Deutsche Bank Aktiengesellschaft (ETR:DBK)

Earnings Call: Q1 2020

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Apr 29, 2020

Ladies and gentlemen, thank you for standing by. I am Emma, your Chorus Call operator. Welcome and thank you for joining the Q1 2020 Analyst Call of Deutsche Bank. I would now like to turn the conference over to James Rivett, Head of Investor Relations. Please go ahead. Thank you, Emma, and thank you all for joining us. As usual on our call, our CEO, Christian Sewing, will speak first followed by our Chief Financial Officer, James von Moltke. The presentation, as always, is available for download in the Investor Relations section of our website, db.com. Before we get started, let me just remind you that the presentation contains forward looking statements, which may not develop as we currently expect. We therefore ask you to take notice of the precautionary warning at the end of our materials. With that, let me hand over to Christian. Thank you, James, and good afternoon, and welcome from me. I hope that you and your families are all safe and healthy. This is an extremely difficult time for everyone. And at this stage, we do not have full visibility on how the situation will develop. This is the perfect Black Swan event, an event none of us has experienced in such a dimension before. But it is in times like these that our bank can prove its resilience, its experience and moreover, its value to society and all our stakeholders. And I'm proud of the way the bank has responded. The investments that we have made into our technology have supported our operational resilience with the majority of our employees working from home. With our refocused strategy, we are now operating in businesses with leading positions, providing industry leading solutions. This means we are at the center of the dialogue with our clients at a time when they need us most. We are very happy with our performance in the quarter, and we outperformed our expectations for both revenues and costs, specifically in the core bank. Our client franchise is absolutely intact. We have not let the recent turbulence distract us, and we have continued to execute in a disciplined manner against our cost targets. As a result, we reduced adjusted costs excluding transformation charges and bank levies for the 9th quarter in a row on a year on year basis. And we also made solid progress against the strategic priorities set out in July and at the investor deep dive in December. The transformation is even ahead of the plan. We are benefiting from our conservative balance sheet management and this stability is enabling us to support our clients through these difficult times. They are at the center of what we do, and the business is on the right track. We are regaining market positions. The Swiss and decisive action that the German government has recently taken and the strong fiscal position of the public and private sectors mean that our home economy is well positioned to fight the crisis. We believe this further supports our mission, which we set out when we launched our strategy last year July, to be aligned with the strength of our home market economy. 10 months after the announcements, we are absolutely convinced that our strategy is the right one. As a result, we feel well positioned as the leading bank with a global network in Europe's strongest economy. Do we underestimate the severity of the challenge facing the global economy? Absolutely not. But with the right strategy, scale and leading franchises globally, a relentless focus on execution, strong balance sheet and with Germany as our home market, we believe that Deutsche Bank can strengthen its competitive position in these difficult times. Let me briefly discuss these themes. While James will go into the details, a few words from me on the Q1 performance starting on Slide 2. Overall, I'm pleased with the progress that we have made in the quarter. Revenues were flat year on year with material growth in the core bank, offsetting the exit of equity sales and trading in the capital release unit. The CRU performed in line with our internal plans. Adjusted group pretax profit increased as lower costs and higher core bank revenues offset the higher provisions for credit losses and the drag from the capital release unit. In the core bank, the combination of revenue growth and lower costs generated significant positive operating leverage in the quarter. Corebank pretax profit grew by 32% year on year to EUR 1,100,000,000 excluding specific revenue items, restructuring and severance and transformation charges. This corresponds to a core bank pre provision net revenue of €1,800,000,000 before bank levies. This performance demonstrates the resilience of this company and the progress we are making. The management team and I are determined to not let the current environment disrupt the execution of our cost reduction plans. We delivered against our internal targets again in the Q1, as you can see on Slide 3. Excluding transformation charges and bank levies, adjusted costs declined by 7% year on year to EUR 4,900,000,000 our 9th quarter in a row of reductions. At the end of the first quarter, we have put 73% of our transformation related effects behind us. We currently have more than 20 core transformation initiatives in flight under the responsibility of our management board members, all overseen and managed by the Chief Transformation Office. These initiatives will continue despite current market conditions. The progress we have made in the Q1 and the projects underway put us on a good path to achieve or outperform our EUR 19,500,000,000 target for 2020. Turning now to the core banks starting on Slide 4. I'm happy with the progress that our business have made towards the strategic objectives we laid out in December. This progress makes us even more confident that the strategy is the right one. In the Corporate Bank, revenues were flat as we offset the pressures from the interest rate environment. The team continued to actively reprice deposits in the Q1, and this puts us on a good track to pass through negative interest rates to €25,000,000,000 of deposits in 2020 as part of our 2022 targets. The Investment Bank grew revenues by 15% with revenues up in both fixed income and origination and advisory. The Q1 showed further stabilization and improvements in market share in our target segments. In fixed income, excluding specific items as well as movements in CVA and FVA, which we have booked in the businesses, FICC revenues would have increased by 25%. Our strategy to refocus our rates and emerging markets franchises in 2019 are working with revenues from our corporate clients growing 30% year on year. In Origination and Advisory, our strategy is also paying off specifically in Debt Capital Markets, where revenues were significantly higher. We increased market share in our European and German franchise to the highest level since 2017. In the Private Bank, revenues increased by 3%. This growth was supported by the strong performance in Wealth Management, where strategic hiring in prior periods has started to pay off, again, consistent with what we told you in December. And in our German and international businesses, we have continued to grow loans and volumes to broadly offset the ongoing interest rate headwinds. This includes the conversion of deposits into investment products with a EUR 4,000,000,000 net inflow in the quarter. In Asset Management, growth in management fees was offset by interest rate driven changes in the fair value of certain guaranteed funds. Despite the market conditions at the end of the quarter, DWS has continued to grow assets in core areas, most notably through strategic partnerships and ESG funds. On the cost side, our core businesses also continue to implement their objectives. Slide 5 shows our adjusted costs excluding transformation charges. In the Corporate Bank, we held costs largely stable in the quarter, excluding the impact of higher internal service cost allocations, which we have discussed in prior quarters. The changes in internal cost allocation are part of the control and technology investments we have made to better steer our businesses and to reduce costs over time. The Corporate Bank also made progress on its strategic initiatives and benefited from reorganization measures implemented last year. We particular focus on efficiency optimization in Germany and across infrastructure functions. In the Investment Bank, costs declined by 15%, in part driven by the front office headcount reductions implemented in 2019 as well as lower internal service cost allocations. We made progress on reducing infrastructure costs without further compromising our front office capabilities. In the Private Bank, costs declined by 2% with further progress on the integration of Postbank and Deutsche Bank retail operations with €70,000,000 of run rate synergies now achieved. In Asset Management, costs declined by 7% as they implement their cost efficiency programs. Slide 6 repeats the chart, which we have shown you consistently. We have been managing our balance sheet conservatively and intend to keep doing so through this period of volatility. With the 12.8 percent CET1 ratio at quarter end, we are comfortably above our regulatory requirements despite absorbing 30 basis points of regulatory headwinds at the start of the quarter. Our January guidance of above 13% for the Q1 would have been conservative. Excluding the impact of COVID, we would have been at 13.2%. And this sound capital position gives us now scope to continue to deploy resources to support clients in these challenging conditions. As we made clear in our release on Sunday night, it is our deliberate decision and Deutsche Bank's priority to stand by its clients without compromising on capital strength. We kept our liquidity position strong at €205,000,000,000 comfortably above regulatory requirements, while providing an additional €25,000,000,000 in loans to our clients. And our funding position has rarely been stronger than today. We continue to fund our balance sheet through stable sources, predominantly our low cost deposit base. Our results also show that we continue to operate with low risk levels. We continue to manage our market risk exposure tightly. Our average value at risk of €24,000,000 remains low. And we are focused on maintaining strong credit quality. Provisions for credit losses increased, reflecting a normalization from historically low levels that we already anticipated in our outlook. We also absorbed the initial impacts of the COVID-nineteen pandemic. Our EUR 4,300,000,000 of allowances for loan losses or 95 basis points of loans speak for that. This represents a prudent level of cover relative to our conservative loan book, which we discuss on Slide 7. Our loan books are well diversified across our businesses, client segments and regions. Around half of our total loan portfolio is in the private bank, mainly German mortgages with conservative loan to value ratios and low delinquency rates. In Wealth Management, almost all our loans are secured typically by high quality liquid stocks and bonds with conservative loan to values. 