Deutsche Bank AG (DB) 2012 Q1 法說會逐字稿

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  • Operator

  • Ladies and gentlemen, welcome to the first quarter 2012 conference call of Deutsche Bank.

  • I'm your operator for this conference.

  • (Operator Instructions).

  • At this time I would like to turn the conference over to Joachim Mueller, Head of Investor Relations.

  • Please go ahead sir.

  • Joachim Mueller - Head of IR

  • Yes, good morning from Frankfurt.

  • This is Joachim Mueller from Investor Relations.

  • Welcome to our first quarter conference call.

  • All the documents have been distributed and are available on our website.

  • Please take note of the cautionary statements regarding forward-looking statements at the end of our presentation.

  • We'll try to close this call within an hour so you can join our colleagues from London for their results discussion.

  • And with that I'd like to hand over to our CFO, Stefan Krause.

  • Stefan Krause - CFO

  • Yes, thank you Joachim, and good morning and thank you for joining us for our first quarter results call.

  • I will keep the talking points also brief so we can spend more time in Q&A and allow you to get to our colleagues' conference call in time as well.

  • But I first would like to highlight a few of the most important takeaways from the quarter.

  • Against the backdrop of a financial markets recovery after a very difficult second half of 2011, Deutsche Bank again delivered really solid profitability.

  • Our focus on Asia, by the way, is delivering a tangible result and we recorded a strong pre-tax profit growth from Asia Pacific.

  • Performance in CB&S were strong.

  • We delivered solid revenues while maintaining risks and VAR levels well below limits, demonstrating the strength of the client franchise.

  • And we materially completed the headcount reductions announced last October in the investment bank with additional reductions resulting from other ongoing initiatives.

  • We are again very pleased with our results in GTB, as I will show you, which delivered its best first quarter ever.

  • PBC has held up well driven by strong credit and deposit business despite also the continued de-risking and the muted client activity, investment activity.

  • The strategic review of Asset Management is progressing and PWM delivered strong performance while attracting new money.

  • And, and that's again good news from Deutsche Bank, we strengthened our core tier 1 ratio to 10% while continuing to exercise a very strong risk discipline.

  • We also lowered our risk-weighted assets, narrowed the valuation gap in the IAS39 portfolio and made good progress on certain significant litigation matters.

  • Let me go to page four of the presentation in which we have the numbers overview, and I will touch most of these numbers throughout the presentation so I will not cover them now.

  • The only point I would like to highlight apart from our strong core tier 1 ratio of 10% is that our liquidity reserves exceed EUR195b, remaining at a very comfortable level.

  • And that's mainly telling you that we continue to keep the Bank prepared and protected in case of a worsened environment.

  • On page five you see our net revenues who rebounded significantly to EUR9.2b during the first quarter, driven by strong revenue growth in the investment bank.

  • Adjusting for the impairment charge related to Actavis, net revenues would have been EUR9.4b.

  • On page six we show our costs.

  • General and administrative expenses increased almost EUR450m versus the first quarter of 2011, partially due to litigation-related charges in CB&S and the bank levy, counterbalancing some savings from our complexity reduction program.

  • The decrease of compensation expenses to EUR3.7b was primarily attributable to lower performance-related compensation due to lower operating performance and a reduced deferred compensation charge for employees eligible for early retirement.

  • We are no longer accelerating the amortization of deferred awards for the recipients who are eligible for the so-called career retirement but only for those that give notice of their intention to leave the Bank.

  • We've made this change to better align our accounting with the reality of employee behavior.

  • Only a very small number of employees had given us notice in February that they want to make use of the agreement.

  • Remember in the first quarter of 2011 this had been an effect of EUR369m and it's important to note that almost 60% of the EUR2.2b P&L cost incurred by the awards in February will be digested by the end of 2012.

  • So let's move on to another good story which is the provision for credit losses and you see our risk provision profile continues to be very favorable.

  • In CIB, we saw EUR180m of provision for a number of clients in various industry segments.

  • This increase of EUR85m compared to last year is in line with our expectations and does not indicate a weakening of our corporate portfolio.

  • This increase in CIB was more than offset by lower charges recorded in PCAM where provisions were reduced by EUR144m.

  • Postbank contributed a reduction of EUR81m compared to the provision level in the first quarter last year.

  • This, however, was mainly attributable to how we record releases of allowances.

  • If the allowances were established prior to acquisition, they are recorded within interest income, which is primarily the situation in the first quarter of last year.

  • If the allowances were established after acquisition, they are recorded within provision for credit losses, which was the primary situation this quarter.

  • And in PCAM, excluding Postbank, provisions reduced by EUR63m to EUR69m in the first quarter of 2012, benefiting from lower level of provisions for our non-retail clients and gains resulting from the sale of non-performing loan portfolio.

  • Similar to 2011, we may see a moderate uptick in provisions, in line with the expectations as we progress throughout the year.

  • On page eight we show our profitability.

  • Our income before income taxes for the quarter was EUR1.9b, down EUR1.1b versus the first quarter of 2011 after a EUR257m impairment charge related to the sale of Actavis and litigation-related charges of EUR230m.

  • Pre-tax return on equity was 14%.

  • Net income for the quarter was EUR1.4b compared to EUR2.1b in the first quarter of 2011.

  • The effective tax rate this quarter mainly benefited from share-based payments-related tax effects driven by the increase in our share price.

  • We continue to estimate, by the way, our midterm effective tax rate to a range between 30% to 35%.

  • On page nine, we added this chart to look at our earnings mix because our, as you can see, our businesses complement each other quite well.

  • This quarter we saw a slowdown in activity in our retail business.

  • However, this was offset by strong performance in our investment banking business.

  • While last quarter the opposite was true.

  • Let's now move on to the first quarter results of our different business segments, and on page 11 I present the overview.

  • Here you see the segmental performance of the first quarter, highlighting some of the expenses we had, the litigation expense that impacted CB&S and, as you can see, the impairment charge we took in corporate investments related to our exposure to Actavis.

  • I will go into further detail on the performance of each segment in the coming slides.

