Deutsche Bank AG (DB) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

I'm Miravai, your Chorus call operator.

Welcome and thank you for joining the first-quarter 2016 analyst conference call of Deutsche Bank.

(Operator Instructions).

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

Please go ahead.

Operator, thank you.

And good morning to everybody from here in Frankfurt.

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

I'm joined by Marcus Schenck, our Chief Financial Officer, who will take you through the analyst presentation, which is public and available on our website at db.com.

I'm also pleased to be joined by John Cryan, our Co-Chief Executive Officer, who will participate in the Q&A session at the end of today's prepared remarks.

As we did last quarter, I would ask, for the sake of efficiency and fairness, that questioners please limit themselves to their two most important questions so we can give as many people a chance to participate in the Q&A session as possible.

And to ensure the absence of doubt, two questions does not mean six.

Let me also provide the normal health warning to pay particular attention to the cautionary statements regarding forward-looking comments that you will find at the end of the investor presentation.

And with that, let me hand it over to Marcus to take you through the presentation.

Thank you, John.

Good morning and welcome also from my side to our Q1 results call.

We recorded a net income for the quarter of EUR236m, with revenues of EUR8.1b and non-interest expenses of EUR7.2b.

RWA at quarter end was EUR401b and leverage exposure was EUR1,390b.

Core Tier 1 ratio stands at 10.7% and leverage ratio is at 3.4%.

Allow me a short comment on the calculation of the Core Tier 1 ratio.

It is fully loaded and takes into consideration the management board's decision not to propose any dividend on common stock for the fiscal year 2016, hence do not accrue for the same.

Please note that this is still subject to no objection by the ECB Governing Council.

Clearly this has been one of the most challenging quarters in a while because of the difficult market environment.

All our businesses that are linked to the capital markets experienced a significant decline in revenues versus Q1 of 2015, whilst our other businesses remained more resilient and have not been affected in such a severe way.

We actively managed our risk-weighted assets so that we did not have the usual seasonal increase in RWA during Q1.

Nevertheless, Core Tier 1 ratio declined to 10.7%.

The Hua Xia sale, which we expect to close in the second quarter, would have added another roughly 50 basis points to our Core Tier 1 ratio.

Let me go into some more detail for the quarter, starting with the usual net income bridge.

Turning first to revenues.

At constant exchange rates, reported revenues for the quarter are down EUR2.2b compared to Q1 of 2015.

That is a 21% overall drop.

Relative to the last quarter, which is the fourth quarter of 2015, revenues were up 24%.

We saw a substantial decline in global markets, driven by the weak market environment, low client activity and the implementation of strategic decisions with regards to exiting certain countries, closing or downsizing certain businesses, as well as off-boarding of high-risk or low-profitability clients.

Similar picture for CIB.

This is the result of a weak performance in corporate finance in a challenging market environment, whilst revenues from transaction banking were solid.

PWCC revenues were down EUR347m.

This includes EUR247m impact from Hua Xia as we booked an equity pick-up in Q1 of 2015 and recorded negative net valuation impacts in the first quarter of this year.

Asset management revenues are at EUR44m.

But this includes several one-off effects which I will outline later when we speak about the segments.

Non-core unit revenues were down EUR382m, including losses of EUR90m from de-risking.

In Q1 of 2015, non-core unit revenues included a one-time recovery of EUR219m related to a legal matter.

Loan loss provisions increased by EUR87m in the quarter, reflecting specific events in a few portfolios.

Overall, the outlook for our credit portfolio remains relatively benign, something I'll address in more detail shortly.

The adjusted cost base improved by EUR168m, mainly from lower bonus and retention.

We booked EUR285m for restructuring and severance in the quarter compared to only EUR66m in Q1 of 2015.

Main drivers are the business optimization in Germany and restructuring costs caused by footprint rationalization measures.

On the litigation side, we made progress in resolving a number of matters in the quarter.

These were materially covered by existing accruals.

The absence of large non-tax-deductible litigation charges led to a lower effective tax rate compared to prior year.

Currency movements were slightly beneficial for the Bank.

And as a result we closed the quarter with a net income of EUR236m.

Let us look into some items more closely.

Page 4 shows the breakdown of our Q1 non-interest expenses into the categories we announced end of October 2015.

Non-interest expenses at constant exchange rates are down by EUR1.3b.

Main driver clearly is a EUR1.2b lower litigation charge.

You see an increase of EUR200m in severance and restructuring.

The biggest portion comes from provisions related to German business optimization.

Other restructuring costs include country footprint rationalization measures.

At constant exchange rates, adjusted costs went down by roughly EUR200m.

When you look into adjusted costs in more detail on page 5, you see that, at constant exchange rates, compensation and benefits were down EUR229m, mainly due to lower cash bonus and reduced retention charges.

IT costs remain our second largest cost category.

A significant portion of the EUR86m increase comes from higher software amortization.

Professional service fees are up EUR48m, mainly driven by higher support for our regulatory projects in the US and the overhaul of our KYC and client on-boarding procedures.

Costs for bank levy and deposit protection is at a similar level compared to 2015.

The decrease in other costs includes the impact of disposal activities in the NCOU, namely the sale of the Prince Rupert port in 2015.

A few words on litigation.

Our reserves have slightly decreased to EUR5.4b.

Contingent liabilities decreased from EUR2.4b at year end to now EUR2.1b.

The decrease is primarily driven by provisions used for certain matters as well as closure of proceedings.

US mortgage repurchase demand and reserves remained unchanged.

We have resolved a number of matters in the first quarter.

The settlements were materially covered by existing accruals.

BaFin closed several special audits and will not impose any sanctions.

Precious metals, both gold and silver has been settled.

Progress with respect to several other matters has been made, which has also led to some provision release.

Let us now look at our capital position.

Core Tier 1 capital declined from EUR44.1b at the end of 2015 to EUR42.8b at the end of March 2016.

As said, in line with the Bank's decision to not pay a dividend for the fiscal year 2016, we did not accrue for dividend.

This has been discussed with the ECB and is subject to a non-objection period by the ECB Governing Council.

There are several reasons for the decline in Core Tier 1 capital.

The net income of the quarter of EUR200m is partially offset by AT1 accruals and EUR0.3b share buybacks and hedge premia for equity compensation.

Other effects included a EUR0.4b prudential filter for DVA/FVA gains from credit spread widening and a 10/15% effect.

On top of that, Core Tier 1 capital was impacted by an FX effect amounting to negative EUR0.6b.

AT1 capital remained constant at EUR4.6b.

Our RWA increased by only EUR4b compared to prior quarter, including a EUR6b decrease caused by FX.

Main driver behind the overall RWA increase is the EUR8b increase in op risk RWA, driven by recent internal and industry losses and settlements.

However, we avoided the usually much steeper increase in Q1 as we kept market risk at low levels in light of very volatile and unfavorable markets.

Core Tier 1 ratio dropped from 11.1% at year end to 10.7%.

The driver is the reduction in Core Tier 1 capital.

