Half Year 2024 Deutsche Bank AG Earnings Call
Ladies and gentlemen.
Moritz: Ladies and gentlemen, Welcome to the Deutsche Bank Q2 2024 Analyst Conference call and live. I am Moritz, the chorus caller. I would like to remind you that all participants will be in a listen-only mode and the conference, The presentation will be followed by a question and answer session. You can register for questions at any time by pressing star and 1.
Speaker Change: Welcome to the Deutsche Upon Q2, 'twenty 'twenty four analyst conference call of Blackboard cost I mean, what'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.
Speaker Change: The presentation will be followed by a question and answer session. You can register for questions at any time by pressing star one on your telephone.
Ioana Patriniche: For operator assistance, please press start. The conference must not be recorded for publication, and this time, it's my pleasure to hand over to Ioana Patriniche, Head of Investor Relations. Thank you for joining us for our second quarter 2024 results call. As usual, our Chief Executive Officer, Christian Sewing, will speak first, followed by our Chief Financial Officer, James von Molke. The presentation, as always, is available to download in the Investor Relations section of our website, db.com.
Operator assistance. Please press Star Zero the conference must not be recorded for publication of broadcast at this time, it's my pleasure to hand over to you are not putting any true head often with their relations. Please go ahead.
Thank you for joining us for our second quarter 2020 full results call.
Speaker Change: As usual, our Chief Executive Officer Christian saving will speak first followed by our Chief Financial Officer, James von Moltke.
Speaker Change: Presentation as always is available to download in the Investor Relations section of our website DB Dot com.
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 material. 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 a carny expect we've asked I'll 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 second quarter and first half results with you today. After another quarter where we made progress across the businesses on our strategic initiatives, we are on track to hit our financial targets. We generated revenues of 15.4 billion euros in the first half, on track to 30 billion euros of revenues this year. We have franchise momentum across all businesses, driving commissions and fee income.
Christian Sewing: Thank you you all know and a warm welcome from me I'm delighted to be discussing our second quarter and first half results with year to date.
Christian Sewing: After another quarter, where we made progress across the businesses on our strategic initiatives.
We are on track to hit our financial targets.
Christian Sewing: We generated revenues of $15 4 billion euros in the first half.
Christian Sewing: On track to 30 billion euros of revenues this year.
Christian Sewing: We have franchise momentum across all businesses driving commissions and fee income or capital light businesses are gaining market share.
Christian Sewing: Our capital-light businesses are gaining market share, such as our corporate bank and Origination & Advisory, which we expect to continue in the second half alongside a more supportive NII environment. We also delivered on our adjusted cost target. Our quarterly run rate is at 5 billion euros, in line with our commitment. However, our results were impacted by the litigation provision of 1.3 billion euros related to the acquisition of Postbank, which we had to book this quarter. As said before, we strongly disagree with the changed and unexpected assessment of the court, and we are working hard to ultimately minimize the impact of this legal matter on our shareholders.
Christian Sewing: Such as our corporate bank and origination and advisory, which we expect to continue in the second half alongside a more supportive NII environment.
Christian Sewing: We also delivered on our adjusted cost target our quarterly run rate is that 5 billion euros in line with our commitment.
Christian Sewing: Our results were impacted by the litigation provision of $1 3 billion euros related to the acquisition of Postbank, which we had to book this quarter.
Christian Sewing: I've said before.
Christian Sewing: We strongly disagree with the changed and unexpected assessment off the court and we are working hard to ultimately many much the impact of this legal matter for our shareholders.
Christian Sewing: But importantly, the bank's operational performance was not impacted. On the contrary, on an underlying basis, we delivered year-on-year improvements in our key target ratios. Excluding the post-bank takeover litigation provision, our post-tax return on tangible equity was 7.8%, up from 6.8% in the first half of last year. This was the best first half and second quarter since 2011, which demonstrates the continued momentum in our operating business. Our cost-to-income ratio also improved from 73% to 69% year-on-year.
Christian Sewing: But importantly, the bank's operational performance was not impacted on the country on an underlying basis, we delivered year on year improvement on our key target ratios.
Christian Sewing: Excluding the Postbank takeover litigation provision or a post tax return on tangible equity was seven 8%.
Christian Sewing: Up from six 8% in the first half last year, the best first half and second quarter since 2011, which demonstrates the continued momentum in our operating businesses.
Christian Sewing: Our cost income ratio also improved from 73% to 69% year on year.
Christian Sewing: And finally, our C81 ratio of 13.5% remains solid despite absorbing post-bank and a number of legacy litigation matters, which shows our capital strength and gives us confidence to deliver on our capital distribution commitment. Let me now discuss in more detail some of the drivers of our first half results on slide 2. Pre-provision profit was up 17% year-on-year to 4.7 billion euros, excluding the impact of the post-bank takeover litigation provision.
Christian Sewing: And finally, our CET one ratio of 13, 5% remained solid despite absorbing postbank and the number of legacy litigation matters, which shows our capital strength and gives us confidence to deliver on our capital distribution commitments.
Christian Sewing: Let me now discuss in more detail some of the drivers of our first half results on slide two.
Christian Sewing: Pre provision profit was up 17% year on year to $4 7 billion euros, excluding the impact of the Postbank takeover litigation provision.
Christian Sewing: We also demonstrated positive operating leverage, a core element of our strategy execution. We grew revenues in our core businesses by 3% year-on-year, while group revenues were up 2% on a reported basis. Our reported non-interest revenues were up 14% year-on-year.
We also demonstrated positive operating leverage.
Christian Sewing: Core element of our strategy execution.
We grew revenues in our core businesses by 3% year on year, while group revenues were up 2% on a reported basis.
Our reported noninterest revenues were up 14% year on year.
Christian Sewing: With strong growth in commissions and fee income of 12%, which demonstrates clearly that our strategy to grow our capitalized business is working, and we continue to deliver better than expected NII performance in our banking books, which provides additional comfort to our revenue path for 2024 and in years thereafter. We reduced our adjusted costs to 10.1 billion euros year on year, and we continue to deliver savings through our operational efficiency program, which I will discuss in more detail in a moment.
Christian Sewing: With strong growth in commissions and fee income of 12%, which demonstrates clearly that our strategy to grow our capital light business is working.
Christian Sewing: And we continued to deliver better than expected NII performance in our banking books, which provides additional comfort to our revenue path for 2024 and in years thereafter.
Christian Sewing: We reduced our adjusted costs to $10 1 billion euros year on year, and we continue to deliver savings through our operational efficiency program, which I will discuss in more detail in a moment.
Christian Sewing: Now let's look at the franchise achievements across our businesses on slide three. In the first half year, the corporate bank delivered a 16% increase in incremental deals won with multinational clients compared to the prior year period. Our success with our clients was also rewarded with a series of high-profile awards.
Christian Sewing: Now, let's look at the franchise the achievements across our businesses on slide three.
Christian Sewing: In the first half year, the corporate bank delivered a 16% increase in incremental D. S. One.
Christian Sewing: With multinational clients compared to the prior year period.
Christian Sewing: Our success with our with our clients. We're also rewarded with a series of high profile Awards.
Christian Sewing: And we have continued to make investments to further strengthen our positioning with our clients. We are building out our structuring capabilities and our originate-to-distribute model, taking advantage of our broad investor base. All of that gives us confidence that we can sustain our momentum.
Christian Sewing: And we have continued to make investments to further strengthen our positioning with our clients.
Christian Sewing: We are building out our structuring capabilities and our originate to distribute model taking advantage of our broad investor base.
All of that gives us confidence we can sustain our momentum.
Christian Sewing: The investment bank made significant advances across the franchise over the first half of the year. Origination and Advisory increased its global market share to 2.6% in the first half year, a gain of more than 70 basis points over the full year 2023, and we raised our global ranking from the 11th to the 7th. The business continued to support clients through its multifaceted product offering, including M&A sell-side advice, as well as debt issuance linked to the partnership between Grand Mountain and New Mountain Capital.
Christian Sewing: The investment bank made significant advances across the franchise over the first half of the year.
Christian Sewing: Origination and advisory increased its global market share to two 6% in the first half year, a gain of more than 70 basis points over the full year 2023, and we have raised our global ranking from the 11th to the seventh.
Christian Sewing: The business continued to support clients through its multi faceted product offering, including M&A side advice as well as debt issuance linked to the partnership between grant Thornton and New Mountain capital.
Christian Sewing: Fixed income and currency revenues were at 3% year-on-year, supported by a 7% increase in financing revenues, even compared to a strong prior year period. The private bank also continued to build momentum with 19 billion euros of net inflows in the first 6 months, supporting growth and assets under management of 34 billion euros. We are also seeing recognition for our transformation and digitalization efforts in our retail personal banking franchise, with 13% more logins in PostBank's mobile app since the end of 2023.
Christian Sewing: Fixed income currency revenues were down 3%.
Christian Sewing: Supported by a 7% increase in financing revenues, even compared to a strong prior year period.
Speaker Change: The private bank also continued to build momentum with 19 billion euros of net inflows in the first six months supporting growth in assets under management of 34 billion.
Speaker Change: We are also seeing recognition for our transformation and digitalization efforts and our retail personal banking franchise with 13% more logins and Postbank mobile App since end of 2023.
Christian Sewing: We are also improving services for our ultra-high net worth clients and, for example, have established a dedicated team in Germany for ultra-high net worth clients. We are leveraging our enhanced technology and product capabilities to expand into FX products, strategic asset allocation, or unsecured lending to ultra-high net worth clients in Europe, and we have further developed our key client relationships to boost asset gathering. In the first half year, asset management grew assets under management by 37 billion euros to 933 billion euros.
Speaker Change: We are also improving services for our ultra high net worth clients and for example, they have established a dedicated team in Germany for Ultra high net worth clients.
Speaker Change: We are leveraging our enhanced technology and product capabilities to expand into epic's products' strategic asset allocation, all Lombard lending to ultra high net worth clients in Europe.
Speaker Change: And we have further developed our key client relationships to boost asset gathering.
Speaker Change: In the first half year asset management grew assets under management by 37 billion to 933 billion.
Christian Sewing: This was boosted by continued strong inflows into passive in line with our strategy, which saw net inflows of 18 billion euros in the first six months and is expected to support future revenue generation. Now, let me turn to our progress against our strategic objectives on slide 4. We continued to make progress on all three pillars of our Global Housebank Strategy. Starting with revenue growth, we delivered a compound annual growth rate of 5.7% in 2021. This underscores the benefit of a well-diversified and complementary business mix.
Speaker Change: This was boosted by continued strong inflows into passive in line with our strategy, which saw net inflows of 18 billion euros in the first six months and is expected to support future revenue generation.
Speaker Change: Now, let me turn to our progress against our strategic objectives on slide four.
Speaker Change: Okay.
Speaker Change: We continued to make progress on all three pillars of our global House Bank strategy.
Speaker Change: Starting with revenue growth, we delivered a compound annual growth rate of five 7% since 2021.
Speaker Change: This underscores the benefit of a well diversified and complementary business mix.
Christian Sewing: Stable NII in our banking book segments was supported by strong non-interest revenues following our investments in our growth initiatives. Looking at the drivers behind commissions and fee income strength in the first six months, we saw growth mainly in our capital light business. We saw particular strong momentum in Origination and Advisory as the market recovered, and our franchise is strengthening and gaining market share, a trend we expect to continue. Our initiatives in the corporate bank are also paying off.
Speaker Change: Stable NII in our banking book segment was supported by strong non interest revenues following our investments in our growth initiatives.
Looking at the drivers behind commissions and fee income strength in the first six months, we saw growth mainly in our capital light businesses.
Speaker Change: We saw particular strong momentum in origination and advisory as the market recovered and our franchise is strengthening and gaining market share a trend we expect to continue.
Speaker Change: Our initiatives in the corporate bank also paying off commissions and fee income grew by 6% with business growth across all regions, which is notably visible in trade finance and lending.
Christian Sewing: Commissions and fee income grew by 6% with business growth across all regions, which is notably visible in trade, finance, and lending. We gained market share in our documentary trade business, and our structuring capabilities are expanding, which includes increasing contribution from larger transition financing deals. In Wealth Management and Private Banking, we grew non-interest revenues from investment products and lending by 11%.
Speaker Change: We gained market share in our documentary trade business and our structuring capabilities are expanding which includes increasing contribution from larger transition financing deals.
Speaker Change: And in wealth management, and private banking, we grew noninterest revenues from investment products and lending by 11%.
Christian Sewing: We will continue to build on these developments, and with business volumes growing, we are confident that our revenue trajectory will remain strong in the second half of the year. First, the impact from the expected NII normalization will be lower than initially anticipated, with full-year NII in our banking book segments broadly stable to the prior year level. And we will see continued commissions and fee income growth, mainly in Origination and Advisory, Corporate Bank, and Asset Management. This puts revenues of 30 billion euros clearly in sight.
Speaker Change: We will continue to build on these developments and with business volumes growing we are confident that our revenue trajectory will remain strong in the second half of the year.
Speaker Change: First the impact from the expected NII normalization will be lower than initially anticipated.
Speaker Change: Full year NII in our banking book segments broadly stable to the prior year level.
Speaker Change: And we will see continued commissions and fee income growth, mainly in origination and advisory corporate bank and asset management. The splits of revenues, a 30 billion euros clearly inside.
Christian Sewing: Additionally, we are highly focused on targeted resource allocation and on driving balance sheet velocity. We continue to deliver on our 2.5 billion euro operational efficiency program, having completed measures with delivered or expected gross savings of 1.5 billion euros. 60% of our target with around 1.2 billion euros in savings already realized. As part of this program, we have made workforce reductions of 2,700, including 700 FTEs during the second quarter alone, reaching nearly 80% of the planned total through end 2024. In addition, we have reduced contract external staff by approximately 1,100 in 2024 to date.
Additionally, we are highly focused on targeted resource allocation and on driving balance sheet velocity.
Speaker Change: We continue to deliver on our $2 5 billion Euro operational efficiency program.
Speaker Change: When completed measures, which delivered our expected gross savings of $1 5 billion euros, 60% of our target with around $1 2 billion in savings already realized.
Speaker Change: As part of this program, we have made workforce reductions of 2007 hundred.
Speaker Change: Including 700, Ftes during the second quarter alone.
Speaker Change: Reaching nearly 80% of the planned total through and 2024.
Speaker Change: In addition, we have reduced contract external staff by approximately 1100 in 2024 to date.
Christian Sewing: We have clear sight of the remaining savings yet to come from our Operational Efficiency Program, which will offset inflation and our investments in business growth. Our optimization initiatives in Germany are expected to generate savings of around 500 million euros. Investments to reduce the complexity of our organization by improving technology and optimizing the workforce across infrastructure will deliver a further 550 million euros. Automation of processes alongside better alignment of our front-to-back setup, including the recent organizational changes, will deliver another 250 million euros.
Speaker Change: We have clear sight of the remaining savings yet to come from our operational efficiency program, which will offset inflation and our investments in business growth.
Speaker Change: Our optimization initiatives in Germany are expected to generate savings of around 500 million euros.
Speaker Change: Investments to reduce the complexity of our organization by improving technology and optimizing the workforce across infrastructure will deliver a further $550 million.
Speaker Change: And automation of processes alongside better alignment of our front to back setup, including the recent organizational changes will deliver another $250 million.