90% of our commitments in the Corporate and Investment Bank are to clients rated investment grade. And from a regional perspective, our loan books are also well diversified. Approximately half of our portfolios are in Germany, with a further 20% in EMEA and the U. S. In short, our loan book is low risk and well diversified. The results of the EBA stress test in 2018 support us. So from a risk perspective, we feel well positioned to navigate the current environment. Strategically, too, the core pillars of the mission we laid out last year are well matched to the current environment, as you can see on Slide 8. The strategic changes we made in July are taking the bank back to the strategy we were founded for 150 years ago. With the corporate bank at the center of our strategy, we have put German, European and multinational companies at the heart of what we do. And we assist these clients with our market leading positions in cash management, trade finance, foreign exchange, financing, strategic advisory and investment advice. With an extremely solid foundation, we are there for our clients as risk managers and advisers in difficult times. And these are the real strengths of our bank. Such strengths have never been more crucial than today, when so much depends on how fast the global economy trade and investment can recover. And Germany is our home market, where we generate almost 40% of our revenues. In the corporate bank, we are positioned to be the bank of choice for corporate treasurers, and that mission is even more valuable in times like these. As the house bank to nearly 1,000,000 small and medium sized companies in Germany, here too, we are well positioned to have clients through the crisis. Year to date and for the first time since 2017, we have regained our position as the market leader in German corporate finance. In the Private Bank and DWS, we are helping our clients navigate through the turbulent conditions. We are the leading retail bank with 19,000,000 customers and the leading retail asset manager. We also believe that Germany is relatively well positioned. Thanks to the strong and decisive actions of the government, the German support programs of around €730,000,000,000 amounting to around 22% of total GDP as the highest of any major country. Working in partnership with us, there are now a series of well designed programs, which should provide support quickly to the broader economy. And given the strong fiscal position, the German government is well positioned to take additional action if required. The German consumer and corporate sectors are relatively well positioned to deal with the crisis too. Consumer debt levels are among the lowest in the Eurozone and the developed world. German small and large corporate customers are also operating with the lowest level of leverage and the highest levels of liquidity in the last 30 years. We feel fortunate to have Germany as a home market in volatile times. As a bank, our core mission is to be there for our clients and provide a safe home for our employees through good times as well as challenging ones. And as you can see on Slide 9, our employees have risen to the challenge and have continued to perform. Our people have coped with the major disruption in the work environment, around 65,000 logging in remotely day by day. They have maintained the operational resilience of Deutsche Bank and have gone the extra mile for our clients. And all this, at a time of concern for the health and well-being of the families and themselves. In December, I talked about reinvigorating the spirit of the bank with greater collaboration across our businesses. The last few weeks have shown what is possible here with staff helping out in other areas of the bank, most notably in processing new client applications. I'm also proud of the way that we have been able to help the communities in which we operate. And in our businesses, we have been active in helping our clients to access schemes implemented by the German government. In the corporate bank to date, we are processing over 5,000 applications under the German government's KfW program with a volume of €4,400,000,000 In this regard, we are uniquely positioned to provide clients access to the services they need in a timely and efficient way. Since mid March, the Investment Bank has helped corporate and government clients raise €150,000,000,000 of debt to fund their financing needs. And we improved to a number 2 market share position in electronic U. S. Treasuries, helping to fund the federal government support programs. In the Investment Bank, the positive momentum has continued in April, particular in our trading business and origination and advisory. In the past 4 weeks, we have been involved in nearly half of all investment grade bond issuance for corporates in Europe. In Private Bank, we have continued to be there for customers, thanks to the dedication of our staff. We have kept more than 80% of Deutsche Bank and Postbank branches open, and our call centers have handled a 30% increase in inquiries. We have also seen a significant increase in securities transaction. And DWS as a fiduciary has continued to support clients when they need us most, DWS Direct has seen a 50% increase in retail inbound sales and 25% more visits to the website. In all these examples, we are helping clients and the economy, deepening our relationships with clients while growing our loan and earnings fees. In summary, we are proud of the way our people have performed in these difficult conditions. Deutsche Bank is on the right track strategically and financially as demonstrated by our Q1 results. Our refocused strategy means we are operating in businesses where we have a leading position with industry leading products. It is our priority to stand by our clients and the community to navigate these challenging times together. Our balance sheet is strong enough to support growth in these turbulent times, and we have a resilient and crisis proven management team. For this management team, our priority is simple. It's all about execution, especially in conditions like these. In the Q1 of 2020, as in 2019, we have delivered on all our targets and objectives. Revenue momentum across the core bank continues to build. On costs, we are confident of reaching our adjusted cost target or beating it for this year, and we are working on additional cost reduction measures. We also continue to manage our balance sheet conservatively and keep our capital and liquidity ratios well above our regulatory requirements. This positions us well to meet a temporary increase in client demand for balance sheet commitments over the next few quarters. As Germany's leading international bank, we also believe we operate from a solid macroeconomic and political backdrop. In short, we have positioned Deutsche Bank to be a core part of the solution to the current crisis. With that, let me hand over to James. Thank you, Christian. Let me start with a summary of our financial performance on Slide 10. In the Q1, revenues were flat year on year with growth in the core bank offsetting the wind down of non core businesses in the capital release unit. Non interest expenses of €5,600,000,000 included €503,000,000 of bank levies in the quarter as well as approximately €190,000,000 of restructuring and severance, litigation and transformation charges. On a reported basis, the group generated positive operating leverage of 5%. Provision for credit losses increased to EUR 506,000,000 or the equivalent of 44 basis points of loans on an annualized basis. We generated a pretax profit of EUR 206,000,000 with net income of EUR 66,000,000 after tax. In the core bank, we generated a post tax return on tangible equity of 6.6 percent, excluding bank levies. Tangible book value per share was €23.27 essentially flat to the 4th quarter. Our results in the quarter were impacted both by our ongoing actions to implement our transformation as well as the initial impacts of the COVID-nineteen pandemic, the most material of which we detail starting on Slide 11. In the Q1, our provisions for credit losses included approximately EUR 260,000,000 of incremental charges, which I will discuss shortly. Our CET1 ratio was negatively impacted by around 40 basis points from COVID-nineteen driven effects. Our capital includes a net EUR 400,000,000 of incremental prudent valuation deductions, reflecting increased pricing dispersion and wider spreads driven by the market volatility in the latter part of the quarter. COVID-nineteen driven increases in risk weighted assets of EUR 7,000,000,000 included higher credit risk RWA due to ratings migrations and EUR 5,000,000,000 from drawdowns on credit facilities. The drawdowns on credit facilities also reduced our liquidity reserves by EUR 17,000,000,000 and were primarily in our corporate relationship lending portfolio and leveraged debt capital markets. The movements in liquidity reserves and risk weighted assets were well within the range of stress outcomes that we planned for. And finally, Level 3 assets of EUR 28,000,000,000 increased by EUR 4,000,000,000 in the quarter. The increase was driven by a reclassification of some inventory into Level 3 due to the greater dispersion in market pricing towards the end of the quarter. This was mainly in relation to derivative transactions, where the material components of the underlying risk are typically hedged. We also saw higher carrying values on existing Level 3 derivative inventory, mainly driven by movements in interest rates. The increases were largely offset by equivalent increases in Level 3 liabilities. As conditions normalize, some of the market related effects should reverse and therefore reduce the current levels of prudent valuation deductions and Level 3 assets. That said, developments in the nearer term are difficult to predict and will depend on client behavior and market dynamics. We would also expect for credit risk RWA to return to more normal levels as clients replace drawn facilities with cheaper long term funding. Turning to provisions for credit losses on Slide 12. Provisions were €506,000,000 or 44 basis points of loans in the Q1. As I just mentioned, roughly half of the provisions relate to COVID-nineteen impacts, principally against Stage 1 and Stage 2 performing loans. Most of the increase was driven by updates to macroeconomic variables, changes in credit ratings in segments particularly impacted by the crisis as well as higher drawdowns. We updated our approach this quarter reflecting the ECB recommendation to moderate procyclicality. Our forward looking indicators now incorporate a 3 year averaging of macroeconomic forecasts. Our forecasts were based on consensus estimates at the end of March. Updating the assumptions to the current market views would have increased our provisions for credit losses by approximately EUR 100,000,000 Our total Stage 3 provisions of €276,000,000 in the quarter included around €30,000,000 related to COVID-nineteen. Our Stage 3 provisions increased slightly and reflected a small number of specific events consistent with our prior guidance. Including the provisions taken in the Q1, we ended the period with EUR 4,900,000,000 of total allowances for credit losses. This amount includes €4,300,000,000 of allowance for loan losses, equivalent to 95 basis points of loans. And as shown on the next slide, we're comfortable with our exposure to the industries most impacted by the initial impacts of COVID-nineteen. Slide 13 builds on the materials Stuart Lewis, our Chief Risk Officer, presented at the investor deep dive in December. In commercial real estate, our exposure is predominantly 1st lien mortgage lending with an average 60% loan to value. Our portfolio is diversified across a broad range of high quality properties, typically in gateway cities. Our oil and gas exposures are focused on the investment grade majors, and we have very modest exposure to non investment grade exploration and production segments. In