In 2002 we set forth an agenda to transform the Bank that included improving the operating results of our core businesses, reducing our cost structure, reducing the overall risk assumed by the Bank, maintaining a strong capital base and optimizing the Private Clients and Asset Management (PCAM) franchise. Our results in 2003 demonstrate that we achieved, or exceeded, all goals set in that agenda.
Income before income tax expense and cumulative effect of accounting changes was € 2.8 billion in 2003 and € 3.5 billion in 2002. Net income for 2003 more than tripled to € 1.4 billion compared to € 397 million in 2002, and basic earnings per share increased 281% to € 2.44.
There are several elements of our 2003 results that we consider especially noteworthy:
- Compared to 2002, total net revenues excluding the provision for loan losses decreased by € 5.3 billion, or 20% to € 21.3 billion. However, underlying revenues of € 21.9 billion in 2003 were only € 0.9 billion, or 4%, below those of 2002. This decrease was due to the negative impact of exchange rate movements on our non-Euro-denominated revenues (especially our U.S. dollar revenues) and the deconsolidation of non-core businesses sold. Excluding these negative impacts, revenues grew largely due to the strength of our sales and trading businesses, where we are the global leader in revenues. In line with our focus on managing overall risk assumed, this is evidence of our commitment
to increasing customer flow business rather than proprietary risk or illiquid positions.
- Compared to 2002, our total noninterest expenses in 2003 declined by 17% to € 17.4 billion. This was due mainly to the aforementioned exchange rate movements that had a beneficial effect on expenses and the decline in our costs resulting from the sale of non-core businesses but, with the exception of performance-related bonuses and severance, almost all cost categories declined.
- Compared to December 31, 2002, we reduced our risk-weighted assets by almost 10%, increased our Tier I capital ratio from 9.6% to 10% and were able to reduce our provision for credit losses, which includes both the provision for on- and off-balance sheet positions, by € 1.0 billion, or 50%.
- PCAM’s income before taxes was € 1.2 billion in both 2003 and 2002. However adjusted for gains on sales of businesses of € 51 million in 2003 and € 511 million in 2002 and restructuring activities of € 240 million in 2002, underlying pre-tax profit would have been up 18% to € 1.1 billion. In addition, as of the end of 2003, PCAM’s invested assets were € 872 billion, among the largest in the world.
As world economic conditions improve, our objective is to boost revenues in our core businesses while maintaining strict cost, capital and risk discipline. Among our specific strategic initiatives are continued investment by the Corporate and Investment Bank Group Division in high margin businesses and development of specific industry groups in the U.S. As part of the ongoing transformation of our PCAM businesses, we intend to improve our cross-selling to increase customer penetration in the Private & Business Clients Corporate Division and to benefit from selective hiring of senior relationship managers and upgrading the product mix in Asset and Wealth Management Corporate Division. In the Corporate Investments Group Division we intend to continue the process of reducing our equity and other exposures.
The following table presents our condensed consolidated statement of income for 2003 and 2002:
| 2003 increase (decrease) from 2002 | ||||
| in € m. | 2003 | 2002 | in € | in % |
| Net interest revenues | 5,847 | 7,186 | (1,339) | (19) |
| Provision for loan losses | 1,113 | 2,091 | (978) | (47) |
| Net interest revenues after provision for loan losses | 4,734 | 5,095 | (361) | (7) |
| Commissions and fee revenues | 9,332 | 10,834 | (1,502) | (14) |
| Trading revenues , net | 5,611 | 4,024 | 1,587 | 39 |
| Net gains on securities available for sale | 20 | 3,523 | (3,503) | (99) |
| Net loss from equity method investments | (422) | (887) | 465 | 52 |
| Other noninterest revenues | 880 | 1,867 | (987) | (53) |
| Total noninterest revenues | 15,421 | 19,361 | (3,940) | (20) |
| Total net revenues | 20,155 | 24,456 | (4,301) | (18) |
| Compensation and benefits | 10,495 | 11,358 | (863) | (8) |
| Goodwill impairment | 114 | 62 | 52 | 84 |
| Restructuring activities | (29) | 583 | (612) | N/M |
| Other noninterest expenses | 6,819 | 8,904 | (2,085) | (23) |
| Total noninterest expenses | 17,399 | 20,907 | (3,508) | (17) |
| Income before income tax expense and cumulative effect | 2,756 | 3,549 | (793) | (22) |
| of accounting changes | ||||
| Income tax expense | 1,327 | 372 | 955 | 257 |
| Reversal of 1999/2000 credits for tax rate changes | 215 | 2,817 | (2,602) | (92) |
| Income before cumulative effect of accounting changes, net of tax | 1,214 | 360 | 854 | 237 |
| Cumulative effect of accounting changes, net of tax | 151 | 37 | 114 | N/M |
| Net income | 1,365 | 397 | 968 | 244 |
| N/M – Not meaningful. |
Our net income included the material effects of reversing income tax credits related to 1999 and 2000 tax law changes, as described in “Effects of 1999/2000 German Tax Reform Legislation and Accounting for Income Tax” and the cumulative effect of accounting changes as described in “-Cumulative Effect of Accounting Changes”. The following table shows our net income excluding these effects:
| 2003 | 2002 | |||
| in € m. (except per share amounts) | Per Share | Per Share | ||
| (basic) | (basic) | |||
| Net income | 1,365 | 2.44 | 397 | 0.64 |
| Reversal of 1999/2000 credits for tax rate changes | 215 | 0.39 | 2,817 | 4.58 |
| Cumulative effect of accounting changes, net of tax | (151) | (0.27) | (37) | (0.06) |
| Net income before reversal of 1999/2000 credits for tax rate changes and cumulative effect of accounting changes, net of tax | 1,429 | 2.56 | 3,177 | 5.16 |
Net income above included € 222 million in 2003 and € 3.3 billion in 2002, representing the pre-tax gains on sales of securities that generated the reversal of the 1999/2000 credits for tax rate changes above.
For further information on significant acquisitions and divestitures, see Note [3] to the consolidated financial statements.