Deutsche Bank AG (DB) Q4 2022 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Thank you for standing by. I'm France, your chorus call operator. Welcome and thank you for joining the Deutsche Bank's Q4 2022, Analysts Conference Call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will follow with our question-and-answer session. [Operator Instructions]. It's my pleasure, and I would now like to turn the conference over to the Ioana Patriniche, Head of Investor relations. Please go ahead.

Thank you for joining us for our fourth quarter and full year 2022 preliminary results call. This call, we will start with our Chief Executive Officer, Christian Sewing, followed by our Chief Risk Officer, Olivier Vigneron, and then our Chief Financial Officer, James von Moltke. The presentation as always, is available to download in the Investor Relations section of our website db.com. Before we get started, let me just remind you that the presentation contains forward-looking statements, which may not develop as it currently expect. We therefore ask you to take notice of the precautionary warnings at the end of our materials. With that, let me hand over to Christian.

Thank you, Ioana, and welcome from me too. Today marks a very significant milestone for us. Three and a half years ago, in July 2019, we came together with you to discuss our plans for a fundamental transformation of Deutsche Bank. And we set ourselves some key financial goals for the end of 2022. Today, we would like to talk you through what we have achieved despite facing significant challenges from a pandemic and the war in Ukraine. We would also like to highlight how Deutsche Bank today is a fundamentally different bank, positioning us for further sustainable growth. Let's start with the five decisive actions we took as we launched our transformation strategy in 2019 on Slide 1. Firstly, we created four client centric divisions, which has delivered stable growth as promised. In 2022. These four businesses contributed to our best profits for 15 years. These divisions complement each other and provide well diversified earnings streams. We are now a better balance bank. We are particularly pleased that the corporate and private banks together more than doubled their contribution since 2018, contributing just over 70% of the group's pretax profits in 2022. Secondly, we exited businesses and activities, which were not core to our strategy. We exited equities trading, transferred our global prime finance business, refocused our rates business and downsized or disposed of other non-strategic activities. Our Capital Release Unit reduced leverage exposure from non-strategic activities by 91% and risk weighted assets by 83% excluding RWAs from operational risk. This has enabled us to re deploy capital into our core businesses. Thirdly, we cut costs. Compared to the pre-transformation level of 2018, we reduced our cost/income ratio by 18 percentage points. We achieved this while absorbing more than €8 billion of transformation-related effects and facing an inflation rate we have not seen for decades. Fourthly, we committed to, and invested, in controls and technology to support growth. We also signed state of the art agreements with Google Cloud and other partners. Our focus on technology has allowed us to grow revenues through closer interface with clients, reduce costs by removing complexity in our technology and improve our control environment. Finally, we managed and freed up capital. As promised, we kept our CET1 ratio above our target minimum of 12.5% through all 14 quarters of transformation and finished the year at 13.4%. This was despite an impact of around 170 basis points from regulatory changes, 100 basis points from transformation-related impacts and of course supporting the growth of our businesses. The Capital Release Unit played an important role here too, contributing around 45 basis points, on a net basis, to our CET1 ratio. All of this progress since 2018 has enabled us to start returning capital to our shareholders, through both share repurchases and dividends. We plan to propose a dividend of €0.30 per share in respect of 2022 and we reaffirm our commitments for 2025. Most importantly, pride returned to the organization, which in turn supports our positive momentum. Commitment and enablement scores materially improved over the last three years. This positive atmosphere will of course help to further shape the future of our bank and even accelerate our momentum. Let me now turn to our performance in 2022 on Slide 2. These five decisive actions, and the renewed belief and pride of our people, have positioned us to build and maintain a trajectory of sustainable growth and this is reflected in our 2022 results. Revenues are above €27 billion, well ahead of what we had planned in 2019, despite the business exits I mentioned. All four core businesses produced positive operating leverage compared to their pre-transformation levels. In 2022, our reported return on tangible equity was above 9% including a deferred tax asset valuation adjustment James will outline in more detail. In terms of profitability, we delivered our highest profits since 2007, at €5.6 billion before tax. Our cost/income ratio is 75% and significantly below the pre-transformation level of 93 in 2018. Pre-provision profit for the group was nearly €7 billion in 2022, and diluted earnings per share were €2.37. Deutsche Bank has proved its resilience during the challenging environment of the past few years. We have maintained disciplined risk management and a strong balance sheet, as Olivier will discuss in a moment, and we maintained robust capital and leverage ratios. Germany's provision of support to households and industries during times of stress is another testament to the strength of operating in the German economy as our home market. Let’s now discuss the key aspects of our transformation in more detail, starting with revenues on Slide 3. In 2019, we re-focused our business and looked to grow our Core Bank and our efforts have clearly paid off. 2022 revenues were over €27 billion, 7% higher than pre-transformation levels and well ahead of our original aspirations, thanks to growth across all our core businesses. This more than offset the forgone revenues from business exits, as the core businesses outperformed their targets for revenue growth. So, as a result, we are now not only operating a more focused bank, but also a more productive one. Revenues per employee are now 16% higher than pre-transformation levels Turning now to our costs on Slide 4. Our cost/income ratio in 2022 was 75%, an improvement of 18 percentage points compared to pre-transformation levels, at the higher end of our guidance. We significantly reduced costs and generated annual run-rate savings of more than €3 billion from our transformation. Our focused restructuring efforts more than offset investments in our franchise, and investments in technology and controls, which I will discuss in a moment. As a result, profit growth has been driven by significant operating. Leverage. But we know we also need to continue to focus on generating further operational efficiency. In addition to the €2 billion of efficiency measures we announced in March 2022, which James will provide an update on later, we will focus our efforts on generating further incremental cost savings. These additional measures will relentlessly focus on a more efficient workforce structure, including but not limited to reviews of layers, cost per seat and location. We will also streamline our non-client facing divisional functions and infrastructure teams. And of course, this also means a continuation of a very disciplined and agile management of our total headcount numbers. Furthermore, we will also take advantage of further automation opportunities for our front to back experience, leveraging technology to augment client service processes in the corporate and private banks. Over the last three years we have successfully developed internal tools, which together with external benchmarking gives us the support and transparency to drive these incremental cost savings. We are pleased with the progress we have made to date with the drivers of the €2 billion of efficiency measures and hence we are confident we can deliver these additional items Let me now go through the diversification of our businesses on Slide 5. The Core Bank produced pre-provision profits of nearly €8 billion in 2022, more than double pre-transformation levels, and diversification has been a key contributor. The Corporate and Private Banks together contributed about €5 billion, more than 60% of the Core Bank total. With four strong businesses, we have delivered resilient financial performance through a very unpredictable economic environment and volatile financial markets. This enabled the Core Bank to deliver a return on tangible equity of 11.3% in 2022. Let me now turn to the performance of these businesses in more detail on Slide 6. All four core businesses have significantly improved profitability through the transformation period, on all key metrics; revenue growth, cost/income ratio improvements, and higher returns. The Corporate Bank delivered its best-ever profit before tax, of over €2 billion in 2022, with a cost/income ratio of 62% and return on tangible equity of 12%. The business leveraged our global network and capabilities to build out its franchise; deposits are up by nearly €35 billion over pre-transformation levels, enabling us to take advantage of rising interest rates, and loans are around €8 billion higher than in 2018. The Investment Bank has tripled its return on tangible equity and improved its cost/income ratio by more than 20 percentage points since 2018. The work undertaken within our FIC business since 2019 has led to significant revenue growth. While we appreciate this took place in supportive markets, importantly, we have also been able to materially grow market share, supported by improved external ratings allowing clients to come back to the platform. The investment into our diversified platform will enable us to consolidate our current market position, whilst continuing to identify targeted areas of further growth. In 2022, FIC revenues were nearly €9 billion, the highest for a decade and up around 60% over 2018. We have further strengthened our European bond franchise in the Investment Bank. We were number one by volume in European investment grade bond issuance, and we saw our highest electronic market share of EGBs for over 10 years, building on 2021, which was the previous high. Lower activity and volumes negatively impacted Origination and Advisory in 2022, but the business had areas of positive momentum including regaining the number one position in German M&A. Private Bank has significantly improved both cost/income ratio and return on tangible equity, outperforming their targets and resulting in profit before tax of €2 billion, its highest-ever. The business has adapted to the changing needs of clients, automated processes, made progress on consolidating our IT platform in Germany, and reduced branches by nearly 500 since 2018. Business volumes have grown by €130 billion over pre-transformation levels with new client loans of around €50 billion and assets under management up by about €80 billion, since 2018. Asset Management has seen its return on tangible equity rise to 17% since 2018 while improving its cost/income ratio by around 9 percentage points. The business has continued to invest in the future and demonstrated its resilience in tougher financial markets. Despite challenging markets in 2022, assets under management are now around €160 billion higher than at the end of 2018. Simply put, all four businesses have demonstrated positive momentum on all three dimensions, and this positions us well for the future. Again, supported by our improved ratings with all three leading rating agencies, we continue to see clients coming back to the platform. Combined with the continued expected interest rate tailwinds and the strength of our underlying franchise, we are confident that our strong performance will continue. Let me now turn to another of our key decisions in 2019, investing in technology and controls, on Slide 7. We committed to spending a cumulative €15 billion on technology, and an additional €4 billion on our control environment as part of our transformation. The benefits of our delivery for clients, costs and controls have been substantial. Let me give you a few examples. We took advantage of cloud technology, both through strategic partnerships and our own efforts. We now have more than 200 apps in Google Cloud and have migrated over 1,000 databases to Oracle Private Cloud. We simplified our IT landscape by retiring apps, which helped deliver a reduction in annual spend of around a quarter of a €1 billion per year. We have built a closer interface with FIC clients by automating our flow trading capabilities. We made progress in migrating contracts of Postbank clients and related business volumes onto the Deutsche Bank IT platform. This migration is expected to be completed halfway through the year, with planned run-rate savings of around €300 million by 2025 in the Private Bank. We have reinforced our control functions, increasing the number of dedicated professionals by more than a quarter. We continue to focus investments on our cybersecurity capabilities and we have improved our processing capacity and improved quality assurance in KYC. Building a more sustainable Deutsche Bank was also part of our transformation agenda. We have made considerable progress, which we summarize on Slide 8. We have rolled out a comprehensive sustainability strategy and installed a clear governance structure which establishes sustainability as a core part of the way we run Deutsche Bank. We set clear targets for business volumes in ESG financing and investment and made each business accountable for delivering on these targets. We have strengthened our controls further and have embedded sustainability criteria into senior executive compensation. Our businesses have outperformed against our original targets, and this enabled us to accelerate the timeframe for delivery, twice. From 2020 to 2022, we outperformed our target of €200 billion in cumulative ESG financing and investment volumes, with a total of €215 billion in our core businesses excluding DWS. In last year’s difficult market environment, we increased volumes by €58 billion. In the fourth quarter of 2022, we published pathways to net zero for the most carbon-intensive sectors in our loan book and we have created a Net Zero Alignment Forum in which Business, Risk and the Sustainability Office manage our footprint accordingly. We look forward to providing you with an update, and details of our future plans, at our second Sustainability Deep Dive on March 2 this year Before I hand over to Olivier, let me say a few words on the next phase of our strategy through to 2025 on Slide 9. The progress we have made in transforming Deutsche Bank leaves us well positioned to deliver sustainable growth through 2025. When we set out our strategy in March last year, we outlined the key themes which underpin these goals and ambitions, and these themes have become even more important in the light of the geopolitical and macroeconomic upheavals of 2022. In an environment of macro-economic and geo-political uncertainty, we will leverage the more favorable interest rate environment, deploy our risk management expertise to support clients, and allocate capital to high-return growth opportunities. With sustainability being so important, we will deepen our dialogue with and support for clients, expand our product range, and broaden our agenda for our own operations. And as technology continues to evolve, we will reap further cost savings, accelerate our transition to a digital bank, and expand on our strategic partnerships, which are already creating significant value. Our platform is positioned to deliver sustainable growth and seize the opportunities of the evolving environment Finally, a word on our 2025 targets on Slide 10. We are confident we can build on the momentum we have generated, in all our core businesses, on all dimensions, as we continue to transform the bank. And we reaffirm the financial goals we set out last March. Our target is a return on tangible equity of above 10% in 2025. The performance of our Core Bank in 2022 gives us confidence that this goal is very achievable. We reaffirm our target for compound annual revenue growth of between 3.5% and 4.5%, supported by the momentum we already have in our core businesses from a dynamic interest rate environment, and the performance we have delivered in the divisions to date. With this revenue growth, and the additional efficiency drivers I outlined, we also reaffirm our goal for a cost/income ratio of below 62.5% in 2025. For 2023, we remain focused on continuing to deliver positive operating leverage and our strong performance in January supports this. We also confirm our capital objectives. We will build capital to support profitable growth and absorb future regulatory changes; and we continue to aim for a CET1 capital ratio of around 13%. We aim to achieve our capital distribution objectives through a combination of dividends and share repurchases, in line with our previous guidance, aiming for a payout ratio of 50% from 2025 onwards. We outlined a clear dividend path, which we reaffirm today. We propose a dividend of €0.30 for the financial year 2022, but given the remaining uncertainties in the market environment, it is too early to comment on the exact amount and timing of share repurchases in this year With that, let me hand over to Olivier.

