Deutsche Bank AG (DB) 2010 Q2 法說會逐字稿

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

Welcome and thank you for joining the Deutsche Bank second-quarter 2010 conference call.

As a reminder, all participants are in listen-only mode, and the conference is being recorded.

Analysts will have the opportunity to ask questions directly after the presentation (Operator Instructions).

At this time, you will be joined to the conference room of Deutsche Bank in Frankfurt.

Good morning, ladies and gentlemen, from Frankfurt.

This is Joachim Mueller from Investor Relations.

On behalf of Deutsche Bank, I would like to welcome you to our second-quarter conference call.

In a moment, our CFO Stefan Krause will go through the presentation slides, which are posted on our website.

At the end of this presentation, there will be room for questions.

At this stage, I would also like to draw your attention to the end of the presentation, which covers forward-looking statements.

With that, I hand over to Stefan Krause.

Yes.

Thank you, Joachim, and I welcome you here at Deutsche Bank, in IR, and hosting from now on our quarterly conferences and leading our IR Department.

Very much welcome to you first.

And then thank you also to Switzerland this morning, to announce that we will have a good meeting as we continue.

So let me go into these numbers, in summary.

We reported very solid results, with relative resilience in investment banking, in what I can say really a difficult environment.

All of our classic banking businesses were profitable in the quarter.

In PBC, we even delivered the best performance since the onset of the financial crisis.

Our quarterly pre-tax profit of EUR1.5b is up 16% year on year.

Compared to a very strong first quarter this year, we saw the usual seasonal decline from first to second quarter, also in line with the general decrease in the industry.

This resulted in a net income of EUR1.2b.

The pre-tax ROE, as you can see on the chart, according to our target definition, is 13% versus 16% in the previous-year period.

Tier 1 capital ratio came out at 11.3%, well above our target of 10%.

And the leverage ratio is unchanged, at 23 times.

Also in page four, revenues this quarter were EUR7.4b (sic - see presentation) compared to EUR7.9b in the second quarter of 2009.

This was achieved despite absorbing negative effects of EUR451m, of which EUR270m relates to Ocala, a commercial paper vehicle, EUR124m to an impairment on the Cosmopolitan Resort and Casino property, and EUR57m of mark-downs mainly related to RMBS.

This was partly counterbalanced by EUR208m of additional negative goodwill from the first-time consolidation of our commercial business of ABN AMRO in the Netherlands, and EUR101m, only EUR101m, of fair value gains on own debt.

On page five, we show you the provision for credit losses and some good news here as well.

Our provisions for credit losses were EUR243m this quarter, and came down by EUR19m quarter on quarter.

This is less than one-quarter of the amount we had in the second quarter of 2009, which at the time mostly related to two transactions within our IAS 39 portfolio.

The second quarter this year, provisions related to IAS 39 reclassified assets were only EUR51m.

The core loan book in CIB, which means the loan book excluding the IAS 39 assets, again experienced very low net provisions in the second quarter.

LLPs in PCAM continued to develop favorably year on year, and remained stable at a low level quarter on quarter.

How should you now look?

Obviously that's going to be your question, as you look at the development of risk provisions.

I think there are two parts which we should distinguish.

One is our core portfolio, where asset quality remains high.

Here, we are very confident on the overall development for the rest of the year.

The other part relates to IAS 39 reclassified assets.

Please be aware that this part can be more volatile, and therefore it's difficult to extrapolate a trend.

Nevertheless, from today's perspective, the IAS 39 reclassified assets are well under control.

You know our forecast for this year, which we gave at the Investor Day in December 2009, when we guided to below EUR2b.

From today's perspective, the trend will be significantly below that level.

On page six, we show our non-interest expenses that were EUR5.4b, slightly down versus the second-quarter 2009, but with a different composition which I think I should explain in some more detail.

Compensation and benefits in the second-quarter 2010, of EUR3b, was slightly lower compared to the prior-year quarter, which showed EUR3.1b.

Reflected in this number this quarter are obviously the acquisition-related increase, of which Sal.

Oppenheim Group contributed in PWM EUR121m, and ABN AMRO and GTB EUR33m.

EUR56m related to the UK payroll tax; that's our last accrual tranche.

It is likely that there will be some more to come in the third quarter from the UK bonus tax, if -- depending on how the assessment now goes.

We cannot quantify the exact amount yet.

Furthermore, there was an impact from higher deferred compensation, as you are aware.

Compensation ratio in the second-quarter 2010 was 42%.

General and administrative expenses, with EUR2.3b, were slightly up year on year.

The increase in expenses, as I told you, was mainly related to the integration of the Sal.

Oppenheim Group and the consolidation of ABN AMRO.

This also reflects already first-time investments linked to our complexity reduction program, which I will give you an update later.

On page seven, we show our income before income taxes, which in the second quarter of 2010 was EUR1.5b.

We generated a pre-tax return on equity of 15% on average active equity.

On page eight, we show the net income in the second quarter, which was EUR1.2b, up 9% compared to the prior-year period.

Effective tax rate in the quarter was 23%.

This quarter, the ETR benefited from the recognition of the negative goodwill linked to the acquisition of parts of ABN AMRO's corporate and commercial banking activities, which was tax free, and from a favorable geographic mix of income.

We expect the full-year ETR 2010 to come in at approximately 33%.

At the moment, we do not provide a midterm guidance for the Bank's ETR because, as you know, of the many uncertainties related to all the announced bank levies we have out there.

On page nine, we discuss our Tier 1 capital development, which came in at 11.3% as of June 30, 2010, slightly above the first-quarter 2010, while the Core Tier 1 ratio, which includes hybrids, remained stable at 7.5%.

The slight increase of the Tier 1 ratio has been achieved despite the acquisition of parts of ABN AMRO.

