Deutsche Bank AG (DB) 2009 Q1 法說會逐字稿

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

Welcome to the first-quarter 2009 analyst conference call.

(Operator Instructions).

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

Wolfram Schmitt.

Please go ahead, sir.

Yes, Maria.

Thank you.

Welcome to Deutsche Bank's first-quarter call.

With me is Stefan Krause, the CFO of Deutsche Bank.

Before we proceed, let me say a word of apologies for the postponement of the call.

By now, all of you know why this was the case.

We wanted to react appropriately to the strong demand for information, not only from the capital market, but also from the media.

And therefore we had a press conference this morning which was invited for on a short-term basis.

So thank you for your patience on that one.

On the other hand, this gave you more time than usual to study all our disclosure products.

The interim report, the earnings release, the financial data supplement, and in particular the set of slides which Stefan will use in a minute.

I have to point you and tend to the cautionary statement, the disclaimers which are on all our products with respect to forward-looking statements.

With that having said, I would like to ask Stefan to take us through the numbers before we come later to the discussion.

Stefan, it's your call.

Yes.

Thank you, Wolfram.

And I would like to add to the apologies.

I'm sorry, but on a short-term notice we decided to invite the press this morning to cover some of the information needs of that audience at this point in time.

Let me start with page three on the first-quarter highlights.

As you know, we have had a very good result in the first quarter that even as the second look, we'll show you that it was much better than these numbers show.

Income before income taxes was at EUR1.8b, net income of EUR1.2b.

We had a provision of credit surplus of slightly above EUR500m.

We have a diluted EPS therefore of EUR1.92, and based on our target definition, a pre-tax return of 25%.

We are happy, as Joe also said in the press conference today, that we could further evolve our Tier 1 ratio, which now is at 10.2%, which is above the target that we set at 10%.

Our total US GAAP pro forma assets were again down to now slightly below EUR1 trillion.

With that, we achieved our target early, the leverage target of 25 that we had set out to be our mid-term target.

Right now we achieved the target of 25, and as Joe verified that this will be a level at which we plan to stay in the near future.

And what continues to be very important for us, it's important then the capital discussion of our liquidity and funding position, which remains extremely strong.

Of our diversified unsecured funding position of EUR495b, 85% are from deposits and capital markets and only 15% short-term wholesale funding that is completely covered by liquidity -- cash and liquidity reserves on the balance sheet.

Our funding status, we will report to you how it has gone from we have raised EUR7b in capital markets out of the plan of about EUR16b.

And in retail deposits we have raised EUR13b out of the plan of EUR17b already in the first quarter, which shows you how strong our funding position is.

If I turn to page four, we shall disclose the results as a whole.

I will go into the revenue/fee composition a little bit later because we have some good messages there in terms of the underlying performance.

I will cover all the topics separately.

I did want to go here again into our targeted definition, our pre-tax return on equity is 21.9%.

And on our target definition is 25.3%.

The difference, as you know, on our target definition, we normally take out the gains that we had on the sale of industrial holdings which is not -- are not part of the target definition.

In this case we had an impairment on an industrial holding position that was substantial, and that was eliminated from the profit, leading to the fact that the target equity return is higher than the normal pre-tax target.

Our net revenue, as shown here, it's EUR7.2b.

We did absorb EUR1b in additional markdowns, which are related mainly with EUR841m to monoline additional reserves that we took and an impairment on a property that you may be familiar with, which is our Las Vegas casino that is left over out of our funding -- financing business.

As you see, we were therefore very well able to recover.

And a further analysis of the net revenue, which would show that we were recovered very well and came back almost to record levels, historical record level.

I also would like to add that our net revenues showed more than even regional distribution again, with the US regaining earnings power, which is also good in terms of our risk position.

And again, while our CIB revenues were up versus the previous year comparison, our PCAM revenues were slightly down.

If I move on to the next chart, the provisions for credit losses that I'm sure we'll see further questions as we move on.

We have disclosed to you, separated, the IAS 39-related reclass provisions we did.

Then you see the number of EUR526m of reserves we did in the quarter.

This number contains a release of a provision of about EUR60m in PCAM.

It was a historic provision we did not require anymore.

Then obviously you have the reclass-related effect that is a non-recurring effect, but we also see some higher-than-expected losses, especially in the German and the Spanish retail portfolio.

As we move on to non-interest expenses, a couple of words to our general cost situation.

Our net non-interest expenses were up 2% versus Q1 '08 which, in comparison, we had a slight increase in the comp expenses which we made up in the light of our significant increase in performance.

It does reflect lower accruals for performance-related compensation.

So despite the fact that we did have a better performance than Q1 '08 as more or less it's only a slight increase in comparison to that we have accrued a little bit less for performance-related compensation.

This we do according to the industry trends we see on compensation and our own expectations right now for how the year will go.

Adjusted for higher litigation expenses and currency impact, costs actually decreased.

But I also want to mention that as our cost reduction efforts continue, some of these cost reduction numbers should show their first impact in later quarters and did not show them as materially in this quarter.

Our headcount is slightly down, by 179 on a Group basis, to 80,277 heads.

We do have quite a different structure.

While in the CIB we had a significant reduction in infrastructure, we are up as we continue our offshoring movement to reduce our cost base.

If we move on to page eight, on the income before taxes, this shows you the development over a nine-quarter period.

We did this in these charts to give you a better feel for how our profit in Q1 compares to our longer-term run rate.

And I think we had a favorable result.

But I will go later in how much additional markdowns and reserves we have taken to get to this profit.

On page nine we show our net income.

Our effective tax rate for the quarter was 34.9% which was at the upper range of our mid-term guidance.

For the full year right now it's difficult to give you a guidance because the number will be predominantly driven by how profitability will develop in the United States.

We expect, again, and that's our outline on the longer-term basis onwards, the range of 30% to 35% in our ETR.

But again we expect some volatility due to geographic rate mix.

On the capital ratios and risk-weighted assets, a few words.

First of all, we were able, as I already told you, to maintain our Tier 1 ratio at 10.2%.

Also good that our core Tier 1 ratio also moved slightly up to 7.1%.

Our risk-weighted assets, I will show later, mainly a move to one item which we show on the next page.

On the right-hand side chart you see the Postbank transaction added to the risk-weighted assets, while our ongoing reduction efforts continue, and we were able to reduce our risk-weighted assets according with the balance sheet reduction and process improvement, measurement improvement, as well as more protection -- collateral protection on risk-weighted assets as well.

This was good besides because we had an increase in risk-weighted assets based on the exchange rate situation in the quarter.

Tier 1 capital is shown on the left-hand side of this chart.

You see the main items that drove the increase in our Tier 1 capital for the quarter was not only the positive net income, but then the compensating effect of the shares issued to Deutsche Bank and the deduction for the Postbank transaction, which were both results of the restructured Postbank transaction.

And here, again, that's what we like to point out, the reason of the restructuring was mainly for Deutsche Bank to protect our Tier 1 development, which in this chart you see we were able to achieve.

On the total assets, as in the initial slide, it continues, as we continue to see the development with our derivative and other netting position comprised more than half of our balance sheet according to IFRS right now.

