Christian Sewing: Some to the other question on the revenue guidance, high confidence in the midpoint of EUR 28 billion to EUR 29 billion. And why? Because I’m really drawing a lot of comfort actually from the stable business. If there is even room for improvement, it comes from the Private Bank and the Corporate Bank. And if I give you sort of say, my numbers, which I have in my head, even if you say the first quarter in the Corporate Bank was a stellar quarter where potentially on the deposit better, we may see some reduction. But clearly, the Corporate Bank will be well above EUR 7 billion of revenues for the year. I mean we started with the EUR 1.9 billion. And again, if I all see the forecast and the momentum we have there, it will be clearly a number well above EUR 7 billion.
The Private Bank, in my view, very stable. And again, think about that what we always said before that the real impact of the tailwind is still to come. So if I look at last year, if I look at this year, if I look at the first quarter, kind of a number well above EUR 9 billion is well achievable in the Private Bank. Asset Management, again, a EUR 2.5 billion number with all that, what I can see well achievable. So I think the stable business will be well in excess of EUR 19 billion. If you then think about the EUR 28.5 billion, it’s approximately EUR 9 billion, which we need from the Investment Bank. Now again, I think James said it in his prepared remarks, very strong business actually in the Investment Bank. The episodic items, which we recorded in the first quarter of 2022, we always knew that this is not repeatable, but the underlying flow in the Investment Bank is strong.
I just told you about additional investments, which we did also Latin America and so on. So I think what we need to achieve just in order to come to the EUR 28.5 billion would be something like a EUR 9 billion of revenues in the Investment Bank. We took EUR 2.7 billion in. That would mean, on average, a EUR 2.1 billion quarterly, which we have seen and where I’m highly confident to get there, again, based on the momentum. And hence, you know what, the guidance stands, and I’m confident.
James von Moltke: On LCR, we’ll always back test. I think the industry and working with regulators, we’ll back test what we call the outflow assumptions or the liquidity risk drivers. We’ll incorporate what we learn into our own internal models and discuss with regulators as an industry, whether there are changes to LCR that are necessary. I’ll tell you that the experience of the last several years, the COVID crisis in 2020, the impact of the inception of the war in Ukraine last year, now the banking sector turbulence, all of those things have actually proven out rather than disprove the severity of the liquidity risk drivers. So we feel really good about what the tool tells us. You mentioned the CDS market. We think CDS is an important risk management tool as well, helping banks and counterparties manage credit risk.
That said, it’s an illiquid market, relatively speaking, and is prone to movements that may not reflect a realistic assessment of default probability. And so I think it probably does bear some scrutiny as to how that market works and whether there are ways to improve it. Let’s be clear, I think institutionally and speaking personally, we think short selling is a viable activity. It provides information to the marketplace and is not something that we would criticize in and of itself. The question is, is there a possibility for crosstalk between different parts of the capital structure that really doesn’t represent information in the marketplace. And hence, it’s something that does bear some — As I say, we went through this period, which was an idiosyncratic focus, I think, well.
In a sense, we were tested, and we showed ourselves to be a strong, stable bank without the vulnerabilities that the market was concerned about. And in a sense, that’s a good thing that clients and investors and counterparties were able to see that. So I’d probably leave it there, Tom.
Operator: The next question is from the line of Anke Reingen from RBC.
Anke Reingen: The first is on costs. If you can talk a bit about the outlook and guidance. With respect to 2023, Q1 is running in line with the target of flat adjusted and reported. And if we look for the rest of the year, do you see any potential headwinds to your cost target? I mean you mentioned hiring. Is there a risk that we don’t end up on a flat adjusted reported cost basis? And in that respect, just confirming the EUR 500 million restructuring costs are incorporated in your flat cost guidance. And then if we travel from ’23 to ’25, is that like essentially flat trajectory as well? Or when do the EUR 2.5 billion cost savings come through and other EUR 500 million like an additional saving in your cost path you modeled?
