Q2 2021 Deutsche Bank AG Earnings Call (Fixed Income)

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Yes.

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And.

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Ladies and gentlemen, welcome and thank you for joining the Q2.2021fixed income call.

Throughout today's recorded presentation, all participants will be and.

When you moved.

The presentation will be followed by a question answer session.

If you would like to ask a question you May press star followed by 1 on your touch tone telephone.

Please press the Star key Philip I zero for operator assistance.

And I would now like to turn the conference over to Philip Toys and Ah. Please go ahead.

Thank you Hany and good afternoon and good morning.

Good day.

On the call our group treasurer and to congestion and he will speak from and walks you through our prepared remarks.

After the presentation would be to take your questions for which we all go in and for our CFO and same for market with us.

Listen and bags and that accompany the topics are available for download from our website at <unk> com.

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

And therefore, please take note of the precautionary warning at.

At the end of our materials.

With that let me hand over to Dixit.

Thank you Philip and welcome from me.

We are now over halfway through our transformation journey and we have continued to deliver against our milestones.

For the second consecutive quarter. This year, we have achieved significant profit improvement driven.

By growing strength across our businesses.

Despite a more normalized market environment and the quarter revenues remained robust demonstrating the regain franchise strength at Deutsche Bank.

As you heard from Christian and James on Wednesday, We also continued to make progress on costs.

We reduced our adjusted costs.

Excluding transformation charges and reimbursements for Prime finance from for 8 to 4 and a half billion euros year on year.

And we continue to invest in the execution of our transformation agenda with more than 90% of our transformation projects now and the implementation phase.

They are key contributors.

<unk> to our cost reduction progress.

The headway, we made across all businesses and the second quarter reinforces our confidence that we will be able to meet our profitability targets.

And our achievements were also recognized by the ratings agencies, all of which have upgraded their outlooks over the last 9 months.

And by now we have completed around 80% of our funding plan for the year based on the lower end of the 15 to 20 billion range, we communicated previously.

Let us now turn to a summary of our financial performance for the quarter compared to the prior year on slide 2.

We generated a profit before tax of $1.2 billion or $1.4 billion on an adjusted basis.

Total revenues for the group was $6.2 billion down 1% versus the second quarter 2020.

Net interest income has declined by 143.

3 million euros versus the prior quarter as the 1 offs, we flagged and April have normalized.

The resulting net interest margin held broadly steady at 1.2%, but we expect this to trend down slightly as the remaining rate pressures feed through.

We expect the net interest margin to stabilize.

Eyes at slightly over 1%.

While rates have been volatile in recent months, we planned on a conservative basis and still see a modest tailwind to the numbers, we shared with you at the Investor deep dive in December.

Turning to costs noninterest.

Expenses were down 7.

<unk> percent year on year.

Our provision for credit losses stood at 75 million euros or 7 basis points of loans for the quarter.

At the end of this quarter.

For our 2 became effective in Europe, which introduced and amended certain liquidity or WH and leverage measures.

Notable changes with the introduction of the net stable funding ratio or NSF or <unk>.

And revisions to the RW, a calculation for certain exposures like investment funds and a minimum value commitments.

Where we saw material changes I will refer to them during.

During the presentation.

We also took this as an opportunity to revise our disclosures in order to make them more comparable across the industry.

In line with our previous guidance, we saw a decrease and our CET 1 ratio to 13, 2%, which was mainly driven by regulatory items, which I will discuss.

Cash later, partially offset by net income generated in the second quarter.

Our leverage ratio has increased to 4.8% up 15 basis points compared to the previous quarter.

And our liquidity and funding remains strong both measured via the liquidity coverage ratio and.

And the net stable funding ratio.

We feel comfortable with the current NSF, our level of 121%, which I will describe more later move.

Moving now to slide 3 which shows that our successful execution is increasingly visible.

Revenues and the core bank for the second quarter of the year.

And at <unk>.

$6.2 billion euros down only 1% on the year.

And as we guided to at our first quarterly results. This is in line with the market normalization and seasonality we expected. Despite an additional impact of approximately 100 million euros from the German federal court ruling on.

On consent for changes to consumer contracts referred to as the bgh ruling.

Revenues and the investment bank at $2.4 billion euros down from the same period in 2020, as a strong performance and credit trading and financing, partly offset more normalized volumes in core rates emerging markets.

Exchange.

Both our corporate and private bank successfully offset headwinds with either continued deposit repricing or business growth. Despite some unexpected headwinds for the private bank in particular.

Asset management delivered revenue growth for yet another quarter.

Boosted by management fees and strong inflows.

The beginning of our transformation strategy 2019, showing significant revenue improvement.

In summary.

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

And for now.

Let us now turn to costs on slide 4.

As we told you when presenting our Q2 results on Wednesday, we reduced adjusted costs, excluding transformation charges and the reimbursable items for Prime finance for another quarter.

2.4 and a half billion euros.

We continue.

Continue to strongly advocate for a reduction and the size of the single resolution Fund, which would result in lower bank levies. However, we now expect this to remain unchanged for next year.

Together with higher than expected contributions to the German statutory deposit protection scheme. These.

These unforeseen <unk>.

Sternal items are now expected to add approximately 400 million euros to our expense base.

As previously discussed we do not believe it is sensible to further constrained investment spending to offset these externally drove and expenses.

On the cost items, we can control we are keeping our absolute.

Absolute cost discipline and focus and the second quarter has shown that we are in full control. Despite the fact that volume driven expenses and control investments represent some pressure.

To offset this pressure we are introducing a series of new cost reduction initiatives, including further work force optimism.

Cash and accelerating real estate reductions further systems rationalization and streamlining internal processes.

Against this background, we reaffirm our commitment to the 70% cost income ratio target.

Supporting our cost to income.

Ratio target, we now expect revenues to be better than we discussed at the investor deep dive.

Just on the resilience, we have delivered and the first half of the year business growth and and easing of interest rate headwinds.

Moreover, we now see provision for credit losses, and a range of around 20.

Basis points of average loans in 2021.

Head of our previous guidance and we expect some of this benefit to carryover into 2022.

The bottom line impact of both of these factors.

Alps has offset the cost headwinds and we continue to remain committed to and 8%.

Return on tangible equity in 2022.

Let us now turn to profitability on slide 5.

We delivered a 92% year on year increase and our adjusted profit before tax and the core bank for the last 12 months through the second quarter.

And once again.

All 4 core businesses contributed and and either in line or ahead of their plan so far.

At the same time.

We have substantially reduced the capital release units losses in the cause of our transformation.

Once again, we are ahead of our plan for Derisking and we remain committed to minimizing.

<unk> the P&L impact of deleveraging efforts by the unit.

Let me now turn to underlying shareholder returns on slide 6.

We remain committed to our 8% return on equity target for 2022, and we see a clear path to debt goal.

For the first half of 2021 the group reported.

For today, 6.5% post tax return on tangible equity.

This would be 7.6% when adjusted for transformation related effects.

And 9.2%, excluding the impact of certain external factors outside of our control such as the bgh ruling.

And the decision to increase the size of the single resolution fund.

In the core bank, we are already in line with our 2022 target with a 9% post tax return on tangible equity on a reported and 10% on an adjusted basis, even before the impact of the unforeseen factors.

This level of profitability combined with a robust capital position gives us confidence that we are and the right path towards our ambition to return capital to shareholders from 2022 onwards.

With that let me now turn to risk management on slide 7.

Okay.

As you know strong risk discipline is a central pillar of our strategy across credit market liquidity and nonfinancial risks.

Provision for credit losses was 144 million euros, this half year or 7 basis points of average loans on an annualized basis.

We continue.

<unk>, a high quality and well diversified loan book with strong underwriting standards and we remain vigilant.

Our exposure towards focus industries aviation leisure and non food retail remains contained with around 2% of our loans at amortized costs and we expect related C. L.

2 men to be slightly below the levels, we observed in 2020.

In addition, we are managing our commercial real estate exposure to tight lending standards with regular stress testing to assess its sensitivity and resilience.

Both our market and non financial risk controls and contribute to robust risk.

Pes treatment practices.

Importantly, we continued to strengthen nonfinancial risk management. This is of the highest priority for management and we have made significant investments and improving our controls over recent years.

At the same time the demands on anti financial crime continue to grow not just.

Manage a bank, but for the entire banking sector.

Therefore, we announced a fundamental reorganization of our AFC function to become more effective more flexible and more holistic.

Moving now to slide 8 which shows a summary of our net balance sheet.

Which excludes derivative netting agreements cash collateral as well as pending settlements.

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

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

For Deutsche low cost deposits remain our main funding source contributing almost 60% to our funding mix.

At the same time, our loan to deposit ratio of 77% provides sufficient room to prudently grow loan balances in coming periods.

Slide 9.

And provides further details on the developments and our loan and deposit books over the quarter.

On a FX adjusted basis loan growth and our core businesses has been 9 billion euros.

This is again been predominantly driven by our private bank, where we saw high client demand for mortgages and collateralized lending products.

While we have also seen good loan growth and our investment bank.

And our corporate bank, we continue seeing repayments of credit facilities, which largely were offset by further T. L. T. R O eligible loan growth in business banking.

Overall, we expect continued loan growth in the second half of the year.

Looking at deposits, we have seen an increase of 4 billion euros and the quarter, mostly from our retail franchise for.