But we saw in the quarter a reduction of the IFRS balance sheet from EUR2.2 trillion to EUR2.1 trillion, as well as a decrease from the US GAAP pro forma balance sheet calculation we do to allow you better comparisons to our US peers that moves on from slightly above EUR1 trillion to below EUR1 trillion in assets -- total assets.

Very good, we achieved our 25% leverage ratio already at the end of Q1, despite some unfavorable exchange rate effects in this number as well.

And I would like to again put out a word of caution as we will try to remain at this position of 25%.

Exchange rate volatility will continue to impact this number significantly.

So we'll have to see how that develops over the next couple of quarters.

On the funding situation, here an asset and liability comparison of our balance sheet, because we continue to believe that not only capital but also our funding position, liquidity position is key to continue to survive the crisis and to continue to show strength within the crisis.

Here you see our unfunded IFRS as well as our funded IFRS balance sheet items, and a very good match between our loans and our non-bank deposit funding position.

On page 14, I take out the unsecured funding by source.

Here you see that since the beginning of the crisis we have been able to halve the short-term funding positions from 30% of the unsecured funding by first to 15%, and these 15% are fully covered by cash and liquidity reserves on our balance sheet.

Let me now move into the segment results because we had some key, quite interesting developments.

And on chart 16, for your benefit we have done a quick review of the different businesses.

I will go into each one of these businesses in the following charts.

But you see that definitely it was our CB&S, CIB, the global market business especially that drove the strong profitability of Deutsche Bank in Q1.

But other businesses had either slightly lower profit before taxes or, like in the case of Asset & Wealth Management, a loss.

The Sales & Trading revenues that we show on page 17, you see how strong the quarter was.

If you take out and consider the markdowns that we absorbed within our revenues in the first quarter of '09, you see that we are back to the record levels of Q1 2007, which definitely is a very encouraging development.

As we move on, in the next chart I've told you that it's quite interesting to give you some feel for the strength of our underlying earnings power.

We have, on the right-hand side chart, also added further to the EUR1b in markdowns that we had on the reported revenue, also some -- the losses from exited or repositioned business in light of what some of our competitors have disclosed to you, which were EUR1.1b.

Some of it prop, oil prop positions that we are de-risking.

Some of them also global equity derivatives that are in de-risking.

If you take out these additional reserves we took to protect us from losses there, and if you look at the significant additional monoline reserves we did, the true underlying revenues were EUR6.1b.

That shows you the strength of the quarter in this area.

So where is it coming from?

As we try to show on an illustrative mode on the right hand -- on the left-hand side of the chart, as we had told you, the strategy in the global markets is to go away from the structured and complex products which used to be the strength of Deutsche Bank moving now into the flow businesses that are, due to the strength in pricing, very profitable.

And that strategy basically as we saw it in Q1 2009 is yielding extremely good results, as you see it on the strong revenue development.

At the same time, you see that in the Sales & Trading and the flow business, such as we show in chart 19, come out of mainly three areas, foreign exchange, money markets and rates business, for which we, in very short period of time, have achieved significant revenue increases.

Whilst on the revenue line items, we see that success in the global market arena, at the same time we continued to successfully de-risk the platform.

We continued to successfully manage legacy exposures and the headcount, while continuing to successfully have taken out cost of the business.

So at the end, Q1 is a story of very rapid reaction to the Q4 situation and a correction of it coming back very quickly to success.

On the Sales & Trading debt and other products, here we show where it's coming from.

We had really record client flows across all products.

And again, we continue to see a favorable margin development and favorable trading conditions in many of the different businesses, so definitely recovered from the loss situation in Q4.

On the Sales & Trading equity, you see that we certainly have significantly recovered from the losses suffered in Q4.

In a competitive comparison, we certainly don't have here yet the strength that some of our competitors have shown.

That is something definitely to do with the fact that traditionally we had -- we were a house that was strong in terms of our derivatives in this area and was strong in terms of our prop trading activities.

And as we told you, this area is now suffering a little bit from the de-risking strategy which we continue to believe is the correct one.

But we have now agreements in place on how especially moving in to the prime mortgage arena and others, we will be seeing much stronger revenues as we move on.

But in an initial step, obviously, the de-risking and the repositioning of businesses has had an effect on our Sales & Trading equity business.

Also, as you saw, the rallies going on in the equity businesses benefited more the strong US businesses.

We have gained market share in the US, but we continue not to be the biggest player.

We are a strong European player and the rally in European equities was much slower, so we did not have the benefit in this area as well.

So as we move on to the Origination & Advisory business, in corporate financing, the underlying revenue was up 17%, so a positive development.

And here you see if we were to take out the significant markups and write-backs that we had in Q4, we saw a good development, especially as we are market share gainers.

On the chart we highlight, as Joe also told in the press conference, that we have achieved improvement in our positions as well on a global basis, as well as in Europe, which also shows how this business is recovering as we moved on throughout the quarter.

In the next chart on Global Transaction Banking, the conditions obviously were somewhat challenging in terms of the environment.

This is a business that's certainly closely linked to the direction of asset and asset values and interest rate, which has affected the revenue performance.

We continue to invest into the infrastructure of these businesses to provide a better service for our clients.

Under those circumstances we did have somewhat a satisfactory quarter and we see a continuous flight to quality here in this business, which is also promising for the future of this business area.

And we continue to see a particularly strong performance from the trade finance business.

On the next chart, we show you a little bit how strongly we are still impacted by the lack of client activity in our PCAM businesses, such as PBC and Asset and Wealth Management.

In Brokerage we were down EUR136m versus the previous year's first quarter.

In portfolio and fund management we were down EUR186m.

So you see how significantly the slowdown in customer activity has impacted our PCAM results.

Let me go into the different business areas.

Asset and Wealth Management, here we had -- we recorded a loss.

Some of it one-time items, but some of it is also underlying performance due to the lack of customer activity that I described before.

If I go into the Private & Business Clients, this is also here depressed customer activity and somewhat more higher loan loss provisions are driving the slowdown in profitability in this business.

We have deteriorating credit conditions in Spain, a little bit also in Germany.

But again, as we're not in the consumer credit card finance type business, the lower end business, we continue to not to be too concerned about the profit development in this area, as this critical retail business activity we don't have and therefore we might not be as impacted as some of our competition is in this arena.

Let me move on to a couple of key current issues we wanted to cover for your benefit.

And the first one is I did want to, with the chart on page 29, go a little bit into our cost-cutting efforts.

They continue.

They go on.

This chart basically describes to you what we are doing in the different business areas.

So these efforts continue.

Some of the activities that have been launched of course don't show their effect in Q1 yet as we were either planning or getting prepared for those issues.

So there you have to expect a later impact, significant impact starting in Q2.

And then moving into Q3 and Q4 of the year, you should certainly see the effect of our further headcount reductions and other cost-cutting processes ongoing.

For us it involves a significant process to simplify our platform, to take some of our competency costs out of the platform.

That's also an ongoing exercise, as well as we continue our offshoring efforts in order to reduce our cost.

One of the questions you may ask is what the impact of the Postbank transaction was on our results.

