Deutsche Bank AG (NYSE:DB) Q2 2025 Earnings Call Transcript

Deutsche Bank AG (NYSE:DB) Q2 2025 Earnings Call Transcript July 24, 2025

Deutsche Bank AG misses on earnings expectations. Reported EPS is $0.54 EPS, expectations were $0.78.

Operator: Ladies and gentlemen, welcome to the Q2 2025 analyst conference call and live webcast. I’m Moritz, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it’s my pleasure to hand over to Ioana Patriniche, Head of Investor Relations. Please go ahead.

Ioana Patriniche: Thank you for joining us for our second quarter 2025 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.

Christian Sewing: Thank you, Ioana, and a warm welcome from me. Our first half results demonstrate clearly where Deutsche Bank stands today. Our strategy has proven itself in different environments. Our Global Hausbank serves clients at times of elevated volatility in the second quarter, and thanks to our diversified model, we delivered resilient revenues, which grew 6% to EUR 16.3 billion, in line with our full year goal of around EUR 32 billion. And while it is still early, we are encouraged by the strong start of the third quarter. Noninterest expenses declined 15% year-on-year to EUR 10.2 billion, in line with our full year outlook, resulting in a cost/income ratio of 62%. This strong operating leverage produced a return on tangible equity of 11% in the first half year, which means we delivered returns in line with our target of greater than 10% in both quarters, including the second quarter that was impacted by increased volatility.

Our CET1 ratio of 14.2% enables us to deploy capital to grow our business and to support clients, while increasing returns to shareholders. We are absolutely focused both on delivering our year-end targets and on preparing the next phase of our strategy to further boost returns and value generation for our shareholders beyond 2025. As you can see on Slide 3, we delivered a pre-provision profit of EUR 6.2 billion in the first half, nearly double the same period in 2024. Adjusting for Postbank takeover litigation impacts, pre-provision profit was up 29% year-on-year, on the back of strong operating leverage of 10%, resulting in a 37% increase in the pretax profit over what was already a strong operating performance last year. Robust revenues reflect our well-diversified business mix, with 74% from more predictable revenue streams in the Corporate Bank, Private Bank, Asset Management and FIC Financing.

Net commission and fee income increased by 4% year-on-year, in line with our goal to boost revenues from fee-based and capital- light businesses. As anticipated, net interest income in key banking book segments and other funding also remained resilient. Excluding the impact of the Postbank takeover litigation provision in both periods, noninterest expenses declined 4%. Adjusted costs remained flat and, as we intended, significant progress on our operational efficiency measures is offsetting business investments and inflation. Now let’s look at divisional developments on Slide 4. All four businesses delivered double-digit returns in the first half of this year. And we believe they will continue to build on this. Our diversified business mix is poised to perform in a fast-changing environment, particular as our focused investments to serve clients are paying off across the platform.

Our Corporate Bank has a leading market position in Germany and, with deep roots in our home market, is perfectly positioned to help clients capitalize on opportunities created by investment programs in Germany and Europe and the improving business momentum overall. We expect revenue momentum to pick up again once government investments and initiatives to support the economy show their impact. We are already preparing for this. As an example, we are cooperating with KfW and EIB to support clients in Germany with tailored solutions. Additionally, its global market presence positions the Corporate Bank well to support multinational clients as they respond to the rapidly evolving environment. The Investment Bank is focused on consolidating its position as the leading European FIC franchise, while Origination & Advisory is looking to grow market share, specifically in Advisory, aided by recent investments, driving further revenue diversification.

Our platform is ideally placed to help institutional and corporate clients serve the German and European infrastructure and defense agenda, especially in Germany where we have the leading O&A franchise, including in aerospace and defense, where we have recently invested further in our dedicated sector coverage team. And our Investment and Corporate Banks have already seen increased demand for defense finance. Our O&A team has been involved in deals spanning Equity Capital Markets, M&A and financing, while the Corporate Bank sees growth potential, particular in trade finance solutions for short-term and long-term financings. In the Private Bank, we are pleased to see the progress on our transformation, reflected in the improvement in returns seen year- to-date.

Personal Banking continues to drive efficiency through workforce reductions and branch network optimization, mainly in Germany. These steps, combined with increasing digitalization, are enabling us to streamline operations and innovate our offerings. At the same time, we are focusing on investments in growth across Wealth Management and Private Banking, deepening segment coverage, leveraging the bank’s broader product suite for our clients. Progress made and the fact that the Private Bank is well positioned to help clients take advantage of current trends make us confident we will see returns improve further in the medium term. Asset Management stands to build from its diversified assets under management of more than EUR 1 trillion, and we believe it is ideally placed not only to serve German and European investors but also to act as a gateway to Europe for global investors.

Clearly, both our asset gathering businesses will support one of the strategic initiatives of the Savings and Investment Union, fostering citizens’ wealth by broadening their access to capital markets as we are Germany’s leading Wealth Manager and Retail Fund Manager in addition to being its leading capital markets bank. Before I hand over to James, let me conclude on the progress towards our 2025 delivery on Slide 5. Let me start with revenue growth. Since 2021, we have achieved a compound annual growth rate of 5.9%, in the middle of our target range of 5.5% to 6.5%. Second, we have achieved around 90% of our EUR 2.5 billion target for operational efficiencies, with EUR 2.2 billion in cost efficiencies either delivered or expected from completed measures.

And we continue with our strict cost management approach, which includes strategic and tactical measures to deliver our profitability and efficiency targets. Third, capital efficiencies have reached a cumulative total of EUR 30 billion, already at the high end of the bank’s target range for full year 2025 and contributing to our strong CET1 ratio. We delivered another EUR 2 billion of RWA reductions this quarter through securitization transactions. And we are not stopping here. We already see opportunities to deliver further capital efficiencies in the second half of 2025. With the CET1 ratio of 14.2% this quarter, we feel very comfortable with our commitment to surpassing our EUR 8 billion target for total distributions to shareholders. In fact, we already applied for a second share buyback in addition to the previously announced EUR 2.1 billion distribution for this year.

And James will shortly cover our pathways to materially reduce or potentially eliminate the impact of the output floor from the implementation of CRR3. To sum up, our first half results demonstrate that we are on track to meet our 2025 financial targets, and we are fully focused on delivering them. In parallel, we are working on the next phase of our strategic agenda to further increase value generation beyond 2025. We see significant potential to unlock additional value from the combination of our strategic actions and market opportunities arising from growth stimulus, defense spending and structural reform in Europe. The Made for Germany initiative, which we launched together with leading German companies earlier this week, underscores a shared commitment by both government and industry to prioritize growth and competitiveness.

We also see increasing global investor demand to deploy funds into the German economy. All in all, given our unique domestic positioning and global reach, this is a clear net positive for us. We have built a resilient and diverse business mix and a strong capital base, and we are now in the sustainable growth stage. This allows us to fine-tune our business model and extract further value by strictly applying our SVA framework, targeted reengineering and further developing our leadership culture. We look forward to updating you in more detail on our plans later this year. With that, let me hand over to James.

James von Moltke: Thank you, Christian, and good morning. As you can see on Slide 7, we saw continued delivery this quarter against all the broader objectives and targets we set ourselves for 2025. Our revenue growth, cost/income ratio and RoTE are developing in line with our full year objectives. Our year-to-date performance continues to support our revenue and noninterest expense objectives, before FX effects, of around EUR 32 million and EUR 20.8 billion, respectively. Note, if current FX rates were to persist, the weaker U.S. dollar would result in a small headwind to pretax profit, as the negative impact on revenues would be slightly greater than the benefit on expenses. Our capital position is strong, and our liquidity metrics are sound.

The liquidity coverage ratio finished the quarter at 136% and the net stable funding ratio was 120%. With that, let me now turn to the second quarter highlights on Slide 8. We continued to demonstrate strong franchise momentum across the bank. And our diversified and complementary business mix resulted in reported revenue growth of 3% year-on-year or 5% if adjusted for foreign exchange translation impact. Our cost/income ratio of 63.6% remained in line with our guidance for 2025. Second quarter nonoperating costs benefited from a modest provision release, mainly driven by further settlements related to the Postbank takeover litigation matter. Profit generation was robust, and our post-tax return on tangible equity of 10.1% continues to support the ambition to deliver sustainable returns of greater than 10% in 2025 and beyond.

In the second quarter, diluted earnings per share was EUR 0.48 and tangible book value per share increased to EUR 29.50, up 3% year-on-year. The sequential development mainly reflects AT1 coupon and dividend payments as well as FX impacts. Before I go on, a few remarks on Corporate & Other, with further information in the appendix on Slide 38. C&O generated a pretax profit of EUR 28 million in the quarter, mainly from positive revenues in valuation and timing, partially offset by shareholder expenses and other funding and liquidity impacts. Let me now turn to some of the drivers of these results, starting with net interest income on Slide 9. NII across key banking book segments and other funding was EUR 3.4 billion, stable quarter-on-quarter despite headwinds from a weaker U.S. dollar.

