Good morning, ladies and gentlemen, and welcome to the Commerzbank AG Conference Call. Please note that this call is being transmitted as well as recorded by audio webcast and will subsequently be made available for replay on the Internet. At this and all participants have been placed on a listen only mode. And the floor will be open for questions following Manfred Knuth's and Bettina Orlop's presentation. Let me now turn the floor over to our CEO, Manfred Knuth.
Good morning, and welcome to our earnings call for the Q2 of this year. I will provide you with the overview of the strategic and financial development before Bettina will guide you through the details of the financial performance. Overall, we have made good progress in the strategic transformation of the bank and reached a solid operating result for €570,000,000 in the first half of the year. Q2 stand alone came in with an operating result of €32,000,000 It benefits from the benign risk result and from our robust client facing business, but has been burdened by significant one off items. I would like to stress that these one off burdens and also the booking of further EUR 511,000,000 restructuring charges have not impacted our sustained strong CET1 ratio of 13.4%.
Thus, we can confirm our financial outlook for 2021, including a slightly more positive view on our risk results and capital. Also our cost guidance of €6,500,000,000 for 2021 is operationally still valid. On top, however, we have to account for €200,000,000 extraordinary write off on which we have released ad hoc statement 2 weeks ago. On the strategic transformation of the bank, we have made a good progress in line with our plan and effectively tackled upcoming issues. Let me be crisp and clear.
The execution of our strategy is on track, and I make sure that any roadblocks are removed ASAP, be it the federal court ruling on pricing changes or the malfunctioning of a large project. This leads me to the next slide and recent key topics on our management agenda. Firstly, we have reached further key milestones in the transformation. With the appointment of 300 Level 2 managers, We have reduced the number of positions by 27% and completed the selection of the senior management team. This team is going to be the backbone for the transformation of Commerzbank, and I'm looking forward to working together with this group.
Furthermore, we have already concluded almost 50% of the detailed negotiations with the Works Council. And the recently started offering of overall 1700 voluntary redundancies shows good response from employees. Secondly, we have to handle the federal court ruling on fee changes, which basically declared recent pricing actions as invalid. We immediately set up a task force to tackle the issue. On the one hand, We had to identify the amount of reimbursements to customers and booked a provision of €66,000,000 On the other hand, we had to define a process going forward that ensures the continued rollout of our planned pricing measures.
This includes the solicitation of active consent with the current pricing for products such as current accounts or securities accounts. We expect some temporary revenue losses in the next month, but we are confident to compensate this shortfall and keep our revenue guidance. Thirdly, We stopped the outsourcing projects for security settlement. The implementation risk would have been too high and the benefits too small in a market environment with strongly increasing transaction volumes, providing internal economies of scale. This decision stands for the clear focus on the transformation of our bank.
Such a large project that does bottom line not contribute to the strategic plan must not eat up scarce resources. I'll put it this way. We take necessary decisions even if they are painful. There is no way of muddling through. Our transformation towards our targets in 2024 requires strict focus and clear decisions.
Now Let's move on with a view on all four cornerstones of our strategy. Regarding digitalization, I would like to highlight that the team is really fast in delivering new functionalities. We have added 10 new major client features in the quarter. Especially the enhancement of our mobile app stands out, which now allows for the mobile purchase of security savings plans, including ETFs. This will further support the strong growth in this product category.
On sustainability, We have accelerated our efforts to seize the opportunities from the increasing client demand for sustainable products. After roughly €100,000,000,000 at the end of last year, volumes stand at €141,000,000,000 as of Q2. Based on that, we feel very comfortable to reach our target of €300,000,000,000 by 2025. On the slide, you can also see the drill down of our target with corporate clients accounting for €200,000,000 and private and small business customers accounting for €100,000,000,000 in sustainable business volume. Overall, it is of utmost importance that we support our corporate clients in their transformation process.
We believe it is better to finance the path towards a greener economy rather than withdrawing from certain clients right from the beginning. In Private Client, let me point out that since March this year, more than €30,000,000,000 of securities volumes qualify as Finally, I would like to provide you with an update on the development of our operational transformation KPIs. In Corporate Clients, our efforts to increase RWA efficiencies show further results. In the Q2, we have reduced client business in the low yielding bucket from 33% to 31%. Here, our strict management approach using list of single client names pays off.
We have reduced the portfolio in the low yielding bucket by 2,200,000,000 RWAs or 65 client groups respectively. In PSBC, we accelerate the closure of branches by additional 40 branches this year. Hence, we will have 550 branches and 3 remote advisory centers when we start into 2022 and close a further 100 branches in the course of next year. Furthermore, Our business volumes are growing ahead of plan and the anticipated customer churn from branch closures and pricing initiatives is less pronounced than expected. But of course, it is still early days in the transformation of the business model and it remains to be seen how the churn evolves.
In the redundancy program, we have also made further progress From the planned gross reduction of overall to 10,000 FT feet feet
feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet
feet feet feet feet feet Es, 3,400 are already off payroll or have signed the contract to leave. On the other hand, we are hiring 2,500 FTEs and near shoring Thanks for a large share of this number. Our location in Sofia is now fully operational and is step by step taking over tasks for much more expensive external consultants in Germany. All in all, our transformation is well on track, and we are completely focused on the further execution of the strategy. Stumbling blocks will be tackled and removed to make sure that we head towards our targets.
Let me now hand over to Bettina, who will provide you with a more granular look into the financials of the 2nd quarter.
