Deutsche Bank AG

XETRA:DBK

Earnings Call Analysis

Deutsche Bank Q2 2024 Performance and Future Outlook

Deutsche Bank achieved EUR 15.4 billion in H1 revenues with strong growth in commissions and fee income. Despite a EUR 1.3 billion litigation provision for Postbank, the bank's CET1 ratio remained solid at 13.5%. Revenue growth is on track to reach EUR 30 billion this year with a cost-income ratio improving to 69%. The bank expects to meet its 2025 targets with a clear path ahead, forecasting over 10% return on tangible equity.

Revenue and Expense Developments

In the second quarter, the company's revenues increased by 2% year-on-year to EUR 7.6 billion. However, noninterest expenses dramatically rose by 20% compared to the previous year, mainly due to increased litigation charges amounting to EUR 1.55 billion. This surge in costs led to a modest profit before tax of EUR 411 million and a net profit of just EUR 52 million.

Profitability and Cost Management

Despite the expenses, the company's adjusted costs only increased by 2% year-on-year, reflecting efficient cost management. Adjusted costs were driven by higher compensation and benefits costs, which rose by 6% due to performance-related compensation and wage growth. The company achieved a Common Equity Tier 1 (CET1) ratio of 13.5%, showing a stable capital position despite litigation charges.

Credit Loss Provisions

The company saw its provision for credit losses increase to EUR 476 million or 40 basis points of average loans, primarily due to overlays and model enhancements. Stage 3 provisions, although slightly reduced, continued to be elevated, influenced by commercial real estate exposures and larger impairment events in the Corporate Bank.

Net Interest Income and Revenue Guidance

Net interest income (NII) remained stable at EUR 3.4 billion, slightly better than initial expectations. The company anticipates NII to stay broadly stable moving forward, and expects to improve on earlier guidance for full-year NII. Group revenues are forecasted to reach EUR 30 billion for 2024 with further growth anticipated, driven by stable NII and continued commissions and fee income.

Operational Efficiency and Cost Savings

The company successfully delivered on its adjusted cost target, maintaining a quarterly run rate of EUR 5 billion. It aims to further reduce this rate to EUR 4.9 billion towards the end of the year. Efficiency measures, such as headcount reductions and technological investments, are expected to yield additional savings, pushing towards a noninterest expense goal of around EUR 20 billion by 2025.

Business Performance Highlights

The Corporate Bank achieved EUR 1.9 billion in second-quarter revenues, driven by strong momentum in commissions and fee income. The Investment Bank saw a 10% increase in revenues, largely due to robust performance in Origination & Advisory services. The Private Bank nearly doubled its pretax profit year-on-year, with strong net inflows into assets under management, though it faced higher funding costs.

Asset Management and Strategic Progress

The Asset Management division exhibited a profit increase of 55% year-on-year, thanks to higher management fees and lower noninterest expenses. The company's strategic initiatives, including its Global Hausbank strategy, are showing positive results with consistent revenue growth and enhanced market positioning across various business segments.

Future Guidance and Shareholder Value

The company remains focused on achieving its long-term targets, including a return on tangible equity (RoTE) of over 10% by 2025. To date, the company has distributed EUR 3.3 billion to shareholders through dividends and share repurchases. With continued operational efficiency and cost management, the company aims to generate excess capital and increase shareholder distributions beyond the original EUR 8 billion target for 2021-2025.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, welcome to the Deutsche Bank Q2 2024 Analyst Conference Call and Live Webcast. I'm Moritz, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] 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, executive]

Thank you for joining us for our second quarter 2024 results call. As usual, our Chief Executive Officer, Christian Sewing, will speak first, followed by our 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, executive]

Thank you, Ioana and a warm welcome from me. I'm delighted to be discussing our second quarter and first half results with you today. After another quarter where we made progress across the businesses on our strategic initiatives, we are on track to hit our financial targets. We generated revenues of EUR 15.4 billion in the first half, on track to EUR 30 billion of revenues this year. We have franchise momentum across all businesses, driving commissions and fee income. Our capital-light businesses are gaining market share, such as our Corporate Bank and Origination & Advisory, which we expect to continue in the second half alongside a more supportive NII environment. We also delivered on our adjusted cost target. Our quarterly run rate is at EUR 5 billion in line with our commitment. Our results were impacted by the litigation provision of EUR 1.3 billion related to the acquisition of Postbank, which we had to book this quarter.

As I said before, we strongly disagree with the changed and unexpected assessment of the court and we are working hard to ultimately minimize the impact of this legal matter for our shareholders. But importantly, the bank's operational performance was not impacted. On the contrary, on an underlying basis, we delivered year-on-year improvements on our key target ratios. Excluding the Postbank takeover litigation provision, our post-tax return on tangible equity was 7.8%, up from 6.8% in the first half last year, the best first half and second quarter since 2011, which demonstrates the continued momentum in our operating businesses. Our cost-income ratio also improved from 73% to 69% year-on-year. And finally, our CET1 ratio of 13.5% remains solid despite absorbing Postbank and a number of legacy litigation matters, which shows our capital strength and gives us confidence to deliver on our capital distribution commitments.

Let me now discuss in more detail some of the drivers of our first half results on Slide 2. Pre-provision profit was up 17% year-on-year to EUR 4.7 billion excluding the impact of the Postbank takeover litigation provision. We also demonstrated positive operating leverage, a core element of our strategy execution. We grew revenues in our core businesses by 3% year-on-year, while group revenues were up 2% on a reported basis. Our reported noninterest revenues were up 14% year-on-year with strong growth in commissions and fee income of 12%, which demonstrates clearly that our strategy to grow our capital-light business is working. And we continue to deliver better-than-expected NII performance in our banking books, which provides additional comfort to our revenue path for 2024 and in years thereafter. We reduced our adjusted cost to EUR 10.1 billion year-on-year and we continue to deliver savings through our operational efficiency program, which I will discuss in more detail in a moment.

Now let's look at the franchise achievements across our businesses on Slide 3. In the first half year, the Corporate Bank delivered a 16% increase in incremental deals won with multinational clients compared to the prior year period. Our success with our clients were also rewarded with a series of high-profile awards. And we have continued to make investments to further strengthen our positioning with our clients. We are building out our structuring capabilities and our originate-to-distribute model, taking advantage of our broad investor base. All of that gives us confidence we can sustain our momentum.

The Investment Bank made significant advances across the franchise over the first half of the year. Origination & Advisory increased its global market share to 2.6% in the first half year, a gain of more than 70 basis points over the full year 2023 and we raised our global ranking from the 11th to the 7th. The business continued to support clients through its multifaceted product offering, including M&A sell-side advice as well as debt issuance linked to the partnership between Grant Thornton and New Mountain Capital. Fixed income and currency revenues were up 3% year-on-year, supported by a 7% increase in financing revenues, even compared to a strong prior year period. The Private Bank also continued to build momentum with EUR 19 billion of net inflows in the first 6 months, supporting growth in assets under management of EUR 34 billion.

We're also seeing recognition for our transformation and digitalization efforts in our retail personal banking franchise with 13% more log-ins in Postbank's mobile app since end of 2023. We are also improving services for our ultra-high net worth clients and, for example, have established a dedicated team in Germany for ultra-high net worth clients. We are leveraging our enhanced technology and product capabilities to expand into FX products, strategic asset allocation or Lombard lending to ultra-high net worth clients in Europe. And we have further developed our key client relationships to boost asset gathering.

