Deutsche Bank AG (DB) 2017 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

I'm, Yay, your Chorus Call operator.

Welcome, and thank you for joining the Third Quarter 2017 Analyst Conference Call of Deutsche Bank.

(Operator Instructions) I would now like to turn the conference over to John Andrews, Head of Investor Relations.

Please go ahead.

Operator, thank you very much, and good afternoon from Frankfurt.

I'd like to welcome everyone to our 2017 Third Quarter Earnings Call.

I'm joined today by John Cryan, our Chief Executive Officer; and James Von Moltke, the Chief Financial Officer.

James will walk you through the analyst presentation, which is available on our website at www.db.com and then both James and John will be happy to take your questions.

(Operator Instructions) Let me also provide the normal health warning, asking you to pay particular attention to the cautionary statements regarding any forward-looking comments.

You will find those statements at the end of the investor presentation.

With those details out of the way, let me please hand it over to James.

Thank you, John, and welcome to everyone.

Let me start with some high-level observations on Slide 2. We continued to improve profitability this year as we made progress on costs in a difficult revenue environment.

While reported revenues for the 9-month period declined 10%, excluding the impact of DVA and own credit, revenues declined 5.5%, while total noninterest expenses declined 12% and adjusted costs dropped 4.5% both on an FX-neutral basis.

9 months IBIT was EUR 2.6 billion, a marked improvement versus 2016, but clearly, we have a lot more work to do.

While the challenging operating environment affected our performance, all of our businesses are on track in executing their strategic plans.

First, in PCB, we completed restructuring initiatives in both Postbank and Deutsche Bank that included branch closures, a regional reorganization and an operational streamlining that reduced FTE, and more importantly, prepared the 2 banks for their eventual merger.

We also concluded a high-level labor agreement in Germany that supports our merger and synergy plans.

The detailed planning for the merger is complete, and we have submitted our full integration plan to the ECB.

As a result, we are on track to merge the legal entities that house our German retail and commercial banks in the first half of 2018.

Second, the preparations for the partial flotation of Deutsche Asset Management are proceeding well.

We're making good progress on the operational and legal separation of the business.

We also aligned the organization structure of the business by bringing active, passive and alternative capabilities into one integrated investment platform, and we created a single global coverage group.

Third, in CIB, we made progress.

We're gaining market share in several important Sales & Trading areas, like rates, particularly European rates, while investing in key areas, like Credit and Corporate Finance by making a number of targeted hires.

Beyond these high-level initiatives, we also made progress in business disposals signing 5 agreements since the beginning of the third quarter, including sales of our corporate services and alternative fund services businesses.

We remain focused on these and other contemplated disposals that reduce complexity and costs.

We continue to make progress on litigation and enforcement matters, having resolved a number of cases with only minimal impact on reported litigation costs.

Lastly, we maintained a strong balance sheet to support future growth and serve client needs, while preserving the soundness of the bank.

The group financial summary on Page 3 presents our results, which I will address in greater detail in the following pages.

To reiterate my previous comments, IBIT was materially higher than last year at EUR 933 million this quarter and EUR 2.6 billion for the first 9 months, as the decline in noninterest expenses more than offset the revenue pressure.

And we continue to maintain our financial strength with a fully loaded CET1 ratio of 13.8% and a leverage ratio of 3.8%.

Turning to noninterest expenses on Page 4. Adjusted for FX, third quarter noninterest expenses declined 11% from the prior period or over EUR 700 million to EUR 5.7 billion.

About EUR 400 million of the decline was from lower litigation and restructuring costs.

Additionally, approximately EUR 100 million of the decline was from the absence of costs related to Abbey Life policyholder claims and benefits and impairments.

FX-neutral adjusted costs were down 3% year-over-year, which I'll address on the next page.

Looking at the 9-month comparison, noninterest expenses on an FX-adjusted basis declined by EUR 2.5 billion.

Of the decline, EUR 1.2 billion resulted from lower litigation and restructuring expense, and approximately EUR 500 million was from the combination of the absence of Abbey Life and an impairment charge recorded in the prior period.

9-month-to-date adjusted costs fell 4% or over EUR 800 million on an x-FX basis.

On Page 5, adjusted cost of EUR 5.5 billion declined EUR 188 million or 3% on an FX-neutral basis in the third quarter.

Approximately EUR 100 million of that decline was in other expenses, and in part, reflected the absence of an operating business in the NCOU that was sold in late 2016.

Professional services declined EUR 84 million from lower utilization of outside legal services, consultancy and other external support.

Compensation expense was flat to last year in the third quarter reflecting lower salary expense resulting from headcount declines, offset by higher accruals for current year variable compensation, as we return to a more normalized remuneration structure this year.

IT costs increased 3%, largely from increased amortization for self-developed software as we continue to make needed IT investments to drive greater automation, enhance controls and lower costs.

Turning to the 9-month period.

Adjusted cost declined EUR 820 million or 4% on an FX-neutral basis.

The drivers were similar to the quarterly trends with lower other expense, largely from the absence of the NCOU, movements in compensation expense, higher IT and lower professional services.

Turning to capital items on Page 6. The fully loaded CET1 ratio was 13.8% at quarter-end and 14.6% on a phase-in basis, both slightly lower than the second quarter.

The lower ratios were driven by the decline of CET1 capital to EUR 49.1 billion.

Excluding the impact of FX, the CET1 capital decline resulted from a number of items, including movements in DTA, pension plan gains and losses, intangibles and OCI.

