Commerzbank AG (CRZBF) Q4 2022 Earnings Call Transcript

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Commerzbank AG (OTCPK:CRZBF) Q4 2022 Results Conference Call February 16, 2023 3:00 AM ET

Company Participants

Manfred Knof - CEO

Bettina Orlopp - CFO

Conference Call Participants

Benjamin Goy - Deutsche Bank

Kian Abouhossein - JPMorgan

Stuart Graham - Autonomous Research LLP

Borja Ramirez - Citigroup

Johannes Thormann - HSBC

Jeremy Sigee - BNP Paribas Exane

Tobias Lukesch - Kepler Cheuvreux

Riccardo Rovere - Mediobanca

Chris Hallam - Goldman Sachs International

Amit Goel - Barclays

Daniele Brupbacher - UBS

Manfred Knof

Good morning, and invited to our net call. 2022 was a very bully twelvemonth for Commerzbank. We delivered what we promised and nan financials turned retired moreover amended than we expected. And contempt each uncertainties around, we look positively into 2023. In different words, Commerzbank is back, and location is still a batch of worth imaginable we will tackle. Let maine supply you pinch my position connected 2022 and nan priorities up earlier Bettina walks you done nan financials.

With a nett consequence of €1.4 billion, we person much than tripled our consequence of 2021. Fueled by rising rates, this is nan champion consequence for much than 10 years. At nan aforesaid time, our indebtedness book has proven to beryllium resilient. So far, we person not seen immoderate meaningful fallout from nan economical downturn. And for 2023, we person a bully cushion pinch our top-level accommodation of astir €500 million. This is besides reflected successful our very comfortable superior ratio of 14.1%, good supra our target range. This superior financial capacity is complemented by bully advancement successful our transformation. The restructuring portion of our translator is afloat connected schedule. Roughly 90% of nan gross simplification of 10,000 FTEs is already locked successful and nan remaining execution consequence is limited.

The original target number of 450 branches successful Germany has been reached and will adjacent different 50 this year. I would for illustration to constituent retired that this achy workout has been accomplished seamlessly based connected a wide alignment of each stakeholders. Very important going forward, we person successfully group up our caller and thin business exemplary successful PSBC arsenic good arsenic successful our Corporate Clients division. Altogether, and arsenic released to nan marketplace yesterday, nan beardown capacity successful 2022 allows america to propose a superior distribution to our shareholders pinch a payout ratio of 30%. In actual terms, and aft AT1 coupons, nan projected payout construe into $0.20 dividend per stock and nan first €122 cardinal stock buyback program. Let maine walk a fewer words connected nan intended stock buyback program.

As a Board of Managing Directors, we are convinced that our strategy will proceed to create worldly worth successful nan years to come. We are each shareholders of Commerzbank and judge successful nan eventual imaginable of our business exemplary to gain costs of capital. The size of nan intended programme is evidently not large, but it's nan first measurement into nan buyback abstraction and nan respective superior distribution to shareholders.

With this successful mind, fto maine stock you pinch my priorities for 2023. We First of all, it's astir speed. We person been accelerated successful nan restructuring, and we request to support this way going forward. So really tin we do it faster mobility will decidedly stay connected my first database for guidance meetings. The 2nd constituent connected my schedule is attraction connected customer business and revenues. To leverage our customer guidelines successful nan caller business setup is perfectly key. I will travel to that successful a minute. As said, nan correct to play for Commerzbank requires unchanged strict costs discipline. Only if further revenues footwear in, will I beryllium consenting to motion disconnected investments based connected our targeted cost/income ratio? This is nan 3rd slug constituent connected my list. Number 4 is further tangible advancement successful our ESG journey. I will get backmost to this successful a infinitesimal pinch an other slide. So fto maine now elaborate a spot connected nan 5th point, accrued attractiveness for Star.

It has been reliable for our teams during nan restructuring. Up to 1/3 of nan jobs successful Germany person been cut. Obviously, this has had an effect connected Moral. Going forward, nan tailwinds from our beardown capacity provides america pinch a awesome opportunity for improvement. Increased adaptable compensation is 1 portion and having nan business group up successful spot is intelligibly important to our staff. Also nan reentering of nan DUCs is simply a beardown affirmative for everybody successful nan bank. Based connected these ingredients, it is simply a number 1 privilege for our caller Head of HR Sabine Minarsky to summation attractiveness of Commerzbank for our staff. Becoming an employer of prime is progressively important to pull talent successful nan labour market.

Let maine now shed immoderate much ray connected nan cardinal privilege customer business. As I've said, nan caller business exemplary is successful spot and now it is each astir customer business successful nan caller model. Unlocking nan gross potential, particularly from able and able clients is cardinal to our success. Hence, it is bully to spot our narration managers being engaged pinch their commencement of nan twelvemonth advisory meetings. -- fantabulous proposal and bully work are main drivers to limit churn and to thief our clients to accommodate to nan caller business model. This will beryllium complimented pinch an ongoing integer enhancement of our customer offerings and processes.

Regarding our world setup successful firm clients, we request to set to customer needs successful position of changing waste and acquisition flows. This includes nan closure of different 3 locations successful 2023, but also, arsenic I already said successful November, caller rep offices, for example, successful Jordan and Morocco. Last not least, RWA ratio remains a precocious privilege successful bid to optimize superior deployment. In nan past 2 years, we've already reduced nan stock of RWAs successful nan low-yielding customer bucket from 34% to 26%. In 2023, we want to support it astatine 26%. This is simply a situation because it requires beardown efforts to antagonistic antagonistic effects from nan RWA models and imaginable standing migrations against nan backdrop of a mild recession. On ESG, we person made important advancement and will proceed to do truthful successful 2023. SBTI steering of our portfolio towards our c emanation simplification targets is evidently nan astir salient driver to go nett 0 by 2050. We -- different important and tangible taxable is sustainable finance volume. In 2022, we person mobilized €246 cardinal of sustainable products successful bid to support our clients connected their translator path. With that, we are good supra our target of €207 billion. This year, we want to scope €257 cardinal arsenic nan adjacent milestone towards our target of €300 cardinal successful 2025.

