Q1 2024 Deutsche Bank AG Earnings Call
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Operator: Ladies and gentlemen, welcome to the Q1 2024 ANALYST CONFERENCE CALL & LIVE. I'm going to hand Karl over to you. I would like to remind you that all participants will be in a listen-only mode and the conference is being recorded. The presentation will be followed by a question. You can register for questions at any time by pressing star and 1.
Ladies and gentlemen, welcome to the Q1 'twenty 'twenty four analyst conference call and live webcast I'm. All that's the chorus call operator, I would like to remind you that all participants will be in a listen only mode and the conference is being recorded the presentation will be followed by a question answer session. You can register for questions at any time by pressing star.
And one on your telephone for operator assistance. Please press star and zero the conference must not be recorded for application of podcast.
Ioana Patriniche: Operator Assistance, please press star. The conference must not be recorded for publication. At this time, it is my pleasure to hand over to Ioana Patriniche, Head of Investor Relations. Thank you for joining us for our first quarter 2024 results call. As usual, our Chief Executive Officer, Christian Sewing, will speak first, followed by our Chief Financial Officer, James Van Moltke. The presentation, as always, is available to download in the Investor Relations section of our website, db.com.
Speaker Change: This time, it's my pleasure to hand over to you or not but can you treat head of Investor Relations. Please go ahead.
Speaker Change: Thank you for joining us for our first course at 2020 full results call as usual, our Chief Executive Officer Christian savings will speak first followed by Chief Financial Officer, James on the presentation as always is available to download in the Investor Relations section of our website D V don't come.
Ioana Patriniche: Before we get started, let me just remind you that the presentation contains forward-looking statements which may not develop as we currently expect. We therefore ask you to take notice of the precautionary warning at the end of our materials. With that, I will hand over to Christian.
Speaker Change: Before we get started let me just remind you that the presentation contains forward looking statements, which may not develop as it currently expect we therefore ask you to take notice of the precautionary warning at the end of our materials with that let me hand over to Christian.
Christian Sewing: Thank you, Ioana, and a warm welcome from me. I'm delighted to be discussing our first quarter results with you today. In February, we laid out a clear path to our 2025 objectives for financial performance and capital distributions, and we have delivered in line with our objectives and targets. Group revenues were 7.8 billion euros.
Christian: Thank you your honor and a warm welcome from me I'm delighted to be discussing our first quarter results with you today.
Christian: In February we laid out a clear path to our 2025 objectives for financial performance and capital distributions.
Christian: And we have delivered in line with our objectives and targets.
Christian: Group revenues were $7 8 billion euros.
Christian Sewing: This reflects business growth and franchise momentum, particularly in areas where we have been investing, such as our capital light businesses, while net interest income was more resilient than expected. This performance underlines the benefit of our complementary business mix. We are delivering on our cost targets. Adjusted costs were in line with our commitment to a quarterly run rate of around 5 billion euros for this year. Provision for credit losses remained elevated this quarter, but in line with our expectations and prior guidance, considering where we are in the credit cycle.
This reflects business growth and franchise momentum, particularly in areas, where we have been investing.
Christian: Our capital light businesses.
Christian: Net interest income was more resilient than expected.
Christian: This performance underlines the benefit.
Christian: Our complementary business mix.
Christian: We are delivering on our cost targets adjusted costs were in line with our commitment to a quarterly run rate of around 5 billion euros for this year.
Christian: Provision for credit losses remained elevated this quarter, but in line with our expectations and prior guidance.
Christian: Considering where we are in the credit cycle.
Christian Sewing: Portfolio quality remains very solid, and we continue to expect provisions for the year to be at the higher end of our guidance range of 25 to 30 basis points of average loans. Our return on tangible equity was 8.7% in the first quarter, up from 8.3% in the first quarter last year. Capital remains robust.
Christian: Portfolio quality remains very solid and we continue to expect provisions for the year to be at the higher end of our guidance range of 25 to 30 basis points of average loans.
Christian: Our return on tangible equity was eight 7% in the first quarter up from eight 3% in the first quarter last year.
Christian: Capital remains robust.
Christian Sewing: Our CET1 ratio was 13.4%, enabling us to remain on track in raising distributions to shareholders and supporting business growth. Let me unpack some of the drivers of our first quarter results on slide 2. Pre-provisioned profit was up by 11% year-on-year to 2.5 billion euros and more than 20 percent higher since we launched our global house bank strategy.
Christian: Our CET one ratio was 13, 4%, enabling us to remain on track in raising distributions to shareholders and supporting business growth.
Let me unpack some of the drivers of our first quarter results on slide two.
Christian: Pre provision profit was up by 11%.
Christian: Year on year to $2 5 billion euros and more than 20% higher since we launched our global hosting strategy.
Christian Sewing: This reflected continued progress on driving operating leverage, which is a core element of our strategy execution. We increased revenues in our operating divisions by 3% year-on-year, while group revenues were up 1% on a reported basis. Group revenues include corporate and other, which tends to add some level of volatility to our revenue line.
Christian: This reflected continued progress on driving operating leverage which is a core element of our strategy execution.
Christian: We increased revenues and our operating divisions by 3% year on year, while group revenues were up 1% on a reported basis.
Christian: Group revenues include corporate and other which then.
Christian: To add some level of volatility into our revenue line.
Christian Sewing: As committed, we delivered growth in non-interest revenues and saw an increase of 11% year-on-year in commissions and fee income, mainly in divisions where we made investments last year. As expected, our reported net interest income declined this quarter, but net interest income remains stable in our banking books, and James will shortly talk you through this in more detail. We reduced adjusted costs by 6% year-on-year and 5% sequentially to around 5 billion euros, in line with our guidance. This includes bank levies and higher compensation costs, which James will discuss later. Now, let's look at the franchise achievement across all divisions on slide 3.
Christian: As committed we delivered growth in non interest revenues and saw an increase of 11% year on year in commissions and fee income.
Christian: Mainly divisions, where we made investments last year.
Christian: As expected our reported net interest income declined this quarter, but net interest income remained stable in our banking books and James will shortly talk you through this in more detail.
We reduced adjusted costs by 6% year on year, and 5% sequentially to around 5 billion euros in line with our guidance.
Christian: This includes bank levies and higher compensation costs, which James will discuss later.
Christian: Now, let's look at the franchise achievement across all divisions on slide three.
Christian Sewing: The corporate bank delivered strong business growth with a 5% increase in incremental deals won with multinational corporate clients compared to the prior year quarter. We closed a series of landmark project finance transactions and saw strong momentum across the structured credit market and trust and agency services. We also ranked number one in 17 categories in the 2024 Euromoney Trade Finance Survey, including being the best trade finance bank in Western Europe for the seventh consecutive year.
Christian: The corporate bank delivered strong business growth with a 5% increase in incremental deals one with multinational corporate clients compared to the prior year quarter.
Christian: We closed a serious of landmark project finance transactions and saw strong momentum across the structured credit market and trust and agency services.
Christian: We also ranked number one in 17 categories in the 2024 Euro money trade Finance survey.
Christian: Including being the best trade Finance bank in Western Europe for the seventh consecutive year.
Christian Sewing: Demonstrating the strengths of our business model, the investment bank delivered a strong quarter with notable advances across the franchise. Investments in talent boosted our origination and advisory market share to 2.6%, a 70 basis point increase compared to the full year 2023, with notable gains in LDCM and DCM, elevating our global ranking from 11th to 7th. Our advisory franchise benefited from the breadth of our product set in the quarter. In GTCR's acquisition of WorldPay, we provided an integrated offering from financial advice to debt financing through to FX and rates hedging.
Christian: Demonstrating the strengths of our business model the investment bank delivered a strong quarter with notable advances across the franchise.
Christian: Investments and talent boosted our origination and advisory market share to two 6%.
Christian: 70 basis point increase compared to the full year 2023.
Christian: Notable gains in <unk> and DCM.
Elevating our global ranking from 11th to seventh.
Christian: Our advisory franchise benefited from the breadth of our product set in the quarter.
Christian: In GTC Arris acquisition of World pay we provided an integrated offering from financial advice to debt financing through two ethics and rates hedging.
Christian Sewing: The revenue increase in FIC was driven by both financing and our well-balanced business portfolio, which supports our revenue profile through the cycle. We maintained our strength in credit trading, driven by our investments in 2023, particularly in the flow business, and we also grew revenues in the Americas. These developments further diversified the revenue mix in our portfolio. The private bank benefited from our investments.
The revenue increase in FIC was driven by both financing and our well balanced business portfolio.
Christian: Which supports our revenue profile through the cycle.
Christian: We maintained our strength in credit trading driven by our investments in 2023, particularly in the flow business and we also grew revenues in the Americas. These developments further diversified revenue mix in our portfolio.
Christian: The private bank benefited from our investments.
Christian Sewing: Accelerated business momentum delivered 12 billion euros of net inflows in the first quarter, which makes it 17 consecutive quarters of net inflows, bringing the total assets under management to 606 billion euros, with a strategic shift toward fee-generating investment solutions. We also continue to strengthen capabilities in strategic areas by increasing coverage of ultra-high net worth individuals in Germany and an Enhanced Offering of Investment Solutions, including third-party exclusive collaborations, which should drive further influence Asset management delivered another strong quarter of volume growth. Net inflows were 9 billion euros ex-cash.
Christian: Accelerate our business momentum delivered 12 billion euros of net inflows in the first quarter.
Christian: Which makes it 17 consecutive quarters of net inflows.
Christian: Bringing the total assets under management to 606 billion euros with the strategic shift towards fee generating investment solutions.
Christian: We also continued to strengthen capabilities in strategic areas by increasing coverage of ultra high net worth individuals in Germany.
Christian: And enhanced offering of investment solutions.
Christian: Including third party exclusive collaborations.
Christian: Which should drive further inflows.
Christian: Asset management delivered another strong quarter of volume growth.
Christian: Net inflows were 9 billion euros ex cash.
Christian Sewing: Helping Assets Under Management grow by €45 billion to €941 billion, more than 100 billion euros higher than in the prior year quarter, which we expect to support future revenue generation. Now let me turn to the progress against our strategic objectives on slide 4, starting with revenues. We have delivered a compound annual growth rate of 6% since 2021, in line with our race target range of 5.5 to 6.5 percent from 2021 to 2025.
Christian: Helping assets under management grew by 45 billion euros to 941 billion euros.
Christian: <unk> 100 billion higher than in the prior year quarter, which we expect to support future revenue generation.
Christian: Now, let me turn to the progress against our strategic objectives on slide four.
Christian: Starting with revenues.
Christian: We have delivered a compound annual growth rate of 6% since 2021.
Christian: In line with our race target range of five five to six 5% from 2021 to 2025.
Christian Sewing: As promised, we grew mainly in capital-light businesses with strong growth in origination and advisory as well as in the private bank and in asset management, although supported by high inflows of assets under management. Underlying Our Franchise Momentum, We aim to build on these developments as our franchise expands, following our investments and growth initiatives across all business sectors, with net interest income resilient at the start of the year and growth in non-interest revenues.
Christian: As promised we grew mainly in capital light businesses with strong growth in origination and advisory as well as in the private banking and asset management.
Supported by high inflows of assets under management.
Christian: Underlying our franchise momentum.
We aim to build on these developments as our franchise expense following our investments in growth initiatives across all business segments.
Christian: With net interest income resilient at the start of the year and growth in non interest non interest revenues.
Christian Sewing: We feel we are well on our way to our 2025 revenue ambition and continue to deliver on our 2.5 billion euro operational efficiency program. We have completed measures with delivered or expected savings of 1.4 billion euros. Nearly 60% of our target, with around 1 billion euros in savings already realized. The incremental efficiencies this quarter were driven by optimizing our business in Germany and reshaping of our workforce in non-client-facing roles. We have further incremental measures already underway, including re-engineering of our operating model via additional front-to-back improvements in product processes and Harmonization of Infrastructure Capabilities.
Christian: We feel we are well on our way to our 2025 revenue ambitions.
Christian: We continue to deliver on our $2 5 billion Euro operational efficiency program.
Christian: We have completed measures with deliberate or expected savings of $1 4 billion euros.
Christian: Nearly 60% of our target with around 1 billion in savings already realized.
