Q1 2021 Deutsche Bank AG Earnings Call (Fixed Income)

April 30, 2021

[music].

Ladies and gentlemen, welcome and thank you for joining the Q1 2021 fixed income call.

Throughout today's recorded presentation, all participants will be in a listen only mode. The.

The presentation will be followed by question and answer session. If you would like to ask a question you May Press star followed by one on your Touchtone telephone.

Please press the star key followed by zero for operator assistance.

I would now like to turn the conference over to penetration of <unk>. Please go ahead.

Thank you Emma good afternoon, good morning.

Thank you Ron from joining us from there.

We have made the change to the sequence of the fixed income call on this quarter.

The group treasurer of the crude jokes it really true through the prepared remarks, including or sort of summary of our quarterly results before moving to the coupon the treasury sector.

For the subsequent Q&A, you'll be continuing of having it once the CFO James from Mark here with us to cover your questions together with the group.

The slides that accompany the topics are available from download from our website at <unk> com.

Before we get the Stanford and just want to remind you of the presentation may contain forward looking statements, which may not develop as the currently expect.

Therefore, please take note of the precautionary warning at the end of our materials with that good afternoon to the exit.

Thank you Philip and welcome from me.

We have continued to deliver against our transformation milestones.

We are on or ahead of our we expect the timeline on all key measures.

We said at the Investor Deep dive in December we would focus on delivering sustainable profitability.

With revenue growth in the quarter up 14% to $7 2 billion euros, we demonstrated what this franchise is capable of.

We generated $1 6 billion euros of pretax profit and 1 billion euros of profit after tax that's our best quarter in seven years, Despite I would now smaller footprint.

The progress that we have made us increasingly one recognition in the financial markets and we are pleased with the outlook revisions of the ratings agencies over the last months.

We remain disciplined on capital risk and balance sheet management, and we successfully navigated several market events during the quarter.

And we were active in the capital markets in the first quarter with seven 5 billion euros of issuance, leaving us well positioned as we look to our funding plan for the rest of the year.

Moving now to slide three which summarizes the different outlook revisions of our credit ratings over the last months.

It was gratifying to see key stakeholders, recognizing our progress in the first quarter, both Fitch and S&P revised the outlook on our ratings from negative to positive.

This follows the revision to stable from Moody's back in November last year.

All agencies acknowledge the solid execution related to our transformation agenda, evidenced by strong revenue generation and overall financial performance.

We will continue to actively engage with the ratings agencies throughout the year as improving our ratings remains a key management focus.

Let us look at the summary of our financial performance for the quarter compared to the prior year on slide four.

We generated a profit before tax of $1 6 billion euros or $1 8 billion euros on an adjusted basis.

Total revenues for the group was $7 2 billion euros up 14% versus the first quarter 2020, and 33% versus the prior quarter.

Noninterest expenses were down 1% year on year.

As we indicated in mid March in line with the latest guidance from the single resolution Board. The single resolution fund is expected to be expanded to over 70 billion euros and the our estimated assessment has been adjusted accordingly to approximately 600 million euros.

We also saw an unexpected market event, which led to an additional contribution of 28 million euros to the German statutory deposit guarantee scheme in the quarter.

Our provision for credit losses decreased to 69 million euros or six basis points of loans.

Risks remain in the environment, but we expect full year provisions to be substantially below last year.

Our improved results are supported by growing revenues and our refocused business model as you can see on slide five.

We have grown revenues in our core bank by 12% of this quarter to $7 1 billion excluding.

Excluding specific items.

This growth has principally come from our investment bank, which has delivered strong performance in both fixed income and currencies, particularly in credit and origination and advisory.

Our corporate bank and private bank successfully offset headwinds with a combination of deposit repricing and volume growth and we see rising momentum in these businesses.

Asset management delivered revenue growth boosted by transaction and performance fees.

Over the last 12 months that takes our core bank revenues to 25 billion euros, a 7% increase from the previous 12 month period.

<unk> of our 2022 ambitions.

In summary.

All of our coal businesses have proven the strength of their franchises, putting our 2022 objectives well within reach.

That is now look at how this translates into higher profitability on slide six.

Our relentless focus on delivering on our transformation agenda is reaching the bottom line.

We have seen a 75% year on year increase in our adjusted profit before tax in the core bank for the last 12 months to the first quarter.

In all four core businesses contributed.

At the same time, we continued to derisk in the capital release unit.

Which nearly half of its pretax loss compared to the first quarter of last year.

Since we started our transformation strategy seven quarters ago.

We have substantially reduced the capital release unit losses.

We remain committed to minimizing the P&L impact of Derisking efforts by the unit and to our cost reduction plans.

Let us now turn to risk management on slide seven.

Strong risk discipline is the central pillar of our strategy across credit market liquidity and non financial risks.

Provision for credit losses was 69 million euros of this quarter or six basis points of average loans on an annualized basis.

Principally due to the improved macroeconomic environment.

We continue to manage a high quality and well diversified loan book with strong underwriting standards are robust and proactive risk management framework as well as dynamic collateral management.

We have also remained vigilant on concentration risk.

Strict on risk appetite parameters and proactive in risk identification and management.

Our market risk management benefits from a dynamic hedging framework with daily stress testing and monitoring.

Our comprehensive non financial risk controls contribute to robust crisis management practices.

These capabilities have not only helped us achieve consistently contain credit and market risk losses, but it also helped us avoid negative impacts from external events such as the ones we saw in the quarter.

And we continue to strengthen nonfinancial risk management tightening our control environment and continuing to work on strengthening our anti financial crime capabilities.

Now, let us turn to the balance sheet.

Slide eight shows the summary of our net balance sheet, which excludes derivative netting agreements cash collateral as well as pending settlements.

We have made significant progress on our balance sheet transformation over the years.

Since the first quarter of 2019, shortly before we announced our strategy update we have reduced net assets by around 75 billion euros as reductions in trading assets and liquidity reserves have been partially offset by growth in our loan portfolios.

We have reduced trading assets by around 90 billion euros, primarily reflecting our decision to exit equity sales and trading.

Trading assets now primarily consist of government bonds and short term secured financing assets in our repo book.

At the same time, we have grown our loans at the amortize cost by 25 billion euros.

Loans now account for 45% of our net balance sheet with around half in Germany, primarily low risk mortgages.

Liquidity reserves continue to account for about a quarter of the net balance sheet.

We have also improved the quality of our liabilities and funding base.

While deposit remained flat we have optimized the quality of our deposit base as we reduce the reliance on short term wholesale funding and increased more stable retail and corporate deposits.

Low cost deposits continue being our main funding source now contributing almost 60% to our funding sources.

At the same time, our loan to deposit ratio of 76% provides sufficient room to prudently grow loan balances in coming periods.

Slide nine provides further details on the developments in our loan and deposit books over the quarter.

On an FX adjusted basis total loan growth in the quarter has been 4 billion euros predominantly in our private bank, where we have seen continued strong growth in mortgage and collateralized lending.

While we continue seeing repayments of credit facilities, and our corporate Bank trade finance is benefiting from the reopening of the global economy.

In the investment Bank quarterly loan development has been flat as the business continues targeted resource deployment, while keeping overall risk appetite under control.

For the rest of this year, we expect the overall positive trend to continue as our portfolio of credit facilities has by now reached a normalized pre COVID-19 level.

While we see good demand across our client segments.

Looking at deposits, we continue seeing high savings rates across many European countries, resulting in 4 billion euros FX adjusted growth in the private bank.

In our corporate bank, we've seen temporary inflows in trust and agency services and some growth in cash management deposits that was subject to charging.

For the rest of the year, we expect total deposits to moderately reduce from current elevated levels as we continue implementing charging agreements.

Slide 10.

The substantial progress that we've made in passing through negative interest rates to our corporate and private bank customers.

