Deutsche Bank AG (DB) Q2 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. I'm Miava, your Chorus Call operator. Welcome and thank you for joining the Second Quarter 2016 Analyst Conference Call of Deutsche Bank. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. [Operator Instructions]. I would now like to turn the conference over to John Andrews, Head of Investor Relations. Please go ahead.

Good morning, and welcome everyone this morning for our second quarter earnings call. I'm joined this morning here in Frankfurt by John Cryan, our Chief Executive Officer; and Marcus Schenck, our Chief Financial Officer. They will take you through the analyst presentation which we have posted and is available on our external website, db.com. As has become our practice and as we did last quarter, I ask for the sake of efficiency and fairness that questioners limit themselves to just two of their most important questions when they come out of the call, so that will give as many people a chance as possible to participate in the Q&A session. I would also forewarn you that due to other scheduling obligations we will need to end this call up no later than 9:30 CET this morning. And let me close with the normal health warning to pay particular attention to the cautionary statements regarding any forward-looking comments that you will find at the end of the Investor Presentation. With that out of the way, let me hand it over to John. John?

Thank you, John, and good morning, everyone. The second quarter of 2016 was quite a ride. We've seen Europe placed once again at the crossroads following the decision by the British people to take the country out of the European Union. Initial market turbulence has since been replaced by a degree of market confidence in the power of British pragmatism to make the best of unexpected events. Europe however remains challenged. Not in recent history have so many people being unemployed, yet the continent remains a major destination for economic migrants. Policy reform has come to a standstill. Elections in the two largest European economies loom and a critical referendum in Italy. Populous politics has not played such an important role since the 1930s. The Brexit vote and the Republican Party rhetoric in the USA point to a popular desire for renationalization of policymaking pressing for reversal, or at least allow in the larger globalization. Against this backdrop, global policymakers continue to press for further banking reform, with calls for even stricter capitalization of banks, regardless of the impact on the real economy, especially in Europe. Monetary theorists persist with their negative interest rate policies relying evermore on hope for, rather than expectation of success. The outlook is therefore uncertain and that's particularly true in the Eurozone, where the intersection of policy actions, political decisions and market confidence will be critical in the coming months and quarters for European in particularly and potentially global economic growth. At Deutsche Bank, we are undertaking as much restructuring as possible in 2016 despite the burden of lost revenues and the added expense in the year. Not to do so would simply perpetuate our structural inefficiency and delay the achievement of our fundamental goal that of returning to sustainable profitability. We'll not deviate from taking tough decisions just to flatter results in the short-term. We did this in the past and it led to many failed restructuring. In that context, Q2 was rather a success but of course there remains an awful lot still to be done. In USA, we successfully launched our intermediate holding company that has as a substantial part of our US banking business are broker-dealer, are asset manager and some of our infrastructure. We did fail to come through the CCAR process for our small trust bank successfully, notwithstanding the fact that its Common Equity Tier 1 ratio post stress was in excess of 30%. This underscores the amount of work we continue to need to do to improve our data management and information delivery systems. In PWCC we choked up a number of successes. We concluded the first and major round of negotiations with the works councils in Germany with an agreement on job cuts that affects approximately 3,000 staff members and enables us to announce our branch closure program. We continued to move forward with our other restructuring efforts outside of Germany, having already closed 50 branches in PCC International with the execution of plans to close further 30 or more in 2016 and 2017. Our revamped commercial banking strategy in Germany saw early success with around 2,000 new commercial clients added in the past year and lending volumes in the first half of 2016 growing by €1.7 billion. Our renewed emphasis on the consumer finance market in Germany to boost margins and reduce our concentration on mortgages, led to a 5% growth in new customer volumes. And we saw a turnaround in fortunes in PCC International where we added 10,000 new clients in the second quarter of this year. In Postbank, in the quarter we completed the work to separate the administration of the bank from Deutsche Bank Systems. Revenues held up reasonably well against the backdrop of negative interest rates, although results did benefit from some one-offs. Management continues to focus where possible on higher margin lending and on cost containment. We continue to hold off on initiating an IPO of the bank in light of current market conditions, which we think will prevail for some time to come. In global markets, we continue to make very good progress. We've accelerated the planned wind down in our RMBS book and have achieved half of our 2018 year-end RWA reduction target already. The rationalization of our EM business is progressing well. We completed de-risking of our Russia portfolio along with portfolios in four other emerging markets countries. The impact of our rationalization plan accounted for approximately a quarter of GM’s year-on-year revenue decline and more than a third of the decline in debt sales and trading revenues. We remain confident in our ability to maintain roughly these revenue levels in the current markets. In CIB, we maintained our strength in transaction banking as the new number one euro clearinghouse. Our DCM business remains very strong. We were number two in European DCM and top in EMEA high yields, third in global high yield. Our corporate finance business is heavily impacted in the quarter by paralyzed markets and our strongest markets in Europe. We do continue to build our corporate finance business and we were successful in bringing in a number of high-profile new hires in the quarter. In NCOU, we continued to liquidate positions even though the environment was not always conducive to doing so. In early July, we successfully unwound a particularly long-dated and complicated structure trade which was the largest single legacy trade in the NCOU. We took a significant reserve in the second quarter to reflect the subsequent unwind. The RWA in elimination was recognized only in July and will therefore only come through in our Q3 numbers. Given the other progress we've made in July, we are now more confident than ever that we will succeed in reducing the NCOU’s RWA to below €10 billion by year-end. At that time we'll eliminate it as a reporting segment and a huge driver of the NCOU and our profits will finally be behind us. In asset management, we made reasonably steady progress completing business restructuring that saw fund derivatives and other related businesses transferred back to global markets. The transfer took goodwill with it and that amount had to be written off in global markets where it became irrecoverable in its cash generating unit. Fund flows in asset management continue to reflect the trend of outflows from money market funds and the general nervousness about the markets in Europe. At a Group level, we continue to invest heavily in improving our administration systems and in strengthening our controls. We expect to continue for several quarters to come with our ongoing enhancements to our KYC processes and with expanding our audits and compliance functions. On the litigation front, we've made good progress in our efforts to resolve legacy matters. We’ve settled several cases in the quarter largely within our provisions. However the resolution of our major outstanding matters remains a focus for the senior management team, who have no further news at present. The Bank’s own finances are in very good shape. Over the past four quarters we've taken a lot of pain in restructuring the balance sheet. We are already fully compliant with our future TLAC and liquidity requirements. We currently have a liquidity buffer of around €220 billion and almost €110 billion of loss absorbing capacity. Our CET1 ratio is 10.8% at quarter-end and is 11.2% pro forma for the closing of the sale of our stake in Hua Xia Bank. We're currently running risk levels that are significantly lower than those we've traditionally run. In credit, we’re very comfortable with the quality of our portfolios. Our loan losses remains small by any historic measure and our credit books have high stress resilience. Our exposure to industry segment that had been a concern for many, are comparatively low and the asset quality is good. Our Italian bank has the highest coverage ratio and its NPL ratio is 1/2 to 1/4 of those of our major competitors. In global markets, our aggregate risk-taking - risk trading risk sits at historic lows. Risk management remains tight and vigilant as was demonstrated when markets tested us with the extraordinary volatility we saw following news of the Brexit vote. To sum up, the overall report card for the quarter shows reasonably pleasing progress in some trying circumstances. We need to build the Bank’s profitability and the main task of management remains the control of costs, for which we do need to continue to invest. Despite the considerable political, regulatory, economic and social uncertainty we face of the coming quarters, we will not deviate from our strategy. So let me now turn over to Marcus to take you through the results of the quarter in detail, and then we’ll be happy to answer your questions.

