Deutsche Bank AG (DB) 2011 Q2 法說會逐字稿

Ladies and gentlemen, welcome to the second quarter 2011 conference call of Deutsche Bank.

I am your operator for this conference.

(Operator Instructions).

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

Joachim Mueller, Head of Investor Relations.

Please go ahead sir.

Yes, good morning.

Welcome from Frankfurt.

On behalf of Deutsche Bank, I would like to welcome you to our early conference call on the second quarter results.

Our CFO, Stefan Krause, will talk you through the slide deck, which is also filed on our website along with all other documents we issued this morning.

We'll try to make this call as efficient as possible so we try to stay within an hour so that you can join our colleagues from UBS later.

Before we start, let me remind you of the cautionary statements regarding forward-looking statements at the end of the presentation.

And with that I hand over to Stefan.

Yes, good morning from me as well and thank you for joining us for our second quarter results call.

We very much appreciate it because it's so much earlier than you are normally accustomed to.

So I'm going to try to move through the slides quickly and to leave as much time as possible for your questions.

Before I go to the results, I would like to mention a few high-level takeaways from the quarter.

As you can imagine, our Investment Bank's performance is materially impacted by the intensified concerns over the European sovereign debt.

Despite a significant slowdown in global client activity, though, the business performed quite resiliently.

Our PCAM business built obviously on its strong first quarter earnings and continued to outperform year-over-year.

Exposure to Greece, Italy, Ireland, Portugal and Spain declined over 70% in the first six months of the year to EUR3.7b.

And, last but not the least, at this point, I'll say we will affirm our EUR10b IBIT target and I will elaborate on this topic later in this presentation.

Let me move on now to the Group's results on the first slide, the highlights.

I will touch on many of these numbers as I go through the presentation so I will not go into any details now.

I will mention that our pre-tax return on equity based on our target definition was 14% for the quarter, equal to the level achieved last year but, as you know, on a higher, on a substantially higher equity base.

Balance sheet assets are slightly up mainly reflecting an increase in our liquidity reserve in the quarter, and the leverage ratio, as you can see, remains unchanged at 23 times equity.

On the next slide you see that our pre-tax profit is up 17% on a year-over-year basis.

The out-performance versus a year ago is attributable to the strategic acquisitions we made in 2010 to strengthen our PCAM businesses.

These acquisitions are positively contributing to earnings already.

There's also concerted ongoing effort to streamline our existing businesses as evidenced by the positive operating leverage in many of our divisions.

The effective tax rate this quarter was 31% and benefited from the geographic mix of income which is partly offset by the non-tax deductible charge for the German bank levy.

The full year tax rate is expected to be approximately around 31% as well.

However, the UK bank levy and bank levies in other jurisdictions may cause this rate to increase.

As you can see, on an after-tax basis first half profits increased 14% versus the same period in 2010.

Let me now turn to our non-interest expenses on the next page.

There were EUR6.3b, an increase of EUR900m versus the second quarter of 2010.

If we exclude the impact from acquisitions, total non-interest expenses would have increased approximately EUR250m year on year.

I will not cover all the increases because there were also a lot of offsetting factors, or there will be offsetting factors over the course of the year and there were some offsetting factors in this number, but the major drivers of the increase were several.

Bonus and retention has increased approximately EUR100m in line with higher year-on-year revenues.

We have booked approximately EUR100m of additional operating expenses from Cosmopolitan, our casino in Las Vegas.

And this quarter includes an accrual of EUR62m for the German bank levy, a non-tax deductible operational expense.

I give you a little more detail on the bank levy dynamics later in the presentation.

Finally, there has been an increase in operational losses and litigation expenses, which is fairly typical for this point in the cycle.

We anticipate that litigation related expenses will continue to represent an increasing amount of our general and administration expenses going forward.

Positive offsets to the increase in non-interest expenses, the development of the complexity reduction program.

Year over year an incremental sustainable savings of more than EUR100m has been realized net of costs achieved so far.

As a reminder, we expect to achieve approximately EUR800m of those savings in the full year 2011 with a net contribution of EUR600m to our cost base after the investment spend.

We are on track, having realized approximately EUR350m of gross savings in the first half of the year.

And finally, the compensation ratio has declined 3 percentage points to 39%, our lowest reported ratio in several quarters.

Let me now move on to next page.

Here you see that Core Tier 1 ratio stood at 10.2 as of June 30.

It's worth mentioning, giving obviously our endless capital debate, that is it above 10% for the first time for Deutsche Bank.

The increase of 60 basis points quarter over quarter and 150 basis points since the end of 2010 reflects Deutsche Bank's strong capital generation as well as our tight risk discipline.

On the following page, we provide details on the development of Core Tier 1 capital and risk-weighted assets.