It should be noted in this context that the benefits from our sale of our stake in Hua Xia Bank, announced last December, is not yet reflected in these numbers since that will only be included at closing, which we expect to occur in Q2 of 2016.

As said before, this would have added another 50 basis points to our Core Tier 1 ratio as of March 2016.

Please note that the ultimate impact will then depend on our reg capital composition at closing.

Leverage exposure decreased by EUR5b in Q1 of 2016, including a benefit from currency movements of EUR32b.

This was offset by an increase in cash and other of EUR33b, half of which was cash, the other half including increases in our strategic liquidity reserve, pending settlements, loans and various other small items.

In the quarter we also reduced our trading inventory by EUR17b, whilst increasing our securities financing transactions up to EUR16b, both in response to market volatility and client demand.

Overall, our leverage ratio declined from 3.5% to 3.4% at the end of the quarter.

And once again, adjusted for Hua Xia, this would still be at 3.5%.

We recorded an increase of provisions for credit losses of EUR86m when compared to Q1 of 2015, resulting from specific events in selected portfolios.

Therefore I would like to give you some background on three focus industries.

Oil and gas; metals, mining and steel; as well as shipping.

As you can see on the left-hand side of the slide, our gross funded loan exposure for these industries accounts for only 7% of our total corporate loan book.

In detail, the loan exposure to the oil and gas sector is EUR7b, of which 50% is investment grade.

Less than 25% is related to sub-investment grade exposure in higher-risk industry sub-segments.

However, this is predominantly senior secured.

We recorded provisions for loan losses of EUR21m for the quarter.

In the metals, mining and steel loan portfolio of EUR6b, we see the impact of the industry downturn as only 32% of the exposure is investment-grade.

A significant portion of this portfolio is in emerging markets.

This quarter we recorded provisions of EUR45m.

A large portion of our loan exposure to the shipping industry of EUR5b is in sub-investment grade.

However, the portfolio is largely collateralized, well diversified across shipping types and predominantly domiciled in Europe.

New loan loss provisions for the quarter were at EUR34m.

Let us now look into the segments for the first time in our new reporting structure.

As you will have seen in our restated financials, global markets is essentially composed of the sales and trading units from our former CB&S segment.

The first quarter of 2016 was a challenging one for this new segment, which records a positive IBIT of EUR380m.

This is, however, higher than the prior-year quarter, primarily due to lower litigation cost.

Revenues were 23% lower on a reported basis or 30% after adjusting for the impact of CVA hedges, DVA and FVA.

Lower revenues reflect a number of factors, both market-driven and some DB-specific.

Firstly, as you've seen from our peers, markets were particularly challenging this quarter, with macroeconomic and political uncertainty being severe, most notably in Europe and Asia.

This led to substantially lower client activity, weakness in both equity and credit markets and a challenging risk management environment which burdened our market-making activities, particularly when compared to a typically strong first quarter.

Secondly, Deutsche Bank intentionally gave up some revenues in Q1 2016.

As a result of some enhancements to our KYC processes, we lost some revenues.

Furthermore, we have made good progress on the rationalization of our country footprint, which for global markets impairs the hubbing of our EM debt business and, most materially for Q1 of 2016, the exit of our onshore GM presence in Russia.

We have also significantly reduced the capital that we allocated to securitize trading, which at quarter end was less than half the level of the prior year.

We were helped by gains from our tender offer, which resulted in a gain of EUR80m in global markets this quarter.

While it is clearly difficult to precisely measure the impacts of these DB-specific factors, we estimate they accounted for around 20% to 25% of the decline in our global markets revenues year on year.

Global markets costs declined by 34% in the first quarter year on year.

This was primarily driven by lower litigation costs.

We booked a net litigation release of EUR68m in the first quarter of 2016 versus EUR1.2b litigation expense in the prior year.

On an adjusted basis, global markets costs were also lower, with a 3% decline reflecting lower bonus, with front office headcount 4% lower than at the end of 2015.

We keep up with our commitment to Strategy 2020.

RWA declined by 6% compared to last year, with an increase in op risk RWA more than offset by business de-risking.

RWA was up a little on the seasonally low [trend] at year end.

Let's take a closer look at our sales and trading units.

Please note that revenues from CVA, hedges, DVA and FVA are reported through other.

So the sales and trading numbers you see here exclude any impact from these items.

In debt sales and trading, our FX business had a solid first quarter, supported by sustained macro volatility.

Lower revenues primarily reflect a particularly strong prior-year quarter, where the removal of the Swiss franc peg generated significant client activity and where market-making activity was supported by a clearer trend.

Rates now consists of our trading businesses in Europe and the US, with the Japan and Australia desks now reported through Asia Pacific local markets.

Rate revenues were lower in the first quarter of 2016 and similar to FX.

This partially reflects our strong prior-year quarter, where the European business was particularly supported by the ECB's QE program.

Our credit business now includes flow trading in our distressed products businesses in the US and Europe, as well as former credit solutions business.

Credit was impacted by weak credit markets in January and February and by the aforementioned reduction in securitized trading, where we are de-risking according to strategy.

We also had an exceptionally strong quarter last year, particularly in distressed products.

The quarter ended strongly, reflecting strong deal execution and improving market conditions.

And while year-on-year results were lower, we are pleased with the overall performance of our credit business in this quarter.

The emerging market debt business reports broadly as per the old CB&S structure.

Lower revenues in the first quarter were a result of the weak market environment, coupled with the impact from exiting certain regions, most notably Russia.

Asia Pacific local markets combines our Asia, Japan and Pacific local FX and rates businesses.

Following a strong prior-year quarter, revenues fell this quarter as political and macroeconomic risks in China led to a particularly challenging market environment.

In equity sales and trading, it was a difficult quarter for our cash equities and equity derivatives businesses.

Both of these were impacted by lower client activity as clients were less active than normally expected for this time of the year.

In cash equities Asia, flows were notably lower, although our US business held up well.

The derivatives market conditions particularly impacted the US and Europe.

As we've noted before, we have lost some market share as we believe we have underinvested in our equities business over the last few years.

We're very committed to equities as part of our strategy and we are reinvesting here and are confident that we will regain market share.

In contrast, our prime finance business had decent performance in the first quarter.

Revenues were flat year on year despite challenging markets and some lower market valuations.

Client balances grew when compared to a year earlier.

The pipeline in this business is robust and we remain committed to investing in it.

Corporate and investment banking recorded an IBIT of EUR316m for the quarter.

Net revenues declined by 15% in a volatile market.

This results from lower primary activity in our corporate finance business.

At the same time, macro-driven declines in trade financing activity as continued lower rates negatively impacted revenues in our transaction banking business.

We booked provisions for credit losses of EUR136m.

The increase compared to Q1 of 2015 is mainly the result of single credit events in the quarter.

This provisioning level does not, however, reflect risk insurance instruments on these exposures in the form of CLO and PRI instruments, which will partially offset these provisions over the next several quarters.

Non-interest expenses were broadly unchanged year on year.

