Deutsche Bank AG (DB) 2009 Q3 法說會逐字稿

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

Welcome to the Deutsche Bank third-quarter 2009 analyst conference call.

(Operator Instructions).

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

Gurdon Wattles.

Please go ahead, sir.

Thank you, Vicky.

And thank you everyone for joining.

Good morning.

Welcome to the Deutsche Bank third-quarter results call.

A little after seven this morning, European time, we put the PowerPoint charts, the earnings release and the interim report on the web.

And Stefan Krause, the Group CFO, is now going to take us through the selection of PowerPoint charts which were published.

After that we're going to turn it over to Q&A.

We have a large number of participants on the call and I would ask for your understanding, and in fairness to all participants, make sure as many people as possible get to put their questions, if we could say two questions per questioner.

Thank you for your understanding on that.

Anything that we don't cover, then please go ahead and call the IR department and we will make sure your questions get answered.

At this point I'd like to hand over to Stefan Krause to take us through some of the charts.

Stefan, please go ahead.

Thank you, Gurdon.

And also from my part good morning, ladies and gentlemen.

From Berlin today, not from Frankfurt, as we had our Supervisory Board meeting yesterday here with the result that we informed you about yesterday night, so also welcome back to those that were on the call yesterday.

I would like to quickly go through the slides in the usual manner and then obviously I'm happy to answer any questions, further questions you may have.

If we start on page three, our Group performance, we did have revenues of EUR7.2b in the quarter, lower provision for credit losses of EUR544m versus the previous quarter, income before income taxes of EUR1.3b, and a net income of EUR1.4b, as we had announced these results.

And a diluted EPS of EUR2.10, and a pre-tax return on average equity of 15%.

On our capital and balance sheet, our tier 1 ratio grew once more.

We have now several consecutive quarters of tier 1 growth, to 11.7%, and a core tier 1 ratio for the first time above the 8%, with 8.1%.

We have reduced risk weighted assets of EUR288b, and total assets down 4% again, to EUR1.66b.

And in our US GAAP pro-forma calculation, total assets were also down with EUR915b.

Our leverage ratio of 25 times continued to be within the target range.

On the liquidity and funding, this quarter we completely finished our funding plan for 2009, with a total of EUR16b of capital market issuance and we continue to have a very good cash and liquidity position.

Slide four is a summary of our results.

So year to date we have achieved an EBIT of EUR4.4b and a pre-tax return on equity per target definition of 18%.

Our EPS, at EUR5.62, is three times the first nine months of 2008.

And our dividend accrual remains at the rate of prior year's dividend as in the first and second quarter.

As you know, we don't take a decision until year end.

Then the Board recommends to the Supervisory Board what dividend proposal should go to the AGM.

And that's why it is our tradition to just accrue to the previous year's dividend.

Our pre-tax return on equity per target definition is marginally lower than reported.

We had a gain, on the sale of Daimler AG, of course, which is excluded, as you know, from our usual targets and definitions.

On page five we show our net revenue, at EUR7.2b for the quarter.

That included a negative impact from Ocala, the transaction in Florida, of approximately EUR350m.

We had some impact of some other specific items which we will cover in the respective business segment discussion.

On page six we show now our provision for credit losses that were EUR544m in the third quarter of 2009 and are, as you can see, substantially reduced from second-quarter levels.

Of this, the investment banking credit provisions are EUR323m, including EUR250m due to reclassified assets under IAS 39.

IAS 39 provisions are, as I have told you in previous discussions, mainly situation specific individual provisions and certainly this is not a calculation that shows any trends as we are working on this specific assets that were reclassified.

In PCAM our result is EUR240m (sic -- see presentation), which are almost entirely related to our retail business within PBC.

I will talk about the IAS 39 and PBC credit environment in a few minutes, if you bear with me.

On page seven we cover our non-interest expenses as a whole.

Our total non-interest expenses were EUR5.4b in the third quarter.

Our compensation expenses were reduced versus the prior quarter.

The data is mainly related to the lower severance.

As you remember, in the second-quarter call I had told you that the bulk of the severance that we applied this year in order to do some of the restructuring we went through was mainly expense that would have hit the second quarter.

You see in the third quarter significantly lower.

In the current quarter our G&A expenses included a provision of EUR200m which is related to the Bank's offer to repurchase certain products from private investors.

To give you the background on this, due to a technical problem that we had in the composition of the underlying portfolio of the funds, the Bank intends to restructure this fund.

And because these relevant closed-end funds contained illiquid assets, the Bank has decided to offer a repurchase of the product so as to provide investors with an exit from the investment in that situation.

Again, it's an offer as we restructure.

We do not know how many of our investors will make use of that offer at this point in time, but we have taken a reserve for it.

Other non-compensation expenses were at EUR364m in the quarter.

This reflects mainly the policyholder benefits and claims in respect of the Bank's investment in Abbey Life which, as you know, always is a cash flow item which is offset by a corresponding amount in the revenue line, so just has to exit.

But it was substantial this quarter because of the market environment that basically leads to the valuation of this number.

On compensation, let me clarify one issue.

Obviously we have long compensation discussions going on right now on how a new compensation structure will look like.

For us the most important principle is that we would like to continue to attract and retain top talent.

And obviously we would like to keep the market practices here.

We would keep a compensation system that is mainly driven by what is happening in the market.

That's what we're closely monitoring, our competitor actions.

We have definitely also, as some of our competitors have announced, have the intent to gain full compliance with G20 and FSV guidelines.

We have done already some of that in 2008.

And to highlight some of the main issues, obviously, we're looking at base salary versus variable.

We're looking at stock versus restricted cash.

We're looking at multi-year deferrals.

We're looking at clawback provisions for senior people.

And obviously we are also looking at robust governance mechanisms that ensure independence of the decision makers around compensation items.

On page eight we show our solid profitability.

I think we can definitely say, if we look at the first nine months, it is a quantum leap for what -- from the year 2008.

And we've therefore significantly recovered from the bad situation we went through in 2008.

On page nine, the net income of EUR1.4b reflects the tax benefit of EUR78m.

That does include some positive outcome of the tax audit settlements that were partly offset by some evaluation of deferred tax positions which then resulted in a net benefit of EUR369m.

In addition, like every quarter, we have some tax-exempt income, which was about EUR174m in the quarter.

It's mainly related to the sale of our Daimler shares and the post-equity pickup.

And, as you know, we do annualize this tax expense and that was about in the same level in the quarter.

Including these specific effects and an accounting adjustment for the annualization of the tax-exempt income, our ETR would have been in accordance with the range of our mid-term guidance of 30% to 35% approximately.