This acquisition had a total impact of negative 35 basis points, caused by a decrease of Tier 1 capital of EUR0.2b, and an increase of risk-weighted assets of EUR8b.

Total risk-weighted assets were EUR303b at the end of the second-quarter 2010.

Further details on the development of Tier 1 capital and risk-weighted assets are presented on slide 10.

Tier 1 capital increased to EUR34.3b in the second quarter, compared to EUR32.8b at the end of the first-quarter 2010.

The increase is largely driven by net income and FX effects, partially offset by an increase in capital deduction items.

The EUR1.1b of Tier 1 capital deduction items includes higher charges in relation to trading book securitizations, as well as the deduction in relation to the ABN AMRO credit umbrella and rating migrations.

Risk-weighted assets increased from EUR292b to EUR303b at the end of the quarter.

The increase primarily reflects FX effects of EUR11.4b, and the acquisition of parts of ABN AMRO.

Therefore, in the first half-year we have absorbed two significant acquisitions within our capital ratio and still remained above our target of 10%.

The increases were partially, obviously, offset by reductions in market risk, as we show here, and other credit by the later reflecting our continued active management of risk-weighted assets.

On page 11, the funding and liquidity.

As you know, we believe that that's also a very important indicator to look at, next to the capital.

This slide gives you an overview of our continued strong funding base and liquidity profile.

Deutsche Bank's funding sources remain, first, well diversified.

Our dependency on wholesale funding is about 10% of our total funding sources.

Our strategic liquidity reserve stands at EUR45b as of end of June 2010.

On slide 12, we wanted to give you a new view, and this slide shows the timing and the cost of our funding since 2007.

Our continued access to cheap funding is a significant source of competitive advantage versus peer, we believe.

Due to our prudent funding trend, we were able to avoid tapping the public market between July 2008 to July 2009, as you can see on the chart, when peers paid record spreads.

We have currently completed 84% of our 2010 issuance plan, equating to EUR16b.

Let's now look into the segment results.

On page 14, this slide shows not only a solid performance of our investment bank, but also robust results in all of our classic banking businesses.

GTB and Asset and Wealth Management were impacted by our recent acquisition, as we also disclose here on the chart.

GTB benefited from the negative goodwill linked to the acquisition of the corporate and commercial businesses of ABN AMRO in the Netherlands.

Excluding obviously the Sal.

Oppenheim transaction, Asset and Wealth Management has achieved a pre-tax profit of EUR133m in the quarter.

On page 15, we start with our CB&S P&L.

As you are very well aware, the challenging market conditions in our investment bank.

Despite these, our investment bank achieved a solid result for a good second quarter.

The quarter-on-quarter seasonal decline is in line with the industry, although the large FX movements this quarter hurts us more.

But year on year, we have a lower decline.

Income before income tax was EUR779m, achieved despite the aforementioned charges.

Successful recalibration of our business model has been recognized by our clients.

We have recently won the Euromoney Award Best Investment Bank.

The announced integration of the investment bank, as you heard, is underway.

We announced our new management team and structure, as you are also aware, yesterday.

This will clearly enhance our value proposition to our clients in the future.

On page 16, we show the sales and trading revenues.

The second-quarter 2010 was -- showed a solid result for our sales and trading businesses.

Revenues of EUR2.8b were obviously impacted by the aforementioned impacts already, EUR270m charge related to Ocala and another EUR57m of mark-downs related to legacy assets.

In contrast to some of our peers, we benefited much less from fair value gains on own debt.

And we always like to make you aware on the quality of Deutsche Bank's result, which is very much different in this regard, as we do not apply the fair value option, or we apply it only to a limited part of our own debt.

Only EUR37m of fair value gains on own debt were booked in sales and trading equity.

For the Group, it was only EUR101m.

Overall, in sales and trading, we experienced margin widening towards the second half of the quarter, reflecting lower liquidity and risk aversion, but margins remained far lower than during the peak of the crisis.

We also saw a slowdown in client activity, which was more pronounced in Europe due to the EU Sovereign bailout.

First-half revenues are at similar levels to first-half 2009, despite market normalization.

And we continue to be extremely disciplined around our use of resources and maintain high profitability and efficiency.

On page 17, our fixed income businesses, business diversification has been very important during the second quarter and allows us also to post solid results.

For the first time ever, we were ranked number one in US fixed income according to Greenwich Associates, with a market share of 12.8%, up from rank number three with a market share of 10.7% in 2009.

Our FX money market and rates businesses continued to generate very good revenues.

In fact, we had record revenues in FX for a second quarter, on the back of increased client flows due to volatility.

Credit, being one of the largest client-focused credit trading businesses on the street, it was obviously a tough place to be in the second quarter.

We saw spreads widen quite substantially around the European bailout.

However, we still had positive revenues and avoided the scale of losses that we would have faced prior to our recalibration.

We continue to de-risk where possible.

In other areas, we are also doing quite well.

Our unique emerging markets franchise remains well positioned for longer-term trends.

Our Latin America franchise is doing well, and Eastern Europe is picking up after a difficult quarter.

In commodities, we saw good results across most products.

Let me continue with sales and trading equity.

We had revenues of EUR642m this quarter.

In cash equities, commissions held up well, but client facilitation was difficult in this environment.

Overall, secondary market activity was significantly lower due to the lack of primary issuance.

In equity derivatives, we saw some subdued client flow, given conditions, but our successful recalibration of the business ensured that we did not face losses, despite high levels of correlation and volatility.

Our prime brokerage platform continues to do very well, and we were voted number one Global Prime Broker by Global Custodian for the third consecutive year.

Client balances continue to increase, and we have had good uptake of new products.

Overall, we continue to close the gap to our peers, having gone through a significant recalibration, and continue our momentum in North America.

