Deutsche Bank : Prepared remarks by the Treasurer (PDF)

Deutsche Bank AG

Deutsche Bank Q1 2022 Fixed Income Conference Call

Friday, 29 April 2022

Prepared remarks by Group Treasurer

Speakers:

James von Moltke, Chief Financial Officer Dixit Joshi, Group Treasurer

Philip Teuchner, Investor Relations

Slide 1 - Results support trajectory to FY targets and ambitions

• - Thank you, Philip, and welcome from me

• - We are mindful that the war in Ukraine has been devastating for millions of people, and continues to bring a high degree of uncertainty to the world economy, to the market environment and to our clients

• - We condemn the Russian invasion of Ukraine in the strongest possible terms, and we support the German government and its allies in defending democracy and freedom

• - We are not taking on any new business in Russia, nor with entities incorporated in Russia

• - We have been clear that we are in the process of winding down our operations, in line with our legal and regulatory obligations and are accompanying our clients in doing the same

• - While this has the potential to impact our full year results in our important measurement year, we believe we are on a good trajectory to reach our 2022 goals

• - We delivered group revenues of 7.3 billion euros, an increase of 1% year on year, even compared with a strong quarter in the prior year

• - We saw revenue growth across all four core businesses, driven by business momentum, market share gains and investments that will support sustainable growth in 2022 and beyond

• - This quarter, we generated a reported 8.1% return on tangible equity, up on the first quarter of last year, despite a 28% increase in annual bank levies, which are recognized in the first quarter

• - We also improved our efficiency; post-tax profit was up 18% over a successful prior year quarter, driven by positive operating leverage

• - This brings our cost/income ratio down to 73%, four percentage points lower compared to the prior year

• - We are mindful that the current operating environment presents many challenges, including on the cost front, and we will continue to focus on cost discipline

• - Finally, looking at our balance sheet, we are well-equipped to navigate the current environment thanks to our high-quality loan book and tight risk management

• - Our capital position remained strong despite the impacts of the war in Ukraine and facilitating business growth

-Now let me take you through the progress on strategic priorities in our core businesses on slide 2

Slide 2 - Progress on strategic priorities in core businesses

• - 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 net interest income. This, coupled with cost discipline, helped us deliver operating leverage of 18% this quarter

• - In the Investment Bank, strong client activity in FIC supported revenues, with year-on-year growth across institutional and corporate clients

• - Advisory revenues were more than 80% higher year on year, partly offsetting lower revenues in Equity and Debt Origination

• - The Private Bank delivered its best quarter since we launched the transformation, with pre-tax profit up more than half year on year to 419 million euros. It also captured net new business of 13 billion euros, across inflows into assets under management and loans

• - Asset Management delivered revenue growth of 7% 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

• - The dynamics in all four core businesses provided a strong step-off point to deliver on our 2022 targets

• - Next, let me give you an update on Russia on slide 3

Slide 3 - Russia: impact continues to be carefully monitored

• - We believe the investments we made in future proofing our business meant we were well prepared as we entered this period of uncertainty

• - This means we were ready to deal with not only the direct impacts of the war in Ukraine, where we reduced our net loan exposure to Russia to below 500 million euros by the end of this quarter, but also the second order ones, and our investments in controls are a testament to this

• - As a result, we executed diligently on sanctions implementation without any major issues, and managed the financial aspects of these sanctions

• - As it stands, we operate under a heightened alert status, and we are continuously adapting our controls to the evolving landscape

• - Despite the uncertainties of the current situation, we have not seen any major disruptions to our businesses, even with all the added safeguards we have put in place

• - While it is too early to quantify the potential long-term impacts of the war, we believe our conservative balance sheet and transformed business model will help us face the challenges ahead

• - Of course, we continue to be mindful of the broader environment and uncertainties that go well beyond the war, such as the supply chain issues that could further impact future economic growth

Slide 4 - Positive operating performance

• - A key driver of higher profitability is our delivery of positive operating leverage, which I will now cover on slide 4

• - Starting with revenues, Group revenues increased by 1% year on year and the Core Bank contributed by generating revenues of 7.3 billion euros, up 3% year on year

• - Excluding revenues in Corporate & Other and the Capital Release Unit, the average annual increase of revenues in the four operating divisions was 7%

• - Revenues in the Corporate Bank were up 11% year on year, a second consecutive quarter of double-digit growth, driven by continued deposit repricing and business growth

• - Investment Bank revenues grew 7% year on year, over a strong first quarter in 2021. A 15% increase in FIC revenues more than offset a 28% decline in Origination and Advisory

• - In the Private Bank, continued strong business growth more than offset interest rate headwinds and, as a result, revenues were up 2% year on year

• - Asset Management revenues rose 7% year on year, driven by a 13% rise in management fees which reflects consecutive quarters of inflows and assets under management growth during last year

• - Assets under management increased by 82 billion euros year on year to 902 billion euros

• - Moving now to costs, noninterest expenses were down 4% year on year, despite an increase in bank levies of 28%, or more than 150 million euros, which was offset by lower transformation charges and the cessation of Prime Finance costs

• - Adjusted costs excluding bank levies, transformation charges and Prime Finance were also down 1% year on year reflecting lower investment spending needs after the completion of IT projects and delivery of efficiency gains, again in line with plan

• - Beyond these cost items, we faced higher-than-expected expenses mainly in compensation costs

Slide 5 - Resilient loan & deposit development

• - Let us now look at topics that drive our revenue performance over the next slides

• - Slide 5 provides further details on the development in our loan and deposit books over the quarter

• - Loan growth across the bank has been 5 billion euros or 2 billion euros on a FX-adjusted basis

• - As outlined in the previous quarter, this normalization in our growth rate was expected due to a partial reversal of short-term lending which supported a strategic transaction over year-end in the Investment Bank. We expect the majority of this loan to be repaid by the end of the second quarter

• - Offsetting this, we saw continued strong momentum from mortgages and collateralized lending in our Private Bank, high client demand in Corporate Treasury Services as well as loan originations across FIC Financing

• - Despite the more challenging market conditions, we saw a strong performance of our deposit portfolio given the market volatility during the quarter

• - Deposits were broadly stable compared to the previous quarter when adjusting for FX as a result of active balance sheet management

• - Furthermore, our momentum in repricing deposits has also continued as shown on slide 6