Deutsche Bank AG (DB) 2023 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome, and thank you for joining Q4 2023 Fixed Income Conference Call. (Operator Instructions) And the conference is being recorded. (Operator Instructions)

Being my pleasure to turn the conference now to Philip Teuchner, Investor Relations. Please go ahead.

Good afternoon or good morning, and thank you all for joining us today. On the call, our Group Treasurer, Richard Stewart will take us through some fixed income-specific topics. From the subsequent Q&A session, we also have our CFO, James von Moltke to answer your questions.

The slides that accompany the topics are available for download from our website at db.com. After the presentation, we will be happy to take your questions. Before we get started, I just want to remind you that the presentation may contain forward-looking statements, which may not develop as we currently expect. Therefore, please take note of the precautionary warning at the end of our materials.

With that, let me hand over to Richard. .

Thank you, Philip, and welcome from me. It is a pleasure to be discussing our results with you today. We have set Deutsche Bank course for sustainable growth through our global house bank strategy.

We delivered business growth and improved the quality of earnings streams with a well-balanced business mix as the benefits of our sharpened the business model came through. Let's start with our 2023 performance on Slide 1.

Revenues were in line with our guidance at around EUR 29 billion, up 6% year-on-year. 78% of our revenues came from recurring earnings streams in 2023, up from 71% in 2020. We benefited from rising interest rates, notably in the Corporate Bank and Private Bank. We also focus on building out our share of fee income across all businesses. Our progress in strengthening our franchise to be recognized with upgrades from all leading rating agencies which positions us to deepen further engagement with current and new clients.

Now let's look ahead at our revenue pathway to 2025 on Slide 2. Since 2021, we've demonstrated revenue momentum well ahead of our original target growth rate due in part to supportive interest rate environment. We are confident that as interest rates normalized, we can maintain an upward revenue trajectory. This is supported by the expected growth in noninterest income, which already accounts for more than half of group revenues and our investments in capital-light activities.

Based on this, we are raising our revenue compound annual growth rate target from between 3.5% and 4.5% to between 5.5% and 6.5% for the period 2021 through 2025, aiming to reach EUR 32 billion in 2025. We expect noninterest income growth to contribute approximately 2.5 percentage points of the total CAGR between 2021 and 2025.

This is achievable through a number of levers: growing share of wallet in the corporate bank, repeating the benefits of investments in Origination & Advisory, building on our ongoing strong relative performance in our FICC franchise, benefiting from investments in the private bank to expand fee generation and delivering on our growth strategies, including passive and taking full advantage of market recovery in asset management.

In respect of net interest income growth, we expect it to contribute approximately 4 percentage points of the total CAGR between 2021 and 2025. This reflects a normalization in 2024, followed by a further growth in 2025 and beyond. Now let me turn to costs on Slide 3. We see a clear path to cost of approximately EUR 20 billion in 2025.

Over the next 2 years, our aim is to drive reductions across both nonoperating costs and our adjusted cost base by managing our run rate and driving efficiency measures. We foresee reductions in nonoperational costs of around EUR 700 million from 2023 levels in the next 2 years. On adjusted costs, as we have already communicated, we see bank leverage coming down by between EUR 350 million and EUR 400 million over the next few years.

The additional EUR 400 million net reduction will come from further progress on our operational efficiency program. We have already executed on measures with delivered or expected savings of EUR 1.3 billion, of which EUR 900 million of savings were realized to date. Our detailed implementation road map gives us confidence in delivering noninterest expenses of approximately EUR 20 billion in 2025, providing a clear pathway to our cost-income ratio target of 62.5%. We're conscious that operating in a fast-changing environment and our path towards 2025 may be impacted by external factors. We have the talk in place to implement additional measures, which would enable us to further flex our cost base to meet our cost/income ratio target even if we encounter unforeseen revenue headwinds.

Turning now to the recent development of capital on Slide 4. Our fourth quarter common equity Tier 1 ratio came in at 13.7%, a 20-basis point decrease compared to the previous quarter. This quarter-on-quarter reduction reflects lower capital as our net income was more than offset by capital deductions, most notably for shareholder dividends, AT1 coupons and deferred tax assets. Risk-weighted assets were flat over the quarter, excluding FX effects.

