Deutsche Bank AG (DB) 2025 Q3 法說會逐字稿

Ladies and gentlemen, welcome to the Q3 2025 Fixed Income conference call and live webcast. I'm Moritz, the Chorus Call operator. (Operator Instructions) and the conference is being recorded. (Operator Instructions) 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.

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, 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. We delivered record profitability in the first 9 months of 2025. We are tracking in line with our full year 2025 goals on all dimensions. 9-month revenues at EUR24.4 billion are fully in line with our full year goal of around EUR32 billion before FX effects.

Adjusted costs are consistent with our guidance. Post-tax return on tangible equity is 10.9%, meeting our full year target of above 10% and our cost-income ratio at 63% is also consistent with our target of below 65%.

Operating leverage drove our profit growth. Pre-provision profit was EUR9 billion in the first 9 months of 2025, up nearly 50% year-on-year or nearly 30% if adjusted for the impact of Postbank litigation impacts in both periods. We saw continued revenue growth of 7% with momentum across all businesses.

Net commission and fee income was up 5% year on year, while net interest income across key banking book segments and other funding was essentially stable. 74% of revenues came from the more predictable revenue streams, the Corporate Bank, Private Bank, Asset Management and financing businesses in FIC.

Cost discipline remains strong. Non-interest expenses were down 8% year on year with significantly lower nonoperating costs, largely due to the nonrepeat of Postbank litigation provisions, while adjusted costs were flat. And our asset quality remains solid. Provisions were in line with expectations, we had no exposure to recent high-profile cases.

Let me now turn to our progress on the pairs of strategy execution on slide 3. We are on track to meet or exceed all our 2025 strategy goals. The compound annual revenue growth rate since 2021 was 6% in the middle of our range of between 5.5% and 6.5%. In a changing environment, we are benefiting from a well-diversified earnings mix.

Operational efficiencies stood at EUR2.4 billion, either delivered or expected from measures completed. In other words, 95% of our EUR2.5 billion goal. Capital efficiencies have already reached EUR30 billion in RWA reductions, the high end of our target range, and we continue to see scope for further efficiencies through year-end.

During the quarter, we launched our second share buyback program of 2025 with a value of EUR250 million, which we completed last week. This brings cumulative distributions since 2022 to EUR5.6 billion.

Let's now turn to some remarks on our businesses on slide 4. We are delivering strength and strategic execution across all four businesses in our Global Hausbank. All businesses have delivered double-digit profit growth and all four have delivered double-digit RoTE in the first nine months.

The Corporate Bank continues to further scale the Global Hausbank model and delivered strong fee growth of 5% in the first 9 months and was recognized as the best trade finance bank. Our Investment Bank has been there for clients through challenging times this year and has seen an increase in activity across the whole client spectrum.

Private Bank has made tremendous progress with its transformation so far this year with 9 months profits up 71%. Our growth strategy in Wealth Management is paying off.

Assets under management have grown by EUR40 billion year-to-date with net inflows of EUR25 billion. And in Asset Management, the combination of fee-based expansion with operational efficiency drives sustainable returns of 25%.

We are benefiting from our strength in European ETFs and are expanding our offering in that area. Turning now to net interest income on slide 5. NII across key banking book segments and other funding was EUR3.3 billion in the quarter.

Private Bank continues to deliver steady NII growth, supported by the ongoing rollover of our structural hedge portfolio as well as deposit inflows. For Bank, NII is slightly down quarter-on-quarter, principally driven by lower one-offs, but it continues to be supported by underlying portfolio growth as well as hedge rollover benefits.

With respect to the full year, we are on track to meet our plans on a currency-adjusted basis. Turning to slide 6, which reflects market implied forward rates as of quarter end, we can see that our hedge portfolio positions us well.

In the third quarter, the total volume invested long term staged around EUR245 billion or around EUR200 billion, excluding equity hedges. The result of our hedge approach is that a large proportion of our future NII is now locked in.

In addition, the absolute NII contribution of the hedge portfolio grows steadily as new hedges are executed above the rate of maturing hedges. In the appendix, you can also see that our NII sensitivity remains contained with a little change quarter-over-quarter.

Looking at the development of the loan book on slide 7, we can see that during the third quarter, loans grew by EUR3 billion adjusted for FX effects. The underlying quality of the loan book remains strong. Around two-thirds of our clients are located in Germany and Europe.

Our loan portfolio in the Investment Bank shows sustained growth driven by FIC as well as encouraging momentum in M&A.

In the Private Bank, we continue to deliver on our strategic commitment to a capital-efficient balance sheet through further targeted mortgage reductions, while we also saw encouraging growth in Wealth Management.

