Deutsche Bank AG

Ladies and gentlemen, thank you for standing by. I'm Hayley, your chorus call operator. Welcome and thank you for joining the Deutsche Bank Q2 2020 analyst call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touch-tone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to James Rivett, Head of Investor Relations. Please go ahead.

Thank you all for joining us today. As usual on our call, our CEO, Christian Saving, will speak first, followed by our Chief Financial Officer, James Vermolker. The presentation, as always, is available for download in the Investor Relations section of our website, db.com. But before we get started, let me just remind you that the presentation contains forward-looking statements which may not develop as we currently anticipate. Therefore, we ask you to take notice of the precautionary warning at the end of our materials. With that, let me hand over to Christian.

Thank you, James, and welcome from me. Looking back on the first year of our transformation, we are on track with or even ahead of the objectives that we set ourselves. Our new strategy is paying off. client feedback and momentum, as well as internal employee feedback, demonstrates that we have found our path and execution is well underway. The results we present today underpin our confidence that we will reach our 2022 targets. Last quarter, we told you that we were determined not to let the COVID-19 pandemic impact the execution of our transformations. And at this stage, I'm happy to say that is the case. We were profitable in the second quarter and the first half of the year. Growth in core bank earnings more than offset the wind down of the capital release unit, elevated provisions for credit losses from the pandemic and transformation impacts. The results in the second quarter and for the first half year are ahead of our internal plans. This speaks to our strategy and our relentless execution. We told you last year that we would execute quickly, and we have done so, with over three quarters of our expected transformation costs already behind us. Capital and liquidity were also stronger than our internal plans at the end of the second quarter. This validates our view that we can finance our transformation with existing capital resources. It also positions us well to continue supporting our clients through conditions which remain challenging. We also shaped our technology and sustainability strategies in the second quarter. Next to the announcement of the Google Cloud partnership, we set ambitious sustainable finance targets of at least 200 billion euros by 2025 and issued our first green bond. You will hear more from us on our sustainability strategy in the coming quarters. Let us go through these themes in more detail, starting with the progress against our strategic transformation agenda on slide two. In July last year, we laid out our vision for the transformation of Deutsche Bank. Our aim was to reposition the bank around what it has stood for over 150 years. the leading German bank with strong European roots and a global network. Our transformation was built around five key decisions. First, to exit businesses where we did not have a market-leading position by setting up a dedicated capital release unit. We have exited equities trading. We are in the process of transferring our prime finance operations and reduced assets in the capital release unit by over 100 billion euros since 2018. We also resized our rates business in the investment bank. Second, to create four core businesses with market-leading positions that are aligned to the needs of our clients. Together, these businesses make up our core bank. We made further progress on reshaping our core businesses this quarter. consistent with the plans we laid out at the investor deep dive in December 2019. Third, to reduce costs. And here, we have made significant progress. Based on the annual run rate in the second quarter, we have reduced adjusted costs by 3 billion euros since 2018. In other words, we have achieved 50% of our cost reduction plans just 18 months into our four-year program. We remain firmly on track to reach the €19.5 billion adjusted cost target for this year, on the way to €17 billion in 2022. Fourth, to continue to invest in technology and controls despite the reductions in the overall cost base. Our commitment to spend €13 billion on technology between 2018 and 2022 remains unchanged. Our technology strategy includes the recently announced Intended Strategic Partnership with Google. This partnership aims to redefine how we develop and offer financial services and radically improve infrastructure efficiency. We also continue to invest in our control environment and improve our relationships with regulators. We believe that our investments have been recognized in the positive outcomes of recent regulatory stress tests, such as SICA and the ECB liquidity stress test. Finally, we committed to deliver our transformation within existing capital resources and prepare the ground for future distributions to shareholders. Since 2018, we have reduced risk-weighted assets in the capital release unit by €30 billion, generating around 110 basis points of quarter one capital. This capital generation has helped offset regulatory inflation and finance growth in the core bank. Execution on all five of these decisions is either in line with or in some cases even ahead of our internal plan. This disciplined execution is beginning to become visible in our financial results as you can see on slide three. Our strategy is focused on improving sustainable profitability. That means generating positive operating leverage through a reduction of costs and growth in revenues. Operating leverage has been positive for three quarters in a row for both Group and Core Bank, driving significant