Also, recall that our reported net income is offset by the ECB's dividend guidelines for regulatory capital purposes, which require us to assume a 100% payout ratio.

Risk-weighted assets were unchanged in the third quarter at EUR 355 billion, as increased RWA and CIB, largely for OpRisk, was offset by the impact of FX translation.

Turning to leverage on Page 7. The fully loaded leverage ratio was flat at 3.8% in the third quarter.

On a reported basis, leverage exposure fell EUR 23 billion to EUR 1.4 trillion, but increased by EUR 1 billion on an FX-adjusted basis as growth in CIB was mostly offset by a decline in cash.

Let me now turn to the segment results.

Starting with CIB on Page 9. CIB reported third quarter IBIT of EUR 361 million, down 63% year-over-year.

This was largely driven by a 23% decline in quarterly revenues to EUR 3.5 billion.

The revenue performance reflected the difficult market environment in the third quarter, which continued from the second quarter, with subdued client activity and continued low volatility.

Partially offsetting the lower revenues were noninterest expenses that fell 10% or approximately EUR 300 million to EUR 3 billion in the third quarter.

The expense decline was driven by lower litigation and restructuring expense.

Adjusted costs were essentially flat in the third quarter, as favorable FX and slightly lower compensation costs were offset by higher IT and other expenses.

RWA of EUR 242 billion declined 2% from the prior year reflecting ongoing derisking and the impact of FX, which offset increases in OpRisk RWA and from leverage NCOU assets being transferred into CIB at the start of 2017.

Let me now turn to the individual businesses within CIB starting on Page 10 with Global Transaction Banking and Origination and Advisory.

GTB reported EUR 974 million of revenues in the third quarter, in line with the prior quarter but 14% below last year's third quarter.

GTB's revenue decline reflected a number of factors.

Roughly 1/3 was due to U.S. dollar weakening and increased funding costs related to the methodology change I outlined last quarter for charging the cost of liquidity to the businesses.

Additionally, about 1/3 of the decline was from strategic client and product perimeter reductions.

The remainder was largely the absence of one-off items recorded in the prior year and ongoing margin pressure as well as lower volumes.

Origination and Advisory revenues declined 24% to EUR 475 million.

The major driver of the decline was debt origination, where revenues fell 27% to EUR 287 million in the quarter, as market issuance volumes and loans and high grade were lower than the third quarter.

And as we noted before, we chose to reduce our activity in the U.S.-leveraged finance market due to changes in our credit risk appetite.

Equity Origination revenues fell 25% to EUR 66 million and advisory revenues decreased 14% to EUR 122 million.

While market activity levels remain generally subdued, many of the transactions that generated revenues this quarter were mandated towards the end of last year when Deutsche Bank was subjected to idiosyncratic stress.

We believe in this quarter's results, we are seeing the lag effect of mandates missed at that time.

Nonetheless, we believe this is a transitory challenge, and we continue to build up our Corporate Finance capabilities with targeted hires, and remain confident that we will grow our market share.

Let me now turn to our markets business on Page 11.

Starting with financing, which you recall we separated largely from our former Debt Sales & Trading segment with our second quarter results.

Financing reported revenues of EUR 610 million in the third quarter, an increase of 5% from the prior year.

These results reflected higher revenues in commercial real estate and asset-backed lending.

FIC Sales & Trading third quarter revenues declined 36% year-over-year to roughly EUR 1 billion.

For purposes of a like-to-like comparison to our peers, if we had reported the third quarter using our prior FIC Sales & Trading segment that was in effect last year and included a large portion of the revenues now in the reported financing segment, the comparable year-over-year decline in revenues would have been 24%.

The market environment for fixed income remain challenging in the third quarter, with subdued client activity and low volatility across all major businesses.

Credit revenues were significantly lower compared to a very strong third quarter of 2016, which benefited from the higher flow activity and strong market conditions.

Rates revenues also declined compared to a very strong prior year quarter as low volatility impacted client volumes.

FX revenues declined as both volatility and client flows were lower compared to last year, which was very active for FX in the aftermath of the Brexit vote.

Equity Sales & Trading revenues declined 16% to EUR 525 million in the third quarter reflecting a year-over-year decline in Prime Finance, although revenues increased versus the prior quarter.

And improved Equities revenues, which included a gain on a disposal and lower Equity Derivatives revenues reflecting reduced client flow and persistently low volatility.

Let me note that we are confident in the strength of our CIB franchise.

We remain focused on covering our clients, investing in our key franchises and growing market share.

Now let's move to the private and commercial bank on Page 12.

PCB reported third quarter IBIT of EUR 332 million, a 78% increase from the prior year.

Third quarter revenues of EUR 2.6 billion increased 3% year-over-year.

The revenue growth included a number of one-off items, including a EUR 108 million gain from the sale of the stake in Concardis, a German payment services provider, and further gains from the workout of legacy positions in Sal.

Oppenheim.

Offsetting the gains was the absence of EUR 81 million in the prior year from the U.S. PCS business, which was sold in the third quarter of 2016.

Excluding the impact of these items, year-over-year revenues were essentially flat, as the revenue pressure from the interest rate environment was to a large extent offset by additional fee income mainly generated in Postbank.

Noninterest expenses declined 2% in the quarter and adjusted cost declined 4%, as investment in digitalization, regulatory initiatives and higher performance-related compensation expense were more than offset by the absence of PCS costs and the benefits from the restructuring activities I referred to earlier, including the completion of the PCC branch restructuring program.