  • So on page 12, as you can see, we had a strong rebound in CB&S compared to the second half of last year.

  • We also generated 11% lower revenues year on year on 30% lower VAR.

  • And hence, we had the best ratio of trading revenues versus VAR compared to our peers, highlighting the strength of our client franchise.

  • And I know that VAR isn't the best indicator of risk, but it's the best one we have available across the competition.

  • I should also point out that the Group sets VAR and capital limits for the investment bank which are well above what is being utilized currently, and we remain cautious as to our clients.

  • Finally, I would draw your attention to a 26% pre-tax ROE on increased allocated equity.

  • We believe this is an industry-leading result, particularly as we now charge more capital to the segment, as I will show to you later.

  • In Sales & Trading debt on page 13 we had a strong performance this quarter, especially when you consider that we have taken risks down considerably.

  • This reflects our strong client franchise across all products.

  • We had record volumes in FX and the second-best first quarter in rates, demonstrating that our flow businesses are doing well.

  • Indeed the FX business has had a number of record quarters recently, thanks to a very good momentum.

  • In credit we took down inventory levels, but client activity was solid and emerging markets and commodities also performed well.

  • On page 14 we show our Sales & Trading equity results.

  • We had a solid performance in equities this quarter, but we remain structurally underweight in the US.

  • This happens at a time when activity in Europe is more muted even though we are number one in the region.

  • As you know, we are investing in the equities business but it's part of a longer-term plan.

  • Cash and derivative revenues were lower due to lower client activity, but we're gaining market share and our prime brokerage business continues to perform well.

  • In Origination & Advisory that we show on page 15 we had a really good quarter, ranked number three globally, which is our best-ever quarterly ranking.

  • We had top-five rankings across all products and our best ever market share in EMEA.

  • We had good performance in cross-border M&A, an increasingly important area, and we were ranked number one in IPOs and had a strong performance across debt issuance.

  • Key deals in the quarter included the sale of Northern Rock to Virgin Money; AIA $6b accelerated book build, which has been the second largest accelerated book build ever; and Aegon's EUR12b longevity hedge, the largest longevity risk management trade to date.

  • We have a good pipeline, but in the medium term we aim to be more of a top-five player.

  • I'm very pleased with GTB's performance that we show on page 16, which had its best ever, first quarter ever revenues and IBIT.

  • GTB saw growth across all products with a balanced mix of fee and interest income.

  • Trade finance demonstrated strong performance based on continued high demand of financing product as well as higher transaction volume.

  • Cash management benefited from higher volumes and balances despite lower interest rates in the US and euro area year on year.

  • Trust & Security Service continues to capitalize on its global presence and was awarded Global Corporate Trust Services Provider of the Year.

  • And I really must say, for GTB, the benefit from Integra continues to be really strong.

  • Let's move now to our Asset & Wealth Management performance, which I can say was obviously a tale of two stories.

  • Our private wealth management business delivered a very solid performance, but also the asset management was impacted by lower client activity based on the ongoing strategic review we have for this business segment.

  • On page 18 I start with asset management.

  • As you see, the ongoing market volatility which consequently limited client activity resulted in a decrease in asset flows and performance fees in asset management.

  • Active investment management continues to be obviously under pressure.

  • On top of it obviously our strategic review in asset management is progressing but the prospect of the disposal of parts of this business has also impacted asset flows and overall transaction activity.

  • We continue, by the way, to win new mandates and are building a solid pipeline of transactions and expect the business to stabilize once macro conditions have improved.

  • But I also want to state here that the core DBS business, the business that we keep, is completely intact.

  • On page 19 you see that Private Wealth Management benefited from a gradual increase of our client risk assets globally and we're noticing signs of normalization of asset allocation in contrast to the second half of last year.

  • Removing the positive impact of the Sal.

  • Oppenheim realignment in the first quarter last year, revenues and profitability in PWM are back to what we consider normalized levels.

  • Most regions and businesses experienced good revenue momentum quarter over quarter, while non-interest expenses and risk costs were contained.

  • Total invested assets increased by EUR9b and we experienced net inflows of EUR2b, mainly from Asia Pacific.

  • So a really great result.

  • Let's now move on and focus on PBC.

  • As you can see on page 20, PBC reported a pre-tax profit of EUR413m, which really understates the division operating performance.

  • Also this quarter the division had to realize losses from Greek government bonds of EUR24m, hopefully for the last time.

  • Additionally, Postbank integration costs affected the results with EUR68m.

  • This item will certainly return.

  • Our guidance for the full-year costs to achieve remains around EUR500m.

  • With the Postbank integration well on track, 2012 will be the peak year for PPAs, however.

  • Let's now discuss the business performance in itself.

  • Both credit and deposit businesses are doing fine.

  • In Germany we acquired significant new mortgage business volume and clearly increased our market share.

  • With our successful deposit campaign launched in September 2011 we will reach about EUR5b of new deposit volumes soon.

  • The flipside of this is that these funds are not being invested in capital market products, negatively impacting brokerage revenues of course.

  • Persistent market uncertainties and concerns arising from the sovereign crisis keep retail investors on the sidelines.

  • NLPs of just EUR194m, or EUR158m if you adjust for Postbank releases, on a loan book of EUR230b tell you a story about the quality of our loan book.

  • Admittedly, as I told you before, the sale of a non-performing loan portfolio resulted in approximately EUR50m offset and we're benefiting from the solid German economic environment with unemployment at record levels.

  • De-risking at Postbank made, by the way, good progress.

  • Postbank's risk-weighted asset consumption came down to EUR56b, ahead of what we had forecasted to you at the PBC workshop last year.

  • The respective asset sales increased Postbank's liquidity pool, but the associated revenues are gone.

  • Over the coming quarters we'll have to optimize the returns from these funds.

  • On page 21 we split the business division performance for PBC and here you see how the subdivisions performed, Advisory Banking Germany, Advisory Banking International, and Consumer Banking Germany, which obviously mainly refers to Postbank.

  • Advisory Banking Germany was somewhat lower due to the aforementioned new strategic client investment activity.