Thank you, Christian. I am Olivier Vigneron and as you know, I became Chief Risk Officer in May. I am proud to say that I rejoined a bank with a strong and stable balance sheet but more importantly, a bank that is renowned for its disciplined risk management. This has enabled Deutsche Bank to withstand many challenging and uncertain environments in recent years, and to demonstrate its resilience during times of stress. In my first months as CRO, I have been particularly pleased to experience a strong risk culture supported by well-established risk appetite frameworks. In order to maintain this discipline going forward, we continue to invest in our people and risk management capabilities, as well as controls and technology which support timely and proactive risk management. This enables us to manage risks dynamically within our frameworks and most importantly within our risk appetite. We continuously monitor emerging risks, run downside analyses and stress tests, and operate a comprehensive limit framework across all risk types. In this way we can respond proactively to changes in our operating environment, as you have seen us do in 2022 during the escalating war in Ukraine and the stress on European energy supplies. Despite challenges throughout the year, our risk management approach helped us maintain strong risk and balance sheet metrics. Our CET1 ratio was 13.4% and our provision for credit losses was 25 basis points of average loans for 2022, in line with our guidance provided back in March. Our liquidity metrics have remained sound, and we managed to keep operational risk losses stable over the course of our transformation. Entering 2023 on this strong foundation positions us well to continue navigating through an evolving and uncertain risk environment. We relentlessly scan the operating landscape to identify and monitor risks that impact us, and the wider banking sector, making sure we are proactive in our positioning for any emerging risks On Slide 13 you can see which themes we believe may influence the banking sector in 2023 and beyond. These range from geopolitical developments, volatility in financial markets and a potentially deteriorating credit outlook, to various other risks. We are able to manage these challenges because our risk framework provides us with multiple layers of protection, which we outline on Slide 14. Our risk appetite is calibrated to capital adequacy and earnings stability with the key metrics of the bank cascaded down to individual businesses. We employed thousands of risk limits, across country, industry, asset class and individual clients, and across a variety of risk factors and markets. In addition, we manage credit and market risk limits dynamically, and monitor liquidity daily on multiple dimensions. We also strictly control appetite for non-financial risks. Our non-financial risk monitoring has more than 1,200 controls that are mapped to different risk types and regularly assessed for their effectiveness. In October 2022, we introduced sector-specific targets to reduce the carbon intensity of our loan book. We mitigate risk through extensive use of credit enhancements via external hedging in addition to high-quality collateral and structural protection, such as selecting first lien positions. Our loan portfolio thus benefits from €39 billion in collateralized loan obligation and credit default swap hedges, as well as other risk mitigation through private risk insurance on certain portfolios. Our dynamic market risk hedging strategy has again proven highly effective in the volatile environment of 2022. Our rigorous stress testing approach takes into account a range of severities and is built around a number of historical and hypothetical scenarios. This enables us to identify and address potential vulnerabilities in our portfolios, including emerging risks, and supports assessment of non-financial risks. We benefit from well-established crisis management procedures, robust non-financial risk management frameworks, and clear governance around our risk culture and conduct. We have established our internal framework for net zero targets, and we will continue to extend the scope of these in 2023. We continually review the maturity of the bank’s security framework and employ a threat-driven approach to direct and adjust our investments in information security. Finally, our people are the critical success factor, embedding our strong risk culture throughout the organization. Let me now turn to our loan book on Slide 15. Almost half of our €489 billion loan book is in Germany. We see this as an advantage as Germany is well positioned to withstand times of stress and volatility. It is Europe’s most stable economy and has many multinational companies which have displayed great resilience in times of uncertainties in the past. And according to the most recent consensus, Germany is not expected to see an energy supply squeeze in the remainder of this winter. Outside Germany, around 40% of the loan book is equally distributed across EMEA and North America with the remainder largely in the APAC region. Looking at our business mix, almost 80% of our portfolio is in stable and mostly lower-risk businesses in our Private Bank and Corporate Bank. The Investment Bank accounts for 21% of the book, distributed across a variety of product and regional portfolios. Lastly, you can see how well-diversified our loan book is. Household loans, which are mainly low-risk mortgages and, to a small extent, consumer finance, account for 44% of the portfolio. 24% of the loan book relates to financial and insurance activities, which span a variety of client segments, from exposures with top tier banks to collateralized activities with funds. The remaining €158 billion, or 32% of the total loan book, is split across multiple sectors and remains well diversified. All exposures are tightly managed, based on conservative underwriting standards. In the next slides I will provide more detail on our confidence in the credit quality and resilience of selected key portfolios. Let me start with some additional detail on our German loan book of €235 billion on Slide 16. Around three quarters of this book is within the Private Bank and nearly 90% thereof are low-risk German retail mortgages. In the German mortgage market, clients typically lock in fixed rates for 10 or more years, so our portfolio comprises long-term, fixed-rate loans with a loan-to-value of 66% based on current market values. As a consequence, this portfolio is generally not at risk of being impacted by the rising rate environment and demonstrates good repayment discipline. We view German mortgages as low-risk, supported by high employment levels and low household indebtedness. However, in light of the current environment, we have adjusted input criteria for our decision engine to account for price levels of goods, energy and interest rates. We have seen stable default and recovery rates since 2019. Only €16 billion of the Private Bank’s German exposure relates to consumer finance, mainly personal loans, and we continue to see good repayment discipline, despite the more challenging environment. We do not operate a significant credit card financing business. Our corporate loan book of €63 billion in Germany consists mainly of trade finance and commercial lending This exposure is also well diversified across a large number of clients and the average exposure per client is around €260,000. In line with our frameworks, we have limited concentration risk, and the top 15 names account for only 6% of this portfolio. Credit quality is high with 71% of loans rated investment grade, and the exposure is predominantly to multi-national corporates The portfolio is closely monitored and actively managed with threshold-based hedging and the use of collateral and guarantees for risk mitigation purposes. We have intensified the dialogue with clients in order to identify pockets of risk early, and we continue to support clients with their needs. All in all, our strong and high-quality portfolio gives us comfort around our German exposures, supported by a resilient corporate backdrop and ongoing government actions. Despite their relatively low share of our loan book, our Commercial Real Estate focus portfolio and Leveraged Lending exposures remain in focus due to their vulnerability to rising interest rates and market volatility as well as the ongoing impact of post-pandemic trends on selected CRE sub-portfolios So let me give you some additional color on these categories on Slide 17. The CRE focus portfolio of €33 billion, or 7% of our loan book, consists of non-recourse lending within the core CRE business units in the Investment Bank and the Corporate Bank. Our CRE lending activities are mainly first lien mortgage-secured and structured with moderate loan-to-values. The portfolio is well-diversified across regions with 51% in the U.S., 36% in Europe and 13% in Asia. Loan originations are primarily focused on assets in liquid regional markets such as top-tier gateway cities, and with high quality institutional sponsors. The portfolio is well diversified by property type also, with the largest concentration in Office, at 34%, while Hospitality and Retail account for only 12% and 10%, respectively. While Office is facing headwinds and uncertainty from the adoption of hybrid working models, we benefit from good quality assets in primary markets, moderate LTVs and, again, strong sponsors. Weighted average LTV is around 61% in the Investment Bank CRE portfolio and 53% in the Corporate Bank. The latter portfolio has shown strong resilience, with no credit losses through recent volatility including the pandemic. Other real estate exposures, such as our recourse lending, are of a high quality and have seen low losses in the past Stage 3 provisions in the Investment Bank CRE portfolio increased in 2022 as market conditions deteriorated in the second half of the year. However, the increase in provisions was well within the business’ earnings capacity. We expect the challenging market conditions to continue into 2023, and we continue to closely monitor loan performance with a focus on near term maturities. We are proactively working with our clients to find optimized refinancing solutions in order to reduce leverage in specific transactions. And we are also tightly managing our CRE underwriting pipeline and reduced our market risk limits in 2022. Our Leveraged Lending portfolio of €4 billion represents just 1% of our total loan book. The portfolio is well diversified across industry sectors without any undue concentration risks and the top-10 names account for only 11% of the portfolio on a gross notional basis. Around 79% of the exposure is in the form of first lien secured credit facilities, mostly of revolving nature. The remaining 21% is asset-based lending, which is almost entirely U.S.-based and has a negligible loss history. In the more uncertain market environment in 2022, we actively curtailed our underwriting risk appetite and de-risked our underwriting pipeline. Overall, Leveraged Lending remains core to our franchise. We are entering 2023 well positioned and with a significantly de-risked underwriting pipeline. While the macro outlook will weigh on the portfolio, we see limited refinancing pressure due to an overall low maturity profile in 2023. Now, moving to Slide 18, I will take you through our management of market risks and non-financial risks. Market risk has been another focus area over a period of increased volatility throughout last year and this is expected to persist in 2023. We have supported our clients in navigating through this volatile environment and will continue to do so. At the same time, we continue to manage exposures tightly and ensure we stay within our risk appetite. Risk-weighted assets associated with market risk have been at elevated levels throughout 2022, driven by an increase in market volatility that translated into higher Value-at-Risk, which for the fourth quarter rose to €47 million, compared to €34 million in the prior year quarter. To manage elevated volatility throughout the year, we have been proactive in containing and mitigating exposure in periods of stress. We did so during the first half of the year during the volatility caused by the war in Ukraine, and continued to support issuers and clients throughout the Gilt market volatility in the third quarter. We actively managed balance sheet interest rate risk over this period of unprecedented rate rises in order to protect capital, as well as managing the risks around our net interest income. Moving to non-financial risk exposure, we are satisfied with the progress we have made on risk remediation, and have reduced the highest-category risks by 47% since January 2021. In addition, we have made good progress in increasing the number of key controls assessed through our quality assurance process. This improves robustness and transparency of our risk and control assessment, which is a cornerstone of our non-financial risk management framework. At the same time, we remain proactive in the identification and mitigation of potential threats and control vulnerabilities. We regularly conduct scenario analyses and deep dives that help us understand potential risk exposures. We continually review the maturity of the bank’s security framework and employ a threat-driven approach to direct and adjust our investments in information security. Finally, let me turn to provision for credit losses on Slide 19. We have a very good track record when it comes to our guidance for provisions for credit losses, even through volatile and unpredictable environments. This is due to our robust lending and underwriting, our active portfolio monitoring and provisioning processes, reflecting the true risk we anticipate. We have outperformed our peers over a five-year average period, which reflects our asset quality, but also risk management that keeps our risk profile less pro-cyclical and more stable. And even though 2022 was characterized by a high level of uncertainty, we again delivered provision for credit losses in line with our guidance, without any reliance on excessive overlays. In June we introduced a downside scenario which implied an additional 20 basis points over an 18-months period in case of a severe gas supply disruption in Europe. This scenario did not materialize. Gas supply remained stable and storage levels high, as gas from Russia was substituted through other sources and the winter was milder than expected. For 2023, we initially expected provision for credit losses to be in the range of 25 to 30 basis points of average loans, reflecting persistent macroeconomic and geopolitical uncertainties. Unlike 2022, we expect provisions for this year to be driven by single name losses rather than deterioration of macroeconomic forward-looking indicators. As such and given the recent improvement in the global macroeconomic outlook, we now foresee provisions at the low end of this range. With that, let me make a few closing remarks on Slide 20. We have again navigated well through another year of significant market volatility. Our disciplined risk management provided a strong foundation which allowed us to be proactive in identifying, monitoring and managing risks. We have a conservative risk profile and a well-diversified loan book across clients, regions, products and businesses. Our strategic positioning benefits us with a low-risk and high-quality German portfolio. As a result, provisions could remain contained closer to 25 basis points of average loans for 2023, or essentially flat to 2022. Let me now hand over to James, who will take you through our financial performance in more detail.