improvements in Core Bank profitability. Over the last 12 months, Core Bank adjusted profit before tax, has grown by 18% to 3.1 billion euros. We are benefiting from discipline that we have instilled in managing our costs. We have reduced adjusted costs, excluding transformation charges and bank levies, year on year for the 10th consecutive quarter. Core bank profitability has enabled us to absorb the cost of de-risking the CIU, where the reduction of risk-weighted assets is running as we anticipated. As we make further progress with the wind down of the CIU, the underlying performance of the core bank should become more visible in our group results. And you can see that on slide four. Over the last 12 months, we have been able to largely offset the loss of revenues from the exit of equities trading and the de-risking costs with growth in the core bank. Core bank revenues of 23.7 billion euros over this period compared to the plan that we showed you at the investor deep dive of €24.5 billion of revenues in 2022 as part of our 8% return on tangible equity target. This implies a revenue growth of 3% in total or an annual growth rate of around 2% from current levels. This growth is achievable when compared to the 5% growth that we have reported in the core bank in the last 12 months. And yes, there are pressures, but also opportunities in the revenue environment. With the client momentum that we have created and the changes we have made to our businesses, we are confident of achieving these revenue plans for 2022, even when current market dynamics normalize. Let me turn to the next slide to give you some details why remain confident on our revenue plans for 2022. The corporate bank operates in an attractive return market despite headwinds from both COVID-19 and the interest rate environment. We have demonstrated that we can largely offset these headwinds with repricing and volume growths. At the end of the second quarter, we had charging agreements in place for approximately 50 billion euros of deposits. That is already ahead of our full-year goal and is on track to contribute over 100 million of revenues on an annual basis. We have grown corporate cash transactions by 9% and loans by 1%. We have maintained good momentum in volume and fee growth with our platform clients, fintech and e-commerce clients. The corporate bank has been essential to supporting corporates, including in Germany. Combining all the German government programs, we have been the most active bank in this space. We have already committed loans of 2.6 billion euros and have client requests worth more than 5 billion euros in the pipeline. We also arranged syndicated KFW-sponsored loans of a total volume of more than 8.5 billion euros. In the investment bank, our strategy is to focus on our core strengths. The actions that we have taken are paying off and faster than we expected, helped by stronger market conditions. Overall, revenues in fixed income and currencies grew by 39% year on year. Our FIG trading business, excluding financing and specific items, was up by more than 75% versus Q2 2019. We achieved this performance with broadly stable levels of RWA, excluding regulatory inflation. This demonstrates efficient resource utilization and is enabled by a combination of prudent risk management and higher quality client flow. While the external market conditions positively impacted revenues, we are confident that the implementation of strategic initiatives across the FIG platform had a material effect and should allow us to deliver sustainable growth. Refocusing the investment bank and exiting certain business has resulted in a much smaller negative halo effect than we had anticipated last year. Revenues in origination and advisory increased 73%, the largest year-on-year growth relative to peers who have reported to date. Driven by by greater client engagement to the highest levels we have seen in recent years. We continue to regain market share compared to the second half of last year in core German and European markets. In the private bank, we are focused on offsetting the pressure from negative interest rates with volume growth. Unsurprisingly, new consumer loans and investment products declined during the lockdown. But with the reopening towards the end of the second quarter, we are now seeing a rebound in volumes in some areas even tracking above last year. And in the second quarter, the private bank captured 5 billion euros of net inflows in investment products and 3 billion euros of net new client loans. In asset management, we are building on the momentum that DWS has generated inflows were €9 billion in the quarter, assets under management up by €45 billion in the quarter and €24 billion over the last 12 months. Asset management also implemented further decisive cost measures in direct response to the COVID-19 environment. As we focus on improving profitability, we continue to manage our balance sheet conservatively. As we announced last week, we ended the quarter with a CET1 ratio of 13.3% as shown on slide 6. This reflects lower loan balances driven by higher-than-expected repayments of credit facilities by clients initially drawn in reaction to COVID-19. In part, these facilities have been refinanced through debt capital markets instruments. Liquidity reserves of 232 billion euros are roughly 25% of our net balance sheet, comfortably above regulatory requirements. The solid capital and liquidity position gives us scope to continue to deploy resources to support clients in these challenging conditions. And our funding position has rarely been stronger than today. We fund our balance sheet regularly. through stable sources, predominantly low-cost deposits. We also remain focused on maintaining strong credit quality. Provisions for credit losses of €761 million in the quarter are