Apr 27, 2017
Executives
John Andrews - Deutsche Bank AG Marcus Schenck - Deutsche Bank AG
Analysts
Fiona M. Swaffield - RBC Europe Ltd.
Jernej Omahen - Goldman Sachs International Magdalena L. Stoklosa - Morgan Stanley & Co.
International Plc Kian Abouhossein - JPMorgan Securities Plc Stuart O. Graham - Autonomous Research LLP Alevizos Alevizakos - HSBC Bank Plc Andrew Stimpson - Bank of America Merrill Lynch Andrew P.
Coombs - Citigroup Global Markets Ltd.
Operator
Ladies and gentlemen, thank you for standing by. I am hereby your Chorus Call operator.
Welcome and thank you for joining the First Quarter 2017 Analyst Conference Call of Deutsche Bank. Throughout today's recorded presentation, all participants will be in a listen-only mode.
The presentation will be followed by a question-and-answer session. I would now like to turn the conference over to John Andrews, Head of Investor Relations.
Please go ahead.
John Andrews - Deutsche Bank AG
Operator, thank you very much. Good afternoon, and welcome to all of you from here in Frankfurt.
Welcome again to our first quarter 2017 earnings call. We're joined today by Marcus Schenck, Chief Financial Officer, who will take you through the analyst presentation which has been available on our external website at www.db.com since this morning.
As usual and is our practice, I would ask for the sake of efficiency and fairness, questioners please limit themselves to their two most-important questions so that we can give as many people a chance to participate in the Q&A session as possible. Let me also provide the normal health warning, asking you to pay particular attention to the cautionary statements regarding forward-looking comments that you will find at the end of the investor presentation.
With that out of the way, let me hand it over to Marcus.
Marcus Schenck - Deutsche Bank AG
Thanks, John. Good afternoon, good morning, welcome from my side.
Behind us, by the quarter of progress, we completed our capital raise, announced strategic steps to strengthen our German home base, and best positioned the bank for future growth. Although numbers might not all show this yet, we see momentum across the bank as we're overcoming the headwinds we faced in 2016.
Let me begin with a few general remarks. The reported quarterly revenue decline was predominantly due to a negative swing of €0.7 billion year-over-year based on our own credit impacting both Derivative DVA in Global Markets and own credit on issued debt in C&A, primarily driven by a narrowing in DB credit spreads in the quarter whereas spreads widened in the first quarter of last year.
However, with the resolution of the DOJ RMBS matter and the completed capital raise, we see our clients reengaging, as confidence has been restored. The early stages of that is evidenced in our Q1 results.
We continue to resolve major litigation methods and progress is becoming more visible in our cost and FTE base. As said, we completed our capital raise in April 2017, resulting in a strong Core Tier 1 ratio and the credit quality of our loan book remains good with provisions declining.
Today, we're still reporting our results as we have told you in the old divisional structure. From Q2 onwards, our reported segments will shift to the three core divisions, CIB, the Corporate & Investment Bank, Private & Commercial Bank, and Asset Management which we previously announced.
Let us now look at the group financial highlights of the first quarter in detail. Revenues of €7.3 billion are down compared to prior year's first quarter by €700 million, but up compared to the fourth quarter of 2016.
Noninterest expenses decreased 12% to €6.3 billion for the quarter. There were almost no restructuring and severance charges or impairments.
We resolved several litigation cases as they were covered by existing provisions. That led to an IBIT of €0.9 billion and a net income of €0.6 billion, an improvement to both prior year and quarter.
Risk Weighted Assets and Core Tier 1 capital remains more or less flat at €358 billion and €42 billion, respectively, and fully loaded Core Tier 1 ratio was 11.9%, which translates into 12.7% on a phase-in basis. Leverage ratio – leverage exposure first, was €1,369 billion, and the fully loaded leverage ratio was 3.4%.
Pro forma for the capital raise, the fully loaded Core Tier 1 ratio was 14.1% and 14.9% on a phase-in basis. The pro forma fully loaded leverage ratio was 4% and 4.5% on a phase-in basis.
So let us now move to the net income bridge for the first quarter of 2017. Year-over-year net income increased €338 million.
The bridge starts with a revenue development in our businesses, excluding effects from DVA, valuation and timing, and disposals. We show them separately this time since they have a very material effect on the reported numbers, in particular, the accounting impact resulting from the substantial improvement in our own credit spreads.
Global Markets revenues were up €156 million in Q1 compared to the prior-year quarter, excluding a DVA/CVA/FVA loss of €384 million, largely from the narrowing of DB's own credit spreads and changes in the German bail-in legislation. CIB revenues were slightly down by €38 million compared to prior year, driven by a decline in GTB revenues caused by deliberate reshaping of the client, product and country footprints.
However, we saw positive momentum in Debt and Equity Origination in the quarter. PWCC revenues were up €91 million year-over-year, excluding the impacts from disposals of Hua Xia Bank and PCS, which we show separately on this chart.
Postbank revenues were down by €89 million, mainly reflecting the absence of a one-off gain in the first quarter of last year. Asset management revenues were up by €18 million year-over-year, largely driven by higher management fees in Active and Alternatives.
This excludes the disposal of Abbey Life and the Asset Management business in India. NCOU revenues were down €24 million year-over-year, and this is not a very telling number, however, since we successfully closed down the NCOU per year end 2016.
However, for year-over-year comparison, it is obviously still relevant. C&A was down €141 million.
This excludes the V&T difference impact, which we show separately. What we hence have stripped out from the segments are non-operating one-off effects which are driven by, first, credit spread movements affecting DVA with €421 million and V&T with €360 million, and second, the disposal effects from Hua Xia, PCS, Abbey Life, and the Indian Asset Management business.
These are shown in three separate bars. Let me highlight once again that the desired reduction in our own credit spreads has caused a swing in reported revenues year-over-year to the tune of €0.7 billion euro.
Carving out these effects, you can see that the revenue contribution from our businesses in Q1 was actually €7.7 billion. A more detailed explanation is given on chart 28 in the appendix.
