Deutsche Bank Aktiengesellschaft (DBK) Earnings Call Transcript & Summary

Okay. Thank you very much. Delighted to be joined here by James von Moltke, CFO of Deutsche Bank. Thank you, James, for traveling here. I know it's not always easy to travel around Europe in these days, so we appreciate you and the team making the effort to come to our conference.

Chris, thank you for having me. I'm delighted to be here, happy to make the trip. I'm very fond at this conference, by the way. It was 4 years ago now when I first talked about the virtuous circle that we were focused on unleashing and it's always for me, a marker of the progress we've made against that.

Perfect. We'll count you in for next year. Yes, perfect. So to begin with, look, we started -- let's kick off with a bit of a macro or broad-based overview. We started this year thinking it would be easier than 2020 and 2021. And then clearly, events have overtaken us. So the first question would just be, how is the bank currently doing? And are you seeing the same strength in revenues across the divisions that you were seeing at the beginning of the year?

Yes. Well, Chris, absolutely. I mean I don't think it's the year that any of us expected, and not least the citizens of Ukraine or the residents of Shanghai. So we've -- I think we've all been sort of reacting to a market environment that's nothing like we could have anticipated. But as you say, the business performance, even in that environment, in some cases -- helped by the environment, in some cases, dealing with headwinds, because of the environment, continue to perform really well. So you saw the trends in the first quarter, we have seen repeated or continued into the second quarter. We're looking at a revenue performance in the core businesses that in terms of year-on-year growth rates, we expect to be in line with or better than the same growth rates in Q1 year-over-year. So we see that as really encouraging signs in the businesses. Within that, you have a lot of stories. I think you've got a -- call it, a core economy. So momentum in what we would think of as our stable businesses in the Corporate Bank and the Private Bank, driven by just solid driver growth, loan growth, deposit growth, investment asset growth, activity with our clients. And we actually don't see that abating in the -- at least in the current environment. So for example, loans have continued to grow in the Corporate Bank. We see our corporate client base continuing to make investment decisions, react to supply chain differences and make investments, which is encouraging. In the Private Bank, we're seeing a continued engagement and inflows into investment products and what have you, that is steadily building the revenue base in that business. and that's encouraging. In the Investment Bank, I think, as you've heard from other investment banking sort of competitors, you've had actually a very weak, what we call Origination & Advisory marketplace or corporate finance, where the year-on-year sort of volumes are quite low, sort of down by, I guess, 30-plus percent for the full year and down by more than 40% in the quarter. But in our case, you have, I think, a larger FIC business that's continuing to perform very nicely. So we've had real momentum in that business, and that gives us, I think, some confidence about the environment we're operating in. One other area where we're seeing a continuation of trends in Q2 that we talked about in Q1 is regrettably -- is the -- is in our corporate and other areas. So as we do the valuation and timing, essentially the hedging of the risks on the balance sheet, that was a drag in total in Corporate & Other of about $300 million in the first quarter. We see that similar sort of results taking place in the second quarter. Of course, it's volatile. It results -- it depends on markets through to the end of the quarter, but we are continuing to see that drag just as with the volatility and the changes in financial markets that drive a lot of the risks in our balance sheet that we hedge centrally, and that's continued to create what we call the valuation and timing differences. In fairness, those can come back either through changes in markets or through the pull to par, which has flipped from being modestly positive at the beginning of the year to being very positive. So we'll see a lot of that revenue drag come back. But certainly, for the second quarter, we continue to see a drag.

Okay. Very clear. Now if we turn to rates, clearly, you see these trends. They thread the needle between cooling inflation on the one hand and [ knocked up ] in the European economy into recession on the other hand. So as we sit here today, first of all, how do you approach managing the bank through that period? And are you continuing to see sort of increased revenue opportunities as a result of where we've seen rates come already? And then I suppose the final point would be competitive pressures or how much of that is being passed back to customers?