Christian: The incremental efficiencies this quarter were driven by the optimization of our business in Germany, and reshaping of our workforce and non client facing roles.
We are further incremental measures already underway, including reengineering of our operating model.
Christian: Additional front to back improvements of product processes.
Christian: And how monetization of infrastructure capabilities.
Christian Sewing: This gives us full confidence that we will deliver on our commitment of a quarterly run rate of adjusted costs of around 5 billion euros in 2024 and total costs of around 20 billion euros in 2025. Finally, on capital efficiency, we achieved a further 2 billion euro reduction in RWA, bringing aggregate reductions to 15 billion euros.
Christian: This gives us full confidence that we will deliver on our commitment of a quarterly run rate of adjusted cost of around 5 billion euros in 2024, and total costs of around 20 billion euros in 2025.
Finally on capital efficiency.
Christian: We achieved a further 2 billion euro of reduction in <unk>.
Christian: Bringing aggregate reductions 215 billion euros.
Christian Sewing: As we are intensifying our work on capital efficiency, with further reductions coming from data and process improvements, as well as securitizations, we remain highly confident that we can meet our target range of 25 to 30 billion euros. Let me conclude with a few words on our strategy on slide 5. In a nutshell, we delivered on all key initiatives and targets in the first quarter. And as we progress with our global house bank strategy, we are on the right path for both our clients and our shareholders. We have a strong and growing franchise. Clients come to us because of our well-balanced, complementary businesses. We provide them with full service products and solutions.
Christian: As we are intensifying our work on capital efficiency with further reductions coming from data and process improvements.
Christian: As well as secretaries nations.
Christian: We remain highly confident that we can meet our target range of 25 to 30 billion euros.
Let me conclude with a few words on our strategy on slide five.
Christian: In a nutshell, we delivered on all key initiatives and targets in the first quarter.
Christian: And as we progress on our global hosting strategy, we are on the right path for both our clients and our shareholders.
Christian: First.
Christian: We have a strong and growing franchise.
Christian: Clients come to us.
Christian: As our well balanced complementary businesses.
Christian: Provide them with full service product and solutions.
Christian Sewing: This supports our revenue growth through different market cycles and drives our market share. And, as we have consistently said, clients want a partner that offers them an alternative to large US banks, a partner with our expertise, product range, and global network. We continue to improve our operational efficiency. We are maintaining our cost discipline, and, as always, we are committed to our approach of self-funding our investments. 2023 marked the peak of our investments, but we continue to invest to reduce the complexity of our organization through improving technology, processes, and control capabilities.
Christian: This supports our revenue growth through different market cycles.
Christian: And drive our market share.
Christian: And as we said consistently clients.
Christian: Clients want to partner that offers them and alternative two large U S banks.
Christian: Partner with our expertise product range and global network.
Christian: Second we continue to improve our operational efficiency.
Christian: We are maintaining our cost discipline and as always we are committed to our approach of self funding our investments.
Christian: 2023 marked the peak of our investments.
Christian: But we continue to invest to reduce the complexity of our organization through improving technology processes and control capabilities.
Christian Sewing: Finally, we are absolutely focused on creating value for our shareholders, and as we said in previous quarters, we are fully committed to increasing shareholder distributions, as rewarding our shareholders is a top priority. We are confident we can increase distributions well beyond our original goal of 8 billion euros in respect of the financial years 2021 to 2025, and we expect to continue to grow dividends and make incremental share buybacks. With that, I will hand over to James. Thank you, Christian.
Christian: Finally, we are absolutely focused on creating value for our shareholders.
Christian: And as we said in previous quarters, we are fully committed to increasing shareholder distributions.
Christian: S rewarding our shareholders is a top priority.
Christian: We are confident we can increase distributions well beyond our original goal of 8 billion euros in.
Christian: In respect of the financial year, 2021% to 2025.
And we expect to continue to grow dividends and make incremental share buybacks.
Christian: With that let me hand over to James.
James: Thank you Christian let me start with a few key performance indicators on slide seven and place them in the context of our 2025 targets.
James von Moltke: Let me start with a few key performance indicators on slide seven and place them in the context of our 2025 targets. Christian mentioned our continued business momentum, which resulted in revenue growth of 6% on a compound basis for the last 12 months relative to 2021, the midpoint of our recently upgraded revenue growth target rate. The cost-income ratio of 68% in the first quarter shows a 7 percentage point improvement against 2023, driven by operating leverage from sustained revenue growth and cost management.
James: Christian mentioned, our continued business momentum, which resulted in revenue growth of 6% on a compound basis for the last 12 months relative to 2021, the midpoint of our recently upgraded revenue growth target range.
James: Cost income ratio of 68% in the first quarter shows a seven percentage point improvement against 2023, driven by operating leverage from sustained revenue growth and cost management.
James von Moltke: Our return on Tangible Common Equity was 8.7% for the first quarter. Our capital position remained robust, with the CET1 ratio at 13.4% this quarter after absorbing the impact of the share repurchase and the deduction for future distributions in line with revised EBA rules reflecting our payout ratio policy. Our liquidity metrics also remain strong.
James: Our return on tangible common equity was eight 7% for the first quarter.
James: Our capital position remained robust with a CET one ratio at 13, 4% this quarter after absorbing the impact of the share repurchase and the deduction for future distributions in line with revised EPA rules, reflecting our payout ratio policy.
James: Our liquidity metrics also remained strong.
James von Moltke: The Liquidity Coverage Ratio was 136%, above our target of around 130%, and the Net Stable Funding Ratio was 123%. In short, our performance in the period reaffirms our resilience and our confidence in reaching our 2025 target. With that, let me turn to the first quarter highlights on slide 8.
James: The liquidity coverage ratio was 136% above our target of around 130% and the net stable funding ratio was 123% in short our performance in the period reaffirms, our resilience and our confidence in reaching our 2025 targets.
James: With that let me turn to the first quarter highlights on slide eight.
James von Moltke: Group revenues were 7.8 billion euros, up 1% on the first quarter of 2023, or 2%, excluding specific items. Non-interest expenses were 5.3 billion euros, down 3% year-on-year. Non-operating costs in this quarter included litigation charges of €166 million and €95 million of restructuring and severance charges. Adjusted costs decreased 6% year-on-year, mainly due to lower bank levies. Provision for credit losses was 439 million euros or 37 basis points of average loans, and I will discuss this in more detail shortly.
James: Group revenues were $7 8 billion euros up 1% on the first quarter of 2023 or 2% excluding specific items.
James: Noninterest expenses were $5 3 billion down 3% year on year.
James: Non operating cost this quarter included litigation charges of 166 million euros, and 95 million euros of restructuring and severance charges.
James: Adjusted costs decreased 6% year on year, mainly due to lower bank levies.
Revision for credit losses was 439 million euros, or <unk> 37 basis points of average loans and I will discuss this in more detail shortly.
James von Moltke: We generated a profit before tax of €2 billion, up 10% year-on-year, and a net profit of €1.5 billion, also up 10% compared to the prior year quarter. Diluted earnings per share were 69 cents in the first quarter, and tangible book value per share was 29 euros and 26 cents, up 7% year-on-year. Our tax rate in the quarter was 29%.
James: We generated a profit before tax of 2 billion euros up 10% year on year and a net profit of $1 5 billion euros also up 10% compared to the prior year quarter.
James: Diluted earnings per share was <unk> 69 in the first quarter and tangible book value per share was <unk> 29 euros in 2006 up.
James: Up 7% year on year.
James: Our tax rate in the quarter was 29%.
James von Moltke: Let me now turn to some of the drivers of these results. I will start with a review of our net interest income on slide 9. Net interest income for the group decreased by approximately 100 million euros compared to the previous quarter, with the reduction being driven by accounting effects. As a reminder, these effects are revenue neutral at the group level as the decrease in NII is offset by an increase in non-interest revenue.
Speaker Change: Let me now turn to some of the drivers of these results.
Speaker Change: Let me start with a review of our net interest income on slide nine.
Speaker Change: Net interest income for the group decreased by approximately 100 million euros compared to the previous quarter with the reduction being driven by accounting effects.
Speaker Change: As a reminder, these effects our revenue neutral at the group level as the decrease in NII is offset by an increase in noninterest revenues.
James von Moltke: Excluding these accounting effects, banking book NII was essentially flat, as a decline in the private bank was offset by an increase in the corporate bank and lower funding costs in the investment bank and corporate another. The reduction in the private bank net interest margin was largely driven by the non-recurrence of favorable episodic effects in the fourth quarter of 2023, as well as the ongoing impact of beta normalization. On an absolute basis, debt interest income in the private bank is in line with the plans on which our NII guidance from last quarter was based.
Speaker Change: Excluding these accounting effects banking book NII was essentially flat as a decline in the private bank was offset by an increase in the corporate bank and lower funding costs and the investment bank and corporate and other.
The reduction in the private bank net interest margin was largely driven by the non recurrence of favorable episodic effects in the fourth quarter of 2023 as well as the ongoing impact of beta normalization.
Speaker Change: On an absolute basis net interest income and the private bank is in line with the plans on which our NII guidance from last quarter was based the <unk>.
Speaker Change: Increase in corporate Bank NII was due to a positive one off impact from a CLO recovery, which was accounted as NII with deposit beta is showing a steady increase in line with our assumptions.
James von Moltke: The increase in corporate bank NII was due to a positive one-off impact from a CLO recovery, which was accounted for as NII, with deposit betas showing a steady increase in line with our assumptions. We expect to see corporate bank NII decline in the coming quarters as betas continue to normalize. NII in fixed financing was essentially flat quarter on quarter.
Speaker Change: We expect to see our corporate bank NII decline in the coming quarters as betas continue to normalize.
Speaker Change: In fixed financing was essentially flat quarter on quarter.
Speaker Change: We're starting to see margin expansion on the asset side, which if it continues will help offset margin compression from beta normalization.
James von Moltke: We're starting to see margin expansion on the asset side, which, if it continues, will help offset margin compression from beta normalization. In summary, the development in the first quarter reinforces our expectation that we will meet or improve on our prior guidance of a 600 million euro reduction in banking book NII for 2024 relative to the prior year. With that, let's turn to the development of adjusted costs on slide 10. Adjusted costs were around €5 billion for the quarter, specifically €5.02 billion excluding bank levies, up 3% year-on-year but down 4% sequentially, in line with our guidance.
Speaker Change: In summary, the development in the fourth first quarter reinforces our expectation that we will meet or improve on our prior guidance of 600 million Euro reduction in banking book NII for 2024 relative to the prior year.
Speaker Change: With that let's turn to adjusted cost development on slide 10.
Speaker Change: Adjusted costs were around 5 billion euros for the quarter, specifically 502 billion euros, excluding bank levies up 3% year on year, but down 4% sequentially in line with our guidance we.
Speaker Change: We were disciplined in most expense categories and the modest increase was primarily driven by higher compensation and benefit costs, reflecting inflationary pressures on fixed remuneration increases in internal workforce. After our targeted investments in talent throughout 2023 and higher performance related compensation.
Speaker Change: The increase in compensation and benefit costs was partially offset by workforce optimization.
James von Moltke: We were disciplined in most expense categories, and the modest increase was primarily driven by higher compensation and benefit costs, reflecting inflationary pressures on fixed remuneration, increases in internal workforce after our targeted investments in talent throughout 2023, and higher performance-related compensation. The increase in compensation and benefit costs was partially offset by workforce optimization.
Let's now turn to provision for credit losses on slide 11.
Speaker Change: Provision for credit losses in the first quarter was 439 million euros equivalent to 37 basis points of average loans.
The decline compared to the previous quarter was driven by moderate stage, one and two releases of 32 million euros due to the improved macroeconomic forecast and model recalibration effects, which occurred in the prior quarter.
Speaker Change: Stage three provisions at 471 million euros remained elevated at a similar level to the previous quarter. This.
This included continued weakness in the commercial real estate sector, mainly impacting the investment bank and the continued impact of operational backlogs in the private bank.