On page 19, in origination and advisory we achieved a solid result in the second quarter, and continued to make good progress in achieving our target of a consistent top five position.

DB ranked number five globally for the first half of 2010 in origination and advisory.

Although the fee pool was down 12% quarter on quarter, we had only a marginal decline in revenue versus the first quarter.

This shows we continue to gain market share.

We are reestablishing our strong position in EMEA and making important inroads in the critical US corporate finance markets.

In EMEA, we have maintained our number one position in the first half, versus the fourth position the first-half 2009, reestablishing our strong position in the region.

In the US, we have reached number five for the first time ever.

We were number eight in the first half of 2009.

On page 20, we show the results on GTB.

In GTB, we reported record revenues in the second quarter of EUR1.1b.

As you know, on April 1 we finally closed the acquisition of ABN AMRO's commercial banking business.

In GTB, revenues were therefore supported by EUR338m linked to the first-time integration of this acquisition, of which EUR208m relate to the negative goodwill.

Excluding ABN AMRO revenues -- excluding ABM AMRO the revenues were EUR732m, attributable to continued growth in trade finance and good momentum in our TSS business.

Please keep in mind that the second quarter is always a very strong quarter, with high client activity and resulting volumes in GTB.

GTB generated record non-interest revenues, reaping the benefits of the market share gains and good momentum in attracting clients.

This is important as we try to offset the impact of a lower interest rate environment.

The increase in non-interest expenses versus the second quarter of 2009 is driven by the consolidation of ABN AMRO.

Excluding this, we have managed to offset the stronger US dollar and keep costs flat, demonstrating our continuous cost discipline to support our bottom line in a difficult environment.

On page 21, we show the development of the income before income taxes in GTB, where GTB reports an income before income taxes of EUR478m in the second quarter of 2010, mainly driven by the effects I just mentioned.

However, seasonality was very pronounced this quarter, and these results include a couple of one-offs - seasonality, FX impact, the closing of significant -- and the closing of significant deals.

All in all, this quarter was approximately EUR50m above the normal seasonality of a quarter.

So, despite these very strong and encouraging results in the second quarter of '10, those should not be extrapolated for the rest of the year.

With regard to ABN AMRO, bottom line, the acquisition-related impact this quarter was EUR215m.

Please bear in mind that the operating ABN AMRO P&L impact is anticipated to be roughly breakeven for 2010, due to one-time integration costs.

We are very encouraged by the progress of this integration process, and are looking forward to a significant expansion of our Dutch business with this acquisition.

On page 22, we show the P&L of our Asset and Wealth Management business, which achieved strong revenues of EUR969m.

Income before income tax was EUR45m this quarter.

The alignment of Sal.

Oppenheim Group, including obviously BHF, thereby led to a pre-tax profit burden of EUR89m in PWM this quarter.

On page 22 (sic), we show the Asset Management income before income taxes development.

Despite volatile markets, the Asset Management business saw a solid profitability, with a pre-tax profit of EUR55m this quarter.

A lot of things are going in the right direction here.

DWS is going -- doing very well.

Especially, and that's something also to keep in mind for the future, there is a huge opportunity and a huge potential with the German Riester-Rente product, particularly obviously related to German retirement products.

This quarter we had a higher performance of fees in DWS Europe, also mainly in securities lending and the equities business.

We saw net new money outflows of EUR12b, predominantly in lower-margin institutional money market business, in line with the industry trend M&A.

Invested assets increased quarter on quarter by EUR14b, mainly on the strength of the US dollar.

On page 24, we show Private -- the Private Wealth Management business.

Adjusted here for Sal.

Oppenheim Group consolidation effects, PWM achieved an outstanding result of EUR79m.

Excluding Sal.

Oppenheim Group, we saw very strong revenues across all regions.

Revenues benefited from good performance in private client services, product mix initiatives, lending and cooperation with our investment bank.

As mentioned before, the alignment of Sal.

Oppenheim Group had a negative impact of EUR89m on the PWM result.

Invested assets development remained stable quarter on quarter.

Margins are slightly up quarter on quarter.

On page 25, we come to PBC.

Here, we saw a very strong profit development across all regions, with Germany up versus last quarter but below the second quarter of 2009.

Europe benefits from ongoing revenue growth.

At the same time, loan loss provision that we had to take.

With a pre-tax profit of EUR233m, PBC achieved the best result since the peak of the crisis.

On page 26, we show the quarterly development of the profit.

The result of PBC was supported by record revenues in deposits, where margins have increased by approximately 15 basis points compared to one year ago.

Revenues from credit products were solid; margins have remained constant.

We expect revenues in investment products to pick up in the second half of this year, obviously assuming normalization of markets.

There is an ongoing strong revenue contribution from Europe.

A third of PBC revenues now comes from the non-German business.

Loan loss provisions stabilized at a low level, and benefited from various measures taken on portfolio and country level.

Reduced provision levels in Italy and Spain compared to the prior year were partly offset by increases in provisions on our consumer finance business in Poland.

The second-quarter provisions in Poland declined versus prior quarter.

We are confident to keep provisions at this reduced level, and continue to further improve the situation in Poland in the second half of the year.

Let me now come to some key current issues.

Because I understand that we have continued questions on our capital issue, let me now go a bit more into detail on our capital position.

Our focus is clear, concentrating on both capital and balance sheet discipline.

With our Tier 1 ratio at 11.3%, we are now some EUR4b above our target rate of 10%.

Clearly, we recognize that the world has changed.

This is why we have recalibrated our business model in investment banking successfully.

We continue to gain momentum in our classic banking businesses.

This will support our operating profit target of EUR10b in 2012 (sic - see presentation), which I continue to confirm here, which gives us also the confidence about our internal capital generation capability.

We also do not sit and wait until regulation hits us, but we manage capital in a proactive way.

