Deutsche Bank AG (DB) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the third-quarter 2013 analyst conference call of Deutsche Bank.

(Operator Instructions).

I would now like to turn the conference over to Mr. John Andrews, Head of Investor Relations.

Please go ahead, sir.

Thank you, operator, and good morning, everybody.

This is John Andrews, Head of Investor Relations for Deutsche Bank.

I'd like to welcome to you to our quarterly earnings call this morning.

With me is Anshu Jain, Co-CEO, and Stefan Krause, our Chief Financial Officer, and we would like to thank you very much for your attendance this morning.

Without further ado, I'd like to turn it over to Anshu, who will have a few opening remarks, followed by Stefan, who will take you through the earnings presentation which is available on our website.

Anshu?

Thank you, John.

Good morning, everyone.

This call marks four quarters since we launched Strategy 2015+.

We're working systematically to deliver on the promises we made.

We are well into our journey, and we have passed some important milestones.

In the third quarter we can report significant progress, but we also met numerous challenges.

Let me start with the challenges.

Market conditions were tougher during the quarter, in contrast to a year ago, when markets gained momentum from the ECB's decisive support for the euro.

In this quarter, client activity in markets were negatively impacted by a prospect of the withdrawal of quantitative easing and other stimulating policies.

Litigation issues came to the foreground, for the industry and for us.

We took litigation charges of EUR1.2b in the quarter, increasing our reserves to EUR4.1b, relating to several matters both in Europe and the US.

This contributed to a lower quarterly result.

In some of these matters, we are cooperating the resettlement in the near future; however, in others we will defend ourselves vigorously.

Common equity Tier 1 capital ratio fell from 10% to 9.7% in the quarter, reflecting litigation reserves and several other factors.

In a moment, Stefan will take you through this.

As we've said previously, we may see more volatility in this ratio in the coming quarters, as we respond to a developing regulatory environment and work through our strategic agenda.

Notwithstanding this, we remain highly confident of maintaining the capital standards we've committed to.

Now, let me turn from challenges to some of our achievements, which include leverage.

In July, we communicated our aim to reduce CRD4 exposure by EUR250b by the end of 2015.

In the third quarter alone, we achieved reduction of EUR64b.

That's on top of EUR200b of reduction we achieved in the 12 months from June 2012 to June this year.

Our leverage ratio already meets the European standard of 3%.

However, we aim to build a substantial buffer above that level.

Given our momentum, we are confident we can achieve that without compromising either our business model or, more importantly, our delivery to clients.

Furthermore, we've sustained progress on costs.

Our operational excellence program is on course.

Cumulative savings reached EUR1.5b by the end of the quarter, close to our yearend target of EUR1.6b.

To be clear, in parallel to operational excellence, we're also investing significantly in infrastructure.

Over the course of Strategy 2015+, we will invest a total of approximately EUR1b in a portfolio of around 150 initiatives to address the implications of a changing regulatory environment.

Roughly EUR300m of that investment will be complete by the end of the year.

In addition, out of a total of EUR4b of investment related to operational excellence, approximately EUR2.7b will be invested in platform improvements designed to further strengthen our control environment.

Let me now turn to our business.

Core bank profitability was solid, even after litigation charges.

In CB&S, revenues in debt sales and trading were significantly below the prior-year quarter, but our performance in equities and corporate finance was resilient.

Our investment banking franchise remains strong.

In Deutsche asset and wealth management, we delivered one of our strongest ever quarters on stable revenues and cost synergies from our integrated platform.

We aspire to be a world-leading franchise in this business.

We still have much work to do, but we are confident that we'll deliver.

In GTB, profits were solid thanks to stable revenues, growing volumes, cost efficiencies and tight risk management.

In PBC, revenues were lower against a backdrop of low interest rates and a tough environment for investment products.

However, we're building a unique, integrated retail business with a dedicated offering for German Mittelstand clients, and progress is on schedule.

So, to sum up, we're making progress, step by step, on our journey of building a world-class platform for Deutsche Bank.

We've said consistently, and we say now, that journey will require patience.

We've confronted challenges along this way and we'll meet more in coming quarters.

This is a dynamic environment.

We continually monitor development and reaffirm the validity of our strategic assumptions.

We will continue to work systematically across every part of the Bank, resolving legacy matters and configuring our platform for long-term success.

We're committed to staying the course and confident we'll deliver.

Now, let me hand over to Stefan, who will discuss the highlights of our financial performance.

Yes.

Thank you, Anshu, and good morning to everybody.

We are aware that one of our competitors will be doing a conference call at 9 o'clock, so I will try to be quick so we have enough time to answer some of your questions.

So let's start by taking a first look at the overall performance in the third quarter, on page 2. The Group performance, as you heard from Anshu, was severely impacted by litigation charges of EUR1.2b, of which a large part relates to our non-core segment.

The core bank, excluding its share of litigation charges as well as the cost to achieve our ongoing efficiency program, produced an income before income taxes of EUR1.7b, and as you see, a reported IBIT of EUR1.2b, which shows the strength of the bank that we are building.

Revenues in the core bank decreased by approximately EUR900m versus the prior yearend, more than half of which was offset by a decrease of non-interest expenses.

The core bank generated a post-tax return of 7.5%, including the aforementioned one-time cost.

Let me now jump right into what we believe the key themes are this quarter.

So I've changed the sequence of my usual presentation, to go right into the core topics.

The EUR1.2b of litigation that you see on page 4 -- of litigation charges this quarter increased our litigation reserves to now EUR4.1b.

The majority of the quarterly charges relate to the legacy US RMBS business.

As most of the charges in the quarter are related to legal matters for which we had existing reserves, there is no release in the contingent liabilities bucket.

This is a technical IFRS effect that you need to be aware there's not an automatic swipe between the two buckets, which therefore only includes situations where we have not made reserves yet because of the likelihood is currently below 50%.

So that's the difference between the two buckets.

We know that uncertainty around both the final cost of litigation and the timing of the expenses is frustrating for investors and other stakeholders, but we can assure you we are working hard to put our legal issues behind us where that is possible and make sense from a shareholders' point of view.

