Earnings Call Transcript - DB Q4 2025

Operator, Operator

Ladies and gentlemen, welcome to the Q4 2025 Analyst Conference call and live webcast. I'm Moore, the Chorus Call operator. The conference is being recorded. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Ioana Patriniche, Head of Investor Relations. Please go ahead.

Ioana Patriniche, Head of Investor Relations

Thank you for joining us for our fourth quarter and full year 2025 preliminary results call. As usual, our Chief Executive Officer, Christian Sewing, will speak first; followed by Chief Financial Officer, James von Moltke. The presentation, as always, is available to download in the Investor Relations section of our website, db.com. Before we get started, let me just remind you that the presentation contains forward-looking statements, which may not develop as we currently expect. We therefore ask you to take notice of the precautionary warning at the end of our materials. With that, let me hand over to Christian.

Christian Sewing, CEO

Thank you, Ioana, and good morning from me. Let me start with the key message. We delivered on all our 2025 targets. Thanks to strong momentum across all our businesses, we reported revenues of EUR 32 billion. This represents compound annual revenue growth of 6% since 2021, the midpoint of our target range of 5.5% to 6.5%. We self-funded this growth by achieving EUR 2.5 billion of operational efficiencies and delivered a cost income ratio of 64%, in line with our target of below 65%. Asset quality remains solid. Credit loss provisions at EUR 1.7 billion are down year-on-year and in line with our most recent expectations. We delivered record profits in 2025 with pretax profit of EUR 9.7 billion and net profit of EUR 7.1 billion. Post-tax return on tangible equity was 10.3%, meeting our full year target of above 10%. We see this as a great start towards our commitment of greater than 13% by 2028. We are also delivering on our capital objectives. We finished the year with a strong CET1 ratio of 14.2% even after a number of capital headwinds absorbed in the fourth quarter. James will detail these shortly. And thanks to our robust organic capital generation and delivery of our capital efficiency program, we again raised distributions to shareholders. With the proposed EUR 1 dividend per share and an authorized share buyback of EUR 1 billion, distributions in respect of 2025 will represent EUR 2.9 billion in line with our 50% payout commitment. As a result, cumulative distributions for 2021 to 2025 would reach EUR 8.5 billion, exceeding our original EUR 8 billion target. And we will be looking to do a further share buyback this year. And importantly, over these last few years, we have significantly strengthened our foundation. We have positioned Deutsche Bank to further increase value creation in the years ahead by scaling our global Hausbank. Let's look at how we delivered the improved profitability. As we explained at our Investor Deep Dive in November, we have transformed Deutsche Bank into a simpler, more focused business with a significantly improved financial profile. We delivered on our revenue ambition of around EUR 32 billion this year, an increase of 7% compared to the prior year or 26% since 2021 due to our diversified business mix and revenue composition. Cost discipline remains strong in 2025. Noninterest expenses came in at EUR 20.7 billion, down 10% year-on-year. We kept adjusted costs broadly flat and achieved a material reduction in nonoperating costs, reflecting lower litigation expenses. Our 2025 cost base is nearly EUR 1 billion lower than in 2021, a reduction of around 4% over this period. Operational efficiencies enabled us to self-fund foundational investments in our technology architecture, control environment and client franchise. This cost reduction, combined with our strong revenue growth, created significant operating leverage. In 2025 alone, we delivered operating leverage of 17% and our pre-provision profit was EUR 11.4 billion, up threefold since 2021. This resulted in record profits in 2025 with pretax profit of EUR 9.7 billion, up by 84% year-on-year. The improvement in our profitability was delivered through the successful execution of our global Hausbank strategy across all our divisions as you can see on Slide 4. All four businesses have delivered a reduction in their cost income ratios and substantial improvement in profitability since 2021 leading to double-digit returns in 2025. Corporate Bank delivered revenue growth of more than 40% since 2021. The revenue mix benefited from a normalized interest rate environment, and importantly, from our actions to increase fee income. This helped us to deliver stable revenues in 2025 despite lower rates and FX pressures. Going forward, the action we took in recent years mean the Corporate Bank is well positioned to scale the global Hausbank model by further leveraging our global network, product capabilities and client relationships. Our investment bank has transformed over the past few years. In fact, our efforts were focused on deepening and broadening the franchise with targeted investments into existing and adjacent businesses, reinforcing our world-class franchise. As a result, we gained market share and client activity increased by a further 11% in 2025 compared to the previous year. We are also repositioning Investment Banking and Capital Markets, or IBCM, building on our German leadership and focused offering, investing in sector and product expertise to expand our advisory and ECM capabilities while maintaining the strength of our debt franchise. Private Bank has made tremendous progress with its transformation creating a more focused, efficient and connected franchise with cost-to-income ratio below 70% and returns above 10% in 2025. The Private Bank's two complementary business attracted EUR 110 billion of net inflows since 2021, setting a strong foundation for the next stage of our plan. Our Asset Management arm DWS attracted EUR 85 billion of net new assets in the last four years, with assets under management surpassing EUR 1 trillion in 2025. And DWS, as a leading German and European asset manager with strong capabilities across asset types, is uniquely positioned to offer clients a gateway to Europe. We also delivered on our sustainability agenda across divisions. Sustainable finance volumes were EUR 98 billion in 2025, the highest annual volume since 2021, with EUR 31 billion raised in the fourth quarter alone. And we have achieved a cumulative total of over EUR 470 billion since 2020. Together with significantly improved ESG ratings, our sustainable finance business activity sets a strong base to further strengthen and scale our sustainability agenda in years ahead. Delivering on our strategy has created significant shareholder value, as you can see on Slide 5. First, improved profitability contributed to a 25% increase in our tangible book value per share since 2021 to almost EUR 31. And second, we have consistently increased shareholder distributions. For the financial year 2025, we plan to propose a dividend of EUR 1 per share or around EUR 1.9 billion in total at the AGM in May. We were pleased to have received supervisory authorization for EUR 1 billion share buyback. The resulting distribution of EUR 2.9 billion are consistent with our goal of a payout ratio of 50% for 2025. Including these proposed distributions, we would reach cumulative distributions of EUR 8.5 billion in respect of the financial years 2021 to 2025. And as I mentioned earlier, we will evaluate the possibility of an additional share buyback in the second half of 2026. Before I hand over to James, I want to briefly address the next phase of our strategy on Slide 6. We have built a firm foundation for the next phase of our strategic agenda, which is all about scaling our Global Hausbank. At the Investor Deep Dive in November, we set out a road map to increase post-tax return on tangible equity from 10% in 2025 to greater than 13% over the next 3 years. We also set out our plans to further improve our cost/income ratio to below 60% from 64% in 2025. We plan to achieve this via 3 levers: focused growth, strict capital discipline and a scalable operating model. Disciplined execution will accelerate value creation for our shareholders including further increased capital distributions. As we guided, we are increasing our payout ratio to 60% this year. As we made clear in November, we have all the levers to achieve our goals in our hands today. We have planned prudently, and we see upside to our targets if the environment develops positively. 2026 is about taking the next steps to successfully deliver our strategy, and we are encouraged by the strong start to the year we have made so far. Delivering on our 2028 agenda will enable us to reach our long-term goal to become the European champion in banking as measured by a clearly defined set of criteria, a truly global bank domiciled in Germany, the largest economy in Europe and the #3 economy in the world. A champion for our clients as their trusted partner in a world which remains uncertain. A champion for shareholders, reflecting the value we create for them and a great home for our talented people. A final thought before I hand over to James. Today's results mark the end of an era in more ways than one. This will be the last quarter in which I sit down together with my colleague, James von Moltke, to discuss our results with you. James joined us in 2017, and as you know, I was appointed CEO the following year. Since then, James has been a fantastic partner and a trusted counselor of Deutsche Bank's journey of transformation. It would be impossible for me to put into words everything James has contributed to what we have achieved on that journey. But there is one thing I can tell you, the successes we are discussing with you today are a great deal to James's professionalism and his outstanding dedication to our bank. And in the past few months, I have witnessed a seamless transition to our incoming CFO, Raja Akram, who had a great start. Raja, it is a joy working with you. Thank you, James, for all you have done for Deutsche Bank.

