Deutsche Bank AG (DB) Q3 2021 Earnings Call Transcript – The Motley Fool

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Deutsche Bank AG (NYSE:DB)
Q3 2021 Earnings Call
Oct 27, 2021, 7:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. I’m Hayley, your Chorus Call Operator. Welcome and thank you for joining the Deutsche Bank Q3 2021 Analyst Call. Direct today’s recorded presentation, all participants will be in listen-only mode. The presentation will be followed by a question-and-answer session. [Operator Instructions]

And I would now like to turn the conference over to Ioana Patriniche, Head of Investor Relation. Please go ahead.

Ioana PatrinicheHead of Investor Relation

Thank you for joining us for our third quarter 2021 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 SewingChief Executive Officer

Thank you, Ioana. A warm welcome from me as well. It’s a pleasure to be discussing our third quarter 2021 results with you today. We are now two-thirds through our transformation journey. And we have continued to deliver against our milestones. We see clear evidence of progress in our businesses. The first basis of this progress is our disciplined execution. We continue to be absolutely focused on cost-saving measures.

Adjusted costs, excluding transformation charges are once again down year-on-year. These transformation charges will help drive reductions in our expenses in future quarters. And we have now recognized 90% of our total anticipated transformation-related effects of almost EUR8 billion since we began this journey. This is resulted in significant progress in our transformation. We promised to sell finances, and we have delivered. These efforts are being recognized by our stakeholders in the third quarter, both Moody’s and Fitch upgraded our credit ratings and retained our positive outlook. We have maintained a strong capital ratio, a strong Balance Sheet, and sound liquidity despite certain challenges such as regulatory inflation and the impact of a global pandemic. Our Capital Release Unit is outperforming against our 2022 goals, which we outlined at our last Investor Deep Dive.

Risk-weighted assets are down to EUR30 billion and the unit continues to reduce costs. And finally, the result is profitability. In all three quarters of this year, we have delivered significant year-on-year profit growth, while simultaneously keeping up the pace of transformation. Refocusing on core business is paying off. Revenues have grown as broad-based business performance offsets the effect of normalizing capital markets and we saw that in the third quarter. Pretax profit of EUR554 million grew by 15% despite transformation charges of nearly EUR600 million. And on an adjusted basis, profit before tax would have been up by 39% to EUR1.2 billion. Now, let me take you through the highlights of what we have achieved in the nine months of this year on Slide 2.

Our performance over these past nine months shows that our 2022 targets and ambitions are well within reach. Revenues of EUR19.5 billion for the first nine months of 2021 fully support our trajectory to our 2022 revenue goals. We have reduced adjusted costs, excluding transformation charges by roughly 4% year-on-year to EUR14.4 billion, despite 2021 being an investment year. This means we delivered positive operating leverage at both the group and Core Bank level over the past nine months. We reduced our cost income ratio from 87% to 82% year-on-year despite the additional transformation charges recognized in the third quarter. Provisions for credit losses declined 83% year-on-year to EUR261 million or eight basis points of average loans. Return on tangible equity for the Core Bank is 7.5% for the past nine months. And above 9% on an adjusted basis, already in line with next year’s target. This sets us on a clear path to our group target of 8% return on tangible equity in 2022.

Now, let me turn to the progress we have made executing on our strategy across our core business on Slide 3. The Corporate Bank continues to execute on its growth strategies as evidenced by increasing loans and new partnerships, including MasterCard, Pfizer, and better payments. EUR94 billion of deposits are within the scope of charging agreements and contributed EUR96 million in revenues to our third quarter results. The investment bank is focused on front-to-back efficiency process improvements such as the Fitch reengineering program. The results in this quarter, again, confirm our decision to refocus our investment bank on its cost strengths and we delivered a strong performance despite normalization in the market. We have now seen year-on-year revenue growth in Origination & Advisory for seven consecutive quarters. And our third quarter FIC results demonstrate our market share gains are sustainable.

The private bank continues to grow net new business across assets under management and loans. This year-to-date business grows substantially outperform our full year target of EUR30 billion. In the third quarter, we announced the sale of DB financial advisors in Italy, which supports our international private bank divisional strategy, as well as our regional strategy. In Asset Management, assets under management than at a record level of EUR880 billion driven by strong net inflows of EUR12 billion this quarter, with more than 40% coming from ESG products, where we continue to work toward leadership in the field.

We continue to undertake investments in growth initiatives and platform transformation to support our performance. In short, the dynamics in all four core businesses showed that our clients are supportive of our business model and belief in our capabilities. All four core businesses grew return on tangible equity, and improved the cost income ratio over the first nine months of 2021. This relentless focus on transformation has driven a steady improvement in underlying profitability, which can be seen on Slide 4.

In the Core Bank, we delivered a 70% year-on-year increase in our adjusted profit before tax in the last 12 months. Once again, all four core businesses contributed and are either in line with or ahead of their plans so far. In the Capital Release Unit, we reduced losses by nearly half compared to a year ago. As we reduced leverage, exposure, and risk-weighted assets, we continued to remain committed to minimizing the P&L impact of the portfolio reduction. As we steadily put transformation effects behind us and reduce the cost of deleveraging in the Capital Release Unit, more of the earnings power of our core business is reflected in the bottom line. This supports our aim to deliver stable and sustainable returns at the group level. A key driver for this is our sustainable revenue performance, which I will now turn to on Slide 5.

Revenues excluding specific items in the Core Bank for the third quarter stand at EUR6 billion up 1% year-on-year. Business growth has offset the normalization of the capital markets environment, which impacted fixed income trading as expected. This quarter still bears the impact of foregone revenues as a result of the BGH ruling of EUR96 million, similar to the second quarter. We expect this impact to taper off considerably in the next quarter, as we now have written confidence in place for two-third of the effected accounts. Revenues in the investment bank are EUR2.2 billion, down only 6% from a very strong third quarter in 2020. Both our Corporate Bank and Private Bank continued to offset interest rate headwinds with continued deposit repricing and business growth. We see continuing underlying momentum in these businesses, and we see strong underlying growth amending.

The loan portfolio is currently at EUR456 billion, up 5% from the same quarter last year. With the period of post-pandemic market normalization behind us, we now expect the current growth rate to remain in the coming quarters. Asset Management delivered revenue growth for yet another quarter, driven by strong management fees. This is the 6th consecutive quarter of net inflows. Core Bank revenues were EUR25 billion in the last 12 months and 11% increase from 2019 which is in line with our current 2022 goals. This reflects the sustainability of our revenues as client engagement continues to improve, particular following our recent rating upgrades.

Now, let me turn to costs on Slide 6. On a 12-month basis, we reduced non-interest expenses by 14% to EUR21 billion from 2019. This includes the higher-than-expected contributions to the Single Resolution Fund and the German deposit protection scheme. We continue to focus on managing our controllable cost base to offset volume driven expenses and investments in controls and have identified additional cost saving measures. These measures come with around EUR700 million of incremental transformation-related effects, including technology-related charges that we recognize in the third quarter. We are committed to putting almost all our anticipated transformation effects behind us by the end of 2021. And with that in mind, we reaffirm our 2022 target for a cost income ratio of 70%.

Let me now update you on our progress on sustainability on Slide 7. After nine months, we are already ahead of our full year 2021 target for total volumes of ESG financing and investment. Our volume since the start of 2020 now stand at EUR125 billion versus the full year ambition of EUR100 billion, excluding DWS. This puts us well on track to meet or exceed our year-end 2023 target of EUR200 billion. In addition, we were a book runner on four of the six largest ESG related bond issues in the quarter. This month, we call it the EU’s Inaugural Green Bond, raising EUR12 billion, the largest evergreen bond today. We also completed our first-ever green Repo agreement, the first green Formosa bond and build out our offering and sustainability linked loans to German Mittelstand companies. ESG is the topic which continues to drive client engagement, allowing us not only to innovate products, but to also provide advisory services underlying our clear client centric approach.

In the Private Bank, we rolled out the ESG advisory concept to more than 100 branches exceeding our 2021 ambitions. And our international private bankers enhancing product offering by our new funds and growing green deposits and lending. We are pleased to participate in the upcoming COP26 Summit in Lascaux next week and we’re looking forward to meeting clients and other stakeholders striving for change.

Before I hand over to James, Let me now summarize our progress this quarter on Slide 8. As we said at the Investor Deep Dive in December, our focus remains on executing our transformation agenda while supporting our clients. We have executed on the strategies within our refocused core businesses and we saw material improvements in Core Bank profitability and returns. We’re delivering resilient revenues as business growth offsets the normalization of markets, which we anticipated. Our core businesses are performing in line with or ahead of our expectations, and that positions us to deliver on our revenue ambitions next year. We intensified our transformation efforts and took further steps to drive efficiencies. We aim to book most of the remaining transformation-related effects by the end of the year, which will help us to deliver on our 2022 cost income ratio target. We are committed to technology and control investments and to maintain our momentum on resolving open regulatory and control matters.

