Deutsche Bank AG

Welcome to the Q3 2025 Fixed Income Conference Call and Live Webcast. I'm Moritz, the course call operator. I would like to remind you that all participants will be in a listen-only mode and the conference is being recorded. The presentation will be followed by a question and answer session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Philipp Teuschner, Investor Relations. Please go ahead.

Good afternoon or good morning and thank you all for joining us today. On the call, our group treasurer Richard Stewart will take us through some fixed income specific topics. For the subsequent Q&A session, we also have our CFO James Vermoltke with us to answer your questions. The slides that accompany the topics are available for download from our website at db.com. After the presentation, we will be happy to take your questions. Before we get started, I just want to remind you that the presentation may contain forward-looking statements which may not develop as we currently expect. Therefore, please take note of the precautionary warning at the end of our materials. With that, let me hand over to Richard.

Thank you, Philip, and welcome from me. We delivered record profitability in the first nine months of 2025. We are tracking in line with our full-year 2025 goals on all dimensions. Nine-month revenues at €24.4 billion are fully in line with our full-year goal of around €32 billion before FXFX. Adjusted costs are consistent with our guidance. Post-tax return on tangible equity is 10.9%. meeting our full-year target of above 10%, and our cost-income ratio at 63% is also consistent with our target of below 65%. Operating leverage drove our profit growth. Pre-provision profit was €9 billion in the first nine months of 2025, up nearly 50% year-on-year, or nearly 30% if adjusted for the impact of post-bank litigation impacts in both periods. We saw continued revenue growth of 7% with momentum across all businesses. Net commission and fee income was up 5% year on year, while net interest income across key banking book segments and other funding was essentially stable. 74% of revenues came from the more predictable revenue streams, the corporate bank, prior bank, asset management and financing businesses in FICC. Cost discipline remained strong. Non-interest expenses were down 8% year-on-year, with significantly lower non-operating costs, largely due to the non-repeat of post-pac litigation provisions, while adjusted costs were flat. And our asset quality remained solid. Provisions were in line with expectations, and we had no exposure to recent high-profile cases. Let me now turn to our progress on the pillars of strategy execution on slide 3. We are on track to meet or exceed all our 2025 strategy goals. The compound annual revenue growth rate since 2021 was 6%, in the middle of our range of between 5.5% and 6.5%. In a changing environment, we are benefiting from a well-diversified earnings mix. Operational efficiencies stood at €2.4 billion, either delivered or expected from measures completed. In other words, 95% of our €2.5 billion goal. Capital efficiencies have already reached €30 billion in RWA reductions, the high end of our target range, and we continue to see scope for further efficiencies through year-end. During the quarter, we launched our second share buyback programme of 2025 with a value of €250 million, which we completed last week. This brings cumulative distributions since 2022 to €5.6 billion. Let us now turn to some remarks on our businesses on slide 4. We are delivering strength and strategic execution across all four businesses in our Global House Bank. All businesses have delivered double-digit profit growth and all four have delivered double-digit ROTE in the first nine months. The Corporate Bank continues to further scale the Global House Bank model and delivers strong fee growth of 5% in the first nine months and was recognised as the best trade finance bank. Our investment bank has been there for clients through challenging times this year and has seen an increase in activity across the whole client spectrum. The private bank has made tremendous progress with its transformation so far this year, with 9 months profits up 71%. Our growth strategy in wealth management is paying off. Asset centre management has grown by 40 billion euros year to date, with net inflows of 25 billion euros. And in asset management, the combination of fee-based expansion with operational efficiency drives sustainable returns of 25%. We are benefiting from our strengthened European ETFs and are expanding our offering in that area. Turning now to net interest income on slide 5. NRI across key banking book segments and other funding was €3.3 billion in the quarter. Private Bank continues to deliver steady NII growth, supported by the ongoing rollover of our structural hedge portfolio, as well as deposit inflows. Board Bank NII is slightly down quarter on quarter, principally driven by lower one-offs, while it continues to be supported by underlying portfolio growth, as well as hedge rollover benefits. With respect to the full year, we are on track to meet our plans on a currency-adjusted basis. Turning to slide 6, which reflects market implied forward rates as of quarter end, we can see that our hedge portfolio positions as well. In the third quarter, the total volume invested long term staged around €245 billion, or around €200 billion excluding equity hedges. The result of our hedge approach is that a large proportion of our future NII is now locked in. In addition, the absolute NII contribution of the hedge portfolio grows steadily, as new hedges are executed above the rate of maturing hedges. In the appendix, you can also see that our NII sensitivity remains contained, with little change quarter over quarter. Looking at the development of the loan book on slide 7, we can see that during the third quarter, loans grew by €3 billion, adjusted for FX effects. The underlying quality of the loan book remains strong. Around two-thirds of our clients are located in Germany and Europe. loan portfolio in the investment bank shows sustained growth driven by FIC as well as encouraging momentum in O&A. In the private bank we continue to deliver on our