As a result of the restructuring efforts to date, approximate net headcount in PCB declined 1,400 in 2017 and 2,200 in the last 12 months.

Turning now to the individual businesses within PCB on Page 13.

Third quarter revenues in Private & Commercial Clients increased 7% to EUR 1.3 billion.

This growth reflected EUR 95 million of the gain from the Concardis sale.

Excluding Concardis, revenues in PCC were down less than 1% year-on-year as lower deposit revenues were largely offset by growth in other areas, particularly fee income from investment products.

Postbank reported third quarter revenues of EUR 824 million, 6% above the prior year period.

This growth reflected higher fee income, largely from a new pricing model on current accounts, higher investment product revenues as well as increased loan revenues as lending volumes grew.

This growth more than offset continued declines in deposit revenue from the interest rate environment.

Additionally, Postbank recorded a EUR 13 million gain from the Concardis sale in the quarter.

Wealth Management reported third quarter revenues of EUR 429 million, a 14% decline from the prior year.

The primary driver of the decline was the absence of EUR 81 million from the PCS business that was sold last year.

FX translation effects also contributed to the decline.

These effects were partially offset by gains from a further successful workout of Sal.

Oppenheim legacy positions.

Wealth Management net interest income also declined year-over-year because of loan book sales and a lower deposit base, while commission and fee income remained essentially flat, reflecting good momentum in Germany and Asia Pacific.

Turning now to Deutsche Asset Management on Page 14.

As was the case last quarter, we are showing the results for the current and prior periods, excluding the impact of the Abbey Life gross-up on net revenues and noninterest expenses as Abbey Life was sold at the end of 2016.

The results this quarter have a number of items that mask the operational performance, including a recovery related to a real estate fund this quarter and the absence of a number of nonrecurring items recorded in the prior year period.

While reported revenues of EUR 628 million were flat year-over-year, if you exclude the effects of the nonrecurring items, revenues declined 3%.

However, that revenue decline was largely from lower performance fees and alternatives, where free recognition is periodic.

Thus, the revenue results were a timing rather than a performance issue.

Noninterest expenses, excluding the Abbey Life gross-up of EUR 433 million in the quarter, were unchanged year-over-year, with the absence of core Abbey Life costs and lower restructuring expenses offset by higher compensation and benefits costs.

Year-over-year invested assets declined 1% to EUR 711 billion at quarter-end with a net new asset inflow of EUR 4 billion in the quarter and market appreciation being offset largely by the impact of foreign exchange and of divestments, primarily assets in Abby.

Let me turn briefly to consolidation adjustments on Page 15.

C&A reported IBIT of EUR 44 million in the quarter, mainly driven by valuation and timing differences of EUR 186 million.

Let me now end with some comments on outlook.

First, economic strength around the globe remains strong, particularly in the Eurozone as growth expectations recently have been improving and sustained economic growth is ultimately the key driver of our business.

Nonetheless, the capital markets revenue environment remained muted with subdued client activity and low volatility across a range of markets and that trend has continued thus far in October.

As we look to the fourth quarter, costs remain a top priority.

And we expect the progress we've shown in maintaining quarterly year-over-year declines in adjusted costs to continue.

Although we expect the decline to be smaller, reflecting in part our return to a more normalized variable compensation structure.

Obviously, final expense numbers will be subject to many decisions, including those around compensation that will be made later in the quarter.

And as we've noted in prior guidance, we anticipate booking a restructuring charge in the fourth quarter triggered, in part, by the labor agreement relating to the planned merger of our German retail and commercial banks as well as other planned restructuring.

Litigation remains difficult to forecast and has year-to-date been meaningfully below our own initial expectations.

While I can't give you particularly detailed guidance, we still expect to book higher litigation charges in the fourth quarter than for the first 9 months of 2017.

Finally, credit quality continues to improve and as we've noted in the past, we expect credit provisions in 2017 to be below 2016.

But it is worth mentioning that credit provisions thus far in 2017 have benefited from releases that may not repeat.

John and I would be happy to take your questions.

Operator, can we start the question session, please?

(Operator Instructions) And the first question is from the line of Kian Abouhossein with JPMorgan.

The first question is related to the cost guidance that you've given on Page 22.

You talk about slightly lower costs than the 2016 cost number.

And the quarter before, you talk about a further decline from 2016.

I'm just wondering, should we read something into the slightly different text?

Are there any additional costs that we need to think about or compensation-related issues that you just mentioned, if you give some clarity in that respect?

And then the second question that I have is about market share, and maybe you can talk a little bit more generally about market share movements.

Your fixed income numbers more in line with U.S. players now on Equities, clearly, I would say, worse especially when you take out the one-off gain and maybe you can just tell us how much that is and what it is exactly in the Equity Sales & Trading line?

And if you can just talk a little bit about what we should think about what will bring back your market share to a higher level and regain some of that market share, if you can talk about that?

Sure, Kian.

It's James.

So I'll try to -- there's a lot of in those questions, I will try to be as brief as I can.

First of all, on costs, our year-to-date track record has been to be down x-FX in adjusted costs by, call it, low single digits.

All we're really trying to do is indicate that last year's fourth quarter, given the compensation decisions we made, is, call it, a tougher relative comp -- relative comparable.

And so while the decisions are still outstanding in terms of comp for the year, it's that comparison we wanted to draw your attention to.

In terms of market share on Equities -- in Equities, as you saw on the slide, we're down 16% year-on-year.

