Deutsche Bank Aktiengesellschaft (DBK) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Deutsche Bank Q1 2023 Fixed Income Conference Call. [Operator Instructions] I would now like to turn the conference over to Philip Teuchner. Please go ahead.

Good afternoon or good morning, and thank you all for joining us today. On the call, our Group Treasurer, Richard Stewart will take us through some fixed income-specific topics. For the subsequent Q&A session, we also have our CFO, James von Moltke with us to answer your questions. The slides that accompany the topics are available for download from our website at db.com. After the presentation, we will be happy to take your questions. Before we get started, I just want to remind you that the presentation may contain forward-looking statements, which may not develop as we currently expect. Therefore, please take note of the precautionary warning at the end of our materials. With that, let me hand over to Richard.

Thank you, Philip, and welcome from me. We are pleased with the progress we continue to make towards our 2025 goals. The first quarter was marked by turbulent conditions in the banking sector, particularly in March, in addition to the macroeconomic challenges. However, our transformation has provided us with strong foundations, which enabled us to navigate these challenges successfully. We delivered on 4 critical dimensions: First, profitability. Pretax profits increased by 12% to EUR 1.9 billion and post-tax profit by 8% to EUR 1.3 billion, which on both counts represents our strongest first quarter since 2013. Our cost/income ratio was 71% this quarter, 2 percentage points better than the prior year, driven by positive operating leverage. As you know, annual bank levers are recognized in the first quarter. Spreading these bank levers equally across the 4 quarters of the year, our first quarter cost/income ratio would be 67%, with a post-tax return on tangible equity of 10%, putting us well on track to our 2025 targets. Second, we improved the strength of our franchise. Our business model is focused on 4 client-centric businesses, which complement each other and provide a well-diversified earnings mix as this quarter shows. We delivered revenues of EUR 7.7 billion, up 5% over the prior year quarter. Third, we again proved our resilience. Our Common Equity Tier 1 capital ratio was 13.6%, and our liquidity coverage ratio rose to 143%. I'll go into more detail on both later. Finally, sustainability is an important part of our strategy. As you heard at our Sustainability Deep Dive in March, we have updated our business strategies and policies and expanded on our commitments in several ways to fight climate change. Let me put a few key performance indicators in the first quarter in the context of our 2025 targets on Slide 2. We have strong revenue momentum. A well-balanced business mix enables us to benefit from higher interest rates, despite challenging financial markets, delivering revenue growth above our 2025 targeted compound annual growth rate on a last 12-month basis. Our post-tax return on tangible equity was 8.3% in the first quarter or 10% pro [ rostering ] through the year, already in line with our 2025 target. We have made steady progress on our cost/income ratio. The first quarter performance shows clear progress towards our 2025 target of less than 62.5%. We demonstrated the strength of our capital and balance sheet and quality of our loan book in challenging conditions. Let me now turn to our loan book on Slide 3, which is well diversified across businesses and regions. Around 70% of the book is secured or hedged, and almost 8% of our loan portfolio is in our stable and mostly lower-risk businesses in the Private Bank and Corporate Bank. Nearly half of our book is based in Germany, and 40% is equally distributed across EMEA and North America, with the remainder in APAC. Provision for credit losses for the first quarter was 30 basis points of average loans or EUR 372 million. Stage 3 provisions increased to EUR 397 million compared to EUR 140 million in the prior-year quarter. The majority of this was driven by a small number of idiosyncratic events in the International Private Bank. This was offset by a release of EUR 26 million in Stage 1 and 2 provisions, partially driven by a slight improvement in the macroeconomic outlook since the fourth quarter of 2022 compared to a charge of EUR 178 million in the prior-year quarter. We did not see a wider deterioration in the portfolio outside of this small number of specific events, and overall credit quality remains high. For the full year 2023, we reaffirm our previous guidance of 25 to 30 basis points of average loans. On Slide 4, you can see some key indicators of our balance sheet strength. I'll get into further details on the subsequent slides. Our capital and leverage ratio both increased on a like-for-like basis compared to the prior-year period. Our liquidity position is strong with a liquidity coverage ratio of 143% or EUR 63 billion above the 100% requirement. On the back of the market volatility in March, we decided to maintain an LCR level above our target for the first quarter and steered towards a 140% ratio. A well-diversified funding mix enabled us to offset the reduction in deposits through other sources and to slightly increase the LCR quarter-on-quarter. We have already completed more than half of our issuance plan for the year and are therefore flexible regarding the timing of future issuances. Looking at deposits, we have a very well-diversified portfolio across client segments, products and geographies, which is core