Deutsche Bank AG (DB) 2021 Q1 法說會逐字稿

Ladies and gentlemen, welcome. Thank you for joining the Q1 2021 Fixed Income Call. Throughout today's recorded presentation, all participants will be in a listen-only mode. (Operator Instructions)

I would now like to turn the conference over to Philip Teuchner, Please go ahead.

Thank you, Emma. Good afternoon or good morning, and thank you all for joining us today. We have made a change to the sequence of the fixed income call in this quarter. Our Group Treasurer, Dixit Joshi, will lead you through the prepared remarks, including a short summary of our quarterly results before moving to the expanded treasury section. For the subsequent Q&A, we continue having 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. Therefore, 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 have continued to deliver against our transformation milestones. We are on or ahead of our expected timeline on all key measures. We said at the investor deep dive in December, we would focus on delivering sustainable profitability.

With revenue growth in the quarter up 14% to EUR 7.2 billion we demonstrated what this franchise is capable of. We generated EUR 1.6 billion of pretax profit and EUR 1 billion of profit after tax. That's our best quarter in 7 years, despite our now smaller footprint. The progress that we have made has increasingly won recognition in the financial markets, and we are pleased with the outlook revisions of 3 ratings agencies over the last months.

We remain disciplined on capital, risk and balance sheet management, and we successfully navigated several market events during the quarter. And we were active in the capital markets in the first quarter with EUR 7.5 billion of issuance leaving us well positioned as we look to our funding plan for the rest of the year.

Moving now to Slide 3, which summarizes the different outlook revisions of our credit ratings over the last months. It was gratifying to see key stakeholders recognizing our progress. In the first quarter, both Fitch and S&P revised their outlook on our ratings from negative to positive. This follows a revision to stable from Moody's back in November last year. All agencies acknowledge the solid execution related to our transformation agenda evidenced by strong revenue generation and overall financial performance. We will continue to actively engage with the ratings agencies throughout the year as improving our ratings remains a key management focus.

Let us look at a summary of our financial performance for the quarter compared to the prior year on Slide 4. We generated a profit before tax of EUR 1.6 billion or EUR 1.8 billion, on an adjusted basis. Total revenues for the group were EUR 7.2 billion, up 14% versus the first quarter 2020 and 33% versus the prior quarter. Noninterest expenses were down 1% year-on-year.

As we indicated in mid-March, in line with the latest guidance from the Single Resolution Board, the single resolution fund is expected to be expanded to over EUR 70 billion and our estimated assessment has been adjusted accordingly to approximately EUR 600 million.

We also saw an unexpected market event which led to an additional contribution of EUR 28 million to the German statutory deposit guarantee scheme in the quarter. Our provision for credit losses decreased to EUR 69 million or 6 basis points of loans. Risks remain in the environment, but we expect full year provisions to be substantially below last year. Our improved results are supported by growing revenues under our refocused business model, as you can see on Slide 5.

We have grown revenues in our Core Bank by 12% this quarter to EUR 7.1 billion, excluding specific items. This growth has principally come from our investment bank, which has delivered strong performance in both fixed income and currencies, particularly in credit and origination and advisory. Our Corporate Bank and Private Bank successfully offset headwinds with a combination of deposit repricing and volume growth, and we see rising momentum in these businesses.

Asset Management delivered revenue growth, boosted by transaction and performance fees. Over the last 12 months, that takes our Core Bank revenues to EUR 25 billion, a 7% increase from the previous 12-month period, ahead of our 2022 ambitions. In summary, all our core businesses have proven the strength of their franchises, putting our 2022 objectives well within reach.

Let us now look at how this translates into higher profitability on Slide 6. Our relentless focus on delivering on our transformation agenda is reaching the bottom line. We have seen a 75% year-on-year increase in our adjusted profit before tax in the Core Bank for the last 12 months to the first quarter, and all 4 core businesses contributed. At the same time, we continued to derisk in the Capital Release Unit, which nearly halved its pretax loss compared to the first quarter of last year.

Since we started our transformation strategy 7 quarters ago, we have substantially reduced the Capital Release Unit losses. We remain committed to minimizing the P&L impact of derisking efforts by the unit and to our cost reduction plans.