For the rest of the year, we expect deposits to remain broadly flat as targeted growth measures will be largely offset by outflows from further expanding our deposit charging as we will discuss.

Cash on the next slide.

Slide 10.

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

At the end of the second quarter, we had charging agreements in place on a total of 110 billion.

And of deposits generated quarterly revenues of 93 million euros.

At this run rate our charging revenues this year are well in excess of our 2022 targets communicated to you at our December investor Deep dive.

And our corporate bank.

Quarterly revenues increased by $11 million to 85 million euros predominantly as a result of lowering charging thresholds on already existing charging agreements.

At the same time, we are pleased with the progress we've made to rollout new charging agreements in particular.

And as banking and expect this to continue.

Furthermore, we are also seeing strong momentum and our private bank.

For the first time, we've seen the highest growth of implemented charging agreements coming from our German and international retail franchises.

Simply reflecting current industry trends.

We are particularly pleased with the progress and our German retail bank, and which we implemented individual charging agreements on around 9 billion euros of deposits.

For the rest of the year, we expect growth and charging agreements to increasingly feed through to revenues as the initiatives continue to ramp up.

Les and bitter bgh ruling will have no material impact on our deposit charging strategy for the German retail bank.

While these are encouraging results. We expect continued compression in retail deposit margins as ongoing interest rate headwinds can only be partially offset at this point.

Moving to slide 11, which highlights the development of our regulatory liquidity requirements.

As mentioned earlier, we are introducing the net stable funding ratio in line with the general data of application in June 2021, and we will now published this quarterly going forward.

And the liquidity coverage ratio, we know Shaw with stock of high quality liquid assets or <unk>, replacing the earlier liquidity reserves measure as this provides greater comparability across the industry.

Together high quality liquid assets and available stable funding comparable.

Complement each other and highlight the development and the resilience of both the short term liquidity and structural longer term funding profile of the firm.

The liquidity coverage ratio remained stable and the second quarter and at 143%. It continues comfortably exceeding its regulatory.

Amit.

High quality liquid assets increased quarter on quarter, primarily driven by deposit increases and additional participation in the Ecb's DLT Arrow III program.

Increased net cash outflows arising from derivatives activities and higher loan commitments.

Require in line with our business activities and offset increases in HQ early during the quarter.

As a result, we close with the surplus above regulatory requirements of 67 billion euros slightly lower quarter on quarter.

Liquidity will be prudently manage towards targeted levels over.

<unk>.

Turning now to our net stable funding ratio.

The execution of our strategic transformation supported our goal of maintaining a stable funding profile as demonstrated in the second chart.

Less reliance on short term wholesale funding highest stable retail deposits.

Time will cost DLT Aero funding contribute to a net stable funding ratio comfortably above minimum regulatory requirements.

Overall, we ended the quarter with a net stable funding ratio of 121% and a buffer of 102 billion euros above minimum regulatory requirements.

Customer deposits will continue to be our main source of funding contributing the majority to our funding sources complemented by debt issuances as well as capital.

Turning to capital on Slide 12.

Our CET 1 ratio decreased to 13.

And low and 2% during the quarter broadly in line with the expectations we outlined in April.

This reflects a decrease of approximately 70 basis points due to risk weighted asset inflation from trim decisions and the Cri to go live which was 10 basis points less than our previous guidance.

14 for risk weighted assets rose from 330 billion euros to 345 billion euros during the quarter, a 15 billion euros increase on an FX neutral basis of which 18 billion euros are attributable to our <unk> inflation.

First we.

<unk> <unk>, our last outstanding trimmed decisions, namely for leverage lending and for financial institutions and banks.

Reducing our CET 1 ratio by approximately 45 basis points. This brings the trim program for Deutsche Bank to an and.

Second.

<unk> took effect.

We were at 28 June reducing our CET, 1 ratio by 25 basis points.

Business, driven RW rate changes and the quarter for rather moderate.

Credit risk and operational risk RW a.

And <unk> quarter on quarter, reflecting net loan growth and some extra.

On to losses entering our calculation.

Market risk and credit valuation adjustment or CVA R. W. A came down.

Reflecting continued hedging and the gradual phase out of the most volatile 2020 COVID-19.

In periods from our market data history.

Looking at the balance of the year.

We now see a remaining net impact of approximately 20 basis points on the CET 1 ratio from further regulatory items, such as the new EBITDA guidelines on the definition of default the implementation of which was delayed and is now expected to follow in the second half of the year.

Within this 20 basis point guidance, we also reflect benefits expected from completing our remediation efforts on certain ECB historical findings.

As before the.

The ultimate timing and magnitude of these regulatory items remains uncertain and subject to final ECB decisions.

But we see no deviation from our long term trajectory and we remain committed to a CET 1 ratio greater than 12.5%.

All in all we expect to end the year with a CET 1 ratio of around 13%.

As shown on slide 13, the reduction and our CET.

So quarter on quarter is correspondingly reduced our buffer over the CET, 1 ratio requirement, which now stands at 275 basis points.

And the combined 81 and tier 2 bucket, our may 81 issuance compensated for the RW and increase as.

1 recall of a tier 2 instrument.

Our distance to regulatory requirements.

Of now 9 billion euros remains at a comfortable level.

Moving to slide 14.

Our fully loaded leverage ratio increased by 15 basis points to 4.8% this quarter.

Quarter.

Our leverage ratio continues to exclude ECB cash balances given the Ecb's 18 June announcement, which extends this exclusion and 12.31 March 2022.

Of the 15 basis points quarterly ratio increase for.

14 basis points came from tier 1 capital.

Well as the notably our 81 issuance.

Our leverage exposure remained flat with net loan growth offset by higher ECB cash balance exclusions.

The pro forma leverage ratio, including ECB cash balances was for 3%.

Under CR are too.

Capital a minimum leverage requirement of 3% became applicable for the first time this quarter.

And as a result of the exclusion of certain cash balances. This minimum requirement is raised to $3.2 3% until 31st March 2022.

With our leverage ratio of 4.8% at the end of the second quarter.

2 we have a comfortable buffer of 154 basis points over our leverage ratio requirement.

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

At the end of the second quarter our loss absorbing.

Albion capacity was 21 billion euros above the minimum requirement for eligible liabilities oresme morale and our most binding constraint.

We expect our umbrella buffer to reduce later this year. Once we received the new R. W. E based MRO requirement from the SRV.

We will continue to conservatively manage our umbrella buffer at a level, allowing us to pause issuance of new ambarella eligible instruments for up to a year.

Moving now so issuance plan on slide 16.

Last quarter, we showed a total of $4.9 billion euros, taking our year to date issue.

Issuance volume close to 12 billion euros.

The quarter on quarter change was mainly driven by 3 benchmark bonds, all of which was significantly oversubscribed on account of solid investor demand.

The first transaction was a 1.25 billion 81 security, which was more than 4 times oversubscribed, allowing us to.

For price at a coupon of 4.6% to 5%. This marks the lowest coupon of all our 81 securities.

Later in May we issued a 2 and a half billion dollar dual tranche senior preferred and senior non preferred transaction. Both tranches, so strong investor demand particular, particularly the senior non preferred security.

And <unk>, which with an order book of $8.3 billion was more than 5 times oversubscribed.

Looking at the total year to date issuance volume at the end of the second quarter, we've already completed 80% of the lower end of our full year issuance target.

We reiterate our statement from last quarter.

We view the low end of the range is the likely requirement for 2021.

The balanced maturity profile over the coming years.

It provides us with flexibility in terms of future issuance plans and allows us to continue decreasing our reliance on capital markets funding as we continue to optimize the balance sheet and funding.

<unk> says.

On slide 17.

We showed the performance of our various debt securities versus our peer group.

Together with consistent execution of our strategic plan, we have taken measures to optimize our funding activities, including substituting deposits for capital markets funding.

And being sold reducing wholesale funding managing our maturity profile and performing liability management on selected securities.

All these measures have allowed us more flexibility in managing our funding needs reduced our dependency on capital markets funding and have contributed to the spread tightening that you see on the slide.

And we are committed to continue managing our balance sheet efficiently.

In conclusion on slide 18.

Our balance sheet remains low risk and well funded by highly stable sources.

On revenues the improved trajectory in the core bank.

<unk> debt, we are operating at a level that puts our goals well within.

Each and we see continued momentum and I'll try and franchise.

We remain focused on diligent cost management, notwithstanding the unforeseen and controllable items, which led to our target adjustment for 2022, we.

We do not think it is prudent and to stop the company of investments to offset these items.

Within however, our 2021 pre tax profit expectations have improved over the course of the year, despite higher expenses, reflecting stronger revenues and lower credit provisions.

As discussed we have revised our guidance for provision for credit losses to around 20 basis points of loans for the.

Full year 2021, and we see a positive trajectory if current trends persist.

We reiterate our target of a CET 1 ratio greater than 12.5%.

And we continue to target a leverage ratio of approximately 4 and off per cent.

Our top priorities remain.

Managing to the 8% return on tangible equity ambition and to a 70% cost to income ratio.

With debt.

Let us now move onto your questions.

And ladies and gentlemen at this time, we will begin the question and answer session.

Anyone who wishes.

Wishes to ask a question May press star followed by 1 on net Touchtone telephone.