Christian Sewing: This gives us firm confidence that we are on track to deliver on our commitment of a quarterly run rate of adjusted costs of around 5 billion euros in 2024 and that we will further reduce this run rate closer to 4.9 billion euros by the end of the year to meet our non-interest expense objective of around 20 billion euros. Finally, on capital efficiency, we achieved a beneficial equal to a €4 billion RWA reduction in the second quarter through data and process improvements. As a result, cumulative RWA reductions from capital efficiency measures have already reached 19 billion euros.
Speaker Change: This gives us some confidence that we are on track to deliver on our commitment of a quarterly run rate of adjusted cost of around 5 billion euros in 2024.
Speaker Change: And that we will further reduce this run rate closer to $4 9 billion by the end of the year to meet our noninterest expense objective of around 20 billion euros.
Speaker Change: Finally on capital efficiency, we achieved a beneficial equal to a 4 billion <unk> reduction in the second quarter through data and process improvements.
Speaker Change: As a result cumulative <unk> reductions from capital efficiency measures reached already 19 billion euros.
Christian Sewing: We have a line of sight on further reductions coming in the second half, and we are working towards meeting or exceeding our 25 to 30 billion euro target. Let me conclude with a few words on our strategy on slide 5. Our first half results represent another milestone in the progress with our Global House Bank strategy and set a path to achieving our 2025 target of greater than 10% return on tangible equity. We saw strong momentum across all businesses in a more mixed operating environment than we had expected.
Speaker Change: We have a line of sight on further reductions coming in the second half and we are working towards meeting or exceeding our 25% to $30 billion target.
Speaker Change: Let me conclude with a few words on our strategy on slide five.
Speaker Change: Our first half results represented another milestone and the progress with our global <unk> strategy and set a path to achieving our 2025 target of.
Speaker Change: Greater than 10% return on tangible equity.
Speaker Change: First.
Speaker Change: We saw strong momentum across all businesses and a more mixed operating environment than we had expected.
Christian Sewing: With a better-than-expected NII trajectory, coupled with our complementary and growing global franchise, we are confident that our strong revenue momentum will deliver revenues of 30 billion euros this year. The investments we have made in our business give us confidence that this run rate will continue as around 75% of revenues come from more predictable businesses. And we are the go-to European bank for our clients and will continue to build on that by offering clients full service products and solutions.
Speaker Change: With the better than expected NII trajectory, coupled with our complementary and growing global franchise. We are confident that our strong revenue momentum will deliver revenues of 30 billion. This year.
Speaker Change: The investments we have made in our business.
Speaker Change: Give us confidence that this run rate will continue at around 75% of revenues come from more predictable businesses.
Speaker Change: And we are the go to European Bank for our clients and we'll continue to build on it by offering clients foodservice products and solutions.
Christian Sewing: This builds our confidence that we can achieve our 2025 target of 32 billion euros. Second, we are delivering operational efficiencies that maintain our 5 billion euro run rate in 2024 and will translate into further cost savings of 20 billion euros of non-interest expenses in 2025. Simply put, our revenue growth, combined with our cost reductions, will ensure positive operating leverage. Third, we have put material legacy items behind us, and although this results in higher litigation charges this year. The progress we are making should position us to deliver without major surprises in 2025.
Speaker Change: This builds our confidence that we can achieve our 2025 target of 32 billion.
Speaker Change: Second we are delivering operational efficiencies.
Speaker Change: Which maintained our 5 billion run rate in 2024 and will translate into further cost savings achieving 20 billion euros.
Speaker Change: Non interest expenses in 2025.
Speaker Change: Simply put our revenue growth combined with our cost reductions will ensure positive operating leverage.
Speaker Change: Third we have put material legacy items behind us.
Speaker Change: And all of this results in higher litigation charges this year.
Speaker Change: Progress, we are making position us to deliver without major surprises in 2025.
Christian Sewing: And, of course, we will see normalization and credit costs next year, closer to the underlying run rate we have this year after overlays and hedging, which will further bolster higher net income. We remain dedicated to creating value for our shareholders. Our earnings power and the progress we have made with capital optimization give us full confidence that we can maintain our trajectory to increase distributions beyond our original goal of 8 billion euros in respect of the financial years 2021 to 2025.
Speaker Change: Fourth.
Speaker Change: Next year.
Speaker Change: Rosa to the underlying run rate.
Speaker Change: We have this year after overlays and hedging which will further bolster higher net income.
We remain dedicated to creating value for our shareholders our earnings power and the progress we have made with capital optimization give us full confidence that we can maintain our trajectory to increase distributions beyond our original goal of 8 billion.
Speaker Change: In respect of the financial year 2021 to 2025.
Christian Sewing: We completed the share repurchase program launched in March, bringing cumulative shareholder distributions through dividends and share repurchases to 3.3 billion euros since 2022, and we will continue to manage capital with the same discipline as over the past several years. To sum up, with our business momentum and all the progress made, we have a clear line of sight on our target for ROTE of greater than 10% for 2025. With that, I will hand over to James. Thank you, Christian.
Speaker Change: We completed the share repurchase program launched in March.
Speaker Change: Bringing cumulative shareholder distributions through dividends and share repurchases to $3 3 billion Euro 2022.
Speaker Change: And we will continue to manage capital with the same discipline as over the past several years.
Speaker Change: To sum up our business momentum.
Speaker Change: Made.
Speaker Change: A clear line of sight on our target for <unk> of greater than 10% for 2025.
Speaker Change: With that let me handover to James.
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 5.7% on a compound basis for the last 12 months relative to 2021 within our revenue growth target range. Our reported half-year cost-income ratio was 78%, and return on tangible equity was 3.9%, both impacted by the Postbank Takeover litigation provision.
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 Chris.
James: Christian mentioned, our continued business momentum, which resulted in revenue growth of five 7% on a compound basis for the last 12 months relative to 2021 within our revenue growth target range a.
James: Our reported half year cost income ratio was 78% and return on tangible equity was three 9% both impacted by the Postbank takeover litigation provision.
James von Moltke: Excluding this provision, the ratios were 69% and 7.8%, showing further improvement compared to 2023. Our capital position remains solid in the second quarter with the CET1 ratio at 13.5% despite absorbing the aforementioned litigation provision. Our liquidity metrics also remained strong.
James: Excluding the <unk> provision the ratios were 69% and seven 8% showing further improvement compared to 2023.
James: Our capital position remained solid in the second quarter with a CET one ratio at 13, 5% despite absorbing the aforementioned litigation provision.
Our liquidity metrics also remained strong the liquidity coverage ratio was 136% above our target of around 130% and the net stable funding ratio was 122% in.
James von Moltke: The liquidity coverage ratio was 136%, above our target of around 130%, and the net stable funding ratio was 122%. 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 second quarter highlights on slide eight.
James: 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 second quarter highlights on slide eight.
James von Moltke: Group revenues were €7.6 billion, up 2% on the second quarter of 2023. Non-interest expenses were €6.7 billion, up 20% year-on-year, driven by increased litigation charges in the quarter. Non-operating costs, including litigation charges of 1.55 billion euros. Beyond the Postbank takeover litigation provision of 1.3 billion euros, there were additional charges of approximately 220 million euros related to a series of legacy items we resolved in the quarter. We also booked 106 million euros of restructuring and severance charges in line with our full year guidance. Adjusted costs increased 2% year-on-year due to higher compensation and benefits.
James: Group revenues were $7 6 billion euros up 2% on the second quarter of 2023.
James: Noninterest expenses were $6 7 billion euros up 20% year on year, driven by the increased litigation charges in the quarter.
James: Nonoperating costs, including litigation charges of $1 five 5 billion euros.
James: Beyond the Postbank takeover litigation provision of $1 3 billion euros. There were additional charges of approximately 220 million related to a series of legacy items, we resolved in the quarter.
James: We also booked 106 million euros of restructuring and severance charges in line with our full year guidance.
James: Adjusted costs increased 2% year on year due to higher compensation and benefits.
James: Revision for credit losses was 476 billion euros or 40 basis points of average loans and I will discuss both adjusted costs and provisions in more detail shortly.
James von Moltke: Provision for credit losses was 476 million euros, or 40 basis points of average loans, and I will discuss both adjusted costs and provisions in more detail shortly. We generated a profit before tax of 411 million and a net profit of 52 million euros. Our tax rate in the quarter of 87% was impacted by the aforementioned litigation charges, which were largely non-deductible. Excluding these litigation effects, the expected tax rate for the full year continues to be around 30%.
We generated a profit before tax of 411 million euros, and a net profit of 52 million euros.
James: Our tax rate in the quarter of 87% was impacted by the aforementioned litigation charges, which were largely nondeductible. Excluding these litigation effects the expected tax rate for the full year continues to be around 30%.
James von Moltke: In the second quarter, diluted earnings per share was negative 28 cents, and tangible book value per share was 28 euros and 65 cents, up 6% year on year. Let me now turn to some of the drivers of these results. Let me start with a review of our net interest income on slide 9. NII was essentially flat across all of our key banking book segments at 3.4 billion euros, slightly above prior expectations. NII in each of the banking book segments followed the same trends as seen in the prior quarter.
James: In the second quarter diluted earnings per share was negative 28 intangible book value per share was 28 euros 65.
James: Up 6% year on year.
James: 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: NII was essentially flat across all of our key banking book segments of $3 4 billion euros slightly above prior expectations.
Speaker Change: NII in each of the banking book segments, followed the same trends as seen in the prior quarter. Our base case is that our quarterly NII run rate will remain broadly stable and we reiterate that we expect to improve on our earlier guidance for the full year banking book.
James von Moltke: Our base case is that our quarterly NII run rate will remain broadly stable, and we reiterate that we expect to improve on our earlier guidance for the full year banking book NII. The group number, reflecting accounting effects, decreased by approximately €100 million compared to the previous quarter. This effect is offset by an increase in non-interest revenues and has no overall revenue impact on the group. With that said, let's turn to the adjusted cost development on slide 10. Adjusted costs were €5 billion for the quarter, up 2% year-on-year.
Speaker Change: The group number reflecting accounting effects decreased by approximately 100 million euros compared to the previous quarter.
Speaker Change: This effect is offset by an increase in noninterest revenues and has no overall revenue impact to the group.
Speaker Change: With that let's turn to adjusted cost development on slide 10.
Speaker Change: Adjusted costs were 5 billion euros for the quarter up 2% year on year.
James von Moltke: The year-on-year increase was driven by higher compensation and benefits costs, which were up by 6%, reflecting higher performance-related compensation, wage growth, as expected, and increases in the internal workforce after our targeted investments in talent throughout 2023, including new ones. Let's now turn to provision for credit losses on slide 11. Provision for credit losses in the second quarter was 476 million euros.
Speaker Change: The year on year increase was driven by higher compensation and benefits costs, which were up by 6%, reflecting higher performance related compensation wage growth as expected and increases in internal workforce. After our targeted investments in talent throughout 2023, including numerous.
Speaker Change: Let's now turn to provision for credit losses on slide 11.
Speaker Change: Provision for credit losses in the second quarter was one 476 million euros.
James von Moltke: Equivalent to 40 basis points of average loan. The sequential increase in Stage 1 and 2 provisions to €35 million was mainly driven by the net effect of overlays and model enhancements, which were partly mitigated by quarterly-on-quarter portfolio movements. Stage 3 provisions remained at an elevated level but reduced slightly to €441 million. The decrease was mainly driven by the private bank, while provisions in the investment bank remained stable and were largely related to commercial real estate exposures.
Speaker Change: Equivalent to 40 basis points of average loans the.
Speaker Change: The sequential increase in stage, one and two provisions to 35 million euros was mainly driven by the net effect of overlays and model enhancements, which were partly mitigated by a quarter on quarter portfolio movements.
Speaker Change: Stage three provisions remained at an elevated level, but reduced slightly to 441 million euros.
Speaker Change: The decrease was mainly driven by the private bank while provisions in the investment bank remains stable and were largely related to commercial real estate exposures provisions in the corporate bank increased driven by two larger impairment events.
James von Moltke: Provisions in the corporate bank increased, driven by two larger impairment events. Looking ahead to the second half of the year, we are now seeing some stabilization in the broader U.S. CRE sector, though U.S. office remains broadly unchanged. Overall, this should lead to lower provisions compared to the first half, but our office CRE portfolio will continue to be impacted. We also continue to conservatively manage our loan book with lower growth rates, including active management of single-name concentration risks through well-established comprehensive hedging programs.
Speaker Change: Looking ahead to the second half of the year. We are now seeing some stabilization in the broader U S. CRE sector, though office U S office remains broadly unchanged.
Speaker Change: Overall, this should lead to lower provisions compared to the first half, but our CRE portfolio will continue to be impacted.
Speaker Change: We also continue to conservatively manage our loan book with lower growth rate, including active management of single name concentration risks through well established comprehensive hedging programs.
James von Moltke: Reflecting on these items and considering developments in the first half of the year, we revise our full-year guidance for provision for credit losses to be slightly above 30 basis points of average loan. Before we move to performance in our businesses, let me turn to capital on slide 12. With 13.5%, our second quarter Common Equity Tier 1 ratio was up slightly compared to the previous quarter. CET1 capital improved slightly, reflecting lower regulatory capital deduction items and strong net income for the quarter, largely offset by the POSBank takeover litigation provision.
Speaker Change: Reflecting on these items and considering developments in the first half of the year, we revise our full year guidance for provision for credit losses to be slightly above 30 basis points of average loans.
Speaker Change: Before we move to performance in our businesses, let me turn to capital on Slide 12.
Speaker Change: With 13, 5%, our second quarter common equity tier one ratio was up slightly compared to the previous quarter.
Speaker Change: CET, one capital improved slightly reflecting lower regulatory capital deduction items and strong net income for the quarter largely offset by the Postbank takeover litigation provision.
James von Moltke: Risk-weighted assets increased from business growth, together with higher operational risk RWA, including the impact of the Postbank Takeover Litigation provision, mostly offset by reductions from strong delivery of capital efficiency measures. At the end of the second quarter, our leverage ratio was 4.6%, 13 basis points higher compared to the previous quarter. The 12 basis points of the increase were driven by higher Tier 1 capital due to the 1.5 billion euro additional Tier 1 issuance in June.
Speaker Change: Risk weighted assets increased from business growth together with higher operational risk <unk>, including the impact of the Postbank takeover litigation provision.
Speaker Change: Mostly offset by reductions from strong delivery of capital efficiency measures.
Speaker Change: At the end of the second quarter, our leverage ratio was four 6% 13 basis points higher compared to the previous quarter.
Speaker Change: The 12 base of 12 basis points of the increase were driven by higher tier one capital due to the $1 5 billion additional tier one issuance in June.
James von Moltke: With that, let's now turn to performance in our businesses, starting with the corporate bank on slide 14. Corporate bank revenues in the second quarter were 1.9 billion euros, essentially flat year-on-year and up sequentially driven by growth in commissions and fee income and resilient deposit revenues as higher business volumes compensated higher client payouts.
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 second quarter were $1 9 billion euros, essentially flat year on year and up sequentially driven by growth in commissions and fee income and resilient deposit revenues as higher business volumes compensated higher client payouts.