Yes. Well, look, I guess I'll start with -- I think the ECB is speaking sort of essentially now. And so I have a lot of competition away in terms of investors' attention. But look, we've taken the view, I think DB Research as well as I think our internal view has been that the central banks have been behind the curve for a while now. And so I think it's good to see them taking concerted aggressive action to go after the inflationary pressures that are there and influence inflation expectations. So we obviously welcome that as an economic matter. There's obviously the risk that it'll result in a landing that's worse than what some people expect a soft landing. For our business, it's obviously helpful. We've now had such an extended time of very low and, in Europe, negative rates, that seeing the end of that and getting to a more normalized sort of rate curve, both kind of the steepness and the level of rates is going to be helpful for the banking business. There's no question. In our -- in specific terms for us, we've provided some disclosure about that support, was going to deliver about $400 million in revenue support for this year. And that's now expanded, we think, to about $600 million. So a pretty significant increase, especially when you think over the short term, is one of the reasons, by the way, we provided guidance for revenues of $26 billion to $27 billion. We're biased to the upside on that today, in part given the interest rate support that we have. Notwithstanding, frankly some of the uncertainties that we all know are out there in the remaining 7 months of the year.

Clear. And you talked earlier or you touched earlier upon some of the dynamics you're seeing across the Investment Bank. But if we just dig into the Investment Bank a little bit. How has sort of client risk appetite changed in the IB? And also how firm are the pipelines that you have out there?

Yes. Well, look, I'll start with the good news part of it then first, perhaps. And that is I do think we are seeing a FIC fixed income market environment where we talk about good volatility. We've got an environment where there's a direction of travel, there is some uncertainty as to the pace and the magnitude of the movements and that's expressing itself in financial markets. And as a consequence, investors and corporates are needing to take action, whether it's investment action, risk management or -- so that's clearly supported the momentum in our FIC business. Fabrizio talked about that at a conference a couple of weeks ago. And again, as we said, the Q1 beneficiaries of that were really rates, FX and emerging markets in our business. We think that's continuing. So I think the FIC environments is benefiting from that. With a -- to your risk appetite-type point, with a sensible level of risk appetite out there, I think both investors and corporates are approaching it with a reasonable degree of caution in terms of how they're managing collateral, how they're managing cash balances and what have you. So there's, I think, room for encouragement that, that can continue, persist as a trend. In the corporate finance products, obviously, you've seen, as I mentioned, that a significant sort of reversal against what were, in fairness, record levels of activity last year. We were looking at the sort of the overall wallet. And it's -- in fairness, it's in line with the sort of pre-pandemic wallet. If you looked at, say, '17 to '19, you have activity that's sort of normalized fully now as much as it is weak on a year-on-year basis. In risk appetite terms, certainly, you've seen corporates pull back, especially in, well, I'll call it, risk activities. M&A is a risk activity and in the higher-yielding asset classes like leverage lending and high yield, you've seen a real pullback. I do think that markets will stabilize. They always do. Corporates and issuers adjust to an environment and they get comfortable issuing at certain prices and investors get comfortable investing in a certain price so that equilibrium, I think, is something that will come in time, but it's been a dampener, no question, on activity so far. And as we've talked about, there are considerable uncertainties. I mean, the range of outcomes is -- remains pretty wide.

And turning to investments. This is obviously clearly a focus in the IDD. Maybe you could provide some update on sort of how investments are trending? And also how we should think about these as whether they're focused primarily on the revenue side or the cost side?