If you wish to remove yourself from the question queue, you May press star for the bite you.

If you license speaker equipment today, please at the handset before making your selection.

Anyone who has a question May press star followed by 1 at this time.

And the first question comes from the line of Jacob <unk> of Goldman Sachs. Please go ahead.

Hi, there thank you for having the call.

And for questions from me please.

And other third day, 1 day, 1 all of the same guidance.

Total net.

And our rating agency.

So for in the near term are hard to discussions with other rating agencies going and and use our you know regarding Moody's it's been about 2 and a half months.

And the last rating action and so what's going to be and sort of are you now.

Any update there.

And what do you feel it and more and the medium term and the rating agencies would you still say that your priority is a and I think that that would be reported before the priority is to maintain and I G rating at a senior non preferred level.

And so that will be the first question.

Yes.

So yes, yes.

All of them and then you hold you'll recall.

Yes, please keep going and then I'll, let Chris.

Sure so on AUR.

A little bit.

Finally from now but 6 per se.

And you haven't necessarily called out.

And.

And where are you actually you know what do you consider pre funding debt later this year.

You know so you know obviously debt funding conditions are fairly support if so would you consider actually.

Maybe locking in some of the spreads right now and there aren't angles and little bit of and access.

Due to the Navy and the future retire all day and all the.

The capital instrument.

Any color you know for the degree that you can comment would be very helpful.

The next question you know I know again, a little bit.

But what are you thinking you know for issue and for 2020.2.

1 reason.

And why I'm asking is because again you know our last year and you already for pre funding a portion of it.

You know and the H 2 so again and we expect that happening.

And how far ahead, you are with your plan and finally I know, it's there and just a small residual.

You know the amount that you guys pass and use them and whatnot and.

And so much time on this but you know although for the remaining free legacy Securities and you've got they're a coupon and you have and afterwards, you know where you're pushing.

And create the proportion of and I guess it bright deposits.

Are there any other economic.

Patients beyond the coupon rate that they have and you know like swaps or whatever they're maybe debt we should actually.

And take into account or because again you know you are very comfortable with your liquidity. So it seems like it's actually becoming expenses at the end of this year. So.

That's all for me thank you.

They are from high and and <unk>.

Thank you and a run for all of those have I missed anything just.

And just remind me solar from the ratings agencies front.

The review for upgrade was published by Moody's in May.

Provision.

Since the day with a precise date for when you will see the conclusion of that but based on.

And the Moody's methodology.

For years normally and conducted within 3 months.

With some variability depending on the specific nature of the review so sort of a base case would be 3 months for me, which would be middle.

<unk> no.

Regarding our expectations that we have.

Said repeatedly that the improvement of our ratings.

Is a key focus and will remain a key focus for our management team.

And the actions that we take around our balance sheet. The continued execution of our restructuring.

All will be conducive towards a better rating.

We have said before that we do think that our ratings are lagging.

Significant progress that we've made.

Nevertheless, we're also happy that offer agencies have amended the outlook and the last year, but.

But we would hope that that's a start.

And then there'll be further recognition coming as well.

Continue to manage the balance sheet very diligently, whether that's liquidity and funding credit risk management market risk management and optimization of our funding.

And that focus remains relentless and as you've now seen as profitability and capital generation start.

And coming through as a result of our restructuring as well so we do hope that.

These measures this implementation and this execution will be recognized by <unk>.

The agencies, but for day count offer any more color regarding the timing.

Sure.

Second question.

About whether we plan to maintain the <unk> rating, yes, very much. So so the actions we've taken and I'll come back to that when I speak to the issuance plan.

And the actions we take will.

Not only look at our regulatory metrics whether thats.

<unk> NSF, our LCR and so on but also with a keen.

And I to ensuring that we protect our rating that's been a focus for us throughout and we will continue to be a focus for us going forward.

Regarding 2022 issuance.

Little early to say typically we'd give color when we announced that for Q4 earnings at the end of January beginning of February next year.

And.

And we have a better idea around the trajectory of our balance sheet and some of the needs that we might have.

That said, we have $12 billion of contractual maturities coming up next year.

As a comparison, we have issued already 12 billion in the first half of this year alone and.

And I'm pretty comfortable position the balance sheet restructuring over the last few years that we've done.

Reducing the capital markets footprint that we have had ensuring that we run a life maturity profile and manageable maturity profile through time, all give us significant optionality I think with managing the timing.

Of our issuances. So it's been hard to give you any color around pre funding as you pointed out and something that we did do last year and the fourth quarter at.

And it remains an option for us this year, but.

We will remain non-committal on debt will be watching spreads of course pretty keenly between now and and of the year.

And so given the maturity profile next year, we're under no compulsion.

To pre fund should that not be economic for us.

Regarding the.

KOL decisions and more broadly than just the 6% Euro 81 coming up and April next year, you also mentioned.

And the other 3 securities that we have.

To put the legacy instruments and context, we have about 17 billion of combined tier 1 and tier 2 instruments of which around $1.1 billion on our legacy So it's really small and the overall scope of our issuance activities.

But just to say, we bake in any likely court decisions into our glide path into our planning.

And into our issuance plans for the next year.

We'll always start with and we've been pretty clear on this before we'll always start with the economics of the transactions I E. The replacement cost.

But where there is a backend back and swap rate, we would look at where current and secondaries are trading versus any likely reset and then we would make a decision on the on the April 1 very early to say given markets could fluctuate and.

And will fluctuate between between now and then.

Yeah.

Did I answer all your questions.

Yes, yes, thank you very much.

My pleasure.

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

Hi.

Thanks for taking my questions and thanks for doing the call.

3.

Current topics.

And 1 of them to follow up.

First on loan demand on slide 9.

Clearly, it's coming from a private bank and investment bank.

Number 1 do you see.

Corporate bank loan demand coming back and the second half of the year.

Where do you think it would come from.

And.

What concerns do you have that.

Most debt.

This demand would be from more inferior credits.

Good.

Given the.

The good credit quality that we've seen so far.

My first question second on the slide on issuance.

You've got.

The issuance plan.

Ones and tier twos 2 to 3 for this year you've done too.

Is it fair to say that.

If you were to do something at all it would be in that and the 81 space as opposed to the tier 2 space given your activity there already.

And my third question is.

It's about the banks business and exposure and Italy.

I think that.

We've seen political stability there.

Better budget influx of Covid funds much.

Much more positive news flow coming out of Italy would you talk about across the board.

Deutsche Bank businesses their exposure there.

<unk>.

<unk>.

And and.

Also <unk> and Italian security investment and the HQ la portfolio.

And really where you see all of that with respect to the company and Italy going forward.

Thanks.

<unk> Hi, it's James I'll take the first and and Dixit likely the second and maybe we'll both have comments to make on the third.

First of all on on loan demand, you're absolutely right as you can see and the quarter.

The growth came from private bank and investment Bank, we did see some loan growth late in the quarter and the corporate bank, but it doesn't show.

Up on the quarterly comparison.

And our expectation is that that will continue into the third quarter the second half.

So we're encouraged by the initial signs of what we've seen.

As you may have heard others comment as well on balance we've been surprised.

And Thats.

Robert relatively tepid loan loan demand up until now, but we do see that changing.

Although it's early days.

Don't see us chasing and figure credits there to grow the loan book.

We've I think commented pretty consistently that where we have our lending standards.

And and risk appetite.

And we're disciplined about that risk appetite that we are looking at ways. We can grow the book, but we don't see that and any way is chasing inferior credits or that there is a sort of and adverse selection bias and the marketplace is.

Things as we read it.

Yes.

Robert this.

And as Dixit here on the on the issuance front.

Tier 1 and <unk>.

Pointed out we've come in under so far this year.

Versus all planned issuance for the year.

And you seem though the strong demand for 81 that we issued and the earlier part of the day.

And with $1 billion and accordingly, and.

And we could have done.

I think significantly larger size so.

Had we chosen.

As you know.

Whether it's from and MRO perspective or.

Enbrel or any of the other regulatory metrics we have.

We remain in a pretty robust position right now.

And we're under no compulsion.

To rush for the issuance. So I do think we have.

And degree of Optionality between now and then of the year.

Should we see spread developments that are conducive.

And.

It is a consideration, but it's something that we will remain open to but it's not something.

Something that we're forced to do between now and year end.

Just on Italy, before I hand over to James on Italy as well.

On HQ and law.

We remain conservative and much of our <unk> really level, 1 and we have very little level to exposure.

We've been conservative around other duration.

Which meant about a concentration whether that's by country.

And by issuer or looking at liquidity characteristics and.

Net conservatism will remain with us going forward and it's and part of why you see the large liquidity reserves that we tend to hold and then we have tended to hold through time.

<unk> net and Robert I would add on Italy, and look we are obviously, we have a significant strategic commitment, Italy with our indigenous business and that market as a consequence of the size of that balance sheet, we manage carefully to what we refer to as the cross border risk into Italy.

And it's reviewed.

He currently.

And the exposures and managed across our franchise, which is really.

All of the businesses that are present in the market and is fix it referred to also the investment book.

Youll see the exposure.

Data in the pillar 3 and.

And a few weeks time I'd say.

What youll see there remains pretty consistent with the past, we haven't we haven't sort of been.

Moving that around but is at a level that we're very comfortable with especially as you say given the current environment that has been unfolding and Italy.