James von Moltke: Let's now turn to provision for credit losses on slide 11. Provision for credit losses in the first quarter was 439 million euros, equivalent to 37 basis points of average loan. The decline compared to the previous quarter was driven by moderate stage 1 and 2 releases of 32 million euros due to improved macroeconomic forecasts and model recalibration effects which occurred in the prior quarter. However, stage 3 provisions at 471 million euros remained elevated at a similar level to the previous quarter. This included continued weakness in the commercial real estate sector, mainly impacting the investment bank, and the continued impact of operational backlogs in the private bank.
Speaker Change: Our full year guidance for provisions is unchanged at the higher end of the range of 25% to 30 basis points of average loans.
Speaker Change: This reflects our expectation that provisions will remain elevated in the first half of the year and should gradually reduce in the second half.
Speaker Change: The decline is expected to be driven by an improvement in the credit commercial real estate sector.
Speaker Change: And the partial reversal of backlog related provisions in the private bank.
Speaker Change: Before we move move to performance in our businesses, let me turn to capital on Slide 12.
Speaker Change: Our first quarter common equity tier one ratio came in at 13, 4% compared to 13, 7% at year end 2023.
Speaker Change: We had a strong capital supply this quarter and the sequential decline was driven by our distribution actions and plans together with business growth.
19 basis points of the decrease reflects the ECB approval for our 675 million euro share buyback, which we commenced in March.
James von Moltke: Our full-year guidance for provisions is unchanged at the higher end of the range of 25 to 30 basis points of average loans. This reflects our expectation that provisions will remain elevated in the first half of the year and should gradually reduce in the second half. The decline is expected to be driven by an improvement in the credit commercial real estate sector and the partial reversal of backlog-related provisions in the private bank.
Speaker Change: Half of the first quarter net income was deducted for future capital distributions in line with our 50% payout ratio guidance with the remainder supporting other deductions.
Speaker Change: 12 basis points of the decrease came from <unk> growth.
Speaker Change: The increase in <unk> is net of reductions due to <unk> optimization achieved during the quarter.
At the end of the first quarter, our leverage ratio was four 5% eight basis points lower compared to the previous quarter. The decline was primarily driven by lower tier one capital in line with the movement in CET, one capital with leverage exposure broadly unchanged.
James von Moltke: Before we move to performance in our businesses, let me turn to capital on slide 12. Our first quarter Common Equity Tier 1 ratio came in at 13.4%, compared to 13.7% at year-end 2023. We had a strong capital supply this quarter, and the sequential decline was driven by our distribution actions and plans together with business growth. 19 basis points of the decrease reflects the ECB approval for our 675 million euro share buyback, which we commenced in March.
Speaker Change: With that let's now turn to performance in our businesses starting with the corporate bank on slide 14.
Speaker Change: Corporate bank revenues in the first quarter were $1 9 billion euros, essentially flat sequentially and 5% lower compared to the prior year quarter, which mark the revenue peak of the current rate cycle.
Speaker Change: Year on year, the revenue decline decrease reflected the normalization of deposit revenues lower loan net interest income and the discontinuation of remuneration of minimum reserves by the ECB predominantly impacting our corporate Treasury services businesses.
Speaker Change: Offset by 3% higher commissions and fee income.
On a sequential basis, the revenue of development, mainly reflected lower overnight NII.
Speaker Change: <unk> loans declined by 5 billion euros compared to the prior year quarter and remained flat sequentially, reflecting muted demand and our continued selective balance sheet deployment.
James von Moltke: Half of the first quarter net income was deducted for future capital distributions in line with our 50% payout ratio guidance, with the remainder supporting other deductions. Moreover, several basis points of the decrease came from RWA growth, the increase in RWA is net of reductions due to RWA optimization achieved during the quarter. At the end of the first quarter, our leverage ratio was 4.5%, eight basis points lower compared to the previous quarter.
Speaker Change: Deposits were 31 billion higher year on year in over 10 billion euros higher than the fourth quarter, mainly driven by higher term deposits.
Speaker Change: Provision for credit losses was 63 million euros, or 22 basis points of average loans essentially flat versus the prior year, reflecting resilience of the corporate loan book.
Speaker Change: Noninterest expenses decreased sequentially, driven by lower internal service cost allocations and the FDIC special assessment charge in the prior quarter, but increased year on year due to higher litigation costs.
James von Moltke: The decline was primarily driven by lower Tier 1 capital in line with the movement in CET1 capital, with leverage exposure broadly unchanged. With that in mind, let's now turn to performance in our businesses, starting with the corporate bank on slide 14. Corporate bank revenues in the first quarter were 1.9 billion euros, essentially flat sequentially, and 5% lower compared to the prior year quarter, which marked the revenue peak of the current rate cycle. Year on year, the revenue decrease reflected the normalization of deposit revenues, lower loan net interest income, and the discontinuation of remuneration of minimum reserves by the ECB, predominantly impacting our corporate treasury services businesses.
Speaker Change: This resulted in a post tax return on tangible equity of 15, 4% and a cost income ratio of 64%.
Speaker Change: I'll now turn to the investment bank on slide 15.
Speaker Change: Revenues for the first quarter were 13% higher year on year on a reported basis or 14% when excluding specific items.
Revenues in fixed income and currencies increased by 7% versus the prior year quarter, demonstrating the underlying diversification of the business.
Financing performance was solid with revenues up 14% year on year, reflecting a robust carry profile and strong levels of issuance and securitization fees.
As this is the first time, we are disclosing financing revenue separately you can find further information on the composition of the business in the appendix on slide 38.
Speaker Change: Credit trading revenues were again significantly higher year on year as the business continued to build on the successful execution of our strategic initiatives and investments made through 2023, specifically in the flow business.
James von Moltke: Partially offset by 3% higher commissions and fee income. On a sequential basis, revenue from development mainly reflected lower overnight NII. Loans declined by 5 billion euros compared to the prior year quarter and remain flat sequentially, reflecting muted demand and our continued selective balance sheet deployment.
Speaker Change: Emerging markets revenues were also significantly higher with revenues up across all three regions.
Speaker Change: <unk> activity was up year on year aided by the investments in Latin America.
Speaker Change: Foreign exchange revenues were significantly higher benefiting from the non repeat of the interest rate market dislocation seen in the prior year.
Speaker Change: The impact of our refocused business model with investments into controls and technology are also beginning to materialize and collaboration with the wider franchise is driving cost cross sell revenues in the quarter.
James von Moltke: Deposits were 31 billion euros higher year-on-year and over 10 billion euros higher than the fourth quarter, mainly driven by higher term deposits. Provision for credit losses was 63 million euros or 22 basis points of average loans, essentially flat versus the prior year, reflecting the resilience of the corporate loan book. Non-interest expenses decreased sequentially driven by lower internal service cost allocations and the FDIC special assessment charge in the prior quarter, but increased year-on-year due to higher litigation costs.
Speaker Change: Right right rates revenues were significantly lower when compared to a very strong prior year quarter and reflected a reduction in market volatility.
Speaker Change: Moving to origination and advisory revenues were up 54% when compared to the prior year quarter with the business gaining market share in a growing fee pool environment, both year on year and versus the prior quarter to quarter.
Speaker Change: Debt origination revenues were significantly higher benefiting from a material improvement in the leverage debt market conditions, while investment grade debt issuance activity was also higher year on year.
Speaker Change: Advisory revenues increased versus the prior year, despite a reduction in the industry fee pool.
James von Moltke: This resulted in a post-tax return on tangible equity of 15.4% and a cost-income ratio of 64%. I'll now turn to the Investment Bank on slide 15. Revenues for the first quarter were 13% higher year-on-year on a reported basis or 14% when excluding specific items.
Speaker Change: The announced pipeline for the second quarter also remained strong.
Speaker Change: Noninterest expenses in adjusted costs are lower year on year as a result of significantly lower back bank levy charges, partially offset by higher compensation costs, reflecting targeted investments in 2023, including the <unk> acquisition.
The loan balance increase versus the prior quarter was primarily driven by increased activity in debt origination linked to the recovery seen in the industry this quarter with a smaller increase in financing.
James von Moltke: Revenues and fixed income currencies increased by 7% versus the prior year quarter, demonstrating the underlying diversification of the business. Financing performance was solid, with revenues up 14% year-on-year, reflecting a robust carry profile and strong levels of issuance and securitization fees. As this is the first time we are disclosing financing revenues separately, you can find further information on the composition of the business in the appendix on slide 38. Credit trading revenues were again significantly higher year on year as the business continued to build on the successful execution of our strategic initiatives and investments made through 2023, specifically in the flow business. Emerging markets revenues were also significantly higher, with revenues up across all three regions.
Speaker Change: Provision for credit losses was 150 million euros, or 59 basis points of average loans.
Speaker Change: The increase versus the prior year was driven by an increase in stage three impairments primarily in the CRE portfolio.
Speaker Change: Turning to the private bank on slide 16.
Speaker Change: We implemented a new reporting structure this quarter, reflecting our client segmentation for further details. Please see slide 39 in the appendix.
Speaker Change: The division reported revenues of $2 4 billion euros, including higher revenues from investment products and lending, which were more than offset by continued higher funding costs, including the impact of minimum reserve remuneration and the group neutral impact of searching certain hedging costs now allocated to the business previously in treasury.
Speaker Change: Sequentially revenues remained stable driven by higher revenues from investment products in line with our strategy to grow commissions and fee income and reflecting seasonality.
Speaker Change: We saw continued strong business momentum with net inflows into assets under management of 12 billion euros, mainly in investment products in wealth management and private banking, particularly in Germany.
Speaker Change: Revenues in personal banking were impacted by the aforementioned higher funding and hedging costs for our lending books, partially offset by better deposit revenues in Germany.
Speaker Change: Wealth management, and private banking achieved higher revenues from lending and investment products offset by lower deposit revenues in the international businesses.
James von Moltke: Client activity was up year on year, aided by investments in Latin America, and foreign exchange revenues were significantly higher, benefiting from the non-repeat of the interest rate market dislocation seen in the prior year. The impact of a refocused business model, with investments in controls and technology, is also beginning to materialize, and collaboration with the wider franchise is driving cross-sell revenues in the quarter. However, rates revenues were significantly lower when compared to a very strong prior year quarter and reflected a reduction in market volatility.
Speaker Change: The private bank has continued its transformation with nearly 8% to 80 branch closures and head count reductions of more than 800 in the last 12 months benefiting from prior investments.
Speaker Change: Together with normalized investment spend and lower bank levies. These initiatives drove adjusted costs down by 6%.
Speaker Change: This trajectory includes the impact of higher service remediation costs, which is expected to roll off over the remaining quarters of the year.
Speaker Change: Pre tax profit increased by 24% driven by primarily by cost reductions.
Speaker Change: Provision for credit losses in the quarter was affected by elevated workout activity in wealth management as well as continued temporary effects from the operational backlog and personal banking.
Speaker Change: Overall, the quality of our portfolios remains intact.
Speaker Change: The previous year quarter included single name losses in wealth management.
James von Moltke: Moving to Origination and Advisory, revenues were up 54% when compared to the prior year quarter, with the business gaining market share in a growing fee pool environment, both year-on-year and versus the prior quarter. Debt Origination revenues were significantly higher, benefiting from a material improvement in the leveraged debt market conditions. While investment grade debt issuance activity was also higher year on year, advisory revenues increased versus the prior year despite a reduction in the industry fee pool. The announced pipeline for the second quarter also remains strong. Non-interest expenses and adjusted costs are lower year on year as a result of significantly lower bank levy charges.
Speaker Change: Let me continue with asset management on slide 17.
Speaker Change: My usual reminder, the asset management segment includes certain items that are not part of the dws stand alone financials.
Assets under management increased by 45 billion to 941 billion in the quarter a record high.
Speaker Change: The increase was attributable to positive market appreciation of 30 billion euros net inflows and positive FX effects.
Speaker Change: Net inflows of 8 billion euros were primarily in passive once again, continuing the positive momentum and X trackers that we've seen throughout last year.
Speaker Change: The business remains the number two ETP provider in EMEA by net inflows with growth our growth outpacing the market and hain, hence gaining further market share.
Constructive equity markets are influencing investors to switch into passive strategies, but despite this we have also reported positive net inflows in active products, mainly driven by fixed income and quantitative strategies.
Unknown Speaker: [inaudible] The loan balance increase versus the prior quarter was primarily driven by increased activity in debt originating. This reflects the recovery seen in the industry this quarter with a smaller increase in finance. Provision for credit losses was 150 million euros, or 59 basis points of average loan.