  • Advisory Banking International was strong, with good performance in all countries once adjusted for the Hua Xia one-off effect from the first quarter of 2011.

  • And the Consumer Banking Germany, as I talked to you, was impacted by the de-risking, the writedowns on Greek government bonds and lower PPA effects.

  • As we move on to page 22 you see the results in our Corporate Investment division.

  • We had told you in recent quarters we remain highly focused on reducing our non-core legacy assets and the social risk in a capital-efficient manner.

  • As such, obviously I'm very pleased, as you might have read in today's press, that we will be exiting our exposure to Actavis.

  • Obviously as a result of the transaction we took a EUR257m impairment charge, reflecting the financial impact solely examining the offer price.

  • Despite taking significant P&L hits in recent quarters, the transaction will be capital accreditive, resulting in a net positive impact of approximately six basis points to our core tier 1 ratio this year.

  • The deal is expected to close in the fourth quarter of 2012.

  • All other assets in this division are performing according to plan and overall Corporate Investments reported therefore a loss of EUR303m.

  • So let's have a look at a couple of key current issues.

  • First of all we finished the quarter with a strong core tier 1 ratio of 10% and a tier 1 ratio of 13.4%, an increase for both of approximately 50 basis points in relation to yearend.

  • As projected already last year, Deutsche Bank well exceeds the 9% threshold set by the EBA for June 2012 ahead of time.

  • And let's therefore review the capital and risk-weighted asset development in the first quarter 2012 in more detail, which is on page 25.

  • Our core tier 1 capital increased by EUR0.7b from EUR36.3b to EUR37b.

  • For the quarter we saw EUR1.4b capital formation through net income, partially offset by the dividend accrual, and equity compensation and FX effects.

  • On the risk-weighted asset side, as you can see on the right-hand side of the chart, the net decrease of EUR13b comes from lower credit risk-weighted asset, which is mainly due to exposure reduction, including also the effects of target restructurings and our write-down on Actavis as well as the EUR3b lower market risk-weighted assets reflecting the lower volatility.

  • FX effects reduced risk-weighted assets by a further EUR2b, while operational risk-weighted assets was up by EUR1b, as you can see.

  • I know that you always like this chart and that's why we've included yet another Basel III simulation which you have seen in previous quarters.

  • First, as you can see, we maintained the EUR12b risk-weighted asset growth item introduced in our simulation last quarter, which gives you a sense that what we do maintain limit capacity beyond current utilizations.

  • Then in relation to Basel III we expect EUR105b of additional risk-weighted assets unchanged from our previous estimate.

  • On the capital side we included the market's latest estimates for our future net income as well as the impact of Basel III rules on capital.

  • And here for the first time both with and without phase-in, as you can see to the end of the chart.

  • Our simulated pro forma core tier 1 ratio with phase-in is now 8.8% as at January 1, 2013, approximately 30 basis points better than we had indicated in February.

  • Without phase-in, which means under the 2019 rules, we now arrive at 7.2% compared to the 7% quoted by Joe at the year-end call.

  • Let me remind you that this simulation does not consider any management action other than the actions directly related to the Basel III work because we still have the full toolbox of capital management measures at our disposal in case that actual development deviate from our simulation or the market or regulators were to demand even higher capital ratios.

  • For example, the 6 basis points I just quoted related to Actavis is not included in this simulation, just to give you a sense for that.

  • Also the second topic we continue to receive a lot of questions is our, regarding our US entity structure so I would like to provide really an update.

  • As a result of our complexity reduction program we continually examine our legal entity structure and where possible take steps to save cost.

  • You are aware that we have taken actions to simplify the legal entity structure in the United States by moving the banking chain, DBTC and DBTCA, out of Taunus Corporation so that it's helped directly by the parent company, Deutsche Bank AG.

  • This new structure took effect in February 2012 and should be seen in this context.

  • Let me stress the following points again.

  • Of the US client-facing entities, DBTCA is well-capitalized under bank regulatory capital rules and DBSI maintains net capital in excess of SEC requirements.

  • And from a regulatory oversight perspective, nothing has changed.

  • DBTCA, which is an FDIC-insured Federal Reserve member bank, continues to be subject of oversight by the Fed, while DBSI, our SEC-registered broker-dealer, continues to be regulated by the SEC.

  • On page 28 I talk about the new capital allocation that I'd indicated at the beginning of my presentation, was implemented starting in 2012.

  • The book equity allocation, that's now based on a 9% core tier 1 ratio instead of a 10% tier 1 ratio that we used previously.

  • The capital allocation framework remains unchanged, especially goodwill and intangible, risk-weighted assets and certain regulatory deduction items as primary allocation factors.

  • As a result, full-year 2011 average active equity and return on equity for each business segment has been restated.

  • Please note that this change has no impact at the Group level and is purely intended to better reflect the capital requirements of our segments in light of the tightened regulatory constraints.

  • On page 29, obviously we have a special effect this quarter that I also wanted to spend a few more minutes on explaining.

  • As you see, consolidation adjustments reported a loss of EUR431m, again causing a certain volatility in our Group results.

  • Partially this is the result of obviously corporate items.

  • For example, the accrual of the German bank levy, which accounts for EUR73m of the loss.

  • But the main driver of the loss are technical accounting effects.

  • As I explained a year ago, the most material example of the technical accounting effect arises where a position is fully hedged economically, but where the offsetting positions are required to have different accounting measurement basis and do not comply with the IFRS hedge accounting requirements either fully or partially.

  • This results in asymmetrical accounting treatment between the position and offsetting hedge and a consequential income statement effect at the point in time.

  • This quarter asymmetrical accounting treatment between positions that are economically offsetting resulted in a negative impact of approximately EUR319m.

  • Approximately half of this arises as a consequence of the Bank using euro borrowings to fund US dollar assets by swapping the euro borrowings into US dollar in the basis swap markets.

  • Although economically-hedged, there is an income statement effect arising from the asymmetrical accounting treatment between the offsetting borrowing asset and swap to the extent hedge accounting hasn't been achieved.

  • This income statement effect arises when the basis swap spread moves.