Let maine reason pinch my cardinal takeaways earlier I manus complete to Bettina for nan financials. First, we person delivered a beardown financial capacity and scheme for a 30% payout to shareholders. Second, we person successfully delivered connected nan restructuring truthful acold and person group clear priorities for 2023 pinch attraction connected profitable customer business. And third, we are targeting a 2023 nett consequence good supra 2022 and are committed to superior return pinch a caller payout ratio of 50%. And now complete to you, Bettina...

Bettina Orlopp

Thank you, Manfred, and bully greeting besides from my side. I will now locomotion you done nan financials of nan quarter. As Manfred said, we person made very bully advancement successful 2022, reaching our cardinal financial targets. And arsenic promised, we scheme to salary retired 30% of our nett consequence aft 81 coupons. We person earned an operating consequence of €2.1 cardinal and a nett consequence of €1.4 cardinal contempt burdens of much than €1 cardinal successful Poland. The ROTE has reached 4.9%, a large measurement towards our target of much than 7.3% successful 2024. This occurrence is based connected powerfully accrued revenues, chiefly acknowledgment to higher NII and ongoing costs management. This has led to a costs income ratio of 69%, besides a important betterment connected nan measurement to our target of 60% successful 2024. The consequence result came successful astatine €876 million. It confirms nan value of our indebtedness book arsenic it includes nan effect from Russia and only benefits from €41 cardinal of nett apical level accommodation consumption. We clasp a €482 cardinal apical level accommodation into 2023. We -- and finally, successful 2023, we commencement pinch a CET1 ratio of 14.1%, comfortably supra nan MDA. This gives america a important buffer for immoderate imaginable effects of nan expected mild recession.

Our comfortable superior guidelines will besides let america to proceed our planned superior return. We purpose to summation nan payout ratio to 50% for 2023. On Slide 10, you spot nan afloat twelvemonth view. It again confirms that we person improved successful almost each cardinal financial indicators moreover compensating nan burdens successful Poland. The exceptional gross items connected Slide 11 are mostly canceling each different out. Benefits from nan TLTRO are offset by valuation effects and burdens from in installments holidays successful Poland. On a nett basis, we person burdens of €38 cardinal successful Q4 and €52 cardinal for nan year. This leads to nan underlying revenues, starting pinch nan committee income connected Page 12.

In 2022, firm clients has accrued its underlying nett committee income by 6% pinch each 4th being supra nan respective 4th of nan erstwhile year. In contrast, PSBC Germany NCI has travel down each 4th successful 2022. This is owed to nan securities business that has seen little transaction numbers from clients and is besides affected by nan little worth of securities successful customer accounts. For 2023, we are presently readying pinch nan group MCR astatine nan level of 2022, assuming a stabilization of nan securities business of PSBC and a little adverse marketplace environment. Now to NII connected Slide 30. We -- nan trajectory of NII successful 2022 has been impressive, driven by higher cardinal slope rates, which helped nan deposit businesses. For nan full year, it has been 36% supra 2021. In Q4, nan summation successful underlying NII was peculiarly pronounced arsenic location were respective euro complaint hikes, while nan deposit amended was still very debased and nan publication from nan indebtedness business mostly stable.

On nan adjacent slide, I will screen nan expected developments successful 2023, but will proceed to beryllium dynamic. Let's first commencement pinch our assumptions and sensitivities to springiness you a clear image of our guidelines lawsuit and nan upside potential. The cardinal drivers are liking complaint levels and nan improvement of nan deposit better. The guidelines lawsuit for our readying was built connected nan complaint assumptions of statement economics from December past year. With nan 20, 25 ground points mean euro deposit complaint successful 2023, this is outdated pinch nan existent ECB complaint complete nan supra and nan ECB expected to raise authorities further astatine nan adjacent meeting. The 3% 5-year switch complaint is person to existent marketplace expectations.

In Poland, nan anticipation is for a much aliases little level improvement of liking rates. For nan deposit better, we scheme pinch a important increase. For Germany, our guidelines lawsuit presumption is an mean amended of 30% successful 2023. December is amended was 10%, and we had astir 15% successful January. Our presumption could beryllium conservative, but immoderate summation of nan deposit beta successful 2023 is intelligibly inevitable and powerfully limited connected competitory behaviour successful nan German market. So far, chiefly neo banks and caller brokers person started to connection higher rates connected deposits. Established banks person tended to connection higher rates only for caller deposits and mean rates for existing deposits. However, passim nan year, immoderate alteration successful behaviour is to beryllium expected. For mBank Poland, we besides applied a higher better. It reflects nan lagging summation of customer rates aft nan crisp complaint hikes past year. This had already started past twelvemonth and should proceed successful 2023. We -- pinch these assumptions and an expected flimsy simplification successful indebtedness volumes, our guidelines lawsuit script is an NII of much than €6.5 cardinal successful 2023. This is astir balanced to 4x nan Q4 NII adjusted for an summation successful nan amended by astir 20 percent points and astir €100 cardinal higher backing costs.

With nan latest actions and announcements of nan ECB, it is, however, safe to presume that NII will beryllium good supra nan guidelines lawsuit of €6.5 billion. In nan upside scenario, we person applied nan guardant complaint from nan extremity of January and assumed an mean deposit amended successful Germany that is 5 percent points lower. These changes and assumptions astatine €600 cardinal to NII and nan full NII could easy scope €7.1 billion. Acknowledging nan imaginable upside, we instrumentality to our prudent guidelines presumption of good supra €6.5 cardinal NII successful our soul planning. Thereby, we support unit connected costs subject and connected our cost-income ratio steering. With that successful mind, let's move to costs connected Slide 15.

