Deutsche Bank Aktiengesellschaft (DBK) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Haley, your Chorus Call operator. Welcome, and thanks for joining the Deutsche Bank Risk Deep Dive. [Operator Instructions] I would now like to turn the conference over to James Rivett, Head of Investor Relations. Please go ahead.

Thank you, Haley, and welcome from me. Stuart Lewis, our Chief Risk Officer, is going to speak first. He will discuss our approach to risk management here at Deutsche Bank. Following Stuart, James von Moltke, our CFO, will discuss the capital outlook. Following the prepared remarks, as Haley said, we'll be happy to take your questions. The slides should be visible on the screen as part of the webcast. And are available for download in the Investor Relations section of our website, db.com. Before we get started, let me just remind you that the presentation does contain forward-looking statements, which may not develop as we currently expect. We, therefore, ask you to take notice of the precautionary warning at the end of our materials. With that, let me hand over to Stuart.

Thank you, James, and welcome from me. Before we go into the presentation, a few brief comments on my background. I joined Deutsche Bank in 1996 and have been primarily involved in risk management roles. I've been the bank's Chief Risk Officer since 2012. And during the financial crisis, I was Head of Credit Risk Management and Deputy CRO. During my time at the bank, I have managed through the burst of the tech bubble, 9/11, the failure of Lehman, the financial crisis and the Eurozone debt crisis. But the past few months have been unlike anything any of us has seen in our professional career. What we witnessed in financial markets, in the economy, in society and in our own daily lives is truly extraordinary. It is times like these we think it's important to provide you with a comprehensive picture of Deutsche Bank's risk profile. We believe that in the past few months, Deutsche Bank has shown its true strength. We have continued to perform well in difficult circumstances, and we're well positioned to emerge stronger in the post-crisis recovery period. Specifically, we believe, having Germany as our home market and being market leader in Germany, is a key advantage. Our conservative balance sheet management, one of the core pillars of our transformation, has enabled us to manage the challenges we face. The investments we have made in risk management and supporting technologies in recent years are paying off, enabling us to manage our risks in a more timely and proactive manner through this period. Additionally, our deep understanding of our well-diversified and relatively low-risk loan book gives us confidence in the guidance for loan loss provisions we published, which we publicly reaffirmed last week. We will talk about each of these topics, starting first with our position in Germany on Slide 2. We made clear, when we launched our strategic transformation last summer, that our leadership position in our home market was a core pillar of our agenda. Germany accounts for 43% of revenues and 47% of our loan book. We're the clear leader across all 4 core businesses with a Hausbank to around 900,000 corporate and commercial clients, including Mittelstand companies. The relationships we have and the position we occupy has allowed us to play a key role in transmitting the German government's programs, especially the KfW schemes into the real economy. In the first quarter, we reclaimed the #1 position in German Corporate Finance, with our best market share since 2017, in particular, by helping clients raise debt financing. Across the Deutsche Bank and Postbank franchises, we serve 19 million retail clients, of which 11 million are online banking customers. DWS is the market leader in mutual funds in Germany with around 1/4 of the market. Simply put, we're happy to have a strong leadership position in Europe's strongest economy, which is proving its resilience in this crisis, as you can see on Slide 3. Germany is a tough banking market, but in times like these, we benefit from its conservative characteristics. It may be relatively low return, but it's also low-risk and that's going to be key in the near and medium term. Germany came into the crisis in a relatively strong position with low levels of government, household and corporate debt as well as good levels of corporate liquidity. Thanks to decisive action and a world-class health care system, COVID-19 infection and mortality rates have been less than 1/4 of other major Western European nations. Fiscal conservatism has allowed the German government to take aggressive and decisive action. The programs of financial support, both in emergency liquidity and financial stimulus, amount to around 50% of GDP, larger than other major European nations or the U.S. These factors have left Germany well positioned to relax lockdown measures and recover earlier and faster than its neighbors, and that's an advantage for us. Slide 4 gives you some background to what we mean by conservative balance sheet management. We have transformed the bank's balance sheet since the financial crisis. Liquidity reserves are almost 2.5x larger. We will talk about those in a moment. Trading and related assets have declined by 40%. Within these derivative trading assets, after taking account of netting and collateral, are now around EUR 30 billion or 3% of the net balance sheet. And the vast majority of our trading assets today are government bonds and other highly liquid securities. Our loan book now accounts for around half our funded balance sheet, has more than doubled since the financial crisis to EUR 459 billion. The growth has primarily come through the acquisition of Postbank. Today, nearly half the book is in Germany with the majority low-risk retail mortgages. In a moment, we'll go through why the loan book, despite being larger, is considered safer than in the last crisis. Slide 5 gives you a summary of the key balance sheet and risk metrics in the same time period. Our common equity Tier 1 capital ratio has risen from 8.7% under Basel II to 12.8% in the first quarter of this year. This is at the high end of our peer group and with a comfortable buffer above our regulatory requirements. Reflecting the simplification of our loan book, provisions for credit losses have come down from 100 basis points of loans in 2009 to 44 basis points in the first quarter annualized this year. Our provisioning levels have been historically lower than peers. Average VAR has come down by around 80% and actually touched a historic low in February of this year. Our funding position is very strong. More than 80% of our funding comes from the most stable sources, the majority customer deposits. Liquidity reserves are EUR 205 billion to date, and we operate with a EUR 43 billion surplus of our requirement to maintain a liquidity coverage ratio of 100%. Finally, Level 3 assets, which were EUR 88 billion in 2008 and EUR 58 billion in 2009 are now less than half of that at EUR 28 billion. We'll talk about each of these in more detail, but before we do that, a few words on the way we've developed our risk management capability. On Slide 6, you can see how we've invested to strengthen our control environment in the last few years. In total, we invested around EUR 900 million on a cash basis between 2017 and 2019. We have significantly boosted our capabilities in antifinancial crime compliance. In screen for sanctioned entities and politically exposed persons, we've gone from screening 700,000 names per week to 28 million names per day. We can now monitor more than 1 million voice and written communications per day in 12 languages. In liquidity risk, we've comprehensively enhanced our internal stress testing methodologies and refined our funds transfer pricing model. These enhanced tools are improving our resource allocation decisions. We have also set up T+1 reporting on liquidity risk and our liquidity coverage ratio. These capabilities are rapidly developing into leading practices and have provided us with confidence as we manage through the recent stress period. In credit risk management, we have recently launched a new system, which covers ratings, workflow and portfolio management. Across the process from routine assessment to transaction approval, information is timelier and we can slice it more finely by legal entity, branch and asset class. That gives us better integrated workflow and contributes to better and quicker decisions. Finally, in market risk, we have launched historic simulation, or His Sim risk modeling and portfolio analytics, and that gives us better, more accurate and more granular data. We are currently able to execute around 15 billion trade revaluations per day. This is an important step in our FRTB preparation, aligning even more closely the relevant capital calculations to our end of day pricing models. One of the key considerations as a risk manager is managing concentration risk. Slide 7 gives you an overview of how we manage concentration risk across all counterparties. We do this along a number of different dimensions. We apply industry risk thresholds across 27 corporate and institutional portfolios. We set country risk thresholds for all emerging market nations and some developed markets depending on rating. We assign specific risk limits and dedicated strategies for specialized risk buckets in commercial real estate, leveraged debt capital markets and underwriting. We also operate hedging strategies to manage the concentration risk of single name exposures. Our emerging market exposures are also supported by other mitigants, including export credit agency cover and private risk insurance. Finally, around particular events, we conduct ad hoc stress tests and thematic reviews and may reduce the risk at these [ are ] characteristics of our exposures that are outside our risk tolerance. Recent examples, away from COVID, have included stress testing our portfolios in Hong Kong and our exposure to oil, including certain oil-sensitive countries, given the movements in commodity