Good morning, ladies and gentlemen, and welcome to the Deutsche Pfandbriefbank AG conference call regarding the preliminary results Q1 2023. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Andreas Arndt. Yeah, good morning, everybody. This is Andreas Arndt, Deutsche Pfandbriefbank in Munich. Very warm welcome to our analyst call covering the first quarter results. I hope you're well, and we'll walk you through the topics as we have them. As usual, we close the meeting with Q&A session with you. When I look at the Q1 highlights, I see good progress in our strategic initiatives, which we announced around ninth of March. With EUR 32 million PBT, we're in line with our full year guidance for 2023, and the average gross portfolio margin increased, and we managed to keep risk provisions low while maintaining high stock of loan loss reserves. Also, retail deposit volumes strongly increased. As always, Q1 results include the full-year bank levy of, in this case, of EUR 22 million. Other things being equal, PBT would equate or would add up to EUR 48 million on a comparable basis. 2023 will be a year of special challenge for markets, for Commercial Real Estate and for pbb. The transformation of, and the transformation and investments in our strategic initiative is the first challenge. The second meaning in increasing challenging risk or managing an increasing challenging risk environment. The third one is keeping the operative results on track while making up for former Tier 2 and floor effects from previous years. As I mentioned before, we do not benefit from increasing market rates as yet, and not yet. The bank has no sight deposits. However, retail deposits will help, but will take a bit more time. Since we are what we are and where we are, with an interest rate balance and highly liquid balance sheet, a strong capital basis, we strongly focus on structural measures and strategic investments around our core competencies, i.e., conservative Commercial Real Estate management with a deep knowledge of markets, clients and assets, as a foundation to further build and diversify this business in order to obtain a return on equity above 10% pre-tax. In so far, despite considerable headwinds, Q1 is a start as expected and is a good start in terms of operative results towards full year guidance for 2023, around EUR 170 million-EUR 200 million, development and first results from our strategic initiatives. Now turning to page five as it is. This page is to remind you on our strategic trajectory and timeline. 2023 Focus is on operative resilience and laying ground for our strategic initiatives. In the current market sentiment, this is exactly the right timing and is exactly the right approach. We will be prepared to leverage opportunities to grow once markets allow for it. While NI is still affected by the demise of the floors, and the Tier 2, we expect a catch-up of NI from second half of the year onwards through beneficial impact from retail deposits as a comparatively low-cost substitute for senior unsecured from higher margins both in stock and new business, and from lower than planned prepayments. 2024 and 2025 should benefit in two ways, showing tangible results from our strategic measures, both in revenues and in cost management, and participating in renewed market opportunities in Commercial Real Estate. In 2026, as we presented before, we are to release the full potential of strategic initiatives as will be shown later in this presentation. Now coming to page seven, looking at the operative key points or key figures. New business amounts, the new business for Q1 2022 amounts to EUR 1 billion, which is a reflection of both, the significantly lower transaction in Commercial Real Estate markets in Europe as well as in the United States, irrespective of which type of asset you look at. Secondly, the continuation further tightening of our underwriting standards in currently severely stressed markets. The good news in that is gross interest rate margin stays at elevated level of 200 basis points. It does as we can see already for the second quarter. It compares against 150 basis points, which we saw in the first quarter 2022. The 170 basis points, which we saw for the full year 2022, is in line with what we saw for the fourth quarter 2022, exactly also at 200 basis points. The volume of our rest portfolio grew to 29.4 by EUR 1.4 billion, which is significantly up over last year. The pbb direkt volume increase keeps a strong pace, further build-up of EUR 1 billion within a quarter's time. If you compare the first quarter 2022 against now, you see an uplift from EUR 3.2 billion - EUR 5.4 billion, which I think is significant. Now, coming to page eight. Giving a short overview of what we see in markets, what we see about markets, as a sort of framing of our discussion going forward. We remain selective with focus on strong risk parameters and covenant structures. Currently, we set strong focus on portfolio monitoring and risk management. While European and few U.S. Commercial Real Estate investment volumes remain on very low levels in first quarter 2023. April 2023 can be described, at least for the German market, as the weakest month since 12 years or 14 years. Due to the ongoing difficult investment environment, prices are not expected to bottom out before fourth quarter 2023. Deal volumes are not expected to recover substantially before 2024. What makes prognostications difficult is the multiplicity of variant and determining factors. First, there's the market or interest rate movements, a significant factor in influencing pricing, valuations, and operative cash flows, and debt servicing. There we can constitute, we can acknowledge that thankfully, the latest noises from central banks and market points towards a more moderate pace in interest rate policies, which is also now reflected in actual market rates. Which allows banks and sponsors to take more sober and forward-looking view on the interest rate component of valuations and pricing. The second point is more difficult to predict and is about structural problems. Of the structural problems, the first one is, of course, the working from home component, which we have discussed many times. Recent moves of large firms, upon approaching the expiry of rental contracts show the following pattern and can be taken as symptomatic for what is going on in the market. After moving, the firm needs only 70% - 80% of the previous space due to reduced office attendance and working from home. Adjustments to required space or price will be made mostly in the context of expiring rental contracts or option dates. This means, with contracts usually running between 5 - 10 years, the capacity adjustments will seepage through for some time. Clearly, there's a significant overhang which markets will have to absorb within this year and next year. Also firms look for best properties to rent, even if prices may increasing as long as they're affordable. Statistics show that the office attendance in good and very good locations is on average 20% higher than in B locations. This might also explain that despite low yields and high