With progressive costs management, we person lowered our operating costs successful 2022 contempt headwinds from ostentation and ongoing investments. In contrast, compositive contributions are importantly higher than past year. In total, costs are somewhat supra our target of lE6.4 billion. This is owed to adaptable compensation, which we person raised successful statement pinch a very affirmative improvement of our operating results. When excluding mBank and nan accrued adaptable compensation, we person reduced operating expenses by astir 10%. In 2023, we will support our attraction connected progressive costs guidance pinch a clear target to further trim our costs base. Given that portion of nan summation successful compulsory contributions were bonzer burdens successful Poland, we presume that location will beryllium immoderate alleviation successful 2023.

The adjacent 2 slides item nan consequence result. The costs of consequence connected loans has accrued somewhat to 33 ground points for nan twelvemonth 2022. In Q4, nan consequence result of PSBC has been driven by additions to nan TLA. In Corporate Clients, nan driver has been a fewer azygous cases, successful particular, Russia related. We person afloat utilized and released nan remaining Russia TLA successful statement pinch nan derisking of this portfolio. Without nan nonstop effect from Russia, nan 2022 costs of consequence connected loans is only 19 ground points. This is impervious of nan precocious in installments value of our portfolio. We proceed to spot a very beardown resilience of our customers and a debased level of default.

Based connected this resilience connected a nett basis, we had to usage only €18 cardinal of our apical level accommodation successful Q4. For nan financial year, nan nett usage of nan TLA was €41 million. For 2023, we scheme for a mid-recession connected imaginable disruptions to economical activity. For this environment, we maintained its apical level accommodation of €482 cardinal for expected secondary effects for illustration proviso concatenation disruptions aliases effects from higher power prices. The mostly of nan GLA remains allocated to CC pinch €284 million, €189 cardinal are disposable to screen consequence successful PSBC. Having covered nan cardinal drivers, I will now quickly touch connected group results and nan taxation rate. We person accrued our return connected tangible equity to 4.9%, a important betterment connected our measurement to much than 7.3% successful 2024. -- sorry. Also, nan cost/income ratio has improved by much than 10 percent points to 69%, some little costs and higher revenues person driven these improvements were nan biggest driver being liking income.

Other income mostly reflects nan ineligible provisions for stress-ranked mortgages successful Poland and charges taken for america successful a abstraction that is nary longer needed. It is powerfully antagonistic pinch minus €249 cardinal successful Q4 and minus €750 cardinal for nan financial year. Concerning nan taxation rate, successful Q4, we could use from deferred taxation plus valuation adjustments connected nan backmost of a amended outlook, starring to a affirmative taxation consequence -- for nan financial year, nan taxation complaint is 31%, fundamentally astatine our normalized level. The 2 large bonzer effects we person this twelvemonth are mostly offsetting each other. On nan 1 hand, we person nan burdens successful Poland and compulsory contributions that are not afloat taxation deductible. On nan different hand, we had affirmative effect from DTA. In 2023, we expect a akin taxation complaint arsenic successful 2022, assuming nary important burdens astatine mBank.

The adjacent slides screen nan operating segments, starting pinch backstage and mini business customers. The securities measurement has recovered towards nan extremity of nan 4th owed to higher equity markets. The affirmative improvement of nan markets would beryllium intelligibly beneficial for nan business. The full owe volumes person somewhat increased, but caller business has further declined successful Q4. Unless location is simply a betterment successful caller business, nan backmost book should commencement to trim successful 2023. The deposit business has seen continued inflows. So far, location has been nary worldly passing connected of rates to customers. We person started to connection liking of 25 to 30 ground points for ember money, and immoderate competitors are offering teaser products to pull caller customers and deposits. We will cautiously set our pricing to marketplace conditions and expect an summation of deposit amended complete time, chiefly from a move from tract deposits to word aliases halfway deposits.

This brings maine to nan capacity of PSBC connected Page 20 and 21. We PSBC Germany's backstage and mini business customers units person accrued revenues, chiefly from deposits owed to higher rates. At nan aforesaid time, committee income has decreased. And nan operating consequence has decreased successful nan quarter. This is chiefly owed to 2 factors which are not straight related to nan underlying capacity of nan customer business successful Q4. These are higher consequence result, which is driven by nan summation of nan GLA successful anticipation of a recession successful 2023 and adaptable compensation. Accrual for adaptable compensation has truthful acold been centrally kept successful different consolidation and has been allocated to nan segments successful Q4.

Looking astatine nan financial year, PSBC Germany has accrued nan operating consequence by 43% and improved nan costs income ratio to conscionable nether 70%. I -- and mBank managed to gain a grounds consequence of €301 cardinal successful Q4 and excluding nan further provisions booked for Swiss franc mortgages and in installments holidays. This is impervious of nan spot of nan underlying business and gross maturation of MBank. With nan accrued provisions for Swiss franc mortgages, mBank has a coagulated sum ratio of 54%. However, nan last costs from nan Swiss franc mortgages are not yet clear, and further burdens imposed by nan -- earlier authorities cannot beryllium ruled retired successful 2023.

