Q4 2024 Deutsche Bank AG Earnings Call
Ladies and gentlemen, welcome to the Q4 2020 for Analysts conference call and live webcast. I'm Sergeant, the course call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded.
The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone.
For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Ioana Patriniche, Head of Investment Relations. Please go ahead.
Speaker Change: Thank you for joining us for our fourth quarter and full year 2024 preliminary results call. As usual, our Chief Executive Officer, Christian Sewing, will speak first, followed by our Chief Financial Officer, James von Moltke.
Speaker Change: The presentation, as always, is available to download in the Investor Relations section of our website, db.com.
Speaker Change: Before we get started, let me just remind you that the presentation contains forward-looking statements which may not develop as we currently expect. We therefore ask you to take notice of the precautionary warning at the end of our materials. And with that, let me hand over to Christian.
Christian Sewing: Thank you, Ioana, and a warm welcome from me. Before we discuss our preliminary 2024 financials in detail, I wanted to offer you my perspective on 2024. This was a vital transition year for us, which has seen us deliver crucial building blocks in the transformation of our business model. Thank you.
Christian Sewing: We have moved past a number of legacy items, absorbing a series of non-operating costs, predominantly litigation matters, which have masked the underlying strengths of our business.
Christian Sewing: Our operating performance demonstrated execution against our plans as our pre-provision profit increased by 19% compared to 2023 if adjusted for certain specific items.
Christian Sewing: Importantly, however, we are now set for a clean and significantly more profitable year in 2025, with the foundation now built for further improvements in the years beyond.
Christian Sewing: Let me spend a bit more time talking through this turnaround work, which has resulted in a fundamentally different bank in terms of earnings power, in combination with a better risk profile and improved resilience, all of which are visible in our 2024 financials.
Let's start with the top line.
Christian Sewing: First and foremost, we have successfully positioned all our businesses to perform by strengthening our market position, reinforcing our focus on clients, and working with deep dedication as their global house bank.
Our business has clear momentum.
Christian Sewing: which is visible through our revenue delivery of over 30 billion euros, well above what we thought would be achievable when we first set our 2025 targets.
Christian Sewing: And we are very pleased with the strong start of this year, which again demonstrates our clear franchise momentum.
Christian Sewing: Second, on expenses, we delivered on our adjusted cost guidance of 5 billion euros each quarter when excluding the already guided exceptional items.
We have continued to execute on our operational efficiency measures.
Christian Sewing: which gave us room to make critical investments into business growth, technology, and controls while reducing redundancies in our cost base in line with our plan.
Christian Sewing: We believe these investment decisions will strengthen our delivery in 2025 and beyond.
Christian Sewing: Third, importantly, we continue to improve our risk profile in 2024, which did come at a cost of 1.7 billion euros across three specific litigation items.
Christian Sewing: And while these items, of course, impacted our reported results, moving forward, our position to deliver returns is not only strengthened for 2025, but also for future years, particularly given the supportive market backdrop for our businesses.
Christian Sewing: Looking ahead, as we have continued to make conscious investments into our franchise coupled with stickier inflation, we now expect to end 2025 with a cost-income ratio of below 65%.
Christian Sewing: We know we need to continue to focus on cost management in the near and medium term, and we have a clear management agenda to address this.
Christian Sewing: Crucially for this year we expect to deliver strong positive operating leverage as we increase revenues by two billion euros year-on-year while keeping adjusted costs flat.
forth on distributions.
Christian Sewing: We remain committed to capital returns and today we are announcing a 750 million euro share buyback program in addition to a dividend per share of 68 cents in respect of 2024, which we plan to propose for approval at our annual general meeting.
Christian Sewing: Together, this represents a total of 2.1 billion euros of capital distributions announced so far this year.
Christian Sewing: As we have said before, we want to maintain a prudent approach to capital management.
Christian Sewing: And we will, of course, look to do more for our shareholders in line with our performance.
Christian Sewing: Our strong C81 ratio of 13.8% sets us up well for this heading into the rest of the year.
Christian Sewing: And we remain committed to surpassing our total shareholder distribution target of 8 billion euros.
Christian Sewing: To summarize, 2024 has not been easy but it was an important year for us as we took important management actions to secure our trajectory and cement our path to a return on tangible equity above 10% for 2025.
Christian Sewing: Beyond that, we have defined a clear management agenda for further developing our global house bank offering and sustainably increasing returns in 2025 and in the years thereafter.
Christian Sewing: Let's now discuss each of these points in detail, starting with our operating momentum on slide 3.
Christian Sewing: We increased 2024 pre-provision profit by 19% compared to 2023, if adjusted for three specific litigation items, as well as the goodwill impairment in 2023.
Christian Sewing: The specific litigation items in 2024 comprise the post-bank takeover litigation matter, elevated provisions for Polish FX mortgages, and the derecognition of the reimbursement asset for the Raskam Alliance litigation matter, which James will elaborate on further.
Christian Sewing: Pre-provisioned profit remained broadly stable on a reported basis as our operating strength enabled us to absorb even large exceptional items.
Christian Sewing: We have delivered sustained operating leverage of 5%, excluding the specific litigation items in 2024 and the goodwill impairment in 2023.
Growth was driven by both revenue momentum and cost discipline.
Christian Sewing: Revenues grow by 4% year-on-year, supported by our deep dedication and client engagement, and around 75% came from more predictable revenue streams in corporate bank, private bank, asset management, and FIC financing.
Christian Sewing: A well-diversified revenue mix enabled us to grow through the interest rate cycle.
Christian Sewing: Commissions and fee income increased by 13% year-on-year, in line with our strategy and driven by our strategic investments.
Christian Sewing: Net interest income in key banking book segments and other funding outperformed our prior guidance and remained broadly stable year-on-year.
Christian Sewing: Adjusted costs decreased 1% year-on-year to 20.4 billion euros or 2% to 20.2 billion euros excluding the pre-guided real estate measures and UK bank levy threw up in the fourth quarter.
Christian Sewing: Excluding these items, we delivered four quarters of adjusted costs of around 5 billion euros in line with our plans.
Christian Sewing: We have made steady progress on our efficiency program. This offset conscious investments in the franchise and inflationary pressures.
Christian Sewing: We have now completed measures with delivered or expected gross savings of 1.85 billion euros, almost three quarters of our 2.5 billion euro goal, with around 1.67 billion euros in savings already realized.
Christian Sewing: As part of this program, we have removed 3,500 roads, primarily reducing non-client-facing roads focused in high-cost locations, while recent hires have been focused on technology and controls as well as revenue-generating areas.
Christian Sewing: At our Investor Day in March 2022, we set ambitious objectives for 2025.
Christian Sewing: With 12 months to go, our business growth-focused strategies are delivering strong results against these objectives.
Christian Sewing: The corporate bank remains at the core of the Deutsche Bank franchise, and we have further enhanced its value proposition through a strengthening client franchise and investments in technology supported by our global network.
Christian Sewing: As an example, incremental deals won with multinational clients have increased by around 40% since 2022.
Christian Sewing: The division outperformed its revenue growth ambition despite normalizing interest rates and delivered a return on tangible equity of 13% in 2024, three times its 2021 level.
Christian Sewing: The investment bank is outperforming its revenue growth target and delivered a ROTE of 9% in 2024, cementing its position as a leading European investment bank.
Christian Sewing: We are also particularly pleased we have outperformed the peer average for the full year, as we continue to see our investments paying off.
Christian Sewing: The business has demonstrated sustained revenue performance through the cycle since 2021, supported by further diversifying its income streams and increasing market share and origination advisory by around 50 basis points in 2024.
Christian Sewing: In fixed income and currencies, we have built strong market share and demonstrated sustained growth in financing, which is up 12% year-on-year in 2024.
Christian Sewing: And we achieved significant year-on-year growth of over 60% in O&A in 2024 through considerable market share increases in a growing fee pool.
Christian Sewing: Since 2021, the private bank created two distinct businesses to sharpen the commercial focus and to better serve clients' changing needs.
Christian Sewing: We scaled up the wealth management franchise, successfully turning around profitability in core markets.
while strengthening our number one positioning in Germany.
Christian Sewing: In personal banking we have launched a major efficiency transformation with a decisive review of our service model and branch footprint optimization.
Christian Sewing: The business continues to leverage its leading market position with net inflows of 29 billion euros.
Christian Sewing: supporting non-interest revenue growth of 5% last year in line with our strategy.
Christian Sewing: Overall, the division grew revenues in line with target since 2021.
The business has made transformative efficiency gains since 2021.
Christian Sewing: closing a further 125 branches in 2024, increasing the total to almost 400 closures since 2021, in addition to reducing full-time employees by a further 1,300 in 2024 alone.
Christian Sewing: Looking at the fourth quarter more closely, adjusted costs were down 9%, reflecting delivery of savings despite ongoing inflationary pressures.
Christian Sewing: Profitability and higher returns, especially in German personal banking, will remain top priorities and we expect to deliver them by a further streamlining of our branch network and the modernization of both our brands while leveraging the synergies from our unified IT environment.
Christian Sewing: In short, the private bank continues its path to sustainably transform the business, which we believe will translate into substantially better returns, which will be visible this year and beyond.
Christian Sewing: Exceeding this mark shows the scale and competitiveness of our Asset Management Division.
Christian Sewing: Overall, the business demonstrated its strengths and showed increased cost efficiency, leading to an ROTE of 18% in 2024.
Christian Sewing: Driven by the benefits of higher AUM levels and revenue growth initiatives already in place, we expect the compound revenue growth rate in asset management to turn positive in 2025 and approach its original ambition.
Christian Sewing: On slide five, let me now turn to the question why we feel confident in reaching our 2025 revenue growth ambitions.
Christian Sewing: Since 2021, we have delivered a compound annual growth rate of 5.8% in line with our upgraded target range.
Christian Sewing: In 2025, we expect continued franchise momentum and our capital-led businesses to drive further growth supported by our investments, increasing the revenue tagger to around 5.9 percent.
We have a clear roadmap towards our 2025 target.
Christian Sewing: In the corporate bank, we expect revenues to grow by around 5.5% or 400 million euros, largely from scaling of commissions and fee income, predominantly in trade finance and fee-based institutional business, and repricing of existing clients.
Resilient Net Interest Income will provide further support.
Christian Sewing: Investment bank revenues are expected to grow by around 8%, as we see encouraging trends in the market, good levels of corporate activity and confidence, solid financing conditions, and pent-up private equity dry powder.
