Preliminary Q4 2021 Deutsche Bank AG Earnings Call (Fixed Income)

January 28, 2022

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[noise] [music].

Ladies and gentlemen, welcome and thank you for joining Q4, 2021 fixed income call of Deutsche Bank.

Throughout today's recorded presentation, all participants will be in a listen only mode 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 key followed by zero for operator assistance.

I would like to turn the conference over to Philip Choyce Shneur. Please go ahead.

Thank you Gerard.

Good afternoon, or good morning, and thank you all for joining us today.

On the call our group Treasurer Dixit Joshi here will take us through some fixed income specific topics.

From the subsequent Q&A session. We also have CFO , Sam from market with them to answer your questions.

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

After the presentation, we'll be happy to take your questions, but before we get started 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 hand over to fix it.

Thank you Philip and welcome from me.

We are now almost three quarters of the way through this strategy. We launched in 2019. The progress. We have made shows 2021 was a pivotal year in this transformation journey.

Lastly, we have demonstrated the strength of our franchise. This is reflected in the market share gains we made in key businesses over the past two years and we remain encouraged to see client engagement continuing to grow.

Secondly, we continue to work intensively on transforming the bank, having booked transformation charges of 1 billion euros, and approximately 500 million euros of restructuring and severance in 2021, we have now recognized 97% of our total anticipated transformation related effects.

Our transformational efforts and investments over the past years are paying off and will help drive reductions in our expenses in future quarters and years and we continue to be absolutely focused on capturing these benefits through further cost saving measures. So we remain confident we are on the right path to meet our 70% cost.

<unk> ratio target.

We also delivered on another important milestone within our capital release unit by completing the transition of Prime finance to BNP Paribas.

This means our deleveraging exceeded our plans and our leverage exposure in the CRE is now down to 39 billion euros from 70 billion euros at the end of 2020 and down 84% since we launched our strategy in mid 2019.

And finally, the transformation delivered significantly improved profit.

The ability in 2021.

Our pre tax profit of $3 4 billion euros more than tripled compared to 2020, despite higher transformation charges.

We reported a net profit of $2 5 billion euros are more than four fold increase compared to 2020 and Deutsche Bank's highest full year profit since 2011, despite absorbing additional transformational expenses.

Now let me take you through the financial highlights of what we have achieved in 2021 and since 2019 on slide two.

We have grown revenues and reduced expenses each year since 2019, while at the same time executing on our transformation.

We again delivered positive operating leverage at group level in 2021.

2021 provision for credit losses declined 71% year on year to 12 basis points of average loans.

This reflects the benign credit environment, but also the strength of our conservative loan book and sound risk management.

Return on tangible equity for the core bank is 6% for the full year and eight 5% on an adjusted basis.

Sets us on a clear path to a group target of 8% return on tangible equity in 2022.

Our focus on transformation has driven a steady improvement in underlying profitability, which can be seen on slide three.

In the core bank, we have more than doubled our adjusted profit before tax since 2019, including an increase of 46% in the last 12 months.

Our improved profitability was a major driver for the three rating upgrades. We received in 2021 the latest by S&P in November .

As not only a recognition of our transformation success, but it also further supports our client engagement and revenue momentum.

The capital release unit delivered another year of significant portfolio reduction are.

A key driver of higher profitability is our sustainable revenue performance, which I will now turn to on slide four.

Revenues, excluding specific items in the core bank stood at $25 3 billion in 2021 up 5% compared to 2020 and 11% since 2019.

Revenues in the corporate bank were flat year on year as underlying business growth and continued deposit repricing offset interest rate headwinds and we are particularly encouraged to see revenue growth accelerated this quarter.

In the investment bank revenues increased 4% year on year compared to a strong 2020.

Higher contribution from origination and advisory while fixed income and currencies revenues were essentially flat.

And the private bank strong business volume more than offset interest rate headwinds and the impact of foregone revenues from the bgh ruling in April .

As a result revenues were stable year on year.

Asset management delivered significant revenue growth of 21% year on year, driven by strong management and performance fees assets under management closed at a record 928 billion euros.

Group revenues, excluding specific items were $25 3 billion, a 9% increase from 2019.

While we benefited from favorable market conditions in certain business areas 2021 revenues also demonstrate our ability to offset headwinds in light of our business mix.

And thus 2021 revenues provide a solid base to grow from here and this is confirmed by the momentum carried through to the first weeks of 2022.

Let me now turn to costs on slide five.

We have reduced our cost income ratio by 24 percentage points since 2019 with noninterest expenses declining by 14% to $21 5 billion over two years.

Year on year 2021 expenses were up 1% the increase reflects higher transformation related effects of $1 5 billion up 21% year on year predominantly driven by transformation charges of 1 billion more than double the amount we didn't.

'twenty.

At the same time.

Adjusted costs declined by 1%, despite higher volume and performance related expenses, reflecting improved business performance.

