Q2 2022 Deutsche Bank AG Earnings Call

Good afternoon, ladies and gentlemen, thank you for standing by I am Fuzzy your chorus call operator, welcome and thank you for joining Deutsche Bank's Q2, 2022 I know this call.

Throughout todays presentation, all participants will be in a listen only mode.

The presentation will be followed by a question and answer session. If you wish to ask a question you May press star followed by one on your Touchtone telephone please.

Please press Star key followed by zero for operator assistance.

I would now like to turn the conference over to you all know about 'twenty head of Investor Relations. Please go ahead.

Thank you for joining us for our second quarter 2022 results call.

As usual, our Chief Executive Officer Christian saving will speak first followed by Chief Financial Officer, James on Loca. The presentation as always is available to download on the Investor Relations section of our website DB com.

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

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 your honor a warm welcome from me as well.

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

Since the end of our first quarter conditions for the global economy, and the macro environment has become more challenging.

Not least as a result of the tariff war in Ukraine that continues to be devastating for billions of people.

And we like other banks.

What immune to the associated pressures and impacts.

As you will have seen from our media release, they will impact our 2022 cost income ratio target.

We are continuing to work towards our return on tangible equity targets for both the group and call Bank.

Even though the path ahead of us is more challenging.

Nonetheless, we.

We are very proud that despite an unprecedented operating environment, we are transforming our bank and once again have proven our resilience.

Our franchise is more competitive at.

At the bank is more resilient than was thought possible three years ago.

And we are proud of our achievements, particularly as we have now delivered the highest second quarter and first half post tax profit since 2011.

The trends we saw in the first quarter continued in the second quarter and we saw revenue growth across all four core businesses.

Risen by a mix of business momentum market share gains and investments that will support sustainable growth in the second half of 2022 and beyond.

We delivered group revenues of 14 billion, an increase of 4% year on year.

And our core bank operating businesses.

Grew revenues by a very impressive 9% year on year.

In the first half of this year, we generated an 8% return on tangible equity up from six 5% in the first six months of 2021.

We also improved our profitability and efficiency.

First half post tax profit of $2 4 billion euros was up 31% year on year driven by positive operating leverage.

Our cost to income ratio was 73% for the first six months.

Five percentage points lower than the comparable period.

And finally, we continue to adhere to prudent risk management principles and processes provision.

Provision for credit losses was 22 basis points of average loans in the first six months.

Including a management overlay, reflecting elevated market uncertainty.

Our capital position remains stable.

We finished the second quarter up compared to the first quarter with a common equity tier one capital ratio of 13%.

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

You can see that the momentum across our businesses, especially in the past six months supports the delivery of our 2022 plants at the divisional level.

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

Okay.

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

This led to a 10% return on tangible equity.

In the investment bank, our leading fixed franchise saw strong client activity with growth across both institutional and corporate clients.

Which marks the highest first half fixed revenues in 10 years.

And despite the unfavorable environment for origination and advisory activities M&A revenues were 65% higher year on year.

All in the investment bank delivered a return on tangible equity of 14%.

The private bank had a strong first half year result, with a return on tangible equity above 9%.

It capture net new business of 24 billion euros across inflows into assets under management and loans supporting 4% revenue growth despite the more challenging environment.

And it continued to optimize its distribution channels with the closure of more than 100 branches.

Asset management delivered revenue growth of 6% year on year, driven by higher management fees, despite the volatile market environment.

At the same time, the business continue to invest in growth initiatives and platform transformation and delivered 22% return on tangible equity.

Looking back at the progress of the core bank since the start of the transformation we.

We have improved profitability significantly.

First half profit before tax of $3 7 billion euros more than doubled compared to the same period in 2020.

As much of the momentum is driven by revenues.

Let me summarize our progress on slide three.

Group revenues were the highest for the first half since 2016, despite business exits in 2019 as our transformation led to a stronger franchise with better revenue potential.

These strong results include a revenue drag of around 700 million euros, and corporate and other driven mainly by valuation and timing differences.

As the market volatility in the first six months created temporary accounting asymmetry on derivatives used to hedge the bank's balance sheet.

Nonetheless, we.

We have already delivered more than half of our expected revenue plan for the year and we are particularly encouraged to see strong growth rates in each division.

These are either in line with or ahead of the compound annual growth rates, we expected at the beginning of our transformation three years ago.

Excluding revenues in CLO, the average division of annual increase of revenues in the four core business was 9%.

And we are especially pleased with the performance in our stable business, which contributed more than 60% of revenues over the last 12 months.

Moving.

On to slide four we are encouraged by the performance in our core bank, which delivered a 10% return on tangible equity in the first half up from nine 3% in 2021.

Clearly ahead of our 2022 target of 9%.

On a pre provision basis, we made significant progress on our profitability as we diligently executed on our plans to make our divisions more focused profitable and efficient.

While we benefited from market volatility. This also created some offsetting effects visible through our CMO line. So the majority of the improvement is due to the success of our business growth initiatives.

And as we just mentioned we are especially pleased to see the improvements in our stable businesses with corporate bank private bank and asset management, increasing their pre provision profit contribution to 60%, while our investment bank continues to perform.

By a fixed franchise.

This is a clear evidence that our bank is now more balanced that's resilient and a very complex and uncertain environment exactly.

Exactly what we promised three years ago, when we introduced our compete to win strategy.

We expect many of these trends to remain in place and to be beneficiaries of interest rate hikes in the coming years.

Overall with core bank pre provision profit of $4 3 billion in the first half we believe that our shareholders can take comfort in the improved operating margins as it creates stronger protection from a tougher macroeconomic outlooks.

Okay.

Let me now turn to slide five to take you through our journey to deliver improved operating margins and the progress.

We have made to date.

As well as our management actions.

In 2019, we introduced a new strategy.

Which unlike prior years included strict cost management and focused investments in our core businesses, particularly into technology and controls to deliver efficiencies and just as importantly to grow the company over time.

This plan and these investments helped us to significantly increase our return on tangible equity from being in negative territory, just two years ago to 8% and at the same time to reduce our cost income ratio by 14 percentage points to 73% for the first half.

<unk> of this year.

At the Idd in March we shared the continued progress we have been making with clear ongoing focus on further managing our cost base.

However, the macroeconomic environment changed materially, resulting in headwinds, which impacted some of our planned reductions.

Most notably from inflation.

Hi compensation.

And foreign exchange and are likely to stay with us for the balance of the year.

At the same time, we also faced setbacks from uncontrollable items relating to the higher than expected Bank Levy litigation and costs arising from the war in Ukraine.

And while the recent market volatility has been favorable for some of our businesses.

We also saw offsets by the larger than expected drag from valuation and timing differences in CLO.

These items generated an impact of around two nine percentage points on our cost income ratio and one three percentage points on our return on tangible equity in the first six months.

Given our cost discipline, our controllable expenses were contained despite seeing some inflationary pressures and investments we decided to make which were not in the initial plan.

These higher costs are important to our business as we want to continue to invest in technology human capital and controls to drive growth and efficiency. Despite a more challenging revenue environment ahead.

Together these items created a tradeoff between our long term strategic goals.

And year end targets.

And as we stand here today, we have taken the decision to stick to our investment plans.

Because we don't run the company on a one year horizon, but with a long term strategy and a vision for growth that will benefit us for the long term.

Exactly this underlying belief in our strategy is the reason and the key lever behind our successful transformation over the last three years.

Reflecting this and using a conservative approach.

<unk> our cost income ratio target for this year is no longer realistic without sacrificing long term potential.

Therefore, we have amended our cost income ratio guidance for this year to mid to low seventies.

However, we are executing on our plans and considering the uncertain environment. We will work on additional measures to ease the pressures we are facing and are ready to take decisive action where necessary.

We are well prepared for different scenarios and we continue working towards our return on tangible equity target for this year.

And we remain committed to our cost income ratio target of less than 62, 5% and our return on tangible equity target of more than 10% for 2025.

And we are continuing to work towards reducing our run rate to the planned step off point at the end of this year, even if the path ahead is more challenging.

Let me now spend some time talking to our balance sheet on slide six.

Our balance sheet metrics are solid which means that we enter a more challenging macro environment.

From a clear position of strength.

We have been managing our balance sheet conservatively and intend to keep doing so through this period of volatility.

With a 13% CET one ratio at quarter end, we maintain a buffer of 253 basis points above regulatory requirements.

