Deutsche Bank Aktiengesellschaft (DB) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary presents a positive outlook with strong financial performance, cost efficiency achievements, and a robust shareholder return plan. The Q&A section reveals confidence in capital distribution, strategic growth, and mitigation measures. Despite some unclear responses, the overall sentiment is optimistic, supported by revenue growth, capital efficiency, and strategic initiatives. These factors suggest a likely positive stock price movement in the short term.
Key Financial Performance
Revenue Revenues grew 6% year-over-year to EUR 16.3 billion in the first half of 2025. This growth was attributed to the diversified business model and strong operating leverage.
Noninterest Expenses Noninterest expenses declined 15% year-over-year to EUR 10.2 billion. This was due to operational efficiency measures and offsetting business investments and inflation.
Cost/Income Ratio The cost/income ratio improved to 62%, reflecting strong operating leverage and cost management.
Return on Tangible Equity (RoTE) RoTE was 11% in the first half of 2025, in line with the target of greater than 10%. This was supported by strong operating performance despite increased volatility.
CET1 Ratio The CET1 ratio stood at 14.2%, enabling capital deployment for business growth and shareholder returns.
Pre-Provision Profit Pre-provision profit was EUR 6.2 billion in the first half of 2025, nearly double the same period in 2024. Adjusting for Postbank litigation impacts, it was up 29% year-over-year due to strong operating leverage.
Net Commission and Fee Income Net commission and fee income increased by 4% year-over-year, driven by growth in fee-based and capital-light businesses.
Adjusted Costs Adjusted costs remained flat year-over-year, as operational efficiency measures offset business investments and inflation.
Net Interest Income (NII) NII across key banking book segments was EUR 3.4 billion, stable quarter-on-quarter despite FX headwinds. This was supported by structural hedge portfolios and lending income.
Provision for Credit Losses Provision for credit losses was EUR 300 million in Q2 2025, reduced due to model updates benefiting the Private Bank, though CRE provisions remained elevated.
Diluted Earnings Per Share Diluted earnings per share was EUR 0.48 in Q2 2025, reflecting robust profit generation.
Tangible Book Value Per Share Tangible book value per share increased to EUR 29.50, up 3% year-over-year, driven by AT1 coupon and dividend payments as well as FX impacts.
Corporate Bank Revenues Corporate Bank revenues were flat year-over-year, with interest hedging and higher deposits offsetting margin normalization and FX headwinds.
Investment Bank Revenues Investment Bank revenues increased 3% year-over-year, driven by strength in FIC Financing and macro products, despite FX headwinds.
Private Bank Revenues Private Bank revenues grew 10% year-over-year, supported by net interest income growth of 5% and net commission and fee income growth of 1%.
Asset Management Revenues Asset Management revenues increased 9% year-over-year, driven by higher management fees and performance fees from infrastructure funds.
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Operating Highlights
DWS Stablecoin: DWS and its partners received BaFin approval to issue Germany's first fully regulated euro-denominated stablecoin.
Corporate Bank Market Position: Corporate Bank has a leading market position in Germany and is well-positioned to capitalize on investment programs in Germany and Europe.
Investment Bank Market Position: Investment Bank is consolidating its position as the leading European FIC franchise and expanding its Advisory market share.
Asset Management Global Reach: Asset Management is positioned as a gateway to Europe for global investors, with over EUR 1 trillion in diversified assets under management.
Operational Efficiencies: Achieved 90% of EUR 2.5 billion operational efficiency target, with EUR 2.2 billion in cost efficiencies delivered or expected.
Cost/Income Ratio: Reduced cost/income ratio to 62%, aligning with the full-year target.
Branch Network Optimization: Private Bank closed 85 branches and reduced workforce by 700 in the first half of 2025.
Made for Germany Initiative: Launched initiative with leading German companies to prioritize growth and competitiveness in Germany.
Capital Efficiency Measures: Achieved EUR 30 billion in capital efficiencies, with further opportunities identified for the second half of 2025.
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Risk or Challenges
Commercial Real Estate (CRE) Provisions: Provisions for commercial real estate remain elevated, with ongoing valuation pressure on existing nonperforming exposures, particularly on the U.S. West Coast. This creates uncertainty in the macroeconomic environment and could impact the bank's portfolio performance.
