Deutsche Bank (XETRA: DBKGn.DE / NYSE: DB) today released its second quarter results for the financial year 2002. Income before income tax expense and effects of accounting and tax rate changes for the second quarter 2002 was € 2,223 million, an increase of € 582 million or 35 % over the same quarter in 2001. After charging income tax of € 150 million, the Group reported a profit after tax, but before effects of accounting and tax rate changes, of € 2,073 million.
Commenting on the figures Josef Ackermann, Chairman of the Group Executive Committee, said: "In spite of difficult market conditions, Deutsche Bank has held up well in the second quarter 2002, demonstrating again the strength of its franchise. The stable underlying revenue base reflects our success in gaining market share from our competitors in both our Group Divisions, Corporate and Investment Bank and Private Clients and Asset Management. This success can be attributed in particular to our excellent long-standing client relationships, which we consider our most precious asset, and the commitment of our staff.”
Excluding gains on the sale of industrial shareholdings and other material special items the bank reported an underlying pre-tax profit of € 913 million in the quarter under review. The reconciliation to the reported pre-tax profit for the same period is shown in the table below.
|in EUR m.
||Three months ended|
|Reported income before income taxes
|Net gains on industrial holdings
|Net write-downs on alternative assets / equity pick-ups
|Net gains from subsidiaries disposed / held for sale
|Gain from the sale of a building
|Restructuring activities / severance payments
|Underlying pre-tax profit
The gain on the sale of the industrial shareholdings is not subject to any income taxes. The recording of the gain is complicated by a U.S. GAAP accounting treatment that has no economic effect on the bank’s earnings performance. Deutsche Bank is required to reverse tax benefits recorded in previous years relating to the effect on industrial share holdings from a change in German tax laws. In the year 2000, this accounting treatment increased net income to € 13.5 billion. The reversal effect for the second quarter 2002 was € 1.9 billion. Reported net income therefore is € 204 million.
Faced with adverse market conditions, the group increased second quarter 2002 revenues by 8 % to € 8.1 billion quarter on quarter. Net interest revenues were € 2.3 billion in the second quarter 2002, compared to € 1.7 billion in the first quarter 2002 and € 2.8 billion in the second quarter 2001. Deutsche Bank had a particularly strong quarter in both commissions and fee revenues and in trading performance. Commissions and fee revenues, benefiting from the first time consolidation of Scudder and RREEF, were € 3.0 billion for the second quarter 2002, compared to € 2.6 billion in the first quarter of 2002 and € 2.8 billion in the second quarter of 2001. Trading performance – defined as trading revenues adjusted by adding trading related net interest and by deducting interest cash flows on non-trading derivatives not qualifying for hedge accounting – was € 1.8 billion compared to € 1.5 billion in the first quarter of 2002 and € 1.9 billion in the second quarter of 2001. These results demonstrate the strength of Deutsche Bank’s franchise.
The cost control programme, designed to reduce the Group’s operating cost base by € 2 billion by 2003, is showing tangible results. Total non-interest expenses were € 5.3 billion, down from € 6.6 billion in the second quarter 2001. Compensation and benefits were € 2.9 billion for the second quarter 2002, an increase of € 78 million (reflecting the net increase from the Scudder and RREEF acquisitions and the insurance divestment) compared to the first quarter of 2002 and a decrease of € 291 million compared to the second quarter of 2001.
As a result of the deteriorating credit environment, special events, and corporate scandals, total provision for credit losses were € 511 million for the second quarter of 2002 compared to € 384 million for the first quarter of 2002 and € 254 million for the second quarter of 2001. The increase was primarily due to the effect of specific loan loss provisions raised to address the downturn in the Telecom industry and increases in specific loan loss provisions for certain exposures within our German and Latin American portfolios.
Deutsche Bank has made significant advances in capital and balance sheet management. Further reduction of risk weighted positions, together with an increase in regulatory capital resulting from higher retained earnings, led to an improvement in the bank’s tier 1 ratio from 8.1 % at the end of 2001 to 9.3 % at the end of the second quarter 2002.
Deutsche Bank has conducted the necessary tests for the impairment of goodwill under the accounting standard SFAS 142. There was no impairment charge resulting from the adoption of this standard.
Deutsche Bank continues to concentrate on its four key strategic initiatives:
- Focus on current earnings
- Further improvement of capital and balance sheet management
- Focus on core businesses
- Optimization of the Private Clients and Asset Management franchise
Ackermann said: ” These four key initiatives are decisive for our success and I am particularly pleased that we have already made significant progress. Our objective is to generate sustainable profits out of our existing businesses, with a rigorous focus on current earnings, and a strong commitment to sustainable cost discipline.”
The following appendix (B1 – B23) contains excerpts from the Interim Report.
This Investor Relations Release contains forward-looking statements. Forward-looking statements are statements that are not historical facts, including statements about our beliefs and expectations. Any statement in this Investor Relations Release that states our intentions, beliefs, expectations or predictions (and the assumptions underlying them) is a for-ward-looking statement. These statements are based on plans, estimates and projections as they are cur-rently available to the management of Deutsche Bank. Forward-looking statements therefore speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.
Forward-looking statements involve inherent risks and uncertainties. A number of important factors could therefore cause actual results to differ materially from those contained in any forward-looking statement. Such factors include the conditions in the financial markets in Germany, in Europe, in the United States and elsewhere from which we derive a substantial portion of our trading revenues; potential defaults of borrowers or trading counterparties; the implementation of our restructuring including the envisaged reduction in headcount; the reliability of our risk management policies, pro-cedures and methods; and other risks referenced in our filings with the U.S. Securities and Exchange Commission. Such factors are described in detail in our SEC Form 20-F of March 27, 2002 on pages 9 through 13 under the heading "Risk Factors." Copies of this document are readily available upon request or can be downloaded stated below.