Deutsche Bank AG (DB) 2025 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the Q4 2025 fixed income conference call and live webcast. I'm Moritz, the Chorus Call operator. (Operator Instructions) The conference is being recorded. The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Philip Teuchner, Investor Relations. Please go ahead, sir.

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. For the subsequent Q&A session, we also have our CFO, James von Moltke; as well as our incoming CFO, Raja Akram, with us 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. Over these last few years, we have significantly strengthened our foundations and positioned Deutsche Bank to further increase value creation in the years ahead by scaling our global house bank. Post-tax return on tangible equity in 2025 was 10.3%, meeting our full-year target of above 10%. We see this as a great start from 2025 towards our commitment of greater than 13% by 2028.

Let's look at how we delivered the improved profitability. As we explained at our Investor Deep Dive in November, we have transformed Deutsche Bank into a simpler, more focused business with a significantly improved financial profile. We delivered on our revenue ambition of around EUR32 billion in 2025, an increase of 7% year on year or 26% since 2021 due to our diversified business mix and revenue composition.

Cost discipline remains strong in 2025. Non-interest expenses came in at EUR20.7 billion, down 10% year on year. We kept adjusted costs broadly flat and achieved a material reduction in non-operating costs, reflecting lower litigation expenses.

Our 2025 cost base is nearly EUR1 billion lower than in 2021, a reduction of around 4% over this period. Operational efficiencies enabled us to self-fund foundational investments in our technology architecture, control environment, and client franchise. This cost reduction, combined with our strong revenue growth, created significant operating leverage. In 2025 alone, we delivered operating leverage of 17% and our pre-provision profit was EUR11.4 billion, up threefold since 2021.

All four businesses have delivered a reduction in their cost-income ratios and a substantial improvement in profitability since 2021, leading to double-digit returns in 2025, as you can see on slide 3. Corporate Bank delivered revenue growth of more than 40% since 2021. The revenue mix benefited from a normalized interest rate environment and importantly, from our actions to increase fee income. This helped us to deliver stable revenues in 2025 despite lower rates and FX pressures.

Going forward, the actions we took in recent years mean the Corporate Bank is well positioned to scale the global house bank model by further leveraging its global network, product capabilities and client relationships. Our Investment Bank has transformed also over the past few years.

In FICC, our efforts were focused on deepening and broadening the franchise with targeted investments, which led to a gaining market share and increasing client activity by a further 11% in 2025 compared to the previous year. We are also repositioning Investment Banking and Capital Markets or IBCM, building on our German leadership and focused client offering, investing in sector and product expertise to expand our advisory and ECM capabilities while maintaining the strength of our debt franchise. Private Bank has made tremendous progress with its transformation, creating a more focused, efficient and connected franchise with an improved cost-income ratio of 70% and returns above 10% in 2025.

Our asset management arm, DWS, attracted EUR85 billion of net new assets since 2021, with assets under management surpassing EUR1 trillion in 2025. I want to briefly address the next phase of our strategy on slide 4. At the Investor Deep Dive in November, we set out a road map to increase return on tangible equity from over 10% in 2025 to greater than 13% over the next 3 years. We also set out our plans to further improve our cost/income ratio to below 60% from 64% in 2025. We plan to achieve this via three levers: focused growth, strict capital discipline and scalable operating model.

As you made clear in November, we have all the levers to achieve our goals in our hands today. We also see upside to our targets if the environment develops positively. 2026 is about taking the next steps to successfully deliver our strategy, and we are encouraged by the strong start we have made so far to the year. Delivering on our 2028 agenda will enable us to put our long-term goal into reach to become the European champion.

Let's now look back at a successful year with an overview of the quarterly developments, starting with net interest income on slide 5. NII across our key banking book segments and other funding was EUR3.4 billion in the fourth quarter and EUR13.3 billion for the full year, in line with our plans when adjusted for FX effects. The Private Bank continued to deliver steady NII growth and improved its net interest margin by around 30 basis points year-on-year, reflecting higher deposit revenues and the ongoing rollover of our structural hedge portfolio.

