Deutsche Bank Aktiengesellschaft
Q4 2013 Earnings Call Transcript

Published: 20 Jan 2014

[John Andrews:]

Thank you, and good morning, everybody. On behalf of Deutsche Bank, welcome to our Full Year 2013 Earnings Call. And again, thank you for making yourselves available on such short notice. We have with us today our co-CEO Anshu Jain; and our CFO, Stefan Krause. First, Anshu will provide you with the highlights of our performance. Thereafter, Stefan will present to you fourth quarter and full year results in more detail. Following their remarks, as customary, we welcome your questions. By now, you should have access to all of our publications on our website. Please note that all figures reported today are preliminary and unaudited. Deutsche Bank's 2013 financial report and annual report on Form 20-F, including the audited financial statements, are scheduled to be filed and published on 20 March 2014. Also, as always, please be reminded of the cautionary statements regarding forward-looking statements at the end of the presentation. With that, let me hand it over to Anshu.

[Anshuman Jain:]

Thank you, John, and good morning and welcome, everyone. Let me begin by taking you through the drivers of the fourth quarter loss we've just announced. The Core Bank underlying profit was EUR 1.3 billion. However, we saw a total of EUR 2.5 billion of P&L impacts, arising predominantly from implementation of our strategy. These were

[Stefan Krause:]

Yes. Thank you, Anshu, and good morning also from my side. So I'm going to go into group results, then touch the segment results and then go into some key current topics. Let's start on Slide 18 with an overview of the fourth quarter results. The group reported a loss of EUR 1.2 billion, which included several significant items

[Anshuman Jain:]

Thank you, Stefan. So let's move to Slide 42 and look forward. I think 2014 will be a continuation of some of the trends that we've seen, which really, I'd like to break down between what we can control versus what we cannot control. If I were to look at what we cannot control for 2014, I think it'll be a continuation of what we saw in the year just concluded. On the positive side, global growth is now definitely trending towards the top end of our estimates, and we think that'll continue in 2014, especially in the U.S. Against that, I would say, items like litigation, regulation, the operating environment for our businesses, which is predominantly driven by level of interest rates, as well as overall volume of activity. We think all of those will remain challenging, at least through 2014. Against that, if I look at what this management team can control, whether it's costs, it's other resources we can control such as OpEx, balance sheet, risk-weighted assets, it's our culture, very crucially, it's the performance and market share of our divisions, I would say we're very satisfied and we think 2014 will continue to be a strong year. If I look at the divisions, I think the trends that we've seen in the first full 18 months of our journey will persist, which is quite simply Asset & Wealth Management outperforming. We think that out-performance will continue. GTB has definitely encountered tougher conditions than we were hoping for, and so is a bit below the targets that we've set per division. Candidly, PBC and CB&S, our investment bank, are more or less in line with where we thought they would be. Crucially, we stand by and we commit. Stefan has alluded to this when he talked about capital, on Slide 43, you can see. And when it looks to -- when it comes to all of the critical dimensions of our strategy, our core Tier 1 ratio, our cost/income ratio, post-tax RoE, we are confident and reiterate our 2015 targets. So with that, I think we come to the end of our prepared comments. Very happy to take your questions. Let me turn it back over to John.

[John Andrews:]

Operator, if you can start the question-and-answer session, please?

[Operator:]

[Operator Instructions] The first question is from Jeremy Sigee of Barclays Capital.

[Jeremy Sigee:]

Could I start on the leverage ratio, please, unsurprisingly? The new guidance of EUR 200 billion impact, if I understand correctly, that's on the amended, amended-amended, if you like, post last weekend, and I just wondered what has changed versus your commentary last quarter where you talked about a sort of 20-, 30-bps definitional impact and now this seems to be 40 bps on, I think, what a number of us thought was water-down rulebook. Second question following on from that is just how to understand the deleveraging targets. I think when announced, it was EUR 250 billion off what was then a EUR 1,583,000,000 leverage exposure, so targeting effectively EUR 1,333,000,000. Does that rebase upwards with the definitional change is my second question. In fact, why don't I stop there and just leave those 2?

[Stefan Krause:]

Okay. Let me clarify. I know there's many leverage definitions out there and that sometimes maybe it sound confusing. CRD4, always was much smaller. You remember, when we discussed the CRD4 definition, that is the one that we used for our leverages because that's the current law in Europe and that's what we base our numbers on. The original Basel proposal was much more onerous. To be honest, it would have increased our exposure ratio by much, much more. And the good news was that, that increase now is very much muted, yes? So we expected far in excess of EUR 400 billion to EUR 500 billion impact, and it came on the first -- and this is the first assessment that I'm providing you, around EUR 200 billion. And you will remember, when we talked about the deleveraging target, we -- and discussed it, we said that we are giving a larger target of reductions in order to build some buffer. And you remember me quoting this -- the 3.6 that would give us enough to have some buffer versus that. So our current calculation is that if we achieve on a CRD4 basis of 3.6 leverage target that for sure we, with the current proposal, as they stand, we will beat the minimum.

[Jeremy Sigee:]

And so the EUR 250 billion reduction target, will all of those numbers rebase up now on the new definition?

[Stefan Krause:]

Well, we don't know yet. Because don't forget, the legal framework of CRD4 is the legal framework, and these are now proposals. And as I disclosed also in text, I don't know if these proposals are going to make it into the European law. That we don't know. It is our assumption as the point they will, and that's why we gave you the guidance. If they were to come as issued, I think a weekend ago, yes. Then, obviously, we feel comfortable that we'll achieve those minimums. I think there are further discussions. Obviously, let's not forget, this is also not final. There's some further discussions coming. And so a long way until they make it into law. This is just giving you some view ahead that even if they make it into the law, with our current asset reduction program, we will comply with the minimum.