So on the full year, though, we now believe in the guidance we'll give you now on the ETR is that we definitely believe that we will stay now below 20% based on these significant one-offs we had in this quarter.

On page 10, we show a chart that we are obviously specifically proud of, our ability to deliver increased capital ratios has been proven once more in the third quarter of 2009.

We now have the highest tier 1 ratio since the introduction of the Basel standards.

The core tier 1 ratio, which excludes the hybrids, has also increased to 8.1%.

This is therefore, for the first time, above the 8% threshold.

Risk-weighted assets have continued to decrease versus prior quarter end, driven by, on the one hand, obviously FX effects, on the one hand, but also by asset reduction as we have continued to de-risk the Bank.

Sal Oppenheim, as I said yesterday, we have continued to be very confident that the acquisition of Sal Oppenheim will not stress our core tier 1 ratio.

We have, on the one hand, two more quarters of retained earnings and the second, obviously, as I showed you yesterday, I showed you a maximum of the tier 1 impact we expect.

And as we go now into the closing process you can assume that we will continue to work on reducing that tier 1 impact.

On page 11 we show the tier 1 capital development.

Here obviously in the third quarter the highlight is our hybrid security issuance of EUR1.3b and then combined with our net income, our positive net income, our capital generation was EUR2.7b.

And I show on the chart it was offset by FX effects, equity-based compensation because we had the best thing in that account in August.

And then obviously our pension plan accounting changed, that we did in the fourth quarter last year, that now shows the volatility that we have made you aware of.

On page 12 we show our total asset development.

We have continued to strictly manage our asset base.

Our IFRS assets decreased 4%, to EUR1.66 trillion.

Our pro-forma US GAAP assets which are mainly adjusted for, as you know, derivative nettings and other nettings, decreased to EUR915b, at a slower pace than before.

But we have continued to be able to de-risk the Bank and therefore lower our balance sheet volumes.

Our leverage ratio to 25 times, that's in line with target.

It is slightly up versus second quarter because obviously on the one hand our equity has increased but -- and our US GAAP pro-forma balance sheet has reduced.

However, our pro-forma fair value gains that we apply on the capital calculation on own debt have almost halved in the quarter.

If I go, move on now to page 13.

As you know, this is the other part of our Bank's balance sheet that we remain very confident and that we base on the strengths of the Bank is our funding position that remained very strong compared to the beginning of the crisis.

We continued to focus on the high portion of our unsecured funding in stable funding sources.

And we have completed, as I told you, the beginning of our capital markets and retail deposit funding plan for the year already in the third quarter so we don't expect any further measures to be taken in the fourth quarter of this year.

Our cash and liquidity reserves exceed and continue to exceed our short-term wholesale funding of EUR76b, so good liquidity position overall.

For 2010, we have relatively modest funding needs.

Obviously we will have some capital market maturities that, in our view, can be funded without difficulties, as things stand.

You have to keep in mind that obviously our significant balance sheet reduction that has gone on since the beginning of the crisis has also eased up this part of our business.

Let me now cover some of the segment results.

And page 15 now illustrates the P&L in our CB&S segment.

And let me highlight some of the specific items that we have in the third quarter CB&S results.

The CB&S results reflect, as I had told you previously, approximately EUR350m related to the Ocala funding situation, the commercial paper vehicle in Florida, as you know.

I think you've read in the newspaper all about this transaction.

It also shows EUR300m in losses related to specific risks that we have covered in our structured credit business.

These negative effects on the one hand were partly counterbalanced by some net markups, mainly related, by the way, to our other favorite topic of the monolines, which is [EUR390m] of which EUR263m were booked in sales and trading debt.

We only had EUR38m fair value loss on debt in sales and trading equity.

That's where we booked it.

CB&S expenses include a charge of EUR200m to the already-specified bank offer to repurchase this certain investment product I mentioned already.

On page 16, I detail now the sales and trading revenues.

Without the impact of the aforementioned items, especially the Ocala funding, then also the losses related to the write-downs on the specific risk and structured credit and the monoline-driven markups, if I take all those effects together, our sales and trading revenues would have been higher by approximately EUR400m.

And this is all in sales and trading debt, which shows you the strengths of this business in the third quarter.

Despite these effects, our sales and trading revenues are therefore really at a record level, 9% higher than the previous record in 2005.

And against the second quarter, it was a lower drop than the normal seasonal drop of 16% that we would have expected for the traditionally weaker Q3 results.

And I think that what is especially impressive is this result now has really been achieved despite significant balance sheet and risk-weighted asset reduction of which 40% and 20%, respectively, from peak levels.

So a significant reduction efforts have not led into a cut in revenues.

To the opposite, have led to record levels of revenues.

Risk-weighted assets and our value at risk were further reduced from the second quarter to complete the picture.

At lower assets base with less risk, our revenue base is very strong, which shows the current strong margin situation we are experiencing.

We also have reduced some of our tail risk through the de-risking of legacy assets as our business is more client focused.

And now, on page 17, I go to sales and trading.

The revenues that were EUR2.2b, without the net effect of the specific items I just mentioned, debt sales and trading revenues would have been EUR2.6b.

Our recent markdowns are related to legacy credit assets which result in several billion risk-weighted asset reduction in the coming quarters.

Margins, as you see them, have continued to normalize from the peak levels but are approximately, depending on different type of products, between 10% to 60% above the pre-crisis levels.

And something we are also very proud about in the current market environment, we have been able to increase market share in the US and Europe, across all major products, including FX rates and credit.

For example, to give you some examples, according to Greenwich and Euromoney, we're number one in global FX and we're number one in all major regions in this.

In fact, we're number one in European interest rate derivatives, number one in European investment grade credit, number three in US fixed income and number three in US interest rate derivatives.

So overall very good scorings.

In credit, by the way, we had our best quarter since 2007 and our businesses, despite the fact or including the effect that our new strategy of creating a more flow and client-focused business has certainly completely paid off.

Our unique emerging markets local franchise has also produced excellent results across the board.

And now we are regaining the benefit from our ongoing investment in commodities, with offices in Houston and Calgary, expanding our range of products and services for our clients.

So really good results across the board in this area of the business.

On page 18, the same good development in sales and trading equity.

This was our best quarterly revenue performance since 2007.

Of the peers that have disclosed, we rank number three globally by Q3 revenues.

That's really a strong and great position that we have and historically certainly a big step forward.

Despite some of the market normalization, our results were 2% higher than the second quarter.

And we did include here EUR38m of fair value losses on debt.

Investment in cash equities is paying off.

We are improving and continue to improve our position in the US.

In July we won the Euromoney's award for best equity house in North America.

And according to Bloomberg we have now 6% market share, so compared to 4% market share in 2007.

We were voted the world's best prime broker by hedge funds in global custodian prime brokerage survey.

