Commerzbank AG (CRZBF) Q3 2023 Earnings Call Transcript

Commerzbank AG (OTCPK:CRZBF) Q3 2023 Earnings Conference Call November 8, 2023 3:00 AM ET

Company Participants

Bettina Orlopp – Chief Financial Officer

Conference Call Participants

Borja Ramirez Segura – Citigroup Inc.

Benjamin Goy – Deutsche Bank

Stuart Graham – Autonomous Research

Rohith Chandra-Rajan – Bank of America

Tobias Lukesch – Kepler Cheuvreux

Riccardo Rovere – Mediobanca Group

Amit Goel – Barclays Corporate and Investment Bank

Anke Reingen – RBC Capital Markets

Vishal Shah – Morgan Stanley

Operator

The conference is now being recorded. Hello, and welcome to the Commerzbank AG Conference Call regarding the Third Quarter Results 2023. Please note that this call is being transmitted as well as recorded by audio webcast and will be subsequently made available for replay in the internet. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following Bettina Orlopp’s presentation.

Let me now turn the floor over to our CFO, Bettina Orlopp.

Bettina Orlopp

Good morning, and welcome to our earnings call for the third quarter 2023. I would like to focus on the quarter and the outlook for 2023 in this call, and our Capital Markets update later today, we will cover the longer-term plans and outlook. The results of the quarter speak for themselves. It has again been an excellent quarter.

Let me start with the year-to-date financials before going into more detail on the quarter. The operating results reached nearly €2.9 billion and the net result €1.8 billion with 8.6% the net RoTE has doubled compared to the same period last year. While we project the net RoTE to be somewhat lower at 7.5% for the whole year, this marks a big improvement and means that we expect to reach our 2024 net RoTE target 1-year early.

The excellent results are based on revenues that surpassed €8 billion, even though there were burdens of €754 million from the Swiss franc loans and mBank. Revenues were driven by the growth of net interest income. As expected, commission income was below last year’s level due to weaker securities business in PSBC. The cost base reached €4.8 billion so far, fully in line with our target, because income ratio reached 60% of our 2024 target. While we expect a slightly higher cost income ratio for the full year, we are clearly making good progress.

The risk result of minus €367 million as well within our target for the year and together with a low NPE ratio of 1% underscores the high quality of our loan book. With €435 million of our top level adjustment is only marginally changed, we currently assume that it will be maintained into next year. Based on the good result and overall stable risk weighted assets, the CET 1 ratio increased further to 14.6% well above requirements.

Looking now at the quarterly results on Slide 2, they are even better than the already strong second quarter, based on higher revenues, a lower risk result, and costs in line. The operating result and net profit of the third quarter are more than 20% higher than in the second quarter. With €27 million, exceptional items are again only minor this quarter.

This leads to the underlying revenues starting with the commission income on Page 4. Corporate clients has continued its stable performance based on the payments and capital markets business. In PSBC, net commission income is down by 3% compared to the second quarter due to the lower volume of securities transaction of our private customers during the summer months. As already guided, for the whole year we expect overall commission income to be slightly lower than last year.

Now to NII on Slide 5. Net interest income reached a new high supported by the increase of the ECB deposit rate to 4%. All segments have performed well. Corporate clients achieved underlying NII growth of 3% compared to Q2, mainly due to higher average interest rates. Why the deposit beta increased only slowly?

NII in PSBC Germany is up by €24 million quarter-on-quarter. However, NII from the underlying business was stable as Q2 was burdened with a one-off of around minus €30 million. Even though rates were lowered in Poland, mBank managed to increase NII with continued margin management and increased deposit volumes. As in the previous quarters, part of the NII of others and consolidation is offset in the fair value result. At current interest rates, this offset is now around €200 million each quarter.

On the next slide, I will cover the expected developments in the fourth quarter. The deposit beta has increased to around 25% in the third quarter, again, increasing slower than originally expected. Also at the end of the quarter it was only a bit higher than the quarter average. While we see further increases, they should be slower than originally anticipated. We, therefore, plan with an average of 30% in the last quarter of the year.

Based on this assumption, NII should be above €8.1 billion, and for the next years in the strategy update later today. As mentioned, mBank has been very successful in effectively managing margins and growing volumes. We have, therefore, also raised the outlook for interest income in Poland.

Let’s move to costs on Slide 7. Operating expenses are higher year-on-year due to general salary increases and increased accruals for variable compensation. Compulsory contributions are lower, thanks to decreases in European bank levies and the Polish deposit guarantee scheme. In total, we are below last year and on track with our cost measures. For the fourth quarter, we plan with increased costs due to further inflation compensation payments and higher IT investments.