[Jeremy Sigee:]

But if the rules freeze, as they are now, so if there's no further change in the rules, that the reduction you're targeting is EUR 250 billion reduction. So the endpoint that gets you to is now going to be higher with the EUR 200 million?

[Stefan Krause:]

Yes, but let's not forget -- yes, in these new positions, there may be also roll-offs. And also what the EUR 250 billion did not address is in these new positions, no management action at this point are defined. So we would have some additional...

[Jeremy Sigee:]

There can be more than EUR 250 billion. Yes, okay.

[Operator:]

And the next question is from Christopher Wheeler of Mediobanca Securities.

[Christopher Wheeler:]

A few questions, first of all, on cost. So I just need to understand a little bit more what's happening in all the work you're doing to get your cost base down. First of all, just perhaps clarify. In Slide 22, you talked about EUR 1.7 billion of cost-to-achieve being charged in the year. But I noticed in Anshu's slide, #4, he said, EUR 1.4 billion. What's the gap there that I'm missing between those 2 numbers? That's the first one. The second one really goes to the slide which shows the cost savings on Slide 14. I'm not quite sure where your starting point is because obviously, I tend to think of Q3 2012, so the time of the Investor Day. But even if we go back to Q1, EUR 6.4 billion down to EUR 5.7 billion, obviously, some good savings there. But you're talking about EUR 1.6 billion of savings achieved. It means you've -- even if we go back to Q1 2012, it appears you've actually spent another EUR 0.9 billion, and I know you're going to continue to invest in other parts of the business. Is that a fair way of looking at things? And where effectively would that have been spent? And then perhaps just leaving cost, you'll be pleased to know. Just I suppose related to Anshu's final comments on U.S. peers being stronger, but I guess one of the things that is evident is if we look at your fixed income revenues in the fourth quarter, they represent about 42% of JPMorgan, who many would look upon as one of your peer competitors, and the figure in Q3 2013 and Q4 2012 was 51%. So yes, that's quite a big gap that's forming there. And would Anshu and the team put that down mainly just to the fact that the U.S. banks have had a much more favorable environment or are you a little concerned that the deleveraging is obviously going to cost you something in terms of market share?

[Stefan Krause:]

Okay. Chris, I'll take the first one and Anshu's going to take the second one. So very quickly, I think the EUR 1.4 billion number is the year-to-date number and the EUR 1.7 billion number is the live-to-date number. I apologize. It's a little bit confusing sometimes because we are tracking these 2 different numbers. And therefore...

[Christopher Wheeler:]

Well, sorry, sorry. Yes, Stefan, I'm sorry. But it says CtA per year, EUR 1.7 billion, on 22, per year. And that's cumulative savings, that's why I was confused. Is that just, perhaps, an error only on the...

[Stefan Krause:]

On the targeted -- one is the targeted CtA and the other one is the actual CtA. Target was EUR 1.7 billion. We -- our recent -- in the investor presentation we said for this year, we have EUR 1.7 billion target, and we only came in lower, EUR 1.4 billion. That's what Anshu referred to, okay? Okay. And then on the second thing is this is the program -- only to clarify, the program itself is a set of defined measures that are going to lower the run rate cost of the bank, and it's specific. Of course, we have, for example, we have regulatory cost increases that counter some of these savings. So as we said at Investor Day that some, obviously, we will have from time to time these non -- what we partially also call noncontrollable costs increases we have to absorb. So on your math, what we have said the EUR 4.5 billion that the program will deliver, yes, obviously, it will be somewhat also the counterbalance by some, obviously, cost that we will suffer for the net savings if you compare it to, let's say, in 2015 back, yes, obviously will be lower than the EUR 4.5 billion full year, if you really take reported versus reported cost.

[Christopher Wheeler:]

No, I get that, Stefan, obviously. I mean you made that very clear on Investor Day. But I just want to, I suppose, work out where you think that additional tweak will be. Are you saying it will mainly be around control cost, compliance costs?

[Stefan Krause:]

Yes, compliance is this type of cost that is the main increaser. Then obviously, let's say, right now we have a benign inflation environment, so salary cost remains low, yes, but if that were to change, things like that. That, obviously, is not inflation-related cost expense increases; pricing, pricing increases and things like that. We obviously cannot target with the cost cutting itself. Anshu?

[Anshuman Jain:]

Chris, fixed income was definitely disappointing this quarter. In part, there were some idiosyncratic one-offs, there was RMBS de-risking, commodity business as well. But the reality is that's relatively minor relative to the question which you are asking. There are a number of trends underlying our fixed income business, which I've talked about. Let me dwell on them in some more detail. We are utterly focused now on bottom line performance of fixed income. So when you just look at revenues, you're missing part of the picture, which is the resources, which fixed income is consuming, have dropped materially. We showed you slides showing you the RWA reduction, the balance sheet reduction, the cost base reduction, which the group has gone through. Candidly, fixed income is leading the way, as it should. It's the division that we invested in the most significantly for a very long period of time and candidly, as the operating environment has changed, we are recalibrating the division. Now critically, the cost income ratio is superior today to where it was 1 year or even 2 years ago. Undoubtedly, as we take balance sheet down, there will be a revenue impact. We have disclosed that to you in the past. So when you just look at revenues, you're missing part of the picture, which is the improved cost income ratio and the fact as well that while revenues are dropping, this is our lowest RWA -- RoE business there is, so asset efficiency for the group winds up improving. Within all of this, the stats that we are targeting the most carefully is our market share in businesses that we are committed to, which has not budged. Indeed, it's even gone up. Now the fact that the U.S. is outperforming Europe is undoubted. And we think, over a multi-year period, this will be a trend. And so undoubtedly, we do have to take a look at our U.S. versus European size of platform and continue to reinvest. Overall, our message would be we remain to committed to fixed income unlike some of our peers and we have demonstrated an over a decade-long period, a level of agility, which we think will serve us very well again. The recalibration is now coming to an end. A certain amount of reinvestment is probably now going to follow, especially in the U.S.