Provision for credit losses were €172 million lower, driven by improved performance in metals and mining and in the oil and gas portfolios. The adjusted cost base declined by €296 million, year-over-year, reflecting the rundown of the NCOU as well as cost management efforts across the bank and asset disposals.
Restructuring and severance expenses were €256 million lower compared to prior-year quarter, and so our litigation expenses was €229 million below prior year's result. Income tax and FX movements were both favorable.
And as shown here, this overall led to €575 million of net income for the quarter. At constant exchange rates, noninterest expenses, on the next page, decreased by €823 million or 12% to €6.3 billion year-over-year.
The majority of this decline came from lower restructuring and severance expenses and lower litigation charges. Let's review adjusted costs at constant exchange rates on page 6.
First, compensation and benefits were slightly down as lower salary expense reflecting FTE reductions was offset by higher amortization of deferred retention awards. Second, IT costs increased slightly year-over-year.
Higher depreciation for self-developed software was mostly offset by lower costs for external IT services. Third, Professional Service fees were down €129 million, mainly driven by lower business consulting costs and legal fees.
And then lastly, occupancy costs were flat, and Bank Levy and Deposit Protection cost slightly increased by 2%. Recall, this is the full annual charge of the Single Resolution Fund which gets booked in the first quarter.
In addition, other costs were down €172 million, with approximately €88 million attributable to the closure of the Non-Core Unit. Headcount decreased by about 3,300 FTE versus prior year and around 1,570 compared to December of 2016, reflecting our ongoing restructuring.
The FTE reduction includes the internalization of about 1,900 heads in the last 12 months. On litigation, we made further progress in resolving a number of matters without impact on P&L in the quarter.
We continue to resolve a number of legacy matters, such as the FX settlements of the Fed's and Brazilian's CADE investigations. Common Equity Tier 1 capital, over to page 8, increased slightly to €42.5 billion at the end of March and €50.7 billion pro forma for the capital raise.
When we then look at RWA on page 9, those remain stable at €358 billion, despite increased client activity. In Global Markets, both debt market-making volumes and client activity in Equity increased, leading to balance sheet growth but without material RWA implications.
RWA reductions from focused de-risking measures, including hedging, trade unwinds, and targeted asset reductions continued, offsetting a largely methodology-driven €5 billion increase in op risk. As said, the Core Tier 1 ratio fully loaded was 11.9% and 14.1% pro forma for the capital raise, a very solid capital position.
The leverage exposure increased €22 billion from business growth in Global Markets, reflected in higher SFT and Prime Finance as client activity increased. This brings us to a fully-loaded leverage ratio of 3.4%.
And again, pro forma for the capital raise of 4%. We continue to maintain a well-diversified funding profile.
71% of our funding comes from most stable funding sources. Our liquidity reserve is at €242 billion and the liquidity coverage ratio increased to 148%.
TLAC is at €118 billion. The next slide, page 12, on interest rate sensitivity, is a new one.
For our non-trading businesses, we estimate that a hypothetical 100-basis-point parallel shift would likely produce an additional €1.4 billion of NII in the first year and an additional €300 million in the second year. The split into euro and U.S.
dollar shows that we obviously have much higher sensitivity on euro rates, given the size of our euro portfolio volumes. Overall, our sensitivity to interest rate increases is approximately 65% from short-term rates, i.e., below three months.
Driver for this is the fact that positions will get re-priced in the first year but contributing to NII for the full year, while long-term positions maturing in the second year start to be replaced at higher rates. With that, let me now move on to the segmental results.
As said, this is still in the old structure, old segmental structure. Global Markets reported an IBIT of €240 million for the quarter.
Revenues were impacted by CVA/DVA/FVA losses in Q1 of 2017 compared to gains in Q1 of 2016. This resulted in a negative €384 million swing.
Let me also remind you that the prior-year quarter, included a positive impact of around €80 million from the bond tender offer in Q1 of 2016. Excluding these two effects, revenues were 9%, higher year-over-year, driven by improved performance in Debt Sales & Trading, partially offset by lower Equity Sales & Trading revenues.
In Q1 2017, the DVA impact alone was €219 million. This was driven by both a tightening of DB's credit spreads and a change reflecting the German bail-in law, which came into effect on January 1, 2017.
If you compare the Q1 results with Q4 of 2016, you see a very positive trend which reflects us being on an upward trajectory in winning back market share. In both debt and equities, we see a well over 50% increase in revenues.
Global Markets costs for the quarter decreased by 2% year-over-year, due to lower restructuring and severance charges and favorable FX. Global Markets Risk Weighted Assets were at €162 billion.
This is €6 billion lower year-over-year, mainly due to business de-risking, partially offset by the transfer in of assets from the NCOU, higher FX and operational risk-weighted assets. Quarter-over-quarter, RWA and Global Markets increased by €4 billion, principally from the NCOU transfers.
With the capital raise, we have greater flexibility to invest RWA selectively. Let us take a closer look at our Sales & Trading units.
In Debt, first quarter revenues increased 11% compared to prior year, excluding the aforementioned bond tender, this number would be up to 14%. Revenues in most businesses grew as the market environment improved compared to a challenging prior-year quarter.
A few comments on the specific business lines. Revenues and FX declined as low volatility impacted client flow.
However, we continued to see strong activity with corporate clients. Revenues in Core Rates were significantly higher with a solid performance across Europe and the Americas.
We also had a good quarter in credit. Revenues were higher with strong client activity in Financing and Solutions and in U.S.
Commercial Real Estate as well as improved performance in the flow businesses. However, as a result of our business mix and the business parameter decisions we have taken, including in particular, the downsizing of securitized trading, we believe we benefited less in this quarter from spreads tightening as our market-making inventories are smaller than those of U.S.
peers. Emerging Markets revenues were flat across Latin America and CEEMEA.
Asia-Pacific local markets revenues were significantly higher with improved market conditions compared to a challenging prior-year quarter. Equity Sales & Trading revenues were 10% lower versus the prior-year quarter.