Speaker Change: Revenues increased by 5% versus the prior year. This was primarily from higher management fees of 592 million euros, resulting from higher fees and liquid products due to increasing average assets under management.
Speaker Change: Noninterest expenses were 5% higher while adjusted costs were 3% higher than the prior year.
Speaker Change: Compensation and benefits costs were higher mainly driven by variable compensation due to dws share price increase while non compensation costs were effectively flat despite inflationary pressures.
James von Moltke: The increase versus the prior year was driven by an increase in Stage 3 impairments, primarily in the CRE portfolio. Turning to the private bank on slide 16. We implemented a new reporting structure this quarter reflecting our client segmentation. For further details, please see slide 39 in the appendix. The Division reported revenues of 2.4 billion euros, including higher revenues from investment products and lending, which were more than offset by continued higher funding costs, including the impact of minimum reserve remuneration and the group-neutral impact of certain hedging costs now allocated to the business previously in Treasury.
Speaker Change: Profit before taxes improved by 6% from the prior year period, mainly reflecting higher revenues.
Speaker Change: The cost income ratio for the quarter was 74% and return on tangible equity was 14, 5% both improving from the fourth quarter of last year.
Speaker Change: Moving to corporate and other on slide 18.
Speaker Change: Corporate and other reported a pretax loss of 302 million this quarter versus the equivalent pretax loss of 208 million euros in the first quarter of 2023.
Speaker Change: Revenues were negative $140 million this quarter, primarily driven by funding and liquidity impacts and other essentially retained items.
Speaker Change: Valuation and timing differences were positive 2 million euros, driven by negative net impact from interest rate movements offset by partial reversion of prior period losses.
James von Moltke: Sequentially, revenues remain stable, driven by higher revenues from investment products in line with our strategy to grow commissions and fee income and reflecting seasonality. We saw continued strong business momentum, with net inflows into assets under management of 12 billion euros, mainly in investment products in wealth management and private banking, particularly in Germany. Revenues in personal banking were impacted by the aforementioned higher funding and hedging costs for our lending books, partially offset by better deposit revenues in Germany.
Speaker Change: This compares to a positive 239 million euros in the prior year quarter.
Speaker Change: Pre tax loss associated with legacy portfolios was 96 million euros, driven primarily by litigation charges and expenses at.
Speaker Change: At the end of the first quarter risk weighted assets stood at 33 3 billion euros, including 12 billion euros of operational risk <unk> in aggregate <unk> of reduced by 11 billion euros since the prior year quarter.
Speaker Change: Leverage exposure was 36 billion euros at the end of the first quarter essentially flat to the prior year quarter.
Speaker Change: Finally, let me turn to the group outlook on slide 19.
Speaker Change: The first quarter showed that the expected benefits of our investments are materializing and will help to drive growth in noninterest revenues, while we have limited the downside to our net interest income given our interest rate hedging activity.
James von Moltke: Wealth Management and Private Banking achieved higher revenues from lending and investment products offset by lower deposit revenues in the international business. The private bank has continued its transformation with nearly 80 branch closures and headcount reductions of more than 800 in the last 12 months, benefiting from prior investment. Together with normalized investment spend and lower bank levies, these initiatives drove adjusted costs down by 6%. This trajectory includes the impact of higher service remediation costs, which are expected to roll off over the remaining quarters of the year.
Speaker Change: This demonstrates that our businesses are positioned for future growth contributing to the delivery of our revenue target of around 30 billion euros in 2024.
We affirm our target to maintain our quarterly run rate of around 5 billion euros of adjusted costs This quarter and around 20 billion euros for the full year.
Speaker Change: We expect provisions for the year to come in at the higher end of our guidance range of 25% to 30 basis points of average loans.
Speaker Change: With our CET one ratio of 13, 4%, we are well positioned and will continue to focus on distributions with a targeted payout ratio of 50% for the financial year 2024.
Speaker Change: And finally as Kristian said, our full focus remains on our progress through the execution of our strategy and the delivery of our 2035 targets.
James von Moltke: Pre-tax profit increased by 24% driven primarily by cost reduction. Provision for credit losses in the quarter was affected by elevated workout activity in wealth management, as well as continued temporary effects from the operational backlog in personal banking. Overall, the quality of our portfolios remains intact. The previous year's quarter included single-name losses in wealth management.
Speaker Change: With that let me hand back to you on them and we look forward to your questions.
Speaker Change: Okay.
Speaker Change: Thank you Jay and with that operator, we're ready to take questions.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session anyone who wishes to ask a question you May press star and one on the Touchstone telephone you will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the queue you May press star two.
James von Moltke: Let me continue with asset management on slide 17. As a usual reminder, the asset management segment includes certain items that are not part of the DWS stand-alone financials. Assets under management increased by €45 billion to €941 billion in the quarter, a record high.
Speaker Change: Disappoints are requested to use only handsets what asking a question anyone with a question May Press star followed by one at this time one moment for the first question. Please.
And the first question comes from Kian Apple Hussain from J P. Morgan. Please go ahead.
Speaker Change: Yes first of all thank you for taking my question and a shout out to Fabrizio and ramp doing such a great job on gaining market share, especially somewhat against some of the European peers that also reported today.
James von Moltke: The increase was attributable to positive market appreciation of €30 billion, net inflows, and positive FX effects. Net inflows of 8 billion euros were primarily in passive funds, once again continuing the positive momentum in X-trackers that we've seen throughout last year. The business remains the number two ETP provider in EMEA by net inflows, with growth outpacing the market and hence gaining further market share. However, constructive equity markets are influencing investors to switch into passive strategies.
Speaker Change: Two questions first of all on revenues.
Speaker Change: 32 billion in 2025 have talked about in the past.
Speaker Change: Can you give us a little bit more of a split how we should think about reaching this target.
Speaker Change: By Division in the context of the below 600 million NII adjustment this year.
Speaker Change: And then the second question is around cost.
James von Moltke: But despite this, we've also reported positive net inflows in active products, mainly driven by fixed income and quantitative strategies. Revenues increased by 5% versus the prior year. This was primarily from higher management fees of €592 million, resulting from higher fees in liquid products due to increasing average assets under management. Non-interest expenses were 5% higher, while adjusted costs were 3% higher.
Speaker Change: 20 billion of adjusted costs. This year stayed at 20 billion next year to get to your cost income target.
Speaker Change: There is a delta of around 600 to 700 million. If you could please talk about the assumptions that you're making here and what are the easy wins in what is a difficult one and if I may also the bank levy assumptions.
Speaker Change: For the next year. Thanks.
Speaker Change: Thank you Ken and thank you for your question also thank you very much for the shout out to February two and Rob I don't have to do with it anymore.
Speaker Change: And I, even think that we took some market share from the U S banks not only from the European banks, if I think about the performance.
James von Moltke: Compensation and benefits costs were higher, mainly driven by variable compensation due to DWS's share price increase, while non-compensation costs were effectively flat despite inflationary pressures. Profit before tax improved by 6% from the prior year period, mainly reflecting higher revenue. The cost income ratio for the quarter was 74%, and return on tangible equity was 14.5%, both improving from the fourth quarter of last year. Moving to Corporate, another on slide 18. Corporate Another reported a pre-tax loss of 302 million euros this quarter versus an equivalent pre-tax loss of 208 million euros in the first quarter of 2023.
Speaker Change: In the investment bank.
Speaker Change: Look to your first question, let me take of that and James will then go on with the second question, obviously with further comments to question number one.
James: Let me start actually.
James: On the journey in 2024, because it really builds up nicely then to the 2025 story and.
And it starts really with this good Q1 in my view across all businesses.
James: If we now look how how the business is progressing then you can really see that the stable businesses I E. The corporate bank, the private banking and asset management that what we have seen in Q1 is actually the.
James: A good number you can have in your mind also for the following quarters.
James von Moltke: Revenues were negative 140 million euros this quarter, primarily driven by funding and liquidity impacts and other centrally retained items. Valuation and timing differences were positive 2 million euros driven by negative net impacts from interest rate movements offset by partial reversion of prior period losses. This compares to positive 239 million euros in the prior year quarter. Pre-tax losses associated with legacy portfolios were 96 million euros, driven primarily by litigation charges and expenses.
James: One item, which is.
Which is positive for us and James can give you. Some further details is that.
James: NII is actually behaving even better than we thought and that what we have given you earlier. This year. So in this regard there is less headwind on the NII side and on the fee generating side.
James: We are actually succeeding there, where we wanted to succeed and where the investments are now paying off.
James von Moltke: At the end of the first quarter, risk-weighted assets stood at 33 billion euros, including 12 billion euros of operational risk RWA. In aggregate, RWAs have reduced by 11 billion euros since the prior year quarter. Leverage exposure was 36 billion euros at the end of the first quarter, essentially flat to the prior year quarter. Finally, let me turn to the group outlook on slide 19. The first quarter showed that the expected benefits of our investments are materializing and will help to drive growth in non-interest revenues, while we have limited the downside to our net interest income given our interest rate hedging activity.
You have seen the market share gain in the origination and advisory business, we gained market share by 70 basis points.
James: We have shown a 500 million revenues.
James: <unk> this quarter to be honest, it's a number which I would also see based on the mandates for Q2.
James: Always hard to then go for Q3 and Q4, but with the investments we have done in people, but also in numerous.
James: I think that again Q1 is a very good marker in the <unk> business. We have done as you said a very good job.
James von Moltke: This demonstrates that our businesses are positioned for future growth, contributing to the delivery of our revenue target of around 30 billion euros in 2024. We affirm our target to maintain our quarterly run rate of around 5 billion euros of adjusted costs this quarter and around 20 billion euros for the full year. We expect provisions for the year to come in at the higher end of our guidance range of 25 to 30 basis points of average loans.
James: In the FIC business that is far more diversified far more stable far more robust and with all the rating upgrades we have seen obviously.
James: It also helped to regain Cline and these are.
James: Truck truly improvements, where I would say.
James: This is on the one hand, clearly supporting our market share gains, but also telling us that these kind of businesses.
James: And flow business, we are doing there is likely coming back also in the following quarter. So in a nutshell. If you if you take.
James von Moltke: With our CET1 ratio of 13.4%, we are well positioned and will continue to focus on distributions with a targeted payout ratio of 50% for the financial year 2024. And finally, as Christian said, our full focus remains on progressing through the execution of our strategy and the delivery of our 2035 targets. With that, let me hand over to Ioana, and we will look forward to your questions. Thank you, James.
James: Q1, and you have the stability in the three business and asset management private bank and corporate bank potentially even with some upside in asset management.
James: And you see the the strong pipeline, we have in the <unk> business and also the market position, we have regained in the FIC business I'm more than confident that we can achieve the $30 billion of just by adding up these full operating business just based on the starting point, we have right now if I then.
Operator: And with that, Operator, we're ready to take questions. Ladies and gentlemen, we now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone. You will hear a tone to confirm that. If you wish to remove yourself from the question queue, you may press start. Participants are requested to use only handsets.
James: Go into 2025.
James: The first comment is that there is.
James: The tailwind in on the NII side in the private bank, we have always talked about that we.
James: We have now for quarters and quarters gathered assets under management like in Q1 in PV and in asset management and that obviously is driving further further revenues there so the NII tailwind and the benefits from the assets under management growth is driving further the private banking revenue.
Kian Abouhossein: Anyone who has a question may press the star followed by 1. One moment. And the first question comes from Kian Abouhossein from Japan. Yeah, first of all, thank you for taking my question and a shout out to Fabrizio and Ram for doing such a great job of gaining market share, especially some more against some of the European peers that also reported today. Two questions. First of all, on revenues. 32 billion in 2025 that we have talked about in the past, can you give us a little bit more of a split on how we should think about reaching this target by division in the context of the below 600 million NRI adjustment this year?
James: In 25 <unk> 24.
Then in the corporate bank actually there is no NII headwind anymore in 'twenty five 'twenty four but we are benefiting from or the mandates, which we are which we are getting.
James: Actually not only in Germany, but globally you have seen in the in the script actually.
James: How also in Q1 versus Q1 last year, we actually increased our mandates, which we won with multinational corporates and that is again, the momentum, which I can see going forward. So a very stable revenue growth than in the corporate Bank also next year.