The net increase in Core Tier 1 capital of EUR900m was primarily driven by this quarter's net income of EUR1.2b, as you can see, partly offset by the dividend accrual and FX effects.

Risk-weighted assets decreased by more than EUR8b from EUR328b at the end of March to EUR320b at June 30.

Now our FX continues to have a positive effect on our risk-weighted asset base.

This quarter it was a EUR1.9b benefit.

Market risk-weighted assets declined EUR3.1b due to lower activity levels across the investment there.

And the decrease in credit risk-weighted assets was EUR2.7b.

This reduction includes effects from a regular (inaudible) calibration and other changes.

Operational risk-weighted assets were EUR600m lower compared to the previous quarter.

We obviously will continue to closely scrutinize our risk in advance of Basel 2.5 and Basel 3 requirements.

I caution you though not to assume a straight line development for risk-weighted asset mitigation.

However, as was explained in some detail at our CID workshop, we do have a clear timeline and agenda to successfully reach our target.

Let me now move on to the next page where I give you an update on our funding activities.

The turbulence of the current environment has again put the funding topic to the center stage.

Deutsche Bank continues to enjoy, clearly, funding advantages.

This quarter the issuance volume stood at EUR3b and the year-to-date average spread of LIBOR plus 54 basis points remain unchanged.

We've slightly revised the mix of our funding plan as we indicated we have the flexibility to do when releasing figures for the first quarter of 2010.

The total funding plan of EUR26b has remained constant.

However, the updated plan splits the EUR7b from deposits and EUR19b via issuance.

Given that we have completed EUR14b year to date, we would have a total issuance plan of roughly EUR6b for the remainder of the year.

Our deposit campaign took in another EUR800m in the quarter, bringing the year-to-date total to EUR6.8b.

And as I mentioned earlier, we have increased our liquidity reserve by EUR15b this quarter.

It now stands at greater than EUR150b.

So let's now move on to review the second quarter results of our different business divisions.

And, as you can see on page 11, we start with an overview of the divisional performances.

Each of our business segments had a good underlying year-over-year pre-tax profit growth, each one of them.

Included for the first time, EUR62m was touched to consolidations and adjustments for the German bank levy.

The full year amount will be approximately EUR124m.

As you may know, the levy is based on proceeding year's German accounting results and is not tax-deductible.

The UK bank levy will only arise as per December 31, 2011 based on the year-end balance sheet number.

The German bank levy will partly be credited against the UK levy.

However, the still rules are --- the rules are still unclear.

At this point in time we expect a more than EUR200m charge for the UK bank levy, but that number is obviously caveated for loss of uncertainty.

Like in Germany, the UK bank levy is not tax deductible.

On the next page, I show the results in our Corporate Banking and Security segment.

It was a very challenging market environment, as you know, for the Investment Bank this quarter as our relative strengths and weaknesses as a franchise were magnified by the market dynamics.

Specifically we experienced a significant slowdown in global client activity during the quarter.

Heightened investor risk aversion precipitated decreases in flow volume.

Finally, given the strength of our franchise in Europe, we were particularly affected by the disproportionately greater slowdown in Europe versus what was experienced in the US and Asia.

Nevertheless, our second quarter '11 revenues are up 9% year on year and IBIT is up 26% year-on-year.

Risk-taking remained well below limits with average VaR in the second quarter down 6% quarter on quarter.

Integra, as you know, our core initiative to streamline and integrate our business across CIB, remains on track to deliver the targeted revenues, synergies and cost savings.

Let me turn to the next page.

I will give you some more details on sales and trading debt.

Here the challenging market environment mostly affected our fixed income business.

Against the peer set we still did comparatively okay.

On a quarter on quarter basis, fixed income revenues decreased 37% to EUR2.3b.

The meaningful breadth of our franchise allowed us to compensate for a slowdown in core areas of strength with good performance from others.

Revenues were lower in money markets, rates and FX, and this was partially offset by a resilient year-over-year performance in credit, emerging markets, and a good performance in commodities and a solid performance in our RMBS business.

On the next page, 14, sales and trading equity revenues you can see were EUR555m, a 41% decline quarter on quarter.

A portion of the decline is usually expected due to the seasonal weakness versus the first quarter.

Cash equities was negatively impacted by the slowdown in client volume.

The decline in equity revenues is more pronounced given our skew towards the Europe, where overall commissions declined substantially more than those in the United States.

The US cash equities business performed well.

However, this quarter reinforces the importance of continue to invest into this business.

Prime brokerage results were solid despite low levels of client leverage and lower financing spreads, and equity derivatives operated throughout this quarter with low levels of risk allocation.

On the next page, on page 15, you see our Origination Advisory revenues were EUR714m, a very strong quarter, up 32% year over year, driven by strong performances across all products.

We are ranked number five globally and improved our largest ever market share in the EMEA region.

We were number one across all products in Europe except lending where we are number two.