interest rents and prices on first-class locations remain resilient, if not increasing. Firms seek for office space, which is green. ESG compliance is and will be a great effect in valuation and pricing. The third challenge is certainly, and remains so, the inflation and supply chain problems. Although, while there remains imminent political uncertainty, supply chain problems have subsided somewhat, and inflation is typically also reflected by index rental contracts in Commercial Real Estate. If that is not enough, I add the last point to the mixture, which is political and markets anxiety about mid-sized banks in the United States. That is the question about debt ceilings, and you may imagine why prognostication of market prices, new market prices and new equilibrium in Commercial Real Estate remains a difficult affair. I should also say from all what we discussed and from all what we see, there are the following truths which may be safely derived. Even now, certainly after the crisis, there will be still Commercial Real Estate and Commercial Real Estate transactions and need for office. The fallout will be around B properties and B locations. The size of the fallout is also a function of ESG compliance and potential cost to manage green as it is on other structural challenges. Those points have been the guiding principles of our underwriting requirements so far and remain so. Turning to page nine. It's clearly not the time for extensive growth. I think that sort of follows from all what I said. New business volumes are on low level in challenging market environment. As I mentioned, gross interest rate margins remain on elevated level of 200 basis points. We saw low risk provisioning with average LTV of 54% calculated against new and adjusted market prices. We also see that the average gross portfolio margin increased, which supports the NII going forward. However, from what I just mentioned, we still market opportunities in selected market situations and niches. The present indication for our Q2 pipeline shows a robust trend above the Q1 figure. Also keep in mind, the NII will depend largely on the further development of stock rather than of new business as such. In times like these, we see more extension business and less prepayments, which naturally helps to substitute for lower new business. Now, turning to page 10. pbb's overall new business focus remains unchanged. We still see good opportunities in difficult markets like the U.S.-based, on strong, as long as we base on strong risk parameters and current structures and on higher margins. We made no new commitments in property types, such as hotel and retail shopping centers, except for the known extensions. I should also say, and we take note of the fact, that hotels have seen a shakeout and a cleansing after tedious times, and retail propositions become subject to interest again, if locations and sub-segments such as neighborhood centers and selected retail parks are good. We may look into that going forward. Arriving at page 11, not much to say because it's pretty much known, and the changes against last quarter is relatively mild. I think we're still well-positioned in current markets and current stressed markets, as you see from the solid development of LTVs, and you see that also in the clustering of LTVs, where we are situated and where we're positioned. I think that speaks for itself. The average LTV of our portfolio is 51%. Average IC is about 300 for the firm as a whole, for the engagements which we have. I should say that in terms of valuations, actual valuations of our portfolio, we're pretty much on time and actual. Page 12, which it's a larger topics and covers the next one or two pages, and that is on the NPL and the NPL portfolio. We do manage NPLs actively and there's no or only minor provisioning needs on new NPLs as a reflection, I think as a reflection and as a proof of our positioning. Non-performing loans are stable over the quarter, with three new additions to the used loans, to the tune of EUR 137 million, mainly compensated by removal of unused loan to the tune of EUR 116 million. That more or less balances out. And that is now in Q period and will hopefully leave NPL world thereafter. Let me give you a brief on the next page, a brief and more general introduction to NPL, because it's frequently asked and because we see frequently now NPLs coming through the door at zero LLPs more frequently than in the past. Overall, I think that's important to maintain and to repeat. Overall, pbb's risk positioning provides for moderate NPL levels and have been staying so. That should remain so, even if we might observe more NPLs to come in future. The other general observation is NPLs and risk provisioning are not the same. NPLs remain without loan loss provisionings, where conservative risk provision, risk position prevails, even in case of low interest cover or covenant breach or increased extension risk. If the impairment test shows a positive balance, we have an NPL classification, possibly, because it's been classified as unlikely to pay default or whatever. The NPL classification remains in place, but at zero LP, at zero provisioning, which is, for instance, the case with the majority of our used NPLs just now. Despite severe valuation downgrades by the U.S. valuation firms, it seems that our estimate and our LTV framework is more conservative and actually leads to that position where for regulatory purposes and re-regulatory reasons, we need to classify as NPL that materially, in terms of provisioning, we go on a zero basis. While last months have seen higher additions to NPLs, especially in U.S. office exposure, some loans could be cured and put back into regular portfolio after statutory cure period, which again shows the quality of the book. That takes me to page 14, which is an overview of our U.S. portfolio. Where I probably should say that I've made most of the points I wanted to make. Most of the, the prevalent points are the weak fundamentals, particularly for the U.S. office market with high vacancies and significant discrepancies between regional markets and sub-segments need to be noted. It also needs to be noted that prime properties in A locations with still visibly high presence in office and lower structural vacancies than average are still on the market and still available. Valuations of office and to a lesser extent, logistics properties are presently subject to significant value corrections, and again, subject to regional and structural differences. You see that also on the chart, what we sort of call East Coast, New York, Boston, Washington, which makes up about three-quarters of the portfolio, is relatively doing better than the special situation which we face West Coast, especially the tech firms, who have adjusted their needs significantly, leads to some severe market pressure presently. A few comments on the office portfolio in general. Office investment volumes are on the historic loans. Below us, only a few A one properties with long-term leases and good tenants are being transacted. The rising vacancies in office properties which are not fulfilling