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Speaker 1: Well, James von Molka, thank you very much for joining

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Speaker 1: this morning. So you've had an improvement in your revenue outlook,

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Speaker 1: you've scrapped the guidance and you're now just aiming for

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Speaker 1: that upper end of twenty nine billion euros. What's driving

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Speaker 1: that revision?

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Speaker 2: Well, look, we've been more and more confident as the

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Speaker 2: year's gone by, firstly in the net interest income outlook,

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Speaker 2: as you've seen with the rate environment, and also better

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Speaker 2: than sort of modeled expectations on pass throughs. Our deposit

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Speaker 2: books in the corporate bank and the private bank are

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Speaker 2: performing extremely well. We think that's actually something that will

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Speaker 2: persist for a little bit longer. But at the same time,

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Speaker 2: you know, the businesses have been building momentum even as

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Speaker 2: the market environment's been a little bit unsettled. So we're

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Speaker 2: pleased with the progress so far this yere Danny.

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Speaker 1: I mean nim's being able to stay as they are

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Speaker 1: for longer. That will surprise many. How much longer do

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Speaker 1: you think net interest income can hold up? Given some

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Speaker 1: people start to talk about the benefits of higher rates

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Speaker 1: star to wane.

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Speaker 2: Well, look, i'd see on a long term basis, the

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Speaker 2: benefits of higher rates will be with us into sort

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Speaker 2: of twenty five and beyond. This is is not yet,

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Speaker 2: I would say, a fully normalized rate environment for banks.

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Speaker 2: What is viewed to be somewhat temporary. Is this what

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Speaker 2: we call deposit beta effect, or the pass through of

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Speaker 2: interest rate increases to clients. And the industry has outperformed

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Speaker 2: its expectations, recognizing that we've come from a period of

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Speaker 2: very low rates for a very long time. Now that

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Speaker 2: may still persist for a time. It reflects if you

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Speaker 2: like the competitive environment that we're in and the value

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Speaker 2: that our clients see of the relationships and the services

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Speaker 2: that banks are providing, and for now that's persisted. We

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Speaker 2: think that that can persist for the balance of the year.

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Speaker 2: Our deposit revenues were actually, on an underlying basis in

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Speaker 2: both deposit books essentially flat over the course of the

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Speaker 2: second to third quarter, so we're pleased with the ongoing

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Speaker 2: development there.

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Speaker 1: So you've also had an additional three billion euros in

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Speaker 1: capital release that's more than expected. Of course, by twenty

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Speaker 1: twenty five. How much of that eventually gets returned to shareholders, Look.

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Speaker 2: It's too early to say, but just to go back

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Speaker 2: to the point at thirteen point nine percent, CET one

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Speaker 2: common equity Tier one. We've significantly outperformed our expectations on capital,

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Speaker 2: and that puts us in a completely different place from

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Speaker 2: where we have been for a while building capital for

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Speaker 2: regulatory inflation. Now, I think we can look to a

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Speaker 2: capital distribution path with a lot more confidence. As we're

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Speaker 2: saying today, we think we can both accelerate and expand

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Speaker 2: on that capital distribution path that we laid out to shareholders,

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Speaker 2: which was eight billion in respect of the years twenty

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Speaker 2: one to twenty five. We think there's upside to that

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Speaker 2: over time, but it's too early to say how much

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Speaker 2: and how soon.

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Speaker 1: Okay, fair enough on that, James. You know you also

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Speaker 1: have two percent higher on additional costs, not that unusual

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Speaker 1: for what we're seeing in this inflationary environment. You did

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Speaker 1: already announce cuts earlier this year.

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Speaker 2: Are more coming, yes, more coming. You know. We're going

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Speaker 2: to continue to work with discipline on the cost base.

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Speaker 2: We've laid out to investors a goal to run the

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Speaker 2: company essentially flat for a considerable period of time, and

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Speaker 2: what that means is that we're working sort of every

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Speaker 2: day on cost reduction measures, which at the very least

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Speaker 2: should offset the impact of inflation and also allow us

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Speaker 2: to invest in the businesses with our own resources and

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Speaker 2: also complete the investments that we've talked about for the

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Speaker 2: last couple of years in both technology and controls. So

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Speaker 2: a lot going on underneath the surface, but we think

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Speaker 2: we have the tools, the discipline, and we're just continuing

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Speaker 2: to roll out new measures, new initiatives to make sure

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Speaker 2: we achieve the objectives we set up.

