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Edited Transcript of DBK.DE earnings conference call or presentation 29-Apr-20 11:00am GMT

Q1 2020 Deutsche Bank AG Earnings Call

Frankfurt am Main May 18, 2020 (Thomson StreetEvents) -- Edited Transcript of Deutsche Bank AG earnings conference call or presentation Wednesday, April 29, 2020 at 11:00:00am GMT

TEXT version of Transcript


Corporate Participants


* Christian Sewing

Deutsche Bank Aktiengesellschaft - CEO & Chairman of Management Board

* James Rivett

Deutsche Bank Aktiengesellschaft - Head of IR

* James von Moltke

Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board


Conference Call Participants


* Adam Terelak

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Banks Analyst

* Amit Goel

Barclays Bank PLC, Research Division - Co-Head of European Banks Equity Research

* Andrew Lim

Societe Generale Cross Asset Research - Equity Analyst

* Andrew Philip Coombs

Citigroup Inc, Research Division - Director

* Christoph Blieffert

Commerzbank AG, Research Division - Equity Analyst of Financials

* Daniele Brupbacher

UBS Investment Bank, Research Division - MD, Banking Analyst and Head of Equities Research Switzerland

* Jernej Omahen

Goldman Sachs Group Inc., Research Division - MD & Head of the European Financial Institutions Group

* Kian Abouhossein

JP Morgan Chase & Co, Research Division - MD and Head of the European Banks Equity Research Team

* Magdalena Lucja Stoklosa

Morgan Stanley, Research Division - MD

* Piers Brown

HSBC, Research Division - Banks Analyst

* Stuart Oliver Graham

Autonomous Research LLP - Head of Banks Strategy




Operator [1]


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. (Operator Instructions) I would now like to turn the conference over to James Rivett, Head of Investor Relations. Please go ahead.


James Rivett, Deutsche Bank Aktiengesellschaft - Head of IR [2]


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.


Christian Sewing, Deutsche Bank Aktiengesellschaft - CEO & Chairman of Management Board [3]


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 ninth 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 swift 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 strengths 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 first quarter 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. Core Bank pretax profit grew by 32% year-on-year to EUR 1.1 billion, excluding specific revenue items, restructuring and severance and transformation charges. This corresponds to a core bank pre-provision net revenue of EUR 1.8 billion 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 first quarter, as you can see on Slide 3. Excluding transformation charges and bank levies, adjusted costs declined by 7% year-on-year to EUR 4.9 billion, our ninth quarter in a row of reduction. 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 and that 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 first quarter and the projects underway put us on a good path to achieve or outperform our EUR 19.5 billion target for 2020.

Turning now to the Core Bank, starting on Slide 4. I'm happy with the progress that our business has 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 first quarter, and this puts us on a good track to pass-through negative interest rates to EUR 25 billion 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 & Advisory. The first quarter 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, FIC 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 & 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 billion 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 with 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 allocation. 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 EUR 70 million 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% 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 first quarter 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 EUR 205 billion, comfortably above regulatory requirements, while providing an additional EUR 25 billion 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 EUR 24 million 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-19 pandemic. Our EUR 4.3 billion 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 & 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 this. 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 million small and medium-sized companies in Germany, here, too, we are well positioned to help 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 million 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 EUR 730 billion amounting to around 22% of total GDP are 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 our 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 a 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 EUR 4.4 billion. 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 EUR 150 billion of debt to fund their financing needs, and we improved to a #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 & 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 first quarter 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 first quarter 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.


James von Moltke, Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board [4]


Thank you, Christian. Let me start with a summary of our financial performance on Slide 10. In the first quarter, revenues were flat year-on-year with growth in the Core Bank offsetting the wind-down of noncore businesses in the Capital Release Unit. Noninterest expenses of EUR 5.6 billion included EUR 503 million of bank levies in the quarter as well as approximately EUR 190 million 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 million or the equivalent of 44 basis points of loans on an annualized basis. We generated a pretax profit of EUR 206 million with net income of EUR 66 million after tax.

In the Core Bank, we generated a post-tax return on tangible equity of 6.6%, excluding bank levies. Tangible book value per share was EUR 23.27, essentially flat to the fourth 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-19 pandemic, the most material of which we detail starting on Slide 11.