the current requirements such as prime location, green property, and so on, are difficult to transact, and many markets may still rest on comparatively low transaction levels. Price adjustments are coming through, and the total office portfolio saw nine NPL loans with a total volume of almost EUR 400 million, which is somewhat less than 50% of the overall NPL amount and with a total risk provisioning of EUR 18 million attached to it. Leaving the asset side, I will turn to the funding, and turning to page 16, if I'm not mistaken. Yes, so it's page 16 now. Focus is traditionally on resilient and cost-efficient Pfandbrief and secured funding has increasingly shifted to currently more favorable retail deposits. Although the real effects of that we will probably see only starting to see through in the second half of this year. We also focus on benchmarks and green financing. We saw Pfandbrief funding with one benchmark and two tests in the first quarter, and the unsecured funding dominated by EUR 500 million green senior preferred benchmark in January. What we see is as I mentioned and as I repeated is the increasing importance of pbb direkt retail deposits for funding with a clear focus on term money. pbb manages its liquidity on a six-month basis. As you know, the liquidity buffer must withstand the six months stress test versus the regulatory requirements, which is based on one-month regulatory and regular forecast. We have comfortable liquidity ratios. LCR presently is above 300, and NSFR above 100. If you allow me on page 17 to take a closer look to what we have achieved and what we do on the pbb direkt on the term deposit side. We have always thought, and we adhere to that stable and affordable funding sources are key in volatile times, and certainly the Pfandbrief remains one of the key resources going forward. Retail deposits become increasingly more important as a stable source as we focus on term money predominantly. That is 80% of all retail deposits which are term money, and they have more than 50% with a duration of two years and more, and an average duration of almost three years. Call money, which we also receive, can be fully paid out of Bundesbank account in case of need. Liquidity, our liquidity position covers call money several times. The amount which has been deposited with the bank on call money amounts to EUR 1 billion only. I should mention that pbb direkt deposits are 100% guaranteed either by government deposit insurance schemes or the deposit insurance schemes of private banks in Germany. What also happens, apart from the volume increase and the volume extensions, is that the number of clients increased by 80% since 2021. From roughly 40,000 to 75, with an average deposit amount of EUR 42,000 per client. The good thing is more granularity adds to the stability and the franchise value, which we intend to further build out and foster via more targeted marketing spend and corporations with non-bank partners that provide Banking-as-a-Service and need partners to take care of their deposit flow. Page 17, page 18 is known to you, or we had this already last time, structurally it doesn't tell anything new. It is good to look at because first of all, it shows that even in difficult times, Pfandbrief is a very stable funding source, also very stable pricing. ... And pbb direkt in terms of economic cost versus spread development versus six months Euribor shows the practical use of that and the relative value of that as opposed to the left-hand box of the senior unsecured prices which we have to pay. Very clear, very clear direction that there is a strategic wish to replace as much as is feasible and much as doable and accepted by markets to replace unsecured by term deposits as we go forward. Now jump directly to the page with the financials. Next view, which is page 21, and as usual, that's an overview. I will visit the main lines on the next pages A few comments on the smaller line items is on fair value measurement, net income from the realizations and net other operating income, which compared to the rest, are relatively small. Net income from realizations benefited from a smaller prepayment and from sales from non-core unit, which is now the combination of public investment funds and value portfolio as one of portfolios, as we seek for acceleration to wind down non-core assets. The bank levy, I should mention, decreased as the target volumes of the European Deposit Protection Fund decreased and higher collection considerations, both together resulted in lower fees, which we had to take through P&L. What is also depicted on this page and should not and should be also pointed out, the actual ROE and the cost-income ratio, which we show in first quarter, show the need to swiftly pursue our strategic program, our business and revenue targets as well as our cost targets. A few words about NII on the revenue side of the bank, which by and large shows the structural challenges which we have, which shows nothing new because we already shared these insights with you last time, but which becomes, say, more visible once the figures are printed and actually shown. As mentioned, the loss of floors and TLTRO benefit weighs on NII as expected. This was partially compensated by increased average risk financing volume, while effects from strategic initiatives to show over time, starting from second half 2023. In a summary, as an explanation against the first quarter 2022, with the results in first quarter 2023, floors and TLTROs are now going to be washed out in the first half of the year. Second point, average financing volume and improved margins will contribute second half. Will the substitution effects from deposits versus senior unsecured on a slowly but surely materializing basis. I come to the strategic measures which are directed towards the enhancement and the enlargement and the betterment of NII going forward. I will leave that for the time being. The next page deals with risk provisioning. On Stage 1 and 2, the following comments, we had a net release of EUR 5 million. Below the top line figure, you can observe some significant movements. Stage 1 and 2 provision requirements increased as pbb recalibrated some key risk parameters, such as interest in property prices. We've now reflected higher market rates in almost all variations in model parameters, and that's important, resulting in higher PDs and LGDs in stage migrations. Also important, property price projections or expected discounts on property price projections were revised from 9%-12% on German office, plus 10% discount on the base scenario, plus another 20% added to the strongly adverse. i.e., to make it less complicated, we look at German office, the or the divided development, the property development in German office class for 2023 to come, to the tune of something between base and adverse scenarios between 22%-34% discount. We apply more or less the same figures for office in the United States. That's a quite hefty correction. Again, it reflects the market movement, reflects the increase in interest and the valuation impact thereof, and should capture the developments which