Q3 2021 Deutsche Bank AG Earnings Call (Fixed Income)
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[music].
Ladies and gentlemen, welcome and thank you for joining the Q3 2021 the fixed income calls.
Throughout today's recorded presentation, all participants will be in a listen only mode.
The presentation will be followed by a question and answer session. If you'd like to ask a question you May press star followed by one on your Touchtone telephone. Please press the star key followed by zero for operator assistance and I would now like turn the conference over to Philip Taylor. Please go ahead.
Good afternoon, or good morning, and thank you all for joining us today for the Q3 fixed income from.
Our group Treasurer for Jesse will lead you through the prepared remarks.
For the subsequent Q&A, we have a CFO in DRAM for Mark good with them to cover your questions together with Bickford.
The slides that accompany the topics are available for download from our website at <unk> com.
Before we get this answer I just want to remind you that the presentation may contain forward looking statements, which may not develop as we currently expect.
Therefore, please take note of the precautionary warning at the end of our materials with that let me handle that predictable.
Sure.
Thank you Philip and welcome from me.
We are now two thirds through our transformation journey and we have continued to deliver against our milestones we.
We see clear evidence of progress in our businesses.
Basis of this progress is our disciplined execution.
We continue to be absolutely focused on cost saving measures.
Justice costs, excluding transformation charges are once again down year on year. These.
These transformation charges will help drive reductions in our expenses in future quarters.
And we have now recognized 90% of our total anticipated transformation related effects of almost 8 billion euros. Since we began this journey.
This has resulted in significant progress in our transformation, we promised to self finance this and we have delivered.
These efforts are being recognized by our stakeholders and in the third quarter, both Moody's and Fitch upgraded our credit ratings and retained our positive outlook.
We have maintained a strong capital ratio, a strong balance sheet and sound liquidity, despite certain challenges such as regulatory inflation and the impact of the global pandemic.
Our capital release unit is outperforming against our 2022 goals, which we outlined at our last investor deep dive.
Risk weighted assets are down to 30 billion euros and the unit continues to reduce costs.
The result is profitability in all three quarters of this year, we have delivered significant year on year profit growth, while simultaneously keeping up the pace of transformation.
Refocusing on core businesses is paying off revenues have grown as broad base business performance offsets the effect of normalizing markets.
As we saw in the third quarter pre tax profit of 554 million euros grew 15%. Despite transformation charges of nearly 600 million euros and on an adjusted basis profit before tax would have been up by 39% to $1 2 billion euros.
Net interest income this quarter was roughly $2 8 billion up approximately 114 million euros on the second quarter.
This increase was driven by the growth in our loan book and higher revenues from our securities portfolios in the quarter, along with a decrease in the cost of our deposit funding.
Net interest margin remains broadly flat at approximately one 2% as progress on deposit charging and reduced surplus liquidity offset the ongoing pressure from interest rates.
As we've mentioned before we see these interest rate pressures abating with private bank headwind set to half next year and corporate bank headwinds being substantially eliminated.
Recent interest rate moves provide a more favorable outlook for our businesses relative to the conservative baseline on which our previous plans were built.
For 2022, we now see a tailwind in the region of 150 million euros relative to our earlier planning.
As the moves are predominantly in the long end of the curve the impacts become cumulatively larger and later years, reaching well over 500 million euros by 2025 from the current observable forward curve expectations relative to our plan baseline from the fourth quarter of last year.
Now let me take you through the highlights of what we have achieved in the nine months of this year on slide two.
Our performance over these past nine months shows that our 2022 targets and ambitions are well within reach revenues.
Revenues of $19 5 billion euros for the first nine months of 2021 fully support our trajectory throughout 2022 revenue goals.
We have reduced adjusted costs, excluding transformation charges by roughly 4% year on year to $14 4 billion euros. Despite.
Despite 2021 being an investment year.
This means we delivered operating leverage at both the group and co bank level over the past nine months.
We reduced our cost income ratio from 87% to 82% year on year. Despite the additional transformation charges recognized in the third quarter.
