Executives
John Andrews - Head of Investor Relations
Anshuman Jain - Co-Chairman of the Management Board and Co-Chief Executive Officer
Stefan Krause - Chief Financial Officer and Member of Management Board
Analysts
Jeremy Sigee - Barclays Capital, Research Division
Christopher Wheeler - Mediobanca Securities, Research Division
Huw Van Steenis - Morgan Stanley, Research Division
Daniele Brupbacher - UBS Investment Bank, Research Division
Jernej Omahen - Goldman Sachs Group Inc., Research Division
Fiona Swaffield - RBC Capital Markets, LLC, Research Division
Stuart Graham - Autonomous Research LLP
Kian Abouhossein - JP Morgan Chase & Co, Research Division
Dirk Becker - Kepler Cheuvreux, Research Division
Robert Murphy - HSBC, Research Division
Michael Helsby - BofA Merrill Lynch, Research Division
Deutsche Bank AG (DB) 2013 Earnings Call January 20, 2014 5:01 AM ET
John Andrews - Head of Investor Relations
Thank you, and good morning, everybody. On behalf of Deutsche Bank, welcome to our Full
Year 2013 Earnings Call. And again, thank you for making yourselves available on such
short notice. We have with us today our co-CEO Anshu Jain; and our CFO, Stefan Krause.
First, Anshu will provide you with the highlights of our performance. Thereafter, Stefan will
present to you fourth quarter and full year results in more detail. Following their remarks, as
customary, we welcome your questions.
By now, you should have access to all of our publications on our website. Please note that all
figures reported today are preliminary and unaudited. Deutsche Bank's 2013 financial report
and annual report on Form 20-F, including the audited financial statements, are scheduled to
be filed and published on 20 March 2014.
been a difficult year with low interest rates and low volumes in many areas, of course
accompanied with the pressure of internal reorganization and dealing with legacy issues.
Let me now put that into result -- that result in the context of some other critical factors.
Slide 6, you can see that Deutsche Bank today represents a far leaner platform. From the
peak, we've got adjusted assets by almost 1/3, 29%. Our adjusted cost base has come down
by 8%, close to EUR 2 billion versus the annualized first half of 2012. We've reduced RWAs
by 27% since peak on a Basel II pro forma basis.
Crucially, on Slide 7, you can see that we're also a much safer bank. Indeed, if you go back
and look at the crisis of 2008, it underlined for us that banks fail predominantly for 2 reasons:
they run out of equity or they run out of liquidity. You can see we've done a lot on both
fronts. We've reduced stress loss by over 60% since the peak, which was obviously pre the
Lehman crisis in 2008. Our common equity Tier 1 capital is now 28x notional stress loss
compared to 6x back in 2008. So by that measure, 5x more prudent. We've transformed the
quality of our funding profile, reflecting in part the contribution of Postbank. Funding now
consists predominantly of the most stable sources.
On Slide 8, you can see that not only are we a safer bank, we're actually a better balanced
bank than we used to be. Underlying profits in our non-investment banking businesses have
more than doubled over the past decade. And as a result, investment banking earnings in
2013 were roughly on par with non-investment banking earnings. This is still work in
progress. As GTB and assets and wealth management fulfilled their earnings potential, we
expect them to contribute much more to group earnings in the future.
Slide 9 represents a business -- the beginning of our business-by-business analysis, and we
start with CB&S. None of our businesses had greater internal and external challenges than
CB&S in 2013. Nonetheless, adjusted profitability was solid. We became far more efficient.
The adjusted cost base is down by well over EUR 1 billion or 13%, reflecting disciplined
execution of the OpEx program. We're pleased that we could cut costs and balance sheet
resources, reconfiguring the platform significantly and still deliver solid results. However,
we're conscious that we're more exposed to fixed income than many of our peers and to
Europe than some -- than many of them as well, and this will be a challenge going forward,
given near-term trends, which we think will favor the U.S. and equities as an asset class.
Nevertheless, we've increased profitability significantly in equities and Corporate Finance
and continue to make gains in the U.S.
Our franchise, including fixed income, remains strong, and we are confident that we're agile
and flexible enough to respond effectively to challenging near-term trends.
Moving now to PBC. Profitability here was resilient, reflecting good cost discipline and
strong credit quality. We made significant progress with major integration projects, the
formation of our Mittelstand bank, the integration of Postbank and the rollout of a common
operating platform. However, the revenue environment was tough, reflecting persistently low
interest rates and client risk aversion despite strong equity markets.
Nonetheless, we're doing more high-margin -- higher-margin consumer finance business,
cooperating with credit risk management to safeguard against any deterioration in credit
quality. We expect the revenue outlook to improve in 2014.
GTB saw a 17% rise in adjusted pretax profit, despite a very tough revenue environment.
Margins suffered from both persistently low interest rates, especially in the European region,
which we're heavily geared to; and some intense competition in the Asia Pacific region.
Despite this, we achieved strong growth in the key U.S. market. Cost discipline remained
strong, and we made good progress with restructuring our Dutch platform.
On Slide 12, we turn to Asset & Wealth Management. And we've told you that of all our core
businesses, Asset & Wealth Management faces the most significant internal organizational
challenge, and that is the merging of 5 businesses into a single integrated platform.
Integration is bearing fruit. Record profitability of EUR 1.2 billion reflects both revenue
growth and cost synergies from streamlining. Net new money outflows were EUR 12 billion
during the year. Disappointing, but in fact, reflective of the fact that we are repositioning the
profile of our business. In 2013, we were more focused on boosting profitability than asset
gathering. Addressing the margin gap to peers will remain a priority for us as we look
forward.
In summary for Asset & Wealth Management, our core businesses achieved 4 things: solid
underlying profitability, significant reconfiguring, dealing with headwinds in the operating
environment and maintaining the strength of our client franchise. Each of these are
challenging. Achieving all 4 simultaneously is something the team is proud of.
Moving on Slide 13 to 2 other elements of our strategic agenda: capital, where we are on
track to deliver a 2015 goal of a Basel III common equity Tier 1 ratio of 10%. 2013 was a
landmark year for us. Our common equity Tier 1 ratio was 9.7% at the end of 2013 compared
with 7.8% a year ago and below 6% in early 2012, thanks to significant organic capital
generation and a successful capital raise in April. NCOU has reduced risk weighted assets to
EUR 60 billion, well ahead of its EUR 80 billion year-end target and reduced by more than
half since inception. For the year, NCOU, as we pointed out already, was P&L negative but
capital accretive. We've seen some volatility in our common equity Tier 1 ratio in 2013. And
for reasons Stefan will go into, we anticipate some more volatility during 2014, but we are
confident of reaching a 10% target, as we said, by 2015.
Leverage is an example of where we set ourselves a target and wind up delivering. We made
decisive progress in the past 6 months. By the end of the year, we'd reduced balance sheet
leverage by around EUR 340 billion since June 2012. When we published our second quarter
results, we communicated to you our aim to reduce this by a further EUR 250 billion by end
2015. We achieved around 1/3 of that in the past 6 months. And partly, as a result, our
leverage ratios has improved to 3.1% by the end of 2013. We're confident of reaching our
target of meeting or exceeding the 3% requirement by 2015.