Credit risk RWA increased over the quarter, reflecting business growth and model changes. These increases were partly offset by capital optimization initiatives as we continue to focus on the cashflow efficiency of our balance sheet. Lower market risk and operational risk RWA more than offset higher credit risk RWA over the quarter, reflecting lower market volatility and an improved risk profile. Our capital ratios remain well above regulatory requirements as shown on Slide 5. The Common Equity Tier 1 MDA buffer now stands at 258 basis points or EUR 9 billion of CET1 capital. The quarter-on-quarter decrease of 20 basis points reflects the lower CET1 capital ratio. Our total capital MDA buffer was also impacted by 6 basis points due to higher Tier 2 capital maturity haircuts and now stands at 274 basis points. As announced in December, the ECB has reduced our 2024 Pillar 2 requirement from 2.7% to 2.65%, which increases our buffer accordingly.

Moving to Slide 6. At the end of the fourth quarter, our leverage ratio stood at 4.5%, 13 basis points lower compared to the previous quarter. Within that, a 7-basis point decline was due to lower Tier 1 capital, in line with CET1 capital movement. And 9 basis points decline resulted from higher leverage exposure, mainly driven by trading activities and increased liquidity reserves from higher deposit volumes.

We continue to operate with significant loss-absorbing capacity well above all of our requirements, as shown on Slide 7. The MREL surplus, our most binding constraint remained stable at EUR 17 billion at year-end. This includes a decrease of EUR 1 billion from lower CET1 capital and an increase of EUR 1 billion from lower ROA. Our loss-absorbing capacity buffer stands at a comfortable level and continues to provide us with the flexibility to pause issuing new eligible liability instruments for approximately 1 year.

Moving now to the development in our loan deposit books over the quarter on Slide 8. All figures in the commentary are adjusted for FX effects. Loans have been essentially flat during the fourth quarter as well as on a year-on-year basis, driven by more muted client demand and selected balance sheet deployment throughout the year. For 2024, we expect moderate loan growth in all segments, while most pronounced in wealth management, in line with our strategic investments in that business.

Deposits have further increased by EUR 16 billion or 3% compared to last quarter, bringing us back to year-end 2022 levels. In line with previous quarters, growth has again been strongest in the Corporate Bank, with good momentum across products and client segments. Deposits in the Private Bank remained stable in the quarter driven by continued inflows from our retail campaigns and recent signs of easing inflationary pressures. Looking ahead, we expect moderate growth in deposits this year due to positive business momentum, ongoing tailwinds from the most recent rating upgrade as well as structurally lower headwinds from inflation.

The following slides will look in some detail at the development of our interest income, including details around our hedging. Starting on Slide 9, you can see that we reported strong absolute net interest income across our key banking book segments, all reporting higher net interest income and margin versus the prior quarter and prior year quarter. The corporate bank saw higher deposit balances in the fourth quarter, which supported higher NII and reported NIM. Private Bank margins and NII were stable throughout 2023, and as a gradual increase in deposit betas was fully compensated by rollovers at higher rates in the interest rate hedge portfolio.

Group NII and NIM were marginally down in the quarter as sequential improvements in the banking book segments and in other funding effects were more than offset by the impact of accounting asymmetry largely held in Corporate and Other. As we have discussed in prior quarters, the accounting asymmetry effect is revenue neutral, although it impacts reported NII.

Let me now provide an update on the outlook for net interest income on Slide 10. The numbers on the following slides are based on the market expectations for interest rates as of the 26th of January this year. Our reported full year NII of EUR 13.6 billion, was broadly stable for the group in 2023 compared to the prior year, but that does not reflect the economic contribution to group revenues due to significant moves in accounting effects, which were offset in noninterest revenues. Focusing on our three key NI generating business units as well as other funding costs not offset by accounting effects, we see an improvement of just over EUR 2 billion and a cumulative benefit since 2021 of over EUR 4 billion.

Looking ahead on the same basis, we expect a decline of around EUR 600 million in 2024, driven by the convergence of betas to steady state levels. We expect this to be followed by an increase of around EUR 400 million in 2025, which brings us closer to 2023 NII levels as the beta convergence is largely offset by the rollover of our hedge portfolios as well as balance sheet growth. In line with prior guidance, we expect a larger sequential reduction in the core bank than in the private bank in 2024. We expect a sequential improvement, excluding accounting asymmetries in the Corporate & Other segment of around EUR 300 million relating to reduced funding costs for corporate assets and lower retained liquidity and funding costs. We may outperform this guidance if market expectations regarding rate cuts do not fully materialize or deposit betas increased more slowly than expected.