Thank you, Manfred, and also good morning from my side. I will walk you through the financials before we move into Q and A. Let's start with the overview on Slide 8. As Manfred already stated, we had a good performance in our customer businesses in line with our expectations. The underlying net interest income is unchanged to the Q1.
Commission income continues to good trend with plus 7% compared to Q2 2020. This is testament to the viability of our business model. The risk result came in at the low €87,000,000 This reflects the high asset quality of our portfolio. And I want to stress that we did not benefit from the release of our COVID related top level adjustment. It remains unchanged at €495,000,000 Costs have been managed in line with our targets with the exception of the extraordinary write off.
This write off has been one of several one off items in the quarter that have reduced the operating results to EUR 32,000,000. I will cover these in more detail later on. We also booked the vast majority of remaining restructuring charges in the quarter. Hence, the net result amounts to negative EUR 527,000,000 And we maintained our strong capital ratio, which stood unchanged at 13.4% at the end of the quarter. Following the issuance of an AT1 instrument in June, The buffer to MDA increased further to nearly 400 basis points.
Now let's briefly look at Slide 9 and the year to date view. Revenues are above previous year's level with benefits from the TLTRO offset by other one offs and despite the ongoing drag from the rates environment. The operating result improved to EUR 570,000,000 due to better revenues and a significantly lower risk result. The net result reflects the €976,000,000 restructuring charges We have booked for the implementation of our strategy 2024. As the quarterly results have been strongly affected by one off bookings, We have broken down the effects on Slide 10.
As mentioned, the quarter was overall negatively impacted by one off events. In aggregate, they reduced the underlying operating result from €208,000,000 to €32,000,000 The one offs can be separated in 2 buckets. The first is the usual exceptional revenue items that add up to minus €22,000,000 TLTRO benefits of EUR 42,000,000 were more than offset by the EUR 66,000,000 provision for the German Federal Court of Justice ruling on fee changes, where we will have to reimburse some fees to our customers. The second bucket contains 3 significant one offs in the underlying result, adding up to minus €154,000,000 On the positive side, Commerzbankers contributed €101,000,000 And on the negative side, Mbank increased reserves for Swiss franc loans by €55,000,000 And as mentioned, We have also booked a one time write off of €200,000,000 for the stock of the securities settlement outsourcing project. And in addition, we have booked a double digit €1,000,000 provision associated with the write off but have not separated this out.
Let's jump over Page 11 with the exceptional revenue items and quickly look at Slide 12 on Commerzbentures. Commerzbentures continued to contribute to revenues. The IPO of the portfolio investment company, Marketa, has led to the revaluation of our holding. We have not taken the full valuation in the Q2 results, but have applied a prudent discount to reflect the fact that we currently cannot sell our stake. And also, the increased valuation of bought by many following a funding round has contributed.
While obviously uncertain and setbacks always a possibility, We expect further upside in the second half of the year. And given our good experience and track record, We plan to continue investing in start ups and will most likely increase the funds made available to Commerzbentures by setting up a third fund. We will report on the progress in the next quarters. Slide 13 gives an overview of the restructuring charges. We booked EUR 511,000,000 in Q2, slightly lower than originally anticipated as we have not yet fulfilled all formal requirements to book the restructuring charges in some foreign locations.
The majority of the remaining around EUR 170,000,000 will be booked in the second half of the year. Slide 14 shows the overall group P and L with revenues by line item, excluding exceptional revenues. The impact of one off items is especially visible in other income and the operating expenses. I will cover NCI and NII in more detail on the next two slides, starting with net commission income. TSBC Germany and also Mbank have strongly increased commission income by overall 14% year on year.
This has been driven by the strong securities business in Germany. While trading volumes have not been as high as in the exceptional first quarter, Securities and custody have significantly increased. Commission income in Corporate Clients is slightly lower due to a slower bond and syndication business and also the payment business is still affected by the pandemic. This leads us to NII on Slide 16, where we show the underlying interest income excluding TLTRO benefits. As expected, underlying NII has been on the same level as the previous quarter.
And PSBC NII growth in Mbank and loan growth in Germany have offset the drag from deposits. German loan margins have been broadly stable for both private and corporate customers. Lower volumes in corporate customers in line with our strategy have led to a slight decline in NII. For the rest of the year, we continue to expect the underlying NII, excluding the TLTRO benefit, to remain roughly at the current level. Let's carry on with costs on Slide 17.
We managed our operating expenses in line with our full year target. While we continued to invest in our digital transformation, Spending around €270,000,000 of the planned €600,000,000 in 2021 in the first half, we reduced administrative expenses. We kept the burden from compulsory contributions on the level of last year by using payment commitments to compensate for higher contributions due to deposit growth and the Greenville Bank insolvency. While the operational cost management delivered as planned, We had to book the unforeseen one time write off of €200,000,000 due to the project termination. To be absolutely clear, This is a burden on the 2021 cost base, but it will not impact our strategic cost measures and midterm targets.
Let's move to Slide 18 and the risk result. With €87,000,000 the risk result is the lowest since the start of the pandemic and reflects the resilience of our loan book with largely stable ratings and a low number of defaults in the quarter. This is also clearly visible in the cost of risk on loans, which stands at a low 18 basis points in the first half. Why the first half was clearly very encouraging. The trajectory of the pandemic was still unknown effects of the virus variance and the possibility of a 4th wave later in the year cannot be predicted with certainty.