Private Bank continues to deliver strong NII supported by our structural hedge portfolio, while Corporate Bank NII remained stable, supported by the ongoing hedge rollover, loan income and a one-off benefit from hedge portfolio optimization. FIC Financing benefited from loan growth in the first quarter, with strong lending margins offsetting FX effects. With respect to the full year, we confirm our prior guidance of EUR 13.6 billion. Underlying drivers of the year-on-year development continue to be an increasing contribution from the long-term hedge portfolio rolling at higher average rates, which we detail in the appendix on Slide 25, and volume growth combined with stronger lending income in FIC as well as lower funding costs. Together, these are more than offsetting margin normalization and FX headwinds.

Turning to Slide 10. Adjusted costs were just over EUR 5 billion for the quarter. Cost discipline across the franchise remained strong. Compensation costs were slightly lower on a year-on-year basis as wage growth was more than offset by ongoing measures for workforce optimization and beneficial FX impacts. With that, let me turn to the provision for credit losses on Slide 11. Stage 3 provision for credit losses materially reduced in the second quarter to EUR 300 million, reflecting a model update mainly benefiting the Private Bank, while provisions for commercial real estate continue to be elevated. Stage 1 and 2 provisions remained at a high level at EUR 123 million and also included an impact from the aforementioned model updates as well as portfolio-related effects and moderate charges relating to forward-looking information, net of the overlay we built in the first quarter.

The model updates mainly impacted CRE-related provisions and reflect updates to loss given default assumptions to align with the latest EBA requirements, incorporating a change in assumptions applied in portfolio-level calculations. On a year-to-date basis, overall CRE provisions stand at EUR 430 million. As guided in prior quarters, the impact from new nonperforming items is limited, but we are seeing ongoing valuation pressure on existing nonperforming exposures, particularly on the U.S. West Coast. While developments around CRE as well as the macroeconomic environment continue to create uncertainty, we feel comfortable with our broader portfolio performance and asset quality, and we currently anticipate provisions to ameliorate in the second half of the year.

With that, let me turn to capital on Slide 12. Strong second quarter earnings net of AT1 coupon and dividend deductions, combined with diligent resource management, led to a CET1 ratio of 14.2%, up 42 basis points sequentially. Lower risk-weighted assets were driven by credit risk, benefiting from continued execution of capital efficiency measures, predominantly through two securitization transactions during the quarter. Market risk remains flat. Increases at the beginning of the quarter, reflecting market turbulence at the time, have been offset through strict risk management and hedging. Our second quarter leverage ratio was 4.7%, up by 8 basis points, principally driven by FX effects, as higher Tier 1 capital was mostly offset by higher trading inventory.

With regards to bail-in ratios, we continue to operate with significant buffers over all requirements. Before we turn to our divisional performance, I want to offer my perspective on the bank’s most recent CRR3 disclosure on Slide 13. We see clear pathways to materially reduce or eliminate the hypothetical impact of CRR3. And let me say upfront, our distribution policy and financial targets are unaffected. Before we go into detail, we need to remember that the implementation of CRR3 is a multiyear journey, including several transitional arrangements that are subject to review and will mostly apply through 2032, and we are not planning franchise-changing decisions today for an outcome that is almost certain to change. The hypothetical RWA inflation of EUR 118 billion in 2033 includes a EUR 64 billion impact from the output floor and EUR 54 billion from the potential expiry of the transitional arrangements in 2033 based on an unmitigated balance sheet as of March 31, 2025.

We expect the output floor impact to decline by at least EUR 45 billion through a combination of low-cost mitigation measures and the full application of already final CRR3 rules not reflected in the March pro forma. We see this mitigation as virtually certain and without any meaningful cost. We will address the remaining RWA impact of around EUR 20 billion via additional mitigation measures like business mix reviews through the application of disciplined SVA-driven decisions on balance sheet optimization. As a result, the output floor will only become binding in 2030 at the earliest instead of 2028. Based on the March pro forma numbers, we would subsequently face a further RWA impact of EUR 54 billion if transitional rules expire, which you can see on the right side of the slide.

Even at this early stage, we are confident we can reduce this impact by at least EUR 15 billion through additional measures, such as expanding private rating agency coverage for unrated corporates and further potential additional balance sheet optimization actions. In addition, considering developments in the U.S., rule changes in Europe are expected to ensure European banks can operate on a level playing field and continue to support lending to European corporates and overall economic growth. As an example, around EUR 30 billion of the EUR 54 billion RWA under the transitional rules relate to unrated corporates. It is crucial for the EU’s bank financing-dependent corporate sector that banks continue to provide this funding at appropriate capital costs.

If transitional arrangements are extended or made permanent, there would be no additional RWA impact. Let us now turn to the performance of our businesses, starting with the Corporate Bank on Slide 15. Corporate Bank revenues were essentially flat in the second quarter as interest hedging, higher average deposits and growth in net commission and fee income have offset ongoing margin normalization. Revenues were impacted by adverse FX movements, which were compensated by one-off interest hedging gains from portfolio optimization. We continued to make good progress, further accelerating noninterest revenue development with 6% growth in reported net commission and fee income and a particularly strong contribution from our Institutional Client Services business.

For the third quarter, we expect revenues to be slightly lower and in line with the prior year, reflecting the aforementioned FX headwinds and a lower level of one-offs. Adjusted for FX movements, loans increased by EUR 3 billion year-on-year and sequentially, with the growth primarily coming from our Trade Finance and Lending business. Deposit volumes remained strong as volumes were up by EUR 9 billion year-on-year and remained essentially flat sequentially. Noninterest expenses were lower year-on-year driven by a litigation provision release. Provision for credit losses declined to EUR 22 million as Stage 3 provisions remained overall contained while Stage 1 and 2 benefited from a model update. This resulted in a post- tax return on tangible equity of 17.6% and a cost/income ratio of 60%, both improving sequentially and year-on-year.

I’ll now turn to the Investment Bank on Slide 16. Revenues for the second quarter increased 3% year-on-year despite a significant FX headwind, with strength in FIC more than offsetting a decline in O&A revenues. FIC revenues increased 11%, primarily driven by strong performances in both financing and macro products. FIC Financing continued its momentum with revenues again higher than the prior year period, reflecting an increased carry profile following targeted balance sheet deployment in line with our strategy, in addition to robust fee income. Excluding financing, FIC revenues increased versus the prior year period despite the extreme market volatility seen in early April, as we continue to support our clients through these uncertain times with year-on-year activity increasing across institutional, corporate and our priority clients.

Moving to O&A. Revenues were significantly lower when compared to a strong prior year, with the business impacted by market uncertainty, most notably in our areas of strength, combined with the delay of some material transactions into the second half of the year. Debt origination saw the biggest impact, with the leveraged debt capital markets industry pool declining year-on-year, while the business was also selective in relation to new committed transactions in a volatile environment. Advisory performance was robust with revenues increasing year-on-year, while the pipeline for the second half is encouraging. Noninterest expenses were 5% lower year-on-year, reflecting reduced litigation charges with adjusted costs essentially flat. Provision for credit losses was EUR 259 million, significantly higher year-on-year, with the increase driven by Stage 1 and 2 provisions, particularly in CRE due to the aforementioned model updates as well as forward-looking indicator impacts, while Stage 3 impairments declined.

Let me now turn to Private Bank on Slide 17. In the Private Bank, disciplined strategy execution drove 10% operating leverage and a 56% increase in profit before tax. Return on tangible equity grew both sequentially and year-on-year to 10.8%. The Private Bank recorded stronger revenues as net interest income grew by 5% year-on-year while net commission and fee income rose by 1% year- on-year, supported by investment revenues despite market volatility. Sequential revenue trends reflect seasonal investment activity typically concentrated early in the year. Personal Banking benefited from better deposit and investment product revenues mainly in Germany, leveraging successful deposit campaigns as well as the bank’s leading advisory product offering.

The growth was partially offset by lower lending revenues following the strategic decision to reduce capital-intensive loans. Wealth Management and Private Banking revenues grew 2% year-on-year, driven by discretionary portfolio mandates, despite FX headwinds and market volatility. Good business momentum continued with the majority of net inflows of EUR 6 billion in the quarter coming from these businesses. The Private Bank continued the transformation of the Personal Banking business, closing a further 25 branches in the second quarter, bringing total closures to 85 this year. Workforce was reduced by 700 in the first half, continuing the trajectory in line with plan. Transformation effects more than offset inflationary pressure, leading to a 5% reduction in adjusted costs.