In derivatives our focus has shifted towards more flow and listed derivatives.

In Asia we won a number of equity derivative awards from Asia Risk.

And our prop trading is substantial reduction of risk as we had discussed in previous quarters and notional capital.

Therefore, obviously, when you look at these great results in both trading areas, you know we definitely have an improved asset efficiency and as we've also been able to achieve a much lower risk appetite, as you can see on page 19.

Our revenues per asset are now nearly three times the 2005 leverage.

We have reduced our asset base significantly versus pre-crisis levels, as I had outlined.

Risk-weighted assets have been reduced by nearly 20% compared to prior-year levels.

Our VAR has come down.

Our constant input VAR, which means adjusted for the impact of market data as this has decreased to its lowest level since the beginning of the crisis.

And it's over 50% lower than in the peak about a year ago.

On page 20 we show you our origination and advisory revenues.

We have also produced a solid quarter.

M&A activity in the industry remained very low.

Our business in this area benefited from strong equity origination performance which was, by the way, the best since the second quarter of 2007 and a very good investment grade market, driven by strong customer demand for debt and equity market issuance products, as you know, I'm sure, you're all aware of.

If we move on page 21 to our GTB business segment, it delivered EUR194m.

Even under high pressure we have a very high pre-tax return on equity in this business.

On page 22, I give you some more details about the performance in Global Transaction Banking.

The business obviously remained exposed to the low interest rate environment and the low corporate activity as a whole that's significantly negatively impacting the business for GTB.

Of course, on the other hand, and that's a technical effect I need to make you aware of, GTB benefits from our risk-based funding effect of about EUR63m because of this refined funding methodology I already mentioned in the last call.

That was as well as for second quarter 2009 but obviously not for 2008.

So on a year-on-year comparison there is a difference in the definition of the profit of Global Transaction Banking.

Again, the impact was EUR63m.

Of course, on a Group level, there is a corresponding debit.

On a Group level this evens out so the Group level numbers are not impacted.

It's just an internal different allocation of our funding costs.

We recently, as you know, announced that we now have signed -- have an agreement to acquire the ABN Amro commercial banking activities in the Netherlands.

We do believe that the combination will create a powerful platform for our clients.

And we therefore will become the fourth largest provider of corporate and investment banking services in the Netherlands, obviously assuming that we can complete this -- finally complete this transaction that we have waited so long for.

On page 23 I come now to PCAM.

And the good news is that Asset & Wealth Management has returned to profitability with a pre-tax profit of EUR134m.

And this was mainly driven by the absence of specific charges, but also by some initial positive effect from the recalibration measures across these businesses and platforms.

And we saw also some more customer activity and the improving markets show already first sign of positive signs in their profit development in this business area.

On page 24, Asset Management's performance was again driven by the higher market levers and tightening spreads which led to an increase in retail revenues and performance fees, mostly in Europe.

We have again right-sized our global platform since we started restructuring in November of last year.

More than 600 people have left already that platform, which represents about 18% of the workforce in that business area.

Our net new money in Asset Management was EUR5b.

PWM performance also continued to recover, driven by the stable revenue base and a positive contribution from the risk-based funding.

The effect was much smaller obviously than in GTB.

But we had an effect here.

Since September of last year we have reduced our headcount by more than 300 people, primarily in Asia in this business.

Net new money generation in PWM was EUR5b, and annualized growth rate based on invested assets of about 11% growth rate.

We see all the specific items predominantly behind us in this business area.

Obviously I'm making this statement assuming that we will not have a significant change in market.

To complete what I said, the risk-based funding had a negative charge to Asset Management of about EUR6m.

The risk-based funding had a positive effect of about EUR18m in PWM.

On the next slide we go onto our Private and Business Clients P&L.

They reported an income before income taxes of EUR149m.

If you go to page 26, the revenues were impacted by this continued wariness of retail investors around the uncertainties in the markets right now and also obviously impacted by the lower interest margin situation.

We have -- this was obviously only partially counterbalanced by some revenue increase we had in our credit product.

The provision for credit losses decreased slightly versus the last quarter, obviously as we have focused and had some more rigorous management activities and collection efforts that showed some positive effects.

We see some additional severance in Q4, but relatively modest.

We have done obviously some restructuring around midyear.

Obviously through the delays that severance package generates, we see some of the people walking off the platform only at the beginning of next year.

Again, expenses decreased, mainly driven by this reduction of the severance payment.

And I think there was the biggest effect in the cost.

PBC had also securities inflows of about EUR1b.

Here, on page 27, we now show you the described net money flows by quarter, and we spread it out by our three different business divisions.

So you see that we have been able to grow our asset base.

Let me now go on to the last part of my presentation and cover quickly some key current issues.

And I think we come now to the main and most favorite topic of the market around Deutsche Bank right now.

We have taken, I really would like to say it once more, we have taken a lot of time and we have done a lot of math, and we have looked at worst-case scenarios, likely scenarios.

We have looked at all the measures that we have taken.

We looked at all the regulation that's coming.

We've looked at the structuring of the business.

We have really done a Company-wide very extensive research on our capital base, on the future, on our long-range planning, on what our risk-weighted assets will look like in the future.

And again, with doing this review and looking at possible new rules, expected new rules, but as I show you on page 29, also looking at effects that will counter the increase in driven and risk-weighted assets.

Looking at our business trends, etc., I can overall reaffirm that our target of the tier 1 ratio of above 10% on a going forward basis we will be able to achieve, despite the headwinds we might have in terms of higher risk-weighted assets.

And we are including now what I would call the double punishment scenario that on the one hand we will see an increase in risk-weighted assets and second, we will see an increase in ratios as well which, at the same time, is established.

And we continue to stick to our statement that we are fine on the capital front as we look into our planning.

And the only caveat we are still making for this is any acquisitions that we have to make certainly will require then a capital measures.

On page 30 I give you the usual disclosure on the loan book.

Maybe we cover some of the specific questions that may arise in the questions.

We've included here the IAS reclassified assets and we show you in which buckets they sit, and deliver therefore also an explanation why this portfolio has been more impacted by loan loss provisions.

In a different manner, it's not run rate loan loss provisions, it's one-time specific items.

I will gladly answer any further questions you have about our loan book in the subsequent questions.

I show now the pro-forma impact on IAS 39 reclassifications, on page 31.

As you know, we are obliged to that.

And just mentioning it briefly, you saw the significant decrease that we had in the gap between accrual accounting and mark-to-market accounting that went from EUR6b, both in capital and P&L, down to EUR4.2b, a reduction of EUR1.8b.

So the expected narrowing of the gap between the mark-to-market driven in illiquid markets, in our view, from valuation of these assets is now closing the gap.