Let us now turn to risk management on Slide 7. Strong risk discipline is a central pillar of our strategy across credit, market, liquidity and nonfinancial risks. Provision for credit losses was EUR 69 million this quarter, or 6 basis points of average loans on an annualized basis, principally due to the improved macroeconomic environment. We continue to manage a high-quality and well-diversified loan book with strong underwriting standards, a robust and proactive risk management framework as well as dynamic collateral management. We have also remained vigilant on concentration risk, strict on risk appetite parameters and proactive in risk identification and management.

Our market risk management benefits from a dynamic hedging framework with daily stress testing and monitoring. Our comprehensive nonfinancial risk controls contribute to robust crisis management practices. These capabilities have not only helped us achieve consistently contained credit and market risk losses, but have also helped us avoid negative impacts from external events such as the ones we saw in the quarter. And we continue to strengthen nonfinancial risk management, tightening our control environment and continuing to work on strengthening our anti-financial crime capabilities.

Now let us turn to the balance sheet. Slide 8 shows a summary of our net balance sheet, which excludes derivative netting agreements, cash collateral as well as pending settlements. We have made significant progress on our balance sheet transformation over the years. Since the first quarter of 2019, shortly before we announced our strategy update, we have reduced net assets by around EUR 75 billion as reductions in trading assets and liquidity reserves have been partially offset by growth in our loan portfolios. We have reduced trading assets by around EUR 90 billion, primarily reflecting our decision to exit equity sales and trading. Trading assets now primarily consist of government bonds and short-term secured financing assets in our repo book.

At the same time, we have grown our loans at amortized costs by EUR 25 billion. Loans now account for 45% of our net balance sheet with around half in Germany, primarily low-risk mortgages. Liquidity reserves continue to account for about 1/4 of the net balance sheet.

We have also improved the quality of our liabilities and funding base. While deposit remained flat, we have optimized the quality of our deposit base as we reduce the reliance on short-term wholesale funding and increased more stable retail and corporate deposits. Low-cost deposits continue being our main funding source, now contributing almost 60% to our funding sources. At the same time, our loan-to-deposit ratio of 76% provides sufficient room to prudently grow loan balances in coming periods.

Slide 9 provides further details on the developments in our loan and deposit books over the quarter. On an FX-adjusted basis, total loan growth in the quarter has been EUR 4 billion, predominantly in our Private Bank, where we have seen continued strong growth in mortgage and collateralized lending. While we continue seeing repayments of credit facilities in our Corporate Bank, trade finance is benefiting from the reopening of the global economy.

In the Investment Bank, quarterly loan development has been flat as the business continues targeted resource deployment while keeping overall risk appetite under control. For the rest of this year, we expect the overall positive trend to continue as our portfolio of credit facilities has by now reached a normalized pre-COVID level, while we see good demand across our client segments.

Looking at deposits. We continue seeing high savings rates across many European countries, resulting in EUR 4 billion FX-adjusted growth in the Private Bank. In our Corporate Bank, we have seen temporary inflows in trust and agency services and some growth in cash management deposits that were subject to charging. For the rest of the year, we expect total deposits to moderately reduce from current elevated levels as we continue implementing charging agreements.

Slide 10 shows the substantial progress that we have made in passing through negative interest rates to our Corporate and Private bank customers. At the end of the first quarter, we had charging agreements in place on a total of EUR 95 billion of deposits generating quarterly revenues of EUR 80 million.

At this current run-rate, we are already achieving our charging related 2022 revenue target as we communicated at our December Investor Day deep dive. This positive revenue development is predominantly driven by significantly lower-than-expected deposit outflows as competitors take similar measures against the backdrop of continued negative euro interest rates.

As you can see in the graph, we have already made significant progress in our Corporate Bank where charging agreements are in place for approximately 2/3 of our euro current account portfolio. We will now generate additional revenues by focusing on smaller client segments with currently lower coverage as well as by reviewing already granted thresholds for our existing agreements.

In the Private Bank, our key priority remains to actively engage with our customers and advise them on liquidity solutions and alternative investment products. Deposit charging above EUR 100,000 is already in place for new accounts. Until the end of the year, we will look to find individual solutions also for existing accounts across the German and international franchise.