At the end of the first quarter, we had charging agreements in place on a total of 95 billion euros of deposits generating quarterly revenues of 80 million euros.

At this current run rate, we are already achieving our charging related 2022 revenue target as we communicated at our December Investor day deep dive.

This positive revenue development is predominantly driven by significantly lower than expected deposit outflows as competitors take similar measures against the backdrop of continued negative euro interest rates.

As you can see in the graph, we have already made significant progress in our corporate bank. We're charging agreements are in place for approximately two thirds of our euro current account portfolio.

We will now generate additional revenues by focusing on smaller client segments with currently lower coverage as well as by reviewing already granted the thresholds for our existing agreements.

In the private bank.

Our key priority remains to actively engage with our customers and advise them on liquidity solutions and alternative investment products.

Deposit charging above 100000 euros is already in place for new accounts.

Until the end of the year.

We will look to find individual solutions also for existing accounts across the German and international franchise.

Moving to slide 11, which highlights the development of our key liquidity metrics.

Our liquidity reserves remain at 243 billion euros with the majority held in cash and cash equivalents.

The cash component of the liquidity reserves temporarily increased as we were reducing the securities portfolio.

The prudent deployment of cash into high quality Securities remains the focus for us, reflecting our commitment to further improve the composition of our liquidity reserves.

In the first quarter liquidity reserves were broadly flat as deposit increases from the private bank and corporate bank were deployed into loan growth of 9 billion euros, primarily in the private bank.

Our liquidity coverage ratio at 146% continue to comfortably exceed minimum regulatory requirements.

As we move forward with our transformation agenda.

We are well positioned to support business growth and lending as demand is picking up.

Therefore over time, we continue to manage our liquidity closer towards our targeted levels.

Turning to capital on Slide 12.

Our CET one ratio rose to 13, 7% during the quarter.

Benefiting from our strong first quarter net income.

This effect was offset by dividend and 81 accruals equity compensation effects and higher regulatory prudent valuation deductions.

Risk weighted assets rose from 329 billion to 330 billion during the quarter, but with 3 billion euros down excluding FX effects.

Notably additional hedging led to lower market risk of RW, a in operational risk <unk> benefited from further improvements in the internal loss profile.

These reductions outweighed higher credit risk of RW, a including a 4 billion euro impact for large corporates. Following the receipt of a final from decision from the ECB.

Further risk weighted assets increases from regulatory and supervisory changes are expected to negatively impact the CET one ratio by approximately 80 basis points in the upcoming quarter.

Here we.

We see three main drivers.

First we expect the ECB to conclude its targeted review of internal models by issuing final decisions regarding leverage lending and for banks and financial institutions.

Second we are expecting final ECB clearance of our implementation of the EBITDA guideline on definition of default.

And third we will implement revised <unk> calculations in response to Cri to becoming effective end of the second quarter 2021 for example in relation to the standardized approach for counterparty credit risk.

With our CET one ratio of 13, 7% at the end of the first quarter, we have a buffer of 330 basis points over our CET one ratio requirement.

As shown on slide 13.

Principally due to our successful January 2021 tier two issuance the distance to the binding total capital MDA level increased quarter on quarter by 39 basis points hence.

Hence we remain in a comfortable position to absorb the upcoming RW of inflation that has been previously outlined.

Moving to slide 14.

Our fully loaded leverage ratio decreased by eight basis points to four 6% this quarter.

Of this decrease four basis points came from FX translation effects three basis points from increased trading volumes and net loan growth.

And one basis point from negative capital effects.

Our pro forma leverage ratio, including ECB cash balances was four 2%.

In the second quarter of 2021, we expect an increase in leverage exposure of roughly 20 billion euros from the.

<unk> of the standardized approach for counterparty credit risk as part of <unk>.

We continue.

To operate.

With a significant loss absorbing capacity well above our requirements as shown on slide 15.

At the end of the first quarter, our loss absorbing capacity was 20 billion euros above the minimum requirement for eligible liabilities or <unk>, our most binding constraint.

The headroom is higher than originally expected as the single resolution Board has decided on 22nd March to continue with the Enbrel recognition of bonds issued under English law and.

In contrast to prior guidance.

We expect our umbrella buffer to reduce later this year.

When the new ml requirement and the expected RW inflation become effective but we will.

<unk> to conservatively manage our buffer.

Even after accounting for the expected requirements change and regulatory inflation in the second quarter of.

The remaining enbrel buffer of five to 10 billion euros would allow us to completely stop issuing new senior non preferred and senior preferred instruments for up to one year or alternatively allow us to absorb of further unexpected RW increase of almost 30 billion euros.

Moving now to our issuance plan on slide 16.

As you can see in the issuance and redemption summary of 2019 and 2020.

We continue to decrease our reliance on capital markets funding.

Including senior non preferred as we continue to restructure the balance sheet and optimize our funding sources.

Quarter on quarter, our senior non preferred debt has tightened by around 20 basis points in euros and U S dollars outperforming our peers by roughly 25 basis points on average.

We used the positive sentiment to issue at favorable spreads contributing positively to our financial goals through lower funding costs in.

In the first quarter, we issued a total of seven in the half billion euros, mainly driven by six benchmark transactions in three currencies.

This enabled us to complete 50% of the lower end of our full year issuance target.

Which we now view of the likely requirement for 2021.

Earlier this month Moody's has released the request for comment on the updated lgs methodology we.

We expect the changes which are in line with our initial assessment to be implemented in the third quarter of this year.

This means that we do not expect any impact on our issuance plan for this year as a result of the Moody's lgs metric.

In March we raised a further $3 3 billion euros of funding from the Ecb's <unk> three program, taking our total participation to around 41 billion euros.

We can confirm that we have achieved the benchmark growth of the program's observation period, ending on 30 <unk> of March which guarantees the program's most favorable terms between June last year and this year.

While monitoring the next growth observation period from October 2020 to December 2021 closely we will use the residual TLC arrow participation windows to optimize our total K Cup and repayment schedule.

Given the advantage of Central Bank funding. It is likely that we will not issue. The three to 5 billion Euro covered bond issuances planned for 2021.

As mentioned earlier, we would guide you to the lower end of the 2021 issuance plan as a likely requirement for the full year based on current assumptions.

Turning to slide 17.

You can see highlights from a select number of transactions in the quarter occur.

Across all issuances, we saw strong and diversified investor demand.

On average our 2021 benchmark order books were three times oversubscribed and pricing continues to improve versus our peer group.

In addition to successfully executing on our issuance plan. We will also able to make of vital contribution the Deutsche Bank sustainability and diversity agenda.

We launched our second Green Bond, which is also our inaugural senior preferred benchmark issue in U S dollars.

And we adopted a new syndicate structure. Following the most recent U S dollar senior non preferred issue.

For the first time Levin additional underwriters owned and led by diverse management teams.

<unk> Deutsche Bank Securities to underwrite the suffering.

The group of underwriters with selected to represent diverse missions, including certified service disabled veteran owned African American owned and women owned firms.

This is an important step towards creating a more diverse and inclusive financial industry and we will continue on the spot.

In conclusion.

On slide 18.

Our balance sheet remains low risk and well funded by highly stable sources as we look to our 2022 targets.

On revenues the improved trajectory in the core bank shows that we are operating at a level that's put puts our goals well within reach and we see continued momentum in our client franchise.

We are actively managing our cost to income ratio throughout 2022 target of 70%.

The ratings agencies have begun to acknowledge our transformation progress via a positive outlook revisions and we continue to constructively engage with them as this remains a key priority.

We have been and will continue to be diligent on risk management our.

Our guidance for provision for credit losses is in a range of around 25 basis points of loans for the full year 2021.

We expect to prudently manage down our excess liquidity towards our target levels over time.

But given the attractive <unk> conditions, we are under no time pressure to do so.