Positive effects from lower bonus accruals and heightened cost discipline were more than offset by higher restructuring activities resulting from our strategic initiatives.

Page 15 provides a deeper view of the revenue development.

Year on year, we see solid revenues in transaction banking.

This was supported by strong performance in institutional cash and securities services, benefiting from higher interest rates in the US and transaction volume growth.

However, this was more than offset by lower revenues in trade finance and cash management activities for corporates, resulting from subdued trade finance activity and persistent low interest rates in Europe.

Revenues from origination significantly decreased year on year, both in equity and debt, due to challenging markets and lower client activity.

On the debt side, we now do see a slightly better pipeline, but the situation overall remains challenging.

Despite a fee pool decline in the first quarter of 2016, we recorded a year-on-year revenue increase in advisory as a result of transactions announced last year which now closed in the first quarter of 2016.

In PWCC, revenues for the quarter were down 17% on a reported basis.

This development is predominantly attributable to Hua Xia Bank.

While we recorded an equity pick-up of EUR123m in Q1 of 2015, the current quarter included only a negative net valuation impact of EUR124m.

Excluding those two Hua Xia Bank effects, PWCC revenues declined by 5% on the back of lower client activity and continued low interest rates.

Loan loss provisions are low, reflecting the quality of the portfolio in a benign economic environment.

Non-interest expenses were broadly unchanged versus Q1 2015.

Cost containment measures offset the higher provision for restructuring and severance related to our strategy implementation.

Looking into PWCC sub-segments.

Slide 18 shows the revenue development of our private and commercial clients, as well as wealth management businesses.

Please note that revenues from Hua Xia Bank are separate, i.e.

not part of PCC revenues.

PCC revenues include revenues of our German and international businesses.

We saw a revenue decrease of 4% in Germany and 6% year on year in the international business, both driven by lower investment and insurance revenues as well as lower deposit income.

Revenues in Q1 2016 in Germany included EUR50m dividend payment from a PCC shareholding.

Margins in the credit businesses remained stable during the quarter.

Wealth management revenues include revenues of our four wealth management regions globally.

Revenues are down 8% versus a strong Q1 of 2015.

The decline versus the first quarter 2015 was firstly driven by lower performance and transaction fees as a result of the current market environment, with lower client activity.

Secondly, lower management fees hit overall revenues as they are impacted by lower market levels and asset values.

This was partially compensated by higher net interest revenues from deposits, mainly due to higher margins.

Wealth management gross margin is at 55 basis points, which is slightly lower than in the first quarter of last year.

However, we see margins again improving in the last two quarters, after a low in the third quarter of 2015.

Please note that as of the first quarter 2016, a stricter definition for invested assets became effective and client assets were introduced as an additional metric for PWCC, but also for asset management.

Accordingly, invested assets include assets held on behalf of customers for investment purposes and/or client assets that are managed by Deutsche Bank on a discretionary or advisory basis and/or assets that are deposited with Deutsche Bank.

Client assets include invested assets, plus other assets over which DB provides non-investment services, such as custody, risk management, administration and reporting.

For PWCC we see a decrease of invested assets in the quarter of EUR22b, most of it related to market depreciation and FX movements.

Net outflows in the quarter were EUR4b, 50% in wealth and 50% in PCC.

You can find details in the appendix of the deck.

Let us move to Postbank, which we report as a separate segment for the first time.

Please be aware that Postbank segment figures do not match Postbank's standalone view figures due to separation cost, other items in the C&A segment as well as further consolidation effects.

Net revenues in the quarter were stable versus Q1 of 2015.

While savings and current accounts continue to be burdened by the persistent low interest rate environment, mortgages and consumer finance continued to show a double-digit growth due to new loan business and margin improvement in the quarter.

Provisions for credit losses further declined from already low levels, reflecting Postbank's low-risk business model.

Non-interest expenses for the quarter remained stable so that Postbank reported an IBIT of EUR122m, an improvement of 8% year on year.

Please note this still includes a negative EUR55m contribution from assets and predominantly liabilities formerly reported in the non-core unit.

Adjusted for that, Postbank's IBIT stands at EUR177m for the quarter.

These negative NCOU contributions will significantly reduce over the coming three to four years.

The following page provides an overview of asset management.

IBIT in asset management was weaker year on year coming in 3% lower, impacted by weaker operating revenues and unfavorable market conditions.

Revenues were down year on year in Q1 2016, driven by non-recurrence of performance fees in alternatives and partially offset by active.

Please note that Q1 of 2015 saw a write-down on HETA exposure of EUR110m.

These were largely from low-margin products in the US including cash and, to a lesser degree, in EMEA ex-Germany.

Invested assets were EUR739b as of March, end of March, a decrease of EUR38b versus end of December last year, driven by net asset outflows, unfavorable foreign currency movements, negative market development and disposals.

Non-interest expenses, excluding Abbey Life, came in broadly flat.

The non-core unit's wind-down continues to progress and delivered further capital accretion from asset sales this quarter.

That said, de-risking came in slower than originally planned.

I can also confirm that we have recently agreed the sale of Maher Port Elizabeth, which we expect to close later in the year once all regulatory approvals are obtained.

We do not expect this to have a material impact on our financials.

And as you may have seen, the IPO of Red Rock Resorts, formerly known as Stations Casino, priced two days ago.

The overall IBIT performance for Q1 2016 reflects the actions we are taking to execute our strategy.

This includes litigation matters which continue to burden results.

Please note that in the first quarter of 2015 we had a positive EUR219m contribution from a settlement in favor of Deutsche Bank.

Allocated cost to the segment accounted for EUR96m for the quarter.

[DMA] reports a material year-on-year IBIT decline to the tune of almost EUR350m.

Main driver for this is the decrease of 47% in valuation and timing differences, effects such just the buyback of Tier 1 eligible issuance in Q1 2015, the impact of our CDS developments and other accounting treatments centralized in C&A and reflected in the valuation and timing differences.

Allow me to conclude with some comments on our progress so far, as well an outlook for the remainder of the year.

This is our first full quarter in a multi-year restructuring.

Obviously progress we are making this early in the restructuring is not always obvious in the financials.

But let me briefly recap some of what we've accomplished so far.

The accelerated wind-down of the non-core unit is largely on track and we continue to expect the non-core units to be below EUR10b RWA by year end, at which time we will likely collapse those assets back into the operating segments.

We continue to sell the non-financial asset portfolio in the non-core unit at capital ratio accretive prices.

Most recently was the announced sale of the Maher ports business in New Jersey and as I mentioned the Red Rock Resorts IPO.

Outside of the non-core unit, we completed the sale of DB's asset management business in India.

Additionally we closed 43 retail branches in Europe outside Germany as our retail bank restructuring accelerates.

The separation of Postbank is almost complete, which is a key step for the eventual deconsolidation.

We are actively in the process of downsizing our operations, but some of this work happens in phases.

In addition to the retail branch closures I just mentioned, we have made significant progress in our announced perimeter reduction.

