Deutsche Bank AG (DB) Q2 2023 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome and thanks for joining the Deutsche Bank Q2 2023 Analyst Conference Call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to [indiscernible], Deputy Head of Investor Relations. Please go ahead.

Thank you for joining us for our second quarter 2023 results call. As usual, our Chief Executive Officer, Christian Sewing, will speak first; followed by 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 we currently expect. We, therefore, ask you to take notice of the precautionary warning at the end of our materials. With that, let me hand over to Christian.

Thank you, Silke, and a warm welcome also from my side. It’s a pleasure to be discussing our second quarter and first half results with you today. These results provide a vital perspective of the progress we are making towards our objectives. For me, a few key points stand out. First, we have strong growth momentum. Revenues in the first half year were up 8% to €15.1 billion, putting the upper end of our guidance range of €28 billion to €29 billion within reach. We also captured net inflows of €28 billion across the Private Bank and Asset Management. We are reaping the benefits of a complementary and well-balanced earnings mix. We are delivering strong growth in our Private Bank and Corporate Bank franchises, and resilience in key areas of our Investment Bank. Second, we have proven our earnings power. We generated profit before tax of €3.3 billion in the first six months, up 2% over last year and the highest first half since 2011, after absorbing more than €700 million in non-operating costs, including restructuring related to operational efficiencies. Excluding these non-operating costs, pre-tax profit would have been €4 billion, 21% higher than in the first half of 2022 on a comparable basis. Our post-tax RoTE was 6.8%, and would have been above 9%, excluding non-operating costs and with bank levies apportioned equally across the year; very close to our 2025 target, of above 10%. Third, our balance sheet and capital position are resilient. Our CET1 ratio has risen to 13.8%, driven by strong organic capital generation. We have sound liquidity and a solid deposit base, which we slightly increased in the second quarter. Fourth: we are delivering on our promise to distribute capital to shareholders. As announced yesterday evening, we have received supervisory approval to start share buybacks of up to €450 million, 50% higher than last year. Together with the dividend we paid in respect of 2022, we aim to distribute more than €1 billion of capital to shareholders this year. This will bring total distributions across 2022 and 2023 to around €1.75 billion and of course, it is our clear aim to continue on that trajectory in 2024 as part of our €8 billion distribution promise. Fifth: we are accelerating the execution of our Global Hausbank strategy. We are already making good progress in driving operational efficiency, boosting capital efficiency, and outperforming our revenue growth target. Let me now discuss the franchise strength across our businesses in the first half year, on Slide 2. Starting with the Corporate Bank; we delivered 30% revenue growth with strong momentum across all business areas. With noninterest expenses up 6%, operating leverage in this business was 24% in the first half of 2023. That enabled us to deliver an RoTE of nearly 17%. In the Investment Bank; we demonstrated the stability of our Financing business and resilience of our FIC franchise overall, after the exceptionally strong levels of the same period of last year and we are further diversifying our Investment Bank by strengthening our O&A business, both organically and inorganically. We announced the acquisition of Numis and seized opportunities to add revenue generators through selective hiring. Turning to the Private Bank; we grew revenues by 10% in the first half of 2023. These are the best six month revenues since the formation of the Private Bank, with double-digit year-on-year growth in both the first and second quarters of the year. We also generated net inflows of €13 billion in the first half year. This helped us grow Assets under Management by €23 billion, to €541 billion, during the first six months of 2023. Finally, we also grew volumes in Asset Management. We captured net asset inflows of €15 billion, or €19 billion ex-Cash, driven by Passive and Alternatives, both focus areas for us. That enabled us to grow assets under management by €38 billion euros, to €859 billion in the first half year and these businesses are strongly complementary, which drives sustained revenue growth as we show on slide three. Over the past two years, we have seen steady growth in first-half revenues. We see ourselves well on track to deliver at the higher end of our full-year guidance of €28 billion to €29 billion. We achieved this despite significant shifts in the operating environment over the past 24 months, as a strong post-COVID recovery in 2021 gave way to inflationary headwinds and economic uncertainties driven by the war in Ukraine. We maintained our growth trajectory in a changing environment; thanks, in good measure, to a complementary business portfolio. As mentioned, we delivered strong revenue growth in our Corporate and Private Banks, which took full advantage of rising interest rates and new client mandates. We expect that momentum to continue into the second half of 2023. This, together with the stable contribution from the Investment Bank’s Financing business, more than offset normalizing conditions in our more market-sensitive businesses. That reflects a well-balanced revenue mix in line with our Global Hausbank ambition. As we anticipate some normalization of interest rates, we aim to further complement our earnings mix. We are making investments in ‘capital light’ businesses, including Origination & Advisory and Wealth Management, together with technology-enabled high-return businesses in the Corporate Bank. Finally: across all business, we continue to make progress towards our sustainability targets. We added ESG financing and investment volumes of €17 billion in the second quarter, bringing our cumulative total to €254 billion since January 2020. And our business growth has further increased our underlying earnings power, as we set out on Slide 4. As I said earlier, our first-half profit before tax, of €3.3 billion, was up 2% compared to the first half of 2022, and as you can see, pre-provision profit was up 8% at €4 billion, after absorbing significantly higher non-operating costs than in the prior year. Non-operating costs were €744 million, comprising litigation charges to settle mainly longstanding matters and restructuring and severance as we realise operational efficiencies. Revenues were up 8%, while adjusted costs, which exclude non-operating items, were up only 2%, below inflation, despite continued investments in our platform. And with pro-rated bank levies, adjusted operating leverage was 5%. This earnings power is reflected in the progress we are making on our key target ratios. Post-tax RoTE, excluding non-operating costs and with bank levies apportioned equally over the four quarters of the year, would be over 9% in the first half of 2023, while our cost-income ratio would be 67%. In other words; we’re on a clear path towards achieving our 2025 targets. Before I hand over to James, a few words on the progress we’re making to accelerate delivery of our Global Hausbank strategy, as we discussed with you in April, on Slide 5. We aim to accelerate delivery on three dimensions: operational efficiency, capital efficiency, and revenue growth, where we aim to outperform our original targets. We have already made progress in all of these. Turning first to operational efficiencies; we raised our ambition for incremental efficiencies from €2 billion to €2.5 billion, as we said. We have already delivered more than €600 million, through a range of measures such as branch closures in the Private Bank, standardizing loan processing in the Corporate Bank and Investment Bank and simplifying our technology infrastructure. We anticipate €300 million of savings by 2025 from the successfully completed migration of 12 million Postbank clients onto the Deutsche Bank technology platform and we expect more than €100 million from the announced redundancies in senior non-client facing roles as more than 80% of affected staff have either been informed or left the platform. In other words, a total of around €1 billion in savings are either already achieved, or are expected from measures now implemented. We have a series of other measures in flight; for example, streamlining our mortgage business and further branch closures in the Private Bank, reengineering more front-to-back processes in the Corporate Bank and Investment Bank, further application de-commissioning, and additional workforce measures. These are some examples of a wider programme of initiatives underway. Based on our progress on these, and realized achievements so far, we reaffirm our €2.5 billion goal. In respect of capital efficiencies: as you know, our aim is to reduce risk weighted assets by €15 billion to €20 billion by 2025 relative to our baseline assumptions with a modest revenue impact. In the second quarter, we accelerated securitisation transactions, which delivered RWA relief of around €3 billion. In addition, credit risk RWAs were reduced as part of the Trade Finance and Lending optimization efforts. Overall, we proved our revenue strength with the business delivering revenue growth while our FX adjusted RWAs decreased by €5 billion compared to the prior year quarter. We have further optimization measures in preparation for the second half of 2023 including securitisation of consumer finance loans and reductions in sub-hurdle lending. All this gives us confidence that we will deliver on our capital optimisation goals. Turning finally to revenue growth; we are fully on track to outperform on our revenue growth targets of 3.5% to 4.5% compound annual growth against 2021 levels. On a last 12-month basis, we delivered compound annual revenue growth versus 2021 of 7.5%, well ahead of that target, with revenue growth of 8% in the first half of this year. We expect the interest rate environment to continue to drive sustainable performance in our stable businesses. We anticipate added momentum from our organic and inorganic investments, including the Numis acquisition or the new partnership with Lufthansa and Miles & More, and from hiring of some 50 senior O&A bankers. This enables us to take advantage of an expected pickup in corporate finance activity. We are already seeing signs of this in our backlog. We have also hired around 30 wealth managers. And we expect the growth in our assets under management, and net asset inflows, to drive fee income in future quarters. To sum up, we are delivering revenue and business growth off a strong franchise. Our well-balanced, complementary business mix enables us to drive continued revenue momentum; we are increasing our earnings power year by year, and we see a clear path to achieving our 2025 profitability targets, amongst others an RoTE of larger than 10% in 2025 and we are delivering on two key promises; distributing €8 billion to shareholders, and accelerating execution of our Global Hausbank strategy. With that: let me hand over to James.