We show here at the closing date how the Postbank transaction impacted as a whole our results.

We had assets -- asset increase based on the acquired shares and the mandatory exchange of EUR4.9b.

We have liabilities that is the carrying value of the put/call structure of around EUR900m.

Here also the risk-weighted effect of the EUR11.4b that I disclosed and the development of the risk-weighted assets before.

Tier 1 capital deduction of EUR1.1b versus the capital issuance in kind to the Post of about EUR1b, which then meant a Tier 1 ratio impact of 42 basis points as of the closing date.

Let me now go on to the monoline topic, which is certainly the other topic that has been greatly discussed.

In the first slide, in slide number 31, we take the asset class, which are the residential mortgage-backed securities and subprime and Alt-A risks.

Exposure decreased slightly at an overall level throughout Q1.

However, within there, two separate and partly offsetting effects.

We first saw a reduction in non-investment-grade exposure, reflecting the commutation and the settlement of a particular monoline counterparty exposure.

And this results in a decrease.

And secondly, an increase in AA-rated exposure, largely driven by the ongoing deterioration in the market value of our Alt-A positions in Q1.

The protected assets are most entirely Alt-A.

And obviously despite the ongoing market decline, the quality of the majority of the portfolio remains high, with good subordination levels.

You can also see the great majority of our remaining monoline exposure here is to AA-rated counterparties.

If we move onto the next slide, on page 32, it summarizes our current exposure to monoline counterparties in respect to the other asset classes.

The change in the rated composition of the monoline exposure reflects the internal downgrades of three monolines we had to do in Q1.

The overall increase in exposure from [EUR5.2b] to EUR6b in Q1 reflects mainly some further deterioration in market value of TRUPS-CLO and CMBS positions during the quarter.

These positions have protected cover of broad range of generally, in that we really have to say of generally high-quality asset classes, with strong levels of subordination relative to current and expected default rates on the underlying assets.

We have, by the way, made additional provisions of about EUR600m in the quarter, where we had concerns about counterparties' ability to fully or partially perform on their obligation, based on in-depth reviews of their current financial position, any likely degradation of the [risk] assets and the possibility of any commutational transaction.

So, in summary, overall in Q1 further declines in the value of risk assets increased our monoline exposure overall by some EUR1.6b.

This, together with the FX movement and the internal downgrade that I just referred, drove additional CDO results of approximately EUR841m.

Total exposures in CDOs were reduced by EUR850m and EUR750m as a consequence of the settlement with one monoline counterparty.

But we continue to review the situation very closely and are acutely aware of the risk implications.

We have reason to say we continue to believe that our approach for reserving monoline exposures is appropriate, given the relative quality of our assets and counterparties.

On page 33 we go into the Level 3 assets.

As you see, we had about a reduction of 10% from EUR88b at year-end to about EUR80b, and I again I refer you to the composition of it being largely positive market values of derivatives.

As we move on to our credit position in the context of peers, with the last two remaining charts I just wanted to make you aware and give you a little bit of a view on what we expect and how we expect some of our topics to develop.

But again, in our loan book, while we're not so concerned about additional loan loss provisions that we certainly have to -- or will have to take based on the development of Q1, they will not be substantial.

If you look at the size of our book and especially at the composition of our book that's highlighted on the chart, on the left-hand side you see that on the critical loan areas we're not very exposed as compared to many of our US and other peers.

And therefore our provision for credit losses, which may seem low in the context of these comparisons, actually are adequate.

And last but not least, again, to the favorite topic of many of you, the Tier 1 ratio, we again have to say if you take government funding out of it and do the comparison, our Tier 1 ratio looks pretty good in that context.

And again we continue to believe that it's -- that it is and was the right strategy to stay out of government funding as long as we could.

We will continue to focus on Tier 1.

It is the guiding principle now within the management of the Bank.

And our target of 10% remains.

So thank you very much.

And I'm looking forward to your questions.

Thank you, Stefan.

We are ready to take questions and would like to give back to the moderator to take us through the discussion.

Maria?

(Operator Instructions).

The first question is from Huw van Steenis, Morgan Stanley.

Please go ahead.

Good morning.

Three quick ones.

Firstly, on page 18 you mentioned there's EUR1.1b of losses from repositioned businesses.

I was wondering if you'd be able to share some color on splitting up between credit and equity in particular so we can get a better sense of what the underlying equity numbers were before write-downs of derivatives.

Secondly, I couldn't see it in the release, but could you share what write-downs you had from RREEF and also what net exposure Deutsche still has from its balance sheet to RREEF.

And then lastly, maybe just a more philosophical question, some of your competitors took the opportunity of the strength of Q1 to take a much bigger hit to legacy assets.

In particular, they sold some of their leveraged finance.

But I noticed that you really didn't.

And I was just wondering why you chose not to externalize more of the legacy assets in such a strong quarter.

Thanks.

Well, let me start with the last question first.

I actually -- we have taken a very conservative approach with this.

We did take additional monolines hits, we have taken markdowns, as I tried to allude on the chart, on legacy positions above the EUR1b discussed on the revenue and EUR1.1b in the global markets arena.

So, overall, we have absorbed about EUR2.5b in additional -- more than EUR2.5b in additional hits in Q1.

So definitely I think within the context of what you can do within the accounting rules, I think we have taken a conservative approach and have used the strength of strong quarter.

Definitely every competitor has different issues, has different issues, different exposures, different risk, different quality of assets.

We have done it in those areas that we feel are most exposed.

The EUR1.1b in losses are related especially, that you referred to, the de-composition of some of it is -- or the larger part is related to our Alt prop credit position that is in the process of being de-risked.

And some of it is related to our global equities derivatives that is a smaller part.

The markdowns in the RREEF that you asked about are about EUR120m in the Q1.

Thank you.

Okay.

Next please?

The next question is from Jeremy Sigee, Citigroup.

Please go ahead.

Hello.

Good morning.

Just two or three quick questions please.

Firstly, could you just give us a view on -- a number of your competitors are talking about target levels of headcount in Investment Banking.

You've come down in the quarter from 10,045 to just below 10,000.

And I just wondered what view you have from here in terms of headcount trends.

Secondly, could you come back on that slide on the other monoline?

I wasn't very clear why the credit value adjustment is relatively limited on the other monolines.

And then thirdly, I just wanted to come back on to Private Wealth Management which seems to be loss-making within AWM.

And I just wondered what the plan is for restoring that to profitability, what you think is broken in that model that is going to get fixed.

Okay.

Let me start on we don't have a target level of headcount for our global markets of CIB area.

We have had a target now for the Group where we want to go, that for obvious German public market reasons we have decided not to disclose.

Also we don't plan any significant reductions in Germany itself.

It's a sensitive topic.

But we will continue to drive down, especially, and that's what you should expect to give you some guidance at least, Jeremy, expect some cuts on the infrastructure platform mainly.

Our businesses for a large part, especially the global area -- market area has gone ahead already, with the cuts in most of them are past them right now.

And as we see obviously revenues in the business coming back, the need for further headcount may not be there, but based on the fact that they have already done significant resizing of the platform as we speak.

Let me move quickly to your last question, that's the Private Wealth Management.