Thank you, John. Good morning, and welcome also from my side to our second quarter ‘16 results call. For Q2 2016, we reported an EBIT of €408 million and a small net income of €20 million. Revenues were at €7.4 billion and non-interest expense was at €6.7 billion. Risk-weighted assets at quarter-end were up €402 billion and leverage exposure was at €1,415 billion. With that, fully loaded Core Tier 1 ratio came in at 10.8%, hence slightly up versus last quarter and this does not yet include the effects from the sale of our stake in Hua Xia. Leverage ratio remains at 3.4%. As John said, overall we passed a very challenging quarter with extraordinary events impacting the financial industry in general, but obviously also Deutsche Bank in specific. Results continued to be driven by low interest rates as well as reduced market activity in volumes which most likely will not improve in the short-term. This comes on top of the implementation of strategic decisions such as the closing or downsizing of certain countries and business areas which impacted revenues negatively, but which will positively impact profitability over time. An example for that is the accelerated de-risking in our non-core units. Let me first start with the net income bridge for the quarter. In constant exchange rates, revenues for the Group decline significantly by €1.7 billion versus the second quarter of 2015, a trend which mainly affects all our businesses other than Postbank, which however benefits from one-off gains, and I will come to that in a minute. Loan loss provisions increased by €109 million driven by the provisioning primarily in shipping, as well as metals and mining. The adjusted cost base improved by €335 million, mainly from lower cash bonus and retention expenses. As we proceed with the implementation of our strategic targets, we booked further €164 million for restructuring and severance. And on the litigation side, the resolution of several litigation matters in the quarter was materially covered by existing accruals. Please note that the numbers for the quarter also include a goodwill impairment for global markets subsequent to business transfers from Deutsche Asset Management, accounting to €285 million. These are non-cash non-tax-deductible, and most important, have no impact on regulatory capital. As there have not been any material tax and currency movements, we closed the quarter with a net income of €20 million, again after the aforementioned €285 million goodwill charge. Let me look at some of those items more closely. On Page 5, we show the breakdown of our reported revenues per division and strip out non-core unit in Hua Xia in order to reflect the sum total of revenues for the core bank. What you can see is that excluding non-core units and Hua Xia revenues for the quarter declined by 12% compared to last year. That contrasts the reported 20% which includes non-core unit in Hua Xia. Before we move on, let me quickly guide you through the main revenue drivers per division. Global markets revenues were down €924 million compared to a strong prior year quarter, mainly driven by macro uncertainty impacting client flows and idiosyncratic effects stemming from our implementation of Strategy 2020. The former effect was exasperated by our relatively strong presence in Europe and APAC versus to the U.S. which was a lot more resilient. For CIB, we also saw a decline in revenues of 12%. This is a result of a weaker performance in corporate finance in a very challenging market environment, whilst revenues for transaction banking were nearly flat compared to prior year. PWCC revenues excluding the Hua Xia were down €93 million, which is 5% with revenues for private and commercial clients down 2% and wealth management down 12%. In wealth, don't forget this includes a revenue decline from our private client units in the U.S. which we will have sold later in the year. Asset management revenues down by €63 million year-over-year, largely due to a very strong second quarter ‘15 which was benefiting from fair value gains in active and performance fees and alternatives as well as weaker market environment this year. As said, Postbank revenues were up by €100 million, which is however mainly driven by the sale of our stake in VISA Europe. Including C&A, this leads to a subtotal of €7.7 billion revenues for the quarter. Main offsetting effects come from our non-core operating units as well as our stake in Hua Xia which we no longer view as strategic and hence take out of our core revenues. NCOU revenues were significantly down reflecting continued de-risking as well as the unwind after a long-dated structure transaction which hits the P&L in Q2, but comes with an RWA relief only in the third quarter of ‘16. Over the past years, we benefited from equity pick-ups from our stake in Hua Xia which is no longer the case since we signed the sale agreement for this stake in December. In that context, allow me one comment on the progress of our sale of that 19.9% in Hua Xia Bank. Even though we face a slight delay compared to our initial time plan, we are still highly confident to close the deal in the second half of 2016 as the maximum three-month approval periods officially now started on June 24, 2016. This will have a positive 40 to 50 basis points impact on Core Tier 1 ratio depending on the overall capital position of the bank at the time of closing. The next page provides an overview of our Q2 non-interest expense. At constant exchange rates, they were down by €1 billion, main driver, a €1.1 billion lower litigation charges. This includes insurance recoveries related to the Kirch settlement agreements. As such impairments are up by €285 million due to the transfer from certain business from asset management to global markets. You see increase of €164 million in severance and restructuring. And at constant exchange rates, adjusted costs went down €335 million. Looking into adjusted costs in more detail on Page 7, you see four main categories with the following movements at constant FX rates. Firstly, comp and benefits were down €413 million driven by lower cash bonus and reduced retention charges. Secondly, IT costs remains our second largest cost category, which increased by €154 million. This is mainly driven by higher software depreciation and higher costs for external IT services. Thirdly, professional service fees are up €35 million driven by a higher support for our regulatory projects in the U.S. in particular. Lastly, occupancy is down €51 million compared to last year based on a one-time real-estate transfer tax liability in Q2 2015. What you can also see on that chart is the headcount development based on full-time equivalents. Compared to prior quarter, we’re slightly down by 138 FTE. At first glance, this does not seem to be a loss, but when looking at FTE developments, one also needs to consider the FTE we internalized in the quarter. Adjusting for this effect, we reduced FTE by 770 in Q2 of 2016. In addition, most importantly we successfully concluded key works council negotiations for our businesses in Germany, which as John said, will permit headcount reduction in Germany to now begin. A few words on litigation. Our litigation reserves have slightly increased to €5.5 billion, which is €0.1 billion higher than at the end of Q1 2016. Contingent liabilities again decreased from €2.2 billion at the end of Q1 to now €1.7 billion. Year-over-year we observed a decrease in contingent liabilities by about €1.5 billion. U.S. mortgage reserves remained at €340 million. On resolutions and settlements in the second quarter, Deutsche Bank made further progress in achieving settlements or resolutions with respect to certain legacy highest risk matters which have not or not yet been made public. And other matters in particular with respect to the remaining civil litigations in the U.S. in connection with Deutsche Bank’s pre-financial crisis RMBS business. These resolutions and settlements have overall been in line with our - with or below our existing provisioning level. In addition with respect to other legacy matter, the bank either initiated settlement discussions or continues to take proactive approaches to regulators and/or civil litigation parties by communicating Deutsche Bank’s willingness to start discussing resolution. Deutsche Bank is committed to resolve four of its most important highest risk matters including the two largest regulatory enforcement matters the DoJ investigations regarding the Bank’s pre-financial crisis RMBS businesses as well as the Russian mirror trades in the course of this year. However, the timelines are not in the bank’s hands but are largely determined by the regulators and authorities. With respect to other matters, Deutsche Bank constantly reviews its ongoing regulatory enforcement proceedings, as well as civil litigations and strives to achieve settlements where it is in the best interest of the bank. Let us now look at our capital position. Common Equity Tier 1 capital increased from €42.8 billion at the end of the first quarter to now €43.5 billion at the end of June 2016. Driver for the €700 million increase in CT1 capital are foreign exchange developments, in principal the strength in U.S. dollar, equity compensation which is share award accruals recognized in shareholders’ equity and lower capital deductions as we have written off about €300 million of goodwill. AT1 capital remained constant at €4.6 billion. Our RWA also increased slightly by €1 billion compared to prior quarter including a €2 billion FX effect. Credit risk