James von Moltke, CFO

Christian, thank you for the kind words. Indeed, this is the last time I will present the bank's results before handing over the CFO role to my successor, Raja Akram. Doing this from a position of strength is something I'm particularly proud of. The management team and the entire bank have put tremendous effort into turning the bank around and achieving this milestone. And as I said in November, we have significantly strengthened our foundations, rebuild stakeholder confidence and position the bank for sustainable value creation above our cost of capital in the years ahead. Let me now turn to Page 8, a slide we have consistently shown since we made commitments to accelerate our Global Hausbank strategy and which shows the development of our key performance indicators. With a strong finish to the end of the year and continued execution, we successfully delivered against all broader objectives and targets we set for ourselves for 2025. We maintained a strong capital foundation and our liquidity metrics are robust. The liquidity coverage ratio finished the year at 144% and the net stable funding ratio was 119%. And let me add the proposed EUR 2.9 billion capital for dividends and share buybacks, which complete our distributions in respect of 2025 are already deducted from our CET1 capital, such that the 14.2% CET1 ratio represents an excellent starting point going into 2026. With that, let me now turn to the fourth quarter and full year highlights on Slide 9. Our diversified and complementary business mix enabled us to generate revenue growth of 7% year-on-year both in Q4 and for the full year. With normalized nonoperating costs this year and adjusted costs broadly flat, fourth quarter and full year noninterest expenses were 15% and 10% lower, respectively, year-on-year. Our full year tax rate was 27% benefiting from the German tax reform and the geographical mix of income. We expect the 2026 full year tax rate to be around 28%. In the fourth quarter, diluted earnings per share was $0.76 bringing the full year to EUR 3.09, while tangible book value per share increased 4% year-on-year to EUR 30.98. Before I move on, let me share my usual remarks on Corporate & Other with further information in the appendix on Slide 37. C&O generated a pretax loss of EUR 109 million in the quarter, primarily driven by shareholder expenses, legacy portfolios and other centrally held items, partially offset by positive revenues in valuation and timing differences. Let me now turn to some of the drivers of these results, starting with net interest income on Slide 10. NII across key banking book segments and other funding was EUR 3.4 billion for the quarter and EUR 13.3 billion for the full year, in line with our plans when adjusted for FX effects. The Private Bank continued to deliver steady NII growth and improved its net interest margin by around 30 basis points year-on-year, reflecting higher deposit revenues and the ongoing rollover of our structural hedge portfolio. Momentum continued in FIC financing with sequential growth in NII supported by loan growth. Corporate Bank NII was slightly up quarter-on-quarter, reflecting a significant deposit increase, which positions us strongly going into 2026. Overall, for 2026, we expect NII across key banking book segments and other funding to increase to around EUR 14 billion. We expect this increase to be supported by targeted portfolio growth in both deposits and loans, but the largest contributor will be the structural hedge rollover of which around 90% is locked in through swaps. You can find details on the benefit from the long-term hedge portfolio rollover on Slide 25 of the appendix. Turning to Slide 11. We maintained strict cost discipline throughout the year and delivered adjusted costs in line with our guidance at EUR 5.1 billion for the fourth quarter and EUR 20.3 billion for the year. As in prior quarters, the compensation costs were up on a year-on-year basis, primarily reflecting higher performance-related accruals. For the full year, higher deferred equity compensation and the impact of increasing Deutsche Bank and DWS share prices also played a role. Noncompensation costs were down across categories, both in the fourth quarter and the full year. And similar to last year, fourth quarter bank levies were mainly driven by the U.K. levy. With that, let me turn to provision for credit losses on Slide 12. Overall, provision for credit losses was stable in the fourth quarter as an increase in Stage 3 was offset by releases in Stages 1 and 2. Full year provisions stood at EUR 1.7 billion, 7% lower than in 2024 despite elevated macroeconomic and geopolitical uncertainty and ongoing headwinds in commercial real estate. Net releases in Stages 1 and 2 provisions were mainly driven by improved macroeconomic forecasts with additional benefits from portfolio effects, partially offset by a net increase in overlease. Key Stage 3 drivers were higher provisions in the Corporate Bank and CRE-related provisions in the investment bank, including one larger single-name event. Private Bank provisions returned to a more normalized level. Wider asset quality remains resilient, and we continue to expect provisions for credit losses to trend moderately downwards in 2026 relative to 2025. Turning to capital on Slide 13. Our fourth quarter common equity Tier 1 ratio came in at 14.2%, a decrease of 30 basis points compared to the previous quarter with a 44 basis point reduction related to one-off effects as discussed last quarter. These effects included the discontinuation of the transitional rule for unrealized gains and losses on sovereign debt, and the annual update of operational risk-weighted assets impacting the ratio by 27 basis points and 17 basis points, respectively. Higher market risk-weighted assets reduced the ratio by 9 basis points as trading activity picked up to more normalized levels in the quarter, while credit growth was offset by a securitization benefit. The impact of these items on the ratio was partially offset by 21 basis points of capital