As a result, we remain committed to 8% group post tax return on tangible equity target and our profit trajectory leaves us well positioned to achieve this.

With that let us move on to your questions.

Ladies and gentlemen at this time, we will begin the question answer session anyone who wishes to ask a question May press star followed by one of them Theyre Touchtone telephone.

If you wish to remove yourself from the question queue. You May press star followed by Q.

If you are using speaker equipment today, please lift the handset before making your selection.

Anyone you ask the question May Press Star followed by one at this time.

One moment for the first question please.

The first question comes from the line of Daniel David with Autonomous. Please go ahead.

Hi.

Thanks for the colon, taking my questions.

Just briefly total as such from Moody's.

Yes, the comment of methodology I'm just wondering if you could provide a few more details on the impacts of you expect from <unk>.

I guess, the <unk> senior non preferred rating.

And the second question would be on your core strategy.

So you're right standing legacy bonds in light of the recent Colo the capital Finance Trust Securities.

A few more details on that with the great. Thanks.

Daniel Hi, good to have you of the call.

Let me take both of those on the first one regarding the Moody's Lgs. There were six changes that were proposed as part of the ratings methodology of which we think to apply to us. The first is the threshold to achieve a one.

One of our trading uplift in the senior non preferred net.

Net special events lowered from 12% to 10% net tangible assets.

And the second.

This benefit will be partially offset.

As the methodology now includes some balances legal entity balances into the tangible banking asset calculation, which had been previously removed.

We've looked at the methodology, we've been engaged with Moody's it's our expectation that we will not see any change to our issuance plan as we've already made an assumption.

For 2021 in that respect.

So I hope that's that's helpful.

On the second regarding the call decision, we've announced the call.

On the 20th April which is effective on the 27th of July average.

This was the legacy tier two capital instruments, which leads the this recognition capital recognition at the end of this year and Thats, primarily because its the SBB structure.

We factored that into our capital plan.

Becomes expensive funding from next year and so.

As we've indicated before on these calls we will make an economic decision.

Out of this considering the the benefit of the structured range the roll off profile and regulate the treatment and that's what's driving the decision to call.

Thanks, and just the second part is there anything from this rather on the.

The other securities that you guys funding can we read anything into the.

Yes.

To the extent that they qualified for regulatory capital.

Naturally we'd be keeping a close eye on the funding cost.

And the role of profile so as always.

You would expect us to do is again look at the economics of the time of call and I look at the replacement value of replacement cost of those instruments and then make a.

Make a call at that point.

Great. Thanks, a lot.

The next question comes from the line of Lee Street with Citigroup. Please go ahead.

Hello, Thanks for taking my questions.

First of all done a really good set of results for first quarter.

Just three from me firstly.

Just looking ahead could you foresee a scenario where you.

You could consider sales engagement any forms of significant M&A transaction within the next day.

Some of it could even be foreseen.

Secondly, obviously you've had quad.

Ongoing decline in leverage assets over the last few years matches the.

<unk> shrunk of now you've got a lot of tail taro.

My role of course.

Over the next over the medium term.

Would it be the general trends of leverage assets from the current level, we slightly higher slightly lower sales.

And sorry, just to clarify on that Moody's Lgs comment in response to the last question.

I'm, sorry, you said you'd already packed and shipped plans, but should we.

We shouldn't be expecting any rating changes either way as the consequence of the <unk> of proposals that have come out of that and just to clarify that that'd be my three questions. Thank you.

So the it's James I'll take the first and assets to address the second too I.

I think reasonably consistent in our statements about M&A, which is firstly that we do think there is the industrial logic to consolidation in Europe.

Secondly, our goal was to was to execute on our transformation strategy. So as to put the company in a.

Better positioned to be able to engage in that process.

Both from a financial and strategic point of view.

And also by the way in terms of having our our internal operations and controls and the right place and so we continue to execute on that path.

I cant say when.

Opportunities will arise it makes sense of when we'll be ready, but our general view is that we will at a.

Point in time, we expect to participate in consolidation of European banking industry.

Hi. This is just the beyond the on the second end of the third and the second regarding leverage assets, we will continue to target the four 9% leverage ratio.

Reported EBITDA, we see leverage trend slightly lower.

Through the course of the yen, partly the result of the transaction with BNP Paribas concerning the prime brokerage business.

We will continue to drive loan growth as you've been seeing but again all within the context of <unk>.

The target of four 5% leveraged ratio of.

On the on the Lgs front no we're not expecting operating impact of the group level, though I believe today of what we said previously on the call that we didn't think of our ratings.

Overall, our lagging versus the enormous amount of work that we've done on our balance sheet and the efforts to give us the bank.

To ensure that we have strong buffers.

And adequate liquidity at all points and so.

Naturally we'd be hopeful that the more positive action on the rating from overtime. If we continue as we continue executing on our strategy.

Okay.

Very helpful and very clear thank you very much.

Thanks, Nick.

The next question comes from the line of Paul So net Macau with safety Generale. Please go ahead.

Hi can you hear me.

Yes.

Hi, Hi, good afternoon guys.

Thank you for taking my call I got a couple of my questions have already been answered.

One hasnt on supply so you've got maybe another $10 billion today for the remainder of the year.

Could you. Please I didn't quite get what it is that you said about enbrel supply at the backend of the year, maybe you could just.

Maybe you could just clarify that that also.

Tell us whether you intend to do another hybrid instrument I had a sense that you might do one per tier two which you've already done plus another 81, given how much tightening of spreads zone now I'd love to get of centers of what Youre thinking of in terms of service one of those NPS. Thank you.

Sure.

It's not so much 10 per into the unit as I've mentioned that we've done seven 5 billion of issuance already year to date and looking at our trajectory for the rest of the year.

The prevalence of <unk> funding, which is being quite attractive.

I think we'll come in at the lower end of the 15 to 20 billion issuance range that we've put out there.

We're likely to see the impact the as you do not have the need to do covered bond issuance for example through the course of this year so suddenly the building.

Don't expect.

As much of $10 billion from through to the end of the.

Yes.

In terms of the Enbrel.

As you can see we had net negative issuance through the course of this year, that's been quite of national and we've been managing that in the capital markets that will reduce our dependency on the capital markets through the years our.

Our lines of the deposit funding is much greater at more than 60% of all of our funding sources and we've also had de minimis.

Reliance on wholesale markets as well so that's been a deliberate strategy over the year to reduce reliance on wholesale funding as well as reduce our capital market issuance as well.

On the last point.

As always we wouldn't earmark.

The outline.

Best efforts, what we think will need to issue through the course of this year with outline $2 billion to $3 billion of capital market issuance from.

2021, we've done 1 billion in the quarter was the tier two issuance in the first quarter.

We are managing towards a full analysis and leverage ratio.

Depending on market conditions, which we track very closely.

We wouldn't see windows during which the issue a combination of tier one of the tier two instruments.

<unk>.

We have optionality around the decision.

And it will be driven partly by the market by market conditions at the time, so we're watching the markets very closely.

The next question comes from the line of Robert Smalley with UBS. Please go ahead.

Hi, good morning, and thanks, Thanks for the during this call.

First I guess, just the follow up on Paul's point on.

Potential issuance on particularly in AC one.

Would it be.

Given where you are from a regulatory point of view.

Would you look to do 81, two would it be to optimize the <unk>.

<unk>.

The composition or.

Is there something else that.

That would drive that that's my first question and second.

Going into the financial data supplement on page 14 on asset quality.

When I look at that.

Stage, one two and three loans.

Stage three seems to be.

Pretty consistent over the last couple of quarters.

The to talk a little bit about that how you think thats been the break with an improving.

Economic environment, how much of that is idiosyncratic vs.

Troubled or identify the industry and any other color around that would be greatly appreciated. Thanks.

Hi, and thank you for joining it's always on the on the 81 front.

