Q3 2022 Deutsche Bank AG Earnings Call (Fixed Income)

October 28, 2022

Ladies and gentlemen, thank you for standing by.

Welcome and thank you for joining the Q3 2022 fixed income conference call.

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.

Press the stock equals zero for operator assistance I would now like to turn the conference over to Philip twice now. Please go ahead.

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

On the call on your group Treasurer, Richard Stewart will also remain in charge of the capital release unit.

Take us through some fixed income specific topics.

For the subsequent Q&A session. We also have it wants to go for all jumped from market with us 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 will be happy to take your questions.

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.

Let me hand over to James to introduce our new treasurer.

Okay.

Thank you Philip.

With great pleasure that I wanted to introduce Richard Stewart, who took over the role as the group Treasurer, just a little over a month ago rich.

Richard has gathered a breadth of experience and is more than 15 years with the bank specifically from various risk roles and most recently as head of the capital release unit.

We believe that given his background and his contributions to the success of Deutsche Bank's transformation. Richard is highly qualified to succeed in his new role a testament to the strong bench, we have at Deutsche Bank.

At the same time, we want to thank <unk> for his contributions during a critical time at the helm of the Treasury team and we wish him success in his new endeavors.

I now hand over to Richard for his prepared remarks.

Thank you James and welcome from me.

It's a pleasure to be discussing our third quarter and nine months results with you today.

We continue to operate in a difficult and uncertain environment.

We are mindful that the economic impacts of the war in Ukraine, and the energy crisis are yet to be fully see.

However, despite these challenges we have progression towards the completion of our transformation strategy.

Our efforts continue to be recognized by all stakeholders as we saw duration upgrade from Moodys earlier this month.

We delivered our highest third quarter pretax profit since 2006, and our best nine month results since 2011.

We work towards our 2022 financial goals.

Turning first to our performance the positive trends you saw in the first half of the year continued in the third quarter. We delivered group revenues of 29 billion euros in the first nine months, an increase of 7% year on year.

We also achieved revenue growth of 10% year on year across the four core businesses driven by business volume growth market share gains improving interest rates and business investments.

Our cost income ratio was 73% for the first nine months down from 82% in the prior year period and.

In the first nine months of <unk> 22, we generated an 8% return on tangible equity in line with our target and up from four 8% in the first nine months of trades principle.

We also proved our resilience, we maintain strong risk management in this challenging business environment provision.

Provision for credit losses was higher that contained at 24 basis points of average loans.

We are well capitalized we finished the third quarter with a common equity tier one capital ratio of 13, 3%.

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

All four core businesses delivered strong post tax return on tangible equity in the first nine months.

In the corporate bank revenues are up 20% year to date, thanks to further improving interest rates and higher fee income supported by volume growth in loans and deposits.

Return on tangible equity was 11% a four percentage point increase year on year.

And the investment Bank continued client engagement and strong risk management in our leading fixed franchise.

<unk> revenue growth of 8% with particular strength in our macro trading businesses.

The investment bank delivered a return on tangible equity of 12%, despite lower origination and advisory activity as markets became more volatile.

The private bank boosted its return on tangible equity to nine 5% by delivering a more than threefold increase in pretax profit in the first nine months.

Asset management delivered revenue growth of 4% year on year.

Proving its resilience in a much tougher market environment.

Let me now spend some time talking to our risk management and balance sheet strength on slide three.

As always we remain extremely focused on disciplined risk management.

We constantly monitor and manage risks through our early identification systems multiple downside analysis and stress test and selectively reductions.

We proactively responded to the escalating war in Ukraine, and the broader European energy crisis via focused hedging and selectively reducing risk appetite focused portfolios.

Our underwriting standards remain robust even as we continue to support clients through these challenging times.

Our approach and our resilient balance sheet, meaning we have some limited impacts on our risk profile so far.

Our key risk and balance sheet metrics have remained stable since the fourth quarter of the trade tranche one before the start of the war in Ukraine.

Our provision for credit losses increased to 24 basis points of average loans for the first nine months.

To eight basis points for the same period last year.

This is a normalization we expected for a less benign macroeconomic environment compared to the previous year.

Nonetheless, we still expect the full year provision to be in line with our.

Overall earlier guidance at around 25 basis points.

Overall, our credit portfolio quality is broadly stable and despite the volatility we have seen our market risk is managed within our appetite parameters and we have taken measures to protect us against tail risk.

Turning to slide four which illustrates the improved profitability that we believe positions us well in face of a tougher macroeconomic outlook in more challenging credit environment.

The core bank delivered a return on tangible equity of 10% in the first nine months up from 7% in 2021 and in line with our 2022 target of greater than 9%.

As a result core bank pre provision profit rose, 40% year on year to $6 4 billion euros in the first nine months.

Pre provision profit is not only higher but also better diversified across our franchise.

The contribution from our stable businesses has increased significantly.

The corporate bank private bank and asset management now account for over 60% of pre provision profits.

And with the turn in the interest rate cycle, we expect the contributions from our core bank private bank to remain sustainably strong in future periods.

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

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

We have been successfully delivering on our strategy of growing our lending books as part of the overall growth in our stable businesses and <unk> surface liquidity.

With liquidity now around target levels, we are beginning to shift to a more balanced loan and deposit growth pattern in order to fund continued growth while maintain sufficiently prudent liquidity levels.

Loan growth across the bank has been 10 billion euros in the third quarter or 2 billion.

<unk> adjusted basis.

We saw continued strong momentum from collateralized lending in our private bank and sustained client demand across our fixed franchise, while loans in origination and advisory remained flat.

Given the current economic outlook, we are very focused on actively managing our risk profile and ensuring a disciplined approach and underwriting new business, particularly in structured lending.

Deposits grew by 10 billion euros compared to the previous quarter when adjusting for FX.

This growth has been primarily driven by corporate clients holding higher cash reserves amidst a more challenging macro environment.

We expect to see continued volatility in corporate deposits as economic uncertainties keep impacting our clients as well as mutual growth in retail deposits due to inflationary pressures on consumers.

At the same time deposit margins have started to increase for our recent interest rate hikes and trends that based on current forward curves will continue.

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

As we flagged to you last quarter, our NIM trend continues to remain positive in line with rising interest rates the.

The increase was driven both by Euro and dollar rates with your rates now starting to play a bigger role.

The NIM increase was also driven by approximately five basis points of positive one offs.

Most notably from the buyback Krause senior non preferred debt offsetting the positive one offs, we flagged for the second quarter.

Average interest, earning assets rose, reflecting U S dollar strengthening and underlying loan growth.

Interest rate tailwind have increased since the second quarter with benefits now significantly above 3 billion euros in 2025 compared to our trench trench one baseline. However, wider funding spreads will have an offsetting impact if they persist at these levels.

The net impact remains materially better than the impact we fly to the idd back in March.

Let me now give you some additional details on net interest income sensitivity on slide seven.

Further increases in rates above current market implied levels will continue to add to the interest rate driven tailwind.

Over time, the largest impact will come from long end rates as we roll over our hedge portfolios to higher levels, particularly in Europe .

Currently we see our deposit repricing love in all Beecher assumptions and this effect in part drives the highest sensitivity at the short trend.

Over time, we would expect Pcs to converge closer to our model assumptions.

Moving to slide eight highlighting the development of our key liquidity metrics.

We have maintained a solid liquidity and funding position despite continued volatility in asset markets.

The stock of our high quality liquid assets increased by about 20 billion euros during the third quarter.

This is mainly due to continued deposit growth, primarily driven by the corporate bank and net new capital market issuances.

This was partially offset by loan growth, particularly in private bank.

As a result, the liquidity coverage ratio increased by three percentage points to 136%.

The surplus above minimum requirements increased by about 9 billion euros.

Quarter on quarter to <unk> 60 billion euros.

Our average daily liquidity coverage ratio over the past three months was about 134% and underlying stability and proactive steering with balance sheet in line with target levels.