Christian Sewing: The main growth driver is expected to be ONA with an increase in revenues of approximately 600 million euros reflecting growth globally, but led by the US
Christian Sewing: We have positioned ourselves well to benefit from these trends and grow market share further, supported by our investments reaching their full potential.
We also expect FIC to show continued growth in 2025.
Christian Sewing: We will continue to develop our wider platform in both existing and adjacent businesses with a focus on the U.S. and flow credit.
Christian Sewing: In the private bank, we expect revenue growth of around 400 million euros or about 4%.
driven by higher NII from continued business volume growth.
and the Deposit Hedge Rollover.
Christian Sewing: as well as growing non-interest income, harvesting benefits from higher assets under management, and growth in investment solutions.
Christian Sewing: Finally, we expect asset management to grow by around 300 million, or 12.5%.
Christian Sewing: We expect the business to benefit from the growth in assets under management during 2024 and a strong equity market development this year, which should boost management fees in 2025.
Christian Sewing: We furthermore expect continued growth in passives, including extractors and in alternatives.
Christian Sewing: These drivers underline our confidence in achieving our revenue goal of around 32 billion euros in 2025 before FX benefits.
Christian Sewing: At year-end FX rates, we expect this number to be around 32.8 billion Euros.
Importantly, all divisions are contributing to this substantial growth.
Christian Sewing: From both non-interest revenues and NII, which once again reflects our well-diversified business mix, around 75% of this growth is expected to come from more predictable revenue streams.
Let me now turn to costs on slide 6.
Christian Sewing: In 2025, our goal is simple. Deliver a significant normalization of non-operating costs and essentially flat adjusted costs, despite our ongoing investments into growth.
Christian Sewing: Moving past significantly elevated litigation and other restructuring charges in 2024.
Christian Sewing: We are planning with a clear reduction of 2.1 billion euros in non-operating costs this year.
Turning to adjusted costs.
Christian Sewing: Since we presented our ambitions for 2025 and our Investor Day in 2022,
We have navigated dynamically through a volatile and fast-moving environment.
Christian Sewing: and this resulted in some additional costs as we choose to make investments in technology, controls and business growth and with inflation proving to be more persistent than anticipated.
Christian Sewing: In respect of the additional investments, we have positioned the bank for sustainable growth in 2025 and beyond by investing into two key areas.
Christian Sewing: Firstly, growing our franchise beyond our original revenue ambition to better serve our clients and deliver higher rewards for shareholders.
Christian Sewing: Secondly, expanding our initially planned mandatory and strategic investments into technology controls and regulatory remediation.
Christian Sewing: In 2024, we hired 1,300 technology specialists and added 400 targeted revenue-generating roads supporting long-term cost improvement and growth.
Christian Sewing: In 2024 alone, we also invested a further 1.2 billion euros into controls, taking the total since 2019 to more than 6.5 billion euros.
Christian Sewing: Some of these additional expenses will stay with us this year. However, we expect to offset much of the impact through our cost measures in line with our plan, which we expect to yield further benefits in 2025 and beyond.
Christian Sewing: Our optimization initiatives in Germany are expected to generate savings of close to 200 million euros.
Christian Sewing: Investments to reduce the complexity of our organization by improving technology and optimizing the workforce across infrastructure are expected to deliver a further 300 million euros.
Christian Sewing: An automation of processes alongside better alignment of our front-to-back setup should deliver another 200 million euros.
Christian Sewing: Our initiatives include the previously announced closure of additional branches in 2025.
Christian Sewing: The implementation of new branch formats, as well as decommissioning of further applications or moving them to the cloud.
Christian Sewing: The net effect is that we expect to hold our adjusted cost base flat year-on-year while reducing non-operating costs significantly. James will detail the year-on-year cost walk later.
Christian Sewing: This, combined with the anticipated revenue growth of 2 billion euros we just discussed, will create substantial operating leverage.
Christian Sewing: As a result, we now target a cost-income ratio of below 65% this year, marginally higher than our original target, though this will further support growth and business momentum in and beyond 2025.
Christian Sewing: As I said earlier, this does not compromise delivery of our greater than 10% ROT target or our plans for capital distributions.
Christian Sewing: Let me now turn to these, starting with the path to our return on tangible equity target on slide 7.
Christian Sewing: We remain on a clear path to achieve our ROTE target of above 10% in 2025, driven by focused execution across all three delivery pillars of our global house bank strategy.
Christian Sewing: As you saw, we have a business-by-business roadmap to grow revenues to around 32 billion euros in 2025, in line with our target growth of 5.5 to 6.5 percent.
Christian Sewing: Operational efficiencies play a key role in keeping adjusted costs flat in 2025 and thereby reducing total non-interest expenses as non-operating costs normalize.
Christian Sewing: Capital Efficiencies have delivered cumulative RWA equivalent reductions of 24 billion euros, close to our end 2025 goal of 25 to 30 billion euros.
Christian Sewing: In the fourth quarter alone, we delivered €2 billion of RWA-equivalent reductions driven by data and process improvements.
Christian Sewing: We are confident we will reach the upper end of our target range by year-end 2025 through further securitizations and data and process improvements.
Christian Sewing: Delivering on these pillars gives us a clear path to an ROTE above 10% in 2025.
Christian Sewing: The non-repeat of significant litigation items in 2024 gives us a starting point of an adjusted ROT above 7%.
Christian Sewing: Firstly, reaching our around 32 billion euro revenue goal is expected to add more than two percentage points to our 2025 ROT.
Christian Sewing: Around 20% of this growth is expected to come from an increase in net interest income by roughly 400 million euros, primarily due to the rollover of hatches.
Christian Sewing: Another 40% or roughly 800 million euros should come from higher non-interest revenues from more predictable income streams.
Christian Sewing: including from scaling actions and monetizing client relationships in the corporate bank or the spillover effect from higher AUM levels in asset management and private bank.
Christian Sewing: The remaining revenue increase is expected to come primarily from market share expansion in a growing fee pool in O&A.
Christian Sewing: From a regional perspective, we expect increasing revenues in the Americas, supporting by an improving market backdrop and reflecting our targeted investments, while further growth is expected to come from Asia and the Middle East, as well as Germany.
Christian Sewing: Secondly, we expect an additional contribution of around 60 basis points from the reduction in non-interest expenses we just discussed.
Christian Sewing: Together, this would bring us already to our targeted ROTC level.
Christian Sewing: And finally, we expect a contribution of around 40 basis points from the reduction of credit loss provisions in 2025 towards more normalized levels, in line with our guidance with our third quarter results.
Christian Sewing: All in all, we see a clear path to achieving our ROT target of above 10%.
Let me now discuss the implications for capital distributions.
Christian Sewing: The value we have created for our shareholders is visible in the growth in tangible book value per share by more than 20% since 2021 to almost 30 years.
Christian Sewing: This was driven by strong organic capital generation and greater capital efficiency, which supported both rising shareholder distributions and business growth.
Christian Sewing: We have received regulatory approval for a share buyback of 750 million euros.
Christian Sewing: Additionally, and as guided, we plan to propose a dividend per share of 68 cents for 2024 at our upcoming Annual General Meeting in May, amounting to a distribution of around 1.3 billion euros.
Christian Sewing: Together, these initiatives result in shareholder distributions of around 2.1 billion euros announced so far in 2025.
Christian Sewing: The announced distributions in 2024 would bring cumulative capital return to around 5.4 billion euros since 2022, in line with our promise back in July 2019 when we announced our Compete to Win strategy.
Christian Sewing: modest additional share buybacks this year or next year would be sufficient to get our 8 billion euro target.
Christian Sewing: However, we are committed to surpassing this target, as we have said before, and it remains our priority to reward our shareholders in line with our performance, and we are confident that we will continue to deliver rising distributions in the coming years.
Christian Sewing: Before I hand over to James, let me give you a brief outlook on our next phase on slide nine.
Speaker Change: With the end of 2024, the foundation of the Global House Bank has been laid successfully.
Speaker Change: And as you heard, we are set to deliver the return target we have set ourselves for this year, supported by the momentum and operating strengths of our franchise.
Speaker Change: And of course, the management team also looks beyond 2025 towards our longer-term ambitions, and we are committed to step up.
Speaker Change: We are already implementing measures today to elevate Deutsche Bank's performance beyond 2025, which will make us a more profitable bank.
Speaker Change: This focuses on client work, our own operations, and the way we work and lead.
Speaker Change: In short, we want to be even more dedicated to our clients' needs while continuing to embed our clear purpose in our daily activities. This will drive further revenue growth.
We are determined to make this bank more efficient.
And that means changing how we do things.
Speaker Change: It starts with a simpler organizational setup and a smaller workforce. And it requires to become even more technology-driven, which will also enhance client experience.
Speaker Change: We will put full focus on the productive allocation of capital to improve shareholder value and further balance out our earnings profile.
Speaker Change: In the end, we aim to become a much more profitable bank overall than our 2025 ROTE target.
Speaker Change: Our management agenda for 2025 and beyond focuses on three key points.
Growing value generation.
re-engineering our target operating model
and stronger leadership.
Speaker Change: Firstly, we aim to further grow value generation for our shareholders by sharpening our focus on capital allocation and RWA optimization at both business and client level to boost returns.
Speaker Change: We see tremendous potential from further improving resource productivity across the portfolio via repricing,
and reallocating capital to high-return franchises supporting further revenue growth.
Speaker Change: We plan to drive higher resource productivity through capital light origination.
in line with our strategy and accelerated FF rotations.
Speaker Change: We aim to boost the profitability of lower return business through front-to-back efficiency improvements and be disciplined in redeploying capital elsewhere, including making exits if necessary.
Speaker Change: We have already started these reviews in some lending portfolios such as mortgages and are seeing benefits of these choices.
Speaker Change: Secondly, we plan to achieve the next phase of operational efficiencies beyond our two and a half billion euro goal by re-engineering our target operating model.
Speaker Change: Our clear ambition is to operate the bank with a lower headcount and we aim to run a much leaner platform as our investments in technology automation and controls mature.
Speaker Change: We are tackling inefficiencies by giving business leaders more control over their cost base coupled with further front-to-end streamlining of processes.
Speaker Change: We plan to actively reduce management layers and roads, and integrate teams as part of our workforce optimization initiatives, in particular scrutinizing those areas where we do not see the required efficiency improvements.