In the first quarter, our provisions for credit losses included approximately EUR 260 million of incremental charges, which I will discuss shortly. Our CET1 ratio was negatively impacted by around 40 basis points from COVID-19-driven effects. Our capital includes a net EUR 400 million 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-19-driven increases in risk-weighted assets of EUR 7 billion included higher credit risk RWA due to ratings migrations and EUR 5 billion from drawdowns on credit facilities. The drawdowns on credit facilities also reduced our liquidity reserves by EUR 17 billion 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 billion increased by EUR 4 billion 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 EUR 506 million or 44 basis points of loans in the first quarter. As I just mentioned, roughly half of the provisions relate to COVID-19 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 million. Our total Stage 3 provisions of EUR 276 million in the quarter included around EUR 30 million related to COVID-19. 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 first quarter, we ended the period with EUR 4.9 billion of total allowances for credit losses. This amount includes EUR 4.3 billion 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-19.

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 first 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 noninvestment-grade exploration and production segments.

In retail, we have contained our exposure to strong global names with very limited exposure to nonfood 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 quarter end, 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-19, 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 CRD5 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-19-related effects. Other increases in leverage exposure were broadly offset by the benefit of the AT1 issuance in February. Excluding Central Bank cash for 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 EUR 205 billion or roughly 20% of our funded balance sheet. With a liquidity coverage ratio of 133% at quarter end, we have a EUR 43 billion surplus, above the 100% LCR requirement. Liquidity reserves declined by EUR 17 billion 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 first quarter, as you can see on Slide 16. Results in the quarter included EUR 177 million of transformation effects, including EUR 84 million 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 first quarter, we have now recognized 73% of our total planned transformation effects. We are committed to the disciplined execution of our transformation agenda despite the challenging environment, and our estimated transformation effect for 2020 and 2021 are unchanged from our previous guidance.

In the remaining 3 quarters of this year, we expect to take an incremental EUR 800 million of pretax charges, including EUR 200 million 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 first quarter, we reduced adjusted costs by around EUR 500 million or 9% year-on-year, excluding the impact of foreign exchange translation and the transformation charges I described earlier. Adjusted costs included EUR 98 million 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 improve 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 EUR 132 million 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 million of pretax profit. This equates to a 5% post-tax return on tangible equity, excluding bank levies.

Revenues of EUR 1.3 billion were up 2% compared to the fourth 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 first quarter, we had charging agreements in place for approximately EUR 40 billion of deposits, and are well on track for the targets we set at the Investor Deep Dive in December. Noninterest 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 EUR 106 million 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 nonrecurrence of a onetime 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 first quarter. This builds on the momentum that we have seen since September 2019. The Investment Bank generated a pretax profit of EUR 622 million 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 EUR 2.3 billion 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 reengagement with revenues increasing by over 40% with our top 100 institutional clients.

Noninterest expenses of EUR 1.5 billion 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 million 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 & 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 & 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 EUR 4 billion, our noninvestment-grade bridge exposure is significantly lower than in 2008. Across Origination & Advisory, we continued 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 pretax profit of EUR 132 million in the quarter. Excluding specific revenue items, restructuring and severance as well as transformation charges, pretax profit was EUR 197 million 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 continue 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 EUR 2 billion and generated net inflows of EUR 4 billion into investment products. We continue with the integration of our operations in Germany and expect to complete the legal entity merger as planned in the second 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.

Noninterest 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 EUR 70 million in the quarter. Provisions for credit losses were EUR 139 million or 24 basis points of loans, reflecting the normalization of provisions we have previously discussed.

Revenues of EUR 2.2 billion 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 first quarter, we grew fee income from investment products, reflecting the success of targeted product initiatives and grew loans by EUR 2 billion, 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-19-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 in emerging markets in the first 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 stand-alone financials. Asset Management reported a pretax profit of EUR 110 million in the quarter, an increase of 14% from the prior year period, mainly driven by lower costs with revenues broadly flat. Noninterest 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 EUR 700 billion declined significantly in the quarter, driven by the market disruption in March. Net flows were modestly negative with EUR 2 billion of outflows as the strong inflows from January and 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 million in the quarter, primarily reflecting fees earned in our real estate business. Consistent with the guidance the 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 EUR 51 million, predominantly due to the negative change in fair value of guarantees.

Corporate & Other reported a pretax loss of EUR 24 million in the quarter compared with a pretax loss of EUR 15 million 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 first quarter. Revenues in the first quarter were negative EUR 59 million or negative EUR 82 million, 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 noncompensation direct costs.