Our liquidity coverage ratio is at 133%.

51 billion euros above regulatory requirements.

And our funding position is robust.

We already completed majority of our planned issuance for 2022, and we will continue to fund our balance sheet through stable sources predominantly our deposit base.

Moving to slide seven.

In 2020, as the pandemic caught the market by surprise.

We went through our balance sheet to explain why we felt we were well positioned to navigate through that environment.

And while the current crisis presents different challenges and many unknowns.

What has not changed is our loan book, which is low risk and well diversified.

No if we changed our approach to risk management.

Let me remind you that around 79% of our lending is in the private bank and corporate bank.

Mainly consisting of retail mortgages in Germany.

Concerns over the supply of gas could have a material impact on the German economy.

And we must of course be prudent and consider the impact this could have on our bank.

However, we deemed this potential impact as manageable and our improved pre provision profitability means we are resilient.

Furthermore, on the items, we can control we.

We have always managed our balance sheet conservatively and intend to continue to do so through this period of volatility.

And as the outlook evolves, we will monitor the development of macroeconomic forecast and we will update our allowances based on what we see in the environment and in our portfolios.

Next let me briefly cover sustainability on slide eight.

ESG activity has been muted compared to previous quarters, reflecting several factors. These.

These included lower overall capital market issuance activity, which also impacted sustainable finance volumes.

More muted investment activity against the backdrop of lower asset valuations.

And lower levels of sustainability activities.

Companies simply prioritized their responses to the war in Ukraine.

We believe this is a temporary effect and assume that activity will pick up again.

And non the less we are pleased with the growth rates in all businesses as you can see on this slide.

After finishing 2021.

Cumulative ESG financing and investment volumes of 157 billion excluding dws.

We have now reached a cumulative total of 191 billion euros.

And we are on track to exceed our 200 billion target.

By the end of this year.

We reaffirm our target to generate at least 500 billion.

Cumulatively by the end of 2025.

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

And we are on track to publish 2030 reduction targets for the carbon intensive sectors in our corporate loan portfolios.

At our second sustainability deep dive later this year.

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

Finally, Deutsche Bank will further strengthen its sustainability governance by creating the position of Chief sustainability officer with effect from September one 2022.

Before I hand over to James.

Let me summarize our progress this year on slide nine.

Thanks to our transformation Deutsche.

Deutsche Bank is on the right track strategically.

Although the market continues to be challenging our half year results show a substantial improvement in profitability.

We are delivering on our strategy and our businesses saw strong revenue generation leading to material improvements in retrans.

So while we achieved a robust and very satisfactory performance in the first half of the year.

As everyone else a.

Contrary with pressures from the extraordinary geopolitical and economic environment.

We will continue to work towards absorbing these shocks and executing on our strategy towards our stated trajectory.

Our loan book remains resilient and we continue to have robust risk management.

We continue to execute measures to deliver on our return on tangible equity objectives.

And to be clear, our 2025 targets and capital distribution plans remain unchanged 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 10.

Total revenues for the group were $6 6 billion euros up 7% on the second quarter of 2021, despite negative revenues in C&I.

Non interest expenses of $4 9 billion euros were down 3% year on year, including lower restructuring and severance and lower transformation charges.

Adjusted costs, excluding bank levies and transformation charges were up less than 2% year on year, mainly driven by FX movements and modestly higher compensation costs I will detail. These shortly.

Our provision for credit losses was 233 million euros, or 19 basis points of average loans for the quarter.

We generated a profit before tax of $1 5 billion euros and a net profit of $1 2 billion euros and increase of 46% year on year.

Tangible book value per share was <unk> 25 euros 68.

<unk> 53 on the quarter and 7% year on year.

The return on tangible equity for the group was seven 9%, including an effective tax rate of 22% for the quarter benefiting from a change in the geographic mix of income and as a result reflects higher positive deferred tax valuation adjustments related to our 2022 earnings.

The effective tax rate for the first half of the year was 24%, which is broadly in line with the rate. We now expect for the remainder of 2022.

Let's now turn to the core bank performance on slide 11.

Core bank revenues were $6 6 billion euros for the quarter up 6% on the prior year quarter.

Net interest noninterest expenses were down 1% for the quarter and adjusted costs increased 3% year on year.

We reported a profit before tax of $1 7 billion euros up 21% on the prior year quarter.

Our core bank post tax return on tangible equity for the quarter was nine 5% ahead of the full year target of above 9%.

And our cost income ratio came in at 70% down from 76% in the prior year period.

Let me now provide some detail on the evolution of our net interest margin on slide 12.

The NIM increase was driven predominantly by short term U S. Dollar interest rate rises in the first half of 2022, but it was also supported by higher long term euro rates that benefited the deposit books as we rollover hedge portfolios.

The NIM increase was also driven by approximately six basis points and positive one off effects as it still includes a two basis point effect from the minus 1% <unk> bonus right.

Normalizing for these one offs, we expect NIM will continue to rise due to the favorable interest rate environment.

Average interest, earning assets were up modestly, reflecting U S dollar strengthening and underlying loan growth offset by lower average cash balances.

Before we move onto costs, let me briefly comment on our updated NII guidance.

We now expect the revenue benefit from the interest rate curve relative to 2021 will be significantly higher than the 2 billion euros. We previously guided for by 2025.

Even accounting for increased issuance costs implied by current spreads the environment is more favorable than the outlook. We shared with you at the March Idd.

Let's now turn to costs on slide 13.

As we've previously outlined and as Christian said there are pressures on our cost base. This has impacted.

<unk>, our 2022 cost income ratio target as we look to absorb a series of uncontrollable items and preserve necessary investments in controls and information technology.

Turning to the quarter more specifically adjusted costs, excluding transformation charges and bank levies increased by 70 million euros or 2% year on year, but declined by 2% excluding FX effects.

Compensation and benefits costs increased by 155 million euros, or 75 million euros, excluding FX effects.

On an FX neutral basis, the salary increases were almost entirely offset by lower head count.

Variable compensation accrual increased reflecting business performance and we incurred about 20 million euros of costs associated with the opening of the Berlin Tech Center.

<unk> costs were essentially flat on an FX neutral basis, and we saw a non a reduction in non compensation costs.

If we look at the half year on slide 14, adjusted costs, excluding transformation charges and bank levies decreased by 65 million euros down 1% compared to the prior year or 3% excluding FX effects.

All non compensation categories declined in line with our expectations, but we saw an increase in compensation and benefit cost of 213 million euros or $83 million, excluding FX effects.

This reflects higher performance related compensation and the one off costs associated with the Berlin Tech Center.

Now moving to our full year view, let me give you some sense of the drivers that have caused us to change our guidance.

First as we talked about bank levies were nearly 180 million euros higher than we expected contributing approx approximately 70 basis points to our cost income ratio.

Litigation expenses have risen based on recent events and we now expect them to be at least 100 million euros higher than planned amounting to an additional 40 basis points.

Third we expect around 100 million euros 40 basis points for the full year related to our Berlin Tech Center from SaaS migration and real estate costs.

Thereafter, there are elements of our cost base, which are mostly can trail of controllable, where we've had to make management decisions.

In the first quarter, we had already flagged some higher variable costs as a result of good for business performance as well as expenses that relate to better future performance.

The good business performance continues despite a somewhat more muted outlook for the second half of the year.

As previously communicated we made strategic hires to support future growth in line with the growth plans, we presented at the Idd.

Moving to investments, we consistently said that we will not sacrifice on controls even though the related costs are higher than we expected and add to cost pressures in.

In addition, early in the year, we saw the opportunity to reserve to invest revenues into efficiency and growth initiatives.

Focus areas of these investments are further front of vac streamlining in the investment bank and corporate bank as well as further upgrading our global payments infrastructure.

The front to back initiative will help us further reduce infrastructure costs and the payments investments will support revenue growth and efficiencies in the corporate bank, while delivering an attractive marginal cost income ratio.

As Christian mentioned, we decided to continue with these investments despite some emerging revenue headwinds, which may also weigh on our cost income ratio. This year and we truly believe these are the right decisions for the bank and the long term.

Provision for credit losses for the second quarter was 19 basis points of average loans on its loans on an annualized basis or 233 million euros. The.

The sequential decrease was driven by a lower level of new provisions on the Russia portfolio, while the second order effects have not yet materialized.

Stage, one and two provision of 52 million euros.