The next 2 slides detail the risk result. The €91 million risk result is on the lower end of our expectations. This is due to unexpectedly large repayments from single cases that almost offsets new loan loss provisions in corporate clients. The risk results in PSBC Germany and mBank are well in line with our expectations. The corresponding cost of risk on loans is only 18 basis points.

Based on the experience so far, we now anticipate a risk result of less than €700 million for the full year before a potential usage of our top-level adjustment. Our top-level adjustment has decreased by €21 million due to a recalculation based on the current macroeconomic scenario and portfolio. The remaining top-level adjustment of €435 million is available to cover potential secondary effects.

Let’s now look at group results and the tax rate. The record operating result of the quarter reflects the further improved revenues, the low risk result and ongoing cost management. While also expecting a good result in the fourth quarter, it should come in lower than the third quarter, mainly due to the increasing deposit beta and likely higher risk result. The tax rates remain at an elevated level of 36%, mainly due to the provisions for Swiss franc mortgages that are largely not tax deductible. I currently assume that the tax rate of the financial year will remain around the same level.

The next slides cover the operating segments starting with private and small business customers. Customers of PSBC Germany continue to adjust the composition of their financial investments. The volume of net new money invested in securities remained at a moderate level, and the proportion of fixed income products and new investments has increased. Loan volumes have been overall stable as new production replaced maturities.

The biggest movement has been in deposits, where PSBC attracted additional call deposits with attractive offerings, increasing the volume by €11 billion in the quarter. Part of the increase is new money, but part is also shifts from side deposits which decreased by €7 billion. The speed and size of this shift will be the major driver for the deposit beta going forward.

This leads to the performance of PSBC on Page 12 and 13. The customer business of PSBC Germany has been stable this year. To remind you, 2022 had a significant one-off benefit from the prepayment of mortgages that has not been repeated, and Commerz Real benefited from the positive valuation effect from some legacy positions. So the underlying performance is even better than the number suggests.

As mentioned in the third quarter, the interest income of PSBC Germany is higher than in the second quarter. This is offset by lower fee income and a lower contribution from Commerz Real. The slight cost increases broadly offset by a lower risk result. The operating result is on the same level as the last two quarters.

For Q4, we expect a lower operating result based on lower revenues. The main reason will be the interest income. Firstly, we will see an increase of the deposit beta, not offset by higher rates. This could result in a drag of up to around €100 million. Secondly, we will make some adjustments to the structure of the replication portfolio of PSBC Germany. This will also have a negative effect of around €100 million in PSBC offset in others in consolidation. The adjustments improve the profile of the replication portfolio and should be beneficial over time. The commission income is expected to be on the level of Q3.

Let’s now move to mBank. On an operating level, excluding the effects from the Swiss franc mortgages, mBank also had a very successful quarter, slightly below the level of Q2. This is mainly due to a higher risk result. Revenues excluding provisions for Swiss franc mortgages have been stable. Provision for Swiss franc mortgages now reached a coverage ratio of more than 85% of the outstanding mortgage volumes.

mBank continues to very proactively offer settlement agreements to customers and the volume has increased further in the quarter. So far, more than 11,000 settlements have been agreed and increased of around 35% in the last 3 months. By making good progress on the resolution of the Swiss franc mortgages, further burdens in the fourth quarter are expected.

The next two slides cover corporate clients. In corporate clients, the overall loan volume increased in the quarter, reaching the level of Q3 last year. This increase in both Mittelstand and International Corporates has been achieved by raising overall profitability with the average RWA efficiency now at 7.7%. In deposits, there has been a relatively moderate shift to term and call deposits, which are now one-third of the volume.

Correspondingly, the deposit better increased slightly in the quarter. Due to the higher average interest rates compared to Q2, NII has nevertheless increased. We expect a decline of NII from deposits in the next quarters, given that we do not anticipate any further rate rises and a continuing increase of the deposit beta.

Corporate clients have managed to deliver a workout operating result in the quarter. This is based on a higher net interest income, stable costs and a very low risk result. While the low risk result has helped the operating result, also the pre-provision profit has further increased, reaching €648 million in the quarter, a new high after the already exceptional Q2.