Moving to Slide 11, which highlights the development of our key liquidity metrics. Our liquidity reserves remain at EUR 243 billion with the majority held in cash and cash equivalents. The cash component of the liquidity reserves temporarily increased as we were reducing the securities portfolio. The prudent deployment of cash into high-quality securities remains a focus for us, reflecting our commitment to further improve the composition of our liquidity reserves. In the first quarter, liquidity reserves were broadly flat as deposit increases from the Private Bank and Corporate Bank were deployed into loan growth of EUR 9 billion, primarily in the Private Bank. Our liquidity coverage ratio at 146% continue to comfortably exceed minimum regulatory requirements.

As we move forward with our transformation agenda, we are well positioned to support business growth and lending as demand is picking up. Therefore, over time, we continue to manage our liquidity closer towards our targeted levels.

Turning to capital on Slide 12. Our CET1 ratio rose to 13.7% during the quarter, benefiting from our strong first quarter net income. This effect was offset by dividend and AT1 accruals, equity compensation effects and higher regulatory prudent valuation deductions. Risk-weighted assets rose from EUR 329 billion to EUR 330 billion during the quarter, but with EUR 3 billion down, excluding FX effects. Notably, additional hedging led to lower market risk RWA and operational risk RWA benefited from further improvements in the internal loss profile. These reductions outweighed higher credit risk RWA, including a EUR 4 billion impact for large corporates following the receipt of a final TRIM decision from the ECB. Further risk-weighted asset increases from regulatory and supervisory changes are expected to negatively impact the CET1 ratio by approximately 80 basis points in the upcoming quarter.

Here, we see 3 main drivers. First, we expect the ECB to conclude its targeted review of internal models by issuing final decisions regarding leverage lending and for banks and financial institutions. Second, we're expecting final ECB clearance of our implementation of the EBA guideline on definition of default. And third, we will implement revised RWA calculations in response to CRR2 becoming effective end of the second quarter 2021, for example, in relation to the standardized approach for counterparty credit risk.

With our CET1 ratio of 13.7% at the end of the first quarter, we have a buffer of 330 basis points over our CET1 ratio requirement as shown on Slide 13. Principally due to our successful January 2021 Tier 2 issuance, the distance to the binding total capital MDA level increased quarter-on-quarter by 39 basis points. Hence, we remain in a comfortable position to absorb the upcoming RWA inflation that has been previously outlined.

Moving to Slide 14. Our fully loaded leverage ratio decreased by 8 basis points to 4.6% this quarter. Of this decrease, 4 basis points came from FX translation effects, 3 basis points from increased trading volumes and net loan growth and 1 basis point from negative capital effects. Our pro forma leverage ratio, including ECB cash balances was 4.2%. In the second quarter of 2021, we expect an increase in leverage exposure of roughly EUR 20 billion from the introduction of the standardized approach for counterparty credit risk as part of CRR2.

We continue to operate with a significant loss-absorbing capacity well above our requirements, as shown on Slide 15. At the end of the first quarter, our loss-absorbing capacity was EUR 20 billion, above the minimum requirement for eligible liabilities or MREL, our most binding constraint. The headroom is higher than originally expected as the Single Resolution Board has decided on 22nd March to continue with the MREL recognition of bonds issued under English law in contrast to prior guidance. We expect our MREL buffer to reduce later this year when the new MREL requirement and the expected RW inflation become effective, but we will continue to conservatively manage our buffer.

Even after accounting for the expected requirements change and regulatory inflation in the second quarter, a remaining MREL buffer of EUR 5 billion to EUR 10 billion, would allow us to completely stop issuing new senior nonpreferred and senior preferred instruments for up to 1 year or alternatively, allow us to absorb a further unexpected RWA increase of almost EUR 30 billion.

Moving now to our issuance plan on Slide 16. As you can see in the issuance and redemption summary of 2019 and 2020, we continue to decrease our reliance on capital markets funding, including senior nonpreferred as we continue to restructure the balance sheet and optimize our funding sources. Quarter-on-quarter, our senior nonpreferred debt has tightened by around 20 basis points in euros and U.S. dollars, outperforming our peers by roughly 25 basis points on average. We used this positive sentiment to issue at favorable spreads, contributing positively to our financial goals through lower funding costs.