Compared to a net release of 36 million euros in the prior year quarter relate to a deterioration of macroeconomic parameters and a new management overlay to reflect macroeconomic uncertainties.

This was partly compensated by otherwise positive portfolio developments, such as changes in the portfolio composition and improve collateralization.

Stage, three provision increased to 181 million euros compared to 111 million euros in the prior year quarter.

The increase was driven by a small number of incremental provisions on Russian and Ukrainian names in the corporate bank.

The investment Bank had a few new impairments, while the prior year quarter benefited from a large release.

Private bank provisions benefited from a portfolio sale.

Moving to capital on page 16.

Our common equity tier one ratio ended 14 basis points higher compared to the previous quarter at 13% in line with our previous full year guidance for 2022.

This ratio increased principally reflects higher CET, one capital from strong organic capital generation net of deductions for dividend and the additional tier one coupon payments and losses and other comprehensive income.

CET one capital now includes a capital deduction for common share dividends of 450 million euros for 2022.

A three basis point drag on our CET one ratio came from FX translation effects, reflecting the significant euro weakening over the quarter.

Risk weighted assets net of FX were marginally down compared to last quarter.

Market risk <unk> increased principally from an increase in the quantitative far in S far multiplier.

This increase was more than offset by a reduction in credit and operational risk <unk>.

Our leverage ratio, including ECB cash was four 3% like for like increase of five basis points over the quarter.

Higher tier one capital from strong quarterly earnings and the recognition of our $750 million Euro 81 issuance, which settled in early April added 10 basis points to our ratio.

This was partially offset by three basis points impact of FX translation effects, reflecting the significant euro weakening in the quarter and two basis points from higher leverage exposure, including core bank loan growth.

With that let's now turn to performance in our businesses starting with the corporate bank on slide 18.

Corporate bank revenues in the second quarter were $1 6 billion euros, 26% higher year on year.

Continued revenue growth was driven by improvements in the interest rate environment loan and deposit growth and higher fee income across all three segments.

The corporate bank grew loans to 129 billion euros up by 4 billion euros compared to the prior quarter and by 12 billion euros compared to the prior year quarter, mainly in corporate Treasury services.

Noninterest expenses of 1 billion euros declined by 4% year on year due to a non compensation initiatives and lower nonoperating costs, partly offset by FX movements.

Higher revenues and lower noninterest expenses resulted in positive operating leverage of 30% year on year.

Provision for credit losses increased year on year. After a net release in the prior year quarter, reflecting a more challenging macroeconomic environment and impacts of the war in Ukraine.

Corporate bank profit before tax was 534 million euros in the quarter more than double the prior year quarter, reflecting improvements in our profitability and efficiency.

Return on tangible equity was 13, 4% and the cost income ratio came in at 62% in line with our commitments presented at the Investor Deep dive in December 2020.

I will now turn to revenues by business segments in the second quarter on slide 19.

Corporate Treasury services revenues of 962 million euros increased by 30% year on year, driven by strong operating performance, the improving interest rate environment and increased loan and deposit volumes.

Institutional client services revenues of 394 million euros rose by 26% benefiting from the improving interest rate environment and FX movements.

Business banking revenues of 195 million euros grew by 9% year on year, driven by benefits from deposit charging and account repricing.

I'll now turn to the investment bank on slide 20.

Revenues for the second quarter were higher year on year, both on a reported basis and excluding specific items.

We saw strong revenue growth in emerging markets and the macro trading businesses.

This was partially offset by significantly lower revenues in origination and advisory and credit trading with financing revenues broadly flat.

Noninterest expenses were higher driven by increased litigation costs due to a one off item related to an industry wide matter combined with a modest increase of compensation expense and the impact of FX movements.

Our loan balances increased year on year, primarily driven by higher loan originations across the financing businesses and the impact of the U S dollar strengthening.

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 FX movements.

Provision for credit losses was 72 million euros, or 30 basis points of average loans. The year on year increase was driven by a small number of impairment events, while the prior year benefited from a larger stage III release.

Turning to revenues by segment on slide 21.

Revenues in fixed sales and trading increased by 32% in the second quarter when compared to the prior year.

Strong performance across emerging markets in macro trading businesses was partially offset by significantly lower revenues in credit trading.

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

During the quarter, our foreign exchange business was ranked overall FX market leader by market share in the 2022 Euromoney FX survey.

Emerging markets revenues more than doubled driven by strong performance across the regions.

<unk> revenues were essentially flat year on year.

Credit trading revenues were significantly lower driven by materially reduced distressed revenues and a challenging environment.

In origination and advisory reported revenues were down 63%, but included commitment markdowns, excluding the markdowns revenues declined 38% as the industry fee pool reduced by approximately 45%.

Debt origination revenues were 95% lower due to materially reduce leverage debt capital markets revenues. This was driven by the impact of commitment markdowns of approximately 150 million euros. In addition to the industry fee pool declined.

Equity origination revenues were 60% lower reflecting an industry fee pool reduction of approximately 70% versus the prior year quarter.

Revenues in advisory increased by 50% driven by market share gains in a reduced fee pool year on year.

Turning to the private bank on slide 22.

Revenues were $2 2 billion euros up 7% year on year or 4% if adjusted for the net impact of the bgh ruling across the periods and specific items.

Revenue growth was supported by FX movements and valuation impact and also reflected higher business volumes.

The year on year reduction of 16% in noninterest expenses was driven by a 71 million litigation provision release related to the bgh ruling compared to litigation charges of 128 million euros in the prior year quarter as well as lower restructuring expenses.

Adjusted costs were down 1% net.

Negative impact from exchange rate movements, and higher compensation costs, mostly offset lower internal service cost allocations and incremental savings from transformation initiatives, including workforce reductions and branch closures.

As a result, the private bank swung from a loss before tax of 15 million euros in the prior year quarter to a profit of 463 million euros.

In the first half of 2022, the cost income ratio improved to 75% compared to 89% in the prior year period and.

<unk> post tax return on Andrew tangible equity rose to 9%.

Assets under management declined by 20 billion euros in the quarter a.

The negative impact of 33 billion euros from market movements was partly offset by net inflows of 7 billion euros and beneficial exchange trade being movements.

Risk weighted assets increased by 13%, reflecting regulatory changes in the prior year and our growing look loan book.

Provision for credit losses was 96 million euros, or 15 basis points of average loans down 17% year on year, reflecting releases of credit loss allowances following nonperforming loan sales tight risk discipline and a high quality loan book.

Turning to revenues by segment on slide 23.

Revenues in the private bank, Germany were up 11% or 3% adjusted for the net impact of the bgh ruling across the periods.

Valuation adjustments and higher net interest income more than offset lower fee income and a more challenging market environment.

Business volumes grew with net inflows in assets under management of 2 billion euros, mainly into investment products. In addition, net new client loans were 2 billion euros.

In the international private bank revenues were up 2% or 6% excluding specific items.

Starting this quarter, we've aligned our revenue disclosure with our client coverage model.

Revenues, excluding specific items and wealth management and bank for entrepreneurs increased by 7%, despite a more challenging market environment.

The revenue increase was attributable to continued loan growth and higher revenues from deposits supported by the recent interest rate increases.

FX movements also had a positive impact.

Premium banking revenues were up 3%, mainly reflecting higher net interest income and deposits and volume growth in consumer finance in Italy.

The international private bank attracted net inflows in assets under management of 5 billion euros in the quarter, driven by 3 billion euros into investment products and 2 billion euros in deposits.

Net new client loans loans were 2 billion euros, mainly in the Americas in Italy.

As you will have seen in their results dws produced a resilient performance compared to the prior year. Despite the continued market turbulence.

My usual reminder, the asset management segment on Slide 24 includes certain items that are not part of the dws stand alone financials.

Revenues grew by 5% versus the prior year.

Management fees grew by 6%, reflecting consistent net inflows in the prior year and higher valuations in illiquid products.

Higher performance fees combined with positive impacts from the fair value of guarantees more than offset lower other revenues.

Noninterest expenses increased 11% with adjusted costs up 7%.

This reflects higher compensation costs, including hiring and carried interest costs, partly offset by lower deferred compensation costs.

Higher non compensation costs were led by professional service fees and increased marketing regulatory enforcement matters and other costs as well as further investments into platform transformation.

As a result, the cost income ratio increased to 67% from 63% last year.

Profit before tax of 170 million euros in the quarter declined by 6% over the same period last year, reflecting the higher expenses.