An increase in pandemic driven defaults can't be ruled out for the second half of the year or possibly next year after government support measures have ended. Therefore, the €495,000,000 top level adjustment remains unchanged. We will continue to review the top level adjustment quarter by quarter. Now let's Carry on with the operating segments, and let me start with Private and Small Business customers on the next two slides. We have continued to see a strong increase in securities volumes by €11,000,000,000 in the quarter.
Of these, €3,000,000,000 were net new money invested in securities. So the trend that Germans invest more in securities continues and should continue in an overall friendly market environment. Mortgage volumes also continued to increase in the quarter at a steady pace and as planned. In contrast, the consumer finance business has been flat. Given the still high savings rate due to the pandemic, We do not expect a significant change in customer behavior in the near term.
In the deposit business, we have made good progress in the quarter. We managed to reduce the overall volume of deposits and increase the volume of deposits subject to pricing to EUR 13,000,000,000 So far, we have signed agreements for deposits above €100,000 From August on, deposits about EUR 50,000 from new clients will be priced. We will also apply this threshold to new agreements with existing customers. Deposit pricing has helped to somewhat reduce the ongoing drag from deposits, but it's not enough to fully compensate for the effects from the interest rate environment on deposit related income. Overall, we expect from deposit agreements to be around €50,000,000 in 2021.
As Manfred mentioned, We are currently obtaining active consent from our private customers to our fee structure as required by the German Federal Court of Justice ruling on changes in fees for banking services. As this process takes time, we will not see the originally planned respective fee income this here. However, given the good overall development of customer business, we expect to reach our revenue targets for the financial year. This brings me to the performance of PSBC on Page 20. PSBC reached an operating result of €138,000,000 €1,000,000 up nearly 30% year on year despite significant one off bookings based on stable customer revenues and a low risk result.
Looking at underlying revenues year on year, these were up by 3% in Germany, driven by the strong performance of the German securities business. This, together with loan growth, compensated for the drag from deposits. We also had some revenue attrition from customer churn as expected with the implementation of our strategy. So far, this churn has been lower than anticipated, both in terms of number of customers and revenues lost. The departing customers had on average not contributed much to revenues, meaning we have lost the right customers so far.
Mbank has also performed well in a challenging interest rate environment with underlying revenues on the same level as last year, excluding the addition of legal reserves for Swiss franc mortgages. The addition of EUR 55,000,000 to Mbank legal reserves as mainly driven by higher than expected new court cases and changes in loss levels in case of M Bank losing cases. The sitting of the Polish Supreme Court on Swiss mortgages that has been scheduled for early September will be important. We hope this will bring more clarity and allow M Bank and the whole Polish banking system to establish a workable solution. Now let's move to Corporate Clients on the next two slides.
In Corporate Clients, we have continued our active This has led to an increase of the average RWA efficiency to 5%. In the next quarters, we do not expect further improvement in RWA efficiency as there are some adjustments to the regulatory models, including from TRIM. By lower volumes in line with strategy reduced credit risk RWA, this was offset by higher RWA resulting from model adjustments. As the first changes only came became effective at the end of the quarter, they did not yet have a notable impact on the average RWA efficiency. In the deposit business, we have seen a strong increase in volumes from our customers.
The increased volume has been fully priced, thereby ensuring no negative impact on profitability. We currently charge our corporate customer 50 basis points, while we partially charge higher rates to institutional clients. We are planning to also introduce higher rates for large corporate deposits beyond our officials to ensure that these deposits are not a drag on P and L. Overall, we expect to see the contribution Pricing to increase from around EUR 150,000,000 in 2020 to around EUR 200,000,000 this year, offsetting our cost to hold these deposits. Underlying revenues are around 4% lower year on year.
This is mainly due to lower revenues from international corporates in line with the strategy, by Mittelstand could increase revenues by 3% with revenue contributions across all product areas. With a significantly improved risk result and lower costs, corporate clients reached an operating result of EUR 244,000,000 Let's move to Slide 23 and the development of others and consolidation. The operating loss €349,000,000 in others and consolidation is driven by exceptional items. These are reflected in the fair value and other income line as well as the operating expenses where the write off from the stop of the outsourcing project is booked. While we had positive contributions from Commerzbentures to the fair value result, these were offset by valuation effects, largely driven by moves in basis spreads, reversing some of the corresponding gains from the Q1.
Other income includes the usual items like effect from hedge accounting, but also increased provisions. These Provisions include related to the stop of the outsourcing project and potential tax claims for prior years. Based on the H1 results of minus €158,000,000 and assuming that we can receive TLTRO benefits as well as some contributions from Commerce Ventures in the second half and operating result of others and consolidation of around 0 for the full year could be achievable. But of course, the result could also be affected by changes in valuations over the course of the second half. Let's move to Slide 24 and the risk weighted assets.
Quarter on quarter RWAs were overall slightly reduced. This is driven by reduced volumes with corporate clients. The reduction has been partially offset by increases at Ambank and regulatory effects. Operational risk RWA increased due to changes in the loss database. In the next quarter, we expect a further increase.
As mentioned before, we also anticipate a regulatory driven increase in credit risk RWA from TRIM and adjustment of models. Regulatory capital decreased slightly mainly due to the net loss. Overall, The CET1 ratio remained at 13.4% and provides us with a comfortable buffer of 400 basis points to NDA. Now let me wrap up the financials of the quarter. Q2 was burdened by 1 offs and this is clearly visible in the results.