Provision for credit losses declined 83% year on year to 261 million euros or eight basis points of average loans.
Return on tangible equity for the core bank is seven 5% for the past nine months and above 9% on an adjusted basis already in line with next year's target.
Let's now turn to profitability, where we have seen a steady improvement on slide three.
In the core bank, we delivered a 70% year on year increase in our adjusted profit before tax in the last 12 months.
Once again, all four core businesses contributed in either in line or ahead of their plan so far.
In the capital release unit, we reduced losses by nearly half compared to a year ago.
As we reduce leverage exposure and risk weighted assets, we continue to remain committed to minimizing the P&L impact of the portfolio reduction.
As we steadily put transformation effects behind us and reduce the cost of deleveraging in the capital release unit.
More of the earnings power of our core businesses is reflected in the bottom line.
This supports our aim to deliver stable and sustainable returns at the group level.
A key driver for this is our sustainable revenue performance, which I will now turn on to slide four.
Revenues, excluding specific items in the core bank for the third quarter stand at 6 billion euros up 1% year on year.
Business growth has offset the normalization of the capital market environment, which impacted fixed income trading as expected.
This quarter still bears the impact of foregone revenues as a result of the bgh ruling of 96 million euros similar to the second quarter.
We expect this impact to taper off considerably in the next quarter as we now have written consent in place for two thirds of the affected accounts.
Revenues in the investment bank at $2 2 billion euros down only 6% from a very strong third quarter in 2020.
Both our corporate and private bank continued to offset interest rate headwinds with expanded deposit repricing and the business growth, we see ongoing underlying momentum in these businesses.
And we see strong underlying growth in lending the loan portfolio is currently at 456 billion up 5% from the same quarter last year.
With the period of post pandemic market normalization behind US we now expect the current growth rate to remain in the coming quarters.
Asset management delivered revenue growth for yet another quarter driven by strong management fees. This is also the sixth consecutive quarter of net inflows.
Core Bank revenues were 25 billion in the last 12 months.
11% increase from 2019, which is in line with our current 2022 goal.
This reflects the sustainability of our revenues as client engagement continues to improve.
Now, let me turn to costs on slide five.
On a 12 month basis, we reduced noninterest expenses by 14% to 21 billion euros from 2019.
This includes the higher than expected contributions to the single resolution fund.
And the German deposit protection scheme.
We continue to focus on managing our controllable cost base to offset volume driven expenses and investments in controls and have identified additional cost saving measures.
These measures come with around 700 million euros of incremental transformation related effects, including technology related charges that were recognized in the third quarter.
We are committed to putting almost all our anticipated transformation effects behind us by the end of 2021.
And with that in mind, we reaffirm our 2022 target for a cost income ratio of 70%.
As we said at the Investor Deep dive in December our focus remains on executing our transformation agenda, while supporting our clients as we summarized on slide six.
We've executed on the strategies within our refocus core businesses and we saw material improvements in core bank profitability and returns we.
We are delivering resilient revenues as business growth offsets the normalization of markets, which we anticipated.
Our core businesses are performing in line with or ahead of our expectations and that positions us to deliver on our revenue ambition next year.
We intensified our transformation efforts and took further steps to drive efficiencies.
All of this contributed to the upgrades of our credit ratings by Moodys and Fitch over the summer.
We are confident that the recognition of these important external stakeholders will provide further support on our path towards our 2022 targets.
We are committed to technology and control investments and to maintain our momentum on resolving open regulatory and control matters.
The hierarchy of our 2022 priorities remains unchanged and we are on track to meet our targets of an 8% post tax return on tangible equity and a 70% cost income ratio.
We are setting up a firm foundation to not only meet our 2022 ambitions, but also positioned Deutsche bank for future growth.
Having focused on the financial impact of our transformation progress in the previous slides.
Let us now move to balance sheet items, including capital liquidity and funding.
One important driver to achieve our revenue targets for next year as loan growth specifically in the corporate and private bank.
