- 10 months ago
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00:00I looked at the numbers and the numbers for the third quarter, all the ones I've seen seem to be better than the estimates.
00:06What are you most pleased with about the way that the quarter has performed?
00:11Well, look, Anna, thank you for the question. It's a record quarter for Deutsche Bank.
00:15And really, the pleasing thing is really is two things.
00:19All businesses are showing momentum and have been doing so for the nine months and the three months.
00:23And we're on track to achieve our targets that we set out for 2025 all the way back in 2022,
00:30which is a return on tangible equity above 10 percent and a cost income ratio below 65 percent.
00:36And as you say, all the numbers are pointing in the right direction this quarter.
00:40Can I home in a little on how you're performing in FIC?
00:42Because it does seem as if you've done better than some of the Wall Street averages, in particular around rates trading.
00:47I wanted to ask you about where you've managed to get some strength in that business.
00:51Yes. So macro has been strong all year, up all together in the FIC complex this quarter, 19 percent.
01:00And on an FX adjusted basis, that's, I think, in line with the best of our competitors.
01:05As I say, macro products have been strong all year.
01:07But in this quarter, credit trading also came through with very strong results.
01:12And so we like what we're seeing in terms of both sort of the market tone,
01:16but also our capabilities, our ability to gain market share in this in this environment.
01:23And the September Fed rate cut, has that helped to drive volumes, hedging, rethinking of strategies in that area?
01:31Well, certainly in investors and also, if you like, real money.
01:35So duration managers are looking to position ahead of the Fed moves.
01:39We're expecting a move today, and I think the market is pricing one in for later this year as well.
01:45There's also been a fair amount of volatility.
01:48It hasn't been by any stretch of the imagination at record levels, but there's been a fair amount of volatility all year.
01:54That's obviously been conducive to the businesses.
01:57You've also seen some strong performance in your asset-backed finance business and then the securitization of those assets as well, James.
02:05How sustainable is the growth in that area?
02:08Well, let me start with we've been in that business for a very long time, over 20 years, in what we call FIC financing.
02:15And it is essentially secured financing, as you say.
02:19The spreads have no doubt been under pressure as more money comes into that market.
02:24But at Deutsche Bank, we've been able to innovate and be in sort of new structures, new underlying asset classes.
02:31And that served us very well in terms of the fund book pricing.
02:36So we're confident about that business going forward, but obviously very aware that there's more competition, both from the other banks as well as the private credit industry.
02:44And talking about private credit, we've seen a lot of focus on that area, of course.
02:48I don't see any mention of any specific provisions for losses around some pretty high profile collapses recently.
02:54I'm thinking of Tricolor and First Brands over in the United States.
02:58Ambipar in Brazil got a lot of headlines as well.
03:00Have I just missed those or has your business been successful in avoiding those pitfalls?
03:07We have, Anna.
03:07So you haven't missed anything.
03:09We weren't directly or indirectly exposed to any of the high profile cases recently.
03:15You know, without chest beating, we think it speaks to the underwriting and monitoring of the portfolio.
03:21That portfolio is highly secured, low LTV.
03:25As I say, we've been in the business for a long time.
03:28So we know our sponsors and have good capabilities to sort of monitor the exposures and the underlying assets.
03:35So we're pleased to have been able to avoid in this instance those recent high profile cases you mentioned.
03:42Yeah.
03:42Even if there's been no direct or indirect exposure, as you say, it's caused a lot of people to just check again at their exposures, in particular in the United States, perhaps, and other areas.
03:52Have you been doing that?
03:53Have you been taking another look at some of the exposures just to make sure that you're happy with everything?
03:58We have.
04:00You know, in an environment like the one we've seen, where a lot of capital is coming into the market, obviously you worry that that has resulted in, call it, over-exuberance and lax underwriting standards.
04:12First of all, we are strict and disciplined about our risk appetite and maintaining underwriting standards.
04:18But secondly, you get to learn from the experiences and naturally conduct a read-across in your portfolio.
04:24We've done that exercise.
04:26We're comfortable with the portfolio.
04:27But obviously, we're vigilant as well to make sure that there's nothing that looks or smells like those recent events in our books.
04:35Yes.
04:36I mean, are you worried about so much money, private credit, doing so much lending, the business that banks used to do?
04:43I know that you work with private credit businesses, but you also compete against them.
04:47Are you concerned at the pace at which private credit is encroaching on the turf that would previously have been left for the banking sector?
04:55Look, it's a great question.
04:57Strategically, we naturally ask ourselves that question.
05:00I would say on the positive side, it's meant that the market for us to distribute loan originations into is, of course, more vibrant, better priced, deeper.