We are ranked number one in global IPOs by value for the first time and our M&A business is ranked number one in EMEA.

We were also ranked number one in all international funds and ranked number one globally in high yield.

Let me now move on to our next page where we show you the results of our Global Transaction Banking business.

GTB had a really good quarter with strong performance across all major products.

Trust and securities service continues to profit from the improved market conditions in the depository receipt and custody business.

Cash management benefited from the increased interest income as well as payment volumes.

Trade finance, despite incremental margin compression, generated stronger revenues based on higher volumes of financing products.

If we exclude the impact of negative goodwill that, as you may recall, we recorded in the second quarter of 2010, IBIT increased by 9% to EUR293m.

Revenues grew by 4% based on robust fee income and the benefit from initial interest rate increases, as you know particularly in Asia and Europe.

And non-interest expenses were essentially unchanged versus the second part of 2010, reflecting a disciplined cost management in this division.

Let me move on now on page 17 to Asset and Wealth Management.

Before I go into the detail of the two businesses within Asset and Wealth Management, it's worth taking a quick snapshot of a positive trend at the segment level.

Asset and Wealth Management has worked diligently at integrating and realigning the business platform over the last year, and this first half year resulted is evidence of some initial success.

On just about every metric the business segment is vastly improved year over year.

Revenues are up 9%, expenses are down 11% and IBIT has more than tripled to EUR227m.

Just as importantly, net new money flows have stabilized over the course of the year and have a positive trajectory.

Also the acquisitions in the segment are now stable and rebuilding.

For your benefit, we have added some disclosure on the segmental financial data supplement.

On page 18, you see that asset management continues to gather momentum and is progressing its normal seasonal pattern.

IBIT increased EUR68m year on year, reflecting the efficiency benefit of the platform realignment and the increased performance fees.

Although we experienced overall asset outflows in the quarter of EUR5b, the outflows were predominantly from cash and insurance products which were partially offset by inflows into higher margin products.

The effects of the assets mix shift is evidenced by the year-on-year 9% growth in revenue against a 5% invested asset contraction.

In the first half of the year, DWS had a net 40 Morningstar increase of its fund ratings and correspondingly performance fees had more than doubled in the first six months of 2011 versus the same period in 2010.

The positive momentum in our fund performance gives us reason to be optimistic about the continued growth of this business.

On page nine (sic -- see presentation), I show you the private wealth business.

IBIT was EUR102m for this segment.

Its revenues increased 9% year over year, benefiting from good market performance and a profitable asset mix shift.

In the quarter-over-quarter view the revenue volatility results from some large structural transactions, which will obviously be, invariable be lumpy from quarter to quarter.

But overall the quality of the revenue stream continues to increase along with the asset mix.

Impressively, expenses are down 13% year over year.

As we indicated during our full year results presentation, we feel most of the technical expense reductions necessary at the Sal.

Oppenheim franchise have been taken and what you see here is the benefit of efficiency gains and strong cost discipline.

Net new money inflows were EUR5b in the quarter, a continuation of the first quarter's inflow of EUR3b.

Sometimes, it's easy to overlook and I want to make the point that PWM is the largest wealth manager in Germany with more than double the invested assets of our nearest competitor.

So let me move on now to our Private Business Clients segment.

And, as you are aware, we have enhanced our segment's disclosure in PBC to give you a more granular view that aligns towards the way the business is managed, but, first, the traditional consolidated view you are accustomed to.

With pre-tax profits of EUR458m, PBC is running well ahead of our plan.

As I mentioned earlier, the negative impact of Greek government bonds reduced PBC's IBIT by EUR132m.

The strategic decision to increase our exposure to German retail banking with the acquisition of Postbank is showing strong signs of its future potential.

We continue to attract strong deposits via our deposit campaign, EUR6.8b, as I have said, in the first six months of the year.

As you would expect, our deposit revenues have grown 8% year over year as a result of this strategy.

Revenue from credit products is down 7% year-over-year.

Over the course of the last year we have deliberately reduced our risk appetite, with two major consequences.

Obviously our interest margin and net interest income suffers when higher margin loans roll off without comparable levels of origination.

However, the positive offset is the provision for credit losses continues to stabilize.

Excluding Postbank, cost of credit declined 20% year on year.

Non-interest expenses continue to progress favourably, excluding Postbank expenses declined 5% year-over-year.

Postbank integration and the cooperation with our colleagues from Postbank continues to be well on track.

Let me now turn to this enhanced segment disclosure.

Let me give you quickly an explanation.

The Advisory Banking Germany comprises all of PBC's activities in Germany excluding Postbank.

Advisory Banking International covers PBCs European activities outside of Germany and those in Asia.

And Consumer Banking is Postbank's contribution to the consolidated results of Deutsche Bank.