generation, reflecting our strong fourth quarter earnings, net of AT1 coupon and dividend deductions. Our fourth quarter leverage ratio remained flat at 4.6%. The discontinuation of the aforementioned transitional OCI filter had an impact of 6 basis points. The 10 basis point reduction relating to an increase in cash and reverse repo was more than offset by a 13 basis point increase due to our EUR 1 billion AT1 issuance in November and the other CET1 capital increase drivers. Now let us turn to performance in our businesses, starting with the Corporate Bank on Slide 15. Corporate Bank closed 2025 with a solid financial performance, delivering a full year post-tax return on tangible equity of 15.3% and a cost-income ratio of 62% providing a strong foundation for growth in 2026. In the fourth quarter, Corporate Bank revenues remained stable sequentially as strong deposit volume growth offset the impact of lower deposit margins. Compared to the prior year quarter, revenues were essentially flat. Margin normalization and FX headwinds were largely offset by interest rate hedging, higher average deposits and a 4% increase in net commission and fee income. Deposit volumes increased significantly by EUR 25 billion in the quarter, driven by strong growth in site deposits towards year-end. This underscores the strength of our client relationships and product capabilities. Adjusted for FX movements, loans grew by EUR 2 billion sequentially and by EUR 7 billion year-on-year, driven by both flow and structured transactions in our trade finance business. Noninterest expenses were essentially flat sequentially, reflecting disciplined cost management and down year-on-year due to the nonrecurrence of a litigation matter. After low levels in prior quarters, higher provision for credit losses reflect a few Stage 3 events in the middle market. However, we do not see the most recent quarter as evidence of a pattern. For the full year 2026, we expect a modest increase in Corporate Bank revenues with accelerating sequential growth as the year progresses. Remaining interest rate and foreign exchange headwinds will impact the year-on-year comparisons in the first half of the year, temporarily masking the underlying business momentum. As these effects diminish in the second half, we expect the year-on-year growth to be more pronounced. I'll now turn to the Investment Bank on Slide 16. Revenues for the fourth quarter increased 5% year-on-year, driven by ongoing strength in FIC. FIC revenues increased 6%, representing the strongest fourth quarter on record despite lower levels of volatility driven by continued outperformance in FIC markets, specifically foreign exchange and emerging markets. FIC financing revenues were slightly higher, reflecting ongoing momentum and targeted balance sheet deployment seen throughout 2025. Client engagement continued to be strong with full year activity increasing across both institutional and corporate clients. Moving to IBCM. Revenues were slightly lower, driven by a reduction in advisory compared to a very strong prior year quarter. Capital Markets performance was broadly flat as higher equity origination revenues were offset by slightly lower debt origination with reduced LDCM revenues broadly mitigated by strength in investment-grade debt. For the full year, the IBCM revenue decline of 6% was driven by mark-to-market losses on LDCM exposures early in the year and the business would have been essentially flat excluding these losses. Looking ahead to the first quarter, the IBCM pipeline is the strongest it has been at this point for a number of years. Noninterest expenses were essentially flat year-on-year despite higher variable compensation and irrespective of favorable FX, reflecting continued cost discipline seen throughout the year. Provision for credit losses was EUR 97 million, essentially flat to the prior year. Increased Stage 3 provisions, including one larger single name event were offset by lower Stage 1 and 2 provisions. Let me now turn to Private Bank on Slide 17. In the Private Bank, disciplined strategy execution delivered 14% operating leverage, driving significantly higher quarterly profitability, supporting the delivery of a post-tax return on tangible equity of 10.5% for the full year. Revenues of EUR 2.4 billion include NII growth of 10% year-on-year driven by higher deposit revenues, including benefits from hedge rollover while the prior year quarter was affected by the impact of certain hedging costs. Net commission and fee income was essentially flat year-on-year with growth in discretionary portfolio mandates offset by lower income from cards and payments. Personal Banking revenues were essentially flat. Continued growth in deposit revenues was offset by the nonrecurrence of smaller episodic items and by lower lending revenues, reflecting our strategic focus on value-accretive products totaling approximately EUR 80 million. Excluding these impacts, revenues would have grown by 5%. Wealth Management revenues also grew by 5% year-on-year, adjusted for the aforementioned hedging costs and 10% on a reported basis, driven by higher deposit revenues and continued momentum in discretionary portfolio mandates. Noninterest expenses declined by 11%. The cumulative impact of transformation-driven efficiencies and lower restructuring and severance costs was partially offset by higher performance-related compensation. The Private Bank advanced its strategy with additional branch closures in the quarter, bringing the total closures to 126 for the year and contributing to workforce reductions of nearly 1,600 with further net reductions expected this year. Net inflows into assets under management for the full year were EUR 27 billion. This was supported by EUR 12 billion of inflows and investment products as well as deposit campaigns in Germany. Provision for credit losses improved year-on-year with the prior quarter impacted by a small number of legacy cases in Wealth Management and residual transitory effects from operational backlogs. Provisions in the third quarter benefited from