While we remain committed to support the business growth, we continue to manage the LCR Com service fleet towards 130% for the remainder of this year.

The net stable funding ratio remains at 116%, which is within our target range.

The surface of 85 billion euros remains comfortably above 100% requirement.

The available longer term stable funding sources for the bank remain well diversified and continued benefits from our solid deposit franchise, which countries about two thirds the group's stable funding sources.

We aim to maintain this funding mix, which will be supplemented by a longer dated capital market issuances in line with our issuance plan.

Turning to capital on slide nine.

Our common equity tier one ratio ended at 13, 3% 37 basis points higher compared to the previous quarter.

CET, one capital increased in the quarter, adding 13 basis points.

Strong organic capital generation natural deductions for dividend, an additional tier one coupon payments added 24 basis points.

This was offset by nine basis points with slightly higher other deductions.

The second element of driving a strong ratio with lower risk weighted assets contributing around 24 basis points.

Half of this is attributable to market risk, where we have seen very low vol and asphalt levels early in the quarter.

<unk> picks up towards the end of the quarter with increased client activity.

The rest is attributable to credit risk and operational risk.

And credit risk reduction is driven by modest growth in stable businesses, which is more than offset by tight risk management and the investment bank.

Our capital ratios remain well above regulatory requirements as shown on slide 10.

In line with the CET, one capital ratio developments in the quarter the distance to the CET one ratio capital requirement has increased by 36 basis points and now stands at 289 basis points or 11 billion euros of CET one capital.

Our available were 81 and tier two capital is at or slightly above the respective regulatory requirements, which brings our total capital ratio distance to MDA to 304 basis points.

This provides us with a comfortable starting point as we managed through the coming quarters.

Moving to slide 11.

Our leverage ratio was four 3% unchanged over the quarter.

Increased tier one capital added four basis points, driven by strong third quarter earnings nice deductions for dividends and 81 coupons.

One basis point came from essentially flat leverage exposure.

For the quarter FX translation effects led to a three basis point reduction tier one leverage ratio.

The corresponding effect year to date was a reduction of nine basis points.

We continue to operate with a significant loss absorbing capacity well above all our requirements as shown on slide 12.

The <unk> surface as our most binding constraint has increased by 4 billion euros to 19 billion euros over the quarter.

The increase was driven by higher regulatory capital and new issuances of eligible liabilities.

Which were partly offset by two successful public tender offerings and further roll downs during the quarter.

Our loss absorbing capacity buffer remains at a comfortable level and continues to provide us with the flexibility to pause issuing new eligible liability instruments for approximately one year.

This buffer also allows us to maintain a one notch uplifting our senior non preferred rating from Moody's based on that loss given failure methodology over and above the improved baseline credit assessment. Following the most recent upgrade.

We intend to maintain the lgs notch for the foreseeable future.

The current rating level.

Moving now to our issuance plan on slide 13.

The quarter was characterized by ongoing challenging market conditions with high levels of interest rate and credit spread volatility.

In this context, we are pleased to being largely complete in terms of 2022 issues requirements.

Since the last call at the end of July we issued a total of $4 7 billion euros taken a year to date total to close to $19 billion.

I would note that this total is slightly inflated due to $2 7 billion euros of structured notes, which were not part of the original funding plan. This.

Activity is being moved into the investment bank.

Notable in the quarter were dual tranche pfandbriefe issue, along with the senior non preferred issuance in both euros and sing dollars.

The five and 10 year Pfandbriefe issuances secure attractive funding levels for the bank and we further diversified our investor base through the inaugural sing dollar issuance.

In August and September we completed two public market tenders in Euro Sterling and U S dollars for a total amount of $2 1 billion euros.

In the two transactions, we bought back $1 1 billion in euros, and Sterling bonds of $1 billion bottoms. The.

The tenders tightened our credit spreads in all three currencies and supported our NIM by around five basis points as mentioned earlier.

We continue to guide to roughly 20 billion euros of issuance for full year 'twenty <unk>, two and May consider some pre funding for 2023 in Q4, depending on market conditions.

Turning to the outlook on slide 14.

We believe our strong performance in the core bank in the past nine months is a testament to the quality of our businesses and the strength of our franchise.

Reflecting on this performance, we see upside to our registrants to revenue guidance of 26 to 27 billion euros, particularly given the trends we see stable businesses.

Business momentum in the past nine months combined with improving operating leverage makes us even more confidence in the delivery of our 20, <unk> chief strategy and financial goals.

We continue to adhere to strict risk management principles, particularly in this continued uncertain environment.

We are very focused on managing our resilient balance sheet and we confirm that we expect our provision for credit losses at around 25 basis points of average range for the full year.

As I mentioned earlier, our credit ratings were upgraded by Moody's earlier. This month following the upgrade of the three big agencies and transferred Schwab.

We expect this to have a positive impact on both our issuance spreads and business volumes, specifically in the investment bank and corporate bank over time.

On the instrument side, we have almost completed our funding requirements for this year.

And flexible to pre fund our requirements for next year.

The funding plan for 2023 will be presented at the Q4 fixed income call in early February .

With that I will finish and we look forward to your questions.

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

Anyone who wishes to ask a question May press star followed by one on that Huddlestone 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.

Anyone who had the question May press Star followed by one at this time.

One moment for the first question please.

And our first question is from the line of <unk> Kumar from Societe Generale. Please go ahead.

Hi, good afternoon.

Welcome Richard there's a budget from South Kent I've got three questions if I may.

So in light of the changes to LTE or <unk>. So do you intend to already paid earlier than expected.

How does this and Jim the ECB announcement affecting your funding plans.

I know that we have numbers for the FY 'twenty, two but really appreciate any color or any other future events.

The second one is a more generic I mean looking at yesterday is various ECB announcement, what is your agenda do in guidance.

The expected impact on the rate guidance that you provided us Anthony do you want to add.

Finally, our whole way of looking at asset quality in FY 'twenty are you seeing any kind of standing node loan book wed love to get your thoughts out yet I think that's it.

Thanks, Thanks, Paul.

And.

Welcome and thank you for joining.

I'll take the first question is on.

<unk> and then maybe I'll just hand over to James over days as overall thoughts.

On yesterday's announcements.

So in terms of the changes <unk> the impact on our funding plan.

The ECB announced that it will not have an impact on our issuance plan as.

<unk> is longer data charges remain an economic source of funding.

As we have noted repeatedly <unk> was an important source of financial support for the European economy and not.

Arbitrage opportunity.

<unk> funding plan was was designed around a smooth amortization of.

Reliance on <unk> list.

This profile remains unaffected by this stage decisions.

We are reviewing the extent to which we prepaid the earliest tranche is that these would only prepaid in full as these are also supporting client transactions, which may not be beneficial to unwind.

James perhaps you want to just talk about overall.

Yes. Thank you Richard and look I think the right decision by and large was in line with market expectations, and therefore fits with the earlier outlook, we provided for our rate sensitivity in the path of net interest income from here.

Obviously, the market is still trying to find the right balance between their assessment of the dovish newness or hawkishness of the central banks, and you've seen that a little bit yesterday and today and since the announcement, but for us it's.

It's reasonably in line with our expectations.

Have to say on the <unk> decision. There we are deeply disappointed by the decision.

To have retrospectively amended the terms of a.

Of our monetary policy instrument that has over two trillion of balances in it to our mind is a spectacularly large mulligan to have taken for themselves.

The banks entered into these instruments in good faith.

With the intention of supporting lending in the economy.

Lending has been committed to clients and I think both banks met the method. If you like the hurdles that were implicit in the in the instrument.

And the banks are now harmed in two or three different ways going forward economically.

First there is the loss of the of the additional benefit from the original terms that will flow into earnings in the next several years.

That obviously would have supported profitability organic capital generation and the ability of the banks to support the economy and what will undoubtedly be a difficult time.

I think secondly, when that funding went into the economy. It influenced asset spreads and so we live with the asset spreads that were entered into at that point in time.