The IBIT, as you can see, in Advisory Banking Germany on an underlying basis excluding cost achieved and the Greek impairment charge is up 20% year over year.

The business is benefiting from increased revenues from deposits, lower credit costs and tight expense controls.

Expenses are down 4% year-over-year including EUR35m of spend relating to the Postbank integration.

Advisory Banking International had 60% IBIT growth, albeit off a lower base, primarily driven by stronger advisory and brokerage revenues in Europe and lower levels of credit provision.

And the Consumer Banking Germany, Postbank business, reflects the strong contribution from Postbank, which continues to benefit from the relatively strong German retail market, as you can see.

Let me move on now to page 22 where I give you some information about our non-core investments, but I'm not going to spend a lot of time on this.

Our strategy here basically remains the same.

We've continued to manage these assets with a view towards divesting them at an appropriate time.

The only thing of note is that we took an impairment charge of EUR39m against Actavis and as you are probably aware we have entered into negotiations to sell BHF.

There is still some due diligence remaining and obviously, all the proper regulatory approvals are still required.

And I will provide you with an update then at an appropriate time about this sales process.

I took out a couple of additional topics that I think that deserve some additional attention this quarter and let me start on page 24 with our provision for credit losses.

We recorded, as I reported, EUR464m provision for credit losses in the second quarter, including EUR182m for Postbank.

As this may seem high in contrast to previous levels, there is one important issue to keep in mind.

With regard to Postbank, I would like to remind you again that we consolidated Postbank loans on our balance sheet at fair value as of December of 2010.

Consequently obviously no allowance was included in our accounts for these loans.

And therefore, as a result, in the subsequent allowance release that Postbank booked in this standalone account as a provision for credit losses is recorded as net interest income in DB Group accounts.

For the second quarter, we recorded EUR82m of net interest income in our consolidated accounts.

For the first quarter 2011 the sum was EUR117m of such income.

Adjusted for this accounting effect, which means applying the net interest income credit to loan-loss provision like it's done at the Postbank standalone account, our second quarter provision was EUR382m including EUR100m for Postbank.

Regarding our Investment Bank, the increase compared to prior year quarter mainly reflects a small up-tick in our reclassified IAS 39 related provisions.

Please be aware that future quarters will reflect similar accounting-driven effects where the provision for credit losses should be viewed in conjunction with related offsets in our line item of net interest income.

On page 25, a connected topic, I will show you the impaired loans.

In the second quarter, we recorded an increase in impaired loans of EUR965m, principally driven by two items.

First, we have a single CRE borrower situation where we have taken a small charge on a larger financing.

And second, Postbank, where the increase is driven by a technical effect I already discussed in our first quarter 2011 call, namely at consolidation all loans classified as impaired by Postbank were classified as performing by DB as they were recorded by us at fair value.

As a result, a further deterioration in credit quality of any loan classified as impaired by Postbank triggered impairment classification for the full loan amount in DB Group accounts.

In addition and on top of that, improvements in credit quality of loans classified as impaired by Postbank do not reduce impaired loans recorded in DB Group accounts.

Please take that into account as this number moves forward.

The two items driving the impaired loan increase for the quarter also explained the drop in our reported coverage ratio.

As the CRE loans were not previously reflected in our coverage ratio and because for impaired loans in relation to Postbank, neither the allowance held by Postbank at the time of consolidation nor any purchase price adjustment made by us, is included in the coverage ratio reported by DB.

In short, you should not interpret the reported increase in impaired loans nor the reduction our coverage ratio as a sign of deterioration of the credit quality of our loan book.

In fact, I can tell you our credit quality remains very sound.

You also should expect the Postbank-related technical effect to continue for some time with the corresponding further increases in impaired loans, which will appear lowly provided.

Again, this does not reflect any credit deterioration.

On page 26, as in this quarter, we had the EBA stress test.

And as you are aware from our July 15 press release and the publication of the euro-wide stress test result, DB has a Core Tier 1 ratio of 6.5% for 2012 under the EBA adverse scenario, well above the 5% benchmark set by the EBA.

Additionally, given our strong capital formation in the first half year, our Core Tier 1 capital improved by EUR2.5b and at the same time, risk-weighted assets were reduced by EUR27b.

Our capital positions today is significantly improved compared to December of 2010, which was the basis of the EBA's stress test.

Applying the first half year risk-weighted asset reduction and Core Tier 1 capital improvement to the EBA stress outcome leads to a pro forma 2012 Core Tier 1 ratio of 7.5% under the EBA adverse scenario, as we show you here on the chart.

And as discussed, the first half of 2011 is evidence to our commitment to grow the Bank in a highly capital generative way.

Equally, the simple pro forma calculation done here shows you the strength of our capital position even without taking into account our sovereign risk reduction or the fact that the pre-impairment income used by the EBA in its baseline scenario is well below analyst estimates.