The hierarchy of our 2022 priority remains unchanged and we are on track to meet our target of an 8% post-tax return on tangible equity and 70% cost income ratio. We also remain committed to beginning the distribution of the EUR5 billion of capital from 2022 onwards. We’re setting up a firm foundation to not only meet our 2022 ambitions, but to also position Deutsche Bank for future growth and we look forward to discussing this with you at our next Investor Deep Dive in March. With that, let me now hand over to James.

James von MoltkeChief Financial Officer

Thank you, Christian. Let me start with a summary of our financial performance for the quarter compared to the prior year on Slide 9.

We generated a profit before tax of EUR554 million or EUR1.2 billion on an adjusted basis. Total revenues for the group were EUR6 billion up 2% versus the third quarter 2020. That interest income this quarter was roughly EUR2.8 billion, up approximately EUR114 million on the second quarter. The increase was driven by the growth in our loan book and higher revenues from our securities portfolio in the quarter, along with a decrease in the cost of our deposit funding. Net interest margin remains broadly flat at a rounded 1.2%. As progress on deposit charging and reduced surplus liquidity offset the ongoing pressure from interest rates. As I’ve mentioned before, we see these interest rate pressures abating with Private Bank headwinds set to have next year and Corporate Bank headwinds being substantially eliminated. Recent interest rate moves provide a more favorable outlook for our businesses relative to the conservative baseline on which our previous plans were built.

For 2022, we now see a tailwind in the region of EUR150 million relative to our earlier planning. As the moves are predominantly in the long end of the curve, the impacts become cumulatively larger in later years, reaching well over EUR500 million by 2025 from the current observable forward curve expectations relative to our plan-based line in the fourth quarter last year. Turning to costs, non-interest expenses were up 4% year-on-year. This quarter includes EUR583 million of transformation charges, up from EUR104 million in the prior year. Our provision for credit losses stood at EUR117 million or 10 basis points of average loans for the quarter. We said at our second quarter results, and then again in September, that we see a relatively benign credit environment. These conditions have persisted and we now see scope for improvement from our previous guidance of 15 basis points of loans for the full year 2021. In line with the guidance, we provided with our second quarter results, we did see a reduction in our common equity Tier one ratio to 13% in the quarter. Tangible book value per share was EUR24 and EUR0.46, up EUR0.40 on the quarter or 5% in the year-to-date. The tax rate for the quarter was 41%.

Let’s now turn to Page 10 to briefly look at our nine month performance. Revenues for the first nine months were EUR19.5 billion, up 5% year-on-year. At the same time, we delivered a 4% reduction of our adjusted cost base, excluding transformation charges to EUR14.6 billion and reduced our cost income ratio from 87% to 82%. The improved macroeconomic environment led to an 83% reduction in provision for credit losses and our profit before tax of EUR3.3 billion increased nearly fourfold compared to 2020. The tax rate for the first nine months was 34%.

Let’s now turn to the Core Bank’s performance for the quarter and the first nine months of the year on Slide 11. Core Bank revenues were EUR6.1 billion for the quarter, up 2% on the prior-year quarter. Non-interest expenses were up 5% for the quarter, mainly driven by additional transformation charges, while adjusted costs cost, excluding these charges, were down 1%. This takes our profit before tax to EUR898 million and the adjusted profit before tax to EUR1.5 billion, up 23% on the prior year. Our adjusted post-tax return on tangible equity for the quarter slightly increased by 60 basis points from last year to 7.3%.

Looking at the results on a first 9-month basis, our revenues in the Core Bank were EUR19.5 billion up 4% compared to the same period in 2020. Non-interest expenses increased 2% year-on-year due to the additional transformation charges and adjusted costs excluding transformation charges were flat. Our cost income ratio was 76% for the first nine months, or 70% excluding transformation charges. And as Christian mentioned, our return on tangible equity for the Core Bank was 7.5% for the past nine months, and 9.4% on an adjusted basis, in line with our target for 2022.

Let’s now turn to costs on Slide 12. In the third quarter, group adjusted costs, excluding transformation charges, continued to decrease year-on-year by 3%. We saw lower compensation and benefit costs year-on-year, reflecting workforce changes, as well as movements in variable compensation compared to the prior year. IT costs were broadly flat as a decrease in hardware expenses was offset by higher software and service costs. The decline in other costs was driven by lower operational losses, occupancy costs, and banking services. Our third quarter adjusted costs, excluding transformation charges and reimbursements for Prime Finance, were EUR4.6 billion. Transformation charges were EUR583 million which I will come back to in a moment.

As Christian mentioned earlier, we will continue to manage all the components we can control as we remain committed to the cost income ratio target of 70% for 2022.

Let’s now move to Slide 13 to discuss transformation-related effects. As mentioned in our recent guidance, further transformation measures will result in incremental effects of around EUR700 million, bringing the total expected impact of transformation-related effects to EUR8.8 billion [Phonetic]. This quarter, we booked EUR583 million of transformation charges, roughly EUR450 million of these charges relate to a contract settlement and software impairments principally triggered by our migration to the Cloud. We have now booked a total of 90% of transformation-related charges, and we expect to book most of the remaining charges by the end of this year. Let’s now turn to provision for credit losses on Slide 14.

Our Stage three provision at EUR199 million is down from EUR408 million in the previously year, reflecting an overall benign credit environment. On a quarterly basis The Stage three provision increase of EUR88 million was mainly driven by the implementation of EBA guidelines on definition of default, leading to ECL model refinements for IFRS 9, resulting in transfers to Stage three predominately in the Private Bank. Stage three provisions remained stable across other businesses. Overall, Stage three movements were offset by EUR82 million of net releases in our Stage one and two provisions, including an adjustment of existing management overlays due to the stabilizing macroeconomic environment. As mentioned, we believe provisions will be below 15 basis points of average loans for 2021.

Let me now turn to capital on Slide 15. Our core equity Tier one ratio decreased by 17 basis points from 13.2% to 13% over the quarter. In line with our earlier guidance, this reduction includes around 20 basis points of burden from regulatory changes. Notably, the implementation of the EBA guideline on definition of default, partly offset by a reduction in our regulatory multiplier and market risk RWA. A slight offsetting improvement of the CET1 ratio came from a reduction in operational risk RWA, and the net impact of de-risking in the Capital Release Unit verses a small RWA increase in credit and market risk, reflecting client-related activity. With the 20 basis points RWA impact this quarter. We have now absorbed almost all regulatory-driven RWA inflation until the expected implementation of the final framework of Basel III in 2025. In upcoming quarters, we expect to see businesses usual model updates that, cumulatively, are expected to be capital ratio neutral.

CET1 capital was fairly stable in the quarter and now includes a deduction for common share dividends of EUR641 million to date. We still expect to end the year with a CET1 ratio of around 13%. As always, our capital outlook is subject to timing of pending regulatory decisions. However, the expected net effect of these decisions in the next quarter is now positive. Our fully loaded leverage ratio was 4. 8% unchanged from the prior quarter. Leverage exposure, excluding FX effects decreased by EUR6 billion quarter-on-quarter, reflecting continued deleveraging in our Capital Release Unit partially offset by growth in net loans and commitments. Our pro forma fully loaded leverage ratio, including certain ECB cash balances, was 4.4%. And on track to meet our 2022 goal based on the original definition by year-end.

With that, let’s now turn to performance in our businesses, starting with the Corporate Bank on Slide 17. Revenues in the third quarter were just over EUR1.25 billion, essentially flat year-on-year, but improved excluding episodic items. In the current quarter, the impact of episodic items was approximately EUR60 million lower than in the prior year. Excluding these effects underlying Corporate Bank revenues grew slightly as business initiatives and deposit repricing more than offset interest rate headwinds of approximately EUR40 million year-on-year.

At the end of the third quarter, charging agreements were in place on approximately EUR94 billion of deposits, which produced revenues of nearly EUR100 million in the quarter. The Corporate Bank grew loans by EUR5 billion year-on-year, mostly in Trade Finance within corporate treasury services. We continue to expect the combined effects of the moderation of interest rate headwinds based on current interest rate curves, the increase in quarterly contribution of deposit repricing, as well as business momentum and growth initiatives to support our revenue outlook for subsequent quarters.

And as previously mentioned, we expect our 2021 revenues to remain essentially flat compared to the prior year. Non-interest expenses decreased by 5%, mainly driven by lower restructuring litigation charges. While adjusted costs, excluding transformation charges, improved moderately. Provision for credit losses was at EUR10 million [Phonetic] over lease in the quarter, driven by continued low impairments compared to provisions of EUR41 million in the prior year quarter. Profit before tax in the Corporate Bank was EUR292 million, increasing by 57% year-on-year, while adjusted profit before tax, rose by 33% to EUR317 million. This equates to a 7.8% reported and an 8.6% adjusted post-tax return on tangible equity, and is the highest quarterly profit before tax since the launch of Deutsche Bank transformation in 2019.