Kian Abouhossein: And then the second question is around cost, 20 billion of adjusted costs this year, and stated 20 billion next year to get to your cost income target. There's a delta of around 600 to 700 million. If you could please talk about the assumptions that you're making here and what are the easy wins and what are the difficult ones.
James: In the investment bank to be honest Kian I, absolutely further expect that we go to at least the 1% market share gain versus that what we had in 2022, we always said that with the investments, which we have done we want to gain 1% market share we have done <unk>, 7% in Q1.
Kian Abouhossein: And, if I may, also the bank levy assumptions for this and next year. Thanks. Thank you, Kian.
Christian Sewing: And thank you for your question. Also, thank you very much for the shout out to Fabrizio and Ram. I won't have to do it then anymore.
James: But there is more to come and I also do believe that in particular in the O&M market. There is a further recovery we can see the momentum in the M&A market in the ECM market. It is starting but it's not there where I can see the fee pool is in 'twenty five.
Christian Sewing: And I even think that we took some market share from the US banks, not only from the European banks, if I think about the performance in the investment bank. Look, to your first question, let me tackle that, and James will then go on with the second question and, obviously, with further comments on question number one. Let me start the journey in 2024 because it really builds up nicely then to the 2025 story.
James: And then obviously when I go to the last point in the asset management also there we will benefit obviously with the continuous inflow in essence under management.
James: Yeah.
James: Looking at that looking at how we are we have started now Q1 looking at actually the better than expected and our NII Trail.
Christian Sewing: And it starts really well in Q1, in my view, across all businesses. And if we now look how the business is progressing, then you can really see that the stable businesses, i.e. The corporate bank, the private bank, and asset management, that what we saw in Q1 is actually a good number you can have in your mind also for the following quarters. And one item which is positive for us, and James can give you some further details, is that the NII is actually behaving even better than we thought and as we have given you earlier this year. So in this regard, there is less headwind on the NII side.
James: And that the investments, which we have done are paying off.
James: I'm not only confident in the $30 billion, but then obviously with the build out in the 25 in the 32 billion.
James: So kian on expenses, we talk a lot about run rate monthly quarterly run rates were obviously pleased.
James: That our focus on delivery achieved the $5 billion. This quarter, we intend to continue that quarter after quarter.
James: Over the course of this year and managed to exit.
James: Next it right.
James: That puts us on track for our 25 numbers.
James: A couple of moving parts. So first of all bank Levy, we'd probably expect to book about $50 million. This year that might be 150 next year, but it depends very much on assumptions around what the SRV does growth rates in deposits and the like.
Christian Sewing: And on the fee-generating side, we are actually succeeding there where we wanted to succeed and where the investments are now paying off. We have shown a 500 million revenues in in ONA this this quarter to be honest It's a number which I would also see based on the mandates for Q2 Always hard to then go for Q3 and Q4 but with the investments we have done in people but also in Numis I think that again Q1 is is is a very good marker in the ONA business We have done as you said a very good job in in the FIC business That is far more diversified far more stable far more robust and with all the rating upgrades we have seen obviously It also helped to to regain clients and these are structural improvements where I would say This is on the one hand clearly Supporting our market share gains, but also telling us that these kind of businesses And and flow business we are doing there is likely coming back also in the following quarter so in a nutshell if you if you take Q1 and you have the stability in the three business in asset management private bank and corporate bank potentially even with some upside in in asset management and You you see the the the strong pipeline we have in the ONA business and also the market position We have regained in the FIC business I'm more than confident that we can achieve the 30 billion just by adding up these four Operating businesses based on the starting point we have right now if I then go into 2025, The first comment is that there is the tailwind on the NRI side in the private bank. We have always talked about that.
James: Then there's the nonoperating costs.
Ron: Ron Hi.
Ron: For the past several years, but where we really think at the tail end of the work we need to do in terms of restructuring and severance.
Ron: Litigation profile that we've talked about in the past so I'd love to see that sort of you know.
Ron: In and around $3 million to $400 million in total next year.
Ron: Which would obviously imply a run.
Ron: And operating cost level.
Speaker Change: Hi, <unk>.
Speaker Change: On a run rate basis that means we need to be taking expenses down by say $50 million to $100 million per quarter next year to achieve our numbers.
Speaker Change: You asked about easy wins. There. This is all hard work and focus and attention execution. The starting point is really the delivery of the we talked about $1 4 billion of actions that are achieved but not yet in our run rate. The run rate reflects 401 billion. So there's 400 million to come.
Speaker Change: That's already executed which in reality makes your difference in terms of the quarterly run rate. So in essence, we just need to crystallize.
Speaker Change: The existing items in.
Speaker Change: In reality, we're going to have some inflation, we're going to have some additional investments that take place and we then need to offset those with the remaining actions underway. The closing the gap between one four and $2 five which is the total target.
Speaker Change: So the simple version of what's still to be done.
Speaker Change: It's still day to day execution on the glide path of those measures, whether that's branch closures App decommissioning head count reductions process simplification front to back on data all of the things that we've been talking about for some time now are on a glide path for delivery and we are confident.
Christian Sewing: We have now for quarters and quarters gathered assets under management, like in Q1 in PB and in asset management, and that obviously is driving further revenues there, so the NII tailwind and the benefits from the assets under management growth are driving further private banking revenues in 2025 versus 2024. Then, in the corporate bank, actually, there is no NII headwind anymore in 2025-2024, but we are benefiting from all the mandates which we are getting. Actually, not only here in Germany but globally. You have seen in the script, actually, how also in Q1 versus Q1 last year, we actually increased our mandates, which we won with multinational corporates. And that is, again, momentum which I can see going forward.
That were set up to achieve the goals, we laid out for this year and next.
Speaker Change: Great very much.
Speaker Change: Thanks, Ken.
Speaker Change: And the next question comes from anchor Langan from RBC. Please go ahead.
Langan: Yeah. Thank you very much.
Langan: Question.
Langan: Capital.
Langan: Now we start with a 13.4 out of 10.
One to understand how much room there for.
Langan: For additional buybacks in the course of the year.
Langan: Is it I guess is that in the quarter would even report anything for flat, which will be 13 points Kevin.
Speaker Change: Would you be happy with 19.5 as well.
Kevin: How should we think about.
Kevin: Pension impact for the rest of the year.
Kevin: The regulatory headwinds and how quickly can you deliver on this.
Kevin: 15, 10 to 15 million of that but anyway optimization.
Kevin: And then secondly on loan losses.
Kevin: Well it does give you the confidence about the decline in the second half.
Christian Sewing: So very stable revenue growth, then in the corporate bank, also next year. In the investment bank, to be honest, Kien, I absolutely expect that we go to at least a 1% market share gain versus what we had in 2022. We have always said that with the investments that we have made, we want to gain 1% market share; we achieved 0.7% in Q1, but there is more to come. And I also believe, in particular, in the ONA market. We can see the momentum in the M&A market, in the ECM market, it is starting, but it's not there where I can see the fee pool is in 2025.
Kevin: Hum.
Kevin: Real estate this desktop is unchanged, but what's the impact of.
Alright.
Kevin: Higher for longer.
Any pressure by the regulators to address commercial real estate exposure of pasta.
Well see in months.
Kevin: The backlog related provisions in the private bank how much of that.
Kevin: In terms of when it could be a benefit in the second half. Thank you very much.
Speaker Change: Thanks Ankur.
Speaker Change: <unk>.
Speaker Change: So look.
Speaker Change: The target that we've been working to is really a January 1st target with the Basel III.
Speaker Change: Impacts reflected.
Speaker Change: And a 200 basis point gap to MDA against that so solve for $13. Two on January one with the $15 billion in it.
Speaker Change: That we've talked about.
Speaker Change: And really.
Speaker Change: What we have in the balance of the year is as earnings.
Christian Sewing: And then obviously, when I go to the last point about asset management, also there, we will benefit obviously with the continuous inflow of assets under management. Looking at that, looking at how we have started Q1, looking at actually the better than expected NII trail, and that the investments which we have made are paying off, I'm not only confident in the $30 billion, but then, obviously, with the build-out in 2025, in the $32 billion.
Speaker Change: Less additional stock buybacks.
Speaker Change: And the impact of business growth.
Speaker Change: And then from a model methodology, all that stuff think of that as neutral and we're working through that capital optimization to at least offset those pressures.
Q1 is always a quarter, where you'll see more burdens on the capital supply side. So I would not look at that as representative of the capital build that earnings can drive.
Christian Sewing: So Kian, on expenses, you know, we talk a lot about run rates, monthly, quarterly run rates. We're obviously pleased that our focus on delivery achieved $5 billion this quarter. We intend to continue that quarter after quarter over the course of this year and manage an exit rate that puts us on track for our 25 number. A couple of moving parts.
Speaker Change: And while Q1 is usually the.
Speaker Change: The high point in terms of organic capital generation, we've had a pretty good track record of generating sort of 25 to 30 basis points per quarter.
Speaker Change: Over the past several years, so so that's sort of the walk.
Speaker Change: But we would outline to you.
Speaker Change: On the loan losses.
Speaker Change: The.
Speaker Change: We talk about sort of three things that are running high in the first quarter commercial real estate, which we expect to improve gradually over the year.
James von Moltke: So first of all, the bank levy, we probably expect to book about 50 million this year. That might be 150 million next year, but it depends very much on assumptions around what the SRB does, growth rates in deposits, and the like. Then there's the non-operating costs.
Speaker Change: The collections activity disruption that we expect to also correct and potentially.
Speaker Change: We see some recoveries in the second half and equally on the wealth management side. We've had a series of cases over the years, where we hope that as we move to to work out there may be recoveries, there as well against on I'll call. It underlying strong credit portfolio. So that reversion in the second half as one that at least based on everything we see at the moment we have.
James von Moltke: You know, they've run high for the past several years, but we really think we are at the tail end of the work we need to do in terms of restructuring and severance, you know, the litigation profile that we've talked about in the past. So I'd love to see that sort of, you know, in and around $300 to $400 million in total next year, which would obviously imply a run rate, you know, an operating cost level, you know, in the high 19.
Speaker Change: Good line of sight on.
Speaker Change: And so we'd need to in essence compensate for for every basis point above 30 today would need to compensate.
Speaker Change: Being below 30 in the second half, but we see the drivers that.
Speaker Change: Would drive us there.
Speaker Change: And lastly, commenting on part of your question, we've had a very deep dive into the commercial real estate portfolio over the last 456 months sort of name by name.
James von Moltke: On a run rate basis, that means we need to be taking expenses down by, say, 50 to 100 million per quarter next year to achieve our numbers. You ask about easy wins; you know, this is all hard work and focus and attention execution.
Speaker Change: And feel comfortable that with the provisions we took in Q1. We've we've you know we've we reflect the risks that we see in that portfolio. We have as we mentioned seen the firming in our portfolio that is visible.
Speaker Change: Some of the market pricing indices, and what have you while that is to some degree rates sort of dependent.
James von Moltke: You know, the starting point is really the delivery of the, you know, we talk about 1.4 billion actions that are achieved but not yet in the run rate; the run rate reflects 1 billion. So there's 400 million to come that's already executed, which, you know, in reality, makes your difference in terms of the quarterly run rate. In reality, we're going to have some inflation, we're going to have some additional investments that take place, and we then need to offset those with the remaining actions underway, closing the gap between 1.4 and 2.5, which is the total target.
We do think that we're seeing a floor and.
Speaker Change: And are optimistic at least based on what we see that that will be.
Speaker Change: That'll be preserved over the over the balance of the year.
Speaker Change: And you don't see any pressure by the regulators take anything faster.
Speaker Change: Look the regulators is very focused on obviously careful in how we comment on these things the regulators naturally focused on how the banks broadly defined are managing through.
Our sectoral stress and commercial real estate not just in the U S but globally.
So you would expect them to be paying a great deal of attention and and and for us Consequently to beat to be looking carefully at our portfolio.
Speaker Change: Thank you very much.
James von Moltke: So the simple version of what's still to be done. It's still day-to-day execution on the glide path of those measures, whether that's branch closures, app decommissioning, headcount reductions, process simplification, front-to-back on data. All of the things that we've been talking about for some time now are on a glide path for delivery, and we're confident that we're set up to achieve the goals we laid out for this year. Thank you very much.
