DB - Deutsche Bank Aktiengesellschaft (DB) Q4 2023 Earnings Call Transcript

2024-02-01 09:05:02 ET

Deutsche Bank Aktiengesellschaft (DB)

Q4 2023 Earnings Conference Call

February 01, 2024 5:00 AM ET

Company Participants

Ioana Patriniche – Managing Director and Head of Investor Relations

Christian Sewing – Chief Executive Officer

James von Moltke – Chief Financial Officer

Conference Call Participants

Chris Hallam – Goldman Sachs International

Kian Abouhossein – JPMorgan

Adam Terelak – Mediobanca

Stuart Graham – Autonomous Research

Nicolas Payen – Kepler

Anke Reingen – RBC

Giulia Aurora – Morgan Stanley

Jeremy Sigee – BNP

Andrew Coombs – Citi

Andrew Lim – Société Générale

Mate Nemes – UBS

Presentation

Ioana Patriniche

Thank you for joining us for our Fourth Quarter and Full Year 2023 Preliminary Results Call. As usual, our Chief Executive Officer, Christian Sewing, will speak first; followed by our Chief Financial Officer, James von Moltke. The presentation, as always, is available to download in the Investor Relations section of our website, db.com. Before we get started, let me just remind you that the presentation contains forward-looking statements, which may not develop as we currently expect. We therefore ask you to take notice of the precautionary warning at the end of our materials.

With that, let me hand over to Christian.

Christian Sewing

Thank you, Ioana, and a warm welcome from me. It's a pleasure to be discussing our results with you today. We have set Deutsche Bank's course for sustainable growth and returns for shareholders through our Global Hausbank strategy and 2023 saw clear progress. We delivered business growth, as the benefits of our sharpened business model came through. We grew revenues to around €29 billion with a growth rate of close to 7% per year since 2021, well above our initial target, and we are now raising our revenue growth target to 5.5% to 6.5%, with the aim of reaching revenues of around €32 billion by 2025.

We made conscious investment decisions to protect and grow our franchise by driving business growth, strengthening controls and improving operational efficiency.We have now reached an inflection point on costs; our investments are approaching completion, and we are making solid progress on our efficiency program. As a result, we now see ourselves delivering normalized operating and financial performance. This reinforces our confidence that we will deliver on our target run rate of around €5 billion per quarter for adjusted costs, including the first quarter of this year. Our guidance for the full year 2025 non-interest rate expenses remains unchanged, at around €20 billion.

We again demonstrated our resilience, with high-quality risk management and our strong capital and balance sheet. All of this leaves us highly confident that we will meet our 2025 financial targets. Furthermore, we are increasing our capital distributions, as rewarding our shareholders is our priority. We increased both dividends and share buybacks by 50% compared to 2022. We plan to propose a dividend of $0.45 per share at the AGM, approximately €900 million in total, for the financial year 2023; and we have regulatory approval for a further €675 million in share buybacks, which we intend to complete in the first half of 2024. And our raised capital outlook, which we outlined last quarter, has created scope to accelerate and expand distributions further. We now expect to significantly outperform our original €8 billion target for the financial years 2021 through 2025; and we would consider proposing a dividend of €1 per share in respect of 2025, subject to our 50% payout ratio.

Let’s first discuss business growth, starting with our 2023 revenue performance on Slide 2. We delivered sustained growth and improved quality of earnings streams with a well-balanced business mix. Revenues were in line with our guidance, at around €29 billion, up 6% year-on-year. 78% of our revenues came from recurring earnings streams, up from 71% in 2020. We benefitted from rising interest rates, notably in the Corporate Bank and Private Bank. We also focused on building out our fee business across all businesses and here let me give you a few examples.

In the Corporate Bank, we developed innovative products, hired relationship managers in strategic areas, and deepened relationships with key clients. This was already evidenced by the growth in fee income in the fourth quarter. We also added senior bankers in client-facing areas in International Private Bank and the Investment Bank, and completed the acquisition of Numis. We attracted net inflows of €57 billion across the Private Bank and Asset Management, which helped to grow Assets under Management by €115 billion, to €1.5 trillion.

Our progress in strengthening our franchise has been recognized with upgrades from the leading rating agencies, which further positions us well to deepen engagement with current and new clients.

Now let’s look ahead at our revenue pathway to 2025 on Slide 3. Since 2021, we have demonstrated revenue momentum well ahead of our original target growth rate, due in part to a supportive interest rate environment. We are confident that as interest rates normalize, we can maintain a solid revenue trajectory. And this is supported by the expected growth in noninterest income, which already accounts for more than half of Group revenues, and our investments in capital light activities. Based on this, we are raising our revenue target from between 3.5% and 4.5% to between 5.5% and 6.5%, for the period 2021 through 2025, aiming to reach around €32 billion in 2025.

We expect non-interest income growth to contribute approximately 2.5 percentage points to the targeted compound annual growth between 2021 and 2025. And this is achievable through a number of levers: growing share of wallet in the Corporate Bank; reaping the benefits of investments in Origination & Advisory; building on our recent strong relative performance in our FIC business; expanding fee-generating businesses in the Private Bank; benefitting from investments and growing capital-light lending businesses; delivering on our growth strategies, including Passive; and taking full advantage of market recovery, in Asset Management. Additionally, across both the Private Bank and Asset Management, we aim to convert 2023’s net inflows and growth in assets under management into revenues.

In respect of net interest income growth, we expect it to contribute approximately four percentage points to the targeted compound annual growth between 2021 and 2025. This reflects a normalization in 2024, followed by further growth in 2025 and beyond, and James will expand on this shortly....

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