Assets under management of 833 billion euros have declined by 69 billion euros in the quarter, reflecting the negative impact from market performance and net outflows, partly mitigated by FX translation effects.

Net outflows of 25 billion euros in the quarter were almost exclusively due to outflows in our low margin cash and passive products, partly offset by positive net flows and higher margin products, such as active equity multi asset and alternatives.

Excluding cash net flows were largely flat in the period with a positive revenue contribution.

The management fee margin has improved to $28 four from $28 one basis points in the prior year period, reflecting outflows and lower margin in inflows and higher margin products.

Moving to corporate and other on slide 25.

Corporate and other reported a pretax loss of 498 million euros in the second quarter of 2022, compared with a pretax loss of 39 million in the prior year quarter.

A significant driver of the results in this quarter was valuation and timing impact of negative 185 million euros compared to a positive contribution of 83 million euros in the prior year quarter.

These were driven by market volatility and interest rates similar to the first quarter.

Valuation and timing differences arise on derivatives used to hedge the group's balance sheet. These are accounting impacts and the valuation losses are expected to be recovered over time as the underlying instruments approach maturity.

In addition funding and liquidity impacts were negative 126 million euros versus negative 60 million euros in the prior year quarter.

These include certain transitional costs relating to the bank's internal funds transfer pricing framework as well as costs linked to legacy legacy activities.

Expenses associated with shareholder activities not allocated to the business divisions as defined in the OECD transfer pricing guidelines were 120 million euros broadly flat to the prior year quarter.

We can now turn to the capital release unit on Slide 26.

The capital release unit recorded a loss before tax of 181 million in the quarter, an improvement of 76 million euros from the prior year period, making this the lowest quarterly loss since the <unk> inception.

Revenues for the quarter was <unk> 7 million, an improvement of 31 million euros from the prior year period. This.

This improvement was due to lower derisking risk management and funding impacts that more more than offset the non recurrence of the prime finance cost recovery in the prior year.

Noninterest expenses declined by 26% year on year, primarily driven by a 38% reduction in adjusted costs, reflecting lower internal service charges and lower compensation costs.

<unk> reduced leverage exposure by 42 billion euros on year on year, driven by the completion of the Prime finance transfer and continued progress on deleveraging.

CRE you reduce risk weighted assets by 7 billion euros year on year, driven by lower operational risk and Derisking.

In the second quarter <unk> remained broadly flat as reductions from operational risk and other impacts were offset by market risk increases as financial markets became significantly more volatile.

Looking through to the remainder of 2022, we are confident of achieving the full year target for adjusted costs, excluding transformation charges of 800 million euros that we reaffirmed at the investor deep dive in 2022.

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

Turning finally to the group outlook for 2022 on slide 27.

The strong performance in the core Bank is testament to the quality of our businesses and the strength of the franchise. Despite the challenges ahead.

Therefore, we can confirm our revenue guidance of 26 to 27 billion euros for 2022.

However, as Christian noted the current environment and uncertainty are unprecedented and we see pressures, including on expenses and credit costs.

But we remain committed to our cost measures and we will continue to execute on our 2020 to plan as we believe our strategy is the right one for the group and we are committed to its delivery as we focus on the long term.

Consistent with our previous guidance, our provision for credit losses remains at around 25 basis points of average loans, including the currently expected impact of the war in Ukraine slowing growth in our core markets and other dislocations.

We will continue to manage our balance sheet prudently and closely monitor the cost of risk, particularly with regard to a more adverse scenario on the potential disruption of gas supplies to Germany.

And of course, we have analyzed the impact of potential downside scenarios, but we do not believe these scenario conditions are present today and based on detailed conversations with our clients, we do not see stress in our portfolios.

We remain confident in our full year CET, one ratio target of greater than 12, 5%.

We remain confident we can deliver our 2025 targets and capital distribution path as many of the management actions. We have taken are in support of this trajectory.

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

Thank you James and with that operator, we're now ready to take questions.

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Followed by one on your Touchstone telephone.

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Enrollment for the first question please.

The first question is from Chris Allen from Goldman Sachs. Please go ahead Sir.

Yeah. Good afternoon, everybody. So two quick questions first on revenues, you've reiterated the 27% to 26 billion group guidance for the year, but I think before you've mentioned you saw a bias to the high end of that range is it fair to say you probably wouldnt see that upper end bus anymore.

If you could just talk through some of the divisional moving parts that would be helpful.

And then secondly, Germany is clearly in the storm so to speak when it comes to tail risk on gas. So could you speak to the tangible steps your corporate clients are taking to prepare themselves for an environment in which gas scarcity becomes a significant constraints on activity and how would that how would you expect that to feed through to cost of risk.

Well, let me take that one Chris Christian and thank you for your question.

Look on the revenue side.

When we gave the guidance with the.

The bias to the higher end of the range to be very honest, James and I actually saw a revenue number which cross the $27 billion.

And therefore I would not suggest that you are now lower the number to the lower range of $26 billion to $27 billion, because all what we can see.

All the full business is clearly turning us that we remain in the higher.

A higher range of that.

The 26% to 27% and why do I think that I mean, we have the $14 billion, which was.

A really good results in the first half year, very happy with that and <unk> seen that.

We are getting more and more into the composition of revenues, we really would like to see and that is very strong corporate and private banking.

And on both units I actually see further.

<unk>, which continues to trajectory, which we've seen in Q1 and Q2 I E higher revenues going forward.

That means for the corporate bank I think at least.

Quarter, $1 5 billion to be honest.

Then with the payer wins, we have been interest rates with everything which we have invested in three years into this business with the client reaction.

I see upside to the $1 five per quarter.

We see the private bank at least was $2 2 billion each quarter.

That is for us clearly the trajectory, which we have seen over the last months and weeks and again looking into Q3 that is a number which we are very confident and that does not take into account any extraordinary items to which we have talked about and which will come in Q3 or.

Q4.

Asset management I would say same continued.

600 million each for the quarter and I think we are always giving you a range for the investment bank, which is.

In our view.

Around two to $2 5 billion.

And given the resiliency of that business.

It is a number where we can blend it even if there are some volatilities.

In that business I think overall this is.

A number which we can plan that if you put this altogether and added to the $14 billion. If you also take the comments from James into account that part of the BNP estimate tricks is coming back of course, there may be also some other volatility.

We clearly see our path to the upper range of 26 to 27 billion and then.

In particular with with the resilience and the strategy, we see now coming through in the private bank and corporate bank very confident to be in the upper range. There of the 26 to 27 billion.

On your loan loss provision on your risk question.

First of all.

I have to say and obviously.

Being here in Germany, and having the possibility to talk to the corporate lead us being on tax level or the family owned and mid cap clients.

The attention to the gas situation is obviously very very high and what I've seen as preparation of work across the industry on the production side, but also on the financial resilience side is impressive.

On top of that we should.

Also bear in mind that there is a great cooperation and coordination work done between the government and the corporate so.

A lot of programs that are running what could we do in case, we come to such a downside scenario, but the level of preparedness of the German corporates to think in alternatives.

<unk> is pretty high and if you talk to the individual corporate leaders actually youll see a very high level of resilience.

And in this regard.

Again also taking into account that I think from all the experience. We also heard from past situations like the pandemic two years ago, how actively and proactively the government steps in USD and the situation last week, where the government clearly stepped in.

I have to say that while obviously always analyzing scenarios.

I cannot see for this year, where we are right now is scenario, where we actually cross through the $1 to a $1 $25 billion of loan loss provisions for this year.

Next to the prepared myself the corporates next to all the support which is given by the German government.

Honestly, we are also looking into very healthy corporate portfolio, we are looking into our portfolio with.

No concentration risk with a highly diversified portfolio.

A high degree of investment grade corporate corporates.

And if you really think about the German portfolio have exited the majority of the German portfolio residential mortgages with moderate atvs. So everything what we can see from the extra development in the portfolio. This is not concerning and therefore, our base case is clearly in the range, which we have given before and in this.

With regard to good preparedness.

High level of attention on the corporate side and in my view, a first class a portfolio in the Deutsche Bank side and that makes me confident.

Very clear thanks.

And the next question is from Tom <unk> from K B W. Please go ahead.

Hi, guys. Thanks for taking my questions.

On the cost of risk.

You provided some pretty useful.

Pizza complete shutoff and Russian gas.

Could you just give us a little bit more color on the timing of any 20 basis point impact.

19 months period.

It would be from from tenant or backend loaded.