And that will be with us even as rates rise that will be with us for some time.

And lastly, and I think quite importantly, TLC.

<unk> was built into the modeling of the banks and therefore, the hedging that was done.

And now I think certain banks could have potentially significant cost in addition.

Wining the hedging that.

That was done.

And if you take a step back then from the economic costs.

Again.

The implicit contract that existed around <unk> and.

And think about the path forward there banks will have to now assess the reliability of long term actions long term policy tools and how we take those up how we hedge them.

How we build them into our our risk modeling in a way that wouldn't have been the case had had they left those terms unchanged. So we have we have I think a strong reaction to that part of yesterday.

Announcement, yes.

Okay Super and then to views on asset quality in.

423, yes. Thank you for the reminder, so on Wednesday, we sort of our guidance was look we think the normalized rate of <unk>.

<unk> is in a range between 20 and 25 basis points.

For our portfolio looking to next year.

I think at this point again, it's very early to judge this but I would expect us to be at the high end of that range, maybe a couple of basis points above it.

But.

But still with a reasonably sanguine view of the portfolio quality, we have in the <unk>.

Sort of condition of households, and corporates going into what we're obviously aware will be a more difficult economic environment, but again.

It's part of our underwriting discipline that we.

We try to build a portfolio that will withstand.

A market cycle and.

Our hope is that that and expectation is that the portfolio will perform according to our expected to our our modeling.

Okay.

One last bit of clarification I see that in your slides.

You still have got $3 4 billion for <unk> versus year to date issuance of $3 billion.

Does this mean you are kind of keeping the latter to be open to come to an OIBDA when tier two market.

The need to be ready.

Like that.

I think that's a reasonable assumption I think.

He said, we successfully get our issuance plan for the.

For the year.

Yes.

I guess with all frequent issuers.

Figures.

Whether it makes sense for us given the opportunities you see within the firm to to grow assets at attractive levels. So.

So yes, there is.

As it shows that we may look to do something in the in the coming quarters.

Okay. Thank you.

The next question is from the line of Julian I call up from Goldman Sachs. Please go ahead.

Oh, Hey, good afternoon, and thank you.

Questions. Please first one on ratings do you expect any more from S&P to upgrade.

Your ratings.

As a follow up from the move from Moody's earlier in October .

Two questions on capital given the increase in NDA in 2023 do you also intend to update your targets each one ratio.

The minimum 12, 5% would look at it a bit out of sync. If you have an MTA of around 11% and then.

There been any progress in the convergence between the <unk> and.

Regulatory reported ratios for James or do you.

Very much continue to manage the group to both regimes and lastly on tier two could you. Please describe how you look at the economics of refinancing to adhere to that and maybe any indications around refi.

<unk> costs should.

But to the.

Should we look at the year.

We stay close to the reset level. Thank you.

Thanks, Thanks Julianna.

The so I guess, taking your first question rich.

Thank you surround the S&P rating upgrade potential so I would say first of all.

We're very pleased with the upgrade from Moodys <unk>.

From from them within the last 14 months.

Thinks the strongest signal this transformation is successful and we're on the right track.

Towards.

Stable profitable bank.

In addition, as you know Fitch confirmed our posted outlets in September .

We know what is expected from us.

From them to move that ratio level, and we're focused on delivering and then ultimately we are hopeful.

That will also see something similar from S&P.

And they will recognize the progress the bank has made.

Over the last couple of years so.

So I guess, we're hopeful we can.

Possibly it from the other ratio seasoned.

Ill follow through with the S&P.

So julianna, it's James on the capital questions first of all yes.

The 12, 5% that we've operated under for the past several years has been a minimum.

That we've wanted to maintain also in stress conditions, given we were traveling through a period of.

Of restructuring and transformation, but as we began to indicated the investor deep dive in March.

Thinking is evolving towards maintaining a minimum gap to MDA and hence the guidance that we've given to 13.

Recently in recent quarters.

And so.

It is certainly evolving and we'd like to maintain a gap, but appropriate gap call. It 200 basis points to MDA as MDA develops.

Next year as Youll recall, the countercyclical buffer in the sector buffer.

Become binding in February and so that of course begins to enter into our thinking.

On the on the cap or our economic capital measures I will say.

Over the past several quarters and years as.

As we've seen the impact of model changes and methodology changes rule changes and as that continues now through to 2025.

We've observed in the past that are there is a divergence between our regulatory capital requirements and our economic capital requirements.

Former continuing to increase while the latter we're managing relatively flat, obviously, a grow somewhat as the balance sheet grows, but but the capital intensity of our business.

On a relative basis hasnt been significantly fluctuating. So so we clearly manage to it and it's something we're always mindful of.

And.

We are observing of trend of divergence between the two with the regulatory being the most binding.

And then maybe if I.

Pick up your.

Two cost structure.

Yes.

I guess, how do we think about these things is how we always think about.

Calls which is that.

It will continue to make decisions regarding the exercise of an issue of cool right.

So the exercise date balancing the interests of.

All of our stakeholders.

Our approach is based on factors, including the.

To use for this so the instrument for capital funding ratio electrics as well as the cost.

All services. So so that strategy remains consistent and it will apply that to any upcoming calls.

Kelly.

Very clear thank you.

The next question is from the line of Samir Ahsahka from Barclays. Please go ahead.

Hello.

Thank you for hosting the call and.

Welcome to Richard.

I had two questions if I could.

First.

You said that you were still committed to the leverage ratio target of four 5% by the end of 2022.

Does it imply that we would see a tick up from the current four 3% then.

Would that.

Additionally.

81 issuance as part of the plan.

And my second question.

On your deposit development.

You mentioned that you expect lower growth in retail deposits.

Going ahead, and we can see that the corporate deposits have increased is that a trend you expect to see continuing.

'twenty three and how does that.

Affect your margins going ahead as well thank you.

Okay.

Thanks.

Sumit.

So I guess, taking your leverage ratio question first.

<unk>.

Well I.

Yes.

So I guess maybe to start off with obviously Asia is one tool in the toolkit that we can use to to manage leverage if we so wished.

But we as you said we finished Q3 at four 3% we are close to achieving a leverage ratio of around four 5% for transparency.

And I think it was a setting in.

<unk>.

Earlier was.

We have seen a nine basis point drag year to date on our leverage ratio from from FX effects.

And we might not fully compensate those FX effects through leverage exposure reductions immediately.

If we kind of felt that that was going to have a negative impact on us at all business lines, where are you trying to see some tougher options. She is still so so overall.

Like I said, we are pretty confident of achieving net debt leverage ratio of around 4%.

Just bearing in mind FX effect as well.

And assuming it's James on deposits, we've seen reasonably encouraging and steady growth and the deposit books over the past several quarters.

And at least so far no.

Apparent moderation of that.

Nor to be fair.

Excessive competition for deposits in our markets.

And so while one would expect this to begin to tail off as liquidity drains out of the system and the actions of central banks, particularly acute.

Again to take effect and we haven't seen that impact so far.

Incidentally, the other item that would probably draw down deposits in the system is just household usage as they go through the impact of higher energy costs and what have you.

So while all of that.

Is that sort of a change in dynamic that we would.

Specs.

See we havent it hasnt been visible so far.

And at this point Hasnt fed into deposit pricing.

And a notable way.

Thank you.

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

Good afternoon, and nice to meet you have it.

Okay.

A couple of follow ups on the liquidity point.

What type of collateral pledged behind and TMT M&A and I Wonder if you could guide us to what would your LCR Nike fever to redeem.

And opportunity.

Thanks.

And very nice to meet <unk>.

Yes.

So it's a good question I was kind of what collateral.

With pleasure as we kind of working.

Let me see what we want to do that but I will say around two thirds.

Of our collateral is illiquid and that supports our liquidity coverage ratio.

This would have about a 30 billion euro impact on.

Our LCR if.

That was it.

Which leaves our instantaneously.

But as you know, we kind of staggered the trunk shows out until out to 2024.