  • In the quarter there was a rapid narrowing of the mid to long-term euro/US dollar basis swap spreads.

  • Of the remainder, as you can see on the chart EUR82m loss related to the accounting asymmetry of economically-hedged interest rate positions where an IFRS accounting hedge could also not be applied.

  • The key thing to take away is that these technical accounting effects are just timing differences and reverse over time in C&A because over the lives of the economically-offsetting positions, the P&L will be offset.

  • The other significant driver of this technical accounting effect was that the marked-to-market loss arising from the narrowing of DB's own credit spread, which gave rise to a change in the value of DB debt, carried at fair value of EUR70m, that you know is a very low number as compared to many of our competitors.

  • So let me then end up on page 30 with our summary.

  • In summary, the Group delivered a strong rebound in profitability versus the second half of 2011 as markets stabilized even though market -- macro challenges remained.

  • I think we remained our excellent client franchise with a prudent approach to risk-taking.

  • Our core tier 1 ratio strengthened as we continued to successfully execute on our de-risking strategy and we're well on track to meet regulatory requirements ahead of time.

  • We continue to focus on reducing legacy positions as we recently proved by the Actavis transaction.

  • And we preserved a well-funded and highly-liquid balance sheet.

  • We're well-positioned to capture growth opportunities even though the outlook remains uncertain.

  • With that, we're now prepared to take your questions.

  • Operator

  • We will now begin the question-and-answer session.

  • (Operator Instructions).

  • And the first question is from Kinner Lakhani from Citi.

  • May we have your question please?

  • Kinner Lakhani - Analyst

  • Yes, hi.

  • Good morning.

  • My first question actually comes from your annual report and your liquidity stress test, which I found consistently very interesting.

  • The downgrade to A2B2 creates a funding gap of EUR168b and that's significantly higher than the other scenarios.

  • And I just wanted to get a better understanding of that.

  • What part of the funding gets particularly impacted by potential downgrade, not that we're necessarily expecting one?

  • Number two is, in relation to the Postbank de-risking, just wanted to understand how far we are down the road on this one and how much of the corresponding P&L impact has already been observed in the Q1 results.

  • Thank you.

  • Stefan Krause - CFO

  • Okay, Kinner.

  • Let me start with your second question while we dig out some numbers to answer your first question.

  • The Postbank de-risking, I said on my presentation we are ahead even to what we had forecasted last year when we had the PBC workshop.

  • So we are down to EUR56b.

  • That's the number I said.

  • And the progress is quite good.

  • And of course there is a P&L impact.

  • That's what I also alluded to when I described the profitability of Postbank, because in the old times of Postbank, obviously the de-risked portfolio was providing income to the franchise and the deposit overhang that Postbank had was utilized to gain additional P&L.

  • But this effect has always been included in our planning, was also included in the acquisition decision around Postbank and therefore it's absorbed.

  • Kinner Lakhani - Analyst

  • And the run rate from Q1 is a reasonable run rate to --

  • Stefan Krause - CFO

  • The run rate, yes, it was a little bit muted because we had some muted client activity.

  • But it's in principle I would say a normalized run rate will be probably somewhat higher.

  • Kinner Lakhani - Analyst

  • Thank you.

  • Stefan Krause - CFO

  • On the annual report I will owe you the answer to this question, but of course this two-notch downgrade is very unlikely and therefore we didn't -- let's say, I don't have any answer for you right now.

  • But let me come back to you to answer this question later.

  • Yes, next question.

  • Operator

  • Okay.

  • Next question is from Kian Abouhossein from JP Morgan.

  • Kian Abouhossein - Analyst

  • On Actavis I just wanted to see if you sold all the tranches that you own in Actavis, the sub-debt, the payment in kind, the senior debt, to understand if there's any potential liability left to Deutsche.

  • Stefan Krause - CFO

  • Kian, no, because it's for us a cash transaction.

  • Kian Abouhossein - Analyst

  • Does that mean you have sold all of it?

  • Stefan Krause - CFO

  • All of it.

  • Kian Abouhossein - Analyst

  • Okay.

  • And in the future in your toolbox analysis do you always assume that you will sell all the risk, i.e.

  • you would never agree to issue such as vendor financing or debt financing to any transactions?

  • Stefan Krause - CFO

  • No, Kian.

  • The premises are the following.

  • Obviously every transaction is individual and every transaction we will look differently.

  • It is one of the measures we could take to do a sale.

  • So in other transactions I would not exclude at this point that there would be some sort of transition or some sort of a vendor support because obviously financing is always part of any discussion that we have around these transactions.

  • But it really doesn't, in terms of when you talk about toolbox, we have not included in our simulation any effects on our toolboxes and therefore obviously we have not disclosed in any form what we expect these de-risking exercises to bring.

  • And we do include when we look at the different transactions and their likelihood, we obviously do include impacts of eventually remaining loans that we have to keep in such nature.

  • So you might see other transactions where vendor financing or transition loans, or some form of a support might be part of it.

  • But that obviously will always then include, when we look at the capital impact, we include and only look at the net result.

  • But in this transaction, in the way we have negotiated it, it's not required.

  • Kian Abouhossein - Analyst

  • Okay.

  • And if I may ask one more question on Corporate Investments, you were very helpful I recall last year on kind of giving us a bit of an impression how we should think about the earnings run rate or the loss run rate in Corporate Investments.

  • Can you do that for this year as well?

  • Stefan Krause - CFO

  • The good news is that we sold Actavis.

  • It certainly was the biggest exposure and we will obviously do the completed transaction by a year end.

  • To give you a little bit of a sense, Actavis always had a positive result.

  • It was a positive P&L business that had to offset some of the losses that we might have had with other divisions, with the other investments we have in this.

  • If we go ahead though the restructuring of BHF is completed, yes, completely completed.

  • So we expect BHF to now go to normalized profitable levels, which is the other engagement there.

  • The casino is also on a very good track and recovery.

  • Performance is quite good.

  • We have had an excellent first quarter in terms of achieving our targets in Las Vegas.