strategic commitment to a capital efficient balance sheet through further targeted mortgage reductions while we also saw encouraging growth in wealth management. In the corporate bank client demand remains muted this quarter as geopolitical uncertainties continue to persist however Looking ahead, we expect lending in the core bank to benefit from the fiscal stimulus in Germany and to accelerate over the course of 2026. The lending outlook also remains strong and thick, and reflects our strategic focus on growing the franchise and expanding market share. Moving now to deposits on slide 8. Our well-diversified deposit book has grown by €10 billion during the third quarter, adjusted for FXFX. Our portfolio continues to be of high quality, supported by a strong domestic footprint and a substantial level of insured deposits. Deposit growth has been most pronounced in the private bank, where we saw continued momentum and strong inflows from our retail campaigns in Germany. The corporate bank portfolio has also grown during the quarter, driven by inflows in site deposits on the back of high client engagement. For the remainder of the year we expect further inflows from deposit campaigns in the private bank, while we also see opportunities for growth and portfolio optimisations in the Corporate Bank. On slide 9, we highlight the development of our key liquidity metrics. We managed our liquidity coverage ratio to 140% at quarter end, thereby demonstrating the inherent strength and resilience of our balance sheet. The surplus above the regulatory minimum increased by about €5 billion due to slightly higher HQLA and reduced net cash outflows. we continue to maintain a high-quality liquidity buffer and hold about 95% of HQLA in cash and level 1 securities. The net stable funding ratio slightly decreased to 119%, with a surplus above regulatory requirements of 101 billion euros. This reflects our stable funding base, with more than two-thirds of the group's funding sources coming from our global deposit franchise. Turning to capital on slide 10, Strong third quarter earnings led to an increase in the CT1 ratio to 14.5%, up 26 basis points sequentially. RDOA remained flat during the quarter, as an increase in credit risk RDOA, driven by higher loans and commitments, was offset by a reduction in market risk . As we head into the fourth quarter, let me remind you of the 27 basis points CT1 benefit we still have from the adoption of the Article 468 CRR Transitional Rule for unrealised gains and losses, which will expire at the end of the year. Also following revised EBA guidance from June 2025, regarding the calculation of operational risk RDOA under the new standardised approach, we must now perform the annual update of operational risk RDOA already by the end of 2025, which is expected to lead to a 19 base points drawdown in CT1 ratio terms. All else equal, Applying these two items to our third quarter CET1 ratio will result in a pro forma CET1 ratio of approximately 14%, which is also roughly where we expect Cymru to finish the year. Our capital ratios remain well above regulatory requirements, as shown on slide 11. The CET1 MDA buffer now stands at 325 basis points, or 11 billion euros of CET1 capital. The 25 basis points quarter on quarter buffer increase reflects our higher C2-1 ratio buffer. The buffer to total capital requirement decreased by 8 basepoints, and now stands at 362 basis points. Moving to slide 12, our third quarter leverage ratio was 4.6%, down 11 basis points, principally from higher loans and commitments, alongside increased settlement activities at quarter end. Tier 1 capital was essentially flat in the quarter, as a derecognition of the $1.25 billion A tier 1 instrument, that we called in September, materially offset the quarter-on-quarter increase in CDT1 capital. We continue to operate with significant loss-absorbing capacity, well above all requirements, as shown on slide 13. The MREL surface, our most binding constraint, increased by €2 billion to €26 billion. Our surface thus remains at a comfortable level, which continues to provide us with the flexibility to pause issuing new eligible liabilities instruments for at least one year. Moving now to our issuance plan on slide 14. Credit markets developed constructively in the third quarter, and our spreads also benefited from this trend. Our senior non-preferred bonds tightened by around 20 basis points on average in the quarter, allowing us to issue at attractive funding costs. With year-to-date issuance of 15.1 billion euros, we have already reached the lower end of the range of our full year guidance. we reaffirm our target range of €15-20 billion for the full year. Since the last fixed income call in July, we issued €4.2 billion, primarily in senior non-preferred format, across euros and dollars. Residual funding for the year 2025 will be focused on the senior preferred instruments. Such instruments typically take the form of private placements or retail targeted instruments, as opposed to public benchmarks. We expect 2026 requirements to be in a similar, possibly slightly lower range as compared to 2025. As usual in the fourth quarter, we may consider pre-funding 2026 requirements depending on market conditions. To summarise on slide 15, we are on track to meet our full year 2025 targets and remain confident in our trajectory to deliver a return on tangible equity of above 10%, and a cost-income ratio of below 65%. Our year-to-date performance supports our revenue and expense objectives. Our asset quality remains solid, and despite uncertainty from developments around commercial real estate, as well as the macroeconomic environment, we continue to anticipate lower provisioning levels in the second half of the year. Our strong capital position and third quarter profit growth provide a solid foundation as we head into 2026. With year-to-date issuance of €15 billion, we have substantially met our issuance needs for the year. With that, let us turn to your questions.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Anyone who has a question may press star and one at this time. One moment for the first question, please. And the first question comes from Lee Street from Citigroup. Please go ahead.