2021 was an investment year, and we have made and continue to make significant improvements in technology. These efforts already delivered savings in 2021. However, we made a strategic decision to reinvest them this year to support lower costs in the future.

We have also worked to deliver on our commitment to invest in our control environment.

Let us now look at topics that drive our revenue performance over the next slides.

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

On a FX adjusted basis loan growth in our core businesses has been 18 billion euros. This includes temporary short term lending growth to support strategic transactions over a year and in the investment bank of approximately 7 billion euros, which is expected to reverse in the first quarter.

In addition to this episodic growth we saw again strong momentum in mortgage lending in our private bank as well as high client demand in corporate Treasury services towards year end overall.

Overall, we expect further loan growth in 2022, especially in our private bank and corporate bank offsetting the expected normalization of lending activities and our investment bank.

Looking at deposits, we have seen an increase of 16 billion in the quarter on an FX adjusted basis, primarily from ongoing growth in our retail franchise as well as targeted deposit raising to fund the exceptional loan growth in the fourth quarter, we will adjust the size of our deposit portfolio as our loan book normalizes.

In addition to actively steering the size of our deposit book our momentum in repricing deposits has also continued during the quarter as shown on slide seven.

At the end of the fourth quarter, we had charging agreements in place on a total of 138 billion euros of deposits generated quarterly revenues of 126 million euros.

Compared to the fourth quarter of the prior year, we implemented additional agreements on 53 billion euros of deposits generating revenues of $408 million in 2021.

Looking ahead, we are confident the momentum will continue in 2022.

Our fourth quarter annual run rate of around 500 million euros shows that we will see the full annualized benefit of our 2021 repricing measures this year.

We also expect further growth in deposits subject to repricing across the corporate bank and private bank. This expansion will offset the ongoing interest rate headwinds and the private bank.

Let me now give you some additional details on how the changing interest rate environment is expected to impact our business on slide eight.

As we discussed last quarter, the interest rate environment negatively impacted our 2021 revenues by about $750 million in comparison to 2020, mainly in the corporate bank and private bank.

Despite this drag these businesses were able to maintain a broadly stable revenue base as a result of lending growth fee income and deposit repricing.

We expect the interest rate impact along with the annualized <unk> of deposit pricing actions to swing to the positive in 2022 and to support revenue growth from this point on if current forward rates are realized assuming a constant balance sheet Q.

Cumulatively, we would expect this impact to reach 900 million euros per annum by 2025.

As short end rates rise, we will see a reduced drag from our remaining flow deposits and rises in long end rates will result in hedge portfolios on average being rolled at rates higher than the positions they are replacing.

We also remain positively get two rate rises above current forward levels from improving deposit margins.

This additional upside is not reflected in the numbers in the graph above.

We have provided you with the estimated impact on our revenue base for a 25 basis point rise of interest rates across our key currencies at the bottom left of the slide.

This sensitivity is likely conservative given the opportunities for margin expansion that will arise as rates rise, particularly as euro rates Cross Cerro <unk>.

Just to note both the expected tailwind from current forward curves and the sensitivity to additional moves in key rates reflect the impact of deposit repricing actions that is these liabilities are treated as floating rate modeling.

Moving to slide nine which highlights the development of our key liquidity metrics in line with previous guidance over the last 12 months, we actively manage down our liquidity towards targeted levels standing well above regulatory requirements at year end.

During the last quarter high quality liquid assets decreased by about 10 billion euros. This.

This is mainly due to mature capital market issuances and strong loan growth across all businesses, including the exceptional temporary increase in lending in the investment bank has outlined earlier.

Liquidity deployment was partially offset by deposit increases quarter on quarter following ongoing growth in our retail business and targeted deposit funding to support the loan growth during the last quarter.

As a result, the liquidity coverage ratio decreased to 133% by about 7 billion quarter on quarter.

In 2022, our sound liquidity position will continue to support the businesses, while comfortably exceeding regulatory requirements.

The net stable funding ratio at year end declined towards our targeted levels of 120% in line with the LCR, representing a buffer of 101 billion euros comfortably above the 100% requirement.

Strong loan growth in the fourth quarter was supported by deposit growth and the transfer of the Prime finance business to BNP Paribas.

Which has been successfully completed at the end of 2021.

The longer term funding sources for the bank remain well diversified and continued to benefit from a strong customer deposit base, which contributes about two thirds to the group's available stable funding sources.

For 2022, we continue to maintain this funding mix, which is supplemented by debt issuances as well as capital.

Our net stable funding ratio is currently supported by our <unk> III participation as is the case with the majority of European banks.

Our planning assumes no extension to <unk> operations, and we therefore aim to begin prepaying TLC <unk> III to replace it with other sources of funding over the course of 2022.

In case, a new TLC Aero series becomes available we will review our planned repayment schedule subject to the terms. Therefore, our planning regarding TLC are always conservative and any new operations are likely to represent a tailwind to our plans.