There are really 3 businesses that we break that into.

One is Cash Equities, and we were up in that market including a gain; although, without the gain, we were still up.

And then Prime Finance and derivatives.

Let me take those 2 in order.

Prime Finance as we've talked about in the past, we've been very focused on regaining the client balances that were lost last year's fourth quarter and that we've worked to regain this year.

As we said on the slide, we're pleased to report that now we've surpassed the September 30 level in client balances, although the average was still lower in the third quarter than it was in last year's third quarter.

And we're also recovering the margin loss that we'd suffered earlier this year.

So I think an important point we want to bring out there is that the underlying drivers of revenues in that segment of the equity business are now regaining traction, and we would expect that to have an impact on the future.

Obviously, in Equities, client engagement and cash derivatives and Prime is a key feature.

We'll sort of swim with the market in terms of how overall equity market performance plays out.

And the last item is Equity Derivatives, and they're in a very low volatility market.

We've maintained, I think, a conservative risk posture, and both volumes and that conservative risk posture have dampened our revenues.

If you put all that together, I think there is some reason to believe we can regain momentum in that business, especially in Prime, but we're dependent, in part, on levels of activity in the market coming back.

And can you just talk about fixed income as well?

Yes, you're in line with your peers in terms of performance, but you clearly come from a lower level, especially in the second quarter, and we were maybe hoping for some market share regaining.

I think 2 things.

One is I do want to emphasize the 24% that I walked you through, which is consistent segmentation with our peers and also with our prior year segmentation.

So that's the number to focus on.

If you focus on that, we are very much in line in FIC markets, fixed income markets, maybe towards the better end of peers that have reported so far.

But you need to peel back the onion even further to really get a good sense of market share performance.

And there's a number of different marketplaces where we've actually gained market share.

The one I could point to, rates derivatives, for example, but there are others in our FIC complex.

So I'd ask you to peel the onion and look at individual business areas, and in particular, for example, the coalition reporting, which is always on a lag.

But I think it was a pretty good demonstration of our relative performance in the first half, whereas you can see we gained share in a number of areas.

Next question is from the line of Jernej Omahen from Goldman Sachs.

I have 2 questions, please.

So the first one is on the press release, which accompanied the results earlier this morning on the -- creating the "one bank, two brands" in your retail segment.

And I just want to ask a question, there's a sentence in the press release that says, and I'm reading out now, "Deutsche Bank will also benefit from lower financing costs across the group." Can you please help us think both conceptually but also, obviously, if you could help us quantify what you mean with -- what Deutsche Bank means with this statement?

And then the second question I have is just dwelling a little bit on the comments before from the market share loss or the poor revenue performance in the Corporate Finance business.

And James, I think you characterized this as a transitory challenge, and that Deutsche continues to invest and rebuild in the franchise.

And I was just wondering from where you sit now, is there any sense that the investments would pay off in the near future?

Or should we prepare ourselves for further revenue weaknesses as the year progresses?

So Jernej, sure.

It's James, again.

Just to clarify, which business were you referring to when you're talking about the transitory effect?

The Corporate Finance operation.

Okay.

Because I think you said FIC or at least I heard FIC.

And -- so let me take those 2 questions.

On the press release about the Postbank and Deutsche Bank integration, that's a good catch.

One thing we want to highlight there is that a lot of the focus has been on the waiver and the relationship between the subsidiary and the parent from a funding and capitalization perspective, but there are also efficiencies inside that legal entity in a number of respects, MREL is an example.

I mean that entity will have a series of its own regulatory and capitalization requirements.

And so what we're highlighting here is that in addition to the costs savings that we've highlighted, there are some forgone financing costs that will result from the merger.

So hopefully that clarifies that statement in the press release.

In terms of Corporate Finance and the transitory point that we made, look, Corporate Finance, as you know, is a business where revenues come in a lag.

And so the business that we recognized from a revenue perspective in the third quarter of 2017 was mandated, let's say, in the fourth quarter of 2016 and first quarter of this year.

So transactions go from mandate to negotiation, announcement and then eventually closing.

And it's on the closing that there is revenue recognition.

So the point we're making is that the third quarter in that type of business still reflects the idiosyncratic stress.

And to your question about what gives us comfort that we see momentum, we see it in our internal pipelines that are building.

But there is also, I think, some external evidence that you could look to.

A good example I could give is that our announced deal volume in M&A is 20% higher than at this time last year.

James, maybe just circling back on the funding synergy question.

Thanks for the conceptual explanation.

Is there a way for us to try and put numbers on that funding synergy?

I wouldn't do it at this point.

We can probably follow-up in due course, but I wouldn't put numbers.

Again, I do want to emphasize, it's largely forgone incremental funding costs that would have been there.

And then next question is from the line of Jon Peace with Crédit Suisse.

So my first question is on the EUR 35 billion of RWAs you identified back in March that you were looking to run-off in the Corporate & Investment Bank.

I just wondered how far through that process are you?

And has it had much impact on the P&L in the last couple of quarters?

And as we look forward from here, how much P&L impact should we expect?

And then my second question was on near-term and medium-term risk-weighted asset developments.

Do you expect much from the ECB TRIM exercise by the end of the year?

And as we think longer term, I know you've not really revised that EUR 100 billion number for Basel IV, but any update in the context of output flows, either in terms of magnitude or timing?

Sure thing, Jon.

So you slipped in 3 questions in there that are RWA related.

I guess the answer to the first question, nothing extraordinary that you are seeing in terms of the run-off pattern of the legacy NCOU assets.