Cash Equity revenues were higher, in part, driven by significantly higher primary activity, most notably in the U.S. Equity Derivative revenues were also higher, most notably here in EMEA, compared to a challenging prior-year quarter.
Prime Finance revenues were significantly lower, reflecting higher funding costs and, in particular, lower client balances. However, we continued to see the return of client balances we had lost in September and October of last year.
Overall, we see positive momentum in the Equities platform. Equities revenues are significantly higher than the final quarter of 2016.
This reflects the positive impact of the DOJ resolution and an increasingly-positive sentiment towards DB amongst our clients. Low client balances and funding costs are not at 2016-equivalent levels as reflected in our year-over-year revenue trend, they continue to normalize.
Let's turn to the Corporate & Investment Banking segment. First quarter, here IBIT grew 47% to €462 million.
Revenues were flat year-over-year, with improved momentum in both Debt and Equity Origination, offset by an anticipated 5% decline in Global Transaction Banking revenues as initiatives to reshape business parameter take effect. Provision for credit losses are down substantially, driven by improved performance in the metals and mining and the oil and gas portfolios, which offset higher provisions in shipping.
Noninterest expenses are 5% below prior-year quarter, mainly driven by lower restructuring and severance as well as lower compensation cost as a result of FTE reductions. Looking at the revenues across CIB.
Trade Finance & Cash Management Corporates revenues for the quarter were down 4% compared to the prior year. This was primarily in trade where we have selectively reduced our client, product, and country footprint.
Institutional Cash & Security Services revenues declined by 8% year-over-year. This is also a result of parameter reductions, though partially mitigated by improved margins in the U.S.
Equity Origination is significantly up year-over-year, driven by a strong performance in the U.S. and EMEA.
Deutsche Bank has been an active participant in the resurgence of the IPO market. Debt Origination revenues grew 33% year-over-year, as U.S.
Leverage financing and High Yield businesses saw record issuance volumes from the anticipation of U.S. rate rises.
Deutsche Bank has been a key player in the resurgence of the IPO market, closing the Invitation Homes and the Snap transactions during Q1 of 2017. Advisory revenues were down 24% against a strong first quarter of last year, however, we do see the pipeline grow in the quarter and we expect to see the positive impact of this during the remainder of the year.
As you are familiar, in particular on the Advisory side, the revenues reported in a quarter tend to be the outcome of work that was done in the prior quarters. Let us now move to the PWCC clients – PWC segment, where we see a solid operating performance.
Lower interest income was partially counterbalanced by increased credit and investment revenues, which is an evidence for the resilience of our business model. PWCC is also fully on track with respect to the delivery of its strategic objectives.
Including the disciplined execution of the restructuring program and continued progress in digitization initiatives. PWCC's number of employees declined by 510, compared to end of last year and by 1,630 compared to March last year.
Until today, 130 out of the announced 188 branch closures in Germany are completed. Both developments are in line with our planned restructuring path.
Revenues were up 11% in Q1 of 2017, compared to prior year, driven by several specific items. In the current quarter, Wealth Management revenues benefited from gains of approximately €175 million, related to successful workout activities in the Sal.
Oppenheim franchise which more than offset the impact of foregone revenues after the disposal of the Private Client Service unit last year. Revenues last year included a negative valuation impact of around €120 million, related to Hua Xia Bank and also included a dividend payment from a PCC shareholding.
Excluding these specific items, revenues remain stable year-over-year. The continued negative impact from low interest rates was largely mitigated by growth in Credit and in Investment products.
Noninterest expenses were down 4% compared to prior year, mainly driven by lower restructuring and severance charges. Excluding restructuring, noninterest expenses remained almost stable.
Continued investment spend for digitalization and other initiatives was offset by positive impacts from the reduced cost base after the sale of the PCS unit and by lower compensation expenses. PWCC's invested assets increased by €8 billion, compared to Q4 of 2016 with net inflows of €3 billion in the quarter.
Inflows reflected successful deposit campaigns as well as the win-back of mandates after outflows in the last quarter of 2016 in particular. Looking into PWCC's sub-segments.
Revenues in the Private & Commercial Client businesses were down 5% compared to prior year, largely reflecting the absence of a dividend from a PCC shareholding in Q1 2016. Revenues in Deposit products declined 18%, reflecting the low interest rate environment.
This was partially mitigated by higher Credit product revenues and by higher Investment & Insurance product revenues. Revenues in Wealth Management increased 27% year-over-year.
They benefited from the already-mentioned gains related to workout activities in Sal. Oppenheim, which offset the impact from the sale of the PCS unit.
Excluding these effects, Wealth Management revenues remain stable, as improved fee income in Asia-Pacific and Germany offset lower NII revenues. Postbank reported an IBIT of €81 million for the first quarter, which reflects stable client revenues and lower costs.
Revenues for the quarter down 10% to €771 million, largely reflecting the absence of a one-off gain in Q1 of last year. However, client net revenues were stable, as growth in loan volumes and fee revenues offset the impact from low interest rates.
Noninterest expenses are 6% lower, due to reduced head count and other cost-saving measures. Let's move on to Deutsche Asset Management, which reported an IBIT of €181 million.
First quarter of 2017 saw a good turnaround with €5 billion net asset inflows across most businesses and regions. This was coupled with higher average fee margin in Q1 2017 versus the first quarter of 2016.
Asset Management reported revenues were down 12% compared to prior year, which includes the non-repeating of the Abbey Life gross-up, gain on sale of Asset Management India, and the write-up of HETA. Excluding these one-off items, revenues were actually up 5% year-over-year, led by higher management fees, reflecting favorable market conditions.
Again, including the Abbey gross-up, noninterest expenses were 19% lower at €425 million in the first quarter, driven by lower restructuring and severance, Abbey disposal and lower operating costs. Please allow me to spend this time a moment on C&A, where we see material losses for the quarter.
The main driver were valuation and timing losses. This quarter, they add up to a loss of €187 million compared to a gain of €172 million last year.
