Deutsche Bank Aktiengesellschaft (DBK) Earnings Call Transcript & Summary

Good morning, everyone. My name is Daniele Brupbacher, I'm a bank's analyst here at UBS. I'd like to welcome James von Moltke with his team here at our European conference. Thank you very much for participating again at our conference. It's a great pleasure having you here.

Daniele, thank you for having me again. I'm delighted to be here with you.

What we're going to do over the next roughly 50 minutes or so, we're going to go through a couple of questions on strategy, on numbers, outlook, what's the achievement so far? And then I'm more than happy -- we are more than happy to take questions from the audience as well. So be prepared, there will be a microphone in the room.

So let's start really because 2022 is an important year, right? You defined a clear strategy back in 2019. It was announced. It was a major strategic overhaul, clear targets, so let's take stock a little bit of what's happened so far. How do you see the most important achievements to date? And how are you -- how confident are you really heading into the end of 2022, the last 2 months or so, for the financial goals, let's be specifically talking about cost/income ratio, the ROTE target as an opening question?

Absolutely. Well, thank you for the question, Daniele. Listen, it's -- it was a 14-quarter journey that we set out for -- in July of '19. And it's been a long journey for the company. But also in the marketplace, I mean, it's hard to believe that over that period of time, we went through the COVID period. Now we've gone through war and the energy crisis in Europe. And I guess the 1 really important thing for us is that the transformation that we announced for Deutsche Bank, I think, put us in a much better place to navigate the market environment that we faced over those now 3, going on 3.5 years. We think we delivered in terms of milestones on the 5 sort of core objectives that we set for ourselves, and that was to build 4 core businesses that are client-centric and competitive in their marketplaces, to exit a set of businesses, which we did successfully, notably the secondary equities business, to focus on costs, while at the same time supporting investments in business growth, in controls, in technology. And lastly, to manage capital through that period so that we would execute the transformation using our own resources, existing resources at the time. And I would say across all 5 of those objectives sort of we're there. Yes, there's always more work to do. There's more work that lies ahead in terms of our trajectory. But if I think 13 or 14 quarters into it, we've achieved a great deal. And you asked about milestones. There are actually too many to list, but it's been truly a transformation. So if I think about the move to the cloud, if I think about the way the businesses have been reoriented, all the work we've been doing on costs, and of course, the business exits that I mentioned, it's been an enormous exercise. And we've been very focused throughout also on the control remediation side. We talk about that consistently. It's a feature of our landscape. I'd love to be at the place in the not-too-distant future where we can stop talking about it, but it's been a consistent focus as well over that time. So short version is, we feel really good about what we've accomplished, but we're also, I think, aware and humble about the work still lies ahead. On the targets, as we talked about in the third quarter call, we're confident we're on track to the 8% RoTE target. We've actually now achieved that over the first 3 quarters of the year, so the 9-month RoTE is 8.1%. And we're obviously working to deliver on that also in the fourth quarter to bring home the year at that 8% level. And incidentally, the core bank is running at about 10% RoTE. So we're very pleased with that performance in the year-to-date in what is a difficult market environment. On the cost/income ratio, obviously, we're working hard on costs as we talk about each quarter. And we did update our guidance. Initially, we were targeting a 70% cost/income ratio for this year, actually consistent with the cost/income ratio implicit in what we announced in July of '19 and we changed that guidance to mid- to low-cost 70s cost/income ratio for this year. And as we said a few weeks ago, we're on track to achieve that. So at this point, I think we have a high degree of confidence that we're on track to achieve also the financial goals for this year.

If we stay briefly with the cost/income ratio specifically, is there any additional comfort you can give us in terms of moving parts, key moving parts for the remaining 2 months that we actually get there? What drives that?