prices. On Slide 8, we look at how these measures impact our Pillar 3 disclosures. Loan exposure at default under Pillar 3 was EUR 495 billion at the end of the first quarter. Pillar 3 disclosures include some framework differences compared to our IFRS 9 loan book of EUR 459 billion. In particular, the inclusion of undrawn commitments after applying credit conversion factors. A significant proportion of exposure at default is covered by collateral, guarantees, hedges and other structural risk mitigants, which act to reduce loss-given default. Adjusting for the loss-given default, the exposure is approximately 70% lower at EUR 160 billion. In addition, we have other mitigants, including export credit agency contracts and private risk insurance as well as purchased CDS protection. The ECA contracts and the PRI act as additional protection and help to lower our probable default assumptions. Let's now turn to Slide 9, where you will see how mitigation is applied across our portfolio. Slide 9 shows our exposure at defaults split by internal rating before and after mitigation measures. As you would expect, we deploy mitigants more actively in the lower-rated parts of the portfolio. In B and below, around 70% of the gross exposure is covered by risk mitigation, including asset collateral and hedges, but also structural risk mitigation, for example, in LDCM. This results in an adjusted exposure in the below B category of EUR 24 billion. We additionally also hedge some of our larger exposures to investment-grade counterparties to manage concentration risk. Although the probability of default of these exposures is low, these higher exposures are hedged to limit our risk of losses driven by a potential jump to default. Regulatory expected loss across the nondefaulted loan portfolio is around EUR 1.3 billion compared to EUR 1.3 billion of allowances that we currently have in place. Given our forecast build for allowances in the remainder of the year, we feel adequately provisioned against potential losses. In summary, we feel very comfortable both with the quality of our loan exposure and the mitigants that we have in place. We fully recognize that this analysis is on a modeled basis, and that begs the question how actual performance stacks up against models. We believe our actual performance over the past 6 years supports our view that our models are robust, as shown on Slide 10. This slide looks at the provisions for credit losses we have built compared to the actual charge-offs we have taken over the past 6 years. We see a number of points. First, the ratio of gross charge-offs to provisions has never gone above 100%. In other words, we have never been under provisioned in this period. We hit close to 100%, for example, in 2016, that partly reflects IAS 39 reclassified assets within the NCOU. Second, it's a consistent range. Charge-offs have been between 77% and 98% of provisions over this period. Third, we are not grossly overprovisioned. In fact, we have a historic track record in accuracy. These factors give us confidence that our provisioning is appropriately conservative and consistent. Now let's look at the loan book by business under IFRS accounting on Slide 11. Around half the loan book is in the private bank, including Postbank. 60% of this or around 30% of our total loan book is low-risk German retail mortgages, with loan-to-value ratios of around 70%. Only 5% of our book is unsecured consumer finance, significantly lower than for some international peers, notably U.S. banks with large credit card portfolios. 10% is in wealth management, principally secured lending with high collateral values to wealthy individuals and families or family offices typically with personal guarantees. The Corporate Bank accounts for 28% of our loan book, predominantly trade finance and commercial lending, for example, to German medium-sized corporates. The Investment Bank accounts for 18% of the loan book across leveraged debt capital markets and our EUR 72 billion global credit trading portfolio, which we detail on Slide 12. We believe that our portfolio is very conservatively managed. First, the book is predominantly shorter duration, around 40% has a tenor of less than 2 years and 84% is under 5 years. Second, quality is high. Around half of this book is investment grade, with only 6% rated CCC+ or below. Third, the portfolio is very well diversified. The average size of exposure is around EUR 40 million, while the top 10 names account for only 11% of the loan book. Over 40% is in what we describe as asset-backed securities and securitizations. Here, we provide senior financing credit facilities to top-tier sponsors and/or experienced originators in well-understood asset classes. Given our senior position, these securities have an average rating of between A and BBB+ with multiple times loss coverage and strong financial covenants. Our ABS portfolio have been very resilient with average loss rates of just 1 basis point in the last 5 years. Around 2/3 of the book is in North America and the bulk of the remainder in Europe. The ABS portfolio today is different than it was in the run-up to the financial crisis. We no longer act as a principal sourcing loan -- sorry, we no longer act as a principal source in loan [ pills ], and therefore, no longer participate in the equity or other more junior tranches. The other portfolios of around EUR 19 billion, are well diversified across a number of sectors, including infrastructure and energy, transport and project finance. We have been especially focused on our EUR 3.6 billion aviation portfolio given the challenges facing that industry. We recently updated our asset valuations to reflect the current market pricing and are comfortable that the expected losses should be modest. And we also reviewed our EUR 1 billion shipping portfolio and feel comfortable here, too, with the revised valuations. Commercial real estate accounts for around 1/3 of our global credit trading portfolio, which we will detail on Slide 13. In aggregate, across the Investment Bank and Corporate Bank, our commercial real estate portfolio, is around EUR 33 billion or 7% of our total loan book. Our assets are usually senior in the structure as first-lien creditors, well protected by high-quality collateral with an average loan-to-value around 60%. The portfolio is well diversified. Average exposure size is less than EUR 60 million. We are also well diversified geographically with around 2/3 in the U.S., 1/4 in Europe, with the balance in Asia, although with limited exposure in Hong Kong. Our assets are focused on top-tier most liquid gateway cities, including New York, Los Angeles and San Francisco. We are also well diversified by property type, with around 30% in office space, 20% in residential housing and around 25% predominantly in mixed-use and industrial. Only 1/4 of our exposure is to harder hit areas, such as hotels and retail, with limited exposure to new construction risk. The EUR 2 billion retail portfolio is predominantly U.S.-based with a concentration in New York. We have been very cautious on retail malls, focusing on exposure on prominent locations with strong anchor tenants. In hotels, our EUR 5 billion book is predominantly in higher quality assets. Our exposure to higher-risk hotels and retail is mitigated by low loan to values of between 50% to 60%. And finally, our tenants are also of high quality. To date, we have approved 75 loan modifications with the sponsor typically contributing additional equity. Let's now turn to another area we closely monitor, our leveraged debt capital markets portfolio on Slide 14. Our total LDCM portfolio is EUR 11 billion, a little over 2% of our total loan book. The majority, just under EUR 9 billion, consists of cash flow lending, mainly revolving credit facilities. This is well diversified with the top 10 names accounting for only around 15% of the portfolio. Almost all exposures are senior secured first-lien facilities. This book is also well diversified by industry, with a very low exposure to shale gas producers. Exposure to the most COVID-sensitive industries, such as real estate, gaming, lodging and leisure, business services, automotive and transportation is about 20% of this portfolio and well diversified with an average exposure size of EUR 23 million. The balance of our LDCM exposure, around EUR 2 billion, is asset-based lending, which is exclusively U.S.-based and the loss history is negligible. Before we leave the Investment Bank and turn to our consumer loan book, a few words on our underwriting exposures on Slide 15. Underwriting exposures, which are not part of loan book as commitments but are recorded at fair value, were around EUR 19 billion at the end of the first quarter. This exposure is very different from in the financial crisis. In particular, we have put systematic measures in place to reduce concentration risk. The largest component, EUR 8.4 billion, is corporate investment-grade, which consists mainly of bridge facilities, for bond issuances by our core clients. These markets have remained active and open over the past few months. Another EUR 4 billion is in leveraged debt capital markets. As I mentioned earlier, we have completely transformed our approach to LDCM since the financial crisis. Not only is our total pipeline commitment substantially lower than prefinancial crisis, but our average commitment size is also materially lower. Today, our underwriting portfolio is well diversified with an average commitment size of around EUR 250 million. Post the financial crisis, we have established protocols to automatically hedge pipeline market risk. This approach meant we saw very manageable net mark-to-market losses during the first quarter. We have derisked the remaining pipeline by 15% since the end of Q1, and we expect the vast majority of the pipeline to be derisked prior to the summer as markets have reopened. Exposures to the most COVID-impacted areas, which account for around 20% of the LDCM pipeline, should be derisked over the third and fourth quarters. In some of these areas, while we may sell below par, this is