Q1 2022 Deutsche Bank AG Earnings Call

April 27, 2022

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Yes.

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Ladies and gentlemen, thank you for standing by I'm 20, your chorus call operator, welcome and thank you for joining the Deutsche Bank's Q1, 2022 I know this call.

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 would like to ask a question you May press Star followed by one on your Touchtone telephone. Please press. The Star Q4 was by zero for operator assistance I would now like to turn the conference over to you all know, but Ritchie head of Investor Relations.

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Yeah.

Okay.

Yeah.

Thank you for joining us for our first quarter 2022 results call as.

As usual, our Chief Executive Officer Christian David will speak first followed by our Chief Financial Officer, James von Moltke.

The presentation as always is available to download in the Investor Relations section of our website DB Dot com.

Before we get started let me just remind you that the presentation contains forward looking statements, which may not develop as a currently expect.

We therefore ask you to take notice of the precautionary warning at the end of our materials with that let me hand over to Christian.

Thank you Jan Wald welcome from me as well it's.

It's a pleasure to be discussing our first quarter 2022 results with you today.

Before we go through these we.

We are mindful that the war in Ukraine has been devastating familiar of people and continues to bring a high degree of uncertainty to the world economy to the market environment and to our clients.

We have made our position clear.

We condemn the Russian invasion of Ukraine.

In the strongest possible terms.

And we support the German government and its allies and defending democracy and freedom.

We are not taking on any new business in Russia.

<unk> <unk> incorporate in Russia.

We have been clear that we are in the process of winding down our operations in line with our legal and regulatory obligations and our company our clients and doing the same.

We are committed to helping our clients navigate this period of upheaval and.

And we are supporting our people in Ukraine and their families.

However, this of course has the potential to impact our full year results in our important measurement.

Nonetheless, we delivered the highest quarter of net profit since 2013, and we believe this puts us on a good trajectory to reach our 2022 goats.

That shows through in our performance we.

We delivered group revenues of $7 3 billion, an increase of 1% year on year, even compared with a strong quarter in the prior year.

We saw revenue growth across all four core businesses driven by business momentum market share gains and investments that will support sustainable growth in 2022 and beyond.

This quarter, we generated a reported eight 1% return on tangible equity.

On the first quarter of last year, Despite a 28% increase in annual bank levies.

Which are recognized in the first quarter.

If bank levies, we're apportioned evenly across the four quarters of the year.

With a quarter of the annual charge booked in the first quarter post tax return on tangible equity would have been 11, 2%.

We also improved our efficiency.

Post tax profit was up 18% over a successful prior year quarter, driven by positive operating leverage.

This brings our cost income ratio down to 73%.

Four percentage points lower compared to the prior year.

Or 66% bank levies, we're apportioned evenly across all four quarters.

We are mindful that the current operating environment presents many challenges.

<unk> on the cost front, and we will continue to focus on cost discipline.

Finally, looking at our balance sheet, we are well equipped to navigate the current environment. Thanks to our high quality loan book and tight risk management.

Our capital position remains strong despite the impact of the war in Ukraine and business growth.

And this enabled us to continue our progress towards our goals for capital distribution to shareholders.

Last week, we completed the execution of our share repurchase program of 300 million euros, and we have proposed a dividend of around 400 million euros at.

At the upcoming AGM.

Delivering on our commitment to distribute 700 million.

In 2022.

Now let me take you through the progress on strategic priorities in our core businesses on slide two.

In the corporate bank business growth continued despite the more challenging market as we diligently executed on our strategy.

We saw this reflected in loan growth, which alongside interest rate tailwind contributed to an increase in net interest income.

This.

Coupled with cost discipline helped us deliver operating leverage of 18% this quarter.

In the investment bank strong client activity in FIC supported revenues with year on year growth across institutional and corporate clients.

Advisory revenues were more than 80% higher year on year, partly offsetting lower revenues in equity and debt origination.

The private bank delivered its best quarter since we launched the transformation with pretax profit up by more than half year on year to $419 million.

It also catch up net new business of 13 billion euros.

Cross inflows into assets under management and law.

In addition, the private bank made significant progress on the German platform consolidation.

The Easter weekend, we completed a successful migration of around 4 million postbank, serving clients and contracts onto the DB platform.

Asset management delivered revenue growth of 7% year on year, driven by higher management fees, despite the volatile market environment.

At the same time.

The business continued to invest in growth initiatives and platform transformation.

The dynamics in all four core businesses provided a strong step up point to deliver on our 2022 targets.

Next let me give you an update on Russia on slide three.

We believe the investments we made in future proofing our business.

Man, we were well prepared as we entered this period of uncertainty.

This means we were ready to deal with not only the direct impact of the war in Ukraine.

We reduced our net loan exposure.

To Russia to below 500 million euros by the end of this quarter.

But also the second order one and our investments in controls are a testament to this.

As a result, we executed diligently on sanctions implementation without any major issues and manage the financial aspects of these sanctions.

As it stands we operate under a heightened alert status and we are continuously adapting our controller to the evolving threat landscape.

Despite the uncertainties of the current situation, we have not seen any major disruptions to our businesses.

Even with all the added safeguards, we have put in place.

While it is too early to quantify the potential long term impacts of the wall.

We believe our conservative balance sheet and transformed business model.

Will help us face the challenges ahead.

Of course, we continue to be mindful of the broader environment and uncertainties that go well beyond the world such as the supply chain issues that could further impact future economic growth.

Turning now to our progress on sustainability on slide four.

We continue to make rapid progress in our sustainability activities.

After finishing 2021 with cumulative ESG financing and investment volumes of 157 billion excluding.

Excluding dws.

We are now at 177 billion euros and on track to achieve our 200 billion target by this year end.

We saw good volume growth across all categories.

Issuance volumes were at 71 billion in the first quarter, an increase of 13% compared to the fourth quarter.

Financing volume increased to 64 billion up.

Up 12% sequentially.

And assets under management increased to 41 billion also up 12%.

We're also pleased with the growth rates in all our businesses.

You can see on the slide.

As we announced in our Investor Deep dive, we plan to generate 500 billion euros cumulatively.

Cumulatively by the end of 2025.

This implies an average rate of at least 100 billion and ESG financing and investment per year from 2023 to 2025.

According to our model this will translate into revenues of at least $1 5 billion in 2025, representing a compound annual growth rate of more than 20%.

We also took an important step on our pathway to net zero by disclosing the carbon footprint of our corporate loan portfolio at the beginning of March.

And we are on track to publish 2015 net zero targets for key carbon intensive portfolios together with intermediate targets for 2030 at our second sustainability deep dive in October .

We will also share further details on our net zero strategy at this event and how we partner with our clients and their decarbonization efforts.

A key driver of higher profitability as our delivery of positive operating leverage which I will now cover on slide five.

We delivered positive operating leverage at group level this quarter.

Starting with revenues group revenues increased by 1% year on year at the core bank contributed by generating revenues of $7 3 billion euros.

Up 3% year on year.

Excluding revenues in corporate and other and the capital release unit.

The average annual increase of revenues into four operating divisions was 7%.

Revenues in the corporate bank were up 11% year on year.

Second consecutive quarter of double digit growth driven by continued deposit repricing and business growth.

Investment Bank revenues grew 7% year on year over a strong first quarter in 2021.

16% increase in FIC revenues more than offset a 28% decline in origination and advisory.

And the private bank.