On the other hand, of course, any loan loss provisions that we take on this portfolio are also helping to reduce this gap.

As you saw, we have not further reclassified any assets in the third quarter.

On page 32 we show the problem loans.

IFRS impaired loans have risen by about EUR100m since the second quarter due to increases which were largely offset by charge off and repayments.

Problem loans were up by EUR500m.

Materially, all loans -- these are loans where the borrower is in financial difficulty, basically, but these exposures are either collateralized or guaranteed.

So despite the fact that we had this significant increase, I could almost call it a no-risk or a risk-free increase because of the type of loans that have gone into that bucket.

Our impaired loan coverage, which excludes collateral, rose to 47%.

And if you would exclude the much lumpier IAS 39 reclassified loans, coverage before collateral improved to 59% which is very much in line with our European peers.

On page 33, we wanted to give you some sense for how our delinquency ratio development is, also to explain mainly the fact that we do see the same effect that some of our competitors have reported, with rising delinquencies, mainly in consumer portfolios.

At the same time, if you look at the mortgage portfolio, you see how stable it has developed throughout being present.

Only slight increases, but not material increases.

And then if you look at the small corporate book, we also see the reported increases in delinquencies.

But now, again, because mortgage -- the loan book represents about 70% of our PBC loan book, that's the explanation why we continue to track below reserve levels of our competition.

Something to do with obviously how our loan book is built up and what assets it comprises.

So we have just higher asset positions on those assets that run lower delinquencies.

On monoline exposure, good news in the third quarter.

Overall our monoline fair value exposure before CVAs was reduced by EUR1.8b in the quarter, as you can see from the chart.

And here on the chart are the two quarter comparisons on the reserving logic.

We do our reserves against this exposure were also reduced by EUR945m.

The overall notional amount of our monoline insurance is down approximately 30% from its peak, 29% from its peak, driven by the expected roll-off of the high-quality corporate CDOs, which have had a short maturity and again by the previously mentioned significant settlement and commutation of contracts to monolines.

So you see in the highest risk bucket the non-investment-grade monolines that contain the highest risk category of assets.

Basically we are at a nil exposure by the end of the third quarter.

And reserve levels in all other buckets remain at the previous quarter levels.

So on page 35, to really sum up, and we always like this chart because it shows the progress of Deutsche Bank throughout the quarters of the crisis, from a year ago.

Our position has continued to improve significantly.

We are considerably more profitable, despite the fact that we continue to absorb quite a significant amount of charges related to legacy positions.

Some of our businesses have been recalibrated.

We have taken risk down.

We have taken leverage down.

We have improved our operating performance.

We have increased our tier 1 capital ratio which is at the highest level it ever has been.

Our core capital has also steadily improved.

And again I reiterate again some of the feedback received.

The Sal Oppenheim acquisition does not concern us in that regard as we will be able to manage down this 85 basis points.

And our balance sheet efficiency has therefore significantly improved also in historic context.

So bottom line, a bank that's less leveraged, that's better capitalized, that shows lower risk but, at the same time, shows higher profitability.

Thank you very much.

And I'm open for any questions you may have now.

Thank you, Stefan.

Can we have the first question, please?

(Operator Instructions).

The first question is from Mr.

Christopher Wheeler, MainFirst Bank.

Please go ahead, sir.

Yes.

Good morning.

And well done on a good set of results obviously.

My couple of question are about, well, first of all about the Asset Management Business.

Again obviously a much improved performance.

However, if I just extrapolate some of the numbers, it appears to me that the gross margin on your asset management fees in the first nine months was about 30 basis points.

And then if I strip out what I think might be 60 basis points on the retail element, it appears the rest of the assets under management earned about 15 basis points.

You've talked about the cost cutting, the job change -- job losses.

But it appears to me with the cost ratio in the combined entity of private and wealth management still up in the 80s, you still seem some way off even in improving markets from having the right cost base to match the revenue opportunity in that business.

And I'm sorry to keep going on about this every quarter, but perhaps you could just give us some flavor as to how you're going to get that cost/income ratio to perhaps where it should be.

And the second question just relating to the same area of business, you kindly gave us some indication as to how Private Wealth Management has actually done at a pre-tax level in the last two quarters.

Can you tell us whether you actually did make money?

I guess you did.

Perhaps give us some feel for the extent of that profitability in the quarter.

Thank you.

Okay.

Thank you, Christopher, for your questions.

Let me cover this Asset Management business the number one.

You are completely right.

The business continues to be exposed to the crisis.

We do have obviously lower fee income and that should improve somewhat in the third quarter.

We're still obviously led to a large extent also the performance fee component and our business model is certainly more performance fee skewed than it's base fee skewed.

And, therefore, obviously, as markets recover we might see higher margins in that business, hopefully as the performance fee component kicked in.

But at the same time, this is one of the discussions that we've had in the Bank in terms of recalibrating this business, is moving it further away from a performance fee concept and more into a regular fee concept.

What have we done in terms of restructuring and changing this business, and what are some of these components?

It's we've done a lot of work on the mid and back office.

And we have seen some good opportunities.

For example, just to give you a very simple example, we've moved some of that out of the US into Europe.

We have moved some of our fund administration.

We are consolidating the number of funds that we run.

One -- certainly one of the areas where we have to do a better job in the future and where the business and the management is focused strongly on is just reduce the sheer number of funds.

We are consolidating this.

We did look at Asia.

We are right-sizing Asia.

Obviously we have our RREEF business within this.

And we are restructuring debt.

For example, we are selling some components of this business which deals with the management of our commercial real estate positions.

So I think there's a lot going on that will result in a much improved cost/income ratio.

I hope I give you some ideas of some of the levers that we can pull.

Your second question was the --?

The Private Wealth Management.

The Private Wealth Management.

Yes, it was a profitable business.

We had around EUR40m in EBIT so it did contribute in this quarter.

And also there we see the same effects that we see clients coming back and the business recovering.

So about 30% of the Asset & Wealth Management P&L this quarter came from PW, and just to give you a flavor for this.

Thank you, Christopher.

Thank you very much.

I appreciate it.

Can we have the next question, please?

Thanks, Chris.

The next question is from Mr.

Kian Abouhossein, JP Morgan.

Please go ahead, sir.

Hi.

I have a few very quick ones.

First of all, structured credit write-downs of EUR300m.

Is this the last write-down that should be -- we should expect, or should we assume there's further clean ups to come in the next quarters?

Second question IB Capital down 13% quarter-on-quarter, risk-weighted assets down 4%.

You are running capital roughly in line with '06 level in the investment bank.

Just trying to understand why capital is declining.

Third question IB revenues you are below the top three, top four players in fixed income equities.