Thank you, Christian. Let me start with a few key performance indicators on slide 7, and place them in the context of our 2025 targets. Christian outlined the strong revenue momentum and our well-balanced business mix which resulted in revenue growth of well above 7% on a compound basis for the last 12 months relative to 2021. This performance puts us well on track to deliver revenue growth above our 2025 target. The strong revenue growth combined with ongoing cost discipline led to a two-percentage point improvement in the cost-income ratio to 73% in the first six months compared to 2022, despite significantly higher non-operating expenses in the second quarter, which we would not expect to repeat in the same magnitude in coming periods. Our capital position has remained strong and our CET1 ratio of 13.8% positions us well for capital distributions, investments and the implementation of regulatory changes. Our liquidity metrics remained strong. The LCR was 137%, above our target of around 130%, and in the second quarter, the net stable funding ratio was 119%. In short, our performance in the period reaffirms our confidence in reaching our 2025 targets. With that, let me turn to the second-quarter highlights on Slide 8. Group revenues were €7.4 billion, up 11% on the second quarter of 2022. Noninterest expenses were €5.6 billion, up 15% year-on-year- The increase was largely driven by the €655 million of non-operating expenses in the quarter, compared to €102 million in the prior year period. Non-operating expenses this quarter included €260 million of restructuring and severance provisions to accelerate the execution of our Global Hausbank strategy, primarily through a reduction in non-client facing roles and optimization of our mortgage platform. To settle a number of longstanding litigation matters, we incurred litigation charges of €395 million as, in each case, the outcome was higher than expected. Adjusted costs increased year-on-year, which I will discuss in more detail shortly. Provision for credit losses was €401 million or 33 basis points of average loans. We generated a profit before tax of €1.4 billion, down 9% year-on-year, mainly due to the higher non-operating items. Net profit of €900 million was also impacted by the higher effective tax rate, principally reflecting the non-deductibility of certain litigation charges. Our cost income ratio was just under 76% and our post-tax return on average tangible shareholders’ equity was 5.4% in the quarter. Excluding the aforementioned non-operating expenses, the cost/income ratio would have been 67% and post-tax return on average tangible shareholders’ equity close to 9%. Diluted earnings per share was €0.19 in the second quarter and tangible book value per share was €26.95, up 5% year-on-year. Let me now turn to some of the drivers of these results, starting with interest rate developments on Slide 9. Net interest margin in the Private Bank and Corporate Bank remained strong in the second quarter as deposit betas remain below our modelled assumptions in both divisions. We expect margins to begin to decline from this point, but expect that the tailwind from interest rates for 2023 will be larger than the €900 million we had guided at the start of the year. Net interest margin at the group level increased to 1.5% as the accounting effects we noted in the first quarter partially reversed. As we noted at the time, these effects are held in C&O and are offset in non-interest revenues in the businesses and do not affect the group’s total revenues. Average interest earning assets declined compared to the first quarter driven by lower average cash balances in the second quarter. With that: let’s turn to adjusted costs, on Slide 10. Adjusted costs excluding bank levies were €4.9 billion and this is consistent with our guidance range of €1.6 billion to €1.65 billion per month. The increase of 4% was driven by inflationary pressures, ongoing investments and business growth which are partially offset by our continued cost reduction efforts. Compensation and benefits and information technology costs were broadly flat to the prior year quarter. Higher professional service costs were driven by business consulting and legal fees. The variance in other costs includes higher expenses for banking services and outsourced operations as well as movements in operational taxes. We also saw a normalization of marketing spend and talent recruitment to foster our growth trajectory. Let’s now turn to provision for credit losses on Slide 11. Provision for credit losses in the second quarter was €401 million, equivalent to 33 basis points of average loans, slightly up compared to the previous quarter reflecting the broader impact of the macro environment. Stages 1 and 2 provisions were €63 million with the moderate sequential increase driven by portfolio and rating movements, especially in the Investment Bank. Stage 3 provisions of €338 million were broadly spread across our businesses and slightly lower compared to the previous quarter, partly reflecting a non-recurrence of provisions relating to a small number of idiosyncratic events in the International Private Bank. Overall, there are currently no signs of a persistent deterioration in the environment; however, we observed softening in some German midcap sectors, including Automotive, and continued weakness in Commercial Real Estate. For the full year, we continue to expect provisions to land within our guidance range of 25 basis points to 30 basis points of average loans, albeit at the upper end of the range. Looking at the first six months, provisions were in line with our expectations if we exclude the non-recurring events in the International Private Bank we had in the first quarter and for the second half of the year, we expect the usual quarterly run-rate of about €150 million in the Private Bank, while provisions in the Corporate Bank and Investment Bank are expected to overall remain in line with the first half of the year, taken together. Before we move to performance in our businesses, let me turn to capital on Slide 17. Our Common Equity Tier 1 ratio was 13.8% at the end of the second quarter, 15 basis points above the prior period. Organic capital generation contributed 16 basis points to the increase, reflecting our strong net income which was offset mainly by higher regulatory deductions for common equity dividends and AT1 coupons. Risk weighted assets remained broadly flat this quarter. In the second half of the year, we expect approximately 70 basis points of headwinds from various items we have discussed with you before, notably impacts from model and methodology changes, share buybacks and the Numis acquisition and our leverage ratio was 4.7% at the end of the second quarter, four basis points up versus the prior quarter based on our strong organic capital generation. Let’s now turn to performance in our businesses, starting with the Corporate Bank on Slide 14. Corporate Bank revenues in the second quarter were over €1.9 billion, 25% higher year-on-year driven by an improved interest rate environment and continued pricing discipline, with growth across all client segments. Revenues remained close to the prior quarter due to continued lagging rate pass-through, fee growth in Institutional Client Services and stabilized deposit volumes. As we highlighted at our first quarter results, we do expect a normalization of our interest revenues in the second half of the year as client pass-through further accelerates. Deposits were €271 billion, essentially flat compared to the prior year quarter and to the first quarter 2023 as deposit levels stabilized despite increased interest rate competition and strong pricing discipline. Loan volume in the Corporate Bank was €116 billion, down by €13 billion compared to the prior year quarter and €5 billion compared to the previous quarter. This reduction reflected overall lower demand and continued selective balance sheet deployment in our Trade Finance & Lending business as well as the negative impact from FX movements. We remain conservative in our underwriting at this point in the cycle and continue to apply strict lending standards in order to maintain the high quality of our loan portfolio. Provision for credit losses increased in the quarter reflecting a weakening in certain sub-sectors- Noninterest expenses were €1.2 billion, an increase of 10% year on year driven by increased non-operating costs, predominantly litigation provisions, whereas adjusted costs remained stable. Profit before tax was €670 million in the quarter, up by 52% year-on-year. The cost/income ratio improved to 59% and post-tax return on tangible equity was 14.8%, despite higher non-recurring costs. I’ll now turn to the Investment Bank on Slide 15. Revenues for the second quarter were 11% lower year-on-year. FIC Sales & Trading decreased by 10% against what was an exceptional prior year quarter, and we are pleased with the underlying performance, which remained strong, with growth in structured activity helping to reduce the impact from a lower volatility environment. Financing revenues were higher year on year, reflecting the proven stability of the franchise, with net interest margin remaining robust and solid pipeline execution. Credit trading revenues were significantly higher driven by improvements in the flow business and strong performance in Distressed. Rates and Foreign Exchange revenues were significantly lower compared to a very strong prior year quarter and reflected a more