model updates. Turning to Slide 18. DWS is showing a significantly improved financial profile, overachieving its financial targets for 2025 as communicated 3 years ago, notably by reporting an EPS of EUR 4.64 for the full year. In Deutsche Bank's Asset Management segment, profit before tax in the fourth quarter improved significantly by 73% from the prior year period, driven by higher revenues and resulting in an increase in return on tangible equity of 20 percentage points to 41% for this quarter. Revenues increased by 25% versus the prior year quarter. Higher management fees reflected an increase in average assets under management with higher fee levels from almost all asset classes. Performance fees saw a significant increase from the prior year period, primarily due to the recognition of fees from an infrastructure fund. Other revenues also improved significantly compared to the prior year period, reflecting a small gain from guaranteed product valuations compared to a loss reported in the prior year quarter. Noninterest expenses and adjusted costs were essentially flat as higher variable compensation costs were effectively offset by lower general and administrative expenses, resulting in a decline in the cost income ratio to 55% for the quarter. Quarterly net inflows totaled EUR 10 billion with positive inflows across passive, including X-trackers, active and alternatives and reflected sustained long-term inflows across all regions and client types. The total inflows also include EUR 5 billion of net inflows in cash products, which were partially offset by EUR 2 billion of net outflows from advisory services. Total assets under management increased to EUR 1.08 trillion in the quarter, driven by positive market impact and the aforementioned net inflows. As you may have seen in DWS' disclosure materials this morning, DWS upgraded its ambitions for 2028 raising its EPS growth target to 10% to 15% per year and setting a performance and transaction fee contribution of 4% to 8% per year of net revenues. DWS now also targets a cost income ratio of below 55% for 2027 and has aligned its net flow ambitions with the targets we communicated at our IDD in November. For further details, please have a look at DWS' disclosure on their Investor Relations website. Turning to the outlook on Slide 19. Looking ahead, the delivery of all of our 2025 targets and objectives provides a firm basis for the next phase of our strategy until 2028, scaling the Global Hausbank. Business momentum going into 2026 has been good and sets us up well as we start scaling our franchise and benefit from the investments we are making. As we said at our Investor Day in November, we plan to show improvements in operating performance every year, including in 2026. We expect full year revenues to increase to around EUR 33 billion, aided by banking book NII growing to EUR 14 billion as well as growth in net commission and fee income. As I said earlier, we expect a modest increase in full year Corporate Bank revenues with accelerating sequential growth as the year progresses. In the Investment Bank, we expect revenues to be slightly higher compared to 2025 with growth in IBCM revenues in line with the overall growth strategy of the business and essentially flat FIC revenues. We also expect continued growth in the Private Bank with full year revenues slightly higher. Likewise, asset management should also see a modest increase in revenues. Looking at the first quarter, in light of a normalization in C&O revenues and against a very strong FIC performance in the prior year quarter, our baseline expectation is for revenues to be flat year-on-year. Nonetheless, we are encouraged by the very good start we have seen in January. Noninterest expenses in 2026 are expected to increase to slightly above EUR 21 billion, in line with the trajectory provided in November. This includes around EUR 900 million of incremental investments in 2026 to unlock growth and efficiencies as early as this year. Our asset quality remains solid. And as I said earlier, we continue to expect provision for credit losses to trend moderately downwards in 2026 as commercial real estate provisions ameliorate and other portfolios normalize, bringing us closer to a lower expected average run rate of around 30 basis points through 2028. The EUR 2.9 billion of capital distributions proposed in respect of 2025 bring us above our EUR 8 billion target for cumulative distributions in respect of 2021 to 2025. We also want to deliver attractive capital returns going forward, which is why we're increasing our payout ratio to 60% starting this year with modest but continuous growth in the dividend per share, complemented by share buybacks. In short, our strong capital position and full year profit growth provide a firm foundation as we head into 2026 and we aim to deliver additional shareholder distributions in the second half of this year, subject to customary authorizations. As Raja rightly said in November, we are ready to scale Deutsche Bank with focused growth and strict capital discipline and a scalable operating model at its core. For me, personally, being able to hand over the CFO role at a moment when the bank stands on strong foundations, enjoys business momentum and strong client engagement and is able to execute with discipline and purpose is deeply meaningful. With that, I'd like to conclude my last set of quarterly remarks for Deutsche Bank with a heartfelt thank you to all employees globally for their hard work over the years to support the transformation of the bank and the delivery of our 2025 goals. I also want to thank our analysts and investor community for the high level of engagement over the years as you have followed the story and supported this management team in a myriad of ways. Lastly, I want to take a moment to thank Raja for his partnership and efforts to ensure a smooth transition and to wish him every success as he assumes the CFO role. Christian, Raja and I look forward to the Q&A session. With deep dedication, thank you. And I'll now hand back to Ioana.