In the first half year, Asset Management grew assets under management by EUR 37 billion to EUR 933 billion. This was boosted by continued strong inflows into passive, in line with our strategy, which saw net inflows of EUR 18 billion in the first 6 months and is expected to support future revenue generation.

Now let me turn to our progress against our strategic objectives on Slide 4. We continued to make progress on all 3 pillars of our Global Hausbank strategy. Starting with revenue growth. We delivered a compound annual growth rate of 5.7% since 2021. This underscores the benefit of a well-diversified and complementary business mix. Stable NII in our banking book segments was supported by strong noninterest revenues following our investments in our growth initiatives. Looking at the drivers behind commissions and fee income strength in the first 6 months, we saw growth mainly in our capital-light businesses. We saw particular strong momentum in Origination & Advisory as the market recovered and our franchise is strengthening and gaining market share, a trend we expect to continue.

Our initiatives in the Corporate Bank are also paying off. Commissions and fee income grew by 6% with business growth across all regions, which is notably visible in Trade Finance & Lending. We gained market share in our documentary trade business and our structuring capabilities are expanding, which includes increasing contribution from larger transition financing deals. And in Wealth Management and Private Banking, we grew noninterest revenues from investment products and lending by 11%. We will continue to build on these developments and with business volumes growing we are confident that our revenue trajectory will remain strong in the second half of the year.

First, the impact from the expected NII normalization will be lower than initially anticipated with full year NII in our banking book segment broadly stable to the prior year level. And we will see continued commissions and fee income growth, mainly in Origination & Advisory, Corporate Bank and Asset Management. This puts revenues of EUR 30 billion clearly insight. Additionally, we are highly focused on targeted resource allocation and on driving balance sheet velocity. We continue to deliver on our EUR 2.5 billion operational efficiency program, having completed measures with delivered or expected gross savings of EUR 1.5 billion, 60% of our target, with around EUR 1.2 billion in savings already realized. As part of this program, we have made workforce reductions of 2,700, including 700 FTEs during the second quarter alone, reaching nearly 80% of the planned total through end 2024. In addition, we have reduced contract external staff by approximately 1,100 in 2024 to date.

We have clear sight of the remaining savings yet to come from our operational efficiency program which will offset inflation and our investments in business growth. Our optimization initiatives in Germany are expected to generate savings of around EUR 500 million. Investments to reduce the complexity of our organization by improving technology and optimizing the workforce across infrastructure will deliver a further EUR 550 million. And automation of processes, alongside better alignment of our front-to-back setup, including the recent organizational changes, will deliver another EUR 250 million. This gives us firm confidence that we are on track to deliver on our commitment of a quarterly run rate of adjusted costs of around EUR 5 billion in 2024 and that we will further reduce this run rate closer to EUR 4.9 billion by the end of the year to meet our noninterest expense objective of around EUR 20 billion.

Finally, on capital efficiency, we achieved a beneficial equal to a EUR 4 billion RWA reduction in the second quarter through data and process improvements. As a result, cumulative RWA reductions from capital efficiency measures reached already EUR 19 billion. We have a line of sight on further reductions coming in the second half and we are working towards meeting or exceeding our EUR 25 billion to EUR 30 billion target.

Let me conclude with a few words on our strategy on Slide 5. Our first half results represent another milestone in the progress with our Global Hausbank strategy and set a path to achieving our 2025 target of greater than 10% return on tangible equity. First, we saw strong momentum across all businesses in a more mixed operating environment than we had expected. With a better-than-expected NII trajectory, coupled with our complementary and growing global franchise, we are confident that our strong revenue momentum will deliver revenues of EUR 30 billion this year. The investments we have made in our business give us confidence that this run rate will continue, as around 75% of revenues come from more predictable businesses. And we are the go-to European bank for our clients and will continue to build on it by offering clients full service products and solutions. This builds our confidence that we can achieve our 2025 target of EUR 32 billion.

Second, we are delivering operational efficiencies, which maintain our EUR 5 billion run rate in 2024 and will translate into further cost savings, achieving EUR 20 billion of noninterest expenses in 2025. Simply put, our revenue growth, combined with our cost reductions, will ensure positive operating leverage. Third, we have put material legacy items behind us. And although this results in higher litigation charges this year, progress we are making should position us to deliver without major surprises in 2025. Fourth, we will see normalization in credit costs next year, closer to the underlying run rate we have this year after overlays and hedging, which will further bolster higher net income.

We remain dedicated to creating value for our shareholders, our earnings power and the progress we have made with capital optimization give us full confidence that we can maintain our trajectory to increase distributions beyond our original goal of EUR 8 billion in respect of the financial years 2021 to 2025. We completed the share repurchase program launched in March, bringing cumulative shareholder distributions through dividends and share repurchases to EUR 3.3 billion since 2022 and we will continue to manage capital with the same discipline as over the past several years. To sum up, with our business momentum and all the progress made, we have a clear line of sight on our target for RoTE of greater than 10% for 2025.

With that, let me hand over to James.

[James Von Moltke, executive]

Thank you, Christian. Let me start with a few key performance indicators on Slide 7 and place it in the context of our 2025 targets. Christian mentioned our continued business momentum, which resulted in revenue growth of 5.7% on a compound basis for the last 12 months relative to 2021, within our revenue growth target range. Our reported half year cost-income ratio was 78% and return on tangible equity was 3.9%, both impacted by the Postbank takeover litigation provision. Excluding this provision, the ratios were 69% and 7.8%, showing further improvement compared to 2023. Our capital position remained solid in the second quarter with the CET1 ratio at 13.5% despite absorbing the aforementioned litigation provision. Our liquidity metrics also remained strong. The liquidity coverage ratio was 136%, above our target of around 130% and the net stable funding ratio was 122%. In short, our performance in the period reaffirms our resilience and our confidence in reaching our 2025 targets.

With that, let me turn to the second quarter highlights on Slide 8. Group revenues were EUR 7.6 billion, up 2% on the second quarter of 2023. Noninterest expenses were EUR 6.7 billion, up 20% year-on-year, driven by the increased litigation charges in the quarter. Nonoperating costs, including litigation charges of EUR 1.55 billion. Beyond the Postbank takeover litigation provision of EUR 1.3 billion, there were additional charges of approximately EUR 220 million related to a series of legacy items we resolved in the quarter. We also booked EUR 106 million of restructuring and severance charges, in line with our full year guidance. Adjusted costs increased 2% year-on-year due to higher compensation and benefits. Provision for credit losses was EUR 476 million or 40 basis points of average loans and I will discuss both adjusted costs and provisions in more detail shortly.

We generated a profit before tax of EUR 411 million and a net profit of EUR 52 million. Our tax rate in the quarter of 87% was impacted by the aforementioned litigation charges, which were largely nondeductible. Excluding these litigation effects, the expected tax rate for the full year continues to be around [ 30% ]. In the second quarter, diluted earnings per share was negative EUR 0.28 and tangible book value per share was EUR 28.65, up 6% year-on-year.

Let me now turn to some of the drivers of these results. Let me start with a review of our net interest income on Slide 9. NII was essentially flat across all of our key banking book segments at EUR 3.4 billion, slightly above prior expectations. NII in each of the banking book segments followed the same trends as seen in the prior quarter. Our base case is that our quarterly NII run rate will remain broadly stable and we reiterate that we expect to improve on our earlier guidance for the full year banking book NII. The group number, reflecting accounting effects decreased by approximately EUR 100 million compared to the previous quarter. This effect is offset by an increase in noninterest revenues and has no overall revenue impact to the group.