Turning now to costs. The one thing which is clear, we will talk a lot about things we can
control. Cost, as you pointed out to us, is a dimension of our strategy that we can control.
And we have to say that we are very pleased that we've been able to defy some of the
skepticism which was expressed. There are factors that we can't influence, this is one we can,
and the tangible benefits of our OpEx program are showing up in our cost line. In 2013, our
adjusted cost base came down by nearly EUR 2 billion versus the annualized first half of
2012, reflecting success of OpEx. Quarterly costs have come down steadily through 2012 and
'13.
Let me give you some examples. We've simplified our technology environment, eliminating
1,200 technology applications, which represent 20% of our total. We've earmarked another
credit losses increased by EUR 308 million or 18%. The increase is evenly divided between
the NCOU and the Core Bank.
On Page 21, I talk about the noninterest expenses. As you can see, expenses on both a
reported basis and on an adjusted basis were down in 2013, mainly driven by our OpEx
program related to savings and, to a smaller degree, supported by FX. Compensation and
benefits declined by EUR 1.1 billion or 9% in the year and the compensation ratio fell 1
percentage point to 39% despite a revenue decline of 5%. In addition to OpEx-related CtA,
we're also making investments to sustain and improve the quality of our platform.
On Page 22, you see that it's been 6 quarters since we launched the OpEx program, and the
initiative is well on track. In 2013, savings were EUR 1.7 billion, bringing the program todate savings of EUR 2.1 billion. We've exceeded our projected savings by about EUR 0.5
million today. By year-end 2014, we anticipate cumulative savings of EUR 2.9 billion. 2014
is an important year for OpEx, and we have established a good momentum in 2013, as you
can see.
On -- briefly on Slide 23, to the effective tax rate, it was 48% for 2013, reflecting expense
items, mainly litigation that were obviously not tax-deductible.
If we move on to Page 24, obviously, I'm going to go now into the segment results. Let me
start on Page 25 with CB&S. The fourth quarter 2013 CB&S revenues were down 16%
versus the third quarter and were down 12% for our full year 2013. Lower full year revenues
reflected a difficult environment for debt and sales trading, partially offset by strong
momentum in both our equities and Corporate Finance franchise.
We continue to cut costs. The adjusted cost base declined 12% in 2013. On leverage, our
CRD4 exposure is down 17% from end of the first quarter 2013. Excluding CtA and
litigation, CB&S full year cost income ratio was 66% and the post-tax RoE was 14%. Our
focus is not solely on revenues or market share but also on IBIT. We are confident the
robustness of our franchise will become more visible in our financial results in the future.
On Page 26, I cover our debt and equities business. Full year 2013 Debt Sales & Trading
revenues were 25% lower, reflecting the difficult trading conditions, structural changes in the
industry and the ongoing recalibration of our platform.
In equities, in 2013, our equities franchise showed very strong momentum, with full year
revenues up 20%. At the same time, the efficiency of the business increased significantly in
2013, reflecting changes that we made to the platform.
We go to Slide 27, where you can see that our revenues in Origination and Advisory
increased by 10% in 2013. Our fourth quarter revenues were in line with the third quarter.
Page 28, GTB. GTB reported IBIT was EUR 1.1 billion in 2013. Adjusted IBIT was EUR 1.3
billion. As Anshu mentioned, the environment remained challenged by margin pressure and
low interest rates. Revenues were supported by strong transaction volumes and increased
client balances.
On Page 29, our Asset & Wealth Management business, as Anshu already referred to, if we
look in the quarter, the adjusted IBIT was EUR 1.2 billion for the full year -- sorry, for 2013,
up 106%. Revenues increased by 6% and costs declined by EUR 244 million or by 7% when
adjusted for Abbey Life, CtA, litigation and impairments.
Asset & Wealth Management had EUR 12 billion of outflows in 2013. Approximately EUR
11 billion of inflows in Wealth Management were offset by EUR 22 billion of outflows in
Asset Management. The resulting higher-margin mix was accredited to revenue.
On Page 30, I go to PBC. Our Private & Business Clients reported IBIT was EUR 1.6 billion.
The IBIT adjusted for cost-to-achieve was EUR 2.1 billion. PBC revenues were stable yearon-year. Provisions for credit losses declined by 8% versus 2012, benefiting from the benign
environment in Germany and a better portfolio performance in private and commercial
banking. This year, we have invested EUR 552 million, the highest CtA spent since the start
of the Postbank integration, yet expenses were virtually unchanged.
In private and commercial banking, as you can see on Page 31, the Magellan platform
accounted for most of the CtAs spend, and Postbank lower revenues were mainly attributable
to our continued securities portfolio de-risking. However, better cost and lower provisions led
to an 8% increase in full year IBIT. Advisory Banking International reported a very strong
performance of EUR 665 million. The result was driven by higher contribution from HuaXia
Bank, strong pickup of investment product and flat cost.
Let me go to consolidations and adjustments on Page 32. Consolidation and adjustment
reported a loss of EUR 635 million in the fourth quarter. Partially this is a result of corporate
items like EUR 132 million for German and U.K. bank levies and EUR 276 million for fair
value adjustment, as I reported already.
Then on Page 33, we cover our Non-Core Operations Unit. The NCOU de-risking activity in
the fourth quarter contributed 14 basis points of CRD4 common equity Tier 1 ratio. Although
NCOU's activity in 2013 has been capital accretive, the financial performance of the division
reflects significant provisions impairment and mark-to-market adjustment. In the fourth
quarter, this included EUR 197 million impairment related to the expected sale of BHFBANK, EUR 171 million charge for FVA and EUR 222 million of litigation expenses.
On Page 34, you can see that since NCOU's creation in June 2012, it has reduced adjusted
assets by 56% and CRD4 equivalent RWAs by 58%. On a pretax basis, excluding litigationrelated charges, NCOU has generated 145 basis points of common Tier 1 ratio since its
inception.
So I will conclude with some key current topics that we thought might be of interest to you.
So let me first start with the leverage ratio on Page 36. In the fourth quarter, we reduced
leverage net of FX impact by EUR 50 billion, in addition to the EUR 36 billion last quarter.
So we have already delivered more than 1/3 of our reduction program in 2 quarters.
For the full year 2013, our leverage reduction was EUR 232 billion, including the impact of
foreign exchange. Our CRD4 leverage exposure now stands at EUR 1.45 trillion. Our
adjusted fully loaded leverage ratio is 3.1%, as lower capital levels have mostly offset the
exposure reduction.
Let's move to Page 37. Here provides you just the first update on the latest Basel III rules
published on January 12. The new rules are less strict than the Basel proposal from June of
last year. However, we had estimated that it will increase our CRD4 leverage exposure by
roughly EUR 200 billion. The extent to which Europe will harmonize CRD4 with the latest
Basel release, obviously, remains to be seen. Even the latest Basel proposal will likely be
subject to further changes, we assume.