Noninterest expenses declined by 8%, reflecting lower restructuring charges, with the cost/income ratio improving by 7 percentage points to 69%. Provision for credit losses benefited from updated loss given default model assumptions, while underlying portfolio performance remained stable. Provisions in the prior year quarter benefited from a nonperforming loan sale. Turning to Slide 18. My usual reminder, the Asset Management segment includes certain items that are not part of the DWS stand- alone financials. Profit before tax improved significantly by 41% from the prior year period, driven by higher revenues and resulting in an increase in return on tangible equity of 8 percentage points to 26% for this quarter. Revenues increased by 9% versus the prior year.

Higher management fees of EUR 630 million, driven by passive products reflected higher average assets under management. Performance fees saw a significant increase from the prior year period, mainly due to the recognition of fees from an infrastructure fund. Noninterest expenses and adjusted costs were essentially flat, resulting in a decline in the cost/income ratio to 60%. Quarterly net inflows of EUR 8 billion represent the fourth consecutive quarter of positive net flows, including a further EUR 3 billion into passive products. Cash and Alternatives saw combined net inflows of EUR 9 billion, which more than offset EUR 4 billion in outflows from active products and advisory services. Assets under management remained above EUR 1 trillion, an increase from positive market impact and net inflows was offset by negative FX effects.

In the quarter, DWS and its partners received BaFin approval to issue Germany’s first fully regulated euro-denominated stablecoin, and the division also extended its strategic partnership with DVAG for another 10 years. For further details, please have a look at DWS’s disclosure on their internal relations website. Finally, let me turn to the group outlook on Slide 19. We are on track to meet our full year 2025 targets and remain comfortable with our trajectory to deliver an RoTE above 10% and a cost/income ratio of below 65%. Our year-to-date performance supports our revenue and expense objectives. Our diversified and complementary businesses are performing well and the strong revenues in the first half year put us on course to deliver our ambition for revenue growth.

We remain committed to rigorous cost management, while maintaining our focus on controls and investments as we continue to benefit from ongoing delivery of our cost-efficiency initiatives. As outlined, the current FX rates marginally impact our return and efficiency ratios, but this has been more than offset by a greater- than-expected reduction in nonoperating costs, which we expect to carry into the remainder of the year. Our asset quality remains solid. And despite uncertainty from developments around CRE as well as the macroeconomic environment, we currently anticipate a reduction in provisioning levels in the second half year. Our strong capital position and second quarter profit growth provide a solid foundation as we head into 2026. As we plan capital distributions for 2026 and beyond, we also plan to return excess capital to our shareholders when sustainably exceeding a 14% CET1 ratio.

To date, we have announced EUR 2.1 billion of capital distributions, including the EUR 1.3 billion dividend paid in May and the 2/3 complete EUR 750 million share buyback announced in January. And we await approval for our second share buyback. In short, we remain comfortable with our capital position and reiterate our commitment to outperforming our EUR 8 billion distribution target. We are also steadfast in our commitment to further improved profitability and increasing shareholder returns beyond 2025. With that, let me hand back to Ioana, and we look forward to your questions.

Ioana Patriniche: Thank you, James. Operator, we’re now ready to take questions.

Q&A Session

Operator: [Operator Instructions] And the first question comes from Flora Bocahut from Barclays.

Flora A. Benhakoun Bocahut: I have two, one on the revenue outlook, one on the distribution policy. On revenues, you’ve reiterated today the full year target of EUR 32 billion. Consensus, I think, is a little bit below that level, so basically skeptical that you can get there. If I think of the moving parts, you just did in H1 just over EUR 16 billion, but that was helped by a seasonally strong Q1. And then in Q2, the strong print you had in FIC as well as C&O. You’re guiding for a slowdown, I think, in Q3 in the Corporate Bank revenue. So yes, if you could elaborate on what gives you the confidence that you’ll make that target and you expect H2 to basically be as strong as H1, and whether there is also already there in H2 a contribution from the German fiscal stimulus or if it’s something that is more helping from ’26 onwards?

The second question is on the distribution policy. I just want to make sure I understand correctly. So the idea is that you have a payout ratio of 50%. But then if you close the year with the CET1 ratio that is above 14%, then you would consider distributing that excess even if it would take the payout above 50%. So just checking that the payout ratio is not abiding constraint, so it could be seen as a minimum kind of, but also effectively that you’re telling us that the distribution threshold is now 14% CET1.

Christian Sewing: Thank you, Flora. Let me take the first question on revenues and also the German stimulus program. So first of all, I’m really happy with the first half of revenues because in particular in Q2 that was a complex quarter we have seen in particular in the O&A business a softer Q2 than we thought and initially expected. But the good thing about that is that actually these are delayed deals and a good part of that is actually moving into Q3 and into Q4. And I think you have seen it from the prepared remarks from James, that actually we started pretty well in July, one of the reasons also that O&A actually had a very good start in July, not only FIC. So also having that in mind, I’m really happy with Q1 and Q2 in aggregate.

It shows that actually the franchise and the business model is working. And even if you have slightly softer revenues in one subsegment, the bank is strong enough and robust enough to compensate it with a good outperformance in other parts. Now why am I confident that we will achieve our EUR 32 billion also with Q3 and Q4? To be honest I expect, first of all, that fixed income remains very, very strong. Now very early again to say what we have seen so far in July, but I’m sure also if you take exchange rate changes in Q2 into account, we again gained market share in the fixed income business. We can see actually also with the whole reallocation of funds from U.S. to Europe, Deutsche Bank is the gateway to Europe. And we see it simply in the flows.

And I can’t see that stopping in Q3 and Q4, if I look at our financing pipeline. So FIC will remain strong. I just told you about O&A. I’m absolutely convinced that O&A will be stronger in H2 than in H1. And again, we see that some of the delayed transactions are now coming through and already were booked in July. You’re right, Corporate Bank, slightly weaker potentially in Q3, but we are not talking actually big numbers here. But this will be not only be fully compensated but more than compensated by stronger Asset Management and the Private Bank. So if I think about Asset Management and the Private Bank, what I see in Q3 and Q4, also compared with Q1 and Q2, clearly better and more than offsetting the potential softer quarter in the Corporate Bank.

So if I put this all together, to be honest, I don’t see actually the concern that we are not achieving our EUR 32 billion. Now on top of that is coming something which you just raised in your second part of your question, i.e., for the first question, and that is the stimulus program in Germany. I think the bulk of that, to be honest, we will see then the impact in ’26. Very bullish on ’26. Actually, we, as Deutsche Bank, changed our outlook for the GDP growth for Germany to 2% growth in ’26, i.e., we upsized it with all that what is coming. But you can see a clear sentiment change in Germany. The level of discussions we have with our corporate clients, whether it’s on financing, whether it’s actually on investment plans is a completely different one than before.

I think we have seen from this government the first wave of reforms in particular on the taxation side and on the energy side. There will be a second round of reforms in the second half of the year. And that also all kind of supported this Made for Germany initiative, which we announced on Monday. And to be honest, after the Monday, we got a number of additional companies actually joining this initiative with more investments. And these investments, Flora, at the end of the day, need to be financed, and there is a huge opportunity. Now this kind of potential upside for the second half of 2025 is in no numbers, I just quoted for you, because that was the base case without that. Now again, most of that will come in 2026. And we will show you then later in the year when we come out with our targets for ’26, ’27, ’28 with a detailed layout of what that means.

But clearly, it’s tailwind. Last but not least, I really do believe it’s not only the Corporate Bank which will benefit of that and the Investment Bank, but I’m absolutely convinced that Germany will address in the one or the other form, so to say, also our pension system. And I always said, never underestimate what that means for our retail business. We have 19 million clients. And obviously, we will hopefully go into a more of a capital covered pension system. That is our chance. And that is why I’m so positive that also over ’25 and beyond, we have real chances to grow there. Therefore, from a business mix, no concern on the EUR 32 billion. Really, really good pipeline, very good momentum in the bank but even more upside from all that what is happening in Germany for ’26 and beyond.

James von Moltke: And Flora, it’s James. Just to add one thing to Christian’s point on revenues and tie it back to both our outlook statements and the consensus. FX, as we’ve talked about since our fourth quarter results, plays a role in that. If you simply applied the current FX rates to the second half, the implied number is revenue pressure of a little less than EUR 400 million for the full year. So that would translate into something a little bit higher than EUR 31.6 billion. And the numbers Christian just went through with you, EUR 7.8 billion for the second quarter, are at an FX rate of 1.15 on an average basis euro-dollar. So there’s a decent chance that we get the EUR 32 billion on a reported basis, so no impact from FX, and again, against where the consensus is right now, which is about 31.4%.