That's great. Thank you for those answers if I could.

For follow up on the Middle question just utility versus.

Utility of at <unk> 81 versus the tier 2 at this point between now and the end of the year. It seems that you would get more bang for the Buck from and 81.

And just broke and between.

And now and year end and we will be reviewing issuance plans for next year and must remain non committal on this at this stage, it's a little early to say as I was mentioning.

Spreads will play a big and and that so when they say tier 1 tier 2 otherwise.

Together with replacement costs for <unk>.

Ones that are maturing or coming up with call.

And it would be spread developments, which will drive some of our decision, making as you can imagine any pre funding that gets done and comes with many many more months of accrual cost.

Which will need to be balanced against spread savings overall over the turn of the instrument.

Hope that.

That's helpful.

Yes. It is.

And again, thanks for doing the call.

The next question is from the line of Corinne Cunningham of Autonomous. Please go ahead.

And 2 questions from me please and.

First 1 just on Enbrel and you mentioned the basis.

This is going to change and can you just give us an update on when youre not HB and publishing net.

And the climate and in Russia.

Roughly.

And any changes you're expecting net and.

And second 1 is on the NSX <unk> and.

And you mentioned it.

Your line of Covid.

Publication now.

When I look at and how you and if so far has made out and there's a big chunk of MTR iced tea and CRE 3 and the.

If you remove that you you probably below your requirements you know and obviously you've got the benefits of it now, but how do you think about that and your planning.

And then the last 1 is on the bgh ruling and.

There was a German court ruling this week, saying that comex trained definitely illegal and.

And I think.

1 of your peers and said that they would expect and bigger damages payable and what are you thinking about what that ruling.

<unk>.

Potential liabilities you Sir thank you.

Current hi, I'll take the first 2 and James.

Lost.

And on Enbrel as you see we we currently have a 21 billion surplus very comfortable starting point.

And we tended to.

Manage our regulatory measures quite conservatively.

We also factory and any roll off.

Through time, and so that's baked into our issuance plans as well.

We don't have.

When you Emerald requirements at this stage.

Expected at some point in the third and fourth quarter of this year.

And but we do know that the change to B R. W. E. Based methodology will result in a smaller surplus on umbrella and for 21 billion and that we have but still very comfortable with.

And my view when post debt adjustment and that's certainly the basis on which we have been planning.

And increasingly the way.

And we start thinking about the <unk>.

Morale surplus that we run is in terms of the number of months debt potentially we could stay out of the capital markets.

And forego issuance of both senior non preferred and senior preferred instruments.

And in this case, we think as I've said in my prepared remarks and up to a year.

All being being out of the capital markets, that's kind of what our Enbrel surpluses would allow so.

We continue to run the measure quite conservatively, we're quite comfortable with where we are we've factored in.

Our expectation of our new requirements and as you see going forward.

Our issuance needs as well quite well balanced over the next year with $12 billion of maturing issuances.

And as far the bulk of our about 75%.

Our funding needs our available staple funding comes from deposits.

As well as capital I E.

Longer term stable capital and.

It's already to begin with debt puts us in a pretty significant sort of a good strong position for funding.

Regarding <unk> TLC.

TLC are about half of our <unk> balances against liquid collateral I E.

It's fairly easy to replace should we so choose.

So.

Very comfortable in my mind.

I don't know if you want to cover and assets.

And you would cover both.

So on the bgh drilling it's obviously early days since that ruling.

Initial read is it did not change.

And <unk> are materially impact, our fact pattern, which as you've seen and our disclosure.

We've been at pains to point out that we had not participated inactive comex.

Activities of our own.

And.

And are on where we stand and in our progress we do not read this ruling is having a significant impact on our fact pattern.

Yes.

Thank you for Ed.

Okay.

The next question is from the line of Mclean is to close that of Morgan Stanley. Please go ahead.

Thank you very.

How much can you actually hear me well.

Yes, we can okay. Okay lovely.

For the quite short questions. Please so for my first 1 is on your slide 12, and I guess.

1 day, whether you're prepared to kind of from them.

And split Tibet trim.

And.

And CLO impact also into you know just how much of it in the second quarter was related to Levered lending. So that's question number 1 question number 2 really.

Slide 17 and of course, we've talked about your improved ratings also on the on the call and what your expectations are and my question is kind of slightly.

So how would you see that you know that's improved the ratings trajectory as a from a perspective of revenues and how and how that trajectory can effectively kind of age of business, particularly within the within the investment bank from here and my third 1 you know given that it's Friday.

And frankly, and we are likely to share the news in a couple of hours time.

Your expectations on the stress test.

Thank you.

Hi.

I'll take some of those and then James is as well.

From <unk>, we would've typically breakout the leverage lending specifically, but.

<unk> provision of risk weighted asset inflation that you see in the quarter 12 billion was from true.

And 6 billion was from the combined effect of all of the Crs 2 measures across our across our portfolio.

From a ratings perspective.

That's absolutely right over time with and improved rating, we do see our funding costs continued to grind lower <unk> senior debt over the last few years not just spread development, but also we've been successfully able to reduce the expected volumes that we would need to take to market through reducing wholesale.

The ending.

Judicious optimization of our balance sheet increases and operational deposits versus non operational increases.

Increases in retail deposits all of the balance sheet measures that we've been taking have been conducive to reducing our volume volume.

Volume as needed, but also we've seen the spread development and so 1 is I.

I do think over time, our funding costs would continue to grind grind lower.

Together with together with debt, we do have clients for whom ratings would be quite sensitive and I think market share gains would accrue as a result, with an improved rating, but James may want to speak to that.

Okay, I think Magdalena, we're and helps the most is and markets counterparties, where their internal rules.

Have ratings limitations and so we saw that on the way down there was a there was sort of measurable lost revenues and we do expect to be regaining some of those revenues over time with with.

Ratings improvements.

Some of that as you may have heard and earlier commentary from US has started to happen based on.

Our clients and counterparties anticipating or taking their own independent view on our income improving credit which.

Which is encouraging but of course, the external validation of.

The credit picture is as valuable and.

And there is another client set for whom it's valuable.

<unk>, which is our essentially corporate customers and the cash management business, where.

And where we think it will also be helpful and perhaps to a lesser extent and wealth management so and.

Any client group, where there is rating sensitive.

<unk>, we would we would generally think theirs.

Net of an uplift.

And on EBITDA.

The other.

It's too early without the disclosure having happened. Its later today to make really make any sort of narrow comments broad comments I'd make is first of all the scenario is.

And here.

And so building as it does on a recession year in 2020 and not really having an upturn at the end of the period is 1 typically sees and the stress scenarios.

I guess secondly, as is the case and the EBITDA methodology, it's a static balance sheet and.

So 2 and.

And accent is backward looking.

Also for us given from a profitability perspective, the step off year is 2020.

It Hasnt doesn't yet fully reflect I think sustainable profitability that we're building and that we've demonstrated now and the first half of 2020.1.

And.

Yes, so I think those would be the reflections we have.

Again, we wait the the results eagerly and and look forward to engaging with you and the market. Once we've been able to assess the results I don't know index. It. If you have anything you want to add to that.

Thank you.

Great. Thank you very much.

As a reminder, if you wish to ask a question. Please press star followed by 1 on your telephone keypad.

And the next question comes from the line of Christy <unk> of Barclays. Please go ahead.

Good afternoon, hi, Thanks, Thanks for the question and thanks for.

And that's always just 1 from me on capital.

Capital generation capacity and can you.

<unk> had a lengthy period of restructuring coming to an end and.

And the regulatory headwinds as well as some still coming through obviously, there's just some clarity around what does it look like over the next 1 for 2 years and much of it just interested given capital, it's been sort of volatile and up and down over the last 2 years.

And what you would consider on a steady state basis.

The other target for an anticipated capital generating capacity, you know either quarterly or annually just trying to get a sense of what that sort of organic underlying capacity is from from the group going forward. Thanks.

Christy Hi, maybe I'll kick off and then.

And then I'll hand over to James.

We have committed to the 12, 5% as we've mentioned before.

Minimum CET, 1 level and so.

That will be.

And important consideration for us going forward.

We are coming to I would say the first and of the first wave of large regulator.

Inflation, we saw 70 basis points of inflation and the first half of the year as you know the 10 basis points from what we previously indicated carried forward into the second half with potential additional 10 basis points coming so another 20 basis points, but in aggregate over the last 2.3 years it does bring us through the <unk>.

Tail end of this first wave of Reg inflation.

And we're also putting behind us and a significant chunk of our restructuring severance and transformation costs as well and you are now starting to see this come through and our organic capital generation, which has just begun as well. So you know again and it underpins the capital return and targets that we've had.

<unk> that we've outlined before.

But we're firmly committed to the 12, 5% through the cycle.

Thanks, David and I.

I would have said exactly the same thing I would also point you to the <unk>.

The plan that we shared with the market at the December Investor Deep dive suggested profit.

And for our <unk> target of $4.5 billion euros as Dixit says we.

We would look to have a distribution that meets the the promise to the market from July 19 of $5 billion over time.

We would also I think be and a more multi dimensional world.

And it terms of being able to support growth with retained earnings as I say distribution.

And.

I think being a very different world to where we've lived for the past several years in as Dixit says and this and this regulatory inflation environment.

But the anchor point as Dixit mentioned is.