Or is it basically offsetting additional headwinds you weren’t seeing initially? And the cost/income ratio target, I realized you’ve made lots of progress, but still 62.5% looks quite ambitious. What levers do you think you can pull? Or where is the upside potential from where we stand at the moment? And then second question is on loan losses. Unchanged guidance of 25 to 30 basis points. Q1 is already 30 basis points and your assumption is avoiding a recession in Germany. So how confident are you on your loan loss provision guidance?
James von Moltke: So Anke, thank you for the questions. I’ll dive in and Chris, you may want to add. I’ll go in reverse order, if I may, Look, as we’ve talked about, the EUR 372 million this quarter is probably higher than we would have expected, and in particular focus is on the around EUR 120 million that we recognized on the two — these two individual exposures in the IPB. If you take that out, EUR 250 million in the quarter, is actually a sensible run rate and would certainly deliver on the range and guidance that we’ve given. We’re not seeing indicators at this point of weakness in credit. So as we look at the forward-looking indicators, ratings movements, Stage 2 events and all the metrics we look at, we’re just not seeing it yet.
We are obviously mindful of the environment that we’re in and watching carefully. But to your question about, do the trends support the range, yes, they do. So we’re comfortable there. The question on the path to ’25 on cost income ratio, what’s the lever? The lever is operating leverage. What we highlighted back in February is that the sort of the cumulative, if you like, the compound rate of operating leverage improvement over the 4 years from ’18 was 5% a year. Now we may not achieve that every year, but it doesn’t take 5% a year to get us to 62.5% from 67%. And so that’s also why we’ve defined the strategy as we have and why we define acceleration as we’ve done. If we can find ways to accelerate revenue growth and at least manage the expense base flat with some of the additional measures that we’re taking, at least offsetting additional investments and hopefully bringing a little bit more to the bottom line over that time, we think the math to get to 62.5% is very solid.
And as Christian outlined, we’d hope to be able to make that a more easily achievable target, and as I say, potentially create room for reinvestment. The ’23 path, as you say, is one where, as other headwinds, there are always headwinds. We are making investments, whether it’s in technology or controls. We’re seeing inflation. And we need to work to offset those things. The initiatives we announced today are not that meaningful in terms of ’23. So they might help us to the tune of around EUR 50 million in the back half of the year. But they step up over the next couple of years. And so the run rate that we think to the various initiatives that we’re talking about should achieve by ’25 or if not dribbling a little bit into ’26, would be about EUR 250 million.
So we think it’s a meaningful sort of contribution to the EUR 500 million goal that we have. We’re seeing a number of things. Obviously, in the expense base we’ve talked about, we’re going to continue to fight through now in the second quarter. Work hard to keep the company at that run rate we’ve talked about. In the second half, we actually start to harvest some benefits of things we’ve been working on for a while. I think notably, as we complete the integration, while it doesn’t immediately happen, we start to harvest the benefits of that investment. We’ve talked about the linearity and nonlinearity of certain elements of the EUR 2 billion. So we will continue to work and harvest those. So the short answer is, of course, it’s always challenging to manage a company in an environment like this with so many moving parts to a run rate.
But we think we’ve got the tools and the measures in place to do that, and we’ve got an intense amount of management focus on it. And as Christian says, even more so with Rebecca’s expanded responsibilities.
Christian Sewing: Anke, the only point I want to add, James said it all, but potentially a number which helps you is the Q1 loan loss provisions ex these two, in my view, idiosyncratic items in the IPB was actually 21 basis points. And that tells you also something about the robustness and solidity of Deutsche Bank’s credit portfolio. With the statements James just made that also going forward and the behavior of our credit portfolios, we cannot really see a negative development or a negative outlook. Hopefully, this 21 basis points also gives you a little bit of guidance or hopefully, comfort for our overall full year guidance.
Anke Reingen: If I may just come back to the cost path, given some of EUR 2.5 billion is more back-end loaded cost savings. The idea is still to be essentially flat over ’23, ’24, ’25.