James von Moltke: We have seen good progress on our growth initiatives to offset the normalization of deposit revenues by further accelerating non-interest revenue growth. Commissions and fee income increased by 5% sequentially and 9% year on year, driven by strong momentum in trade finance and lending across all products, as well as in depository receipts in our trust and agency services business. Deposits increased by €3 billion in the quarter and are €32 billion higher year-on-year, driven by higher term and site deposits across currencies.
Speaker Change: We have seen good progress on our growth initiatives to offset the normalization of deposit revenues by further accelerating noninterest revenue growth.
Speaker Change: Commissions and fee income increased by 5% sequentially and 9% year on year, driven by strong momentum in trade finance and lending across all products as well as in depositary receipts in our trust and agency services business.
Speaker Change: Deposits increased by 3 billion euros in the quarter, and our 32 billion higher year on year, driven by higher term and sight deposits across currencies.
James von Moltke: The sequential increase in provision for credit losses was driven by stage 1 and 2 provisions after moderate releases in the prior quarter and higher stage 3 provisions, which included two larger events in the European and German corporate segment, which were largely covered by risk-mitigating measures. Non-interest expenses were essentially flat year on year, as higher internal service cost allocations and compensation costs were mostly offset by lower litigation costs.
Speaker Change: The sequential increase in provision for credit losses was driven by stage, one and two provisions after moderate releases in the prior quarter and higher stage three provisions, which included two larger events in the European and German corporate segment, which were largely covered by risk mitigating measures.
Speaker Change: Noninterest expenses were essentially flat year on year as higher internal service cost allocations and compensation costs were mostly offset by lower litigation costs.
James von Moltke: This resulted in a post-tax return on tangible equity of 15% and a cost-income ratio of 62%. I'll now turn to the Investment Bank on slide 15. Revenues for the second quarter were 10% higher year-on-year, driven by a strong performance in origination and advisory. However, revenues in fixed income and currencies were essentially flat year-on-year, reflecting the base effect of a strong prior-year quarter. Financing, Credit Trading, and Emerging Markets revenues were essentially flat year on year.
Speaker Change: This resulted in a post tax return on tangible equity of 15% and a cost income ratio of 62%.
I'll now turn to the investment bank on slide 15.
Speaker Change: Revenues for the second quarter were 10% higher year on year, driven by a strong performance in origination and advisory.
Speaker Change: Revenues in fixed income and currencies were essentially flat year on year, reflecting the base effect of a strong prior year quarter.
Speaker Change: Financing credit trading and emerging markets revenues were essentially flat year on year.
James von Moltke: In credit trading, the non-repeat of strong distress performance in the prior year was offset by strength in the flow business thanks to our prior period investment. The macro businesses were both down year on year. Performance in rates primarily reflected the ongoing uncertainty around central bank interest rate policy, while FX revenues were impacted by reduced volatility. This was partially mitigated by strong performance in the spot business, benefiting from investments in technology. Moving to Origination and Advisory, revenues doubled compared to the prior year, gaining market share both year-on-year and sequentially, while we maintained the number one rank in our home market.
Speaker Change: And credit trading the non repeat of strong distressed performance in the prior year was offset by strength in the flow business. Thanks to our prior period investments.
Speaker Change: The macro businesses were both down year on year.
The performance in rates, primarily reflected the ongoing uncertainty around central bank interest rate policies, while FX revenues were impacted by reduced volatility.
Speaker Change: This was partially mitigated by strong performance in the spot business benefiting from investments into technology.
Speaker Change: Moving to origination and advisory revenues doubled compared to the prior year, gaining market share both year on year and sequentially, while we maintained our number one rank in our home market.
James von Moltke: Debt origination continued to drive performance with an ongoing recovery in the leveraged debt market while investment grade debt issuance activity remained elevated. Advisory revenues were strong and materially higher both year-on-year and quarter-on-quarter, benefiting from the previously highlighted investments made into the franchise.
Speaker Change: Debt origination continued to drive performance with an ongoing recovery in the leverage that market, while investment grade debt issuance activity remained elevated.
Speaker Change: Advisory revenues were strong and materially higher both year on year and quarter on quarter benefiting from the previously highlighted investments made into the franchise.
James von Moltke: Looking ahead, we are encouraged by our third quarter O&A pipeline, which is materially higher year-on-year, although the market-anticipated slowdown in M&A industry volumes in the summer and during the third quarter may limit the possibility of outperform the very strong second quarter. Uninterested expenses and adjusted costs were both slightly higher year-on-year, reflecting the impact of strategic investments, including the Numis acquisition. Provision for credit losses was €163 million, or 63 basis points of average loans, driven by Stage 3 impairment. Turning to the private bank on slide 16, pre-tax profit nearly doubled compared to the second quarter last year. Now, let me walk you through the drivers.
Speaker Change: Looking ahead, we are encouraged by our third quarter, O&M pipeline, which is materially higher year on year, although the market anticipated slowdown in emmis M&A industry volumes in the summer and over the third quarter may limit the possibility to outperform the very strong second quarter.
Speaker Change: Noninterest expenses adjusted costs were both slightly higher year on year, reflecting the impact of strategic investments, including the numerous acquisition.
Speaker Change: A vision for credit losses was 163 million euros, or 63 basis points of average loans driven by stage three impairments.
Speaker Change: Turning to the private bank on slide 16, pre tax profit nearly doubled compared to the second quarter last year, Let me walk you through the drivers.
James von Moltke: Revenues in the quarter were 2.3 billion euros. This included higher revenues from investment products and lending, which were more than offset by continued higher funding costs. Including the impact of minimum reserves and the group neutral impact of certain hedging costs to the business. Excluding these effects, revenues would have been up by 1% year on year.
Speaker Change: Revenues in the quarter were $2 3 billion euros. This includes higher revenues from investment products and lending, which were more than offset by continued higher funding costs, including the impact of minimum reserves and the group neutral impact of certain hedging costs to the business.
Speaker Change: Excluding these effects revenues would've been up by 1% year on year.
James von Moltke: The sequential revenue development reflects a typical seasonal pattern as some investment activities tend to be concentrated at the beginning of the year. As Christian mentioned before, the private bank saw strong business momentum with net inflows into assets under management of 7 billion euros in the quarter. Personal banking revenues were impacted by the aforementioned higher funding and hedging costs for our lending books, partially offset by resilient deposit revenues in Germany. However, revenues in wealth management and private banking increased due to higher lending business and investment revenues, offset by lower deposit revenues in Germany.
Speaker Change: The sequential revenue development reflects a typical seasonal pattern as some investment activities tend to be concentrated at the beginning of the year.
As Christian mentioned before the private bank saw strong business momentum with net inflows into assets under management of 7 billion euros in the quarter.
Christian: Personal banking revenues were impacted by the aforementioned higher funding and hedging costs for our lending books, partially offset by resilient deposit revenues in Germany.
Christian: Revenues in wealth management, and private banking increased due to higher lending business and investment revenues offset by lower deposit revenues in Germany.
James von Moltke: The private bank has continued its transformation with 38 branch closures in the first half of the year and headcount reductions of more than 1,000 FTEs in the last 12 months. Non-interest expenses declined by 13%, including lower restructuring and severance costs and the non-recurrence of provisions for individual litigation cases.
Christian: The private bank has continued its transformation with 38 branch closures in the first half of the year and head count reductions of more than 1000 Ftes in the last 12 months.
Christian: Noninterest expenses declined by 13%, including lower restructuring and severance costs and the non recurrence of provisions for individual litigation cases.
James von Moltke: The improvement in adjusted cost of 3% reflects normalized investment spend and transformation benefits, partially offset by still elevated service remediation costs. We expect these to taper off in the remainder of the year, contributing to a run rate improvement in the second half of the year. The overall quality of our portfolio remains stable.
Christian: The improvement in adjusted cost of 3% reflects normalized investment spend and transformation benefits, partially offset by still elevated service remediation costs.
Christian: We expect these to taper off in the remainder of the year contributed contributing to a run rate improvement in the second half of the year.
Christian: The overall quality of our portfolio remains stable.
James von Moltke: Provision for credit loss benefits from a gain on the sale of a non-performing loan portfolio, but it still includes the temporary effects of the operational backlog in personal banking, which is expected to reduce during the second half. Let me continue with asset management on slide 17. As a reminder, the Asset Management segment includes certain items that are not part of the DWS Standalone Financial. Profit before tax improved by 55% from the prior year period, driven by higher revenues and lower non-interest expenses.
Christian: A vision for credit losses benefited from a gain on sale of a nonperforming loan portfolio, but still include the temporary effects of the operational backlog and personal banking, which are expected to reduce during the second half.
Christian: Let me continue with asset management on slide 17.
Christian: My usual reminder, the asset management segment includes certain items that are not part of the dws stand alone financials.
Christian: Profit before tax improved by 55% from the prior year period, driven by higher revenues and lower noninterest expenses.
James von Moltke: Revenues increased by 7% versus the prior year. This was primarily from higher management fees of €613 million, resulting from higher fees generated by liquid products due to increasing average assets under management. Other revenues were significantly higher, benefiting from lower treasury funding charges and a one-off insurance recovery in the quarter. Performance and transaction fees were significantly lower, driven by performance fees and alternative real estate. Assistant Editor, Microsoft Word 97-2003 Document MS
Christian: Revenues increased by 7% versus the prior year. This was primarily from higher management fees of 613 million euros, resulting from higher fees generated by liquid products due to the increasing average assets under management.
Christian: Revenues were significantly higher benefiting lower treasury funding charges and a one off insurance recovery in the quarter.
Christian: Performance and transaction fees were significantly lower driven by performance fees and alternatives real estate.
James von Moltke: Document.8, Passive investments saw a net inflow of 9 billion euros in the quarter due to shifting consumer behavior from active to passive investment strategies. Digital channel distribution is supporting strong growth in passive, resulting in positive momentum and six consecutive quarters of net inflows. However, assets under management decreased by €8 billion to €933 billion in the quarter.
Christian: Expenses in the quarter.
Okay.
Okay.
Christian: Passive investments saw a net inflow of <unk> 9 billion in the quarter due to shifting consumer behavior from active to passive investment strategies.
Christian: Digital channel distribution is supporting strong growth in passive resulting in positive momentum and six consecutive quarters of net inflows.
Christian: Assets under management decreased by 8 billion euros to 933 billion euros in the quarter. The decrease was attributable to net outflows despite positive market depreciation and FX effects.
James von Moltke: The decrease was attributable to net outflows, despite positive market appreciation and FX effects. Net outflows of 19 billion euros were primarily in low-margin products in fixed income, cash, and advisory services. The cost-income ratio for the quarter declined to 68%, and return on tangible equity was 18%, both improving from the prior year quarter. Moving to Corporate Another on slide 18. Corporate Another reported a pre-tax loss of 1.5 billion euros this quarter versus the equivalent pre-tax loss of 153 million euros in the second quarter of 2023, primarily driven by the Postbank Takeover litigation provision of 1.3 billion euros.
Christian: Net outflows of 19 billion euros were primarily in low margin products and fixed income cash and advisory services.
Christian: The cost income ratio for the quarter declined to 68% and return on tangible equity was 18% both improving from the prior year quarter.
Christian: Moving to corporate and other on slide 18.
Christian: Corporate and other reported a pretax loss of $1 5 billion euros this quarter versus the equivalent pretax loss of 153 million euros in the second quarter of 2023, primarily driven by the Postbank takeover litigation provision of $1 3 billion euros.
James von Moltke: Revenues were positive 73 million euros this quarter; this compares to positive 85 million euros in the prior year quarter. Valuation and timing differences were positive 216 million euros in the quarter, driven by a partial reversion of prior period losses and impacts from interest rates. This compares to positive 252 million euros in the prior year quarter. The pre-tax loss associated with legacy portfolios was €144 million, driven primarily by litigation charges and other expenses.
Christian: Revenues were positive 73 million euros. This quarter. This compares to positive 85 million euros in the prior year quarter.
Christian: Valuation and timing differences were positive 216 million euros in the quarter driven by partial reversion of prior period losses and impacts from interest rate moves. This compares to positive 252 million euros in the prior year quarter.
Christian: The pretax loss associated with legacy portfolios was 144 million driven primarily by litigation charges and other expenses.
James von Moltke: At the end of the second quarter, risk-weighted assets stood at €32 billion, including €13 billion of operational risk, or RWA. In aggregate, RWAs have reduced by 9 billion euros since the prior year quarter. Leverage exposure was 36 billion euros at the end of the second quarter, slightly higher than the prior year quarter. Finally, let me turn to the group outlook on slide 19. The second quarter and first half performance demonstrate the successful execution of our strategy, and we remain confident that our businesses have strong momentum and are positioned for further growth.
Christian: At the end of the second quarter risk weighted assets stood at 32 billion euros, including 13 billion euros of operational risk <unk>.
Christian: In aggregate <unk> have reduced by 9 billion euros since the prior year quarter.
Christian: Leverage exposure was 36 billion euros at the end of the second quarter slightly higher than the prior year quarter.
Christian: Finally, let me turn to the group outlook on slide 19.
Christian: The second quarter and first half performance demonstrates the successful execution of our strategy and we remain confident that our businesses have strong momentum and are positioned for further growth.
James von Moltke: And so, our full year 2024 guidance for revenues and adjusted costs has not changed, respectively at €30 billion and around €20 billion. Provision for credit losses for the year is now expected to come in slightly above 30 basis points of average loans.
And so our full year 2024 guidance for revenues and adjusted costs have not change respectively at 30 billion euros and around 20 billion euros.
Provision for credit losses for the year are now expected to come in slightly above 30 basis points of average loans.
James von Moltke: Finally, we have successfully mitigated several headwinds to our capital position, which supports our distribution plan, and this remains a key management priority, and, as Christian said, our full focus remains on the execution of our strategy, and the progress made in 2024 positions us well to achieve our 2025 target. With that, let me hand over to Ioana, and we look forward to your questions. Thank you, James.
Christian: Finally, we have successfully mitigated several hundred headwinds to our capital position, which supports our distribution plan and this remains a key management priority.
Christian: And as Christian said, our full focus remains on the execution of our strategy and the progress made in 2024 positions us well to achieve our 2025 targets.
Your Honor: With that let me hand back to your honor and we look forward to your questions.
Christian: Okay.
Ioana Patriniche: Operator, we're now ready to take questions. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. You will hear a tone to confirm that you have entered. If you wish to remove yourself from the question queue, you may press start.
Operator: Thank you James operator, we're now 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 press star and one on the touch tone telephone.
Speaker Change: You hear a tone to confirm that you have entered the queue.
Speaker Change: If you wish to remove yourself from the question queue, you May press star two.
Speaker Change: On the phone are requested to use only handsets and eventually turn off the volume from the webcast.
unknown: Questioners on the phone are requested to use only handsets and eventually turn off the volume from the. Anyone who has a question may press star and one at this time, one moment. And the first question comes from Chris Hallam from Goldman Sachs International. Please go ahead. Thank you. Good morning, everyone.
Speaker Change: Anyone who has a question you May press star one at this time one moment for the first question. Please.
Speaker Change: And the first question comes from Chris Hallum from Goldman Sachs International. Please go ahead.
Christian Sewing: And thanks for the presentation and the remarks. So the first question is on revenues. I guess on a headline basis, the momentum is positive, but the mix is changing a little bit more on NII and perhaps a little bit less on fees outside of the investment bank. So if we look through for the 30 billion for this year and 32 billion, let's say for next year, are you confident on those two numbers? And in particular, how would you see fees progressing both inside and outside of the IB?