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Speaker 1: Do you have a figure yete for those additional cost

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Speaker 1: cuts and do they also entail more job cuts as well? Well?

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Speaker 2: So we've been working. What we initially announced was a

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Speaker 2: two billion sort of gross reduction in costs. We up

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Speaker 2: that to two and a half billion, So we're working

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Speaker 2: to achieve that. Yes, it'll result in job reductions as

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Speaker 2: we frankly find ways to drive efficiency based on some

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Speaker 2: of the investments that we've made, whether it's in technology

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Speaker 2: or once we've gotten to a level of maturity the

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Speaker 2: effectiveness and the efficiency of our controls. We think we've

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Speaker 2: got a path ahead of us for now several years

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Speaker 2: of being able to harvest some of the improvements we've

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Speaker 2: made in the company, the investments we've made over these

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Speaker 2: past several years.

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Speaker 1: Fit Trading also down about twelve percent. But the current

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Speaker 1: volatility in this bond market has been historic by a

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Speaker 1: lot of measures of many things driving that. How has

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Speaker 1: that filtered through into your trading results this current quarter, Well, it's.

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Speaker 2: Been as we've actually called for about a year ago.

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Speaker 2: You know, twenty one and twenty two were remarkably strong

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Speaker 2: years for fixed income and currencies, and in twenty two

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Speaker 2: in particular the macro products, so FX rates and also

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Speaker 2: emerging markets which is really a form of both FX

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Speaker 2: and rates together. That normalization is taking place and we

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Speaker 2: would expect it, you know, to find a floor. There

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Speaker 2: will be probably some volatility as the market now starts

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Speaker 2: to speculate on the curve and the reduction in interest

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Speaker 2: rates over time, we've seen the volatility on the way up.

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Speaker 2: But what's also happening underneath the surface is this rotation

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Speaker 2: that we've been expecting for a while into other parts

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Speaker 2: of the product base, and that's particularly credit trading and

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Speaker 2: also the financing business. Inside our fixed income and currencies

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Speaker 2: business has been doing very well, and so we would

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Speaker 2: expect to continue to see some of that rotation.

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Speaker 1: Well, when you get a shock, though, we had a

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Speaker 1: geopolitical shock where there's concerns about oil prices spiking. Does

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Speaker 1: that increase activity or does it paralyze it? Does that

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Speaker 1: push folks onto the sideline?

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Speaker 2: Well, look, in the very near term, the shocks obviously

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Speaker 2: produce some volatility, they produce some repositioning. But to your point,

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Speaker 2: once that initial sort of impact is over, people tend

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Speaker 2: to move to the sidelines until they can see a

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Speaker 2: trend emerge and emerging or have some confidence about the

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Speaker 2: way forward. And that's true both in the sort of

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Speaker 2: financial markets and it's true for corporate boardrooms. So there

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Speaker 2: will be some degree of if you like, I won't

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Speaker 2: say pause, there'll be some consideration given to the impact

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Speaker 2: of the geopolitical uncertainties as well as all the other

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Speaker 2: things we've been dealing with, interest rates, inflation, supply chains.

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Speaker 2: But one of the things that we're seeing is, you know,

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Speaker 2: the need to make decisions and move forward, whether that's

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Speaker 2: investments in factories here in Germany, whether that's you know,

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Speaker 2: corporate takeovers, whether that's needing to refinance you know, maturing debt.

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Speaker 2: All of those things right at some point have their

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Speaker 2: own pressure.

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Speaker 1: And I mean, there I understand the pressure right now,

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Speaker 1: but you hear for example from from Jane Fraser from

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Speaker 1: City Jamie Diamond from JP Morgan yesterday at a conference

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Speaker 1: in Saudi saying that with everything that's going on right now,

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Speaker 1: especially over the past two weeks in the Middle East,

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Speaker 1: it's hard not to be a pessimist right now. Are

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Speaker 1: you a pessimist right now?

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Speaker 2: James? You know, by nature I'm an optimist, and so

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Speaker 2: it's hard to look at things, you know, Obviously seeing

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Speaker 2: the images on television and reading about the events, whether

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Speaker 2: in Ukraine or in the Middle East is really distressing.