So we’ve been trying to give you very clear sort of guideposts along the way as to how to compare the revenue forecast that we had for the year as it’s influenced by FX. But in principle, the ingredients Christian just gave you would potentially represent an outperformance if all we did was repeat the second quarter in each of the next 2 quarters. Just going to distribution policy, your second question. A short answer is that’s correct. In the adjustment we made to the distribution policy and announced at the AGM, we essentially, I’ll call it, have the flexibility to distribute 50% of the prior year’s net income. That will of course more than cover the dividend and a significant buyback next year. Amounts above 50% would need to be, in a sense, funded from excess capital, but the payout ratio would not be an upper limit, a cap, rather, call it, the 14% threshold at which we define excess capital.

And hence, we — in a sense, we’d like for the market to think of that 14%. I think most of the focus is this idea that 14% is somehow a floor, it’s also a cap. And you would expect us to distribute above the 50% as long as capital is sustainably above the 14%.

Operator: The next question comes from Nicolas Payen from Kepler Cheuvreux.

Nicolas Payen: I have two questions, please. The first one on the outlook floor and the outlook for mitigation measures. Could you clarify how the final application of FRTB, the capital relief for the outlook floor, please? And also, SVA measures seems to be a very large part of your mitigation actions. So if you could provide maybe some colors on what actions you can actually take within this framework to offset the impact. And then the second question would be on your CLP outlook. With your guidance of H2 provisions being actually lower than H1 provisions, what does that mean for the full year guidance for CLP? And how does this still elevated CRE provision fit into that guidance?

James von Moltke: Thank you, Nicolas. I’m not sure I caught all of the first question acoustically but let me go after it. Let me start with the implication that we want to leave you with on the output floor mitigation path is that for your modeling purposes, 0 is a good number to put into the forward on the basis that we are quite confident we’ve moved out the point in time at which it becomes biding, point one. Point two, on what we call phase 1, we’re quite confident we’ll bring that number down significantly, potentially all the way to 0. Then we work on the mitigation of what we call phase 2, which is how to address the impact of the transitional arrangements potentially expiring. And there, it’s very early days on what we see, but we’ve already identified EUR 15 billion and we’ll work from there.

And so we’re quite confident. The only question is, over time, as you get deeper into the transitional arrangement, will costs and changes to the balance sheet start to really occur, but the starting point is a high degree of confidence, and 0 is a good number to operate with for now. You asked about FRTB and how it plays into the output floor. It’s a good question because as you’ve seen, the mix — one of the reasons that we’re idiosyncratically impacted is the mix of capital markets businesses within our overall balance sheet structure. And there, one of the points we want to leave you with is mitigation of the FRTB-related impact is actually relatively straightforward and very low cost. But now you would not begin to apply those mitigation actions until the full FRTB or the final version of FRTB is in fact in force.

So you should not and would not simultaneously essentially hedge to a standardized and an IRB approach as long as the standardized doesn’t bite. And hence, that still lies somewhere in the future but is part of the reason we have confidence. It’s, if you like, the biggest part of the phase 1 in this journey. In terms of the CLP outlook and guidance. As we say, H1 clearly was higher than our expectations at EUR 900 million, really all driven by commercial real estate. And so the rest of the picture as we see it is actually reasonably benign. But commercial real estate, which year-to-date is about EUR 430 million clearly has surpassed what we expected. What does it leave us for guidance for the full year? Well, in round numbers, our original guidance would have suggested at the high end, EUR 1.6 billion, which would mean an additional EUR 700 million in the second half.

I wouldn’t say that, that’s out of the realm of the possible, but clearly much more challenging especially if there’s continued pressure on commercial real estate. But if you kind of move the number in the second half up from there, the likely — and set as a constraint this idea that it should be in the second half better than the first, you’re traveling in a range that’s actually pretty consistent with the existing consensus number. So if you throw out that number is about EUR 1.7 billion, probably a good number to put in the models for now. Again, it’s quite path dependent on what happens with commercial real estate. But that’s been really the one area of pressure that we’ve seen in the CLP landscape, where most of the other things that we talked about with you last year have been on the, what we call, normalization path that we talked about.

Operator: The next question comes from Anke Reingen from RBC.

Anke Reingen: The first is on the stress test and the consideration of the output floor. I mean looking at previous stress tests, that could potentially mean your ratio comes out quite low on a fully loaded basis. Are you concerned that the low ratio could impact the regulators’ view of your MDA or capital guidance and could impact your capital distributions? Or are they more looking at the drawdown over the stress test period? And are you concerned like if the ratio comes at really low, how credit markets might react? And then secondly on costs. Yes, adjusted costs were EUR 5 billion in Q2, I guess, helped by FX effects. Is the EUR 5 billion then the adjusted cost run rate we should think about for the second half, taking the costs for the full year closer to 20.1% basis — EUR 20.1 billion on an adjusted basis?

And I guess that’s the number that will come with the EUR 31.6 billion revenues you mentioned earlier. But could the EUR 20.1 billion also be higher if the revenues move closer to the EUR 32 billion?

James von Moltke: Thank you, Anke. Appreciate the questions. So listen, on the stress test, short answer is no. Look, we would start with the point that we actually don’t think it’s relevant really to have to disclose the stress test results on a fully phased-in basis. I mean, to begin with, those rules do not apply during the stress test window that we’re talking about and they’re well outside. So consequently, we don’t think supervisors will be focused on the fully phased-in results. To your point, correctly, they will look at the drawdown on that basis, which might be interesting. As it happens, our drawdown is in fact lower on the fully phased-in numbers than it is on the — by virtue of starting with a higher denominator, if you like.

So in that sense, it’s ironically a positive. But we think emphatically it’s not appropriate to look at those numbers. Credit markets, look, there’s simply going to be a communication challenge associated with numbers that people aren’t used to looking at. Again, to us, they are irrelevant given that they’re hypothetical, well out in the future and also entirely unmitigated given it only really references the starting point, which is a December 31 starting point. So that’s where we are. I think it’s important for people to be aware that, that disclosure is ahead on what otherwise for us would be stress test outcomes that we would expect, not to gun jump on the disclosure, but will reflect the improvements in the company’s risk profile and profitability over the past several years.

And so we would certainly hope that the market would focus on those aspects of the results. As it relates to the cost run rate, short answer is yes. So as I mentioned, FX is built in at 1.15 on the dollar-euro rate. It’s a little obviously higher now euro. So that would have an effect up and down as the rate changes. But it’s certainly our intention to — consistent with our guidance at the beginning of the year, to run more or less flat to that level as the year goes by.

Christian Sewing: Anke, I think you had on the stress test part of the question was also whether that limits us in terms of — or whether the regulator has an issue then with share buybacks or distribution. No. To be honest, I think the transparency which we are providing with regard to our capital plan, obviously, not only for ’25 but also for the other years, I think we have reached a level which is, in my view, appreciated. We are in really good discussions with the regulators. So I’m not expecting that. And from all I can see how we have handled the capital in the past, also the discussions we have during the year 2025, I think they well understand on which path we are. So I’m not concerned about that at all.

Operator: The next question comes from Tarik El Mejjad from Bank of America.

Tarik El Mejjad: Just two questions from my side. Just a follow-up on the growth aspect. Thanks for the detailed answer you gave earlier. But there’s a lot of skepticism about the execution risk of this fiscal package of stimulus, and need a lot of plumbing to do before we can see it filtering through the real economy. Can you tell us actually and give us some concrete maybe measures or actions already you see on the ground of how the German government is effectively working on being with no kind of loss on this spending to non-growth measures? And if you maybe — I think something will be for the CMD, as you alluded to. But what would be for you, in this context, with the multiplier to GDP in terms of growth that a bank like Deutsche Bank can deliver, which is still pan-European with some exposure to Germany?

And my second question is on capital. Very interesting answer about the 14% and very clear, James. But I mean, now that you say we can put in our models 0 impact from the Pillar 3 new disclosure, and then surprised of your increase of CET1 to 13.5%, 14%, which is a big number in European context at the moment. So now would that mean that really 14% is a hard kind of stop number? And then you would do extra distribution intra-year to stay at this level? Or you can actually overshoot it and then go back later on? I mean in short, can we still have more buyback than the one you’ve already applied to? Or there’s upside to what consensus has for the current top-up buyback?