James von Moltke: That’s right. And look, one thing and I think it was embedded in your question, I apologize. The restructuring and severance is higher than we would have planned for the year. That is true. In a sense, we’ve had an opportunity arise based on a lower-than-expected single resolution fund assessment. So we think we’ve been given an opportunity even with that investment to manage to the original guidance we gave you this year.
Operator: The next question is from the line of Stuart Graham from Autonomous Research.
Stuart Graham: I had two, please. First is coming back on the LCR. You set the 130% target sometime ago, and I guess, what was a pre-Twitter world. And I think we’ve all been shocked at how quickly nonsticky retail and corporate deposits can move nowadays. So given the power of social media, don’t you think that 130% needs to be higher nowadays? That’s the first question. And then the second question is U.S. commercial real estate office exposure. Thank you for the extra granularity on Slide 38. That’s really been useful. Could I also ask how much of that EUR 4.5 billion book is criticized? And what your loan loss allowances on that book are, please?
James von Moltke: Sure, Stuart. It’s early days with respect to LCR and the items that you mentioned. I mean, yes, we’ve learned a painful lesson about the speed at which information and arguably, in some cases, misinformation travel in a social media world and the relatively frictionless movement of funds that we have. I think the important lesson is confidence in banking institutions is critical. I think that confidence arises from banks getting the basics right. We think we’ve got the basics right at Deutsche Bank. And those are — deposit bases and funding, managing risks carefully, ensuring that you’re really adding value for clients. You have a sustainable business model. And all of these elements, does it affect how you think about LCR?
I think LCR is misunderstood in the sense that it is very conservative. And because the banks have chosen since it was introduced to manage to buffers that there’s room in that ratio. I think it’s important to understand, if a bank hits 100% that — in our case, we have now 43% margin against the 100%. But at 100%, we’re still able to extend a 30-day stress and come outstanding. So it’s a conservatively constructed ratio. You have to remember also that things that flow off the balance sheet affect both the numerator and the depositor — and the denominator. And so you have this dynamic nature of the ratio on the way down. So it’s — there’s a number of interesting features about that tool that would suggest it’s — as it is, it’s a very sort of powerful stability driver in the industry.
That doesn’t mean we won’t examine it. We won’t examine individual risk drivers, but my hope is that a combination of the basics and the tools we have today are — put us in a good place.
Stuart Graham: So — if the Basel committee chose to recalibrate it, you could run with a lower buffer. It wouldn’t have to be 130%. It might be 110% — a more conservatively stated LCR. I know it’s a theoretical discussion, but…
James von Moltke: Theoretically, yes. And we’re mindful, Stuart, that there is a cost to holding these buffers, right? That our shareholders essentially are paying for that buffer. It needs to be there. Let’s be clear. The sustainability of a bank, which is engaged in maturity transformation relies on that buffer being there. But you want to calibrate it to a level that protects safety and soundness in essentially all market conditions, but then isn’t so inefficient that it’s an unreasonable tax on shareholders. So that balance is an interesting one, and I think we need to continue to examine. In general, by the way, banks — we’ve — since the crisis, we have this behavior of preserving buffers. So banks manage now not just with buffers, but with a disincentive to see buffers used.
And so I think that whole edifice, in a sense, can be discussed and examined. But — and I just want to draw a line under it, in a positive way, the stability and the tools and the post-crisis regulation I think, should be understood as a success based on what we’ve learned over the past 8 weeks rather than the opposite. Briefly on commercial real estate, we don’t actually look at it in U.S. terms around criticized necessarily in our IFRS accounting. But what I can tell you is that EUR 1.6 billion, so a little bit more than 1/3 would be in Stages 1 and — sorry, Stages 2 and 3. We think there’s — we’re not saying we’re immune. We think we’re well underwritten. We have a stable portfolio. We think project by project, we’re in good shape given the market environment.
But there, of course, are loans, maybe EUR 600 million of that EUR 1.6 billion that we’re looking at carefully and need to work with the sponsors around extension dates and refinancings to make sure it carries through this market environment without more scratches and bruises.