World and the capital ratio that that meets or exceeds the targets we've set out.

That's great. Thank you very much.

And there are no more questions at this time I would like to come back to Philip tightened and for closing comments.

Thank you Haley and just to finish and thank you Ron from joining US today you know.

Has there been arguments if you have further questions and we look for months to talk to you soon again and goodbye.

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

And we're in the ICU.

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Thank you Haley and good afternoon.

Good morning, and and.

Joining us today.

On the call our group Treasurer and takes adjusted he will speak fast and walk you through our prepared remarks.

After the presentation and we need to take our questions for which we also have a and CFO and Shane from market with us.

The slides that accompany the topics.

And I'll go for download from our website at <unk> com.

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

And therefore, please take note of the precautionary warning at the end of our materials.

With.

And I'm available, let me hand over to Dixit.

Thank you Philip and welcome from me.

We are now over halfway through our transformation journey and we have continued to deliver against our milestones for.

For the second consecutive quarter. This year, we have achieved significant profit improvement driven by growing strength across our businesses.

Despite a more normalized market environment and the quarter revenues remained robust demonstrating the regained franchise strength at Deutsche Bank.

As you heard from Christian and James on Wednesday, We also continued to make progress on costs.

We reduced our adjusted costs, excluding transformation charges and reimbursements.

For Prime finance from for 8 to 4 and a half billion euros year on year.

And we've continued to invest in the execution of our transformation agenda with more than 90% of our transformation projects now and the implementation phase.

They are key contributors to our cost reduction progress.

The headline.

We made across all businesses and the second quarter reinforces our confidence that we will be able to meet our profitability targets.

Our achievements were also recognized by the ratings agencies, all of which have upgraded their outlooks over the last 9 months.

And by now we have completed around 80%.

<unk> funding plan for the year based on the lower end of the 15 to 20 billion Euro range, we communicated previously.

Let us now turn to a summary of our financial performance for the quarter compared to the prior year on slide 2.

We generated a profit before tax of 1.

2 billion euros.

For $1.4 billion euros on an adjusted basis.

Total revenues for the group was $6.2 billion down 1% versus the second quarter 2020.

Net interest income has declined by 143 million euros versus the prior quarter as the 1.

And 1 offs, we flagged and April have normalized.

The resulting net interest margin held broadly steady at 1.2%, but we expect this to trend down slightly as the remaining rate pressures feed through.

We expect the net interest margin to stabilize at slightly over 1%.

While rates have been volatile in recent months, we planned on a conservative basis and still see a modest tailwind to the numbers, we shared with you at the Investor deep dive in December.

Turning to costs noninterest.

Expenses were down 7% year on year.

Our provision for credit.

Losses stood at 75 million euros or 7 basis points of loans for the quarter.

At the end of this quarter CR are 2 became effective in Europe, which introduced and amended certain liquidity RW ey and leverage measures.

The most notable changes with the introduction of the net.

Stable funding ratio or NSF are.

And revisions to the RW, a calculation for certain exposures like investment funds and a minimum value commitments.

And where we saw material changes I will refer to them during the presentation.

We also.

As an opportunity to revise our disclosures in order to make them more comparable across the industry.

In line with our previous guidance, we saw a decrease and our CET 1 ratio to 13, 2%, which was mainly driven by regulatory items, which I will discuss later, partially offset by net.

And so to come generated in the second quarter.

Our leverage ratio has increased to 4.8% up 15 basis points compared to the previous quarter.

And our liquidity and funding remains strong both measured via the liquidity coverage ratio and the net stable funding ratio.

And we feel.

Net inflow with the current NSF, our level of 121%, which I will describe more later move.

Moving now to slide 3 which shows that our successful execution is increasingly visible.

Revenues and the core bank for the second quarter of the year.

Stand at $6.2 billion euros down only 1% on debt.

And as we guided to at our first quarterly results. This is in line with the market normalization and seasonality we expected to.

Despite an additional impact of approximately 100 million euros from the German federal court ruling on consent for changes to consumer contracts referred to.

As the bgh ruling.

Revenues and the investment bank, our $2.4 billion euros down from the same period in 2020, as a strong performance and credit trading and financing, partly offset more normalized volumes and core rates emerging markets and foreign exchange.

Both our corporate and.

Bank successfully offset headwinds with either continued deposit repricing or business growth. Despite some unexpected headwinds for the private bank in particular.

Asset management delivered revenue growth for yet another quarter boosted by management fees and strong inflows.

And private the beginning of our transformation strategy in 2019, showing significant revenue improvement.

In summary.

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

Let us now turn to costs on slide 4.

As we told you when presenting our Q2 results on Wednesday, we reduced adjusted costs, excluding transformation charges and the reimbursable items for Prime finance for another quarter or.

2 for and a half billion euros.

We continue to strongly advocate for a reduction and the size of the single resolution fund, which would result in lower.

Your bank levies. However, we now expect this to remain unchanged for next year.

Together with higher than expected contributions to the German statutory deposit protection scheme.

These unforeseen external items are now expected to add approximately 400 million euros to our expense base.

For as previously discussed we do not believe it is sensible to further constrained investment spending to offset these externally drove and expenses.

On the cost items, we can control, we are keeping our absolute cost discipline and focus and the second quarter has shown that we are in full control. Despite the fact.

Volume driven expenses and control investments represent some pressure.

To offset this pressure we are introducing a series of new cost reduction initiatives, including further work force optimization accelerating real estate reductions further systems rationalization and streamlining.

Debt varnell processes.

Against this background, we reaffirm our commitment to the 70% cost income ratio target.

Supporting our cost to income ratio target, we now expect revenues to be better than we discussed at the investor deep dive.

Based on the resilience, we have delivered and the first half of the year business growth and and easing of interest rate headwinds.

Moreover, we now see provision for credit losses, and a range of around 20 basis points of average loans in 2021.

Ahead of our previous guidance and we expect some of this benefit.

And if it to carryover into 2022.

The bottom line impact of both of these factors helps us offset the cost headwinds and we continue to remain committed to and 8% return on tangible equity in 2022.

Let us now turn to profitability.

<unk> on slide 5.

We delivered a 92% year on year increase and our adjusted profit before tax and the core bank for the last 12 months for the second quarter.

And once again all.

All 4 core businesses contributed and either in line or ahead of their plan so far.

Same time, we have substantially reduced the capital release unit losses in the course of our transformation.

Once again, we are ahead of our plan for Derisking and we remain committed to minimizing the P&L impact of deleveraging efforts by the unit.

Let me now turn to underlying shareholder returns.

On slide 6.

We remain committed to our 8% return on equity target for 2022, and we see a clear path to debt goal.

For the first half of 2021, the group reported a 6.5% post tax return on tangible equity.

This would be 7.6.

6% when adjusted for transformation related effects.

And 9.2%, excluding the impact of certain external factors outside of our control such as the bgh ruling and the decision to increase the size of the single resolution fund.

And the core bank, we already in line with our.

We need to target with a 9% post tax return on tangible equity on a reported and 10% on an adjusted basis, even before the impact of the unforeseen factors.

This level of profitability.

And bind with a robust capital position gives us confidence that we are and the right.

<unk> 'twenty trust towards our ambition to return capital to shareholders from 2022 onwards.

With that let me now turn to risk management on slide 7.

As you know strong risk discipline is a central pillar of our strategy across credit market liquidity.

<unk> per nonfinancial risks.

Provision for credit losses was 144 million euros, this half year or 7 basis points of average loans on an annualized basis.

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

<unk>, our exposure towards focus industries aviation leisure and non food retail remains contained with around 2% of our loans and amortize costs and we expect related C. L piece to be slightly below the levels, we observed in 2020.

In addition, we are managing our commercial.

Our real estate exposure to tight lending standards with regular stress testing to assess its sensitivity and resilience.

Both our market and nonfinancial risk controls and contribute to a robust risk management practices.

Importantly, we continued to strengthen nonfinancial risk management.

Commercial this is of the highest priority for management and we have made significant investments and improving our controls over recent years.

At the same time the demands on anti financial crime continue to grow not just for Deutsche Bank, but for the entire banking sector.

Therefore, we announced a fundamental reorganization.

AFC function to become more effective more flexible and more holistic.

Moving now to slide 8 which shows a summary of our net balance sheet, which excludes derivative netting agreements cash collateral as well as pending settlements.

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

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

Low cost deposits remain our main funding source contributing almost 60%.

Our funding mix.

And at the same time, our loan to deposit ratio of 77% provides sufficient room to prudently grow loan balances in coming periods.

Slide 9.

Provides further details on the developments and our loan and deposit books over the quarter.

To on a FX adjusted basis loan growth and our core businesses has been 9 billion euros.

This is again being predominantly driven by our private bank, where we saw high client demand for mortgages and collateralized lending products. While we have also seen good loan growth and our investment bank.

And our corporate bank we continue.

<unk> seen repayments of credit facilities, which largely were offset by further T. L. P. R O eligible loan growth in business banking.

Overall, we expect continued loan growth in the second half of the year.

Looking at deposits, we have seen an increase of 4 billion euros and the quarter.

And from our retail franchise.

For the rest of the year, we expect deposits to remain broadly flat.

Targeted growth measures will be largely offset by outflows from further expanding our deposit charging as we will discuss on the next slide.