But is that something that you are happy with and you will have a more steady business in the fixed income equity line due to being more flow focused?

Or is there something where we expect you should over time take again more risk and as a result you will be in line with some of the top players in terms of revenue generation?

Very quick one, last question corporate and investment you had a -- sorry, corporate and adjustments, you had a relatively large negative impact.

Even if I strip out own debt I still don't understand exactly the number if you could explain it, thanks.

Okay.

On our structured credit answers I think one thing we've learned is not to use the word loss throughout the crisis.

But we definitely are getting closer not to see any of them.

But again in the third quarter we were surprised by, for example, this Ocala transaction.

These are events I think.

But I would certainly describe it as a more normalized business.

I think we definitely believe that the bulk of issues are behind us.

But obviously in our recapitalization planning obviously we do have some assumptions of further de-risking if you so wanted further work on assets now.

That needs to happen at not an increased pace we saw throughout the crisis quarters, but we certainly will see some of it coming.

But definitely I would say not at the levels that you saw in the beginning -- in the leading quarters of the crisis.

So that's for that.

The IB revenues below we don't share your view.

Again I tried to highlight how strong our IB revenues were in the fixed income area.

We had an outstanding performance for Deutsche Bank in the fixed income.

We had record levels in the fixed income.

Our comparisons show that we are faring very well versus also some of our competitors.

So I don't think that's an area that we have any problems on.

We don't understand what the perception of issues or weakness comes from, because we really have historic record levels and are developing quite well, despite the fact that we -- yes we changed our business model quite considerably in this business area.

On the C&A large negative, the main issue is obviously the timing differences we have between our M to M, mark to market versus accrual accounting on our PSY assumption on our treasury assumption, our treasury and how we allocate the treasury cut.

You saw some positive effects in the previous quarter, and now obviously we saw the considerable swing back in the third quarter.

This has -- this is an effect that over time evens out, because obviously we clean up the different levels.

But certainly based on the risk -- based on the swing, this number will show you will always see this kind of volatility in this statement.

And it can be pretty sizeable especially if we showed a couple of quarters of positive development.

Your last question was the IB capital and that's more a fundamental strategic question.

We have de-risked this business quite considerably.

You see the lower VAR that we've had which was considerably down.

We see -- you see, and therefore obviously some of the assets we got (inaudible) were assets that carried higher risk weighted assets.

But the free-up, and that's exactly the concept we are looking at, the free-up of those risk weighted assets will provide us with potential for growth in the investment bank as we move along.

And therefore I think it's a natural and a good development based on the fact that we de-risked the platform.

But if I look at the -- if I take risk weighted assets against allocated capital you run at a tier 1 of about 8.3, or an allocated capital at 8.3.

Sal Oppenheim yesterday, we talked about 11.

You used to run closer to 9 to 10 historically.

I am just trying to understand why in post what happened, your models would tell you to reduce capital.

Yes our -- again on the investment bank our allocated capital is down, and that's something you see because our internal economic capital has dropped much more significantly than the regulatory risk weighted asset has dropped, and that's the effect that you are seeing there.

Okay.

Thank you.

Thank you Kian.

Next question please.

Next question from Philipp Zieschang, UBS; please go ahead sir.

Good morning.

Two questions please.

The first one could you comment on your expectations with respect to loan loss provisions?

I know it's a tough one, but in PBC we've seen actually a positive development quarter over quarter.

But could you just share with us your view about 2010, and probably also the proportion between the IAS39 related loan loss provisions versus the underlying.

The second part I am still trying to get my arms around where you are in terms of de-risking.

Could you just tell us where are you with the measures you introduced probably earlier this year, or late last year with respect to debt savings rating i.e.

de-emphasizing credit prop etc, etc.

Is this going to lead to further reduction?

And tying this into your slide 29 where you say your asset reduction initiative, is this something new?

Is this a continuation?

And could you please add probably a risk weighted asset number which you think this could actually lead to in terms of reduction?

Thank you.

Okay Philipp, thank you for your good questions.

On the loan loss provisions I think you make a fair statement.

It's very difficult to forecast some of those buckets, and the most difficult bucket to forecast is the IAS39, because these are event, single name driven situations.

If the economy improves there's some leveraged loans in there.

As an example, if the economy improves and these companies do better, then certainly we might have less of loan loss provisions to deal with, and if the economy was to slow it will be contingent on that.

And it's a case by case.

It also could be specific company situations that lead to loan loss provisions.

So this will remain just volatile.

That's all the guidance I can give you on the IAS portion of it.

On the development, and that's what I wanted to show you, the delinquencies on the development of PBCs loan loss provisions.

Again the main driver is we are well structured in terms of our composition, so that's why we don't expect now, as the mortgage piece of it seems to be have evened out at this level.

And you saw some of the other delinquencies also even out.

We expect -- we don't see right now this whole thing going down either, but we don't expect a further raise in this figure as we move forward.

For 2010 the only one that's really somewhat predictable is obviously the PBC loan loss provisions in the retail -- in the sections of this portfolio.

And it's our view currently that we will be slightly up from current levels.

Again this assumes a similar situation, economic environment situation, as we have right now.

For all of the rest of the portions of the loan loss business it's very difficult to make a forecast and predictions.

On the asset reduction this is just a continuation of the efforts we have done.

If you look into Deutsche Bank's balance sheet we still have some considerable positions within our balance sheet that I would classify as legacy.

These, as you know, are one of the concerns that we raised and one of probably the issues that we learned through the crisis that we needed to address, is the longer term assets.

We do have some stack assets, and we need to reduce those.

Some of these stack assets, and that's our capitalization concept includes that, do carry some significant risk weighted asset charges.

That's why it's highly attractive for us to work on it.

We are not talking about unsubstantial numbers in this area.

But again I would like to abstain from giving you fixed risk weighted assets, a number for each one of the line items I outlined in my chart.

Thank you.

Thanks, Philipp.

Can we have the next question please?

The next question from Stuart Graham, Autonomous.

Please go ahead sir.

Hi there, I only have one question actually.

Sorry I was actually going back to the Sal Op deal from yesterday.

Can you just explain why EUR1.3b is the right price to pay for it?

Because I think on a fair value basis you're saying you think its worth minus EUR0.3b, and it seems to me the partners were pretty much forced sellers.

So could you just sort of explain why EUR1.3b is the right number and why you couldn't negotiate a lower price than that?

Thanks.

Stuart, believe me, one thing if you -- on any price negotiation you always want to have a lower price, but you also have to stay realistically.

At the end just taking all parts apart this -- Sal Op is approximately an equity capital of EUR2b.

Okay?

So if we didn't pay anything we first acquired obviously a risk free environment if you assume that we have negotiated deductions in that amount.