Ioana Patriniche, Head of Investor Relations

Thank you, James. Operator, we're now ready to take questions.

Operator, Operator

The first question comes from Nicolas Payen from Kepler Cheuvreux.

Nicolas Payen, Analyst

I want to start by thanking you, James, for all your help and support over the years. It has been greatly appreciated. I wish you the best in your next endeavors and welcome Raja. I have two questions, please. The first one is about your revenue guidance. Could you clarify how you plan to achieve EUR 33 billion in revenues, considering factors such as the strong high CO and FIC trading, which performed well in January? What foreign exchange rates did you assume in your guidance, and did the recent fluctuations affect that? What are the various elements impacting the revenue outlook for 2026 and Q1? Additionally, for 2026, the operating leverage is expected to be limited as you invest significantly in the business. You mentioned EUR 900 million at the last IDD; could you elaborate on how that money will be spent and how it will support your business moving forward?

Christian Sewing, CEO

Thank you for your questions. I'll start with our revenue guidance and the composition we're seeing before handing over to Raja to discuss operating leverage for 2026, particularly regarding our investments. I'm pleased to say that what we achieved in 2025 provides a strong foundation for Deutsche Bank's next growth phase. Momentum exists across all our business lines, including the Corporate Bank. Although there's a nominal reduction in 2025 compared to 2024, when we exclude interest rate pressure and consider our operating growth, the situation remains positive. We anticipate continued growth in every operating business for 2026, albeit at varying levels and dynamics across divisions. The Corporate Bank is expected to see a modest increase compared to 2025, especially with sequential growth accelerating throughout the year. Our discussions with clients regarding lending and investments in our fee business indicate that these areas are gaining traction. In terms of our net interest income guidance, we expect clear sequential growth in the second half of the year, which will contribute to a modest year-over-year increase in the Corporate Bank. Given the current global landscape, including geopolitical uncertainties, our Corporate Bank's collaboration with the investment bank is becoming more evident. We are increasingly viewed as a European alternative for clients outside of Europe, which further strengthens my optimism for the Corporate Bank's growth. For the Investment Bank, we anticipate slightly higher revenues than in 2025, mainly driven by our Investment Banking and Capital Markets (IBCM) activities. The investments we've made are starting to bear fruit, particularly as we've observed more movement from IBCM in the U.S. toward Europe. If recent weeks are any indication based on pitches and mandates we've secured in Europe, I am confident that Ellison's strategy to reposition IBCM, specifically in advisory services, is proving to be very successful. Moreover, our traditional IBCM business, such as debt origination, started strong in January, further supporting growth. We are taking a cautious approach in our Fixed Income and Currencies (FIC) forecasts, planning for it to remain essentially flat this year. However, if recent trends continue, this outlook may prove to be overly conservative, allowing for potential increases and compensation for other items. The Private Bank is anticipated to show continued growth, with revenues expected to exceed last year's figures. This growth is driven by both Personal Banking and Wealth Management. As discussed in November with Claudio, the restructuring of the pension system in Germany is creating significant opportunities for private pensions, which is reflected in our growing assets under management in Personal Banking. Additionally, I am pleased with Claudio's progress in Wealth Management, as he continues to drive growth through hiring. In just the first three weeks of January, 24 relationship managers have joined the team, with another 40 being onboarded, confirming that our plans are unfolding positively. Looking ahead, asset management is also expected to see increases, supported by stellar efforts from Stefan Hoops at DWS, positioning us as a European alternative in that space. In summary, we're forecasting revenues of EUR 33 billion for 2026. The early signs from January show promising confidence and a hint of optimism. For Q1, we are planning for flat revenues compared to last year, understanding that last year's Q1 performance—especially in the Investment Bank and FIC—was remarkable. If the first few weeks of FIC are an indication, we may even exceed those expectations. The momentum in each of our four business units is a positive sign for us. Overall, I believe that the expected EUR 33 billion in revenues for 2026, coupled with stronger quality compared to 2025, highlights that our growth is not just quantitative but qualitative as well.