We actually were breakeven for this business in Q1.

I did show you on the chart that we see Private Wealth Management is a business that does rely on customer activity, on customer income.

We have the benefit and do think that we are gaining in terms of numbers of customers.

But, as you know, most of those customers are not moving their portfolios.

We don't see transactions.

We don't see customers restructuring their portfolios at this point.

So the equity market levels continue to be low in terms of the valuation of these assets.

So therefore that's what's impacting this business.

So we actually believe that in this business area, as we have started to build out our sales force, as we have started to gain customers, we are building profit, increasing capacity.

And therefore in this business area we definitely should see a significant increase in return to profitability, maybe even in the near future as customer activity and equity markets develop further.

To your monoline question, we have -- the fair value of the credit position is EUR2b, for the AA-rated monolines, yes.

And we reserved on the non-investment grade.

I'm not sure if I got your question correctly, Jeremy.

Can you maybe help me what are you looking exactly at?

Sure.

Well no, just the observation was that on the slide 31 the carry value of the monoline fair value is lower, particularly on the non-investment grade.

You've taken a credit provision of EUR600m against EUR800m fair value.

So you're carrying that effectively at 25% on the dollar, whereas on the slide 32 you're carrying your monoline exposure with much less of a markdown on it, much less of a credit position.

Does that reflect your -- and are you factoring in a view on the underlying in --?

No, the view on the underlying and then it's a case-by-case credit evaluation of the counterparty.

That's why all the averaging always doesn't work because it's really a case by case.

And it's also on the assets as -- and on the counterparties.

Okay.

So it is factoring in a view on the underlying and the likely --?

Yes.

Okay.

All right.

Thank you very much.

You're welcome.

Thanks, Jeremy.

Next one, please.

The next question is from Derek De Vries, Merrill Lynch.

Please go ahead.

Yes.

Good afternoon.

I have three areas of questions.

The first two are numbers questions.

Starting with the EUR6.1b of revenues you show in Sales and Trading, you've been very clear in quantifying some of the exceptional losses or non-recurring losses or what-not from -- in that EUR6.1b.

But I'm wondering if you could quantify the recovery of basis risk.

You've been very clear in previous presentations that you had a big recovery of basis risk in Q1.

And I'm wondering how much I should strip out of that EUR6.1b to get a normalized run rate.

So that's my first question.

My second question goes to your disclosure on the legacy assets.

And specifically you have this line item which is loans related to asset sales.

So you show EUR6.3b of leveraged finance and EUR2.2b of commercial real estate.

And I assume that relates to assets where you've sold the underlying to a private equity firm or another investor and you've provided funding equal to roughly three quarters of the sale price.

And what I was hoping for is an update on where does that lie today.

So as it used to be those guys had 25% of the equity, today have they lost half of that equity or have they lost two-thirds of their equity on average?

And then how does the accounting work?

If the equity is wiped out from a private equity investor, do you give them the opportunity to put more equity in?

Does that return to your loan book?

How do you treat that or do you just treat it as an impaired loan.

So that's the question there.

And my final question, I guess I was a little bit surprised by last night's announcement that Mr.

Ackermann's contract is being renewed through 2013 AGM.

And my initial reaction is that this is probably an indication of a lack of an appropriate internal replacement.

I was wondering if you could give us some insight into the Board's search process and, in particular, how many internal candidates were considered.

And given the importance of this, I guess I'm a little surprised Mr.

Ackermann himself wasn't on the call.

So maybe you can touch on that in broad strokes.

Yes.

Okay.

Loaded questions there.

Sorry.

I will try to address it also.

Let's start on the basis risk question.

Yes, there is some recovery.

Yes, and we say some recovery.

But we are not prepared now to quantify.

So -- and we expect obviously some more to come in the future quarters.

So there was only some of it, but again I don't have any numbers for you right now here.

Next, the -- was the topic of how the two instruments function.

Yes, some of this equity has been wiped out by now.

And yes, the counterparty has a risk to put in some more equity or otherwise, yes, this might come back to us in our balance sheet.

Some risk -- there could be some risk that these assets will return to our balance sheet.

That's how the accounting works in case of the whole equity being wiped out.

Just so I'm clear on that, if the equity has been wiped out, do you still show that in the EUR6.3b of leveraged finance and EUR2.2b of commercial real estate, or does it move up one line in terms of your exposure?

How do you show it optically?

Well, it's not -- right now we don't have the event in the numbers.

So -- and we would have to then look into the accounting specifically if this event occurs.

And again, some of the equity is wiped out, we're not if like all of the equity is wiped out.

We're not nearly close to that situation at this point.

Now on the succession question, at the end there is a big debate whether you should have a change in captain in the middle of the storm.

And to describe the situation and the whole discussion around it was really more driven by the Bank does have, and I think it was raised in media, does have several viable candidates for the succession.

You saw internal names.

You saw external names.

So definitely it's not a lack of candidates.

It's just more the fact, it is having a discussion, if you were a Supervisory Board member, you'd rather bet on a known horse that you try to do a management change.

I think, in that regard, I think the preferred solution for Deutsche Bank was especially to keep the captain at the ship.

And don't forget that generally obviously these management changes also lead to some further changes in management team.

We had understood from rating agencies, we have understood from many investors that it is one of our big assets that we have been able to maintain the team at the top.

And I think that's why the two key statements that you might have heard this morning in the press conference is not only Joe has committed to stay on, but the team has committed to stay on as a whole, as we have to put the Bank here in the priority and any individual issues right now as we continue to navigate the crisis.

So I think this is more a case of never change a winning team that the Supervisory Board took, not less -- not a decision that we don't have strong players in our field that could do the job.

And that hopefully gives you some or sheds some light on the discussion that was going on at Deutsche Bank right now.

But we were also worried about, and Joe alluded to it, we saw already the press discussing candidates, badmouthing candidates.

And to cause a disruption in the management team in such an environment where we had to continue to certainly face challenges despite this extremely good quarter we've had.

And we don't know how the crisis in the real economy will further evolve.

I think it's, at the end, a very prudent and very wise decision.

Very clear.

Thank you very much.

Thanks for the question, Derek.

Next please?

The next question is from Joachim Muller, Cheuvreux.

Please go ahead.

Good afternoon, three quick ones, please.

Could you maybe explain a little bit on the NPL increase, how much was actually due to the reclassification of the trading assets?

And then also could you comment on your risk provision guidance that you gave from the fourth quarter, and maybe update us on where you see that going to this year?

And secondly, could you be a bit more elaborate on how actually margins and volumes impacted the revenues on the transaction banking side?

I don't know if you could provide any figures on volumes and on margin levels.

And then finally, is it possible for you to recognize any tax loss carry-forward this year in case you will deliver German GAAP earnings?

And could you maybe give us an indication on tax rate for this year, in case I missed that.

Thank you.

Okay.

Let me start with the tax loss carry-forward, I'm going to answer your questions from the back.

Obviously I hope we can use a lot of it and that obviously will be contingent on the further development of the year.

We do have, as you know, some significant positions in the US mainly.

And we definitely would like to develop, to use those carry-forwards.