  • And our Maher Terminal business, that's the one that's smaller but it's a little bit more volatile because obviously it depends on the economy, as we had good import/export going on at first quarter we had a good result there.

  • But obviously that's very volatile.

  • If the world economy starts slowing down we always see container volumes to slow down quite significantly ahead of feared recessions that then impact the business.

  • So I hope that gives you a little bit because these are the big items in C&I so overall I think we should see improvements.

  • Although we lose, after 2012 we will lose a big gainer in this portfolio.

  • Kian Abouhossein - Analyst

  • Okay.

  • Alright.

  • Thank you very much for your answers.

  • Stefan Krause - CFO

  • Yes, you're welcome Kian.

  • Operator

  • Next question is from Fiona Swaffield of RBC Capital Markets.

  • Fiona Swaffield - Analyst

  • Morning.

  • Just two things really or three things, sorry.

  • One is on the deductions that you've given for the first time on the slide, the EUR8b under Basel III.

  • They don't seem to be going down.

  • And I think historically you may have given EUR7b to EUR8b.

  • I wonder if you could talk about that.

  • The second area is just a follow up on a question previously on the Consumer Banking Germany.

  • So when I look at Q1 versus Q4, I know there are a couple of one offs, but they come out in the wash.

  • The revenues are down EUR14m.

  • Is that the new base for the Postbank revenue number going forward?

  • And then the last thing was just a clarification.

  • You mentioned when you were discussing the results a change in how you're looking at deferred compensation.

  • And I just wondered if you could just go through it again and particularly how much that would've helped the Q1 cost number because I didn't quite follow.

  • Thanks very much.

  • Stefan Krause - CFO

  • Yes, Fiona, hi.

  • Good questions.

  • Let me start on the deductions.

  • And I want to caution you.

  • I was always not in favor of publishing these face numbers because, let's not forget, it includes a lot of planning assumptions in a plan and these planning assumptions are made on a long-term run basis.

  • And it's very difficult to really provide very clean estimates.

  • And that's always my concern that now we start to discussing a single effect and up and down.

  • We provided you the best estimate we have.

  • And our assumption obviously was -- and we can say that, that also we have a bank that is profitable, and it developed to be profitable according to its business plan.

  • And therefore things like DTA could be reduced, but we didn't also want to go overboard in doing too aggressive of a plan as a basis for our numbers.

  • And then obviously many of the effects are not clear to us now.

  • Let's not forget the Basel III framework, the CRD4 framework that is in the legislative process right now.

  • We currently have 2,195 amendments to the CRD4 directive.

  • So also on that area we have still big uncertainty how to exactly calculate and how to exactly these effects will be.

  • So please take this number as an indication.

  • I would bet that probably industry-wide cross comparisons are quite difficult to make because of the quality of this number is not yet very strengthened because we are making estimates even against a framework that isn't very clear at this point in the legal process.

  • So that's why we decided to keep that estimate around the higher number and decided that that's probably a fair representation at our best-guess indication right now.

  • And we didn't want to make aggressive reductions in this.

  • So you really have a good sense of what our best estimate is, but it is a best estimate.

  • Fiona Swaffield - Analyst

  • So just to clarify, you haven't assumed that the DTA reduces or that your core tier I increases, so your threshold deductions go down.

  • You haven't made dynamic assumptions.

  • Stefan Krause - CFO

  • No, we made dynamic assumptions in terms that we have a profitable plan, but we haven't made aggressive assumptions.

  • Fiona Swaffield - Analyst

  • Okay.

  • Thanks.

  • Stefan Krause - CFO

  • So on Consumer Banking, I would then maybe more clearly say that I don't expect the Postbank numbers of the first quarter as they impacted the group -- let's not forget that we have the effect -- then as they impacted the Group to be a good sense for an ongoing baseline because, again, we saw on the revenue side subdued client activity that we expect to improve.

  • We don't have yet full control of Postbank.

  • We don't yet offer the full suite of products that we want to introduce on Postbank.

  • So I would just caution you.

  • And we have still obviously the one-off effects and PPA effects and CTA effects in those numbers.

  • So my sense from the numbers that I see is that it's lower as what our expected run rate should be on a going-forward basis.

  • And then the last question that you had on the deferred compensation, very simply explained, we have a program given to the employees by which if they elect an early retirement we then assume that the population that is eligible will go in retirement.

  • And therefore from an accounting point of view took the hit in the first quarter for all of the eligible employees.

  • In the last --- now that we obviously are also looking at quite changed deferrals etc.

  • we looked at that policy because that policy used to have a significant impact in Q1 but a manageable impact in Q1.

  • And as we continue obviously to see based on regulatory requirements higher deferral ratios, we looked through all our employee compensation and then we decided now that this doesn't make sense because it creates an asymmetry throughout the year that is not representative of what true behavior is of our employees.

  • And therefore we made a change by which the employee now has to tell us by February whether the employee will use the early retirement in that year.

  • And if the employee does we will take the accounting hit and if he doesn't we won't.

  • And therefore, yes, it had, as we have said, a significant impact on the compensation line.

  • Fiona Swaffield - Analyst

  • Do we know how much?

  • Stefan Krause - CFO

  • About half of it, of the EUR600m difference, so EUR300m.

  • Fiona Swaffield - Analyst

  • Thank you.

  • Operator

  • The next question is from Philipp Zieschang of UBS.

  • Philipp Zieschang - Analyst

  • Hi.

  • Two questions please.

  • One is coming back to your capital toolbox.

  • Could you just outline a bit your broad thinking, what you actually think is the potential for your capital ratios from these various options because obviously potential capital increases are not included?

  • And is there after Actavis is gone now and your Asset Management business up for disposal, is there more on the list which is concrete and --

  • Stefan Krause - CFO

  • Excuse me.

  • Can you speak up a little bit?

  • It's very difficult to hear your question.

  • Philipp Zieschang - Analyst

  • Just -- so the first one is on the capital toolbox, if you could just outline your thinking and the potential for the capital ratio from this area.

  • Is it 50 basis points?

  • Is it 100?

  • And also what's next on the list after Actavis is gone now and after your Asset Management business is in disposal stage?

