Deutsche Bank AG (DB)
Q3 2012 Earnings Call
October 30, 2012 3:00 AM ET
Joachim Müller – Head, IR
Stefan Krause – CFO
Jernej Omahen – Goldman Sachs
Christopher Wheeler – Mediobanca
Stuart Graham – Autonomous
Kian Abouhossein – JP Morgan
Cyril Meilland – Cheuvreux
Derek De Vries – Bank of America
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I would now like to turn the conference over to Joachim Müller, Head of Investor Relations. Please go ahead, sir.
Yes, good morning. This is Joachim from Investor Relations. Welcome to the presentation of our third quarter results today from Berlin. I hope that you have received all of our documents. Just to remind you, take note of the cautionary statements regarding forward-looking statements at the end of the presentation. And with that, I will pass on to our CFO, Stefan Krause who will lead you for the presentation pack. Stefan?
Thank you, Joachim and good morning once again and thank you for joining us on our third quarter results call. We are obviously aware of the difficulties it presents to many of you that we are reporting on the same day as one of our friendly Swiss competitors that’s out with a lot of news. Therefore I’ll make an effort to focus only on some selected points in my presentation. And to start saving time, therefore, I will leave chart 3 for you to read to yourself as I will cover the topics and messages in the different slides to come.
Let me go over to slide 4, as you know, at our recent Investor Day, we have announced several changes that will impact our segment reporting for year-end 2012. The key changes are the setup of the non-core segment and the transfer of the passive asset management businesses from CB&S to asset management.
Please note that all these changes are not reflected in the disclosure today, we’re presenting – that we’re presenting to you and have generally left our disclosure format unchanged for this quarter to avoid changing it several times. I can tell you that many of my colleagues in finance are working very hard to prepare for our analyst session on the non-core segment, which is scheduled to take place on December 13. We will also aim to put you into a position to rework your models prior to the publication of our fourth quarter results on the 31st of January 2013.
At this point I would also like to mention that as part of the resegmentation of our business we will assess the carrying value of the goodwill and the intangibles. Logically at this stage we cannot rule out an impairment charge. We are in the process of finalizing the planning process for 2013 and beyond and we’ll be able to quantify the impact, if any, when we report on the fourth quarter of 2012.
Let me go over to page 5. Group revenue as you can see in the third quarter benefited from a €1 billion improvement in all our operating businesses versus the second quarter of 2012. 80% of this increase came from the investment bank. This was partly offset by a negative swing of €358 million in consolidations and adjustments where we reconcile group and segment reporting. I will discuss more revenue details when we come to the segments.
Now, move to slide 6. Our provision for credit losses for the third quarter and we see excluding the IAS 39 reclassified assets and the other interest income in relation to Postbank was €301 million, unchanged from the prior quarter. The portion of our provision that relates to the IAS 39 reclassified assets increased by €130 million compared to the prior quarter reflecting two effects. First, in relation to our accelerated de-risking program, we sold certain previously impaired IAS 39 reclassified assets at a loss, and as a result, recognized €61 million as a provision for credit loss.
Secondly, two specific IAS 39 reclassified assets accounted for the remainder of the increase of credit provisions in CB&S. Overall, we see full year 2012 provisions coming in line with our plan ex the de-risking and Postbank effects.
On page 7, we talked about our non-interest expenses. In line with our announcement at Investor Day, we have begun to implement our restructuring plan and the cost related to that is reflected in a separate P&L line called restructuring activities.
Beyond the expenses reported in the restructuring line, there were an additional €44 million of severance costs which are also related to our operational expense program, but are not shown in the restructuring line due to the formal requirements attached to that.
Taken together, the €320 million cost achieved is roughly half of the €600 million budget we have set aside for 2012. This excludes €71 million of cost achieved in connection with the integration of Postbank. As for the second half of 2012, the Postbank integration program is accounted for separately. It will be integrated into the Operational Excellence program starting in 2013.
Let me go over to page 8 where we take a closer look at the development of our underlying cost base in line with how we plan to do it on a going forward basis in order to track the progress of our cost reduction efforts. Based on our communication at the Investor Day, we have adjusted the reported expenses for cost-to-achieve that I just mentioned, as well as for policyholder benefits and claims, and for litigation charges. For the nine-month comparison, we’ve also adjusted for the VAT charge relating to the impairment of a German VAT claim which occurred, as you can remember, in the third quarter of 2011. On that basis, underlying expenses are down 3% in the third quarter versus the second quarter 2012, and up 3% in the first nine months of 2012 versus the same period in 2011.