The key item in this category is the previously mentioned own credit spread on issued debt. For the quarter, we record a negative effect of €124 million, which reflects a €307 million swing year-over-year.
Secondly, and as you have seen, we had unusually high levels of liquidity over the quarter and we have reported the cost of funding that in the C&A segment. Before we now go into your questions, a few words on outlook.
First, as we sit here, the revenue outlook is broadly better than it was a year ago and that clearly has been reflected in market sentiment. The macroeconomic outlook has improved, reflecting an expectation of accelerated economic growth and likely increases in interest rates.
Obviously, there's no certainty on this outlook and in particular, there remains substantial geopolitical risk. Keep in mind, over the course of the year, that the disposals of Hua Xia, Abbey, our U.S.
PCS as well as the Indian Asset Management will impact prior year comparisons. Nonetheless, we expect growth from regained market share lost largely in the last two quarters of 2016.
As market confidence in Deutsche Bank continues to improve, we also expect that our own credit spreads will tighten and consequently lead to further DVA losses. While that would represent potential accounting losses, it would obviously be a positive development in terms of DB's franchise and business.
We will remain focused on cost management. And we expect the adjusted cost base will further decline this year, despite higher expected compensation expenses.
Restructuring expenses this year are expected to be in line with prior guidance, while litigation expenses are, to some extent, uncertain and anticipated to remain a burden in 2017 but below the 2016 levels. In line with the revenue growth, we also expect RWA to increase over the course of the year.
However, Core Tier 1 ratio will remain above 13%. The credit quality of our loan book remains strong, and provisions are expected to remain moderate throughout the year.
With that, let me now hand back to John who will, as usual, moderate the Q&A session.
John Andrews - Deutsche Bank AG
Marcus, thank you. Operator, we're ready for Q&A.
Again, if I could remind everybody in the queue to limit themselves to two questions, thank you.
Operator
Ladies and gentlemen, at this time we will begin the question-and-answer session. The first question is from Fiona Swaffield of RBC.
Please go ahead.
Fiona M. Swaffield - RBC Europe Ltd.
Hi. Could I ask on slide 12, on the interest rate sensitivity, it was a two-part question.
Firstly, if I'm right, I think in the past we've discussed rising rates. You've given somewhat different figures over different periods.
I think I remember €500 million then €1 billion and now obviously it's €1.4 billion to €1.7 billion, wondered if you could explain what's changed in your assumptions. And then the second part of the question is, what do you assume on deposits?
On deposit beta or the kind of the way that deposits repriced in your 100 basis point scenario. Thank you.
Marcus Schenck - Deutsche Bank AG
So, on your first question, the difference is that we now include also the benefit we have on the capital of the bank, the €60-odd billion, which was not included, which I think I had it also highlighted in the context of the announcements when we announced our capital raise. That's basically the difference.
We're now harmonizing this also with what we're being asked from our regulators and in terms of how they request interest rate sensitivity. The deposit beta is nothing that we contemplate to disclose.
It's not a big swing factor for us, quite frankly, at this stage.
Fiona M. Swaffield - RBC Europe Ltd.
Is that because you're just modeling demand deposits or...? I mean, I'm just trying to understand why it wouldn't be a swing factor when it is for other banks.
Marcus Schenck - Deutsche Bank AG
Yeah. Largely, the answer to that is yes.
Fiona M. Swaffield - RBC Europe Ltd.
Okay. Thank you.
Operator
The next question is from the line of Jernej Omahen of Goldman Sachs. Please go ahead.
Jernej Omahen - Goldman Sachs International
Good morning from my side as well. Good morning in the U.S., at least.
So I have two questions, the first one is on the waiver from the German Bank Separation Act. And I think at the time of the capital increase, there was an indication that Deutsche Bank expects this waiver to be forthcoming in the near future.
And I was just wondering whether that is still the case. And if so, what timing were you thinking in regards to that?
And the second question is, I think this has been the first quarter in a long time where balance sheet grew. So I think net of derivatives, balance sheet is up, if I'm right, around €38 billion quarter-on-quarter.
How much scope – so, first of all, how much of that balance sheet growth is down to some of the deposits returning to Deutsche and some of the prime balances returning to Deutsche. How much of it is due to increased activity on the asset side of the equation?
And finally, how much scope do you think there is for further balance sheet growth. I think, very helpful, you have given an indication as to what the Core Tier 1 ratio should not go below in terms of Tier 1 leverage.
How are you thinking about scope for further balance sheet growth? Thanks a lot.
Marcus Schenck - Deutsche Bank AG
Hey, Jernej. The first question on – basically, the question on integration of Postbank and where does the process stand applying for a waiver, our expectation is that this is something that where we should get more visibility during the – basically during the next quarter or this quarter.
That would be my current expectation. Obviously, things can always change, don't nail me to that but all what I know, I would say, my very best guess is it's during this quarter.
On your second question, I mean, the balance sheet has grown, I would say, largely for two reasons. First of all, we continue to pile up cash and liquidity to levels where, obviously, that creates cost and we need to think through how to best manage this going forward.
And I think people should not make the assumption that an LCR of 148% is what we are exactly targeting medium-term. That's point one.
And, point two, we continue to see a recovery in particular of our prime brokerage balances. We have, I would say, to-date, probably recovered about 50% of what we had lost in this difficult period, September, October of last year.
And those are the, I would say, two key drivers on why leverage has gone up. Is there more room to grow?
I mean, clearly, we are north of regulatory requirements. Now medium-term, I would, nonetheless, like to highlight that we stick to our target of a 4.5% leverage ratio that over the coming years we will hit.
But obviously, during this year, there's still some flexibility and it's also a position that can more easily be managed. But right now, really our focus, also given the capital position of the bank, is to invest into growth.
Jernej Omahen - Goldman Sachs International
Perfect. Thank you very much.
Operator
Next question is from the line of Magdalena Stoklosa of Morgan Stanley. Please go ahead.