And if the property value continues as it is, and we have also made a slight sense that April has continued about the same, then hopefully we can use of some of this.

I did disclose for the tax rate for this year for the ETR this year that we are not making any specific projection at this point because we have a lot of geographic volatility in the ETR.

And that geographic volatility is very difficult to predict at this point in time.

But again, I have given you a longer-term range I think that you could use for now in terms of -- but you saw that we -- due to the geographic rate mix we stayed at the higher end of this range in Q1.

That will now really be a factor on how strongly profitability comes back, especially in the United States, which -- higher profitability in the United States means for us higher end of the range.

On the margins and volumes in GTB, we are very good as I said in trade finance.

That's a strong volume in this trade on January at the last year-end, profitability was good; we had good interest rates.

Now we have a low interest rate margin environment, and therefore obviously our margins are down despite we continue to see the flight to quality.

We definitely get more customers, we definitely see more volume going through.

But the fact that interest rates are down, it remains that for a slowdown in profitability.

And actually we don't see the interest rate environment increasing right now.

So we believe that maybe this business might have some lower profitability than in the previous year, on an ongoing basis unless we see a significant change in margin.

We see fee margins go up in trade finance, and we see volumes up in trade finance.

So it's pretty much a bad -- pretty much different development in the business area.

Your risk guidance.

I expected that question to come much sooner, actually.

Because obviously we had given you a specific guidance.

It was based on our assumptions we had in our model and we have to admit that we see a higher run rate.

Not significantly higher run rate.

I will therefore abstain to give you any other significant number guidance.

But it will be higher.

But let me clearly say that based on the quality of our book we don't expect it to be significantly higher than the number we had disclosed to you taking out the IAS 39 reclass effect that at the end will certainly depend on how our reclassification rules are applied and how many of those assets qualify for reclassification throughout the year.

Without the reclassification by the way on your NPL, the ratio would be 57%.

And again on the NPL, always caution you and would like to add that obviously we had significant collateral protection additionally to this coverage that you should consider in terms of assessing our risk on the non-performing loans.

Thank you.

Next, please.

The next question is from Kian Abouhossein, JP Morgan.

Please go ahead.

Yes, hi.

Question on sales and trading revenues.

In the fourth quarter, you indicated EUR5.5b of trading and hedging losses.

And you outlined the challenges.

A lot of the challenges seem to have turned into positive issues in the first quarter, looking at indices.

Have these EUR5.5b or part of it, has it helped you in the first quarter?

Not -- not been as high as first.

No, there is -- if with your question you refer whether we had any significant markups that are related to the losses we had, the answer clearly is no, not significant.

And again, it's -- you outlined that we have resolved most the challenges; we've had an excellent performance in the global market area in this quarter, truly exceptional.

I did refer to the one or other issue in the equities arena where through the restructuring, you see some lower profitability.

At this point we expect recovery there and market share gains and development in the near future there as well.

So we still have to work through some of the changes you saw that I disclosed to you, that some of the losses we had to take markdowns we had to do were related to the assets out of our prop trading activities that still remains on the books and had to be de-risked, which has the other effect, it's going to go away.

So that's why we actually are pretty happy as a Group with the development in the global market arena.

And we have to further work through the one or other issue which at the end then will provide us great opportunities as we move along throughout the year.

And on equity, on the equity line, even if I adjust for part of the repositioning your equity revenue line looks maybe weaker than I expected?

Can you elaborate a little bit on what is the driver for that in the equity derivative business?

Is it more on the flow structuring, or maybe on the convertible side?

Can you be a bit more specific?

Well, actually historically Deutsche Bank has in that arena made money out of prop trading activities.

There was always a strong contributor this area.

And again there we have taken a strategic decision to de-risk.

And in the equity derivative business we remain to be a European house.

And some of the benefits that occurred in the US where Europe was much weaker is a driver why we're down there.

But again, we have been able to also gain market share in the US.

And we built this business and developed this business.

Actually global markets has put a plan together to address our competitive position in the whole equity business that certainly will yield good results, I'm fairly convinced about it, and poses a great opportunity on top of the strengths of the credit part of the business we have to also benefit from the equity side of the business.

But they have -- this business area obviously suffered the most from the strategic decisions that were taken by the Group to get out of the prop trading activity.

And lastly, on fixed income, can you talk maybe a little bit about the month-by-month movements of the first quarter?

Was every month similar, or did you see any change through the quarter in the way the revenues moved?

Not really.

I have to think about how the things -- I think we were strong throughout the different months.

There was not really -- we saw some volatility in most of them, but I mean it was strong throughout the quarter.

Just a last one.

If I look at from an analyst's perspective, looking at the revenues, how would you tell us how we should look at the CB&S revenues going forward in terms of just subjectively considering clearly you had a superb quarter, how should we take that into account going forward?

I think that's -- it's always a difficult question to answer, but I definitely also like to talk in terms of positives and negatives.

Definitely we were able, as I disclosed to you, to significantly further de-risk, and that's definitely a positive on a going forward basis.

Because you will see that we will not have as many markdowns as we move forward as we see now.

Again, all this forecast is always comprised what is the underlying market going to do?

But if I assume that the markets stay where it is the second positive we have, we have opportunities in equities as we're addressing the legacy issues in the equities arena.

And we have put this plan together to strengthen this business overall.

So there's definitely another positive.

And on the negative, as Jo said this morning, we cannot exclude any event risk to drive nervous markets again down.

That's I think the biggest risk that we have out there.

But we continue in terms of the different businesses we have, we see by the way, a flight to quality in the prime brokerage area here as well, another plus in terms of opportunities.

So overall we look very positively at the development of our global market revenue, unless obviously we see a major effect again on the overall market.

So difficult to make predictions, longer term predictions right now.

Thank you very much.

Thanks, Kian.

Before we move on, may I ask the next callers to focus on one or two questions in the interest of time?

Next, please.

The next question is from Kinner Lakhani, RBS.

Please go ahead.

Yes, hi, good afternoon.

Just two questions, actually.

Firstly on the investment bank, where if I look at your cost base, it's roughly flat on a year ago, despite the underlying, let's say, ex markdown revenues being up over EUR2b, suggesting that there has been a massive compression in terms of the bonus accrual.

So my question is, is the 60% reported and 42% ex markdown cost/income ratio a sustainable level?

And second question relates to slide 51, where on the basis of these EUR38b of assets that have been reclassified, we're now looking at a let's say markdown avoidance for not knowing a better word, actually, being 22% of your tangible book value.

Now I can understand that maybe part of that is, let's say, illiquidity premium and the way prices of risk assets are in the market.

But does that not concern you in terms of the size of that, relative to your book value?

Yes.

Okay, let me start obviously with -- you're absolutely right, that we have, as I said in my presentation, we have despite a much better performance, our accrual performance based compensation is effectively down because we do expect a restructuring in terms of the performance compensation.

And we have observed obviously the market in which at this point at least we expect based on the public pressure, etc.

to be down in terms of it.

On top of it we have the technical effect that our retention, especially the career retirement acceleration funds are significantly down due to the fact that this program is on a same level and therefore this is a technical effect.

So this has been by the way a several hundred million effect on the career retirement acceleration.