Yes. well -- and so now I have a view on October and that I didn't have a few weeks ago when we spoke to investors. Look, it's one of the challenges, it's a ratio. And so we're working hard on all the elements of it. But consistent with our commentary on the third quarter call, we have, I think, a very clear path to revenues above $27 billion for the year. That would imply something in the low 6s for this quarter, which is aided, as we talked about with -- by a gain on sale that we had on the sale of the Italian [indiscernible] business. So we feel pretty good about the revenue path there. Obviously, 2 more months, and so one has to create the proviso about volatility and uncertainties in the remaining couple of months of the year. But at this point, what we can see on track on that side. With about EUR 15.2 billion of expenses recorded in the first 9 months, you can sort of do the math on the ratio. If we're somewhere in the low- to mid-70s, that means that we need to continue to manage expenses tightly over the remainder of the year and be somewhere in the ballpark of where we were in the third quarter, again, working hard on all of the expense levers to deliver on our goals. I will say there are always uncertainties, as I say, in a ratio. One of the things we need to look at is things that are outside of our control on both numerator and denominator. On the numerator, one of those things is the volatility we've seen in valuation and timing differences this year, not really in our control. And then in nonoperating costs, there are litigation and also decisions in our control that we make on restructuring and severance, all of those things are still sort of in play. But with all of those moving parts, Daniele, to your question, we still see a very clear path to the goals that we've set.

Great. Another thing, I mean, you talked about October a bit, you reported Q3 results the following day. There was another rate hike. ECB meeting took place on 1st, I believe. And then there was also the change in conditions around the TLTRO. So interested to hear how you see that? What's changed for you? What are your current assumptions also per business if that's possible? And with rates going higher, a key question is, this is obviously what's client behavior? How [indiscernible] the outlook look like...

Yes. Well, it's going to be a fascinating experiment now. What we lived through and we've started, of course, in the summer and now living this rate cycle, which is sort of unprecedented both in its speed, but coming from minus 50. So we'll see what happens. Happily, I guess, the assumptions we made when we spoke to investors on our call a couple of weeks ago are proving to be about right in terms of the actions the ECB has set out and the forward rate curve that we were using at the time. And also regrettably, the assumption we made about TLTRO. So no question that there's a real tailwind coming from interest rates at this point, which is great for the banks. And it's -- I have to say, it's after a period where interest rates were really challenging for the banks. I mean the negative rate environment has really leached a lot of profitability and with the profitability, the ability to invest in the future out of the banking system. And as we benefit now from interest rates, one has to be aware, that's a normalization, not somehow a windfall that's coming to the banks. But with that said, for us, there's complexity about the guidance we've given. So I want to make sure that I'm really clear. So let's start with '23. The guidance we gave a couple of weeks ago was that relative to '22, interest rates should support revenues by -- interest rates alone should support revenues by about EUR 2 billion. And then that would be offset by something in the high sort of single digits, hundreds of millions of euros by the year-on-year impact of no TLTRO, higher funding costs and some of the benefits we had this year for example, debt repurchases and so on. So the net of those things should give us something between, say, EUR 1.1 billion, EUR 1.2 billion of revenues next year relative to this year. The other thing -- the other sort of timeframe we've been talking about, if I go back to the Investor Day we had in March, I was talking about '25. So we're on now a new 3-year journey to 2025. And there, we were talking about variances '25 relative to '21 that supported the growth rate. At the time, we had an impact from interest rates that we estimated based on the Venn curve and the December 31 balance sheet, that was EUR 1.5 billion. That's now well into the EUR 3 billion. So call it, EUR 2-plus billion increase in the -- at the rate curve alone delivers in 2025 relative to where we were in March. And again, there's an offset there of higher funding costs and what have you -- and so if I were to sort of net the number, I would add to maybe EUR 1.3 billion of revenues, including the funding cost, all the other pressures that you see. And so a pretty good tailwind that we have. In compound annual growth rate terms, because we were talking at that time about CAGRs, it probably lifts the CAGR about 1% that we get from rates, probably 1.2% from -- 1% from rates alone from the rate curve and all that goes with it to 1.2% to 2.2%. So a meaningful impact over those years. And lastly, just to make sure that we're clear on that, the '23 and beyond TLTRO impact and the other changes including on required reserves is in line with what we said. It's a little less maybe than EUR 50 million this quarter of impact of the ECB decisions. And in, call it, the high [ 400s ] next year of revenue that we might have expected to earn on the original terms of TLTRO that are now not going to be part of our earnings next year as a result of that. So -- but all of that TLTRO impact is baked into what I told you about '23.