Thank you, Olivier. Let me now cover the impact delivering the transformation plan has had on our profitability and financial stability. We are pleased that all divisions delivered significant positive operating leverage on an annual basis since 2018. We intend to continue to deliver operating leverage for the group on an annual basis going forward. Our returns have improved every year since 2019. We've reduced non-interest expenses over the period. We will continue to be disciplined on costs including working on additional measures to offset cost pressures, in line with our 2025 target of a cost/income ratio below 62.5%. Finally, our capital remains resilient. Since 2018 we absorbed around 270 basis points of capital headwinds, from regulatory impacts and our transformation plan and ended the year at 13.4%, around 300 basis points above our regulatory requirements. Let’s now turn to the fourth quarter and full year 2022 performance on Slide 23. Starting with the fourth quarter, total revenues for the group were €6.3 billion, up 7% on the fourth quarter of 2021. Non-interest expenses of €5.2 billion reduced by 7% year on year, with all cost categories flat or down, which I will detail later. Our provision for credit losses was €351 million or 28 basis points of average loans. We generated a profit before tax of €775 million, up from €82 million in the fourth quarter of 2021. Our net profit of nearly €2 billion reflects a positive year-end deferred tax asset valuation adjustment of €1.4 billion. This deferred tax benefit reflects a recovery in the accounting value of our tax loss carryforwards in the U.S., as profitability has significantly improved since 2019, due to the successful transformation of our U.S. business. The return on tangible equity for the group for the quarter was 13.1%. Our cost/income ratio came in at 82%, down 12 percentage points compared to the prior year period. Tangible book value per share was €26.70, up €0.23 on the quarter, and 8% year on year. We reported diluted earnings per share of €0.92 for the quarter, which brings the full year total to €2.37. For the full year 2022, we generated a pre-tax profit of €5.6 billion, up 65% over 2021. Return on tangible equity for the group was 9.4% for the full year, compared to 3.8% in 2021. Excluding the benefit of the deferred tax asset valuation adjustment, our return on tangible equity would have been 6.7% for the year and our full year tax rate would have been 24% in line with our previous guidance. For 2023 we expect an effective tax rate of 29%. Let’s now turn to the Core Bank’s performance on Slide 24. Starting again with the fourth quarter, Core Bank revenues were €6.3 billion, up 7% on the prior year quarter. Non-interest expenses declined 4% year on year with adjusted costs also down 4% for the same period. We reported a profit before tax of €1 billion, more than double the prior year quarter. Our Core Bank return on tangible equity for the quarter was 14.9%. Our cost/income ratio came in at 79%, down from 88% in the prior year period. On a full year basis, revenues in the Core Bank were €27.2 billion, up 7% compared to 2021, while non-interest expenses of €19.5 billion were down 3%. The cost/income ratio improved to 71% from 79% in 2021. In 2022, we generated a pre-tax profit of €6.5 billion, up 37% year on year and the highest since we began our transformation in 2019. We reported a return on tangible equity of 11.3%, or 8.5% excluding the deferred tax asset valuation adjustment, slightly below our target of above 9%. Turning to net interest margin on Slide 25, we can see the continued favorable impact of the interest rate environment with NIM at slightly above 1.5% in the fourth quarter. This increase has been achieved despite the non-recurrence of the third quarter buyback gains. Net interest earning assets are slightly down, due to the impact of the weaker U.S. dollar, and the partial prepayment of TLTRO III. We expect NIM to remain strong given the ongoing rate rises and we expect to see a material year-on-year NII tailwind in 2023, which I will detail on Slide 26. Let me now provide an update on the interest rate tailwind we expect to see going forward. In March 2022, we guided that interest rate tailwinds, net of funding cost offsets, would add approximately 1 percentage point to the revenue compound annual growth rate from 2021 to 2025. This figure has risen to approximately 1.5 percentage points from our 2022 landing point, based on rates and funding spreads as of January 20. As you can see, the divisional CAGRs net of funding impacts on the right of the slide. As we want to give you a consistent view across rate and funding cost impacts, these figures are based on the evolution of our planned liability stack rather than a purely static balance sheet, but do not include the impacts of planned lending growth. In 2023, we expect to see strong interest rate impacts due to the timing effects from the rapid pace of interest rate rises. By 2025, the rollover of our hedge portfolios will have offset the reduction in this timing effect, resulting in the NII benefit being maintained. As I noted at our third quarter analyst call, the sequential tailwind from '22 to '23 is expected to be approximately €1 billion for the full year. Moving to costs on Slide 27. We've reduced adjusted costs excluding transformation charges and bank levies by €3.1 billion or 14% since 2018. Excluding FX movements, costs were down 16% during this period. Compensation and benefits costs decreased by €1 billion driven by changes in workforce size and composition. Non-compensation costs were lower across all categories. Both professional services and IT spend were down by nearly €0.5 billion. The IT spend reduction was in line with the overall cost reduction. As Christian indicated, our cumulative IT spend was €15 billion over the past four years. Within this spend, we saw reductions in our running IT operating expenses, as the benefits from simplified architecture came through. At the same time, we continued to invest into our technology and people to future proof the bank. The €1.1 billion lower costs in the other category reflects reductions across a number of line items with major contributions from building costs, regulatory fees, operational taxes and insurance expenses. If we look at the twelve-month comparison for 2022 on Slide 28, adjusted costs excluding transformation charges and bank levies stayed flat at around €19 billion, or down 3% excluding FX. Increases in compensation and benefits of €399 million were mostly offset by reductions in non-compensation costs. Reductions in non-compensation expenses reflect our continued cost management efforts, specifically from reduced costs for outsourced operations and lower occupancy related spend. You can also see that fourth quarter adjusted costs excluding transformation charges and bank levies were down by 2% year on year, or 4% excluding FX. Let me now give you an update on the key pillars of the efficiency measures for the group we outlined in March at our investor day, which will contribute to our 2025 targets on Slide 29. These initiatives are expected to deliver structural cost savings of more than €2 billion between 2022 and 2025. Let me give you some examples. The Germany platform optimization, entailing branch reductions and the technology integration of the IT platform, shows how we are creating efficiencies by simplifying our overall architecture. We recently completed the second migration wave, which converted around 4 million additional Postbank contracts to the Deutsche Bank IT platform. One of our key priorities for 2023 is to complete the IT migration and start decommissioning the legacy IT Postbank system. We expect these actions to generate around €600 million of savings by the end of 2025. Another part of our technology upgrade is the re-architecture and simplification of our application landscape. In 2022, we decommissioned 9% of our total application stack and plan to decommission a further 500 applications by 2025. Supported by our cloud-based infrastructure, we have also migrated key applications to the cloud and will continue to build on this progress. While we expect these savings to come through closer to 2025, we expect to deliver around 600 million euros of savings overall. Our front-to-back process re-design has also delivered tangible results with more automated processes, supported by improved controls, and we will specifically continue to focus these improvements on loans processing, risk management and reporting activities. For example, we have designed a more efficient KYC process that will eliminate unnecessary client KYC questions by 40%, while enhancing control effectiveness, via smart forms and workflows determined by client-specific characteristics. Overall, we expect these actions to deliver around €500 million of savings by 2025. In addition, we have also identified around €500 million of cost savings primarily in infrastructure efficiencies. In line with the plans we outlined in March 2022, we've optimized office space resulting in a significant reduction of 170,000 square meters in 2022, representing around 6% of our total global footprint. Going forward, we will continue to focus on optimizing our workforce management including a more streamlined corporate title distribution. Turning to provisions for credit losses on Slide 30. Provision for credit losses for the full year 2022 was 25 basis points of average loans, or €1.2 billion, in line with previous guidance and confirming the resilience of our loan book. The year-on-year development reflected the impact of the war in the Ukraine and weaker macroeconomic conditions, while 2021 benefited from economic recovery post the easing of COVID restrictions. Provision for credit losses for the fourth quarter was 28 basis points of average loans on an annualized basis, or €351 million euros, very much in line with the previous