to our strong overall funding mix. In addition, we have seen about EUR 12 billion inflows in our assets under management in the Private Bank and Asset Management. Slide 5 provides further details on the developments in our loan and deposit book over the quarter. All figures in the commentary are adjusted for FX effects. Loans have been essentially flat in the quarter. Deposits declined by 2% or EUR 15 billion compared to the first quarter last year and by 4% or EUR 27 billion compared to the previous quarter. Deposits in the Corporate Bank have declined by 6% over the quarter, mostly due to normalizations from elevated levels in the last 2 quarters, as previously communicated, as well as increased pricing competition. Deposits in the Private Bank have declined by 2%, mainly driven by continued inflationary pressures and clients' migration to higher-yielding products, which accounts for about 30% of the deposit reduction. Our Private Bank deposit campaign, which was launched early in the quarter, remains on track. Slide 6 shows that we have generally seen a trend of deposit normalization from elevated levels in the third and fourth quarter of last year. We have taken decisive pricing measures post the COVID pandemic with our focus to implement deposit charging agreements. These have not only materially improved deposit margins but also preserved the high portfolio quality, which is a key driver for the only 2% portfolio decline versus prior year. For the first time in this rate hiking cycle, we have seen customers structurally adapting to higher levels of interest rates as well as increased price competition amongst banks. As such, deposit normalization occurred primarily in noninterest-bearing products and about 2/3 of the reductions during the quarter occurred before the period of market volatility in late March. Our realized [ BEATs ] in our deposit books remain better than our modeling, including these effects. We attribute about 1/3 of deposit reductions in the quarter to clients reacting to events in late March. This constitutes only 1% of our overall deposit portfolio and speaks to the underlying quality of our book. We maintain a well-diversified portfolio across businesses, client segments and regions, with 73% of deposits in our German home market. More than 40% of our total deposit base, excluding banks, is covered under a statutory deposit insurance scheme. And in Germany, 77% of our retail deposits are insured. Over 80% of our deposits are from most stable client segments such as retail, corporates, SMEs and sovereigns. In the more professional client segments, we benefit from long-standing and deeply rooted client relationships. We serve a highly diverse set of clients across the globe with a vast range of services, such as cash and securities clearing or trust and agency services. As a result, 74% of our Corporate Bank deposits are either term deposits, operational current accounts or deposits from SMEs. Moving to Slide 7, highlighting the development of our key liquidity metrics. The liquidity coverage ratio, at quarter end, slightly increased to 143%, maintaining a very strong liquidity position despite the recent market volatility and deposit headwinds during the quarter. The surplus above the regulatory minimum slightly decreased by about EUR 1 billion to EUR 63 billion quarter-on-quarter, driven by EUR 11 billion lower stock of high-quality liquid assets and a EUR 9 billion decrease of net cash outflows. For the second quarter, we remain committed to support growth in the business and target to managing our LCR conservatively towards 130% over time. The net stable funding ratio remained unchanged at 120%, which is at the upper bound of our target range. This represents a surplus of about EUR 100 billion above the regulatory requirement. The available longer-term stable funding sources for the bank remain well diversified and are supported by robust deposit franchise, which continues contributing about 2/3 of the group's stable funding sources. Targeted deposit campaigns in the Private Bank, as mentioned before, will also support our NSFR. We aim to maintain this funding mix over the course of 2023, with the remaining TLTRO being gradually replaced. We voluntarily prepaid an additional EUR 8 billion of TLTRO during the quarter. The cumulative repayment of TLTRO amounts to about EUR 19 billion. For the rest of the year, we are focused on further reducing the remaining TLTRO funding with expected quarterly repayments of EUR 3 billion to EUR 4 billion. We have continued to benefit from the interest rate environment in the first quarter, as demonstrated by the rising net interest margin in the Corporate Bank and Private Bank on Slide 8. Group net interest margin, however, declined due to the accounting treatment of some of our central hedges and balance sheet management activities. This quarter, the accounting effect resulted in a sequential impact on group NIM of around negative 20 basis points. This effect is held in C&O, where it is fully offset by an increase in noninterest revenue, and there is no economic loss to the firm or overall impact on group P&L. Realized deposit betas remain favorable when compared to our models, but we expect this to partially normalize in the coming quarters as the pace of interest rate rises slows. Average interest-earning assets declined modestly, driven mainly by our TLTRO prepayments. Turning to capital on Slide 9. Our Common Equity Tier 1 ratio came in at 13.6%, a 25 basis point increase compared to the previous quarter. FX translation effects contributed 1 basis point. Changes in capital supply added 