Stephan Engels - CFO

Benjamin Goy - Deutsche Bank Research Johannes Thormann - HSBC Britta Schmidt - Autonomous Research Nicholas Herman - Citigroup Riccardo Rovere - Mediobanca Heiner Luz - Goldman Sachs Jochen Schmitt - Metzler Equities Anke Reingen - RBC Capital Markets

Welcome to the Commerzbank AG Conference Call. [Operator Instructions]. 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 first quarter 2016. Let me start with our summary on page 1. To be frank, Q1 was a very challenging quarter, not only for Commerzbank, but for the entire industry. January which is normally the strongest month of the year, was a very tough month for all business lines which depend on market sentiment. The difficult trading conditions in January had a significant negative impact on the revenues of corporates and markets and treasury. In addition, the negative interest rate environment has impacted the deposit margin and, therefore, further burdened NII compared to last year's level. Nevertheless, due to the diversified and stable business mix of Commerzbank, we achieved a reasonable operating result of €273 million in Q1 2016, in an adverse market environment. The net result stands at €163 million and we have consistently accrued for a dividend of €0.05 per share. This shows that our underlying business model is intact, even in a very challenging operating environment. Commerzbank continues to have a very sound risk profile and operates in the German economy which remains to be in good shape. Total revenues in the Group of €2.3 billion were impacted by customer reluctance in overall weak markets and the negative interest rate environment. Expenses remained stable at €1.9 billion, compared to Q1 2015 and include €156 million of European bank levies. The operating return on tangible equity stands at 4.1% and the net return on tangible equity of the Group amounts to 2.5%. The low risk profile of the Group has been confirmed in the first quarter. Loan loss provisions are, again, at a low level of €148 million, while cost of risk stands at 13 basis points and the NPL ratio stays at a benign level of 1.5%. Our capital base remains strong, as the fully phased-in Core Tier 1 ratio is unchanged at 12% as of Q1 2016. A net decrease of actuarial gains and losses of €250 million and a lower currency translation reserve, were mitigated by slightly lower risk-weighted assets of €195 billion. RWAs benefited from a stronger euro and a securitization. The Core Tier 1 ratio includes a dividend accrual of €0.05 per share, consistent with last year. Our leverage ratio comfortably stands at 4.5% and our total capital ratio now amounts to 15.4%. Slide 2 summarizes the key financial figures in relation to last year's first and fourth quarters. When you turn to slide 3, we can have a look at the operating performance of the segments in Q1. Let me remind you that we have realigned the segmental structure of the Group and our capital steering approach in Q1 2016. We have dissolved the segment NCA and transferred commercial real estate, ship finance and public finance portfolio of higher quality and lower risk to private customers, Mittelstandsbank and to Group treasury. The remaining exposure of approximately €17 billion has been bundled in the new segment, asset and capital recovery. In addition, we have altered the capital allocation approach of the Bank and adjusted it to a Basel 3 Core Tier 1 fully-loaded ratio of 11% of risk-weighted assets for the operating segment. Looking at the segmental performance of Q1 at a glance, we see that private customers showed a strong result supported, however, by a one-off gain. While Mittelstandsbank underlying corporate business is solid, revenues are burdened by the negative interest rate environment, compared to last year. Our Polish subsidiary, mBank, again showed a very sound performance. As already mentioned, revenues of corporates and markets were heavily impacted due to the difficult start into the year. The others and consolidation segment showed an operating result of minus €164 million in Q1. This reflects significantly lower treasury revenues, compared to the strong first quarter last year, as well as a writedown on a corporate property that is owned and occupied by the Bank. Our quarterly result run-rate guidance for others and consolidation remains at a range of €100 million to €150 million. If you turn to slide 4, you can have a look at the development of the Group P&L. Our Group operating results of €273 million in Q1 reflects a significant revenue decline of €471 million, compared to Q1 2015. The material drop in revenues year on year is mainly due to customer reluctance in challenging markets at the beginning of the year which had a negative impact of around €400 million. For example, compared to the exceptionally strong first quarter 2015, revenues in corporates and markets declined more than 30% year on year. A sluggish client demand negatively impacted the fee business in PC and Mittelstandsbank as