quarter. Stage 1 and 2 provision release of €39 million, compared to a net release of €5 million in the prior year quarter, benefited from a stabilization of macroeconomic forecasts towards the end of year, the release of an overlay from previous periods and improved portfolio parameters. Stage 3 provision increased to €390 million, compared to €259 million in the prior year quarter. As with the previous quarter, the increase reflects an overall higher number of impairment events, but we have not observed specific trends emerging, and in particular did not observe a material impact of higher energy prices on provisions Moving to capital on Slide 31. Our Common Equity Tier 1 capital ratio came in at 13.4%, a 3 basis points increase compared to the previous quarter. FX translation effects contributed 2 basis points, 3 basis points of the increase came from capital supply changes, reflecting our strong organic capital generation from net income, largely offset by higher regulatory deductions for deferred tax assets, shareholder dividends and additional Tier 1 coupons. Risk weighted asset changes drove a 2-basis-point reduction in our CET1 ratio, principally due to higher market risk RWA partially offset by net reductions in credit risk RWA; operational risk RWA remained broadly unchanged quarter-on-quarter. The higher market risk RWA resulted from higher sVaR levels, mainly driven by a change in the applicable stress window versus the previous quarter. Credit risk RWA reduced during the quarter as the impact of regulatory model changes was more than offset by tight risk management in our Core Bank. Looking ahead, we expect our CET1 ratio to remain subject to volatility, principally due to regulatory model reviews and ECB audits. In 2022, amendments were made, in particular, to models for our midcap portfolio and our German retail portfolio. Now, we expect model changes for the wholesale portfolio to follow in phases; a first set was implemented in the fourth quarter of last year with a RWA impact of around €2.5 billion. The models for the larger portfolio of financial institutions and large corporates are expected to follow over the course of this year. We expect to be able to absorb model related impacts via continued retention of earnings, but the timing of regulatory model decisions is likely to create CET1 ratio volatility. That said, we aim to end 2023 with a CET 1 ratio of 200 basis points above our maximum distributable amount threshold, expected to be 11.2%. We ended the year with a leverage ratio of 4.6%, in line with our 2022 target of around 4.5% and an increase of 25 basis points versus the previous quarter. FX translation effects resulted in a 5 basis point leverage ratio increase 11 basis points came from higher Tier 1 capital, reflecting higher CET1 capital and our AT1 issuance in November 2022. Finally, 9 basis points increase came from the seasonal reduction in trading activities at year-end. With that, let’s now turn to performance in our businesses, starting with the Corporate Bank on Slide 33. Full year revenues for the Corporate Bank were €6.3 billion, 23% higher year on year. Strong revenue growth was driven by increased interest rates and continued pricing discipline, higher commission and fee income, as well as deposit growth and favorable FX movements. Momentum was strong in the fourth quarter, with revenues increasing by 30% year on year mainly driven by the improved interest rate environment and solid underlying business performance supported by higher client deposits. Non-interest expenses of €3.9 billion decreased by 5% year on year, as positive contributions from non-compensation initiatives and lower non-operating costs were partly offset by FX movements. Loan volume in the Corporate Bank was €122 billion, down by €1 billion compared to the prior year quarter, and down by €7 billion compared to the previous quarter driven by FX movements and increasing selectiveness of balance sheet deployment towards the year end 2022. Provision for credit losses increased from essentially nil in the prior year to 27 basis points for the full year, reflecting the more challenging macroeconomic environment. Profit before tax was €2.1 billion for the year, up by 103% year on year. The cost/income ratio came in at 62% and return on tangible equity was 12.5%, in line with our commitment for 2022. I will now turn to revenues by business segment in the fourth quarter on Slide 34. Corporate Treasury Services revenues of more than €1 billion increased by 26% year on year driven by increased interest rates across all markets and higher deposits. Institutional Client Services revenues of €442 million rose by 28%, benefitting from higher interest rates and deposit growth. Business Banking revenues of €273 million grew by 51% year on year, reflecting the transition to a positive interest rate environment in Germany. I’ll now turn to the Investment Bank on Slide 35. For the full year, revenues ex specific items were 3% higher compared to what was a very strong 2021. Revenues in FIC were significantly higher, with strong year-on-year growth across the majority of the franchise. This was partially offset by significantly lower revenues in Origination & Advisory in an industry fee pool down 36% versus the prior year. Non-interest expenses were slightly higher versus the prior year, but essentially flat once adjusted for the impact of FX translation and increased bank levies. Our loan balances increased year on year driven by higher originations primarily in Financing, combined with the impact of U.S. dollar appreciation versus the Euro. Leverage exposure and RWAs were essentially flat year on year, as underlying business reductions were offset by the impact of FX movements. Provision for credit losses was €319 million, or 32 basis points of average loans. The year-on-year increase was driven by a weakening macroeconomic environment, whilst the prior year benefitted from a post-COVID recovery and lower levels of impairments. Turning to revenues by segment on Slide 36. Revenues in FIC Sales & Trading increased by 27% in the fourth quarter when compared to the prior year, the highest fourth-quarter revenues in over a decade. Adjusting for the impact of a concentrated distressed credit position in the prior year quarter, the year-on-year performance was approximately 70% higher. Very strong performance across the majority of the franchise was partially offset by significantly lower revenues in credit trading. Rates revenues were up over 400%, with emerging markets and FX revenues significantly higher. The strong performance was driven by the ongoing heightened market activity and strong client flows. Financing revenues were slightly lower year on year, as increased net interest margin was offset by reduced activity in Commercial Real Estate and the APAC business more broadly. Credit trading revenues were significantly lower, due to the non-recurrence of the aforementioned concentrated distressed credit position in the prior year quarter and a market environment that continues to be challenging. In Origination & Advisory, revenues were down 71% against what was a record fourth quarter fee pool in the prior year and reflecting the underlying product mix of our businesses. Debt origination revenues were significantly lower due to materially reduced leveraged debt capital markets revenues. The leveraged loan market continued to be largely inactive, and we remained selective in our new business dealings, with a focus on reducing our existing commitment pipeline. Loan markdowns during the quarter were minimal. Investment grade debt revenues for the quarter were also significantly lower, as was the industry fee pool. From a full year perspective, our revenue decline was less than the industry average. Equity origination revenues were significantly lower, reflecting an industry fee pool reduction of over 60%, with the IPO market down over 80% Revenues in Advisory were significantly lower, as the industry fee pool declined materially against a record prior year quarter. Turning to the Private Bank on Slide 37. Private Bank revenues were €9.2 billion for the full year, up 11% year on year, or 6% if adjusted for the impact of the BGH ruling in 2021 and specific items. Those items include the previously disclosed gain on sale of around €310 million related to the Financial Advisors business in Italy. From an operating perspective, revenues increased, driven by higher net interest income and continued business growth. This more than compensated lower fee income mainly reflecting current macroeconomic uncertainties. Non-interest expenses declined by 11% supported by net releases of litigation provisions and lower restructuring expenses. Adjusted costs declined 5% year on year, driven by savings from transformation initiatives including workforce reductions and branch closures as well as lower internal service cost allocations. The Private Bank attracted net new business volumes of €41 billion, in the year with €30 billion of inflows in assets under management and €11 billion of net new client loans. Provision for credit losses reflects a high-quality loan portfolio, especially in the retail businesses, as well as tight risk discipline. The International Private Bank was impacted by single exposures, primarily in margin lending. Profit before tax rose to €2 billion for the full year, and more than doubled to €1.6 billion excluding specific revenue items, transformation costs and restructuring charges. Turning now to revenues by segment on Slide 38. Fourth quarter revenues in the Private Bank Germany were up 7%, or 10% if adjusted for the net impact of the BGH ruling, since the fourth quarter in 2021 included a positive true-up associated with estimated revenue losses. Higher net interest income more than compensated for lower fee income, which was impacted by lower client activity and more challenging markets as well as -- [Technical Difficulty]

