Deutsche Bank (XETRA: DBK/Gn.DE/NYSE: DB) reported income before income taxes of € 1.8 billion for the first quarter 2005, after restructuring expenses of € 168 million. Pre-tax return on average active equity was 30%, compared to 24% in the prior year first quarter. Before restructuring expenses, pre-tax return on average active equity was 33%. This figure compares with the Group's published target of 25% for 2005.
Net income for the quarter was € 1.1 billion, up 17% compared to € 941 million in the first quarter 2004. Adjusted after-tax return on average active equity was 19%, compared to 15% in the first quarter 2004 and 11% for the full year 2004. Diluted earnings per share for the quarter were € 2.09, up 25% compared to € 1.67 per share in the first quarter 2004.
Both revenue and profit growth was driven predominantly by the Group's international business, reflecting the market environment. On international markets, conditions were favourable; the German market remained challenging.
The Group also announced progress on the Business Realignment Program: all significant organisational changes have been implemented, investments in growth areas have been made, and cost-efficiency measures are underway. Restructuring expenses in connection with the Business Realignment Program were lower than anticipated. However, the original targets of the program remain on track.
Dr. Josef Ackermann, Spokesman of the Board of Managing Directors and Chairman of the Group Executive Committee, said: "All of us at Deutsche Bank are proud of what we have achieved in the first quarter. This excellent result underlines our leading position, both in Germany and internationally."
He added: "However, competition is relentless. If we are to safeguard our future, we must tackle the issue of cost-efficiency, in those parts of our business where we still need to match our world-class competitors. There can be no let-up in our determination to meet this challenge. The measures we have had to take are painful, but there is no alternative. Only by taking this course can we invest in the long-term success of the bank, in innovation and quality for our clients, and in growth and jobs for our employees."
Income before income taxes for the first quarter 2005 was € 1.8 billion, after restructuring expenses of € 168 million, up € 222 million, or 14%, compared to last year. Pre-tax return on average active equity improved from 24% in last year's first quarter to 30% in the first quarter 2005. The negative impact of restructuring expenses on the current quarter's pre-tax return on average active equity was 3 percentage points.
Net income for the quarter was € 1.1 billion, up 17% compared to € 941 million for the first quarter 2004. Earnings per share (diluted) improved by 25% to € 2.09. The effective tax rate was 38%, compared to 39% for the full year 2004, both including the reversal of 1999/2000 credits for tax rate changes.
Revenues for the first quarter 2005 were € 6.6 billion, up € 429 million, or 7%, compared to the prior year first quarter. Debt Sales and Trading registered a record quarter with total revenues up 26% to € 2.4 billion, driven by the bank's global leadership in high-value structured products.
Noninterest expenses for the first quarter 2005 were € 4.7 billion, compared to € 4.5 billion in the prior year first quarter. The current quarter included restructuring charges of € 168 million.
The operating cost base (which excludes restructuring charges) was € 4.5 billion, up 3% compared to € 4.4 billion in last year's first quarter. The increase was mainly due to higher performance-related compensation resulting from the improved operating results. Non-compensation operating costs were 4% below the first quarter 2004. The operating cost base was favourably impacted by cost savings achieved from the Business Realignment Program.
Provision for credit losses was € 81 million in the first quarter 2005, down 42% from € 141 million in the prior year first quarter, mainly reflecting the low level of provisions required for the corporate loan book. Problem loans were € 4.8 billion, down 23% from € 6.3 billion at the end of the first quarter 2004.
The Group completed its third share buyback program on 20 April 2005. Since July 2004, a total of 45.5 million shares had been repurchased at an average price of € 62.32, for a total consideration of € 2.8 billion. However, the BIS Tier 1 capital ratio increased to 9.2% at the end of the first quarter, compared to 8.6% at the end of the fourth quarter 2004.
Business Segment Review
Corporate and Investment Bank Group Division
In the Corporate and Investment Bank (CIB) underlying pre-tax profit was € 1.6 billion for the first quarter 2005, an increase of € 457 million, or 40%, from € 1.1 billion in the first quarter 2004. Underlying revenues of € 4.5 billion increased € 563 million, or 14%, on the same period in 2004, largely driven by debt sales and trading. This significant improvement reflects in part some early benefits from the realignment of the sales and trading platform but also the highly favourable trading conditions that persisted during the first quarter.