<unk> strong business growth more than offset interest rate headwinds and as a result revenues were up 2% year on year.

Across all these businesses, we delivered strong growth in client lending. Our total loan book is currently at 481 billion up.

Up 9% year on year.

Asset management revenues rose, 7% year on year, driven by a 13% rise in management fees, which reflects consecutive quarters of inflows in assets under management growth during last year.

Assets under management increased by 82 billion year on year to 902 billion euros.

Moving now to costs non interest expenses were down 4% year on year. Despite an increase in bank levies of 28% or more than 150 million euros.

Which was offset by lower transformation charges.

And the cessation of Prime finance costs.

Adjusted costs, excluding bank Levy transformation charges and Prime finance were also down 1% year on year, reflecting lower investment spending needs. After the completion of some it projects in delivery of efficiency gains in line with plan.

Beyond these cost items, we faced higher than expected expenses, mainly in compensation costs, which James will detail later.

Before I hand over to James let.

Let me summarize the first quarter and outlook on slide six.

The first quarter presented a challenging environment, we support our clients and responded to their needs to help them navigate through difficult times and we will continue to do so.

Our priority is to advance with our strategic plan and to further improve our profitability and efficiency, while benefiting from strong risk management.

Revenues in our stable businesses support this and demonstrate that we are on a clear path to meet our 2022 revenue guidance.

And as always we are absolutely focused on cost measures and we are executing on our plan.

That said, we recognize that the path ahead of us is getting harder, especially with inflationary pressures, we see in the current environment.

But we remain committed to delivering positive operating leverage and tackling cost challenges, while also capturing revenue opportunities as we did in the first quarter.

We are committed to our plan to return capital to shareholders.

Having already completed the 2022 share buyback program of 300 million euros.

In short in this quarter, we have delivered a strong step off point towards our targets in this pivotal year in particular, the 8% return on tangible equity target for 2022 with that let me now hand over to James.

Thank you Christian let me start with a summary of our financial performance for the quarter on slide seven.

Total revenues for the group were seven 3 billion up 1% versus the first quarter of 2021. Despite the revenue decline of around 370 million euros in C&I and CRE.

Noninterest expenses of $5 4 billion euros were down 4% year on year.

This captures three main cost components.

Firstly bank levies came in at 730 million euros up 28% year on year and about 150 million euros higher than we originally expected due to a higher assessment of basis applied by the SMB and the unchanged conservative determination with regard to the use of irrevocable payment commitments.

Secondly, we book transformation charges of $38 million this quarter less than a third of the level in the prior year quarter and we have now recognized 98% of the total transformation related effects anticipated through the end of 2022.

This leaves adjusted costs, excluding bank levies and transformation charges, which were down 3% year on year, despite certain volume related increases or 5%, excluding FX effects I will detail. These shortly.

Our provision for credit losses was 292 million euros, or 24 basis points of average loans for the quarter.

We generated a profit before tax of $1 7 billion euros and a net profit of $1 2 billion euros, an increase of 18% year on year.

Tangible book value per share was <unk> 25 euros in 15.

Up 42 on the quarter and 5% year on year.

As Christian mentioned before the return on tangible equity for the group was eight 1% for the quarter.

The effective tax rate for the first quarter was 26%, which is broadly in line with the effective tax rate. We now expect throughout 2022.

We also anticipate that with continued profitability, particularly in the U S. We may see additional positive deferred tax asset valuation adjustments in the fourth quarter that would reduce our effective tax rate in 2022.

Of course, the adjustments in the respective sizing of these remain uncertain and are dependent on a number of different factors throughout the year.

Let's now turn to the core bank performance on slide eight.

Core bank revenues were $7 3 billion euros for the quarter up 3% on the prior year quarter.

Noninterest expenses were down 1% for the quarter and adjusted costs increased 1% year on year.

We reported a profit before tax of 2 billion euros flat on the prior year as provision for credit losses normalized compared to the prior year quarter, where we saw releases across all stages.

Our core bank post tax return on tangible equity for the quarter was $10, 7% above the full year target and.

And our cost income ratio came in at 69%.

Let me provide some detail on the evolution of our net interest margin on slide nine.

Looking back the decline of net interest margin in the first half of 2020 was driven by the cut in U S rates.

The margin has been broadly stable since then above the level. We initially anticipated driven by increased balance sheet efficiency deposit repricing and <unk> income that helped to offset ongoing deposit margin pressure.

Adjusting for <unk> timing effects NIM in the first quarter would have been at the prior year level.

From here, we expect NIM to rise due to tailwind from the rising interest rate environment.

Let's now turn to costs on slide 10.

First let's have a look at cost developments since the first fourth quarter.

Adjusted costs, excluding transformation charges and bank levies decreased by 332 million euros, 7% sequentially or about 360 million euros, excluding FX effects.

Compared with the guidance, we provided at the fourth quarter results. We are in line with or even ahead of our expectations with respect to the non compensation categories. Excluding FX.

Costs were 168 million euros, lower and 212 million euros of savings came from the remaining costs, both reflecting completion of projects and further efficiency saves.

However, compensation and benefit costs were broadly flat against the elevated levels in the fourth quarter and higher compared to our previous guidance of expected savings of around 150 million euros.

This is mainly due to three components.

Firstly, we expensed 80 million euros more as a result of good business performance.

An extra $50 million related to the variable compensation for performance in the first quarter and a 30 million one off impact for carried interest related to future performance fees in asset management alternative funds was also recorded.

Secondly, we had unplanned benefit costs to the tune of 40 million euros, which we do not expect to repeat in the rest of the year.

And finally structural cost reduction efforts largely in our private bank were offset by costs from investments in strategic hires and control functions of which $20 million euros, where one off hiring costs.

We continue to execute on efficiency measures aimed at reducing compensation costs. However, we are seeing increasing pressures as we compete to retrain retain and attract talent.

If we look at the year on year cost developments on slide 11, adjusted costs decreased by 135 million euros or 3%, excluding FX effects cost were down 5% or 237 million euros.

It costs declined by 110 million euros, driven by completion of certain projects and capturing the expected delivery of efficiencies there.

And then professional services and other non compensation costs came down by 136 million euros due to the completion of <unk>.

Control and remediation projects.

Compensation expenses increased by 9 million euros compared to the prior year effects from the workforce reduction were offset by payroll inflation and by the impacts from variable compensation and selected strategic investments.

Let's now turn to provision for credit losses on slide 12.

Provision for credit losses for the first quarter was 24 basis points of average loans on an annualized basis or 292 million euros in line with guidance.

A moderate sequential increase was entirely driven by the war in Ukraine.

Elevated stage, one and two provision of 178 million euros compared to net releases of 95 million euros in the prior year quarter.

Relating to downgrades of all Russians exposures and additional overlays to reflects macroeconomic uncertainties.

Stage three provision of 114 million euros includes a few impairment events predominantly on Russian names in the corporate bank.

This was offset by a small number of larger releases in the investment bank, while the private bank provision benefited from a model recalibration.

Let me now update you on our direct exposure to the Russian Federation at the end of the first quarter compared to our previously disclosed exposures at the year end on slide 13.

Gross loan exposure was cut by 5% to $1 3 billion euros, and 21% to 468 million euros on a net basis.

The reduction reflects active exposure management and repayments.

Our contingent liabilities were cut by 35% to 1 billion euros and exposures are largely mitigated by export credit agency coverage and contractual drawdown protection.