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Speaker 2: You know, we find as a society, we find a

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Speaker 2: way through these things, and you have to remind yourself

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Speaker 2: that there are underlying, you know, the headlines, there are

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Speaker 2: also good things going on in the world, whether that's

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Speaker 2: you know, the advances that we see in technology, whether

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Speaker 2: it's investments that are that are being made to reset

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Speaker 2: supply chains and benefit from some of the technology and

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Speaker 2: other advances in the world. You know, those things are

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Speaker 2: going on too, and as I say, ultimately some of

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Speaker 2: the decisions that that corporates and investors need to make,

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Speaker 2: you know, won't wait for events. They'll they'll need to

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Speaker 2: move forward.

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Speaker 1: Right what happens though, if we get oil. For example,

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Speaker 1: Bloomberg Economics estimates that it will go to one fifty

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Speaker 1: dollars should there be an escalation. What happens to that

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Speaker 1: narrative of just pushing through if we have this period

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Speaker 1: again of energy crisis and energy shock.

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Speaker 2: Look, Danny, that's that is certainly a severe, a possible

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Speaker 2: severe downside scenario. Obviously, we all hope that an escalation

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Speaker 2: doesn't take place, and that that escalation, you know that

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Speaker 2: at that scenario of much higher oil prices doesn't take place.

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Speaker 2: We recognize the world economy is in some ways fragile,

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Speaker 2: and although it's withstood a number of the impacts and

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Speaker 2: shocks over the last several years, you never know whether

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Speaker 2: one more shock sends us into a deeper recession. So

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Speaker 2: we'll have to watch that carefully. But I have to say,

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Speaker 2: if I look again at corporate activity, but also the

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Speaker 2: quality of our credit books in this environment, as well

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Speaker 2: as the economic outlook, they've all surprised to the outlook

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Speaker 2: to the upside relatively consistently over these past several months.

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Speaker 1: Does that mean that the likelihood as we end this

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Speaker 1: rate hiking cycle, it's where you tend to get accidents,

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Speaker 1: not when you're hiking, but on the way down, what

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Speaker 1: does that mean for your estimate the likelihood of an accident? Again,

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Speaker 1: if what you're seeing is surprising strength in corporate balance

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Speaker 1: sheets in the sector as a whole.

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Speaker 2: No, my own view has always been there's a certainty

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Speaker 2: of accidents in an environment of rising rates, especially as

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Speaker 2: rapid as it's been over the past say, eighteen months.

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Speaker 2: You know, there have been accidents out there, some reactions,

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Speaker 2: but my overall sense is that the resilience we've shown

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Speaker 2: in the financial industry, the financial markets as well as

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Speaker 2: corporates and households has been unusually strong. I think it

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Speaker 2: has to do with a lot of fit factors, like

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Speaker 2: the strong labor market, that household and corporate balance sheets

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Speaker 2: went into this period strong. There's always the risk that

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Speaker 2: at some point sort of the rope runs runs out,

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Speaker 2: but so far what we've seen is an adjustment. Again surprising.

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Speaker 2: Will there be more accidents, I'm confident, but at this

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Speaker 2: point actually again surprise on the upside that it's been

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Speaker 2: as contained as it has so.

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Speaker 1: So just final for me, then, James, just to follow

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Speaker 1: up on that point, when does the rope run out?

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Speaker 1: When do we get to that period where where the

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Speaker 1: accident certainty comes and is realized.

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Speaker 2: Well, look, it's often time is the is the real

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Speaker 2: you know, is the real factor, you know, the the

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Speaker 2: ability to reset. Of course, corporate margins will be impacted

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Speaker 2: by by higher financing costs, but when they go into

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Speaker 2: an environment like this relatively healthier, you know, they're able

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Speaker 2: to absorb it, adjust sometimes pass on those costs to

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Speaker 2: end consumers, so that the time given to adjust can

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Speaker 2: often you know, make these things not result in sharp corrections.

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Speaker 2: There will of course be certain corporate certain households that

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Speaker 2: that simply fall behind because their margin you know, of

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Speaker 2: error isn't there, and the economy will need to work

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Speaker 2: through how that, you know, how those resources are redeployed,

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Speaker 2: how those households and corporates are picked back up. But

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Speaker 2: to date we see that adjustment taking place and that's

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Speaker 2: that's very encouraging