And is there anything specific we should be aware of in terms of assumptions around [ deposit with us ] client behavior shifts on the balance sheet?

As I sit here today, I would tell you that betas is probably upside to the guidance that I just gave. Right now, I would tell you that we are running a little bit better than the models, actually, in some cases, considerably better than the models, I would say. What we call DRE, but is a beta assumption, but it's early days. So the euro, it's especially early days. We only have a couple of months of sort of data of how we're tracking against the models, more, of course, on the dollars. And there, like our American peers, we're seeing performance better than the models would tell you to expect. The question is, will we catch up with the models over time as the rate -- as that this rate cycle matures? We would assume that we will, but there's a little bit of time with the lag that we would expect to benefit '23. How much that is will depend on the competitive market environment and sort of behavior. My belief is that based on right now the competition in the marketplace, the levels of liquidity and so on, that we should be able to keep a lag effect a little longer into '23 than the models might suggest.

Sounds good. Can we talk briefly about Q4 given you're now well into the quarter? You did already give some guidance with Q3 results, but just interested to hear whether there's any update you could give us in the individual businesses? Specifically, I think there has been a big focus on the stable businesses as well [indiscernible]

Sure. Happy to, and thank you for the question. Yes, no -- and it's nice that we're starting with the stable businesses, Daniele. I remember sort of 18 months ago -- and often still today, the discussion about Deutsche Bank is seems to be always an Investment Bank discussion, which isn't to say we don't love our Investment Bank, but because I think we're performing very well. And within the Investment Bank, a FIC discussion, but it ignores the much larger organization around us and as we said at the outset, 4 successful businesses that we have. So start with the Corporate Bank. There, we've seen sort of outstanding growth this year, as you've seen with competitors, but supported by interest rates, which you see most meaningfully in the Corporate Bank because of the dollar exposure we have and also the way that liabilities are hedged in the Corporate Bank in euros, there's more upside that comes more quickly in Corporate Bank. So you saw a 25% year-on-year growth in revenues in the Corporate Bank. For example. In the last quarter, I think your -- in the 9 months sort of 20%, so good solid growth in the Corporate Bank. And that's something we'd expect to continue, both based on the cumulative impact on volumes and interest rates. But I like that there's also the volume of the underlying growth there. Loan growth moderated a little bit in the third quarter and that we may continue to see depending on how the economic environment plays out. But I think that just the fundamentals for growth in that Corporate Bank are very strong. So we've talked about having achieved a run rate of, call it, EUR 1.5 billion per quarter, gets you -- annualizes to EUR 6 billion. I'd say we're running a little bit better than that at the moment. You've seen that last several quarters, something between EUR 1.5 billion and EUR 1.6 billion per quarter. And we'd expect that to be the case this quarter, fourth quarter, and then build on that into '23. In the Private Bank, based -- there's still, again, growth. It's been, call it, an underlying growth rate in the mid-single digits this year. A lot of noise because we had an adverse ruling on terms and conditions in Germany last year, which were kind of growing over. We have some unusual effects from workout of sort of legacy assets and so on. But there's a nice solid 5% underlying growth rate there, even in an environment where some elements of the business have been difficult this year. So particularly, we talked about Wealth Management in Asia, where there's been deleveraging and a lot less activity in the current markets; investment products, which we're very strong in, also in Germany has slowed down. But notwithstanding that, you've seen good new business volume, EUR 36 billion in the year-to-date on loans and Assets Under Management. And you've seen some continued loan growth even if, again, moderating that business. But we like the underlying growth rate of 5%. And nice thing in that business is interest rate impacts will accelerate over the next several years because the Private Bank is more exposed to the long-term euro rates. And so it will be -- there's some benefit this year, there will be an incremental benefit next year, but then it will accelerate in '24 and '25. So short version of all that, Daniele, is we like the momentum in those 2, what we call stable businesses that are, of course, benefited from interest rate -- by interest rate.

