Deutsche Bank AG (DB) 2022 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Q2 2022 Fixed Income Conference Call. (Operator Instructions)

I would now like to turn the conference 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, Dixit Joshi, 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'll be happy to take your questions. But 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. It is a pleasure to be discussing our second quarter and first half 2022 results with you today.

Since the end of the first quarter, conditions for the global economy and the macro environment have become more challenging. The pressures will impact our 2022 cost-income ratio target. We are continuing to work towards our return on tangible equity targets for both the group, and the core bank even though the path ahead of us is more challenging.

Nonetheless, despite an unprecedented operating environment, we are transforming our bank and once again have proven our resilience. We delivered group revenues of EUR 14 billion for the first half of 2022, an increase of 4% year-on-year. We generated an 8% return on tangible equity, up from 6.5% in the first 6 months of 2021. We also improved our profitability and efficiency. First half post-tax profit of EUR 2.4 billion was up 31% year-on-year driven by positive operating leverage. Our cost income ratio was 73% for the first 6 months, 5 percentage points lower than the comparable period last year.

Finally, we continue to adhere to prudent risk management principles and processes. Provision for credit losses was 22 basis points of average loans in the first 6 months, including a management overlay, reflecting elevated market uncertainty. Our capital position remains stable. We finished the second quarter up compared to the first quarter with a common equity Tier 1 capital ratio of 13%.

Moving to Slide 2. In 2020, as the pandemic caught the market by surprise, we went through our balance sheet to explain why we felt we were well positioned to navigate through that environment. And while the current crisis presents different challenges and many unknowns, what has not changed is our loan book, which is low risk and well diversified nor have we changed our approach to risk management.

On the items we can control, we have always managed our balance sheet conservatively and intend to continue to do so through this period of volatility. And as the outlook evolves, we monitor the development of macroeconomic forecast and will update our allowances based on what we see in the environment and in our portfolios.

Moving to Slide 3. You can see that the momentum across our businesses, especially in the past 6 months supports the delivery of our 2022 plans at the divisional level. In the Corporate Bank, business growth continued despite the more challenging market as we diligently executed on our strategy. We saw this reflected in loan growth, which alongside interest rate tailwinds contributed to an increase in interest income. This led to a 10% return on tangible equity.

In the Investment Bank, our leading FIC franchise saw strong client activity with growth across both institutional and corporate clients, which marked the highest first half FIC revenues in 10 years. Despite the unfavorable environment for origination and advisory activities, M&A revenues were 65% higher year-on-year. All in, the Investment Bank delivered a return on tangible equity of 14%.

The Private Bank had strong half year results with a return on tangible equity above 9%. Asset Management delivered revenue growth of 6% year-on-year driven by higher management fees despite the volatile market environment. At the same time, the business continued to invest in growth initiatives, and platform transformation and delivered a 22% return on tangible equity.

Looking back at the progress of the core bank since the start of the transformation, we have improved profitability significantly. First half profit before tax of EUR 3.7 billion more than doubled compared to the same period in 2020.

Moving to Slide 4. We are encouraged by the performance in our core bank, which delivered a 10% return on tangible equity in the first half, up from 9.3% in 2021. On a pre-provision basis, we made significant progress on our profitability, as we diligently executed on our plans to make our divisions more focused, profitable and efficient. While we benefited from market volatility, this also created some offsetting effects visible through our corporate and other line.

We are especially pleased to see the improvements in our stable businesses with Corporate Bank, Private Bank and Asset Management increasing the pre-provision profit contribution to 60%, while our investment bank continues to perform driven by our FIC franchise. We expect many of these trends to remain in place and to be beneficiaries of interest rate hikes in the coming years. Overall, with the core bank pre-provision profit of EUR 4.3 billion in the first half, the improved operating margins create a stronger protection from a tougher macroeconomic outlook.

Moving to Slide 5 to take you through our journey to deliver improved operating margins. In 2019, we introduced a new strategy, which included focused investments in our core businesses, particularly into technology and controls. This plan and these investments helped us to significantly increase our return on tangible equity from bringing negative territory just 2 years ago to 8%.