Total noninterest expenses of EUR 694 million were essentially flat to the fourth quarter, as EUR 247 million 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 first quarter 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. Second, 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%.

Third, on adjusted costs, we are on track to reach or likely improve upon our EUR 19.5 billion 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 first quarter is offset by lowered expectations later in the year. Provisions for credit losses are now forecast to be in a range between 35 and 45 basis points of loans in 2020. We expect the majority of these provisions to be taken in the first half of 2020 with a normalization later in the year. This reflects our expectations of the macroeconomic impact from COVID-19, 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're 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.


James Rivett, Deutsche Bank Aktiengesellschaft - Head of IR [5]


Emma, let's open the line up for questions now.


Questions and Answers


Operator [1]


(Operator Instructions) The first question comes from the line of Daniele Brupbacher with UBS.


Daniele Brupbacher, UBS Investment Bank, Research Division - MD, Banking Analyst and Head of Equities Research Switzerland [2]


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. 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 secondly, you briefly mentioned group revenues and the revised expectations as well. Do 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, 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 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?


James von Moltke, Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board [3]


Thank you, Daniele. It's James here. I'll take the first and third questions on capital and then ask Christian to speak to the IB revenue.

So first of the -- 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 1/4 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% that deliver maybe together 10 basis points in the 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 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 a 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, but 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 a 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.


Christian Sewing, Deutsche Bank Aktiengesellschaft - CEO & Chairman of Management Board [4]


Yes. Thank you, Daniele, 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 the continued development since our restructuring in the third quarter. It started actually with management changes and the focus on the key businesses, be it in FIC 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 strength 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 position. 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 first 4 months, I'm confident that we can achieve the goal, which we outlined here 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 4 businesses, makes us confident that we can achieve flattish revenues or slightly below 2019. So I'm confident there.


Operator [5]


The next question comes from the line of Jernej Omahen with Goldman Sachs.


Jernej Omahen, Goldman Sachs Group Inc., Research Division - MD & Head of the European Financial Institutions Group [6]


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 -- and 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 2008 and '09 and '11 and '12. So that even with all the government support index, that would be my first question.

My second question would be just staying with the loss guidance of 35 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 the 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 and stakeholders in the bank still hold true, and you'll be able to execute on that?


Christian Sewing, Deutsche Bank Aktiengesellschaft - CEO & Chairman of Management Board [7]


Thanks, Jernej. Let me take number 1 and 3, and James can talk about the details of the calculation of the 34 to 45 (sic) [35 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 then in the crisis of 2008 for 3 reasons.

Number one, 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 one, immediate liquidity support. Number two, 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., Kurzarbeit, I guess, is actually taken up now by 4 million people -- almost 4 million 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 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 million 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 three, now the best person to answer that one is obviously Stuart Lewis. I think we also learned our lesson from the times in 2007, 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 3 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 restructuring, this is not impeding us at all to do that what we want. We are clearly discussing that with our partners. There is no 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 19.5 billion cost goal for the end of the year. So there is no stop to it.

Also, Jernej, 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 cost with regard to travel. That is cost 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?


James von Moltke, Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board [8]


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, a 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 '18 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 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 a 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.


Jernej Omahen, Goldman Sachs Group Inc., Research Division - MD & Head of the European Financial Institutions Group [9]


Can I just maybe just ask one follow-on. So the EBA's peak 1 year loss is 82, the one that it's calculated. The one that you're guiding for is 34 to 45 (sic) [35 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, obviously, it just looks odd, but I think the question is different. So 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. So I was just wondering, assume that you are wrong and the credit loss is not 45, but it's closer to EBA's estimate of 80, what are those dynamic actions that the bank can take to offset this event?


James von Moltke, Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board [10]


So let me again -- yes, just 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, there's 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's 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.


Christian Sewing, Deutsche Bank Aktiengesellschaft - CEO & Chairman of Management Board [11]


Jernej, 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 is a cushion for us also to handle that situation.


Operator [12]


The next question comes from the line of Christoph Blieffert with Commerzbank.


Christoph Blieffert, Commerzbank AG, Research Division - Equity Analyst of Financials [13]


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-19 crisis?

Secondly, on the KfW support scheme. Here it would be helpful if you could share the economics of the program from your P&L perspective. And here in particular, whether there's a fee from KfW for banks passing through the loan to the client?