Momentum continued in FICC financing with sequential growth in NII supported by loan growth. Corporate Bank NII was slightly up quarter-on-quarter, reflecting a significant deposit increase, which positions us strongly going into 2026. For 2026, we expect NII across key banking book segments to increase to around EUR14 billion this year. We expect this increase to be mainly driven by the structural hedge rollover, expected to yield around EUR600 million more in 2026 compared to the prior year, of which over 90% is locked in through existing hedge activity in addition to targeted portfolio growth in both deposits and loans. Further details on the hedge portfolio can be found in the appendix.

Looking at the development of the loan book on slide 6, we can see that during the fourth quarter, loans grew by EUR5 billion within operating businesses adjusted for FX effects. The underlying quality of the loan book remains strong. Within FICC financing, the growth momentum continued, mainly driven by new loan originations in asset-backed financing and infrastructure lending as well as by an acquisition of an aviation portfolio.

We have also seen continued growth in the Corporate Bank portfolio, primarily within our flow and structured trade finance business. In the Private Bank, we continue to deliver on our strategic commitment to a capital-efficient balance sheet through further targeted mortgage reductions. This net growth within our businesses has been partially offset by the repayment of a legacy position within Corporate and Other in addition to some hedge accounting effects amounting to EUR2 billion in total.

As we look towards 2026, we aim to further grow in most value-accretive segments whilst maintaining strict capital discipline. Growth is expected to be most pronounced within FICC financing and the Corporate Bank with the latter benefiting from fiscal stimulus tailwinds in Germany.

Moving now to deposits on slide 7, our well-diversified deposit book grew by EUR29 billion during the fourth quarter, adjusted for FX effects. Our portfolio continues to be of high quality, supported by a strong domestic footprint and a substantial level of insured retail deposits.

Deposit growth was most pronounced in the Corporate Bank, where we saw substantial growth in site deposits from corporate clients. While we expect some normalization of this growth in the first quarter, we are overall pleased with the strong client engagement and franchise strength. The Private Bank portfolio also grew during the quarter, supported by ongoing deposit campaigns in Germany.

In 2026, our focus remains on growing SVA accretive deposits in the Private Bank and the Corporate Bank. On slide 8, we highlight the strength and resilience of our liquidity and funding base. We managed our liquidity coverage ratio to 144% at quarter end, reflecting our robust liquidity position. The surplus over the regulatory minimum increased, driven by higher HQLA now at EUR260 billion. Notably, the increase in HQLA this quarter was supported by inflows to our core bank deposits at year-end.

We maintain a high-quality liquidity buffer with 96% of HQLA held in cash and Level 1 securities, ensuring immediate access to liquidity. The net stable funding ratio remains solid at 119% with available stable funding rising to EUR650 billion. This reflects our diversified funding base underpinned by a strong domestic deposit franchise and longer-dated capital market issuances.

Turning to capital on slide 9, our fourth quarter common equity Tier 1 ratio came in at 14.2%, a decrease of 30 basis points compared to the previous quarter, with a 44 basis points reduction related to one-off effects as discussed last quarter. These effects included the discontinuation of the transitional rule for unrealized gains and losses on sovereign debt and the annual update of operational risk-weighted assets.

Higher market risk RWA reduced the ratio by 8 basis points as trading activity picked up to a more normalized level in the quarter, whilst credit risk RWA growth was offset by securitization. The impact of these items on the ratio was partially offset by 21 basis points of capital generation, reflecting our strong fourth quarter earnings net of AT1 coupon and dividend reduction.

Our capital ratios remain well above regulatory requirements, as shown on slide 10. The CET1 MDA buffer now stands at 293 basis points or EUR10 billion of CET1 capital. The 32 basis points quarter-on-quarter decrease reflects the lower CET1 ratio and 1 basis point of higher systemic risk and countercyclical buffer requirement driven by RWA changes. The buffer to the total capital requirement decreased by 12 basis points and now stands at 351 basis points.

Moving to slide 11, our fourth-quarter leverage ratio remained flat at 4.6%. The discontinuation of the transitional OCI filter had an impact of 6 basis points. The 10 basis point reduction relating to an increase in cash and reverse repo was more than offset by a 13 basis point increase due to our EUR1 billion AT1 issuance in November 2025 and the other CET1 capital increase drivers.

Following the FSB decision to reduce the bank's G-SIB bucket from 1.5% to 1%, the 2026 leverage ratio requirement will reduce by 25 basis points. We continue to operate with a significant loss-absorbing capacity well above all requirements as shown on slide 12. The MREL surplus of EUR23 billion, our most binding constraint, decreased by EUR3 billion in the last quarter. Our surplus thus remains at a comfortable level, which continues to provide us with the flexibility to pause issuing new eligible liabilities for at least one year.

