Deutsche Bank AG (DB) 2021 Q3 法說會逐字稿

Ladies and gentlemen, welcome, and thanks for joining the Q3 2021 fixed income call.

(Operator Instructions) And I would now like to turn the conference over to Philip Teuchner.

Please go ahead.

Good afternoon or good morning, and thank you all for joining us today for the Q3 fixed income call.

Our Group Treasurer, Dixit Joshi, will lead you through the prepared remarks.

For the subsequent Q&A, we have our CFO, James von Moltke, with us, to cover your questions together with Dixit.

The slides that accompany the topics are available for download from our website at db.com.

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.

For please take note of the precautionary warning at the end of our materials.

With that, let me hand over to Dixit.

Thank you, Philip, and welcome from me.

We are now 2/3 through our transformation journey, and we have continued to deliver against our milestones.

We see clear evidence of progress in our businesses.

The first basis of this progress is our disciplined execution.

We continue to be absolutely focused on cost-saving measures.

Adjusted costs, excluding transformation charges, are, once again, down year-on-year.

These transformation charges will help drive reductions in our expenses in future quarters.

And we have now recognized 90% of our total anticipated transformation-related effects of almost EUR 8 billion since we began this journey.

This has resulted in significant progress in our transformation.

We promised to self-finance this and we have delivered.

These efforts are being recognized by our stakeholders, and in the third quarter, both Moody's and Fitch upgraded our credit ratings and retained our positive outlook.

We have maintained a strong capital ratio, a strong balance sheet and sound liquidity despite certain challenges such as regulatory inflation and the impact of the global pandemic.

Our Capital Release Unit is outperforming against our 2022 goals, which we outlined at our last Investor Day.

Risk-weighted assets are down to EUR 30 billion, and the unit continues to reduce costs.

The result is profitability.

In all 3 quarters of this year, we have delivered significant year-on-year profit growth while simultaneously keeping up the pace of transformation.

Refocusing on core businesses is paying off.

Revenues have grown as broad-based business performance offsets the effect of normalizing markets.

As we saw in the third quarter, pretax profit of EUR 554 million grew 15% despite transformation charges of nearly EUR 600 million.

And on an adjusted basis, profit before tax would have been up by 39% to EUR 1.2 billion.

Net interest income this quarter was roughly EUR 2.8 billion, up approximately EUR 114 million in the second quarter.

This increase was driven by the growth in our loan book and higher revenues from our securities portfolios in the quarter, along with a decrease in the cost of our deposit funding.

Net interest margin remains broadly flat at approximately 1.2% as progress on deposit charging and reduced surplus liquidity offset the ongoing pressure from interest rates.

As we have mentioned before, we see these interest rate pressures abating with private bank headwinds set to half next year and corporate bank headwinds being substantially eliminated.

Recent interest rate moves provide a more favorable outlook for our businesses relative to the conservative baseline on which our previous plans were built.

For 2022, we now see a tailwind in the region of EUR 150 million relative to our earlier planning.

As the moves are predominantly in the long end of the curve, the impacts become cumulatively larger in later years reaching well over EUR 500 million by 2025 from the current observable forward curve expectations relative to our planned line from the fourth quarter of last year.

Now let me take you through the highlights of what we have achieved in the 9 months of this year on Slide 2. Our performance over these past 9 months shows that our 2022 targets (inaudible) are well within reach.

Revenues of EUR 19.5 billion for the first 9 months of 2021 fully support our trajectory to our 2022 revenue goals.

We have reduced adjusted costs, excluding transformation charges, by roughly 4% year-on-year to EUR 14.4 billion despite 2021 being an investment year.

This means we delivered operating leverage at both the group and core bank level over the past 9 months.

We reduced our cost income ratio from 87% to 82% year-on-year despite the additional transformation charges recognized in the third quarter.

Provision for credit losses declined 83% year-on-year to EUR 261 million or 8 basis points of average loans.