Thank you and good morning, everyone and thanks for the presentation and remarks for the first question is on revenues I guess on a headline basis. The momentum is positive, but the mix is changing a little bit more on NII, perhaps a little bit less on fees outside of the investment bank. So if we look through for the 30 billion for this year.
Speaker Change: Yeah.
Speaker Change: $32 billion, let's say for next year are you confident on those two numbers in particular, how would you see <unk> progressing both inside and outside of the IV.
Christian Sewing: And then second, could you give us an update on where your discussions have got to with the ECB regarding any additional capital requirements relating to your leveraged finance business and how you see the outlook for your ledfin franchise over the coming couple of years? Thank you, Chris, Christian, thank you very much for your questions. Let me start, and, as usual, James may want to chip in.
Speaker Change: And then second could you give us an update on where you are with discussions have got through with the ECB regarding any additional capital requirements relating to your leverage finance business and how you see the outlook for your life fitness franchise over the coming couple of years.
Speaker Change: Okay.
Christian: Thank you Chris It's a Christian thank you very much for your question. So let me start and as usual James May want to chip in.
Christian Sewing: Look at your first question on revenues and on the kind of your key question, both numbers for 24 and 25. The answer is a clear yes. Let me start with 2024.
Speaker Change: Look on your first question on revenues and on kind of your key question both numbers for 'twenty four 'twenty five the answer is the key I guess, let me start with 2024.
Christian Sewing: You have seen the h1 numbers. To be honest, I'm really happy with that, with the 15.4 billion because all businesses have actually delivered, and the nice thing is if I now go over the next quarters and let me start with the more predictable divisions, i.e. The corporate bank, the private bank, asset management. You can actually see that the momentum and the numbers which we have seen in the first two quarters are very, very good guidance for Q3 and Q4.
Speaker Change: You have seen the H, one numbers to be honest I'm really happy with that with the $15 4 billion because all businesses have actually delivered.
Speaker Change: And the nice thing is if I now go over the next quarters and let me start with the predictable more predictable division side corporate bank, the private bank asset management.
Speaker Change: You can actually see that the momentum and the numbers, which we have seen in the first two quarters are very very good guidance for Q3 and Q4.
Christian Sewing: I would even say that for the private bank and asset management sector, I even expect a slightly better development in H2 versus H1, given also what James said in his prepared remarks on NII, but also, in particular, because the inflows and the assets under management behave in a very satisfactory way.
Speaker Change: Even say that for the private bank and asset management I, even expect slightly better development in H two versus H one.
Speaker Change: Given also that what James said in his prepared remarks on NII, but also in particular, because the inflows in the assets under management behavior.
And in a very satisfactory way.
Christian Sewing: On the corporate bank, I think a number of around 1.9 billion, given all that I can see from the mandates we win, is something which we can also plan for Q3 and Q4. I would really say those three divisions are really having good momentum. Yes, we benefit a bit more from a better NII than we expected at the start of the year, but even next to that, the underlying fee business is behaving very well.
Speaker Change: On the corporate Bank I think a number and you know which is around $1 9 billion given all of the what I can see from the mandates. We win is something which we can also planned for Q3 and Q4 that I would really say.
Speaker Change: Those three divisions are.
Speaker Change: Are really having a good momentum.
Speaker Change: Yes, we benefit a bit more from a better NII than we expected at the start of the year, but even next to that the underlying fee business behaving very well.
Christian Sewing: On the investment banking side, I absolutely believe that overall, I think the trajectory which we have seen over the last years in terms of market share wins, in terms of stability of revenues, in terms of also predictability of revenues, if you think about the financing businesses, which we have also shown me that the second half will be a very satisfactory one. So it's different than in previous years, where we always had one of these streams which was kind of decreasing.
Speaker Change: On the investment banking side I, absolutely believe that overall, the I think the trajectory, which we have seen over the last years in terms of market share wins in terms of stability of revenues.
In terms of also predictability of revenues, if you think about the financing business.
Speaker Change: We have also show me that Oh the.
Speaker Change: The second half will be a.
Speaker Change: Very satisfactory one.
Speaker Change: Honestly July started so far pretty pretty good in the investment bank and what makes me confident in the <unk> business could be that the summer is a little bit slower in terms of our M&A business than what we have seen in Q2, but overall the market will further recover we have gained seven.
Speaker Change: Mark 70 basis points in market share in the first half year. We believe that this will also be the case throughout the year and to be honest the investments, which we have done in the origination and advisory business are really only starting to pay off so the new people, which we hired last year, they are gaining more and more momentum to be.
Speaker Change: Honest I, even expect that we get more market share in the overall market, which from a fee pool is increasing.
Speaker Change: Over the next two.
Speaker Change: 1% to 18 months.
Speaker Change: No.
Speaker Change: That makes me confident that starting with a $15 4 billion revenue number that 30 billion is absolutely inside and I'm highly confident that we achieved that now 25. The first thing I would like to say it for the first time, so to say, Chris other than 'twenty, four and 'twenty three that both kind of.
Chris Hallam: Income streams NII and fee income are both going into an increasing direction. So it's different than in the former years, where we always said one of the streams, which was kind of decreasing and 25, we have so to say to positive growing engines.
Christian Sewing: In 25, we have, so to say, two positive growing engines. That obviously helps us as a start. Now, if I dare go actually through the business, on the corporate bank, we think that 25... will be another increase over 24. Why?
Speaker Change: That obviously helps us at the start.
Speaker Change: Now if I, then go and actually through the business on the corporate Bank, we think that 25 will.
Christian Sewing: Because we can simply see the number of mandates, transactions we are doing, and the investments which we have made, in particular in our platform business, in our payment businesses, are paying off. So therefore, we gave you also in the prepared remarks the wins which we had in Q2, all that, and the feedback we have from the client's point of view to another increase of 25. And again, the NII is behaving even better than we thought at the start of this year. Private banks, clearly up next year. Why?
Speaker Change: Would be another increase over 24 Y because we can simply see the number of mandates transactions, we are doing and the investments, which we had in particular in our platform business in our payment businesses are paying off.
Speaker Change: So therefore, we gave you also in the prepared remarks, the wins, which we had in Q2 all of that and the feedback we have from the client's point into another increase in 'twenty five and again, the NII is behaving even better than than we thought.
Speaker Change: At the start of this year.
Christian Sewing: We always told you that we had a tailwind in NII of 25 over 24. Secondly, we are obviously benefiting from the constant inflows into assets under management. And we don't believe that there will be any change in the second half of the year. So the starting point is even a different one.
Speaker Change: Private bank clearly up next year why we always told you that we have a tailwind in NII in 'twenty five for over 24. Secondly, we are obviously benefiting from the constant inflows into assets under management and we don't believe that there is any change in the second half of the year. So the starting point.
Christian Sewing: Similar actually in asset management. Also, in those areas like alternatives and passive, where Stefan Hopes has his focus, we are growing. And on the investment bank, actually, I do believe we will grow in all three areas. Number one, we have made further investments in our trading business, in particular regionally in the US. We have new people starting now, as we speak, and we will grow that business, the trading business over there. Secondly, I refer back to the comments on the O&A business. We expect the fee market to increase next year, with a further increase over this year.
Speaker Change: Even a different one similar actually in asset management also in those areas like alternatives and passive where Stefan hopes has is a focus on but we are growing and on the investment bank actually I I do believe we will grow in in all three areas number one we have made further investments.
Christian Sewing: Secondly, market shares will grow with those investments which we have done, also talking about Numis. And thirdly, the financing business is not only stable, but if I look at the income and revenue streams, which we have planned for next year, actually an increase. All that, from very encouraging behavior in 2024, makes me absolutely confident that we can achieve the $32 billion next year. So the second question on the ECB, to be honest, A, you know, I've seen that portfolio, the leveraged lending portfolio, now for the last 15 years.
Speaker Change: <unk> into our trading business in particular regionally in the U S. We have new people starting now as we speak and we will grow that business the trading business over there secondly, I refer back to the remarks on the <unk> business, we expect the fee market to increase next year further increase over over this year.
Speaker Change: Secondly market shares will grow with those investments, which we have done also talking about numerous.
Speaker Change: And thirdly, the financing business is not only stable, but if I look at the income.
Speaker Change: Income and revenue streams, which we have planned for next year actually also an increased debt from that very encouraging.
Speaker Change: 24.
Speaker Change: So that.
Speaker Change: That we can achieve.
Speaker Change: So again next year.
Christian Sewing: And to be honest, it always behaved very well because I think our risk appetite and the way we have managed our risk have demonstrated that we are in very good control of that business. You also know, Chris, and this is not a secret, that two years ago, we started the discussions with the ECB, and we got a capital add-on at that point in time of 20 basis points, which was reduced last year by five basis points.
Speaker Change: Second question on the ECB.
Speaker Change: To be honest.
Speaker Change: Eight.
Speaker Change: Portfolio leverage lending portfolio now for the last 15 years.
Speaker Change: To be honest.
Speaker Change: It always behaved very well because I think our risk appetite.
Speaker Change: The way we have managed our risk has demonstrated that we have been very.
Speaker Change: Very good control of that business you also know Chris and this is not a secret that two years ago. We had been started the discussions with the ECB, We got our capital add on at that point in time of 20 basis points, which was reduced last year by faith basis five basis points.
Christian Sewing: I know that there is a discussion between the industry and the ECB. I take it as a very positive signal that the ECB is now reviewing the comments and our arguments from the industry. And therefore, you know, also, obviously, with all the outside opinions which we get for our portfolio, I feel very confident with the level of provisions we have and the way we manage it. It's a key business for us.
Speaker Change: I know that there is a discussion between the industry and the ECB I take it as a very positive signal that the ECB is now reviewing the comments in our arguments from the industry and therefore, you know also obviously was all outside opinions, which we get for our portfolio I feel.
Speaker Change: Very confident with the level of provisions we have with the way we manage it it's a it's a key business for us. It's a core business of ours that will not change and I am sure. We will also come to a solution there which shows that we have managed it in a fair way I don't know James whether you want to add.
Christian Sewing: It's a core business of ours that will not change, and I'm sure we will also come to a solution there, which shows that we have managed it in a fair way. I don't know, James, whether you want to add anything. All good.
James von Moltke: All good.
James von Moltke: Okay. Thank you very much.
Christian Sewing: Okay, thank you very much. And the next question comes from Nicolas Payen from Kepler Chiffreux. Yes, good morning.
And the next question comes from Nikola opinion from Kepler. Please go ahead.
unknown: Thanks for taking my question. I have two: one on distribution and one on litigation. On distribution, I was wondering if we could have an update on what your total distribution target is because you committed to distribute above 8 billion of capital. But could we have a bit more clarity on by how much you expect to exceed this 8 billion mark? And also, timing wise, what should we expect, notably for the share buyback? Is a top-up completely excluded for H2?
Nikola: Yes. Good morning, Thanks for taking my question I have two one on distribution and one on litigation.
Nikola: On distribution I was wondering if we could have an update on what is your total distribution targets. Because you can institute distributable <unk> 8 billion of capital, but could we have a bit more clarity by how much you expect to exceed with 8 billion Mark and also timing wise, what should we expect and that would be for the share buyback is a top up compete excuse.
Speaker Change: <unk> four it's too and what about the pace in 2025.
Christian Sewing: And what about the pace in 2025? And regarding litigation, what should we expect regarding litigation provision in H2? Because more globally, you have now reduced quite significantly on key or contingent liability. So I was wondering, should we expect a lower litigation cost run rate for future rates for future years? Thank you. Thank you very much. Let me start, Nicolas, and then James will, I think, comment on Bo's question about the distribution, because that is really important for me. There is no change in guidance.
Speaker Change: Regarding litigation.
What should we expect regarding the litigation provision any niche too because through more globally, you have no reduce quite significantly on key or contingent liabilities. So I was wondering should we expect a lower litigation costs run rate for the future rates.
Speaker Change: Thank you.
Thank you very much let let me start Nicolas and and then James will I think comment on both question on on the distributions because that is really important for me. There is no change in guidance, we will distribute more than 8 billion in the timeframe from <unk>.
Christian Sewing: We will distribute more than $8 billion in the time frame from 2021 to 2025. Nothing has changed. Obviously, from a timing point of view, as we said at the end of April with the item on the postbank provision of $1.3 billion, which we had to digest, we always said that we now need to have two quarters, actually, where we show operating strength, where we restore capital. And to be honest,
Speaker Change: 'twenty one to 'twenty five.
Speaker Change: Nothing has changed obviously from a timing point of view as we said end of April with the with the item on the Postbank provision of $1 3 billion, which we had to digest. We always said that we now need to have two quarters actually where we show operating strength wherever you restore cap.
Speaker Change: And to be honest.
Christian Sewing: I'm really happy with what has been done in this bank. We are at 13.5% capital. We have created excess capital also in the last quarter. We are clearly above, so to say, 13.2%.
Speaker Change: I'm really happy of what has been done in this bank. We are at 13, 5% capital. We have created excess capital also in the last quarter. We are clearly above so to say the 13, 2% we have created excess capital.
Christian Sewing: We have created excess capital. But I want to show the market another quarter of this operating strength. And with the comments I just made on revenues, with costs which are absolutely in control, we are around the five billion mark, we have our clear way to the next year. I'm absolutely confident that we will show another very strong quarter in Q3, which will generate capital. And then, obviously, we are back in the progress process.
Speaker Change: But I want to show to the market another quarter of this operating strengths.
Speaker Change: And with the with the comments I just made on revenues with costs, which are absolutely in control we are around the $5 billion.
Speaker Change: We have our clear way to do the next year I'm, absolutely confident that we show another very strong quarter in Q3, which generates capital.
Christian Sewing: And we will go back and enter into discussions so that that is clear for me. But I have always signaled that after the post-bank litigation, which the bank digested, we really powered through this. We want to show them, Good quarters, number one is done, and I tell you number two will come. Thanks, Christian.
Speaker Change: And then obviously we are back in the progress process and and we will go back and enter into discussions that that is clear for me, but I always signaled that after the Postbank litigation, which the bank digests. It we really power through this we want to show too.
Speaker Change: Good quarters number one is done and I'll tell you a number two world Cup.
Christian Sewing: Nicolas, thanks for the question. Look, I just echo Christian's comments. You know, we've returned almost 1.6 billion already this year through the capital actions that we took in the second quarter. We were, I think, very successful in offsetting the impact of the post bank provision. And our step off into the second half of 13 and a half percent on the CET one ratio is a good starting place. Your question about the trajectory going forward, you know, if I refer you to slide 22 of our investor deck, we've tried to be as clear as possible on what we've referred to as baseline expectations.
Nicholas: Thanks Christian Nicholas Thanks for the question look I'd, just echo Christian's comments.
Speaker Change: We've returned almost $1 6 billion already this year through the capital actions that we took in the second quarter. We were I think very successful offsetting the impact of the of the Postbank provision and our step off into the second half of 13, 5% on the CET one ratio.
Speaker Change: As a good starting place.
Your question about the trajectory going forward.
Speaker Change: I refer you to slide 22 of our Investor deck, we've tried to be as clear as possible on what we've referred to as baseline expectations.
Christian Sewing: And so if you look at that on the dividend, you know, we've paid out this year, 883 cents. The 67 and a half cents next year would be about 1.3 billion. The one euro dividend that we intend to pay out in 26 in respect of 25 would be another nearly 2 billion.