Let me provide more detail on the drivers of our NII outlook on Slide 11. As you can see on the chart, we expect deposit margins to reduce in 2024 and 2025, but that this effect will be largely compensated by our hedges and lending portfolios. Deposit margins will be adversely impacted both by the expected decrease in Central Bank policy rates and increased deposit betas. We expect a EUR 2.5 billion reduction in NII, driven by these effects across the 2 years. We expect a EUR 1.7 billion increase in NII from our deposit and equity hedge portfolios over the same period.

While there is significant uncertainty in the market outlook, there is a structural offset between deposit margin and hedges. We have around EUR 230 billion of long-term interest rate hedges on our deposits and equity. Whilst deposit betas have reached steady state levels, our NII will mostly be sensitive to long-term rates as our hedge portfolio rolls over with limited sensitivity to short-term rates, unless moves are sharp enough to reintroduce beta lags or approach the zero bound.

The third major driver of our outlook is our loan portfolio, which we expect to provide most of our remaining NII increase. That benefit will stem from portfolio growth and from margin expansion across all three banking book segments. On Slide 12, we provide more details on the long-term interest rate hedging of our deposit books. The hedge book extends the tenor of interest rate risk with hedges ended with a 10-year maturity and a weighted average maturity of the portfolio of 4 to 5 years.

We expect an additional tailwind of around EUR 1 billion over the next 2 years relative to the full year 2023. Roughly half of that tailwind comes from hedges already executed, the other half from rollover of maturing tranches. As you can see on the chart, more than 90% of that is locked in with existing positions.

Overall, we will continue our strategy to reduce NII sensitivity through hedging. In the appendix, we have our regular slide on interest rate sensitivity which you can see has reduced versus our prior quarter disclosure. Moving to Slide 13, highlighting the development of our key liquidity metrics. Compared to the third quarter, the year-end liquidity coverage ratio increased by 8 percentage points to 140%.

With a daily average LCR of 131%, we have maintained a robust liquidity position throughout the fourth quarter. The spot LCR increased at quarter end was mainly driven by deposit growth on the back of higher client engagement in wholesale markets, following the recent rating upgrade as well as lower net cash outflows. The stock of EUR 219 billion of HQLA, of which about 95% is held in cash and level 1 securities has increased by EUR 9 billion in the quarter and is a reflection of the high quality of our liquidity pool.

We prudently manage the stock of our securities via daily monitoring and stress testing. These are mark-to-market and predominantly comprise highly-weighted government bonds, SSAs and cover bonds. The surface of both the regulation minimum increased by about EUR 11 billion to EUR 62 billion quarter-on-quarter. As previously communicated, our long-term LCR target is unchanged at 130%. In 2024, we aim to manage the LCR back to targeted levels, including remaining TLTRO repayments and business growth. The net stable funding ratio is unchanged at 121%, reflecting our conservative and stable balance sheet. This represents a surplus of about EUR 107 billion above the regulatory requirement.

The available longer-term stable funding sources for the bank remain well diversified and are supported by a robust deposit franchise, which continues contributing about 2/3 to the group's stable funding base. Looking ahead, we aim to maintain this funding mix, and we have no remaining reliance on TLTRO funding for our NSFR at year-end.

Moving now to our issuance plan on Slide 14. In December 2023, S&P upgraded our credit ratings by one notch, matching the upgrades Deutsche Bank has received from Moody's and Fitch. This rating actions supported the bank's spread development over the last weeks of 2023. Last year, we issued a total volume of EUR 17 billion, including $1.5 billion of prefunding for 2024.

For this year, we anticipate similar requirements as in 2023 and guide to an issuance volume of EUR 13 million to EUR 18 billion. We have already completed around EUR 3 billion, primarily driven by a dual-tranche senior preferred transaction issued on the January 8. In addition, we announced the completion of the transition of an AT1 security with a dollar [LIBOR] linkage to risk-free rates on the January 10.

Before going to your questions, let me conclude with a summary on Slide 15. We have revised our revenue growth target to 5.5% to 6.5% over the 2021 to 2025 period, supported by investments across all business areas and a more favorable economic and market backdrop. We are fully focused on delivering our cost plan to maintain our targeted quarterly run rate of EUR 5 billion of adjusted costs.

We expect provisions for credit losses to remain at around 25 to 30 basis points of average loans in 2024. On the capital management side, we are focused on supporting revenue growth while maintaining stable capital buffers across the stack. And we are confident that our credit spreads have further room to perform continuing the positive trend we have seen in the recent past.

With that, let us turn to your questions.

(Operator Instructions) And our first question today is from Lee Street from Citigroup.