So more or less running off according to their schedules, naturally.

There, obviously, are transactions that we will take advantage of from time to time, but there's nothing material that I could point to.

And in general, the NCOU businesses, which are now baked into the segments, those assets are performing, relatively speaking, neutral from an earnings perspective.

I will point out that if you look at the segments from an expense basis, there is expense embedded in the segment with relatively small amount, but there's some expense embedded in the segments that wasn't in the segments and we haven't adjusted for on a year-on-year basis.

On TRIM and then Basel III, on TRIM, it's too early to give you any real feedback.

In some ways, we're just awaiting additional feedback from the regulators.

So no impact that we can share with you at this point.

We simply don't have that feedback yet.

And then on Basel III, again, there's too much uncertainty to give you updated guidance.

You'll recall, we had guidance out there that's now relatively dated, but what I really point you to is that there are many levels of uncertainty yet about Basel III.

First of all, whether an agreement is reached, and if there is an agreement, at what output floor.

But then within the output floors and the various elements of the underlying calculations, there's also a high degree of uncertainty as to what those details would result in for us.

So short version is, too early to give you new guidance.

And the next question is from the line of Jeremy Sigee with Exane BNP Paribas.

First question is a follow-up.

I don't think I heard you give the number on the equity gain, the asset sale in Equities.

And linked to that, I wondered if you could also give us the number for the one-off recovery in Asset Management.

So if you could clarify those 2 one-offs, give us the numbers, that would be great.

And then second question was, just on the pattern of restructuring charges, obviously, it is a very light restructuring charge in this quarter and you are guiding to a heavier charge again next quarter.

I just wondered if you could talk about what drives the variation in those charges.

Why it was so light this quarter?

And why it's becoming heavier again?

Sure.

Just to give you little bit of that detail, I'm always reluctant to be drawn on too much that we haven't laid out, but I'll give you those numbers of 20 in the first, so the gain that you see in Cash Equities.

And in round numbers, 20 and 50.

So 50 being the unusual item in Deutsche Asset Management.

On restructuring, it just depends on when we have sufficient information to make a management decision and estimate what the future cost of that management decision will be.

So in many respects, it depends on how far advanced we are in our preparations and discussions and analysis.

So it's not linked to any specific event, the sort of return to heavier restructuring charges in the fourth quarter.

That's not because you've suddenly got approval for something or anything like that?

Well, the reason I'm guiding to this as a potential event in the fourth quarter or potential -- and perhaps even a likelihood, is the process with the progress we've made on the Deutsche Bank and Postbank integration or the PGK and Postbank integration.

So we believe we're closer based on our discussions with the unions and the workers' representatives or workers council to come into an agreement that would allow us to recognize restructuring expense.

In terms of sizing, I think it's too early to give you real clarity on that.

But it's this event that we wanted to make you aware of.

And to the extent we have an update to provide, we'll obviously do so.

The next question is from the line of Magdalena Stoklosa with Morgan Stanley.

They're both on Postbank.

Now the first one would be, what are the high-level terms of the agreement with the Post?

And particularly, the ability or you're kind of willingness to continue using the postal outlets to sell or market your financial products.

And really, secondly, Postbank's loan portfolio was up almost 2% kind of quarter-on-quarter.

And I was wondering if you could give us a sense of where do you actually see the loan demand heading in Germany for both the Blue Bank and Postbank over the next, let's just say, a year, 18 months.

And my last very, very quick one.

We had a very encouraging fee development in Postbank in the quarter, and how sustainable is that?

Magdalena, it's John.

I'll take the first one, which is on the relationship with the Deutsche Post.

We think this is a good outcome for us.

Essentially, we are renting their premises in order to distribute products and give access to ATMs and some rudimentary banking services, and that's been extended to 2025.

We think it's beneficial for us and also beneficial for the Post, because it's a good use of their facilities.

So it's something we stroke to achieve, and we're reasonably pleased with the outcome.

On the Postbank items that you had, so we were very pleased to see the growth in lending.

And this is predominantly consumer lending in Postbank, a mixture of secured and unsecured.

But it reflects the success essentially in customer marketing and advertising, and therefore, the origination of loans, which given the environment here is encouraging.

It's hard to give really forward looking views to you on how long we intend to contribute -- continue those trends.

We think the indicators that we've seen so far over the past couple of quarters are encouraging, but I think it's too soon to give you clear guidance on whether we expect that to continue.

I will say that the fee and commission income is also encouraging.

And because some of that reflects changes in fee structures on the account, year-on-year, you'd expect that element of the fee income to create benefits in the coming several quarters until we lapped that.

So overall, very encouraging progress in Postbank both on loans and on fees.

Next question is from the line of Andrew Coombs with Citi.

If I could ask one on divestment and then a follow-up on Equities, please.

Starting with the divestments, you mentioned you'd signed off 5 disposals so far.

But on the last paragraph on Page 19 of the interim report, you also talk about reevaluating some of your disposal decisions.

And coming from the press reports coming out of Spain seem to suggest that the Spanish retail business was a business you were considering disposing of, and that's no longer the case.

So with that in mind, do you stand by your EUR 2 billion capital build guidance from divestments, and likewise, the EUR 0.9 billion of cost-saves in the 2018 cost target that comes from planned disposals?

That would be the first question.

The second one is a follow-up on the Prime margins.

What we've seen so far is you've talked about your banks, it's rebuilding, but because the margins have been somewhat lower, we haven't really seen it coming through on the revenue line.

