Stephan Engels - Chief Financial Officer

Benjamin Goy - Deutsche Bank AG Johannes Thormann - HSBC Trinkaus & Burkhardt AG Guillaume Tiberghien - Exane Ltd. Andrew Coombs - Citigroup Global Markets Ltd. Britta Schmidt - Autonomous Research LLP Kiri Vijayarajah - Barclays Capital Securities Ltd. Riccardo Rovere - Mediobanca Banca di Credito Finanziario SpA Maxence Le Gouvello - Credit Suisse Securities Ltd. Matthew Clark - Nomura International Plc Anke Reingen - RBC Europe Ltd. Dirk Becker - Kepler Capital Markets SA

Good morning, ladies and gentlemen, and welcome to the Commerzbank AG Conference Call. Please note that this call is being transmitted as well as recorded by audio webcast and will subsequently be made available for replay in the Internet. At this time, all participants have been placed on a listen-only mode. The floor will be opened for questions following the presentation. Let me now turn the floor over to Stephan Engels.

Good morning ladies and gentlemen. Welcome to Commerzbank's conference call for the figures of the second quarter 2015. Let me start with our summary on page two. In Q2 we have reached an operating result of €385 million. Which leads to more than €1 billion in H1, an increase of 84% compared to 2014. Our net result in the first half of 2015 stands at €646 million and has more than doubled compared to the €30 million in H1 2014. Q2 revenues in the Core Bank have increased by 8% year-on-year. On H1 basis revenues have grown by 14% with all Core Bank divisions contributing to this increase despite the low interest rate environment. In our Non-Core Assets division, the organic rundown of the portfolios continues. €1 billion in Commercial Real Estate and €1.8 billion in Ship Finance account for a reduction of 9% in the second quarter of 2015. The rundown in Ship Finance was supported by €0.4 billion in FX effects due to the slightly recovered euro. Furthermore, the positive effects of our recent €2.9 billion Commercial Real Estate portfolio sale are not yet reflected in the Q2 rundown figures. The positive rundown effect and capital relief from the RWA disposal will show up in our Q3 figures when the transactions are closed. The same applies for the capital relief from the sale of our ship restructuring platform two weeks ago. On the other hand P&L burdens from these transactions of altogether €98 million have already been digested in Q2. Loan loss provision in the group amount to €280 million with the Core Bank still at a low level of €138 million. Expenses of €1.75 billion in the second quarter reflect our ongoing strategic investments and also costs and investments into infrastructure for regulatory purposes. Furthermore, the weakened euro compared to 2014 weighs on our cost base with an amount of €42 million for the first half 2015. Our Core Tier 1 ratio fully phased-in has reached a comfortable level of 10.5% and our leverage ratio phased-in as of Q2 has already reached our target of 4%. In Q2, we have again accrued for a dividend as of H1, the accrual amount to €0.10 per share. On page three, I would like to provide you with an update on our achievements two-and-a-half years after our Investors Day in 2012. Today, we see a much stronger Commerzbank, our sound and robust Germany-based business model bears its fruits. In Private Customers, we have achieved the turnaround and significantly regained the trust of our customers. This pays off, we have more doubled than our profit in PC from €123 million in H1 2013 to €332 million in H1 2015. In Mittelstandsbank, we have proven to be the clear market leader in corporate banking in Germany. Our loan volumes have increased by 13% since 2013, significantly outperforming the market and constantly delivering higher returns. With mBank, we are the innovation leader in retail banking in Poland. Thanks to our superior offering, we have won about 800,000 net new customers and will continue to leverage our platform. We have probably been one of the first banks to strictly focus our investment banking activity on the needs and the demands of our clients. With this proposition Corporates & Markets delivered a reliable revenue stream at an operating ROE level of around 16% even under the stricter Basel 3 regime. In NCA, we have halved our exposure and as of today only €27 billion in Commercial Real Estate and Ship Finance are still on our books. Our track record in cost management is good. We have significantly invested into the Core Bank and despite headwinds from regulatory requirements, bank levies and so forth, we have always proven that our expenses are under firm control. And then we should not forget that we have tackled a few larger challenges. We have repaid all silent participations in 2013. We comfortably passed the AQR and the stress test in 2104. And last but not least, we settled sanctions and AML related investigations with various U.S. authorities in March this year. All these efforts have borne fruits. A more profitable Core Bank with an increase of 40% in operating results of H1 2015 versus H1 2013. A comfortable capitalization of 10.5% Basel 3 fully phased-in and €47 billion rundown in Commercial Real Estate and Ship Finance towards a highly de-risked balance sheet. Coming back to Q2, slide four summarizes the key financial figures. And when you turn to slide five, we can have a look at the development of the group P&L. With an operating result of €385 million and a net result of €280 million, we have clearly exceeded the results of Q2 2014. Obviously, and in line with our peer group, revenues in Q2 have been lower after an exceptional strong first quarter but have still been above all quarters of 2014. Again, please keep in mind that the operating result of €385 million includes a burden of €98 million due to the sales in Commercial Real Estate and shipping. The tax rate in the second quarter stood at 22% and with minorities of €22 million we have achieved a net result of €280 million. Let us now turn to page six for a more detailed look at our cost base. Expenses excluding European bank