Yes. Well, look, actually, it was also a year ago at this conference at that time, unfortunately, remotely, that I started making the point, and we've wanted to reemphasize that in our dialogue with investors that as much as we've been focused on cost for the past several years in the transformation of the company, and that's absolutely true, we've been cautious about not starving the company of investments. And I think we've been consistent about that messaging as well. So if I think about investments, yes, the predominant investment thesis right now remains regulatory remediation, control remediation, technology investments for sure. And also investments that are focused on delivering future structural cost reductions, including, incidentally, in -- with technology. So it is the preponderance of our investment profile today. But at the same time, we've been quite consciously shifting to a revenue-oriented investment portfolio. And that really is, again, that started about a year ago, the internal discussions in the formulation of plans. And so across the businesses, and we talked about this as well at the Investor Deep Dive in March, each business was asked to formulate its investment plans to drive future revenue growth and begin to build in, at least prepare if not begin to filter those investments into our activities. So if I just run through at a very high level, Corporate Bank has been focused on product innovation, has been focused on technology, in particular, in its investment thesis. Private Bank has been focused on building omnichannel capabilities, deepening our sort of data-driven sort of marketing and lead generation and also building out investment products. And in the International Private Bank, in Wealth Management, particularly, bringing on, as we've continued to do over several years, new wealth advisers to continue building and growing the business. And so we're encouraged about all of those investments. In the Investment Bank, we've had a number of areas inside the FIC complex, where either filling in gaps or very nearby adjacencies making investments. And then we talked about the M&A investments we've been making, where we think we can build our sort of corporate finance franchise with M&A hires. Lastly, in DWS, there's been a number of different investment theses that they've had, building their alternative platforms, building the UCITS platform, and although it's become controversial, continuing to invest in the ESG framework and capabilities that DWS has because they've -- they're long term committed to that area of product innovation. So short version of it all, there has been a shift. There's been a lot that we've done to prepare for expense savings over the next 3.5 years that we talked about. But over time, especially as the wave of reg remediation begins to abate, we think we can shift more of that emphasis towards revenue growth-driven investments.

Okay. Let's -- I mean, the Q1 call, clearly, there was a lot of focus on the cost story, and we spent some time talking about that since then. But maybe you could provide a little bit of an update on the cost narrative more broadly and also how things are progressing thus far in Q2.

Sure. Happy to, Chris. And I know it's a focus for investors, no question, and believe me, it's a focus inside the company with management. We have both, by the way, in cost and capital, we have a very, very intense management focus on, really, every euro and every basis point. And that's, by the way, a discipline that I think we've built over the last 3 or 4 years that is important and is part of -- we intend to carry it forward into the future because I think cost management will be no less important going down the track. This year, as we talked about in Q1, there's no question there's been some pressures and some pressures that have gone beyond what we anticipated. The good news generally has been that that's been offset by stronger revenues than anticipated. So I think there is as much as there is a focus on cost, it is somewhat counterbalanced by a stronger revenue outlook than we had anticipated. Look, in the first quarter, I think what -- we've given pretty clear guidance in January as to where we were headed for the first quarter, and we missed on that by about $100 million, but the story was actually outperformance in noncompensation costs and compensation costs that were higher than we had anticipated. In many respects, good costs insofar as it reflected higher revenues. But nevertheless, we understand that investors look at that with some concern as to what does it mean for the future. So as I say, we remain very focused. As things stand, we are continuing to drive our efficiency initiatives. Whether it is more tactical right now, trying to offset some of the pressures that we've seen or it's more structural as we talked about at the IDD, 3 or 4 areas of significant investments, significant work over the next 3.5 years that's aimed at taking out about $2 billion of cost, creating the room to make some of the investments that we've talked about. And so we're focused, if you like, on both time horizons. Christian said in his AGM speech, and it's obviously no secret the 70% cost income ratio is the more challenging of our metrics for this year or of our targets for this year. We've had some surprises in the uncontrollable areas. We've -- we're living with some pressures in controllable areas, but we remain as focused as ever on working to delivery on both our short-term and long-term objectives. I think it's important on that last point that we -- and I said this a year ago, we're not prepared to sacrifice some of the long-term growth opportunities and importantly, the reg remediation, the control remediation investments for the near-term satisfaction, if you like.

