Deutsche Bank : Christian Sewing, Chief Executive Officer –Morgan Stanley European Financials Conference Transcript

Deutsche Bank AG

Morgan Stanley European Financials Conference

Tuesday, 12 March 2024

Transcript

Speakers:

Christian Sewing, Chief Executive Officer

Giulia Aurora Miotto, Morgan Stanley

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Giulia Aurora Miotto:	Good morning. Thank you for joining us today for
	the fireside chat with Christian Sewing, CEO of
	Deutsche Bank. Thank you for being with us,
	Christian.
Christian Sewing:	Thank you.
Giulia Aurora Miotto:	I have a few questions to ask you, and then our
	audience as well, I'm sure. But before we do that,
	let me ask the audience a polling question. It's
	always the same question, but with different
	options. So what is the most important thing for
	Deutsche Bank share price performance over the
	next 12 months in your view? First, delivery on the
	cost base; second, additional buybacks ahead of
	consensus, the € 1.1 billion expectation which
	includes the € 675 million already announced; the
	third is revenue momentum, especially in the IB;
	and then the last point is asset quality with no
	major issues in commercial real estate.
	Okay. A mix, but the number three, revenue
	momentum in Investment Bank. We'll touch upon
	that.
	So Christian, let me start with a question on
	strategy. You have successfully completed the
	"Compete to win" in 2022. You have now moved
	on to the "Global Hausbank" strategy. And you are
	really transforming the bank. So can you tell us,
	where are you on the journey and, also, what sort
	of feedback do you get from clients in how you're
	helping them as part of this strategy?
Christian Sewing:	Yes. Thank you, Giulia, and good morning to
	everybody. I'm glad to be back here in London,
	despite the weather, I have to say, when I've
	entered this morning. But it is what it is.
	Look, I'm obviously quite happy with the way we
	have built it up over the last five years. First, it was
	a very structured plan. We knew in 2019 that it's
	kind of a two-phase transformation. The first
	phase was, as you said it, "Compete to win". This
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was all about resetting, focusing the bank, focusing on four running engines: the Asset Management, the Private Bank, taking the Corporate Bank out of the Investment Bank, because for Deutsche Bank, the soul of this bank and the reason why Deutsche Bank exists and started to exist in 1870, is the Corporate Bank. And then a more focused Investment Bank. And at the same time, we knew that we were far too expensive. We had far too high costs, so we took € 3 billion of costs out. And we reduced the balance sheet by quite a lot, a three-digit-billion number in terms of leverage, two-digit-billion number in terms of risk-weighted assets so that we could finance the whole transformation by ourselves. And I would say that this "Compete to win" in the first three or four years was, so actually three years, was decisive to give us then the foundation for that what we announced in early 2022, the "Global Hausbank" strategy, where we said, now we want to sustainably grow. And in this regard, Giulia, I'm happy and I'm encouraged with the progress we have done. And you have seen us at the start of the year where we increased, actually, the growth expectation we have across the bank. We used to have, we announced a 3.5-4.5% revenue increase for the years 2021 to 2025. We upped it now to 5.5-6.5%, and everything what we said six weeks ago holds true. So I see these four engines running well, and in this regard we can confirm our revenue target of € 30 billion for this year and € 32 billion in 2025.

We are doing the progress which we have to do, which was one of your questions on cost cuts. You know that we have the goal of € 2.5 billion, the majority of that until 2025, and we are on a good way. And we are halfway through taking out the € 25-30 billion of risk-weighted assets or having a relief there in order to free up more capital, which is then also used for distribution. So overall, I

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	would say the first part, restructuring the bank,
	focusing of the bank on the strengths, really
	helped us, then, to invest into the business, and
	the growth which we are now seeing and the
	investments which we have done in the various
	businesses is starting to pay off. So I'm happy.
	And then that's the feedback of the clients. And
	whether it's corporate clients, private banking
	clients, institutional clients, they are, actually, in
	my view, quite positive in working with Deutsche
	Bank. And of course, each re-rating we got, also
	from the rating agencies, helped us to again
	onboard or do more business. So overall, I think
	quite a nice story.
Giulia Aurora Miotto:	Thank you. And if I start with Corporate Bank and
	Private Bank, and leave the Investment Bank for
	later. So at the full year results six weeks ago, you
	reported quite an exceptional performance, in
	both Corporate Bank and Private Bank top lines,
	which was driven by strong net interest income.
	So can you talk a little bit more on the outlook for
	these businesses, Corporate Bank and Private
	Bank, in Q1 but also 2024 overall, in particular, for
	the non-interest income revenue side of the
	business? And how do you see interest income
	normalizing instead?
Christian Sewing:	Yeah. Very happy to. So as you were saying, we
	were very pleased with both the results of the
	Corporate Bank and Private Bank on the top line
	in 2023. And you are right, it was also driven by
	net interest income. But I also have to say that,
	actually, there was a lot of talk already since June
	or July, in particular on the corporate side, that we
	will see NII to come down far more strongly than
	we have seen it. And I think we have done a good
	job in investing into the Corporate Bank for the
	last three, four years, actually, to build up other
	businesses than just focusing on NII. That was
	always our strategy, and this starts to pay off. We
	gave you the example in platform business, in the
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card business, in the Miles & More businesses. All these contracts and mandates which we are winning are obviously helping to take a little bit of pressure off, which obviously, we also see and which we also indicated to you when it comes to the NII outlook for 2024 overall, that we are trying to compensate that with other fee business.

