Hello and welcome to the Commerzbank AG Conference Call regarding the Second Quarter Results 2023. Please note that this call is being transmitted, as well as recorded by audio webcast, and will subsequently be made available for replay in the internet. At this time, all participants have been placed on a listen-only mode. The floor will be opened for questions following Manfred Knof's and Bettina Orlopp's presentation. Let me now turn the floor over to our CEO, Manfred Knof.

Good morning and welcome to our earnings call for the second quarter 2023. The second quarter seamlessly followed the good start to the year. After six months, we have significantly increased our operating result by 37% and our net result by 49%. Bottom line, this leads to a net result of more than 1.1 billion Euros and comes with a strong CET1 ratio of 14.4%. This very good performance is first and foremost, driven by strong revenues from our customer business, including the tailwind from rates. Due to this strong development we were able to more than compensate for additional burdens on the Swiss franc loans in Poland. With additional provisions booked after the ECG ruling in June, mBank has increased the coverage ratio to 75%. This is a quite strong level and the settlement program is progressing well but the whole topic is unfortunately not yet fully resolved. Our strict cost discipline continues and has led to a cost-to-income ratio of 61% in the first half of the year, while our return on tangible equity increased to strong 8.1%. But let me be clear regarding cost-to-income ratio and the return figures. We do not expect the half year numbers to be reached for the year as a whole and we expect a seasonal slowdown and higher LLPs in the second half of the year. The very good result, however, and the high resilience proven by the stress test puts us in a position to reinforce our commitment to capital return. Based on the half year figures and our expectations for the second half, we will apply to the ECB and the German Finance Agency for approval of a second and larger share buyback as part of our plan 50% payout ratio for 2023. Now let's have a look at some specific business areas that are of special interest regarding revenue development. Firstly, I want to dig a little bit into our strong franchise in the German Mittelstand. The first half of the year provides a strong proof for the excellent client relations of our teams throughout Germany. Based on long lasting partnerships in core banking services and products, clients stick to Commerzbank as their preferred banking partner. This is remarkable because there's an intense competition in the market when it comes to deposit rates. Clients however value the relationship with Commerzbank at reasonable terms higher than temporary attacker rates of some competitors. Secondly, I want to highlight our very successful electronic FX platform for corporate clients. Due to the strong export orientation of many German corporate, we have a strong demand for FX products in our client portfolio, especially in volatile markets hedging needs are high. With our advisory competence and our highly digitalized platform, we attract significant volumes from corporates and also from financial institutions. This is reflected in being number seven globally in FX, according to 360 trading platform, and comes with a three digit million revenue stream for our corporate clients division. Thirdly, we've just launched our new asset management unit Yellowfin. The team manages 10 billion of assets under management based on quantitative models and behavioral finance. The offering addresses institutional investors as well as corporate clients and wealth management clients. Out of the newly created entity we expect Yellowfin to significantly grow the business and revenues. And lastly, I want to spend a few words on the development of our mortgage business in Germany. When rates started to rise last year, we quickly saw the impact on new business volume, higher funding costs and still high real estate prices filtered out a cohort of potential borrowers that simply could no longer afford to buy their own property. This has led to a visible dip in sales but with slowly declining real estate prices and an increasing customer acceptance of higher rates. Sales have picked up again and will hopefully continue to do so. Overall, I'm quite satisfied with the development of our customer business and especially with the fact that capital efficiency in our corporate clients division has significantly improved. Since we have presented our Strategy 2024 back in 2021, RWA efficiency in corporate clients has been a top priority, and the team really got their arms around it. RWA efficiency has increased to a good level of 7.2% and, equally important, the share of low-yielding business is significantly reduced to 20%, already outperforming the original target of 22% in 2024. Systematic cross selling and higher rates have driven revenues and the teams paid special attention to those clients that was simply not profitable for the bank. I think this development is a clear proof for the successful strategic transformation of Commerzbank. Another very important building block of our strategy is, as you well know the business model for PSBC with less branches and much more focused on remote and digital channels. I would like to share with you some important figures that underpin the increasingly acceptance and success of this lean setup. While we had some initial challenges when customers were redirected from branches to remote and digital channels, the situation is much more stable now. The average waiting time when calling our remote advisory center is now at only around one minute and is no longer reason for complaints. At the same time, the introduction of our chatbot for simple and quick support has been very successful. Since launch in March, we can account for already more than 200,000 chats. Regarding products, I would like to draw your attention to our credit card business. In the first half of this year, already 84% of new cards have been sold digitally. This comes with an increase of digital credit and card sales of 25% compared to one year ago. Finally, already 6.1 million of our customers use our digital postbox which means less paper and less cost. In conclusion, our new business setup in PSBC is gaining traction. The strategic transformation PSBC is on track. Notwithstanding the further conviction of clients as well as further digitalization remain top priorities. All in all, the first half of the year shows again that we pursue the right strategy with the right priorities. Nevertheless, we would like to provide you with our financial plan and our strategic thoughts beyond 2024 following the disclosure of our cost [Phonetic] figures on November 8. A respective invitation will be sent out in due course. Now let me share my key takeaways before I hand over to Bettina for the financials. First, we have seen a strong financial performance in Q2 and the first half of the year, and we are on track to reach our targets. Second, our continued focus is on the successful execution of our Strategy 2024. And third, we will apply to the ECB and the German Finance Agency for approval of a second and larger share buyback based on the current half year figures and our expectations for the second half of the year. This buyback will be part of the planned 50% payout ratio for the full year 2023. And now over to you Bettina.