[Christopher Wheeler:]

Anshu, it's clear you've done a good job on the cost base in this quarter, in a tough quarter. There's no argument about that at all. But I suppose what you're really saying is that, whereas, you've always historically said market share has been crucial, given the scale of your business, you are now saying market share is crucial but only in the sectors where you really feel that you can make the bottom line work and you may actually drop some market share in obviously the ones that it doesn't.

[Anshuman Jain:]

Chris, you couldn't have paraphrased me any better. That's right. And this is a change. I mean, some of you have raised this with me bilaterally. And let me say this collectively, that this is true. We did run fixed income for a very long period of time because we can afford to run fixed income where subparts of the portfolio, such as many aspects of our commodity business, was producing revenues, was getting us market share, but frankly had a very high cost/income ratio and have very poor return on assets. We could afford to carry those businesses in the past, we no longer can. What will come out as a result is you will see us drop off in revenue lead tables, but not materially. I think there has been some underperformance in revenues. There's no question about that. The efficiency of the business will remain high. Most critically, what we are telling you is that we see fixed income as a core franchise at Deutsche Bank and we remain committed to it.

[Operator:]

Next question is from Huw Van Steenis of Morgan Stanley.

[Huw Van Steenis:]

Two questions. Can I just ask one supplementary on this issue of market share? I think we applaud the focus on return on equity rather than market share you're highlighting, Anshu. Can I just check that if they were to be a further EUR 200 billion on your denominated leverage ratio, that we assume you -- given your RoE focus, that there will need to be further adjustments and therefore potentially further impact on the fixed income business, just any thoughts on that. And then secondly, just on provisions, in addition to the non-core unit, the underlying business also saw a tick-up in provisions. I was wondering how much of that is a year-end true up ahead of the AQR or whether there is a more underlying trend of higher provisions in your core franchise?

[Anshuman Jain:]

Huw, let me take the first part of your question. When we gave you the details of how we intended to cut EUR 250 billion of balance sheet, we had actually pointed out to you that a lot of this will come from the reductions, for example, in our outstanding derivative portfolio. Will it have a P&L impact? It can. Will it have a market share impact? No. This a lot of debt balance sheet, which is very expensive when you do this new CRD4 Basel calculation, which is really a risk adjustment to our core balance sheet. Has there been some impact from a revenue standpoint? Yes. Will there continue to be some? Yes. We believe we can keep our core value franchise to clients completely intact and give you the EUR 250 billion in balance sheet reduction. So that's the core part of our message. Revenue impact, yes. Market share, client impact, no.

[Stefan Krause:]

This is -- Huw, on your question on provisions, no. These LLPs, the usual year-end calibration, so recalibrations and especially was a couple of single-client events and one-offs in different businesses in the GTB business, for example, in the PBC business that were larger in nature and therefore drop. It's about half of them, by the way, also came from the NCOU, which obviously there we -- it is stated strategy that obviously we move ahead and take the losses and the disposal of the assets that we can. So nothing really trend-changed or nothing really, just technical and the one-off single-client event.

[Operator:]

Next question comes from the line of Daniele Brupbacher of UBS.

[Daniele Brupbacher:]

Just a couple of technical follow-on questions. On the -- during the prepared remarks, you mentioned that you would expect to see further adjustments to the leverage ratios. Any best guess at this point in time how this could look like here in terms of positive and negative impact, just if you could elaborate with more in detail. And also you mentioned that you would expect to see some -- actually, some pressure on the CET 1 ratios there. Could you be a bit more specific again in terms of what we should expect bearing in mind the EUR 355 billion RWAs, the non-core unit, which probably should go down. And actually that the gap to -- the 30-basis-point gap to the minimum 10%, which you will probably exceed anyway over time. It's a rather small one in billion terms. So just how we should you think about the flat CET 1 ratio pressure over the next couple of quarters? And then just lastly, a sense of clearing at this stage, can you give us an update in terms of where we are, where you are as an organization, what the impact is and what more you expect to come there in terms of probably also revenue impact?

[Stefan Krause:]

Okay, I'm going to take the first one and Anshu is going to take the third one. So obviously, I have to look at a crystal ball here to make forecast. It's very difficult for me. We don't know. I can give you an example on the Basel side, there's a discussion on derivatives and their change to the non-internal model method. Yes, this would be, for example, an improvement, which means this would, for example, result in the reduction of exposure. But it's very difficult to say there. So obviously, it's out for further discussion and consultation. Then as we have seen, there is always a difference also how a proposal like this makes it into European law and how the wording is on the European law side as well. So it's very, very difficult to forecast what net impact it may have. So we have positive and negatives, and that's why I think our estimate at this point is the best estimate I can give you. Let me elaborate a little bit on the core Tier 1 ratio, and I really want to make you all aware that, obviously, there is still, and this is what's going to happen in 2014, a lot of uncertainty around regulation and these rules. We -- don't forget, this is a forecasted calculated number on our best view of what -- how most likely the rules are going to pan out. Yes, and I think this is what everybody in the industry is understanding. We do have some material, yes, definitions still open that can have a material impact on the core Tier 1 ratio's definition, and therefore, could have still a material impact on how the numbers come up. As our capital plan is based at the end of the day mainly on organic growth, obviously, the timing of how it retained earnings accrual versus the same time as some of our continued reduction of exposure will happen, and these rules that we have to apply, if this timing is different, obviously on a quarterly basis, you just may see volatility around this ratio. It's something I think we will have to deal with 2014. We're very confident that our 10% forecast is fine. Some of this is fine, and that we will get there because obviously, we have built for that. But I just want you to be prepared that we will have this type of volatility when the final numbers come out every quarter. Depending on how net income came you, for example, see that there's a seasonality in net income and we had quite strong in 2013. Obviously, we'll assume we will have the same seasonality in 2014. But then obviously, as rules are clarified, for example, as we move in the second quarter, third quarter and the whole framework gets more clear, then obviously, we will have to review some of the assumptions we make. We might be right in most of it, but we could also have different definitions in other ones, and that's what I wanted to make you aware. And I'll pass on to Anshu.