Hello, good afternoon. Thank you for doing the call and thank you for taking my questions. I have two questions, please. Firstly, and I'm not trying to front-run your yesterday, but as we look ahead for the next few years, do you think it's reasonable to presume that a 10% return on tangible equity should be like the floor of where we should be seeing Deutsche Bank perform on an annual basis? That would be my first question. And secondly, you hopefully gave details with your private credit exposures that looked quite light. You gave a lot of detail on your commercial real estate exposures. You had them for some time. Setting those two sectors aside, what other areas are on your watch list at the moment and where you're paying attention, getting briefings on? Those would be my two questions. Thank you.

Thanks, Lee. Hi, it's James. Happy to take the questions. Look, without being drawn to specific numbers, we certainly are working over the years to come to put a good amount of distance between where we are operating at any given time and sort of a low point. This through-the-cycle thinking is not lost on us, in other words. And I do believe that the structural profitability of the company has risen significantly to the point where numbers like what you throw out are entirely possible. I think the other thing, specifically from a credit investor's perspective, the PPNR, and we still disclose the PPNR in Christian's slides in the equity deck, the PPNR that's associated with that profitability has become a larger and larger potential loss-absorbing kind of layer. As is the capital that's disregarded in the ratio as you go through the year on the payout level. So without changing the ratio, you have some loss absorption as the year goes by. So I do believe it paints a more and more robust picture as time goes on. On the credit side, you called out those two areas. Obviously, private credit for us was not a source of concern. It's a source of kind of watch. given the potential read-across, and we've done some work on that. CRE has remained a soft spot for sure, and you've seen that in our quarterly reporting. We do expect in time there to be a healing of that market, and we've seen some initial positive indicators, but I think it remains a watch item. I'd say beyond that, earlier this year, you'll recall, we've done a fair amount of work looking at our portfolio in terms of potential sensitivity to the trade changes and policy changes, as well as specifically the automotive and manufacturing sectors in Germany. We've actually seen that hold up very well this year and are pleased with the performance. But no doubt, as kind of the world moves on, time moves on, it will remain a watch area for us. And I think the last thing to call out is sort of geopolitical risks. We tend to see very little exposure in our portfolios to the events that you've seen. But we, of course, continuously stress test for either real or potential events. And that's also an ongoing area of focus for us. Hope that helps, Lee. Very helpful. Thank you very much, both.