Slide seven provides further details on the developments in our loan and deposit books over the quarter.
On an FX adjusted basis loan growth in our core businesses has been 9 billion euros we.
We saw high client demand for mortgage lending in our private bank and corporate bank loan demand was picking up across all business lines, while the strong growth trend in our investment Bank continued this quarter.
Overall, we expect further loan growth in the fourth quarter.
Looking at deposits, we have seen an increase of 2 billion in the quarter on a FX adjusted basis.
<unk> in our corporate bank.
Our targeted charging measures and the private bank have led to 2 billion of outflows and successful conversion into investment products.
For the fourth quarter, we expect deposits to stay broadly flat as targeted growth measures will likely be offset by outflows from further expanding our deposit charging as we will discuss on the next slide.
Slide eight 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 third quarter, we had charging agreements in place on a total of 122 billion euros of deposits <unk>.
Generating quarterly revenues of 108 million euros.
At this run rate our charging revenues this year are well in excess of our 2022 targets that we communicated to you at our December investor Deep dive.
We expect revenues from passing through negative interest rates to contribute around 400 million euros. This year with additional upside as we further expand the coverage of charging agreements.
Furthermore, the strong momentum in our private bank continues.
Deposits with charging agreements and our private bank increased by 6 billion euros.
<unk>, our German retail franchise as well in our international private bank.
For the rest of the year, we expect growth in charging agreements to increasingly feed through to revenues as initiatives continue to ramp up.
As outlined in our last call. The bgh ruling will have no material impact on our deposit charging strategy for the German retail bank.
While these results are encouraging we expect continued compression in retail deposit margins as ongoing interest rate headwinds can only be partially offset at this point.
Moving to slide nine which highlights the development of our regulatory liquidity requirements.
In the third quarter, we have prudently managed our liquidity towards target levels and continue doing so by further supporting business growth.
The liquidity coverage ratio decreased to 137% and remains comfortably above minimum requirements.
High quality liquid assets decreased by about 7 billion quarter on quarter, primarily driven by ongoing loan growth across the businesses as well as net matured issuances.
Liquidity deployment has been partially offset by deposit increases and additional <unk> three financing in September at.
At the same time slightly higher net cash outflows are mainly arising from upcoming maturing capital market issuances.
The net stable funding ratio remains broadly unchanged at 123%.
Representing a buffer of 109 billion euros comfortably above the 100% requirement.
Our funding profile remains well diversified and continues to be supported by a strong customer deposit base contributing about two thirds to the available stable funding sources.
We continue managing the funding mix, which is supplemented by debt issuances as well as capital.
Turning to capital on Slide 10.
Our core equity tier one ratio decreased by 17 basis points from 13, 2% to 13% over the quarter.
In line with our earlier guidance. This reduction includes around 20 basis points of burden from regulatory changes, notably the implementation of the EBA guideline on definition of default.
Which was partly offset by a reduction in our regulatory multiplier for the calculation of var as far driven market risk <unk>.
A slight offsetting improvement of the CET one ratio came from a reduction in operational risk <unk> and.
And the net impact of Derisking in the capital release unit versus a small <unk> increase in credit and market risk reflecting client related activity.
With the 20 basis points <unk> impact this quarter, we've now absorbed almost all regulatory driven <unk> inflation until the expected implementation of the final framework of Basel III in 2025.
Coming quarters, we expect to see business as usual model updates that cumulatively I expect it to be capital ratio neutral.
CET one capital was fairly stable in the quarter and now includes a deduction for common share dividends of 641 million euros year to date.
We still expect to end the year with a CET one ratio of around 13%.
As always our capital outlook is subject to timing of pending regulatory decisions. However, the expected net effect of these decisions in the next quarter is now positive.
The reduction in our CET one ratio in the third quarter has correspondingly reduced our buffer over CET, one ratio requirements, which now stands at 258 basis points as shown on slide 11.
The distance to the binding total capital MDA level was impacted further by the quarter on quarter increase in <unk> and now stands at 243 basis points.