However, the macroeconomic environment changed materially, resulting in headwinds which impacted some of our planned cost reductions most notably from inflation, higher compensation and foreign exchange, which are likely to stay with us for the balance of the year. And while the recent market volatility has been favorable for some of our businesses, we also saw offsets via the larger-than-expected drag from valuation and timing differences in C&O.

Reflecting these items and using a conservative approach, achieving our cost income ratio for this year is no longer realistic without sacrificing long-term potential. Therefore, we have amended our cost-income ratio guidance for this year to the mid- to low 70s. However, we are executing on our plans. And considering the uncertain environment, we will work on additional measures to ease the pressures we are facing.

Let us now look at topics that drive our revenue performance over the next slides. Slide 6 provides further details on the development in our loan and deposit books over the quarter. Loan growth across the bank has been EUR 12 billion or EUR 5 billion on an FX-adjusted basis. In line with prior quarters, we saw continued strong momentum from mortgages and collateralized lending in our private bank, high client demand in Corporate Bank as well as loan originations across our FIC financing and trading businesses.

Loans in our leveraged debt business have remained flat quarter-on-quarter. Deposits grew by EUR 1 billion compared to the previous quarter when adjusting for FX. And given the macroeconomic environment, we expect this lower growth rate to continue. Deposit margins have started rising, in line with the improved interest rate environment.

Let me now provide some detail on the evolution of our net interest margin on Slide 7. As we flagged to you last quarter, our NIM has started to rise in large part due to the more favorable interest rate environment. The NIM increase was driven predominantly by short-term U.S. dollar interest rate rises in the first half of 2022, but it was also supported by higher longer-term euro rates that benefited the deposit books as we roll over hedge portfolios.

The NIM increase was also driven by approximately 6 basis points in positive one-off effects as it still includes a 2 basis point effect from the minus 1% TLTRO bonus rate. Average interest-earning assets were up modestly, reflecting U.S. dollar strengthening and underlying loan growth offset by lower average cash balances.

Looking to 2025, we now expect the revenue benefit from interest rate curves relative to 2021 to be significantly higher than the EUR 2 billion we previously guided for. Even accounting for increased issuance costs implied by current credit spreads, the environment is more favorable than the outlook we shared with you at the March investor deep dive. Normalizing for the one-off effects just mentioned, we expect NIM will continue to rise due to the favorable interest rate environment.

Let me now give you some additional details on net interest income sensitivity on Slide 8. Further increases in rates above current market implied levels will continue to add to the interest rate-driven tailwind. Over time, the largest impact is from long-end rates as we roll over our hedge portfolios to higher levels, particularly in euro.

However, in the shorter term, rises in non-euro rates will also provide a tailwind. The interest rate tailwind, we had guided at roughly EUR 600 million for 2022 at the investor deep dive now stands at over EUR 700 million, albeit with partial offset due to higher issuance costs.

Moving to Slide 9, highlighting the development of our key liquidity metrics. Despite the increased market volatility, our liquidity and funding metrics remain robust and aligned with target levels. The stock of our high-quality liquid assets decreased by about EUR 6 billion during the second quarter. This is mainly due to continued loan growth.

The deployment of liquidity was partially offset by further deposit inflows particularly driven by growth in the Private Bank, Germany. As a result, the liquidity coverage ratio slightly decreased by 2 percentage points to 133%. The surplus above minimum requirements decreased by about EUR 4 billion quarter-on-quarter to EUR 51 billion. In line with previous quarters, our daily average LCR over the past 3 months was at about 131% and underlines our proactive steering of the balance sheet towards target levels. While we remain committed to support the businesses, we continue to manage the LCR conservatively towards 130% for the remainder of 2022.

The net stable funding ratio decreased to 116%, which is within our target range and with a surplus of EUR 83 billion, comfortably above the 100% requirement. The decline is mainly driven by loan growth as well as the roll down of TLTRO-III. Given current economics, we expect to repay our TLTRO funding at contractual maturity dates but continue to manage the maturity profile in order to avoid cliff effect.

The longer-term funding sources for the bank remain well diversified and continue to benefit from a strong customer deposit base, which contributes about 2/3 to the group's available stable funding sources. For the remainder of the year, we aim to maintain this funding mix, which will be supplemented by debt maturities issued in line with our issuance plan.