Raja Akram, Incoming CFO

Thanks for addressing my initial question as the incoming CFO. Regarding your first question on foreign exchange, our December forecast is approximately $1.18, while we're currently around $1.19. This has implications for both revenue and expenses, but given the scale of our operations, I believe it's manageable. We will keep an eye on it should anything change. As for your other question on operating leverage, you're correct. We committed to a $1.5 billion investment program over the next three years, with less than half allocated for 2026. However, we also agreed to $2 billion in operating efficiencies starting in 2026. The mix of investments and efficiencies will vary since it's the first year, impacting our reported operating leverage. While I prefer not to exclude certain factors, I want to emphasize that our underlying operating leverage remains very strong. We're excited about the exponential increase in operating leverage expected in 2027 and 2028 due to these investments. We are committed to achieving positive operating leverage beginning in 2026. As Christian mentioned, we will monitor the revenue trajectory and the timing of investments, as that is fully within our control. At this moment, we are committed to sticking to our expense guidance from the Investor Day, which indicates a growth of around 3% over 2025.

Flora Bocahut, Analyst

First of all, James, thank you from me too. And obviously, wishing you all the best. Moving to the questions. The first question is on the excess capital usage. You just closed the year now at 14.2% CET1, that's after the distributions that you announced today. You say very clearly, you want to do potentially another buyback later this year. So can you maybe tell us how, at this stage you are thinking about using the capital that you already have in excess and that you will continue to build this year between reinvesting into your organic growth, potential M&A, so external growth or additional distribution to shareholders? And can I also maybe just clarify on FRTB, if there's any new news regarding the magnitude and the timing on the capital walk? The second question would actually be on the deposits because there was a good deposit growth this quarter. And actually, we have more and more banks that are talking about tougher competitive pricing across various geographies. Obviously, Germany is a market where we continue to see appetite from some of your competitors to try and gain share. So can you maybe elaborate on what it is you expect in terms of the deposit volume growth as well as pricing, especially for Germany, but actually for the various markets, that would be helpful.

Raja Akram, Incoming CFO

Let me start by discussing capital. A couple of months ago, we outlined our capital strategy, prioritizing safety, soundness, and resiliency. With a capital ratio of 14.2%, we've put any concerns to rest. We aim to operate within a range of 13.5% to 14% going forward. James mentioned the authorized capital distribution planned for 2026, and we now have a strategy to initiate share buybacks within the year, which we didn't have before. We expect to conduct buybacks in 2026, though the pace will depend on revenue trends and timing. We are committed to this plan. From an M&A standpoint, it's currently at the bottom of our capital priorities. While we remain open to opportunities, they must align with our strategic, cultural, and financial criteria. Our preference is to return capital to shareholders, which is warranted given our capital generation. With a capital ratio of 14.2%, we are well-positioned to pursue business opportunities that will support our buyback initiatives. Regarding FRTB, we had included it in our planning during Investor Day, but without concrete information, that assumption may now seem conservative. We hope for positive developments from a European perspective and will adjust as needed. On the topic of deposits, competition has increased with competitors offering attractive teaser rates. We are running a campaign in the Private Bank and, after the first three weeks of January, are confident that our growth strategy for deposits will succeed. Our value proposition and access aren’t easily replicable by external players. In the Corporate Bank, deposit pricing trends have remained stable, but it isn't solely about pricing; operational reliability and network capabilities matter too. With our strong presence across approximately 60 countries, we have an advantage in maintaining operational deposits without competing primarily on price. Lastly, while it's only the start of January, we may face a favorable situation where we have to choose which deposits to pursue rather than limit them. We feel confident about our ability to meet or even exceed our deposit targets.