30 basis points, reflecting organic capital generation from net income, partially offset by equity compensation. Higher risk-weighted assets reduced the ratio by 6 basis points. Credit risk-weighted assets increased primarily from the business growth in the Investment Bank and Corporate Bank. We also saw a decrease in market risk RWA from an ECB-approved reduction in our qualitative multiplier add-on. Our capital ratios remain well above regulatory requirements, as shown on Slide 10. We saw a 62 basis point increase in our Common Equity Tier 1 capital requirement in the quarter, in line with our prior guidance. The increase reflects 11 basis points from a higher setting of Pillar 2 requirements by the ECB, 20 basis points from the German systemic risk buffer for residential mortgages and 30 basis points from the introduction of the German countercyclical buffer. Together with a 25 basis points increase in our Common Equity Tier 1 capital ratio, this resulted in a 37 basis point decrease in addition to our Common Equity Tier 1 capital requirement quarter-on-quarter. The Common Equity Tier 1 MDA buffer stands at 251 basis points or EUR 9 billion. Our buffer to the total capital required decreased by 58 basis points to 272 basis points. Moving to Slide 11. At the end of the first quarter, our leverage ratio was 4.6%, an increase of 6 basis points versus the prior quarter. FX translation effects resulted in a 1 basis point leverage ratio increase. 7 basis points came from higher Tier 1 capital, principally retained earnings. Higher leverage usage, mostly from a seasonal increase in market making activities in FIC led to a 2 basis point decrease in our leverage ratio. We continue to operate with significant loss-absorbing capacity well above all our requirements, as shown on Slide 12. The MREL surplus, as our most binding constraint, slightly increased to EUR 19 billion over the quarter. This includes the approximately EUR 2 billion impact from the higher-tier buffer requirements, which became effective on the 1st of February 2023, which are more than offset by higher available MREL capacity. For the second quarter, we expect, all other things being equal, our MREL headroom to reduce by approximately EUR 3 billion. This is driven by a higher MREL requirement and general prior permissions becoming subject to deduction, following the publication of a new regulatory technical standard in the EU Journal on the 19th of April 2023. Our loss-absorbing capacity buffer remains at a comfortable level and continues to provide us with a [ flexibility ] to pause issuing new eligibles liability instruments for at least 1 year. Moving now to our issuance plan on Slide 13. We are refining our guidance regarding our 2023 issuance plan down to the lower end of previously communicated EUR 13 million to EUR 18 billion range. We now expect to issue EUR 12 million to EUR 15 billion, of which we have completed EUR 8 billion year-to-date, more than half of our plan for the year. This issuance was executed before the market volatility and hence at relatively attractive funding costs for the bank. In terms of composition, we have completed our capital insurance issuance plan for 2023 when we issued a USD 1.5 billion Tier 2 note in February to refinance the recently called U.S. dollar Tier 2 note with the same [ notion ]. This triggered immediate derecognition from regulatory capital. Note that USD 1.5 billion rounds down to 1 on the slide. Our next [ call ] for AT1 securities are in 2025. In terms of senior non-preferred debt, we have issued EUR 4 billion year-to-date, and expect further issuances to be in the EUR 0 billion to EUR 1 billion range, depending on balance sheet developments. We are seeing ongoing strong demand for senior preferred debt and now expect to issue EUR 2 billion to EUR 4 billion up from EUR 1 billion to EUR 2 billion communicated on our last call. This paper is mainly coming as retail-targeted issuance. This pivot to senior preferred also lowers the overall cost of funding for the bank. Our main focus for the rest of 2023 will be the issuance of covered bonds as part of our TLTRO repayment strategy. You may have seen our announcement this morning of a EUR 1 billion tender offer, targeting our euro-denominated short-dated senior non-preferred debt. This transaction aims to correct the distortions we see in our curve since March and restore a normal upward sloping curve with a small differentiation between bullet and callable securities. The tender offer will run until 9th of May and expect it to be P&L accretive for the bank. Before going to your questions, let me conclude with a summary on Slide 14. We remain focused on delivering positive operating leverage. We expect 2023 revenues around the midpoint of the range between EUR 28 million and EUR 29 billion. In line with our previous guidance, provision for credit losses is expected in the range of 25 to 30 basis points of average loans. We remain committed to our capital distribution plan. Consistent with our path we laid out at the Investor Deep Dive last year, we proposed a cash dividend of EUR 0.30 per share for approval at the AGM in May, and the dialogue with supervisors about share buybacks in the second half of the year has been initiated. We're also committed to maintaining a strong capital position and a strong liquidity and funding base. All of which we demonstrated during turbulent conditions in the first quarter. Our funding plan is well advanced and positions us comfortably regarding the requirements for the rest of the year. With that, I will finish, and we look forward to your questions.