Turning to capital on Slide 10.

We finished the year with a common equity tier one ratio of 13, 2% in line with our guidance and up 22 basis points compared to the prior quarter.

CET, one capital increased in the quarter, adding 17 basis points to our CET one ratio as improvements in our valuation control framework led to a release of a regulatory capital deduction.

Fourth quarter earnings were principally offset by the deductions for dividend and 81 coupons.

Higher risk weighted assets driven by core bank business growth, mainly credit risks were more than offset by lower market and operational risk weighted assets.

CET one capital now includes a capital deduction for common share dividends of 689 million for the full year, meaning that the distribution plans, we announced will be neutral to the capital ratio by the second quarter.

For 2022, we expect to keep a strong CET one ratio of around 13% and in any case above our target of 12, 5%.

That said, we expect a moderate decline.

Tier one ratio in the first quarter of this year.

With some variability during the year for example from pending regulatory decisions on <unk> models.

We expect to finish the year with a CET one ratio of 13%, Ohio.

Our capital ratios remain well above the regulatory requirements as shown on slide 11.

The distance to our most binding capital requirement has increased by 36 basis points over the quarter and now stands at 279 basis points.

<unk> one basis points of this increase related to a higher distance to the CET one ratio requirement.

15 basis points of the increase a result of completely filling the combined 81 tier two bucket most prominently through our successful 125 billion euros 81 issuance in November 2021.

As announced this morning.

We will call our 175 billion euros, New style 81 instrument, which was issued in May 2014.

Together with the $1 5 billion U S dollar tier two issuance executed this January .

This shift from 81 to tier two further aligns our capital structure with the requirements.

We will provide additional details on our 2022 ish new issuance plan later in this presentation.

Our distance to regulatory requirements has slightly increased to 10 billion euros.

This means we are well prepared to absorb the impact of the most recent Boston announcement to increase the counter cyclical buffer for Germany and to introduce a new systemic risk buffer relating to certain domestic risk positions starting with the first quarter of 2023.

Moving to slide 12.

Our fully loaded leverage ratio was four 9% an increase of 18 basis points over the quarter.

Of this increase 17 basis points came from tier one capital.

Within that six basis points came from core tier one and our successful 81 capital issuance in November 'twenty, one contributed a further 11 basis points.

Leverage exposure, excluding FX effects decreased by 8 billion quarter on quarter as continued loan growth in the core bank was more than offset by the transfer of Prime finance balances.

Our pro forma fully loaded leverage ratio, including certain ECB cash balances was four 5% in line with our 2022 target.

With our reported leverage ratio of four 9% at the end of the year, we have a buffer of 171 basis points over our leverage 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.

As expected we have received a new ml requirement and a new subordinated enbrel requirement from the single resolution Board in December 2021.

Both are now based on <unk>, rather than total liabilities and own funds.

As a result and as per our third quarter guidance. Our umbrella headroom has reduced by 8 billion euros 214 billion euros at quarter end.

<unk> remains our most binding bailing ratio. Despite a 21 billion increase in the subordinated ml requirement, which is now tighter than T. Lack.

Our loss absorbing capacity buffer remains comfortable and continues to provide us the flexibility to pause issuing new senior non preferred senior preferred instruments for at least one year.

Moving now to our issuance plan on slide 14.

We issued 20 billion in 2021 in line with our issuance plan during.

During November and December we issued roughly 5 billion euros in senior preferred senior non preferred and one format pre funding part of our 2022 issuance requirement.

The $1 25 billion 81 transaction in November pave the way for us to call, our 6% 81 transaction, which we announced this morning.

This refinancing was 15 basis points tighter than the 2014 issuance, but also features a more flexible KOL schedule, which is valuable in terms of managing our capital stack.

In aggregate, we issued 6 billion euros less than our total redemptions in 2021.

We saw significant spread tightening over the course of 2021 supported by ratings upgrades from all major agencies.

And we remain on positive outlook with Moody's and Fitch.

Our senior non preferred spreads tightened by 40 to 50 basis points significantly outperforming our peer group.

Turning now to 2022, we expect to issue between 15% and 20 billion euros in line with last year's plan.

This will stabilize or slightly increase our total debt stack, depending on the final issuance number and the quantum of non contractual outflows we experience.

The composition is similar to 2021, but we plan to focus more on covered bonds. This year.

This will partially refinanced planned repayments this year of our participation in the <unk> program.

As you will have seen we took advantage of strong market conditions in early January and issued a dual tranche transaction in the U S market, raising $3 billion and senior non preferred and tier two format.

Our plan foresees further senior non preferred as well as capital issuance over the course of the year.

And as in previous years, we will look to be agile in taking advantage of market windows to meet this requirement.

Other transactions take our year to date total to 4 billion euros or roughly 25% of the lower end of our full year issuance plan.