well. The effect of the negative interest rate environment on PC and Mittelstandsbank accounts for roughly €90 million of the revenue decline. Q1 saw a partially mitigating one-off from an extraordinary dividend payment of €44 million in PC, while the first quarter of 2015 was supported by a €46 million one-off gain in CEE. Loan loss provisions are again at a low level in a risk environment that continues to be benign. We managed to keep our cost base, including the European bank levies, flat compared to last year. The income tax expense of €86 million leads to a tax rate of 32% due to the non-deductibility of bank levies. On page 5 you can see the development of our quarterly cost base. Expenses for the group amount to €1.9 billion in Q1 and include the expected full European bank levy of €143 million and additionally two months of Polish banking tax of €13 million. Therefore, excluding the bank levies, we again managed to keep costs at a flat level. Please keep in mind that having a stable cost base implies that all strategic investments, for example into digitalization, as well as enhancing internal regulatory and compliance systems, could be fully offset by our ongoing cost initiatives. Personnel expenses in Q1 benefited from the staff reductions in 2015 and a lower contribution for variable compensation. Loan loss provisions, as shown on page 6, are at a seasonally low level in Q1, 2016 with an amount of €148 million. The benign provisioning level reflects the high quality of our loan book, as well as the robust condition of the German economy. As expected, corporates and markets and private customers, showed lower releases from impaired loans compared to last quarter. Loan loss provisions in our new non-core unit, ACR, incorporate net releases in commercial real estate of €5 million and a consistent high provisioning level for ship finance of €74 million in Q1. As we have stated regularly in the past, the shipping markets are far from recovery and remain very difficult which explains the unchanged high cost of risk level of more than 500 basis points. Now please turn to page 7 to have a look at the risk profile of the Group. The NPL ratio in the Group stands at a very low level of 1.5% and was again reduced compared to year-end 2015. The default portfolio was further lowered from €7.1 billion to €6.8 billion. The cost of risk is at an exceptionally low level of 13 basis points. As already pointed out last quarter these figures stand out, even in a European peer comparison. 80% of our portfolio is at investment grade ratings which underpins our overall sound asset quality. Private customers, on slide 8, achieved a sound operating result of €191 million. The segment was able to offset the adverse market environment but also benefited from a positive one-off gain resulting from the sale of MasterCard shares. Further growth in loan volumes by 8% on a year-on-year comparison contributed to largely mitigate the burden from the negative interest rate. The segment gained 59,000 net new customers in the first quarter. The pipeline in new business remains healthy. PC increased new residential mortgage loans by 8% and new consumer loans grew by 44% versus Q1, 2015. Net commission income is down by €46 million or 10%, versus Q1 last year. The weaker equity markets led to lower market values of client assets and securities of around €7.5 billion, compared to the first quarter of last year. This could be partly compensated by an increase of acquired net new assets of around €5 billion. Therefore, we managed to keep the volume-based fee income stable year on year. The ratio of assets in premium and managed accounts versus transaction-based models remains stable at 47%. However, the transaction-based fee income was 35% lower in the first quarter year on year. It was burdened by customer reluctance in the securities business, due to the weak equity markets at the beginning of the year. The Q1 numbers of private customers were supported by a one-off gain of €44 million from the second tranche of an extraordinary dividend from €O Kartensysteme. This is the payment transaction provider for the German banking sector which sold shares in MasterCard in 2015. In addition, revenues of CommerzReal benefited from the regular revaluation of assets. In Mittelstandsbank, as shown on page 9, we have seen a solid development of the corporate banking business, while the negative interest rates continue to be a material and persistent burden on the deposit business. The segment kept revenues in the German Mittelstands business stable since the second quarter of 2015 which underpins our strong domestic market position. Loan volumes and loan margins in the underlying business in Germany proved to be stable. Overall the corporate lending demand in Germany remains very low as market loan growth currently only stands at slightly more than 1%. In large corporates and international, revenues were increased quarter on quarter reflecting a 3% growth in loan volumes. Financial