Yes.

Tell us, which sort of industries and part of the corporate book.

<unk> stressed under that scenario and then secondly on the group target even with some revised higher the cost income ratio, but you've managed to also maintain the R&D target.

I guess, if I just take the revenue guidance and and the higher end of the cost income ratio at Max implies some pretty hefty increases to call.

So could you just walk us through what would be tapping lower or upper bands of that cost income ratio and.

And how you have confidence in and you got into next year and beyond and then given that new guidance, how how have you been able to keep your <unk> target unchanged. Thank you.

Sure. Thanks, Tom It's James I'll take both and Christian May want to add on the gas scenario. So look as you saw on our <unk> nine note. We provided a scenario we've done as you can imagine a lot of work in the past several months looking at the portfolio today.

Whether with the risk team. This is really both bottoms up and top down bottoms up meaning looking at the most exposed industries and within that going if you like client to client to have deep discussions about.

They're they're situation their resilience in the gas shut off situation.

And that's given us some of the confidence the Christian described a moment ago from a bottoms up level.

From an industry perspective, as you can imagine there is a pretty broad list of potentially affected industries going through chemical of automotive and other manufacturing.

<unk> energy and what have you. So we've been we've been looking at a pretty broad swath of the portfolio and feel very good about what that's teaching us from a bottom up perspective top down we of course stress the macroeconomic variables.

And with that.

<unk> impact in our ECL model and we also looked at general downgrades that would both drive the stage one and two provisions.

We think our variables are the stress that we put on our variables is reasonably conservative in the scenario conditions more or less in line with the the ECB scenario that was published in June obviously, it's hard to compare scenarios.

Line by line, but but we think its similar in its severity.

Again reflected in the in the <unk> and then the the downgrades that we apply.

To your question about timing, so that will gives us about 20 basis points.

We think a rough measure would be half half.

So an incremental 10 basis points in 'twenty, two and in increments of 10 basis points in 'twenty, three but thats extremely conservative both from a timing and an amount.

The scenario is just that it's a scenario we don't see those conditions present today. They would've had to have started essentially in July .

Census would need to reflect sort of the impact of that.

As with the downgrades in order to produce the stage, one and two impacts that were envisaging already in 'twenty. Two so we would think that 10 basis points, while a good rough measure.

B would be already conservative in what we think is a conservative scenario.

As Christian outlined again, we don't see that today and in fact, we think the guidance that we've given of 25 is is itself prudent given what we see in the portfolio today.

So short answer a huge amount of work top down bottom up in a scenario condition, you could simplify by saying half half.

But our view is that as everyday goes by the scenario becomes less likely and more of it shifts into 'twenty three.

In terms of group targets, let me start with the cost income ratio, we provided a range sort of deliberately.

Essentially it is always a bit of.

If you live in a half world of providing absolute cost numbers or cost income ratio, but but mid to low seventy's was chosen deliberately we're working hard to manage our run rate.

As flat as we possibly can we've been talking about that now for for.

For several quarters in that run rate, we see some pressures as we've talked about in our prepared remarks, and we also see some FX impact, but that's been hitting us to the tune of call it $50 million a quarter given given the development, but we're working hard to keep that that run rate in check.

So given the range of of revenue outcomes that Christian talked to Anna and an expense number where our guidance remains essentially flat to last year.

That produces the cost income ratio range that we talked about.

Now obviously in an <unk> number there other variables and we've talked about.

What's going on in the tax line clearly we had incremented our provisions, although we do see some opportunity there.

And we've been working on a series of measures that we think are supportive to the <unk>.

So what we're communicating is management's determination.

Looking at every lever every measure we can take to deliver on that target.

But as you would expect we have to have to strike a more cautious note about the about the the environment that we're operating in so that's hopefully some color on how we're thinking about the cost income rate <unk> targets.

Yes, I only have two.

To add one more item to the loan loss provision again, when it comes to the downside scenario, which I agree.

In my view, a very conservative downside scenario.

Items like government support packages are not part of that and again I think rightfully. So we have to plan a scenario that this is not coming but again looking back what has happened.

Also knowing the discussions what's going on and when I belief again from the experienced in the past.

Would step in.

I can only tell you. This is a real conservative scenario and I think what James just said is so important with each day going by a the scenario in itself is too conservative and by the way the corporates in Germany used each and every day to prepare themselves better from a production line from a redistribution of.

Our supply chain from a redistribution also off their sourcing and obviously also financially prepared for that and hence.

Again, I really do believe in our base case number.

Thank you.

The next question is from Adam <unk> from Mediobanca. Please go ahead Sir.

Thank you for the questions. One on revenues one on costs cost income can you give a bit of an update on net interest income this year, what sort of tailwind do you expect that will say a bit more color about 2025, I know you said it will increase materially.

The NII support for the rest of this year I mean is that all coming in the second half sorry, it's a bit of a color. What's common what is to come this year and what that means for the CB PV revenue trajectory, whether we can actually see NII driving revenues on a sequential basis.

Through the second half of this year and then secondly on the cost income guide.

Guidance.

Shouldn't that it's kind of an output from where you are trying to manage costs and why you think revenues might go away does that mean, the top end of the cost income range implicitly is attached to the bottom end of the revenue range. So you are saying 27 billion is more likely on revenues what is more likely on cost income. Thank you.

Yeah. So Tom that's fair in terms of the second question that is how we're thinking about it and obviously working to and managing to those outcomes.

So yes to the second part of the question on revenues look theres substantial support for our revenues.

Beginning really in the second quarter.

We talked about $700 million in 'twenty two.

<unk> to 'twenty, one and that's up from perhaps $400 million when the year started.

To your point it is accelerating as the year goes by we had some in Q2, we've perhaps recognized 250 at most 300 of the 700, so more to come in the second half.

If I think about 25 on the same measure.

Josh it's about that number just because that the.

At forward curve needs to be realized but that's now in the high twos.

There is some offset that we'd expect from Fei issuance cost credit spreads in that kind of thing, but but you can see that the lift even from where we were in March.

It's probably all in.

In about a 1 billion Euro range, just just mathematically net.

25%, so significant upside from the curve if it.

If it's realized one thing just in terms of the modeling in Q3, there is a there's a little bit of a of an impact.

Some of the you go from minus 50 to zero there are some interesting dynamics in how hearing <unk> the front end and the long end of the curve all happened so.

It might be a little plateau or less up in Q3 and then.

Quicker acceleration in Q4, so it might be a bit of a bending the curve but significant.

Rate related upside that we're seeing in the forward.

But still up for Q3, just a small amount.

We gave you some NIM guidance and there was a couple of unusual items in Q2, there may be a little bit of unusual stuff in Q3, but.

But yeah and expanding NIM.

I would expect in Q3, and then an acceleration in Q4.

Great very clear.

The next question is from Danielle <unk> from UBS. Please go ahead.

Yes, good afternoon, and thank you.

Briefly I cannot close thanks for the additional disclosure on some of these less well controllable items.

<unk> Center et cetera can you talk a bit about.

The more controllable management decisions on the cost side I assume its more like compensation I think you mentioned that can you quantify it for this year and at the right at the beginning of your prepared remarks Christian you mentioned.

Thank you Mike.

Additional cost measures can you be a bit more specific on that in terms of timing quality, particularly what it is and probably even a quantification and then secondly.

The rate sensitivity, obviously gets a lot of attention I think you're also assuming a static balance sheet. How sensitive are these assumptions to changes in the balance sheet. So let's assume.

People change their behavior deposit base goes down five 6% or so how would that impact this sensitivity. Thank you.

So Daniela a lot to go through there let me start with costs.

And then hand, it off to Christian and I will come back on rate sensitivity.

I'm looking at a year on year schedule of our cost excluding FX and every line is either flat or down year on year with the exceptions that we've called out and perhaps one or two so we talked about the Berlin Tech Center that is really the only thing in the in the salary and benefits.

Line that has moved year on year, we managed to keep it flat.

Cash bonuses, we called out is up a little over $50 million year on year, excluding FX.

Have some expenses for third parties, mostly related to anti financial crime, which we've talked about is our investment that's an important investment to make that the line that's up.

And then we have travel and entertainment that's up from.

The unusually low level last year.

And so we're demonstrating in both the compensation and the non comp lines.

That control the focus on execution, we talk about there being pressure there is pressure and we can talk about lots of things, including inflation, but as I look at just the year on year comparisons.