Turning to capital on Slide 10. Our common equity Tier 1 ratio ended 14 basis points higher compared to the previous quarter at 13%, in line with our previous full year 2022 guidance. This ratio increase principally reflects high CET1 capital from strong organic capital generation during the quarter, net of deductions for dividend and additional Tier 1 coupon payments and losses in other comprehensive income. CET1 capital now includes a capital reduction for common share dividends of EUR 450 million for 2022. A 3 basis point drag on our CET1 ratio came from FX translation effects, reflecting the significant euro weakening over the quarter.

Risk-weighted assets, net of FX were marginally down compared to last quarter. Market risk RWA increased principally from an increase in the quantitative VAR SVA multiplier. This increase was more than offset by a reduction in credit and operational risk RWA.

Our capital ratios remain well above regulatory requirements as shown on Slide 11. In line with the CET1 ratio development in the quarter, the distance of the CET1 ratio capital requirement has increased by 14 basis points and now stands at 253 basis points or EUR 9 billion of regulatory capital. Our available AT1 and Tier 2 capital is at or slightly above the respective regulatory requirements, which brings our total capital ratio distance to MDA to 261 basis points. This provides us with a comfortable starting point as we manage through the coming quarters.

Moving to Slide 12. Our leverage ratio, including ECB cash was 4.3%, a like-for-like increase of 5 basis points over the quarter. Higher Tier 1 capital from strong quarterly earnings and the recognition of our EUR 750 million AT1 issuance, which settled in early April added 10 basis point sale ratio. This was partially offset by a negative 3 basis point impact from FX translation effects reflecting the significant euro weakening in the quarter and a 2 basis point reduction from higher leverage exposure, including core bank growth. With our reported leverage ratio of 4.3% at the end of the quarter, we have a buffer of 131 basis points over our leverage ratio requirement of 3%.

We continue to operate with a significant loss-absorbing capacity well above our requirements as shown on Slide 13. The MREL surplus, as our most binding constraint has remained stable at EUR 15 billion over the quarter. Increases in available MREL from new issuances were offset by the expected and previously advised increase in MREL requirements, which we received in May.

Our loss-absorbing capacity buffer remains at a comfortable level and continues to provide us with the flexibility to pause issuing senior nonpreferred or senior preferred instruments for approximately 1 year.

Moving now to our issuance plan on Slide 14. The quarter was characterized by challenging market conditions in general with high levels of interest rate and credit spread volatility. In this context, we are pleased to have completed roughly 3 quarters of our issuance plan year-to-date. In the second quarter, we issued a total of EUR 4 billion spread across preferred, nonpreferred and covered issuances. During July, we issued a further $1.3 billion senior nonpreferred, taking our year-to-date total to just over EUR 14 billion. For the full year, our issuance plan remains between EUR 15 billion and EUR 20 billion, although we are likely to end the year closer to the upper end.

Having completed a significant portion of our issuance plan for the year provides us flexibility in timing of new issuances and also helps to manage our overall cost of funding. You may have seen that we announced an up to $1 billion tender offer for 4 dollar-denominated senior nonpreferred securities yesterday. We do not expect the need to replace the repurchase securities and senior nonpreferred format but may consider senior preferred issuances depending upon liquidity needs.

The public tender offer is designed to proactively manage our debt maturity profile and to provide liquidity to bond investors. We have received several questions regarding our approach to calling capital securities in general and in particular, regarding a Tier 2 deal that was issued prior to 27 June 2019. The requirement for Tier 2 instruments to include bail-in language was introduced with the change to Article 63 of the CRR in June 2019.

The instrument under discussion was issued in 2013 and already included bail-in language meeting the CRR requirements. The instrument will thus continue to be eligible as Tier 2 regulatory capital beyond June 28, 2025, and until its legal maturity. Further requirements for bail-in language as provided for in Article 55 of the BRRD are not applicable given the instrument was issued before the date of transposition of the BRRD into German law on January 1, 2015. This has been confirmed by recent guidance from the SRB.

Turning to the outlook on Slide 15. The strong performance in the core bank is testament to the quality of our businesses and the strength of the franchise despite the challenges ahead. Therefore, we can confirm our revenue guidance of EUR 26 billion to EUR 27 billion for 2022. However, the current environment and uncertainty are unprecedented, and we see pressures, including on expenses and credit costs. We remain committed to our cost measures, and we will continue to execute on our 2022 plan.