institutions saw less revenues due to lower margins. And we're currently refocusing the business model of financial institutions which includes a significantly reduced number of correspondent banks worldwide. Overall the segment net interest income decreased by 3% quarter on quarter and 10% compared to the first quarter of last year. This decline is due to the effect the negative interest rate environment has on an increased deposit basis of 10% versus last year. Looking on the fee side, net commission income decreased by 10% versus Q1 2015. This is partly due to a lower contribution from foreign exchange hedging activities of our clients. The first quarter of last year, higher FX hedging volumes led to a significantly higher revenue in this area. As expected, expenses in Mittelstandsbank increased in the first quarter year on year due to the European Bank levy and higher regulatory cost. Slide 10 provides you with more details on the effect that negative interest rates have on our core business. The current environment is an increasing burden for the net interest income of private customers and Mittelstandsbank. Looking at the development of the NII, split by loan volumes and deposit margins in a year-on-year comparison of the first quarter since 2014, we can see a significant difference between PC and MSB. Although the retail business has seen material NII pressure from the deposits side the last 12 months, they were able to compensate for this to a substantial extent via loan growth. This is mainly due to the successful new business in residential mortgages. In Mittelstandsbank, we see a different pattern. While we were able to more than compensate the still moderate margin compression from the deposit side by our loan growth in the first quarter comparison of 2014 and 2015, the picture changed significantly in the last 12 months. In Q1 2016, negative rates led to an increased margin decline on deposits compared to the first quarter last year. In the same period, loan volumes developed rather flat, due to the lack of additional loan demand in Germany. On top of rapidly falling deposit margins, the deposit base as well increased by 10% compared to Q1 2015. Most of the corporates leave their high levels of cash on their current accounts, as the negative rate environment has virtually abolished investment alternatives. The effect that the announced new bond-buying program of the ECB is already having on bond yields has made other investment options even more unattractive. As you know, since the beginning of the year, we have initiated several measures to mitigate the pressure on NII. In PC, for example, we have introduced fees for paper-based transactions and intensified the dialog with customers regarding asset allocation towards securities. In Mittelstandsbank, we have, as well, introduced client-specific measures to fend off deposits. This also includes agreeing individual fees with clients that park excess liquidity with us. In the first quarter, these measures had a first impact as deposits in Mittelstandsbank were decreased by almost €9 billion since the end of last year. In Central and Eastern Europe, as illustrated on page 11, we have achieved a good operating result of €77 million, despite the newly introduced Polish banking tax. Growth in business volumes and an improvement of interest margin led to a strong net interest income performance in Q1 compared to the first quarter of last year. mBank has seen ongoing dynamic customer growth and gained 90,000 customers in the first quarter. The Bank has now reached the milestone of 5 million customers. This number is proof of the successful business model of mBank which is one of the Bank's with the best digital setup and offering in Europe. mBank has continued its prudent cost management. Expenses for this quarter include two months of the new Polish banking tax amounting to €13 million. Corporates and markets, as shown on page 12, has seen a very challenging first quarter due to the difficult trading conditions, a pause in deals and low interest rates in January, all of which affected our industry peers as well. The lower client activity has impacted revenues materially, especially if you compare it to the performance of the first quarter of last year which benefited from an excellent market environment. The operating result stands at €82 million in Q1 2016. Equity markets and commodities had one of the most challenging quarters of the past number of years, due to the weak performance of equity markets at the beginning of the year. This led to a much lower client demand on investment products which negatively affected revenues. Fixed income and currencies business saw muted client activity in rates and FX products. Credit ratings strongly benefited from the €43 million one-off sale of bond positions following a successful restructuring. The new business area, advisory and primary markets, APM, integrates our corporate finance and client relationship management