Finally, a quick look at others and consolidation. Others and consolidation reports an operating profit of €83 million. When excluding the one-off loss this quarter, interest income has been stable. As mentioned, in Q4 we expect €100 million increase of the NII in others and consolidation due to adjustments in diversification portfolio of PSBC. However, in the fourth quarter, we will also use opportunities in the current market environment to reduce some legacy positions. This cleanup will likely offset the mentioned benefit in NII.

The higher costs in the third quarter are mainly due to the increased provisions for variable compensation that are booked in others and consolidation. There will be largely reallocated to the segments in the fourth quarter. Overall, we expect a more or less flat result in the fourth quarter. The main swing factor will be valuation effects.

Credit risk weighted assets have been largely stable this quarter. The slight increase in corporate clients due to loan growth and FX effects has been offset by PSBC with a securitization and opposing FX effects. Capital has increased mainly due to the good net result of which 50% contribute to the CET 1 ratio. As a consequence, the CET 1 ratio reached 14.6%. This translates to 448 basis points buffer to the MDA.

And now to our outlook for 2023 on Slide 18. Based on the positive developments in Q3 we have improved our outlook for the year. We now expect overall revenues around €10.6 billion. This is based on net commission income slightly below last year and net interest income of more than €8.1 billion. This outlook includes the assumption of further burdens from Swiss franc mortgages in the fourth quarter.

We maintain our outlook for a cost base of €6.4 billion. The cost income ratio is expected to come in at around 61%. We have further improved the outlook for the risk result. It is now expected to come in below €700 million before the potential usage of the top-level adjustment. Further, we expect a CET 1 ratio of around 14.7%. We expect the net result to reach around €2.2 billion. This corresponds to a net RoTE of around 7.5% above our original target for 2024. In accordance with our capital return policy, we target a payout ratio of 50%. As part of this payout, we have applied to the ECB and the German Finance Agency for approval of a share buyback of up to €600 million. For the remaining capital return, we will propose a corresponding dividend payment at the next AGM.

Thank you very much for your attention, and I’m now very happy to take your questions regarding Q3 and the outlook for 2023.

Question-and-Answer Session

Operator

[Operator Instructions] And the first question comes from Borja Ramirez, Citi. Please go ahead.

Borja Ramirez Segura

Hello, good morning. I have two questions. The first one is on the deposits in PSBC in Q3. There seems to be some increase in migration in the quarter. I would like to ask if you could please provide more details and also what is the cost of the deposits in the quarter, if you could provide that?

And then my second question would be, I think it has been mentioned at the press conference this morning that NII would dip in 2024, I would like to ask if you could please provide more details? Is it still €7.5 billion to €7.6 billion guidance for NII? And also you could give any indications on loan losses next year. Thank you.

Bettina Orlopp

Very well. Let me just write that down. So on the deposit development, I mean, you’ll see that on Page 11 of the analyst presentation. So we have seen basically an inflow of approximately €4 billion coming from external for comdirect and Commerzbank. We have different offers there. Comdirect slightly higher than Commerzbank. And you also see that there is a shift from side deposits into term and call and saving deposits. Why I have to say that in the third quarter, the main part and the main shift really went into call money. And the teaser rates are currently up to 4%, which we are offering. We have different models out there. That’s the first question.

The second one, guidance for, I think, 2024 on NII and risk result. So the risk result we believe will be again somehow elevated. So we have in the plan something around €800 million for next year. That’s due to the fact that we believe that the economic development in Germany specifically will be still very weak. Our own economist is currently at a minus 0.3%. He is more conservative than the rest, who still believes that there will be a small growth. That’s one part which we have included. And as I said in the speech, we intend to carry over the top-level adjustment of €435 million, which gives us a lot of room for potential defaults and problems in our loan portfolio.

And on NII, I will come to that in more detail this afternoon. We will have, I promise, a very detailed presentation on that our chart. You will love it. But it’s clearly the product out of a higher average interest rate level, because we will see most likely on average of 4% next year. We have seen much less this year. That’s the good part of the story. The other part clearly is that the positive better and that will drive the story will be higher than the average of this year. This year we expect to end with an average of 25%. And we have a higher tax rate predicted for next year. But more details later.

Borja Ramirez Segura

Thank you.

Operator

The next question comes from Benjamin Goy, Deutsche Bank. Please go ahead.

Benjamin Goy

Yes. Hi, good morning. One follow-up question on net interest income and the other on the share buyback. Just double checking. So you said on PSBC it’s a €100 million headwind from deposit mix in the fourth quarter. You have the €100 million one-off impact from replicating portfolio and does the minimum reserve requirement impact come on top as well. That would be the first moving part for the PSBC.