At the same time, the underlying business and strategy implementation have developed well, and this is reflected in our outlook on Slide 25. Based on the premise that there will be no extraordinary burden from Swiss franc mortgages in the course of the year, These are our updated objectives and expectations for 2021. Given the strong first half results, revenues should slightly exceed for 2020 figure. With further progress of the transformation, we maintain our target of an operational cost base of around EUR 6,500,000,000 In addition, we have the EUR 200,000,000 onetime write off booked this quarter. While uncertainty of further development of the pandemic remains based on current observations and assuming an unchanged top level adjustment, We improved our guidance and expect a risk result below EUR 1,000,000,000.
This assumes that the current wave of the pandemic will not have a further adverse Given the aforementioned, we expect a positive operating result. Based on the first half results and considering the expected regulatory driven RWA increases, CET1 ratio around 13% is likely. Thank you very much for your attention. Manfred and I are now very happy to take your questions.
Ladies and gentlemen, we will now begin with the question and answer And the first question for today comes from Benjamin Goy, who's calling from Deutsche Bank. Over to you.
Yes. Hi, good morning. Two questions, please. 1 on Mbank and 1 on fee. Starting with Mbank, I think it's core for your 2024 guidance and in particular on the revenue growth.
So I was Wondering whether when we get more details on how the €600,000,000 is split and also whether you could comment on these press reports in June that It might not be core going forward anymore. And then secondly, on fees, you mentioned temporary impact from the active Content, maybe you can quantify it and how the and staying with fees, retail brokerage, it's up 12% in the first half year. Maybe you can give us an indication how this looked Q2 versus Q1 in terms of growth rate. Thank you.
So thank you, Benjamin. I start with Mbank. I mean, if you look on the numbers and you need to keep in mind that interest rate environment in Enmanc looked So very different in the Q2 of 2020 because the sharp decline basically happened in the Q2 in Poland. I think they have shown a very good result and they continue this trend. In the moment, they see strong growth across their customer groups, across all product groups, and that's also the basis for their assumptions until 2024.
And this is basically also based on the customer base they have, a very young one, growing one. So it's growth across the group and that at a very low cost That they will achieve targets, specifically, because there are clear signals, given inflation in Poland, that there will be interest rates and increases earlier than you would expect for the rest of Europe. That's on Mbank. On fees, I mean, we now booked the provisioning of the EUR 66,000,000 that's Definitely backward looking and also take into account the fees which we have now booked and will be We'll rebook to our clients since the ruling end of April. You will see a lower I mean, we missed This year, a lower double digit revenue or we will see a double digit revenue impact on that because we assume that we will only see the price model increases next year.
However, given the overall very good customer business development, We will stick to our revenue plans in private clients.
Thank you. And Tori, just quickly on the retail brokerage fees, just 12%, but I assume some Slow down in Q2. Can you contrast the developments here, please, as well as Q1?
Yes. I mean, we said that already after Q1 that we should nobody should expect Q1 to be repeated because it was exceptionally high. I think it's better and more fair to compare Your net commission income and private clients with the previous quarters and also Q2 2020 and there you see that we have a continued trend of increased Net commission income, we've got this whether you take Q2, Q3, Q4 of 2020. So Q1 21 was clearly an exceptional, but we see strong growth in the securities business.
Thank you.
Thank you. The next Question comes from Isabelle Dobrevor, who's calling from Morgan Stanley. Over to you.
Hello, good morning. Thank you very much for taking my questions. I have 2 of them. So my first question is on the Clifford Clients division. If I look at the net interest income in the division, it's down about 11% year on year and also the fees are down about 4% year on year.
And I wanted to ask you how much of that is due to the restructuring program. I think at the Capital Markets You quantified about €300,000,000 of revenue attrition. So of that amount, how much is in the run rate so far? If you can give us a number, that would be very helpful. And then my second question is on capital return.
Capital is now solid at 13.5000000, and you have taken the bulk of the restructuring charges. There is also the EUR 500,000,000 of top level adjustment in the back pocket. So with all of this in mind, what are your views on starting the capital return early in 2022 perhaps in share buybacks. Are you open to it? And if not, what are the obstacles in your mind?
Thank you.
So thank you, Isabelle. On corporate clients, I mean, as you're right for this, there are what you basically see are the first effects of the strategy implementation. I mean Mittelstand is up year on year by 3%. That's exactly like planned. We would even like to see more, but we all know that Mittelstand is still very cautious with respect to their investment programs, but we definitely are convinced that we will see some pickup when we are even further through the crisis.
Specifically, international corporates has been down. There are two reasons for that. One is that if you compare Q2 2020 with this year's quarter, we had a very strong bond issuance quarter last year due to the pandemic, and that has not been repeated this year. But then also it follows our strategy that we exit some locations, that we exit certain clients with an insufficient RWA efficiency and that is specifically attached to international corporates. I think it's tough to say out of the €300,000,000 how much you see already.
Unfortunately, probably not everything, given that the sale of our locations and the one down is still to come. So you will see more in specifically 2022, I would assume. On the second question, capital return, I know 13.4% is a very nice number specifically given that we now have booked nearly €2,000,000,000 of restructuring costs and still stick to 13.4% because that's exactly the number we Last year, and I know that this creates increasing questions about share buybacks, dividends, etcetera. But I think we should really make progress. 1st, on the restructuring, on the transformation, we should show Decent operating results, decent net income.
And if this is the case in 2022, I'm pretty sure we will also start a debate on dividends and capital share buyback.