Overall, we have low levels of direct market risk exposure to Russia. After all major derivative counterparty positions were unwound.

Let me now turn to capital on Slide 14.

Our common equity tier one capital ratio decreased from 13, 2% to 12, 8% over the quarter or 41 basis points.

This reflects a decline of around eight basis points from higher <unk>, driven by core bank business growth, partially offset by lower operational risk weighted assets.

ECB mandated model adjustments related to small to medium sized enterprise lending led to a decrease of 20 basis points.

Strong organic capital generation during the quarter was offset by share repurchases deductions for dividends.

Non coupon payments and equity compensation, adding four basis points net.

We estimate the impact of the war in Ukraine on our CET, one ratio at 17 basis points due to higher risk weights on our Russia related exposures and higher prudent valuation reserves due to the increased dispersion of market prices.

CET one capital now includes a capital deduction for common share dividends of 354 million euros for 2022. In addition to the roughly $400 million euros, which were already put aside last year to pay the proposed 2021 dividend of <unk> 20 per share post the AGM. This may.

We remain committed to support business growth through continued earnings retention and to finish the year with a CET one ratio of 13% or higher.

However, what remains hard to predict at this point is a potential for further regulatory driven <unk> inflation in the remainder of the year.

Our fully loaded leverage ratio was four 6% a decrease of 30 basis points over the quarter.

The 30 basis points decreased 16 basis points were driven by tier one capital, which reduced as a result of our call in January of our $1 75 billion euros New style 81.

Our successful 750 million 81 issuance, which settled in early April adds a further six basis points to our leverage ratio on a pro forma basis.

Leverage exposure, excluding FX effects tax increased by 28 basis billion euros, two a quarter on quarter. Following continued growth in our core bank, including loan growth.

Our pro forma fully loaded leverage ratio, including certain ECB cash balances was four 3%.

With our reported leverage ratio of four 6% at the end of the quarter, we have a buffer of 134 basis points over our leverage ratio requirement of 323%.

With that let's now turn to performance in our businesses starting with the corporate bank on slide 16.

Corporate bank revenues in the first quarter were $1 5 billion euros, 11% higher year on year Rev.

Revenue growth was driven by the continued impact of our deposit repricing actions and business growth, particularly in corporate Treasury services.

Interest rates turned into a tailwind in the U S. Non euro EMEA and Asia more than offsetting remaining euro headwinds.

Corporate bank grew loans to 125 billion euros up by 3 billion euros compared to year end 2021, and by 8 billion euros compared to the prior year quarter, mainly in corporate Treasury services.

Provision for credit losses increased year on year across all stages, primarily driven by impacts of the war in Ukraine.

Noninterest expenses of 1 billion euros declined by 7% year on year due to non compensation initiatives and lower nonoperating costs.

The resulting return on tangible equity stood at seven 2%.

Adjusted for the Pro Rata Bank levies the return on tangible equity in the first quarter would be nine 2%.

Corporate bank profit before tax was 291 million euros in the quarter up 25% year on year, despite higher credit loss provisions evidenced improvements in our profitability and efficiency.

I will now turn to revenues by business segment in the first quarter on slide 17.

Corporate Treasury services revenues of 917 million euros grew by 14% year on year, driven by strong business momentum and particularly in corporate cash management higher loan volumes deposit repricing and the improving interest rate environment.

Institutional client services revenues of 350 million euros rose by 11% benefiting from episodic items and currency translation effects, while the underlying business remained stable.

Business banking revenues of 194 million euros were up 1% year on year as solid underlying business growth and benefits of deposit repricing were mostly offset by remaining interest rate headwinds.

I'll now turn to the investment bank on slide 18.

Revenues for the first quarter of 2022 were slightly higher year on year, both on a reported basis and excluding specific items.

Strong performance in financing in macro trading businesses was partially offset by lower revenues in origination and advisory and credit trading.

Noninterest expenses were higher primarily due to increased bank levies and compensation expenses.

Our loan balances increased year on year, primarily driven by higher loan originations across the financing businesses.

We continue to maintain a well diversified portfolio across regions and industries.

Leverage exposure was higher reflecting increased lending commitments and trading activities to support client flows.

The year on year increase in risk weighted assets predominantly reflects the impact of regulatory inflation. In addition to load growth within the financing businesses.

Provision for credit losses of 36 million euros, or 15 basis points of average loans remained low.

The year on year increase was driven by stage, one and two provisions versus releases in the prior year quarter.

Turning to revenues by segment on slide 19.

Revenues in fixed sales and trading increased by 15% in the first quarter when compared with the prior year straw.

Strong performance within financing and across macro trading businesses was partially offset by lower revenues in credit trading.

<unk> revenues were significantly higher driven by increased net interest income and higher capital markets activity with solid performance across all businesses.

Revenues across rates foreign exchange and emerging markets were significantly higher driven by market activity and client flows benefiting from effective and disciplined risk management.

Credit trading revenues were significantly lower with a business impacted by a challenging market environment.

Revenues in origination and advisory were also significantly lower versus the prior year driven by an industry fee pool reduction of approximately 30%.

Debt origination revenues were lower due to materially reduce leverage debt capital markets revenues investment grade performance.

Remained robust with revenues slightly higher year over year.

Equity origination revenues were significantly lower driven by a material decline material decline in the industry fee pool and reduce back activity versus the prior year.

Revenues in advisory were significantly higher reflecting a high level of completed transactions against a solid pipeline.

Turning to the private bank on slide 20.

Revenues were $2 2 billion euros up 2% year on year or 3% if adjusted for specific items continued.

Revenue growth despite the uncertain environment towards the end of the quarter more than offset headwinds from still low interest rates. Although these headwinds have abated somewhat relative to the previous year.

The decline of 6% and noninterest expenses year on year was in part attributable to releases of restructuring provisions of 44 million euros.

Adjusted costs were down 3% year on year, despite higher bank levies, reflecting incremental savings from transformation initiatives, including workforce reductions as well as continued strict cost discipline.

The private bank reported a strong pre tax profit of 419 million euros in the quarter up 54% year on year, reflecting both continued cost savings and revenue growth.

The cost income ratio improved to 77% compared to 83% in the first quarter of 2021.

Post tax return on tangible equity rose to 9%.

Considering bank levies on a pro rata basis pro forma post tax return on equity would have been 11% with a corresponding cost income ratio of 73%.

Assets under management declined by 6 billion euros to 547 billion euros in the quarter.

A negative impact of 18 billion euros from market movements was largely offset by net inflows into assets under management of 10 billion euros and by exchange rate differences.

Risk weighted assets increased by 13% predominantly due to regulatory changes in the prior year and a growing loan book.

Provision for credit losses was 101 million euros, or 16 basis points of average loans in line with the prior year, reflecting tight risk discipline in a high quality loan book.

Stage three provision also benefited from a model recalibration as I mentioned earlier.

Turning to revenues by segment on slide 21.

Revenues in the private bank, Germany were up 1%.

Higher fee income from investment and insurance products compensated still negative impacts from deposit margin compression lower benefits from the <unk> three program as well as residual impacts from the bgh ruling.

The private bank, Germany attracted net inflows of 3 billion euros and investment products and net new client loans of 2 billion euros.

In the international private bank revenues, excluding specific items increased by 6%.

Private banking and wealth management revenues increased by 5% or 8% of adjusted for Sal Oppenheim workout activities.

The growth was attributable to both investment products and loans and was supported by relationship manager hiring in prior periods.