Return on tangible equity for the core bank is 7.5% for the past 9 months and above 9% on an adjusted basis already in line with next year's target.

Let's now turn to profitability, where we have seen a steady improvement on Slide 3. In the core bank, we delivered a 70% year-on-year increase in our adjusted profit before tax in the last 12 months.

Once again, all 4 core businesses contributed and are either in line or ahead of their plan so far.

In the Capital Release Unit, we reduced losses by nearly half compared to a year ago.

As we reduce leverage exposure and risk-weighted assets, we continue to remain committed to minimizing the P&L impact of the portfolio reduction.

As we steadily put transformation effects behind us and reduce the cost of deleveraging in the Capital Release Unit, more of the earnings power of our core businesses is reflected in the bottom line.

This supports our aim to deliver stable and sustainable returns at the group level.

A key driver for this is our sustainable revenue performance, which I will now turn on to Slide 4.

Revenues, excluding specific items in the core bank for the third quarter stands at EUR 6 billion, up 1% year-on-year.

Business growth has offset the normalization of the capital market environment which impacted fixed income trading as expected.

This quarter still bears the impact of foregone revenues as a result of the BGH ruling of EUR 96 million, similar to the second quarter.

We expect this impact to taper off considerably in the next quarter as we now have written consents in place for 2/3 of the affected accounts.

Revenues in the investment bank are EUR 2.2 billion, down only 6% from a very strong third quarter in 2020.

Both our Corporate and Private Bank continued to offset interest rate headwinds with expanded deposit repricing and the business growth.

We see ongoing underlying momentum in these businesses.

And we see strong underlying growth in lending.

The loan portfolio is currently at [EUR 456 billion], up 5% from the same quarter last year.

With the period of post-pandemic market normalization behind us, we now expect the current growth rate to remain in the coming quarters.

Asset Management delivered revenue growth for yet another quarter driven by strong management fees.

This is also the sixth consecutive quarter of net inflows.

Core bank revenues were EUR 25 billion in the last 12 months, 11% increase from 2019, which is in line with our current 2022 goal.

This reflects the sustainability of our revenues as client increment continues to improve.

Now let me turn to costs on Slide 5. On a 12-month basis, we reduced noninterest expenses by 14% to EUR 21 billion from 2019.

This includes the higher-than-expected contributions to the Single Resolution Fund and the German deposit protection scheme.

We continue to focus on managing our controllable cost base to offset volume-driven expenses and investments in controls and have identified additional cost-saving measures.

These measures come with around EUR 700 million of incremental transformation-related effects including technology-related charges that we recognized in the third quarter.

We are committed to putting almost all our anticipated transformation effects behind us by the end of 2021.

And with that in mind, we reaffirm our 2022 target for a cost income ratio of 70%.

As we said at the Investor Deep Dive in December, our focus remains on executing our transformation agenda, while supporting our clients as we summarize on Slide 6. We've executed on the strategies within our refocused core businesses, and we saw material improvements in core bank profitability and returns.

We are delivering resilient revenues as business growth offsets the normalization of markets, which we anticipated.

Our core businesses are performing in line with or ahead of our expectations and that positions us to deliver on our revenue ambitions next year.

We intensified our transformation efforts and took further steps to drive efficiencies.

All of this contributed to the upgrades of our credit ratings by Moody's and Fitch over the summer.

We are confident that the recognition of these important external stakeholders will provide further support on our path towards our 2022 targets.

We are committed to technology and control investments and to maintain our momentum on rolling open regulatory and control matters.

The hierarchy of our 2022 priorities remains unchanged, and we are on track to meet our targets of an 8% post-tax return on tangible equity and a 70% cost income ratio.

We are setting up a firm foundation to not only meet our 2022 ambitions but to also position Deutsche Bank for future growth.

Having focused on the financial impact of our transformation progress in the previous slides.

Let us now move to balance sheet items, including capital, liquidity and funding.