consistent with our previous guidance and our full year outlook. This reflects our conservative underwriting standards and the low-risk nature of our loan book. As we have communicated before, our exposure to credit cards and other unsecured consumer lending is low relative to our international peers. Against this background, we confirm our guidance for full-year provision for credit losses of 35 to 45 basis points of loans. Let us turn to the broader macroeconomic outlook on slide 7. We continue to expect a robust recovery in some of the major economies starting in the second half of this year, although it will take longer to return to the pre-COVID GDP levels. The recently agreed EU stimulus package should further support the economic recovery in Europe, including our home market Germany, which accounts for around half of our loans. We are happy to have a leadership position in Europe's strongest economy which is proving its resilience. Germany came into the crisis with low levels of debt. The fiscal conservatism has allowed the government to take aggressive and decisive action in response. Germany benefits from a combination of an effective social security system, one of the largest loan and guarantee programs, and 130 billion euros in stimulus packages. Economists therefore expect Germany to suffer less and to recover quicker than many other countries. Some recent indicators, including strong retail sales and a more optimistic business sentiment, even indicate that the German economy may outperform current forecasts. This economic stability comes together with low levels of household and corporate debt, a historically stable housing market, as well as good levels of corporate liquidity relative to other leading economies. Therefore, German companies and consumers are in a better position to weather the current environment. All of this contributes to resilience of our German loan book and to our expectations for lower provisions for credit losses in the second half of the year. But, of course, uncertainties will persist for the time being. We must not be complacent and have to continue to execute on our transformation agenda. Slide 8 shows you why I am confident that we will continue to deliver. In the first half of the year, we have achieved all cost savings as planned. We were also able to absorb an unexpected burden of more than €100 million of bank levies. The progress of our transformation is also demonstrated by delivering on over 70 key milestones during the last quarter, all of which are closely monitored by the Transformation Office, which we created in the fourth quarter of last year. The Transformation Office not only ensures successful execution and delivery on our objectives, but also facilitates a regular dialogue across the bank. The aim is to get even better and more efficient in the execution of our transformation initiatives. Across the bank, we currently have more than 60 such initiatives in flight, We made tangible progress with our transformation initiatives in the second quarter. We completed the German legal entity merger and announced the creation of our international private bank, integrating wealth management and PCB international. These measures are important steps in reaching our revenue plans and cost reduction targets. In the corporate bank in Germany, we have completed the merger of Deutsche Bank and post-bank commercial businesses. This allows us to reduce complexity, simplify processes, and ultimately better serve our clients. In asset management, DWS has simplified its management structure to make the organization more client-centric and cost-effective. We've also made significant progress in transforming our infrastructure with the launch of a new IT platform in Italy and our planned partnership with Google. And while we are proud of these achievements, it is even more important that we are confident about our ability to continue delivering at this pace. And I can tell you, we are. At the investor deep dive in December, I discussed how we were seeing increased staff morale. And our recent people survey supports this trend. We see the best ratings ever for employee enablement and the highest commitment rating since 2012. With these results, we are in line with or above industry benchmarks for the first time in years. And this is the most solid foundation to continue delivering our transformation roadmap. Twelve months ago, we launched fundamental changes to our bank. Since then, we have delivered on all dimensions of our strategic agenda. We not only kept the pace despite the unprecedented challenges of COVID-19, we also outperformed our own plan. This management team is absolutely committed to maintaining this cadence. While we are fully focused on our plan, the pandemic will produce fundamental changes in the way we work and interact with clients, and we must take advantage of those. We remain convinced that we can achieve our 2022 financial targets. We are on track to execute against all our major strategic initiatives. We have a strong capital position and have proven our cost discipline. We are making considerable progress on the revenue side. We see positive momentum in all our businesses, which we can build on. With our capital strengths, we have the potential to support clients in all business areas. Our accelerated digital transition further supports our 2022 financial targets. Sustainability is also of ever-growing importance for us and our clients, and this is being factored into our strategic planning. In short, we have managed through this crisis well to date. We are on track with our transformation. Our increased focus on our strengths is paying off. We feel support from our clients, our staff, and other stakeholders. We are determined to build on this momentum. With that, let me hand over to Jameson.