Sales and Trading (Debt and other products) generated record revenues of € 2.4 billion in the first quarter, an increase of € 486 million, or 26%, over the same period in 2004. Deutsche Bank continued to benefit from its global leadership in high-value structured products. The Global Rates business showed exceptional growth based on its ability to develop cutting-edge liability management solutions for corporate and sovereign clients. The Global Credit business continued to grow volumes and revenues off the back of strong client flows. Similarly, the Emerging Markets group performed well thanks to the creation of a cross-asset class platform. The "market access" businesses, while facing ongoing margin erosion, have nonetheless shown consistent growth in market share. The FX businesses, for example, topped this year's annual Euromoney Global Foreign Exchange Survey with a market share of 16.7%, the largest market share ever recorded by a winner of this survey.
Revenues in Sales and Trading (Equity) totaled € 823 million in the quarter, € 31 million, or 4%, higher than the first quarter 2004. Revenues were driven by a strong performance in the customer-focused businesses, especially Global Equity Derivatives. In particular, Corporate Derivatives benefited from access to a wider network of client relationships as a result of the recent reorganisation. Global Prime Services also had a strong quarter. The Equity Proprietary business took advantage of the favourable market conditions in the first quarter although overall revenues were down year on year. Difficult market conditions affected Cash Equities' performance while the absolute level of activity in the convertibles market was greatly reduced versus the same period in 2004.
Origination and Advisory generated revenues of € 510 million in the first quarter 2005, an increase of € 56 million, or 12%, from the same period last year. Origination (Debt) revenues continued to reflect the strong position in corporate bonds, investment grade and high-yield debt and the good growth this quarter in the European market. Origination (Equity) revenues fell marginally compared to the same period last year reflecting lower levels of activity in the US and Asian issuance markets. Advisory revenues have increased from last year due to market share gains in both Europe and Japan.
Loan Products revenues of € 382 million for the first quarter 2005 were similar to the same period last year. Lending revenues decreased compared to the first quarter of 2004, mainly due to lower loan demand and lower fee income. However, these factors were offset by mark-to-market gains on the credit risk hedge positions as credit spreads have widened.
Transaction Services revenues in the first quarter 2005, at € 485 million, were slightly below the same period in 2004 which included some revenues from the disposed Global
Securities Services business. Trade Finance revenues increased, driven by a stronger cross-selling of interest risk and currency risk products while Trust & Securities Services rose slightly as a result of a stronger performance from the Structured Finance Services business.
Provision for credit losses was € 4 million in the first quarter, down from € 72 million in the same period last year, reflecting the quality of the corporate loan book as well as additional releases from successful workout cases.
CIB's operating cost base in the first quarter totaled € 2.9 billion, a 6 % increase from the comparable period last year. This increase is due entirely to higher performance-related compensation in line with the development of operational performance. Non-performance-related staff costs decreased reflecting headcount reductions announced as part of the Business Realignment Program whereas non-compensation-related expenses dropped € 84 million compared to the first quarter 2004.
In addition to its underlying results, CIB took a restructuring charge of € 122 million, representing its share of the aforementioned Business Realignment Program announced during the fourth quarter of 2004.
Private Clients and Asset Management Group Division
In Private Clients and Asset Management (PCAM), underlying pre-tax profit of € 408 million was in line with the first quarter 2004. Underlying revenues of € 2.0 billion were marginally higher than in the first quarter 2004. The operating cost base of € 1.6 billion was essentially unchanged compared to the first quarter 2004.
Asset and Wealth Management (AWM) delivered underlying pre-tax profit of € 163 million in the first quarter of 2005, a slight increase of 5% compared to the first quarter 2004. Underlying revenues of € 880 million remained virtually unchanged from the first quarter 2004 as improvements in the Private Wealth Management business were offset by the effect of the strengthening of the Euro on dollar-denominated revenues and lower revenues in Asset Management. The operating cost base of € 719 million in the first quarter of 2005 was € 14 million lower than in the first quarter 2004.