Let me touch on our credit ratings on slide 13. After receiving two upgrades from each of the major rating agencies since the start of our transformation, we made further progress in 2025, evidenced by upgrades from both solicited and unsolicited agencies. In addition, Standard & Poor's raised our outlook to positive in the fourth quarter, driven by improving earnings and greater resilience. We are pleased by this recognition and continue to work hard to further improve our fundamental ratings with our mandated agencies. I'd also like to inform you about two specific decisions we have taken.

Driven by our efforts to optimize the liability stack and further improve our cost of funding, we will reduce our senior nonpreferred issuance volumes compared to last year, also in light of further anticipated deposit growth. As a consequence, we will no longer seek to benefit from the notch related to Moody's Advanced Loss -- given Failure or LGF analysis that is currently reflected in our senior nonpreferred rating. Please note that this is a voluntary decision by the bank, bringing us in line with our European peers. The 10% threshold has been more binding for us than regulatory MREL requirements.

The second decision concerns a number of mandated rating agencies at group level. To streamline our efforts and reduce costs, we will discontinue the MDBRS group mandate and focus on Moody's, S&P and Fitch going forward.

Let us now look at our issuance plan on slide 14. We closed 2025 with a total issuance volume of EUR18.7 billion, which is in line with our target range of EUR15 billion to EUR20 billion. During November and December, we issued roughly EUR3 billion in senior preferred and AT1 format. In 2026, we have materially lower funding requirements compared to 2025 and target a full year issuance volume of EUR10 billion to EUR15 billion.

The biggest driver of the reduction is lower senior nonpreferred volumes following the decision regarding the Moody's LGF notch. Looking further into the future, our balanced maturity profile over the coming years results in relatively modest maturities of EUR11 billion to EUR12 billion per year. As you will see, we took advantage of strong market conditions in early January and issued a EUR1 billion Tier 2 bond. This transaction, alongside our recent EUR1 billion AT1 security achieved our tightest spreads since the introduction of these debt classes, underscoring the bank's improved credit profile.

We have an upcoming call decision for a sterling AT1 instrument, which is callable in April 2026 by giving notification not later than March 31. Based on current markets, there is a small positive revaluation impact on this instrument at current FX rates, and the coupon will reset to roughly 8.2% -- as usual, we will take a decision on this security closer to the call date after considering several factors, including capital demand, refinancing levels versus reset, FX effects impacting CET1 as well as market expectations.

Finally, on issuance, we updated our sustainable issuance framework yesterday, which, amongst other things, allows us to issue bonds compliant with the European Green Bond standard, something we plan to make use of over the coming months. To summarize on slide 15 and looking ahead, the delivery of all of our 2025 targets and objectives provides a firm basis for the next phase of our strategy to 2028, scaling the global house bank. Business momentum going into 2026 has been good and sets us up well as we start scaling our franchise and benefit from the investments we are making.

As we said at our Investor Day in November, we plan to show improvements in operating performance every year, including in 2026. Our asset quality remains solid, but we continue to expect provision for credit losses to trend moderately downwards in 2026 towards a lower expected average run rate of around 30 basis points through 2028. And finally, as we just discussed, our issuance needs this year are lower compared to prior years as we optimize our liability stack.

Before turning to your questions, I would like to take this opportunity to thank James for his support and guidance over the past years and to congratulate him on his achievements in Deutsche Bank's successful transformation journey. Let us now start the Q&A session, where Raja, who I'm very much looking forward to working with, will join James and me.

(Operator Instructions) Lee Street, Citigroup.

I got a couple of questions, please. Firstly, on slide 13 and the decision not to defend the LGF notch for your nonpreferred senior anymore. Just I mean, the question is, how does that -- what does that mean to your end state stack in terms of the amount of non-pre you have outstanding? And I guess why now? Is it a question of cost? I mean, what's the driver?

And second question, just on the idea of talking about becoming a European champion and you've got your '28 targets, I suppose, what's the -- how should we measure that in practice? And who's the peer group for this? Because I guess if I look at your 28 return targets and cost to income, there's obviously still quite a lot of banks that will be likely better than that. So I mean, how are we actually supposed to think about that and measure that as actually being achieved? That would be my two questions.