levy show stable development at a slightly increased levels. First of all, H1 2015 is burdened by a negative effect of €42 million from the weaker euro compared to 2014. At current FX levels, we expect this impact also for the second half of 2015 in a similar magnitude as in H1. Personal expenses have increased year-on-year due to the salary adjustments on the base of tariff increases in Germany. This increase has been partly offset by further staff reductions from our ongoing efficiency programs. We keep on investing into strengthening of our customer franchise. This includes investments into digitization of our Private Customers and Mittelstandsbank which are priority for the future success of all Core Bank divisions. We have also further invested into infrastructure due to the regulatory requirements and compliance. Loan loss provisions, as shown on page seven, amounted to €280 million with Core Bank at a low level of €138 million. This low level in the Core Bank is driven by the high quality of our loan book and the ongoing robust condition of the German economy. The higher LLPs of €142 million in NCA include one-off charges from the Commercial Real Estate portfolio sales of €51 million while Q2 2014 of €64 million benefited from a release of €112 million due to the Commercial Real Estate sales in Spain, Portugal and Japan. In other words, excluding these transactions, the LLP level of Q2 2015 is €85 million lower year-on-year reflecting the improved risk profile and the rundown of the portfolio. When you turn to page eight, you can see the sound performance delivered by the Core Bank in Q2. The operating result of €641 million after an exceptionally strong Q1 is still higher than every quarter of 2014. This was driven in particular by revenues in the Core Bank that grew by 14% in H1 compared to 2014. All divisions contributed to this increase despite the low interest rate environment. Thus, the return ratios also improved nicely towards an operating ROE of 11.7% and an operating return on tangible equity of 13.6% in the second quarter. Let me spend a few words on our division Others & Consolidation. In Q2, we have seen a quite favorable operating result of minus €73 million both Q2 and Q1 have benefited from strong revenues in our treasury department which, however, we do not actually expect to be repeated in the quarters ahead. Thus, I keep my guidance for the remaining two quarters 2015 at quarterly losses between €150 million and €200 million, but would expect from today's perspective to achieve the better end of this range. All in all, the Core Bank has delivered sound returns in H1 2015. For H2, we except a slightly lower level of returns due the usual seasonality. Now, let's turn to pages 9 and 10 for our Private Customers division. €171 million operating profit in Q2 2015 underpins the successful turnaround in PC and the net interest income, we achieved higher income from loans on the back of our growing mortgage business. In the second quarter itself, we have reached a record level of €3.5 billion new businesses in mortgage. Since 2011, we have doubled our market share in mortgages to more than 10%. Thus, our overall loan book in the branch based business increased by 2% quarter-over-quarter and by 8% compared to Q2 2014. Though net commission income in Q2 was slightly lower than in Q1 due to seasonally lower trading activity weighing on transaction-based fees, the strategically important recurring revenues from volume-based fee models further increased. In our branch-based business, we have again increased the level of assets in premium and managed accounts from 41% to 44% in the second quarter. And the overall growth path of PC continues. With additional 68,000 net new customers, we have already enlarged our customer base by 666,000 compared to yearend 2012, well on track to achieve our target of €1 million net new customers by the end of 2016. As I mentioned in the beginning, H1 shows again that the turnaround in PC is successful. We have regained the trust of our customers, we are gaining market share with a growing customer and asset base, and we have reached the promising profit level again. In Mittelstandsbank, as shown on pages 11 and 12, we see a continued high level in operating result that amounts to €294 million in Q2. Our loan volume has been stable in the course of Q2 with a growth of 3% with our large and international clients while our loan volume with financial institutions have slightly declined. On an H1 basis, our loan volume has grown well above market by 7% compared to H1 2014. Superior offering for our Mittelstands customers are capital markets products. There, we have seen lower demand and lower revenues in the second quarter than in the first quarter when, especially, FX markets led to high hedging demand. Overall, Q2 has again demonstrated the strong return profile of Mittelstandsbank with an operating ROE of 14.5% and a return on tangible equity of 16.2%. In Central and Eastern Europe, as you can see on page 13, we have seen further growth in mBank's operating business while the pressure from interest rates and the regulatory environment persists. Adjusting for the €46 million gain from the sale of mBank's insurance business in Q1, revenues were stable leading to an operating result of €64 million in Q2. Revenues benefited from increased commission income especially due to an increased insurance business on the back of the cooperation with AXA. Net interest income remained under pressure due to the low interest rate in Poland despite further growing loans and deposit volumes. Growth and innovation remains on the top of our agenda and we continue with our investment into the market-leading client platform of mBank. And also the recently announced cooperation with Orange Polska for mobile banking services has kicked off. About 150,000 net new customers have been won through this new joint venture since October 2014. Corporates & Markets, as shown on pages 14 and 15, displays a good performance in challenging global markets. After an