WEBVTT - James Von Moltke Talks Banking

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Let's bring you right now our interview and conversation with

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<v Speaker 2>the CFO of Deutsche Bank, James von Moltke, who's been

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<v Speaker 2>speaking to balloom Bugs.

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<v Speaker 1>Oliver Crow, take us through a little bit the composition

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<v Speaker 1>of why where that our performance was.

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<v Speaker 2>Sure, absolutely so. Investment bank and FAKE both up eleven

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<v Speaker 2>percent year on year, and that's against what was already

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<v Speaker 2>a good quarter last year. We think it's it's across

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<v Speaker 2>the board. Frankly, there's really only the rates complex has

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<v Speaker 2>been down given the market environment. Even there, we think

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<v Speaker 2>we've been winning market share. But our credit complex, emerging

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<v Speaker 2>markets and also FX all performed well this quarter. I

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<v Speaker 2>think it's the cumulative impact of investment that Rob Nayak

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<v Speaker 2>and his team have been making over the past several years.

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<v Speaker 2>So we're very pleased with that performance.

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<v Speaker 1>And Harry's developing in now in the fourth quarter. And

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<v Speaker 1>are you're expecting that to sort of ramp up? We

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<v Speaker 1>have a sort of knife edge US election, you know,

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<v Speaker 1>very hard to call. Is that going to sort of

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<v Speaker 1>be a boon to trading?

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<v Speaker 2>Well, Well, look we're off to a good start in

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<v Speaker 2>the quarter, so that's encouraging. We think the conditions of

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<v Speaker 2>the third quarter have carried through without the volatility, incidentally,

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<v Speaker 2>that we saw in August. Usually we see strength around

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<v Speaker 2>a US election, you know, as investors and also corporates

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<v Speaker 2>need to position and react to changes in the markets

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<v Speaker 2>and expectations, and so that's what we'll expect to see

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<v Speaker 2>really once we get past the milestone number of fifth right.

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<v Speaker 1>And also this year was marked by sort of a

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<v Speaker 1>lot of provisioning for the post bank situation that you're

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<v Speaker 1>still dealing with. There still awaiting a court ruling. We

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<v Speaker 1>got some of that money back.

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<v Speaker 2>Is it enough to.

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<v Speaker 1>Justify a buyback this year? I know that now you've

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<v Speaker 1>asked for the authorization or is it going to be

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<v Speaker 1>more into next year? Can you U clarity on it?

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<v Speaker 2>Yeah, so we have applied for authorization for a further

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<v Speaker 2>buyback which would be executed in twenty twenty five. The

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<v Speaker 2>postbank provision we've seen a release this quarter which is

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<v Speaker 2>good on the basis of settlements that we were able

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<v Speaker 2>to finalize. We have a court case today actually this morning,

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<v Speaker 2>so we're expecting more news on that. Hard to say

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<v Speaker 2>what the direction is, but it's certainly been supportive we

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<v Speaker 2>think we've reacted well to the setback that was the

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<v Speaker 2>court's sort of expression back in April, and it's gratifying

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<v Speaker 2>to have gotten through that with strong capital and now

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<v Speaker 2>with settlements behind us, a mitigation of the income statement impact, and.

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<v Speaker 1>Looking at that buyback into twenty twenty five. What sort

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<v Speaker 1>of size are you aiming for.

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<v Speaker 2>Well, we won't speak directly to size, but we've laid

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<v Speaker 2>out a sort of a capital plan which is which

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<v Speaker 2>is of increasing levels of return to our investors, representing

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<v Speaker 2>a normalization in some respects of catchup which we expect

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<v Speaker 2>to achieve over the next couple of years relative to peers.

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<v Speaker 1>And also noticing that provisions were up but interestingly down

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<v Speaker 1>massively in commercial real estate. Can you talk us through

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<v Speaker 1>that a little bit.

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<v Speaker 2>Well, yes, So provisions have been influenced this year by

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<v Speaker 2>a few transitory effects, all of which we expect to

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<v Speaker 2>either ameliorate or cease next year. One has been the

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<v Speaker 2>impact of the Pustbank integration, second HA being a couple

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<v Speaker 2>of larger corporate in Europe, which in our case we're hedged.