Revenues also benefited from FX impacts.

Personal banking revenues were stable supported by growth in loans, partially offset by deposit margin compression.

The international private bank attracted strong net inflows in assets under management of 6 billion euros in the quarter driven by investment products across all regions.

Net new client loans were 2 billion euros, mainly in Americas, and EMEA in part offset by deleveraging activities by clients in APAC.

As you will have seen in their results dws delivered a strong quarterly performance compared to the prior year period. Despite the recent market turbulence.

To remind you the asset management segment on slide 22 includes certain items that are not part of the dws stand alone financials.

Revenues grew by 7% versus the prior year, primarily due to an increase in management fees of 74 million euros, mainly from higher average assets under management, which more than offset lower performance fees recognized in the quarter.

Noninterest expenses increased by 60 million euros, or 4% with adjusted costs up 5%.

This reflects higher compensation costs, principally the variable compensation impact of carried interest related to future infrastructure performance fees and higher asset servicing costs due to the increase in assets under management.

Compared to the prior year, the divisional cost income ratio improved further to 62%.

Profit before tax of 206 million euros in the quarter increased by 12% over the same period last year, reflecting a stable margin and the strong increase in revenues.

Assets under management of 902 billion have increased by 82 billion euros since the same quarter last year, which is mainly attributed attributable to successive quarters of net inflows in 2021 as well as positive FX translation effects as well as market performance as we show on slide 44 in the appendix.

Looking at the sequential performance assets under management have declined by 25 million euros in the quarter, reflecting the negative impact from market performance, partly mitigated by FX translation effects.

Net outflows of 1 billion euros in the quarter were primarily due to outflows in low margin cash and fixed income products in a challenging market environment.

Excluding cash net inflows were 6 billion euros and higher margin strategies.

The business also attracted $1 1 billion of net inflows into ESG products during the quarter.

Turning to corporate and other on slide 23.

Corporate and other reported a pretax loss of 428 million euros in the first quarter of 2022, compared with a pretax loss of 178 million euros in the prior year quarter.

This was principally driven by a negative contribution of 183 million euros from valuation and timing differences compared to a negative contribution of 4 million euros in the prior year quarter.

The result for the quarter was principally from adverse movements in interest rate and credit spread curves, partially offset by the effects of funding basis and broader rate movements in light of the volatile market environment.

As previously communicated valuation and timing differences arise on positions that are economically hedged, but do not meet the accounting requirements for hedge accounting.

Funding and liquidity impacts were negative 127 million euros versus negative 36 million euros in the prior year quarter.

And they include certain transitional costs relating to the bank's internal transfer funds transfer pricing framework as well as costs linked to legacy activities relating to the merger of DB Pavan on film can bank AG into Deutsche Bank AG as we have previously disclosed.

Expenses associated with shareholder activities as defined in the OECD transfer pricing guidelines not allocated to the business divisions were 120 million euros, a small increase to the 112 million euros in the prior year period.

We can now turn to the capital release unit on Slide 24.

For the first quarter of 2022, the capital release unit recorded a loss before tax of 339 million euros narrowing the loss from the prior year by 70 billion euros revenues.

Revenues for the quarter were a negative 5 million euros as funding and risk management costs were partly offset by income from our loan portfolio and net de risked de risking gains.

This compares to the positive 81 million euros in revenues, we reported in the prior year quarter with the reduction primarily from the conclusion of the Prime finance cost recovery.

Noninterest expenses declined by 32%, primarily driven by a 27% reduction in adjusted costs, reflecting lower internal service charges lower bank levy allocations and lower compensation costs.

This quarter also marks a step down in costs. Following the conclusion of the Prime finance transfer.

As a result, the division reduced its loss before tax of 339 million euros down by 17% from the prior year quarter.

Year on year, CRA CRE, you reduced leverage exposure by 46 billion euros and risk weighted assets by 8 billion euros.

Since the fourth quarter of 2021, the division has reduced leverage exposure by 4 billion euros through deleveraging and natural rollouts and reduce risk weighted assets by 3 billion euros, including a $1 billion or a reduction in operational risk <unk>.

Looking through to the remainder of 2022, we are confident of achieving the target for adjusted costs of 800 million euros that we set out at the investor deep dive.

We will also aim to drive risk weighted assets and leverage down further and expect to record a negative revenue number for the year.

Turning finally to the group outlook for 2022 on slide 25.

The current geopolitical outlook and macroeconomic environment, bringing a great deal of uncertainty to the financial markets and to our clients.

However, strong revenue momentum in our core businesses continues to support our revenue guidance of 26 to 27 billion euros for 2022 and in our view our first quarter results built a strong foundation to achieve this.

As Christian highlighted we remain highly focused on cost discipline and continue to work towards our targets, but the current environment remains challenging and the visible cost pressures have intensified.

We remain disciplined in managing our risks and we believe that near term risk is contained.

Our capital remains resilient and our organic capital generation was offset by distributions while at the same time, we absorbed business growth regulatory changes and the impact of the war.

We remain confident in our year end guidance of around 13% consistent with our target of greater than 12, 5% for our CET one ratio.

As Christian mentioned, we finished our share buyback program and the expected payment of dividends immediately after the approval at the AGM, we will complete the shareholder distributions of 700 million euros in 2022.

We continue to work through our 2022 targets.

With that let me hand back to you on it and I look forward to your questions.

Yeah.

Thank you James Operator, we're now ready to take your questions.

Ladies and gentlemen at this time, we will begin the question and answer session anyone who wishes to ask a question may play style, followed by one on the touch tone telephone.

If you wish to remove yourself from the question queue. You May Press Star followed by two one moment for the first question. Please.

The first question is from Chris Hall Ham from Goldman Sachs. Please go ahead.

Yes. Good afternoon, everyone. So two questions for me. So FIC has obviously been strong in the first quarter and it looks like can still taking share there and you slightly tweaked the revenue guide for the year, but the corporate bank on the private bank will also strong so I wanted to hear how you're thinking about revenue trends beyond 2022 and weather.

<unk> seen so far this year changes anything at the divisional level.

And then second on capital, which was slightly lighter than expected.

Could you lay out how you see capital ratios evolving through the rest of 2022 and speak to whether anything is changing to a degree which might make you rethink either the phasing that will be absolute level of the 5 billion capital return commitment embedded in that 13% core tier one target for 2025.

Thanks, Chris.

Appreciate the question look you are right <unk> was strong in Q1, and it's reflecting some of the trends we've been talking about for a while around client engagement the benefits of investments, we've been making in people and technology the impact of the rating upgrades and therefore people opening business with us in lines and.

That's all flowing through and we think leads to a sustainably improved view, obviously, some some point some degree dependent on the market wallet.

CB and PB as you say are showing the type of growth that we've been calling for for a while as interest rates and those headwinds start to abate and we've talked for a while about underlying growth and as you can see in CB year on year at 11% up Youre seeing the combination of underlying growth.

<unk> help from interest rates and CV and similarly, PB, although more affected still by by headwinds in the Euro deposit base Youre now seeing growth come true come through particularly for example in IP be up 4% year over year.

And so we're seeing strength in the business and it feeds our commentary back at the Idd about momentum driving the types of compound growth rates that we've called for in.

In the period from 22 to 25, and we think the first quarter performance is clearly validating around that momentum in the direction of travel there.

Looking at 'twenty two again, the first quarter. No question is helpful in building towards the guidance that we provided.

