Net revenues for the second quarter were € 5.9 billion, up by 9% compared to € 5.4 billion in the second quarter 2004. Origination and Advisory revenues were up by 17%. Revenues in Debt Sales & Trading were in line with last year’s second quarter levels, while revenues in Equity Sales & Trading grew 12% over the second quarter 2004. Net revenues in Private Clients and Asset Management (PCAM) grew by 4% over the second quarter 2004. For the first half year, Group net revenues grew by 8% to € 12.5 billion.
Provision for credit losses, which include provisions for both loan losses and off-balance sheet exposures (the latter reported in noninterest expenses), was € 80 million in the second quarter, essentially unchanged from the prior year period and from the first quarter 2005. For the first half, provision for credit losses fell by 28% versus the first half of 2004. Problem loans further declined to € 4.6 billion, from € 4.8 billion in the first quarter 2005, and the ratio of problem loans to loans fell to 3.2%, from 3.3% in the first quarter 2005. This represents the lowest level of problem loans for five years and reflects strong loan book quality and a favourable credit environment.
Noninterest expenses for the quarter were € 4.4 billion, compared to € 4.1 billion in the second quarter 2004. In the current quarter, noninterest expenses included restructuring expenses of € 116 million. For the first half, noninterest expenses were € 9.1 billion, compared to € 8.5 billion in the first half of 2004, after restructuring expenses of € 284 million. The operating cost base, which excludes restructuring charges and other items, was € 4.3 billion for the quarter, up by 4% versus the second quarter 2004 but down 6% from the first quarter 2005. For the first half year, the operating cost base rose by 3% to € 8.8 billion. Performance-related compensation costs rose in the second quarter and first half compared to the same periods in 2004, reflecting improved results. Second quarter compensation costs nevertheless declined from the first quarter 2005. Non-compensation operating costs for the second quarter 2005 were essentially unchanged compared to the second quarter 2004, and for the first half year were down 2%.
Income before income taxes was € 1.4 billion, after restructuring expenses of € 116 million, up by 22% compared to € 1.2 billion in the second quarter 2004. For the first half year, income before income taxes was up 17% to € 3.2 billion, after restructuring expenses of € 284 million, compared to € 2.7 billion in the first half of 2004. Pre-tax return on average active equity was 23% in the second quarter. The negative impact of restructuring expenses on this ratio was 2 percentage points. For the first half 2005, pre-tax return on average active equity was 27% after a negative impact from restructuring expenses of 2 percentage points.
Net income for the quarter was € 947 million, up by 44% compared to € 656 million in the second quarter 2004. For the first half, net income rose by 28% to € 2.1 billion, compared to € 1.6 billion in the first half of 2004.
The effective tax rate for the second quarter was 33%, compared to the 36% in the first quarter, excluding the tax reversal effect. The reduction of the tax rate was primarily caused by the release of tax contingency reserves due to resolution and restructuring of some of the bank’s tax positions. Excluding the tax reversal effect, the effective tax rate for the first half of 2005 was 35%.
Diluted earnings per share were € 1.90 for the second quarter, up by 64% compared to € 1.16 in the second quarter 2004. For the half year, diluted earnings per share rose by 43% to € 4.06, compared to € 2.83 in the first half of 2004.
Tier 1 capital ratio was 9.1% at the end of the second quarter, above the bank’s target range of 8%-9%. Average active equity in the quarter reflected an increased deduction for our planning of a higher 2005 dividend accrual. Additionally, Deutsche Bank announced the launch of a fourth share buyback program.
The Business Realignment Program progressed on schedule during the quarter. Organizational alignments are largely completed and revenue synergies are on or ahead of projections. The implementation of measures related to cost savings remains on schedule. Restructuring expenses connected to the Program, since its launch in the fourth quarter 2004, reached a cumulative total of € 684 million by the end of the second quarter 2005. Restructuring expenses during the first half of 2005 are below original forecasts, partly reflecting lower-than-expected severance costs due to voluntary leavers in the affected areas. The original forecasts for cost savings and costs to achieve remain in place.