Our CRD4 exposure program creates buffers for regulatory uncertainty. Based on our current
understanding, we remain confident we will achieve a 3% minimum leverage ratio in 2015,
even if the latest Basel III exposure measure were fully implemented in Europe.
Let's move to Page 38. Our pro forma fully loaded CRD4 common equity Tier 1 ratio at the
end of 2013 was 9.7%, unchanged from the third quarter, as the fourth quarter net income
loss was fully offset by the decline in risk-weighted assets. Year-on-year, our common equity
Tier 1 ratio improved by 190 basis points.
Our capital raise contributed 80 to 90 basis points of improvement and about 100 basis points
was attributable to the EUR 46 billion risk-weighted asset reduction. Materially, all of the
RWA reduction came from NCOU and C&A, as risk-weighted assets deployed in our core
businesses remain largely unchanged.
In the first quarter of 2014, all European banks will move official reporting from CRD3 to
CRD4, so this is the last time we will report CRD4 on a pro forma basis. However, regulatory
practice and the final interpretation of the fine print of European regulation have not been
fully established. The EBA is scheduled to issue further technical standards over the coming
quarters. And the ECB, in its new senior supervisor role, will likely accelerate the
convergence of regulatory practice across the Eurozone.
Consequently, and as I already highlighted in the third quarter call last year, we expect some
volatility and potential downward pressure on the CT1 ratio in the coming quarters.
Importantly, though, we remain confident and committed to achieving our stated target of a
10% fully loaded core Tier 1 capital ratio by the end of the first quarter 2015.
Let's move on to Page 39, where I'll give you an update on our litigation. At year end 2013,
our litigation reserves were approximately EUR 2.3 billion. As you know, this quarter, we
resolved 2 of our most significant legacy legal risks FHFA and EC IBOR, both were
substantially provided for in previous quarters. While we're pleased to have resolved 2 of our
most important legacy legal matters and reserved for several others, we expect continued
headwinds from litigation in future quarters.
Another topic that I think you might be interested in, and I just added it on so -- for some
clarification, although it's not such a big topic, but just to explain some of the differences
reported. As you know, the template used for that EBA transparency exercise led to
differences between the accounting view our risk position in EBA's methodology. Most
notably, according to EBA, the total defaulted -- exposure at default at June 30, 2013, was
EUR 19.7 billion. Many of you compare this to the EUR 9.3 billion of IFRS impaired loans.
There are 2 key differences to consider when interpreting the data published in the EBA
transparency template. Firstly, impaired loans are, by definition, a subset of defaulted EAD.
Defaulted EAD is defined as the bank's exposure to a defaulted obligor on all available credit
facilities, including undrawn commitments.
Secondly, we were asked to disclose all exposure of defaulted clients, irrespective of the
consolidation, scope and accounting treatment. There's roughly EUR 6.4 billion of exposure
in the template, which would never attract loan-loss provisions because they are outside of
the consolidation scope or accounted for as available-for-sale or mark-to-market, for
example, Postbank loan book, which we were required to fair value at consolidation or traded
loans originated by CB&S.
EUR 4.2 billion of exposure are loans defaulted under the regulatory definition but not
meeting IFRS impairment triggers. These exposures could become impaired in the future. But
in many instances, we expect full recovery, whether because of the strong collateral or
successful restructuring amongst other reasons. We do not expect potential changes in
definitions or classification criteria stemming from the transparency exercise to have a
material impact on provisioning or impairment level.
Furthermore, it would be presumptuous to automatically assume the AQR will be a carbon
copy of the transparency exercise, in our view.
So that concludes my remarks. I will quickly hand back over to Anshu for some closing
statements.
Anshuman Jain - Co-Chairman of the Management Board and Co-Chief Executive Officer
Thank you, Stefan. So let's move to Slide 42 and look forward. I think 2014 will be a
continuation of some of the trends that we've seen, which really, I'd like to break down
between what we can control versus what we cannot control.
If I were to look at what we cannot control for 2014, I think it'll be a continuation of what we
saw in the year just concluded. On the positive side, global growth is now definitely trending
towards the top end of our estimates, and we think that'll continue in 2014, especially in the
U.S. Against that, I would say, items like litigation, regulation, the operating environment for
our businesses, which is predominantly driven by level of interest rates, as well as overall
volume of activity. We think all of those will remain challenging, at least through 2014.
Against that, if I look at what this management team can control, whether it's costs, it's other
resources we can control such as OpEx, balance sheet, risk-weighted assets, it's our culture,
very crucially, it's the performance and market share of our divisions, I would say we're very
satisfied and we think 2014 will continue to be a strong year.
If I look at the divisions, I think the trends that we've seen in the first full 18 months of our
journey will persist, which is quite simply Asset & Wealth Management outperforming. We
think that out-performance will continue. GTB has definitely encountered tougher conditions
than we were hoping for, and so is a bit below the targets that we've set per division.
Candidly, PBC and CB&S, our investment bank, are more or less in line with where we
thought they would be.
Crucially, we stand by and we commit. Stefan has alluded to this when he talked about
capital, on Slide 43, you can see. And when it looks to -- when it comes to all of the critical
dimensions of our strategy, our core Tier 1 ratio, our cost/income ratio, post-tax RoE, we are
confident and reiterate our 2015 targets.
So with that, I think we come to the end of our prepared comments. Very happy to take your
questions. Let me turn it back over to John.
achieve those minimums. I think there are further discussions. Obviously, let's not forget, this
is also not final. There's some further discussions coming. And so a long way until they make
it into law. This is just giving you some view ahead that even if they make it into the law,
with our current asset reduction program, we will comply with the minimum.
Jeremy Sigee - Barclays Capital, Research Division
But if the rules freeze, as they are now, so if there's no further change in the rules, that the
reduction you're targeting is EUR 250 billion reduction. So the endpoint that gets you to is
now going to be higher with the EUR 200 million?
Stefan Krause - Chief Financial Officer and Member of Management Board
Yes, but let's not forget -- yes, in these new positions, there may be also roll-offs. And also
what the EUR 250 billion did not address is in these new positions, no management action at
this point are defined. So we would have some additional...
Jeremy Sigee - Barclays Capital, Research Division
There can be more than EUR 250 billion. Yes, okay.
Operator
And the next question is from Christopher Wheeler of Mediobanca Securities.
Christopher Wheeler - Mediobanca Securities, Research Division
A few questions, first of all, on cost. So I just need to understand a little bit more what's
happening in all the work you're doing to get your cost base down. First of all, just perhaps
clarify. In Slide 22, you talked about EUR 1.7 billion of cost-to-achieve being charged in the
year. But I noticed in Anshu's slide, #4, he said, EUR 1.4 billion. What's the gap there that
I'm missing between those 2 numbers? That's the first one. The second one really goes to the
slide which shows the cost savings on Slide 14. I'm not quite sure where your starting point is
because obviously, I tend to think of Q3 2012, so the time of the Investor Day. But even if we
go back to Q1, EUR 6.4 billion down to EUR 5.7 billion, obviously, some good savings
there. But you're talking about EUR 1.6 billion of savings achieved. It means you've -- even if
we go back to Q1 2012, it appears you've actually spent another EUR 0.9 billion, and I know
you're going to continue to invest in other parts of the business. Is that a fair way of looking
at things? And where effectively would that have been spent? And then perhaps just leaving
cost, you'll be pleased to know. Just I suppose related to Anshu's final comments on U.S.
peers being stronger, but I guess one of the things that is evident is if we look at your fixed
income revenues in the fourth quarter, they represent about 42% of JPMorgan, who many
would look upon as one of your peer competitors, and the figure in Q3 2013 and Q4 2012
was 51%. So yes, that's quite a big gap that's forming there. And would Anshu and the team
put that down mainly just to the fact that the U.S. banks have had a much more favorable
environment or are you a little concerned that the de-leveraging is obviously going to cost
you something in terms of market share?