Before we do Q&A, it's James here, I just wanted to make a brief statement. You will have seen that we have today announced the acquisition of Numis, a leading U.K. corporate broker and advisory house. We're excited by this transaction, which supports the comments that Christian made yesterday on our equity results call, namely that the current market conditions create opportunities for us to attract talent and strengthen advisory capabilities in various businesses and regions. We're pleased that the reaction from our clients to the announcement of the transaction so far as they recognize the strategic logic of the transaction and appreciate the enhanced services that the combined business will provide. The acquisition of Numis gives us a unique ability to accelerate our global house bank strategy by unlocking a much deeper engagement with the corporate client segment in the U.K. This will be achieved by combining Deutsche Bank's existing U.K. and Ireland Corporate Finance business with Numis to establish a leading force in U.K. investment banking with a prominent position across corporate broking, strategic advisory, equity and debt capital markets and equity research as well as sales and execution to leverage Deutsche Bank's comprehensive and global product offering across the Corporate Bank and the International Private Bank. And with that, I'll hand the call to Natalie to moderate Q&A.

[Operator Instructions] And our first question is from the line of Jakub Lichwa from Goldman Sachs.

Few questions from me. It won't be very original, but that's where the market focus is. So first, on the deposits, as you noted, they were [indiscernible] quarter-on-quarter. You did provide a little bit of color. But again, maybe just to reiterate, what were the key drivers there? And more importantly, how do you expect the balance to develop from here? That will be one. And still [ monthly ], again on the deposits, can you provide an update on your observed deposit beta, please?

Thanks, Jakub and thanks, everyone, for joining this call on a Friday afternoon. Ahead for many of us, a long weekend. And also, I guess, we kind of throw a few things at people this week. So whether it's earnings, some strategy tweaks, management board changes and then Numis acquisition, I guess, our [ bond ] tender this morning as well. So I'm sure there's of questions that you have. But going straight to your -- topics around deposits, you're right, it's obviously the front and center of concern, I guess, for the market over the last couple of months. So for us, as I mentioned earlier, we saw a drop in deposits ex FX, around 4% on the quarter, 2% year-on-year. In absolute terms, that's around EUR 27 billion in the quarter. And I'd say, 2/3 of that can be explained as a normalization from elevated levels that we saw in Q3 and Q4, particularly in our Corporate Bank, and -- which we have mentioned on our Q4 earnings call, it was likely to reduce in the first quarter. This drop of 2/3 was driven by, I guess, two main factors. One was clients shifting deposits into high-yielding investment alternatives as well as active deposit reductions from those elevated levels that I mentioned. In addition, obviously, when we came into March, we had the market turbulence, and about 1/3 of the reduction then or 1% of our overall deposit base came in the last sort of week, 10 days of the quarter as certain clients just repositioned some of their exposures following events at Credit Suisse. And unfortunately, the volatility in our own name also influenced that. We saw increased price competition from our peers for deposits as well as that moving into high-yielding assets during that period. And as mentioned in my previous comments, we saw our share of that flow into both our Wealth Management and Asset Management businesses of EUR 12 billion in total. And then when we kind of came through quarter end and into April, our deposit base has stabilized and is improving as we head into month end. And in terms of outlook, we see modest deposit growth from here, sort of in order of magnitude say, call it, EUR 10 billion or so. And that's primarily going to come from deposit campaigns in our Private Bank in Germany as well as targeted term deposit sourcing in the Corporate Bank. So that's how I see this things shaping up for the rest of the year. And I think your other question was on deposit betas. So realized deposit betas continue to outperform our model assumptions, although we do see this normalizing in coming quarters as the pace of interest rate rises slows. I'd say, in dollars, we are closer to our model assumptions, but there's still a bit of a lag effect there. And in euro, there remains a large lag, given the rate cycle developed later in Euroland than in dollars. So you still see positive tailwinds for both our deposit-taking businesses in Corporate Banking and Private Bank for the rest of the year.

The next question is from the line of Corinne Cunningham from Autonomous.

A couple from me, please. First one is just about your issuance plans. And I suppose maybe a bit more color on what went on behind the change in your thinking there. And if spreads were to tighten or normalized, should we see this change as kind of a temporary effect? Or is it something that's a bit longer term that your funding strategy overall might be altering a bit? And then second question was on the LCR. I struggle to see a 130% ratio being the right level for Investment Bank, but I'd be really happy to have a conversation on that. And just to, I suppose, to see how -- how do you think about the LCR, going forward? How relevant it is? And I suppose, how you justify that 130% target, given what we've seen going on? And then also if you're expecting any regulatory changes that you're getting wind of anything going on behind the scenes in terms of how that might be struck, going forward?

