After CEO Christian Sewing brought Deutsche Bank out of its deep crisis and was able to present the first billion-dollar profit in years a few weeks ago, he is now raising the bank's return targets again.

Despite the war in Ukraine and the uncertain political and economic consequences, he is presenting the bank's new strategic goals this Thursday at an investor day and making several courageous announcements.

Tim Kanning

Editor in Business.

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By 2025, the bank aims to increase its return on average tangible equity (RoTE in technical jargon) to more than 10 percent and to organically generate "additional equity on a significant scale", according to a statement at the investor day that took place in the afternoon .

The previous target for 2022 was 8 percent.

In the first two months of this year, however, the bank has already achieved a return on equity of 11.8 percent, according to the statement.

The bank intends to achieve this goal through a combination of increasing earnings, further efficiency measures and self-financed investments.

If implemented successfully, at least that's how Sewing sees it, the strategy would make it possible to distribute around eight billion euros to shareholders for the years 2021 to 2025 and at the same time invest in all four business areas of the bank.

So far, the bank management had given their shareholders the prospect of a distribution of five billion euros.

Income up, costs down

In addition to the return target, Sewing also promises its investors average annual earnings growth of 3.5 to 4.5 percent starting this year.

This would increase revenues to around 30 billion euros by 2025.

In terms of costs, on the other hand, the head of the bank is no longer aiming for absolute savings, as has been the case for some time.

Rather, he has now announced the goal of a cost-income ratio of less than 62.5 percent.

For every euro earned, the bank wants to spend a maximum of 62.5 cents.

This relative size allows the bank to put less pressure on the brakes on costs as revenues increase.

Apparently, Sewing and his fellow board members are not impressed by the Ukraine war in their planning until 2025.

On the contrary, the head of the bank sees an opportunity in the fact that many customers may need advice from their bank to secure their transactions and finances in uncertain times.

"Our bank is well positioned to guide its clients through geopolitical and macroeconomic changes, including the current uncertainties," says Sewing.

“Limited Russia Risk”

While the major French bank BNP Paribas has postponed its investor day, which had also been planned for some time, Sewing and CFO James von Moltke are the first representatives of a well-known European investment bank to answer questions from their investors about the course of business since the outbreak of war.

Moltke is quoted as saying in the press release: “All of our business areas got off to a good start in the year.

The war in Ukraine is causing uncertainty on the markets.

However, our exposure to Russia is limited and we have the risks under control.”

The institute largely withdrew from Russia following a money laundering scandal in 2014.

The largest German bank put the gross loan exposure at 1.4 billion euros in a statement on Wednesday evening, which corresponds to around 0.3 percent of the entire loan book.

After taking into account guarantees and securities, the net credit exposure related to Russia still amounts to EUR 600 million.

EUR 500 million of this was granted to large Russian companies "with significant business and cash flow outside of Russia". These loans are also booked outside of Russia. The bank quantifies the net loan exposure to Ukraine

to 42 million euros.

War destroys a year's gains

The new goals now presented are the continuation of the realignment that Sewing, who took office four years ago, imposed on the bank in the summer of 2019.

In the course of the financial crisis, after many legal scandals, the bank had at times reached the brink of existence and was fighting against its loss of importance.

However, Sewing then managed to stabilize the bank and make it profitable again by strictly concentrating on the core disciplines.

It helped that the bank's prime discipline, the bond and currency business, flourished during the corona pandemic and the prospect of rising interest rates was recently able to attract investors to banks again.

In the first few months of this year, Deutsche Bank's share price alone was able to increase by 40 percent.

However, investors consider the possible consequences that the war in Ukraine could have to be significantly greater than the bank management itself. In addition to the direct effects of loans to Russia, a delayed turnaround in interest rates by the central banks, high energy prices and further rising inflation could also affect the business significantly more difficult for the banks.

In any case, since the beginning of the war at the end of February, Deutsche Bank's share price gains for an entire year have evaporated.

On Wednesday morning, too, the share was one of the weakest Dax values ​​with a minus of 5 percent.

But Sewing doesn't dispute that.

"Over the past three years, we have laid a strong foundation for a robust and sustainably profitable Deutsche Bank," says Sewing.

“With our evolved strategy, we are now shifting to sustainable growth and higher capital distributions to our shareholders.

In addition, we are very well positioned to support our customers in the transformation to a sustainable and digitized economy.”