So we're not going to be doing any any prepayments immediate labor.

Like I said earlier I think we have a we have a pretty well contained amortization profile, which with which we're managing to and making sure that we can continue to keep.

Funds from those clients.

Thank you very much.

The next question is from the line of Lee Street from Citigroup. Please go ahead Hello.

Thanks, Nicole let.

Let me ask some questions. Please I think Tom the revolt.

The guidance for revenue.

That's a 28 billion next year any.

Detailed thoughts on what rate assumptions underlie that.

Secondly, as it relates to group risk weighted assets.

How should be thinking about them evolving over the course of next year from current levels.

Any data around that will be helpful. And finally, you've got 19 billion headroom to your <unk> requirement presently.

What's the minimum.

Yes look to run out in terms of the headroom that ultimately question really obviously you did some buybacks seem to have quite a big impact on the on the margin which is one for example.

That could be more capacity for that included the <unk>.

My three questions. Thank you.

Lee I'll add James I'll start on the first and probably part of the second and Richard can take over.

<unk> and Enbrel, if he has other things.

Just to add on the AWS side look the $28 billion, we guided to Christian went through if you like of work thinking about the core businesses that we operate essentially the run rates that they are exhibiting at this point in time and that we expect in Q4, so the step off that we have.

There is growth outside of interest rates, so volume related growth that one would hope we can achieve in the businesses.

But then there's also a support from from interest rates.

We would.

To your question, we look at the implied forward rates, we look at the curve basically.

The market shows and we plan off of that so that's visible to you as it is to us.

We think theres about one 1% to $1 2 billion.

Of upside in 'twenty, three relative to 'twenty two from interest rates and that's just the impact of the curve on the on a static balance sheet.

But.

But adjusting interest rates by themselves would be much higher than that but then we adjust out higher funding costs non repetition of some of the of the favorable factors.

That we had in 2022 and also the impact of <unk>, which we spoke about earlier, which were the.

Some of the benefits are rolling off and compared to our early planning we have we have less.

Less favorable rates on that <unk>.

The net of that was call it somewhere between $1 billion and $1 billion to support for revenues next next year. So all things equal the current run rates would deliver it would deliver that along.

Along with interest rates.

<unk> are sort of trending higher we are working to support business growth.

Support clients with our balance sheet.

But we need to obviously calibrate the <unk> that we can give them both businesses to the capital plan and our goals going forward.

Again, I refer you to the Investor day materials from March where where we our capital plan now accommodates three things one is distributions to shareholders. The other is supporting the business growth in other words are there the way and the third is building the ratio over the next.

Two years, 'twenty, three and 'twenty four towards the Basel III environment that we anticipate in 'twenty five so wanting to make sure are essentially solved for a ratio on the first of January 25, but that is still at the 13% after giving effect to the Basel III changes.

And then on the on the MRO side of things.

Let's say, we got a buffer around $19 billion or so.

And Thats generally.

Allows us the flexibility to pull us issuing.

New city or non preferred senior preferred issuance wishes for about for about a year.

Why we like holding the buffer.

But also.

This will support later part of <unk>.

It's also something that we want to ensure that we can we can.

Target.

The loss given failure ratios.

Moody's so analysis.

But I was just strong message.

Around around the rating as well to our investors.

Alright, Thank you very much.

Thanks Lee.

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

Hi.

Thanks, very much for doing the call welcome Richard.

Three questions first on asset quality.

With respect to.

Movement into stage, one stage two stage three.

Im assuming that stage three will continue to be episodic, but could you give us an idea of where you see the trajectory.

Of movement at stage one from.

Stage, one into stage two and.

<unk>.

Where that would if that.

Change how would that.

What kind of concerned would you have in and what kind of trajectory would cause you concern.

In terms of the change of movement through the categories. That's my first question.

Second question with respect to funding overall.

Yes.

U S peers have been struggling with their balance sheet size around their securities business, given more customer facilitation.

The business as usual balance sheet is a little bigger than you've got dressed.

<unk> coming in there so there is.

On the risk management side. So there is a greater need for liquidity, how does that play into your plans for for issuance next year.

How do you look at that and then lastly on the call. The other day. We've mentioned a couple of times that you think your spreads are too wide.

I agree, particularly given recent upgrades and results.

Besides doing liability.

<unk> management and calls like this what else are you planning on doing to pour on your spreads.

Hi, Robert Thank you for joining again.

Those are those are tough questions.

On asset quality. It is hard to tell you what what level of deterioration we're comfortable with I mean, obviously, it's a fact of life that there is some deterioration.

In our book.

In general in recent quarters, the sort of downgrade upgrade relationship has been relatively stable if I think about it in terms of the mix.

<unk>, where.

Where we've seen upgrades versus downgrades based on our internal rating in a deteriorating macroeconomic environment of course that that relationship will will change somewhat but you would prefer to see it be gradual then then then it accelerate.

Accelerate pace.

And as we mentioned on Wednesday, one of the things we're seeing at the moment is that those.

Most of the forward looking indicators haven't yet started demonstrating stress.

Including for example that upgrade downgrade ratio.

So hard to hard to give you a sense of what what level of movement would begin to cause us.

Concern.

Right that stage three is on impairment event, so it'll be it'll be always somewhat episodic.

I wouldn't expect the run rate at this point to necessarily to change dramatically from where we've been over the over the last several quarters.

We'd like for it to remain within a range.

Stage, one and two depends on two things in particular economic variables. There we might see some more deterioration as we get closer into the into the recessionary environment and then at some point you would see it begin to pull out as they as those macroeconomic indicators look forward two to recovery.

But the other dynamic we've got is the portfolio parameters in there. This quarter you had this very interesting behavior.

The general portfolio improvements that was taking place on PD and LGD variables that fed into our stage, one and two results.

Driving the unusually low outcome it actually offsetting much of the macroeconomic variable related deterioration.

On the impact.

Moving to your U S peers question, Yes, it's an interesting change in the environment that.

The availability of call it a leveraged balance sheet.

Maybe becoming more constrained again.

We've got a level of leverage that we think we are.

Generally comfortable with as.

As Richard outlined where we are.

Giving a lot of thought to how much leverage to run against our ratio targets and the availability of available capital.

But going into the year and it's one feature that may impact the market that unlike the previous years.

In the U S U S banks, maybe less generous with their leverage balance sheet right now I'll defer to Richard on whether we're really building that into issuance plans for next next next year, but.

But we're waiting to see what that what the impact is over a year end.

Yes, Thanks, James So I think.

I think there's a few things to answer your question. So maybe I'll start with your spreads being.

Well your observation, especially in <unk>.

We.

We concur with that assessment.

Yes.

<unk> objective is to align.

Hey, do you have consistency across the rating agency spectrum.

As you've seen positive movements in Moody's.

Fitch, we think is going the same direction.

But I think there is a discrepancy with those two and S&P is one of the things holding this holding this back a little bit so we're continuing to work with with S&P.

You too.

In our case, but ultimately we just have to keep following through on what we've been doing which is.

Just excuse youre not translation.

<unk>.

Organic capital.

Like I said, the equity buffer and I'll now be posted.

The debt stack so.

Obviously, that's kind of what we what we have today, but thats kind of the sort of levers.

We're putting in I think just the structure is working and so we're seeing that all kind of organic cash flow continues to be built.

So I think I'll start with that level I think we are seeing the same sort of.

FX U S payers are seeing in terms of.

Client demand for the balance sheet.

So we obviously manage that carefully.

We do target.

LCR target of 130%.

And that will be continue to be our target.

We will manage through this.

This quarter and subsequent closest.

I think we're doing a pretty good job of steering austerity that.

And I think we ended up being quite quite balanced really in terms of.

Yes.

That sort of incremental loan growth demand as well as being able to match that with stable.

Stable stable funding.

I think when you look at the issuance plan I guess is on slide 13, a fee of the materials.

And then you can see a pretty consistent picture.

For this year next year in the outer years.

Yes, we're not looking at anything crazy.