Then the next question comes from Dan David from Autonomous. Please go ahead.

Good afternoon. Thanks for taking my questions and congratulations on the results. I've got three if possible. The first maybe is just leading on from what Lee was just asking. I think as a result of one of your French peers, receivable financing is kind of the latest buzzword. Can you just talk about your exposure in that area and where we would see it in the Deutsche Bank balance sheet if you do have exposure? The second one is on tier two. So you've maintained a tier two deficit offset by the surplus in 81 for a while now. Is that how we should think about your capital stack going forward? I guess, is that likely to change? And then the third one is a bit more broad on the topic of sustainability. Noting the kind of ongoing political developments in Europe, do you feel at a competitive disadvantage compared to US peers as a result of the sustainable landscape in Europe? Would appreciate any thoughts. Thanks.

Sure. Dan and James, I'll perhaps take the first and third and ask Richard to take the capital stack question. Receivables financing, I can't tell you the size of the portfolio, but in trade finance, we do some sort of supply chain financing. I don't think it's a large exposure, but it's certainly something that we do in trade finance. And there can be some exposures of that nature in ABS as well, in ABS format. So we have some exposures, but I would not think of it as a significant exposure for us as a group. As always, I don't want to sort of recite all of the sort of controls that we put around our book as a whole, but obviously anything we do in receivable financing has a has the same type of first and second line scrutiny as we do in other secured and unsecured financing types. On the sustainability side, I would not think of it as a competitive disadvantage. Let me make a few points. Firstly, we've made a tremendous amount of progress in our overall sustainability agenda in the firm over the years. represented or recognized among other things in our ESG ratings, which have improved, but also the business activity that we do with clients as they think about their transition plans, sustainable financing, transition financing. I don't want to go so far as to say it's a competitive advantage, but to a certain extent, the fact that it gets de-emphasized perhaps by some of our peers across the Atlantic gives more of that space to us and others who remain sort of engaged on the topic. I noticed an article this week that spoke to higher financing levels for renewable energy sources this year than carbon-based energy sources. So to give you an example that the market's evolving and clearly there's also a revenue and business opportunity attached to some of this which can be impacted by by sort of changes in the landscape. So we don't think of it as a competitive disadvantage. The last point to make is just on the disclosure requirements. Of course, we do embrace simplification and standardization of disclosure requirements and taxonomies because we've been through a big build phase in the world and in what the requirements are for banks. And the more one can simplify that landscape without losing the benefit of of some of the models, taxonomies, definitions that we've created over the years. Obviously, that's a benefit to the banks.

Hi, Dan, it's Richard here, and thanks for joining, and I'll pick up the Tier 2 question. So when we kind of think about our capital stack, you know, we first kind of assess our Tier 1 capital needs first. And so once that is addressed, then I kind of look at the combination of both the Tier 1 and Tier 2 bucketing. And as you can see, over the last couple of years, we probably overpopulated our tier one bucket just to solve for client demand for leverage. And so that is something that has been the approach we've taken over the last few quarters. And we kind of expect our current thinking for that to continue. Having said that, our tier two buckets instrument is still a useful instrument for us. We still think it's valuable. And so, you know, it's not saying we're precluding from issuing that space in the future.