Magdalena L. Stoklosa - Morgan Stanley & Co. International Plc
Thank you very much. Good afternoon.
My first question is about the cost, and I'm using the slide number 6. And really, could you help us think about the trajectory of the adjusted costs from here?
We know you're bridge to €22 billion in 2018, but a couple of moving parts. So how should we think about the head count reduction from here?
We have seen the delivery in the first quarter. Also, things like the Professional Services, they seem to be quite an easy place to take the costs out.
And we have – and to a degree, we have seen it again in the first quarter. Anything you could tell us about the IT side of things?
And of course, the level and the trajectory kind of over the next 18 months of your reduced spend and incoming efficiencies. And if any anything that would allow us to think in a more detail of how we move from here to that €22 billion target by the end of 2018 would be very helpful.
And I've got one more question after that.
Marcus Schenck - Deutsche Bank AG
So on cost, look, I mean I'm not going to guide at a level of, so IT costs will be at X-hundred-million per year end. I think, as evidenced in the first quarter, you should expect to see cost go down.
Yeah? So when you – relative to 2016, our clear ambition is to reduce the cost.
We will land below the – so I'm always talking adjusted cost base, yeah, just for the avoidance of doubt because there are obviously other cost items. But the real cost of operations, we expect that to continue to go down.
Where are we going to land? It will be – I'd like to stick to it, it will be down.
I don't want to put out a specific number. The levers that we have is we do see head count coming down along the lines of the agreed restructuring program which we're in the process of implementing.
So further branch closures, further head count reductions, in particular in Germany, which is following an implementation path. So that is not, hey, we have to figure out new measures, it's just executing on what has been achieved.
On the IT costs side, whilst we do see the Run the Bank cost come down, I just have to give the health warning that there is still a substantial number that is being invested into further improvements or processes of our systems. This is the theme that John raised in October of 2015, and we always said this is a three- to five-year journey.
So we continue to be a heavy investor into changes to our IT landscape. So against that backdrop, the overall IT cost is likely not going to come down substantially in 2017.
And the other line items, we – such as, as you alluded to, Professional Service fees, as you can see in the first quarter, we definitely do our utmost to bring that down, that's always swinging a little bit also with big projects. The one item I would really like to highlight is that on the comp and benefit line, there's going to be two effects.
On the one hand, we will benefit from lower head count. As you can see, that's now really, for the first time, kicking in.
Magdalena L. Stoklosa - Morgan Stanley & Co. International Plc
Yes.
Marcus Schenck - Deutsche Bank AG
But at the same time, be mindful of the fact that we have now started to accrue towards, I would say, normal variable compensation levels. The bank last year and the people in the bank took a hit, it was the right decision, but we also made it very clear that this was a one-time effect and the bank will and has to go back to a normalized compensation or a normal compensation routine on the back of it producing profits in 2017.
You had a second question?
Magdalena L. Stoklosa - Morgan Stanley & Co. International Plc
Yes, yes, no, of course, I actually wanted to follow-up on exactly on the compensation side, which you've just explained. So, thank you very much for that.
My second one is a little bit of a follow-up from the – of the question about growth. When you talk about the Risk Weighted Assets growth going forward, of course, there's a couple of divisions which are kind of the prime candidates for the utilization of that.
My question is really about the Global Markets and where you're likely to see that growth going. Because of course we have seen very strong revenues coming through in debt recovery particularly from the fourth quarter on the Equity side as well.
How do you see the balance of being able to generate revenues on the existing balance sheet versus the revenues you would like to generate on the increased commitment of Risk Weighted Assets?
Marcus Schenck - Deutsche Bank AG
So, look, I think we – I think I said that in the context of our full year announcements that we had, in particular, in the last quarter – so in Q4 of last year – we had lost about €10 billion of productive Risk Weighted Assets largely in the new CIB space. So Global Markets and old CIB put together.
And we said our clear ambition is to basically regrow and regain the business attributed to – at least, economically attributed to those €10 billion. Now obviously this doesn't happen overnight, this is something that we contemplate to implement throughout the year.
I would still stick to that number. If your question is, so tell me where exactly that's going to go?
Is that rates? Is that credit solutions?
Is it our loan business? Honestly, the answer to that is, these are all businesses that we like.
It will go to where we see the biggest return. Yeah?
So there I think we need to be agile and deploy the balance sheet in the most meaningful way. So it's not that we determine now, okay, X billion will go to rates, that we will be determining based on the business opportunities that present themselves, but the recovery of about these €10 billion, that's roughly what I think you should assume we're targeting for the year.
Magdalena L. Stoklosa - Morgan Stanley & Co. International Plc
Great. Thank you very much.
Operator
Next question is from the line of Kian Abouhossein of JPMorgan. Please go ahead.
Kian Abouhossein - JPMorgan Securities Plc
Yeah, thanks for taking my question. The first question is related to the discussion and the perspective in terms of fixed income guidance and equities which was mid-March and, clearly, the numbers are lower than what we saw.
And I'm just trying to get an understanding of the trend through March and how the trend has developed in April. And in that context, you mentioned that the underperformance is related to inventory, that the Americas have more inventory.
If you can just allude on that, how do you see that they have more inventory than you have? And the second question is on PWCC.
If I strip out one-off items, Oppenheim and restructuring release, I get to an ROE on allocated capital of about 3%. I'm just wondering if you can talk a little bit about how you see the improvement in this division, considering you've done most of your branch closures already.
Marcus Schenck - Deutsche Bank AG
Okay. So on your first question – and I hope I'll sort of comprehensively tackle that one.
So first, again, the fact – I mean fixed income on the Debt Sales & Trading side, we do see a year-over-year increase in revenues to the tune of 11%. Be mindful of the fact that last year in March, we had the €80 million one-off benefit from the bonds tender that we did.
If you, in a way, took that out, then there's about a 14% increase. When you actually compare with – and I know this is maybe not perfectly accurate – but if you compare by the way with a Q1 – sorry – Q4 2016 numbers, it's up two-thirds so obviously, much more substantial.