We will continue to de-risk our balance sheet, and we will dispose of assets in non-core areas.

This will free up capital, which will also be available for our growth initiatives.

We understand there is big uncertainty with regards of the global regulatory framework, that the timing and the impact on capital levels requires ongoing assessment.

Deutsche Bank has additional measures in place to respond to significant changes in the environment.

We have substantially authorized conditional capital measures in place, which gives us the necessary comfort and flexibility for both challenges ahead.

And I just noticed that I mis-spoke.

Of course, I meant our EUR10b target for 2011.

If we go to page 29, as most of you know, the United States has legislated the new Dodd-Frank Wall Street Reform and Consumer Protection Act.

We wanted to give you an overview how at a first glimpse this looks for us.

This financial regulatory reform will improve the financial system's stability, and further protect bank clients and participants in the markets.

We believe in that as well.

Also, this has just been signed into law.

The next, obviously, 12 to 24 months will be quite busy, as the regulators must now conduct further studies and then write the rules and definitions for compliance with the new law established by the legislators.

But as such, it's much too premature to quantify what the financial impact will be on Deutsche Bank.

However, most of you are aware that we offer a conference call tomorrow with our Head of Government Affairs in the Americas, and our Head of Government and Regulatory Affairs will discuss further details.

But this gives you, on a line basis, our first reactions to this bill.

On page 30, we address the question that a number of you have asked us about our US entities, and here in particular the Taunus Bank Holding Company.

And I would therefore like to go through our most important units in the US, as I show here in the chart.

Taunus was created as a consolidation vehicle to acquire Bankers Trust in 1999.

We have since then consolidated all of our US business subsidiaries under Taunus, but tax efficiency it's also the consolidator of BTH in the region.

In calculating, obviously, Taunus Tier 1 regulatory capital ratio, there is a deduction of $5b of BTH, partly from losses, as well as $7.7b of goodwill and other intangibles, for example from Bankers Trust, Scudder, Maher, etc.

This results in a negative Tier 1 ratio, despite the fact that Taunus has over $5.2b of equity capital.

Deutsche Bank Trust Company Americas, here on the chart, is our largest US regulated bank, and one of our largest client-facing regulated subsidiaries with $45b of total assets and a Tier 1 ratio of 37%.

It is critical for our clearing and lending businesses, as well as private banking.

The regulated broker dealer Deutsche Bank Securities, which is the next entity I show here, with $238b of total assets and nearly $7b of excess net capital, is our main brokerage and market-making subsidiary.

We expect to have new capital requirements for Taunus as the result of the recently passed Dodd-Frank Act, specifically the Collins amendment.

There are a number of responses to the Collins amendment, such as the additional capital generation from positive earnings, the earn-outs of DTAs and the potential reallocation of capital and assets, as I have mentioned also before.

I hope this gives you a little bit more insight about Deutsche Bank's situation in the US.

On page 31, I promised to give you an update on the progress of our complexity reduction program, and on page 31 I show that.

We still target a cost/income ratio of 65 basis points by the -- 65 points by the end of 2011.

The idea generation and initiatives commitments are progressing very much on track.

More than EUR700m of efficiency gains have been committed so far.

As I said, the complexity reduction is expected to result in approximately EUR1b of efficiency gains.

Efficiency gains will be partially achieved in 2011 and fully considered from 2012 onwards, as we expect that our changes will have a long-lasting nature.

On page 31 (sic), I give you some insight.

The process of our complexity reduction is really to hold workshops across the world.

Here, I detail the number of them that we have met and the number of participants.

This slide shows you how the total organization is involved in generating ideas on how to reduce the complexity of the Bank.

We have a large amount of ideas and we are progressing to take decision and moving along and implementation on many of them.

On page 33, I will not go into more details, but I just show you some examples of how we achieve the complexity reduction.

We obviously focus on Group-wide standardization, on consolidation of systems, applications or reporting process, or centralization of vendor enforcing activities, as a broad example.

I certainly acknowledge that Deutsche Bank is not the first name that comes to your mind in regard of cost efficiency.

We're very aware of that as a Board.

And therefore, we have implemented this process of idea generation and savings commitment as a common practice, even -- within the Bank, even beyond 2011.

Initiatives will be kept centrally listed, quantified and further developed, and will be regularly checked by our Group Executive Committee.

On page 34, to conclude, and to open up then for questions, we show you our performance in the first-half 2010 against the full-year 2011 profit targets.

First of all, we remain committed to our target in 2011 and we believe that we are on track to achieving this target.

Let me remind you that the underlying profitability in the first half of 2010 was negatively impacted by a variety of specific charges, such as the frontloading of the UK bonus tax and the integration costs of Sal.

Oppenheim, or further asset mark-downs.

If you add all these items back, our profitability is more in line at the EUR4.9b to EUR5b range for the first half.

Clearly, our investment banking results in the first half benefited from a seasonally very strong first quarter, but we remain very confident that our EUR6.3b profit target can also be achieved in this area.

Our substantial improvement in the classic banking businesses in this quarter also gives us confidence that we are on the right track under the assumptions made at the Investor Day.

Thank you very much for your attention, and I open the floor for questions.

(Operator Instructions).

The first question is from Philipp Zieschang from UBS.

Please go ahead, sir.

Good morning.

Three questions, if I may.

The first one is with respect to your comp accruals.

Would you say you are in line with your full-year plans there, or should we expect some true-ups in the second half?

The second one is on the acquisitions.

If I recall the Sal.

Oppenheim impact or cash finance base, it was 135 basis points; now ABN AMRO another 35 basis points, so 170 bps off your Tier 1 ratio.

Could you remind us about the -- on the profits you actually -- pre-tax wise you expect, say, from 2012 onwards, that we kind of see also the benefit P&L wise from what is in this environment quite a hefty capital impact?

