Reported net revenues were € 5.4 billion, a decline of 9% compared to the second quarter 2003. Almost half of this decline was attributable to three specific factors: the effect of currency movements; the impact of business deconsolidations; and the significant benefit in 2003 (reported in Consolidation and Adjustments) of the asymmetrical accounting treatment of positions in the bank’s own stock. The remaining decline was driven principally by convertible bonds trading where market conditions were very challenging. Nevertheless, taken together, Deutsche Bank’s other customer-driven businesses performed well in the second quarter 2004.
Noninterest expenses were € 4.1 billion, a decline of 9% compared to the second quarter 2003. This is the lowest level since Deutsche Bank’s conversion to U.S. GAAP in 2001 and demonstrates the impact of the ‘transformation’ strategy. Compensation expenses were € 312 million lower than in the second quarter 2003, reflecting a decline in accruals for performance-based compensation, lower severance payments and reductions in headcount.
Provision for credit losses, which includes provisions for both loan losses and off-balance sheet exposures (the latter reported in other noninterest expenses), was € 83 million, a decline of 75% compared to the second quarter 2003. This represents the seventh consecutive quarter of declining provision for credit losses, and reflects Deutsche Bank’s commitment to disciplined credit risk management. In a more favorable credit environment, Deutsche Bank improved asset quality. Problem loans were € 5.9 billion, a decline of 30% from June 30, 2003, and of 12% from December 31, 2003.
Income before income taxes for the second quarter was € 1.2 billion, up 6% from the second quarter 2003, and more than doubled to € 2.7 billion for the first half of 2004 compared to the first half of 2003.
Capital management remains disciplined and focused. During the quarter, the bank continued its share buyback program, and announced the cancellation of 38 million shares. The bank also announced that buybacks will continue, and increased its dividend by 15% to € 1.50 per share. Despite the momentum of returning capital to shareholders, the core capital ratio of 9.4% remained comfortably above the top of the target range of 8% to 9%.
Pre-tax return on average active equity increased to 18% for the quarter, up from 15% in the second quarter 2003. For the first half of 2004 the return increased to 21% from 9% in the first half of 2003.
The sale of DB Payments, part of the bank’s payment processing operations, was recognized in the second quarter of 2004 and the bank simultaneously entered into an agreement with the purchaser to provide the bank with payment processing services. A loss of € 49 million was recognized on the sale, half of which was charged to each of the Global Transaction Banking and Private & Business Clients divisions.