Also in the first quarter, I have to say that the NII development is still satisfactory. So I would say that in the first quarter, the Corporate Bank is kind of essentially flat with regard to the fourth quarter of 2023, and that shows, I think, the strength of the bank in having a diversified business mix in the Corporate Bank, not only focusing on NII but now the investments on fee-related business are really coming through.

Let me also say something else, and it may sound odd, but the geopolitical situations which we have around the world is actually a key reason why corporate clients are needing advice in building up a more diversified network, thinking about risk management, too. So what they need is a bank which is global. They would like to have in particular, in corporate banking, an alternative to the US banks. And we have the global network; we have, through the Investment Bank, all the tools on the risk management side so that we can offer something to our clients, in particular in these quite challenging situations which we have around the world, which fits their needs. And therefore, it's another reason that we are doing quite well also in those businesses which are not NII driven.

On the Private Bank side, as you are also saying, a good year 2023. I'm also encouraged, actually, by the start into the year if I think about assets under management going into the right direction. But, of course, as we indicated for the overall group we have a headwind in terms of NII in 2024 of approximately € 500-600 million. And in the

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	Private Bank versus the fourth quarter of 2023,
	again, we are in the first quarter essentially flat,
	potentially slightly down versus the fourth quarter.
	But overall, I would say that also in the Private
	Bank, I can see with everything what we are
	building, very stable revenues in 2024. And then
	don't forget that given our positioning, we actually
	have on the NII side upside in 2025. So that's also
	giving me, for the Private Bank side, a lot of
	comfort.
	Last but not least, we should not forget the big
	transformation of Unity is behind us. A lot of
	focus, managerial focus, even focus of sales
	people, people, who are doing the revenues, were
	done and were focused on the Unity
	transformation, i.e., doing the IT migration from
	Postbank to Deutsche Bank. That's behind us, so I
	actually see a lot of focus now on the client-
	related side.
	So overall, encouraged but obviously we need to
	take into account that what we said, that there is
	some NII headwind in 2024.
Giulia Aurora Miotto:	Excellent. Thank you. And if we move then to the
	Investment Bank, and we start with Fixed Income,
	I think people find it a bit difficult to forecast. 2023
	was very strong at € 8 billion. We have the ratings
	upgrade, which I think helped bringing new
	business in. Potentially or potentially not the Basel
	3 endgame in the US. So how should we think
	about Fixed Income in Q1, but also for 2024?
Christian Sewing:	Well, I'm positive, and I'm again quite happy with
	the start. But most of you know that I'm a risk
	manager by training, and we have today March
	12th, so we have approximately 14 business days
	left. And therefore, I never want to preclude too
	early on a quarter. But as far as I can see it right
	now, in the FIC business, where we actually
	outperformed our peers in 11 out of 14 quarters
	over the last three years, I think we have a chance
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	to be slightly up year over year. Again, subject
	also to that there is not a change over the next
	days, but overall I think Ram Nayak has built
	actually a fantastic FIC business around the world.
	I think we have gained market share in particular
	in Europe, and you just said something very
	important, and that is the rating upgrades. Don't
	underestimate, also, what the last rating upgrade
	of S&P meant to us in December. And it is not the
	fact that this immediately goes into the revenue
	line, but it takes between three to six months in
	order to renegotiate the historic agreements, and
	in order to kind of trade even more or to onboard
	new clients and then start trading.
	So, I think we have a good chance to be even up
	year over year in FIC if we maintain that what I can
	see.
Giulia Aurora Miotto:	Thank you. If I move on to Origination & Advisory,
	two questions. Yes, the short-term, everybody is
	really bulled up about you know, the pipeline
	coming back, and the volumes that seem on fire
	according to the Dealogic, but also more
	strategically, the Numis acquisition. How is that
	going? What is that bringing to Deutsche Bank?
Christian Sewing:	Yes. You have seen us potentially, a little bit
	against the cycle that we invested last year, not
	only Numis, I'm happy to talk about that, but also
	that we actually did selective hiring, so, 50 to 60
	investment bankers around the world, in particular
	to our investment banking coverage, in order to
	strengthen our industry expertise, strengthen our
	seniority coverage around the world, but also go
	into regions where we used to focus on a decade
	or two or three decades ago. I've been with
	Deutsche Bank for 34 years, so I know that we
	were strong in Latin and South America. Then we
	reduced it, and now we are back in particular in
	Mexico and Brazil, and have a team there. And I'm
	excited how they started to run and hit the ball. So
	that's really impressive.
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Now, in the O&A business, as we heard from our colleagues, very strong stuff on the Debt side. Also on the Leverage side. So really good momentum. But I would also say in the more capital-light business, i.e., M&A, not that much ECM, but M&A, we can see a nice buildup of mandates. So, everything what we invested a year ago is now starting off to pay benefits. And therefore, you know, I know again it's early in the year, and therefore I have to say it like that, but for the first six or seven weeks in the year, our market share in the O&A actually increased by 90 basis points.