Welcome back everybody. Apologies from us for the interruption. Just for those on the phone to be aware, the webcast late in the prepared remarks, switched to hold music and hence the phone call and the webcast were no longer in sync. We're back up in both mediums. We wanted to ensure that we engage with all of our investors through the technology but also to meet our regulatory obligations and hence the delayed to reset. Daniele, if you're still on the line, perhaps in the interest of everybody hearing the question-and-answer, I could ask you to go back and repeat the question when you began our call with.

You can hear me?

Yep, we can hear you. Thank you for your patience.

Thank you. I mean, the first question was really a bit high level. And obviously 2022 was the basically the final year of the compete to win strategy. And I was just wondering, obviously, there is clear achievements, there was also probably some disappointments, there was tailwinds there was headwinds. And I was just wondering whether you could share your thoughts around this and how you assess all that? And probably also, though, into 2023 how you think about the key uncertainty, right? Is it advisory origination coming back? Is it fixed rating, resource cost? Just how you feel about this? And then secondly, the second question was really about the 2023 revenue outlook. And here, I mean, you gave the group but can you talk a little bit about the divisions? What the drivers are? And how we should think about this one, and probably how the U.S. started so far, that will be useful. Thank you.

Right, Daniele. Thank you very much for your question. Also, from my side, apologies for the interruption for those of you who listen to my first answer to that there's one additional item which we need to improve on that is on the vendor side, for the webcast here. But we will take care of that after this call. So on your question, I do think that before we go into the individual strengths, and potentially also areas of further improvement, let me first of all, say, Daniele, that I think this bank is immensely proud of that what we have achieved. And this -- not a lot of people thought that this turnaround, which is an absolutely sustainable turnaround is doable, but we, who have been close with the bank and being in these positions oversaw the potential. And I think the most important, what we achieved over the last three and a half years, is actually the reinvigorated passion, the focus and the pride of the organization. And I really would like to highlight it here, because I think people too often really miss the point that we are talking about people's business with our employees, but also with regard to that the key item we're doing is covering clients. And therefore, you need absolutely proud people who are doing their job with passion. And that's what we managed over the last three years and that's actually which is also the basis for everything which we think we can achieve in the next three years. Now, why did we do this? Because I think this organization found its balance, found its direction and found its strategies. And this is, I would say to your question one of the clear achievements of this transformation and also what we have seen in 2022, is actually our strong focus on the four business areas, where we think we are able to compete and where the clients really want to work with us. And we see that when we look at gaining market share, by the way, not only in the FIC business, but also in other areas of the bank, Corporate Banking in Germany, Wealth Management International, we clearly win market share, because we know we are acting there and we operating there, where we have our strengths. Then I do think, over the last three years, we would have never been able to actually do this what we have done without first class risk management. We had two crisises so to say, to manage the pandemic, but also obviously, the impact of this awful war in the Ukraine. And you can only do it if you have complete belief in your capacity and capabilities as risk manager. We have had that for the last 13-14-15 years, you'll see that with our results. And again, in 2022, we had an outstanding year in terms of risk management, by the way, Daniele, both on the front office side, as well as on the back office side in risk management itself. And then obviously, the focused discipline, which we had in the CRU, James was talking about that, which really helped us to create the capital, which we then use in order to invest it into the business. And last but not least, is the cost culture. And that is something in Deutsche Bank, which we haven't had before. And I think I can judge on it, because I've been here for 33 years. But the cost culture for three and a half or four and a half years now, where we took out over the last three years more than €3 billion of costs is something which earmarks a new era. Now this brings me to the point of where our areas of improvement? I wouldn't call it area of improvement, but it's clear that we cannot lose this cost focus. And James talked about this in his prepared remarks, how we want to take out the next €2 billion just in the in the year '22. Out of the €2 billion, we already took out €490 million out of these four areas, i.e., German restructuring technology architecture, front to back process redesign, infrastructure efficiency, all the measures he mentioned on Page 29 of his presentation, €490 million has been already done in 2022. And that focus will go on. And on top of that, we know we need to do more. And therefore, we set up an incremental cost management program, which even delivers more also in order to find the right response to the inflation, which we see in the economy. And therefore I think costs cannot go away. Second point where we need to a margin improve is regulatory remediation, we know there is a lot of work ongoing. We have achieved a lot, but we cannot let loose. We need to do it. It's a foundation in order to grow sustainably and hence all focus also on that in the year '23. And last but not least, I will say while we got really good at it, I think we can even further improve the way we are doing our portfolio allocation, capital allocation, in particular in volatile times like we have it right now. I think we have shown the strength in 2022, otherwise, we wouldn't have been able to show these results. But obviously you can learn from that. And with all the tools and techniques and instruments we have to even make sure that we shift our business there, where from a capital return within our global house bank strategy, there is the best return. So if we think about this, then I will say these are the clear strengths, and also areas where we can improve. And if I take that forward, then I do believe this really is paving the way for '23. And '23 to your second question, clearly we see an upside on the revenue side. James was talking about the net interest tailwind which we have of approximately €1 billion years. But it's not only that, it's also the underlying business which we are doing in particular on the stable business which are growing. The Corporate Bank is growing quarter by quarter. And if I look into that what we have achieved in Q4 compared to Q3 Q2 steady improvement. If I now see how January started, by the way, not only the Corporate Bank, also in other businesses, but also again in the Corporate Bank and see the forecast for Q1, this is a steady increase of the stable business not only based on the net interest income, but also by the underlying growing volume we are writing with our clients. And we feel confident about the €28.5 billion of revenues with a clearly increasing revenue side on the Corporate Bank. Also in the Private Bank, from an operating side we are clearly increasing the revenues, obviously having the tailwind of the interest rates. We had a very good start also in asset management because you've seen where the markets are. I think we plan cautiously there, so I see real momentum there. And in the Investment Bank, to be honest, I'm hugely proud of what we have achieved. You have seen the market share gains. And even January, again shows me that the underlying flow of our business with the clients is absolutely showing the momentum, which we have seen before. And therefore, I think we have a good chance actually in the Investment Bank to show revenue result on previous year's basis. Even if there is a slight decline in the macro businesses or in the FIC business, we can also see that parts of the O&A business is coming back with a very stable financing business. So you have two business with clearly increasing revenues, Corporate Bank and Private Bank. You have a stable Asset Management and you have an Investment Bank, which is stable in itself and very sustainable. And then you take the net interest income, which is obviously a tailwind into account. And hence, we are coming to a clearly increased revenue line in '23. Taking then flat costs and flat LLP where we see the environment into account, we see another nicely evolving pretax profit next year, which is better than this year.

Thank you.

Thanks, Daniele.

The next question comes from Chris Hallam from Goldman Sachs. Your question please.

Thanks for taking my questions. So first, on costs, what gives you the confidence on holding non-expense, non-interest expenses flat in 2023, especially in light of that cost miss in 2022? Can you provide any further details regarding the building blocks there that underpin those assumptions? And also any updates on the medium term cost outlook and cost measures? Then, secondly, on the 2025 targets, which you've reiterated, has the makeup of how you get to those targets changed significantly, given what we've seen, I mean, the moves and rates, moves in inflation, the broader macro, and obviously credit conditions? And then finally, just on share repurchases, following up from one of your earlier comments, James, what are the regulatory headwinds you're waiting to hear on? How large could they be? When do you expect to have that clarified, and therefore, when do you expect to be able to give a number on the buybacks?

Thanks for the questions, Chris. I'll take all three and Christian and Olivier may want to add. First of all on costs, look, we've established a run rate. So what gives me confidence about '23, is we exited '22 at the run rate we essentially have to preserve now through the year. And that means that a lot of the initiatives that we've talked about, as Christian mentioned, that the key deliverables that we bucket for you on Page 29 of the deck that are in flight. And that's I think an important thing to understand. This isn't stuff on a whiteboard, this is where the initiatives are funded. We have delivery underway, we already have delivered on a significant portion of it. And we have great governance and tracking of how we bring this all to fruition, that's underway. And in a sense, those deliverables offset the impact of inflation and other investments that we make in the business over time. But the critical thing is to continue to manage that to that run-rate. Now, obviously, there's some variability if it's about, 1.6 -- €1.65 billion per month, there obviously be some variability, but in essence, it's trying to manage that flat, given all of the moving parts. We'll also have the single resolution fund assessment, non-operating expenses, and where possible, we obviously seek to influence those to be as small as possible. In a sense, that has to continue now for several years. Obviously, there'll be some FX impact over the years on that run-rate, but that's sort of what the mindset is, and how we think of the building blocks. As Christian outlined, we're always working to find more measures on the expenses and peel the on, and then to be honest, the deeper you get into it, the more tools you build, to understand and control your expense base, I think the more opportunity you also find, which is good. Because as I mentioned, inflation has been running ahead of what we anticipated, say a year ago. On the targets and the path to the target, it's a similar story. Revenue growth with flat expenses drives operating leverage and the cost income ratio down ROTE up. We feel really good as Christian outlined about the compound annual growth rate in revenues that we laid out in March and if anything, the '22 start on that path was better. Interest rates a little better and the underlying drivers also better. On credits, we entered a cycle that perhaps we didn't expect prior to the beginning of the war, but we see a normalization of credit, as we get into '24 and '25. And we feel pretty confident on the book, as you've heard -- Olivier describe and he can go into as well. So while the environment has clearly been dynamic, and the cost base has reset upwards in part with inflation, in part, with some investments that we made last year, I'd say the overall picture is actually pretty consistent with what we shared with you in March. Lastly, on the share repurchases. The REG items that are on the way, really the most significant is what we refer to as the wholesale IMI or Internal Models Investigation. So where we've been, as you know, other banks as well, they've been reviews underway on the applicability of new EBA guidelines in our model environment. And there, the reason for caution is both the timing and magnitude of that item, as well as potential offsets that we've been working on whether to do with other models, or limitations that have been applied in our IRB, sort of world. And so with, with the uncertainty, as I say, timing and magnitude, and therefore volatility, we think it's just prudent to hold on to the capital to ensure that we wouldn't be distributing an amount that while by the end of the year, we would have been very comfortable distributing on an interim basis, it might have made us look a little thin and potentially influenced our ability to support balance sheet growth, support clients in this environment. So hopefully that gives you a little color on how we've been thinking about it and what is coming down the pike. Operator, I think we can go to the next question. Thank you, Chris.

The next question comes from Nicolas Payen from Kepler Cheuvreux. Your question, please.

It's good morning. Thanks. Good afternoon, sorry. Thanks for taking my question. I have two, please. One on risk management and one follow up on costs. The first one on risk management, you mentioned your guidance of 25 to 30 basis points cost of risk. Wanted to know, what are your underlying assumptions beyond this, range before 25? And what would drive an increase to 30 basis points? So in other words, what's your sensitivity into this range? And if we could also add a bit of color and where we stand vis-à-vis the scenario of the compete gas cut off within this guidance? And the second question, the follow up on costs, is if your revenue growth does not materialize, as you expect, what kind of flexibility do you have? Because, notably, in your prepared remarks, you mentioned additional potential measure on costs, notably in agile management of headcount numbers. So if we could have a bit of color on this item, please. Thank you very much.

Sure. Thank you for the question on credit loss provision. As you know, we have guided a range of 25 to 30 basis points. And your question is, really how do we get to the bottom of this range i.e. 25 basis points, which would take us flat to what we've done in 2022? Well, really the tailwind that I can identify, number one, the prospect of perhaps a short shallow recession in the U.S. Inflation is trimming back and we have a prospect of normalization of interest rate rises this year and also the decline of around energy concerns, due to the mild winter to the different measures, consumers have taken and also the Germany's €200 billion package on energy prices is a key factor. The fourth one is really China reopening that nobody forecasted and that is beneficial to growth. So for instance, different research are now not forecasting. Really a recession was a full year for Germany, but perhaps more stagnation. So all these tailwinds would get us towards the bottom of the range. To your question of how do we good go to the top of the range would be any downside risk around these factors, really. So that would be my answer. The second part of your question concerns, at the end of Q3 when we had a lot of uncertainty and we were very concerned coming out of the summer around the possible energy squeeze. We did a lot of detailed work in our book to estimate the possible impact around that. But both -- and we guided for the next 18 months or 20 with downside, but both in terms of likelihood, but also in terms of impact, because of the measures I've mentioned about the government, and how people are adapting with new energy supplies. We see these downside risk as to be discounted, both in likelihood and in magnitude.

