Operator: The next question came from the line of Jeremy Sigee from BNP Paribas Exane.
Jeremy Sigee: I’ll try to be quick. It’s a couple of follow-ups on capital management. The first is on balance sheet, which often has grown seasonally in Q1. And with full year results, you said that again, you expected it to this year, but it hasn’t. It shrunk slightly in Q1. And I just wondered how much of that was deliberate — sort of deliberately steering the balance sheet smaller in a choppy environment versus kind of lack of opportunity to deploy? So that’s my first question. And then my second question really just on the capital surpluses, uses, et cetera. Is 13% CET1, or 13.2%, is that still the right reference level in a world where the market is nervous, not just the market, but the world more broadly is nervous around banks? And there’s things like Basel IV to be funded, some banks are prefunding that, et cetera. So is 13% still the right reference level to be talking about for capital?
James von Moltke: Yes. Jeremy, look, I’ll go in reverse order. Remember that in our capital plan, we will be building to Basel III final framework and in this plan, because of the model adjustments, higher LED floors and various items, that 13.2% has been getting steadily more conservative in how we’re capitalizing our risks. So we do think it is appropriate to continue to target that level. As you say, there will be a bubble in ’24 that sort of goes away on 1st of January ’25, all things equal that we need to build into our planning. But we feel comfortable with the buffer at 200 basis points above MDA. As I say, it’s getting more conservative steadily. On capital management and the deliberate nature, to be fair, it actually wasn’t deliberate.
Are we looking at risk appetite carefully and extensions of balance sheet in this environment, of course. But actually, the usual seasonality was a little bit less than we might otherwise have expected both on leverage exposure and RWA. And we do think loan growth is probably a little slower in the coming quarters than we might have expected given credit conditions, the possibility of recession, all the features in the environment today.
Operator: Next question is from the line of Piers Brown from HSBC.
Piers Brown: Just a follow-up on funding, if I may. It’s probably actually more a question for the fixed income call, but I’ll ask it anyway. So you’ve given some very good transparency around deposit flows, pre and post the events in March. I wonder if you can just give any comment on what you’re seeing in the wholesale funding markets? I think you were saying around the March events time that you had about 50% of the funding plan for this year done. Most of that was coming into senior nonpreferred and covered bonds. But have you been able to access the markets post those events? And are spreads getting to — back to some sort of acceptable levels? And then if you’ve got any thoughts just on longer-term issues around AT1 and the viability of that market, that would be very helpful as well.
James von Moltke: Yes. Piers, happy to take it. Richard’s with me in the room here, and we look forward to talking with our fixed income investors tomorrow, but nice to have fixed income topics on the equity call. Look, we were — we came into the year, as we mentioned, cautious about the environment. When we saw the market opening in the first few weeks of the year, we decided to move quickly, much quicker than our original funding plan might have suggested. And so we were pleased to have done all that, not just senior nonpreferred, by the way, but we did covered it, and we did a Tier 2 issue before the end of February. And we’ve done an AT1 deal late last year, which might look like expensive capital, but it gave us real comfort traveling into an uncertain ’23 that we were making the right decisions for the bank.
We haven’t really gone to the market since the turbulence started in any meaningful way. I think we may have done a covered bond in the interim. But the reason is not because we don’t have access to it, but we don’t like the price. And prefunding, therefore, was, I think, economically sensible and has actually given us, to the earlier question, from Chris, I think, has given us a slightly better funding profile than for this year and going into ’24 than we might have other expected. Sorry, it was Adam’s question, on the path of net interest income. On AT1, we think the market healed more quickly than we might have expected after that Sunday. Look, the instrument sort of — the instrument had challenges at inception as the market was being created.
And I think it has now established a good convention with good investor understanding of what the various triggers and what have you are in it. And I think it will survive in this for. It’s conceivably will be a little bit more expensive for banks to issue AT1 securities. But — and I think it’s worth a look at that, but our sense is that it will continue to be a viable instrument going forward. For us, again, given we were conservative around our issuance — we don’t have a call date until 2025. And as I say, we’re in a good place on our funding plan for this year. So we feel, overall, very constructive about where we see. As we stand, our hope and expectation is spreads will narrow again in the coming months.
Operator: The next question is from the line of Jon Peace from Credit Suisse.
Karl Peace: Just in the interest of time, maybe Christian, I could ask you a high-level question. What would be your view of how regulators respond to the liquidity concerns of March? And would you see a risk of higher for longer deposit guarantee fund contributions?
Christian Sewing: Look, always hard to mention and think about what the potential reaction could be. But I think, first of all, in particular, the European regulators should also think back and look back at the March events and came that a lot of things they have done, we have done, have been right because the European banking system showed stability, resilience and I think credit to the regulators for that, what they have done. And if I think this is, for me, the #1 lesson learned. And if you start from that, I think there is no reason to kind of now come up with whatever it’s called, you call it, knee-jerk reaction to think about further rules. And to be very honest, I think the discussions we have also after these events are done in a very constructive way that everybody looks at potential loopholes still or weaknesses that is clear, and I think this should be done like we do it if there — if something is happening on our side.