Our distance to regulatory requirements remains at a comfortable level of 9 billion euros in CET, one capital Tums.
Moving to slide 12.
Our pro forma fully loaded leverage ratio, including certain ECB cash balances was four 4% and on track to meet our 2020 to go on the original definition by year end.
With our reported leverage ratio of four 8% at the end of the second quarter, we have a buffer of 154 basis points.
Over our leverage ratio requirement of three 2% to 3%.
We continue to operate with a significant loss absorbing capacity well above our requirements as shown on slide 13.
At the end of the third quarter, our loss absorbing capacity was 22 billion euros above the minimum requirement for eligible liabilities or enbrel, our most binding constraint.
We expect our emerald buffer to reduce to approximately 14 billion euros. Once we receive the new <unk> based amarelle requirement from the single resolution board in the coming days.
Even at this lower level, we would have the flexibility to pause issuing new senior non preferred all senior preferred instruments for approximately one year.
Moving now to our issuance plan on slide 14.
Both Moody's and Fitch upgraded our credit ratings across the debt stack and kept the positive outlook, which supported our credit spreads throughout the quarter.
Our five year senior non preferred cash spreads tightened by 11 basis points in both euros and dollars.
And our most recently issued tier two bonds, which are callable in 2025, and 2026 tightened by 34 basis points in euros, and 26 basis points in U S dollars through the quarter.
We issued a total of $1 4 billion in the last quarter, taking our issuance volume per the end of the third quarter to $13 3 billion euros.
The quarter on quarter change was mainly driven by the issuance of structured notes and senior non preferred issuances in the Swiss franc and Formosa markets.
We are also in the market with a consent solicitation on our 650 million Sterling 81 security to transition away from LIBOR to Sonya swaps for the coupon reset.
Although that coupon will not reset until 2026, if not called.
We decided to take action well in advance in line with what we are doing elsewhere in the bank to ensure a smooth transition to risk free rates.
The results should be available in November.
Staying with capital instruments, we also exercised our call right on a legacy capital security on 19th of October the security, a 500 million Euro Postbank tier one issue will be repaid on 20 <unk> December 2021.
Many of you have also asked us about our intentions with regard to the $1 75 billion, 6% 81 security that is callable in April 2022.
As you know we look primarily at the economics in these situations and if opportunities present themselves to replace a tighter levels all with a more attractive call schedule, we would like to take advantage of such opportunities.
Looking at the total year to date issuance volume at the end of the third quarter, we have completed roughly 90% of the low end of our full year issuance target.
We confirm that our full year funding plan remains between 15% to 20 billion euros.
If the conditions are attractive we may consider pre funding some of our 2022 requirements in the fourth quarter.
Regarding our 2022 issuance plan. It is too early to provide you with precise numbers and we will update you with further details in our fourth quarter fixed income call.
Turning to the outlook on slide 15.
Our balance sheet remains solid with high liquidity levels and around 60% of our funding mix from low cost deposits.
Our loan to deposit ratio of 78% provide sufficient room to prudently grow loan balances in coming periods.
We see continued momentum towards our 2022 revenue ambitions, given the resilience and growth in our core businesses.
The credit environment remains supportive and we expect provisions are below 15 basis points of average loans for the full year based on current views.
We expect macroeconomic growth to slow in 'twenty to 'twenty two from the exceptionally strong level this year and see LP levels to partially normalize.
Our credit portfolio quality remained strong and we are well positioned to manage emerging risks, including supply chain disruptions and potential policy tightening.
We are focused on the cost measures, we have underway and by year end, we expect to have booked the majority of our transformation related effects in what has been an investment year.
And all of this supports our 70% cost income ratio target for 2022.
As we have previously indicated we expect to end the year with a CET one ratio of around 13% above our target of 12, 5% and this despite booking almost all of our $8 8 billion euros of transformation related effects as well as absorbing materially all of the regulatory driven inflation.
And prior to Basel III final framework implementation.