And then secondly, up to €600 million share buyback, is the timeline still around year end early January or do you think that could slip also partly because I think it’s larger than you initially thought in August? Thank you.

Bettina Orlopp

So, yes, I mean, we believe on PSBC there will be a headwind out of deposit exchange, increasing deposit beta of around €100 million. Then another part is really some things we do on the replication portfolio. That will be, however, offset on others and consolidation. So it will be – second part will be net zero for the group. And our guidance also for the NII, the larger than €8.1 billion, we included the minimum reserve assumption. The 1% clearly no increase of that, and I will come to that also later today. We haven’t assumed any change in the minimum reserve policy also for the years to come.

On the €600 million, the time plan is unchanged. We expect approval from financial agency, but also from ECB latest by the end of the year. And then we will start the program most likely beginning of January. And then we should be finished clearly before the AGM 2024, which is our clear target. And the €600 million, yes, somewhat higher than we originally thought due to the good results should be finished by that.

Benjamin Goy

Thank you.

Operator

The next question comes from Stuart Graham, Autonomous Research. Your line is open.

Stuart Graham

Hi, thank you for taking my question. Just on NII again. If I take your €8.1 billion guidance, that’s kind of implying €1.86 billion for Q4 after you’ve just done [€2.17 billion] [ph]. And I hear you on that €100 million in PSBC Germany, but where’s the rest of it coming from in terms of that big implied Q4 decline?

And then the second question was, there was a big jump in the Stage 2 assets. I think you’ve got a new backstop indicator. Can you explain that change, please? And if you could provide an estimate of what you think the like-for-like Q-on-Q change in Stage 2 assets was, please? Thank you.

Bettina Orlopp

So on NII, I think the focus is also on the larger than €8.1 billion, Stuart, so if you do the math, I would probably rather think about an NII somehow between €1.9 billion and €2 billion. And the driving factors is what I said about private clients indeed. Then, we will also see increasing deposit beta on the corporate client side, which will add to the calculation. And also, mBank assumes that there will be reduction in their NII for the fourth quarter given that there has been also some interest rate decreases. That’s basically doing the mix on it.

And on the second question, yes, this is a regulatory thing which we have included the backstop indicator. Actually we were – I think there were the expectations that might be higher, because of the Stage 2. We think it’s a limited effect and we booked it, but we do not expect more of it. So for us really not a significant effect, but it’s important to state that it has nothing to do really with any certain companies or somebody without getting into difficulties, it’s more a technical change which we did.

Stuart Graham

So the like-for-like Q-on-Q increase would be materially lower than that headline figure looks? Yeah.

Bettina Orlopp

Yes, indeed. That’s the thing. But on the other side, I mean on corporate clients, which is significant – which is really low, basically, there we have different effects. I mean we have seen some addresses showing up, but on the other side we also had some paybacks so that equalized. But, overall, I think we see lots of resilience despite the recession ongoing in Germany, which we currently see in this quarter.

Stuart Graham

Perfect. Thank you for taking my questions.

Operator

The next question comes from Rohith Chandra-Rajan, Bank of America. Please go ahead.

Rohith Chandra-Rajan

Hi. Thank you. Good morning. I had three quick ones, please. First one was you talked about this positive beta assumption rising to 30% in Q4, and you’ve given us the Q4 number. I was just wondering if you could give us what the latest deposit beta is so that we can benchmark that for the rest of Q4. And then the second one was it talks about changes to the replicating portfolio. I’d be interested to just understand what it is you’re doing there? Are you changing the size or the duration of that book?

And then the last question was just on the Swiss franc mortgage provisions. I think mBank’s indicated somewhere between Q1 and Q2 level provisions for Q4. I was just wondering what you’re assuming in your full year earnings guidance, please. Thank you.

Bettina Orlopp

Yeah, I mean, on the deposit beta, I said that at the end of the quarter, the deposit beta was only slightly above the 25%. So you can assume that this is somehow in between 25% and 30%. I think it’s currently at it, 26%, 27% something. And on the changes in the replication portfolio, that’s kind of a weak opening effect, et cetera. So it’s more smoothing, not really a change in volumes or something like that. And on the third one, on Swiss franc mortgages, we assume that we will most likely see provisioning in the size of the third quarter.

Rohith Chandra-Rajan

Okay. Thank you very much.

Operator

The next question comes from Tobias Lukesch, Kepler Cheuvreux.