Even the size of IB revenues, I still want to briefly touch on those as well. Anything specifically we should be aware of with regards to Q4 in the IB? Is it the businesses we've seen performing well year-to-date, which is probably, I guess, in favor of your business mix. And probably just the word sort of looking into next year 2023, there is -- I think you made some statements around what would you expect to be the drivers probably also in the second half of next year. If you could elaborate a bit on this? And how is your market share developing? I mean I think you've had a few things that were clearly supporting those market share gains, whether we should still expect it to come through next year?

Yes. Well, it's -- and it is an important part of our business, so I don't get me wrong. And by the way, when we talked about a global house bank strategy, which was sort of the name we gave it back in March, I think it's important to realize is sort of it's an integrated capability to serve the financial needs of our clients as a, call it, first call bank and that absolutely includes the Investment Bank. So one of the strengths of what we're seeing at the moment with these refocused businesses is, say, risk management that the Investment Bank executes on behalf of the clients on the Corporate Bank, it's been a big part of the business and one that's growing in FX and rates, for example. So that's been a really key part of the business. As you say, trends, I think, in the fourth quarter will be sort of evident that we can see in the marketplace very similar to the first 3 quarters of the year. So we're in an extremely weak O&A environment, we call origination advisories, the corporate finance product suite, where I think this quarter, the year-on-year wallet will be down about 50% versus last year, so half of last year's wallet. Admittedly, last year -- last year's fourth quarter was the all-time high for that product set. So it's against a difficult comparison, but still a very weak environment, and we would expect to travel sort of in line with the market share. And as you say, the mix of that market has been a little bit adverse to us this year in market share terms. So our market share has declined to about 1.9% if you look at Dealogic. We don't think that's a franchise weakness per se. We think that's a business mix -- reflection of the business mix. And I think that will begin to normalize as time goes by. And we're making investments in that business, especially M&A, but the suite of advice-oriented capabilities that lead into financing transactions, which is a traditional strength for us. So that -- and I'll come back to the trends that we see in '23. We're thrilled with the performance of our FIC markets and financing businesses this year, not just because the market has been favorable because -- but because as you say, we've managed the risks, I think, very well. Obviously, we need to do that for 2 more months of the year in a difficult environment. And importantly, we're seeing that client engagement that we're talking about. In fact, a year ago, I think we talked about the impact of our rating upgrades on that business. And so we're seeing that continued sort of improvement in just our market position, the percentage of flows we represent, the clients coming to us, percentage of RFPs in electronic products, that type of thing. So we're really pleased with that. And our market share is hard to see because it's not as public as the corporate finance product suite, but about 11% is as we measure it. And that's really good recovery over the past 3 years, if you like, since 2019. And that's a trend we would expect to see continuing. Credit has had a tough year, of course. And especially on a year-on-year comparison, where, as you may recall, we had last year, the benefit from an outsized gain on a position we had in distress, that had the biggest impact in last year's fourth quarter on our revenues. And that's something we're growing over. So if I put all that together, I'd probably say the Investment Bank should be about flat to last year's fourth quarter which, to our mind, is a pretty good result given the dynamics in the environment and the large gain that we're going over. So that's more or less how we're trading there. One thing I do want to add, Daniele, is Corporate & Other, which often gets lost in the mix unless it pops up. We've had -- as we manage through the volatility of the marketplace this year, we've seen a couple of very difficult quarters in what we call, Corporate & Other, driven by valuation and timing differences, so that's hedging the balance sheet. We had about EUR 200 million of losses in each of the first and second quarters and then a EUR 200 million gain in the third quarter. We don't know what the fourth quarter will look like, but I wouldn't expect the third quarter gain to repeat. If we look at what that's been historically, obviously, there's a volatility, but it averages out with all of the other treasury effects at about [ EUR 150 million ] negative per quarter, and I wouldn't expect the fourth quarter to be -- unless something unusual happens in either direction, not much different from that. So that's something to bear in mind as well.

Good. If we could probably switch a bit to asset quality in an environment where from a macroeconomic standpoint of view it's still deteriorating? When you talk to clients, what are you hearing both domestically and abroad? How do they react? I mean there's various measures in place from government, et cetera. How do you -- can you tell us something about underlying provisioning assumptions and then probably also the expectations in terms of loan growth across the key businesses?