exceptionally strong Q1, Corporates & Markets in Q2 delivered an operating result of €144 million excluding effects from OCS and net CVA/DVA. Revenues benefited from our diversified business model at Corporates & Markets and a strong performance in equities and currencies. This was more than offset by our interest rates business which saw the continued effect of negative interest rates and reduced market liquidity. Moreover, primary bond markets saw a quieter Q2 due to the Eurozone uncertainty as well as U.S. growth worries. These effects are reflected in the revenue developments of the different business lines. Equity markets and commodities posted its best quarter in five years with a healthy demand and investment in liability-managed product, while Corporate Finance and especially FIC saw lower revenues. Loan loss provisions in Corporates & Markets increased an €11 million in Q2 after a larger single release of €42 million in Q1. This leads to page 16 where we can have a look at the risk profile of the Core Bank. Loan loss provisions of €138 million in the second quarter are at a rather low level. This again reflects very well the high quality of our portfolio and the robust condition of the German economy. The cost of risk in the Core Bank stands at only 11 basis points in the first half of 2015. Our default portfolio has been further reduced and our NPL ratio of only 1.4% has reached the lowest level ever since integration of Dresdner Bank. Now, let's turn to page 17 and discuss the Q2 P&L of our Non-Core Assets division that has reported a lower operating result at minus €256 million due to valuation effects, asset rundown and the recent portfolio sales. At the end of June, we signed the sale of two portfolios of Commercial Real Estate loans totaling €2.9 billion of exposure at default. The sale of the European portfolio with loans in 14 countries account for €2.2 billion, while the sale of German portfolio of non-performing loan accounts to €0.7 billion. These transactions are overall capital accretive due to the release of risk-weighted assets that will be reflected in our Q3 figures. A negative P&L effect of €80 million for the division NCA is already included in the Q2 figures. Please note that €23 million from the €80 million are related to internal close-out charges that do not immediately affect the group P&L. Some two weeks ago, we have also signed the sale of our ship restructuring platform HSAM which runs 13 container ships and five bulk carriers. Like in Commercial Real Estate, we will see the positive effect from RWA releases in HSAM with Q3 figures while we have already booked the €41 million P&L burden that reflects the discount on the sale in the current market environment. Due to the accelerated rundown, we only expect slightly positive revenues in the division going forward, which are of course subject to valuation effects. As you can see on page 18, we have organically run down the Commercial Real Estate portfolio by €1 billion or 6% compared to Q1. Furthermore, we have also run down our Ship Finance portfolio by €1.8 billion or 14% respectively. While in Q1 we had negative FX effects on rundown of €1.3 billion, in Q2, the Ship Finance rundown was supported by €0.4 billion due to the slightly recovered euro. In Q3, after the full consideration of the Commercial Real Estate transactions, we expect a further significant reduction of the exposure at default and also the NPL ratio. Thereby our risk profile in NCA will further improve, by the way it's something that also the rating agency increasingly reflect in the analysis and rating conclusions. When you turn to page 19, we can have a look at the development of our risk-weighted assets in Q2 2015. Due to the asset rundown in NCA and the slightly recovered euro, our risk-weighted assets have decreased by €7 billion during the course of Q2, including almost €2 billion reduction from FX. The slight reduction of RWA in the Core Bank predominantly stems from securitizations within our Mittelstandsbank and also from new hedge positions against the CVA risk capital charge. Risk-weighted assets from operational risks have been stable in Q2 but might be influenced by updates of external databases going forward. On page 20, you can see the development of our regulatory capital leading to a Core Tier 1 ratio fully phased in of 10.5% which again considers a dividend accrual in Q2 leading to an accrual of €125 million or €0.10 per share as of H1 2015. The capital increase in April accounts for an increase of €1.4 billion in capital. Besides our net profit, also the valuation of our pension liabilities contributed to an increase in capital due to higher discount rate on the bank of increased long-term interest rates. On the other hand, the revaluation reserve decreased due to the widening of sovereign credit spreads and the slight recovery of the euro led to a reduced currency translation reserve. On the net basis, the FX effect on our Core Tier 1 ratio in Q2 amounts to plus 3 basis points while we had a net effect of minus 15 basis points in Q1. Our leverage exposure, as shown on page 21, has slightly decreased by €14 billion compared to Q1 supported by FX effect of around €3 billion. Together with the increase in regulatory capital as already explained, this has led to the 4% at the end of Q2, 2015. To conclude, let me provide you with our outlook for the financial year 2015 as shown on page 22. First, we will continue on our growth track in the Core Bank and aim to further grow revenues and market share by expanding our customer and asset base. Second, we expect loan loss provisions of less than €1 billion for 2015 with lower LLPs in NCA as well as in the Core Bank. Third, we expect expenses to be slightly above €7 billion excluding European bank levy. Fourth, our Core Tier 1 fully phased in of 10.5% is already at the comfortable level for our business model we are planning for dividend 2015 and accrue accordingly. Ladies and gentlemen, thank you for your attention. I am now looking forward to your questions.