RWA was higher across some divisions due to methodology changes and business growth, whilst market risk was lower due to a reduced risk profile in global markets and continued de-risking in NCOU. Core Tier 1 ratio was slightly up at 10.8%. The benefit from the sale of our stake in Hua Xia announced last December, as I said before, is not yet included in these numbers, since that will only be included at closing. And as said, we are highly confident that this will happen within the second half of 2016 following the three months approval period. Leverage exposure increased by €24 billion in Q2 2016, mainly driven by FX movements of €19 billion. Continued NCOU de-risking is offset by an increase in cash balances, principally from client-led deposit growth and securities financing transactions. The movements between the segments reflect refinements in central liquidity reserve allocation now fully based on individual stress liquidity positions. Leverage ratio of 3.4% is flat compared to prior quarter. Once again, adjusted for Hua Xia, this would be 3.5%. Before we move to the details of the segments, let me make a few comments on the EBA/ECB stress test results, which will be published late Friday for the largest 51 banks in Europe and on Deutsche Bank’s funding profile. What is new compared to the 2014 stress test? This time the stress test includes operational and conduct stress losses. In addition, a much more severe instantaneous market risk scenario with significantly higher shock factors has been chosen. The EBA stress test is not a pass/fail exercise. Overall, the stress test of 2016 was launched by EBA incorporation with the ECB to assess the impact from stress losses and RWA for the period 2016 until 2018. The idea is to integrate the stress test results into the SREP Decision for 2016. This would be composed offer a Pillar 2 requirements and a Pillar 2 guidance, whereby the qualitative outcome of the stress test would determine a Pillar 2 requirements and the qualitative the level of Pillar 2 guidance. Importantly, only former will be relevant for the maximum distributable amounts which functions as a restriction trigger point. As of now, we do not expect material changes to the overall SREP level, but a different composition of Pillar 2 now comprising as such Pillar 2 requirements and Pillar 2 guidance. Consequently, the hard MDA trigger for us and European Bank as general should decline. When looking at our funding position, we see a very robust of funding profile for the quarter end. Total external funding increased by €15 billion to now €992 billion with 71% of total funding coming from more stable sources such as retail, transaction banking and capital markets. As per end June 2016, we have year-to-date issued €20 billion at average spreads of Euribor plus 109 basis points and an average tenure of 6.7 years. With this, we are ahead of our plan for the year which now targets €30 billion total issuance volume for the year. We also see an improvement of our liquidity coverage ratio which stands at 124 per quarter end. Let me now move on to the segment results, starting with global markets on Page 15. We report an EBIT of €28 million, which clearly underperformed prior year numbers driven by several factors. Revenues are down €924 million, a drop of 28% or 24% when you exclude CVA/DVA and FVA. This revenue decline results from a combination of DB specific factors such as Strategy 2020 decisions to scale down certain businesses as well as market-driven factors, which is the macro uncertainty around the UK’s EU referendum impacting client flows especially in Europe and in Asia. Due to our relatively strong presence in Europe and APAC, we suffered comparatively more from these events than our peers in particular in the U.S. I will try to quantify that effect in a minute. Provisions for credit losses are only driven by a small number of exposures but increased compared to prior year. Global markets costs are up slightly by 5% in the second quarter year-over-year. This was driven by the €285 million goodwill impairment subsequent to the aforementioned business transfer from Deutsche Asset Management. Furthermore, we see lower litigation charges and compensation costs, which were partially offset by higher spend on technology and controls. Cost excluding impairments, litigation, restructuring and severance were actually down 2% year-on-year. RWA increased slightly year-on-year to €170 billion as increase in operational risk RWA and impact from model and methodology update was partially offset by continued business de-risking. Let us take a closer look at our sales and trading units. In debt sales and trading, we see a decline of 19% compared to prior year. This was partially driven by the conscious decision to exit high-risk weight securities trading - securitized trading, as well as agency RMBS trading, coupled with a rationalization of our emerging markets debt platform. Together we estimate these actions accounted for roughly one-third of the quarterly revenue decline. Nevertheless, we feel good about the performance of our debt sales and trading platform in a very difficult market. Despite the intentional actions mentioned, we still generated just short of €4 billion of revenues in the first half of 2016. We expect this will rank us number four by global fixed income revenues and is a reminder of the resilience and strength of our world class debt franchise. The different market environment in U.S. on the one hand and Europe and APAC on the other hand also contributes to the difference in Q2 performance, compared to in particular our U.S. peers, which has a relatively stronger position in the U.S. Let me give you some facts. Secondary debt market volumes in the Americas were generally higher as much as 14% up year-on-year, whilst in Europe secondary volumes were generally weaker with e-traded government bond volumes for example down around 5%. We attribute business mix alone to about 30% of the difference you see in debt sales and trading performance year-over-year versus our U.S. peers. Finally, Q2 of 2015 was particularly strong in debt for Deutsche Bank. Last year we had extraordinary strong results from some positions in the distressed debt business, which did not repeat them. In addition, we took a much more prudent risk approach in Q2 ‘16 prior to going into the UK referendum. A few comments on specific businesses. Our FX business had a solid second quarter supported by significant client activity around the UK referendum on the EU membership. Rates was slightly higher year-on-year with strong performance in our Americas Municipal business and good client flow in Europe. Credits came in lower reflecting the exit of high-risk weight securitized trading and lower distressed revenues, the latter compared to a very strong prior-year quarter. The EM debt business had lower revenues driven by the streamlining of Deutsche Bank’s country presence, particularly in Russia as we mentioned in our Q1 call. Our Asia-Pacific local markets revenues were lower due to challenging market conditions in that region. Equity sales and trading revenues were down 31% versus a very strong performance in prior-year. All products suffered from lower client activity and lower market volumes, including the knock-on impact of lower primary market activity especially in Europe where Deutsche Bank has its core strength. CIB recorded an EBIT of €432 million which improved compared to prior quarter. Year-over-year EBIT is down 27% due to lower revenues and increased provisions for credit losses. Revenues declined by 12% in a challenging market. This resulted from lower revenues in our corporate finance business with revenues from transaction banking being almost flat. We booked provisions for credit losses of €115 million, driven by primarily - driven primarily by provisioning in shipping as well as metals and mining as these sectors continued to be affected by adverse macroeconomic developments. Non-interest expenses of €1.3 billion decreased significantly by €178 million or 12%. This was driven by non-recurring litigation costs that we reported in the second quarter of 2015, along with lower comp cost and tighter cost discipline. These more than offset the impact of an industry-wide voluntarily remediation scheme for derivatives sold to SME clients in the Netherlands prior to Deutsche Bank’s acquisition of the respective business, which are embedded in CIB non-interest expenses this quarter. The next page provides a more detailed view on the revenue developments for CIB. Revenues in TFCMC declined 6% in the low interest rate environment and suffered from lower loan volumes and trade finance in APAC, as well as the risk management of our client relationships in high risk countries. ICM revenues were up 13% mainly driven by higher interest rates in the U.S. On equity origination, global issuances continued to be materially down versus the second quarter of '15 resulting in a fee pool decline of 43% in the second quarter ‘16. Equity origination revenues significantly improved versus Q1 ‘16 reflecting improving momentum in our franchise. In debt origination, investment grade bond issuances have held up, though leverage loans struggled with a reduced fee pool driven by lower investor appetite. We do however see a better pipeline in this segment. Advisory suffered in the second quarter from postponed deals, as you know a very episodic business. Performance was smooth out across the year as a number of fee events were pushed from the second into the third quarter. In