Speaker Change: And the next question comes from Nicholas <unk> from Kepler. Please go ahead.
Nicholas: Yes. Good morning, Thanks for taking my question I have two please.
Nicholas: The first one would be on NII you mentioned in your prepared remarks that you could exceed your guidance of the decrease of $600 million in.
And I am sure and I was wondering what are what are the conditions.
Nicholas: To beat this guidance actually you did higher rates for longer is it stable Ebitdas is it is an improvement on the asset margins as you mentioned any color would be it would be great and also what kind of magnitude that we could do we could expect regarding the beats on this.
Operator: Thanks, Kian, and the next question comes from Anke Reingen from RBC. Yeah, thank you very much. Now we start with 13.4 and I'm just trying to understand how much room there is for additional buybacks in the course of the year, is that what you're aiming for, I guess you said in the [inaudible] The Remaining and then secondly, on loan losses. What gives you confidence about the decline in the second half? I guess your commercial real estate, the stress loss is unchanged, but what's the impact? [inaudible] Thanks, Anke.
Nicholas: <unk>.
Nicholas: And the second question would be on the eco menthol share buyback four H. Two have you have you got any update to give us whether you have applied for this new share buyback with the ECB or what kind of discussion you have over there I think it answers regarding stomach currently thank you.
James von Moltke: So look, the target that we've been working to is really a January 1st target with the Basel III, you know, impacts reflected, and a 200 basis point gap to MDA against that. So solve for 13.2 on January 1st with the 15 billion in it, that we've talked about. And really.
Thanks Nicola.
Nicholas: So on the net interest income I think magnitude it's early in the year to say, but but potentially considerable.
Nicholas: And the three digit millions.
Nicholas: Usually in the three digit millions so to put it that way and the drivers are better deposit margins better deposit volumes.
James von Moltke: What we have in the balance of the year is earnings less, additional stock buybacks, and the impact of business growth. And then from a model methodology, all that stuff, think of that as neutral, and we're working through that capital optimization to at least offset those pressures. Q1 is always a quarter where you'll see more burdens on the capital supply side, so I would not look at that as representative of the capital bill that earnings can drive.
Nicholas: Firming loan margins.
Nicholas: Better funding costs, including unsecured.
Nicholas:
Nicholas: Data is still running behind to some extent the interest curve that you see the <unk>.
Nicholas: Slide forward rates, although as you can also see in our in our materials, we've hedged a lot of that.
Nicholas: But the short answer is that all of those things the drivers are.
Nicholas: Are actually showing favorable compared to our planning with the one exception that goes in the other direction of loan volumes.
James von Moltke: And while Q1 is usually the, you know, a high point in terms of organic capital generation, we've had a pretty good track record of generating sort of 25 to 30 basis points per quarter over the past several years. So, that's sort of the path that we would outline to you.
Nicholas: And there obviously, we'd like to see a pick up as the economy firms and demand rises, but but all of those drivers are playing a role and giving us confidence in the outlook.
Nicholas: Think of it on the on the buybacks.
Nicholas: Nothing changed from our target, which we which we gave to the market before.
Nicholas: We have clearly stated that shareholder value creation is a key priority for us.
James von Moltke: On the loan losses, we talk about sort of three things that are running high in the first quarter. Commercial real estate, which we expect to improve gradually over the year, and the collections activity disruption, which we expect to also correct and potentially see some recoveries in the second half. And equally, on the wealth management side, we've had a series of cases over the years where, we hope, as we move to work things out, there may be recoveries there as well against an, I'll call it, underlying strong credit portfolio.
Nicholas: And hence we are fully committed to the plans we have outlined to you and that also means fully committed.
Nicholas: We have for gold.
To actually distribute beyond the $8 billion, which we which we gave you earlier now with regard to timing I think we're doing exactly that what we also said we always said that we wanted to await Q1, we wanted to see that Q1 is running in line with our own plan that we show up.
James von Moltke: So that reversion in the second half is one that, at least based on everything we see at the moment, we have good line of sight on, and so we need to, in essence, compensate for every basis point above 30 today; we would need to compensate being below 30 in the second half, but we see the drivers that would drive us. Finally, commenting on part of your question, we've had a very deep dive into the commercial real estate portfolio over We have, as we mentioned, seen the firming in our portfolio that's visible in some of, While that is, to some degree, rape.
Nicholas: The rating leverage that we show.
Nicholas: The increasing revenues that we have costs under control exactly this has happened and that gives us the confidence.
Nicholas: That we can now obviously also plan for the next steps and go into the discussions but that is a discussion with the regulator and this.
Nicholas: This should be always respected.
Nicholas: But as I said, we always said Q1 needs to be done we are happy with Q1 and now we take the next steps.
Speaker Change: Thank you very much.
Speaker Change: And the next question comes from Julio <unk> from Morgan Stanley. Please go ahead.
Yes, Hi, good morning, My first question and I go back I want to go back to the commercial real estate and one thing, which surprises me a little bit is that the 31 billion isn't all going down.
Speaker Change: Queensland, Yeah just.
Speaker Change: The effects, but I wouldn't expect you know.
Speaker Change: Don't you think it to be.
Speaker Change: This exposure so now why is that not a movie.
James von Moltke: We do think that we're seeing a floor and are optimistic, at least based on what we see, that that'll be preserved over the balance of time, and you don't see any pressure by the regulator to take anything. Look, the regulators are very focused. I mean, we're obviously careful in how we comment on these things.
Speaker Change: My first question and then.
Speaker Change: Secondly, I don't think that you flag litigation is expected after versus 2023.
Speaker Change: Any comment there.
Speaker Change: Thank you.
Speaker Change: So Julie on the second question, mostly to do with the relatively sizable release, we had in the in the fourth quarter.
Speaker Change: Don't necessarily look at it as a deterioration in our position so much is as that that effect.
James von Moltke: But the regulator is naturally focused on how the banks broadly defined are managing through, you know, a sectoral stress in commercial real estate, not just in the US, but globally. So you'd expect them to be paying a great deal of attention and, and, and, and for us, as consequently to be to be looking carefully at our portfolio. Thank you very much.
Julie: On CRE and CRE.
Julie: It's essentially a portfolio that through extensions and refinancings is rolling over FX plays a small role and a very selective.
Julie: No new financing activity typically in lower risk areas.
That flow into the definition, but.
But it's yes, it's a rolling portfolio I don't I wouldn't expect it to to diminished dramatically.
Operator: The next question comes from Nicolas Payen from Kepler Schiff. Yes, good morning. Thanks for taking my question. I have two, please.
Julie: In the next several quarters.
Julie: Thanks.
Julie: And the next question comes from Jeremy <unk> from Dnb, probably by Exxon. Please go ahead.
Nicolas Payen: The first one will be on NII. You mentioned in your paper remark that you could exceed your guidance , Stefan Simon, Andreas Thomae, Klaus Niedenthal, Silke Szypa, Alexandra Annecke, Klaus Niedenthal, and the second question would be on the on incremental share buyback for h2 have you have you got any any update to give us whether you have applied for this new share buyback with the ecb or what kind of of discussion you have with the regulators regarding this topic currently thank you Thanks, Nicolas.
Jeremy: Good morning. Thank you just a couple of follow ups on topics that have already been touched on.
Jeremy: First one just picking up on CRE again.
The modified loan number that you show us, which I think is 10 billion here, that's been increasing from $8 million and $6 billion over the last couple of quarters are you still happy with the nature of those modifications that these healthy constructive.
Jeremy: They're not just extend and pretend.
Jeremy: So is that price is still okay as far as you're concerned.
Jeremy: First question and then the second question again, just kind of picking into the cost point.
Nicolas Payen: So on net interest income, I think the magnitude, it's early in the year to say but potentially considerable, you know, in triple digit millions, easily in triple digit millions, put it that way. And the drivers are better deposit margins, better deposit volumes, firming loan margin, better funding costs, including unsecured, beta is still running behind. To some extent, the interest curve that you see, the implied forward rates, although as you can also see in our materials, we've hedged a lot of that.
Jeremy: Your adjusted cost sex Bank levies.
Jeremy: Up about two 5% year on year.
Jeremy: Is that just noise or is that a source of pressure.
Jeremy: Cause you concern looking at the need to bring costs down as you've discussed is that increase year on year any kind of concern to you.
Jeremy: So Jeremy.
Jeremy: The modification process, yes, I'd say in short okay.
Jeremy: We've talked about this for a while.
Jeremy: We look at each.
Jeremy: Individual property.
Jeremy: We engage in the discussion with the sponsors on refinancing often that includes terms new equity.
James von Moltke: But the short answer is that all of those things, the drivers... are actually showing favorable compared to our planning with the one exception that goes in the other direction of loan volume. And there, obviously, we'd like to see a pickup as the economy firms and demand rises, but all of those drivers are playing a role in giving us confidence in the outcome. Nicolas, on the buybacks...
Jeremy: Times instead of <unk>.
Jeremy: Sessions from the banks and that's as it should be I don't think of it as a giant extend and pretend process, but a healthy process of managing these assets through a cycle you should expect the modifications to continue to rise.
Jeremy: But if if this is a cycle that as we think it is burning itself out then than the provision number as a percentage of that of that denominator should begin to decline along with a gradual reduction in <unk>.
Christian Sewing: Nothing has changed from our target which we gave to the market before. We have clearly stated that shareholder value creation is a key priority for us, and hence we are fully committed to the plans we have outlined to you, and that also means we are fully committed to the fact that we have a goal to actually distribute beyond the 8 billion which we gave you earlier. Now, with regard to timing, I think we are doing exactly what we also said. We always said that we wanted to await Q1, we wanted to see that Q1 was running in line with our own plan, that we showed operating leverage, that we showed further increasing revenues, that we had costs under control.
Jeremy: <unk> on a quarterly basis.
Jeremy: So that's what we would expect to see going forward.
Jeremy: A lot of work still lies ahead, but but so far behavior has been rational in light of valuations.
Jeremy: On adjusted costs that increase represents if you like the cumulative impact of the various investments we'd be made we'd be making we've talked about investments in controls, we even talked about investments in technology also the front office investments, we made last year and now the run rate impact of the numerous trend.
Jeremy: Transaction as well fully in the quarter, so that that increases there is it concerning no in so far as it was deliberate actions and targeted investments on our part.
Christian Sewing: Exactly that has happened, and that gives us the confidence that we can now, obviously, also plan for the next steps and go into the discussions, but that is a discussion with the regulator, and that should always be respected. But, as I said, we always said Q1 needs to be done, we are happy with Q1, and now we take the next step. Thank you very much. The next question comes from Giulia Aurora Miotto from Morgenstern.
Speaker Change: But as per the answer to Ken now the work.
Speaker Change: It needs to be done to take that run rate.
Speaker Change: Back down.
Speaker Change: Honestly over the next seven quarters.
Speaker Change: Perfect. Thank you.
Speaker Change: And the next question comes from Chris <unk> from Goldman Sachs International. Please go ahead, yes. Good morning, everybody. So two for me.
Just first on NII and it's a bit of a follow up last question earlier in the prepared remarks, it sounds like the margin a bit more confident on what you'd expect to see for this year.
Giulia Aurora Miotto: Yes, hi, good morning. My first question, I want to go back to commercial real estate. And one thing which surprises me a little bit is that the 31 billion is not going down. It is going slightly up due to the effects, but I would expect, you know, Deutsche Bank to be leveraging these exposures. So top down, why is that not moving?
Chris: Looking to next year is that I think changed for the NII outcome, then, particularly in light of the moves we've seen them rates expectations in the past couple of months.
Chris: The positive development in deposit funding costs in Germany.
Chris: And then secondly, thank you for the extra disclosure on FIC.
If I look at the business mix on slide 13 split between M credit in my career.
Giulia Aurora Miotto: This would be my first question. And then, secondly, I noticed that you flag litigation is expected to rise versus 2023. Any comment there?
Chris: Is that the right mix of business when you think about the global how spec strategy.
Chris: Do you expect that Pie chart to change shape meaningfully over the next few years, whether it be through investments or share gains et cetera.