Stefan Krause - Chief Financial Officer and Member of Management Board
Okay. Chris, I'll take the first one and Anshu's going to take the second one. So very quickly,
I think the EUR 1.4 billion number is the year-to-date number and the EUR 1.7 billion
number is the live-to-date number. I apologize. It's a little bit confusing sometimes because
we are tracking these 2 different numbers. And therefore...
Christopher Wheeler - Mediobanca Securities, Research Division
Well, sorry, sorry. Yes, Stefan, I'm sorry. But it says CtA per year, EUR 1.7 billion, on 22,
per year. And that's cumulative savings, that's why I was confused. Is that just, perhaps, an
error only on the...
Stefan Krause - Chief Financial Officer and Member of Management Board
On the targeted -- one is the targeted CtA and the other one is the actual CtA. Target was
EUR 1.7 billion. We -- our recent -- in the investor presentation we said for this year, we
have EUR 1.7 billion target, and we only came in lower, EUR 1.4 billion. That's what Anshu
referred to, okay? Okay. And then on the second thing is this is the program -- only to clarify,
the program itself is a set of defined measures that are going to lower the run rate cost of the
bank, and it's specific. Of course, we have, for example, we have regulatory cost increases
that counter some of these savings. So as we said at Investor Day that some, obviously, we
will have from time to time these non -- what we partially also call noncontrollable costs
increases we have to absorb. So on your math, what we have said the EUR 4.5 billion that the
program will deliver, yes, obviously, it will be somewhat also the counterbalance by some,
obviously, cost that we will suffer for the net savings if you compare it to, let's say, in 2015
back, yes, obviously will be lower than the EUR 4.5 billion full year, if you really take
reported versus reported cost.
Christopher Wheeler - Mediobanca Securities, Research Division
No, I get that, Stefan, obviously. I mean you made that very clear on Investor Day. But I just
want to, I suppose, work out where you think that additional tweak will be. Are you saying it
will mainly be around control cost, compliance costs?
Stefan Krause - Chief Financial Officer and Member of Management Board
Yes, compliance is this type of cost that is the main increaser. Then obviously, let's say, right
now we have a benign inflation environment, so salary cost remains low, yes, but if that were
to change, things like that. That, obviously, is not inflation-related cost expense increases;
pricing, pricing increases and things like that. We obviously cannot target with the cost
cutting itself. Anshu?
Anshuman Jain - Co-Chairman of the Management Board and Co-Chief Executive Officer
Chris, fixed income was definitely disappointing this quarter. In part, there were some
idiosyncratic one-offs, there was RMBS de-risking, commodity business as well. But the
reality is that's relatively minor relative to the question which you are asking. There are a
number of trends underlying our fixed income business, which I've talked about. Let me
dwell on them in some more detail. We are utterly focused now on bottom line performance
of fixed income. So when you just look at revenues, you're missing part of the picture, which
is the resources, which fixed income is consuming, have dropped materially. We showed you
slides showing you the RWA reduction, the balance sheet reduction, the cost base reduction,
which the group has gone through. Candidly, fixed income is leading the way, as it should.
It's the division that we invested in the most significantly for a very long period of time and
candidly, as the operating environment has changed, we are recalibrating the division. Now
critically, the cost income ratio is superior today to where it was 1 year or even 2 years ago.
Undoubtedly, as we take balance sheet down, there will be a revenue impact. We have
disclosed that to you in the past. So when you just look at revenues, you're missing part of the
picture, which is the improved cost income ratio and the fact as well that while revenues are
dropping, this is our lowest RWA -- RoE business there is, so asset efficiency for the group
winds up improving. Within all of this, the stats that we are targeting the most carefully is our
market share in businesses that we are committed to, which has not budged. Indeed, it's even
gone up. Now the fact that the U.S. is outperforming Europe is undoubted. And we think,
over a multi-year period, this will be a trend. And so undoubtedly, we do have to take a look
at our U.S. versus European size of platform and continue to reinvest. Overall, our message
would be we remain to committed to fixed income unlike some of our peers and we have
demonstrated an over a decade-long period, a level of agility, which we think will serve us
very well again. The recalibration is now coming to an end. A certain amount of reinvestment
is probably now going to follow, especially in the U.S.
Christopher Wheeler - Mediobanca Securities, Research Division
Anshu, it's clear you've done a good job on the cost base in this quarter, in a tough quarter.
There's no argument about that at all. But I suppose what you're really saying is that, whereas,
you've always historically said market share has been crucial, given the scale of your
business, you are now saying market share is crucial but only in the sectors where you really
feel that you can make the bottom line work and you may actually drop some market share in
obviously the ones that it doesn't.
Anshuman Jain - Co-Chairman of the Management Board and Co-Chief Executive Officer
Chris, you couldn't have paraphrased me any better. That's right. And this is a change. I
mean, some of you have raised this with me bilaterally. And let me say this collectively, that
this is true. We did run fixed income for a very long period of time because we can afford to
run fixed income where subparts of the portfolio, such as many aspects of our commodity
business, was producing revenues, was getting us market share, but frankly had a very high
cost/income ratio and have very poor return on assets. We could afford to carry those
businesses in the past, we no longer can. What will come out as a result is you will see us
drop off in revenue lead tables, but not materially. I think there has been some
underperformance in revenues. There's no question about that. The efficiency of the business
will remain high. Most critically, what we are telling you is that we see fixed income as a
core franchise at Deutsche Bank and we remain committed to it.
Operator
Next question is from Huw Van Steenis of Morgan Stanley.
Huw Van Steenis - Morgan Stanley, Research Division
Two questions. Can I just ask one supplementary on this issue of market share? I think we
applaud the focus on return on equity rather than market share you're highlighting, Anshu.
Can I just check that if they were to be a further EUR 200 billion on your denominated
leverage ratio, that we assume you -- given your RoE focus, that there will need to be further
adjustments and therefore potentially further impact on the fixed income business, just any
thoughts on that. And then secondly, just on provisions, in addition to the non-core unit, the
underlying business also saw a tick-up in provisions. I was wondering how much of that is a
year-end true up ahead of the AQR or whether there is a more underlying trend of higher
provisions in your core franchise?
Anshuman Jain - Co-Chairman of the Management Board and Co-Chief Executive Officer
Huw, let me take the first part of your question. When we gave you the details of how we
intended to cut EUR 250 billion of balance sheet, we had actually pointed out to you that a lot
of this will come from the reductions, for example, in our outstanding derivative portfolio.