PWCC, revenues for the quarter were down 11% on a reported basis. However excluding Hua Xia, revenues for PWCC would only report a decline of 5% as more than half of the decline reflects the effects of the discontinuation of the Hua Xia equity pick-ups. Our product revenues declined versus a very strong prior-year quarter on the back of reduced activity of our clients and continued low interest rates. The revenue reduction was partially mitigated by the positive impact from the sale of a stake in VISA Europe, amounting to €88 million in the current quarter. Loan loss provisions are down 10%, reflecting the continuous good quality of the portfolio. On the back of the recent events in Italy, it is important to note that PWCC’s Italian loan portfolio is very well diversified and provision for credit losses were in line with prior quarters. Non-interest expenses were up by 5% driven by an increase of restructuring and severance charges of €69 million and higher litigation charges of €28 million for the second quarter. Excluding these charges, the adjusted cost base remains stable despite higher software amortization and investment expenses, related to our strategic initiatives, including the expansion of our digital solutions. This reflects again strict cost discipline in a pretty weak revenue environment. As John mentioned before, we reached agreements with the works council on PCC Germany restructuring. The first 300 FTE have left the platform. 200 FTE more are committed short-term. We will reach our target of 2,500 FTE reduction in this segment. In the international business, around 50 branches have been closed and further more than 30 to follow in ‘16 and ‘17. Looking into PWCC sub-segments. Slide 20 shows the revenue development in our private and commercial clients as well as wealth management businesses. PCC revenues were down 2% compared to the prior year quarter. PCC revenues in the quarter included the positive impact from the sale of VISA, investment and insurance revenues as well as deposit income were down. Credit products showed a solid growth of 6% driven by higher volumes. Margins for credit products slightly improved year-on-year in both our German and international businesses. The impact of our pricing pressure in competitive markets was mitigated by an improved profitability from a better product mix with a shift from mortgage to focus lending. Since the mid of last year, we attracted 2,000 new commercial clients in Germany, and in our international business we gained more than 10,000 new clients in the second quarter of this year. Wealth Management revenues were down 12% versus an exceptionally strong second quarter ‘15 driven by a difficult market environment with lower client activity. The revenue decline also reflected very low levels of equity capital market activities in the U.S. which led to lower revenues in our PCS unit, which as you will remember, we've signed an agreement to sell and will have sold by year-end. Performance and transaction fees declined by 33%. Management fees were down 9% reflecting lower market levels. Net interest revenues were stable despite the ongoing low interest rate environment in Europe. Our gross revenue margin on invested assets in wealth is 72 basis points, which is slightly lower than in the prior year quarter on the back of low revenues and the de-risking trends on the invested asset size. Invested assets for PWCC increased by €2 billion in the current quarter, mainly due to market depreciation and FX movements of approximately €3 billion. This was partially offset by €2 billion net outflows in wealth with two different trends; net outflows in Asia Pacific, the Americas and Europe reflecting continued deleveraging activities of our clients, as well less efforts to optimize risk management. These were compensated within our German wealth management business with net inflows of €3 billion in the current quarter. In the PCC businesses, modest net outflows in securities were more than compensated by €1 billion new deposits. The following page provides an overview for Deutsche Asset Management. Revenues excluding Abbey Life gross-up were down 17% year-over-year in Q2 ‘16 largely due to a strong second quarter ‘15 benefiting from fair value gains in Active and performance fees in Alternatives. EBIT in Deutsche Asset Management was down 35% driven by the aforementioned drop in revenues partially offset by lower costs. Invested assets were down 5% compared to prior year quarter, a decrease of €36 billion. At the same time, we see net asset outflows of €9 billion compared to Q1 ‘16 largely in low margin money market and cash products. Non-interest expenses excluding Abbey Life came in lower by 7% year-over-year benefiting from lower comp cost. Let's move to Postbank. As mentioned last quarter, please be aware that Postbank segment figures do not match Postbank’s stand-alone new features due to separation costs and other items booked in the C&A segment, as well as further consolidation effects. Postbank reports a positive EBIT of €179 million for the quarter. Revenues increased by 13% or €100 million compared to the prior year quarter due to two special events. First, Postbank’s non-core unit net revenues declined €36 million relative to the prior year quarter, partially due to the positive valuation in effects from derivatives in the prior year quarter. Second, similar to PCC, Postbank sold its stake in VISA Europe, which had a positive impact of €104 million in the quarter. Both were one-off events compensating for the continued pressure from the low interest rate environments, hence we do not expect similar levels of net revenues during the second half of 2016. Adjusted for one-off NPL sale in Q2 ‘15, provisions for credit losses were down €8 million or 31%, reflecting the low risk of the business model with a high portion of retail mortgages and benign economic environment in Germany. Excluding litigation, costs were down 4% year-over-year despite continued investments in efficiency, digitalization and increased costs for the European deposit insurance scheme. Last but not least, the completion of the operational separability of Postbank from Deutsche Bank was achieved as planned at the end of the quarter. The non-core unit wind downs remains on track and we continued to target RWA of less than €10 billion per year-end. RWA reductions of €3.3 billion have been achieved in Q2, however more progress has already been made following the unwind of a long-dated structure transaction, which will have a positive RWA impact in Q3. Losses in the quarter include specific valuation impacts related to these transactions. The revenues benefited from the IPO of Red Rock Resorts. We also got approval from the Port Authority for the sale of the Maher Terminal during the quarter. Looking forward, further losses are anticipated from the de-risking activity but we remain within the targeted cost we communicated to the market last October. The execution of our NCOU strategy is estimated to be accretive to the Group's Core Tier 1 ratio. C&A report that an EBIT of €42 million for the quarter. Main drivers were first C&A includes positive €73 million proceeds from the Kirch related settlement agreements, and second, costs related to Postbank separation amounting to €47 million for the quarter. To conclude, we clearly faced a challenging environment as we sit here today particularly in the Eurozone. A preexisting outlook of dynamic economic growth has been worsened by the Brexit referendum. Politicians and policymakers were already struggling to take action in the past and now the importance for the Eurozone economic - economy has only intensified. As John already noted, 2016 remains the peak restructuring year for Deutsche Bank. Any meaningful pullback from our restructuring plans would simply delay the Bank’s return to sustained profitability and it's something we do not plan to do. As such, our guidance on adjusted cost in 2016 remains unchanged that it will be broadly flat to 2015 and cost savings will start to be evident in 2017 as the benefits of the restructuring begins to take hold. Also our restructuring and severance charges in ‘16 remain in line with guidance we gave you last October with the second half of the year expected to see further charges between €300 million and €500 million. But as John also noted, we will maintain the Bank’s financial strength while maximizing our restructuring. We are confident to meet our Core Tier 1 ratio ambition. Key to that will be reducing RWA in the non-core unit to below €10 billion by year-end and we will remain committed to that. We are already making plans to collapse the non-core unit at year-end and migrate any residual RWA back into the core bank. Our Core Tier 1 ratio was 10.8% for the quarter and pro forma for the closing of the Hua Xia Bank was at 11.2%. Whilst the closing of Hua Xia has taken a bit longer than initially expected, once again we are highly confident to close within the second half of ‘16. Looking to the remainder of ‘16, we expect the Core Tier 1 ratio to be at around 11%. Litigation remains a burden and while we now have had two consecutive quarters of setting a number of outstanding cases within existing reserves, we still are working diligently to settle the major issues that remain. Unfortunately as you know, the timing of those eventual settlements are ultimately not in our control but we remain hopeful of achieving major settlement this year. With that, let me now hand over to John Andrews, who will moderate our Q&A session.