Outside the us.

<unk> size.

To your point these kind of levels and it's something we have to be very mindful of Logan says if we want to be.

We're seeing it.

This issue is kind of less internally, we can we can generate returns to justify that.

That's great I appreciate the thoroughness.

Thank you thanks, Rob.

So there are no further questions at this time I hand back to Philip <unk> for closing comments.

Thank you mats.

Just to finish up thank you all for joining us today.

Ravi I Oxy move if you have any.

Further questions and we look forward to talking to you soon again goodbye.

Okay.

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

Okay.

Yes.

Okay.

Yeah.

Okay.

Yes.

Okay.

Yes.

Okay.

[music].

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

On the call on your group Treasurer, Richard Stewart.

Also remain in charge of the capital release unit.

Take us through some fixed income specific topics.

From the subsequent Q&A session. We also have I want to see if all jumped from market with us 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 will be happy to take your questions before.

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.

Let me hand over to James to introduce our new treasurer.

Okay.

Thank you Philip.

With great pleasure that I want to introduce Richard Stewart, who took over the role as the group Treasurer, just a little over a month ago.

Richard has gathered a breadth of experience and is more than 15 years with the bank specifically from various risk roles and most recently as head of the capital release unit.

At the same time, we want to thank <unk> for his contributions during a critical time at the helm of the Treasury team and we wish him success in his new endeavors.

I now hand over to Richard for his prepared remarks.

Thank you James and welcome from me.

It's a pleasure to be discussing our third quarter and nine months results with each day.

We continue to operate in a difficult and uncertain environment.

We are mindful that the economic impacts of the war in Ukraine, and the energy cost you say yet to be fully seen.

However, despite these challenges we have progression towards the completion of our transformation strategy.

Our assets continue to be recognized by the stakeholders as we saw with the racing upgrades from Moody's early this month we.

We delivered our highest third quarter pre tax profit since 2006, and our best nine month results since 2011, as we work towards our 2022 financial goals.

Turning first to our performance the positive trends you saw in the first half of the year continued in the third quarter.

We delivered group revenues of 29 billion euros in the first nine months, an increase of 7% year on year.

We also achieved revenue growth of 10% year on year across the four core businesses driven by business volume growth market share gains improving interest rates and business investments.

Our cost income ratio was 73% for the first nine months down from 82% in the prior year period.

In the first nine months of <unk> 22, we generated an 8% return on tangible equity in line with our target and up from four 8% in the first nine months of <unk>.

We also proved our resilience we maintained strong risk management in this challenging business environment.

Provision for credit losses was higher that contained at 24 basis points of average loans.

We are well capitalized we finished the third quarter with a common equity tier one capital ratio of 13, 3%.

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

All four core businesses delivered strong post tax return on tangible equity in the first nine months.

In the corporate bank revenues were up 20% year to date, thanks to further improving interest rates and higher fee income supported by volume growth in loans and deposits.

Return on tangible equity was 11% a four percentage point increase year on year.

And the investment Bank continued client engagement and strong risk management in our leading franchise trades.

<unk> revenue growth of 8% with particular strength in macro trading businesses.

The investment bank delivered a return on tangible equity of 12%, despite lower origination and advisory activity as markets became more volatile.

The private bank <unk> return on tangible equity to nine 5% by delivering a more than threefold increase in pre tax profit in the first nine months.

Asset management delivered revenue growth of 4% year on year.

Moving its resilience in a much tougher market environment.

Let me now spend some time talking to our risk management and balance sheet strength on slide three.

As always we remain extremely focused on disciplined risk management.

We constantly monitor and manage risks through our early identification systems multiple downside analysis and stress testing selectively reductions.

We proactively responded to the escalating war in Ukraine, and the broader European energy crisis via focused hedging and selectively reducing risk appetite focused portfolios.

Our underwriting standards remain robust even as we continue to support clients through these challenging times.

Our approach and our resilient balance sheet, meaning we have some limited impacts on our risk profile so far.

Our key risk and balance sheet metrics have remained stable since the fourth quarter of the train tranche one before the stop the war in Ukraine.

Our provision for credit losses increased to 24 basis points of average loans for the first nine months compared to eight basis points for the same period last year.

This is a normalization we expected following a less benign macroeconomic environment compared to the previous year.

Nonetheless, we still expect the full year provision to be in line with our.

Overall earlier guidance at around 25 basis points.

Turning to slide four illustrates the improved profitability that we believe positions us well in face of a tougher macroeconomic outlook in more challenging credit environment.

The core bank delivered a return on tangible equity of 10% in the first nine months up from seven 5% in 2021 and in line with our 2022 target of greater than 9%.

As a result core bank pre provision profit rose, 40% year on year to $6 4 billion in the first nine months.

Pre provision profit is not only higher but also better diversified across our franchise.

The contribution from our stable businesses has increased significantly.

Corporate Bank private bank and asset management now account for over 60% of pre provision profits.

And with the turn in the interest rate cycle, we expect the contributions from our core bank private bank to remain sustainably strong in future periods.

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

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

We have been successfully delivering on our strategy of growing our lending books as part of the overall growth in our stable businesses and <unk> surface liquidity.

Loan growth across the bank has been 10 billion euros in the third quarter or 2 billion on an FX adjusted basis.

We saw continued strong momentum from collateralized lending in our private bank and sustained client demand across our fixed franchise.

While loans in origination and advisory remained flat.

Given the current economic outlook, we are very focused on actively managing our risk profile and ensuring a disciplined approach and underwriting new business, particularly instruction lending.

Deposits grew by 10 billion euros compared to the previous quarter when adjusting for FX.

This growth has been primarily driven by corporate clients holding higher cash reserves amidst a more challenging macro environment.

We expect to see continued volatility in corporate deposits as economic uncertainties keep impacting our clients as well as music growth in retail deposits due to inflationary pressures on consumers.

At the same time deposit margins have started to increase for our recent interest rate hikes and trends that based on current forward curves will continue.

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

As we flagged to you last quarter, our NIM trend continues to remain positive in line with rising interest rates.

The increase was driven both by Euro and dollar rates with your rates now starting to play a bigger role.

The NIM. The increase was also driven by approximately five basis points of positive one offs.

Most notably from the buyback Krause senior non preferred debt offsetting the positive one offs, we flight for the second quarter.

Average interest, earning assets rose, reflecting U S dollar strengthening and underlying loan growth.

Interest rate tailwind have increased since the second quarter with benefits now significantly above 3 billion euros in 2025 compared to our 2021 baseline. However, wider funding spreads will have an offsetting impact if they persist at these levels.

The net impact remains materially better than the impact we fly to the idd back in March.

Let me now give you some additional details on net interest income sensitivity on slide seven.

Further increases in rates above current market implied levels will continue to add to the interest rate driven tailwind.

Over time, the largest impact will come from long end rates as you roll out of our hedge portfolio to higher levels, particularly in Europe .

Currently we see our deposit repricing would love an update your assumptions and this effect in part drives the highest sensitivity at the short trend.

Over time, we would expect Pcs to converge closer to our model assumptions.

Moving to slide eight highlighting the development of our key liquidity metrics.

We have maintained a solid liquidity and funding position despite continued volatility in asset markets.

The stock of our high quality liquid assets increased by about 20 billion euros during the third quarter.

This is mainly due to continued deposit growth, primarily driven by the corporate bank and net new capital market issuances.

This was partially offset by loan growth, particularly in private bank.

As a result, the liquidity coverage ratio increased by three percentage points to 136%.

The surface above minimum requirements increased by about 9 billion euros quarter.

Quarter on quarter to <unk> 60 billion euros.

Our average daily liquidity coverage ratio over the past three months was about 134% and underlying stability and proactive steering with balance sheet in line with target levels.

While we remain committed to support the business growth, we continue to manage the LCR conservatively towards 130% for the remainder of this year.

The net stable funding ratio remains at 116%, which is within our target range.

The surface of 85 billion euros remains comfortably above 100% requirement.