Will it have a P&L impact? It can. Will it have a market share impact? No. This a lot of debt
balance sheet, which is very expensive when you do this new CRD4 Basel calculation, which
is really a risk adjustment to our core balance sheet. Has there been some impact from a
revenue standpoint? Yes. Will there continue to be some? Yes. We believe we can keep our
core value franchise to clients completely intact and give you the EUR 250 billion in balance
sheet reduction. So that's the core part of our message. Revenue impact, yes. Market share,
client impact, no.
Stefan Krause - Chief Financial Officer and Member of Management Board
This is -- Huw, on your question on provisions, no. These LLPs, the usual year-end
calibration, so recalibrations and especially was a couple of single-client events and one-offs
in different businesses in the GTB business, for example, in the PBC business that were
larger in nature and therefore drop. It's about half of them, by the way, also came from the
NCOU, which obviously there we -- it is stated strategy that obviously we move ahead and
take the losses and the disposal of the assets that we can. So nothing really trend-changed or
nothing really, just technical and the one-off single-client event.
Operator
Next question comes from the line of Daniele Brupbacher of UBS.
Daniele Brupbacher - UBS Investment Bank, Research Division
Just a couple of technical follow-on questions. On the -- during the prepared remarks, you
mentioned that you would expect to see further adjustments to the leverage ratios. Any best
guess at this point in time how this could look like here in terms of positive and negative
impact, just if you could elaborate with more in detail. And also you mentioned that you
would expect to see some -- actually, some pressure on the CET 1 ratios there. Could you be
a bit more specific again in terms of what we should expect bearing in mind the EUR 355
billion RWAs, the non-core unit, which probably should go down. And actually that the gap
to -- the 30-basis-point gap to the minimum 10%, which you will probably exceed anyway
over time. It's a rather small one in billion terms. So just how we should you think about the
flat CET 1 ratio pressure over the next couple of quarters? And then just lastly, a sense of
clearing at this stage, can you give us an update in terms of where we are, where you are as
an organization, what the impact is and what more you expect to come there in terms of
probably also revenue impact?
Stefan Krause - Chief Financial Officer and Member of Management Board
Okay, I'm going to take the first one and Anshu is going to take the third one. So obviously, I
have to look at a crystal ball here to make forecast. It's very difficult for me. We don't know. I
can give you an example on the Basel side, there's a discussion on derivatives and their
change to the non-internal model method. Yes, this would be, for example, an improvement,
which means this would, for example, result in the reduction of exposure. But it's very
difficult to say there. So obviously, it's out for further discussion and consultation. Then as
we have seen, there is always a difference also how a proposal like this makes it into
European law and how the wording is on the European law side as well. So it's very, very
difficult to forecast what net impact it may have. So we have positive and negatives, and
that's why I think our estimate at this point is the best estimate I can give you. Let me
elaborate a little bit on the core Tier 1 ratio, and I really want to make you all aware that,
obviously, there is still, and this is what's going to happen in 2014, a lot of uncertainty around
regulation and these rules. We -- don't forget, this is a forecasted calculated number on our
best view of what -- how most likely the rules are going to pan out. Yes, and I think this is
what everybody in the industry is understanding. We do have some material, yes, definitions
still open that can have a material impact on the core Tier 1 ratio's definition, and therefore,
could have still a material impact on how the numbers come up. As our capital plan is based
at the end of the day mainly on organic growth, obviously, the timing of how it retained
earnings accrual versus the same time as some of our continued reduction of exposure will
happen, and these rules that we have to apply, if this timing is different, obviously on a
quarterly basis, you just may see volatility around this ratio. It's something I think we will
have to deal with 2014. We're very confident that our 10% forecast is fine. Some of this is
fine, and that we will get there because obviously, we have built for that. But I just want you
to be prepared that we will have this type of volatility when the final numbers come out every
quarter. Depending on how net income came you, for example, see that there's a seasonality
in net income and we had quite strong in 2013. Obviously, we'll assume we will have the
same seasonality in 2014. But then obviously, as rules are clarified, for example, as we move
in the second quarter, third quarter and the whole framework gets more clear, then obviously,
we will have to review some of the assumptions we make. We might be right in most of it,
but we could also have different definitions in other ones, and that's what I wanted to make
you aware. And I'll pass on to Anshu.
Anshuman Jain - Co-Chairman of the Management Board and Co-Chief Executive Officer
Yes, regarding your question on central clearing, I think it will have 2 impacts for our
industry. Clearly, margins, as you move from OTC markets to an exchange markets contract.
We've seen a lot of that. Could some more of that happen? Yes. Equally, you see volumes
spike. You also see capital consumption drop pretty significantly, as you go from bilateral
clearing of OTC derivatives to monthly lateral clearing. Starting overall, what you'll see is
some further deterioration in revenues, a lot of which I think has happened already. You will
see an increase in volumes and a concentration of market share amongst the top 3 or 4
players. Example, Deutsche Bank has been and continues to invest pretty significantly in our
e-capabilities and our platform capabilities. And then finally, over time, and this is actually
the thing which may have not been factored in all of your models, the fixed income equity
Sales & Trading model of the future will depend a lot less on bilateral OTC derivative
counter-party extension. And the impact of that on leverage, as well as RoEs, will actually be
pretty substantial.
Operator
Next question is from Jernej Omahen of Goldman Sachs.
Anshuman Jain - Co-Chairman of the Management Board and Co-Chief Executive Officer
Regarding the RoE of the fixed income business, we actually don't think 14% for 2013 is
particularly industry-leading. In fact, the work that we've done would suggest that there's at
least a couple of our competitors that we can see, which ought to be ahead now. Most
companies don't break divisional RoEs out. And you've asked me to do that and I won't
either, partly because it is a very heavily nuanced question with a lot of cross-divisional
subsidies, especially when it comes to resource utilization and so on. So it's a very tough
thing to really tell you truly with a level of precision, what the fixed income RoE would be.
So first and foremost, do we think we're industry-leading? No, we don't. Do we think there is
improvement possible in that 14% number? Absolutely. Let's not forget 2013 has not been a
particularly good year from a revenue standpoint, especially from a volume vantage point,
from the standpoint of European fixed income, which is where Deutsche Bank truly
dominates and is taking more and more market share. Europe has been quite sluggish from a
volume standpoint, especially in the second half of the year, so we think there is revenue
upside, certainly in fixed income. And secondly, as I pointed out earlier, the model of the
future will depend far less on counter-party credit extension, particularly when it comes to
OTC derivatives, where Deutsche Bank historically has been a leader. So I can actually see
upside both the numerator and denominator. Is 14% something which we're highly confident
we'll be able to achieve on a core underlying basis? Yes. Do we think we can improve upon
that in the future? Yes, as well. And no, we don't think we're industry-leading.