Speaker Change: Thirdly, our management agenda emphasizes strengthening risk management and accountability and evolving our culture through a purpose-led framework we call This is Deutsche Bank.
Speaker Change: With our investments, we are well positioned to grow the global housebuy model, make it more efficient, and generate more capital for deployment in the business and shareholder distributions.
Speaker Change: Our management agenda provides significant scope to further improve our return profile and deliver sustainably growing earnings beyond 2025, unlocking the full potential of this bank.
Speaker Change: We will provide you with more details on our aspiration and actions beyond 2025 over the course of this year, but our immediate focus remains on demonstrating disciplined execution. With that, let me hand over to James.
James: Thank you, Christian, and good morning. As usual, let me start with a few key performance indicators on slide 11.
James: Notwithstanding the items in the fourth quarter that improve our risk profile, we maintained a level of resiliency we could not have shown a few years back, underscoring the successful transformation to date.
James: Our capital position remained robust, with the CET1 ratio at 13.8% at year-end, despite absorbing the specific litigation items throughout the year and the capital deduction for the 750 million euro share buyback announced today.
James: Our liquidity metrics remain sound. The liquidity coverage ratio was 131% in line with our target, and the net stable funding ratio was 121% at the upper end of our target range.
James: Let me now turn to the fourth quarter highlights on slide 12.
James: Group revenues were 7.2 billion euros, up 8% on the prior year quarter.
James: Revision for credit losses was 420 million euros, equivalent to 35 basis points of average loans, down 67 million euros year-on-year.
James: Non-interest expenses were 6.2 billion euros, up 14%, reflecting exceptional non-operating and adjusted cost items.
James: Non-operating items were 945 million euros in the quarter, including net litigation charges of 659 million euros and restructuring and severance charges of 286 million euros.
James: Adjusted costs were €5.3 billion, including charges for optimizing the bank's own real estate footprint of €100 million, as well as a true-up for bank levies in the UK of €134 million.
James: And, despite the exceptional cost items, we generated a profit before tax of 583 million euros and a net profit of 337 million euros.
James: Our tax rate in the fourth quarter came in at 42 percent.
James: Excluding the aforementioned litigation matters, the tax rate would have been 28%.
James: We expect the 2025 full-year tax rate to range between 28 and 29 percent.
James: In the fourth quarter, diluted earnings per share was $0.15, and tangible book value per share was €29.90, up 5% year on year.
James: Let me now turn to some of the drivers of these results and start with a review of our net interest income on slide 13.
James: NII across key banking book segments and other funding was strong at 3.3 billion euros, up sequentially and broadly flat on the prior year quarter.
James: compared to the third quarter, slightly higher deposit volumes, in particular overnight deposits, offset the expected beta convergence in the corporate bank.
James: Private Bank NII was up sequentially as we guided before and Fick Financing continued to grow its loan portfolio with a corresponding increase in quarterly revenues.
James: With that, let me turn to the full year NII trends and the outlook for 2025 on the next page.
James: Given the stronger NII in the fourth quarter, we outperformed our prior 2024 full-year guidance of 13.1 billion euros, reporting 13.3 billion euros across our key banking book segments and other funding.
James: This is about 100 million euros higher than 2023, reflecting the resilience of our NII even during an environment of falling rates and beta convergence.
James: For 2025, we expect NII yet again to increase to around 13.6 billion euros, a sequential increase of around 400 million euros. This is in line with our guidance provided last quarter, but reflective of the outperformance in the fourth quarter.
James: The key drivers are the rollover effect from our hedges, supported by portfolio growth in the private bank, corporate bank, and FIC financing.
James: As a reminder, our hedge portfolio stabilizes our income by extending the tenor of interest rate risk, but it also protects us against a drop in interest rates.
We provide further details in the appendix on slide 38.
James: Based on forward rates at the end of December, we expect the income from the hedge book to grow by several hundred million euros each year as we roll maturing hedges.
James: In current rate conditions, we are more sensitive to the long-term rate development and are less sensitive to short-term movements in policy rates.
James: Turning to slide 15, adjusted costs were 5.3 billion euros for the quarter.
James: We've seen lower costs across all categories versus the prior year quarter and reduced adjusted costs excluding bank levies by 2% or 118 million euros. Bank levies were driven by the true up in the UK of 134 million euros.
James: In line with our guidance in earlier quarters, we managed adjusted costs excluding bank levies closer to 4.9 billion euros if adjusted for 100 million euros from optimizing our own real estate footprint and the other unfavorable impact from exchange rate movements.
of around 60 million euros.
James: We have included further details in the appendix on slide 29.
James: On a full year basis, adjusted costs excluding bank levies increased by around 100 million euros on a constant FX basis.
James: As savings from streamlining our IT platform and lower spend for professional services were offset by higher costs for compensation and benefits, driven by rage growth, higher performance-related compensation, and the impact from increased internal workforce.
James: With that, let me turn to our cost guidance for 2025 on slide 16.
Christian Sewing: As Christian said earlier, a lot has happened since we embarked on our global house bank strategy in 2022.
Christian Sewing: And while we have taken opportunities to not only create a more resilient franchise, but also to ensure that we are better positioned for sustainable growth, there have also been headwinds, which we have not been able to fully offset.
Christian Sewing: Non-interest expenses in 2024 included a number of specific items which are either non-recurring in nature or aimed at improving our risk profile and supporting target delivery in 2025.
Christian Sewing: Total non-operating costs were 2.6 billion euros, driven by litigation charges for three specific items, which amounted to 1.7 billion euros.
Christian Sewing: Firstly, the Postbank Takeover litigation matter had a full-year net impact of 906 million euros, reflecting the initial provision and the settlement agreements we entered into in the third quarter.
Christian Sewing: Secondly, the industry-wide FX mortgage matter in Poland resulted in additional provisions of 329 million euros in the fourth quarter to reflect our updated estimation of the impact of developments in the market.
The total impact for the year was 500 million euros.
Christian Sewing: And lastly, the Ruskem Alliance litigation matter, which had an impact of 262 million euros in the fourth quarter and affected the corporate bank.
Christian Sewing: Recent developments led to the de-recognition of a reimbursement asset as a recovery of the claim through an indemnification obligation could no longer be assessed as virtually certain.
Christian Sewing: However, we believe we are in possession of a valid reimbursement claim and will vigorously assert our position.
Christian Sewing: Other litigation charges of €366 million were broad-based across a number of smaller items.
Christian Sewing: Additionally, restructuring and severance charges were elevated in the year at around €530 million, slightly higher than the €400 million we initially expected for the year, and included additional actions taken during the fourth quarter.
Christian Sewing: We made further progress, particularly in the private bank, to support our strategic transformation, which is aimed at rationalizing our branch footprint in Germany, while improving the access to advisory solutions for our retail clients.
Christian Sewing: Assuming a normalization of overall non-operating costs, the non-interest expense step-off for 2025 would have been 20.9 billion euros.
Christian Sewing: For 2025, we expect overall adjusted costs to remain flat year-on-year at around €20.3 billion, which translates to around €20.7 billion at year-end FX rates.
Christian Sewing: This is higher relative to our prior guidance, mainly driven by additional investments and business growth opportunities that we identified during our last planning cycle.
Christian Sewing: These investments, particularly into our corporate bank and investment bank businesses, support our targeted revenue growth this year and position us for further growth beyond.
Christian Sewing: We also see continued demand for control and remediation investments to ensure the bank fulfills all of its regulatory obligations and expectations.
Christian Sewing: In line with our original target, non-operating costs are expected to materially reduce to around 400 million euros in 2025 as litigation and restructuring and severance charges normalize.
Christian Sewing: As a result, non-interest expenses in 2025 are expected to be around 20.8 billion euros, resulting in a full-year cost-income ratio of below 65%, but delivering a significant implied operating leverage of 16%.
Christian Sewing: The investments, leading to a higher cost base, will also support further operating leverage beyond 2025. In short, although the reported numbers for 2024 are higher than originally planned, Christian and I are encouraged regarding our trajectory going into 2025.
Christian Sewing: Let us now turn to provision for credit losses on slide 17.
Christian Sewing: In line with the guidance provided in October, full-year provision stood at 1.8 billion euros, equivalent to 38 basis points of average loans.
Christian Sewing: Provisions were impacted by specific headwinds, including transitional effects from the postbank integration, which continued to taper off.
Christian Sewing: two relatively fast-paced larger corporate events impacting provisions at a level unusual compared to historical standards and which were materially hedged, as well as a cyclically higher level of commercial real estate provisions which we expect to decrease on a full-year basis in 2025.
Christian Sewing: You will find the full year update on transitory headwinds on slide 42 of the appendix.
Christian Sewing: When looking at the fourth quarter, provision for credit losses was 420 million euros, or 35 basis points of average loans.
Christian Sewing: As guided, the sequential decrease in provisions of 74 million euros was due to a reduction of stage 3 provisions, as the corporate bank benefited from a larger recovery on a legacy workout situation.
Christian Sewing: Investment bank provisions were lower, benefiting from a further small reduction of provisioning levels in CRE. During the fourth quarter, the bank completed the loan portfolio sale in the U.S.
Christian Sewing: Stage 3 provisions decreased sequentially to 415 million euros. Provisions were mainly driven by the private bank, which included impact from a small number of legacy cases in wealth management, as well as the investment bank, where CRE remained the main driver.
Christian Sewing: Stage 1 and 2 provisions were negligible as various portfolio effects were offset by slightly improved macroeconomic forecasts and overall recalibrations, overlay recalibrations in the fourth quarter.
Before we move on, a few remarks on asset quality.
Christian Sewing: We maintain tight underwriting standards and continue to conservatively manage our loan book, including single-name concentration risks through comprehensive hedging programs, with the total notional volume of hedges standing at 42 billion euros.
Christian Sewing: Our regular and comprehensive portfolio reviews show that overall credit quality remains stable and forward-looking indicators, such as rating migration and trends in our non-investment grade portfolio, as well as watch list ratios, do not suggest a noteworthy deterioration in asset quality.
Christian Sewing: We also see broadly stable developments in our domestic market, as outlined on slide 45 of the appendix, and we are carefully monitoring the developments surrounding it.
With that, let me turn to Capital on slide 18.
Christian Sewing: Our fourth quarter Common Equity Tier 1 ratio came in at 13.8%.