And the third one, just on restructuring charges with respect to your cost savings program; that would be great to have a bit of an update.

Thank you.

Okay.

Your first question was, were the comp accruals in line with the full-year plan.

They definitely are in line with our full-year plan.

Of course, you have to consider that we had a significant restructuring of our comp versus previous years.

You know we had a significant change into base compensation that we did as a result of the new regulation and requirement on comp for banks.

That is certainly distorting some of the numbers in terms of comparison.

And second, obviously we did reduce our bonus by the same amount, because we want to keep obviously compensation at level.

Obviously, compensation is related to the performances at Deutsche bank, and therefore we are correctly and completely accrued so far for what we expect this year's performance to be.

Second question was what will be the run rate of earnings for the acquisitions of 2012.

I ask you, obviously, that these type of long-term projections we will not do.

We did very careful investment plans before deciding to make these investments.

We are monitoring this very closely.

We have to invest something in integration and reduction of costs, especially in the Sal.

Oppenheim Group.

We're looking at a more positive smaller investment in the ABN AMRO trend, and a positive trend there as well.

But please understand that I cannot give you that type of a long-term earnings projection.

And the cost to achieve the cost savings, there will be some.

We have always said that as we now move on the process is separated into seven steps, total profits.

Most of our initiatives are now in the step in which we are finalizing business trends and taking decisions.

That's why I don't have a specific number at this point of view.

But obviously we have said that some of the cost savings that we expect for 2011 will be compensated by some investments we have to do in order to achieve these cost savings on a lasting basis.

But again, we have already EUR700m in savings committed and we therefore continue to be very positive that we will achieve the impact again in '11.

That was in the plan, and the impact in 2012 going forward, that is in the plan.

Thank you, Philipp.

Thank you.

Next question.

The next question is from Jernej Omahen from Goldman Sachs.

Please go ahead, sir.

Good morning.

It's Jernej here from Goldman's.

I just have a couple of relatively short questions.

The first one relates to the much discussed result on the investment bank's volatility positions during this quarter.

And we saw obviously substantially negative impacts with some of the US banks, less so with the European banks.

And I was just wondering, given that you are active in the derivative space, what was the result on your volatility positions during this quarter, if you could share that with us.

The second question really relates to the very helpful slide you put in on page 30, where you essentially show the capital positions of the major US entities.

Can I just ask you, what is your estimate of how much funds would need to be transferred, to meet all the existing/new capital requirements?

And do I understand this correctly, the way you explain it basically, that this would -- at a holding company level this would essentially be a non-event, i.e.

it would have no impact on the Group capital position as such?

And if the answer to that is yes, then I guess are you considering doing that at some point in the near future, or I guess the question is whether we should expect this to be clarified this year?

And finally, I wanted to ask you, on page 46, again, another very useful slide on the various changes and the impacts on Deutsche Bank.

I wanted to ask, what is the -- in case -- it might be a possibility I missed it, but I don't think Deutsche Bank discloses the total amount of balance sheet assets.

So when you talk about the tax on off-balance sheet assets, what would the actual amount be?

If you -- and also on the -- essentially the other thing that is taxed as well, which is the value of derivatives held off-balance sheet.

So what would that amount be, and hence what would the tax add up to?

Thanks very much.

Yes.

Thank you, Jernej, for your questions.

Let me first start with the investment bank earnings.

I don't have any specific numbers for the derivatives activity and the volatility in here.

In line the analysis we have done since our competitors showed their results, we did actually quite well.

We did either in line or much better than some of our competitors generally in our investment bank businesses overall.

So we were quite happy with the result we had in the second quarter, despite the fact that we also all got significantly, obviously, impacted by the reduction in volume.

If I go into your question around the Taunus entities, yes, I wanted to provide some clarity around our Taunus situation.

And to answer your question, you don't have to expect anything for this year, because in this sense our view is the following.

It is on a Group basis, as you correctly said, this in not an issue.

We expect, obviously, that there's a date set for 2015.

Till 2015, we have time to fix this issue, and obviously till 2015 we expect our earnings pace -- as you know, we have an extremely good momentum so far this year in the US, and we expect, as I told you in the call, this momentum to continue.

So our plan shows that obviously retained earnings will cover a large part of that path till 2015.

So it's not a big concern.

And what's important to us, and that's why I wanted to outline also in the chart, that our client-facing and business-linked entities are well capitalized in the US, and therefore should not be an issue from a customer or market perspective.

And again, on a Group basis, this all through consolidation has no impact.

And last but not least, the bank levies.

It's obviously too early to really say or give any further details here.

The bank levies on off-balance sheet positions like derivatives will obviously heavily depend on the definition of the exposure base, which is really at the moment uncertain.

For example, the question whether it's notional versus mark-to-market, what netting is allowed, etc.

So therefore, at this point it's very difficult.

And that applies, by the way, to all bank levies to assess till clearly we get some broad ideas of what the ideas is.

As you know, there's much discussion about the cumulative effect of those that we're still contesting, whether that makes sense.

So it's just way too early to really give out any numbers that would have any quality or any meaning.

Okay.

Thanks a lot.

The next question is from Kian Abouhossein from JP Morgan.

Please go ahead, sir.

Yes, hi.

I have a few questions.

The first one is related to the stress test, the CEBS stress test.

And I was wondering if you could explain a little bit more in detail the EUR105b of risk-weighted asset increase between year-end '09 and the adverse effect.

I understand acquisition is part of it, but more it looks like credit migration; re-securitization clearly is included.

If you could give us a bit of a steer of how to break it down.

And the second question is again to the CEBS stress test, the EUR21.8b of pre-impairment income, if you could discuss a little bit how do you actually get to this figure, what of the announced changes of the business were included in this number?