Thank you, Manfred, and also good morning from my side. To summarize the financials, we again had an excellent quarter. This 888 million, the operating results surpassed already very strong first quarter. The net result of 565 million reflects the increased tax rate in Q2. The RoTE reached 7.9%. While the full year RoTE is expected to be low, we are clearly on our way to reach our financial targets for 2023 and 2024. The excellent quarterly results are based on revenues that reached nearly the same level as in Q1 despite a 347 million burden from legal provisions for Swiss franc loans. The main driver has been net interest income, which has grown by 9% from the already high level in Q1; it is 652 million or 44% higher than in Q2 last year. Conversely, commission income is a bit lower than last year due to lower contributions from PSBC. Costs have come in at 1.5 billion; this is in line with our target. It includes the earlier increase of accruals for variable compensation as a consequence of the good performance. The cost-to-income ratio was 58% for the quarter, documenting our good progress. As with the RoTE, for the full year, we expect an improved cost-to-income ratio, but probably not yet on the level of Q2. The risk result of 208 million is within our expectations and reflects the good quality of our loan book. The top level adjustment was reduced slightly to 456 million. Based on the good profitability, the CET1 ratio has improved further to 14.4% and this is after deducting the accrual for a 50% payout ratio from CET1 capital. I will skip over slide nine which confirms a very strong performance. With 9 million Euros, exceptional items are only minor, or we had more than 100 million benefit from exceptional items in Q2 last year. This leads to the underlying revenue starting with the commission income on page 11. Corporate clients have sustained its stable performance with a strong capital markets business, especially bond issuances. PSBC Germany is lower than last year. This is due to lower transaction fees and collateral, which tend to be lumpy and the brokerage business. In brokerage, we have seen less securities transactions from our customers and restraint on investment due to increase deposit rates. Also for the whole year, we expect overall commission income to be slightly lower than last year. Now to NII on slide 12. Net interest income reached a new high of more than 2.1 billion, well above our original expectations. All segments have performed well. Corporate clients increased underlying NII by 11%, compared to Q1, mainly due to higher average interest rates, while the deposit beta increased only slowly. PSBC Germany has a stable NII quarter-on-quarter from the underlying business. However, there has been a negative effect of 30 million resulting from the low level of mortgage prepayment. As most German mortgages are fixed rates, this is a rational decision by borrowers. In many cases, they can currently earn a higher return than the interest on their mortgage when investing in safe fixed income products like deposits. mBank strongly increased NII. This is mainly due to very effective margin management, in particular of liabilities, boosting profitability. As in Q1, around 100 million of the NII in others and consolidation comes from floating and short-term instruments at higher rates. It is partially offset in the fair value of result. Additionally, the NII reflects the offsetting benefits from mortgage pre-payments as well as some technical items which might reverse in the next quarters. On the next slide, I will cover the expected developments in the second half of the year. Our outlook is based on an ECB deposit rate of 3.75% and assumes a continued rise in the deposit beta that results in an average of 35% for the second half. We have also taken into account the ECB’s decision to no longer remunerate the minimum reserves. Based on these assumptions and the good H1, we expect an NII of at least 7.8 billion for the year. This increase in our outlook is mainly due to the slower than anticipated increase of the deposit beta seen so far. Of course, the beta continues to be highly dependent on competitors and customers behavior. We will need to constantly adapt our pricing and offerings to stay competitive. The sensitivity of NII to deposit beta remains high. A change in the average deposit beta of 1 percentage point in the second half of the year is equivalent to around 45 million NII. Please keep in mind that there are some offset of the NII of others and consolidation in the fair value result due to effects on interest accruals and payments of hedging derivatives. This is expected to be around 100 million per quarter. Looking beyond 2023, we will benefit from the rollover of our model deposits. At the same time, we expect further increases of the deposit beta and an average beta well above the level in 2023. In Poland mBank has been very successful in effectively managing margins. We expect this success to continue in an environment where rates are stable to slightly declining towards the end of the year. Let's move to costs on slide 14. Operating expenses are higher year-on-year due to the general salary increases and earlier increase of accruals for variable compensation compared to last year. Compulsory contributions are lower, thanks to decreases in European bank levies and the Polish deposit guarantee scheme. In total, we are below last year and on track with our cost measures. However, as we expect variable compensation to be above last year, also due to the better result, we slightly adjust our cost target to 6.4 billion. The next two slides detail the risk result. The 208 million risk result is in line with our expectations and reflect the high credit quality of our portfolio and the resilience of our customer base. The risk result of corporate clients includes 65 million for a one-off model adjustment. It results from the implementation of an improved calculation method for the loss given default in our risk models. There has been no noteworthy development in the portfolio with the underlying risk results driven by a few single cases. The corresponding cost of risk of loans is only 21 basis points in H1. Our top level adjustment has decreased by 26 million due to recalculation based on the current macroeconomic scenario. The remaining top level adjustment of 456 million is available to cover potential secondary effects in the next quarter. I will now quickly touch on group results and