retail, we have contained our exposure to strong global names with very limited exposure to non food retailers. Within the airline space, our exposures are secured at conservative loan to values with unsecured portfolios biased towards national flag carriers in developed markets. And finally, our leisure portfolio is small and focused on large hospitality industry leaders with minimal exposure to cruise ships and tour operators. In summary, we believe that our loan book is low risk and well diversified with a manageable level of exposure to the most impacted industries. And our risk profile is supported by our comprehensive stress testing framework and proactive risk management. Turning now to capital on Slide 14. Our CET1 ratio was 12.8% at quarterend, down by roughly 80 basis points from the prior quarter. Approximately 30 basis points of the decline came from the impact of the new securitization framework we have discussed with you in previous calls. In line with our stated strategy, we also continued to fund our business growth, which consumed roughly 10 basis points of capital in the quarter. Our CET1 ratio was impacted by around 40 basis points as a result of COVID-nineteen, which I described earlier. Our CET1 ratio at quarter end was approximately 240 basis points above our regulatory requirement, which now stands at 10.4%. The reduction in our CET1 ratio requirement principally reflects the recent decision ECB decision to implement CRD 5 Article 104A with immediate effect. This allows banks to meet approximately 44% of their Pillar 2 capital requirements with AT1 and Tier 2 instruments. Our leverage ratio was 4% at quarter end, a decline of 21 basis points, principally from the COVID-nineteen related effects. Other increases in leverage exposure were broadly offset by the benefit of the AT1 issuance in February. Excluding Central Bank cash from leverage exposure, consistent with the European Commission's proposal published yesterday, would, if implemented, increase our leverage ratio by approximately 20 basis points. Turning now to liquidity on Slide 15. We ended the quarter with liquidity reserves of €205,000,000,000 or roughly 20% of our funded balance sheet. With a liquidity coverage ratio of 133 percent at quarter end, we have a €43,000,000,000 surplus above the 100 percent LCR requirement. Liquidity reserves declined by EUR 17,000,000,000 in the quarter, reflecting drawdowns on committed credit facilities. Given our excess liquidity, we believe that we are well positioned to maintain our liquidity coverage ratio comfortably above 100%, while supporting ongoing client drawdowns and new lending. Overall, we're happy with the way that we have managed our liquidity through the recent period. This is a reflection of investments we have made in liquidity management and modeling in recent years. And our excess liquidity and stable sources of funding provide us with a solid foundation as we look forward. As Christian has said, we continued our strategic transformation in the Q1 as you can see on Slide 16. Results in the quarter included EUR 177,000,000 of transformation effects, including EUR 84,000,000 of transformation related charges, which form part of our definition of adjusted costs. These charges principally relate to impairments and accelerated amortization of software intangibles as well as real estate charges. As of the end of the Q1, we have now recognized 73% of our total planned transformation effects. Are committed to the disciplined execution of our transformation agenda despite the challenging environment and our estimated transformation effects for 2020 2021 are unchanged from our previous guidance. In the remaining three quarters of this year, we expect to take an incremental €800,000,000 of pretax charges, including €200,000,000 of accelerated software amortization, which is not relevant for capital purposes. The progress we are making on our transformation agenda is increasingly visible in our cost performance as shown on Slide 17. In the Q1, we reduced adjusted costs by around €500,000,000 or 9% year on year, excluding the impact of foreign exchange translation and the transformation charges I described earlier. Adjusted costs included €98,000,000 of expenses associated with the Prime Finance platform being transferred to BNP Paribas, which are reimbursable and therefore excluded from our target. We made progress in all major cost categories. Compensation and benefits expenses fell in line with the reductions in internal workforce. IT costs declined reflecting the lower amortization given the impairments taken in 2019, while our cash IT spend was broadly stable and within our target range as we continue our investment program. Professional service fees declined as we further improved the efficiency of our internal external spend. Other costs declined reflecting reductions across a number of areas including occupancy. With that, let us turn to our segments starting with the Corporate Bank on Slide 19. Pretax profit of the Corporate Bank was €132,000,000 in the quarter. Excluding transformation charges and restructuring and severance, which we detail by business on Slide 34 of the appendix, the Corporate Bank generated EUR 168,000,000 of pretax profit. This equates to a 5% post tax return on tangible equity, excluding bank levies. Revenues of €1,300,000,000 were up 2% compared to the 4th quarter, but were essentially flat year on year. The Corporate Bank made further progress on its strategic priorities this quarter, including continued progress on deposit pricing measures to offset the challenging interest rate environment. At the end of the Q1, we had charging agreements in place for approximately EUR 40,000,000,000 of deposits and are well on track for the targets we set at the investor deep dive in December. Non interest expenses increased year on year, in part reflecting higher transformation charges. Adjusted costs excluding transformation charges also increased mainly reflecting the change in internal service cost allocations that we discussed with you in the second half of last year. Provisions for credit losses were €106,000,000 for the quarter and mainly related to a few single name events as well as the updated macroeconomic environment. Risk weighted assets and leverage exposure increased in the quarter mainly reflecting client drawdowns on credit facilities. Turning to the Corporate Bank revenue performance by business on Slide 20. Cash management revenues were essentially flat as the impact of the negative interest rate environment was partly offset by the acceleration of deposit repricing measures and the benefit of ECB deposit tiering. Trade Finance and Lending revenues were stable, reflecting the solid lending volumes and wider spreads at the end of the quarter. Security Services revenues declined, reflecting the non recurrence of a one time gain in the prior year period, while trust and agency services decreased as a result of U. S. Interest rate cuts and lower client activity. Commercial Banking revenues were essentially flat as higher volumes in commercial lending and payment fees were offset by lower deposit revenues. Turning now to the Investment Bank on Slide 21. We were pleased with the financial performance in the Investment Bank in the Q1. This builds on the momentum that we have seen since September 2019. The Investment Bank generated a pre tax profit of EUR 622,000,000 with a 9.5% post tax return on tangible equity excluding bank levies. The Investment Bank also made significant progress on its strategic objectives as we work to reduce costs in technology and infrastructure support and grow revenues. Revenues of €2,300,000,000 grew by 15% year on year excluding specific items, driven by strong market conditions early in the quarter as well as further growth in our client franchises. We saw further client engagement or re engagement with revenues increasing by over 40% with our top 100 institutional clients. Non interest expenses of €1,500,000,000 declined by 15% year on year. Adjusted costs excluding transformation charges also declined by 15% driven by lower service costs as well as lower bank levies. Front office headcount also declined by 7% year on year driven by the restructuring activities initiated last year. Provision for credit losses of EUR 243,000,000 or the equivalent of 111 basis points of loans increased in the quarter driven by the deteriorating market outlook. Leverage exposure increased reflecting seasonally higher pending settlements and higher trading activity. Revenues in fixed income sales and trading increased by 16% year on year excluding specific items as shown on Slide 22. Strong performance in rates, FX and emerging markets offset the exceptionally challenging market conditions at the end of the quarter in credit. Unlike some peers, our fixed income revenues include all valuation impacts relating to credit and funding valuation adjustments on our inventory. In rates, revenues doubled from the prior year period, reflecting higher market activity. Foreign exchange revenues were significantly higher, reflecting higher market volumes and higher volatility. Emerging market revenues increased significantly, principally in Asia, with strong increases in corporate and institutional client flows and excellent risk management. Across rates, FX and emerging markets, revenues were also supported by the benefits of our refocused strategy that we laid out in December with continued improvements in client engagement and strong growth in our institutional and corporate franchises. In credit, revenues declined reflecting the challenging market conditions in March, which were only partly offset by effective risk management and a strong performance at the start of the year. Revenues in origination and advisory increased by 8% due to strong growth in debt origination driven by higher fees in both investment grade and leveraged finance as well as the net impact of markdowns on commitments and associated hedges. At around €4,000,000,000 our non investment grade bridge exposure is significantly lower than in 2,008. Across Origination and Advisory, we continue to regain market share, most notably in our core German and European markets. Slide 23 shows the results of our Private Bank. The Private Bank reported a pre tax profit of €132,000,000 in the quarter. Excluding specific revenue items, restructuring and severance as well as transformation charges, pretax profit was €197,000,000 with an adjusted post tax return on tangible equity of 5% excluding bank levies. The private bank continued to execute on its strategic transformation. Consistent with our strategy, we continued to grow loans and fee income to offset the ongoing headwinds from negative interest rates. Our new business generation continued in the quarter as we grew net new client loans by €2,000,000,000 and generated net inflows of €4,000,000,000 2nd quarter. PCB International is focused on rolling out the new core banking platform in Italy in the second quarter and continues its efficiency programs in its markets. Revenues in the Private Bank increased in the quarter, principally driven by a strong performance in Wealth Management, where we benefited from increased client activity and our relationship manager hires in prior periods. Non interest expenses increased by 5% year on year, reflecting higher restructuring charges as we implement our cost reduction programs. We reduced adjusted costs, excluding transformation charges, by 2% year on year, offsetting higher internal cost allocations. Cost synergies related to the German merger