normalized market environment than the prior year period. Emerging markets revenues were lower, as expected, with the prior year seeing heightened market activity linked to Russia’s invasion of Ukraine and outperformance in the Asia region. Moving to Origination & Advisory, revenues were up 25%, driven by the non-recurrence of material leverage lending markdowns in the prior year. Excluding these markdowns, the business underperformed in a challenging market, with the global fee pool down approximately 20% year-on-year. Debt Origination revenues were significantly higher benefitting from the non-repeat of the aforementioned markdowns, though performance also reflected a partial year-on-year recovery in LDCM market share. Investment Grade revenues were slightly down year-on-year, but reflected market share gains in a lower fee pool environment. Advisory revenues were significantly lower reflecting both lower fee pool and relative underperformance. With indications that deal activity is starting to recover, we expect our investments in the Investment Bank to result in a significant rebound in the O&A performance into 2024. Noninterest expenses and adjusted costs increased versus the prior year, reflecting investments in both in our controls and the business to support future revenue growth. Loan balances were slightly higher year-on-year driven by higher origination across FIC, with quarter-on-quarter balances essentially flat. Provision for credit losses was €141 million, or 54 basis points of average loans. The increase versus the prior year was driven by higher Stage 1 and 2 provisions due to rating migrations and portfolio movements, combined with higher Stage 3 impairments, primarily in the Commercial Real Estate sector. Turning to the Private Bank on Slide 16; reported revenues were €2.4 billion in the quarter, up 11% year-on-year driven by higher deposit revenues. Revenues in the Private Bank Germany significantly increased by 16%, mainly due to higher deposit revenues, which more than compensated for changes in contractual and regulatory conditions effecting fee income. In addition, the prior year quarter benefited from higher valuation impacts. In the International Private Bank, revenues were up 4% or 6% if adjusted for forgone revenues from the sale of the Financial Advisory business in Italy. Growth was driven by deposit products, which also were the primary driver of the 11% growth in Premium Banking. In Wealth Management & Bank for Entrepreneurs, revenues were up 1% or 4% if adjusted for the aforementioned foregone revenues. Improved performance mainly in Europe was partially offset by continued slower business momentum in APAC. Turning to costs; noninterest expenses were up 26% mainly attributable to an increase in nonoperating expenses reflecting restructuring and severances provisions related to strategy execution as well as provisions for individual litigation cases, whereas the prior year quarter benefitted from net provision releases. Adjusted costs increased by 5%, mainly reflecting investments in infrastructure control improvements and strategic initiatives. Inflation impacts were largely mitigated by efficiency initiatives. Profits and key ratios in the quarter were impacted by total of €254 million of nonoperating expenses. Provision for credit losses was €147 million, or 22 basis points of average loans in the quarter, which reflects the continued stability of our high-quality loan book, especially in the retail businesses, and continued risk discipline. Provision for credit losses in the prior year quarter benefitted from releases of credit loss allowances following sales of non-performing loans. The significant sequential decline reflects a non-recurrence of certain idiosyncratic events in the International Private Bank in the first quarter. We saw solid net inflows in assets under management of €7 billion in the quarter with €4 billion in investment products and €3 billion in AuM deposits. Let me continue with Asset Management on Slide 17. As you will have seen in their report, DWS reported stable revenues despite the effect of weaker markets in 2022 and slightly lower adjusted profit before tax compared to the prior year. My usual reminder: the Asset Management segment includes certain items that are not part of the DWS stand-alone financials. Assets under management increased to €859 billion in the quarter, reflecting €11 billion of market appreciation and €9 billion of net inflows. Net inflows were primarily in Passive and Alternatives, notably in Real Estate. Flows in cash products once again have been significant and very volatile throughout the quarter ending with net outflows of €1 billion. Revenues declined by 6% versus the prior year. This was predominantly driven by higher funding charges in the segment and a decline in management fees from a reduction in average assets under management. Performance and transaction fees were significantly higher year-on-year driven by the Alternatives business. Other revenues declined due to higher funding charges and lower mark-to-market valuations of co-investments, partly offset by net interest income on excess cash from rising interest rates. Noninterest expenses were slightly higher, with adjusted costs remaining essentially flat. Compensation costs were slightly higher driven by variable retention costs and hiring to support transformation and business growth. General and administrative costs were also slightly higher, reflecting higher banking services costs and transformation implementation, mostly offset by a decline in group support costs. Nonoperating costs are significantly higher than the prior year, from an increase in litigation costs. Profit before tax of €103 million in the quarter was down 34% compared to the prior year. The cost-income ratio for the quarter was 76% and return on tangible equity was 12%. Moving to Corporate & Other on Slide 18; Corporate & Other reported a pre-tax loss of €115 million this quarter, a substantial improvement versus the pre-tax loss of €500 million in the second quarter of 2022 on the same basis. This year-on-year improvement was driven to a large part by valuation and timing differences, which were positive €252 million this quarter. As a reminder, valuation and timing differences arise on derivatives used to hedge the economic risk of the Group’s balance sheet. These are accounting impacts, and the current period gains partially reflect reversals of prior period valuation losses, as the underlying instruments approach maturity. The pre-tax loss associated with our legacy portfolios was €170 million, versus negative €120 million in the prior year quarter, driven by additional litigation provisions relating to Polish foreign currency mortgages. Expenses associated with shareholder activities, as defined in the OECD Transfer Pricing guidelines, were €138 million in this quarter, compared to €120 million in the prior year quarter. Funding and liquidity impacts were negative €10 million in the current quarter, compared to negative €126 million in the prior year quarter. The reversal of non-controlling interests in the operating businesses, primarily from DWS, was positive €51 million, broadly flat year-on-year. Other impacts reported in the segment aggregated to negative €100 million. Risk-weighted assets stood at €41 billion at the end of the second quarter, down €2 billion since the first quarter of 2023. The RWA figure includes €19 billion of operational risk RWA. Turning to the Group outlook for the full year on Slide 19; with first half revenues above €15 billion, we believe that revenues above the mid-point of our guidance range of €28 billion to €29 billion for the full year 2023 are achievable. We continue to execute on our agenda to foster the bank’s growth ambitions and to improve the bank’s structural efficiency. As Christian outlined, we have a number of measures underway. Adjusted costs for the full year 2023 are still expected to be essentially flat compared to 2022, benefiting from strict cost management, lower Single Resolution Fund charges for the current year as well as a potential restitution payment from a national resolution fund. We now expect noninterest expenses to be slightly higher compared to 2022; this reflects higher-than-anticipated litigation expenses we had in the second quarter and an impact in relation to the Numis transaction, which we expect to close in the fourth quarter. Provision for credit losses is now expected at the upper end of our guidance range of 25 basis points to 30 basis points of average loans, reflecting the current macro backdrop and lower loan balances than initially anticipated. Our capital guidance is unchanged; our second quarter CET1 ratio of 13.8% allows us to absorb roughly 70 basis points of headwinds in the second half reflecting the impacts from model changes, share buybacks and the Numis acquisition. We remain committed to our capital objectives, most importantly the distribution of €8 billion to shareholders in respect of the financial years 2021 to 2025 and moving up to a 50% payout ratio and as Christian said, part of this plan is the next phase of our share buyback, which will commence next month and will be finalized in the second half of this year. So, the performance and the growth opportunities we seized in the first half of this year strengthen our confidence in the path towards our 2025 targets and our Global Hausbank strategy. With that, let me hand back to Silke and we look forward to your questions.