I'll remind you of Christian's comments on the last quarterly earnings call, where he went through business by business, what we were expecting this year.

As we sit here today all of the businesses are at least in line with that guidance and in some cases as you pointed out the IV for example above that guidance and actually as you say, we are seeing strength in CB as well that could could lead to some outperformance there.

And hence as we think about the 26 to 27 billion guidance that we've provided for revenues. This year, we actually think we're biased to the high end of that based on what we see right now.

In terms of capital distributions, we talked about the ratio target for the end of the year or objective in our prepared remarks. So there is no change based on the Q1 performance to our guidance for the full year.

And to your point there is no change in our view on the capital trajectory.

The resulting distribution path that we that we intend.

Look we had a 40 basis point drawdown through the quarter and as mentioned really the drivers where the model impact and the and the effects of the war in Ukraine in.

In that latter case much as you saw in Covid, we would expect a lot of that 17 basis points to come back.

And and really most of the of the model change was already built into our capital planning. So as a result, no significant impact on our views for the full year. The guidance, we provided and consequently, no impact at all on our on our distribution plans.

Really thanks, Thanks, Chris.

The next question is flown Kian <unk> Jpmorgan. Please go ahead.

Taking my questions two questions on cost I think thats. The key issue today impacting your share price and I think there is some confusion and maybe James can explain a little bit.

How we should read the comments on the one hand, you have the cost income target.

770% state it.

Which implies on your revenue guidance, 18% to $18 9 billion on its stated basis and I assume they're $200 million of restructuring charges in there and on the other hand. There is also a guidance of flat cost.

<unk> 'twenty, two and 'twenty, one which is around $19 6 billion clean and I'm. Just wondering first of all if you could explain that what should we be focusing on in terms of cost guidance going forward.

And then the second question is again related to cost if I compare your Investor day, where you talked about $3 billion of cost.

Plus resolution fund and networks with January February the $3 billion. One could argue the cost should be closer to $5 billion, maybe $5 1 billion, but we ended up significantly higher and you clearly explained that to some extent in your remarks, however, there seems to be a concern.

And that there's a bit of slippage and cost discipline and if you can.

Elaborate in that how over one month.

Less than a month that has been so much concern around cost.

<unk>.

It hasn't been a material increase in cost, which was not anticipated so to say at the Investor day. So can you talk about.

The process and confidence around cost discipline.

So those two questions. Thanks.

Thanks for the question I appreciate it and happy to clarify if there's if there's any confusion so listen.

The guidance that we've provided is unchanged from the from the annual report outlook.

And as we think about cost for the full year.

The essentially flat language is a range, it's a range about around zero.

And compared to last year, where we look at adjusted costs, excluding transformation charges and the Prime finance expenses. So your starting point and that is sort of $19 three theres a range of course.

And that's consistent with the earlier guidance that we provided which was sort of low to high teens and remains consistent.

So that's what we've been working to and aligns as you say with the revenue guidance, we've provided and the fact that we're working to a 70% cost income ratio target. So that's that's the the guidance, we're providing and the and what we're working towards.

Think about where we were back at the beginning of March we had two months of expenses, where the run rate combined was really about one 5 billion.

<unk> taken taking January and February together, which was clearly encouraging to us that.

That excludes the single resolution fund costs.

And we were I think we were clear in thinking about that as the call. It the operating expenses excluding single resolution fund.

And as you can see March came in higher than that run rate call. It $1 6 billion, principally reflecting the compensation items that I mentioned in the prepared remarks.

Now those compensation items essentially materialized in March we make variable compensation determinations at that time based on revenues and profitability for the quarter as we see it.

Carry costs that we incurred in dws only became visible to us as as the valuations frankly came in of those of the underlying investments.

So clearly and actually some of the hiring costs also materialized in March so much of that caustic session was in fact March and not entirely visible to us when we spoke with you I.

I will say whats encouraging is that the non compensation guidance. So when we we tie back to the 450 million sequential decline that we talked about in January .

We're looking at non comp cost that in fact, we're better than that original guidance.

And the Miss relative to the $4 50 of about 90 million really all explained by these variable compensation items by and large costs that we would consider.

Positive and as much as they reflect current or future revenues.

So so lots of.

Work underneath the hood, there, but but.

We're working towards the 70%.

And notwithstanding some of these higher expenses in the quarter some of which as you know are out of our control. The S. RF, we don't get that invoice until April every year.

Some of which was was late in the quarter, reflecting performance in new information. The fact that we were able to offset it in the quarter on a cost income ratio basis.

Given the strong revenues I actually think is an encouraging sign and continues to put us on track.

For for the cost income ratio.

Continually saying we've been working towards.

I hope that clarify a little bit Jin, yes, that's very helpful. If I can just.

Just one more time on the absolute cost.

Number.

Should I think more around the cost income as a main binding constraint was 70% this year or more around the level of costs in line with last.

Well of course, we give guidance what we arent management's objective is to work to that 70% target that we've set.

Feasible. This year 26 to 27 billion revenue exactly and so we translate that into guidance.

Consistent with whats recount required in our outlook statements, which compares to the prior year.

And again, we've been consistent on that.

In terms of what management is focused on.

We're focused on managing our run rate costs sort of month by month quarter by quarter.

Obviously acknowledged that there are some headwinds some of which appeared already in Q1, some of which and that are not repeating in general.

And then we're working hard to offset those headwinds.

Again, hopefully that gives you a sense of really where management's focus is.

Thank you and apologies for taking so much time no no it's a pleasure to clarify.

The next question is from Nicholas <unk> from Kepler Cheuvreux. Please go ahead.

Yes. Good afternoon. Thanks for taking my question asked with the first one would be on NII and I wanted to see if you could give us maybe an update on the outlook that you gave us.

Last quarter and if there has been any changes versus last quarter.

The second question would be rather with regard to your discussion with German corporates and what kind of.

Level of activity they are expecting for the rest of the year and beyond. This there were any concern regarding unit growth slowing down potential recession recession next year in Germany, and any general concern that you are discussing with them. Thank you very much.

Thank you Nicole.

Look NII is really one of the reason the areas, where we we that supports our confidence in the in the guidance that we provided and.

And we wanted to give you a little bit more color on that on slide nine in the in the <unk>.

In the deck is some new disclosure that we have really underscoring our view that we've kind of reached the turning point in NII and net interest margin and that's driven of course by both growth in the loan book.

As well as the inefficiencies in the balance sheet and now increasingly.

From interest rates.

So that gives us I think real confidence about the the forward on interest income.

If I speak to the.

Your question about German corporates look we're all going through.

Sort of an unprecedented.

Crisis and.

Resulting from these awful events that we're seeing in Ukraine, but the knock on macroeconomic consequences of all of that.

German corporates of course are reacting they are acutely aware of of some of the changes in supply chains, obviously energy pricing the sufficiency of energy supply and so we're working hard to adjust to that to that new environment.

Think in general you see a relatively high degree of adaptability in the German economy, and that's something that we're working with clients on.

Including how do you adapt your supply chains.

And we think in general it will probably mean that theres more support in lending needed for the German economy, and clearly that's our role we stand ready to support the economy to support our clients.

As they as they gear up to respond here, we think it's generally supportive of driver of growth in the corporate bank, both the supply chain the additional lending what what is happening in the payment space.

So our yes.

Are generally encouraged by the trends, we see today, obviously with an awareness that the.

Disruptions and higher rate environment may lead to a recession further down the road road.