typically covered by the flex built into the transactions and fees that we receive. Of the rest, under EUR 3 billion is in commercial real estate, which is split roughly 50-50 between CMBS and whole loans. Here, we are also protected by first-lien collateral and loan-to-value ratios of 63% on average. In summary, our pipeline risk in this crisis is very different from what it was going into the financial crisis in 2008. We managed underwriting volumes to much tighter levels and further mitigate through single-name risk concentration limits, an extensive pipeline hedging protocol. Now let's turn to the consumer finance portfolio in the Private Bank on slide 16. Our consumer finance portfolio is EUR 24 billion. At 5% of loans, we have one of the lowest proportions among major international banks, and we will discuss in a moment how this exposure influences provisioning in this environment. Also, in contrast to our American peers, our consumer finance portfolio is predominantly current account credits linked to income as well as installment loans. Credit cards account for only around 5% of the consumer finance portfolio, in other words, around 1/4 of 1% of our total loan book. Of the total consumer finance portfolio, 65% is in Germany, where delinquency rates are low at around 50 basis points of loans, 90 days plus past due. Again, reflecting the strength of the German consumer, and the strength of the government programs put in place, we have seen limited changes in recent payment patterns. The remaining 30% is in the Private Bank international, predominantly Italy and Spain. Our Italian business is concentrated in the north of the country. This is the most prosperous part in terms of per capita wealth, one of the most prosperous parts of Europe. It was, however, also the first region of Italy to be impacted by the virus and lockdown measures. Reflecting the quality of our borrowers and strong underwriting standards, delinquency rates in our Italian consumer finance business are amongst the lowest in the industry at around 150 basis points. Stage 3 coverage of our total consumer finance portfolio is good at around 60% of Stage 3 exposures, reflecting strong recovery rates. In Germany and Italy, our existing client relationships are supported by legislative moratoria. Since February, we have seen approximately 113,000 requests for payment moratoria, of which 90% is approved. Although we continue to have a good risk return relationship on our existing portfolio, we have taken several actions in response to the crisis, including more stringent client selection and setting tighter lending criteria for new business. In summary, we believe that our loan books are high quality, well diversified and resilient, with limited exposure to the most COVID-impacted sectors. This is a key reason while we remain confident in the outlook for provision for credit losses, which we will now discuss starting on Slide 17. Despite the growth in our loan book, our provisions have been on a relatively steady downward trend since 2013, as you can see on the left-hand chart. This has, in part, been driven by derisking of the former noncore operations unit, which we closed at the end of 2016, having reduced RWA by EUR 120 billion. In the Core Bank, we have also completed the targeted derisking of certain portfolios, most notably in shipping and in U.S. oil and gas. On the right-hand side, you can see that as a proportion of loan book, provisions for credit losses has been consistently lower than peer average. For 2020, first quarter provisions were 44 basis points of loans on an annualized basis or just over EUR 500 million, with the increase principally driven by changes in macroeconomic assumptions. Provisions are expected to be around EUR 800 million in the second quarter, driven to a significant degree by higher Stage 3 provisions. We then expect provisions to be lower in the second half of the year. To put this in context, we expect to see economies, notably Germany, benefit from the phased relaxation of lockdown measures with government stimulus measures gaining traction in the real economy. As a result, we reaffirm our guidance of provisions for credit losses of between 35 and 45 basis points for the full year. Some of you have asked how to compare the results of the last EBA stress test in 2018 to our guidance for credit loss provisions in 2020. The short answer is that they are really not comparable for 3 reasons as shown on Slide 18. First, relates to differences in the EBA's macroeconomic scenario and what we see today. The EBA scenario assumed a continuous 3-year downturn. We are currently seeing severe shock followed by a relatively fast recovery. The EBA also made no assumption on government support. As we discussed earlier, the current crisis has seen the greatest level of government measures ever launched. Secondly, on methodology. The ECB imposed overlays in relation to credit losses, equivalent to approximately 20 basis points of loans as part of the stress test. We also imposed constraints in our internal methodology and models, which increased the pace of default migration and assumed losses. Additionally, the EBA stress test takes a static balance sheet approach, which as we've explained today, is very different to the act of hedging and mitigation that we employ to manage our portfolio. The third relates to results. The hypothetical credit losses in the EBA exercise were driven by retail, accounting for 40% of the total. As we have seen, this does not align with the swift and decisive response to the crisis in Germany and low levels of consumer leverage. However, as one important point of alignment, the EBA results demonstrated that Deutsche Bank was well below peers on credit impairment. And as we've discussed, we believe there are sound reasons for that to be maintained going forward. We are also aware of the challenges that you face in your analysis, given the significant differences in provision for credit losses between different banks in the first quarter. There was some discussion as to the reason for the very different levels of provisioning amongst leading European and U.S. banks. Slide 19 shows a very strong correlation between the proportion of unsecured consumer finance in the loan books of leading banks and provisions for credit losses as a proportion of loan loss allowances. For some of our peers, consumer finance accounts for between 15% and 25% of their loan books. For U.S. banks, the largest exposures are typically in credit cards where stressed loss rates can reach 10% of loans. However, even versus other European banks, our exposure to consumer finance is low. As we already observed, Germany went into the crisis with household debt levels amongst the lowest of any Western economy. This macro backdrop, combined with our conservative lending standards, plays to our advantage. There has been a lot of discussion and speculation about the reason for the differences in credit costs among leading banks in the first quarter. And we believe that unsecured consumer finance, at a time of rapidly rising unemployment, is a key differentiator. With that, let's turn to the IFRS 9 accounting framework on Slide 20. IFRS 9 was introduced in 2018. We went for full adoption from Day 1, whereas other banks decided to use a transitional approach. IFRS 9 divides credits into 3 stages. Stage 1 refers to performing loans and looks at expected credit losses over a 1-year time horizon. Stage 2 is for credits, which are performing, but where there is a significant deterioration when looking at the expected credit loss or ECL over the lifetime of the loan. Stage 3 refers to credits that are nonperforming or are in default. Stage 3 loans will either be subject to individual assessment for nonhomogenous exposures, while homogenous portfolios and the Private Bank will be subject to an expected lifetime loss. Importantly, in this forward-looking approach, a rise in provisions for credit losses does not need to be the result of a deterioration of the portfolio but can also be the result of a deterioration of the macroeconomic outlook. In a fast-changing economic environment, the triggers, which require a credit to move from one stage to the next, are important. These are, from Stage 1 to Stage 2, a significant increase in lifetime probability of default, rating downgrade, transfer to workout or forbearance flag, migrations from Stage 2 to Stage 3 are driven by unlikeliness to pay and going 90 days past due. Let's now turn to our loan book by rating before and after migration between stages on Slide 21. On Slide 21, you see the impact of these triggers on our Stage 2 assets according to internal ratings. Stage 2 assets of EUR 44 billion include EUR 31 billion of loans and EUR 13 billion of other financial assets at amortized costs. It is notable that of the EUR 19 billion asset migrations into Stage 2, these are most pronounced amongst the highest-rated credits on the left of the chart. Here, the probabilities of default remain low and as a result, the increase in overall Stage 2 credit loss allowances for these kind of parties was minimal. The Stage 2 transfer for these investment-grade counterparties seen in the first quarter was almost entirely driven by the deterioration of the macroeconomic outlook at the end of March, giving rise to a significant increase in the lifetime probability of default. This is equivalent to a half-decimal downgrade of these investment-grade counterparties, which mostly consist of financial institutions by 1 or 2 notches. It is important to note, however, that the individual counterparty ratings for these investment-grade credits were mostly unchanged compared to Q4 2019. We did see some increase in Stage 2 driven by sub investment-grade counterparties, which contributed almost all of the increase in Stage 2 allowances for credit losses. These changes were driven by a combination of forward-looking indicators, rating changes and watch list inclusions. Other financial assets include interest-earning deposits and brokerage and cash margin received. With that, let me hand over to James.