Christian Sewing, Deutsche Bank Aktiengesellschaft - CEO & Chairman of Management Board [14]


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 clients' 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 #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 fortunate 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 margins 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, there were active participations of the German banks, including us. And hence, we are happy to support these programs also from a profitability point of view.


Operator [15]


The next question is from the line of Jon Peace with Crédit Suisse. 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.


Andrew Lim, Societe Generale Cross Asset Research - Equity Analyst [16]


So you talked about your capital ratios, but briefly wanted to focus on the leverage ratio, which has dropped back to 3.5%. I was wondering if you had the same expectation with expansion in the balance sheet that this fall a bit further. And if so, to what level? And I asked 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 moratory across the whole group? And then going forward, what would change your accounting treatment of those loans such that they might be regarded as nonperforming under IFRS 9?


James von Moltke, Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board [17]


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 or your 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 Release 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 as it relates to moratoria, you're correct. The guidance, 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 third quarter, 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 and 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, which, of course, is very helpful to the economy. I hope that helped.


Operator [18]


The next question is from the line of Piers Brown with HSBC.


Piers Brown, HSBC, Research Division - Banks Analyst [19]


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 loan than you have Stage 1 and 2, 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 1 and 2 provisions. I think you've given some economic forecast 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 EUR 88 million. I mean, I hear everything you're saying about not having any issues in terms of implementing the restructuring as you'd planned. But just in terms of that number being below the run rate of the EUR 500 million year -- full year target, I wonder if you could just give a little bit of color on that. I mean, should we just expect there to be catch-up in the coming quarters on -- in terms of what you're booking for restructuring and severance?


James von Moltke, Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board [20]


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 had been -- as you saw in our disclosure, Page 12, there's 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 of 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, the -- as I mentioned, about EUR 100 million of additional provisions, had you walk that forward to the end of April. There is a difference between, therefore, the -- what is -- 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 which we built reserves at the end of last year. And in some senses, the pipeline refills, and then we recognize new reserves as new actions become essentially defined to 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 '21 are then reflected in the reserves that we take in 2020.


Piers Brown, HSBC, Research Division - Banks Analyst [21]


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?


James von Moltke, Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board [22]


So the scenario is the same. It just extended the horizon to 3 years and removed some of the, what I would -- what would have been, significant procyclicality 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 procyclicality 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.


Operator [23]


The next question comes from the line of Adam Terelak with Mediobanca. (Operator Instructions)


Adam Terelak, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Banks Analyst [24]


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 second quarter 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-19 impacts through the denominator of your capital before you get some relief, it sounds, from the commission's 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 EUR 19 billion 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?


James von Moltke, Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board [25]


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. The -- 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 pointed 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 will wash out over a 1-year period after that. And equally, PruVal will reflect now the -- as we've now done in the first quarter accounts, will reflect the higher market dispersion. But that, again, will wash out of the PruVal, 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?


Adam Terelak, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Banks Analyst [26]


Yes. It was on Stage 2 loans up EUR 19 billion, but the reserves attached to it kind of EUR 100 million or so. So just why that number is so small? Maybe it's to do with the nature of IFRS 9 3-year averaging and paydown assumptions.


James von Moltke, Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board [27]


Yes. So one thing you need to remember, as you think about the state -- 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 2 things.


Operator [28]


The next question comes from the line of Magdalena Stoklosa with Morgan Stanley.


Magdalena Lucja Stoklosa, Morgan Stanley, Research Division - MD [29]


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 of April on that calculation maybe? So that's the question one.

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 second quarter from the perspective of macro?


James von Moltke, Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board [30]


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 of 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 2 things offset, and all you had was the -- was that relatively limited amount of volatility at the end of March in the averaging.


Christian Sewing, Deutsche Bank Aktiengesellschaft - CEO & Chairman of Management Board [31]


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 first quarter, 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, that 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 they are -- obviously, the deposit tiering 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 and Corporate Bank, we can stay almost flattish and retail bank only, a slight decrease.


Operator [32]


The next question comes from the line of Kian Abouhossein with JPMorgan.


Kian Abouhossein, JP Morgan Chase & Co, Research Division - MD and Head of the European Banks Equity Research Team [33]


Yes. First of all, I think you have produced the best earnings report of any of your peers because it had actually discussed the COVID-19 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 9 numbers, and you highlight clear on Page 19 the base case. Can you just tell us also -- since you're doing it 3 years 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 '21 and '22? And in that context, I don't fully understand why your provisions will change -- sorry, how a 3-year scenario will impact your Stage 1 loans because Stage 1 loans only assume 12-month 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.