In the first quarter, we issued a total of EUR 7.5 billion, mainly driven by 6 benchmark transactions in 3 currencies. This enabled us to complete 50% of the lower end of our full year issuance target, which we now view as the likely requirement for 2021. Earlier this month, Moody's has released the request for comment on the updated LGF methodology. We expect the changes, which are in line with our initial assessment to be implemented in the third quarter of this year. This means that we do not expect any impact on our issuance plan for this year as a result of the Moody's LGF metric. In March, we raised a further EUR 3.3 billion of funding from the ECB's TLTRO 3 program, taking our total participation to around EUR 41 billion. We can confirm that we have achieved the benchmark growth of the program's observation period ending on 31st of March, which guarantees the program's most favorable terms between June last year and this year.

While monitoring the next growth observation period from October 2020 to December 2021 closely, we will use the residual TLTRO participation windows to optimize our total take-up and repayment schedule. Given the advantage of Central Bank funding, it is likely that we will not issue the EUR 3 billion to EUR 5 billion covered bond issuances planned for 2021. As mentioned earlier, we would guide you to the lower end of the 2021 issuance plan as a likely requirement for the full year based on current assumptions.

Turning to Slide 17. You can see highlights from a select number of transactions in the quarter. Across all issuances, we saw strong and diversified investor demand. On average, our 2021 benchmark order books were 3x oversubscribed, and pricing continues to improve versus our peer group. In addition to successfully executing on our issuance plan, we were also able to make a vital contribution to Deutsche Bank's sustainability and diversity agenda. We launched our second green bond, which is also our inaugural senior preferred benchmark issue in U.S. dollars. And we adopted a new syndicate structure for our most recent U.S. dollar senior nonpreferred issue.

For the first time, 11 additional underwriters owned and led by diverse management teams joined Deutsche Bank Securities to underwrite this offering. The group of underwriters were selected to represent diverse missions, including certified service disabled veteran-owned, African-American owned and women-owned firms. This is an important step towards creating a more diverse and inclusive financial industry, and we will continue on this path.

In conclusion, on Slide 18, our balance sheet remains low-risk and well funded by highly stable sources as we look to our 2022 targets. On revenues, the improved trajectory in the Core Bank shows that we are operating at a level that puts our goals well within reach, and we see continued momentum in our client franchise. We are actively managing our cost-to-income ratio to our 2022 target of 70%. The ratings agencies have begun to acknowledge our transformation progress via positive outlook revisions, and we continue to constructively engage with them as this remains a key priority.

We have been and will continue to be diligent on risk management. Our guidance for provision for credit losses is in a range of around 25 basis points of loans for the full year 2021. We expect to prudently manage down our excess liquidity towards our target levels over time. But given the attractive TLTRO conditions, we are under no time pressure to do so. As a result, we remain committed to our 8% group post-tax return on tangible equity target and our profit trajectory leaves us well positioned to achieve this.

With that, Let us move on to your questions.

(Operator Instructions) The first question comes from the line of Daniel David with Autonomous.

I just briefly want to touch upon Moody's request for comment and methodology. I was just wondering if you could provide a few more details on the impacts you expect, and specifically, I guess, that you've seen on preferred ratings.

And second question would be on your core strategy for your outstanding legacy bonds in light of the recent call of the capital finance trust security. Just a few more details on that would be great.

Good to have you on the call. Let me take both of those. On the first one regarding Moody's LGF. There were 6 changes that were proposed as part of the ratings methodology of which we think 2 apply to us. The first is the threshold to achieve a one-notch rating uplift in the senior nonpreferred. That threshold gets lowered from 12% to 10%. That's of tangible banking assets.

And the second is this benefit will be partially offset as the methodology now re-includes some balances, legal entity balances into the tangible banking asset calculation, which had been previously removed. We've looked at the methodology. We've been engaged with Moody's. It's our expectation that we will not see any change to our issuance plan as we'd already made an assumption for 2021 in that respect. So I hope that's helpful.

On the second, regarding the call decision, we'd announced the call on 20th of April, which is effective on the 27th of July. This was the legacy Tier 2 capital instrument, which loses its recognition -- capital recognition at the end of this year, and that's primarily because it's an SPB structure. We factored that into our capital plan, it becomes expensive funding from next year. And so as we've indicated before on these calls, we will make an economic decision around this considering the benefits the structure brings the roll-off profile and regulatory treatment, and that was driving the decision to call.

And just on that second part, is there anything further drag on the other securities that you've got outstanding? Can we read anything into that?

Yes. To the extent that they qualify for regulatory capital, naturally, we'd be keeping a close eye then on the funding cost. and the roll-off profile. So as always, I mean, what you'd expect us to do is, again, look at the economics at the time of call, look at the replacement value or replacement cost for those instruments and then make a call at that point.