One important driver to achieve our revenue targets for next year is loan growth, specifically in the Corporate and Private Bank, Slide 7 provides further details on the developments in our loan and deposit books over the quarter.

On a FX-adjusted basis, loan growth in our core businesses has been EUR 9 billion.

We saw high client demand for mortgage lending in our private bank and in our corporate bank, loan demand was picking up across all business lines, while the strong growth trend in our investment bank continued this quarter.

Overall, we expect further loan growth in the fourth quarter.

Looking at deposits, we have seen an increase of EUR 2 billion in the quarter on an FX-adjusted basis, predominantly in our corporate bank.

Our targeted charging measures in the private bank have led to EUR 2 billion of outflows and successful conversion into investment products.

For the fourth quarter, we expect deposits to stay broadly flat as targeted growth measures will likely be offset by outflows from further expanding our deposit charging as we will discuss on the next slide.

Slide 8, shows that we have, again, made substantial progress in passing through negative interest rates to our corporate and private bank customers.

At the end of the third quarter, we are charging agreements in place on a total of EUR 122 billion of deposits generating quarterly revenues of EUR 108 million.

At this run rate, our charging revenues this year are well in excess of our 2022 targets that we communicated to you at our December Investor Deep Dive.

We expect revenues from passing through negative interest rates to contribute around EUR 400 million this year, with additional upside as we further expand the coverage of charging agreements.

Furthermore, the strong momentum in our private bank continues.

Deposits were charging agreements in our private bank increased by EUR 6 billion across our German retail franchise as well in our International Private Bank.

For the rest of the year, we expect growth in charging agreements to increasingly feed through to revenues as initiatives continue to ramp up.

As outlined in our last call, the BGH ruling will have no material impact on our deposit charging strategy for the German retail bank.

While these results are encouraging, we expect continued compression in retail deposit margins as ongoing interest rate headwinds can only be partially offset at this point.

Moving to Slide 9, which highlights the development of our regulatory liquidity requirements.

In the third quarter, we have prudently managed our liquidity towards target levels and continue doing so by further supporting business growth.

The liquidity coverage ratio decreased to 137% and remains comfortably above minimum requirements.

High-quality liquid assets decreased by about EUR 7 billion quarter-on-quarter, primarily driven by ongoing loan growth across the businesses as well as net matured issuances.

Liquidity deployment has been partially offset by deposit increases and additional TLTRO 3 financing in September.

At the same time, slightly higher net cash outflows are mainly arising from upcoming maturing capital market issuances.

The net stable funding ratio remains broadly unchanged at 123%, representing a buffer of EUR 109 billion, comfortably above the 100% requirement.

Our funding profile remains well diversified and continues to be supported by a strong customer deposit base, contributing about 2/3 to the available stable funding sources.

We continue managing this funding mix, which is supplemented by debt issuances as well as capital.

Turning to capital on Slide 10.

Our core equity Tier 1 ratio decreased by 17 basis points from 13.2% to 13% over the quarter.

In line with our earlier guidance, -- This reduction includes around 20 basis points of burden from regulatory changes, notably the implementation of the EBA guideline on definition of default, which was partly offset by a reduction in our regulatory multiplier for the calculation of VAR SVA-driven market risk RWA.

A slight offsetting improvement of the CET1 ratio came from a reduction in operational risk RWA and the net impact of derisking the Capital Release Unit versus a small RWA increase in credit and market risk, reflecting client-related activity.

With the 20 basis points RWA impact this quarter, we have now absorbed almost all regulatory-driven RWA inflation until the expected implementation of the final framework of Basel III in 2025.

In upcoming quarters, we expect to see business as usual model updates that cumulatively are expected to be capital ratio neutral.

CET1 capital was fairly stable in the quarter and now includes a deduction for common share dividends of EUR 641 million year-to-date.

We still expect to end the year with a CET1 ratio of around 13%.

As always, our capital outlook is subject to timing of pending regulatory decisions.