Tobias Lukesch

Yes, good morning. Thank you. Bettina, I think there’s a lot of forward-looking questions I have, maybe I’d save them for later on. But on the corporate side and on the loan growth, I mean, we have seen Germany in general, higher loan growth this year. Everybody expects that now to be kind of breakeven in terms of growth. What is the drivers through, it’s like both in the PSBC and also in the corporate segment that you see that continues loan growth? And how do you expect that in Q4 and potentially in the first half of next year?

Bettina Orlopp

Very well. Thank you, Tobias, for saving the other questions for later. I mean, for the fourth quarter, we would say that on private clients, probably very stable development of the book. I mean, in the moment, we really only see that maturities get replaced. And going a little bit in the forward-looking, that will continue to be a difficult market, given price levels, et cetera.

On the corporate client side, we are more optimistic, because we know that there is a lot of demand out there for investments. And the question only is when are corporate clients really moving, that also depends on the government interventions. And if we read the papers today, German government has announced a number of things, how they want to speed up things to make, or specifically also the situation in Germany more convenient and more acceptable for corporate clients.

So we believe that there’s further growth possible, whether you really see it in the fourth quarter and then the first half year, clearly depends a little bit on this sentiment and also on all the things going on. But midterm, we are more optimistic on that.

Tobias Lukesch

Thank you. If I may follow-up. So we should not expect a strong contraction rate over in Q4 and first half. So base case should be flat to up. Is that a right takeaway?

Bettina Orlopp

That’s a perfect assumption. Yeah.

Tobias Lukesch

Thank you.

Operator

So at this point, there’s one more question here. [Operator Instructions] So I’d hand it over to the next question here, Riccardo Rovere, Mediobanca.

Riccardo Rovere

Thanks for taking my questions. A couple of clarifications, so you have given a lot of kind of guidance for Q4 and maybe also 2024. Now, if I understand it correctly, you are thinking about risk cost in 2024, please correct me if I’m wrong, in the region of €800 million, but then a lot will depend upon the use of TLAs, which as far as I understand, you intend to carry forward. So I would imagine you will not use any of the €435 million in Q4 and everything will be the decisions of the left to 2024. That’s the first question.

The other question I have is on mBank NII. At the beginning you stated that they experienced strong deposit betas and that helped them on the margins and this is supporting NII in mBank. I would imagine so they’re gathering deposits, say, at whatever the cost is, but less than policy rate and this is then redeployed at higher rate. This is what is happening in Poland. And if that is what is happening, why should not you continue as long as policy rates stay above the cost of deposits? That’s another question.

The other one I have, if I just wanted to better understand. U.S., if you expect in Q4, a level of provisions related to FX Polish loans, more or less in the same size of what we have seen in Q3, did I get it right? Thanks.

Bettina Orlopp

Thank you, Riccardo. And you got it all right. So the cost of risk indeed, an assumption for next year is around €800 million. And, yes, our plan is to fully carry over the top-level adjustment of €435 million into 2024. So no use in 2023 of the TLA. And we will still, that’s at least our expectation stay below €700 million for this year.

Secondly, on mBank NII assumptions, all what you said is correct. However, we have seen decreases in the interest rate level that put pressure out there and we just think that there will be some reduction, but it will not be huge. So it’s rather a smaller reduction in NII, which we expect for the fourth quarter. And then the outlook for Q4, indeed you also got it right. I said that the level of positioning for Q4 should be somehow in the region of Q3, which was €234 million.

Riccardo Rovere

Thanks. Very clear. Thanks a lot.

Operator

The next question comes from Amit Goel, Barclays. Please go ahead.

Amit Goel

Hi, thank you. Two questions. One, just on PSBC Germany and on the deposit. So there’s the pickup in the term call savings deposits. Just kind of curious in terms of your modelling assumptions there, because I guess one of your peers, I saw ING Germany, they had their kind of teaser rates at the start of the year. They saw significant outflows this quarter. Just wondering what you’re thinking is in terms of how the depositors will behave as some of those rates roll-off.

And then secondly, just coming back on that, the changes to the replication portfolio, I think you mentioned that some of those changes there were to kind of do some smoothening. So, I didn’t maybe I just didn’t quite catch basically what exactly has changed in the replication portfolio. Thank you.

Bettina Orlopp

So on the first one, I mean, yes, we saw a pickup. It’s primarily the increase went into the call money. And I mean, we are determined to keep it and to manage it. So there’s an active management of deposits out there. And that’s, I mean, we want to keep it stable. And at this level, this is what I can tell you about. I can’t judge what’s happening on competitive side, but we are closely analyzing also the competitive situation and timely, we act on that. I mean, it’s hard to give you, and that any real details on the replication portfolio, et cetera, what we do here. It’s really this reconverting [ph] thing, what I start smoothing out, nothing really big. But we also are reacting to the shifts in deposits, et cetera, and that’s all what comes together.