Thanks, Lee, and thank you for joining the call. Happy Friday. So I guess I'll take the first couple of questions on the liability stack and the LGF and then maybe Roger and James can talk about the -- why we think about the European Champion sort of metrics. So I guess you had two questions. One was around, I guess, why now? And I guess then the second one was around what the impact could be. So I'll start with why now.

It's very simple really. We have been benefiting from the LGF notch in our senior preferred rating during our transformation phase, which is now in the rearview mirror. And during that period, we've seen two upgrades of our ratings with Moody's, which positions our senior nonpreferred rating well within investment-grade territory.

Therefore, we feel now is the right time to kind of move our positioning from defense to offense to do this step in order to optimize our funding composition and cost base further. This step also aligns us with our European peers, which do not carry the not in their senior nonpreferred rating. And so the decision will allow us over time, as you rightly intuit to partly rebalance our capital market stack from senior nonpreferred to senior preferred, making the overall balance sheet more efficient.

In terms of kind of what's the sort of the impact around issuance volumes and how we think about that. And clearly, we can reduce the volume of outstanding senior nonpreferred issuances now that given that before the Moody's LGF was our binding constraint. This will lead to a managed reduction of the headroom we have over TLAC as well as subordinated MREL requirements. It's important to note that the TLAC and MREL headroom also depends on changes of, as you know, DB's RWA trajectory, leverage exposure and maturity structure of our issuance books.

But when you take all that into effect as well, we'll continue to maintain an appropriate buffer over our regulatory requirements when we're thinking about our 2026 issuance plan. And as you can see, we're still going to be looking to issue EUR5 billion to EUR7 billion of senior nonpreferred this year. But over time, we expect a lower yearly S&P requirement than in previous years and also in light of our balanced maturity profile. So hopefully, that answers your questions, and I'll hand over to Raja on the '28 thinking.

Thank you very much, Richard. Look, I think first of all, thanks for giving the opportunity to answer this question. On page 4 of the deck, we have kind of laid out a little bit of our path to the European champion. And as we said in the Investor Day, our medium-term targets are around 2028, where we want to take our return on tangible equity up from 10% to 13%, which we think is the intermediate step to what ultimately is a longer-term objective to be the European champion. And I think it's a really valid question to see what does it really mean to be a European champion definitionally.

So assuming we get to 13%, and we have high confidence around that, what the way we think about it is that in all the key segments that we engage in as a European bank or a European-based bank, whether it's FICC or wealth management or asset management, we want to be in market-leading position.

We already have a leading position in FIC in Europe. We are number three in Asia. We are number seven in the US. So we have aspiration to be number five in the US, and that would actually make us the leading European bank in that space. It's a matter of -- the second more quantitative threshold for that would be that from a returns perspective, we should be leading the returns versus our European peers, which today, we have some -- a little bit of a gap to.

So I would say it's business positioning. It's quantitative returns. And obviously, a little bit of it is what kind of bank we are, and we think we need to be an AI-powered bank. The last thing that is actually not on the page, but we as a management team talk a lot about is we also want to be a destination of choice for -- to a place to work.

Like I think if you are -- if you have that reputation as a leading bank, then I think this is also a destination of choice for talent. And in terms of how you can measure it, I think over time between now and '28, we intend to obviously show, as Richard said, gradual improvement in all of our financial metrics, but it is also our intention to give the drivers underneath those growth, whether it's how we are growing deposits, how we're bringing new client assets, what we're doing with new client money. So -- and how our market share is evolving, especially in the investment banking side. So I would say it's one of those things you will kind of see it when we get there. But in the meantime, we intend to provide the progress markers that we have set for ourselves.

Corinne Cunningham, Autonomous.

Thanks for the detail on the senior there. I wanted to come back to a slightly different angle, the commercial real estate. This has been dragging on for a while now. You've been given guidance or guiding that we should be at the end of the problem and then we're seeing higher provisions again.

So specifically, what's going on there? And I suppose what's cropping up that you haven't already foreseen and provisioned that's meaning that you continue to have to keep topping up provisions on that?

Thanks, Corinne. It's James. Look, in a sense, we're following the new facts on the portfolio as we build additional provisions. And that can be, for example, new appraisals that come in lower than the early appraisals that underscored our marks. It can be lease activity for a specific building that we have lent against.