However, the expected net effect of these decisions in the next quarter is now positive.

The reduction in our CET1 ratio in the third quarter has correspondingly reduced our buffer over CET1 ratio requirements, which now stands at 258 basis points, as shown on Slide 11.

The distance to the binding total capital MDA level was impacted further by the quarter-on-quarter increase in RWA and now stands at 243 basis points.

Our distance to regulatory requirements remains at a comfortable level of EUR 9 billion in CET1 capital terms.

Moving to Slide 12.

Our pro forma fully loaded leverage ratio, including certain ECB cash balances, was 4.4% and on track to meet our T22 goal on the original definition by year-end.

With our reported leverage ratio of 4.8% at the end of the second quarter, we have a buffer of 154 basis points over our leverage ratio requirement of 3.23%.

We continue to operate with a significant loss-absorbing capacity well above our requirements, as shown on Slide 13.

At the end of the third quarter, our loss-absorbing capacity was EUR 22 billion, above the minimum requirement for eligible liabilities, or MREL, our most binding constraint.

We expect our MREL buffer to reduce to approximately EUR 14 billion once we receive the new RWA-based MREL requirement from the Single Resolution Board in the coming days.

Even at this lower level, we would have the flexibility to pause issuing new senior non-preferred or senior preferred instruments for approximately 1 year.

Moving now to our issuance plan on Slide 14.

Both Moody's and Fitch upgraded our credit ratings across the debt stack and kept the positive outlook, which supported our credit spreads throughout the quarter.

Our 5-year senior non-preferred cash spreads tightened by 11 basis points in both euros and dollars.

And our most recently issued Tier 2 bonds, which are callable in 2025 and 2026, tightened by 34 basis points in euros and 26 basis points in U.S. dollars through the quarter.

We issued a total of EUR 1.4 billion in the last quarter, taking our issuance volume per the end of the third quarter to EUR 13.3 billion.

The quarter-on-quarter change was mainly driven by the issuance of structured notes and senior non-preferred issuances in the Frank and Formosa markets.

We are also in the market with a consent solicitation on our GBP 650 million AT1 security to transition away from LIBOR to SONIA swaps for the coupon reset.

Although that coupon will not reset until 2026, if not called, we decided to take action well in advance, in line with what we are doing elsewhere in the bank to ensure a smooth transition to risk-free rates.

The results should be available in November.

Staying with capital instruments, we also exercised the call right on a legacy capital security on 19th of October.

The security, a EUR 500 million post bank Tier 1 issue will be repaid on 23rd December 2021.

Many of you have also asked us about our intentions with regard to the EUR 1.75 billion, 6% AT1 security that is callable in April 2022.

As you know, we look primarily at the economics in these situations.

And if opportunities present themselves to replace at tighter levels or with a more attractive call schedule, we would like to take advantage of such opportunities.

Looking at the total year-to-date issuance volume at the end of the third quarter, we have completed roughly 90% of the lower end of our full year issuance target.

We confirm that our full year funding plan remains between EUR 15 billion to EUR 20 billion.

If the conditions are attractive, we may consider prefunding some of our 2022 requirements in the fourth quarter.

Regarding our 2022 issuance plan, it is too early to provide you with precise numbers, and we will update you with further details in our fourth quarter fixed income call.

Turning to the outlook on Slide 15.

Our balance sheet remains solid with high liquidity levels and around 60% of our funding mix from low-cost deposits.

Our loan-to-deposit ratio of 78% provides sufficient room to prudently grow loan balances in coming periods.

We see continued momentum towards our 2022 revenue ambitions given the resilience and growth in our core businesses.

The credit environment remains supportive, and we expect provisions of below 15 basis points of average loans for the full year, based on current views.

We expect macroeconomic growth to slow in '22 from the exceptionally strong levels this year and CLP levels to partially normalize.

Our credit portfolio quality remains strong, and we are well positioned to manage emerging risks, including supply chain disruptions and potential policy tightening.