You said that Prime margins are actually now stabilizing and recovering as well.

So could you just elaborate a bit on that, please?

Sure.

Thanks Andy.

I'll take the questions and John may want to add especially on the strategic items.

So in general, we're pleased with the progress we've made in our disposal plans this year.

And as I highlighted, 5 transactions signed since midyear.

And I think one important thing just to note about those transaction is they represent really a simplification of our company, and I'd singled out the corporate services and alternative fund services as businesses where we're pleased with the transactions because of that simplification.

But as you note -- and we point out in the interim, we're going to look at this as a portfolio of actions.

And without confirming or denying specific steps, I think the key message is that we're going to be disciplined in executing on the transactions in a way that's fair to shareholders, reduces complexity and creates value, in terms of capital and also the cost picture, which I'll come to.

So we remain focused on that process.

On capital, just as a sidenote, always a lot of uncertainty about capital forecast as it relates to: a, transactions, and that's true of market M&A transactions.

So private transactions and also true of an IPO, like Deutsche Asset Management.

So I think we sort of bake it all into a large cake in terms of our forward-looking view on capital.

Your point on expense is a good question.

We benefited this year from a decline in operating expenses not just from legal and restructuring as well as operating on the go-forward business but also to some degree from disposals.

As I say, it's a portfolio.

And as we point out, there may be an impact on the 2018 expenses.

It's early to say what that will be, given we're still working on what the offsets would be and which other transactions we do manage to bring to fruition.

So it's a fair point that the disposal program will influence our 2018 expense run rate.

But by how much and what the offsets will be, it's too early to say.

Yes, Andy, on the -- more broadly on some of the strategic questions about whether we dispose or otherwise restructure, I think Spain, for us, has always been an interesting one.

We have a very large infrastructure down there.

You may know, we've got about almost 250 branches for a relatively small bank.

We also have a very, very good digital offering, and the 2 are, to some extent, out of balance right now.

So we're looking at options for just improving the operating leverage of that entity and optimizing it.

But it was a review of options as to what we do with the business.

And we do need to do something because we need to modernize it.

But the digital offering that we've developed down there with a relatively small number of people looked very, very promising.

So we like what we see.

And your question -- just to come back on the Prime margins.

I wouldn't give you specific numbers, but if those margins dropped, roughly speaking, by 1/3, we've recaptured more than half of that 1/3 drop.

So we see -- and that progress is being actually pretty steady from the second quarter into the third quarter.

So we're encouraged by what we see both on balances and on the margin progression.

If I may, just on the cost savings from the disposals, we did show you that walk to how we got to the EUR 22 billion and then the EUR 21 billion run rates, and that did have a step in there, as you may remember, for businesses that we would dispose of.

I think we probably still stand by our cost targets, but we may achieve them in a slightly different way, but it may only be slightly different.

But we have to manage our portfolio of businesses quite dynamically.

It doesn't mean we're actively looking to dispose of everything.

But we have to manage the business for bottom line performance and for relevance to the client base.

And that relevance very much hinges on technology.

And so it's a question of whether we invest or whether we look at other options for business.

But we, by default, want to invest.

Next question is from the line of Stuart Graham with Autonomous Research.

I have 2, please.

The first is, I wonder, if you could talk us through how you think about the impact of the likely U.S. regulatory change on Deutsche's competitive position?

It looks to me as if quite a few things in the treasury white papers would be helpful for you in absolute terms.

But I guess, I worry that they're even more helpful for your larger U.S. peers, meaning that net-net you might still come out a relative loser from that process.

I'm interested in how you think about that?

That's the first question.

And the second question is on staff cost switch.

They're down 1% year-on-year at the 9 months stage but as you say that's a function of lower fixed staff cost and benefits offset by higher bonus accruals.

So could you tell us what the year-on-year percentage change is in fixed staff costs and benefits, please, i.e., excluding bonus accruals?

On the U.S. regulatory change, I guess, the inevitable answer to your question about whether the bigger U.S. banks benefit proportionally more is probably the case, because our business is a subholding company in the U.S. We haven't really quantified the impact of the changes, but they would net-net, clearly be positive from the perspective of maybe freeing up a bit of capital and reducing the demand to hold as much liquidity as we do.

That would enable us to deploy more resources in growing our U.S. business.

The overall point that I would make though is that, notwithstanding the fact that we raised EUR 8 billion back in March and April, because the risk-weighted assets haven't gone up, regulatory constraints clearly haven't really applied to us because the truth is we haven't deployed a single cent of the EUR 8 billion that we raised, and that's not withstanding great efforts to try to grow the business.

But the way that we've been able to derisk the balance sheet and the relative lack of demand for credit product, which we would hold on the balance sheet given the demand from institutions for credit paper, which we find at the moment relatively easy to sell, were not deploying more risk.

But that's not the long-term intent clearly.

We've been hiring people to originate new business and hiring people to distribute it.

But we do intend to deploy some of the money that we raised back in March or April, otherwise, we'll have questions about what we do with the excess capital that we would, therefore, have if we didn't deploy it.

And just could I, which bits of the white papers excite you most in terms of help with Deutsche, if there are certain that jump out at you?

No, I guess -- no, not particularly.

I mean, all of them, I think, [are newer] to our benefit to some extent.

So it's James, on the salary expense item.

Again, we're cautious about what additional disclosure we want to give up, but the ballpark would be about 3%, down in that line item.