[Anshuman Jain:]

Yes, regarding your question on central clearing, I think it will have 2 impacts for our industry. Clearly, margins, as you move from OTC markets to an exchange markets contract. We've seen a lot of that. Could some more of that happen? Yes. Equally, you see volumes spike. You also see capital consumption drop pretty significantly, as you go from bilateral clearing of OTC derivatives to monthly lateral clearing. Starting overall, what you'll see is some further deterioration in revenues, a lot of which I think has happened already. You will see an increase in volumes and a concentration of market share amongst the top 3 or 4 players. Example, Deutsche Bank has been and continues to invest pretty significantly in our e-capabilities and our platform capabilities. And then finally, over time, and this is actually the thing which may have not been factored in all of your models, the fixed income equity Sales & Trading model of the future will depend a lot less on bilateral OTC derivative counter-party extension. And the impact of that on leverage, as well as RoEs, will actually be pretty substantial.

[Operator:]

Next question is from Jernej Omahen of Goldman Sachs.

[Jernej Omahen:]

I have 3 questions, and I'm really going to keep this one short. The first one is, I guess, now the recurring question. On the foreign bank organization proposal in the U.S., can you just please update us as to when you're expecting it, what you've done operationally to prepare for it, and whether there's any further detail that you can share with us at this point? The second question again is sort of a supervisory/press reporting question. I guess the domestic media in Germany are reporting that there's a new probe into FX trading at Deutsche being conducted by BaFin. And I was wondering, can you shed some light on that? Was there -- is that accurate? Have you created any additional reserves for that? And the third question I have relates to your longer-term returns. And here, my question relates primarily to Page 9. When you show the underlying return on equity, and you basically say look, we've made a 15% post-tax RoE in our CB&S business in full year 2012 when we've made 14% in full year 2013, and this is basically in line with our targets. I just wanted to ask, do you believe that you are currently making a 14% RoE in your Investment Bank after-tax? And therefore, the only thing that we need to wait for, for Deutsche to hit their target in CB&S is for the one-offs to roll off. And if the answer to that question is no, does the -- i.e. that there's more to do on the revenue and the cost side, then I guess the inverse question would be what do you think is the achievable RoE for Deutsche in these business lines? I guess the reason why I'm also asking is because on a global peer group comparison, that I guess would be an industry-leading return currently, and I just wanted to ask you whether you feel that you are producing an industry-leading return in your fixed income business as it stands. And the second question I have is, coming back to your comment, Anshu. You suggested that FICC was disappointing, that revenues were disappointing. And again, looking at this 14% underlying RoE target, in a normalized revenue environment, what do you think the RoE of your FICC business is?

[Stefan Krause:]

Okay. So I counted 4 questions, I think. So let me go back to the first ones, and then I'll hand off. First of all, on FBO, like as of year-end, obviously we did a reassessment on the dates. I can tell you we expect the rules to come out in the first quarter of this year, 2014. We, at this point, don't expect any larger changes to it, maybe some clarifications. And we have -- as we do every year, reassess all information, including also all of the U.S. Basel III rules that came out. And we are very -- continue to be very comfortable with our assessment to be fully compliant in July of 2014, and I have the numbers here in front of me. I see the -- 2015, I see the numbers are quite good and that we have made significant progress in putting our plan in place. So I can say we're very confident on this. Then the next question was on the FX probing. We have received some requests for information from certain regulatory authorities, who are investigating obviously the trading in the foreign exchange market. We, as a bank, we are cooperating with those investigations, which as you know are in very early stages at this point in time, which by the way, why obviously financially you don't see any results to anything for this because it's very early in fact-finding stage. At the same time, obviously, you can assume that we, ourselves, are conducting an active review of this business to really determine whether there may have been any wrongdoing. And obviously, as you saw us do, whether we have to enforce against employees and we have to take discipline actions against employees. We can assure you that the bank is committing a tremendous amount of resources to the issue and that we are really fully committed to a full review and that obviously assist our regulators in any reasonable way. But again, obviously, I can't comment on any specific items with you.

[Anshuman Jain:]

Regarding the RoE of the fixed income business, we actually don't think 14% for 2013 is particularly industry-leading. In fact, the work that we've done would suggest that there's at least a couple of our competitors that we can see, which ought to be ahead now. Most companies don't break divisional RoEs out. And you've asked me to do that and I won't either, partly because it is a very heavily nuanced question with a lot of cross-divisional subsidies, especially when it comes to resource utilization and so on. So it's a very tough thing to really tell you truly with a level of precision, what the fixed income RoE would be. So first and foremost, do we think we're industry-leading? No, we don't. Do we think there is improvement possible in that 14% number? Absolutely. Let's not forget 2013 has not been a particularly good year from a revenue standpoint, especially from a volume vantage point, from the standpoint of European fixed income, which is where Deutsche Bank truly dominates and is taking more and more market share. Europe has been quite sluggish from a volume standpoint, especially in the second half of the year, so we think there is revenue upside, certainly in fixed income. And secondly, as I pointed out earlier, the model of the future will depend far less on counter-party credit extension, particularly when it comes to OTC derivatives, where Deutsche Bank historically has been a leader. So I can actually see upside both the numerator and denominator. Is 14% something which we're highly confident we'll be able to achieve on a core underlying basis? Yes. Do we think we can improve upon that in the future? Yes, as well. And no, we don't think we're industry-leading.