We are focused on the cost measures we have underway.

And by year-end, we expect to have booked the majority of our transformation-related effects in what has been an investment year.

And all this supports our 70% cost-income ratio target for 2022.

As we have previously indicated, we expect to end the year with a CET1 ratio of around 13% above our target of 12.5% and this despite booking almost all of our EUR 8.8 billion of transformation-related effects as well as absorbing materially all of the regulatory-driven inflation prior to Basel III final framework implementation.

On the leverage ratio, we feel confident we are on track to finish the year around 4.5% based on the original definition of leverage exposure, which includes all Central Bank balances.

And with that, let us now move on to your questions.

And the first question comes from the line of Daniel David of Autonomous.

I have 2. First one is just on rate sensitivity.

Given the recent volatility that we've seen in the market, can you just update us on interest rate headwinds you might see this year?

And then what you might see going forward, maybe a bit further out.

I know some of your comments earlier in the presentation.

And then secondly, just on legacy bonds and AT1s.

Could you take us through the drivers behind the core decision regarding the Postbank Tier 1?

And is there any other read across for your 2 other outstanding bonds?

And are there any regulatory pressures to call here?

And then just touching up on the AT1 that you mentioned, could you maybe take us through some of the considerations which go into the core decision.

And again, noting your comments, should we just focus on the reset spread versus where you can refinance.

Daniel, this is Dixit here.

Thank you for joining the call.

I'll take those in sequence.

On the rate sensitivity point, we'd expect a headwind this year of around $700 million that would have been absorbed across our businesses, primarily in the private bank and the corporate bank, that breaks down roughly around $400 million in the private bank, around $250 million in the corporate bank and the rest elsewhere.

Now at the curves that we had used at last year's investor deep dive.

This $700 million becomes a headwind next year of around $300 million.

And if we then look at the improved interest rate outlook, this i.e., implies at today's rates.

This $300 million headwind for next year will decline by a further $150 million, so will become a net $150 million headwind.

And essentially, most of this headwind is in the private bank, as we've said before.

Now from 2023 onwards, current interest rates indicate that we will have a sequential year-on-year tailwind to revenues that again accumulates over time.

And from 2022, we'd mentioned this at the equity call on Wednesday as well, that we expect to see a greater than $500 million tailwind, and that's at today's implied interest rate curves.

You'll see these numbers also reflected in the appendix and our interest rate sensitivity.

We do run a lower sensitivity but still a net positive, at positive $700 million per 100 basis points.

The reduction that we've seen over the last 2 or 3 years has been in part due to our hedging activities, but also most recently, as a consequence of our deposit charging, which has been going faster than we would have anticipated.

This charging does reduce our upside sensitivity, but it's not foregone upside in a sense, think of it as really pulling the $400 million equivalent of charging revenues sort of up ahead instead of waiting for a rate move.

So I hope that's helpful on the rate front.

On the Postbank Tier 1 issue, being fairly consistent with our communications and that we will begin with the economics on the transactions as the driver.

So you're right, replacement cost, reset spread would feature quite highly.

In the case of the Funding Trust to bond, this does not qualify from January as capital nor does it qualify as MREL.

And with a flood coupon of around 3.75%, that's a relatively high funding cost instrument from January.

And hence, we made the decision to call that instrument.

The other 2 instruments, though, as you'll see, Funding Trust 1 and 3, both have fairly low coupons even on a swap basis.

And so don't look as attractive.

Again, we won't comment on any specific single instrument call decision.

But at present, they're pretty attractive funding.

You rightfully point out the April 22 call that we have coming up on our new style AT1.

Again, it's a bit early to say what a call decision there would be.

Suffice to say, to the extent that we're able to find opportunities in the market where we're able to issue at spreads inside of the reset spread and even get potentially more advantageous call features than the 5-yearly call.

Naturally, we'd be watching the market closely and would look to take advantage of any opportunities like that.