activities. The new business setup provides for a comprehensive advisory approach for our largest European clients, offering them advisory services by industry group, levering the wealth of expertise on the corporate side we have in the Bank. Advisory and primary markets was generally burdened by a low level of primary market transactions, especially in equity capital markets and advisory. This was partly compensated by, nevertheless, good deal activity in debt capital markets product. Now let's turn to page 13 and have a look at the development of our new segment, asset and capital recovery, ACR. In this unit, we have bundled non-strategic and rather complex commercial real estate, ship finance and public finance assets. Our successful strategy of the last year of running down these assets in a value-preserving fashion remains in place. The overall ISCI exposure was reduced by €1 billion in the first quarter and now stands at around €17 billion. This was mainly driven by a rundown of €600 million of the ship finance book, despite difficult market conditions. The operating result of ACR in the first quarter stands at minus €122 million, in line with our expectations towards a cumulated operating loss range of €750 million to €850 million until 2019. As expected, the main negative results driver of ACR remains loan loss provisions in ship finance which stood at €74 million in Q1. Our cautious view on the shipping industry has not changed in the last quarters. The global shipping markets still suffer from a structural imbalance as the supply of new ships is significantly exceeding the actual demand. This problem remains unsolved. Revenues in ARC have been slightly negative, mainly resulting from valuation effects. Page 14 highlights a further decrease of risk-weighted assets of around €3 billion in the first quarter of 2016. The RWA reduction is driven by a decrease of credit RWA quarter on quarter. Credit risk benefited from changes of foreign exchange rate, primarily due to the U.S. dollar and British pound movements. This lowered RWA by €2.2 billion. Furthermore, a securitization of a corporate loan portfolio had a relieving effect of €1.1 billion. Markets and operational risks slightly increased as a result of normal quarterly movements. On slide 15, we provide you with a quarterly development of our capital base. Our fully phased-in Core Tier 1 ratio remains stable at a level of 12%. With the current Core Tier 1 ratio, we're comfortably above all regulatory hurdles and are in the midfield of the European peer table. With retained earnings due to the net profits in Q1 of €163 million in a challenging market environment and slightly lower RWAs, we managed to offset a burden on our capital base due to the low interest rate environment. The significantly lower market interest rates have led to a lower discount rate for our pension liabilities in the first quarter. Therefore, we have seen a net decrease in actuarial gains and losses of €250 million which had a negative effect of 13 basis points on the Core Tier 1 ratio. The actuarial gains and losses is one of the deduction items which can be volatile on a quarterly basis. Therefore, as we explained it several times in the past, we don't expect a linear development of the Core Tier 1 ratio and cannot rule out some quarterly volatility. The currency translation reserve slightly decreased by €86 million due to stronger euro. Please note that our Core Tier 1 ratio of 12% already includes a dividend accrual of €0.05 per share in the first quarter of 2016, consistent with last year. Finally, on page 16, let me provide you with our outlook for FY '16. As we have already stated at our Annual General Meeting two weeks ago, market conditions and the overall macro environment in the first three months of 2016 have been more challenging than initially expected. This will also have an impact on the full year 2016. First, we pursue our strategy to increase market share and further intensify our efforts to mitigate the negative interest rate environment. Second, we aim to keep our cost base stable, with the exception of additional external burdens. We expect a moderate increase in loan loss provisions due to the lower releases from impaired loans. Fourth, due to the slow start in 2016, it will be more challenging to achieve the net profit posted in 2015. Ladies and gentlemen, before we come to our questions, let me wrap up the first quarter. In a very challenging market environment, Commerzbank achieved a reasonable operating result in the first quarter and has accrued for the dividend. Our underlying business model focusing on retail and corporate banking in Germany and Poland is stable and intact. In our German home market, due to the good shape of the economy and the low unemployment rate, we expect the benign risk environment to continue. Furthermore, we expect moderate economic growth for 2016. Thank you for your attention. And I'm now looking forward to answering any questions you might have.

