Christian Sewing: We just had one point, Anke, to your first question, and James is absolutely right that there we don’t expect an impact on our revenues just to support that in Q3 ’23 versus the previous year Q3. We increased in particular the German private banking business by 16%. And I think this is another evidence actually that from a revenue point of view, it is so far not affecting us and I also don’t expect that. And I have to say what the people in the private bank are doing in Germany is a fantastic job. Actually, A, to make sure that we reduce the backlog and we are doing really good progress, and secondly, actually take care of our clients. So really good job done and I think it’s evident in this third quarter.
Operator: The next question comes from Mate Nemes from UBS. Please go ahead.
Mate Nemes: Good morning and thank you for your presentation. I have two questions please. The first one, I want to go back to the 3 billion potential additional capital freed up in the next two years as a result of Basel IV and an RWA reduction. I was just wondering if you could give us a sense to what extent do you expect actually to deploy some of that additional capital into the business organically or perhaps inorganically? And if so, what are the areas where you see perhaps and clear opportunities for that redeployment, and mindful that you mentioned that significant proportion is obviously for distribution? So that’s the first question. And the second question is on the Corporate Bank. And I just wanted to pick up on the comment from you James on so far you haven’t put those additional deposits into work.
Yet we’re seeing a very small uptick in loans in the corporate bank. So, the combination of the two suggests perhaps you have somewhat of a better outlook in terms of deployment and new lending, if you could just share your thoughts on that? Thank you.
James von Moltke: Yes, Mate, thank you very much for the question, and it’s a great question. We’ve spent some time looking at this actually, and I want to give you a little bit of sort of color looking at the last seven quarters of where the capital has gone. So on average, we’ve generated about 27 basis points of capital, each quarter over the last year and change, and this is what’s interesting. About a third of that has gone to support the distributions that we’ve been making so far, the 1.75 billion. About a third has gone into the regulatory changes, and about a third has gone into the ratio improvement up to now close to 14%. Almost none has gone into the business so far, and one of the reasons we think this sort of inflection point is so important is, first of all, we think we can step up the profitability, so the 27 basis points doesn’t, by any means, have to be the cap in terms of what we can generate.
But I think there is scope to increase the business deployment beyond, where what we’ve been doing the past couple of years especially as that reg build falls away, and we’re at a ratio level now that is entirely comfortable for us in terms of buffers. So, there is capacity both for business deployment and for significant, distribution increases. Now to your point about Corporate Bank, yes, revenue loan growth in the past year and change has been quite slow across both businesses. And we’d like to think that there’s, again, some signs of life. You mentioned a small increase, about 1 billion in the quarter in loans in the Corporate Bank. We’ve been waiting for that to come. We’d like to see it, and we think we may see it already in the fourth quarter, but then extending into 2024.
And with our loan to deposit ratio now again below 80%, we have the capacity to support loan growth both from a capital and from a funding perspective. So we do think, we’re turning the corner in terms of the ability to redeploy in both of those senses. In private bank, perhaps a little bit more sluggish. As you know, we’ve made a decision, not to kind of, emphasize mortgage lending, in Germany both given the market environment and given capital requirements, but we think we have capacity to grow margin lending in wealth management as that comes back to grow unsecured consumer lending. So that may take a little bit longer to come back, but also in that business, there’s potential to grow loans to redeploy capital. Lastly, and this came up in a recent conference, we are careful in how we manage the capital that’s committed to the investment bank, so those are portfolios that while there is opportunity to grow within our risk appetite.
We are careful to manage the capital to that business, devoted to that business within constraints that we set. And so while we think there are attractive lending, opportunities there, we’re going to be cautious about growing especially in an environment where there is still some uncertainty in the in credit environment. So look, short version is real capacity now for deployment in the businesses while we’re in a very different, environment in terms of distribution potential.
Operator: The next question comes from Stuart Graham from Autonomous Research. Please go ahead.
Stuart Graham: I had two, please, both on capital. First, can I just press a little bit more on the RWA optimization measures, please? I hear what you say on the I guess, the support factors that you’ve been optimizing for a long time, and I guess I was surprised to find out that it’s now in this one call? [Technical Difficulty] How do you think about the opportunities to invest that 3 billion of extra capital in growing the IB? On the one hand [Technical Difficulty] ex capital off your consensus 25 leverage ratio, I guess, just 4.6% suggest you have a lot of scope if you will [Technical Difficulty] that traffic. Please?
James von Moltke: So, Stuart, it’s James. You were cutting in and out a little bit, but I’ll go with what I believe the questions were and you may need to follow-up. On RWA optimization, to be honest, so are we surprised, we’ve been, I’d like to think at the more sophisticated end of this type of balance sheet management over the years and to find more opportunity, is on the one hand encouraging, on the other hand you know suggest that there was something left on the table in the past. Now the securitization piece is a step change and what we’re looking at and willing to do. But we’ve, as we’ve talked about before, we still like the economics of securitization. So we would estimate for example that the revenue to RWA relationship of the securitization we did this quarter was about 1.5% maybe 1.6% and so we can redeploy that capital at better, sort of equity margins call it than that.
So there is still more to do. And as I mentioned earlier, you know, as the data environment improves more and more, we see scope to continue optimization. Of course, Basel III is entirely new, so the work on the models there, the visibility into the impact of hedging strategies that’s also new. So it’s a bit of an ongoing story. The redeployment I talked about a moment ago really to Mate’s question. Again, there is scope to support growth in the businesses, but frankly the extra capital that we now have doesn’t really change the growth potential of the businesses, and won’t change our risk appetite. As you know, we’ve been disciplined about risk appetite. And we also intend to be different disciplined around capital allocation as I mentioned earlier, especially recognizing that that’s a focus of attention around the investment bank.
And finally, on the leverage balance sheet, we see them as sort of moving a little bit in tandem. So as our CET1 ratio goes up, so too is the leverage ratio. And while there’s a bit more flexibility in managing the leverage balance sheet, we think we can very comfortably remain in the mid to high 4s, over time and if you like optimize the revenue footprint of that leverage balance sheet. So, hopefully, those answered your questions even though there was a little bit of signal challenge.
Stuart Graham: Apologies for that. So you do see, to the extent the U.S. Banks are pulling back because of Basel IV, you do see an opportunity in investment bank or you don’t?
James von Moltke: Well, what I’d say is the high — put it this way, the higher CET1 capital base or total capital base supports a leverage balance sheet that’s a little bit larger than it has been historically. But I do not see us changing dramatically our strategies put it that way, in terms of leverage deployment. I would think that on a comparative basis, we’ve been on the more conservative end in terms of the deployment of our leveraged balance sheet. And I don’t see that changing dramatically, Stuart, even in light of some of the changes that you’re seeing in the U.S.
Christian Sewing: And Stuart, to James’ point with no dramatic changes, I think if you talk to Ram Nayak, he has the clear strategy where he wants to be in Europe but also in the U.S. And that — where he wants to be in the U.S. was already for him in the plan before the potential changes to the Basel requirements for the U.S. banks. So I agree with James. I think for us, it is good, on the one hand, that there is more capacity, but the strict adherence to risk return and to our capital allocation in this regard will not change. We want to grow our profitability. Now we have a bit more capacity to do this and we will do this, but we will not leave our risk appetite nor our clear reward expectations we have from the businesses.