But I can tell you that these discussions are really constructive, and I think the regulators, in particular, in Europe, should look back and saying, very stable system. In this regard, I also do hope that from an SRF point of view, from a deposit scheme and from the single resolution fund that we don’t see a different direction. And to be honest, I’m not hearing this. And again, one should also not only think about the single resolution fund, but also that we have national schemes, which worked in the past. And hence, I think, again, I see regulators, politicians being actually very calm, being very constructive. And I hope that is the case going forward. And hence, I’m calm on this.
Operator: The next question is from the line of Andrew Coombs from Citi.
Andrew Coombs: One, if I could just come back to the LCR, but just very simple numbered questions. Related to TLTRO, you’ve obviously prepaid down. Can you tell us how much you’ve paid back? What are your outstanding balance is? And what the LCR would be on a pro forma basis ex the TLTRO? That’s the first question. Second question is on strength in the Corporate Ban. In particular, when you look at the strength of CTS and ICS, if you could break down how much of that is purely driven by rates versus how much is momentum on volumes and other initiatives that you’re taking? I would love your thoughts there given the strength in that division this quarter.
James von Moltke: Andrew, on the LCR, I think maybe we’ll come back tomorrow in the fixed income call. I think by memory, we paid down seven of the TLTRO. And that — and what happens is TLTRO rolls into the LCR window over time. So it is still there. There’s a nuance in it, which has to do with what collateral is posted in the TLTRO program versus unencumbered. So it is a support to the ratio. But one that we’re — we have a funding plan to wean ourselves off of over time. And it actually does give us some flexibility in how we manage collateral across the bank. . In CB, in round numbers, we were sort of flattish on fees and commission, a little bit up. Volumes were — depending on whether you’re looking year-on-year or quarter-on-quarter, flat to up slightly.
So what you get is right now a significant impact of rates and within rates, the lag. Obviously, what we’d like to see is growth in both volumes and transactions, if you like, fee and commission, increasing as the lag effect begins to sort of run off.
Andrew Coombs: And presumably, the guidance you gave in Q4 for the group where you talked about more significant deposit migration flowing through in 2024 versus 2023 would be very much the same for the Corporate Bank. So to some extent, you’re expecting revenues to peak out this year and then stabilize.
James von Moltke: Yes. Although that’s — I think that’s fair. The — again, what we’ll — what remains to be seen is how the fee commission volume effect sort of offsets the runoff of the lag benefit and over what period of time. As I think we talked about in February, there’s also a hedging benefit in time as certain hedges roll off, there is a step-up later in ’24 from particularly dollar hedges rolling off. So there’s still some sort of juice in the rate environment for CB as well. .
Operator: The next question is from the line of Vishal Shah from Morgan Stanley.
Vishal Shah: I just have a few quick questions. One, can I go back to the CRE exposures. In your previous presentations, I also noted you have this additional EUR 15 billion in real estate exposure, which is recourse lending. Could you provide some clarity on the nature of that remaining portfolio. Secondly, on the LTVs. Could you clarify these LTVs that you provided in the presentation are as of origination? Or are they your assumptions in terms of what they should look like now? And then lastly on the deposits. Could you talk a bit about how the beta has been evolving between retail and corporates, a bit of color on the mix shift and also how is Deutsche Bank reacting to competition in terms of repricing?
James von Moltke: Sure. Happy to Vishal to answer the questions. So there’s a lot in that sort of recourse lending portfolio. So there can be, for example, senior revolvers to real estate investment trusts. There can be sort of working capital. Sometimes construction lending to corporates that are recourse in nature, but where you have lean on property. There’s a bunch of things there that — also, by the way, wealth management, where you’d be lending to wealthy individuals who are investing in either their own businesses or in commercial real estate investments on their part. So it’s — as a — in terms of the nature or the riskiness if you like, and the underlying exposure, it is very different to the nonrecourse portfolio.
And hence, our own sort of focus versus the rest portfolio distinction. And the losses in that — in those portfolios have been negligible historically, just negligible. On the LTVs, what we provide is the most recent. So our practice is to have external valuations no less frequently than once a year. Our internal views are updated no less frequently than every 6 months. So you do get, if not a real time. There is, of course, a little bit of a lag in that, but you get relatively speaking LTVs that adjust over time. Your beta development question is an interesting one. We look at it both by currency and by portfolio. As you’d expect, the dollar has moved more quickly and I think is catching up with the models more quickly, getting, I would argue, close on the retail side to what we might have expected and closer on corporate.
The euro is lagging that in both cases considerably based both on the recency of the rate increases. And I think just the nature and structure of the European deposit funding market. So the euro continues to outperform, again, across both portfolios. And while that beta also has a little bit of a lag in it, looking at March right now, the turbulence the industry went through, I think it had an impact. But I wouldn’t say it was a dramatic impact, at least in our estimation on that beta trajectory.
Operator: Our last question is from the line of Andrew Lim from Societe Generale.