We aim to maintain this funding mix, which will be supplemented by a longer dated capital market issuances in line with our issuance plan.

Turning to capital on slide nine.

Our common equity tier one ratio ended at 13, 3% 37 basis points higher compared to the previous quarter.

CET, one capital increased in the quarter, adding 13 basis points strong organic capital generation natural deductions for dividend, an additional tier one coupon payments added 24 basis points.

This was offset by nine basis points with slightly higher other deductions.

The second element of driving a strong ratio with lower risk weighted assets contributing around 24 basis points.

Almost half of this is attributable to market risk, where we have seen very low vol and asphalt levels early in the quarter, which picks up towards the end of the quarter with increased client activity.

The rest is attributable to credit risk and operational risk <unk>.

And credit risk reduction is driven by modest growth in stable businesses, which is more than offset by tight risk management and the investment bank.

Our capital ratios remain well above regulatory requirements as shown on slide 10.

Our available <unk> 81, and tier two capital is at or slightly above the respective regulatory requirements, which brings our total capital ratio distance to MDA to 304 basis points.

This provides us with a comfortable starting point as we managed through the coming quarters.

Moving to slide 11.

Our leverage ratio was four 3% unchanged over the quarter.

Increased tier one capital added four basis points, driven by strong third quarter earnings message deductions for dividends and 81 coupons.

One basis point came from essentially flat leverage exposure.

For the quarter FX translation effects led to a three basis point reduction tier one leverage ratio.

The corresponding effect to year to date was a reduction of nine basis points.

We continue to operate with a significant loss absorbing capacity well above all our requirements as shown on slide 12.

The <unk> surface as our most binding constraint has increased by 4 billion euros to 19 billion euros over the quarter.

The increase was driven by higher regulatory capital and new issuances of eligible liabilities.

Which were partly offset by two successful public tender offerings and further rolled out during the quarter.

Our loss absorbing capacity buffer remains at a comfortable level and continues to provide us with the flexibility to pause issuing new eligible liability instruments for approximately one year.

This buffer also allows us to maintain a one notch uplifted our senior non preferred rating from Moody's based on that loss given failure methodology over and above the improved baseline credit assessment. Following the most recent upgrade.

We intend to maintain the lgs notch for the foreseeable future.

The current rating levels.

Moving now to our issuance plan on slide 13.

The quarter was characterized by ongoing challenging market conditions with high levels of interest rate and credit spread volatility.

In this context, we are pleased to being largely complete in terms of 2022 issues requirements.

Since the last call at the end of July we issued a total of $4 7 billion euros taken a year to date total to close to 19 billion euros.

I would note that this total was slightly inflated due to $2 7 billion euros of structured notes, which were not part of the original funding plan. This.

Activity is being moved into the investment bank.

Notable in the quarter were dual tranche pfandbriefe issue, along with the senior non preferred issuance in both euros and sing dollars.

The five and 10 year Pfandbriefe issuances secure attractive funding levels for the bank and we further diversified our investor base through the inaugural sing dollar issuance.

In August and September we completed two public market tenders in Euro Sterling and U S dollars for a total amount of $2 1 billion euros.

In the two transactions, we bought back $1 1 billion in euros, and Sterling bonds of $1 billion bottoms. The.

The tenders tightened our credit spreads at all frequencies and supported our NIM by around five basis points as mentioned earlier.

We continue to guide to roughly 20 billion euros of issuance for full year 'twenty <unk>, two and May consider some pre funding for 2023 in Q4, depending on market conditions.

Turning to the outlook on slide 14.

We believe our strong performance in the core bank in the past nine months is a testament to the quality of our businesses and the strength of our franchise.

Reflecting on this performance, we see upside throughout registrants to revenue guidance of 26 to 27 billion euros, particularly given the trends we see stable businesses.

Business momentum in the past nine months combined with improving operating leverage makes us even more confidence in the delivery of our 20, <unk> chief strategy and financial goals.

We continue to adhere to strict risk management principles, particularly in this continued uncertain environment.

We are very focused on managing our resilient balance sheet and we confirm that we expect our provision for credit losses at around 25 basis points of average range for the full year.

As I mentioned earlier, our credit ratings were upgraded by Moody's earlier. This month following the upgrade of the three big agencies and <unk> one.

We expect this to have a positive impact on both our issuance spreads and business volumes, specifically in the investment bank and corporate bank over time.

On the instrument side, we have almost completed our funding requirements for this year.

<unk> flexible to pre fund our requirements for next year.

The funding plan for 2023 will be presented at the Q4 fixed income call in early February .

With that I will finish, but we look forward to your questions.

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

Anyone who wishes to ask a question May press star followed by one on that touched on telephone.

If you wish to remove yourself from the question queue. You May press star followed by <unk>.

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

Anyone who had the question you May press Star followed by one at this time.

One moment for the first question please.

And our first question is from the line of <unk> Kumar from Societe Generale. Please.

Please go ahead.

Hi, Good afternoon, all notable company Chad.

But just from South Kent I've got three questions. If I may so in light of the changes to LTE <unk> LTE auto. So do you intend to already paid earlier than expected and how does this and Jim.

ECB announcement affecting your funding plans.

But we have numbers for FY 'twenty, two but we would appreciate any color or any other future events.

The second one is more generic I mean looking at that as various ECB announcement.

The agenda will do in guidance.

Expected at all in fact on the <unk> guidance that you provided us Anthony do you want to add and finally, our whole way looking at asset quality in FY 'twenty are you seeing any kind of staying in our loan book.

To get your thoughts out yet I think that's it.

Thanks, Thanks, Paul.

Welcome and thank you for joining.

I'll take the first question is.

<unk> and then maybe I'll just hand over to James over days as overall thoughts.

On yesterday's announcements.

So in terms of the changes <unk> the impact on our funding plan.

The ECB announced but will not have an impact on our issuance plan as Keith.

Tiara is longer data charges remain.

Economic source of funding.

As we have noted repeatedly <unk> was an important source of financial support for the European economy.

And all of the trials opportunity.

<unk> funding plan was was designed around a smooth amortization.

<unk> profile.

Profile remains unaffected by this stage decisions.

We are reviewing the extent to which we prepaid the earliest tranche is that these would all be prepaid in full is visa also supporting client transactions, which may not be beneficial to unwind.

James perhaps you want to.

I just talked about.

Yes, Thank you Richard.

I think the right decision by and large was in line with market expectations, and therefore fits with the earlier outlook, we provided for our rate sensitivity in the path of net interest income from here.

It's reasonably in line with our expectations.

I have to say on the <unk> decision. There we are deeply disappointed by the decision.

To have retrospectively amended the terms.

Have a monetary policy instrument has over two trillion of balances in it to our mind is a spectacularly large mulligan to have taken for themselves.

The banks entered into these instruments in good faith.

With the intention of supporting lending in the economy.

That lending has been committed to clients and I think both banks met the method. If you like the hurdles that were implicit in the in the instrument.

And the banks are now harmed in two or three different ways going forward economically.

First there is the loss of the of the additional benefit from the original terms that will flow into earnings in the next several years.

That obviously would have supported profitability organic capital generation and the ability of the banks to support the economy and what will undoubtedly be a difficult time.

I think secondly, when that funding went into the economy. It influenced asset spreads and so we live with the asset spreads that were entered into at that point in time.

And that will be with us even as rates rise that will be with us for some time.

Lastly, I think quite importantly.

<unk> was built into the <unk> modeling of the banks and therefore, the hedging that was done.

Now I think certain banks could have.

Potentially significant cost in addition, unwinding the hedging.

That was done.

And if you take a step back then from the economic costs.

Again.

The implicit contract that existed around <unk> and.

And think about the path forward there banks will have to now assess the reliability of long term actions long term policy tools and how we take those up how we hedge them.

How we build them into our our risk modeling in a way that wouldn't have been the case had had they left those terms unchanged. So we have we have I think a strong reaction to that part of yesterday.

Announcements right yes.