The adjacent 2 slides screen firm clients. In Corporate Clients progressive portfolio and RWA ratio guidance continues. Average RWA ratio has accrued further to 6.1%. Corporate Clients will proceed to attraction connected efficiency. However, location could beryllium a slowdown of nan betterment successful 2023 arsenic we person higher RWA from nan partial move of nan modular attack for RWA and imaginable effects from a recession connected waiting. Volumes successful nan indebtedness business are little compared to nan 3rd quarter, that is chiefly driven by nan U.S. dollar. Deposit volumes are seasonally little complete nan year-end, and we person seen an summation successful deposit amended arsenic immoderate tract deposits were shifted to word aliases halfway deposits. Corporate Clients operating consequence is based connected bully revenues from nan customer business, chiefly amended NII, but besides beardown commercialized income and a bully publication from nan Capital Markets business, particularly nan commodities and liking complaint businesses were beardown successful Q4. I -- nan pre-provision results almost doubled year-on-year. However, SnP SBC, location has been an summation successful nan consequence result, chiefly azygous cases and full costs person down compared to 2021. The summation successful Q4 is owed to adaptable compensation. Compared to 2021, nan operating consequence accrued by much than 60% and nan costs income ratio reached 60%.

Finally, a speedy look astatine others and consolidation. Others and Consolidation reports a level operating consequence of minus €8 cardinal successful nan 4th and a mini profit of €33 cardinal for nan year. In 2023, we besides expect others successful consolidation to person a comparatively debased publication to nan results pinch nan caveat that valuation effects cannot beryllium forecasted. Group risk-weighted assets person been reduced by €6 billion. The main driver has been in installments consequence RWA. These bespeak movements successful nan U.S. dollar, but besides reductions successful securities business and a securitization successful mBank. Market pinch RWA use from a reduced regulatory multiplier while operational consequence RWA are expanding successful statement pinch nan regulatory rules, which faced nan RWA connected nan improvement of nan revenues, which improved compared to erstwhile periods.

Capital has decreased somewhat arsenic nan affirmative nett consequence was offset by rate effects and accrued regulatory deductions. In total, this has led to nan betterment of nan CET1 ratio to 14.1% and nan buffer to MDA to 466 ground points. As a countercyclical and sector-specific buffers go effective this month, nan buffer to MDA will trim to astir 400 ground points connected a pro forma basis, still a beardown starting constituent for 2023. And now to our outlook for 2023 connected Slide 26. Our outlook is based connected nan presumption of a mild recession and nary important further burdens successful mBank.

For nan financial year, we expect committee income connected erstwhile year's level and liking income good supra €6.5 cardinal pinch a clear inclination towards nan upside script of €7.1 billion. We purpose to little our expenses to €6.3 cardinal successful 2023. However, our cardinal steering metric is nan cost/income ratio. We reached a cost-income ratio of 69% successful 2022. In 2023, we will advancement further towards our 2024 target of 60%. We -- nan consequence result is expected to travel successful beneath €900 million, assuming usage of nan TLA. Further, we expect nan CET1 ratio astir 14%. And we expect a nett consequence good supra 2022 and target a payout ratio of 50%, successful statement pinch our superior return policy. Thank you very overmuch for your attention. And Manfred and I are now very happy to return your questions.

Question-and-Answer Session


The first questions are coming in. And nan first mobility is asked by Mr. Benjamin Goy of Deutsche Bank.

Benjamin Goy

Thank you for nan updated nett liking income guidance, but I was still wondering because erstwhile you immoderate annualize nan effect successful Q4 connected a clear number, you get to almost €7.5 billion. So, wondering astatine nan precocious end, 7.1 billion, what is nan antagonistic effect from here? And past secondly, you mentioned you are much profitable than fundamentally successful nan past 10, 15 years, yet your superior ratio is higher besides and nan buffer is higher than you had immoderate clip before. So, I was wondering why do you request a superior ratio of 14% successful this environment? And whether you would reconsider possibly a 2nd buyback passim nan twelvemonth successful lawsuit macro concerns subside.

Bettina Orlopp

Yes. Thank you, Benjamin. So, nan NII, and this is why we besides tried to explicate that. Indeed, if you would return nan Q4 NII would scope a overmuch higher number. But support successful mind that nan deposit amended was only 10% successful December. It was astir 0 successful September and -- aliases successful October and November, meaning that nan 4th fourth is conscionable not comparable pinch nan deposit better, which we expect for nan afloat twelvemonth of 2023 because apparently, we besides request to deliberation astir our customers, and they want to person a definite stock of nan affirmative liking complaint environment. And that's why we adjusted it. So, we adjusted it and accrued nan deposit amended to 30%. If you past besides deduct higher backing costs, arsenic I said, past you travel to a little number. However, again, what I said, aliases €6.5 cardinal number is based connected nan 2.25% presumption for '23, which is nary longer valid. And therefore, it's adjacent to adhd automatically nan €300 million, which we person laid retired connected this page and connected this liking complaint script page. And nan 2nd point is simply a small spot of what you believe. I mean, we started January astatine 15%. Do you judge that we scope connected mean 30% deposit amended for nan year? If you do that, past you astir apt instrumentality to thing astir 6.8%, 6.9%. If you judge that connected average, it will beryllium little then, you astir apt are overmuch nearer to nan €7.1 billion, which we person shown.

On nan superior ratio, and yes, I mean, we had 1 akin consequence successful nan past 10 years, and that was successful 2010. It was exactly, I would say, nan aforesaid nett income. It was 140, truthful €5 cardinal little than we person shown this year. But location has been thing earlier and after. So, nan past higher consequence was earlier nan financial crisis, I think, successful 2007. And we person travel a agelong way. We person -- I mean, we person been now done a very, very terrible translator program, and we're still successful it. And I besides joined nan slope successful 2014, wherever we still had immoderate concerns astir our superior ratio. So, we consciousness really comfortable successful nan infinitesimal pinch nan buffers. And we, however, besides made it clear that we now will commencement to, yes, participate our shareholders by a higher superior return than they person seen intelligibly complete nan past years. So, we consciousness comfortable pinch nan 30% arsenic we person announced. And we return nan 50% and everything other will very overmuch dangle connected our advancement and nan numbers. And we will spot complete nan twelvemonth really everything is developing...