Thank you, Stuart. Let me take you through a few slides on our capital outlook for the remainder of the year. The capital planning process sits in the treasury function within finance, although the governance and steering of our capital management is conducted through our group ALCO. This brings together colleagues from treasury, risk as well as the businesses to get an all-round picture of our capital position. Let's start by looking at the impact of COVID-19 on risk-weighted assets starting with credit risk RWAs. As you can see on Slide 22, the impact of ratings downgrades in the first quarter was relatively muted, adding a net EUR 1 billion to group risk-weighted assets. That said, downgrades did increase in March, and our capital outlook assumes that the pace of downgrades accelerates in the second quarter, thereby increasing our credit risk RWA. The impact of the ratings migration is expected to increase credit risk RWA by between EUR 5 billion and EUR 10 billion during the year. The RWA inflation, driven by ratings migrations, is likely to be partly offset by a reversal of the drawdown-related increases seen in the first quarter. Some corporate clients have taken advantage of improved market conditions to repay facilities drawn on during March and April. Turning to market risk on Slide 23. Market risk RWA of EUR 25 billion accounted for 7% of group RWA at the end of the first quarter. Market risk RWAs are calculated in part based on 60-day average value at risk, or VAR. VAR and stress VAR declined in January and February as we continued our derisking activities. These reductions were offset by an uptick in March given the significantly higher market volatility. Average VAR was EUR 24 million in the quarter, but increased to around EUR 40 million on a daily basis by quarter end and remained elevated through April and May. As a result, market risk RWA will increase in the second quarter as the averaging feeds into the calculation. Slide 24 shows the key drivers of our capital ratio for the rest of the year. There's even more uncertainty than usual in the timing and impact of several items. But fundamentally, there are 3 factors at work. First, COVID-19 impacts are expected to be a headwind of around 40 basis points in the balance of the year. These headwinds include the additional credit loss provisions consistent with our guidance, as well as higher credit and market risk RWA from the factors that I've just described. The headwinds will be partly offset by the expected release of prudent valuation reserves taken in the first quarter. Second, our results will continue to be burdened by restructuring and severance and the ongoing wind down of the Capital Release Unit as we work to substantially complete our transformation in the coming 3 quarters. Our planning also includes movements in deferred tax asset balances as well as negative movements in OCI principally related to pension assets. The burden of transformation and other movements are expected to be mostly offset by Core Bank earnings and capital generation. Finally, the impact of these 2 buckets is likely to be partly offset by the benefits of the regulatory adjustments that have just been announced. These adjustments include the inclusion of a portion of software intangibles in CET1 capital, which should give us an approximately 20 basis point ratio benefit towards the end of the year based on the most recently published draft regulatory technical standards. Overall, our CET1 ratio outlook is consistent with the guidance we gave around the first quarter results. At that time, we said we would allow our CET1 ratio to dip modestly and temporarily below our 12.5% target as we support clients and the wider economy. We stand by that commitment. In aggregate, we expect the negative impact of COVID-19 to be around 80 basis points from our CET1 ratio in the full year. Over time, these mostly temporary COVID-19 factors should normalize, supporting our longer-term target of keeping the CET1 ratio at or above the 12.5% level. In this range, our CET1 ratio was at the higher end of our peers. It is also around 240 basis points or the equivalent of EUR [ 8.1 ] billion above our regulatory requirement of 10.44%, as you can see on Slide 25. And following our Tier 2 issuance earlier this quarter, our buffer to the total capital requirement increased by approximately 37 basis points during the second quarter to 192 basis points. Let me summarize briefly on Slide 26. Stuart has outlined why we believe that from a risk perspective, we are relatively well positioned to manage through the current stress period. This confidence is in part driven by the relative strength of Germany as our home market. Our robust and enhanced control framework has proven to be effective. We continue to manage our credit risk tightly, and the internal stress tests that we have run validate our approach. Stressing our portfolios most exposed to the impacts of COVID-19 gives us confidence that the downside risks are manageable. And our capital buffers are well above our regulatory requirements and provide further protection against any unexpected losses. And finally, this management team continues to set targets and deliver against them. Our guidance for credit loss provisions of between 35 to 45 basis points this year remains valid. And while there's still many moving parts, we believe that we will operate with a CET1 ratio in a range around 12.5% throughout the year. With that, we'd be happy to take your questions. And I'll pass the call back to Haley.