[Operator Instruction] The first question comes from Benjamin Goy from Deutsche Bank.

Yeah. Good morning. A couple of questions from my side please. The first one would be on your new cost guidance. So it sounds like it's predominantly from FX, but maybe you can give a bit more detail and whether you have any mitigation plans either starting in the second half or in particular for 2016. Second one would be on Private Customers. Your net interest income rebounded nicely Q-on-Q. So was it all volume-driven or is it some mitigation measures mainly on the deposit side? Some explanation here will be nice as well. And then on capital, now we're looking forward, could you give us any guidance regarding any Basel 4 impacts? So maybe quantitatively, what do you expect? Which kind of risk will be affected most? So are you rather concerned about credit, operational or market risk? That's it for the moment. Thank you.

Thank you for the questions. On the cost guidance, indeed, FX has been one of the drivers, but there's also ongoing investments into digitization and into product. And I think the history over the last quarter’s has clearly proven that this is a very useful investment that we have been doing there. There is also a number of regulatory initiatives as we all know and there is our ongoing investment into compliance. With respect to mitigation, as you know, we believe that cost needs to be managed in a continuous improvement process rather than in programs. So in that sense, yes, we will keep on pressuring our continuous improvement process throughout the next years, but I wouldn't expect a dedicated, separate program here. With respect to NII PC, that is mainly the volume issue margin has been stable. On the capital question, Basel 4, first of all, I'd say that if Basel 4 comes, and I think for most of the bits and pieces, it's still pretty unclear what it's really going to look like, I would expect Commerzbank to be less affected due to our - if you look at our numbers, we already have probably higher RWA densities than some of our competitors. So, again, it's I think an industry-wide phenomenon and in relative terms, I think I will be less affected. How and in what detail, I think it's too early to tell.