I do want to give you a health warning though that when you look at salary expenses, there's a lot that goes into it around benefits and also the composition of the headcount.

So we've moved some expense over the past year from the consulting line to the salary line based on in-sourcing.

So I do want to give you some caution about how much you focus in on a single line like that because it reflects a lot of things.

Could you just remind me the amortization of prior year's deferrals is going through the P&L this year?

I think it was EUR 900 million last year, but what's the number for this year?

I think we'll leave it that in terms of the disclosure, Stuart.

It's something we manage and there's, again, a lot of different ingredients that go into that, including the stock price, the forfeiture and what have you.

I don't think it's a useful number to kind of draw conclusions from.

The next question will be from the line of Daniele Brupbacher with UBS.

I wanted to ask about the famous NII Slide 23, the sensitivity slide.

And I mean, you are saying there clearly that, obviously, this is 2 scenarios.

One of shifted rates versus unchanged rates.

And I was just wondering, have you -- how we should quantify or whether you could indicate a bit the additional NII headwinds that would come through in case of unchanged rates?

So I understand this Slide 23 is a bit of a net view, and you were explicitly referring to deposit revenue headwinds in the context of Postbank.

So just any additional number...

Daniele, can you speak up?

We can barely hear you.

Sorry.

Is it better now?

Yes.

Sorry.

It was on Slide 23, the famous NII sensitivity slide.

There you are saying, obviously, this is a scenario of shifted rates versus unchanged rates.

And I was just wondering how significant NII headwinds would be in case of unchanged rates, because this is, obviously, a bit of a net view here.

And in the context of Postbank, you were saying that you still have deposit revenue headwinds, which is, obviously, a bit delayed P&L impact coming from lower rates.

Just any additional numbers or statements around that would be helpful?

Sure, Daniel.

It's James.

A couple of things.

In some ways, let me start at the end of the question, which is the headwinds.

Particularly in our 3 deposit businesses of GTB, Postbank and the Deutsche Bank Retail franchise, they each have their own interest rate characteristics, and they'll tend to sort of lag in terms of rates based on those characteristics.

So it's hard to give you a single number, a single indicator.

I would say that the retail businesses are getting ready to begin to lap the pressure of the interest rate hedges that are still on the books at higher rates.

Call it, later this year early -- sorry, later 2018, early 2019.

So getting closer to the end of that headwind -- and the headwind I'd characterize in the tens of millions of euros in the segment overall.

So still considerable in terms of the work you need to do to overcome the headwinds.

If you then turn to the future, the challenge -- you point to Slide 23, which is a net interest income sensitivity slide reflecting what is a highly stylized scenario of 100 basis points across the curve and in all currencies.

Now that's, obviously, as I say, stylized because what happens depends on the shape of the curve, the speed with which rates move and then the beta on the deposits, that is, how quickly you pass on increases in the rate environment to customers.

What I'd say is the businesses benefit more in the short end, as you see, and that's pretty typical of banks, and we're not dissimilar in that regard.

And obviously, the key issue for us is the very low beta that you'd expect to see in the early stages of a European tightening wave or cycle.

Basically, today, we have a negative margin on customer deposits.

And we would expect the betas to be essentially 0, at least until the time when there's a profit margin to be made.

And arguably, quite low thereafter given that this will be a recovery for the banking sector as a whole.

Is that helpful in helping answer your question?

Yes, absolutely.

Very useful.

Next question is from the line with Anke Reingen with RBC.

Two questions, please.

First, just on the cost guidance for 2018, again.

In light of what you said for 2017, on the group level slightly lower and flat on CIB I feel a bit, I would like a bit more comfort on how you get there?

And if there's anything you can tell us a bit more about the mix of compensation for those noncomp expenses?

And then secondly, on your announcement from this morning on the EUR 900 million synergies by 2022 from your retail mergers, just to confirm, how does this split into revenues and costs?

And does it also include the EUR 500 million you previously identified until 2021?

So I hope I've got all of those questions, Anke, but feel free to ask a follow-up if I'm missing a little bit.

Firstly, I wouldn't want to talk about the comp, noncomp mix too much.

What I would expect to see relatively speaking is similar trends to what we've shown over the past several quarters.

So we're managing our external consultant and professional services spend as tightly as we can.

As I mentioned, there's some replacement between that line and the salary and benefits line.

We are managing compensation expenses carefully and headcount carefully, but we are also highly cognizant that we need to compensate our employees fairly and incentivize.

IT is the other thing I'd point out, where you'll see a continuing investment over time that does result in an intangible sort of ladder, if you like, of amortization expenses of that capitalized software.

So lots of different moving parts.

But I wouldn't expect the trends necessarily to be significantly different from what you've seen so far.

If I think about Postbank, which I think was the third part of your question, because of the time it takes to really capture those synergies, which relatively speaking is back-end loaded, there really isn't much or anything to talk of, certainly in '18, in terms of a contribution to the '18 targets from that merger integration.

It's a little bit more back-end loaded from that.

And I think a part of your question was about the EUR 900 million, it's overwhelmingly cost synergies that we're expecting once they're fully realized as we say in the materials in 2022.

And the EUR 900 million includes the previously guided EUR 500 million cost savings until 2021?

No, I'm not -- I don't know what the read across is you're making there.

The things that we've talked to were the EUR 900 million of total, and also what we call the cost to achieve the expectation that there'd be some severance costs that are incurred along the way as we talked about a little earlier.

And the next question is from the line of Alevizos Alevizakos with HSBC.