On the leverage ratio, we feel confident we are on track to finish the year around four 5% based on the original definition of leverage exposure, which includes old central bank balances.
And with that let us now move on to your questions.
Ladies and gentlemen at this time, we will begin the question and answer session.
Anyone who wishes to ask a question May press star followed by one on that digital and telephony.
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If you are using speaker equipment today, please see the handset before making your selection.
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<unk> at this time.
And the first question comes from the line of Daniel David of Autonomous. Please go ahead.
Hi, good afternoon, Thanks for taking my questions I have two.
First one is just on the rate sensitivity given the recent volatility that we've seen in the market can you just update us on.
Interest rate headwinds you might see this year and then.
What you might see going forward, maybe if it's all right.
Some of your comments earlier in the presentation.
And then secondly, just on legacy bonds and HD ones could you take us through the drivers behind the court decision regarding the Postbank tier one.
And is there any other read across for you all.
What's outstanding bonds on are there any regulatory pressures to call here and then just touching upon the 81 that you mentioned could you.
Maybe take us through some of the considerations, which go into the court decision I kind of noted in your comments should we just focus on the reset spreads versus where you can refinance.
Daniel Hi, This is dixit here. Thank you for joining the call I'll take those in sequence.
<unk> sensitivity point.
We would expect a headwind this year of around $700 million that would have been absorbed.
Across our businesses, primarily in the private bank and the corporate bank.
That breaks down roughly around $400 million in the private bank around $2 50 in the corporate bank and the rest elsewhere now.
At the curves that we had used at last year's Investor deep dive.
This 700 million becomes a headwind next year of around $300 million.
And if we then look at the improved interest rate outlook.
This E implied at today's rates.
The 300 million headwind for next year will decline by a further 150, so will become a net $1 50 headwind and essentially most of this headwind is in the private bank as we've said before.
Now from 2023 onwards.
Current interest rates indicate that we will have a sequential year on year tailwind to revenues that again accumulates over time.
From 2022, we'd mentioned this at the equity call on Wednesday, as well and we expect to see a greater than $500 million hail tailwind and that's at today's implied interest rate cuts.
Youll see these numbers also reflected.
In the appendix in our interest rate sensitivity, we do run a lower sensitivity, but still a net positive at positive 700 million per 100 basis points.
The reduction that we've seen over the last two or three years has been.
In part due to our hedging activities, but also most recently.
As a consequence of our deposit charging which has been growing faster than than we would have anticipated.
Discharging does reduce our upside sensitivity, but it's not foregone upside in a sense think of it as really pulling the $400 million equivalent of charging revenues sort of.
Instead of waiting for.
So I hope that's helpful on the rate front.
On the Postbank tier one issue, we've been fairly consistent with our communications and that we will begin with the economics on the transactions as the as the drivers. So you are right.
Placement cost reset spread would would feature quite highly.
In the case of the funding trust to bond.
Does not qualify from January as capital nor does it qualify as Enbrel and you know where the flawed coupon of around 375%. That's a relatively high funding costs instrument from from January and hence we made the decision to call that instrument.
Other two instruments, though as Youll see.
Funding Trust, one and three both have fairly low coupons, even on a swapped basis.
So don't look as attractive again, we won't comment on any specific single instrument called decision, but at present, they are pretty attractive funding.
You rightfully pointed out the April 22 call that we have coming up on our new style 81.
Again, it's a bit early to say what a call decision there would be.
Nice to say to the extent that we're able to.
Find opportunities in the market, we were able to issue.
At spreads inside of the reset spread and even get potentially more advantageous call features in the five yearly call.
Actually we'd be watching the market closely and will look to take advantage of any opportunities like that I hope that's helpful.
Just just on the Postbank securities just to comment on any regulatory process to call those instruments.
No other than they lose their regulatory benefit starting in January.
Thanks.
The next question is from the line of Lee Smith of.
Please go ahead.
Hello, Thanks for taking my questions three please firstly I will.
So you mentioned, the very positive ratings momentum tap with Moody's and Fitch.
I wouldn't.