[Operator Instructions] And the first question is from Adam Terelak of Mediobanca.

I just wanted to follow up on your comment on second quarter provisioning. You said it would be driven by Stage 3 so that suggests some souring in the book already through this crisis. And I'm wondering how that squares with the implied guidance for the second half of the year, which implies credit risk charges coming off from the Q2 level and what confidence you have given what clearly is already developing in the book. And then secondly, I just wanted some clarification on the regulatory impact in your capital [ work ]. At the investor update last year, we had EUR 15 billion for 2020, EUR 15 billion more in 2021. How much is in that 10 basis points and what is the picture for the EUR 15 billion you're expecting for 2021? Is that being pushed out? Being delayed? Or where we are on that side of things?

So thank you for the question. Let me take the first one. So our Stage 3 provision assessment is really done bottom up. So I guess, like all risk organizations within banks, we're looking at the whole watch list of credits and trying to determine, given the factors that we see and foresee what the potential for impairment might be on a list of watch list names. And therefore, it's a very much sort of a bottoms-up single name-by-name review of credits, which is driving that commentary on going forward. So I'd expect in the macroeconomic model, FLI impact starting to reduce, but the sub-Stage 3 names continuing to record CLPs in 3 and 4. Overall, though, the trend will be peak for total CLPs in Q2 downward into Q3 and 4.

And Adam, it's James. On the second question. As I mentioned, the visibility is tough at the moment, given the number of changes that are going on in time lines. And frankly, still some uncertainty around which elements of the regulatory actions, exams, reviews and what have you, how far they'll be moved out and whether some of the relief is temporary or permanent. I'd say if I were to zero-in on just a number in terms of how our glide path has shifted out of '20 into '21, I'd give you a range from sort of EUR 5 billion to EUR 7 billion of RWA inflation that we think at this point is pushed out. But as I say, it's early days, and we'll provide more in the way of guidance for '21 and beyond when we have some more visibility. In general, I'd say that the glide path is similar, in some cases, improved, as you know, but similar to what we've been working on since our restructuring announcement in the middle of last year.

But the EUR 30 billion total is still applicable?

We think so. Again, it remains to be seen whether some of the actions will be permanent. But yes, we think that's still applicable. And of course, some of the Basel III final framework impacts, we think, are moved out by at least a year now.

The next question is from Magdalena Stoklosa of Morgan Stanley.

A follow -- [ a few more exactly ]. I've got quick 2 questions and both are kind of more top down. So my first one is about the change in ECB's macro scenarios. Over the last kind of couple of weeks, we had Andrea Enria kind of commenting about how different the macro scenarios were across various banks, the determining provisions in the first quarter and how he urged the banks to use the current ECB projections, both the base and the adverse case from here. And of course, the SSM will be running their own simulation vulnerability test in July. How do we translate those new scenarios? Or how have they translated into your 2Q forecast and potential thinking going forward? So that's my first question. And my second question. We all struggle with the -- with how to price in the positive cumulative impact of the fiscal mitigation we're seeing in various countries in Europe, particularly when we look at the short labor programs or the guarantee loans. When you actually kind of look at those programs kind of country by country, where do you see the most kind of positive impact on the development of your provisions in the corporate portfolio across Europe based on your assessment of the positive effect of the fiscal and guarantee schemes?

Thank you very much for your questions, Magdalena. Answer to question number one, we ran the latest ECB stress test through our FLI model. That doesn't have a particularly meaningful impact on our model from the consensus macroeconomic inputs that we use in our model. So I think we were doing kind of the sensible thing anyway on using most updated macroeconomic projections. To your second question, look, I think we tried to say in the presentation that we view households and corporates in Germany, particularly well supported. I would say that households in Italy are pretty well supported as well. So those would be the areas where we -- again, as you outlined, we've got some pretty big exposures. And therefore, we take a view that our clients in those particular areas will perform reasonably well through the remainder of this crisis.

And can I just very quickly follow up, are you worried about the kind of any cliff edge kind of effect as those programs roll off into 2021?

Look, look, I think it would be wrong to say we're not worried about it, we're watching it carefully. But again, a little bit premature to say what the impacts would be as of today.

The next question is from Kian of JPMorgan.

The first question is on Page 24 on your capital movement. I'm just wondering if the 12.3%, is that -- do you see that as a low point of the capital ratio this year? And on the 10 basis points' mitigation improvement, so to say, it looks like a very small number, especially when we compare that to some of the peers. I'm just wondering if you can comment how you -- I mean what assumptions you make around the 10 basis? It sounds like a very, very small improving figure. Clearly, difficult for us to question, but if you could maybe put some caveats around what the issue is, why it's not comparable to peers. And then on Page 11, I'm just interested generally in the EUR 460 billion book, how we should think about duration of the book? Post hedges, clearly very difficult for us to see, except the mortgage book. If you could maybe talk a little bit where is the loan duration book sitting within that EUR 460 billion ex-mortgages.