In the Corporate Bank, client demand remained muted this quarter as geopolitical uncertainties continue to persist. However, looking ahead, we expect lending in the core bank to benefit from the fiscal stimulus in Germany and to accelerate over the course of 2026. The lending outlook also remains strong in FIC and reflects our strategic focus on growing the franchise and expanding market share.

Moving now to deposits on slide 8, our well-diversified deposit book has grown by EUR10 billion during the third 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 deposits. Deposit growth has been most pronounced in the Private Bank, where we saw continued momentum and strong inflows from our retail campaigns in Germany.

The Corporate Bank portfolio has also grown during the quarter, driven by inflows in site deposits on the back of high client engagement. For the remainder of the year, we expect further inflows from deposit campaigns in the Private Bank, while we also see opportunities for growth and portfolio optimizations in the Corporate Bank.

On slide 9, we highlight the development of our key liquidity metrics. We managed our liquidity coverage ratio to 140% at quarter end, thereby demonstrating the inherent strength and resilience of our balance sheet.

The surplus above the regulatory minimum increased by about EUR5 billion due to slightly higher HQLA and reduced net cash outflows. We continue to maintain a high-quality liquidity buffer and hold about 95% of HQLA in cash and Level 1 securities.

The net stable funding ratio slightly decreased to 119% with a surplus above regulatory requirements of EUR101 billion. This reflects our stable funding base with more than 2/3 of the group's funding sources coming from our global deposit franchise.

Turning to capital on slide 10, strong third quarter earnings net of AT1 coupon and dividend deductions led to an increase in the CET1 ratio to 14.5%, up 26 basis points sequentially. RWA remained flat during the quarter as an increase in credit risk RWA driven by higher loans and commitments was offset by a reduction in market risk, notably in SVaR.

As we head into the fourth quarter, let me remind you of the 27 basis points CET1 benefit we still have from the adoption of the Article 468 CRR transitional rule for unrealized gains and losses, which will expire at the end of the year. Also following revised EBA guidance from June 2025 regarding the calculation of operational risk RWA under the new standardized approach, we must now perform the annual update of operational risk RWA already by the end of 2025, which is expected to lead to a 19 basis points drawdown in CET1 ratio terms.

All else equal, applying these 2 items to our third quarter CET1 ratio results in a pro forma CET1 ratio of approximately 14%, which is also roughly where we expect currently to finish the year. Our capital ratios remain well above regulatory requirements, as shown on slide 11. The CET1 MDA buffer now stands at 325 basis points or EUR11 billion of CET1 capital. The 25 basis points quarter-on-quarter buffer increase reflects our higher CET1 ratio buffer. The buffer to total capital requirement decreased by 8 basis points and now stands at 362 basis points.

Moving to slide 12, our third-quarter leverage ratio was 4.6%, down 11 basis points, principally from higher loans and commitments alongside increased settlement activities at quarter end. Tier 1 capital was essentially flat in the quarter as the derecognition of the $1.25 billion AT1 instrument that we called in September materially offset the quarter-on-quarter increase in CET1 capital.

We continue to operate with significant loss-absorbing capacity well above all requirements as shown on slide 13. The MREL surplus, our most binding constraint, increased by EUR2 billion to EUR26 billion. Our surplus thus remains at a comfortable level, which continues to provide us with the flexibility to pause issuing new eligible liabilities instruments for at least one year.

Moving now to our issuance plan on slide 14, credit markets developed constructively in the third quarter, and our spreads also benefited from this trend. Our senior non-preferred bonds tightened by around 20 basis points on average in the quarter, allowing us to issue at attractive funding costs.

With year-to-date issuance of EUR15.1 billion, we have already reached the lower end of the range of our full year guidance. We reaffirm our target range of EUR15 billion to EUR20 billion for the full year. Since the last fixed income call in July, we issued EUR4.2 billion, primarily in senior nonpreferred format across euros and dollars. Residual funding for the year 2025 will be focused on the senior preferred instruments.

Such issuance typically takes the form of private placements or retail targeted issuance as opposed to public benchmarks. We expect 2026 requirements to be in a similar, possibly slightly lower range as compared to 2025. As usual, in the fourth quarter, we may consider prefunding 2026 requirements depending on market conditions.

To summarize on slide 15, we are on track to meet our full-year 2025 targets and remain confident in our trajectory to deliver a return on tangible equity of above 10% and a cost-income ratio of below 65%. Our year-to-date performance supports our revenue and expense objectives. Our asset quality remains solid and despite uncertainty from developments around commercial real estate as well as the macroeconomic environment, we continue to anticipate lower provisioning levels in the second half of the year.