Christian Sewing: CET1 capital decreased, primarily reflecting the deduction of the 750 million euro share buyback from excess capital.
Christian Sewing: As expected, market risk RWA decreased, driven by SBAR, an incremental risk charge from careful positioning into year-end.
Christian Sewing: The marginal increase in credit risk was driven by model changes, largely offset by reductions from capital efficiency measures.
Christian Sewing: With respect to the CRR3 Go Live effective January 1st, 2025, our proforma CET1 ratio was 13.9%, around 5 basis points above our ratio for year-end 2024.
Christian Sewing: However, the CRR3 go-live will also lead to around 5 billion euros of RWA equivalent impact from operational risk to come in the first quarter.
Christian Sewing: Hence, the total impact of CRR3 is a CET1 ratio burden of around 15 basis points, consistent with prior guidance.
Christian Sewing: At the end of the fourth quarter, our leverage ratio stood at 4.6%, flat sequentially, as the benefit from additional Tier 1 capital issuance in the quarter was offset by the CET1 deduction for the 750 million euro share buyback announced today and FX effects.
Christian Sewing: With regard to bail-in ratios, we continue to operate with significant buffers over all requirements.
Christian Sewing: In short, our capital position remains strong and already reflects our approved share buyback. And with that, let us turn to performance in our businesses, starting with the corporate bank on slide 20.
Christian Sewing: Corporate bank revenues in the fourth quarter were €1.9 billion, 1% higher sequentially driven by growth in deposit revenues from interest hedging and higher volumes offsetting ongoing margin normalization.
Christian Sewing: In 2024, we have made good progress on our growth initiatives to offset the normalization of deposit revenues by further accelerating non-interest revenue growth, with 5% growth in commissions and fee income across all regions, and a particularly strong contribution from our trade finance business.
Christian Sewing: The deposit base remains strong throughout the entire year as deposits increase by 23 billion euros year-on-year, driven by higher site deposits in corporate treasury services and favorable FX movements.
Christian Sewing: Revision for credit losses stood at 23 million euros, significantly lower driven by a larger recovery.
Christian Sewing: Non-interest expenses were higher, driven by the RUSCM Alliance litigation matter, while adjusted costs decreased by 6% year-on-year, driven by lower direct costs and internal service cost allocations.
Christian Sewing: I will now turn to the Investment Bank on slide 21.
Christian Sewing: Revenues for the fourth quarter were 30% higher year-on-year on a reported basis, with strong growth across the franchise.
Christian Sewing: Revenues in fixed income and currencies increased by 26% with year-on-year improvements across all businesses.
This represented the highest fourth quarter revenues on record.
Christian Sewing: Financing revenues were significantly higher, reflecting strong fee income across the business, combined with an increased carry profile.
Christian Sewing: rates revenues were significantly higher while credit trading, foreign exchange, and emerging markets increased, benefiting from heightened market activity and client engagement.
Christian Sewing: Moving to origination and advisory, revenues were significantly higher both year-on-year and sequentially, with market share gains across business lines in a growing industry field fee pool.
Christian Sewing: Advisory revenues were significantly higher reflecting material market share gains year-on-year in a static industry fee pool.
Christian Sewing: Debt origination revenues also increased and reflected strength in leveraged debt driven by strong pipeline execution in an active market.
Christian Sewing: Non-interest expenses were lower year-on-year due to the non-repeat of a goodwill impairment in the prior year quarter.
Christian Sewing: Adjusted costs were essentially flat when excluding the increase in UK bank levies mentioned earlier.
Christian Sewing: Loan balances increased compared to the prior year, driven by the impact of FX translation combined with growth in financing.
Christian Sewing: Provision for credit losses was €101 million, or 37 basis points of average loans, significantly lower year-on-year due to the non-repeat of Stage 1 and 2 model-related provisions in the prior year, while Stage 3 provisions also decreased.
Let me now turn to Private Bank on slide 22.
Christian Sewing: The private bank is making progress, both in creating revenue momentum and putting transformation-related costs and transitory credit costs behind us.
Christian Sewing: Revenues of 2.4 billion euros in the quarter reflect non-interest revenue growth of 6% year-on-year on the back of higher investment product revenues.
Christian Sewing: NII declined by 5 percent, driven by continued higher funding costs from the impact of minimum reserves, the group neutral impact of certain hedging costs, as well as a benefit from episodic lending revenues in the prior year quarter.
Christian Sewing: Excluding these effects, fourth quarter revenues in the private bank would have been up 6% year-on-year.
Christian Sewing: Personal banking revenues were impacted by aforementioned higher funding allocations and hedging costs, partially offset by higher deposit revenues.
Christian Sewing: Wealth management and private banking revenues were essentially flat as higher investment product revenues and lending growth was offset by the non-recurrence of episodic lending revenues in the prior year.
Christian Sewing: The business attracted net inflows into assets under management of 2 billion euros, supported by deposit campaigns in Germany. Outflows in investment products were mainly driven by specific and isolated client transactions.
Christian Sewing: As outlined in the third quarter, we see cost savings coming through as the private bank continues its transformation.
Christian Sewing: with a further 74 branch closures in the fourth quarter bringing the total to 125 this year and accelerated head-to-count reductions of more than 1,300 FTE in the past 12 months mainly in Germany
Christian Sewing: The substantial improvement in adjusted costs of 9% reflects the benefits from transformation initiatives and lower regulatory as well as client service remediation costs, which are now effectively behind us.
Christian Sewing: Non-interest rate expenses declined by 5% year-on-year, despite higher restructuring and severance costs.
Christian Sewing: Revision for credit losses reflects continued workout activities on a small number of legacy cases in wealth management, while transitory effects from operational backlog are taping off as expected.
Christian Sewing: The overall quality of our domestic and international loan portfolios remains solid.
Let me now turn to Asset Management on slide 23.
Christian Sewing: which reached a key milestone during the fourth quarter by surpassing 1 trillion euros of assets under management for the first time.
Christian Sewing: Scale is becoming increasingly important in this industry and for the DWS franchise, favorable market trends support our strategic positioning, especially given our strong position in passive products.
Christian Sewing: My usual reminder, the asset management segment includes certain items that are not part of the DWS standalone financials.
Christian Sewing: Profit before tax more than doubled from the prior year period, driven by higher revenues.
Christian Sewing: Revenues increased by 22% versus the prior year. This was primarily from higher management fees of 647 million euros from both active and passive products driven by growth in average assets under management.
Christian Sewing: Additionally, performance fees more than doubled from the prior year period, primarily due to the recognition of a substantial multi-asset performance fee.
Christian Sewing: Other revenues principally reflected a negative revaluation of the fair value of guarantees and lower investment income, partly offset by lower Treasury funding costs.
Christian Sewing: Non-interest expenses and adjusted costs were both essentially flat compared to the prior year.
Christian Sewing: Cash, alternatives, quantitative solutions, and multi-asset also achieved good results with combined net inflows of 6 billion euros, more than offsetting net outflows in active equity and fixed income products.
Christian Sewing: Assets under management increased by 49 billion euros in the quarter driven by positive FX effects and net inflows
Christian Sewing: The cost-income ratio for the quarter declined to 67% and return on tangible equity was 21%, both improving from the prior year quarter.
Christian Sewing: This morning, DWS communicated its outlook for 2025 and introduced new medium-term strategic targets, including 10 percent earnings per share growth per year from the starting point in 2025 to 2027.
Christian Sewing: For further details, please have a look at the DWS Disclosure on their Investor Relations website.
Moving to Corporate Another on slide 24.
Christian Sewing: Corporate Another reported a pre-tax loss of 621 million euros this quarter driven by the provision increase for foreign currency mortgages of 329 million euros resulting from updates to the provision model parameters to reflect impacts of recent developments in the estimated cost of the legal risk.
Christian Sewing: This compares to a pre-tax profit of €104 million in the prior year quarter, which included a provision release of €287 million relating to legacy litigation matters.
Christian Sewing: Revenues were negative 99 million euros this quarter, primarily driven by retained funding and liquidity impacts. This compares to negative 64 million euros in the prior year quarter, with a decrease driven by valuation and timing differences.
Christian Sewing: which were positive 87 million euros in the quarter compared to positive 143 million euros in the prior year quarter.
Christian Sewing: Pre-tax losses associated with legacy portfolios primarily reflect the aforementioned litigation matters.
Christian Sewing: At the end of the fourth quarter, risk-weighted assets stood at 34 billion euros, including 13 billion euros of operational risk RWA.
Christian Sewing: In aggregate, RWAs have reduced by 6 billion euros since the prior year quarter, mainly reflecting a change in the allocation of operational risk RWA.
Christian Sewing: Average exposure was 38 billion euros at the end of the quarter, slightly lower than the prior year quarter.
Christian Sewing: For 2025, we expect a significantly lower pre-tax loss for corporate and other of approximately 200 million euros per quarter or 800 million euros for the full year, mainly reflecting the non-recurrence of legacy litigation matters.
Christian Sewing: As usual, this includes some uncertainty, particularly associated with evaluation and timing differences.
Christian Sewing: Finally, let me turn to the group outlook on slide 25.
Christian Sewing: We believe we are on track to deliver increased revenues of 2 billion euros to achieve this year's revenue growth of around 32 billion euros, which translates to around 32.8 billion euros at year-end FX rates.
Christian Sewing: We remain committed to rigorous cost management and will manage our cost base to a cost-income ratio of below 65% for 2025.
Christian Sewing: Although this is higher than the level we were previously aiming for, we feel good that the level of investment in 2025 positions us for incremental opportunities and higher returns over time, while also further improving our control environment.
Christian Sewing: We continue to expect an amelioration of provision for credit losses in 2025 as the transitory headwinds we called out previously subside.
Christian Sewing: Our strong capital position gives us a solid step-off for our 2025 and 2026 distribution
We remain committed to our capital distribution target.
Christian Sewing: Our full attention remains on delivering an ROTE of above 10% in 2025, driven by continued revenue momentum, cost control, and balance sheet efficiency.
Christian Sewing: And these are the levers to also deliver further improved profitability beyond 2025.
Christian Sewing: With that, let me hand back to Ioana, and we look forward to your questions.
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 may press star and then 1 on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2.
Speaker Change: Questioners on the phone are requested to disable loudspeaker mode and eventually turn off the volume from the webcast while asking a question.
Speaker Change: And the first question comes from the line of Nicolas Payet from Kepler-Chebro. Please go ahead.