Jernej Omahen - Goldman Sachs Group Inc., Research Division
Can I -- maybe I'm just going to add a sub-question to that. Can I ask, is -- I guess, a similar
question on returns but in a slightly different way. It seems to us that the further out the target
is, the more confidence and the more forcefulness in reiterating that target. I guess that we're
all struggling a little bit as consensus estimates would show as to how you get to your 2015
targets. And the near-term results are sort of volatile and you have some headwinds. And then
I come back to your comment earlier where you say there's controllables, which are costs,
then there's non-controllables, which are revenues and litigation charges and regulation and
other one-offs. So what gives you the confidence to reiterate a longer-term targets so
frequently and I guess, particularly on this call?
Anshuman Jain - Co-Chairman of the Management Board and Co-Chief Executive Officer
To be fair, I think if you go back to 2012 and you ask yourselves how this management team
has done on all of the controllables, I think I'm right in saying that we've pretty much met or
exceeded all of our controllable targets. So there's a fight between hedging our controllable
targets and being hit by worse-than-expected uncontrollables. And you are right, we are
forecasting that 2014 will represent a turning point with the bulk of our legacy losses,
litigation, de-risking costs, which have been the 3 things which have contributed the most
vigorously, will be behind us. So I don't agree with you that we're being too optimistic on
giving ourselves a self-assessment. We think we now have a solid 18-month track record of
hitting every single controllable target in very tough circumstances. So that confidence
translates into our future confidence. Now you're right in reaffirming our 2015 targets. There
is a confidence in the management team's ability to de-lever what remains to be delevered in
terms of de-risking, in terms of finishing OpEx and so on. And also, there's an implied
forecast that the uncontrollables will peak and ebb within 12 months.
Operator
The next question is from the line of Fiona Swaffield, RBC Capital Markets.
Fiona Swaffield - RBC Capital Markets, LLC, Research Division
Can I ask in 2 areas? In the past, in the Q3 slide pack, you talked about the cost of the EUR
250 billion reduction plan in EUR 450 million to EUR 500 million on revenues and I think
EUR 600 billion on other costs. Could you tell us how much of those we've already seen in
the second half? And then the second area is on the compensation. I think you talked about a
1% reduction. I get more like a 200 basis point reduction to ratio if you use adjusted
revenues, and I wondered if you could go through what's been happening on the bonus grants,
if there's any change in deferral policy? Because it does look like a pretty low ratio.
Stefan Krause - Chief Financial Officer and Member of Management Board
So on the cost, I cannot split out the impact we had out of this [indiscernible]. We, obviously,
as reported, we had some impact because assets have come down. You have to see that I
would just -- if you asked me to do a guess right now here on the microphone, I would -basically, some of these costs is obviously in the NCOU, currently. But it's hard, obviously,
to estimate exactly the amount. But I would say, what we have cut so far, obviously, was the
lower hanging fruit and was the lower expense items at this point in time, so I would see that
probably some of it is still ahead of us just because of the dynamics of what type of assets
we've reduced so far and the RoE on those assets at this point in time. And so, therefore, I
would say the guess would be less than 100 is what we will spend. But we have included
further cost in our plan, but we still reiterate our 2015 target. So this is -- you have to think
about, this is a continuously rolling trend is to identify assets for this reduction and then
negotiate with our business divisions on what their targets are. But, again, I can only reiterate,
we are very well on track versus the plan. We're quite happy that we have moved so fastly at
the beginning and then we already have 1/3 of the mission behind us. And, honestly, I can
say, that we expect to continue to see this development over the next couple of quarters, in
terms of the pace we're achieving this. On compensation, on compensation, obviously the
numbers, I would have to calculate the numbers. Our number is 1% decline on the numbers
that I have in mind. If you look at the deferral, it's a very slight increase to deferral versus last
year, but not material. It's higher, but I think the deferral was 45 moved to 47, something like
that. So that's basically, therefore, materially unchanged. As you know, the higher deferral
ratio is more a resultant because, obviously, of the number of people that we have, risk takers,
that are subject to higher deferrals, based on, obviously, the regulatory and legal framework
that we have in place and that we are exposed to. So our risk taker population is quite big. I
must say that we have, per definition, with our regulator, probably one of the largest risk
taker population, and therefore that has an impact on that deferral ratio. But I would say no
big moves. Only to say at this point in time, obviously, what we will have to tell you then in
the future to take into consideration, which is not finalized yet, is what the CRD 4 impact will
be on compensation and in 2014, it maybe then a delayed stage 1 decisions that we can share
with you. But in as far of 2013, obviously, there was no impact from that yet.
Operator
And the next question comes from Stuart Graham of Autonomous.
Stuart Graham - Autonomous Research LLP
I had a few questions. Firstly, on Slide 25, you say that the CB&S CRD 4 leverage
denominated down 17%. I wonder if you could give us the absolute figure there? The second
question is in the non-core unit for 2014, I think in the past you've given us some guidance on
what we should kind of be thinking. Could you, maybe, give us a range of what you think
IBIT there could there for 2014? I know it's very unpredictable, but maybe a range would be
useful. And then the final question is for Anshu. I mean your capital targets kind of 10% and
3% were at the low end of where peers are, and I think all of us know you can get to 3%, but
my fear is that regulators keep increasing those requirements. Once you get to 3%, 4%
becomes the new 3% and you're always at the back of the pack, in terms of where those
capital ratios are. So why are you comfortable to be at the back of the pack, in terms of
capital ratios? Philosophically, why do you think that's the right place for Deutsche to be?
Anshuman Jain - Co-Chairman of the Management Board and Co-Chief Executive Officer
Stuart, let me start. 10% is not back of the pack. 3% is, so let me distinguish. On core Tier 1,
we still see ourselves as top quartile to sort of 50th percentile median. As we pointed out, the
European business model is very different from the U.S. business model. Let me reiterate, for
those of you that may have not tracked the differential, you really cannot compare leverage
ratios in different regimes. The mortgage market in the U.S. is very different from Europe.
The consumer finance contribution both to P&L as well as riskiness is very different. In my
opinion, I think it's very misleading to do a straight cross-geography comparison when it
comes to leverage ratio, which does not distinguish between assets at all. So yes, we think a
median position on capital and towards the higher end of leverage globally, but frankly in the
pack when it comes to the European peers, is no bad place to be.
Stuart Graham - Autonomous Research LLP
Maybe I just -- a follow up there. I mean, Barclays have got a leverage ratio on a new basis
today of 3%. Yours, I think, is 2.1% if I take your core Tier 1 capital and you have no new
style 81 [ph] right now. So yours is 2.1 over the new rules. So you're 100 basis points behind
Barclays. You are comparable, I think, in terms of business model. Lots of investors think
Barclays don't have enough capital.
Anshuman Jain - Co-Chairman of the Management Board and Co-Chief Executive Officer
There's no question that we still have work to do on our leverage. We've made that point
very, very clear. That's our EUR 250 billion asset reduction. Again, we've demonstrated to
you that we've been able to achieve a very rapid pace of de-leveraging. By the time we're
done, we would have closed a big part of that gap, and then subordinated debt issuance, we
think will make up the balance of that. So do have work still ahead of us in leverage? Yes, we
do.