  • The second one is with respect to consolidation adjustment.

  • I remember that last year you've actually provided some guidance that you thought that some of these spot losses would actually come back during the same year and they did I think in Q3 and Q4 partly.

  • So what's your expectations on the reversal on that losses outside the fair value of own [debt thing]?

  • Stefan Krause - CFO

  • Okay.

  • Let me start with your question about the capital toolbox.

  • I think the potential, yes, we could increase 50 basis points.

  • We could increase 200 basis points.

  • I think it's not a question that there's a certain limited capacity available to us.

  • It's just a question of how much we need and how much we are willing to do.

  • And of course after a certain amount then it might -- we might have to accept certain P&L repercussions, but still capital accreditive positions, and that's obviously the ones that we will implement last.

  • But, at the end of the day, to reduce risk-weighted assets, there is no technical limit to any number that we could implement.

  • We have a list of measures that don't impact P&L and that are highly efficient, and we're working throughout these measures.

  • And you did ask Actavis gone and AM for disposal, is there anything else on the list?

  • Yes, there's also other strategic --- non-strategic asset, non-core assets on the list that we continue to work on because they, additionally to the capital benefit, obviously help us to get rid of activities that we should just not be involved in as a bank or activities that don't have any longer-term strategic value for us.

  • So I really would like to leave you with a sense it's tell us the number we need and that's the number we have to manage to.

  • And the capital toolbox has enough in it to manage any of the known requirements that we know today.

  • So I think that's fine.

  • And let's not forget that we do have still in the capital toolbox also measures like dividend and we do have measures like compensation, and we do have other P&L affecting and retained-earnings affecting measures as well as, at the end of the day, we are also always protected by quite generous capital measures we still have in the box that we don't think, and I repeat it again because we have seen press work on this done again, we don't think we need any capital raises to meet regulatory capital requirements as they are known to us today.

  • And therefore I think we will continue to use the rest of the capital toolbox to manage to whatever numbers we will have.

  • And I think we have a good track record versus that.

  • On C&A, you asked the question whether -- what the movements are.

  • You have to see this -- the problem of it is, number one, I can again assure you that it is a pure technical effect and because these positions are economically properly hedged it will reverse.

  • Now last year I made the statement that it was within the year because it was related to certain short-term positions where we knew that to achieve then the economic position in the P&L due to the duration of these positions it would occur within a year because this was positions related to PBC and related to deposit businesses in PBC, for example, where the basis business was running off.

  • In this case I will not tell you that they will reverse within one year because some of these underlying basis positions have longer terms, but they reverse over time.

  • Now the underlying net position is so big, though, that, to be honest, EUR200m, EUR300m swings is not a big number versus the large amount of positions that we have to put through this test of hedge accounting.

  • And there are some obviously that then fail the test of hedge accounting where we then have the accounting asymmetry to deal with.

  • Philipp Zieschang - Analyst

  • Thank you.

  • Stefan Krause - CFO

  • So it's very difficult for me to give you guidance.

  • It's actually even difficult for us to really time it and look throughout the year and give a guidance on how this position evolves over time because, let's not forget, I mark to market the one side of these hedges, and the mark to market is obviously something for us very difficult to predict.

  • We don't know where dollar and spreads etc.

  • will be, for example, at year end and therefore how much these positions are going to move.

  • Philipp Zieschang - Analyst

  • Sure.

  • Thanks.

  • Operator

  • The next question --

  • Stefan Krause - CFO

  • The liquidities, can I quickly -- the liquidity question from Kinner at the beginning, obviously there is no risk to a downgrade to P2 in our view so obviously this is therefore an extreme scenario.

  • But to add color to it, the 50% of the funding is already issued and the remainder is covered bonds and private placement.

  • Hence it's not very rating sensitive.

  • And stress data in the annual report regarding downgrades refer to single actions on DB only and obviously are not applicable on an industry-wide review.

  • Okay?

  • Now I take the next question.

  • Operator

  • Thank you.

  • The next question is from Stuart Graham of Autonomous.

  • Stuart Graham - Analyst

  • Going back to Fiona's question, maybe I misunderstood your answer, but I thought the total impact of that February effect was only something like EUR350m.

  • So you're saying it's half of the EUR600m so it's a EUR300m impact, or it's half of the EUR350m so it's a EUR175m impact?

  • Maybe you could clarify that.

  • Stefan Krause - CFO

  • Roughly EUR300m.

  • Stuart Graham - Analyst

  • Is the net delta.

  • Stefan Krause - CFO

  • Yes.

  • Stuart Graham - Analyst

  • But I thought the whole impact was only EUR370m or something like that.

  • Stefan Krause - CFO

  • There's compensating effects of course.

  • But if you ask me what is the impact of that last year, we had about EUR369m impact.

  • So we say it's approximately EUR300m because much less people take, really went on early retirement than are entitled to go to early retirement and that's why this number is around EUR300m.

  • Stuart Graham - Analyst

  • So if you hadn't changed your policy, your costs would've been EUR300m higher.

  • Stefan Krause - CFO

  • If we change our policy would mean EUR300m higher, which we don't think we will, no.

  • Stuart Graham - Analyst

  • Okay.

  • Stefan Krause - CFO

  • Because we always have this really disturbing Q1 effect and we're trying to figure out and obviously then negotiate with the employees to be able to get rid of it because it was distorting performance in Q1.

  • Stuart Graham - Analyst

  • Okay.

  • And then could I ask on your trading revenues, your trading revenues are barely down in FICC year on year, but your VAR is well down.

  • So can you comment do you think it's a market share issue?

  • Is it a margin issue?

  • How are you doing better than others in that area?

  • And then my third question was just on the LTRO.

  • Can you comment on what you took and what you used it for?

  • Thank you.

  • Stefan Krause - CFO

  • Okay.

  • On the VAR, it's, number one, it is market share gains and I think I went through my presentation some of those that we have achieved.

  • And number two, Stuart, as I had reported, it's quite interesting in this first quarter because of the cautious position the Bank took going into the year we had no buy-and-hold-type gains in our P&L; we had only client flow activity.