Turning to revenues by business segment in the third quarter on Slide 18, corporate treasury services revenues of EUR755 million grew by 1% year-on-year. Charging agreements and other business initiatives more than offset interest rate headwinds and lower episodic items. Institutional Client Services revenues of EUR326 million grew by 2%. A solid underlying business growth was partly offset by lower episodic items. Business banking revenues of EUR174 million were 6% lower year-on-year as business growth and expanded charging agreements were more than offset by interest rate headwinds. We are continuing to progress the client-by-client process of entering into charging agreements for the predominantly euro-denominated, lower ticket size deposits in this area, and expect further positive effects in the coming quarters.

I will now turn to the investment bank on Slide 19. Revenues for the third quarter of 2021 decreased by 6% or 5% excluding specific items. Favorable performance in our financing and Origination & Advisory businesses was more than offset by lower revenue in our trading businesses. Compared to the third quarter of 2019, Investment Bank revenues are up 34% with both FIC and Origination & Advisory significantly higher. Non-interest expenses were essentially flat year-over-year as were adjusted costs excluding transformation charges, producing a cost income ratio of 60%. The Investment Bank generated a pre-tax profit of EUR3.4 billion and a return on tangible equity of 13.5% in the first nine months of the year, both material increases on the prior-year period.

Our loan balances increased, both quarter-on-quarter and year-on-year, primarily driven by higher loan originations across the financing businesses. Leverage exposure was higher, reflecting increased loan origination and lending commitments. The year-on-year increase in risk-weighted assets predominantly reflects the impact of regulatory inflation. Provision for credit losses of EUR37 million or 19 basis points of average loans were down year-on-year. The continued low level of provisions benefited from recovery of COVID-19 related impairments.

Turning to revenues by business segment on Slide 20. Revenues in fixed sales and trading decreased by 12% year-on-year. Strong performance in financing was offset by lower revenue in the trading businesses. Credit trading, core rates, and FX revenues saw solid client activity, which was offset by a normalization of market conditions and low volatility. Revenues in emerging markets were higher across all regions with continued year-on-year growth in both CEEMEA and Latin America. Revenues in Origination & Advisory were significantly higher versus prior year with revenue growth across the franchise. Debt origination revenues were higher. Strong performance in leverage debt capital markets continued more than offsetting a reduction in investment grade related revenues as issuance levels normalized. ESG continues to be a focus area.

We are Top five on a fee basis in global ESG related debt products. A 60-basis point market share gain compared with the full year 2020 based on Deologic data in a market which continues to grow. Equity origination revenues were significantly higher year-on-year, predominantly driven by de-SPAC activity and market share gains in IPOs, particularly EMEA. Significantly higher advisory revenues reflected continued growth in M&A activity. Deutsche Bank advised on nearly twice the number of deals in the third quarter compared to the same period last year.

Turning to the Private Bank on Slide 21. Revenues excluding specific items were just under EUR2 billion in the quarter, down 4% year-on-year, but up 1% if adjusted for EUR94 million of foregone revenues from the BGH ruling we mentioned earlier. Continued revenue momentum and investment products and mortgages offset interest rate headwinds of approximately EUR98 million year-on-year. As indicated, we expect these headwinds to be substantially lower next year. Adjusted costs, excluding transformation charges, were flat year-on-year. Cumulative savings of around 4% in the Private Bank direct cost base were partly offset by incremental costs for deposit protection schemes, as well as increases in technology spend and internal service cost allocations.

Provisions for credit losses were 15 basis points of average loans or EUR92 million and reduced by 47% year-on-year, benefiting from a release of a management overlay for uncertainties related to moratoria in Italy and Spain, tight risk discipline, and a high-quality loan book. The aforementioned implementation of definition of default model refinements impacted staging, but was neutral to CLPs in aggregate. With this, the Private Bank reported a pre-tax profit of EUR158 million. Adjusted for the aforementioned impact from the BGH Ruling, specific revenue items, as well as transformation-related effects of EUR64 million, the Private Bank would have achieved a profit before tax of EUR276 million in the quarter. On this basis, adjusted post-tax return on tangible equity was 6% in the quarter and 7% in the first nine months of the year.

Business volumes grew EUR9 billion in the quarter. With EUR6 billion of inflows in assets under management and EUR3 billion of net new client loans. With this, the Private Bank attracted EUR38 billion of net new business volumes after nine months, exceeding our full year target of more than EUR30 billion.

Turning to revenues by segment on Slide 22, revenues in the Private Bank Germany would have been up 1% year-on-year if adjusted for the temporary impact from the BGH ruling. Continued headwinds from deposit margin compression were compensated by growth in loan revenues and fee income from investment products. The business originated net new client loans of EUR3 billion, mainly in mortgages, and net inflows in investment products of EUR2 billion in the quarter. In the International Private Bank, net revenues increased by 6% or 1% if adjusted for specific items. The business attracted net inflows in investment products of EUR3 billion. Growth was especially pronounced in Germany and Italy.

Private Banking and Wealth Management revenues increased by 9% or 2% excluding specific items and FX translation as investment products and loans grew supported by previous hiring of relationship managers. Personal banking revenues decreased by 2% year-on-year as business growth and investments only partly compensated for deposit margin compression.

As you will have seen in their results, DWS had another successful quarter as shown on Slide 23. To remind you, the Asset Management segment on this slide includes certain items that are not part of the DWS stand-alone financials. Revenues grew by 17% versus the prior year. Primarily due to a strong increase in management fees of EUR85 million from improvements in equity markets, and six consecutive quarters of net inflows. Non-interest expenses increased by EUR58 million or 16% with adjusted costs excluding transformation charges up 17%. This reflects higher compensation costs, including variable compensation, higher asset servicing costs due to the increase in assets under management as well as investments in growth initiatives. The divisional cost income ratio remains stable at 63%. Profit before tax of EUR193 million in the quarter increased by 18% over the same period last year, driven by record assets under management, resulting in higher revenues.

Adjusted for transformation charges and restructuring and severance expenses, profit before tax increased by 16% year-on-year to EUR198 million. Assets under management of EUR880 billion have grown by EUR21 billion in the quarter, driven by net inflows and the positive impact of FX translation. Net flows in the quarter were EUR12 billion with inflows across all three product pillars: active, passive, and alternatives. The business attracted EUR5 billion of flows into ESG products during the quarter, demonstrating continued momentum in this area.

Turning to Corporate and other on Slide 24. Corporate and Other reported a pre-tax loss of EUR605 million in the quarter versus a pre-tax loss of EUR393 million in the prior-year quarter. The greater loss was driven by higher transformation-related charges of EUR495 million, which were not passed onto the divisions and are captured in the other line. In aggregate, these transformation charges should lower our group adjusted costs by around a EUR150 million per year from 2022. Funding and liquidity in the quarter compared to the prior-year period. Consistent with our prior guidance, funding and liquidity charges are expected to remain at around EUR250 million in 2021, The year-on-year improvement in valuation and timing differences was driven principally by a positive contribution from cross-country currency funding structures and interest rate basis effects, as well as non-recurring one-off events.

We can now turn to the Capital Release Unit on Slide 25. The Capital Release Unit recorded a loss before tax of EUR344 million in the quarter, a significant improvement on the prior-year quarter. Negative revenues in the quarter were driven by funding, risk management, and de-risking impacts that were partly offset by positive revenues from Prime Finance cost reimbursement. Adjusted costs excluding transformation charges declined by 27% versus the prior-year quarter, reflecting lower service cost allocations and lower compensation and non-compensation costs. We continue to make great strides in portfolio reduction, taking advantage of favorable market conditions to exit a number of aged or concentrated positions. We also intensified the pace of the Prime Finance transition in the quarter and transferred a number of large client relationships. By the end of October, we expect to have transferred about two-third of client balances.

Taken together, this led to a EUR10 billion reduction in leverage exposure in the quarter at a EUR2 billion reduction in risk-weighted assets, including operational risk. At the end of the third quarter, we recorded Capital Release Unit RWA of EUR30 billion, including EUR22 billion of operational risk RWA. Since the second quarter of 2019, the division has reduced leverage exposure by 76% or EUR188 billion, and RWA by 53% or EUR34 billion. We have now achieved our 2022 target for RWA and expect to be at or ahead of our 2022 target for leverage exposure by year-end 2021. This includes completing the transition of our Prime Finance platform. We expect this transition to release over EUR20 billion of incremental leverage exposure in the fourth quarter this year.

For the remainder of the year, we expect negative revenues in the Capital Release Unit, and we are on track to hit the cost reduction targets we set out at the last Investor Deep Dive.

Turning finally to the outlook on Slide 26. We see continued momentum toward our 2022 revenue ambitions given the resilience and growth in our core businesses. The credit environment remains supportive and we expect provisions of below 15 basis points of average loans for the full year based on our current views. We expect macroeconomic growth to slow in 2022 from the exceptionally strong levels this year, and CLP levels to partially normalize. Our credit portfolio or quality remained strong and we are well-positioned to manage emerging risks, including supply chain disruptions and potential policy tightening. We’re focused on the cost measures we have underway, and by year-end, we expect to have booked the majority of our transformation-related effects in what has been an investment year supporting our 70% cost income ratio target for 2022.