Consistent with our previous guidance, our provision for credit losses remains at around 25 basis points of average loans, including the currently expected impact of the war in Ukraine, slowing growth in our core markets and other dislocations. We remain confident in our full year CET1 ratio target of greater than 12.5%. On the issuance side, we are happy having issued a substantial amount of our plan already in the first half of the year, which protects us to some degree against higher funding costs.

In addition, we had some positive news from the rating agency side in the quarter with Scope upgrading our ratings while DBRS Morningstar raised the outlook to positive, an encouraging signal especially in the current environment. We will remain in close dialogue with our ratings agencies as we feel we still have potential catch up on a relative basis.

With that, we look forward to your questions.

(Operator Instructions) Before we go to the first question, let me hand over to James for a couple of remarks.

I think that was from prior call instructions. So over to Q&A right away.

The first question is from the line of Richard Thomas from Bank of America.

I've got 3 tricky questions, if I may. The first one is about the bond of my favorite coupon, the 4.296%. I have -- actually, I remember discussing with the team before, and what you've said today in the call is consistent with what they've said to me in the past about the bail-in language.

But I have to say I've always thought that language was a bit -- a bit weak, satisfy the CRR and the BRRD. So in the context of this language not being, let's say of the strongest, in my view, what's your current thinking? Would it be better in a perfect world if you just called it next year?

Second question, if I may, and you did refer to a little bit about this. What's your outlook in terms of the rating evolution? Do you expect something could happen to your ratings as early as this year?

And then finally, this tender offer announced last night, what is that all about? Why are you doing that now? You've given the generic things about liquidity and so on, but why that tender offer now and why those bonds?

Richard, thank you for the questions, and thank you for joining and happy to address each of those.

You're right to point out on the 4.296% Tier 2, it's one of the reasons why we wanted to address it in our prepared remarks just given some of the incoming questions that we had, had. And I think we're fairly clear and I'd like to just outline our thinking and the current treatment of those instruments.

As I had highlighted in the prepared remarks, the BRRD requirements for bail-in language are not applicable to this instrument, to be clear. And the reason for that is the BRRD was transposed into German law, I think around January 2015, where this particular instrument was issued in 2013. And so that's fairly clear and has also been confirmed by recent guidance from the SRB.

And then separately but related, regarding the CRR requirements, on our DB Investor Relations home page, we published the prospectus supplement, which contains the bail-in language in the contractual provisions. The CRR doesn't provide further requirements on any additional bail-in language. So in our mind, it's fairly clear that the bail-in language included in the documentation does meet all of the requirements.

On your second question regarding call, as you know, we wouldn't specifically comment on any upcoming call decision. But it's something that we'll continue to assess, of course, at every moment in time, looking at the regulatory treatment, the regulatory capital treatment. At this moment in time, we don't envisage any action on this bond. And again, that's something that we will reevaluate through time.

On the second point, around credit ratings. We're confident that the progress we continue making on our transformation that you heard about from James and Christian on Wednesday, and specifically the progress around sustained improvement in our profitability that over time that this gets reflected in our ratings. The firm, of course, now is significantly different to a few years ago. Whether that's the way we run our balance sheet, the quality of the assets on the balance sheet, our liability profile and the improvements that we've made there to tilt the firm towards greater deposit funding, the drive towards higher NIM, greater NII and all of that then translating into capital accretion as well as capital return.

So the firm is just completely different from a few years ago. We do recognize, of course, that the macroeconomic environment is fairly uncertain right now and that is a factor. And in that light, the fact that Moody's and Fitch have both maintained their outlook in spite of this macro environment that we're living through, in my mind, indicates continued upward pressure on our ratings.

Also to mention, the outlook revision by DBRS Morningstar from stable to positive as well as the rating upgrade by Scope in the second quarter, what that all shows you is that there is potential for positive ratings actions even in this macroeconomic environment.

And then on the third point on the tender, I would say it's really business as usual. It's something that you've seen us do a few times before, looking at the market environment. We tended for certain dollar senior nonpreferred securities as we optimize our maturity profile, our maturity structure.