Country exits are well underway, with the first exit to be completed in 2016.

At this stage we have basically pulled out of the global markets activities in all markets where we had planned to do so, leaving behind only an FX business in a few selected countries where we need this for servicing our corporate clients.

We launched our previously announced enhancements of our KYC processes, including off-boarding clients deemed high-risk.

And we have continued to reduce certain global market activities, in particular in the area of securitized trading.

We also made good progress on the technology side.

We decommissioned 500 applications, which is 12% of our application base, and off-boarded 700 vendors in the procurement rationalization program.

Finally, we settled a number of litigation cases within our existing reserves, a very positive development.

In terms of outlook, Q1 was extraordinarily challenging for the global capital markets and for the industry.

While there has been improvement in the last months or so, there remain a number of macroeconomic and geopolitical risks to the global markets and the global economy.

As such we would expect the revenue environment to remain challenged in 2016.

Against that backdrop, we reiterate what we noted in the past, that 2016 will be the peak restructuring year for Deutsche Bank.

In line with our prior guidance, we anticipate restructuring and severance costs for the full year to be approximately EUR1b.

FTE was quasi flat in Q1 as we continued to internalize critical external staff.

We also continued to hire in critical functions to strengthen our controls and our franchise.

We do anticipate FTE will decline in the second half of the year.

Given the front-loaded nature of certain investments we need to make for key issues like technology and the IHC in the US, we reiterate our prior guidance that adjusted costs in 2016 will likely be flat to last year.

Obviously given the meaningful deterioration in the operating environment, we are looking at accelerating some measures to lever costs down more quickly.

We are updating our RWA guidance for 2016.

Rather than the expected flat RWA versus end of last year, we are now targeting a EUR15b to EUR20b decline in risk-weighted assets for 2016.

This is planned despite ongoing upward pressure from uncontrollable factors like op risk across all businesses.

The closure of the sale of Hua Xia Bank remains on track to be completed in the second quarter.

The case has been filed with the CBRC and we are now awaiting final clearance.

As said, that would boost our pro-forma Core Tier 1 ratio by approximately 50 basis points.

While litigation remains a substantial challenge, as we've noted before, we still target to settle the largest outstanding cases we face over the course of this year.

We also remain focused on our core franchises, recognizing that any restructuring has elements of inherent disruption.

As John noted last quarter on this call, we will manage through our restructuring, defend our franchises and continue to serve our core clients.

Finally, we note that for too long, critical and needed restructuring at the bank was delayed and we do not wish to repeat this.

While a challenging operating environment does indeed complicate elements of the restructuring, we remain focused on doing the heavy lifting for Deutsche Bank, particularly this year.

We want this Bank to emerge as a leaner, safer and more efficient organization, which is truly focused on clients.

When we get there, we will also generate attractive returns for our owners.

Now that completes my review of the financials and I'll hand back to John Andrews.

And then both John and I -- John, John and I are happy to take your questions.

Operator -- thank you, Marcus.

Operator, can we start the Q&A session, please?

(Operator Instructions).

Daniele Brupbacher, UBS.

Good morning and thank you for the presentation.

Just two things, one on Postbank and one on the NCOU, please.

On non-core, you reiterated the below-EUR10b target for year end, but obviously in Q1 there was a bit of a slow progress here.

Could you just talk us through what will drive the further reduction and how much dependent that is on market conditions in terms of that we will see a bit of an accelerated profile?

That would be helpful.

And then just on Postbank, could you share your latest thoughts with us regarding the planned IPO?

And in that context for us in order to value that business, if I look at slide 18, you did say the legal entity Postbank will still have somewhat different numbers, driven by separation effects and C&A.

Could you just quantify those?

Does it mean that the EUR177m pre-NCOU would be higher or lower?

That would be useful.

Thank you.

Morning, Daniele.

This is John.

Maybe I'll take the one on NCOU and then Marcus can give you an answer on the Postbank question.

On NCOU, I think the first point I'd make is that it's important to realize that a lot of the positions left in NCOU are not straightforward market liquid positions.

And a lot of the exits that we're planning for this year are actually negotiated exits.

The skillset that we're applying to that division now is much more akin to a corporate finance, almost M&A-style negotiations of each position.

A lot of that is unbundling.

For example, we've unbundled or commuted wrappers of insurance that hold -- that have assets held against them.

So the position is driven by a hedge rather than driven by the asset side.

On the equity portfolio, the two big positions we've now contracted to exit, as Marcus said, the Red Rock IPO priced a couple of nights ago and we've contracted with the buyer on the port.

And they take a while to complete, the IPO not, but the negotiation with the regulator on the port will take a quarter or more.

So a lot of what we're doing is actually teeing up exits that will crystallize later in the year.

You're right that in the first quarter, some of the more liquid asset disposals were a bit slower, but we don't expect that to continue.

And at the moment it's not posing a problem to the extent that we need to reduce positions.

On your question in relation to Postbank, or the two questions, first on the difference between standalone and the segment.

For the first quarter this will be roughly EUR45m difference, which is essentially the deconsolidation cost being the single biggest item within that.

So it's the separation cost that we incur when carving out those activities that needed to be carved out or handed back to Postbank.

Now where do we stand on the process?

I think here I can only reiterate what we communicated in January, which is that Postbank, a little bit like Deutsche Bank, has two restructuring tasks.

A, they have their own program to improve the cost position of the Bank, which is making very good progress.

And B, they're also looking to further enhance the asset mix of Postbank, which is, I would say, super risk-conservative at this stage.

And they have now embarked on a route to basically enhance the margin profile of the Bank, making good progress, as we can already see a bit of that in the first quarter, by expanding more into consumer finance, as well as also increasing the corporate footprint of the Bank.

All of this will take some time.

And as we said in January, we think we are highly likely better advised to await some of the improvements, both on the cost and on the margin side, before we embark on selling the asset.

Thank you very much.

Jernej Omahen, Goldman Sachs.

Good morning from my side as well.

So I have three questions, please.

The first one is a numbers question, I guess.

I'm looking at Deutsche Bank making a profit, but a tangible book value per share going backwards.

And I guess the key reason is this foreign currency translation impact of EUR1.1b this quarter.

And I just wonder whether you can just shed some more light as to what the key moving parts were within this line.

The second question I have is on capital formation and the ECB SREP ratio.

So the ECB is saying that the SREP ratio for Deutsche is 12.25%.

So Deutsche is now broadly, I think, 200 basis points short of that number.

So if we should take into account the guidance from the start of the year that this year is going to be broadly flat, potentially slightly lossmaking as a whole, so no capital formation this year, this then leaves you EUR8b of capital to be formed over the course of 2017 and 2018.

And I just wonder to what extent you feel that that is a target that's comfortably achievable, because it does imply a reasonably steep return on equity for both 2017 and 2018.

And the last question I have is the traditional question on the foreign bank organization rules and their implementation.

So I think we've got a quarter left until those rules go into effect.

