This year started with persistent political and economic uncertainties. The first quarter was overshadowed in particular by the approaching war in Iraq, which then began in the closing days of March. Against this background, investors remained reticent towards new larger-scale commitments. In the lending environment, too, there were still no clear signs of a let-up. While much that was feared in connection with the Iraq crisis did not materialize and the military conflict ended sooner than expected, the climate on the financial markets has not yet improved substantially.
The strategic initiatives on our management agenda, announced more than a year ago, have meanwhile been largely implemented. They have resulted in a fundamental transformation of Deutsche Bank Group. The realized cost containment measures, for example, have led to an appreciable reduction of our operating costs. In the first quarter of 2003, on an annualized basis, they were 27% below the operating cost base in 2001. The key factor here was the reduction in our staff count from more than 86,000 at the end of 2001 to less than 71,000 at the end of the first quarter of 2003. We reduced loans and risk-weighted assets according to plan: at the end of March 2003, they were 35% and 22% below their respective levels at the end of 2001.
The 2003 financial year got off to a good start in our core businesses. The bank’s transformation and underlying revenues just 5% down on the first quarter of the previous year raised our underlying pre-tax profit to € 950 million, an increase of 72% compared with the first quarter of 2002. Deutsche Bank has thus demonstrated once again the revenue strength of its business model in difficult conditions. This key profit figure is used by the international capital markets to measure our performance.
Our Corporate and Investment Bank Group Division (CIB) again proved its exceptional global competitive position. In the first quarter of 2003, CIB achieved a pre-tax profit of more than € 1.4 billion, an increase of € 0.9 billion compared with the same period in 2002. This growth includes a gain of roughly € 0.5 billion from the divestment of our Global Securities Services business. Further market share was captured in a difficult market environment. CIB thus strengthened its position as one of the world’s top three investment and transaction banks. The Global Markets and Global Equities Business Divisions defended their leading positions in the market. The Corporate Finance Division made further progress and grew its market share. In the U.S.A., for example, we ranked third in mergers and acquisitions advisory business in the first quarter of 2003.
Our Private Clients and Asset Management Group Division (PCAM) achieved a pre-tax profit of € 274 million in the first quarter of 2003. Compared with the first quarter of 2002, this reflected growth of € 355 million. The PCAM organizational realignment is making rapid progress. With this quarterly report, we begin our reporting on the basis of the new Corporate Divisions Private & Business Clients (PBC), on the one hand, and Asset and Wealth Management (AWM), on the other. AWM is a new Corporate Division combining Asset Management and Private Wealth Management. In PBC, we offer tailored products and problem solutions from one source to our European private clients, affluent clients and small business clients.
Even after the sale of Passive Asset Management, PCAM remains one of the world’s five largest asset managers. Our Asset Management has its restructuring phase behind it. The integration of Scudder and RREEF in the U.S.A. has been successfully concluded with substantial cost savings achieved in this process. The Business Division is now concentrating on new business and on expanding its American market share. The first achievements are already visible and we are confident of continuing success.
Effective credit risk management receives high priority at Deutsche Bank. In the first quarter of 2003, we added € 350 million net to provision for credit losses. This is the second quarter in which provisions have fallen since peaking in autumn 2002. Furthermore, we have begun to hedge our new business systematically using derivatives.
The divestment program for our non-core activities was completed in the first quarter of 2003 with the disposal of our Global Securities Services business, our Passive Asset Management, and a substantial part of our private equity portfolio. From these transactions, above all, we recorded net gains of € 503 million.
The massive fall in stock market prices last year, with the DAX out in front, confirmed emphatically how right we were to accelerate at an early stage the reduction of our industrial and private equity investments. Unfortunately, the continued downward pressure on equity prices in the first quarter of 2003 necessitated further adjustments to the value of our remaining investment portfolio. This resulted in gross charges of € 1.2 billion from, among others, our holdings in EFG Eurobank, Fiat and mg technologies, as well as a number of private equity investments. Above all, though, the total amount includes, at € 0.5 billion, the complete write-off of our equity investment in Gerling-Konzern Versicherungs-Beteiligungs-AG.
Despite these high expenses, Deutsche Bank Group reports income before income tax of € 234 million. Since the charges are mostly not tax deductible, this led to a net negative result after tax of € 219 million for the first quarter of 2003.
A few days ago, we completed our share buy-back program. Roughly 62 million Deutsche Bank shares were purchased for approximately € 3 billion. Of these shares, 40 million are to be cancelled. This corresponds to 6.4% of our share capital. At the coming General Meeting, we shall ask our shareholders again to authorize us to carry out a new share buy-back program. The Board of Managing Directors will then decide in due course whether to utilize it. Our priority here is to maintain a sound BIS core capital ratio at the upper end of the 8 to 9% range. At the moment, it is standing at 9.6%.
In the current financial year, we shall again strengthen our client focus, without neglecting cost discipline. We want to offer attractive products and tailored problem solutions on an even more targeted basis at competitive terms and conditions. However, we give priority to organic growth. Acquisitions will only be considered on a very selective basis and in so far as they represent value-accretive add-ons to our existing business activities.
In view of our strongly reduced cost base and improved risk profile, we are well prepared to profit quickly and comprehensively from a market turnaround. We are already seeing the first encouraging signs of this happening.
With regard to our forthcoming General Meeting on June 10, I would like to ask you to exercise your voting rights. If you cannot come to Frankfurt personally, you can, as a registered shareholder of Deutsche Bank, issue your power of attorney and instructions for the exercise of your voting rights in writing or through the Internet. The information you need for this purpose was sent to you recently with the invitation to the General Meeting.
Yours sincerely,
Josef Ackermann
Spokesman of the Board of Managing Directors and
Chairman of the Group Executive Committee
Frankfurt am Main, April 2003