We're also taking advantage of strong liquidity and MREL surpluses that we have as you see in the deck. As at the end of the second quarter, we had HQLA of over EUR 200 billion, an LTR of 133% and MREL surplus in the region of around EUR 15 billion.

So all of this affords us some flexibility in managing our liability profile. But also, quite frankly, the spread widening that we saw led us to believe that it is actually an opportune time to launch a transaction like this. We haven't done anything in euros, and we don't have anything planned today in euros. But that doesn't preclude us again from reacting to market conditions as we see them. I hope that's helpful, Richard.

Next question is from the line of Jackie Ineke from Morgan Stanley.

I have 2 questions. The first one is again on the 4.296%. I must admit I wholeheartedly agree with Richard's comments on the language here. One thing perhaps on to add. You talked about the SRB and the SRB being effectively fine with this stuff. But I don't know if that also refers to the June 2022 guidance on bail-in playbooks that the SRB published. And it talks about looking at the strength of the contractual recognition in there and whether -- I guess you've looked at that as well, and you think it's robust enough to be able to be written down under EU rules even though it's New York or -- so that's the first question. Have you also kind of gone through that playbook guidance?

The second question is a broader question on your legacies, the SPV issued legacies effectively, the CMS bonds. I was just wondering if you -- what the intentions might be there, if you are getting any kind of interest from the supervisors about what to do with those bonds obviously, tenders or possibly in the future. Just if you could give us any color about how you're thinking about those.

Jackie, yes, on the first point, I think it's, to us, fairly clear that we've been through the documentation. We've ensured that it has the respective bail-in language. And important, again, as I was commenting on, really looking at compliance with both the BRRD as well as the CRR. And we're fairly clear that it includes the necessary bail-in language and haven't heard anything to the contrary. Again, the Investor Relations team is on hand if we wanted to discuss it a bit further, but that certainly is the case for us.

On the other instruments, there really -- other than the economics that would drive call decisions, there really isn't any, quite frankly, supervisory or other push for us to call a tender at this stage. As you know, I always read an optionality to call instruments depending on the economics to the bank, but that's certainly not the case today. They represent fairly cheap funding for us. And so at this moment in time, instruments that will remain outstanding for us.

Okay. Great. Sorry, just one follow-up on the Tier 2 bond. I mean I guess we've seen a number of banks who have very similar language to that bond in their instruments. And they've been doing consent solicitations and exchanges to make them in their words, CRR2 compliant. So maybe they're just being belt in braces. But again, I guess what's happening in the market is developing over time. And I guess the SRB would not look at each individual bond of every bank. So you probably won't get any specific guidance from them. But is that possibly influencing how you're looking at some of these legacies when you see what other banks are doing with what looked like exactly the same kind of contractual concerns or the credential thing to do?

Yes. Jackie, we've seen that as well. And I can't comment specifically on what other banks have done. But I would point to -- there are regional distinctions. So for example, in our case, the BRRD and when it went into German law might be different dates-wise and grandfathering-wise compared to other countries within the Eurozone. So from our perspective, while we can't speak to other banks, what we do know is that our bond was issued before 2015. The BRRD then came into effect in 2015, and the instruments embed the necessary bail-in language.

Yes. I guess the other instruments, and I'm really focused on the CRR2 language, they also would potentially be grandfathered. But it seems these banks are acting in a very prudential manner because they accept that these instruments would not be able to be written down under EU law. So I guess they're taking all the practical issues into context as well and actually change in them. But I understand you can't comment on those. But, all right.

Thank you, Jackie.

Next question is from the line of Lee Street from Citigroup.

A couple for me, please. Firstly, just a simple one. On the dollar tender you said last night, you said that you wouldn't have to replace it, but you might replace it with preferred senior. Does that mean you're not going to show any more nonpreferred senior this year or just no more nonpreferred senior dollars? That's the first question.

And then 2 sort of -- more sort of strategic ones, I guess. Is it conceivable that you could see yourself involved in leading sort of large-scale M&A any point in the next, say, 6 to 12 months and/or is your current share price may be an impediment to that?

And then almost on the other side of that, my question is, is it not highly attractive at the same time for you to be looking to do share buybacks given the share price and what your thoughts around that and the constraints? That would be my questions.

Lee, thanks for joining. I'll take the first, and then James will likely address the second, too.