Speaker Change: And so if you look at that on the dividend.
We've paid out this year 883.
Speaker Change: 67, and a half sense next year would be about $1 3 billion.
Speaker Change: The one year old dividend that we intend to pay out in 2006 in respect of 25 would be.
Speaker Change: Another nearly $2 billion.
James von Moltke: And then if you trace the buyback sort of trajectory forward, let's just assume for a second 50% increase a year, the next two numbers in that series would be about a billion euros and a billion and a half, cumulatively that would add to slightly above nine billion and so that's what we're working to deliver to shareholders as we as Christian mentioned build excess capital in the back half of the year we want to be positioned to achieve those those types of payouts Now, we did make a sort of an editorial change to the page 22, really trying to, kind of separate a little bit the share buybacks from the payout ratio discussion, because to some extent we look at the payout ratio as a minimum, not a maximum, and hence building excess capital into the back half of the year can position us to preserve that buyback trajectory even if the payout ratio goes north of 50%. So that's the hopefully clarity and on what the baseline expectations are and just the last thing to say, last time you saw that slide, there was this idea of top ups. Obviously, the unexpected provision in 24, at least for now, has taken away the idea of a top up in 24. But we haven't given up on top ups in 25 and 26.
Speaker Change: And then if you trace the buyback sort of trajectory forward, but let's just assume for a second 50% increase a year. The next two numbers in that series would be about 1 billion euros and a billion and a half.
Cumulatively that would add to slightly above $9 billion.
Speaker Change: And so that's what we're working to deliver to shareholders as we as Christian mentioned build excess capital in the back half of the year, we want to be positioned.
Christian: To achieve those those types of payouts.
Speaker Change: Now we did make a instead of an editorial change to the page 22, really trying to kind of separate a little bit the share buybacks from the payout ratio.
Christian: Discussion because.
Speaker Change: Im extent, we look at the payout ratio as a minimum not a maximum.
Speaker Change: Hence building excess capital into the back half of the year.
Position us.
Speaker Change: To preserve that buyback trajectory.
Speaker Change: Even if the payout ratio goes goes north of 50%.
So that's hopefully clarity and on what.
Speaker Change: The baseline expectations are and just the last thing to say last time, you saw that slide there was this idea of top ups.
Speaker Change: The unexpected provision in 'twenty for at least for now has taken away the idea of a top up in 'twenty four but we haven't given up on top ups and 25 and 26 it depends on sort of all of the ins and outs in the capital plan.
James von Moltke: It depends on sort of all of the ins and outs in the capital plan. But I should just echo Christian's confidence that we have been able to show that the post bank provision did not take us off stride, and we remain committed to the profile we show on page 22. If I go to your litigation question, look, obviously, there's been a transition between the contingent liability number and the balance sheet provision driven by the post-bank litigation and takeover litigation provision, but actually, not only that provision; some other items also move between the two, sort of the off balance sheet and the on balance sheet account. As we said last quarter, the profile has changed. Pretty significantly, if you like, of risks that are still unknown.
Speaker Change: I would just echo Christian confidence that we I think we've been able to show that the Postbank provision did not take us off stride and we remain committed to the to the profile we show on page 22.
Speaker Change: If I go to your litigation question look obviously, there has been a.
A transition between the contingent liability number and the balance sheet provision driven by the Postbank litigation takeover litigation provision, but actually not only that provision and some other items.
Also move between the two sort of the off balance sheet in the on balance sheet accounts.
Speaker Change: As we said last quarter the profile has changed.
Speaker Change: Pretty significantly if you like of risks that are still unknown.
James von Moltke: We're committed to continuing the work over the back half of the year to put ourselves in a position for, what I would call, dramatically lower litigation provisions and regulatory enforcement actions going forward. Really, we'd like to be in a position at the end of the year to have what I call as clean a slate as possible going into 2025, and sustainably so, because, if you like, we will address the unknown elements of the known items.
Speaker Change: And we're committed to continuing the work over the back half of the year to put ourselves in a position for I would call it dramatically lower litigation provisions and regulatory enforcement actions going forward.
Speaker Change: Really we we'd like to be in a position at the end of the year to have what I call is as clean a slate as possible.
Going into 'twenty five and.
Speaker Change: Sustainably so because if you like.
Speaker Change: We will address the the unknown elements of the known items.
James von Moltke: And as we look to the future, sort of, you know, the pipeline of new things coming in that we can see. And, by the way, the benefits of all the investments we've made in controls should give us much more confidence about the outlook going forward. Thank you, and the next question comes from Anke Reingen from RBC. Please go ahead. Yeah, thank you very much for taking my questions.
Speaker Change: And as we look to the future sort of.
Speaker Change: The pipeline of new things coming in that we can see and by the way the benefits of all the investments we've made in controls.
Speaker Change: Should give us much more confidence about the outlook going forward.
Speaker Change: Thank you.
Speaker Change: And the next question comes from <unk> <unk> from RBC. Please go ahead.
James von Moltke: The first is on the loan loss guidance for 2024. If you can maybe give us a bit more what gives you confidence of the decline to more like 25, 30 basis points in the second half and what you've assumed on, Commercial Real Estate within that number, and and you sort of like said in 2025 you expect loan losses to normalize would that be the 25 30 basis points or the 20 basis points you mentioned, And then just on capital, I just wondered if you can give us some more clarity on the expectation with the benefit from the delay of the FRTB, what it could mean for the 15 billion you previously guided to, and would you consider this in your distribution as an actual benefit?
Speaker Change: Yeah. Thank you very much for taking my question.
Speaker Change: With the loan loss guidance.
Speaker Change: Guidance for 2024.
Speaker Change: He can maybe.
Speaker Change: Yes.
Speaker Change: What gives you comfort that in itself would decline tomorrow and at the 25 30 basis points in the second half and what you've assumed on.
Speaker Change: Commercial real estate.
Speaker Change: And do you sort of like 7000.
Speaker Change: 25, you expect loan losses to normalize would that be a 25 30 basis points on that.
Speaker Change: You mentioned in the past.
Speaker Change: And then just on capital I, just wonder does he can give us some more.
Speaker Change: Any expectation on the delay.
Speaker Change: TB and what it could mean for <unk>.
Speaker Change: Got it and.
Speaker Change: And would you consider.
Speaker Change: Annual distribution.
James von Moltke: And then, sorry, just one last question on the dividend and the distributions. If the 68% dividend per share would correspond to more than 50%, am I right, and from your previous comments, to understand that your focus is the absolute distribution rather than the payout ratio? Thank you. Thank you very much. Thank you, Anke. Yeah, and I'm happy to take all three, Christian may want to add.
Speaker Change: Benefit and then sorry, just one last question on the dividend distributions.
Speaker Change: Thank you.
You have a payout if this exceeded dividends.
Speaker Change: Yeah.
Speaker Change: With corresponding to more than 50%.
Speaker Change: And from your previous comments to understand that.
Speaker Change: Their focus is the absolute distribution model.
Speaker Change: Thank you. Thank you very much.
Speaker Change: Thank you, Andrew and I'm happy to take all three Christian may want to add but look.
James von Moltke: But look, look, the CLP guidance change. I would think of it as more related to what has already happened in the year in the first half than about our outlook for the second half. We've had a number of events, really two corporate defaults and then an overlay that we booked in Q2 that has taken us slightly north of what we'd anticipated when we spoke to you three months ago. And while you're always a little bit looking at a crystal ball, we've been, we've been, you know, in a granular way looking through the portfolio, including commercial real estate, to have a view on the second half.
Speaker Change: But the <unk> guidance change I would think of it is more related to what has already happened in the year in the first half then about our outlook for the second half.
Speaker Change: We've had a number of events really two corporate default and then.
Speaker Change: And overlay that we booked in Q2 that have taken us slight.
Speaker Change: Slightly north of what we had anticipated when we spoke to you three months ago.
Speaker Change: Hum.
Speaker Change: And while you're always a little bit looking at the Crystal ball, we've been we've been in a granular way looking through the portfolio, including commercial real estate to have a view on the second half.
James von Moltke: You'll recall that I've talked in the past of a 24 run rate closer to, say, 350 million per quarter that we felt was sort of present. And that, in a sense, is, let's say, $100 million of CRE sitting on top of $250 million of ordinary course run rate that is in the portfolio. Now, let's start with the last point. We still see the same stability in our underlying portfolios, in both the retail and the corporate portfolios.
Speaker Change: Youll recall that I've talked in the past of our 24 run rate closer to say $350 million per quarter that we that we felt was sort of present.
And that in a sense is let's say $100 million of CRE sitting on top of $250 million of of ordinary course run rates that that is in the portfolio now.
Speaker Change: Now, let's start with the last point, we still see the same stability.
Speaker Change: In our.
Speaker Change: Underlying portfolios in both the retail and the corporate portfolios. So we haven't seen a deterioration.
James von Moltke: So we haven't seen any deterioration. On top of that, we've seen, as I mentioned, a handful of defaults and also an overlay that we booked, and CRE. I recall that we'd seen a stabilization in 24. However, relative to the deterioration that was taking place last year, that actually persisted in the second quarter. What is perhaps a little bit worse is that the sort of beginnings of a recovery that I might have expected three months ago haven't happened yet.
Speaker Change: On top of that we've seen as I mentioned.
Speaker Change: A handful of defaults and and also and overlay that we booked.
Speaker Change: In CRE.
Speaker Change: Recall that we'd seen a stabilization in 'twenty four.
Speaker Change: Relative to the deterioration that was taking place last year that actually persisted in the second quarter, what is perhaps a little bit worse is that the the sort of beginnings of a recovery that I might have expected three months ago that hasnt happened yet.
James von Moltke: It doesn't change our view, frankly, of the direction of travel and that, essentially, over time, the new defaults and the valuation adjustments that remain in that portfolio begin to sort of burn out. You know, CRE; if you go back to the fourth-quarter results we'd said to expect about 450 million in 24, consistent with our 23 performance, That is probably worsened ever so slightly. Call it 50, maybe 75 million in terms of our expectations, but not dramatically.
Speaker Change: Doesn't change our view frankly of the direction of travel.
Speaker Change: And that essentially over time, the new defaults and the valuation adjustments that remain in that portfolio begin to sort of burn out.
Speaker Change: CRE if you if you go back to the fourth quarter results, we'd said to expect about $450 million in 24, consistent with our 23 performance.
Speaker Change: That is probably worse than ever so slightly call. It 50, maybe $75 million.
James von Moltke: As I say, the larger part of the change in guidance is what's already happened this year around a couple of corporate items and the corporate defaults and the overlay. On FRTB, obviously, good news for the industry in Europe, because I think it would have put us at a competitive disadvantage if the US were not to go forward and Europe did not go forward. So we think it's a sensible change. It essentially cuts the cost in half, just simple math.
Speaker Change: The in terms of our expectation, but not dramatically as I say the the larger part of the change in.
<unk> guidance is what's already happened in the year around a couple of corporate items in the corporate defaults in the in the overlay.
James von Moltke: We had given you, say, 15 billion of RWA increase from CRR3 as of January 1 next year, and I'd now build about seven and a half billion into the models and move the other seven and a half billion into the first of January 2026. So that's obviously helpful in our capital path, helpful to us in terms of building up this excess capital I just talked about, looking into the 25 distribution. And then that feeds nicely into your third question, which is, which is, which is binding. I think of the 50% payout intention as, you know, if you like a floor, it's what we would then accrue during the year based on the interim profit recognition. [inaudible] Thank you very much.
Speaker Change: On F R T b.
Speaker Change: Obviously, good news for the industry in Europe, because I think it would have put us at a competitive disadvantage if the U S where not to go forward in Europe to go forward. So we think it's a sensible change it essentially cut in half.
Just simple math.
Speaker Change: We had given you say $15 billion of art of UA increase from CR are three as of January one next year.
Speaker Change: And I'd now build about seven five into the models and move the other $7 5 billion into the first of January 2026. So that's obviously helpful. In our capital path helpful to us in terms of building up this excess capital I just talked about.
Speaker Change: And looking into the 25 distributions.
Speaker Change: And then that feeds nicely into your third question, which is which is which is binding.
Speaker Change: I, we think of the 50% payout intention as.
Speaker Change: If you like a floor. It's what we would then accrue to during the year based on the interim profit recognition.
Speaker Change: Because of the impact on profitability in 'twenty four coming from the Postbank provision.
You know that that payout ratio.
Speaker Change: I think we will easily cover our dividend and maybe some amount of repurchase but what we want to do is put ourselves in a position of of being in an excess capital to to fund the <unk>.
Speaker Change: The rest of the repurchase in 'twenty five.
Speaker Change: And hence to your point, we wouldn't view that.
Speaker Change: 50% of payout is being binding.
Speaker Change: Thank you very much thank you.
James von Moltke: And the next question comes from Kian Abouhossein from J.P. Morgan. Yeah, thanks for taking my two questions. I wanted to come back briefly on cost. In your remarks, Christian, you talked about the 4.9 billion run rate potentially at the end of the year. And I just wanted to see how you think about the flexibility that that offers next year to get your cost income guidance. If you can talk maybe around, is there flexibility to run below 20 billion in that sense, considering you're indicating a lower number for the end of the year, even if it's adjusted versus stated?
Speaker Change: And the next question comes from Kiana Hussain from Jpmorgan. Please go ahead.
James von Moltke: And how that thinking is around and how confident is it around the cost income guidance? The second question is related to provisions again. I wanted to just dig a little bit deeper after Anke's question, the detailed answer in respect to CRE. Clearly, the assumptions are that CRE will stabilize. It sounded like that, in 2025.
Kiana Hussain: Yes, thanks for taking my two questions.
Kiana Hussain: I wanted to come back briefly on cost in your remarks Christian you talked about the $4 9 billion run rate potentially at the end of the year.
Speaker Change: And I just wanted to see how you think about the flexibility that that office next year to get to your cost income guidance.
If you can talk maybe around.
Speaker Change: Is there flexibility to run below 20 billion of that sense.
Speaker Change: Considering you are indicating a lower number for the end of the year, even if it's adjusted was a stated.
Speaker Change: And how is that thinking is around and confident is around the cost income guidance.
Speaker Change: The second question is related.
Speaker Change: Two.
Speaker Change: Provisions again.
Speaker Change: I wanted to just dig a little bit deeper after <unk> question the detailed.
Speaker Change: Answer.
Speaker Change: In respect to CRE clearly of the assumptions are that fewer easily stabilize it sounded like that.
Christian Sewing: And I wanted to just get a better understanding of what assumptions you're making. If you can talk a little bit about the input assumptions, price, price performance, and CRE US default rates that you're assuming on a macro level in CRE, so we understand better. And lastly, if I just may, on leveraged loans, you kind of answered the question, but I also wanted to see if there's any leveraged loan additional provision requirement that could mean there could be a buyback pushback? Look, Kian, let me start with the cost answer.
Speaker Change: <unk>.
Speaker Change: In 2025, and I wanted to just get a better understanding what assumptions, you're making if you can talk a little bit about the input assumptions right.
Speaker Change: Performance and CRE U S T.
Speaker Change: Default rates that you're assuming on a macro level in CRE.