As I’ve said before, we expect to end the year with a CET1 ratio of around 13% above our target of 12.5% despite booking almost all of our estimated EUR8.8 billion of transformation-related effects and absorbing substantially all of the regulatory-driven inflation prior to the Basel III final framework implementation. On the leverage ratio, we feel confident we are on track to finish the year around 4.5%. Based on the original definition of leverage exposure, that is including all central bank balances. The CET1 capital calculation reflects the common share dividend deduction of over EUR600 million for possible future distributions from the nine months 2021 earnings under the standard ECB rules; this starts us on a clear path to return EUR5 billion of capital from 2020 overtime.

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

Ioana PatrinicheHead of Investor Relation

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

Questions and Answers:

Operator

Ladies and gentlemen, at this time we’ll begin the question-and-answer session. [Operator Instructions] And one moment for the first question, please. The first question is on the line of Daniele Brupbacher of UBS. Please go ahead.

Daniele BrupbacherUBS — Analyst

Good afternoon and thank you. I had questions on revenues. At the Deep Dive last year, you gave quite some detailed guidance and outlook for the group and the various divisions and obviously since then a few things changed. As I was wondering whether you could firstly talk about revenues last 12 months, I think that’s a quite relevant metric up nicely. How do you think about that now backward-looking and forward-looking in terms of mix and where you see the key drivers here, just a bit of an updated view here. And then secondly, there is a rate headwinds and tailwinds and the if I recall correctly at the recent conference, you quantified the headwinds this year, something like EUR400 million of which a bit more than half is in the Corporate Bank, if I recall correctly, they should go away this year and then just now you talked about the EUR150 million and EUR500 million from the Yield Curve Shifts. Can you just air these all up again for me and how this will hit the P&L and in which divisions and how we should model that? That will be super useful. Thank you.

Christian SewingChief Executive Officer

Thank you, Daniele and good hearing you. Thank you for your question. Let me take the first part on the January revenue also, looking back at last year’s IDD performance this year and then kind of where we see tracking to the target, which we have given in last year’s IDD and James will, then, cover in particular the more specific question to the interest rates and the headwinds which we had and how this develops. Now, let me say, again, and let me really reiterate that, that we are very satisfied with the revenue picture which we have seen since the IDD in December 2020. I think for the last 12 months, these 12 months have shown a very good picture. And secondly, and most importantly to us, they clearly indicate an underlying sustainability of the revenues and debt in each and every business, but in particular, in the Investment Bank. If I look back for all the last three quarters, be it March, be it June, or now September and then I take a 12-month look, we have shown always approximately EUR25 billion of revenues for the group, which on group level, first of all, clearly indicates that our view and guidance for 2022 from the last IDD is absolutely in reach and in our view, absolutely doable.

And let me explain that a little bit more in detail when I go through the individual business. But start with Asset Management, I think a very robust story not only, by the way in Q3, but to your question for the whole year, Asset Management outperformed in Q1 and Q2, now, also in Q3. On the back of the rising assets under management, stable revenues, and overall, we see now kind of a revenue outlook for this year of EUR2.5 billion to EUR2.6 billion. And that makes me highly confident that we can achieve our goal, obviously, of the IDD of EUR2.3 billion, which was our goal in the IDD in 2022. Q4 in Asset Management again started well. So, in this regard, I can’t see kind of any downside to our numbers. And therefore, I see that we have a clear chance to outperform if I compare the next 12 months or 2022 toward the goal which we have stated in the IDD. Private Bank, also here in my view a very solid story, in particular if you take Daniele three items into account. Number one, the impact of the German court ruling. We always said that this is impacting us next to reserves which we built in Q2 but in the running revenues was approximately EUR100 million or EUR96 million a quarter in Q2 and in Q3.

We have achieved now a good degree of content. So that will fall away over the next quarters. Secondly, James will outline that also with regard to your second question, the headwind from interest rates will be materially lesser in the next year. So, we always have to take this into account if we see the running numbers for 2021 in the PB. And lastly, which is for me and for all of us, obviously, the nicer story, the underlying business in particular and in lending and in the investment, business is higher than we expected, is higher than we planned. We overachieved our goals in this regard after nine months, which we had for 12 months. So, if I take all these items into account, I think it’s almost self-explanatory that we get to the EUR8.3 billion number, which we indicated at the IDD in 2020, IE for the year 2022. So also, there, I do think that we are well on track. And if we continue to do the business operating in terms of lending and investments, I even see further upside. Corporate Bank also here. Let me first start with the strong underlying business story, which we in particular have seen in Q3, I’m quite happy with that. What we promised in Q2, we always said Q2 is the lowest quarter, Q3 is clearly a recovery. And that on the back, in particular, off a stronger financing and credits business in Q3.

And looking at the German economy, looking at the mood in the Corporate and our clients, I can see that demand will continue also in Q4 and also in 2022. Now, if I now add to this, the interest rate headwinds for CB, which almost fully fall away in 2022 and you take into account the quite successful story which we have on the deposit repricing, which brings on an annual basis almost EUR400 million of revenues. I think also there is a clear story at a clear bridge to the IDD target for 2022 or EUR5.5 billion. So also, here, I’m confident that we can achieve that and don’t underestimate that two rating upgrades, in particular two rating upgrades of Fitch and Moody’s obviously helped two business in particular, that is the IB, and I’m coming to that in a second, but also the Corporate Bank, so also there is upside.

So, all in all in the so-called three stable business, we have either hit the plan or are in line with plan, or we even overachieved and I can’t see that changing for the next 12 to 15 months. Now, let’s come to the IB. Also, there, I think you should have my impression and that is that Q3 is nothing more than clear evidence that our Investment Bank is clearly set up to our strengths at Deutsche Bank, and that we have achieved one thing which was always questionable, but that is sustainable growth and I can’t see that actually stopping. And now if we look at the last 12 months numbers for the Investment Bank and compare that to the IDD plan for 2022, then we targeted in the IDD for 2022, EUR8.6 billion for the last 12 months in Q1 or in Q2 and in Q3, we were in between EUR9.7 billion and EUR10 billion. Even if we now say there was — in particular, high market volatility in Q1, and it was not normalized, but we saw the normalization already in Q3, these numbers are obviously telling us the story. And if we then compare that to the EUR8.6 billion number which we target for 2022, we simply believe that this number is achievable, Why? Because I look into today’s O&A pipeline and at the same for financing, looks very robust, looks very healthy, and therefore, I have a view obviously on the fourth-quarter and also on the start of 2022. Obviously, the rating upgrades by Fitch and Moody’s are helping enormously.

I already told you in the previous discussions that clients are coming back to Deutsche Bank based on our recovery but, obviously, two rating upgrades from two agencies helps a lot and we see further positive evolution in this regard. October activity is very robust across the business in the IB. And also, the overall momentum with making good hires clearly tell me there is a momentum we need in order to achieve our EUR8.6 billion goals in 2022. This year, we will be well above EUR9 billion, kind of in-line with last year, potentially even some upside. So, we have the right setup, we have the right people, we have the right momentum. And therefore, if we cannot achieve the EUR8.6 billion next year in that business, I tell you, I would be severely disappointed and I can’t see that happening. So, there is upside in this number.

So, if you add this all together, then I think we show sustainability of the revenue momentum and be that we are highly confident to achieve that what James and I indicated over the last quarters, and that is EUR25 billion or better number next year in revenues.

James von MoltkeChief Financial Officer

It’s James on the interest rate side. We’ve talked a lot about the headwinds we’ve been fighting through. At the group level this year, it will have represented over EUR700 million. The EUR400 million number, you remember, is for the Private Bank alone. And there’s about another 250 in the Corporate Bank and the rest is in capital investments in IB, so it’s a considerable headwind. In the third quarter, it is about ratable. So, we had about EUR100 million year-on-year headwind in the Private Bank from interest rates, deposit hedges, if you like. And about EUR50 million in Corporate Bank so that’s playing through our numbers. We talked about EUR150 million of upside in ’22 and a lot more as time goes by, over EUR525 million in our prepared remarks that reflects the change between today’s interest rate curve and the curve we built our last year’s plan on. It splits about 50-50 based on the keys between the Private Bank and the Corporate Bank. But it of course, underlies our statements that this interest rate headwind will more than half for the PB next year and be effectively neutralized for the Corporate Bank next year.

Daniele BrupbacherUBS — Analyst

Thank you. So, we’d [indecipherable] the IDTs. So, the EUR150 million, I shouldn’t add it to the EUR700 million or detail just kept this right now [Phonetic].

James von MoltkeChief Financial Officer

No. You — it is — the EUR700 million is behind us, or practically behind us.

Daniele BrupbacherUBS — Analyst

Okay.

James von MoltkeChief Financial Officer

I think about the EUR150 million as part of the reason — as Christian went through in the businesses, we see support for our revenue outlook for next year.

Daniele BrupbacherUBS — Analyst

Got it. Thank you very much.

James von MoltkeChief Financial Officer

Thank you, Daniele.

Operator

The next question is from the line of Andrew Lim of Societe Generale. Please go ahead.