Benjamin Goy

Okay. Thank you.


Next mobility is Kian Abouhossein of JPMorgan.

Kian Abouhossein

Yes. First of all, congratulations to nan beardown results. I person 2 questions. The first 1 is related to 2024 NII. Your target utilized to beryllium aliases is still, I guess, I assume, is changed, €6.3 billion. And I conscionable wanted to -- wondering if you could talk that a small spot successful position of nan -- successful ray of nan upgraded NII guidance that you person fixed really we should deliberation astir NII successful '24 and nan sensitivity that you assume.

The 2nd mobility is connected costs income, which clearly, arsenic you highlight, is much nan attraction for 3 -- you person a target of 60 by 24%, you're expanding your NII guidance for '23. And I wonderment if you get to complete €7 cardinal of NII, should we deliberation astir 60% costs income moreover perchance successful this year.

Bettina Orlopp

Thank you, Kian. So connected 2024 NII, I mean, nan situation is truthful volatile. Just return 23. The numbers which we now person laid retired person thing to do pinch nan multiyear planning, which we person done past year. So, we already accrued nan numbers for our fund 2023. We guidelines them connected nan statement of December, and we each cognize this is already outdated again. So, we again created nan subside potential. And I mean, for 2024, it each depends connected competitor behavior, liking complaint development. what happens pinch nan deposit amended astatine nan very end. And I mean, if you presume that location is nary alteration successful deposit amended and nan guardant complaint materialize, past we will decidedly proceed to use from nan reinvestments of nan exemplary deposits. And past you tin presume that what we person laid retired successful nan 3rd 4th connected NII for 2024 is acold excessively conservative. But I really would for illustration to spot a small spot really nan adjacent months are developing, and past we will decidedly besides springiness an update connected 2024. But I presume you tin return nan 2023 guidance already. And if you besides judge that liking complaint levels astatine slightest enactment stable, if not moreover expanding further, you cognize what to do connected 2024.

On nan cost-income ratio, I mean, we target nan 60% for 2024. Clearly, it each depends connected wherever we extremity up successful our upside scenario, -- but yes, I would besides presume that we are much person to nan 60% than to nan 69% successful 2023.


Next, we person Mr. Stuart Graham of Autonomous Research LLP.

Stuart Graham

Congratulations connected nan buyback Champagne moment, I deliberation I had 2 questions, please. Firstly, connected costs. On Slide 29, you missed connected your FTE headcount reduction. You're targeting 4,300 3,665. Why was that? And past nan 2nd mobility was connected superior return. A 50% payout ratio for 23 net will apt beryllium $1 cardinal of payout. So, I adhd that to nan $370 cardinal you conscionable announced. That gives maine $1.4 billion. and you've sewage 1 twelvemonth to spell successful 2024, if you tin execute your €3 cardinal to €5 cardinal goal. So, I tin spot really you tin do nan €3 billion, but I can't spot really you're going to do nan €5 billion. How are you going to do nan GBP 5 cardinal because of a 50% payout ratio, conscionable isn't going to get you there. Thank you...

Bettina Orlopp

So connected cost, yes, I mean we said that already during nan 3rd 4th that pinch respect to nan FTE headcount simplification is nett slower because we fundamentally accelerated our buildup of IT capabilities successful nan nearshore center. And we besides slowed down a small spot nan simplification of unit connected nan backstage customer broadside because we person seen that we astir apt person been pinch immoderate measures faster than our clients and that we really request to make judge that we person capable group successful backstage clients to minimize nan churn. So that's nan full reasoning contracts are signed, but we besides said that you will astir apt spot a small spot of simplification successful nan nett FTE simplification conscionable simply by nan truth that we do a small spot much of internalization connected nan 1 side, and we besides person immoderate further requirements pinch respect to cybersecurity compliance and each nan worldly which we request to return into account, but that doesn't alteration thing connected our costs steering.

On nan payout ratio point, it's nan correct calculation, I tin only opportunity that we ever said that we -- I mean, we instrumentality to our superior return policy. And there, we person laid retired that for nan first twelvemonth would show nan 30%, which we now do that successful nan consequent years, we would fundamentally target nan 50%, which we besides laid out. And past location is simply a condemnation successful nan superior return argumentation taxable to further successful execution of 320 24 and a regulatory approval, stock buybacks tin beryllium considered arsenic portion of nan payout ratio aliases arsenic an further payment. And that's wherever we are. But I would opportunity we instrumentality to what we person done successful nan past, we present and past we talk astir further steps.

Stuart Graham

But mathematically, if you want to do nan €5 billion, location has to beryllium different large buyback successful nan 2nd half of 2023, is that mathematically, that's correct, yes.

Bettina Orlopp

I mean it each depends connected really we do it. But I mean, first of all, we really request to show now besides that we present what we person promised besides for 2023. And we now do our first stock buyback. Let's do that first, and past we return it from there.


Next up is Borja Ramirez of Citigroup.

Borja Ramirez

I person 2 speedy questions related to deposits. The first 1 is regarding nan deposit EBITDA guidance of 30% for 2023, could you please supply specifications connected what you expect for family and for firm deposits? And past my 2nd mobility would be, what do you expect for deposit improvement successful Germany going forward? And also, would you expect nan title to travel from?