And the last question is related to CB&S, the capital movement between second quarter and first quarter, which has an average active equity but changes quite materially.

And I'm trying to understand the move from EUR15b to EUR17b, with your risk-weighted assets being more or less flat.

Thank you.

Okay.

Kian, thanks for your questions.

Let's start.

First of all, on the stress test, I make you all aware that we did provide you, as we had planned to provide you, with our sovereign exposure.

I forgot to mention that during the call, that it's included in your information and it's available on the website.

We had waited for today's date to disclose our numbers, because we also had now actualized some of the numbers to the current date, and we see no significant movements.

That's why put them into -- reported the numbers as it was proposed -- voluntarily proposed by CEBS then today.

So I guide you to that one.

The first question that you obviously asked is certainly the explanation of the CEBS differences.

Honestly, I will have to defer on that question.

We'll have to give you an information on that later.

What is true, on the EUR2.8b (sic) pre-impairment income, is that that obviously assumes how our development of profitability in our plan will be.

We know that this is going to generate a lot of questions, but obviously you have to see these are plans.

These are made based on assumptions.

And at the end it shows our assumptions that we don't want to disclose in detail, because obviously one of the big concerns we have with these tests -- stress tests is the markets start calculating what our return earnings and our profitability plans are on a going-forward basis.

So I ask you for your understanding there.

CBS, allocated capital movement, even if the risk-weighted assets were flat, we had some capital deduction items that I also showed on the capital movement forward in CB&S, related also to the development of our economic capital allocation, based on risk.

So it has something to do on how we allocate our average active economic capital, as opposed to our regulatory capital requirements that, as you know, we do in the Bank different.

And then obviously we had a retained earnings effect in that number as well.

Can I just follow up, just one question on the pre-provision profit from the CEBS?

Does that include the cost saving plan and ABN AMRO, Sal.

Oppenheim?

That's all assumed because it was announced?

Yes, it does include -- obviously, it does include all -- it does, number one, include our target.

By the way, that's one of the deviations that obviously we have with market expectations on this number, between our EUR10b and what the market today expects or gives us credibility for.

It does include the ongoing, obviously, cost savings.

And it does include, obviously, the ongoing profit development of the Bank.

But that's exactly addressing our concerns now.

That's why I would like to leave it at that.

And it's an internal plan.

It's a plan based on assumption.

It's a plan obviously based on environmental development and changes, and that's what it shows.

And if I may, one more very quick one.

The EUR1.1b Tier 1 capital deduction on slide 10, I know you had something similar in the first quarter.

Is this expected to be ongoing?

Obviously these -- you have to see these are capital deductions that mainly are driven by volatility in the securitization positions, not volatility; mainly also driven by obviously the underlying markets and their liquidity.

And as those change, obviously this number fluctuates.

We don't think that -- on a going-forward basis for this year, and obviously I'm now making an assumption about the liquidity environment, we don't think that we will see significant differences.

But you have to expect some capital volatility around this number, especially if liquidity in markets, for example, were to further deteriorate.

So it's -- to some extent that we were discussing internally, it's a little view into the new world as well, where obviously these type of capital deduction items will play a more predominant role in terms of our Tier 1 capital calculation.

So we just expect in general more volatility through (inaudible) the regulations.

But in this specific case, it's mainly driven by the liquidity of these securitization positions in the marketplace.

Thank you.

The next question is from Georg Kanders from WestLB.

Please go ahead, sir.

Yes.

First of all, I have a question on the sovereign exposures that you published.

What are the differences between the numbers published at the AGM?

Could you elaborate on this?

And then I would like to -- I didn't really get what was your ongoing view on the GTB business, including possible restructuring charges for the ABN AMRO business, for example.

Are the possible restructuring charges higher than the bad will benefit?

Okay.

Georg, thank you.

Let me talk of some of the CEBS basis numbers.

There are a quite a few, obviously, from a definitions point driven, differences between some of the numbers on a CEBS basis and the way that you get the results.

The fixed countries' sovereign exposures are down by 25% on a like-for-like basis between March and June.

That's why we wanted to wait and give you the update on June.

Across all countries covered in the CBS analysis, total net sovereign exposure is more or less materially unchanged, so the two reporting dates.

We gave you some numbers in the AGM.

Let me pick out the Greek example.

We told you at the AGM that we had approximately EUR500m.

Now the CEBS required us to report for an earlier date, which was the March end date.

There we had EUR1.1b.

To give you now the number for June, it's around the EUR500m that we had communicated in the AGM.

So you see that there is some volatility in these numbers, and that's how you can make them [fit].

For -- we have to continue that.

Obviously, in this presentation, the way we included this, that in some of our presentations and analyst [presentations] we did not -- we only included central governments, for example, in some exposures.

You know CEBS also required to include not only the central governments but also regional governments, local authorities, public sector entities, as well as certain international organizations and multilateral development banks.

So there is just an underlying definition between these numbers.

Furthermore, the other difference is that in the CEBS context we took a more conservative approach for the bond netting, as another difference of this example.

But overall, as you saw, these numbers are not materially different.

That's again why we're not concerned at all about our sovereign or our fixed exposure.

And as you see, our largest exposure from the list pertains to Germany anyhow.

GTB; GTB really had a good result in Q2.

Of course we had the ABN one-off and obviously we had some seasonal effects.

But I think GTB really showed a very positive trend, despite -- because that's the core, despite the continued difficult interest rate environment.

And you know that that's the biggest driver of profitability in GTB.

They have managed very well with several measures that they took, both on revenue and cost side, to improve their profitability in Q2.

We expect that -- obviously taking away obviously seasonality effect, but we expect the basis underlying of this business improvement to continue into the second half-year and also into 2011.