I would point out that the 2022 issuance plan focuses on our primary refinancing instruments and excludes structured note issuance.

Turning to the outlook on slide 15.

2021 confirm the resilience and growth potential of our core businesses and this reinforces our confidence in continued business momentum significantly exceeding our previous 2022 revenue ambitions.

We remain highly focused on cost discipline and delivery of the initiatives, we have underway and as noted we recognize substantially all of our expected transformation related effects by year end.

Treasury is also contributed to the better group profitability by improving the efficiency of the balance sheet from several angles, including the management of our liquidity towards targeted levels.

Overall crystallizing the expected savings and a reduction in investments are the key elements of the cost trajectory towards the 70% cost income ratio target for 2022.

We expect credit loss provisions to be around 20 basis points in 2022.

Our credit portfolio quality remained strong and we are well positioned to manage emerging risks, including geopolitical uncertainties supply chain disruptions and expected policy tightening.

As noted we expect to maintain a CET one ratio of around 13% and in any case above 12, 5% consistent with our target.

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 you May press star followed by one on your touch tone telephone if you wish to remove yourself from the question queue. You May press star followed by two.

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

Wanted to ask a question you May press star followed by one at this time.

One moment for the first question please.

First question is from the line of brushes Kumar from Society Generale. Please go ahead.

Hi, good afternoon. Thanks for this detailed presentation and of course, you may questions I have three.

If I may.

First one being can I guess some.

Gimbal sensor on your call strategy in light of today's even call. It <unk> say, some kind of standalone spread target.

Some.

Target versus peers, and how should we see this.

In light of your outstanding legacy tier one instruments.

Our next one on similar lines. If you can talk about capital instrument is one strategy you see you have what three.

Two 4 billion for tier 281.

With todays call you will be just filling up your SD Wan bucket. So is it fair to assume that we can see you active in tier two and 81 this year.

And finally, one on capital or what are you thinking in terms of approach.

Appropriate to MDA buffer in light of.

Think requirement.

Counter cyclical in terms of total systemic buffer.

<unk>.

<unk> and <unk>.

Thank you for attending the call and thank you for those questions. So I'll run through.

Those in turn.

<unk> com strategy and it might sound like a broken record here, but the core strategy always for US begins with the economic center transaction naturally into that calculation on a number of number of criteria including use of.

Use with regard to our capital and regulatory metrics future uses of funding instrument and so on.

And so we'd later in November as you know through the issuance of <unk> in Europe transaction that we did.

That laid the path for us.

To enable us to call.

One that we did this morning this was a 6% 2013 eurobond.

We like the fact that the new issue. We did have an annual coal as you know the one that we call today has a five year Nicole so factoring in the flexibility.

In our capital stack is also an important criteria for us.

To your point on legacy tier one instruments as you see in the deck. It's de Minimis right now it's around 600 million euros, given that we had already called in the past Bank funding Trust too.

That makes two other instruments as you see we have not called those as yet but as you know there was a fairly low coupon even on a spec basis.

Very cheap funding instruments for us at this moment in time.

So we deem that to be cheap funding qualifies for a number of metrics like lgs just as an example.

So at this moment in time.

We're quite comfortable with those as funding instruments.

In terms of.

Our future issuance strategy as you point out we have.

As part of our 16% to $20 billion.

Issuance plan that we've outlined here.

In typical fashion, we would give you guidance at the beginning of the year and then.

Iterate through the course of the year as our balance sheet and requirements evolve.

$15 billion to $20 billion.

Did issuance this year.

Within that we have the amount $3 4 billion for capital instrument issuance as you've seen we've been quick out of the gates to start.

Along that path with the tier two issue. This was the billion and a corporate dollar issue that we did in January this year.

Naturally we will look at market opportunities to continue to serve the remainder through the course of this year.

Well.

And the last question.

On the MDA buffer.

What you see on page 11.

Our 10, 4% CET one ratio requirement I think is important to note that embedded within there is a contribution of 2.5% peak to our.

Which is a.

Much higher than any of our peers in the eurozone and so I think that.

Keeping in mind and then the second is that we are subject as James mentioned yesterday on the equity call. We are subject to a domestic SIFI buffer of 2%, which is well in excess of the one 5% <unk> feedback and again, we're one of the few institutions in Europe , as well, which has that dynamic as well so we think that.

The requirement of Kevin tend to focus on is an elevated requirement. So we more than comfortably meet and buffer against.

As you've seen.

Sort of a minimum target minimum requirement of 12, 5%.

Going to the 13th two we've indicated that through the course of this year it will be managing capital to at least 13% by around 13% at the end of the year. So we're quite comfortable.

That will be able to manage our MDA and MDA buffers.

Prudently.

The answers all the questions.

Yes, very clear thank you.

Next question is from the line of Lee Street from Citigroup. Please go ahead.

Hello, Good afternoon.