With that, let's turn to adjusted cost development on Slide 10. Adjusted costs were EUR 5 billion for the quarter, up 2% year-on-year. The year-on-year increase was driven by higher compensation and benefits costs, which were up by 6% reflecting higher performance-related compensation, wage growth as expected, and increases in internal workforce after our targeted investments in talent throughout 2023, including Numis.

Let's now turn to provision for credit losses on Slide 11. Provision for credit losses in the second quarter was EUR 476 million, equivalent to 40 basis points of average loans. The sequential increase in stage 1 and 2 provisions to EUR 35 million was mainly driven by the net effect of overlays and model enhancements, which were partly mitigated by quarter-on-quarter portfolio movements. Stage 3 provisions remained at an elevated level but reduced slightly to EUR 441 million. The decrease was mainly driven by the Private Bank, while provisions in the Investment Bank remained stable and were largely related to commercial real estate exposures. Provisions in the Corporate Bank increased, driven by 2 larger impairment events. Looking ahead to the second half of the year, we are now seeing some stabilization in the broader U.S. CRE sector, though office -- U.S. office remains broadly unchanged.

Overall, this should lead to lower provisions compared to the first half but our office CRE portfolio will continue to be impacted. We also continue to conservatively manage our loan book with lower growth rates, including active management of single name concentration risks through well-established, comprehensive hedging programs. Reflecting on these items and considering developments in the first half of the year, we revised our full year guidance for provision for credit losses to be slightly above 30 basis points of average loans.

Before we move to performance in our businesses, let me turn to capital on Slide 12. With 13.5%, our second quarter Common Equity Tier 1 ratio was up slightly compared to the previous quarter. CET1 capital improved slightly, reflecting lower regulatory capital reduction items and strong net income for the quarter, largely offset by the Postbank takeover litigation provision. Risk-weighted assets increased from business growth, together with higher operational risk RWA, including the impact of the Postbank takeover litigation provision, mostly offset by reductions from strong delivery of capital efficiency measures. At the end of the second quarter, our leverage ratio was 4.6%, 13 basis points higher compared to the previous quarter. The 12 basis points of the increase were driven by higher Tier 1 capital due to the EUR 1.5 billion additional Tier 1 issuance in June.

With that, let's now turn to performance in our businesses, starting with the Corporate Bank on Slide 14. The Corporate Bank revenues in the second quarter were EUR 1.9 billion, essentially flat year-on-year and up sequentially, driven by growth in commissions and fee income and resilient deposit revenues, as higher business volumes compensated higher client payouts. We have seen good progress on our growth initiatives to offset the normalization of deposit revenues by further accelerating noninterest revenue growth. Commissions and fee income increased by 5% sequentially and 9% year-on-year, driven by strong momentum in Trade Finance & Lending across all products as well as in depository receipts in our Trust and Agency services business. Deposits increased by EUR 3 billion in the quarter and are EUR 32 billion higher year-on-year, driven by higher term and sight deposits across currencies.

The sequential increase in provision for credit losses was driven by Stage 1 and 2 provisions after moderate releases in the prior quarter and higher Stage 3 provisions, which included 2 larger events in the European and German corporate segment, which were largely covered by risk mitigating measures. Noninterest expenses were essentially flat year-on-year as higher internal service cost allocations and compensation costs were mostly offset by lower litigation costs. This resulted in a post-tax return on tangible equity of 15% and a cost-income ratio of 62%.

I'll now turn to the Investment Bank on Slide 15. Revenues for the second quarter were 10% higher year-on-year, driven by a strong performance in Origination & Advisory. Revenues in Fixed Income & Currencies were essentially flat year-on-year reflecting the base effect of a strong prior year quarter. Financing, credit trading and emerging markets revenues were essentially flat year-on-year. In credit trading, the nonrepeat of strong distressed performance in the prior year was offset by strength in the flow business, thanks to our prior period investments. The macro businesses were both down year-on-year. The performance in rates primarily reflected the ongoing uncertainty around central bank interest rate policies. While FX revenues were impacted by reduced volatility, this was partially mitigated by strong performance in the spot business benefiting from investments into technology.

Moving to Origination & Advisory. Revenues doubled compared to the prior year gaining market share both year-on-year and sequentially, while we maintained the #1 rank in our home market. Debt origination continued to drive performance with an ongoing recovery in the leveraged debt market, while investment-grade debt issuance activity remained elevated. Advisory revenues were strong and materially higher both year-on-year and quarter-on-quarter, benefiting from the previously highlighted investments made into the franchise. Looking ahead, we are encouraged by our third quarter O&A pipeline, which is materially higher year-on-year, although the market anticipated slowdown in M&A industry volumes in the summer and over the third quarter may limit the possibility to outperform the very strong second quarter. Noninterest expenses and adjusted costs were both slightly higher year-on-year, reflecting the impact of strategic investments, including the Numis acquisition. Provision for credit losses was EUR 163 million or 63 basis points of average loans, driven by Stage 3 impairments.

Turning to the Private Bank on Slide 16. Pretax profit nearly doubled compared to the second quarter last year. Let me walk you through the drivers. Revenues in the quarter were EUR 2.3 billion, this includes higher revenues from investment products and lending, which were more than offset by continued higher funding costs, including the impact of minimum reserves and the group neutral impact of certain hedging costs to the business. Excluding these effects, revenues would have been up by 1% year-on-year. The sequential revenue development reflects a typical seasonal pattern as some investment activities tend to be concentrated at the beginning of the year. As Christian mentioned before, the Private Bank saw strong business momentum with net inflows into assets under management of EUR 7 billion in the quarter.

Personal Banking revenues were impacted by the aforementioned higher funding and hedging costs for our lending books, partially offset by resilient deposit revenues in Germany. Revenues in Wealth Management and Private Banking increased due to higher lending business and investment revenues, offset by lower deposit revenues in Germany. The Private Bank has continued its transformation with 38 branch closures in the first half of the year and head count reductions of more than 1,000 FTEs in the last 12 months. Noninterest expenses declined by 13%, including lower restructuring and severance costs and the nonrecurrence of provisions for individual litigation cases.

The improvement in adjusted cost of 3% reflects normalized investment spend and transformation benefits partially offset by still elevated service remediation costs. We expect these to taper off in the remainder of the year, contributing to a run rate improvement in the second half of the year. The overall quality of our portfolio remains stable. Provision for credit losses benefited from a gain on sale of a nonperforming loan portfolio but still include the temporary effects of the operational backlog in Personal Banking which are expected to reduce during the second half.

Let me continue with Asset Management on Slide 17. My usual reminder, the Asset Management segment includes certain items that are not part of the DWS stand-alone financials. Profit before tax improved by 55% from the prior year period, driven by higher revenues and lower noninterest expenses. Revenues increased by 7% versus the prior year. This was primarily from higher management fees of EUR 613 million, resulting from higher fees generated by liquid products due to increasing average assets under management. Other revenues were significantly higher, benefiting from lower treasury funding charges and a one-off insurance recovery in the quarter. Performance and transaction fees were significantly lower, driven by performance fees in alternatives real estate. Noninterest expenses were 4% lower due to lower litigation expenses in the quarter, while adjusted costs were essentially flat compared to the prior year despite inflationary pressures.