Sure. Daniele, the -- it is obviously a big question facing the industry is what -- how severe will the recession be in the economic environment that we're going to travel through? And what is the credit cycle? How severe will the credit cycle be that accompanies it? It remains hard to say, I have to say. I mean all of us look at the environment and the various risks out there and say, there's, I guess, a storm coming to paraphrase one of our competitors. But we don't know how severe that will be. And if you look at the current credit statistics, they still remain reasonably stable. I will say just philosophically, Daniele, we tend to, if you like, trust and follow the combination of our credit officers and the ratings that they're applying to the portfolio and the models that we've built, invested in an IFRS 9 sort of asks you to follow. So to your point, when you ask about what assumptions do we use? Of course, we use some assumptions in our planning. But in the actual provisions that we post, by and large, we follow what all of that modeling and also human intelligence that we build into it would tell us. Of course, we add overlays from time to time, if management's judgment suggests the models and the result of the credit ratings doesn't give you a good picture. But we try to rely on the model as much as we can. The guidance we've given for this year is 25 basis points of credit loss provisions and 25 basis points of average loans, which incidentally is a number that we first put out as guidance in March, so relatively early in the environment that we're facing, which is also something we did in 2020 in the COVID environment to some sort of controversy as to how it is that we felt comfortable with the portfolio, given all the uncertainties. And we still feel comfortable with that as we sit here today. The risks that we see -- so if I look at our corporate clients, especially larger multinationals, there, there's still a reasonable degree of confidence that they're able to navigate, shift production, order books, came into this environment high. So while we see a deteriorating environment, we say we're not sensing from that multinational client base, a cliff effect that they're expecting or seeing, which is good, encouraging. If I go further down the corporate sector to SMEs, there, I think there is going to be pressure, and our clients are seeing pressure, especially sort of focused industries that are particularly exposed to energy prices. And then you've got households. In the -- in our retail credit stats, we're not seeing changes yet. It may come, but we're not seeing changes in those credit stats or the forward-looking stats. And as you mentioned, the extent of government support in this energy -- at least the energy part of what we're facing is significant, with the German government coming in with its EUR 200 million program. So all of that will play through. So will there be a deterioration? Yes. I think as we sit here today, if it's 25 basis points for this year, I would expect it to be a little bit worse, maybe 2 to 3 basis points worse next year. But that's an early view, and it could certainly be worse depending on how things develop, but it's what we see today in the portfolio. As I say, it's very early, I'd be talking about '23. But as I say, our willingness to talk about a forward look on the portfolio is based on all of that math and the very strong underwriting, conservative approach we take to credit management in the company.

Good. You did mention already 2023, but can we probably be a bit more specific at this point, if possible? How you think about going into next year from a -- let's go through the P&L from a revenue, cost, you mentioned risk cost already, so I think here, and probably also a range around that, what's the key challenges in general in key P&L lines?