Thanks, Nicole and thank you for taking my questions. Three for me. Please just on ratings.

So yesterday, you spoke about the benefit being upgraded before and that helps you with the margin.

Specs.

Your positive outlook still look to agency sources a question of what are the next milestones why what really matters for you in your writings and upgrades here in terms of actually having a meaningful benefit to your business.

Secondly.

You gave some disclosure about rate sensitivity.

Helpful.

What's more important is it.

An increase in base rates.

Actually a steepening of the curve.

Separated out just trying to frame that would be helpful. And then finally, obviously well done you've got your buyback approved. So that's my question is given where your stock is trading why why would you not do a bigger buyback relative to paying a cash dividend.

It seems like most things between a bigger buyback.

Just out of interest any thoughts around that would be much appreciated. Thank you.

Thanks, Lee Hi, it's James.

Couple in Texas may want to add.

Lastly on the ratings, it's hard to say, we're obviously highly engaged with the rating agencies.

We focused on delivery and when you say what milestones are there.

From our perspective, it's just continued disciplined delivery against against.

The objectives that we've set out and our hope is that good things will follow.

I think it's as simple as that.

Just switching to your third question on dividends and again they said they wanted to add it's always a balance that you're trying you're striving to achieve.

A lot of shareholders would seek.

The highest possible dividend in place less value on a repurchase.

And some in <unk>.

Actually the opposite camp than believes that the.

Corporate finance value of repurchases. When you are trading below book value is more important than dividends in the early.

At this point in time.

Our view is we've achieved a good balance between those views.

So for now we're very comfortable with it.

A little bit to thinking.

By way of background.

Hi, This is dixit here and just to add.

The sort of commencing on the path for distribution, including through buybacks does give us flexibility depending on the evolution of net income in business through the year. So we think this is an important.

Early step.

I've been to have been.

Taking.

On rate sensitivity, what you do see on slide eight.

On the lower left is that we have a material amount of short term rate sensitivity in euros as you'd expect.

The first 25 to 50 basis points is probably the most important given the nature of our deposit books in euros and the turbulence.

Deposits.

And so you would find that in the earlier but of course.

As long rates go up as the curve steepened and as we get through.

Those are the hedges.

Over over a longer period of time that doesn't fit into our.

Our year four numbers, which is the dynamic that you see so.

We are sensitive to both.

In a slightly different manner.

That answers your question.

Yes. Thank.

Thank you.

Next question is from the line of Daniel David from Autonomous. Please go ahead.

Good afternoon, Thanks for taking my questions.

Yes.

Talk about 12, 5% CET one target.

Can you also talk about 13% and then staying.

Moving a bit higher than 13.

Fair to say that the targets already 13% level of $12 alright.

And then just on track.

With the German <unk> in UK cc might be what's the impact on your MTA in 2023, and I guess im kind of thinking can Germany, but higher than the 700 <unk> that's been.

Disclosed and then finally, just wondering on climate, just any thoughts or any information you can provide about how climate risk is captured in your iqos would be very interesting given those customers.

Kicked off in Europe .

Maybe it's James I'll, just start briefly on the first.

We set the target deliberately as a greater than $12 five.

Theres always some variability some variability in the ratio.

In each period.

So.

The 13 is a good milestone and guide it should increase over time as we build to the Basel III final framework lateral that's needed in in 2025.

And as you as we get closer to that 12, five bounds you'd see us taking actions in order to two.

Offset the impact of.

Yes.

Movements on the capital ratio, particularly on the demand side. So.

I think it's fair to think of US is likely to run a buffer against the 12, 5%.

Yes.

On the extra point.

The counter cyclical buffer.

It's something that we have that site off within our plan again timing.

We're somewhat uncertain, it's come in slightly earlier than the plan then we would have expected.

We don't view is that we don't.

Viewed as a material impact to our trajectory through the next two or three years.

If you assume we expect that impact to be in the region of seven.

70 basis points due to the counter cyclical buffer increase which is very manageable.

With a further 20 basis points approximately related to the 2% add on to Jim and mortgage AWS.

On climate.

B had outlined that they don't anticipate any increased capital requirements.

Again, Thats a stress test that we're working our way through as well.

On the qualitative side that will form part of the strip going forward and so.

Similar manner to the process that we've been through before.

We will be working with the ECB on that.

Thanks.

Just clarify that and 30 bps <unk> B is that Germany, and UK or is that just the chairman since you're lapping.

That's the texture German Jim an element, which is 50.

50% of our loan book resides and so which would have the.

Most material contribution we don't view.

Many of the other regions is having a significant contribution perhaps in the low single digit basis points.

Alright, thanks for clarifying.

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

Hi.

Good morning, good afternoon, and thanks for doing the call.

Got one question on capital and a couple on interest rates.

And just going over some ground that you've already gone over in some yesterday to win.

When talking about <unk>.

MDA calculations.

I get the sense that there.