Then the next question comes from Robert Smalley from McKay Shields. Please go ahead.

Hi, thanks for taking my question and doing the call. I have two. First on commercial real estate, which has been nettlesome. Could you talk a little bit about specifically where the issues are? I know on the REIT side we get building by building type of disclosure, but we talk about where they are, what the plan is, and how much restructuring you're looking at versus kind of nursing these things along for another couple of quarters. And if we are seeing restructuring, will it manifest itself and charge us in the fourth quarter? And then my second question on the supplement that came out yesterday on page 12, about 40 plus percent of stage one, stage two loans are off balance sheet positions. Could you characterize what those are generally? Because they don't go into stage three. Is it mostly timing issues, et cetera, that puts them into stage one? And Is there possibly a better way to do this than bucketing them in stage one, stage two, and stage three? Because it seems to pump up the numbers, but it seems to overstate the stage one and stage two numbers, but they seem to cure pretty easily. Thank you.

Thanks, Rob. So, James, there's a couple answers to questions. concentration of the CLPs that we've seen in the past couple of quarters has been in those exposures on the West Coast that we've referred to. So, you know, 60-70%, let's say, of the credit loss provisions this quarter has related to West Coast, and that's particularly California and Washington State. Where that goes from here, I spoke a little bit about yesterday, but What we do is look at the portfolio on a forward basis. First of all, looking at which loans are coming up for refinancing or extension and taking a view as to which will be sort of money good loans that are eligible for refinancing or extension. For those loans that are either sort of on the border or look to be troubled, we work intensively with the sponsors on what the strategy is for value sort of preservation creation. I'd say that the tone of that effort has deteriorated a little bit as more of the equity has been consumed in the projects, but still remains overall positive. And we look to create sort of good outcomes and sharing of the burdens. There is a small portfolio of real estate owned as well. To your question of what does that mean for the future, it's always going to be somewhat path dependent on what happens to appraisals, what happens to the individual buildings in terms of their lease footprint in terms of sponsor decisions. But at each quarter, we essentially mark the portfolio to the most recent appraisal and our expectations as to outcomes of those discussions. And we feel good about the marks. including, incidentally, in the most recent quarter, having taken a portfolio to the market and seen bids come back that have been, by and large, very close to where we had those positions marked. So short version of all that, it's too early to call an end to the trend. But as I said yesterday, certainly we'd like to think we're much closer to the end than the beginning here. even on the West Coast, although that's where the uncertainty sort of lies. Your reference to page 12, you are, well, in essence, right. Obviously, we follow what the accounting standard requires in terms of the IFRS 9 provisioning and the portfolios against which the provisions are taken. You can see that on off-balance sheet provisions, which are overwhelmingly essentially derivatives and in some cases committed facilities, so you know, the amounts that are not recognized on the balance sheet. There tends to be a huge bias towards obviously stages one and two. Much of that represents our trading businesses. You may recall, Rob, that in, you know, disrupted market environments, we sometimes have migrations of those portfolios down, but it's typically temporary migration. as your question, you know, refers. I don't know if there's a better way to disclose, but as you can see, the associated provisions are relatively nominal, and I'm not sure how helpful, at the end of the day, the disclosure is. Hopefully that all helps, and Rob, nice to have you with us.

Thanks, and thank you, and good to be with you. Appreciate your answers. That's very helpful, as always.

Ladies and gentlemen, as a reminder, anyone who wishes to ask a question may press star and one at this time. So it looks like there are no further questions at this time. Then I would like to turn the conference back over to Philipp Teuchner for any closing remarks.

Thank you, Moritz. And just to finish up, thank you all for joining us today. You know where the IATIM is if you have any further questions. And we look forward to talking to you soon again. Goodbye and have a nice day.

Ladies and gentlemen, the conference is now over. Thank you for choosing Coruscant and thank you for participating in the conference. You may now disconnect your lines. Goodbye.