the tax rate. The operating result reflects the good revenues and ongoing cost management. Underlying revenues have increased again, when excluding the burdens from Swiss franc mortgages. The Q2 tax rate was elevated to 38%, mainly due to the provisions for Swiss franc mortgages. I currently assumed that the tax rate of the financial year will be remained around the 35% level of H1. The next slides cover the operating segments, starting with private and small business customers. In PSBC Germany, we see the ongoing adjustment to the new rates environment. As customers get used to the higher right level, the volume of new mortgages has increased, leading to a stabilization of the book. Securities volumes in brokerage accounts have increased in line with market moves. The flow of net new money has moderated a bit as deposits now yield more attractive rates. This manifests itself in the increase of the volume of call and term deposits by 3 billion where we offer competitive products to maintain volumes. Part of the increase is from transfers out of sight deposits, but the majority is new money. That leads to the performance of PSBC on page 19 and 20. PSBC Germany had a very successful quarter. Overall, the operating results increased slightly compared to Q1. Last year PSBC had the benefit of a one-off tailwind for mortgage prepayments, while there was a headwind this year, leading to lower NII in Q2. The Q2 effect should be partially reversed in the next quarters and be roughly neutral for the whole of 2023. Adjusting for the effects from mortgage payments, revenues are not lower, but in fact grew 6% compared to last year. Also the adjusted cost-to-income ratio has been stable at around 69%. Nevertheless, we do not expect NII to grow in the next quarter, as the deposit beta will increase further and the effects from the rollover of model deposits are only slowly accumulating in 2023. On an operating level, mBank also had a very successful quarter. When excluding the provisions for Swiss franc mortgages, the operating result grew 28% compared to Q1. This is based on lower funding costs achieved by very effective margin management. The Q2 cost income ratio excluding the effect from Swiss franc mortgages improved to an impressive 35%. Following the ECG rate ruling in June, mBank has recalibrated the provisioning model, adding 347 million to the provisions for Swiss franc mortgages. This increased the coverage ratio to 75% of the outstanding mortgage volumes. mBank has been offering settlement agreements to customers and the volume has increased following the ECG ruling. So far more than 8000 settlements have been agreed. While making good progress on the resolution of the Swiss franc mortgages, further burdens can however not be ruled out. The next two slides cover corporate clients. In corporate clients, the overall loan and deposit volumes have been stable. In deposits, there has been a continuation of the shift to term and call deposits which are now nearly one-third of the volume. Correspondingly, the deposit beta increased by around 5 percentage points in the quarter. Due to the higher average interest rate compared to Q1, NII has nevertheless increased. Given that we do not expect a significant change in rates, and a continuing increase of the deposit beta for the growth of the NII is rather unlikely in the next quarter. The Q2 operating result of corporate clients is 38% higher than last year, thanks to higher revenues, mainly from deposits. It is lower than in the first quarter only due to the normalization of the risk result to 169 million. The pre-provision profit has continued to increase strongly reaching 615 million in the quarter, a new high. Revenues increase with all customer groups and operating expenses have been stable. The cost-to-income ratio has correspondingly improved by nearly 10 percentage points to 45%. Finally, a quick look at others and consolidation. Others and consolidation reports an operating profit of 158 million due to better revenues, mainly NII and lower costs. The reduced costs compared to Q1 are to a large extent due to compulsory contributions. As mentioned earlier, NII benefits from the low volume of mortgage prepayments and higher interest rates. While others and consolidation has reached an operating result of 104 million in the first half, we stick to our guidance of a relatively low contribution, positive or negative, to the overall results of the year. The main strength factor will be valuation effects. Credit risk weighted assets have increased by 2 billion quarter-on-quarter. This is due to volume effects in the corporate portfolio and the booking of an additional overlay. With the overlay anticipated effect resulting from the ECB audit of our internal risk, credit risk models are already reflected in the current RWA and CET1 ratio. Given the progress of the ongoing audit, most effects should now be covered. We have built additional capital, thanks to the positive net result and benefits from changing of the currency translation reserves as well as lower regulatory adjustments. This has more than offset the RWA increase and brings the CET1 ratio to 14.4%. This translates to a 436 basis points buffer to the MDA, well above requirements. And now to outlook for 2023 on slide 25. Given the positive developments in Q2, we have improved our outlook in several dimensions. For the financial year, we have increased our outlook for net interest income to at least 7.8 billion. This is partially offset by some counter effects in the net fair value result. Conversely, we have lowered our outlook for commission income which should come in slightly below last year. We have adjusted our expected cost base to 6.4 billion, reflecting the anticipated improvement of our profitability that leads to a higher variable compensation. Our key steering metric however, remains the cost-to-income ratio with a target of 60% for 2024. We have improved the outlook for the risk result. It is expected to come in well below 800 million. The final amount is subject to the usage of the TLA. Further we target CET1 ratio of at least 14%. In total, we aim for a net result well above 2022 and target a payout ratio of 50% in line with our capital return policy. As part of this payout we will apply to the ECB and the German Finance Agency for approval of a share buyback based on the H1 results and our expectations for H2. Thank you very much for your attention and we are now very happy to take your questions.

