Deutsche Bank AG (DB)

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Deutsche Bank AG (DB)

Q1 2013 Earnings Call

April 30, 2013 2:00 am ET

Executives

Joachim Müller

Anshuman Jain - Co-Chairmen of The Management Board and Co-Chief Executive Officer

Stefan Krause - Chief Financial Officer, Member of Management Board and Member of Capital & Risk Committee

Analysts

Kian Abouhossein - JP Morgan Chase & Co, Research Division

Daniele Brupbacher - UBS Investment Bank, Research Division

Jeremy Sigee - Barclays Capital, Research Division

Kinner R. Lakhani - Citigroup Inc, Research Division

Huw Van Steenis - Morgan Stanley, Research Division

Christopher Wheeler - Mediobanca Securities, Research Division

Fiona Swaffield - RBC Capital Markets, LLC, Research Division

Stuart Graham - Autonomous Research LLP

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter 2013 Conference Call of Deutsche Bank. [Operator Instructions] I would now like to turn the conference over to Mr. Joachim Müller, Head of Investor Relations. Please go ahead, sir.

Joachim Müller

Yes, thank you. And good morning from Frankfurt. On behalf of Deutsche Bank, I would like to welcome you to our First Quarter Conference Call. We have with us today our co-CEO, Anshu Jain; and our CFO, Stefan Krause, who will lead you through the highlights of this quarter. We will have a question-and-answer session at the end of the remarks. And as you know, we've already provided you with all the documents yesterday, which you'll find on our website. Please be reminded of the cautionary statements regarding forward-looking statements at the end of the presentation. And with that, I would like to straight hand over to Anshu.

Anshuman Jain

Thank you, Joachim, and good morning, everyone. Before Stefan goes through his detailed presentation, I would like to take you through our current capital position and capital strategy going forward and then put that in the context of our first quarter results.

Capital strength is a core part of Strategy 2015. We began this journey with a Basel III pro forma Core Tier 1 capital ratio of below 6%, which was behind the leaders in our peer group. In September, we stated publicly that our aim is to raise that to 10% by first quarter 2015. We listened carefully to many stakeholders, regulators, investors, analysts and commentators as we developed our strategy. And subsequently, the message was clear. Resolving the capital issue has to be our top priority.

For 2 consecutive quarters, we beat the targets we set ourselves. In 9 months, we raised our Basel III Tier 1 ratio from below 6% to 8.8% versus a raised target of 8.5%. This is equivalent to a capital raise of over EUR 10 billion. To do this organically represents the fastest capital buildup of any major peer during the period, and we achieved this through disciplined risk reduction. Since June, we've reduced risk-weighted assets by EUR 103 billion. We're aware of some suggestions that we achieved this risk reduction mainly through model adjustments. But let me say clearly, those suggestions are unfounded. We achieved the bulk of by true asset sales and hedging. For example, the Non-Core Operations Unit has contributed some EUR 50 billion of this total. In the first quarter alone, it disposed of a further EUR 9 billion of assets at or above carrying value.

We're now reporting on a package of 3 measures that strengthened our capital structure. These are: firstly, continued strengthening of our capital base by organic means in good measure through accelerated risk reduction; secondly, the capital measures announced today, which form part of the capital toolbox we discussed last September. This would take us from the Basel III pro forma ratio of 8.8%, which we've achieved organically, to approximately 9.5%. That ranks us today as one of the best capitalized banks of our global peer group. And thirdly, our intention to potentially issue up to EUR 2 billion of additional subordinated capital over the next 12 months. The third measure reflects a duty that we take very seriously. We're not only responsible for the sound commercial functioning of the institution. We must also ensure that Deutsche Bank is resolvable in the eyes of the most demanding requirements of a changing regulatory landscape around the world. This further reflects our commitment to contributing to a stable and reliable financial system on which society depends. In addition, these measures allow us to take advantage of organic growth opportunities in a changing competitive landscape. We want to give ourselves optionality to take these opportunities sooner and turn them into lasting value for shareholders.

Today, we can say that the so-called hunger march is over. We can now accelerate the process of taking advantage of growth opportunities and simultaneously look forward to the day when we can return more capital to shareholders. Crucially, I'm pleased to report that in the first quarter, we delivered strong profitability on this higher capital base. Post-tax return on equity was 12%. For the Core Bank, it was 17% on an annualized basis compared to a 2015 aspiration of 15%. Q1 is seasonally a good quarter for us, but this is an early indication of the franchise's ability to produce strong returns in what remains a challenging and uncertain market environment. Despite reducing costs and risk-weighted assets, we continue to take market share and deliver in each of our key products and regions.

Let me now give you some highlights of our progress. CB&S, our investment banking division, has performed strongly. For CB&S, headwinds have been stronger in Europe both from regulation and a tough environment. Someone suggested that European houses would lose ground to North American competitors. We don't see that. Our CB&S franchise has proven very robust. In key areas, we've actually gained market share. The rightsizing we carried out last year as part of the Operational Excellence Program, far from weakening the franchise, has actually strengthened us. Our performance in German retail banking has also been a driver of our first quarter results.

PBC has just delivered its best quarter since we consolidated Postbank back in 2010, excluding cost-to-achieve and purchase price allocation effects. Revenues benefited from growth in lending, thanks to record new production levels, earning EUR 300 million per week. We made market share gains in our German mortgage business, where volumes are up by 10% year-on-year. Revenues from investment products are up 8% year-on-year as clients returned to equity markets after some disappointing quarters. We held the cost base flat, and Postbank integration continues on track. Strict risk discipline is paying off. Provision for credit losses was at a record low.

GTB has produced profits in line with last year although the revenue environment remains very tough with pressure from both margins and near 0 interest rates, and this challenge may continue.

In Asset & Wealth Management, building an integrated platform is a long-term effort, but we're on track and producing results. Underlying revenues are up year-on-year, with a shift towards active assets. Underlying costs are benefiting from last year's restructuring. Very importantly, net money flows have turned positive for the first time in 5 quarters, although we expect this to remain volatile.

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