Deutsche Bank Aktiengesellschaft (DBK) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Q3 2026 Fixed Income Call. I'm Moritz, your Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Philip Teuchner, Investor Relations. Please go ahead, sir.

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, Raja Akram, 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 delivered record performance and strong momentum in the first nine months of 2026. We grew revenues to EUR 25.5 billion, well on track to meet our full year ambition of around EUR 33 billion. We have now completed a large portion of this year's investments, and we continue to maintain cost discipline. As planned, we have largely self-funded incremental investments with efficiency gains. This enabled us to deliver a record profit before tax of EUR 8.4 billion for the first nine months of the year, along with a record third quarter. Post-tax return on tangible equity was 11.5%, and our cost-income ratio was 61.4%. A few words on our progress on scaling our global house bank. We made tangible progress on all three levers of our strategy in the first nine months of the year. We continue to deliver focused growth. Revenues increased by 5% versus last year, in line with our planned trajectory through 2028. Our focused growth areas contributed nearly 80% of the increase and grew by 6%. Second, we maintained strict capital discipline. Our initiatives included further capital accretive actions on nonperforming exposures and progress with our securitization programs. Third, we made further progress on our scalable operating model. We continue to simplify our processes and made targeted investments in upgrading our infrastructure. Across all three levers, we are driving strong performance across our businesses, investing in growth and efficiency and reinforcing client connectivity. Turning to slide three. All divisions delivered an RoTE of 12% or higher for the first nine months of the year, while each division increased profit before tax in every quarter of the year. Private Bank net flows reached EUR 17 billion, a record for the Private Bank with around 2/3 from Wealth Management. Year-to-date inflows have already exceeded the full year 2025 level. Asset Management grew AUMs to over EUR 1.2 trillion with record net flows of EUR 31 billion in the third quarter. The Corporate Bank delivered record quarterly revenues with sustained growth in loans, deposits and client activity across every segment. We delivered strong revenue growth in Germany, underlying the strength of our home market franchise. And the Investment Bank delivered strong results. FICC revenues were close to the record prior year quarter despite less favorable market conditions. And in IBCM, we increased our EMEA market share by 160 basis points year-on-year. Our franchise business performance and balance sheet have remained resilient despite heightened fiscal uncertainty across Europe in an already challenging global economic backdrop. The path to our 2028 targets and objectives has become clearer as we make progress against our strategic priorities. This strengthens our view that an RoTE above 30% represents a floor. Turning to treasury-specific topics, starting with our net balance sheet on slide four. We continue to operate with a strong and conservative balance sheet, underpinned by robust capital and liquidity buffers. Compared to the prior year period, we have demonstrated strong volume growth in both loans and deposits, up by EUR 22 billion and EUR 33 billion, respectively. This resulted in a loan-to-deposit ratio of 69%. Capital remained robust in the third quarter. Our CET1 capital ratio was 14% at the high end of our operating range. Our leverage ratio was 4.4%, reflecting higher leverage exposure at quarter end. Let us turn to provision for credit losses on slide five, for which we recorded EUR 501 million in the quarter. We continue to take proactive capital accretive actions to further derisk our CRE portfolio, which is reflected in our provisions for the quarter. In addition, provisions in the Corporate Bank were impacted by an idiosyncratic event in Asia. Underlying asset quality remains strong with leading indicators showing a stable or improving picture across the majority of portfolios. As shown in the appendix on Page 25, CRE is the primary driver of the elevated group provision run rate. The run rate reflects the proactive derisking measures and valuation updates on legacy defaulted positions. Our higher-risk CRE portfolio has declined materially since 2022. In the U.S., we have seen the majority of stress, the book is down 42% since 2022 and about 20% year-on-year, reflecting repayments and our proactive derisking measures. There is no evidence of broader portfolio weakness with the Private Bank and Core Bank portfolios remaining stable and resilient. Our medium-term expectations remain unchanged, a gradual but steady decline in CRE provisions in 2027 and in 2028, a further improvement in the group provision run rate, normalizing at around 30 basis points. Moving to quarterly capital developments on slide six. We ended the quarter at 14%. Risk-weighted assets decreased by EUR 3 billion, excluding FX effects of EUR 1 billion. The quarter-on-quarter reduction was driven by the Investment Bank, which carefully contained market and credit risks in a volatile environment. The increase in the other category includes the impact of model simplification efforts. Net income, net of deductions for AT1 coupons contributed 43 basis points, reflecting strong third quarter earnings, while deductions for distributions of 26 basis points represent a 60% payout ratio. The 16 basis points reduction in other includes an immaterial impact from recent increases in government bond yields, reflecting prudent portfolio positioning and risk management. Note that the majority of our government bond portfolio in the banking book is accounted for at amortized cost. And overall, we remain comfortable with our sovereign bond exposures. Looking toward year-end, we expect our CET1 ratio to remain within our operating range, reflecting ongoing business activity and the annual update on operational risk RWA, including the impact of higher 2026 revenues. As you have seen, our SREP requirements will be lower from next year, bringing our total capital ratio requirement down by 25 basis points. Our capital ratios remain well above regulatory requirements, as shown on Slide 7. The CET1 MDA buffer now stands at 283 basis points or EUR 10 billion, reflecting the quarter-on-quarter increase in the CET1 capital ratio. The buffer to total capital requirement