Thank you. Moving on to the next question. Next up is Jeremy Zige, who's calling from Exane BNP Paribas. Over to you.
Thank you. Two questions, please. So the first one really just following on from the previous one about capital. I just wondered if you Expect any change in capital requirement after the recent stress tests and possibly heavier Pillar To your P2G requirement, following on from that and following your results in the stress test. And then second question on a different topic, operating costs.
If I look at the costs in the divisions, you're up slightly in PSBC and you're down quite nicely in CC, Corporate Clients. So I just wondered if you could put those developments on costs in the divisions in the context of your medium term plans. Are you happy with the Underlying reductions that you're achieving relative to your medium term plans, are you ahead of plan in corporate clients? That looked like quite a good number. So if you could just talk about the cost trends and divisions, that would be great.
Okay. So let me start With the first question on PTG, you will have seen that we have been classified for the 2nd bucket, which means that PTG will be in the range of 50 to 200 basis points. In the moment, we do not say where we are. Most likely that will change, but we'll see how things are developing. But I can ensure you that we Feel pretty relaxed on that, that we do not believe that we will be at the lower or upper end of this range, but I would rather Expect something which is very nicely in the middle of that.
On the second question, operating costs, The costs are developing absolutely according to plan in the mail. And why is PSBC slightly higher? Two reasons for that, we have seen tariff increases, which just have an immediate effect and the voluntary programs, etcetera, will only show off by the end of the year and we planned that. And the second thing is we integrated Comdirect. And by the integration of Comdirect, we saw first an increase in HR related costs because of the fact that Employees of Comdirect were integrated in our tariff system to say like that tariff model of Commerzbank, and that's the key reason that is also according to plan.
We have We clearly calculated that into our plans, and you will see the reductions also on the private client side in the course of the next months years. So everything really as we plan and we would expect That by the end of the year, we will most likely have already signed solutions or have People left of more than 5,000 out of the 10,000.
Thank you. And on
the corporate client side, it looks if anything better than Is that real? Is that recurring, that lower cost level in Corporate Clients?
I I mean, also corporate clients has clear targets, and they are a little bit ahead of plan. And we hope that this will continue, but we should also keep in mind that some of the cost items you would normally see in corporate clients are a little bit depressed due to the pandemic, travel costs and stuff like that. But overall, we are very satisfied with the development of the from corporate
clients. Okay. Thank you very
much. Thank you. Next up, we have Nicholas Herrmann calling from Citigroup. Please go ahead.
Yes. Good morning. Thanks for taking my questions. 3 from me, please. One on NII, reference Do you mind just providing a breakdown of that outlook by division, PSBC, Germany, Embank, Corporate Clients and ONC.
Secondly, portfolio with RWA Efficiency less than 3%. That's ahead of your target for Continue pushing that down this year.
Mr. Herman, I'm afraid we didn't quite catch most of the question there because of your connection. Could you repeat your questions, please?
Hello? Can you hear me?
Yes. It was tough to understand you, Nicolas. I think the first question I got is the outlook by division on NII. The second one, I think, was on RWA efficiency bucket, whether we believe that we will be even go come down further than the 31% we currently have and We use the share of less than 3% even further. So we just wait for your third question.
Would you be willing to disclose approximately what CET1 ratio you were expecting at the end of at the end of 2022 as part of the plan that you announced back in February. Thank you. That would be helpful.
So I mean on NII, our expectations is overall that it will be flattish in comparison to H1. If I split that now by PSBC and CC, I would say PSBC Should be slightly up because we expect stable margins, loans slightly up, and we also expect some Aside from the deposit facility fee and clearly also Mbank will contribute to that, NII on corporate clients Might be lower slightly just because of the fact that we continue our RWA efficiency program and that We'll show effects on our NII. And that also basically is a perfect fit for the second question. I mean, We continue our RWA efficiency measures, meaning that we do not stop now at the level we are currently just because we have already surpassed The target for this year, how much we come down, we'll see definitely also depends on what's up for prolongation, things Like that. And the third thing, a prediction on capital ratio end of 2022, Honestly, Nicolas, I'm happy to give you a forecast for this year.
And we as you have seen, we increased it to 13%, and I feel very comfortable on that. But I will not do any prediction on the capital ratio now for the end of next year.
And so to clarify, it was more just in terms of the the last question was more As part of the plan, obviously, the world is different now. I'm not asking for your current prediction. It was just kind of what the previous prediction was.
The previous prediction was basically, I mean, we started to say that we would be this year around 12% to 13 And then I mean we always plan to have a full booking of the restructuring costs in 2021, meaning that in 2022, we expected already a decent operating and operating results, but also positive Clearly positive net income, which would then also have a positive effect on the capital ratio.
Fair enough. Thank you very much. That's really helpful.
Thank you. The next question for today comes from Anke Rangan, who's calling from RBC. Over to you.
Yes. Thank you very much. Good morning for taking my question. Just firstly on the cancellation of the outsourcing. I just wanted to make sure, I mean, euros 200,000,000 is not insignificant in terms of impairment that you stick to your original plan of bringing costs down on absolute basis year by year as you announced last year.
And I think at the time you announced the €200,000,000 charge, you also talked about a legal provision and other income. I don't think you Specified this one as a one off, and I just wonder if you could give us some broad indication. And then secondly, on the court ruling, I mean, how does it work in practice? I mean, people need to actively consent. Is there a risk that It actually becomes more of an issue as it currently sort of suggesting.