I hope that's helpful.

Just on the Postbank securities.

So just to confirm that there aren't any regulatory pressures to call those instruments.

No.

Other than they lose their regulatory benefit starting in January.

The next question is from the line of Lee Street of Citigroup.

I have 3, please.

Firstly, obviously, you mentioned the very positive ratings momentum you've had with Moody's and Fitch.

To the extent you can able to have any thoughts on S&P because certainly based on why the sort of ratings contrary, they appear to be the hardest to please.

So any thoughts on what specifically you might need to do for S&P and to move?

Secondly, on the private banks or links a little bit back to the last question, but do you just need higher rates for better results to come out of the private bank?

Or is there -- or are there other levers that you can actually pull there?

And then finally, when I look ahead to, say, 2025.

How would you expect the revenue composition of DB to look across your main divisions?

Is it going to be sort of roughly in line with how we looked at that?

Or do you think that it materially altered.

There will be my 3 questions.

Lee, hi, good to have you again.

On ratings, we continue the really close dialogue that we have with all of the agencies, demonstrating progress on our transformation, which over time should drive further improvements in our credit ratings.

It's hard to speculate about the actions of any individual agency.

But we have been quite encouraged this year, as you've seen with the Moody's and Fitch upgrades as well as the positive outlook from S&P all of which indicate the upward momentum on our ratings.

So we continue to engage closely with all the agencies.

And importantly, we continue to execute on the transformation and our strategy.

Lee, it's James.

Just on the private bank question and the revenue composition, I'd start with where we are today on the private bank.

We are, as we said on Wednesday, quite pleased with the momentum in the business.

So if you start with the drivers of loan growth of assets under management growth, we're quite encouraged with what we see, and we think there's a sustainable trend there.

As we've talked about sort of a lot that's being masked by a lot of things, notably interest rate headwinds and more recently, the high court ruling from April.

So if I just take a walk in the numbers, excluding specific items, last year, revenues in Private Bank in the third quarter, about $2 billion.

This year, we reported revenues down about $75 million just if I round the numbers.

If you add back the $100 million rounded lost revenues on the high court ruling, and you, let's say, cut in half the interest rate headwinds that we actually absorbed this quarter of $100 million year-on-year, made that $50 million instead.

Then the increment to the revenues would be $150 million we'd in other words, be growing by almost 4% instead of what we reported, which is a decline of almost 4%.

So what we're calling for is just a continuation of the trend, which I think lifts the private bank quite nicely if we can simply sustain the underlying performance that we've had.

And as I say, if I look at the drivers, there's no reason to think that, that's going to change.

In fact, there's some ways that they can continue to accelerate their growth through deposit conversion into investment products and the like.

So if you say what are the levers?

We're pulling the levers.

And I think we've been seeing the benefit of it.

It's hard to see on the top line, but I think that will become increasingly clear over time.

Which in a way feeds to your second question about revenue composition, a very big on a big revenue base, the movements in terms of composition, if you think about differences in compound annual growth rate between the businesses, it takes a while for there to be a significant shift.

But as we've talked about for quite a long time, we want to build the business mix of the company towards what we think of as the more stable businesses without necessarily wanting to disadvantage or discourage strong performance in the investment bank.

Nevertheless, we think there's a secular change that can slowly take place that we think is beneficial over time in that relative growth rate of the businesses.

And I think that will be supported in the next couple of years by, again, the trend that we've called for now for a couple of quarters, which is a normalization of outperformance in financial market-oriented businesses.

And I think secular growth, which we still expect to see in the more balance sheet-oriented and businesses serving private and corporate clients of the Private Bank and Corporate Bank.

So we're very encouraged, as I say, in what we see, and we think over time, the business mix will shift subtly.

Okay.

That's good.

And just on that business mix, exactly, should I presume that the capital allocation to those businesses will just shift subtly as a function of that, too?

Yes.