Bettina Orlopp

So connected nan deposit better, I mean, this is intelligibly a blend of firm clients and backstage clients. And you tin presume that deposit amended connected nan firm customer broadside is higher than connected nan backstage customer side. It has been astatine slightest successful historical terms, which is nan ground we only have. And you tin besides -- I mean, our presumption is that we will proceed pinch nan modular that we do not salary connected tract deposits for backstage clients. So, location will beryllium a displacement from tract deposits to telephone and word money connected nan backstage customer side. And we person besides partially seen that connected nan firm customer side. With respect to nan deposit development, I deliberation it's -- it's adjacent to opportunity that it's astir apt stable, if astatine all, a mini maturation successful deposits, which you tin expect for 2023.


Next we person Johannes Thormann of HSBC.

Johannes Thormann

Two questions from my side, please. First of all, connected your operating costs. As you said, you alternatively attraction connected nan cost/income ratio steering. How apt is that we get supra nan €6.3 billion, particularly looking astatine nan slowdown headcount reduction? And past astir apt besides really apt is that you meet your 2024 target? Secondly, conscionable connected nan tract deposits and nan word deposits, you presently person a 70%, 30% operation successful PSBC. Do you expect this much to move to a 50-50 ratio? Or what is your underlying thinking? And astir apt past but not least, connected nan consequence costs and different question. The €90 cardinal guidance, including till your apical level accommodation usage. What is nan driver for this? Do you expect much firm defaults? Or does this travel from retail? Just thief maine thinking.

Bettina Orlopp

So, connected nan operating costs, nan €6.3 cardinal is what we steer and we ensured that we would do everything to show nan 6.3%. However, I mean, we don't cognize what's happening connected nan composite publication side. We had immoderate unpleasant surprises present past year, 2022. And if we have, again, unpleasant surprises, this will beryllium very difficult to equilibrium out, astatine slightest connected nan costs side, past nan gross broadside would beryllium leveraged -- and nan 2nd point is besides connected adaptable compensation if we spot a tremendous summation successful nan operating consequence and amended than we expected arsenic we person besides seen successful 2022, past besides to support up information of unit and besides related to nan inducement models, which we have, we will spot an accrued and adaptable compensation. But too that, I tin guarantee you are successful nan capacity dialogues, Manfred and I do, nan costs subject is an important constituent of nan full thing.

On tract deposit thing, I'm not judge that I sewage nan mobility right. I deliberation you were asking whether we would spell from 1/3, 2/3 to thing astir 50%, 50%. Probably that is excessively much. I mean we would expect further displacement from tract deposits to word aliases halfway money, but not truthful much. And nan past constituent connected nan consequence result. I mean, what is included present is really nan mild recession of minus 0.5%. And that's specifically nan top-level adjustment, for example, successful backstage clients is very overmuch related to [Ukasor] smaller business clients wrong backstage clients and past connected nan firm customer side. But apparently, nan sentiment is improving time by day, which is, arsenic a consequence, it mightiness beryllium that this consequence result guidance is simply a small spot excessively conservative.


Next, we person Mr. Jeremy Sigee of BNP Paribas Exane.

Jeremy Sigee

Firstly, a follow-up connected that past question, please. The guidance for indebtedness nonaccomplishment provisions successful nan year, you opportunity assumes usage of nan TLA. I wonderment what you had successful mind whether you meant a mini spot of usage arsenic you did successful 2022 aliases complete usage of nan full buffer aliases thing successful between. So that's benignant of what I conscionable wanted to explain connected nan first question. And past secondly, I wonderment if I could travel up. You made a remark astir moderating unit reductions successful unit to minimize customer churn, franchise damage. I conscionable wondered wherever we are connected that. We're intelligibly rather a agelong measurement done nan restructuring. And I conscionable wonderment really you deliberation astir immoderate remaining franchise consequence from nan restructuring? Or are we benignant of past nan worst of that now.

Manfred Knof

Yes, I do nan mobility connected restructuring. So yes, we are really faster than what we person expected successful nan translator of nan backstage customer business. We started pinch nan 12 advisory centers, nan twelvemonth up of plan. Therefore, we needed immoderate much unit churn is acold little than what we person expected. So, we are afloat connected scheme successful nan development. So, I deliberation we consciousness very comfortable pinch nan setup correct now pinch 400 branches successful Germany, 12 advisory centers and a bully operation of comdirect connected Commerzbank. So, we person reached present our last model, and we're very happy pinch nan setup.

Jeremy Sigee

Is that vanished -- is that consequence vanished now, nan churn risk...

Manfred Knof

You ne'er cognize really you tin ne'er opportunity it's finished. I mean location are a batch of customers who don't person nan branch anymore. So. because they person much distance, and we are now successful nan mediate of nan process of offering them besides integer and successful telephone and retired -- work provider. So usually, aft closing a branch, it talks up to 24 months successful bid to spot whether it's stabilized aliases not. But truthful far, we are doing a batch amended than we person expected, but we stay cautious.

And we still person churn included successful our gross assumptions for '23 and '24. So that's important to note. So connected nan floor plan level adjustment, I mean, that's a cardinal question, right, -- you tin deliberation astir everything. I mean 900 positive 50, I deliberation we would work together that would beryllium benignant of a precocious number. So, it each depends besides connected our outlook for '24. Because I mean, clearly, you would support apical level accommodation successful immoderate shape aliases other, if you judge that still location could beryllium thing successful '24 mightiness beryllium not necessary. So, it's -- that 1 is really fluctuating. And we made this smaller than 900 for purpose. So, it's not smaller equal, but it's smaller than 900 million, and there's a logic for that.


Next, we person Mr. Tobias Lukesch of Kepler Cheuvreux.

Tobias Lukesch

Two questions connected my broadside arsenic well, please. Firstly, I would for illustration to touch connected nett adjacent worth result. Is location a imaginable guidance you tin for nan adjacent quarters, perchance besides nan outlook for nan twelvemonth you have? I mean it's a rather fluctuating number fundamentally that you person there. And secondly, connected nan superior side, possibly you could elaborate a spot connected nan effect of nan 4th 1 ratio development, chiefly concerning RWA changes fundamentally and besides regulatory changes that you spot to nan 4th 1 ratio requirements, some successful '23 and '24. Thank you.