Okay. Thank you. So when you say 10.5% it's a comfortable level, well, it sounds you are less concerned about Basel 4. So the dividend story will be even more important than going forward. Is it fair to assume, let's say, starting 2016?

Let's put it this way. 10.5 %, looking at our business model, I really believe is a comfortable level. And if you look at sensitivities that can be looked throughout the AQR and stress test models, then you can see that there is banks who definitely have higher sensitivities to the stress test. If you take this into account, I think 10.5% is indeed a comfortable level for now.

Okay. Thank you.

The next question comes from Johannes Thormann from the HSBC.

Johannes Thormann, HSBC. Three questions as well. First of all, a follow-up on regulation capital. As it remains probably unclear, could you give us rather your view or your [ph] house view or your personal view as a CFO if you will rather believe in higher RWA floors or in higher leverage ratio to be implemented in Europe. Secondly, coming back to Q1 call, I asked you about the fee income stability. What is your view on the current performance now? And last but not least, if you could help us with the tax rate outlook for 2015 as well as the following year? Thank you.

Yeah. Let's start with the tax rate. We have seen a 22% tax rate in Q2. In general, we are talking about IFRS tax rates here which is a little bit of a more complicated model. So in general terms, I would guess that as a general indication, 25% is probably not a bad assumption, but the rate may change between the quarters and we may end up lower or maybe even higher at the end of the year. So I guess 25% is as long as we don't have any real numbers, probably a good indicator. Fee income. We have seen obviously a strong fee income in Q1, which had a lot to do with what was happening in the market. I think we still have a sound fee income here in Q2 especially in PC, we have seen some very positive movements. A little bit less activity in Mittelstandsbank since a lot of the customers there had repositioned themselves throughout Q1, which is partly also true for Corporates & Markets. In a general sense, I would expect the normal seasonality for the rest of the year unless something specific happens in the market which we will see then. Regulatory wise, I guess, there is still a lot of topics on the regulator's agenda besides the RWA discussion which, to a certain extent, needs to tie in with the leverage ratio discussions. I think there is also an initiative going on to make sure that we have level playing fields on DTAs or DTCs throughout Europe. So, I guess, it remains to be seen how the overall composition of all these measures comes into place. And as I've said before, I think in relative terms, if we talk about Basel 4, I think we will be rather better off than the rest of the market.

Okay. Thank you.

The next question comes from Guillaume Tiberghien from Exane BNP Paribas. Please go ahead with your question.

Good morning. I've got two questions. One is on capital and the other one is on NCA. So on capital, you are at 10.5% fully loaded. You had said you wanted to be significantly above 10% at your end. So is 10.5% somewhat or significantly above 10%? And secondly, on NCA, you say that you expect revenues because of the run down to now be only marginally positive. Does it mean that we should expect revenues to turn negative maybe at some point next year? And maybe how negative could that become either next year or the year after? Thank you.

Indeed, I believe that 10.5% is already significantly above 10% in general terms without trying to get to a specific on whether it's 10.5% or 10.6%. Anyway, the range, I think, is indeed comfortable for our business model. NCA in the previous quarter, my revenue guidance was something like €30 million to €50 million as a number. And I would rather say now we are probably more on the €20 million to €30 million range now following the sales. Yes, there might be one point in future where these revenues might turn negative but, again, that depends on rundown profile, and it also depends on which parts of the portfolio will move. Once we'll get there, I will make sure that we can - that we will update our guidance on that one.

Okay. Thank you. Can I maybe clarify the question on capital, would you expect capital to be higher at the end of the year than now?

That depends on a lot of other factors like RWA's movements from currencies, for example. You have seen my mentioning of the possible update of operational risk databases and so on and so on. So in general, and also if I take the gist of what I've heard last week from the peer group, I would guess that stable is probably the more realistic version than a further growth looking forward.

Thank you.

The next question comes from Andrew Coombs from Citigroup.