To us what is really relevant is debt, and we looked at this: how has actually our market share evolved in that time period? So when I look back into the first quarter of 2016, our market share on the Debt Sales & Trading side, our revenue market share has historically ranged, when we look at our 10 largest peers, yeah, has historically ranged somewhere between 11% and 15%.
And in Q1 of 2016, which was not – which was a quarter where we had seen quite a number of people also suffer, we think our market share was probably more at the upper end of that 11% to 15% range. In the fourth quarter of 2016, we actually dropped out of that range; i.e., we fall below the bottom end.
In fact, we think we were probably around 10%. This first quarter, we estimate that we're probably somewhere in the middle of the range of that 11% to 15% range.
So we're not yet back to where we were in Q1 of 2016, which was actually a higher than normal market share but we're back to quite a normal market share position. And we're substantially up over – compared to where we were in the fourth quarter of 2016.
Another comment I'd really like to make is that there's, in particular, one business segment where I think we've seen quite some growth in the markets which is securitized trading, which is a segment where those that had – that stayed in that business actually benefited quite nicely. It's a segment where we consciously in October of 2015 took the decision we would gradually exit that business, and we did so, basically more or less completed with mid of last year.
And hence, we're not participating in the growth in particular in the U.S. that this segment has seen.
I mean that's – I think this is how we look at our Debt Sales & Trading business. So in essence, we'd say we're probably in a way – in the businesses that we're still operating in, we're probably moving with the pack.
On PWCC, your question on the return. I think this one is one that we had intensely discussed in our road show.
PWCC and combining that with Postbank is largely going to be a cost gain. Yeah?
So the means by which they will get to a north of 10% return, it's fully in our control. Yeah?
We will take out cost. Combines – now I'm doing this from the top of my head – the two businesses, PWCC and Postbank, have a bit more than €8.5 billion of cost.
We will – Postbank and Blue Bank or PWCC will take out until the end of 2018, further cost. Don't forget, whilst the implementation of the cost reduction program is now kicking in, the cost benefits, you're only marginally seeing yet.
Yeah? There's a lot more head count coming out in the remainder of this year as a consequence of the branch closures.
So, I mean, the fact that the branch has closed, doesn't – I mean that means that a lot of people were off our P&L, say, in March of this year. So you have not yet seen the economic benefits from that.
So this is all still yet to come. And that's why, if you want, I can walk you through the details, yeah, how you get from the €8.5 billion cost base to something which will probably be somewhere slightly above €7 billion over a three-, four-year journey.
And that is what's going to give us good returns in the new PCB segment. Obviously, happy to go into more details there.
Kian Abouhossein - JPMorgan Securities Plc
If you could, that would be very helpful. I don't want to take too much time, but I think it'd be of interest to most people?
Marcus Schenck - Deutsche Bank AG
Okay. So when we look at the combined segment, the combined segment has about €8.5 billion of cost.
It has about €10 billion in revenues. It had €10 billion in 2016, it had €10 billion in 2015.
This €8.5 billion, we had announced that there's an additional €900 million of benefits that we see from combining the two segments. And on top of that, there is additional cost savings that Postbank has on a standalone basis, which is about a couple-of-billion.
And then there's roughly another €600 million, €700 million of cost savings planned and still to be executed until the end of 2018 in the PWCC segment. When you then do the math, you see that our – that the combined cost base is going to drop to something between €7 billion, €7.5 billion.
Now, assuming that the revenues stay constant – so I'm not making the assumption that, although I'd be tempted to do that over the next four years, we are going to see a change in interest rates, but let's just assume we'll be able to maintain the €7 billion. That then – and then take into consideration that there's going to be a few-hundred-million of loan-loss provisions that gives you IBIT numbers for the segment which, then you can do the math, will show you that we can – we would land somewhere north of 10% from a return point of view.
Does that help?
Kian Abouhossein - JPMorgan Securities Plc
That's very helpful actually. If I may, just very briefly, progression in April, considering that the run rate seems to have declined a lot on a year-on-year basis, can you just say something – sorry, I'm now conferring to Global Markets.
Marcus Schenck - Deutsche Bank AG
Oh, yes, I didn't comment on April. Yeah.
So, look, first message is April, generally speaking, is directionally always a bit of a weaker month when Easter falls into that month. Because it just has fewer business days and some people go on vacation.
We have seen April be a bit weaker than what April was last year, but April last year, I think, was still benefiting a little bit from the announcement that the ECB had made in terms of QE. And we see this a little bit this week, we think that people have been a bit cautious going into the French election.
We have seen some recovery then during the course of this week. I mean, the election's still not decided, but I think it was an outcome where there was some relief felt in the market, let me put it this way.
So bottom line, April so far has been a bit weaker, but we continue to see the same theme, namely a number of clients telling us that they're reopening lines and reengaging on business.
Kian Abouhossein - JPMorgan Securities Plc
Super-helpful, Marcus. Thanks.
Operator
Next question is from the line of Stuart Graham from Autonomous. Please go ahead.
Stuart O. Graham - Autonomous Research LLP
Oh, hello. Thank you for taking my question.
I had two brief questions. The first is back on Fiona's question on deposit betas, you said it's not a big swing factor.
So do I assume you don't expect deposit costs to rise as rates go up? In other words, you're assuming deposit beta of zero?
Maybe I misunderstood. The second question is you talked last quarter about €600 million in lost revenues in the Global Markets over 2016 because of clients.
Right? How much of that is returned in Q1, do you think?
Thank you.
Marcus Schenck - Deutsche Bank AG
So, I mean, the second question, quite frankly, Stuart, is really a bit of an art. Honestly speaking, I think we have largely not yet really seen, in our revenues reflected, materially return of clients' activity.
I mean, we see it more in some prime brokerage balances, we see it in increased invested assets in Wealth. We see it in net new money in Asset Management.
We see it in a number of deals the corporate finance guys are working on. We see it in a number of deals our structured credit guys are working on.
That's where we really see the return in business. A lot of that has not yet really translated into revenues.