we see emerging for 2023. While market sentiment, especially on interest in properties, is now fully reflected in Stage 1 and Stage 2 provisions, part of the management overlay became obsolete. You may remember that we increased management overlay by EUR 27 million in Q4 last year, expecting a further significant increase in market rates in 2023. Now, rate expectations have consolidated on a lower level than expected, and the overall interest rate-driven im-price impact has been reflected in property prices in Stage 1 and Stage 2 provisions. This specific MOL or management overlay became obsolete and was released. We reduced management overlay by EUR 27 million - EUR 42 million, with the remainder covering potential office market risk, including ESG transformation and working from home. You can see, management overlay works as designed to keep risk provisioning on a steady level. Last point on Stage 3, a short one, I already mentioned that net additions of EUR 7 million, which are driven by one office loan in the United States. Further chapter on risk provisioning is on page 24. The provisioning level at 134 and 135, 134 basis points, which we have constantly increased in the past and which we have kept stable over the last three years. I think it's still conservative given the fact that the entire portfolio is collateralized. Almost 50% of the total LLR, meaning loan loss reserve, is general loan loss provision, Stage 1 and 2, and thereof 25% is management overlay. Those are figures in comparison to the rest of the market we, I think, can be quite proud of. Our conservative risk profile, as I mentioned on our last call, our conservative risk profile aims at a long-term sustainable provisioning level between 40-80 basis points. Now, the other topic in question is the development of costs, general admin and expenses. Increase in costs in times of reduced revenues is not exactly helpful. Although the increase is still moderate and largely triggered by inflation, regulatory cost, and investments, we need to ensure that cost levels are brought back to the 2022 levels and cost income ratio comes back to levels below 45%. Which we have shown in the past, which we have been, I think, also applauded for being able to manage our cost portfolio to manage that towards 40%-45%. Now, that is the target, that is the goal to go after in future. Therefore, cost containment is integral part of our strategic program. Ultimately, we need to find cost savings to the extent that we need to invest. We started a compact cost management package, still to be finalized, which focuses on the following points. First of all, streamlining IT processes and projects. Second is internalization and nearshoring opportunities, which we actively look into. Third one is business focus on reducing unprofitable sub-segments, such as CAPVERIANT and where I come to in a minute. The last point is business and credit processes and the efficiency as we've demonstrated through the client culture and the Credit Workplace project as means to gain efficiencies and probably as means to gain more and further efficiencies. While we focus on cost containment as we invest, we will not be able to fully synchronize strategic revenue uplift and cost investment. Nevertheless, we continue tight cost discipline on all operative lines. Having in mind, or having that in mind, 2023 is our year of investment to advance the planned strategic initiatives. There will be no strategic initiatives if we have no investments. There will be a major effort, both on revenues as well as on cost, to realize the guided PBT at around EUR 170-EUR 200, which we aim for despite difficult times. The FTE increase, which you will see and which we will see, are caused by internalization measures on FTE against more expensive external resources, mainly driven by IT. It will be driven from in-investments such as real estate investment management. Again, cost discipline on all fronts to remain integral part of our strategy. PBT is a summary of what I just mentioned. I think I may just skip that. The components of EUR 32 million have been described. That brings me to the page on capital, which is the page 28. Again shows a familiar picture with about EUR 17 billion in risk-weighted assets and a CET1 ratio around 16.6. I think it is important to stress again that our strong capital base allows for both buffering for upcoming risks and taking advantage for profitable growth opportunities. RWA already, as you know, are calibrated towards anticipated Basel IV levels. The next two pages are dedicated to ESG. I think I can keep that relatively short. That's page 30, 31, 32. First of all, green bonds with the emission with the launch of the placement, which I already mentioned. Green bonds rose by EUR 5.05 billion, i.e., EUR 500 million, now being at EUR 3.4 billion. With that figure, I think we're still one of the outstanding issuers of green bonds in the European markets, not only in Germany. Our green real estate finance portfolio share is now at 18%, 26% on the scored portfolio. The portfolio share which is scored is now at 69 after 45 last time, so we're making significant progress. The figure which is attached to that is at 26% as being constituted green, is a figure which sort of shows the trajectory towards the 30% which we have in mind as a target for 2026. Now to round up, and to return to the beginning, and that is about strategic initiatives on page 32 or 33. Let me come to the progress which we made while executing on our strategy. The first bracket or the first chapter is profitable growth. Strong business margins lead to increasing gross margin in existing portfolio. That is a good first step, and that we want to and need to continue. However, while the project rolls on, we need to move more systematically in repricing and pricing our portfolio. In terms of stricter business selection and ranking according to relative contribution. In terms of revisiting segments with better business outlook as crisis proceeds, I mentioned hotel and retail. In transformational green financing, i.e., CapEx financing, i.e., turning B grade or brown-rated properties into green A properties with more focus, more margins, and green CapEx. I should add that on the topic of green finance, we mentioned already that we strive for cooperation with a renowned partner. The process is in finalization. We're going to sign the contracts shortly, green consulting can follow suit. It is important not so much to actually generate re-revenues from the consultancy as such. What is more important is to make green financing possible through a, say, very specific, competent approach in explaining to our clients what needs to be done in order to turn the property green. The other aspect which falls into that is revenue diversification. Dr. Pamela Hoerr is on board since mid-April as a designated board member responsible to build up real estate investment management and corporations with Universal-Investment for fund servicing and Amundi for sales. The other topic which also falls under this headline is the focus on core business. We have transferred public investment