And then turning to capital, I suppose we mentioned earlier on the uncertainty of the macro backdrop we've witnessed so far this year. And I guess there's sort of 2 questions within that. First of all, what regulatory action, if anything, do you expect to come out? I think back in early March, late February, we all expected there would be something, and there hasn't yet been anything. So is there anything we could be expecting? And you also have referenced your year-end core Tier 1 target of 13%. So perhaps also sort of update on how you're progressing in that regard.

Sure. Yes. Thanks, Chris. Well, look, ironically, we're in another crisis. Now it still remains to be seen how severe the -- sort of the war and the supply chain and the other sort of related shocks, conceivably also, economic slowdown ends up being. But it's ironic that some of the pandemic-driven sort of regulatory accommodation, let's call it, is running off just as we're in the middle of the next difficult environment. And unfortunately, some of the machinery that's just going in terms of model reviews, EBA parameter adjustments and what have you, that's just continuing. So it remains a challenge. We talked about that in -- also on our earnings call. So it's continued to be sort of a headwind for the industry. It's something we think is unhelpful, frankly. We'd like to manage in a sort of more predictable, steady environment. But as I say, this machinery is continuing to operate. I don't expect any -- I don't really expect any additional accommodation. I don't think we're at a point like that. But equally, you haven't seen any actions like dividend bans or restrictions that are -- that could have -- place a dampener on that part of the industry story. For us, we're very focused, as I said, on not just cost, but also capital management, managing to the 13% goal you saw in the first quarter, not just for us, but also for some of our competitors, some drawdowns on capital. Actually, on a relative basis, ours were smaller than most with about, call it, 40 basis points was roughly evenly split between regulatory impacts and war-related impacts. So we felt actually pretty happy with the overall performance. Nevertheless, it was a little tougher in terms of the path to 13%. But as we said in the first quarter and I would reiterate, we're focused on achieving the 13% for the end of the year, and it's part of our capital management discipline that we'll find a way to get there.

And I asked you a question on the Q1 call, which with the benefit of 2 months, maybe I could just sort of ask you again. But does the dislocation you've seen and the pressures you've seen changes at all how you think about -- you mentioned your capital targets, but actually probably more importantly, your capital distribution commitments that you've made already?

Nothing that I would say would changes there, Chris. Part of the reason we want to focus on this 13% at the end of the year is it's the step off that we see in sort of the capital build that's required to get to 2025 and this next round of Basel III implementation, which at this point, we would still expect to be a January 1, 2025, event. As we talked about with some of the analysts and investors immediately after our IDD, we did build in some cushion into our next several years of capital planning, I think, wisely and appropriately. And it's always a feature of capital planning that you should be prudent. But as a consequence, looking at the environment, looking at the recent performance, looking at our outlook, there's nothing we would change about our distribution plans at all.

Pretty clear. Let's talk about some themes now. So technology has always been a big theme in the industry. It's coming up again and again at this conference. How do you think about fintech in terms of how is that thinking evolving opportunity versus threat? And what are the right KPIs that we should be looking at that we can actually measure tangible progress or like thereof, right, over the next few years.

Yes. Look, the KPI question is a really hard one. Actually, we struggled with that a little bit internally as well. Sort of what are useful KPIs to measure how you're progressing your -- the -- sort of the digital delivery of your capabilities, and some of -- I've talked to a lot of my peers about that as well. Look, fintech is interesting. I'll say as a backdrop point, Chris, that the -- I do believe that the banks get better with the competition of fintechs out there. So the fact that fintechs are delivering innovative ideas that, in some cases, we can partner with them or make investments in them to bring the ideas into the company. In other cases, we can buy them or incorporate technology and ideas into our core business. I think, overall, in the long term, that will make the banking industry stronger and better at delivering capabilities to our clients. I think we're at an interesting juncture right now in this sort of, call it, old guard new fintech debate. Because, first of all, the interest rate environment changing, of course, it helps banks a little bit in some of our investment capabilities, but it also puts, I think, a little bit more pressure on the fintech and their financing rounds and what have you. And so it might engender some changes there. I think the other thing that's changing a little bit is the regulatory approach to this sector. I think there was some -- probably some regulatory accommodations in the early days, but as the sector grows up, it's going to find itself forced to have the same -- forced to the same standards that the older firms have had to live with. So I think there is a -- I don't know how you'd describe it, a shaking out and a process that we'll go through in the next few years. I think it's encouraging. I mean a lot of what we want to do in the next few -- the period to 2025 that we talked about in the IDD is generating the kinds of efficiencies through technology investments that, obviously, you've seen fintech companies do much more easily than we have. And I think the better we get at that, whether it's by managing our data estate, by managing a transition to the cloud, by simplifying our application landscape, I think the more, if you like, velocity we'll be able to generate and therefore, a better competitive response to the fintech world.