Thank you. Emma, we are ready to take the first question..

[Operator instructions] First question is from the line of Anke Reingen with RBC. Please go ahead.

Yes. Good morning, and thank you for taking my question. If you can just start, talk about the revenue outlook. Maybe firstly, big picture, the macro has been pretty weak; growth is slowing, confidence is low, house prices are declining and in light of this environment, where do you actually see opportunities for your revenue growth, especially in the more stable businesses? Where do you see the risks? And then secondly, you're more concrete in terms of the numbers. The revenue guidance went up for the year, but still implies more like €6.8 billion to €7 billion per quarter in the second half. And there's obviously seasonality but you overearned in the first half. So how should we think about the jump-off from the second half into 2024? Can you actually grow revenue is in '24 versus '23? Thank you very much.

Good morning, Anke and thank you very much for your question. Let me start and James will potentially add. First of all, on your description on the macro side, I agree, but I think it completely validates that what we have shared with you in the previous calls. We always said that 2023 will be based on a very weak economy, on a kind of a no-growth scenario. I even expect for the end of '23 technical or a very mild recession in Germany potentially also in the US. And that was always an exactly the foundation of our plan. And hence, Anke, there is no negative surprise in the macro economic outlook when it comes to our plan or to the underlying drivers, be it revenues, be it also risk-crossed. And that is also, I think, important, that from a risk point of view, our credit forecast was always built, exactly on that description of the market you just shared with us, and hence, we also don't see any downside to our credit forecast, which James just again reemphasised in his prepared remarks. When it comes to where do we see growth opportunities in particular for the stable business in such an environment, look, I really do believe that the global house bank strategy in particular in the stable business is exactly the right answer. And that's what we feel kind of on a day-to-day basis with our clients. Of course, we are benefiting from the NII and get back to that in a second, but if you think about what kind of discussions and mandates we win with our corporate banking clients around the world when it comes to reorganising their networks, reorganising their supply chains, making sure that we, obviously, then follow up with the cash management systems around the world, as an answer to their reorganised network, then this brings us a lot of new mandates, which, honestly, is even above our expectations. Of course, in this regard, also the most recent upgrades from rating agencies again help us, because whenever we get this obviously, it helps to increase revenues and new clients onboarding. In the private bank, there is a lot of ask, and you see that also in our development in the assets under management on the investment side. I think there we are seeing not only in Germany, but if I look in particular in other European countries in Spain and Italy, we are seeing, as the go-to bank when it comes to investment advice. And this is, if you talk to the clients in this scenario where inflation is still above 5%, where they think about how they secure their pensions. Now with having post bank fully integrated on our Deutsche Bank system, these people think about how to secure the pensions, and that is obviously our chance and opportunity, and that is what we see in the daily business on the investment business. And in the IB, I know that a lot of people are always thinking this is the more volatile business, but I think we shouldn't underestimate also in these days the stability of the financing business in the IB, again, shown in Q2, also year-over-year. I think the future investments we are doing in the O&A business, they will pay off, because we can see that, actually the trough in this business has been passed, and we see from the mandates we are discussing with the clients, that there is clearly an uplift in this business, and therefore I expect rising revenues actually in that business also in Q3, and in the following quarters. And I also think that Q2 has again shown that also in the trading business, we have done quite well and also compared to our peers and that we are actually maintaining or even growing our market share So if I take all this, I think the positioning of the global house bank with 70% of the revenues now coming from the private bank, corporate bank and the asset management, growing assets under management, I really do think we have the right answer in particular for the environment we are experiencing right now. Now coming to the concrete revenue question and not only for '23 or '24, let me give you some more guidance. A, the NII curve is holding up far stronger than we initially planned and I do believe that with regard to our own existing plan, we see positive surprises also in the second half of '23 And I do also think in '24. Let me give you one example in the private bank business, we see a modest three-digit million revenue increase potential in the second half alone versus our own plan and that is mainly coming from NII, but also from the growing assets under management. The assumptions which we had so far in the corporate bank when it comes to the decrease in NII, I would say we are too conservative and I would also predict that going forward, this would be slower than anticipated, it will come down, but it is slower. The growth in investment and other fee income, as I just said, is encouraging. It's not only the assets under management, but you have seen the announcement of relationship business we are doing. For instance with Lufthansa on Miles & More and to be honest, this is not the one-off, this is actually coming more and more as additional mandates. In particular, if I think about how the corporate bank is thriving, these mandates are coming more and more and therefore I really do believe we are building now the platform to grow in non-NII business with all the technology spend, which we did in the corporate bank, but also obviously in the other business. And therefore we did all the investments in O&A and wealth management, also in hiring the people because we see that business will grow, that there is the increased discussions we have with clients in particular in O&A and therefore we stepped up for that. So looking at all of this and with the starting base of €15 billion of revenues, look, there is clearly upside in the private bank versus our own plan in the second half and to be honest, I wouldn't be surprised if we see the similar number in the private bank in the second half then what we have seen in the first half. I think very stable numbers in the corporate bank, potentially slightly lower because of the NII curve, but again, we have been very conservative in the past, potentially too conservative. Stable asset management and very robust IB was growing O&A revenues. So all this gave us the confidence changed in that we clearly can hint to a higher revenue base than the midpoint of €28 billion to €'29 billion. I think we can focus on the €29 billion number. And if I then look at the businesses we are creating, again in the non-NII, but also actually what we always emphasize here that the real uptick in NII in the private bank is only coming in '24 and '25, honestly, I'm very bullish on the revenue trajectory for '24 and '25. So I think we are exactly rightly placed from a revenue point of view from a positioning and hinted it placed into our half.

Thank you very much.

The next question is from the line of Nicolas Payen with Kepler Cheuvreux. Please go ahead.

Yes, good morning. Thanks for taking my question. I have two please. The first one would be on cost and could you give us a bit of color regarding how you think about cost for the rest of the year and whether you know the €1.6 billion to €1.65 billion of monthly adjusted costs run rate till holds and maybe also in light of the price pressure that we are seeing, how do you manage to strike a balance between cost discipline and investment for growth And which areas are you prioritizing? And the second question will be on CLP, because the same question regarding the outlook for the rest of the year and particularly after the increase in Q2, have you got any concern in any particular areas? Thank you.