Amit Goel

Okay. Thank you.

Operator

The next question comes from Anke Reingen, RBC. Please go ahead.

Anke Reingen

Yeah, thank you very much for taking my question. I just had a clarification question about the comments you made about the negative and the net fair value result. So you said the corresponding hit to the positive NII. It has a corresponding negative of €200 million per quarter in net fair value result. Did I understand this correctly? And does it mean that this minus €200 million per quarter should reverse over time being a positive and net fair value result by the negative NII? If you can, please clarify. Thank you.

Bettina Orlopp

Anke, yes, you got it right. So there’s basically, and we spoke about that also before, there are these corresponding effects, because we do hedges in other some consolidation and, therefore, you see basically parts of the NII, large parts of the NII reflected in negative positions in fair value that will reverse somehow over time, but only it really depends on the rates level and how rates are developing.

Anke Reingen

That would be like €800 million a year. So is that very long dated or I mean, it could be quite a meaningful headwind. When you talk about moderate growth in NII, I guess, I will discuss later, but I suppose that would include the reversal of the negative in the net fair value result?

Bettina Orlopp

Well, I mean, we will speak to that on also later today, but for next year it’s indeed the expectation, but you also see the effects as we speak in the NII, but that’s indeed the thing.

Anke Reingen

Okay. Thank you.

Operator

The next question comes from Vishal Shah, Morgan Stanley. Please go ahead.

Vishal Shah

Hi. Thank you so much for your presentation. I have two questions. One is related to your net profit guidance, which you have upgraded to circa €2 billion post-81. So looking at where the upgrades are coming from, one is you have obviously upgraded your NII to greater than 8.1% you have also lower the risk result guidance to less than €700 million, but then I think you also said that you know you expect the mBank provisions, CHF provisions to be sort of similar in Q4, which should offset this sort of increases in guidance. So, am I correct in interpreting this and so how do you then still get to sort of €2 billion?

And then if you could, I just wanted to follow from the last question on basically the O&C NII. I know you’ll probably touch upon this on the strategy, but just wanted to understand the mechanics of how this NII is generated and how these had just worked. If you could explain that please? Thank you.

Bettina Orlopp

I mean the guidance on the net profit is pretty clear. We have €10.6 billion revenues, which we expect and that’s the combination of NII, NCI and fair value and other results. And that includes indeed also the effects from the Swiss franc. We have a cost guidance of €6.4 billion, which we confirmed and then we have a risk result of less than €700 million. If you calculate that one and take the somehow elevated tax yield, then you come to our €2.2 billion. That’s where we are.

And the second question was on, you have to help me on NII. The net fair value, I mean I described it with Anke beforehand. So it’s basically, it’s really corresponding things that we see positive NII effect, but we are cautious people. So we have hedges against our NII and that’s basically approximately 80% of it, you have as a negative effect in the moment in the fair value.

Vishal Shah

Thank you.

Operator

So the last question is a follow-up question coming from Rohith Chandra-Rajan. Please go ahead.

Rohith Chandra-Rajan

Hi. Thank you for taking my second question. It was just on your full year risk result guidance of less than €700 million. I appreciate it’s less than €700 million. But the €700 million it would imply a Q4 charge that’s about 2.7 times year-to-date run rate. I was just wondering where you would anticipate deterioration quarter-on-quarter. I noticed in particular that corporate clients had a particularly low charge, because there was a repayment in the quarter. But it looks like that implied Q4 charge is quite conservative. So just curious as to how you set that. Thank you.

Bettina Orlopp

Yeah, absolutely correct. It’s a long quarter, I have to say. I mean, we remember the fourth quarter always once until end of February. So that’s one of the reasons why always the fourth quarter is in many times higher than the other quarters. Plus, I mean in the third quarter we had a specifically low risk result, because we also had some repayments there, which we do not expect in the moment at least for the fourth quarter. But indeed, and that’s why we said less than €700 million and have not been more concrete on that. There might be – yeah, it can be everything between €600 million and €700 million.

Rohith Chandra-Rajan

Okay. Thank you.

Bettina Orlopp

So excellent, I think we are done very quickly. Thank you very much and talk to you or see you later during our Capital Markets update. We are looking forward to that. Thank you.

Operator

The conference is no longer being recorded.