[Jernej Omahen:]

Can I -- maybe I'm just going to add a sub-question to that. Can I ask, is -- I guess, a similar question on returns but in a slightly different way. It seems to us that the further out the target is, the more confidence and the more forcefulness in reiterating that target. I guess that we're all struggling a little bit as consensus estimates would show as to how you get to your 2015 targets. And the near-term results are sort of volatile and you have some headwinds. And then I come back to your comment earlier where you say there's controllables, which are costs, then there's non-controllables, which are revenues and litigation charges and regulation and other one-offs. So what gives you the confidence to reiterate a longer-term targets so frequently and I guess, particularly on this call?

[Anshuman Jain:]

To be fair, I think if you go back to 2012 and you ask yourselves how this management team has done on all of the controllables, I think I'm right in saying that we've pretty much met or exceeded all of our controllable targets. So there's a fight between hedging our controllable targets and being hit by worse-than-expected uncontrollables. And you are right, we are forecasting that 2014 will represent a turning point with the bulk of our legacy losses, litigation, de-risking costs, which have been the 3 things which have contributed the most vigorously, will be behind us. So I don't agree with you that we're being too optimistic on giving ourselves a self-assessment. We think we now have a solid 18-month track record of hitting every single controllable target in very tough circumstances. So that confidence translates into our future confidence. Now you're right in reaffirming our 2015 targets. There is a confidence in the management team's ability to delever what remains to be delevered in terms of de-risking, in terms of finishing OpEx and so on. And also, there's an implied forecast that the uncontrollables will peak and ebb within 12 months.

[Operator:]

The next question is from the line of Fiona Swaffield, RBC Capital Markets.

[Fiona Swaffield:]

Can I ask in 2 areas? In the past, in the Q3 slide pack, you talked about the cost of the EUR 250 billion reduction plan in EUR 450 million to EUR 500 million on revenues and I think EUR 600 billion on other costs. Could you tell us how much of those we've already seen in the second half? And then the second area is on the compensation. I think you talked about a 1% reduction. I get more like a 200 basis point reduction to ratio if you use adjusted revenues, and I wondered if you could go through what's been happening on the bonus grants, if there's any change in deferral policy? Because it does look like a pretty low ratio.

[Stefan Krause:]

So on the cost, I cannot split out the impact we had out of this [indiscernible]. We, obviously, as reported, we had some impact because assets have come down. You have to see that I would just -- if you asked me to do a guess right now here on the microphone, I would -- basically, some of these costs is obviously in the NCOU, currently. But it's hard, obviously, to estimate exactly the amount. But I would say, what we have cut so far, obviously, was the lower hanging fruit and was the lower expense items at this point in time, so I would see that probably some of it is still ahead of us just because of the dynamics of what type of assets we've reduced so far and the RoE on those assets at this point in time. And so, therefore, I would say the guess would be less than 100 is what we will spend. But we have included further cost in our plan, but we still reiterate our 2015 target. So this is -- you have to think about, this is a continuously rolling trend is to identify assets for this reduction and then negotiate with our business divisions on what their targets are. But, again, I can only reiterate, we are very well on track versus the plan. We're quite happy that we have moved so fastly at the beginning and then we already have 1/3 of the mission behind us. And, honestly, I can say, that we expect to continue to see this development over the next couple of quarters, in terms of the pace we're achieving this. On compensation, on compensation, obviously the numbers, I would have to calculate the numbers. Our number is 1% decline on the numbers that I have in mind. If you look at the deferral, it's a very slight increase to deferral versus last year, but not material. It's higher, but I think the deferral was 45 moved to 47, something like that. So that's basically, therefore, materially unchanged. As you know, the higher deferral ratio is more a resultant because, obviously, of the number of people that we have, risk takers, that are subject to higher deferrals, based on, obviously, the regulatory and legal framework that we have in place and that we are exposed to. So our risk taker population is quite big. I must say that we have, per definition, with our regulator, probably one of the largest risk taker population, and therefore that has an impact on that deferral ratio. But I would say no big moves. Only to say at this point in time, obviously, what we will have to tell you then in the future to take into consideration, which is not finalized yet, is what the CRD 4 impact will be on compensation and in 2014, it maybe then a delayed stage 1 decisions that we can share with you. But in as far of 2013, obviously, there was no impact from that yet.

[Operator:]

And the next question comes from Stuart Graham of Autonomous.

[Stuart Graham:]

I had a few questions. Firstly, on Slide 25, you say that the CB&S CRD 4 leverage denominated down 17%. I wonder if you could give us the absolute figure there? The second question is in the non-core unit for 2014, I think in the past you've given us some guidance on what we should kind of be thinking. Could you, maybe, give us a range of what you think IBIT there could there for 2014? I know it's very unpredictable, but maybe a range would be useful. And then the final question is for Anshu. I mean your capital targets kind of 10% and 3% were at the low end of where peers are, and I think all of us know you can get to 3%, but my fear is that regulators keep increasing those requirements. Once you get to 3%, 4% becomes the new 3% and you're always at the back of the pack, in terms of where those capital ratios are. So why are you comfortable to be at the back of the pack, in terms of capital ratios? Philosophically, why do you think that's the right place for Deutsche to be?