Thanks Nicolas. It's James. I'll take both of your questions and Christian may want to add. Look we've talked about the run rate as we -- it gives you a sense of what management is focused on and I think, the past three quarters, we've been able to adhere to the run rate and it's been an area of real focus given both the need to deliver on cost savings measures in order to support that and manage the investments in a phasing that corresponds with the cost takeout that we're -- that we're achieving. So if I think about priorities, look, our priorities on the cost measures are reasonably clear. We laid them out in March of last year and we're building on that and they are focused on particularly technology distribution platform and in private bank in particular, but not exclusively and then infrastructure support, can we make that infrastructure support more efficient and so we're very focused on that and the delivery. In terms of priorities on the business growth side, leave aside control investments for a moment where I do think we're near or at the peak of what is required in order to finish that control remediation agenda. We've been -- we want to be really clear that our focus is on the capital light product areas in the firm and the ability to grow fee and commission income going forward that supports both the return potential of the company and the distribution profile in the future. And those areas, Christians talked about wealth management being one, origination advisory being the second. In the corporate bank, the fee income sources in the corporate bank that go to technology capabilities, but also just growing our client footprint in some areas where we're a leader, I have doc custody for as one example. So we've been focused on those types of investments and I think we're making really good progress. Just going to the run rate, one thing, as much as we're focused on that range, we do see the pressures I've outlined coming towards the end of the year, Numis, as an obvious example, will give us about €50 million per quarter of additional expense and then the investment we make in front line bankers taking advantage of the opportunity in the marketplace, maybe a little bit more. So, if they're the exit rates per month is perhaps €25 million more constant FX, that would be a natural place, but I think we're, in essence, we've started to run downhill in terms of the -- our ability to deliver on those cost savings being derisked, if you like, and gaining momentum. The Unity project is one example that is behind us. And as we said in the prepared remarks, now it's about crystallizing the run rate benefits over time, but there are many more similar initiatives that will have a cumulative impact at which point our greater challenge is phasing of growth investments rather than delivery of cost savings. I just want to say one other thing, while we're on the costs, this nonoperating cost area for us, obviously, frustrating to have those exceed, especially those out of our control original planning. So I look to the second half, we would expect at around, say, €100 million per quarter, the remainder of the restructuring and severance costs that we outlined for the year to come through. Always uncertain on litigation, but clearly, we would hope to do much better going forward than in the most recent quarter. And then finally, one thing to just make you aware of, we alluded to a little bit in our disclosures it's early to talk about specific purchase price adjustments and what have you in the numerous closing process. But our current expectation is that we would impair the goodwill attached to that immediately on closing. So in the fourth quarter, producing about a €200 million item there also that we would think of as nonoperating. So for your models and awareness. On CLPs, I'll try to be shorter. Look, the guidance takes into account everything we know today. The environment on balance is in line with our expectations. And if I go all the way back to the beginning of the year, maybe even a little better than our expectations. We did have the idiosyncratic items in the first quarter in IPB come through, and that sort of pushed us up in our range. But otherwise, at the, call it, 30 basis points, we think it captures our expectations about the second half. And we see this as a slightly elevated but not a broad deterioration of the credit environment. So we're very comfortable with the guidance there.

Next question is from the line of Adam Terelak with Mediobanca. Please go ahead.

I've got one on capital and one on NII. On capital and capital return, good to see the €450 million, but I wanted to poke around a little bit beyond that. The pro forma CET1 is 13.1% post your headwinds, your capital generative. So would it be possible for a buyback to another leg to come as soon as the full year results. And then you're clearly highlighting €8 billion of total capital return through the '22 to '25 plan, of which have really done €1.75 billion. So just a sense of how quickly you need to accelerate capital return plans in order to get through that full GBP 8 billion, I think it would be really helps to investors. The €450 million is helpful, but people want to know what's coming beyond that? And then secondly, on NII, you're talking about the long-dated NII tailwind within the private bank. This makes sense given the nature of that business. But can you put some numbers to it? I think there's worries in the market around peak NII, but a sense of what that recurring tailwind in into '24, '25, '26 and even beyond, would look like -- would give us a bit more confidence about your revenue trajectory beyond this year? So a bit more color around volume of hedges or kind of the back book rate on those hedges would really give us a bit more -- some more to play with when we think about the longer-term NII story.

Thank you, Adam, for your questions. Let me start with your capital question, and then I hand over to James, with regard to the NII question and some more details beyond the comments I made before. Look, on the capital, first of all, thank you very much for the recognition of the €450 million. It's, I think, hugely important for management to deliver that what we have promised. And so far, what we have promised we delivered. And therefore, 1 thing is clear, the €8 billion absolutely stand that is our target. And based how the company evolves, how actually the capital ratio looks like, if I think about the growth. You just heard from James, how committed we are on the cost line and hence to further increase the operating leverage, we have full confidence in delivering the €8 billion. I think, and we clearly understand that obviously, this should be a continuous trajectory. And therefore, I also said in the prepared remarks, it is clearly our aim to continue that distribution in '24. Now you will understand after we just published our share buyback last night that we won't give you the details for next year because this also always requires a detailed planning. Our planning around starts in September. Then I think we have such a constructive relationship with our regulator that warrants then the next discussion. But looking where we see the firm, it is our clear aim to continue this trajectory in I think we have gone on a pretty nice journey with an annual increase of 50% when it comes to dividend. We did this not only on the dividend side but also on the share buyback. And as we think this is exactly the right approach, one can potentially think that this is the management aim also to do that in '24. So hopefully, that gives you a little bit of way forward. But clearly, it's not back-end loaded only in '25. We know what we have to deliver in '24. James?

And Adam, thank you for the question. There's so much that goes into banks sort of rate hedging and profiles, it is hard to pull out. The hedging on the PB portfolio is longer than than CB and more euro heavy. So that effect will be with us for several years after '24. It's been a while since I've looked at this in this way. But my memory is that, that uplift is sort of between $200 million and $300 million per year for a period of time. So that uplift is considerable just on the rate side. If you've got volumes and sort of a spread dynamic, sort of more active hedging as well as capital benefits and improving unsecured spreads, there's a number of different features that can help support the NII of the group and the businesses over time. So isolating that item, good story. There's a sustainable growth that comes after 24 and actually already in '24, especially in the second half, but it's one of a number of supportive items. Hopefully, that helps give you some color on it.

Next question is from the line of Kian Abouhossein with JPMorgan. Please go ahead.

I just wanted to come back to the costs. So if I understand this correctly, we should think more of a cost run rate per month of €16.75 billion. That gets me to €20.1 billion annualized. Is there any other factors that you think we should consider rather than this constant adjustment of the cost base? Can you share that with us as anything else, any curveball that we should think which could impact costs in '24/'25 going forward? And in that context, on a stated cost basis, can you just clarify what we should think of as a run rate severance and litigation expenses? You mentioned numbers in the past, but they might have changed based on the experience in the second quarter. And then the second question I have is regarding the private bank. You're running at a clean cost income around €76 million, still looks very high, considering how the higher rates have helped you on the NII. And I was thinking how we should think about the cost income development, and in particular cost development absolute in the private bank.

So thank you, Kian. Yes. 1.675 is not a bad place to think of in terms of exit rate. We'd be pleased to run the company out there over the course of next year. There are always curveballs in the expense world, but we -- and that's what I mean by running downhill, I think that are the tools that we have to manage those curve balls hopefully begin to expand. As we come out of a shrinking control remediation, repairing our technology estate world of call it the past five years and move into a growth and an accelerating benefit from initiatives under way world. Leave FX aside for a second because that'll obviously change the run rate going forward, but otherwise, I'd say inflation is tough, especially on the technology side. So how much inflation flows through. Again, I want to be clear because we have so much coming on the expense initiative side, it would then give us the flexibility to phase and time some of the investments in a way that gives us control and allows us to manage that. Obviously, we'd like to make the investments and investments that are high return low marginal cost income ratio is the direction of travel, but that gives us sort of additional levers. Litigation, sevens and instruction, obviously, the second is in our control. We would probably tell you that a typical severance year, if nothing else is going on, is maybe 100, 150 per year. So not gigantic and it really just depends on whether there are larger programs that we initiate and then put aside, but obviously, we'd like to get to the end of a period of time where major initiatives are necessary as part of the transformation of the company. And then on litigation, that's been hard to estimate and in fairness, there've been items that have taken us by surprise, both last year with the third party messaging, as an example, in this most recent quarter with a number of items. One always has the view that as you get through items, they're behind you, you've taken out the risk, and then, therefore, the forward list of matters begins to diminish, but it's -- and the run rate there, therefore, is hard to define properly, but we'd love for that to be sub-400 in a year, let alone in a quarter. On private bank, Christian will want to, want to add, but the operating leverage in private bank will be, we think, dramatic over the years ahead, and that's really the story there.