Our strong capital position and third quarter profit growth provide a solid foundation as we head into 2026. With year-to-date issuance of EUR15 billion, we have substantially met our issuance needs for the year.

With that, let's turn to your questions.

(Operator Instructions) Lee Street, Citigroup.

I have two questions, please. Firstly, and I'm not trying to front run your Investor Day. But as we look ahead to the next few years, do you think it's reasonable to presume that a 10% return on tangible equity should be like the floor of where we should be seeing Deutsche Bank perform on an annual basis? That would be my first question.

And secondly, you hopefully gave details with your private credit exposures look quite light. You give a lot of detail on your commercial real estate exposure you have done for some time. Setting those two sectors aside, what other areas are on your watch list at the moment and where you're paying attention, getting briefings on? That would be my two questions.

Thanks, Lee. It's James. Happy to take the questions. Look, without being drawn to specific numbers, we certainly are working over the years to come to put a good amount of distance between where we are operating at any given time and sort of a low point.

This through-the-cycle thinking is not lost on us, in other words. And I do believe that the structural profitability of the company has risen to the point where numbers like what you throw out are entirely possible.

I think the other thing, specifically from a credit investors' perspective, the PPNR, and we still disclose the PPNR in Christian's slides in the equity deck, the PPNR that's associated with that profitability has become a larger and larger potential loss-absorbing kind of layer, as is the capital that's disregarded in the ratio as you go through the year on the payout level.

So without changing the ratio, you have some loss absorption as the year goes by. So I do believe it paints a more and more robust picture as time goes on.

On the credit side, you called out those two areas. Obviously, private credit for us was not a source of concern. It's a source of kind of watch given the potential read across, and we've done some work on that.

CRE has remained a soft spot for sure. And you've seen that in our quarterly reporting. We do expect in time there to be a healing of that market, and we've seen some initial positive indicators, but I think it remains a watch item.

I'd say beyond that, earlier this year, you'll recall, we've done a fair amount of work looking at our portfolio in terms of potential sensitivity to the trade changes and policy changes as well as specifically the automotive and manufacturing sectors in Germany.

We've actually seen that hold up very well this year and are pleased with the performance. But no doubt, as the -- as kind of the world moves on, time moves on, it will remain a watch area for us.

And I think the last thing to call out is sort of geopolitical risks. We tend to see very little exposure in our portfolios to the events that you've seen. But we, of course, continuously stress test for either real or potential events, and that's also an ongoing area of focus for us. I hope that helps, Lee.

Dan David, Autonomous.

Congratulations on the results. I've got three, if possible. The first maybe is just leading on from what Lee was just asking. I think as a result of one of your French peers, receivable financing is kind of the latest buzzword.

Can you just talk about your exposure in that area and where we would see it in the Deutsche Bank balance sheet if you do have exposure?

The second one is on Tier 2. So you've maintained a Tier 2 deficit offset by the surplus in AT1 for a while now. Is that how we should think about your capital stack going forward? I guess, is that likely to change?

And then the third one is a bit more broad on the topic of sustainability. Noting the kind of ongoing political developments in Europe, do you feel at a competitive disadvantage compared to U.S. peers as a result of the sustainable landscape in Europe? I would appreciate any thoughts.

Sure, Dan, it's James. I'll perhaps take the first and third and ask Richard to take the capital stack question. Receivables financing, I can't tell you the sort of the size of the portfolio, but we -- in trade finance, we do some sort of supply chain financing.

I don't think it's a large exposure, but it's certainly something that we do in trade finance. And there can be some exposures of that nature in ABS as well, in ABS format. So we have some exposures, but I would not think of it as a significant exposure for us as a group.

As always, I don't want to sort of recite all of the sort of controls that we put around our book as a whole. But obviously, anything we do in receivable financing has the same type of first and second line scrutiny as we do in other secured and unsecured financing types.

On the sustainability side, I would not think of it as a competitive disadvantage. Let me make a few points.

Firstly, we've made a tremendous amount of progress in our overall sustainability agenda in the firm over the years, represented or recognized among other things in our ESG ratings, which have improved, but also the business activity that we do with clients as they think about their transition plans, sustainable financing, transition financing.

It's -- I don't want to go so far as to say it's a competitive advantage. But to a certain extent, the fact that it gets deemphasized perhaps by some of our peers across the Atlantic gives more of that space to us and others who remain sort of engaged on the topic.

I noticed an article this week that spoke to higher financing levels for renewable energy sources this year than carbon-based energy sources. So to give you an example that the market is evolving.