Across these line items, you see you see real discipline and control.

Yeah, Daniela and to add to your question to my specific comment now let me let me just reemphasize, what James was saying I think.

Our laser focus on cost has not changed.

It has not changed and will not change.

Otherwise, we wouldn't have been able in this situation after three years of bringing down the cost to do that what we have done now where revenues actually increased significantly.

To show the executive that will change to set that in the controllable area. We are in line with our plan and for most of the items, except for compensation, where we have shown I think a good performance on the revenue side.

I would actually reduce the cost but of course.

We are always in hips again kicked off.

And where can we do more.

And this is on the one hand that we are substantiated each and every plan what we have given you on the idd. We've shown you that there is a further cost reduction of $2 billion, which we also want to use to reinvest into the business every part of that is now obviously substantiated with a detailed plan so that all.

Our cost efficiency is coming in 'twenty, three 'twenty four and 'twenty five on top of that we are looking into each and every program. We are running not in order to stop it because we also said we are taking a deliberate long term decisions.

The decision to invest into our business into our control spot.

How do we deliver that that is the part where Rebecca short our CTO is going through each and every project and is actually questioning the number of people, though and whether we whether we are doing and completing the projects in the most efficient way and this is exactly what we are doing right now.

I'm absolutely convinced that we will find further efficiencies. There then we are also talking whenever you have done the further restructuring or restructuring in your head office on infrastructure, whether you can actually with the automation of data with the automation of processes, whether we can do more that is again, another part of our revenue which.

We have kicked off and which we're doing now in Q3 and.

And last but not least of course.

We always have other levers in hand, which we think we should not draw for the time being because we believe in the long term investment of this company and that was actually the underlying reason why we develop so well over the last three years, but when it comes to situations of investment spent investment spend is always on the table on a on a monthly.

Same as ultra C than how we accrue for our compensation. So I think we have delivered in our hand, but rest assured that continuously we are going through additional measures.

And that makes me confident that we are developing to the guidance. We have given you in 'twenty two but also that we are delivering to the target for 'twenty one.

So daniela on the on the interest rate sensitivity disclosure I just.

Draw your attention to slide 43, and <unk> 44 in the appendix of our deck.

This shifts that we're living through has actually fascinating in terms of just the numbers and the model how they work because there's so many dynamics around deposit charging around.

Bank, the monetary policy tools and what have you.

As you mentioned the disclosure we gave.

Also the response.

To Adam's question about the upside that related to the to the December 21 static balance sheet.

Page 43 gives you an update about rate sensitivity now, bringing forward to our may balance sheet and the June forward rates. So there's a bit of an update there and we've given you. The curves that we used on page 44 at each of those disclosure dates that hopefully is also useful.

See you.

It's an interesting time, we've looked at our plus 100 disclosure and there's a lot of can kind of confusing element to it given given those dynamics.

The balance sheet changes and interesting question.

You phrased the question in the sense that there is risk in there with a static balance sheet and Thats fair theres going to be changes in the value of certain products over time.

In this interest rate cycle as it as it begins we also see that as an opportunity.

For the past several years, we've and banks in general have been attempting to suppress deposit growth.

There is an opportunity now to drive more value from the deposit books in a rising rate environment.

Equally we're looking at the asset side of the balance sheet and looking at the asset types that are that are most valuable to us from a shareholder value added perspective. So we.

We think of it as upside in terms of both volume growth and also balance sheet composition, but.

But it's something that we have to work to produce and we're working with the businesses.

Accordingly to build some of that into our planning and if you like the pricing and the emphasis that we that we place on different product growth in the different segments.

Thank you very much that's great.

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

Yes. Good afternoon, thanks for taking my question.

And we have an update please on the.

Merger project in Germany.

Given the headline on potential delay there and against that backdrop.

How does it play on the developments of PB cost from here. Thank you very much.

Sure Nikola Thanks for the question look as we disclosed there has been a delay.

One of the waves of transition and what we call project Unity, which is the which is the merger if you like of the of the it infrastructure supporting our our German businesses.

And it was the result of a number of factors, including the remediation steps we had to take after the high court ruling last year to deal with customer concern both in the execution of that operational transition, where we've moved very quickly I would add too.

To re re paper our agreements, but actually also in the technology transfer where there are some customer consents that are necessary around that as well. So the delusion to the decision to delay into 2023 is really a risk based decision, we do not want to take risk with that transition we're working.

Incredibly hard on testing and we think it was the right decision.

As youll see in our disclosure, we think that will cause us to incur about 150 more.

As an expense in 'twenty three essentially as we extend the life of that of these environments to test environment in the second.

<unk>, but do you answer your question the ultimate destination is unchanged, we start to achieve the reduction and expenses a little bit later in 'twenty, three but the $300 million that we called out for 2025 is absolutely unchanged unchanged destination.

Yeah.

Thank you.

Thank you.

The next question is from Ken Abbas Hussain from J P. Morgan. Please go ahead.

Yes, thanks for taking my questions I have two questions and maybe taking a step back.

In the deep type of 2020, you clearly had decent revenue and cost guidance.

And now looking at roughly $3 billion more revenues.

Also 3 billion more cost and clearly the marginal cost income is.

It is an issue because you're assuming the cost to income is not just flat relative to the old target of around 70, but actually higher so I'm just trying to understand a bit more where these investments are going into.

And how we should measure the return on investment because clearly your 2025 target. That's my second question.

He is 62 and a half.

Your cost based on your guidance and revenues of $30 billion.

Yeah actually lower than what we're going to achieve this year on a stated basis, so I'm really trying to.

Trying to understand the Delta and us.

On why cost should go in line with revenues and even higher in a relative basis and secondly, why we should have confidence that cost on an absolute basis should be lower with higher revenues.

In 2025.

Sure Ken I'll start it's James and then Chris you May want to add look there.

It is significant increases in both revenues and expenses.

Ninth July 19, and then the two investor deep dive in December 19 in December 2020.

And it reflects frankly that we're running a bigger company in revenue terms.

And that speaks to the success of the transformation that we've driven that.

That we're significantly ahead of where we thought we'd be at the time and naturally that's come with with some higher expenses.

So.

If I walk you all the way from the $16 seven that we talked about now approaching two years ago in the December 20, deep dive to a number that is essentially flat to this year, it's plus or minus $2 5 billion that you need to explain.

The first is FX, we talk about that a lot, but it impacts both the revenue and the expense line in this case.

In the expense is about $600 million.

And then we've also talked as you know at great length about the the bank levies and the single resolution fund together with deposit insurance in Germany, and that is about $400 million relative to our to some of our assumptions in December 2020. So 1 billion. If you like on those two things that are just mechanical or outside of our control.

We would estimate another call it $400 million relative to the venn assumptions on bonus and retention so variable compensation.

That also co here's what the revenue picture.

As Christian noted.

It still depends on decisions, we make for the year the performance in the back half of the year, but but broadly speaking.

<unk> is a driver of this difference.

And then we've invested about $1 billion more than we expected and it and controls and that's where you see us really focused on.

The importance of these investments to the company going forward, we just and we started talking about this well over a year ago now its just would be the wrong decision for the future of the franchise to have been.

Reducing those in those investments more than we have.

Now that has been a.

A surprise to us how far we needed to go but we think it's the right investment for the future.

And then plus or minus we've had some additional savings that we've been able to identify as you know and we've invested some of that in business and revenue oriented investments in the front office.

Actually across a number of businesses you've heard us talk about about that so that's a rough picture.

The movements now as I say a lot of it is programmatic with running a bigger company and then and then the rest of it is IGN controls that we think are absolutely critical investments for the future.

And Ken.

Thanks for your question.

Absolutely thoughtful, but let me also a little bit go to page two of our presentation. Because if you see the four businesses and compare that to the targets, which we have given out and the idd in 'twenty and in 19.

Youll see that on the investment bank on the private bank in asset management, we are actually up to six months from a cost income ratio there, where we wanted to be at the end of the year, where we are not yet fully the ericsson the corporate bank, but I deliberately said that I think are after the 26% year on year revenue growth I see you further.

Victory in Q3, and Q4 also based on the NIM comments from James that I do believe we have a very fair chance to also get very close to that so what you see is actually therefore, James just said that the costs, which are so to say than above the 70% went into investments into controls into regulatory room.

<unk>, which all will also result, obviously in further automation and that is then the next lever which is paying off in 'twenty three 'twenty four 'twenty five that we come to the 62, 5% Youll see the businesses are already there with their divisional cost income ratio.