Staying with some of these big picture themes and on the topic of sustainability, looking at the headlines from last week on DWS and the allegations of greenwashing, what is sort of the tangible impact on DWS? And also, is Deutsche Bank as a majority shareholder? And then perhaps you could talk a little bit about whether or not we should assume there could be any sort of strategy evolution at DWS given the change in management. So I mean, as someone who follows Stefan on LinkedIn, he's a big picture thinker.

He is. Yes. Well, thank you for asking the question. And look, it's -- DWS has got their AGM today, obviously, facing some of the questions that have arisen and sharpened as a result of last week's event. So let me start with a couple of points. First of all, to your point about Stefan, absolutely. I mean he's a superb manager, leader, and I think we'll bring some fresh ideas and also energy into DWS. So I don't look at that as a negative for DWS in any way as much as we regret that this change of leadership happened and had to happen and regret particularly on Asoka's behalf that he's had to endure what he has over the last sort of year or 18 months that have culminated in the events of last week. I think that's the first point. Second point on the events of last week and, really, the communications that you've seen from DWS today and the last few days, there is no new information, to our knowledge, that has given rise to the new investigation or the raid last week. And we are continuing to work, as we have been throughout, in a very transparent, collaborative way with the various groups investigating this. So for us, the real objective is to bring our internal investigation and then the reviews of the various authorities of that to a conclusion just as quickly as possible. I think it's really important -- I've said this to a number of people last week or so and also before. DWS continues to stand by its disclosures, its 2020 annual report, its '21 annual report and the prospectus disclosures that underline the funds that are being criticized. And that's an important statement, I think, especially given the benefit of now pretty extensive investigations that we've conducted internally. Now it'll take time to finish that and see what we'll learn from it. But it's built on an edifice of just how seriously and passionately committed DWS has been to this ESG product category and everything that underlies it over the last several years. And so to us, there's a great deal of frustration about how it undermines the hard work of so many people in that organization that we're unfortunately in the focal point of all of this. Now, the debate is around what we call ESG-integrated products and the disclosure around those. We stand behind that disclosure. We think we've done a good job there. But at the same time, the environment we all know has been evolving for these products and capabilities. So whether it's through SFDR or clearer taxonomies on these things, clearer information basis for these things, I think our hope, and I'm sure everybody's hope, is that there'll be more and more developed frameworks around these products that would avoid events like this. But I think for now, it's -- we just need to get through it. And on the other side, in terms of impact on the business, it really is too early to say. DWS, as you saw in the first quarter, has performed quite well, and that was true up until the events of last week. Obviously, for any asset manager coming into sort of headlines and also management changes creates a period of a challenge with Stefan after today. They need to work through that. And hopefully, the damage won't be too large. Our focus is on getting through it as quickly as possible.

Clear. Okay. So just one final big picture question before we open up to audience Q&A. If we think about, I guess, we're probably -- we can talk about this quite frequently. But in terms of what do you need to see, to see progress on the banking union? That's probably a question that we've had quite a few times in recent years. And how -- but more importantly, how impactful could this be in terms of activity levels across your markets, market share trends? And how do you think that -- would that sort of elicit any change in market structure?