Okay.

And then W is on asset quality in <unk>.

<unk> hundred 23, yes. Thank you for the reminder, so on Wednesday, we sort of our guidance was look we think the normalized rate of.

<unk> is in a range between 20 and 25 basis points.

For our portfolio looking to next year.

I think at this point again, it's very early to judge this but I would expect us to be at the high end of that range, maybe a couple of basis points above it.

But but still with a reasonably sanguine view of the portfolio quality, we have and the sort of condition of households, and corporates going into what we're obviously aware will be a more difficult economic environment, but again.

It's part of our underwriting discipline that that we.

We try to build a portfolio that will withstand.

A market cycle and in our.

Our hope is that that and expectation is that the portfolio will perform according to our expected to our our modeling.

Okay.

One last bit of clarification I see that in your slides.

You still have got $3 4 billion for tier one tier two versus year to date issuance of $3 billion. So does this mean that you are kind of keeping the split would be open to come to an OIBDA went tier two market if the need be.

But I really like that.

I think that's a reasonable assumption.

Inc.

A as you say, we successfully get our issuance plan for the.

For the for the year.

Yes.

I guess with all frequent issuers.

Figures.

Whether it makes sense for us given the opportunities you see within the firm to to grow assets at attractive levels. So.

So yes, there is.

As it shows that we've made let's do something in the in the coming quarters. Okay.

Okay. Thank you.

The next question is from the line of Michael up from Goldman Sachs. Please go ahead.

Hi, good afternoon. Thank you.

Three questions. Please first one on the ratings do you expect any move from S&P to upgrade.

Your ratings.

As a follow up from the move from Moody's earlier in October then too.

Two questions on capital given the increase in NDA in 2023 D. Also intend to update your target CET one ratio.

The minimum 12, 5% with look a bit out of sync. If you have an MTA of around 11% and then.

Any progress in the convergence between the <unk> and the regulatory reported ratios for James.

Or do you.

Much will continue to manage the group to both regimes and lastly on <unk>.

Could you. Please describe how you look at the economics of refinancing their tier two debt and maybe any indications around.

We've had costs should.

Okay.

Should we look at the year.

If I cluster the reserve level. Thank you.

Thanks, Thanks Giuliana.

The so I guess, taking your first question rich.

It's around the S&P rating upgrade potential.

I'd say first of all.

We're very pleased with the upgrade from Moody's.

From from them within the last 14 months.

She thinks the strongest signal. This translation is successful and we're on the right track.

Awards.

Sustainable profitable bank.

As you know Fitch confirmed our positive outlook in September .

We know what is expected from us.

From then to move that rates level, and we're focused on delivering and then ultimately we are hopeful.

We will also see something similar from S&P.

And they will recognize the progress the bank has made.

Over the last couple of years so.

So I guess, we're hopeful we can see.

The other ratio that season.

Follow through with the S&P.

So julianna, it's James on the on the capital questions first of all yes.

The 12, 5% that we've operated.

I wonder for the past several years has been a minimum.

We've wanted to maintain also in stress conditions, given we were traveling through a period of.

Of restructuring and transformation, but as we began to indicated the investor deep dive in March.

Our thinking is evolving towards.

Maintaining a minimum gap to MDA and hence the guidance that we've given 2014.

Recently in recent quarters.

And so it is certainly evolving and we'd like to maintain a gap in appropriate gap call. It 200 basis points to MDA as MDA develops next.

Next year as Youll recall, the countercyclical buffer in the sector buffer.

Binding in February and so that of course begins to enter into our thinking.

On the on the cap or our economic capital measures I will say.

Over the past several quarters and years is as.

As we've seen the impact of model changes and methodology changes rule changes and as that continues now through to 2025.

We have observed in the past that are there is a divergence between our regulatory capital requirements and our economic capital requirements.

Former continuing to increase while the latter we're managing relatively flat, obviously, a grow somewhat as the balance sheet grows, but but the capital intensity of our business.

On a relative basis hasnt been significantly fluctuating. So so we clearly manage to it and it's something we're always mindful of.

And.

We are observing of trend of divergence between the two with the regulatory being the most binding.

And then maybe if I pick up your.

Two cost structure.

Yes.

Sure.

I guess, how do we think about these things is how we always think about.

Calls which is that.

It will continue to make decisions regarding the exercise of an issue of cool right.

So the exercise date balancing the interests of.

All of our stakeholders.

Our approach is based on economic factors, including the usefulness of the entrants of capital.

Funding ratio AUC metrics as well as the cost versus all services. So so that strategy remains consistent and it will apply that to any upcoming calls.

Sure Kelly.

Very clear thank you.

The next question is from the line of EMEA Zarqa from Barclays. Please go ahead.

Hello.

Thank you for hosting the call and.

Welcome to Richard.

Two questions if I could.

First.

You said that you're still committed to the leverage ratio target of four 5% by the end of 2022.

Is that does that still imply that we would see a tick up from the current four 3% then.

That.

Additionally.

81 issuance as part of the plan.

And my second question.

On the positive development.

You mentioned that you expected growth in retail deposits.

Going ahead, and we can see that the.

Corporate deposits have increased is that a trend you expect to see to continue in <unk>.

'twenty three.

Does that.

Affect your margins going ahead as well thank you.

Yeah.

Thanks.

Sumit.

So I guess, taking your leverage ratio question first.

<unk>.

We I guess.

Yes, maybe to start off with.

Yes.

What is one tool in the toolkit that we can use to to manage leverage if we so wished.

But we as you said we finished Q3 at four 3% we are close to achieving a leverage ratio of around four 5% for transparency.

<unk>.

I think it was a setting in.

<unk>.

Earlier was that we have seen a nine basis point drag year to date on our leverage ratio from from FX effects.

<unk>.

And we might not fully compensate those FX effects through leverage exposure reductions immediately.

If we kind of felt that that was going to have a negative impact on us all busy.

The size, where we're just trying to see some tougher akshay and she is still so so overall.

Like I said, we are pretty confident of achieving net debt leverage ratio of around four 5%.

But just bearing in mind FX effect as well.

And assuming it's James on deposits, we've seen reasonably encouraging and steady growth and the deposit books over the past several quarters.

And at least so far no.

Apparent moderation of that.

Nor to be fair.

Excessive competition for deposits in our markets.

And so while one would expect this to begin to tail off as liquidity drains out of the system and the actions of central banks, particularly acute.

Begin to take effect.

Haven't seen that impact so far.

Incidentally, the other item that would probably draw down deposits in the system is just household usage as they go through the impact of higher energy costs and what have you.

So while all of that.

Is that sort of a change in dynamic that we would expect.

See we havent it hasnt been invisible, so far and at this point hasnt fed into deposit pricing.

And a notable way.

Thank you.

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

Good afternoon, and nice to me.

Okay.

A couple of follow ups on the liquidity point and what type of collateral pledged behind and TMT M&A and I Wonder if you could guide us what would your LCR Nike fever to regain.

Opportunity.

Thanks.

And very nice to meet to AE.

So it's a good question around kind of what collateral.

Refreshes, we're kind of working through what we want to do that.

Let's say around two thirds.

Of our collateral is illiquid and that supports our liquidity coverage ratio.

This would have about a 30 billion euro impact.

Our LCR if.

That was it.

Which leaves our instantaneously.

But as you know, we kind of stagger the trunk she's out until up to 2024.

So we're not going to be doing any any prepayments immediately.

Like I said earlier I think we have we have a pretty well contained amortization profile, which with which we're managing and making sure that we can continue to keep.

Funds from those clients.

Thank you very much.

The next question is from the line of Lee Street from Citigroup. Please go ahead Hello.

Thanks Nicole.

Let me ask some questions. Please.

I think Tom Doug first for revenue.

The 28 billion next year any.

Detailed thoughts on what rate assumptions underlie that.

Secondly, as it relates to group risk weighted assets.

How should be thinking about them evolving over the course of next year from Covenant was Lola.