Passive investments saw a net inflow of EUR 9 billion in the quarter due to shifting consumer behavior from active into passive investment strategies. Digital channel distribution is supporting strong growth in passive, resulting in positive momentum and 6 consecutive quarters of net inflows. Assets under management decreased by EUR 8 billion to EUR 933 million in the quarter. The decrease was attributable to net outflows, despite positive market appreciation and FX effects. Net outflows of EUR 19 billion were primarily in low-margin products in fixed income, cash and advisory services. The cost-income ratio for the quarter declined to 68% and return on tangible equity was 18%, both improving from the prior year quarter.

Moving to Corporate & Other on Slide 18. Corporate & Other reported a pretax loss of EUR 1.5 billion this quarter, versus the equivalent pretax loss of EUR 153 million in the second quarter of 2023, primarily driven by the Postbank takeover litigation provision of EUR 1.3 billion. Revenues were positive EUR 73 million this quarter. This compares to positive EUR 85 million in the prior year quarter. Valuation and timing differences were positive EUR 216 million in the quarter, driven by partial reversion of prior period losses and impacts from interest rate moves. This compares to positive EUR 252 million in the prior year quarter. The pretax loss associated with legacy portfolios was EUR 144 million, driven primarily by litigation charges and other expenses. At the end of the second quarter, risk-weighted assets stood at EUR 32 billion, including EUR 13 billion of operational risk RWA. In aggregate, RWAs have reduced by EUR 9 billion since the prior year quarter. Leverage exposure was EUR 36 billion at the end of the second quarter, slightly higher than the prior year quarter.

Finally, let me turn to the group outlook on Slide 19. The second quarter and first half performance demonstrates the successful execution of our strategy and we remain confident that our businesses have strong momentum and are positioned for further growth. And so our full year 2024 guidance for revenues and adjusted costs have not changed, respectively at EUR 30 billion and around EUR 20 billion. Provision for credit losses for the year are now expected to come in slightly above 30 basis points of average loans. Finally, we have successfully mitigated several headwinds to our capital position, which supports our distribution plan and this remains a key management priority. And as Christian said, our full focus remains on the execution of our strategy and the progress made in 2024 positions us well to achieve our 2025 targets.

With that, let me hand back to Ioana and we look forward to your questions.

[Ioana Patriniche, executive]

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

[Operator]

[Operator Instructions] And the first question comes from Chris Hallam from Goldman Sachs International.

[Chris Hallam, analyst]

Thanks for the presentation and remarks. So the first question is on revenues. I guess, on a headline basis, the momentum is positive but the mix is changing a little bit, more on NII, perhaps a little bit less on fees outside of the investment bank. So if we look through for the EUR 30 billion for this year and EUR 32 billion, let's say, for next year, are you confident on those 2 numbers? And in particular, how would you see fees progressing both inside and outside of the IB? And then second, could you give us an update on where your discussions have got to with the ECB regarding any additional capital requirements relating to your leveraged finance business and how you see the outlook for your [indiscernible] franchise over the coming couple of years?

[Christian Sewing, executive]

Thank you, Chris. It's Christian. Thank you very much for your question. So let me start. And as usual, James may want to chip in. Look, on your first question on revenues and on kind of your key question, both numbers for '24 and '25, the answer is a clear yes. Let me start with 2024. You have seen the H1 numbers. To be honest, I'm really happy with that, with the EUR 15.4 billion because all businesses have actually delivered. And the nice thing is if I now go over the next quarters and let me start with the predictable -- more predictable divisions, i.e., the Corporate Bank, the Private Bank, Asset Management, you can actually see that the momentum and the numbers which we have seen in the first 2 quarters are very, very good guidance for Q3 and Q4. I would even say that for the Private Bank and Asset Management, I even expect a slightly better development in H2 versus H1. Given also that what James said in his prepared remarks on NII but also in particular, because the inflows and the assets under management behave in a very satisfactory way.

On the Corporate Bank, I think a number, which is around EUR 1.9 billion, given all that I can see from the mandates we win is something which we can also plan for Q3 and Q4, that I would really say those 3 divisions are really having a good momentum. Yes, we benefit a bit more from a better NII than we expected at the start of the year. But even next to that, the underlying fee business behaving very well.

On the Investment Banking side, I absolutely believe that, overall, the -- I think the trajectory which we have seen over the last years in terms of market share wins, in terms of stability of revenues, in terms of also predictability of revenues, if you think about the financing businesses, which we have also show me that the second half will be a very satisfactory one. Honestly, July started so far pretty good in the Investment Bank. And what makes me confident in the O&A business could be that the summer is a little bit slower in terms of M&A business than what we have seen in Q2. But overall, the market will further recover.

We have gained 70 basis points in market share in the first half year. We believe that this will also be the case throughout the year. And to be honest, the investments which we have done in the Origination & Advisory business are really only starting to pay off. So the new people, which we hired last year, they are gaining more and more momentum. So to be honest, I even expect that we get more market share in an overall market which from a fee pool is increasing over the next 12 to 18 months. So that makes me confident that starting with the EUR 15.4 billion revenue number, the EUR 30 billion is absolutely in sight and I'm highly confident that we achieve that.

Now '25, the first thing I would like to say, it's for the first time, so to say, Chris, other than '24 and '23 that both kind of income streams, NII and fee income are both going into an increasing direction. So it's different than in the former years where we always said one of these streams, which was kind of decreasing, in '25, we have sort of say, 2 positive growing engines. That obviously helps as a start. Now if I [indiscernible] go actually through the business, on the Corporate Bank, we think that '25 will be another increase over '24. Why? Because we can simply see the number of mandates, transactions we are doing and the investments which we had, in particular, in our platform business and our payment businesses are paying off. So therefore, we gave you also in the prepared remarks, the wins which we had in Q2, all that and the feedback we have from the clients' point into another increase in '25. And again, the NII is behaving even better than we thought at the start of this year.

Private Bank, clearly up next year. Why? We always told you that we have a tailwind in NII in '25, over '24. Secondly, we are obviously benefiting from the constant inflows into assets under management. And we don't believe that there is any change in the second half of the year. So the starting point is even a different one, similar actually in asset management, also in those areas like alternatives and passive where Stefan Hoops is focused on, we are growing.

And on the Investment Bank, actually, I do believe we will grow in all 3 areas. #1, we have made further investments into our trading business, in particular, regionally in the U.S. We have new people starting now as we speak and we will grow that business -- the trading business over there. Secondly, I refer back to the remarks on the O&A business. We expect the fee market to increase next year, further increase over this year. Secondly, market shares will grow with those investments, which we have done, also talking about Numis. And thirdly, the financing business is not only stable but if I look at the income and revenue streams, which we have planned for next year, actually also an increase. All that from a very encouraging behavior in 2024 makes me absolutely confident that we can achieve the EUR 32 billion next year.

To the second question on the ECB, to be honest; a, I have seen that portfolio, the leverage lending portfolio now for the last 15 years. And to be honest, it always behaved very well because I think our risk appetite, the way we have managed our risk has demonstrated that we are in very good control of that business. You also know, Chris and this is not a secret that 2 years ago, we had started the discussions with the ECB, we got a capital add-on at that point in time of 20 basis points, which was reduced last year by 5 basis points. I know that there is a discussion between the industry and the ECB. I take it as a very positive signal that the ECB is now reviewing the comments and our arguments from the industry and therefore, also, obviously, with all outside opinions, which we get for our portfolio, I feel very confident with the level of provisions we have with the way we manage it. It's a key business for us. It's a core business of ours. That will not change. And I'm sure we will also come to a solution there, which shows that we have managed it in a fair way. I don't know, James, whether you want to add?