Thanks, Kian. It's James. I'll take your -- the questions in your order. Look, as I mentioned, lots of uncertainties and moving parts in the capital forecast at the moment. We'd certainly like to see that as being a low point. But there's obviously -- there's at least a possibility that we'll go beyond that. But I also -- as you've heard me say before, we tend to forecast, hopefully, with some conservatism built into our capital planning. So I'd like to think that the bias is better. And of course, as you go then further out in time, the question that we're looking at is the -- what is the time line over which that element of the COVID drawdown that we've called out that is temporary, the time period over which it comes back. Frankly, in this forecast, not that much comes back this year, so it's pushed into '21. So short answer, the hope is that, that's a low point, but -- and we'd like to see some upside potentially, but we can't put a floor right now. On the 10 basis points, we've bucketed it together with some of the regulatory pressure that we still see in the balance of the year. So we mentioned that there's 20 basis points coming from the software intangibles, assuming that we get through that rule-making process and that's effective before the year-end. But there's also the definition of default rules and the NPE backstop, which are negative for our ratio, was part of the original planning and that we have built into that bucket. So that's why you see the relatively modest effect here. And it also explains why when we gave the original guidance around temporary modestly below, we weren't looking -- we weren't really leaning on regulatory changes so much, as we saw them -- some of them to be temporary and some of the offsets to be or some of the benefits to be offset by the remaining [indiscernible] in the forecast. I hope that's helpful.

And then on the average duration of the mortgages it's 3, 3.5 years.

Fair enough. And is there anything you would highlight in terms of significantly long and significantly short duration? I mean some of it's really the, [ as an ] idea, but anything you would -- that you would stress besides the mortgage book?

Look, the shorter stuff clearly in the trade world, where trade finance and some of the working capital is short. But there's nothing else I would highlight as being, say, a longer duration of it.

The next question is from Stuart Graham of Autonomous Research.

I had 3, please. The first one is on Slide 12, the EUR 31 billion of ABS. Can you just give us more detail what that is by asset class? I mean is it CLOs? I mean what is that? Then the second question is you've guided to 35 to 45 basis points on the whole book for 2020. But I wonder if you could give us equivalent figures for those key buckets, the ABS, the CRE and the LDCM? What would be the equivalent basis point figures feeding up into that 35 to 45 for those books, please? And then the third question is -- thanks for the extra granularity on your Stage 2 movements, so I think you've got EUR 31 billion of loans amortized costs at which you've got just under 2% coverage, which is a low number versus peers. How do you arrive at that 2% coverage for Stage 2 loans, please?

Stuart, on your first question, the ABS is a combination of CLOs, autos and credit cards. And then on the -- on your -- sorry, your second question was on the 35 to 45 basis points. I think we're not going to give more detail on that. On Stage 2 coverage, absolutely, I think we think about that on an asset-by-asset basis. So on the, for example, CLE coverage and LDCM was about 2.7%. And we need to go through all the different assets to kind of give a breakdown, which I, frankly, don't have in front of me at the moment.

But my question is, why would you be so much lower than your peers in that bucket?

Well, I think we'll try to outline that because we think the quality of the underwriting and the -- if we look at the risk mitigators that we have, whether that would be collateral and the mitigation that's built in our structures, the low loan-to-values and all the hedging CLO activity that we do and our experience on having recently strong recovery rates, that would give us comfort that where we currently are is appropriately as fully provided. And I think, again, if you look at one of the slides that I had, 19 or 20, that shows that we have provisioned, and when we have provisioned, our actual write-downs are in line with the level of provisioning.

Okay. And sorry to dig because you've obviously given a lot of information here, sets for guilty digging. But just going back to the EUR 31 billion, could you give us a sense of how much of that EUR 31 billion is CLOs? And then secondly, I get it that you don't want to give more granularity on the 35 to 45. I know in the olden days, you used to say CRE would be under 200 basis points in a recession. So is that still valid?

Well I think we might come back to you on -- to answer that more specifically. On the CLOs, yes, we've got about EUR 18 billion in CLOs with the balance, I think, split between the autos and the consumer.

The next question is from Andy Coombs of Citi.

Sorry, can you hear me?

Yes, we can. Yes. Thank you, Andy.

I just wanted to come back to Slide 8 and 9, where you gave quite a lot of granularity on the corporate exposures and some of the hedging mitigation that you do. The reason -- I'm going to come back to this is when we look at your IRB corporate risk weight, they're amongst the lowest in Europe. And when you dig a bit further, the PD looks fairly comparable and the split of your exposures by credit rating looks fairly comparable. Where the difference seems to be is your LGD is quite low, and it's particularly true actually if you compare it to Commerzbank. So if you could just elaborate a bit more for me. On some of the hedging and mitigation steps that you discussed, which of those specifically alleviate the LGD versus which of those are a PD benefit?

Look, I think if you look at the composition of the book, and again, we'll try to think -- indicate that in the presentation. We know we do have, in our GCT business, a very significant portfolio of structural credit risk. And the nature of that structure, whether it's first lien low loan-to-values. We talked about some of the securitization that we do where loss rates have been manageable over the last 5 years. I think that will be a reflection of the significant degree of structuring that we have in our portfolio across the loan book, particularly in the investment banking space. And the historic performance of that book, I think even in downturns, has proved to be relatively resilient across a variety of asset classes. And then the reason I think we feel comfortable today with the positioning of the book is that we've stuck to asset classes where we've seen that general resilience, and we've reduced our exposure to other asset classes, which have, in our experience, to be less resilient. So it's really an issue of having a far more structured rather than plain vanilla lending book. That gives us that comfort.

I guess, where there's another way, the point you're making is very much about the underlying exposures, and perhaps I'm more interested in the actual hedges and the mitigations in place. So I'm just trying to work out the construct of exactly how the hedge work that allows you to reduce some of the LGDs on that adjusted exposure?

Well so for example, on some of these exposures, if you have ECA or PRI protection, in fact, we would look right through to PD adjustment. So something is guaranteed by a AAA ECA agency, that would be 95% of the exposure would be at that BBB -- AAA-rated element with a 5% residual exposure and underlying rating of A -- of the transaction or the counterparty, depending on the nature of the actual loan itself. Out in the world, that would give you some indication. If I look at CRE, for example, or given the low loan-to-value, then the loss given default on CRE is about 2.5%. It's been our observed experience.

The next question is from Amit Goel of Barclays.

I have 3 questions. The first one, just taking just a step back in terms of thinking about this cycle and potential losses. And obviously, you mentioned obviously you've been through a few different cycles. So just kind of curious, in terms of the comparison, obviously, all of us versus the post global financial conference -- sorry, the GFC crisis losses. Just curious if you look back even further, say, to 2002, 2003. So when we look at the kind of impairment charges that you're anticipating, it seems to be quite low versus, say, some of the other banks. So just curious what your thoughts are in terms of this cycle versus previous cycles and for Deutsche specifically? Secondly, also just coming back to Slide 9. Just looking at some of the PDs and the expected losses and allowances and the guidance that's been given for this year. So just trying to understand how much you're thinking the kind of PDs change. So for example, if I'm looking at the single B exposure bucket. So there's EUR 15 billion of LGD basis exposure. And in terms of the coverage, I guess, you've got something like a 4% PD on that currently, if you were to factor in another [ EUR 1 billion or so ] provisioning. So it's kind of doubling or tripling. Is that where the kind of thought process in terms of PD there? And then my third question, kind of relates to the actual -- the news on Wirecard today. So just curious if there's any comments you can make there in terms of the business relationship? And any commentary on the exposure that you may or may not have in that situation?