So look, I mean, our policy position has been consistent for a while, supportive of Capital Markets Union supportive of Banking Union, impatient to see more change there and for the ball to move a little bit more quickly. Obviously, EDIS, the deposit insurance schemes is the most difficult thing to resolve or final issue about banking reunion to resolve, highly political. And look, I understand a lot of the arguments on both sides of that equation. I don't really want to wait into that, but we do think that there's a -- this idea of reinsurance of national deposit schemes has to provide a fruitful avenue of work there. Equally, I think the Capital Markets Union is critically important for the -- just financial intermediation in Europe. And this is a conversation we have in our advocacy with the official sector all the time. We all think and know that there are huge financing demands over the next 5 years, decade for Europe. Whether that's social investments, whether that's the transition to a sustainable economy, whether it's frankly recovering from some of the challenges of the past several years. A lot of that today would be intermediated on banks, and we can't get to, I think, a more efficient intermediation on bank's balance sheet without more movement on the Capital Markets Union. How quickly do I think it influences the structure of the European banks? To be honest, I don't think it's been a unique barrier. It certainly provides some inefficiencies. The ECB and others have been looking at ways to ameliorate some of the efficiencies in terms of how capital is held in a legal entity structure, how liquidity is managed in a legal entity structure, more use of branching. And all of those things are helpful. But of course, they don't get to that end state of seeing, truly, a single market. One great example, by the way, that has been a little frustrated is the G-SIB calculations, right? The G-SIB calculations go into it on both the asset and liability side speak to nondomestic assets and liabilities. So in our calculation, if the EU-27 or even just the SSM were considered one market, our G-SIB score would be lower, because we have a fungible currency and a fungible or -- almost entirely fungible currency. And you get closer to fungible liquidity and fungible capital over time. Why wouldn't the G-SIB score represent that the way it does in the United States? So there are some smaller things along the way, but we would certainly be impatient to see EDIS and Capital Markets Union, Banking Union move ahead.

Okay. Great. Look, with that, I think we'll open up to any questions there may be in the audience. There are 2 roving microphones. So if you stick a hand in the air -- in the middle, about 2/3 the way down.

Thank you. Sophie Palagos from Ostrum Asset Management. Over the last 2 years, we've seen a very high volatility, which, in a way, supported your markets' revenues. And this also helped you, at the end of the day, really deliver on our strategic plan, which is good news. But the flip side is that maybe, the moment of truth will come when there will be normalized volatility. So my question is, how confident are you? And how confident can we be that you will be able to maintain your revenues and profitability in Investment Banking in a normalized volatility environment? In other words, what is the share of your activities, which is really benefiting from high volatility and the share of your activities, which will perform better in a more stable, let's say, environment?

Yes. Thank you for the question. Look, there's a lot to say there, and so I'll try to be as brief as I can. First of all, a year ago, everyone was telling us, you would start to see real movement in the evaluation of the company if and when you show growth in the Corporate Bank and Private Bank revenues. And we're now showing sort of double-digit growth in the Corporate Bank. And I think a trajectory of sustainable growth in both of those businesses helped by interest rates. So I just want to remind everybody that, that pivot point is one that we have reached and passed that, that growth is with us, and I expect it to be sustainable, obviously, within the confines of what the economy does. Investment Bank is a portfolio of businesses. And we've tried to sort of communicate this. Unfortunately, it's just -- it's hard to do in numbers in fairness because every cut that you do is -- will have some flaws to it. But if you want to take it in maybe 4 parts, you've got a macro trading business, you've got a trade and you got a credit business, which is both financing and distribution. You have a balance sheet that we run, that is actually quite stable in terms of storing off carry. And finally, Origination & Advisory, so a generalized corporate finance. Well -- but within that, you've got advisory, high-yield underwriting, leverage lending and also an equity business. So that's a portfolio. I believe, and I think we're demonstrating that, that portfolio is -- has more sustainability and less volatility than we've traditionally thought. But I recognize we need to improve -- we need to prove that over time and through cycles. So again, a year ago, Chris, this is an anniversary for me. I started talking about revenue ranges of EUR 2 billion to EUR 2.5 billion in the Investment Bank and that was purposeful. We think that -- the way we see the composition of revenues gives us more confidence around the monthly, quarterly profile recognizing that it's -- even in FIC or the larger IB business, recognizing it as a portfolio of businesses. I do think there's also, by the way, leave that aside, I think there's good reason to think that there's been a structural change in the FIC market. As much as we -- remember some, whatever it is, 5, 7 years ago, we were talking about cyclical and structural changes in the wallet. I think we're actually probably in an environment where we'll see structural underpinnings for a more healthy FIC environment. So leave aside the volatility question, but I think a general trend, if gently, to the north for that business. I hope that helps. There's a lot of different elements to it, but I hope that answers the question.