And we all need to be mindful and appropriately cautious about about the outlook on that basis.

Eric Thanks.

The next question is from Steward Guam from alternate lists. Please go ahead.

Hi, Good morning, Thanks for taking my question I had two it follows on from those last comments James.

<unk> put a study out saying if gas stops as a deep recession in Germany I'm sure you've done a stress test on what that means for your loan book can you give us a feel for what that impact would be in terms of your ECL. Please. That's the first question and then the second question is also following on on the rate sensitivity you gave that slide at the idd, saying that the forward curve is it.

Good I think with $400 million of benefit for 2022, and $1 5 billion for 2025, obviously the curve has steepened further since then so can you give us an update on those two numbers 400 million in the one five please thank you.

Sure happy to Stuart and thanks for the questions I'll take them in reverse order. The answer is the curve is improved the revenue outlook relative to that to that curve that we showed her the impact that we showed.

And so if we're looking at recent curves it would impact interest rates our interest income this year by over $100 million.

And the 2025 cumulative impact by around $500 million, so we'd be closer at the end of that period. We showed two 2 billion than one five.

<unk> continued support from interest rates, even relative to the guidance that we showed.

And then again supports the the.

The feeling of the strong feeling we have about the guidance for this year's revenues again coming in that 'twenty six 'twenty seven range and as I say biased to the high end as things stand one thing Stuart I gather you'd asked why we didn't repeat that slide in the disclosure. The reason is it was a December 31st sort of step off.

Number and as time goes by it's.

Essentially becomes old.

And so we didn't want to sort of repeat essentially stale numbers, but but absolutely a fair question about that sensitivity and it's one of the reasons. We are beginning to provide this interest earning assets and net interest margin disclosure.

On your question about the.

The downside scenario around an interruption of of energy supply to the German economy.

Been talking with our economists naturally we do our work.

Looking at these scenarios.

We would come out with similar numbers frankly to the Bundesbank study.

And so it is a relatively significant impact on the economy and that sort of stress case.

And potentially a lasting one because you can re factor the economy and source supplies all that quickly so it potentially would be in <unk>.

That is it goes beyond sort of one year I can't provide you with the ECL impact that would be.

A lot of sort of stress testing disclosure, but what I can say is.

It's not too different from other scenarios that we look at and frankly prepare for which I think is the important takeaway.

The stress scenarios that we look at in our credit book.

Even in severe scenarios are manageable for us.

And I think the other thing that's very important as you think about that scenario.

Is that Germany has shown itself to have the physical space and the political will to support the economy to support households, and corporates in managing through some of these policy driven shocks that have taken place so.

ECL impacts that you're that you're asking about of course would be mitigated by whatever action the government.

To take either directly or through through the development bank. So.

It's really very hard to speculate and wouldn't give you much value frankly.

Given how subjective it is in the on the uncertainty about the Michigan's but it is something as you know because we are so focused on risk management on the concentrations in our books, we hedge as you know a significant amount of the.

Of the credit risk on our books through various mechanisms.

These are the types of of of adverse scenarios frankly, we're preparing for all the time.

So the five basis points of extra provisions. This year you referenced that's just the direct Russia theres nothing for supply chain bottlenecks any possible indirect impacts is that right yes.

So we're sort of looking at our base case today.

We're not building provisions for that what we still think is unlikely downside case.

But again frankly on a net basis.

With some assumptions about the severity of the crisis and the degree of fiscal support.

The increment may not be that much more than frankly, we've shown already again, it's very very path dependent.

Thank you for taking my questions.

Sure.

The next question is from Daniela.

From UBS. Please go ahead.

Good afternoon, and thank you.

Can I briefly come back to the capital return question and you made some remarks already but I was just wondering what.

<unk> currently prevent you from doing further buybacks this year or just to put it the other way around what would make you start another program already this year is it.

CET one ratio doesn't have to be above 13, or what is really preventing you from doing another one because currently dividends and buybacks. The 8 billion in total are a bit back end skewed that can load it and they would prefer to have a bit more OLED decent next year and then secondly more.

Technical question, you mentioned again, the DTA benefits potentially.

Ken can you give us a range of where that could land.

In terms of positive impact because obviously it could be quite important.

Imported in the context of the.

8% royalty targets. Thank you.

Sure. Thank you Daniel it look.

In this environment award going on all of the uncertainties that we just discussed with Stuart.

I think by itself that would temper.

Any management team's.

Perspective about about accelerating or growing capital returns. So it's something that we would.

We'd look at in light of the environment, we're in and the uncertainties we have trade.

Clearly right now the focus for us as delivering on that on that guidance, we've given for year end.

That means that we need to build a little bit of capital on a net basis through the year.

We think most of that will come in the second half based on sort of organic earnings growth or capital generation through earnings.

While supporting the balance sheet growth that was was in our planning.

And as you know from our discussions after the idd, we'd given ourselves some room in our in our capital planning some flexibility, particularly in 'twenty three and 'twenty four.

Hence, we just don't see we don't see any impact of todays ratio or outlook on our on our plans.

Distribution plans, but equally given the uncertainties, we wouldn't be sort of in a rush to accelerate at this point.

On the DTA.

It's hard to say, it's going to depend on the analysis that we do every year of of U S profitability, both in year and on a projected basis.

I mean to give you a <unk>.

Rough range.

It could be at similar levels to what we saw in the fourth quarter of last year or so so call it around $300 million.

On.

In the tax line.

Thank you.

The next question is from Magdalena still closeout from Morgan Stanley . Please go ahead.

Thanks, very much and good afternoon, I've got two questions.

James one unfortunately still on costs.

Another one on the on the corporate lending and and pipelines there as well so on costs.

How should we scale the kind of the sources of inflation right because you've got two things you've got to payroll and you've got your valuable comp. So on the valuable pump I'm with you it kind of comes with the revenue.

Offset but how should we kind of scale youre kind of payroll inflation.

Because of course that we all kind of take on the Chin and.

I assume that's particularly.

Acute in Germany, and IV. So so any color that would be would be very useful.

Second.

I mean, your lending growth in the corporate bank kind of continues to be to be strong and I'm. Just I just kind of wonder how do your pipelines look like kind of there.

And where has the demand actually and what were the drivers of the current of the current demand. What are you. What are you seeing that thanks very much sure. Thanks, Matt for the questions. So look it is payrolls that we're looking at most carefully.

<unk> seen on non comp we've been very very focused and I think over several years now and while you do see sort of vendors attempting to put through price increases at something in part were protected from contractually and in part we managed through sort of competitive <unk>.

And demand management internally. So we're very focused on the on the noncompliance and as you say variable compensation in a sense is a good thing when it increases on.

On the payroll one thing I will tell you.

The recent agreements that we reached in Germany are in line with our planning so so.

While there is of course pressure all around the world.

At least that item has been now finalized without presenting pressure too to the planning or is in line with with the planning.

I think where we see.

Pressures and I think some of our peers have also talked about this is just retention.

And recruiting which.

Reflect the inflation that is out there in the marketplace.

In compensation costs, and that's something we've got to work hard to manage.

We want to be competitive, we clearly need to execute on our on our plans, including incidentally our control investments.

But but our work is cut out for us to do that within our budgets and that is where we see some inflation that needs real focus too to address.

In terms of the corporate bank lending pipeline. We are very pleased I have to say with the steady loan growth we've seen across both corporate bank and private bank by the way, so $2 billion to $3 billion per quarter of loan growth.