Yeah. So, well, you took my words, because, here, and I think you are right, obviously, we are not yet happy with the cost income ratio we have in the private bank, but if you see only on the cost side, what is still to come, just because of the finalization now of Unity, €300 million of costs will fall away in '25. We have branch closures further to come, I think, in the last quarter, or in the last two quarters, we close approximately 90 branches or 100 branches. That goes on, this is continuing. You have seen our announcement on the mortgage side that we are actually reducing, reducing there also, our people in that business as a consequence of our business mix and the capital allocation. So, I think on the cost side in the private bank, if I also look at all the key deliverables under Rebecca's wing, where she is now working with Claudio de Sanctis on, there is a clear cost take out on itself, and I haven't even touched now on the revenue side. On the revenue side, actually clear upside, I just gave you a little bit of number for the second half of 2023. This is not extraordinary income. This is just better revenues that we initially planned, that will continue also when I look at the plan in the year '24 and '25, also on the back of the NII comments, James made earlier, and all that brings us actually into a cost income range for the private bank, which is in the low 60s, and that in 2025, that is our plan, and we feel exactly on that trajectory. And I do also think with the announcements, Claudio made on making the structure now, after building up the private bank internationally and private in Germany under cards leadership now moving it together there is additional costs which we actually take out. So therefore, I'm absolutely confident that we can achieve this low 60s cost/income ratio than in '25.

Next question is from the line of Stuart Graham with Autonomous Research. Please go ahead.

Hi, thanks for taking my question. I had a couple, please, a geeky question on your CRE exposures. So thank you for the extra information in the interim report. You now talk about non-recourse loans of €40 billion, but I think that's a different definition to the €33 billion you talked about at the Q1 stage. So my question is, why the change in definition and what is the like for likes to go to the €33 billion at Q1? And then secondly, you talk about an additional €800 million a stress pad that provisions for CRE, but presumably some of that's already captured in your basic provisioning guidance, given the current provisioning run rate of €100 million a quarter for CRE. So how much of that €800 million is incremental stress provisioning, not captured in your current guidance, please? Thank you.

Yeah, on the second question, great question, probably around €500 of the eight, not in. So we, and it depends by the way, Stuart, on the timeframe you choose. So over this year and next, we would expect another, a few hundred million of total provisions to come in and therefore, I would say about €500 million incremental. We had been working hard on that disclosure, and also to your question about definitions, what we were trying to clean up this is two things. One is the NACE code disclosure, which is a is an industry definition, but to be fair, not really how we think about risk managing the portfolio. And therefore, we wanted to bridge from the NACE at around $40 billion within the NACE definition, there is nonrecourse and recourse.. Ironically there's also some non-recourse outside of the nase definition in these numbers. So we're trying to give you, sort of reconcile if you like to some of the existing external disclosures. What I think is important though, is this, kind of the €33 billion of the old focus portfolio, the €34 billion of the new focus portfolio, what we're trying to give you is a sense of the size of the perimeter that is our focus from a risk management perspective, where we think, what is the portfolio that can produce losses based on its exposure to the current environment, that's a little bit different today than it was in the COVID time when we first created the focus portfolio, and so hence also a shift to that, but not a meaningful, difference in, in terms of total exposures. So that's hopefully some color Stuart to help you understand what we were -- what we were trying to do for you in that disclosure.

So I should basically forget the €33 billion been and just focus on the new disclosure, yeah.

I would -- look, the problem with the pillar three is often that the industry disclosures in the pillar three is really tough to draw meaningful conclusions from. So yeah, short answer is trust us that we're doing our very best to show you the portfolio that we are focused on risk managing in those disclosures.

And Stuart, I cannot help much ourselves as a former risk manager to comment on that because A, the down side, which we now included with the €800 million, is obviously something which is over multiple years. It's not only this year and next year. So it's a real downside to spread over multiple years, and therefore, I don't want that this is now taken in any wrong context and you think this is a hidden way to increase our base case, not at all, but we feel that transparency may even help you to see how strong this portfolio is.

That's helpful. Thank you for the extra transparency. Thank you.

Next question is from the line of Jeremy Sigee with BNP Paribas. Please go ahead.

Thank you. I've got a couple of questions on capital, please. The first one is, you mentioned that you've now got very friendly relations with ECB and I think it's a nice positive surprise that you've got this approval. Perhaps earlier than we were expecting, it didn't have to wait for you to print the 1H numbers, you've already got the approval. And I just wondered if you could talk about what's changed in that regulatory relationship because obviously you're in a tough situation at the start of the year when you couldn't do the buyback that you wanted. And I just wondered what the main changes, whether it's sort of visibility on your headwinds or other factors, so sort of what has changed in that regulatory context and these approvals being so forthcoming now? And then my second question, also on capital, I just wanted if you had any perspectives on the US Basel III finalization that's coming through and just how that might impact you, either in your -- does it impact your local US business or do you already have such a high CET1 ratio there that it's not particularly affected, does it affect competitive position for the group in the U.S. or elsewhere? Does it create pressure for Europe to tighten up its implementation of Basel III finalization? Any views on that would be really interesting.

Yeah, Jeremy, let me start and I hate to correct you, but I think I said very constructive. So I must be careful and don't want to say friendly because that may be even taken wrong then. So we have a very constructive relationship with our regulator and that should be always the case. Look what changed and James may want to add for this, I think actually nothing really changed because we ourselves at the beginning of the year as we always said in November and December says we want to wait how 23 is starting, how the economy is actually developing. We would like to see how the first quarter is developing. And we -- as we now can say, we didn't actually apply for a share buyback at that point in time because we wanted to see what is going on in this world. Volatility was around. We have the geopolitical uncertainties. We had an inflation. The economic forecast were everything between a hard recession and actually a growth scenario. And therefore, I think, rightly so, also with all that, what we could see, James decided and with my full support that we, for the time being hold off. And then we started well into the year. We had a far better forecast what is happening. We saw how stable the business is developing. And we saw we are making good progress. And that was the right time then also with the forecast into '23 and '24 to apply for that. And in this regard, I think we had very constructive discussions. And this is my own assumption and only interpretation. I do think that the regulator also actually recognized that we were on the cautious side at the end of 2022 when it came to the start of '23. And I think that also then obviously was at least not taken negatively.

And Jeremy, just to add that the timing and magnitude of the reg changes is something that they and we have more visibility into as timing went on as the model and methodology changes. So that was helpful in terms of giving us greater confidence in in that capital plan. I think the step off now in Q2 helps to support that further. And of course, that was -- the progress during the year was visible to them through the year. On U.S. Basel III final framework, obviously, very curious to see what's in it. I don't think it really impacts us in a meaningful way. in terms of our business operations, potentially competitive positioning, given that, in our view, European banks have been at a capital disadvantage for some time. And then there's also at least the possibility that the timing of implementation could give us a bit more breathing room relative to the first of January 25. But beyond that, not much expected. I would not expect that the European legislator sort of reopens its discussions based on whatever they read in the NPR. And I think that's appropriate. Where Europe should decide for itself what the appropriate legislation and implementation looks like.

Next question is from the line of Timo Dums with DZ Bank. Please go ahead.

I would like to address two strategic topics, please. So one is on PB and one on the Misono deal. So starting with there has been a reshuffling under the new leadership with Claude DeSantis taking over. So when do you plan to communicate further details on -- if you could share any further details give some color there? And would you also considering, for instance, streamlining the different brands that you are working with in PB. So that would be question number one. And then on the Miles & More deal, congratulations on this one. So maybe you could outline the major drivers here why you have been chosen? And what may have changed here in that respect compared with some years ago and maybe could you discuss also the general attractiveness of this co-branded card business? Some of your competitors they pulled away from the sort of business in the last two years.

