Deutsche Bank AG

Good afternoon, ladies and gentlemen. Thank you for standing by. I am Francie, your chorus call operator. Welcome and thank you for joining Deutsche Bank's Q2 2022 analyst call. Throughout today's presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you wish to ask a question, you may press star followed by one on your touchtone telephone. Please press star key followed by zero for operator assistance. I would now like to turn the conference over to Iona Patrinci, Head of Investor Relations. Please go ahead.

Thank you for joining us for our second quarter 2022 results call. As usual, our Chief Executive Officer, Christian Saving, will speak first, followed by Chief Financial Officer, James Van Malka. The presentation, as always, is available to download on the investor relations section of our website, db.com. Before we get started, let me just remind you that the presentation contains forward-looking statements which may not develop as we currently expect. We therefore 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, Joanna. A warm welcome from me as well. It's a pleasure to be discussing our second quarter and first half 2022 results with you today. Since the end of our first quarter, conditions for the global economy and the macro environment have become more challenging, not least as a result of the terrible war in Ukraine that continues to be devastating for millions of people. And we, like other banks, are not immune to the associated pressures and impacts. As you will have seen from our media release, they 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 core bank, even though the path ahead of us is more challenging. Nonetheless, we are very proud that despite an unprecedented operating environment, we are transforming our bank and once again have proven our resilience. Our franchise is more competitive and the bank is more resilient than was thought possible three years ago. And we are proud of our achievements, particularly as we have now delivered the highest second quarter and first half post-tax profit since 2011. The trends we saw in the first quarter continued in the second quarter, and we saw revenue growth across all four core businesses, driven by a mix of business momentum, market share gains, and investments that will support sustainable growth in the second half of 2022 and beyond. We delivered group revenues of 14 billion euros an increase of 4% year on year. And our core bank operating businesses grew revenues by a very impressive 9% year on year. In the first half of this 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 six months, five percentage points lower than the comparable period. And 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 remains stable. We finished the second quarter up compared to the first quarter with a common equity tier one capital ratio of 13%. Now let me take you through the progress in our core businesses on slide two. 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. At 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. And 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 a strong first half year result with a return on tangible equity above 9%. It captured net new business of 24 billion euros across inflows into assets under management and loans supporting 4% revenue growth despite the more challenging environment. And it continued to optimize its distribution channels with the closure of more than 100 branches. 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. As much of the momentum is driven by revenues, let me summarize our progress on slide three. Group revenues were the highest for the first half since 2016, despite business exits in 2019, as our transformation led to a stronger franchise with better revenue potential. These strong results include a revenue drag of around 700 million euros in corporate and other driven mainly by valuation and timing differences, as the market volatility in the first six months created temporary accounting asymmetries on derivatives used to hedge the bank's balance sheet. Nonetheless, we have already delivered more than half of our expected revenue plan for the year, and we are particularly encouraged to see strong growth rates in each division. are either in line with or ahead of the compound annual growth rates we expected at the beginning of our transformation three years ago. Excluding revenues in C&O, the average divisional annual increase of revenues in the four core business was 9%. And we are especially pleased with the performance in our stable business, which contributed more than 60% of revenues over the last 12 months. Moving to slide four, 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, clearly ahead of our 2022 target of 9%. 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 C&O line, so the majority of the improvement is due to the success of our business growth initiatives. And as we just mentioned, We are especially pleased to see the improvements in our stable businesses with corporate bank, private bank, and asset management increasing their pre-provisioned profit contribution to 60% while our investment bank continues to perform, driven by our FIC franchise. This is the clear evidence that our bank is now more balanced, thus resilient in a very complex and uncertain environment. exactly what we promised three years ago when we introduced our compete-to-win strategy. We expect many of these trends to remain in place and to be beneficiaries of interest rate hikes in the coming years. Overall, with core bank pre-provision profit of €4.3 billion in the first half, we believe that our shareholders can take comfort in the improved operating margins as it creates stronger protection from a tougher macroeconomic outlook. Let me now turn to slide five to take you through our journey to deliver improved operating margins and the progress we have made to date, as well as our management actions. In 2019, we introduced a new strategy, which unlike prior years, included strict cost management and focused investments in our core businesses, particularly into technology and controls to deliver efficiencies and just as importantly to grow the company over time. 