James von Moltke, Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board [34]


Sure. There's a lot 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 first 2 years and then up. They're clearly not as severe as I suspect what will go into the models this quarter. 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 procyclicality is in Stage 1 because the very sharp -- as a procyclicality of using individual quarters rather than an annual average because the very sharp movement in GDP in the first 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 procyclicality in the earlier methodology. So interestingly, and perhaps counterintuitively, the procyclicality is in the higher-quality buckets.

In terms of leverage lending, as we noted, we had about EUR 4 billion, EUR 4.1 billion 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, of the bridge commitments. And when I say almost entirely, I'd say 4/5 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.


Operator [35]


The next question is from the line of Stuart Graham with Autonomous Research.


Stuart Oliver Graham, Autonomous Research LLP - Head of Banks Strategy [36]


I had 2 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 assume government support measures were wholly ineffective? So basically, no management overlay. You just let the models do their thing.


James von Moltke, Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board [37]


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 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 EUR 8-or-so billion, 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'd just point to the procyclicality 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.


Stuart Oliver Graham, Autonomous Research LLP - Head of Banks Strategy [38]


No, 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?


James von Moltke, Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board [39]


Well, they're only -- they're built into the ratings that our credit officers assign to each obligor. So that -- 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 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.


Operator [40]


The next question comes from the line of Amit Goel with Barclays.


Amit Goel, Barclays Bank PLC, Research Division - Co-Head of European Banks Equity Research [41]


So 2 questions. I guess one, just again, following on the asset quality point. 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 EUR 52 billion and then the incremental provision being the EUR 260 million, 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 EUR 2 billion. 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?


James von Moltke, Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board [42]


So let me go in reverse order just to hit the Level 3. So it was EUR 4 billion 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, their 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 liabilities, were the gains and losses, but it's fully reflected in the first quarter results. The -- 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?


Christian Sewing, Deutsche Bank Aktiengesellschaft - CEO & Chairman of Management Board [43]


I can do this, James, if you like?


James von Moltke, Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board [44]


Yes. Sure.


Christian Sewing, Deutsche Bank Aktiengesellschaft - CEO & Chairman of Management Board [45]


Amit, I mean, I think actually, Page 13 is, in this regard, a good page to, again, through the subpockets. 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 subportfolios in the oil and gas, 80% of the limits -- 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 subinvestment-grade ratings, you have a high degree of collateral with loan to values, where, I would say, this is rather conservative. And then in subportfolios, 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 has 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 EUR 51 billion portfolio in total.


James von Moltke, Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board [46]


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, on the slide that Christian referenced to.


Operator [47]


We have time for one more question. The last question comes from the line of Andrew Coombs with Citi.


Andrew Philip Coombs, Citigroup Inc, Research Division - Director [48]


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 cost, you're obviously very confident you can still hit the 2020 target or potentially even beat the target, and that's despite some of the announcements about suspending redundancy 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 Investment Bank at your Investor Day, of the EUR 1.2 billion, I think only EUR 0.2 billion was coming from the front office kind of duly done. The majority is coming from back-office cut still had to do. So could you just elaborate on what exactly give you the confidence on the cost save target? And what is substituting in for the lower compensation costs that you would have otherwise had, have you found cost saves elsewhere to achieve it? That will be the first question.

And the broader question on reserving. I appreciate everything you said. I appreciate the position you've been fit in between what the auditors request and what the EBA has requested. And I have a lot of sympathy to the point on avoiding procyclicality. 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, to some extent, showing the credibility of bank reporting at the moment.


Christian Sewing, Deutsche Bank Aktiengesellschaft - CEO & Chairman of Management Board [49]


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 one, we have achieved now, for 9 quarters, our cost target, and that tells you that we have full discipline, full control and management visibility into comp costs, but also non-comp 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 one.

Number two, 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 and 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 or even be better than that.


James von Moltke, Deutsche Bank Aktiengesellschaft - CFO & Member of Management Board [50]


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 first 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, our consumer unsecured is a relatively small part of the book overall. 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&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.


Operator [51]


In the interest of time, we have to stop the Q&A session, and I hand back to James Rivett for closing comments.


James Rivett, Deutsche Bank Aktiengesellschaft - Head of IR [52]


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.


Operator [53]


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