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Deutsche Bank : Earnings Document

08/03/2021 | 06:12am EDT

Deutsche Bank AG

Deutsche Bank Q2 2021 Fixed Income Conference Call

Friday, 30 July 2021 | 15:00 CEST



James von Moltke, Chief Financial Officer

Dixit Joshi, Group Treasurer

Philip Teuchner, Investor Relations


Slide 1 - Strategy drives efficiency and revenue generation

  • Thank you Philip and welcome from me
  • We are now over half way through our transformation journey and we have continued to deliver against our milestones
  • For the second consecutive quarter this year, we have achieved significant profit improvement, driven by growing strength across our businesses
  • Despite a more normalized market environment in the quarter, revenues remained robust, demonstrating the regained franchise strength at Deutsche Bank
  • As you heard from Christian and James on Wednesday we also continue to make progress on costs. We reduced our adjusted costs excluding transformation charges and reimbursements for Prime Finance from 4.8 to 4.5 billion euros year on year
  • And we continue to invest in the execution of our transformation agenda, with more than 90% of our transformation projects now in the implementation phase
  • They are key contributors to our cost reduction progress
  • The headway we made across all businesses in the second quarter reinforces our confidence that we will be able to meet our profitability targets
  • Our achievements were also recognized by the Rating Agencies - all of which have upgraded their outlooks over the last 9 months
  • And we by now have completed around 80% of our funding plan for the year, based on the lower end of the 15-20 billion euro range we communicated previously

Slide 2 - Q2 2021 Group financial highlights

  • Let us now turn to a summary of our financial performance for the quarter, compared to the prior year, on slide 2
  • We generated a profit before tax of 1.2 billion euros or 1.4 billion euros on an adjusted basis
  • Total revenues for the Group were 6.2 billion euros, down 1% versus the second quarter 2020
  • Net interest income has declined by 143 million euros versus the prior quarter, as the one-offs we flagged in April have normalized
  • The resulting net interest margin held broadly steady at 1.2%, but we expect this to trend down slightly as the remaining rate pressures feed through
  • We expect the net interest margin to stabilize at slightly over 1%
  • While rates have been volatile in recent months, we planned on a conservative basis and still see a modest tailwind to the numbers we shared with you at the Investor Deep Dive in December
  • Turning to costs, noninterest expenses were down 7% year on year
  • Our provision for credit losses stood at 75 million euros or 7 basis points of loans for the quarter
  • At the end of this quarter, CRR2 became effective in Europe which introduced and amended certain liquidity, RWA and leverage measures
  • The most notable changes were the introduction of the Net Stable Funding Ratio - or NSFR - and revisions to the RWA calculation for certain exposures like investment funds and minimum value commitments
  • Where we saw material changes, I will refer to them during the presentation
  • We also took this as an opportunity to revise our disclosures in order to make them more comparable across the industry
  • In line with our previous guidance we saw a decrease in our CET1 ratio to 13.2%, which was mainly driven by regulatory items which I will discuss later, partially offset by net income generated in the second quarter
  • Our leverage ratio has increased to 4.8%, up 15 basis points compared to the previous quarter
  • And our liquidity and funding remain strong, both measured via the liquidity coverage ratio and the net stable funding ratio
  • We feel comfortable with the current NSFR level of 121% which I will describe more later

Slide 3 - Franchise strength drives revenue generation

  • Moving now to slide 3 which shows that our successful execution is increasingly visible
  • Revenues in the Core Bank for the second quarter of the year stand at 6.2 billion euros, down only 1% on the year
  • And as we guided to at our first quarter results, this is in line with the market normalization and seasonality we expected, despite an additional impact of approximately 100 million euros from the German Federal Court ruling on consent for changes to consumer contracts, referred to as BGH ruling
  • Revenues in the Investment Bank are 2.4 billion euros, down from the same period in 2020, as a strong performance in Credit Trading and Financing partly offset more normalized volumes in Core Rates, Emerging Markets and FX
  • Both our Corporate and Private Bank successfully offset headwinds with either continued deposit re-pricing or business growth, despite some unexpected headwinds for the Private Bank in particular
  • Asset Management delivered revenue growth for yet another quarter, boosted by management fees and strong inflows
  • On a half year basis, Core Bank revenues have grown by 13% since the beginning of our transformation strategy in 2019, showing significant revenue improvement
  • In summary, all our core businesses have proven the strength of their franchises, putting our 2022 objectives well within reach

Slide 4 - Ongoing commitment to cost discipline

  • Now let us turn to costs, on slide 4
  • As we told you when presenting our Q2 results on Wednesday, we reduced adjusted costs excluding transformation charges and the reimbursable items for Prime Finance for another quarter, to 4.5 billion euros
  • We continue to strongly advocate for a reduction in the size of the Single Resolution Fund, which would result in lower bank levies, however, we now expect this to remain unchanged for next year
  • Together with higher than expected contributions to the German statutory deposit protection scheme, these unforeseen external items are now expected to add approximately 400 million euros to our expense base
  • As previously discussed, we do not believe it is sensible to further constrain investment spending to offset these externally driven expenses
  • On the cost items we can control, we are keeping our absolute cost discipline and focus and the second quarter has shown that we are in full control, despite the fact that volume driven expenses and control investments represent some pressure
  • To offset this pressure, we are introducing a series of new cost reduction initiatives, including further workforce optimization, accelerating real estate reductions, further systems rationalization and streamlining internal processes
  • Against this background, we reaffirm our commitment to the 70% cost income ratio target
  • Supporting our cost to income ratio target, we now expect revenues to be better than we discussed at the Investor Deep Dive, based on the resilience we have delivered in the first half of the year, business growth and an easing of interest rate headwinds
  • Moreover, we now see provision for credit losses in a range of around 20 basis points of average loans in 2021, ahead of our previous guidance, and we expect some of this benefit to carry over into 2022
  • The bottom-line impact of both these factors helps us offset the cost headwinds and we continue to remain committed to an 8% return on tangible equity in 2022

Slide 5 - Demonstrating tangible impact of strategic transformation

  • Let us now turn to profitability on slide 5
  • We delivered a 92% year on year increase in our adjusted profit before tax in the Core Bank for the last twelve months to the second quarter, and once again, all four core businesses contributed and are either in line or ahead of their plans so far
  • At the same time we have substantially reduced the Capital Release Unit's losses in the course of our transformation
  • Once again, we are ahead of our plan for de-risking
  • And we remain committed to minimizing the P&L impact of de-leveraging efforts by the unit
  • Let me now turn to underlying shareholder returns on slide 6

Slide 6 - Underlying shareholder returns support 2022 targets

  • We remain committed to our 8% return on equity target for 2022 and we see a clear path to that goal
  • For the first half of 2021, the Group reported a 6.5% post tax return on tangible equity

This is an excerpt of the original content. To continue reading it, access the original document here.


Deutsche Bank AG published this content on 03 August 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 03 August 2021 09:54:59 UTC.

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