And just in terms of the benefit you were Indicating in your strategic plan last year, is it basically part of the €300,000,000 fee uplift you were But that's not only because of the higher fees. Just an yes, if you can give a bit more indication about the potential risk from the willing to your plan. Thank you very much.
Yes. Hi, Anke. You're absolutely right. The €200,000,000 is not insignificant. But I think I had a very deep look into the project and when we discussed that into the board in detail, And we found that it's better now to stop it and to take a hit now also because of the changes that the business is now stronger, and we feel comfortable to do it internally.
But you're absolutely right. It has an impact on the cost base for this year. But operationally, all our plans and transformation efforts are in plan. And for the midterm, we are fully on plan also with regard to the costs. On the court ruling, you've asked how is that really working.
I mean, it's clear that the automatic increases It's not possible. So we are now with the clients going for an individual consent, either digital or in the branches in a 1 on 1 consent. That's why it takes time. But I can assure you that we are already working and are in contact with our clients to negotiate an individual pricing model and to ask for the consent. And so far, the reactions of the customers are good.
And for the large It is not a problem for the customers to, yes, to agree on an individual consent on the pricing measures also offering new
accounts. And perhaps on your first question, legal provisioning, yes, there is something embedded under other income. We didn't reveal that. I mean, it's clear then if you end a contract with a partner, there are costs attached to it. And I can only say that it is a double digit €1,000,000 amount and leave it for now and you will understand why.
And on the second point, the €300,000,000 uplift which we calculated in our plans, this is still valid. I mean, it has a as I said, it has a short term impact this year, which is balanced out by better customer business overall in PSBC. But we expect that we will get the consent of the clients within this year. And therefore, there is no change of plans with respect to revenues and also revenue increases due to price model changes for the coming years.
Okay. Thank you.
Thank you. Next up, we have Johannes Thormann, who's calling from HSBC. Over to
you. Good morning, everybody. Anders Tomer, HSBC. Two follow-up questions and one other, please. First of all, on follow-up, How far is the competitive pressure in corporate business changing in Germany as You and several other banks are exiting relationships, which you call unprofitable.
Do you see an impact on your business margin or on the behavior of Corporates in general or is the competitive landscape unchanged? Secondly, sorry to come back on the BGH ruling, but Do you actively ask for consent of a customer? Also, you want to fall back on usage Consent like other banks are doing in Germany? And are you thinking about additional price Changes due to the recent ruling. And last but not least, what needs to happen to reach €1,000,000,000 risk cost as a, I don't know, bad case scenario, worst case, we never know.
But what would also be needed to reach current or what should happen if we you maintain current cost of risk this year? Thank you.
Okay. First, with regard to the landscape of corporate business in Germany, it's our strategy is absolutely clear. We go profitability first, And this is more important than growth, and that's why we're talking with our clients either on up pricing, up selling products. And this is clearly part of another transformation program also in corporate clients with regard to RWA efficiency and margin increase. Therefore, profitability comes first, and that's fully executed.
On the court ruling, yes, we are going only on individual consents, and that's what we're doing. And Bettina is now asking is answering on the risk.
Yes. And there are no additional price changes in the moment in the planning. I mean, we just announced 2 price model changes, one Comdirect and one for Commerzbank, and we stick to that for the time being. On the third question with respect to the EUR 1,000,000,000 yes, Indeed. I mean, if you take the first half with the €235,000,000 this is quite a way towards the €1,000,000,000 This is why we also add less than €1,000,000,000 specifically if you keep in mind that we have the top level adjustment of €495,000,000 But we stay cautious.
We all know there is delta, there is lambda. We do not know how winter is developing, and we should also or not forget that government measures will end by the end of this year, and we really need to watch out on that. That might have some sectors are vulnerable and very exposed due to the pandemic, and we just stay cautious. So There is a lot of upside. Also, I would say, if you're an optimist on what's happening in the coming months, We just stay cautious for the time being and keep our buffers where they are, and then we are very happy to release the buffers if they are not needed.
Okay, thank you. We'll move on now to the next question, which is from Timo Dums, who's calling from DZ Bank. Over to you.
Hello. Good morning. Can you hear me?
Yes, please.
Thank you. So I've got 2 questions, if I may. So First would be on can you you laid down in the presentation that you expect further Excluding expenses of roughly €170,000,000 by the end of 2022, Can you give us an indication on how these expenses will be spread over this period? This would be the first one. And the second question would be, you mentioned in the press release that Your customer satisfaction, can you give us some more color on how you measure the customer satisfaction?
And is there any Difference among the different brands and customer clusters. Thank you.
So the EUR 170,000,000 very simple EUR 140,000,000 we will Most likely see in the second half of twenty twenty one, and then the 30 will be less data for 22. And now I hand over to Martin.
I mean for customer satisfaction, we use have a user process of pulse checks we're doing on a regular basis. So there's no change of what we did and it's consistent all over the bank in all areas.
Okay. Thank you. And is there
any difference, for instance, among or between Commerzbank clients and Comdirect clients, for instance, maybe?
No, method is the same.
Okay, okay. Understood. Thank you.
Thank you. Moving on now to the next question from Hugo Cruz calling from KBW. Over to you.
Hi. Thank you for the time. I have four questions, if I may. First, on the loan loss provision, the $495,000,000 overlay, when do you have to decide on whether you're going to use it or release it? Then on the can you give guidance for the TLTRO benefit for the second half and also for the tax rate?