[Anshuman Jain:]

Stuart, let me start. 10% is not back of the pack. 3% is, so let me distinguish. On core Tier 1, we still see ourselves as top quartile to sort of 50th percentile median. As we pointed out, the European business model is very different from the U.S. business model. Let me reiterate, for those of you that may have not tracked the differential, you really cannot compare leverage ratios in different regimes. The mortgage market in the U.S. is very different from Europe. The consumer finance contribution both to P&L as well as riskiness is very different. In my opinion, I think it's very misleading to do a straight cross-geography comparison when it comes to leverage ratio, which does not distinguish between assets at all. So yes, we think a median position on capital and towards the higher end of leverage globally, but frankly in the pack when it comes to the European peers, is no bad place to be.

[Stuart Graham:]

Maybe I just -- a follow up there. I mean, Barclays have got a leverage ratio on a new basis today of 3%. Yours, I think, is 2.1% if I take your core Tier 1 capital and you have no new style 81 [ph] right now. So yours is 2.1 over the new rules. So you're 100 basis points behind Barclays. You are comparable, I think, in terms of business model. Lots of investors think Barclays don't have enough capital.

[Anshuman Jain:]

There's no question that we still have work to do on our leverage. We've made that point very, very clear. That's our EUR 250 billion asset reduction. Again, we've demonstrated to you that we've been able to achieve a very rapid pace of deleveraging. By the time we're done, we would have closed a big part of that gap, and then subordinated debt issuance, we think will make up the balance of that. So do have work still ahead of us in leverage? Yes, we do.

[Stefan Krause:]

Okay, Stuart, to your first question, I'm going to owe you that number. I don't have the number to the 17%, but I think we can clarify that later. And to the NCOU EBIT outlook for 2014, number one, obviously, we've never given out a target for NCOU, and let me give you a little bit explanation and give you some moving parts, obviously. The first one is litigation. That's very difficult to predict from today's perspective. And as you see, 1/3 of the losses in NCOU last year were related to litigation that was associated to discontinued businesses we track in the NCOU. Then, obviously, I must say we have been quite successful, because of benign markets, of not taking huge losses really on the de-risking and even have had quite some good momentum of positive results in the NCOU from the de-risking activity, which was a positive. But then it was counterbalanced that the biggest issue, I think, the NCOU will face on a going forward basis now is costs that remain despite the assets gone and to some extent and then especially also funding that remains, despite the assets being gone. So they lose -- don't forget some of these assets that we just discontinued, they were still performing. They were still providing positive P&L. The reduction of the funding side of the NCOU is that we, as in our whole deleveraging exercise, quite a tough and quite an expensive exercise. So these are the dynamics. So it's very difficult to give you a good way to track it, because the numbers itself, the trends are quite volatile. The operating assets, they're more stable, and I would see, in the operating assets, a slight improvement versus 2013, but not a material change there for the -- to the NCOU numbers.

[Stuart Graham:]

The thing I struggle with is, I mean, even if I add back litigation, all the funnies for Q4, I get a loss of EUR 530 million in the NCOU, and that's the kind of figure that you are making in the first couple of quarters of 2002 -- 2012 when the business was twice the size. So the businesses was halved, but the losses are still the same, even on the kind interpretation.

[Stefan Krause:]

For example, on the first quarter, we made quite a good gain on de-risking on those trading assets that we sold. So -- and obviously, when we sold some larger off depreciation, we also had gains in them, so the run has been quite well. And it's really quarter-by-quarter has been quite a different development. But the underlying loss, as you correctly calculated, is not that bad. It's just mean mainly the litigation pieces, and then obviously, the impact of, for example, the funding, the balance sheet side of the NCOU, the funding cost and the legacy funding positions they carry, which are quite expensive legacy position. So sorry, maybe we tried to give you some dynamics in the NCOU. I can consider that to give you some dynamics, what to look for, maybe to enable you to better estimate it. But I tell you, even internally, it's quite difficult to estimate.

[Operator:]

The next question is from Kian Abouhossein of JPMorgan.

[Kian Abouhossein:]

A few questions. The first one is regarding CoCo issuance. My understanding is we have an application with Basel for quite some time now, and I'm just wondering what are the issues that are remaining regarding potential CoCo issuance, for you and so generally for the German banks, from your perspective, both from a tax perspective and from a legal perspective, if you could maybe discuss what the issues that are stopping you from getting approval. The second point is regarding your leverage ratio Basel III. You clearly do not take into account proactive steps, as you just indicated, of reducing the asset side. However, as we know, credit derivative notionals are allowed to be netted under certain conditions. And I'm just wondering if you can discuss a little bit what you see here in terms of potential, also SFTs repos, will be negative as cash collateral. Just wondering if you can talk a little bit about how this is changing the industry from your perspective and how you're dealing with these issues and more from a proactive perspective, what you can do yourself, you think, in terms of leverage ratio improvement? And the last point is on cost savings. You reached EUR 2.1 billion, you have EUR 2.9 billion as your target for this year, based on the Investor Day, and we're just wondering -- you actually highlighted again in this slide and slide, I think, 22, but we're just wondering, what is the real achievable number, because this looks very unambitious to us in terms of cost savings.

[Stefan Krause:]

Okay, good. So let's start with the CoCo. We've really had a very constructive discussion that the issues mainly hinged around German corporate law, German [indiscernible] tax loss in Germany versus how you construct it versus what CRD 4 requires. Yes? So there are some issues that we have to overcome that I think, over time, we will overcome. But it's obviously very difficult to say by when, because obviously, there are several authorities involved. It's tax issues, it's corporate governance structuring type issues, it's securities laws issues. It's obviously then also the regulatory issues that we have to solve for. And I think that looking at some of the issues that we have in Europe, probably most of them will have similar issues still pending, that we have to -- that have to be worked through until we really get a final use of system. So very difficult to predict at this, but I will tell you we stand by our commitment. We want to issue EUR 5 billion 81 [ph] by the end of 2015. And again, I can only say, from my seat, we definitely expect to be put in a position that we can start issuing in 2014. So our willingness is definitely there.