The mortgage repurchase reserves on the right-hand side of this slide are in addition to the EUR4.1b litigation reserve.

And I would also like to remind you that, independent of the litigation reserves, we now have on our balance sheet our common equity Tier 1 ratio also reflects EUR12.5b of risk-weighted assets, which would be about the equivalent of EUR1b in capital against financial crisis related litigation risk.

Let's move on to page 5. Obviously, the second topic is our CRD4 common equity ratio, which has decreased by 30 basis points in the quarter.

This was mostly driven by the capital supply side.

More specifically, we saw no contribution for net income as litigation charges practically eliminated our core business performance.

An unchanged dividend occurred of EUR0.75 per share or around EUR200m per quarter.

Approximately EUR300m in higher capital deduction, which relates to firstly the higher expected loss shortfall, and secondly own shares in trading, where we saw some temporary uptick which is expected to reverse in the fourth quarter.

In addition, there was an approximately EUR300m impact in relation to equity compensation as we purchased shares for delivery at (inaudible).

We also saw a reduction in capital from further effects shown as other, which includes, for example, higher deductions of about EUR200m from deferred tax assets, partially resulting from litigation charges.

An impact of below 10 basis points came from risk-weighted assets which, net of FX, as you can see on the chart, rose a modest EUR2.5b.

Regarding FX effects in the quarter, please note that these brought both RWA and capital down, but with no net effect on the ratios, on the capital ratio.

Let me turn to page 6, where we are providing you with the factors which can potentially affect our common Tier 1 equity ratio in the near future.

We remain committed to achieve our 10% target by 2015, but we expect some volatility to the ratio in the near future.

Some of these factors we have seen affect our capital ratio as of December 30, such as an increase in DTA deductions and equity movements in pension accounting.

For example, the third-quarter litigation charges of EUR1.2b hit us in three distinct ways.

First, we obviously had a lower net income, and as a result obviously lower retained earnings.

Second, obviously we did have higher DTA balances resulting in higher capital deductions.

And third, we had higher capital deductions under the 10%/15% rule due to the resulting lower capital base that then obviously impacts our capital deduction, as well.

In addition, our capital ratio could be impacted by further changes in the interpretation of the regulatory framework; for instance, when final CRD4 regulations will be issued later this year, or the ongoing issuance of regulatory technical standards by the European Banking Authority, which will stretch way into next year.

On page 7, we talk about a topic of interest to you lately, which is the leverage ratio.

Let me start by highlighting that even before we announced our EUR250b deleveraging program last quarter, we had been successful in reducing our assets.

In the 12 months prior to activating the leverage toolbox, we had already reduced our overall CRD4 exposure by EUR200b, of which EUR130b came from adjusted assets and a further EUR70b came from reducing the CRD4 gross-up for derivatives.

All of these reductions were delivered at minimal cost and with no impact to the business model.

Let me now turn to the CRD4 reductions delivered in the most recent quarter, which you can see in detailed categories.

We reduced our CRD4 exposure by EUR64b, or EUR36b excluding FX movement.

EUR36b reduction, excluding FX, falls into a few broad categories.

First, NCOU de-risking continues and delivered a EUR5b reduction in the third quarter.

Second, derivatives and securities financing transactions, for which there are specific CRD4 exposure rules which differ substantially from the regular balance sheet reporting.

Here we delivered an overall reduction of EUR21b through a combination of process enhancement, additional netting agreements and trade compression.

A further EUR10b reduction was delivered across the other major categories, principally reductions in our trading inventory.

Let's move to page 9, so I can give you some more color on how we think to deliver on our EUR250b deleveraging target by yearend 2015; as we have said, another quarter to work and progress this project.

Roughly half of this will come from derivatives and off-balance sheet commitments.

Here, reducing the CRD4 impact from our derivatives portfolios will be the main driver.

As you know, CRD4 requires a notional add-on factor to derivative exposures.

We will work with counterparts and clearing houses to compress, clear up, re-strike derivative positions, to bring down our CRD4 exposure.

Process enhancements and additional recognition of netting agreements will contribute further.

We will also be targeting a roughly 10% reduction in the CRD4 exposure for off-balance sheet commitments and guarantees.

The majority of these reductions rely on improved efficiencies and processes that we believe will only have a very modest recurring P&L impact.

The remaining half of our toolbox is more directly linked to balance sheet assets, such as the NCOU portfolio and our trading inventory.

We will also continue to seek efficiencies in collateral management and further reducing wholesale funding, without risking our liquidity and funding.

In this context, I would like to highlight that our liquidity coverage ratio is over 100%, in line with the commitment I made in our February analyst call.

The impact from these measures is expected to be more significant.

And following further bottom-up review, we now estimate the recurring IBIT impact to be between EUR450m and EUR500m per annum, and one-off implementation costs of approximately EUR600m.

As we move forward in this journey, it's likely that we will see shifts between individual reduction categories as well as some phasing effects, as growth in selected areas may partially offset reductions.

However, we remain firmly committed to the delivery of net EUR250b in CRD4 exposure to the end of 2015.

Let me now move on to page 4, with the de-leveraging -- page 10, sorry, with the deleveraging measures realized to date.

And despite the negative impact of significant litigation related expense on our capital base this quarter, we improved our adjusted fully loaded CRD4 leverage ratio from 3.0% to 3.1% at the end of September.

Looking ahead, between now and end of 2015, we plan to issue EUR5b of new CRD4 compliant AT1 capital.

By that point, we expect to have loss credit for EUR3.8b of our grandfathered Tier 1 hybrid capital instrument, of which EUR2.5b is shown in 2014 and 2015 for this projection, following EUR1.3b in 2013.

As an illustration, with the remaining exposure reductions and planned AT1 issuance and phase out, our adjusted fully loaded leverage ratio would be at about 3.8% by the end of 2015, well ahead of a potential 3% regulatory minimum, and that excludes any retained earnings between now and 2015.

As previously mentioned, future regulation around leverage is uncertain.

By taking decisive action now, we believe that this provides us with a sound position and with a significant buffer against any future changes.

Let me now move on to Group results.

Let me start with an overview of the key highlights on page 12.

In the top section, we provide the key figures and ratios for the first nine months, including those which are our 2015 financial targets.