funds and value portfolio to a non-core unit with the aim to save costs on overcollateralization, but also to see whether we have ways and means of further and accelerated rundown of the portfolio. The discontinuation of the of the Public Investment Finance business or the Public Sector business also includes the discontinuation of the intermediate or platform business for municipality loans, which is the long version for the short description of CAPVERIANT, which we will not continue. We have announced this to start this morning, that we will wind down the business or sell it in parts or in total to interested parties. There is an interested party around which has signed with us an LOI Friday last week. More details to come. That's all I can say about that. What I want to mention is that, and that sort of goes straight to the colleagues at CAPVERIANT. They did a good job, especially in the last two years. There were more business inquiries and steeply increasing business inquiries. The problem, business becomes business once you have a transaction on it and not just an inquiry. The amount of transactions was still too low and the break even too far out. That was one point for our decision. The other one was, we have, as you know, a French partner, the CDC. We did set hopes in the corporation in a fruitful way to enlarge the French business. That did not take place to the extent which we foresaw. Selling parts of the business is an option which we currently pursue, as I said. Otherwise, for the rest of it, we will wind down the business with some, and that should not be underestimated, with some immediate cost savings afterwards. The next block on the list of strategic initiatives is around funding diversification. We talked about that with the retail deposits, which are now at EUR 5.4 billion. We will further build it out via marketing, via corporations. The target is at around EUR 8 billion+ as a substitution of funds for senior unsecured. Digitalization, the progress in digitalization initiatives, i.e., customer portal and process efficiency, was mentioned. As I said, and we described already, costs remain part of the strategic agenda. The cornerstones, the highlights are we aim at a level which is calibrated on 22 levels and 45% cost-income ratio. As we invest, as we go to invest, we need to find savings to compensate for that. Those are the three principles by which we run this topic. We have undertaken upon many requests from your side to split up the effort which we have in front of us on page 34. I wouldn't say it's illustrative, as we are still in the process of finalizing the conceptual part of it and the calculation part of it. I think it gives a fairly good indication where the positive effects should come from. Again, always on the presumption that the costs related to that, the investment costs related to that, will be absorbed by cost efficiency measures going forward. You know, to start from the left-hand side, we suffer from loss of income from floors, which we generally profited from the last five years. TLTRO, and that needs to be compensated through margin pickup on the rest portfolio. Real estate finance portfolio growth as such, growth of retail deposits and optimizations on value portfolio public investment finance. Increase of net fee and commission income, that's the investment management, the debt fund business and the business around originate-to-distribute. We also said, I mentioned that earlier on, we see the total level of risk provisioning below what we presently see or saw in 2022. Now that's a sort of short cornerstones. We will further detail that, and we'll continue to report on the progress on the respective initiatives. With that, I come to the end of my presentation. The summary of highlights is, point I wanted to make is, first of all, 2023 is a year of investment, very clearly so. Upper battle and investment with speedy implementation of the strategic investments, managing increasingly difficult markets risk-wise, and keeping operative track. 2023 first quarter is in line to reach the full year guidance for 2023. We have realized significant growth in retail deposits to support NII, especially in the second half of the year. We have increased cross-portfolio margin as well as new business margin to maintain and further maintained and further augmented. Stage 1 and 2 risk provisioning are calibrated towards demanding market environments in 2023. Should, while we have done that, it should keep the new requirements low. With that's where we are in the first quarter. Thank you for listening and I'm happy to take your questions now. Ladies and gentlemen, if you would like to ask a question now, please press nine followed by the star key on your telephone keypad only once. If you wish to cancel that question, please press nine followed by the star key a second time. The first question comes from Tobias Lukesch, Kepler Cheuvreux. Please go ahead. Yes, good morning. Thank you for taking my questions. I would start with an NII provision question. Could you maybe give a little bit of a indication for Q2? I know you highlighted the H2 catch-up effect, especially for the NII line. Given that there was a kind of 6% company consensus miss, one, could you maybe elaborate a bit more on where the trend for Q2 is? Is the NII flat? Is it still slightly down compared to Q1? Or maybe even, you know, already see a slight uplift here. Potentially, what is the TLTRO effect that we still have to factor in for Q2 compared to Q1 as a basis? On the risk provisions, would also be interesting to hear view on a Q2 provisioning so far. secondly, on average asset devaluation, I think you have given a nice portfolio split and also, Presumably comes later than was indicated. And that's also one of the reasons why I believe that 2023 second half will look more benign in terms of NII movement. Now, on risk provisioning, I'm not giving a forecast for the second quarter. What I said is that we have revisited the risk calibrations on the Stage 1 and Stage 2 provisions, and made allowances for further steeper depreciation of valuations on the book as a whole, specifically on office going forward. It's been made in the opinion that by doing that, we capture the presumable developments in the market, in the Commercial Real Estate markets going forward. As I said, we still have say three scenarios which we look at, the base, the adverse or strongly adverse, and the good scenario. We did not change the weighting, so it's still 55% on the base. If I remember correctly, 40% for the strongly adverse. We left that, and then basically if you take the figures which we attach to the model, plus the add-ons which we put on top of that, in a strongly adverse scenario, we would assume that the discounts on markets both in United States as well as in Germany could face something around 34%-35% discount. That is given the segment in which we move and we do these forecastings for our portfolio, not for a market portfolio. That, this has been done for our portfolio. That's, that's a pretty tall order. I would say, if nothing else is going to change significantly, if