Let me now move on to the sovereign exposure on select countries, as I'd said at the beginning of my presentation.

And on page 27, as you can see, we have significantly reduced our sovereign exposure to PIIGS countries since year end.

Having said this, we still hold net loan positions in all PIIGS countries.

They are just somewhat moderated versus year-end 2010 which means that at the end of the second quarter 2011 as a firm we were not positioned to benefit from a sovereign default.

Let me give you a bit more color on Greece and Italy.

For Greece you see a reduction of about EUR450m which is fully explained by redemptions, which means that we had maturing exposures as well as some of the markdowns taken since December of 2010.

For Italy you see the most significant absolute reduction of our net sovereign exposure for all the countries you saw on this chart.

Here the reduction is driven by two principal factors.

Firstly, our desire to offset the exposure to be added to DB Group as a result of the consolidation of Postbank, that also was part of our acquisition strategy in which we have now largely completed.

And secondly, protection bought in CDS forms in our trading book.

On page 28, we'll give you our update on our 2011 target to show that the question you will have based on our half-year performance, but, as is shown here, our EUR10b target published in 2009 and which we updated in February, includes pre-tax profit of EUR6.4b from our Corporate Banking and Securities business.

Delivery of this target is predicated on certain assumptions, as we have always told you, about the operating environment, which we have clearly communicated and most recently, as you remember, updated in February.

During the first half of 2011, the extra development did not confirm audit environment assumptions including FX movements.

The intensified European sovereign debt crisis led to investor uncertainty and thus to significantly lower volumes and revenues, especially in our CB&S division.

Our ambition to report income before income taxes of EUR6.4b in this segment may now be difficult to achieve and it's dependent on a swift and substantial solution of the European sovereign debt crisis and obviously a return to a significantly improved operating environment in the second half of 2011.

In this context obviously we see the most recent agreement reached by European governments, the private sector and the IMF as a positive and constructive step.

The performance of Deutsche Bank's classic banking businesses, Global Transaction Banking and (inaudible), together with our successful delivery of more than half of the targeted benefits from our efficiency program in the first half of 2011, give us confidence that our EUR10b pre-tax profit target from core businesses in 2011 remains in sight.

We remain firmly focused on delivering on the stated objectives of our management agenda.

And with this I come to my last slide that I am for time reasons not going to read to you, which summarizes our quarter.

And I'm looking forward now to taking your questions.

We will now begin the question and answer session.

(Operator Instructions).

The first question is from Mr.

Jernej Omahen of Goldman Sachs.

Please go ahead.

Hi everyone.

I have a few questions that I was hoping to follow up with you.

The first one is the question relating to slide nine where you show the, essentially the comparative funding position of Deutsche Bank versus everyone else.

And I was just wondering I guess in today's times this is a significant competitive advantage and I have two questions.

One, do you think we're going to see the benefits of this in your P&L over the course of the second half of the year?

And can you give us a sense to what extent you feel this is a substantial competitive advantage versus your peers?

And the second question on this I wanted to ask you is to what extent does it become tempting for Deutsche to engage in inter-bank operations on a slightly more significant scale than you have to date given that I assume you can make easily 100 basis point margin just through some of your inter-bank positions were you put them on at current funding spread?

The second question that I have is more of a bigger picture question and relates to this endless debate surrounding the risk-weighted assets.

I think that your average risk weight was down around 100 basis points again in this quarter.

I think you were at 26% on an adjusted basis in Q1 and I think we get to 25% currently.

And I was just wondering whether that's due to an increase in your liquidity reserve as you suggested, the EUR15b, or if there was anything else?

And the second question on this topic is given how the Fed has picked up the volume on this issue and I think you had a statement by the Fed governor over the past few weeks and I believe there was another one last week, where do you stand on this?

Because I think it's very clear that the Fed and some of the other regulators are looking towards the German, French and the Swiss banks on this issue.

Do you expect any changes on this front or not?

And the final question is purely a numbers question.

I think on page 27 you show EUR12.1b of net sovereign exposure to the periphery at the end of the year.

I think your EBA stress test submission suggested EUR10.9b.

I was just wondering what the difference is?

And secondly, I was also wondering if you could update us on the inter-bank exposure to the periphery.

I think that the EBA submission suggested exactly EUR20b of inter-bank position versus the periphery banks.

Can you give us an update on this as well?

Those are my questions.

Thanks very much.

Okay, thank you Jernej.

Lots of questions.

Okay, let me try to go through them one by one.

The first question you asked was the funding benefit in P&L in the second half.

The Bank has always enjoyed and it's always been obviously part of our P&L our strong funding position.

And as you know I always present this chart in the context of the whole capital debate and our view that if you have these strong advantages on the funding side you may be able to, from a capital perspective to be slightly more in the mid group of clear capitalizations than to be on the high end and carry lots of surplus capital to the disadvantage of our investors.