And I was wondering if you could update us to how the preparations for the implementation of those rules are going.

Thanks very much.

Morning, Jernej.

So let me start with the one that probably most people find relevant, which was your second question.

Yes, SREP, it needs to then eventually be at 12.25%.

Yes, we do expect capital ratio to predominantly be -- to basically be flat for 2016.

But no, I think your math is right when you assume that you keep RWA completely flat.

But as we highlighted in our strategy announcement, there's two factors that will allow us to get to the required capital ratio.

One is the generation of capital, both through basically producing profit, but partially also through some disposals, which we expect to have a positive impact, Hua Xia being an example for that.

And then secondly, we will be taking down RWA.

Most notably clearly here we need to highlight Postbank, which will mean that there's EUR40b plus of RWA that will leave the Bank.

And we will also have a benefit from the reduction of the non-core units, which, whilst not producing profits, will improve the Core Tier 1 capital ratio for the Bank.

So those are and continue to be the drivers that we are very confident will allow us to achieve the necessary capital position.

Marcus, can I just ask, do you think that the disposal of Deutsche Postbank increases or decreases the SREP ratio requirement?

It doesn't change it.

Do you think the ECB will say it's still 12.25%?

Yes.

Okay.

Thank you.

Yes.

Jernej, it's John.

Don't forget that the SREP is based on the phase-in ratio.

And at Q1 our phase-in ratio is 12%.

Yes, I know.

The 10.7% we're showing you, 11.2% pro forma is fully loaded.

Yes.

I get that.

The -- you almost answered your first question yourself.

It is indeed mainly currency movement in the capital and then the AT1 that drives down potential book value per share.

On the FBO or the creation of the IHC, yes, I would say we're well on track.

The one item that we still find most challenging is making sure that we are in a position to produce all the required reports automatically from our systems.

Given this has never, in the past, been really the way we looked at the business, that is probably the single biggest challenge.

But we have been -- all the governance is now in place.

We have reorganized the businesses so that we essentially run the IHC more or less as a separate division.

Now separate, not as in it is no longer linked into the businesses, but we have a management team for the IHC.

There is a Board for the IHC.

The internal reporting has been set up for the IHC.

So we actually view this, whilst costly, we view it as a project which is actually quite well on track and do not expect hiccups until beginning of June.

Okay.

Thank you very much.

Kian Abouhossein, JP Morgan.

Yes.

Hi.

Thanks for taking my questions.

First question is related to the cost side.

EUR26.5b was set when the revenue environment was quite different, and year on year your revenues are down around, on a Group basis, let's say around 20%.

And I'm wondering, I can understand the investment costs, wondering why there shouldn't be more room on the variable side as a minimum considering that the revenue line looks also weaker.

And in that context, are we still talking with this kind of revenue environment that you see at EUR1b to EUR1.5b net cost reduction over three years?

And then the second point, the second question is related to earlier indication that was given on profits, where the indication was that we could have a slight loss of profit for the year.

Considering that this was a very tough quarter and it looks like you're doing more cost measures in the second half rather than the first half, and litigation is well managed, is it not fair to say that one can be more confident that you actually make a profit for this year?

Thank you.

Okay.

So I think your first question, if I get it right, is why aren't we seeing more flexibility on the cost side yet.

There the --.

Sorry, if I may say cost guidance.

You're saying flat year on year.

Revenues are down 20%.

So people should not be expect to pay the same if revenues go down.

Yes.

So when I alluded to cost being flat for the year, I said that we still expected the adjusted cost to be flat versus 2015.

We are, of course, and I think I highlighted that in my remarks, looking into potentially accelerating some of the cost measures that we have planned until the year 2018 as a reaction to what we're now seeing in the market.

Clearly if volumes, if market activities stay at a low level, then we will react to that.

Now we have seen March and also April to clearly improve over the performance in January and February on the revenue side.

So in that sense I would say it's, in a way, still too early in the year.

But we are looking at ways to potentially improve the cost position by accelerating some of the measures.

But at this stage we don't want to give out a revised guidance for that.

The 2018 target is still our target so there's not change to that.

I think we've always said in October that we think this is an absolutely realistic target for the Bank, which we're highly confident we can achieve.

And we've also never made a secret of the fact that if there's more that can get done, then more will get done.

But our stated target is unchanged.

Now as it relates to net income for 2016, I think I can pass that on to John, who, I think, was the last who has made comments on that.

Yes.

Well, Kian, I don't think I have much to add over and above what I said publicly in London a month or so ago, which was, on an operating basis, the year is looking in line.

The first couple of months were very slow, especially compared with how they normally are.

The issue that we have is that we want to get an awful lot done this year.

And the point I made about profitability is that, to some extent, the lower the profits or if we have a marginal loss, it could be more the hallmark of success.

And a bigger profit may be a hallmark of us not having achieved doing a lot of what we want to achieve.

So, for example, although yet we haven't reached agreement with the Workers' Council in Germany and so we haven't yet got ourselves into a position where we post up the remainder of the restructuring reserves, we'd like to get there and we'd like to post that restructuring reserve.

Similarly on litigation.

We'd like to settle as many cases as we can.

And there's a possibility that that could cost us additional amounts, where we choose to settle at amounts over and above whatever reserve we might have, just to clear it away and remove the uncertainty.

So to some extent, the worse that the outlook looks on paper, it may be indicative of us being able to clear a lot of the backlog of work that we've set ourselves.

But at the moment it's unclear to us whether we make a small loss or a small profit, but at the moment it's looking as though we're on the cusp.

Okay.

Thank you very much.

Stuart Graham, Autonomous Research.

Hi.

Thanks for taking my question.

I had two questions.

The EUR15b to EUR20b RWA managed down, where's that to come from?

I'm guessing it's in global markets.

That's the only business where you could move RWAs down so much.

And last quarter you were saying how new business in global markets was really good and how you were investing and how you really liked that, so how do you square that?

And I guess as a subset to that question, what's the revenue attrition that you expect to come with that EUR15b to EUR20b?

And then my second question was just a clarification question.

Maybe I misunderstood but, Marcus, you said that the Core Tier 1 ratio was going to be flat.

Flat on what?

Is it presumably flat at the year end, Q4 2015 rather than Q1 2016?

Maybe I misunderstood.

Thank you.

So yes, first your second question, yes, what I meant is referring to the year-end 2015 Core Tier 1 ratio and that for 2016 we expect to be flat on that.

And then with regard to the EUR15b to EUR20b additional RWA reduction, confirm the lion's share is in global markets.

But there we expect that to be at around EUR10b.

And there are indeed also in the other segments ways that we see to reduce some of the RWA.

In particular in our PWCC segment we do see some potential to reduce without it having a material impact on the revenue side.

So it's not exclusively going to be markets.

It's basically spread across predominantly PWCC and markets.

But I guess then -- the last quarter you were saying how you like the new business in global markets, how you're investing.

Now you're burning the furniture in global markets in order to keep the capital ratio going up.

I guess back to Kian's question, you could cut costs.