Thanks, Corinne. Good questions. So when we set our issuance plan, we -- generally that plan kind of gets set in sort of latter half of Q4. And we set that to allow for material growth in the balance sheet, based on kind of how we were thinking about the world over time, so robust loan growth. So now we kind of see more modest loan growth, and the reduction in our issuance is appropriate to reflect that. We are lowering our full-year issuance forecast, as mentioned, based on reduced needs, particularly in the senior nonpreferred space. And this reduced requirement means that we've essentially completed our issuance plan for the more credit-sensitive categories of issuance and therefore, have considerable flexibility regarding the timing of future issuance. As we were able to complete a large part of our issuance during the benign conditions we saw in early Q1, and the recent rise in our spread will not have impacted our planned funding costs, overall, this year. And in fact, we see a small aggregate benefit compared to our planned expectations. We have no further capital instruments in our plan for this year, in particular, no AT1 call dates until 2025. And so overall, we're in a comfortable position when it comes to our issuance plan and have time to wait until our [ preselect ] the strength or where I can feel is kind of the right sort of levels for us to be issuing again, which is part of the rationale behind the tender this morning, which is kind of -- have observed our spreads have been wider than -- have widened since March. We have a bigger beta to the market now. And sort of we kind of feel we have the balance sheet flexibility to support seeing on preferred on the back of that as well. And then sort of LCR, it's kind of an interesting question. So our view is that the LCR clearly has value and in many respects, has been proven as a tool to ensure banks hold strong liquidity buffers and build better term structure into their liability basis. Of course, it's just one kind of stress test. And it would allow us -- I guess, from a market peer comparison perspective, it allows a little bit of apples-to-apples comparison. But I guess it's just one form of stress test. And certainly, what -- we have many tools in our toolkit to think about our portfolio, so whether that's a variety of internal stress tests, it's around our own risk appetite framework, how we think about concentrations in various segments, in currencies, in products and tenors and also the whole funding mix as well. So all of these are the tools that we have, which kind of give us comfort about the level of buffer that we need to rely on as well as the ability to mobilize [ cash ] as and when needed. I do think that -- sure people in this call understand it, but I think -- recall -- we announced this year if our bank loses liquidity and drops to 100% ratio, it hasn't run out of liquidity. It's not insolvent or anything. It's still able to withstand the full shock of the LCR stress. So the LCRs that banks are running represent considerability to withstand liquidity pressures. So I guess you mentioned the IB, I guess. [ Tuning ] on your business model, you will run different LCR ratios, based on your own view of your -- of stresses of your deposit book. But we are a pretty well-balanced organization now, not dependent on IB for revenues as our deposit base and our liquidity is coming from Corporate Bank and Private Bank. And so sort of the investment part of it is less significant as we continue to diversify our business streams. In terms of regulators, the -- we're aware the regulators are analyzing recent events, as they should, specifically around U.S. regional banks. And we -- as a matter, of course, I'm sure our peers will be doing the same as we're back testing kind of the shocks that we saw, they saw sort of thinking about any change to our internal stress test about how we want to think about things if that's appropriate. So yes, we're constantly analyzing whether we're adequately -- we have adequate buffers, we're comfortable kind of running them. And so we do believe that there's fundamental differences, I guess, between the events in -- we saw in the regional U.S. bank space and in -- I guess, and in Switzerland compared to our balance sheet structure. And so when we think about potential regulatory changes, then it's not clear to us that tweaks to outflow assumptions will be that useful response, given the market tends to respond more to changes in the liquidity position than its absolute level. And so to my mind, I think it's more important to sort of think about the overall toolkit that a bank has. And fundamentally, it comes down to that risk management capability. Do you have all the tools in your armory to be able to navigate these kind of stresses? I think we're pretty comfortable that, that is the case. And I think that and our business model and risk management are fundamentally sort of what leads to confidence in the system, in us as a bank. And therefore, that's the best defense against any potential outflows. So yes, so I think that would be kind of my answer. I hopefully that answers your question, Corinne.

The next question is from the line of Lee Street from Citigroup.

I have three, please. Just the first one on the acquisition announced this morning of Numis. I suppose I was a bit surprised. Is it not a bit of a strategic U-turn? It feels a bit like some of the businesses you're acquiring and things, which I suppose in the past, have been perhaps not to be sufficiently profitable or have sufficient scale. So I mean, my question is, what's changed to sort of make that now a good place to deploy capital? Secondly, two follow-ups really, just on deposits. So I think in response to your prior question, so am I supposed to be thinking you're basically looking to try and run the bank with about EUR [ 600 ] billion of deposits, that's sort of going to be the level you're operating around on the presumption that deposit beta is just going to remain pretty low, and therefore, that will be our sort of lowest cost source of funding you can get? And then just finally on the LCR, coming back to Corinne's question. Is your argument that what you're kind of saying we should be looking more LCR, Deutsche Bank's LCR through time and its level of volatility rather than necessarily comparing Deutsche Bank's worth is another bank because behaviorally, there will be different assumptions, different business models. Is that kind of what you're suggesting? That would be my three questions.