Speaker Change: Yes, good morning. I have two questions, please. The first one would be on revenues and could you elaborate on the bridge to the 32 billion of revenues target, please? And in particular, what gives you confidence that you can reach 32 billion and how the start of the year position you toward this target?
Speaker Change: The second question will be on share buyback. You previously alluded to a share buyback annual growth of roughly 50%, which would put you at 1 billion share buyback versus the 750 that you announced.
Speaker Change: So the question is, can we expect more throughout the years, and at what point in time during this year? And also, what are the performance criteria that you are looking at to potentially announce more? Thank you.
Speaker Change: Thank you Nicolae. Christian let me let me start with your questions and then James can obviously contribute.
Speaker Change: Look, what makes us confident is first of all the overall positioning and foundation which we have built over the last four or five years as a global houseplant to our clients. The momentum, the development in all four businesses, feedback from clients.
Speaker Change: To be honest, in all the last three or four years, we not only met our revenue targets but even exceeded that in the years. It really makes me confident that from the offering we have, from the positioning we have,
Speaker Change: is actually the right starting point also for the next years. And that feedback, Nikola, we get continuously back from our clients, be it institutional clients, corporate clients, and private clients.
Speaker Change: Let me also say that, in particular, the geopolitical items which we are facing in this world, in this regard...
Speaker Change: to be honest, support us. People want our advice. Corporates talk to us on their amended networks. So the mandates we get...
Speaker Change: from the corporate side, from the institutional side, is again something which really makes me confident and is on a level which we haven't seen before.
Speaker Change: to the bridge from $30.1 billion, to be honest, to $32 billion. What makes me confident and how do we see that? I would really kind of divide that in three parts. Number one,
Speaker Change: It's 400 million coming from NII and that is obviously reflecting the hedging which we have already put in place.
Speaker Change: This will in particular come from the PB and the CB side, and on top of that we see also the growth in our fixed financing. So that is approximately 400 million, which we will see. Also the good work which we have done on the treasury side with our business, so that is locked in.
Speaker Change: Now, the next thing is, and we always talk about, so to say, the more predictable business.
Speaker Change: We see approximately 800 million, if not even a bit more, from the more predictable business. And that in particular is the private bank, asset management, and the corporate bank.
Speaker Change: scaling the business which we have invested in. If you look into our investment, which we have done in 23, in 24, but in particular looking at the investment plan for 25,
Speaker Change: a high degree and partially the highest amount in those years, and in particular in 2025, goes into the corporate bank to really scale up our offering. And you have seen the overall development of the corporate bank, which is at the core of our franchise.
Speaker Change: And therefore, I can see at least these 400 million of uptick in the year 2025. And again, if I look at the mandates, which we are constantly winning, how the year started, I'm very optimistic here.
Speaker Change: There is no drag on the NNI side. I talked about the initial $400 million.
Speaker Change: So therefore, we can clearly see with the increased volume, higher revenues. Last but not least, I also said that in the discussions before, which we had on the quarterly side,
Speaker Change: There is a lot of momentum also in Germany actually in the retail bank
Speaker Change: I think Germany, one of the biggest problems and challenges we have is actually with our pension plans.
in the next years.
Speaker Change: and more and more. These are the discussions which we have with our clients. And again, then applying that to 15 million post-bank clients now being on our IT platform is a huge opportunity for us, and Claudio is banking on that.
Speaker Change: That brings us those two to 1.2 billion, so you are kind of at 31.2, 31.3 billion. Where's the rest coming from?
Speaker Change: 500 to 600 million in particular in the investment bank from the ONA business.
Speaker Change: I think James and I talked a lot about that over the last 18 months. We did on purpose the investments in the middle of 2023, not only NUMIS but in particular also the hirings of senior directors in the corporate finance business.
Speaker Change: I think we could show with the growth rates in 2024 that this started to pay off. I'm really proud what Fabrizio has done in that business. Look at the Q4 numbers in the O&A business, we clearly outperformed the market.
Speaker Change: and I can see that this momentum is going on. So we believe that actually in the ONA market, we can increase our market share by approximately 50 basis points to approximately 3 percentage points.
Speaker Change: And then I also do believe that actually the fee pool, in particular, given what is happening in this world with the growth momentum we see in the U.S., will be higher next year. But the real impact...
Speaker Change: The majority of the 5 to 600 million euros is clearly coming from now that the investments are fully paying off and that we increase our market share.
Speaker Change: Now, that already brings us almost very close to the $32 billion. I haven't talked about the FIT business.
Speaker Change: because obviously, in particular, RUM is not standing still. We have done significant investments, in particular, in Latin America, but also North America, in our business. Watch the credit trading business, also with the recent hires, which we have done summer last year, and obviously, which we are paying off more and more.
Speaker Change: and therefore I do believe that we have also a chance to grow there. So in this regard, that is the bridge for us from 30 to 32 billion.
Speaker Change: Obviously, the confidence level which James and I have, and Fabrizio and Claudio, is also sparked by a first good month. Now we know we cannot rest here.
Speaker Change: One month is one month, but the overall momentum in this bank to drive this, the feedback from the clients also last week in Davos is clearly telling me this is achievable and I'm sure we can show you that already at the end of April.
second part on the shear buybacks
Look, I do believe that James and I...
Speaker Change: I have always managed this bank in a prudent and conservative way, i.e., in particular to your question, 1 billion to 750 million.
First of all,
Speaker Change: I'm really happy with the starting point in which we start into this measurement year of 2025. 13.8% capital ratio gives us actually the ammunition on the one hand to grow business and have the right resources. That's all in our plans, but at the same time obviously also reward our shareholders.
Speaker Change: with the 750 which we announced and we should not forget that the 50% increase in dividends we actually announced to the market already a distribution of 2.1 billion for this year
I think it's a wonderful starting point.
Speaker Change: And actually, if you move that up, we are now at $5.4 billion. If we think about our path, which we gave to the market, in particular with regard to growing our distribution and also the dividends,
Speaker Change: and you apply the next increase on the dividends for next year, you are already very, very close to the $8 billion.
Now, I think, and that's what our approach is.
Speaker Change: Let us deliver on our business execution in the next month to deliver the 10% return on equity. Of course, we will review our distributions in the course of the year on the basis of our performance.
Speaker Change: As at the end of the day, we know that we also want to reward the shareholders.
Speaker Change: But I think it's a good and prudent start into the year.
Speaker Change: And let me end also with one thing, absolute confidence that we will do that what we promised to you to distribute more than 8 billion in the years 21 to 25, including the payouts in 26.
Thank you very much.
Speaker Change: The next question comes from the line of Anke Reingen from RBC. Please go ahead.
Speaker Change: Thank you very much for taking my question. I just wanted to ask about the costs.
Speaker Change: Can you please talk a bit more about the increase in your guidance of the adjusted costs to $20.3 billion? I mean, how much of this is...
Speaker Change: a function of your revenue expectations in 2025 and how much is this affecting future investments?
Speaker Change: And then on the, how should we think about it at the divisional level on how the higher cost base comes through in terms of, also in terms of the cost income ratio target and in comparison you previously
provided cost-income ratio targets at the previous capital markets day.
Speaker Change: And then just the 62.5, is that now a target that's not in reach or is it remain a longer aspiration, something you might potentially discuss?
Speaker Change: in the course of the year. And then last question, I mean obviously this is a bit of a disappointment on the Q4 performance. What should give us the confidence that Q4 2025 doesn't
Speaker Change: give us a similar disappointment. And in that aspect, I think the non-operating costs at the 400 million look relatively low. So if you can give us a bit more confidence that really these costs, I mean, ignoring FX effects, we will be able to deliver them. Thank you.
Speaker Change: Thank you, Anke. It's James here. And you did lots to talk about, but all the right questions on the cost side, for sure.
Speaker Change: So, let me go in a little bit of a mixed order. On the non-operating costs, look, start with restructuring and severance. We have a significant amount, sort of, I don't know, practically all, but we've come such a long way in terms of the transformation of the company.
Speaker Change: When I say not a great deal, there's still some work that Claudio and his team are doing on the private bank. You've seen that. But of course, we've taken some into Q4.
Speaker Change: to enable us to take some actions already in 2025, but for practical purposes, we're through the major transformation of the company.
On the litigation side.
Speaker Change: The way I think about it is that there's a funnel of matters.
Speaker Change: and that funnel is simply emptied. Now, not in the right way. Obviously, in 2024, we had some surprises, and there can always be unknown unknowns, but of the known items, the funnel is simply, you know, empty or nigh unto empty, and the risks...
Speaker Change: that we can see are remote both in terms of time and likelihood.
Speaker Change: So we feel really good about the trajectory now on the normalization of non-operating costs, and that counts, that goes for Q4 next year. Obviously, we have every incentive not to deliver another quarter in which
Speaker Change: in which there's a kind of a messy Q4, another year in which there's a messy Q4.
Speaker Change: If I go to the Investor Day numbers, and this goes all the way back to 2022, but there actually I see really good progress. So if I look to the business...
Speaker Change: sort of plans for this year, or the business cost-income ratios in our plan.
Speaker Change: Really encouraging progress. Now, these weren't formal targets, but definitely a guide for you. And we see both corporate bank and investment bank within the range. Corporate bank may be towards the high end of the range, investment bank towards the middle of the range.
Speaker Change: and Asset Management also very, very close to the top end of the range. So really good progress in those businesses.
Speaker Change: The private bank at this point will clearly be above the range, but actually the underlying performance of the private bank is very encouraging in absolute terms. They're coming in very close to what we had factored in at the time.
Speaker Change: carrying the burden of really two things that some of where the incremental investment of controls and technology has has gone in the years
Speaker Change: and also as we've refined our internal cost allocations, you remember we've talked about driver-based cost management, it's tended to be shifted some of the expenses to the private bank. So overall we're encouraged by what we see and there's still...
Speaker Change: work to do. We don't think the trajectory for the businesses or the group ends with 2025.
Speaker Change: And so we absolutely think that that is within reach of the firm, but not in 2025.
Speaker Change: And so that then gets you to what has driven the costs up to our current view of 20.3 on the old FX.
look
It's a...
Speaker Change: It's a bunch of drivers and again cumulatively since the last capital markets day I would probably bucket it as a third, a third, a third, you know It's sort of six or seven hundred million euros over that time If you express it in cost-income ratio terms and about a third has gone into business investments
Speaker Change: about a third into control and the further third into technology. If I give you rough numbers, probably a little bit more weighted towards technology in that math.