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<v Speaker 2>So the impact to shareholders if you like, was moderate.

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<v Speaker 2>But as you say, commercial real estate has been going

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<v Speaker 2>through a cycle that we've been living with. We'd actually

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<v Speaker 2>called relatively early for a stabilization in that credit environment.

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<v Speaker 2>We've seen that continue in the third quarter. Whether that's

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<v Speaker 2>driven by interest rates, the economy now, interestingly, lease activity,

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<v Speaker 2>and of course the indices that you can see publicly,

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<v Speaker 2>all of those things tell us there's a stabilization for us.

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<v Speaker 2>We were down by over thirty four percent or so

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<v Speaker 2>in provisions in commercial real estate, and actually that included

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<v Speaker 2>a sort of an acceleration based on a sale that

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<v Speaker 2>we're contemplating of some valuation adjustment. So we feel that

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<v Speaker 2>trend is well established now.

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<v Speaker 1>And talking of sales, it's been a big core also

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<v Speaker 1>for M and A within Germany, your origination advisory business

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<v Speaker 1>up twenty five percent. You've been able to capitalize on that.

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<v Speaker 1>Then we have sort of our market share this year.

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<v Speaker 2>I mean, we're up significantly over fifty percent this year

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<v Speaker 2>in last year's revenues. With that a market share gain

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<v Speaker 2>to around two and a half two point six percent

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<v Speaker 2>so far this year. That's encouraging. The wallet was a

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<v Speaker 2>little bit softer in Q three, but we think that

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<v Speaker 2>was sort of seasonal and temporary. The momentum is there.

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<v Speaker 2>And we look forward with the investments that we've made

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<v Speaker 2>in Origination advisory franchise to participating and further improving our

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<v Speaker 2>market share.

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<v Speaker 1>And I wonder what it tells us more broadly about

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<v Speaker 1>the German economy, because a lot of this M and

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<v Speaker 1>A has been incoming to Germany and not sort of

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<v Speaker 1>going out. Is there sort of a sense of Germany

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<v Speaker 1>for sale a little bit, particularly with the weakness in

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<v Speaker 1>the economy.

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<v Speaker 2>I don't see that at all, and I think it's

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<v Speaker 2>actually both ways. And whether it's M and A or

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<v Speaker 2>just the foreign direct investment that's taking place, we see

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<v Speaker 2>certainly two way flows. I mean, Germany always has some

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<v Speaker 2>sort of interesting features around sort of private middle market

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<v Speaker 2>companies sometimes selling strategically or to private equity, and then

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<v Speaker 2>our large industrial companies making investments abroad. That has been

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<v Speaker 2>the trend. I don't see that necessarily changing.

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<v Speaker 1>And also question of M and A obviously will not

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<v Speaker 1>have escaped your attention. What's been going on to Commerce

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<v Speaker 1>Bank and down the street, And obviously there's been a

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<v Speaker 1>lot of talk through the years about Deutsche Bank commerce

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<v Speaker 1>Bank potentially getting together. You obviously observed what's been going on,

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<v Speaker 1>You considered getting involved opted not to. I'd just like

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<v Speaker 1>to get from you kind of the sort of process

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<v Speaker 1>of what you observed and where you ended up into

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<v Speaker 1>sort of the decisions you made.

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<v Speaker 2>Well, look, we were always looking at our option set

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<v Speaker 2>as any sort of well managed company should, and domestic

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<v Speaker 2>consolidation is clearly on the list of things that you

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<v Speaker 2>would look at as you observe your option set. We've

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<v Speaker 2>been i think, pretty consistent in saying the industrial logic

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<v Speaker 2>for bank mergers makes sense, but that we needed time

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<v Speaker 2>to be fully ready, and that time hasn't come, and

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<v Speaker 2>so we're focused on executing our strategy, focused on delivering

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<v Speaker 2>against promises we've made to our shareholders and stakeholders, and

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<v Speaker 2>it's sometimes nice not to be distracted by by other

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<v Speaker 2>things and just execute as I think the third quarter

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<v Speaker 2>and the year to date showed that we've been focused

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<v Speaker 2>on execution.