In large part of it would be looking at the day recognition of any remaining low.

Legacy instruments that we have.

The shift from January of 'twenty two.

So that would be a consideration.

And the issuance of 81 of gross sales multiple purposes.

Moving allowing us to continue to meet our leverage targets and allow for business growth in that respect as well. So <unk> will be one of the affect your tier one leverage would be the other as well so I hope that's helpful.

Yes.

Rob on the on the stage III non we've seen a fair amount of stability as you can see over the over the last four quarters there.

And I think thats encouraging given given the the.

The nature of the credit cycle that we went through.

It's always hard to say whether that will continue the plateau of stabilizing at around this level.

And when it comes down but in general our perspective has been that the the.

The sooner the severity of the credit cycle has been surprisingly benign given what we have lived through.

And the first quarter stage three numbers were quite encouraging to us there wasn't there wasn't a little bit of the net release of some names.

Yes.

Smaller level of new credit impairment of assets.

If that were to continue for the balance of the year, then yes, I would expect the stage three in the begin to come down.

There are portfolios that we're watching carefully so I don't think were yet.

Completely out of the words on the COVID-19 related credit cycle.

Highlights of commercial real estate in aviation.

Sectors of our watching carefully obviously need to continue.

Being vigilant in our in our retail portfolio of spirit, the by and large as you've heard of US comment on we are quite constructive about the of the credit hour of given what we've seen so far in this very unusual cycle.

And if I could just follow up.

It is the strength it isn't the unusual cycle, where we've had a huge downturn in rebound in GDP and employment, but credit quality and a lot of ways. The state stable. What does this do for your modeling going forward.

And your model driven provisioning and how do you adjusted for that.

Well the that's what we've talked about last year is we did adjust well certainly.

So two parts of the answer in relapse in respect of last few years.

Overlay of decisions.

We felt good about the approach.

And and in a sense, we did adjust our model from those overlays.

Reducing the pro cyclicality.

In an appropriate way.

Going forward. Your question is an interesting one as is.

Or are the models well calibrated to to predict the outcome of.

Unusual cycle like of sharp V shape that we saw last year.

And theyre not so of course of in any any sort of.

The market events, we spend time looking at our model of back testing of our model of figuring out what methodology adjustments there might be two more actual cash accurately capture.

Our forward looking view.

I'm not sure what that's going to leave us with in terms of changes of the models, but in fairness a.

A shape of recession like the one we lived in the last 12 months.

You would expect to be quite unusual.

Yes totally great. Thanks for that and a lot of what you've said over the past 12 months has been borne out so greatly appreciate your comments.

Thanks, Rob appreciate it.

As a reminder, if you wish to ask the question. Please press star followed by one at this time the.

Next question comes from the line of James Hyde with Pgi and fixed income. Please go ahead.

Hi, Ed Hi, James Hardie.

James I'm going to take for the.

Discussion with her.

Every quarter about the provisions, but this time Robert <unk> question is answered.

80% of what I wanted.

Just wanted to clarify.

There was a question about this on the main call Stuart Graham I think.

And this is table on page 31 of the report regarding the Moratoria.

Which shows that figure of.

$8 3 billion in one category eight two in another.

And then the government support measures.

And now <unk>.

Does this correspond to the thing that peaked at about 32 billion at one stage I was just wanted to understand that and then there is this.

Ex us a bit confusing, saying only $1 2 billion of Moratoria are still active.

Yes.

Can you.

Carlos what's really going on that.

Can you sort of compare where that 32 billion peak that you once gave move to just understand how much through the cycle of going.

Another question given your.

<unk> focus on commercial real estate.

I understand about the sectors the watching and you should know by airlines may be reasonably soon.

Will you have to keep sort.

Let's keep some generic kind of stage II type provisions for a long time for CRE.

Given the behavioral changes.

Clearly going to change take place.

And so.

It's almost in other parts of the Roberts question are you going to have to keep the higher level of stage two for a long time.

Yes.

Thanks, sorry, a bit non language.

Sure No worries James So I don't actually recognize the 32 billion number that youre, referring to so we may have to take that offline.

Make sure we align I believe the disclosure on page 31 relates to the current balances associated with with Moratoria, whether those moratoria were.

Whether they are today active or were once active.

To the point about where do we see this going we havent tip to.

To date <unk>.

The significant cliff effects upon the expiry of Moratoria, which I think of that is the the.

The question people are after.

It's just in the.

The ones that have expired, so far and advance some cases, even gone to voluntary and then the voluntary as expired we haven't seen a.

Dramatic deterioration in the portfolio performance.

We've also talked about per forbearance on specific loans.

And and that is included in the commercial real estate sector and our experience in those forbearance is has been quite good some have have extended and the forbearance periods at which of course is.

As a non of unusual experienced but we've also seen.

Benefits from forbearance as as you've seen projects for Abo doors recover and benefit from the from the forbearance actions that we took.

So if I had the FIFO of that all down we continue to be quite comfortable with those.

No again I'll call them Cliff edge risks in the portfolio of our not seeing adverse outcomes upon normalization of credit credit.

The extension condition.

Okay.

Thank you very much yeah, maybe all of our.

The correspond with Philip from the third.

$30 billion ish number on what that comparison.

That would be great and then all of the airlines by the way on the Phase II, yes.

The entirely possible of them to be expected that there may be.

The next more extended period of time for certain of all of course in stage two before full recovery.

And hopefully kind of the migration begins to turn.

In the coming quarters.

Great. Thank you very much thanks.

Yes.

The next question comes from the line of Jakob Li with Goldman Sachs. Please go ahead.

Hi, there.

Having the call.

As always very helpful.

The one question actually just going back to the.

The net legacy instrument.

The paper from BBA come out obviously.

Almost all of the.

Half of the year ago.

Cleared with the regulator, whether the clothing infection risk or not.

Are you able to share with us.

The outcome of that conversation.

Good day and another thing.

Hello, the mall or going back to the performance.

Well done first of all.

But then you got it all right now a little bit higher than probably what you where you want it to be with the second is clear.

All of the investment bank as the proportion of your revenue.

Here's the that Youre looking at about 30% now of a bit over.

The 40%.

<unk>.

Yes.

And I guess is the question a little bit more for rating agency, but when Youre speaking with them. You think you are actually hitting on those points that day.

The day expects Q2.

The outlook from the Fitch.

Fitch and S&P.

Both of those moving.

Not as high of getting tier two.

The idea of category.

Mike the question.

Thank you Echo.

I'll take the first and the last.

From an infection risk.

So much of direct need for engagement.

On the bilateral basis, it's a function of really the transposition into German most of the RV, which for us removes any potential of infection risk for the legacy instruments. So I think thats very clear.

On business mix.

It's interesting that the what.

What we think we were able to demonstrate this past quarter was the type of developments.

We have been.

<unk> in the private bank and the corporate Bank and also in asset management, where an ongoing improvement in those businesses profitability.

And particularly in private bank and corporate bank moving to a point, where they could grow revenues.

While continuing to have discipline on expenses just overtime improves the business mix for the firm so to your point revenues of the investment Bank days represents about 40% would it be natural as we've called for for a decline closer to 35% sure.

Sure.

And and that would be welcome in a sense.

We are we.

We don't mind the outperformance in the investment bank from time to time in and.

And the positive market conditions.

Such as we saw in Q1.

But we are we are we have been building the firm towards this.

The broader perhaps more balanced mix and we think we're making we're making good progress in that direction.

On the question of operating update.

<unk> said this a few times and do feel this way.

We've done significant work on the balance sheet through the year.

That's been changing the funding mix operating our deposit and risk models strong risk management from the period.

The strong sales towards deposit funding of the adoption of reliance on relatively expensive capital market funding.

Judicious use of excess liquidity that we that we had the SOCAR issuance of as you'll see through the ceiling in terms of.