Speaker Change: Now, you've seen us make those decisions, and as we've said in the prepared remarks, we think they're the right decisions for the company.
Speaker Change: Controls are the license to operate, and back in 22, we relatively quickly recognized we needed more investment to close out the control improvements to meet our own expectations and those of the regulators. And that investment has continued.
on technology.
Speaker Change: That's been sustained over the past several years. And as you know, our business very much competes on the technology that you can provide across a whole range of of activities, including the client experience. And we think it's the right decision, therefore, to continue and sustain that investment.
Speaker Change: On the business side, this really goes back to the 2023 investment opportunity we saw, particularly in the investment bank at the time.
Speaker Change: and we like how that investment is paying off and will pay off in the years to come. And so it's, if you like the cumulative impact of those things that have carried into the costs for this year.
Speaker Change: If you're in the deep detail of why now and what wasn't visible to us last year, look, as we went through a planning cycle...
Speaker Change: have expected at the time. And as I say, so cumulatively, those are the drivers that have...
that have driven us to where we are now.
Speaker Change: Again, a lot of that has been offset by the very good work we've been doing under Rebecca's leadership on the efficiency program. And as Christian mentioned in his remarks, we've made enormous progress towards the $2.5 billion goal in terms of cost takeout, and there is more to come thereafter because
Speaker Change: You know, I said in the last call, it's like peeling an onion, we see more opportunity as we get deeper into the transformation and deeper into some of the process improvements that we make.
Speaker Change: Go ahead. Sorry Anka, I mean 100% support what James is saying.
Anka: just to reiterate that obviously below 65 is not our end point. And for that I simply also wanted to refer to page 9 of our prepared remark.
Anka: where obviously we are now thinking with all the investments we have done what the outcome is. That goes beyond the two and a half billion which Rebecca is managing, but also here on purpose obviously we gave you a little bit of an outlook, so clear dedication and goal by the bank to go lower.
Thank you very much.
Speaker Change: The next question comes online from Tian Abu Hussain from JP Morgan. Please go ahead.
Speaker Change: Thanks for taking my questions. I just wanted to come back to the cost line.
Speaker Change: So we should really look at $21.2 billion, no? I would say it's a more realistic number, and in that context, can you just tell us what it also means in terms of revenues?
Speaker Change: impact? Is it around I guess 400 million roughly as well or slightly more I assume?
Speaker Change: And in that context, can you talk a little bit about your ambition in Mittelstand? And if you have factored anything for expansion in Mittelstand, considering there's clearly some opportunities in Germany with two banks.
Speaker Change: you know, potentially targets in terms of middle strand growth from your perspective, and can you talk about what you're actually doing on the ground to grow there? And lastly, within cost, and apologies, it's clearly a big topic,
Speaker Change: Flexibility on cost. I've asked that before but clearly with a higher cost guide and that's the topic that we get a lot of questions on. If you can talk about flexibility in case you don't get the 32 billion plus.
Speaker Change: And if I may just ask on last question on page 9, on your return on, I guess, risk-feared assets.
Speaker Change: or risk-weighted asset by business where you give kind of the profit to risk-weighted assets. Very interesting chart, clearly. And I'm just trying to understand what are the big buckets which we should look at in terms of underperforming businesses so we understand what the opportunity is.
Speaker Change: Thank you. Great questions again, lots to go through there. Let me start on the easy stuff and I'll give Christian the harder questions.
Speaker Change: in what we would call plan FX levels, where euro-dollar was around 110-111, and then we give you the translation into December FX, which was about 105.
Speaker Change: And so that difference creates, on the revenue side, a number where $32 billion translates to about $32.8 billion. And on the expense side, as you say, $20.8 translates to $21.2.
in the relationship between euros and dollars.
Speaker Change: dollar strengthening actually helps our margin just a little bit and here I refer to you to the to the currency breakout of revenues expenses on page 36.
Speaker Change: where you can see that there's a little bit of asymmetry in dollar-euro where we have more revenues than expenses expressed in dollars and that drives therefore just a little bit of FX improvement on the margin. Now
Speaker Change: That relationship will change over the course of the year. So we'll continue to give you reporting that shows the year-on-year variances created by FX.
Speaker Change: One of the reasons we're talking about absolute numbers is always challenging given that change. And just to complete the picture, in case the question comes up, we do hedge the sterling risk. You'll see that there's also an asymmetry in sterling. We hedge that forward. It's rolling, so it's not forever.
Speaker Change: that euro sterling currency differences don't really change the in-year numbers a great deal. Ken, you had a follow-up?
No, I'm fine.
Looking on the Middle Front Germany
Speaker Change: Sorry, I was on mute. On the Middlestand Germany, a very good question.
Speaker Change: not only growing but that the profitability of that portfolio, like indicated by the way on page nine, is further improving. Number one.
Speaker Change: making sure that we don't have different processes for the various financing or payment flows, that we are streamlining this. This is one area where actually a lot of investments
Speaker Change: We also, and I can say that here also with a little bit of pride, we absolutely regain credibility and trust in the German home market. And if I look at our market shares in not only obviously the DAX company, but in the Mittelstand, be it the bigger family-owned companies, the Mittelstand itself, but also in the small business areas,
Speaker Change: We have actually gained momentum, we increased the revenues, because the clients are feeling that Deutsche Bank wants to do that business. That was different before 2018 and with the constant improvements, also process-wise.
Speaker Change: We obviously succeed. Thirdly, we have invested into our coverage. For Germany, if you want to really bank it in the best way, you need to be regionally. We have invested into our people here in order to make sure we have the right coverage.
And fourthly, yes, you alluded to that.
Now, obviously, I'm not talking in detail about that.
but each
Speaker Change: situation in the industry is providing a huge opportunity. There is uncertainty in the market, you know what I'm talking about, and that obviously is a chance and opportunity for us, and we have started to work on this and I'm sure more to come. So Mittelstand Germany is
Speaker Change: From a profitability point of view, efficiency point of view, and from a growth, absolutely a focus.
Speaker Change: Let me also say, because I'm sure I get the next question, but we are not doing that at any price. We also need to take into account the situation, the economy, and therefore we will not alter our underwriting standards, because that would bite us, and therefore we keep the underwriting standards which we had, but...
Speaker Change: doing this we can see a clear growth here at home.
Speaker Change: Can maybe just very briefly on your you're pointing to slide 9 the chart on the right It's what we can now work with over the next several years in a more fine-tuned way
Speaker Change: than previously, with each of the businesses looking at the drivers of their SVA or profitability against the resources that they deploy.
Speaker Change: the capital burden and the efforts we've gone to to create resources efficiency on the RWA side is also helping.
Speaker Change: to give you an example of where we are using these tools to make decisions. We talked about the mortgage product, especially in our home market, and the de-emphasis over the past couple of years of that product.
carry itself from a profitability perspective as well.
Speaker Change: There are other portfolios all around the company that we're working with the businesses very closely on and the level of engagement in this in this work is
Speaker Change: is extremely high, which gives us a lot of optimism about
Speaker Change: how these levers can be pulled over the next several years to drive a very significant impact in bringing
Thank you.
Speaker Change: Next question comes from Lionel Thora, Bochart from Barclays. Please go ahead.
Yes, thank you. Good morning.
Speaker Change: The first question I wanted to ask is actually a clarification.
Speaker Change: Regarding the buyback, the 750 million that you announced today, just to understand when you intend to launch that buyback, are we talking just a few days or are we talking several months?
before this gets launched.
and then on the questions.
Speaker Change: First is actually coming back to the CET-1 trajectory and distribution plans.
Speaker Change: And thank you, Christian, for clarifying how the performance is going to play into potentially more distribution. But I also wanted to draw the attention on the regulatory risk here.
Speaker Change: because my understanding is that the Basel IV first-time implementation is now expecting
Speaker Change: to cost you just five billion additional RWA, so not the 7.5 billion.
Speaker Change: that had initially been guided. Obviously there is discussion ongoing on whether FRTB implementation in Europe is gonna be delayed. I know no decision has been made yet, but you know, assuming this would get delayed by another year, could that mean also upside risk?
Speaker Change: to your distribution plans for 2025 beyond the actual performance itself.
Speaker Change: And then a word on provisions that we haven't discussed too much yet.
Speaker Change: I think the guidance you provide for 2025 points to 1.4 to 1.6 billion euros of provisions consensus is right in the middle at 1.5 so just if you could discuss you know where's the risk on that number whether to the upside or the downside what gives you the confidence the visibility on that number with a special word also if you can you know on the US commercial real estate portfolio especially US offices after
Speaker Change: The Fed is more likely now to keep the rates higher for longer. Thank you.
Speaker Change: Thank you, Flora. Also great questions. And for the others, I won't say great questions again, so don't be insulted if I don't repeat that.
Speaker Change: So, briefly on the start of the buyback program, look, every year we start with the buybacks that offset employee share deliveries against, you know, previous year compensation, so it actually takes a little while until we complete that.
Speaker Change: And so we would only start the $7.50 once that is done. It takes a little bit of time, but we are in the market really for most of the first quarter with the former buyback.
Speaker Change: As was the case last year, I can see some of this amount slipping into the early part of Q3, but we would expect to get the bulk of it done earlier than that.
I'll talk about the trajectory on CRR3.
Speaker Change: Look, it's more or less where we thought it would be, and yes, there are some bits still to come. So there's a bit of a round trip in the first quarter.
Speaker Change: because in the technical details of CRR 3, the OPRISC RWA doesn't hit you January 1st but only really March 31st.
Speaker Change: But the net number of about 15 basis points down is about 5 basis points up in our estimates on January 1st and then 20 basis points to come on OPRISC RWA.
Speaker Change: There are some modest adjustments also in CVA and credit risk that come into it.
Speaker Change: The calculations are relatively new and fresh, and so, you know, it'll take time for the systems, the models, and what have you to settle a little bit, and we'll be back to you.
Speaker Change: On FRTB, you know, that is an opportunity. Naturally, we need to plan with the expectation that that will be implemented in January of next year. And we would stick with the estimate of around seven, really seven and a half billion of impact in RWA.
from the first of the year, 26.
Speaker Change: I think there's a decent likelihood it'll be delayed, just because I think we all believe, and so do some of the...