Bettina Orlopp

Okay. So, to beryllium honest, you rightfully said that nett adjacent worth is very volatile. -- prediction is truthful reliable that we enactment distant from it for a bully logic because it's really, really difficult to predict. On nan superior ratio side, we expect -- and that is simply a small spot successful statement pinch our consequence result guidance that if you person a consequence result successful a mild recession, past you besides person to scheme for imaginable waiting migrations and therefore, successful RWA inflation. And that is embedded successful this astir 14% guidance for this twelvemonth intends that if we don't spot nan recession and we don't spot nan standing migrations and beautiful overmuch besides nan RWA, nan developed, sorry, differently. That's 1 side. On nan regulatory side, location is not excessively overmuch to expect this twelvemonth a small spot immoderate things connected nan soul exemplary reappraisal -- and past clearly, I mean, we person nan ambition, and Manfred said that successful his reside that we want to put a batch of attraction connected customer business and growth. So, location should beryllium besides a decent maturation pinch respect to RWAs, specifically coming from our firm customer side.

Tobias Lukesch

Thank you...


The adjacent mobility is Mr. Riccardo Rovere of Mediobanca.

Riccardo Rovere

Can you spell 4, if I may, sorry. First of all, connected NII, erstwhile you supply your guidance, of 6.5%, 7.1%, what happens to TLTRO? Is it expected to beryllium 0? So, nan €90 cardinal that we person seen successful Q4 should beryllium eliminated completely. The 2nd mobility -- nan 2nd mobility I person is connected DTAs. -- you person a constitute backmost present of taxation. So, your probability trial is telling you that you will beryllium much profitable and you tin declare backmost thing that I ideate was disconnected equilibrium sheet. The magnitude of DTA that you person a balance, astatine slightest for what I callback from nan yearly study 2021 is conscionable tremendous theoretically.

Can you stock immoderate thoughts connected this? Because this is capital, not connected time 1. But connected time 2, erstwhile you commencement utilizing those DTAs. So, should we expect this to continue? The different mobility I person is connected DPS and nan buyback I'm a spot amazed to spot that 1 is simply a buyback because nan superior of nan slope seems to beryllium beardown capable to salary everything successful cash. Cash erstwhile rate gets out, it ne'er get back. While a buyback tin beryllium initiated, must beryllium executed, shares person to beryllium canceled, must beryllium approved aliases tin beryllium someway terminated before? So, it's a small -- I personally find a small little shareholder friends than rate EPS. So I conscionable want to amended understand why did you determine to spell for a not for afloat rate DPS erstwhile you commencement from much than 14% capital? And nan past mobility I person is, tin you springiness america an thought what is nan LTV of nan owe portfolio successful Germany successful PSBC.

Bettina Orlopp

Okay. Ricardo, tons of questions. I'll effort to reply them quickly. So, connected NII, nary TTO. We ne'er planned it, and it's besides not included successful our guidance. So, it's 0 for '23 and '24. Second, connected DTA. I mean, yes, I mean, that is nan taxation accounting thing, which we person to follow, nan amended nan planning, past you person to activate things for illustration that, but we are afloat activated. So, we consciousness comfortable connected that one. On nan 30% buyback aliases not 30% buyback, but nan stock of buyback and nan 30% payout, why person we not conscionable decided connected consecutive dividends. First of all, I mean we are afloat convinced that our banal value is undervalued, and therefore, it makes a batch of consciousness to usage besides this instrument. And we sewage clear besides signaling that it would beryllium good perceived by our investors. So, it's alternatively seen arsenic a aviator because arsenic you rightfully say, we request to get nan approvals and worldly for illustration that.

The petition is retired to ECB and nan Finance agent, and we are beautiful hopeful that we will get wrong nan adjacent 3 months, hopefully, affirmative answer. And we deliberation it's conscionable important. And you spot it also, I mean, pinch our peers to person a bully mixture. And truthful we conscionable effort it out. And connected nan LTV, I mean, we person a caller business. We person thing astir 80% is nan LTV connected mean for caller business. But we ever said that we person been very blimpish connected nan owe business than continues for illustration that.

Riccardo Rovere

Right. Thank you very much...


Next, we person Chris Hallam of Goldman Sachs International.

Chris Hallam

Just a fewer speedy ones. First, connected Slide 30, you're expecting a mild recession successful Germany this year. Are you capable to thief america understand really nan €900 cardinal consequence result mightiness alteration if Germany does extremity up avoiding a recession? Second, connected nan 50% payout ratio for '23, is that set-in stone? Or is location a reasonable chance you whitethorn want to travel backmost later successful nan twelvemonth and set that higher? And past lastly, conscionable connected NII, again, connected Slide 14, is nan measurement I should publication that, that we're already astatine highest NII? Because successful your prepared remarks, you mentioned 23 expectations bespeak annualized performance, adjusting for deposit meters and higher backing costs. And past successful nan reply to Ken's mobility earlier -- Ken's mobility earlier, you said you'd expect to proceed to use from exemplary deposits successful '24, but I'm unsure whether you mean up year-over-year aliases conscionable maintaining nan precocious level...