The next question comes from the line of Lee Street with Citigroup.

First up, well done on really good set of results for the first quarter. Just 3 from me. Firstly, just looking ahead, could you foresee a scenario where you could consider yourself engaged in any forms like significant M&A transaction within the next 2 years? Is that -- is that something that could even be foreseen?

Secondly, obviously, you've had quite an ongoing decline in leverage assets over the last few years naturally as the balance sheet shrunk. Obviously, now you've got a lot of TLTRO, but that may roll off. I suppose my question is, over the next -- over the medium term, what should be the general trend for leverage assets from the current level will be slightly higher, slightly lower? Any thoughts there? And so, just to clarify on that, Moody's LGF comment in response to the last question. So I understand you said you'd already factored that into your plans, but should -- we shouldn't be expecting any rating changes either way as a consequence of the Moody's proposal that have come out there? Just to clarify that. That would be my 3 questions.

So Lee, it's James. I'll take the first and ask Dixit to answer the second 2. We've been, I think, reasonably consistent in our statements about M&A, which is, firstly, that we do think there's industrial logic to consolidation in Europe. But that secondly, our goal was to execute on our transformation strategy so as to put the company in a better position to be able to engage in that process. Both from a financial and strategic point of view and also, by the way, in terms of having our internal operations and controls in the right place. And so we continue to execute on that path. I can't say when opportunities will arise that make sense or when we'll be ready. But our general view is that we will, at a point in time, we expect to participate in consolidation in the European banking industry.

This is Dixit. On the second and the third. On the second regarding leverage assets, we'll continue to target the 4.5% leverage ratio, which is important. We see leverage trends slightly lower through the course of this year and partly that's as a result of the transaction with BNP Paribas, concerning the prime brokerage business.

We'll continue to drive loan growth, as you've been seeing, but again, all within the context of a target of a 4.5% leverage ratio.

On the LGF front, no, we're not expecting a rating impact at the group level, though I reiterate what we said previously on the calls that we do think our ratings overall are lagging versus the enormous amount of work that we've done on our balance sheet and the efforts to derisk the bank to ensure that we have strong buffers and adequate liquidity at all points. And so naturally, we'd be hopeful that there'd be more positive action on the rating front over time if we continue -- as we continue executing on our strategy.

The next question comes from the line of Paul Fenner-Leitao with Societe Generale.

Yes. A couple of my questions have already been answered, but one hasn't. On supply, so you've got maybe another EUR 10 billion to do for the remainder of the year. Could you please -- I didn't quite get what it is that you said about MREL supply at the back end of the year. Maybe you could just -- maybe you could just clarify that. But also tell us whether you intend to do another hybrid instrument. I had a sense that you might do 1 Tier 2, which you've already done plus another AT1, given how much tighter your spreads are now. Would love to get a sense of what you're thinking in terms of sub as well as MPS.

Sure. Paul, it's not so much EUR 10 billion to do, as I've mentioned it, we've done around EUR 7.5 billion of issuance already year-to-date. And looking at our trajectory for the rest of the year, the prevalence of TLTRO funding, which has been quite attractive. We think we'll come in at the lower end of the EUR 15 billion to EUR 20 billion issuance range that we put out there. Where we're likely to see the impact is not have a need to do covered bond issuance, for example, through the course of this year. So certainly, don't expect as much as EUR 10 billion through to the end of this year.

In terms of MREL, as you've seen, we had net negative issuance through the course of this year. And that's been quite intentional. We've been managing on the capital markets debt. We've reduced our dependency on the capital markets through the years. Our lines of deposit funding is much greater at more than 60% of all of our funding sources. And we've also had de minimis reliance on wholesale market as well. And so that's been a deliberate strategy over the years to reduce reliance on wholesale funding as well as reduce our capital markets issuance as well.

On the last point, as always, we wouldn't earmark and outline to best efforts, what we think we'll need to issue through the course of this year. We've outlined EUR 2 billion to EUR 3 billion of capital markets issuance for 2021. We've done EUR 1.25 billion with the Tier 2 issuance in the first quarter. We're managing towards a 4.5% leverage ratio depending on market conditions, which we track very closely, we would seek windows during which to issue a combination of Tier 1 and Tier 2 instruments. Again, that's -- we have optionality around those decisions. And it will be driven partly by market conditions at the time. So we're watching the markets very closely.