And then finally, with the last results, you gave guidance for €3,000,000,000 to €5,000,000,000 of RWA growth in the rest of the year. Can you update us on the new guidance, please? Thank
you. Yes. So the 495,000,000 top level adjustment, as As such, I mean, if we can, to be very honest, we will even Put that or yes, keep it for next year 2022 as a buffer just to make sure that We have this buffer given that government measures in the end by December 2021. So But we will see we will review that quarter by quarter and evaluate the situation. On TLTRO, I mean, we have now a volume of roughly EUR 36,000,000,000.
The 50 basis points Means you're talking again about more than €180,000,000 of revenues, and we will book it according when we have achieved it. First share you will see in the Q4 of this year and that will be approximately 95 €1,000,000 Tax rate, very difficult guidance. I'm really to be very honest, I'm not giving any guidance on because you all know that there are so many different effects impacting that. So it's very tough to predict. But I would say Something either slightly positive or slightly negative is probably the right assumption.
And on RWAs, I mean, we are now at 13.4%. We expect something around 13%. Why is that? That has to do that we expect Specifically, some changes in the RWAs. We would see some volume increases, hopefully, but also we will See some model changes potentially that will lead to RWA increases.
And we see TRIM, which is good for nearly a little bit more than €1,000,000,000 of RWA increase that are basically some op risk model changes that are the key drivers for the RWA increase until the end of the year.
Thank you.
Thank you. Next up, we have Ricardo Rivera, who's calling from Mediobanca. Over to you.
Good morning. Good morning to everybody.
I hope you can hear me well. Three questions, if I may. The first one is on the risk cost guidance that is more a conceptual one. Before the guidance was a range between €800,000,000 and 1.2 1,000,000,000, which was a fairly large range. But let's say, the current Of less than €1,000,000,000 is even more vague, I would say, than it was 3 months ago, while You should have now a better visibility.
Now what does can you narrow down a little bit what less than €1,000,000,000 means? Because it could be €300,000,000, 700, 999,000,000,000,000,000,000,000, considering that we are in July, so 7 months out of 12 are Run out, so you should be in the position to have a better visibility than 3 months ago. And still related to that, Is the use of PLA somehow factored in, in the guidance you're providing Or less than €1,000,000,000 or are you expecting to carry this amount, this €500,000,000 over till 2022 and then take a decision only in 2022. The other question I have is on well, It's still on the guidance. When you say expectations are based on the assumption that there is no fundamental change affecting the Swiss franc loan portfolio at Embank.
What does it mean? Does it mean that you expect kind of $50,000,000 of provisions every quarter as we have seen so far. Does it mean 0 provisions in the second half of twenty 21, what does that mean in, let's say, numerically? And last question I would have, is it possible for you to list all the one offs That have affected this quarter, because I don't think that is really clear in order to the people that are listening to this call. We have the TLTRO, then we have Commerce Bank Venture, TLTRO $40,000,000 positive CommerceVenture, dollars 100,000,000 positive.
Then you got dollars 55,000,000 hand bank provisions on Polish FX loans. Then you have an unspecified amount, if I understood it correctly, on the ruling of pricing models. Then you have an unspecified amount on the provisions related to the outsourcing. Then you have $200,000,000 of costs related to the in store cancellation of the outsourcing. Is that all?
Am I missing anything here? And if you do not want to provide numbers related to the court ruling and so on, Could you be able to give us an idea what would be the profit before tax if we excluded all these one offs in the second quarter? Thanks.
Okay. I start with the last one, Riccardo. If you just go on Page 10 of the analyst Presentation there we basically have done that and the €32,000,000 of operating result It's then turning into a EUR 208,000,000 operating result if you exclude these one offs. The only thing the only puzzle missing in there is the one related to the provisions, which we booked related to the yes, to the stop of the contract with our outsourcing partner and that we do not reveal. And clearly also, I mean, tax topics, etcetera, we So have not included in that.
But that gives you, I think, a good guidance on the exceptional items on Page 10. 1st, I mean the risk costs. First of all, I think it's important to say last time we set basically on the risk result of less or equal to €1,000,000,000 is likely. What we now say, it's definitely below €1,000,000,000 So I would say at least it's an improved guidance. I know that there is quite a bandwidth between first half EUR 2 €35,000,000 and less than €1,000,000,000 However, we always know that the second half The Q4 is a longer one than the rest, so you always have higher LLPs also In total normal years than you have in the first half of the year, that is something which gives you a guidance.
And then as I said, it all depends Also on what happens with some of the sectors, just think about the travel sector, which is very much Exposed to the pandemic, and we assume the less than €1,000,000,000 really that we can keep the €500,000,000 If we can't keep the €500,000,000 that's pretty sure that the loan loss provisions will be reduced by this number. So that is the equation. And we feel in
the moment,
given That the virus is still ongoing and we still don't know whether there will be
a 4th
wave, And being a little bit cautious on that. But clearly, as I said before, there is upside on that. I'm pretty convinced. And the third question, no the Swiss francs, yes, what does it mean the non fundamental change? I mean, if we book as we have done some provisions because of changes in the incoming cases, etcetera, I would say that is very much covered by our guidance.
If there is a total relief based on The second September the ruling on hopefully, the ruling on the September 2nd, Then we will have a different story or if we need to do a large booking based on a potential ruling. So normal provisioning, I would say, is included. Extraordinary, either re bookings or bookings are not included.
All right. Thank you, Amari.
Thanks. We'll move on now to a question from Jochen Schmidt, who's calling from Metzler. Over to you.