Bettina Orlopp

Okay. Good. So, I mean, connected nan Mitre session, what does it mean for nan smaller than €900 cardinal it intelligibly will spell down. And if you presume what is our normalized successful normal times, what is our consequence result, which we assume. That is astir our in installments portfolio, it's astir €600 cardinal to €700 million. That's a adjacent assumption. And past that is without taking into relationship that we still person a apical level accommodation retired location of astir 500 , right? But normally, you would opportunity €600 cardinal to €700 cardinal you would request successful a normal year. The 2nd one, nan 50% group successful stone, I mean this is our superior return policy, and we instrumentality to that. And we will spot really things are processing complete nan year. And past we will get backmost to each of you. And past connected 3, person we seen nan highest successful 2023, if I would get your mobility correct. I wouldn't opportunity nary because we said that it's very akin to nan antagonistic liking complaint situation wherever we person seen nan antagonistic authorities eating into our portfolio complete time. And thing akin is now besides happening. So, I mean nan beardown increase, crisp increase, which we person seen successful nan 4th fourth is astir apt not thing we tin repeat, but we still judge that arsenic agelong arsenic liking complaint situation stays unchangeable and deposit amended is not going successful nan complete incorrect direction. We will spot a continuous betterment of NII.


Next, we person Amit Goel of Barclays.

Amit Goel

I person 2 questions. One, I guess, much of a explanation because I conjecture it was asked a mates of times. But successful position of nan costs guidance for 2023 and nan commentary astir costs income ratio versus nan 6.3, if NII turns retired to beryllium €7.1 billion, should I expect nan costs number aliases portion of that incremental use to beryllium reinvested? And aliases should I deliberation astir nan sensation 6.3 cardinal pinch a benignant of GBP 6.8 cardinal to GBP 6.9 cardinal NII? Or is it conscionable nan NII spot conscionable driblet done and nan 2 benignant of independent benignant of variables. And nan 2nd mobility conscionable relates to I mean there's immoderate different income bits and pieces, which were somewhat adverse successful Q4. Just funny if there's thing to beryllium alert of for 2023 successful that line?

Bettina Orlopp

So, I commencement pinch different income. So, what was driving nan different income successful 2022 that was intelligibly nan main driver. Number 1 was Swiss franc indebtedness provisions than we had successful nan 4th fourth a larger magnitude for nary longer utilized leased agency space. And past we besides had successful nan 4th quarter, which is -- and nan second 1 is astir apt not thing which we will repetition this year. And past we besides had a antagonistic effect by nan waste of nan Hungarian portion successful location -- truthful that is besides thing which will not beryllium repeated. But connected nan Swiss franc indebtedness side, I would request a crystal shot to cognize whether location will beryllium much to travel aliases not. So that 1 is difficult to foretell and intelligibly is limited connected nan improvement of nan business successful Poland. On your €6.3 cardinal question, I mean nan €6.3 cardinal is our costs target, and that is which we steer. However, arsenic I said, if nan operating consequence is becoming overmuch amended than location is an automatic consequence that, for example, nan adaptable compensation will beryllium besides higher. That could beryllium 1 effect. The different factors ever our beloved compositive contributions, which could get -- could beryllium different than we person planned for. And I mean, clearly, nan elasticity which we presently person is that if we person a very bully finance lawsuit and pinch very bully finance case, I mean a very bully payback ratio and worldly for illustration that, past we will see that. But for nan clip being, we really instrumentality to nan costs target.

Amit Goel

Got it. So, if, for example, conscionable to travel up, revenues are, let's say, €100 cardinal better. Do you deliberation astir it successful position of -- you would perchance walk up to 60% of that aliases would it beryllium 30%? Or really do you deliberation astir that imaginable for further investments?

Bettina Orlopp

Well, I mean, nan clear connection to our colleagues is that nan cost-to-income ratio for caller investments must beryllium overmuch amended than nan mean cost-to-income ratio of nan bank. Otherwise, it's not a bully payback ratio and not a bully case. But arsenic I said, I mean, this one, we will we will travel up connected successful nan adjacent quarters. For me, successful nan moment, nan 6.3 cardinal is nan 1 which we person connected our steering database to opportunity it for illustration that.


In nan liking of time, we person room for 1 past question. And nan past mobility comes from Daniele Brupbacher of UBS.

Daniele Brupbacher

You said you would expect nan indebtedness book wide to beryllium down a spot successful 2023. Can you springiness america a spot much circumstantial guidance for mBank, German PSBC and firm clients? And past apologies, but going backmost to that highest NII question, I still struggle to exemplary that fixed definite drivers there. But if I -- if you were to plug successful your assumption, nan 30% hit guardant curves connected nan liking complaint side, indebtedness book, somewhat down, flattish aliases truthful erstwhile would you expect to spot nan highest connected NII? Is it -- you said not successful '23, but is it 24? And tin you beryllium a spot much circumstantial astir nan exemplary deposits that was ever very cardinal and that changes complete time. So, tin you conscionable picture a spot your positioning location astatine nan moment?

Bettina Orlopp

So, convey you, Daniel. So, connected nan indebtedness book, nan diminution was very overmuch related to nan backstage customer side. On nan firm customer side, we would not expect reduction. But connected nan backstage customer side, it has a batch to do pinch what we spot presently connected nan owe business and nan user indebtedness business. And that is existent for Germany, but besides for Poland, that nan activity has decreased rather significantly. And it's -- there's a mobility erstwhile this will move around. We don't spot that fundamentally successful nan first half of this year. And connected peak, NII, I mean, our mean -- nan mean long of nan modeling is 5 years. So, you tin presume that if nan liking complaint level stays changeless and besides nan amended stays constant, past you will spot complete nan adjacent 5 years, affirmative retired of today's liking complaint environment.

Manfred Knof

Yes. Thank you very overmuch for each your questions, your interest. And yes, we're looking guardant to reply your follow-up questions successful our meetings to come. We meet each different successful meetings and conferences. So, acknowledgment again for coming and looking guardant to gathering you each soon. Thank you very much. Bye-bye.

Editor: Naga

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