Foreign Exchange (FX) Headwinds: The weaker U.S. dollar poses a small headwind to pretax profit, as the negative impact on revenues outweighs the benefit on expenses. This could affect the bank's financial performance if FX rates persist.
Regulatory Changes (CRR3 Implementation): The implementation of CRR3 could lead to a hypothetical RWA inflation of EUR 118 billion by 2033. While mitigation measures are planned, the transitional arrangements and potential expiry of rules create uncertainty and could impact capital costs and lending.
Litigation Risks: The Postbank takeover litigation continues to have financial implications, although provisions have been reduced. This ongoing issue could still pose risks to the bank's financial stability.
Macroeconomic Uncertainty: Uncertainty in the macroeconomic environment, including developments around CRE and broader economic conditions, could impact asset quality and provisioning levels.
Market Volatility: Extreme market volatility, particularly in early April, has impacted certain revenue streams, such as Origination & Advisory (O&A), and delayed material transactions, which could affect future revenue growth.
Cost Pressures: While cost efficiencies are being achieved, inflationary pressures and the need for ongoing investments in transformation and digitalization could strain the bank's cost management efforts.
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Guidance & Outlook
Revenue Growth: The company is on track to meet its full-year 2025 revenue target of approximately EUR 32 billion, supported by strong first-half performance and diversified business mix. Revenue growth is expected to continue, driven by fee-based and capital-light businesses, as well as investments in growth areas like Wealth Management and Private Banking.
Cost Management: The company has achieved 90% of its EUR 2.5 billion operational efficiency target and continues to focus on strict cost management to meet its profitability and efficiency goals. The cost/income ratio is expected to remain below 65% for 2025.
Capital Position: The CET1 ratio of 14.2% is expected to remain strong, enabling further capital distributions to shareholders. The company plans to exceed its EUR 8 billion distribution target and has applied for a second share buyback.
Provision for Credit Losses: Provisions are anticipated to decrease in the second half of 2025, despite ongoing challenges in commercial real estate and macroeconomic uncertainties.
Investment Bank Outlook: The Investment Bank aims to consolidate its position as the leading European FIC franchise and grow market share in Advisory. Revenue growth is expected in the second half of 2025, supported by a strong pipeline in Advisory and increased demand for defense finance.
Private Bank Outlook: The Private Bank expects further improvement in returns in the medium term, driven by investments in Wealth Management and Private Banking, as well as ongoing transformation efforts, including workforce reductions and branch closures.
Asset Management Outlook: Asset Management is positioned to benefit from its diversified assets under management of over EUR 1 trillion and aims to act as a gateway to Europe for global investors. Positive net inflows and higher management fees are expected to continue.
Macroeconomic and Market Trends: The company anticipates growth stimulus, defense spending, and structural reforms in Europe to create market opportunities. The 'Made for Germany' initiative is expected to drive growth and competitiveness, benefiting the bank's domestic and global positioning.
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Shareholder Return Plan
CET1 ratio: 14.2% enables us to deploy capital to grow our business and to support clients, while increasing returns to shareholders.
Capital distributions: To date, we have announced EUR 2.1 billion of capital distributions, including the EUR 1.3 billion dividend paid in May and the 2/3 complete EUR 750 million share buyback announced in January.
Dividend payments: Sequential development mainly reflects AT1 coupon and dividend payments as well as FX impacts.
Share buyback: We already applied for a second share buyback in addition to the previously announced EUR 2.1 billion distribution for this year.
Capital distributions: To date, we have announced EUR 2.1 billion of capital distributions, including the EUR 1.3 billion dividend paid in May and the 2/3 complete EUR 750 million share buyback announced in January.
Shareholder returns: We remain comfortable with our capital position and reiterate our commitment to outperforming our EUR 8 billion distribution target.
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Key Q&A
Q:What gives you confidence in achieving the EUR 32 billion revenue target for the year?
A:Christian Sewing expressed confidence in achieving the EUR 32 billion revenue target due to strong performance in fixed income, a good start in July for O&A, and expected stronger performance in Asset Management and the Private Bank in H2. He also mentioned that delayed transactions from H1 are moving into H2, and the German fiscal stimulus will have a more significant impact in 2026.
Q:What is the updated distribution policy regarding the payout ratio and CET1 ratio?
A:James von Moltke clarified that the payout ratio of 50% is not a cap, and excess capital above a CET1 ratio of 14% can be distributed. The 14% CET1 ratio acts as a threshold for defining excess capital, allowing distributions above the 50% payout ratio if capital is sustainably above 14%.
