Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Deutsche Bank AG (DB, Financial) reported strong revenue growth, achieving EUR15.4 billion in the first half of 2024, on track to meet the EUR30 billion target for the year.
- The bank's capital-light businesses, such as Corporate Bank and Origination & Advisory, are gaining market share, contributing to revenue growth.
- The cost-to-income ratio improved from 73% to 69% year on year, indicating better operational efficiency.
- The CET1 ratio remains solid at 13.5%, demonstrating capital strength despite absorbing significant litigation provisions.
- Deutsche Bank AG (DB) achieved a 17% year-on-year increase in pre-provision profit, reflecting positive operating leverage and strategic execution.
Negative Points
- The bank faced a significant litigation provision of EUR1.3 billion related to the acquisition of Postbank, impacting quarterly results.
- Non-interest expenses increased by 20% year on year, driven by higher litigation charges.
- Provision for credit losses was elevated at EUR476 million, with concerns about commercial real estate exposures.
- The bank's tax rate was impacted by largely non-deductible litigation charges, resulting in a high effective tax rate of 87% for the quarter.
- The Private Bank's profitability remains a challenge, with ongoing efforts needed to improve returns, particularly in the German personal banking segment.
Q & A Highlights
Q: Can you provide confidence on achieving the revenue targets of EUR30 billion for 2024 and EUR32 billion for 2025, particularly regarding fee progression inside and outside the Investment Bank?
A: Christian Sewing, CEO, expressed confidence in achieving both targets. He highlighted strong performance across all divisions, with the Corporate Bank, Private Bank, and Asset Management showing good momentum. The Investment Bank is expected to maintain its trajectory with market share gains and stable revenues. The CEO emphasized that both net interest income (NII) and fee income are expected to grow in 2025, unlike previous years where one was decreasing.
Q: What is the update on discussions with the ECB regarding additional capital requirements for your leveraged finance business?
A: Christian Sewing, CEO, stated that Deutsche Bank has been in discussions with the ECB for two years, resulting in a capital add-on that was reduced last year. He expressed confidence in the bank's risk management and provisioning for the leveraged lending portfolio, noting that the ECB is reviewing industry arguments positively.
Q: Could you provide an update on your distribution targets, particularly regarding share buybacks and dividends?
A: Christian Sewing, CEO, reiterated the commitment to distribute more than EUR8 billion from 2021 to 2025. He mentioned that the bank is focused on demonstrating operating strength and restoring capital after the Postbank provision. James von Moltke, CFO, added that the baseline expectation for buybacks is a 50% increase per year, with potential top-ups depending on excess capital.
Q: What are the expectations for litigation provisions in the second half of the year, and should we expect a lower litigation cost run rate in the future?
A: James von Moltke, CFO, indicated that the profile of litigation risks has changed significantly, and the bank is working to position itself for dramatically lower litigation provisions going forward. The aim is to have a clean slate entering 2025, with reduced regulatory enforcement actions.
Q: Can you elaborate on the loan loss guidance for 2024 and the assumptions for commercial real estate (CRE) provisions?
A: James von Moltke, CFO, explained that the guidance change is more related to events in the first half of the year, including corporate defaults and overlays. He noted stabilization in the broader US CRE sector, with expectations for lower provisions in the second half. The full-year guidance for provisions is slightly above 30 basis points of average loans.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