There is a feeling that they the way these are calculated overstate the risk of the bank.

Could you talk specifically about what elements of those calculations you feel overstates the risks in the bank. That's my first one and then on rates a couple.

First on the deposit charges as interest rates go up.

Do deposit charges fall away and at what level is that.

Secondly.

As you go to pay off <unk>.

And do more covered bonds are you concerned about crowding out in covered bond market and will there be any kind of fallout.

Senior prep and S&P.

As a result of that.

Yes.

More more issuance not only from you, but from others and then finally just in terms of new reference rates so for Sonya.

You got to write loans with these now.

There aren't very good hedges for them. So how are you hedging your exposure to these new reference rates.

And given that they're not.

That there could be some gap there.

Does that have any fallout into.

Your capital calculations are WH calculations, how does that come through the financials.

Thanks.

Thanks, Robert change here, thanks for joining the call.

On your first question, let me start with the <unk>.

<unk> G SIB.

Look I think if one accepts the G SIB measures represent one systemic riskiness.

And then on.

All those measures of 150 basis points would be the right level of.

Increment for that systemic nature.

The challenge for Us is that although the European scoring mechanism is.

Consistent across countries.

The individual national frameworks for translating the school or into a domestic SIFI.

Buffer are different so the calibration in other words is different.

Leaves us with a higher 2% domestic six feet than some of our peers, who I think arguably on the scores are at least as if not more domestically.

Systemically important.

And so it does create a disadvantage for us in terms of our total capitalization requirement relative to those peers, even competing in our own market.

Against those peers.

And to your question does it overstates the riskiness, it's obviously in the eye of the beholder, but.

But I think the comparison is directly it clear because the because.

Point, scoring system is equivalent around around Europe .

On the <unk> of course, it's much more nuanced and there it's.

In the gift.

Of the ECB naturally.

And so it's not for us to second guess their judgment.

Over time, our hope is that that the changes in our business model the improvements in the sustainable profitability improvements and the control environment.

We have other aspects.

We'll be reflected but it's not in our control and we can't really.

Make assumptions about it we would just observe that there are there are peers with relatively similar business models.

That are at lower levels of <unk>, So one would hope that.

Okay.

Again that comparison of MDA has built into it.

These nuance differences between ourselves and our peers.

I think the market should should understand.

I hope that's helpful.

It is.

Hi, This is dixit here I will take the remainder of the questions.

On deposit charging that's correct.

As rates rise, we expect deposit charging revenues to fall off almost one for one so.

The walks that Youll see on slide eight.

Exclude effectively deposit charging revenues in the in the outer years as rates go through zero.

On TNT.

We have been mindful as we were tapping the facility before to ensure that we manage the railroad and maturity profile in a manner that does not create any funding plus for us.

And Thats certainly the case now and so we would look to selectively refinance some of the capital market rates necessary. For example for this year. We don't think there's a very large requirement for us to refinance in the capital markets given some of the assets, we have underpinning <unk> liquid liquid assets.

We have put a placeholder in the plan as you correctly point out some more covered bond issuance either one would see more covered bond issuance over the subsequent in subsequent years.

Suddenly in our case, we don't see this as in terms of the way a burden from a refinancing position for us.

Is that we have.

I would say significant levers.

On the deposit side to be able to manage and drive.

Deposits.

And you've seen that over the last two or three years.

In terms of.

New benchmarks in RFS.

As you say Gen. One kind of came and went quite frankly quite smoothly as a result of all of the work done with regulators and the industry and clients and industry bodies.

Well over the last many years.

We are also issuing liabilities, whether thats directly in capital market for whether it's sunny.

Sonya.

It's through hedging by derivatives.

These exposures and bases are manageable quite frankly in the way we've managed basis risks before.

Before through time as well.

We don't see.

<unk>.

At this stage, but again, we have a basis in Capex framework.

That we would be monitoring those exposures through.

Okay. That's all very helpful. Thanks, and thanks for the detail.

Greatly appreciate it.

Thank you thanks, Robert our pleasure.

As a reminder, if you'd like to ask a question. Please press star followed by one on your Touchtone telephone.

Next question is from the line of James Hyde from <unk>. Please go ahead.

Hi, James.

This call.

I've got one clarification one related question.

So clarification is that counts.

Counter cyclical question mortgage 30 bps, plus 20 bps.

He is 20 bps within the 30 bps increase.

Secondly related question.

Yes.

And this one is worried about.

German mortgages.

Yes.

How do you view that in terms of how it could play out is it.

Something we've seen in history.

German retail borrowers.

Some problems.

Higher prices.

Developers.

As a company.

We see that playing.

Thank you.

The coverage ratios.

Okay.

Charges.

Sure.

Finally.

On deposit.

All right.

Ratings.

If we get in.

You wanted deposits excellence.

604 billion more total deposits.

We break them out.

Yes.

How much.

Thanks.

Senior preferred.