  • So the quarter is actually for you quite a good view on how our client flow activity was low risk and how our investment banking franchise, how strong it is by now that on pure client flow activity with low risk levels we can actually achieve a 26% -- and higher allocated capital, we can achieve a 26% return.

  • And I think if you look behind the numbers, which was quite impressive in the analysis that we did, it gives you a good sense how a client flow business investment bank with growing market shares reduced levels of risk, including a higher capital allocation than previously, can still perform quite well and quite strong and that we don't need asset-driven buy-and-hold gains to bolster our results there, which are an opportunity down the future and may occur, but which shows you the quality of our business.

  • Stuart Graham - Analyst

  • And there's no funnies in there, correlation trading or something like that?

  • Stefan Krause - CFO

  • No.

  • That's what I say.

  • I have no buy-and-hold, no valuation-driven results this -- for the first time in the few quarters, first quarters that I have been at the Bank, this is the first quarter we didn't have any of this.

  • So in that sense I think quite an impressive performance.

  • And on LTRO we only took a small amount from that support for some of our corporate and retail business in continental Europe.

  • So far we haven't disclosed any further.

  • Stuart Graham - Analyst

  • But that's closing the funding gap from head office, is it?

  • Stefan Krause - CFO

  • Yes.

  • We can say that, yes.

  • Stuart Graham - Analyst

  • Okay.

  • Thank you.

  • Stefan Krause - CFO

  • Understood.

  • Okay, next question.

  • Operator

  • Next question is from Christopher Wheeler of Mediobanca.

  • Christopher Wheeler - Analyst

  • Yes, good morning.

  • I'm sorry to go back to Actavis, but I just wondered, using the very helpful slide 26, I suppose if I do a back-of-a-cigarette-packet calculation on the RWA you may have shed or you may shed to get to a 6 basis point accretion in your presumably Basel 2.5 ratio, it looks like you're shedding about EUR4b of RWA.

  • I just wondered if you could tell us if that was in the ballpark.

  • And perhaps also tell us in terms of the other investments that you'll still have at the end of the year, the big ones you mentioned earlier, BHF and the Maher and Cosmo, could you perhaps tell us what the impact might be on the remaining RWA within Corporate Investments with the implementation of Basel III if any?

  • And then just a final question, just what update can you give us at the moment on the Asset Management sales?

  • Thank you very much.

  • Stefan Krause - CFO

  • Okay, Christopher, I think your math is really accurate.

  • 100% dead on.

  • So it is the EUR4b so you made a good estimate on that.

  • Christopher Wheeler - Analyst

  • My God.

  • That's the best --

  • Stefan Krause - CFO

  • Yes, my God.

  • So it's exactly that figure.

  • So it's about 30% of our total.

  • So, it, your number, is really in the -- very accurate.

  • Now on other CI assets, Actavis was the biggest total.

  • We reported about EUR12b in risk-weighted assets in that group.

  • So that gives you a sense.

  • But obviously as the year progresses these transactions take some time to complete, the ones that are in progress.

  • Obviously as we move along the year some of these might not be -- we might not be able to lift immediately for the January 1 effect, but we will obviously lift throughout then the years 2013, at the latest 2014.

  • So that will always provide some additional upside.

  • Basel III, by the way, has no particular impact on our Corporate Investments anyway so it's not going to change the risk-weighted asset numbers of that segment.

  • So it will stay more or less in line.

  • And then our update on the Asset Management sale, we don't comment on negotiations, but I can only tell you that progress continues to be good.

  • We continue to be in discussions.

  • It is obviously quite a complex transaction because we have to separate existing businesses and that's what is being discussed.

  • But, honestly, I just came -- come from New York where we had another round of negotiations and it's all going in the right direction and very positively.

  • But we will be back and telling you more about it as soon as we're able to talk about and announce the agreement that we might find.

  • We still are -- and that's, by the way, that's why we didn't change the accounting treatment -- we still have decisions to make finally at Deutsche Bank what components and what parts, at what conditions we sell.

  • And that's still open.

  • That's why I make you aware that that's why we didn't change the accounting classification of the transaction.

  • That's, by the way, for you also a good indicator to read how we are looking at this moment at the status of where we are right now.

  • Okay?

  • So --

  • Christopher Wheeler - Analyst

  • That's really helpful.

  • Thank you very much.

  • Thank you.

  • Stefan Krause - CFO

  • So in that sense we have to -- there's significant decisions there to be made and significant points to negotiate.

  • So I think otherwise I would have had to change its accounting treatment in Q1.

  • Christopher Wheeler - Analyst

  • Okay.

  • That's really clear.

  • Thank you very much.

  • Stefan Krause - CFO

  • Okay.

  • Operator

  • Next question is from Jeremy Sigee of Barclays Capital.

  • Jeremy Sigee - Analyst

  • Good morning.

  • Firstly, I wanted to follow on, on the comp expense.

  • You quantified the early retirement impact.

  • I wonder if you could also tell us was there a drag from higher expenses for deferred comp affecting this?

  • Because you increased the amount of deferral in 2011 so was there a drag from that in these numbers?

  • Second question, similar to that, in your 1Q bonus pool and expense accruals are you assuming a similar proportion of deferral, which I think was 61% for the 2011 bonus pool?

  • Are you assuming something, a similar proportion, as you put together these 1Q numbers?

  • And then I just wanted to finish on the RWA deleveraging.

  • You said that you're ahead of schedule on Postbank, EUR56b, and I think you were targeting EUR57b by the end of 2013, of which the customer bank's only EUR40b.

  • So the implication is you could go quite a lot further by 2013 and I just wondered if we can expect you to go all the way down to the EUR40b.

  • And similar thing actually on the legacy assets in CIB, which I think was something like EUR70b running off after 2013.

  • I just wondered if you have accelerated that in this environment or if you see scope to accelerate that.

  • Stefan Krause - CFO

  • Yes, okay.

  • Let's start on the early retirement effect, where you asked whether there's a drag from higher expenses.

  • I would say the normal amortization of retention was slightly higher but not really material at this point, so not a material number.