[James Von Moltke, executive]

All good.

[Operator]

And the next question comes from Nicolas Payen from Kepler Cheuvreux.

[Nicolas Payen, analyst]

I have 2, 1 on distribution and 1 on litigation. On distribution, I was wondering if we could have an update on what is your total distribution targets because you committed to distribute above EUR 8 billion of capital. But could we have a bit more clarity, by how much you expect to exceed this EUR 8 billion mark. And also timing wise, what should we expect notably for the share buyback? Is a top-up completely excluded for H2? And what about the pace in 2025? And regarding litigation, what should we expect regarding litigation provision in H2? Because through [indiscernible] globally, you have now reduced quite significantly your contingent liability. So I was wondering should we expect a lower litigation cost run rate for the future rates -- for the future years?

[Christian Sewing, executive]

Thank you very much. Let me start, Nicolas and then James will, I think, comment on both questions. On the distribution because that is really important for me. There is no change in guidance. We will distribute more than EUR 8 billion in the time frame from '21 to '25. Nothing has changed. Obviously, from a timing point of view, as we said end of April, with the item on the Postbank provision of EUR 1.3 billion, which we had to digest. We always said that we now need to have 2 quarters actually where we show operating strengths, where we restore capital. And to be honest, I'm really happy of what has been done in this bank. We are at 13.5% capital. We have created excess capital also in the last quarter. We are clearly above, so to say, the 13.2%. We have created excess capital but I want to show to the market another quarter of this operating strength.

And with the comments I just made on revenues, with costs which are absolutely in control, we are around the EUR 5 billion. We have our clear way to the next year. I'm absolutely confident that we show another very strong quarter in Q3, which generates capital. And then obviously, we are back in the progress -- process and we will go back and enter into discussions. That is clear for me. But I always signaled that after the Postbank litigation, which the bank digested, we really power through this. We want to show 2 good quarters. #1 is done and I tell you, #2 will come.

[James Von Moltke, executive]

Thanks, Christian. Nicolas, thanks for the question. Look, I'd just echo Christian's comments. We've returned almost EUR 1.6 billion already this year. Through the capital actions that we took in the second quarter, we were, I think, very successful offsetting the impact of the Postbank provision and our step off into the second half of 13.5% on the CET1 ratio is a good starting place. Your question about the trajectory going forward, if I refer you to Slide 22 of our investor deck, we've tried to be as clear as possible on what we've referred to as baseline expectations.

And so if you look at that on the dividend, we've paid out this year, EUR 883 million, the EUR 0.675 next year would be about EUR 1.3 billion, the EUR 1 dividend that we intend to pay out in '26 in respect of '25 would be another nearly EUR 2 billion. And then if you trace the buyback sort of trajectory forward, let's just assume for a second 50% increase a year, the next 2 numbers in that series would be about EUR 1 billion and EUR 1.5 billion. Cumulatively, that would add to slightly above EUR 9 billion. And so that's what we're working to deliver to shareholders.

As we -- as Christian mentioned, build excess capital in the back half of the year, we want to be positioned to achieve those types of payouts. Now we did make a sort of an editorial change to Page 22, really trying to kind of separate a little bit the share buybacks from the payout ratio discussion because to some extent, we look at the payout ratio as a minimum, not a maximum and hence building excess capital into the back half of the year can position us to preserve that buyback trajectory even if the payout ratio goes north of 50%. So that's the -- hopefully, clarity and -- on what the baseline expectations are. And just the last thing to say, last time you saw that slide, there was this idea of top-ups. Obviously, the unexpected provision in '24, at least for now, has taken away the idea of a top-up in '24 but we haven't given up on top-ups in '25 and '26. It depends on sort of all of the ins and outs in the capital plan. But I'd just echo Christian's confidence that we -- I think we've been able to show that the Postbank provision did not take us off stride and we remain committed to the profile we show on Page 22.

If I go to your litigation question, look, obviously, there's been a transition between the contingent liability number and the balance sheet provision driven by the Postbank litigation, takeover litigation provision but actually not only that provision, some other items also moved between the 2, sort of the off-balance sheet and the on-balance sheet accounts. As we said last quarter, the profile has changed pretty significantly, if you like, of risks that are still unknown. And we're committed to continuing the work over the back half of the year to put ourselves in a position for, I would call it, dramatically lower litigation provisions and regulatory enforcement actions going forward.

Really, we'd like to be in a position at the end of the year to have what I'd call as clean a slate as possible going into '25, and sustainably so because, if you like, will address the unknown elements of the known items. And as we look to the future, sort of the pipeline of new things coming in that we can see. And by the way, the benefits of all the investments we've made in controls should give us much more confidence about the outlook going forward.

[Operator]

And the next question comes from Anke Reingen from RBC.

[Anke Reingen, analyst]

The first is on the loan loss guidance for 2024. If you can maybe give us a bit more what gives you confidence of the decline to more like 25, 30 basis points in the second half? And what you've assumed on commercial real estate within that number? And you sort of like said, in 2025, you expect loan losses to normalize. Would that be the 25, 30 basis points or the 20 basis points you mentioned in the past? And then just on capital. I just wondered if you can give us some more clarity on your expectation with the benefit from the delay of the FRTB, what it could mean for the EUR 15 billion you previously guided to? And would you consider this in your distribution as an actual benefit? And then sorry, just 1 last question on the dividend distributions. If you have a payout rate, if the EUR 0.68 dividend per share would correspond to more than 50%. Am I right and from your previous comments to understand that your focus is the absolute distribution rather than the payout ratio?

[James Von Moltke, executive]

Thank you, Anke. Yes and I'm happy to take all 3, Christian may want to add. But look, look, the CLP guidance change, I would think of it as more related to what has already happened in the year, in the first half than about our outlook for the second half. We've had a number of events, really 2 corporate defaults and then an overlay that we booked in Q2 that has taken us slightly north of what we had anticipated when we spoke to you 3 months ago. And while you're always a little bit looking at a crystal ball, we've been in a granular way looking through the portfolio, including commercial real estate to have a view on the second half.

You'll recall that I've talked in the past of a '24 run rate, closer to, say, EUR 350 million per quarter that we felt was sort of present. And that, in a sense, is, let's say, EUR 100 million of CRE sitting on top of EUR 250 million of ordinary course run rate that is in the portfolio. Now let's start with the last point. We still see the same stability in our underlying portfolios in both the retail and the corporate portfolios. So we haven't seen a deterioration. On top of that, we've seen, as I mentioned, the -- a handful of defaults and also an overlay that we booked.

In CRE, recall that we'd seen a stabilization in '24 relative to the deterioration that was taking place last year, that actually persisted in the second quarter. What is perhaps a little bit worse, is that the sort of beginnings of a recovery that I might have expected 3 months ago, that hasn't happened yet. It doesn't change our view, frankly, of the direction of travel and that essentially over time, the new defaults and the valuation adjustments that remain in that portfolio begin to sort of burn out. CRE, if you go back to the fourth quarter results, we'd said to expect about EUR 450 million in '24, consistent with our '23 performance. That has probably worsened ever so slightly, call it, 50 -- maybe EUR 75 million in terms of our expectation but not dramatically. As I say, the larger part of the change in guidance is what's already happened in the year around a couple of corporate items in the corporate defaults and the overlay.