Good morning. A couple of questions please. Firstly, within the Others & Consolidations division, thank you for your revised guidance for the lower end of the €150 million to €200 million. But perhaps you could just elaborate on the €90 million of other revenues within that division, what's driving that strength? And given your guidance, I assume that is largely a one-off benefit. Second question would be on loan loss provisions in the guidance there. If we take your €1 billion guidance or less than €1 billion for the full year, it kind of indicates that you're basically now annualizing the Q2 number for the remaining two quarters. Within that, I just wanted to try and get a feel for the mix between the Core Bank and the Non-Core. [Ph] Is it the case that you expect Non-Core provisions to be higher as they were in Q2 relative to Q1 and given the ongoing Non-Core slowdown or are you looking for a movement in Core loan losses in the second half of this year? Thank you.

Others & Consolidation, the €90 million that you saw there are basically driven by the non-exist or the reduction of a charge that we still had in Q1. There was the remainder of the U.S. litigation which we had booked due to the FX movements. So it's basically this part going away that has helped in comparison to the previous quarter and the very active treasury in Q2 is what - the positive effect. LLP, again, what we say is that we will have below €1 billion for the full year, which means that we will be lower than previous year both in the Core Bank as well as in NCA. Guessing run rates is always a bit difficult as we all know since Q4 does have a tendency to be a higher quarter. Keep in mind that Q2 in NCA includes €51 million one-off charges due to the two portfolios that we have signed for sale, and you also should expect that once the portfolios are gone, LLPs, obviously, should benefit from this going forward. In general terms, as I've said before on the LLP, we had a very low NPL ratio at 1.4% in the Core Bank. And we still have a very good loan book and enjoy a very robust German economy. So I think that gives you a good idea.

The next question comes from Britta Schmidt from Autonomous Research.

Yeah. Hi, there. I have a question on capital which is do you have any sort of idea where the actuarial gains would have moved now, which would obviously have contributed to the increasing capital ratios and also where your revaluation will be as of today? Could you also explain, it looks like there was an increase in the expected loss Q-on-Q, maybe you can give us an idea of what has driven that? And the second question I have is in the Public Finance area there's been a reduction in the book, have you reassigned something to treasury, or is that a maturity based reduction?

Yeah. Good morning. So on the capital part of the pension liabilities. If you look at the interest rate, the discount rate that was applicable to this amount, it was roughly 2.3% at the end of 2014. It went down to 1.6% at the end of first quarter. So there was already a charge and it went up a little bit again to the 2.5%, 2.6% region with the end of Q2. So if you compare year-end to first half of this year, there is only a very small positive impact and if you compare to the previous quarter it's obviously a bigger impact since the interest rate went down so quick in Q1. The expected loss movement has a very difficult technical explanation which I'm going to spare you, but it has a lot to do with the sales of these two portfolios that we have been doing and that needed to be reclassified internally, but feel free to call up Investor Relations to enjoy the more technical explanations. Public Finance, we had indeed maturities, so there were no specific or spectacular sales other than some bond positions that we had moved from treasury and sold off during Q2 but no big...

Okay, thanks.

Thank you.

Thank you.

The next question comes from Kiri Vijayarajah from Barclays. Please go ahead with your questions.

Yes. Good morning. A couple of questions on capital, firstly on reduction in the leverage exposure. You've done really well in the quarter. Could you quantify the kind of revenue impact you think about in delivering that? And also are you happy with the 4% now? Is that most of the leverage exposure reduction that's now largely done or if more leverage you think you can pull.

First of all, the 4% was our goal that we had set ourselves. So having achieved that, obviously, is something that makes me feel happy, even as a CFO, if I may say so. Obviously, the management of the leverage exposure across all segments is being done in a, let's call it, revenue-focused way. So, yes, there is a certain loss of revenue, but we have made sure that the, let's say, that the less interesting part is going first. So in that sense, yes, there is an effect. I can't give you really the number. I don't want to give you the number, but it is really manageable,

Okay, then quickly if I could follow up on an earlier question on the OpRisk database you mentioned for the second half, some increases in the OpRisk. I wonder if you could quantify what that increase for the second half could be in operational risk RWAs? Thanks.

I think that is still a debate amongst the specialists. So I'm sorry, I don't have any real reliable idea of what that might be.

Oh, okay. All right. Thank you.

We continue with Riccardo Rovere from Mediobanca.