amounted to approximately €70,000,000 in the quarter. Provisions for credit losses were €139,000,000 or 24 basis points of loans, reflecting the normalization of provisions we have previously discussed. Revenues of €2,200,000,000 increased by 2% on a reported basis and by 3% year on year, excluding specific items as shown on Slide 24. Revenues in Germany declined by 1%, reflecting the higher funding and liquidity costs that we discussed with you last quarter. As Manfred detailed in December, our strategy in Germany is to grow volumes and fees to offset the ongoing interest rate headwinds, while we continue to optimize the efficiency of our operations and technology. In the Q1, we grew fee income from investment products, reflecting the success of targeted product initiatives and grew loans by EUR 2,000,000,000 notably in mortgages. PCB International revenues increased by 3%. Higher loan and investment product revenues combined with repricing measures more than offset interest rate headwinds and the initial impacts of the COVID-nineteen related slowdown in client activity, mainly in Italy and Spain. We grew revenues in Wealth Management by 17%, excluding workout activities. This growth was driven by a strong performance across all regions, in particular in Capital Markets Products and Emerging Markets in the 1st 2 months of the year. As you will have seen in their results this morning, DWS performed well in the challenging conditions as you can see on Slide 25. To remind you, the Asset Management segment includes certain items that are not part of the DWS standalone financials. Asset Management reported a pretax profit of €110,000,000 in the quarter, an increase of 14% from the prior year period, mainly driven by lower costs with revenues broadly flat. Non interest expenses declined by 6% with adjusted costs excluding transformation charges declining by 7%. The reduction in costs reflected ongoing efficiency initiatives, lower volume related costs as well as lower compensation expenses. Compensation and benefits declined principally reflecting lower equity linked deferred compensation expenses given the decline in DWS share price over the quarter. As a result of the strong cost discipline, asset management generated 5% operating leverage in the quarter. Assets under management of €700,000,000,000 declined significantly in the quarter, driven by the market disruption in March. Net flows were modestly negative with EUR 2,000,000,000 of outflows as the strong inflows from January to February were more than offset by industry wide outflows in March. By product, net outflows in fixed income and passive in the quarter were partly offset by net inflows in cash, equity and alternatives. As shown on Slide 26, asset management revenues were broadly flat to last year as the growth in management fees was offset by the change in fair value of guarantees driven by the low interest rate environment. Management fees increased by 9%, reflecting higher average assets under management given the net inflows and strong market performance in 2019. Performance and transaction fees were EUR 17,000,000 in the quarter, primarily reflecting fees earned in our real estate business. Consistent with the guidance that DWS management gave this morning, we would expect performance and transaction fees to normalize in 2020 compared to the elevated levels recorded principally in the second and fourth quarters of last year. Other revenues were negative €51,000,000 predominantly due to the negative change in fair value of guarantees. Corporate and Other reported a pretax loss of €24,000,000 in the quarter compared with a pretax loss of €15,000,000 in the same period last year. Positive movements in valuation and timing were offset by movements in a number of smaller items. Funding and liquidity charges also increased slightly, consistent with the changes in funds transfer pricing we've discussed in prior quarters. Let me now discuss the capital release unit on Slide 28. The capital release unit continued to implement its strategy in the Q1. Revenues in the Q1 were negative €59,000,000 or negative €82,000,000 excluding debt valuation adjustments. This was slightly better than the range we provided at the investor deep dive as we benefited from hedging and risk management gains as stock markets declined and volatility increased. We also recognized the first full quarter of cost reimbursement from BNP Paribas. These benefits partly offset funding and credit valuation adjustments and derisking impacts. We made significant progress on reducing costs in the capital release unit in the quarter. Excluding bank levies and transformation charges, adjusted costs declined sequentially driven by lower internal service cost allocations and lower non compensation direct costs. Total non interest expenses of €694,000,000 were essentially flat to the 4th quarter as €247,000,000 of bank levies in the quarter were partly offset by lower litigation, restructuring and severance as well as transformation charges. Risk weighted assets and leverage exposure were slightly lower in the quarter as the derisking and the roll off of assets was partly offset by market driven increases. In the Q1 of 2020, CRU continued to derisk across the portfolio in line with plan, while also progressing novations from auctions completed in 2019. The team also laid the foundations for the pipeline of asset sales targeted for the remainder of the year. This approach is consistent with the strategy that we laid out at the investor deep dive. We continue to target lower RWA and a significantly lower leverage exposure by the end of 2020. We do not see the current market conditions as a major impediment to our disposal plans. However, we will remain dependent on functioning capital markets and the active participation of clients and counterparties. Before I close, a few words on our financial targets on Slide 29. We have set a series of short term targets in previous years to help demonstrate our progress towards our longer term goals, principally a post tax return on tangible equity of 8% in 2022. For 2020, we had set 3 targets. First, as we disclosed on Sunday, we are dealing with a great deal of uncertainty around the CET1 ratio path from here. We see opportunities to support clients. We've therefore taken the deliberate decision to allow our CET1 ratio to dip modestly and temporarily below our target of at least 12.5%. We believe that this is the right decision for our shareholders and all our stakeholders. Over time, as the temporary factors I referred to earlier normalize, we expect our CET1 ratio to return to the 12.5% level. The decision to remove this target in the short term did not consider the potential for future regulatory changes that could benefit our ratio like yesterday's EU Commission proposal. As a result, we reaffirm our 2022 CET1 ratio target. 2nd, on leverage ratio. Assuming no changes in the definition of leverage exposure, for example, to include cash, government securities or government guaranteed lending, we are now unlikely to reach our fully loaded leverage ratio target of 4.5% this year as we continue to support our clients during this crisis. Over time, as client demand normalizes and we execute on the deleveraging program in the capital release unit, we believe that we will restore our glide path to a leverage ratio of around 5%. 3rd, on adjusted costs, we are on track to reach or likely improve upon our €19,500,000,000 target excluding transformation charges and the impact of the Prime Finance transfer. We've also updated our outlook statements in the earnings report to reflect our current expectations for revenues this year both at group and business line level. For the group, our revenue expectations are now marginally lower than our earlier planning assumptions as the outperformance in the Q1 is offset by lowered expectations later in the year. Provisions for credit losses are now forecast to be in a range between 35 45 basis points of loans in 2020. We expect the majority of these provisions to be taken in the first half of twenty twenty with a normalization later in the year. This reflects our expectations of the macroeconomic impact from COVID-nineteen, including the effect of the government support programs. While the current environment is challenging, we will continue the disciplined execution that you've seen from this management team over the past 2 years. We are operating in a highly unpredictable environment, but at this stage we see no reason to change our 2022 post tax return on tangible equity target of 8%. Consistent with our previous guidance, the largest driver of our improved returns will come from cost reductions. In this respect, as I said earlier, we are at least on track to reach our objectives. With that, let me hand back to James and we look forward to your questions. Emma, let's open the line up for questions The first question comes from the line of Daniel Brupbacher with UBS. Please go ahead. Thank you. Good afternoon. I wanted to firstly ask about the European Commission package announced yesterday. You briefly mentioned it during your remarks. Is it already possible to somehow quantify the impact of that? And I'm really thinking about the IFRS 9 NPL dimension, the leverage ratio dimension and also probably software intangibles. And on the leverage ratio side, when I read the release from the EC, it sounds like these are temporary measures. So how do you look at it? I mean, if Central Bank reserves are being taken out, but the ratio really the requirement goes up, what's really then how do you look at that? What's the benefit of this? And then secondly, you briefly mentioned group revenues and the revised expectations as well. You expect the IB revenues to be up. Consensus for the group, I think, at this point is down 10% for the year. So there seems to be a bit of a different view there. And I was just wondering, you obviously expect sequential declines, but what kind of market environment do you need to meet a flattish group revenue picture more qualitatively, I guess, and versus Q1 and probably just volatility levels and all that? And then lastly, the MDA trigger level going from 11.6% to 10.4%, but you don't really change the 12.5% target longer term. Why not? Why do you keep it at that level? Do you, I don't disagree with this approach that you that basically you can use some AT1 for P2R? Or do you want to just be at the reassuringly high level for your AT1 holders? Thank you. Thank you, Daniela. It's James here. I'll take the first and third questions on capital and then ask Christian to speak to the IV revenue. So first of all, the EU package announced yesterday, just to quantify the impact for us, we would see that as and this by the way would be a conservative estimate, as delivering say 20 to 30 basis points, into our CET1 ratio. The largest part of that would be the treatment of software intangibles. And I think we've talked about that in the past that that's a significant drag for us or deduction in our ratio. It's about 80% today or 80 basis points, I'm sorry, in our ratio today. So with the 20 to 30 I'm giving you, it would only be about a quarter of those intangibles coming back into capital. It all depends on the on how the EBA sets the regulatory technical standards. There are 2 other items around reduced risk weighting factors and the reset of the transition to 100 percent that deliver maybe together 10 basis points into CET1. On leverage ratio, we talked about that being just the exclusion of cash about 20 basis points in our leverage ratio. As you