Thanks, Lee. It's James. I'll jump in just in the order of your questions. To talk about the Numis, I would say it's anything but a U-turn. And to think it is a U-turn is to misunderstand Numis' business as well as our global house bank strategy. So what I think it is really a fabulous fit. And I'll say as a proviso, I need to restrict my comments to the information that's in the Rule 2.7 announcement today. But looking at their business, it is a corporate equity and advisory business that we think fits perfectly with our platform today that we describe as the global house bank strategy. So it is an opportunity to significantly grow our client base in the U.K. with, frankly, very limited overlap. It's a client base that we think will benefit from access to the product capabilities that Deutsche Bank brings to the table in the combination. But capitalizing, as you know, in the corporate broking structure in the U.K. on the very close relationships that are created between corporates and their brokers, which in the narrow business model, typically drives equity capital markets and also advisory transactions and fees, which, as you know, are businesses that we remain in and did after the 2019 strategy, focusing our business on a what I'll call a corporate equities platform, even as we exited the secondary institutionally focused platform at the time with that strategic decision. But given we remained focused on corporate equities, it's not at all a U-turn. And we -- and then as I say, there's the broadening of the product capabilities beyond that inside Deutsche Bank, including fixed rate products and financing capabilities and then extending beyond that to our Corporate Bank and also International Private Bank capabilities. So we think there's a sort of a unique marriage of the relationships on the one hand and capabilities on the other. And I'll sort of leave it at that. I think that's a good summary. Just one other note, the agency brokerage that is conducted is actually also very much paired with what remains for us an agency brokerage and also research. So there really isn't an expansion of our footprint in that area either. So Lee, thank you for the question, but I hope it won't be interpreted as a U-turn, it shouldn't. But we understand that at first glance, it might look like look that way.

No, that makes sense. That's very clear.

And then, Lee, I guess, on your two other questions, I think one was around deposits. So yes, I think the 600 -- slightly north of 600 is a fair assumption, from a target perspective, for the year. And then, I guess, on the LCR point, the point I was trying to make was how we think about the sort of -- the LCR is a regulatory view of the world, and it's useful, I guess, for people looking outside in to sort of go, "Okay, what are people's LCR ratios because they are broadly calculated in the same way?" I guess what I was saying was more -- we obviously know our businesses, our clients, our products. And therefore, we know what is our own vulnerability, which we capture through our own stress test. And then we want to manage to those -- we want to make sure we have enough buffer to cover those particular businesses, and that infers an LCR number, if you like. So that's how we kind of think about it. Obviously, we kind of managed to both. But primarily, it's around our own view of our own portfolio about where we think the vulnerabilities are and making sure that we're always in a position that we have more than sufficient buffers to manage any potential outflows.

The next question is from the line of Robert Smalley from UBS.

Another three-parter. First, just domestically in Germany, we're seeing the GDP reports slightly negative. Maybe we have a technical recession, maybe not. But certainly, the economy is flat, probably better than we thought, going into the winter. But still pretty flat. Could you talk a little bit about where that's going to impact asset quality domestically, certainly around the edges, both on the consumer side and on the corporate side? That's my first question. Secondly, again, to harp on deposits. You're one of the few banks, certainly one of the few large banks that charged for deposits during negative -- during the negative rate period. I would assume that in order to do that, you have a pretty close relationship with your large depositors. Could you talk a little bit about how that informed you about what was going on with your own balance sheet during the periods of deposit uncertainty over the past month or 2? And what kind of relationships and what kind of outreach you had, and what kind of channels you had in place in order to do that? And then the third question, just on the tender. You've been known to tender before and successfully. Could you talk a little bit about some of the arithmetic that goes into that? Taking out bonds, what are you looking for in terms of savings? What are you looking for in terms of potential market reaction? And what it should do to your curve with respect to spreads? And how would you consider it a success?