[Operator Instructions] And the first question comes from Stuart Graham, Autonomous Research. Please go ahead. .

Hi, Thanks for taking my questions. I had two please. The first is on the share buyback. If I understand it correctly, it's just part of the 50% payout ratio, whereas I thought it was going to be 50% plus buybacks. So why is it just part of the 50% that's not going to get you to the 3 billion to 5 billion you want to repay and you said you want to get excess capital down just doing a 50% payout, not going to get excess capital downs, that's question one. And then Question two is, can you just repeat again what you were saying on the divisional NII? So if PSBC, Germany, I think it is 610 million underlying, I think you're saying that's going to be flat in the second half. And then I think the corporate clients is 690 and you were saying that's going to be flat of as well. Can you just repeat what your guidance there was please? Thank you.

Sure. Good morning, Stuart. So on the share buyback, yes, indeed, what we have now done is, given that we are in the run of 2023, we say it's part of the 50% payout ratio. That's to start with, I mean, you know we are conservative so we started last year with 30% payout, now we are increasing that one to the 50% and we are, however, a little bit advancing the whole thing, by not waiting for the full year results in February, but already taking the h1 results and our forecast for the second half, as a basis for starting the approval process with the regulatory authorities. And you can clearly calculate, if you take 50% of the net income well above last year, and then you assume a certain dividend yield, that this should be a good volume and we will take it from there. We already said that we really need to one and progress on our transformation, which we clearly do and then we will consider next steps. On the second part, we have now seen a 2.1 billion of net interest income in the second quarter, which clearly took us by surprise, because we thought it would be lower. We now believe that there will be not a lot of movements on the interest rate level, so we assume that we stick with the 6% and 3.75%. And if you then assume an steadily increasing deposit beta and there the average is 35%. It means that on private clients and corporate clients, you will see some rejection in comparison to at least the second quarter. And on private clients, we still have the benefits out of the model deposits but there are clearly only coming in overtime and the majority of the benefits are rather expected in late 2024 and beginning in 2025 because then the transfers come in who are more attractive than the ones who are currently up for reinvestment.

Okay. So just back on the buyback, so it is 50% for the full year. This is just a timing bring forward, there's no chance it's going to be -- you're going to increase that 50% later in the year?

I mean, everything which is related to share buyback is subject to approval of the regulatory authorities. So we take it on really a step by step and we first want to deliver on 2023 and we wanted to deliver on the second share buyback and we take it from there.

Okay. Thank you for taking my questions.

The next question comes from Benjamin Goy, Deutsche Bank. Please go ahead.

Yes. Hi. Good morning. Tow follow up questions and then one on the income. And maybe just to double check given the profit last year, the share buybacks you apply with a specific number to the authorities but you won’t disclose it, so i.e. we don't have to wait another two to three months like for Q3, the result last year? And then secondly, on the net interest income, you mentioned it is 100 million, just to clarify. So debt is moving from NII to other income in the second half, or is it potentially moving in the second half and if it moves, what are the conditions for it? And then lastly on the fee income, so now with Yellowfin you are re-launching some mass [Phonetic] management product and it also plans to do or to capture more of the economics in the more mass market – asset management market. Thank you very much.