Speaker Change: legislators that creating a competitive disadvantage for the European banks in this area waiting until FRTB implementation comes the United States and the UK would be unnecessarily damaging.
Speaker Change: and hence we do think that's an opportunity and at a point in time where it's more certain it can enter into our capital trajectory and thinking. I would add that there are some other potential changes in our requirements.
going forward that can impact, say, MDA.
Speaker Change: And then lastly, on CLP, it's a relatively wide range. I think if you asked us today, we'd probably say closer to the top end of the range.
Speaker Change: Given that we still have to see, as you say, commercial real estate, the moderation take place, we're looking at...
Speaker Change: But we do, and hence the confidence about a non-moderation, we do think we're at the back end of this credit cycle. So from what we see today, we're quite confident about the improvement.
Speaker Change: 1.6 billion, so the high end would represent about 33 basis points, which as you know from our prior years and also prior guidance, would be relatively at a higher end for us.
Speaker Change: But obviously there's a lot still of water to pass under the bridge between now and the end of the year. Hopefully that covered all your questions, Flora. Yes, thank you. Can I just clarify, when you just said that the CLPs could be closer to the top end of the range, you mean 1.6 billion?
Speaker Change: Yeah or the 400 you know for on a quarterly basis you look I think a little bit like last year we would expect
Speaker Change: maybe to start, you know, the first quarter or two at the higher end and then ameliorate as the year goes by. Again, we'll have to see.
Speaker Change: how that plays out both in each of the quarters and the year. Hence, we gave you quarterly guidance rather than the full year. But just the widest end of the range, therefore, would be the ends of the range of 1.4 to 1.6.
Okay, thank you.
Speaker Change: Incidentally, actually, just to come back on one thing, Flora, you're right. We looked at the consensus and really consensus is in line with our guidance and thinking on most line items and of which credit loss provisions is one. Obviously, the cost is another prior to any adjustment for FX, as Kian pointed out, and the gap is really on revenues.
Speaker Change: The next question comes from line of Julia Aurora Mioto from Morgenstern, please go ahead.
Speaker Change: Hi, good morning. Thank you for taking my questions. First, a clarification. James, I think I heard you saying potential changes in requirements that can impact the MDA. Can you elaborate on this? What did you mean? Did I understand it correctly? Then, secondly, on the private bank, on slide four, I appreciate you are on a journey, but still 5% ROE is still incredibly low.
Speaker Change: What ROTE do you have in mind and what concrete actions are you taking to significantly boost the ROTE here? Thank you very much.
Speaker Change: So Julie, I'll start with the first on the MDA and Christian will talk to the private bank. Look, MDA right has gone up for us to around a little bit over 13.3 percent.
Speaker Change: and that therefore drives our views on the level of CET-1 that we need to run at with an appropriate buffer against that.
Speaker Change: and of course the 13.8 is a good place to be in that regard.
Speaker Change: There will be some changes as we talked about FRTB denominator impact.
Speaker Change: but also potentially some changes in MDA. One example would be our OSII positioning might take a year but but given our relative
Speaker Change: score in terms of g-siffiness, call it, we would expect to be coming down and in our g-sib over time.
Speaker Change: as an example. The second is inside our numbers you have the mortgage sectoral buffer which is also impacting how we're how we're capitalized. So my point is that
Speaker Change: The level of capitalization that we operate at now and the gap to MDA that's implied by it
Speaker Change: is a conservative point, let's put it that way, on both numbers.
Speaker Change: Julia, thank you for your question. On the private bank, first of all, you're right. I mean, a 5% ROTE is obviously not sufficient at all, but therefore we are doing this full transformation. And by the way, if we digest and really divide the private bank, the real challenge which we are working on is in retail Germany.
Speaker Change: When you look at the levers, first of all, as I said at the start,
Speaker Change: Secondly, one of the largest cost takeouts, also in absolute numbers, is next year again in the private bank in Germany, or that what James also said, where we put restructuring costs for.
Speaker Change: The further fallout, so to say, in a positive way from the IT technology transfer from Postbank to Deutsche Bank is paying off. So also there from a cost point of view.
Speaker Change: It's another and not only low three-digit million number where actually Claudio is reducing costs in the private bank. And thirdly, James gave you another example from an ROT point of view. We have certain portfolios or some portfolios in the private bank where from an SVA methodology we are simply not...
Speaker Change: rewarding our shareholders and at the end of the day our capital in a sufficient way and that is the third lens where with repricing but also with reallocating capital we are improving the picture.
Speaker Change: One bit only that you also see, there is full attention on, and we are working on it. If you just look at Q4 2024,
Speaker Change: and you look at Claudio's private bank costs versus Q4 2023, we had a reduction of 9%.
Speaker Change: That shows you that there is full focus on that transition, that we know we need to get the cost down. The plans are there, implementation is underway, but fortunately it's not only that, it's revenues and SBA.
Speaker Change: Thank you. Can I just follow up? What is the difference in ROE between Germany and the rest within the Parallel Bank?
Speaker Change: It's in particular from a legacy point of view, the structure of the platforms, the IT platforms we have.
Speaker Change: so as we did fortunately the transfer of the IT last year or in 2023 from Postbank to Deutsche Bank we are again in a constant way obviously pulling off applications, closing applications
Speaker Change: with streamlining the processes, going more into a digital offering, in particular in the retail bank, you see most of the transformation and also the efficiency gains in the private bank. So Germany, in this regard,
Speaker Change: from the legacy point of view, system, location, branches, integration of postbank is in this regard the one where most of the work is on.
Speaker Change: Got it, but I was wondering just the ROE number between Germany and the rest within the private bank?
Speaker Change: We don't publish that number, but the wealth management and private banking is double-digit, so we can definitely converge well into the double-digit as we address the issues that Christian just alluded to in the German retail personal banking segment.
Thank you.
Speaker Change: The next question comes from the line of Chris Helen from GS. Please go ahead.
Speaker Change: Morning everybody. Just two modeling questions left for me. Firstly, on the growth in FICC, so if I take the guidance that the $200 million or so growth that you're guiding to for FICC in 2025, how does that shake out in terms of financing versus non-financing? If I look
Speaker Change: The solid performance in Q4 financing revenues, if I just sort of run rate that through 2025, that's obviously imperfect, but that would solve for effectively all of the 200 million increase year over year.
Speaker Change: in the guidance, so just any kind of color you can give in terms of thick growth on a line-by-line basis.
Speaker Change: and then secondly, deposit growth is quite strong in the private bank in Q4, so what are you assuming?
Speaker Change: in terms of deposit growth in 2025 within that 300 million banking NII guidance. Thank you.
So Chris, um...
Speaker Change: The FIC financing revenues are in the more predictable revenue stream bucket, so the 40% in Christian's slide 7, so contributing to that $800 million. FIC markets, to your point, would be the $200 or $300 million of contribution in what we characterize as the remaining revenue streams.
Speaker Change: In FIC financing, however, as you know, it splits between carry and revenues.
Speaker Change: We're quite encouraged given the 12% growth we had now just in the fourth quarter about our ability to continue growing that revenue stream.
Speaker Change: So, it should do at least $100 million, maybe some more in NII, and then earn additional fees, I would think, fee growth. But just to clarify, in the buckets, the rest of FIC markets...
Speaker Change: So, rates, credit, and emerging markets, and FX would be the balance of the remaining revenue stream number.
Speaker Change: In terms of deposit growth, we've seen quite strong deposit growth, and actually what's been encouraging is it has shifted back into site deposits from term, and that's, as we talked about, been helpful for the margin on the deposit side. We are expecting considerable growth in both of the deposit businesses.
Speaker Change: deposit levels. So as those wind down, we are offsetting the runoff of a couple of concentrated deposits, and hence you'll see the net of those two in the numbers over the course of the year.
Speaker Change: Also Q4 as we had a year actually two years ago represents a relatively high print so I would see us sort of recovering to the Q4 level over the course of Q1 maybe into Q2 and then more of that growth flowing through into the back half of the year.
Okay, that's very helpful. Thank you.
Speaker Change: Thank you, Chris. The next question comes from Leonor Stephan Stahmer from Autonomous. Please go ahead.
Speaker Change: BNP and AXA and Nautixis and Generali. Does that change anything in the way that you look at your asset management strategy, please? And would you actually be willing to consider M&A here?
Speaker Change: and then just two number questions please. The first on market risk-weighted assets.
Speaker Change: From what you say about the trajectory in the fourth quarter, it seems that your market risk with assets must now be around 19 billion or maybe even a bit lower, which I think is the lowest level since you started disclosing this.
Speaker Change: Is there any possibility that this is snapping back or is there something more structural at work here? And finally, you mentioned not only this time, but also previously that you have benefited from credit hedges, so some of your credit loss
Speaker Change: provisions have been offset by revenue elsewhere. Can you maybe give us a rough sense of how much revenue was actually generated from these hedges in 2024, please, and in which line items, which revenue line items we would find them? Thank you.
Speaker Change: Thanks for the question, Stefan. Just briefly, we love our asset management business.
Speaker Change: really well positioned in today's markets and having now exceeded the 1 trillion euro or dollar level, we can see that it has scale and profitability and also growth prospects. And so while we obviously see what's going on strategically in the market around us, we think we're well positioned.
Speaker Change: On the market risk RWA side, you're absolutely right, $19 billion is correct and it represents a relatively low level. Two reasons, one is year-end is often just like seasonally below and secondly, you will have seen in the VAR numbers, relatively low VAR, some of which reflects
Speaker Change: the volatility in the market and not so much the book. And hence we would expect some amount of recovery, if you like, or an increase in market risk, RWA, during the course of the year.
Speaker Change: As it relates to the credit hedges, I'd need to double check the number, but it's sort of orders of magnitude around $100 million, a little bit more, I think, in the businesses.
mostly reflected in remaining income in the businesses.
Speaker Change: and some in interest income. So a bit of a split depending on whether you see it in the investment bank or the...
or the corporate bank.
Speaker Change: and you know those hedges we've talked about I think 42 billion of total sort of if you like hedges those that those hedge volumes we
Speaker Change: Well, we'll look to grow from here, given what we've said about SRTs and the market availability, but these are ongoing programs.
Speaker Change: that we have. So you can assume that that type of protection and probably growing from from here. Going forward we manage concentration risks as well as as capital usage with those instruments.
Great. Very helpful. Thank you very much.
Speaker Change: The next question comes from Andrew Coombs from Citi. Please go ahead.