the rates, the interest rates remain where they are being prognosticated just now. My feeling would be that we have well provided for on the Stage 1 and 2 side, well provided for the year 2023. That should also answer part of your question in number three, which brings me to your comment or your question around CAPVERIANT. Now, the cost run rate which we would forgo, going forward from 2024 onwards, is around EUR 3.5 million-EUR 4 million, which is a cost savings which we realize. There will be wind down costs which we pocket this year and which are part of our forecast. Thank you. If I may touch again on the average asset valuation. You said based on your portfolio, you would expect in a severe case another 34% - 35% discount in current market prices. I was wondering, I mean, how much would then move to that 100% LTV that you have or above that? You have a number on that? Is it [audio distortion]? No. 10% of your portfolio or? I'm just looking at the LTV page on the portfolio distribution. Frankly, I don't have the figure with me. We would have to look into that. We talk about the portfolio, and that goes more or less for U.S. and for the overall portfolio alike. We talk about a portfolio where we have 41%, 51% LTV throughout, with small regional variations against that. That was. Can't read the page number. Something like 20 something. Eleven. It's page 11, right. The average LTV is 51. If you're looking at the distribution of LTVs throughout the clusters, you see that the vast majority is below 60% or below 70%. There might be some, but I can't give you the exact figure. Okay. If I look at the distribution, you would move, around EUR 1 billion basically to that 100%, right? That would be then, kind of, 3% of your portfolio. I'm a bit surprised about that high number of 34%-35%. You're still expecting because I was of the opinion that in the past, you were rather going for these Class B developments, which we were in general expecting less of a asset devaluation risk. That was always my understanding also with regards to the green view, also with regards to the, yeah, good buildings you were investing in. I was expecting that this would rather be, yeah, then a company, you know, like by the rather have this higher number of, on-site working staff, etcetera. Honestly, I would have rather expected kind of 20% discount you see here rather than the 34%, 35%. Why, why is that really so severe in a severe case, to be fair, right? I mean, are we missing anything here or was there really something that deteriorated over the past 3-6 months which let you adjust that scenario a bit down? I'm not 100% sure whether I'm missing something in your concerns. I think what we do at the end of the day is that we look at the overall market trends, we look at the sub-segments and then see what the collective, the collected or collective wisdom of the valuation companies is on the further market development and what the collective wisdom is from our valuation people within the bank. That's the sort of the market-driven figure which we apply, but for the prime segments which we cater for, that's how it comes about. Now, with all due respect, that's a figure which is attached against the strongly adverse scenario, which is weighted with 40%. Base scenario looks somewhat more benign. I think it is just evidencing that we apply relatively conservative estimations towards our valuation in order to calibrate loan loss provisions for Stage 1 and Stage 2. Understood. Thank you very much. You mentioned the base case. Could you give us maybe the kind of devaluation you expect in the base case? Which then I guess Well, I think I mentioned that, we talk about something like 20, 24%. We still have a small good case just as you're interested, which looks, furthermore on the benign side. Good. Okay. The next question comes from Johannes Thormann, HSBC. Good morning, everybody. Johannes Thormann. Some questions on my side as well. Good morning. First of all, on your NII, had been pretty volatile in the last five quarters. Now you say we see slow movement in Q2 and an uplift in the second half. What gives you the confidence? What is driving this? I'm, let's say outrightly puzzled by the EUR 40 million contribution you expect from retail deposits under 2026 because you are mostly the most price sensitive area where you get your deposits and have zero stickiness because no customer relationship is attached to this. How can you bake in such a high number coming from that? Secondly, on your new business and the net income from realizations in real estate finance, we have just EUR 1 billion, but we had EUR 4 million of let's take net income from realization, so pre-drawn net interest income. This is also a question again, what do you expect in this line to come in the next quarter, the new business and net income from realization? Probably in that context to net income from realization, was this EUR 10 billion a one-off or should we rather expect more net income from realization from the non-core portfolio? Last but not least, you talk about cost discipline, but currently I'm struggling to see any cost discipline at all. I'm a bit puzzled that you closed CAPVERIANT now after defending it for the last quarter. What has triggered the decision now? What makes us sure that we don't see the same disaster with investment management? Thank you. Now, I start in reverse order. I mean, CAPVERIANT is not a disaster. It's been an investment which we made as a first step in public sector finance to go away and come away from on balance sheet business to create a platform which produces off balance sheet platform which is using new technologies, agile technologies, cloud computing, digital computing and things like that. I think that the bank has greatly and overall profited from those things which we tested and which we did first in CAPVERIANT in order to gain expertise and bring these things also to the bank. That's the first thing. I think, and I still hold towards the investment idea, but in times where you focus on Commercial Real Estate, in times where you focus your resources amongst many things which we do at the same time, you have to make decisions whether you want to continue and want to spend further means and ways and people and capacity on something which will bring a relatively slow and low contribution and sometime, but not soon. I think from a business point of view, it was a rational decision and the right decision to make. Now you said how do we ensure that similar investments do not go astray? I think the first point is we have a new board member for that with a clear responsibility. I think to pay full attention to that and to see that we built this business case, I think is the first guarantee to have that on the successful side. I mean, in discussions which we had, I think we have the same opinion that especially in these market situations, it is good and is the right thing to do to invest in businesses which are off-balance sheet, which broaden our scope, which diversify our business going forward. I'm not concerned about that. On the contrary, we're making really great