On the dollar tender, look, it's $1 billion that we target through this tender. And we have an issuance plan for this year of EUR 15 billion to EUR 20 billion. And as I said, it's more likely that we get to the EUR 20 billion. We're done with around EUR 14 billion on the year. So to be honest, the $1 billion is, quite frankly, neither here or there in the scope of our full year issuance plan.

Regarding replacements and so on, we don't tend to think of it as like-for-like replacements. We would look at the liquidity of those respective lines, the spreads that they're trading at, the type of investor feedback that we receive or we see in the marketplace and then separately, would continue with our issuance plan, including potentially prefund future years issuance into this year like we've done in previous years.

So I would expect a combination of issuance in the remainder of the year, but it quite frankly does depend on the spread environment that we see. Again, having completed EUR 14 billion already, that puts us, I would say in an opportunistic position for the remainder of the year to be reactive to conditions.

And Lee, it's James. On the second 2 questions. Look, Chris and I have made public comments that we see the logic of M&A from sort of an industrial logic perspective and strategic value. But we can't comment and don't really have a sense of what form it will take, when it will take place.

And I think, again, we've been consistent on the efforts of the past several years have been helpful, I think, in preparing Deutsche Bank to be a participant in that whenever it does start to take place, as you say, kind of large scale.

The share price obviously has a big impact on the terms of trade. And so it's something we'd like to see improve. It's one of the ways that we can be prepared in addition to fixing our IT, our control environment and the other improvements that we've been working so hard on. So I think it's all part of a process that hopefully leads to good strategic moves in time.

On share buybacks, generally, we provided back at the investor deep dive some reasonably clear guidance on our capital distribution plans. And absolutely, share buybacks play a role in that. As you recall, we bought back about 300 this year. And over time, we'd like to continue to do that. We see the corporate finance value of buybacks as one element of our distribution plans. And that's something that we intend to continue over time.

(Operator Instructions) The next question is from the line of Robert Smalley from UBS Fixed Income.

A couple of questions. First, on the loan loss provision. Dixit, you mentioned 25 basis points going forward. At the same time, we continue to hear potential for very negative economic news in Germany. Maybe you could just talk a little bit about where you're coming up with 25 basis points and what you're looking for that might potentially change that? Number one.

Number two, on Page 25, this slide is a discussion on deposit repricing. You were very successful in charging for deposits in a negative rate environment. Now we're moving into positive rate environment. That's going to fall away. How are you managing that? And what are some of the puts and takes on that and impact on the NIM?

And then finally on the tender, just to sum it up, and I just want to see if I'm characterizing this correctly. You're not particularly happy where your spreads are because they don't reflect the fundamental progress of the bank. You have several issues that are trading significantly below par, which you may or may not have needs for. You can tender for them, accrete the difference to par, which is a benefit but take some excess debt out of the system. And hopefully, there will be a positive spread impact. You have done this before, I believe in 2019 and 2018. Were the circumstances about the same as they are now? And have I characterized it correctly? And is there anything more than that?

So Robert, it's James. Thanks for your questions. I'll take the first and Dixit will take the second 2.

So look, the outlook -- what we have booked so far this year and the 25 basis point outlook for the full year reflects management's best estimate of that charge, the credit costs for 2022 based on everything we see sort of at the moment, including a management overlay we've taken actually in both the first and the second quarters, recognizing that the economic environment was deteriorating.

So you should think of the 25 basis points as what we would expect in the status quo, including a deterioration in the back half of the year. It reflects very strong credit going into this environment, and that's absolutely what we see in the portfolio.

We did provide a scenario -- disclosure on a scenario. And in order for that scenario to take place, you'd have to have seen sort of a full cutoff of gas supplies to Germany and a rapidly deteriorating environment quickly on the heels of that. And that is simply not what we see. So it is a scenario to help investors sort of gauge the sensitivity, but it's not what we see today.

The 25 basis point outlook would sort of suggest we're going to book over 300 per quarter for the next 2 quarters. And given the run rates and sort of what we've seen in recent months and quarters in the portfolio, we think actually that would be a reasonably conservative level of CLP to book in the balance of the year, again given everything we see as of today.

Rob, this is Dixit. On the second 2, on deposit charging, you're right. Look, we've had a good result, including on an annualized rate basis this year through both the Corporate Bank and the Private Bank and the initiatives they have launched around charging over the last few years.