James von Moltke: Thank you. So Giulia, on the second question, mostly to do with the relatively sizable release we had in the fourth quarter, so I don't necessarily look at it as a deterioration in our position so much as that effect. On CRE, you know, it's essentially a portfolio that, through extensions and refinancing, is rolling over; FX plays a small role and very selective new financing activity, typically in lower risk areas that flow into the definition. But it's, yeah, it's a rolling portfolio. And I wouldn't expect it to diminish dramatically. Thanks.
Speaker Change: Okay, Chris I'll try both and Christian may want to add.
Speaker Change: So.
Speaker Change: Actually our hope was that we would sound a little bit more confident on this call then in the prepared remarks on them on.
Speaker Change: On the net interest income we are comfortable with the trajectory, but we're trying not to get too far over our skis on it.
Speaker Change: We think it's supportive of the trajectory to $30 billion this year and $32 billion next year and the way.
Speaker Change: To be honest the way this will work Chris is.
Speaker Change: The incremental NII that we expected to get in 'twenty five.
Speaker Change: Would be compared to the higher base in 2004, so that it would it would essentially just add because of the factors that I that I outlined.
Jeremy Sigee: And the next question comes from Jeremy Sigee from BNB Pali Bike. Good morning, thank you. Just a couple of follow-ups on topics that have already been touched on. First one, just picking up on CRE again, the modified loan number that you show us, which I think is 10 billion here, which has been increasing from 8 billion and 6 billion over the last couple of quarters. Are you still happy with the nature of those modifications that they are healthy and constructive? They're not just extend and pretend?
Speaker Change: Being the drivers so so.
Short version this is incremental in 'twenty, four and carries over to 'twenty five.
Speaker Change: The numbers.
Speaker Change: That donut on the in the appendix that does move over time, there's no question, it's depending on the mix shift in the market environment generally we think we've got a healthy portfolio mix.
Speaker Change: In our what I'll call fixed markets thick markets. We're describing here is FIC ex financing.
Jeremy Sigee: So is that process still okay, as far as you're concerned? That's my first question. And then the second question, again, just kind of picking into the cost point: your adjusted costs, ex-banks levies, were up about two and a half percent year on year. Is that just noise?
Speaker Change: But but it's driven by macro and micro trends.
Speaker Change: Client positioning it's driven by.
The the extent to which structured transactions are happening in any one of those product areas. So it does move around but we think of it as a healthy portfolio mix.
Speaker Change: And Chris I think.
James von Moltke: Or is that a source of pressure that, you know, causes you concern looking at the need to bring costs down, as you've discussed? Is that increase year on year any kind of concern to you? So Jeremy, the modification process, yeah, I'd say in short, OK. We've talked about this for a while. As we look at each individual property, we engage in the discussion with the sponsors about refinancing. Often, that includes terms, new equity, and sometimes concessions from the banks. And that's as it should be.
Speaker Change: Two additional comments number one.
Speaker Change: If you take that over time actually we've seen a nice uplift actually in credit trading following.
Investments, which we have done.
While we wanted to actually have a more balanced.
Speaker Change: Portfolio in the FIC ex financing based on this and.
Speaker Change: And secondly, I would say that going forward. If you think about the global House brand concept and the way how actually Fabrizio is tying up.
Speaker Change: The day to day FIC work with the corporate Bank I would say that we have actually a really good chance.
James von Moltke: I don't think of it as a giant extend and pretend process but a healthy process of managing these assets through a cycle. You should expect the modifications to continue to rise, but if this is a cycle that, as we think it is, is burning itself out, then the provision number as a percentage of that denominator should begin to decline along with the gradual reduction in CLPs on a quarterly basis.
And also with that what is happening on the corporate side and how corporates are thinking that the emerging market piece and also parts of the macro pieces are actually further increasing we can see that these discussions are happening each and every day, we have an initiative, where we are actually targeting.
Speaker Change: The culprit.
Speaker Change: Within the corporate bank and tying them into our <unk> businesses and we can see the results. So I would say that in a normal development and now taking aside the comments.
James von Moltke: So that's what we would expect to see going forward. A lot of work still lies ahead, but so far, behavior has been rational in light of valuation. On adjusted costs, that increase represents, if you like, the cumulative impact of the various investments we'd be making. We've talked about investments in controls. We've even talked about investments in technology and also the front office investments we made last year and now the run rate impact of the Numis transaction as well, fully in the quarter.
Speaker Change: James did on unique and particular transactions, but with the network we have with the global approach we have.
Speaker Change: Could see that the emerging market piece and parts of the micro pizza actually growing because the connection of the IV with the corporate bank.
Speaker Change: Really helpful. Thank you very much.
Speaker Change: And the next question comes from Stefan <unk> from Autonomous. Please go ahead.
Speaker Change: Yeah.
Stefan: Good morning, Thank you very much for taking my questions.
James von Moltke: So that increase is there. Is it concerning? No, insofar as it was deliberate action and targeted investments on our part. But as per the answer to Kien, now the work, you know, needs to be done to take that run rate, you know, back down modestly over the next 7 quarters.
Stefan: I wanted to ask about the private bank. Please.
Stefan: <unk> had another very good quarter I think your.
Stefan: Annualized growth in wealth management, and private banking is running at around 8% annualized from net new money and I'm really hard pressed to come up with any competitor.
Stefan: Getting close to that kind of growth can you maybe talk a little bit more about what you're doing there.
Operator: Perfect, thank you. And the next question comes from Chris Hallam from Goldman Sachs International. Yeah, good morning, everybody.
Speaker Change: Thiago fees are driving this whether they are particular products or any other unique selling points that I'm, explaining this and.
Speaker Change: A related question.
Chris Hallam: So two for me, just first on NII, and it's a bit of a follow-up to Nicola's question earlier. In the prepared remarks, you sounded, on the margin, a bit more confident on what you'd expect to see for this year. But if you look into next year, has anything changed for the NII outcome then, particularly in light of the moves we've seen in rate expectations in the past couple of months and also the positive development in deposit funding costs in Germany. And then, secondly, so thank you for the extra disclosure on FIC.
Speaker Change: One investor alerted me to his story.
Speaker Change: Honest with media platform. This morning, which suggested that FINMA is looking at your wealth management business in Switzerland.
Speaker Change: Anything to flag there or is it just nothing program.
Speaker Change: Thank you.
Speaker Change: Thank you for your questions, let me start and James will.
Speaker Change: We will amend.
Speaker Change: On the FINMA side, we gave a clear statement that there is no restriction.
Speaker Change: Secondly, obviously I hope you respect that we are not going more into details when it comes to regulatory discussions that.
James von Moltke: If I look at the business mix on slide 30, that's split between EM credit and macro. Is that the right mix of business when you think about the Global House Bank strategy? Or would you expect that pie chart to change shape meaningfully over the next few years, whether it be through investments or share gains, etc.? Yeah, okay, Chris, I'll try both, and Christian may want to add.
Speaker Change: We have every.
Speaker Change: We had said everything in writing so for us.
Speaker Change: We can onboard clients.
Speaker Change: Number two with regard to wealth wealth management in the private bank.
Speaker Change: Yes, it has been actually.
Speaker Change: <unk> has been with US it has been always our focus actually to go more into the investment businesses by the way not only in wealth management, but also in the private bank, we see that as a key growth area and in particular, it's a clear long term growth areas I think I've said it before.
James von Moltke: So, Actually, our hope was that we would sound a little bit more confident on this call than in the prepared remarks on net interest income. We are comfortable with the trajectory, but we're trying not to get too far over our skis on it. We think it's supportive of the trajectory to $30 billion this year and $32 billion next year. The incremental NII that we expect to get in 2025 would be compared to the higher base in 24, so it would essentially just add because of the factors that I outlined being the drivers. So, short version, this is incremental in 24 and carries over to 25.
Speaker Change: On these calls if you think about what is one of the real sticky items also here in Germany going forward. It is what happens with the pensions of our retail clients and the focus Claudia is giving to the investment businesses, where obviously, we have an expertise which not a lot of other <unk>.
Speaker Change: <unk> in particular in the whole market has is something which is now helping us a lot.
Speaker Change: It also helps us by the way that we got all the rating upgrades that we have a completely different reputation in the market and the investments Claudio did in wealth management outside Germany and parts of European countries in particular in Asia that we invested heavily heavily in the middle East.
James von Moltke: The numbers, you know, that donut in the appendix, that does move over time, there's no question. It depends on the mix shift in the market environment generally. We think we've got a healthy portfolio mix in our what I'll call fixed markets, which we're describing here as FIC-X finance. But it's driven by macro and micro trends.
Speaker Change: Now all paying off and therefore.
Speaker Change: Yes, we are happy with the growth, but it's part of the two to three year story and strategy, which cloud youll build.
Christian Sewing: You know, client positioning is driven by, you know, the extent to which structured transactions are happening in any one of those product areas. So it does move around, but we think of it as a healthy portfolio. Yeah, and Chris, I have two additional comments.
Speaker Change: Now as we see the success in particular in wealth management as I said, we want to bring it more and more into the more private bank and retail bank business because there is actually the need for the clients and therefore I expect actually that we do see these kind of growth rates.
Christian Sewing: Number one, if you take that over time, actually, we have seen a nice uplift in credit trading following the investments which we have made. And while we wanted to actually have a more balanced portfolio in the FICX financing business, And secondly, I would say that going forward, if you think about the global house bank concept and the way that Fabrizio is tying up the day-to-day FIC work with the corporate bank, I would say that we have a really good chance. Also, with that, what is happening on the corporate side, and how corporates are thinking that the emerging markets piece and also parts of the macro pieces are actually further increasing. We can see that these discussions are happening each and every day.
Speaker Change: Also going forward, which is again supporting that what I said in the first question from Kian, one should not underestimate the continuous growth in revenue is actually in those business from the continuous accumulation of assets under management in particular in this business so clear focus of Deutsche Bank.
Speaker Change: One thing just to add I think I think the revenue profile is supportive as you say both fee and commission income and the interest income long term and private bank.
Speaker Change: The second thing is as we've talked about the credit loss provisioning right now is more elevated than we would expect it to be sort of on a continuous basis. The last thing to also highlight as this quarter I think now shows the trajectory that we're on from a cost perspective with a significant year on year cost reduction.
Speaker Change: We expect to build on in terms of trajectory so starting to see the restructuring and the technology investments.
Speaker Change: The distribution platform reductions come through all of which should significantly enhance the pretax profit margin of PV overtime.
Operator: We have an initiative where we are actually targeting corporates within the corporate bank and tying them into our FIG businesses, and we can see the results. So I would say that, in a normal development, and now taking aside the comments James did on unique and particular transactions, but with the network we have, with the global approach we have, I can see that the emerging markets piece and parts of the macro piece are actually growing because of the connection of the IB with the corporate bank. It is really helpful. Thank you very much. And the next question comes from Stefan Stallmann from Autonomous. Good morning.
Great very clear thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from Thomas <unk> from <unk>. Please go ahead.
Thomas: Hi, guys. Thanks for taking my question.
But I'm just curious around that the fee progression that the private bank.
Thomas: If I look at market level sort of 8% on year on year.
Thomas: Yeah.
Speaker Change: <unk> had a lot of in play and yet your revenues in the first quarter haven't really moved much.
Speaker Change: If I kind of look.
Speaker Change: The division senior expecting quite a bit of a pickup over the next nine months. So I think what is driving that relative to the third quarter.
Speaker Change: Then secondly.
Speaker Change: Just looking at the financing revenues.
Got it really helpful slide in that.
Speaker Change: In the pack.
Speaker Change: Nicotine and maintenance also great for you, but also your peers.
Stefan Stallmann: Thank you very much for taking my questions. I want to ask about the private bank, please. You had another very good flow quarter. I think your annualized growth in wealth management and private banking is running at around 8% annualized from that new money. And I'm really hard pressed to come up with any competitor getting close to that kind of growth. Can you really talk a little bit more about what you're doing there? What geographies are driving this, whether they're particular products or any other unique selling points that are explaining this?
Speaker Change:
Speaker Change: You know I'm, just curious at what driving that kind of great differential kind of back to pre COVID-19 levels and how sustainable that is.
Speaker Change: Because like I said page.
Leverage consumption of the idea.