The investment and the uncontrollable part, which folds away. If you just think about the bank levy or something like that for instance, but the other investments will fall away and will give actually further automation, but page two of the presentation very important to see exactly on the right trajectory to get there where we wanted to be.

That's very helpful. If I may just one more follow up.

Assuming that the revenues don't end up at $30 billion, but let's say significantly lower than what you're expecting this year, let's say 25, how much flexibility are you really having the cost base.

Hi.

I think we both want to answer that because a but I understand also that hypothetical question I cannot see based on the trajectory of the businesses the regained market share the momentum.

Honestly the person in this company the client feedback we have I cannot see a scenario that we ended up with 25 billion, but I mean, if we take that scenario of course, we would react on the compensation side I mean more than 60% of our costs are at the end of the day FTE costs and compensation costs and you will see.

He then obviously that what we I think have done quite well with project Cairo in 2019 of course in case of our revenues are so far away from that what we expected investments would be cut back.

And that is a significant amount and at the same time.

Then you will see the pay off of the other investments into our control functions into the front to back processes, which would also reduce.

The cost side, so I would say than we are in a completely different scenario, which again I cannot even.

Seat at all but these two items James would be immediately prone to be cut back.

Yes.

The thing I would add is.

The interest rate environment as we talked about earlier is suggesting the opposite that the direction of travel on revenues.

It's better than we anticipated in March now, there's there's maybe an offset in the near term in terms of in terms of volume growth. If the if the economy is weaker than we were then thinking but that's all going to depend on.

On the length of a downturn in the severity of downturn and how quickly we get back to growth after such a thing, but but where our starting point is basically a 1 billion better than we than we thought in March which is a lot of room to absorb.

Some some some volume shortfall relative to our then assumptions.

I think it's just assuming potential dislocation, let's say in the fixed income markets, which clearly would impact your revenues I was thinking more from that perspective.

Your NII.

Hearing upsides. Thank you thank.

Thank you Kim.

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

Thank you. Thank you very much and good afternoon I've got two questions. One is about your lending and another one a.

FIC trading.

So let's start with the lending side could you give us a sense.

Wear your recent loan growth, particularly in the Corp in the corporate and investment bank, because you've been growing quite nicely.

On quarter, whereas the demand coming from could you give us a sense either by sector or by product and also could you give us a sense what sort of pricing are you commanding a kind of more and more recently and how the front book spreads are looking like literally across the book if you could.

So that's question number one and number two on the.

On the FIC trading kind of from a mixed perspective, we have seen.

Literally year to date, that's kind of the strength of the macro and FX business at the expense of course, the pay off of the credit trading do you.

<unk> the second half of the year is likely to look similar in terms of just kind of trend.

<unk>.

Sure. Thanks, Magdalena James I'll start again, and Christian May add so lending growth you've seen has been actually strong across all three lending businesses, So corporate bank investment bank and the private bank.

Something we would expect to continue certainly that those are the trends that we're seeing.

In corporate bank it has been in really trade finance.

And we expect that to continue.

Obviously that may be affected by macroeconomic conditions, but theres also some drivers in terms of just demand side from corporate longer supply change the need to to bring manufacturing onshore those types of things that have driven driven demand. We think will continue in the investment bank and structured finance.

<unk>, we see real demand.

Our financing business as you know has been a leader in this market for a while and.

And frankly, we see more demand and we really are prepared to fill in terms of our risk appetite.

With with good front book spreads. So so we think right now that that environment is very favorable.

The private bank has also been growing.

Remains a little bit more heavily rated to mortgages than we would perhaps like.

But the mortgage spreads have now recovered you'll recall there was a bit of a lag in the repricing.

March through May but in June we look to have recovered that we'd like to see that momentum continue.

Still healthy growth in all three within RASK risk appetite and with front book spreads and frankly still improving.

In FIC trading.

From where we sit right now we would expect those trends to continue into the second half.

So we think the macroeconomic environment will remain.

We'll drive volatility in the second half.

We think that we'll probably see trends emerge as the as the market sort of takes a view on.

The direction of economic activity and monetary policy.

And we do think credit remains weak for a while.

That will stabilize or normalize at some point the credit markets will adjust to the to the move in spreads.

There'll be there's a lot of of primary market, if you like buy side demand out there.

And so we would expect a normalization of the credit market, but not clear how long it takes for that for that to manifest itself.

So James can I, just can I just confirm that.

If we're going to see the continuation of the current lending trends, you're kind of going to end up depending on the division with a loan growth in 2022, either of high single digits or kind of even even teams and potentially even higher in the investment bank, which you effectively see as properly priced at the moment.

Yeah, I wouldn't say high single digits low teens that I doubt imagine right now.

We thought about sort of mid single digits.

We talked in March and that would probably still be our view and if there's softness it would be.

4% instead of 5% is our current view.

Okay.

We feel good about about the lending business.

Thanks, very much for that thank you.

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

Alright, Thank you and just a follow up question.

Just want to check in the outlook section on the main report it talks about the investment bank revenues being flat year on year, which is M. I guess previously at Q1, you said higher clearly have delivered more than you're still talking about the two to two five per quarter, let's say.

Just wanted to check if that's an intentional kind of change in trend there.

And if so.

What's driving it.

Actually I would have thought.

The currency effects would have also been helping on that.

Yes.

So yes intentional.

It really reflects the ongoing softness in origination and advisory.

So that's that's continuing as we see it in the second half our earlier expectations had been for a recovery at some point this year.

And also obviously leveraged debt capital markets is going through.

A cycle as we speak and that impacts our view of the second half remember that.

Having having taken that outlook down a little bit it's still represents its something thats essentially flat to last year our revenue.

Call It high nines.

For IV so it remains.

<unk> is a strong performance, but a little bit of softening relative to our views.

Earlier this year in April .

And let me also had changed I mean last year, we talked about the the one specific transaction, which are obviously some of your call. It out as an extraordinary one zim, which is not part of the city this year.

And in this regard I would say, it's a very strong development of the investment bank.

And I think this needs to be taken into account when you compare last year and this year.

Okay. Thanks.

So you'd be expecting less than <unk> billion of revenues.

The quarter for the rest of this year.

In the margin.

We have to wait and see Amit, but but.

Yeah, it's in the margin.

Of variation if you like.

Okay. Thank you.

The next question is from anchor.

From RBC. Please go ahead ma'am.

Yeah. Thank you very much for taking my questions that fosters.

Just looking on the cost and the 2025 cost path okay.

Beyond 'twenty, two and what do you previously disclosed the IDB biology, 2020 slides expectations I just wondered given you.

What change in 2022 starting base.

Should we be thinking about the moving parts.

Pass through to 2025 being more back end loaded given you Tom inflation and investments.

Cost savings coming through and Alistair.

The 18 and a half.

In 19 billion you put on the side is that still an absolute number that used to sort of like we should be focusing on looking at Westwood. The focus really just beyond the cost income ratio of 62, 5%.

And then secondly on the guy that tough.

So very much to putting a number out there I just that 20 basis points just seems to be I mean, that's obviously good news about some second very small impact and I just wonder if you're willing to share your GDP assumptions.

So the 20 basis points.

And if it's just really I mean that is 20 basis points. This is $1 billion in absolute charge is still focused on more about.

The potential risk to revenues.

Your mom business confidence slows down and I was wondering if he if you're happy to share anything you're seeing in terms of the recent momentum indicators for placebo more downbeat on that in terms of confidence if you're already seeing this and what do you see modest follow ons. For example, thank you very much.

So.

In terms of the forward to 2025 look we haven't done.

Drains up re forecast of the.

Over the next several years.

Look theres, probably going to be more pressure in the early years than we might have liked.

We talked about the unity.

Issue in 'twenty, three perhaps the impact of inflation.

But as Christian talked about the structural cost measures that we're executing on.

Our very tangible we're investing in them and executing as we speak.

So we feel we feel very comfortable and comfortable about the direction of travel there much as I said about unity. The destination is the same remember on the revenue side.

We're looking at I think on the interest rate side alone higher revenues.

So from a from a cost income ratio perspective, we so we see no need to change our views.

Higher revenues, particularly given given an inflationary or higher rate environment would of course report higher expenses.

Again, it's early to talk about that on the trains up basis.

Just shut off.

We have already built in.

Some conservatism in what we took in Q2.