Christian Sewing: Thank you, Tarik. Let me start with your first question on, sort of, say, execution risk on the German fiscal stimulus. First of all, it is a real mindset change when you talk to the German government these days. And I can tell you also from the discussions we had this Monday with the Chancellor, by the way, accompanied by the finance minister and the Minister of Economic Affairs, growth and competitiveness is at the core of the agenda what they are doing. And that is key because, obviously, this goes also into the sentiment of the private sector. And only because of that, it is possible to launch an initiative like with it. Now on the plummeting and execution risk of the fiscal measures, I think we need to a little bit differentiate.

On the one hand, defense starts as we speak. And you have seen all our announcements how we have fostered actually our defense financing capabilities and capacities over the last 3 or 4 months. I think Fabrizio has done a tremendous job in Germany but also in Europe actually to further increase our resources, whether it’s capital resources, whether it’s people, in order to make sure we are organized, we are set up in order to actually respond to the asks which we are getting. And here, we can see while we speak, we can see a different level of engagement with the corporates, with institutions, with actually public institutions where the orders are going out now and the financing questions are coming in. On the infrastructure side, you have seen that actually the budget has been proposed to the parliament before the summer break, the ’25 budget.

’26 is coming soon after that. It’s actually something for September. And I think in the second half, you will see that the EUR 500 billion of infrastructure funds, which has been created, which actually looks into different subsegments, housing is one, digitalization and technology is second one, key infrastructure is the third one. That is all launched in the second half. And also there, you can see that the preparation is well underway, but I would say the main effect of that is coming in ’26. Now there is the one or the other order already coming in. But you can also see that it has a positive impact actually on the corporates who are now rethinking their investments into Germany saying, well, we want to be prepared for the day that it’s coming in.

And therefore, you can see much more engagement level on the German corporate side and also, again from a sentiment point of view, much better results over the last, I would say, 2 to 3 months. When the corporate owners asked, what’s going on in Germany? The response rate is a much better one. And therefore, I do believe that actually we will already see a slight uptick in the second half, in particular driven by defense. On the infrastructure side, the EUR 500 billion, the main impact is coming in 2026, And that’s what we will show you then when we have the Investor or Capital Markets Day later in the year, how it actually impacts the one or the other business.

James von Moltke: Tarik, I’ll go to your second question. But actually, one thing just to add to what Christian just said about the multiplier because you reminded me of my early days as a bank analyst on the private side for what it’s worth. We used to talk in the U.S. about the multiplier of bank sector growth being something like 1.3x the GDP growth. And I haven’t thought of it in those terms, but it’s probably — I think that’s what’s behind your question. I think that Germany and particularly DB have a chance to meaningfully outperform that type of multiplier because the changes that we’re talking about here is really about redeploying savings into investment activities. And it’s sort of a corollary of the — of this idea that European capital being tied up in bank deposits is underleveraging those deposits.

If you think that the banking sector, particularly Deutsche Bank with our business model on asset gathering, asset management, advice, underwriting, is shifting — would shift not just our deposits but the banking sectors trillions of euros of deposits from relatively unproductive uses in bank deposits into the capital markets, investment, growth, innovation, I think the multiplier you’re talking about could be significantly higher than it was in those days, 30 years ago. Just talking to capital and the range, look, let me be really clear. Firstly, we decided to change the language around the capital policy because it was clear that our earlier language was sort of out of date of 200 basis points above MDA. We’ve grown past that and we felt it needed to be updated.

Second thing, the market and sometimes credit investors will tend to focus on distance to MDA. And we’ve recognized that the bank has operated at a bit of a thinner buffer than some of our peers. And so shifting as we’ve done, we think, is addressing that and doing so in a really positive way in line with where we, in fact, are capitalized today. We made the point that we think MDA is too high and over time, for a variety of different reasons, should come down. And therefore, increasingly, I think our buffer to MDA will look to the world like a source of strength. And hence, we think the initial reaction perhaps underplayed that element of it. And as I’ve said before, our goal from here is to make the tangible equity that we need to hold for a given ratio, let’s take 14%, more and more efficient over time.

And so that’s the journey we’re on. And to Flora’s earlier point, the distribution policy would then see, in a sense, the 50% as a floor and excess capital as incremental distributions, but hopefully with more freedom and predictability as to the outcomes. The last thing just to note is, and I think it’s also confused investors a little bit, there is a timing lag attached to this. So as you may know, the ECB sort of process about a 4-month process. They’re looking actually to potentially shorten it to 3 months. But it means that the ratio on any given quarter end is a bit of a lagging indicator, right, of what management was looking at as a spot level when we put in an application. It also goes to why we talk about sustainably our applications for buybacks are, of course, a forward-looking view.

And so naturally, the supervisors would say, well, it can’t just be a moment in time at which you’re above but hopefully sustainable. But with a company that’s growing earnings and organic capital generation, by and large, that should be something that moves over time up from the spot. So I hope that’s helpful also in explaining some of the timing lags that you see in announcement versus spot ratio.

Operator: The next question comes from Kian Abouhossein from JPMorgan.

Kian Abouhossein: I mean, if I may first make a comment, good results. But I’m questioning a bit why we are discussing dollar impact of EUR 400 million on revenues, which is roughly 1% of total revenues. I hope, Christian, you can get the troops to make up for the EUR 32 billion and generate extra revenues as such, just as a comment. But coming to my questions. First of all, we’ve talked a lot about top-down impact, Germany spending on your future potential revenues. What I’m interested in is market shares. So what are you doing on Private Bank market shares? What are you doing on Corporate Bank market share? Not exactly clear if you’re gaining. Maybe you’re not losing market share, but I want to try to understand that on the deposit lending side.

Secondly, on cost. You almost exhausted your cost program. And I was wondering what areas of cost we should think of where you could do further improvements in order — on a gross basis, I guess, which we should think about could further improve on a gross basis at least your cost impact?

James von Moltke: Kian, this is James, I’ll quickly cover the first item and then Christian will talk about market shares and costs. We agree. We don’t want to focus too much. But what we simply are doing is giving you the mark-to-market so people can essentially have an honest reckoning at the end of the year as to what we delivered versus what we promised. But I agree it doesn’t — it shouldn’t overshadow what I think is good momentum in the businesses and delivery against our revenue objectives.

Christian Sewing: Well, Kian, to your initial comment, I think you know me that I would put everything into that we deliver the EUR 32 billion or even more. So rest assured that this is under daily watch. On market share, look, I think we have a first class position to grow market share, in particular in the Corporate Bank and Private Bank from here. Why? Because we have done the transformation. We have done the restructuring. We have done in particular in the Private Bank the heavy lifting of the IT integration of Postbank and Deutsche Bank. You can see actually — nobody actually thought that we were able to grow the profitability in the Private Bank. We are by far not there where we want to be, but you can see the steady progress.

And the steady progress is not only coming by taking costs out, which I’m very happy about, and this will continue. But also that Claudio is actually putting the right focus on where to grow in revenues, whether it’s on the deposit side, whether it’s under assets under management, I think we had assets under management coming in of around EUR 40 billion in the first half of the year. And all I can see also from July from the meetings I have is actually this is continuing. That means with the healing of the Deutsche Bank reputation, with making sure that we are behind our IT transformation issues, making sure that a lot of investment is going into the digitalization of the retail area and further changes to come in August and September there with an even nicer client experience for our retail clients.

And actually, with that, what I tried to explain before, that I do believe over the next years in particular, we will see a shift also what James just said from deposits into investment products because the Germans are understanding that the retirement structure needs to be different from that what we had before. This is actually the best foundation we have in Deutsche. We can grow from here. And I’m sure we will see actually growing market share in the Private Bank. Corporate Bank, I would say the same because in particular when it comes now to the financing piece, in particular if it comes to moving and providing international investors access to Germany, we are exceptionally well positioned. Fabrizio on purpose positioned in the Corporate Bank and in the Investment Bank areas like defense, infrastructure financing.

He pushed more capital into it. He increased the resourcing for this group. So also in this regard, I would say we are prone actually to grow market share in our home business. And all I can see, and also from the number of clients interacting with us in the home market, this clearly goes into the right direction. On the cost side, to be honest, we took your comments to heart. And I’m really happy to say that discipline is even better than before and that I think we have delivered now quarter-for-quarter a cost number which is not only in line with expectation, but stronger than consensus. No doubt that this is continuing. The only thing where I would say I slightly disagree with your comment is on exhausting the programs. We are now working obviously on the programs beyond 2025.