Is a good level for us wed.

Wed like to see sustained and it's it remains to the question about risks earlier within our risk appetite and and quality origination and also the client perimeter, we sort of target.

What's driving the CB is really trade finance.

And efforts that we've made over time to invigorate the lending side of our client discussions for a long long time.

Corporate banking.

Sales force was really a liability salesforce and it takes quite a long time to sort of re tune it to be both sides of the balance sheet and also to line them up in a way that's sympathetic to to how we manage liquidity and and essentially the funding costs. So so where we are.

Pleased about seeing now a sustainable hopefully long term sustainable impact on loan growth and as I mentioned earlier to Nicolas his question.

Think that this environment far.

Far from being a detriment somehow to this is an environment, where we're that much more needed and relevant for our clients, including with our balance sheet.

Great. Thanks very much.

The next question is from <unk> <unk> from RBC.

Go ahead.

Thank you very much.

Taking my question.

No.

Question on the NII.

And then just a question you wanted to avoid.

NII in Q1 of course PBS.

So anyone else this is Joe.

Bounces up quite a bit versus Q4.

So should we think that part of the 400 million previous CFO <unk> <unk>.

Hi, funded <unk> and <unk>.

Reflected in Q1 or is that largely coming in later.

Yeah.

And then on the <unk>.

<unk> inflation.

Normally youre quite specific on what we should expect the rest of the year and this time yet.

Is that the question is something in mind and you can quantify it or is it just.

Donnelley questions. Thank you.

Thank you for the questions. So on the first one we see it accelerating as the year goes by.

So a relatively modest amount of that $500 million is in the Q1 numbers.

And it's only in the CB non euro piece and as you can imagine, especially with rates sensitivity to the short end in dollars and dollar related currencies in CV.

That's only just started in may move quite quickly.

In the Euro books and of course PB is overwhelmingly euro.

What whatever the ECB actions are in both in magnitude and timing.

Would would impact the rest of the year potentially north of the $500 million because it isn't clear to us that everything that the ECB will do ultimately is already priced in.

You need to remember that there'll be a lot of moving parts when the depo rate moves.

Reversing deposit charging there is reversing.

The tearing, but then theres benefits from zero floor deposits and benefits from the asset side that come through so there's a lot of moving parts, but but the basic.

Trajectory is is significantly positive and accelerating through the year based on what we're seeing so.

So far right now we would assume that the ECB has moved and it's depot rate too.

Up by say 75 basis points.

And the fed by 235 basis points, so as you and that.

Largely it hasnt happened yet so you can see the the front end impact is still lies ahead.

On the <unk> and freight inflation, yes, there is some uncertainty we talk about.

These examinations would take place when we had the same sort of experience through trim, where you go through examinations, there's feedback and discussion.

Then a number in terms of model adjustments or overlays.

It's something you you incorporate into your <unk>.

Some discussions underway and we just don't know the outcomes at this point. So so don't know really what to build at this point.

Okay.

Thank you Andrea.

The next question is from Devin Mi BNP. Please go ahead.

Thank you.

Two questions slightly linked first one in particular is linked to some of the other discussion about provisioning.

It's notable that some of your U S peers and also one of your German peers.

Just taking the U S banks as well as taking precautionary provisions to cover the range of economic scenarios that could be ahead of us.

You didn't seem to have done so much of that so I was just wondering what your thoughts are on whether there was merit in booking some of those precautionary provisions given the range of uncertainty has put the potential impacts that could be coming.

And then my second question is rather more.

Chris a question just on the corporate center.

Which was a heavier drag.

Normal.

Just sort of run rate guidance that you've given us the various components of that so I just wondered do we expect all of those to normalize quite rapidly and the remainder of the year. Thank you.

Thanks, Jeremy I appreciate the questions. So look we think we have done so in terms of precautionary provisions I'd point, you to the disclosure on pages 31, and following on our <unk> nine determinations in the overlays that.

That we put in.

As I said to Stuart.

Does it reflect a you know a severe downturn sort of scenario at this point.

We do build essentially.

Sort of variations into our models. So we use a central scenario macroeconomic variables and the and the the sort of ranging of scenarios around that is essentially implicit in the models.

So it's reflected in the <unk> nine model driven it's been reflected in the <unk>. The forward looking indicators in other words changes in those variables on a forward looking basis and then we've applied some additional overlays you may see those overlays is relatively modest compared to peers, but as we said.

And the experience going through 2020, and the Covid impact are.

Our view is that simply reflects.

The relatively low risk loan.

Loan book that we run.

Sensitivity.

Highly collateralized.

Often hedged in terms of the <unk>.

Credit risk and and hence our provisions are precautionary provisions, sometimes seem less than others, but but I'd invite you to look at this disclosure in terms of how it's predicated.

The corporate and other numbers as you call out were a drag on the performance this quarter. So we had.

Considerable headwind from valuation and timing differences in rounding $200 million there.

And a higher than normal at what I'll call Treasury residual.

I would not expect those to repeat in anything like that that magnitude in the quarters to come.

Evaluation and timing is inherently sort of a function of the markets and.

And we saw a huge amount of volatility in the quarter.

So overall, we were reasonably pleased with the outcome there given all the twists and turns that took place and remember essentially that V and ta it can reverse sort of any given day.

Based on the changes and curves and relationships and B all.

Similarly, those losses will pull to par over time, given that theyre hedging sort of accrual positions.

And on the Treasury residuals again, we've given guidance of sort of 300 ish million. There. So so the first quarter was unusually heavy and we'd expect that to moderate as well over the year, but net net it was a drag on the on the Corp on the.

The core bank performance in the group.

That's helpful. Thank you.

Next question is from Andrew Lim from Society gain at Idaho. Please go ahead.

Alright, thanks for taking my questions.

So the first one is on your NII guidance, if I understand correctly disposal include.

T O P already run off.

So if we did assume that this program has run off.

What extent would it.

Bringing down your NII guidance.

And then secondly, just revisiting the cost.

Try again.

How committed are you still to this 450 million sequential reduction.

And costs going forward and what will be the starting point and looking at Q1, what do we.

I would tell you that 4616 on.

On slide 10.

Or do we also take off the <unk>.

Javier you can call me.

What else that you that you indicated.

So Andrew Thank you for the questions look at.

On slide three to slide nine where we show the net interest margin impact of the <unk> kicker and as that comes out.

100 basis points of the margin.

We're running right now at $1 12 and change per quarter of <unk>.

And that steps down call.

Call it by half in the second in the second half of the year.

So that's built into our to our forward look but as I mentioned in answer to <unk> question. I think it was we have significant acceleration underneath that that we would expect from the from the rate environment.

As both long and short term rates come through.

And then your question on the $4 6 billion, it's exactly where we were going in the discussion with Ken you know our focus is on bringing down the run rates.

We were happy with where we were in January and February and less so in March although again the reason for the March.

Is it a bump was was by and large positive around Rev.

Revenues, both in quarter and in the future.

But yes, that's the number against which to measure us and if you look at what it takes.

Two to.

To deliver the year in line with our targets.

There is a path that's in line with the guard in the guidance and the run rates.

That we've provided.

And obviously.

If other things go against us, whether it's inflation or uncontrollable items like.

<unk> was in the in the in the past quarter, we need to find ways to offset that and that's that's the work that management focuses on I can tell you sort of day in day out weekend wake out.

Great. Thanks, and then just as a follow on.