Yes. Well, look, it's early to be -- we're trying to avoid being drawn on '23. We're still working on all of the efforts we do around planning, and we look forward to the fourth quarter earnings announcement on February 2, where we'll obviously give more color on '23 and the path to '25. But if I just build on what we talked about at the third quarter earnings call, we still feel pretty confident about our revenue trajectory. We talked about the stable businesses earlier. So Corporate Bank, Private Bank, I think, have momentum, have the lift from interest and while you could certainly see a softening of loan growth and certain elements of the drivers, you do -- it's against an environment of underlying growth that they have. In Asset Management, equivalently, we've seen the impact of the market sort of sell off this year. And so that's, in essence, in the run rate. So we're traveling something a little bit above EUR 600 million per quarter in revenues in our Asset Management business based on management fees, essentially. And then there's some variability that's created by performance fees and kind of new originations or new asset inflows. So absent a significant change in the financial market environment, you'd expect that to run in a stable way. Stefan Hoops and his team will be talking to investors and early December with an Investor Day, and we'll have more to say about it. But the kind of underlying performance, I think, is built into the run rate at this point on the revenue side. And then the Investment Bank, as we talked about that a little bit, there's -- it's always hard to tell because it's more driven by the financial market environment, episodic events, volatility and so on. But on a big picture, I would expect there to be a transition next year from the volatility-driven revenue environment that we've had this year, which has been good for the FIC markets areas, FX, rates, global emerging markets. And by the way, with a good financing backdrop, so you're able to put money to work in structured lending at good rates, good spreads. And sort of a reversal of the weakness you've seen this year in credit markets, notably leveraged debt capital markets and also the episodic corporate finance products. When does that transition take place is hard to tell. If you ask me to guess, it would be the second half of next year. Just as we start to get more visibility into the path of interest rates, the path of the economy, depth of recession, perhaps the outcome or a path to resolution of the war in Ukraine and the attendant energy prices, my instinct is it will still take 5, 6, 7 months before we start to see the clarity on that. And with that, my expectation, will come this transition to in our businesses. We're running at a rate -- annual rate at, call it, EUR 10 billion in revenues in the Investment Bank, you'd like to think that we could achieve that again next year. Obviously, there's variability around that, but in an environment that transitions as I outlined. So all of that feeds into what we said on the third quarter earnings call, which is a clear path, I think, to [ '28 ] or above in revenues next year with still solid performance in the businesses, deteriorating credit, every effort to hold cost as flat as possible, even in this environment with inflation and investments that we've talked about in technology and controls and also move forward in the business. With expenses benefiting from the programs that we have underway to drive structural efficiencies in the company. We can talk more about that, but we laid those out in March Investor Day, and that's something that we're continuing to execute on and that we rely on to help us manage our expense path, not just next year but into 2025.

I mean speaking briefly with '25 and so there's I wanted to discuss '25 and the question on capital as well, then we can probably open it up for questions if there are any in the audience. But -- so firstly, on capital, anything we should be aware of going into year-end for 2022, I'm talking about? And then, yes, 2025 is important because that's the next cycle. Can you -- it was March, has anything changed since then in terms of key drivers within that? I think you also gave some CAGRs per business unit on the revenue side of things. Any changes there? It was very -- if I recall correctly, it was very much driven by actually the stable businesses, which I think is something the market likes. Is that still the case? And you did mention costs, so I think keep it short. And then very lastly, sorry, a lot of questions here, the capital distribution plans at this stage.

So let me start with capital. I do want to -- we guided for 13% at the end of the year, and that remains our guidance. We posted 13.3% on the Common Equity Tier 1 ratio at September end, but we felt that was a low print on RWAs, both credit risk and market risk RWA. So we see RWA growth in the fourth quarter that would sort of take us back towards that 13% guidance for the quarter and year-end, which again is, given everything we've traveled through, as I said at the outset since July '19, we think is a great outcome for investors. And as we talked about in March, we've started on this path of capital return, which of course, we had to make the painful decision to suspend the dividend for 2 years. We restarted the dividend this year at EUR 0.20. And then in March, we gave investors a very clear path of doubling the dividend -- 50% increase in the dividend every year for the next several years to EUR 0.30 next year, EUR 0.45 and then EUR 0.675. So we've laid out a path on dividend, and that's something we're very committed to keeping. In general, our distribution path that we laid out in March is one we still see -- we're still committed to, still see a path to. You ask what's changed? A lot is changed -- has changed and is changing in the environment. So it's probably too early to give you sort of the puts and takes of that. And by the way, too early to say really what the Basel III path will look like now that we've got a counsel proposal, the reporter at the European Parliament and the Commission all having spoken now we've got to go through at least a year of this trialogue there's uncertainty as to what 25 will look like on Basel III. But with all of that said, I think for now, we still would say we stick to that distribution plan, and we're very committed, especially to the dividends and to the distribution we laid out cumulatively to '25 as well as the payout ratio after '25. Daniele, you asked about some other things in all of that, just remind me.

Well, I think it was around the growth dynamics within the revenue. I think you gave CAGRs per business unit. And I think it was 6% or 7% for the stable business is relatively positive, which is something the market likes. Has there been any shift within that?