So that makes both numbers more comparable, if you would take that out.

Now help me again on your second question?

My second question was just looking at slide 51 actually, where I think you have EUR4.5b, let's say, markdown avoidance having reclassified the impact -- the EUR38b of trading in assessed assets.

And obviously the EUR2.2b benefit.

Combined post-tax looks like 22% of your tangible book value, which is a pretty high number I think even in your competitive space to have avoided through your capital.

Just wondering what your level of concern is on that?

(Multiple speakers) question, to be honest, because I would contest and say as it's done now correctly assessed, and this is an incorrect valuation avoidance number.

And therefore we could debate this all day long.

We have very tight rules, very, very tight rules in terms of this reclassification.

We actually as IFRS filer, we're treated unfairly because we have to disclose this number which generates these types of questions, while our US peers to do a similar reclassification, don't have to disclose their valuation differences.

This number to be honest is somewhat meaningless because we feel, honestly, I feel our assets are correctly valued.

And we continue obviously to do the regular impairment reviews that we have to do, like any other of these assets.

And as we move along we're not concerned.

I know the quality, we know the quality of these assets.

The reason why we reclass them is because their intrinsic value was so much higher than their potential traded value.

And therefore they don't have any more, stronger or lower risk than any other asset of that type that somebody may hold in the banking book.

And therefore the answer to your question is no, we are absolutely not concerned.

We are a little bit concerned that we are forced to report, causing some confusion whilst US GAAP filers don't have to report the reclassification effect.

But at the end, philosophically, believe me, these assets are now more properly valued in a fair value context than if we were to value them based on distressed asset pricing on markets right now.

So that's why I'm not concerned.

Okay.

Yes, you have provided some disclosure as to some of the categories that have been reclassified.

Would it be possible to provide a fuller disclosure for the entire EUR38b?

So we get a better idea of what asset classes they relate to.

As soon as our American peers do that too, we will do it too.

Okay.

Thanks a lot.

It's a deal.

Next one, please?

The next question is from Davide Serra, Algebris.

Please go ahead.

Good morning.

I just want to ask a question on these talks about the potential bad bank in Germany.

And I would imagine that you on the one side it could help you, on the other side it would probably help more your competitors, who have much more troubled assets than you do have.

Can you give us an update on what you think of a discussion and if you have any view, and what you think the timing of this is expected to be released?

Thank you.

Number one, we definitely think that that's a very good discussion.

And we definitely think that Germany needs a bad bank.

And to be honest, if we look at our competitors, not so much because we believe it will strengthen competitors, but actually this is a systemic question.

I think from a systemic point of view, we need to definitely look at a bad bank in Germany to be very helpful.

We have lots of Landesbanks and Sparkassen that hold assets that are a problem.

And we have no benefit I think.

For us at Deutsche Bank it's better to have a healthy German banking system around than to have an unhealthy competitive environment, unhealthy competitors is the worst one to have on the one hand.

On the other hand, let's not forget that many of these banks are our customers as well.

And we are really intertwined with them, so from a systemic risk perspective we definitely welcome any solution to this bad asset program in Germany.

The discussions are going on.

It is a complex topic.

The German government has not made a decision what structure, form, etc., to elect.

There's different views and opinions on how that specifically would look.

We definitely can tell you, we do not have any assets within Deutsche Bank at this point that we would send to a bad bank or will apply to a bad bank.

We therefore, for our own bank reasons, don't see the need but definitely welcome a structure of this type for the German banking market from a systemic point of view.

Thank you.

Thanks.

Next, please?

The next question is from Carsten Werle, Sal.

Oppenheim.

Please go ahead.

Yes, Carsten, a very good afternoon.

Two small questions.

The first one, you indicated that you have significantly reduced the exposure to designated prop rating areas.

At the same time we see that your value at risk is actually higher on average than it was in the quarters during 2008.

Perhaps you could elaborate a bit why this is the case and where does it come from?

And secondly with regard to asset management, I think this morning you indicated that you expect return to profitability in H2.

So could you perhaps give us an indication what your likely charges will be that we still have to expect for Q2?

Thank you.

Could you (multiple speakers) what you said on your last question?

Q2 return of profitability where?

In the asset management business, I think you indicated this morning in the press conference that you expect this for H2 but not for Q2.

And I just wanted to know what the likely charges might be that we still have to face in Q2.

It's not -- number one, it's not so much one-off driven, the situation in asset management.

We certainly still have some of the stranded assets.

We have taken and de-risked significant, we have taken significant markdowns on these assets, traded assets.

So actually it's more a function of customer activity coming back.

And that's -- so it's more the underlying business, it's equity markets improving and therefore us seeing more improvement both -- We're not earning any performances for sure right now.

We're not earning any fees as (inaudible).

So it is really more a function -- it's not a function of expected losses, to be honest.

There might be the one or other, but nothing big or substantial to expect there.

So it's really coming back in terms of market, coming back in customer activity coming back.

And in terms of your VAR question, it's the volatility input figure that has caused this surge in the VAR.

Wasn't that highest in autumn.

It was -- I just checked and it looked to me as if volatility actually was highest in October after Lehman.

And then, since then it gradually came down, so I'm a bit surprised that it's now higher actually than in Q4.

I think we had more days out there than Q1.

Is that so?

-- than Q4.

Carsten, we check in that and --

Okay, thank you.

We can give you that separately but we try to find out and -- we will just call, okay.

Carsten, we come back on that.

Yes, thank you.

Next, please?

The next question is from Philipp Zieschang, UBS.

Please go ahead.

Hello.

Couple of questions.

The first one is on monolines.

To return to your slide 31, does the first bullet point that you've settled the exposure EUR850m, you had a credit provision against it of EUR750m, does that suggest you've settled at $0.12 on the dollar?

Is that calculation right?

I don't know.

Yes.

Mathematically, yes.

But we were correctly provided, there was no loss on there, on that.

So that would have been the second question.

So basically you've settled for $0.12 on the dollar but you did not have to accrue additional loans provisions against it?

No.

We were correctly reserved.

And how do you then basically bridge the gap that you've settled with one non-investment grade monoline at $0.12 on the dollar, but the other ones are carried at $0.60 on the dollar?

Because there's such great divergence among the counterparties.

And could you maybe disclose the credit rating of the monoline you settled with?

Again, I understand your concern and (technical difficulty) understand that.

But if we were talking auto companies, you wouldn't say because we took a hit on one auto company, General Motors, we should take a hit on BMW as well.

So we do a case by case analysis, like you always do with counterparty risk, yes?

The fact that an industry as well, and that's how our providing system is, and it is very typical of how you rate counterparty risk.

Again, we look at the asset class because there's the risk in the asset class.

And then we look at the counterparty, we look at external ratings, our internal rating, as we do with General Motors, as we would do with BMW.

I'm sure you wouldn't ask us the same questions on these counterparties, why the one or the other one should be in a certain relationship as well.

So our view is, we have taken this on a case by case basis.

We do this evaluation and we put settle to get out and resolve the issue.

We'll go ahead and settle, but that doesn't mean for us that the one or other valuation is driving us because we have this different system of looking at it case by case basis.