Thank you, Alex, (sic) [ Amit ] for your questions. Look, I think if you look back to earlier crisis that you indicated, I think one of the key differentiators is clearly the degree of government support that's given to this COVID crisis that we've never seen before and I mentioned that Germany has something like 50 -- a plan which is tantamount to half its GDP in order to ensure that the economy is sustained. So that would be, for me, the biggest difference. The portfolio that we have today, I'd also say, is quite different from what it was in the bank in 2001, 2002. That was even before the Postbank acquisition. So our amount of exposure in Germany, which, again, to highlight the German government support is far larger as a percentage of the book than it was prior in 2000s. Now Germany did have a recession in 2001, our underwriting standards and our business model around the German corporate and SMEs is considerably different today. And then you may recall that certainly in 2001, 2002, there were some quite high-profile losses, which, again, were very much sort of jumped to default-type losses. So these were the Enrons, WorldComs, SwissAirs of this world, [ Marconis ] of this world. I think those were the probably the 5 big ones that we actually had exposures to at that time. And I seem to recall that we probably took about EUR 1 billion of provisions against 5 names, if I recall correctly. And since then, we have done -- we pushed that, we implemented our hedging strategy. And that hedging strategy is absolutely designed to reduce our exposure to these kind of investment-grade fallen angels, jump to default risk. So I would say that's another element that I would highlight there. On Wirecard, I won't comment on individual exposures. We've just talked about how we actively manage our concentration risk to ratings at the lower end of the investor-grade trade spectrum via a variety of mechanisms to mitigate against jump to default risk. So I'll let you reach your own conclusions on that comment. Sorry, your second question was on PDs. Yes, we do think that PDs will deteriorate as a result of what's going on. We watch the rating migrations on a constant basis. And if that really informs us of our Stage 1 to Stage 2 provisioning and clearly also informs us of our Stage 3 provisioning impairment events and provisioning arising on the back of that as well. So I don't -- wouldn't want to make any more comments on that.

[Operator Instructions] The next question is from Robert Smalley of UBS.

I'm sorry, I missed the end of the answer to the last question. It's because I've cut out and it really imports to my second question. My first, when you talked about there's potential [indiscernible] points of CET1 in question, including transformation effects and Capital Release Unit wind down [indiscernible] of that a little bit, where that is now? Is that kind of steady-state wind down and we're just wait [indiscernible] go off and do operational risk RWAs lead or lag that and how that works? And secondly, and it probably goes back to what you were just saying, look at government mitigation and any kind of relief subsidies. How else is this informing you in terms of credit problems -- potential credit problems in [ Q4 ] and Q1 of next year. Is there any data or any way that you're sifting this, that you're getting any different information [indiscernible], counterintuitive information than you would think from the outset?

Sure. Robert, it's James. You were in and out a little bit in terms of reception, but hopefully we got your questions. Just briefly on Stuart's answer to the PD migration and rating migration, the answer simply put is we are watching carefully the ratings migration. We have assumptions built in to the modeling, essentially that's driving our outlook. And so while those assumptions are critical to the future path, we're comfortable with that path. But it's an area of, of course, intense focus, as we've described. As it relates to the capital path, yes, we sort of -- we've baked the CRU and then the operating performance of the businesses of the core bank into the second bucket. So everything we've told you in the past about the deleveraging impact of the CRU is on track, and the team has been working around RWA is on track. The team has being working to execute on that plan. I will say, CRU participates a little bit in that market risk uptick that we talked about due to volatility. So I don't think we'll show in this quarter as much of the progress that, in fact, has happened on an underlying basis in that deleveraging. But that's just timing. The actual risk reduction is taking place sort of as we planned. Otherwise, as we say, the Core Bank, as you can see in our reporting, is profitable, is generating capital and is also managing its balance sheet in line with our expectations. OpRisk RWA really isn't a big feature in 2020. As you know, it was a significant driver of some capital relief in 2019, but it's a pretty modest impact in the balance of this year. We do think there's opportunity further down the line, but it's quite a lot further down the line. And so we don't -- we're not looking to that in terms of near-term or even, call it, medium-term benefits. And I'll pass it over to Stuart to talk about the credit path in 2021. I think as a general statement, it's early at this point to have a very clear view of '21. We feel good about the second half. But I'll leave it now to Stuart.

I think you're right. It's a little bit too early. There's no explicit data on winning government support. I think our expectation is for the remainder of the year will help this growth and it has clearly, in certain areas, helped to provide much needed liquidity to certain struggling counterparties. And I would say, I think that the market consensus that we use in our macroeconomic model, we call it, forward-looking indicator model, FLI, is kind of reflective of that. I think really through the rest of the year, we'll continue to do what I alluded to earlier. We do a huge amount of bottom-up analysis on our watchlist portfolio. This is an activity which is really always ongoing. And our credit analysts are constantly developing views on companies and the impact of macroeconomic scenario on their ratings as well as the performance of the underlying companies, too. So I still think there's a little bit of a -- there's a high degree of uncertainty on trying to give outlooks now into 2021, and we're the same, watching the portfolio closely as of today and going forward.

The next question is from Daniele Brupbacher of UBS.

Yes. I also wanted to ask about Slide 8 and 9, and I think it's similar to what Andy from Citi asked on the risk mitigation part. Just looking at Slide 8. Obviously, there is a lot of information on the slide. So thank you for this. I was just trying to get a little bit better feeling for how safe is this risk mitigation? What could go wrong there? What's the risk in there? And what could make that change significantly in any given quarter. So where is the sort of the pressure points there? And, I mean, I still need to digest some of the information on that slide. But is there also any kind of accounting dynamics working here? Could -- I mean you mentioned financial instruments. How does it look from that point of view? Is there for example, I don't know, mark-to-market stuff that is a result of those risk mitigation, which is probably hedging an underlying book that is done on an accrual accounting? Now is there any kind of accounting implication out of this? So this is first question. And just on Slide 9, I mean, the expected loss, if I just add up all the light blue circles there, I get to, I think, around EUR 3.7 billion or something. Then you obviously give the risk cost guidance for the whole year, which is probably at the upper end, a bit more than EUR 2 billion. Can I compare these 2 numbers? And if not, why? Or is it -- what is the delta? How can I sort of look at these 2 numbers in context? These are my questions.