I have three for you, please. Firstly, on your revenue growth targets within the Investment Bank, are you able to give a little bit of color on what wallet share assumptions you assume to achieve your EUR 32 billion goal?

Secondly, obviously, naturally a lot of focus on capital return, but capital has been a source of volatility for Deutsche in the past. So just what comfort can you get to fixed income investors? And with that in mind, should I think about the 13.5% [community] Tier 1 for the full year '25 has been your new target that you're working with now? And then finally, as you rightly point out, you've had a very strong run of ratings upgrades. Just any thoughts on your ratings trajectory from here? And if you have any specific ratings target that you'd like to achieve? That would be my three questions.

It's James, and thanks for joining the call. Thanks for the questions. So I'll take the first one briefly. So our overall path on noninterest revenues over the next couple of years, as we talked about a bit yesterday, would see upwards of $3 billion of improvements and potentially half of that would be in Origination & Advisory and with some additional help in the investment bank from our fixed income and currencies platform. One thing just to clarify a statement from yesterday's call, the market share growth would represent 2/3 of the origination advisory and the market wallet growth, about 1/3.

And inside that market wallet growth, our assumptions and in line with some external providers is that the corporate finance wallet will grow something between 15% and 20% this year and next year, potentially another 5% to 10%. That's a recovery from 2 years of going backwards. And to our mind, is reasonably in line with historical patterns of that market cycle. So we're reasonably encouraged by the signs that, that's in fact, what we expect to see. To your point about what is the market share that underlies that, we've been traveling around 2% market share for the last couple of years, actually 190 basis points last year. And our I think our assumption is reasonably conservative sort of not overly aggressive, that we might increase it to as much as 3%, reflecting the investments that we've made on our platform, including Numis, but also reflecting, I think, an opportunity to grow given some of the dislocations that are out there in the marketplace and potentially also recovery, particularly in portions where the mix has been unfavorable to us. So we're feeling really good about the investment and the path forward on both the market increase and our wallet share.

And then, Lee, maybe I'll take the second question. So it's Richard here, and happy Friday, and thanks for joining. So I guess your question is on capital. So -- and I guess, how you're thinking about that 13.5% ratio in 2025 and how you should think about it. So with a -- so we finished the year with a 13.7% ratio, as you know that's 260 basis points or so ahead of our MDA. We continuously increased our MDA buffer over the last few years, supported by higher and less volatile earnings. And our current level of distance or MDA puts us in a pretty comfortable position. We've just demonstrated that we are able to manage our capital ratios consistently with those targets.

And so we think that puts us in a good place for the CRR3 go live in Jan 2025. In terms of how we intend to use the generated capital, as we kind of showed in our slides yesterday, we -- for different purposes. So one is, we have a target shareholder distribution of 50%. We firmly believe that higher share price will also be beneficial to bondholders, not only as it increases the first loss absorption layer. We intend to invest around 25% of the generated capital into our business divisions and support their franchises. And then the remaining 25% can be used for model changes, regulatory inflation and opportunistic business investments, any other further distributions the management may feel we need to make.

And this last block gives us that capital management flexibility, which we view as important for steering. How do we think about the 13.5% for year-end 2025. So to be clear, we have not changed our CET1 ratio target. We target to maintain a level of a minimum of 200 basis points above MDA. It's not a fixed level because as you know that MDA level does move around with cyclical buffers and Pillar 2 requirements and other such like -- at this stage, we think that 200 basis points minimum level is where we think is sort of the right sort of level. 13.5% is more than 200 basis points for that expected MDA for year-end 2025.

And from today's perspective, this level seems to be consistent for us bouncing all the other capital uses that I just mentioned. So hopefully, that kind of gives you some clarification on how we're thinking about the ratio right now. And then in terms of ratings, as you clearly pointed out, so we're pleased with the upgrade from S&P in December. So that's the third upgrade that we've got from our mandated rating agencies in 2023. And apart from, I guess, what that now means is all our counterparty ranges are now rated single A or better.

And our Tier 2 rating is move back to investment grade with all agencies. And that explains where the spread impact was more pronounced when that, perhaps occurred in December, in this asset class compared to the senior instruments. In addition, what we're seeing is some further revenue potential in rating sensitive divisions, such as the investment bank, for example, asset-based commercial paper or in trust and agency services businesses in the corporate bank. And then when we think about the rating outlook from here, I guess following two upgrade cycles since we started our transformation journey in 2019. All ratings now carry a stable outlook. So we don't see any rating pressure in either direction for the foreseeable future with idiosyncratic improvements being reflected in today's ratings, further upgrades will require sustainable improvements in profitability and the higher capital ratios. At the same time, we are carefully managing the potential downside risk, which could also arise from industry or macro-related factors. So all in all, we remain a very close dialogue with our mandated agencies but we kind of see a pretty stable credit rating outlook from here.