Okay, fair enough.

Could we come back to the equities sales and trading point?

You mentioned that basically there was a lot of prop within equity derivatives apart from your normal prop desk or this was basically under the explanation how I got it in terms of the -- because historically you disclosed prop was roughly 15% to 25%.

So I was just wondering is your equity derivative business just suffering from a wrong position within the book?

Or is it a -- do you view it as a restructuring case and do you think there will be further burden to come the next couple of quarters?

You're right, number one, our prop only refers to -- not to derivatives.

There it was equities prop trading and that's a designated part we closed and that was the one effect.

And the other one on the equity derivatives, yes, it's some negative positions that have created these losses as a contraction.

But again, as I said, we see some positives coming up at us as we have now addressed and the global markets is addressing, and restructuring this business.

And we had obviously a negative result of the restructuring in Q1.

So we definitely are looking at a better development in the coming quarter.

Great.

And just a quick one at the end.

You flagged I think at Q3 results that the increased risk weighting for the market risk related risk-weighted assets would be EUR50b.

Do you have an update number of this, given that you've shrunk the book?

It's just about the same number.

There is -- we don't have an update on it.

And again, this was just a general outlook to give you some idea of what we need.

But we don't have an update on this.

And Philipp, this was just a calculation assuming that nothing happens, and no management action taken, yes?

Yes, which is why I'm asking what the management action has led to in terms of a new number.

We talk very long term here.

But you've seen us reducing risk-weighted assets.

You've seen us -- how we have managed risk-weighted assets throughout the whole crisis, actually.

And we will continue that process clearly.

So on a net basis we don't expect EUR50b to be added to our risk-weighted assets.

Okay, thanks, thank you.

Thanks, Philipp.

Next one, please?

The next question is from Fiona Swaffield, Execution Ltd.

Please go ahead.

Hi, just one question on the Tier 1 ratio, linked in with incremental risk-weighted assets.

When you look at the 10.2% and your slide on 35, to be honest, it doesn't look that great versus the other market share gainers.

Are you truly happy with that?

Because obviously it's in the lower tier compared to three of them.

And pretty much similar to most.

And then in terms of going forward, is your plan to boost that number, if you've got risk-weighted assets coming down versus the new incremental?

How are you looking at it?

And has there been any dividend accrual in Q1?

Is there anything in the Tier 1 ratio we should know about?

Okay.

We did an accrual, by the way, as to start with that first question, we accrued EUR0.50 which was just traditionally we accrue previous year's dividend because at this time it's too early to say what our dividend policy would be.

And just out of therefore technically we do it to just go ahead and accrue for the previous year's dividend.

That's what's in that number.

The second answer to your question is the best way to gain market share and go back to a growth pattern definitely is by being profitable.

And through profitability and retained earnings raise capital and therefore grow the business again.

And therefore, obviously, we're very happy about the profit situation in Q1 because certainly over time if it's sustainable, it will allow us to go back to grow and use the extent of the market opportunities that are provided.

On a peer comparison, to be honest, I hear more of my colleagues wanting to pay back the government funding that brought them up to these Tier 1 ratios, and necessarily that they think that this is really the right number or the necessary number to run their business on.

And to be honest on this capital discussion we always like to point out I think we should look at the entire liability side of the balance sheet because it's about liquidity where banks go bust and not about their Tier 1 as we've seen in some of the recent examples of banks going under.

So we feel comfortable.

The 10% is significantly above the requirement that is established by regulator.

There is some logic behind these regulatory requirements for the risk.

We are significantly above that.

And therefore as long as we are able to continue to maintain it and we're managing the bank to it, we should be okay.

And regarding therefore our business mix, as compared to some, if you look at Morgan Stanley or Goldman Sachs that are pure investment banks that have a different risk profile, then we have as a mix, more mixed outlet.

I think that our Tier 1 ratio is actually where it should be and it's comparatively conservative versus all the other ones.

And I think that our Tier 1 ratio is actually where it should be.

And it's comparatively conservative versus all the other ones, because what we didn't put down here is pure-play retail banks that generally show much lower Tier 1 ratios.

And therefore I think that we feel very comfortable with where we are.

And again, to your other question again on how we think it [will develop], Tier 1, 10% will be the guiding principle as we move along.

And then the question is if profitability returns we might be able to then grow.

And if profitability does not return, we will have to further de-risk our balance sheet.

So I think I can put it as simple as that.

Thanks.

Fiona, thank you.

Next one, please.

The next question is from Jon Peace, Nomura.

Please go ahead.

Yes.

Hi, everybody.

I just wanted to ask a couple of quick clarifications.

Firstly on that last point on Tier 1, Mr.

Banziger did say at a presentation in the last quarter that Deutsche may need to raise the Tier 1 in the future from 10% to 12%.

Are you suggesting that's not a very likely development?

And second question was just back to the IAS 39 reclassifications and the difference between the fair value and the carrying value which is EUR6.7b.

With your impairment test, does there come a time where the fair value has been below the carrying value for a sufficiently long period, whether that's six months or 12 months, that you have to recognize a write-down even if you don't agree with that fair value.

I'm just trying to get a sense of what the drag might be in future quarters through the provision line from the partial recognition of that difference.

Thanks very much.

Both of the questions are no.

No, we don't expect a 12% at this point in time.

And to be realistic, there's a lot of discussion and speculation out there out there and it's difficult certainly to make a prediction.

But from all that we know, we, at this point, treat it is rather unlikely that we will see adjustment.

Let's not forget, I think the adjustment that's more likely to come is the one we've outlined.

And there will be a higher risk-weighted asset charged for market risk which you know the banking system has certainly somewhat misjudged.

Then if there additionally, on top of providing more risk-weighted asset charges for market risk, there's an additional increase in the ratio necessary, I think that we rate unlikely, because obviously -- then it will be provided for.

But this is a discussion at this point that it's always very difficult to know.

But it's definitely something we don't expect to come to fruition in the near future because our discussions with regulators have also shown that they've stated in questions with bank capitalization being such a big issue, also in terms of the general economy, why should they throw the banks to any further pressure at this point in time.

That I think doesn't make a lot of sense.

And on the IAS reclass for loans, you know it is -- we do this testing when we reclass the assets.

Yes?

And we have had not -- we haven't had this situation that you outlined.

So we're not worried at all.

So within your impairment test there is no requirement that if the fair value stays below the carrying value for a very extended period -- because obviously we're only six months into this reclass process -- if at the end of 2009 we still recognize this difference, is that something that your auditors would make you to recognize in the P&L?

No, because for loans this test is not valid.

You don't do this fair value versus carrying test for loans.

It's AFS securities only.

Okay.

Thank you.

Thanks Jon.

Next one.

I think we are prepared to take two or three more.

Let's see.

Okay.

The next question is from Matt Clark, KBW.

Please go ahead.

Good afternoon.

A couple of questions on the stable divisions.

Firstly, in the Transaction Bank costs were up fairly steeply year-on-year despite the revenues being flat.

Just wondering why costs were up?

Whether they're going to stay at this first quarter level going forward?

