

So maybe you can comment a little bit on what the thinking is behind that [transferring] the money or securing a smaller interest.

And then secondly, on the commitment to the capital for Postbank, does that take precedence over any help from the government?

Is there anything stipulated according to that, or doesn't it?

Well, first of all, I think we've been very clear that this has nothing to do with government money whatsoever, and that never in the whole process of discussion this was even a thought that crossed our minds, because (multiple speakers).

Sorry.

(multiple speakers) the government has stakes in banks, it is very unlikely to ever make an acquisition or [pay with] shares and you don't have somewhere the government is a stakeholder, it's just a consequence of what we are seeing, but (multiple speakers).

I meant something different.

(multiple speakers) we never talk to the government, never ask the government and we will not ask the government and we don't need it.

And the driver again on the structuring of the Postbank, again, we were very clear.

One of the drivers obviously to reduce the initial stake is to give us another option, which is without getting into consolidation structure or into a mandatory structure to be allowed to buy additional Postbank shares at a lower price, so at the current market.

So it is an option we have, one of the additional optionalities that the package has, and therefore it did make sense for us to reduce the initial stake.

And there was -- there was [another] driver we were not so concerned about.

I think that's just the fact that it is beneficial for Deutsche Bank if we decide to do it, which we haven't, to go into that direction.

Okay, fair enough.

Maybe just a clarification on the question on the capital.

I didn't mean Deutsche Bank's capital, I mean Postbank's capital.

If Postbank was to require another equity injection, for whatever reason, there is a commitment from Deutsche Post and Deutsche Bank to take part in that.

Would that take precedence -- would it still be possible for Postbank to still have the option to, for example, ask for help from the government if you still wish to do?

We don't know.

We will not ask them to do so.

They run the bank, and we are not -- we have 22.9% and we are a shareholder.

Okay, understood.

And actually, one of (inaudible) meeting needs to agree on a capital raise.

It's a shareholder meeting that agrees, it's not a single shareholder.

Now there's no majority shareholder left, so it needs to be an AGM decision from Postbank to go for a capital increase.

Okay, thank you.

Jeremy Sigee, Citigroup.

Hello, thank you.

Firstly, just two clarifications, please, if I could.

Did you say earlier on that risk weighted assets were up slightly in the fourth quarter?

And did you also say (multiple speakers)?

Flat.

Flat.

Sorry, you said flat in the fourth quarter?

(multiple speakers) we have to put a caveat on it.

We're in the closing process still.

But roughly flat?

Yes.

Okay, and secondly, sorry, Mr.

Krause, did you say that Tier 1 was above 10%, not just around 10%, at the end of 4Q?

We said that -- again, I have to say that we were currently in the closing process.

Currently our number is [above] 10%.

Okay, thank you.

Sorry, my second question, which is (multiple speakers).

And core Tier 1, that's also important, because one analyst said we may be down to six.

We are at seven still.

Okay, thank you.

Sorry, and then really just kind of sort of a legal and mechanical question.

In the event -- and I appreciate you've not decided -- but in the event that you don't sell your first stake and then the exchangeable converts and so you go above the 30% level, would you be obliged to do the mandatory offer to the free float around the value effectively what you're paying by the exchangeable, which seems to be around EUR40 of Postbank share or thereabouts?

Or is there any way you can avoid that?

That depends.

Around or whatever the average price would be.

But if you -- effectively if you're buying shares via the exchangeable at roughly EUR40-ish a share, is that what you would have to offer to the free float at that point?

Yes, if it generates a mandatory in this case, if we have enough shares, then yes, that's correct.

And there's no way for you to neutralize that obligation?

Not in selling our initial stake, for example.

That's the only way?

Okay, thank you very much.

Matthew Clark, KBW.

Good afternoon.

Two questions.

Firstly, could you just talk about which months you saw the worst of the losses in last quarter?

And then secondly, could you just clarify -- I think there were some accounting changes which had a benefit on the Tier 1 ratio in the fourth quarter?