Stefan Krause - Chief Financial Officer and Member of Management Board
Okay, Stuart, to your first question, I'm going to owe you that number. I don't have the
number to the 17%, but I think we can clarify that later. And to the NCOU EBIT outlook for
2014, number one, obviously, we've never given out a target for NCOU, and let me give you
a little bit explanation and give you some moving parts, obviously. The first one is litigation.
That's very difficult to predict from today's perspective. And as you see, 1/3 of the losses in
NCOU last year were related to litigation that was associated to discontinued businesses we
track in the NCOU. Then, obviously, I must say we have been quite successful, because of
benign markets, of not taking huge losses really on the de-risking and even have had quite
some good momentum of positive results in the NCOU from the de-risking activity, which
was a positive. But then it was counterbalanced that the biggest issue, I think, the NCOU will
face on a going forward basis now is costs that remain despite the assets gone and to some
extent and then especially also funding that remains, despite the assets being gone. So they
lose -- don't forget some of these assets that we just discontinued, they were still performing.
They were still providing positive P&L. The reduction of the funding side of the NCOU is
that we, as in our whole de-leveraging exercise, quite a tough and quite an expensive
exercise. So these are the dynamics. So it's very difficult to give you a good way to track it,
because the numbers itself, the trends are quite volatile. The operating assets, they're more
stable, and I would see, in the operating assets, a slight improvement versus 2013, but not a
material change there for the -- to the NCOU numbers.
Stuart Graham - Autonomous Research LLP
The thing I struggle with is, I mean, even if I add back litigation, all the funnies for Q4, I get
a loss of EUR 530 million in the NCOU, and that's the kind of figure that you are making in
the first couple of quarters of 2002 -- 2012 when the business was twice the size. So the
businesses was halved, but the losses are still the same, even on the kind interpretation.
Stefan Krause - Chief Financial Officer and Member of Management Board
For example, on the first quarter, we made quite a good gain on de-risking on those trading
assets that we sold. So -- and obviously, when we sold some larger off depreciation, we also
had gains in them, so the run has been quite well. And it's really quarter-by-quarter has been
quite a different development. But the underlying loss, as you correctly calculated, is not that
bad. It's just mean mainly the litigation pieces, and then obviously, the impact of, for
example, the funding, the balance sheet side of the NCOU, the funding cost and the legacy
funding positions they carry, which are quite expensive legacy position. So sorry, maybe we
tried to give you some dynamics in the NCOU. I can consider that to give you some
dynamics, what to look for, maybe to enable you to better estimate it. But I tell you, even
internally, it's quite difficult to estimate.
Operator
The next question is from Kian Abouhossein of JPMorgan.
Kian Abouhossein - JP Morgan Chase & Co, Research Division
A few questions. The first one is regarding CoCo issuance. My understanding is we have an
application with Basel for quite some time now, and I'm just wondering what are the issues
that are remaining regarding potential CoCo issuance, for you and so generally for the
German banks, from your perspective, both from a tax perspective and from a legal
perspective, if you could maybe discuss what the issues that are stopping you from getting
approval. The second point is regarding your leverage ratio Basel III. You clearly do not take
into account proactive steps, as you just indicated, of reducing the asset side. However, as we
know, credit derivative notionals are allowed to be netted under certain conditions. And I'm
just wondering if you can discuss a little bit what you see here in terms of potential, also
SFTs repos, will be negative as cash collateral. Just wondering if you can talk a little bit
about how this is changing the industry from your perspective and how you're dealing with
these issues and more from a proactive perspective, what you can do yourself, you think, in
terms of leverage ratio improvement? And the last point is on cost savings. You reached EUR
2.1 billion, you have EUR 2.9 billion as your target for this year, based on the Investor Day,
and we're just wondering -- you actually highlighted again in this slide and slide, I think, 22,
but we're just wondering, what is the real achievable number, because this looks very
unambitious to us in terms of cost savings.
Stefan Krause - Chief Financial Officer and Member of Management Board
Okay, good. So let's start with the CoCo. We've really had a very constructive discussion that
the issues mainly hinged around German corporate law, German [indiscernible] tax loss in
Germany versus how you construct it versus what CRD 4 requires. Yes? So there are some
issues that we have to overcome that I think, over time, we will overcome. But it's obviously
very difficult to say by when, because obviously, there are several authorities involved. It's
tax issues, it's corporate governance structuring type issues, it's securities laws issues. It's
obviously then also the regulatory issues that we have to solve for. And I think that looking at
some of the issues that we have in Europe, probably most of them will have similar issues
still pending, that we have to -- that have to be worked through until we really get a final use
of system. So very difficult to predict at this, but I will tell you we stand by our commitment.
We want to issue EUR 5 billion 81 [ph] by the end of 2015. And again, I can only say, from
my seat, we definitely expect to be put in a position that we can start issuing in 2014. So our
willingness is definitely there.
Kian Abouhossein - JP Morgan Chase & Co, Research Division
So from your perspective, some more -- a legal aspect rather than anything else? You think,
ultimately, it's a timing issue, it will happen? It's just working out nitty gritties?
Stefan Krause - Chief Financial Officer and Member of Management Board
Think about, for example, on the coupon itself that CRD 4 says that cannot be a fixed
coupon, technically, because, obviously, that would defy the purpose. It needs to be under
discussion. The question is, how do you deal with the coupon between what the market
expect it to be, versus what the CRD 4 rule expect it to be on tax. Is this now a dividend or
has it been treated as interest cost and things like that? So think about all this. This is what's
being -- very constructive discussion and what's being resolved, but with, again, several
authorities that are involved and need to give us respective clarification. But if I go into your
leverage ratio, yes, the Basel III -- I must say that the team here told me I should not disclose
our guess on Basel III, and I was very strong to give you an indication, because they feared
exactly these questions, which is the next question, so if it's EUR 200 billion, what are you
going to do about it, yes? And what we are going to do about it, of course, over there, those
additional things we have not yet put management action, as I said. And you're absolutely
correct that there is quite some steps you can take in terms of management actions to also
deal with this increase. What we only wanted to send out as a message that even if we were to
accept that this is the increase with the Basel that we will have from the EUR 250 billion cut,
we should be able to achieve the minimum, and we have upside from here. That would also
be our view. But again, it's not final yet. It's not law yet, and therefore, we have to wait for
that. For example, cash collateral variation action on the recognition in leverage that,
obviously, indeed some recognition foreseen in the latest Basel paper. But, obviously, their
defined constraints are somewhat unclear to us at this point, and therefore, we have taken a
conservative approach on our estimate, to give you one example. But, also, our view could be
that we might come out better here, yes?
Yes, you're right. But also, probably from this one-off costs, since most of it is NCOU and we
had the big hits in NCOU is very difficult to say how much of that is consumed. Yes, that's
even worse -- more difficult than the ongoing. Sorry, you're right, different question. And
then on the dividend, as you know, by German corporate governance, the dividend is a
proposal of the supervisory board to the AGM. You know what we normally accrue for
stable, and that's what's in our numbers right now. But the decision is obviously to come.
We'll communicate once this decision is made.
Operator
Next question is from Robert Murphy of HSBC.