Any data around that will be helpful. And finally, you've got 19 billion headroom tool Emerald requirement permanently.

What's the minimum.

Look to run out in terms of hedging that ultimately question really obviously you did some buybacks seem to have quite a big impact on the on the margin just wondering getting.

Whether that could be more capacity for that included.

That would be my three questions. Thank you.

Sure. It's James I'll start on the first and probably part of the second and Richard can take over.

<unk> and Enbrel.

He has other things to add on the <unk> side, but the $28 billion, we guided to Christian went through if you like a walk.

Thinking about the core businesses that we operate essentially the run rates that they are exhibiting at this point in time and that we expect in Q4, so the step off that we have.

There is growth outside of interest rates, so volume related growth that one would hope we can achieve in the businesses.

But then there is also a support from from interest rates.

We would.

To your question, we look at the implied forward rates, we look at the curve basically at.

The market shows and we plan off of that so that's visible to you as it is to us.

We think theres about one one to $1 2 billion.

Of upside in 'twenty, three relative to 'twenty two from interest rates and that's just the impact of the curve on the on a static balance sheet.

But.

But adjusting and interest rates by themselves will be much higher than that but then we adjust out higher funding costs non repetition of some of the of the favorable factors.

That we had in 2022 and also the impact of <unk>, which we spoke about earlier, which were the.

Some of the benefits are rolling off and compared to our early planning we have we have less.

Favorable rates on that <unk>.

So the net of that was call it somewhere between $1 billion and $1 billion to support for revenues next next year. So all things equal the current run rates would deliver it would deliver that.

Along with interest rates.

<unk> are sort of trending higher we are working to support business growth.

Support clients with our balance sheet.

But we need to obviously calibrate the <unk> that we can give the boat businesses to the capital plan and our goals going forward.

There again I refer you to the Investor day materials from March where where we our capital plan now accommodates three things one is distributions to shareholders. The other is supporting the business growth in other words, our that the way and the third is building the ratio over the next.

Two years, 'twenty, three and 'twenty four towards the Basel III environment that we anticipate in 'twenty five so wanting to make sure essentially solves for a ratio on the first of January 25 that is still at 13% after giving effect to the Basel III changes.

And then on the on the <unk> side of things.

Let's say, we got a buffer around $19 billion or so.

And that's generally.

Allows us the flexibility to pull us issuing.

New CDN non preferred senior preferred instruments wishes for about for about a year.

Why we like holding the buffer.

But also.

This will support later part of of Enbrel.

It's also something that we want to ensure that we can we can.

Target.

The loss given failure ratios for that.

<unk> analysis.

Just.

So that strong message.

Around around the rating as well so at 12 investors.

Alright, Thank you very much.

Thanks Lee.

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

Hi.

Thanks, very much for doing the call welcome Richard.

Three questions first on asset quality.

With respect to.

Movement into stage, one stage two stage three.

Im assuming that stage III will continue to be episodic, but could you give us an idea of where you see the trajectory.

Movement at stage, one from stage, one into stage, two and where that would if that.

Changed how would that.

<unk>.

What kind of concerned would you have and what kind of trajectory would cause you concern.

In terms of the change of movement through the categories. That's my first question.

Second question with respect to funding overall.

U S peers have been struggling with.

Balance sheet size around their securities business, given more customer facilitation.

The business as usual balance sheet is a little bigger than you've got.

Dress coming in there so there is.

On the risk management side. So there is a greater need for liquidity, how does that play into your plans for <unk>.

Issuance next year.

How do you look at that and then lastly on the call. The other day. We've mentioned a couple of times that you think your spreads are too wide.

I agree, particularly given recent upgrades and result.

Besides doing liability management and calls like this what else are you planning on doing to pour on your spreads.

Hi, Robert Thank you for joining again.

Those are those are tough questions.

On asset quality. It is hard to tell you what what level of deterioration, we're comfortable with I mean, obviously, it's a fact.

The fact of life that there is some deterioration in our book.

In general in recent quarters, the sort of downgrade upgrade relationship has been relatively stable if I think about it in terms of the mix.

Our limits, where we've seen upgrades versus downgrades based on our internal rating in a deteriorating macroeconomic environment of course that that relationship will change somewhat but you prefer to see it be gradual then then then it accelerate.

Celebrate pace.

And as we mentioned on Wednesday, one of the things we're seeing at the moment is that those.

Most of the forward looking indicators haven't yet started demonstrating stress.

Including for example that upgrade downgrade ratio.

So hard to hard to give you a sense of what what level of movement would begin to cause us.

Concern Youre right that stage three is on impairment event, so it'll be it'll be always somewhat episodic.

I wouldn't expect the run rates at this point to necessarily to change dramatically from where we've been over the over the last several quarters.

We'd like for it to remain within a range.

Stage, one and two depends on two things in particular economic variables.

There, we might see some more deterioration as we get closer into the into the recessionary environment and then at some point you'd see it begin to pull out as they as those macroeconomic indicators look forward two to recovery.

But the other dynamic we've got is the portfolio parameters and there. This quarter you had this very interesting behavior.

The general portfolio improvements that was taking place on PD and LGD variables that fed into our stage, one and two results.

Driving the unusually low outcome and actually offsetting much of the macroeconomic variable related deterioration.

On the impact so moving to your U S. Peers question, Yes, it's an interesting change in the environment that.

The availability of call it a leveraged balance sheet.

Maybe becoming more constrained again.

We've got a level of leverage that we think we're generally comfortable with as.

As Richard outlined where we are.

Giving a lot of thought to how much leverage to run against our ratio targets and the availability of available capital.

But going into the year and it's one feature that may impact the market that unlike the previous years.

The U S U S banks, maybe less generous with their leverage balance sheet right now I'll defer to Richard on whether we're really building that into issuance plans for next next next year, but.

But we're waiting to see what the impact is over a year end.

Yes, Thanks, James So I think.

I think there's a few things that in any of your questions. So maybe I'll start with your spreads being.

So your observation is principally in <unk>.

We.

We concur with that assessment.

Yes.

<unk> objective is to align.

Do you have consistency across the rating agency spectrum.

As you see a person leaves into Moody's.

Fitch, we think is going to say direction.

But I think there is a discrepancy with those two and S&P is one of the things holding this holding us back a little bit. So we're continuing to work with with S&P.

You too.

Like our case, but ultimately we just have to keep following through on what we've been doing which is.

Just excuse youre not translation.

Yes.

Panic capital.

Like I said, the equity buffer in and it will be positive.

The debt stack so.

Obviously, that's kind of what we what we have today, but thats kind of the sort of levers.

We're putting in I think just the structure is working and so we're seeing that all kind of organic capital continues to be built.

So I think I'll start with that level I think we are seeing the same sort of.

FX U S pages seeing incentive.

Client demand for the balance sheet.

So we obviously manage that carefully.

We do target.

Our LCR target of 130%.

And that will be continue to be our target.

We'll manage through it.

This quarter the subsequent closest.

I think we're doing a pretty good job of steering austerity that.

And I think we ended up being quite quite balanced ready in terms of.

Okay.

Yes.

Incremental loan growth demand as well as being able to match that with stable with.

Stable stable funding.

I think when you look at the issuance plan I guess is on slide 13 are fee of the materials.

Then you can see a pretty consistent picture.

For this year next year in the outer years.

Yes, we're not looking to do anything crazy outsized on the issuer side and industrial point of these kind of levels.

Something we excavate mindful of and says look we want to be on this.

Appreciate it.

This issue is kind of less internally, we can we can generate returns justify them.

Yeah.

That's great I appreciate the thoroughness.

Thank you thanks, Rob.

So there are no further questions at this time I hand back to Philip <unk> for closing comments.

Thank you I am absolutely Central finished thank you all for joining us today.

If you have any further questions and we look forward to talking to you soon again goodbye.

Q3 2022 Deutsche Bank AG Earnings Call (Fixed Income)

Request a DemoDemo

Deutsche Bank

Earnings