You have any thoughts on S&P, certainly based on why Thats, a 14th country. They appear to be the hardest. Please so any thoughts on.
What specifically might need to see for S&P, Kevin to move.
Secondly on the part of banks.
That's the last question, but yes.
Do you just need higher rates for better results to come out.
Thanks for that.
Or are there other levers that you can actually pull that and then finally when I look ahead to 2025.
How would you expect the revenue composition of DB to look across your mind you may divisions is it going to be.
Roughly in line with how we looked at that would you think that was materially offset that.
Three questions. Thank you very much.
Hi, good to have you again.
On ratings, we continue the really close dialogue that we have with all of the agencies demonstrating progress on our transformation, which overtime should drive further improvements in our credit ratings.
It's hard to speculate about the actions of any individual agency.
But we have been quite encouraged this year as you've seen with the Moody's and Fitch upgrades as well as the positive outlook from S&P, all of which indicate the upward momentum on our ratings. So we continue to engage closely with all the agencies and importantly, we continue to execute on the transformation.
And our strategy.
Lee It's James just on the private bank question and the revenue composition.
Start with where we are today on the private bank.
As we said on Wednesday quite pleased with the momentum in the business. So if you start with the drivers of loan growth of assets under management growth.
We are quite encouraged with what we see and we think there is a sustainable trend there.
As we've talked about sort of a lot that's been masked by a lot of things, notably interest rate headwinds and more recently the high court ruling.
From April so.
So if I just take a walk.
In the numbers, excluding specific items last year revenues in private bank in the third quarter about $2 billion.
This year, we reported revenues down about $75 million and just if I round the numbers.
If you add back the $100 million rounded lost revenues on the on the high court ruling.
And you, let's say cut in half the interest rate headwinds that we actually absorbed this quarter of $100 million year on year made that 50 instead.
Then the increment to the revenues would be $150 million, we had in other words be growing by almost 4% instead of instead of what we reported which is a decline of almost 4%.
So what we're calling for is just a continuation of the trend, which I think lifts the private bank quite nicely. If we can simply sustain the underlying performance that we've had as I say if I look at the drivers. There is no reason to think that that's going to change in fact, there are some ways that they can continue to accelerate their growth through deposit.
Conversion into investment products and the like.
So if you say what are the levers we're pulling the levers and I think we've been seeing the benefit of it it's hard to see on the top line, but I think that will become increasingly clear over time.
Which in a way feeds to your second question about revenue composition.
On a on a very big on a big revenue base.
The movements in terms of composition, if you think about.
Differences in compound annual growth rate between the businesses.
It takes a while for there to be a significant shift, but as we've talked about for quite a long time and we want to build the business.
Business mix of the company towards what we think of as the more stable businesses.
Without necessarily wanting to disadvantage or or discourage strong performance in the investment bank. Nevertheless, we think there is there is a.
Secular change that can slowly take place that we think is beneficial.
Over time and that relative growth rate of the businesses and.
And I think that'll be supported in the next couple of years by again.
<unk> that we've called for now for a couple of quarters, which is a normalization of outperformance in financial market oriented businesses, and I think secular growth, which we still expect to see in the the more balance sheet oriented and businesses, serving private and corporate clients of the private bank and <unk>.
Bank. So we're very encouraged as I say and what we see and we think over time the business mix.
We'll shift subtly.
Okay.
Just on that business makes sense yourself like should I presume that the capital allocation plays businesses will just shift subtly.
As a function of that too yes.
Yes.
For us being a marker of the consistency of the strategy that we've been driving towards our capital allocation consistent if I go all the way back to July of 19, when we announced the.
The compete to win strategy, we targeted a <unk>.
Share of of tangible equity allocation for the investment bank of at the time, 44%.
The rounding we're kind of there were 46 today, it moves up and down quarter by quarter generally we've held the investment bank relatively steady at least in its RW a level other than the impact of regulatory inflation. So we've actually been seeing the discipline in our WMA.
Being more or less running at the capital allocation and TCE terms that we intend.