I can say it's a result of more focused cost restructuring and revenue measures that GTB has taken.

There will be obviously some costs associated with the integration of the ABN business, but again we don't expect them to be substantial.

So you expect the restructuring costs more or less to offset the operating contribution from this business?

I will not give you further details on the size at this point in time.

Again, in this case, and different to Sal.

Oppenheim, we just took on the business.

We're working on the integration.

We have not yet completely finalized the integration numbers and plans.

And that's why I would like to abstain from giving any further specifics.

But again, we don't expect this business to substantially impact GTB.

Okay.

The next question is from Stuart Graham from Autonomous.

Please go ahead, sir.

Morning.

I have a couple of questions, please.

Firstly, on the -- going back to the capital deduction, the EUR1.1b, I understood on the last conference call that an element of that was kind of bringing forward the offsets against the new trading book rules.

Is that still the case?

Because it sounds a bit more like this was just volatility in a re-securitization position.

That's the first question.

The second question is Actavis.

It sounds like that's been closed now.

So can you confirm that that's kind of a dead subject from a risk provisioning side of things?

Then the third question was just going back to the stress test.

Do you think we can compare your outputs versus, let's say, Barclays and BNP?

Do you think that's a valid comparison we can make, or is there too much individuality in the way the banks have filled these in that you think it would be dangerous for us to do that kind of peer group comparison?

Thank you.

Let me -- thank you, Stuart.

Let me start with your capital deduction reasoning.

A part of it that we took in Q1 relates to trading book securitizations, yes.

And these are in principle also covered by CRD 2, but it's only a part of it, as I disclosed, and a part of it counts against it.

And the second, obviously, as we will then expect in the future, obviously these first-loss positions on these securitizations are subject to liquidity assessment and market evaluations at a specific point in time.

Obviously we will see volatility around these issues, depending on market liquidity, as I said.

So -- but a part of it is -- but this is not a one-for-one hit, for sure, but a part of it is obviously bringing forward some of the capital deduction we expect with CRD 3.

Okay.

Q2, by the way, also in this position includes about EUR250m deduction in relation to the ABN, so to make you aware, if you look at the EUR1.1b in deduction in total.

Okay.

So there is some one-off funny in this case as well.

Second, to Actavis, it continues to be an asset.

We are working on it.

I would abstain to disclose any further information on it at this point.

We will report as soon as further news exist on this transaction.

And back to your stress test comparison, well, we followed the guidelines given out by CEBS.

We followed the definitions that were given out by CEBS.

But of course, as we just discussed, for example, the retained earnings piece, which obviously shows how your capital is expected to develop, obviously there was no harmonized base scenario.

Assumptions here could be somewhat different in terms of what the environment will look like and how these retained earnings will look like for the different banks.

But in general, of course, with the aforementioned caveats, I think comparisons are permissible.

Okay.

Thank you.

That's very helpful.

The next question is from Huw van Steenis from Morgan Stanley.

Please go ahead, sir.

Good morning.

Most of my questions have been answered, just one short one on the ABN AMRO acquisition.

I think on page 20 you very helpfully suggested you made about EUR215m profit from ABN AMRO.

Obviously there was a goodwill write-up.

I think in the report you were talking about EUR104m of one-off expenses.

So should we think that this is sort of an underlying profit of about EUR130m you've added now, quarter by quarter, for GTB?

Thanks ever so much.

I wish it would be that quick and that good, but I cannot verify your calculation at this point in time.

We will have some one-offs to deal with and obviously restructuring costs, as you know.

In difference, this is a business that we're taking out, that we are more in a rebuilding mode.

We have very motivated people on it.

I think we were happy that they finally could conclude it after a long time of discussions with the different involved parties.

We're very much looking forward.

It will be a good business for the Bank, but I would like to keep it at that.

And just one supplementary.

In terms of the capital treatment, I think because of the way it's structured it didn't really attract many RWAs.

Is there any contingency in that transaction which means at some point in the future the RWAs will revert to you, or is that shield an ongoing feature?

No, no contingency; no.

Okay.

Thanks.

Okay.

The next question is from Fiona Swaffield from Execution Noble.

Please go ahead, ma'am.

Morning.

Can I just check on the moving parts on the issue of CRD 2?

So I think you're saying that some of it's been brought forward.

Could we have an update on the slide that I think you gave in the Investor Day, where you said roughly a gross impact of all the changes in Basel II on market risk of about 80, I think, and a net of 50.

Is that still something we should incrementally expect next year?

And the second area is on securitization and how that really impacted your stress test and why it was so significant.

Could you just talk through the 39%, or the big increase in risk-weighted assets, and why the securitization book was affected so much under the stress test?

Thanks.

Okay.

Let me first start with CRD 2 and I assume the trading book rules that were moved and are coming now in effect somewhat later.

We have no new numbers at this time.

The impact that we disclosed in December is more or less in line with what our current expectations are.

As you know, there was no reason for us to update or change this number at this time.

We are working towards this objective, and I can say that our work towards this objective has been so far successful.

So we continue to believe in the numbers that you quoted.

In terms of the rest of our capital, our -- and that's why I really want to say we still continue to be completely on plan with everything we've said about our capital looking forward.

I think, around Basel III, our view was always that we will see delays and we will see an easening.

You just saw the news that came out yesterday now and this morning on the easening of Basel II, also on further delays and timeframes for implementation and an easening of the rules.

The same as well is for us in terms of the implementation of CRD 2, that we also see the timing -- or saw the timing delays and that also happened.

So, in that sense, we continue to be confident in what we told you at Investor Day, our midterm, which was our 2011, and then our longer-term predictions, although there it's still difficult to say how some of these impacts will really come.

At the end of the day, we had on our risk-weighted assets a change.

The question that you have, we obviously had the integration of Erasmus, which was EUR7b, including their credit umbrella and the credit risk.