There are some businesses that react faster. So, of course, we have seen some improvement in revenues in the prime brokerage business, I think actually relative to the fourth quarter of 2016, we're up €100 million in the quarter.
But I really would like to bring home the point that the recovery in business is not yet fully reflected from a revenue point of view in the results for the first quarter. Your second question was again, what's the deposit beta?
Was that your question?
Stuart O. Graham - Autonomous Research LLP
Yes. I mean, you're talking about interest rates going up 100 basis points, what do you assume your deposit costs go up by?
Marcus Schenck - Deutsche Bank AG
So be mindful of the fact, I mean, we largely do the math here on the back of our sight deposits, yeah, where we're not paying. I mean, what you have is, there's a bit of a step-change here in the analysis.
Given we're coming out of negative interest rate territory, the rise in interest rates, the first part will immediately go to us. So that's a bit of an additional boost effect we have in the math here.
If you fast forward, say, three years from now, all else being equal and interest rates were higher, and we would show you the same analysis, the numbers should mathematically be a little bit smaller because we would no longer benefit from this first effect, where today, we would technically, say, have to charge a deposit, 20, 30 basis points, which we're not doing. Yeah?
So that drives this analysis here quite a bit.
Stuart O. Graham - Autonomous Research LLP
I guess, the point that when you go from minus 40 to zero, you don't have to pay anything. But once you go above zero, I would imagine there's quite a lot of your depositors who have gone for sight because they're not getting anything on the time deposits and once they start getting something on the time deposits, they'll go from sight into time, so suddenly you have to start paying.
I just wonder if you take account of that in your calculations?
Marcus Schenck - Deutsche Bank AG
Yeah. So – okay, thanks for clarifying that.
Yes, that is considered in the calculation. But also here, be mindful of the fact, given we're coming out of negative territory, it's probably, at least in our view, when you move into slight positive territory, that's not yet being passed on to clients.
Stuart O. Graham - Autonomous Research LLP
Got it. That's very helpful.
Thank you.
Operator
Next question is from the line of Al Alevizakos of HSBC. Please go ahead.
Alevizos Alevizakos - HSBC Bank Plc
Hi. Thank you very much for taking my question.
So my first question is regarding the outlook that you gave on the CET1 capital. You said that basically you didn't expect it to remain above 13%.
I just want to clarify because your pro forma is actually above 14%, there's a €5 billion gap between those two figures. So I'm wondering whether you've got something in mind like extreme RWA inflation in the short-term.
Or whether there is some kind of unknown in terms of litigation that you may be expecting as I can see also that the contingent liabilities have not really moved down in the quarter. And then my second question is basically regarding the IT costs that we already kind of covered.
I understand you say that the IT costs are actually going to be remaining elevated because you invest a lot. But I would like to understand, like, on your figure on slide 6, how much of that would you say is actually invested for improvement?
And how much would you say is just maintenance for the existing legacy systems? And the question as well is like why don't you – why are you not able to capitalize more of the invested IT costs?
Thank you.
Marcus Schenck - Deutsche Bank AG
Okay. So, look, we're not targeting 13%.
Yeah? What I'm telling you is we'll be north of 13%.
How much we'll be north of 13% will, quite frankly, to some extent, also depend on how much of this excess, relative to our own target, the 13% capital can we meaningfully deploy throughout the year. We would expect – I was already alluding to this €10 billion lost productive Risk Weighted Assets from the fourth quarter of last year.
We would expect to see an increase in productive Risk Weighted Assets during the year by deploying some of this excess capital that we have. So don't really – when we guide you towards we're targeting 13%, our outlook is we're going to be north of 13%, that doesn't mean we'll be at 13%.
Yeah? So that should not be misunderstood.
On the IT costs, quite frankly, I'm not the biggest fan of capitalizing IT costs because you're just mortgaging the future. I actually do see in our numbers come through in the outer-years higher software-amortization charges.
I mean, ultimately, we have to consistently apply accounting here, which is what we're doing. So the bank has, several years ago, determined how – what can be capitalized and what can't.
We haven't changed anything there. But the problem with really capitalizing IT costs is it makes the current situation look nice and you just mortgage the future.
Personally, I'm not a big fan of that and I think the policy we're applying is a good policy. We are really still spending substantial amounts of money for changing the bank.
I mean from a cash point of view, last year we had something like €2.5 billion. So some of that got capitalized, but still the P&L hit was north of €2 billion, just in terms of the Change the Bank budget that the bank has.
This is nothing where, again fast-forward three, four years, we think our levels where we should be at. But as long as we are in the process of changing the bank and improving, in particular, the back-office infrastructure of this bank, we expect to have that burden.
But obviously in the outer-years – and I know at this stage, no one is focused on that – but we absolutely, at some stage, will bring down that Change the Bank volume.
Alevizos Alevizakos - HSBC Bank Plc
Capital question. You've also disclosed €5 billion of operational risk because of model changes.
Does this include all the recent fines that you had to pay in the quarters? Or would you expect a jump in the next three quarters?
Marcus Schenck - Deutsche Bank AG
Yeah. So, no, it does not reflect the fines in the last quarter.
In fact, these are model changes which we have seen coming for several quarters. So that was not a surprise to us.
Also, please be mindful of the fact that, yes, we did resolve a number of further items this quarter, but I'd like really to point you towards our litigation line which is showing that we didn't record any negative entry there, which tells you that the items that we resolved, we were properly provisioned for that. And we do record the op risk charge when we book the provision.
So the op risk consequences of the fines that you have seen year-to-date have already been reflected in the past.
Alevizos Alevizakos - HSBC Bank Plc
Okay. Thank you.
That's very helpful. Thank you very much.
Operator
Next question is from the line of Andy Stimpson of Bank of America Merrill Lynch. Please go ahead.
Andrew Stimpson - Bank of America Merrill Lynch
Hi, guys. Thank you very much.
Just on the interest sensitivity slide again. As Fiona was saying, it's gone up from €1 billion up to €1.4 billion.