Okay. Okay, Benjamin, let me start with the fee income and then Bettina comes back to the other questions. Of course, this is a good start with Yellowfin for the asset management and this brings us to now also to the ultra high net worths and the higher part of the scale. We are already doing this with our cooperation against global investors and third-party products from other providers, also in the mass retailer, so this is important venture for us at all. I mean, you have to recognize that some of the clients are now picking the safer option, given the rates environment. So that's why the dynamic of the fee income in the mass retail is not as big as before but, yeah, this would equal out going forward. So we are already offering that and following that also in the mass retail environment.

So on the share buyback, yes, indeed, I mean, we are -- actually, we can only reveal the number when we got the approval. The regulatory authorities are pretty clear on that point. But as said, I think everybody can calculate, and I would call consensus on expectations, and the average of the expected share buyback, I think, you all got a good number in total. We are applying for it today. We have a three to five months time where we need to wait for the approval, perhaps it goes on faster, and we will definitely update you after our Q3 results on the progress of it. On your second questions, I think it was related to the net -- the negative effects with respective fair value result, so what we have on others and considerations we have in the treasury very positive effects on the NII side, but they are basically at least partly balanced out by fair value -- negative fair value results due to hedging.

Thank you. A quick follow up on the agreement with Allianz. How long does it run currently?

We have already very, very long -- this relationship as Allianz’s global investors, it's already a long time cooperation. And yeah, it contributes significantly to the fee income in the PSBC, so this is nothing new, as it's a very long established relationship and this is one part of the offering next to two other third party product providers.

Now to tell what is more forward looking, so when is the renewal potentially of this agreement?

Very long term out.

Okay. Cool. That is good enough. Thank you very much.

The next question then comes from Borja Ramirez, Citi. Please go ahead.

Hello, good morning. I have two quick questions. Firstly, on the share buyback follow up. If I were to use the 2023 net profit guidance and based on the consensus, which is roughly around it to 2.2 more or less billion Euros and I assume a 50% payout, so that's roughly 1 billion of total distribution for 2023. And if I were to assume a similar split between share buyback and dividend as per the previous year, that would be a buyback of roughly 300 million to 500 million or 400 million to 600 million. Would these assumptions make sense? And then my second question would be on the deposit beta assumption for second half. It seems circuit conservative and I would like to ask what could drive the increase in the deposit beta? And also, if you could please provide some details on how it has been -- how deposit beta has trended so far in July and early August. Thank you.

Yeah, thank you. So I would say, roughly your calculations are not too wrong, they're pretty much heading the right direction. What you should not forget is that when you take our net income, you need to deduct 81 from it and then also, we -- and -- so, therefore, the ballpark is probably not too wrong. And on the second part deposit beta, I mean, we are clearly showing and there's a reason that there is a high sensitivity on the deposit beta because we can only take what we see so therefore, the average 35% we -- I mean the sensitive is 45 million, so if the deposit beta is 1 percentage point lower, you will see an increase and the other way around. And we have seen basically in July and August and a constant slow increase, because we see competitors out there with product offerings, we are also out there on call money, this product offerings for Commerzbank and comdirect. And also, we clearly see that the treasurer's of our corporations are still maximizing their own cash management, which you can clearly see on the shifts from site deposits to call and turn money, and that is also driving the deposit beta up. So constant and increase and you can assume that in Q3, we still expect the lower average than in Q4, so it's at the very end. The key question is where do we end 2023 and that's very much dependent on customer and competitor behavior. But we feel very comfortable with the larger than 7.8 billion.

Thank you.

The next question comes from Johannes Thormann, HSBC.

Good morning, Johannes Thormann, so three questions if I may. First of all, again on the share buyback versus dividends. Last year, we saw a ratio of one-third share buyback, two-third dividend, will you maintain this ratio or could you also envisage a 50:50 usage of the payout ratio or the payout amount? Secondly, regarding your risk costs and corporate, you just mentioned single cases and the model just, if you could add more color to single cases, probably to the different industries or countries where it happened and the model adjustment, also some more details what triggered this model adjustment. And last but not least, as you mentioned you are top 10 global in FX trading, if you could quantify your FX volumes, so we get a rough feeling for that. Thank you.

Okay, so on the first question SBB [Phonetic] versus dividend, I would say that we had a 20 cent dividend last year, it's clear that we want to provide for an attractive dividend yields. So we hopefully will see an increase. But I would say that there will be a different split, probably more turning down in the direction of the SBB. On the risk cost side, we have ongoing audits on internal models, which you also see on the RWA side and that's part of it. The single cases are on party in Germany and it's the industries which we also have listed in the appendix. So it's automotive and admittance [Phonetic] industries, where we see currently single cases. But it's really single cases there is no real trend, resilience of the corporations has been still very, very high and we are very satisfied in the moment with the development, also in July. And on the FX side, I have to say with three digit number volume number -- revenue number sorry.