We will achieve the 100% of the EUR 2.5 billion by year-end. That is clear. We are now already at 90%. The other thing will come in over the next 6 months. And a good part of the work we are doing in the Management Board is now to define the path to 2028. And if I think about what we are thinking in terms of front-to-back processing for our main capabilities, whether it’s trading, whether it’s investment business, whether it’s lending business, how Marcus Chromik is now defining the credit process in a much more digital way and connect the front office with the back office, if you think about what savings we still can get in the reengineering of the FIC business under Ram Nayak working with the IT, to be honest, there is more to come. And therefore, Deutsche Bank 3.0 is, on the one hand, the SVA method and capital allocation; on the other hand, a better and more efficient target operating model which actually encapsulates a lot of cost savings in the future.

So therefore, I’m really bullish why we can achieve a higher profitability than 10% after 2025.

Operator: The next question comes from Giulia Miotto from Morgan Stanley.

Giulia Aurora Miotto: So the first one, Christian, you often talk about leveraging the fiscal stimulus with private investments. And I think you mentioned working with KfW and EIB on this. Is your view still that this can be levered 5x? And how would this work? When would we see this money really being mobilized? And I guess, what’s in it for Deutsche Bank? I guess you make a fee on the IB side, but I would be curious for any comments there. And then secondly, so you — I hear you very positive on the mobilization of savings. But what incentive do you think will come? Or will this be left just to Germans realizing that the state pension isn’t enough so they need to invest? Do you expect like a tax incentive? Or what do you expect here?

Christian Sewing: Thank you, Giulia. On the first thing, you actually have seen the startup of the leveraging of the program. I think 4 or 5 weeks ago, we announced the cooperation with EIB. I think it was a EUR 500 million program. And kind of those initiatives, and this is only with regard to defense, similar activities we are discussing with KfW and others with regard to infrastructure funding, with regard to how can we actually also make sure that other investors, private investors are leveraging the programs which has been set up under the fiscal stimulus program and how can we link these private investors with the fiscal stimulus. And look, this is our role, that we are actually trying to connect these private investors with our public spending which we have in Germany.

And on top of that, we are obviously then trying to leverage that with further debt from our side with other institutions. So I said last week, if we are doing it the right way in Germany, this EUR 500 billion infrastructure stimulus program can actually be turned into an overall program which is 4, 5x as high as the EUR 500 billion because we can link it with private investor and, obviously, bank debt in a way that the EUR 500 billion are also used as first loss piece, guarantees, public-private partnerships. And these discussions are running as we speak. And again, the first piece you have seen in a live scenario with EIB. On the pension, I think there are different incentives or different levels of discussions taking place. Number one, you have this, which has been approved by Germany, is this early investment program targeted at young savers.

Now of course, EUR 10 a month for average child, I think, which is above, and now I need to be careful that I’m not saying the wrong thing, 6 years or 7 years old, I think it starts there, does not mean the world, but actually it changes a lot the mindset of the people that this money is designed to go into a kind of a capital covered pension program. And it will mean actually that obviously banks like us and others are trying to capture this opportunity and say, okay, what else can we do? It’s not only the EUR 10. What else can we do with your deposits which you have with us? I mean we need to be all conscious that for the time being, Europe is exporting EUR 300 billion of deposits every year to the United States. So we need to make sure that with these kind of changes, we actually try to capture more of that for us in order to finance the growth and the investments which are needed.

Secondly, I do believe that with the whole discussion we have, also the financial literacy and the education of people will take a different momentum. And people will be aware that there is far more to get if actually you think differently about your own pension program than before. Thirdly, digitalization and the way you are offering it to your clients will play or will make a big difference going forward. One of the items, Claudio is so much pressing on and pushing for, is actually a digital offering in terms of investment programs for retail clients to make it easy for them and far more simpler to actually opt for certain products. So in this regard, our investments into technology will pay off. And lastly, now not yet decided, but from all that I hear in Berlin, the new early investment program was just the start.

I’m absolutely confident that over the second half of 2025 and then also in ’26, there will be at least a discussion about a broader reform of the pension program. And that again will deepen our domestic capital markets in a significant way. Well, and if there is a capital markets bank in Germany, which will obviously benefit from this, it’s us and in those discussions we are in.

Operator: And the next question comes from Stefan Stalmann from Autonomous.

Stefan Stalmann: I had one on strategy and one on numbers. Regarding strategy, it now becomes increasingly clear that the U.S. investment banks, U.S. banks are getting quite substantial capital relief from their regulators and that they have the intention to plow a good chunk of that freed up capital into organic growth. How do you see your own competitive situation, in particular, in capital markets, affected by that? And regarding the number question, you had another very positive contribution from valuation and timing differences in C&O. And you do mention that there might — that to some degree, represents a reversal of previous negative numbers. But if I look back all the way to 2018, you have generated cumulative benefits of EUR 2.5 billion during that period. Should we assume that, that EUR 2.5 billion also reverses over time? And if so, how should we think about the timing and magnitude of that and the drivers?

Christian Sewing: Thank you, Stefan. Let me take the first question. Look, of course, we are observing closely sort of the question of level playing field globally. And to be honest, we also address it with the relevant authorities in Europe. And I have to tell you that I’m actually positively surprised about the level of discussions we have. That is different to last year and the years before. There is an openness to discuss that. I’m not saying that we will get exactly there where potentially the U.S. is going to. I don’t know that. But first of all, it’s a good signal that there is an openness to discuss. I also do believe the working group which has been imposed and set up within the ECB is the right step to look into it.

And therefore, also there, you can see that competitiveness is playing a role. Number two, I think we have shown over the last years now that despite the strength of the U.S. banks, no doubt, we have built out market share. We have built out market share there where we can be competitive, where we have a good offering. And more importantly, with where the world is going and with the geopolitical uncertainty, we can see the trend that actually a lot of clients around the world, not only in Europe but also in Asia, in the Middle East and also in the U.S., would like to have a European alternative. And that’s what we are seeing in the market share of our offerings, whether it is in the financing business, whether it’s in the trading business, whether it’s in those areas of the Corporate Bank where we really want to play.

We can see that it’s very important in this world for clients that they are having at least the alternative. And when it comes to global corporate banking, when it comes to global investment banking, to be honest, there are not so many European alternatives left. And therefore, I can see that what you are referring to. But, a, we have good and fair discussions with the European authorities and I see some movement; and secondly, I do believe that the clients actually always want to have an alternative. And we want to be that alternative. That is exactly our strategy.

James von Moltke: Stefan, on the Corporate & Other valuation and timing differences. So there’s a number of things that feed that line, but in principle, what you’re seeing is a pull to par of the losses in derivatives on the hedging of the balance sheet that took place really in ’22 and ’23 as you saw the interest rate cycle play out. And those derivative losses pull to par based on the duration, the maturity of the underlying risk assets they were hedging. Some of them are shorter in nature, some of them longer in nature. And so you’re seeing a combination of pull to par of relatively shorter-dated derivative losses overlaying on top of a longer-term pull to par on the longer-term hedging that was produced by the interest rate cycle.

So the short version of that is there is still a lot of pull to par to come over time. But the near-term, if you like, excess benefit is closer to washing out. That said, that’s not the only thing that runs through. There a number of other things that go up and down, but one of which is a little bit more structural that has to do with the interest rate differential between euros and dollars. So some of it, if you look at it on a cumulative basis, goes beyond, if you like, the swings of the derivative portfolio or the risk hedging that we do. And hence, it is — I don’t want to say structurally positive, it’s a little bit structurally positive but can swing around neutral in any given quarter.

Operator: Next question comes from Chris Hallam from Goldman Sachs.

Chris Hallam: Just two quick ones for me. On O&A, so announced M&A volumes are up around 30% on a global basis. It’s up nearly 20% in Europe. But Germany is nearly plus 60%. So if we couple that with the fiscal backdrop, we’re sort of into unchartered territory. So I just wondered how we should think about O&A momentum heading into H2 and into next year, particularly in the context of the comments you made earlier on the strength of your franchise in Germany, in particular. And then second, on CLPs. You referenced earlier some further pressure on U.S. commercial real estate, especially on the West Coast. Just looking at the CLP number on Slide 31, it picked up quite a bit Q-on-Q. So how should we think about that for the balance of the year? I know you mentioned being at an advanced stage of the down cycle, but I guess just sort of how advanced?

James von Moltke: Yes, Chris, your point about M&A in Germany is a great example of an answer to Tarik’s question, the potential — why the multiplier is potentially much, much higher than what you’d expect in terms of, call it, revenue generation from economic growth and the fiscal expansion. Now I think the environment is certainly good, but the timing of when transactions happen, at what pace, what size is still outstanding. I will say that the client dialogue is very strong. We’ve talked a little bit externally about the defense industry but what goes well beyond that in terms of potential activity and then the support of investors, domestic and foreign, for potential sort of strategies. So short version is we do think there’s a real opportunity.