So on your question on Slide 8, I'm not so sure that, and as I follow, this is really our exposure at default on our accrual book. And I don't see any kind of accounting things that are just going on across that book where we -- so I think I don't need to go further into that one, if that's okay. On your question on Page 9, I'm not sure I fully followed what you were asking on that one. You're asking if you add everything up, then what, sorry?

Yes. I mean, I guess that's a yearly expected loss number, which is EUR 3.6 billion. I mean, Commerzbank across the street has an expected loss of a bit more than EUR 1 billion. They gave a risk cost guidance of [ EUR 1.5 billion]. They say through the cycle, expected loss numbers are very relevant. But in any given year, it's very different. So they did say, yes, this is very relevant. So we do look at these 2 numbers. Or am I -- I don't know, is this something different here? How do I compare the EUR 3.6 billion versus your upper end of the 35, 45 basis on risk outlines, which is, I guess, EUR 2 billion or so, a bit more?

Well the upper end would be EUR 2 billion incremental -- I guess, EUR 1.5 billion, already taken EUR 0.5 billion in the first quarter on top of these allowances for credit loss during the year. So that would be incremental across Stage 1 and 2 plus Stage 3 specific loan loss provisions.

Okay. I'll follow up with IR, it's fine.

Okay. Sorry.

Sorry I'm not sure -- probably I'm asking the wrong question, it's possible. But I'll follow up with IR.

Happy to follow up, Daniele.

Daniele, I think there's 3 things to think about. One is the existing allowances, which are a part of the puzzle. The second is expected loss over 1 year and then the full life loss and then how the new allowance -- the new provisions add to the allowances and cover charge-offs. So those features all go into it and again, affects our -- as it underscores our confidence in the allowances and the provisions that we're building. You also have to bear in mind that the defaulted portfolio -- so it's 1.3 as your -- in your math is it's 1.3, if you exclude the defaulted portfolio.

The next question is from Andrew Lim of Societe Generale.

So my first question is regarding economic assumptions. So we've had a clear sense from the U.S. banks that more conservative economic assumptions should be driving some chunky loan losses in the second quarter. I was wondering to what extent that's also the case for yourself in your guidance for around EUR 800 million for the second quarter. And then my second question is on the impact on capital ratios on Page 24. I was wondering if you could give an equivalent guidance for the leverage ratio or even the CET1 leverage ratio as to how you expect this to pan out for 2020?

So on your first question, look, we use consensus Bloomberg economic consensus, and we update that on a monthly basis in turmoil. So yes, clearly we're seeing some higher impact into the FLI, the macroeconomic model, given that consensus did deteriorate so far anyway, during Q2. It remains to be seen kind of how we end up in Q2 since it feels like some of the inputs that we use, outlook for unemployment in Germany, GDP in Germany, to use 2 examples, how those end the quarter. Given that, I guess there's assessed feeling that there is some improvement on outlook, albeit coming from a low basis.

And then, Andrew, on the leverage ratio, there, I guess, one thing to -- as we look at the changes and potential changes in legislation and regulation. We do see a benefit coming. If both pending settlements and cash at central banks were to be excluded from the denominator in the calculation, we'd pick up about 25 basis points. Of course -- and this was, again, the basis for our capital guidance around the time of earnings, and we are extending our balance sheet more than was planned as we came into the year to support clients and the economy during this COVID period. That would include also, incidentally, for example, guaranteed loans in the KfW program. So there's additional leverage exposure out there without a great deal of impact on RWA. And we think that will persist for a period of time. So I would think we get a near term benefit, brings us closer to where we hope to be for the year, but then the normalization of the balance sheet will take a little bit of time. And then over time, especially with the additional efforts around leverage exposure in the capital lease unit in 2021 and the deconsolidation of the prime finance assets next year, you'd see us sort of, I think, come back to the glide path that we'd initially envisaged as we announced our restructuring last July, maybe a little better to the extent that, at least temporarily, to the extent, as I say, cash and pending settlements in one case they're out for a period of time, and the other case was brought forward.

Yes. I think you alluded that to credit drawdowns persisting a bit more. Is that still quite a strong feature in the second quarter that you're seeing?

Not really on a net basis, we saw a slowdown. So there was still some net draws in April. And -- but then we saw reasonably quickly in April the beginnings of repayments. We had, I think, had a relatively conservative view about additional draws net during the quarter. And so far, I can say it slowed down more than we thought. And in fact, I think may swing to a net repayment, if you like, by the end of the quarter. And as I said in the prepared remarks, we see that continuing for the balance of the year. So we do see some recovery of the credit risk, RWA, the EUR 5 billion that we showed in the slide, we would expect to get some of that back by the end of the year.

The next question is from Anke Reingen of RBC.

I'm sure -- these are very simple questions. Apologies if I missed this somewhere. Can you share with us the percentage of your loan book where you have granted a payment moratorium? I see some number in absolute terms on the consumer book, but I wondered if you can maybe give us a percentage number. And then on the guaranteed loans from the government or by the government, what is sort of like the gross amount and what's the pending? And if there's any number you have maybe on the net risk you would carry. And then just lastly, on the pricing of risk and loans. Do you think the -- I mean has the general spread widened on loans? Or is there little change? And I was wondering, I guess, you've probably taken some of the TLTRO funds, what you think in terms of risk taking, will you invest them in the business? Or will they go to the ECB? Or what's the general premise about how you could use them in the business.

So on your moratoria question, Anke. It's less than 4% on retail, where we've granted moratoria. And then in the institutional sort of wholesale business, it's about 400 names. And then in the Corporate Bank world, about 500 names. And [ the logic for us are the corporate names ]. I wouldn't say any more than that.

Okay. And the guarantee...

On the pricing and on the -- sorry, on that issue. On the pricing environment, spreads are widening, yes. So new deals that are coming to market done at wider spreads. And we're also seeing a greater flex in some of the non-investment-grade transactions as well. And then use of TLTRO, do you want to...

Yes, I'll take that. So we look carefully at the drawing on TLTRO in this auction. And obviously, at the loan commitments that go with that. And so we sized it to what we think we can achieve and I think we're minded to be, if you like, aggressive in the use of that facility, both to support clients in the economy and in recognition of the economic incentive that is built into that program. So we've used the assumptions in terms of loan commitments that we think are very reasonable in the environment that helped to inform that submission.

Okay. And on the guaranteed loans, are you willing to share any amount?

On guaranteed loans, it's probably early. I think we maybe talk a little bit about that at the end of the quarter as we're -- we've talked about KfW lending in the kind of mid-single-digit billions, which is probably a good assumption for the quarter, but we'll come back to you when we report in July.

There are no more questions at this time. I hand back to James Rivett for closing comments.

Thank you, Haley, and thank you all for joining us. You know where the Investor Relations team is, if you need us. Otherwise, we will speak to you at the end of July with our Q2 results. Take care.

Thank you.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.