So I think number one, step one, we acquire a place that -- for which in the purchase price we have accounted for all potential risk mark-downs, etc, that we saw in the due diligence.

And I think to negotiate a capital base of EUR2b down to zero is I think a good achievement.

And then let's not forget we are buying a very high quality 100 -- more than EUR130b large portfolio as a whole, including EUR116b of private wealth management and asset management portfolio.

And if I look at the trading multiples, the selling multiples we had even in pre-crisis levels, in crisis levels all these valuations were above 2% to 5% of assets under management.

And by paying EUR1b for it, and obviously you've seen the EUR1.3b which contains a pass-through component.

Let's not forget that we initially will pay EUR1.3b, but we intend to sell a portion of it, so our true payment is EUR1b.

So to pay EUR1b for EUR134b asset and EUR116b private wealth management assets honestly I have problems to understand why anybody would question that this is a good price.

At the end you have to get the counterparty to sign as well, so it's something that -- and you also have to be realistic that a transaction of this -- this is a distressed investor, a distressed seller to some extent, yes.

But it is a good company.

It is a well run company.

It is a well run value proposition.

And it's a healthy customer base and a healthy employee base that we acquire with it.

So I think -- that's my valuation of the pricing consideration.

I guess what I am struggling with is, it is an asset which comes with a lot of off sheet balance liabilities which we can't really value, and we are having to kind of trust that you've been able to do due diligence.

That's exactly what I said yesterday in the call.

We've taken a significant hit to cover those to an extent that you can assume that we will be probably -- and that's the big incentive for the shareholders is this component of this off balance sheet has a big incentive for the shareholders to have, not to see this risk materialize.

And there is a financial incentive for them not to happen.

And this agreement in the deal process was exactly that.

Was this -- we put a very high conservative value on this risk.

They disagreed with us and that's why we put this earn-out structure in place.

If they are right they'll get a price incentive.

If we were right we are completely protected.

Okay.

All right, thank you.

Thanks, Stuart.

Next question please.

Next question from Mr.

Matthew Clark, KBW.

Please go ahead sir.

Good morning.

First question on the de-risking burden that you showed in previous quarters, I think EUR1.1b in the first quarter and about EUR700m in the second quarter.

Was there any de-risking burden in the third quarter in addition to the disclosed write-down items?

Next question is just coming back to the corporate center.

Maybe I missed your answer, but just wondering if you could say a bit more about the seeming hedging losses that are going on there.

Is there some -- are they economically meaningful?

Is that accounting noise that you think we should ignore, just how to look at that.

And then thirdly coming to Sal Oppenheim, could you just talk about the long-term capital needs of that business?

So even if you aren't able to shift risk weighted assets with the carve out of the investment bank, presumably you've got an idea of what sort of risk weighted assets you need to run those businesses long term, say five years out.

Could you maybe give us an idea of that?

Thank you.

On the first question is -- we disclosed everything we had.

The EUR300m we discussed it honestly.

We discussed it at length, because we've had this effect in the previous quarter, and we disclosed it's not a significant amount has come down significantly.

But the EUR300m there is no more.

This is it for the quarter.

Second on these hedge losses its just accounting noise.

Its something you don't -- shouldn't worry about.

It's again the [MTN] versus accrual accounting effect.

And on your third, Sal Oppenheim deal, let me go back.

We disclosed to you the 85 basis points worse case scenario.

Assuming obviously that -- which I think is likely that we use same Postbank structure to pay for the transaction because of course this is highly attractive for us to do so.

Now, we are now selling the investment bank and selling the investment bank assets, which will be a significant reduction.

For the remaining of the business once we are through the rest of, let's say some other asset clean ups, we are through the sale of some other assets in the bank.

We are through with paying down some shareholder loans in the bank.

We will see a substantially reduced asset, total asset base of Sal Op.

That's just what is going to happen.

With this substantially reduced asset base in Sal Op you can really and that's the best guidance I can give you, you can look at traditional risk weighted asset charges, capital charges that a business of -- a size of EUR130b in assets will traditionally carry.

It will be a clean that's what we are moving it towards.

It will not be a mixed business activity anymore.

It will be more a clean asset management, private wealth management business and company for Deutsche Bank.

And you can apply traditional capital charges to that type of a business.

The problem right now is that we have some assets that we had due to the speed in which we had to consummate the transaction to avoid a further worsening of the situation in Sal Op.

We decided to take on board all the assets they had.

But we have obviously, and that's why I am disclosing their plans to sell, some of the assets that strategically don't make sense to us, and especially some of the assets that carry risk weighted assets and capital charges that don't make sense there.

So in your projections we can assume that this will develop, and to be a pretty clean, focused private wealth management and asset management type of a business.

Okay.

And just to follow up I can check that you don't expect any losses on the sale of those assets because that's taken into account in your conservative valuations or write-downs on inception?

We wiped out EUR2b of equity in this.

Yes.

Okay.

Thank you very much.

Next question please.

The next question is from Mr.

Huw van Steenis, Morgan Stanley.

Please go ahead sir.

Good morning everyone.

So congratulations again on your investment banking results.

Can I just go back to the legacy assets, probably three questions?

One is you mentioned I think at a recent presentation there are four leverage loans you are currently renegotiating in Q4.

Is -- obviously you can't tell us the outcome yet, but could you give us a sense -- would it be your expectation that provisions on the IAS39 assets in Q4 would be materially higher than Q3 or any sort of color you can give us on that.

Number two is there any way that you can -- I think you've taken over the last five quarters about EUR1.2b against the IAS39 assets.

Could you sort of schematically break that into leverage loans, commercial real estate and other?

And then thirdly, particularly for commercial real estate, I think it's quite difficult for us to track your expectations versus what the outcome, and obviously some of that will be next year.

From a management point of view what sort of cumulative of loss are you expecting for the commercial real estate portfolio?

Thank you very much.

Okay some -- I take your question.

First on the legal assets I didn't say that we are negotiating.

We are restructuring.

So only to clarify maybe what it's just that a leverage loan is a traditional situation where we have a company.

Again, I told you when we reclassified these assets we looked at the quality of these assets, so that's one a time, and these companies continue to service their debt.

That's not the issue obviously.

And therefore, yes, we are working on some of these companies.

To be honest it's very difficult to say when these negotiations, when this restructuring will conclude.

We also have to assume that this -- in some of the aspects will take some months until you are on the one hand take respective management decisions, agree on restructuring and then it will take some time until operational effects then show the improved results.

That's why it is so difficult to project what is going to fall into Q4 what is going to fall into next year.

And that's all the best I can tell you right now.

It will remain volatile.