[Operator Instructions]. The first question comes from Benjamin Goy, Deutsche Bank. Please go ahead with your question.

Three questions, please, from my side. The first one, you started to work on your excess deposits in Mittelstandsbank. Can you maybe give us a bit of an outlook whether from this level in Q1, there is more pressure to come? Or should actually these deposit mitigation measures help a bit to keep it stable, at least from that side? And then secondly on costs. You said Mittelstandsbank were affected by regulatory costs and it was actually up a bit, whereas corporates and markets were down quite a lot year on year. Is there any bigger strategic rationale to that? Or did you just quickly respond to the negative environment in the investment Bank? And then lastly, because you said it's more difficult to reach the net profit from last year, that was basically impacted by €100 million, roughly, of restructuring charges. Can you give us any guidance for 2016, how much that will be on the restructuring side? Thank you.

Yes, on the deposits side, MSB, as we have stated, we're attacking the issue quite actively right now. We have already moved out roughly €9 billion of deposits, and also have agreed for quite significant number of our customers' deposit fees. We clearly expect this to go on throughout the next quarters, to mitigate, as far as possible, the negative effect from the deposit business. It remains to be seen whether there might be further action by the ECB which is hard to judge from today. And secondly, I think we need to keep in mind that the corporate bond-buying program of the ECB will not only have an effect on the spreads in corporate bond markets, but might also be trickling on to other parts of the market. But that remains to be seen. But, as I said, we're fully committed and very active, in connection with our clients to mitigate these assets, as far as possible. Cost, regulatory cost in MSB are also linked to additional compliance initiatives. In corporates and markets, they basically benefit from lower variable compensation. And the difference between the two also is driven, obviously, by different impacts from bank levy, so that might make the things look a little bit more dramatic than they are. So there is nothing in a strategic fashion that you can interpret from these numbers, other than corporates and markets has proven, over the last four years, that they are always swift and quick to adapt to new regulatory and market environment. Net profit, restructuring charges are always a little bit difficult to forecast at the beginning of the year since they are mainly also a - depending on the negotiations with the workers' council. From today's perspective, I wouldn't definitely see a higher number than last year, as from today.

The next question comes from Johannes Thormann, HSBC. Please go ahead with your question.

Also three questions, if I may. First of all, you said in your opening remarks that you still operate in the good German market. But we saw approximately 29 bps cost of risk in Mittelstandsbank on risk-weighted assets which is not very good in the German market. Is this only the impact of shipping? Could you shed some more light on the mix of the provisions in this segment? Secondly, could you elaborate a bit more on the CommerzReal revaluation gain in PC? And last, but not least, just do you still think reaching the 2015 net profit is possible? Thank you.

Again, a risk cost in corporates and markets, from my point of view--

No, in Mittelstandsbank, sorry.

Sorry, in Mittelstandsbank, still reflect the good risk environment in Germany. There is nothing specific in Q1, it's the normal bits and pieces. And in general terms, since it is not as granular in Mittelstandsbank as it is, for example, in PC, I think quarterly numbers are not necessarily the best indicator. But as I said before, we're not concerned at all about risks in MSB. CommerzReal, as we have all probably experienced, there is a quiet, let's say, active and positive development in especially commercial real estate markets. As part of normal regular revaluation exercises which you need to do, there was a positive gain. That, most likely, might be a good indication for us to think about selling some of these assets that had these positive gains in, I would say, currently, very interesting market where still demand is above supply. On the net result 2015, unchanged to what I said in our outlook. It has become, obviously, more ambitious to achieve the 2015 net profit.

The next question comes from Britta Schmidt, Autonomous. Please go ahead with your question.

I've got also three questions, if I may. Could you perhaps comment a little bit on the legal risks? There were some press comments recently that possibly Commerzbank could be investigated by the U.S. authorities over the Panama issue and whether that would have any bearing on the deferred prosecution agreement that you have there. The second question would be on the fees. Some of the savings banks in Germany are quite drastically repricing the fee and commission income, to what extent do you think you can do that? You've commented already that paper-based transactions you are charging fees for that. But how much upside could we see there to make up for the weaker net interest income? And then, regarding the costs again, you say you aim to keep the costs as stable, with the exception of additional external burdens. Can you perhaps detail to what you are referring there? Is it something like monitors or is there something else on the cost base that we should be aware of coming in, in the next couple of quarters?

