Deutsche Bank (XETRA: DBKGn.DE / NYSE: DB) today released its results for the first quarter of 2003. The Bank reported income before income tax expense of Euro 234 million for the quarter. The pre-tax income for the first quarter of 2002 was Euro 1.27 billion, which included gains on sales of industrial holdings. The 1Q 2003 result was subject to net charges of Euro 718 million, which resulted from a regular review of principal investments and took into account the difficult market conditions in the first quarter of 2003. Due to the non tax-deductible nature of most of these charges, Deutsche Bank realised a net loss for the quarter of Euro 219 million (compared to a 1Q2002 net income of Euro 597 million).
As a result of the strong performance in Deutsche Bank's main business activities and the significant cost reductions, underlying pre-tax profit for the first quarter of 2003 (see reconciliation of pre-tax profit in the table below) was Euro 950 million, up by 72 per cent from Euro 551 million in the respective first quarter of 2002 (and compared to a 4Q2002 underlying pre-tax profit of Euro 147 million).
Total noninterest expenses were down 27 per cent to Euro 4.38 billion. A significant part of this decrease was due to a reduction in headcount resulting from the sale or merger of some businesses and from restructuring activities. Total new provisions for credit losses were Euro 350 million - Euro 380 million provision for loan losses less a Euro 30 million release for off-balance sheet positions - in the first quarter of 2003 (1Q2002: Euro 384 million). This is the second consecutive quarter of reducing loan loss provisions after a peak in autumn 2002. Additionally the Bank has started to systematically hedge its new loans with derivatives.
|Reconciliation of pre-tax profit*|
|in Euro m. || ||1Q03 || ||4Q02 || ||3Q02|
|Reported income before income taxes || ||234 || ||237 || ||1,270|
|Net gains/losses on securities available for sale/ |
| || |
| || |
|Net loss from equity method investments || ||638 || ||285 || ||0|
|Other revenues: net write-downs on private equity investments || ||77 || ||80 || ||0|
|Other revenues: net gains/losses from businesses sold/ |
held for sale
| || |
| || |
|Restructuring activities || ||(2) || ||(22) || ||340|
|Goodwill impairment || ||114 || ||62 || ||0|
|Underlying pre-tax profit || ||950 || ||147 || ||551|
| || || || || || |
|* Numbers may not add up due to rounding|
The Corporate and Investment Bank Division (CIB) has again demonstrated its strong global competitive position. CIB recorded income before income taxes of Euro 1.45 billion in the first quarter of 2003 (1Q2002: Euro 563 million). This improvement included a gain of Euro 508 million from the sale of the Global Securities Services business.
The Bank`s Private Clients and Asset Management Division (PCAM) remains one of the five largest asset managers in the world, despite selling its passive asset manage-ment business. The integration of Scudder and RREEF in the US has suc-cess-fully concluded, and PCAM now aims to win new business and increase market share. PCAM`s income before income taxes was Euro 274 million for the first quarter of this year compared to a loss of Euro 81 million in the same quarter last year.
Excerpts from the Interim Report can be found in the attachments on B 1 - B 26. On C 1 and C 2 we provide a full reconciliation of reported and underlying results for Deutsche Bank Group.IR Services
An analyst conference call with Dr. Clemens Börsig on Wednesday, 30 April 2003 at 1:30 p.m. will be broadcasted live via the Internet (listen only). A replay will be available at prescribed position.Information regarding the restatement of segments for 2002 to reflect organizational and reporting changes
As an additional service for investors and analysts to ensure comparability with the 1Q2003 results, we are providing the seg-ment numbers for 2002 as they have been restated to reflect
(1) changes in the Group's organizational structure,
(2) changes in management responsibility,
(3) a change in the capital allocation framework, and
(4) changes in the format of segment disclosure,
all of which came into effect from the beginning of 2003.(1) Changes in the organizational structure
- As of 1 January 2003 the Group completed the realignment of its Private Clients and Asset Management Group Division (PCAM). PCAM was re-seg-mented from the three corporate divisions Asset Management, Private Banking and Personal Banking into the two new corporate divisions Asset and Wealth Management (AWM) and Private & Business Clients (PBC). The corpor-ate division Asset and Wealth Management incorporates the former Asset Management Corporate Division and a new business division called Private Wealth Management, which globally focuses on serving Private Banking clients classified as ultra high net worth individuals (UHNW). Within the new corporate division Private & Business Clients, the former Personal Banking clients, Private Banking clients not classified as UHNW as well as small corporate customers have been combined. This new corporate division serves private individ-uals, affluent clients, and small business clients in line with their needs in the Group's key markets.
- Until 31 December 2002 the Group had a service function called DB Services that provided corporate services, information technology, consulting and transaction services to the entire organization. As of 1 January 2003, these service functions were moved into the group divisions and the Corporate Center. The goal of this realignment is to incorporate the business-related activities directly into the relevant business area.
