Dan David

Dan David of Autonomous Research asked about the rationale behind the CET1 target cut, the tightness of leverage headroom, whether leverage is the binding framework, the AT1 issuance plan for the year, and the potential for the PRA to reduce leverage requirements following the FSR comments.

Answer

Donal Quaid (Treasurer, NatWest Group) clarified that risk weights are expected to become the binding constraint over the medium term, especially with Basel 3.1 implementation, rather than leverage. He explained that AT1 issuance is primarily for refinancing upcoming calls and supporting growth. Quaid also expressed optimism that the FPC review might lead to a reduction in UK leverage buffers. Katie Murray (CFO, NatWest Group) also contributed to the response.

Dan David of Autonomous inquired about NatWest Group's leverage headroom, specifically how the leverage buffer target is set relative to the capital and RWA framework, the implications of the AT1 plan for leverage headroom, and expectations for potential PRA cuts to leverage requirements following FSR comments.

Answer

CFO Katie Murray and Treasurer Donal Quaid explained that risk weights are expected to be the binding constraint over the medium term, not leverage, especially with Basel 3.1 implementation. Donal Quaid clarified that the AT1 plan is driven by growth aspirations, RWA uplift from Basel 3.1, and upcoming calls, primarily for refinancing with some growth. He also expressed hope for a reduction in leverage buffers from the FPC this year, noting UK requirements are higher than peers.

Dan David from Autonomous inquired about Deutsche Bank's exposure to receivables financing and its balance sheet classification. He also asked about the bank's capital stack strategy, specifically the ongoing Tier 2 deficit offset by an AT1 surplus, and if this approach is expected to continue. Finally, he questioned whether the European sustainability landscape puts Deutsche Bank at a competitive disadvantage compared to U.S. peers.

Answer

CFO James von Moltke stated that receivables financing, including supply chain financing and some ABS exposures, is not a significant exposure for the group. Group Treasurer Richard Stewart explained that the capital stack prioritizes Tier 1 needs, with CET1 overpopulated for client demand, and this approach is expected to continue, though Tier 2 remains a valuable instrument. Mr. von Moltke added that sustainability is not a competitive disadvantage, noting progress, business opportunities, and the benefit of simplifying disclosure requirements.

Dan David asked about Deutsche Bank's exposure to receivables financing and where it appears on the balance sheet, the strategy behind maintaining a Tier 2 deficit offset by an AT1 surplus, and if the European sustainability landscape creates a competitive disadvantage compared to U.S. peers.

Answer

CFO James von Moltke explained that receivables financing is present in trade finance (supply chain financing) and ABS formats but is not a significant exposure. Group Treasurer Richard Stewart clarified that the capital stack prioritizes Tier 1 needs, with CET1 overpopulation addressing client demand, and while Tier 2 is valuable, the current approach is expected to continue. James von Moltke added that sustainability is not a disadvantage, noting progress in their agenda and business opportunities, while advocating for simplified disclosure requirements.

Inquired about the U.S. Commercial Real Estate (CRE) portfolio, specifically the current modified loan amount, cumulative provisions, and drivers of the book's reduction. Also asked about the strategy for an upcoming AT1 instrument call.

Answer

The upcoming AT1 is likely to be called based on market conditions, with a decision on its replacement still pending. On CRE, the portfolio is being actively managed down through modifications and potential sales; the cumulative credit loss allowance is €700 million, but full price visibility is not yet established.

Dan David of Wolfpack Research challenged management on why Mercury's average loss appears to be significantly lower than peers and accused the company of underestimating its total losses, suggesting they may be improperly netting out potential subrogation recoveries from their gross estimates.

Answer

CEO Gabriel Tirador and another executive responded defensively to the confrontational questions. They questioned the premise of the peer comparison and denied underestimating losses or improperly accounting for subrogation, stating they had already explained their process. The call was abruptly concluded by the operator before the discussion could be resolved.