And so if the tenants are departing, then the cash flows in that project obviously are impaired and that changes the valuation. And it can also be valuations in the marketplace that are visible and that we see outside of the cadence of appraisal updates. So those are the types of things that then feed into our valuations and cause us to build the provisions. In the quarter, as we said yesterday, there was one exposure, sort of a larger single name event that characterizes commercial real estate was outside of the office.

So these things will happen from time to time. But in the broader commercial real estate, I would say the focal point remains office, West Coast office. And as we think about the tail, when we do see that stability in the marketplace in appraisals, in letting behavior, we'd likely see those -- the CLPs drop dramatically. And just to be clear, West Coast is really our exposures that are challenged are in Seattle and LA. And hence, I think some of the disclosure we've provided since the outset of this cycle, hopefully has been helpful in giving you a sense of what we've been seeing and contending with.

And any signs of light at the end of the tunnel, or are you just taking it day by day?

As I say, I said on the yesterday call that I had seen sort of, if you like, false dawns before. where we thought we'd seen stabilization in either appraisals or market only to see the market find another floor. So I'm cautious. my risk colleagues are cautious about calling the floor. That said, this late into the cycle and with hopefully, behavior starting to change and stability coming to the markets, we'd hope we're at the tail end.

Robert Smalley, MacKay Shields.

And first, I want to say, James, I have appreciated the engagement speaking for myself and this group here and that it's everything you've done with respect to the fixed income community has really reflected in the bank's access and the bank's cost of funds over the years. And we've all really appreciated it. So thanks very much. You've done a lot of heavy lifting and good luck in your next endeavor.

Before everybody says it on the call, maybe I'll jump in to say thank you for the kind words to you and the other investors and analysts out there. It's -- the engagement with all of you has been great and particularly those who've been -- followed the story really carefully and been great supporters of the name in the marketplace, but also great sources of feedback for us. So I really appreciate the partnership over the years, and thank you for your words.

So do we. So thank you again, and best of luck in your next endeavor. Just one comment in terms of the rating notch and your plan. I think for the bank, it's important to follow economic and business imperatives rather than manufactured frameworks. Let's leave it -- that's my first question.

And secondly, just German yield curve is at its steepest since 2019. How is that impacting the way you look at the balance sheet funding? And what should we look for in terms of curve movement that might be beneficial or detrimental to the outlook?

Thank you for the questions, Robert. I will continue with the CRE questions. Look, if I knew for sure, obviously, I would tell you or we would already have booked to it. Generally, though, I mean, the portfolio, there's some granularity to the portfolio and the types of adjustments that I mentioned in answer to Corinne's question, will typically not be all that lumpy. I mean they're sort of, again, valuation adjustments on a portfolio level.

It would be -- where there are lumps, it's when there's an event around a single larger exposure, and that event could be a restructuring or a sale. And there's only a handful of situations that could really produce that depending on kind of the course of a resolution action, so I wouldn't expect lumpiness.

Again, setting aside the one larger exposure that, as I mentioned, is not office and of kind of market pricing at each point in time, generally confirmation relative to our -- the valuations that we've had. And again, some of the individual assets that have been part of those loan portfolio sales have been relatively larger, again, giving us some sense that at each point in time, we were reasonably marked. So a little bit of color, but in general, we wouldn't expect lumpiness.

And, Rob, it's Richard here. and thanks for joining the call. So it's pretty simple on the rate side of things. So in terms of funding, credit spreads are much more important for us when it comes to funding because we manage our interest rate risk at the point of issuance. And then from an NII kind of hedging perspective, as you know, we have a sort of -- as with others replicating portfolio, that essentially as rates -- as those swaps roll off, if we can extend those swaps into 10 years at a higher rate than it is today, then that's beneficial.

So all things being equal, we benefit from a steeper credit curve and tighter credit spreads is how to think about it. But in terms of our overall NI strategy that you've seen over the last few years as you kind of given those disclosures, we are pretty well hedged from an interest rate perspective for pal our moves up and down. But just the nature of that hedging strategy we have, we are -- we do benefit from higher long-term rates over time.

So it looks there are no further questions at this time. So I would like to turn the conference back over to Philip Teuchner for any closing remarks.

Thank you, Moritz. 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 again soon. Good-bye and have a nice day.

Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining and have a pleasant day. Good-bye.