Three digit revenue number, okay, thank you.

Yeah.

Next question comes from Jeremy Sigee, BNP Paribas Exane.

Hi, there. Thank you. Just a couple of detailed follow ups on the NII drivers. I wonder if you could talk about why the deposit beta sensitivity came down, it was previously 55 million per point, it's now 45 million per point, so if you could talk a bit about that, that would be great. And then secondly, you mentioned earlier the replication portfolio re-pricing, I didn't quite catch what you said. You made a point about timing, it's sort of less strong, and then it's more strong. I think previously you indicated something like 350 million to 400 million a year benefit from that. So I just wondered if that ballpark number is still right and also if you could just repeat what you said about the timing on the replication portfolio. Thank you

Okay, very good. So in NII, why is the sensitivity, why did it come down, very simple, the last time we related it to nine months, the 55, and now we relate it to six months and it's a little bit extra, actually higher than the last time because just interest rate level also went up, so that's the whole reasoning, nine months versus six months. And on the replication portfolio, approximately 110 is related billion is in private clients. We have an average duration there of something around four to five years. And the whole story is that if you look on the swap rates, etc, and development in the past, it's just that the tranches with the low interest rate environments are just about to come. So the benefits out of that of the reinvestments will come in the coming quarter. So, we assume that you will see more already in 2024 and that will continue in the years 2025 and 2026 to a large extent, that's the whole reasoning for it.

And is that sort of 400 a year level a reasonable assumption?

Not for 2024, it's piling up, right. What do you see there has additional benefits.

Okay, very helpful. Thank you very much.

The next question comes from Chris Hallam, Goldman Sachs International. Please go ahead.

Yeah. Good morning, everyone. Thanks for taking my question. So two; first, on our RoTE for 2023, you mentioned you expect return on tangible this year to be lower than the 8.1% you posted in the first half. I just wondered if you could help me understand a little bit what drives that down sequentially because we're looking at Q2 ex, this was Frank mortgage related provision in Poland, your RoTE priority was close to 13%, so the guidance appears to imply quite a big deceleration in the underlying momentum through the second half. And then the second, just another one on distribution, and it obviously is a follow up to some of these earlier questions. I guess the short question is just whether you want to reiterate the 3 billion to 5 billion target for distribution up to and including 2024? You talked earlier in the Q&A about the approval request corresponding to the consensus buyback assumption, which I think was 400 million, maybe you can correct me if I'm wrong there. But if that's the case, it does seem that you're running out of time, because return on tangible and capital is at a level that points towards 5 billion in total distribution, or 3 billion. You've said before that approval takes three to five months. So if you lift the 23 payout ratio in November, it's unlikely those buybacks are completed before the 2024 AGM and then you still be left with a very, very large payout ratio requirements for 2024 to get to the 5 billion, so maybe just what am I missing in that?

So on the RoTE, first of all, as we said, yes, I mean, we both see several things. One is, as we said, you will see a slowdown on the NII side, so we expect zero revenues in the second half also because of seasonal effects for the revenue side. And then if you take what we now have currently with respect to the risk result, which is a 276 million and we expect something below 800 this is quite a way, which we still have to book and you also know that RoTE reacts, very sensitive every 50 million Euros or 100 million Euros up or down are quite an impact on the RoTE, this is just on why we are so cautious. But we think that we are on a very, very good track, also towards the targets, which we have published for 2024. On your second question, I mean, first of all, I'm more optimistic than you. I definitely want to finish the next share buyback before our next AGM. This is why we do not wait for the full year results in February, the final ones, but why we do the application now because we exactly want to close the whole thing before the next AGM. And then we take it from there. I mean, we are very much dependent on the regulatory authorities on the share buyback part. And I think we are very satisfied with the fact that we are delivering what we promised after the 30%, now the 50%, and as I said, it's a step by step approach, but very confident that we will deliver against market expectations.

The next question comes from Anke Reingen, RBC.

Yeah. Thank you for taking the question. The first one is with respect to net interest income and the fair value result. And I guess it mainly plays out in the corporate center. So if we think about Q3 at NII, I think I understand it is going to come down but does that mean the negative [Indiscernible] will be less negative. And then if we think about your NII could be above 7.8 billion, how should I think about that being offset with a negative fair value result. And then secondly, just on your cost, the new guidance 6.4, if NII goes above the 7.8 billion, would costs potentially also be higher than 6.4. Thank you.

