Deutsche Bank AG (DB)
Q4 2012 Earnings Call
January 31, 2013 2:00 pm ET
Joachim Muller – Head-Investor Relations
Anshu Jain – Co-Chairman-Management Board
Stefan Krause – Chief Financial Officer
Kian Abouhossein – JPMorgan
Jon Pearce – Nomura
Stuart Graham – Autonomous Research
Jernej Omahen – Goldman Sachs
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I would now like to turn the conference over to Joachim Muller, Head of Investor Relations. Please go ahead sir.
Thank you. Good morning ladies and gentlemen. On behalf of Deutsche Bank I would like to welcome you to our fourth quarter analyst call from Frankfurt. By now you should have access to all of our publications, which you will find on our website. Anshu Jain, our Co-CEO will kick off this call, and provide the highlights of our full year results. Our CFO, Stefan Krause, will then walk you through our financials in detail.
As usual, please take notice of the cautionary statements regarding forward-looking statements at the end of the presentation. And with that, I will hand over to Anshu.
Thank you, Joachim, and good morning ladies and gentlemen. As you have seen, our revenues in the fourth quarter were resilient despite a difficult environment, EUR 7.9 billion in revenues, up a billion on the same quarter in 2011. Most pleasingly our Basel 3 core tier 1 ratio now stands at 8%, 80 basis points ahead of the 7.2% target that we set ourselves for the end of 2012.
However, we do have a pre-tax loss of EUR 2.6 billion in the fourth quarter, and a full-year profit of EUR 1.4 billion, which is way below the EUR 5.4 billion that we had in 2011. This reflects a number of decisions that we have taken, especially in the fourth quarter, many of which have been taken to position Deutsche Bank well for the future. Let me walk you through some of those decisions.
The non-core operations unit has taken a full year loss of EUR 2.4 billion, of that there is a EUR 1.1 billion loss in the fourth quarter. But equally has given us a reduction in risk-weighted assets of EUR 29 billion, which in the net is a capital generation of EUR 2.5 billion to significantly net accretive.
Litigation and impairment charges in our core bank have totaled EUR 1.5 billion, and EUR 1 billion respectively, which is EUR 2.5 billion, significant. Stefan will provide more details on that in a few minutes. The core bank adjusted profitability has been strong, EUR 6.5 billion in 2012, and this after absorbing cost-to-achieve and other costs of EUR 1.4 billion. So you can actually back up in 2012 core bank EBIT of nearly EUR 8 billion.
So now if you move to slide three, you can see we have galvanized Deutsche Bank around the creation and the achievement of our capital targets. When Jurgen and I presented our full-year plan and project 2015 in September, we reflected the feedback from clients, regulators, employees, analysts and investors, which was clear. Capital had to be our top priority. Jurgen and I are very glad and very pleased with the team, which have actually acted across all aspects, pulled every lever in order to be able to [achieve us] to attain this target.
Let me point out some very key features around this target. This has allowed us to narrow our gap to peers. We believe it is the fastest Basel 3 organic capital formation (inaudible) in 2012. It has been achieved by reducing our non-core risk-weighted assets by the equivalent of EUR 29 billion. I said that to you a little bit earlier, and in our core business we have a reduction of EUR 51 billion through a combination of measures, better models and processes and derisking through asset sales and hedging. Here I do have to acknowledge the fact that benign circumstances really from July onwards, thanks to some of the actions taken by central banks, and really the euro crisis getting through to a most acute phase, has definitely been of assistance to us.
In simple terms, this is equivalent of raising EUR 8 billion of core tier one capital with our valuation. Many of you had given us the feedback that that is what we should have done. We stayed resolute and indeed we feel we have been able to achieve the targets we have promised you. In addition to achieving our targets, I’m also pleased to announce that we are increasing as you would expect our target to 8.5% by March 2013, and needless to say if we were to hit that, which we are highly confident we will that will finally put us back in with our peer group.
On slide four you can see our second significant promise to you was to deliver EUR 4.5 billion in annual run rate savings of a full-year cost base of EUR 27 billion back when we spoke to you in September. I’m pleased to tell you that this program as well is on track. We have delivered savings on a run rate basis of EUR 400 million in 2012. Well, where is this coming from? It is coming from really two sets of – two dimensions of cost saving activity. In the front office all our businesses are now enacting the plan that we mentioned to you they would.
I would especially single out here the investment bank and the asset and wealth management unit, which are well ahead actually even of some of the targets they set themselves in terms of front-office headcount and other cost reductions. On the infrastructure side there is a series of initiatives underway, amongst which I would have to say the IT platform renewal and the footprint rationalization have played a very strong role.
In addition to what we have achieved in 2012, for 2013 we already have visibility towards EUR 800 million of cost savings, out of the 1.6 that we set ourselves, and in short, we are as committed and as confident that we will achieve this goal as we are of anything else.
If you move to slide five, you can see that as we move on from capital and costs, it is very important that our franchise continues to remain strong. Clearly as we set bank up for the future, it is vital that we continue to defend and protect and grow our market share. I’m very pleased that we have been able to do that. Again Stefan will take you through the detail business by business, but let me just give you some highlights.
Starting with PBC, I am very proud of our PBC business. They are facing tremendous headwinds, but have increased market share in Germany, have a profitable European business, and are ahead of schedule in delivering synergies from the Postbank integration. Asset and wealth management is a strategically crucial business for us. Michele Faissola and his team have the task of merging five businesses into one. It is a considerable task. Significant progress has been made, but we are under no illusions. It will take some time in order for them to be able to turn this business around. I’m confident that it will emerge as a strong pillar, but a lot still remains to be done.