The next question comes from the line of Robert Smalley with UBS.

First, I guess, just to follow up on Paul's point on potential issuance on, particularly in AT1. Would It be -- given where you are from a regulatory point of view, would you look to do AT1s to -- would it be to optimize the [bar] composition or is there something else that would drive that? That's my first question.

And second, going into the financial data supplement on Page 14, on asset quality, when I look at Stage 1, 2 and 3 loans, Stage 3 seems to be pretty consistent for the last couple of quarters. Could you talk a little bit about that, how you think that's been a break with an improving economic environment? How much of that is idiosyncratic versus troubled or identified industries? And any other color around that would be greatly appreciated.

Robert, and thank you joining us as always. On the AT1 front, in the large part it would be looking at the derecognition of any remaining legacy instruments that we have, derecognition from January '22. And so that would be a consideration for any issuance. And AT1, of course, serves multiple purposes, including allowing us to continue to meet our leverage targets and allow for business growth in that respect as well.

So P2R would be one of the criteria. Tier 1 leverage would be the other as well. I hope that's helpful.

Rob, on the Stage 3, we've seen a fair amount of stability, as you can see over the last 4 quarters there. And I think that's encouraging given the nature of the credit cycle that we went through. It's always hard to say whether that will continue to plateau or stabilize in and around this level and when it comes down. But in general, our perspective has been that the sort of, the severity of the credit cycle has been surprisingly benign, given what we've lived through. And the first quarter Stage 3 numbers were quite encouraging to us. There wasn't -- there was a little bit of a net release on some names and a smaller level of new credit impairment events. If that were to continue for the balance of the year, then yes, I would expect the Stage 3 to begin to come down.

There are portfolios that we're watching carefully. So I don't think we're yet sort of completely out of the woods on the COVID-related credit cycle. I would highlight commercial real estate and aviation as sectors that we're watching carefully. Obviously, we need to continue being vigilant in our retail portfolios. But by and large, as you've heard us comment on we are -- we're quite constructive about the credit outlook given what we've seen so far in this very unusual cycle.

And if I could just follow up. It is an unusual cycle where we've had a huge downturn and rebound in GDP and employment, but credit quality in a lot of ways has stayed stable. What does this do for your modeling going forward and your model-driven provisioning? And how do you adjust for that?

Well, that's what we talked about last year as we did adjust -- well, certainly, so 2 parts for the answer. In respect of last year's overlay decisions, we felt good about the approach. And in a sense, we did adjust our models to those overlays reducing the procyclicality in an appropriate way.

Going forward, your question is an interesting one is, are the models well calibrated to predict the outcome of unusual cycles like a sharp V-shape that we saw last year, and they're not. So of course, in any sort of market events, we spend time looking at our models, back testing our models, figuring out what methodology adjustments there might be to more accurately capture a forward-looking view. I'm not sure what that's going to leave us with in terms of changes to the models. But in fairness, a shape of recession like the one we lived in the last 12 months, you'd expect to be quite unusual.

Yes. Totally agree. Thanks for that and lot of what you said over the past 12 months has been borne out, so greatly appreciate your comments.

(Operator Instructions) The next question comes from the line of James Hyde with PGIM Fixed Income.

James, Dixit. James, I'm going to take forward the discussion we've had every quarter about the provisions. But this time, Robert's question has answered 80% of what I wanted. Just wanted to clarify. So there was a question about this on the main call by Stuart Graham, I think. And this is table on Page 31 of the report regarding the moratoria, which shows a figure of EUR 8.3 billion in 1 category, EUR 8.2 billion in another and then the government support measures. And now, first of all, does this correspond to the thing that peaked at about EUR 32 billion at 1 stage.

I just wanted to understand that. And then there is this text that's a bit confusing, saying only EUR 1.2 billion moratoria are still active. So yes. I just sort of can you kind of what's really going on there? Can you sort of compare where that EUR 32 billion peak that you once gave a move to, just to understand how much through the cycle is going?

And then another question, given your strength focus on commercial real estate. I understand about the sectors you're watching and you should know about airlines may be reasonably soon. But will you have to keep -- sort of keep some generic Stage 2-type provisions for a long time for CRE, given that behavioral change is clearly going to take place? And so it's almost another part of Robert's question. Are you going to have to keep a higher level of Stage 2 for a long time? Sorry, a bit long-winded.