And Nicola, on your second question, the flexibility of the expense base to adjust to the downside potentially in revenues, is something we've talked about over the past several years. And as you know, our answers have been we weren't comfortable in an environment where we were managing a shrinking expense space, and going through the transformation. We didn't feel that the levers we had to the downsides of variable expenses were really sufficient to offset their ability on the revenue side. We think we're pivoting to a better place in that regard over '23 and the subsequent years. And why do I say that? I think it's on both lines. As more of our expense base shifts to the quote, unquote, stable business more predictable, you have less variability if you like that you need to account for so. So that helps in the equation. And the other thing is, as we now move to an environment where we have cost saves underway, we have an investment profile that is if you'd like fully funded and we're in execution mode, if you like on the cost reductions, I do think we get to a different place in terms of flexibility. We started talking about this a little bit, and so it's not just marketing expenses, bonus and retention and the truly variable expenses in the cost base. There's also decisions we can make more in discretionary costs and investment timing, that would will over time, give us more flexibility. So the answer your question is I think we've made some real progress towards having more flexibility to manage. As you heard us say, in the second quarter, we're very cognizant though of preserving investments that are critical to our future. And hence that's the balance we'd be working to strike. Thanks for your question.

Next question is from Anke Reingen from RBC. Please go ahead.

Yeah, thank you very much for taking my question. The first one is a follow up on the cost. Sorry, if I missed it. But what is sort of like the direction in cost from '23 to '25? Is it considering the cost savings and less SRF and inflation? Is it -- should it be sort of like flattish or could it be even trending down? And maybe, what inflation assumptions have you taken in there? And then on the revenue guidance and your increase in upgrade from your higher rate benefit to the 0.5 percentage points in the CAGR? Wouldn't it be -- why didn't you change the CAGR, the 3.5 to 4.5, as it just or only was I guess everything else sounds a bit more optimistic as well or am I mixing up different years here? Thank you very much.

Okay, let me take the first one on the cost side. So overall, obviously, with the inflation where it is, it is not that easy to exactly forecasted. But our view when you look at the next three years is actually to operate on the basis of flat costs. That's what we want to achieve. Therefore, we came out last year in March 2022, and says we think we need to take out and we can take out the extra €2 billion. This is exactly what is detailed out on Page 29, where we're making good progress. And as James is saying, this is not just the power point, there are underlying key deliverables which are monitored on a weekly and monthly basis. And we are confident to achieve that. Now, given the situation where we are in with inflation a bit stickier and higher than we even thought in February and March, we do believe that we need to do more things like James was saying. And hence, we are working on additional incremental measures in order to make sure that our costs are staying flat over the next three years and that obviously then works into our operating leverage. So in this regard, we have an assumption that the inflation is coming back clearly to below 5% in 2024 and then to 2% in 2025. We know this is always very complex to forecast at this point in time, but that is something, in which we have so to say in our plan, but the key assumption is, and what I can see also from the additional tools, James and Rebecca are working on, for instance, on driver-based cost management, and the way we can now really see the transparency and drive the cost is that we need to do more than the €2 billion, and we are able to do it.

And then on the compound growth rate. Look, we liked the idea of reiterating the targets. Obviously, our confidence in the high end and potentially exceeding it is higher today than perhaps a year ago. But we didn't see a need necessarily to raise that target at this point in time. We can happily live with a target that looks conservative as things stand. Remember, again, FX has a pretty big impact and there's lots of other things. The other thing I just want to say is, remember that there was a business growth aspect in the compound growth rates that we provided in March. So we broken out the interest rate driven improvement, which is good but we're also confident about the underlying growth rate, given the drivers that you've seen, for example, the €41 billion of net new business volume in the PB in 2022. So we're going to keep on working with that. And if we can exceed that target so much the better.

Okay, thank you.

Thank you.

The next question comes from Tom Hallett from KBW. Your question, please.

Hi. Just couple of questions for me, please. So on the deposit beta, it's been a big topic over the last few months. If you could just provide us with some color on the retail corporate deposit dynamics? And does it remain below your target rate? And then secondly, on capital/buybacks. I mean, if I'm not mistaken, you said maybe January 1, next year, you'll be operating with about 13.2% go to level. And in the meantime, we've got a lot of other inflation. You've got Basel III kind of finalization stuff coming through payouts of dividends and so forth. It feels that even if the market conditions there's going to be up, the chance of a buyback still pretty low, is that fair? Is that the best way to understand? How should I kind of understand that? Thank you.

Thanks for the questions, Tom. And so on deposit beta, we talked about this a little bit last quarter. We look at, in essence four portfolios, dollar, and Euro, and then our Private Bank that is retail and Corporate Bank books. And what we're continuing to see at the moment is the betas or elasticity, as we see it, showing a very large lag. It's very significant in percent percentage terms. Obviously, we don't go into it in detail. But that lag continues, in essence to surprise on the upside at the moment, reflecting I think that the models that we build around this historical behaviors don't really capture what happens in a rate cycle where your starting point is negative, or zero, depending on the currency and the pace of the rate increases at the short end, is as rapid as it has been. And so we've seen that lag, obviously in dollar. It's catching up to the models over time more quickly than in euros where we're still at the very early part of the tightening cycle. But it's one of the reasons we saw, I think, pretty significant upside in '22. Some of which will carry into '23 on lag benefits relative to our earlier models. So that's really encouraging. On the timing and the conservatism in buybacks. I think, Christian may want to add some thoughts.

No, I mean, that James referred it. Look, first of all, I think it's a clear statement that we reconfirmed our €8 billion of capital distribution until 2025, or for the years '21 to '25. You have seen that despite there is quite a volatile environment out there outside there. We increased our dividend. But to this distribution, there is obviously or this consists obviously of the instrument of buybacks. And, we remain optimistic that we will use this instrument and that we also have a chance to use it this year. But I think you also deserve a Deutsche Bank management, which is always looking at it from a conservative point of view. James just outlined that there are still some uncertainties in particular, on the regulatory side, we want to wait for that. But if I look also how we started into the year from a capital ratio with 13.4, which by the way, I think was a very positive jump off. If I see how the business is going, I remain very optimistic that we can do this. But you deserve it at a time where we can talk exact numbers and exact timing. And hence, you see an optimistic management also with regard to that instrument.

Okay, thank you, James. Just a quick follow up. I mean, on the Basel finalization impact, is there any update on that because one of your peers, seem to be diluted a little bit versus say a year ago's expectations? Is there any changes in Deutsche?

Yeah, Tom. So a lot of moving parts in that as well. I mean, the truth is, the capital calculations and forecasts are -- have lots and lots of moving parts. On Basel III, we're encouraged by what we see in the proposals that have come out of Brussels and going into the dialogue. So in fairness, we'd probably assumed in the estimate we gave you last year, consistent by the way, going back several years of around €25 billion in RWA terms. There's been some puts and takes in terms of the various moving parts of it. And of course, the other the other question is, what's your step off going into the move from December 31, '24, to January '25, so lots of moving parts. We don't see an improvement versus the '25. Right now, we actually probably see a deterioration of perhaps €5 billion but really all driven by up risk RWA. And that, in turn, would be driven by higher revenues in 2025. But that's an estimate. And that require -- it's going to be lots of moving parts, again, their FX revenue growth and the final rule, so I wouldn't want to paint too negative a picture, but I also wouldn't want to study them suddenly go away from the that €25 billion estimate that we've given you now, pretty consistently since I think 2018, or maybe 2019.

Yeah. Okay. Interesting. Thanks.

Thank you.

The next question comes from Adam Terelak from Mediobanca. Your question, please.

Afternoon. Thank you for the questions. I just want to clarify on capital and REG inflation. If you're taking REG inflation this year, I mean, does that frontload any of that Basel impact? Clearly, you've got all of your inflation ahead of a credit risk flow, either input or output, then you pick one would be kind of just frontloading that impact. And so is it just a timing issue when it comes to this year's REG inflation? And then secondly, I wanted to ask on the DTA writer. Obviously you're taking €1.4 billion, I'm less interested on this year, but more how quickly that comes back through your capital. So you've given us your tax rate expectations, and what does your cash tax rate look like? I assume it's significantly lower meaning more capital generation in the next few years. So any color on those would be great, thank you.

Thanks, Adam. So on REG inflation, again, it's one of the moving parts, as I mentioned, step off is a consideration in terms of how much comes on overnight from December to January? Yes, there is a little bit of netting in terms of higher floors, LGD and PD floors in the IRB going into Basel III implementation and '25, but there are other things that move in the other direction. And hence my answer to Tom, which is lots of moving parts. Up risk is probably the only one that if you net it all out that is probably moved in the negative direction, but it includes that concept of bringing forward. On the DTA write up, a couple of things to say first of all, this year's impact as was last year's is really on the U.S. tax position, the U.S. tax loss carryforwards really encouraging given it reflects the enhancement of the value of a franchise. Around cash taxes, look, because they're disregarded the DTA itself is disregarded in the ratio. And then the gap earnings essentially reflect an accrual, the impact is relatively modest and over time as to the value of the cash of the tax shield reflected in your capital accounts. So I wouldn't see that as a major driver of capital accretion. The other complexity that exists around this in the U.S. is, as you know, the U.S. is become as a jurisdiction for tax much more complicated over the past several years with the beat and the minimum tax level. So we've factored all of that into to our current estimate of the utilization of those tax characteristics. But as you can imagine, there'd be some considerable moving parts there as well.

But that one point forward should come into capital at some stage, but just need to be very, very patient for it.

It's over time -- and there is a cash tax benefit that is accrued that is recognized over several years.

That's fair. Thank you.

The next question comes from Magdalena Stoklosa from Morgan Stanley. Your question, please.

Thanks very much, I've got two. One is about the cost of FIC target and another one about volume. And what you see from the kind of client business perspective in corporate and PB. So maybe first on the cost of risk? I know we've discussed it a little bit already, but my first question really is, when you look at that range, and I know we've kind of talked about kind of various, what can what can get us to the bottom versus the top of the range a lot of macro assumptions. But what is your underlying base case macro? And it's kind of underpinning that range? What is that scenario with key variables? And secondly, I'm very interested what you think about the kind of idiosyncratic risks as well as the sector ones. Because, of course, over the last couple of weeks we have seen kind of news flow of Adani or Americanas. And of course, you can argue that this is -- these are accounting issues, but we kind of seem to be having these idiosyncratic kind of relatively large risks or potentially large risks, versus the sector ones more macro driven ones. How do you reconcile those risks as well within the guidance? And the question around the volumes around the Corporate Bank in particular, because, of course we talked about the revenue growth in 2022, which I have to say across the board impressive. But what sorts of business volumes do you actually see in a corporate bank over the next let's just say two years. Because, we are kind of starting to see weakness in originations across the board. Thank you.