The net negative issuers and so.

The significant balance sheet work that's been done over the course of the last year than we do think the ratings are somewhat lagging versus the significant work that we've done.

So it's very much of a hope that we do see an upgrade from time of gate.

Out of our head.

But suffice to say, we will continue executing of diligently we have and especially from a funding of capital markets. The spec to continue taking actions that are conducive towards a positive rating.

I hope the couple of them.

Yes. Thank you.

At this time there are no further questions I'd like to sort of tighten of for closing comments.

Thank you Emma and just the finished up thank you all for joining US today, you'll know where the IR team of if you have further questions and we look from a talk to you soon again goodbye.

Ladies and gentlemen, the conference has now concluded and you may disconnect. Your telephone. Thank you for joining and have a pleasant day goodbye.

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Good afternoon, good morning, and thank you Ron from joining us today, and we have made the change to the sequence of the fixed income Congress QUADRA.

Our group Treasurer Dixit Joshi of will lead you through the prepared remarks.

Excluding the summary of our quarterly results from moving to the coupon the treasury sector.

And the subsequent Q&A, you'll be continuing of having on CFO James from market with US couple of your questions together with the crews.

The slides that accompany the topics are available from download from our website at <unk> Dot com.

Before we get the Stanford and just want to remind you of the presentation may contain forward looking statements, which may not develop as the currently expected.

Therefore, please take note of the precautionary warning at the end of our materials with that let me handover to the COVID-19.

Thank you Philip and welcome from me we.

We have continued to deliver against our transformation milestones.

We are on or ahead of our expected timeline on all key measures.

We said at the Investor Deep dive in December we would focus on delivering sustainable profitability.

With revenue growth in the quarter up 14% to $7 2 billion euros, we demonstrated what this franchise is capable of.

We generated $1 6 billion of pre tax profit and 1 billion euros of profit after tax that's our best quarter in seven years, Despite our now smaller footprint.

The progress that we've made has increasingly won recognition in the financial markets and we are pleased with the outlook revisions of the ratings agencies over the last months.

We remain disciplined on capital risk and balance sheet management, and we successfully navigated several market events during the quarter.

And we were active in the capital markets in the first quarter with seven 5 billion euros of issuance, leaving us well positioned as we look to our funding plan for the rest of the year.

Moving now to slide three which summarizes the different outlook revisions of our credit ratings over the last months.

It was gratifying to see key stakeholders, recognizing our progress in the first quarter, both Fitch and S&P revised the outlook on our ratings from negative to positive.

This follows the revision to stable from Moody's back in November last year.

All agencies acknowledge the solid execution related to our transformation agenda.

Evidenced by strong revenue generation and overall financial performance.

We will continue to actively engage with the ratings agencies throughout the year as improving our ratings remains a key management focus.

Let us look at the summary of our financial performance for the quarter compared to the prior year on slide four.

We generated a profit before tax of $1 6 billion or $1 8 billion on an adjusted basis.

Total revenues for the group was $7 2 billion up 14% versus the first quarter 2020, and 33% versus the prior quarter.

Noninterest expenses were down 1% year on year.

We also saw an unexpected market event, which led to an additional contribution of 28 million euros to the German statutory deposit guarantee scheme in the quarter.

Our provision for credit losses decreased to 69 million euros or six basis points of loans.

Risks remain in the environment, but we expect full year provisions to be substantially below last year.

Our improved results are supported by growing revenues and our refocused business model as you can see on slide five.

We have grown revenues in our core bank by 12% of this quarter to $7 1 billion excluding.

Excluding specific items.

This growth has principally come from our investment bank, which has delivered strong performance in both fixed income and currencies, particularly in credit and origination and advisory.

Our corporate bank and private bank successfully offset headwinds with a combination of deposit re pricing and volume growth and we see rising momentum in these businesses.

Asset management delivered revenue growth boosted by transaction and performance fees.

Over the last 12 months that takes our core bank revenues to 25 billion euros, a 7% increase from the previous 12 month period.

<unk> of our 2022 ambitions.

In summary.

All of our core businesses have proven the strength of the franchises, putting our 2022 objectives well within reach.

Let us now look at how this translates into higher profitability on slide six.

Our relentless focus on delivering on our transformation agenda is reaching the bottom line.

We have seen a 75% year on year increase in our adjusted profit before tax in the core bank for the last 12 months to the first quarter.

In all four core businesses contributed.

At the same time, we continued to derisk in the capital release unit.

Nearly half of its pretax loss compared to the first quarter of last year.

Since we started our transformation strategy seven quarters ago.

We have substantially reduced the capital release unit losses.

We remain committed to minimizing the P&L impact of Derisking efforts by the unit and to our cost reduction plans.

Let us now turn to risk management on slide seven.

Strong risk discipline is the central pillar of our strategy across credit market liquidity and non financial risks.

Provision for credit losses was 69 million euros of this quarter or six basis points of average loans on an annualized basis.

Principally due to the improved macroeconomic environment.

We continue to manage a high quality and well diversified loan book with strong underwriting standards.

Robot and proactive risk management framework as well as dynamic collateral management.

We are also remain vigilant on concentration risk strict on risk appetite parameters and proactive in risk identification and management.

Our market risk management benefits from a dynamic hedging framework with daily stress testing and monitoring.

Our comprehensive nonfinancial risk controls contribute the robust crisis management practices.

And we continue to strengthen non financial risk management tightening our control environment and continuing to work on strengthening our anti financial crime capabilities.

Now, let us turn to the balance sheet.

Slide eight shows the summary of our net balance sheet, which excludes derivative netting agreements cash collateral as well as pending settlements.

We have made significant progress on our balance sheet transformation over the years.

We have reduced trading assets by around 90 billion euros, primarily reflecting our decision to exit equity sales and trading.

Trading assets now primarily consist of government bonds and short term secured financing assets in our repo book.

At the same time, we have grown our loans at the amortize cost by 25 billion euros low.

Loans now account for 45% of our net balance sheet with around half in Germany, primarily low risk mortgages.

Liquidity reserves continue to account for about a quarter of the net balance sheet.

We have also improved the quality of our liabilities and funding base.

While deposit remained flat we have optimized the quality of our deposit base as we reduce the reliance on short term wholesale funding and increased more stable retail and corporate deposits.

Low cost deposits continue being our main funding source now contributing almost 60% to our funding sources.

At the same time, our loan to deposit ratio of 76% provide sufficient room to prudently grow loan balances in coming periods.

Slide nine provides further details on the developments in our loan and deposit books over the quarter.

On an FX adjusted basis total loan growth in the quarter has been 4 billion euros predominantly in our private bank, where we have seen continued strong growth in mortgage and collateralized lending.

While we continue seeing repayments of credit facilities, and our corporate Bank trade finance is benefiting from the reopening of the global economy.

In the investment Bank quarterly loan development has been flat as the business continues targeted resource deployment, while keeping overall risk appetite on the control.

For the.

Of this year, we expect the overall positive trend to continue as our portfolio of credit facilities has by now reached a normalized pre COVID-19 level, while we see good demand across our client segments.

Looking at deposits, we continue seeing high savings rates across many European countries, resulting in 4 billion euros FX adjusted growth in the private bank.

In our corporate bank, we've seen temporary inflows in trust and agency services and some growth in cash management deposits that were subject to charging.

For the rest of the year, we expect total deposits to moderately reduce from current elevated levels as we continue implementing charging agreements.

Slide 10.

The substantial progress that we have made in passing through negative interest rates to our corporate and private bank customers.

At the end of the first quarter, we had charging agreements in place on a total of 95 billion euros of deposits generating quarterly revenues of 80 million euros.

At this current run rate, we are already achieving our charging related 2022 revenue target as we communicated at our December Investor day deep dive.