Andrew LimSociete Generale — Analyst

Hi, good afternoon. Thanks for taking my questions. So, it seems like the bulk of the EUR700 million transformation costs were taken in at the 3Q. I was just trying to marry that up with the transformation guidance on Slide 38. How should we think about the quantum of transformation costs in the fourth quarter and then subsequent quarters in 2022? That’s all. My first question. And then secondly, there’s been a lot of speculation about how you might expand the DIB business by products and also geographically. Perhaps this maybe front running what happened in March in your Deep Dive, but maybe you can give a bit of color about your thoughts there, whether it’d be Commodities Trading or a bigger footprint in the U.S. for example? Many thanks.

James von MoltkeChief Financial Officer

Sure, Andrew, it’s James. I will take the first one. Yeah, you referred to Slide 38 where we work to give you the best view, we have on expected future transformation charges. Just for — for Q4 purposes, I would build about EUR500 million [Phonetic] into your models split between transformation charges and restructuring and severance. And that would leave, as you see on the page here, about EUR300 million still to be booked in 2022. Of course, we’re doing everything we can to minimize the ’22 burden and book what we can in ’21, but it depends on the visibility and the accounting treatment of those items. But if you just do the math on it, you would think about 97% of the total EUR8.8 billion is booked by the end of the year. And Andrew —

Andrew LimSociete Generale — Analyst

Sorry, just on that point. Sorry about that. But the EUR300 million for ’22, awfully, more front ended in the year rather than spaced out?

James von MoltkeChief Financial Officer

It’s sort of ratable based on what’s — what’s going on and it’s still in the books next year. I wouldn’t think of it as front ended, but again, we’re trying to minimize it. I would think of it as — you can nearly disregard it next year and I believe we look forward to not really talking about it. But on consistent sort of accounting definitions, we trace it all through to next year and the full program.

Andrew LimSociete Generale — Analyst

Great, thanks.

Christian SewingChief Executive Officer

And Andrew, to your second question on IB and the speculation, let me be very clear we want to grow there where we have decided to be in. I think for the last 2.5 years, we have clearly shown that these are the strengths of Deutsche Bank, be it in those areas we are in the Origination & Advisory business. The financing and the trading business. Now within that, obviously we are doing further investments, for instance, in the further franchise built in core rates, in our Flow Credit development. Obviously, we’re investing quite heavily in our workflow solutions, in particular, in the fixed business. We are — as I said in my first answer, that we have a very good momentum in hiring bankers in those industries where we think we have the expertise and our clients are concentrated so that we can obviously generate more mandates in the Origination & Advisory business.

And again, we see the evidence. And then obviously, we are trying to grow in the whole field of EAC and also there we have seen good momentum. Everything else is not in our view, at least at this point in time, because we believe we have found our spot. We grow there, we take market share there, we defended it even in normalized markets and that’s what we are all about to do.

Andrew LimSociete Generale — Analyst

Thanks, Christian.

Operator

The next question is from the line of Nicolas Payen of Kepler Cheuvreux, please go ahead.

Nicolas PayenKepler Cheuvreux — Analyst

Yes. Good afternoon. Thanks for taking my question. The first one will be on costs and looking at your 70% cost income ratio targets for 2022 and your current firm rate of EUR19 billion of adjusted costs, X-transformation charges. Where do you see the biggest improvement drivers to reach your target? And how much of these are already backed into your current costs run rates? And the second question on distribution, because your year-marked EUR5 billion for distribution starting in 2022. And I just wanted to know, what’s the timeframe for this to happen, and should we think about 2025? And the finalization of other three — other good proxy? Thank you very much.

James von MoltkeChief Financial Officer

Sure, Nicolas Payen, James. Look, we’re very focused. I have to say laser-focused on capturing a run rate in Q4 and then through 2022 that supports our targets. We’ve been working on that as you can imagine for quite some time. And putting in place the measures as we’ve described, both last quarter and this quarter, that can help to drive that. I think if you — if you specifically at areas that drive the run rate from now down by Q1. It will be particularly in the technology area in part reflecting the charges we took this quarter, but also reflecting the benefits of some of the investments. And if you like — the roll-off of things, we’ve been working on for some time. We’re also close to crystallizing some expense saves in our infrastructure areas. Again, as we’ve completed projects and move to a BAU type of state in some of the areas where we’ve been focused on remediation for the past several years. Then there’s the real estate, we’ve talked a fair amount about real estate which contributes next year significantly. And as you’ve seen, we will have spent all together about EUR600 million of transformation charges in the real estate area. We’re really pleased in — with what that’s delivered in terms of the footprint we operate within our future-proofed portfolio from here.

And there’s some benefits flowing through already in the first quarter from that, including incidentally, ending the double rent period in New York. So, lots of things that were tracking through in the run rate as we drive toward our ’22 views. On distributions, it’s frankly too early to say. We’re working through that as we finalize our planning, finalize the results for ’21, I think we’re confident about our ability to move to meaningful distributions next year, which has been our plan really since we embarked on this program back in 2019. And I think the deduction from CET1 of EUR640 million that we have today is clear evidence of the — of our wherewithal our ability to support distributions next year, it’s just too early to say how much and what form it will take.

Nicolas PayenKepler Cheuvreux — Analyst

All right, thank you.

Operator

The next question is from the line of Jeremy Sigee of Exane, BNP Paribas. Please go ahead.

Jeremy SigeeExane — Analyst

Thank you. Just a couple of questions, please. Following up on things that you’ve touched on. So, the first one was just kind of back-offs to BGH impact. I was a little surprised that it’s unchanged quarter-on-quarter. I thought we would be seeing some benefit already because it sounded like you are already implementing new contracts with customers a quarter ago. So, I thought we might be seeing some benefit come through, so I wonder if you could talk about the timing and in particular, whether we expect that to be back to normal in 4Q, or how much longer you think it might take to get those revenues back on stream? And then the second question, just circling back to the Investor Deep Dive that you said you will do in March next year. I just wondered how you see the balance of that in terms of starting to talk about plans beyond 2022 versus still focusing on how you achieve the 2022 targets?

James von MoltkeChief Financial Officer

Sure, Jeremy, I’m happy to go into that. So firstly, on the BGH ruling. The client consents that we send out, all had October 1st as an effective date, and that’s for both legal and operational reasons. So, they — the two-thirds of responses that we’ve gotten allows us to switch those on from the beginning of this month. And the additional responses we get in Q4 equally will be in that case backdated to October 1st. So, if you assume that we’ll be at let’s say an 80% response rate than in round numbers, EUR80 million of the loss, EUR100 million will be back in the run rate this quarter. And we’re — and we would work to then close out the rest as time goes on. Some of that may be moving accounts out of the bank. Some of it may be restructuring our relationships with clients in other ways. But we have, I think, a pretty high degree of confidence at this points that 80 of the 100 will be back. The delay, as I say, was intended from the very start when we first gave guidance on this in June, reflected that effective date.

On the IDD, Christian may want to add to this, but we want to talk about the things we’ve done. The trajectory that remains to be achieved to ’22 and certainly that’s part of our agenda, but I think the larger part of the agenda will be how we have positioned the Company through this transformation for strategic and financial performance from 22 onwards. There’s nothing to it.

Jeremy SigeeExane — Analyst

Okay, I look forward to it. Thank you.

Operator

The next question is from the line of Magdalena Stoklosa of Morgan Stanley. Please go ahead.

Magdalena StoklosaMorgan Stanley — Analyst

Thanks very much. I have got three questions, if I may? So, I’ll run through them quite quickly. The cost reductions for next year, the planned cost reductions for next year broadly imply your adjusted costs being down by EUR1.5 billion. And of course, you’ve mentioned some of the things that are kind of rolling off, IT projects, real estate savings, and so forth. But if you look at it, it’s slightly differently per business. The biggest dent year-on-year between ’21 and ’22, is effectively into places, CRU and the Private Bank. And I’d like to talk to particularly about the Private Bank. What’s that — there are a couple of things which are still on going, particularly in Germany. How should we think about that cost base next year? But of course, also rolling forward. There where — there was a news flow, of course, about bank closures. You’ve got some mega projects from the perspective of putting Post Bank and the Deutsche Bank, and the firm together. That has been going on for a good few years. Also, we think about that cost base going forward to further out than ’22. My second question is really about your AUM rotation because you’re showing very decent numbers in terms of inflows into your wealth investment products, literally quarter-on-quarter.

And I’m just curious, how much of it is effectively a deposit flow versus just an investment flow, i.e. Are you actually seeing better, deeper rotation into investment products? And my last one is really about ESG because I mean, a huge thing for you. You’ve talked about this within the context of the group. You’ve talked about that within the context of ID. When do you actually see the biggest opportunity? Because, of course, at the moment, the biggest market, the biggest issuance, of course, is happening in Europe, but how is your footprint in Asia and U.S. responding to that too? Thank you.