Slide 10.

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

At the end of the second quarter, we had charging agreements in place on a total of 110 billion euros of deposits generated quarterly revenues of 93 million.

<unk>.

At this run rate our charging revenues this year are well in excess of our 2022 targets communicated to you at our December investor Deep dive.

And our corporate bank.

Quarterly revenues increased by $11 million to 85 million.

It's predominantly as a result of lowering charging thresholds on already existing charging agreements.

At the same time, we are pleased with the progress we've made to rollout new charging agreements in particular and business banking and expect this to continue.

For.

We are also seeing strong momentum and our private bank for.

For the first time, we've seen the highest growth of implemented charging agreements coming from our German and international retail franchises, principally reflecting current industry trends.

We are particularly pleased with the progress and our German retail bank.

Inc, and which we implemented individual charging agreements on around 9 billion euros of deposits.

For the rest of the year, we expect growth and charging agreements to increasingly feed through to revenues as initiatives continue to ramp up.

The bgh ruling will have no material.

The impact on our deposit charging strategy for the German retail bank.

While these are encouraging results, we expect continued compression in retail deposit margins.

Ongoing interest rate headwinds can only be partially offset at this point.

Moving to slide 11.

Which highlights the development of our regulatory liquidity requirements.

As mentioned earlier, we are introducing the net stable funding ratio in line with the general data of application in June 2021, and we will now published this quarterly going forward.

On the liquidity coverage ratio.

Kevin We know Shaw with stock of high quality liquid assets for <unk>, replacing the earlier liquidity reserves measure.

As this provides greater comparability across the industry.

Together <unk>.

High quality liquid assets and available stable funding complement each other and highlight.

So the element and the resilience of both the short term liquidity and structural longer term funding profile of the firm.

The liquidity coverage ratio remained stable and the second quarter and at 143%. It continues comfortably exceeding its regulatory requirement.

High quality liquid assets increased quarter on quarter, primarily driven by deposit increases and additional participation in the Ecb's DLT Arrow III program.

Increased net cash outflows arising from derivatives activities and higher loan commitments were in line with our.

Business activities and offset increases in <unk> during the quarter.

As a result, we close with the surplus above regulatory requirements of 67 billion euros slightly lower quarter on quarter.

Liquidity will be prudently manage towards targeted levels over time.

Yeah.

Turning now to our net stable funding ratio.

The execution of our strategic transformation supported our goal of maintaining a stable funding profile as demonstrated in the second chart.

Less reliance on short term wholesale funding highest stable retail deposits.

And low cost DLT arrow funding control.

W..2 a net stable funding ratio comfortably above minimum regulatory requirements.

Overall, we ended the quarter with a net stable funding ratio of 121% and a buffer of 102 billion euros above minimum regulatory requirements.

Customer deposits.

<unk> will continue to be our main source of funding contributing the majority to our funding sources complemented by debt issuances as well less capital.

Turning to capital on Slide 12.

Our CET 1 ratio decreased to 13, 2% during.

During the quarter.

Broadly in line with the expectation we outlined in April.

This reflects a decrease of approximately 70 basis points due to risk weighted asset inflation from trim decisions and the Cri to go live.

Which was 10 basis points less than our previous guidance.

Risk weighted assets rose from 330 billion euros to 345 billion euros during the quarter, a 15 billion euros increase on an FX neutral basis of which 18 billion euros are attributable to our <unk> inflation.

First we.

And our last outstanding trimmed decisions, namely for leveraged lending and for financial institutions and banks.

Reducing our CET 1 ratio by approximately 45 basis points. This brings the trim program for Deutsche Bank to an and.

Second.

Crs 2 took effect.

We were at 28 June reducing our CET, 1 ratio by 25 basis points.

Business, driven our WH changes and the quarter were rather moderate.

Credit risk and operational risk RW a.

And <unk> quarter on quarter, reflecting net loan growth and some external.

And 2 losses entering our calculation.

Market risk and credit valuation adjustment or CVA RW a came down.

Reflecting continued hedging and the gradual phase out of the most volatile 2020 COVID-19.

In periods from our market data history.

Looking at the balance of the year.

We now see a remaining net impact of approximately 20 basis points on the CET 1 ratio from further regulatory items, such as the new EBITDA guidelines on the definition of default the implementation of which was delayed and is now expected to follow in the second half of the year.

Within this 20 basis point guidance, we also reflect benefits expected from completing our remediation efforts on certain ECB historical findings.

As before the.

And the ultimate timing and magnitude of these regulatory items remains uncertain and subject to final ECB decisions.

See no deviation from our long term trajectory and we remain committed to a CET 1 ratio greater than 12, 5%.

All in all we expect to end the year with a CET 1 ratio of around 13%.

As shown on slide 13, the reduction and our CET.

1 ratio quarter on quarter is correspondingly reduced our buffer over the CET, 1 ratio requirement, which now stands at 275 basis points.

And the combined 81 and tier 2 bucket our may 81 issuance compensated for the <unk> increase as.

Well as the call of a tier 2 instrument.

Our distance to regulatory requirements of.

Now 9 billion euros remains at a comfortable level.

Moving to slide 14.

Our fully loaded leverage ratio.

Increased by 15 basis points to 4.8% of this.

Yeah.

Our leverage ratio continues to exclude ECB cash balances given the Ecb's 18 June announcement, which extends this exclusion until 31st March 2022.

Of the 15 basis points quarterly ratio increased 14 basis points came from tier 1 capital.

Capital, notably our 81 issuance.

Our leverage exposure remained flat with net loan growth offset by higher ECB cash balance exclusions.

The pro forma leverage ratio, including ECB cash balances was for 3%.

Under CR at.

And to a minimum leverage requirement of 3% became applicable for the first time this quarter.

And as a result of the exclusion of certain cash balances. This minimum requirement is raised to 323% until 31st March 2022.

With our leverage ratio of 4.8% at the end of the second quarter.

We have a comfortable buffer of 154 basis points over our leverage ratio requirement.

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

At the end of the second quarter our loss absorbing.

<unk> was 21 billion euros above the minimum requirement for eligible liabilities or <unk>, our most binding constraint.

We expect our Emerald buffer to reduce later this year. Once we received the new R. W. E based MLR requirement from the SRP.

And we will continue to conservatively manage our umbrella buffer at a level, allowing us to pause the issuance of new enbrel eligible instruments for up to a year.

Moving now to our issuance plan on slide 16.

Last quarter, we issued a total of $4.9 billion euros, taking our year to date.

The issuance volume close to 12 billion euros.

The quarter on quarter change was mainly driven by 3 benchmark bonds, all of which was significantly oversubscribed on account of solid investor demand.

The first transaction was a 1.25 billion 81 security, which was more than 4 times oversubscribed, allowing us to.

The price at a coupon of 4.6% to 5%. This marks the lowest coupon of all our 81 securities.

Later in May we issued a 2 and a half billion dollar dual tranche senior preferred and senior non preferred transaction. Both tranches, so strong investor demand particular, particularly the senior non preferred security.

Which with an order book of $8.3 billion was more than 5 times oversubscribed.

Looking at the total year to date issuance volume at the end of the second quarter, we've already completed 80% of the lower end of our full year issuance target.

We reiterate our statement from last quarter.

And that we view the low end of the range as the likely requirement for 2021.

The balanced maturity profile over the coming years.

It provides us with flexibility in terms of future issuance plans and allows us to continue decreasing our reliance on capital markets funding as we continue to optimize the balance sheet and funding.

And he says.

On Slide 17, we show the performance of our various debt securities versus our peer group.

Together with consistent execution of our strategic plan.

We have taken measures to optimize our funding activities, including substituting deposits for capital markets funding.

And being sold reducing wholesale funding managing our maturity profile and performing liability management on selected securities.

All these measures have allowed us more flexibility in managing our funding needs and reduced our dependency on capital markets funding and have contributed to the spread tightening that you see on the slide.

We are committed to continue managing our balance sheet efficiently.

In conclusion on slide 18.

Our balance sheet remains low risk and well funded by highly stable sources.

On revenues, the improved trajectory and the core bank.

<unk> debt, we are operating at a level that puts our goals well within.

Within reach and we see continued momentum and our client franchise.

We remain focused on diligent cost management, notwithstanding the unforeseen and non controllable items, which led to our target adjustment for 2022, we.

We do not think it is prudent to stop the company of investments to offset these items.

However, our 2021 pretax profit expectations have improved over the course of the year, despite higher expenses, reflecting stronger revenues and lower credit provisions.

As discussed we have revised our guidance for provision for credit losses to around 20 basis points of loans for the.

Full year 2021, and we see a positive trajectory if current trends persist.

We reiterate our target of a CET 1 ratio greater than 12.5%.

And we continue to target a leverage ratio of approximately 4 and half per cent.

Our top priorities remain.

Managing to the 8% return on tangible equity ambition and to a 70% cost to income ratio.

Debt.

Let us now move onto your questions.

Ladies and gentlemen at this time, we will begin the question and answer session.

Anyone who wishes to.

Ask the question May Press Star followed by 1 on net Touchtone telephone.

If you wish to remove yourself from the question queue, you May press star for La <unk>.

If he likes and speaker equipment today, please at the handset before making your selections and.

Anyone who has a question May press star followed by 1 at this time.