This positive revenue development is predominantly driven by significantly lower than expected deposit outflows as competitive take similar measures against the backdrop of continued negative euro interest rates.

We will now generate additional revenues by focusing on smaller client segments with currently lower coverage as well as by reviewing already granted thresholds for our existing agreements.

In the private bank, our key priority remains to actively engage with our customers and advise them on liquidity solutions and alternative investment products.

Deposit charging above 100000 euros is already in place from new accounts.

Until the end of the year we.

We will look to find individual solutions also for existing accounts across the German and international franchise.

Moving to slide 11, which highlights the development of our key liquidity metrics.

Our liquidity reserves remain at 243 billion euros with the majority held in cash and cash equivalents.

The cash component of the liquidity reserves temporarily increased as we were reducing the securities portfolio.

The prudent deployment of cash into high quality Securities remains a focus for us reflecting our commitment to further improve the composition of our liquidity reserves.

Our liquidity coverage ratio at 146% continue to comfortably exceed minimum regulatory requirements.

As we move forward with our transformation agenda.

We are well positioned to support business growth and lending as demand is picking up.

Therefore over time, we continue to manage our liquidity closer towards our targeted levels.

Turning to capital on Slide 12.

Our CET one ratio rose to 13, 7% during the quarter.

Benefiting from our strong first quarter net income.

This effect was offset by dividend and 81 accruals equity compensation effects and higher regulatory prudent valuation deductions.

Risk weighted assets rose from 329 billion to 330 billion during the quarter, but with 3 billion euros down excluding FX effects.

Notably additional hedging led to lower market risk of RW in operational risk <unk> benefited from further improvements in the internal loss profile.

These reductions outweighed higher credit risk of RW <unk>.

Including a 4 billion euro impact for large corporates following the receipt of a final from decision from the ECB.

Further risk weighted assets increases from regulatory and supervisory changes are expected to negatively impact the CET one ratio by approximately 80 basis points in the upcoming quarter.

Here, we see three main drivers.

First we expect the ECB to conclude its targeted review of internal models by issuing final decisions regarding leverage lending and for banks and financial institutions.

Second we expecting final ECB clearance of our implementation of the EBITDA guideline on definition of default.

And third we will implement revised <unk> calculations in response to CR to becoming effective end of the second quarter 2021 for example in relation.

The standardized approach for counterparty credit risk.

With our CET one ratio of 13, 7%.

At the end of the first quarter.

We have a buffer of 330 basis points over our CET one ratio requirement as shown on slide 13.

Principally due to our successful January 2021 tier two issuance the distance to the binding total capital MDA level increased quarter on quarter by 39 basis points.

Hence we remain in a comfortable position to absorb the upcoming RW of inflation that has been previously outlined.

Moving to slide 14.

Our fully loaded leverage ratio decreased by eight basis points to four 6% this quarter.

Of this decrease four basis points came from FX translation effects three basis points from increased trading volumes and net loan growth.

One basis point from negative capital effects.

Our pro forma leverage ratio, including ECB cash balances was four 2%.

In the second quarter of 2021, we expect an increase in leverage exposure of roughly 20 billion euros from the introduction of the standardized approach for counterparty credit risk as part of <unk> II.

We continue to operate with a significant loss absorbing capacity well above our requirements as shown on slide 15.

At the end of the first quarter, our loss absorbing capacity was 20 billion euros above the minimum requirement for eligible liabilities or <unk>, our most binding constraint.

The headroom is higher than originally expected at the single resolution Board has decided on 22nd March to continue with the Enbrel recognition of bonds issued under English law in contrast to prior guidance.

We expect our umbrella buffer to reduce later this year when the new ml requirement and the expected RW inflation become effective but we will continue to conservatively manage our buffer.

Even after accounting for the expected requirements change and regulatory inflation in the second quarter.

A remaining enbrel buffer of five to 10 billion euros would allow us to completely stop issuing new senior non preferred and senior preferred instruments for up to one year or alternatively allow us to absorb the further unexpected RW increase of almost 30 billion euros.

Moving now to our issuance plan on slide 16.

As you can see in the issuance and redemption summary of 2019 and 2020.

We continue to decrease our reliance on capital markets funding, including senior non preferred as we continue to restructure the balance sheet and optimize our funding sources.

Quarter on quarter, our senior non preferred debt has tightened by around 20 basis points in euros and U S dollars outperforming our peers by roughly 25 basis points on average.

We used this positive sentiment to issue had favorable spreads contributing positively to our financial goals through lower funding costs.

In the first quarter, we issued a total of $7 5 billion, mainly driven by six benchmark transactions in three currencies.

This enabled us to complete 50% of the lower end of our full year issuance target.

Which we now view of the likely requirement for 2021.

Earlier this month Moody's has released the request for comment on the updated lgs methodology we.

We expect the changes which are in line with our initial assessment to be implemented in the third quarter of this year.

This means that we do not expect any impact on our issuance plan for this year as a result of the Moody's lgs metric.

In March we raised a further $3 3 billion euros of funding from the Ecb's <unk> program, taking our total participation to around 41 billion euros.

While monitoring the next growth observation period from October 2020 to December 2021 closely we will use the residual <unk> participation windows to optimize our total K Cup and repayment schedule.

Given the advantage of Central Bank funding. It is likely that we will not issue. The three to 5 billion Euro covered bond issuances planned for 2021.

As mentioned earlier, we would guide you to the lower end of the 2021 issuance plan as a likely requirement for the full year based on current assumptions.

Turning to slide 17.

You can see highlights from a select number of transactions in the quarter.

Across all issuances, we saw strong and diversified investor demand.

On average our 2021 benchmark order books with three times oversubscribed and pricing continues to improve versus our peer group in.

In addition to successfully executing on our issuance plan. We will also able to make of vital contribution the Deutsche Bank sustainability and diversity agenda.

We launched our second Green Bond, which is also the inaugural senior preferred benchmark issue in U S dollars.

And we adopted a new syndicate structure for our most recent U S dollar senior non preferred issue.

For the first time 11, additional underwriters owned and led by diverse management teams joined Deutsche Bank Securities to underwrite the suffering.

The group of underwriters with selected to represent diverse missions, including certified service disabled veteran owned African American owned and women owned firms.

This is an important step towards creating a more diverse and inclusive financial industry and we will continue on the spot.

In conclusion.

On slide 18.

Our balance sheet remains low risk and well funded by highly stable sources as we look to our 2022 targets.

On revenues the improved trajectory in the core bank shows that we are operating at a level. That's put puts our goal is well within reach and we see continued momentum in our client franchise.

We are actively managing our cost to income ratio throughout 2022 target of 70%.

The ratings agencies of began to acknowledge our transformation progress via a positive outlook revisions and we continue to constructively engage with them as this remains a key priority.

We have been and will continue to be diligent on risk management our.

Our guidance for provision for credit losses is in a range of around 25 basis points of loans for the full year 2021.

We expect to prudently manage down our excess liquidity towards our target levels over time.

But given the attractive <unk> conditions, we are under no time pressure to do so.

As a result, we remain committed so 8% group post tax return on tangible equity target and our profit trajectory leaves us well positioned to achieve this.

With that let us move on to your questions.

Ladies and gentlemen at this time, we will begin the question and answer session anyone who wishes to ask a question May press star followed by one of their Touchtone telephone if.

If you wish to remove yourself from the question queue. You May press star followed by Q.

If you are using speaker equipment today, please lift the handset before making your selection.

Anyone you ask the question May Press Star followed by one at this time.

One moment for the first question please.

The first question comes from the line of Daniel David with Autonomous. Please go ahead.

Hi.

Thanks for the colon, taking my questions.

I'll just briefly touch on its touch from Moody's.

The question or comment the methodology, we use.

Wondering if you could provide a few more details on the impacts of expect some significant senior non preferred rating.

And the second question would be on your core strategy.