The next question is from Daniel David.

Congratulations on the results. The first on leverage in the second, just on issuance. With regard to leverage, just interested how you think about leverage. I guess when I look at your ratio now, it looks a little bit tight versus the requirement, do you think you're constrained by leverage over CET1 or PA-based metrics? And also, how might supervisory changes to an average leverage ratio asset ratio within a period rather than kind of a period-end metric affect your IB business. So I guess, moving towards what they have in the U.K. I'm just interested in what that might do to your IB business. And then secondly, just on issuance. I can see in your plans, you've got $1 billion to EUR 2 billion of A Tier 1 and Tier 2. Can you give a bit more detail on that? When I look at your ratios, you've got a bit of a shortfall in Tier 2. So should we think that's to fill the Tier 2 requirement? Or I guess when I look ahead to your AT1 calls next year, they're quite big. Could you tap the AT1 market? Or any guidance would be useful.

Thanks for the question. I'll start briefly. It's James, on the leverage item, but really pass it on to Richard. I think we think of leverage -- managing the leverage ratio is really a resource optimization focus because it is, I think, a little bit more flexible in terms of timing and use of leverage than the risk-weighted asset profile. And hence, whether it's 4.5% or maybe slightly higher. I think the real question is controlling the leverage to utilize that resource effectively in light of both the client demand for leverage exposure on our balance sheet and also the revenue opportunity for it. So we think it's an optimization question with the principal constraint still being on the CET1 to risk-weighted assets.

Yes. So thanks, David. I mean I'll just add to that. I think we also kind of -- generally how our distance to MDA is generally consistent across all of our ratios. And then in terms of our planning and how the Investment Bank thinks for things, they also think about the intra-quarter volatility, which they may, may not have, it's some which they kind of factor into that business model as well as into -- how we kind of think about our capital planning as well.

So as James kind of says, it's something which we can dial up and down to be on kind of client demand. So we don't kind of consider ourselves leverage constraint in that sense. And I guess your question around issuance in AT1 and Tier 2. So I guess if you look at our current total capital kind of stack and I guess where the regulatory requirements are, then you'll see that we overfill the bucket on the AT1 side, a little bit under on the Tier 2 side.

So that probably gives you an indication of kind of how we -- we're thinking about 2024. Obviously, we always think just where the client demand and sort of the mechanics of the market are at any one particular time. We are cognizant of our Tier 1 calls coming due in 2025, but that's a little long way off right now. But yes, so maybe we're kind of probably thinking more towards Tier 2 in '24 rather than AT1s, but never -- market is opportunity, then that's something we will consider.

The next question is from Robert Smalley from UBS.

A couple of items. One, on commercial real estate, you've talked about the U.S. You've given some disclosure in the slides, which is great. Talk a little bit about the experience in Europe and where you're most exposed and also in Germany, given [state of] the economy there. Secondly, another issuance question. Your numbers that you had planned for last year, the gross was right in line, but the composition was slightly different with more senior preferred. Could you talk about the evolution of your thinking and what you were addressing with that last year? And what other tweaks you might see this year? And then third, your spreads have come in nicely over the past several months. However, still wide versus peers, you continue to deliver on your numbers. Your issuance amounts are going to be the same year-to-year. Your peers are going to issue more. My question is, you've done tenders in the past, what else do you have in the toolbox to tighten up your credit spreads?

Thanks, Robert. Thank you for joining us. And it's James. I'll take the CRE question and leave issuance and spreads to Richard. Look, if I use very round numbers, we sort of reported EUR 450 million of total credit loss provisions -- million last year. And that more or less broke down EUR 350 million in the U.S. and EUR 100 million outside. Within the EUR 100 million some of that, a small amount was Asia. So you're left with some amount considerably less than EUR 100 million in Europe.

What we've -- we're obviously cognizant that there is some pressure I wouldn't say stress, but there's pressure on the commercial real estate market in Europe and individual projects can be under stress, depending on where and what the investment was. I wouldn't see it as necessarily changing that much. And especially Germany, as you say, our view is that Germany generally wasn't as frothy, although valuations obviously went up, and there were some places where you've seen some sort of distressed sales. And generally, I don't think it was as frothy nor as concentrated to market. And therefore, we don't see the same degree of pressure in Germany. Obviously, it's a space we're going to continue to watch carefully around the world. But I don't see a change really to the pattern geographically perhaps that we had last year.

