Compete to win
Building on its foundation as a leading European Corporate Bank based in Europe’s largest economy, Deutsche Bank has transformed its business model. The bank operates where clients want it to be and where it is competitive. As a result. Deutsche Bank aims to become less complex and more profitable, improve shareholder returns and drive sustainable growth.
The second billion-euro quarterly pre-tax profit in a row demonstrates that we’re well on the path toward our goal for a post-tax return on tangible equity of 8% next year. All our businesses have contributed to the year-on-year profit growth, gained further relevance for our clients and continued to capture market share.
Deutsche Bank is …
- … a leading European Corporate Bank based in Europe’s largest economy
- … with strong investment banking, private banking, wealth and asset management capabilities
- … aligned with the strengths of the German economy around trade and investment
- … at the centre of its corporate, institutional and private clients’ needs
- … the risk manager and trusted advisor to its clients
Five decisive actions:
Clear plan for each division:
Moving into phase 3 of our transformation
Ensuring sustainable profitability
Deutsche Bank started its transformation journey in 2018. The first phase was about stabilizing the bank, for example by reducing risks and bolstering its capital position.
In July 2019, phase two started – the most fundamental transformation of Deutsche Bank in two decades. This transformation includes a new strategy and a new setup: Deutsche Bank exited non-strategic businesses and assets and focused on market-leading businesses. It also set ambitious financial targets.
Within 18 months Deutsche Bank has put the bulk of the actual transformation and restructuring behind itself. Having successfully re-focused its business model, the bank is gradually moving into phase 3 of its transformation: focusing on sustainable profitability by growing its businesses while remaining disciplined on costs and capital.
Deutsche Bank is on the right path building sustainable profitability: In the first six months 2021, profit before tax was up sevenfold year-on-year to 2.8 billion euros, the best first half since 2015.
Four client-centric divisions, well-positioned to grow
The bank’s four core businesses – a Corporate Bank, an Investment Bank, a Private Bank and Asset Management – are stable and resilient and well-positioned to support clients during challenging times like the COVID-19 crisis:
- In 2020, Core Bank revenues increased 6% to 24.3 billion euros. Compared to 2019, Core Bank profit before tax was up six-fold to 3.2 billion euros,
- For the first six months 2021, Core Bank revenues grew 5% to 13.4 billion euros. Core Bank profit near-doubled to 3.4 billion euros. All four core businesses contributed to this year on year improvement in profitability.
Each business is well positioned to respond to structural trends that will shape our economy and drive growth in for the years until 2022 and beyond:
- Economists expect an increase in demand for global financing due to high national debt levels as well as the immense investments in transforming the economy,
- In an ageing society, wealth preservation will become more pressing, in particular in times of negative interest rates when there are far fewer risk-free returns available,
- Our deep local presence worldwide is more of an asset in a world of ‘glocalization’. International companies need a strong partner with intimate regional and local knowledge,
- Climate change and social tensions will lead to growing demand for sustainable finance products.
In the first half of 2021, Deutsche Bank’s revenues were 13.5 billion euros, up 7% year on year. All core businesses are on track to meet their 2021 revenue ambitions.
In 2020 alone, Deutsche Bank made costs reductions of 2 billion Euro. On this basis, annual adjusted costs were almost 3.3 billion euros less than they were in 2018. In 2020, the bank achieved its target of reducing adjusted costs to 19.5 billion euros.
For the first six months 2021, adjusted costs(1) were down 4% to 9.8 billion euros.
With the transformation significantly advanced, and having evidenced sustainable profitability in the first half of 2021, the bank is now focussing on cost/income ratio as this more accurately reflects the sustainable margin which the bank is targeting.
Investing in technology and growth
Deutsche Bank is committed to investing in technology and will spend about 13 billion euros from 2019 through 2022. It aims to invest in four areas:
- Further investments in stable and secure technology solutions in order to maintain the resilience of its technology infrastructure
- Equally important is maintaining a robust control environment. The bank plans to spend at least 4 billion euros in its control functions from 2019 through 2022, for example to improve transaction monitoring
- Simplify and streamline the IT-landscape and focus investment to increase efficiency
- Develop innovative products and services that will help clients and unlock future growth.
Deutsche Bank will speed up this development thanks to a global strategic partnership with Google Cloud that will enhance its IT infrastructure into a more efficient, cloud-based environment that will enable the bank to focus more on innovation and client applications.
Deutsche Bank signed a strategic partnership with Google Cloud to drive a fundamental transformation of banking.
Managing and liberating capital
The strategy is implemented on the basis of a strong and robust balance sheet. Deutsche Bank aims to maintain a CET1 ratio of at least 12.5% throughout its transformation.
Despite the costs of the pandemic and its transformation, Deutsche Bank has maintained its CET1 ratio at 13.6% at the end of 2020 – essentially unchanged versus year-end 2019 and well ahead of regulatory requirements. The CET1-ratio was 13.2% at the end of the second quarter 2021 reflecting regulatory-driven risk-weighted assets increases as expected.
With its solid capital and liquidity position Deutsche Bank remains committed to support its clients and to return 5 billion euros of capital to shareholders from 2022.
As of end 2020, Deutsche Bank has made further significant progress in deleveraging the Capital Release Unit (CRU):
- Risk-weighted assets in the CRU reduced by more than half compared to 2018,
- Leverage exposure in the CRU declined by almost three quarters from 281 billion euros at the end of 2018 to 72 billion euros at the end of Q4 2020.
The Capital Release Unit reduced risk-weighted assets faster than expected while consuming fewer capital resources than anticipated:
- In the first six months 2021, losses before tax in the Capital Release United decreased by nearly half year-on-year, to 668 million euros,
- Risk Weighted Assets were reduced to 32 billion euros at the end of the second quarter, a 24% reduction over the past 12 months and in line with the bank’s published target for year-end 2022,
- Leverage exposure was reduced to € 71 billion during the second quarter, and is down 30% over the past 12 months.
Deutsche Bank’s capital ratio (CET1) stood at 13.2 percent at the end of the second quarter 2021.