And we think that that's probably the best way to measure.
The strategic direction that we've taken.
And the usage of capital and corporate Bank and private bank I think it will be rare.
Relatively linear if you like with their with the loan growth that we see in those businesses, which again, we expect to be robust in the in the in the coming quarters.
Alright. Thank you that's very clear I'll won't take.
Take anymore time, thank you.
The next question is from the line of all lipid Eisen of RBC capital markets. Please go ahead.
Hi, there two questions from me if I may the first is just again on interest rate sensitivity.
You spoke about the 150 million uplift on the <unk>.
$500 million uplift by 2025.
Early planning I, just wanted to clarify the yield curve dynamics, you're assuming here.
Secondly, you talked about.
Posit charging can you just confirm what goes through fees versus net interest income.
While the tradeoff is with ni.
Just to highlight thank you.
All of our high yes.
Right the $150 million was really or the $500 million cumulatively, all the way up to 'twenty two Israeli.
Taking today today is in the last week in flight curves and comparing that to our plan.
From the Idd from from last year, a lot of that sensitivities in the longer dates would reflect really rollovers of our structural hedges.
Mature over time and the ability to then roll those into successively higher higher rates.
On deposit charging.
Much of that is really in NII and reflected as such.
Okay. Thank you.
The next question is from the line of project Kumar of Society Generale. Please go ahead.
Hi, all my questions are already answered thank you.
The next question is from the line of chlorine Cunningham Autonomous. Please go ahead.
Afternoon. Thank you very much again for the call.
Couple of questions. Please first one is just on what you were mentioning about.
I don't have any legislation will make.
Headwinds and you kind of suggested on this call.
Pretty much done with I think on the equity call you might have missed that they might even be slightly positive and so could you just run through the individual.
Is that still to come through before.
Awesome.
And then the second question was more on climate.
What do you think the capital requirements.
As a result of the PRA Paypal.
And then the EBITDA per ton.
Thankfully and commission by June 2023.
Hi, Corey.
<unk> inflation.
We tend to think of this really in three buckets. One is mostly this first wave of inflation, which is trim definition of default PD PD LGD etcetera.
All of that now is is largely behind US we think we've absorbed.
Gross Reg inflation over the last two or three years of around 160 basis points. So quite significant we've put that behind us and also with 13% CET. One naturally includes absorbing the almost $8 billion 8 billion plus of transformation restructuring and other charges as well the outlook from here.
Through the year and as we've said you know we continue to expect that will be around 13% at year end and some of the Reg items that we have some visibility over and again as you know from previous quarters.
Both the magnitude and the timing of these is always uncertain. So theres some movement quarter to quarter, but we would expect that there would be.
Perhaps a slight positive in the fourth quarter again that may change as I said depending on.
Some of the letter writing of rulings that we might we might get and then we think of the next two waves as really being.
Related to the recent proposals.
From Basel, and the commission, which would be now 2025, which was formerly 2024.
Then separately sort of 2930 instead of the 28 2009 time spend that we had.
Thank you and then any comments on the.
Capital requirements linked key ESG requirements.
Thank somewhat earlier I mean, what we're seeing globally with with policymakers and regulators is that this is evolving space. So it's something that we're watching but we think it's too early and we need to continue to study the rulings that might come up.
Okay. Thank you.
As a reminder, if you wish to ask a question. Please press star followed by one on your telephone keypad.
And the next question is from the line of Robert Smalley of UBS. Please.
Please go ahead.
Hi, Thanks, very much thanks for doing the call.
A lot of the interest rate questions I had were answered so.
Just two others.
First this week the Bundesbank said that full year growth is likely to be significantly below their June forecast.
<unk>.
<unk> that supply problems.
With preliminary goods are causing difficulties in exports.
How are you looking at that with respect to loan growth have you changed your forecast with loan growth and what are you hearing from your clients.
And secondly.
With respect to issuance.
In the fourth quarter and in 2022 any need for any additional tier two issuance did some last year.