is 321 basis points. On the leverage side, we ended the quarter at 4.4%, which is 9 basis points lower than in the prior quarter, still with a very comfortable MDA buffer equivalent to EUR 12 billion of Tier 1 capital. We continue to operate with a significant loss-absorbing capacity well above all requirements as shown on Slide 8. The TLAC surplus of EUR 19 billion, our most binding constraint, decreased by approximately EUR 3 billion compared to the prior quarter, predominantly from higher leverage exposure. This surplus provides us with meaningful flexibility to manage eligible liability issuances and if market conditions or economics warrant, to pause new issuance for at least one year. Moving now to the development of the loan book on slide nine. During the third quarter, loans grew by EUR 6 billion or 1% to EUR 497 billion. The underlying quality of the loan book remains strong, reflecting our conservative underwriting standards across all businesses. Looking at the Private Bank, we are pleased with the strong Wealth Management growth, which is only partially offset by further strategic reductions in non-SVA accretive retail portfolios. In the Corporate Bank, we saw growth in flow and structured trade finance products, while we also continue to optimize the underlying lending portfolio. In line with our strategy, our loan portfolio in FICC financing has also shown further encouraging growth during the third quarter. For the remainder of the year, we see further growth opportunities across all businesses, whilst our focus remains on value accretion and capital discipline. On Slide 10, we provide details on the quarterly deposit development. Our deposit book grew by EUR 18 billion or 3% during the third quarter to EUR 716 billion. Growth has been largely driven by the Corporate Bank, where we saw substantial inflows within corporate cash management. While we expect some normalization until year-end, these inflows demonstrate the underlying strength of the franchise. Our Private Bank portfolio also grew during the quarter, driven by continued inflows from our campaigns in Germany and slight growth in Wealth Management. Looking ahead, we remain focused on delivering our strategy and selectively growing the portfolio while maintaining a high-quality and diversified funding mix. Moving to net interest income on Slide 11. NII was solid at EUR 3.7 billion across the key banking book segments and other funding. Deposit-related NII continued to benefit from underlying volume growth and the contribution from our hedge portfolio, while loan NII benefited from the strong volume growth. Looking at the divisions in the Private Bank, margins continue to progress steadily, particularly in deposits. In the core bank, net interest income also went up sequentially, supported by higher business volumes. In FICC financing, the results reflect continued strong demand for lending. On Slide 12, which is based on market implied forward rates as at the end of September, you can see the multiyear NII tailwind from rolling our hedge portfolio. Our hedge strategy stabilizes deposit NII through the rate cycle while enabling gradual repricing and growth in hedge income over time. The total volume of hedges has been stable compared to the prior quarter with around EUR 210 billion invested longer term. Over the course of the year, we have also used attractive market opportunities to add forward starting hedges, increasing the proportion of hedge income already locked in to around 90% for 2027 and around 80% for 2028. The yield of hedges maturing in 2026 is around 40 basis points on average compared with the 10-year euro swap rate of around 3.2%. Looking beyond the numbers shown on the slide, we expect the yield differential in 2029 to increase compared to 2028, reflecting the prevailing interest rate environment in the past. The sensitivity of our reported NII for 2027 and 2028 to rate moves is further reduced as a result, and you can see that in the usual appendix slide. Turning to Slide 13. Our liquidity and funding position remained strong in the third quarter. We managed our liquidity coverage ratio to 143%, reflecting our robust liquidity position, which remains comfortably above the regulatory requirement. We ended the quarter with EUR 242 billion of high-quality liquid assets, an increase of EUR 5 billion. Around 93% of the buffer was held in cash and Level 1 securities. Our net stable funding ratio increased to 120% with available stable funding rising to EUR 678 billion. This reflects a strong funding contribution from deposits and issuances during the quarter, which was partially offset by higher required stable funding from business growth. Taken together, these metrics demonstrate the strength and diversification of our liquidity and funding profile. Let us now turn to our issuance activity on Slide 14. Despite ongoing geopolitical uncertainty, credit market sentiment remained resilient for most of the quarter before spreads widened amid macro headwinds from late September onwards. Taking advantage of the predominantly supportive market conditions, we issued EUR 6 billion since the last fixed income call, taking our year-to-date total to EUR 15 billion. This effectively completes our issuance plan of EUR 10 billion to EUR 15 billion. Issuance highlights in this quarter included a series of successful transactions across AT1, Tier 2, senior nonpreferred and senior preferred in euros, U.S. dollars, pound sterling and Swiss francs. Particularly noteworthy was the EUR 1.25 billion AT1 transaction, which achieved the tightest ever reset spread for Deutsche Bank for this asset class. For the remainder of the year, we will focus on opportunities to prefund our 2027 requirements, which we expect to be a little higher compared to this year. As usual, we will present further details on next year's funding plan in the Q4 fixed income call. To conclude on slide 15, we are on track to deliver revenues above EUR 33 billion, assuming markets remain constructive. We continue to expect total expenses of around EUR 21.3 billion, reflecting continued investment discipline, operating efficiencies and any one-off items. Excluding the impact of proactive derisking actions and the idiosyncratic event, we expect provision for credit loss to be broadly in line with our earlier guidance, slightly lower in 2026 compared to the prior year. We will provide an update on progress of our strategy when we report our full year 2026 results. And as we discussed in the previous slide, we have effectively completed our funding requirements for the year. With that, let us turn to your questions.