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<v Speaker 1>And I guess you know, if this were to go

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<v Speaker 1>through with UniCredit and commerce market would make an entity

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<v Speaker 1>larger than Deutsche Bank. We've obviously had consolidation in the

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<v Speaker 1>Swiss market. We also have BBVA Sabadel, so this is

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<v Speaker 1>really a moment for European consolidation. I imagine that makes you

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<v Speaker 1>sort of reflect on your position not only within Germany

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<v Speaker 1>but within Europe. Where does Deutsche Bank want to what

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<v Speaker 1>spaces they want to occupy in that landscape and a

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<v Speaker 1>landscape that is more consolidated with bigger banks.

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<v Speaker 2>Well, let me start by saying, we intend to remain

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<v Speaker 2>number one in Germany and we think that consolidation here

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<v Speaker 2>doesn't really change our competitive landscape. Germany is a very

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<v Speaker 2>competitive market as it stands, and we compete against both

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<v Speaker 2>huperfeiens Bank that is UniCredit and Commerce Bank in our

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<v Speaker 2>home market, so that doesn't change much. But your point

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<v Speaker 2>is one that we agree with. We think Deutsche Bank

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<v Speaker 2>is positioned to play a leading role in European consolidation.

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<v Speaker 2>We think that scale in banking, especially in the regulatory

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<v Speaker 2>environment we live in today, is something that's important and

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<v Speaker 2>something we observe again in competition with our US competitors

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<v Speaker 2>as a strength. So in time, absolutely we see that.

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<v Speaker 2>So that's taking place, and sometimes the first few transactions

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<v Speaker 2>sort of set off a wave, and I think that's

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<v Speaker 2>what you're getting at, and we certainly believe that that begins.

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<v Speaker 1>So when do you think the moment is ready for

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<v Speaker 1>Deutschemak to sort of exit this kind of turnaround mode

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<v Speaker 1>into a sort of slightly more aggressive, more maybe acquisitive,

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<v Speaker 1>more sort of proactive mode.

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<v Speaker 2>Well, look, I don't want to set a clock because

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<v Speaker 2>it's it's always hard to say, but look, twenty five

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<v Speaker 2>is an important milestone year for us. I mean, we've

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<v Speaker 2>been working hard over the years through the transformation of

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<v Speaker 2>the company to position us as exceeding in terms of performance,

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<v Speaker 2>exceeding our cost of capital, showing a sustainable picture to

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<v Speaker 2>our shareholders, resolving the remaining control, and other investments that

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<v Speaker 2>we needed to do to make being on the front

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<v Speaker 2>foot competitively. We think we're well on our way to that,

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<v Speaker 2>and next year is an important milestone.

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<v Speaker 1>And from the sort of uncertainty around commerce, like have

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<v Speaker 1>you been able to sort of acquire clients over the

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<v Speaker 1>last couple of months and expect that to happen if

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<v Speaker 1>there is in fact a takeover.

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<v Speaker 2>Look, we it's always helpful competitively when two competitors are

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<v Speaker 2>distracted by corporate events, that creates opportunity. We're ready to

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<v Speaker 2>capitalize on that opportunity. As you'd expect discussions take place,

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<v Speaker 2>but I'd say it's early days. We think we're very

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<v Speaker 2>well equipped as the leading Bank of Germany with our capabilities,

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<v Speaker 2>our international network, our product capabilities and also our relationships

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<v Speaker 2>to support the German economy and to be the leading

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<v Speaker 2>bank in Germany.

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<v Speaker 1>And there's also a new commission within the within Europe

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<v Speaker 1>being led by Mario Draggy and his Competitive Competitiveness Report.

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<v Speaker 1>It seems like policymakers are more receptive to advice on

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<v Speaker 1>how to make things more competitive. So if James von

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<v Speaker 1>Malka were able to bring sort of one change at

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<v Speaker 1>the EU level to make banking in Europe more competitive,

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<v Speaker 1>what would you suggest.