Okay, let me start with the cost side note, the 6.4 is rock solid. That is what we believe and, I mean, we still actually do an internal cost management related to the 6.3 but we already see that results are coming in very nicely, so that's just a little heads up on that we might end on because of favorable compensation with a 6.4. So there will be nothing beyond that. On the NII and fair value side, actually, I mean, it's others in consolidation, where we do not have the topic with the deposit beta. So what we basically say is that, you can probably take the combination of the Q1 and Q2 and O&C [Phonetic] and average that and that gives you a good flavor of what to expect also on the O&C side for Q3 and Q4 but that one has to be reduced by a negative effect in the February results of O&C by approximately 100 million each quarter. The rest of the larger than 7.8 billion clearly depends on the fact on, where do we end in Q3 and Q4 with the average deposit beta. If we are higher than the 35%, you will see less. I'm pretty confident that this will not happen. If we are lower than the 35%, 45 million for each percentage points, we come in lower that's basically the mathematics there.

But then the lower deposit beta would not come with a negative and fair result.

No, exactly. That has nothing to do with each other. Yeah.

Okay. Thank you.

The next question comes from Tobias Lukesch, Kepler Cheuvreux.

Yes, yeah. Good morning. Firstly, on the distribution again, I mean, you talked about a regulatory impact, basically, 3 billion to 5 billion capital return target. I mean, if we look at the stress test, I mean, you improved basically compared to the 2021 exercise, however, you fell, or you're among a group of European banks, who in an adverse scenario basically fall below the strap requirements. So I was wondering, in the discussions with regulators, what is the idea that you're getting from the regulator to that result? Does that restrict you in being a bit more aggressive in distributing capital? I mean, doing the cross street, if I'm not mistaken, there are other big European banks who also were in that group who came out at a below MBA level, but still targets more aggressive share buybacks. So I'm just wondering, it's like, where's the difference between you, and potentially the others in the market? Secondly, on the deposit data, I mean, there was a question before, but it would be very interesting to understand if this around 20% was below or above -- was below or above 20% in Q2, and how this really developed now in July, basically, and then the first days of August. And very lastly, on the corporate portfolio, you highlighted a nice RWA efficiency gain in Q2 further. So I was wondering, and I was like, what happened there exactly in Q2, and what we should expect going forward in H2 and potentially 2024. Thank you.

Can you just repeat the third question? I'm not sure that I got that.

Sorry. That was the efficiency gains that you showed for the corporate client segment. I was wondering what the change was, what the benefits are and if there's potential more upside for H2 or 2024.

Okay, thank you very much. So on stress test results, first of all, I think we thought we can be very satisfied with the stress test results because it shows that we have a good resilience and what you also see is, I mean, the stress test has been much tougher than the last one. And the good thing is that we now also have good profitability to act as counter measures and that really smooth some of the negative effects. So I think that is a very important next step and I think, therefore, we can be satisfied with the results, specifically for look on the depletion with respect to risk results, where we have been pretty good. It shows that we have a very solid loan portfolio. And besides that, I mean, it's probably a question to regulatory authorities how they treat the different ASDs [Phonetic], the different banks. I would say, we have been now through quite a journey, so I think what are the best we can do and that's what we plan to do also for the next quarters is deliver what we promised and continuously improve our profitability and that's what we are doing, and then I think the dialogue will become easier and easier. And I'm also pretty confident that based on our forecasted results, etc, there is no problem to get, hopefully the approval from the regulatory authorities, but it's their decision and it's their timing. So it's up to them clearly. And on the --

Sorry, on the share buyback, I think the earlier communication, I expected really, and kind of extra share buyback, potentially to happen in H2 already and then to see the 50% payout ratio on the 2023 results. So if I understand you correctly, now you're potentially -- it's like bring that potentially three, six months forward to your payout on the financial 2023 results. We will have more clarity with a 2023 result. We have an AGM, is that and the time in next year AGM basically to discuss on a potential further payout and go for an additional extra share buyback, which then potentially pays out above 100% burned in 2023? Is that a scenario which is likely or are we completely off here?

Tobias, I mean, we really take it step by step and we have been very wise to do so. We have seen different times before, so we just take it now, step by step. We accelerated the next share buyback and start off having it on as I said, I'm after the full year results. We started with it already in the second half. I think that is an important signaling and let's do that first, let's deliver on the results and then we take it from there. And then we also have a strategy update to remind you in beginning of November, and there we will probably also share more details on next steps. On the deposit beta that was your question. I mean, we had an average of 20% in the second quarter means that we ended the second quarter on a higher level. And what we currently see in July and August that we are also out with -- product is a constant increase step by steps and this is why I mean we are out with this average guidance of 35% but it's the minimum number, as I said, the 7.8 billion, which clearly shows you that our expectations that we will run above the 35% is very limited. It is rather the contrary that we might end a little bit below the average of 35%. And then I'm closing was the RWA efficiency, I mean, the development clearly has been driven by the tailwinds from the deposit side. That also helped clearly the RWA efficiency. By cross selling we managed, however, also to -- yeah, I mean, have a lot of discussions with clients and we accepted also a number of clients where we didn't see that we can really improve the RWA efficiency but cross selling was clearly key. And I would say we now have reached a very good level. We always said there will be always a percentage of clients in this bucket smaller than 3% RWA efficiency because whenever you start with a client or also seasonable effects, you have clients where you have a good year and then another year where the client is not very active. So with the 20% we feel pretty comfortable and I would also say that we have reached a decent level on the RWA efficiency at the moment. We will still work on that. We have a whole team just concentrating to work on that but I would not expect a significant improvement on that side for the end of this year.