We see, as these situations are being worked on, as these situations evolve to develop, of course, a worsening in the environment or situation, specific situation in the company may change this number.

And if these are large exposures obviously a minimal additional charge off is already in the size of a few hundred million very quickly.

So it will just -- all I can really say it will be volatile.

On the -- we don't expect obviously -- at current levels we don't expect necessarily these to be higher than the ones we had in Q2.

That's our prime expectation.

But I really have to put this big caveat on one of the situations may change over the next couple of months.

We go into January when we have to do -- finalize our account numbers.

The situation might have changed.

Business plans might have changed we might have to take a hit on that.

On the commercial real estate business it's about only 10% in there, so it's not a high number.

So we don't expect this to be a large exposure.

So it's that area this year to date IAS loan losses are primarily leveraged finance hits.

So that's the guidance I can give you on those.

Thanks Huw.

Thank you.

Thanks.

Next question please

Next question Mr.

Kinner Lakhani [CD].

Please go ahead sir.

Yes, hi.

I've got two questions firstly could you give us some guidance in terms of the outlook that you see for bid offer spreads?

And to what extend you see a spread volume trade off i.e.

volumes could pick up against further spread compression.

And the second question just coming back to your IAS reclassified assets, the EUR34.7b that you show on page 31, do you disclose any of that what the RWAs are attached to those numbers?

And is that essentially a run off portfolio?

Maybe if you could give us some duration on that.

Okay, let me start with the bid offer.

We have always said we have really gone into the beginning of this year with very good margins.

And then we saw in the second quarter, the begin of the deterioration of this historically high margins.

And we've always made the statement that bottom line we believe, and that's what I also told you, we are right now on a pre-crisis level depending on the product, between 10% to 60% up.

And that's what we expect it also to be.

So I think we will just see a better margin environment.

And when you go into the reasons for that everybody is applying the correct capital charges.

Everybody is pricing for risk accordingly etc.

So therefore we definitely see this push.

And thirdly you know the leverage has moved from customers and increase in the supply of this type of product to now rather a market in which demand is somewhat reduced -- in which supply is somewhat reduced, sorry, in which demand started to go up.

And therefore, what we have seen is this area is that we are in control of pricing and price control is back at the banking side of it.

And obviously one thing you can assume is capital requirement increase this area will continue to be difficult.

And customers outside will have to face higher pricing.

We see some competitors coming back, and we see some banks recovering.

And certainly we will see competition on it, but we do believe that overall we will see higher margins on a going forward basis.

On the IAS39 risk weighted assets that's a number we don't disclose.

We don't give this number, so just for your information.

Thank you Kinner.

Our next question please.

Thank you.

Next question from Mr.

Derek De Vries, Bank of America.

Please go ahead sir.

Thanks.

Good morning.

I've got two questions, I want to touch on I think what Kinner just talked about, on slide 19 you show that interest in revenue to assets of 297 versus a history of about 128.

My cynical nature I guess is to just say we go back to trend, and therefore your revenue is more than half versus the current levels.

So I am hoping maybe you can help convince me otherwise by explaining is it the velocity that's different?

Is it the spreads that stayed different?

Have you made market share gains?

Or why is that 297 sustainable?

And then the second question is just a quick one.

Can you just remind us the risk weighted assets and the goodwill from the ABN acquisition, so we can plug that into our model?

Okay.

I think that -- obviously I understand that this a very core discussion around what's going to happen to revenue lines in revenue pools on a global level, and we have one quite some work.

The main trends we see, I think we definitely, and that's what I already said, we definitely believe that we will higher than -- see higher than pricing levels than pre-crisis.

We will see higher margin levels than in the pre-crisis legislation.

Not to the extent we saw it at the beginning of the year.

I repeat myself, but to the extent or to the levels we are achieving around now.

The reason for that is again, we have many competitors not come back at this point in time.

We have, and we will see an increase on demand.

We have on the competitive side reduced and restricted supply.

And therefore, obviously that's the one effect we see, a biasing towards higher margins.

The second is everybody in the crisis has learnt that you need for risk better that you need to price for capital charges.

We are all confronting a higher capital charge environment.

Also that believes that we will -- shows us that we will have more pricing discipline.

I agree with you will this stay on for 10 years?

Nobody knows.

But will this stay on for the foreseeable future as we move out of the crisis?

I think we see more bias towards higher margins than we see negatively bias at all.

Of course competition will return.

Of course we have seen some practices already again that we saw in the pre-crisis time.

We can never make a prediction of how speedy we will go back to this type of environment.

Our belief is though it will take some time.

And on the volume side obviously we have less competitors in the environment.

We are gaining market share.

I outlined in my presentation.

And we strongly believe that we will continue to be a market share gainer.

We do believe that, for example, the flight to quality will continue.

I think that many of our customers that have seen Deutsche Bank perform well throughout the crisis that there will be a benefit for those banks, number one that have stayed out of state capitalization.

And number two of banks that have stayed loyal to their customers throughout the crisis.

I think that will enable us to continue to build market share.

And we have taken some strategic decisions in our global markets businesses as I mentioned, to build out and to invest into some businesses.

So therefore we see market share up.

We see higher than pre-crisis margins.

So that's why we are not concerned about the ongoing -- and then obviously we will see a growth in regions like Asia.

And that's why we definitely believe that we will be able to maintain this written of revenues we have right now with the same type of profitability.

On top of it we de-risked this platform.

We have got more efficient.

So even on the cost base in this business we are so much better than the pre-crisis level.

So that's why we believe that profitability in this respect will continue to be a very interesting assumption.

The risk weighted assets for ABN by the way they will be non-material for closing.

And we don't expect this closing to happen this year.

As you know we are just in the finalization and waiting for the respective approvals.

But in a [formal] (inaudible) there is no substantial goodwill or risk weighted assets for ABN, ABN Amro.

And going down into next year it's not a significant impact that really worries us in terms of capital.

Thanks very much Derek.

Next question please.

Thank you.

Next question from Mrs.

Fiona Swaffield, Execution.

Please go ahead madam.

Hi.

My question firstly is (technical difficulty).

Madam, could you speak up a little bit we can't hear you?

Sorry, can you hear me better?

Yes.

If you could focus on slide 16, I've been confused for some time about the underlying.

And I think you gave a slide at a recent conference where you obviously added everything back as someone previously said.

So, the underlying run rate is coming down pretty fast.

Would you agree that Q3 looks to be down about 20% on Q2 I think something like EUR4.3b ex all the one-offs is now about EUR3.5b, EUR3.4b or am I missing something?

And if that is right then is it just the bid offer spreads coming in or is it seasonal, because I always thought the Q1 was seasonal.

And then should we think that Q3 as more of a normal rate in terms of trying to forecast sales trading revenues going forward?