James von MoltkeChief Financial Officer

Sure. Thank you for the questions, Magdalena, a lot to get into there. You’re right that on a segment disclosure perspective, that there are big moves in CRU also PB, also elsewhere, by the way, as the infrastructure cost base, which can capsulate not just IT, but other support functions. as we continue to harvest cost-savings there, it’s invisible in all of the functions, all of the segments. CRU would be moving down from about EUR1.2 billion this year based on our IDD numbers last year to EUR800 million. We think we’ll beat that at this point. When we talk to you again in March, will be better than that target when we get there. PB Germany, as you say, is a big part of where our efforts are focused at the moment. You will have seen us announce and by the way, taken relatively significant restructuring and severance charges in the PB area, but announced a series of workers council agreements, the balance of interest and also actions whether it’s your head office restructuring, operations restructurings, branch reductions, and the like. And they’re all being executed as we speak. It is a gradual decline, it takes time. You do it, sort of, one-by-one in terms of both employees leaving the platform branches being shot and other actions being taken, but we do think we’re on a good glide path there.

And to the earlier question from Andrew, the transformation costs will be almost entirely behind us to support that going forward. The technology piece in PB Germany will still be a burden next year. And that’s what we updated you on last December, relative to our earlier plans. There were engaged in a significant exercise of Core Bank conversion to put the Post Bank onto the business, onto the same systems as the existing Deutsche Bank systems. That investment is ongoing next year and the benefits from that then are visible in only in ’23. But we think we have that funded in our plans and we’re executing on that. And as you recall the Post Bank systems sale was one of the actions, we took to ensure that we — that we’re well prepared.

On the AUM rotation, it’s interesting. We’ve been looking at that disclosure. What you see is increases in AUM and new inflows in PB. But relatively static levels of deposit balances that are in accounts that support investment activity which in a sense is bullish because it means that the available deposit funding that our clients have to put to work and investment products is still there, is unchanged. We’re finding that discussion to be a very positive discussion today as we go through, for example, repricing discussions, talk about, again, the need to put in positive consent in those businesses. It creates, if you like, a sales opening to have a dialogue with our clients about moving more into I’m products. So, we see it as a — I don’t want to say it’s a limitless opportunity, but it is a significant opportunity as the German saver continues to react to better return opportunities outside of the deposit products, and frankly, the banking industry as a whole reprices the deposit product to make it harder to hold.

Christian SewingChief Executive Officer

And to your second question, look, ESG is overall, in our view material opportunity for us. And first of all, because that is one of the few areas where Europe as a region is overall leading. And obviously that place then into our card because the whole transformation into a green economy needs to be financed. And obviously, then European banks have a big chance and should tap into the opportunity to get a big part out of this. I would actually describe it in four areas where we can succeed and where we do see actually a progress. Number one, it’s in the issuances, in particular, in the capital markets business. You are right, Europe is leading there. I mean, we have one of the leading market positions in the issuances, not only in terms of green bonds, but in particular also bonds which are attached to a social housings. Just the mandates, we also and where we are public with — which we have shown in October show what the market position of Deutsche Bank is. But with the knowledge we have now accumulated, with the global approach in which we’re driving that in each and every business, but with the center function overlooking and coordinating that, we have great success now also in the U.S. and in Asia.

So, I think that what we see in Europe, we can repeat and we see that in the numbers that we actually have good progress also in the other two regions. Secondly, we are not talking a lot about this, but we should talk more about this, the demand of our wealth management and private banking clients in ESG investments is simply huge. And you see it in the DWS numbers, but also in the wealth management numbers, the Ask, and when our assets under management are rising, the share of ESG bonds and sustainability bonds is big.

If you then have on the other hand, also the origination in house on the investment banking side, obviously, again, a big opportunity for us. Third, the discussions with each and every corporate client, be it in Germany or in Europe, is always centered around sustainability and how we as the bank can finance the transformation of the corporate actually into the green economy. And that is — that also includes not only the financing in terms of traditional parts and how we can help you as the clients, but also, we’re offering new products. Asset as a service, we discussed it in some of the previous calls, but actually a service from us that corporates and clients are only paying actually for what they really used and what they use in the day-to-day business, is actually a big contributor also in terms of sustainable economy and what we can offer from a bank. So new products are rising. And last, but not least, don’t underestimate actually the mandates we have on the advisory side because a lot in particularly if you look at the goals, we have, set our sales for the economy. But also, here, in particular for Europe, a lot of corporates are thinking in terms of M&A, what they can dispose, what they can buy, how they can reset up the group and that is, again, something where we, as a bank, want to be close to, are close to.

So, a lot of mandates which we’re winning are actually on the back of ESG mindset and ESG thinking, a sustainable thinking of our corporate line. And therefore, I do think it’s not a surprise that at the end of the third quarter, we’re spending, I think, at EUR127 billion or EUR126 billion in terms of finance and investments on our go to EUR200 billion by the end of 2023. We have, on average, we have seen EUR25 billion of net new financing and investments in the business. So, one of the key themes which we’re following up and which will also shape the future and also our business strategy going forward.

Magdalena StoklosaMorgan Stanley — Analyst

Thank you very much.

Operator

The next question is from the line of Stuart Graham of Autonomous Research LLP, please go ahead.

Stuart GrahamAutonomous Research LLP — Analyst

Hi, thank you for taking my questions, I have two. First, can you tell us what the ZIM impact was in FIC revenues in Q3, please? And then second, you’ve talked about the EUR500 million revenue uplift from rate, which I guess links into your rate sensitivity slide on Slide 41. My question is, how does that take account of the deposit charging fees on Slide 39? I guess, if interest rates actually go up one day, you get the higher NII from Slide 41, but you lose the fee income on Slide 39, so is that assumption, correct? And is the EUR500 million you talked about, is that gross or net of loss deposit charging fees in due course? Thank you.

James von MoltkeChief Financial Officer

Thanks, Stuart. The interest rate question is a really interesting one. Let me start with them. It was about EUR100 million in the quarter of revenues recognized. It ran, therefore, relatively similar rates to the first couple of quarters of the year in terms of the increment, call it 5% to revenues. Actually, in this quarter, there were some offsetting items in the credit trading businesses that went the other direction. So, I wouldn’t think of this quarter’s credit performance as necessarily being out of line with what we’d see in a typical quarter in normalized market environments, but that’s the answer on ZIM. In terms of the rates, so yes, we’re showing the interest rate sensitivity in the first and second years to a 100-basis point parallel shift. The effect of deposit repricing, in a sense, is to make those liabilities, floating rates. So, a significant part of the rate sensitivity that you’ve seen come out of our disclosures over the past couple of years, has been the impact on that interest rate risk of taking a large portion of the liabilities and making them floating.

What isn’t reflected in our models at this point is behavioral change. So, the really interesting question is as we potentially lock in rates with zero being the cap in the same way it was for far too long with a floor, our rate sensitivity ultimately would be much higher than we are showing on the page. And so, while we would lose some revenue, it’s baked into this between minus $0.50 and zero. We think the upside leverage above zero is in fact much higher than you’d be showing on the page. I hope that gets to your question.

Stuart GrahamAutonomous Research LLP — Analyst

The slide is a net interest income slide, so how do you capture the element in that?

James von MoltkeChief Financial Officer

It’s essentially captured in it. And at this point, the fee piece on the PB side is a relatively small portion of it. So, it’s — this is the net interest income impact, I think, you can, for practical purposes, disregard any fee income impact at this point.

Stuart GrahamAutonomous Research LLP — Analyst

Okay. All right, cool. Thank you very much.

James von MoltkeChief Financial Officer

My pleasure.

Operator

The next question is from the line of Tom Hallett of KBW. Please go ahead.

Tom HallettKBW — Analyst

Hi, guys. A couple questions from me, please. So DWS has had some recent travels around ESG disclosures. I was just wondering if that could be a blow back on Deutsche and a wider business have regulated, reached out, and what is the reaction among clients been? And then on your corporate lending growth, which seems to picking up margins also certainly in Germany between the front and back book is nearly converged. Does not mean we’ve assessed the found the floor in revenues and upside is really just a function of volume price rights. And obviously on-going repricing efforts. And do you think there is an opportunity to improve the spread on corporate loans or does the competitive environment stop that from happening? And maybe just sneakily just follow-up to that previous point around them, you said there was some offsetting items in the trading. What sort of things were they? Thank you.

Christian SewingChief Executive Officer

Look on the DWS, you will understand that we will not respond to that. We can only refer to the clear statement DWS has given in public and rejected the allegations. I think the number in Q3 for the DB group and which I just repeated, the EUR127 billion shows that there is no negative impact on our business. Again, I think the DWS business performance in Q3 also speaks for itself. But obviously, we make sure and we have made sure. Also, for Deutsche Bank, that we have a clear governance and reporting structure about our ESG reporting and how we are doing the validation of transaction so we feel comfortable with that. And there is no more to say.

James von MoltkeChief Financial Officer

So, on the Corporate Lending, we’ve been looking at this and actually as you say that the spreads have held up quite well and perhaps surprisingly well in recent quarters so we’re encouraged by that. I’m not sure I would bet on expanding spreads and margins on that lending at this point, but we do see some stability and of course, lending opportunities in the CB area. Also, good opportunities in IB, for what it’s worth, in our financing business, at least in the very near term, we see opportunity to deploy the balance sheet at attractive spreads. And spreads have also had a held up in the PB books in Germany. So, all-in-all, I’d say encouraging spread development and for Corporate Bank, I don’t see any difference and we’re encouraged as we’ve said, by the loan growth.