Operator, if we could open up the queue, please?

Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] And the first question is from the line of Kian Abouhossein of JP Morgan. Please go ahead.

Yes, hi. Thanks for taking my questions. The first question is related just coming back to your cost target of €26.5 billion, which is clearly flat. IC revenues down first half relative to last year, clean around 20%, and your run rate on cost even adjusting for the text levy would be around €25.5 billion, so about €1 billion better than what you are guiding to by year-end. So what I'm trying to understand is why there would be an additional cost base of €1 billion coming into the second half when normally you would see bonus accruals down, net staffing is declining in your group, if you could explain that to me. And then second question, if you could just highlight a few more numbers regarding the sale of assets or legacy assets that you're having in the third quarter. One, what are the risk-weighted assets and what are the costs associated to reduce these assets in the second quarter? Thank you.

Kian, just to make sure on your second question, are you referring to non-core units?

That's correct, yes.

Okay, let me start with the non-core unit first. I mean, we pointed out in October of last year that in addition to our normal as an historic cost associated with the non-core units we would aim to invest another €1.5 billion of additional EBIT loss for 2016 to accelerate the wind down. We are still very much within that target, so the remaining, let's say, roughly €20 billion of RWA that will be taken out in the quarter - sorry, in the next two quarters, will cost, I would say, slightly in excess of maybe another €1 billion to reduce that portfolio. So that's your second question. On the first question, with regard to the cost... Q - Kian Abouhossein And sorry, just a question on the - how much risk-weighted assets should be reduced in the third quarter, if I may ask?

No, we - I can't give you a specific number for the third quarter because that will clearly depend on when we find ways to exit certain positions. Some of those are negotiations with counterparties to get out, so I don't want to speculate on a specific breakdown of that roughly €20 billion reduction in to Q3 and Q4. We will achieve it by end of the year, that’s the target. We stick to that target.

Okay.

Now on your first question, the biggest driver for - or I would say the two biggest drivers for the cost development for the remainder of the year are on the one hand particularly an increase that we expect in our change the bank costs, so project-related spend which is largely related to the clearinghouse or improvement of our IT infrastructure. That is the single biggest portion. And then secondly, we actually - whilst overall headcount by the end will come down and it's very much really year-end loaded. So we have the agreements with workers council end of June and now we have to go through a process where essentially people apply for jobs and then those that don't get jobs will ultimately dropout. This takes time, so it's really a very backend loaded in the year and it doesn't really provide too much saving for 2016. And at the same time, we have to continue to invest as in grow the number of people in some of the control functions in particularly in audit and compliance, where actually headcount is going up, so that will actually drive cost a bit up. And then the third item I would highlight is that we also expect to see a further increase in software amortization on the IT side. Those are the main affects which is why you cannot take the first two quarters as a run rate for the remainder of the year and we stick to our guidance that will be cost-wise more or less flat for the year.

But intuitively, I mean, run rate cost should be down. Some of the branch employee reduction should come through and software amortization you already halved in the first half and you’ve given us a guidance at the time of the strategy announcement. So - and it looks like you are more on track in line with the guidance already in the first half. So I seem to miss something in the cost line, or is there anything else that I should be aware of, otherwise I don't see why costs should go up €1 billion in the second half.

Okay, as I said, there is - I mean, round numbers, change the bank costs for the second half of the year is going to go up by north of €300 million. On the amortization side, it's also a couple-of-hundred-million that will go up and then we have further investments in the control functions. And as I said, the headcount reduction you will largely see kicking in November and December, which doesn't then provide a lot of safe and then there is a continued effect but admittedly we also have that in particular in the second quarter of internalization where over a three to four months period, you actually increase cost because you run parallel with the people that you bring into the inside and it takes three to four months until you actually release people on the outside. And if you add all that up, I'm sorry, I - we are not in a position to take down the guidance. Our own plan show that we will be more or less flat.

Great. Thank you very much for your time.