On FRTB, obviously, good news for the industry in Europe because I think it would have put us at a competitive disadvantage if the U.S. were not to go forward and Europe to go forward. So we think it's a sensible change. It essentially cuts in half, it's just simple math, we had given you, say, EUR 15 billion of RWA increase from CRR3 as of January 1 next year. And I'd now build about EUR 7.5 billion into the models and move the other EUR 7.5 billion into the 1st of January 2026. So that's obviously helpful in our capital path, helpful to us in terms of building up this excess capital I just talked about and looking into the '25 distributions.

And then that feeds nicely into your third question, which is binding, we think of the 50% payout intention as, if you like a floor, it's what we would then accrue to during the year based on the interim profit recognition. Because of the impact on profitability in '24 coming from the Postbank provision, that payout ratio, I think will easily cover our dividend and maybe some amount of repurchase. But what we want to do is put ourselves in a position of bringing in excess capital to fund the rest of the repurchase in '25. And hence, to your point, we wouldn't view the 50% payout as being binding.

[Operator]

And the next question comes from Kian Abouhossein from JPMorgan.

[Kian Abouhossein, analyst]

Yes. I wanted to come back briefly on cost. In your remarks, Christian, you talked about the EUR 4.9 billion run rate potentially at the end of the year. And I just wanted to see how you think about the flexibility that, that offers next year to get to your cost-income guidance. If you can talk maybe around -- is there flexibility to run below EUR 20 billion in that sense, considering you're indicating a lower number for the end of the year even if it's adjusted versus stated. And how that thinking is around and confident is around the cost-income guidance? The second question is related to provisions again. If -- I wanted to just dig a little bit deeper after Anke's question, the detailed answer in respect to CRE. Clearly, the assumptions are that CRE will stabilize. It sounded like that in 2025.

And I wanted to just get a better understanding what assumptions you're making. If you can talk a little bit about the input assumptions, price performance in CRE U.S., default rates that you're assuming on a macro level in CRE. And so we get a better understanding. And lastly, if I just may, on leveraged loans, you kind of answered the question but I also wanted to see if there's any leverage loan additional provision requirement, does that mean there could be a buyback pushback?

[Christian Sewing, executive]

Look, Kian, let me start with the cost answer. First of all, I think most important is that we stick to our target and that we show you that we deliver on that like we -- like I think we have demonstrated from Q4 '23 when we started with the EUR 5.3 billion of quarterly cost that we come down to EUR 5.0 billion, which we have done. Now looking ahead and what is in the pipeline of additional cost measures to be executed over the next quarters in terms of achieving the EUR 2.5 billion of overall cost cuts, I'm very confident that we will come to the EUR 4.9 billion of quarterly costs at the end of Q4, starting of Q1. So this is for us where we are focusing on. In this regard, we have obviously put all the cost measures into so-called key deliverables, which we are tracking on a biweekly basis in the Management Board. And we can actually see that with all the investments we have done with all the -- also head count cuts, which we have executed in Q1 and Q2, we are delivering on that in Q3 and Q4, and therefore, I'm confident that the run rate of EUR 4.9 billion, which we need for 2025 will be achieved.

To be honest, in this regard, Kian, just to give you a little bit of a feel, the hardest quarter to achieve the EUR 5 billion was actually Q2, right from the start of the year where -- and why? Because all the salary increases actually came into Q2. We had a lot of the staff reductions to be done in Q2 where these people were still, so to say, on our payroll. And both we have managed, i.e., you saw the number of reduced workforce, not only internally but also externally, what we managed to do in Q2. And secondly, we digested the wage and salary increases, i.e., the annual tariff increases, which we digested. And now we are working down these key deliverables, as I just said and that gives me all the confidence that we are coming to the run rate of EUR 4.9 billion.

Now what further flexibility do we have in that? The EUR 4.9 billion is obviously then also correlated to, so to say, our revenue aspirations and the revenue target I laid out. You know from our previous discussions that there is always a certain flexibility also on the cost number. In terms of flexibility, when it comes to less volumes, when it comes to variable comp, when it comes to technology investments and obviously, this is all in our hand. And therefore, I don't want to rule out at all that there is further flexibility. But for me, getting there -- where the momentum of the bank is on the revenue side, I have all eyes focused on the EUR 4.9 billion. And here, I can give you my full confidence that we will achieve that because all the underlying structural cost reductions are actually in time, in plan, in execution.

[James Von Moltke, executive]

Kian, turning to your question on provisions and the impact of CRE, maybe I can draw your attention to Slide 34 in the investment -- in the IR deck. Now this is where I had guided that the next in the series would be down in Q2. And so as always, predictions about the future are a slightly uncertain science. But we've sort of traveled more or less at the level we had in Q4 and Q1. So the recovery that I mentioned earlier didn't come as quickly as I'd expected. And look, by the way, the EUR 130 million in Q2 actually had some impact of the overlay. So if you take that out, we were at EUR 123 million, essentially flat to the last 2 quarters. Now what gives us confidence about the direction of travel here? Really 2 things.

One is that the -- if we look at the portfolio in a granular way, so loan by loan, which loans -- in which loans do we see the possibility of future default. That number is declining. And so the -- if you like, the risk content that remains in the portfolio, is declining. And what drove the kind of missed to my expectations this quarter, was more that the existing -- the defaulted portfolio, our estimation of lifetime losses increased in the quarter. So that also we'll find a level and stabilize it at some point. So I'd hoped that -- and expected that we'd probably be closer to EUR 100 million in the second quarter. Let's see how this develops in the quarters to come. But given the way portfolios like this perform, you can -- the down slope can be quite dramatic.

And then on leverage lending, look, we believe our provisions or the allowance for loan losses is prudent and adequate for the risks we see in the portfolio. We are always open to and taking on feedback from our internal AQ reviews, our auditors and also the regulators when they come in to review the portfolios. And at the end of the day, it is for us to determine on the basis of the accounting rules, what the appropriate provision is. We'll continue to monitor in a dynamic way but we think our practices are good and we will continue to engage in a constructive way with the supervisors on that dialogue.

[Operator]

And the next question comes from Tom Hallett from KBW.

[Thomas Hallett, analyst]

Can you tell us how you see the deposit mix and loan trends developing in the second half of the year across the Corporate Bank and the Private Bank and how much some of the recent political uncertainty may be impacting this? And then secondly, on SRT, which is obviously becoming quite a popular tool for banks these days, could you just give us some color on the potential CET1 benefits over the next year? And then maybe quantify or help us understand the size of the overall opportunity is, which, as an outsider, I guess, I'm thinking about it in terms of the size or the scope of assets that are generally earning below the regulatory cost of capital?

[James Von Moltke, executive]

Thanks, Tom. Two interesting questions. Look, loan growth has been more sluggish in coming than we'd expected, as you've heard on our calls for the past, say, 1 year or so. That said, we did have loan growth in the second quarter. And so the kind of first encouraging sign, we have EUR 2 billion of loan growth this quarter. And we think that the kind of indicators of increasing activity are there. And there's certainly demand in some of the more structured lending areas. So we think that, that recovery is starting. In the retail portfolios, in particular, where there's still sort of a relatively slow environment in German mortgages, and our portfolio attrited slightly but again, there, I think we've found a floor and can grow from here.

On the deposit side, really encouraging sort of performance, especially in Corporate Bank. But we also see in the Private Bank, a clear ability to raise deposits at pricing that is attractive. So you may see a leveling out a little bit of the deposit growth in the back half of the year but we think the volumes there generally are encouraging in terms of healthy growth, frankly, on both sides of the balance sheet going forward.