On the ZIM offsets, I don’t want to grow — go into each transaction and position. It was a handful of smaller positions which I think collectively we’d see as offsetting in terms of market events to the ZIM and gets you to a relatively normalized performance and credit.

Tom HallettKBW — Analyst

I guess, thank you.

Operator

The next question is from the line of Adam Terelak of media bunker, please go ahead.

Adam Terelakmedia bunker — Analyst

I think for the question, I’ve got two. Following up on NII and the Corporate Bank. On the NII, EUR500 million you referenced on the — on the forward curve. Can you [indecipherable] how much of that is kind of long-end rates versus short-term movement in the ECB rates? And then in the Corporate Bank, I want a bit more color on the episodic items. Clearly, it’s a volatile line item. Your saying it’s down quite materially year-over-year. But could you kind of size it for this call to get an idea of modeling it going forward. And what does that look like into next year? And then finally of some corporate banks, you’re talking about flat revenues year-over-year, did it upset a big uptick in the fourth quarter revenues when normally on a bit seasonality, would that be down for these episodic items? Thank you.

James von MoltkeChief Financial Officer

Thank you, Adam, for the question. So, it’s been predominantly long-end movements since — if I compare the rate curve snap last year to this year. So relatively little, as we say, is fed into the ’22, some, but it increases markedly in the years thereafter. We like, I think, many banks are more sensitive to the front end but the long-end has helped us and we will do so increasingly in the years to come. On the CB side with respect to episodic revenues, we’ve talked in the past that they would tend to vary between say, EUR50 million and EUR100 million. There’s the occasional quarter where they will be zero or close to zero and the occasional quarter where it exceeds EUR100 million but by and large it comes in that range. This quarter year-on-year, it represented about EUR60 million of headwinds. The types of activity you see there, some of it is, we call it portfolio rebalancing actions.

So, when there is a shift that we do in — from a risk management perspective in treasury producers’ revenues, or goes the other way, that can flow through recoveries on credit, on collateralized loan, obligations, go in it some credit insurance, those are the types of events or sometimes one-off, larger inception fees on transactions we would treat as episodic. So, it’s all matters that are inherent in the business, but create a little bit of volatility if you like, waves on top of the tide and can help or hurt in a given quarter. Both an absolute and in variance terms. On the —

Adam Terelakmedia bunker — Analyst

Follow-up on the [indecipherable] it’s obviously you talked about the forward curve and the shift in the forward curve. Is much of that benefit on short-term rates and not by 2025 [Phonetic].

James von MoltkeChief Financial Officer

No, as I say, not — by 2025? Yes, it is — it moves a little bit. I think that it crosses the zero bound by sometime in ’24. I think early ’24 was the latest snap, but I’d have to look at it again and it’s something that we update obviously frequently. So, it is helping to the conversation I had with Stuart; is it — are we at the point where the greater leverage kicks in based on the current curves by ’25? Not even yet at that point, but it is significant upside leverage. You see it captured in the 100 basis points parallel shift analysis in the detailed interest rate risk management numbers we do, I mean, the cumulative effect of these interest rate curves goes easily into the billions over a five-year horizon, well into the billions. So, we see a lot of operating leverage to come for ourselves and, of course, other banks as the yield curve, if you like, normalizes. And in CB with respect to the balance of the year, it’s not a big bet on episodic.

They’ll be within a range but we’re seeing the momentum we’ve been calling for a while. Whether it’s loan growth, whether it’s more deposit repricing, underlying transactions, increasing benefits from some of the investments we’ve been making. We’re looking at it in a very focused way on how we’re building the run rate in that business, other treasury improvements that flow-through to Corporate Bank. All of those things are what we’re looking for to move that run rate closer to the delivery of the 5.5 that Christian talked about earlier.

Adam Terelakmedia bunker — Analyst

All right. Thank you.

Operator

The next question is from the line of Anke Reingen of RBC, please go ahead.

Anke ReingenRBC — Analyst

Thank you very much for m question. The first is with respect to inflation and if you consider the size of concern of a headwind to your cost base, and especially considering about question increased wages in Germany by 3%, 4%. And then secondly, just on the Basel IV impacts of previously guided at the Investor Day, given that document is now out, just wonder if you can come from that? Thank you very much.

James von MoltkeChief Financial Officer

Sure, Anke. Thanks for the questions. Again, both meaty topics and I’ll try to be as brief as I can. Hard to say at this point how much inflation impacts are cost base, for example, next year. It’s one of the things we’re watching. We need to work to offset. We — the one item you cite is an important one, the conclusion of negotiations for the tariff staff in Germany is a relatively important assumption as we look to the 1-year forward. The rest of the cost base is very varied in how it performs. One of I think the positives of having pursued our transformation at the time that we did, we’ve actually locked in certain of our expenses at a time when that inflation wasn’t present. So, when I say future approved, for example, on the real estate portfolio, some of our contracts for IT, some of our longer-term contracts that we’ve been recruiting, that provides a little bit of stability in our cost base that hopefully will shield us to some extent in the early years. Of course, further out, these inflationary pressures will, if they persist — will have a bigger impact.

The banking business model should be — to a significant perspective, respect protected from that as rates shift and that operating leverage arises. But labor costs, as an example, is something that we’re looking at very carefully, not just in Germany, but all around the world. On the Basel III final framework, that’s obviously something we’ve been following very carefully. We’ve been also very engaged in advocacy and dialogue with the official sector. We’d be looking at the legislative proposal that was published earlier today, and obviously had worked hard on what we’ve learned prior to the official public. I guess the early snapshot for us is it confirms some of the earlier guidance that we provided to you. So, we thought that the first round of impact was about EUR25 billion as we sized it. For the most part, that’s come in as we’d expected and at this point, I’d probably say that EUR25 billion number we gave you before is a good number.

It does move out a year, though, relative to our earlier assumptions, which is helpful for us in terms of the glide path to get there. And then as we look further out to the impact of the output floor, I think it would confirm at this point the sort of more optimistic end of our range that we provided. So, we’d like to think of only about a 10% further inflation relative to the current level of risk-weighted assets. As that output floor begins to bite, it does move back based on the proposal as we read it, the point in time at which the output floor begins to bite for us. It means the transition time in terms of Balance Sheet makes business model and obviously the capital build to offset that increase in capital requirements.

This is all, I think, quite helpful. We welcome the legislative proposal, the clarity that it provides, the extent to which we think the European Commission has taken on board some of the feedback and helping the banking sector to balance the goals of the Basel III final framework with the nature of European banking and the need for the banking sector to support economic growth. So, there are a number of features, whether it’s operational risk for treatment of underrated corporates. The multipliers applied to Sakar and on and on where we think there are some very good proposals in that legislation and we look forward to continuing to work with the official sector on the legislation as it goes from the initial draft.

Anke ReingenRBC — Analyst

Thank you very much.

Operator

The next question is from the line of Kian Abouhossein of JPMorgan. Please go ahead.

Kian AbouhosseinJPMorgan — Analyst

Yes. Thanks for taking my questions. Two of them. One is on the Corporate and Other divisions. You mentioned in your prepared remarks, I think on Page 18, about EUR150 million per year adjusted cost savings from 2022 onwards. And just wondering if this is coming on the existing cost programs, so is this a growth or is that a net number? And then, the second question is, you clearly speak very comfortably and is confident that you will reach your fixed income guidance of EUR6.7 billion next year. And I just wonder what assumptions do you to take in terms of credit environment in particular. So, high-yield levels, spread volatility, issuance levels in terms of refi. Can you share with us a little bit your input data to make that assumption considering its clearly very credit heavy number to achieve so that’s why I’m interested in the credit inputs.

James von MoltkeChief Financial Officer

Sure. Thank you, Kian. So, it looks EUR150 million was incremental when we talked in the summer about, we’ve been working on incremental actions to offset some of the volume and control investment pressures that we were seeing. That is one of those actions. We’re working on more And hence, as — when I updated the guidance back in September, it was EUR700 million, so there are additional measures that we’ve been working on and intend to implement. But the EUR150 million was part of that increment that we started talking about in the summer.

Christian SewingChief Executive Officer

Kian, the overall fixed income number and our confidence in that and potentially even with some upside to that number. First of all, derived from the foundation which we have now built for the last two years. I think one shall not underestimate the platform we have now built, in terms of setup, in terms of having the right people, the clear focused strategy. And most importantly, clients coming back to Deutsche Bank and trading with us, that was a different — three years ago, that was the difference two years ago. And we see an ongoing momentum in this regard and therefore, we’re very positive that this is obviously continuing into 2022. From an overall credit point of view, I think we still see and we expect resilient markets into 2022. Of course, you will always have the risk or certain event risks, like we have seen now, in China, in certain sectors. But this is exactly where our strength is and where we have an expertise on the first line of defense and second line of defense in terms of having the skill set in dealing with that, that we think there are even opportunities for us.