Robert, it's James. Thank you for being with us, as always, and appreciate the questions. I'll take the first two and then ask Richard to talk about the liability management side. On the German economic situation, you're right that we do see essentially a technical -- well, I can't call a recession. It's really flat now for 2 quarters, more or less. And our view is that we will have essentially zero growth in 2023 in Germany now, our sort of house economic -- economist view. If you turn the clock back now even less than a year to say August, September, I think even that performance is actually very encouraging, given the energy crisis and some of the challenges the economy was facing. So we view that to be, relatively speaking, an upside surprise. And our -- again, our house view is that Europe -- Germany, Europe will avoid a recession in late '24 going into -- the '23, going in '24, even as conditions perhaps worsen in other regions. So we're -- we have a more constructive view on the economy than perhaps 6 months ago. You're right, though, that there are some, I wouldn't call them stresses, but there are challenges worth watching around things like corporate debt service, especially in refinancing, household situations as -- the COVID runoff. And, as it was last year, higher energy prices sort of did impact households. At the moment, we're not seeing, still, indicators in the forward-looking credit metrics that would suggest that is turning into a stress that would significantly impact credit. But it bears watching, for sure. And so we are watching carefully. But there's at least a path at the moment to sort of navigate through '23 and into, hopefully, more stable or growing waters in '24 without seeing a significant sort of fallout, from a credit perspective, in the German market. That's our perspective today. On the deposit side and the relationship with the clients, it's actually an extremely sort of penetrating question. I think that the effort over the last couple of years of negative rates and our pricing sort of policies absolutely helped us establish a sort of very close link with our clients on pricing decisions and that, that has benefited us in this environment in two ways. One is the way you suggest, which is we're able to make sort of micro pricing adjustments from a client relationship, liquidity preservation perspective, and have been very attuned between the businesses, the business coverage and also treasury on how to calibrate that, which has been very helpful. And then in a second respect, what you didn't see was a lot of deposits flowing into the bank in the period, where liquidity was perhaps excessive in the marketplace. So we're not dealing -- if you look at our deposit growth over the last several years, it's below the industry as we -- as our pricing sort of wasn't attracting new money as much. And that's meant that if you're with Deutsche Bank, it's because you have a good relationship, you value the services not because we're the leading price opportunity as a source or as a destination for your deposits. And I think that serves us well in an environment where we're adjusting now to a different liquidity regime, frankly, based on central bank policy actions. So it's a very good question, and we feel really good about the way we've been able to develop that connectivity with our clients and the -- as well as the internal connectivity on deposit pricing.

So I guess, on the tender, so in this instance, it was -- the -- how we think about it is we've obviously, we've been in a blackout period, but the curve -- so the bond curve has been inverted, I guess, ever since mid-March, which we kind of feel is -- really reflects the sort of the real default probability of Deutsche Bank over the next couple of years. So we kind of felt that, that plus how we see some our callable instruments and bullet instruments are kind of being priced that it doesn't seem right to us. And because we have the balance sheet flexibility and liquidity, then we can hope that we should test the waters to see how -- see if we can -- if you can sort of buy those bonds at the levels of the market we're offering and see if people think that the curve should be inverted or actually should be more positively sloping. So I think in terms of how I think about success, it will be -- if we see the curve shape kind of normalize. And then in terms of -- when we think about sort of the risk and reward of these things in terms of savings, then there'll be some safe funding costs on the tendered bonds and then also sort of the spread value, which we hope to see on the back of this, which allows future issuance to be cheaper, as already commented upon. Then our issuance is going to be in the more senior part of the capital structure for this year. It Is our intention and the amount we issue is also going to reduce this year. Hopefully that answered your question.

[Operator Instructions] Our next question is from the line of Anke Reingen from RBC.

I hope it fits for -- on the fixed income call. Just firstly, on -- I mean there's obviously a lot of debate -- focus on the bank lending survey as well next week and the fact that banks might tighten their lending conditions. And in light of this, obviously, you reduced your funding need for this year, and you mentioned less demand. But would you think that's also like less supply from loans on your side, given the somewhat more challenging economic outlook or higher funding costs? And then secondly, you used the word targeted deposit sourcing in Corporate Banking. Can you maybe a bit more precise because I guess from your comments, it didn't imply you would price up for deposits?

I'll let Richard answer the questions, but I just want to say, absolutely, welcome to the call. And we had a fixed income call on yesterday's equity call, which means we're delighted to have in both fora.

So I think in terms of our growth, so we're still planning on loan growth for the remainder of the year, just not as large as it was, but I think that's just more not driven necessarily by anything in particular. I think it's just when you do a planning process, then you obviously sort of are optimistic about that to make sure you have the capacity if clients come in. But as we sort of go through the year, then you get better visibility on that. And so that was kind of what drove this sort of the issuance plans in the first place. And now, as discussed earlier, we now are just adjusting those. So I think that's kind of part one. But I think you're right. I think we were thinking in sort of this, for example, the mortgage origination space, perhaps that might slow later on this year. And then I think on the Corporate Bank, in terms of deposits, so we're talking about -- primarily I guess what you're asking was in terms of being the best price and price competition, we didn't feel a need to be overly competitive during March, along with, I guess, some of the pricing competition pressures that we saw. But I think the Corporate Bank, I think, for certain types of deposits, for certain types of clients, if that's -- then we are looking at campaigns where we can source deposits as they come due. So I think, in general, we don't want to be the best bid in the market. But at the same time, obviously, we do want to make sure that we keep the client deposits that we need in the Corporate Bank.

Our next question is from the line of [ Stephan Sushi ] from Point72.