And clearly, there's also -- there's a revenue and business opportunity attached to some of this, which can be impacted by sort of changes in the landscape. So we don't think of it as a competitive disadvantage. The last point to make is just on the disclosure requirements.

Of course, we do embrace simplification and standardization of disclosure requirements and taxonomies because we've been through a big build phase in the world and in what the requirements are for banks.

And the more one can simplify that landscape without losing the benefit of some of the models, taxonomies, definitions that we've created over the years, obviously, that's a benefit to the banks.

Dan, it's Richard here, and thanks for joining, and I'll pick up the Tier 2 question. So when we kind of think about our capital stack, we first kind of assess our Tier 1 capital needs first. And so once that is addressed, it kind of looks at the combination of both the Tier 1 and Tier 2 bucketing.

And as you kind of seen over the last couple of years, we probably overpopulated our Tier 1 bucket just to solve for client demand for leverage. And so that is something that has been the approach we've taken over the last few quarters.

And we kind of expect kind of our current thinking for that to continue. Having said that, our Tier 2 instrument is still a useful instrument for us. We still think it's valuable. And so it's not saying we're precluding from issuing that space in the future.

Robert Smalley, MacKay Shields.

I have two. First on commercial real estate, which has been nettlesome. Could you talk a little bit about specifically where the issues are? I know on the REIT side, we get building-by-building type of disclosure.

But can we talk about where they are, what the plan is and how much restructuring you're looking at versus kind of nursing these things along for another couple of quarters? And if we are seeing restructuring, will it manifest itself in charge-offs in the fourth quarter?

And then my second question on the supplement that came out yesterday on page 12, about 40%-plus of Stage 1, Stage 2 loans are off-balance sheet positions. Could you characterize what those are generally? Because they don't go into Stage 3.

Is it mostly timing issues, et cetera, that puts them into Stage 1? And is there possibly a better way to do this than bucketing them in Stage 1, Stage 2, and Stage 3? Because it seems to pump up the numbers, but -- it seems to overstate the Stage 1 and Stage 2 numbers, but they seem to cure pretty easily.

Thanks, Rob. So it's James. There's a couple of answers to questions. On the CRE, the concentration of the CLPs that we've seen in the past couple of quarters has been in those exposures on the West Coast that we've referred to.

So 60%, 70%, let's say, of the credit loss provisions this quarter has related to West Coast, and that's particularly California and Washington State. Where that goes from here, I spoke a little bit about yesterday, but what we do is look at the portfolio on a forward basis.

First of all, looking at which loans are coming up for refinancing or extension and taking a view as to which will be sort of money good loans that are eligible for refinancing or extension.

For those loans that are either sort of on the border or look to be troubled, we work intensively with the sponsors on what the strategy is for value sort of preservation creation.

I'd say that the tone of that effort has been -- has deteriorated a little bit as more of the equity has been consumed in the projects, but still remains overall positive, and we work -- we look to create sort of good outcomes and sharing of the burdens.

There is a small portfolio of real estate owned as well. To your question of what does that mean for the future, it's always going to be somewhat path dependent on what happens to appraisals, what happens to the individual buildings in terms of their lease footprint, in terms of sponsor decisions.

But at each quarter, we essentially mark the portfolio to our -- to the most recent appraisal and our expectations as to outcomes of those discussions.

And we feel good about the marks, including incidentally in the most recent quarter, having taken a portfolio to the market and seen bids come back that have been, by and large, very close to where we had those positions marked.

So short version of all that, it's too early to call an end to the trend. But as I said yesterday, certainly, we'd like to think we're much closer to the end than the beginning, even on the West Coast, although that's where the uncertainty sort of lies.

Your reference to page 12, you are -- well, in essence, right, obviously, we follow the -- what the accounting standard requires in terms of the IFRS 9 provisioning and the portfolios against which the provisions are taken.

You can see that on off-balance sheet provisions, which are overwhelmingly essentially derivatives and, in some cases, committed facilities. So the amounts that are not recognized on the balance sheet, there tends to be a huge bias towards, obviously, Stages 1 and 2, much of that represents our trading businesses.

You may recall, Rob, that in disrupted market environments, we sometimes have migrations of those portfolios down, but it's typically temporary as your question refers. I don't know if there's a better way to disclose, but as you can see, the associated provisions are relatively nominal.

And I'm not sure how helpful at the end of the day, the disclosure is. Hopefully, that all helps. And, Rob, nice to have you with us.

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

Thank you, Moritz. And just to finish out, 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, and have a nice day.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Good-bye.