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Deutsche Bank (XETRA: DBKGn.DE / NYSE: DB) today released its results for the third quarter of the financial year 2002. The bank reported a loss before income tax for the third quarter 2002 of Euro 181 million, a decrease of Euro 544 million compared with the same quarter in 2001. For the first nine months of 2002 Deutsche Bank reported a pre-tax profit of Euro 3.3 billion, up 14% over the same period last year.
Deutsche Bank's underlying pre-tax profit - as described in the table below - for the third quarter of 2002 was Euro 74 million, down from Euro 782 million in the third quarter of 2001. For the first nine months of the year, underlying pre-tax profit stood at Euro 1.6 billion compared to Euro 2.5 billion for the first nine months of 2001.
|3rd quarter||2nd quarter||3rd quarter|
|in Euro m.||2002||2002||2001|
|Reported income before income taxes||(181)||2,223||363|
|Net gains on industrial holdings||(21)||(2,045)||(457)|
|Significant write-downs / equity pick-ups||334||497||506|
|Net gains from subsidiaries disposed / held for sale||(395)||(213)||0|
|Increase in other inherent loss allowance||200||n/a||n/a|
|Restructuring activities / severance payments||137||447||132|
|Underlying pre-tax profit||74||913||782|
"Underlying revenues" is defined as reported revenues adjusted for the revenue items described in the table above, and reflects insurance revenues net of policyholder benefits and claims.
"Operating cost base" is defined as reported non-interest expenses adjusted for the expense items in the table above, for policyholder benefits and claims, which are reclassified to "underlying revenue," and for provisions for off-balance sheet credit losses.
Commenting on the figures Josef Ackermann, Chairman of the Group Executive Committee, said: ”These have been exceptionally difficult times for the global banking industry. Clearly we are not satisfied with the results for the third quarter. However, we have made substantial progress on our announced strategic objectives, designed to improve the bank’s long-term profitability. We have taken steps to reduce risk and strengthen the quality of our balance sheet.”
Reported revenues for the third quarter amounted to Euro 5.5 billion, down from Euro 6.5 billion in 3Q 2001. Underlying revenues were down 11% year on year from Euro 6.0 billion in 3Q 2001 to Euro 5.4 billion in the third quarter this year.
The operating cost base fell to Euro 4.7 billion for the quarter from Euro 5.1 billion for 3Q last year and from Euro 4.9 billion for 2Q this year. In the first nine months of 2002, operating cost reductions have more than offset the decline in underlying revenues.
The results of the third quarter reflect provisions for credit losses - which include both off and on balance sheet provisions - of Euro 790 million, including the addition of Euro 200 million to increase Deutsche Bank's other inherent loss allowance. This decision was taken to give greater emphasis to the current credit environment as compared to historical experience. Specific loan loss provisions were recorded to address the downturn in the telecom industry and for certain exposures within the German portfolio and the Americas.
The bank's Private Client and Asset Management division had an improved quarter, thanks to a strong performance from the Personal Banking unit. Personal Banking achieved an underlying profit of Euro 156 million against a profit of Euro 9 million in 2001 and Euro 124 million in the second quarter of this year. DWS also maintained its profitable record and continued to gain market share. Compared to 3Q 2001, the PCAM division reported slightly increased underlying revenues of Euro 1.9 billion while operating costs fell 7% to Euro 1.6 billion.
The bank also continued to concentrate on its four strategic initiatives:
Focus on current earnings:
The bank is ahead of plan on its cost saving target of Euro 2 billion by the end of 2003. Of the 14,500 planned redundancies already announced, about 10,000 have already left or will do so shortly.
Further improvement of capital and balance sheet management:
Deutsche Bank has made considerable progress in further reducing risk-weighted assets and its loan book in the latest quarter, including the de-consolidation of Eurohypo. Compared with the end of last year, risk-weighted assets declined by 12% and loans outstanding by 28%. The share buy-back program launched in June was continued in the third quarter. As of the end of September 2002 roughly 36% of the authorized volume had been bought back. The bank is managing its strong capital base very carefully and is committed to maintaining a BIS Tier I capital ratio at the upper end of 8 - 9%.
Focus on core businesses:
The bank continued to divest non-core businesses. In September it signed definitive agreements for the sale of Deutsche Financial Services to GE Commercial Finance and the Passive Asset Management business to Northern Trust. Deutsche Bank has also entered into exclusive negotiations with State Street Corporation on the sale of substantial parts of its Global Security Services business, and with IBM on the outsourcing of the IT infrastructure in Continental Europe. Additional agreements on further outsourcing projects are well underway. These initiatives are designed to achieve additional reductions in the bank's annual cost base by approximately Euro 1.4 billion, risk-weighted assets by almost Euro 10 billion and headcount by approximately 8,000.
Optimization of the PCAM franchise:
In October the bank began to combine the formerly separate services for its private and business clients under a single management. Once completed, the new Corporate Division "Private & Business Clients" will serve 12.6 million private and business customers throughout Europe, of which 8.3 million are in Germany. Meanwhile, the integration of Scudder and Deutsche Asset Management in the US is well ahead of the internal schedule.
The following appendix (B1 - B24) contains excerpts from the Interim Report.