Thank you for taking my 2 questions.

Question number one is on the sensitivity that you may have in any potential tax cuts in the U.S.?

What does it mean effectively for your group tax rate?

And how could we think about modeling it?

Whether we just have to use the Intermediate Holding Company accounts?

Or whether we should also use the large number of U.S. branches that you have outside the IHC?

And the second question is on the back of the divestment question that was asked earlier.

I just want to ask, what is the rationale for the Deutsche Bank Asset Management IPO given that John already suggested that you still have a lot of capital excess from March?

And also questioning, is the timing now really ideal, given that (inaudible) performance has been lackluster for the last 2 years?

Sure.

I'll take a couple of those questions, and John may want to add a little bit.

So the guidance we give for taxes is on a blended statutory rate of a range of, let's say, 30% to 35%.

And it depends on the location, if you like, or the composition of our IBIT around the world.

We're a beneficiary, obviously, if there is tax reform in the U.S., as those earnings would be subject to lower tax.

I would, at this point, guide you that it really takes us to the lower end of our existing blended range of blended statutory rates.

So it's helpful, we think, based on our current estimation within that range.

I'd highlight there is one thing to keep in mind is that there would be potentially a charge or a valuation adjustment related to the DTA that would be, I think, relatively insignificant item from a capital perspective because it's already deducted in the numerator, but you'd see that run through the income statement.

On the pros and cons of the Asset Management IPO, the capital benefit was never really a driving factor.

I think we listed a number of pros to this and did recognize that there were some frictional costs, and obviously, a little bit of additional complexity on governance.

But the pros we still think are overwhelmingly attractive.

First was to make the intrinsic value of the business much more transparent.

We don't believe that sitting on the Deutsche Bank as a division it gets the recognition that it could.

I think that also improves client and consultant perception.

There's an ability, I think, to attract, and of course, retain key personnel, because there is an opportunity to supply more direct drive for our people in that division.

And also, there's an opportunity, which we've yet to decide what we do with, but to opt out of the (inaudible), the German institution, the compensation order in Germany, which isn't applicable to the pure play independent asset managers, and therefore, it enables us to lose that competitive disadvantage.

We think there's much more strategic flexibility in what may be a consolidating industry, and we've said that there are 1 or 2 smaller bolt-on team lift-outs or acquisitions that we would look to make within that business, just to balance it out a bit more.

And not to mention, there's clearly an enhanced recovery measure.

So there's a benefit to us from the overall sort of living world recovery and resolution, imperative that we set up a traded and quite significant subsidiary.

And anyway, it's in alignment with our group strategy.

We do want to keep this controlling interest, but we think it simplifies the bank.

It makes that business, which is a fiduciary business, it helps us with method.

It's a standalone fiduciary manager of third-party funds, and we think it's the right thing for the business to do.

But I agree, it has the potential subject to timing and the amount we raise to give us more capital.

And the next question is from the line of Adam Terelak with Mediobanca.

I just had a couple of questions to dig into liquidity.

Clearly, you guys have worked quite hard to build liquidity in the past quarters, but how should we think about excess liquidity from here?

The liquidity coverage ratios is up about 140%.

I noticed your stressed net liquidity position is now pretty close to the internal risk appetite, which is up to EUR 20 billion.

And then secondly, on the same point, clearly, some cash has been redeployed into the investment bank, but it seems to be mostly into highly liquid securities.

Is there any room for further redeployment of this excess cash or any excess cash into high-returning trading businesses?

Sure, Adam.

Great questions.

So I think this quarter, what you saw is an improvement in terms of the efficiency of the balance sheet in terms of liquidity usage.

It is -- I would say that at the second quarter, we'd had some inflows that were somewhat episodic, and so we had an unusually high position.

And there were some efficiency that we were able to create as the quarter went on.

It's always hard to say whether that's the start of a trend, but we're certainly comfortable with the liquidity that we retain, which I think is still extremely strong, giving us the flexibility to continue to support clients with loan and also market's assets.

You're right in terms of the deployment of cash, this quarter, essentially, was a use of cash in largely the repo balance sheet, which is good.

But they aren't the highest returning assets that we have, and we'd love to see more of it going into funded loans, but that's obviously a function of the market opportunity.

So just to follow up.

Do you have the excess liquidity to be able to do that at this stage?

Yes, we do.

And our last question for this call is from the line of Natacha Blackman with Societe Generale.

I'm aware you have a fixed income call next week, but could you please provide a quick update on your funding plan for the remainder of the year?

And specifically I'm wondering on Tier 2 and senior unsecured, should we still expect about EUR 1 billion each there as per your last updated Q2?

So I don't want to get too far ahead of Dixit and steal any thunder from his call next week.

In general, as the opportunity -- in some ways is an answer to the last question of Adam's -- as the opportunity to deploy balance sheet has been more limited than we might have expected, in general -- and I think we indicated on the second quarter fixed income call -- our funding plans were probably trending towards less rather than more.

On Tier 1 and Tier 2, I wouldn't want to speak to our plans at all.

And we'll have more to say either on the call next week or if and when we're in the market.

This is our last question, I hand back to John Andrews.

Please, go ahead.

Operator, thank you.

And thank you everybody for joining our relatively efficient call today.

IR team is standing by with any follow ups.

And wish you good luck with the rest of the earnings season here in Europe.

Bye-bye.

Ladies and gentlemen, the conference is now concluded, and you may disconnect the telephone.

Thank you for joining, and have a pleasant day.

Goodbye.