Thank you very much. Good morning. Could you get a bit more specific on the tax provision which you booked in other income? What's the order of magnitude? And also in this context, has this also affected the tax position, for example, because the provision might refer to interest rate payments on potential tax claims?
These are my questions. Thank you.
Yes, that's totally correct. You will also see a sentence on that in the interim report. I mean, there is a new ruling or guideline out from the Minister of Finance on Kum Kum. What we have done is We have basically considered that in the tax line with certain amount. And as you rightfully say, Then there is always also interest rates, interest we need to basically provision for on the tax claims and that happens in other income and those has been reflected.
But sorry for following up. You don't want to disclose a number for other income for the order of magnitude and provision?
To be very honest, I mean, we now have the guideline out there. We know that our tax authorities will apply that, but The discussions are ongoing. So we booked something just as an, I would say, cautious action, but we will definitely see what the final number is when we concluded the discussions with tax authorities.
Thank you.
Thank you. The next question for today is from Yun Yang, who's calling from Barclays. Over to you.
Hi, good morning. Hope you can hear me okay. I have two questions. The first one is on Mbank. So based on the Mbank disclosure, I can see the core case number has been increasing by 20% each quarter over the last few quarters.
I just want to understand What is your kind of assumptions in your provision guidance, current provision level on the number of the case In the future and then how should we think about the impact from the outcome cost settlement versus The COVID cases, how much difference is that? And then the next question is on the restructuring. I just want to understand what is the timing of the same impact From these reductions, when is that going to come through in the future? Is that this year or next year? And attached to that, I just want to understand on the branch closure, you mentioned that the customer leaving you There's no change too much of your revenue.
Just want to understand, is there any follow on impact from the branching Like closure into the future and how much is in this year's number and how much is in next year? And has there been any change of your financial guidance into 2022? Thank you.
Okay. On the ruling, what we have done is basically we have a model in the payment where we Take the incoming cases. We then make an extrapolation also for the future based on the incoming cases. We then also take the size of damage or decision plus also our win loss rate into account. And that We review together with our auditor quarter by quarter.
And what you have seen in the last quarter is that indeed Court cases have increased and therefore we have also increased provisioning. We would expect If there would not be the ruling now anyhow on the 2nd September that court cases would probably slowdown because specifically the rulings end of April beginning of May, which we have seen were rather encouraging for the banks. But this type of processes are always started like 3 months before. So you always Have a time lag until you see certain decisions also unfolding in the number of cases. But we feel pretty much based on current rulings, etcetera, that we have the right level of provisioning.
On the impact on what we have now already done today on the restructuring, I mean, we have we said that We now have settled basically agreements with more than 3,400 Employees, that doesn't mean that they are leaving right away. Some have left already. Some will leave until the end of the year. But we also have this part time retirement programs in there and some will just leave in 2022 or 20 23 or even 2024. So you will see the impact in the coming years.
It's different to the voluntary program, which we have just Started and launched with the 1700 FT feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet Es because there we expect that all of the People who signed this voluntary agreement will leave by the 1st January 2022, meaning you'll see the full impact of the 1700 in the 2022 cost baseline. And the last question on the brand closures, I mean, we see churn, that's for sure, but it's not as high as we have expected. And we will also see further churn in the coming months and years, but this is what we have basically assumed in our plans. If we remember, we had a EUR 300,000,000 due to
churn. Thank you. In light of the time, we'll move on to the last question for today from Tobias Lukes calling from Kepler Cheuvreux. Over to you.
Yes. Thank you very much for taking my question as well. I'll be quick just focusing on one big issue, which is the stop of the outsourcing of the security settlement process. If I read your press release, it pops to me that you are highlighting the risk basically of the complexity of this And then saying more or less, and yes, we can do it ourselves and it will be profitable. So first, my question basically is twofold.
So a) What is the risk here also for the rest of your system landscape, IT wise? Is there any further risk visible, I. E, higher IT investment requirements, further write offs And secondly, going for this profitability argument, I would have assumed that with higher volumes, I. E, lower marginal costs and you would even more benefit from an outsourced IT landscape with HSBC. So my question here is, if you go through the in house solution now, What kind of profitability would you expect on the level expectations or volume expectations that you have?
And secondly, What kind of margin then do you expect from that business? Thank you.
Yes. Just the opposite. For us now with the higher volumes, it's Better to have it in house because we have economies of scale here. And Yes. And so for any other things, I mean, this is a total hypothetical questions.
I mean, we are pushing our transformation. We're measuring our initiatives and projects. Okay. As you've seen, we are not afraid of taking painful decisions, but It's a total hypothetical questions and that's
It's not hypothetical in the way that I asked for any visibility In the short term, is there any additional IT investment requirement? Is there further write off potential in other segments? It's not the hypothetical in 3 years. It's really what you see now. Should we factor anything in for H2?
Or is that just another quarter like we have seen that with Commerzbank for years?
I mean, there's nothing what pops out right now what we have seen. So we have a review of all the initiatives and projects We undertake in the board very much into detail, and this was the one project which popped up. And there's not more to say than all the others. I mean, this is One project where we found this is necessary to do, and we have All other initiatives and projects always under review. And yes, So I think what we can say is that we are fully in the plan and of our expectations and the transformation is on plan.
And This is all what we can say now. Yes. Thank you. Since this was the last questions, I would say thank you very much for your participation in this call. So we are looking forward to our future interactions and recorded.
We wish you all a nice day, a good summer vacation, and thank you very much, and bye bye.