Probably a little bit. And again, it's early to say, so we'll provide more of an update in February. But the Investment Bank had a CAGR of about 1%, and we think that's reasonable. We would expect sort of the wallets to decline in FIC from here and probably start to normalize in O&A. And by the time you get to '25, I think it's too early to judge whether there'd be any difference in it, but we don't see that, that's likely. The compound growth rates of the group at a hold 3.5% to 4.5%. I'd say Corporate Bank is probably above what we indicated back in March; PB in line; and Asset Management, again, probably too early to tell. Stefan will speak about it in a few weeks' time, but of course, it depends on the financial market environment. Big picture, you have relative to March, you have a better interest rate backdrop and probably a weaker macro backdrop. So some foregone growth in '23 and '24, that in my judgment is probably more than offset in '25 on the revenue line. And you probably have more pressure than we saw in March on expenses from inflation tells you we need to work even harder on our expenses. But if you put those 2 things together, no reason we'd step back from the cost/income ratio we were indicating back in March.

You had an absolute cost target as well, it was, I think, [ 18.5%, 19% ]. So that's something which you feel comfortable with...

Yes. I'm essentially traveling flat over that time with the levers being investments that we make in the business, obviously, the initiatives reduce our costs over time inflation. And I think we're getting to a point where we have more levers that we can toggle. It's -- when you're bringing expenses down, you don't have the same sort of ability to toggle. When you're trying to travel as flat as possible and your creating room to self-fund investments, which is sort of the path that we've laid out to '25, you do have a little bit more scope to toggle. So that's what we're working to deliver. And we're in the middle of our plan cycle. So working hard to preserve the path that we've outlined.

So I have 1 more question, but let's see whether there's any questions in the audience. Anyone? [indiscernible]

Ladies first. James, sorry, I was late. Just if you were to be surprised both on the upside and downside, I mean, what would be your biggest deltas. I mean I could think that on the macro side, there is still a lot of order books, but there's a lot of talk, obviously, from all the companies of over ordering, so that will give you a different view to what PMIs are saying. Obviously, PMIs are lower, order books are higher. But equally, it could be a positive surprise if you deliver. I mean what's your view on what could be the biggest delta from here?

It's -- in today's world, it's a fascinating question because there are so many levers at the moment or so many influences on the environment that we're traveling through. Typically, you might have 1, 2, 3 big items that you're looking at. Right now, the range, the number of items in the range of outcomes, I think, has a wider dispersion than normal. So let me start with the war in Ukraine. Obviously, we all follow that every day, horrible sort of situation Ukraine is living through, but it's obviously impacting energy markets, commodity markets globally and has by nature of war, I won't say binary, but it has the possibility of a very wide range of outcomes. And that could produce -- that will influence '23 quite significantly. There's talk now of potentially peace discussions, and it could go worse again. So I look at that as a pretty pivotal event next year, that it's hard to have a real view on, to be fair. I think the economy as I mentioned earlier about asset quality or the household and corporate resilience, we started talking about this in July, and it sort of remains our view. The resilience is greater than you would expect. And that was even kind of when we started in July, the shutoff of Nord Stream hadn't happened yet. So it was a downside scenario. But what we're traveling through right now strikes us as less severe than the downside we outlined at the time. As you say, inventories in some areas are high, so people sort of kind of put aside inventories to recognizing supply chains were more vulnerable. In some cases, supply chains are still sorting themselves out. So there's a kind of a middling environment that we see there. But again, a level of resilience, especially as I mentioned, large corporates. And if you go down to SMEs and households there, you're starting to see some stress for sure, but the impact of fiscal support is the greatest -- or is at least targeted in those areas. And so you see some help there. So there is an outcome, but I look at that as a narrower dispersion, if I just look at corporate and household resilience next year. The economy, as you know, we've been as Deutsche Bank and our research, but also management's expectations has been for a while that the economic outlook was weaker than the consensus suggested. And I'd say there's been a convergence, so I think the consensus now is for recession next year. How severe? We don't know. I'd certainly think it is in sort of a contraction in the very low single digits -- but range, to your point, there is certainly risk to the downside on the recession, and that could spill over to the corporate household world and credit. And then on interest rates, again, we've been of the view that terminal rates would be higher and would be more persistent. I think the market is beginning to converge to that, which ironically, to me, suggests the risk is the downside risk, which would be, if you like, an upside, optimistic risk. In other words, the curve bends quicker and the central banks get to flat and then easing more quickly than I would expect, and that, to me, is a downside risk in a sense to the interest rate-driven revenues that are implied by the curve today. And to be fair, I look at that as relatively less likely than more so. I hope that helps. But it's -- I'll call out those 3 or 4 items and as I mentioned at the outset, a very wide dispersion of outcomes if I look to the next, say, 2 years.