I think you mentioned on the share awards the retention shares and also I think maybe on the pension side.

Could you just quantify and explain any accounting changes that may have helped?

Thanks very much.

Okay, the first question.

October was the worst.

Okay.

On your second -- on your accounting question, there was only one substantial accounting change that had an impact on Tier 1 substantially was that our accounting for pension.

And I think this is, by now, an industry practice in Germany.

There is the IFRS, they have the corridor system and then that is the same as Option 3 under IFRS, in which instead of having the corridor, you were booking the gains and losses on your pension plan directly to capital.

And so as this corridor option will disappear anyway, and it's an option that will not be available in the near future anyway, we did do the change which did have a positive Tier 1 impact.

Because our pension assets are higher than our pension liability.

Okay, and could you just quantify, roughly, to the nearest billion how much impact that has?

And then presumably this is because your liabilities get reduced by credit spreads?

I understand there's a need for your question, but I would like to defer all these questions because, as we are finalizing them, I'd really like to defer all these details to our February 5th call.

Because the intention was today to get out and talk, to give you some numbers and so most of these numbers are preliminary at this point in time.

So bear with us and we'll answer these questions on February 5th.

Okay, thanks very much.

Thank you, Matthew.

I would like to make a comment.

In the interest of time, we would like to take one more question.

And if we might cut off somebody, I apologize for that, but please call into our press and IR offices after the call.

Thanks for that.

So next, please.

[Nina Lucma], Financial Times.

Yes, hello.

I have three questions.

First of all, you mentioned that you delevered -- the deleveraged finance loans, that you reduced them from almost EUR12 billion to less than EUR1 billion.

Could you explain how you did that?

Whether you sold them and -- well, interestingly (multiple speakers)?

Very simple.

One thing was -- two deals were canceled.

Sorry?

Two deals, two major deals were canceled.

Okay, okay.

So two major deals were canceled.

What about the real estate funds?

Could you tell us -- real estate loans, could you tell us a little bit about how you reduced those?

Well, we primarily -- we sold them and had some re-classes.

Most of it was sold.

Okay.

And the last question is on the [bad] bank.

I was a little bit surprised because you just said that -- you said that you don't need a bad bank, but you were one of the bank managers who called for a bad bank.

I did a lot and I never talked about Deutsche Bank.

I'm unfortunately also sometimes asked as chairman of the IIF, the Global Bank Association, to talk for industry interests and not for Deutsche Bank.

That's very often, I know, misunderstood.

I never asked for anything, for any program for Deutsche Bank.

But you're still convinced that there should be a bad bank like generally, even if you don't need it?

Always a very complex question and I don't think this is something which is imminent, certainly not in Germany.

What I'm saying is in order to restore confidence in the system, either you do what we are doing, you take all the markdowns and you liquidate and you get out of it, and then you are clean.

Or if you cannot afford to do that, because you don't have the capital and the profitability to afford that, then it might be better, instead of [modeling] through, that you pass these toxic assets into a separate entity the way Sweden and others have done it.

Now it's much more complex because the real issue at what price.

If you buy it at market price, then of course, those who have not yet the market values in their books will not benefit a lot.

If you buy it above market price, then of course all those, like investment banks who have it in trading books, would be the beneficiaries and I don't think that would be politically very easy -- easily acceptable.

So in that sense the prices, as we have seen in the US TARP program, is the real challenge here.

Thank you very much.

And with this, ladies and gentlemen, we come to the end of this call.

Thank you all for joining us on such short notice and we appreciate very much your consideration for Deutsche Bank.

And we'd very much be pleased to have you with us again on February 5th, as mentioned several times before.

On that day, as you know, we publish our results for the year '08 and we hold our annual press conference in the morning and we have an analyst call in the afternoon.

So hope to see you in February in wonderful Frankfurt, and take care and bye-bye.

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

Thank you for joining and have a pleasant day.

Goodbye.