Yes, with respect to your question about legal risks, from today's perspective, I would comment that linking Panama discussions regarding Commerzbank with a DPA breach is really farfetched. I cannot see that, as of today. Re-pricing, indeed, the German market is seeing repricing actions throughout the whole sector. We have done so as well during last year and that has been one of the main effects to mitigate as much as possible of the negative interest rate, especially in PC. And as I have also stated, we're currently in really intensive discussions with our customer base in Mittelstandsbank about the deposit business. Cost, external burdens, you refer to the monitor, I think that is more a cost that we have been planning for and see, so that's not what we're talking about. It's more like something that may or may not happen, for example, in Poland with respect to further taxes, levies or whatever else you can think of. But there is nothing specific that I currently see coming.

The next question comes from Nicholas Herman, Citigroup. Please go ahead with your question.

Actually, before I start, thank you for the disclosure on assets and liabilities by division and for providing the granularity on the impact of negative interest rates in PC and MSB. And then three questions please. Firstly, in terms of the mitigating impact of negative interest rates, how much success have you actually had in moving clients towards securities in PC? I imagine that clients are fairly risk averse right now? Also, in terms of PC and MSB, could you be a little bit more specific in terms of how much positive impact you can have from the initiatives that you've listed on slide 10? Second question is on CEE. How much do you expect to be able to offset Polish bank tax and FX mortgages when that happens, obviously the latter? I assume you may have to reprice and do you expect any impact on loan growth there? And then my final question was in ACR. Should we see the €31 million cost per quarter now as a new run rate? And also the provisions was at - could you be a bit more specific in terms of what portion of finance those provisions related to? Thank you very much.

I'll try to basically answer the first two parts of the question probably in one. Again, the negative interest rate environment has been burdening us for the last two to three years and we expect that to go on. I think that's pretty clear and you can see it from the numbers that we have provided on page 10 that it is pretty sizable numbers. In PC, there is generally a better opportunity to work with the deposits because, from a regulatory perspective, you are allowed to model them to a far bigger extent than you can do that with corporate deposit which clearly differentiates the two segments. So especially loan growth as well on mortgage business as well as on consumer loan increasingly helps us to mitigate these effects there. In MSB as I've said before, you cannot model all of these deposits. And secondly, we have seen not only negative interest rates, but due to the lack of investment alternatives the cash is just piling up on the account. Now to your questions whether I can create positive effects from that environment, I would be very reluctant to call it positive. Nevertheless we're currently, as we have been doing through last year, trying to mitigate as much of these negative impacts that we can. On the PC side still with the growth opportunities, these seem to be limited in MSB right now. So the way there is either agreeing deposit fees on excess cash or looking for alternative investments which is, as I said before, somewhat limited, and in some cases with also trying to fend off some of these deposits. CEE, mitigating or compensating the tax. As a tax has its very limits, what we will obviously do is try to be successful in the marketplace and try to compensate by better revenue and income. On the FX mortgages, all I can say from today's perspective is that there is, let's say, ongoing discussions with very diverse proposals being discussed. Currently I'm simply not able to really judge what the final outcome will be there. ACR, your question was on risk provisioning and cost. Risk provisioning will also throughout 2016 mainly be driven by ship finance as you have seen it basically in Q1. The shipping market as such has not improved at all as we all see. But obviously it's the usual challenge and I think our view on shipping has been dire, sober and reluctant over the last four years and the current environment has no incentives in that sense to change that. So that will definitely drive risk provisioning in ACR. With respect to cost, there we're working on a number of initiatives. So in that sense, I would think we have, going forward, we may have a little bit of a potential there. It remains to be seen when we can really harvest these things, but we're working on it.

The next question comes from Riccardo Rovere, Mediobanca. Please go ahead with your question.