The second area is Postbank.

I am just trying to understand what makes from here in terms of change of ownership structure.

What are the touch points?

And what would determine your decision in terms of whether to buy out minorities etc?

And the third issue is on the slide on the moving parts on capital.

I just wondered, it looks to me to be quite tight.

When you talk about dividend could you be more specific about how much scope you have to pay dividends if you are trying to rebuild the capital?

I was just wondering in 2010 do you think you can have a normalized payout ratio or do you think it will take you to 2011 to get to a normalized payout ratio?

Thanks.

Okay, three good questions.

The first one is, of course, Q3 is always seasonally impacted.

We've seen it over many years Q3 is a weaker quarter than obviously Q1 and Q2.

But as I outlined in my presentation again we did not see a significant seasonal impact in this quarter's comparison.

Next year we may see it again.

We didn't see it this year.

And if you look at the underlying calculation again we are, as I outlined -- including these one-off items, about EUR400m higher than what the reported number is, if I do this underlying calculation.

And therefore, we see -- we had an excellent quarter taking into account that this is seasonally the weaker period of the year.

So we are very happy with these results.

And I think they definitely compare very well with what you -- what else you've seen in the market.

Sorry, can I just add -- this is where I am confused, because at the Bank of America conference you put up a slide on sales trading revenues where you were saying the underlying was EUR4.3b in Q2 because you would add back EUR700m to the Q2 base.

Am I missing something?

Can we -- we are trying to find this out.

Can we follow up off line on that comparison?

Okay, thanks.

The second question you asked on Postbank yes?

Yes.

On Postbank the decision -- right now we have no need to move quickly.

And our trigger point for this is, you know, we put the optionality in place because we wanted to have the optionality.

We put the optionality in place because we want to see how the crisis develops, how the situation is with our capital planning and enable us to do a good capital planning.

We have time until 2012, bottom line.

And what should change our mind, what are the drivers of our main decision is more general environment Postbank.

They are doing a great job.

They are managing the business very well.

They are reducing their risk.

And its -- we've always said why should we therefore go any quicker.

We are very well running our joint project in creating the synergies between the two organizations.

So we are not losing any time in realizing the synergies.

People are working on processes.

People are working on systems.

People are working on consolidating some of our processing.

People are working on revenue opportunities.

We are creating products that Postbank can sell.

So we are achieving absolutely the same levels of synergies.

I always make a 20% deduction that you can take off when you -- eventually you take down the sum of the corporate center activities.

But other than that there is really no urgency for us to move from an operational point into the post central section.

And the environment currently is helping us to move ahead and have -- and get to an asset that may carry less risk weighted assets at the time of purchase than its carrying right now.

And therefore obviously in terms of our capital planning that's something we are looking at.

In terms of the dividend, to be honest, if you look at the slide on this thing it's traditionally we approved to previous year dividend policy.

Not because we don't have a new decision.

I will honestly say we don't see a big pressure on dividends right now.

It's the environment, so many things are hampered for dividends right now, cannot -- or able to.

So we don't see this big.

I think right now the priority is to continue to build capital.

And for us to continue -- the priority continues and remains not to dilute our shareholders.

And therefore, of course, we will build up dividends over time.

But certainly no need for an increased pace there.

Okay.

Can I now in the interests of time, we have time for two more questioners.

And please I asked you to keep it succinct.

The next question is from Mr.

Jon Peace, Nomura.

Please go ahead sir.

Yes.

Hi.

Thank you very much.

Just a couple of quick questions on slide 29, the capital.

You talk about a tier 1 target of greater than 10% by December 2012.

Could you tell us what you think of your Core tier 1 target within that?

And just also on the dividend are you looking to a payout ratio still in the medium term?

And what would that be, and how quick might it be until you get there?

And finally just on the leverage ratio of 25 times is that still an appropriate target?

Should we be looking at leverage based on total equity or tangible equity?

Thanks very much.

Well the honest answer to all your questions is at this point we don't know.

There is so much in the environment.

We don't have a capital definition to which eventual new rules will apply.

We don't have a capital ratio that the regulators will define.

We don't exactly know how these different measures, the first estimates that we have on how all these changes and regulations will apply.

We just honestly don't know.

This is something hopefully within the next couple of weeks will be clarified and resolved.

We do not have a Core tier 1 target, because right now we are managing the Bank to tier 1.

That's what we have.

We understand that obviously a new capital definition that by the way will look differently that the current eventual Core tier 1 definitions.

That's why in our sense -- in our view it's unnecessary at this point to put out another target or definition that we don't know how it will materialize.

So we don't have that.

Everything we hear though tells us the 25% leverage will be fine, and absolutely okay.

And this will be probably the most likely scenario that we see right now.

Could be wrong on that?

We could.

If so what we believe the majority of the voices we heard around the regulations are telling us.

Initially actually we said it will be below that.

Initially we thought that the most likely scenario will be at 20 times.

And now we definitely believe, on all what we are hearing, it will be at 25 times.

So on that front that's -- regretfully -- hopefully another quarter, next quarter we'll be able to be more specific.

Maybe it's going to take another two quarters to be even more precise and specific.

Then we would issue new targets, and we would issue -- that's why we would like to stay with our current targets until the point new definitions are around.

Thank you.

May we now take the last question please?

The last question from Jeremy Sigee Barclays Capital.

Please go ahead sir.

Hi there.

Just one very simple question please.

You referred to a big debate about compensation, and clearly there are many, many dimensions to that.

Given that it's another don't know element, are you just accruing mechanically at the moment using the formula based approach that you've discussed in the past?

Or are you applying some of the sort of subjective judgments from that debate or adjustments to what revenues you pay comp on at this stage?

Are you being mechanical or are you trying to reflect the debate already?

We are materially mechanical, to answer your question.

There have been some slight adjustments which mainly refer to the expected payout because we think the one robust part of it will be -- that it will be -- there will be multi-year deferrals.

So that has been a judgment, because in our -- it is a mechanical approach, but it assumes a judgment on inputs.

And on the one input we made an adjustment we assume that we will have a deferral component.

That was similar to the last -- let's not forget in 2008, we did have a larger part of deferral already applied.

So we are trying to stay more consistent to what we saw in --.

But other than that it's materially mechanical.

And you're not for example adjusting revenues to say this element of revenues is a windfall profit from wider spreads or from cheap Central Bank funding?

No.

Okay.

Thank you.

Thanks very much Jeremy.

And thank you all for your attention and your questions.

The Deutsche Bank IR team welcomes follow up questions and additional questions.

At this point once again, with our thanks I would like to close the call.

Thank you.

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

Thank you for joining and have a pleasant day.

Good-bye.