Yes. Thanks, Rob. So when I think about the issuance mix as things your question, I think what's -- we've kind of set a plan that's kind of the start of the year as driven by sort of business expectations for how they want to deploy their balance sheet at any one time. Think just last year, just the composition of that balance sheet change, which essentially allowed us to issue more -- see preferred and see a nonpreferred just given the overall, what was happening on the overall portfolio in terms of -- in terms of loan growth, not materializing as it was originally expected.

So that kind of generally just drove that mix change. I think when I think about spreads and what we can do to enhance -- the sort of toolkit I think about a couple of things. One is we've always been pretty consistent in liability management exercises or tenders. We kind of kind of use that toolbox, sporadically over the last few years. So that always remains, sort of 1 lever. The way I kind of think it structurally is around how we sort of remove the beta of volatility premium attached to Deutsche Bank's name. That's something which the management is deeply focused on and that's really around consistent execution and sustainability of earnings. So I think for me, that's kind of where the opportunity really comes from a spread perspective.

And I think that just comes from continued diligent execution and sustainable earnings growth. So that will be my answer to your question.

(Operator Instructions) And our next question is from (inaudible) from Bank of America.

As a follow-up on what Robert asked about commercial real estate. My first question is about the U.S., you mentioned modified restructured or defaulted loans as a driver of higher provisions. Could you please maybe tell us what locations those modified defaulted loans are in? And my second question, again, you commented on Europe a bit. I wonder what trends you are seeing in European real estate loans in the light of a new green requirement for offices and rental diligence, which are being rolled out would you expect greater provisioning needs coming from some of the landlords coming under stress?

Yes. It's James. I'll take the CRE question. So I guess, point one is our focus on the refinancing wave has been the U.S. So the disclosure you see on Page 26 focuses on U.S. The driver of crystallization of credit loss provisions tends to be for each loan as it approaches an extension or maturity date. And hence, our greatest focus in managing this portfolio is really anticipating those dates, working with sponsors to get the properties through the extension or refinancing.

And as the graphic tries to indicate, it's when modifications -- when there is an economic split of the cost, that tends to drive then a credit event for us around the modification. So it's that wave focused on the United States geographically that we're focused on. On your second, it's actually a global comment. So the ESG eligibility of properties tends to be a feature of their value and let ability, not just in Europe but also in other jurisdictions. And it can lead to a value loss where properties aren't really future proof in that way. It's something that we account for in our underwriting.

So naturally, we are seeking to move the portfolio as much as possible into and underwrite new lending in sort of ESG or E-eligible properties as we do believe that they will hold value and better and remain attractive in the lease market for longer.

Just a quick follow-up. So on the U.S., can you name any specific locations? Is it to Manhattan? Is it San Francisco? Is it something else where you're now cost to provision more?

No, I wouldn't focus on a specific location. New York has held up relatively well, I'd say the West coast less so. Again, you can see our split of office exposures in -- on the graphic on Page 26.

But so there's no one place necessarily where we see the highest losses coming from. I can say that the markets were most focused on sort of the portfolio events are San Francisco and Seattle of our exposure.

The next question is from Jeremy Sigee from BNP.

I'd just be really interested to get a sort of treasurer perspective on Slide 12, which I know is in the equity presentation as well, but it's obviously a very interesting one about the long-term hedges. And I guess, really, the question is, what should we expect going forward sort of beyond 2025, I mean, does that yield continue converging up towards the 10-year swap, which would obviously be quite a big upside to NII? And sort of over what time frame would that happen? And are there any major offsets to that as we think about group NII.

Yes. Thanks for the question. So the way to think about that is if all things stay the same, then essentially, we'll move towards that 10-year swap line. So therefore, those just as we just kind of roll forward the portfolio towards the sort of blended cost of hedges we have, essentially, we'll move towards that sort of long-term rate. And so that is a tailwind for us, all things being equal. So yes, that's the -- your assumption is correct. And roughly that's, I guess, EUR 300 million a year, you should kind of assume some sort of linear extrapolations. So yes, there's upside beyond 2025 is the short answer.

(Operator Instructions) There are no further questions at this time, and I hand back to Philip Teurchner for closing comments.

Thank you. And just to finish up. Thank you all for joining us today. You know where the IR team is if you have any further questions, and we look forward to talking to you soon again. Goodbye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you very much for joining. Have a pleasant day and a great weekend. Goodbye.