[Operator Instructions]And the first question comes from Lee Street from Citigroup.

I have two questions, please. Firstly, are you able to give any detail on what drove the reduction in your SREP ratio that you announced earlier this week, quite a significant move? And secondly, at a bigger picture level, strategically, obviously, you've done really well and your performance has improved a lot year-on-year for many, many years. I guess at the same time, I look at most other banks G-SIB, we've seen their performance improve as much, if not more. So does that put any pressure on -- or do you care or does that put any pressure on you to look at bolt-on opportunities or inorganic growth? That's basically my question.

Yes. Richard, I can take the first one. apologies, we're having a little bit of hard time hearing fully from. Hopefully, Richard got the second question. I think it was about G-SIB add on. I think your first question was about what drove the SREP reduction. Is that correct?

That's correct. Yes, that is correct.

Okay. Yes. So look, I think this follows actually a smaller SREP reduction in 2025. I think we went down by 5 basis points, which I would say was probably more of a model technical tweak than anything fundamental. But I think, as you know, we've been very clear about changing and shifting our business model towards more sustainable revenue stream businesses. We have built obviously a capital that is higher and sustainably, we have operated within a higher operating range. Profitability has improved, especially from our non-capital-intensive businesses. We have obviously taken active derisking actions in terms of our commercial real estate portfolio and got some of the other, I would say, overhangs out of the way. So obviously, we get some level of visibility through qualitative conversations. We obviously don't have a view into their actual model. But I would say the feedback is reflective of actually the pivot that the bank has made towards a more stable, less risky, structurally and sustainably profitable bank. And I know we're happy about this one. But honestly, I would hope and expect that as we continue this pivot that we have more extra productions to come. Richard, do you want to take the G-SIB one?

Yes. I mean I'll start, but I think Lee might want to hop in at some point because I think it's a wider strategy question. Thanks for joining. So I think the -- how I think about it is we've been rebuilding the bank, right, since 2019, building those foundations and now we're kind of moving to more to offense from defense. And I think, Raja, just for your, I think this question was more we have a sequential PBT growth. We continue to do well, but peers are also doing well, arguably a little bit better. And therefore, how we see ourselves evolving from there. So I think it's kind of rebuilding the bank and moving on from there. And I think the next move is really about us controlling our own destiny because there's a lot of things that we can do to generate excess profits, and we're kind of very comfortable with that kind of overall strategic trajectory. And so I don't know, Raja, you want to add anything to that, but that's how I --

Yes. I appreciate. Thanks. I understand a little bit better now. Yes, look, I think as we laid out at the Investor Day, our primary path for the time being is certainly an organic one because we feel like we have work to do ourselves on capital and also on business model, also on costs. But that said, I think we were also clear that it was one of the things that was on my list about uses of capital. We certainly think that in certain businesses, scale could be helpful, assuming that it's the right fit for us. And I would say, down the line, if there was an opportunity to look at something that was meaningful in the asset or wealth management space, it would certainly be something that would be interesting to us. But we just -- that's just not on top of mind right now. Absolutely, the positioning for us is important. The relative positioning for us is important. We are trying to close the return gap first on our own. And if I was to look down the line, then obviously, we would -- it's not just important for us to be closing the return gap, but I would -- at some point, our ambition is to actually be in the front. And for that, obviously, down the line, something like an inorganic move would be important. But right now, honestly, there's enough work for us to keep us busy with what we have to do in-house.

And the next question comes from Sushrut Deo from Bernstein Autonomous.