You could cut capital.

You seem happy to cut RWAs in a business you were saying was good last quarter.

How do we think about that?

So look, I think we've always said that in markets we were going to reduce the perimeter.

We were going to take down RWA.

And there are activities that we shrinking or partially exiting.

Some of that is partially reflected already in our numbers.

I highlighted that in particular in the area of securitized trading.

We have, in the last couple of quarters, reduced our RWA to that segment and we will continue to do that in the remaining quarters of the year.

And there are some other segments that we highlighted end of October.

We have exited some of the emerging market global market presence.

Clearly the single biggest one to be highlighted there is Russia.

So we've always said that in GM we were going to reduce our RWA footprint.

That doesn't mean we don't like the business.

We always said we need to focus it more.

And that will allow us to also reduce the RWA in that segment.

Maybe I misunderstood.

So I thought last time the message was 2016 RWAs in global markets are flat, and then 2017 and 2018 we cut them.

It sounds like the 2017 and 2018 cuts you're now bringing forward into 2016.

Is that correct?

Correct.

Got it.

Okay.

That makes sense.

Thank you.

That's correct.

Fiona Swaffield, RBC

Hi.

Morning.

It was further questions on RWAs, two parts.

Firstly, on op risk, obviously there's another big increase this quarter and you mentioned you've obviously had some of the increase you're already expecting.

How should that play out going forward?

And have you got any comments on recent proposals out of Basel, standardized versus AMA, because I think your original guidance on op risk was based on AMA, rather than the standardized.

So how would that change?

And just generally on the overall technical inflation that you expected, your 2020 update in October, has anything changed to make you change that number?

Or are you more confident?

For example, the trading book review, how do you feel now that you've had more chance to look at the new final rule?

Thank you.

Let me start with your second question first on the inflation assumption.

We obviously have clarity now on the FRTB.

That, as we highlighted, came out in a way that we feel comfortable with it.

And that is very much in line with our assumptions that we made at the end of October.

With regards to credit and op risk, here the final verdict from Basel is still pending.

There have been new consultation papers and there's now going to responses, back to that.

We have not seen things or expect things that would cause us to change the inflation assumptions, neither to the downside nor to the upside relative to what we communicated in October.

So our guidance for inflation would still be the same as we highlighted on October 29.

We do expect for the year 2016 further increase in op risk, largely because of how the impact of litigation costs works.

That's the biggest driver.

Now with regard to the question of AMA versus standardized, I think what we see happening actually is more or less a convergence of the two.

Also something that we alluded to in October of last year that indeed we see our AMA model driving up op risk quite materially in relation to the litigation charges, and it's getting closer to where we would land using standardized approach.

So that including the inflation assumption that we highlighted, we think that basically our AMA model will take us to the same level that we would stand at with standardized approach.

Thanks very much.

Fiona, I'd just like to add that, just to clarify, we're not making any changes to our plans as a consequence of the two working papers the BCBS issued for consultation on operational risk-weighted assets and on credit risk-weighted assets.

And we're relying therefore a little bit on the strong statements made by the [GOHS], the Group of Governors and Heads of Supervision, that there will be no impact on capital requirements for banks.

That seems to be reflected by the noises coming out of Brussels.

But as Marcus said, there could, on the surface, be an impact if the BCBS papers were implemented as they were issued for consultation.

But so far, no changes at all to our approach.

I would say the only change in guidance that I would dare to make at this stage is that there's one assumption where I think we would probably revisit that, and that is in October of last year we said we expect the inflation all to be applicable with January of 2019.

We know for FRTB it's going to be end of 2019.

Now I dare to say that our base case on the other two would probably also not necessarily now land for January of 2019, which is maybe just a detail point, but it may be more than a detail point because, going back to Jernej's question on the creation of capital to get to the relevant ratios, I think we have at least one more year to get to the relevant ratios compared to what we had expected in October of last year.

Thanks.

Al Alevizakos, HSBC.

Hello.

Good morning.

Thanks for taking my questions.

Both of my questions are effectively on capital and leverage.

A quick question following Fiona's question just before.

What I'm wondering is if you believe that actually the SREP requirement will still stay at 12.25% when all these rules come into place in 2019.

And the second part of the question is whether you believe that you still need the 4.5% to 5% leverage ratio.

And also, John, to your comment that I read on Bloomberg, probably last week, what's your opinion now on the AT1 securities?

Do you still target to issue another EUR3b to EUR5b?

Or now this plan has scrapped?

Thank you.

Maybe I take the first one and then John talks about AT1.

So look, I think so far we can only rely on what we've been told.

And we've been told by the ECB that our SREP level is 12.25%.

So I think it would not be prudent to make the assumption that once the inflation kicks in, we anticipate that we'll see a decline in the SREP level.

I don't think that it would be prudent for us to plan for that.

Clearly we're always are scratching our heads and trying to better understand what exactly is meant when basically all the regulators are saying that they don't want all the new rules to have an impact on the capital position on average for the banks.

If we could see exactly how the math is going to work, and I'm sure you hear the same from our peers, that everything that we're seeing so far come out of Basel is pointing towards an RWA increase.

I have not yet spoken to many that are highlighting that they're seeing a big decrease.

So if there is, on balance, an increase in RWA and all the ratios stay constant, MAS would say that then there's more capital needed somehow.

But as I said, we are not planning for a decline in the SREP level.

I don't think that would be prudent.

On leverage ratio, here our target still is this, as you mentioned, 4.5% to 5%.

It's really more a target for us; it's not, I would say, a binding constraint like the SREP level.

So the SREP level we absolutely have to be north of 12.25%, north as in there has to be some buffer on top of -- to be put on top of that.

On the leverage ratio, the ECB we see to be more relaxed on that metric.

But given how the perimeter reduction works for the Bank, given where we expect us to be from a capital position, the 4.5% to 5% is more something that will almost automatically result.

But it's not as firm a target for us as the 12.5% on the Core Tier 1 ratio.

And on AT1, John, do you want to comment?

Well I think the AT1 is part of a bigger issue for us when we look at the structure of our capital.

At the moment we're still working on the assumption that the German rule on the TLAC comes into full force and effect I think in January next year.

That then renders us, I think at the moment, something like a TLAC ratio of something like 27%, which is way above the requirement.

We have -- essentially TLAC, I think the latest number is about EUR109b, maybe even slightly higher.

It's in the appendix.

EUR66b plus of which would be non-CET1 TLAC.

The question is whether we're held to that as the limiting factor or whether we do need to issue some form of AT1.

We always look at the AT1 from a Group consolidated perspective.

We do use it actually internally between entities, and there it does have a useful use for us.

But -- and it will remain part of the potential toolbox.

But at the moment, just looking at the price, for example, of our 6% euro AT1, now would not be a good time to issue any of this stuff.

And I think the market is still very uncertain as to the way that it operates.

It's still a little bit subjective.

It's not clear how it ranks versus TLAC, although it forms part of our TLAC, and because there's a subjective override from the perspective of the regulators.