We are clearly not satisfied with an ROE of 5%, but that includes, obviously, the aforementioned significant one-time item.

We continue our focus on expenses, with our cost/income ratio adjusted for one-time charges of 69%, closer to our 65% target.

Given the lack of profit, shareholders' equity has been negatively affected by changes in foreign exchange rates, which was also the main reason why the book value per share came down by approximately EUR0.80.

Also, only to mention here, bonus and retention expense for the quarter has come down in line with our lower result.

Let me move on to page 13.

Group revenues were down EUR900m versus the same period last year, and EUR500m compared with the second quarter 2013.

In both cases, the decline was driven by the investment bank.

I will discuss revenues in more detail when we come to the different business divisions.

Let me now cover our provision for credit losses, on page 14.

The EUR40m increase in provision for credit losses from the previous quarter reflects higher charges for IAS 39 reclassified assets, mainly in the European commercial real estate sector held in NCOU.

Provisioning in our core business decreased, driven by PBC and GTB.

The reduction in PBC, amongst others, reflects the ongoing strong credit environment in Germany.

In the core bank, the loss ratio ranged between 25 and 32 basis points for the last seven quarters, reflecting the high quality of our loan book.

On page 15, we talk about our costs.

While we are fighting with litigation headwinds, we continue to focus on making our organization more efficient and our platform more sound.

In terms of what we can control, our adjusted cost base, which adjusts for one-time costs and for the insurance effect, it has come down by another EUR300m since the end of June.

The compensation ratio for the first nine months has improved by 2 percentage points, 38%, down from 40% last year.

All this reflects further progress on our operational excellence program, which we continue to push forward.

On page 16, I show further information about the progress on that program.

While we have invested a total of EUR800m in the first nine months of 2013, we have realized savings of EUR1.1b in that period and total savings of EUR1.5b for the program to date.

The realized savings can to a large extent be seen in the P&L, as the adjusted cost base in the first nine months has come down by a little over EUR1b versus the same period last year.

We are on track to reach our target of EUR1.6b in savings by yearend 2013.

It would be fair, though, to point out, however, that costs benefited from foreign exchange rates, which reduced our cost base by about EUR300m in the first nine months.

In addition, we are making selective investments to sustain the quality, obviously, of our platform.

We expect that we will probably not spend the entire budget of EUR1.7b costs to achieve for 2013, so we expect CtA to increase in the fourth quarter.

It is important to note that this only affects the timing of the costs to achieve, not the amount of the planned spending, which from current point of view remains unchanged, and not to our savings target 2013 (inaudible).

Let me move on to page 17, which provides an update on the 165 initiatives of operational excellence.

Three-quarters of our initiatives are now in the validation and execution phases, and we are not only making progress in cost reduction but also, as I said, in strengthening our infrastructure.

Then, last but not least, on page 18, you can see our profitability.

Let me only go quickly into the effective tax rate, in the first nine months of 2013 was 37%, which was mainly impacted by the expenses that are not tax deductible and adjustments for income taxes in prior periods.

Let's move now quickly into the segment results.

I'll start on page 20.

The third quarter 2013 was obviously a disappointing quarter for CB&S, reflecting the difficult market conditions.

Overall weaker results in the investment bank reflected significantly lower revenues in our debt and sales trading franchise, while equity sales and trading and corporate finance performed very well.

We maintained good momentum on our resource reduction program.

Non-interest expenses excluding litigation and CtA were down 14% year on year, while CRD4 exposure came down by 5% in the quarter.

Our debt sales and trading, as you can see on page 21, our debt sales and trading revenues declined significantly year on year, particularly in rates, RMBS and FX, which were affected by the challenging market conditions and obviously also some positioning losses.

Equity sales and trading; our equity sales and trading franchise continued to maintain the good momentum due to strong revenues in equity derivatives year on year.

Let me go now to GTB.

On GTB, on page 23, you can see that GTB showed a strong IBIT of EUR379m in the third quarter of 2013.

The good performance has been driven by our ongoing cost discipline, and non-interest expenses decreased 7% quarter over quarter.

On page 24, you have the usual page about asset and wealth management.

Deutsche asset and wealth management continued to benefit from the rise of equity and bond markets, as well as from synergies of the improving operating and technology platform.

As a consequence, IBIT has risen to EUR283m this quarter, up 151% year over year.

I would like to add at this point that Deutsche Bank continues to be very committed to the independence of Sal Oppenheim and its positioning in this business, and hopefully continue to be successful with that business, as well.

PBC result was impacted by several non-operating revenue effects, as you can see on page 25, mainly from Postbank's investment securities portfolio and lower results from assets and liability management activity.

Provisions for credit losses, as I said, further improved with the benign environment in Germany.

The underlying cost base was lower versus last year's quarter, while the increase quarter over quarter was driven by the positive one-off impact from Hua Xia Bank provision release in the second quarter, as well as higher infrastructure expenses.

If I go to page 26, we want to clarify some terms here.

After implementing the new German mid-cap coverage model that we discussed with you, PBC has decided to rename Advisory Banking Germany into Private & Commercial Banking, to better reflect its market approach.

This quarter's result of Private & Commercial Banking was driven by higher credit product revenue, but impacted by lower results from our activities in asset and liability management year on year.

In Postbank, as we now call the former consumer bank in Germany, the result reflected a lower contribution from de-risking its investment securities portfolio and lower releases of loan loss allowances.

In Advisory Banking International, we see a stable performance in Europe despite the difficult market, while we continue to benefit significantly from the results of Hua Xia Bank.

On page 27, you can see that in NCOU further de-risking and disposals have again been achieved at a net gain in the period, and the aggregate continues to be capital accretive.

During the third quarter, we have reduced CRD4 RWA equivalents by EUR18b.

This includes a reallocation of EUR7b operational risk RWA from NCOU to the core division, to reflect that the corresponding assets are managed by those divisions.

However, the result was significantly impacted by the aforementioned litigation costs.

Let me now turn to page 28.

Since June 2012, our de-risking program has achieved a reduction of 45% of adjusted assets and of 56% of CRD4 equivalent risk-weighted assets.