Thanks Kian.

Next question is from the line of Jernej Omahen of Goldman Sachs. Please go ahead.

Yes, good morning from my side as well. I have two questions. So, the first one is on Page 16. And you show that Deutsche Bank’s FICC revenues were down 19% year-on-year, but then the commentary says that within this, FX was flat year-on-year and rates were up. So that leaves us with credit as the only negative contributing factor to this entire business line being down 19% year-on-year. So I'm assuming that the result within credit must have truly been terrible given the skew of Deutsche Bank’s franchise towards rates and towards FX. So, can you perhaps just give us a sense? I mean, back of envelope I would say down 50% to 70% year-on-year, and if you could perhaps explain if that's broadly accurate and what's driving it? And then the second question I have is - that's on - hang on, sorry. The second question I had is on the FBO and the ring-fence in the U.S. So as you point out in your release, on July 1 the IHC became effective. I was wondering if at this point given that it's all been setup, you could update us as to what is the capital position of the whole IHC today. What is the total leverage exposure, and what are the risk-weighted assets that you decided in the end to put into the IHC? And then finally - so sorry, three questions, not two. The H1, H2 seasonality. You suggested Marcus that you see a number of fee events being pushed from Q2 to Q3. Given the slow start for the industry as a whole and Deutsche is no exception here in the first half of the year, do you still expect the H1, H2 to seasonality to hold, or are you hopeful for the second half of the year to be somewhat better? Thank you very much.

Thanks Jernej. I’m glad I’m not the only guy that is constantly looking for where to find stuff on pages. On your first question on the debt side, as you rightfully pointed out, the biggest impact we have in credit trading where as I mentioned last year was very strong. There were some specific positive effects we had in particular in our distressed business which we didn’t repeat. And then overall the segment has been under pressure. It's not down 50%. It’s down by something like 25%. Don't forget there are also some other businesses which have been negatively impacted. As I tried to highlight, emerging market debt is also down and we also have seen a decline in our APAC business. So putting all those together, you have a negative effect which overcompensates the fact that both in FX and rates were slightly up. On your third question - and maybe John takes then the second. On the third question, yes indeed, we do expect to see a bit of a deviation from the traditional H1, H2 seasonality. Our sense clearly is that investors, in particular in Q1 have been very much sitting on the sideline not moving and we gradually are seeing some of that liquidity come back to the markets, which is why we think it - my strong expectation would be that the clients we have seen for Q1 and Q2 relative to last year when we will go into Q3 and Q4, the situation will be a different one. I mentioned that indeed there are some fee events that have been pushed out. Don't forget I made that specific comment in the context of our advisory business where we have seen some bigger transactions having been pushed out and we expect those to be then H2 events. We are still kind of cooking but have not yet come to a resolution. I made that specific comments in the context of the advisory business, but in general, our assessment is that we will see directionally on a relative basis a stronger second half of the year than for example when you compare that with 2015 where H1 was particularly strong and H2 was then a lot, lot weaker. John?

Jernej, on the IHC, we actually went live on July 1 and therefore the first quarter for which we'll produce financials will be on September 30. We file them on a financial reporting, you may know, called the Y-9C and we will make that publicly available, sometime in mid-November that will be available. So the first account was actually for Q3, but you will get that quarterly thereafter.

Thank you, John. Can I just ask, is it - can you at least perhaps give us a sense the out of gate capital for the IHC, was in the 10% total capital ratio as was discussed, or did you decide to move over a bigger chunk of capital?

Jernej, we prefer to go with the numbers when we publish them and not sort of pre-wire that. And let me just highlight again, I mean, what we have done and what we said will happen is there will essentially just be a debt to equity swap that we will do. I mean people shouldn't think of this as sending over a boat with additional money. It's all internal funding and we just swap it from debt to equity to the extent there is a bit more need.

Thank you very much.

Yes.

Thanks.

The next question is from the line of Daniele Brupbacher of UBS. Please go ahead.

Yes, good morning, and thank you. Firstly, I wanted to ask about the low interest rates environment, and if you could elaborate a little bit on what the negative impact could be of negative or lower for longer interest rates if they stay there where they are for much longer? Where are the pressure points for your business model and how could that impact your overall results just sort of the best guess I understand it. Lot of moving parts in that equation, but still just interested in your thoughts there. And probably related to this, I mean Postbank results if I just take out the VISA gain, probably pretax was somewhat below €100 million. And I guess the key problem here is the low interest rates. Bearing all that in mind, how do you think about the potential IPO, your optionality around that and what you think could happen in this context? That would be useful. Thank you.

So on your first question in relation to interest rates, I mean there are clearly some of our businesses which are already being impacted and obviously if the environment stays as it is going forward, we are continued to be impacted by this environment, most notably our PWCC business, transaction banking, as well as Postbank, so that’s message one. Message two, clearly relative to our view that we had in mid of last year, I would see some downside on net interest margin income in the outer years if the environment stays as it is. I don't want to quantify that here but I mean clearly there is downside, let's see how the situation is going to evolve. In general, I would say that particularly when you think about our retail activities, yes, they are being - they are suffering from that environment but at the same time given our business mix is relative to many of our competitors in the segment is more skewed towards non-NIM income, we’re actually relatively better positioned. I would also think that in the retail markets in particular if the interest rate environment continues as it is, we will see repricing. There will be repricing of bank services [indiscernible] - and I think John has mentioned that some months ago, the negative interest rates in particular will ultimately also need to translate into higher interest rates being charged to clients. Some part I think the Central Banks want to see happening that's the logical consequence in a world where you cannot actually pass on negative rates on the deposit side. So that’s how I would see that. And then on Postbank, clearly this is a bank which is influenced by the interest rate environment. It is however a bank that is, as we've highlighted, in the process of substantially improving its cost position. And as we have also mentioned in the past quarters, this is what they should focus on. We are also seeing good possibilities to work on the business mix on the - as it relates to the loan exposure that Postbank has and the combination of the efforts on the business mix as well as on the cost side where we think will give the company possibility to actually improve its earnings outlook but that takes some time which is why we've been reiterating the point that this is in all likelihoods not a 2016 event, in fact today I would rule it out that this is a 2016 event. This is something that will happen later but we continue to see this as a perfectly viable option.

Thank you.

Next question is from the line of Stuart Graham of Autonomous Research. Please go ahead.

Good morning. I had one question and maybe a follow-up. The question is the macro interest rate outlook is very different now from how it looked back in ‘15 when you set the 10% return on tangible target for ‘18. How do you think about that 10% target now because when I look at consensus, consensus forecast 7%. So is it just a case that you need to come up with a plan B to get to 10%, or is it a case that the world has changed and 8% is the new 10%? Thank you.