That, of course, dissipates now with higher rates and going through the zero-bound. As we go through the zero-bound in euros, there will tend to be some anomalies in terms of pricing, in terms of NIM compression, but margins then expand as rates go through 0.

On the tender, I think your characterization is a fair one. Look, we would be reactive to where we saw a combination of much higher spreads than we think is fair or warranted, or where we thought there was an adequate liquidity or where we'd received investor feedback. And so again, we want to be as opportunistic as we can around it. As you said, with 2016, '18, '20, we'd looked at the significant widening in spreads. We thought that in dollars compared to euros that we were perhaps wider than we thought we should be. And so this over time should also lead and act as a catalyst for some spread tightening as well on our curves.

Next question is from the line of Daniel David from Autonomous.

Thanks for taking my call -- sorry questions, I have 3. The first one is just on regulatory headwinds. I think there's been talk of 10 bps from model reviews in H2, but I'm more focused on 2023. Is there any risk of further headwinds from model reviews in '23? Or is there any capital headwinds that we should be watching out for?

The second one is just on the loan book growth, which we've seen in Q2. I know there's some FX impact, but did the EUR 4 billion of lumpy exposure drop out? And if you could give us some guidance as to where the lending can be attributed to, so CRE, ABS or leveraged finance, that would be really helpful.

And then finally, just a bit more of a broad question. I think we've seen some noise in the German press that banks should shoulder some of the macro pain at the moment either via bank taxes or the SRF fund. Just interested to hear your views on whether you think that's likely in Germany or something that you're concerned about going forward?

Sure. Daniel, I'll take the first one and James will do the last.

On the regulatory headwinds, that's right. We saw 10 basis points. We think this 10 basis points between now and the end of the year, likely in Q3. For '23, I think that's a little too early to provide an outlook there. There's always some risk, as you know. And we do have model reviews and regulatory items from time to time. They do shift between the quarters. And to the extent we have some transparency, we try and provide that as early as we can, like we've done in previous quarters.

Regarding the loan book, we saw in the region of EUR 12 billion of growth on a reported basis. ex-FX and some hedge accounting effects that was probably in the region of around EUR 8 billion. Within that, as you pointed out, one of the episodic items in the region of around EUR 3 billion, EUR 4 billion did actually drop out. But our investment bank grew on an ex-FX basis loans by about EUR 2 billion. That was really across all the major lending businesses that we had.

In the leverage at capital markets businesses, loans were fairly flat. And we'd expect loan growth over the next 2 quarters in the IB to stabilize perhaps slightly higher in the second half of '22.

In the corporate bank, we saw about [EUR] 1 billion of loan growth, again, excluding FX. And this was predominantly in trade finance as well as in lending. And the Private Bank grew loans primarily in mortgages. And in the International Private Bank, we grew about EUR 4 billion ex-FX. So what you're seeing is really loan growth on an ex-FX basis at a pace that you've seen in previous quarters. And that's what we're planning for, for the next 2 quarters as well.

So Daniel, I'll take the last question about macro pain. Look, I guess the first thing is some of these actions around Europe have been sort of characterized as sort of excise taxes or windfall profit taxes. And my own view is that with the German banking sector struggling to earn its cost of capital we're not yet -- in fact, we're far away from a point where there's a social argument to take excess profits out of one industry sector and try to redistribute the value to ease the social pain.

We understand the social pain. We feel, I think very strong obligation especially in our home market but all around the world to be a positive part of society, specifically as our communities address some of the challenges around. I think the best policy response, frankly, is to let the banking sector do what it's here for, to intermediate lending into the economy to support clients as we go through a difficult time potentially. And certainly, that's our goal to do, if you like in the ordinary course without the need for other redistributive policies.

Next question is from the line of Jeremy Sigee from BNP Paribas Exane.

On the NII benefit from rising rates, I noticed you used slightly different language. I think James, on the equity call the other day, you talked about high 2s benefit. Dixit today said significantly higher than 2. I'm kind of assuming you mean the same thing rather than Dixit being more cautious about issuance costs. But I thought I'd just let you comment on that.