[Kian Abouhossein:]

So from your perspective, some more -- a legal aspect rather than anything else? You think, ultimately, it's a timing issue, it will happen? It's just working out nitty gritties?

[Stefan Krause:]

Think about, for example, on the coupon itself that CRD 4 says that cannot be a fixed coupon, technically, because, obviously, that would defy the purpose. It needs to be under discussion. The question is, how do you deal with the coupon between what the market expect it to be, versus what the CRD 4 rule expect it to be on tax. Is this now a dividend or has it been treated as interest cost and things like that? So think about all this. This is what's being -- very constructive discussion and what's being resolved, but with, again, several authorities that are involved and need to give us respective clarification. But if I go into your leverage ratio, yes, the Basel III -- I must say that the team here told me I should not disclose our guess on Basel III, and I was very strong to give you an indication, because they feared exactly these questions, which is the next question, so if it's EUR 200 billion, what are you going to do about it, yes? And what we are going to do about it, of course, over there, those additional things we have not yet put management action, as I said. And you're absolutely correct that there is quite some steps you can take in terms of management actions to also deal with this increase. What we only wanted to send out as a message that even if we were to accept that this is the increase with the Basel that we will have from the EUR 250 billion cut, we should be able to achieve the minimum, and we have upside from here. That would also be our view. But again, it's not final yet. It's not law yet, and therefore, we have to wait for that. For example, cash collateral variation action on the recognition in leverage that, obviously, indeed some recognition foreseen in the latest Basel paper. But, obviously, their defined constraints are somewhat unclear to us at this point, and therefore, we have taken a conservative approach on our estimate, to give you one example. But, also, our view could be that we might come out better here, yes?

[Kian Abouhossein:]

Do you have any cash collateral against repos? Because we looked at your filings and we couldn't see anything that you actually have cash collateral at the moment against your repos.

[Stefan Krause:]

Yes, we have. But cash collateral in this definition, it's for derivatives and not SFT [indiscernible]. In that sense, the fact that we have against the derivatives doesn't really matter. So let me stand with that answer. And then your last question was the cost savings. Well, to be honest, obviously, the program is very well ahead, and we're also very proud and there's been great job done at the bank with the program in moving the numbers ahead. But, obviously, now, we have the tougher projects, the IT projects, the longer run projects that are the ones carrying it. And therefore, I think, to expect the same out-pacement of our targets would be probably too ambitious. No, I know teams are working quite well. Now the cost cuts that we have brought were, as we have always said, that the beginning and start with the low hanging fruit and then you have the shorter term purely efficiency driven [indiscernible]. Now we have the next round would really need to come from the system investment we are doing and the efficiency gains that we get from these system projects, many of them are running. Many of them did start last year. So obviously, they will take some time to get put in place. So in that sense, I think we're happy that we're ahead of time, but I don't think that our number is overall unambitious and also overall unambitious even for the year 2014.

[Operator:]

The next question is from Dirk Becker of Kepler Cheuvreux.

[Dirk Becker:]

Two short questions please. The first would be on your guidance on the cost for the deleveraging. You've gone quite away in 2013 for the deleveraging, and I was just wondering whether the EUR 600 million that you mentioned before as deleveraging cost, how much of this has been taken now in 2013 and how much is still open? And then the second question is, have you already made a decision about the dividend that you want to pay for 2013? I noticed that you had a dividend accrual in your capital, but I haven't really found any firm dividend announcement in your releases.

[Stefan Krause:]

So the first question, I think was already asked previously, but I can tell you that we don't have a specific number of how much. It is mostly offset in the NCOU. And I would say based on what we have cut so far from the balance sheet was the low RoE components, et cetera. The number will be less than EUR 100 million, but I don't have an exact estimate for you at this point.

[Dirk Becker:]

No, I mean the one-off costs. You talked about -- not the revenue losses, but the one-off costs, the EUR 600 million.

[Stefan Krause:]

Yes, you're right. But also, probably from this one-off costs, since most of it is NCOU and we had the big hits in NCOU is very difficult to say how much of that is consumed. Yes, that's even worse -- more difficult than the ongoing. Sorry, you're right, different question. And then on the dividend, as you know, by German corporate governance, the dividend is a proposal of the supervisory board to the AGM. You know what we normally accrue for stable, and that's what's in our numbers right now. But the decision is obviously to come. We'll communicate once this decision is made.

[Operator:]

Next question is from Robert Murphy of HSBC.

[Robert Murphy:]

I've got many follow-ups, because most of my questions have been asked. First of all, on the cost savings, I'm looking at PBC, can you give us an idea when we're going to start to see a sort of a stronger pace of savings coming through there? Because it's been lagging the Asset Management and Investment Bank. Secondly, following up on the NCOU, on the funding positions, is your strategy to sort of let these run off naturally, or are you going to close these early and take more hits? And that's about it.