So in that sense, yes, so obviously the Bank always will benefit then.

Will we do more inter-bank lending?

The answer is clearly no.

We are not necessarily a bank that, as you know, builds our P&L on NIM.

It's not something we do.

It's not a game that we played pre the crisis and we didn't use our lower funding to invest in sovereign etc.

As you know, our hedged business model doesn't imply this so I don't think there is a risk of any of that type business to occur.

Our average risk-weighted assets of 26, you have to bear that we get -- that when you -- any asset even under US GAAP including the derivative netting gets a risk, specific risk weight.

The second quarter movement shows again that there's no direct link between our balance sheet and our risk-weighted assets.

So still, and as I told you in the presentation, the second quarter included a benefit from our parameter calibration on our risk-weighted assets.

You asked a question about the Fed and some other regulators that were looking specifically at French, German banks to look at the risk-weighted assets, the total assets.

I've had personally discussions with the Fed and this is true.

Again the main difference continues to be that obviously our US peers did not implement Basel II and as you know there are benefits of implementing Basel II if you, number one, go more granular in your risk metrics and, second, obviously if you have a hedging business model as we have.

And that really explains all the difference and in all the discussions we have with the Fed where we have clarified that many of these market rumor discussions about lower risk-weighted assets for European versus American and this can be easily explained by mainly the factors on how does the Basel II framework work versus how the Basel I framework works.

And to be honest in an assessment that we did I think Basel II, the Basel II assessment is right, the more you hedge obviously the lower risk you have.

And the lower risk weighting of these assets you get, the more granular you are in terms of how you manage your risk.

And the more granular you are how your models work in terms of assessing this risk, the better obviously and the lower risk-weighted assets you should carry.

I will owe you the difference number on -- I think I don't have this number here to explain you the difference between our PIGS reported number in the EBA and the number we have here.

Maybe we'll call you after the call to explain the difference.

I just don't have this number with me.

And the same to the bank exposure.

I will owe you that number as well.

Okay, that's fine.

Thank you very much.

Can I just follow up, sorry just very, very briefly on your comments in regards to essentially most of the differential in the average risk weight being explained by the implementation of Basel II in Europe.

Two questions on this, again very briefly.

It almost sounds like you're expecting that when the US banks go to Basel III and hence essentially by implication implement these models for Basel II as well, that they will be re-calibrating their average market risk down.

Do you think that that's what's going to happen?

And do you believe that the US regulator for example will allow the US banks to be releasing capital from their trading books?

I guess that's my first question on that topic.

And the second one is my sense listening to the US regulator in particular but also I guess the UK is ever more vocal on this issue, is that they expect under the auspices of the Basel Committee to essentially check the select risk-weighted models of banks which come out with particular low risk weights.

So if I understood you correctly your position basically is even if you checked the risk models you wouldn't come out thinking that banks calculate risk in a substantially different way today.

Did I understand you correctly -- i.e.

there's no real difference on the calculation side; you attribute it all to Basel II versus Basel I?

Yes.

The review we did for Deutsche Bank is we looked at it.

We did an interesting analysis to look how our risk-weighted assets developed when we switched from Basel I to Basel II and there was clearly a benefit from moving.

And when you discuss whether this benefit is justified or not it is clearly justified because the Basel II contains a benefit.

If you have lower risk then you carry lower risk-weighted assets, which is a very transparent and logic thing.

Second, let's not forget, all these models we have to provide to our regulators and all these models are continuously checked and looked at by our regulators and they have to be verified by our regulators.

So it's not like we can invent models in here by ourselves and run around.

This perception that being created I sometimes believe for some political purpose is just incorrect.

Believe me, we have been -- it's not like the Fed has started to look at Deutsche Bank now.

The Fed has been looking at Deutsche Bank ever since we operate in the United States and of course we have these discussions with the Fed as well but it's the (inaudible) main task to review and look at these models which they do and these discussions are intense.

So I tell you, yes, there was a benefit going from the one model to the other which is also in our view a completely justified benefit.

What will happen with Basel III, I'm sure that some of these benefits, there might be some benefits there as well, but on the other hand the risk weights are increasing so much that you may not really see them.

So I would answer your question that technically you might see this type of benefit but effectively because of the substantial increase overall in risk weighting that both frameworks bring with themselves, you will not see.

So, and therefore, this gives us some explanation of this (inaudible).

I think after all this discussion we did -- I personally did have a session also with the Fed in the US, we had (inaudible) sessions to really go after this issue and I can very clearly say that the systems implemented, Basel II framework implemented is as onerous as the Basel I framework implemented in terms of the quality of implementation, in terms of the needs.

It just reflects on an improved basis what your true risk is.