On this chart, we provide you with the examples of the de-risking in 2013 to date.

I thought you might have some interest for some specifics here.

The NCOU is contributing EUR40b of balance sheet reduction as part of our deleveraging program.

So I come to an end.

I think I can only conclude this quarter that as an organization obviously we are resolving many of the issues of the past, as well as we are improving and investing in our platforms and preparing for the new capital regime by deleveraging substantially.

What we take away from this quarter is the timing of all this will not always be perfect.

But we continue, as we move through our journey, to achieve our Strategy 2015 goals, for which we remain very convinced and committed to.

Thank you very much, and now I'm looking forward to your questions.

Operator, thank you.

If we could start the Q&A process, please?

(Operator Instructions).

Jon Peace, Nomura.

Good morning.

Can you hear me okay?

Yes, we can.

Great.

Thanks for taking the question.

The first question was just on your deleveraging plan.

You've increased slightly the cost estimates, and I just wondered if you could help us understand to which of the product categories the cost estimate sits.

I just wanted to get an idea of the phasing of the EUR450m to EUR500m in charges you've identified, and to get a sense of whether there might be any conservatism in those estimates.

And then the second question was just a generic question about the upcoming ECB asset quality review and the stress test.

Do you have any thoughts at this stage as to whether that might have any impacts on your provisioning or your risk-weighted asset measurement?

Thank you.

Okay.

On the P&L impact, obviously there is -- what has happened between the last quarter when we gave you our targets and now the bottom/up planning that we do is there is a lot of line items in terms of individual assets, so it's very difficult to assign P&L individually to certain categories.

As we had told you, as a broad line of thought, generally the CRD4 [ETR], the exposure reductions or the derivative exposure reductions generally do carry low P&L.

Obviously then reductions, for example, also on our repo book carry low P&L, and all the other positions are the ones that carry then certainly larger ongoing P&L, which made us revise our estimates.

It's also in our initial estimate we decided only to cut low ROA assets, and obviously we're using the low ROA listing and then sequencing that we have.

And now we see that it might be smart to keep some of that, because it's business driving and has the famous halo effects on other business.

So we might not be able only to reduce assets that carry low ROA, because some of that is business driving for other of our businesses.

That caused some of the change in our estimate.

On the AQR, honestly, we don't expect any impact from the AQR.

I know that there are some perception that there will be, but we don't really see in our balance sheet and we don't see in our positions where we should have or expect significant deviations from where we are booked today.

It's different, obviously, for the stress test.

The stress testing always will deliver some indications, and that will obviously depend from the stress test.

So our view is that we obviously will expect more results from the subsequent stress tests than we expect directly from the AQR.

Great.

Thank you.

Dirk Becker, Kepler Cheuvreux.

Yes.

Good morning.

I would also like to ask about the upcoming ECB exercise.

What's your understanding of this 8% minimum?

Is this the Basel II fully phased or is it the phase-in?

So, in other words, your starting point, is that the 9.7% or is it the 14.6% phase-in capital ratio?

And then, secondly, I noticed you had a very strong decline in the fixed income revenues, as you had already advertised, but it seems a little bit more pronounced than what your competitors have reported.

So I think this carries on with the question we already had in the second quarter.

Does this go along with some market share loss, in your perception?

So, to answer both questions very quickly, it is the phase-in 8%, and that's what our knowledge is of it.

So it does compare with our 14.6% ratio.

So you see that for the AQR we have a significant buffer.

For the stress test, the 8% may be different.

That's something that might include some of the later coming -- obviously, as the stress test will extend for two years and we look at a two-year period, obviously will include some of [your question].

So just that you are aware that there might be two different qualities of 8% that will be applied.

So, very comfortable on our 14% versus the 8%.

Now, for the fixed income reduction, we don't see it -- we had a one-off charge related to CVA charges.

So if you take that out and really look at the underlying performance, we feel that we were pretty much in line.

If I additionally consider that obviously we are more largely European than some of our competitors, we were certainly below some of our competitors in our one-to-one comparatives.

If we look at league tables, if we look at client surveys, if we look at it, there is no indication for any loss of market share at this point.

Nor do we see or do we have any concerns around that at this point.

We just said overall just a weak environment, as many of our competitors reported.

Okay.

Thank you.

Kian Abouhossein, JPMorgan.

Yes.

Hi.

Thanks for taking my questions.

Moving away from AQR, a few number questions.

On page 2, you have the EUR360m in the core bank on litigation.

Can you please split that into the divisions?

The second question is on cost savings.

The EUR1.5b, could you please give me an idea where we stand in terms of on a divisional breakdown, roughly?

In particular, indication of how much is in CB&S and the rest would be very helpful.

And it looks to me like you will be easily meeting your target, clearly, of EUR1.6b.

So when should we think about the target maybe being brought forward, or why wouldn't it be brought forward?

The third one is your gross balance sheet is down EUR122b.

I was wondering how much of that is FX.

So the IFRS balance sheet.

And lastly, on the FBO proposal, just very briefly, is there any change from what Stefan has indicated in the past in terms of how you will deal with this issue?

And secondly, do you have Basel approval for the debt swap that you indicated in the past?

Thank you.

Sorry for so many questions.

Thank you for all your questions.

Let me see if I remind them all correctly.

First of all, we don't break up litigation by divisions other than telling you that the largest part of our litigation is in NCOU, and it's obviously because it's related to legacy matters.

We do have litigation in expenses in different divisions, but I also can tell you it's not only CB&S business.

We had some litigation settlement that also impacted our asset and wealth management business that it's part of, for example.

But we don't break that out.

On the EUR2.5b target, I will owe you the numbers.

I think we disclosed that at the beginning.

We can give you some color on that, but let me do this after the call.

I don't have the setup.

Then you asked a question about the balance sheet.

Would you mind repeating that one?

I didn't get that quite.

Yes.

Your IFRS balance sheet is down about EUR122b, and I'm just wondering how much of that is FX versus real reduction.

Probably it's about in the EUR30b number, the reduction in FX that we have on our IFRS balance sheet, if I look at the reduction that we had on the CRD4 exposure.

Okay.

And then your last question was related -- if you can repeat that.

Yes, on the US FBO proposal.