At the back.

Thanks. As you said, we're about to hear from the ECB, feels like a bit of a joys moment for us all. Do you obsess like we do over the 25 or 50 basis point move?

No.

You don't? Then I guess, the other question is sort of what is the ideal outcome for your business in terms of the pace and size of hikes? And at which point -- and this is a question that's come up a lot, at which point do you start getting worried about credit quality in terms of the quantum of hikes?

Yes. So no, we don't obsess about that. I mean, look, from my perspective, it's just a question of timing. Do they need to move? Do they need to mutualize? Yes. And the question, it'll set. But the other thing as you saw in some of our interest rate risk disclosures or interest rate disclosures, the long term bleeds in over time. So in fairness, we're patient. Any sort of, call it, structurally patient about how these changes will come through over time. It's always hard to judge where the Goldilocks point is. I think it's around communication. So the clearer the Central Banks can be on the direction of travel, I think the less disruptive it is to the market and therefore, you can manage. And I think they -- look, they do a good job in general. I mean I don't want to -- don't take that as a criticism. I think the -- as they've pivoted, maybe again, a little bit slowly, but once they did, particularly the Fed, they've tried to be as clear as they could be about the movement in both the direction of travel and the pace. It's hard to say where it tips over and potentially creates a worse recession than we might otherwise have or a slowdown. I can't judge. Our economists were saying that the neutral rate is -- has gone up enough and that the need to take that expectations is severe enough that we might have to go to, say, to big numbers in the U.S. currency areas of 4.5%, 5%. Do I think those are levels which can potentially produce unwanted economic outcomes? I do. But I also think it's important to shake inflation out of the economy. Ultimately, I'm certainly in the camp of people who think that price stability is very important to long-term economic growth, and frank, by the way, investment decision-making in the economy. So I can't tell you where the tipping point is. But certainly, where we're looking at right now, we're pretty comfortable with the direction of travel and the pace of travel.

We have time for one last question here at the front.

One feature of this sort of steepening yield curve has been banks in the Eurozone have not really passed on higher mortgage rates. And I think Germany, in particular, has been the slowest.

True, yes.

Could you talk a little bit about, like, is that just a timing thing? Or should we be worried that actually, to sort of, pardon my French, you're going to p*** it away on the asset side in time?

It's -- I'd like to think it's a timing thing. And I genuinely believe it's a timing thing, but I've observed the same thing that you have and I -- it is it's frustrating to me that we're slower than we should be on that as an industry. Because not just -- by the way, not just the interest rate impact, but also the capital impact, especially with the countercyclical buffer coming in, essentially the capitalization of domestic mortgages has changed in a way that prices do need to react in order to restore, if you like, the equilibrium of that product in terms of its, call it, shareholder value add. And if that doesn't happen, we're going to be disciplined about our provision of that and pricing. We may give up some market share because I think we have to have some discipline in that core product.

Okay. Thank you so much, James. Thank you for coming, taking the time and sharing your insights. Incredibly interesting.

Chris, it's been my pleasure. Thank you.

Thanks.