say, it's temporary. I'm not sure it changes necessarily our strategic thinking about the balance sheet. But But certainly, it helps us report higher ratios and maybe look at the use of the leverage balance sheet a little bit differently, but obviously only over the temporary period. So in short, we welcome this package. If implemented, it would certainly help the ratios. Our announcement on Sunday night anticipated that there may be some changes in definitions coming, but noted that we weren't essentially building those into our outlook. So we think about the 12.5% ratio still as a good management level, a good target to hold. So I want to be clear, we're not abandoning the 12.5%, but rather feel that it's a sensible place that we may dip, as we say, moderately and temporarily below, the regulatory changes would certainly help us to sustain a higher ratio. We think that will remain the case, about the 12.5%. You mentioned with the wider gap to MDA, we simply view it as creating a better gap. And at least for now, we would not contemplate changes in our targeting reflecting the 104a. So with that, I'll hand it over to Christian. Yes. Thank you, Daniel, for your question. Let me start with the Investment Bank. First of all, I'm confident that we have kind of at least flattish revenues in the Investment Bank because that's what we have seen now is a continued development since our restructuring in the Q3. It started actually with management changes and the focus on the key businesses, be it in FICC or Debt Capital Markets, in September went through Q4. And the same development we have seen through Q1 but also in April. And the key is really that this bank has decided to focus on its strengths in the investment bank. Don't forget, there we are operating. We are in 75% of our revenues. We are in the top 5 market positions. And hence, we simply can see clients are reengaging, reentering with us, and that's our focus. And in this regard, I do believe, with the basic understanding that I think the heat of the crisis, we will see obviously in Q1 and Q2. But looking at the revenue development of the 1st 4 months, I'm confident that we can achieve the goal which we outlined before. If I go for the overall group, I do believe also there, we have a lot of resilience. Also here, let's not forget, we have 40% of our revenues in Germany. For the time being, we are the kind of go to place in Germany for corporate clients, for private clients. This is the time where it's not all about only the digital capabilities we have, but in particular, the advisory. We are talking actively to private clients about their investment advice, how we can do it better, the same on the corporate side. And in this regard, I do believe that with the programs we have in place, with the financial health we have in Germany, we have a very, very good chance of actually capturing market positions here. And that overall, with the focus on these four businesses, makes us confident that we can achieve flattish revenues or slightly below 2019. So I'm confident there. Thank you. The next question comes from the line of Jernej Omahen with Goldman Sachs. Please go ahead. Yes. Hi. Sorry, good afternoon from my side as well. I have 3 questions, please. So Christian, you kicked off the presentation by saying that the path of this public health crisis is not really known. But I got the sense that we continue the presentation by giving some pretty strong assurances on the outlook for credit losses and then the outlook for revenues as well. I would just like to take a step back and ask a broader question. So you have been in European Banking for a long period of time. How likely is it in your mind that the nonperforming loan formation and the credit loss cycle this time around will be better than what you've seen in 2,008,009, 2011, 2012. So that even with all the government support in there. That would be my second question. My second question would be just staying with the loss guidance of 35 basis points to 45 basis points. So just looking at the EBA stress test estimate for Deutsche Bank, which was based on German GDP contracting 2% in year 1, 3% in year 2. They had a peak loss at 82 basis points. And your guidance or Deutsche Bank's guidance seems to be targeting broadly half of that. Again, what gives you the confidence that, that will materialize? And my last question is just on the ability to restructure into what seems to be a deep recession and a spike in unemployment. To what extent do you feel that particularly the headcount reduction that have already been agreed with your partners or stakeholders in the bank still hold true and you'll be able to execute on that? Thank you very much. Thanks, Charlie. Let me take number 1 and 3, and James can talk about the details of the calculation of the 34 to 45. Now first of all, I do believe actually that and I think I can speak for most of the banks, but obviously, best for Deutsche Bank. We will see less loan loss provisions than in the crisis of 2,008 for three reasons. Number 1, in particular in Germany, the program which has been done and the umbrella which has been provided by the government is far stronger because it actually contains 2 elements. Number 1, immediate liquidity support. Number 2, there are programs in place, which actually already addresses the long term solvency questions of corporates. Also, when you look at how the take up of the what is the English word for that, this short term worker support, I. E, Kurzarbeitargeld, is actually taken up now by 4,000,000 people or almost 4,000,000 people. That provides actually a scheme that people are in the or are capable of controlling their financials, repaying their financials, do we need to potentially also go for a 1, 2 or 3 months of moratorium? Yes, we have for the time being 50,000 individual clients asking for that, but we have 19,000,000 clients. So overall, even after 6 weeks of time, that is a manageable number. And I feel, with the robustness of this umbrella given by the government with KfW, structured also by ourselves in combination with the government, that is the first safety net. Secondly, I think the entry point corporates went into this crisis is a completely different one in 2008. When I was at that point in time in the credit risk management team, the average equity position, the average liquidity, which was on the balance sheet of the corporates is not comparable to the one we see right now. So overall, I would say the resilience of our clients is higher. Number 3, now the best person to answer that one is obviously Stuart Lewis. I think we also learned our lesson from the times in 2,007, 2008. When I look at the structure of the portfolio, you have seen James' references, but also my slide. With regard to concentration risk, with regard to active hedging, with regard to trying to actually allocating the risks out, we are doing a far better job. And in this regard, I do believe that these three items, plus the healthier balance sheet of banks to absorb losses, is a major difference, at least for Deutsche Bank. And that makes me confident that the numbers which we have given out for the 2020 loan loss provisions is a number which we will and we can achieve. With regard to the ability to do restructuring, this is not stop at all in the discussions with the Workers' Council on our restructuring plans, and that means we will continue. Therefore, James and I are so confident that we are achieving the EUR 19,500,000,000 cost goal for the end of the year. So there is no stop to it. Also, Jurney, let's not forget, the last 4 weeks have indicated to us where we can save costs on top, and we will do everything in Q2 and Q3 to implement that. And that is not only cutting costs in terms of FTE or personnel. That is costs with regard to travel. That is costs with regard to real estate. We will change the way we are working, absolutely. And hence, we even have further ammunition actually to reduce our costs. James? Thanks, Christian. So taking the comparison with the EBA stress test, it's always hard to compare sort of theoretical stress test scenarios to the real life stress we're living through, but we'll give it a little bit of a try. If we focus on credit provisions, I think the starting point is actually picks up on 2 points that Christian just made. First of all, what's different in this cycle? Government support is potentially a significant difference. Secondly, we're a different company, smaller balance sheet. We've exited certain areas. And so some of the credit exposures that we would have taken losses on, if you go back to the December 2018 balance sheet, simply aren't here anymore. I think further, there are some just more technical differences in how that comparison works. To begin with, it's a 3 year total loan loss or credit number. And we're talking at this point about 35 basis points to 45 basis points this year. And there's also an ECB add on to that number. So that goes beyond what we calculate our provisions to be. The ECB add on represents 10%, 12% on top. So some real differences. And I think the last point I'd make, I'd go back to a point Christian said. The stress tests essentially assume that management does nothing, to manage sort of credit outcomes or the portfolio. So it takes what I would call a static balance sheet. And that's also clearly not a real world scenario. So a lot of differences. We're obviously alive to the comparison. But we think, again, looking at our detailed modeling, there are very good reasons to see this as quite different in terms of likely outcome relative to that stress test. Can I just maybe just ask one follow on? So the EBA's peak 1 year loss is 82, the one that they've calculated. The one that you're guiding for is 34 to 45. I mean, EBA for that 1 year loss assumes GDP contraction of 2%. I mean, we're looking for Eurozone GDP contraction of 10 plus this year. And I just want to say that, optically, it just looks odd. But I think the question is different. So the Deutsche Bank was breakeven this quarter on what is a very, very strong revenue. If I take the average revenue of the previous 4 quarters, the bank would have made a loss of broadly $400,000,000 So I was just wondering, assume that you're wrong and the credit loss is not 45, but is closer to EBA's estimate of 80. What are those dynamic actions that the bank can take to offset this event? So let me again start with the comparison. The environment that we're dealing with, we would see as much more severe in the quarter 1 GDP decline than most scenarios that we do stress testing on, which typically are over much longer periods of time. With the recovery starting still in our estimation already in Q3. And so the length of this downturn is a critical determinant in what the ultimate credit losses will be. Of course, there will be a diminution in the credit position of most corporates as they put on some debt to cover expenses in a period of time while revenues are suppressed. But I think the length of this downturn is a significant difference to others. I don't want to go into lots of downside analysis. As you know, one of the benefits of all the work that has happened over the last 10 years has been that banks are very capable of doing their downside work and also understanding what mitigants are at our disposal to offset both profitability and capital impacts of more severe downturns. So it's something that we're very conscious of that we keep well refreshed, and we're comfortable with our position navigating through this environment. Johnny, potentially one more