But they're our views, but I'm not sure those views are always certain.

And when I speak to investors, I get such varying views that all I can conclude is that we still need to do a lot of education work, or the market generally needs to do a lot more education.

So it's still potentially part of the toolbox.

But it's not a particularly attractive instrument for us from a pricing perspective.

And I still think it's not as well understood by the market as it should be.

It also, in the context of a German company, involves issuing shares.

And I've got this philosophical view that if you issue shares and have them count as debt, it's not as good as issuing shares and have them count as shares.

But that's my view.

Okay.

Thanks very much.

Jeremy Sigee, Barclays.

Morning.

Thank you.

My first question is coming back on to the cost point, and specifically just taking global markets.

It looks like the underlying costs there are about EUR400m or EUR500m heavier than they should be.

They're very close to last year's 1Q, which was a much higher revenue level and EUR400m or EUR500m above the 2Q/3Q cost run rate underlying, which is a much more similar revenue run rate.

So are there any specific items, lumpy things, causing that heavier 1Q 2016 cost level in global markets because otherwise it seems a bit baffling?

My second question is about NCOU.

You talked successfully running down the assets in NCOU and potentially allowing you to fold it back in, so effectively it disappears.

I just wondered what that means for P&L drag from NCOU, because if we look at consensus expectations, they're really quite a heavy drag, something like EUR3.5b in 2016, still EUR1.5b in 2017.

And I just wondered if there's scope for some of that P&L drag to disappear as the assets effectively disappear now.

So let me first go into your first question.

I think your first question is suggesting that we do see an increase in our adjusted cost in global markets quarter on quarter.

That's actually not the case.

So there's a decline on the adjusted costs in our market segments quarter on quarter.

So I don't know what exactly you are alluding to there.

Well let me tell you.

There's a very slight decline year on year.

So you've said a number of EUR2.335b for 1Q 2016 clean, and clean for 1Q 2015 was EUR2.4b.

But clean for the remaining quarters of last year was EUR1.9b, EUR1.9b, EUR2.0b, based on the numbers that you give for litigation and restructuring and severance.

So versus 2Q, 3Q or 4Q, it looks, from your numbers, it's a EUR400m or EUR500m increase in the cost level in global markets.

So the biggest difference is that the bank levy has been fully booked into the divisions this quarter, unlike what we did last year where we faced that into divisions throughout the year.

So that is one -- that's a big driver for the segment.

And in fact, the front office, when you look at the direct cost of the front office, they actually have taken out both people and cost.

We have seen some increase on our infrastructure cost side, which we always said is a longer journey to take that down.

But the biggest difference is on the bank levy.

Now with regards to your other question, do you want to do that, John?

I'm happy to do it.

I think, Jeremy, on the NCOU, the plan is, at the end of the year, for there not to be that much left to go back into the divisions.

At the moment there are a couple of asset groups that we would approve going back.

There are some performing mortgages that can go back into the PCC international businesses.

On the non-performing ones, I think we'd rather remove them.

I think when you look at the previous numbers for NCOU, there are a couple of items that you should take into account.

One is the high-cost liability attached now to Postbank.

They're out of the NCOU.

But the other big item for NCOU would be the litigation amounts.

It's been charged with a considerable proportion of our overall litigation charges.

And as a consequence, upon its wind-up, we would expect that to disappear.

So the ongoing drag from assets that currently constitute the NCOU next year would not be material.

And do the operating costs disappear as well, whether it's people or systems or --?

Yes, to a great extent.

There are very few people left.

The systems they use and their rent from global markets to a large extent, but that would go, yes.

You have some more detail in the appendix, where you can also see that there is a -- I think it's EUR96m charge for the quarter which is allocated.

Half of that is essentially people that you can clearly identify that solely work for the non-core unit.

So, for example, I think in finance we have something like 30 people working in finance for the non-core unit.

With the non-core unit disappearing, you wouldn't need that.

So the EUR100m or EUR96m for the quarter, 50% of that is cost that will really go away with the closure of the non-core unit.

The remainder is really allocated cost, which will be sticky, and then remain to be part of the Bank.

Okay.

That's very helpful.

Thank you very much.

Amit Goel, Exane.

Hi.

Thank you.

I've just got a question trying to reconcile the capital and the earnings guidance.

So just trying to understand if the Group is breakeven and risk-weighted assets are down about 5% during the course of the year, plus there's a 50-basis-point gain from the Hua Xia stake sale, how you get to a flat CT1 ratio at year end, if there's some other capital effect that I'm missing.

So the overall RWA reduction this year will result from running down the non-core unit to below EUR10b, as we highlighted.

We will also see some further parameter reduction in markets, as Stuart enquired.

This is largely accelerating some of what was planned for the outer years.

That will -- the non-core unit will have some negative P&L effect, which we highlighted.

But -- so from a net income point of view, there's -- we do expect the year to be quasi neutral, i.e., there's no big positive, no big negative number that we're targeting.

And hence the guidance for the Core Tier 1 ratio being more or less flat as we were 11.1% as of last year, and that's roughly where we would expect to land also at the end of the year, with RWA being then more at the EUR380b to EUR390b level.

So RWA is going to be slightly down over the year.

And there's no material net income.

And that's what gets you then to a quasi-flat Core Tier 1 ratio.

Okay.

But I was just thinking also with the stake sale in Q2, so surely that's also then obviously creating an uplift so you get to 11.2%, plus or minus whatever the earnings are in Q2, and --?

That is correct.

But I also want to highlight, just so people don't get carried away, we did have for the first quarter a very low litigation charge.

Our statement that we still expect a material litigation cost, clearly south of what we had last year but still material, for the remainder of the year as we are very actively working on resolving the major issues.

As John highlighted, this is the year of restructuring, which is litigation which is driving down the non-core unit, and which is booking provisions, in particular for the headcount reduction in our German activities.

Thank you.

Nicholas Herman, Citigroup.

Yes.

Good morning.

And thank you for taking my questions.

In PWCC, revenues felt quite weak even after accounting for the Hua Xia valuation effects and the special -- and the dividend.

How much do you think of the revenue decline is one-off in nature and how much do you think can bounce back?

And then in asset management, we've now seen three consecutive quarters of outflows.

You are rationalizing the portfolio.

But how much more outflows do you expect to continue to come?

Thank you.

So o the second question, we don't plan for more outflows.

That's definitely not our target.

I think we, like many others have -- of our competitors have seen outflows, in particular in Q1 of this year.

I don't think that we stand out in any shape or form there.

So there's no plan to shrink the perimeter further or exit certain activities.

This is a business that we view as a growth business.

On the PWCC side, I think here we need to look at this by diving a bit deeper into the different segments.

In our German business, which has been holding up quite okay, there we expect to see some pickup on the investment and insurance products.

That has been particularly weak in the first two months, so basically our clients didn't do a lot.

People were very passive and we didn't see people transacting.

That is slightly changing.

We continue to expect there to be pressure on the deposit side given the interest rate situation.