Or are you going to let that sit for a little bit.
Thanks.
Rob Hi, and good to have you.
On the first on loan growth, we've been quite encouraged we've had.
Strong loan growth through the course of this year you saw in the third quarter on a XFX basis, we grew loans by about $8 billion.
Of note is that the loan growth, we're seeing is fairly well diversified across our business lines. So the investment bank had seen loan growth across a number of business areas.
<unk> bank had grown especially in mortgages across both the Deutsche Bank and Postbank brands.
And the corporate Bank also.
Grew loans, primarily in trade finance and some of the lending businesses. So to answer your question.
Seeing.
Trade and lending.
Performed quite consistently here it is our expectation that we'll see for the next few quarters.
A similar pace of loan growth.
And James I might just add in terms of Macquarie.
Sorry, Robert I'd, just add in terms of the client view.
We had been seeing the the supply chain bottlenecks for some time. So so the recent attention to this isn't really new to us or to our clients. We've been engaged in that dialogue with them for several months.
And so it isn't it isn't a change in our outlook necessarily there is and our hope and expectation that these will be worked through.
Over time, it may take much of 2022 to do that but our view is that is that the sort of the German corporate sector is able to ride it out and in some sense is actually has opportunities obviously, given the nature of the of the economy.
In our loan composition, though there have been some shifts for example in trade finance.
And so if we talk with our with our colleagues in that business.
The activity.
Has become more regional.
And so we're financing more trade that takes place intra Asia.
And in the north south corridors that exist around the world. So there there are <unk>.
Evolutions of the business, but but it doesn't threaten necessarily the size of our growth of our business, but the composition. So lots of things to watch carefully, but nothing and all of that changes our outlook.
Okay.
And thank you.
On tier two.
Yes.
Issuance as always we'll give.
I'll give transparency when we do the fourth quarter fixed income call. So a little early to say and in most years typically we will have a few billion of capital requirements and we would expect 2020 to be the same and that could naturally contain tier two as well, but it's something that we will.
Indicate when we do the fourth quarter call at the end of January next year.
Okay, that's great. Thanks, and thanks for doing the call.
Our pleasure.
The next question is from the line of Adam <unk> of Mediobanca. Please go ahead.
Afternoon, all once.
Once the labor sorry to labor the point on interest rate sensitivity, if I thought that the opportunity just to follow up again.
Clearly you've been talking about this $150 million delta into next years.
Look on rates I, just wanted to get a bit more color on how much of that is short versus long end mics I think in the last week, particularly.
Really the expectation that the short end of the year right.
Alright.
So I just want to understand what that is implying in terms of.
Policy.
Europe in particular.
I think the market rate since the commentary from the Central Bank has kind of diverging a little bit. Thank you.
Adam.
You rightfully pointed out theres, a huge amount of divergence earlier this year it was really.
Inflation versus no inflation and now we're talking about transitory versus more more permanent inflation and you're seeing that debate as well as yesterday with the ECB announcements look we try not to read too much into the day on day moves.
We have a series of structural hedges on.
The sensitivity that we have we're managing it with both downside and upside in mind and what I mean by that is.
Downside in the near data is protected through having.
Interest rate charging.
And then of course, we have the rollovers of our structural hedges so.
Next year.
Much of the sort of effect, we're talking about will be really the long end and coming from rollovers of our structural hedges.
And then the short term move potentially has some offset in deposit pricing.
Yes.
That's correct to the extent that we continue rolling out we'd see more immunization.
Shorter rates.
Which is what's resulting in the call.
Call It roughly 400 million euros of sort of additional revenue related to charging thats coming through on an annual basis.
Perfect. Thank you.
And there are no more questions at this time I would like to hand back to Philip Titan for closing comments.
Thank you Haley transfer finished thank you all for joining US today, you know Randy I arguments. If you have further questions and we look forward to talking to you again soon goodbye.
Yes.
Ladies and gentlemen, the conference has now concluded and you may disconnect. Your telephone. Thank you for joining and have a pleasant day goodbye.
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