Speaker Change: And so we get a better understanding and lastly, if I just may on leveraged loans, you kind of answered the question, but I also wanted to see if there's any leverage loan additional provision requirement does that mean, there could be buyback pushed.
Speaker Change: Pushback.
Speaker Change: Okay.
Christian Sewing: First of all, I think most important is that we stick to our target and that we show you that we deliver on that. Like we did in Q4 2023 when we started with the 5.3 billion of quarterly cost, we have come down to a 5.0, which we have done now looking ahead and what is in the pipeline of additional cost measures to be executed over the next quarters in terms of achieving the two and a half billion of overall cost cuts. I'm very confident that we will come to the $4.9 billion in quarterly costs at the end of Q4, starting in Q1. So this is for us where we are focusing on. In this regard, we have obviously put all the cost measures into the so-called key deliverables, which we track on a biweekly basis in the management board.
Speaker Change: Okay, Let me start with.
Speaker Change: The our cost to answer them.
Speaker Change: First of all I think most important is that we stick to our target and that we show you that we deliver on that likely.
Speaker Change: I think we have demonstrated to from Q4 23, when we started with the $5 3 billion of quarterly cost that we come down to a 5.0, which we have done now looking ahead.
Speaker Change: And what is in the pipeline of additional cost measures to be executed over the next quarters in terms of achieving the two and a half billion of overall.
Speaker Change: Cost cuts.
Speaker Change: I'm very confident that we will come to the $4 9 billion of quarterly costs.
Speaker Change: At the end of <unk>.
Speaker Change: Q4 Q4, starting of Q1. So this is for US where we are focusing on in this regard we have obviously put all of the cost measures into so called key deliverables, which we are tracking on a biweekly basis are in the management board and we can actually see that with all the investments we have done with <unk>.
Christian Sewing: And we can actually see that with all the investments we have done, with all the also headcount cuts, which we have executed in Q1 and Q2, we are delivering on that in Q3 and Q4. And therefore, I'm confident that the run rate of $4.9 billion, which we need for 2025, will be achieved. To be honest, in this regard, Kieran, just to give you a little bit of a feel, the hardest quarter to achieve the $5 billion was actually Q2, right from the start of the year.
Speaker Change: All the also head count.
Cuts, which we have executed in Q1 and Q2, we are delivering on that in Q3, and Q4, and therefore I'm confident that the run rate of $4 9 billion, which we need for 2025.
Speaker Change: It will be achieved.
Speaker Change: To be honest in this regard kian just to give you a little bit of a seal.
Speaker Change: <unk> core quarter to achieve the 5 billion was actually Q2.
Speaker Change: Right from the start of the year, where and why because all the salary increases actually came into Q2, we had a lot of the staff reductions to be done in Q2, where these people were still so to say on our payroll.
Christian Sewing: Where and why? Because all the salary increases actually came into Q2. We had a lot of staff reductions to be done in Q2, where these people were still, so to say, on our payroll. And both we have managed, i.e., you saw the number of reduced workforce, not only internally but also externally, which we managed to do in Q2. And secondly, we digested the wage and salary increases, i.e., the annual tariff increases which we did not digest.
And both we have managed I E. You saw the number of reduced workforce not only internally, but also externally what we managed to do in Q2.
Speaker Change: And secondly, we digested the wage and salary increases I E. The annual tariff increases, which we which we digested and now we are working down. These key deliverables as I, just said and that gives me all the confidence that we are coming to the run rate of $4 9 billion now what further flexibility do we have in that.
Christian Sewing: And now we are working down these key deliverables, as I just said, and that gives me all the confidence that we are coming to the run rate of $4.9 billion. Now, what further flexibility do we have in that?
Christian Sewing: The $4.9 billion is obviously also correlated to, so to say, our revenue aspirations and the revenue target I laid out. You know from our previous discussions that there is always a certain flexibility also in the cost number in terms of flexibility when it comes to lower volumes, when it comes to variable comp, and when it comes to technology investments. And obviously, this is all in our hands, and therefore, I don't want to rule out at all that there is further flexibility.
Speaker Change: The $4 9 billion is obviously then also correlated to so to say our revenue aspirations and the revenue target I laid out.
Speaker Change: You know from our previous discussions that there is always a certain flexibility also on the cost number in terms of flexibility when it comes to less volumes when it comes to the arrival comp when it comes to technology investments and obviously this is all in our hand, and therefore I don't want to rule out.
Speaker Change: At.
Christian Sewing: But for me, given where the momentum of the bank is on the revenue side, I have all eyes focused on the $4.9 billion. And here, I can give you my full confidence that we will achieve that because all the underlying structural cost reductions are actually in time, in plan, in execution. Kian, turning to your question on provisions and the impact of CRE, maybe I can draw your attention to slide 34 in the investment in the IR deck. Now, this is where I had indicated that the next in the series would be down in Q2.
Speaker Change: Further flexibility, but for me given there where the momentum of the bankers on the revenue side.
Speaker Change: Have all.
Speaker Change: All eyes focused on the $4 9 billion and here I can give you my full confidence that we will achieve that because all the underlying structural cost reductions are actually in time in plan.
Speaker Change: In execution.
James von Moltke: And so, you know, as always, predictions about the future are a slightly uncertain science. But we've sort of traveled more or less at the level we had in Q4 and Q1. So the recovery that I mentioned earlier didn't come as quickly as I'd expected. And look, by the way, the 130 in Q2 actually had some impact on the overlay.
Speaker Change: And then turning to your question on provisions and the impact of CRE I, maybe I can draw your attention to slide 34 in the and the investment in the IR deck.
Speaker Change: Now this is where I had guided that the the next in the series.
Speaker Change: Would be down in Q2, and so you know as always predictions about the future are slightly uncertain science.
Speaker Change: But we've sort of traveled more or less at the level. We had in Q4 and Q1. So the recovery that I mentioned earlier didn't come as quickly as as I had expected.
James von Moltke: So if you take that out, we were at 123, essentially flat for the last two quarters. Now, what gives us confidence about the direction of travel here are really two things. One is that if we look at the portfolio in a granular way, so loan by loan, which loans do we see the possibility of future default on? That number is declining.
Speaker Change: And look by the way the $1 30 in Q2 actually had some some impact of the overlay. So so if you take that out we were at 123 essentially flat to the last two quarters.
Speaker Change: Now what gives us confidence about the direction of travel here really two things one is that the if we look at the portfolio in a granular way so loan by loan which loans in which loans do we see the parcel.
Speaker Change: Possibility of future default that number is declining and so so the if you like the risk content that remains in the portfolio.
James von Moltke: And so, if you like, the risk content that remains in the portfolio is declining. And what drove the kind of miss to my expectations this quarter was more that the existing, the defaulted portfolio, our estimation of lifetime losses increased in the quarter. So that also will find, you know, a level and stabilize it at some point. So I'd hoped that and expected that we'd probably be closer to 100 in the second quarter. Let's see how this develops in the quarters to come.
Speaker Change: Is declining.
Speaker Change: And.
Speaker Change: What drove the kind of Miss to my expectations. This quarter was more that the existing the defaulted portfolio, our estimates estimation of lifetime losses increased in the quarter.
Speaker Change: So that also will find a level and stabilize it at some point.
Speaker Change: I'd hoped that and expected that we'd probably be closer to 100 and the <unk>.
Speaker Change: In the second quarter, let's see how this develops in the in the quarters to come.
Speaker Change: But given the way portfolios like this perform you can you know the the downslope can be can be quite dramatic.
James von Moltke: But given the way portfolios like this perform, you can, you know, the downslope can be quite dramatic. And then on leverage lending, look, we believe our provisions or the allowance for loan losses is prudent and adequate for the risks we see in the portfolio. We are always, you know, open to and taking on feedback from our internal AQR views, our auditors, and also the regulators when they come in to review the portfolios.
Speaker Change: And then on leveraged lending look we we believe our provisions or the allowance for loan losses.
Speaker Change: Is prudent and adequate for the risks we see in the portfolio.
Speaker Change: We are always.
Speaker Change: Open to and taking on feedback from our internal AQR views, our auditors and also.
Speaker Change: The regulators when they come in to review the portfolios.
James von Moltke: And at the end of the day, it is for us to determine on the basis of the accounting rules what the appropriate provision is. We'll continue to monitor it in a dynamic way, but we think our practices are good, and we will continue to engage in a constructive way with the supervisors in that dialogue. Thank you. The next question comes from Tom Hallett from KBW. Please go ahead.
Speaker Change: And at the end of the day. It is it is for us to determine on the basis of the accounting rules, what the appropriate provision is.
Speaker Change: We will continue to monitor it and a dime out dynamic way, but we think our practices are good and we will continue to engage in a constructive way with the supervisors on that on that dialogue.
Speaker Change #100: Thank you.
Speaker Change #101: And the next question comes from Tom <unk> from <unk>. Please go ahead.
James von Moltke: Hi, thanks for taking my question. Can you tell us how you see the deposit mix and loan trend developing in the second half of the year across the corporate bank and the private bank? And how much some of the recent political uncertainty may be impacting this? And then, secondly, on SRTs, which are obviously becoming quite a popular tool for banks these days, could you just give us some color on the potential TC1 benefits over the next year?
Tom: Alright, Thanks for taking my question can you tell us how you see that.
Tom <unk>: Trends developing in the second half of the year across the corporate bank and the private bank and how much some of the recent political uncertainty maybe impacting that.
Speaker Change #104: And then secondly.
James von Moltke: And then maybe quantify or help us understand the size of the overall opportunity here, which, You know, as an outsider, I guess I'm thinking about it in terms of the size or the scope of assets that are generally earning below that rate, the true cost of capital. Thank you. Thank you, Tom. Two interesting questions.
Speaker Change #105: On ethanol piece, which is obviously, becoming caught up but told the banks. These days could you just give us some color on the potential <unk> benefit.
Speaker Change #104: Over the next year.
Speaker Change #106: And then maybe quantify.
Or help us understand that.
Speaker Change #107: As of the April opportunity, which.
Speaker Change #106: No.
Speaker Change #106: Thought I guess I'm thinking about it in terms of.
Speaker Change #106: The size or the scope of assets that are generally below cost of capital.
James von Moltke: Look, loan growth has been more sluggish than we'd expected, as you've heard on our calls for the past year or so. That said, we did have loan growth in the second quarter. And so, the kind of first encouraging sign, we had $2 billion of loan growth this quarter, and we think that the kind of indicators of increasing activity are there. And there's certainly demand in some of the more structured lending areas, so we think that the recovery is starting.
Speaker Change #106: Thanks, Tom M. Two interesting questions look loan growth has been more sluggish.
Speaker Change #106: And coming than we'd expected as you've heard on our calls for the past say a year or so.
Speaker Change #108: That said, we did have loan growth in the second quarter and so so the kind of first encouraging sign we have $2 billion of loan growth.
Speaker Change #108: This quarter and.
Speaker Change #108: And we think that the the kind of indicators of increasing activity are there.
Speaker Change #108: And there is certainly demand in some of our more more structured lending areas.
James von Moltke: In the retail portfolios, in particular, where there's still sort of a relatively slow environment in German mortgages, and our portfolio attrited slightly, but again, I think we've found a floor and can grow from here. On the deposit side, really encouraging sort of performance, especially in the corporate bank. But we also see in the private bank a clear ability to raise deposits at prices that are attractive.
Speaker Change #108: So we think that that recovery is starting.
Speaker Change #108: In the retail portfolios in particular, where there's still sort of a relatively slow.
Speaker Change #108: Environment and in German mortgages in our portfolio have tried it slightly but again there I think we've found a floor and can grow from here.
Speaker Change #108: On the deposit side really encouraging sort of performance, especially in corporate bank.
Speaker Change #108: But we also see in the private bank.
Speaker Change #108: A clear ability to raise deposits.
At at pricing that is that is attractive.
James von Moltke: So you may see a leveling out of a little bit of the deposit growth in the back half of the year, but we think the volumes there are generally encouraging in terms of healthy growth on both sides of the balance sheet going forward. If I look at SRT, look, for us, some of our risk transfer programs are 20 years old, so we've been at this for a while. We have good structured programs.
Speaker Change #108: So you may see a leveling out a little bit of the deposit growth in the back half of the year, but but we think the volumes. There generally are are encouraging in terms of healthy growth.
Speaker Change #108: Frankly on both sides of the balance sheet going forward.
If I look at SRT look for US you know some of our risk transfer programs are 20 years old and so we've been at this for a while.
Speaker Change #108: We have good structured programs.
Speaker Change #108: Have a great level of engagement with the investors in our structures that have been being with us for a long time.
James von Moltke: We have a great level of engagement with the investors in our structures that have been with us for a long time, and we're sort of constantly on the lookout for portfolios where we think they can be more efficiently held, you know, off of the bank's balance sheet than on our balance sheet. Therefore, I would say the scope isn't dramatic, but there's still, there's still things we look at. And you've seen that as part of the, you know, program we've had for capital efficiency where we are after 25 to 30, as you've seen in the past year or so, securitization has been part of that; growing our SRT programs or the funded credit link note programs we have is also part of that.
Speaker Change #108:
Speaker Change #108: And we're sort of constantly on the lookout for portfolios, where we think they can be more efficiently held.
Speaker Change #108: Off of the bank's balance sheet, then on our balance sheet. Therefore, I would say the scope isn't dramatic.
But there's still there's still things, we look at and you've seen that as part of the.
Speaker Change #108: Program, we've had for capital efficiency of where we are after a 25 to 30 as <unk> seen in the past year or so securitization has been part of that.
Speaker Change #108: Growing our SRT programs or the funded.
Speaker Change #108: A credit linked note programs. We have is also being part of that so I think.
James von Moltke: So I think a marginal contribution from here, and we're always looking, but we have a reasonably sizable benefit as things stand from those types of structures. One last comment to make at the risk of going long. As we get into the CRR3 world and the impact of the output floor, obviously, there's a whole new sort of, [inaudible] Okay, thank you. The next question comes from Giulia Aurora Miotto from Morgan Stanley. Yes, hi, good morning.
Speaker Change #108: Our marginal contribution from here and we're always looking but we have a reasonably sizable.
Speaker Change #108: Benefit is as things stand from those types of types.
Speaker Change #108: Types of structures.
One last comment to make at the risk of going along.
Speaker Change #108: As we get into the CR or three world and the impact of the.
Speaker Change #108: The output floor, obviously, theres, a theres a whole new set of Vista, if you like.
Speaker Change #108: Of of assets that we may look to take.
Speaker Change #108: Take off our balance sheet, because we'll be solving for another variable. So in the past, it's been managing concentration risk and to a lesser extent RW way going forward it'll be those two things plus plus the impact on the output floor of different asset classes.
Speaker Change #109: Okay. Thank you.
Speaker Change #110: And the next question comes from Trulia overall from.
Trulia overall: From Morgan Stanley. Please go ahead.
Yes, hi, good morning.
Christian Sewing: My first question is on the private bank. Could you please give us a bit more detail, a bit more color on how quickly the fee line can grow and what initiatives you have underway to really control this and drive this in the next quarters and, in particular, in 2025? and so that would be my first question, and then and secondly, you talked about long growth dynamics. What about asset margins? How are those evolving in your main vending products? Please? Yeah, let me take the first question, Giulia, on the private bank. Actually, it's, first of all, a continuous improvement in the fee business growth in the private bank. Kind of in particular, when I look to the future, quarter over quarter. Why?