The first one is to follow up on this question on Numis. Why not contemplating an increased share buyback instead of buying Numis? Why is this option versus an increased share buyback because you try discount versus book value? I mean, could it have been a compelling proposition so far for shareholders? Secondly, to follow up on yesterday's question, what's the LCR ratio without the TLTRO, if I may ask? And lastly, in terms of capital build, what should be the steady-state capital build for the bank? Can we annualize the [ 30 ] bps we had in Q1, going forward? How should we think about it in a steady state, if I may?

So Stephan, it's James. I'll probably take the first and third. Richard may want to add on that, and I'll leave the LCR to him. So we don't think a buyback and this acquisition are mutually exclusive. So as we said yesterday, we are intending to pursue a buyback. I don't think capital necessarily is zero sum. And at the impact in terms of our ratios at 9 basis points, we think this represents a good investment for the group, also compared to a buyback, frankly. But again, it's not either, or. In a sense, it's both. And we look forward to the incremental earnings power that the capital we're deploying into the Numis transaction will produce. So I think that on the item.

If I mention, what I meant was -- I did not express myself correctly. What I meant is instead of doing, let's say, for the sake of argument, the EUR 400 million buyback for the year, you could have made, without this acquisition, an EUR 800 million buyback. So that's the data I'm referring to. Why not increasing potentially the buyback you're planning for the year is what I meant.

Yes. No, I understand. But it presumes that an EUR 800 million buyback would have been appropriate in terms of our -- the capital path and plan that we've set out. And therefore, we think the balance that we're achieving here in terms of deployment is a good balance, bearing in mind the here and now. And we understand our investors' desire to see us repurchase shares, especially at today's valuations, but balanced also with the need to invest to deliver returns in the future. And hence, we think, at this balance, it makes good sense for the firm and for our shareholders. In terms of capital generation, I don't -- it's a little bit too forward-looking to necessarily provide a view on basis points of capital generation per quarter. But obviously, with the earnings growth that we have laid out, and it's the product of the transformation that we've gone through over the past several years. We've gone from being a firm that generated relatively little organic capital and, frankly, needed to deploy most of that capital into the impact of regulatory changes that were flowing through the system and also the transformation charges to now generating capital that we can deploy in a series of ways, one of which is returning to the shareholders, which we obviously prioritize. Obviously, we also need to support organic business growth. And there is a sort of one more cycle, if you like, of significant regulatory build that we need to be able to fund from our organic capabilities or organic capital generation through to January '25. And so all of those things are built into our capital plan. All of those features are -- can be supported with the EUR 5 billion and then EUR 8 billion return that we've talked about. We're very comfortable we have the space to deliver on those promises and deploy that internal capital generation in a way that creates substantial value for our shareholders.

I guess, Stephan, I guess on the TLTRO, so in Q1, we repaid EUR 8 billion. So that brings a total to EUR 19 billion that we've repaid now. So we have about EUR [ 11 ] billion to repay by the end of the year. So EUR 3 billion to EUR 4 billion a quarter, so all very manageable. So year-end, all things being equal, we have a 143% LCR right now. If you just look at the TLTRO repayments this year, then down to 136 kind of number on the LCR, if that was your question.

Next question is from the line of James Hyde from PGIM.

Just more a technical question on the request. So most banks, I think you and Barclays are the only two that don't separate these things, report separate interbank and separate customer deposits. But you have this one line, which obviously fell by EUR 30 billion. And I mean, never been able to work out how much is into bank. I mean the only proxy that I have is to add up the segmental numbers of the 3 segments other than Asset Management. And if I do that, it's quite a less drastic picture, it's actually just down 1.5%. So I don't know if that is a customer number rather than the inter bank that's EUR 534 billion versus the total reported deposits of 592. So I mean, it'd just be useful to be in alignment with other banks, or am I looking at this wrong way? I know that repos go into different places on different balance sheets. But is taking the 3 sort of non-asset management divisions deposits the way to look at your customer deposits? And why don't you report like other banks?

It's interesting question. I don't think there's anything particularly that we're looking to hide. But repos, for example, are not part of our deposit numbers. And we have about 82 billion deposits from banks, but there's no repo in there, if that your question.

Yes, I guess that's -- yes. So I mean that's just not a number you see on the face of balance sheet, that's why I just wondered. And is that -- how did that move, that 82?

Let me just have a check on that.

Especially from mid-March to end March as well?

I think it's not a number -- I actually have two hands, so I'm going to have to come back to you through the Investor Relations after the call, if that's okay.

Yes. I just want to make a point just to understand why you don't report customer and -- like other banks do, that's also... thanks anyway.

So there are no further questions at this time, and I hand back to Philip Teuchner for closing comments.

Thank you, Natalie. And just to finish up, thank you all for joining us today. You know where the IR team is if you have any further questions, and we look forward to talking to you soon again. Goodbye.

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