Sure. No worries, James. So I don't actually recognize the EUR 32 billion number that you're referring to. So we may have to take that off-line to make sure we align. I believe the disclosure on Page 31 relates to the current balances associated with moratoria, whether those moratoria were -- whether they are today active or were once active. To the point about where do we see this going, we haven't, to date, seen significant cliff effects upon the expiry of moratoria, which I think is the question people are after. It's just in the ones that have expired so far and in some cases, even gone to voluntary, and then the voluntary has expired. We haven't seen a dramatic deterioration in the portfolio performance.

We've also talked about forbearance on specific loans. And that has included the commercial real estate sector. And our experience in those forbearances has been quite good. Some have extended in the forbearance period, which, of course, is not an unusual experience, but we've also seen benefits from forbearance as you've seen projects or obligors recover and benefit from the forbearance actions that we took.

So if I roll that all down, we continue to be quite comfortable with those, again, I'll call them cliff edge risks in the portfolio, and they're not seeing adverse outcomes upon normalization of credit extension conditions.

Okay. Yes, maybe I'll correspond with Philip on the EUR 30 billion-ish number and what that compares to.

That would be great. And then on airlines, by the way, on Stage 2, yes, it's entirely possible and to be expected that there may be -- makes more extended period of time for certain obligors in Stage 2 before a full recovery. And hopefully, kind of the migration begins to turn in the coming quarters.

The next question comes from the line of Jakub Lichwa with Goldman Sachs.

So one question, actually, just going back to those unfortunate legacy instruments. The paper from EBA has come out, obviously, I don't know, almost probably over half a year ago, you must have cleared with the regulator, whether these are causing infection risk or not. Are you able to share with us the outcome of that conversation today?

And another thing, just a little bit more going back to the performance. Well done, first of all. But then you guys are right now a little bit higher than probably where you wanted to be with respect to the share of the Investment Bank as a proportion of your revenues. I think you were -- few years back, you were looking at about 30%. You are now a bit over 40%.

Do you think this -- I guess, is the question a little bit more for rating agencies. But when you're speaking with them, you think you are actually hitting on those points that they expect you to. I mean you are on positive outlook from Fitch and S&P. So I'm just thinking what is the possibility there of moving a notch higher getting your Tier 2 into IG category? These would be my 2 questions.

I'll take the first and the last. On infection risk, not so much a direct need for engagement on a bilateral basis. It's a function of really, the transposition into German mode, the BRRD, which for us removes any potential infection risk for these legacy instruments. So I think that's fairly clear.

On business mix, it's interesting. The -- what we think we were able to demonstrate this past quarter was the type of development that we have been expecting in the Private Bank and the Corporate Bank and also in asset management, where an ongoing improvement in those businesses, profitability and particularly in Private Bank and Corporate Bank, moving to a point where they can grow revenues while continuing to have discipline on expenses, just over time, improves the business mix for the firm.

So to your point, revenues of the Investment Bank today represents about 40%. Would it be natural as we called for a decline closer to 35%? Sure. And that would be welcome in a sense. We are -- we don't mind outperformance in the Investment Bank from time to time in positive market conditions, such as we saw in Q1. But we are -- we have been building the firm towards this broader, perhaps more balanced mix. And we think we're making good progress in that direction.

On the question of rating upgrade, we've said this a few times and do feel this way that we've done significant work on the balance sheet through the years, whether that's been changing the funding mix, upgrading our deposit and risk models, strong risk management through the period, strong tilt towards deposit funding, a reduction on reliance on relatively expensive capital markets funding, judicious use of excess liquidity that we had to soak up issuances as you see through this year in terms of net negative issuance. And so significant balance sheet work that's been done over the course of the last few years, and we do think the ratings are somewhat lagging versus the significant work that we've done.

So it's very much our hope that we do see an upgrade through time. Again, that's largely out of our hands. But we'll -- suffice to say, we'll continue executing as diligently as we have and especially from a funding and capital markets perspective, continue taking actions that are conducive towards a positive rating. I hope that's helpful, Jakub.

At this time, there are no further questions. I hand back to Philip Teuchner for closing comments. .

Thank you, Emma. And 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 talk to you soon again. 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.