And if a bank under the Basel II framework has higher risk-weighted assets than the other it clearly means it either carries higher risk or has less granular models to report for which then obviously if you report less granular there is a safety margin put on top of your risk-weighted assets to make sure that if you have deviation in the non-so-granular view that the bank is protected.

And I think that this is very reasonable, very straightforward and all the other discussions around it for me is just politics.

Okay.

Thank you very much.

Thank you.

The next question is from Mr.

Matthew Clark of KBW.

Please go ahead sir.

Good morning.

I was hoping you could just give us a bit more detail on the impact of the bank levy in future years.

I think it was reported that Joe Ackermann had talked about EUR700m to EUR900m as being a possible charge when presenting to parliament.

And I'm just wondering -- that seems a larger number compared to the EUR124m you're accruing this year.

So I'm hoping you could just square the difference there and maybe there are some netting impacts of the UK levy that you could let us know.

Thanks.

Matthew, thank you, a good question.

We've got this law now put in place in Germany and overall obviously we are not now in a position to give you guidance with any degree of reliability because, as you know, this tax, this levy is based on our German accounting results which are substantially different than obviously our IFRS results.

And it's also true if you state that for 2010 the HGB results for DBAG were exceptionally low because we also had the other implementations of the new German BilMoG, which allowed us to put some substantial reserves aside in our German accounts.

And therefore obviously we did report a substantially low HGB result and that's why the bank levy as we have reported today is low.

The basis on a going forward basis will be much higher.

And, as you know, the system is designed, it has a cap, so we anticipate that we might be at that cap from time to time.

And therefore obviously what is going to happen that we have a roll-forward of the tax that was capped and this roll-forward will continue to build.

And I also caution you that the German government has built in a provision that if this fund that they are planning to fill with this bank levy to protect the banking system in Germany, if it doesn't fill as quickly as expectations are, they may from time to time also add exceptional taxes.

That's why I please ask you, it's very difficult to predict the number.

I can clearly say the number for this year was at the lower end because of the BilMoG implementation and certainly will somewhat grow.

Could I just follow up then?

I'm a bit surprised that you're not taking an accrual for that catch up in future years under IFRS this year.

So do you expect to under IFRS accrue for it on a cash basis rather than on more of a fair value basis?

And then secondly should we be adding the UK bank tax of EUR200m to that EUR124m for the German tax this year as an additive or is there some overlap there as well?

Okay.

First of all under IFRS we're not allowed to accrue for this type of tax and we don't accrue for it.

And the second question the answer is, yes.

Is it an estimate?

The EUR200m is an estimate and as far as understand there will be some recognition of taxes, bank levy paid in Germany and the UK.

So there will be some recognition, but the rules are not clear so I couldn't tell you at this point how much of the EUR200m respectively of the EUR124m will compensate each other.

So at this point in time I think it would be a safe assumption to look at it as an additive basis but obviously we hope that there will be some recognition at least on the portion in the German bank levy that is attributable to our UK business.

So to give you maybe a help in which direction we think at this point in time the double taxation avoidance will go.

Okay.

Then finally could I just follow up on the EUR10b target, just to absolutely clarify that the EUR10b target isn't necessarily dependent on a recovery in markets; it's just the EUR6.4b target in the CBS division that you think is dependent?

Is that the right --

I think you're not completely wrong, yes.

Okay.

Thank you.

The next question is from Mr.

Stuart Graham of Autonomous Research.

Please go ahead.

Hi, I had two questions please.

The first one is on slide 25.

What do you think the underlying increase in the impaired loans is if we exclude the Postbank noise?

And then the second question is on the management changes you've announced.

How will you split the co-CEO responsibilities between Anshu and Mr.

Fitschen?

And then I guess thinking about Joe's role in the future, German corporate governance discourages CEOs becoming Chairman, but you've decided to do it anyway.

Why are you as a management team excluding Joe, comfortable this is a good idea?

I guess my question is how certain are you, you won't get a third co-CEO through Joe?

Thank you.

To answer the last question, that's something you have to ask the Supervisory Board to answer because, as you know, in German governance that's not a topic debated at Management Board level nor is it a decision at Management Board level.

So I just have to defer to another group of people.

And your other question, we have 10 months to go and obviously, as you can assume, it's way too early to discuss on how and I think that's between Anshu and Juergen.

They will I'm sure sit down and think about how they will run the business and discuss this with the Board.

And again we have 10 months to go until they assume so I think there's plenty of time for lots of debate to happen over the next couple of months.

And then your first question with regard to the underlying increase ex-Postbank, it's about half.

However, that half is driven by one commercial real estate situation.

So no increase.

We had really no underlying increase excluding these two items.

So we have this one CRE that's related to our business, the Deutsche Bank business, and then the other was Postbank.

So underlying unchanged.

Alright.

Thank you.

Thanks Stuart.

The next question is from Mr.