And it’s a market that is our home market and one that we are clear #1 in, and hence, we stand to benefit disproportionately from that. On the CLPs and commercial real estate and what we show you in the appendix is the U.S. CRE portfolio. One thing to just note, and which is why we broke out the Stages 1 and 2 numbers this quarter for you, is the model adjustment that we talked about in our prepared remarks played out in the Stage 2 provision in this quarter. So the fact that the quarter was as high, really, a significant amount was reflected by the LGD setting that became more conservative in Stage 2 and impacted the CRE. It sits on top of the Stage 3 number, which is higher than we anticipated and, as we say, is concentrated in the West Coast.

And it has to do with, again, valuation on already defaulted position. So the valuations from here will depend on leasing activity and comparables in the marketplace and also sponsor behavior. But I want to focus you on the Stage 1 and 2, which was an outsized factor in this quarter in CRE given the LGD model setting have changed.

Operator: Next question comes from Máté Nemes from UBS.

Máté Nemes: Two questions, please. The first one is on the change in revenue outlook for full year ’25. So it seems like you’ve downgraded just a bit your revenue outlook in the Corporate Bank and upgraded fixed income in the IP. Could you give us a bit more color on what drove that downgrades for the Corporate Bank? And what sort of revenue mix shift, if any, should we expect from next year onwards in the business given the opportunities you are seeing on the back of the fiscal stimulus? That’s the first question. And the second question would be on the Corporate Bank and again linked to the fiscal stimulus. Can you talk about the capital consumption implications of the fiscal stimulus driven opportunity, specifically for the Corporate Bank?

If I listen to you, Christian, clearly there’s an opportunity to leverage up the infrastructure fund and bank debt kind of play a role in that. But obviously, you have quite a few ways to provide capital, be it outright bank lending, be it securitizations. I would be interested to hear your thoughts how you intend to tackle that from a capital consumption perspective.

James von Moltke: Thanks, Máté. Yes, interesting questions. And I would assume the entirety of the question was focused on the Corporate Bank, but correct me if otherwise. So the downgrade reflected, I mean, FX to begin with but then also really net interest income, I’ll call it, deterioration relative to our earlier expectations. We are seeing a little bit more deposit margin pressure and a little bit less loan growth than we had expected for the year. And so all in all, that’s produced some pressure on CB in the net interest income line. What’s encouraging on the other hand is that fee and commission income has been quite strong. So you saw it grew 6% year-on-year. And as we’ve talked about, we’re investing to continue that trend and investing behind fee and commission-income generating revenue streams in the Corporate Bank.

How will it shift going forward? We’re actually encouraged about what the trends look like on the, call it, the balance sheet side of the Corporate Bank and what that therefore means in terms of tailwinds going into the end of the year and into ’26. Deposit volumes have been okay and there’s been growth there — actually growth on a top line basis that’s offsetting some other trends within the book that — including some runoff of concentrated deposit positions. So the picture is actually a little better than it looks like on the surface. And then the question is, will loan growth come back? And that begins to feed into your question on fiscal and how that will change the composition of the business. We did have loan growth, again, FX obscures a little bit by about EUR 3 billion in the quarter, which to us is a good start.

We’ve been waiting to see the proverbial green shoots there. But there’s no question, as Christian said earlier, but that the fiscal stimulus is going to generate loan growth going forward. And hence, I think that NII momentum is likely to pick up towards the end of the year and into ’26. That then feeds to your follow-on question which is capital consumption. Clearly, that will go up to some degree in the business. We think the strong ratio that we have, we’re well equipped to support clients in that growth scenario. But as you also say, given the focus we have on the efficiency of the balance sheet and SVA performance of the business, we do think that the way the market has changed, especially around private credit and the securitization opportunities, also potential changes to the securitization rules in Europe, that the scope of our ability to accelerate the velocity of the balance sheet there is going to be significant.

So short version is, we don’t see ourselves as being in any way capital constrained in the ability to support that growth. And it can therefore, as you refer to it as business mix, it can therefore I think change the shape of the business in not so much NII fee and commission, although there will be some of that, but velocity of the balance sheet supporting revenue growth.

Operator: Then the next question comes from Jeremy Sigee from BNP Paribas Exane.

Jeremy Sigee: Just really one follow-up for me. You’re starting to talk about the next business plan, which I was finding quite interesting, some of the comments you’re making there. I know we’ve got to wait for the details, but could you just tell us about the sort of guiding priorities as you do the work for that plan and what success will look like for you?

Christian Sewing: Yes, of course. And as you rightly say, I can’t give you details, we’re in the middle of that. But look, potentially 2 or 3 guiding principles: a, we believe that our general strategy of running this bank with 4 distinct business is exactly the right one. We also feel that the balance of the business is broadly in line with that what we have. We do expect actually, if I go — if I think about the next 3 years, if I think about what is happening in Europe and in Germany, I do believe that from where we are right now, that we will see some solid growth in the Corporate Bank and in the Private Bank. This is why we are actually now doing also the investments, like we started the investments on the defense side and on the team side while we are thinking about reallocating part of the capital.

So the 4 businesses, we clearly want to focus on. If I think from a regional point of view, I think we have in particular growth opportunities in the corporate bank and in the private bank here in the home market, but also in the wider European part. Second point, when you look out, I think it is super important also when we talk to our clients that actually there is a remaining bank which is a global bank out of Europe. Again what I said before that the clients are looking more and more for the European alternative when it comes to global banking. And therefore, I think the strategy going forward will clearly also mean that we are focusing on our growth areas, be it in Asia, the Middle East but also in the U.S., that we can provide our clients with the right access there.

And thirdly, I think now it’s all about growth and optimization. And James just said it that, a, we are not capital constrained; b, to be very honest, if we look at the capital allocation and the return on the deployed capital so far, there is lots for improvement. And therefore, the next 3 years will all about, after we restructure the bank and transform the bank, is now optimizing that deployed capital. And we are also in the position to have those discussions which we need to have if there is a client where, for 3 or 4 years, actually we haven’t seen the returns, then we need to reprice. We can do it now and we will do that. And therefore, SVA and then obviously the next level of fine-tuning our target operating model with taking further costs out will be, so to say, the third dimension of the strategy going forward.

So I would describe it here. You will get a lots more than later in the year. But as you can hopefully hear from it, quite a lot of optimism when I think from which level we start now.

Operator: And the next question comes from Matthew Clark from Mediobanca.

Jonathan Matthew Balfour Clark: Two questions for me. One again on the corporate center. I mean you guided revenues roughly 0 at the start of the year, and you’ve obviously come in better than that in the first half. I’m just wondering whether based on the foreseeable elements of the corporate center, you still see an outlook as being 0 for the coming quarters? Or is there any reason to think above or positive or negative for the quarters ahead to the extent that you can foresee these factors? Second question is on risk-weighted asset growth. What is your kind of midterm ballpark expectation for risk-weighted asset growth for the group given you have new investment opportunities clearly coming and then some lingering regulatory headwinds presumably as well? So those two questions, please.

James von Moltke: Sure, Matthew. Thank you for them. I would put 0 in the third and fourth quarters for the corporate center. Again, we see some pluses and minuses. To Stefan’s question, some of the dollar-euro rate differential is still there, but there’s also some things in terms of treasury and funding that we think offset it. So 0 is a good assumption. It means for our outlook that we would be retaining the upside that we achieved in the first half. And so that’s overall positive. RWA, it’s hard to say. Remember to begin with, FX, again not to overdo the FX, but at [ 3 40 ] and change, that’s relatively low for us and it will vary. We hedge the CET1 to FX for RWA. But we — and this goes a little bit to the growth scenario.

We do assume some growth in the business and client support. And so EUR 10 billion, let’s say, to the end of the year would probably be a good assumption. And as we talked about before, we do expect growth in the years to come and in terms of a growing business and growing strong intermediation for clients.

Jonathan Matthew Balfour Clark: And just on that, is it reasonable to impute that, that should be above that annualized EUR 20 billion that you’re talking about for the remainder of the year and the future years as you see wider economic growth pick up, et cetera?

James von Moltke: Yes. It goes — I mean, look, the first half has been unusually slow because we did have the impact of EUR 5 billion of securitization. So that was probably seasonally unusual. And so you’d have sort of more underlying growth kind of built into the second half. I’m not sure I’d annualize that as it is. Yes, going forward, again it’s going to be a push and pull. The nice thing is it’s a normalized push and pull. It is, by and large, organic growth in the business and capital generation offsetting one another with — and excess capital being deployed into shareholder distributions and potentially inorganic. And that’s a normal healthy place for us to be. I would just remind on 2 things that are, I’ll call it, seasonal.