And we had an FX effect of EUR11b, and that's -- by the way, many of our numbers you see FX effects did play a role in terms of balance sheet and risk-weighted assets development that played a big role.

The good news is that we had lower risk-weighted assets for market risk, mainly because of reduced market volatility and lower levels of risk exposure in certain risk areas.

And obviously we're also expecting a further risk reduction in the Sal.

Oppenheim Group.

So that's why we have many moving parts.

We're obviously impacted by the US dollars on many of these numbers.

That's why I understand there are some difficulties on reconciling them to past numbers (multiple speakers).

Sorry, can I just follow up on the -- I think on risk-weighted assets I also wanted -- wondered if you could discuss the issue of the stress test and why securitization seems to be such an issue for you, in terms of the growth.

Yes.

And also we have a number of securitization positions that made the impact material, but also we are using very conservative approaches in this area, which in this case believe are more conservative than used by peers in the stress test average.

That will remain one of the differences we carry.

And sorry, can I just really follow up very quickly on slide 40?

I can't help noticing that the IAS 39 book doesn't seem to be improving that much in terms of pull-to-par.

I thought maybe you'd get some more positive valuation impacts.

Well, that's a direct result.

The good news, our loan loss provisions on that book were also eased down.

You saw a significant ease down on that side.

So we're not concerned about the book.

What we decided at the beginning of year, that we could start to sell some of those positions and to get -- start building the book down.

We had some successes in Q1.

And now the increased market or the difficult market environment has led us to stop that exercise, and that's more or less what you see on the chart, that we didn't see any further significant movements in Q2.

Thanks.

The next question is from Matthew Clark from KBW.

Please go ahead, sir.

Good morning.

I just want to come back to the securitization deductions, and firstly just to clarify why they would be deducted for liquidity issues.

I thought it was more for rating downgrades.

So if you could clarify how you quantify the liquidity-related deductions.

And also, can you just tell us what these securitization positions that are being deducted relate to?

What's their nature, region, collateral?

How did you -- how did they come to be on your balance sheet?

Just some broader context there, please.

Thanks

Well, the capital deductions is clearly both.

Obviously it's the rating of them, internal and external ratings.

And the second obviously is the liquidity.

It's both.

It's rating and liquidity, and in the rating we have to look at internal ratings and external ratings as well.

So it's a factor.

It's only the illiquidity of this market which we saw in the second quarter to occur.

It's had an impact on the second quarter on this position.

Ratings moves weren't that substantial in the second quarter, and that's why I talked more about liquidity.

But you're right; it's both.

And sorry, the second question (multiple speakers) Matthew, sorry?

It was just where these positions come from.

How did they end up on your balance sheet and what's their nature, what's the collateral, what's the region?

Are these deductions we should be worried will crystallize, or are they deductions that will go away over time?

These are trading book -- mainly trading book assets, some of them longer dated that we've had in the Bank for a while, and some of them are stock trading positions.

Okay.

Thank you.

But I'd like to add something on to your -- I think -- I guess the second part.

Economically, most of these positions are hedged, materially hedged.

That's why we've also kept them and we're not concerned about these positions.

Actually, the risk in these positions is significantly less than what the capital charges really imply them to be.

Maybe I could ask about the duration, then, because if they are hedged then we should expect this benefit to unwind over the next few years -- or sorry, the burden to unwind over the next few years?

It does have an unwinding effect over the next couple of years, yes.

Can you be more specific?

No.

Okay.

Thank you.

Okay.

Thank you, Matthew.

The next question is from Jon Peace from Nomura.

Please go ahead, sir.

Yes, good morning.

Two quick questions, please.

Firstly, on the Tier 1 target, about a third of your Tier 1 is non-core.

I just wondered if you'd had any additional thoughts about the appropriate level of Core Tier 1 in the light of new regulations.

I wondered if you had any comment on how the Basel III proposals last night might affect you, and the fact that the FT reports that Germany was the only country amongst the 27 member countries that actually didn't sign up to the principles.

The second question's just about the profit target for next year.

The investment bank obviously is the engine that's keeping you on track today, but I wondered when you thought we might see private clients and asset management accelerating to the run rates that would meet your targets, because they're still a little behind as of the first half of this year.

Thanks very much.

First of all, we are very comfortable, by the way, with our 7.5% Core Tier 1 level, and we don't know where the Tier 1 level will end up being.

As you know, even yesterday we had some substantial changes now to the Basel framework.

And we still -- there's no number out yet that gives an indication of how core levels or capital levels or the new clean capital definition will really look like.

So, in that sense, our view has been we'll continue with the current definition framework.

As I told you, we have a Tier 1 level of 10% that is a self-set target that we believe economically to be the right one for Deutsche Bank's business risk and structure right now.

And at this point we continue to be comfortable with our 7.5% Core Tier 1 level at the end.

You know the stress test also gave some support of that view in our view.

I can't speak for Germany, by the way.

I'm not familiar with -- I also read the article but I'm not familiar with the position was and whether that's accurate or not accurate.

But obviously, at Deutsche Bank we welcome the changes announced.

And obviously there are some further changes we hope we'll still get, and where we have some different view.

We'll have a call tomorrow that will give you more detail.

And generally we had a quick look at the changes from yesterday night and our conclusion is that they're all positive in terms of what Deutsche Bank is, but we haven't done a quantification because it's too early to quantify it.

Okay.

(Operator Instructions).

There are no more questions.

I'd like to hand over to Joachim Mueller.

Yes.

Thanks all for your interest in Deutsche Bank.

If you have any further questions, please direct them to the Investor Relations department.

We're happy to take them up.

And with that, I would like to wish you a very nice day.

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

Thank you for joining and have a pleasant day.

Goodbye.