Q:What is the outlook for the output floor and mitigation measures?
A:James von Moltke stated that the output floor is not expected to be binding in the near term, and mitigation measures are being implemented to reduce its impact. Phase 1 mitigation is expected to bring the impact down to zero, and further measures are being developed for Phase 2. FRTB-related impacts are also being addressed, with mitigation actions planned for when the final version of FRTB is in force.
Q:What is the guidance for CLP (credit loss provisions) for the full year?
A:James von Moltke indicated that H2 provisions are expected to be lower than H1, with a full-year guidance of around EUR 1.7 billion. The elevated provisions in H1 were primarily driven by commercial real estate, particularly in the U.S. West Coast, but the rest of the portfolio remains benign.
Q:Are there concerns about the stress test results and their impact on capital distributions?
A:James von Moltke stated that the stress test results on a fully phased-in basis are not relevant as the rules do not apply during the stress test window. Supervisors focus on the drawdown rather than the fully phased-in results. He also mentioned that the bank's capital plan and discussions with regulators are transparent, and there are no concerns about capital distributions being impacted.
Q:What is the bank's view on the execution risk of the German fiscal stimulus?
A:Christian Sewing acknowledged the execution risk but highlighted the government's focus on growth and competitiveness. He mentioned that defense spending has already started, and infrastructure funds will be launched in the second half of the year. The main impact of the fiscal stimulus is expected in 2026, but there is already increased engagement from corporates and a positive sentiment change in Germany.
Q:What are the bank's plans for leveraging the fiscal stimulus with private investments?
A:Christian Sewing explained that the bank is working with institutions like EIB and KfW to leverage the fiscal stimulus with private investments. He mentioned that the EUR 500 billion infrastructure fund could potentially be multiplied 4-5 times through private investments and bank debt. The bank aims to connect private investors with public spending and leverage the funds for growth.
Q:What is the bank's strategy for market share growth in the Private Bank and Corporate Bank?
A:Christian Sewing emphasized the bank's strong position to grow market share in the Private Bank and Corporate Bank. He highlighted the completion of IT integration, investments in digitalization, and a focus on deposit and asset management growth in the Private Bank. In the Corporate Bank, he mentioned increased resources for defense and infrastructure financing and a strong position in the home market.
Q:What are the bank's plans for cost optimization and future savings?
A:Christian Sewing stated that the bank has achieved 90% of its EUR 2.5 billion cost savings target and is working on plans beyond 2025. He mentioned initiatives like front-to-back processing, digital credit processes, and reengineering the FIC business to achieve further cost savings and improve efficiency.
Q:What is the bank's view on the competitive landscape with U.S. investment banks?
A:Christian Sewing acknowledged the strength of U.S. investment banks but emphasized Deutsche Bank's position as a European alternative. He mentioned that clients value having a European option, especially in the current geopolitical environment, and the bank has been gaining market share in areas where it is competitive.
Q:What is the outlook for O&A (Origination and Advisory) and its contribution to revenues?
A:James von Moltke mentioned that O&A had a strong start in July and is expected to perform better in H2 than in H1. He highlighted the strong client dialogue and opportunities in areas like defense and infrastructure financing, particularly in Germany.
Q:What is the bank's strategy for the next business plan?
A:Christian Sewing outlined three guiding principles: maintaining the four distinct business segments, focusing on growth opportunities in Europe and Germany, and optimizing capital allocation and cost efficiency. He emphasized the importance of being a global bank out of Europe and leveraging the fiscal stimulus for growth.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer to the question about the multiplier to GDP in terms of growth that Deutsche Bank can deliver. Christian Sewing provided general comments about the fiscal stimulus and its impact but did not offer specific numerical or detailed insights into the multiplier effect.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CRE environment
EUR distribution
EUR model
EUR product
FIC Financing
FX effect
FX headwind
FX impact
Inc Research
Noninterest
Postbank takeover
RWA EUR
Research Division
Revenues FX
arrangement
assumption portfolio
bank product
commitment EUR
coupon dividend
date expense
defense
floor EUR
forma
implementation CRR
inflow EUR
leverage increase
loss EUR
loss default
market volatility
mitigation
model update
output floor
pathway
portfolio optimization
ratio date
rule
share EUR
takeover litigation
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