No, we've -- and it's for us been a marker of the consistency of the strategy we've been driving towards a capital allocation, consistent if I go all the way back to July of '19, when we announced the compete to win strategy.

We targeted a share of tangible equity allocation for the investment bank at the time, 44% in the rounding, we're kind of there.

We're 46% today.

It moves up and down quarter-by-quarter.

Generally, we've held the investment bank relatively steady, at least in its RWA level other than the impact of regulatory inflation.

So we've actually been seeing the discipline in RWA.

We've been more or less running at the capital allocation and TCE terms that we intend.

And we think that, it's probably the best way to measure the strategic direction that we've taken.

And the usage of capital in Corporate Bank and Private Bank, I think, will be relatively linear, if you like, with their with the loan growth that we see in those businesses, which, again, we expect to be robust in the coming quarters.

The next question is from the line of Oliver Dyson of RBC Capital Markets.

Two questions from me, if I may.

The first is just, again, on interest rate sensitivity.

You spoke about the GBP 150 million uplift and the GBP 500 million uplift by 2025 relative to early planning.

I just wanted to clarify the yield curve dynamics you're assuming here?

Secondly, you've talked about deposit charging.

Can you just confirm what goes through fees versus net interest income?

What the trade-off is with NIO and have pensions to higher rates?

Oliver, yes, that's right.

The $150 million was really -- or the $500 million cumulatively all the way up to '22 is really taking today as in the last week, implied curves and comparing that to our plan from the IDD from last year.

A lot of that sensitivity is in the longer dates would reflect really rollovers of our structural hedges that mature over time and the ability to then roll those into successively higher rates.

On deposit charging, much of that is really in NIO and reflected as such.

The next question is from the line of Brajesh Kumar of Societe Generale.

The next question is from the line of Corinne Cunningham of Autonomous.

A couple of questions, please.

First one is just on what you were mentioning about RWA inflation or regulatory headwinds.

You kind of suggesting on this call that they're pretty much done with.

I think on the equity call, you might even have said that they might even be slightly positive.

So can you just run through the individual issues that are still to come through before as ahead of Basel IV?

And then the second question was more on climate.

And what do you think the capital requirements might do as a result of the PRA paper and then the EBA needing to prepare something for the commission by June 2023.

Thank you.

Corinne, on RWA inflation, we tend to think of this really in 3 buckets.

One is mostly this first wave of inflation, which is TRIM definition of default, PD LGDs, et cetera.

All of that now is largely behind us.

We think we've absorbed gross reg inflation over the last 2 or 3 years of around 160 basis points, so quite significant.

We put that behind us.

And also with 13% CET1 naturally includes absorbing the almost $8 billion or $8 billion-plus of transformation, restructuring and other charges as well.

The outlook from here through to year-end, as we said, we continue to expect that we'll be around 13% at year-end.

And some of the reg items that we have some visibility over and again, as you know from previous quarters, both the magnitude and the timing of these is always uncertain, so there's some movement quarter-to-quarter, but we'd expect that there would be perhaps a slight positive in the fourth quarter.

Again, that may change, as I said, depending on some of the letter writing or rulings that we might get.

And then we think of the next 2 waves as really being related to the recent proposals from Basel and the commission which would be now 2025, which was formally 2024.

And then separately, sort of '29, '30 instead of the '28, '29 time spend that we had.

And any comments on the capital requirements linked to ESG climate requirements?

I think somewhat early.

I mean what we're seeing globally with policymakers and regulators is that this is an evolving space.

So it's something that we're watching, but we think it's too early, and we need to continue to study the rulings that might come out.

(Operator Instructions)

And the next question is from the line of Robert Smalley of UBS Fixed Income.

A lot of the interest rate questions I had were answered.

So just 2 others.

First, this week, the Bundesbank said that full year growth is likely to be significantly below their June forecast.

And IFO reports that supply problems with preliminary goods or in difficulties in exports.

How are you looking at that with respect to loan growth?