Trulia overall: My first question is on the private bank and the like.
Speaker Change #112: Could you please give us a bit more detail a bit more color on how quickly the sea lion King grow and what initiatives you have underway to really control these and drive this.
Speaker Change #113: In the next quarters in 'twenty five in particular.
Speaker Change #113: And so so that would be my first question and then and secondly.
You talked about the loan growth dynamics, what's about offset the margins are how are those evolving in that.
Speaker Change #114: And then new products. Please thank you.
Speaker Change #114: Yes.
Christian Sewing: Because we have a constant inflow of assets under management, domestically, as well as internationally. And by the way, also, and this is very nice, not only in the private bank and wealth management business but also in the personal banking business in Germany. Secondly, I think for the private bank, if we think about the overall profitability, there is a huge focus now on turning around the personal banking business in Germany. That obviously, given all the integration work which we are doing and which we did in particular last year with the IT transformation, has had an unacceptable return on equity so far.
Speaker Change #115: Yeah, Let me take let me take the first question Julia on the private bank.
Speaker Change #116: Actually it's a first of all the continuous improvement on the fee business a grocer in the private bank kind.
Speaker Change #116: Kind of in particular, when I look to the future.
Speaker Change #116: Oh over quarter one.
Speaker Change #116: Why because we have a constant inflow in our assets under management.
Speaker Change #116: By the way domestically as well as internationally and by the way also and this is very nice to not only so to say in the private bank and wealth management business, but also on the personal banking business in Germany.
Speaker Change #116: Secondly, I think for the private bank and if we if we think about the overall profitability.
Speaker Change #116:
Speaker Change #116: There is a huge focus now on turning around the personal banking business in the private bank in Germany.
Speaker Change #116: That obviously, given all the integration work, which we which we are doing and to which we have done in particular last year with the it transformation had an unacceptable return on equity so far but if I look actually at the strategy from Claudio how he will digitalize this business, how we actually will make.
Christian Sewing: But if I look actually at the strategy from Claudio, how he will digitalize this business, how we will actually make this business, in particular for the investment and fee-related business, a business which is there for 19 million clients and, in particular, for the 50 million post-bank clients, I expect actually good growth from this personal banking. And at the same time, we are now realizing the fruits of integrating IT, i.e.
Speaker Change #116: This business in particular for the investment in fee related business, a business, which is therefore 19 million clients and in particular for the 50 million Postbank clients I expect actually a good growth coming from this personal banking and at the same time, we are now realizing the fruits of integrating the I T I E.
Christian Sewing: The costs are coming down. And here we are talking, like we said in the previous calls, about a 500 million cost reduction just as a direct cost in the private bank as a result of the integration. So it's constant growth across the subdivisions in the private bank, but the real lever is actually bringing the personal bank in Germany with a clear plan to an acceptable return on equity over the next 12 to 18 months, which is then obviously also a huge lever for the overall group profitability.
Speaker Change #117: Costs are coming down and here we're talking.
Speaker Change #117: Like we said in the previous call. It's about a 500 million cost reduction just that's a direct cost in the private bank as a result of the integration. So it's it's a constant growth.
Speaker Change #117: Cross the subdivisions in the private bank, but the real lever is actually bringing the personal bank in Germany with a clear plan to an acceptable return on equity over the next 12 to 18 months, which is then obviously also a huge lever for the overall group profitability.
Christian Sewing: So maybe I could add, and this is also a little bit in answer to Chris's question earlier, which was about sort of fee and commission engines outside the investment bank. Obviously, just in the investment bank, a big part of the story this year and next year is advisory and underwriting fees, where we think the momentum, the wallet growth is there, and there's an opportunity that we're executing on to increase our market share. But if you go away from the investment bank, as Christian just said, you know, the private bank earns commissions and fee revenues from brokerage and investment management fees and commissions.
Speaker Change #118: So maybe I could add and this is also a little bit and answered to Chris's question earlier, which was about sort of fee and commission engines outside the investment Bank. Obviously, just in the investment bank a big part of the story. This year and next year is is advisory and underwriting fees.
Speaker Change #118: Where we think the momentum the wallet growth is there and there is an opportunity that.
Speaker Change #117: We're executing on to increase our market share.
But if you go away from the investment Bank as Christian just said.
Christian: The private bank earns commissions and fee revenues in brokerage and investment management fees and commissions.
James von Moltke: Asset management does the same on the investment management side, and you have visibility into those revenue sources from the AUM increases or development over time, and you can also be helped or hindered by the market levels, but the visibility is there, and then in the corporate bank, you've got fees for loan inception, loan processing, you have payment activity, custody activity, again, sort of an asset-driven trust and agency services, and again, the visibility into those revenue sources So, as I say, the visibility into these revenue sources is strong, and based on our current outlook, we can see some of these lines continuing the types of growth rates this year so far, which have been 12% each quarter and for the half extending into next year.
Asset management does the same on the investment management side.
Christian: And you have visibility into those revenue sources from the AUM increases our development over time and you can also you can also be helped or hindered by the market levels, but the visibility is there and then in the corporate bank.
Speaker Change #119: <unk> got fees on loan inception loan process processing, you have payment activity custody activity again sort of an asset driven trust and agency services and.
Speaker Change #119: Again, the visibility into those revenue sources is high including based on the the RFP process and the implementation of new business that we win.
Speaker Change #119: So so as I say the visibility into these these revenue sources is strong.
Speaker Change #119: And based on our current outlook, we can see some of these lines continuing the car types of growth rates. This year, so far which is being 12% each quarter and for the half extending.
Speaker Change #119: Extending into next year.
James von Moltke: On the spread side, there too, you know, we've been surprised to the upside this year, frankly, on both sides of the balance sheet. So, as we've talked about, deposit margins have been better than anticipated, as the pass-through continues to outperform. On the loan side, the same has been true.
Speaker Change #119: On the on the spread side.
Speaker Change #119: There too.
Speaker Change #119: We've been surprised to the upside this year frankly.
Speaker Change #119: Frankly on both sides of the balance sheet. So as we've talked about deposit margins have been better than anticipated as the pass through.
Speaker Change #119: Continues to outperform.
Speaker Change #119: On the loan side. The same has been true the spreads in the front book has been better than our than we anticipated to be fair a bit mixed in the private bank.
James von Moltke: The spreads in the front book have been better than we anticipated. To be fair, a bit mixed in the private bank, but in the corporate bank and investment bank, there's been reasonably healthy spreads and new lending in the front book. And that sort of margin expansion has contributed to the better-than-expected net interest income than we'd anticipated. By the way, the other driver of the NII outperformance is also spreads on our unsecured debt.
Speaker Change #119: But in corporate bank and investment bank.
Speaker Change #119: It has been reasonably healthy spreads in new lending in the front book.
Speaker Change #119: And those that's that sort of margin expansion.
Speaker Change #119: It has contributed to the to the better than expected net interest income then.
Speaker Change #119: And then we didn't do we had anticipated.
Speaker Change #119: By the way the other driver of the NII outperformance is also spreads on our unsecured debt and so so all of those engines are helping sustain this year. The net interest income line and contribute to the expected growth next year.
Speaker Change #120: Thank you.
James von Moltke: And so, all of those engines are helping sustain this year's net interest income line and contribute to the expected growth next year. Thank you. And the next question comes from Mate Nemes from UBS. Please go ahead. Yes, good afternoon, and thanks for the presentation. I have three questions, please.
Speaker Change #121: And the next question comes from mate Nemes from UBS. Please go ahead.
James von Moltke: First of all, on RWA reduction, I think you have achieved 19 billion in total RWA reduction as a result of the optimization program. Could you give us a sense of the timing of the remaining reductions to get to your 25-30 billion targets? Is that largely coming through in the second half of this year, or should some of that be in 2025?
Mate Nemes: Yes, good afternoon, and thank you for the presentation.
Mate Nemes: I have three questions. Please first of all.
On <unk> to be a reduction I think you have achieved now 19 billion and total RGB reduction so as a result of the optimization program.
Speaker Change #123: Could you give us a sense of the timing of the remaining.
Speaker Change #124: Reductions to get to your 25 1 billion targets is that largely coming through in the second half of this year or or some of that should be in 'twenty five.
James von Moltke: Then the second question is on share buybacks, just referring to your slide 22, and the 50% per annum growth in share buybacks. I think the original expectation, certainly by the market, was a higher total amount of buybacks in 2024, on which the increase into next year would have been obviously quite substantial. My question is, are we looking at a 50% increase versus the $675 million for the buyback next year, or should we think of a potentially larger increase due to the scrapped second tranche of the buyback in 2024?
Speaker Change #125: Then the question is on share buybacks, just referring to your <unk>.
Speaker Change #125: Slide 22.
Speaker Change #125: Yeah.
Speaker Change #125: And the 50% per annum growth and share buybacks I think.
Speaker Change #126: The original expectation certainly by the market was.
Speaker Change #127: A higher total amount of buyback.
Speaker Change #127: 24 <unk>.
Speaker Change #127: On which the increase into next year would have been obviously.
Speaker Change #127: Quite substantial.
Speaker Change #127: My question is.
Speaker Change #128: Are we looking at a 50% increase versus the $675 million for the buyback next year or should we think of a potentially larger increase due to described.
Speaker Change #128: Second tranche of the buyback and 24.
Speaker Change #128: And finally, the last question is on the corporate bank.
James von Moltke: And finally, the last question is on the corporate bank loss provisions. Could you give us any sense of these single cases or single corporate events? Are they reflective of any deterioration in the overall asset quality in the broader corporate sector? Thank you.
Speaker Change #128: Loss provisions.
Could you give us any sense of these single cases, a single corporate events.
Speaker Change #129: <unk> reflective of any deterioration in the overall asset quality in the broader corporate sector. Thank you.
James von Moltke: So thank you for the questions. Look, first of all, we're very pleased with the progress there and credit to the teams that have been working so hard to drive this optimization. You know, broadly speaking, as I mentioned in the prepared remarks, I would hope that we could achieve another $2 billion in Q3. And there, I think we've got a good line of sight to that, maybe a little bit more.
So thank you that's it for the questions.
Speaker Change #130: Look first of all we're very pleased with the progress there and credit to the teams that have been working so hard to drive this this optimization.
James von Moltke: And if we achieve the same in Q4, I would be pleased. So if we got to, say, $4 billion in incremental this year, bringing us to $23 billion, maybe $24 billion, that would be a good performance, which to your point leaves five or six next year to get to 30, and potentially there's upside beyond that. And that obviously is helpful in driving the excess capital creation that I talked about earlier. So assume for modeling purposes $4 billion this year and at least $6 billion next year. On the buyback, Yeah, it was.
Speaker Change #130:
Broadly speaking as I mentioned in the prepared remarks, I would hope that we could achieve another $2 billion in Q3 and there I think we've got good line of sight to that maybe a little bit more.
Speaker Change #130: And if we achieve the same in Q4 I would be pleased.
Speaker Change #130: So if we got to say 4 billion incremental this year, bringing us to 23 billion, maybe 24 that would be that would be good performance, which to your point leaves five or six next year to get to 30 and potentially there's upside beyond that.
Speaker Change #130: And that obviously is helpful in driving the the excess capital.
Speaker Change #130: Creation that I talked about earlier, so so assume for modeling purposes $4 billion this year and and at least six next year.
Speaker Change #131: On the buyback.
Speaker Change #131: Yeah. It was.
James von Moltke: What was taken out in 24? I think that the consensus number was that the second buyback authorization could be something in the order of $400 to $500 million this year. And that was actually a fair assumption, and absent the litigation provision, I think we would have been in a good position to seek that. But I want to be clear, the baseline was intended always to be off the, you know, in this case, the 675, with potential top-ups depending on the level of excess capital in each year.
What was taken out in 'twenty four I think the consensus number was that the second buyback authorization could be something in the order of four to 500 million this year.
Speaker Change #132: That was actually a fair assumption and absent the litigation provision I think we would've been in a good position to seek that.
Speaker Change #132: But I want to be clear the the the baseline was intended always to be off the.
Speaker Change #132: And in this case, the 675 with potential top ups, depending on the level of excess capital in each year.
James von Moltke: And so I want to reiterate the baseline expectation; that's something that management's working towards to deliver. And, and let's see whether there's room for the top ups; we certainly haven't given up on the idea that there would and could be top ups. And those top-ups would take us from the call at 9.2, that's implied by the progression to something beyond that. Again, it underscores why it is that we say we've got confidence in exceeding the 8 billion on asset quality in the corporate book. I think James already said that, no, there is no deterioration. To be honest, the two cases James was referring to are actually...
Speaker Change #132: And so I want to reiterate that the baseline expectation that something that management is working towards to deliver.
Speaker Change #132: And and let's see what what whether there's room for the top ups, we certainly haven't given up on the idea that there there wouldn't could be top ups in those top ups would take us from the call. It nine two that's implied by the by the the progression.
Speaker Change #132: Two to something beyond that again it underscores why it is that we say we've got confidence in exceeding the eight 8 billion.
Speaker Change #132: And on the asset quality in the corporate book.
Speaker Change #132: I think James already said that no there is no deterioration.
Speaker Change #133: To be honest.
Speaker Change #133: The two cases, James we're referring to is actually.
Christian Sewing: So they dominated by one case in Europe, but also here, yes, we have to, we had to build a loaner's provision. But I think overall, we should also not forget that the risk management overall has actually worked quite well, because we have substantial coverage, actually, from a CLO point of view, which again, brings me back to the point that, yes, you see a slightly elevated loaner's provision number, but the real run rate, if we take overlays out, and if I also take this into account, the real run rate of a loaner's provision is, in my view, actually, the normal stock of run rate of the 250 million, plus a quarterly number, which always can happen, and you can now say it's 75, it's 100 million.
James von Moltke: So to say dominated by one case in Europe.
But also here, yes, we have to we had to build a loan loss provision, but I think overall, we should also not forget that the risk management overall has actually worked quite well.
James von Moltke: Because we have a substantial coverage actually from a CLO point of view, which again brings me back to the point that yes, you'll see a slightly elevated loan loss provision number but the real run rate. If we take overlays out and if I also take this into account the real run rate of our loan loss provision.
Speaker Change #134: Is it my view.
Speaker Change #134: <unk> that the normal stock of run rate of the 250 million plus a quarterly number which always can happen and you cannot say, it's $75 100 million, but that brings me also to the confidence because we don't see from a rating point of view from a watch list point of view from upgrades versus downgrades.
Christian Sewing: But that brings me also to confidence, because we don't see from a rating point of view, from a watch list point of view, from upgrades versus downgrades, we don't see any material deterioration, also not in the German Mid-Cap book. That brings me to the confidence that actually a number of 1.3 billion is a number where I'm absolutely confident that this should be a run rate for Deutsche Bank in terms of That's great; thank you very much. And the next question comes from Stefan Stalmann from Autonomous. Please go ahead. Good afternoon, Thank you very much for taking my questions. I have just two left, please.
Speaker Change #134: We don't see any material deterioration also noted in the German Midcap book brings me to the confidence that actually a number of $1 3 billion is a number where I'm absolutely confident that this should be a run rate for Deutsche Bank in terms of loan loss provisions.
Speaker Change #135: So yeah.
Speaker Change #136: That's great. Thank you very much.
Stefan Stalmann: And the next question comes from Stefan <unk> from Autonomous. Please go ahead.