And then second question, similar on the Asset & Wealth Management division, you said that it was breakeven if you strip out the RREEF loss.

I get it to making a EUR50m loss.

And I was just wondering, something seems wrong to me if the division needs to be generating performance fees in order to be profitable.

And are you considering any greater restructuring of that division, or sale of loss-making divisions to competitors that could allow it to be more profitable?

Thanks.

On the second question, of course we're looking into improving the Asset Management situation.

There is a plan in place to -- as Joe has outlined it also in a press conference, to bring this business back to profitability.

And at this point, as you know, sales are anyway difficult.

There's lots of asset management type businesses on the market, you can't really make money on sales.

So that's not something we're really considering.

But we're doing some restructuring of it, that's correct, to go back.

But especially we need -- I think that every business needs customer revenues to be generated to go back to profitability.

And that will be the driver, as we have resolved, you know.

Most of the issues are out in the legacy positions that we have to deal with.

By the way we also re-classed some of these assets into our Corporate Investments category.

And we will administer and then run them down or sell them out of Corporate Investments.

So in that sense we should see the improvement on the Asset Management business based on customer activities.

In GTB we are investing into profitable growth.

We should see higher transaction-related costs with some increase in staff levels across all business lines in order to support the business growth, because we have seen here that, obviously, that's a business that we have gained market share, that we are continuing to gain market share.

So it did make sense for us to do some further investment into the platform to, on the one hand, better serve our customers and the second, to be a market share gainer.

Okay, thank you.

Thanks Matt.

Next please.

The next question is from Dieter Hein, FAIResearch.

Please go ahead.

Yes.

Guten tag, Herr Krause and Dr.

Schmitt.

I have two questions on the Asset & Wealth Management business as well where you released losses for the first quarter.

You wrote that you transferred infrastructure investment from Asset & Wealth Management to Corporate Investment.

Could you explain to us why you transferred this business, beside that you want to reduce the losses in the Asset & Wealth Management business?

And how big were the losses in the first quarter from that business you transferred?

And secondly when my interpretation of your red arrows on slide 26 is right, then Private Wealth Management is continuing to producing losses.

So my question is or I do not understand how you can make losses with private wealth clients.

That's all.

That's all.

Number one, let me start, we transferred some of these were stranded assets.

They were assets that were supposed to go into funds.

And they're stranded assets, there's things for example like ports or hotels and construction.

That's not a business that asset management traditionally gets involved with.

And therefore we decided that all businesses or business activities that, for example, we got stuck with, that at this point are not saleable, that we have to improve to be able to sell it, etc., are not a core activity of an Asset Management group.

That's the background of the transfer.

We transfer and also we manage it out of teams and groups and managers that are more capable in terms -- and whose job it is to run these type of assets.

And therefore we decided to put it into our Corporate Investment area where we can now keep the teams together that are going to run these assets and administer these assets, be it construction, be it running of businesses like ports and things like that.

So that's the background of the transfer.

So Asset Management can concentrate on the business that they are best at which is their core focus.

We have about EUR50m in losses in CI, out of these activities.

And we have about EUR80m in Asset Management out of this in Q1 which is part of the RREEF losses of EUR120m that we communicated to you.

And again on Private Wealth Management, of course this business can make losses because you have the cost base that you have to cover with the fee income.

And what's happening right now that we see -- and again that's why Private Wealth Management, I want to make sure that we don't get the wrong spin in here because we see a great future for this business, as many of our competitors are gone.

And right now as soon as customer activity comes back in this area -- which understandable, customers are holding off from making any portfolio and investment decisions right now -- and we see the revenues come back, the benefit we're building in this business right now is substantial because we are investing in this business.

We're not divesting from this business.

And we're building up potential.

And we see the great potential to really -- once markets kind of return to normality, to really have a good running business as we had before.

So it's more of a timing of issues when revenues and costs are hitting us P&L wise, and less an issue of the basis of profitability in the Private Wealth Management.

Okay, yes.

Thank you.

Thank you.

We have time for one last participant please.

The last question is from Christopher Wheeler, MainFirst Bank.

Please go ahead.

Yes.

Good afternoon, everybody.

Two quick questions.

First of all, on the non-performing loans, obviously we've seen them go up by about 53 basis points this Q1 '08.

However the coverage ratio has come down about 13 percentage points or 12.3 percentage points to be precise, from 52.3% to 40%.

I just wondered if you had any view on what you consider to be an appropriate coverage ratio during a period of rising non-performing loans.

That's the first question.

Second question, and I know that we've been flogging this dead horse of Asset Management, but if we put Private Wealth Management to one side as a core business, do you actually need to be in Asset Management.

Since 2004 when we had the management changes it's been a long stream of changes, restructurings.

And you really aren't where you want to be.

Do you actually need to manufacture the products or could you just become a distributor?

Thank you.

Well, I think, as we are in light of a new strategic discussion, I don't want to make any strategic going forward question on that because I think our current strategy is pretty clear.

We want to be both, and we were successful at both.

And we got hit by the worst financial crisis ever in this business.

And as we had some funds, and the asset arena, etc.

(inaudible).

And we had created some funds in the US and we had secured some infrastructure assets, that's what caused this business to go in trouble.

Just like that share market activity stopped while we were stuck with certain assets.

Then on top of this they very quickly lost their value because of the general crisis.

So I wouldn't take this specific now crisis-related effect to be something to judge us over the longer term profitability of this business.

No.

I did say since 2004 we've had ongoing discussions about the level of profitability in this business.

(multiple speakers) losses.

This is not just the credit crunch.

But look at our -- I look at the business that we run in Germany, it's a very successful and profitable business.

I wouldn't argue.

We don't know that because you don't disclose it.

But obviously what --

(Multiple Speakers)

But it has gone on for a long time.

Just believe me now, okay.

The German business is a very good (multiple speakers).

Okay.

I'll make a note of that.

Because I think there is living proof that you can make money in this business and even longer term living proof.

The fact that in some of our US part of this business we have not had the performance is something that the management team there is addressing.

And therefore our current view is that, yes, it can be a good business.

Because if it works on this side of the ocean it should work on the other side of the ocean as well.

And the crisis has only specifically hit this business badly.

And you know the real estate business we also had the different cycles than some of our investment banking business.

So in that sense there's not a fundamental strategic question.

It's more of an operational, fixing some of the challenges in the business area we're facing.

The plan is put together, as Joe alluded this morning.

And there's also belief that we could see some of the positive results of this plan in the second half of the year.

Okay.

On non-performing loans, you know that we don't have any specific percentage that we can say.

I could allude to the fact that [whether] I just assume 55% recovery for unsecured corporate exposure, as an example, so between the collateral protection we have and the coverage ratio we have we're probably there -- around there where you should be.

And obviously we had -- in that arena.

So if we, especially, take out the loans coverage ratio ex the IAS re-classes we're at 59%, then that will obviously -- these numbers seem to be fine from our current perspective.

Okay.

Thank you.

Thanks, Chris.

And on that note thank you all, ladies and gentlemen, for your strong interest again on this quarter.

Stay tuned going forward in the year.

Thank you.

Thank you.

Bye, bye.

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

Thank you for joining and have a pleasant day.