Well, thank you, Timo. On the PB side, look, Claudio started 245 days ago. And let me -- let me start differently. First of all, I think Karl has done a wonderful job in actually making sure that the private banking business is becoming a profitable business. He has done a lot in order to make sure that we are on the trajectory to become a very profitable business, as we said also to Kian's question. So the trajectory, which Karl has laid is exactly the right one. Now what we will see actually in the private banking business is actually that the international private banking business and the German private banking business is moving closer together from a product responsibility from an investment responsibility also from an infrastructure and servicing responsibility. So you will see a more leaner structure, which we now can do after we have done the necessary steps in Germany with Unity. We can now actually put it under a more combined and efficient leadership together, which obviously will bring certain cost benefits. On top of that, I do believe that Claudio will focus very much across the private banking business on the investment arm on the capital LiDAR. You have seen that he has done that very successfully in the international private bank. And I do believe if I look at the long-term challenges in particular in Germany, if you really think about what the people are concerned about -- it's about the pensions. It's about the state pensions, which will come or not come in 10 or 15 years. And in this regard, there is in almost each and every client meeting, there is a question how can I actually plan for my own retirement in that time period. And for that, you need a first-class offering on the investment side. And that's exactly where you need the private banking experience, private banking expertise we have with Claudio, which we have with a lot of other people. And that's, I think, where Claudio is very much focusing on. Secondly, he would make sure that also this offering in a digital way will make its way to 15 million clients now all on the same IT platform that is really a meaningful step forward. So I'm very proud of what happened with Unity. So I do think the power, which we can now bring particular in the investment business to Deutsche Bank clients, but in particular, to 15 million post bank clients being now part of our technology, is simply outstanding, and Claudio will focus on that. On the miles and more, look, I haven't seen, by the way, from the competition and also from the deal in itself that the competition was not interested anymore in such a deal. That was a real race. We are super proud that we were able to be selected by Miles & More and by Lufthansa made the difference. At the end of the day, our clients can far better talk about that. I will not talk about that, the client took a decision. But I do believe that our shift four years ago that the corporate bank, the day-to-day business, the combination, the client centricity, which we have built between the private bank, the corporate bank, the way these two units work together and worked in that pitch made it different. We delivered on Deutsche Bank to Lufthansa. And one Deutsche Bank to Lufthansa is not only the best platform for miles more and the best technology, which, by the way, we started to invest already last year in order to be ready now to really do the migration. What we deliver to them is 15 million additional potential clients and that nobody else has and with the commitment of the full Board that the private bank and the corporate bank is as much as the heart of the Deutsche Bank business as our focused investment bank, I think the clients get it, and they want them to work with us. And I think that is the advantage which we can deliver. And I can tell you that is only the start because with that mandate, we will, I think, have a big, big chance to win other card businesses in Germany and in Europe.

Next question is from the line of Andrew Lim with Societe Generale. Please go ahead.

I've got three, if I may. So the first one on capital. Could you update us on the impact you'll probably see from final Basel III rules. I think the met latest guidance was for risk-weight inflation of about €30 billion. But if I'm not mistaken, that excludes the impact of the output floor. So maybe you could also give us additionally what that impact might be from the output floor. And then on Slide 9 of the presentation on net interest margin. I see that your average interest earning assets have been declining for a few quarters here. You've pointed to lower cash balances as a cause for Q2. But is there something a bit more persistent going on in terms of maybe high interest rates denting demand for loans or maybe also the contribution from the reduction in sub hurdle lending, maybe that has a larger impact here. So if you could talk about that in a bit more detail. And then the third question is a bit more technical. So you've got EPS of only €0.19 here. So I'm trying to reconcile the net profit that you've used to calculate this, it's only €402 million, which is a lot lower than the €763 million. So I'm trying to understand how you get to the 402 million. Both of these measures include the deduction of 81 coupons. So is there some other OCI impacts here to get to the 402 -- or €763 million.

So Andrew, I just -- I'm not sure exactly what you were talking about in those last numbers. So we may need to clarify the area that you were at. On the capital impact, I'd say we would probably stick with the -- with our earlier commentary, which I think was 10%, but it's been a while since we've looked at that incremental of the output floor then between 25% and 30%. And in fairness, that's all premitigation, business model changes and all that good stuff. So it's there's no update on that, but that would be orders of magnitude. And I think important to emphasize the capital measures that we talked about in April, I mean you can ask where they intended to support offsetting Basel III impact or to support the distribution same, same. They're really, I think, valuable in both respects to and to shift the group to more capital-light usage of the balance sheet. It goes a little bit to your NIM or interest-earning assets question. I'd be surprised if the next number in the series were as big as of a downward movement as the last albeit loan growth has clearly slowed down, and you're seeing the impact now of some of the decisions we announced in April around trade finance and lending as well as the mortgage book. So we would expect to see some impact in the loan balances as a consequence but we think that, that's the right decision economically in terms of supporting both ROTE and NIM going forward. And maybe I just -- I want to make sure I understand the reconciliation that you're referring to in terms of the -- was it a forward on capital that you were after? Or -- I wasn't sure.

Sorry. Okay. If I could clarify further. So on the supplementary disclosures on Page 21. So you give the net profit there of €402 million to calculate your EPS of €0.19. So that €0.19 obviously is a lot lower than last quarter of €0.63. So I'm trying to understand how you get to that €402 million because on Slide 15, you've got net profit of €763 million. So there's a big down shift here in the net profit. And I can't quite figure out how you get to that 402 million. There doesn't seem to be any kind of disclosure there? So that's on the EPS side.

Yes. I don't think there's a mystery. I think it's just -- we've got about €2 billion and change shares outstanding. So it looks to me to be proportional to the number, but we'll -- we can quadruple check and come back to you. Again, we obviously have to take out in an EPS calculation, we take out all of the earnings, if you like, that go to other capital providers, whether that's been our minority interest or AT1 holders.

Yes, sure, I completely agree. I mean it seems like those two lines are exactly the same, except for Q2 where suddenly it's different. I mean it seems like you're deducting everything like AT1 coupons, for example, and also minority interest. So Pat, I can [nible] up with you?

Yes, we can follow up on that.

Okay. Great. And then sorry, no guidance on the output floor then. Is that something we have to wait for later on, I guess?

That was the first part. It was a ballpark of 10% but over several years with a lot still to kind of to go in terms of how we shift the balance sheet in order to mitigate what we can in that output floor impact.

The 10% increase in total RWAs.

Exactly. And that was a denominator that was closer to €300 million, maybe €330 million than to €350 million or even €400 million well will be by that time. So you have to go back several years to the point where we gave you a percentage there.

Next question is from the line of Vishal Shah with Morgan Stanley. Please go ahead.

I had two questions. The first one was on capital returns. So clearly, with the new buyback announced, your distributions are now €1.75 billion and the remaining is €6.25 billion to that €8 billion total target. So if I take your 50% payout policy, you would need to generate about $13 billion plus in net income over the next two years. And then this is much higher versus consensus at about €9 billion right now combined for '24 and '25. So I'm wondering how -- what are the key drivers you're looking at to bridge that gap. So that's one. And then the second 1 is on your investment banking business. So you have clearly hired a lot on the front office side there. in both banking and capital markets, plus there's a demo deal that is underway too. So clearly, you're positioning for a potential rebound in banking and capital markets activity. So what I wanted to check there is if you have a target market share in mind in terms of what you -- where you want to see your banking business versus the global peers? Or with the recent hiring of the Numis deal, do you think you are rightsized from a staffing perspective at least for now? That's about it.

So Vishal, yes, on the first item, you're probably just missing a year. So we -- it's a little bit complex the way we do it, but we've said in respect of the years '21 to '25, paid in the years '22 and this would include a little bit of capital then returned in -- or a lot of capital returned in '26. So we think our -- on the trajectory that we're on, which you remember is sort of asymptotic if you go 50% per year, the increase is quite steep, and we think also prudent in light of our own view of the earnings growth potential of DB. On the IB item, and I'll focus now on origination and advisory, where the investments have been going they'd be more visible perhaps there have been investments into the FIC platform, which we think have performed very nicely in terms of our market share improvements from a low point in '18 and '19 to where we are today. We're very pleased with that progression. But in the corporate finance area where we've invested more recently, our market share has been bouncing around 2%. And we do think there's a significant opportunity for us there. We don't have a specific target, but I don't think there's any reason why we shouldn't be able to double the market share in -- again, with our in a disciplined way inside our client footprint inside our capital footprint. But by doing just much better in terms of closing industry gaps in terms of building more of the chain, for example, with private equity sponsors, both on the way in and the way out. There's a lot of potential that is, if you like, within our franchise perimeter that we really just haven't captured. So lots of upside for us there, I believe.