Thank you for your question. I'll start on the on the cost of credit risk. So for 2023 we see the credit cost provision that we said would be between 25 and 30 basis points on our loan book at amortized cost has being driven really by Stage 3 provisioning, right. So meaning that we've done quite a careful bottom up analysis in the different sectors of our book, where we want to provision to take into account, higher rates, recession, so, especially on midcap on commercial real estate, leveraged lending. And we do not see really forward-looking information or macroeconomic variable as being a key driver like it has been in 2022, where we had thrown in €58 million I believe about one over 25 basis points driven by the deterioration of macroeconomic environment. So the base case in -- the base case of the better outlook would definitely mean that we could have some relief coming from these effects. But, really the rest of the of the credit cost provision are driven by these bottom up analysis that which are sectoral analysis and have taken into account the headwinds that we've all talked about higher rates higher -- from high inflation, recession, et cetera. In terms of idiosyncratic risk, of course, when starting this exercise, you don't foresee everything that you can account during the year, you do you do account for some. I won't comment on specific situation as you can expect, but as I have outlined in my in my talk, we do have for every exposure way to clear framework, either industry risk limits that prevent exposure to higher risk industries, it contributes framework that's quite robust that would limit exposure to higher risk country as well as a concentration framework that also very important to avoid large concentration risk. And when structuring lending, our lending standard do lead to outcomes where we well collateralized and aware we have structural enhancements. And that's what I would say that gives us some confidence around our loan book and managing idiosyncratic event.

Magdalena, and on the growth side, in the Corporate Bank, and then later on the Private Bank. Look, on the one hand, we see still, an increasing loan book and in the Corporate Bank. It's a little bit more in the short term side, that's the change, which we have seen in the second half of 2022, because corporates are also obviously securing the liquidity, a little bit less on long term investment facilities. But in particular, the Corporate Bank next to obviously the benefit of the NII, we see an increasing flow and revenues from payments, trade finance, and our overall cash management business, not only for corporates, but also with regard to our financial institutions, where we're doing cash management with. And that is where we focused our business on where we also invested a lot into technology. So if you think about the growth rate for the next three years, then actually a lot of people think that most of that will come from the NII, is actually that even more is coming from the underlying volume, which we see in cash management payments, and then the trade finance. So it's very much diversified. And that's exactly also what we see now in the month of January. In the private bank, it's also very balanced. We see growth next to the NII in particular coming from the International wealth management business. We are gaining market share, in particular in Asia. So we are focusing on that business. In Germany, I think, a good revenue development, of course with less in for instance, private mortgages, because the demand of private mortgages is reduced, given the environment we are in. But if I then look at the investment business, at the payment business in the Private Bank, but also actually on the consumer finance business, we are doing well. And therefore, I would say that we are also seeing there an increase even in the year '23. So overall, next to NII a pretty diversified revenue stream. And the nice thing for us is that the revenue increase outside NII is at least exactly the same amount or if not higher than simply than the NII contribution.

Right. Thank you very much.

The next question comes from Stuart Graham from Autonomous Research. Please go ahead.

Hi, there. Thanks for taking my question. But first, congratulations on me too, on the compete to win plan which include that from a number of factors you achieve the strong turnaround with bank during a tough macro period confounding me the naysayers like me. So I think you Christian James, and the rest of the management team can rightly be very proud of that turnaround. More mundanely. I had to short number questions, please. On the regulatory headwinds to get to 13.2% at the end of '23, from the starting point of 13.4, and coming up with 60 basis points of regulatory headwinds. Does that sound correct? And then secondly, at the last invest the deep dive, you talked about an ambition of €800 million of green revenues in 2022. What was the actual number please? Thank you.

Stuart, thank you for your kind words, and we appreciate it and also the attention you paid to this process over the years. So on the REG numbers, I would say on balance, if you like net, that number would be high. Obviously, lots of ingredients into the calculation this year, so organic capital generation distributions, including AT1 other elements in the calculation like, you know, offsetting employee compensation items and what have you, and then business growth. So, there's a lot of moving pieces in that picture. But I would say on a net basis that the 60 basis points looks high. The other thing, just to remember is, is that is that Basel III bills. So yes, our guidance would be would be 200 basis points above NDA, so 13 to at the end of the year. As we get close to the end of the year and look at business growth, and the path to Basel II, we will also have a clearer view on what we need as a step off at the end of the year, into next year. So lots of moving parts, but I think your math is a little high.

So the right number would be 40 basis points then?

I'm not going to get drawn on go fix with the numbers if you're -- but we can we can talk a little bit more.

And on your green revenues, to be honest, I can't tell you the exact number, we will get back to you. Because we have fortunately and very proud of that achieved our €200 billion goal as you have seen. We are also pretty confident that we can from here on take of the €500 billion, but we will provide you with these numbers when we get on March 2 in our Sustainability Deep Dive. So give us a little bit of time in order to come up with this number.

Sure. Thank you.

Thank you.

Next question comes from Jeremy Sigee from BNP. Your question, please.

Hello, thank you very much. Firstly, I just wanted to, if you'll allow me to keep going a little bit on the moving parts around capital, just two specific points, please. So he could you put a range of numbers around that wholesale model impact that you're expecting. If you could give us a rough range of what that could be, that'd be helpful. And then the second specific is, you had quite a big balance sheet reduction at year end. And I wondered whether you expect that to re-expand in Q1 just for sort of seasonal shrinkage and growth again? And then my other question is on the provisioning discussion and credit quality use. If I can play with other banks, including some of the U.S. banks, as well as European peers. Some of the others talk much more about buffers for the sake of buffers over and above what they think is necessary, but just to play safe. Whereas, acknowledging that you've done an extremely good job of risk management, your provisioning seems to be more close to what you expect to happen. So I just wondered what your thoughts were about that sort of buffers discussion.

Sure. Jeremy, thanks for the questions. And maybe I'll go in reverse order. On the buffers, you're absolutely right. We essentially stick to the model outcomes unless we see some compelling reasons to move on that. And we finished the year, we didn't see a reason for that. And so the number you see is what we believe is necessary. And we've been consistent on that I think it served the company well and is in line with what is expected of us, certainly from an accounting perspective, and should also arguably for regulatory expected. On balance sheet reductions at the year there was seasonality as there always is in leveraged exposure in the markets business, and then a little bit of a short term decline in loans, particularly in the corporate bank. And we'd expect some of that to come back in Q1, which is also why I think on the capital side, the step off is probably surprised us as on the upside and it was mostly in credit risk RWA. On ranging the wholesale IMI, I won't be drawn on that because it's a wide range, there's uncertainties in the model, and it's, in essence, our largest portfolio. So there's a lot of work to do to tie that all down. And what we're really focused on, as I mentioned earlier, is the timing, not just of that, but also of some offsets that we see coming into the into the capital calculation. So in essence, it's the volatility, which is also why I think I don't want to be drawn at this point into Stuart's question about what is the net impact through the year, as you think about capital build. And your first question about moving parts, really, I think I answered that and hopefully I've given you some color in the various answers as to what we're dealing with. And I think Christian has been very clear about management's sort of direction of travel once we have more clarity here on the various moving parts.

That's helpful. Thank you.

Thanks, Jeremy.

The next question comes from Andrew Coombs from Citi. Your question, please.

Good afternoon, two follow ups to Christian please, if I may. The first was on this point about with alpha versus beta in terms of the revenue growth. If I look at your guidance for 2023, up to €28 billion to €29 billion versus 26.7 in 2022, on an adjusted basis. You've said that rate after adjusting for higher funding costs will be €0.9 billion of that. So at the lower end of your range, it does appear that rates are actually the majority of the expected growth in 2023 unless you're assuming a normalization in market revenues or something else? Perhaps if you just elaborate on that. And then my second question would be, in response to the answer you gave to Daniele, the first time round, before the conference cut off. I think you talked about some of these regulatory model reviews. And you were saying about how there's the risk that in the end, create regulatory soundness, the regulator almost goes too far for European banks to remain competitive. And some I wanted to ask your view that in light of heightened capital requirements, or any businesses, which you think are now uneconomic and where you can't compete, and where you would be better off exiting, or at least downsizing? Thank you.

So, Andrew why don't I start? And I think -- and pass it on the Christian on how it informs capital allocations? I think it's a really good question. Just briefly on the revenues. Yeah, if you take the, the gain on sale out of the 27.2, our starting point is 68.9 -- 26.9, sorry, at the 900 million to get to 27.8. And to get the middle of the range, we'd have to grow in every other aspect of the company by about €700 million. That doesn't seem too stretchy to us, given the momentum in the businesses on all of those drivers, and also some unusual items we had in the year valuation. And timing is always a little uncertain, as we've talked about. So hence, if you like the confidence you're hearing from management about the path forward. And in the beta discussions, we've talked about, we've brought forward some of the benefits that would other have -- otherwise have been in the '24 period, a little bit in '25 into '22, and '23, hence some of what you're seeing. On the REG side, yes, you've heard us say this a few times. The more you put floors into the IRB models, the more things outside of economic risk drivers are reflected in how we need to capitalize the businesses, it does affect the return on capital that we earn from them. And it means we have to look at capital allocation carefully. So that's something we've always been focused on remain intensely focused on, as we adapt now to a changing regulatory environment.

Yeah, there was hardly anything to add, Andrew. But, when I talk about this regulatory items, it's not only the model discussion, which James, I think talked a lot about now. In Europe, also these additional items like SRF counter cyclical capital buffer and of course, you are looking then from a portfolio allocation also, next to all the impacts from Basel III, what does it mean? And this is exactly what we are doing. And there we are thinking and that was one of the comments I made, where we can I think even get better in the final when the fine tuning of the portfolio allocation and thinking about what does it mean in two or three years for that in that business. I think we have shown it already also in parts of the investment banking business, within our transformation, that we made the right calls. We showed it last year, not only when we foresaw the weakness in the leveraged lending, but also with the additional capital, which we had to accept that we are obviously then also right sizing there our appetite. And the same thoughts we will do when it comes to German mortgages, when it comes to the extra capital, which we have to preserve for that. I think in this regard, it is it is something which is taken into account. But there is nothing actually which makes us nervous, and which prevents us from achieving our goals. It actually -- it is something which in my view, is not only fine tuning but optimizing our capital allocation. That's exactly what we need to do.

Thank you very much.

Thank you, Andrew.

The next question comes from Kian Abouhossein from JPMorgan. Please go ahead.

Yeah, thanks for taking my questions. And the first one is just quickly to clarify the decision not to have a buyback. It's your decision or is being asked by you to wait until further notice? The second question is related to cost. If I look at the '23 stated cost relative to '22, clearly there are some not one of items but some transformation costs in there, some litigation costs in there roughly 550 or so have you added together. Should we assume to a similar amount of these kinds of costs in '23. And in that respect, you mentioned that this business will make a loss of €1.2 billion that includes the CRU. And can you tell me the cost of the C&O business so I can get a bit of a better clarification on my modeling? \ And then the last one is I made it very quickly. You used to have a cost guidance of €18.5 billion to €19 billion in '25. Should we just ignore that now, as we are in a new world? And if that's not the case, clearly with your guidance on CAGR, you're not getting to your 62.5%. So just trying to understand is there some kind of cost improvement element in the later years on a net basis, rather than just sort of gross basis, or all of that has to really come from revenues?