Yes.

We have -- currently, the view is that the plan as I communicated is executable, based on everything of the rules.

We have actually done a re-review of our FBO overall plan in this quarter.

And we also updated, obviously, for the new rules that came out and we updated for the requirements that we know and the conversations we have had.

And I can indicate to you at this point in time no reason to do any change of that.

Only interesting to note, by the way, that our litigation charges it occurred -- large litigation charges occurred in the United States.

We obviously are taking further hits to, obviously, our German capital in order to keep this plan alive and keep it as we had issued it to you.

So we continue to update but no change at this point in time.

And, Stefan, one question on what -- the discussion on FBO last time that we had on the conference call.

Do you have the agreement from BaFin on implementing such plan which was related to that swap?

The issue is -- it is the interpretation of the laws and the interpretation of our laws which is the US thing and recognition.

In terms of what, let's say, our German -- and understand that I cannot comment on regulator statements or communication in an analyst conference call.

All I can say to you, it does comply with the laws and it does comply with the regulations as they're set out.

Let's not forget what's important for the German side of the equation, that we have taken the hit to capital in Germany by the end of 2012.

You remember that we took a substantial hit to our German capital within the HGB accounts.

So, in that sense, our view is -- and we still comply with all capital ratios that we need to comply with, with our German subsidiaries in Germany.

And we do comply them, by the way, with ample room to existing, even to fully phased-in regulations.

So therefore, in that sense, we would not see where there would be any issue.

But please understand that I cannot comment on regulator communication or negotiations or discussions.

That's fine.

Thank you very much.

Daniele Brupbacher, UBS.

Good morning and thank you.

Sorry, again, on slide 9, the EUR600m you mention there, could you give us a bit of a feeling for how -- when you expect this to be charged to the P&L over time?

And then, on slide 10, the EUR1.3b pro forma number you mention there, I think it's probably fair to assume that the final definition of exposure will change a little bit.

There might be additions, but I think there will also be removals.

How comfortable do you feel about potential changes, going forward, for the final definition?

And also on that slide, the EUR5b AT1 issuance, when should we expect you to start to issue this?

Do you -- are there still pending approvals from the BaFin and how we should just think about this?

That's it.

Thanks.

Okay.

Let me walk you through this.

The EUR600m P&L charge, obviously the -- first to clarify.

In difference to RWA reductions, when you do reduce the balance sheet, obviously you have to reduce the liability and the asset side.

And it turns out that, obviously, if you want to maintain your duration on the liability side of the balance sheet, you also will have to reduce longer-term debt, and that's where the expense -- a large part of the expense comes.

So think about obviously we will be driven by the speed of asset reductions and then the corresponding speed of liability reductions, that we do want to keep the liability structure of our balance sheet in tune.

So expect about two-thirds to occur next year and a third to occur in 2015, as we move down the target of this expense to occur.

But also consider that a large part of this expense will not be asset driven, will be liability driven of this one-time expense.

Okay.

Second, how comfortable we are in definitions with -- of our leverage exposure; at this point in time, actually we are quite confident that CRD4, based on all the communication that we had, will be the valid European scale.

And we, at this time, have no reason to believe that there will be anything else and that there are some definitory changes that still might occur.

But at this time, we believe that CRD4 will be what we have to look at.

On the AT1 issuance, they will occur over time until end of 2015.

There have been, obviously, no issuances from German banks yet.

Obviously, that gives an indication where we stand.

But if I can say so, we do expect that before yearend we will be put in a position to execute transactions, so in that sense we just expect the [Frankfurt] and the rules be clarified soon.

Okay.

Thank you very much.

Christopher Wheeler, Mediobanca.

Yes.

Good morning.

Yes, a couple of questions, and really one relates to what you just said there, Stefan, on the fact you don't believe there'll be many changes to CRD4.

What I wanted to ask you on leverage was how much of your buffer do you think will be eaten up if we get the proposals, particularly on repos and CDS sold, that were proposed at the end of June.

If those were actually implemented, how much will that gobble up?

Because I was led to believe that it could actually gobble up about 60 basis points; that was the buffer that you were going to create at the end of the second quarter on a pro forma basis, based on your deleveraging.

So I just would like to understand why you now think -- or why you think that those proposals will not go through, and we obviously have seen the comments.

The second question really is something I asked Brady Dougan last week.

US banks seem to be very sanguine about the impact of tapering in terms of the withdrawal of liquidity from the markets, particularly in respect of fixed income.

And I just wondered where you were coming from on that, because it seems to me you have many, many headwinds in fixed income and now we have another major one which we have absolutely no experience of.

And I wondered what you could do to prepare for that, or what you're thinking about in respect of that issue.

Thank you.

Okay.

Christopher, thank you for your questions.

Well, the reason we have (inaudible), and we do understand that there's further discussions around that, so that's why we are building obviously some cushion to deal with this difference.

But we don't expect, if you look at our pro forma calculation, the cushion that will be between 60 to 80 basis points, and this is obviously excluding, at this point, any net income effects that I could have considered in this calculation as well that we left out.

We, for sure, have enough buffer to deal with the 3%, even if there would be definitory changes of that magnitude.

Now, currently, we rather expect in the 20 to 30 basis points definitory changes to affect us, which is very well below the buffer that we are building around leverage.

And I'm going to hand off the second question you asked, Christopher, to Anshu.

Chris, good morning.

On tapering, I think we should all bear in mind that tapering is the end of something very unusual, as opposed to the beginning of something terribly restricted.

We've been calling for an end to tapering since the beginning of the year.

Is it having an impact on our business model?

It is insomuch as customer volumes have dropped off dramatically.

I was looking at a chart the other day which shows where average volumes were pre the tapering talk and post the tapering discussions, and clearly that is having an impact on industry profitability.

In terms of the specific impact of tapering on our business model, we think it's minimal.

And in fact, over time, if it winds up with high interest rates and a steeper curve it'll actually give us a dividend.

But certainly the new model, where we are taking much less risk than we used to, the bar levels are way down, stress levels are way down.

We're not that terribly concerned from a business model standpoint but, yes, volumes coming back at some point would be helpful, and indeed they will normalize once people get accustomed to the new state of the world.