(2) Changes in management responsibility
The following significant changes in management responsibility have been imple-men-t-ed during the first quarter of 2003:
- The Private Client Services business was transferred from the Corporate Banking and Securities Corporate Division (part of Corporate and Invest-ment Bank Group Division (CIB)) to the Asset and Wealth Management Corporate Division (part of PCAM Group Division).
- In connection with the realignment of PCAM, small corporate German customers, which had been assigned to CIB before, were transferred to Private and Business Clients.
- The Private Equity Fund of Funds Group, formerly reported under the Group Division Corporate Investments joined "Deutsche Asset Management", which is part of PCAM. In addition the third party funds business in Australia was trans-ferred from Corporate Investments to Asset Management.
- The Italian financial advisor network ("Finanza & Futuro Banca"), previously reported under Asset Management, was transferred to Private and Business Clients.
(3) Change in the capital allocation framework
The Group further refined its framework of allocating average active equity to the segments. The overriding objective remains to link the allocation mechanism with the economic risk position of a segment.
Hence, to further increase the risk sensitivity of the framework, the Group decided to include goodwill and other intangible assets along with economic capital as addi-tional driver of the book equity allocation.
For the restated full-year 2002 this meant that the Eur 3.8 bn average active equity formerly booked in "Adjustments" has now been allocated to the segments.
(4) Changes in the format of segment disclosure
The most significant changes are as follows:
- We are now disclosing "other items" and "underlying pre-tax profit" as well as the ratios "underlying cost/income ratio" and "underlying RoE" (pre-tax) for our segments.
- We now include severance payments and minority interest in our "under-lying pre-tax profit", which is defined as income before income taxes excluding "other items", goodwill impairment and restructuring activities.
- We, therefore, now separately disclose goodwill impairment, restructuring activities, minority interest and severance payments in order to provide more transpar-ency. Previously we had combined these items under the definition "nonoperating costs".
- The "operating cost base" is now defined as noninterest expenses less provision for off-balance sheet positions (reclassified to "provision for credit losses"), policy-holder benefits and claims, minority interest, restructur-ing activities and goodwill impairment.
- We have refined some revenue components to reflect current business practice. For instance, we no longer disclose revenues from our insurance business separately, as we sold the major part of it in 2Q2002.
None of the changes mentioned above have an impact on the Group's consolidated income statement and balance sheet.
Attached to this Release are eight tables with the restated segment numbers for 2002 (attachments D 1 to D 8).
In these tables, as well as in the 1Q2003 segmental results published today, we use the following terms with the following meanings with respect to each segment:
Operating cost base: Noninterest expenses less provision for off-balance sheet positions (reclassified to provision for credit losses), policyholder benefits and claims, minority interest, restructuring activities and goodwill impairment.
Underlying pre-tax profit: Income before income taxes less restructuring activities, goodwill impairment and "other items" referred to in the table for such segment.
Underlying cost/income ratio in %: Operating cost base as a percentage of total net revenues excluding other items (if applicable for the revenue section), net of policyholder benefits and claims. Cost/income ratio in %, which is defined as total noninterest expenses as a percentage of total net revenues, is also provided.
Average active equity: The portion of our adjusted average total shareholders' equity that has been allocated to a segment pursuant to our capital allocation frame-work. The overriding objective of this framework is to allocate adjusted average total shareholders' equity based on the economic risk position of each segment. In determ-ining the total amount of average active equity to be allocated, average total shareholders' equity is adjusted to exclude average unrealized gains on securities available for sale, net of tax, average deferred taxes accumulated due to changes in effective tax rates and the reversing effect and average dividends.
Underlying RoE in %: Underlying pre-tax profit (annualized) as a percentage of average active equity. RoE in %, which is defined as income before income taxes (annualized) as a percentage of average active equity, is also provided. These returns, which are based on average active equity, should not be compared to those of other companies without considering the differences in the calculation of such ratios.
Our management uses these measures as part of its internal reporting system because it believes that such measures provide it with a more useful indication of the financial performance of our business segments. We are disclosing such measures to provide investors and analysts with further insight into how our management operates our business and to enable them to better understand our discussion of segmental results.
List of attachments
B 1 - B 26: Excerpts from the Interim Report as of 31 March 2003
C 1 - C 2: Reconciliation of reported and underlying results for Deutsche Bank Group
D 1 - D 8: Restatement of 2002 segment numbers
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 counter-parties; the implementation of our restructuring including the enivsaged reduction in headcount; the reliability of our risk manage-ment 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, 2003 on pages 9 through 13 under the heading "Risk Factors." Copies of this document are readily available upon request or can be downloaded from www.deutsche-bank.com/ir