Next question is from the line of Tom Hallett with KBW. Please go ahead.

Just a quick one. I've noticed you both in recent weeks have increased your confidence in the trading activity to pick up in the second half of the year. I'm just wondering if you could elaborate on that because -- the second quarter was actually pretty strong. And last year prior periods were also very strong on a relative basis. So yes, I would just like to know what gives you that confidence. Is it just a simple kind of maybe the credit side of things or increasing a little bit more into the back end of the year?

Yes. So Tom, first of all, the comparative that we've got for the fourth quarter isn't very demanding. So I do think there's just in that, there's a real opportunity to take the year-on-year in revenue up significantly. I think we're in an interesting time. We've talked about the macro weakening in lower volatility, and you've started to see that against a high base and one where we think we're executing well in terms of our client engagement. But in the language I've been using the micro coming back, especially credit and financing businesses and doing quite well. An interesting question, is there an environment in which the credit stays that continues to do well in the second half and going into '24. But because we find ourselves now on the other side of the cycle, increasing volatility as investors now begin to position for an uncertain path in terms of reducing policy rates and an uncertain path in terms of the length of time the policy rates stay at the terminal rate. So there's sort of an interesting environment that we see coming in the second half of the year. We'll see whether that comes to fruition or not. But what we -- what we're -- on Mac and his team, super focused on is just engaging with our clients so that we can participate both in the flow side of that activity as well as the structure. And I think they've done a fabulous job at that. And the second quarter is a good is a good indication of how we can perform in that market or maybe a slightly better backdrop.

Next question is from the line of Mate Nemes with UBS. Please go ahead.

I have two questions, please. The first one is on capital. I was just wondering if you could give us a rundown of the moving parts on the CET1 ratio in the second half of the year. I know that you communicated a 70 basis point impact from Numis deal closing the share buyback and some of the regulatory melanges. I think Christian mentioned securitization and reduction in software lending potentially resulting also in some RB reduction. Could you perhaps quantify that? The second question is on the corporate bank. Obviously, the loan book declined about 4% quarter-on-quarter. I know sold down is intentional and coming from risk management and perhaps some impact of some current lending. But I'm just wondering to what extent do you see future demand? Is that entirely driven by you? And if so, when do you expect the turnaround on that front?

Sure. Thank you, Máté. So briefly, the 70 basis points is still -- we're still thinking 50 basis points of model methodology adjustments there's a range around that. And then 9 basis points for Numis, 12 basis points for the capital return. The other moving parts are organic capital generation and how much we use in terms of balance sheet growth, that should produce a year-end ratio probably higher than our original guidance for the year. So we'd like to -- we'd probably be closer to or further into the 13s, let's say, than just the 200 basis points margin to MDA, which would be $13.2 million. Within that, we do have embedded some assumptions about what additional support we can get from securitizations, optimization and other of the capital measures. Look, we -- I think if we outperform those assumptions or our own execution sort of path, that puts us in an even better position going into both for distribution and for the Basel III build. So those are some of the moving parts that we see.

Yes. And on your second question, I think your kind of differentiation is the right one. Some of the lower loan growth or even decline is intentionally, by the way, not only from a risk management point of view because we have actually a very conservative and long-standing risk appetite, and therefore, we don't need to do so many adjustments in between. But of course, also we have sub hurdle relationships where we -- and we said that in April, where we want to go for an even better and more focused risk return strategy, and that's what we are doing. So that is one part. And secondly, yes, I think in particular, in Europe but also in Germany, you see that mid-cap companies, family-owned companies that you see a softening in loan growth and the reduction in demand for the time being, in particular, when it comes to long-term investments. To be honest, I don't think that this is something which is continuing for a very long period. But I would say that those companies would like to see where the next 6 to 12 months are going. And therefore, I would say this rather soft loan growth is something which we will see in the second half of '23, which is part of our planning and also which goes into the first half year of 24%. Nevertheless, and therefore, again, it is so important that we build the corporate bank on various engines. And the other engines are the fee income, our cash management mandates. The card business I was just talking about before. And that actually gives us all the confidence that even with the softening demand, which in my view is only temporary and will come back we can actually compensate that with fee business, and that is the reason why we invested into that so much.

The last question is from the line of Amit Goel with Barclays. Please go ahead.

Yes. Two questions. One, just coming back on the asset quality. I think, obviously, that's the commentary about there's no sign of persistent deterioration, although there was some softening in German mid-cap sectors, including automotive. I was just kind of curious what gives you the confidence that it's not persistent deterioration and/or are you changing any behavior or your credit that you provide into that space? And then secondly, just -- I guess, just to help my understanding. But in terms of pass-through rates, so for the NIM. What are the factors that are kind of driving the lower pass-through rates. I appreciate maybe there's some conservative assumptions. But what are the things that you think will drive changes or kind of increase in pass-through as we kind of go through time. So just curious what are the factors that you think are influencing pass-through at the moment and into the second half of the year.

Thank you for your questions. Let me start on the asset quality because I'm also in a lot of client contact actually also in Germany, obviously. A, I really do believe, and I said it again and again, but the resilience of the family-owned companies and the mid-cap companies in Germany is bigger than a lot of people think. If I think about how they actually improved from the 2008 global financial crisis, if you think about how they actually increased capital, how they improve their working capital systems, their liquidity. This is a completely different picture than it was 15 years ago. And I'm saying it because they go with a different buffer into the situation which we have right now. And that's also what we are seeing not only in our portfolio. But if you actually look at the overall statistics, there is no such thing like a material deterioration in the credit worthiness of the German mid-cap companies. Now what is then specifically on us, and I do believe even go further back to Deutsche Bank's history in 2002 and 2003 when we actually had too many credit losses in that area. We completely changed the way we are managing credit risk also for medium and family-owned corporates when it comes to concentration risk when it comes to differentiating between, sort of, say, winners and potential companies which are more challenged in certain industries, we have a clear industry view and not only the specific company view. And by that, I think our risk management to the individual review of corporate is simply a superior one. And I personally just went last week through the -- for instance, the OEM suppliers in Germany. If I look at the portfolio, how diversified we are from a rating point of view, from a concentration risk point of view, i.e., that there are no big concentration risk. If we have larger risk, it's actually with investment-grade companies, who are actually themselves diversified globally in their business, then I do believe that there may be a little bit of deterioration in that portfolio, but I can't see that we are coming into a situation where I would see a material deterioration of our mid-cap portfolio. So looking at their own resilience and the way we have risk managed that, I'm confident that, obviously, our portfolio is in good health. James?

So on pass-through, it's an interesting topic. And in some ways, it's going to be too early to tell. So we'll all sort of do the analysis of this cycle once it's over. I think a few things. One, I think the dollar -- it's different by currency. I think the dollar has started to converge perhaps not to model but to a place that looks to us to potentially be where things settle out, a little bit better than the models would have expected. The euro is still well behind. What's driving that? I think there's discipline -- pricing discipline in the industry. I think there's an element of this cycle is different because of how sharp and how steep and how fast it was. I think there's an element that the banking industry had a long time of negative and is seeking to recover some of that sort of lost structural profitability. And I think client behavior is also a piece of the puzzle here. Obviously, there -- especially the more you go to wholesale money, they're smart enough to move their money to places that it earns a higher yield and -- but then they also know they need to leave a certain amount of money with the banks, and they understand that the remuneration of that for payments and operational purposes. And I understand that remuneration for that money is -- doesn't follow the market because there are services attached to it. So I think that's an understanding of the business model that's maybe better than it has been in the past. So lots of different drivers we'll need to unpack in time, but one that I think is overall a bullish sign for the industry of the value that banks, frankly, are providing to their clients, not just in corporate and middle market but also in the retail space.

So thank you very much for your interest and questions. If there are any further questions you have, please reach out to the Investor Relations with the department and have a good day.

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