Thanks, Anshu.

Thanks, Stefan.

Appreciate it.

Christopher, one addition I want to make.

When I make this statement, it's only for clarification.

We include management action in that.

Of course, that number, if we would have a significant impact from SFT, that would lead us to cut in that area.

So just consider that what I mean is the net impact as you see it to us.

Yes.

Jernej Omahen, Goldman Sachs.

A couple of questions.

The first one is on page 16, where you basically show the CtA targets for the full year and then for the nine months.

And I see that you've basically reaffirmed the CtA charge for the year, which seems to be EUR1.7b for the full year 2013, but you've only taken EUR0.8b for the first nine months.

And I was just wondering whether we should be penciling in roughly EUR1b restructuring charge for the fourth quarter, and if there is any specific reason why the charge in the third quarter seems to be comparatively low given how much you've got left for the full year.

That's question number one.

Question number two is, when you guide us -- Stefan, when you talk about the volatility of the core Tier 1 ratio, so volatility seems obviously to imply a movement in either direction, up or down, but if I understand you correctly, you're basically expecting the core Tier 1 ratio to drop.

And I was just wondering whether you could explain in more detail as to what is driving that.

The third question is on the FBO proposal, and thanks a lot for the update.

You mentioned that -- and I didn't think about that before you said it, but you mentioned that the litigation charges are obviously booked in the US.

And I was just wondering, your US business, therefore, is it currently loss-making or will it be loss-making for the full year, and will you be therefore accruing new tax loss carry-forwards?

And in that context, can you just remind us what the deferred tax asset number in the US is at the end of this quarter and what you expect it to be?

And the second question, on the FBO proposal.

I think we previously ran the numbers on the 4.25% to 5.25% leverage ratio, when this initially came out on December 6. Now, the leverage ratios in the US have gone up.

What is your sense as to the likely leverage ratio to be used for FBOs in the US?

And what is the likelihood that it is lower than what the Fed will use for the US bank holding companies, because I guess that makes a big difference?

And the final question is more of a strategy question, and it relates to Deutsche Bank's fixed income business and more particularly rates.

We've seen Credit Suisse last week essentially give up on a substantial portion of their rates business, arguing they can no longer meet a return on equity level which is even close to their cost of equity, given the pending leverage regulation, and I was just wondering what the strategic thought process is on Deutsche Bank's fixed income business.

And I guess the same question put the other way would be why should it be any different for Deutsche or for any other player, for that matter, when it comes to rates?

Thank you very much.

Anshu will go with the last question, and then I will just quickly go through the other technical questions.

Let me start with the CtA.

You're absolutely right to recognize that we have spent less.

Obviously it's very difficult, when you start a program like that, to spend -- to plan the timing of expenses.

And as I said in my text, in my presentation, we do not expect to hit the EUR1.7b at this point in time, which doesn't mean that we do expect to lower our CtA overall but just we will have timing differences between the years.

The spending patterns have been lower.

That is something to do.

And the savings have been higher.

But obviously, at the beginning you have the lower hanging fruit and the less -- and all the projects that obviously need less investment.

I think there's some logic.

Obviously, projects that need high investment obviously take longer to show results than projects that need lower investment that tend to show quite quick results, and some of these efficiency gains have been faster.

So the timing will be off, but we still stick to our overall EUR4b investment.

And especially I also have to say that all the investment we do into our regulatory required improvement is certainly protected and we will see no reduction of that whatsoever.

Nevertheless, the timing of the savings obviously is a little bit sped up and obviously quite well ahead.

We had EUR1b so far, as I said in the text.

Your second, CT1 volatility, it's something we have explained and I will tell you the main drivers of this.

It's obviously on the one hand retained earnings, as you see that our RWA count is pretty much stable, has been stable over the last couple of quarters, so the driver was certainly coming from income.

And if I look at my income over the next couple of quarters, number one, on the positive we have the seasonal income.

We tend to have a very strong first quarter and then it lowers throughout, and the fourth quarter tends to be obviously low in income generation.

And regretfully, obviously, what we cannot plan for on the basis of how we reserve IFRS is when we take litigation charges.

That's either driven by settlements or it's driven then by competitors getting to any settlement positions, which then forces us to take respective reassessments of our provisions taken, which at the end what happened in the third quarter was obviously a lot of litigation activity, as you could read out of the press, occurred and this litigation activity always then results in higher reserves, according to IFRS, that we have to do.

On the CT1, the next one is also -- you asked for the CtA rules.

Let's not forget there is rules in place.

Obviously, the CtA is a deduction item.

So the second other than the net income is the evolution on the deduction item.

There, interesting enough, it always depends where we are booking those one-off items, the litigation.

And if you book them in certain entities, you could be even P&L positive in a country but the legal entity that has to absorb a litigation expense might be in a loss position while the whole country is in a positive P&L position, based on P&L of other legal entities.

I know it's a little complicated.

But I do affirm and confirm to you that our US business is profitable and -- but don't make the mistake that the profitability in the US could be in certain divisions, while others have to -- in certain entities, while others have to carry the charge.

If we go now on the DTA, there are rules, and that's what I tried to explain also in my words.

There are technical rules that depending on where -- obviously, if our capital goes down, the 10%/15% rule, which tells us how much we don't have to deduct and then start deducting.

These are so-called the freebies on the 10% and 15%.

Obviously, the size will also move with the cover.

So we have the volatility increase.

The amplitude of the volatility gets increased by this 10%/15% rule.

Whenever the capital moves down, interestingly enough, we have an acceleration and more freebies and therefore less deduction.

Whenever the capital goes down, obviously we will have, based on these rules, an increase of the deductions and therefore a lower capital.

Now, if we look at the FBO rules, we expect -- as we have disclosed to you, we are assuming a 5% rule.

Based on the size of our operation of the rules, at this point we expect that to be the number.

And we see at this point this to be flat and no changes of this, but we obviously will await final rule clarification to that.

But we, at this point at least, have no reason to believe that it should be anything other but, again, there is some rule clarification we have to wait for.

Now I pass on to Anshu.

Yes.

Regarding the specific question about our rates business, let me point out that we have recalibrated that business quite significantly this year.