sentence to that what James just said also on the mitigants we have. Don't forget if you quote the Q1 that this is the quarter of the majority of the bank levies. So that we also had to digest, plus the mitigating measures we have. I would say that there are that there is a cushion for us also to handle that situation. Thank you very much. The next question comes from the line of Christoph Brieseldt with Commerzbank. Please go ahead. Two questions, please, from my side. There were articles in the press recently that foreign banks are pulling back from the German market. How much do you see this as an opportunity for German banks and for Deutsche Bank in particular to gain market share? And related to this, what is your view on margins in corporate lending during the COVID-nineteen crisis? Secondly, on the KfW support scheme, here it would be helpful if you could share the economics the program from your P and L perspective. And here in particular, whether there's a fee from KFW for banks passing through the loan to the client? Thanks. Well, thank you. Let me take these questions. Obviously, as we said, that is an opportunity for us. A, it is our understanding that in particular in your home country, with that background we have, we have to use this time and have to make sure that we are at our client side. And yes, we are seeing a certain development of other banks reducing their commitments also to German large caps but also to mid caps, where we feel we have the understanding. And as long as our risk appetite is there because we will not water down our risk standards for these clients, then we are there and we jump in. And I have to tell you, it is not by incident that we are back number 1 in Corporate Finance in Germany. You have seen that also with regard to the DCM issuances. If I look at the market share we have with the KfW applications, where in the usual programs, 80% of the risk is with KfW or even more and the rest is with us. We have actually a market share which is above our normal market share in the business. That means that clients are actually looking for advice from Deutsche Bank. And hence, I think it's an opportunity with the balance sheet we have, with the market positioning we have, that we take the opportunity. And again, I think in this regard, it's unfortunate that we are in Germany with the backdrop of the government support. Secondly, on the KFW program from a profitability point of view, these are actually well designed programs in terms of the margin set out. You can't actually now do a one size fits all because it depends on the underlying program. We have various programs. But overall, from a profitability point of view, this is not below our threshold. And hence, actually, we are supporting these things. And again, it also shows that in the setup of the programs, this was not only a program which was set up by Berlin and KfW that were active participations of the German banks, including us, profitability point of view. Thank you. The next question is from the line of John Peace with Credit Suisse. Please go ahead. Mr. Pease, your line is open. Maybe your phone is muted. We'll move on to the next question. The next question is from the line of Andrew Lim with Societe Generale. Please go ahead. Hi, morning. Thanks for taking my questions. So you talked about your capital ratios, but if you wanted to focus on the leverage ratio, which does drop back to 3.5%. I was wondering if you said you had the same expectation with expansion in the balance sheet that this forward a bit further and if it's what level? And I ask this question because back in early 2018, this ratio was only 3.36%, so not too different to where it is today. And at that point, we had to undertake a restructuring plan at Deutsche Bank. So just wondering about your thoughts in that regard. And then my second question is, in your financial report, you talked about loans in Moratoria. So I guess this is also one factor why maybe your loan loss guidance is maybe more benign than some people might expect. But could you give us a bit of color as to how much of those loans are in moratorium across the whole group? And then going forward, what would change your accounting treatment of those loans such that they might be regarded as non performing under IFRS 9? Thank you. Sure. Andrew, let me take start with your leverage ratio question. So first of all, the ratio that you cited, I think, has to be in your planning of our Europe modeling, not ours. So we feel comfortable that even with the expansion in the balance sheet in the core businesses, we can sustain the leverage ratio more or less where it is now without changes in the definition. As the growth in core is offset by the deleveraging in the capital lease unit. So we feel comfortable with the stability of the ratio from here. Of course, the change in definition helps. It's been a sort of ongoing question why, clearly risk free assets should be part of that ratio. And I think the 20 basis point helps in measurement. Remember also that pending settlements comes out of the definition in, I think, 2021. So within sort of a year, that part of our leverage exposure would also settle down. So again, we're comfortable. I think we've often communicated our comfort not only with where our leverage ratio is, but with the path and improvement over time. So it relates to Moratoria, you're correct. The guidance and in some cases, the way the programs are structured, we would not treat an otherwise creditworthy obligor as going into Stage 2 based on the indication of seeking the forbearance of a moratorium as the sole indicator. That does not mean that if there's credit deterioration otherwise, that that loan would not deteriorate from a staging perspective or a rating perspective. Certainly for a period of time, this will help individuals and corporations, particularly small corporations, dealing with the cash flow implications of this crisis. And again, assuming the economy begins to recover in the Q3, they would then reestablish their normal operating rhythm, normal cash flow profile. And you wouldn't expect much deterioration in the credit quality of the obligor other than the additional debt that's taken on over that 3 month period. Frankly, it goes to the point that Christian made a moment ago about the design of the KFW or government support programs. It really provides from the individual all the way up to the large corporation an ability to manage the cash flow implications of this crisis without a deterioration necessarily of their credit standing, including at the very low end. These are forgivable loans. They're essentially grants to small businesses. I hope that helps. That was really helpful. Thanks for that. The next question is from the line of Piers Brown HSBC. Please go ahead. Yes. Thank you for taking my call. Just coming back to the provision for credit loss, just looking at the composition, I mean, you've obviously booked more in terms of Stage 3 loans than you have Stage 12, which I guess at this point in the cycle is sort of noteworthy. I wonder if you can just share a little bit more in terms of economic inputs into how you've assessed the Stage 12 provisions. I think you've given some economic forecasts on Page 19 of the report in the outlook statement, but I don't know whether those are the same as what you're actually using in terms of the ECL modeling. So maybe you could just expand on that. And the second question is just around the restructuring and severance charge this quarter, which I think was 88,000,000 dollars I'm going to hear everything you're saying about not having any issues in terms of implementing the restructuring as you had planned. But just in terms of that number being below the run rate for the €500,000,000 full year target, I wonder if you could just give a little bit of color on that. Should we just expect there to be catch up in coming quarters on in terms of what you're booking for restructuring and severance? Thanks very much. Sure. Thank you. So a couple of things. You mentioned Stage 3. We think it's very natural, frankly, that the Stage 3 bucket is relatively moderate at this point in the cycle. Naturally, as we see defaults in this credit cycle, you would expect there to be more Stage 3 exposures and hence, loan loss or the allowances traveling, migrating, if you like, from Stage 2 to Stage 3. There has been as you saw in our disclosure, Page 12, is very little that we would see as COVID related Stage 3 provisions taken this quarter, which we think is entirely natural for the very short time elapsed between the onset of the crisis and the end of the quarter. To your question about the macro assumptions, we use consensus estimates in that build those into our models. And as I mentioned, we used the 31 March consensus estimates. Clearly, things have moved on since the end of March and the outlook today is more severe than it was then. And hence, as I mentioned, about $100,000,000 of additional provisions, had you walked that forward to the end of April. There is a difference between therefore the what was built into the model there relative to our firm outlook. So we think about our forward planning more bearing in mind the outlook that we described in our earnings report as distinct from what is built into the IFRS modeling. Restructuring and severance, it's actually often the case that you see much higher restructuring and severance charges towards the end of the year than the beginning. As we are actually executing in many cases on the measures against executing in many cases on the measures against which we built reserves at the end of last year. And in some sense, as the pipeline refills and then we recognize new reserves, as new actions become essentially defined the level where we can recognize them under the IFRS standard. In this quarter, for example, the restructuring and severance was largely to do with the savings we expect to extract from the German legal entity merger, as an example. And we'll continue to see some level and I would think increasing towards the end of the year as more and more of the actions that we expect to take in 2021 are then reflected in the reserves that we take in 2020. Okay. That's perfect. Can I just have a just a quick follow-up on the expected credit loss? I mean, you've talked in the report about following ECB guidance and deriving adjusted inputs based on longer term averages. I mean, could you just explain exactly how the mechanics around that work and what sort of trough GDP numbers you might be using in terms of some of the more adverse scenarios you'd be running? So the scenario is the same. It just extended the horizon to 3 years and removed some of the what I would would have been significant pro cyclicality that would come from the early quarters of the event. So if you think about it this way, you'd look at an annual GDP number as the driver of the IFRS 9 provision rather than the very sharp first quarter event. We think that's appropriate. We think the guidance from the ECB made perfect sense, particularly given the shape of this crisis and the expected path of GDP going forward. Had you not done that, it would have brought in, I think, some excessive pro cyclicality that would have seen us build excess reserves or provisions in H1 in the first half of this year and then release them in the second half of this year, which clearly makes no sense. So that's how I think about the averaging as it was applied here. And again, we think that was a very sensible outcome. It didn't suppress the reserves so much as make sure