Relative to the macroeconomic variables that we disclose in our interim report so our step off includes a slightly weaker environment, which I think is appropriate to the current view.

We then stress our all of our variables by two standard deviations, which.

Which we think is appropriately stressful in particular given that what we've done is taken a stress across all of the variables, whereas in fact.

<unk>.

Most of the stress will be in a handful of the variables that feed into our models. So we do think it is it's appropriately stressful, it's not easy to translate into a simple GDP number.

For the reason that there are so many macroeconomic variables that feed into it.

And it's sort of a global model rather than just Germany.

As you say, it's a very manageable number for us in terms of this downside risk.

Which is why we.

A we were forced to share it to share it given some of the disclosure requirements. This quarter, but we felt it was important to share it.

Because there was a whole lot of work that went into trying to assess this and we think it is important information for our investors.

Sure what we think the severity of this scenario is.

Let me I think it's a good question.

You're on your consumer also demand side also from the corporate some what we see for the time being and James alluded to that that actually we have more demand on the lending side than we are filling for the time being because.

It's not only the gas situation the German corporates are actually dealing with their reorganization reorganizing their supply chains.

They are looking about how can they hedge themselves according to the.

The volatility, which we see on the right side on the epic side.

And I have to say.

And that's what I meant with the client feedback we have the interaction we have on the clients in order to manage exactly those volatilities to help them to navigate their supply chain.

And that is I think our strength from a product suite, but also from a regional setup that if there was a German bank, which can actually provide the advice on reordering supply chains, it's us and therefore, the the magnitude of issues, which are happening and provide certain uncertainties to our clients is actually an enabler for.

Ross in the business and that we see on the private banking side and particularly on the wealth management business, but in particular also on the corporate side asking activity followed by so to be honest.

Eight more loans loan demand then we feel b. The other advisory activities, we're doing very very active.

Okay. Thank you very much.

Thank you Rocco.

The next question is from Jeremy <unk> from BNP. Please go ahead.

Thank you two questions. Please first of all I'm very related to the last discussion are you seeing any interest from regulators relating to the gas stop scenario.

For instance to say lets take your 20 bps scenario and get the banks to provide on a precautionary basis. So that we've got a strong banking system already provided for that scenario going into it do you have any discussions around that.

And then my second question is the more standard regulatory question really was just on <unk> do you see any moving parts in the <unk>.

Particularly in the second half of this year either from market risk <unk> normalizing down, giving you some help or from any sort of inflation elements in our <unk>.

Okay. Let me take the first question and there was a clear no I think there is the right level of interest off the regulators exactly to the scenarios, we're running and that to us.

Obviously normal and we are in close dialogue with the regulators and I think they appreciate our transparency, how we risk management, our positions and what kind of scenarios we're calculating.

But there is no such thing to kind of now book something upfront for a certain scenario.

Also do believe that when it comes to US there is good experience with our risks and niche meant when it came to previous issues like the pandemic and hence the transparency that we provide.

At least at this point in time I can tell you is.

Sufficient to to the regulator regulatory requirements, we get.

And Jeremy it's James on out of the way.

As you know when when whenever the markets gets dislocated as they've done you see a couple of impacts market risk RW tends to go up as it did for us this quarter.

Just on both volatility in the metrics and the outlier test.

You also see pressure on capital from additional valuation adjustments from aviation, which have climbed altogether about $400 million. This this year so far.

And then you see some rating migration impacts.

That that come through.

Including in this case obligor is like any Russian related credits that go into the calculation. So you do see pressures.

As you saw in Covid, they they alleviate overtime, but it's hard to judge exactly when so how much of that capital we get back and how soon.

It's hard to judge.

But for now we're living with what I Hope is the high point of the <unk> impact of this environment.

Much comes back we'll see there's some organic growth that we expect in the second half, which we see as being funded from from earnings.

And then just to round out the picture, we've talked about Reg inflation.

As time goes by you have a little bit more visibility right now we'd expect about about 10 basis points in the.

In the back half of the year on that.

And the rest of the model work that we're doing right now appears to us to be to be 23 events.

So that's kind of how we're looking at the <unk> and the capital picture in the back half of the year.

That's very clear. Thank you very much thank you Jeremy.

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

Yeah.

Good afternoon, two questions as well please.

Thank you for doing the.

Walk between the cost guidance, you gave originally and the cost today.

Wondering if you could do something similar on head count plays.

Because when you originally set the head count target in 2019, I think it was to fall from 92 to 74000.

And you're still at 83000 per day, so interesting that what the Dow to raise I assume its corporate and others, but would be interested.

And then the second question just on net interest income I believe the guidance that you gave.

Include the impact of losing the carrying in excess of that.

I also includes the step change in deposit charging.

Including the run off of the tail right. So if you could just confirm that and let's say the current payout TRA contribution. Thank you.

So Andrew Thanks for the questions on the last question, yes. The disclosure on page 44 now includes <unk>.

The earlier disclosure in March I think excluded the impact so so a little bit of changes in how and how were providing the data, but hopefully that clarifies a little bit.

<unk> guidance, you gave on accumulative basis was back integrating alright.

Zero at the end by 25 is out anyway. So that's only a factor into 'twenty, three and a little bit of runoff in 'twenty four or so so.

At this point that the numbers I gave you the 700 in the high twos.

Those are both unaffected by TL Taro.

As I say, there's a lot of I mentioned theres a lot of curious elements that are going on because you have to trace through not just <unk>, but peering deposit charging and also the impact of our of our hedging.

That has brought forward some of the impact of the rising.

Curve in the middle and long and so so lots of dynamics going on but broadly it's all beneficial.

Look on the on the head count we talked about this a little bit at the IGD and the answer is one we're running a bigger company as we talked about earlier to the to the work on expenses and I would argue that that represents.

Maybe half of the Miss so where we're missing by by sort of 9000 against <unk>.

Currently against the 74000, and I would I would put it in two buckets have running a bigger company we've had to make investments in controls in it that we've talked about.

And the other half is that we we essentially.

Underestimated the amount of internalization that we assume so so since we started this we've now internalized almost 5000 positions.

And that's why you see sort of a variance between what we might have thought originally was in compensation cost reductions versus non comp and thats just been a swing, but I would attribute basically the 9000, Miss if you like to those those two factors call. It 50 50.

That's great. Thank you. Thank you Ed.

The next question is from Andrew Lim from Society.

Please go ahead.

Hi, good afternoon, thanks for taking my questions.

NII.

On slide 44.

You couldn't afford comes in like I guess one.

The patient is that the.

The fed.

It's sort of a curve that the peak days higher.

But the rest of the market is factoring costs in 2003 onwards, and I was wondering how that translates into your NII expectations. It doesn't mean that your NII will peak in early right and then start may be coming down in terms of margin compression as the.

The fed funds rate comes down.

And then secondly.

Question.

On the scenario of Russia cutting off cost for Germany is helpful that you've given.

Loan loss rate guidance, there, but I was thinking more holistically what would happen to.

<unk> have you stressed what would happen to loan growth and revenues.

And how sticky costs would be and how should we think about that scenario for your return on tangible net asset value.

That transpires.

So Andrew on the second one no we haven't looked at it there's been a lot going on this quarter. So I Couldnt tell you.

All of the impacts of that scenario, we've been very focused on on the on the managing the risk side of it over the pass it awhile.

So we'll have to we'll have to come back to you in time on that question on the on the first yeah. It's an interesting dynamic look one thing that we talked a lot about back in March is our exposure is to the short dollar.

And the long Euro and principal so so what you'd see in the in this scenario question that you outlined is yeah, we get we get a lift in the early stages of this cycle from from the dollar and then is that perhaps begins to wane, although not by much. If you look at the curve on page 44.

You would see I think the euro benefits beginning to kick through.

So that's how we would look at the at the dynamic here you can see that a little bit on on page 43, as well in the sense of in the 25 basis point versus the forward curve sensitivity that we show there.

And you can see that there's almost no euro sensitivity.

And in the early days, but a lot at the backend.

And the opposite is true the U S. Dollar is marginal and doesn't move much between 22 and 25.

That's great. Thank you.

Pleasure.

There are no further question at this time and I would like to turn back to you Anna Patrice you for closing comments.

Thank you for joining us for our second quarter 2019 results call and for your questions. Please don't hesitate to reach out to the Investor relations team with any follow ups as usual and with that we look forward to speaking to you off that course results in October . Thank you.

Yeah.

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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