We combined rates and credit trading.

We've taken a huge amount of expense out of the run rate of that business.

And the bulk of the EUR250b in balance sheet reduction that we've talked about will be -- the brunt of that will come in our rates franchise.

Roughly 70% of the EUR250b will come from CB&S, of which most will come from a reduction in our rates balance sheet.

Now, as regards your comment about our competitors, we've been saying this all along.

We fully expected a number of the second tier players to fall away, and indeed that's what we've seen over the course of this year.

So what you're seeing is a tremendous concentration of market risk among the top few firms.

The rates activity, these are things which our clients desperately need and will always need.

And there's no doubt in my mind that, over time, the ROE in that business will stabilize to cover, and indeed comfortably feed, cost of equity for the top firms.

Deutsche always has been one and we intend to remain one.

Thank you very much.

Stefan, may I just follow up on one point you made?

You said that you don't anticipate to use the full EUR1.7b of -- I'm still on slide 16 -- of CtA this year.

What do you think is the right number we should think about here?

That's what you have to guess and estimate, because I can't do your job.

Right.

Sorry.

It's a big number, though.

A cynic would say that the reason why the CtA charge was lower this quarter is so that the bank could show a notional profit, right?

That's what a cynic would say, but that's not the truth.

Right.

Okay.

Thanks a lot.

Thank you.

Jeremy Sigee, Barclays Capital.

Hi there.

Just two or three follow-up questions, please, on leverage and capital.

So, on the deleveraging plan, the EUR250b, just a couple of questions.

When you last talked about it at the 2Q stage, it sounded like you were keeping an ambiguity on the timing.

You said by 2015, which could have been interpreted as being by December 2014, and slide 10 now seems to be specifying December 2015.

So I just wondered if there's any change in your view of the timing there.

Is it getting pushed back a little bit?

Related point; the P&L sacrifice from that, so not the cost to achieve but the ongoing P&L give-up, which at one point was EUR300m pre-tax and is now EUR450m to EUR500m pre-tax.

What was the main change in the estimate or the assumptions in that process?

And then final question, back on slide 6. It feels like you're trying to warn us about some things on the left-hand side there.

You've quantified the potential CRD4 impact.

I wondered, on the EBA regulatory technical standards or the SSM, what particularly are you most worried about?

Okay.

Let me start.

First of all, I can tell you that the ambiguity, don't misunderstand it.

There's no change in timing of our EUR250b, and to be honest the largest part of it will be completed throughout 2014.

So I think we will just need to leave that open, because there might be some work to be done in 2015 as well.

As you see, it's coming down quite rapidly and we are very comfortable that most of this matter will be done in 2015.

Therefore also the one-time charge that we talked about, also the largest amount, will come in 2014.

Now, you have to -- and this is really what I asked you to consider different, that when we did the RWA reductions here we have to lower both assets and liabilities.

And obviously, the timing of the expenses, the large part of the expense is associated to the liability reduction.

Obviously the liability reduction does have some time constraints, does have some limits to it, so it's why we may be moving assets down fast.

On the liability side, it may be taking some time based on the fact that we not only want to cut the short-term funding of the bank, but that we at the end want to keep the funding profile in terms of the maturity we have on the liability side.

So that's why you see us being a little bit cautious in our statement, because it's managing both sides at a time and managing the timing of both sides at a time.

Now, the next question was the increase in the expense.

So, the increase in the expense was largely driven that in the initial assumption, obviously, as we had set out the top down target we made some assumption on the lower ROA asset cuts that we were targeting.

As we discussed with the business, we cannot, unless it's a portfolio decision, only cut low ROA portfolios; we also have to go into some of the higher ROA portfolios.

There's something to do with some of our lower ROA business, and I think the repo business might be a good example of that.

It's a business where you have to maintain a certain level in order to drive other P&L.

And that is, at the end, what caused us to increase this estimate somewhat that initially was done top down.

On the SSM AQR, I think the biggest challenge that we think there will be is a little bit the view.

There is an expectation in the market that some significant result should come out of the AQR, and we have difficulties to see that as we all have audited balance sheets and as we all comply with IFRS.

So, at the end, of course, in some of our valuations management judgment is exercised and there might be, obviously, different views.

But at the end, we have to always go back to management judgment decisions on valuations and look at those.

Everything else is pretty straightforward.

I would not know where significant or expected big holes in a balance sheet might be there, because otherwise we also will all have issues with obviously our annual ongoing auditing that we do.

Different study that we expect obviously to get quite some insight on terms of the stress testing, because the stress testing obviously gives a different result than an AQR will give you.

So, for us, it's important that there is clarity on the AQR and that there's a lot of transparency, and obviously there's a cautious way on how this gets communicated to the market.

Okay.

That, I think, was the question.

All right.

Thank you.

Stuart Graham, Autonomous Research LLP.

I've got three rather random questions.

The first question is back to the FBO proposal.

You told us the shortfall was $17.2b at the end of last year.

Can you give us an update on that at the Q3 stage, please?

The second question was on costs.

Maybe I misunderstood Anshu's opening comments, but it sounded to me as if there was quite a bit more reinvestment going on than I thought.

So could you just update us on how your exit cost base looks in 2015 versus what you talked about at the Investor Day?

Has that changed at all?

And then the third question is a bit more strategic.

Thinking long term, looking through the AQR and the stress test, looking at the banking union longer term, if we really do get fungible capital and liquidity under a central regulator, how do you see the opportunity for Deutsche Bank in that environment?

Thank you.

First, on the FBO, there is no change in the plan.

So I can only tell you that the view we have taken in the quarter, there's some minimal non-material change to the plan so no substantial change.

So the number that we communicated to you stays unchanged.

We actually have good progress on the balance sheet reduction in the United States, which is giving us some room, also, so at the end no real change.

And then the cost for reinvestment, what we want to clarify is that our cost cutting exercise on the one hand is targeting a certain cost base and a cost base, but then of course the regulatory environment, for example, and some of the growth ambitions that certain business divisions have, for example GTB that has a growth ambition, etc., that there will be also offsetting cost increases.