Outstanding legacy bonds in light of the recent call of the capital Trust Securities just a few more details on that would be great. Thanks.

Daniel Hi, good to have the of the call.

Let me take both of those on the first one regarding Moody's lgs the <unk>.

Six changes that were proposed as part of the ratings methodology of which we think to apply to us the fee.

First is the threshold to achieve a one notch reading uplift in the senior non preferred.

Net special gets lowered from 12% to 10% that's of tangible banking assets.

And the second is this benefit will be partially offset.

As the methodology now includes some balances legal entity balances into the tangible banking asset calculation, which had been previously removed.

We've looked at the methodologies, we have been engaged with Moody's it's our expectation that we will not see any change to our issuance plan as we've already made an assumption.

For 2021 in that respect.

So I hope that that's helpful.

On the second regarding the call decision, we've announced the call.

On the 20th April which is effective on the 27th of July.

This was the legacy tier two capital instruments, which loses its recognition capital recognition at the end of the share and Thats, primarily because its an SPV structure.

We factored that into our capital plan it becomes expensive funding from next year and so as.

As we've indicated before this call we will make an economic decision.

From this considering the the benefit of the structure of things the volume profile in regulation of treatment.

And that's what's driving the efficient the call.

Thanks, and just the second part is there anything for this rather on the.

The other securities that you guys funding can we read anything into the.

Yes.

To the extent that they qualify for regulatory capital.

Naturally we'd be keeping a close eye and then on the funding costs and the <unk>.

All of the profile so as always I mean, what's your.

You would expect us to do is again look at the economics of the time of call and I look at the replacement value of replacement cost of those instruments and then make a.

The call it at that point.

Great. Thanks, a lot.

The next question comes from the line of Lee Street with Citigroup. Please go ahead.

Hello, Thanks for taking my questions.

First the flow down a pretty good set of results for the first quarter.

Just the three from me firstly.

Looking ahead could you foresee a scenario where you.

You could consider sales engagement any form of significant M&A transaction within the next day.

Some of it could even be foreseen.

Secondly, obviously you've had quad.

Ongoing decline in leverage assets over the last few years such as that.

<unk> shrunk, obviously now you've got a lot of tail Taro, but then that may roll off I suppose the question over the next over the medium term what should be the general trend the leverage assets from the current level, we slightly higher slightly low.

And sorry, just to clarify on that Moody's Lgs comment in response to the last question.

I'm, sorry, you said you'd already packed and shipped plans, but should.

We shouldnt be expecting that you're writing changes either way is the consequence of the Moody's the proposal that's come out of that just to clarify that that'd be my three questions. Thank you.

So the exchange I'll take the first and ask the predictive tool to answer the second too we've been I think reasonably consistent in our statements about M&A.

Firstly that we do think there's industrial logic to consolidation in Europe.

But the secondly, our goal was to was to execute on our transformation strategy. So as to put the company in a better.

Better positioned to be able to engage in that process.

Both from a financial and strategic point of view.

And also by the way in terms of having our our internal operations and controls in the REIT space.

And so we continue to execute on that path.

I cant say when.

Opportunities will arise that makes sense of when we'll be ready, but our general view is that we will at a point in time, we expect to participate in consolidation of the European banking industry.

Hi. This is just the beyond the second end of the third and the second regarding leverage assets. We will continue to target the point of percent leverage ratio.

Which is reported EBITDA, we see leverage trend slightly lower.

Through the course of the Gen part.

Thats as a result of the transaction with BNP Paribas concerning the prime brokerage business.

We will continue to drive loan growth as you've been seeing but again over the in the context of <unk>.

A target of a point out the sent leverage ratio.

On the on the Lgs front no we're not expecting operating impact of the group level, though I'd reiterate what we said previously on the call that we didn't think of our ratings.

Overall, our lagging versus the enormous amount of work that we've done on our balance sheet and the efforts to give us the bank.

Ensure that we have strong buffers.

And adequate liquidity at all points and so.

The naturally we'd be hopeful that that would be more positive action on the rating from overtime. If we continue as we continue executing on our strategy.

Okay.

Hopefully very clear thank you very much.

Thanks, Nick.

The next question comes from the line of Paulson of the call with safety Generale. Please go ahead.

Hi can you hear me.

Yes.

Hi, Hi, good afternoon guys.

Thank you for taking my call a couple of my questions have already been answered but.

One hasnt on supply so you've got maybe another $10 billion to do for the remainder of the year.

Could you. Please I didn't quite get what it is that you said about enbrel supply at the backend of the year, maybe you could just.

Maybe you could just clarify that that also.

Tell us whether you intend to do another hybrid instrument I had a sense that you might do one tier tier two which you've already done plus another 81, given how much tightening of spreads on non wed love to get our centers of what Youre thinking of in terms of service one of the NPS. Thank you.

Sure.

It's not so much tenths of into the unit as I've mentioned that we've done seven 5 billion of issuance already year to date and looking at our trajectory for the rest of the year.

The prevalence of <unk> funding, which is being quite attractive.

We will come in at the lower end of the 15 to 20 billion the issuance range that we put out there.

We would likely to see the impact the as you do not have the need to do covered bond issuance for example through the course of this year so suddenly.

Don't expect.

As much of $10 billion from through to the end of this year.

In terms of Enbrel.

As you'll see we had net issuance through the course of this year, that's been quite intentional and we'd be managing that in the capital markets that will reduce our dependency on the capital markets through the year our.

Our lines of the deposit funding is much greater at more than 60% of all of our funding sources and we have also.

De Minimis.

Reliance on wholesale markets as well so that's been a deliberate strategy over the years to reduce reliance on wholesale funding as well as reduce our capital market issuance as well.

On the last point.

As always we would earmark.

And outline.

Best efforts, what we think we'll need to issues from the cause of this year with outline $2 billion to $3 billion of capital market issuance.

For 2021, we've done $1 billion in the quarter was the tier two issuance in the first quarter.

We want to manage towards a point out the sen leverage ratio.

Moving on market conditions, which we track very closely we would seek windows during which to issue a combination of tier one of the tier two instruments.

Hey.

We have optionality around the decision and.

And it will be driven partly by the market by market conditions at the tax so we're <unk>.

The markets very closely.

The next question comes from the line of Robert Smalley with UBS. Please go ahead.

Hi, good morning, and thanks, Thanks for the during this call.

First I guess, just a follow up on Paul's point on.

Potential issuance on.

<unk> and <unk>.

Would it be.

Given where you are from a regulatory point of view.

Would you look to do 81, two would it be the optimize the pizza.

Mark.

The composition or.

Is there something else that.

That would drive that that's my first question and second.

Going into the financial data supplement on page 14 on asset quality.

When I look at.

Stage, one two and three loans.

Stage three seems to be.

Pretty consistent for the last couple of quarters.

The to talk a little bit about that how you think thats been the break with an improving.

Economic environment, how much of that is idiosyncratic vs.

Troubled or identify the industry.

The other color around that would be greatly appreciated. Thanks.

Hi, and thank you for joining it's always on the on the 81 front.

In large part of it would be looking at the day recognition of any remaining low.

Legacy instruments that we have VIP patient from January of 'twenty two.

So that would be a consideration.

And the issuance of 81 of gross sales multiple purposes.

Moving allowing us to continue to meet our leverage targets and allow for business growth in that respect as well. So <unk> will be one of the effective tier one leverage would be the other as well so I hope that helps.

No.

Yes.

Okay.

On the on the stage III non we've seen a fair amount of stability.

You can see over the over the last four quarters there.

And I think thats encouraging given given the the.

The nature of the credit cycle that we went through.

It's always hard to say whether that will continue the plateau of stabilizing at around this level.

And when it comes down but in general our perspective has been that the the.

The sort of the severity of the credit cycle has been surprisingly benign given what we have lived through.