progress on the investment management side, but we have the right focusing of resources on that and doing a good job. Now you said cost discipline and you don't see that first quarter. Well, you can take it this way or the other way. I think as far as the operative base of the bank is concerned, we are still doing good. However, and repeat myself, for going forward, we need to find efficiency measures where we can, where we can sort of put a lid onto cost developments and how we do that and when we do that, I mentioned also we have experience with that. We did something similar, on a smaller scale, three, four years ago with Focus & Invest, where we said what we invest and what we give into the bank needs to be financed and cross-financed from the bank, from the key areas by focusing resources and creating efficiencies. That is exactly what we will do also in this case. We will come up with more details around that sometime soon. I think the message is very clear on that side, and should be read in this light. The other point which you mentioned on realization. From business, I do not expect that to be a recurrent item, but we will have realizations from sale of bonds, from recapturing issues which we placed earlier on, and from the non-core unit as we go forward. That is rather not business-driven on the Commercial Real Estate side, but is something where we see further additions to that coming through the rest of the year. On the deposit side, you mentioned that the amount which we attach to that as a revenue contribution or NII contribution seems to be high. Now we can argue about that. I'll give you an example. If you assume that, given the cost structure, the spread structure... Somebody's typing all the time. Okay. If you look at the total cost of a senior unsecured, as of today, you would have to pay for, say, three years base rate, Eurobond, you would have to pay on three years basis about 300 basis points. If you look up pbb direkt, you would also have to pay 300+ on senior unsecured, you pay 300+ the spread the bank has to pay when it goes to market, which presently can be anything between 170 to 250 basis points. If you take that as total costs of it, which gives you something between 400-450 basis points, and you compare that against 300 basis points, senior deposits, you make good for, say, anything regard, with or depending on your assumptions, anything between 100-150 basis points which you make good. And I'd say that's the exact figure which we put behind the business case. Our figure is actually lower and it sort of stretches in a build up over the next three years to come. That it is, that it is likely that we maintain this positive advantage, relative advantage against senior unsecured, I think is very clear. Therefore, if one of the figures which we, which we talk about in this bridge, is solidified, in assumptions, I think it is around the deposits. Now, on coming to your first point, which is my last point on NII, I mentioned that I think we will see some of the detrimental Tier 2 effects still in first half 2023, that will be washed out second half. We will see that higher margins will permeate through the portfolio as we, as we go forward. Sorry. The fact that we have new business margins above the 2022 levels does not mean that sort of soaks in immediately, but that takes some time before we actually see that realizing in our portfolio. That should come through in second half 2023. Plus the fact that the average outstanding should stay stable or increase versus last year. That's another element which we should take note of. Okay. That's all, man. The next question comes from, Borja Ramirez, Citi. Yeah. Thank you. good morning. can you hear me? Yes, we hear you. Perfect. Thank you. I have two questions, if I may. The first one is regarding the in your internal models, the real estate price decline that is included, I understand it is 20%-24% decline in the base case and 34%-35% in the strong real scenario. This is across all your portfolios. I would like to ask if you could please provide some detail between U.S. and Germany. My second question would be if you could please provide a sensitivity of your expected loss to a higher 1 percentage point higher decline in the recent prices. What would be the impact in the expected loss in euro millions and also in the interest rates? I understand that if interest rates were to rise further, then I understand that your overlay would need to be adjusted. If you could provide some details. Thank you. Okay. I'm not 100% sure whether I caught all points. Maybe you have to help me. On the first one, on the models and the price decline, what I gave to you were sort of samples of certain segments and regions. We do distinguish in the calibration of these price movements. We do distinguish between asset classes, say hotel, residential, office or whatever, and different values will apply. It's not across the model and not across the portfolio on one figure only. There are differences, and there are also smaller figures. I was just giving examples for office in Germany and the United States, and those are the figures which you quoted. To preempt and possible other question, we don't publish this matrix. I just try to give indications about what we see in different segments and sub-segments as an indication for you to estimate what degree of conservatism we apply or may not apply. That's the first point. The second point on expected loss, I must confess, I got a little bit lost. Can you repeat your question? Yes, of course. My question is, let's say that in a scenario whereby the recent prices were 1 percentage point higher or lower than your forecast, what would be the impact in the expected loss models? I mean, I know we do this kind of exercise in stress testing and simulation of our portfolio, but I can't give you the figures right away now. We do that. From what I remember having seen in our risk reports, it's not major shifts which you observe on a 1% shift. I don't have that figure in mind just now. Understood. Thank you. The last question which you had, if we were to face another significant increase in interest rates, whether that would sort of mean anything for the parameterization of the Stage 1 or Stage 2 or the management overlay. Let me put it this way. We also have a conservative calibration on the interest rate scenarios going forward. The add-on, which was reflected in the management overlay to the tune of EUR 27 million, was based on market expectation plus another 180 basis points. And the market expectation actually comes in somewhat lower than we expected, and the 180 basis points on top did not materialize at all. I think it's sort of market consensus just now that we see moderate further increases in interest, at least before the summer break, and the rest needs to be seen. If there's a significant further change, yes, we have to go back to the drawing board and have to look at that again. That is a matter of course. I think the key message on what we have quoted from our models is we took the opportunity in the first quarter to sort of fresh out as much as we can on