that the timing of the reserves makes more sense against the likely path of both ratings migration and ultimately, obligor defaults. The next question comes from the line of Adam Karolak with Mediobanca. In the interest of time, please limit yourself to 2 questions. Please go ahead. Yes, good afternoon. I had a couple of questions, one on capital and then back to reserving. On capital, I think a bit surprised by the lack of an increase in market risk RWA. I just want to know whether that's an averaging thing and whether that could come into the Q2 and beyond and then how sticky some of this RWA inflation is likely to be? I know there's a lot of uncertainty involved, but whether we should really be thinking about some more permanent COVID-nineteen impacts through the denominator of your capital before you get some relief, it sounds, from the commissions package from yesterday? And then on the provisioning, I just wanted to understand a little bit more on the build and some of the moving parts. The Stage 2 assets have gone up by or doubled almost by $19,000,000,000 or so, but the provisioning attached to it has been very, very modest. I just really want to understand what's driving that and why the number is so low at this stage and what sort of forbearance is coming through on IFRS 9 guidance or what might be driving that? Thanks. Sure, Adam. Thank you. So on capital, and this is why we pointed to the 40 basis points and the likelihood that it comes back. You're absolutely correct. On each of their own schedules, if you like, I would expect the components of the capital drawdown to come back. So if you take the 3 major ones, Pruval, market risk RWA and then committed facility drawdowns, over 2, 3 quarters, we'd expect those drawdowns to get paid back. So that comes back to us over time. The market risk RWA, as you point out, did not move in the quarter. We do expect increases to come in Q2 as the volatility feeds into the averaging. And then that'll wash out over a 1 year period after that. And equally Pruval will reflect now as we've now done in the Q1 accounts will reflect the higher market dispersion, but that again will wash out of the approval and that should normalize the capital come back over a period of time. So our view is that it is really almost all temporary. The only things that as markets normalize, the only thing that wouldn't be temporary would be those of the either the ratings that have migrated that become nonperforming over time or the new drawn facilities that potentially become nonperforming over time. Incidentally, some of the provisions given the kind of forward looking nature of IFRS 9, some of the provisions that we built in the quarter were provisions against the new lending that was taken place that took place. So there is, if you like, a forward look there as well. Can you just repeat your second question, so I make sure I cover it? Yes. It was on Stage 2. Stage 2 loans up €19,000,000,000 but the reserves attached to it kind of €100,000,000 or so. So just why that number is so small and it has to do with the nature of the IFRS 9, 3 year averaging and pay down assumptions? Yes. So one thing you need to remember as you think about the asset sizes in each bucket and the related allowances is as you are seeing a migration, you're not just seeing migrations of assets into the Stage 2 bucket and the associated provisions. You're also seeing a migration from Stage 2 to Stage 3. So ultimately, you need to look at the net of those two things. The next question comes from the line of Magdalena Straka Loza with Morgan Stanley. Please go ahead. Thank you very much and good afternoon. I will come back to the previous question around market risk weighted assets because I have to admit that I kind of struggle a little bit with the lack of inflation in that particular line because we've seen quite a significant inflation in market risk weighted assets in a couple of your peers. And so my question really is, have there been any kind of significant changes within the modeling of your market risk weighted assets? Or would you be able to maybe quantify the relief that the kind of ECB has put through on the 16th April on that calculation maybe? So that's the question 1. And question 2, I know we've talked a lot about kind of revenue side expectations this year. But is there other risks that you see, maybe particularly in the kind of retail commercial bank, where the level of activity, the level of spend, potentially the level of lending may actually fall off, impacting revenues negatively, given how huge the disruption is in the Q2 from a perspective of macro? Sure. Thanks Magdalena. So the market risk RWA is pretty simple. If you look at Page 47 of our deck, you can see that the increase in VAR driven by the volatility, so not portfolio, but volatility, really only spiked at the end the quarter. So it didn't really feed into the averaging to a significant extent. That's why we'd expect to see that now, come through in Q2. And ultimately, you've heard some talk about VAR outliers in the marketplace. And so for us, which may be different to peers, what happened is the ECB action to reduce the multiplier was offset by some increase in the multiplier that came from the VAR outlier. So those two things offset, and all you had was the was that relatively limited amount of volatility at the end of March in the averaging. With regard to the Corporate Bank and the Private Bank on the revenue side, overall, I think we have offsetting items. Of course, in the Corporate Bank, for instance, the reduction in the U. S. Dollar interest rate is an additional headwind for us. On the other hand, what I said before, in particular by our strategic growth initiatives, but in particular by the fees of the additional lending, which we are doing here in Germany. Also now the benefit of the ECB decisions from introducing the deposit tiering. The good work which has been done in actually repricing the deposits, and we have done that throughout the Q1 and that program will continue in Q2 and Q3, We believe that this offsets actually, obviously, certain headwinds you have in some other subparts of the business. In the private bank, we do believe that in particular in the in some areas, there could be less engagement. For instance, Italy and Spain, you will see that in the consumer finance business, there is less demand. On the other hand, you will again see that the ask of people and the clients coming to us asking for investment advice, reallocating their portfolios is one of the mitigants. Secondly, also there, obviously, the deposit hearing introduced at the end of Q4 helps. And hence, we see also there good chances to mitigate the reduction of revenues in some parts. So overall, we believe that in both areas, Corporate Bank as well as the Retail Bank. In Corporate Bank, we can stay almost flattish and Retail Bank only a slight decrease. Thank you. The next question comes from the line of Kian Abouloussaint with JP Morgan. Please go ahead. Yes, thanks for taking my questions. First of all, I think you have produced the best earnings report of any of your peers because it actually discussed the COVID-nineteen issues, which a lot of the peers don't do. So thank you for that. In respect to that, since you're doing a more longer term scenario of economics in your numbers, in your IFRS nine numbers. And you highlighted on Page 19 the base case. Can you just tell us also since you're doing it 3 year rather than just 1 year, can you tell us in that context what GDP assumptions you have for Eurozone and U. S. As well for 2021 2022? And in that context, I don't fully understand why your provisions will change or sorry, how a 3 year scenario will impact your Stage 1 loans because Stage 1 loans only assume 12 months forward looking expected loss. So I don't fully understand how that works, if you could just explain that. The second question is on your leverage loan book, Can you tell us on your bridge book or leverage loan book whatever you want to focus on what the markdown was? And also, you mentioned fixed income, some credit write down, if you could explain that. Sure. Tim, lots to go through. I'll try to be as brief as I can. First of all, again, the I'll refer you to sort of Bloomberg at the end of March to see the economic assumptions, over the 3 year period. They have annual GDP numbers that are down in the 1st 2 years and then up. They're clearly not as severe as I and hence the incremental provision number that I cited in my prepared remarks. An interesting point is brought out by your comment on Stage 1. Interestingly, part of the pro cyclicality is in Stage 1, because the very sharp and the pro cyclicality of using individual quarters rather than an annual average, because the very sharp movement in GDP in the 1st period actually creates a significant multiplier of the probability to fall in the Stage 1 bucket that suddenly even with that 1 year expected loss that you build for Stage 1, it actually creates some of the pro cyclicality in the earlier methodology. So interestingly and perhaps counterintuitively, the pro cyclicality is in the higher quality buckets. In terms of leverage lending, as we noted, we had about $4,000,000,000 or $4,100,000,000 commitments at the end of the quarter. We were, I think, conservatively positioned. And in the leverage lending space, our hedges almost entirely offset the markdown on those the mark to market, if you like, or the bridge commitments. And when I say almost entirely, I'd say 4 5ths of the amount that was the initial mark to market loss. So I think it shows you how conservatively we were positioned going into the crisis. Thank you for the call out on the earnings report. We appreciate the feedback. The next question is from the line of Stuart Graham with Autonomous Research. Please go ahead. Hi, thanks for squeezing me in. I had two questions, please. First, what's your assumption for credit risk RWA inflation due to ratings migration this year, please? And second, it's another question on provisions, I'm afraid. What would your 35 to 45 basis points guidance be if you'd stuck with your old 8 quarter model and assumed government support measures were wholly ineffective? So basically no management overlays, you just let the models do their thing. Thank you. So Stuart, I actually don't have the to hand the exact number of credit risk RWA increases that we see for the balance of the year, we do see some additional sort of inflation, if you like, coming from both book extension and further ratings migration. And we've built that into our forward look on the CET1 ratio. One thing that I'd just remind you of though as you think about both the credit risk and the market risk RWA increases that are coming at us, In our planning, they will now be offset by some of the changes that the ECB announced around reg inflation that's no longer coming at us. So you'll recall, we had about 60 basis points kind of expected for the year. We've seen 30 basis points of that out of the gates. The RWA associated with the rest, which is sort of $8,000,000,000 or so $1,000,000,000 we don't think any longer materializes, which is why you may wonder why our outlook is shows a relatively moderate change in the RWA relative to our earlier expectations. I don't want to go into the extent of sensitivity, if you like, of the loan loss provisions to all of these other assumptions. It's frankly sort of irrelevant to the world we're actually in, in the sense that that government support does exist. And the modeling interestingly, as I say, from a very