If I look at SRT, look, for us, some of our risk transfer programs are 20 years old. So we've been at this for a while. We have good, structured programs. We have a great level of engagement with the investors in our structures that have been with us for a long time. And we're sort of constantly on the lookout for portfolios where we think they can be more efficiently held off of the bank's balance sheet than on our balance sheet. Therefore, I would say the scope isn't dramatic. But there's still things we look at. And you've seen that as part of the program we've had for capital efficiency of -- where we're after 25 to 30, as you've seen in the past year or so, securitization has been part of that, growing our SRT programs or the funded credit-linked note programs we have has also been part of that. So I think a marginal contribution from here and we're always looking but we have a reasonably sizable benefit as things stand from those types of structures.

One last comment to make at the risk of going long. As we get into the CRR3 world and the impact of the output floor, obviously, there's a whole new sort of vista, if you like, of assets that we may look to take off our balance sheet because we'll be solving for another variable. So in the past, it's been managing concentration risk and to a lesser extent, RWA, going forward, it will be those 2 things plus the impact on the output floor of different asset classes.

[Operator]

And the next question comes from Giulia Aurora Miotto from Morgan Stanley.

[Giulia Miotto, analyst]

My first question is on the Private Bank. And could you please give us a bit more detail, a bit more color on how quickly the fee line can grow and what initiatives you have underway to really control this and drive this in the next quarters and in '25, in particular? So that would be my first question. And then secondly, you talked about loan growth dynamics. What about asset margins? How are those evolving in your main lending products, please?

[Christian Sewing, executive]

Yes, let me take the first question, Giulia, on the Private Bank. Actually, it's, first of all, a continuous improvement on the fee business growth in the Private Bank, kind of in particular, when I look to the future quarter-over-quarter. Why? Because we have a constant inflow in our assets under management. By the way, domestically as well as internationally. And by the way, also, and this is very nice, not only, sort of say, in the Private Bank and Wealth Management business but also in the Personal Banking business in Germany.

Secondly, I think for the Private Bank, if we think about the overall profitability, there is a huge focus now on turning around the Personal Banking business in the Private Bank in Germany. That obviously, given all the integration work which we are doing and which we have done, in particular last year with the IT transformation, had an unacceptable return on equity so far. But if I look actually at the strategy from Claudio, how he will digitalize this business, how we actually will make this business, in particular for the investment and fee-related business, a business which is there for 19 million clients and in particular, for the 50 million Postbank clients, I expect actually a good growth coming from this Personal Banking.

And at the same time, we are now realizing the fruits of integrating the IT, i.e., the costs are coming down. And here, we are talking -- like we said in the previous call, it's about a EUR 500 million cost reduction just as a direct cost in the Private Bank as a result of the integration. So it's a constant growth across the subdivisions in the Private Bank but the real lever is actually bringing the Personal Bank in Germany with a clear plan to an acceptable return on equity over the next 12 to 18 months, which is then obviously also a huge lever for the overall group profitability.

[James Von Moltke, executive]

So maybe I could add and this is also a little bit in answer to Chris' question earlier, which was about sort of fee and commission engines outside the Investment Bank. Obviously, just in the Investment Bank, a big part of the story this year and next year is advisory and underwriting fees, where we think the momentum, the wallet growth is there and there's an opportunity that we're executing on to increase our market share. But if you go away from the Investment Bank, as Christian just said, the Private Bank earns commissions and fee revenues in brokerage and investment management fees and commissions. Asset Management does the same on the investment management side.

And you have visibility into those revenue sources from the AUM increases or development over time and you can also be helped or hindered by the market levels. But the visibility is there. And then in the Corporate Bank, you've got fees on loan inception, loan processing, you have payment activity, custody activity, again, sort of an asset-driven Trust and Agency services. And again, the visibility into those revenue sources is high, including based on the RFP process and the implementation of new business that we win. So, as I say, the visibility into these revenue sources is strong. And based on our current outlook, we can see some of these lines continuing the types of growth rates this year so far, which has been 12% each quarter and for the half, extending into next year.

On the spread side, there too, we've been surprised due to the upside this year, frankly, on both sides of the balance sheet. So as we've talked about, deposit margins have been better than anticipated as the pass-through continues to outperform. On the loan side, the same has been true. The spreads in the front book have been better than our -- than we anticipated. To be fair, a bit mixed in the Private Bank but in Corporate Bank and Investment Bank, there's been reasonably healthy spreads and new lending in the front book. And those -- that sort of margin expansion has contributed to the better-than-expected net interest income than we had anticipated. By the way, the other driver of the NII outperformance is also spreads on our unsecured debt. And so all of those engines are helping sustain this year, the net interest income line and contribute to the expected growth next year.

[Operator]

And the next question comes from Máté Nemes from UBS.

[Mate Nemes, analyst]

I have 3 questions, please. First of all, on RWA reduction, think you have achieved now EUR 19 billion in total RWA reduction sort of as a result of the optimization program. Could you give us a sense of the timing of the remaining reductions to get to your EUR 25 billion to EUR 30 billion target? Is that largely coming through in the second half of this year or some of that should be in '25? Then the second question is on share buybacks. Just referring to your Slide 22 and the 50% per annum growth in share buybacks. I think the original expectation certainly by the market was a higher total amount of buyback in 2024 on which the increase into next year would have been obviously quite substantial.

My question is, are we looking at a 50% increase versus the EUR 675 million for the buyback next year or should we think of a potentially larger increase due to the scrapped second tranche of the buyback in '24? And finally, the last question is on the Corporate Bank loss provisions. Could you give us any sense of these single cases or single corporate events? Are they reflective of any deterioration in the overall asset quality in the broader corporate sector?

[James Von Moltke, executive]

So thank you, Máté, for the questions. Look, first of all, we're very pleased with the progress there and credit to the teams that have been working so hard to drive this optimization. Broadly speaking, as I mentioned in the prepared remarks, I would hope that we could achieve another EUR 2 billion in Q3. And there, I think we've got good line of sight to that, maybe a little bit more. And if we achieve the same in Q4, I would be pleased. So if we got to, say EUR 4 billion incremental this year, bringing us to EUR 23 billion, maybe EUR 24 billion, that would be good performance, which, to your point, leaves EUR 5 billion or EUR 6 billion next year to get to EUR 30 billion and potentially there's upside beyond that. And that obviously is helpful in driving the excess capital creation that I talked about earlier. So assume for modeling purposes, EUR 4 billion this year and at least EUR 6 billion next year.

On the buyback, yes, it was -- what was taken out in '24, I think the consensus number was that the second buyback authorization could be something in the order of EUR 400 million to EUR 500 million this year. And that was actually a fair assumption. And absent the litigation provision, I think we would have been in a good position to seek that. But I want to be clear, the baseline was intended always to be off the -- in this case, the EUR 675 million with potential top-ups depending on the level of excess capital in each year. And so I want to reiterate the baseline expectation that's something that management is working towards to deliver. And let's see what -- whether there's room for the top-ups. We certainly haven't given up on the idea that there would and could be top-ups and those top-ups would take us from the, call it, 9.2 that's implied by the progression to something beyond that. Again, it underscores why it is that we say we've got confidence in exceeding the EUR 8 billion.

