IR Releases - Archive

October 30, 2003

Deutsche Bank reports third quarter 2003 pre-tax profit of Euro 755 million versus 3Q2002 loss of Euro 181 million


  • Net income of Euro 576 million versus a loss of Euro 299 million in 3Q2002
  • Total revenues of Euro 5.2 billion down 6 per cent versus 3Q2002 due to the strengthening Euro and the sale of businesses
  • Provision for credit losses declined for the fourth consecutive quarter
  • Operating cost base down 14 per cent to Euro 4.2 billion versus 3Q2002
  • Tier 1 capital ratio of 9.5 per cent above target range of 8 to 9 per cent

Deutsche Bank (XETRA: DBKGn.DE / NYSE: DB) today released its results for the third quarter of 2003. The bank reported income before income tax expense of Euro 755 million for the quarter compared to a Euro 181 million pre-tax loss for 3Q2002 and a pre-tax profit of Euro 1.1 billion for 2Q2003.

Net income for 3Q2003 was Euro 576 million compared with a loss of Euro 299 million in 3Q2002 and a profit of Euro 572 million in 2Q2003. The income tax expense in the third quarter was Euro 252 million (excluding the reversing effect of the change in German tax laws in 1999 and 2000). 

Deutsche Bank’s businesses continued to perform strongly. Underlying pre-tax profit (see reconciliation table below) was Euro 726 million in 3Q2003 compared to a loss of Euro 64 million in 3Q2002.

Josef Ackermann, Chairman of the Group Executive Committee, said: “We have continued to make good progress in transforming our platform, strengthening our franchise and increasing our operating leverage. This progress is reflected in our third quarter results. We also saw a further improvement in the quality of our loan book, giving rise to lower provisions for credit losses and a further reduction in problem loans. The solid and sustained year-to-date performance, together with a better global economic environment, gives me and my colleagues great confidence that we can look forward to a full-year 2003 performance which will be very satisfying for our shareholders.”

Total revenues in the quarter were Euro 5.2 billion versus Euro 5.5 billion in 3Q2002. The underlying growth of the bank’s franchise was masked by the strength of the euro, given the high percentage of dollar and dollar-linked earnings, which had to be translated into euros for consolidated group reporting, and the sale of several businesses over the last twelve months. Adjusted for these two effects, underlying revenues in 3Q2002 would have been approximately Euro 4.8 billion, leading to a 7 % per cent increase in 3Q2003.

Deutsche Bank’s comprehensive risk management practices include using derivatives to hedge certain risks in non-trading assets and liabilities. These include credit risk in the corporate loan book, equity risk in the industrial holdings portfolio and interest rate and foreign exchange risk in medium and long-term debt.

Although derivatives effectively hedge the economic risk, differing accounting treatments under US GAAP (SFAS 133) of the derivative and the underlying risk can lead to profit and loss volatility. These differing accounting treatments resulted in Deutsche Bank reporting negative revenues of approximately Euro 200 million in 3Q2003. However, excluding the hedge costs, the revenue volatility triggered by this asymmetrical accounting treatment is expected to be materially offset over the lifetime of the hedge.

In line with the more favorable economic outlook, credit conditions have also improved, although the situation in Germany and other continental European countries remains challenging. Against this backdrop, the provision for credit losses (including off balance sheet exposures) declined for the fourth consecutive quarter, falling 43 per cent from Euro 333 million in 2Q2003 to Euro 191 million in 3Q2003, and down from a peak in autumn 2002. This decrease reflects the further improvement in the quality of the loan book as well as releases and recoveries which were higher than in previous periods. Problem loans were further reduced by Euro 1.2 billion in 3Q2003 to Euro 7.2 billion.