Just one question form my side. Would you be able to quantify what is the amount of risk-weighted assets that you think you could save by shredding the exposures that you still don't like? And do you think this potential RWA saving would be offset by growth? Because at the end of the day in this quarter, the loan book is down kind of €12 billion at consolidated level, so I'm just wondering where you think the RWA will end up over the next 12 months/24 months? Thank you.

Yeah. Keep in mind, part of the RWA move is clearly driven by FX effect. Secondly, moving RWA down is mainly the focus in the NCA division. And I mentioned that the three deals that we have signed over the last weeks will only come into effect in Q3. In general terms, if the Core Bank will follow its growth path, we would - RWAs to increase, hopefully offset by movements in NCA. And secondly, as long as pricing changes, and I think we have already seen some moves in the market on some of the products that are difficult under leverage ratio exposure, as long as pricing increases and if it's then RWA yielding good enough, then we will see what we can have in there. But currently, the drive is more driven by the Core Bank.

Okay. Thank you. It's clear. And if I may, just a quick follow-up. In general terms, this quarter in the semester, you're allocating, give or take, €1 billion more of capital employed for the whole group, €28.5 billion. It was €27.5 billion a quarter before while risk-weighted assets are down, but you [ph] would also think about de-risking of the [ph] loan of total group. So I was just wondering why you're reallocating [indiscernible] capital to a smaller amount of risk weighted assets when you talk about de-risking of the overall business model?

Yeah. The capital on group level obviously increased from the capital increase that we did in Q2 and accordingly, we allocate the capital throughout the group.

Okay. Okay. Okay. So this is - okay. Fine. All right, thanks. Thanks.

The next question comes from Maxence Le Gouvello from Credit Suisse. Please go ahead with your question.

Yeah. Good morning, Stephan. Two question on my side. The first one would be regarding Mittelstandsbank, we have a cost of risk at 33 bps of RWAs in Q2. Do you believe it's the run rate that we need to use going forward? Second question will be on the duration of the Public Finance assets, what will be the average and what will be the longest asset that you have in the portfolio? Thank you.

Yeah. Again, I think, the LLPs, in general, are at a very low level. So the 32 bps in Q2 in the MSB whether they are a good indicator for the rest of the year, it's hard to tell it from today. But I wouldn't definitely see any bigger jumps or movements there. As I said before, the loan book as such is a very sound one and the general economic outlook for Germany still is very stable. And if you look into the risk report, you can see that we are significantly below our expected loss level there. Duration on the Public Finance portfolio is about 15 years.

Okay. Thank you.

The next question comes from Matthew Clark from Nomura.

Good morning. A few questions from me. Firstly, coming back to an earlier one on net interest income in the private customers division. I don't really understand how the moves cannot have been described by volume and volume have been steadily increasing, but NII went down 6% in the first quarter and then bounced 7% in the second quarter, if I'm right. So could you maybe try re-explaining what's going on there? I don't understand why there's such big swings in private customers NII. Next question is on your geographic disclosure, where there seems to be a big shift in the credit risk-weighted assets quarter-to-quarter, I think, out of Germany and into Europe, excluding Germany. I'm just wondering what's going on there, if there has been change in how you make those allocations. And then finally on your costs, could you give us an indication of what you expect the future year cost inflation to be now that you've given up on the target for this year? Thank you.

NII, again there is two components or even three if you want so. Besides the loan book it is also the deposit business which if you remember took a quite sharp movement in Q1 when the interest rates went down pretty fast and pretty quick. So repricing was not a possibility at every level especially at the deposit. So that probably explains most of the difference between the two quarters which you tried to track to loan volume only. I'm...

Sorry. Just to chase up on that. Was that a case of that was a one-off hit in the first quarter, and that deposit - so deposit margins are unchanged second quarter versus first quarter or have the deposit margins come back in the second quarter as you've managed to reprice or your funds transfer pricing has given more credit? And should we think of that first quarter pressure and rebound as being offset by treasury income outflow in the group, or do you think that's [ph] just the economic trend in private customer NII?