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<v Speaker 2>Well, what's now called the Savings and Investment Union and

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<v Speaker 2>the Banking Union. We've been advocating for years and I

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<v Speaker 2>personally believe in it because the the size of the

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<v Speaker 2>market and again given all of the industrial logic we

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<v Speaker 2>talked about a moment ago about m and A is

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<v Speaker 2>furthered by those types of changes. And we all see

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<v Speaker 2>the need of in the economy for financing of the

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<v Speaker 2>green transition, of the digital transition, of infrastructure investment, public deficits,

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<v Speaker 2>and these are things that the banking industry would be

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<v Speaker 2>better equipped to be able to serve if those reforms

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<v Speaker 2>came through. So we're pleased with what we see both

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<v Speaker 2>in the new Commission, in the Mission letter for Commissioner

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<v Speaker 2>Albuquerque or Commissioner Designate, and also in the Draggi Report.

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<v Speaker 2>This is an important moment for Europe to sort of

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<v Speaker 2>grasp the nettle and move.

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<v Speaker 1>Forward, and an important moment also for the United States.

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<v Speaker 1>An election just a couple of weeks away. What are

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<v Speaker 1>clients telling you about how they're preparing themselves for the outcome?

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<v Speaker 2>Look almost any way the the American election comes out,

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<v Speaker 2>I think there's a recognition in Europe that we need

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<v Speaker 2>to be more agile, more dynamic, more competitive, not just

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<v Speaker 2>against the United States but also against arising Asia. And

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<v Speaker 2>that's I think that's very clear. You know, our clients

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<v Speaker 2>are reading the newspapers and and understand some of the

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<v Speaker 2>policy differences that are likely to come out of an

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<v Speaker 2>election one way or the other. Of course, the congressional

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<v Speaker 2>election is important too in this context. So so I

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<v Speaker 2>think people are aware of the change, getting ready for

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<v Speaker 2>what lies ahead. I think most importantly trat tariffs, and

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<v Speaker 2>we've been through that before in Europe, and so so

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<v Speaker 2>that the trade relationship that we have with the United

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<v Speaker 2>States but also with China is going to be an

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<v Speaker 2>important feature of the post election period.

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<v Speaker 1>And just a final word. Obviously, we've been waiting for

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<v Speaker 1>the comeback in the German economy for what feels like

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<v Speaker 1>more than two years now. Do you have any sort

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<v Speaker 1>of reason to be optimistic that that is imminent or

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<v Speaker 1>do you think that we are kind of going to

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<v Speaker 1>be slogging through for a bit long?

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<v Speaker 2>Look, we've been We've been frustrated and that the recovery

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<v Speaker 2>has has taken so long. You know, the the transition

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<v Speaker 2>that the German economy is going through around exports, currency,

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<v Speaker 2>energy prices of these things is significant. However, we had

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<v Speaker 2>been expecting growth to begin to accelerate in the second

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<v Speaker 2>half of this year and that doesn't seem to be

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<v Speaker 2>the case. Our economists are calling for about one percent

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<v Speaker 2>growth next year in Germany, and I think that's still

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<v Speaker 2>still a fair case to expect, but that transition has

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<v Speaker 2>been has been longer and tougher than we might have

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<v Speaker 2>hoped for. Again, it ties back to I think there

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<v Speaker 2>is a policy mix that can help unlock some of

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<v Speaker 2>the growth potential and accelerate this adjustment.

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<v Speaker 1>And what are those kind of you think those policy

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<v Speaker 1>points that would help do that well?

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<v Speaker 2>I think the first of all the burdens of bureaucracy.

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<v Speaker 2>I think most most, not just financial institutions, but corporates

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<v Speaker 2>would tell you that there needs to be a moderation

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<v Speaker 2>of that. There are fiscal incentives that can be put

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<v Speaker 2>in place. There is support for a venture capital and

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<v Speaker 2>some of the investing. Securitization is a big item within

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<v Speaker 2>the within the financial sector reforms that we would advocate.

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<v Speaker 2>So there's lots to do without asking taxpayers for more money,

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<v Speaker 2>so that very often things get get stuck on government funding.

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<v Speaker 2>But we think there's a there's a whole lot that

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<v Speaker 2>can be growth stimulus without the need for additional fiscal.

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<v Speaker 1>Support and budget neutral things that could happen to really

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<v Speaker 1>turn on the German.

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<v Speaker 2>Beneficial as far as it generates tax revenues. Okay, don

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<v Speaker 2>you might see a fire. James Wilkos speaking to Bloomberg's

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<v Speaker 2>Oliver cro