A couple of questions from my side. First of all, on the mitigation actions to offset the negative impact of negative rates, if I'm not mistaken in 2014 and 2015 we have not taken any single penny from the ECB TLTRO auctions. Now the terms of TLTRO 2 have changed. Do you plan, do you see this as a potential way to try to offset at least partially the negative impact of rates which will probably stay there? This is my first question. And with regard to capital, how do we need to think about your 12% fully-loaded core capital ratio, do you think that is enough? Do you want to accumulate a little bit more, maybe in view of what could happen on the all-consultative papers from the Basel Committee? What kind of level would you consider as comfortable, also, to withstand potential further regulatory tightening? Thank you.

On the negative interest rates, as you mentioned the terms on the TLTRO have changed, but, let's say, the financial results are basically not any different. What has changed is the incentive mechanism on how to get the subsidized money, financially or materially, that is not different than before in respect of what it does to our P&L. And in general terms, funding is not our issue and in that sense TLTRO in the old as well as the new terms is not of help for us. Capital, I think the 12% fully-loaded ratio - and I think you need to connect it to the risk profile of the bank. I think with the 12% and our risk profile, we're very well capitalized indeed. Whether it is enough or not is partly a question which the regulators need to answer. Going forward, we all know that there is Basel 4 or whatever it will be finally called as well as, for example, IFRS and some other G20 initiatives about [indiscernible] and other stuff. They will all be impacting the full industry and it remains then to be seen whether the new level will somehow reflect these actions and then have a before and after rate or whatever. But from today's perspective, all I can say is, as it is a relative game, I think we feel well-positioned in that sense. And generally, as long as our payout ratio on the dividend will not be 100%, we will automatically build up capital to a certain extent which currently is - the view, as we have said, for our midterm goal for the payout ratio's 40% on the dividend.

And if I may follow up on this. Have you run any calculation what could be done on the revised approach to the operational risks?

It is a very, let's say, it is a very complicated model which I'm not sure is really something that you can calculate very well on a going forward basis. I think we have seen in the market place quite some changes. So far, we haven't been impacted by that, I think that also is a regulatory initiative which remains to be seen how it ends up. My feeling is that we might all end up back in to a kind of standard approach, sooner rather than later.

[Operator Instructions]. The next question comes from Heiner Luz, Goldman Sachs. Please go ahead with your question.

I've a few smaller questions. The first thing that I would start with is your private customer business. You are talking very positively about the volume, saying it was more than 8% year-on-year mortgage growth and about 40% customer loan growth. If I look at the credit risk rates, so the credit RWAs over the year, you basically reduced that by 20%, so while you have loan volume, particularly including stuff like consumer lending, going up there, you would expect a bit of higher, saying you have RWAs coming down. So are you lowering a loss-given defaults or RPD assumptions? What's driving down your risk rates on the private customer side, particularly given it seems to be a bit counter intuitive, given where the regulators seems to be looking in terms of risk rate? The second thing I would ask is on your Mittelstands division which over the last quarter continues to face pressure and remains under pressure. Talking to market participants in Germany, that still seems to be the sense that you're one of the most active, both in visibility which is good, but also in pricing aggressiveness. So do you think that there's any scope to basically say you have the size now and you might be willing to get a bit soft on pricing or is this is a business that we'll continue to see pressure on the bottom line? And the third one would be on corporates and markets which includes decent amount of investment banking-type businesses and you run one of the highest compensation for head numbers in this business in a German context. Is there any room, can you give us an idea of how much your compensations in the corporates and markets business would be variable and how much could you start taking out just for the facts that the revenue environment is clearly not what one hopes for the year? Thanks.

So hopefully I got all your questions right. On PC, the RWA are positively impacted by a regular review of PDs and LGDs and since you have seen over the last years, we've really had no or little, of any bigger RWA cases there. So that is what positively impacts RWA. MSB, you asked about pricing, it's always good to hear when the competition complains about us winning the deal. They would normally claim that it is on pricing, I think that is natural market behavior and I'm not too concerned about that part, I would be rather more concerned the other way around to be very honest. Nevertheless, it is pretty clear and we have sad that before, that the German market currently obviously tries to reprice and that is also true for us in that context. On corporates and markets, I'm not sure, sorry, whether I really got the gist of your question, can you--?