Speaker Change: Last fall we had.
Speaker Change:
Speaker Change: So maybe if you could provide a sense of kind of the margin of that business or the capital intensity that would that would those that'd be great. Thank you.
Speaker Change: Yeah.
Speaker Change: So Tom I just.
Speaker Change: The the way you think about about fee and commission income and the private bank, because it's sort of a client business volume measure so.
Speaker Change: Christian referred to it as sticky so as we build balances we build activity you've seen a year on year growth rate of 2%.
Stefan Stallmann: and a related question. One investor alerted me to a story on a Swiss media platform this morning which suggested that Finmar is looking at your wealth management business in Switzerland. Is there anything to flag there, or is it just a nothing burger?
Speaker Change: But now at a level in the first quarter that significantly exceeds.
Speaker Change: Any quarter last year, especially the second third and fourth.
Christian Sewing: Thank you. Thank you for your questions. Let me start, and James will correct it.
Speaker Change: And so we think that that's going to continue to build on itself and creates sort of more and more year on year differential there is some amount that obviously depends on.
Christian Sewing: Look, on the Finmar site, we gave a clear statement that there was no restriction. And secondly, obviously, I hope you respect that we are not going into more detail when it comes to regulatory discussions. But we have said everything in writing.
Speaker Change: Clients investment activity trading activity, if you like in any given quarter, but but the call. It the stable revenue base that we're seeing in private bank and fee and commission income growth is very encouraging and I think is set to continue.
Christian Sewing: So for us, we can onboard clients. Number two, with regard to wealth, wealth management, and the private bank. Yes, it has actually, since Claudio has been with us, been our focus actually to go more into the investment businesses, by the way, not only in wealth management but also in the private bank.
I think in terms of your question about resources in the FIC business.
Speaker Change: We've been very focused on that.
Speaker Change: Sort of consistently over the years.
Speaker Change: Sure.
Speaker Change: We tend to look at it in terms of revenue production related to our double Yue.
Speaker Change: As you can see market risk RW, a relatively modest for us. So it is principally credit risks <unk>, both in the balance sheet and derivative businesses.
Christian Sewing: We see that as a clear growth area and, in particular, as a clear long-term growth area. I think I said it before on these calls, if you think about what one of the real sticky items will be here in Germany going forward, it is what happens to the pensions of our retail clients, and the focus Claudio is giving to the investment businesses, where obviously we have an expertise that not a lot of other banks, in particular in the home market, have, is something which is now helping us a lot.
Speaker Change: But we think we've got some of the best in the business at understanding and optimizing that.
And the same is true of leverage exposure, where we manage to the constraints of our balance sheet, but work to optimize how we deploy that leverage exposure to support clients as well as the revenue profile, sometimes by the way. The business you do is leverage exposure intensive but not our WAM.
Speaker Change: And sometimes the opposite.
Speaker Change: And hence the optimization efforts that we go to there are considerable.
Christian Sewing: It also helps us, by the way, that we got all the rating upgrades, that we have a completely different reputation in the market. And the investments Claudio did in wealth management outside Germany, in parts of European countries, in particular in Asia, you know that we invested heavily in the Middle East, are now all paying off.
Speaker Change: Considerable and sophisticated.
Speaker Change: So I would.
Speaker Change: I don't know if you want to add anything.
Speaker Change: Yeah.
Speaker Change: Yes, I mean, just to follow up.
From my side on the private bank.
Speaker Change: The machine that kind of you know <unk>.
Speaker Change: An increase of one 5% year on yet.
Speaker Change: And then we should be expecting for the rest of the year or are you more confident on that.
Christian Sewing: And therefore, yes, we are happy with the growth, but it's part of the two to three-year story and strategy which Claudio built. Now as we see the success in particular in wealth management, as I said, we want to bring it more and more into the private bank and retail bank business because there is actually a need for the clients, and therefore, I expect that we do see these kind of growth rates also going forward, which is again supporting what I said in the first question from Kian: one should not underestimate the continuous growth and revenues in these businesses from the continuous accumulation of assets under management, in particular in So the clear focus of Deutsche Bank.
Speaker Change: Yeah, I think if you look at the the.
Speaker Change: Prior quarter comparisons year on year for both CV and PV.
Speaker Change: What you'd expect is a relatively significant.
Speaker Change: Celebration of the of the year on year growth in those in those fee and commission lines in the coming quarters.
Speaker Change: Okay. Thank you.
Speaker Change: <unk>.
Speaker Change: As a reminder, anyone who wishes to ask a question you May press star followed by one.
Speaker Change: The next question comes from Andrew Coombs from Citi. Please go ahead.
Andrew Coombs: Good morning, Thanks for taking my questions.
Andrew Coombs: The previous remark. Thank you for the additional disclosure on IV revenues as well.
Andrew Coombs: Two questions from me.
Andrew Coombs: Firstly on costs.
James von Moltke: One thing just to add, I think the revenue profile is supportive, as you say, both fee and commission income and the interest income long-term in the private bank. I think the second thing is, as we talked about, the credit loss provisioning right now is more elevated than we would expect it to be sort of on a continuous basis. The last thing to also highlight is this quarter now shows the trajectory that we're on from a cost perspective with a significant year-on-year cost reduction that we expect to build on in terms of trajectory.
Speaker Change: I don't.
Speaker Change: I see.
Speaker Change: <unk> in Q4, you haven't drawn out anything in Q1.
I think you can take it.
Speaker Change: Would you say is there anything cost IC.
Speaker Change: This quarter as well if you'd like to specify.
Speaker Change: And then the second question.
Corporate and other division now.
Speaker Change: You did add to the legacy portfolios I think <unk>.
Speaker Change: Q2, six loss this quarter, but includes quite a sizable benefit on.
Speaker Change: Timing differences of valuation and timing differences.
Speaker Change: We think we'll.
Speaker Change: And where do you think it would be.
Speaker Change: Quarterly run rate for that division going forward. Thank you.
Thanks, Andrew so.
Speaker Change: $8 million is the number this quarter on FDIC by some Cork of accounting, we can't characterize as bank Levy. So we don't call it out separately.
James von Moltke: So, we are starting to see the restructuring, the technology investments, and the distribution platform reductions come through, all of which should significantly enhance the pre-tax profit margin of PBO. Great, very clear. Thank you. Thank you. The next question comes from Tom Hallett from KBW.
But it also means if I look at the net going into this quarter's run rate actually there were there's probably more things pushing it up and pushing it down of which FDIC was one.
Thomas Hallett: Hi guys, thanks for taking my questions. So the first one, just curious about the fee progression in the private sector and, secondly, just looking at the financing revenues where you put a really helpful slide in there in the pack. I mean, Look, it's been a major source of grace for you, but also your peers.
Speaker Change: So you know there's always some degree of volatility.
<unk> was was a feature of this year certainly year on year in the quarter. It was relatively more neutral, but but reflected really changes in the interest rate curve by the way some of which we would expect to get back.
Speaker Change: In the balance of the year through pull to par.
Speaker Change: Always hard to say therefore, what the pre tax profit impact is going to be we talk in the guidance about what the shareholder expenses that we expect what the incremental what the sort of call.
Thomas Hallett: You know, I'm just curious about what's driving that kind of growth differential kind of versus pre-COVID levels and how sustainable that is. Because I suppose if I look at the leverage consumption of the IP, it's gone up considerably over the last four years. You know, so maybe if you could provide a sense of kind of the margins of that business or the capital intensity, that would that would also be great. Thank you. So, Tom, I just... The way you think about fee and commission income in the private bank is it's sort of a client business volume measure. So Christian referred to it as sticky.
Speaker Change: Call It run rate our annual Treasury.
Funding costs are so for modeling purposes, I would go with sort of a quarterly version of that annual guidance and accept that there is some volatility in valuation and timing incidentally, we've been working over the years to reduce or minimize that volatility to the extent, we can so so lots of work.
Gone into to hedge accounting programs and other things too.
James von Moltke: So as we build balances, we build activity, you've seen a year-on-year growth rate of 2%, but now at a level in the first quarter that significantly exceeds, you know, any quarter last year, especially the second, third, and fourth, and so we think that that's going to continue to build on itself and create more and more year-on-year differentials. There is some amount that obviously depends on client's investment activity, trading activity, if you like, in any given quarter, but the trend of the stable revenue base that we're seeing in the private bank and fee and commission income growth is very encouraging and I think is set to continue. I think in terms of your question about resources in the FIC business, we're, we've been very focused on that. 2013 Transcription Outsourcing, LLC.
Speaker Change: Two to both manage the risks the balance sheet risks that we have to do so in.
Speaker Change: In a way that is accounting neutral as we can and we've made some good progress in that regard.
Speaker Change: Thank you.
So it seems there are no further questions at this time.
Speaker Change: So I will turn it back to you on a pump you need to for a while.
For any closing remarks.
Speaker Change: Thank you and thank you for joining us and for your questions and as a follow up please come through to the Investor Relations team and we look forward to speaking to you at all second quarter call.
Speaker Change: Ladies and gentlemen, the conference has now concluded and you may disconnect. Thank you for joining and have a pleasant day goodbye.
Speaker Change: Yes.
James von Moltke: We tend to look at it in terms of revenue production related to RWA. As you can see, market risk RWA is relatively modest for us, so it is principally credit risk RWA, both in the balance sheet and derivative business. But we think we've got some of the best in the business at understanding and optimizing that. And the same is true of leverage exposure, where we manage to the constraints of our balance sheet but work to optimize how we deploy that leverage exposure to support clients, as well as the revenue profile. Sometimes, by the way, the business you do is leverage exposure intensive but not RWA intensive, and sometimes the opposite. So, I would stop there.
Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: [music].
Thomas Hallett: I don't know if you want to add to that, maybe. Yeah, I mean, just to follow up, just from myself on the private bank, is it fair for us to assume that it increased 1.5% year on year? Is that something similar we should be expecting for the rest of the year? Or are you more confident on that for the rest of the year?
Speaker Change: Yeah.
Speaker Change: [music].
James von Moltke: I think if you look at the prior quarter comparisons year on year for both CBE and PB, what you'd expect is a relatively significant acceleration of the year-on-year growth in those fee and commission lines in the coming, Okay, thank you. As a reminder, anyone who wishes to ask a question may press the star followed by, And the next question comes from Andrew Coombs from, Good morning. Thanks for taking my questions.
Andrew Coombs: I also echo the previous remarks. Thank you for the additional disclosure on IV revenues as well. There are two questions from me.
Andrew Coombs: Firstly, on costs, you drew out the FDIC charge in Q4. You haven't drawn out anything in Q1, but I know a number of US banks did take a top-up. Thanks, Andrew. So $8 million is the number this quarter on FDIC. By a quirk of accounting, we can't characterize it as a bank levy, so we don't call it out separately.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Yeah.
[music].
James von Moltke: But it also means, you know, if I look at the net going into this quarter's run rate, actually, there are probably more things pushing it up than pushing it down, of which FDIC was one. C&O, there's always some degree of volatility. V&T was a feature this year, certainly year-on-year, in the quarter, it was relatively more neutral, but it really reflected changes in the interest rate curve, by the way, some of which we would expect to get back in the balance of the year through pull to par, or call it run rate or annual treasury funding cost.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Yes.
Speaker Change: Yeah.
James von Moltke: So for modeling purposes, I would go with sort of a quarterly version of that annual guidance and accept that there is some volatility in valuation and timing. Incidentally, we've been working over the years to reduce and minimize that volatility to the extent we can. So lots of work has gone into hedge accounting programs and other things to both manage the risks, the balance sheet risks that we have, but do so in a way that is as accounting neutral as we can.
Speaker Change: Yeah.
Speaker Change: [music].
James von Moltke: And we've made some good progress in that regard. Thank you. It seems there are no further questions at this time. I would hand back to Ioana Patriniche for any closing words. Thank you and thank you for joining us and for your questions. As ever, for any follow-ups please come through to the Investor Relations team and we look forward to speaking to you at our second quarter call. Ladies and gentlemen, the conference is now concluded and you may, Thank you for joining and have a... [inaudible] [inaudible] ??? ??? ??? ??? www.microsoft.com.ca [inaudible] www.microsoft.com.ca, [inaudible]
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Yeah.