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Deutsche sets new after-tax ROTE target for core bank by 2022

Deutsche Bank AG set a new after-tax return on tangible equity target of more than 9% in 2022 for its core bank, which excludes the capital release unit, while confirming its cost objectives for 2019, 2020 and 2022.

The Frankfurt-based lender said its target of an 8% after-tax ROTE in 2022 has "become more ambitious given external headwinds," particularly lower interest rates in the eurozone. The bank noted that it has implemented a series of measures, including loan growth, additional optimization of liquidity reserves and taking advantage of the ECB's deposit tier arrangements, to significantly balance the impact of lower interest rates.

"In the past few months we have made significant progress on every dimension of our strategic transformation," CEO Christian Sewing said. "We are in line with our plan and even ahead in several areas."

Deutsche Bank expects adjusted costs before transformation-related charges and the impact of transferring its global prime finance business to French lender BNP Paribas SA to be €21.5 billion for full-year 2019, with a target of €19.5 billion and €17 billion in 2020 and 2022, respectively, a reduction of roughly €6 billion relative to 2018.

The German bank's management expects the interest rate environment to mainly affect the medium-term return outlook for the group's private bank and corporate bank. However, the lender noted that it anticipates its current investment bank revenue growth to partially counterbalance that impact. The lender added that asset reduction in its capital release unit is "running ahead of plan."

Additionally, Deutsche Bank confirmed its aim to maintain a common equity Tier 1 ratio of at least 12.5% at all times throughout its new 4-year restructuring. The group currently expects to report a CET1 ratio of above 13% for 2019.

Lower SREP requirement

Meanwhile, Deutsche Bank said the ECB has required it to maintain a consolidated phased-in CET1 capital ratio of at least 11.59%, effective Jan. 1, 2020, down from the previous target of 11.84%, following the completion of the regulator's 2019 supervisory review and evaluation process, or SREP.

The lender noted that the decrease is fully attributable to the reduction in the central bank's Pillar 2 requirement to 2.50% from 2.75%, effective Jan. 1, 2020.

The new CET 1 capital ratio requirement also includes a minimum Pillar 1 requirement of 4.50%, a capital conservation buffer of 2.50%, a bank-specific countercyclical buffer of 0.09% expected for January 2020 and the requirement from its designation as a global systemically important bank, or G-SIB, of 2.00%.

The ECB also required Deutsche Bank to maintain Tier 1 capital and total capital ratios of at least 13.09% and 15.09%, respectively, on a phased-in basis. As of Sept. 30, the German lender's phased-in CET1 capital ratio, Tier 1 capital ratio and total capital ratio stood at 13.39%, 15.62% and 17.40%, respectively.