So, it’s not only the normal credit business being on a secured basis, but also in distressed debt, there are a lot of opportunities we can look into. And if there again, look at the pipeline we have against an overall resilient picture, which I can see over the next 15 months with the underlying and underwriting experience and skill set we have, we believe that there are good opportunities for us to be very active. And again, if I look at the pipeline, it makes me very confident.

Kian AbouhosseinJPMorgan — Analyst

Thank you.

Operator

The next question is in the line of Andrew Coombs of Citi. Please go ahead.

Andrew CoombsCiti — Analyst

Good afternoon, two big questions from me please. One, looking out for Q4, looking out to Q1. And if I start with our Q4, I’m intrigued by your outlook commentary on page 21 of the report, you still talk about full year ’21 revenues being essentially flat on full year ’20. And yet when you look at your nine months revenues, you’re up 5% year-on-year. And [indecipherable] the world is in great confident on the great to 2022. And number two, for the business lines said, I’m just trying to tally whether you can, we do think you’re going to see revenue down year-on-year in Q4, or whether that’s just a prudent outlook comment that you even created? Second question on Q1 of next year. As you stated in your commentary about the source, you seem to suggest that you’d reach a new cost run rate three, Q4, and then into Q1 as the technology costs drop away. So, is it just fair to say that to achieve your 7% of income target for full year 2022, you think you need to hit a sub $0.07 cost income target in Q1 as well?

James von MoltkeChief Financial Officer

Sure, thanks for the questions. Look, I would interpret it more as prudence in the outlook, there is obviously still uncertainties ahead of us as we look to the end of the year and there’s also the sum total of the businesses and their outlook and then the group’s view but I think Christian’s commentary about the forward and ’22 is critical, and obviously, we look to Q4 to be setting up to achieve that. In terms of the cost run rate. As I said earlier, it’s — we’re laser-focused on managing it down. And so, this what we’ll call underlying run rate. We’ve talked for a while about adjusted costs, excluding Prime Finance and also bank levies. That is a run rate that we’ve been working down now to range around 4.5, 4.6. It’s something that needs to step down in Q1 to have reestablished a glide path that we want to be on, and we will continue to work from there.

Remember from a cost income ratio perspective, Q1 is where we have to recognize the bank levy, so it’s a little bit distorted but then if you remove the bank levy, you can see then the underlying revenue to cost relationship that we need to establish. As part of the earlier question, what’s one of the things that brings our cost down? One is the completion of that Prime Finance transition of the remaining technology and staffed it to BNP Paribas. So, while that’s been excluded from the walks, we’ve shown you, of course, on a total expense basis, it’s part of the run rate improvements we see going into ’21 — into ’22. I’m sorry, first quarter of ’22.

Andrew CoombsCiti — Analyst

Thank you.

Operator

The next question is from the line of Timo Dums of DZ Bank. Please go ahead.

Timo DumsDZ Bank — Analyst

Hello, thank you for taking my questions. I’ve got two questions, please, and one clarification. Starting with the clarification in respect to the dividend accrual of roughly EUR640 million. Could you please remind us how much or how does this split between the 3-year quarters this year? This would be the clarification. The first question is on payments. Could you provide some more color on the strategic rational to support EPI initiative and also its strategic importance for the partnerships that you have with MasterCard, for instance, with Pfizer and also with the acquisition of better payments? and the last question, just on your capital return plan. I understand that you cannot confirm what the exact mix, but what would be the triggers to basically confirm then the mix between dividends and share buybacks, and also is there a certain timing that you have in mind, for instance, the Deep Dive that you plan for March? Thank you.

James von MoltkeChief Financial Officer

Thank you, Timo, for the question. So, look, I will take the two dividend related ones together and then, and then Christian may want to add on the IP front. So first of all, my accountants would tell me I should not refer to it as an accrual. It’s an exclusion of certain earned income from our common equity Tier one capital. So, the numerator in the ratio calculation. And it reflects an ECB guideline around profit recognition in Pillar one during the year that disregards an intended payout going forward. That number was EUR300 million in the first quarter and EUR275 million in the second. So, we’ve built a significant amount in the first half, obviously a little less in the third quarter, reflecting the impact of those transformation charges. And that’s something you’d expect to roll through to Q4 as well for both seasonal and because of the larger transformation charges in Q4. But as I said earlier, it positions us well for a distribution next year, and one that would be neutral to the ratio based on that — on it being disregarded already in under the profit recognition guidelines. As to the amount and form, as I said earlier, too early to tell, We’re going to spend a lot of time, I think, in the next few months going through that question internally with our Supervisory Board and ultimately with the regulators. We’re obviously very keen to restart our dividend. We know that the shareholders have contributed on their part of financing this transformation, and it’s time to restart a dividend and start one that is — reflects management’s confidence about the future, both in its amount, and in our expectations for future growth. What that will be and what the resulting payout ratios and mix will be, it’s still too early to tell.

On the European payment’s initiative, we are constructive on that initiative among European banks and we are a key partner in that initiative. We think it’s important to create capabilities. It’s part of, ultimately, strategic sovereignty for the Europe a landscape — financial landscape. And we think it can help our position strategically in the payments market. We don’t think that it goes — that it’s inconsistent with our partnerships with a number of our important partners around the world. We, as you know, we work closely with MasterCard, as one example. But we think that the EPI products or capabilities can be enhancing for our business and for our customers. As to what the impact will be ultimately, strategically, or financially, it’s too early to tell.

Timo DumsDZ Bank — Analyst

Thank you.

Operator

The next question is from the line of Amit Goel of Barclays. Please go ahead.

Amit GoelBarclays — Analyst

Hi, thank you. I’ve got two questions The first maybe just follows on from one of the other questions has been asked. But in terms of that guidance and the outlook for 2021 group revenues, I was just curious since servicing about potentially a bit conservative, if you add up the individual businesses, you can get a bit more. But obviously then there’s is a delta there of about EUR1 billion to 2022, and I’m just wondering, is that another way to think about it in terms of, you think whatever you achieve in 2021, you could achieve about EUR1 billion more revenue in 2022, first question. The second question is just again, coming back on costs, I just want to I understand a bit better the incremental EUR700 million kind of transformation costs, and It doesn’t seem like the broader targets have changed, so just curious which incremental costs you’ve seen relative to original planning and then what are those pressure points that you’re looking to address? Thank you.

James von MoltkeChief Financial Officer

Sure. Thanks, Amit. So, look, I don’t want to get into the — too early into what we ultimately will see for ’21. I think where Christian was earlier is the right way to think about it. Our last 12 months performance over the past several quarters, which supports a EUR25 billion run rate, is a good way to think about where we need to go next year. In that EUR25 billion, you’d expect to see some normalization of IB, some improvement in the other business areas. And what that net will be remains to be seen.

We hope and expect that it will be an improvement on that EUR25 billion level, reflecting the performance of the businesses as Christian described. Ultimately, it will be whatever it is in terms of the growth rate off of, off of ’21 when all is said and done. In terms of the incremental costs, just to take you back to the first quarter, we started talking about the uncontrollable items that came into the cost base at that time, which were higher SRF than we’d hope for and higher deposit insurance fees, reflecting the green sill insolvency and that represented EUR400 million. We said that we’re not willing or to try to offset that EUR400 million in the cost base so that we could support investments going forward. Then as you go to the Q2, we started to see and have an expectation of more volume-related costs coming into the cost base, as well as incremental investments in controls that we needed to make.

And so that’s where we started to talk about the need to undertake further cost measures in order to offset those additional costs. And so — and that’s where the measures are that we talked about and Kian asked about. So, we’re working on that. What the run rate in the next several quarters will reflect is the push and pull of how quickly we are able to implement measures that can offset the volume-related and additional control costs, how quickly though the previous measures are flowing through to the run rate, And any other changes that take place between now and then. But that’s the sort of how you can think about the, the modeling on which we’ve built our expectations for next year.

Kian AbouhosseinJPMorgan — Analyst

Thank you.

Operator

And there are no more questions at this time. I hand back to you Ioana Patriniche for closing comments.

Ioana PatrinicheHead of Investor Relation

Thank you for joining us for our third quarter 2021 results call and for your questions. Please don’t hesitate to reach out to the Investor Relations team with any follow-up queries. And with that, we look forward to speak to you at our fourth quarter call in January. Thank you.

Operator

[Operator Closing Remarks]

Duration: 109 minutes

Call participants:

Ioana PatrinicheHead of Investor Relation

Christian SewingChief Executive Officer

James von MoltkeChief Financial Officer

Daniele BrupbacherUBS — Analyst

Andrew LimSociete Generale — Analyst

Nicolas PayenKepler Cheuvreux — Analyst

Jeremy SigeeExane — Analyst

Magdalena StoklosaMorgan Stanley — Analyst

Stuart GrahamAutonomous Research LLP — Analyst

Tom HallettKBW — Analyst

Adam Terelakmedia bunker — Analyst

Anke ReingenRBC — Analyst

Kian AbouhosseinJPMorgan — Analyst

Andrew CoombsCiti — Analyst

Timo DumsDZ Bank — Analyst

Amit GoelBarclays — Analyst

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