And the first quarter stage three numbers were quite encouraging to us there wasn't there wasn't a little bit of the net release on some names.

Sure.

Smaller level of new credit impairment of finance.

If that were to continue for the balance of the year, then, yes, I would expect the stage III in the begin to come down.

There are portfolios that we're watching carefully so I don't think were yet.

Completely out of the words on the COVID-19 related credit cycle.

The highlight of commercial real estate and aviation.

Factors that we're watching carefully obviously, we need to continue.

Being vigilant in our in our retail portfolio of spirit the <unk>.

By and large as you've heard of US comment on we are quite constructive about the the credit hour of given what we've seen so far in this very unusual cycle.

And if I could just follow up.

It is the strength of it isn't the unusual cycle, where we've had a huge downturn in rebound in GDP and employment, but credit quality and a lot of ways. The state stable what does that do for your modeling going forward.

And your model driven provisioning and how do you adjusted for that.

Well, that's what we talked about last year is we did adjust well certainly.

So two parts of the answer in relapse in respect of last years.

Overlay decisions.

We felt good about the approach.

And and in a sense, we did adjust our model of two those overlays.

Reducing the pro cyclicality in an appropriate way.

Going forward. Your question is an interesting one as is or the model well calibrated to to predict the outcome of.

Unusual cycle leg of sharp V shape that we saw last year.

And theyre not so of course of any any sort of.

The market events, we spend time looking at our model of back testing of our model of figuring out what methodology adjustments there might be two more actual cash accurately capture.

Our forward looking view.

I'm not sure what that's going to leave us with in terms of changes of the models, but in fairness a.

A shape of recession like the one we listen to the last 12 months, you would expect to be quite unusual.

Yes totally great. Thanks for that and a lot of what you've said over the past 12 months has been borne out so greatly appreciate your comments.

Thanks, Rob appreciate it.

As a reminder, if you wish to ask the question. Please press star followed by one at this time the net.

Question comes from the line of James Hyde with Pgi EM fixed income. Please go ahead.

Hi, Hi, James Hardie.

James I'm going to take full of the.

The discussion with the hard every quarter about the provisions, but this time Roberts question his answer.

The 80% of what I wanted.

Just wanted to clarify.

There was a question about this on the main call like Stuart Graham I think.

And this is table on page 31 of the report regarding the Moratoria.

Which shows the figure of.

$8 3 billion and one category eight two in another.

And then the government support measures.

And the.

First of all the buses correspondence to the thing that peaked at about 32 billion at one stage I was just wanted to understand that and then there is this.

Ex us a bit confusing, saying only $1 2 billion of Moratoria are still active so.

Yes.

Can you tell.

What's really going on that.

Can you sort of compare where that 32 billion peak that you wont gave move to just understand how much through the cycle of going and then another question given your strength focus on commercial real estate.

I understand about the sectors be watching on you should know by airlines may be reasonably soon.

Will you have to keep sort of keep some generic kind of stage II type provisions for a long time for CRE.

Given the behavioral changes.

Clearly going to change take place.

And so.

It's almost in other parts of the Roberts question are you going to have to keep the higher level of stage two for a long time.

Thanks, sorry, a bit non linkage.

Sure No worries James So I don't actually recognize the $32 billion number that youre, referring to so we may have to take it offline to make sure. We align I believe the disclosure on page 31 relates to the current balances associated with with Moratoria, whether those moratoria.

We are whether they are today active or were once active.

To the point about where do we see this going we haven't.

To date <unk>.

Seen significant cliff.

The effects of <unk>.

From the expiry of Moratoria.

I think of that is the the.

The question people are after.

And the ones that have expired, so far and it might in some cases, even gone to voluntary and then the voluntary as expired we haven't seen.

Dramatic deterioration in the portfolio of performance.

We've also talked about per forbearance on specific loans.

And that is included the commercial real estate sector and our experience in those forbearance is has been quite good some have had extended in the forbearance periods at which of course is.

As a non of unusual experienced but we've also seen.

Benefits from forbearance as as you've seen projects for other doors recover and benefit from the from the forbearance actions that we took.

So if I had the fiber all of that all down we continue to be quite comfortable with those.

Again, I'll call them Cliff edge risks in the portfolio of Theyre, not seeing adverse outcome upon normalization of credit credit.

Our extension condition.

Okay.

Thank you very much yeah, it might be all.

The correspond with Philip on the $30 billion ish number on what our competitors.

Thanks, a lot of if you could that would be.

Great and then all of the airlines by the way on the stage two yes.

Its entirely possible of them to be expected that there may be.

Sure.

The next more extended period of time for sort of all of course in stage two before full recovery.

And hopefully kind of the migration begins to turn.

In the coming quarters.

Great. Thank you very much thanks.

Yes.

The next question comes from the line of Jakob Li with Goldman Sachs. Please go ahead.

Hi, there.

Having the call.

Always very helpful.

The one question actually just going back to the.

Unfortunate legacy instrument.

The paper from BBA come out obviously.

The Ottoman almost.

Of the half of the year ago.

Cleared with the regulator, whether the clothing in section of it or not.

Are you able to share with us the.

Some of the conversation.

Good day and another thing.

Hello, a bit more of going back to the performance.

Well done first of all.

Blood flow than you guys are the right now a little bit higher than probably what you where you wanted to be with respect to this clear of the investment bank as the proportion of your revenue the U S.

Here's that youre looking at about 30% now of a bit over 40%.

<unk>.

You bet.

And I guess is the question a little bit more for rating agencies.

When Youre speaking with them you think you are actually hitting on those points.

The day expect Q2, I mean, youre on the positive outlook from the pit.

The in F&B. Thank you what is the.

Both the Adobe moving.

Not as high of getting here.

The category.

It will be my two questions.

Thank you Niccolo.

I'll take the first and the last.

On the infection risk.

So much of direct need for engagement.

On the bilateral basis, it's a function of really the transposition into journalism of the DRP, which for us removes any potential of infection risks for the legacy instruments. So I think thats very clear.

On business mix.

It's interesting that the what.

What we think we were able to demonstrate this past quarter was the type of developments.

We have been.

<unk> in the private bank and the corporate Bank and also in asset management, where.

The ongoing improvement in those businesses profitability.

And particularly in private bank and corporate bank moving to a point, where they could grow revenues.

While continuing to have discipline on expenses.

Just over time improves the business mix from the firm so to your point revenues of the investment Bank days represents about 40% would it be natural as we've called for for a decline closer to the 35% sure.

And and that would be welcome in a sense.

We are we.

We don't mind the outperformance in the investment bank from time to time in.

And the positive market conditions.

Such as we saw in Q1.

But we are we are we have been building the firm towards this.

Broader perhaps more balanced mix and we think we're making we're making good progress in that direction.

On the question of operating of.

We've said this a few times and do feel this way.

We've done significant work on the balance sheet through the year.

Whether thats been changing the funding mix operating our deposit and risk models strong risk management from the period.

The strong tilt towards deposit funding of the reduction on the alliance on relatively expensive capital markets funding.

Judicious use of excess liquidity that we that we had to soak up issuances as you'll see from the ceiling in terms of net.

The negative issuance and.

So a significant balance sheet book, that's been done over the course of the last year than we do think the.

Earnings are somewhat lagging versus the significant work that we've done.

So it's very much of a hope that we could see an upgrade from time gave guidance largely out of our hand.

But suffice to say, we'll continue executing of diligently we have and especially from the funding and capital markets. The spec to continue taking actions that are conducive towards a positive rating.

I hope the couple of it.

Yes. Thank you.

At this time there are no further questions I'd like to sort of price now for closing comments.

Thank you Anna and just the finished up thank you all for joining US today, you'll know where the axiom of share further questioning anvil of product talk to you soon again goodbye.

Q1 2021 Deutsche Bank AG Earnings Call (Fixed Income)

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