So I’ll take that one, Stuart. Our target is 10% and we haven't deviated from that. I agree that in the very current market situation that’s looking more difficult. So what we said was we'd be a little bit more intensive in our intention to our cost restructuring and general tidier [ph] program. As Marcus just said, we don't believe that if you take for example the impact of negative interest rates, which is probably one of the major macro themes that impacts bank revenues, we don't think that banks will just sit there and absorb the cost themselves. So we do have to see some repricing, and we are relatively well-positioned because of our - the breadth and diversity of our businesses and we are seeing to some extent a movement towards more fee-based business. Now I can contradict myself in the second quarter because we did see - if you take for example, our German wealth business, we actually saw some exiting from some funds and securities and an inflow slightly oddly in counterintuitively of deposits. But I think we think that was a short-term phenomenon probably related to the uncertainty around Brexit. But I think a general theme would be that we need to work more on working with our clients to put them into products that provide a better return from them than just a passive deposit account. So we do think we'll see some repricing. We think that some of our competitors will come under more stress than we will because they are more by way of more monoline deposit takers and mortgage banks, particularly in our home markets and so we are not so pessimistic about the net impact, although the gross impact of negative interest rates is obviously slightly negative for us. So it remains to be seen. 10% is still our target. You may be right, we didn't quite make it because of what's happened in the interim but it doesn't mean we're going to stop trying.

Maybe looking at my follow-up question then. Consensus is baking in your cost guidance and your capital guidance, so the delta is basically revenues. And listening to what you said, it sounds like a bit of a hope strategy that you can reprice and everybody else stumbles with it. Given how slowly you will see the tanker [ph] changes and we've seen that when you try and change goals on cost, it takes ages for anything to come through. Is that good enough? I mean, do you not need to have a plan B now?

Well, we don’t think so. Because we have very large books if and when we reprice, then they have very large impacts. So yes, I agree it’s a supertanker on all costs given our home base in continental Europe. Our flexibility and nimbleness on cost management is a big constraint particularly by employment rule. But on the revenue side, I don’t think there is an impact for where we are. We reprice our books, they get repriced.

Okay. All right, thank you.

Next question is from the line of Al Alevizakos of HSBC. Please go ahead.

Hi, good morning. Thanks for taking my questions. I've got two quick questions. One is on the CET1 capital. You are saying that the assumption is about 11% by the year-end, so I would like to ask if you have factored in some litigation into that assumption? And also looking at the numbers from yesterday from Commerzbank whether that number includes any operational risk item or any kind of further reduction in the discount rates on your pension scheme? And then secondly, if we take into account that the final target would be 10% ROT, will global markets, or PWC actually have a higher ROT?

So second question first. Right now I would clearly say that it looks easier for PWCC to get to north of 10% than it is for global markets. It’s just a fact. Don't forget the - and in saying that, I particularly also reflect the assumptions that we have communicated to you in relation to where we will see inflation kick in on the RWA side. On your first question, 1about 11% year-end Core Tier 1 ratio target. Yes indeed we do assume that there will be some additional litigation charges in the second half of the year. Now quantifying that, as we've always highlighted, is a very tricky one. We think they could potentially be material, and depending on where they land, we need to manage the position. But yes, we do think there will be some additional items. With regard to the discount rate on pension scheme, I mean, there we are largely - so first of all, the pension rate assumption in Germany last quarter for us was 1.4% which I think is actually lower than what our competitors have been using. So we revaluate this position every quarter. When you look into - we largely actually have similar exposure on asset and liability side, which is why we're not seeing major moves or what you mentioned potentially having been an issue for our German competitor yet, we don't see that as an issue on our side. Q - Al Alevizakos Do you expect any significant op risk item for the rest of the year?

We do expect further increase in operational risk RWA for the remainder of the year. I mean, we highlighted already October last year that this is a recurring theme which we will see in several quarters. Again a big driver of that is the settlements that we see both from Deutsche Bank but also in the industry all those feed into our model and then translate into higher operational risk RWA. And yes, we also expect that for the second half of the year. Q - Al Alevizakos Okay, great. Thank you very much. Operator Next question is from the line of Fiona Swaffield of RBC. Please go ahead.

Hi. It was just a question on the outlook and when you basically said RWAs to decline but we managed to levels to achieve capital targets. Does that mean that you’ve kind of got a contingency plan that if certain variables change that you might reduce your RWAs further or quicker versus your original plan in 2020? Could you talk about that?

As we highlighted in our last call when we had Q1 results, we said that there was an additional €20 billion of RWA that we would contemplate to knockoff relative to what was the initially stated target. Initially we had said for the year would be flat, so roughly €400 billion. And then at the end of Q1 against the backdrop of a very weak first quarter, particularly on the revenue side, we said we will manage to bank to a lower RWA number, and that continues to be the plan and that's where we obviously within margins have some flexibility on how we can manage the position. So RWA depending on, quite frankly, what the earlier question was around litigation, if there is - if we have more room to breathe on the earnings side, then we can afford slightly higher RWA. If there is more pressure coming from the litigation side as in higher cost, then we need to manage RWA further down. And yes, we do have plans to cope with obviously within that range that we deem relevant. We do have the contingency plans in place to cope with those situations.

Could I just follow-up? So the end state RWA guidance and all the technical impacts, I think the €100 billion you talked about 2020. Does that all stay intact, so this is kind of climbing thing?

So I mean that is more - so what I just said is more really in relation to how we manage 2016 to make sure that Core Tier 1 ratio lands at around 11%. Your question in relation to inflation assumptions go out until the end of 2019. Here right now we don't have any better basis to come up with a different number, different from the €100 billion inflation assumption that we have stated in October. Again we've always said the biggest share of that is on the credit side and then you have op risk and FRTB or market risk on the other side. That €100 billion is still the target. Obviously everyone is aware of there being a big debate around what no one has meant to call Basel IV or everyone does call it Basel IV other than the regulators. Technically it's probably Basel III refined. There is a big debate around this. A lot of impact studies have been published right now. It looks like the impact is humongously Draconian and would essentially be a complete game changer for the banking industry on this planet. And I think there is a lot of work still going on to see how this can be put in sync with what I think was last stated on the G20 meeting where they again reiterated that is Basel III refinement is not meant to cause any significant additional capital need on the side of the banking industry. So look, we still stick to the €100 billion. By the way the €100 billion is in our case the assumption that there is going to be a 33% inflation, so let's see where we in the end really land, but no change to that guidance.

Thank you.

Next question is from the line of Jeremy Sigee of Barclays. Please go ahead.

Good morning. Thank you. Just two follow-up questions really. The first is on the Postbank discussion that you were touching on earlier on. Not expecting the IPO this year, hoping still - I think you said you still think it's very viable for next year. I just wondered is there any sort of time limits on that? I mean if we sort of roll forward and we go through the first half of 2017 and it's still not viable. Does it come a point at which you have to really think about a plan B and could you talk about what that plan B might consist of? I mean, there have been press reports which I think you denied of looking at a broader retail listing. I just wondered if you could sort of talk about what’s the timing and also the contingency planning aspects of that debate. And then secondly, also I guess relating to capital and capital build. Could you just talk a bit more about the stress tests that are coming up? You made a comment about the op risk, conduct losses and market risk impacts being bigger than the previous tests, and I just wondered if you could sort of amplify that a little bit and also talk about philosophically, if you like, how do you think about these stress tests and how they affect the bank’s capital planning?