Now if you just think about what that could mean, in case we are able to run with that increased market share through the year, and this is exactly, by the way, what we were targeting. We were targeting increasing the market share in O&A to 3%. We are now approximately at 2.7-2.8%. So if we think about that there is a fee pool of whatever, € 70 billion or up to € 80 billion this year. One percent market share is a lot of money, and this is exactly what we can see in the first six to eight weeks. And again, it goes back to the point I said before. The corporates around the world want to have and are in need of more strategic advice, also to think about the risks of diversification, than kind of ever before, at least in the last ten years. And for that, they would like to have a European alternative, and that's what we are trying to grab.

So, I'm quite encouraged here with the start, but of course, in particular if ECM and M&A is further driving, then we will even see better numbers.

On Numis, really happy that we have done it. You know, it's not only in addition to our Investment Bank. I'm standing, and I really do believe that Deutsche Bank is the Hausbank for corporate

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	clients, and that means that we are not only doing
	the strategic advice but that we can actually offer
	to these clients also the day-to-day banking. And
	that is the major change, what we have seen over
	the last four or five years, that Deutsche Bank,
	with our existing client base, we have shown them
	that we are in to do everything. Not only the
	strategic advice, but we want to be the provider,
	day-by-day, of those needs which are as
	important, like a strategic advisor, and that is cash
	management. That is trade finance. That is the
	day-to-day guarantee business. I want to make
	sure that every treasurer knows exactly that when
	he or she goes into her office on a Monday
	morning, that salary payments are done; that cash
	management around the world is done; that we
	have the up-to-date systems. That is what
	Deutsche Bank is all about.
	If we are good on that level, and here we are good,
	you have seen the development of the Corporate
	Bank, automatically, you get the trust and the
	belief of the C-suite, and then we are also
	qualifying for strategic business. And therefore,
	Numis is really interesting for us, because
	obviously it gives us the access to 170 corporate
	clients in the UK, and the overlap is quite limited.
	It's actually less than 10 clients in the UK, which
	we had. But we also have now the inroads to also
	offer other services like corporate banking or
	private wealth management.
Giulia Aurora Miotto:	Perfect. Thank you. That was very useful. If I now
	change topic and talk about asset quality, I have
	to ask about asset quality. So, 2023 cost of risk,
	31 basis points, and guidance still for 25 to 30
	basis points. So there doesn't seem to be any
	deterioration. How are you seeing it in your book?
	Is there any area that you're looking at more
	closely, anything that worries you, or still very
	benign?

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Christian Sewing:	Well, no. There is nothing which really worries me,
	because I think we have seen for years and years
	that we haven't done quite a bad job in
	underwriting credits, even through times where
	Deutsche Bank was overall having potentially
	other challenges. On the credit side, we did well
	and we kept this underwriting profile, this
	underwriting discipline. So it's not that I'm
	worried, but I would say that 2024 is a year where
	we are again seeing, for our standards, elevated
	provisions, and that means we are between 25
	and 30 basis points. And I would not be surprised
	if we are at the upper range of these 25 to 30
	basis points for the year. Because there are a lot
	of uncertainties in this world. We have asset
	classes like commercial real estate, which
	obviously face some challenges, and therefore, I'm
	confident that we are within that range, but at the
	higher end of the range. And I would even say
	how the overall loan loss provisions are stacking
	up, that I personally think that we see loan loss
	provisions in Q1 and Q2 which are closer to the
	Q4 loan loss provisions. And then we see some
	relaxation in Q3 and Q4.
	So overall, confirmation of that, what we said, the
	range. But given where the world is, I would say
	it's a little bit more on the high side of the 25 to 30
	basis points.
Giulia Aurora Miotto:	Right. And specifically, so let me follow up there
	on commercial real estate, right, because it got
	some exposure in the US as well, and of course, in
	Germany some more. So what are you seeing
	there? Is the environment deteriorating or how are
	you assessing your portfolio?
Christian Sewing:	No. There is no deterioration. Also, in the quality
	of our book versus that what we had said at year-
	end, really, no deterioration. But it's also not that
	we are now seeing the big rally in that asset class.
	But you know what makes me comfortable with
	that portfolio is that the US real estate portfolio,
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