Speaker Change: Thank you for taking my questions. Two please, both follow-ups. Firstly, you said that there were two areas of investment in your earlier commentary. One was the tech controls and remediation, the other was growing the franchise beyond the initial revenue ambitions.
Speaker Change: And I think you have given a few points of where that has been over the course of the call, but perhaps you can just give more granular examples.
which areas you have expanded beyond your initial ambitions.
and Given You Haven't Changed the Revenue Guidance.
Speaker Change: What is the payback period on those investments? Do you think you're going to see that come through in 2026, 2027? That would be useful.
Speaker Change: and then my second question is just on that revenue bridge.
Speaker Change: and thank you for the very granular answers you gave earlier around the core divisions and you see how that adducts two billion.
Speaker Change: But at the same time, James also gave guidance on the corporate centre for a £200 million loss per quarter, which would seem suggestive and have much lower revenue contribution from the corporate centre, given how much that contributes in Q2 and Q3 of 2024. So, what's the offset there? Thank you.
Speaker Change: Thanks Andrew. I think it was it was slightly a distinct of the line but I hope I caught everything. So in reverse order the Corporate Center and I think something interesting to point out on page five of the of the deck
Speaker Change: You know, we talked in earlier quarters that there can be some volatility that's created by the corporate center, but I'd said at the time that it ultimately typically nets to zero over the course of the year.
Speaker Change: And that was the case in 24, and we expect it to be the case in 25. So at the very bottom of the chart on the left, you can see that's our current expectation.
Speaker Change: but some of it is hard to predict given, for example, valuation and timing differences.
are market-related, but hopefully that's a good indication.
Speaker Change: On the cost side, the walk I gave earlier to say it was about a third of each of business, investments, technology, and controls was sort of...
a multi-year view.
going from our last Investor Day.
Speaker Change: More recently, you know, what has been the places where we've put additional investment? I'd say, you know, the corporate bank probably the first destination.
Speaker Change: in terms of some plans that we'd actually been working on for some time, but now have decided to...
Speaker Change: to implement, which is actually relatively broad-based in the corporate bank but is an acceleration of some hiring and also technology investments that David Lin and his team have identified and are ready to execute and have begun the execution of.
Speaker Change: In private bank, there are some technology investments that we had been kind of waiting to make decisions on, but feel are important to make.
Speaker Change: again, to keep pace with the industry, where, as you can all see...
Speaker Change: in your own, I'm sure, personal lives, there's a bit of an arms race going on in terms of the capabilities for digital banking, as well as some of the physical infrastructure there, and then a little bit sort of a re-acceleration of hiring on the RM side in that business.
Speaker Change: And then lastly, we've talked about O&A. I think we've largely completed the build out in O&A, but there are a handful of additional...
Speaker Change: hires that we've made, and we've talked about also on the FIC market side, again, all of which we see as supportive of revenue, not just in 2025, but in the years beyond. And so I just do want to emphasize that management's decision-making, as we went through this most recent plan cycle,
Speaker Change: has been not just about supporting performance in 25 but making sure we're building the company to be sustainably profitable and growing in profitability in the years beyond, which actually one last thing to say, we look also at the 26...
Speaker Change: Consensus, where as you can imagine from the chart, especially Christian's page 9, you can see an even greater divergence between what we believe the trajectory of the company is and what is currently in the consensus.
Mr. Combs, your line is still connected.
Speaker Change: I don't think the last comment came from me. I'll just say thank you.
Andrew, thank you. Much appreciated for your question.
The next question...
Speaker Change: and Christian comes on line of Jeremy Saiki from BNP Paribas Extend
Please go ahead.
Speaker Change: Thank you. I'll make it quick. Just on your ROE target, you're making the same ROE with heavier costs. I guess the offset is the balance sheet efficiency, so effectively, you know, less profit but less capital. Is that the right way to think about?
Speaker Change: you know the maths on that and then secondly we talked about in an earlier question the possibility of delaying FRTB and Basel IV implementation
Speaker Change: Do you worry about the risk that the U.S. actually cancels it or dilutes it completely? Would that leave you at a competitive disadvantage or is this now quite marginal for you as well?
Sorry, FRTB, well, sorry.
FRTB look
Speaker Change: There are a number of different aspects of FRTB, how many portfolios you put in standardized versus modeled, how the models work, and of course, when it's implemented. You have to assume that FRTB, once implemented, will be...
Speaker Change: relatively sort of consistent across the world. That's not a given necessarily but it's a it's a you know it's a major
It's a major assumption that we need to make.
Speaker Change: But, so yes, what we're concerned about is a disadvantage, competitive disadvantage, if it's implemented in Europe only.
Speaker Change: and not in the UK and the U.S., that's a situation that would create a significant...
sort of disadvantage for us.
Speaker Change: Let me just chime in there, you know, first of all it was a good sign and good decision that there was a postponement by one year.
Speaker Change: Actually the level of attention at the EU Commission when it comes to FRTB and providing a level playing field
Speaker Change: is higher than ever before. It's clearly on the agenda, not obviously of the banks, but also of the EU Commission. So obviously, I don't know whether at the end of the day, it will be implemented here and not in the US.
Speaker Change: But at least we have, in my view, a complete level of attention at the EU Commission to listen to us and to make sure that the level playing field is not lost on that point.
Speaker Change: And to your first point about capital, yes, capital efficiency has certainly helped. I mean, it's a walk of revenues where we're significantly higher than where we expected to be when we did the IDD with you. Actually, credit costs at this point in the cycle also higher than where we expected to be.
costs we've talked about and capital
Speaker Change: is more efficient. I will say 81 coupons higher than where we'd assumed as well. So there are a number of different moving parts from the Investor Day 2022 that we can trace through, but the capital efficiency was certainly a supportive lever.
Thanks very much.
Next question comes from Nemes from UBS. Please go ahead.
Speaker Change: mandatory investments, be it regulatory or those you feel clearly necessary in the tax stack. You mentioned perhaps the private bank.
Speaker Change: and some of the discretionary investments into growth, be it the corporate bank.
Speaker Change: at the IB. That's number one. Number two is on loan growth. It seems like you're seeing some improvement in period ends, loan balances both in the corporate bank and also in the private bank.
Speaker Change: Could you talk about what you're seeing in your business? Is this just a blip? We shouldn't read too much into it. Or is this perhaps the start of a turning point? Thank you.
Speaker Change: So I'll tell you, the simple answer to your question is regulatory or sort of controls related costs, you know, are most of, I'll call it, 200 million year-on-year.
Speaker Change: um in the sort of mandatory bucket and then there is some additional expense that as so that are that that are still around remediation control improvements that that we we would see as
Speaker Change: not mandatory and where there would be some flexibility potentially to push out in time. So a reasonably considerable amount of pressure coming from that. I mentioned inflation, the $100 million of inflation above our expectations sits on top of inflation that has been running sort of $300 million to $400 million for the past several years. So there's a considerable headwind from those two items.
Speaker Change: and on the financing side we have seen the FIG financing as also mentioned by James before was actually a nice level of increase over 2024 we actually also see that going forward that's clearly a business which we want to grow I think where we have for competence like almost nobody else
and given also the international focus on this business.
It's clearly growing.
On the CB and PB side, slightly down, excluding FX.
Speaker Change: Now, on the private banking side, it is also an effect of that what we discussed before, i.e. the SVA methodology, that we are not entirely happy with all subsegments of that portfolio. James mentioned the mortgage portfolio, where we on purpose actually said we don't want to allocate that much capital.
Speaker Change: Obviously, also the interest rate development in the run-up to 2024 is obviously then also curbing demand a bit in Germany.
Speaker Change: And on the mid-cap side, you know, at the end of the day, you see in this regard a little bit of two different speeds. If you look at the loan demand of German corporates,
Speaker Change: for investing in Germany, it's down. It's clearly down, and that's also something which hopefully will be addressed when we talk about structural reforms which are needed in Germany.
Speaker Change: The other hand is that also German corporates actually taking investments in order to invest internationally, that's clearly up. And that is again something where obviously we can position ourselves given our global approach.
Thank you, very helpful.
Speaker Change: As a reminder, if you wish to register for questions, please press start on your telephone.
Speaker Change: The next question comes from the line of Tom Hellick from KWA. Please go ahead.
Hi guys, thanks for taking my questions. Firstly, I suppose...
I would have thought...
Speaker Change: confidence around the 32 billion guidance would have increased, given kind of what we've seen year-to-date and then the steepening yield curve. So, was there a temptation to raise that 32 billion target by any chance? And then secondly, on slide
your aspiration.
Speaker Change: is meaningfully above 2024 levels. Okay, and I just kind of want to know what the drivers of that would be. Should I be splitting that between, you know, half profit, half kind of RWA optimization? How should I think about that? Thank you.
Look Tom, let me let me take the first question.
Speaker Change: Look, our confidence in the $32 billion, obviously with the delivery of Q4 and the momentum we see, also what we have seen in January.
has increased, that we will meet that.
Speaker Change: but I think it's not the time now to further raise it. I think it is that what we have done before on revenues, we give you a number, we have full confidence in it, and now we have to deliver. And it's all about execution, but in that execution capacity, again, how our businesses are positioned, I have full confidence, but at this point in time, I think we should first now deliver Q1 and Q2, and then we can talk about anything else.
Speaker Change: Just in terms of the line now, you know that that chart on page nine is is deliberately illustrative in part because you know with The the business units themselves in terms of profitability and and and also capital usage or we don't disclose publicly But but you can work out the the the starting point average You know from our public accounts is about one one and a half percent
Speaker Change: and so that is again underscores a little bit the confidence that we have.
about the trajectory going forward.
Speaker Change: and the tools that we've built. Now, some of that has to do with the costs, especially non-operating costs from 2024 falling away, but a lot of it has to do with the levers for growth that Christian's talked about, steady kind of cumulative operating leverage across the businesses.
Speaker Change: you know, over the years we would, especially given CRR3 and the other changes, that number would still grow.
you know, by, make up a number, $20 billion.
Speaker Change: even with the efficiencies that we're putting through. So it is a significant amount of impact from operating leverage over time and all the other levers we've talked about.
Okay, thank you.
Speaker Change: 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.
Ioana Patriniche: 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 at our first quarter call.
Speaker Change: Ladies and gentlemen, the conference is now over. Thank you for choosing Crosscall and thank you for participating in the conference. You may now disconnect your lines. Goodbye.