Postbank, the key reason why the bank communicated last year that it would - Postbank was to manage the capital position. As we highlighted last quarter, we think by now it is fair to assume that the earliest when really the Basel III/IV refinements hits banks’ balance sheet is late - is in 2019, if not later. And against that backdrop, that's kind of how you need to think about the time limits here. So we'll really have to improve the capital position. Until then, that determines how we think about timing of an exit from Postbank. In other words that still leaves us quite some time. So some people may think this is a must do ‘17. Clear answer, it is not. Okay? Let me very clearly, it's not. Let me also make one additional statement in relation to what you call plan B and alluded to a broader retail solution. That is absolutely nothing this bank has considered or is considering. So this is, I think, an interesting misinterpretation from the media of some work that the bank has been doing to improve the legal setup basically for recovering resolution planning. It has nothing to do with any idea of splitting up the bank. So that was really just someone got a little bit off track. On the second point, stress testing. I think first of all we need to wait until the results get published and we should leave in a way the authority to also communicate all that obviously to EBA and ECB. In principle, the concept of stress testing personally I believe is a good one. I mean it's fairly sophisticated and has been in place for many years in the U.S. through the CCAR process. And I think Europe is still refining, this test was different. It was much more severe, so people shouldn't really compare results this year with results from the last test. It starts with an operational risk. It was not included in the last test, so that's a big difference. I think at this stage the main point that we can make is that as the ECB/EBA has started to communicate is that it will impact the SREP 2016 decision and there in particular how to think about the MDA restrictions, which as we commented when talking through the chart, I think there is a clear expectation that the MDA trigger points will decline. Now to what level? That is up to the authorities to determine, but I think there is clear guidance that that is exactly what's going to happen.

But the overall SREP requirement roughly similar including the sort of Pillar 2 guidance element for the MDA comes down but yes.

I am not going to speculate. I mean, we are price-taker on that end. So you need to ask that question to other people, sorry.

Okay, thank you very much for the answers. Thank you.

Next question is from the line of Andrew Coombs of Citigroup. Please go ahead.

Good morning. Three questions for me, please. The first on the contingent litigation liabilities, down €0.5 billion to €1.7 billion Q-on-Q and that’s despite taken a €120 million of additional provisional charges in second quarter. So just wanted to drill down into what gave you the confidence to reduce those contingent litigation liabilities? Any more color you can provide there would be useful. My second question was just on Global Markets. Could you comment on what you're seeing in terms of staff attrition at the moment above and beyond the 117 reduction related to restructuring that you draw out in your accounts and that's in the context of obviously quite a sharp decline in compensation there year-on-year. And then finally, John, I thought I’d give you the chance to provide a few comments on Brexit and on passporting implications that may have for Deutsche Bank. I know in the statement today you say you don't expect any changes in the near-term, but in the long-term which business lines do you think could be impacted and where do you think you may be required to relocate headcount to Frankfurt? Thank you.

I do the first two and then John comments on the more strategic question. So contingent liabilities are down for two reasons; one, some cases have moved basically from contingent into either provision or settlements, and two, there are actually also a few cases - there was one in particular that we did see in relation to - and I'm not going to specify that any more in relation to some anti-trust matters where we basically have data points pointing towards us actually not being at risk, which is why there were also cases, that one case that has moved out of our contingent liability into no longer expected to be an issue. I think I'd really like also to highlight that is whilst there is only a smaller decline quarter-on-quarter when you actually compare it with prior year, it’s a very substantial decline. With that, I'm not at all trying to indicate that there no longer is an issue. We all know that we need to work through litigation, but I think the one point we can make is we are starting to see that we get sort of a better grip on and visibility on what the overall pipeline looks like and it’s gradually coming down. And I think that's - it is core message we want to bring across. GM staff attrition, at prior-year level, nothing abnormal. So no change that we see on that side. John?

Yes, on the Brexit, when we operate in London, we in the vast, vast majority of cases, operate out of Deutsche Bank AG itself. So we’re facing our clients and counterparties out of the German bank. We do add, London brands to our documents but it's essentially we are dealing with DB AG. Having said that, we do employ a lot of people in the U.K. We basically view this as something that will essentially be client-driven for us. So we wouldn't intend to do anything ourselves other than we have to respond to our clients’ requirements. So we are reticent to make any long-term commitments about U.K. other than we don't plan to do anything of our own best [ph]. But if our Eurozone clients in particular increasingly want us to be facing them from locations within the Eurozone, if that proves to be the case, then we are reasonably well-positioned because our head office in home is in the center of the Eurozone. So for us I think we end up slightly bizarrely by having something of a competitive advantage which we didn't want to create and it's a bit inadvertent, but we come out of this relatively strongly. So from our perspective we think passporting into the U.K. will continue. That’s the message we seem to be getting. Of course that will probably come with a little bit more scrutiny over the way the branches run, so that's no more scrutiny than frankly we would increasingly apply ourselves as we rollout improved controls and just monitor the business get better. So, very little net impact, although we will, as always respond to our clients.

Thank you.

In the interest of time, our last question today comes from Amit Goel of Exane. Please go ahead.

Hi, thank you. I've got one question just actually going back to the Slide 12 on the stress test. Just so I understand in terms of the Pillar 2 guidance, if actually a large part of the requirement is going to come from that and that's based on the adverse test outcome, does that suggest that the adverse result is going to be significantly weaker than say 5.5%, plus 2% GSIP [ph] charge, so below 7.5%, or would that be probably thinking too much or reading too much into how the Pillar 2 guidance is likely to be set?

Look, we very consciously put on the page the word illustrative. We don't want to speculate at all around where the numbers are going to be set. This is entirely up to the regulators. We just more or less copied a page that they have, I think, published as part of some Q&A which has been made available to the public one or two days ago. And we don't want to give any guidance here on the sizing of any of the P2G and P2R blocks. They may be between zero and 100% of - so I really would completely shy away from speculating on the size. I think I would almost refer people then really just to go through the - there is a Q&A that’s - or frequently asked questions as I think that it's called at the ECB has or will make public, and I think this is what I would kindly like to refer people to rather us speculating on what ECB/EBA are going to do. Sorry.

Okay. Thanks.

Operator. Okay, everyone I think we’re going to end the call there. We thank you very much for your attendance this morning. Apologies to those who didn't manage to get into the queue to ask the question, but we will be available in the IR team to take up your follow-up inquiries. Thanks and have a good day.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.