model assumptions going forward to build a decent Stage 1, Stage 2 provisioning, which from today's perspective, carries us through the year. Thank you. Just very quick follow-up, if I may. Yeah, sure. The add-on of EUR 27 million was based on 180 basis points increase in rates? Well, there was a market estimate. Cannot remember how much. We said if that should come through plus another 180 basis points on top, then how much we would have to reserve against that. Understood. Thank you very much. The next question comes from Jochen Schmitt, Metzler. Thank you. Good morning. I have two questions, both on the German part of your real estate finance book, please. Firstly, regarding the LTV for your real estate loans in Germany. You seem to have reported a stable figure at the end of March compared to year-end 2022. How much of the properties underlying your loans were revalued in Q1? The second question, what is your expectation for the development of the LTV during the remainder of the year, also with regard to your loans for properties in Germany? These are my questions. Thank you. Not so easy to answer. We keep actual valuations fairly recent. How much of that sort of has been sort of rated through in the first quarter, I can't tell you. What we can say is that the exercise which we just talked about in adjusting the model parameters going forward, we've done that on most recent assumptions, and the valuation should be sort of the most recent thing which we have to offer. To be fair, in all fairness, this is not a complete re-rating of the total portfolio, total portfolio just now. We have done that in the past due to COVID reasons on a much faster track, and we look at that regularly. Also, you might actually find a page on the appendix, if I remember correctly. That's if I see that correctly, it's page 58, which shows you the term and the term in which we do regular re-ratings, which as we speak, we do more often than it's sort of been described by the book. I would say, despite the fact that market values come under pressure, the 51 is a very reasonable achievement because it is done on relatively recent valuations. Giving an LTV for the entire year would be asking a little bit too much. I would have to think about that. Thank you. Pleasure, Schmitt. At the moment, there seem to be no further questions. If you would still like to raise a question now, please press nine followed by the star key. The next question comes from Dieter Hein, fairesearch. Yeah, good morning. I have had some question regarding your new non-core segment. My understanding is here that you want to wind it down over time. If I look to your slide, 43, the total assets of the new non-core were end of last year around EUR 15 billion and, you want to reduce it by around at least 20% in 2026 to EUR 12 billion. Why can't you wind it down faster, or you don't want to wind it down faster and connect it to the volume? What is average maturity on this portfolio? Maybe you can give us some figures regarding your targets here, and maybe you can give the number of employees working for this new non-core unit in 2022 and what you are targeting for 2026 and maybe as well some figures for the costs. What cost reduction are you targeting in 2026 compared to 2022? That's currently all from my side. Well, I would say, Hein, thank you very much. It's good for the beginning. Now the first thing to explain is our portfolios are fully financed and fully hedged. To accelerate the wind down beyond the scheme, the schedule is something which is only possible by incurring costs of breaking hedges and fundings. Therefore, we stick by and large to the wind down structure, which we find. There might, according to market situation, there might be opportunities, smaller opportunities, where we can do something, and we will constantly pursue that. The forecast in terms of getting rid of the wind down scenario, the non-core scenario, basically hinges on and is modeled around the runoff of the portfolio according to plan. That's the first piece. The cost reduction or the cost reduction exercise which is linked to that is mostly and predominantly linked towards the needs of a collateralization which we had so far on the public investment finance portfolio. Which by combining both, the value portfolio and the public investment finance portfolio may reduce significantly and may give us a sort of medium to or mid to 2 digits million figure in realizing gains or realizing cost efficiencies by running down the rating and the over collateralization on that portfolio. That's the key lever which we pursue. ne some of the cost reduction in the past years, as you may recall, we put the public investment finance portfolio onto hold, rather than in terms other than actively pursue this business. So the origination and sales and underwriting side of the business was already significantly reduced. We will look into further opportunities to further reduce headcount on that. But as the portfolio doesn't sort of fly away, we need still capacity in our credit risk management to look after that. But there will be ways and means to further gain and to further nominate efficiency coming out of that That is certainly one of the points which we will address as part of the package of our cost savings measures going forward, which we are in the process of putting together. Those are the answers I can give to you at this point in time. Okay, thank you. Maybe, sorry for that, follow-up as well from my side. Regarding the duration and the EUR 15 billion portfolio end of 2022 in this non-core segment, when would you expect the volume below EUR 1 billion in 10 years? I don't know. We can give you that figure some, at some time. I don't have it with me. The average duration of the portfolio is somewhere between 7 - 10 years with a tail, which extends much further. We will have pleasure to keep some of that for longer time. The bulk of it we would expect to be removed, and that's also indicated on page 43 in the presentation. The bulk of it will be removed between 2026, 2027, 2028. That is especially not so much by nominal denomination, but by risk-weighted assets and capital, which has been tied up for the Italian bonds, which are good quality, but risk wise or capital wise still weigh a lot. After that, after 2026, 2027, we should have a much, much easier sailing on the entire portfolio with a much smaller figure. The exact one I can't produce off the cuff now. No, thank you. That's fair enough and good enough. Thank you very much. Pleasure. Thank you, Hein. Thank you very much. It seems at this point there are no further questions, so I'd like to hand back to you, Mr. Arndt. Yes, pleasure. Thank you very much to all of you. I conclude this conference herewith. As you know, for all the things which I have omitted or have not stated clear enough, Michael Heuber and his team is there for bilateral consultations. Please make use of that. Thank you very much for joining, and I'm looking forward to the next encounter, the next meeting or the next discussion with you. Thank you very much. Stay healthy and all the best. Have a good day. Bye-bye.