Robert Murphy - HSBC, Research Division
I've got many follow-ups, because most of my questions have been asked. First of all, on the
cost savings, I'm looking at PBC, can you give us an idea when we're going to start to see a
sort of a stronger pace of savings coming through there? Because it's been lagging the Asset
Management and Investment Bank. Secondly, following up on the NCOU, on the funding
positions, is your strategy to sort of let these run off naturally, or are you going to close these
early and take more hits? And that's about it.
Stefan Krause - Chief Financial Officer and Member of Management Board
Okay. Two good questions. But before I answer them, Stuart, your earlier question on CB&S,
I have the numbers right now. The CRD 4 was about EUR 1.1 trillion, which now stands at
about EUR 900 billion. Okay, so that's only for that cut -- for the question you asked around
the numbers. Now cost savings in PBC. As you know, the cost savings in PBC are just offset
currently by the investment into -- and were offset in 2013 by the investment into the synergy
program that we had with Postbank, and therefore, you don't see these savings. We're quite
comfortable that is now, the programs are realized and we have some good successes with
some significant system implementations, especially in the second half of the year. And if
they now are material, we should start seeing net positive effects in this year out of the
synergy program with Postbank. So I think I'm quite comfortable that we'll see that, which by
the way, in Asset & Wealth Management, as you mentioned, we had some initial cost
reductions, but now is also system and other cost will occur, the dynamics will slightly
change there as well continue positively, but they've really exceeded our expectations in this
first year. And then you asked me on the NCOU funding positions. It's very difficult to say
how we deal. It is on a position-to-position basis. It's a problem that you have on assets.
Obviously, when you derisk assets, you take a P&L hit, and you have a direct benefit from it
in terms of RWA cuts, for example, which obviously in liability positions, you don't have. So
we'll have to see how we deal. There will be some buybacks. There will be mainly roll-offs,
which help us, especially on the Postbank liabilities. And on those, obviously on the funding
overall position, it will be more taking off from an overall group perspective, how we look at
our total assets and liabilities and how we manage them down and only to be a division. But I
was only making the point that when you look then at the division and segregation, there is
certainly expense of the funding positions allocated to the NCOU that will continue to cause,
obviously, now losses, because corresponding assets that help them to offset these funding
costs obviously being reduced quite rapidly.
Robert Murphy - HSBC, Research Division
Can you say what the average life is of those positions maybe? Just to give us an idea.
Stefan Krause - Chief Financial Officer and Member of Management Board
There's some longer -- I will tell you there are some longer positions as well, but otherwise,
it's pretty mixed.
Robert Murphy - HSBC, Research Division
Right. And I'm sorry, just one other follow-up. in terms of your fixed income trading number,
should I include -- does that include the 176 FVA in there? Or is that elsewhere?
Stefan Krause - Chief Financial Officer and Member of Management Board
The trading number? No. That's in the consolidation piece within the managerial reporting,
yes.
Operator
We're taking one last question. That's from Michael Helsby of Bank of America Merrill
Lynch.
Michael Helsby - BofA Merrill Lynch, Research Division
Just 3 questions, if I can, actually, just to finish off. Anshu, you mentioned the headwind
clearly seen in your -- in the Investment Bank. And I think in your prepared remarks, you
said you expect a better 2014. I think relative to the industry, your FICC trading, as you've
discussed, has been progressively getting materially weaker. And I appreciate that it's early
days, but I was wondering if you could give us a feel for how you've started the year, whether
that step change that we saw in the second half of the year, year-on-year, has progressed into
Q1. So that will be question one. Question two is just to follow up on cost, actually. So your
adjusted cost basis, EUR 23.2 billion, is down nicely year-over-year. I just want to gauge
your conviction and your confidence in these cost savings maybe in absolute terms. So if we
assume flat revenues in 2014, would it be reasonable to just assume that, that delta on the
achieved cost savings dropping through to the bottom line i.e. get a nice absolute reduction in
costs in 2014 again? Any comment there would be helpful. And then, just finally, on the core
Tier 1 ratios, I appreciate that the rules are still evolving, but the way you positioned the
commentary, it makes it sound like you've taken the more optimistic interpretation of
everything that you see in i.e. you're warning goes that the risk weighted assets could go up.
Is that the right way to read what you're saying? Or is it directionally, you're not giving us a
steer?
Anshuman Jain - Co-Chairman of the Management Board and Co-Chief Executive Officer
So, Mike, I'll begin by taking the first question, and then I'll hand over to Stefan. It's too early
to really comment much about first quarter. We haven't even completed January yet, so I
think premature to talk about Q1. Let me clarify -- I actually didn't say that we expect 2014 to
be materially better for the Investment Bank. We actually think the trends that we've seen in
2013 are likely to continue, so I think you'll keep interest rates at a pretty depressed level. We
think volumes and fixed income currencies and commodities will likely remain low. The up
trend in equities will probably continue and maybe M&A picks up. But if I take a look at the
overall outlook for CB&S in 2014, we don't see a materially better revenue picture at this
point. Now in terms of how we see our own fixed income performance, I've talked about this
before, so I have nothing further to add, beyond the point that the revenue reduction that
you've seen are almost entirely in line with the reduction in balance sheet that we pushed
through, as well as an out-performance of the U.S. over Europe. So I think if you adjust for
both of those, our relative performance can be explained in a pretty straightforward fashion.
And the efficiency of the business is, without a doubt, superior, both on a cost, as well as
balance sheet adjusted basis, compared to where we were a year ago.
Stefan Krause - Chief Financial Officer and Member of Management Board
Okay. Then I'll take your cost question. It's, in principle, yes. Obviously, the benefit -because this is run rate cost reductions, so in principle, you will see a benefit, but it's very
difficult for me to say if we're going to be exposed to other regulatory and other additional
cost items in the year. But in principle, yes. And this is what we expect, and especially in
2015 then to be the full value of the reductions to really be seen. So for 2014, it's logically
yes, but maybe in terms of uncertainties that we still had in some investments we're doing in
the platform throughout the year as well. So and then you asked me on the Tier 1, what we
see is currently is that some of our regulators is being very conservative by definition, and
we're all guiding -- what we are guiding will ensure that they will have further technical
standards that will come out. And obviously, at this point there, we need to be prepared, and
we need to be open that some of these standards and these definitions might create some
further pressure. We did include, from today's perspective, what we believe the most likely
outcome would be, also after discussions and what we feel. But, ultimately, it's very difficult
for us to say. I just put out this as a note of caution in terms of how -- especially in 2014,
many of these technical standards will be solved and defined. And obviously, it's an
estimated number, so obviously, we made certain estimates about certain of this will come
out. To look in the past, you've seen, sometimes, some ease in trends. You've seen sometimes
some tough trends and that's what my statements referred to, difficult to say.
Operator
Gentlemen, there are no further questions at this time. Please continue with any other point
you wish to raise.
John Andrews - Head of Investor Relations
Great. This is John Andrews again. We'd like to thank you for taking the time to join us
today, and particularly on a short notice. If you have any other follow-up questions, please
feel free to contact us here in Investor Relations. Otherwise, thanks for your interest in
Deutsche Bank. Goodbye.