granular bottoms up approach that is that IFRS essentially requires, what you do is get a great deal of insight in terms of how the book is expected to perform over time. So we think that that central case is a good one for now. And again, I just point to the pro cyclicality that would otherwise have been created. I don't think investors or frankly the clarity of bank capital ratios would have been helped by a strongly procyclical degree of build at this point in the cycle. I accept that point. I guess what I don't what I struggle with is how do you know if the government support measures are worth 5 basis points, 10 basis points, 15 basis points? How do you know? I mean, there's no precedent. How do you calibrate that? Well, they're only they're built into the ratings that our credit officers assign to each obligor. So it's again very granular. It's not an overlay that we applied to the determination of the provisions, but rather each credit officer in assigning ratings and looking at the migration, assessing the likelihood that each that an obligor would benefit in some way from the government programs. I honestly think we've probably stayed on the conservative side of that in how we assigned those ratings changes. As you'd expect, the credit officers are minded to be conservative at the beginning of a crisis. And so I would think of that ratings migration or the if you like, again, I'll use the word suppression of ratings migration as having been moderate in our judgment at this point. Thank you. The next question comes from the line of Amit Goel with Barclays. Please go ahead. Hi, thank you. Thanks for the presentation. So two questions. I guess one just again following on the asset quality point. I just so I guess in my head what I'm trying to reconcile is still you show the key kind of focus industry exposure of about €52,000,000,000 and then the incremental provision being the €260,000,000 so roughly 50 bps on that. So I mean, how are you managing that kind of key industry exposure? And the second question I had was relating to the assets which were reclassified to Level 3. So I think that was about €2,000,000,000 So I just wanted to get a sense, I mean, if you had used the observable, I guess, parameters, what would have been the potential marks on those assets? Thank you. So let me go in reverse order just to hit the level 3. So it was $4,000,000,000 in total. The way you should think about our guidance here is that there was relatively little that happened in terms of portfolio changes over the quarter. The increase in that balance was mostly driven by changes in the environment. They're fair value assets and liabilities. And so the change in any valuation is fully reflected in our accounts. I can't speak to specific what on that population of assets were the and liabilities were the gains and losses, but it's fully reflected in the Q1 results. So the observability just had to do with the dispersion and in some cases the observability of parameters that go into those valuations. And so in our judgment, assets were migrating from level 2 to level 3 in that. So they in short, they're marked. Sorry, the first part of your question, Amit? I can do this, James, if you like. Sure. Amit, I think actually Page 13 is in this regard a good page to again through the sub pockets. First of all, that is, as James laid out before, obviously, an individual name by name review we are doing in that portfolio because these are the larger names which are fully under the scrutiny of the credit officers. And if you then go into the individual sub portfolios, in the oil and gas, 80% of the limits or net limits we have is to investment grade names. We have on the other portfolios, for instance, in the commercial real estate, but also aviation, when we talk about sub investment grade ratings, you have a high degree of collateral with loan to value, so where I would say this is rather conservative. And then in sub portfolios where I would agree with you where the biggest risk is like leisure, we are very small with hardly any concentration risk or towards absolute industry leaders. So looking at that and there I come back also to the times I know from my risk management time, I think this bank really learned to deal how to manage concentration risk, how to actively hedge it or collateralize it. And hence, I think we have a good handling on this €51,000,000,000 portfolio in total. Yes. One just thing to add to what Christian said. Remember that the expected credit loss, which frankly moved relatively marginally in the quarter on our total portfolio of loans and in fact moved by less than our provision in the quarter, reflects also all of the credit mitigants that are in place, whether that's hedging, CLO cover in addition to the rating of the obligor and the collateral valuation. So there's a lot of protection here that just that goes beyond what we're focused on the slide that Christian referenced to. Thank you. We have time for one more question. The last question comes from the line of Andrew Coops with Citi. Please go ahead. Hi, thank you. I'll ask a quick question on costs and then just a follow-up on the reserve build, but from a bigger picture perspective. On costs, you're obviously very confident that you can still hit the 2020 target or potentially even beat the target. And that's despite some of the announcements about suspending redundancies in this environment. I know when you previously talked about the cost walk, the biggest component of that was coming from compensation. And I know when you drill down the investment bank at your Investor Day, of the $1,200,000,000 I think only $200,000,000 was coming from the front office cuts we've already done. The majority was coming from back office cuts you had to do. So could you just elaborate on what exactly gives you the confidence on the cost save target? And what is substituting in for the lower compensation cost that you would have otherwise had? Or have you found cost saves elsewhere to achieve it? That'll be the first question. The broader question on preserving, I appreciate everything you said. I appreciate the position you've been put in between what the auditors request and what the EDA has requested and have a lot of sympathy to the point on avoiding pro cyclicality. But obviously, the approach you've adopted is very different to your peers, especially the U. K. And U. S. Banks, but also a number of European banks. So given the huge amount of subjectivity we now have, not only on scenario assumptions, disclosure, but now even the approach that's been adopted, is there any discussion with the ECB, with the EBA, about trying to get more consistency between the banks on this? Because to some extent, it's destroying the credibility of bank reporting at the moment. Thank you. Andy, potentially I start with the cost one and then James is following. So where do we take the confidence from? To be very honest, from various items. Number 1, we have achieved now for 9 quarters our cost target. And that tells you that we have full discipline, full control and a management visibility into com costs, but also non com costs, which was simply not available 24 months ago. So the work finance has done in order to allow deep dives to find where additional cost savings are is brilliant and helps us actually to navigate. That's number 1. Number 2, I think we need to a little bit potentially clarify what we said with the pausing of the restructuring. We said that in the first phase of this crisis, where everybody was personally affected, we don't want to communicate for that time additional individual layoffs. We started that end of March, beginning of April, and we are now actively reviewing when we are actually regaining that because with the lifting of the restrictions in the regions, also here in the home country where a lot of restructuring is done, we will also resume that. We are committed to this transformation and the restructuring. Thirdly, we have 70 individual initiatives underway. Out of those, only 30 initiatives are actually tailored at comp related issues. We have 30%. So the remaining 70% are non comp related. So of course, even with a potential temporary pausing of new individual discussions, you are full steam on and we are full steam on implementing the other cost measures. Fourthly, the last 4 weeks have shown us, as I said before, have shown us opportunities to cut additional costs. If we look at our travel costs, if we look at our entertainment costs, if we look at the real estate costs, all this is underway. Therefore, we have a Chief Transformation Officer who is doing nothing else than looking at the chances and opportunities of that what we have experienced over the last 4 weeks and actually thinking about what can we implement now long term and that will also result in cost reductions. And that combined with the track record this management board has built makes us confident to achieve the 19.5 percent or even be better than that. So and I'll take the question about reserving. Actually, I share your concern about the comparability and that's something that we talked about both internally and with our regulators. It is interesting that this crisis came upon the industry at a point in time where U. S. GAAP filers were switching to CECL. So as a starting point, even the comparability across periods for some of our competitors was hard to establish. I think if you go back to 1st principles, you've got to start with you compare each bank on the basis of the portfolio risks that they have. And a big starting point is, does a bank have a credit card portfolio? For us, provision level that we would take relative to some of our peers. And so I think it's entirely natural that you'd expect significant differences in the total provision level that we would take relative to some of our peers. And I think also geographic spread is a piece of that. In addition to some of the things we pointed out about our portfolio specifically related to the most affected sector. So that would be the first point that I'd make. I think secondly, it's worth spending some time looking at the resulting allowance level. So rather than looking at P and L provisions, look at where banks have ended up in terms of their allowance for loan losses or their allowance for credit losses against the portfolio. And interestingly there, you would actually see us pretty well in line with a number of our peers once you exclude the credit card portfolios, suggesting in a way that if we are if our underlying portfolio is in fact less risky as we think it is than at least some of the comparables, our allowance is in fact on a relative basis at least in line if not relatively more conservative. So as I say, share your view on the challenges thinking about accounting standards and changes in methodologies. But I don't think that undermines an ability to assess the appropriateness of both provisions and ultimately allowances. Thank you, both. I appreciate your comments and for all the details on the call. Thank you. In the interest of time, we have to stop the Q and A session, and I hand back to James Rubin for closing comments. Thank you, Emma, and thank you all for joining us today. We appreciate your interest. We've realized there's also several questions that we didn't get to. The Investor Relations team will reach out to follow-up. We look forward to hearing from you all, to speaking to you all soon. Be well. Ladies and gentlemen, the conference has now concluded and you may disconnect

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