  • Now in your deferral assumptions, what we usually do, we use our last year's -- when we do the accruals throughout the year we obviously use our last year's structure, compensation structure and numbers.

  • We don't alter this.

  • So, yes, we're using the same deferral assumption at this point in time.

  • It's generally throughout the later part of the year when our compensation committee meetings happen and we study our competition where we then might do adjustments or, like in the last two years, where we had significant discussions as regulators around it where we then implemented changes to our compensation structures throughout the year.

  • And then obviously there's an adjustment based on that to our core.

  • But in Q1, normally because we have no new information, you can always assume that it's going to be the same structure than previous years.

  • So your 60% is right.

  • Now on the topic of the risk-weighted assets, let me start with Postbank, the EUR56b, yes, we are ahead of schedule.

  • And obviously we -- the Postbank risk-weighted asset reduction for non-core activities remains a priority.

  • However, the reduction Postbank risk-weighted should be seen in the context of the Group and we reduce risk-weighted assets where we can do it best, though the exact timing remains subject to, obviously, continuous review.

  • But to be clear, of course we're not sending anybody home on vacation right now and the teams continue to work.

  • And therefore an accelerated risk-weighted asset reduction of Postbank is possible.

  • It's definitely a possibility.

  • And based on the fact that we have achieved so much, I think we will continue these efforts as well.

  • And in CBA, if I look at the CIB risk-weighted assets, we've already downsized the securitized trading business, which was a relatively large part of our future risk-weighted asset reduction.

  • So, yes, we have used obviously the good market conditions to move along and to do whatever we can.

  • That is sometimes limited, but obviously, as you know, we want to come and achieve our regulatory targets always ahead of time.

  • And I think so far our track record's quite good that we've been able to deliver always ahead of time.

  • And I see no reason for that to change.

  • Jeremy Sigee - Analyst

  • Great.

  • Thank you.

  • Stefan Krause - CFO

  • One last question, right, we can take.

  • Operator

  • Okay.

  • The next question is from Derek De Vries of Bank of America -Lynch -- Bank of America - Merrill Lynch.

  • I'm sorry.

  • Derek De Vries - Analyst

  • That's alright.

  • Thank you.

  • I've got just three questions if I might.

  • I was wondering if you could update us on the status of the outstanding US mortgage repurchase demands.

  • I think the figure at year end was EUR638m.

  • On the -- second question, on the screens, we saw a lot of headlines from Mr.

  • Ackermann talking about April operating conditions slowing down.

  • I was wondering if you could just repeat what he said or elaborate on that because obviously we didn't hear it in person.

  • And then the third question is more of a sort of corporate finance theoretical question.

  • But you're very proud of your industry-leading ROE in CDS at 26% and you talk about taking market share and what-not.

  • So just from a corporate finance perspective, why wouldn't you want to allocate more capital to that business as you're clearly taking market share and have an industry-leading ROE?

  • It strikes me as a business you'd want to commit more capital to and I'm just wondering your thoughts there.

  • Stefan Krause - CFO

  • Okay.

  • Yes.

  • So let me start with the status of the mortgage repurchase demands.

  • The mortgage repurchase demands of Q1 2012 are about EUR1.4b related to the original principal balance.

  • This includes demands from all possible sources, including obviously monolines, whole loan buyers, government sponsors, entities, residential, residential mortgage-backed securities investors, services and/or trustees.

  • As you will understand, it's a matter of policy we do not comment on particular contractual demands made by our counterparties in that regard.

  • And again we will provide you from time to time with legal expense updates without referring to the single transactions because in most of those settlements obviously the agreement is there is no public discussion and disclosure of them when they occur.

  • So we had some --

  • Derek De Vries - Analyst

  • Just so I'm clear, that EUR1.4b is a like for like with a fixed EUR638m at year end.

  • Is that right?

  • Stefan Krause - CFO

  • With the --- at the year end, no, I would have -- I have to pass on that now.

  • No, I don't -- I would have to ask the teams to compare that.

  • But we can give you a call to compare.

  • Derek De Vries - Analyst

  • Alright, that's fine.

  • Thanks.

  • Stefan Krause - CFO

  • On our outlook statement, yes, we really had a strong first quarter.

  • In the long term we really believe that our business, both on the retail and the side of the business as well as on the investment bank side of the business, will continue to be good performer and our market share gains we will be able to maintain.

  • We clearly see markets remain quite challenging.

  • And when we look at the April performance, we always have to remind we had the Easter vacation season in it and it's therefore quite difficult to really clearly say how this is going to pan out.

  • After now the month has more normalized, but we do see lower activity levels as we started into Q2.

  • In that sense we can say, but not significantly lower at this point in time.

  • But the environment has changed into more uncertainty and therefore obviously a slowdown has occurred.

  • And then the last question was related to the ROE at CB&S and why we couldn't allocate more capital to corporate finance business.

  • Only to state very clear, from a corporate point of view in the way how we run our businesses, the investment bank has more capital and more risk capacity at this point in time than it's utilizing by its own decision.

  • So I think that at the moment from a corporate point of view, we would not do any changes because I think the limits that we provided provide ample opportunities for growth.

  • And I'm pretty sure that my colleagues in the investment bank as soon as they see any sensible opportunity in the marketplace can act and grow any of the businesses immediately.

  • And therefore I don't think we need to concern.

  • As I show you, we did allocate significantly more capital because the buffer that we had in the corporate and adjustments was significantly reduced.

  • So now the businesses have much higher capital at their disposal to grow their businesses.

  • And I'm sure, if I know them, they will use it as soon as the right market opportunities present.

  • Derek De Vries - Analyst

  • Great.

  • Thank you very much.

  • Joachim Mueller - Head of IR

  • So thanks for your interest in Deutsche Bank and your questions.

  • Anything else that we couldn't answer, please come to IR.

  • We will try to make that available.

  • Otherwise we wish you a good day.

  • Thanks.

  • Operator

  • Ladies and gentlemen, the conference has now concluded.

  • Thank you for joining and have a pleasant day.

  • Goodbye.