And the first question comes from the line of Jacob <unk> of Goldman Sachs. Please go ahead.

Hi, there thank you for setting Nicole.

And for questions from me please.

And other third take 1 day, 1 and just all of the same guidance.

Total net.

Rating agency.

So for in the near term are hard to discussions with other rating agencies going and and use our you know regarding Moody's it's been about 2 and a half months Ah.

And the loss of taking action, so what what's going to be sort of.

Any update there.

You feel it and more and the medium term and the rating agencies would you still say that your priority is.

And I think that that will get us solidly for the priority is to maintain and Iga.

And with that level.

So that will be the first question.

Yes.

So yes.

All of them and then you'll you'll recall.

Yes, please keep going and then other.

Sure so on AUR.

A little bit.

Finally from now but 6 per <unk>.

And you haven't actually called for Ya.

And what month.

And where are you actually you know what do you consider pre funding debt later this year.

You know so you know obviously debt funding conditions are fairly support if so would you consider actually.

Maybe locking in some of the spreads right now and they don't even have a little bit of and access.

You know that the navy and the future retire all day and all the capital instrument.

Any color you know for the degree that you can comment there would be very helpful.

The next question you know I know again, a little bit ahead, but.

Or are you thinking you know for Asia and for 2020.2.

And.

And why I'm asking is because again you know last year I believe you already were pre funding a portion of it.

You know and the H 2 so so again and we expect that happening and given how far ahead you are with your plan and finally I know, it's a small residual.

And you know amount and do you guys pass and use them and when I spend too much time on this but you know.

Although remaining free and legacy securities and you've got them. They have a coupon and you have and afterwards, you know where you are.

Pushing for it.

And the proportion of and I guess, it right deposits and.

Are there any other economics.

Beyond the coupon rate did they have any like swaps or whatever theyre maybe debt.

And we should actually.

And take into account or because again you know you are a very.

Comfortable with your liquidity so it seems like it's actually becoming expenses at the end of this year. So.

That's all for me thank you.

They are from high and and <unk>.

Thank you and I'll run through all of those if I missed any just a blip.

Just remind me solar from the ratings agencies front.

The review for upgrade was published by Moody's in May.

Provide.

And you with a precise date for when we will see the conclusion of that but based on.

And the Moody's methodology.

Views normally conducted within 3 months.

With some variability depending on the specific nature of the review so sort of a base case would be 3 months for me, which would be by the middle.

All of August.

Regarding our expectations that we've said repeatedly that the improvement of our ratings.

As a key focus and will remain a key focus for our management team.

And the actions that we take around our balance sheet. The continued execution of our restructuring.

What all will be conducive towards a better rating.

We have said before that we do think that our ratings are lagging the significant progress that we've made.

Nevertheless, we're also happy that offer agencies have amended the outlook and the last year, but we would hope that that's a start.

And that there'll be further recognition coming as well.

Continue to manage the balance sheet, very diligently whether thats liquidity and funding credit risk management market risk management and optimization of our funding.

And that focus remains relentless and as you've now seen as profitability and capital generation start.

And through as a result of our restructuring as well so we do hope that day.

These measures this implementation and this execution will be recognized by <unk>.

The agencies, but for an account offer any more color regarding the timing.

Sure.

Second question.

And coming about whether we plan to maintain the <unk> rating, yes, very much. So so the actions we've taken and I'll come back to that when I speak to the issuance plan.

The actions we take will.

Not only look at our regulatory metrics whether thats.

<unk> NSF, our LCR and so on but also with a keen.

And I to ensuring that we protect our rating that's been a focus for us throughout and we will continue to be a focus for us going forward.

Regarding 2022 issuance.

Little early to say typically we'd give color when we announced that for Q4 earnings at the end of January beginning of February next year.

And when we have a better idea around the trajectory of our our balance sheet and some other needs that we might have.

That said, we have $12 billion of contractual maturities coming up next year.

As a comparison, we have issued already 12 billion in the first half of this year alone and.

And I'm pretty comfortable position the balance sheet restructuring over the last few years that we've done.

Reducing the capital markets footprint that we have had ensuring that we run a life maturity profile and manageable maturity profile through time, all give us significant optionality I think with managing the timing.

Of our issuances. So it's been hard to give you any color around pre funding as you pointed out and something that we did do last year and the fourth quarter at.

And it remains an option for us this year, but.

We remained noncommittal on debt will be watching spreads of course pretty keenly between now and the end of the year.

But given the maturity profile next year, we're under no compulsion.

To pre fund should that not be economic for us.

Regarding the.

Conversations and more broadly than just the 6% Euro 81 coming up and April next year, you also mentioned.

The other 3 securities that we have.

Put the legacy instruments and context, we have about 17 billion of combined tier 1 and tier 2 instruments of which around $1.1 billion.

And our legacy so it's really small and.

And the overall.

Scope of our issuance activities.

But suffice to say, we bake in any likely court decisions into our glide path into our planning.

And to our issuance plans for the next year.

We'll always start with and we've been pretty clear on this before we'll always start with the economics of the transactions I E. The replacement cost.

And.

Where there is a backend back and swap rate, we would look at where current and secondaries are trading versus any likely reset and then would make a decision on the on the April 1 very early to say given markets could fluctuate and will fluctuate between between now and then.

Did I answer all your question differently.

Yes, yes, thank you very much.

My pleasure.

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

Hi.

Thanks for taking my questions and thanks for doing the call.

3.

And topics.

And 1 of them so a follow up.

First on loan demand.

On slide 9.

Clearly, it's coming from private bank and investment Bank.

Number 1 do you see.

Bank loan demand coming back and the second half of the year.

Where do you think it would come from.

And.

What concerns do you have that.

Most debt.

This demand would be from more inferior credits.

Good.

Corporate and.

The good credit quality that we've seen so far that's my first question second on the slide on issuance.

You've got.

And the issuance plan.

Ones and tier twos 2 to 3 for this year you've done too.

Is it fair to say that.

If you were to do something at all it would be in that in the 81 space as opposed to the tier 2 space given your activity there already.

And my third question is.

It's about the banks business and exposure and Italy.

I think that.

We've seen political stability there.

Better budget and.

Flux of Covid funds and much more positive news flow coming out of Italy.

Would you talk about across the board Deutsche Bank businesses their exposure there.

Investment.

<unk>.

And and.

Also <unk> and Italian security investment and the HQ la portfolio.

And really where you see all of that with respect to the company and Italy going forward.

Thanks.

Robert Hi, it's James I'll take the first and and Dixit likely the second and maybe we will both have comments to make on the third and.

First of all on loan demand Youre, absolutely right as you can see and the quarter.

The growth came from private bank and investment Bank, we did see some loan growth late in the quarter and the corporate bank, but it doesn't show.

And then on the quarterly comparison.

And our expectation is that that will continue into the third quarter the second half.

So we're encouraged by the initial signs of what we've seen.

As you may have heard others comment as well on balance we've been surprised.

And.

So up on relatively tepid loan loan demand up until now, but we do see that changing.

Although it's early days.

See us chasing and figure credits there to grow the loan book we have.

I think commented pretty consistently that where we have our lending standards.

And and risk appetite.

Tight and we're disciplined about that risk appetite, we are looking at ways. We can grow the book, but we don't see that and any way is chasing inferior credits or that there is a sort of and adverse selection bias and the marketplace.

Things as we read it.

Robert Hi this.

And VIX video on the on the issuance front.

For tier 1 and as you can.

Pointed out we've come in under so far this year.

Versus all planned issuance for the year.

And you've seen though the strong demand for 81 that we issued and the earlier part of the day.

It was $1 billion and our quota dollars.

And we could have done I.

I think significantly larger size so.

Had we chosen yeah as you know.

Whether it's from and MRO perspective or.

Enbrel or any of the other regulatory metrics we have.

We remain in a pretty robust position right now.

No compulsion.

To rush for the issuance. So I do think we have.

And degree of Optionality between now and then of the year.

Should we see spread developments that are conducive.

It is a consideration, but it's something that we will remain open to but it's not.

Something that we're forced to do between now and year end.

Just on Italy, before I hand over to James on Italy as well.

On HQ L. A.

We will remain conservative and much of our <unk> really level, 1 and we have very little level to exposure.

We've been conservative around other duration.

<unk> management about a concentration whether that's by country.

By issuer or looking at liquidity characteristics.

And that conservatism will remain with us going forward and it's and part of why you see the large liquidity reserves that we tend to hold and then we have tended to hold through time.

And Robert I would add on Italy, and look we were obviously, we have a significant strategic commitment, Italy with our indigenous business and that market as a consequence of the size of that balance sheet, we manage carefully to what we'd refer to as the cross border risk into Italy.

And it's reviewed.

Frequently.

And the exposures and managed across our franchise, which is really.

All of the businesses that are present in the market and is fix it referred to also the investment book.

Youll see the exposure.

Data in the pillar 3 and.

And a few weeks time I'd say much.

What youll see there remains pretty consistent with the past, we haven't we haven't sort of been.

Moving that around but is at a level that we're very comfortable with especially as you say given the current environment that has been unfolding and Italy.

That's great. Thank you for those answers if I could.

Just follow up on on the Middle question just utility versus.

Utility of at <unk> 81 versus the tier 2 at this point between now and the end of the year. It seems that you would get more bang for the Buck from and 81.

Robert between.