Yeah.

Pizza experience that you're having.

Thus far is that closer towards zero or 100%.

Well, what you've seen so far and it hasn't really started because it's really a short term rate driven item and frankly and say in the dollar area when you're coming off a zero floor.

Youre going to be pretty close to a 102 zero.

So a 100% capped.

I will say.

Some of our deposit base in dollars is what I'd call professional money.

So.

That will tend to be sort of a 100% beta business. Some of it some of it is actually zero.

Because of the terms of for example trust structure. So it's a bit of a mix and too early to really give you guidance as to.

The performance against our modeled result, as I've said on some earlier calls my my instinct at this point is that we should outperform our models.

As this starts off but we haven't really got.

Time series yet.

To back test against.

Okay, great. Thank you.

Yes.

Okay.

The next question is from Andrew comes from Citi. Please go ahead.

Yes.

Right.

We can forget about that.

Answer to Ken's question.

You obviously have they provided in January and February .

With the deep dive and then subsequently today you've talked about.

Being one.

January and February ticking up to one six in March.

I guess the question for me is we know your cost income ratio was 73, 6% over the past two months.

Of the year, because you helpfully provided that they are.

And that includes the levy.

Neither in March therefore, it must have been around 73% as well given what you reported for Q1 and that's without any lumpy contribution in March.

I appreciate your comments on Hyatt Com.

And in March, but I guess the question as well.

What gives you the confidence to go from 73.

Down to 70 or even below in the remainder of the year.

We're not you got to usually quite strong and I imagine the volatility post election, you Craig that's been very supportive in the fixed income revenue.

Why the confidence thank you.

Yeah, So Andrew.

The.

What you just went through is one of the reasons, we sort of labor through the <unk> in the first quarter because it's so distorted in terms of looking through what the run rates.

<unk>.

But.

Absolutely. We you can quite easily do the math off of run rates. If you just do a sensitivity analysis 1515516 say you know what the revenues need to be on a monthly basis and cumulatively over a quarter to hit the targets.

Nearly we need to manage this down.

From the first quarter, but acknowledging that a significant impact in that 73, 4% for the first quarter.

Was that forest F R F driven and that doesn't repeat.

But it's the math of it.

Cost income ratio that are at a run rate, we need to we need to make sure that the that the revenue support the expenses or if not that we are taking the appropriate actions to manage the expenses down.

Yeah.

Okay. Thank you.

The next question is from Adam to the lack of Mediobanca. Please go ahead.

Hi, I wanted to come back to NII again.

I know you've given us.

So I could see a billion dollars by 2025.

Yes.

The full year <unk> number.

The market for what you said kind of 25 basis point hikes.

Alright has moved.

70, 580 basis points, which for me with much more than half billion I'm, sorry, you've given us today.

Can you just talk through what I might be missing why while the upgrades on any bigger.

And then thinking about how to put this through our models.

Over the coming quarters, it sounds like in the corporate bank.

The replication models the hikes coming.

It could mean.

Key ni only upgrades to the CEB three this year.

Could you give.

Good luck to the private bank I know, you're saying headwind so that how we should think about that developing CBA, let's say $500 million coming through.

In terms of U S dollar.

Our reputation and long end moves that we've already seen.

And so Adam.

We refer you back to the first quarter NII disclosure that we built on and the Idd and that gave you a sense of the sensitivity.

Sensitivity to short versus long term rates.

Just in a.

In the kind of year one analysis.

It is short term rates that can drive an impact and of course, they haven't moved or Havent moved by.

By a meaningful amount clearly the depo rate.

There is also some of the sensitivity because of our hedging.

It doesn't show up even in short term rates doesn't show up right away. So hence not much impact in Q1, but an accelerating impact going forward to your point about about corporate bank, yes, we would see an accelerating impact there given that it is a higher sensitivity to both short term rates and too.

Non euro rates than the private bank.

And the private bank takes some time there is an odd negative sensitivity in the short term for the private bank.

It just takes longer to feed through.

Given that it is.

It's a longer duration deposit book that we're hedging there and it just takes longer for four.

Long term rates to roll through and benefit that book.

Okay anything im missing on me 2025.

You said <unk> 5 million for.

Hole in the slides and the like.

More than 75 basis points, yes.

Yes.

So we're calling for the.

$500 million increase in AR.

In the <unk> in the fourth year in 2025, so right now our models would suggest 2 billion out that out that far.

As we mentioned I think at the Idd some of the upside sensitivity is non linear to the down to the downside if you like and so there are probably some quirks in.

And how the the detailed modeling.

We do internally behaves versus perhaps some some outside in modeling so so.

It's probably the answer to your question is the corks of of how the portfolio is working and our hedging strategies.

Okay understood.

The last question is from Amit <unk> from Barclays. Please go ahead.

Alright, thank you.

Some follow ups and firstly just on the capital return and I just wanted to double check whether there was any kind of let's.

Let's say regulatory restriction or conversation.

Limiting your ability to do.

So the buybacks at this stage and.

Kind of curious given that you say fast and think that the first half buyback.

And within that or is that just wondering if the group we're trending below the 13%. Obviously there is a bit of variability in auto delay that you flagged.

During the remainder of this year.

And how you would look to address that.

And then my second.

Question.

So just again relates back to the cost points.

I wanted to check it again this is more of a detailed point and maybe I can follow up with the Investor Relations team at the time you gave very detailed guidance on the February year to date P&L.

When I look at that guidance to $4 9 billion of <unk> seven.

<unk>, 73.5% cost income ratio.

It's still it does imply a slightly higher kind of monthly cost.

Trends in the one five and John said, so I just wanted to check what is some of that cost.

Costs that I'll say kind of shifted.

March.

Thank you.

Yes.

Kind of follow your math and.

Andrews math or.

Earlier.

Again, I think the distortion, maybe the single resolution fund.

On the costs, but starting with capital returns.

No I mean as I indicated two to Daniela.

In this environment, we wouldn't go and ask the question and hence no discussion no no constraints.

But as you know our capital planning is something that we're highly iterative with with our regulators about.

And they have a high degree of visibility so it would be.

Our fluid dialogue, but no sort of restrictions that are being placed on us.

In terms of our W. A variability there is always a large number of moving parts in the <unk> planning and the capital planning that we do.

And so it's a very detailed and frankly dynamic process.

There, we see accessions arising for any number of reasons market risk RW, a regulatory changes growth that exceeds our expectations or other things, we take offsetting actions and it's part of our day to day management of our W. E. As we do all of the other resources tightly within within the firm.

And then your again your cost to income ratio.

To kind of look at the run rate ex that $730 million, given how does sort of it as you know the.

Hence we are us.

Guiding you to the 66% that we had at the group level. If you exclude the 730 so.

The monthly run rate.

Does running below 70%.

Ex the Srs every month of the first quarter.

And.

Of course, there is some seasonality in the first quarter. So there's the question of will you sustain that same level of of.

Of revenues.

And then there's the work that lies ahead given the averaging effect of having a third quarter at 73%, including the Srs. It means we need to run to continue to run below 70, you know on a monthly basis from here and that has management's laser focus.

Okay. Thank you.

Thank you Amit.

Okay.

There are no further questions I will hand back to <unk> <unk>. Please go ahead.

Thank you for joining us for first quarter 2019 results call and for your questions. Please don't hesitate to reach out to the Investor relations team with any follow up items and with that we look forward to speak to you at our second quarter call. Thank you.

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

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