Kian Abouhossein of JP Morgan.

Please go ahead.

Yes hi.

Three quick questions.

The first one is if SIFI will be axed, let's say 9%, how much extra common equity do you think you would need in order to have a cushion over the SIFI level?

The second question is on page 34 on your funding source and liquidity.

I was wondering the EUR150b of liquidity, how that is invested and what's the duration of it and how much money you're losing on that?

And the last point is on corporate investment.

You mentioned last quarter that it should have a cost for the year of about EUR300m pre-tax.

You're roughly at EUR300m now in the first half.

Does that mean we should assume more or less zero for the second half?

Thanks.

Let me start with your SIFI question, Kian.

And I think that's a debate that we haven't now finalized --

Excuse me Mr.

Abouhossein.

Yes.

I'm afraid we can't hear any sound from your line.

Can you hear us, Kian?

Yes, I can hear you, yes.

We're fine.

We're fine.

We're fine, yes.

Okay.

Thanks moderator but we seem to be fine technically.

So the -- Kian, for the SIFI we expect, our current view is 7 obviously base, but 2.5 SIFI, so we'll be at 9.5.

And we assume that there will be a cushion on top of it that will be maybe a percent or two maximum, but no further significant additional because the reason of having a SIFI is to have an additional protection.

So we'll think around 10%, maybe slightly north of 10% is what we expect that we need, but at the end the market will define, the market will decide what that view is more than we can decide it ourselves.

And that's common equity I assume, the buffer on top?

Yes, there's no Basel definition.

There's no, I would say there's no clean capital definition or whatever we want to define it to be.

And that will obviously include also the discussion we have with our individual regulators then on it.

So I think that's I think a fair assumption to take.

The next on the liquidity reserve, I don't have any numbers.

We don't calculate any P&L impact out of this.

I wouldn't be able only to tell you also at this point where specifically It's a cash reserve we have.

It's obviously all invested into short-term type things so it does represent a liquidity reserve under current definitions.

And I don't have an impact of that.

And can you just say how much might be in US dollars related?

No I don't -- we would have to call you.

Yes, no problem.

Because I don't have this split here.

Yes, no problem.

Okay.

And then on corporate investment, we wish we would go the second half with zero, that's for sure.

I fear that will be not the case.

I think we have recovery in all these businesses.

At the end we have -- we need to sell BHF.

That will be something that obviously will impact that CI.

And it will depend on obviously how the sale of BHF will go.

Then second we have Actavis.

It's actually running quite well but we always have to look at our book value versus cash flow derived model of that, so it's always about the valuation and therefore one-time driven.

Then we have the casino which is improving as we go which is getting more into an operational balance, the hotel thing is working quite well.

The casino itself needs to still go into a regular mode of operandi so we expect this to improve over a year and hopefully provide a slight positive over the year.

And then we have our ports that are on an EBITDA basis already positive and developing well but they have some interest costs and depreciation they have to carry which is what causes them to lose money.

So I would expect a much improved second half than first half but certainly we might see some further impacts, positive and negative in the second half year.

And net-net would you say a positive second half or --

Yes, because of the BHF sale I would say --

Okay, I see.

I would have a bias towards some more negative.

Great.

Thank you very much for your help.

Yes, you're welcome Kian.

The next question is from Mr.

Georg Kanders of West LB.

Please go ahead.

Hello.

Good morning Mr.

Krause.

You had a very strong reduction in costs in the sustainable areas, especially in PCAM.

Do you think this is now a run rate or are there some special effects?

Georg, no.

This is really run rate.

As you know, we have these three efficiency initiatives in the Group running, which is Integra for the Investment Bank, which is the Postbank integration for our PBC business, and with the complexity reduction that goes after the cost base of the infrastructure.

And all of them are providing run rate results.

They're all designed and measured to bring run rate results.

We really had no one-off benefits in this number.

So you can assume -- and that was also our aim and ambition to really continue to lower the expense basis.

Running against that I have to --- I suppose it's a reality we all face and probably many of our competitors will report similarly, the new regulation cost is the biggest negative we have to absorb and they are substantial.

The additional deposit protection, you see all the bank levies, you see all the costs for implementing Dodd-Frank in the United States and all these line items are certainly having an impact on our business.

And that's why we're disclosing it separately.

The one-time effects in our cost base are always these costs to achieve, which for example in the case of PBC I disclosed to you so you know what these one-time or what these investments are which generate future efficiency.

Okay.

Thanks a lot.

You're welcome Georg.

Mr.

Mueller, there are no further questions registered at this time.

Thank you.

Perfect.

So we stayed well within the hour.

Thanks all for your questions.

This concludes our second quarter conference call.

Any follow-up, please come to us in IR.

Thank you.

Ladies and gentlemen, the conference is now concluded.

Thank you for joining and have a pleasant day.

Goodbye.