Can you hear me?

I can hear you now.

So the world has changed so much that a couple of your peer group banks, SocGen and Union Credit have expressed their frustration to the ECB in a few areas, so capital kind of management, TLTRO benefit and governance and board meetings, that kind of thing. I get that every bank is different in Europe, you're probably very different. So if you were writing your letter to Mr. Enria, what would be in it?

Boy, I'd like to take the fifth on that question, I have to say in a public forum. We've been vocal in some areas, I think. And so let me take a couple -- I think we've been we were -- from a research perspective, I'll take the alibi of independent research. From a research perspective, we were vocal that we thought that the ECB should have moved more quickly on rates. It now is and has and of course, we support that. We think it's important now to -- because inflation is an absolute killer in the economy, and we think it's essential to get on top of that, and hence, while perhaps late, the ECB is moving firmly and we support continued firm action. On TLTRO, of course, we're highly critical. I made some comments on the fixed income call a couple of weeks ago. We think retrospectively changing the terms of the monetary policy instrument where banks entered into in good faith, their elements or they're part of that bargain, we think is really not -- is not good, not a good precedent, not good economically for the banks. Frankly, while I think justified on a monetary policy basis, our instinct is it's sort of secondary, monitoring policy to our mind, wasn't so influenced by how -- by the speed of that pay down. So we obviously have a highly negative feeling about the mulligan that ECB took on that. On the regulatory side, obviously, a lot of those discussions are private, and I don't want to breach that. You know that we've been in a relatively long-standing dialogue with the ECB about leverage lending. We've defended the business model, as we think it's appropriate to defend the business model. We continue to see leverage lending as a key part of what we do and that won't change because of our perspective. So there is a difference of views that we have with the ECB on leverage lending. On the broader governance and regulatory side, we would take the view that in some ways, you need to give the banks a stable capital environment within which to plan themselves and provide credit to the economy, which is the main thing. And our capital environment has been anything but stable over the past several years. So we've been managing through our own transformation and at the same time, managing through TRIM, the other model reveals that is taking place, the Basel III items that we don't know the outcome of and a host of other things feeding through our capital countercyclical buffers, limitations that are placed on us and so on. And we think the sum total of that is a real challenge for the industry. And then if a light on 1 last point, I'd just say industrial policy. We have a strong view we need to get to a capital markets union, a banking union, obviously, outside of the realm of the ECB, but within that, I think the industrial policy that the ECB and other elements of the official sector are part of, we think, should be moving towards championing the banks to help the economy rather than not. What I think often gets lost, again, this isn't an ECB comment, this is much wider. The debate since the financial crisis should be a financial stability against economic dynamism and growth in the economy, that's the debate. Very often, we get lost in rules and models and limitations and risk assessments, and we're not letting the banking industry do what it should do, which is underwrite risk, take risk in a prudent way, manage its balance sheet prudently, but be this engine for the economy and I do think there's an industrial policy dialogue that is kind of going missing. Perhaps the Basel III proposal from the council, which I haven't had a chance to really look at, is the beginnings of that, but that's certainly something I'd encourage, and I think the ECB should be part of that dialogue in an important way.

I think just conscious of time, is there any urgent question left? Otherwise, we probably would wrap it up here. I think that was a very good answer to a lot of the questions out there.

Completing the fifth and I said exactly.

But super interesting, super insightful. Thank you very much for coming. Thank you for your interest. Thank you for being at our conference.

Daniele, thank you very much for hosting me. Thank you.