But we still stay committed to the numbers of -- the core number is to use 65 basis points cost/income ratio and that's what we are targeting, so the 65 basis stays unchanged.

We only wanted to make you aware that there might be movements.

For example, a growing division may obviously have some increase in costs, while other areas may have more significant decreases.

And there's some regulatory add-on cost that is the result of the current additional requirements we have that we also wanted to make you aware of but that we compensate.

But at the end we're targeting 65 basis cost/income ratio.

Right?

Sorry.

And on the FBO, your plan assumes that DTAs would go down, whereas it sounds like they're going up.

And your plan assumed, I think, EUR2b of litigation costs in the US, whereas you've taken more than that already so I don't see how it can be on track.

Let's look at the US.

There is a branch that is not part of the FBO and then there is the entities that are part of the IHC.

So I think that, yes, there is effects in the United States but I can only verify for you.

But we did a detailed look at the plan and there is no material change to it at this point in time.

(Multiple speakers).

Sorry.

Stuart had a third part to his question.

Let me take that before we move to the next question.

Okay, sir.

You talked about our strategic outlook.

We chose 2015 very deliberately, back in June 2012.

We wanted a period of time which gave us enough time to work through the considerable issues, and this quarter is a perfect example of us working through those issues.

We're making good progress and we will wind up needing that time, in order to get to a point where we feel we're operationally sound, we have the capital, we have the platform we need, we have the liquidity, we have all our ratios exactly where we need them.

Simultaneously, while it would be interesting to think of a time when you have fungible capital and liquidity in Europe, we don't have it yet.

And much more significantly, regulatory volatility remains incredibly high.

Not a quarter goes by without some surprise coming from some regulator in some part of the world.

So certainly I can tell you at this point Deutsche Bank is utterly focused on delivering on its organic promises.

That's the implication of your question.

Down the road, there'll be all kinds of interesting strategic optionality which we can then benefit from.

Don't see that in the short to maybe even medium term.

Okay.

That's clear.

Thank you.

Huw van Steenis, Morgan Stanley.

Thanks ever so much.

I've realized almost all the topics are covered, so two very quick ones.

First, in your note on accounts, you've significantly toughened up the language on Libor potential losses.

Is there any clarity you can give around the 1.2 extra provisions, how much are Libor related versus other, or would we still expect material further Libor provisions after this quarter?

And then, secondly, in the light of Anshu's comments about very subdued trading post tapering, I'm assuming that means that continues into Q4.

Have you considered further recalibration of the rates business to cut costs or make it even more efficient, until we get through this period of volatility?

Thanks.

Okay.

Let me take these two questions.

First of all, the reserving is driven by IFRS rules, and the reserving obviously has nothing to do with what we expect in that sense.

It's driven by the likelihood of a cash outflow and our ability to reliably estimate, so just wanted to clarify that.

It might sound like a nuance difference, but it's an important difference in terms of how the timing and litigation occurs.

And our comments all relate to the fact on how, obviously, we have progress in being able, with the likelihood of cash outflows and our ability to reliably estimate on competitors, on how we put in the books.

And obviously, wherever we don't need these requirements, especially, obviously, it's likely that we will have outflows but a reliable estimate cannot be done, IFRS does not allow us to put reserves on the book, so consider that.

So, therefore there is a mismatch, sometimes, between how you perceive litigation to evolve and the progress of litigation to evolve versus how the reserving timing occurs.

That is -- second, which we also wanted to clarify in my statement, if you have a topic that you have assigned a number on in Europe reserve, and that increases, it doesn't automatically reduce the contingencies.

According to IFRS, the only things can be in the contingent where we have a less likelihood than 50%, so also to clarify.

So I'm just trying to avoid that we get confused by it.

We are observing the market and as you can observe the market, as you know, we will see progress on further Libor and Libor settlements in litigation, we'll be able to tell you more about that.

And especially we can at this point not make a statement of how much more to expect or not to expect.

It's very difficult to make, as all the different kinds of Libor related litigation at times that are out there right now.

On Q4, on your Q4 question, no change.

No change to our business whatsoever.

No need.

We actually think that we are pretty much in line with the market.

And honestly, what the investment bank did early on, they did a capacity reduction early on.

They are operating at the capacity that we see in the long term, so we don't see any need to do any changes to our business model there right now.

Okay.

Thanks.

Alessandro Barison, Numen Investments.

Good morning, and thanks for taking my questions.

Can you hear me?

Hello?

Yes, we can hear you.

Okay.

Sorry.

My question is on the subordinated capital and specifically on subordinated bonds that you have not called last month.

I was thinking, is there any capital benefit in not calling these bonds?

And are you thinking of any way to generate capital from these bonds, based on what the market is pricing it?

Or are you looking at them more as a very cheap, very long-dated source of funding that could still be -- that could still offer some loss-absorption capability (inaudible)?

Okay.

I got your question relating -- we weren't very clear to hear.

But if I got your question right, you're asking us about the subordinated bonds that we didn't call and if there's any capital benefit from these bonds or whether we look at it just independent.

So, as in the past, we monitor and manage our Tier 1 and tier instruments against a metric comprising replacement costs, remaining regulatory value, etc.

So, in terms of what we look at it, as we have said, we behave very shareholder oriented to this.

In that sense, we will do the financially right decisions from our shareholder point of view.

That tells you that obviously the cost of these instruments to us is still interesting.

Some of our Tier 1 stock still has Tier 1 -- Tier 2 recognition, so some of these instruments that originally were Tier 1 will have Tier 2 recognition in the new framework, so that's something to consider as well.

And obviously, at this point in time, until we know about the new regulations that we expect to be done by yearend on recognition of new Tier 1 instruments, obviously it's difficult to assess what we -- how we exactly will behave in terms of the near future, as soon as we know the rules and the grandfathering rules.

So let's leave it at that.

Okay.

Thank you very much.

Excuse me.

There are no further questions at this time.

Please continue with any points you wish to raise, gentlemen.

Thank you, operator.

This is John Andrews again.

I'd like to thank you very much for your attention this morning.

Obviously, the Investor Relations team is available to all of you for any other follow-up questions, and we wish you a very good day.

Thank you.

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

Thank you for joining and have a pleasant day.