Stefan Stalmann: Yes. Good afternoon. Thank you very much for taking my questions I have.
Please.
James von Moltke: Starting with the private bank, you mentioned an NPL sale. Can you tell us roughly how big this was in notional terms and whether there was actually a P&L profit or loss on the back of the sale? And the second question relates to the valuation and timing differences in your corporate center, which have been mostly positive in recent quarters. Can we think of this as a balance, which is still negative, and you're still working yourself out of this back to neutral?
Stefan: Starting with the private bank you mentioned, an NPL sale.
Stefan: Can you tell us roughly how big this was Notionally Thompson, whether there was actually a P&L profit or loss on the back of the sale.
Stefan: And the second question relates to the valuation and timing differences in your corporate center.
Stefan: Which have been mostly positive in recent quarters.
Can we think of this as a <unk>.
Speaker Change #139: <unk>, which is still a negative to working yourself out of respect to neutral.
James von Moltke: Or is it actually now a positive overall balance, and there's a risk that eventually that normalizes down to neutral with negative effects in the coming quarters? Thanks for the question, Stefan. So briefly, I don't know the notional of the NPL sale, but in round numbers, think of us as having a CLP benefit of about $25 million in the quarter on the sale, which was offset by incremental CLP or continued drag from the operational disruptions of about the same amount.
Stefan: Or is it actually now a positive.
Speaker Change #142: Overall balance and there is a risk that eventually that normalizes down to <unk>.
Stefan: Utah with negative effects in coming quarters.
Speaker Change #140: Thank you very much. Thanks for the question Stefan So briefly I don't know the notional of the NPL sale, but but.
Speaker Change #141: Round numbers.
Speaker Change #141: Think of us as having a C. L P benefit of about $25 million in the quarter on the sale, which was offset by incremental C. L. P. R. A continued drag from the operational.
James von Moltke: So they call it 150 that you see in the second quarter is a pretty good indication of the run rate going into the second half of the year in the private bank, given, you know, we wouldn't necessarily expect, well, the drag from operational items we do expect to go away and potentially reverse in the second half of the year. And, you know, the P&L sale, the NPL sale wouldn't necessarily repeat either. On the valuation timing differences, I'd really call out two elements. The first is pulling the par in the investment portfolio, and that has a short-term and a sort of a more medium-term element.
Speaker Change #141: Disruptions of about the same amount so call. It 150 that you see in the second quarter is a pretty good indication of the run rate.
Speaker Change #141: Going into the second half of the year and the private bank, given we wouldn't necessarily expect well the drag from operational items, we do expect to go away and potentially reverse in the second half of the year and and the P&L sale, the NPL sale wouldn't necessarily repeat either.
Speaker Change #141: On the valuation and timing differences I'd really call out two elements. The first is pull to par.
Speaker Change #141: In the investment portfolio and that has has a short term and a sort of a more medium term element.
James von Moltke: In the short term, some of the pull-back to power in Q2 was actually Q1 losses, given the market movements, and we expect some more of that to bleed into earnings in the second half of the year. So there's a short-term element. But there's also, given the way the hedges work, there's also a longer-term element, which we expect to come out over a much longer period of time. So yes, in a sense, there's a positive balance, call it that way, that is to come. There's also the impact of our, you know, our swap funding book, which is helpful. It today represents, you know, it's driven by the differential between euro and dollar rates.
Speaker Change #141: In the short term some of the pull to par in Q2 was actually Q1 losses, given given the the market movements and we expect some more of that to bleed into earnings in the second half of the year. So there's a short term element. That's actually also given the way the hedges work Theres also a longer term element, which we expect.
Speaker Change #141: To come out over a much longer period of time, so yes in a sense there's a there's.
Speaker Change #141: A positive balance call. It that way that is that is to come.
James von Moltke: That's remained, by and large, supportive, and how that trends from here will depend on the gap between the two rates. So different parts, I don't see it disappearing in a heartbeat, but over time, it would moderate, let's say, in a two, three year time horizon.
Speaker Change #141: There's also the impact of of R. R.
Speaker Change #141: Our swap funding book.
Speaker Change #143: Which is which is helpful. Today represents it's driven by the differential between euro and dollar rates, that's remained by and large supportive.
Speaker Change #143: And how that trends from here.
Speaker Change #143: Depend on the on the on the gap between the two rates. So so different parts I don't see it disappearing in a heartbeat, but.
Speaker Change #143: But over time would moderate let's say.
Speaker Change #143: And a two three year time horizon.
James von Moltke: Great. Many thanks, and the next question comes from Matthew Clark from Mediobanker. Please go ahead.
Speaker Change #143: Yeah.
Speaker Change #143: Great many thanks.
Speaker Change #143: And the next question comes from Matthew Clark from Mediobanca. Please go ahead.
James von Moltke: Hi, it's a follow-up question on the leveraged loan potential ECB supervisory expectations deductions compared to your risk-weighted add-on, Pillar 2 add-on. So do you see the supervisory expectations on provisioning as being incremental to the existing Pillar 2 add-on that you have, or do you see it as potentially netting against the effective burden you've already got on your requirements? Thank you. Look, Matthew, um...
Matthew Clark: Hi, just a follow up question on the leveraged loan.
Speaker Change #145: Tensile ECB supervisor.
Speaker Change #146: Expectations are.
Speaker Change #147: Deductions compared to your risk weighted Adam.
Speaker Change #148: Pillar two so do you see the supervisory expectations open provisioning as being incremental to the existing policy of add on that you have or do you see as potentially.
Potentially netting.
Speaker Change #148: Again.
Speaker Change #149: Effective bed or <unk> got some new requirements. Thank you.
Matthew Clark: Look Matthew.
Christian Sewing: It's always hard to speculate about items which are, at the end of the day, in the hands of the regulators. Again, I really would like to say that we find it positive that the ECB is taking our arguments on board; it is reviewing its process. I told you that we were already subject to a capital add-on. We feel with all the information we have that we have provided in an absolutely accurate way, and I think we have shown that over the long term, and therefore, overall, we feel comfortable, but I think it would be the wrong thing now to speculate about anything.
Speaker Change #150: It's always hard to speculate about a.
Matthew Clark: Items.
Speaker Change #151: Which are at the end of the day in the hands of the regulators.
Speaker Change #151: I really would like to say that.
Speaker Change #151: We find it positive that the ECB is.
Speaker Change #151: Taking our arguments are it is reviewing its process.
Speaker Change #151: I told you that we already were subject to a capital add on we feel with all the information we have that we have provisioned.
Speaker Change #151: In absolute accurate way and I think we've shown that over the long term.
And therefore overall, we feel comfortable.
Speaker Change #152: But I think it would be.
Speaker Change #152: It would be the wrong thing now to speculate about anything I think directional if the ECB I find that a constructive we have constructive discussions.
Christian Sewing: I think the direction of the ECB, I find that constructive; we have constructive discussions, and then let's see what happens, but the direction last year that they reduced from 20 basis points to 15 also shows that there was at least some confidence in our process. You're good.
Speaker Change #152: And then let's see what happens, but the direction last year that they reduced from 20 basis points to 15.
Speaker Change #152: Also shows that there was at least have some confidence in our processes.
Speaker Change #153: Alright, thank you.
James von Moltke: And the next question comes from Jeremy Sigee from BNB Pali by Exxon. Thank you.
Jeremy Sigee: And the next question comes from Jeremy <unk> from Dnb, partly by Exxon. Please go ahead.
James von Moltke: Just a couple of small follow-ups, please. Firstly, on the changes in regulatory adjustments that helped capital in the quarter, could you talk a bit more about what those were and whether there's more of them to come or any reversals, or they just are what they are? So that would be helpful.
Jeremy Sigee: Thank you just a couple of small follow ups. Please firstly on the changes in regulatory adjustments that helped the capital in the quarter could you talk a bit more about what those were and whether there's more of them to come or any reversals or they just all what they are so that would be helpful.
James von Moltke: And then my second question is just on the Russia case, you mentioned it in the notes. Could you confirm that there's no financial impact in this quarter and, in fact, there's no provision booked because it's fully offset by the claim? And just how confident are you in that because other banks involved seem to be taking charges relating to that case? Thanks, Jeremy.
Jeremy Sigee: And then my second question is just on the.
Russia case, you mentioned in the notes.
Jeremy Sigee: <unk>.
Could you confirm that there's no financial impact in this quarter and in fact, there's no provision books because it is fully offset by the claim.
Speaker Change #155: Just how confident you are in that because other banks involved seem to be taking charges relating to that case.
James von Moltke: So, I'll refer you on the first question to page 42 of the interim report. The main driver that we're referring to is what we call the expected loss shortfall, but on that disclosure, you see the various regulatory capital deduction items. The ELSF has been something that's increased significantly year on year, reflecting the portfolio changes that we introduced last year and some of the, I'll call it, seasoning of those models. And yes, it's one of the areas that we're now looking at how we can mitigate and manage.
Speaker Change #156: Thanks, Jeremy.
Speaker Change #157: So I'll refer you on the first question just to page 42 of the of the interim report and the main driver that we're referring to is what we.
Speaker Change #158: The expected loss shortfall and that's but in on that disclosure, you'll see the various regulatory capital deduction items.
Speaker Change #159: L. S. F has been something thats increased significantly year on year, reflecting the portfolio changes that we introduced last year and some of the I'll call. It the seasoning of those of those models.
Speaker Change #159: And yes, it's one of the areas that we're now looking at how we can mitigate and manage and so that helped us on the regulatory capital deduction items in the quarter is is just learning.
James von Moltke: And so that helped us on the regulatory capital deduction items in the quarter. It was just learning, you know, which exposures drive the ELSF and how we can mitigate that. To your question about direction of travel, actually, the next step will be up as one more model kind of becomes live in that world, but then we, I think, would be at a sort of a steady state level, and we will work to optimize from that.
Which exposures drive the OSF and how we can we can mitigate that.
To your question about direction of travel actually the next step will be up as one more model kind of becomes live in that world.
Speaker Change #159: But then we I think would be at episode of a steady state level, and we will work to to optimize from from that.
James von Moltke: On Russia, we essentially booked offsetting, you know, provision and an indemnification asset. And so we feel we're appropriately, you know, the risk is appropriately reflected on the balance sheet. And the evolution of the cases has been, overall, in line with our expectations. So we don't see any sort of change in the risk position there, and therefore, no change in how it's reflected in the financial statement. Our expectation is that that claim will be prosecuted and in a way that enables us to enforce the indemnification claim.
Speaker Change #160: On Russia, we essentially booked offsetting.
Speaker Change #160: Provision and an indemnification asset.
And so we feel we're appropriately.
Speaker Change #160: The risk is appropriately reflected on our balance sheet and the the.
Speaker Change #160: <unk> of the cases has been overall in line with our expectations. So we don't see.
Speaker Change #160: Sort of a change in the risk position there and therefore no change in how it's reflected in the financial statements. Our expectation is that that that claim will be prosecuted and and in a way that enables us to enforce the indemnification claim.
Speaker Change #161: Great. Thank you.
Speaker Change #160: Yeah.
James von Moltke: Great, thank you. As a reminder, anyone who wishes to ask a question may press star followed by 1. And the next question comes from Andrew Coombs from Citi. Please go ahead.
Speaker Change #162: As a reminder, anyone who wishes to ask a question May press star followed by one and.
Speaker Change #162: And the next question comes from Andrew Coombs from Citi. Please go ahead.
James von Moltke: Good morning, I think the vast majority of questions have been answered now, but perhaps I can just ask on slide 29 on your interest income sensitivity. Taking light of the PMI data today, I think this is the first time you've switched this from 24 to 26. [inaudible] Thanks, Andrew. Appreciate the question. You know, really just time.
Andrew Coombs: Hey, good morning, I think Boston Joseph questions now, but.
Joseph: Just ask.
Speaker Change #165: On slide 29.
Speaker Change #166: Interest income.
Speaker Change #166: Typically.
Ken: Hey, Ken.
Ken: PMI.
Ken: I think this is the best time switch it in 2014.
Ken: <unk> 2006.
Ken: 225.
Ken: But a big step up kick in.
Devin: Great. Thank you Devin.
Devin: <unk>.
Related to the structural hedge that.
Speaker Change #169: And David does that but any more color on why such a big step up in 2006 2007.
Speaker Change #170: Great sensitivity guidance. Thank you.
James von Moltke: You know, we, actually, the first time when we prepared this slide, I was surprised because it looked like the sensitivity had expanded, and I didn't realize that we'd moved it forward by a year. And so that gives you an indication of how successful we've been, frankly, in closing down the rate sensitivity, you know, on our balance sheet. So, 27 being larger is simply a function of our hedge portfolio, you know, or less of it goes out that far in time.
Speaker Change #170: Thanks, Andrew I appreciate the question.
Speaker Change #171: It really just time.
Speaker Change #170: We.
Speaker Change #172: Actually the first time when we prepared this slide I was surprised because it looked like the sensitivity and expanded and I I missed that we'd moved it forward by a year.
Speaker Change #172: And so that gives you an indication of how successful we've been frankly in closing down there.
Speaker Change #172: The rate sensitivity.
On our balance sheet.
Speaker Change #172: 27 being larger.
Speaker Change #173: <unk> is simply a function that are that are our hedge portfolio you know.
Speaker Change #173: There are less of it goes out that far in time, and what you'd expect to see us do as we rollover. The hedges is is bring more of that in and reduce the sensitivity.
James von Moltke: And what you'd expect to see us do as we roll over the hedges is bring more of that in and reduce the sensitivity, you know, further down the track. And equivalently, the 90 million in 27 euros I would expect to see go down unless there's some change in our view of the likely future path of interest rates. So, in short, I'm happy with the way that we've managed the ALM challenges of the last several years.
Speaker Change #173: Further down the down the track.
Speaker Change #174: And equivalent Lee the $90 million and 27 on euros.
Speaker Change #174: I would expect to see go down unless there's some change in our in our view of the you know the.
Speaker Change #174: Likely future path of interest rates.
Speaker Change #174: So in short I'm I'm I'm happy with the way that we've managed the sort of a L. M challenges of the last several years.
James von Moltke: And I think, again, one of the things that gives us confidence and visibility into revenues in the future is the success of our hedging and the impact of the hedge rollover over the next several years.
And I think again, it's one of the things that gives us confidence and visibility into revenues in the future as the success of our hedging and the impact of the of the hedge rollover.
Speaker Change #174: And over the next several years.
James von Moltke: Okay, thank you. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Ioana Patriniche for any closing remarks. Thank you for joining us and for your questions. For any follow-ups, please come through to the Investor Relations team, and we look forward to speaking to you on our third quarter call. Ladies and gentlemen, the conference is now concluded, and you may disconnect. Thank you for joining us and have a pleasant day.
Speaker Change #177: Okay. Thank you.
Speaker Change #174: Yeah.
Speaker Change #175: Ladies and gentlemen that was the last question I would now like to turn the conference back over to you on that but we need to for any closing remarks.
Speaker Change #178: Thank you. Thank you for joining us and for your questions for any follow ups. Please compensation Investor Relations team and we look forward to speaking to you on our third quarter call.
Speaker Change #175: Yeah.
Speaker Change #176: Ladies and gentlemen, the conference has now concluded and you may disconnect. Thank you for joining and have a pleasant day goodbye.
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