And now and year end, we will be reviewing issuance plans for next year and must remain non-committal on this at this stage, it's a little early to say as I was mentioning.

Spreads will play a big and in that so whether it's 81 tier to otherwise.

Together with replacement costs for <unk>.

Ones that are maturing or coming up with call.

And it would be spread developments, which will drive some of our decision, making as you can imagine any pre funding that gets done and it comes with many many more months of accrual cost.

Which will need to be balanced against spread savings overall over the turn of the instrument.

I hope Thats.

And so.

Yes. It is.

And again, thanks for doing the call.

The next question is from the line of Corinne Cunningham of Autonomous. Please go ahead.

And 2 questions from me please.

And first 1 just on Enbrel and we mentioned the basis.

That's helpful and to change and can you just give us an update on when your line is be publishing the new requirement and rough.

Roughly I suppose the sky and Oh from any changes you're expecting that.

And second 1 is on the NSA fall and.

You mentioned it.

It's now and I could recall.

<unk> and application.

When I look at and how your role and as Stefan has laid out and there's a big chunk of and PRA channel TRA shrink and day.

And.

If you remove that and probably built.

Requirements and obviously, you've got the benefits of it now, but how do you think about net and your planning.

And then the last 1 is on the bgh ruling and.

And there was a German court moving this link from Comex strength definitely and Eagle and.

And I think Kevin.

1 of the European and they would expect and they get damages payable.

And what are you thinking about moving.

Your potential liabilities that thank you.

Current hi, I'll take the first 2 and James the loss.

And.

On Enbrel as you see we we currently have a 21 billion surplus very comfortable starting point.

We tend to do.

For total regulatory measures quite conservatively.

We also factory and any roll off.

Through time, and so that's baked into our issuance plans as well.

We don't have.

When you Emerald requirements at this stage, we would expect that at some point and the third or fourth quarter of this year.

But we do know that the change to the RW based methodology will result in a smaller surplus on them relative to the 21 billion and that we have but still very comfortable in our minds, even post that adjustment and that certainly the basis on which we have been planning.

And increasingly the way.

Manny and start thinking about the <unk>.

Rail surplus that we run is in terms of the number of months debt potentially we could stay out of the capital markets.

And forego issuance of both senior non preferred and senior preferred instruments.

And in this case, we think as I've said in my prepared remarks and up to a year.

We all being being out of the capital markets, that's kind of what our Emerald surpluses would allow us so.

We continue to run the measure quite conservatively, we're quite comfortable with where we are we've factored in.

Our expectation of our new requirements and as you see going forward.

Our issuance needs as well quite well balanced over the next year with $12 billion of maturing issuances.

And so far the bulk of our about 75% of our funding needs our available stable funding comes from deposits.

As well as capital I E.

Longer term stable capital and.

So we are ready to begin with debt puts us in a pretty significant.

Have a good strong position for funding regarding <unk> TLC.

Sales were about half of our <unk> balances against liquid collateral.

Fairly easy to replace should we so choose.

So very comfortable in my mind.

I don't know if you want to cover and if.

And you would cover both.

So on the Bgh ruling it's obviously early days since that ruling.

Positive for initial read is it did not change.

And <unk> are materially impact, our fact pattern, which as you've seen and our disclosure.

We've been at pains to point out that we had not participated inactive comex.

Activities of our own.

And.

Based on where we stand and our progress we do not read this ruling is having a significant impact on our fact pattern.

Yes.

Thank you very much.

And.

The next question is from the line of Mcnally and is to close that of Morgan Stanley. Please go ahead.

And thank you.

Or can you actually hear me well.

Yes, we can okay. Okay lovely.

For the quite short questions. Please so for my first 1 is on your slide 12 and then.

Just wondered whether you are prepared to kind of from.

And split to that trend.

And.

And CLO impact also into just how much of it in the second quarter was related to leveraged lending. So that's question number 1 question number 2 really.

Slide 17 and of course, we've talked about your improved ratings also on the on the call and what's your expectations are and.

And my question is kind of slightly.

Very much so how do you see that that's improved the ratings trajectory and.

And from the perspective of revenues and how <unk> and <unk>.

And how that trajectory can effectively kind of ACO business, particularly within the within the investment bank from here and my third 1 given that its Friday.

And we are likely to hear being used in a couple of hours time, what's your expectations on the stress test.

Thank you.

Hi.

I'll take some of those and then James.

As well.

<unk>, we would've typically breakout the leverage lending specifically, but off.

The 18 billion of risk weighted assets inflation that you see in the quarter 12 billion was from trim and.

6 billion was from the combined effect of all of the Cri 2 measures.

Cross sell across our portfolio.

From a ratings perspective.

Good day.

Thats, absolutely right over time with and improved rating, we do see our funding costs continued to grind lower <unk> senior debt over the last few years not just spread development, but also we've been successfully able to reduce the expected volumes that we would need to take to market through reducing wholesale.

Sales funding.

Judicious optimization of our balance sheet increases and operational deposits versus non operational.

Increases in retail deposits all of the balance sheet measures that we've been taking have been conducive to reducing our volume volume.

Volumes needed, but also we've seen the spread development and so 1 is I.

Do think overtime, our funding costs would continue to grind grind lower.

Together with together with debt.

We do have clients for whom ratings would be quite sensitive and I think market share gains would accrue as a result, with and improve rating, but James may want to speak to that.

I think Magdalena, where where it helps the most is in markets counterparties, where their internal rules.

And have ratings limitations and so we saw that on the way down there was a there was sort of measurable lost revenues and we do expect to be regaining some of those revenues over time with with.

And as improvements.

Some of that as you may have heard and earlier commentary from US has started to happen based on.

Clients, and counterparties, anticipating or taking their own independent view on our improving credit which.

Which is encouraging but of course, the external validation of.

Rating that picture is as valuable Theres, another client set for whom it's valuable.

<unk>, which is our essentially corporate customers and the cash management business, where we think it will also be helpful and perhaps to a lesser extend and wealth management so and.

And any client group, where there is rating's sensitivity.

<unk>, we would we would generally think there is a bit of and uplift.

On EBITDA.

The other.

It's too early without the disclosure having happened and it's later today to make really make any sort of narrow comments broad comments I'd make is first of all the scenario is.

Is severe.

And so building as it does on a recession year in 2020, and not really having an upturn at the end of the period is 1 typically sees and the stress scenarios.

Secondly, as is the case and the EPA methodology, it's a static balance sheet.

And so too.

And accent is backward looking.

Also for us given from a profitability perspective, the step off year is 2020.

It Hasnt doesn't yet fully reflect I think the sustainable profitability that we're building and.

And we've demonstrated now and the first half of 2021.

And.

And yes, so I think those would be the reflections we have.

Again, we await the the results eagerly and and look forward to engaging with you and the market. Once we've been able to assess the results I don't know index. It. If you have anything you want to add to that.

Thank you.

Okay. Thank you very much.

And to remind that if you wish to ask a question. Please press star followed by 1 on your telephone keypad.

And the next question comes from the line of Christy had your Labor day of Barclays. Please go ahead.

Good afternoon, hi, thanks, Thanks for the question and thanks.

And that's always just 1 from me on capital.

Generation capacity, and just thinking you've had a lengthy period of restructuring coming through and and and.

And the regulatory headwinds well sort of still coming through obviously, that's for some clarity around what those look like over the next 1 to 2 years I'm not sure just interested given capital, it's been sort of volatile and up and down over the last few years.

And considering what the steady state basis.

The other target, so and anticipated capital generating capacity Courtney and nearly just trying to get a sense of what that sort of organic underlying capacity is from from the great going forward. Thanks.

Christy Hi, maybe I'll kick off and then.

And I hand over to James.

We have committed to the 12 and half percentage we've mentioned before.

Minimum CET, 1 level and so that.

That will be.

And important consideration for us going forward.

We are coming to I would say the first and of the first wave of large regulator.

And what you would.

We saw 70 basis points of inflation and the first half of the.

As you know that 10 basis points from what we previously indicated and carried forward into the second half with potential additional 10 basis points coming so another 20 basis points, but in aggregate over the last 2.3 and it does bring us to the sort of tail end of this first wave of Reg inflation.

And we're also putting behind us and a significant chunk of our restructuring severance and transformation costs as well and he is now starting to see this come through and our organic capital generation, which has just begun as well so and under.

This underpins the capital return targets that we've.

And that we've outlined before but.

But we're firmly committed to the 12 and Apis and through the cycle.

Thanks.

And I would have said exactly the same thing I would also point you to the.

The plan that we shared with the market at the December Investor Deep dive suggested profit.

And for our <unk> target of $4.5 billion euros as Dixit says.

We will we would look to have a distribution that meets the promise to the market from July 19 of $5 billion over time.

We would also I think b and a more multi dimensional world.

World in terms of being able to support growth with retained earnings as I say distribution.

And.

I think being a very different world to where we've lived for the past several years in as Dixit says and this and this regulatory inflation environment.

But the anchor point as Dixit mentioned is.

As a capital ratio that that meets or exceeds the targets we've set up.

That's great. Thank you very much.

And there are no more questions at this time I would like to come back to Philip tightened and for closing comments.

Thank you Haley and just to finish and thank you I'm from joining US today you know.

And then if you have further questions and we look from it to talk to you soon again goodbye.

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