Have you changed your forecast of loan growth?

And what are you hearing from your clients?

And secondly, with respect to issuance in the fourth quarter and 2022, any need for any additional Tier 2 issuance.

You did some last year?

Or are you going to let that sit for a little bit.

On the first -- on loan growth, we've been quite encouraged.

We've had fairly strong loan growth through the course of this year.

You saw in the third quarter on a ex-FX basis, we grew loans by about EUR 8 billion.

Of note is that the loan growth we're seeing is fairly well diversified.

It's across our business lines.

So the investment bank has seen loan growth across a number of business areas.

The Private Bank had grown, especially in mortgages across both Deutsche Bank and the Postbank brands.

And the corporate bank also grew loans primarily in trade finance and some of the lending businesses.

So to answer your question, we're seeing trade and lending perform quite consistently here.

It is our expectation that we'll see for the next few quarters a similar pace of loan growth.

And it's James, I might just add in terms of the question.

In terms of the client view, we had been seeing the supply chain bottlenecks for some time.

So the recent attention to this isn't really new to us or to our clients.

We've been engaged in that dialogue with them for several months.

And so it isn't a change in our outlook necessarily.

There isn't a hope and expectation that these will be worked through over time.

It may take much of 2022 to do that.

But our view is that the, this of the German corporate sector is able to ride it out.

And in some sense, it actually has opportunities, obviously, given the nature of the MME.

In our loan composition though, there have been some shifts, for example, in trade finance.

And so if we talk with our colleagues in that business, the activity has become more regional.

And so we're financing more trade that takes place intra-Asia and in the North-South corridors that exist around the world.

So there are evolutions of the business, but it doesn't threaten necessarily the size or growth of our business, but the composition.

So lots of things to watch carefully, but nothing in all of that, that changes our outlook.

Okay.

And on Tier 2?

Rob, yes, on issuance, as always, we'll give transparency when we do the fourth quarter fixed income call so a little early to say.

And in most years, typically, we'll have a few billion of capital requirements and we'd expect 2022 to be the same and that could naturally contain Tier 2 as well.

But it's something that we will indicate when we do the quarter call at the end of January next year.

The next question is from the line of Adam Terelak of Mediobanca.

Once the labor -- sorry to labor the point on interest rate sensitivity.

I thought I'd take the opportunity just to follow up again.

Clearly, we're talking about this GBP 150 million delta in the next year's look on rates.

I just wanted to get a bit more color on how much of that is short versus long end makes.

I think in the last week, particularly the expectation that the short end of the euro curve has moved most.

So I just want to understand what this is implying in terms of policy rate in Europe in particular, where I think the market rate versus the commentary from the Central Bank is kind of diverging a little bit.

Adam, you rightfully pointed out, there's a huge amount of divergence.

Earlier this year, it was really inflation versus no inflation, and now, we're talking about transitory versus more permanent inflation and you're seeing that debate as well as yesterday with the ECB announcements.

Look, we try not to read too much into the day-on-day moves.

We have a series of structural hedges on.

The sensitivity that we have, we're managing it with both downside and upside in mind.

And what I mean by that is downside in the near dates is protected through having interest rate charging.

And then, of course, we have the rollovers of our structural hedges.

So next year, much of the sort of effect we're talking about will be really the long end and coming from rollovers of our structural hedges.

And then the short-term move potentially has some offset in deposit pricing?

That's correct.

To the extent that we continue rolling out, we'd see more immunization on shorter rates.

-- which is what's resulting in the, call it, roughly EUR 400 million of sort of additional revenue related to charging that's coming through on an annual basis.

There are no more questions at this time.

I would like to hand back to Philip Teuchner for closing comments.

Thank you, Haley.

Just to finish up.

Thank you all for joining us today.

You know where the IR team is.

If you have further questions, and we look forward to talking to you again soon.

Goodbye.

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

Thank you for joining, and have a pleasant day.

Goodbye.