So Kian, thanks for your questions. I'll try to be brief on all of them. So on the first, let me be really clear. The decision on the buyback was ours, it was management's decision did not reflect any influence from the regulators. On the cost going forward. So starting with the C -- corporate and other area, the 1.2 we gave hopefully a little conservative when all said and done includes the CRU. So it is a number that is pro forma for all the changes that I mentioned in terms of the push out in DBCM, in the CRU. And we'll be able to give you some more numbers over time on the on the restated basis for that. So, lots of ins and outs, but the net is down. There will be the sort of call it €500 million or so of now of shareholder expenses, and then a little bit of volatility around things like restructuring and severance plus the CRU expenses in there. Those CRU expenses are coming down significantly over the years to come. So we'd see some improvement from that over time. And only 18.5 to 19, look, let's start with just FX, which is I think we disclosed something like €600 million, added €600 million to the expense base. Some of that of course, will have come back a little bit with the rally in the Euro so far this this year. So there's a little bit of FX, a little bit of incremental investment that we've now built in. But remember, if revenues in 2025 are a €1 billion or €2 billion higher than we had at least initially anticipated, through the sum of everything that we've talked about each billion of cost at 62.5% supports, €625 million of additional expenditure. So there's flex in the ratio. If we travel at about the level we were this year, our math tells us we should be right in line with that. And then lastly, on the litigation item, litigation ran higher than we expected this year for sure. And some of the items were frankly unexpected. And so we would hope that that goes back to a more moderate level in the years to come. So, again, lots of things to manage in the years ahead, but we think our model works well.

Thank you.

Thank you, Kian.

The next question comes from Andrew Lim from Societe Generale. Please go ahead.

Hi, afternoon. Thanks for taking my questions. So first of all, well done on the operating leverage coming through in the Corporate Bank and a Private Bank. But it seems tainted somewhat by what's going on in the corporate and other division. You seem to have quite large outsized negative revenues and large costs. Can you tell us what exactly happened in the fourth quarter? Whether these should be temporary in nature and move back down to a lower level? Secondly, on the IB side, I think you've talked about the robustness of trading coming into '23. Could you give a bit more color on whether this is macro driven or credit driven? And maybe give us a sense of year on year increases for January. And then on the IBD side, you've been weak there. This is origination and advisory of course. Have you seen a sense in January that this is rebounding strongly with the rally markets that we've seen? And then thirdly, I've got to come back to this buyback issue. I just can't rationalize it in my head why you're pausing this. I mean, you've given an answer leading to modeling considerations. And these happen to be taking into account. But at the same time, I can't sense that things have actually deteriorated in terms of macroeconomic outlook in the past quarter and you yourself say that cost of risk is actually going to be flattish year on year for '23. Is that really an issue what's happened in the past quarter to make you more cautious there? And if it's not really that if it's more to do with, like credit risk rate inflation, as you've alluded to. Is there a sensor that maybe the CET1 ratio might come under a bit of pressure from the 13.4% that you've just reported? So a bit more color there, please?

Sure, Andrew. I'll try to get through as much of that as I can. So in the fourth quarter, the biggest expense, that was the litigation item, which is in corporate and others. So the biggest if you like variance to Q3 was a litigation item. In general, to your point the push out of those expenses, that you'll see on a pro forma basis, and then going forward represents depending on the business, maybe to up to 4%, of a cost income ratio. So it's a significant impact, but over time, given the efficiencies that we're working to achieve, especially in infrastructure we think that essentially washes out by '25 and the guidance we gave in March for the businesses assumed that push out would take place. So I don't think in substantive changes really much about the businesses in their trajectory. On the Investment Bank, we've talked about solid performance, it's encouraging what we're seeing the beginnings of recovery and originations and advisory, as you've seen, debt capital markets, on the investment grade side got off to a very strong start, both in the market and our market share perspectives. And you've started to see the reopening of high yield markets. And there is a pipeline if you like a backlog of M&A transactions to close. Now, clearly, there needs to be more recovery in the episodic over the coming months really to see that momentum pick up again, but what we've seen so far this year is encouraging. I don't want to go through a year on year sort of detail. But another encouraging feature is just, and this underlies some of Christian's commentary that the franchise nature of the revenue performance across flow in particular in January so far is very encouraging to us if we compare to the prior year. Lastly, on the buyback, look as Christian said our goal is to be conservative. We frankly built our plan last year on a set of assumptions looking into the future, not just our financial plan, but also our capital plan. At a time, when I'd say the optimism or the risk on environment that we're seeing today wasn't present. And the step off wasn't known to us. So your question is a fair one. Does it really reflect what we see today? And the answer is no. We think the environment is more favorable than the basis on which we built that plan and capital plan. Nevertheless, given the uncertainties, we think it's the appropriate decision to have held back at this point. And, frankly, if that conservatism was unwarranted, then that capital is in fact excess and can come out later in this year. So I think it's as simple as that.

And sorry, and just on those buybacks. Can you can you make the decision at any point during the year to bring those buybacks through?

Yeah. And hence, the flexibility of the buybacks. And I think by the way, obviously peers are doing what they do and is appropriate to them. And it's exactly the point with buybacks, right, that you have the flexibility to govern both the timing and the amount based on what you see and the confidence. So I think the idea that it's that that people lock into the view that it's a January announcement of a certain amount is probably not appropriate to buybacks. We've been really clear on the dividend path. And as you know, the dividend path is a significant component of the total capital return, €5 billion through '24 and €8 billion through in respect of '25. And we think we're on a good path. Of course, we'd like to see more of the buybacks front end loaded rather than backend loaded. And we think they're a powerful tool but, but we also think prudence and flexibility are also important features of thinking about buyback in the toolkit.

That's great. Thank you.

Thank you, Andrew.

Next question comes from Amit Goel from Barclays. Your question, please.

Hi, thank you. Two questions, hopefully relatively quick. The first one -- so thank you for the update on the risk piece. I am getting questions from investors about potential exposure to the Adani Group. The group did comments about Americana's exposure, I think in the past, so any, any color there would be helpful. And then secondly, just again, I mean, going back to kind of revenue outlook sustainability. In terms of FIC business, I guess a couple of years ago, the thoughts were maybe €7 billion or so would be a sustainable kind of run rate. We're expecting a bit more than that now. I'm just curious what you're thinking the sustainable basis going forward for the next kind of year or so. Thank you.

Thanks, Amit. So on specific clients, as you know, we just don't comment on specific clients. I think the Lojas Americanas situation was a bit unique insofar as there was erroneous information in the market. So we felt important to clarify quickly. Generally, we pledged to Olivier's statements that we manage our loan book carefully and its underwriting in the security interests and what have you. And so hence, we look across the portfolio, as we've indicated with confidence. On the fixed sustainable rate, it's an interesting question, I tell you that if I go back to the materials that Rahm went through with you in 2020 IDD, we've cleanly clearly outperformed those assumptions, which is great. I think that franchise enhancement and our ability to invest further in it than we had anticipated tells you that there was more potential there that we had to -- than we thought at the time. And I also think that the underlying dynamics have become more favorable, perhaps than we assessed. Can we turn that into sort of a reliable run rate, it's hard. And maybe we come back on that question as the year goes by. We're not saying that €8.9 billion is a new run rate, and we'd expect to grow from here. We definitely think there's some normalization over time, but I think we would take the views of the baseline is simply moved up based on both the environment and the way we've, Rahm and his team in particular have executed on the opportunity.

Thank you.

The next question comes from Rohith Chandra-Rajan from Bank of America. Your question, please.

Hi, thank you very much. I'll keep it to one in the interest of time. And just to follow up on the earlier discussion around the volume contribution to revenue growth. I think Christian mentioned that that could be similar to or more than the rates benefit in 2023. Just wondering how that compared to '22. So when I try and do those numbers, I get to a little bit over €0.5 billion so you seem to be indicating something unlike a doubling in the volume benefits in '23 versus '22. So just wanted to get your thoughts on that, please.

Sure, thanks Rohith. I mean, to begin with, remember that there's a grow over piece of this, right. So we probably exceeded our estimates of the business volume growth in €41 billion for example, between net new assets in Private Bank and the loan growth exceeded our expectations. So there is a grow over element of that and then this year's originations. There's also a bit of a mix shift that takes place in the businesses. So we would think that, that a little bit more of the growth will shift, for example away from Germany into the IPB, and particularly Wealth Management, and the bank for entrepreneurs and also in the Corporate Bank, we could see some shift, as Christian noted from some of the short term lending, lower spread lending to more structured. So I think there's a variety of features that underlying the view that we have on how volumes and mix shift and also spread can help support that just the interest rate only piece of it.

And sorry. Would you compare the revenue contribution from growth in '23 versus '22? Is it significantly bigger in '23 and '22? Is that we're expecting?

I think it's about the same. If I go through the numbers, it's about the same.

Okay, thank you.

Thank you, Rohith.

The next question comes from Timo Dum from DZ Bank. Your question, please.

Hi, good afternoon. So thank you for taking my questions. I have questions on PB and CB, please. So starting with a quick one on PB. Could you please attach a number of the branches that you plan to close this year? And also, is it fair to assume that the benefit was most likely or most of that would be reasonable only in next year? So this will be a question number two, and number one. And secondly, looking at your Corporate Bank business, would you -- could you give some color on the extraordinary growth in the business banking subdivision? I mean, that will be outside the treasury and institutional services that also -- both of them posted strong growth, but the subdivision was above 50%. So this would be interesting. And also if this is something that could be repeated as well. Thank you.

So on the second question, it is the -- it's the sensitivity there and the fact that it's uniquely on the on the Euro book. And they benefited from the two rate hikes. Because remember, the first the hike to positive took place very late in the third quarter, so you essentially had the impact of one full and one partial rate hike in that business. And it's just more sensitive and had a very, very pronounced lag effect. On the branches, I don't have a precise number for you. We talked about potentially disclosing that but backed off a little bit. I would say, not far off the pace of this year. I don't think quite as many as this year, but still a considerable program or branch closures that we have the scheduled. Look, the timing of it does take a while to flow through. And the paybacks for branch closures, aren't as attractive as you might think. But that is taking place and rather like the earlier conversation, there is a grow over benefit in '23 from the branches that were closed during '22. So, so we'd expect to see a little bit of help on the expense line there as well.

Thank you.

Thank you, Timo.

That was our last question for today. And I hand back for closing comments.

Thank you for joining us for our fourth quarter and full year 2022 results call and for your questions. And thank you again for bearing with us during the delay given our technical difficulties. As ever, please reach out to Investor Relations with any follow up questions. And with that, we look forward to speaking to you at our first quarter results in April. Thank you.

Ladies and gentlemen. The conference is now concluded. And you may disconnect your telephone. Thank you very much for joining. And have a pleasant day. Goodbye.