And we are seeing some improvement on some of the credit side in particular as we've seen in the last eight weeks, I would say, improvements on the margin side.

So overall for the year, I think there's a risk that PWCC in the German business might come out slightly below where we were last year.

But we're still reasonably on track there.

In our wealth business, the situation there was obviously impacted much more by the market environment in the first quarter.

So we've seen, as in our retail business, clients be very passive on the investment side.

That is starting to pick up.

In wealth, I would also like to highlight that here it's partially also us starting to implement some of the regulatory requirements that are going to kick in in the future, which is putting some pressure on a few client perimeter situations.

So I would not expect the business to completely recover during the year the losses that we incurred relative to last year in the first quarter, but we are also, in our wealth business, now seeing a pick-up in activity in March and April over the months of January and February.

And in our international business, you know that there are some markets that have been more negatively impacted.

I would say most pronounced in Poland, but we've also seen some decline in what is a small business.

But there was a EUR10m decline in our business in Portugal.

I think their situation, similar to the retail business in Germany, the investment and deposit side is not performing well or has not been performing well in the first quarter and it's now starting to gradually pick up.

Also here I would say our ability to completely recover the drop that we had in the first quarter is a little bit questionable.

So like for the German business, I would expect us to come out slightly below last year's result.

So that's how I would comment the different segments within PWCC for the remainder of the year.

That's extremely helpful.

Thank you very much.

If I could ask one just quick follow-up on asset management, on costs, do you expect any -- the DOL fiduciary ruling came out early this year.

Do you expect any increase in costs or impact to the operations there as well?

We don't think it's particularly material.

No.

Okay.

Great.

Thank you.

Andrew Stimpson, Bank of America.

Thanks.

Morning, guys.

Coming back to the point on the costs in markets, can you say, and sorry if I missed this, but can you say how much the bank levy was in the markets business, please, because I guess the way I was looking at it was that costs are only down by about 3% year on year but your revenues have dropped by 30%.

So I'm just trying to get an idea of how much you've already flexed costs there on an underlying basis, please.

And then secondly, on prime services, you said that revenues and balances grew, which is good, but it was a little surprising to me given, A, what happened in the first quarter, and B, obviously some of the Bank-specific stuff that you went through, particularly in February.

And then thirdly and probably most importantly, you're still very much a leverage-constrained bank at the minute.

So to grow one of the famously more leverage-constrained business just seems odd strategically.

But maybe you could comment around your thinking on that, please.

Thank you.

So on the -- maybe I start with your last question.

By the way, one of the reasons why our leverage ratio right now is where it is, at 3.4%, is the fact that we're carrying quite a substantial amount of cash and liquidity on the balance sheet.

Now there is still the deleveraging program that we alluded to, actually first time back in April of last year, that we are in the process of executing.

Now we didn't do a lot or we didn't do anything material in the first quarter of this year, which shouldn't come as a big surprise given that basically this was a completely silent market and there was basically nothing one could do.

That deleveraging has gotten quite a lot more traction in the last few weeks.

So we do expect the deleveraging to continue, in particular in our markets business.

So there's no change to our target to drive down leverage in quite a material way over the next couple of years, and hence that, in conjunction with us clearly expecting to start to generate capital from next year onwards, will also drive up the core tier -- sorry, the leverage ratio.

On your first question, I think the global markets bank levy charge in 2016 was about EUR400m for -- that was booked for the first quarter.

And then I think your second question was on prime brokerage.

Do you want to?

Yes.

Just on the prime brokerage, and the point you made about maybe market concerns back in February about our counterparty credit, I think what we've done is that we've made a lot of progress with most of our major institutional counterparts in communicating to them the point on the TLAC and the fact that our TLAC ratio is sitting at 27% of RWAs at the moment.

And I think they recognize that the rating they should be looking at, for example, is the Moody's counterparty credit rating, because if you look at the senior unsecured debt rating, you're looking at something that is a TLAC rating.

And I alluded earlier to the fact that that's a little uncertain at the moment because people are not, I think, yet totally au fait on how that might work.

The CDS references the TLAC.

So the CDS, I think we've successfully communicated to many major institutions, is also referencing something that isn't indicative of our counterparty credit rating.

So when we focus clients on the A2 rating, I think they're more than satisfied with us as a counterpart.

And generally speaking, in our prime finance business and our repo business, they like the service levels, they like the products that we can offer and we are keen to grow balances there.

You shouldn't forget that we're a banker.

We're in the business of using our balance sheet and lending.

And there's too much focus I think sometimes on shrinking ourselves to [greatness].

We're in business to grow Deutsche Bank, and we just want to grow it in the right places.

And prime finance is an area where we see good margins.

We think it's a well controlled business.

And it's a business that the guys in equities like because they build their business around it.

So that will continue to be an area of focus and investment for us.

Thank you.

And just to come back on the bank levy point.

Was that EUR400m for the Group or for markets?

That's just markets.

Okay.

Thank you.

It's about 80% or so allocated to global markets.

Sure.

Thank you.

Huw van Steenis, Morgan Stanley.

Morning.

Thanks so much for a helpful call this morning.

Two just clarifications.

First, John, on operational risk, I think on the previous call you mentioned that operational risk would probably offset the shrinkage in the non-core unit, which I interpreted as a EUR20b potential increase for the year, of which we've had EUR8b today.

Would that still be a sensible set of expectations for the full year?

Or with the new change in standards for op risk, is there a risk that there will be continued inflation as cases get settled?

And then secondly, just on this point about counterparty concerns fading, would you argue that now they are completely being kicked into touch or is there still more that you can win back over the coming months and quarters?

Thanks.

On operational risk, we did see -- said that we saw something like EUR8b for the rest of the year.

Most of that will come from industry metrics into our model.

But that's litigation charges that we see in the industry and in our own books that's driving this.

Sorry.

Huw, the other point I was going to make is we've already seen EUR8b in Q1.

So it's EUR16b for the year with some generous rounding.

Yes.

But that will not completely offset the non-core unit decline, because the non-core unit, there's another EUR20b plus that we expect to come down for the remainder of the year.

And on the -- your -- I think your second question on counterparty concerns still existing or fading away, look, I think that we have clearly seen already in March, and that continues to the case in April, a much more normal business activity.

We clearly also have some noise in the context of us exiting some clients, exiting certain markets.

And so that's no longer or we don't see this being a very relevant topic.

I think people are also more and more starting to understand the issue that, as a counterparty, we actually are a much better counterparty from a rating perspective today, or to be technically precise, we will be as of January of next year when the German law will become effective, than what we have been six months ago.

Yes.

Fantastic.

Thank you.

In the interest of time, we have to stop the Q&A session right now.

And I hand back to John Andrews.

Thank you, everyone.

And apologies, we have to move on to a press call.

For the handful left in the queue, obviously the IR team stands by to respond any and all questions over the course of the day and beyond.

And thanks for taking the time to attend the call this morning.

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

Thank you for joining and have a pleasant day.

Goodbye.