Deutsche Bank : Prepared remarks by the Group Treasurer (PDF)

Deutsche Bank AG

Deutsche Bank Q2 2022 Fixed Income Conference Call

Friday, 29 July 2022

Prepared remarks by Group Treasurer

Speakers:

James von Moltke, Chief Financial Officer

Dixit Joshi, Group Treasurer

Philip Teuchner, Investor Relations

DIXIT JOSHI

Slide 1 - Solid results despite challenging environment

• 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 14 billion euros 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 six months of 2021
• We also improved our profitability and efficiency. First half post-tax profit of 2.4 billion euros 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 six months, including a management overlay, reflecting elevated market uncertainty
• Our capital position remained stable. We finished the second quarter up compared to the first quarter, with a Common Equity Tier 1 capital ratio of 13%

Slide 2 - Resilient loan book with strong risk management

• 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 macro- economic forecasts and will update our allowances based on what we see in the environment and in our portfolios

Slide 3 - All core businesses demonstrate clear momentum

• Moving to slide 3, you can see that the momentum across our businesses, especially in the past six 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 ten years
• Despite the unfavorable environment for Origination & 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 3.7 billion euros more than doubled compared to the same period in 2020

Slide 4 - Significant improvement in pre-provision profit

• 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 & Other line
• We are especially pleased to see the improvements in our stable businesses, with Corporate Bank, Private Bank and Asset Management increasing their 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 a Core Bank pre-provision profit of 4.3 billion euros in the first half, the improved operating margins create a stronger protection from a tougher macro-economic outlook

Slide 5 - Ongoing progress, despite pressures

• 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 being in negative territory just two years ago, to 8%
• However, the macro-economic 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 target 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

Slide 6 - Resilient loan & deposit development

• 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 12 billion euros or 5 billion euros 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 1 billion euros compared to the previous quarter when adjusting for FX, and given the macro-economic environment, we expect this lower growth rate to continue