No. Again, in private customers, the sharp movement of the interest rates in Q1 is something that you couldn't pass on to the customers very quickly. Since the Q2 interest rate environment has kind of eased back a little bit, I think the necessity to go into repricing measures is limited. And that is what you can see on the NII movement. With respect to the geographical exposure, I'm sorry, I'm not really in a position to answer directly. I would suggest you call the IR guys. Cost target, again, as I've said before, we will focus on the cost as before and as in the past in a continuous improvement process. On the other hand, we all have to accept that there has been certain FX movements which has burdened the cost as well as ongoing regulatory requirements which mainly need to - which mainly require investments into IT. And in that sense, I think the general dynamics of this will remain the same, we will obviously increase our efforts to make sure that the continuous improvement covers as much as possible from what we will see there.

So you don't have any - what do you budget for in terms of the future year cost growth?

Yeah, I think...

I mean, if I cap 8% year-on-year, it's...

I think, it's a bit too early for 2016 guidance to be honest.

Okay. Thank you.

We continue with Anke Reingen from RBC.

Yeah. Good morning. Just some follow-up questions, please. Firstly, on your Core Tier 1 ratio target for or indication that you think might be stable year-end versus first half. I'm just trying to understand if you're just being very conservative or is this because you're, obviously, a bit concerned about what could happen to operational risk-weighted assets? And just without being too technical, it doesn't seem as if your operational risk-weighted assets are very low, so I was wondering what could drive that much higher, is there like a model change or what could be the driver of this? And then on the risk weightings in shipping and Commercial Real Estate, they went down quarter-on-quarter and I just wondered is this like beginning of a trend or is there just some quarterly volatility? Thank you.

Again, on the Core Tier 1, our key message here is that we, looking at our business model, feel comfortable with the 10.5% Core Tier 1 fully phased-in that we have achieved. The question was whether I would expect another upward movement throughout the rest of the year, I can only repeat what I have been saying on capital ratios for the last I think six or eight quarters. You cannot expect a linear movement there and we have seen that the FX volatility had quite an influence and in that context I have also mentioned that there is the operational risk database which will be updated for example from cases related to LIBOR manipulations and these external events even though that we are not a LIBOR bank may or may not have an impact on the OpRisk database which is set by these external models. RWA, developments in NCA are mainly driven by the rundown of the book and obviously also by the FX effects which are mainly in the shipping book.

Okay. Thank you.

The next question comes from Dirk Becker from Kepler Cheuvreux. Please go ahead with your question.

Yeah. Good morning. Can I first ask about the dividend please. You accrued €0.10 for the first half. Do you expect to accrue another €0.10 for the second half? So are you basically shooting for €0.20 for 2015? And going forward what do you think will be your future payout ratio? Then secondly, I would like to ask you about the funding side of the NCA. You have €75 billion assets there and is it fair to assume that out of your €87 billion wholesale funding that you have in the group, most of this will pertain to NCA so you that you're overfunded there. So that would be useful if you could maybe comment on this. And then lastly on our Swiss francs mortgage exposure in Poland. I noticed that the Polish bank set up an emergency fund for customers with Swiss franc mortgages and I was just wondering did Commerzbank participate in this and what do you expect to pay through this fund?

With respect to the dividend. I can only repeat what we have said in Q1 and in Q2. We plan for a dividend this year and we accrue accordingly. With respect to the payout ratio, I would expect that we get mid-term to a payout ratio of around 40% on a total basis. With respect to the funding of NCA, keep in mind that there are still a lot of covered bonds out there in NCA. So in total, we run a funding mix there. So I'm not sure whether your assumption is correct. And secondly in exposure...

Yeah. Can you maybe just say what the funding is?

...is well managed by our treasury guys. So expecting an overfunding situation right now is not necessarily correct.

Okay.

Sorry, the Swiss franc question was still open. My impression is that we probably need to wait until we have the election campaign and election as such at the end of October and then we will see what the outcome really is. For the time being, it's hard to judge what exactly will happen there.

Yeah. Can I just follow up on the funding question. Can you say how big the funding at the moment is for NCA? Is it not the €87 billion?

No, we don't disclose that.

Okay. That's fair enough. Thank you very much.

There are no further questions.

Then thank you very much. I am looking forward to see you on the Q3 call. And for those of you who haven't heard a summer holiday, I wish you a nice holiday. Thank you.