The corporates and markets business has a decent size investment banking or markets-type businesses in there and you're just looking at your remuneration report. In the past, you're paying very variable in that division. So I was wondering to what extent, given the rather weak revenue outline - outlook for that division for this year, to what extent you would be able to basically take down costs without really having to let people go which I understand is very difficult in Germany.

No, that is indeed very difficult in Germany, other than variable compensation which obviously has a higher flexibility in corporates and markets. And as you know and we have said so, we're in the middle of reshaping parts of our [indiscernible] operation, including back office functions, to more cost effective or cost efficient places throughout Germany. So there is a certain level of flexibility and again, taking strategic discussions just on the performance of one quarter is probably too early anyway.

Yes, I was just conceptually thinking more like it tends to be that the first quarter is not just for corporates and markets but for Commerzbank as a whole, the strongest one. And you're starting with the quite ambitious target for this year, despite the more challenging market conditions and the last tailwinds, to go for the same profits where you're admitting that it becomes more challenging but, at the same time, you basically have this headwind. So I was just thinking what are the levels you have to still potentially get closer to that target?

Yes, again as I said, normally Q1 is a strong quarter and January also is a strong month, that is all true and I think we have seen throughout the market that that hasn't happened so far. And it remains to be seen how Q2 and Q3 develop. It is also pretty clear that on some of our corporates and markets businesses, we have a very [indiscernible] pipeline which, I guess, will come into realization once the market environment lightens up a little bit, but as you rightfully said or as you rightfully quoted me, it is a very challenging start and it will be a challenge to achieve the goals that we have.

The next question comes from Jochen Schmitt, Metzler Equities. Please go ahead with your question.

I have one question, could you please comment on today's article in German daily Handelsblatt with regard to so-called dividend-stripping transactions? That would be helpful, thank you.

Yes, a quick answer. We have in place a number of regulations and controls that make sure that we only operate within the legally approved environment, both in the past as well as looking forward, including a possible new requirement.

The next question comes from Anke Reingen, RBC Capital Markets. Please go ahead with your question.

Just one follow-up question, please. Just to confirm on the tax rate on your previous guidance of 20% to 25%, is that on a reported basis or is it adjusted for the fact that the levies are non-tax deductible? Because obviously that would require quite a low tax rate for the rest of the year, if it's not adjusted. Thank you very much.

The Q1 tax rates reflects the real, so to call, IFRS tax rate which means that the, for example, bank levy under German tax law is not tax deductible. If you take that roughly out, you more or less come back to the 25% range that we have indicated.

The next question comes from Britta Schmidt, Autonomous Research. Please go ahead with your question.

Just some quick follow-up questions. Could you give us the amount of the property writedown that was booked in Q4 in the center? And then secondly, what sort of Visa Europe gains are we still to expect? And lastly, I don't know whether you could comment on that, but are we supposed to expect some form of broader strategic plan update once the new CEO has had a time to review?

I'll answer the first question very simply, that's about €40 million revaluation or write-off on a property. If you look at the others and consolidation, keep in mind there is also a bank levy in there for the treasury parts of the segments. The two together is roughly €80 million. You need to repeat your second question which I didn't get. And the third one, I think Martin Zielke is in his new office the second day today, so I think we just need to wait a little bit until we come with some more on that, but it will most likely happen this year. And the second question, sorry?

The second question was on any Visa Europe gains that we're supposed to expect for the rest of the year and when something might come in?

If all these dues go through and if the prerequisites for really booking and recognizing it are there, then we will possibly have a positive impact, yes.

But you can't give any guidance on that in a more concrete manner?

We would prefer not to.

There are no further questions left.

Yes, then thank you very much everybody and have a nice day. Thank you. Bye, bye.