And then secondly, sort of carryover from the other day. You previously -- when it was EUR 1.5 billion benefit, you gave divisional split and it was roughly split 50-50 between the Corporate Bank and the Private Bank. And so I just wanted to check if the larger amount, roughly double that now is still a 50-50 split between the 2 or whether the benefit is more skewed to one or other division.

Sure, Jeremy. Yes, let me try and address that. And I think we are consistent with what James has said and what we'd indicated at the IDD in March. Now in March, you remember, we estimated about EUR 1.5 billion from interest rate tailwind in 2025. As you said, roughly half and half between CB and PB with a smaller contribution from the investment bank.

Since then, of course, the interest rate environments become much more supportive to future revenues. And again, we see that significantly above EUR 2 billion in 2025. But at the same time, we also see increased funding costs as a result of current market spreads that we're seeing.

And the point we wanted to make was even when you're looking at just the low interest rate tailwind less the increased funding costs, minus TLTRO effects, which TLTRO, of course, contractually then drops away before you get to 2025, what we're seeing is this is still supportive of revenues in 2025. And we think that delta between March and now on a net basis, adjusting for all of these effects is in the region to a rounded EUR 1 billion. Hope that's helpful.

And on your second question around the likely business mix, that's right. It's tilted slightly now in the higher rate environment. It's stilted slightly now towards the PB as opposed to the corporate bank. I hope that's helpful.

Next question is from the line of James Hyde from PGIM Fixed Income.

Thanks for doing this call. I was -- I wanted to take Robert Smalley's question on the scenario, the gas shutoff scenario that they act further. I just wondered, this 20 bps impact that you see on the downside scenario, is that -- how top down or rather how bottom-up is that? I mean was this a sort of an economists put together top-down view? Or did you get feedback from the relationship officers and the credit people working with the big corporates in Germany? I just sort of see almost too little for that scenario. And I think you probably had that feeling from other questions on the call on Wednesday.

And related to that, even you don't get full gas shutoff but you have some production interruptions, et cetera, do you see a pro-cyclicality impact already from this coming winter on the risk-weighted assets from even -- not from any of the -- even a milder scenario? That's it.

Sure. And it's James. I'll take the question. It's actually both top down and bottom up. We did a lot of work over a considerable period of time.

So there are 3 elements of the analysis. One is shocking the macroeconomic variables, which we did. That drives Stage 1 and 2 provisions. And we sort of built that into our view.

The next thing we did was a sort of a broader base, if you like, ratings downgrade analysis in the industry sectors that we would judge to be most vulnerable, and that was sort of top-down. And then a bottoms-up view is what we took for to take an estimate of what the Stage 3 impairments would be over time. And there to your question, we went into those industry sectors, looked for potentially vulnerable areas and in essence, took a representative sample of potential defaults there. And that was quite granular work.

So we feel very comfortable with that scenario analysis, as I say, both top down and bottoms up. We were encouraged as well with the output of that analysis. And as you may have heard from the comments that Christian offered on Wednesday, as we talk to clients, we're seeing a corporate sector going into a period of uncertainty, reasonably well prepared in terms of the liquidity, the order books they have and the actions that they're taking to protect themselves from this scenario as it develops.

So we feel good about that work, and we also feel good about what we're seeing in the credit book if you like, in preparation.

The other thing to think here about is this scenario is not binary in the way that one might think. Time and the remedial actions that can be taken in the economy and the society help. And so it's very path dependent in terms of how severe that scenario might become.

In terms of pro-cyclicality, not really yet. There was some to do with the war that we began to see in Q1 and into Q2 but relatively modest. Certainly, if the downside scenario started to manifest itself, you would see some of the pro-cyclical impact in capital, including the RWA impact from downgrades.

We've already had some, whether it's prudent valuation or additional valuation adjustments as one example and market risk RWA increases as another example that have flown into the capital calculation as we speak. Generally, we would expect those to eventually normalize and revert.

Exactly how that plays out, the timing is never certain, but we saw a similar pro-cyclical effect in the COVID crisis and then the release of that capital. Also, draws of liquidity facilities was another element that tended to increase the balance sheet and the associated risk-weighted assets over time. So we haven't seen that yet. And it's, of course, scenario and path dependent.

There are no further questions at this time, and I would like to hand back to Philip Teuchner for closing comments. Please go ahead.

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

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.