So the other way of asking it.

That's helpful.

And how much is <unk>.

<unk>.

Deposit guarantees.

Thanks, James It's James I'll take the first two.

So just to be clear 30 on the German 75 basis point countercyclical buffer, reflecting the rating of our German portfolio and additional 20, reflecting the mortgage.

Surcharge, and then probably depending on what actions.

Other regulators take another perhaps 10 basis points.

Washed through the mix.

Yes.

And maybe tightening James and it's taking a bit of noise on the line.

So you could imagine the MDA going from the current 10 four to around 11 as those various countercyclical buffers.

Flow through.

On the financial stability I think council.

On the German mortgage market based on what they've described they are concerned about if you like an overheating.

Reflected in prices and ability to pay.

And conceivably also lending standards and so the view is that this action can help offset some of that.

And look it may it may well do.

We naturally there is an impact on the economic sort of.

<unk>.

Mortgage contract on on the banks balance sheets, and so you would naturally expect an adjustment in it.

And perhaps the availability and pricing of the product, which in turn could have an impact and would be intended to have an impact on the performance of the market.

When that therefore might lead to a different assessment of the market in a relief of the counter cyclical component all hard to judge because in a sense. This is an experiment, but I think that's sort of.

Intended cause and effect.

How it will play through.

Yes.

Sure.

Change on that.

On the second just some some context as.

As we think about that and we'd like to come back to you, perhaps a bit later on that which is at 60% of our deposit base.

Is it is in the private bank.

When we look at deposits for example, when treating.

Enbrel purposes, we tend to take a fairly conservative view.

<unk> seen in the stack, we havent really included.

Constructed nodes in the forms of deposits and we think that gives us some flexibility in our enbrel stack going forward.

But as to the specific question on the quantum of seniority that's something I think we can come back to you on.

Scott.

Thank you very much.

Sure. Thanks James.

Next question is from the line of Tom Jenkins from Jefferies. Please go ahead.

Hello.

Everybody.

Hello.

Just one.

One question I'm, sorry, I was a little bit late.

On the call. So if you have addressed it.

Hello Charles.

Right.

These.

Rob's questions et cetera.

No.

No ma'am. Please first off so I think that protocol to questions.

But.

One I was asking I want to ask you on.

Is.

And it's in the sort of thing for me is about your legacies.

Specifically your Postbank funding ones and threes funding trust one for interest rate.

And what you plan on doing with those given.

And in your presentation.

Slide.

Just on slide 20.

You suggest state they are.

Yes.

Sure.

Lose all some CLEC and capsule enbrel eligibility since 2000.

Sure.

As of now.

I just wondered what your plans are for those.

I know you can't tell us exactly when or where.

What your thoughts are.

Tom Hi, Thank you for joining and thank you for the question.

Postbank, one and two as you pointed out remaining outstanding.

They're fairly low.

No spread and cheap funding for us even if they've lost their capital recognition.

I'm a swapped basis they represent good funding for us qualify for measures like.

And so at this moment in time, we're quite comfortable with keeping them outstanding again, it's something we will continue to evaluate.

Depending on markets and spreads.

We did though call funding just too because that was fairly expensive funding once the capital benefit.

And so we will continue to manage our stack.

Clearly with a keen eye towards regulatory value from many of those instruments I hope that answer the question. It does so is the question.

One question is concerned.

It comes back again with us being in particular around.

Generally deem as non compliant instruments.

With you just given that some of these loans are cheap or is that your call.

Well the de recognize from our capital stack as of as of January of this year. So.

Included in our regulatory measures.

I think thats important theyre not classified as Enbrel.

And the other is that.

600 million euros.

A capital stack up in the region of around 16 billion euros, So de minimis, even if they did count.

They don't.

Okay.

Is that something explicit run, but that sort of quantum.

Yes.

The S&P et cetera.

Now.

Negligible shall we say in terms of.

Payment priority.

Have you had that competition with them.

Tom it's up so much and I think the rules are.

On a clear and we've been managing towards.

Those regulatory metrics with film sight of instruments that get the recognized so we're fairly comfortable that our actions are fully compliant we have been managing the stack.

Prudently and we're always in close dialogue with DSR B.

Around us, including on any call decisions as well so.

But we'll be happy to answer any specific questions you have.

Okay.

Yeah.

I'll leave it with you, but at a fairly good rooms were clear.

Life would be a lot easier.

Alright, thank you for that and Thats much appreciated.

There are no further questions at this time and I would like to hand back to Philip toy Shneur for any closing comments. Please go.

Go ahead.

Thank you.

And just to finish up thanks, everyone for joining us today.

If you have any further questions.

And we look forward to talking to you soon again.

Ryan.

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

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Good afternoon, or good morning, and thank you all for joining us today.

On the call our group Treasurer, Dixit Joshi, where take us through some fixed income specific topics.