05:10And I think that's positive for Deutsche Bank.
05:12It's positive for the banking industry.
05:14But naturally, we see, as I mentioned, pressure on spreads.
05:16We see instances where banks are disintermediated altogether, and that creates some concern.
05:23For us, we've been working with the sponsors for, as I say, many years.
05:27And so we look to build a strong partnership and also be able to originate into our own asset management affiliate, DWS.
05:35And in that partnership, we think there's an avenue for growth for the group overall as well.
05:40So I would say we're comfortable with how it's evolved, but watching carefully.
05:44Yes, and I sense you're watching the sector carefully then.
05:48Are you then concerned that competition between private credit and the banking sector has weighed on spreads too much and that perhaps risk is being mispriced?
05:56Certainly.
05:58Certainly.
05:59At the moment, we see overall credit indices priced at their tights.
06:06The question is, with the supply of capital in the market, does that actually represent a new pricing norm rather than, again, an over-exuberance and something from which we'll have to sort of mean revert?
06:19I think we're actually comfortable with today's pricing against the credit quality in the marketplace and, again, the supply and demand of capital.
06:28But it bears watching from here, I would say.
06:31And, of course, we will inevitably go through a credit cycle.
06:36And in that first credit cycle with a much greater role that private credit is playing in the marketplace, we'll, I'm sure, learn some lessons in terms of how creditors respond, support obligors in difficulty, work with each other in restructuring cases.
06:52And so I think there's still a lot to learn about this new ecosystem.
06:55Yes. We're watching also very closely what's developing on the fiscal side in Germany, James.
07:01Could I ask you, as we learn more and more about what that will and won't deliver and by when, how are you expecting to see that fiscal push, whether it's infrastructure or defence spending, show up for Deutsche Bank?
07:13Well, look, it's gaining momentum now.
07:15You've seen, obviously, the debt break actions were much earlier this year and the market got excited about what Germany is able to do in terms of fiscal expansion and the impact on our economy here.
07:25But then, inevitably, the government needs to go through its budgeting and allocation processes.
07:32We've also been looking carefully at the supply side reforms.
07:36We think that's gaining momentum.
07:37And to your question, for Deutsche Bank, we'd never anticipated a meaningful impact in 2025, but a growing impact across all of our businesses in 26 and beyond.
07:48I think we are uniquely positioned as Germany's leading bank to intermediate, support, arrange the financing and the allocation of this capital private sector as it serves the government's needs.
08:04And so we think it is a real opportunity for a DB as we go forward.
08:08And sticking with German politics, James, we've seen the German Chancellor talking about the possibility of bringing equity activity together in one place in Europe.
08:18He's been talking, Friedrich Merz has been talking about the creation of a pan-European stock exchange.
08:23How would you respond to that possibility?
08:25Certainly, we think anything that drives, if you like, efficiency for the capital markets in Europe and uniformity across the European markets is going to be good for investors.
08:39Anything that makes Europe less complex in terms of its rule sets and also deeper in terms of liquidity to invest in will be good for capital formation in Europe.
08:50So we absolutely support Friedrich Merz in that statement.
08:54Now, it's for the exchange operators to figure out how to make that a reality and also for the regulators and legislators to look at how that would be governed.
09:03But overall, we'd see that as a positive signal for Europe.
09:06James, if I'll just finish with one big picture question, we have President Trump in Asia this week.
09:12So a lot of headlines, a lot of news being created around trade between China and the United States.
09:18We've seen a lot of volatility on that subject, certainly through 2025.
09:22How are your clients handling that kind of news agenda, that fast paced news agenda?
09:29What kind of adaptation are they putting in place?
09:32What do the conversations look like?
09:34Well, look, it's been a year of almost frenzied headlines and changes, but I'd say a year of adaptation for our clients.
09:45And I'm speaking not just of Germany, but Europe and our global corporate clients in particular, who've had to look at their supply chains, having to look at how they react to changing tariffs and also competition, because the tariffs is not only a one-way question about the United States, but also how other exporting nations respond to it.
10:04But under the surface, Anna, we've seen real progress in how corporates have responded, looking at, in every case, the specificities of their business.
10:15Where do they manufacture?
10:16Do they have sort of competitive and therefore edge and therefore market pricing power?
10:22What does their supply chain look like?
10:24And we've been, again, uniquely positioned to, I think, help clients, especially German clients, react and reposition themselves to be competitive in this landscape.
10:35I wouldn't say this adjustment is over by any stretch of the imagination, but it has been a year of adjustment.
10:40And I think good progress in this regard.
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