But I noticed that the net interest income this quarter actually fell by €0.5 billion quarter-on-quarter, so I'm just wondering what the near-term outlook is on net interest income assuming no rate changes. I see the footnote on slide 12 shows the net interest income sensitivity is versus unchanged rates.
So I'm just wanting to know if there's no rate changes for another year or two in Europe, then where the net interest income is going to? Clearly, that's the number we need to add the €1.4 billion to rather than just using the 2016 level?
And then, on the second point, on the IT – the 2015 Investor Day, you gave some really helpful metrics on things like how much of the IT infrastructure is on old systems. How much in system reconciliation is there as well.
And I think it'd be really helpful if you could give us an update on those metrics and even if you don't have those to hand now, maybe in the future. Just because from the outside, it's quite difficult for us to see how much progress is being made in that underlying number, because it's a big mixture and it's just hard to judge if there's progress or if you've already made the progress and then when those savings turn up.
Thanks.
Marcus Schenck - Deutsche Bank AG
Yeah. Okay.
So, page 12, indeed does not take into account, in a way, the impact from, you move forward a year and had interest rates not changed and indeed as you rightfully point out, our NII would have come down. To give you sort of some indication for the stable businesses, currently, if nothing changes to interest rates and you go forward a year, that have a burden of about a couple-of-hundred-million for the bank as a whole.
Andrew Stimpson - Bank of America Merrill Lynch
Okay.
Marcus Schenck - Deutsche Bank AG
So I think that needs to be highlighted. Then also please let me highlight one item so that nothing really gets confused because you mentioned the €1 billion, which is the number that we, that both John and I, have pointed people towards in the context of the road show that both of us did after the announcement of the capital raise.
Andrew Stimpson - Bank of America Merrill Lynch
Sure.
Marcus Schenck - Deutsche Bank AG
Here, we were alluding to the impact that we would see from what the implied rate movements that we are seeing in the markets would have for us. And we've always said, we're seeing for two, three years out, a market expectation of an increase to the tune around 70 to 80 basis points.
Here on chart 12, we're showing the impact of 100 basis point move. This is how you can square the €1 billion and €1.4 billion.
And I think that was probably your question on NII, if I'm not mistaken. And then on the IT systems, forgive me, but I don't have these numbers here at my fingertips.
I'm looking to John and he took notes and he will come back to you. But I also take that, if there's an interest in, amongst you guys, in getting an update on where do we stand on those metrics, we will provide those then when we show half-year results.
Andrew Stimpson - Bank of America Merrill Lynch
Sure. That'd be helpful, I think.
Thank you.
Marcus Schenck - Deutsche Bank AG
Yeah. Okay.
Operator
Next question is from the line of Andrew Coombs of Citi. Please go ahead.
Andrew P. Coombs - Citigroup Global Markets Ltd.
Good morning. A couple questions.
One on capital again and then one on CIB. On capital, just a confirmation.
Your presentation and your report do seem to suggest slightly different things. Now, I don't want to beat the downtick but on slide 23 you talk about above 13% at year-end but on page 19 of your report you talk about approximately 13% at the year-end.
So should we thinking approximately 13% or by north of 13% do you mean quite a bit north of 13%, i.e., more similar to where you are today? And perhaps, also, within that capital flow during the course of the year, could you just provide a bit more color on how much of the €2 billion capital benefit from divestments in the IPO you've budgeted on coming through this year versus next year?
And similarly, the restructuring charge that you've guided to I think you said 70% over the course of 2017 and 2018. How does that split out?
So that'd be the first question on capital. Second question on CIB, you had an uptick in your primary revenues in line with peers.
When I look at Trade & Cash Management, Loan Products, it's another quarter where you've seen relatively weaker revenues. You attribute that to exiting specific client and countries.
Just wondering, is that process now done or are there more exits to come from here? Thank you.
Marcus Schenck - Deutsche Bank AG
So, okay. First question, Core Tier 1 ratio, it's above 13%.
And as I said, how much above will depend on how much capital we'll manage to redeploy. And we'll find out during the rest of the year.
On the benefits from the disposals, the disposals we said on Asset Management we're going to execute on that during the next 24 months. And we said the other disposals we will execute during the next 18 months.
Inevitably, that will lead to the vast majority of those capital benefits kicking in next year and not in 2017. Now we started a number of processes on disposals, and I'm actually optimistic that some of those we can get to closure in 2017.
I would still say the lion's share of this additional €2 billion benefit I would expect actually for next year. By the way, that's one further reason why – how much we're going to land above 13%, I can't tell you because we'll also see how we're doing on those disposals.
On GTB, the process is not fully completed. But I would say, to the extent, it has an impact on our revenue position, this is – I would say, we're largely done.
But really be mindful, we've exited basically Latin America with the exception of our Brazilian footprint. We have, in our corresponding banking business, off-boarded hundreds of clients that are categorized as high-risk clients.
Other banks have been, quite frankly, through the same process earlier. That comes with a reduction in revenues but it also substantially has lowered the risk position of the bank.
And we are in GTB now actually going back into a mode of growing our activities. We have one of the leading franchises in our – in Trade Finance.
We see good opportunities to grow back in this business, and we have a fantastic Cash Management platform which, in some markets, when I look into some of the APAC markets, is still really underutilized. As an example, in Japan, we have sort of a high two-digit-million contribution there.
I mean this is a market where we do see quite a lot of business opportunities for this business. So I'm optimistic medium-term for this business.
And the impact from the parameter reduction, I would say, we're largely through, although not everything has yet fully been executed. But those that have a more material impact, I would say, there, we're done.
Andrew P. Coombs - Citigroup Global Markets Ltd.
That's great. Thank you.
Operator
So we have no further questions. I'll hand back to John Andrews for closing remarks.
John Andrews - Deutsche Bank AG
Great, operator. Thank you, and thank you, everyone, for dialing in today.
Obviously, for any follow up, you're free to contact the IR team. Otherwise, we wish you the rest of a good day.
Operator
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day.
Good-bye.