[Stefan Krause:]

Okay. Two good questions. But before I answer them, Stuart, your earlier question on CB&S, I have the numbers right now. The CRD 4 was about EUR 1.1 trillion, which now stands at about EUR 900 billion. Okay, so that's only for that cut -- for the question you asked around the numbers. Now cost savings in PBC. As you know, the cost savings in PBC are just offset currently by the investment into -- and were offset in 2013 by the investment into the synergy program that we had with Postbank, and therefore, you don't see these savings. We're quite comfortable that is now, the programs are realized and we have some good successes with some significant system implementations, especially in the second half of the year. And if they now are material, we should start seeing net positive effects in this year out of the synergy program with Postbank. So I think I'm quite comfortable that we'll see that, which by the way, in Asset & Wealth Management, as you mentioned, we had some initial cost reductions, but now is also system and other cost will occur, the dynamics will slightly change there as well continue positively, but they've really exceeded our expectations in this first year. And then you asked me on the NCOU funding positions. It's very difficult to say how we deal. It is on a position-to-position basis. It's a problem that you have on assets. Obviously, when you derisk assets, you take a P&L hit, and you have a direct benefit from it in terms of RWA cuts, for example, which obviously in liability positions, you don't have. So we'll have to see how we deal. There will be some buybacks. There will be mainly roll-offs, which help us, especially on the Postbank liabilities. And on those, obviously on the funding overall position, it will be more taking off from an overall group perspective, how we look at our total assets and liabilities and how we manage them down and only to be a division. But I was only making the point that when you look then at the division and segregation, there is certainly expense of the funding positions allocated to the NCOU that will continue to cause, obviously, now losses, because corresponding assets that help them to offset these funding costs obviously being reduced quite rapidly.

[Robert Murphy:]

Can you say what the average life is of those positions maybe? Just to give us an idea.

[Stefan Krause:]

There's some longer -- I will tell you there are some longer positions as well, but otherwise, it's pretty mixed.

[Robert Murphy:]

Right. And I'm sorry, just one other follow-up. In terms of your fixed income trading number, should I include -- does that include the 176 FVA in there? Or is that elsewhere?

[Stefan Krause:]

The trading number? No. That's in the consolidation piece within the managerial reporting, yes.

[Operator:]

We're taking one last question. That's from Michael Helsby of Bank of America Merrill Lynch.

[Michael Helsby:]

Just 3 questions, if I can, actually, just to finish off. Anshu, you mentioned the headwind clearly seen in your -- in the Investment Bank. And I think in your prepared remarks, you said you expect a better 2014. I think relative to the industry, your FICC trading, as you've discussed, has been progressively getting materially weaker. And I appreciate that it's early days, but I was wondering if you could give us a feel for how you've started the year, whether that step change that we saw in the second half of the year, year-on-year, has progressed into Q1. So that will be question one. Question two is just to follow up on cost, actually. So your adjusted cost basis, EUR 23.2 billion, is down nicely year-over-year. I just want to gauge your conviction and your confidence in these cost savings maybe in absolute terms. So if we assume flat revenues in 2014, would it be reasonable to just assume that, that delta on the achieved cost savings dropping through to the bottom line i.e. get a nice absolute reduction in costs in 2014 again? Any comment there would be helpful. And then, just finally, on the core Tier 1 ratios, I appreciate that the rules are still evolving, but the way you positioned the commentary, it makes it sound like you've taken the more optimistic interpretation of everything that you see in i.e. you're warning goes that the risk weighted assets could go up. Is that the right way to read what you're saying? Or is it directionally, you're not giving us a steer?

[Anshuman Jain:]

So, Mike, I'll begin by taking the first question, and then I'll hand over to Stefan. It's too early to really comment much about first quarter. We haven't even completed January yet, so I think premature to talk about Q1. Let me clarify -- I actually didn't say that we expect 2014 to be materially better for the Investment Bank. We actually think the trends that we've seen in 2013 are likely to continue, so I think you'll keep interest rates at a pretty depressed level. We think volumes and fixed income currencies and commodities will likely remain low. The uptrend in equities will probably continue and maybe M&A picks up. But if I take a look at the overall outlook for CB&S in 2014, we don't see a materially better revenue picture at this point. Now in terms of how we see our own fixed income performance, I've talked about this before, so I have nothing further to add, beyond the point that the revenue reduction that you've seen are almost entirely in line with the reduction in balance sheet that we pushed through, as well as an outperformance of the U.S. over Europe. So I think if you adjust for both of those, our relative performance can be explained in a pretty straightforward fashion. And the efficiency of the business is, without a doubt, superior, both on a cost, as well as balance sheet adjusted basis, compared to where we were a year ago.

[Stefan Krause:]

Okay. Then I'll take your cost question. It's, in principle, yes. Obviously, the benefit -- because this is run rate cost reductions, so in principle, you will see a benefit, but it's very difficult for me to say if we're going to be exposed to other regulatory and other additional cost items in the year. But in principle, yes. And this is what we expect, and especially in 2015 then to be the full value of the reductions to really be seen. So for 2014, it's logically yes, but maybe in terms of uncertainties that we still had in some investments we're doing in the platform throughout the year as well. So and then you asked me on the Tier 1, what we see is currently is that some of our regulators is being very conservative by definition, and we're all guiding -- what we are guiding will ensure that they will have further technical standards that will come out. And obviously, at this point there, we need to be prepared, and we need to be open that some of these standards and these definitions might create some further pressure. We did include, from today's perspective, what we believe the most likely outcome would be, also after discussions and what we feel. But, ultimately, it's very difficult for us to say. I just put out this as a note of caution in terms of how -- especially in 2014, many of these technical standards will be solved and defined. And obviously, it's an estimated number, so obviously, we made certain estimates about certain of this will come out. To look in the past, you've seen, sometimes, some ease in trends. You've seen sometimes some tough trends and that's what my statements referred to, difficult to say.

[Operator:]

Gentlemen, there are no further questions at this time. Please continue with any other point you wish to raise.

[John Andrews:]

Great. This is John Andrews again. We'd like to thank you for taking the time to join us today, and particularly on a short notice. If you have any other follow-up questions, please feel free to contact us here in Investor Relations. Otherwise, thanks for your interest in Deutsche Bank. Goodbye.