In the next 2 years, we have the impact of the kind of the lapsation of the OCI filter, which affects us 1st of January of ’26. And then FRTB, at least under current expectations, go live on the 1st of January ’27. So there are still some changes to plan for. And then each first quarter, we will recognize the standardized approach op-risk RWA that pertains to the revenue of the prior year. So those are the, I’ll call it, exogenous impact on the capital ratio in the years that lie ahead, and the rest is normal business development and distributions.

Operator: And the next question comes from Andrew Coombs from Citi.

Andrew Philip Coombs: Two follow-ups, if I may, please. One on capital return, and one, coming back to the Corporate Bank. So on capital return, I just wanted to understand the interaction between 50% payout ratio and then this new commentary around distributing capital when sustainably exceeding a 14% core Tier 1 ratio. And which of the 2 do you see is the floor, as it were? So in the event that a 50% payout ratio took you to a 13.8% core Tier 1 ratio, would you be happy with that? Or would you have to trim back the buyback on that basis? So if you could just clarify. And then my second question on the Corporate Bank. What I’m struggling with is the positive rhetoric versus what we’ve actually seen on 2025. So as you alluded to, there’s been this step change in the German government mindset.

You’ve got all of the fiscal stimulus coming onboard. It’s going to increase loan demand in the second half in 2026. At the same time, your full year ’25 guidance for the Corporate Bank has been slightly lower. If we look at the loan growth, it’s slightly distorted by FX but there is no loan growth at the moment. So I guess how quickly can that change is my question. And when you look at, say, Commerzbank targeting an 8% CAGR in their corporate bank loan growth over the next 4 years. Could you do something similar? Or is the business mix just very different and that’s not a feasible target?

James von Moltke: Thanks, Andrew. Look, on the payout ratio, I think you need to have confidence that we’re able to steer the ratio at least between that 13.5% and 14% sort of in the ordinary course. You have to remember, and this is part of the thinking behind setting the range, that at the 50% payout ratio policy, we disregard earnings above that amount in the ratio. So we finish the year — let’s say, hypothetically, I think Flora asked the question at the very beginning of the call, if we finish the year at 14%, then the entirety of that 50% is already — that we pay out in the subsequent year is already disregarded in the ratio. And then we would start a new year earning and accruing, if you like, the next annual 50% payout.

And at that point, generation of capital above the 14%, given all other movements, would be capital that at some point could be invested or distributed, and that goes a little bit to the sustainability. So we have to be able to evidence that, that will be sustainably above. So I guess the point is to just remind you that the interim profit recognition essentially says that the ending point ratio already includes all of that 50%. There’s a little bit of pressure, as I mentioned just a moment ago, in Q1. But then as you build through the balance of the year, you would expect to be building excess capital. On the Corporate Bank and the lag, Christian may want to add, but look, there is a lag. It’s a business that, again, the balance sheet component is based on the stock of business on the asset and deposit side.

And the business overall, including the fee and commission income piece, relies on essentially putting on new contracts, new relationships, winning RFPs. And so there’s a little bit of a dynamic of how much work is pursued to replace the base book, if you like, of business and how much of the new business growth at a point in time contributes to revenue growth. And so I think at the moment, we’re running a little bit in place, outrunning some of the pressures that I alluded to. But as I say, as we get towards the end of the year, I think we’ll start to win that race and see that revenue growth start to come back with the lag that I mentioned and the impact of the fiscal now tangibly flowing through into business volumes.

Christian Sewing: Yes. There’s not a lot to add from my side. I mean, James already alluded to it that we actually saw a little bit of loan growth in the second quarter, and it’s start of that, what we see as a recovering economy which is also confident enough to start investing again, number one. I think sometimes we are underestimating the time to invest. Last year, we were talking about, for instance, the transaction and the long relationship transaction we won with Lufthansa on Miles & More. That had a preparation time of 2 years. We are coming to an end of this preparation that will have then the impact actually in particular from 2026 on. Of those kind of transactions and new relationships, it’s not only that one, we are working on various on that, and that all is coming back.

And then last but not least, I really do think that if I see how many investments have been hold back in the German economy, in particular in the mid-cap family-owned corporates, that is actually being reversed. And that means absolutely upside for us. And therefore, I think it’s actually well explainable what we are seeing now and what we potentially see in Q3 but clearly with the upside in ’26 and ’27. And therefore, we’re actually very bullish and will invest into this business. We have a long-term view here.

Operator: [Operator Instructions] The next question comes from Tom Hallett at KBW.

Thomas Hallett: Firstly, look, well done on the capital performance. So in that light, kind of given the excess that is emerging, I’m just wondering how you balance the potential investment opportunities arising from the fiscal stimulus with buybacks and potential acquisitions. What are the hurdle rates or conditions needed to prefer one over the other? And then secondly, sorry to go back to revenues again. But on fees, if I recall at the start of the year, you had expected an increase of EUR 800 million across the Corporate and Private Banks in the Asset Management division. And with the half year gone, this is running at under half of that on an annualized basis, and that’s despite record markets. So I suppose my concern is when I look at the original group revenue building blocks for the year versus today, your revenue target is becoming increasingly dependent on trading, which is obviously not ideal but it also leaves you kind of up against it if you look out to 2026 and beyond.

And finally, sorry if I missed it, but is there a date set for the potential strategy update for later this year?

James von Moltke: Tom, thank you. I’ll take a stab at both and Christian may want to add. Look, the threshold, it’s a good question. It was one of the reasons I think the shareholder value-add discipline that we’ve installed around the bank is so important. Because anything that — any business that we do, any investment programs that we initiate need to clear a hurdle, and that hurdle needs to be at least our cost of capital, if not the impact of the alternative, which is to distribute. And so in that sense, I think you should take comfort that the competition, if you like, for deployment of capital inside the company and between organic or inorganic decisions and the distribution is lively. And we clearly want to deliver on the distribution promises that we’ve made and growth thereafter.

So if I look to ’26, obviously, we’re, I think at this point, very clearly going to be in a position to fund at least our dividend and then a healthy buyback. And if you look at the progression that we’ve had over the past several years, we’d certainly target to be able to continue that progression. That would be something we need to earn, in a sense, by generating excess capital, but there will clearly be a bias to delivering on that when we think about how to deploy capital in the company. On the fees, you make a fair point. I would have hoped to be higher than where we are right now in fee and commission income. In fairness, the shortfall is not in the Corporate Bank. So that was at 6% year-on-year. The biggest part of the shortfall is O&A which, of course, is a fee/commission-income generating business.

And as Christian said at the outset, we do see a recovery in the second half of the year that should begin to make up some of that gap and actually a little bit in the Private Bank as well as Wealth Management activity, kind of capital markets activity by — from high net worth individuals has been a little bit stalled by the environment as well. So over time, I think we’ll close the gap. I’m confident we’ll close the gap to $3 billion a quarter in fee and commission income likely next year. I would have wanted to be closer this year, but let’s see where we finish the year in the third and fourth quarters against that type of ambition. I hope that helps, Tom.

Christian Sewing: Tom, yes, I just wanted to add in particular on your distribution question and balance, I think it’s a really good question. And this is exactly what we are now planning for in order to give you more guidance later this year. But I simply wanted to also tell you, obviously, we want to build this bank for the long term, and therefore, the balance must be right. But let me also say we know that we ask for a lot of patients from our investors over the last years. And I think we have shown that step-by-step, we are paying back and this is not ending. We know that there is more to come and that the investors are obviously, very close to our heart.

Thomas Hallett: Okay. Just a quick follow-up with James just on the fee development. I thought the EUR 800 million was specifically just for the Corporate, Asset Management and the Private Bank with another EUR 500 million to EUR 600 million in the O&A. In the Corporate Bank, what I’m getting year-on-year is you’re only up EUR 77 million on a half-on-half basis, which is versus I thought was EUR 400 million. So it feels like some could be to do with FX, but it feels like there is an underperformance there. I’m just thinking, is there anything that you’ve seen that might have been different from now versus what you’ve thought 6 months ago in there?

James von Moltke: Yes. Probably some phasing. And really the first half, the first quarter was in fact weaker than we’d expected. So the second quarter was okay in terms of — relative to our expectations in fee income in the Corporate Bank, and we’re carrying forward a little bit of underperformance relative to our own planning from the first quarter. And we’d be targeting obviously growth in the back half of the year, year-on-year in fee and commissions in the Corporate Bank that should help close the gap you’re pointing out.

Operator: Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Ioana Patriniche for any closing remarks.

Ioana Patriniche: Thank you for joining us and for your questions. For any follow-ups, please come through to the Investor Relations team, and we look forward to speaking to you on our third quarter call.

Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining, and thank you for choosing Chorus Call. You may now disconnect your lines. Goodbye.