From the subsequent Q&A session. We are planning for our CFO Sam from market with us to answer your questions.

The slides that accompany the topics are available for download from our website at DB Dot com.

After the presentation, we'll be happy to take your questions, but before we get started.

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 hand over Unpredicted.

Thank you Philip and welcome from me.

Now almost three quarters of the way through the strategy, we launched in 2019 the.

The progress we have made shows 2021 was a pivotal year in this transformation journey.

Firstly, we have demonstrated the strength of our franchise. This is reflected in the market share gains we've made in key businesses over the past two years and we remain encouraged to see client engagement continuing to grow.

Income ratio target.

We also delivered on another important milestone within our capital release unit by completing the transition of Prime finance to BNP Paribas.

This means our deleveraging exceeded our plans and our leverage exposure in the CRE is now down to 39 billion euros from 70 billion at the end of 2020 and down 84% since we launched our strategy in mid 2019.

And finally, the transformation delivered significantly improved profitability in 2021 hour.

Our pre tax profit of $3 4 billion euros more than tripled compared to 2020, despite higher transformation charges.

Now let me take you through the financial highlights of what we have achieved in 2021 and since 2019 on slide two.

We have grown revenues and reduced expenses each year since 2019, while at the same time executing on our transformation.

We again delivered positive operating leverage at group level in 2021.

2021 provision for credit losses declined 71% year on year to 12 basis points of average loans.

This reflects the benign credit environment, but also the strength of our conservative loan book and sound risk management.

Return on tangible equity for the core bank is 6% for the full year and eight 5% on an adjusted basis.

Lets us on a clear path to a group target of 8% return on tangible equity in 2022.

Our focus on transformation has driven a steady improvement in underlying profitability, which can be seen on slide three.

In the core bank, we have more than doubled our adjusted profit before tax since 2019, including an increase of 46% in the last 12 months.

Our improved profitability was a major driver for the three rating upgrades. We received in 2021 the latest by S&P in November .

This is not only a recognition of our transformation success, but it also further supports our client engagement and revenue momentum.

The capital release unit delivered another year of significant portfolio reduction.

A key driver of higher profitability is our sustainable revenue performance, which I will now turn to <unk> on slide four.

Revenues, excluding specific items in the core bank stood at $25 3 billion in 2021 up 5% compared to 2020 and 11% since 2019.

In the investment bank revenues increased 4% year on year compared to a strong 2020.

On higher contribution from origination and advisory while fixed income and currencies revenues were essentially flat.

And the private bank strong business volume more than offset interest rate headwinds and the impact of foregone revenues from the bgh ruling in April .

As a result revenues were stable year on year.

Asset management delivered significant revenue growth of 21% year on year, driven by strong management and performance fees assets under management closed at a record 928 billion euros.

Group revenues, excluding specific items were $25 3 billion, a 9% increase from 2019.

While we benefited from favorable market conditions in certain business areas 2021 revenues also demonstrate our ability to offset headwinds in light of our business mix.

And thus 2021 revenues provide a solid base to grow from here and this is confirmed by the momentum carried through to the first weeks of 2022.

Let me now turn to costs on slide five.

We've reduced our cost income ratio by 24 percentage points since 2019 with noninterest expenses declining by 14% to $21 5 billion over two years.

At the same time.

Our adjusted costs declined by 1%, despite higher volume and performance related expenses, reflecting improved business performance.

We have also worked to deliver on our commitment to invest in our control environment.

Let us now look at topics that drive our revenue performance over the next slides.

Six provides further details on the development in our loan and deposit books over the quarter.

Which is expected to reverse in the first quarter.

In addition to this episodic growth we saw again strong momentum in mortgage lending in our private bank as well as high client demand in corporate Treasury services towards year end.

Overall, we expect further loan growth in 2022, especially in our private bank and corporate bank offsetting the expected normalization of lending activities and our investment bank.

We will adjust the size of our deposit portfolio as our loan book normalizes.

In addition to actively steering the size of our deposit book our momentum in repricing deposits has also continued during the quarter as shown on slide seven.

Okay.

At the end of the fourth quarter, we had charging agreements in place on a total of 138 billion euros of deposits generated quarterly revenues of 126 million euros.

Compared to the fourth quarter of the prior year, we implemented additional agreements on 53 billion euros of deposits generating revenues of $408 million in 2021.

Looking ahead, we are confident the momentum will continue in 2022.

Our fourth quarter annual run rate of around 500 million euros shows that we will see the full annualized benefit of our 2021 repricing measures this year.

We also expect further growth in deposits subject to repricing across the corporate bank and private bank. This expansion will offset the ongoing interest rate headwinds and the private bank.

Let me now give you some additional details on how the changing interest rate environment is expected to impact our business on slide eight.

As we discussed last quarter, the interest rate environment negatively impacted our 2021 revenues by about 750 million euros in comparison to 2020, mainly in the corporate bank and private bank.