Christian Sewing, CEO

Flora, just to add one comment on the regulatory question and I completely agree with Raja. I witnessed over the last 12 weeks, but in particular, over the last 4 weeks. And this can also be an impact of all the geopolitical discussions a real reconsideration on the European side, what happens with regulation. And therefore, the word simplification, the word reduction of regulation in certain items is gaining speed. You have heard our Chancellor there were discussions also around doubles on that topic. So completely agree. While we don't have now a concrete decision on FRTB, I would be more than surprised actually if this would come into play. And therefore, we see that as an absolute cushion in our plan an absolute advantage that potentially on the side, we have also too conservatively.

Chris Hallam, Analyst

Two from me. First on CLPs. You've guided for them to come down year-over-year in 2026 and then trend down towards 30 bps. How much of a step down should we expect this consensus, I think, has around EUR 150 million. And what trends are you seeing both in Q4 last year and at the start of this year that give you confidence on that trajectory? That's my first question. And then secondly, James, taking a step back, you've been CFO since 2017. And from the outside, we can all see the change in the business over that period, not least of which the higher returns, but also the fact the bank is now distributing capital rather than raising it. But from the inside, from your perspective, what main changes you've seen during your tenure that might be a little bit less obvious to us and how do they inform the future outlook for the bank from here?

James von Moltke, CFO

Thank you, Chris. I'll address both points. Raja may want to provide additional insight regarding CLPs, but let’s begin with the fourth quarter. As mentioned in our prepared remarks, the Stage 3 was higher than we anticipated. Additionally, the run rates in both the Private Bank and Corporate Bank have increased slightly, but we do not view this as indicative of an ongoing trend. I would estimate the natural run rate for both on a quarterly basis to be somewhat below what we experienced in the fourth quarter. Furthermore, we observe that the overall credit conditions in both segments are relatively stable, and in some cases, improving. The Investment Bank did have a higher Stage 3 than usual. A significant factor for 2026 is the commercial real estate tail, particularly its magnitude and the duration of winding down, alongside the one-time single name item we discussed. In summary, I believe we are looking at a normalization of Stage 3 run rates, generally strong credit quality, and improvements in commercial real estate, which should lead to a modest decrease in CLPs this year. Raja indicated a trend down to 30 basis points, which seems fitting. Previously, we were at around 38, 36, and there may be a couple of steps needed before it fully normalizes in that area. Thank you for your kind question regarding my time as CFO, Chris. There’s a lot to reflect on, but I would highlight two key points. Firstly, we significantly transformed the culture within the firm, particularly around accountability and discipline in performance, driven by Christian, myself, and the management teams during that period. I believe this cultural shift will endure in the organization. While the finance function has played a crucial role, it is not alone in this change; COO risk and control functions have also been vital. Moreover, it has been embraced and internalized at the first line level, marking a major change for the organization. Looking ahead, I am genuinely excited about the impact that SVA can have on the organization, which we have briefly discussed in our updates. Although it originated from finance, it has been fully adopted across the organization. The institution's willingness to guide decisions using SVA tools reflects a strong commitment, and I believe it will have a significant positive impact as we move forward.

Christian Sewing, CEO

Chris, it's always hard for James to talk about himself, but let me add 2 or 3 items. I think the integrity and the credibility he has given Deutsche Bank to the market, again, is simply outstanding. We would not be there without his work, but also without his integrity and credibility without his work. So that is something where we are all benefiting from and that discipline is now so instilled in the bank, but it's one of his greatest achievements. Secondly, next to all the day-to-day work and KPI management holding us responsible. There is one other thing which makes him an outstanding CFO. And that is last year, you all remember that we took our target down on the cost/income ratio from 62.5% actually, we took it up, the cost/income ratio to 65%. And James and I, we got criticized because it was sort of say, a deterioration. We did it on purpose because we saw the long-term chances of the investments at that point in time. And you don't find too many CFOs who move voluntarily away from an own target, which is to the heart of a CFO to do the long-term better of a bank, and that is James. And that is something where, I would say, really, thank you, James, because again, that long-term thinking has really created a completely new culture in this bank. And there, we are benefiting all from it in all business divisions, and I think it's actually the secret of success of Deutsche Bank going forward.

Anke Reingen, Analyst

Firstly, thank you very much, James, and best wishes for the future. Regarding your questions, I would like to discuss the cost trends. The EUR 21 billion projection for 2026 prompts me to ask about the investment trajectory for the year, particularly how it might lead to higher costs in the first half compared to the second half, beyond the usual seasonal fluctuations, and in light of your spending plan. Additionally, concerning the extra capital distribution, your comments suggest increased confidence about this distribution. When might you consider revisiting another distribution, and are there any factors, such as regulatory changes or asset disposals, that we should keep in mind that could influence this decision?

James von Moltke, CFO

Thank you for your question. Let me take the first one and then Christian may want to also add in his views on the second one since I express mine. I think on the investment side, look, the great part is that these are our own investments, meaning that we are deliberately and diligently making them. So we do have some control over how we pace them. That said, you would naturally expect that there will be a natural buildup over the year as the hiring gets done, as the technology dollars get deployed. But at this point, we would not expect that any one quarter would be extremely outsized one way or the other. I think you could expect to see a slow trajectory upwards and then stabilizing over the course of the year. That's the way we think about it. Obviously, the revenue environment will drive if we do better than on revenues and we expect it will drive volume-driven expenses and other related expenses, which is something that we have now projected based on our current revenue plan, but let's see how that plays out. But at least that's the path for investments.