Very clear everything. Thank you very much.

The next question comes from Kian Abouhossein JP Morgan. Please go ahead.

Yeah, just some quick follow ups. First of all on the NII, your 2024 consensus is 7.6 billion; 2025, 7.7 billion, just want to see how comfortable do you feel around those numbers. And secondly, in respect to asset spreads, I know you don't give asset spreads by product, but I just want to see what is happening considering clearly liability spreads materially, the competition assets spread, if you can talk back books on both on the mortgage side and on the Mittelstand side. Thank you.

Yeah, Kian, so on 2024, on the 7.6 billion consensus number for NII, we feel pretty comfortable. I think the only thing that you keep in mind is that we do no longer have the interest payments on the minimum reserve, which cost us approximately 100 million Euros but, all in all, I think it's a good number to start with. And on the liability or the assets back side, actually we don't see really a lot of movement. I mean, mortgages has been -- the mortgage margins have been under pressure but still at the average level and on corporate clients, really nothing is observable.

And Bettina, if I may, just a quick follow up since the end of the call, just conceptually, I mean, Germany is known to be materially overbanked and the betas are extremely low based on your forecast, but also I think clearly on analyst expectations. Just holistically, can you put this in context, why that would be the case?

You mean that the 7.6 is the right number. I'm not sure that I can understand.

The betas today at 20% and relative to your earlier guidance [Indiscernible] are significantly lower than expected, though Germany is clearly over banked and quite fragmented. So just to put in context, why the betas wouldn't move, what would seem conceptually the beta should be much higher today than what we have seen today based on our forecast, but also your own forecast.

Yeah, I think it's just a slower development than we all have anticipated. Actually, we also all didn't have any experience with it, because it has been over longtime a negative interest rate environment. And before that, interest rates have been at a certain level for a long time. So it's just a new situation and apparently, clients, private clients and corporate clients are adapting to it and probably slower than we thought. So on the corporate client side, we really see still movements as I sat from site deposits to call and term deposits, which will drive further the deposit betas on the corporate client side up. And also on the private client side, it has been slower than probably anticipated, but I'm pretty sure that we will reach the levels which we have seen also in years before and that was something around 35% to 40% on average, for the industry. And this is, I think, also reflected in the consensus of the 7.6 billion, I would say that that is assuming a deposit beta of around 40% and I think that is a good guess and a good point to start with.

Super helpful, Bettina. Thank you.

So now we do have room for one more question, which comes from Vishal Shah, Morgan Stanley. Please go ahead.

Hi, thank you so much for taking the questions. I think most of my questions are answered but if I can just quickly check on buybacks again. Just in terms of the sequence of things, so I think you will apply the buyback now which should take about whatever -- it should take about three months or so and then you get the approval. So do you expect to start executing the buyback by the end of this year or do you expect it to spillover -- the whole execution to spill over in 2024, so if you could provide a bit of color there. And then the second one is a bit more strategic question. So you are clearly near the last leg of your restructuring, which has progressed very well and the rates are probably closer to peak as well now. So, basically, how are you thinking holistically about sustaining the business momentum going forward, which sort of ties into fees as well, because now you have the new Yellowfin sort of carve out, and so I'm wondering if this is a step in increasing the fee contribution in your revenue mix going forward, is that fair to assume? That's about it. Thank you.

So yeah, Michael [Phonetic], let me answer first on your fee business. Of course, a much more detailed overview will give you on November 8, when we’re presenting the strategy, and then we will elaborate in far more detail on the different revenue sources and what we're going to do, but it's clear, and it's obvious that we were a bank highly dependent on credit and interest and the more business that we can generate from fee, it is of highly strategic importance and therefore we have initiatives like Yellowfin and others in PSBC, but also on the corporate banker, we are happy and supporting all fee business initiatives. So you're rightfully saying that it is of strategic importance that we develop and grow our fee business, but more to come then in November.

And providing the timing, I mean, as we know, how much time we need for the approval process, preparation process, etc, it's fair to assume that start of the share buyback program, beginning of January is probably a very likely assumption.

Thank you so much.

So I just heard that we are at end of the call. Thanks very much for your questions and have a good day and a good weekend. Thank you.