Revenues from Asset Management activities decreased compared to the first quarter 2004 due to lower investment management fees in the Americas as a result of net asset outflows in the retail business. In addition, the businesses in the Americas were negatively impacted by the aforementioned effect of the strengthening of the Euro. These declines were partially offset by net gains on the sale of assets in the real estate business and better performance in Continental Europe. Net asset inflows were € 24 billion during the first quarter 2005. Net inflows in Continental Europe were € 29 billion, of which € 24 billion related to the institutional business and € 5 billion to the retail business. These net inflows were partially offset by net outflows in the UK Institutional, Asia Pacific Institutional and the Americas Retail business.
Revenues in the Private Wealth Management business increased compared to the first quarter 2004, mainly reflecting the continuing growth in high-value-added products and services sold to clients. Net new assets were € 2 billion in the first quarter 2005.
Private & Business Clients (PBC) generated an underlying pre-tax profit of € 245 million in the first quarter 2005, a decrease of € 10 million compared to last year's first quarter. Revenues of € 1.2 billion were slightly higher than in the first quarter 2004. The operating cost base of € 832 million was € 12 million higher than in the same quarter last year, also reflecting investments in the growth of the franchise. Provision for credit losses of € 77 million was € 9 million higher than in the first quarter 2004, partly accounted for by loan volume growth.
In addition to its underlying results, PCAM recorded restructuring charges of € 45 million in the first quarter 2005, representing its share of the Business Realignment Program.
Corporate Investments Group Division
Corporate Investments (CI) reported an underlying pre-tax loss of € 44 million in the first quarter of 2005, an improvement of € 63 million compared to a loss of € 107 million in the first quarter 2004. This improvement mainly reflected charges of € 32 million incurred in last year's first quarter, which related to the elimination of excess space resulting from headcount reductions and the sale of businesses.
CI's reported income before income taxes was € 69 million in the first quarter 2005. Major contributors to the difference between reported and underlying results were net gains of € 87 million from the industrial holdings portfolio, mainly from the sale of the stake in Südzucker AG, and net gains from other investments of € 27 million. In last year's first quarter, net gains from industrial holdings and other investments together with gains from the disposal of businesses were € 161 million.
The book value of CI's alternative assets declined by 41% to € 1.6 billion at 31 March 2005 from € 2.7 billion at the end of last year's first quarter.
Share buyback program
The Group completed its third share buyback program on 20 April 2005. Since July 2004, a total of 45.5 million shares had been repurchased at an average price of € 62.32, for a total consideration of € 2.8 billion. Total shares repurchased under this program account for 8.3% of the Bank's current share capital. Including residual buybacks in June 2004 to complete the second buyback program, this represents a complete utilization of the 10% buyback authorization obtained from the last Annual General Meeting on 2 June 2004. After completion of the third program, the holding of own shares amounts to 33.4 million shares, or 6.1% of shares issued. The difference between the repurchase volume and the current inventory is mainly attributable to the use of treasury shares in February 2005 to hedge share awards granted to Deutsche Bank staff.
At the upcoming Annual General Meeting on 18 May 2005, management will seek new authorization to acquire own shares of up to 10% of the current share capital. Further details on the third buyback program are available on the Internet website at http://www.deutsche-bank.com/ir under the heading "Share Information / Share Buyback Program".
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The complete Interim Report as of 31 March 2005 is available at http://www.deutsche-bank.com/1Q2005 ,
the Financial Data Supplement for 1Q2005 at: http://www.db.com/ir/en/download/1Q05_Financial_Data_Supplement.pdf
The Interim Report will be discussed in an analyst conference-call at 9 a.m. (CET). This conference call will be transmitted via internet: www.deutsche-bank.com/ir/video-audio.
This Release contains forward-looking statements. Forward-looking statements are statements that are not historical facts; they include statements about our beliefs and expectations. Any statement in this 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.
By their very nature, forward-looking statements involve 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 Business Realignment Program; 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 24 March 2005 in the section "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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