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%, and at the same time, to reduce our cost-income ratio by 14 percentage points to 73% for the first half of this year. At the IDD in March, we shared the continued progress we have been making with clear ongoing focus on further managing our cost base. However, the macroeconomic environment changed materially, resulting in headwinds which impacted some of our planned reductions. most notably from inflation, high compensation, and foreign exchange, and are likely to stay with us for the balance of the year. At the same time, we also faced setbacks from uncontrollable items relating to the higher than expected bank levies, litigation, and costs arising from the war in Ukraine. 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 CNO. These items generated an impact of around 2.9 percentage points on our cost income ratio and 1.3 percentage points on our return on tangible equity in the first six months. Given our cost discipline, our controllable expenses were contained, despite seeing some inflationary pressures and investments we decided to make, which were not in the initial plan. These higher costs are important to our business as we want to continue to invest in technology, human capital, and controls to drive growth and efficiency, despite a more challenging revenue environment ahead. Together, these items created a trade-off between our long-term strategic goals and year-end targets. And as we stand here today, we have taken the decision to stick to our investment plans because we don't run the company on a one-year horizon, but with a long-term strategy and a vision for growth that will benefit us for the long term. Exactly this underlying belief in our strategy is the reason and the key lever behind our successful transformation over the last three years. Reflecting this 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 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 and are ready to take decisive action where necessary. We are well prepared for different scenarios and we continue working towards our return on tangible equity target for this year. And we remain committed to our cost income ratio target of less than 62.5% and our return on tangible equity target of more than 10% for 2025. And we are continuing to work towards reducing our run rate to the planned step-off point at the end of this year, even if the path ahead is more challenging. Let me now spend some time talking to our balance sheet on slide six. Our balance sheet metrics are solid, which means that we enter a more challenging macro environment from a clear position of strength. We have been managing our balance sheet conservatively and intend to keep doing so through this period of volatility. With a 13% CET1 ratio at the quarter end, we maintain a buffer of 253 basis points above regulatory requirements. Our liquidity coverage ratio is at 133%, 51 billion euros above regulatory requirements. And our funding position is robust. We already completed majority of our planned issuance for 2022, and we will continue to fund our balance sheets through stable sources, predominantly our deposit base. Moving to slide seven, 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. Let me remind you that around 79% of our lending is in the private bank and corporate bank, mainly consisting of retail mortgages in Germany. Concerns over the supply of gas could have a material impact on the German economy, and we must of course be prudent and consider the impact this could have on our bank. However, we deem this potential impact as manageable, and our improved pre-provision profitability means we are resilient. Furthermore, 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 will monitor the development of macroeconomic forecasts and will update our allowances based on what we see in the environment and in our portfolios. Next, let me briefly cover sustainability on slide eight. ESG activity has been muted compared to previous quarters, reflecting several factors. These included lower overall capital market issuance activity, which also impacted sustainable finance volumes, more muted investment activity against the backdrop of lower asset valuations, and lower levels of sustainability activities as companies simply prioritized their responses to the war in Ukraine. We believe this is a temporary effect and assume that activity will pick up again. And nonetheless, we are pleased with the growth rates in all businesses, as you can see on this slide. After finishing 2021, with cumulative ESG financing and investment volumes of 157 billion euros, excluding DWS, we have now reached a cumulative total of 191 billion euros and we are on track to exceed our 200 billion euro target by the end of this year. We reaffirm our target to generate at least 500 billion euros cumulatively by the end of 2025, which implies an average rate of at least 100 billion euros in ESG financing and investments per year from 2023 to 2025. And we are on track to publish 2030 reduction targets for the carbon intensive sectors in our corporate loan portfolios at our second sustainability deep dive later this year. We will share further details on our net zero strategy at this event and describe how we are partnering with our clients in their decarbonization efforts. Finally, Deutsche Bank will further strengthen its sustainability governance by creating the position of Chief Sustainability Officer with effects from September 1st, 2022. Before I hand over to James, let me summarize our progress this year on slide nine. Thanks to our transformation, Deutsche Bank is on the right track strategically. Although the market continues to be challenging, our half-year results show substantial improvement in profitability. We are delivering on our strategy, and our businesses saw strong revenue generation, leading to material improvements in returns. So while we achieved a robust and very satisfactory performance in the first half of the year, we, as everyone else, are confronted with pressures from the extraordinary geopolitical and economic environment. We will continue to work towards absorbing these shocks and executing on our strategy towards our stated trajectory. Our loan book remains resilient and we continue to have robust risk management. We continue to execute measures to deliver on our return on tangible equity objectives. And to be clear, our 2025 targets and capital distribution plans remain unchanged. With that, let me now hand over to James.