Christian Sewing, CEO

Anke, Raja indicated that with regard to share buybacks, first of all, very happy with the approval we have in hand for the EUR 1 billion. It brings us there what we promised actually above EUR 8 billion. I think it's now on us, to be honest. And like we have done it in the past, we need to deliver. Again, in my view, it's now Q1, and then also, obviously, Q2. And then I think if we do this, and I don't see any sort of say, clouds for the time being that we can't deliver then I think we have all the right to have another discussion with the regulator. I think we gained credibility with the regulators around the world, but in particular, also with our home regulator here. And if we deliver on our plan, to be honest, and if we are showing capital ratios like we do it right now, there is no reason why we shouldn't ask for another one. Now to give you a confirmation when this is exactly happening, it's too early, we should be fair. Let's deliver first, but we have done this for the last 5 years, and therefore, I'm confident that we will also do it this year.

Tarik El Mejjad, Analyst

Just a couple of questions on my side. First, I would like to challenge you on the EUR 33 billion revenues, more to the upside. First, on the Corporate Bank growth, I mean, you insist on modest growth, but I think you have a self-help strategy there, which you go back to the kind of some corporates that you've lost focus on and you capture this growth, which is completely independent from actually how the market will do. And also, I wanted to confirm on the Corporate Bank, how much you still price on your outlook, a potential pickup on the benefit of fiscal stimulus towards the back end of the year. I mean, same for IBCM, the pipeline was good, FIC is flat. I mean, you guided for flat, but clearly, I mean, all indicates for volatility will stay with us and January should be a good indication of what to come. And also on NII, I mean you're talking of deposit growth with Q4 as an exit rate, which basically implies that a full year guide before even considering the hedge, if you can help me as well square that. And the second question is on the capital return. Really just to confirm that the extra share buyback you could have in the second half would be as a special from '25 earnings and not an advanced buyback on the '26 earnings accrued. Just a clarification on this. And lastly, I don't know how much you can comment on the news yesterday on this remainder AML issue. I don't know how much you can say on that.

Raja Akram, Incoming CFO

Thanks, Tarik. I'll start with the first question and then Christian can address the second to last question. We feel quite optimistic about the EUR 33 billion target. This optimism stems from the fact that it's not reliant on any single business outperforming; rather, all areas are improving slightly. The Corporate Bank is a particularly interesting case, and I understand the skepticism surrounding it. However, I'm actually quite confident in its growth. Over the past year, we have seen a 5% increase in net fee and commission income in the Corporate Bank, despite experiencing margin compression on the interest rate side. Looking ahead to 2026, we believe we can achieve growth greater than 5%, especially as the pressure from margin compression is beginning to lessen. In addition, we are witnessing solid growth in underlying loans within the Corporate Bank, exceeding 5% to 6% last year. However, we made strategic decisions to reduce exposure to certain products, which impacted reported growth. Nevertheless, the underlying loan volume growth is very healthy. Eventually, as our strategic decisions take effect, reported loan growth will increase significantly. I am quite optimistic about the Corporate Bank due to the fading FX headwinds and margin pressures that complicated the narrative in 2025. In fact, a dedicated Analyst Day might be necessary to explore the Corporate Bank’s path forward, as we expect sequential and year-over-year growth in the latter half of the year. On the IBCM front, our teams are focused on building our pipeline, which is significantly more robust than it was in 2025, whether in investment-grade debt, leveraged lending, or M&A. We anticipate revenue growth slightly exceeding 3%, contingent on maintaining a stable FIC, which Christian previously referenced. Finally, regarding interest income, we project growth from around EUR 13.3 billion to approximately EUR 14 billion, with almost half of that already secured through hedge rollovers and the previously mentioned deposit and loan growth. Our focus now is to ensure our investments are made effectively and quickly, as we also want to see our client and net new assets gain similar momentum, which is vital for our value creation. In summary, moving from EUR 32 billion to EUR 33 billion while mitigating C&O headwinds through the Corporate Bank's recovery is something we are feeling quite confident about.

James von Moltke, CFO

On capital, just to clarify, our expectation is that an additional buyback request in the second half of the year will pertain to 2026 earnings, not 2025. As Raja mentioned, this is separate from the issue of excess capital distribution. You should think of additional distribution as potentially coming from two different sources: acceleration of in-year earnings and excess distributions once we determine that capital is sustainably in excess. Regarding the last part of the question, we can’t say much at this time. We can confirm that a prosecutor visited our offices, and we believe the timing is unfortunate. The prosecutor is seeking information about transactions from 2013 to 2018, and the allegation involves potentially delayed suspicious activity reporting. We will follow the facts and work with the prosecutor during this investigation and will continue to fully cooperate, as this builds on previous similar investigations. Lastly, we do not expect this situation to impact our financial or strategic plans.

Ioana Patriniche, Head of Investor Relations

Thank you, James. Operator, we're now ready to take questions.

Operator, Operator

Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.