Reconciliation of pre-tax profit
       
  in Euro million
3Q03
2Q03
3Q02
 
Reported income before income taxes
755
1,091
(181)
 
Net gains/losses on securities available for sale/ industrial holdings including hedging
(33)
(45)
(21)
 
Significant equity pick ups/net gains/losses from investments (1)
38
169
334
 
Net gains/losses from businesses sold/held for sale
(34)
49
(395)
 
Change in measurement of other inherent loss allowance
-
-
200
 
Restructuring activities
-
(27)
-
Underlying pre-tax profit
726
1,237
(64)
 
 
 
(1) Includes net gains/losses from significant equity method investments and other significant investments.
Numbers may not add up due to rounding


The operating cost base for 3Q2003 fell to Euro 4.2 billion, down 14 per cent from Euro 4.8 billion in 3Q2002, partly as a result of the effects of foreign exchange and sale of businesses, and of the bank’s continuing cost management program. The underlying cost/income ratio declined from 90 per cent in 3Q2002 to 82 per cent in 3Q2003.

Deutsche Bank’s BIS core capital ratio of 9.5 per cent was well above the bank’s target range of 8 to 9 per cent. This ratio reflects a number of factors, including the successful issuance of Euro 1 billion Tier 1 hybrid securities, which offset a reduction in the ratio following the introduction of a new US GAAP accounting rule (SFAS 150), and the launch of a second share buy-back program. In the third quarter Deutsche Bank bought back 5.9 million shares.

Segmental Results of Operations

The Corporate and Investment Bank (CIB) recorded income before income taxes of Euro 751 million in 3Q2003 compared with a loss of Euro 312 million in 3Q2002. This improvement was mainly driven by a reduction in noninterest expenses and lower provision for credit losses.

Revenues from sales and trading equity and debt products were Euro 2.1 billion in 3Q2003, up 15 per cent versus 3Q2002. Sales and trading revenues from equities and related derivative products climbed to Euro 738 million, up 31 per cent compared to 3Q2002, reflecting increased market activity and improved market sentiment. A decrease of Euro 165 million compared to the strong 2Q2003 was due to lower derivative and convertible volumes during the summer months, although cash revenues held up well. Sales and trading revenues from debt and related products were Euro 1.3 billion in 3Q2003, up 8 per cent versus 3Q2002. They dropped by Euro 415 million, or 24 per cent, compared to the record 2Q2003.

Revenues in 3Q2003 were affected by the traditionally lower customer volumes in July and August, which were accentuated this year by heightened volatility in global interest rates and foreign exchange markets. Revenues in the sub-investment grade credit trading businesses also slowed in line with traditional seasonality. Reduced performances in these businesses were partially offset by strong results in credit, interest rate, and commodity derivatives.

Private Clients and Asset Management (PCAM) reported income before income taxes of Euro 329 million in 3Q2003, up Euro 142 million compared to 3Q2002 and up Euro 43 million compared to 2Q2003.

Within PCAM, Asset and Wealth Management (AWM) recorded income before income taxes of Euro 234 million for 3Q2003, up Euro 197 million versus 3Q2002 and up Euro 111 million versus 2Q2003. AWM raised its revenues by Euro 83 million. This increase was mainly attributable to portfolio management, due to higher performance fees and successful product placements, and higher revenues from the real estate business. Private and Business Clients generated stable revenues of Euro 1.1 billion in the third quarter, and income before income taxes of Euro 95 million. The decrease of Euro 55 million compared to 3Q2002 resulted from increased severance payments of Euro 97 million related to ongoing business integration activities, predominantly in Germany.


Excerpts from the Interim Report can be found in the attachments on B 1 – B 20.

Conference Call

We invite you to follow a conference call presentation of the financial results followed by a question and answer session.

Date: Thursday, 30 October 2003
 
Time: 9.00 a.m. CET
 
Speakers:
Dr. Clemens Börsig, Chief Financial Officer
Dr. Wolfram Schmitt, Global Head of Investor Relations



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 forward-looking statement. These statements are based on plans, estimates and projections as they are currently 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 enivsaged reduction in headcount; the reliability of our risk management policies, procedures 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.






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