[Christian Sewing, executive]

On the asset quality in the corporate book, I think James already said that, no, there is no deterioration. To be honest, the 2 cases, James -- we're referring to, is actually, so to say, dominated by 1 case in Europe. But also here, yes, we had to build a loan loss provision. But I think overall, we should also not forget that the risk management overall has actually worked quite well because we have substantial coverage actually from a CLO point of view, which, again, brings me back to the point that, yes, you see a slightly elevated loan loss provision number but the real run rate, if we take overlays out and if I also take this into account, the real run rate of a loan loss provision is, in my view, actually the normal stock of run rate of the EUR 250 million plus a quarterly number, which always can happen.

And you can now say it's EUR 75 million, it's EUR 100 million. But that brings me also to the confidence because we don't see from a rating point of view, from a watch list point of view, from upgrades versus downgrades, we don't see any material deterioration, also not in the German mid-cap book, brings me to the confidence that actually a number of EUR 1.3 billion is a number where I'm absolutely confident that this should be a run rate for Deutsche Bank in terms of loan loss provisions per year.

[Operator]

And the next question comes from Stefan Stalmann from Autonomous.

[Stefan Stalmann, analyst]

I have just 2 left, please. Starting with the Private Bank, you mentioned an NPL sale. Can you tell us roughly how big this was in notional terms and whether there was actually a P&L, profit or loss on the back of the sale? And the second question relates to the valuation and timing differences in your profit center, which have been mostly positive in recent quarters. Can we think of this as a balance, which is still negative and you're still working yourself out of this back to neutral? Or is it actually now a positive overall balance and there's a risk that eventually that normalizes down through neutral with negative effects in coming quarters?

[James Von Moltke, executive]

Thanks for the question, Stefan. So briefly, I don't know the notional of the NPL sale but in round numbers, think of us as having a CLP benefit of about EUR 25 million in the quarter on the sale, which was offset by incremental CLP -- or a continued drag from the operational disruptions of about the same amount. So the -- call it 150 that you see in the second quarter, is a pretty good indication of the run rate going into the second half of the year in the Private Bank, given we wouldn't necessarily expect -- well, the drag from operational items, we do expect to go away and potentially reverse in the second half of the year and the P&L sale -- the NPL sale wouldn't necessarily repeat either.

On the valuation and timing differences, I'd really call out 2 elements. The first is pull to par in the investment portfolio and that has a short-term and a sort of a more medium-term element. In the short term, some of the pull to par in Q2 was actually Q1 losses given the market movements. And we expect some more of that to bleed into earnings in the second half of the year. So there's a short-term element. There's actually also, given the way the hedges work, there's also a longer-term element, which we expect to come out over a much longer period of time. So yes, in a sense, there's a positive balance, call it that way, that is to come. There's also the impact of our swap funding book which is helpful. It today represents -- it's driven by the differential between euro and dollar rates. That's remained, by and large, supportive and how that trends from here will depend on the gap between the 2 rates. So different parts. I don't see it disappearing in a heartbeat. But over time, would moderate, let's say, in a 2-, 3-year time horizon.

[Operator]

And the next question comes from Matthew Clark from Mediobanca.

[Jonathan Matthew Clark, analyst]

Just a follow-up question on the leverage loan potential ECB supervisory expectations -- deductions compared to your risk-weighted add-on -- Pillar 2 add-on. So do you see the supervisory expectations on provisioning as being incremental to the existing Pillar 2 add-on that you have? Or do you see it potentially netting against what the effective burden you've already got on your requirements?

[Christian Sewing, executive]

Look, Matthew, it's always hard to speculate about items which are, at the end of the day, in the hands of the regulators. Again, I really would like to say that we find it positive that the ECB is taking our arguments. It is reviewing its process. I told you that we already were subject to a capital add-on. We feel with all the information we have that we have provisioned in an absolute accurate way. And I think we have shown that over the long term, and therefore, overall, we feel comfortable. But I think it would be the wrong thing now to speculate about anything. I think the reaction of the ECB, I find that constructive, we have constructive discussions and then let's see what happens. But the direction last year that they reduced from 20 basis points to 15 also shows that there was at least some confidence in our processes.

[Operator]

And the next question comes from Jeremy Sigee from BNP Paribas Exane.

[Jeremy Sigee, analyst]

Just a couple of small follow-ups, please. Firstly, on the changes in regulatory adjustments that helped capital in the quarter. Could you talk a bit more about what those were and whether there's more of them to come or any reversals or they just are what they are? So that would be helpful. And then my second question is just on the Russia case. You mentioned it in the notes. Could you confirm that there's no financial impact in this quarter? And in fact, there's no provision booked because it's fully offset by the claim and just how confident you are in that because other banks involved seem to be taking charges relating to that case.

[James Von Moltke, executive]

Thanks, Jeremy. So I'll refer you on the first question to Page 42 of the interim report. The main driver that we're referring to is what we call the expected loss shortfall. And that's -- but on that disclosure, you see the various regulatory capital deduction items. The ELSF has been something that's increased significantly year-on-year, reflecting the portfolio changes that we introduced last year and some of the, I'll call it, seasoning of those models. And yes, it's one of the areas that we're now looking at how we can mitigate and manage. And so that helped us on the regulatory capital deduction items in the quarter, is just learning which exposures drive the ELSF and how we can mitigate that.

To your question about direction of travel, actually, the next step will be up as 1 more model kind of becomes live in that world. But then we, I think, would be at sort of a steady state level and we will work to optimize from that.

On Russia, we essentially booked offsetting provision and indemnification asset. And so we feel we're appropriately -- the risk is appropriately reflected on the balance sheet and the evolution of the cases has been overall in line with our expectation. So we don't see sort of a change in the risk position there and therefore, no change in how it's reflected in the financial statements. Our expectation is that, that claim will be prosecuted and in a way that enables us to enforce the indemnification claim.

[Operator]

[Operator Instructions] And the next question comes from Andrew Coombs from Citi.

[Andrew Coombs, analyst]

I think [indiscernible] questions have been answered now but perhaps I could just ask on Slide 29 on your interest income sensitivity it's taken in light of the PMI data today. I think this is the first time you've switched this from '24 to '26 to '25 to '27 sensitivity and you've got a big step uptick in euro sensitivity coming through in 2027. I assume this is in part related to the structural hedge. But anything you can do in terms of providing more color on why such a big step up going through from '26 to '27 in your interest rate sensitivity guidance?

[James Von Moltke, executive]

Thanks, Andrew. Appreciate the question. Really just time. We -- actually, the first time when we prepared this slide, I was surprised because it looked like the sensitivity has expanded and I missed that we'd moved it forward by 1 year. And so that gives you an indication of how successful we've been, frankly, in closing down the rate sensitivity on our balance sheet. So '27 being larger, is simply a function that our hedge portfolio or less of it goes out that far in time and what you'd expect to see us do as we roll over the hedges is, is bring more of that in and reduce the sensitivity further down the track. And equivalently, the 90 million in '27 on euros, I would expect to see go down unless there's some change in our view of the likely future path of interest rates. So in short, I'm happy with the way that we've managed the sort of ALM challenges of the last several years. And I think, again, it's one of the things that gives us confidence and visibility into revenues in the future, is the success of our hedging and the impact of the hedge rollover over the next several years.

[Operator]

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Ioana Patriniche for any closing remarks.

[Ioana Patriniche, executive]

Thank you. Thank you for joining us and for your questions. For any follow-ups, please come through to the Investor Relations team and we look forward to speaking to you on our third quarter call.

[Operator]

Ladies and gentlemen, the conference has now concluded and you may disconnect. Thank you for joining and have a pleasant day. Goodbye.